<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 27, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
VERIO INC.
(Exact name of Registrant as specified in its charter)
---------------------
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<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>
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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)
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Copies to:
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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. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF NUMBER OF SHARES OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED PER SHARE OFFERING PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.001 per
share................................ $100,000,000 $29,500
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act.
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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.
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<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 FEBRUARY 27, 1998
PROSPECTUS
SHARES
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 $ and
$ per share. See "Underwriting" for information relating to the factors
considered in determining the initial public offering price. Application will be
made to have the Common Stock approved for listing on the Nasdaq National Market
under the symbol "VRIO."
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY MATTERS DISCUSSED UNDER
THE CAPTION "RISK FACTORS" BEGINNING ON PAGE 8.
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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.
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share $ $ $
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Total(3) $ $ $
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(1) For information regarding indemnification of the Underwriters see
"Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $ .
(3) The Company has granted to the Underwriters a 30-day option to purchase
up to an aggregate of 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 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 8 OF THIS PROSPECTUS, AND PROSPECTIVE INVESTORS ARE URGED TO CAREFULLY
CONSIDER SUCH FACTORS. THE "SAFE-HARBOR" PROTECTIONS OF THE REFORM ACT ARE NOT
AVAILABLE TO INITIAL PUBLIC OFFERINGS, INCLUDING THE OFFERING.
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 that
the Underwriters' over-allotment option will not be exercised, (ii) gives effect
to the conversion of the Company's Series A, Series B, Series C and Series D-1
Preferred Stock, (iii) gives effect to the filing of the Company's amended
Certificate of Incorporation, which will occur prior to the consummation of the
Offering, and (iv) 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 upon the consummation of the Offering. 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 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 customers in 33 of the top 50 Metropolitan
Statistical Areas ("MSAs") in the country, with total combined annualized
revenues of approximately $90.4 million based on the three months ended December
31, 1997. The Company integrates and optimizes the operations of these 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 based personnel who are readily
available to respond in-person to technical issues, who can assist in developing
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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 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. Verio believes that independent regional and local ISPs,
facing these competitive pressures, will continue to be attracted to and benefit
from the consolidation opportunity provided by Verio.
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.
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 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. Verio's
national infrastructure also 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 Verio ISPs, 13
now invoice their customers through Verio's national billing service, 19 take
advantage of Verio's customer technical support, 20 are linked to Verio's
national backbone, 15 utilize Verio's national accounting system, and the
network operations of 17 Verio 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 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.
RECENT DEVELOPMENTS
Since December 31, 1997, the Company has completed the acquisition of all
of the remaining equity (each, a "Buyout") of 7 of the Verio ISPs. Verio expects
to consummate the Buyouts of all but two of its
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remaining non-wholly owned ISPs prior to the consummation of the Offering. Verio
also is in the process of integrating the operations of the Verio ISPs in each
region into regional operating units.
The Company continues to evaluate additional ISPs for investment or
acquisition, and has executed a non-binding letter of intent to acquire 100% of
the stock of an additional ISP. The annualized revenue attributable to this
proposed ISP acquisition is estimated to be approximately $5.3 million, based
solely on preliminary information provided by this ISP. These revenues are not
reflected in the pro forma financial information contained herein. The Company
is in the process of conducting due diligence and negotiating the definitive
terms and documentation for this additional acquisition. There can be no
assurance that the Company will be able to reach final agreement on acceptable
terms and conditions with respect to the proposed acquisition or that this
acquisition can be completed.
Verio has 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 "Bank Facility"). The Company
is in the process of negotiating the definitive terms and conditions and final
documentation for the Bank Facility. Chase Manhattan Bank has committed to serve
as agent for the lenders in the Bank Facility. Verio also is currently
considering the private placement of approximately $100.0 million of senior
notes. There can be no assurance that the Company will be able to complete
either the Bank Facility or the $100.0 million note offering on terms acceptable
to the Company.
The Company has signed a non-binding memorandum of understanding for a
$100.0 million, seven year commitment with a provider of long haul
telecommunications services in order to reduce the per unit costs of such
services. The Company has the right to prepay its commitment, which would allow
the capitalization of the costs (to the extent prepaid) under this contract.
The Company's headquarters is currently 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............................. shares.
Common Stock to be outstanding after
the Offering........................ shares(1).
Use of Proceeds..................... The Company will receive approximately
$ million of net proceeds (after
deducting the Underwriters' discount
and expenses related to the Offering)
from the sale of Shares. The net
proceeds received by the Company will
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 support the
Company's general working capital
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market
Symbol.............................. VRIO
- ---------------
(1) Based on the number of shares of Common Stock outstanding at December 31,
1997. Includes 1,704,000 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
subsequent to such date. Excludes (i) 3,750,000 shares of Common Stock
reserved for issuance under the Company's stock option plans as of such
date, of which 2,237,050 shares were issuable upon exercise of outstanding
options at a weighted average exercise price of $5.55 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.
5
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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."
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<CAPTION>
HISTORICAL PRO FORMA(1)
----------------------------------- ------------
PERIOD FROM
INCEPTION YEAR ENDED YEAR ENDED
(MARCH 1, 1996) TO DECEMBER 31, DECEMBER 31,
DECEMBER 31, 1996 1997 1997
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STATEMENT OF OPERATIONS DATA:
Total revenue.................................. $ 2,365 $ 35,692 $ 77,958
Total costs and expenses....................... 8,645 75,981 131,583
-------- -------- ----------
Loss from operations........................... $ (6,280) $(40,289) $ (53,625)
======== ======== ==========
Net loss attributable to common shareholders... $ (5,145) $(46,329) $ (59,972)
======== ======== ==========
Loss per common share -- basic and
diluted(2)................................... $ (5.29) $ (40.47) $ (52.39)
======== ======== ==========
Weighted average common shares outstanding --
basic and diluted(2)......................... 971,748 1,144,685 1,144,685
OTHER DATA:
EBITDA(3)...................................... $ (5,611) $(29,665) $ (31,106)
Capital expenditures(4)........................ 3,430 14,547 14,547
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THREE MONTHS ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997 1997
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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 shareholders............ $(4,677) $(8,120) $(12,762) $ (20,770)
======= ======= ======== ==========
OTHER DATA:
EBITDA(3)............................................... $(4,346) $(6,306) $ (7,798) $ (11,215)
======= ======= ======== ==========
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AS OF DECEMBER 31, 1997
------------------------------------------
PRO FORMA
HISTORICAL PRO FORMA(1) AS ADJUSTED(5)
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BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 72,586 $ 52,139
Restricted cash and securities.......................... 40,554 40,554
Goodwill, net........................................... 83,216 127,810
Total assets............................................ 246,471 272,560
Long-term debt and capital lease obligations, net of
current portions...................................... 142,321 142,583
Redeemable preferred stock.............................. 97,249 97,249
Stockholders' equity (deficit).......................... (27,001) (1,441)
</TABLE>
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(1) Pro forma for the completed and proposed acquisitions and Buyouts as if they
had occurred on December 31, 1997 for balance sheet purposes and on January
1, 1997 for statement of operations data purposes. See "Unaudited Pro Forma
Condensed Combined Financial Statements."
(2) Excludes the effect of the conversion of Preferred Stock into Common Stock
upon completion of the Offering. Assuming the Preferred Stock had converted
to Common Stock as of January 1, 1997, historical and pro forma loss per
share of Common Stock for 1997 would have been $(2.26) and $(2.91) per
share, respectively, based on 20,496,220 weighted average shares of Common
Stock.
(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.
(4) Excludes equipment and leasehold improvements acquired in business
acquisitions.
(5) As adjusted to give effect to the Offering after deducting the Underwriters'
discounts and commissions and estimated expenses, and conversion of the
preferred stock into common stock upon completion of the Offering.
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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
Private Securities Litigation Reform Act of 1995. 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," "-- 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."
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.
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
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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'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.
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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.
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 developments may have on the Company or the
pricing of its products and services. See "-- Dependence on the Internet;
Uncertain Adoption of Internet as a Medium of Commerce and Communications,"
"-- Potential Liability for Information Disseminated Over Network; Regulatory
Matters" and "-- Fluctuations in Operating Results."
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 its 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
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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 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 investment in those targeted ISPs on terms and conditions
acceptable to the Company. See "Business -- The Verio Strategy" and
"-- Competition." 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."
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. In addition, the Company currently is
negotiating the terms of a $57.5 million revolving credit facility and is
pursuing a possible issuance of approximately $100.0 million of senior notes.
See "-- Requirements for Additional Capital." As a result of the substantial
current and anticipated future 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. In particular, there can be no assurance that the Company's
operating cash flow will be sufficient to pay interest on the $150.0 million
13 1/2% Senior Notes due 2004 (the "1997 Notes") following the termination of
the escrow arrangement for the 1997 Notes, or to meet its debt service
obligations under the currently contemplated Bank Facility or senior note
placement, should either of those financings be implemented. 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
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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. Verio has received commitments from a group of
commercial lending institutions to provide an aggregate of up to $57.5 million
pursuant to the Bank Facility. The Company is in the process of negotiating the
definitive terms and conditions and final documentation for the Bank Facility.
Chase Manhattan Bank has committed to serve as agent for the lenders in the Bank
Facility. In addition, Verio also is currently considering the private placement
of approximately $100.0 million in senior notes. There can be no assurance that
the Company will negotiate final terms and conditions that are acceptable to the
Company with respect to, or to consummate, either of such financing efforts.
Further, no assurances can be given that the Company will have sufficient cash
flow available to maintain its current or future growth plans or operations.
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 would 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.
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
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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 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
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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 is also 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 continue to make use of such services and
equipment would have a material adverse effect on the Company's business,
operating results and financial condition.
FINANCIAL INFORMATION CONCERNING COMPLETED AND PROBABLE ACQUISITIONS
The 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
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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 an indenture, dated June 24, 1997 under which the 1997 Notes were issued (the
"Indenture") and the Bank Facility. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
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
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tangible book value per share of their shares of Common Stock. The dilution to
new investors will be $ per Share (based on the Price to Public of
$ per Share and assuming no exercise of the over-allotment options granted
to the Underwriters).
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 shares of
Common Stock of which are "restricted shares". Of these shares, the
shares 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 February 27,
1998, options to purchase approximately 2,666,840 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 February 27, 1998 approximately 18,000,000 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 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 ,
and 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
16
<PAGE> 18
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 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. 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 assurances 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. 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.
17
<PAGE> 19
USE OF PROCEEDS
The Company will receive approximately $ million of net proceeds
(after deducting the Underwriters' discounts and commissions and estimated
expenses related to the Offering) from the sale of Shares. Approximately
$ of the net proceeds are expected to be used to further the Company's
acquisition and investment strategy. The remaining $ of the net
proceeds from the Offering are expected to be used 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 Indenture with respect to the 1997
Notes and the proposed terms of 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."
18
<PAGE> 20
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 (iii) the pro forma
capitalization adjusted to reflect the Offering and the conversion of all the
outstanding Preferred Stock only upon the completion of the Offering. 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 $ 52,139
Restricted cash and securities........................... 40,554 40,554
======== ======== ========
Long-term debt and capital lease obligations, net of
current portions....................................... 142,321 142,583
-------- -------- --------
Redeemable preferred stock(3):
Series A, par value $0.001 per share; 6,100,000 shares
authorized: 6,033,333 shares outstanding............ 18,080 18,080
Series B, par value $0.001 per share; 10,117,000 shares
authorized: 10,028,334 shares outstanding........... 59,193 59,192
Series C, par value $0.001 per share; 2,500,000 shares
authorized and outstanding.......................... 19,976 19,976
-------- -------- --------
97,249 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)(4)......... 10,200 35,760
Common stock, par value $0.001 per share; 35,133,000
shares authorized; 1,254,533 shares outstanding
actual and pro forma ( shares pro forma -- as
adjusted) and additional paid in capital(5)......... 1,598 1,598
Warrants............................................... 12,675 12,675
Accumulated deficit.................................... (51,474) (51,474)
-------- -------- --------
Total stockholders' equity (deficit)........... (27,001) (1,441)
-------- -------- --------
Total capitalization........................... $212,569 $238,391 $
======== ======== ========
</TABLE>
- ---------------
(1) Pro forma for the completed and proposed acquisitions and Buyouts as if they
had occurred on December 31, 1997. See "Unaudited Pro Forma Condensed
Combined Financial Statements."
(2) As adjusted to give effect to the Offering after deducting the Underwriter's
discounts and commissions and estimated expenses and the conversion of the
Preferred Stock into Common Stock upon completion of the Offering.
(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) Pro forma for Series D-1 Preferred Stock includes 1,704,000 shares 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." The shares of Series D-1 Preferred Stock are not
redeemable, and are subject to mandatory conversion upon consummation of the
Offering. See "Description of Capital Stock " and Note 5 to the Consolidated
Financial Statements.
(5) 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 issuable upon exercise of outstanding warrants.
19
<PAGE> 21
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,
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 the sale of shares of Common Stock offered
hereby at an assumed initial public offering price of $ per share, after
deducting the underwriting discounts and commissions and estimated offering
expenses, the pro forma net tangible book value of the Company as of December
31, 1997 would be $ million or $ per share. This represents an immediate
increase in net tangible book value of $ per share to existing stockholders
and an immediate dilution of $ per share to purchasers of Common Stock in
the Offering.
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $
Net tangible book value (deficit) per share before the
Offering(1)............................................ $(1.11)
Increase per share attributable to new investors..........
------
Net tangible book value per share after the Offering........ $
------
Dilution per share to investors in the Offering............. $
======
</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) and by investors purchasing shares of
Common Stock in the Offering (at an assumed initial public offering price of
$ 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 $121,722,385 $5.94
New investors.................
---------- ------ ------------ ------ -----
Total...............
========== ====== ============ ====== =====
</TABLE>
- ---------------
(1) Excludes 2,237,050 shares of Common Stock reserved for issuance upon
exercise of options outstanding as of December 31, 1997 under the Company's
stock option plans at a weighted average exercise price of $5.55 per share
and 2,112,480 shares issuable upon exercise of outstanding warrants at $.01
per share. To the extent such options and warrants are exercised in the
future, there will be further dilution to new investors.
20
<PAGE> 22
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)
-------------------------------- ------------
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:
Internet connectivity............................ $ 2,239 $ 23,476 $ 53,349
Enhanced services and other...................... 126 12,216 24,609
-------- ---------- ----------
Total revenue............................ 2,365 35,692 77,958
Costs and expenses:
Internet services operating costs................ 974 15,974 32,475
Selling, general and administrative and other.... 7,002 49,383 76,589
Depreciation and amortization.................... 669 10,624 22,519
-------- ---------- ----------
Total costs and expenses...................... 8,645 75,981 131,583
-------- ---------- ----------
Loss from operations.......................... (6,280) (40,289) (53,625)
Other income (expense):
Interest income.................................. 593 6,080 6,117
Interest expense................................. (115) (11,826) (12,204)
Equity in losses of affiliates................... -- (1,958) --
Minority interests................................. 680 1,924 --
-------- ---------- ----------
Net loss................................. (5,122) (46,069) (59,712)
Accretion of redeemable preferred stock to
liquidation value................................ (23) (260) (260)
-------- ---------- ----------
Net loss attributable to common
shareholders........................... $ (5,145) $ (46,329) $ (59,972)
======== ========== ==========
Loss per common share -- basic and diluted(2)(3)... $ (5.29) $ (40.47) $ (52.39)
======== ========== ==========
Weighted average common shares outstanding -- basic
and diluted...................................... 971,748 1,144,685 1,144,685
======== ========== ==========
OTHER DATA:
EBITDA(4).......................................... $ (5,611) $ (29,665) $ (31,106)
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>
21
<PAGE> 23
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
AS OF ----------------------------------------
DECEMBER 31, PRO FORMA
1996 ACTUAL PRO FORMA(1) AS ADJUSTED(6)
------------ -------- ------------ --------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $66,467 $ 72,586 $ 52,139
Restricted cash and securities.............. -- 40,554 40,554
Goodwill, net............................... 8,736 83,216 127,810
Total assets................................ 82,628 246,471 272,560
Long-term debt and capital lease
obligations, net of discount.............. 106 142,321 142,583
Redeemable preferred stock.................. 76,877 97,249 97,249
Stockholders' equity (deficit).............. (4,055) (27,001) (1,441)
</TABLE>
- ---------------
(1) Pro forma for the completed and proposed acquisitions and Buyouts as if they
had occurred on December 31, 1997 for balance sheet purposes and on January
1, 1997 for statement of operations data purposes. See "Unaudited Pro Forma
Condensed Combined Financial Statements."
(2) Excludes the effect of the conversion of Preferred Stock into Common Stock
upon completion of the Offering. Assuming the Preferred Stock had converted
to Common Stock as of January 1, 1997, historical and pro forma loss per
share of Common Stock for 1997 would have been $(2.26) and $(2.91) per
share, respectively, based on 20,496,200 weighted average shares of Common
Stock.
(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 GAAP, as an indicator
of operating performance or as an alternative to cash flows from operating
activities, determined in accordance with GAAP.
(5) Excludes equipment and leasehold improvements acquired in business
acquisitions.
(6) As adjusted to give effect to the Offering after deducting underwriting
discounts and commissions and estimated offering expenses, and conversion of
the Preferred Stock into Common Stock upon completion of the Offering.
22
<PAGE> 24
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 Private Securities
Litigation Reform Act of 1995. 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 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
customers in 33 of the top 50 MSAs in the country, with total combined
annualized revenues of approximately $90.4 million based on 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 two or more 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, 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.
As of December 31, 1997, the Company had completed the Buyout of four of
its initially non-wholly owned ISPs. In conjunction with the consolidation of
its regional operations, Verio is in the process of completing the Buyout of all
but two of the remaining ISPs that it owns less than 100%. Verio expects to
incur costs of $45 to $50 million in connection with the acquisition of the
remaining interests in these ISPs, which will be paid with a combination of cash
and preferred stock of Verio. As a result of its acquisitions, and the limited
amount of 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
Fiber Properties, Inc. (recently acquired by WorldCom, Inc.). It has also issued
$150.0 million in senior unsecured notes to a group of institutional investors.
23
<PAGE> 25
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 included web hosting, consulting, sales of equipment and customer
circuits. The increase in 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 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 both the cost incurred
by the Company to transport its Internet traffic and the cost incurred by the
Company for its national network. In some instances the Company will also pay
for the local telecommunications line(s) from the customer's location to one of
the POPs. As of December 31, 1997, twenty 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 has signed a
non-binding memorandum of understanding for a $100.0 million, seven year
commitment with a provider of long haul telecommunications services in order to
reduce the per unit costs of such services. If the Company is successful in
consummating this agreement, there would not be a significant effect on the
results for 1998. However, the Company expects that the pricing advantages
provided by this agreement would substantially reduce the cost of these services
in future years. Additionally, the Company has the right to prepay its
commitment, which would allow the capitalization of costs (to the extent
prepaid) under this contract. Such capitalized costs will be amortized to
operations over the term of the agreement. The amount of the
24
<PAGE> 26
prepayment is currently expected to 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 43% and 41% of total revenues for
the year ended December 31, 1997 and the 1996 Period, respectively. The Company
expects these costs as a percentage of total revenues to decrease over time as
additional ISP affiliates migrate onto Verio's national network. Additionally,
enhanced services, which typically have higher gross margins, are anticipated to
become a larger percentage of total revenues thereby resulting in lower costs as
a percentage of total revenues. 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 invests in additional
ISPs and continues with its growth strategy. The increases will be primarily due
to increased personnel resulting from the growth in the number of ISPs, 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 "Consolidated Financial Statements of the Company."
Interest expense increased from $115,000 in the 1996 Period to $11.8
million in 1997 primarily as a result of the completion of the $150.0 million
placement of the 1997 Notes on June 24, 1997.
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.
25
<PAGE> 27
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
Web hosting and colocation................. 372 825 982 1,536
Consulting and other....................... 864 1,619 2,191 2,183
Equipment.................................. 118 389 493 644
------- ------- -------- --------
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% 141% 136%
Depreciation and amortization.............. 28% 31% 28% 29%
Total costs and expenses................ 227% 207% 212% 213%
Loss from operations.................... (127%) (107%) (112%) (113%)
EBITDA....................................... (99%) (76%) (83%) (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 has also
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.
26
<PAGE> 28
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.
Net cash used by operating activities was $35.3 million during the year
ended December 31, 1997, which includes a decrease of $913 thousand in working
capital. Net cash used by investing activities was $120.3 million during the
year ended December 31, 1997, primarily due to the restricted cash and
securities of $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 of
the 1997 Notes and attached warrants (the "Warrants"). 150,000 units were
issued, each consisting of $1,000 principal amount of the 1997 Notes and 8
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 is payable semi-annually in arrears on June 15 and December 15 of
each year, commencing December 15, 1997. Concurrent with the completion of the
offering, the Company was required to deposit funds into an escrow account in an
amount that together with interest will be sufficient to fund the first five
interest payments on the 1997 Notes. The 1997 Notes are redeemable on or after
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.
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, the
proceeds from sale or issuances of capital stock, credit facilities, debt
financings and leasing. 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
27
<PAGE> 29
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.
Subsequent to December 31, 1997, Verio has received commitments from a
group of commercial lending institutions to provide up to $57.5 million pursuant
to a two-year revolving credit facility secured by the equity of the ISPs that
Verio owns currently or in the future, and by any long haul capacity agreement,
if signed. Chase Manhattan Bank has committed to act as agent for the facility.
Verio also is currently considering the private placement of approximately
$100.0 million of senior notes. The Company is in the process of completing
definitive documentation for the Bank Facility. The terms of the Bank Facility
will provide for borrowings at LIBOR + 3%, with a 1% decrease in that rate
subsequent to December 31, 1998 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 date. There will also be 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 will not be able to be
drawn except for the payment of interest. Borrowings under the Bank Facility
will 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.
The term sheet for the Bank Facility sets forth covenants restricting,
among other things, the Company's ability to borrow, pay dividends and guarantee
the debt of others. The covenants under the Indenture for the 1997 Notes, the
proposed Bank Facility and the proposed senior notes would limit the Company's
ability to make borrowings under the Bank Facility at the subsidiary level,
enter into transactions with affiliates, create liens on its assets, and make
certain investments.
There can be no assurance that the Company will be able to complete either
the Bank Facility or the $100.0 million note offering on terms acceptable to the
Company.
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. 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 assurances 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.
28
<PAGE> 30
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 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 customers in 33 of the top 50 MSAs in the
country, with total combined annualized revenues of approximately $90.4 million
based on the three months ended December 31, 1997. The Company integrates and
optimizes the operations of these 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. The Company
integrates and optimizes the operations of these 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 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. 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.
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
29
<PAGE> 31
are implementing secured virtual private networks ("VPNs") over the Internet as
a more economical option 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
30
<PAGE> 32
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 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 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, 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
31
<PAGE> 33
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 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 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 February 27, 1998, the Company had acquired 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. The Company is focusing its expansion efforts on the Southeast, as
well as seeking greater coverage in the Midwest. 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 geographic
regions.
32
<PAGE> 34
The following chart identifies the ISPs acquired by Verio to date, by
operating region, and provides certain summary information concerning Verio's
annualized revenues based on operating results for the three months ended
December 31, 1997:
<TABLE>
<CAPTION>
REVENUE FOR THE
THREE MONTHS ENDED ANNUALIZED
OPERATING REGION PRIMARY MSAS SERVED VERIO ISPS DECEMBER 31, 1997(1) REVENUE
---------------- ------------------- ---------- -------------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
VERIO NORTHWEST $5,667 $22,668
- Seattle, WA - NorthWestNet, Inc.
- Portland, OR - AccessOne, Inc.
- Spokane, WA - RAINet, Inc.
- Internet Engineering
Associates, Inc.
- Pacific Rim Network, Inc.
- Structured Network
Systems, Inc.
VERIO NORTHERN CALIFORNIA 2,411 9,644
- San Francisco - AimNet Corporation
- Sacramento - CCnet Inc.
- San Jose - West Coast Online, Inc.
- Oakland - NSNet, Inc.
VERIO SOUTHERN CALIFORNIA 2,892 11,568
- Los Angeles - Compute Intensive Inc.(2)
- San Diego - ATMnet, Inc.
- Riverside/San
Bernardino
- Orange County
VERIO TEXAS/GULF SOUTH 4,284 17,136
- Houston, TX - On-Ramp Technologies, Inc.
- Dallas, TX - Signet Partners, Inc.
- San Antonio, TX - National Knowledge
- Austin, TX Networks, Inc.
- Ft. Worth, TX - Communique, Inc.
- New Orleans, LA - Sesquinet
VERIO MID-ATLANTIC 2,259 9,036
- Washington, DC - Clark Internet Services,
- Baltimore, MD Inc.
- Monumental Network
Systems, Inc.
- Internet Online, Inc.(3)
VERIO NORTHEAST 2,264 9,056
- 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
- Nassau/Suffolk, NY
VERIO MIDWEST 1,628 6,512
- Chicago, IL - Verio Chicago(4)
- St. Louis, MO - Global Internet Network
- Detroit, MI Services, Inc.
- Kansas City, MO - RustNet, Inc.
- Branch Information
Services, Inc.
VERIO ROCKY MOUNTAIN 49 196
- Denver, CO - Verio Colorado(5)
VERIO WEB HOSTING 1,155 4,620
- National Product - Internet Servers, Inc.
Offering
-------
$90,436
=======
</TABLE>
33
<PAGE> 35
- ---------------
(1) These amounts reflect the full amount of revenues generated by all of the
ISPs in each region, including 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 has executed an Agreement and Plan of Reorganization with this ISP,
pursuant to which Verio expects to effect the Buyout of all of the remaining
fully diluted equity interests not currently owned by Verio prior to the
consummation of the Offering.
(3) Verio holds approximately 33% of the fully diluted equity of this ISP. Verio
does not currently expect to effect the Buyout of the remaining equity
interests in this ISP prior to the consummation of the Offering.
(4) Funded as a start up to oversee Midwest operations and initiate operations
in Chicago.
(5) Funded as a start up to oversee Rocky Mountain operations and initiate
operations in the primary Colorado business centers, Verio Rocky Mountain is
owned 66% by Verio. Verio has the right to acquire the remaining equity in
this ISP upon the earlier of the consummation of the Offering or August
1998. Verio does not currently expect to effect the Buyout of the remaining
equity interests in this ISP prior to the consummation of the Offering.
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
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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, 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.
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- 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 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
companies in key areas. 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 customers.
Over 5,000 of these customers are provided dedicated connectivity services by
Verio, and over 12,000 receive Web hosting or Web site server co-location
services from Verio. Through the Company's Web services, over 35,000 domains
(i.e. Verio.net) are hosted. The over 60,000 remaining customers 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
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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 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 national network, peering relationships with other national ISPs,
sophisticated network management tools and engineering support services.
Network Infrastructure. As of February, 1998, the national network carried
traffic for 20 of the Verio ISPs and the remaining ISPs' traffic will be added
as growth drives the need for additional capacity, as private 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.
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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]
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) Asynchronous Transfer Mode ("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 quarter 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. The Company has entered into a relationship with MCI as its
second carrier. This relationship provides access to MCI's high-speed and local
services for the Company's national network, as well as its regional networks.
The Company has signed a non-binding memorandum of understanding for a $100.0
million, seven year commitment with a provider of long haul telecommunications
services in order to reduce the per unit costs of such services. 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 control
and reliability of its network operations. Peering is the Internet practice
under which ISPs exchange
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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 every major ISP
other than UUNet, including MCI, Sprint and GTE Internetworking (formerly BBN).
The Company also peers 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
point to a private peering location. 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 15 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 18 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.
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, 16 of the Verio ISPs are utilizing
the financial reporting system and eight are utilizing the payroll human
resources system. These systems which 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 13 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.
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 February 27, 1998, Verio has consummated the Buyout of 11 ISPs.
Verio expects to consummate the Buyouts of all of its remaining non-wholly owned
ISPs, other than Internet Online, Inc. and Verio-Rocky Mountain, prior to the
consummation of the Offering. 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,
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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 Centennial International
Access, Inc. (which does business under the name V-I-A Internet), 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.
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, 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 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.
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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 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 February 26, 1998, the Company employed approximately 853 people,
including full-time and part-time employees at both its corporate headquarters
in Colorado and network operations and customer support center in Texas. 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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<PAGE> 44
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages as of February 26, 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................................... 51 Chairman of the Board
Justin L. Jaschke.................................... 40 Chief Executive Officer, Director
Mark D. Johnson...................................... 38 President and Chief Operating Officer,
Director
James C. Allen....................................... 51 Director
Trygve E. Myhren..................................... 60 Director
Paul J. Salem........................................ 34 Director
Stephen W. Schovee................................... 38 Director
George J. Still, Jr.................................. 39 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.................................. 39 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>
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 16 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 Centennial International
Access, Inc., doing business as "V-I-A Internet", 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, PageAmerica Group,
Inc. and Orion Network Systems, Inc., all publicly traded telecommunications
companies. Mr. Halstedt was also the founding President of the Colorado Venture
Capital Association and has served as its Chairman. 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 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. Mr. Halstedt has taught computer
programming at both the U.S. Army Engineering School and Dartmouth College.
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 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
43
<PAGE> 45
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.
Mark D. Johnson has served as the President and Chief Operating Officer of
Verio since joining the Company in May 1997. He is also a member of the
Company's Board of Directors. Prior to joining Verio, Mr. Johnson was the
President -- Nextel Northern California, having been appointed to that position
following Nextel's merger with OneComm. With OneComm, Mr. Johnson was chief
operating officer in his role of Senior Vice President of Operations from
November 1994 until the Nextel/OneComm merger in the summer of 1995. He also
held positions as OneComm's Senior Vice President of Marketing and Vice
President of Marketing after joining OneComm in May 1993. Mr. Johnson spent the
first ten years of his career as a general management consultant. As a senior
partner of Gemini Consulting, he served as head of Gemini's San Francisco office
from 1990 to 1992, and was responsible for the firm's West Coast technology and
communications practice. Mr. Johnson also serves on the Board of Directors of
NewMonics, a company designing and producing PERC, a JAVA virtual machine for
the embedded applications market. Mr. Johnson holds a Bachelor of Science degree
summa cum laude in finance from Arizona State University and a Master of
Business Administration from Harvard Business School.
James C. Allen has served as a director of Verio since May 1996. Mr. Allen
also serves as CEO, Brooks Fiber Properties, Inc. Mr. Allen has twenty-five
years of experience as an entrepreneur, operator, financier, expert witness and
advisor in cable television and broadband telecommunications. 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. Most recently, he served as Chief Financial Officer and Chief
Operating Officer of David Lipscomb University from which he holds a Bachelor of
Science degree.
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 Communications Corp., Wired
Ventures, Inc. and UniSite,
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<PAGE> 46
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
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 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 General Partner of
Telecom Partners, 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 the Chairman of Product Partners, Inc., and a director of SMR Direct,
Intergram International, Formus Communications and Mercury Mail. 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, 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 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 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
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<PAGE> 47
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 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 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 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 Communication's Vice President of Customer Operations
responsible for customer care, billing, accounts receivable, and inventory
management. Prior to OneComm's merger with Nextel, Mr. Kieffer led the
development of OneComm's customer care as Director of Customer Operations from
1994 to 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. Prior to joining Motorola, Mr. Kieffer managed
customer relations and accounts receivable for IBM. He received his Master of
Business Administration from DePaul University in 1988 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
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<PAGE> 48
IBM Networking division in the indirect channels. Mr. Viviani was employed by
IBM since 1978, serving as a 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,
Jaschke and Johnson. 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, and, after the effective date of the initial
registration of the Company's Common Stock under Section 12(g) of the Securities
Exchange Act of 1934 (the "Securities Exchange Act"), administering the
Company's 1998 Stock Incentive Plan and 1998 Employee Purchase Plan. See
"-- Stock Option and Incentive Plans." 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> 49
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(3) 50,603 -- 200,000 --
President and Chief
Operating 1996 -- -- -- -- --
Officer
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) Reflects compensation paid to Mr. Johnson commencing with his appointment as
President and Chief Operating Officer in March 1997.
(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> 50
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 -- --
Mark D. Johnson............ -- -- -- 200,000 -- --
Chris J. DeMarche.......... -- -- 14,000 76,000 -- --
Carla Hamre Donelson....... -- -- 12,000 68,000 -- --
Peter B. Fritzinger........ -- -- -- 75,000 -- --
</TABLE>
- ---------------
(1) The value of options at year-end is based on an assumed fair market value of
$ per share of Common Stock (the mid-point of the 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> 51
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. In addition, Mr.
Johnson's base salary will be increased to $220,000, with a targeted annual
bonus of up to $150,000.
EXECUTIVE PROTECTION AGREEMENTS
The Company intends in the near future to enter into executive protection
agreements (the "Executive Protection Agreements") with all of the Named
Executive Officers (the "Executives") of the Company. Except as provided herein,
each of the Executive Protection Agreements will contain substantially the same
terms. The term of each Executive Protection Agreement will be three years from
the date the agreement is concluded by the Company and the Executive (the
"Effective Date"). The term will thereafter be automatically extended for one
year periods unless either party provides the other with 90 days written notice
in advance of an anniversary of the Effective Date, and in no event will the
Executive Protection Agreements terminate within twelve months of a Change of
Control (as will be defined in the Executive Protection Agreements) of the
Company. The Executive Protection Agreements will set forth severance benefits
which are payable if an Executive is terminated for various reasons, including
termination by the Executive following a Change in Control ("Severance
Payment"), as follows:
(i) If an Executive is terminated within 12 months of a Change of
Control for: (A) Cause (as will be defined in the Executive Protection
Agreements), (B) Disability (as will be defined in the Executive Protection
Agreements), (C) death, (D) retirement pursuant to the Company's policies
applying to executive officers generally; or (E) by the Executive other
than by Good Reason (as will be defined in the Executive Protection
Agreements), then the Company shall pay to the Executive the accrued
compensation (as defined below) due the employee through the date of
termination that will be specified in the Executive Protection Agreement
(the "Termination Date"). Accrued compensation will include (A) base
salary, (B) reimbursement for reasonable and necessary expenses incurred by
the Executive on behalf of the Company during the period ending on the
Termination Date, and (C) vacation pay (collectively "Accrued
Compensation").
(ii) If an Executive's employment is terminated within 12 months of a
Change of Control for any other reason than specified in (i) above, the
Company will pay or provide the Executive with the following:
(A) Accrued Compensation;
(B) an amount which shall equal 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) multiplied by the
bonus amount, which will be the greater of (y) 100% of the last annual
incentive payment paid or payable to the Executive prior to the
Termination Date under the Company's cash bonus incentive plan or (z)
the Executive's incentive target for the fiscal year in which the Change
of Control occurs (the "Bonus Amount");
(C) as severance pay and in lieu of any further compensation for
periods subsequent to the Termination Date, an amount in cash equal to
two (2) times the sum of (y) the Executive's annual base salary at the
rate in effect immediately prior to the Change in Control, including all
amounts of Executive's base salary that are deferred under the qualified
and non-qualified employee benefit plans of the Company or any other
agreement or arrangement (the "Base Amount"), plus (z) the Bonus Amount.
However, the amount paid to Mr. Jaschke and Mr. Johnson will be three
(3) times the sum of (y) and (z).
(D) until the third anniversary of the Termination Date, the same
rights with respect to benefits provided by the Company, including
without limitation life insurance, disability, medical, dental and
hospitalization benefits and pension and retirement benefits as were
provided to the
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Executive as of the Effective Date, or, if greater, at any time within
ninety (90) days preceding the date of the Change of Control; and
(E) the removal of all restrictions on any outstanding incentive
awards (including restricted stock and granted performance shares or
units) granted to the Executive under the Company's stock option and
other stock incentive plans or under any other incentive plan or
arrangement. Such restrictions will lapse and such incentive awards will
become 100% vested so that all stock options and stock appreciation
rights granted to the Executive shall become immediately exercisable and
shall become 100% vested and all performance units granted to Executive
shall become 100% vested.
The Executive Protection Agreements will further provide that the
Executives will not be required to mitigate the amount of any payment by seeking
employment or otherwise. Executives 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 Executive
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 Executive 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. This amendment has been submitted to the Company's stockholders for
approval. As of February 26, 1998, options to purchase 79,600 shares of Common
Stock granted under the 1996 Stock Option Plan had been exercised, options to
purchase 2,125,700 shares of Common Stock were outstanding and no options to
purchase additional shares of Common Stock remained available for grant. The
outstanding options were held by 495 individuals and were exercisable at a
weighted average exercise price of $6.62 per share. Outstanding options to
purchase an aggregate of 1,480,700 shares were held by employees who are not
officers or directors of the Company. Of the 79,600 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").
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
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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 grants 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 725,000
shares of Common Stock for issuance under this plan. This amendment has been
submitted to the Company's stockholders for approval. As of January 26, 1998, no
options to purchase shares of Common Stock had been exercised under the 1997
California Plan, options to purchase 541,140 shares of Common Stock were
outstanding and options to purchase an additional 208,900 shares of Common Stock
remained available for grant. The outstanding options were held by 137
individuals and were exercisable at a weighted average exercise price of $7.56
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.
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 or 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
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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")
was adopted by the Board of Directors in February, 1998 and is anticipated to be
approved by the Company's stockholders prior to consummation of the Offering.
From and after the Offering, all further option grants will be made solely under
the 1998 Stock Incentive Plan. The purpose of the 1998 Stock Incentive Plan is
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 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 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, are reserved for issuance under the 1998 Stock Incentive Plan.
Upon and after the Offering, 6,364,300 shares of Common Stock, reduced by the
number of shares of Common Stock subject to Awards under the 1998 Stock
Incentive Plan granted prior to the Offering, will be reserved for issuance
under the 1998 Stock Incentive Plan, together with any shares of Common Stock
represented by Awards under the 1996 Stock Option Plan and the 1997 California
Stock Option Plan (the "Prior Plans"), which are forfeited, expire or are
cancelled following the Offering. However, the number of shares of Common Stock
available for issuance as Incentive Stock Options will not include at any time
the shares from the Prior Plans which are forfeited, expire or cancelled.
Furthermore, 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. To
date, no Awards have been granted under the 1998 Stock Incentive Plan.
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
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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 is
anticipated to be approved by the Company's stockholders prior to consummation
of the Offering. 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 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, 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
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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
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.
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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 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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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."
SERIES D-1 AGREEMENTS
In connection with the acquisition of iServer, the Company entered into an
Agreement and Plan of Merger dated as of December 31, 1997 with iServer and
Verio WebHosting, Inc. (a wholly owned subsidiary of the Company). Pursuant to
such agreement, the Company issued 680,000 shares of Series D-1 Preferred Stock
to certain stockholders of iServer. The Company has issued or expects to issue a
total of approximately 1,421,358 additional shares of Series D-1 Preferred Stock
pursuant to Buyouts completed or probable as of February 27, 1998. In addition,
options to acquire a maximum of 165,000 Series D-1 Preferred stock are expected
to be issued in connection with the Buyout of NorthWestNet, Inc. The Company has
issued an
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additional 117,642 shares of Series D-1 Preferred Stock in connection with the
acquisition of 100% of the stock of NSNet.
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 acquisitions of iServer and 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 (see "Registration
Rights") 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 "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 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 against certain liabilities in
connection with any registration effected pursuant to the foregoing registration
rights agreement, including Securities Act liabilities.
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.
TRANSACTIONS WITH MANAGEMENT
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.
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<PAGE> 60
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of February 26, 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
------------------------------------
NUMBER OF
SHARES
BENEFICIALLY PRIOR TO AFTER
HOLDERS OWNED OFFERING OFFERING
------- ------------ -------- --------
<S> <C> <C> <C>
Brooks Fiber Properties..................................... 4,664,971 22.76%
3023 Club Drive
Destin, Florida 32541
Norwest Equity Partners..................................... 4,301,250 20.98%
245 Lytton Avenue
Palo Alto, California 94301
Providence Equity Partners.................................. 3,055,693 14.90%
50 Kennedy Plaza
Providence, Rhode Island 02903
Centennial Fund V, L.P...................................... 2,302,303 11.23%
1428 Fifteenth Street
Denver, Colorado 80202
Centennial Fund IV, L.P..................................... 2,159,105 10.53%
1428 Fifteenth Street
Denver, Colorado 80202
Steven C. Halstedt(1)....................................... -- --
Justin L. Jaschke(2)........................................ 205,834 1.00%
Mark D. Johnson............................................. 60,000 *
James C. Allen(3)........................................... 25,000 *
Trygve E. Myhren(4)......................................... 58,000 *
Paul J. Salem(5)............................................ -- --
Stephen W. Schovee.......................................... -- --
George J. Still, Jr.(6)..................................... -- --
Chris J. DeMarche(7)........................................ 74,833 *
Carla Hamre Donelson(8)..................................... 29,917 *
Peter B. Fritzinger......................................... 25,000 *
All executive officers and directors as a group (16
persons)(9)............................................... 618,265 3.00%
</TABLE>
- ---------------
* Less than 1%
59
<PAGE> 61
(1) The sole General Partner of Centennial Fund IV, L.P. ("Centennial IV") is
Centennial Holdings IV, L.P. ("Holdings IV") and the sole General Partner
of Centennial Fund V, L.P. ("Centennial V") is Centennial Holdings V, L.P.
("Holdings V"). 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 such shares.
(2) Includes options for 40,000 shares of Common Stock exercisable within 60
days.
(3) Mr. Allen is the Chief Executive Officer of Brooks Fiber Properties
("Brooks") and may be deemed to indirectly beneficially own the shares
owned by Brooks. Mr. Allen disclaims beneficial ownership of these shares.
(4) Includes options exercisable for 8,000 shares of Common Stock exercisable
within 60 days.
(5) The sole general partner of Providence Equity Partners ("Providence") is
Providence Equity Partners LLC ("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.
(6) The sole general partner of Norwest Equity Partners ("Norwest") is Itasca
Partners V. ("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.
(7) Includes options exercisable for 14,000 shares of Common Stock exercisable
within 60 days.
(8) Includes options exercisable for 12,000 shares of Common Stock exercisable
within 60 days.
(9) Includes options exercisable for 100,000 shares of Common Stock exercisable
within 60 days.
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<PAGE> 62
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 February 27, 1998 there were 1,257,933 shares of Common Stock
outstanding held of record by 20 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.
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
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<PAGE> 63
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 by any 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 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.
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 may also have the
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<PAGE> 64
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
The Certificate of Incorporation provides that, effective upon consummation
of the Offering, all stockholder actions must be effected at a duly called
meeting and not by a consent in writing. Further, the Bylaws and the Certificate
of Incorporation provide that the stockholders may amend certain provisions of
the Bylaws or certain provisions of the Certificate of Incorporation only with
the affirmative vote of the holders of 80% of the Company's capital stock. These
provisions of the Certificate of Incorporation and Bylaws could discourage
potential acquisition proposals and could delay or prevent a change in control
of the Company. 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. The provisions also are intended
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."
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
either at the 2000, 2001 or 2002 annual meeting of the stockholders. Starting
with the 1999 annual meeting of the stockholders, each class of directors will
be elected for a one-year, two-year and three-year term, respectively.
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 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 prior to the meeting, by a stockholder of a
proposal or director nomination which such stockholder desires to present at a
meeting of stockholders. 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.
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<PAGE> 65
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.
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 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
has been appointed as the transfer agent and
registrar for the Company's Common Stock.
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
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<PAGE> 66
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 February 27, 1998, options to purchase
approximately 2,666,840 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 February 27, 1998 approximately 18,000,000 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 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
, and 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."
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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<PAGE> 67
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.............................................
=========
</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
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.
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 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
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<PAGE> 68
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.
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<PAGE> 69
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. 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, Northwest Academic Computing Consortium, Inc. as of and for the year
ended June 30, 1995, the six months ended December 31, 1995 and the eight months
ended February 28, 1997; Aimnet Corporation as of and for the year ended March
31, 1997 and the period ended May 19, 1997; Clark Internet Services, Inc. as of
and for the year ended September 30, 1997 and the period ended October 17, 1997;
ATMnet, Inc. as of and for the years ended October 31, 1996 and 1997; and Global
Internet Network Services, Inc. as of December 31, 1996 and November 26, 1997
and for the year and period then ended, have been included herein and in the
registration statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, to the extent and for the periods set
forth in their reports 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 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,
68
<PAGE> 70
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.
69
<PAGE> 71
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.
Buyouts Verio's acquisition of the remaining interest in ISPs that
are not owned 100%.
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.
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<PAGE> 72
K/bps Kilobits per second. A transmission rate. One kilobit equals
1,024 bits of information.
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.
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<PAGE> 73
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.
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").
72
<PAGE> 74
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. -- Consolidated Financial Statements:
Independent Auditors' Report.............................. F-13
Consolidated Balance Sheets as of December 31, 1996 and
1997................................................... F-14
Consolidated Statements of Operations for the Period from
Inception (March 1, 1996) to December 31, 1996 and the
Year Ended December 31, 1997........................... F-15
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-16
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-17
Notes to Consolidated Financial Statements................ F-18
OnRamp Technologies, Inc. -- Financial Statements:
Independent Auditors' Report.............................. F-28
Balance Sheet as of July 31, 1996......................... F-29
Statement of Operations for the Nine Months Ended July 31,
1996................................................... F-30
Statement of Stockholders' Deficit for the Nine Months
Ended July 31, 1996.................................... F-31
Statement of Cash Flows for the Nine Months Ended July 31,
1996................................................... F-32
Notes to Financial Statements............................. F-33
Global Enterprises Services -- Network Division -- Financial
Statements:
Independent Auditors' Report.............................. F-36
Balance Sheets as of December 31, 1995 and 1996........... F-37
Statements of Operations and Owner's Deficit for the Years
Ended December 31, 1994, 1995, 1996 and Period Ended
January 17, 1997....................................... F-38
Statements of Cash Flows for the Years Ended December 31,
1994, 1995 and 1996 and Period Ended January 17,
1997................................................... F-39
Notes to Financial Statements............................. F-40
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 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-49
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...................................... F-57
</TABLE>
F-1
<PAGE> 75
<TABLE>
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
<S> <C>
Notes to Financial Statements......................................... F-59
Aimnet, Inc. -- 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
ATMnet, Inc. -- Financial Statements:
Independent Auditors' Report.......................................... F-80
Balance Sheets as of October 31, 1996 and 1997........................ F-81
Statements of Operations for the Years Ended October 31, 1996 and 1997... F-82
Statements of Stockholders' Deficit for the Years Ended October 31, 1996 and
1997............................................................... F-83
Statements of Cash Flows for the Years Ended October 31, 1996 and 1997... F-84
Notes to Financial Statements......................................... F-85
Global Internet Network Services, Inc. -- Financial Statements:
Independent Auditors' Report.......................................... F-89
Balance Sheets as of December 31, 1996 and November 26, 1997.......... F-90
Statements of Operations for the Year Ended December 31, 1996 and the Period Ended
November 26, 1997.................................................. F-91
Statements of Stockholders' Equity for the Year Ended December 31, 1996 and the
Period Ended November 26, 1997..................................... F-92
Statements of Cash Flows for the Year Ended December 31, 1996 and the Period Ended
November 26, 1997.................................................. F-93
Notes to Financial Statements......................................... F-94
</TABLE>
F-2
<PAGE> 76
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) (the "Completed
Acquisitions"). In addition, the Company has entered into definitive agreements
for other business combinations which have not been completed at the date of the
Registration Statement but which, in the opinion of management, are probable to
be completed (the "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 modified equity method of accounting (see Note 1 to
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 February 27,
1998, Verio has consummated the Buyout of ten ISPs. Verio expects to consummate
the Buyouts of all of its remaining non-wholly owned ISPs, other than Internet
Online, Inc. and Verio -- Rocky Mountain, prior to the consummation of the
Offering. With respect to those Buyouts that have not yet been completed, 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. The acquisitions of the remaining interests in existing
consolidated subsidiaries or minority owned affiliates are also referred to as,
and included in, Proposed Acquisitions, and are also described in Note A to the
accompanying pro forma condensed combined financial statements. 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 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> 77
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 E) VERIO
-------- --------------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents......... $ 72,586 $ 357 $ 452 $(21,256)(1) $ 52,139
Restricted cash and securities.... 21,015 -- -- -- 21,015
Receivables, net.................. 7,565 324 623 -- 8,512
Prepaid expenses and other........ 4,656 508 159 (534)(3) 4,789
-------- ------ ------- -------- --------
Total current assets...... 105,822 1,189 1,234 (21,790) 86,455
Investments in affiliates, at
cost.............................. 2,378 -- -- (1,128)(1) 1,250
Restricted cash and securities...... 19,539 -- -- -- 19,539
Equipment and leasehold
improvements, net................. 28,213 997 825 -- 30,035
Other assets:
Goodwill, net..................... 83,216 -- -- 44,594(1) 127,800
Other, net........................ 7,303 138 30 -- 7,471
-------- ------ ------- -------- --------
Total assets.............. $246,471 $2,324 $ 2,089 $ 21,676 $272,560
======== ====== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued
expenses....................... $ 19,634 $ 870 $ 872 $ -- $ 21,376
Lines of credit, notes payable and
current portion of long-term
debt and capital lease
obligations.................... 4,326 506 612 (534)(3) 4,910
Deferred revenue.................. 7,177 284 422 -- 7,883
-------- ------ ------- -------- --------
Total current
liabilities............. 31,137 1,660 1,906 (534) 34,169
Long-term debt and capital lease
obligations, less current
portion........................... 142,321 144 118 -- 142,583
-------- ------ ------- -------- --------
Total liabilities......... 173,458 1,804 2,024 (534) 176,752
Minority interests in
subsidiaries...................... 2,765 -- -- (2,765)(5) --
Redeemable preferred stock.......... 97,249 1,158 1,558 (2,716)(2) 97,249
Stockholders' deficit:
Preferred stock................... 10,200 -- -- 25,560(1) 35,760
Common stock and additional
paid-in capital................ 1,598 187 321 (508)(2) 1,598
Warrants.......................... 12,675 -- -- -- 12,675
Retained earnings (deficit)....... (51,474) (825) (1,814) 2,639(2) (51,474)
-------- ------ ------- -------- --------
(27,001) (638) (1,493) 27,691 (1,441)
-------- ------ ------- -------- --------
Total liabilities and
stockholders' deficit... $246,471 $2,324 $ 2,089 $ 21,676 $272,560
======== ====== ======= ======== ========
</TABLE>
F-4
<PAGE> 78
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 D) (NOTE E) VERIO
---------- ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenue:
Internet connectivity...................... $ 23,476 $25,459 $ 4,512 $ (98)(3) $ 53,349
Enhanced services and other................ 12,216 11,098 1,295 -- 24,609
---------- ------- ------- -------- ----------
Total revenue....................... 35,692 36,557 5,807 (98) 77,958
---------- ------- ------- -------- ----------
Costs and expenses:
Internet services operating costs.......... 15,974 14,595 1,982 (76)(3) 32,475
Selling, general and administrative and
other.................................... 49,383 23,384 4,708 (886)(7) 76,589
Depreciation and amortization.............. 10,624 1,998 300 9,597(4) 22,519
---------- ------- ------- -------- ----------
Total costs and expenses............ 75,981 39,977 6,990 8,635 131,583
---------- ------- ------- -------- ----------
Loss from operations..................... (40,289) (3,420) (1,183) (8,733) (53,625)
Other income (expense):
Interest income............................ 6,080 37 -- -- 6,117
Interest expense........................... (11,826) (310) (68) -- (12,204)
Equity in losses of affiliates............. (1,958) -- -- 1,958(5) --
---------- ------- ------- -------- ----------
Loss before minority interests and income
taxes.................................. (47,993) (3,693) (1,251) (6,775) (59,712)
Minority interests........................... 1,924 -- -- (1,924)(5) --
Income taxes................................. -- (1,352) (3) 1,355(6) --
---------- ------- ------- -------- ----------
Net loss............................ (46,069) (5,045) (1,254) (7,344) (59,712)
Accretion of preferred stock to liquidation
value...................................... (260) -- -- -- (260)
---------- ------- ------- -------- ----------
Net loss attributable to common
shareholders............................... $ (46,329) $(5,045) $(1,254) $ (7,344) $ (59,972)
========== ======= ======= ======== ==========
Weighted average shares outstanding -- basic
and diluted................................ 1,144,685 1,144,685
========== ==========
Loss per common share -- basic and diluted... $ (40.47) $ (52.39)
========== ==========
</TABLE>
F-5
<PAGE> 79
VERIO INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(A) BASIS OF PRESENTATION
During the period from inception (March 1, 1996) to the date of this
Registration Statement, Verio completed numerous business combinations
(Completed Acquisitions). In addition, the Company has entered into definitive
agreements for other business combinations which have not been completed at the
date of the Registration Statement but which, in the opinion of management, are
probable to be completed. The Company also has the right to Buyout the remaining
ownership interests in subsidiaries and affiliates. 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
DECEMBER 31, PROPOSED
ACQUISITION DATE(S) 1997 ACQUISITIONS(A) TOTAL
------------------- ------------ --------------- -----
<S> <C> <C> <C> <C>
On-Ramp Technologies, Inc................ August 1, 1996 51% 45% 100%
October 4, 1996 4%
National Knowledge Networks, Inc......... August 2, 1996 26% 59% 100%
November 7, 1997 15%
RAINet, Inc.............................. August 2, 1996 100% 100%
Access One, Inc.......................... December 12, 1996 20% 80% 100%
CCnet, Inc............................... December 19, 1996 100% 100%
Signet Partners, Inc..................... December 19, 1996 25% 59% 100%
November 20, 1997 16%
Global Enterprise Services -- Network
Division............................... January 17, 1997 100% 100%
Surf Network, Inc........................ January 31, 1997 25% 100%
December 22, 1997 75%
Pacific Rim Network, Inc................. February 4, 1997 27% 73%(c) 100%
Pioneer Global Telecommunications,
Inc.................................... February 6, 1997 100% 100%
Compute Intensive Inc.................... February 18, 1997 55% 45% 100%
NorthWestNet, Inc........................ February 28, 1997 85% 15% 100%
Internet Engineering Associates, Inc..... March 4, 1997 20% 80% 100%
Internet Online, Inc..................... March 5, 1997 35% 35%
Structured Network Systems, Inc.......... March 6, 1997 20% 80% 100%
</TABLE>
F-6
<PAGE> 80
VERIO INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
OWNERSHIP PERCENTAGE
--------------------------------------
COMPLETED
ACQUISITIONS
THROUGH
DECEMBER 31, PROPOSED
ACQUISITION DATE(S) 1997 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% 49% 100%
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%
</TABLE>
- ---------------
(a) Acquisition to be completed, including the acquisitions of remaining
interests in consolidated subsidiaries and minority owned affiliates.
(b) Entity was purchased 100% by a subsidiary that is 55% owned by the Company.
(c) Acquisition closed February 16, 1998.
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 to be completed
subsequent to December 31, 1997, including the acquisitions of the remaining
interests in certain consolidated subsidiaries and minority owned affiliates.
All acquisitions are assumed to have been completed for cash, debt or the
issuance of redeemable 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> 81
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 is as follows:
<TABLE>
<CAPTION>
INTERNET
PACIFIC RIM SIGNET ENGINEERING
NETWORK, INC. PARTNERS, INC. ASSOCIATES, INC. NSNET, INC. TOTAL
------------- -------------- ---------------- ----------- ------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents........... $ -- $ 60 $271 $ 26 $ 357
Receivables, net.................... 46 112 106 60 324
Prepaid expenses and other.......... 31 83 49 345 508
----- ----- ---- ----- ------
Total current assets........ 77 255 426 431 1,189
Equipment and leasehold improvements,
net................................. 181 238 191 387 997
Other assets........................ -- 25 45 68 138
----- ----- ---- ----- ------
Total assets................ 258 $ 518 $662 $ 886 $2,324
===== ===== ==== ===== ======
Current liabilities:
Accounts payable and accrued
expenses......................... 366 $ 285 $119 $ 100 $ 870
Lines of credit, notes payable and
current portion of long-term debt
and capital lease obligations.... 100 35 32 339 506
Deferred revenue.................... 12 88 157 27 284
----- ----- ---- ----- ------
Total current liabilities... 478 408 308 466 1,660
Long-term debt and capital lease
obligations, less current
portion.......................... 124 10 10 -- 144
----- ----- ---- ----- ------
Total liabilities........... 602 418 318 466 1,804
Redeemable preferred stock............ 150 802 206 -- 1,158
Stockholders' equity:
Common stock and additional paid-in
capital.......................... 55 38 10 84 187
Retained earnings (deficit)......... (549) (740) 128 336 (825)
Total stockholders' equity
(deficit)................. (494) (702) 138 420 (638)
----- ----- ---- ----- ------
Total liabilities and
stockholders' equity
(deficit)................. $ 258 $ 518 $662 $ 886 $2,324
===== ===== ==== ===== ======
</TABLE>
F-8
<PAGE> 82
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>
NATIONAL STRUCTURED
KNOWLEDGE NETWORK ACCESS ONE,
NETWORKS, INC. SYSTEMS, INC. INC. TOTAL
-------------- ------------- ----------- -------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents........................ $ 166 $ 27 $ 259 $ 452
Receivables, net................................. 73 206 344 623
Prepaid expenses and other....................... 12 1 146 159
------- ----- ------ -------
Total current assets..................... 251 234 749 1,234
Equipment and leasehold improvements, net.......... 92 54 679 825
Other assets..................................... 13 7 10 30
------- ----- ------ -------
Total assets............................. $ 356 $ 295 $1,438 $ 2,089
======= ===== ====== =======
Current liabilities:
Accounts payable and accrued expenses............ $ 70 $ 252 $ 550 $ 872
Lines of credit, notes payable and current
portion of long-term debt and capital lease
obligations................................... 89 70 453 612
Deferred revenue................................. 112 16 294 422
------- ----- ------ -------
Total current liabilities................ 271 338 1,297 1,906
Long-term debt and capital lease obligations,
less current portion.......................... 65 15 38 118
------- ----- ------ -------
Total liabilities........................ 336 353 1,335 2,024
Redeemable preferred stock......................... 899 150 509 1,558
Stockholders' equity:
Common stock and additional paid-in capital...... 227 1 93 321
Retained earnings (deficit)...................... (1,106) (209) (499) (1,814)
------- ----- ------ -------
Total stockholders' equity (deficit)..... (879) (208) (406) (1,493)
------- ----- ------ -------
Total liabilities and stockholders'
equity (deficit)....................... $ 356 $ 295 $1,438 $ 2,089
======= ===== ====== =======
</TABLE>
F-9
<PAGE> 83
VERIO INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(C) HISTORICAL CONDENSED STATEMENTS OF OPERATIONS INFORMATION -- COMPLETED
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>
AIMNET PIONEER GLOBAL
CORPORATION RUSTNET, COMPUTE NORTHWEST TELECOMMUNICATIONS, WEST COAST
Year Ended December 31, 1997 (A) INC.(A) GES(A) INTENSIVE(A) NET(A) INC.(A) 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, SESQUINET ATMNET, SERVICES,
INC. INC.(A) Inc.(a) (A) INC.(A) INC.(A) PREPNET
----------- --------- -------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue
Internet connectivity................... $1,454 $2,582 $ 585 $1,124 $2,754 $2,555 $2,026
Enhanced services and other............. 764 562 190 -- 73 1,309 193
------ ------ ------ ------ ------- ------ ------
Total revenue..................... 2,218 3,144 775 1,124 2,827 3,864 2,219
Operating costs and expenses:
Internet services operating costs....... 690 1,394 431 538 2,976 2,288 811
Selling, general and administrative and
other................................. 1,159 1,784 981 367 1,786 1,309 827
Depreciation and amortization........... 5 116 76 54 40 314 26
------ ------ ------ ------ ------- ------ ------
Total costs and expenses.............. 1,854 3,294 1,488 959 4,802 3,911 1,664
------ ------ ------ ------ ------- ------ ------
Earnings (loss) from operations....... 364 (150) (713) 165 (1,975) (47) 555
Interest income........................... -- 2 -- -- -- -- --
Interest expense.......................... -- (25) (33) -- (171) (1) --
------ ------ ------ ------ ------- ------ ------
Earnings (loss) before income taxes... 364 (173) (746) 165 (2,146) (48) 555
Income taxes.............................. (127) -- -- (58) -- -- (194)
------ ------ ------ ------ ------- ------ ------
Net earnings (loss)............... $ 237 $ (173) $ (746) $ 107 $(2,146) $ (48) $ 361
====== ====== ====== ====== ======= ====== ======
</TABLE>
F-10
<PAGE> 84
VERIO INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
INTERNET INTERNET
MONUMENTAL, SERVERS, SERVICE PACIFIC RIM SIGNET ENGINEERING
INC. INC. TECH, INC. NETWORK, INC. PARTNERS, INC. NSNET, INC. ASSOCIATES, INC.
----------- -------- ---------- ------------- -------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Internet connectivity... $2,472 $ -- $ 1,536 $ 472 $1,133 $1,426 $ 831
Enhanced services and
other................. -- 4,496 627 337 518 331 303
------ ------ ------- ----- ------ ------ ------
Total revenue..... 2,472 4,496 2,163 809 1,651 1,757 1,134
Operating costs and
expenses:
Internet services
operating costs....... 362 400 1,229 385 336 481 323
Selling, general and
administrative and
other................. 2,470 1,654 1,814 674 1,977 824 678
Depreciation and
amortization.......... 172 240 197 69 10 116 63
------ ------ ------- ----- ------ ------ ------
Total costs and
expenses........ 3,004 2,294 3,240 1,128 2,323 1,421 1,064
------ ------ ------- ----- ------ ------ ------
Earnings (loss) from
operations.......... (532) 2,202 (1,077) (319) (672) 336 70
Interest income........... -- 13 -- -- -- -- 14
Interest expense.......... -- -- (42) (15) (5) -- --
------ ------ ------- ----- ------ ------ ------
Earnings (loss) before
income taxes........ (532) 2,215 (1,119) (334) (677) 336 84
Income taxes.............. -- (856) 33 (15) -- (118) (29)
------ ------ ------- ----- ------ ------ ------
Net earnings
(loss).......... $ (532) $1,359 $(1,086) $(349) $ (677) $ 218 $ 55
====== ====== ======= ===== ====== ====== ======
<CAPTION>
TOTAL
-------
<S> <C>
Revenue:
Internet connectivity... 25,459
Enhanced services and
other................. 11,098
-------
Total revenue..... 36,557
Operating costs and
expenses:
Internet services
operating costs....... 14,595
Selling, general and
administrative and
other................. 23,384
Depreciation and
amortization.......... 1,998
-------
Total costs and
expenses........ 39,977
-------
Earnings (loss) from
operations.......... (3,420)
Interest income........... 37
Interest expense.......... (310)
-------
Earnings (loss) before
income taxes........ (3,693)
Income taxes.............. (1,352)
-------
Net earnings
(loss).......... (5,045)
=======
</TABLE>
- ---------------
(a) Represents operations prior to date of consolidation as described in Note A.
(D) HISTORICAL CONDENSED STATEMENTS OF OPERATIONS INFORMATION -- PROPOSED
ACQUISITIONS
Historical condensed statement of operations information for the Proposed
Acquisitions for the year ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
STRUCTURED NATIONAL
NETWORK ACCESSONE, KNOWLEDGE
YEAR ENDED DECEMBER 31, 1997 SYSTEMS, INC. INC. NETWORKS, INC. TOTAL
---------------------------- ------------- ---------- -------------- -------
<S> <C> <C> <C> <C>
Revenue:
Internet connectivity............................. $ 859 $2,484 $1,169 $ 4,512
Enhanced services and other....................... 27 1,035 233 1,295
----- ------ ------ -------
Total revenue............................. 886 3,519 1,402 5,807
Operating costs and expenses:
Internet services operating costs................. 473 840 669 1,982
Selling, general and administrative and other..... 511 2,921 1,276 4,708
Depreciation and amortization..................... -- 245 55 300
----- ------ ------ -------
Total costs and expenses.................. 984 4,006 2,000 6,990
----- ------ ------ -------
Earnings (loss) from operations................ (98) (487) (598) (1,183)
Interest income..................................... -- -- --
Interest expense.................................... (17) (26) (25) (68)
----- ------ ------ -------
Earnings (loss) before income taxes............ (115) (513) (623) (1,251)
Income taxes........................................ -- -- (3) (3)
----- ------ ------ -------
Net earnings (loss)....................... $(115) $ (513) $ (626) $(1,254)
===== ====== ====== =======
</TABLE>
F-11
<PAGE> 85
VERIO INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(E) 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 to be used
for the Proposed Acquisitions and the allocation of excess purchase price
to goodwill in the amount of $44,594,000 and to adjust investments in
affiliates for the proposed acquisitions of majority interests. 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.
(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 adjust selling, general and administrative expense for
nonrecurring compensation expense relating to stock options and bonuses
issued to NorthWestNet employees prior to acquisition in the amount of
$885,000.
F-12
<PAGE> 86
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-13
<PAGE> 87
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.................................. -- 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-14
<PAGE> 88
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..................................... $ 2,239 $ 23,476
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-15
<PAGE> 89
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-16
<PAGE> 90
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 preferred stock............................ $ -- $ 10,200
======= ========
Warrants issued in connection with debt offering.......... $ -- $ 12,675
======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE> 91
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, exercises significant control over the entities' operations, and
intends
F-18
<PAGE> 92
VERIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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-19
<PAGE> 93
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%
RAINet, Inc.................. August 2, 1996 100% 100%
CCnet Inc.................... December 19, 1996 100% 100%
</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%
National Knowledge Networks,
Inc........................... August 2, 1996 26% 26%
AccessOne, Inc.................. December 12, 1996 20% 20%
Signet Partners, Inc............ December 19, 1996 25% 25%
</TABLE>
The aggregate purchase price of the above investments, including acquisition
costs of $102,000, was $1,536,000.
F-20
<PAGE> 94
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%
Pioneer Global Telecommunications,
Inc. ........................... February 6, 1997 100% 100%
Compute Intensive Inc. ........... February 18, 1997 55% 55%
NorthWestNet, Inc. ............... February 28, 1997 85% 85%
RUSTnet, Inc. .................... March 14, 1997 100% 100%
Aimnet Corporation ............... May 19, 1997 55%
September 22, 1997 45% 100%
Branch Information Services,
Inc. ........................... September 17, 1997 100% 100%
West Coast Online, Inc. .......... April 29, 1997 12%
September 30, 1997 68% 100%
Communique, Inc. ................. October 2, 1997 100% 100%
Clark Internet Services, Inc. .... October 17, 1997 51% 51%
ATMnet, Inc. ..................... November 5, 1997 100% 100%
Global Internet Network Services,
Inc. ........................... December 1, 1997 100% 100%
Surf Network, Inc. ............... January 31, 1997 25%
December 22, 1997 75% 100%
PREPnet........................... December 24, 1997 100% 100%
Service Tech, Inc. ............... August 1, 1997 40%
December 31, 1997 60% 100%
Monumental Network Systems,
Inc. ........................... December 31, 1997 100% 100%
Internet Servers, Inc. ........... December 31, 1997 100% 100%
</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-21
<PAGE> 95
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%
Internet Engineering Associates,
Inc........................... March 4, 1997 20% 20%
Internet Online, Inc............ March 5, 1997 35% 35%
Structured Network Systems,
Inc........................... March 6, 1997 20% 20%
National Knowledge Networks,
Inc........................... November 7, 1997 15% 41%
Signet Partners, Inc............ November 20, 1997 16% 41%
</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.
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, the Company, in conjunction with the
integration of its operations into regional operating units, has completed the
acquisition of the remaining ownership interests in 6 ISPs, and expects to
complete the acquisition of the remaining ownership interests in all but two of
its remaining less-than-100%-owned ISPs, for total consideration of
approximately $25,500,000 in preferred stock and approximately $21,256,000 in
cash and options.
F-22
<PAGE> 96
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. 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>
Subsequent to December 31, 1997, Verio 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-23
<PAGE> 97
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........................................................ $ 2,142 $ 5,398
1999........................................................ 1,882 4,926
2000........................................................ 1,298 3,596
2001........................................................ 100 1,386
2002 and thereafter......................................... 9 194
------- -------
Total minimum payments............................ $ 5,431 $15,500
=======
Less amount representing interest........................... (911)
-------
Present value of net minimum lease payments....... 4,520
Less current portion........................................ (1,575)
-------
$ 2,945
=======
</TABLE>
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 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 shareholders. In
F-24
<PAGE> 98
VERIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 certain key employees of the Company and has reserved
shares for the issuance of options. 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 [either five years] or
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 vesting but are
subject to a repurchase by the Company at the exercise price. The weighted
average contractual term of outstanding options was approximately 5 years at
December 31, 1997.
F-25
<PAGE> 99
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 shareholders 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 which is available to
offset future federal taxable income, if any, through 2012. 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
concentrations of credit risk in one financial institution in the approximate
amounts of $30,443,000 and $74,445,000, respectively. Concentrations of credit
risk with respect to trade receivables are limited due to the
F-26
<PAGE> 100
VERIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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) 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-27
<PAGE> 101
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Verio Inc.:
We have audited the accompanying balance sheet of OnRamp 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 presently
fairly, in all material respects, the financial position of OnRamp 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-28
<PAGE> 102
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-29
<PAGE> 103
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....................... 2,708,448
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-30
<PAGE> 104
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-31
<PAGE> 105
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-32
<PAGE> 106
ON-RAMP TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Basis of Presentation
OnRamp 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 exceed 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-33
<PAGE> 107
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 value of the Company's financial instruments
approximates their carrying value based on their terms and interest rates.
F-34
<PAGE> 108
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-35
<PAGE> 109
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-36
<PAGE> 110
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-37
<PAGE> 111
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-38
<PAGE> 112
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-39
<PAGE> 113
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-40
<PAGE> 114
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 value of the Network Division's financial
instruments approximates their carrying value 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-41
<PAGE> 115
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.
F-42
<PAGE> 116
GLOBAL ENTERPRISE SERVICES -- NETWORK DIVISION
(A DIVISION OF GLOBAL ENTERPRISE SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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> 117
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 presently
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> 118
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> 119
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> 120
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> 121
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> 122
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.
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 value of all
financial instruments as of December 31, 1995 and 1996 approximates their
carrying value 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> 123
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 exceed 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> 124
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> 125
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. 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> 126
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> 127
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> 128
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> 129
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> 130
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> 131
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> 132
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> 133
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 exceed 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> 134
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> 135
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 .
(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> 136
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 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> 137
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> 138
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> 139
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.
Denver, Colorado
February 25, 1998
F-66
<PAGE> 140
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> 141
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....................... 2,524,253 437,292
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> 142
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> 143
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> 144
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> 145
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 value of all
financial instruments as of March 31, 1997 approximates their carrying value
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 exceed 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> 146
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> 147
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.
Denver, Colorado
February 25, 1998
F-74
<PAGE> 148
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-75
<PAGE> 149
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-76
<PAGE> 150
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-77
<PAGE> 151
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-78
<PAGE> 152
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 value of all
financial instruments as of September 30, 1997 approximates their carrying value
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-79
<PAGE> 153
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.
Denver, Colorado
December 13, 1997
F-80
<PAGE> 154
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-81
<PAGE> 155
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
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-82
<PAGE> 156
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-83
<PAGE> 157
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-84
<PAGE> 158
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-85
<PAGE> 159
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 value of all
financial instruments as of October 31, 1997 and 1996 approximates their
carrying value 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-86
<PAGE> 160
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-87
<PAGE> 161
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-88
<PAGE> 162
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.
Denver, Colorado
February 20, 1998
F-89
<PAGE> 163
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-90
<PAGE> 164
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-91
<PAGE> 165
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-92
<PAGE> 166
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-93
<PAGE> 167
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-94
<PAGE> 168
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-95
<PAGE> 169
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-96
<PAGE> 170
======================================================
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.......................... 8
Use of Proceeds....................... 18
Dividend Policy....................... 18
Capitalization........................ 19
Dilution.............................. 20
Selected Consolidated Financial
Data................................ 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 23
Business.............................. 29
Management............................ 43
Certain Transactions.................. 57
Principal Stockholders................ 59
Description of Capital Stock.......... 61
Shares Eligible for Future Sale....... 64
Underwriting.......................... 66
Legal Matters......................... 67
Experts............................... 67
Additional Information................ 67
Glossary of Terms..................... 69
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.
======================================================
======================================================
SHARES
VERIO INC.
COMMON STOCK
[VERIO INC. LOGO]
------------
PROSPECTUS
, 1998
------------
SALOMON SMITH BARNEY
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
======================================================
<PAGE> 171
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.......................... *
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue sky fees and expense................................... *
Transfer agent fees and expenses............................ *
Miscellaneous............................................... *
--------
Total............................................. $ *
========
</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 several investors 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 several investors 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.
In May 1997, the Registrant issued an aggregate of 2,500,000 shares of
Series C Preferred Stock to several investors 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 January 1998, the Registrant issued an aggregate of 680,000 shares of
Series D-1 Preferred Stock to several investors pursuant to an Agreement and
Plan of Merger dated as of December 31, 1997, in connection
II-1
<PAGE> 172
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 310,368 shares of
Series D-1 Preferred Stock to several investors in connection with its Buyouts
of Signet Partners, Inc. and Internet Engineering Associates, Inc., and the
acquisition of NSNet, Inc., each pursuant to an Agreement and Plan of
Reorganization. Each of these issuances was exempt from registration under
Regulation 506 of the Securities Act.
In February 1998, the Registrant issued an aggregate of 689,392 shares of
Series D-1 Preferred Stock to several investors in connection with its Buyouts
of On-Ramp Technologies, Inc. and Clark Internet Services, Inc., each pursuant
to an Agreement and Plan of Reorganization. Each of these issuances was exempt
from registration under Section 4(2) of the Securities Act.
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* -- 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.
10.10 -- The Registrant's 1997 California Stock Option Plan.
</TABLE>
II-2
<PAGE> 173
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.11 -- The Registrant's 1998 Employee Stock Purchase Plan.
10.12 -- The Registrant's 1998 Stock Incentive Plan.
10.13* -- Form of Executive 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.
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
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.
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.
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
II-3
<PAGE> 174
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.
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-4
<PAGE> 175
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 February ,
1998.
VERIO INC.
By:
----------------------------------
Justin L. Jaschke
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Justin L. Jaschke, Peter B. Fritzinger and Carla
Hamre Donelson, and each of them, each with full power to act without the other,
his true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, for such person and in his name, place and
stead, in any and all capacities, to sign any or all further amendments or
supplements (including post-effective amendments filed pursuant to Rule 462(b)
of the Securities Act of 1993) to this Form S-1 Registration Statement and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each of
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully as to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that each of said attorneys-in-fact
and agents, or his substitutes, may lawfully do or cause to be done by virtue
hereof.
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>
Chairman of the Board February , 1998
- -----------------------------------------------------
Steven C. Halstedt
Chief Executive Officer and February , 1998
- ----------------------------------------------------- Director
Justin L. Jaschke
President, Chief Operating Officer February , 1998
- ----------------------------------------------------- and Director
Mark D. Johnson
Director February , 1998
- -----------------------------------------------------
James C. Allen
Director February , 1998
- -----------------------------------------------------
Trygve E. Myhren
Director February , 1998
- -----------------------------------------------------
Paul J. Salem
</TABLE>
II-5
<PAGE> 176
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Director February , 1998
- -----------------------------------------------------
Steven W. Schovee
Director February , 1998
- -----------------------------------------------------
George J. Still, Jr.
Chief Financial Officer February , 1998
- -----------------------------------------------------
Peter B. Fritzinger
Vice President of Finance and February , 1998
- ----------------------------------------------------- Administration (Principal
Deb Mayfield Gahan Accounting Officer)
</TABLE>
II-6
<PAGE> 177
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> 178
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> 179
EXHIBIT INDEX
EXHIBITS:
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGES
----------- ----------- ------------
<C> <S> <C>
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* -- 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. ................
10.10 -- The Registrant's 1997 California Stock Option Plan. .....
10.11 -- The Registrant's 1998 Employee Stock Purchase Plan. .....
10.12 -- The Registrant's 1998 Stock Incentive Plan. .............
10.13* -- Form of Executive Protection Agreement between the
Registrant and each of its executive officers. ..........
</TABLE>
<PAGE> 180
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGES
----------- ----------- ------------
<C> <S> <C>
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. .............................................
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- hereof). .......
27.1 -- Financial Data Schedule. ................................
</TABLE>
- ---------------
* To be filed by amendment
<PAGE> 1
EXHIBIT 3.1
CORRECTED
RESTATED 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, DOES HEREBY CERTIFY:
A. The name of the corporation is VERIO INC. (hereinafter the
"Corporation") and was originally incorporated in the State of
Delaware on March 1, 1996 under the name World-Net Access,
Inc.
B. That a Restated Certificate of Incorporation (the
"Certificate") was filed by the Secretary of State of Delaware
on November 19, 1997 and that said Certificate requires
correction as permitted by Section 103 of the General
Corporation Law of the State of Delaware.
C. The defect of said Certificate to be corrected is as follows:
The version of the Certificate filed with the Secretary of
State of Delaware was not the correct, final version of the
Certificate that was approved by the Board of Directors of the
Corporation and the stockholders of the Corporation voting
thereon.
D. The correct Certificate is set forth as follows:
RESTATED 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, DOES HEREBY CERTIFY:
1. The name of the corporation is VERIO INC. (hereinafter the
"Corporation").
2. The Corporation was originally incorporated in the State of
Delaware on March 1, 1996 under the name World-Net Access, Inc.
3. This Restated Certificate of Incorporation has been duly
adopted in accordance with Sections 228, 242 and 245 of the Delaware General
Corporation Law, the Board of Directors of the Corporation having adopted
resolutions setting forth the
1
<PAGE> 2
proposed Restated Certificate of Incorporation, declaring its advisability, and
directing that it be submitted to the stockholders of the Corporation for their
approval; the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted
having consented in writing to the adoption thereof; and written notice of such
adoption by the stockholders without a meeting by less than unanimous written
consent having been given to those stockholders from whom such written consent
was not received.
4. This Restated Certificate of Incorporation restates and
integrates and further amends the Certificate of Incorporation of this
Corporation by restating the text of the original Certificate of Incorporation
in full to read as follows:
ARTICLE ONE
The name of this Corporation is Verio Inc. (the "CORPORATION").
ARTICLE TWO
The address of the registered office of the Corporation in the State
of Delaware is:
Corporation Service Company
1013 Centre Road
Wilmington, DE 19805
County of New Castle
The name of the Corporation's registered agent at such address is the
Corporation Service Company.
ARTICLE THREE
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
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 sixty-three
million eight hundred fifty thousand (63,850,000) shares, thirty-five million
one hundred thirty-three thousand (35,133,000) shares of which shall be common
stock, par value $.001 per share (the "COMMON STOCK"), 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
2
<PAGE> 3
STOCK") and ten million (10,000,000) shares of which shall be additional
Preferred Stock, par value $.001 per share (the "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 fix or alter the rights, preferences,
privileges, and restrictions granted to or imposed upon any series of
Undesignated Preferred Stock (including 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. The rights, privileges, preferences, and restrictions of
any Undesignated Preferred Stock (a) shall be junior to, and not pari passu
with, Designated Preferred Stock 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. 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.
DESIGNATION OF SERIES AND NUMBER OF AUTHORIZED SHARES OF DESIGNATED PREFERRED
STOCK
Six million one hundred thousand (6,100,000) of the authorized shares
of Preferred Stock are hereby designated "Series A Preferred Stock" (the
"SERIES A PREFERRED"), ten million one hundred seventeen thousand (10,117,000)
of the authorized shares of Preferred Stock are hereby designated "Series B
Preferred Stock" (the "SERIES B PREFERRED") and two million five hundred
thousand (2,500,000) of the authorized shares of preferred stock are hereby
designated "Series C Preferred Stock" (the "SERIES C PREFERRED"). The Series A
Preferred, the Series B Preferred and the Series C Preferred are collectively
referred to herein as the "CONVERTIBLE PREFERRED." The rights, preferences,
privileges, restrictions and other matters relating to the Series A Preferred,
the Series B Preferred and the Series C Preferred are as follows:
1. DIVIDEND RIGHTS.
(a) Holders of Series C Preferred, in preference to the
holders of any other stock of the Corporation (collectively, "JUNIOR STOCK"),
shall be entitled to receive dividends, when and as declared by the
Corporation's Board of Directors, but only out of funds that are legally
available therefor. In the event that the Corporation declares or pays any
dividends upon the Series A Preferred, Series B Preferred or Common Stock
(whether payable in cash, securities or other property), other than dividends
payable solely in shares of such class of Junior Stock, the Corporation shall
also declare and pay to the holders of the Series C Preferred at the same time
that it declares and pays such dividends to the holders of such class of Junior
Stock, (i) in the case of a dividend on the Common Stock, the dividends which
would have been declared and paid with respect to
3
<PAGE> 4
the Common Stock issuable upon conversion of the Series C Preferred had all of
the outstanding Series C Preferred been converted immediately prior to the
record date for such dividend, or if no record date is fixed, the date as of
which the record holders of Common Stock entitled to such dividends are to be
determined, or (ii) in the case of a dividend on the Series A Preferred or
Series B Preferred (other than a mandatory dividend pursuant to Section 1(c) or
1(e) below), equivalent dividends determined by reference to the ratio that the
then-current Series C Liquidation Value bears to the then-current Series A
Liquidation Value or the then-current Series B Liquidation Value, as
applicable.
(b) So long as any Series C Preferred remains outstanding,
without the prior written consent of the holders of two-thirds of the
outstanding shares of Series C Preferred (the "REQUIRED C HOLDERS"), the
Corporation shall not, nor shall it permit any Subsidiary to, directly or
indirectly redeem, purchase or otherwise acquire any Junior Stock, nor shall
the Corporation directly or indirectly pay or declare any dividend or make any
distribution upon any Junior Stock. The provisions of this Section 1(b) shall
not, however, apply to (i) the acquisition of shares of any Junior Stock solely
in exchange for shares of any other Junior Stock, (ii) the payment of cash
dividends on the Series A Preferred, Series B Preferred or Common Stock to the
extent that equivalent dividends are paid on the Series C Preferred as provided
above, or (iii) any repurchase of any Reserved Employee Stock from former
employees, directors or consultants in connection with termination of
employment or service as a director or consultant pursuant to contractual
repurchase rights or that is otherwise approved by the Corporation's Board of
Directors.
(c) Holders of Series B Preferred, in preference to the
holders of Series A Preferred and Common Stock and any other stock of the
Corporation that is not by its terms expressly senior in right of payment to
the Series B Preferred, shall be entitled to receive dividends, when and as
declared by the, Corporation's Board of Directors, but only out of funds that
are legally available therefor. In the event that the Corporation declares or
pays any dividends upon the Series A Preferred or Common Stock (whether payable
in cash, securities or other property) other than dividends payable solely in
shares of such class of stock, the Corporation shall also declare and pay to
the holders of the Series B Preferred at the same time that it declares and
pays such dividends to the holders of such class of stock, (i) in the case of a
dividend on the Common Stock, the dividends which would have been declared and
paid with respect to the Common Stock issuable upon conversion of the Series B
Preferred had all of the outstanding Series B Preferred been converted
immediately prior to the record date for such dividend, or if no record date is
fixed, the date as of which the record holders of Common Stock entitled to such
dividends are to be determined, or (ii) in the case of a dividend on the Series
A Preferred (other than a mandatory dividend pursuant to Section 1(e) below),
equivalent dividends determined by reference to the ratio that the then-current
Series B Liquidation Value bears to the then-current Series A Liquidation
Value.
(d) So long as any Series B Preferred remains outstanding,
without the prior written consent of the holders of two-thirds of the
outstanding shares of Series B Preferred (the "REQUIRED B HOLDERS"), the
Corporation shall not, nor shall it permit any
4
<PAGE> 5
Subsidiary to, directly or indirectly redeem, purchase or otherwise acquire any
Series A Preferred or Common Stock, nor shall the Corporation directly or
indirectly pay or declare any dividend or make any distribution upon any shares
of Series A Preferred or Common Stock. The provisions of this Section 1(d)
shall not, however, apply to (i) the acquisition of shares of any shares of
Series A Preferred or Common Stock solely in exchange for shares of Series A
Preferred or Common Stock, respectively, (ii) the payment of cash dividends on
the Series A Preferred or Common Stock to the extent that equivalent dividends
are paid on the Series B Preferred and Series C Preferred as provided above, or
(iii) any repurchase of any Reserved Employee Stock from former employees,
directors or consultants in connection with termination of employment or
service as a director or consultant pursuant to contractual repurchase rights
or that is otherwise approved by the Corporation's Board of Directors.
(e) Holders of Series A Preferred, in preference to the
holders of Common Stock and any other stock of the Corporation that is not by
its terms expressly senior in right of payment to the Series A Preferred, shall
be entitled to receive dividends, when and as declared by the Corporation's
Board of Directors, but only out of funds that are legally available therefor.
In the event that the Corporation declares or pays any dividends upon the
Common Stock (whether payable in cash, securities or other property) other than
dividends payable solely in shares of Common Stock, the Corporation shall also
declare and pay to the holders of the Series A Preferred at the same time that
it declares and pays such dividends to holders of Common Stock, the dividends
which would have been declared and paid with respect to the Common Stock
issuable upon conversion of the Series A Preferred had all of the outstanding
Series A Preferred been converted immediately prior to the record date for such
dividend, or if no record date is fixed, the date as of which the record
holders of Common Stock entitled to such dividends are to be determined.
(f) So long as any Series A Preferred remains outstanding,
without the prior written consent of the holders of two-thirds of the
outstanding shares of Series A Preferred (the "REQUIRED A HOLDERS"), the
Corporation shall not, nor shall it permit any Subsidiary to, directly or
indirectly redeem, purchase or otherwise acquire any Common Stock, nor shall
the Corporation directly or indirectly pay or declare any dividend or make any
distribution upon any Common Stock. The provisions of this Section 1(f) shall
not, however, apply to (i) the acquisition of shares of any Common Stock solely
in exchange for shares of Common Stock, (ii) the payment of cash dividends on
the Common Stock to the extent that equivalent dividends are paid on the Series
A Preferred, Series B Preferred and Series C Preferred as provided above, or
(iii) any repurchase of any Reserved Employee Stock from former employees,
directors or consultants in connection with termination of employment or
service as a director or consultant pursuant to contractual repurchase rights
or that is otherwise approved by the Corporation's Board of Directors.
2. VOTING RIGHTS.
(a) Generally. Except as otherwise provided herein or as
required by law, the Convertible Preferred shall vote with the shares of the
Common Stock of the Corporation
5
<PAGE> 6
(and not as a separate class) at any annual or special meeting of stockholders
of the Corporation, and may act by written consent in the same manner as the
Common Stock, in either case upon the following basis: each holder of shares
of Convertible Preferred shall be entitled to such number of votes as shall be
equal to the whole number of shares of Common Stock into which such holder's
aggregate number of shares of Convertible Preferred are convertible pursuant to
Section 5 below as of the close of business on the record date fixed for such
meeting or the effective date of such written consent.
(b) Election of Directors. In the election of directors of the
Corporation, the holders of the Series A Preferred, voting separately as a
single class to the exclusion of all other classes of the Corporation's capital
stock and with each share of Series A Preferred entitled to one vote, shall be
entitled to elect four directors to serve on the Corporation's Board of
Directors until such persons' successors are duly elected by the holders of the
Series A Preferred or such persons are removed from office by the holders of
the Series A Preferred. The holders of Series B Preferred who are not also
holders or affiliates of holders of Series A Preferred upon the date of first
issuance of Series B Preferred to such holder (the "NEW SERIES B INVESTORS"),
voting separately as a single class to the exclusion of all other classes of
the Corporation's capital stock and with each share of Series B Preferred held
by the New Series B Investors entitled to one vote, shall be entitled to elect
one director to serve on the Corporation's Board of Directors until such
person's successor is duly elected by the New Series B Investors or such person
is removed from office by the New Series B Investors. If the holders of the
Series A Preferred or the New Series B Investors, as the case may be, for any
reason fail to elect a director to fill any such directorship, such position
shall remain vacant until such time as the holders of the Series A Preferred or
the New Series B Investors, as the case may be, elect a director to fill such
position and shall not be filled by resolution or vote of the Corporation's
Board of Directors or the Corporation's other stockholders.
(c) Class Vote Requirement. Without the affirmative vote of
the holders of two-thirds of the outstanding shares of Convertible Preferred
(the "REQUIRED HOLDERS"), the Corporation will not (i) amend the Corporation's
Certificate of Incorporation or Bylaws in a manner that adversely affects the
holders of the Convertible Preferred, (ii) create, issue or authorize the
issuance of any capital stock of the Corporation that is senior to or pari
passu with any Series of Convertible Preferred with respect to the payment of
dividends, redemptions or payments in connection with the liquidation of the
Corporation, (iii) engage in any merger, consolidation, recapitalization,
liquidation or sale of substantial assets outside the ordinary course of
business, (iv) engage in any business other than the business of the
Corporation described in the Corporation's most recent annual business plan
approved by the Board of Directors of the Corporation and activities incidental
thereto, (v) increase the amount of Reserved Employee Stock, or (vi) engage in
any transaction with an affiliate of the Corporation that is not approved by a
majority of the Corporation's disinterested directors.
3. LIQUIDATION RIGHTS.
(a) Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, before any distribution or
payment shall be made to the
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holders of any Junior Stock, the holders of Series C Preferred shall be
entitled to be paid out of the assets of the Corporation an amount with respect
to each share of Series C Preferred equal to the sum of (i) Eight Dollars
($8.00), as appropriately adjusted for any future stock splits, stock
combinations, stock dividends or similar transactions affecting the Series C
Preferred (the "ORIGINAL SERIES C ISSUE PRICE") plus (ii) all declared but
unpaid dividends thereon (the "SERIES C LIQUIDATION VALUE"). If, upon any
liquidation, dissolution or winding up, the assets of the Corporation shall be
insufficient to make payment in full to all holders of Series C Preferred, then
such assets shall be distributed among the holders of Series C Preferred at the
time outstanding, ratably in proportion to the full amounts to which they would
otherwise be respectively entitled.
(b) After payment of the full liquidation preference of the
Series C Preferred as set forth in Section 3(a) above, the holders of Series B
Preferred shall be entitled to be paid out of the remaining assets of the
Corporation an amount with respect to each share of Series B Preferred equal to
the sum of (i) Six Dollars ($6.00), as appropriately adjusted for any future
stock splits, stock combinations, stock dividends or similar transactions
affecting the Series B Preferred (the "ORIGINAL SERIES B ISSUE PRICE") plus
(ii) all declared but unpaid dividends thereon (the "SERIES B LIQUIDATION
VALUE"). If the remaining assets shall be insufficient to make payment in full
to all holders of Series B Preferred, then such assets shall be distributed
among the holders of Series B Preferred at the time outstanding, ratably in
proportion to the full amounts to which they would otherwise be respectively
entitled.
(c) After payment of the full liquidation preference of the
Series B Preferred and Series C Preferred as set forth in Sections 3(a) and
3(b) above, the holders of Series A Preferred shall be entitled to be paid out
of the remaining assets of the Corporation an amount with respect to each share
of Series A Preferred equal to the sum of (i) Three Dollars ($3.00), as
appropriately adjusted for any future stock splits, stock combinations, stock
dividends or similar transactions affecting the Series A Preferred (the
"ORIGINAL SERIES A ISSUE PRICE") plus (ii) all declared but unpaid dividends
thereon (the "SERIES A LIQUIDATION VALUE"). If the remaining assets shall be
insufficient to make payment in full to all holders of Series A Preferred, then
such assets shall be distributed among the holders of Series A Preferred at the
time outstanding, ratably in proportion to the full amounts to which they would
otherwise be respectively entitled.
(d) Thereafter, the remaining assets of the Corporation legally
available for distribution, if any, shall be distributed to the holders of
Common Stock. The holders of Convertible Preferred shall be entitled to
participate in distributions to holders of the Common Stock such that, giving
effect to all distributions pursuant to Sections 3(a), 3(b) and 3(c) and all
exercises of Options and conversions of Convertible Securities effected on or
prior to the date on which distributions are made to holders of Common Stock,
the holders of Series C Preferred, Series B Preferred and Series A Preferred
receive aggregate distributions equal to the greater of the Series C
Liquidation Value, Series B Liquidation Value or the Series A Liquidation
Value, as the case may be, or the amounts that such holders would have received
if the Series C Preferred, Series B Preferred or Series A Preferred, as the
case may be, had been converted into Common Stock immediately prior to such
liquidation, dissolution or winding up of the Corporation.
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(e) At the option of the Required Holders, and in the event
of an Acquisition or Asset Transfer (as defined below) in which the holders of
Series C Preferred would be entitled to receive an amount per share of Series C
Preferred less than the Liquidation Value per share of the Series C Preferred,
at the option of the holders of one-third in interest of the then outstanding
Series C Preferred (voting together as a separate class), but at all times
subject to the terms of any debt instruments to which the Corporation is a
party, the following events shall be considered a liquidation:
(i) any merger, consolidation, business
combination, reorganization or recapitalization of the Corporation
in which the Corporation is not the surviving entity or in which
the stockholders of the Corporation immediately prior to such
transaction own capital stock representing less than fifty percent
(50%) of the Corporation's voting power immediately after such
transaction, or any transaction or series of related transactions
(whether involving the Corporation or its stockholders) in which
capital stock representing in excess of fifty percent (50%) of the
Corporation's voting power is transferred (an "ACQUISITION"); or
(ii) a sale, lease or other disposition of all or
substantially all of the assets of the Corporation (an "ASSET
TRANSFER").
4. REDEMPTION RIGHTS.
(a) Scheduled Redemptions.
(i) Redemption of Series C Preferred. The
Corporation shall redeem all of the then-outstanding Series C
Preferred on October 10, 2004 (the "SERIES C REDEMPTION DATE"), at
a price per share equal to the Series C Liquidation Value.
(ii) Redemption of Series B Preferred. The
Corporation shall redeem all of the then-outstanding Series B
Preferred on October 20, 2004 (the "SERIES B REDEMPTION DATE"), at
a price per share equal to the Series B Liquidation Value.
(iii) Redemption of Series A Preferred. The
Corporation shall redeem all of the then-outstanding Series A
Preferred on October 30, 2004 (the "SERIES A REDEMPTION DATE"), at
a price per share equal to the Series A Liquidation Value.
(b) Redemption Payments. For each share of Convertible
Preferred which is to be redeemed hereunder, the Corporation shall be obligated
on the applicable Redemption Date to pay to the holder thereof (upon surrender
by such holder at the Corporation's principal office of the certificate
representing such share) an amount in cash equal to the applicable Liquidation
Value. If the funds of the Corporation legally available for redemption of
Convertible Preferred on any Redemption Date are insufficient to redeem the
total number of shares to be redeemed on such date, those funds which are
legally available shall be used to redeem the maximum possible number of shares
pro rata among the holders of Convertible Preferred to be redeemed based upon
the aggregate applicable Liquidation Value of such shares held by each such
holder. At any time thereafter when additional funds of the Corporation are
legally available for the
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<PAGE> 9
redemption of Convertible Preferred, such funds shall immediately be used to
redeem the balance of the shares which the Corporation has become obligated to
redeem on any Redemption Date but which it has not redeemed.
(c) Notice of Redemption. Except as otherwise provided herein,
the Corporation shall mail written notice of each redemption of Convertible
Preferred to each record holder thereof not more than sixty (60) nor less than
thirty (30) days prior to the applicable Redemption Date. The holders of
Convertible Preferred to be redeemed shall in any event have the right to
convert their shares into Common Stock at any time prior to the close of
business on the Redemption Date. In case fewer than the total number of shares
represented by any certificate are redeemed, a new certificate representing the
number of unredeemed shares shall be issued to the holder thereof without cost
to such holder within five business days after surrender of the certificate
representing the redeemed shares.
(d) Other Redemptions or Acquisitions. The Corporation shall
not, nor shall it permit any Subsidiary to, redeem or otherwise acquire any
shares of Convertible Preferred, except as expressly authorized herein or
pursuant to a purchase offer made pro rata to all holders of each class of
Convertible Preferred on the basis of the relative liquidation values of the
Convertible Preferred and the number of shares owned by each such holder.
5. CONVERSION RIGHTS.
The holders of the Convertible Preferred shall have the following
rights with respect to the conversion of the Convertible Preferred into shares
of Common Stock:
(a) Optional Conversion. Subject to and in compliance with the
provisions of this Section 5, any shares of Convertible Preferred may, at the
option of the holder, be converted at any time into fully-paid and
nonassessable shares of Common Stock. The number of shares of Common Stock to
which a holder of Convertible Preferred shall be entitled upon conversion shall
be the product obtained by multiplying the applicable "CONVERSION RATE" then in
effect (determined as provided in Section 5(b)) by the number of shares of
Convertible Preferred being converted.
(b) Conversion Rate. The conversion rate in effect at any time
for conversion of the Series A Preferred (the "SERIES A CONVERSION RATE") shall
be the quotient obtained by dividing the Original Series A Issue Price, plus
any declared but unpaid dividends thereon, by the "SERIES A CONVERSION PRICE"
calculated as provided in Section 5(c). The conversion rate in effect at any
time for conversion of the Series B Preferred (the "SERIES B CONVERSION RATE")
shall be the quotient obtained by dividing the Original Series B Issue Price,
plus any declared but unpaid dividends thereon, by the "SERIES B CONVERSION
PRICE" calculated as provided in Section 5(c). The conversion rate in effect
at any time for conversion of the Series C Preferred (the "SERIES C CONVERSION
RATE") shall be the quotient obtained by dividing the Original Series C Issue
Price, plus any declared but unpaid dividends thereon, by the "SERIES C
CONVERSION PRICE" calculated as provided in Section 5(c).
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(c) Conversion Price. The conversion price for the Series A
Preferred (the "SERIES A CONVERSION PRICE") shall initially be the Original
Series A Issue Price and shall be adjusted from time to time in accordance with
this Section 5. The conversion price for the Series B Preferred (the "SERIES B
CONVERSION PRICE") shall initially be the Original Series B Issue Price and
shall be adjusted from time to time in accordance with this Section 5. The
conversion price for the Series C Preferred (the "SERIES C CONVERSION PRICE")
shall initially be the Original Series C Issue Price and shall be adjusted from
time to in accordance with this Section 5. The Series A Conversion Price,
Series B Conversion Price and the Series C Conversion Price shall collectively
be referred to as the "CONVERSION PRICES," and each a "CONVERSION PRICE." All
references to the Series A Conversion Price, Series B Conversion Price or
Series C Conversion Price herein shall mean such Conversion Price as so
adjusted. If and whenever on or after the date that the first share of Series
C Preferred is issued (the "ORIGINAL ISSUE DATE") the Corporation issues or
sells, or in accordance with this Section 5(c) is deemed to have issued or
sold, any shares of its Common Stock (other than pursuant to a Permitted
Issuance) for a consideration per share less than the applicable Conversion
Price for a series of Convertible Preferred in effect immediately prior to the
time of such issue or sale, then immediately upon such issue or sale or deemed
issue or sale the Conversion Price of such series of Convertible Preferred
shall be reduced to the amount determined by dividing (a) the sum of (1) the
product derived by multiplying such Conversion Price in effect immediately
prior to such issue or sale by the number of shares of Common Stock Deemed
Outstanding immediately prior to such issue or sale, plus (2) the
consideration, if any, received or deemed to have been received by the
Corporation upon such issue or sale, by (b) the number of shares of Common
Stock Deemed Outstanding immediately after such issue or sale. For purposes of
determining any adjusted Conversion Price, the following shall be applicable
(it being understood that none of the foregoing shall be applicable to a
Permitted Issuance):
(i) Issuance of Rights or Options. If the
Corporation in any manner grants or sells any Options and the price
per share for which Common Stock is issuable upon the exercise of
such Options, or upon conversion or exchange of any Convertible
Securities issuable upon exercise of such Options, is less than the
applicable Conversion Price in effect immediately prior to the time
of the granting or sale of such Options, then the total maximum
number of shares of Common Stock issuable upon the exercise of such
Options or upon conversion or exchange of the total maximum amount
of such Convertible Securities issuable upon the exercise of such
Options shall be deemed to have been issued and sold by the
Corporation at the time of the granting or sale of such Options for
such price per share. For purposes of this paragraph, the "price
per share for which Common Stock is issuable" shall be determined
by dividing (A) the total amount, if any, received or receivable by
the Corporation as consideration for the granting or sale of such
Options, plus the minimum aggregate amount of additional
consideration payable to the Corporation upon exercise of all such
Options, plus in the case of such Options which relate to
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the issuance
or sale of such Convertible Securities and the conversion or
exchange thereof, by (B) the total maximum number of shares of
Common Stock issuable
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upon the exercise of such Options or upon the conversion or
exchange of all such Convertible Securities issuable upon the
exercise of such Options. No further adjustment of the applicable
Conversion Price shall be made when Convertible Securities are
actually issued upon the exercise of such Options or when Common
Stock is actually issued upon the exercise of such Options or the
conversion or exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the
Corporation in any manner issues or sells any Convertible
Securities and the price per share for which Common Stock is
issuable upon conversion or exchange thereof is less than the
applicable Conversion Price in effect immediately prior to the time
of such issue or sale, then the maximum number of shares of Common
Stock issuable upon conversion or exchange of such Convertible
Securities shall be deemed to have been issued and sold by the
Corporation at the time of the issuance or sale of such Convertible
Securities for such price per share. For the purposes of this
paragraph, the "price per share for which Common Stock is issuable"
shall be determined by dividing (A) the total amount received or
receivable by the Corporation as consideration for the issue or
sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the
Corporation upon the conversion or exchange thereof, by (B) the
total maximum number of shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities. No
further adjustment of the applicable Conversion Price shall be made
when Common Stock is actually issued upon the conversion or
exchange of such Convertible Securities, and if any issue or sale
of such Convertible Securities is made upon exercise of any Options
for which adjustments of such Conversion Price had been or are to
be made pursuant to other provisions of this Section 5, no further
adjustment of such Conversion Price shall be made by reason of such
issue or sale.
(iii) Change in Option Price or Conversion Rate.
If the purchase price provided for in any Options, the additional
consideration, if any, payable upon the conversion or exchange of
any Convertible Securities or the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock
changes at any time, each Conversion Price in effect at the time of
such change shall be immediately adjusted to the applicable
Conversion Price which would have been in effect at such time had
such Options or Convertible Securities still outstanding provided
for such changed purchase price, additional consideration or
conversion rate, as the case may be, at the time initially granted,
issued or sold.
(iv) Treatment of Expired Options and Unexercised
Convertible Securities. Upon the expiration of any Option or the
termination of any right to convert or exchange any Convertible
Security without the exercise of any such Option or right, each
Conversion Price then in effect hereunder shall be adjusted
immediately to the applicable Conversion Price which would have
been in effect at the time of such expiration or termination had
such Option or Convertible Security, to the extent outstanding
immediately prior to such expiration or termination, never been
issued.
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(v) Calculation of Consideration Received. If
any Common Stock, Option or Convertible Security is issued or sold
or deemed to have been issued or sold for cash, the consideration
received therefor shall be deemed to be the amount received by the
Corporation therefor (net of discounts, commissions and related
expenses). If any Common Stock, Option or Convertible Security is
issued or sold for a consideration other than cash, the amount of
the consideration other than cash received by the Corporation shall
be the fair value of such consideration. If any Common Stock,
Option or Convertible Security is issued to the owners of the non-
surviving entity in connection with any merger in which the
Corporation is the surviving corporation, the amount of
consideration therefor shall be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity
as is attributable to such Common Stock, Option or Convertible
Security, as the case may be. The fair value of any consideration
other than cash and securities shall be determined jointly by the
Corporation and the holders of a majority of the outstanding
Convertible Preferred. If such parties are unable to reach
agreement within a reasonable period of time, the fair value of
such consideration shall be determined by an independent appraiser
experienced in valuing such type of consideration jointly selected
by the Corporation and the holders of a majority of the outstanding
Convertible Preferred. The determination of such appraiser shall
be final and binding upon the parties, and the fees and expenses of
such appraiser shall be borne by the Corporation.
(vi) Integrated Transactions. In case any Option is
issued in connection with the issue or sale of other securities of
the Corporation, together comprising one integrated transaction in
which no specific consideration is allocated to such Option by the
parties thereto, the Option shall be deemed to have been issued for
a consideration of $.01.
(vii) Treasury Shares. The number of shares of
Common Stock outstanding at any give time shall not include shares
owned or held by or for the account of the Corporation or any
Subsidiary, and the disposition of any shares so owned or held
shall be considered an issue or sale of Common Stock.
(d) Adjustment for Stock Splits and Combinations. If the
Corporation shall at any time or from time to time after the Original Issue
Date effect a subdivision of the outstanding Common Stock, each Conversion
Price in effect immediately before that subdivision shall be proportionately
decreased. Conversely, if the Corporation shall at any time or from time to
time after the Original Issue Date combine the outstanding shares of Common
Stock into a smaller number of shares, each Conversion Price in effect
immediately before the combination shall be proportionately increased. Any
adjustment under this Section 5(d) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
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(e) Adjustment for Common Stock Dividends and Distributions.
If the Corporation at any time or from time to time after the Original Issue
Date makes, or fixes a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, in each such event the Conversion Prices
then in effect shall be decreased as of the time of such issuance or, in the
event such record date is fixed, as of the close of business on such record
date, by multiplying each Conversion Price then in effect by a fraction (1) the
numerator of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date, and (2) the denominator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to
the time of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the
date fixed therefor, each Conversion Price shall be recomputed accordingly as
of the close of business on such record date and thereafter such Conversion
Prices shall be adjusted pursuant to this Section 5(e) to reflect the actual
payment of such dividend or distribution.
(f) Adjustments for Other Dividends and Distributions. If the
Corporation at any time or from time to time after the Original Issue Date
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Corporation other than shares of Common Stock, in each such event provision
shall be made so that the holders of the Convertible Preferred shall receive
upon conversion thereof, in addition to the number of shares of Common Stock
receivable thereupon, the amount of other securities of the Corporation which
they would have received had their Convertible Preferred been converted into
Common Stock on the date of such event and had they thereafter, during the
period from the date of such event to and including the conversion date,
retained such securities receivable by them as aforesaid during such period,
subject to all other adjustments called for during such period under this
Section 5 with respect to the rights of the holders of the Convertible
Preferred or with respect to such other securities by their terms.
(g) Adjustment for Reclassification, Exchange and Substitution.
If at any time or from time to time after the Original Issue Date, the Common
Stock issuable upon the conversion of the Convertible Preferred is changed into
the same or a different number of shares of any class or classes of stock,
whether by recapitalization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend or a reorganization,
merger or consolidation provided for elsewhere in this Section 5), in any such
event each holder of Convertible Preferred shall have the right thereafter to
convert such stock into the kind and amount of stock and other securities and
property receivable in connection with such recapitalization, reclassification
or other change with respect to the maximum number of shares of Common Stock
into which such shares of Convertible Preferred could have been converted
immediately prior to such recapitalization, reclassification or change, all
subject to further adjustments as provided herein or with respect to such other
securities or property by the terms thereof.
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(h) Reorganizations, Mergers or Consolidations. If at any
time or from time to time after the Original Issue Date, there is a capital
reorganization of the Common Stock or a merger or consolidation of the
Corporation affecting the Common Stock (other than a recapitalization,
subdivision, combination, reclassification, exchange or substitution of shares
provided for elsewhere in this Section 5), as a part of such capital
reorganization, merger or consolidation, provision shall be made so that the
holders of the Convertible Preferred shall thereafter be entitled to receive
upon conversion thereof the number of shares of stock or other securities or
property of the Corporation to which a holder of the maximum number of shares
of Common Stock deliverable upon conversion would have been entitled in
connection with such capital reorganization, merger or consolidation, subject
to adjustment in respect of such stock or securities by the terms thereof. In
any case, appropriate adjustment shall be made in the application of the
provisions of this Section 5 with respect to the rights of the holders of
Convertible Preferred after the capital reorganization to the end that the
provisions of this Section 5 (including adjustment of the Conversion Prices
then in effect and the number of shares issuable upon conversion of the
Convertible Preferred) shall be applicable after that event and be as nearly
equivalent as practicable. The Corporation shall not be a party to any
reorganization, merger or consolidation in which the Corporation is not the
surviving entity unless the entity surviving such reorganization, merger or
consolidation assumes, by written instrument satisfactory to the Required
Holders, all of the Corporation's obligations hereunder.
(i) Certificate of Adjustment. In each case of an adjustment
or readjustment of any Conversion Price or the number of shares of Common Stock
or other securities issuable upon conversion of the Convertible Preferred, the
Corporation, at its expense, shall compute such adjustment or readjustment in
accordance with the provisions hereof and prepare a certificate showing such
adjustment or readjustment, and shall mail such certificate, by first class
mail, postage prepaid, to each registered holder of Convertible Preferred at
the holder's address as shown in the Corporation's books. The certificate
shall set forth such adjustment or readjustment, showing in detail the facts
upon which such adjustment or readjustment is based, including a statement of
(1) the consideration received or deemed to be received by the Corporation for
any additional shares of Common Stock issued or sold or deemed to have been
issued or sold, (2) the applicable Conversion Prices in effect before and after
such adjustment, (3) the number of additional shares of Common Stock issued or
sold or deemed to have been issued or sold, and (4) the type and amount, if
any, of other property which at the time would be received upon conversion of
the Convertible Preferred.
(j) Notices of Record Date. Upon (i) any taking by the
Corporation of a record of the holders of any class or securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, or (ii) any Acquisition (as defined in Section
3(e)) or other capital reorganization of the Corporation, any reclassification
or recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation with or into any other corporation, any Asset
Transfer (as defined in Section 3(e)), or any voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, the Corporation
shall mail to each holder of Convertible Preferred at least twenty (20) days
prior to the
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record date specified therein a notice specifying (1) the date on which any
such record is to be taken for the purpose of such dividend or distribution and
a description of such dividend or distribution, (2) the date on which any such
Acquisition, reorganization, reclassification, transfer, consolidation, merger,
Asset Transfer, dissolution, liquidation or winding up is expected to become
effective, and (3) the date, if any, that is to be fixed for determining the
holders of record of Common Stock (or other securities) that shall be entitled
to exchange their shares of Common Stock (or other securities) for securities
or other property deliverable upon such Acquisition, reorganization,
reclassification, transfer, consolidation, merger, Asset Transfer, dissolution,
liquidation or winding up.
(k) Automatic Conversion. Each share of Series A Preferred,
Series B Preferred or Series C Preferred shall automatically be converted into
shares of Common Stock, based on the then-effective applicable Conversion
Price, at any time upon the affirmative vote of the Required A Holders,
Required B Holders or the Required C Holders, as the case may be, or
immediately upon the closing of a firmly underwritten public offering pursuant
to an effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of Common Stock for the account of the
Corporation in which (i) the per share price to the public is at least Fifteen
Dollars ($15.00) per share (as adjusted for stock splits, recapitalizations and
the like), and (ii) the gross cash proceeds to the Corporation (before
underwriting discounts, commissions and fees) are at least Thirty Million
Dollars ($30,000,000). Upon such automatic conversion, all declared but unpaid
dividends, if any, shall be paid in accordance with Section 5(l).
(l) Mechanics of Conversion.
(i) Optional Conversion. Each holder of
Convertible Preferred who desires to convert the same into shares
of Common Stock pursuant to this Section 5 shall surrender the
certificate or certificates therefor, duly endorsed, at the office
of the Corporation or any transfer agent for the Convertible
Preferred, and shall give written notice to the Corporation at such
office that such holder elects to convert the same. Such notice
shall state the number of shares of Convertible Preferred being
converted. Thereupon, the Corporation shall promptly issue and
deliver at such office to such holder a certificate or certificates
for the number of shares of Common Stock to which such holder is
entitled and shall promptly pay in cash or, to the extent
sufficient funds are not then legally available therefor, in Common
Stock (at the Common Stock's fair market value determined by the
Board of Directors as of the date of such conversion) or a
combination of cash and Common Stock, any declared but unpaid
dividends on the shares of Convertible Preferred being converted.
Such conversion shall be deemed to have been made at the close of
business on the date of such surrender of the certificate
representing the shares of Convertible Preferred to be converted,
and the person entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as
the record holder of such shares of Common Stock on such date.
(ii) Automatic Conversion. Upon the occurrence of
the event specified in Section 5(k) above, the outstanding shares
of Convertible Preferred shall be
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converted into Common Stock automatically without any further
action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the
Corporation or its transfer agent; provided, however, that the
Corporation shall not be obligated to issue certificates evidencing
the shares of Common Stock issuable upon such conversion unless the
certificates evidencing such shares of Convertible Preferred are
either delivered to the Corporation or its transfer agent as
provided below, or the holder notifies the Corporation or its
transfer agent that such certificates have been lost, stolen or
destroyed and executes an agreement satisfactory to the Corporation
to indemnify the Corporation from any loss incurred by it in
connection with such certificates. Upon surrender by any holder of
the certificates formerly representing shares of Convertible
Preferred at the office of the Corporation or any transfer agent
for the Convertible Preferred, there shall be issued and delivered
to such holder promptly at such office and in its name as shown on
such surrendered certificate or certificates, a certificate or
certificates for the number of shares of Common Stock into which
the shares of Convertible Preferred surrendered were convertible on
the date on which such automatic conversion occurred, and the
Corporation shall promptly pay in cash or, to the extent sufficient
funds are not legally available therefor, in Common Stock (at the
Common Stock's fair market value determined by the Board as of the
date of such conversion) or a combination of cash and Common Stock,
all declared but unpaid dividends on the shares of Convertible
Preferred being converted. Until surrendered as provided above,
each certificate formerly representing shares of Convertible
Preferred shall be deemed for all corporate purposes to represent
the number of shares of Common Stock resulting from such automatic
conversion.
(m) Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of Convertible Preferred. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
share of Convertible Preferred by a holder thereof shall be aggregated for
purposes of determination whether the conversion would result in the issuance
of any fractional share. If, after the aforementioned aggregation, the
conversion would result in the issuance of any fractional share, the
Corporation shall, in lieu of issuing any fractional share, pay cash equal to
the product of such fraction multiplied by the Common Stock's fair market value
(as determined by the Board) on the date of conversion.
6. CERTAIN DEFINITIONS.
"Common Stock Deemed Outstanding" means, at any given time, the
sum of the number of shares of Common Stock actually outstanding at such time,
plus the number of shares of Common Stock issuable pursuant to Options and
Convertible Securities outstanding on May 16, 1997 to the extent that such
Options and/or Convertible Securities remain outstanding as of the date of
determination, plus the number of shares of Common Stock deemed to have been
issued pursuant to subparagraphs 5(c)(i) and 5(c)(ii) hereof whether or not the
Options or Convertible Securities are actually exercisable at such time.
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<PAGE> 17
"Convertible Securities" means any stock or securities directly or
indirectly convertible into or exchangeable for Common Stock.
"Options" means any rights, warrants or options to subscribe for or
purchase Common Stock or Convertible Securities.
"Permitted Issuance" means (i) any issuance of Common Stock upon
conversion of shares of Convertible Preferred, (ii) any issuance of Reserved
Employee Stock, (iii) any issuance of warrants to purchase equity securities of
the Corporation in connection with a commercial loan or leasing transaction
approved by the Corporation's Board of Directors or (iv) any issuance of Common
Stock or warrants to purchase equity securities (and the issuance of such
equity securities upon the exercise of such warrants) of the Corporation in
connection with a debt securities financing (as part of a unit or on a
contingent basis) approved by the Corporation's Board of Directors.
"Reserved Employee Stock" means up to two million seven hundred
fifty thousand (2,750,000) shares of Common Stock (including shares of Common
Stock covered by presently outstanding options) issuable to employees,
directors or consultants of the Corporation and its Subsidiaries as determined
by the Corporation's Board of Directors with vesting and buy-back restrictions
approved by the Board.
"Subsidiary" means any corporation of which the shares of
outstanding capital stock possessing the voting power (under ordinary
circumstances) in electing the board of directors are, at the time as of which
any determination is being made, owned by the Corporation either directly or
indirectly through Subsidiaries.
7. AMENDMENT AND WAIVER.
No amendment, modification or waiver of any of the terms or
provisions of the Convertible Preferred shall be binding or effective without
the prior written consent of the Required Holders and no change in the terms
hereof may be accomplished by merger or consolidation of the Corporation with
another corporation or entity unless the Corporation has obtained the prior
written consent of the Required Holders: provided, however, that no amendment,
modification or waiver of any of the terms or provisions applicable solely to
the Series A Preferred, Series B Preferred or Series C Preferred shall be
binding or effective without the prior written consent of the Required A
Holders, Required B Holders or Required C Holders, as the case may be. Any
amendment, modification or waiver of any of the terms or provisions of the
Convertible Preferred in accordance with the provision of the preceding
sentence, whether prospective or retroactively effective, shall be binding upon
all holders of Convertible Preferred or such series of Convertible Preferred,
as the case may be.
8. REGISTRATION OF TRANSFER.
The Corporation shall keep at its principal office a register for
the registration of the Convertible Preferred. Upon the surrender of any
certificate representing Convertible Preferred at such place, the Corporation
shall, at the request of the record holder of such
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<PAGE> 18
certificate, execute and deliver (at the Corporation's expense) a new
certificate or certificates in exchange therefor representing in the aggregate
the number of shares represented by the surrendered certificate. Each such new
certificate shall be registered in such name and shall represent such number of
shares as is requested by the holder of the surrendered certificate and shall
be substantially identical in form to the surrendered certificate.
9. REPLACEMENT.
Upon receipt of evidence reasonably satisfactory to the Corporation
(an affidavit of the registered holder shall be satisfactory) of the ownership
and the loss, theft, destruction or mutilation of any certificate evidencing
shares of Convertible Preferred, and in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or in the case
of any such mutilation upon surrender of such certificate, the Corporation
shall (at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of shares of such class
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate.
10. RESERVATION OF COMMON STOCK ISSUABLE UPON CONVERSION.
The Corporation shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Convertible Preferred, such
number of its shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all outstanding shares of the Convertible
Preferred. If at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all
then-outstanding shares of the Convertible Preferred, the Corporation will take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
11. NOTICES.
Any notice required by the provisions of this Article Four 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) one (1) day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt. All
notices to stockholders shall be addressed to each holder of record at the
address of such holder appearing on the books of the Corporation.
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<PAGE> 19
12. PAYMENT OF TAXES.
The Corporation will pay all taxes (other than taxes based upon
income) and other governmental charges that may be imposed with respect to the
issue or delivery of shares of Common Stock upon conversion of shares of
Convertible Preferred, excluding any tax or other charge imposed in connection
with any transfer involved in the issue and delivery of shares of Common Stock
in a name other than that in which the shares of Convertible Preferred so
converted were registered.
13. NO DILUTION OR IMPAIRMENT.
The Corporation shall not amend its Certificate of Incorporation or
participate in any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, for the
purpose of avoiding or seeking to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation.
14. NO REISSUANCE OF CONVERTIBLE PREFERRED.
No share or shares of Convertible Preferred acquired by the
Corporation by reason of redemption, purchase, conversion or otherwise shall be
reissued.
ARTICLE FIVE
The Corporation is to have perpetual existence.
ARTICLE SIX
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors of the Corporation is expressly authorized to
make, alter or repeal the Bylaws of the Corporation.
ARTICLE SEVEN
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws of the Corporation may provide. The books of the
Corporation may be kept outside the State of Delaware at such place or places
as may designated from time to time by the Board of Directors or in the Bylaws
of the Corporation. Election of directors need not be by written ballot unless
the Bylaws of the Corporation so provide.
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 persons who 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 by amended.
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<PAGE> 20
Any repeal or modification of this Article by the stockholders of the
Corporation shall not adversely affect any right or protection of a director of
the Corporation existing at the time of such repeal or modification.
ARTICLE NINE
The Corporation expressly elects not to be governed by Section 203
of the General Corporation Law of the State of Delaware.
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.
20
<PAGE> 21
IN WITNESS WHEREOF, Verio Inc. has caused this Corrected Restated
Certificate of Incorporation to be signed by its Chief Executive Officer on
this ____ day of December, 1997.
VERIO INC.
By: /s/ Justin Jaschke
------------------------------------
Justin Jaschke
Chief Executive Officer
21
<PAGE> 22
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, DOES HEREBY CERTIFY:
1. The name of the corporation is Verio Inc. (hereinafter the
"Corporation").
2. The Corporation was originally incorporated in the State of
Delaware on March 1, 1996 under the name World-Net Access, Inc.
3. The Certificate of Incorporation of the Corporation is hereby
amended by deleting the first paragraph of Article Four thereof and replacing it
with the following:
"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 sixty-four million eight hundred fifty thousand (64,850,000) shares,
thirty-six million one hundred thirty-three (36,133,000) shares of
which shall be common stock, par value $.001 per share (the "Common
Stock"), 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") and ten million
(10,000,000) shares of which shall be additional Preferred Stock, par
value $.001 per share (the "Undesignated Preferred Stock")."
* * * * *
4. The amendment set forth above was duly adopted in accordance
with the provisions of Sections 242 and 228 of the General Corporation Law of
the State of Delaware.
<PAGE> 23
IN WITNESS WHEREOF, the undersigned, being the Vice President, General
Counsel and Secretary of the Corporation, for the purpose of amending the
Certificate of Incorporation of the Corporation pursuant to Section 242 of the
General Corporation Law of the State of Delaware, does make and file this
Certificate, hereby declaring and certifying that the facts herein stated are
true, and accordingly have hereunto set my hand this 14th day of January, 1998.
VERIO INC.
By: /s/ CARLA HAMRE DONELSON
------------------------
Carla Hamre Donelson
Vice President, General Counsel
and Secretary
2
<PAGE> 24
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, DOES HEREBY CERTIFY:
1. The name of the corporation is Verio Inc. (hereinafter the
"Corporation").
2. The Corporation was originally incorporated in the State of
Delaware on March 1, 1996 under the name World-Net Access,
Inc.
3. The Certificate of Incorporation of the Corporation, as
amended, is hereby further amended by deleting the definition
of "Reserved Employee Stock" contained in Article Four,
Section 6 thereof and replacing it with the following
definition:
"Reserved Employee Stock" means up to three million seven
hundred fifty thousand (3,750,000) shares of Common Stock (including
shares of Common Stock covered by presently outstanding options)
issuable to employees, directors or consultants of the Corporation and
its Subsidiaries as determined by the Corporation's Board of Directors
with vesting and buy-back restrictions approved by the Board."
4. The amendment set forth above was duly adopted in accordance
with the provisions of Sections 242 and 228 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned, being the Chief Executive Officer
of the Corporation, for the purpose of amending the Certificate of Incorporation
of the Corporation pursuant to Section 242 of the General Corporation Law of the
State of Delaware, does make and file this Certificate, hereby declaring and
certifying that the facts herein stated are true, and accordingly have hereunto
set my hand this 23rd day of January, 1998.
VERIO INC.
By: /s/ JUSTIN L. JASCHKE
-------------------------
Justin L. Jaschke
Chief Executive Officer
<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 fifty-six million two hundred
seventeen thousand (156,217,000) shares, one hundred twenty-five
million (125,000,000) shares of which shall be common stock, par
value $.001 per share (the "Common Stock"), 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"), five million
(5,000,000) shares of which shall be additional Preferred Stock,
par value $.001 per share (the "Undesignated Preferred Stock"),
and 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, by resolution or resolutions, is
hereby authorized to create or provide for, and to fix or alter
the rights, preferences, privileges, and
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<PAGE> 2
restrictions granted to or imposed upon any series of,
Undesignated Preferred Stock (including without limitation the
dividend rights, conversion rights, exchange rights, voting
rights, rights and terms of redemption (including sinking and
purchase fund provisions), the redemption price or prices,
liquidation preferences and other rights with respect to any
distribution of assets), 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. 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 Corporation in
which (a) the per share price is at least fifteen dollars ($15.00)
(as adjusted for stock splits, recapitalizations and the like) and
(b) the gross proceeds to the Corporation (before underwriting
discounts, commissions and fees) are at least thirty million
dollars ($30,000,000) (a "Qualifying IPO") the Board of Directors
shall be constituted as follows:
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<PAGE> 4
(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.
(ii) Directors need not be stockholders of the Corporation.
(iii) The number of directors of the Corporation shall not
be less than five (5) nor more than nine (9) until changed by
amendment of this Certificate of Incorporation or the Bylaws duly
adopted by the vote 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
this Certificate of Incorporation or 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. Subject
to the foregoing provisions for changing the number of directors,
the number of directors of the Corporation has been fixed at nine
(9).
(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. At the 1999
annual meeting of stockholders, Class I directors shall be elected
for a one-year term, Class II directors for a two-year term and
Class III directors for a three-year term. At each succeeding
annual meeting of stockholders beginning in 2000, successors to
the class of directors whose terms expire at that annual meeting
shall be elected for a three- year term. 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
4
<PAGE> 5
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.
(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
5
<PAGE> 6
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:
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
6
<PAGE> 7
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
a Qualifying 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:
ARTICLE ELEVEN
Effective from and after a Qualifying 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.
7
<PAGE> 8
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
8
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF DESIGNATION
ESTABLISHING SERIES D PREFERRED STOCK
OF
VERIO INC.
VERIO INC., a corporation organized and existing under the General
Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
That, pursuant to the authority conferred upon the Board of Directors by
the Certificate of Incorporation, as amended and restated, of said corporation,
and pursuant to the provisions of Section 151 of the General Corporation Law of
the State of Delaware, said Board of Directors, at a meeting held on December
19, 1997, adopted a resolution providing for the number, designation, powers
and preferences, and the qualifications, limitations and restrictions thereof,
of a series of Preferred Stock, which resolution is as follows:
"RESOLVED, that the Corporation create and issue a series of
Preferred Stock of the Corporation consisting of 10,000,000
shares, that the officers of the Corporation be, and they
hereby are, authorized, directed and empowered to make,
execute and file, or cause to be filed, with the Secretary of
State of Delaware, a certificate of designation of the
relative rights, preferences, privileges and restrictions of
such series of Preferred Stock and that the Board of Directors
does hereby fix and determine the number, designation, powers
and preferences, and the qualifications, limitations and
restrictions and other matters relating to such 10,000,000
shares of Preferred Stock as follows:
Section 1. Designation of Series; Rank.
(a) Five Million (5,000,000) of the authorized shares of Preferred Stock
are hereby designated "Series D Convertible Preferred Stock" (the "SERIES D
PREFERRED") of which Three Million (3,000,000) are hereby designated "Series
D-1 Convertible Preferred Stock" (the "SERIES D-1 Preferred").
(b) With respect to the payment of dividends, the Series D Preferred shall
be junior to the Series C Preferred, Series B Preferred and Series A Preferred,
and shall be senior to the Common Stock. With respect to the distribution of
assets upon liquidation, dissolution or winding up, the Series D Preferred
shall rank junior to the Series C Preferred, Series B Preferred and Series A
Preferred, and shall be senior to the Common Stock. The Series C
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Preferred, Series B Preferred and Series A Preferred are collectively referred
to herein as the "Convertible Preferred."
Section 2. Dividends.
(a) In the event that the Corporation declares or pays any dividends upon
the Common Stock (whether payable in cash, securities or other property) other
than dividends payable solely in shares of Common Stock, the Corporation shall
also declare and pay to the holders of the Series D Preferred at the same time
that it declares and pays such dividends to holders of Common Stock, the
dividends which would have been declared and paid with respect to the Common
Stock issuable upon conversion of the Series D Preferred had all of the
outstanding Series D Preferred been converted immediately prior to the record
date for such dividend, or if no record date is fixed, the date as of which the
record holders of Common Stock entitled to such dividends are to be determined.
(b) So long as any Series D Preferred remains outstanding, without the
prior written consent of the holders of two- thirds of the outstanding shares
of Series D Preferred (the "REQUIRED D HOLDERS"), the Corporation shall not,
nor shall it permit any Subsidiary to, directly or indirectly redeem, purchase
or otherwise acquire any Common Stock, nor shall the Corporation directly or
indirectly pay or declare any dividend or make any distribution upon any Common
Stock. The provisions of this Section 2(b) shall not, however, apply to (i)
the acquisition of shares of any Common Stock solely in exchange for shares of
Common Stock, (ii) the payment of cash dividends on the Common Stock to the
extent that equivalent dividends are paid on the Series A Preferred, Series B
Preferred and Series C Preferred as provided in the Amended and Restated
Certificate of Incorporation, and Series D Preferred as provided above, or
(iii) any repurchase of any Reserved Employee Stock from former employees,
directors or consultants in connection with termination of employment or
service as a director or consultant pursuant to contractual repurchase rights
or that is otherwise approved by the Corporation's Board of Directors.
Section 3. Liquidation Rights.
(a) Upon any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, before any distribution or payment shall be
made to the holders of Common Stock and after payment of the full liquidation
preference of the Series A Preferred, Series B Preferred and Series C Preferred
as set forth in Sections 3(a), 3(b) and 3(c) of Article Four of the Amended and
Restated Certificate of Incorporation, the holders of each subseries of Series
D Preferred shall be entitled to be paid out of the remaining assets of the
Corporation an amount with respect to each share of Series D Preferred of such
subseries equal to the respective liquidation value (for each such subseries,
its "SERIES D LIQUIDATION VALUE") for such subseries. The Series D Liquidation
Value for each subseries of Series D Preferred shall be an amount equal to (i)
the original issue price for such subseries (for each such subseries, its
"ORIGINAL
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SERIES D ISSUE PRICE") plus (ii) all declared but unpaid dividends thereon.
The Original Series D Issue Price for the Series D-1 Preferred shall be the sum
of Fifteen Dollars ($15.00), as appropriately adjusted for any future stock
splits, stock combinations, stock dividends or similar transactions affecting
the Series D-1 Preferred. If the remaining assets shall be insufficient to
make payment in full to all holders of Series D Preferred, then such assets
shall be distributed among the holders of Series D Preferred at the time
outstanding, ratably in proportion to the full amounts to which they would
otherwise be respectively entitled.
(b) Thereafter, the remaining assets of the Corporation legally available
for distribution, if any, shall be distributed to the holders of Common Stock.
The holders of Series D Preferred and Convertible Preferred shall be entitled
to participate in distributions to holders of the Common Stock such that,
giving effect to all distributions pursuant to Sections 3(a), 3(b) and 3(c) of
Article Four of the Amended and Restated Certificate of Incorporation in
relation to the Convertible Preferred, and Section 3(a) hereunder in relation
to the Series D Preferred, and all exercises of Options and conversions of
Convertible Securities effected on or prior to the date on which distributions
are made to holders of Common Stock, the holders of each subseries of Series D
Preferred, and the holders of Convertible Preferred receive aggregate
distributions equal to the greater of the respective Series D Liquidation Value
applicable to such subseries, the Series C Liquidation Value, the Series B
Liquidation Value or the Series A Liquidation Value, as the case may be, or the
amounts that such holders would have received if the holders of such subseries
of Series D Preferred, and holders of Convertible Preferred, as the case may
be, had been converted into Common Stock immediately prior to such liquidation,
dissolution or winding up of the Corporation.
Section 4. Conversion Rights. The holders of the shares of the Series
D Preferred shall have the following rights with respect to the conversion into
shares of Common Stock:
(a) Optional Conversion. Subject to and in compliance with the provisions
of this Section 4, any shares of each subseries of Series D Preferred may, at
the option of the holder, be converted at any time into fully-paid and
nonassessable shares of Common Stock. The number of shares of Common Stock to
which a holder of such subseries of Series D Preferred shall be entitled upon
conversion shall be the product obtained by multiplying the "Series D
Conversion Rate" for such subseries then in effect (determined as provided in
Section 4(b)) by the number of shares of such subseries of Series D Preferred
being converted.
(b) Conversion Rate. The conversion rate in effect at any time for
conversion of each subseries of Series D Preferred (the " SERIES D CONVERSION
RATE") shall be the quotient obtained by dividing the Original Series Issue
Price for such subseries, plus any declared but unpaid dividends thereon, by
the "Series D Conversion Price" for such subseries calculated as provided in
Section 4(c).
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(c) Conversion Price. The conversion price for each subseries of the
Series D Preferred (the "SERIES D CONVERSION PRICE") shall initially be the
Original Series D Issue Price for such subseries and shall be adjusted from
time to time in accordance with this Section 4. All references to the Series D
Conversion Price herein shall mean the Series D Conversion Price for such
subseries as so adjusted. If and whenever on or after the date that the first
share of any subseries of Series D Preferred is issued (the "ORIGINAL ISSUE
DATE") the Corporation issues or sells, or in accordance with this Section 4(c)
is deemed to have issued or sold, any shares of its Common Stock (other than
pursuant to a Permitted Issuance) for a consideration per share less than the
Series D Conversion Price for such subseries in effect immediately prior to the
time of such issue or sale, then immediately upon such issue or sale or deemed
issue or sale the Series D Conversion Price for such subseries shall be reduced
to the amount determined by dividing (a) the sum of (1) the product derived by
multiplying the Series D Conversion Price for such subseries in effect
immediately prior to such issue or sale by the number of shares of Common Stock
Deemed Outstanding immediately prior to such issue or sale, plus (2) the
consideration, if any, received or deemed to have been received by the
Corporation upon such issue or sale, by (b) the number of shares of Common
Stock Deemed Outstanding immediately after such issue or sale. For purposes of
determining the adjusted Series D Conversion Price for such subseries, the
following shall be applicable (it being understood that none of the foregoing
shall be applicable to a Permitted Issuance):
(i) Issuance of Rights or Options. If the Corporation in any manner
grants or sells any Options and the price per share for which Common Stock
is issuable upon the exercise of such Options, or upon conversion or
exchange of any Convertible Securities issuable upon exercise of such
Options, is less than the Series D Conversion Price for such subseries in
effect immediately prior to the time of the granting or sale of such
Options, then the total maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon conversion or exchange of the
total maximum amount of such Convertible Securities issuable upon the
exercise of such Options shall be deemed to have been issued and sold by
the Corporation at the time of the granting or sale of such Options for
such price per share. For purposes of this paragraph, the "price per share
for which Common Stock is issuable" shall be determined by dividing (A) the
total amount, if any, received or receivable by the Corporation as
consideration for the granting or sale of such Options, plus the minimum
aggregate amount of additional consideration payable to the Corporation
upon exercise of all such Options, plus in the case of such Options which
relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the
issuance or sale of such Convertible Securities and the conversion or
exchange thereof, by (B) the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon the conversion or
exchange of all such Convertible Securities issuable upon the exercise of
such Options. No further adjustment of the Series D Conversion Price for
such subseries shall be made when Convertible Securities are actually
issued upon the exercise of such Options or when Common Stock is actually
issued upon the exercise of such Options or the conversion or exchange of
such Convertible Securities.
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(ii) Issuance of Convertible Securities. If the Corporation in any
manner issues or sells any Convertible Securities and the price per share
for which Common Stock is issuable upon conversion or exchange thereof is
less than the Series D Conversion Price for such subseries in effect
immediately prior to the time of such issue or sale, then the maximum
number of shares of Common Stock issuable upon conversion or exchange of
such Convertible Securities shall be deemed to have been issued and sold by
the Corporation at the time of the issuance or sale of such Convertible
Securities for such price per share. For the purposes of this paragraph,
the "price per share for which Common Stock is issuable" shall be
determined by dividing (A) the total amount received or receivable by the
Corporation as consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration,
if any, payable to the Corporation upon the conversion or exchange thereof,
by (B) the total maximum number of shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities. No further
adjustment of the Series D Conversion Price for such subseries shall be
made when Common Stock is actually issued upon the conversion or exchange
of such Convertible Securities, and if any issue or sale of such
Convertible Securities is made upon exercise of any Options for which
adjustments of the Series D Conversion Price for such subseries had been or
are to be made pursuant to other provisions of this Section 4, no further
adjustment of the Series D Conversion Price for such subseries shall be
made by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate. If the purchase price
provided for in any Options, the additional consideration, if any, payable
upon the conversion or exchange of any Convertible Securities or the rate
at which any Convertible Securities are convertible into or exchangeable
for Common Stock changes at any time, the Series D Conversion Price for
such subseries in effect at the time of such change shall be immediately
adjusted to the Series D Conversion Price for such subseries which would
have been in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time initially
granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option or the termination of any
right to convert or exchange any Convertible Security without the exercise
of any such Option or right, the Series D Conversion Price for such
subseries then in effect hereunder shall be adjusted immediately to the
Series D Conversion Price for such subseries which would have been in
effect at the time of such expiration or termination had such Option or
Convertible Security, to the extent outstanding immediately prior to such
expiration or termination, never been issued.
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(v) Calculation of Consideration Received. If any Common Stock, Option
or Convertible Security is issued or sold or deemed to have been issued or
sold for cash, the consideration received therefor shall be deemed to be
the amount received by the Corporation therefor (net of discounts,
commissions and related expenses). If any Common Stock, Option or
Convertible Security is issued or sold for a consideration other than cash,
the amount of the consideration other than cash received by the Corporation
shall be the fair value of such consideration. If any Common Stock, Option
or Convertible Security is issued to the owners of the non- surviving
entity in connection with any merger in which the Corporation is the
surviving corporation, the amount of consideration therefor shall be deemed
to be the fair value of such portion of the net assets and business of the
non-surviving entity as is attributable to such Common Stock, Option or
Convertible Security, as the case may be. The fair value of any
consideration other than cash and securities shall be determined by the
Board of Directors of the Corporation.
(vi) Integrated Transactions. In case any Option is issued in
connection with the issue or sale of other securities of the Corporation,
together comprising one integrated transaction in which no specific
consideration is allocated to such Option by the parties thereto, the
Option shall be deemed to have been issued for a consideration of $.01.
(vii) Treasury Shares. The number of shares of Common Stock
outstanding at any give time shall not include shares owned or held by or
for the account of the Corporation or any Subsidiary, and the disposition
of any shares so owned or held shall be considered an issue or sale of
Common Stock.
(d) Adjustment for Stock Splits and Combinations. If the Corporation shall
at any time or from time to time after the Original Issue Date with respect to
any subseries of Series D Preferred effect a subdivision of the outstanding
Common Stock, the Series D Conversion Price for such subseries in effect
immediately before that subdivision shall be proportionately decreased.
Conversely, if the Corporation shall at any time or from time to time after the
Original Issue Date with respect to any subseries of Series D Preferred combine
the outstanding shares of Common Stock into a smaller number of shares, the
Series D Conversion Price for such subseries in effect immediately before the
combination shall be proportionately increased. Any adjustment under this
Section 4(d) shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(e) Adjustment for Common Stock Dividends and Distributions. If the
Corporation at any time or from time to time after the Original Issue Date with
respect to any subseries of Series D Preferred makes, or fixes a record date
for the determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in additional shares of Common Stock, in
each such event the Series D Conversion Price for such subseries then in effect
shall be decreased as of the time of such issuance or, in the
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event such record date is fixed, as of the close of business on such record
date, by multiplying the Series D Conversion Price for such subseries then in
effect by a fraction (1) the numerator of which is the total number of shares
of Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date, and (2) the denominator
of which is the total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of business on such
record date plus the number of shares of Common Stock issuable in payment of
such dividend or distribution; provided, however, that if such record date is
fixed and such dividend is not fully paid or if such distribution is not fully
made on the date fixed therefor, the Series D Conversion Price for such
subseries shall be recomputed accordingly as of the close of business on such
record date and thereafter the Series D Conversion Price for such subseries
shall be adjusted pursuant to this Section 4(e) to reflect the actual payment
of such dividend or distribution.
(f) Adjustments for Other Dividends and Distributions. If the Corporation
at any time or from time to time after the Original Issue Date with respect to
any subseries of Series D Preferred makes, or fixes a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Corporation other than shares
of Common Stock, in each such event provision shall be made so that the holders
of such subseries of the Series D Preferred shall receive upon conversion
thereof, in addition to the number of shares of Common Stock receivable
thereupon, the amount of other securities of the Corporation which they would
have received had their subseries of Series D Preferred been converted into
Common Stock on the date of such event and had they thereafter, during the
period from the date of such event to and including the conversion date,
retained such securities receivable by them as aforesaid during such period,
subject to all other adjustments called for during such period under this
Section 4 with respect to the rights of the holders of such subseries of the
Series D Preferred or with respect to such other securities by their terms.
(g) Adjustment for Reclassification, Exchange and Substitution. If at any
time or from time to time after the Original Issue Date with respect to any
subseries of Series D Preferred, the Common Stock issuable upon the conversion
of such subseries of the Series D Preferred is changed into the same or a
different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than a subdivision or
combination of shares or stock dividend or a reorganization, merger or
consolidation provided for elsewhere in this Section 4), in any such event each
holder of such subseries of Series D Preferred shall have the right thereafter
to convert such stock into the kind and amount of stock and other securities
and property receivable in connection with such recapitalization,
reclassification or other change with respect to the maximum number of shares
of Common Stock into which such shares of such subseries of Series D Preferred
could have been converted immediately prior to such recapitalization,
reclassification or change, all subject to further adjustments as provided
herein or with respect to such other securities or property by the terms
thereof.
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(h) Reorganizations, Mergers or Consolidations. If at any time or from
time to time after the Original Issue Date with respect to any subseries of
Series D Preferred, there is a capital reorganization of the Common Stock or a
merger or consolidation of the Corporation affecting the Common Stock (other
than a recapitalization, subdivision, combination, reclassification, exchange
or substitution of shares provided for elsewhere in this Section 4), as a part
of such capital reorganization, merger or consolidation, provision shall be
made so that the holders of such subseries of Series D Preferred shall
thereafter be entitled to receive upon conversion thereof the number of shares
of stock or other securities or property of the Corporation to which a holder
of the maximum number of shares of Common Stock deliverable upon conversion
would have been entitled in connection with such capital reorganization, merger
or consolidation, subject to adjustment in respect of such stock or securities
by the terms thereof. In any case, appropriate adjustment shall be made in the
application of the provisions of this Section 4 with respect to the rights of
the holders of such subseries of Series D Preferred after the capital
reorganization to the end that the provisions of this Section 4 (including
adjustment of the Series D Conversion Price for such subseries then in effect
and the number of shares issuable upon conversion of the Series D Preferred for
such subseries) shall be applicable after that event and be as nearly
equivalent as practicable. The Corporation shall not be a party to any
reorganization, merger or consolidation in which the Corporation is not the
surviving entity unless the entity surviving such reorganization, merger or
consolidation assumes all of the Corporation's obligations hereunder.
(i) Certificate of Adjustment. In each case of an adjustment or
readjustment of the Series D Conversion Price for any subseries or the number
of shares of Common Stock or other securities issuable upon conversion of such
subseries of Series D Preferred, the Corporation, at its expense, shall compute
such adjustment or readjustment in accordance with the provisions hereof and
prepare a certificate showing such adjustment or readjustment, and shall mail
such certificate, by first class mail, postage prepaid, to each registered
holder of such subseries of Series D Preferred at the holder's address as shown
in the Corporation's books. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (1) the consideration received
or deemed to be received by the Corporation for any additional shares of Common
Stock issued or sold or deemed to have been issued or sold, (2) the Series D
Conversion Price for such subseries in effect before and after such adjustment,
(3) the number of additional shares of Common Stock issued or sold or deemed to
have been issued or sold, and (4) the type and amount, if any, of other
property which at the time would be received upon conversion of the Series D
Preferred for such subseries.
(j) Notices of Record Date. Upon (i) any taking by the Corporation of a
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or other
distribution, or (ii) any Acquisition (as defined in Section 3(e) of the
Amended and Restated Certificate of Incorporation) or other capital
reorganization of the Corporation, any reclassification or recapitalization of
the capital stock of the Corporation, any merger or consolidation of the
Corporation with
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or into any other corporation, any Asset Transfer (as defined in Section 3(e)
of the Amended and Restated Certificate of Incorporation), or any voluntary or
involuntary dissolution, liquidation or winding up of the Corporation, the
Corporation shall mail to each holder of each subseries of Series D Preferred
at least twenty (20) days prior to the record date specified therein a notice
specifying (1) the date on which any such record is to be taken for the purpose
of such dividend or distribution and a description of such dividend or
distribution, (2) the date on which any such Acquisition, reorganization,
reclassification, transfer, consolidation, merger, Asset Transfer, dissolution,
liquidation or winding up is expected to become effective, and (3) the date, if
any, that is to be fixed for determining the holders of record of Common Stock
(or other securities) that shall be entitled to exchange their shares of Common
Stock (or other securities) for securities or other property deliverable upon
such Acquisition, reorganization, reclassification, transfer, consolidation,
merger, Asset Transfer, dissolution, liquidation or winding up.
(k) Automatic Conversion. Each share of Series D Preferred shall
automatically be converted into fully-paid and nonassessable shares of Common
Stock, based on the then-effective respective Series D Conversion Rate
applicable to each subseries thereof, at any time upon the earlier to occur of
(i) the election of all the Convertible Preferred to convert into Common Stock
(which election requires the affirmative vote of the Required A Holders, the
Required B Holders and the Required C Holders, each voting as a separate
class), and (ii) the closing of a firmly underwritten public offering pursuant
to an effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of Common Stock for the account of the
Corporation in which (A) the per share price to the public is at least Fifteen
Dollars ($15.00) per share (as adjusted for stock splits, recapitalizations and
the like) and (B) the gross cash proceeds to the Corporation (before
underwriting discounts, commissions and fees) are at least Thirty Million
Dollars ($30,000,000). Upon such automatic conversion, all declared but unpaid
dividends, if any, shall be paid in accordance with Section 4(l)(ii).
(l) Mechanics of Conversion.
(i) Optional Conversion. Each holder of Series D Preferred who desires
to convert the same into shares of Common Stock pursuant to this Section 4
shall surrender the certificate or certificates therefor, duly endorsed, at
the office of the Corporation or any transfer agent for the Series D
Preferred, and shall give written notice to the Corporation at such office
that such holder elects to convert the same. Such notice shall state the
number of shares of Series D Preferred being converted. Thereupon, the
Corporation shall promptly issue and deliver at such office to such holder
a certificate or certificates for the number of shares of Common Stock to
which such holder is entitled and shall promptly pay in cash or, to the
extent sufficient funds are not then legally available therefor, in Common
Stock (at the Common Stock's fair market value determined by the Board of
Directors as of the date of such conversion) or a combination of cash and
Common Stock, any declared but unpaid dividends on the shares of Series D
Preferred being converted. Such conversion shall be deemed to have been
made
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at the close of business on the date of such surrender of the certificate
representing the shares of Series D Preferred to be converted, and the
person entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder of such
shares of Common Stock on such date.
(ii) Automatic Conversion. Upon the occurrence of either of the events
specified in Section 4(k) above, the outstanding shares of Series D
Preferred shall be converted into Common Stock automatically without any
further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Corporation or
its transfer agent; provided, however, that the Corporation shall not be
obligated to issue certificates evidencing the shares of Common Stock
issuable upon such conversion unless the certificates evidencing such
shares of Series D Preferred are either delivered to the Corporation or its
transfer agent as provided below, or the holder notifies the Corporation or
its transfer agent that such certificates have been lost, stolen or
destroyed and executes an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection with
such certificates. Upon surrender by any holder of the certificates
formerly representing shares of Series D Preferred at the office of the
Corporation or any transfer agent for the Series D Preferred, there shall
be issued and delivered to such holder promptly at such office and in its
name as shown on such surrendered certificate or certificates, a
certificate or certificates for the number of shares of Common Stock into
which the shares of Series D Preferred surrendered were convertible on the
date on which such automatic conversion occurred, and the Corporation shall
promptly pay in cash or, to the extent sufficient funds are not legally
available therefor, in Common Stock (at the Common Stock's fair market
value determined by the Board as of the date of such conversion) or a
combination of cash and Common Stock, all declared but unpaid dividends on
the shares of Series D Preferred being converted. Until surrendered as
provided above, each certificate formerly representing shares of Series D
Preferred shall be deemed for all corporate purposes to represent the
number of shares of Common Stock resulting from such automatic conversion.
(m) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of Series D Preferred. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share
of Series D Preferred by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion
would result in the issuance of any fractional share, the Corporation shall, in
lieu of issuing any fractional share, pay cash equal to the product of such
fraction multiplied by the Common Stock's fair market value (as determined by
the Board) on the date of conversion.
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Section 5. Certain Definitions.
"Common Stock Deemed Outstanding" means, at any given time, the sum of the
number of shares of Common Stock actually outstanding at such time, plus the
number of shares of Common Stock issuable pursuant to Options and Convertible
Securities outstanding on December 31, 1997 to the extent that such Options
and/or Convertible Securities remain outstanding as of the date of
determination, plus the number of shares of Common Stock deemed to have been
issued pursuant to subparagraphs 5(c)(i) and 5(c)(ii) of the Amended and
Restated Certificate of Incorporation or subparagraphs 4(c)(i) and 4(c)(ii)
hereunder whether or not the Options or Convertible Securities are actually
exercisable at such time.
"Convertible Securities" means any stock or securities directly or
indirectly convertible into or exchangeable for Common Stock.
"Options" means any rights, warrants or options to subscribe for or
purchase Common Stock or Convertible Securities.
"Permitted Issuance" means (i) any issuance of Common Stock upon conversion
of shares of Convertible Preferred and Series D Preferred, (ii) any issuance of
Reserved Employee Stock, (iii) any issuance of warrants to purchase equity
securities of the Corporation in connection with a commercial loan or leasing
transaction approved by the Corporation's Board of Directors or (iv) any
issuance of Common Stock or warrants to purchase equity securities (and the
issuance of such equity securities upon the exercise of such warrants) of the
Corporation in connection with a debt securities financing (as part of a unit
or on a contingent basis) approved by the Corporation's Board of Directors.
"Required A Holders" means the holders of two-thirds of the outstanding
shares of Series A Preferred.
"Required B Holders" means the holders of two-thirds of the outstanding
shares of Series B Preferred.
"Required C Holders" means the holders of two-thirds of the outstanding
shares of Series C Preferred.
"Reserved Employee Stock" means up to Three Million Seven Hundred Fifty
Thousand (3,750,000) shares of Common Stock (including shares of Common Stock
covered by presently outstanding options) issuable to employees, directors or
consultants of the Corporation and its Subsidiaries as determined by the
Corporation's Board of Directors with vesting and buy-back restrictions
approved by the Board.
"Subsidiary" means any corporation of which the shares of outstanding
capital stock possessing the voting power (under ordinary circumstances) in
electing the board of directors are, at the time as of which any determination
is being made, owned by the Corporation either directly or indirectly through
Subsidiaries.
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Section 6. Voting Rights. Except as otherwise specifically provided
herein or as required by the General Corporation Law of the State of Delaware,
the holders of each subseries of Series D Preferred shall not vote with the
shares of the Common Stock of the Corporation. Upon any matter for which the
Series D Preferred or any subseries is entitled to vote, the holders may act by
vote at a meeting or by written consent in the same manner as the Common Stock
in either case upon the following basis: each holder of shares of Series D
Preferred shall be entitled to such number of votes as shall be equal to the
whole number of shares of Common Stock into which such holder's aggregate
number of Series D Preferred are convertible pursuant to Section 4 above as of
the close of business on the record date fixed for such meeting or the
effective date of such written consent.
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IN WITNESS WHEREOF, Verio Inc. has caused this Certificate of
Designation to be signed by its Vice President, General Counsel and Secretary
on this 31st day of December, 1997.
VERIO INC.
By: /s/ Carla Hamre Donelson
---------------------------------------
Carla Hamre Donelson
Vice President, General Counsel
and Secretary
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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.
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.
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,
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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.
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
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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 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.
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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 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
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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
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
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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, (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
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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.
18. Informal Action by Stockholders. Effective from and after a
Qualifying IPO (as defined in the Certificate of Incorporation), 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 a Qualifying
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
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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 a Qualifying IPO (as defined in the
Certificate of Incorporation), 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 a Qualifying IPO (as defined
in the Certificate of Incorporation), 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).
(4) 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. At the 1999 annual meeting of
stockholders, Class I directors shall be elected for a one-year term, Class II
directors for a two-year term and Class III directors for a three-year term.
At
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each succeeding annual meeting of stockholders beginning in 2000, successors to
the class of directors whose terms expire at that annual meeting shall be
elected for a three-year term. 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.
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
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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
11
<PAGE> 12
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
12
<PAGE> 13
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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<PAGE> 14
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,
14
<PAGE> 15
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 48, 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
15
<PAGE> 16
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,
16
<PAGE> 17
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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<PAGE> 18
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.
/s/ Carla Donelson
-------------------------------
Carla Donelson, Secretary
21
<PAGE> 1
EXHIBIT 10.1
================================================================================
VERIO INC., as Issuer
and
FIRST TRUST NATIONAL ASSOCIATION, as Trustee
-----------------------------------
INDENTURE
Dated as of June 24, 1997
-----------------------------------
$150,000,000
13 1/2% Senior Notes due 2004, Series A
13 1/2% Senior Notes due 2004, Series B
================================================================================
<PAGE> 2
Reconciliation and tie between Trust Indenture Act of 1939,
as amended, and Indenture, dated as of June 24, 1997
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
- ------------------ ------------
<S> <C>
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) . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.03, 13.04
(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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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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 1.08. Conflict with Trust Indenture Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 1.09. Effect of Headings and Table of Contents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
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
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ARTICLE THREE
THE NOTES
Section 3.01. Title and Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 3.02. Registrar and Paying Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 3.13. Paying Agent To Hold Money in Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 3.14. Treasury Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 3.15. Deposits of Monies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
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. . . . . . . . . . . . . . . . . . . 53
Section 4.02. Defeasance and Discharge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 4.03. Covenant Defeasance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 4.06. Reinstatement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
ARTICLE FIVE
REMEDIES
Section 5.01. Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
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Section 5.02. Acceleration of Maturity Rescission and Annulment. . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 5.03. Collection of Indebtedness and Suits for Enforcement by Trustee. . . . . . . . . . . . . . . . . . 61
Section 5.04. Trustee May File Proofs of Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 5.05. Trustee May Enforce Claims Without Possession of Notes. . . . . . . . . . . . . . . . . . . . . . 63
Section 5.06. Application of Money Collected. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 5.07. Limitation on Suits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 5.08. Unconditional Right of Holders To Receive Principal, Premium and Interest. . . . . . . . . . . . . 65
Section 5.09. Restoration of Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 5.10. Rights and Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 5.11. Delay or Omission Not Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 5.12. Control by Majority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 5.13. Waiver of Past Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 5.14. Undertaking for Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 5.15. Waiver of Stay, Extension or Usury Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 5.16. Unconditional Right of Holders To Receive Payment. . . . . . . . . . . . . . . . . . . . . . . . . 67
ARTICLE SIX
THE TRUSTEE
Section 6.01. Certain Duties and Responsibilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 6.02. Notice of Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 6.03. Certain Rights of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 6.04. Trustee Not Responsible for Recitals, Dispositions of Notes or Application of
Proceeds Thereof. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 6.05. Trustee and Agents May Hold Notes; Collections; Etc. . . . . . . . . . . . . . . . . . . . . . . . 71
Section 6.06. Money Held in Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 6.07. Compensation and Indemnification of Trustee and Its Prior Claim. . . . . . . . . . . . . . . . . . 72
Section 6.08. Conflicting Interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 6.09. Corporate Trustee Required; Eligibility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 6.10. Resignation and Removal; Appointment of Successor Trustee. . . . . . . . . . . . . . . . . . . . . 73
Section 6.11. Acceptance of Appointment by Successor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
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Section 6.12. Merger, Conversion, Amalgamation, Consolidation or Succession to Business. . . . . . . . . . . . . 76
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 7.02. Communications of Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 7.03. Reports by Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 7.04. Reports by Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
Section 8.01. Company May Consolidate, etc., Only on Certain Terms. . . . . . . . . . . . . . . . . . . . . . . 79
Section 8.02. Successor Substituted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
ARTICLE NINE
SUPPLEMENTAL INDENTURES AND WAIVERS
Section 9.01. Supplemental Indentures, Agreements and Waivers Without Consent of Holders. . . . . . . . . . . . 81
Section 9.02. Supplemental Indentures, Agreements and Waivers with Consent of Holders. . . . . . . . . . . . . . 82
Section 9.03. Execution of Supplemental Indentures, Agreements and Waivers. . . . . . . . . . . . . . . . . . . 83
Section 9.04. Effect of Supplemental Indentures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 9.05. Conformity with Trust Indenture Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Section 9.06. Reference in Notes to Supplemental Indentures. . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Section 9.07. Record Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Section 9.08. Revocation and Effect of Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
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ARTICLE TEN
COVENANTS
Section 10.01. Payment of Principal, Premium and Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 10.02. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 10.03. Money for Note Payments To Be Held in Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Section 10.04. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Section 10.05. Payment of Taxes and Other Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Section 10.06. Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Section 10.07. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Section 10.08. Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Section 10.09. Provision of Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Section 10.10. Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Section 10.11. Limitation on Additional Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Section 10.12. Statement by Officers as to Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Section 10.13. Limitation on Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Section 10.14. Limitation on Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Section 10.15. Disposition of Proceeds of Asset Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Section 10.16. Limitation on Liens Securing Certain Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . 103
Section 10.17. Limitation on Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Section 10.18. Limitation on Certain Guarantees and Indebtedness of Restricted Subsidiaries. . . . . . . . . . . . 103
Section 10.19. Limitation on Issuances and Sales of Preferred Stock by Restricted Subsidiaries . . . . . . . . . . 104
Section 10.20. Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Section 10.21. Limitation on Designations of Unrestricted Subsidiaries . . . . . . . . . . . . . . . . . . . . . . 105
Section 10.22. Compliance Certificates and Opinions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Section 10.23. Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Section 10.24. Limitations on Status as Investment Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Section 10.25. Ratings of the Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Section 10.26. Escrow Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
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ARTICLE ELEVEN
SATISFACTION AND DISCHARGE
Section 11.01. Satisfaction and Discharge of Indenture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Section 11.02. Application of Trust Money. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
ARTICLE TWELVE
REDEMPTION
Section 12.01. Notices to the Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Section 12.02. Selection of Notes To Be Redeemed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Section 12.03. Notice of Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Section 12.04. Effect of Notice of Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Section 12.05. Deposit of Redemption Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Section 12.06. Notes Redeemed or Purchased in Part. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
ARTICLE THIRTEEN
COLLATERAL AND SECURITY
Section 13.01. Escrow Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Section 13.02. Recording and Opinions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Section 13.03. Release of Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Section 13.04. Certificates of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Section 13.05. Authorization of Actions to Be Taken by the Trustee Under the Escrow Agreement. . . . . . . . . . 117
Section 13.06. Authorization of Receipt of Funds by the Trustee Under the Escrow Agreement. . . . . . . . . . . . 118
Section 13.07. Termination of Security Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
</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
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<PAGE> 9
INDENTURE, dated as of June 24, 1997, 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) 13
1/2% Senior Notes due 2004, Series A, and (ii) 13 1/2% Senior Notes due 2004,
Series B, to be issued in exchange for the 13 1/2% Senior Notes due 2004,
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 thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders (as hereinafter defined) of the
Notes, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.01. Definitions.
"Acquired Indebtedness" means Indebtedness of a person existing at
the time such person becomes a Restricted Subsidiary 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
<PAGE> 10
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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), (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 Subsidi-
<PAGE> 11
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aries 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.
"Board" means the Board of Directors of the Company.
<PAGE> 12
-4-
"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.
"Brooks" means Brooks Fiber Properties, Inc. (and its successors by
merger or consolidation) and its controlled Affiliates.
"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;
<PAGE> 13
-5-
(iii) commercial paper with a maturity of 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-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; and (v) money market funds which invest
substantially all of their assets in securities of the type described in the
preceding clauses (i) through (iv).
"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 Brooks, 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 Brooks, 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 (c) during any consecutive two-year period, individuals who at
the beginning of such period constituted the Board (together
<PAGE> 14
-6-
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 Brooks)
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.
"Collateral" shall have the meaning ascribed to such term in the
Escrow Agreement.
"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 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
<PAGE> 15
-7-
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 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.
<PAGE> 16
-8-
"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
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.
"Consolidated Pro Forma Interest Coverage Ratio" means, as of any
date of determination, the ratio of (i) Consolidated Pro Forma Operating Cash
Flow to (ii) Consolidated Interest Expense for the four-quarter period
immediately preceding the date of determination for which consolidated
financial statements of the Company are available; provided that (1) if the
Company or any of the Restricted Subsidiaries has incurred any Indebtedness
(whether through an Asset Acquisition, Asset Sale or otherwise) since the
beginning of such period and through the date of determination that remains
outstanding or if the transaction or series of transactions giving rise to the
need to calculate such ratio involves an incurrence of Indebtedness,
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to (A) such Indebtedness as if such Indebtedness
had been incurred on the first day of such period, except that if such
Indebtedness is incurred under a revolving credit facility (or similar
arrangement or under any predecessor revolving credit or similar arrangement)
the amount of interest expense associated therewith shall be the actual
interest expense during the applicable four-quarter period, and (B) the
discharge of any other Indebtedness repaid, repurchased, defeased or otherwise
discharged with the proceeds of such new Indebtedness as if such discharge
<PAGE> 17
-9-
had occurred on the first day of such period and (2) if, since the beginning of
such period, any Indebtedness of the Company or any of the Restricted
Subsidiaries has been repaid, repurchased, defeased or otherwise discharged
(whether through an Asset Acquisition, Asset Sale or otherwise) (other than
Indebtedness under a revolving credit or similar arrangement unless such
revolving credit Indebtedness has been permanently repaid and has not been
replaced), Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto as if such Indebtedness had been repaid,
repurchased, defeased or otherwise discharged on the first day of such period.
"Consolidated Pro Forma Operating Cash Flow" means, at any date of
determination, Consolidated Operating Cash Flow for the latest four fiscal
quarters for which consolidated financial statements of the Company are
available. For purposes of calculating "Consolidated Operating Cash Flow" for
any four fiscal quarter period 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 Pro Forma Operating Cash Flow" shall be deemed to have been a
Restricted Subsidiary at all times during such four fiscal quarter period and
(ii) any Subsidiary of the Company that is not a Restricted Subsidiary on the
Transaction Date shall be deemed not to have been a Restricted Subsidiary at
any time during such four fiscal quarter period. 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 four fiscal quarter period 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 four fiscal quarter period to
and including the Transaction Date (the "Reference Period"), as if such Asset
Sale or Asset Acquisition occurred on the first day of the Reference Period.
"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
<PAGE> 18
-10-
of the Company. The term "consolidated" has a correlative meaning to the
foregoing.
"Contingent Warrant Agreement" means the Contingent Warrant
Agreement dated as of June 24, 1997 between the Company and First Trust
National Association, as warrant agent, in the form annexed to this Indenture.
"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 party to such
transaction or series of transactions or an Affiliate of a party to such
transaction or series of related transactions.
<PAGE> 19
-11-
"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
described above.
"Escrow Account" means an escrow account established under the
Escrow Agreement for the deposit of a portion of the net proceeds from the sale
of the Notes (the "Initial Escrow Amount"), and the proceeds from the
investment thereof.
"Escrow Agent" means First Trust National Association, as Escrow
Agent pursuant to the Escrow Agreement until a successor escrow agent replaces
it in accordance with the provisions of the Escrow Agreement and thereafter
means such successor.
"Escrow Agreement" means the Escrow and Security Agreement dated as
of June 24, 1997 among the Company, the Trustee and the Escrow Agent.
"Euroclear" means Morgan Guaranty Trust Company of New York,
Brussels Office, as operator of the Euroclear System.
<PAGE> 20
-12-
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, together with the rules and regulations promulgated thereunder.
"Exchange Notes" means the 13 1/2% Senior Notes due 2004, 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.
"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 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
other-wise, 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.
"Holder" or "Noteholder" means a person in whose name a Note is
registered in the Note Register.
"Indebtedness" means, with respect to any person, without
duplication, (i) any liability, contingent or other-
<PAGE> 21
-13-
wise, 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 by the Company 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 Indebtedness. Indebtedness of any person that becomes
a Restricted Subsidiary shall
<PAGE> 22
-14-
be deemed incurred at the time that such a person becomes a Restricted
Subsidiary.
"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), the Escrow Agent and the Holders of the Notes under
this Indenture, the Escrow Agreement 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 13 1/2% Senior Notes due 2004, Series A,
of the Company.
"Initial Purchasers" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Lazard Freres & Co. LLC.
"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.
"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.
<PAGE> 23
-15-
"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
(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 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
<PAGE> 24
-16-
(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.
"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.
<PAGE> 25
-17-
"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 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.
<PAGE> 26
-18-
"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 June 17,
1997 pursuant to which the Notes were offered, and any supplement thereto.
"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,
<PAGE> 27
-19-
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 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;
<PAGE> 28
-20-
(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 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 Shareholders Agreement, each as in effect on the Issue Date.
<PAGE> 29
-21-
"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;
(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 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
<PAGE> 30
-22-
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;
(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 $70.0 million at any time outstanding;
(i) Indebtedness of the Company and/or any Restricted Subsidiary incurred
under any Permitted Equipment Financing or as a result of any Rollup of any
ISP, and any Refinancings thereof
<PAGE> 31
-23-
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;
(j) 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 $15.0
million at any time outstanding; and
(k) 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 $20.0 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 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 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
<PAGE> 32
-24-
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 (j) 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; 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.
<PAGE> 33
-25-
"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.
"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.
"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 June 24, 1997 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
<PAGE> 34
-26-
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 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 or the Series C 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 Re-
<PAGE> 35
-27-
stricted 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 Bureau 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 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
<PAGE> 36
-28-
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.
"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.
"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
<PAGE> 37
-29-
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 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 (vi) 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
<PAGE> 38
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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 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.
"U.S. Government Securities" means securities that are direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged.
"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.
"Warrant" means the contingent warrants if and when issuable
pursuant to the Contingent Warrant Agreement.
"Warrant Agreement" means the Contingent Warrant Agreement dated as
of June 24, 1997 between the Company and First Trust National Association as
Warrant Agreement.
"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.
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
</TABLE>
<PAGE> 39
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<TABLE>
<S> <C>
"Change of Control Offer" 10.11
"Change of Control Payment Date" 10.11
"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
"incur" 10.11
"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
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(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 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
<PAGE> 41
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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.
(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., 9250 East Costilla Avenue, Suite 400, Englewood,
<PAGE> 42
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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
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
<PAGE> 43
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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.
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 THE NOTE 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.
<PAGE> 44
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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.
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
<PAGE> 45
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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.
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 $150,000,000 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 June 15, 2004, and
the Notes shall bear interest at the rate of 13 1/2% 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 June 15 and
December 15, in each year, commencing on December 15, 1997, to the Holders of
record at the close of business on the June 1 and December 1, 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.
<PAGE> 46
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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 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.
<PAGE> 47
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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
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.
<PAGE> 48
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The Trustee shall authenticate (i) Initial Notes for original issue
in an aggregate principal amount not to exceed $150,000,000, (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 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
$150,000,000, 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.
<PAGE> 49
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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 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
<PAGE> 50
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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.
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.
<PAGE> 51
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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.
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 In-
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terest 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 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 Trus-
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tee 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. 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.
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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.
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.
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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.
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
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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 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:
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(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;
(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;
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(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;
(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):
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(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 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 in-
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terests 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 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
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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 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
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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
10.22 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 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
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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;
(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
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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 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.
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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, 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
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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.
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 (provided such 30 day grace period shall be inapplicable
for the first four interest payments due on the Notes); 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) or the Escrow Agreement, 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
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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 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;
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(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.
(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;
(xi) the Company shall assert or acknowledge in writing that the
Escrow Agreement is invalid or unenforceable; or
(xii) the Company shall have failed on the Issue Date to enter
into the Escrow Agreement or pursuant thereto fail to place the Initial
Escrow Amount (as defined in the Escrow Agreement) in the Escrow Account
held by the Escrow Agent for the benefit of the Holders of the Notes and
the Trustee.
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
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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 and be continuing (provided,
however, that an Event of Default specified in Section 5.01(i) need only have
occurred with respect to the first five Interest Payment Dates for the
provisions of this Section 5.03 to apply), 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 fi-
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nal 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 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;
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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, the Escrow
Agreement 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.
Section 5.06. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article,
including such amounts held pursuant to the Escrow Agreement, 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
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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 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
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Note 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 Note 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.
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.
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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 the Escrow Agreement 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
(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.
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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 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 or the Escrow
Agreement and any other provision of any Note, the right of any Holder of any
Note to receive payment of the
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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 the Escrow
Agreement, and no implied covenants or obligations shall be read into
this Indenture and the Escrow Agreement 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 and the Escrow Agreement; 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 or the Escrow Agreement.
(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 the Escrow Agreement 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 or the Escrow Agreement shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability
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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 and the Escrow Agreement 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
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
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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 or the Escrow Agreement 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 or the Escrow
Agreement 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 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
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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, in the Notes and in the Escrow
Agreement, 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 and
the Escrow Agreement, 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 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.
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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 Escrow Agreement or 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, 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.
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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 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.
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(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 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
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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.
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 no-
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tice 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 pur-
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suant 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, the Escrow Agreement 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
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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 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, the Escrow Agreement 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, the Escrow
Agreement 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 the Holders;
(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 this 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,
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(ix) release any Guarantee except in compliance with the terms of
the Indenture, or
(x) release any Liens created by the Escrow Agreement except in
accordance with the terms of the Escrow Agreement.
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 ap-
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plicable, 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 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
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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 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
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The City of New York, State of New York for such purposes. The Company will
give prompt written notice to the Trustee of any 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
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to the Trustee all sums so held in trust by such Paying Agent; and
(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
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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 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 disadvantageous in any material respect to
the Holders.
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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 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.
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 and until the close of business on the Change of Control Payment Date.
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
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date that such notice is required to be mailed will constitute a covenant
Default under Section 5.01(c).
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 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;
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(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
(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
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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.
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, create, incur, assume, issue, guarantee or in any
manner become directly or indirectly liable for or with respect to,
contingently or otherwise, the payment of (collectively to "incur") any
Indebtedness (including any Acquired Indebtedness), except for Permitted
Indebtedness (including Acquired Indebtedness to the extent it would constitute
Permitted Indebtedness); provided, 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 Consolidated Pro Forma
Interest Coverage Ratio would be greater than or equal to 1.8 to 1.0 if such
Indebtedness is incurred prior to June 30, 1999 or 2.5 to 1.0 if such
Indebtedness is incurred on or after June 30, 1999.
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.
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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, observed, performed and fulfilled its
obligations under this Indenture and the Escrow Agreement, 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 the Escrow Agreement 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 or a default under the Escrow Agreement 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 $[
]), 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;
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(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 July 1, 1997 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
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
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Date in an ISP which has been included as a Restricted Payment under this
clause (iii) pursuant to the last paragraph of this covenant 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 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,
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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 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
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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) Investments constituting Restricted Payments in (1) joint ventures
formed to provide services in furtherance of an Internet Service Business
of the Company and the ISPs or (2) 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 no more than $15.0 million
of Investments made pursuant to the preceding clause (1) shall be
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 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 covenant, amounts expended pursuant to clauses (i), (iv)(a), (iv)(b)(y),
(v), (vi) and (ix) (to the
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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 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 hereof, 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.
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 Company and/or any of the Restricted Subsidiaries, (ii)
transactions pursuant to agreements and arrangements existing on the Issue
Date, (iii) transactions among any of the Company or the Restricted
Subsidiaries, on the one hand, and any of the ISPs, on the other hand, provided
that (a) such transactions are in the ordinary course of business and are
related to or in furtherance of an
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Internet Service Business and (b) no 10% or more beneficial shareholder of
Common Stock of the Company or officer or director of the Company shall
beneficially own any Capital Stock of such ISP, (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) grants of customary registration rights with respect to
securities of the Company.
The Company 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 Company 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.
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)
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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 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
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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 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
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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
(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 10.10), 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.
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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.
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 (i) 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, or (ii) the Escrow Account.
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
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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
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 Subsidiaries
The Company (i) will not permit any Restricted Subsidiary to issue
any Preferred Stock (other than to the Company or a Restricted Subsidiary) and
(ii) will not permit any person (other than the Company or a Restricted
Subsidiary) to own any Preferred Stock of any 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
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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 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 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:
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(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
(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:
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(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.
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 opin-
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ion 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
sheet, income statement and statement of changes of cash flow) prepared in
accordance with GAAP and substantially in the form included in the Prospectus,
(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 this Prospectus, (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
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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 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.
Section 10.24. Limitations 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
Section 10.25. Ratings of the Notes.
The Company will use its best efforts to obtain a rating for the
Notes from each of Moody's (or any successor thereto) and S&P (or any successor
thereto) within 18 months of the Issue Date.
Section 10.26. Escrow Account.
The Company shall, on the date of this Indenture, enter into the
Escrow Agreement and, pursuant thereto, shall place the Initial Escrow Amount
in the Escrow Account held by the Escrow Agent for the benefit of the Holders
of the Notes and the Trustee.
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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;
(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.
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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' 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
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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, 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;
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(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.
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.
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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.
ARTICLE THIRTEEN
COLLATERAL AND SECURITY
Section 13.01. Escrow Agreement.
(a) The due and punctual payment of the interest on the Notes when
and as the same shall be due and payable on each Interest Payment Date, at
maturity or by acceleration, and interest on the overdue principal of and
interest (to the extent permitted by law), if any, on the Notes and performance
of all other obligations of the Company to the Holders of Notes or the Trustee
under this Indenture and the Escrow Agreement with respect to the Notes and the
Notes, according to the terms hereunder or thereunder, shall be secured as
provided in the Escrow Agreement which the Company, the Escrow Agent and the
Trustee have entered into simultaneously with the execution of this Indenture.
Upon the acceleration of the maturity of the Notes, the Escrow Agreement will
provide for the foreclosure by the Trustee of the net proceeds of the Escrow
Account. Each Holder of Notes, by its acceptance thereof, consents and agrees
to the terms of the Escrow Agreement (including, without limitation, the
provisions providing for foreclosure and disbursement of Collateral) as the
same may be in effect or may be amended from time to time in accordance with
its terms and authorizes and directs the Escrow Agent and the Trustee to enter
into the Escrow Agreement and to perform its obligations and exercise its
rights thereunder in accordance therewith. The Company shall deliver to the
Trustee copies of the Escrow Agreement, and shall do or cause to be done all
such acts and things as may be necessary or proper, or as may be required by
the provisions of the Escrow Agreement, to assure and confirm to the Trustee
the security interest in the Collateral contemplated by the Escrow Agreement or
any part thereof, as from time to time constituted, so as to render the same
available for the security and benefit of this Indenture with respect to,
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and of, the Notes, according to the intent and purposes expressed in the Escrow
Agreement. The Company shall take any and all actions reasonably required to
cause the Escrow Agreement to create and maintain (to the extent possible under
applicable law), as security for the obligations of the Company hereunder, a
valid and enforceable perfected first priority Lien in and on all the
Collateral, in favor of the Trustee for the benefit of the Trustee, predecessor
trustees, and the Holders of Notes, superior to and prior to the rights of all
third persons and subject to no other Liens. The Trustee shall have no
responsibility for perfecting or maintaining the perfection of the Trustee's
security interest in the Collateral or for filing any instrument, document or
notice in any public office at any time or times.
(b) The Escrow Agreement shall further provide that in the event a
portion of the Notes has been retired by the Company, depending upon the amount
available in the Escrow Account, funds representing the interest payments which
have not previously been made on such retired Notes shall, upon the written
request of the Company to the Escrow Agent and the Trustee, be paid to the
Company upon compliance with the release of collateral provisions of the TIA
and upon receipt of a notice relating thereto from the Trustee.
Section 13.02. Recording and Opinions.
(a) The Company shall furnish to the Trustee promptly after the
execution and delivery of this Indenture an Opinion of Counsel either (i)
stating that in the opinion of such counsel all action has been taken with
respect to the recording, registering and filing of this Indenture, financing
statements or other instruments necessary to make effective the Lien intended
to be created by the Escrow Agreement and reciting with respect to the security
interests in the Collateral the details of such action, or (ii) stating that in
the opinion of such counsel no such action is necessary to make such Lien
effective.
(b) The Company shall furnish to the Escrow Agent and the Trustee
on [ ], 199 , and on each [ ] thereafter until the date upon
which the balance of Available Funds (as defined in the Escrow Agreement) shall
have been reduced to zero, an Opinion of Counsel, dated as of such date, either
(i) stating that (A) in the opinion of such counsel, action has been taken with
respect to the recording, registering, filing, re-recording, re- registering
and refiling of all supplemental indentures, financing statements, continuation
state-
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ments and other instruments of further assurance as is necessary to maintain
the Lien of the Escrow Agreement and reciting with respect to the security
interests in the Collateral the details of such action or referring to prior
Opinions of Counsel in which such details are given and (B) based on relevant
laws as in effect on the date of such Opinion of Counsel, all financing
statements and continuation statements have been executed and filed that are
necessary as of such date and during the succeeding 12 months fully to preserve
and protect, to the extent such protection and preservation are possible by
filing, the rights of the Holders of Notes and the Trustee hereunder and under
the Escrow Agreement with respect to the security interests in the Collateral
or (ii) stating that, in the opinion of such counsel, no such action is
necessary to maintain such Lien and assignment.
Section 13.03. Release of Collateral.
(a) Subject to subsections (b), (c) and (d) of this Section 13.03,
Collateral may be released from the Lien and security interest created by the
Escrow Agreement only in accordance with the provisions of the Escrow
Agreement.
(b) Except to the extent that any Lien on proceeds of Collateral
is automatically released by operation of Section 9-306 of the Uniform
Commercial Code or other similar law, no Collateral shall be released from the
Lien and security interest created by the Escrow Agreement pursuant to the
provisions of the Escrow Agreement, other than to the Holders pursuant to the
terms thereof, unless there shall have been delivered to the Trustee the
certificate required by Section 13.03(d) and Section 13.04.
(c) At any time when a Default shall have occurred and be
continuing and the maturity of the Notes issued on the Issue Date shall have
been accelerated (whether by declaration or otherwise), no Collateral shall be
released pursuant to the provisions of the Escrow Agreement, and no release of
Collateral in contravention of this Section 13.03(c) shall be effective as
against the Holders of Notes, except for the disbursement of all Available
Funds (as defined in the Escrow Agreement) to the Trustee pursuant to Section
6(b) of the Escrow Agreement.
(d) The release of any Collateral from the Liens and security
interests created by this Indenture and the Escrow Agreement shall not be
deemed to impair the security under this Indenture in contravention of the
provisions hereof if and to
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the extent the Collateral is released pursuant to the terms hereof or pursuant
to the terms of the Escrow Agreement. To the extent applicable, the Company
shall cause TIA Section 314(d) relating to the release of property or
securities from the Lien and security interest of the Escrow Agreement to be
complied with. Any certificate or opinion required by TIA Section 314(d) may
be made by an Officer of the Company except in cases where TIA Section 314(d)
requires that such certificate or opinion be made by an independent person,
which person shall be an independent engineer, appraiser or other expert
selected or approved by the Trustee in the exercise of reasonable care.
Section 13.04. Certificates of the Company.
The Company shall furnish to the Trustee, prior to any proposed
release of Collateral other than pursuant to the express terms of the Escrow
Agreement, (i) all documents required by TIA Section 314(d) and (ii) an Opinion
of Counsel, which may be rendered by internal counsel to the Company, to the
effect that such accompanying documents constitute all documents required by
TIA Section 314(d). The Trustee may, to the extent permitted by Section 6.01
and Section 6.03, accept as conclusive evidence of compliance with the
foregoing provisions the appropriate statements contained in such documents and
such Opinion of Counsel.
Section 13.05. Authorization of Actions to Be Taken by the Trustee
Under the Escrow Agreement.
Subject to the provisions of Section 6.01 and Section 6.03, the
Trustee may, without the consent of the Holders of Notes, on behalf of the
Holders of Notes, take all actions it deems necessary or appropriate in order
to (a) enforce any of the terms of the Escrow Agreement and (b) collect and
receive any and all amounts payable in respect of the obligations of the
Company hereunder. The Trustee shall have power to institute and maintain such
suits and proceedings as it may deem expedient to prevent any impairment of the
Collateral by any acts that may be unlawful or in violation of the Escrow
Agreement or this Indenture, and such suits and proceedings as the Trustee may
deem expedient to preserve or protect its interests and the interests of the
Holders of Notes in the Collateral (including power to institute and maintain
suits or proceedings to restrain the enforcement of or compliance with any
legislative or other governmental enactment, rule or order that may be
unconstitutional or otherwise invalid if the enforcement of, or compliance
with, such enactment, rule or order would impair the
<PAGE> 126
-118-
security interest hereunder or be prejudicial to the interests of the Holders
of Notes or of the Trustee).
Section 13.06. Authorization of Receipt of Funds by the Trustee
Under the Escrow Agreement.
The Trustee is authorized to receive any funds for the benefit of
the Holders of Notes disbursed under the Escrow Agreement, and to make further
distributions of such funds to the Holders of Notes according to the provisions
of this Indenture.
Section 13.07. Termination of Security Interest.
Upon the earliest to occur of (i) the date upon which the balance of
Available Funds (as defined in the Escrow Agreement) shall have been reduced to
zero, (ii) the payment in full of all obligations of the Company under this
Indenture and the Notes, (iii) legal defeasance pursuant to Article Four and
(iv) covenant defeasance pursuant to Article Four, the Trustee shall, at the
written request of the Company, release the Liens pursuant to this Indenture
and the Escrow Agreement upon the Company's compliance with the provisions of
the TIA pertaining to release of collateral.
<PAGE> 127
-119-
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 and Secretary
FIRST TRUST NATIONAL ASSOCIATION,
as Trustee
By: /s/ Richard H. Prokosch
-------------------------------
Name: Richard H. Prokosch
Title: Trust Officer
<PAGE> 128
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> 129
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> 130
VERIO INC.
------------------------------
13 1/2% SENIOR NOTES DUE 2004, SERIES A
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 June 15, 2004, at the office or agency of the
Company referred to below, and to pay interest thereon on June 15 and December
15 (each an "Interest Payment Date"), of each year, commencing on December 15,
1997, 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 13
1/2% 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 this 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 June 1
and December 1 (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> 131
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 this Indenture, or be
valid or obligatory for any purpose.
[Remainder of Page Intentionally Left Blank]
A-1-4
<PAGE> 132
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
This is one of the 13 1/2% Senior Notes due 2004, Series A, referred
to in the within-mentioned Indenture.
FIRST TRUST NATIONAL ASSOCIATION,
as Trustee
By:
-------------------------------
Authorized Signatory
A-1-5
<PAGE> 133
[REVERSE OF NOTE]
1. Indenture. This Note is one of a duly authorized issue of
Notes of the Company designated as its 13 1/2% Senior Notes due 2004, Series A
(herein called the "Initial Notes"). The Notes are limited (except as
otherwise provided in this Indenture referred to below) in aggregate principal
amount to $150,000,000, which may be issued under an indenture (herein called
the "Indenture") dated as of June 24, 1997, by and between the Company and
First Trust National Association, as trustee (herein called the "Trustee,"
which term includes any successor Trustee under this 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 this Indenture.
All capitalized terms used in this Note which are defined in this
Indenture and not otherwise defined herein shall have the meanings assigned to
them in this Indenture.
The terms of the Notes include those stated in this Indenture and
those made part of this 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 this Indenture. Notwithstanding anything to the contrary herein, the Notes
are subject to all such terms, and Holders of Notes are referred to this
Indenture and the TIA for a statement of such terms.
No reference herein to this Indenture and no provisions of this Note
or of this 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
A-1-6
<PAGE> 134
have the right to exchange this Note for 13 1/2% Senior Notes due 2004, 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 June 15, 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 June 15 of each of the years indicated
below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2002. . . . . . . . . . . . . . . 106.75%
2003. . . . . . . . . . . . . . . 100.00%
</TABLE>
Notwithstanding the foregoing, in the event that after the Issue
Date and prior to June 15, 1999 the Company issues, in one or more
transactions, Capital Stock (other than Disqualified Stock) of the Company to
Brooks or one or more Strategic Equity Investors 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 33 1/3% of the initially outstanding
aggregate principal amount of Notes from the net proceeds thereof at a
redemption price equal to 113.5% of the principal amount of the Notes, together
with accrued and unpaid interest to the date of redemption; provided that not
less than $100.0 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 30 days after such Equity Sale.
4. Offers to Purchase. Sections 10.10 and 10.15 of this
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 this
Indenture.
A-1-7
<PAGE> 135
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 this 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,
A-1-8
<PAGE> 136
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 EACH NOTE
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., 9250 East Costilla Avenue, Suite 400, Englewood, Colorado 80112.
A-1-9
<PAGE> 137
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.
A-1-10
<PAGE> 138
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
A-1-11
<PAGE> 139
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> 140
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-1-13
<PAGE> 141
EXHIBIT A-2
VERIO INC.
------------------------------
13 1/2% SENIOR NOTES DUE 2004, 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 [ ], 2004, at the office or
agency of the Company referred to below, and to pay interest thereon on June 15
and December 15 (each an "Interest Payment Date"), of each year, commencing on
December 15, 1997, 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 13 1/2% 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 this 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 June 1
and December 1 (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> 142
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 this Indenture, or be
valid or obligatory for any purpose.
[Remainder of Page Intentionally Left Blank]
A-2-2
<PAGE> 143
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 13 1/2% Senior Notes due 2004, Series B, referred
to in the within-mentioned Indenture.
FIRST TRUST NATIONAL ASSOCIATION,
as Trustee
By:
-------------------------------
Authorized Signatory
A-2-3
<PAGE> 144
[REVERSE OF NOTE]
1. Indenture. This Note is one of a duly authorized issue of
Notes of the Company designated as its 13 1/2% Senior Notes due 2004, Series B
(herein called the "Unrestricted Notes"). The Notes are limited (except as
otherwise provided in this Indenture referred to below) in aggregate principal
amount to $150,000,000, which may be issued under an indenture (herein called
the "Indenture") dated as of June 24, 1997, by and between the Company and
First Trust National Association, as trustee (herein called the "Trustee,"
which term includes any successor Trustee under this 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),
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 this Indenture.
All capitalized terms used in this Note which are defined in this
Indenture and not otherwise defined herein shall have the meanings assigned to
them in this Indenture.
The terms of the Notes include those stated in this Indenture and
those made part of this Indenture by reference to the Trust Indenture Act of
1939 (15 U.S.C. Sections 77aaa-77bbb) (the "TIA"), as in effect on the date of
this Indenture. Notwithstanding anything to the contrary herein, the Notes are
subject to all such terms, and Holders of Notes are referred to this Indenture
and the TIA for a statement of such terms.
No reference herein to this Indenture and no provisions of this Note
or of this 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 June 15, 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> 145
date, if redeemed during the twelve-month period beginning on June 15 of each
of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2002 . . . . . . . . . . . . . . . . . . . . 106.75%
2003 . . . . . . . . . . . . . . . . . . . . 100.00%
</TABLE>
Notwithstanding the foregoing, in the event that after the Issue
Date and prior to June 15, 1999 the Company issues, in one or more
transactions, Capital Stock (other than Disqualified Stock) of the Company to
Brooks or one or more Strategic Equity Investors 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 33 1/3% of the initially outstanding
aggregate principal amount of Notes from the net proceeds thereof at a
redemption price equal to 113.5% of the principal amount of the Notes, together
with accrued and unpaid interest to the date of redemption; provided that not
less than $100.0 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 30 days after such Equity Sale.
3. Offers to Purchase. Sections 10.10 and 10.15 of this
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 this
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 the Company and the rights of the Holders under
this Indenture at any time by the Company and the Trustee with the consent of
A-2-5
<PAGE> 146
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 this 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 Note shall be overdue, and neither the Company, the Trustee nor any agent
shall be affected by notice to the contrary.
A-2-6
<PAGE> 147
9. GOVERNING LAW. THIS INDENTURE, THIS NOTE AND EACH NOTE
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., 9250 East Costilla Avenue, Suite 400, Englewood, Colorado 80112.
A-2-7
<PAGE> 148
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> 149
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> 150
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> 151
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 13 1/2% Senior Notes due 2004 (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> 152
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> 153
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> 154
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> 155
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") 13 1/2% Senior Notes due 2004
(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> 156
(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 10.2
- --------------------------------------------------------------------------------
WARRANT AGREEMENT
Dated as of June 24, 1997
By and Between
VERIO INC.
and
FIRST TRUST NATIONAL ASSOCIATION
as Warrant Agent
----------------------
Warrants to Purchase Common Stock
Par Value $.001 Per Share
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
ISSUANCE, FORM, EXECUTION, DELIVERY AND
REGISTRATION OF WARRANT CERTIFICATES
<S> <C> <C>
SECTION 1.01. Issuance of Warrants....................................................2
SECTION 1.02. Form of Warrant Certificates............................................2
SECTION 1.03. Execution of Warrant Certificates.......................................3
SECTION 1.04. Authentication and Delivery.............................................3
SECTION 1.05. Temporary Warrant Certificates..........................................4
SECTION 1.06. Separation of Warrants and Notes........................................5
SECTION 1.07. Registration............................................................5
SECTION 1.08. Registration of Transfers or Exchanges..................................6
SECTION 1.09. Lost, Stolen, Destroyed, Defaced or Mutilated Warrant Certificates.....13
SECTION 1.10. Offices for Exercise, etc..............................................14
ARTICLE II
DURATION, EXERCISE OF WARRANTS;
EXERCISE PRICE AND REPURCHASE OF WARRANTS
SECTION 2.01. Duration of Warrants...................................................14
SECTION 2.02. Exercise, Exercise Price, Settlement and Delivery......................15
SECTION 2.03. Cancellation of Warrant Certificates...................................19
SECTION 2.04. Notice of an Exercise Event............................................19
ARTICLE III
OTHER PROVISIONS RELATING TO
RIGHTS OF HOLDERS OF WARRANTS
SECTION 3.01. Enforcement of Rights..................................................20
SECTION 3.02. Obtaining Stock Exchange Listings......................................20
ARTICLE IV
CERTAIN COVENANTS OF THE COMPANY
SECTION 4.01. Payment of Taxes.......................................................20
SECTION 4.02. Qualification Under the Securities Laws................................21
SECTION 4.03. Rules 144 and 144A.....................................................22
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 4.04. Form of Initial Public Equity Offering...........................22
SECTION 4.05. Registration of Shares...........................................22
ARTICLE V
ADJUSTMENTS
SECTION 5.01. Adjustment of Exercise Rate; Notices.............................23
SECTION 5.02. Fractional Shares................................................31
SECTION 5.03. Certain Distributions............................................31
ARTICLE VI
CONCERNING THE WARRANT AGENT
SECTION 6.01. Warrant Agent....................................................32
SECTION 6.02. Conditions of Warrant Agent's Obligations........................32
SECTION 6.03. Resignation and Appointment of Successor.........................37
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Amendment........................................................39
SECTION 7.02. Notices and Demands to the Company and Warrant Agent.............40
SECTION 7.03. Addresses for Notices to Parties and for Transmission
of Documents.....................................................40
SECTION 7.04. Notices to Holders...............................................41
SECTION 7.05. APPLICABLE LAW; SUBMISSION TO JURISDICTION.......................41
SECTION 7.06. Persons Having Rights Under Agreement............................41
SECTION 7.07. Headings.........................................................42
SECTION 7.08. Counterparts.....................................................42
SECTION 7.09. Inspection of Agreement..........................................42
SECTION 7.10. Availability of Equitable Remedies...............................42
SECTION 7.11. Obtaining of Governmental Approvals..............................42
EXHIBIT A -Form of Warrant Certificate.........................................A-1
EXHIBIT B -Certificate To Be Delivered upon Exchange or Registration
of Transfer of Warrants.............................................B-1
EXHIBIT C -Form of Transferee Certificate for Institutional
Accredited Investors................................................C-1
EXHIBIT D -Form of Transferee Certificate for Regulation S Transfers...........D-1
</TABLE>
-ii-
<PAGE> 4
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Defined Term Section
- ------------ -------
<S> <C>
Affiliate............................................................... 5.01(b)
Agreement............................................................... Recitals
Business Day............................................................ 2.01
Capital Stock........................................................... 5.01(l)
Cashless Exercise....................................................... 2.02(c)
Cashless Exercise Ratio................................................. 2.02(c)
Common Stock............................................................ Recitals
Company ............................................................... Recitals
Current Market Value.................................................... 5.01(l)
Definitive Warrants..................................................... 1.02
Distribution............................................................ 5.03
Distribution Rights..................................................... 5.03
Election To Exercise.................................................... 2.02(b)
Exercisability Date..................................................... 2.02(a)
Exercise Date........................................................... 2.02(d)
Exercise Event.......................................................... 2.02(a)
Exercise Price.......................................................... 2.02(a)
Exercise Rate........................................................... 2.02(a)
Expiration Date......................................................... 2.01
Fundamental Transaction................................................. 5.01(d)
Global Shares........................................................... 2.02(f)
Global Warrants......................................................... 1.02
Indenture............................................................... Recitals
Independent Financial Expert............................................ 5.01(1)
Initial Public Equity Offering.......................................... 2.02(a)
Initial Purchasers...................................................... Recitals
Notes ............................................................... Recitals
Notice Date............................................................. 2.05(b)
Officers' Certificate................................................... 1.08(d)
Person ............................................................... 2.02(a)
Private Placement Legend................................................ 1.08(g)
Prospectus.............................................................. 4.02
Registrar............................................................... 1.07
Registration Rights Agreement........................................... Recitals
Related Parties......................................................... 6.02(e)
Requisite Warrant Holders............................................... 7.01
Resale Restriction Termination Date..................................... 1.08
Securities Act.......................................................... 1.06
Separability Date....................................................... 1.06
Separation.............................................................. 1.06
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<CAPTION>
Defined Term Section
- ------------ -------
<S> <C>
Shares ............................................................... 1.01
Subject Class........................................................... 4.04
Surviving Person........................................................ 5.01(d)
Time of Determination................................................... 5.01(1)
Trustee ............................................................... Recitals
Units ............................................................... Recitals
Warrant Agent........................................................... Recitals
Warrant Agent Office.................................................... 1.10
Warrant Certificates.................................................... Recitals
Warrant Exercise Office................................................. 2.02(b)
Warrant Register........................................................ 1.07
Warrants ............................................................... Recitals
</TABLE>
-iv-
<PAGE> 6
WARRANT AGREEMENT
WARRANT AGREEMENT ("Agreement"), dated as of June 24, 1997 by and between
VERIO INC., a Delaware corporation (together with any successor thereto, the
"Company"), and FIRST TRUST NATIONAL ASSOCIATION, as warrant agent (with any
successor Warrant Agent, the "Warrant Agent").
WHEREAS, the Company has entered into a purchase agreement (the "Purchase
Agreement") dated June 17, 1997 with Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and Lazard Freres & Co. LLC (collectively, the
"Initial Purchasers") in which the Company has agreed to sell to the Initial
Purchasers 150,000 units (the "Units") consisting in the aggregate of (i)
$150,000,000 aggregate principal amount of Senior Notes due 2004 (the "Notes")
of the Company to be issued under an indenture dated as of June 24, 1997 (the
"Indenture"), between the Company and First Trust National Association, as
trustee (in such capacity, the "Trustee"), and (ii) 1,200,000 Warrants (the
"Warrants"), each Warrant initially entitling the holder thereof to purchase
1.7604 shares of Common Stock, par value $.001 per share (the "Common Stock"),
of the Company. The certificates evidencing the Warrants are herein referred to
collectively as the "Warrant Certificates"; and
WHEREAS, each Unit will consist of one Note in the principal amount of
$1,000 and 8 Warrants; the Notes and the Warrants comprising part of the Units
shall not be separately transferable until the Separability Date (as defined
below); and
WHEREAS, the holders of the Warrants are entitled to the benefits of a
Common Stock Registration Rights Agreement dated as of June 17, 1997 between the
Company and the Initial Purchasers (the "Registration Rights Agreement"); and
WHEREAS, the Company desires the Warrant Agent as warrant agent to assist
the Company in connection with the issuance, exchange, cancellation, replacement
and exercise of the Warrants, and in this Agreement wishes to set forth, among
other things, the terms and conditions on which the Warrants may be issued,
exchanged, cancelled, replaced and exercised;
NOW, THEREFORE, the parties hereto agree as follows:
<PAGE> 7
-2-
ARTICLE I
ISSUANCE, FORM, EXECUTION, DELIVERY AND
REGISTRATION OF WARRANT CERTIFICATES
SECTION 1.01. Issuance of Warrants. Warrants comprising part of the Units
shall be originally issued in connection with the issuance of the Units and such
Warrants shall not be separately transferable from the Notes until on or after
the Separability Date as provided in Section 1.06 hereof.
Each Warrant Certificate shall evidence the number of Warrants specified
therein, and each Warrant evidenced thereby shall, when exercisable as provided
herein and therein, represent the right, subject to the provisions contained
herein and therein, to purchase from the Company (and the Company shall issue
and sell to the holder of such Warrant) 1.7604 fully paid, registered and
non-assessable shares of Common Stock at an exercise price of $0.01 per share.
The number of Shares issuable upon exercise of a Warrant is subject to
adjustment as provided herein and in the Warrant. The shares purchasable upon
exercise of a Warrant are hereinafter referred to as the "Shares" and, unless
the context otherwise requires, such term shall also include any other
securities or property purchasable and deliverable upon exercise of a Warrant as
provided in Article V, subject to adjustment as provided herein and in the
Warrant.
SECTION 1.02. Form of Warrant Certificates. The Warrant Certificates will
initially be issued either in global form (the "Global Warrants"), substantially
in the form of Exhibit A hereto, or in registered form as definitive Warrant
Certificates (the "Definitive Warrants") substantially in the form of Exhibit A
attached hereto. Any Global Warrants to be delivered pursuant to this Agreement
shall bear the legend set forth in Exhibit B attached hereto. Such Global
Warrants shall represent such of the outstanding Warrants as shall be specified
therein and each shall provide that it shall represent the aggregate amount of
outstanding Warrants from time to time endorsed thereon and that the aggregate
amount of outstanding Warrants represented thereby may from time to time be
reduced or increased, as appropriate. Any endorsement of a Global Warrant to
reflect the amount of any increase or decrease in the amount of outstanding
Warrants represented thereby shall be made by the Warrant Agent and the
Depositary (as defined below) in accordance with instructions given by the
holder thereof. The Depository Trust Company shall act as the Depositary with
respect to the Global Warrants until a successor shall be appointed
<PAGE> 8
-3-
by the Company and the Warrant Agent. Upon written request, a holder of Warrants
may receive from the Warrant Agent or the Depository Definitive Warrants as set
forth in Section 1.08 hereof.
SECTION 1.03. Execution of Warrant Certificates. The Warrant Certificates
shall be executed on behalf of the Company by the chairman of its Board of
Directors, its president or any vice president and attested by its secretary or
assistant secretary. Such signatures may be the manual or facsimile signatures
of the present or any future such officers. Typographical and other minor errors
or defects in any such reproduction of any such signature shall not affect the
validity or enforceability of any Warrant Certificate that has been duly
countersigned and delivered by the Warrant Agent.
In case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be such officer before the Warrant Certificate so
signed shall be countersigned and delivered by the Warrant Agent or disposed of
by the Company, such Warrant Certificate nevertheless may be countersigned and
delivered or disposed of as though the person who signed such Warrant
Certificate had not ceased to be such officer of the Company; and any Warrant
Certificate may be signed on behalf of the Company by such persons as, at the
actual date of the execution of such Warrant Certificate, shall be the proper
officers of the Company, although at the date of the execution and delivery of
this Agreement any such person was not such an officer.
SECTION 1.04. Authentication and Delivery. Subject to the immediately
following paragraph, Warrant Certificates shall be authenticated by manual
signature and dated the date of authentication by the Warrant Agent and shall
not be valid for any purpose unless so authenticated and dated. The Warrant
Certificates shall be numbered and shall be registered in the Warrant Register
(as defined in Section 1.07 hereof).
Upon the receipt by the Warrant Agent of a written order of the Company,
which order shall be signed by the chairman of its Board of Directors, its
president or any vice president and attested by its secretary or assistant
secretary, and shall specify the amount of Warrants to be authenticated, whether
the Warrants are to be Global Warrants or Definitive Warrants, the date of such
Warrants and such other information as the Warrant Agent may reasonably request,
without any further action by the Company, the Warrant Agent is authorized, upon
receipt from the Company at any time and from time to time
<PAGE> 9
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of the Warrant Certificates, duly executed as provided in Section 1.03 hereof,
to authenticate the Warrant Certificates and upon the holder's request deliver
them. Such authentication shall be by a duly authorized signatory of the Warrant
Agent (although it shall not be necessary for the same signatory to sign all
Warrant Certificates).
In case any authorized signatory of the Warrant Agent who shall have
authenticated any of the Warrant Certificates shall cease to be such authorized
signatory before the Warrant Certificate shall be disposed of by the Company or
the Warrant Agent, such Warrant Certificate nevertheless may be delivered or
disposed of as though the person who authenticated such Warrant Certificate had
not ceased to be such authorized signatory of the Warrant Agent; and any Warrant
Certificate may be authenticated on behalf of the Warrant Agent by such persons
as, at the actual time of authentication of such Warrant Certificates, shall be
the duly authorized signatories of the Warrant Agent, although at the time of
the execution and delivery of this Agreement any such person is not such an
authorized signatory.
The Warrant Agent's authentication on all Warrant Certificates shall be in
substantially the form set forth in Exhibit A hereto.
SECTION 1.05. Temporary Warrant Certificates. Pending the preparation of
definitive Warrant Certificates, the Company may execute, and the Warrant Agent
shall authenticate and deliver, temporary Warrant Certificates, which are
printed, lithographed, typewritten or otherwise produced, substantially of the
tenor of the definitive Warrant Certificates in lieu of which they are issued
and with such appropriate insertions, omissions, substitutions and other
variations as the officers executing such Warrant Certificates may determine, as
evidenced by their execution of such Warrant Certificates.
If temporary Warrant Certificates are issued, the Company will cause
definitive Warrant Certificates to be prepared without unreasonable delay. After
the preparation of definitive Warrant Certificates, the temporary Warrant
Certificates shall be exchangeable for definitive Warrant Certificates upon
surrender of the temporary Warrant Certificates at any office or agency
maintained by the Company for that purpose pursuant to Section 1.10 hereof.
Subject to the provisions of Section 4.01 hereof, such exchange shall be without
charge to the holder. Upon surrender for cancellation of any one or more
temporary Warrant Certificates, the Company shall execute, and
<PAGE> 10
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the Warrant Agent shall authenticate and deliver in exchange therefor, one or
more definitive Warrant Certificates representing in the aggregate a like number
of Warrants. Until so exchanged, the holder of a temporary Warrant Certificate
shall in all respects be entitled to the same benefits under this Agreement as a
holder of a definitive Warrant Certificate.
SECTION 1.06. Separation of Warrants and Notes. The Notes and the Warrants
will not be separately transferable until the Separability Date. "Separability
Date" shall mean the earliest to occur of: (i) December 15, 1997, (ii) the
occurrence of an Exercise Event (as defined herein), (iii) the occurrence of an
Event of Default (as defined in the Indenture), (iv) the date on which a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to a registered exchange offer for the Notes or
covering the sale by holders of the Notes is declared effective under the
Securities Act, (v) immediately prior to any redemption of Notes by the Company
following an Equity Sale (as defined in the Indenture), or (vi) such earlier
date as may be determined by Merrill Lynch in its sole discretion and specified
to the Company, the Trustee, the Warrant Agent and the Unit Agent in writing.
Notwithstanding the foregoing, the Warrants shall become separately transferable
on the date of commencement of a Change of Control Offer (as defined in the
Indenture). The separation of the Warrants and the Notes is herein referred to
as a "Separation."
SECTION 1.07. Registration. The Company will keep, at the office or agency
maintained by the Company for such purpose, a register or registers in which,
subject to such reasonable regulations as it may prescribe, the Company shall
provide for the registration of, and registration of transfer and exchange of,
Warrants as provided in this Article. Each person designated by the Company from
time to time as a person authorized to register the transfer and exchange of the
Warrants is hereinafter called, individually and collectively, the "Registrar."
The Company hereby initially appoints the Warrant Agent as Registrar. Upon
written notice to the Warrant Agent and any acting Registrar, the Company may
appoint a successor Registrar for such purposes.
The Company will at all times designate one person (who may be the Company
and who need not be a Registrar) to act as repository of a master list of names
and addresses of the holders of Warrants (the "Warrant Register"). The Warrant
Agent will act as such repository unless and until some other person is, by
written notice from the Company to the Warrant
<PAGE> 11
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Agent and the Registrar, designated by the Company to act as such. The Company
shall cause each Registrar to furnish to such repository, on a current basis,
such information as to all registrations of transfer and exchanges effected by
such Registrar, as may be necessary to enable such repository to maintain the
Warrant Register on as current a basis as is practicable.
SECTION 1.08. Registration of Transfers or Exchanges.
(a) Transfer or Exchange of Definitive Warrants. When Definitive
Warrants are presented to the Warrant Agent with a request from the holder:
(i) to register the transfer of the Definitive Warrants; or
(ii) to exchange such Definitive Warrants for an equal number of Definitive
Warrants of other authorized denominations,
the Warrant Agent shall register the transfer or make the exchange as requested
if the requirements under this Warrant Agreement as set forth in this Section
1.08 hereof for such transactions are met; provided, however, that the
Definitive Warrants presented or surrendered by a holder for registration of
transfer or exchange:
(x) shall be duly endorsed or accompanied by a written instruction of
transfer or exchange in form satisfactory to the Company and the
Warrant Agent, duly executed by such holder or by his attorney, duly
authorized in writing; and
(y) in the case of Warrants the offer and sale of which have not been
registered under the Securities Act and are presented for transfer or
exchange prior to (X) the date which is two years (or such shorter
period as may be prescribed by Rule 144(k) (or any successor provision
thereto)) after the later of the date of original issuance of the
Warrants and the last date on which the Company or any affiliate of the
Company was the owner of such Warrants, or any predecessor thereto, and
(Y) such later date, if any, as may be required by any subsequent
change in applicable law (the "Resale Restriction Termination Date"),
such Warrants shall be accompanied by the
<PAGE> 12
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following additional information and documents, as applicable:
(A) if such Warrants are being delivered to the Warrant
Agent by a holder for registration in the name of
such holder, without transfer, a certification from
such holder to that effect (in substantially the form
of Exhibit C hereto); or
(B) if such Warrants are being transferred to a qualified
institutional buyer (as defined in Rule 144A under
the Securities Act) (a "QIB") in accordance with Rule
144A under the Securities Act, a certification from
the transferor to that effect (in substantially the
form of Exhibit C hereto); or
(C) if such Warrants are being transferred to an
institutional "accredited investor" within the
meaning of subparagraphs (a)(1), (a)(2), (a)(3) or
(a)(7) of Rule 501 under the Securities Act (an
"Institutional Accredited Investor"), delivery by the
transferor of a certification to that effect (in
substantially the form of Exhibit C hereto), and
delivery by the proposed transferee of a Transferee
Certificate for Institutional Accredited Investors
(in substantially the form of Exhibit D hereto); or
(D) if such Warrants are being transferred in reliance on
Regulation S under the Securities Act, delivery by
the transferor of a certification to that effect (in
substantially the form of Exhibit C hereto), and a
Certificate for Regulation S Transfers in the form of
Exhibit E hereto; or
(E) if such Warrants are being transferred in reliance on
Rule 144 under the Securities Act, delivery by the
transferor of (i) a certification from the transferor
to that effect (in substantially the form of Exhibit
C hereto), and (ii) an opinion of counsel reasonably
satisfactory to the Company to the effect that such
transfer is in compliance with the Securities Act; or
<PAGE> 13
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(F) if such Warrants are being transferred in reliance on
another exemption from the registration requirements
of the Securities Act, a certification from the
transferor to that effect (in substantially the form
of Exhibit C hereto) and an opinion of counsel
reasonably satisfactory to the Company to the effect
that such transfer is in compliance with the
Securities Act; provided that the Company may, based
upon the views of its own counsel, instruct the
Warrant Agent not to register such transfer in any
case where the proposed transferee is not a QIB,
Non-U.S.
Person or Institutional Accredited Investor.
(b) Restrictions on Transfer of a Definitive Warrant for
a Beneficial Interest in a Global Warrant. A Definitive Warrant may not be
transferred by a holder for a beneficial interest in a Global Warrant except
upon satisfaction of the requirements set forth below. Upon receipt by the
Warrant Agent of a Definitive Warrant, duly endorsed or accompanied by
appropriate instruments of transfer, in form satisfactory to the Warrant Agent,
together with:
(A) certification from such holder (in substantially the
form of Exhibit C hereto) that such Definitive
Warrant is being transferred to a QIB in accordance
with Rule 144A under the Securities Act; and
(B) written instructions directing the Warrant Agent to
make, or to direct the Depositary to make, an
endorsement on the Global Warrant to reflect an
increase in the aggregate amount of the Warrants
represented by the Global Warrant,
then the Warrant Agent shall cancel such Definitive Warrant and cause, or direct
the Depositary to cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Warrant Agent, the number of
Shares represented by the Global Warrant to be increased accordingly. If no
Global Warrant is then outstanding, the Company shall issue and the Warrant
Agent shall upon written instructions from the Company authenticate a new Global
Warrant in the appropriate amount.
(c) Transfer or Exchange of Global Warrants. The transfer or
exchange of Global Warrants or beneficial interests therein shall be effected
through the Depositary, in accordance
<PAGE> 14
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with this Section 1.08, the Private Placement Legend, this Agreement (including
the restrictions on transfer set forth herein) and the procedures of the
Depositary therefor.
(d) Transfer or Exchange of a Beneficial Interest in a Global
Warrant for a Definitive Warrant.
(i) Any person having a beneficial interest in a Global Warrant
may transfer or exchange such beneficial interest for a
Definitive Warrant upon receipt by the Warrant Agent of
written instructions or such other form of instructions as is
customary for the Depositary from the Depositary or its
nominee on behalf of any person having a beneficial interest
in a Global Warrant, including a written order containing
registration instructions and, in the case of any such
transfer or exchange prior to the Resale Restriction
Termination Date, the following additional information and
documents:
(A) if such beneficial interest is being transferred to
the person designated by the Depositary as being the
beneficial owner, a certification from such person to
that effect (in substantially the form of Exhibit C
hereto); or
(B) if such beneficial interest is being transferred to a
QIB in accordance with Rule 144A under the Securities
Act, a certification from the transferor to that
effect (in substantially the form of Exhibit C
hereto); or
(C) if such beneficial interest is being transferred to
an Institutional Accredited Investor, delivery by the
transferor of a certification to that effect (in
substantially the form of Exhibit C hereto), and
delivery by the proposed transferee of a Transferee
Certificate for Institutional Accredited Investors
(in substantially the form of Exhibit D hereto); or
(D) if such beneficial interest is being transferred in
reliance on Regulation S under the Securities Act,
delivery by the transferor of (i) a certification to
that effect (in substantially in the form of Exhibit
C hereto), and (ii) a Certificate for Regulation S
Transfers in the form of Exhibit E hereto; or
<PAGE> 15
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(E) if such beneficial interest is being transferred in
reliance on Rule 144 under the Securities Act,
delivery by the transferor of (i) a certification to
that effect (in substantially the form of Exhibit C
hereto) and (ii) an opinion of counsel reasonably
satisfactory to the Company to the effect that such
transfer is in compliance with the Securities Act; or
(F) if such beneficial interest is being transferred in
reliance on another exemption from the registration
requirements of the Securities Act, a certification
from the transferor to that effect (in substantially
the form of Exhibit C hereto) and an opinion of
counsel reasonably satisfactory to the Company to the
effect that such transfer is in compliance with the
Securities Act; provided that the Company may
instruct the Warrant Agent not to register such
transfer in any case where the proposed transferee is
not a QIB, Non-U.S. Person or Institutional
Accredited Investor.
then the Warrant Agent will cause, in accordance with the
standing instructions and procedures existing between the
Depositary and the Warrant Agent, the aggregate amount of the
Global Warrant to be reduced and, following such reduction,
the Company will execute and, upon receipt of an
authentication order in the form of an officers' certificate
(a certificate signed by two officers of such company, one of
whom must be the principal executive officer, principal
financial officer or principal accounting officer) (an
"Officers' Certificate"), the Warrant Agent will authenticate
and deliver to the transferee a Definitive Warrant.
(ii) Definitive Warrants issued in exchange for a beneficial
interest in a Global Warrant pursuant to this Section 1.08(d)
shall be registered in such names and in such authorized
denominations as the Depositary, pursuant to instructions from
its direct or indirect participants or otherwise, shall
instruct the Warrant Agent in writing. The Warrant Agent shall
deliver such Definitive Warrants to the persons in whose names
such Warrants are so registered and adjust the Global Warrant
pursuant to paragraph (h) of this Section 1.08.
<PAGE> 16
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(e) Restrictions on Transfer or Exchange of Global Warrants.
Notwithstanding any other provisions of this Agreement (other than the
provisions set forth in subsection (f) of this Section 1.08), a Global Warrant
may not be transferred or exchanged as a whole except by the Depositary to a
nominee of the Depositary or by a nominee of the Depositary to the Depositary or
another nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(f) Authentication of Definitive Warrants in Absence of
Depositary. If at any time:
(i) the Depositary for the Global Warrants notifies the Company
that the Depositary is unwilling or unable to continue as
Depositary for the Global Warrant and a successor Depositary
for the Global Warrant is not appointed by the Company within
90 days after delivery of such notice; or
(ii) the Company, at its sole discretion, notifies the Warrant
Agent in writing that it elects to cause the issuance of
Definitive Warrants for all Global Warrants under this
Agreement,
then the Company will execute, and the Warrant Agent will, upon receipt of an
Officers' Certificate requesting the authentication and delivery of Definitive
Warrants, authenticate and deliver Definitive Warrants, in an aggregate number
equal to the aggregate number of warrants represented by the Global Warrant, in
exchange for such Global Warrant.
(g) Private Placement Legend. Upon the registration of
transfer, exchange or replacement of Warrant Certificates not bearing the legend
set forth in the first paragraph of Exhibit A attached hereto (the "Private
Placement Legend"), the Warrant Agent shall deliver Warrant Certificates that do
not bear the Private Placement Legend. Upon the registration of transfer,
exchange or replacement of Warrant Certificates bearing the Private Placement
Legend, the Warrant Agent shall deliver Warrant Certificates that bear the
Private Placement Legend unless, and the Warrant Agent is hereby authorized to
deliver Warrant Certificates without the Private Placement Legend if, (i) the
requested transfer is not prior to the date which is three years (or such
shorter period as may be prescribed by Rule 144(k) (or any successor provision
thereto) under the Securities Act or any successor provision thereunder) after
the later of the original Issue Date of the Warrants or the last
<PAGE> 17
-12-
day on which the Company or any of its Affiliates was the owner of the Warrant
or any predecessor security, (ii) there is delivered to the Warrant Agent an
opinion of counsel reasonably satisfactory to the Company and the Warrant Agent
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) the Warrants to be transferred or exchanged represented
by such Warrant Certificates are being transferred or exchanged pursuant to an
effective registration statement under the Securities Act.
(h) Cancellation or Adjustment of a Global Warrant. At such
time as all beneficial interests in a Global Warrant have either been exchanged
for Definitive Warrants, redeemed, repurchased or cancelled, such Global Warrant
shall be returned to the Company or, upon written order to the Warrant Agent in
the form of an Officers' Certificate from the Company, retained and cancelled by
the Warrant Agent. At any time prior to such cancellation, if any beneficial
interest in a Global Warrant is exchanged for Definitive Warrants, redeemed,
repurchased or cancelled, the number of Warrants represented by such Global
Warrant shall be reduced and an endorsement shall be made on such Global Warrant
by the Warrant Agent to reflect such reduction.
(i) Obligations with Respect to Transfers or Exchanges of
Definitive Warrants.
(i) To permit registrations of transfers or exchanges, the Company
shall execute, at the Warrant Agent's request, and the Warrant
Agent shall authenticate Definitive Warrants and Global
Warrants.
(ii) All Definitive Warrants and Global Warrants issued upon any
registration, transfer or exchange of Definitive Warrants or
Global Warrants shall be the valid obligations of the Company,
entitled to the same benefits under this Warrant Agreement as
the Definitive Warrants or Global Warrants surrendered upon
the registration of transfer or exchange.
(iii) Prior to due presentment for registration of transfer of any
Warrant, the Warrant Agent and the Company may deem and treat
the person in whose name any Warrant is registered as the
absolute owner of such Warrant, and neither the Warrant Agent
nor the Company shall be affected by notice to the contrary.
<PAGE> 18
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SECTION 1.09. Lost, Stolen, Destroyed, Defaced or Mutilated
Warrant Certificates. Upon receipt by the Company and the Warrant Agent (or any
agent of the Company or the Warrant Agent, if requested by the Company) of
evidence satisfactory to them of the loss, theft, destruction, defacement, or
mutilation of any Warrant Certificate and of an indemnity bond satisfactory to
them and, in the case of mutilation or defacement, upon surrender thereof to the
Warrant Agent for cancellation, then, in the absence of notice to the Company or
the Warrant Agent that such Warrant Certificate has been acquired by a bona fide
purchaser or holder in due course, the Company shall execute, and an authorized
signatory of the Warrant Agent shall manually authenticate and deliver, in
exchange for or in lieu of the lost, stolen, destroyed, defaced or mutilated
Warrant Certificate, a new Warrant Certificate representing a like number of
Warrants, bearing a number or other distinguishing symbol not contemporaneously
outstanding. Upon the issuance of any new Warrant Certificate under this Section
in a name other than the prior registered holder of the lost, stolen, destroyed,
defaced or mutilated Warrant Certificate, the Company may require the payment
from the holder of such Warrant Certificate of a sum sufficient to cover any
tax, stamp tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses of the Warrant
Agent and the Registrar) in connection therewith. Every substitute Warrant
Certificate executed and delivered pursuant to this Section in lieu of any lost,
stolen or destroyed Warrant Certificate shall constitute an additional
contractual obligation of the Company, whether or not the lost, stolen or
destroyed Warrant Certificate shall be at any time enforceable by anyone, and
shall be entitled to the benefits of (but shall be subject to all the
limitations of rights set forth in) this Agreement equally and proportionately
with any and all other Warrant Certificates duly executed and delivered
hereunder. The provisions of this Section 1.09 are exclusive with respect to the
replacement of lost, stolen, destroyed, defaced or mutilated Warrant
Certificates and shall preclude (to the extent lawful) any and all other rights
or remedies notwithstanding any law or statute existing or hereafter enacted to
the contrary with respect to the replacement of lost, stolen, destroyed, defaced
or mutilated Warrant Certificates.
The Warrant Agent is hereby authorized to authenticate in
accordance with the provisions of this Agreement, and deliver the new Warrant
Certificates required pursuant to the provisions of this Section.
<PAGE> 19
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SECTION 1.10. Offices for Exercise, etc. So long as any of the
Warrants remain outstanding, the Company will designate and maintain in the
Borough of Manhattan, The City of New York: (a) an office or agency where the
Warrant Certificates may be presented for exercise, (b) an office or agency
where the Warrant Certificates may be presented for registration of transfer and
for exchange (including the exchange of temporary Warrant Certificates for
definitive Warrant Certificates pursuant to Section 1.05 hereof), and (c) an
office or agency where notices and demands to or upon the Company in respect of
the Warrants or of this Agreement may be served. The Company may from time to
time change or rescind such designation, as it may deem desirable or expedient;
provided, however, that an office or agency shall at all times be maintained in
the Borough of Manhattan, The City of New York, as provided in the first
sentence of this Section. In addition to such office or offices or agency or
agencies, the Company may from time to time designate and maintain one or more
additional offices or agencies within or outside The City of New York, where
Warrant Certificates may be presented for exercise or for registration of
transfer or for exchange, and the Company may from time to time change or
rescind such designation, as it may deem desirable or expedient. The Company
will give to the Warrant Agent written notice of the location of any such office
or agency and of any change of location thereof. The Company hereby designates
the Warrant Agent at its principal corporate trust office identified in Section
7.03 in the Borough of Manhattan, The City of New York (the "Warrant Agent
Office"), as the initial agency maintained for each such purpose. In case the
Company shall fail to maintain any such office or agency or shall fail to give
such notice of the location or of any change in the location thereof,
presentations and demands may be made and notice may be served at the Warrant
Agent Office and the Company appoints the Warrant Agent as its agent to receive
all such presentations, surrenders, notices and demands.
ARTICLE II
DURATION, EXERCISE OF WARRANTS; EXERCISE
PRICE AND REPURCHASE OF WARRANTS
SECTION 2.01. Duration of Warrants. Subject to the terms and
conditions established herein, the Warrants shall expire at 5:00 p.m., New York
City time, on June 15, 2004. The applicable date of expiration of a particular
Warrant is referred to herein as the "Expiration Date" of such Warrant. Each
Warrant may be exercised on any Business Day (as defined
<PAGE> 20
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below) on or after the Exercisability Date (as defined in Section 2.02) and on
or prior to the close of business on the Expiration Date.
Any Warrant not exercised before the close of business on the
Expiration Date shall become void, and all rights of the holder under the
Warrant Certificate evidencing such Warrant and under this Agreement shall
cease.
"Business Day" shall mean any day on which (i) banks in New
York City, (ii) the principal U.S. securities exchange or market, if any, on
which any Common Stock is listed or admitted to trading and (iii) the principal
U.S. securities exchange or market, if any, on which the Warrants are listed or
admitted to trading are open for business.
SECTION 2.02. Exercise, Exercise Price, Settlement and
Delivery. (a) Subject to the provisions of this Agreement, a holder of a Warrant
shall have the right to purchase from the Company on or after the Exercisability
Date and on or prior to the close of business on the Expiration Date 1.7604
fully paid, registered and non-assessable shares of Common Stock (and any other
securities or property purchasable or deliverable upon exercise of such Warrant
as provided in Article V), subject to adjustment in accordance with Article V
hereof, at the purchase price of $0.01 for each share purchased (the "Exercise
Price"). The number of Shares for which a particular Warrant may be exercised
(the "Exercise Rate") shall be subject to adjustment from time to time as set
forth in Article V hereof.
"Exercisability Date" means, with respect to each Warrant, the
date as of which both of the following shall have occurred (whether before or on
such date): (i) the Separability Date and (ii) an Exercise Event.
"Exercise Event" means, with respect to each Warrant, the date
of the occurrence of the earliest of: (1) immediately prior to a Warrant Change
of Control (as defined in the Registration Rights Agreement), (2) (a) the 90th
day (or such fewer number of days as determined by the Company in its sole
discretion) after the consummation of an Initial Public Equity Offering or (b)
upon the closing of the Initial Public Equity Offering but only in respect of
Warrants, if any, required to be exercised to permit the holders thereof to sell
Shares pursuant to their registration rights, (3) a class of equity securities
of the Company is listed on a United States national securities exchange or
authorized for quotation on the Nasdaq National
<PAGE> 21
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Market or is otherwise subject to registration under the Exchange Act, (4)
December 15, 1999.
"Initial Public Equity Offering" means a primary public
offering (whether or not underwritten, but excluding any offering pursuant to
Form S-8 under the Securities Act or any other publicly registered offering
pursuant to the Securities Act pertaining to an issuance of shares of Common
Stock or securities exercisable therefor under any benefit plan, employee
compensation plan, or employee or director stock purchase plan) of Common Stock
of the Company pursuant to an effective registration statement under the
Securities Act.
"Person" means any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization, government or any agency or political
subdivision thereof or any other entity, including any predecessor of any such
entity.
(b) Warrants may be exercised on or after the date they are
exercisable hereunder by (i) surrendering at any office or agency maintained for
that purpose by the Company pursuant to Section 1.10 (each a "Warrant Exercise
Office") the Warrant Certificate evidencing such Warrants with the form of
election to exercise Shares set forth on the reverse side of the Warrant
Certificate (the "Election to Exercise") duly completed and signed by the
registered holder or holders thereof or by the duly appointed legal
representative thereof or by a duly authorized attorney, and in the case of a
transfer, such signature shall be guaranteed by an eligible guarantor
institution, and (ii) paying in full the Exercise Price for each such Warrant
exercised. Each Warrant may be exercised only in whole.
(c) Simultaneously with the exercise of each Warrant, payment
in full of the aggregate Exercise Price may be made, at the option of the
holder, (i) by United States dollars or by certified or official bank check,
(ii) by the surrender (which surrender shall be evidenced by cancellation of the
number of Warrants represented by any Warrant Certificate presented in
connection with a Cashless Exercise) of a Warrant or Warrants (represented by
one or more Warrant Certificates), and without payment of the Exercise Price in
cash, for such number of Shares equal to the product of (1) the number of Shares
for which such Warrant is exercisable with payment in cash of the aggregate
Exercise Price as of the date of exercise and (2) the Cashless Exercise Ratio or
(iii) with any combination of (i) and (ii). For purposes of this Agreement, the
"Cashless Exercise
<PAGE> 22
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Ratio" shall equal a fraction, the numerator of which is the excess of the
Current Market Value per share of the Common Stock on the date of exercise over
the Exercise Price per share as of the date of exercise and the denominator of
which is the Current Market Value per share of the Common Stock on the date of
exercise. An exercise of a Warrant in accordance with the immediately preceding
sentences is herein called a "Cashless Exercise." Upon surrender of a Warrant
Certificate representing more than one Warrant in connection with the holder's
option to elect a Cashless Exercise, the number of Shares deliverable upon a
Cashless Exercise shall be equal to the Cashless Exercise Ratio multiplied by
the product of (a) the number of Warrants that the holder specifies is to be
exercised pursuant to a Cashless Exercise and (b) the number of Shares for which
such Warrant is then exercisable (without giving effect to the Cashless Exercise
option). All provisions of this Agreement shall be applicable with respect to an
exercise of a Warrant Certificate pursuant to a Cashless Exercise for less than
the full number of Warrants represented thereby. No payment or adjustment shall
be made on account of any dividends on the Shares issued upon exercise of a
Warrant. If the Company has not effected the registration under the Securities
Act of the offer and sale of the Shares by the Company to the holders of the
Warrants upon the exercise thereof, the Company may elect to require that
holders of the Warrants effect the exercise of the Warrants solely pursuant to
the Cashless Exercise option and may also amend the Warrants to eliminate the
requirement for payment of the Exercise Price with respect such Cashless
Exercise option. The Warrant Agent shall have no obligation under this section
to calculate the Cashless Exercise Ratio.
(d) Upon such surrender of a Warrant Certificate and payment
and collection of the Exercise Price at any Warrant Exercise Office (other than
any Warrant Exercise Office that also is an office of the Warrant Agent), such
Warrant Certificate and payment shall be promptly delivered to the Warrant
Agent. The "Exercise Date" for a Warrant shall be the date when all of the items
referred to in the first sentence of paragraphs (b) and (c) of this Section 2.02
are received by the Warrant Agent at or prior to 11:00 a.m., New York City time,
on a Business Day and the exercise of the Warrants will be effective as of such
Exercise Date. If any items referred to in the first sentence of paragraphs (b)
and (c) are received after 11:00 a.m., New York City time, on a Business Day,
the exercise of the Warrants to which such item relates will be effective on the
next succeeding Business Day. Notwithstanding the foregoing, in the case of an
exercise of Warrants on the Expiration Date, if all of the items referred to in
the first sentence of paragraphs
<PAGE> 23
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(b) and (c) are received by the Warrant Agent at or prior to 5:00 p.m., New York
City time, on the Expiration Date, the exercise of the Warrants to which such
items relate will be effective on the Expiration Date.
(e) Upon the exercise of a Warrant in accordance with the
terms hereof, the receipt of a Warrant Certificate and payment of the Exercise
Price (or election of the Cashless Exercise option), the Warrant Agent shall:
(i) except to the extent exercise of the Warrant has been effected through
Cashless Exercise, cause an amount equal to the aggregate Exercise Price to be
paid to the Company by crediting the same to the account designated by the
Company in writing to the Warrant Agent for that purpose; (ii) advise the
Company immediately by telephone of the amount so deposited to the Company's
account and promptly confirm such telephonic advice in writing; and (iii) as
soon as practicable, advise the Company in writing of the number of Warrants
exercised in accordance with the terms and conditions of this Agreement and the
Warrant Certificates, the instructions of each exercising holder of the Warrant
Certificates with respect to delivery of the Shares to which such holder is
entitled upon such exercise, and such other information as the Company shall
reasonably request.
(f) Subject to Section 5.02 hereof, as soon as practicable
after the exercise of any Warrant or Warrants in accordance with the terms
hereof, the Company shall issue or cause to be issued to or upon the written
order of the registered holder of the Warrant Certificate evidencing such
exercised Warrant or Warrants, a certificate or certificates evidencing the
Shares to which such holder is entitled, in fully registered form, registered in
such name or names as may be directed by such holder pursuant to the Election to
Exercise, as set forth on the reverse of the Warrant Certificate. Such
certificate or certificates evidencing the Shares shall be deemed to have been
issued and any persons who are designated to be named therein shall be deemed to
have become the holder of record of such Shares as of the close of business on
the Exercise Date; the Shares may initially be issued in global form (the
"Global Shares"). Such Global Shares shall represent such of the outstanding
Shares as shall be specified therein and each shall provide that it shall
represent the aggregate amount of outstanding Shares from time to time endorsed
thereon and that the aggregate amount of outstanding Shares represented thereby
may from time to time be reduced or increased, as appropriate. Any endorsement
of a Global Share to reflect the amount of any increase or decrease in the
amount of outstanding Shares represented thereby shall be made by the registrar
for the Shares
<PAGE> 24
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and the Depositary (referred to below) in accordance with instructions given by
the holder thereof. The Depository Trust Company shall (if possible) act as the
Depositary with respect to the Global Shares until a successor shall be
appointed by the Company and the registrar for the Shares. After such exercise
of any Warrant or Shares, the Company shall also issue or cause to be issued to
or upon the written order of the registered holder of such Warrant Certificate,
a new Warrant Certificate, countersigned by the Warrant Agent pursuant to
written instruction, evidencing the number of Warrants, if any, remaining
unexercised unless such Warrants shall have expired.
SECTION 2.03. Cancellation of Warrant Certificates. In the
event the Company shall purchase or otherwise acquire Warrants, the Warrant
Certificates evidencing such Warrants may thereupon be delivered to the Warrant
Agent, and if so delivered, shall at the Company's written instruction be
canceled by it and retired. The Warrant Agent shall cancel all Warrant
Certificates properly surrendered for exchange, substitution, transfer or
exercise. Upon the Company's written request, the Warrant Agent shall deliver
such canceled Warrant Certificates to the Company.
SECTION 2.04. Notice of an Exercise Event. The Company shall,
as soon as practicable after the occurrence of an Exercise Event, send or cause
to be sent to each holder of Warrants and to each beneficial owner of the
Warrants with respect to which such Exercise Event has occurred to the extent
that the Warrants are held of record by a depositary or other agent (with a copy
to the Warrant Agent), by first-class mail, at the addresses appearing on the
Warrant Register, a notice prepared by the Company advising such holder of the
Exercise Event which has occurred, which notice shall describe the type of
Exercise Event and the date of the occurrence thereof, as applicable, and the
date of expiration of the right to exercise the Warrants prominently set forth
in the face of such notice. The Company agrees to make available the foregoing
right notwithstanding any other provision herein to the contrary. Such right
may, if it would be in the best interests of holders of Warrants, be in lieu of
the right to receive the number of Shares to which the holder would have been
entitled.
<PAGE> 25
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ARTICLE III
OTHER PROVISIONS RELATING TO
RIGHTS OF HOLDERS OF WARRANTS
SECTION 3.01. Enforcement of Rights. (a) Notwithstanding any
of the provisions of this Agreement, any holder of any Warrant Certificate,
without the consent of the Warrant Agent, the holder of any Shares or the holder
of any other Warrant Certificate, may, in and for his own behalf, enforce, and
may institute and maintain any suit, action or proceeding against the Company
suitable to enforce, his right to exercise the Warrant or Warrants evidenced by
his Warrant Certificate in the manner provided in such Warrant Certificate and
in this Agreement.
(b) Neither the Warrants nor any Warrant Certificate shall
entitle the holders thereof to any of the rights of a holder of Shares,
including, without limitation, the right to vote or to receive any dividends or
other payments or to consent or to receive notice as stockholders in respect of
the meetings of stockholders or for the election of directors of the Company or
any other matter, or any rights whatsoever as stockholders of the Company,
except as expressly provided herein (including Section 5.03 hereof).
SECTION 3.02. Obtaining Stock Exchange Listings. The Company
will from time to time take all action which may be necessary so that the
Shares, immediately upon their issuance upon the exercise of Warrants, will be
listed on the principal securities exchanges and markets within the United
States (including the Nasdaq National Market), if any, on which other shares of
Common Stock are then listed.
ARTICLE IV
CERTAIN COVENANTS OF THE COMPANY
SECTION 4.01. Payment of Taxes. The Company will pay all
documentary stamp taxes attributable to the initial issuance of Warrants and of
the Shares upon the exercise of Warrants; provided, however, that the Company
shall not be required to pay any tax or other governmental charge which may be
payable in respect of any transfer or exchange of any Warrant Certificates or
any certificates for Shares in a name other than the registered holder of a
Warrant Certificate surrendered upon the exercise of a Warrant. In any such
case, no transfer
<PAGE> 26
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or exchange shall be made unless or until the person or persons requesting
issuance thereof shall have paid to the Company the amount of such tax or other
governmental charge or shall have established to the satisfaction of the Company
that such tax or other governmental charge has been paid or an exemption is
available therefrom.
SECTION 4.02. Qualification Under the Securities Laws. (a)
Immediately prior to the occurrence of an Exercise Event arising as a result of
an Initial Public Equity Offering, the Company will, if permitted by applicable
law, take all such action as is necessary to cause the offer and sale by the
Company of the Shares issuable or deliverable upon exercise of the Warrants to
be registered or otherwise qualified under the provisions of the Securities Act
and pursuant to all applicable state securities laws and to provide for the
issuance of all Shares delivered upon exercise of the Warrants pursuant to an
effective shelf registration statement under the Securities Act. Subject to the
last sentence of this Section 4.02(a) and to paragraph (b) of this Section 4.02,
so long as any unexpired Warrants which have become exercisable due to the
occurrence of such an Exercise Event remain outstanding, the Company will file
such amendments and/or supplements to any registration statement under the
Securities Act or under any state securities laws covering the issuance of such
Shares and supplement and keep current any prospectus forming a part of such
registration statement as may be necessary to permit the Company to deliver to
each person exercising a Warrant a prospectus meeting the requirements of
Section 10(a)(3) of the Securities Act (a "Prospectus") and the regulations of
the Securities and Exchange Commission and otherwise complying with the
Securities Act and regulations thereunder, and as may be necessary to comply
with any applicable state securities laws. The Warrant Agent shall have no duty
to monitor when such registration or qualification is necessary nor shall the
Warrant Agent be responsible for the Company's failure to comply with this
Section 4.02. The Company's obligation to maintain a Prospectus for delivery to
each person exercising a Warrant shall be terminated on the date the Company
delivers to the Warrant Agent an unqualified opinion of counsel reasonably
satisfactory to the Warrant Agent to the effect that all Shares registrable or
deliverable upon exercise of the Warrants may be issued without the requirement
of registration under the Securities Act and will be freely transferable after
receipt without limitation under the Securities Act.
(b) The Company may suspend the effectiveness of such shelf
registration statement and the use of any related
<PAGE> 27
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prospectus in the event that, and for a period not to exceed an aggregate of 45
days in any calendar year if, (i) an event occurs and is continuing as a result
of which the shelf registration statement would, in the Company's good faith
judgement, which determination shall be evidence by a resolution of the
Company's board of directors, contain an untrue statement of a material fact or
omit to state a material fact necessary in order to make statements therein, in
the light of the circumstances under which they were made, not misleading, and
(ii) (a) the Company determines in its good faith judgment, which determination
shall be evidenced by a resolution of the Company's board of directors, that the
disclosure of an event at such time would be required to be disclosed in the
registration statement and would have a material adverse effect on the business,
operations or prospects of the Company (provided the Company would not otherwise
be required to disclose such event) or (b) the disclosure otherwise relates to a
pending material business transaction which has not yet been publicly disclosed.
SECTION 4.03. Rules 144 and 144A. The Company covenants that
it will 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 Securities and
Exchange Commission thereunder in a timely manner in accordance with the
requirements of the Securities Act and the Exchange Act and, if at any time the
Company is not required to file such reports, it will, upon the request of any
holder or beneficial owner of Warrants, make available such information
necessary to permit sales pursuant to Rule 144A under the Securities Act.
SECTION 4.04. Form of Initial Public Equity Offering. The
Company agrees that it will not make an Initial Public Equity Offering of any
class of its Capital Stock (other than the Shares) without amending the terms of
the Company's certificate of incorporation to provide that the Shares are
convertible into the class of Capital Stock subject to the Initial Public Equity
Offering (the "Subject Class") on a share-for-share basis and that the rights,
conditions and privileges of the Subject Class shall not be adverse to the
holders of the Shares.
SECTION 4.05. Registration of Shares. The Company agrees that
it will comply with all applicable laws, including the Securities Act and any
applicable state securities laws, in connection with the offer and sale of
Common Stock (and other securities and property deliverable) upon exercise of
the Warrants.
<PAGE> 28
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ARTICLE V
ADJUSTMENTS
SECTION 5.01. Adjustment of Exercise Rate; Notices. The
Exercise Rate is subject to adjustment from time to time as provided in this
Section.
(a) Adjustment for Change in Capital Stock. If, after the
date hereof, the Company:
(i) pays a dividend or makes a distribution on any of its
Common Stock in shares of any of its Common Stock (other than any such
dividend to the extent covered by Section 5.03);
(ii) subdivides any of its outstanding shares of Common
Stock into a greater number of shares;
(iii) combines any of its outstanding shares of Common Stock
into a smaller number of shares;
(iv) pays a dividend or makes a distribution on any of its
Common Stock in shares of any of its Capital Stock (as defined below)
(other than Common Stock or rights, warrants, or options for its Common
Stock to the extent such issuance or distribution is covered by Section
5.03); or
(v) issues by reclassification of any of its Common Stock
any shares of any of its Capital Stock;
then the Exercise Rate in effect immediately prior to such action for each
Warrant then outstanding shall be adjusted so that the holder of a Warrant
thereafter exercised may receive the number of shares of Capital Stock of the
Company which such holder would have owned immediately following such action if
such holder had exercised the Warrant immediately prior to such action or
immediately prior to the record date applicable thereto, if any (regardless of
whether the Warrants then outstanding are then exercisable and without giving
effect to the Cashless Exercise option). If there are no outstanding shares of
Common Stock that are of the same class as the Shares at the time of any such
action and such action has therefore been taken only in respect of the Shares,
the adjustment shall relate to the Shares in their same form if it would not
frustrate the intent and purposes of this Section 5.01.
<PAGE> 29
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The adjustment shall become effective immediately after the
record date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or reclassification. In
the event that such dividend or distribution is not so paid or made or such
subdivision, combination or reclassification is not effected, the Exercise Rate
shall again be adjusted to be the Exercise Rate which would then be in effect if
such record date or effective date had not been so fixed.
If after an adjustment a holder of a Warrant upon exercise of
such Warrant may receive shares of two or more classes of Capital Stock of the
Company, the Exercise Rate shall thereafter be subject to adjustment upon the
occurrence of an action taken with respect to any such class of Capital Stock as
is contemplated by this Article V with respect to the Common Stock, on terms
comparable to those applicable to Common Stock in this Article V.
(b) Adjustment for Sale of Common Stock Below Current Market
Value. If, after the date hereof, the Company grants or sells to any Affiliate
of the Company (other than a wholly-owned subsidiary) any Common Stock or any
securities convertible into or exchangeable or exercisable for any Common Stock
at a price below the then Current Market Value (other than (1) pursuant to the
exercise of the Warrants, (2) pursuant to any security convertible into, or
exchangeable or exercisable for shares of Common Stock outstanding as of the
date of this Agreement, (3) upon the conversion, exchange or exercise of any
convertible, exchangeable or exercisable security as to which upon the issuance
thereof an adjustment pursuant to this Article V has been made, (4) upon the
conversion, exchange or exercise of convertible, exchangeable or exercisable
securities of the Company outstanding on the date of this Agreement (to the
extent in accordance with the terms of such securities as in effect on the date
of this Agreement), and (5) in connection with a Rollup (as defined in the
Indenture), the Exercise Rate for each Warrant then outstanding shall be
adjusted in accordance with the formula:
E' = E x (O + N)
----------------
(O + (N x P/M))
where:
E' = the adjusted Exercise Rate for each Warrant then outstanding;
<PAGE> 30
-25-
E = the then current Exercise Rate for each Warrant then
outstanding;
O = the number of shares of Common Stock outstanding immediately
prior to the sale of Common Stock or issuance of securities
convertible, exchangeable or exercisable for Common Stock;
N = the number of shares of Common Stock so sold or the maximum
stated number of shares of Common Stock issuable upon the
conversion, exchange or exercise of any such convertible,
exchangeable or exercisable securities, as the case may be;
P = the proceeds per share of Common Stock received by the Company,
which (i) in the case of shares of Common Stock is the amount
received by the Company in consideration for the sale and
issuance of such shares; and (ii) in the case of securities
convertible into or exchangeable or exercisable for shares of
Common Stock is the amount received by the Company in
consideration for the sale and issuance of such convertible or
exchangeable or exercisable securities, plus the minimum
aggregate amount of additional consideration, other than the
surrender of such convertible or exchangeable securities,
payable to the Company upon exercise, conversion or exchange
thereof; and
M = the Current Market Value as of the Time of Determination or at
the time of sale, as the case may be.
The adjustment shall become effective immediately after the
record date for the determination of stockholders entitled to receive the
rights, warrants or options to which this paragraph (b) applies or upon
consummation of the sale of Common Stock, as the case may be. To the extent that
shares of Common Stock are not delivered after the expiration of such rights or
warrants, the Exercise Rate for each Warrant then outstanding shall be
readjusted to the Exercise Rate which would otherwise be in effect had the
adjustment made upon the issuance of such rights or warrants been made on the
basis of delivery of only the number of shares of Common Stock actually
delivered. In the event that such rights or warrants are not so issued, the
Exercise Rate for each Warrant then outstanding shall again be adjusted to be
the Exercise Rate which would then be in effect if such date fixed for
determination of
<PAGE> 31
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stockholders entitled to receive such rights or warrants had not been so fixed.
No adjustment shall be made under this paragraph (b) if the
application of the formula stated above in this paragraph (b) would result in a
value of E' that is lower than the value of E.
No adjustment shall be made under this paragraph (b) for any
adjustment which is the subject of paragraph (c) of this Section 5.01.
No adjustment in the Exercise Rate shall be made under this
paragraph (b) upon the conversion, exchange or exercise of options to acquire
shares of Common Stock by officers, directors or employees of the Company;
provided that the exercise price of such options, at the time of issuance
thereof, is at least equal to the then Current Market Value of the Common Stock
underlying such options.
"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 purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with") 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.
(c) Notice of Adjustment. Whenever the Exercise Rate is
adjusted, the Company shall promptly mail to holders of Warrants then
outstanding at the addresses appearing on the Warrant Register a notice of the
adjustment. The Company shall file with the Warrant Agent and any other
Registrar such notice and a certificate from the Company's independent public
accountants briefly stating the facts requiring the adjustment and the manner of
computing it. The certificate shall be conclusive evidence that the adjustment
is correct. Neither the Warrant Agent nor any such Registrar shall be under any
duty or responsibility with respect to any such certificate except to exhibit
the same during normal business hours to any holder desiring inspection thereof.
(d) Reorganization of Company; Special Distributions. (i) If
the Company, in a single transaction or through a series of related
transactions, merges, consolidates or amalgamates
<PAGE> 32
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with or into any other person or sells, assigns, transfers, leases, conveys or
otherwise disposes of all or substantially all of its properties and assets to
another person or group of affiliated persons or is a party to a merger or
binding share exchange which reclassifies or changes its outstanding Common
Stock (a "Fundamental Transaction"), as a condition to consummating any such
transaction the person formed by or surviving any such consolidation or merger
if other than the Company or the person to whom such transfer has been made (the
"Surviving Person") shall enter into a supplemental warrant agreement. The
supplemental warrant agreement shall provide (a) that the holder of a Warrant
then outstanding may exercise it for the kind and amount of securities, cash or
other assets which such holder would have received immediately after the
Fundamental Transaction if such holder had exercised the Warrant immediately
before the effective date of the transaction (regardless of whether the Warrants
are then exercisable and without giving effect to the Cashless Exercise option,
assuming (to the extent applicable) that such holder (i) was not a constituent
person or an affiliate of a constituent person to such transaction, (ii) made no
election with respect thereto, and (iii) was treated alike with the plurality of
non-electing holders, and (b) that the Surviving Person shall succeed to and be
substituted to every right and obligation of the Company in respect of this
Agreement and the Warrants. The supplemental warrant agreement shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article V. The Surviving Person shall mail to
holders of Warrants at the addresses appearing on the Warrant Register a notice
briefly describing the supplemental warrant agreement. If the issuer of
securities deliverable upon exercise of Warrants is an affiliate of the
Surviving Person, that issuer shall join in the supplemental warrant agreement.
(ii) Notwithstanding the foregoing, if the Company enters
into a Fundamental Transaction with another Person (other than a subsidiary of
the Company) and consideration is payable to holders of shares of Capital Stock
(or other securities or property) issuable or deliverable upon exercise of the
Warrants that are exercisable in exchange for their shares in connection with
such Fundamental Transaction which consists solely of cash, then the holders of
Warrants shall be entitled to receive distributions on the date of such event on
an equal basis with holders of such shares (or other securities issuable upon
exercise of the Warrants) as if the Warrants had been exercised immediately
prior to such event, less the Exercise Price therefor. Upon receipt of such
payment, if any, the
<PAGE> 33
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rights of a holder of such a Warrant shall terminate and cease and such holder's
Warrants shall expire.
(iii) If this paragraph (d) applies, it shall supersede the
application of paragraph (a) of this Section 5.01.
(e) Company Determination Final. Any determination that the
Company or the Board of Directors of the Company must make pursuant to this
Article V is conclusive.
(f) Warrant Agent's Adjustment Disclaimer. The Warrant Agent
has no duty to determine when an adjustment under this Article V should be made,
how it should be made or what it should be. The Warrant Agent has no duty to
determine whether a supplemental warrant agreement under paragraph (f) need be
entered into or whether any provisions of any supplemental warrant agreement are
correct. The Warrant Agent shall not be accountable for and makes no
representation as to the validity or value of any securities or assets issued
upon exercise of Warrants. The Warrant Agent shall not be responsible for the
Company's failure to comply with this Article V.
(g) Adjustment for Tax Purposes. The Company may make such
increases in the Exercise Rate, in addition to those otherwise required by this
Section, as it considers to be advisable in order that any event treated for
Federal income tax purposes as a dividend of stock or stock rights shall not be
taxable to the recipients.
(h) Underlying Shares. The Company shall at all times reserve
and keep available, free from preemptive rights, out of its authorized but
unissued Common Stock or Common Stock held in the treasury of the Company, for
the purpose of effecting the exercise of Warrants, the full number of Shares
then deliverable upon the exercise of all Warrants then outstanding and payment
of the exercise price, and the shares so deliverable shall be fully paid and
nonassessable and free from all liens and security interests.
(i) Specificity of Adjustment. Irrespective of any adjustments
in the number or kind of shares purchasable upon the exercise of the Warrants,
Warrant Certificates theretofore or thereafter issued may continue to express
the same number and kind of Shares per Warrant as are stated on the Warrant
Certificates initially issuable pursuant to this Agreement.
(j) Voluntary Adjustment. The Company from time to time may
increase the Exercise Rate by any number and for any
<PAGE> 34
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period of time (provided that such period is not less than 20 Business Days).
Whenever the Exercise Rate is so increased, the Company shall mail to holders at
the addresses appearing on the Warrant Register and file with the Warrant Agent
a notice of the increase. The Company shall give the notice at least 15 days
before the date the increased Exercise Rate takes effect. The notice shall state
the increased Exercise Rate and the period it will be in effect. A voluntary
increase in the Exercise Rate does not change or adjust the Exercise Rate
otherwise in effect as determined by this Section 5.01.
(k) Multiple Adjustments. After an adjustment to the Exercise
Rate for outstanding Warrants under this Article V, any subsequent event
requiring an adjustment under this Article V shall cause an adjustment to the
Exercise Rate for outstanding Warrants as so adjusted.
(l) Definitions.
"Capital Stock" means, with respect to any person, any and all
shares, interests, participations, rights in, or other equivalents (however
designated and whether voting or non-voting) of, such person's capital stock,
whether outstanding on the Issue Date (as defined in the Indenture) or issued
after the Issue Date, and any and all rights, warrants or options exchangeable
for or convertible into such capital stock.
"Current Market Value" per share of Common Stock of the
Company or any other security at any date means (i) if the security is not
registered under the Exchange Act, (a) the value of the security, determined in
good faith by the Board of Directors of the Company and certified in a board
resolution, based on the most recently completed arm's-length transaction
between the Company and a person other than an Affiliate of the Company and the
closing of which occurs on such date or shall have occurred within the six-month
period preceding such date, or (b) if no transaction shall have occurred on such
date, the fair market value of the security as determined by an Independent
Financial Expert (provided that, in the case of the calculation of Current
Market Value for determining the cash value of fractional shares, any such
determination within six months that is, in the good faith judgment of the
Board, a reasonable determination of value, may be utilized) or (ii) (a) if the
security is registered under the Exchange Act, the average of the daily closing
sales prices of the securities for the 20 consecutive days immediately preceding
such date, or (b) if the security has been registered under the Exchange Act for
less than 20 consecutive days immediately preceding such date,
<PAGE> 35
-30-
then the average of the closing sales prices for all of the trading days before
such date for which closing sales prices are available, in the case of each of
(ii)(a) and (ii)(b), as certified to the Warrant Agent by the President, any
Vice President or the Chief Financial Officer of the Company. The closing sales
price for each such trading day shall be: (A) in the case of a security listed
or admitted to trading on any United States national securities exchange or
quotation system, the closing sales price, regular way, on such day, or if no
sale takes place on such day, the average of the closing bid and asked prices on
such day, (B) in the case of a security not then listed or admitted to trading
on any United States national securities exchange or quotation system, the last
reported sale price on such day, or if no sale takes place on such day, the
average of the closing bid and asked prices on such day, as reported by a
reputable quotation source designated by the Company, (C) in the case of a
security not then listed or admitted to trading on any United States national
securities exchange or quotation system and as to which no such reported sale
price or bid and asked prices are available, the average of the reported high
bid and low asked prices on such day, as reported by a reputable quotation
service, or a newspaper of general circulation in the Borough of Manhattan, City
and State of New York customarily published on each Business Day, designated by
the Company, or, if there shall be no bid and asked prices on such day, the
average of the high bid and low asked prices, as so reported, on the most recent
day (not more than 30 days prior to the date in question) for which prices have
been so reported and (D) if there are not bid and asked prices reported during
the 30 days prior to the date in question, the Current Market Value shall be
determined as if the Shares (or other securities) were not registered under the
Exchange Act.
"Independent Financial Expert" 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 material financial interest for its proprietary
account in the Company or any of its Affiliates and (ii) which, in the judgment
of the Board of Directors of the Company, is otherwise independent with respect
to the Company and its Affiliates and qualified to perform the task for which it
is to be engaged.
"Time of Determination" means, (i) in the case of any
distribution of securities or other property to existing stockholders to which
paragraph (b) applies, the time and date of the determination of stockholders
entitled to receive such
<PAGE> 36
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securities or property or (ii) in the case of any other issuance and sale to
which paragraph (b) applies, the time and date of such issuance or sale.
(m) When De Minimis Adjustment may be Deferred. No Adjustment
in the Exercise Rate need be made unless the adjustment would require an
increase of at least 1% in the Exercise Rate. Any adjustments that are not made
shall be carried forward and taken into account in any subsequent adjustments.
All calculations under this Section 5 shall be made to the nearest 1/1000th of a
share, as the case may be.
SECTION 5.02. Fractional Shares. The Company will not be
required to issue fractional Shares upon exercise of the Warrants or distribute
Share certificates that evidence fractional Shares. In the event a holder is
required by Section 2.02(c) to make a Cashless Exercise, the number of Shares
issuable shall be rounded up to the nearest whole number. In addition, in no
event shall any holder of Warrants be required to make any payment of a
fractional cent. In lieu of fractional Shares, there shall be paid to the
registered holders of Warrant Certificates at the time Warrants evidenced
thereby are exercised as herein provided an amount in cash equal to the same
fraction of the Current Market Value, per Share on the Business Day preceding
the date the Warrant Certificates evidencing such Warrants are surrendered for
exercise. Such payments will be made by check or by transfer to an account
maintained by such registered holder with a bank in The City of New York. If any
holder surrenders for exercise more than one Warrant Certificate, the number of
Shares deliverable to such holder may, at the option of the Company, be computed
on the basis of the aggregate amount of all the Warrants exercised by such
holder.
SECTION 5.03. Certain Distributions. If at any time the
Company grants, issues or sells options, convertible securities, or rights to
purchase Capital Stock, warrants or other securities pro rata to the record
holders of any Common Stock (the "Distribution Rights") or, without duplication,
makes any dividend or otherwise makes any distribution, including, subject to
applicable law, pursuant to any plan of liquidation ("Distribution") on Common
Stock (whether in cash, property, evidences of indebtedness or otherwise), then
the Company shall grant, issue, sell or make to each registered holder of
Warrants then outstanding, the aggregate Distribution Rights or Distribution, as
the case may be, which such holder would have acquired if such holder had held
the maximum number of Shares acquirable upon complete exercise of such holder's
Warrants
<PAGE> 37
-32-
(regardless of whether the Warrants are then exercisable and without giving
effect to the Cashless Exercise option) immediately before the record date for
the grant, issuance or sale of such Distribution Rights or Distribution, as the
case may be, or, if there is no such record date, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or sale
of such Distribution Rights or Distribution, as the case may be.
ARTICLE VI
CONCERNING THE WARRANT AGENT
SECTION 6.01. Warrant Agent. The Company hereby appoints First
Trust National Association as Warrant Agent of the Company in respect of the
Warrants and the Warrant Certificates upon the terms and subject to the
conditions herein and in the Warrant Certificates set forth; and First Trust
National Association hereby accepts such appointment. The Warrant Agent shall
have the powers and authority specifically granted to and conferred upon it in
the Warrant Certificates and hereby and such further powers and authority to act
on behalf of the Company as the Company may hereafter grant to or confer upon it
and it shall accept in writing. All of the terms and provisions with respect to
such powers and authority contained in the Warrant Certificates are subject to
and governed by the terms and provisions hereof. The Warrant Agent may act
through agents and shall not be responsible for the misconduct or negligence of
any such agent appointed with due care.
SECTION 6.02. Conditions of Warrant Agent's Obligations. The
Warrant Agent accepts its obligations herein set forth upon the terms and
conditions hereof and in the Warrant Certificates, including the following, to
all of which the Company agrees and to all of which the rights hereunder of the
holders from time to time of the Warrant Certificates shall be subject:
(a) The Warrant Agent shall be entitled to compensation to be
agreed upon with the Company in writing for all services rendered by it
and the Company agrees promptly to pay such compensation and to
reimburse the Warrant Agent for its reasonable out-of-pocket expenses
(including reasonable fees and expenses of counsel) incurred without
gross negligence or willful misconduct on its part in connection with
the services rendered by it hereunder. The Company also agrees to
indemnify the Warrant Agent and any
<PAGE> 38
-33-
predecessor Warrant Agent, their directors, officers, affiliates,
agents and employees for, and to hold them and their directors,
officers, affiliates, agents and employees harmless against, any loss,
liability or expense of any nature whatsoever (including, without
limitation, reasonable fees and expenses of counsel) incurred without
gross negligence or willful misconduct on the part of the Warrant
Agent, arising out of or in connection with its acting as such Warrant
Agent hereunder and its exercise of its rights and performance of its
obligations hereunder. The obligations of the Company under this
Section 6.02 shall survive the exercise and the expiration of the
Warrant Certificates and the resignation and removal of the Warrant
Agent.
(b) In acting under this Agreement and in connection with the
Warrant Certificates, the Warrant Agent is acting solely as agent of
the Company and does not assume any obligation or relationship of
agency or trust for or with any of the owners or holders of the Warrant
Certificates.
(c) The Warrant Agent may consult with counsel of its
selection and any advice or written opinion of such 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
accordance with such advice or opinion.
(d) The Warrant Agent shall be fully protected and shall incur
no liability for or in respect of any action taken or omitted to be
taken or thing suffered by it in reliance upon any Warrant Certificate,
notice, direction, consent, certificate, affidavit, opinion of counsel,
instruction, statement or other paper or document reasonably believed
by it to be genuine and to have been presented or signed by the proper
parties.
(e) The Warrant Agent, and its officers, directors, affiliates
and employees ("Related Parties"), may become the owners of, or acquire
any interest in, Warrant Certificates, shares or other obligations of
the Company with the same rights that it or they would have it if were
not the Warrant Agent hereunder and, to the extent permitted by
applicable law, it or they may engage or be interested in any financial
or other transaction with the Company and may act on, or as depositary,
trustee or agent for, any committee or body of holders of shares or
other obligations of the Company as freely as if it were not the
<PAGE> 39
-34-
Warrant Agent hereunder. Nothing in this Agreement shall be deemed to
prevent the Warrant Agent or such Related Parties from acting in any
other capacity for the Company.
(f) The Warrant Agent shall not be under any liability for
interest on, and shall not be required to invest, any monies at any
time received by it pursuant to any of the provisions of this Agreement
or of the Warrant Certificates.
(g) The Warrant Agent shall not be under any responsibility in
respect of the validity of this Agreement (or any term or provision
hereof) or the execution and delivery hereof (except the due execution
and delivery hereof by the Warrant Agent) or in respect of the validity
or execution of any Warrant Certificate (except its authentication
thereof).
(h) The recitals and other statements contained herein and in
the Warrant Certificates (except as to the Warrant Agent's
authentication thereon) shall be taken as the statements of the Company
and the Warrant Agent assumes no responsibility for the correctness of
the same. The Warrant Agent does not make any representation as to the
validity or sufficiency of this Agreement or the Warrant Certificates,
except for its due execution and delivery of this Agreement; provided,
however, that the Warrant Agent shall not be relieved of its duty to
authenticate the Warrant Certificates as authorized by this Agreement.
The Warrant Agent shall not be accountable for the use or application
by the Company of the proceeds of the exercise of any Warrant.
(i) Before the Warrant Agent acts or refrains from acting with
respect to any matter contemplated by this Warrant Agreement, it may
require:
(1) an Officers' Certificate (as defined in the
Indenture) stating on behalf of the Company that, in the
opinion of the signers, all conditions precedent, if any,
provided for in this Warrant Agreement relating to the
proposed action have been complied with; and
(2) if reasonably necessary in the sole judgment of
the Warrant Agent, an opinion of counsel for the Company
stating that, in the opinion of such counsel, all such
conditions precedent have been complied
<PAGE> 40
-35-
with provided that such matter is one customarily opined on
by counsel.
Each Officers' Certificate or, if requested, an opinion of
counsel with respect to compliance with a condition or covenant
provided for in this Warrant Agreement shall include:
(1) a statement that the person making such
certificate or opinion has read such covenant or condition;
(2) 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;
(3) a statement that, in the opinion of such
person, he or she has made such examination or investigation
as is necessary to enable him or her to express an informed
opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether or not, in the
opinion of such person, such condition or covenant has been
complied with.
(j) The Warrant Agent shall be obligated to perform such
duties as are herein and in the Warrant Certificates specifically set
forth and no implied duties or obligations shall be read into this
Agreement or the Warrant Certificates against the Warrant Agent. The
Warrant Agent shall not be accountable or under any duty or
responsibility for the use by the Company of any of the Warrant
Certificates authenticated by the Warrant Agent and delivered by it to
the Company pursuant to this Agreement. The Warrant Agent shall have no
duty or responsibility in case of any default by the Company in the
performance of its covenants or agreements contained in the Warrant
Certificates or in the case of the receipt of any written demand from a
holder of a Warrant Certificate with respect to such default,
including, without limiting the generality of the foregoing, any duty
or responsibility to initiate or attempt to initiate any proceedings at
law or otherwise or, except as provided in Section 7.02 hereof, to make
any demand upon the Company.
<PAGE> 41
-36-
(k) Unless otherwise specifically provided herein, any order,
certificate, notice, request, direction or other communication from the
Company made or given under any provision of this Agreement shall be
sufficient if signed by its chairman of the Board of Directors, its
president, its treasurer, its controller or any vice president or its
secretary or any assistant secretary.
(l) The Warrant Agent shall have no responsibility in respect
of any adjustment pursuant to Article V hereof.
(m) The Company agrees that it will perform, execute,
acknowledge and deliver, or cause to be performed, executed,
acknowledged and delivered, all such further and other acts,
instruments and assurances as may reasonably be required by the Warrant
Agent for the carrying out or performing by the Warrant Agent of the
provisions of this Agreement.
(n) The Warrant Agent is hereby authorized and directed to
accept written instructions with respect to the performance of its
duties hereunder from any one of the chairman of the Board of
Directors, the president, the treasurer, the controller, any vice
president or the secretary or assistant secretary of the Company or any
other officer or official of the Company reasonably believed to be
authorized to give such instructions and to apply to such officers or
officials for advice or instructions in connection with its duties, and
it shall not be liable for any action taken or suffered to be taken by
it in good faith in accordance with instructions with respect to any
matter arising in connection with the Warrant Agent's duties and
obligations arising under this Agreement. Such application by the
Warrant Agent for written instructions from the Company may, at the
option of the Warrant Agent, set forth in writing any action proposed
to be taken or omitted by the Warrant Agent with respect to its duties
or obligations under this Agreement and the date on or after which such
action shall be taken and the Warrant Agent shall not be liable for any
action taken or omitted in accordance with a proposal included in any
such application on or after the date specified therein (which date
shall be not less than 10 Business Days after the Company receives such
application unless the Company consents to a shorter period), provided
that (i) such application includes a statement to the effect that it is
being made pursuant to this paragraph (n) and that unless objected to
prior to such date specified in the application, the Warrant
<PAGE> 42
-37-
Agent will not be liable for any such action or omission to the extent
set forth in such paragraph (n) and (ii) prior to taking or omitting
any such action, the Warrant Agent has not received written
instructions objecting to such proposed action or omission.
(o) Whenever in the performance of its duties under this
Agreement the Warrant Agent shall deem it necessary or desirable that
any fact or matter be proved or established by the Company prior to
taking or suffering any action hereunder, such fact or matter (unless
other evidence in respect thereof be herein specifically prescribed)
may be deemed to be conclusively proved and established by a
certificate signed on behalf of the Company by any one of the chairman
of the Board of Directors, the president, the treasurer, the
controller, any vice president or the secretary or assistant secretary
of the Company or any other officer or official of the Company
reasonably believed to be authorized to give such instructions and
delivered to the Warrant Agent; and such certificate shall be full
authorization to the Warrant Agent for any action taken or suffered in
good faith by it under the provisions of this Agreement in reliance
upon such certificate.
(p) The Warrant Agent shall not be required to risk or expend
its own funds in the performance of its obligations and duties
hereunder.
SECTION 6.03. Resignation and Appointment of Successor. (a)
The Company agrees, for the benefit of the holders from time to time of the
Warrant Certificates, that there shall at all times be a Warrant Agent
hereunder.
(b) The Warrant Agent may at any time resign as Warrant Agent
by giving written notice to the Company of such intention on its part,
specifying the date on which its desired resignation shall become effective;
provided, however, that such date shall be at least 60 days after the date on
which such notice is given unless the Company agrees to accept less notice. Upon
receiving such notice of resignation, the Company shall promptly appoint a
successor Warrant Agent, qualified as provided in Section 6.03(d) hereof, by
written instrument in duplicate signed on behalf of the Company, one copy of
which shall be delivered to the resigning Warrant Agent and one copy to the
successor Warrant Agent. As provided in Section 6.03(d) hereof, such resignation
shall become effective upon the earlier of (x) the acceptance of the appointment
by the successor Warrant Agent or (y) 60 days after receipt by the Company of
<PAGE> 43
-38-
notice of such resignation. The Company may, at any time and for any reason, and
shall, upon any event set forth in the next succeeding sentence, remove the
Warrant Agent and appoint a successor Warrant Agent by written instrument in
duplicate, specifying such removal and the date on which it is intended to
become effective, signed on behalf of the Company, one copy of which shall be
delivered to the Warrant Agent being removed and one copy to the successor
Warrant Agent. The Warrant Agent shall be removed as aforesaid if it shall
become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a
receiver of the Warrant Agent or of its property shall be appointed, or any
public officer shall take charge or control of it or of its property or affairs
for the purpose of rehabilitation, conservation or liquidation. Any removal of
the Warrant Agent and any appointment of a successor Warrant Agent shall become
effective upon acceptance of appointment by the successor Warrant Agent as
provided in Section 6.03(d). As soon as practicable after appointment of the
successor Warrant Agent, the Company shall cause written notice of the change in
the Warrant Agent to be given to each of the registered holders of the Warrants
in the manner provided for in Section 8.04 hereof.
(c) Upon resignation or removal of the Warrant Agent, if the
Company shall fail to appoint a successor Warrant Agent within a period of 60
days after receipt of such notice of resignation or removal, then the holder of
any Warrant Certificate or the retiring Warrant Agent may apply to a court of
competent jurisdiction for the appointment of a successor to the Warrant Agent.
Pending appointment of a successor to the Warrant Agent, either by the Company
or by such a court, the duties of the Warrant Agent shall be carried out by the
Company.
(d) Any successor Warrant Agent, whether appointed by the
Company or by a court, shall be a bank or trust company in good standing,
incorporated under the laws of the United States of America or any State thereof
and having, at the time of its appointment, a combined capital surplus of at
least $50 million. Such successor Warrant Agent shall execute and deliver to its
predecessor and to the Company an instrument accepting such appointment
hereunder and all the provisions of this Agreement, and thereupon such successor
Warrant Agent, without any further act, deed or conveyance, shall become vested
with all the rights, powers, duties and obligations of its predecessor
hereunder, with like effect as if originally named as Warrant Agent hereunder,
and such predecessor shall thereupon become obligated to (i) transfer and
deliver, and
<PAGE> 44
-39-
such successor Warrant Agent shall be entitled to receive, all securities,
records or other property on deposit with or held by such predecessor as Warrant
Agent hereunder and (ii) upon payment of the amounts then due it pursuant to
Section 6.02(a) hereof, pay over, and such successor Warrant Agent shall be
entitled to receive, all monies deposited with or held by any predecessor
Warrant Agent hereunder.
(e) Any corporation or bank into which the Warrant Agent
hereunder may be merged or converted, or any corporation or bank with which the
Warrant Agent may be consolidated, or any corporation or bank resulting from any
merger, conversion or consolidation to which the Warrant Agent shall be a party,
or any corporation or bank to which the Warrant Agent shall sell or otherwise
transfer all or substantially all of its corporate trust business, shall be the
successor to the Warrant Agent under this Agreement (provided that such
corporation or bank shall be qualified as aforesaid) without the execution or
filing of any document or any further act on the part of any of the parties
hereto.
(f) No Warrant Agent under this Warrant Agreement shall be
personally liable for any action or omission of any successor Warrant Agent.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Amendment. This Agreement and the terms of the
Warrants may be amended by the Company and the Warrant Agent, without the
consent of the holder of any Warrant Certificate, for the purpose of curing any
ambiguity, or of curing, correcting or supplementing any defective or
inconsistent provision contained herein or therein, or to effect any assumptions
of the Company's obligations hereunder and thereunder by a successor corporation
under the circumstances described in Section 5.01(d) hereof or in any other
manner which the Company may deem necessary or desirable and which shall not
adversely affect the interests of the holders of the Warrant Certificates.
The Company and the Warrant Agent may amend, modify or
supplement this Agreement and the terms of the Warrants, and waivers to
departures from the terms hereof and thereof may be given, with the consent of
the Requisite Warrant Holders (as defined below) for the purpose of adding any
provision to or
<PAGE> 45
-40-
changing in any manner or eliminating any of the provisions of this Agreement or
modifying in any manner the rights of the holders of the outstanding Warrants;
provided, however, that no such modification that increases the Exercise Price
or decreases the Exercise Rate, makes any change to the last paragraph of
Section 5.01(d), reduces the period of time during which the Warrants are
exercisable hereunder, or effects any change to this Section 7.01 may be made
with respect to any Warrant without the consent of the holder of such Warrant.
"Requisite Warrant Holders" means (i) in the case of any amendment,
modification, supplement or waiver affecting Warrant Holders as such holders of
a majority in number of the outstanding Warrants so affected, or (ii) in the
case of any amendment, modification, supplement or waiver affecting Warrant
Holders, a majority in number of Shares represented by the Warrants that would
be issuable assuming exercise thereof at the time such amendment, modification,
supplement or waiver is voted upon. Notwithstanding any other provision of this
Agreement, the Warrant Agent's consent must be obtained regarding any supplement
or amendment which alters the Warrant Agent's rights or duties (it being
expressly understood that the foregoing shall not be in derogation of the right
of the Company to remove the Warrant Agent in accordance with Section 6.03
hereof). For purposes of any amendment, modification or waiver hereunder,
Warrants held by the Company or any of its Affiliates shall be disregarded.
Any modification or amendment made in accordance with this
Agreement will be conclusive and binding on all present and future holders of
Warrant Certificates whether or not they have consented to such modification or
amendment or waiver and whether or not notation of such modification or
amendment is made upon such Warrant Certificates. Any instrument given by or on
behalf of any holder of a Warrant Certificate in connection with any consent to
any modification or amendment will be conclusive and binding on all subsequent
holders of such Warrant Certificate.
SECTION 7.02. Notices and Demands to the Company and Warrant
Agent. If the Warrant Agent shall receive any notice or demand addressed to the
Company by the holder of a Warrant Certificate pursuant to the provisions hereof
or of the Warrant Certificates, the Warrant Agent shall promptly forward such
notice or demand to the Company.
SECTION 7.03. Addresses for Notices to Parties and for
Transmission of Documents. All notices hereunder to the parties hereto shall be
deemed to have been given when sent by
<PAGE> 46
-41-
certified or registered mail, postage prepaid, or by facsimile transmission,
confirmed by first class mail, postage prepaid, addressed to any party hereto as
follows:
To the Company:
Verio Inc.
9250 Costilla Ave., Suite 400
Englewood, CO 80112
Facsimile No.: (303) 792-3559
Attention: General Counsel
To the Warrant Agent:
First Trust National Association
180 East 5th Street
St. Paul, Minnesota 55104
Facsimile No.: (612) 244-0711
Attention: Corporate Trust Department
or at any other address of which either of the foregoing shall have notified the
other in writing.
SECTION 7.04. Notices to Holders. Notices to holders of
Warrants shall be mailed to such holders at the addresses of such holders as
they appear in the Warrant Register. Any such notice shall be sufficiently given
if sent by first-class mail, postage prepaid.
SECTION 7.05. APPLICABLE LAW; SUBMISSION TO JURISDICTION. THE
VALIDITY, INTERPRETATION AND PERFORMANCE OF THIS AGREEMENT AND EACH WARRANT
CERTIFICATE ISSUED HEREUNDER AND OF THE RESPECTIVE TERMS AND PROVISIONS THEREOF
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO
THE CONFLICT OF LAWS PROVISIONS THEREOF.
SECTION 7.06. Persons Having Rights Under Agreement. Nothing
in this Agreement expressed or implied and nothing that may be inferred from any
of the provisions hereof is intended, or shall be construed, to confer upon, or
give to, any person or corporation other than the Company, the Warrant Agent,
the holders of the Warrant Certificates and, with respect to Section 4.04 and
4.05, the holders of Shares issued pursuant to Warrants, any right, remedy or
claim under or by reason of this Agreement or of any covenant, condition,
stipulation, promise or agreement hereof; and all covenants (except for Section
4.04 which shall be for the benefit of all holders of Shares issued pursuant to
Warrants), conditions, stipulations, promises and
<PAGE> 47
-42-
agreements in this Agreement contained shall be for the sole and exclusive
benefit of the Company and the Warrant Agent and their successors and of the
holders of the Warrant Certificates.
SECTION 7.07. Headings. The descriptive headings of the
several Articles and Sections of this Agreement are inserted for convenience
only and shall not control or affect the meaning or construction of any of the
provisions hereof.
SECTION 7.08. Counterparts. This Agreement may be executed
in any number of counterparts, each of which so executed shall be deemed to be
an original; but such counterparts shall together constitute but one and the
same instrument.
SECTION 7.09. Inspection of Agreement. A copy of this
Agreement shall be available during regular business hours at the principal
corporate trust office of the Warrant Agent, for inspection by the holder of any
Warrant Certificate. The Warrant Agent may require such holder to submit his
Warrant Certificate for inspection by it.
SECTION 7.10. Availability of Equitable Remedies. Since a
breach of the provisions of this Agreement could not adequately be compensated
by money damages, holders of Warrants shall be entitled, in addition to any
other right or remedy available to them, to an injunction restraining such
breach or a threatened breach and to specific performance of any such provision
of this Agreement, and in either case no bond or other security shall be
required in connection therewith, and the parties hereby consent to such
injunction and to the ordering of specific performance.
SECTION 7.11. Obtaining of Governmental Approvals. The Company
will from time to time take all action required to be taken by it which may be
necessary to obtain and keep effective any and all permits, consents and
approvals of governmental agencies and authorities and securities acts filings
under United States Federal and state laws, and the rules and regulations of all
stock exchanges on which the Warrants are listed which may be or become
requisite in connection with the issuance, sale, transfer, and delivery of the
Warrant Certificates, the exercise of the Warrants or the issuance, sale,
transfer and delivery of the Shares issued upon exercise of the Warrants.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 48
S-1
IN WITNESS WHEREOF, this Warrant Agreement has been duly
executed by the parties hereto 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 and Secretary
FIRST TRUST NATIONAL ASSOCIATION,
as Warrant Agent
By: /s/ Richard H. Prokosch
-----------------------------------
Name: Richard H. Prokosch
Title: Trust Officer
<PAGE> 49
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
[FACE]
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 SUCH 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 "RULE 144A") 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 UNDER THE SECURITIES ACT
("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(k) 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 DAY 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
A-1
<PAGE> 50
PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS
DEFINED IN RULE 144A 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, 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 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 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. 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 IN
REGULATION S.
A-2
<PAGE> 51
CUSIP #[ ]
No. [ ] [ ] Warrants
WARRANT CERTIFICATE
VERIO INC.
This Warrant Certificate certifies that [ ], or registered
assigns, is the registered holder of [ ] Warrants (the "Warrants") to purchase
shares of Common Stock, par value $0.001 per share (the "Common Stock"), or,
subject to the conditions contained herein and in the Warrant Agreement, of
VERIO INC., a Delaware corporation (the "Company," which term includes its
successors and assigns). Each Warrant entitles the holder to purchase from the
Company at any time from 9:00 a.m. New York City time on or after the
Exercisability Date until 5:00 p.m., New York City time, on June 15, 2004 (the
"Expiration Date"), 1.7604 fully paid, registered and non-assessable shares of
Common Stock, subject to adjustment as provided in Article V of the Warrant
Agreement, at the exercise price of $0.01 for each share purchased (the
"Exercise Price") (the shares of Common Stock purchasable upon exercise of a
Warrant being herein referred to as the "Shares" and, unless the context
otherwise requires, such term shall also mean the other securities or property
purchasable and deliverable upon exercise of a Warrant as provided in the
Warrant Agreement), upon surrender of this Warrant Certificate and payment of
the Exercise Price (i) in United States dollars or certified official or bank
check, (ii) pursuant to the next sentence or (iii) in any combination of (i) and
(ii), at any office or agency maintained for that purpose by the Company (the
"Warrant Agent Office"), subject to the conditions set forth herein and in the
Warrant Agreement. A Warrant may also be exercised solely by the surrender of
the Warrant, and without the payment of the Exercise Price in cash, for such
number of Shares equal to the product of (1) the number of Shares for which such
Warrant is exercisable with payment of the Exercise Price as of the date of
exercise and (2) the Cashless Exercise Ratio. For purposes of this Warrant, the
"Cashless Exercise Ratio" shall equal a fraction, the numerator of which is the
excess of the Current Market Value per share of the Common Stock on the date of
exercise over the Exercise Price per share as of the date of exercise
A-3
<PAGE> 52
and the denominator of which is the Current Market Value per share of the Common
Stock on the date of exercise. An exercise of a Warrant in accordance with the
immediately preceding sentences is herein called a "Cashless Exercise." Upon
surrender of a Warrant Certificate representing more than one Warrant in
connection with the Holder's option to elect a Cashless Exercise, the number of
Shares deliverable upon a Cashless Exercise shall be equal to the Cashless
Exercise Ratio multiplied by the product of (a) the number of Warrants that the
holder specifies is to be exercised pursuant to a Cashless Exercise and (b) the
number of Shares for which such Warrant is then exercisable (without giving
effect to the Cashless Exercise Option). If the Company has not effected the
registration under the Securities Act of the offer and sale of the Shares by the
Company to the holders of the Warrants upon the exercise thereof, the Company
may elect to require that holders of the Warrants effect the exercise of the
Warrants solely pursuant to the Cashless Exercise option and may also amend the
Warrants to eliminate the requirement for payment of the Exercise Price with
respect such Cashless Exercise option. All provisions of the Warrant Agreement
shall be applicable with respect to an exercise of a Warrant Certificate
pursuant to a Cashless Exercise for less than the full number of Warrants
represented thereby. Capitalized terms used herein without being defined herein
shall have the definitions ascribed to such terms in the Warrant Agreement.
"Current Market Value" per share of Common Stock of the
Company or any other security at any date means (i) if the security is not
registered under the Exchange Act, (a) the value of the security, determined in
good faith by the Board of Directors of the Company and certified in a board
resolution, based on the most recently completed arm's-length transaction
between the Company and a person other than an Affiliate of the Company and the
closing of which occurs on such date or shall have occurred within the six-month
period preceding such date or (b) if no transaction shall have occurred on such
date, the fair market value of the security as determined by an Independent
Financial Expert (provided that, in the case of the calculation of Current
Market Value for determining the cash value of fractional shares, any such
determination within six months that is, in the good faith judgment of the
Board, a reasonable determination of value, may be utilized) or (ii) (a) if the
security is registered under the Exchange Act, the average of the daily closing
sales prices of the securities for the 20 consecutive
A-4
<PAGE> 53
trading days immediately preceding such date, or (b) if the security has been
registered under the Exchange Act for less than 20 consecutive trading days
before such date, then the average of the closing sales prices for all of the
trading days before such date for which closing sales prices are available, in
the case of each of (ii)(a) and (ii)(b), as certified to the Warrant Agent by
the President, any Vice President or the Chief Financial Officer of the Company.
The closing sales price for each such trading day shall be: (A) in the case of a
security listed or admitted to trading on any United States national securities
exchange or quotation system, the closing sales price, regular way, on such day,
or if no sale takes place on such day, the average of the closing bid and asked
prices on such day, (B) in the case of a security not then listed or admitted to
trading on any United States national securities exchange or quotation system,
the last reported sale price on such day, or if no sale takes place on such day,
the average of the closing bid and asked prices on such day, as reported by a
reputable quotation source designated by the Company, (C) in the case of a
security not then listed or admitted to trading on any United States national
securities exchange or quotation system and as to which no such reported sale
price or bid and asked prices are available, the average of the reported high
bid and low asked prices on such day, as reported by a reputable quotation
service, or a newspaper of general circulation in the Borough of Manhattan, City
and State of New York customarily published on each Business Day, designated by
the Company, or, if there shall be no bid and asked prices on such day, the
average of the high bid and low asked prices, as so reported, on the most recent
day (not more than 30 days prior to the date in question) for which prices have
been so reported and (D) if there are not bid and asked prices reported during
the 30 days prior to the date in question, the Current Market Value shall be
determined as if the Shares (or other securities) were not registered under the
Exchange Act.
"Exercise Event" means, with respect to each Warrant, the date
of the occurrence of the earliest of: (1) immediately prior to a Warrant Change
of Control (as defined in the Registration Rights Agreement), (2)(a) the 90th
day (or such fewer number of days as determined by the Company in its sole
discretion) after the consummation of an Initial Public Equity Offering or (b)
upon the closing of the Initial Public Equity Offering, but only in respect of
Warrants, if any, required to be
A-5
<PAGE> 54
exercised to permit the holders thereof to sell Shares pursuant to their
registration rights, (3) a class of equity securities of the Company is listed
on a national securities exchange or authorized for quotation on the Nasdaq
National Market or is otherwise subject to registration under the Exchange Act,
or (4) December 15, 1999.
"Independent Financial Expert" means a United States
investment banking firm of national or regional standing, (i) which does not,
and whose directors, officers and employees or Affiliates do not have a direct
or indirect material financial interest for its proprietary account in the
Company or any of its Affiliates and (ii) which, in the judgment of the Board of
Directors of the Company, is otherwise independent with respect to the Company
and its Affiliates and qualified to perform the task for which it is to be
engaged.
"Separability Date" shall mean the earliest to occur of: (i)
December 15, 1997, (ii) the occurrence of an Exercise Event, (iii) the
occurrence of an Event of Default (as defined in the Indenture), (iv) the date
on which a registration statement under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to a registered exchange offer for the
Notes or covering the sale by holders of the Notes is declared effective under
the Securities Act, (v) with respect to any Notes called for redemption by the
Company following an Equity Sale (as defined in the Indenture), immediately
prior to any such redemption, or (vi) such date as may be determined by Merrill
Lynch in its sole discretion and specified to the Company, the Trustee, the
Warrant Agent and the Unit Agent in writing. Notwithstanding the foregoing, in
the event a Warrant Change of Control (as defined in the Registration Rights
Agreement) is proposed, the Separability Date shall be the date of commencement
of a Change of Control Offer (as defined in the Indenture).
The Company has initially designated the principal corporate
trust office of the Warrant Agent in the Borough of Manhattan, The City of New
York, as the initial Warrant Agent Office. The number of Shares issuable upon
exercise of the Warrants ("Exercise Rate") is subject to adjustment upon the
occurrence of certain events set forth in the Warrant Agreement.
A-6
<PAGE> 55
Any Warrants not exercised on or prior to 5:00 p.m., New York
City time, on June 15, 2004 shall thereafter be void.
If the Company merges, amalgamates or consolidates with or
into, or sells all or substantially all of its property and assets to, another
Person solely for cash, the holders of Warrants shall be entitled to receive
distributions on the date of such event on an equal basis with holders of Shares
(or other securities issuable upon exercise of the Warrants) as if the Warrants
had been exercised immediately prior to such event (less the Exercise Price).
Reference is hereby made to the further provisions on the
reverse hereof which provisions shall for all purposes have the same effect as
though fully set forth at this place.
This Warrant Certificate shall not be valid unless
authenticated by the Warrant Agent, as such term is used in the Warrant
Agreement.
THIS WARRANT CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS
PROVISIONS THEREOF.
A-7
<PAGE> 56
WITNESS the seal of the Company and signatures of its duly
authorized officers.
Dated:
VERIO INC.
By:
----------------------------
Name:
Title:
Attest:
By:
----------------------------
Name:
Title:
Certificate of Authentication:
This is one of the Warrants
referred to in the within
mentioned Warrant Agreement:
FIRST TRUST NATIONAL ASSOCIATION,
as Warrant Agent
By:
----------------------------
Authorized Signatory
A-8
<PAGE> 57
[FORM OF WARRANT CERTIFICATE]
[REVERSE]
VERIO INC.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants expiring at 5:00 p.m., New York City time,
on June 15, 2004 (the "Expiration Date"), each of which represents the right to
purchase at any time on or after the Exercisability Date (as defined in the
Warrant Agreement) and on or prior to the Expiration Date 1.7604 shares of
Common Stock, subject to adjustment as set forth in the Warrant Agreement. The
Warrants are issued pursuant to a Warrant Agreement dated as of June 15, 1997
(the "Warrant Agreement"), duly executed and delivered by the Company to First
Trust National Association, as Warrant Agent (the "Warrant Agent"), which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Warrant Agent,
the Company and the holders (the words "holders" or holder" meaning the
registered holders or registered holder) of the Warrants.
Warrants may be exercised by (i) surrendering at any Warrant
Agent Office this Warrant Certificate with the form of Election to Exercise set
forth hereon duly completed and executed and (ii) to the extent such exercise is
not being effected through a Cashless Exercise by paying in full the Warrant
Exercise Price for each such Warrant exercised and any other amounts required to
be paid pursuant to the Warrant Agreement.
If all of the items referred to in the preceding paragraph are
received by the Warrant Agent at or prior to 11:00 a.m., New York City time, on
a Business Day, the exercise of the Warrant to which such items relate will be
effective on such Business Day. If any items referred to in the preceding
paragraph are received after 11:00 a.m., New York City time, on a Business Day,
the exercise of the Warrants to which such item relates will be deemed to be
effective on the next succeeding Business Day. Notwithstanding the foregoing, in
the case of an exercise of Warrants on June 15, 2004, if all of the items
referred to in the preceding paragraph are received by the Warrant
A-9
<PAGE> 58
Agent at or prior to 5:00 p.m., New York City time, on such Expiration Date, the
exercise of the Warrants to which such items relate will be effective on the
Expiration Date.
As soon as practicable after the exercise of any Warrant or
Warrants, the Company shall issue or cause to be issued to or upon the written
order of the registered holder of this Warrant Certificate, a certificate or
certificates evidencing the Share or Shares to which such holder is entitled, in
fully registered form, registered in such name or names as may be directed by
such holder pursuant to the Election to Exercise, as set forth on the reverse of
this Warrant Certificate. Such certificate or certificates evidencing the Share
or Shares shall be deemed to have been issued and any persons who are designated
to be named therein shall be deemed to have become the holder of record of such
Share or Shares as of the close of business on the date upon which the exercise
of this Warrant was deemed to be effective as provided in the preceding
paragraph.
The Company will not be required to issue fractional shares of
Common Stock upon exercise of the Warrants or distribute Share certificates that
evidence fractional shares of Common Stock. In lieu of fractional shares of
Common Stock, there shall be paid to the registered Holder of this Warrant
Certificate at the time such Warrant Certificate is exercised an amount in cash
equal to the same fraction of the Current Market Value per share of Common Stock
on the Business Day preceding the date this Warrant Certificate is surrendered
for exercise.
Warrant Certificates, when surrendered at any office or agency
maintained by the Company for that purpose by the registered holder thereof in
person or by legal representative or attorney duly authorized in writing, may be
exchanged for a new Warrant Certificate or new Warrant Certificates evidencing
in the aggregate a like number of Warrants, in the manner and subject to the
limitations provided in the Warrant Agreement, without charge except for any tax
or other governmental charge imposed in connection therewith.
Upon due presentment for registration of transfer of this
Warrant Certificate at any office or agency maintained by the Company for that
purpose, a new Warrant Certificate evidencing in the aggregate a like number of
Warrants shall be issued
A-10
<PAGE> 59
to the transferee in exchange for this Warrant Certificate, subject to the
limitations provided in the Warrant Agreement, without charge except for any tax
or other governmental charge imposed in connection therewith.
The Company and the Warrant Agent may deem and treat the
registered holder hereof as the absolute owner of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone) for the purpose of any exercise hereof and for all other purposes, and
neither the Company nor the Warrant Agent shall be affected by any notice to the
contrary.
The term "Business Day" shall mean any day on which (i) banks
in New York City, (ii) the principal U.S. securities exchange or market, if any,
on which the Common Stock is listed or admitted to trading and (iii) the
principal U.S. securities exchange or market, if any, on which the Warrants are
listed or admitted to trading are open for business.
The Warrants and the Shares are entitled to the benefits of a
registration rights agreement relating to the Warrants and the shares of Common
Stock issuable upon exercise thereof (the "Registration Rights Agreement"),
pursuant to which the holders representing not less than a majority of
Registrable Securities (as defined in the Registration Rights Agreement) have
the right under certain circumstances to require the Company to effect one
demand registration of the Registrable Securities. The Registration Rights
Agreement also provides the holders of Registrable Securities with the right,
subject to the conditions and limitations contained therein, to include the
Registrable Securities in certain registration statements filed by the Company
for its account or for the account of any of its securityholders.
A-11
<PAGE> 60
(FORM OF ELECTION TO EXERCISE)
(To be executed upon exercise of Warrants on the Exercise Date)
The undersigned hereby irrevocably elects to exercise [ ] of
the Warrants represented by this Warrant Certificate and purchase the whole
number of Shares issuable upon the exercise of such Warrants and herewith
tenders payment for such Shares as follows:
$[ ] in cash or by certified or official bank check; or by
surrender of Warrants pursuant to a Cashless Exercise (as defined in the Warrant
Agreement) for [ ] shares of Common Stock at the current Cashless Exercise
Ratio.
The undersigned requests that a certificate representing such
Shares be registered in the name of ____________________ whose address is
_________________________ and that such shares be delivered to
__________________________ whose address is __________________________. Any cash
payments to be paid in lieu of a fractional Share should be made to
__________________ whose address is ________________________ and the check
representing payment thereof should be delivered to ______________________ whose
address is _______________________________ .
Dated __________________, ____
Name of holder of
Warrant Certificate: ________________________________________
(Please Print)
Tax Identification or
Social Security Number: _____________________________________
Address: ____________________________________________________
____________________________________________________
Signature: __________________________________________________
Note: The above signature must correspond with
the name as written upon the face of this
Warrant Certificate in every particular,
without alteration or enlargement
A-12
<PAGE> 61
or any change whatever and if the
certificate representing the Shares or
any Warrant Certificate representing
Warrants not exercised is to be
registered in a name other than that in
which this Warrant Certificate is
registered, or if any cash payment to be
paid in lieu of a fractional share is to
be made to a person other than the
registered holder of this Warrant
Certificate, the signature of the holder
hereof must be guaranteed as provided in
the Warrant Agreement.
Dated ____________________, ___
Signature: __________________________________________________
Note: The above signature must correspond with
the name as written upon the face of this
Warrant Certificate in every particular,
without alteration or enlargement or any
change whatever.
Signature Guaranteed: _______________________________________
[FORM OF ASSIGNMENT]
For value received _______________________ hereby sells,
assigns and transfers unto _____________________ the within Warrant Certificate,
together with all right, title and interest therein, and does hereby irrevocably
constitute and appoint __________________________ attorney, to transfer said
Warrant Certificate on the books of the within-named Company, with full power of
substitution in the premises.
Dated ____________________, 199__
Signature: ________________________________________
Note: The above signature must correspond with
the name as written upon the face of this
Warrant
A-13
<PAGE> 62
Certificate in every particular, without
alteration or enlargement or any change
whatever.
Signature Guaranteed: _______________________________________
A-14
<PAGE> 63
SCHEDULE OF EXCHANGES OF CERTIFICATED WARRANTS1
The following exchanges of a part of this Global Warrant for
certificated Warrants have been made:
<TABLE>
<CAPTION>
Number of Warrants
Amount of Amount of of this Global
decrease in Number increase in Number Warrant
of Warrants of of Warrants of following such Signature of
Date of this Global this Global decrease (or authorized officer
Exchange Warrant Warrant increase) of Warrant Agent
- ----------------------- --------------------- ---------------------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
</TABLE>
- ---------------
(1) This is to be included only if the Warrant is in global form.
A-15
<PAGE> 64
EXHIBIT B
FORM OF LEGEND FOR GLOBAL WARRANT
Any Global Warrant authenticated and delivered hereunder shall
bear a legend in substantially the following form:
THIS SECURITY IS A GLOBAL WARRANT WITHIN THE MEANING OF THE
WARRANT AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME
OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY.
THIS SECURITY 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 THE WARRANT AGREEMENT, AND NO
TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY 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 THE WARRANT AGREEMENT.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION
("DTC"), TO ISSUER 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> 65
EXHIBIT C
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF WARRANTS
Re: Warrants to Purchase Common Stock (the
"Warrants") of VERIO INC.
This Certificate relates to ____ Warrants held in* ___
book-entry or* _______ certificated form by ______ (the "Transferor").
The Transferor:*
[ ] has requested the Warrant Agent by written order to deliver in
exchange for its beneficial interest in the Global Warrant held by the
Depositary a Warrant or Warrants in definitive, registered form of authorized
denominations and an aggregate number equal to its beneficial interest in such
Global Warrant (or the portion thereof indicated above); or
[ ] has requested the Warrant Agent by written order to exchange
or register the transfer of a Warrant or Warrants.
In connection with such request and in respect of each such
Warrant, the Transferor does hereby certify that Transferor is familiar with the
Warrant Agreement relating to the above captioned Warrants and the restrictions
on transfers thereof as provided in Section 1.08 of such Warrant Agreement, and
that the transfer of this Warrant does not require registration under the
Securities Act of 1933, as amended (the "Act") because*:
[ ] Such Warrant is being acquired for the Transferor's own
account, without transfer (in satisfaction of Section 1.08(a)(y)(A) or Section
1.08(d)(i)(A) of the Warrant Agreement).
[ ] Such Warrant is being transferred to a qualified institutional
buyer (as defined in Rule 144A under the Act), in reliance on Rule 144A.
C-1
<PAGE> 66
[ ] Such Warrant is being transferred to an institutional
"accredited investor" (within the meaning of subparagraphs (a)(1), (2), (3) or
(7) of Rule 501 under the Act).
[ ] Such Warrant is being transferred in reliance on Regulation S
under the Act.
[ ] Such Warrant is being transferred in accordance with Rule 144
under the Act.
[ ] Such Warrant is being transferred in reliance on and in
compliance with an exemption from the registration requirements of the Act.
[INSERT NAME OF TRANSFEROR]
By:
------------------------------------
Date:
--------------------------------
*Check applicable box.
C-2
<PAGE> 67
EXHIBIT D
Form of Certificate to Be
Delivered in Connection with
Transfers to Institutional Accredited Investors
-------------, ----
First Trust National Association
Attention: Corporate Trust Department
Ladies and Gentlemen:
In connection with our proposed purchase of warrants (the
"Warrants") to purchase Common Stock of Verio Inc. (the "Company"), we confirm
that:
1. We have received such information as we deem necessary in
order to make our investment decision.
2. We understand that any subsequent transfer of the Warrants
is subject to certain restrictions and conditions set forth in the Warrant
Agreement and the undersigned agrees to be bound by, and not to resell, pledge
or otherwise transfer the Warrants except in compliance with, such restrictions
and conditions and the Securities Act of 1933, as amended (the "Securities
Act").
3. We understand that the offer and sale of the Warrants have
not been registered under the Securities Act, and that the Warrants may not be
offered or sold within the United States or to, or for the account or benefit
of, U.S. persons except as permitted in the following sentence. We agree, on our
own behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell any Warrants prior to (x) the date which is three
years after the later of the date of original issuance of the Warrants (or such
shorter period as may be prescribed by Rule 144(k) under the
D-1
<PAGE> 68
Securities Act or any successor provision thereto) or the last day on which the
Company or any affiliate of the Company was owner of such Warrants, or any
predecessor thereto, and (y) such later date, if any, as may be required by
applicable laws, we will do so only (A) to the Company, (B) inside the United
States in accordance with Rule 144A under the Securities Act to a "qualified
institutional buyer" (as defined therein), (C) inside the United States to an
institutional "accredited investor" (as defined below) that, prior to such
transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to
the Warrant Agent a signed letter substantially in the form hereof, (D) outside
the United States in accordance with Regulation S under the Securities Act, (E)
pursuant to the exemption from registration provided by Rule 144 under the
Securities Act (if available) or (F) pursuant to an effective registration
statement under the Securities Act and (G) pursuant to another available
exemption under the Securities Act, and we further agree to provide to any
person purchasing Warrants from us a notice advising such purchaser that resales
of the Warrants are restricted as stated herein.
4. We understand that, on any proposed resale of Warrants, we
will be required to furnish to the Warrant Agent and the Company, such
certification, legal opinions and other information as the Warrant Agent and the
Company may reasonably require to confirm that the proposed sale complies with
the foregoing restrictions. We further understand that the Warrants purchased by
us will bear a legend to the foregoing effect.
5. We are an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
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 Warrants,
and we and any accounts for which we are acting are each able to bear the
economic risk of our or their investment, as the case may be.
6. We are acquiring the Warrants purchased by us for our
account or for one or more accounts (each of which is an institutional
"accredited investor") as to each of which we exercise sole investment
discretion.
D-2
<PAGE> 69
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 proceeding or official inquiry
with respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By:
--------------------------------
[Authorized Signatory]
Upon transfer the Warrants would be registered in the name of
the new beneficial owner as follows:
Name:
------------------------------------
Address:
---------------------------------
Taxpayer ID Number:
----------------------
<PAGE> 70
EXHIBIT E
Form of Certificate to Be
Delivered in Connection
with Regulation S Transfers
---------------, ----
First Trust National Association
Attention: Corporate Trust Department
Ladies and Gentlemen:
In connection with our proposed sale of Warrants of Verio Inc.
(the "Company"), we confirm that such sale has been effected pursuant to and in
accordance with Regulation S under the Securities Act of 1933, as amended (the
"Securities Act"), and, accordingly, we represent that:
(1) the offer of the Warrants 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 under the Securities Act, as applicable;
E-1
<PAGE> 71
(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 Warrants; and
(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 Warrants 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 Warrants under the Securities Act; or pursuant
to an available exemption from the registration requirements under the
Act.
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. Defined terms used herein without
definition have the respective meanings provided in Regulation S under the
Securities Act.
Very truly yours,
[Name of Transferee]
By:
--------------------------------
[Authorized Signatory]
Upon transfer the Warrants would be registered in the name of
the new beneficial owner as follows:
Name:
------------------------------------
Address:
---------------------------------
Taxpayer ID Number:
----------------------
E-2
<PAGE> 1
EXHIBIT 10.3
- --------------------------------------------------------------------------------
COMMON STOCK REGISTRATION RIGHTS AGREEMENT
Dated as of June 17, 1997
among
VERIO INC.,
BROOKS FIBER PROPERTIES, INC.,
NORWEST EQUITY PARTNERS V,
PROVIDENCE EQUITY PARTNERS,
CENTENNIAL FUND V, L.P.,
CENTENNIAL FUND IV, L.P.
AND
MERRILL LYNCH & CO., MERRILL LYNCH,
PIERCE, FENNER & SMITH INCORPORATED AND
LAZARD FRERES & CO. LLC,
as Initial Purchasers
- --------------------------------------------------------------------------------
<PAGE> 2
THIS COMMON STOCK REGISTRATION RIGHTS AGREEMENT (the "Agreement") is
made and entered into as of June 17, 1997, among Verio Inc., a Delaware
corporation (the "Company"), Brooks Fiber Properties, Inc., Norwest Equity
Partners V, Providence Equity Partners, Centennial Fund V, L.P. and Centennial
Fund IV, L.P. (collectively, the "Investors") Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Lazard Freres &
Co. LLC (together with Merrill Lynch, the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement, dated as
of June 17, 1997, among the Company and the Initial Purchasers (the "Purchase
Agreement"), relating to the sale by the Company to the Initial Purchasers of an
aggregate of 150,000 Units, each Unit consisting of $1,000 principal amount 13
1/2% Senior Notes due 2004 (the "Notes") and 8 Warrants (collectively,
"Warrants") to purchase initially 1.76 shares of common stock, par value $0.001
per share, of the Company. In order to induce the Initial Purchasers to enter
into the Purchase Agreement, the Company has agreed to provide to the Holders
(as defined herein) the registration rights for the Registrable Securities (as
defined herein) set forth in this Agreement and the Investors (as defined
herein) have agreed to provide the Holders, among other things, the tag-along
rights for the Warrants and the Registrable Securities set forth herein. The
execution of this Agreement is a condition to the obligations of the Initial
Purchasers to purchase the Units 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:
"Advice" shall have the meaning ascribed to that term in the last
paragraph of Section 4.
"Affiliate" of any specified Person shall mean 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.
"Agreement" shall have the meaning ascribed to that term in the
preamble hereto.
<PAGE> 3
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"Business Day" shall mean a day that is not a Legal Holiday.
"Capital Stock" shall mean, 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 capital stock, partnership
interests or any other participation, right or other interest in the nature of
an equity interest in such Person or any option, warrant or other security
convertible into or exercisable or exchangeable for any of the foregoing.
"Common Stock" shall mean the common stock, par value $0.001 per
share, of the Company and any options, warrants or security convertible into or
exercisable or exchangeable for such common stock.
"Company" shall have the meaning ascribed to that term in the
preamble hereto and shall also include the Company's successors.
"Convertible Preferred Stock" will include the outstanding Series A
Convertible Preferred Stock, Series B Convertible Preferred Stock and Series C
Convertible Preferred Stock of the Company and any other securities convertible
or exercisable or exchangeable into Common Stock of the Company, whether
outstanding on the Issue Date or thereafter issued.
"Current Market Value" per share of Common Stock of the Company or
any other security at any date shall mean (i) if the security is not registered
under the Exchange Act, the fair market value of the security as determined by a
nationally or regionally recognized independent financial expert or (ii) (a) if
the security is registered under the Exchange Act, the average of the daily
closing sales prices of the security for the 20 consecutive days immediately
preceding such date, or (b) if the security has been registered under the
Exchange Act for less than 20 consecutive trading days before such date, then
the average of the daily closing sales prices for all of the trading days before
such date for which closing sales prices are available, in the case of each of
(ii)(a) and (ii)(b), as certified to the Warrant Agent (as specified in the
Warrant) by the President, any Vice President or the Chief Financial Officer of
the Company. The closing sales price for each such trading day shall be: (A) in
the case of a security listed or admitted to trading on any United States
national securities exchange or quotation system, the closing sales price,
regular way, on such day or, if no sale takes place on such day, the average of
the closing bid and asked prices on such day, (B) in the case of a security not
then listed or admitted to trading on any national securities exchange or
quotation system, the last reported sale price on such day or, if no sale takes
place on such day, the average of the closing bid and asked prices on such day,
as reported by a reputable quotation source designated by the Company, (C) in
the case of a security not then listed or admitted to trading on any national
securities exchange or quotation system and as to which no such reported sale
price or bid and asked prices are available, the av-
<PAGE> 4
-3-
erage of the reported high bid and low asked prices on such day, as reported by
a reputable quotation service, or a newspaper of general circulation in the
Borough of Manhattan, City and State of New York, customarily published on each
Business Day, designated by the Company, or, if there shall be no bid and asked
prices on such day, the average of the high bid and low asked prices, as so
reported, on the most recent day (not more than 30 days prior to the date in
question) for which prices have been so reported and (D) if there are no bid and
asked prices reported during the 30 days prior to the date in question, the
Current Market Value shall be determined as if the securities were not
registered under the Exchange Act.
"Demand Registration" shall have the meaning ascribed to that term
in Section 2.1.
"Effectiveness Period" shall have the meaning ascribed to that term
in Section 2.1.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Fair Market Value" shall mean the value of any securities as
determined (without any discount for lack of liquidity, the amount of such
securities proposed to be sold or the fact that such securities held by any
Holder of such security may represent a minority interest in a private company)
by a nationally or regionally recognized investment banking firm selected by the
Company for the determination of such value.
"Holder" shall mean the Initial Purchasers, for so long as each
Initial Purchaser owns any Warrants or Registrable Securities, and each of their
successors, assigns and direct and indirect transferees who become registered
owners of Warrants or Registrable Securities.
"Initial Public Equity Offering" shall mean a primary public
offering (whether or not underwritten, but excluding any offering pursuant to
Form S-8 under the Securities Act or any other publicly registered offering
pursuant to the Securities Act pertaining to an issuance of shares of Common
Stock or securities exercisable therefor under any benefit plan, employee
compensation plan, or employee or director stock purchase plan) of Common Stock
of the Company pursuant to an effective registration statement under the
Securities Act.
"Initial Purchasers" shall have the meaning ascribed to that term in
the preamble hereto.
"Legal Holiday" shall mean a Saturday, a Sunday or a day on which
banking institutions in New York, New York are required by law, regulation or
executive order to remain closed.
<PAGE> 5
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"Merrill Lynch" shall have the meaning ascribed to that term in the
preamble hereto.
"Notes" shall have the meaning ascribed to that term in the preamble
hereto.
"Participating Holder" shall have the meaning ascribed to that term
in Section 3.2(a).
"Person" shall mean an individual, partnership, corporation, trust
or unincorporated organization, or a government or agency or political
subdivision thereof.
"Piggy-Back Registration" shall have the meaning ascribed to that
term in Section 2.2.
"Proposed Purchaser" shall have the meaning ascribed to that term in
Section 3.2(a).
"Prospectus" the prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated pursuant to the Securities
Act), as amended or supplemented by any prospectus supplement, with respect to
the terms of the offering of any portion of the Registrable Securities covered
by such Registration Statement, and all other amendments and supplements to any
such prospectus, including post-effective amendments, and all material
incorporated by reference or deemed to be incorporated by reference, if any, in
such prospectus.
"Purchase Agreement" shall have the meaning ascribed to that term in
the preamble hereto.
"Registrable Securities" shall mean any of (i) the Common Stock
issued and issuable upon exercise of the Warrants and (ii) any other securities
issued or issuable with respect to the Warrants or Warrant Shares by way of
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise. As
to any particular Registrable Securities, such securities shall cease to be
Registrable Securities when (a) a registration statement with respect to the
offering of such securities by the holder thereof shall have been declared
effective under the Securities Act and such securities shall have been disposed
of by such holder pursuant to such registration statement, (b) such securities
have been sold to the public pursuant to, or are eligible for sale to the public
without volume or manner of sale restrictions under, Rule 144(k) (or any similar
provision then in force, but not Rule 144A) promulgated under the Securities
Act, (c) such securities shall have been otherwise transferred and new
certificates for such securi-
<PAGE> 6
-5-
ties not bearing a legend restricting further transfer shall have been delivered
by the Company or its transfer agent and subsequent disposition of such
securities shall not require registration or qualification under the Securities
Act or any similar state law then in force or (d) such securities shall have
ceased to be outstanding.
"Registration Expenses" shall mean all expenses incident to the
Company's performance of or compliance with this Agreement, including, without
limitation, all SEC and stock exchange or National Association of Securities
Dealers, Inc. registration and filing fees and expenses, fees and expenses of
compliance with securities or blue sky laws (including, without limitation,
reasonable fees and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities), rating agency fees, printing
expenses, messenger, telephone and delivery expenses, fees and disbursements of
counsel for the Company and all independent certified public accountants and any
fees and disbursements of underwriters customarily paid by issuers or sellers of
securities (but not including any underwriting discounts or commissions, fees of
counsel to the Holders or transfer taxes, if any, attributable to the sale of
Subject Equity by Holders of such Subject Equity).
"Registration Statement" shall mean any registration statement of
the Company which covers any of the Subject Equity 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.
"Requisite Shares" shall mean a number of Warrants, Warrant Shares
and Registrable Securities equivalent to a majority of the Warrant Shares
subject to the originally issued Warrants.
"Rule 144" shall mean Rule 144 under the Securities Act, as such
Rule may be amended from time to time, or any similar rule (other than Rule
144A) or regulation hereafter adopted by the SEC providing for offers and sales
of securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
"Rule 144A" shall mean Rule 144A under the Securities Act, as such
Rule may be amended from time to time.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended
from time to time.
<PAGE> 7
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"Stockholder" shall mean, collectively, each Holder, each Investor
and the Affiliates of any Investor owning Common Stock or other securities
convertible or exercisable or exchangeable into Common Stock.
"Subject Equity" shall have the meaning ascribed to that term in
Section 2.1.
"Suspension Period" shall have the meaning ascribed to that term in
Section 2.1.
"Tag-Along Notice" shall have the meaning ascribed to that term in
Section 3.2(a).
"Tag-Along Right" shall have the meaning ascribed to that term in
Section 3.2(a).
"Transfer" shall have the meaning ascribed to that the term in
Section 3.2(a).
"Transfer Notice" shall have the meaning ascribed to that term in
Section 3.2(a).
"Triggering Date" shall mean the date of the consummation of a bona
fide underwritten public offering of Common Stock as a result of which at least
20% of the outstanding shares of Common Stock are listed on a United States
national securities exchange or the Nasdaq National Market.
"Warrant Change of Control" shall mean 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) 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 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 of the surviving or transferee corporation or its parent
corporation and/or (2) cash, securities and other property 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) 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
<PAGE> 8
-7-
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 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 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.
"Warrants" shall have the meaning ascribed to that term in the
preamble hereto.
"Warrant Shares" shall mean the shares of Common Stock issued and
issuable upon exercise of the Warrants and any other securities issued or
issuable with respect to the Warrants by way of stock dividend, stock split or
in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise.
"Withdrawal Election" shall have the meaning ascribed to that term
in Section 2.3(c).
2. Registration Rights.
2.1. Demand Registration. (a) Request for Registration. At any time
and from time to time on or after the earliest of: (i) immediately prior to a
Warrant Change of Control (as defined in the Registration Rights Agreement),
(ii) (a) the 90th day (or such fewer number of days as determined by the Company
in its sole discretion) after the consummation of an Initial Public Equity
Offering or (iii) a class of equity securities of the Company is listed on a
United States national securities exchange or authorized for quotation on the
Nasdaq National Market or is otherwise subject to registration under the
Exchange Act or (iv) December 15, 1999, Holders owning, individually or in the
aggregate, at least the Requisite Shares may require the Company to effect one
registration (a "Demand Registration") under the Securities Act of the Warrants,
Warrant Shares and Registrable Securities (the "Subject Equity"). Any such
request will specify the Subject Equity proposed to be sold and will also
specify the intended method of disposition thereof. The Company shall give
written notice of such registration request within 10 days after the receipt
thereof to all other Holders. Within 20 days after receipt of such notice by any
Holder,
<PAGE> 9
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such Holder may request in writing that its Registrable Securities be included
in such registration and the Company shall include in the Demand Registration
the Registrable Securities of any such selling Holder requested to be so
included. Each such request by such other selling Holders shall specify the
number of Registrable Securities proposed to be sold and the intended method of
disposition thereof. Upon a demand, the Company will prepare, file and cause to
become effective within 150 days of such demand a Registration Statement in
respect of all the Subject Equity which Holders request, no later than 30 days
after the date of such notice, for inclusion therein and keep such Registration
Statement continuously effective for the shorter of (a) 180 days or (b) such
period of time as all of the Subject Equity included in such Registration
Statement shall have been sold thereunder (the "Effectiveness Period");
provided, however, that if such demand occurs during the "lock up" or "black
out" period (not to exceed 180 days) imposed on the Company pursuant to or in
connection with any underwriting or purchase agreement relating to an
underwritten Rule 144A or registered public offering of Common Stock or
securities convertible into or exchangeable or exercisable for Common Stock, the
Company shall not be required to so notify Holders of Subject Equity and file
such demand registration statement prior to the end of such "lock up" or black
out" period, in which event the Company will use its best efforts to cause such
Demand Registration statement to become effective no later than the later of (i)
150 days after such demand or (ii) 30 days after the end of such "lock up" or
"black out" period; provided, further, that the Company may postpone the filing
of, or suspend the effectiveness of, any registration statement or amendment
thereto, suspend the use of any Prospectus and shall not be required to amend or
supplement the Registration Statement, any related Prospectus or any document
incorporated therein by reference (other than an effective registration
statement being used for an underwritten offering) in the event that, and for a
period (a "Suspension Period") not to exceed an aggregate of 60 days with
respect to the Demand Registration if, (i) an event or circumstance occurs and
is continuing as a result of which the Registration Statement, any related
Prospectus or any document incorporated therein by reference as then amended or
supplemented or proposed to be filed would, in the Company's good faith
judgment, contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, and (ii)(A) the
Company determines in its good faith judgment that the disclosure of such event
at such time would have a material adverse effect on the business, operations or
prospects of the Company or (B) the disclosure otherwise relates to a material
business transaction which has not yet been publicly disclosed; provided,
further that the Effectiveness Period shall be extended by the number of days in
any Suspension Period. In the event of any "lock up" or "black out" period in
any underwriting or purchase agreement, the Company will so notify the Holders
of Registrable Securities. Notwithstanding the foregoing, in lieu of filing and
causing to become effective a Demand Registration, the Company may satisfy its
obligation with respect to such Demand
<PAGE> 10
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Registration by making (or having its designee make) an offer to purchase all
Subject Equity at a price at least equal to Current Market Value less any
applicable Exercise Price and consummating (or having its designee consummate)
the purchase of Subject Equity as to which Holders accept such offer within 60
days of such offer; provided that if through the exercise of reasonable efforts
the Company is unable to consummate such purchase within 60 days, such period
may be extended for such reasonable period of time as may be necessary to
consummate.
(b) Effective Registration. A registration will not be deemed to
have been effected as a Demand Registration unless it has been declared
effective by the SEC and the Company has complied in all material respects with
its obligations under this Agreement with respect thereto; provided that if,
after it has become effective, the offering of Subject Equity pursuant to such
registration is or becomes the subject of any stop order, injunction or other
order or requirement of the SEC or any other governmental or administrative
agency, or if any court prevents or otherwise limits the sale of Subject Equity
pursuant to the registration (for any reason other than the act or omissions of
the Holders) for the period of time contemplated hereby, such registration will
be deemed not to have been effected. If (i) a registration requested pursuant to
this Section 2.1 is deemed not to have been effected or (ii) the registration
requested pursuant to this Section 2.1 does not remain effective for the
Effectiveness Period, then the Company shall continue to be obligated to effect
an additional registration pursuant to this Section 2.1. The Holders of Subject
Equity shall be permitted to withdraw all or any part of the Subject Equity from
a Demand Registration at any time prior to the effective date of such Demand
Registration. If at any time a Registration Statement is filed pursuant to a
Demand Registration, and subsequently a sufficient amount of the Subject Equity
is withdrawn from the Demand Registration so that such Registration Statement
does not cover at least the amount of Requisite Shares, the Holders who have not
withdrawn their Subject Equity shall have the opportunity to include an
additional amount of Subject Equity in the Demand Registration so that such
Registration Statement covers at the Requisite Shares. If an additional amount
of Subject Equity is not so included, the Company may withdraw the Registration
Statement. Such withdrawn Registration Statement will not count as a Demand
Registration and the Company shall continue to be obligated to effect a
registration pursuant to this Section 2.1.
(c) Priority in Demand Registrations Pursuant to Section 2.1. If a
Demand Registration pursuant to this Section 2.1 involves an underwritten
offering and the lead managing underwriter advises the Company in writing that,
in its view, the number of securities requested to be included in such
registration (including securities of the Company which are not Subject Equity)
exceeds the number which can be sold in such offering, the Company will include
in such registration only the Subject Equity requested to be included in such
registration. In the event that the amount
<PAGE> 11
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of Subject Equity requested to be included in such registration exceeds the
number which, in the view of such lead managing underwriter, can be sold, the
amount of such Subject Equity to be included in such registration shall be
allocated pro rata among all requesting Holders on the basis of the relative
number of shares of Subject Equity then held by each such Holder (provided that
any Subject Equity thereby allocated to any such Holder that exceed such
Holder's request shall be reallocated among the remaining requesting Holders in
like manner). In the event that the number of Subject Equity requested to be
included in such registration is less than the number which, in the view of the
lead managing underwriter, can be sold, the Company may include in such
registration the securities the Company proposes to sell up to the number of
securities that, in the view of the lead managing underwriter, can be sold.
(d) Selection of Underwriter. If the Holders so elect, the offering
of such Subject Equity pursuant to such Demand Registration shall be in the form
of an underwritten offering. The Holders making such Demand Registration shall
select one or more nationally recognized firms of investment bankers, who shall
be reasonably acceptable to the Company, to act as the managing underwriter or
underwriters in connection with such offering and shall select any additional
investment bankers and managers to be used in connection with the offering.
(e) Expenses. The Company will pay all Registration Expenses in
connection with the registrations requested pursuant to Section 2.1(a). Each
Holder shall pay all underwriting discounts and commissions and transfer taxes,
if any, relating to the sale or disposition of such Holder's Registrable
Securities pursuant to a registration statement requested pursuant to this
Section 2.1.
2.2. Piggy-Back Registration. If at any time the Company proposes to
file a Registration Statement under the Securities Act with respect to an
offering by the Company for its own account or for the account of any of its
respective securityholders covering the sale of Common Stock (other than (a) a
registration statement on Form S-4 or S-8, (b) a registration statement filed in
connection with an offer of securities solely to the Company's existing
securityholders, or (c) a Demand Registration) for sale on the same terms and
conditions as the securities of the Company or any other selling securityholder
included therein, then the Company shall give written notice of such proposed
filing to the Holders of Registrable Securities as soon as practicable (but in
no event less than 10 Business Days before the anticipated filing date), and
such notice shall offer such Holders the opportunity to register such number of
Registrable Securities as each such Holder may request (which request shall
specify the Registrable Securities intended to be disposed of by such Holder and
the intended method of distribution thereof) (a "Piggy-Back Registration"). The
Company shall use its best efforts to cause the managing underwriter or
underwriters of such proposed underwritten offering to permit the Registrable
Secu-
<PAGE> 12
-11-
rities requested to be included in a Piggy-Back Registration to be included on
the same terms and conditions as any similar securities of the Company or any
other securityholder included therein and to permit the sale or other
disposition of such Registrable Securities in accordance with the intended
method of distribution thereof. Any Holder shall have the right to withdraw its
request for inclusion of its Registrable Securities in any Registration
Statement pursuant to this Section 2.2 by giving written notice to the Company
of its request to withdraw. The Company may withdraw a Piggy-Back Registration
at any time prior to the time it becomes effective; provided that the Company
shall give prompt notice thereof to participating Holders. The Company will pay
all Registration Expenses in connection with each registration of Registrable
Securities requested pursuant to this Section 2.2, and each Holder shall pay all
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of such Holder's Registrable Securities pursuant to a
registration statement effected pursuant to this Section 2.2.
No registration effected under this Section 2.2, and no failure to
effect a registration under this Section 2.2, shall relieve the Company of its
obligation to effect a registration upon the request of Holders pursuant to
Section 2.1, and no failure to effect a registration under this Section 2.2 and
to complete the sale of Registrable Securities in connection therewith shall
relieve the Company of any other obligation under this Agreement.
2.3. Reduction of Piggy-Back Registration. (a) If the lead managing
underwriter of any underwritten offering described in Section 2.2 has informed,
in writing, the Holders of the Registrable Securities requesting inclusion in
such offering that it is its view that the total number of securities which the
Company, the Holders and any other Persons desiring to participate in such
registration intend to include in such offering is such as to materially and
adversely affect the success of such offering, including the price at which such
securities can be sold, then the number of Registrable Securities to be offered
for the account of such Holders and the number of such securities to be offered
for the account of all such other Persons (other than the Company) participating
in such registration shall be reduced or limited pro rata in proportion to the
respective number of securities requested to be registered to the extent
necessary to reduce the total number of securities requested to be included in
such offering to the number of securities, if any, recommended by such lead
managing underwriter; provided that if such offering is effected for the account
of any securityholder of the Company other than the Holders, pursuant to the
demand registration rights of any such securityholder, then the number of
securities to be offered for the account of the Company (if any) and the Holders
(but not such securityholders who have exercised their demand registration
rights) shall be reduced or limited pro rata in proportion to the respective
number of securities requested to be registered to the extent necessary to
reduce the total number of securities requested to
<PAGE> 13
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be included in such offering to the number of securities, if any, recommended by
such lead managing underwriter.
(b) If the lead managing underwriter of any underwritten offering
described in Section 2.2 notifies the Holders requesting inclusion of
Registrable Securities in such offering, that the kind of securities that such
Holders, the Company and any other Persons desiring to participate in such
registration intend to include in such offering is such as to materially and
adversely affect the success of such offering, (x) the Registrable Securities to
be included in such offering shall be reduced as described in clause (a) above
or (y) if a reduction in the Registrable Securities pursuant to clause (a) above
would, in the judgment of the lead managing underwriter, be insufficient to
substantially eliminate the adverse effect that inclusion of the Registrable
Securities requested to be included would have on such offering, such
Registrable Securities will be excluded from such offering.
(c) If, as a result of the proration provisions of this Section 2.3,
any Holder shall not be entitled to include all Registrable Securities in a
Piggy-Back Registration that such Holder has requested to be included, such
Holder may elect to withdraw his request to include Registrable Securities in
such registration (a "Withdrawal Election"); provided that a Withdrawal Election
shall be irrevocable and, after making a Withdrawal Election, a Holder shall no
longer have any right to include Registrable Securities in the registration as
to which such Withdrawal Election was made.
3. Transfers.
3.1. Generally. All Subject Equity at any time and from time to time
outstanding shall be held subject to the conditions and restrictions set forth
in this Section 3. All shares of Capital Stock now or hereafter held by the
Investors shall be held subject to the conditions and restrictions set forth in
this Section 3. Each Holder of Subject Equity and the Investors by executing
this Agreement or by accepting a certificate representing Capital Stock or other
indicia of ownership therefor from the Company agree with the Company and with
each other Stockholder to such conditions and restrictions.
3.2. Tag-Along Rights. (a) Prior to the Triggering Date, each of the
Holders of Subject Equity shall have the right (the "Tag-Along Right") to
require the Proposed Purchaser to purchase from each of them all Subject Equity
owned by such Holder in the event of any proposed direct or indirect sale or
other disposition (collectively, a "Transfer") of Common Stock or Convertible
Preferred Stock (whether now or hereafter issued) to any Person or Persons (such
other Person or Persons being hereinafter referred to as the "Proposed
Purchaser") by any Investor or Investors or any of their Affiliates in any
transaction or series of related transactions
<PAGE> 14
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resulting in a Warrant Change of Control. Each Investor shall notify, or cause
to be notified, each Holder of Subject Equity in writing (a "Transfer Notice")
of each such proposed Transfer at least 30 days prior to the date thereof. Such
notice shall set forth: (a) the name of the Proposed Purchaser and the number of
shares of Common Stock and other securities, if any, proposed to be transferred,
(b) the name and address of the Proposed Purchaser, (c) the proposed amount of
consideration and terms and conditions of payment offered by such Proposed
Purchaser (if the proposed consideration is not cash, the Transfer Notice shall
describe the terms of the proposed consideration) and (d) that either the
Proposed Purchaser has been informed of the "Tag-Along Right" and has agreed to
purchase Subject Equity in accordance with the terms hereof or that the
Investors or any of their Affiliates will make such purchase. The Tag-Along
Right may be exercised by any Holder of Subject Equity by delivery of a written
notice to the Company ("Tag-Along Notice"), within 10 days of receipt of the
Transfer Notice, indicating its election to exercise the Tag-Along Right (the
"Participating Holders"). The Tag-Along Notice shall state the amounts of
Subject Equity that such Holder proposes to include in such Transfer to the
Proposed Purchaser. Failure by any Holder to provide a Tag-Along Notice within
the 10-day notice period shall be deemed to constitute an election by such
Holder not to exercise its Tag-Along Right. The closing with respect to any sale
to a Proposed Purchaser pursuant to this Section shall be held at the time and
place specified in the Transfer Notice but in any event within 60 days of the
date such Transfer Notice is given; provided that if through the exercise of
reasonable efforts the Company is unable to cause such transaction to close
within 60 days, such period may be extended for such reasonable period of time
as may be necessary to close such transaction. Consummation of the sale of
Common Stock by any Investor or any of its Affiliates to a Proposed Purchaser
shall be conditioned upon consummation of the sale by each Participating Holder
to such Proposed Purchaser (or the Investor) of the Subject Equity entitled to
be transferred as described above, if any. Additionally:
(b) In the event that the Proposed Purchaser does not purchase
Subject Equity entitled to be transferred as described above on the same terms
and conditions as purchased from the Investors or any of their Affiliates, then
the Investors or their Affiliates shall purchase such Subject Equity if the
Transfer occurs.
(c) Each Holder shall have the right to require the Proposed
Purchaser to purchase from such Holder up to a percentage of the number of
Warrants, Warrant Shares and each class and series of Registrable Securities
owned by such Holder equaling the percentage derived by dividing the total
number of shares of Common Stock that the Investors and their Affiliates propose
to Transfer by the total number of shares of Common Stock owned by the Investors
and their Affiliates; provided that in the event of any proposed Transfer by the
Investors or any of their Affiliates in any transaction or series of related
transactions pursuant to which the Inves-
<PAGE> 15
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tors and their Affiliates would, after giving effect to such Transfer,
beneficially own less than a majority of the outstanding Common Stock, each
Holder shall have the right to require the Proposed Purchaser to purchase all of
the Warrants, Warrant Shares and Registrable Securities owned by such Holder.
(d) Any Subject Equity purchased from the Participating Holders
pursuant to this Section 3.2 shall be paid for in the same type of consideration
and at the same price per share of Common Stock and upon the same terms and
conditions of such proposed Transfer of Common Stock by the Investors and/or any
of their Affiliates. Notwithstanding the foregoing, shares of Convertible
Preferred Stock being Transferred shall be entitled to receive the Fair Market
Value of consideration, up to but not in excess of the aggregate liquidation
preference of, plus accrued and unpaid dividends on, such shares of Convertible
Preferred Stock prior to any payment of consideration in respect of that Subject
Equity which is to be sold pursuant to the exercise of a tag-along right
relating to such Convertible Preferred Stock. In the event that the Fair Market
Value of consideration that is paid in respect of any shares of Convertible
Preferred Stock being Transferred is in excess of its aggregate liquidation
preference plus accrued and unpaid dividends, such shares of Convertible
Preferred Stock shall be deemed for all purposes of this provision to have been
converted into Common Stock immediately prior to such Transfer. The price per
Warrant to be paid by the Proposed Purchaser shall be less the exercise price of
such Warrant per share. If the Subject Equity to be purchased includes
securities or property other than Common Stock, the price to be paid for such
securities or property shall be the same price per share or other denomination
paid by the Proposed Purchaser for like securities purchased from any Investor
or any of its Affiliates or, if like securities are not purchased from any
Investor or any of its Affiliates by the Proposed Purchaser, the Fair Market
Value of such securities. The Investor shall arrange for payment directly by the
Proposed Purchaser to each Participating Holder, upon delivery of the
certificate or certificates representing the Warrants and/or Registrable
Securities duly endorsed for transfer, together with such other documents as the
Proposed Purchaser may reasonably request.
(e) If at the end of 60 days following the date on which a Transfer
Notice was given, or as otherwise extended pursuant to the provisions of Section
3.2(a), the sale of Common Stock by the Investors or their Affiliates and the
sale of the Subject Equity entitled to be transferred as provided above have not
been completed in accordance with the terms of the Proposed Purchaser's offer,
all certificates representing such Subject Equity shall be returned to the
Participating Holders, and all the restrictions on Transfer contained in this
Agreement with respect to Common Stock owned by the Investors and their
Affiliates shall remain in effect.
3.3. Drag-Along Rights. If at any time prior to an Initial Public
Equity Offering, any Investor or Investors and/or any of their re-
<PAGE> 16
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spective Affiliates determines to sell all of the Capital Stock of the Company
owned by them to a Person other than an Investor or an Affiliate of an Investor
in a transaction resulting in a Warrant Change of Control, the transferring
Investor or Investors (whether directly or through an Affiliate) shall have the
right to require the Holders of Subject Equity to sell such Subject Equity to
such transferee; provided that (a) the consideration to be received by the
Holders of Subject Equity shall be the same type of consideration received by
the Investors and their Affiliates and, in any event, shall be cash or freely
transferable marketable securities, and (b) after giving effect to such
transaction, the Investors and their Affiliates shall not own, directly or
indirectly, any Capital Stock or rights to purchase Capital Stock of the
Company. Any Warrants and/or Registrable Securities purchased from the Holders
thereof pursuant to this Section 3.3 shall be paid for at the same price per
share of Common Stock and upon the same terms and conditions of such proposed
transfer of Common Stock by the Investors and their Affiliates. Notwithstanding
the foregoing, shares of Convertible Preferred Stock being transferred by an
Investor or its Affiliates shall be entitled to receive the Fair Market Value of
consideration, up to but not in excess of the aggregate liquidation preference
of, plus accrued and unpaid dividends on, such shares of Convertible Preferred
Stock prior to any payment of consideration in respect of that Subject Equity
which the holder thereof is obligated to sell. In the event that the Fair Market
Value of consideration that is paid in respect of any shares of Convertible
Preferred Stock being transferred by an Investor or its Affiliates is in excess
of its aggregate liquidation preference plus accrued and unpaid dividends, such
shares of Convertible Preferred Stock shall be deemed for all purposes of this
provision to have been converted into Common Stock immediately prior to such
transfer. The price per Warrant to be paid by the proposed purchaser shall be
less the exercise price of such Warrant per share. If the Subject Equity to be
purchased includes securities other than Common Stock, the price to be paid for
such securities shall be the same price per share or other denomination paid by
the proposed purchaser for like securities purchased from the Investors and
their Affiliates or, if like securities are not purchased from the Investors and
their Affiliates, the Fair Market Value of such securities.
4. Registration Procedures.
In connection with the obligations of the Company with respect to
any Registration Statement pursuant to Sections 2.1 and 2.2 hereof, the Company
shall:
(a) A reasonable period of time prior to the initial filing of a
Registration Statement or Prospectus and a reasonable period of time prior to
the filing of any amendment or supplement thereto (including any document that
would be incorporated or deemed to be incorporated therein by reference),
furnish to the Initial Purchasers and the managing underwriters, if any, copies
of all such documents proposed to be filed, which docu-
<PAGE> 17
-16-
ments (other than those incorporated or deemed to be incorporated by reference)
will be subject to the review of such Holders, and such underwriters, if any,
and cause the officers and directors of the Company, counsel to the Company and
independent certified public accountants to the Company to respond to such
reasonable inquiries as shall be necessary, in the opinion of counsel to such
underwriters, to conduct a reasonable investigation within the meaning of the
Securities Act; provided that the foregoing inspection and information gathering
shall be coordinated on behalf of the Initial Purchasers by Merrill Lynch. The
Company shall not file any such Registration Statement or related Prospectus or
any amendments or supplements thereto to which the Holders of a majority of the
Registrable Securities included in such Registration Statement shall reasonably
object on a timely basis;
(b) Prepare and file with the SEC such amendments, including
post-effective amendments, to each Registration Statement as may be necessary to
keep such Registration Statement continuously effective for the applicable time
period required hereunder; cause the related Prospectus to be supplemented by
any required Prospectus supplement, and as so supplemented to be filed pursuant
to Rule 424 under the Securities Act; and comply with the provisions of the
Securities Act and the Exchange Act with respect to the disposition of all
securities covered by such Registration Statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such Registration Statement as so amended or in such Prospectus as so
supplemented;
(c) Notify the holders of Registrable Securities to be sold and the
managing underwriters, if any, promptly, and (if requested by any such person),
confirm such notice in writing, (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment is proposed to be filed, and (B) with
respect to a Registration Statement or any post-effective amendment, when the
same has become effective, (ii) of any request by the SEC or any other Federal
or state governmental authority for amendments or supplements to a Registration
Statement or related Prospectus or for additional information, (iii) of the
issuance by the SEC, any state securities commission, any other governmental
agency or any court of any stop order, order or injunction suspending or
enjoining the use of a Prospectus or the effectiveness of a Registration
Statement or the initiation of any proceedings for that purpose, (iv) of the
receipt by the Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
proceeding for such purpose, and (v) of the happening of any event or
information becoming known that makes any statement made in a Registration
Statement or related Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires the making of any changes in such Registration Statement, Prospectus or
documents so that it will not contain any untrue statement of a material fact
<PAGE> 18
-17-
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, not misleading, and that in the case of a
Prospectus, it will 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;
(d) Use its best efforts to avoid the issuance of or, if issued,
obtain the withdrawal of any order enjoining or suspending the use of a
Prospectus or the effectiveness of a Registration Statement or the lifting of
any suspension of the qualification (or exemption from qualification) of any of
the Registrable Securities for sale in any jurisdiction, at the earliest
practicable moment;
(e) If requested by the managing underwriters, if any, or if none,
by the Holders of a majority of the Registrable Securities being sold pursuant
to such Registration Statement, (i) promptly incorporate in a Prospectus
supplement or post-effective amendment such information as the managing
underwriters, if any, or if none, such Holders, reasonably believe should be
included therein, and (ii) make all required filings of such Prospectus
supplement or such post-effective amendment under the Securities Act as soon as
practicable after the Company has received notification of the matters to be
incorporated in such Prospectus supplement or post-effective amendment;
provided, however, that the Company shall not be required to take any action
pursuant to this Section 4(e) that would, in the opinion of counsel for the
Company, violate applicable law;
(f) Upon written request to the Company, furnish to each Holder of
Registrable Securities to be sold pursuant to a Registration Statement and each
managing underwriter, if any, without charge, at least one conformed copy of
such Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent requested
(including those previously furnished or incorporated by reference) as soon as
practicable after the filing of such documents with the SEC;
(g) Deliver to each Holder of Registrable Securities to be sold
pursuant to a Registration Statement, and the underwriters, if any, without
charge, as many copies of the Prospectus (including each form of prospectus) and
each amendment or supplement thereto as such persons reasonably request; and the
Company hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Holders of Registrable Securities and
the underwriters, if any, in connection with the offering and sale of the
Registrable Securities covered by such Prospectus and any amendment or
supplement thereto;
<PAGE> 19
-18-
(h) Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the Holders of Registrable
Securities to be sold, the underwriters, if any, and their respective counsel in
connection with the registration or qualification (or exemption from such
registration or qualification) of such Registrable Securities for offer and sale
under the securities or Blue Sky laws of such jurisdictions as any such Holder
or underwriter reasonably requests in writing; keep each such registration or
qualification (or exemption therefrom) effective during the period such
Registration Statement is required to be kept effective hereunder and do any and
all other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by the applicable
Registration Statement; provided, however, that the Company shall not be
required to (i) qualify generally to do business in any jurisdiction where it is
not then so qualified or (ii) take any action which would subject it to general
service of process or to taxation in any jurisdiction where they are not so
subject;
(i) In connection with any sale or transfer of Registrable
Securities that will result in such securities no longer being Registrable
Securities, cooperate with the Holders thereof and the managing underwriters, if
any, to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold, which certificates shall not
bear any restrictive legends and shall be in a form eligible for deposit with
The Depository Trust Company and to enable such Registrable Securities to be in
such denominations and registered in such names as the managing underwriters, if
any, or such Holders may request at least two Business Days prior to any sale of
Registrable Securities;
(j) Upon the occurrence of any event contemplated by Section
4(c)(v), as promptly as practicable, prepare a supplement or amendment,
including, if appropriate, a post-effective amendment, to each Registration
Statement or a supplement to the related Prospectus or any document incorporated
or deemed to be incorporated therein by reference, and file any other required
document so that, as thereafter delivered, such Prospectus will not contain 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, in light of the
circumstances under which they were made, not misleading;
(k) Enter into such agreements (including an underwriting agreement
in form, scope and substance as is customary in underwritten offerings) and take
all such other reasonable actions in connection therewith (including those
reasonably requested by the managing underwriters, if any, or the Holders of a
majority of the Registrable Securities being sold) in order to expedite or
facilitate the disposition of such Registrable Securities, and, whether or not
an underwriting agreement is entered into and whether or not the registration is
an underwritten registration, (i) make such representations and warranties to
the Holders of such Registrable Se-
<PAGE> 20
-19-
curities and the underwriters, if any, with respect to the business of the
Company and its subsidiaries (including with respect to businesses or assets
acquired or to be acquired by any of them), and the Registration Statement,
Prospectus and documents, if any, incorporated or deemed to be incorporated by
reference therein, in each case, in form, substance and scope 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 (which counsel and opinions (in form, scope and substance) shall
be reasonably satisfactory to the managing underwriters, if any, addressed to
each selling Holder of Registrable Securities and each of the underwriters, if
any), covering the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably requested by
such underwriters; (iii) use their best efforts to obtain customary "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 is, or is
required to be, included in the Registration Statement), addressed (where
reasonably possible) to each selling Holder of Registrable Securities and each
of the underwriters, if any, such letters to be in customary form and covering
matters of the type customarily covered in "cold comfort" letters in connection
with underwritten offerings; (iv) if an underwriting agreement is entered into,
the same shall contain indemnification provisions and procedures no less
favorable to the selling Holders and the underwriters, if any, than those set
forth in Section 5 hereof (or such other provisions and procedures acceptable to
Holders of a majority of Registrable Securities covered by such Registration
Statement and the managing underwriters, if any); and (v) deliver such documents
and certificates as may be reasonably requested by the Holders of a majority of
the Registrable Securities being sold and the managing underwriters, if any, to
evidence the continued validity of the representations and warranties made
pursuant to clause (i) above and to evidence compliance with any customary
conditions contained in the underwriting agreement or other agreement entered
into by the Company;
(l) Make available for inspection by a representative of the Initial
Purchasers selling Registrable Securities, any underwriter participating in any
such disposition of Registrable Securities, and any attorney, consultant or
accountant retained by such selling Holders or underwriter, 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 (including with respect to businesses and assets acquired or to be
acquired to the extent that such information is available to the Company), and
cause the officers, directors, agents and employees of the Company and its
subsidiaries (including with respect to businesses and assets acquired or to be
acquired to the extent that such information is available to the Company) to
supply all information in each case reasonably requested by any such
representative, underwriter, attor-
<PAGE> 21
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ney, consultant or accountant in connection with such Registration Statement;
provided, however, that such persons shall first agree in writing with the
Company that any information that is reasonably and in good faith designated by
the Company in writing as confidential at the time of delivery of such
information shall be kept confidential by such Persons, unless (i) disclosure of
such information is required by court or administrative order or is necessary to
respond to inquiries of regulatory authorities, (ii) disclosure of such
information is required by law (including any disclosure requirements pursuant
to Federal securities laws in connection with the filing of the Registration
Statement or the use of any Prospectus), (iii) such information becomes
generally available to the public other than as a result of a disclosure or
failure to safeguard such information by such Person or (iv) such information
becomes available to such Person from a source other than the Company and its
subsidiaries and such source is not bound by a confidentiality agreement; and
provided, further, that the foregoing inspection and information gathering shall
be coordinated on behalf of the Initial Purchasers by Merrill Lynch;
(m) Comply with all applicable rules and regulations of the SEC and
make generally available to their securityholders earning statements satisfying
the provisions of Section 11(a) of the Securities Act and Rule 158 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 Registrable Securities
are sold to underwriters in a firm commitment or reasonable efforts underwritten
offering and (ii) if not sold to underwriters in such an offering, commencing on
the first day of the first fiscal quarter after the effective date of a
Registration Statement, which statement shall cover said period, consistent with
the requirements of Rule 158 under the Securities Act; and
(n) Cooperate with each seller of Registrable Securities covered by
any Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Securities and their respective counsel in
connection with any filings required to be made with the National Association of
Securities Dealers, Inc.
The Company may require a Holder of Registrable Securities to be
included in a Registration Statement to furnish to the Company such information
regarding (i) the intended method of distribution of such Registrable Securities
(ii) such Holder and (iii) the Registrable Securities held by such Holder as is
required by law to be disclosed in such Registration Statement and the Company
may exclude from such Registration Statement the Registrable Securities of any
Holder who unreasonably fails to furnish such information within a reasonable
time after receiving such request.
If any such Registration Statement refers to any Holder by name or
otherwise as the Holder of any securities of the Company, then such
<PAGE> 22
-21-
Holder shall have the right to require (i) the insertion therein of language, in
form and substance reasonably satisfactory to such Holder, to the effect that
the holding by such Holder of such securities is not to be construed as a
recommendation by such Holder of the investment quality of the Company's
securities covered thereby and that such holding does not imply that such Holder
will assist in meeting any future financial requirements of the Company, or (ii)
in the event that such reference to such Holder by name or otherwise is not
required by the Securities Act, the deletion of the reference to such Holder in
any amendment or supplement to the Registration Statement filed or prepared
subsequent to the time that such reference ceases to be required.
Each Holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 4(c)(ii), 4(c)(iii),
4(c)(iv) or 4(c)(v) hereof, such Holder will forthwith discontinue disposition
of such Registrable Securities covered by such Registration Statement or
Prospectus until such Holder's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 4(j) hereof, or until it is advised
in writing (the "Advice") by the Company that the use of the applicable
Prospectus may be resumed, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus. If the Company shall give any such
notice, the Effectiveness Period shall be extended by the number of days during
such period from and including the date of the giving of such notice to and
including the date when each Holder of Registrable Securities covered by such
Registration Statement shall have received (x) the copies of the supplemented or
amended Prospectus contemplated by Section 4(j) hereof or (y) the Advice, and,
in either case, has received copies of any additional or supplemental filings
that are incorporated or deemed to be incorporated by reference in such
Prospectus.
5. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless the Initial
Purchasers, each Holder, each underwriter who participates in an offering of
Registrable Securities, 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 and each of their respective directors,
officers, employees and agents, 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 thereto), covering Registrable
Securities, including all documents incorporated therein by reference, or
the omission or alleged omission therefrom
<PAGE> 23
-22-
of a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they
were made, 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,
if such settlement is effected with the prior written consent of the
Company; and
(iii) against any and all expenses whatsoever, as incurred
(including reasonable fees and disbursements of counsel chosen by Merrill
Lynch), 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 5(a);
provided 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 to the Company by the Initial
Purchasers, such Holder or any underwriter in writing expressly for use in the
Registration Statement (or any amendment thereto) or any Prospectus (or any
amendment or supplement thereto) or (ii) contained in any preliminary
prospectus if the Initial Purchasers, such Holder 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 such delivery is required by the Securities Act and such Prospectus
would have corrected such untrue statement or omission. Any amounts advanced by
the Company to an indemnified party pursuant to this Section 5 as a result of
such losses shall be returned to the Company if it shall be finally determined
by such a court in a judgment not subject to appeal or final review that such
indemnified party was not entitled to indemnification by the Company.
<PAGE> 24
-23-
(b) By accepting the benefits of this Agreement, 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
Registrable Securities and the other selling Holders and each of their
respective directors, officers (including each officer of the Company who signed
the Registration Statement), employees and agents and each Person, if any, who
controls the Company, the Initial Purchasers, any underwriter or any other
selling Holder within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act, from and against any and all loss, liability, claim,
damage and expense whatsoever described in the indemnity contained in Section
5(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 thereto) or any Prospectus (or any amendment or
supplement thereto) in reliance upon and in conformity with written information
furnished to the Company by such selling Holder expressly for use in the
Registration Statement (or any amendment thereto), or any such Prospectus (or
any amendment or supplement thereto).
(c) Each indemnified party shall give prompt notice to each
indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, enclosing a copy of all papers properly
served on such indemnified party, 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 5(a) above, counsel to the indemnified parties shall be selected by
Merrill Lynch and, in the case of parties indemnified pursuant to Section 5(b)
above, counsel to the indemnified parties shall be selected by the Company.
Notwithstanding the foregoing sentence, in case any such action is brought
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent it may wish, jointly with any other indemnifying
party similarly notified, unless such indemnified party shall have one or more
legal defenses available to it which are not available to the indemnifying
party, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party. After notice from the indemnifying party to such
indemnified party of its election as aforesaid to assume the defense thereof and
approval by such indemnified party of counsel appointed to defend such action,
the indemnifying party will not be liable to such indemnified party under this
Section 5 for any legal or other expenses other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof. 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. In no event
<PAGE> 25
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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 in the same jurisdiction 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 5 (whether or not the
indemnified parties are actual or potential parties thereto), unless such
settlement, compromise or consent (i) includes an unconditional release of each
indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim 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 fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 5(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 5 is for any reason held to be unavailable to the indemnified parties
although applicable in accordance with its terms, the Company, the Initial
Purchasers and the Holders 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, as incurred; provided 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, 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 the Initial Purchasers and
the Holders, on the other hand, with respect to the statements or omissions
which resulted in such loss, liability, claim, damage or expense, or action in
respect thereof, as well as any other relevant equitable considerations. The
relative fault of the Com-
<PAGE> 26
-25-
pany, on the one hand, and of the Initial Purchasers and the Holders, 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, on the one hand, or by or on behalf of the Initial Purchasers or the
Holders, on the other, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, the Initial Purchasers and the Holders of the Registrable
Securities agree that it would not be just and equitable if contribution
pursuant to this Section 5 were to be determined by pro rata allocation or by
any other method of allocation that does not take into account the relevant
equitable considerations. For purposes of this Section 5, each Affiliate of the
Initial Purchasers or a Holder, and each director, officer, employee, agent and
Person, if any, who controls a Initial Purchaser or Holder or such Affiliate
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 Initial
Purchaser or Holder, and each director of the Company, each officer of 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.
6. Rules 144 and 144A.
The Company shall use its best efforts to file any reports required
to be filed by it under the Securities Act and the Exchange Act in a timely
manner and, if at any time it is not required to file such reports but in the
past had been required to or did file such reports, it will, upon the request of
any Holder of Warrants or Registrable Securities, make available other
information as required by, and so long as necessary to permit, sales of its
Warrants and Registrable Securities pursuant to Rule 144A. Notwithstanding the
foregoing, nothing in this Section 6 shall be deemed to require the Company to
register any of its securities pursuant to the Exchange Act.
7. Underwritten Registrations.
If any of the Registrable Securities covered by any Registration
Statement are to be sold in an underwritten public offering, the investment
banker or investment bankers and manager or managers that will administer the
offering will be selected by the Holders of a majority of such Registrable
Securities included in such offering, subject to the consent of the Company
(which will not be unreasonably withheld or delayed).
No Person may participate in any underwritten public offering
hereunder unless such person (i) agrees to sell such Registrable Securities on
the basis reasonably provided in any underwriting arrangements approved
<PAGE> 27
-26-
by the Persons entitled hereunder to approve such arrangements and (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
If the Company has complied with all its obligations under this
Agreement with respect to a Demand Registration (including the Company's option
to make and consummate an offer to purchase Subject Equity, if applicable) or a
Piggy-Back Registration relating to an underwritten public offering, all holders
of Warrants and Registrable Securities, upon request of the lead managing
underwriter with respect to such underwritten public offering, will be required
to not sell or otherwise dispose of any Warrant or Registrable Security owned by
them for a period not to exceed 180 days from the consummation of such
underwritten public offering.
8. Miscellaneous.
8.1. Remedies. In the event of a breach by the Company, the
Investors or by a Holder of any of its obligations under this Agreement, each
Holder, the Investors and the Company, in addition to being entitled to exercise
all rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company, the
Investors and each Holder agree that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach of any of the
provisions of this Agreement and each hereby further agrees that, in the event
of any action for specific performance in respect of such breach, it shall waive
the defense that a remedy at law would be adequate.
8.2. No Conflicting Agreements. The Company and the Investors will
not enter into any agreement that conflicts with the rights granted to the
Holders and indemnified persons in this Agreement or otherwise conflicts with
the provisions hereof. Without the written consent of the Holders of a majority
of the outstanding Warrants and each class and series of Registrable Securities,
the Company and the Investors shall not grant to any Person any rights which
conflict with the provisions of this Agreement.
8.3. No Piggy-back on Demand Registrations. The Company shall not
grant to any of its securityholders (other than the Holders in such capacity)
the right to include any of their securities in any Registration Statement filed
pursuant to a Demand Registration unless any such right expressly provides that
(i) such securityholders will agree to be cut-back if the lead managing
underwriter with respect to such Demand Registration has informed the Holders,
in writing, that it is its view that the total number of securities requested
for inclusion is such as to materially and adversely affect the success of any
offering relating to such Demand Registration, and (ii) Holders of Subject
Equity will in no event be required to cut-back Subject Equity proposed for
inclusion in such Demand Registration.
<PAGE> 28
-27-
8.4. Amendments and Waivers. The provisions of this Agreement,
including the 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 Holders
of not less than the Requisite Shares; provided, however, that, for the purposes
of this Agreement, Warrants, Warrant Shares and Registrable Securities that are
owned, directly or indirectly, by the Company, the Investors or any of their
Affiliates are not deemed outstanding. Notwithstanding the foregoing, a waiver
or consent to depart from the provisions hereof with respect to a matter that
relates exclusively to the rights of Holders whose securities are being sold
pursuant to a Registration Statement and that does not directly or indirectly
affect the rights of other Holders may be given by Holders of a majority of the
Registrable Securities being sold by such Holders pursuant to such Registration
Statement; provided, however, that the provisions of this sentence may not be
amended, modified or supplemented except in accordance with the provisions of
the immediately preceding sentence. Notwithstanding the foregoing, no amendment,
modification, supplement, waiver or consent with respect to Section 5 shall be
made or given otherwise than with the prior written consent of each Person
affected thereby.
8.5. Notices. All notices and other communications provided for
herein shall be made in writing by hand-delivery, next-day air courier,
certified first-class mail, return receipt requested, telex or telecopier:
(a) if to the Company, as provided in the Purchase Agreement,
(b) if to the Investors,
Centennial Fund IV, L.P.
1428 Fifteenth Street
Denver, CO 80202
Attn: Steven C. Halstedt
Ph.: (303) 405-7519
Fax: (303) 405-7575
Norwest Equity Partners, V
245 Lytton Avenue
Suite 250
Palo Alto, CA 94301
Attn: George Still, Jr.
Ph.: (415) 321-8000
Fax: (415) 321-8010
Brooks Fiber Properties, Inc.
425 Woods Mill Road South
Suite 300
Town & Country, MO 63017
<PAGE> 29
-28-
Attn: James C. Allen
Ph.: (314) 579-4619
Fax: (314) 579-4654
<PAGE> 30
-29-
Providence Equity Partners L.P.
50 Kennedy Plaza, 95th Floor
Providence, RI 02903
Attn: Paul J. Salem
Ph.: (401) 751-1700
Fax: (401) 751-1790
(c) if to the Initial Purchasers, as provided in the Purchase
Agreement, or
(d) if to any other Person who is then the registered Holder of
Warrants or Registrable Securities, to the address of such Holder as it appears
in the register therefor of the Company.
Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given: when delivered by hand,
if personally delivered; one Business Day after being timely delivered to a
next-day air courier; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; and when receipt is
acknowledged by the recipient's telecopier machine, if telecopied.
8.6. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. The Company may not
assign any of its rights hereunder without the prior written consent of each
Holder and each indemnified party under Section 5(a). Notwithstanding the
foregoing, no successor or assignee of the Company shall have any of the rights
granted under this Agreement until such Person shall acknowledge its rights and
obligations hereunder by a signed written statement of such person's acceptance
of such rights and obligations.
8.7. 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.
8.8. Governing Law; Submission to Jurisdiction. THIS AGREEMENT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK.
THE COMPANY AND THE INVESTORS HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF
ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW
YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW
YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT, AND EACH IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS.
29
<PAGE> 31
-30-
8.9. Severability. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
8.10. Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
All references made in this Agreement to "Section" and "paragraph" refer to such
Section or paragraph of this Agreement, unless expressly stated otherwise.
<PAGE> 32
IN WITNESS WHEREOF, the parties have caused this Common Stock
Registration Rights Agreement to be duly executed as of the date first written
above.
VERIO INC.
By: /s/ Carla Hamre Donelson
------------------------------------------
Name: Carla Hamre Donelson
Title: Vice President,
General Counsel and Secretary
BROOKS FIBER PROPERTIES, INC.
By: /s/ James C. Allen
------------------------------------------
Name: James C. Allen
Title: CEO
NORWEST EQUITY PARTNERS V,
a Minnesota Limited Partnership
By: ITASCA Partners V, LLC,
Its General Partner
By: /s/ *
------------------------------------------
Name:
Title:
PROVIDENCE EQUITY PARTNERS LP
By Its General Partner,
Providence Equity Partners, LLC
By: /s/ Paul S. Salem
------------------------------------------
Name: Paul S. Salem
Title: Member
CENTENNIAL FUND V, L.P.
By: /s/ Steven C. Halstedt
------------------------------------------
Name: Steven C. Halstedt
Title: General Partner
CENTENNIAL FUND IV, L.P.
By: /s/ Steven C. Halstedt
------------------------------------------
Name: Steven C. Halstedt
Title: General Partner
* illegible
<PAGE> 33
MERRILL LYNCH & CO.,
LAZARD FRERES & CO., LLC
By: MERRILL LYNCH & CO.,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By: /s/ M. Becker
------------------------------------------
Name: M. Becker
Title: Vice President
<PAGE> 1
EXHIBIT 10.4
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of June 17, 1997
by and among
VERIO INC.
and
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
and
LAZARD FRERES & CO. LLC
as Initial Purchasers
================================================================================
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of June 17, 1997 by and among VERIO INC., a Delaware corporation
(the "Company"), and MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
("Merrill Lynch") and LAZARD FRERES & CO. LLC (Lazard and, together with Merrill
Lynch, the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement dated as of
June 17, 1997 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 $150,000,000 principal
amount of the Company's 13 1/2% Senior Notes due 2004 (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.
"Applicable Period" see Section 3(s) hereof.
"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.
"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.
<PAGE> 3
-2-
"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 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 statement, 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.
"Exchange Notes" shall mean the 13 1/2% Senior Notes due 2004, 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
June 24, 1997, (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.
"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
<PAGE> 4
-3-
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
June 24, 1997 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" see 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.
"Merrill Lynch" shall have the meaning set forth in the preamble to
this agreement.
"Notes" see the preamble of 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.
"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
<PAGE> 5
-4-
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" see 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 Offer 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
<PAGE> 6
-5-
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,
(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
<PAGE> 7
-6-
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 nine months 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 13 months 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 21st Business Day 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 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
<PAGE> 8
-7-
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 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,
<PAGE> 9
-8-
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
(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
<PAGE> 10
-9-
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 Exchange 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
<PAGE> 11
-10-
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 13 months 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) 13 months 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
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
<PAGE> 12
-11-
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 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 Business Days of the
Effectiveness Target Date with
<PAGE> 13
-12-
respect to the Exchange Offer Registration Statement 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 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.
<PAGE> 14
-13-
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 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
<PAGE> 15
-14-
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 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
<PAGE> 16
-15-
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 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;
<PAGE> 17
-16-
(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 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
<PAGE> 18
-17-
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 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
<PAGE> 19
-18-
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 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
<PAGE> 20
-19-
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 Restricted 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
<PAGE> 21
-20-
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 Merrill Lynch, 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 Merrill Lynch, 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 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
<PAGE> 22
-21-
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
(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
<PAGE> 23
-22-
substantially similar to those set forth in Section 7(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 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
<PAGE> 24
-23-
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
(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 Merrill Lynch, 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
<PAGE> 25
-24-
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.
(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
<PAGE> 26
-25-
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 Merrill Lynch, 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
action 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
<PAGE> 27
-26-
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 applicable 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
<PAGE> 28
-27-
(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 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]
<PAGE> 29
-28-
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, modification, 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.
<PAGE> 30
-29-
(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.
(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
<PAGE> 31
-30-
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 and Secretary
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH & CO.
LAZARD FRERES & CO. LLC
By: MERRILL LYNCH & CO.,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By: /s/ M. Becker
----------------------------
Name: M. Becker
Title: Vice President
<PAGE> 33
Exhibit A
Form of Opinion of Counsel
1. Each of the Exchange Offer Registration Statement and the Prospectus
(other than the financial statements, notes or schedules thereto and other
financial and statistical information and supplemental schedules included or
referred to therein or omitted therefrom and the Form T-1, as to which such
counsel need express no opinion), complies as to form in all material respects
with the applicable requirements of the Securities Act and the applicable rules
and regulations promulgated under the Securities Act.
2. In the course of such counsel's review and discussion of the
contents of the Exchange Offer Registration Statement and the Prospectus with
certain officers and other representatives of the Company and representatives of
the independent certified public accountants of the Company, but without
independent check or verification or responsibility for the accuracy,
completeness or fairness of the statements contained therein, on the basis of
the foregoing (relying as to materiality to a large extent upon representations
and opinions of officers and other representatives of the Company), no facts
have come to such counsel's attention which cause such counsel to believe that
the Exchange Offer Registration Statement (other than the financial statements,
notes and schedules thereto and other financial and statistical information
contained or referred to therein and the Form T-1, as to which such counsel need
express no belief), at the time the Exchange Offer Registration Statement became
effective and at the time of the consummation of the Exchange Offer, contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements contained
therein not misleading, or that the Prospectus (other than the financial
statements, notes and schedules thereto and other financial and statistical
information contained or referred to therein, as to which such counsel need
express no belief) contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained therein, in the
light of the circumstances under which they were made, not misleading.
<PAGE> 1
EXHIBIT 10.5
LEASE AGREEMENT
THIS LEASE, dated as of June 20, 1997, is by and between HIGHLAND PARK
VENTURERS, LLC, a Colorado limited liability company ("Landlord") and VERIO
INC., a Delaware corporation ("Tenant").
1. PRINCIPAL TERMS. Capitalized terms, first appearing in quotations in
this Section, elsewhere in the Lease or any Exhibits, are definitions of such
terms as used in the Lease and Exhibits and shall have the defined meaning
whenever used.
1.1 "BUILDING": Waterview One, 8005 South Chester Street,
Englewood, Colorado 80112
1.2 "PREMISES": approximately 33,300 rentable square feet,
consisting of approximately 24,415 rentable
square feet which is the entire 2nd floor
and approximately 8,885 rentable square feet
on the Suite #100
1.3 TERM: "Initial Term": 60 calendar months
"Commencement Date": February 1, 1998
"Expiration Date": January 31, 2003 [THE
EXACT COMMENCEMENT AND EXPIRATION DATES TO
BE DETERMINED IN ACCORDANCE WITH SECTION 5.1
AND THE WORK LETTER]
<TABLE>
<CAPTION>
1.4 "BASE RENT": Annual Per Rentable
Period Square Foot Rate Monthly
------ -------------------- -------
<S> <C> <C>
Months 1-36 $21.85 $60,633.75
Months 37-60 $22.00 $61,050.00
[SEE ADDENDUM]
</TABLE>
1.5 OPERATING EXPENSES: Base Year: 1998 (with Taxes portion based on
$1.80 per rentable square foot) [SEE EXHIBIT
C] Pro Rata Share: 34.1196% [SEE ADDENDUM]
1.6 "DEPOSIT": $60,633.75 [ALSO SEE ADDENDUM RE LETTER OF
CREDIT]
1.7 "PERMITTED USE": General business office as Internet service
provider
1
<PAGE> 2
1.8 "GUARANTOR": None
Address:
-------------------------------
---------------------------------------
1.9 PARKING: 154 surface spaces
6 covered spaces
1.10 LANDLORD'S Miller Global Properties, LLC,
NOTICE ADDRESS: 4643 S. Ulster Street, Suite
1500, Denver, CO 80237, Attn: Donald E.
Spiegleman, Esq. or Mr. Paul Hogan
1.11 LANDLORD'S TAX I.D.: 84-1366456
1.12 TENANT'S NOTICE
ADDRESS:
Precommencement Address: 9250 E. Costilla Avenue Suite 400
Englewood, CO 80112
Post Commencement Address: 8005 South Chester Street, Suite 100,
Englewood, Colorado 80112
1.13 TENANT'S TAX I.D.: 84-1339720
1.14 LANDLORD'S BROKER: Vector Property Services, LLC
1.15 COOPERATING BROKER: LundeCommercial Corporate Real Estate
Incorporated
1.16 ATTACHMENTS: [check if applicable]
x Addendum
-----
x Work Letters
-----
Option A -- Landlord Performs
----- Work
Option B -- Tenant Performs
----- Work
x Exhibit A-1 - The Premises
-----
x Exhibit A-2 - Right of First
----- Offer Space
x Exhibit B - Real Property
-----
x Exhibit C - Operating Expenses
-----
x Exhibit D - Commencement
----- Certificate
x Exhibit E - Rules and
----- Regulations
x Exhibit F - Signage
-----
x Exhibit G - Letter of Credit
-----
2. GENERAL COVENANTS. Tenant covenants and agrees to pay Rent and perform the
obligations hereafter set forth and in consideration therefor Landlord leases to
Tenant the Premises as depicted on the plat attached as EXHIBIT A-1, together
with a non-exclusive right, subject to the provisions hereof, to use plazas,
common areas, or other areas on the real property legally described on EXHIBIT B
(the "Real Property") designated by Landlord for the exclusive or non-exclusive
use of the tenants of the Building ("Common Areas"). The
2
<PAGE> 3
Building, Real Property, Common Areas, and appurtenances are hereinafter
collectively sometimes called the "Building Complex."
3. TERM. The term of the Lease commences at 12:01 a.m. on the Commencement
Date and terminates at 12:00 midnight on the Expiration Date ("Term" as used
herein shall mean the partial month, if any, between the Commencement Date and
the commencement of the Initial Term as determined herein, the Initial Term, and
any extensions thereof.).
4. RENT. Subject to the provisions below, commencing on the Commencement
Date and on the first day of each month thereafter, Tenant shall pay Base Rent
in the amount stated in Section 1.4, in advance without notice (all amounts,
including Base Rent, to be paid by Tenant pursuant to this Lease as the context
requires are sometimes referred to collectively as "Rent(s)"). Rents shall be
paid without set off, abatement, or diminution at such place as Landlord from
time to time designates in writing.
5. COMPLETION OR REMODELING OF THE PREMISES.
5.1 The Premises shall be located in a Building to be constructed by
Landlord. "Base Building" means the Building upon completion by Landlord of the
base building work that Landlord is obligated to complete in accordance with the
Work Letter. All provisions regarding tenant finish work in the Premises beyond
the Base Building (the "Finish Work") are set forth in the Work Letter. Landlord
shall provide a tenant finish allowance to Tenant and, at Tenant's election,
either Landlord shall contract for completion of the Finish Work for the
Premises (in accordance with Option A Work Letter, attached hereto) or Tenant
shall contract for completion of the Finish Work (in accordance with Option B
Work Letter attached hereto). Tenant shall give written notice to Landlord on or
before August 8, 1997, of Tenant's election to utilize either the Option A Work
Letter or Option B Work Letter; if Tenant fails to give notice by such date,
Tenant shall be deemed to have elected to be governed by the Option B Work
Letter ("Work Letter" as used herein means the work letter elected or deemed
elected under this provision). Except as provided in the Work Letter, Landlord
has no obligation for the completion of the Premises. If Landlord is delayed in
delivering the Premises to Tenant in accordance with the Work Letter, then the
Commencement Date will be postponed in accordance with the Work Letter. If the
Commencement Date occurs on other than the first day of the month in accordance
with the provisions of the Work Letter, then the commencement of the Initial
Term will be delayed to the first day of the month following the Commencement
Date but all provisions hereof, including Tenant's obligation to pay Rent at the
monthly rate set forth in Section 1.4 for Month 1 (prorated for a partial
month), will be in effect as of the Commencement Date. The postponement of
Tenant's obligation to pay Rent and Tenant's right to hold over in temporary
premises located in the Solarium Building, which is owned by an affiliate of
Landlord, in accordance with the terms of the lease between Landlord's affiliate
and Tenant (the "Solarium Lease") is in full settlement of all claims which
Tenant may otherwise have by reason of such delay. If the commencement of the
Initial Term is delayed, the Expiration Date shall be extended so that the
Initial Term will continue for the full period set forth in Section 1.3. As soon
as the Commencement Date occurs, Landlord and Tenant agree to execute a
commencement agreement in the form attached as EXHIBIT D, setting forth the
Commencement Date, the date of commencement of the Initial Term and the
Expiration Date.
3
<PAGE> 4
5.2 Subject to the punchlist provisions and provisions with regard to
latent defects in the Work Letter, taking possession of the Premises by Tenant
is conclusive evidence that the Premises are in the condition agreed between
Landlord and Tenant and acknowledgment by Tenant of satisfactory completion of
any work which Landlord has agreed to perform.
6. OPERATING EXPENSES. Tenant shall pay additional Rent in accordance with
EXHIBIT C attached hereto.
7. SERVICES.
7.1 Subject to the provisions below, Landlord agrees, without charge, in
accordance with standards determined by Landlord from time to time for the
Building (which standards shall provide for services at least equivalent to
services provided by office buildings of similar size and quality in the
southeast suburban Denver metropolitan area): (1) to furnish running water at
those points of supply for general use of tenants of the Building; (2) during
Ordinary Business Hours to furnish to interior Common Areas heated or cooled air
(as applicable), electrical current, janitorial services, and maintenance; (3)
during Ordinary Business Hours to furnish heated or cooled air to the Premises
for standard office use provided the recommendations of Landlord's engineer
regarding occupancy and use of the Premises are complied with by Tenant; (4) to
furnish, subject to availability and capacity of building systems, unfiltered
treated chilled water for use in Tenant's packaged HVAC systems provided that
such systems are approved by Landlord, including strainers, pumping systems and
controls; (5) to provide, during Ordinary Business Hours, the general use of
passenger elevators for ingress and egress to and from the Premises (at least
one such elevator shall be available at all times except in the case of
emergencies or repair); (6) to provide janitorial services for the Premises to
the extent of the Finish Work (including window washing of the outside of
exterior windows); and (7) to cause electric current to be supplied to the
Premises for Tenant's Standard Electrical Usage (items (1) through (7) are
collectively called "Services"). "Tenant's Standard Electrical Usage" means
weekly electrical consumption in an amount determined by (i) multiplying 3.5
watts/square foot by 59 hours and (ii) multiplying the product thereof by the
number of rentable square feet in the Premises. "Ordinary Business Hours" means
7:00 a.m. to 6:00 p.m. Monday through Friday and 9:00 a.m. to 12:00 p.m. on
Saturdays, Legal Holidays excepted. "Legal Holidays" mean New Year's Day, Martin
Luther King Day, Presidents' Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, Christmas Day, and such other national holidays hereafter
established by the United States Government.
7.2 "Excess Usage" means any usage of electricity (1) during other than
Ordinary Business Hours; (2) in an amount in excess of Tenant's Standard
Electrical Usage; or (3) for Special Equipment or for standard HVAC services
during other than Ordinary Business Hours. "Special Equipment" means (a) any
equipment consuming more than 0.5 kilowatts at rated capacity, (b) any equipment
requiring a voltage other than 120 volts, single phase, or (c) equipment that
requires the use of self-contained HVAC units. If Tenant desires Excess Usage,
Landlord will use reasonable efforts to supply the same. Tenant shall reimburse
Landlord for all Landlord's actual costs of providing services for Excess Usage,
including costs for materials, additional wear and tear on equipment, utilities,
and labor (including fringe and overhead costs). Computation of such costs will
be made by Landlord's engineer, based on his engineering survey of Tenant's
Excess Usage. Tenant shall also reimburse Landlord for all costs
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of supplementing the Building HVAC System and/or extending or supplementing any
electrical service, as Landlord determines is necessary, as a result of Tenant's
Excess Usage. Prior to installation or use of Special Equipment or operation of
the Premises for extended hours on an ongoing basis, Tenant shall notify
Landlord of such intended installation or use and obtain Landlord's consent. Not
less than 24 hours' prior notice shall be given Landlord of Tenant's request for
such services. Tenant may request that Landlord install at Tenant's cost a check
meter and/or flow meter to determine the cost of Tenant's Excess Usage. Tenant
shall also pay the cost of replacing light bulbs and/or tubes and ballast used
in all lighting in the Premises other than the standard Building fluorescent
lighting provided by Landlord to all tenants of the Building.
7.3 If Tenant requires janitorial services other than those included as
standard Services, Tenant shall separately pay for such services monthly upon
billings by Landlord, or Tenant shall, at Landlord's option, separately contract
for such services with the same company used by Landlord to furnish janitorial
services to the Building.
7.4 Landlord may discontinue, reduce, or curtail Services (either
temporarily or permanently) when necessary due to accident, repairs,
alterations, strikes, lockouts, Applicable Laws, or any other happening beyond
Landlord's reasonable control. Landlord is not liable for damages to Tenant or
any other party as a result of any interruption, reduction, or discontinuance of
Services (either temporary or permanent) nor shall the occurrence of any such
event be construed as an eviction of Tenant, cause or permit an abatement,
reduction or setoff of Rent, or operate to release Tenant from Tenant's
obligations. Notwithstanding the foregoing, Landlord agrees that if there is an
interruption within Landlord's reasonable control (other than an interruption
resulting from a fire or other casualty subject to the provisions of Section 18)
of the services which Landlord is obligated to provide that renders the Premises
unusable for Tenant's normal office operations and continues for a period of 10
or more consecutive days after Landlord receives notice from Tenant (an
"Unauthorized Interruption"), Tenant's Rent will abate in proportion to the
unusable portion of the Premises, except as provided herein, commencing at the
end of such 10-day period and abatement shall continue until such services have
been restored to permit Tenant's normal office operations; no abatement shall
occur, however, if Landlord has commenced and proceeds with due diligence to
cure such cause or remediate such interruption and it cannot be fully cured or
reasonably remediated within such 10-day period. Landlord agrees to use its
reasonable efforts to cause utility companies to restore any interruptions of
the supply of gas, electricity, and water utilities to the Premises.
7.5 Tenant shall promptly notify Landlord of any accidents or defects in
the Building of which Tenant becomes aware, including defects in pipes, electric
wiring, and HVAC equipment, and of any condition which may cause injury or
damage to the Building or any person or property therein.
8. QUIET ENJOYMENT. So long as an Event of Default has not occurred,
Tenant is entitled to the quiet enjoyment and peaceful possession of the
Premises subject to the provisions of this Lease.
9. DEPOSIT. Tenant has deposited and will keep on deposit at all times
during the Term with Landlord the Deposit as security for the payment and
performance of Tenant's
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obligations under this Lease. If, at any time, Tenant is in default, Landlord
has the right to use the Deposit, or so much thereof as necessary, in payment of
Rent, in reimbursement of any expense incurred by Landlord, and in payment of
any damages incurred by Landlord by reason of such default. In such event,
Tenant shall on demand of Landlord forthwith remit to Landlord a sufficient
amount in cash to restore the Deposit to the original amount. If the entire
Deposit has not been utilized, the remaining amount will be refunded to Tenant
or to whoever is then the holder of Tenant's interest in this Lease, without
interest, within 60 days after the later of the expiration of this Lease or
vacation of the Premises by Tenant. Landlord may commingle the Deposit with
other funds of Landlord. Landlord may deliver the Deposit to any purchaser of
Landlord's interest in the Premises and Landlord shall be discharged from
further liability therefor upon notice to Tenant that such purchaser has
received the Deposit and Letter of Credit. Tenant agrees that if a Mortgagee
succeeds to Landlord's interest in the Premises by reason of foreclosure or deed
in lieu of foreclosure, Tenant has no claim against the Mortgagee for the
Deposit or any portion thereof unless such Mortgagee has actually received the
same from Landlord and Landlord shall take all action required to ensure that
the Deposit (or the portion not utilized in accordance with this Lease) and the
Letter of Credit (to the extent not presented in accordance with this Lease) are
available to any Mortgagee who succeeds to Landlord's interest in the Premises
by reason of foreclosure or deed in lieu of foreclosure. If claims of Landlord
exceed the Deposit, Tenant shall remain liable for the balance.
10. CHARACTER OF OCCUPANCY. Tenant shall occupy the Premises for the
Permitted Use and for no other purpose, and use it in a careful, safe, and
proper manner and pay on demand for any damage to the Premises caused by misuse
or abuse by Tenant, Tenant's agents or employees, or any other person entering
upon the Premises under express or implied invitation of Tenant (collectively,
"Tenant's Agents"). Tenant, at Tenant's expense, shall comply with all
applicable federal, state, city, quasi-governmental and utility provider laws,
codes, rules, and regulations now or hereafter in effect ("Applicable Laws")
which impose any duty upon Landlord or Tenant with respect to the occupation or
alteration of the Premises; provided, however, that Tenant shall not be required
to make any structural changes to the Premises or changes in the mechanical
systems of the Building unless arising from Tenant's specific use of the
Premises (as distinguished from office use generally) or from Tenant's
Alterations. Tenant shall not commit or permit waste or any nuisance on or in
the Premises. Tenant agrees not to store, keep, use, sell, dispose of or offer
for sale in, upon or from the Premises any article or substance prohibited by
any insurance policy covering the Building Complex nor shall Tenant keep, store,
produce or dispose of on, in or from the Premises or the Building Complex any
substance which may be deemed an infectious waste or hazardous substance under
any Applicable Laws, except customary office and cleaning supplies.
11. MAINTENANCE, ALTERATIONS AND REENTRY BY LANDLORD.
11.1 Landlord will (i) make repairs and replacements to HVAC,
mechanical, life safety and electrical systems in the Premises (to the extent
such systems are Building standard) deemed necessary by Landlord for normal
operations of the Building Complex consistent with operations in office
buildings of similar size and quality in the southeast suburban Denver
metropolitan area; and (ii) provide upkeep, maintenance, and repairs to all
Common Areas, including repairs to structural and mechanical components, as
required in order to maintain the existing structure and systems in good, safe
and working condition and consistent
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with standards for upkeep, maintenance and repairs in office buildings of
similar size and quality in the southeast suburban Denver metropolitan area.
Except as provided in this Section or otherwise expressly required in this
Lease, Landlord is not required to make improvements or repairs to the Premises
during the Term.
11.2 After giving Tenant at least 24 hours prior notice (except no
notice shall be required in an emergency or for janitorial services), Landlord
or Landlord's agents or contractors may at any time enter the Premises for
examination and inspection, or to perform, if Landlord elects, any obligations
of Tenant which Tenant fails to perform or such cleaning, maintenance,
janitorial services, repairs, replacements, additions, or alterations as
Landlord deems necessary for the safety, improvement, or preservation of the
Premises or other portions of the Building Complex or as required by Applicable
Laws. After giving Tenant at least 24 hours prior notice, Landlord or Landlord's
agents may also show the Premises to prospective tenants, purchasers and
Mortgagees (provided, however, Landlord shall not show the Premises to
prospective tenants until the last 12 months of the Term, as it may be extended,
or until an Event of Default). Any such reentry does not constitute an eviction
or entitle Tenant to abatement of Rent. Landlord may make such alterations or
changes in other portions of the Building Complex as Landlord desires so long as
such alterations and changes do not unreasonably interfere with Tenant's normal
business operations in the Premises and permit reasonable access to the
Premises. Landlord may use the Common Areas and one or more street entrances to
the Building Complex as may be necessary in Landlord's judgment to complete such
work, provided that Tenant shall have reasonable access to the Premises.
12. ALTERATIONS AND REPAIRS BY TENANT.
12.1 Tenant shall not make any alterations to the Premises during the
Term, including installation of equipment or machinery which requires
modifications to existing electrical outlets or increases Tenant's usage of
electricity beyond Tenant's Standard Electrical Usage (collectively
"Alterations") without in each instance first obtaining the written consent of
Landlord, which consent shall not be unreasonably withheld, delayed or
conditioned. Landlord's consent or approval of the plans, specifications and
working drawings for any Alterations shall not constitute any warranty or
representation by Landlord (and shall not impose any liability on Landlord) as
to their completeness, design sufficiency, or compliance with Applicable Laws.
Tenant shall at its cost: pay all reasonable engineering and design costs
incurred by Landlord as to all Alterations, obtain all governmental permits and
approvals required, and cause all Alterations to be completed in compliance with
Applicable Laws and requirements of Landlord's insurance. All such work relating
to Alterations shall be performed in a good and workmanlike manner, using new
materials and equipment at least equal in quality to the Finish Work. All
Alterations, repair and maintenance work performed by Tenant shall be done at
Tenant's expense by Landlord's employees or, with Landlord's prior consent
(which consent shall not be unreasonably withheld or delayed) and subject to any
conditions imposed by Landlord, by other persons requested by Tenant; however,
if such work is not performed by Landlord's employees, Tenant shall pay Landlord
a reasonable supervisory fee upon receipt of an invoice. If Landlord authorizes
such persons to perform work, Tenant shall deliver to Landlord prior to
commencement certificates issued by insurance companies qualified to do business
in the State of Colorado, evidencing that worker's compensation, public
liability insurance, and property damage insurance (in amounts, with companies
and on forms satisfactory to Landlord) are in
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force and maintained by all contractors and subcontractors engaged to perform
such work. All liability policies shall name Landlord, Building Manager, and
Mortgagee as additional insureds. Each certificate shall provide that the
insurance may not be cancelled or modified without 10 days' prior written notice
to Landlord and Mortgagee. Landlord also has the right to post notices in the
Premises in locations designated by Landlord stating that Landlord is not
responsible for payment for such work and containing such other information as
Landlord deems necessary. All such work shall be performed in a manner which
does not unreasonably interfere with Landlord or other tenants of the Building,
or impose additional expense upon Landlord in the operation of the Building
Complex (unless Tenant agrees to pay such additional cost).
12.2 Tenant shall keep the Premises in as good order, condition, and
repair and in an orderly state, as on the Commencement Date, loss by fire or
other casualty or ordinary wear excepted.
12.3 All Alterations, including partitions, paneling, carpeting, drapes
or other window coverings, and light fixtures (but not including movable office
furniture not permanently attached to the Building and Tenant's equipment and
trade fixtures), are deemed a part of the real estate and the property of
Landlord and remain upon and be surrendered with the Premises at the end of the
Term, whether by lapse of time or otherwise, unless Landlord notifies Tenant no
later than 15 days prior to the end of the Term that it elects to have Tenant
remove all or part of such Alterations, and in such event, Tenant shall at
Tenant's expense promptly remove the Alterations specified and restore the
Premises to its prior condition, reasonable wear and tear excepted. If requested
by Tenant in connection with Tenant's request for Landlord's consent to any
Alterations proposed by Tenant, Landlord shall inform Tenant whether Landlord
will require the removal of such Alterations pursuant to this Section 12.3 and,
if Landlord does not so inform Tenant, Tenant shall not be required to remove
such Alterations at the end of the Term.
13. MECHANICS' LIENS. Tenant shall pay for all work done on the Premises by
Tenant or at its request (subject to the provisions applicable to the Finish
Work) of a character which may result in liens on Landlord's or Tenant's
interest and Tenant will keep the Premises free of all mechanics' liens, and
other liens on account of such work. Tenant indemnifies, defends, and saves
Landlord harmless from all liability, loss, damage, or expenses, including
attorneys' fees, on account of any claims of laborers, materialmen or others for
work performed or for materials or supplies furnished to Tenant or persons
claiming under Tenant. If any lien is recorded against the Premises or Building
or any suit affecting title thereto is commenced as a result of such work, or
supplying of materials, Tenant shall cause such lien to be removed of record
within 5 days after notice from Landlord. If Tenant desires to contest any
claim, Tenant must furnish Landlord adequate security of at least 150% of the
amount of the claim, plus estimated costs and interest and, if a final judgment
establishing the validity of any lien is entered, Tenant shall immediately pay
and satisfy the same. If Tenant fails to proceed as aforesaid, Landlord may pay
such amount and any costs, and the amount paid, together with reasonable
attorneys' fees incurred, shall be immediately due Landlord upon notice.
14. SUBLETTING AND ASSIGNMENT.
14.1 Tenant shall not sublet any part of the Premises nor assign or
otherwise transfer this Lease or any interest herein (sometimes referred to as
"Transfer," and the subtenant
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or assignee may be referred to as "Transferee") without the consent of Landlord
first being obtained, which consent will not be unreasonably withheld provided
that: (1) Tenant complies with the provisions of Section 14.4; (2) Landlord
declines to exercise its rights under Section 14.3; (3) the Transferee is
engaged in a business and the portion of the Premises will be used in a manner
which is in keeping with the then standards of the Building and does not
conflict with any exclusive use rights granted to any other tenant of the
Building Complex; (4) the Transferee has reasonable financial worth in light of
the responsibilities involved; (5) Tenant is not in default at the time it makes
its request; (6) the Transferee is not a governmental or quasi-governmental
agency; (7) the Transferee is not a tenant or currently negotiating a lease with
Landlord in any Building owned by Landlord in or its affiliates in the Denver
metropolitan area (including the Building Complex). Transfer includes a sale by
Tenant of substantially all of its assets or stock if Tenant is a publicly
traded corporation, a merger of Tenant with another corporation (if Tenant is
not the surviving corporation), the transfer of 25% or more of the stock in a
corporate tenant whose stock is not publicly traded, or transfer of 25% or more
of the beneficial ownership interests in a partnership or limited liability
company tenant.
14.2 Following any Transfer in accordance with this Section 14,
Landlord may, after default by Tenant, collect rent from the Transferee or
occupant and apply the net amount collected to the Rent, but no Transfer or
collection will be deemed an acceptance of the Transferee or occupant as Tenant
or release Tenant from its obligations. Consent to a Transfer shall not relieve
Tenant from obtaining Landlord's consent to any other Transfer. Notwithstanding
Landlord's consent to a Transfer, Tenant shall continue to be primarily liable
for its obligations. If Tenant collects any rent or other amounts from a
Transferee in excess of the Rent for any monthly period, Tenant shall pay
Landlord the excess monthly, as and when received.
14.3 Notwithstanding the above, if Tenant requests Landlord's consent
to sublet 25% or more of the Premises, Landlord may refuse to grant such consent
in its sole discretion and terminate this Lease as to the portion of the
Premises with respect to which such consent was requested; provided, however, if
Landlord does not consent and elects to terminate the Lease as to such portion,
Tenant may within 15 days after notice from Landlord to this effect withdraw
Tenant's request for consent. If such termination occurs, it shall be effective
on the date designated in a notice from Landlord and shall not be more than 30
days following such notice and, upon such termination, Tenant shall be released
from all further obligations under this Lease with respect to the portion of the
Premises as to which the Lease is terminated (except for Rent attributable to
the period prior to such termination) and the Rent and Tenant's obligation to
pay Operating Expenses shall be reduced in proportion to the portion of the
Premises as to which this Lease is terminated.
14.4 Tenant must notify Landlord at least 30 days prior to the desired
date of the Transfer ("Tenant's Notice"). Tenant's Notice shall describe the
portion of the Premises to be transferred and the terms and conditions. Landlord
has, without obligation, 30 days following receipt of Tenant's Notice to sublet
the space on Tenant's behalf (subject to Tenant's reasonable approval of the
proposed use by the subtenant and such subtenant's financial ability to perform
its obligations under the proposed sublease) or to exercise its rights pursuant
to Section 14.3 if Tenant's Notice discloses that 25% or more of the Premises is
involved. If the space covered by Tenant's Notice is subleased by Landlord, rent
and other sums due from the subtenant will be
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paid to Tenant directly and Landlord has no responsibility for the performance
by such subtenant of its obligations under its sublease with Tenant. If Landlord
is unwilling or unable to locate a subtenant (and, if applicable, declines to
exercise its rights under Section 14.3), Landlord will notify Tenant not later
than 60 days after receipt of Tenant's Notice and Tenant shall be free to sublet
the specified portion of the Premises to any third party on terms substantially
identical to those described in Tenant's Notice, subject to Landlord's consent
as set forth above. If Tenant does not sublet such portion of the Premises
within 30 days following Landlord's notice to Tenant, Tenant must reoffer the
Premises to Landlord in accordance with the provisions hereof prior to
subleasing to a third party.
14.5 All documents utilized by Tenant to evidence a Transfer are
subject to reasonable approval by Landlord. Tenant shall pay Landlord's
reasonable expenses, including reasonable attorneys' fees, of determining
whether to consent and in reviewing and approving the documents. Tenant shall
provide Landlord with such information as Landlord reasonably requests regarding
a proposed subtenant, including financial information.
14.6 If a trustee or debtor in possession in bankruptcy is entitled to
assume control over Tenant's rights under this Lease and assigns such rights to
any third party notwithstanding the provisions hereof, the rent to be paid by
such party shall be increased to the current Base Rent (if greater than that
being paid for the Premises) which Landlord charges for comparable space in the
Building as of the date of such third party's occupancy. If Landlord is entitled
under the Bankruptcy Code to "Adequate Assurance" of future performance of this
Lease, the parties agree that such term includes the following:
(1) Any assignee must demonstrate to Landlord's reasonable satisfaction
a net worth (as defined in accordance with generally accepted accounting
principles consistently applied) at least as large as the net worth of Tenant on
the Commencement Date increased by 7%, compounded annually, for each year
thereafter through the date of the proposed assignment. Tenant's financial
condition was a material inducement to Landlord in executing this Lease.
(2) The assignee must assume and agree to be bound by the provisions of
this Lease.
15. DAMAGE TO PROPERTY. Tenant agrees Landlord is not liable for any injury
or damage, either proximate or remote, occurring through or caused by fire,
water, steam, or any repairs, alterations, injury, accident, or any other cause
to the Premises, to any furniture, fixtures, Tenant improvements, or other
personal property of Tenant kept or stored in the Premises, or in other parts of
the Building Complex, whether by reason of the negligence or default of
Landlord, other occupants, any other person, or otherwise; and the keeping or
storing of all property of Tenant in the Premises and Building Complex is at the
sole risk of Tenant. Tenant's liability for any injury or damage to the Building
or personal property of Landlord kept or stored in the Building Complex shall be
limited in accordance with Section 18.6.
16. INDEMNITY TO LANDLORD.
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16.1 Tenant agrees to indemnify, defend, and hold Landlord and Building
Manager harmless from all liability, costs, or expenses, including attorneys'
fees, on account of damage to the person or property of any third party,
including any other tenant in the Building Complex, to the extent caused by the
negligence or breach of this Lease by the Tenant or Tenant's Agents.
16.2 Tenant shall maintain throughout the Term a commercial general
liability policy, including protection against death, personal injury and
property damage, issued by an insurance company qualified to do business in the
State of Colorado, with a single limit of not less than $1,000,000.00 Such
policy shall name Landlord, Building Manager, and Mortgagee as additional
insureds, be primary to any other similar insurance of such additional insureds,
and provide that it may not be cancelled or modified without at least 20 days'
prior notice to Landlord and Mortgagee. The minimum limits of such insurance do
not limit the liability of Tenant hereunder. Prior to occupancy of the Premises,
and prior to expiration of the then-current policy, Tenant shall deliver
certificates evidencing that insurance required under this Lease is in effect.
16.3 Landlord agrees to indemnify, defend, and hold Tenant harmless
from all liability, costs, or expenses, including attorneys' fees, on account
of damage to the person or property of any third party (excluding Tenant's
Agents), including any other tenant in the Building Complex, to the extent
caused by the negligence or breach of this Lease by Landlord or Building
Manager.
17. SURRENDER AND NOTICE. Upon the expiration or other termination of
this Lease, Tenant shall immediately quit and surrender to Landlord the
Premises broom clean, in good order and condition, ordinary wear and tear and
loss by fire or other casualty excepted, and Tenant shall remove all of its
movable furniture and other effects, all telephone cable and related equipment
in the Building installed for Tenant, and such Alterations, as Landlord
requires. If Tenant fails to timely vacate the Premises as required, Tenant is
responsible to Landlord for all resulting costs and damages of Landlord,
including any amounts paid to third parties who are delayed in occupying the
Premises.
18. INSURANCE, CASUALTY, AND RESTORATION OF PREMISES. 18.1 Landlord
shall maintain property insurance for the Building Complex, the shell and core
of the Building and the Premises in such amounts, from such companies, and on
such terms and conditions, including insurance for loss of Rent as Landlord
deems appropriate, from time to time, consistent with amounts and coverages
retained by reasonably prudent landlords in office buildings of similar size
and quality in the southeast suburban Denver metropolitan area. Landlord
acknowledges that as of the Commencement Date Landlord is retaining all risk
property insurance in amounts not less than 90% of the replacement cost value,
which coverage is subject to change in the future.
18.2 Tenant shall maintain throughout the Term insurance coverage at
least as broad as ISO Special Form Coverage against risks of direct physical
loss or damage (commonly known as "all risk") for the full replacement cost of
Tenant's property and betterments in the Premises, including tenant finish in
excess of the Finish Work.
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18.3 If the Building is damaged by fire or other casualty which renders
the Premises wholly unusable for Tenant's normal office operations or the damage
is so extensive that an architect selected by Landlord certifies in writing to
Landlord and Tenant within 60 days of said casualty that the Premises cannot,
with the exercise of reasonable diligence, be made fit for Tenant's normal
office operations within 180 working days from the happening thereof, then, at
the option of Landlord or Tenant exercised in writing to the other within 30
days of such determination, this Lease shall terminate as of the occurrence of
such damage. In the event of termination, Tenant shall pay Rent duly apportioned
up to the time of such casualty and forthwith surrender the Premises and all
interest. If Tenant fails to do so, Landlord may reenter and take possession of
the Premises and remove Tenant. If, however, the damage is such that the
architect certifies that the Premises can be made usable for Tenant's normal
office operations within such 180-day period or neither Landlord or Tenant
elects to terminate the Lease despite the extent of damage, then the provisions
below apply.
18.4 If the Premises are damaged by fire or other casualty that does
not render it wholly unusable for Tenant's normal office operations or require a
repair period in excess of 180 days, Landlord shall with reasonable promptness
except as hereafter provided repair the Premises to the extent of the Finish
Work.
18.5 If the Building is damaged (though the Premises may not be
affected, or if affected, can be repaired within 180 days) and within 60 days
after the damage Landlord decides not to reconstruct or rebuild the Building,
then, notwithstanding anything contained herein, upon notice to that effect from
Landlord within said 60 days, Tenant shall pay the Rent apportioned to such
date, this Lease shall terminate from the date of such notice, and both parties
discharged from further obligations except as otherwise expressly provided.
18.6 Landlord and Tenant waive all rights of recovery against the other
and its respective officers, partners, members, agents, representatives, and
employees for loss or damage to its real and personal property kept in the
Building Complex which is capable of being insured against under ISO Special
Form Coverage, or for loss of business revenue or extra expense arising out of
or related to the use and occupancy of the Premises. Tenant also waives all such
rights of recovery against Building Manager. Each party shall, upon obtaining
the property damage insurance required by this Lease, notify the insurance
carrier that the foregoing waiver is contained in this Lease and use reasonable
efforts to obtain an appropriate waiver of subrogation provision in the
policies.
18.7 Rent shall abate during any period of repair and restoration in
the same proportion that the part of the Premises rendered unusable for Tenant's
normal office operations bears to the whole; provided, however, if the casualty
is the fault of Tenant or Tenant's Agents, then the Rent will abate during any
such period of repair and restoration but only to the extent of any recovery by
Landlord under its rental insurance related to the Premises.
19. CONDEMNATION. If the Premises or any material portion that renders the
Premises unusable for Tenant's normal office operations or any portion of the
Building Complex which renders the Premises unusable for Tenant's normal office
operations is taken by right of eminent domain, or by condemnation (which
includes a conveyance in lieu of a taking), this Lease, at the option of either
Landlord or Tenant exercised by notice to the other within 30 days
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after the taking, shall terminate and Rent shall be apportioned as of the date
of the taking. Tenant shall forthwith surrender the Premises and all interest in
this Lease, and, if Tenant fails to do so, Landlord may reenter and take
possession of the Premises. If this Lease is not terminated in accordance with
this Section, Landlord shall promptly repair the Premises as nearly as possible
to its condition immediately prior to the taking, unless Landlord elects not to
rebuild under Section 18.5, and the Rent shall abate during the period of repair
in the same proportion that the part of the Premises taken or rendered unusable
for Tenant's normal office operations bears to the whole. Landlord shall receive
the entire award or consideration for the taking, except Tenant may claim and
prove in any such proceeding and receive any award, or seek a separate award,
made to Tenant specifically for damages for trade fixtures, equipment and moving
or relocation expenses so long as such award does not reduce Landlord's award.
20. DEFAULT BY TENANT.
20.1 Each of the following events is an "Event of Default":
(1) Any failure by Tenant to pay Rent on the due date unless such
failure is cured within 5 business days after notice by Landlord; however,
Tenant is not entitled to more than 2 notices of delinquent payments during any
calendar year and, if thereafter during such calendar year any Rent is not paid
when due, an Event of Default shall automatically occur;
(2) Tenant abandons the Premises;
(3) This Lease or Tenant's interest is transferred whether voluntarily
or by operation of law except as permitted in Section 14;
(4) This Lease or any part of the Premises is taken by process of law
and is not released within 15 days after a levy;
(5) Commencement by Tenant of a proceeding under any provision of
federal or state law relating to insolvency, bankruptcy, or reorganization
("Bankruptcy Proceeding");
(6) Commencement of a Bankruptcy Proceeding against Tenant, unless
dismissed within 60 days after commencement;
(7) The insolvency of Tenant or execution by Tenant of an assignment
for the benefit of creditors; the convening by Tenant of a meeting of its
creditors or any significant class thereof for purposes of effecting a
moratorium upon or extension or composition of its debts; or the failure of
Tenant generally to pay its debts as they mature;
(8) The admission in writing by Tenant (or any general partner of
Tenant if Tenant is a partnership), that it is unable to pay its debts as they
mature or it is generally not paying its debts as they mature;
(9) Tenant fails to take possession of the Premises within 15 days
after the Commencement Date;
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(10) Tenant fails to perform any of its other obligations and
non-performance continues for 30 days after notice by Landlord or, if such
performance cannot be reasonably had within such 30 day period, Tenant does not
in good faith commence performance within such 30 day period and diligently
proceed to completion; provided, however, Tenant's right to cure shall not
exceed the period provided by Applicable Law;
(11) An event of default (not cured within any applicable cure period)
under the terms of the Solarium Lease shall be deemed an Event of Default
hereunder; and
(12) Any event which is expressly defined as or deemed an Event of
Default under this Lease.
20.2 Remedies of Landlord. If an Event of Default occurs, Landlord may then
or at any time thereafter, either:
(1) (a) Without further notice except as required by Applicable Laws,
reenter and repossess the Premises or any part and expel Tenant and those
claiming through or under Tenant and remove the effects of both without being
deemed guilty of any manner of trespass and without prejudice to any remedies
for arrears of Rent or preceding breach of this Lease. Should Landlord reenter
or take possession pursuant to legal proceedings or any notice provided for by
Applicable Law, Landlord may, from time to time, without terminating this Lease,
relet the Premises or any part, either alone or in conjunction with other
portions of the Building Complex, in Landlord's or Tenant's name but for the
account of Tenant, for such periods (which may be greater or less than the
period which would otherwise have constituted the balance of the Term) and on
such conditions and upon such other terms (which may include concessions of free
rent and alteration and repair of the Premises) as Landlord, in its sole
discretion, determines and Landlord may collect the rents therefor but Landlord
is not in any way responsible or liable for failure to relet the Premises, or
any part thereof, or for any failure to collect any rent due upon such
reletting; however, Landlord shall use reasonable efforts to mitigate its
damages. No such reentry or repossession or notice from Landlord shall be
construed as an election by Landlord to terminate this Lease unless specific
notice of such intention is given Tenant. Landlord reserves the right following
any reentry and/or reletting to exercise its right to terminate this Lease by
giving Tenant notice, in which event this Lease will terminate as specified in
the notice.
(b) If Landlord takes possession of the Premises without
terminating this Lease, Tenant shall pay Landlord (i) the Rent which would be
payable if repossession had not occurred, less (ii) the net proceeds, if any, of
any reletting of the Premises after deducting all of Landlord's reasonable
expenses incurred in connection with such reletting, including all repossession
costs, brokerage commissions, attorneys' fees, expenses of employees,
alteration, and repair costs (collectively "Reletting Expenses"), however,
Landlord shall use reasonable efforts to mitigate its damages. If, in connection
with any reletting, the new lease term extends beyond the Term or the premises
covered thereby include other premises not part of the Premises, a fair
apportionment of the rent received from such reletting and the Reletting
Expenses, will be made in determining the net proceeds received from the
reletting. In determining such net proceeds, rent concessions will also be
apportioned over the term of the new lease. Tenant shall pay such amounts to
Landlord monthly on the days on which the Rent
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would have been payable if possession had not been retaken, and Landlord is
entitled to receive the same from Tenant on each such day; or
(2) Give Tenant notice of termination of this Lease on the date
specified and, on such date, Tenant's right to possession of the Premises shall
cease and the Lease will terminate except as to Tenant's liability as hereafter
provided as if the expiration of the term fixed in such notice were the end of
the Term. If this Lease terminates pursuant to this Section, Tenant remains
liable to Landlord for damages in an amount equal to the Rent which would have
been owing by Tenant for the balance of the Term had this Lease not terminated,
less the net proceeds, if any, of reletting of the Premises by Landlord
subsequent to termination after deducting Reletting Expenses, however, Landlord
shall use reasonable efforts to mitigate its damages. Landlord may collect such
damages from Tenant monthly on the days on which the Rent would have been
payable if this Lease had not terminated and Landlord shall be entitled to
receive the same from Tenant on each such day. Alternatively, if this Lease is
terminated, Landlord at its option may recover forthwith against Tenant as
damages for loss of the bargain and not as a penalty an amount equal to the
worth at the time of termination of the excess, if any, of the Rent reserved in
this Lease for the balance of the Term over the then Reasonable Rental Value of
the Premises for the same period plus all Reletting Expenses. "Reasonable Rental
Value" is the amount of rent Landlord can obtain for the remaining balance of
the Term.
20.3 Cumulative Remedies. Suits to recover Rent and damages may be
brought by Landlord, from time to time, and nothing herein requires Landlord to
await the date the Term would expire had there been no Event of Default or
termination, as the case may be. Each right and remedy provided for in this
Lease is cumulative and non-exclusive and in addition to every other right or
remedy now or hereafter existing at law or equity, including suits for
injunctive relief and specific performance. The exercise or beginning of the
exercise by Landlord of one or more rights or remedies shall not preclude the
simultaneous or later exercise by Landlord of other rights or remedies. All
costs incurred by Landlord to collect any rent and damages or to enforce this
Lease are also recoverable form Tenant. If any suit is brought because of an
alleged breach of this Lease, the prevailing party is also entitled to recover
from the other party all reasonable attorneys' fees and costs incurred in
connection therewith.
20.4 No Waiver. No failure by Landlord to insist upon strict
performance of any provision or to exercise any right or remedy upon a breach
thereof, and no acceptance of full or partial Rent during the continuance of any
breach constitutes a waiver of any such breach or such provision, except by
written instrument executed by Landlord. No waiver shall affect or alter this
Lease but each provision hereof continues in effect with respect to any other
then existing or subsequent breach thereof.
20.5 Bankruptcy. Nothing contained in this Lease limits Landlord's
right to obtain as liquidated damages in any bankruptcy or similar proceeding
the maximum amount allowed by law at the time such damages are to be proven,
whether such amount is greater, equal to, or less than the amounts recoverable,
either as damages or Rent, referred to in any of the preceding provisions of
this Section. Notwithstanding anything in this Section to the contrary, any
proceeding described in Section 20.1(5),(6),(7) and (8) is an Event of Default
only when such proceeding is brought by or against the then holder of the
leasehold estate under this Lease.
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20.6 Late Payment Charge. Any Rent not paid within 5 days after the due
date shall thereafter bear interest at 5 percentage points above the Prime Rate
or the highest rate permitted by law, whichever is lower, until paid. Further,
if such Rent is not paid within 5 days after notice, Tenant agrees Landlord will
incur additional administrative expenses, the amount of which will be difficult
to determine; Tenant therefore shall also pay Landlord a late charge for each
late payment of 5% of such payment. Any amounts paid by Landlord to cure a
default of Tenant which Landlord has the right but not the obligation to do,
shall, if not repaid by Tenant within 5 days of demand by Landlord, thereafter
bear interest at 5 percentage points above the Prime Rate until paid. "Prime
Rate" means that rate announced by Wells Fargo Bank, N.A. in Denver as its prime
rate on the date closest to the date interest commences.
20.7 Waiver of Jury Trial. Tenant and Landlord waive any right to a
trial by jury in suits arising out of or concerning the provisions of this
Lease.
21. DEFAULT BY LANDLORD. In the event of any alleged default on the part of
Landlord, Tenant shall give notice to Landlord and afford Landlord a reasonable
opportunity to cure such default. Such notice shall be ineffective unless a copy
is simultaneously also delivered in the manner required in this Lease to any
holder of a mortgage and/or deed of trust affecting all or any portion of the
Building Complex (collectively, "Mortgagee"), provided that prior to such notice
Tenant has been notified (by way of notice of Assignment of Rents and Leases, or
otherwise), of the address of a Mortgagee. If Landlord fails to cure such
default within the time provided, then Mortgagee shall have an additional 30
days following a second notice from Tenant or, if such default cannot be cured
within that time, such additional time as may be necessary provided within such
30 days, Mortgagee commences and diligently pursues a cure (including
commencement of foreclosure proceedings if necessary to effect such cure).
Tenant's sole remedy will be equitable relief or actual damages but in no event
is Landlord or any Mortgagee responsible for consequential damages or lost
profit incurred by Tenant as a result of any default by Landlord. If a
Mortgagee, or transferee under such Mortgage (hereafter defined), succeeds to
Landlord's interest as a result of foreclosure or otherwise, such party shall
not be: (i) liable for any default, nor subject to any setoff or defenses that
Tenant may have against Landlord, for a default occurring prior to such transfer
or succession; (ii) bound by any amendment (including an agreement for early
termination) without its consent made at any time after notice to Tenant that
such Mortgage requires such consent; and (ii) bound by payment of Rent in
advance for more than 30 days. Tenant agrees to pay Rent (and will receive
credit under this Lease) as directed in any Mortgagee's notice of Landlord's
default under the Mortgage reciting that Mortgagee is entitled to collect Rent.
22. SUBORDINATION AND ATTORNMENT.
22.1 This Lease at Landlord's option will be subordinate to any
mortgage, deed of trust and related documents now or hereafter placed upon the
Building Complex (including all advances made thereunder), and to all
amendments, renewals, replacements, or restatements thereof (collectively,
"Mortgage"), provided, however, that the subordination by Tenant to any such
future mortgage, deed of trust or related documents shall be subject to Tenant
obtaining a non-disturbance agreement, on such lender's standard form agreement,
whereby such lender agrees, provided Tenant is not then in default under this
Lease, that Tenant's occupancy of the Premises and rights and privileges under
this Lease shall not be disturbed or impaired with in
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connection with any proceeding to enforce or foreclose any such mortgage, trust
indenture or other lien and if such party succeeds to the interests of Landlord
by reason of such proceedings or conveyance in lieu thereof, Tenant shall attorn
hereunder directly to such party; provided, however, such party shall not be (i)
liable for any act or omission of any prior landlord or (ii) subject to any
offsets or defenses which Tenant might have against any prior landlord
(including Landlord); or (iii) bound by any rental which Tenant might have paid
for more than one (1) month in advance to any prior landlord; or (iv) bound by
any amendment or modification of the Lease made without its consent. Landlord
shall deliver to Tenant, within 10 days after the date this Lease is executed by
both Landlord and Tenant, a nondisturbance agreement from the holder of any
Mortgage existing as of the execution hereof.
22.2 If any Mortgagee elects to have this Lease superior to the lien of
its Mortgage and gives notice to Tenant, this Lease will be deemed prior to such
Mortgage whether this Lease is dated prior or subsequent to the date of such
Mortgage of the date or recording thereof.
22.3 In confirmation of subordination or superior position, as the case
may be, Tenant will execute such documents as may be required by Mortgagee
(consistent with the provisions of Section 22.1 above) and if it fails to do so
within 10 days after demand, such failure shall be deemed an Event of Default
hereunder.
22.4 Tenant hereby attorns to all successor owners of the Building,
whether such ownership is acquired by sale, foreclosure of a Mortgage, or
otherwise.
23. REMOVAL OF TENANT'S PROPERTY.
23.1 All movable personal property of Tenant not removed from the
Premises upon vacation, abandonment, or termination of this Lease shall be
conclusively deemed abandoned and may be sold, or otherwise disposed of by
Landlord without notice to Tenant and without obligation to account; Tenant
shall pay Landlord's expenses in connection with such disposition, less any
proceeds received from disposition of such personal property, if any.
24. HOLDING OVER: TENANCY MONTH-TO-MONTH. If, after the expiration or
termination of this Lease, Tenant remains in possession of the Premises and
continues to pay rent without a written agreement as to such holding over, even
though Landlord accepts such rent, such possession is a tenancy from
month-to-month, subject to all provisions hereof but at a monthly rent
equivalent to 150% of the monthly Rent paid by Tenant immediately prior to such
expiration or termination. Rent shall continue to be payable in advance on the
first day of each calendar month. Such tenancy may be terminated by either party
upon 10 days' notice prior to the end of any monthly period. Nothing contained
herein obligates Landlord to accept rent tendered after the expiration of the
Term or relieves Tenant of its liability under Section 17.
25. PAYMENTS AFTER TERMINATION. No payments by Tenant after expiration or
termination of this Lease or after any notice (other than a demand for payment
of money) by Landlord to Tenant reinstates, continues, extends the Term, or
affects any notice given to Tenant prior to such payments. After notice,
commencement of a suit, or final judgment granting
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Landlord possession of the Premises, Landlord may collect any amounts due or
otherwise exercise Landlord's remedies without waiving any notice or affecting
any suit or judgment.
26. STATEMENT OF PERFORMANCE. Tenant and Landlord each agree at any time
upon not less than 10 days' notice to execute and deliver to the other party a
written statement certifying that this Lease is unmodified and in full force and
effect (or, if there have been modifications, that the same is in full force and
effect as modified stating the modifications); that there have been no defaults
by Landlord or Tenant (or, if there have been defaults, setting forth the nature
thereof); the date to which Rent has been paid in advance and such other
information as the requesting party reasonably requests. Such statement may be
relied upon by a prospective purchaser of Landlord's interest or Mortgagee.
Either party's failure to timely deliver such statement is conclusive upon such
party that: (i) this Lease is in full force and effect without modification
except as may be represented by the requesting party; (ii) there are no uncured
defaults in the other party's performance; and (iii) not more than 1 month's
Rent has been paid in advance. Upon request, Tenant and Landlord will furnish to
the other party an appropriate resolution confirming that the party signing the
statement is authorized to do so.
27. MISCELLANEOUS.
27.1 Transfer by Landlord. The term "Landlord" means so far as
obligations of Landlord are concerned, only the owner of the Building at the
time in question and, if any transfer of the title occurs, Landlord herein named
(and in the case of any subsequent transfers, the then grantor) is automatically
released from and after the date of such transfer of all liability as respects
performance of any obligations of Landlord thereafter to be performed provided
that such successor assumes the obligations of Landlord to be performed
thereafter during such party's ownership. Any funds in Landlord's possession at
the time of transfer in which Tenant has an interest as well as the Deposit (or
the portion not utilized in accordance with this Lease) and the Letter of Credit
(to the extent not presented in accordance with this Lease) will be turned over
to the grantee and any amount then due Tenant under this Lease will be paid to
Tenant.
27.2 No Merger. The termination or mutual cancellation of this Lease
will not work a merger, and such termination or cancellation will at the option
of Landlord either terminate all subleases or operate as an automatic assignment
to Landlord of such subleases.
27.3 Common Area Use. Landlord may use any of the Common Areas for the
purposes of completing or making repairs or alterations in any portion of the
Building Complex provided that such repairs or alterations shall not
unreasonably interfere with Tenant's normal business office operations and
reasonable access is permitted to the Premises and parking (subject to the
provisions of Section 29).
27.4 Independent Covenants. This Lease is to be construed as though the
covenants between Landlord and Tenant are independent and not dependent and
Tenant is not entitled to any setoff of the Rent against Landlord if Landlord
fails to perform its obligations; provided, however, the foregoing does not
impair Tenant's right to commence a separate suit against Landlord for any
default by Landlord so long as Tenant complies with Section 21.
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27.5 Validity of Provisions. If any provision is invalid under present
or future laws, then it is agreed that the remainder of this Lease is not
affected and that in lieu of each provision that is invalid, there will be added
as part of this Lease a provision as similar to such invalid provision as may be
possible and is valid and enforceable.
27.6 Captions. The caption of each Section is added for convenience
only and has no effect in the construction of any provision of this Lease.
27.7 Construction. The parties waive any rule of construction that
ambiguities are to be resolved against the drafting party. Any words following
the words "include," "including," "such as," "for example," or similar words or
phrases shall be illustrative only and are not intended to be exclusive, whether
or not language of non-limitation is used.
27.8 Applicability. Except as otherwise provided, the provisions of
this Lease are applicable to and binding upon Landlord's and Tenant's respective
heirs, successors and assigns. Such provisions are also considered to be
covenants running with the land to the fullest extent permitted by law.
27.9 Authority. Tenant and the party executing this Lease on behalf of
Tenant represent to Landlord that such party is authorized to do so by requisite
action of Tenant and agree, upon request, to deliver Landlord a resolution or
similar document to that effect. Landlord and the party executing this Lease on
behalf of Landlord represent to Tenant that such party is authorized to do so by
requisite action of Landlord and agree, upon request, to deliver Tenant a
resolution or similar document to that effect.
27.10 Severability. If there is more than one party which is the
Tenant, the obligations imposed upon Tenant are joint and several.
27.11 Acceptance of Keys, Rent or Surrender. No act of Landlord or its
representatives during the Term, including any agreement to accept a surrender
of the Premises or amend this Lease, is binding on Landlord unless such act is
by a partner, member or officer of Landlord, as the case may be, or other party
designated in writing by Landlord as authorized to act. The delivery of keys to
Landlord or its representatives will not operate as a termination of this Lease
or a surrender of the Premises. No payment by Tenant of a lesser amount than the
entire Rent owing is other than on account of such Rent nor is any endorsement
or statement on any check or letter accompanying payment an accord and
satisfaction. Landlord may accept payment without prejudice to Landlord's right
to recover the balance or pursue any other remedy available to Landlord.
27.12 Building Name and Size. Landlord may as it relates to the
Building and Building Complex: change the name, increase the size by adding
additional real property, construct other buildings or improvements, change the
location and/or character, or make alterations or additions provided that such
changes shall not unreasonably interfere with Tenant's normal business office
operations and reasonable access is permitted to the Premises and parking
(subject to the provisions of Section 29). If additional buildings are
constructed or the size is increased, Landlord and Tenant shall execute an
amendment which incorporates any necessary
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modifications to Tenant's Pro Rata Share. Tenant may not use the Building's name
for any purpose other than as part of its business address.
27.13 Diminution of View. Tenant agrees that no diminution of light,
air, or view from the Building entitles Tenant to any reduction of Rent under
this Lease, results in any liability of Landlord, or in any way affects Tenant's
obligations.
27.14 Limitation of Liability. Notwithstanding anything to the contrary
contained in this Lease, Landlord's liability is limited to Landlord's interest
in the Building.
27.15 Non-Reliance. Tenant confirms it has not relied on any
statements, representations, or warranties by Landlord or its representatives
except as set forth herein.
27.16 Written Modification. No amendment or modification of this Lease
is valid or binding unless in writing and executed by the parties.
27.17 Lender's Requirements. Tenant will make such modifications to
this Lease as may hereafter be reasonably required to conform to any lender's
requirements, so long as such modifications do not increase Tenant's obligations
or materially alter its rights.
27.18 Effectiveness. Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option to lease and
it is not effective unless and until execution and delivery by both Landlord and
Tenant.
27.19 Survival. This Lease, notwithstanding expiration or termination,
continues in effect as to any provisions requiring observance or performance
subsequent to termination or expiration.
27.20 Time of Essence. Time is of the essence herein.
27.21 Rules and Regulations. If rules and regulations are attached
hereto, they are a part of this Lease and Tenant agrees that Tenant and Tenant's
Agents shall at all times abide by such rules and regulations.
27.22 Recording. Tenant will not record this Lease. Recording of the
Lease by or on behalf of Tenant is an Event of Default.
28. AUTHORITIES FOR ACTION AND NOTICE.
28.1 Unless otherwise provided, Landlord may act through Landlord's
Building Manager or other designated representatives from time to time.
28.2 All notices or other communications required or desired to be
given to Landlord must be in writing and shall be deemed received when delivered
personally to any officer, partner, or member of Landlord (depending upon the
nature of Landlord) or the manager of the Building (the "Building Manager")
whose office is in the Building, or when deposited in the United States mail,
postage prepaid, certified or registered, return receipt requested, addressed as
set forth in Section 1.11. All notices or communications required or desired to
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be given to Tenant shall be in writing and deemed duly served when delivered
personally to any officer, employee, partner, or member of Tenant (depending
upon the nature of Tenant), individually if a sole proprietorship, or manager of
Tenant whose office is in the Building, or when deposited in the United States
mail, postage prepaid, certified or registered, return receipt requested,
addressed to the appropriate address set forth in Section 1.12. Either party may
designate in writing served as above provided a different address to which
notice is to be mailed. The foregoing does not prohibit notice from being given
as provided in Rule 4 of Colorado Rules of Civil Procedure, as amended from time
to time.
29. PARKING. Landlord will make available the number of parking spaces set
forth in Section 1.9, in surface parking areas or covered parking areas,
respectively. All parking spaces shall be in and out, non-assigned parking
spaces in the designated areas for the respective spaces and Tenant shall pay
for all such spaces at the rates as provided below ("Parking Rate"). Tenant will
be billed monthly for all spaces. Notwithstanding the above, the right granted
to Tenant to use such spaces is a license only and Landlord's inability to make
such spaces available at any time for reasons beyond Landlord's reasonable
control is not a material breach by Landlord of its obligations hereunder and
Tenant has no rights to use the covered parking spaces except as provided in
this Section. The abatement of Tenant's obligation to pay for unavailable spaces
during any period of unavailability constitutes Tenant's sole remedy. If Tenant
fails to timely pay a parking bill within 5 business days after notice from
Landlord, Landlord shall have its right to exercise remedies for an Event of
Default under Section 20. All vehicles parked in the parking areas and the
personal property therein shall be at the sole risk of Tenant, Tenant's Agents
and the users of such spaces and Landlord shall have no liability for loss or
damage thereto for whatever cause. The monthly Parking Rate for the surface
spaces during the Initial Term is $0 (there being no obligation to pay any fee
for the use of such spaces) and the monthly Parking Rate for each covered
parking space during the Initial Term shall be as follows: $40 during Months 1
through 12; $50 during Months 13 through 24; and $60 during Months 25 through
60.
30. SUBSTITUTE PREMISES. [Section 30 intentionally deleted.]
31. BROKERAGE. Tenant represents it has not employed any broker with
respect to this Lease and has no knowledge of any broker's involvement in this
transaction except those listed in Sections 1.14 and 1.15 (collectively, the
"Brokers"). Tenant and Landlord shall each indemnify the other against any
expense incurred by other as a result of any claim for commissions or fees by
any other broker, finder, or agent, whether or not meritorious, employed by the
other or claiming by, through, or under the other, other than the Brokers.
Tenant acknowledges Landlord is not liable for any representations by the
Brokers regarding the Premises, Building, Building Complex, or this Lease.
32. COUNTERPARTS. This Lease may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. Any one or more counterpart signature
pages may be removed from one counterpart of the Lease and annexed to
counterpart of the Lease to form a completely another executed original
instrument without impairing the legal effect of the signature thereon.
33. ADDENDUM. See the Addendum attached hereto and incorporated herein.
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IN WITNESS WHEREOF, the parties have executed this Lease as of the day and
year first above written and it is effective upon delivery of a fully-executed
copy to Tenant.
VERIO INC., a Delaware corporation HIGHLAND PARK VENTURERS, LLC,
a Colorado limited liability company
By: /s/ Deb Gahan By: /s/ illegible
------------------------------------ ---------------------------------
Print Name: Deb Gahan Authorized Signatory
----------------------------
Print Title: Vice President
---------------------------
Finance and Administration
---------------------------
"Landlord"
ATTEST:
By:
----------------------------------
Print Name:
--------------------------
Print Title:
-------------------------
"Tenant"
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ADDENDUM
THIS ADDENDUM is to that certain lease agreement (the "Lease") by and
between HIGHLAND PARK VENTURERS, LLC, a Colorado limited liability company
("Landlord"), and VERIO INC., a Delaware corporation ("Tenant"), with respect to
approximately 33,300 rentable square feet of space (the "Premises") in the
building known as Waterview One. In the event of any conflict between the terms
and provisions of the Lease and the terms and provisions of this Addendum, the
terms and provisions of this Addendum shall control.
1. The Rentable Area, the Base Rent, Tenant's Pro Rata Share, the Allowance
(as referred to in the Work Letter) and the Parking Spaces are subject to
adjustment in accordance with the following provisions:
A. Landlord and Tenant agree that, upon completion of Landlord's
Drawings and the Final Drawings for the Premises, Landlord shall have Landlord's
Architect (as defined in the Work Letter) remeasure the Building and the
Premises to determine and certify to Landlord and Tenant the Rentable Area and
the rentable square footage of the Premises (in accordance with The Standard for
Measuring Floor Area of the Building Owners and Managers Association, ANSI/BOMA
Z65.1-1996) and, if such measurement differs from the square footages set forth
herein, the Rentable Area, the Base Rent, Tenant's Pro Rata Share, the Allowance
(as referred to in the Work Letter) and the Parking Spaces shall be revised to
reflect such calculation and such revised numbers shall be set forth in an
amendment to this Lease. The total number of parking spaces reflected in Section
1.9 being based on a ratio of 4.8 spaces per 1,000 rentable square feet with the
number of covered parking spaces is based on a ratio of 1 space per 5,425
rentable square feet and the remainder of parking spaces being uncovered surface
parking spaces; the foregoing ratios shall be used for recalculating the number
of parking spaces in the event of such remeasurement.
B. At the time the commencement agreement in the form attached as
EXHIBIT D is executed, such remeasurements and changes shall be included in the
commencement agreement.
2. Landlord grants Tenant a one-time right of first offer (the "Right of
First Offer") to lease approximately 5,600 rentable square feet of space located
on the first floor of the Building (the "Right of First Offer Space") as
depicted on EXHIBIT A-2 attached hereto on the following basis:
A. Tenant has 3 business days after being notified by Landlord of
Landlord's desire to deliver a proposal to a third party to lease all or any
portion of the Right of First Offer Space ("Landlord's Notice") within which to
notify Landlord of its election to exercise its Right of First Offer as to such
space. Landlord will determine the exact square footage of the Right of First
Offer Space in accordance with subparagraph E below at the time such space or
any portion thereof is offered to Tenant. Tenant must take all of the Right of
First Offer Space offered by Landlord (the "Offered Space") and may not elect to
lease only a portion thereof.
B. If Tenant does not timely notify Landlord, it will be conclusively
presumed that Tenant has waived its Right of First Offer as to the space set
forth in Landlord's
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Notice, Landlord shall be free to lease the Right of First Offer Space to anyone
whom it desires and Tenant will have no further rights to the Right of First
Offer Space; provided, however, that if Landlord does not enter into a binding
agreement to lease such space within 3 months following Landlord's Notice,
Tenant shall again have a Right of First Offer as to such space under this
provision.
C. During any period prior to the Commencement Date, Right of First
Offer Space will be offered to Tenant for a term coterminous with the Term and
upon all terms and provisions of the Lease. For periods on or after the
Commencement Date, Right of First Offer Space will be offered to Tenant for a
term coterminous with the Term on the terms that Landlord intends to include in
Landlord's proposal (as referred to in Paragraph A above) provided that any
allowances or monetary concessions may be prorated to the extent that the term
being proposed to such third party would be longer than a term coterminous with
the Term, but in no event shall the rental rate be less than the rental rate
that Tenant is paying for the Premises. Such provisions will include, among
other things, escalations and pass-throughs. Upon exercise of the Right of First
Offer, the Offered Space will be deemed added to the Premises and Tenant will
accept such space as may be provided in Landlord's Notice, subject to the
provisions set forth therein regarding any tenant finish allowance or completion
of tenant finish work. After exercise of the Right of First Offer, the parties
will execute an amendment to the Lease evidencing the addition of such space.
D. Tenant's right to exercise the Right of First Offer is conditioned
on: (i) Tenant not being in default under the Lease at the time it exercises the
Right of First Offer or on the date that Tenant's occupancy of the Offered Space
is scheduled to commence; (ii) Tenant not having vacated or subleased more than
25% of the Premises or assigned its interest in the Lease at the time it
exercises the Right of First Offer or on the date that Tenant's occupancy of the
Offered Space is scheduled to commence; and (iii) there being at least one year
remaining in the Term. This Right of First Offer is personal to Tenant and may
not be assigned. Upon an assignment of the Lease, this Paragraph is null and
void.
E. If Landlord has entered into lease negotiations with a third party
for space which is greater than but includes the Right of First Offer Space,
then to exercise the Right of First Offer, Tenant will be obligated to take all
space the third party would lease under such negotiations.
F. All notifications contemplated by this Paragraph, whether from Tenant
to Landlord, or from Landlord to Tenant, must be in writing and given in the
manner provided in this Lease.
G. Notwithstanding anything to the contrary set forth above, Landlord
has the right, at any time prior to offering the Right of First Offer Space to
Tenant, to substitute up to approximately 5,600 rentable square feet of space on
the 3rd floor of the Building in place of a like amount of the Right of First
Offer Space, so long as the total of the substituted space and the first floor
Right of First Offer Space being offered totals approximately 5,600 rentable
square feet. Upon receipt of notice from Landlord of such substitution
identifying the substituted space and the remaining unsubstituted Right of First
Offer Space on the first floor, such substituted space and the remaining
unsubstituted Right of First Offer Space on the first floor shall be
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<PAGE> 25
deemed the Right of First Offer Space under this Section (and the space for
which substitution has been made shall no longer be subject to Tenant's rights
under this Section).
3. In accordance with the Work Letter, as part of the Finish Work, Tenant
shall have the right to have signage as depicted on the attached EXHIBIT F
installed on a monument to be constructed by Landlord at Tenant's cost, subject
to approval by Landlord of the details for such monument and signage. Further,
the monument and Tenant's signage on the monument are subject to approval by
Arapahoe County and under the declaration of protective covenants applicable to
the Real Property. The monument is intended also for general building signage
and shall not be exclusively for Tenant's signage. The costs for the design,
fabrication and installation of such monument and Tenant's signage shall be
borne by Tenant (subject to the allowance provisions of the Work Letter);
provided, however, if Landlord elects to include any other tenants' names on
such monument sign, the costs of such monument sign shall be prorated between
Tenant and such other tenants and Tenant shall have a right to receive payment
for the costs prorated to such other tenants to the extent that Tenant has
already paid all costs for the monument signage. Tenant will bear the costs of
removal of any signage at the termination or expiration of the Lease, including
restoring or repairing damages to the monument caused by such removal to the
condition at the time of installation. Landlord shall have the right to remove
Tenant's name/signage from the monument in the event that Tenant subleases an
amount of space such that Tenant is occupying less than 25,000 rentable square
feet or if Tenant assigns the Lease (except in conjunction with a merger in
which Tenant is the surviving corporation). In addition, if Landlord is required
at any time to remove any signage, including any approved signage, due to any
Applicable Law which may now or hereafter exist or if Tenant elects to remove or
change the signage at any time, Tenant shall bear the costs and expenses of any
change or removal. Tenant will be responsible at its cost and expense to
maintain the signage in a condition acceptable to Landlord at Landlord's sole
discretion. Tenant shall not affix signage to the outside of the Building and no
signage shall be affixed to the inside of the Building without the approval of
Landlord, in Landlord's sole discretion. The rights granted to Tenant pursuant
to this Section are personal to Tenant and any assignees or subtenants of Tenant
have no rights under this Section.
4. Tenant shall provide to Landlord, at the time of execution hereof by
Tenant, a clean, unconditional, irrevocable letter of credit from a lending
institution reasonably acceptable to Landlord in the form attached hereto as
EXHIBIT G (the "Letter of Credit") as a guaranty and security for the
performance of Tenant's obligations under this Lease on the following terms and
conditions:
A. It is understood and agreed that the Letter of Credit, or a
renewal or substitute therefor approved by Landlord, shall be kept in effect
from the date of execution of this Lease through the Initial Term of the Lease.
The initial Letter of Credit shall be in the amount of $1,148,850.00. The Letter
of Credit amount shall be redetermined in the event of remeasurement of the
Premises in accordance with Paragraph 1 of the Addendum or addition of space in
accordance with Paragraph 2 of this Addendum, which amount shall equal the
product of multiplying the rentable square footage of the Premises by $34.50
(such readjusted total is hereinafter referred to an the "LC Maximum"). If the
LC Maximum, as determined as a result of such readjustment, is more than
$1,148,850.00, Tenant shall deliver to Landlord a replacement or amended Letter
of Credit in the amount of the LC Maximum within ten (10) business days of
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<PAGE> 26
receipt of notice from Landlord of such remeasurement; if the LC Maximum is less
than $1,148,850.00, Tenant shall have a right to deliver a replacement or
amended Letter of Credit in the reduced amount of the LC Maximum. So long as no
Event of Default has occurred under the Lease, the LC Maximum and the amount of
any substitute or renewal Letter of Credit to be provided by Tenant hereunder
shall decline by 1/60th of the LC Maximum effective as of the first day of each
month commencing with the second full month of the Initial Term. If the Letter
of Credit would otherwise expire prior to the expiration of the Term of the
Lease, Tenant shall present Landlord with an extension or renewal of the initial
Letter of Credit, or a substitute Letter of Credit in the same form as EXHIBIT
G, no later than ten (10) business days prior to the expiration date of such
initial Letter of Credit, from a lending institution subject to Landlord's
reasonable approval; such extension, renewal or substitute Letter of Credit
shall be effective no later than the day prior to the expiration of the initial
Letter of Credit and shall continue in effect for not less than six months
through the Term of the Lease and shall be in the amount provided above. Tenant
agrees that in an Event of Default by Tenant (as defined in Section 20),
Landlord shall have a right to present the Letter of Credit (or the renewal,
extension or substitute) for payment, with amounts received to be held and
applied in accordance with subparagraph B below. Any failure of Tenant to
provide Landlord with an extension, renewal or substitute Letter of Credit, as
required hereunder, shall be deemed an Event of Default under the Lease and
Landlord shall have a right to present the Letter of Credit in accordance with
the foregoing provision; if following such presentment Tenant obtains a
substitute Letter of Credit meeting the requirements of this Paragraph and there
is no Event of Default (other than Tenant's failure to provide the renewal or
substitute Letter of Credit which resulted in such presentment) and Landlord has
not already applied the amounts received under the presented Letter of Credit to
cure an Event of Default, Landlord shall return such funds upon Landlord's
receipt of such substitute Letter of Credit. If the Letter of Credit has not
been presented for payment in accordance with this Section on or before the end
of the Term of the Lease, Landlord shall return the Letter of Credit to Tenant
within thirty (30) days after the expiration of the Term of the Lease. The
Letter of Credit shall be transferable and assignable to any person or entity
who or which is the successor or assignee of Landlord's interest under the Lease
and Tenant shall cooperate in effecting any such transfer or assignment from
time to time, including obtaining a substitute Letter of Credit (at Landlord's
cost and expense), if the existing Letter of Credit is not capable of further
transfer or assignment. Landlord shall give written notice to Tenant of transfer
of Landlord's interest resulting in transfer of the Letter of Credit. Landlord
shall deliver the then-current effective Letter of Credit to Tenant upon receipt
of any conforming renewal or substitute Letter of Credit provided in accordance
with this Paragraph and cooperate with the issuing bank to effect the release of
such then-current effective Letter of Credit. Landlord hereby approves Norwest
Bank Colorado, N.A. as the issuing lender for the initial Letter of Credit.
B. If an Event of Default occurs or this Lease is terminated
pursuant to Section 20, Landlord may use, apply or retain all or any portion of
the amounts received under the Letter of Credit, if any, for the payment of any
rent or other charge in default or for the payment of any other sum to which
Landlord may become obligated by reason of Tenant's default, or to compensate
Landlord for any loss or damage which Landlord may suffer thereby in accordance
with Section 20 of the Lease. By the later of 60 days following the later of the
expiration of the Lease or Tenant's vacation of the Premises, any amounts drawn
upon the Letter of Credit that are not applied for payment of amounts in
accordance with the foregoing provision
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<PAGE> 27
shall be returned to Tenant, without payment of interest. Neither the Letter of
Credit nor the amounts received under the Letter of Credit shall be deemed a
security deposit under the Lease.
C. Landlord and Tenant agree that the annual fees charged by the lending
institution issuing the Letter of Credit (or any renewal, extension, or
substitute therefor) shall be paid by Tenant.
5. Landlord grants Tenant an option (the "Option") to extend the term of
the Lease for one (1) additional term of five (5) years (the "Option Term"). The
Option applies only to the Premises (including the Right of Offer Space if
leased by Tenant pursuant to paragraph 2 above) and is on the following
conditions:
A. Notice of Tenant's interest in exercising the Option must be given to
Landlord no earlier than 14 months and no later than 12 months prior to the
Expiration Date ("Tenant's Notice"). Not later than thirty (30) days after
receiving Tenant's Notice, Landlord will notify Tenant of the Base Rent
applicable during the Option Term in accordance with subparagraph E below
("Landlord's Notice").
B. Tenant has 15 days after receipt of Landlord's Notice to exercise the
Option by delivering notice of exercise to Landlord. If Tenant timely exercises
the Option, the Term will be deemed extended on the terms of this Section and
the parties will execute an amendment evidencing the extension.
C. Unless Landlord is timely notified by Tenant in accordance with
subparagraphs A and B above, it will be conclusively deemed that Tenant has not
exercised the Option and the Lease will expire in accordance with its terms on
the Expiration Date.
D. Tenant's rights pursuant to this Paragraph are personal to Tenant and
may not be assigned. Tenant's right to exercise the Option is conditioned on:
(i) Tenant not being in default at the time of exercise or at the time of
commencement of the Option Term; and (ii) Tenant not having subleased or vacated
more than 25% of the Premises or assigned its interest under the Lease as of the
commencement of the Option Term. Upon an assignment of the Lease, this Paragraph
is null and void.
E. The Option granted hereunder will be upon the terms of the Lease,
except that the Base Rent during the Option Term will be the rate that Landlord
would quote to third parties for space in the Building comparable to the
Premises if such space were available for leasing for a lease term paralleling
the Option Term, but in no event will the Base Rent be less than the Rent in
effect immediately prior to commencement of the Option Term.
F. After exercise or failure to exercise the Option, Tenant shall have
no further rights to extend the Term.
6. If requested by Tenant and subject to approval under Applicable Laws and
the Declaration, Landlord agrees to enter into a license agreement with Tenant
on Landlord's standard form license agreement to grant Tenant a non-exclusive,
revocable license for the term of the Lease, for the purpose of installing,
maintaining and operating two (2) non-penetrating microwave dishes, not to
exceed 18 inches in circumference (the "Dish") on a portion of the roof
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<PAGE> 28
of the Building ("Roof"), the actual location to be designated by Licensor, in
Licensor's sole discretion ("Roof Space"). Licensee will not use the Roof Space
for any purpose other than operation of a microwave dish.
IN WITNESS WHEREOF, the parties hereto execute this Addendum.
VERIO INC., a Delaware corporation HIGHLAND PARK VENTURERS, LLC,
a Colorado limited liability company
By: /s/ Deb Gahan
------------------------------------
Print Name: Deb Gahan By: /s/ illegible
---------------------------- --------------------------------
Print Title: Vice President Authorized Signatory
---------------------------
Finance and Administration
---------------------------
ATTEST: "Landlord"
By:
---------------------------------
Print Name:
-------------------------
Print Title:
------------------------
"Tenant"
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<PAGE> 29
EXHIBIT A-1 TO LEASE
THE PREMISES
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<PAGE> 30
EXHIBIT B TO LEASE
REAL PROPERTY
Lot 1, Block 4,
Highland Park, 2nd Amendment
County of Arapahoe
State of Colorado.
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EXHIBIT C TO LEASE
OPERATING EXPENSES
6.1 Definitions. The additional terms below have the following meanings in
this Lease:
(1) "Base Operating Expenses" means an amount equal to the Operating
Expenses for the calendar year set forth in Section 1.5, as determined by
Landlord in accordance with this Exhibit C. Tenant acknowledges Landlord has not
made any representations or warranties that the Base Operating Expenses will
equal any specified amounts (any estimates provided by Landlord are non-binding
estimates only).
(2) "Landlord's Accountants" means that individual or firm employed by
Landlord from time to time to keep the books and records for the Building
Complex, and/or to prepare the federal and state income tax returns for Landlord
with respect to the Building Complex, which books and records shall be certified
to by a representative of Landlord. All determinations made hereunder shall be
made by Landlord's Accountants unless otherwise stated.
(3) "Rentable Area" means 97,598 rentable square feet of space. If
there is a significant change in the aggregate Rentable Area as a result of an
addition, partial destruction, modification to building design, or similar cause
which causes a reduction or increase in the Rentable Area on a permanent basis
or, if Landlord remeasures the Building and a change in Rentable Area occurs (in
accordance with the Addendum), Landlord's Accountants shall make such
adjustments in the computations as are necessary to provide for such change.
(4) "Tenant's Pro Rata Share" means the percentage set forth in
Section 1.5. If Tenant, at any time during the Term, leases additional space in
the Building or if the Rentable Area is adjusted, Tenant's Pro Rata Share shall
be recomputed by dividing the total rentable square footage of space then leased
by Tenant (including any additional space) by the Rentable Area and the
resulting figure shall become Tenant's Pro Rata Share.
(5) "Operating Expense Year" means each calendar year during the Term,
except that the first Operating Expense Year begins on the Commencement Date and
ends on December 31 of such year and the last Operating Expense Year begins on
January 1 of the calendar year in which this Lease expires or is terminated and
ends on the date of such expiration or termination. If an Operating Expense Year
is less than twelve (12) months, Operating Expenses for such year shall be
prorated.
(6) "Operating Expenses" means all operating expenses of any kind or
nature which are in Landlord's reasonable judgment necessary, appropriate, or
customarily incurred in connection with the operation and maintenance of the
Building Complex. Operating Expenses include:
(a) All real property taxes and assessments levied against the
Building Complex by any governmental or quasi-governmental authority,
including taxes,
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assessments, surcharges, or service or other fees of a nature not presently in
effect which are hereafter levied on the Building Complex as a result of the
use, ownership or operation of the Building Complex or for any other reason,
whether in lieu of or in addition to, any current real estate taxes and
assessments. However, any taxes which are levied on the rent of the Building
Complex will be determined as if the Building Complex were Landlord's only
real property. In no event do taxes and assessments include any federal or
state income taxes levied or assessed on Landlord. Expenses for tax
consultants to contest taxes or assessments are also included as Operating
Expenses (all of the foregoing are collectively referred to herein as
"Taxes"). Taxes also include special assessments, license taxes, business
license fees, business license taxes, commercial rental taxes, levies,
charges, penalties or taxes, imposed by any authority against the Premises,
Building Complex or any legal or equitable interest of Landlord. Special
assessments are deemed payable in such number of installments permitted by
law, whether or not actually so paid, and include any applicable interest on
such installments. Taxes (other than special assessments) are computed on an
accrual basis based on the year in which they are levied, even though not paid
until the following Operating Expense Year. For purposes of calculating Base
Operating Expenses hereunder, the Taxes for the Base Year shall be deemed to
be $1.80 per rentable square foot (without further adjustment under this
Exhibit for Building occupancy or status of completion);
(b) Costs of supplies, including costs of relamping and replacing
ballasts in all Building standard tenant lighting;
(c) Costs of energy for the Building Complex, including costs of
propane, butane, natural gas, steam, electricity, solar energy and fuel oils,
coal or any other energy sources;
(d) Costs of water and sanitary and storm drainage services;
(e) Costs of janitorial and security services;
(f) Costs of general maintenance, repairs, and replacements
including costs under HVAC and other mechanical maintenance contracts; and
repairs and replacements of equipment used in maintenance and repair work;
(g) Costs of maintenance, repair and replacement of landscaping,
and assessments and expenses under the declaration of protective covenants;
(h) Insurance premiums for the Building Complex, including
all-risk or multi-peril coverage, together with loss of rent endorsement; the
part of any claim paid under the deductible portion of any insurance policy
carried by Landlord; public liability insurance; and any other insurance
carried by Landlord on any component parts of the Building Complex;
(i) All labor costs, including wages, costs of worker's
compensation insurance, payroll taxes, fringe benefits, including pension,
profit-sharing and health, and legal fees and other costs incurred in
resolving any labor dispute;
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(j) Professional building management fees, costs and expenses,
including costs of office space and storage space required by management for
performance of its services;
(k) Legal, accounting, inspection, and other consulting fees
(including fees for consultants for services designed to produce a reduction
in Operating Expenses or improve the operation, maintenance or state of repair
of the Building Complex);
(l) Costs of capital improvements and structural repairs and
replacements to the Building Complex to conform to changes subsequent to the
date of issuance of the shell and core certificate of occupancy for the
Building in any Applicable Laws (herein "Required Capital Improvements"); and
the costs of any capital improvements and structural repairs and replacements
designed primarily to reduce Operating Expenses (herein "Cost Savings
Improvements"). Expenditures for Required Capital Improvements and Cost
Savings Improvements will be amortized at a market rate of interest over the
useful life of such capital improvement (as determined by Landlord's
Accountants); however, the amortized amount of any Cost Savings Improvement in
any year will be equal to the estimated resulting reduction in Operating
Expenses; and
(m) Costs incurred for Landlord's Accountants including costs of
any experts and consultants engaged to assist in making the computations;
"Operating Expenses" do not include:
(i) Costs of work, including painting and decorating, which
Landlord performs for any tenant other than work of a kind and scope which
Landlord is obligated to furnish to all tenants, including Tenant, without
further (other than as an Operating Expense) or separate charge;
(ii) Costs of repairs or other work occasioned by fire,
windstorm or other insured casualty to the extent of insurance proceeds
received;
(iii) Leasing commissions, advertising expenses, and other
costs incurred in leasing space in the Building;
(iv) Costs of repairs or rebuilding necessitated by
condemnation;
(v) Interest on borrowed money or debt amortization, except
as specifically set forth above;
(vi) Depreciation on the Building Complex;
(vii) Costs of a capital nature as determined all in
accordance with generally-accepted accounting principles consistently applied,
except as provided in subsection (1) above;
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(viii) Repair and replacement for which Landlord is
reimbursed by insurers or that are covered under warranties, including
warranties applicable to the initial construction of the Building;
(ix) Attorneys' fees, costs and disbursements and other
expenses incurred in connection with negotiations or disputes with tenants;
(x) Costs incurred due to the violation by Landlord or any
tenant of the terms and conditions of any lease or agreement pertaining to the
Building or of any Applicable law or incurred due to the Building being in
violation of any such Applicable Law, except as provided in subsection (1)
above;
(xi) Amounts paid to affiliates of Landlord for services on
or to the Building, to the extent that such amounts exceed competitive costs
for such services rendered by persons or entities of similar skill, competence
and experience;
(xii) Costs of Landlord's general administrative and
accounting expenses that would not be chargeable to operating expenses of the
Building in accordance with generally-accepted accounting principles,
consistently applied;
(xiii) Ground lease rental;
(xiv) Costs arising from or related to, in, on or about the
Building or the Real Property of any substance which may be deemed an
infectious waste or hazardous substance under any Applicable Laws, except as
provided in subsection (1) above; and
(xv) Expenses in connection with services or other benefits
which are not offered to Tenant, or for which Tenant is charged directly
(other than as Operating Expenses), but which are provided to another tenant
or occupant of the Building, or for which Landlord is reimbursed as separate
charge by another occupant or tenant.
If any lease entered into by Landlord with any tenant in the Building is on a
so-called "net" basis, or provides for a separate basis of computation for any
Operating Expenses with respect to its leased premises, Landlord's Accountants
may modify the computation of Base Operating Expenses, Rentable Area, and
Operating Expenses for a particular Operating Expense Year to eliminate or
modify any expenses which are paid for in whole or in part by such tenant. If
the Rentable Area is not fully occupied during any particular Operating Expense
Year, Landlord's Accountants may adjust those Operating Expenses which are
affected by occupancy for the particular Operating Expense Year to reflect 100%
occupancy; if the Rentable Area is not fully occupied during the Base Year,
Landlord's Accountants shall make such adjustment to reflect 100% occupancy in
determining the Operating Expenses for the Base Year. Furthermore, in making any
computations contemplated hereby, Landlord's Accountants may make such other
modifications to the computations as are required in their judgment to achieve
the intention of the parties hereto.
6.2 Additional Payment. If any increase occurs in Operating Expenses for
any Operating Expense Year during the Term in excess of the Base Operating
Expenses, Tenant shall
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<PAGE> 35
pay Landlord Tenant's Pro Rata Share of the amount of such increase (less
Estimated Payments, if any, previously made by Tenant for such year).
6.3 Estimated Payments. During each Operating Expense Year beginning with
the first month of the second Operating Expense Year and continuing each month
thereafter throughout the Term, Tenant shall pay Landlord, at the same time as
Base Rent is paid, an amount equal to 1/12 of Landlord's estimate of Tenant's
Pro Rata Share of any projected increases in Operating Expenses for the
particular Operating Expense Year in excess of Base Operating Expenses, taking
into account the credit for Taxes, if any, applicable under Section 6.4(1) below
("Estimated Payment").
6.4 Annual Adjustments.
(1) Within 120 days following the end of each Operating Expense Year
(subject to extension as may be reasonably required in making such
calculations), including the first Operating Expense Year, Landlord shall submit
to Tenant a statement setting forth the exact amount of Tenant's Pro Rata Share
of the increase, if any, of the Operating Expenses for the Operating Expense
Year just completed over the Base Operating Expenses. Beginning with the
statement for each Operating Expense Year, each statement shall set forth the
difference, if any between Tenant's actual Pro Rata Share of the increase in
Operating Expenses for the Operating Expense Year just completed and the
estimated amount for such Operating Expense Year. Each statement shall also set
forth the projected increase, if any, in Operating Expenses for the new
Operating Expense Year over Base Operating Expenses and the corresponding
increase or decrease in Tenant's monthly Rent for such new Operating Expense
Year above or below the Rent paid by Tenant for the immediately preceding
Operating Expense Year. If the actual Taxes payable for 1998 are determined to
be less than $1.80 per rentable square foot (without adjustment for Building
occupancy or status of completion), Tenant shall have a right to receive a
credit from Landlord (against the Rent next to be paid following receipt of the
statement for the first Operating Expense Year) equal to such difference
multiplied by the rentable square footage of the Premises (prorated in
accordance with Paragraph 6.1(5) above if the first Operating Expense Year is
less than 12 months). Further, Tenant shall have a right to receive a similar
per rentable square foot credit annually thereafter against the Rent next to be
paid following the receipt of the statement for each Operating Expense Year or
against amounts, if any, to be paid under such statement (prorated in accordance
with Paragraph 6.1(5) above in the last Operating Expense Year if it is less
than 12 months). For example, assuming the first Operating Expense Year is 1998,
if the actual Taxes for 1998 are $1.75 per rentable square foot, then Tenant
shall have no obligation to make a payment for increases in Operating Expenses
under this provision for such Operating Expense Year but Tenant shall receive a
credit based on $0.05 per rentable square foot (prorated in accordance with
Paragraph 6.1(5) above), which credit shall also be given in subsequent
Operating Expense Years; if the actual Taxes for 1998 are $1.85 per rentable
square foot, Tenant shall pay $0.05 per rentable square foot (prorated in
accordance with Paragraph 6.1(5) above for the period, if applicable) as its Pro
Rata Share of increases in Operating Expenses for such Operating Expense Year
and no Taxes credit shall be given for that year or thereafter.
(2) To the extent that Tenant's Pro Rata Share of the increase in
Operating Expenses for the period covered by a statement is different from the
Estimated Payment during
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<PAGE> 36
the Operating Expense Year just completed, Tenant shall pay Landlord the
difference within 30 days following receipt by Tenant of the statement or
receive a credit against the next due Rent, as the case may be. Until Tenant
receives a statement, Tenant's Estimated Payment for the new Operating Expense
Year shall continue to be paid at the prior Estimated Payment, but Tenant shall
commence payment of Rent based on the new Estimated Payment beginning on the
first day of the month following the month in which Tenant receives the
statement. Tenant shall also pay Landlord or deduct from the Rent, as the case
may be, on the date required for the first payment, as adjusted, the difference,
if any, between the Estimated Payment for the new Operating Expense Year set
forth in the statement and the Estimated Payment actually paid during the new
Operating Expense Year. If, during any Operating Expense Year, there is a change
in the information on which Tenant is then making its Estimated Payments so that
the prior estimate is no longer accurate, Landlord may revise the estimate and
there shall be such adjustments made in the monthly Rent on the first day of the
month following notice to Tenant as shall be necessary by either increasing or
decreasing, as the case may be, the amount of monthly Rent then being paid by
Tenant for the balance of the Operating Expense Year.
6.5 Miscellaneous. In no event will any decrease in Rent pursuant to any
provision hereof result in a reduction of Rent below the Base Rent. Delay by
Landlord in submitting any statement for any Operating Expense Year does not
affect the provisions of this Section or constitute a waiver of Landlord's
rights for such Operating Expense Year or any subsequent Operating Expense
Years.
6.6 Dispute. If Tenant disputes an adjustment submitted by Landlord or a
proposed increase or decrease in the Estimated Payment, Tenant shall give
Landlord notice of such dispute within 30 days after Tenant's receipt of the
adjustment. If Tenant does not give Landlord timely notice, Tenant waives its
right to dispute the particular adjustment. If Tenant timely objects, Tenant may
engage its own certified public accountants ("Tenant's Accountants") to verify
the accuracy of the statement complained of or the reasonableness of the
estimated increase or decrease. If Tenant's Accountants determine that an error
has been made, Landlord's Accountants and Tenant's Accountants shall endeavor to
agree upon the matter, failing which such matter shall be submitted to an
independent certified public accountant selected by Landlord with Tenant's
reasonable approval, for a determination which will be conclusive and binding
upon Landlord and Tenant. All costs incurred by Tenant for Tenant's Accountants
shall be paid for by Tenant unless Tenant's Accountants disclose an error,
acknowledged by Landlord's Accountants (or found to have occurred through the
above independent determination), of more than 25% in the computation of the
total amount of Operating Expenses, in which event Landlord shall pay the
reasonable costs incurred by Tenant to obtain such audit. Notwithstanding the
pendency of any dispute, Tenant shall continue to pay Landlord the amount of the
Estimated Payment or adjustment determined by Landlord's Accountants until the
adjustment has been determined to be incorrect. If it is determined that any
portion of the Operating Expenses were not properly chargeable to Tenant, then
Landlord shall promptly credit or refund the appropriate sum to Tenant and the
Estimated Payments shall be adjusted, if required.
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EXHIBIT D TO LEASE
COMMENCEMENT CERTIFICATE
____________________, 19__
VERIO INC., a Delaware corporation
- ----------------------------
- ----------------------------
- ----------------------------
RE: Lease dated as of the June 20, 1997 (the "Lease"), by and between
HIGHLAND PARK VENTURERS, LLC, a Colorado limited liability company, as
Landlord, and VERIO INC., a Delaware corporation, as Tenant
Dear Tenant:
With regard to the referenced Lease, Landlord and Tenant acknowledge the
following (initially capitalized words not otherwise defined have the same
meaning set forth in the Lease):
1. In accordance with Section 5 of the Lease, the Commencement Date is
12:01 a.m., ________________, the Initial Term commenced _____________________,
and the Expiration Date is 12:00 midnight, _________.
2. [In accordance with Paragraph 1 of the Addendum, Landlord and Tenant
agree that the rentable square footage of the Premises and the Rentable Area of
the Building have been remeasured and, based on such remeasurement, the terms
set forth in Section 1 of the Lease are amended as follows:
1.2 "PREMISES" approximately ________ rentable square feet
1.4 "BASE RENT":
<TABLE>
<CAPTION>
Annual Per Rentable
Period Square Foot Rate Monthly
------ ------------------- -------
<S> <C> <C>
Months 1-36 $21.85 $_____________
Months 37-60 $22.00 $_____________
</TABLE>
1.4 "OPERATING EXPENSES" Base Year: 1998
Pro Rata Share: ____%
1.6 "DEPOSIT": $____________________
1.9 PARKING: ____ surface spaces
____ covered spaces
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Addendum: LETTER OF CREDIT: $__________________
Work Letter ALLOWANCE: $__________________]
Please acknowledge the foregoing by having an authorized officer sign in the
space provided below and return to our office. This document may be executed in
counterparts, each of which shall constitute the original.
Facsimile signatures shall be binding as original signatures.
HIGHLAND PARK VENTURERS, LLC, a
Colorado limited liability company
By:
------------------------------------------
Authorized Signatory
"Landlord"
ACKNOWLEDGED AND AGREED this ___ day
of ______________________:
VERIO INC., a Delaware corporation
By:
-----------------------------------
Print Name:
---------------------------
Print Title:
-------------------------
ATTEST:
By:
-----------------------------------
Print Name:
--------------------------
Print Title:
-------------------------
"Tenant"
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EXHIBIT E TO LEASE
RULES AND REGULATIONS
1. The Landlord may refuse admission to the Building outside of ordinary
business hours to any person not known or not properly identified and may
require all persons admitted to or leaving the Building outside of ordinary
business hours to register. Any person whose presence in the Building at any
time shall, in the judgment of the Landlord, be prejudicial to the safety,
character, reputation and interests of the Building or its Tenants may be denied
access to the Building or may be ejected therefrom. In case of invasion, riot,
public excitement or other commotion, the Landlord may prevent all access to the
Building during the continuance of the same, by closing the doors or otherwise,
for the safety of the Tenants, the Building and protection of property in the
Building. The Landlord may require any person leaving the Building with any
package or other object to exhibit a pass from the Tenant from whose Premises
the package or object is being removed, but the establishment and enforcement of
such requirement shall not impose any responsibility on the Landlord for the
protection of any Tenant against the removal of property from the Premises or
the Tenant. The Landlord shall in no way be liable to any Tenant for damages or
loss arising from the admission, exclusion or election of any person to or from
the Tenant's Premises or the Building under the provisions of this rule.
2. Landlord reserves the right to exclude or expel from the Building any
person who in the judgment of Landlord is intoxicated or under the influence of
liquor or drugs or who shall in any manner do any act in violation of these
Rules and Regulations.
3. Tenants shall not sell or permit the sale at retail or wholesale, of
newspapers, magazines, periodicals or theater tickets in or from their Premises,
nor shall Tenants carry on or permit or allow any employee or other person to
carry on the business of stenography, typewriting, telephone answering service,
or any similar business in or from their Premises for the service or
accommodation of the occupants of any other portion of the Building, or the
business of a barber shop, beauty shop, tobacco or pipe shop, liquor store,
employment bureau. or a manicuring or chiropodist business, except with the
prior written approval of Landlord. Tenants shall not occupy or permit any
portion of their Premises to be occupied as an office or facility for the
possession, storage, manufacture or sale of narcotics of any form or kind,
without the prior written approval of Landlord.
4. Tenant shall not manufacture any commodity or prepare or dispense any
foods or beverages in their Premises, other than that prepared by employees of
Tenant, using microwave ovens and coffee makers for their own consumption, so
long as food odors are not allowed to escape from the Premises, or use the same
as sleeping apartments, unless the Premises are expressly leased for such
purposes.
5. Tenants shall not conduct directly or indirectly any auction upon their
Premises, or permit any other person to conduct an auction upon the Premises.
Tenants are not to conduct malodorous activities in or about their Premises or
the Building. Tenants will not permit gambling to be conducted in or upon their
Premises.
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6. No noise, including the playing of any musical instruments, radio or
television, which, in the judgment of the Landlord, might disturb other Tenants
in the Building, shall be made or permitted by any Tenants, and no cooking shall
be done in their Premises or the Building except as expressly approved by
Landlord. If cooking is permitted by Landlord, Tenant shall not permit any
cooking or food odors emanating within the Building to seep into other portions
of the Building. All electrical equipment used by Tenants shall be U.L.
approved. Nothing shall be done or permitted in Tenant's Premises, and nothing
shall be brought into or kept in the Premises which would impair or interfere
with any of the Building services or the proper and economic heating, cooling,
cleaning or other servicing of the Building or the Premises or the use or
enjoyment by any other Tenant within the Building, nor shall there be installed
by Tenants any ventilating, air-conditioning, electrical or other equipment of
any kind, which, in the judgment of the Landlord, might cause any such
impairment or interference.
7. Tenants shall not install or operate any steam or gas engine or boiler,
or carry on any mechanical business, in the Building. The use of oil, gas or
inflammable liquids for heating, lighting or any other purpose is expressly
prohibited. Explosives or other articles deemed extra hazardous shall not be
brought into the Building. Tenants shall not use any other method of heating
than that supplied by the Landlord.
8. Tenants shall give Landlord prompt notice of all accidents to or defects
in air-conditioning equipment, plumbing, electric facilities or any part or
appurtenance of their Premises.
9. Tenants shall not cause unnecessary labor by reason of carelessness and
indifference to the preservation of good order and cleanliness in their Premises
and in the Building. Waste and unnecessary use of electricity and other
utilities is prohibited.
10. Tenants shall use electric, gas and any other form of energy only from
such sources of supply as is furnished in the Building.
11. All deliveries to the Building for or by any Tenant are to be made
through the service entrance to Building as designated by Landlord, unless
special permission is granted by Landlord for the use of other Building
entrances. The Landlord reserves the right to inspect all freight to be brought
into the Building and to exclude from the Building all freight which violates
any of these Rules and Regulations or the lease of which these Rules and
Regulations are a part. Landlord further reserves the right to change the
Building entrance to be utilized for deliveries.
12. Furniture, equipment or supplies shall be moved in or out of the
Building only upon the elevator designated by Landlord and then only during such
hours and in such manner as may be prescribed by Landlord. Landlord shall have
the absolute right to approve or disapprove the movers or moving company
employed by Tenants and Tenants shall cause said movers to use only the loading
facilities and elevator designated by Landlord. Movers will be required to
adhere to the current moving rules and regulations (to be distributed upon
Tenant's request for mover's approval).
13. If any Tenant desires to place in the Building any unusually heavy
equipment, including large files, safes and electronic data processing
equipment, it shall first obtain written
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approval of Landlord for such placement within the Building including the
location, and for the use of the Building elevators. The Landlord shall have the
power to prescribe the weight and position of any equipment that may exceed the
weight load limits for the building structure, and may further require, at the
Tenant's expense, the reinforcement of any flooring on which such equipment may
be placed, and/or to have an engineering study performed to determine such
weight and position of equipment, to determine added reinforcement required,
and/or determine whether or not such equipment can be safely placed within the
Building. Landlord shall not be responsible for the loss of or damage to such
furniture or equipment from any cause. There shall not be used in any space, or
in the public halls of the Building, either by Tenants or by jobbers or others,
in the delivery or receipt of merchandise, any hand trucks, except those
equipped with rubber tires and side guards.
14. Tenants shall not place additional locks or bolts of any kind upon any
of the doors or windows of their Premises and no lock on any door therein shall
be changed or altered in any respect. Duplicate keys for Tenant's Premises and
toilet rooms (if applicable) shall be procured only from Landlord, which may
make a reasonable charge therefor. Upon the termination of a Tenant's lease, all
keys of the Premises shall be delivered to the Landlord.
15. At the option of the Landlord the workmen of the Landlord must be
employed by Tenants for repairs, remodeling, renovation, lettering, interior
moving of furniture and equipment, and other similar work that may be done on or
in their Premises, such work being performed by Landlord or Landlord's
contractors at Tenant's expense, including a reasonable mark-up, not to exceed
5%, for Landlord's overhead expense and profit for work or service performed.
16. Tenants shall permit the janitor of the Landlord to clean their
Premises. Landlord will not be responsible for lost or stolen personal property,
equipment, money or any article taken from the Premises or Building, regardless
of how or when loss occurs.
17. In the event Tenant must dispose of crates, boxes, etc., which will not
fit into office wastepaper baskets, it will be the responsibility of the Tenant
to dispose of same. In no event shall Tenants leave any refuse in the public
hallways or other areas of the Building (excepting Tenant's own Premises) for
disposal.
18. Tenants shall not place showcases or other articles in front of or
affixed to any part of the exterior of the Building, nor placed in the hall,
corridors or vestibules without the prior written consent of the Landlord.
19. Landlord may prohibit any advertising by Tenants which, in Landlord's
opinion, tends to impair the reputation of the Building. Upon written notice
from the Landlord, Tenant shall refrain from or discontinue such advertising.
20. If a Tenant employs laborers or others outside of the Building, such
Tenant shall not have its employees paid in the Building, but shall arrange to
pay their payrolls elsewhere. Tenant shall not advertise for laborers, giving an
address at the Building.
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21. Bicycles or other vehicles shall not be permitted in the offices,
halls, stairwells, corridors, lobbies, public walkways, and elevators of the
Building, nor shall any obstruction of sidewalks or entrances of the Building by
such be permitted.
22. The sidewalks, entries, passages, elevators and staircases shall not be
obstructed or used by Tenants, their servants, agents or visitors for any other
purpose than ingress and egress to and from the respective offices.
23. Canvassing, soliciting and peddling in the Building are prohibited and
Tenants shall cooperate to prevent the same.
24. No animals, birds, or pets of any kind, excluding seeing eye dogs,
shall be allowed in Tenant's Premises or Building.
25. The water closets, urinals, waste lines, vents or flues of the Building
shall not be used for any purpose other than those for which they were
constructed, and no rubbish, acids, vapors, newspapers or other such substances
of any kind shall be thrown into them. The expense caused by any breakage,
stoppage or damage resulting from a violation of this rule by any Tenant, its
employees, visitors, guests or licensees, shall be paid by Tenant.
26. All contractors and/or technicians performing work for Tenants within
the Building shall be referred to Landlord for approval before performing such
work. This shall apply to all work including but not limited to, installation of
telephone or telegraph equipment, electrical devices and attachments, and all
installations affecting floors, walls, windows, doors, ceilings, equipment or
any other physical feature of the Building. None of this work shall be done by
Tenants without Landlord's prior written approval, which approval shall not be
unreasonably withheld or delayed.
27. If any Tenant desires radio signal, communication, alarm or other
utility or service connection installed or changed, such work shall be done at
the expense of Tenant, with the prior written approval (which approval shall not
be unreasonably withheld or delayed) and under the direction of Landlord. No
wiring shall be installed in any part of the Building without Landlord's
approval and direction. Landlord reserves the right to disconnect any radio,
signal or alarm system when, in Landlord's opinion, such installation or
apparatus interferes with the proper operation of the Building or systems within
the Building.
28. Except as permitted by Landlord, Tenant shall not mark upon, paint
signs upon, cut, drill into, drive nails or screws into, or in any way deface
the walls, ceilings, partitions or floors of the Premises except in connection
with the installation of Tenant's equipment and furniture and except for hanging
pictures and other wall hangers, or the Building, and the repair cost of any
damage caused by any Tenant or Tenant's Agents shall be paid for by Tenant.
29. All glass, lighting fixtures, locks and trimmings in or upon the doors
and windows of the Tenant's Premises shall be kept whole and whenever any part
thereof shall be broken through cause attributable to any Tenant, its agents,
guests or employees, the same shall immediately be replaced or repaired at
Tenant's expense, and put in order under the direction and to the satisfaction
of Landlord and shall be left whole or in good repair, together with the same
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number and kind of keys as may be received by Tenants on entering upon
possession of any part of said Building or during the tenancy.
30. The cost of repairing any damage to the public portions of the Building
or the public facilities or to any facilities used in common with other Tenants,
caused by any Tenant or the employees, licensees, agents or invitees of the
Tenant, shall be paid by such Tenant.
31. Tenants shall not install any resilient tile or floor covering in the
Premises except in a manner approved by Landlord. Tenants shall not remove any
carpet or wall coverings, window blinds, window draperies, or anything affixed
to or in their Premises without the prior written approval from Landlord.
32. No awnings or other projections shall be attached to the outside of the
Building or on or around the windows of the Premises by Tenants without the
prior written consent of the Landlord. No curtains, blinds, draperies, shades or
screens shall be attached or hung in, or used in connection with, any window or
door of the Tenant's Premises by Tenants, without the prior written consent of
the Landlord. Such awnings, projections, curtains, blinds, draperies, shades,
screens or other fixtures must be of a quality, type, material and color, and
attached in the manner approved by Landlord.
33. The sashes, sash doors, windows, side glass, glass floors and any
lights or skylights that reflect or admit light into the halls or other places
of the Building shall not be covered or obstructed by Tenants without the prior
written approval from Landlord.
34. Tenants shall not have access to the roof of the Building, nor make any
installations upon or through the roof or walls of the Building, without the
prior written consent of Landlord.
35. Tenant shall cooperate fully with the life safety plans of the Building
established and administered by the Landlord. This includes participation by
Tenant and employees of the Tenant in exit drills, fire inspections, life safety
orientations and other programs relating to fire safety that may be promulgated
by the Landlord.
36. No furniture shall be placed in front of the Building or in any lobby
or corridor, without the prior written consent of Landlord. Landlord shall have
the right to remove all non-permitted signs and furniture, without notice to
Tenant, and at the expense of Tenant.
37. If any Tenant desires telegraphic, telephonic or other electric
connections, Landlord, or its agents, will direct the electricians as to where
and how the wires may be introduced, and without such direction, no boring or
cutting for wires will be permitted. Any such installation and connection shall
be made at Tenant's expense.
38. Tenant shall not unduly obstruct such pipes, conduits and ducts in the
Leased Premises so as to prevent reasonable access thereto.
39. Tenant agrees to use chair pads to be furnished by Tenant under all
rolling and ordinary desk chairs in the carpeted areas throughout the term of
this lease.
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40. Smoking is not allowed in the Premises or the Building.
41. Corridor doors when not in use, shall be kept closed.
42. Any and all furniture, equipment, plants, planters, or anything else
that Tenant desires to place on the balcony must have the prior written consent
of Landlord.
43. Signs, advertisements, graphics or notices visible in or from public
corridors or from outside the Building shall be subject to Landlord's prior
written approval.
44. All Tenant modifications resulting from remodeling in or to its
Premises must conform to the City of Englewood Building and Fire Codes, as well
as the Building Codes for Waterview One. Tenants shall obtain approval from
Landlord of any such modifications and shall deliver "as-built" plans therefor
to Landlord upon completion. Modifications shall also comply with all state and
federal codes and restrictions, including, without limitation, the Americans
With Disabilities Act.
45. No Tenant shall tamper with or attempt to adjust temperature control
thermostats in its Premises. Landlord shall adjust thermostats as required to
maintain the building standard temperature. Tenant will be billed for damage in
the event that thermostats have been tampered with.
46. It is recommended that all window blinds remain down and tilted at a
forty-five (45) degree angle toward the street to help maintain comfortable room
temperatures and conserve energy.
47. All requests for overtime air conditioning or heating must be submitted
in writing to Landlord by 2:00 p.m. on the business day prior to the day a
Tenant desires such service.
48. Tenants are required to lock all office doors leading to corridors and
to turn out all lights at the close of their working day.
49. Landlord reserves the right to rescind any of these rules and
regulations and to make such other and further rules and regulations as in its
judgment shall from time to time be required for the safety, protection, care
and cleanliness of the Building, the operation thereof, the preservation of good
order therein, and the protection and comfort of the Tenants and their agents,
employees and invitees, and the rules and regulations shall apply with equal
force to similar types of tenants. Such rules and regulations, when made and
written notice thereof given to a Tenant, shall be binding upon such Tenant in
like manner as if originally herein prescribed.
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EXHIBIT G TO LEASE
FORM OF LETTER OF CREDIT
____________________, 1997
HIGHLAND PARK VENTURERS, LLC
Waterview One
8005 South Chester Street
Englewood, Colorado 80112
RE: Letter of Credit No. _____________
Gentlemen:
We hereby issue in your favor, at the request and for the account of
Verio Inc., our irrevocable Letter of Credit in the amount of
$___________________ which is available against presentation of your sight
draft. The amount of the credit shall automatically reduce without amendment by
$_________________ on the first day of each month commencing _________________,
1997. The draft must be accompanied by:
1. This Letter of Credit No. _______________; and
2. Certification signed by the manager of Highland Park
Venturers, LLC, or an officer (or partner, if such entity is
a partnership) of its transferee or assignee, stating
essentially as follows:
"The undersigned Beneficiary is the owner of the property
described in the Office Lease dated __________, 1997 by and
between Highland Park venturers, LLC, as Landlord, and Verio
Inc., as Tenant (the "Lease"). The amount requested by the
draft accompanying this statement is the amount to which
Beneficiary is entitled under the terms of the Lease as a
result of an Event of Default under the Lease and Beneficiary
requests payment of the enclosed draft under the enclosed
Letter of Credit."
This Letter of Credit shall be subject to the Special Conditions set
forth on Exhibit 1, such exhibit being considered a part hereof and incorporated
herein by reference.
We hereby agree that all drafts drawn under and in compliance with the
terms of this credit shall meet with honor upon presentation and delivery of
documents on or before 5:00 p.m., Denver time, _______________, as specified to
the drawee.
-------------------------------------
By:
----------------------------------
Title:
-------------------------------
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EXHIBIT 1
To Letter of Credit No. ___________
The Letter of Credit shall be governed by the following Special
Conditions:
1. This Letter of Credit shall be governed by and construed in
accordance with the laws of the State of Colorado, including specifically, but
not limited to, C.R.S. 4-5-101, et seq., entitled Uniform Commercial Code --
Letters of Credit, as amended. The provisions of Uniform Customs and Practice
for Documentary Credits, I.C.C. Publication No. 500, 1983 Revision, 290,
effective October 1, 1975, shall not be applicable to this Letter of Credit.
2. Issuer agrees that it may not defer honor beyond the close of the
first banking day after presentment of a sight draft drawn hereunder and
accompanying documents.
3. This Letter of Credit shall be transferable and assignable to any
person or entity who is the successor or assignee of Beneficiary's interest
under the Lease entered into on or about _________________, 1997, between
HIGHLAND PARK VENTURERS, LLC, a Colorado limited liability company and VERIO
INC., a Delaware corporation. Such transfer shall be accomplished by providing
Norwest Bank Colorado, N.A. with the appropriate transfer form and the original
letter of credit for endorsement; provided, however, that such transfer shall
not be subject to the approval of Norwest Bank Colorado, N.A.
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WORK LETTER - OPTION A
LANDLORD PERFORMS WORK
June 20, 1997
Verio Inc.
9250 East Costilla Avenue
Suite 400
Englewood, CO 80112
Re: Tenant: Verio Inc., a Delaware corporation
Premises: Approximately 33,300 rentable square feet of
space on the 1st and 2nd floors (the "Premises")
Address: 8005 South Chester Street, Englewood, Colorado 80112
Gentlemen:
Concurrently herewith, you as Tenant and the undersigned as Landlord have
executed a Lease (the "Lease") covering the Premises (the provisions of the
Lease are hereby incorporated by reference as if fully set forth herein). In
consideration of the execution of the Lease, Landlord and Tenant mutually agrees
as follows:
I. Space Planning, Engineering, and Planning Allowance
1.1 Landlord has provided to Tenant the architectural and engineering
drawings for the base building improvements to be completed by Landlord, which
drawings are listed on the attached EXHIBIT _ ("Landlord's Drawings"), and
prepared by Michael Barber Architecture (such architectural firm or its
replacement, if replaced by Landlord prior to completion of construction, is
referred to as the "Landlord's Architect") and engineers selected and retained
by Landlord (the "Engineers"). Landlord shall have the right to make changes and
modifications in the base building improvements during construction and Landlord
shall provide copies to Tenant of modifications to Landlord's Drawings as and
when available to reflect such modifications for portions of the drawings
applicable to the Premises. The work to be completed by Landlord in accordance
with the Landlord's Drawings as modified is hereinafter referred to as the "Base
Building Work." Landlord shall complete the Base Building Work in a good and
workmanlike manner in accordance with Applicable Laws.
1.2 Tenant has retained W.E. Kieding Associates as Tenant's architect
("Tenant's Architect") and has also separately retained the Engineers
(independent of Landlord's contractual relationship) as its engineers to assist
Tenant's Architect in preparation of plans for finish work in the Premises.
Tenant shall provide to Landlord the Tenant-approved space plans for the
Premises (collectively referred to herein as "Space Plans") prepared by Tenant's
Architect by August 1, 1997; Tenant shall also have the Engineers review the
Space Plans on
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<PAGE> 48
Tenant's behalf for conformity to the design specifications for the base
building structure and systems. The Space Plans shall contain information
specified in EXHIBIT A and shall be sufficiently complete to permit Landlord and
the Engineers to review such drawings for the purpose of determining conformity
with the base building specifications for the Building and for the purposes
described in Section 1.3 below. The Space Plans shall be prepared by Tenant's
Architect at Tenant's sole cost and expense, subject to Landlord's payment of
the Allowance as hereinafter provided.
1.3 Within five (5) business days after receipt by Landlord of the Space
Plans, Landlord shall review the Space Plans and confer with Tenant covering
such review. The Engineers shall advise Landlord and Tenant whether the base
building structure and systems will have to be supplemented or modified in order
to allow installation of work shown on the Space Plans. If Landlord or the
Engineers reasonably determine that the Space Plans (i) are inconsistent with
the base building specifications for the Building; (ii) do not contain all of
the information specified in Exhibit A or are not sufficiently complete to
permit Landlord to review them for the purposes set forth therein; or (iii)
indicates space usages inconsistent with the Lease, Tenant shall revise the
Space Plans accordingly and resubmit them to Landlord and the review procedure
and time frames set forth above shall be repeated. In addition to the foregoing,
Landlord may review the Space Plans to determine if Landlord, in Landlord's
discretion, will require the removal of any of such work at the expiration or
earlier termination of the Lease; if Landlord does not so inform Tenant, Tenant
shall not be required to remove any of such work at the end of the Term. All
time required for Tenant to resubmit the Space Plans and for Landlord's review
thereof after Landlord's initial review period, shall be deemed "Tenant Delay."
Tenant shall pay all costs and expenses incurred by Landlord in connection with
review and approval of the Space Plans by the Engineers, subject to Landlord's
payment of the Allowance as hereinafter provided. When approved by Landlord and
Tenant, the Space Plans shall be acknowledged as such by Landlord and Tenant
signing each sheet therefor and such approved drawings shall be deemed the
"Approved Space Plans."
1.4 On or before September 18, 1997, Tenant shall provide Landlord with
architectural working drawings prepared by Tenant's Architect (the
"Architectural Working Drawings") and structural, plumbing, fire protection,
mechanical controls, electrical and life safety engineering drawings prepared by
the Engineers ("Engineering Working Drawings") for the Premises approved by
Tenant for review by Landlord substantially in the form provided in EXHIBIT A.
The Architectural Working Drawings shall be coordinated by the Architect with
the Engineering Working Drawings prepared by the Engineers pursuant to Paragraph
1.3 above. The Architectural Working Drawings and the Engineering Working
Drawings shall be a logical extension of the Approved Space Plans. Tenant's
Architect shall be responsible for any conflicts between the Architectural
Working Drawings and field conditions. Tenant shall be responsible for the
consistency between the Architectural Working Drawings and the Engineering
Working Drawings, conflicts with the base building drawings and field conditions
and for the Architectural Working Drawings and the Engineering Working Drawings
complying with building code provisions. Landlord is obligated to notify
Tenant's architect of significant changes in Landlord's drawings. Any problems
caused by any inconsistency of the drawings shall be Tenant's sole
responsibility. If the review by Landlord uncovers design errors, Landlord shall
give notice thereof within five (5) business days after Landlord's receipt of
Architectural Working Drawings and the Engineering Working Drawings submitted by
Tenant. If Landlord
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<PAGE> 49
does not reply within such period, it shall be presumed that Landlord has no
objection thereto. However, such approval shall not limit Landlord's right to
request changes in the future in the event design errors are discovered. If
Landlord notifies Tenant of design errors, Tenant shall revise the Architectural
Working Drawings and the Engineering Working Drawings accordingly and resubmit
them to Landlord and the review procedure set forth above shall be repeated.
Delay caused by such revisions shall be deemed Tenant Delay. When approved by
Landlord and Tenant, the Engineering Working Drawings and the Architectural
Working Drawings shall be acknowledged as such by Tenant and Landlord signing
each sheet thereof and such approved drawings shall be deemed the "Final Working
Drawings." The Final Working Drawings shall be sufficiently complete and
accurate so as to permit Landlord to submit the Final Working Drawings for bid
in accordance with Section 2.1 below.
1.5 Changes to the Final Working Drawings may be made only upon prior
written approval of Landlord, which approval shall not be unreasonably withheld.
Landlord shall respond to all written requests for changes within seven (7)
business days of Landlord's receipt of the same. If Landlord does not respond
within such period, Landlord shall be deemed to have consented to the requested
changes. Any delay in completion of the Finish Work which results from any such
changes or the process of approval or disapproval shall be deemed Tenant Delay.
Landlord's review of the Space Plans, Architectural Working Drawings,
Engineering Working Drawings or Final Working Drawings shall not imply approval
by Landlord for their completeness, design sufficiency, or as to compliance with
the requirements of applicable codes, rules, or regulations of any governmental
agencies having jurisdiction thereof now in effect or which may hereafter be in
effect.
II. Finish Work and Allowance
2.1 Prior to the commencement of the Finish Work, Landlord will provide
Tenant with a cost proposal for completing such Work in accordance with the
Final Working Drawings. The proposal shall include a tentative schedule and all
estimated costs of Landlord's Contractor. Tenant shall have ten (10) calendar
days to respond to such proposal and schedule, in writing. Unless Landlord
receives Tenant's written rejection within such period, the proposal and
schedule shall be deemed accepted by Tenant. If within such period Landlord
receives Tenant's written rejection of the proposal, and schedule, then Tenant
and Tenant's Architect shall forthwith meet with Landlord's representative to
revise the Final Working Drawings and/or Landlord's Contractor's pricing. All
costs of such revisions including engineering, estimating, coordination, layout
and printing of drawings and any other incidental expenses shall be borne by
Tenant (subject to Landlord's payment of the Allowance as hereinafter provided)
and any delays resulting therefrom shall be deemed Tenant Delay, except for
delays caused by revisions in Landlord's Contractor's pricing as a result of
errors by Landlord's Contractor in failing to submit a bid consistent with the
Final Working Drawings. Following approval of the Final Working Drawings,
Landlord's tenant finish contractor and subcontractors (herein referred to
collectively as "Landlord's Contractor") shall diligently perform all finish
work in the Premises, including, but not limited to, those millwork items and
all cabinetry work which are permanently attached to walls and form a part of
the Premises, substantially in accordance with the Final Working Drawings (the
"Finish Work"). The Commencement Date will be the date that Landlord delivers
the Premises to Tenant Ready for Occupancy. "Ready for Occupancy" means the date
that Landlord substantially completes the Base Building Work (subject only to
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<PAGE> 50
landscaping, cosmetic and other items, the incompletion of which does not
interfere with Tenant's ability to commence Tenant's normal business office use
of the Premises) and substantially completes the Finish Work, subject only to
punchlist items as referred to in Section 2.3 below, as certified by Landlord's
Architect. If the delivery of the Premises is delayed beyond the scheduled
Commencement Date, the commencement date of the Initial Term will be delayed in
accordance with Section 5 of the Lease.
2.2 Landlord shall pay the cost of all Finish Work completed in accordance
with the Final Working Drawings (including the cost of preparation of the
Approved Space Plans and Working Drawings and the Engineer's review thereof, all
labor, materials, permits, fees and contractors and subcontractors charges) up
to a maximum calculated on the basis of Twenty Dollars ($20.00) per rentable
square foot of the Premises (the "Allowance"). Notwithstanding the foregoing,
Landlord shall have no obligation to expend more than Fifty Cents per rentable
square foot of the Premises for preparation of the Final Working Drawings prior
to commencement of construction of the Finish Work; if Tenant's Architect or the
Engineers require payment in excess of such amount, Tenant shall pay such excess
when required to be paid and later receive reimbursement from the Allowance to
the extent that Allowance is not expended for other purposes as of the
Commencement Date. The Allowance is to be expended solely for the benefit of
Landlord; that is, the Allowance will be expended only to pay for design,
engineering, installation, and construction of the Finish Work which under the
Lease becomes the property of Landlord upon installation and not for movable
furniture, equipment, cabling, and trade fixtures not physically attached to the
Premises. The cost of all Finish Work in excess of the Allowance to which Tenant
is entitled as set forth above shall be at Tenant's expense. Tenant shall pay
all such expenses in full prior to the commencement of the work by Landlord.
Landlord shall not include in costs of Finish Work a supervisory fee or
construction management fee for Landlord's personnel.
2.3 Landlord shall give notice to Tenant when Landlord anticipates that the
Finish Work has been sufficiently completed so that Tenant may enter the
Premises prior to the Commencement Date for the purpose of installing Tenant's
fixtures and equipment. During such period Tenant shall cooperate with
Landlord's contractor so as not to interfere with completion of the Finish Work.
Following preparation of the punchlist, Tenant is responsible for repair of
damage caused by Tenant's Contractors in the Building or Premises. If Tenant
takes possession of all or any part of the Premises prior to the scheduled
Commencement Date or the date the Premises are Ready for Occupancy for the
purpose of conducting its usual business therein, all terms and provisions of
the Lease shall apply as of the date Tenant commences its business, including
the obligation for the payment of all rent and other amounts owing hereunder.
Following receipt of such notice and prior to Tenant's installation of its
fixtures and equipment, the representatives of Landlord and Tenant shall jointly
inspect the Premises with Landlord's Architect and develop a punchlist of items
of the Finish Work that have not been completed, distinguishing between those
items which must be completed prior to the Premises being deemed Ready for
Occupancy for Tenant to conduct its business and those items that can be
completed by Landlord's Contractor after Tenant takes occupancy for the purpose
of conducting its business; in the event of a dispute, Landlord's Architect and
Tenant's Architect shall mutually resolve such dispute and if the Architects
cannot agree upon a resolution, the Architects shall jointly appoint an
independent architect whose determination shall be binding on the parties. No
items which are incomplete due to Tenant Delay shall be included on the
punchlist. Taking
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possession of the Premises by Tenant shall be conclusive evidence as against
Tenant that the Premises were in the condition agreed upon between Landlord and
Tenant and acknowledgment of satisfactory completion of the Finish Work except
for the punchlist items and except for latent defects of which Tenant gives
notice to Landlord within 11 months following the date the Premises are deemed
Ready for Occupancy. Landlord shall complete the punchlist items with reasonable
diligence and shall remedy latent defects of which Tenant gives notice to
Landlord in accordance with the foregoing provision.
2.4 Notwithstanding any provision herein or in the Lease to the contrary,
the Commencement Date and Tenant's rental obligations and other obligations will
not be delayed or extended by any Tenant Delay. The term "Tenant Delay", as
referred to above, shall include, but not be limited to, delay: (i) in the
preparation, finalization or approval of the Approved Space Plans or Final
Working Drawings caused by Tenant (or its agents or employees); (ii) caused by
modifications, revisions and changes to the Approved Space Plans or Final
Working Drawings due to changes requested by Tenant (or its agents or
employees); (iii) in the delivery, installation or completion of any
non-standard items specified by Tenant; (iv) in soliciting and approving
subcontractor bids; or (v) of any other kind or nature in the completion of the
Finish Work caused by Tenant (or its agents or employees). All delay other than
Tenant Delay shall be deemed Landlord Delay. If the Premises are not Ready for
Occupancy by April 30, 1998 (which date shall be subject to extension for Tenant
Delay) (the "Termination Date"), Tenant shall have a right to terminate this
Lease by written notice delivered to Landlord within fifteen (15) days following
such date but prior to the Premises being made Ready for Occupancy; provided,
however, that Landlord shall have a right to delay the Termination Date until
Landlord then estimates the Premises will be Ready for Occupancy (not in any
event to exceed 3 months) (the "Estimated Completion Date") by either (1)
arranging for Tenant to remain in Tenant's existing space (the space subject to
the Solarium Lease and the space located at 9250 East Costilla Avenue;
collectively, the "Existing Premises") and Landlord paying the portion of such
holdover rental that is in excess of the rentals being paid under such leases
prior to such holdover, or (2) making temporary substitute space of reasonably
comparable quality to the Existing Premises in the southeast suburban
metropolitan Denver area available for occupancy by Tenant until the Estimated
Completion Date at a cost to Tenant not to exceed the rentals attributable to
the Existing Space being substituted, with Landlord being responsible for all
rental costs in excess of such rentals and all costs of relocating Tenant and of
preparing the temporary substitute space for occupancy by Tenant and making it
reasonably suitable for the conduct of Tenant's business. In the event Landlord
is able to make such space available in accordance with clauses (1) or (2)
above, the Termination Date shall be extended to the Estimated Completion Date.
If the Premises are not Ready for Occupancy by the extended Termination Date,
Landlord (if Landlord has been unable to meet the Delivery Date deadline for
reasons beyond Landlord's reasonable control) or Tenant shall have the right to
terminate the Lease within fifteen (15) days of the extended Termination Date.
In the event this Lease is terminated in accordance with the foregoing
provisions, the Lease shall be deemed terminated effective as of Tenant's
delivery of its notice of termination and Landlord and Tenant shall be relieved
of all obligations arising thereafter under the Lease, as if it had expired in
accordance with its terms and Landlord shall return the Deposit and the Letter
of Credit to Tenant.
2.5 Tenant has designated Cynthia Lucas as its sole representative with
respect to the matters set forth in this Work Letter, who shall have full
authority and responsibility to act on
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behalf of the Tenant as required in this Work Letter. Tenant has the right by
written notice to Landlord to change its designated representative.
2.6 Landlord has designated Greg Pohle as its representative with respect
to Landlord's responsibilities under this Work Letter, who shall have full
authority and responsibility to act on behalf of the Landlord as required in
this Work Letter. Landlord shall have the right, by written notice to Tenant, to
change its designated representative.
2.7 Any and all notices required to be given hereunder shall be in writing
in accordance with the terms and provisions of Section 28 of the Lease. However,
in all cases notices shall also be given to those individuals to be specified
pursuant to Paragraph 2.5 and 2.6 above.
Very truly yours,
HIGHLAND PARK VENTURERS, LLC, a
Colorado limited liability company
By:
-----------------------------------
Authorized Signature
"Landlord"
ACCEPTED AND APPROVED this
____ day of ____________. 19__.
VERIO INC., a Delaware corporation
By:
--------------------------------
Print Name:
------------------------
Print Title:
----------------------
ATTEST:
By:
--------------------------------
Print Name:
------------------------
Print Title:
----------------------
"Tenant"
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LIST OF EXHIBITS
Exhibit A Space Plan and Working Drawings Requirements
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EXHIBIT A TO OPTION A WORK LETTER
SPACE PLANS AND WORKING DRAWINGS REQUIREMENTS
I. Space Plans
Tenant's submission of Space Plans to Landlord shall comply in all
respects to the following requirements and standards. The intent of this listing
is not to be exhaustive in all details; rather, to assist Tenant and Tenant's
Architect in defining all information required Landlord's review of the space
usages and evaluation of general improvements required thereby.
1. All Space Plans shall be drawn to 1/8" scale and may be produced on
CAD equipment.
2. Tenant shall submit one (1) reverse mylar sepia and seven (7)
blueprints of all Space Plans with notes describing the general
intent of the usage and the improvement requirements.
3. The Space Plans and the notes thereon shall depict the quality of
the work to be furnished and performed, which quality level shall be
not less than the quality of the existing Building improvements.
4. Such Space Plans and notes shall include: (a) partition layout and
door locations; (b) depiction of electrical and communication
equipment requirements other than for normal office equipment,
including modifications required to floor or main telephone or
electric closets; (c) reflected ceiling plan showing non-standard
lighting and ceiling construction or constraints which will affect
mechanical, electrical, fire protection or life safety systems; (d)
Tenant's anticipated special mechanical and plumbing requirements;
(e) Tenant's anticipated special floor loading requirements; (f)
Tenant's anticipated requirements for floor penetrations, including
but not limited to special stairs, dumbwaiters, conveyors, pneumatic
systems, elevators or architectural features; and (g) approximate
information regarding anticipated structural and mechanical,
electrical, fire protection, controls and life safety system design
requirements.
II. Working Drawings
Tenant's submission of Working Drawings (construction documents
inclusive of one (1) reverse mylar and seven (7) blueprints of
Architectural and Engineering Drawings and Specifications) to Landlord
shall comply in all respects to the following requirements and
standards. The intent of this listing is not to be exhaustive in all
details; rather, to assist Tenant and Tenant's Architect in defining
all information required by Landlord to complete the Landlord's review
of the space usages and the quality and extent of the proposed
construction and its effect upon the building and building systems.
Tenant, upon receipt of Space Plan Approvals from Landlord, shall
coordinate same with the Working Drawings prepared by Tenant's
Architect, it being understood that the Working Drawings shall be
consistent with a logical extension of the Space Plans. Tenant shall be
responsible for consistency between Working Drawings and the Space
Plans.
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The Working Drawings shall depict the quality of the work to be
performed (the Tenant Improvements) and shall indicate a quality level
equal to (as determined by Landlord) or exceeding the requirements set
forth by the base building core and shell construction contract
documentation.
The Working Drawings shall include but not be limited to the following:
(a) partition layout and door locations; (b) electrical outlets,
including the location and usage thereof; (c) telephone outlets,
including description of system, size of conduit servicing each outlet,
power and mechanical requirements for system and any requirements
affecting base building construction, including modifications required
to floor or main telephone rooms; (d) reflected ceiling plan showing
standard and non-standard lighting, switching requirements and ceiling
construction or constraints which will affect mechanical, electrical,
fire protection or life safety systems and shall include all necessary
specification information and details of items or construction; (e)
Tenant's occupancy capacity, usage equipment loads for all spaces (all
specifications on usage or equipment therein, including BTU per hour
output on all equipment and parameters to the extent of special work
required), particularly special usage rooms, including but not limited
to conference rooms, lounges, coffee rooms, copy rooms, computer
terminal or keypunch rooms, audio-visual rooms and reproduction or
print rooms which require special heating, ventilating, air
conditioning or fire protection (all specifications on usage or
equipment therein, including BTU per hour output of all equipment and
parameters as to extent of special work required); (f) Tenant's floor
loading for all spaces (all specifications, weight, vibration and
vibration isolation for each item sufficiently complete for structural
engineering design), particularly special usage rooms, including, but
not limited to file rooms, storage rooms, computer rooms and
reproduction or print rooms; (g) floor penetrations, including but not
limited to special stairs, dumbwaiters, conveyors, pneumatic systems,
elevators or architectural features; (h) requirements of security,
music and paging systems, including specific locations and system
design specifications; and (i) all structural and mechanical,
electrical, fire protection, controls and life safety systems
requirements.
The Working Drawings shall include the following as well: (1) all
millwork and equipment which shall be part of the Finish Work and
become part of the Premises; (2) a complete finish schedule for all
floors, walls, ceilings, including millwork, door frames, etc; (3)
keying schedules; (4) special blocking requirements as may be required
to support wall or ceiling hung furniture or equipment; and (5) all
other information necessary to complete construction of the Premises,
including the architect's stamp if required by the Building Department.
Said Working Drawings when approved by Landlord and Tenant shall be
acknowledged as such by Tenant and Landlord signing each sheet of the
Working Drawings. These drawings shall be referred to hereinafter as
"Final Working Drawings."
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WORK LETTER -- OPTION B
TENANT PERFORMS WORK
June 20, 1997
Verio Inc.
- -------------------
- -------------------
- -------------------
Re: Tenant: Verio Inc., a Delaware corporation
Premises: Approximately 33,300 rentable square feet of
space on the 1st and 2nd floors (the "Premises")
Address: 8005 South Chester Street, Englewood, Colorado 80112
Gentlemen:
Concurrently herewith, you ("Tenant") and the undersigned ("Landlord") have
executed a Lease (the "Lease") covering the Premises (the provisions of the
Lease are hereby incorporated by reference as if fully set forth herein and
initially capitalized words not defined have the same meaning set forth in the
Lease). In consideration of the execution of the Lease, Landlord and Tenant
mutually agree as follows:
1. Space Planning and Engineering
1.1 Landlord has provided to Tenant the architectural and engineering
drawings for the base building improvements to be completed by Landlord, which
drawings are listed on the attached EXHIBIT __ ("Landlord's Drawings"), and have
been prepared by Michael Barber Architecture (such architectural firm or its
replacement, if replaced by Landlord prior to completion of construction, is
referred to as the "Landlord's Architect") and engineers selected and retained
by Landlord (the "Engineers"). Landlord shall have the right to make changes and
modifications in the base building improvements during construction and Landlord
shall provide copies to Tenant of modifications to Landlord's Drawings as and
when available to reflect such modifications for portions of the drawings
applicable to the Premises. The work to be completed by Landlord in accordance
with the Landlord's Drawings as modified is hereinafter referred to as the "Base
Building Work." Landlord shall complete the Base Building Work in a good and
workmanlike manner in accordance with Applicable Laws.
1.2 Tenant has retained W.E. Kieding Associates as Tenant's architect
("Tenant's Architect") and has also separately retained the Engineers
(independent of Landlord's contractual relationship) as its engineers to assist
Tenant's Architect in preparation of plans for finish work in the Premises.
Tenant shall provide to Landlord the Tenant-approved space plans for the
Premises (collectively referred to herein as "Space Plans") prepared by W.E.
Kieding Associates ("Tenant's Architect") by August 1, 1997; Tenant shall also
have the Engineers
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review the Space Plans on Tenant's behalf for conformity to the design
specifications for the base building structure and systems. The Space Plans
shall contain information specified in EXHIBIT A and shall be sufficiently
complete to permit Landlord and the Engineers to review such drawings for the
purpose of determining conformity with the base building specifications for the
Building and for the purposes described in Section 1.3 below. The Space Plans
shall be prepared by Tenant's Architect at Tenant's sole cost and expense,
subject to Landlord's payment of the Allowance as hereinafter provided.
1.3 Within five (5) business days after receipt by Landlord of the Space
Plans, Landlord shall review the Space Plans and confer with Tenant concerning
such review. The Engineers shall advise Landlord and Tenant whether the base
building structure and systems will have to be supplemented or modified in order
to allow installation of work shown on the Space Plans. If Landlord or the
Engineers reasonably determine that the Space Plans (i) are inconsistent with
the base building specifications for the Building; (ii) do not contain all of
the information specified in Exhibit A or are not sufficiently complete to
permit Landlord to review them for the purposes set forth therein; or (iii)
indicate space usages inconsistent with the Lease, Tenant shall revise the Space
Plans accordingly and resubmit them to Landlord and the review procedure and
time frames set forth above shall be repeated. In addition to the foregoing,
Landlord may review the Space Plans to determine if Landlord, in Landlord's
discretion, will require the removal of any of such work at the expiration or
earlier termination of the Lease; if Landlord does not so inform Tenant, Tenant
shall not be required to remove any of such work at the end of the Term. All
time required for Tenant to resubmit the Space Plans and for Landlord's review
thereof after Landlord's initial review period, shall be deemed "Tenant Delay."
Tenant shall pay all costs and expenses incurred by Landlord in connection with
review and approval of the Space Plans by the Engineers, subject to Landlord's
payment of the Allowance as hereinafter provided. When approved by Landlord and
Tenant, the Space Plans shall be acknowledged as such by Landlord and Tenant
signing each sheet therefor and such approved drawings shall be deemed the
"Approved Space Plans."
1.4 On or before September 18, 1997, Tenant shall provide Landlord with
architectural working drawings prepared by Tenant's Architect (the
"Architectural Working Drawings") and structural, plumbing, fire protection,
mechanical controls, electrical and life safety engineering drawings prepared by
the Engineers ("Engineering Working Drawings") for the Premises approved by
Tenant for review by Landlord substantially in the form provided in EXHIBIT A.
The Architectural Working Drawings shall be coordinated by the Architect with
the Engineering Working Drawings prepared by the Engineers pursuant to Paragraph
1.3 above. The Architectural Working Drawings and the Engineering Working
Drawings shall be a logical extension of the Approved Space Plans. Tenant's
Architect shall be responsible for any conflicts between the Architectural
Working Drawings and field conditions. Tenant shall be responsible for the
consistency between the Architectural Working Drawings and the Engineering
Working Drawings, conflicts with the base building drawings and field conditions
and for the Architectural Working Drawings and the Engineering Working Drawings
complying with building code provisions. Landlord is obligated to notify
Tenant's Architect of significant changes in Landlord's drawings. Any problems
caused by any inconsistency of the drawings shall be Tenant's sole
responsibility. If the review by Landlord uncovers design errors, Landlord shall
give notice thereof within five (5) business days after Landlord's receipt of
Architectural Working Drawings and the Engineering Working Drawings submitted by
Tenant. If Landlord
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does not reply within such period, it shall be presumed that Landlord has no
objection thereto. However, such approval shall not limit Landlord's right to
request changes in the future in the event design errors are discovered. If
Landlord notifies Tenant of design errors, Tenant shall revise the Architectural
Working Drawings and the Engineering Working Drawings accordingly and resubmit
them to Landlord and the review procedure set forth above shall be repeated.
Delay caused by such revisions shall be deemed Tenant Delay. When approved by
Landlord and Tenant, the Engineering Working Drawings and the Architectural
Working Drawings shall be acknowledged as such by Tenant and Landlord signing
each sheet thereof and such approved drawings shall be deemed the "Final Working
Drawings."
1.5 Changes to the Final Working Drawings may be made only upon prior
written approval of Landlord, which approval shall not be unreasonably withheld.
Landlord shall respond to all written requests for changes within seven (7)
business days of Landlord's receipt of the same. If Landlord does not respond
within such period, Landlord shall be deemed to have consented to the requested
changes. Any delay in completion of the Finish Work which results from any such
changes or the process of approval or disapproval shall be deemed Tenant Delay.
Landlord's review of the Space Plans, Architectural Working Drawings,
Engineering Working Drawings or Final Working Drawings shall not imply approval
by Landlord for their completeness, design sufficiency, or as to compliance with
the requirements of applicable codes, rules, or regulations of any governmental
agencies having jurisdiction thereof now in effect or which may hereafter be in
effect.
2. Finish Work and Finish Allowance
2.1 Tenant agree to execute a contract for design and construction services
to complete the Finish Work (the "Contract") with contractors and subcontractors
reasonably satisfactory to Landlord (collectively, "Tenant's Contractors").
Tenant and Tenant's Contractors will be required to adhere to the requirements
set forth on Exhibit B and such other requirements as Landlord imposes
(collectively, "Requirements"). The Contract will incorporate the provisions of
the Requirements. Prior to execution of the Contract, Tenant will provide a copy
to Landlord. Landlord will review the Contract for compliance with the
Requirements within two business days thereafter and advise further in writing.
Following approval, Tenant will promptly commence and proceed diligently to
complete the Finish Work.
2.2 Landlord has no obligation to Tenant's Contractors except for the
provision of those services which Landlord provides to other tenant finish
contractors in the Building without preference or privileges, and Landlord
agrees to provide such services. Tenant's Contractors will be obligated to
cooperate with contractors employed by Landlord who are completing work in the
Building ("Landlord's Contractors") and such Contractors will each conduct its
respective work in an orderly fashion and manner so as not to unreasonably
interfere with the other. Notwithstanding the foregoing, Tenant's subcontractors
with respect to all mechanical, electrical, fire protection and controls work in
the Premises will be the subcontractors used by Landlord for such work in the
Building.
2.3 Tenant assumes full responsibility for Tenant's Contractor's
performance of all work including compliance with Applicable Laws, and for all
Tenant's Contractors' property, equipment, materials, tools or machinery placed
or stored in the Premises during the completion
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thereof. All such work is to be performed in a good and workmanlike manner
consistent with first class standards.
2.4 Landlord shall give notice to Tenant when Landlord has determined that
all or any portion of the Base Building Work has been sufficiently completed
that Tenant's Contractors can commence completion of the Finish Work in the
Premises. Following receipt of such notice and prior to Tenant's Contractors
commencing the Finish Work, the representatives of Landlord and Tenant shall
jointly inspect the Premises with Landlord's Architect and develop a punchlist
of items of Base Building Work that have not been completed, distinguishing
between those items which must be completed prior to Tenant having Tenant's
Contractors commence work and those items that can be completed by Landlord's
Contractor while Tenant's Contractors are completing Finish Work in the
Premises; in the event of a dispute, Landlord's Architect and Tenant's Architect
shall mutually resolve such dispute and if the Architects cannot agree upon a
resolution, the Architects shall jointly appoint an independent architect whose
determination shall be binding on the parties. The date on which a portion of
the Premises is made available by Landlord to Tenant for completion of the
Finish Work subject only to punchlist items that can be completed by Landlord's
Contractor while Tenant's Contractors are completing Finish Work in the
Premises, is referred to as the "Delivery Date" for such portion of the
Premises; following the Delivery Date, Landlord shall complete the punchlist
items with reasonable diligence. Following preparation of the punchlist, Tenant
is responsible for repair of damage caused by Tenant's Contractors in the
Building or Premises. Following the Delivery Date, Tenant is responsible for the
diligent completion of all finish work substantially in accordance with the
Final Drawings (the "Finish Work"), at its sole cost and expense, subject to
Landlord's payment of the Allowance. Tenant's use and occupancy of the Premises
prior to the Commencement Date is subject to all of the terms and provisions of
the Lease, except for Tenant's obligation to pay Base Rent and its Pro Rata
Share of increases in Operating Expenses. Landlord shall not charge a
supervisory fee or construction management fee for Landlord's personnel, but
Tenant shall pay Landlord's reasonable charges for hoisting, electricity, water
and other services provided to Tenant and Tenant's Contractors between the
Delivery Date and the Commencement Date. Tenant will cause Tenant's Contractors
to: (i) conduct work so as not to unreasonably interfere with any other
construction occurring in the Building (including punchlist items in the
Premises) or any other tenants of the Building; (ii) comply with the
Requirements and all other rules and regulations relating to construction
activities in the Building promulgated from time to time by Landlord for the
Building; (iii) reach agreement with Landlord's Contractors as to the terms and
conditions for hoisting, systems interfacing, and use of temporary utilities;
and (iv) delivery to Landlord such evidence of compliance with the provisions of
this paragraph as Landlord may reasonably request.
2.5 Landlord will pay the cost of the Finish Work completed in accordance
with the Final Drawings (including the cost of preparation of the Space Plan and
Final Drawings and Landlord's review thereof) calculated on the basis of $20.00
per rentable square foot of the Premises (the "Allowance"). The cost of all
Finish Work in excess of the Allowance will be at Tenant's expense.
2.6 The Allowance is to be expended solely for the benefit of Landlord;
that is, the Allowance will be expanded only to pay for design, engineering,
installation, and construction of the Finish Work which under the Lease becomes
the property of Landlord upon installation and
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not for movable furniture, equipment, cabling, and trade fixtures not physically
attached to the Premises. Any of Landlord's costs and expenses required to be
paid by Tenant will also be paid out of the Allowance. Prior to Tenant
commencing construction of the Finish Work, Tenant shall provide Landlord with
notice of the total estimated cost of all Finish Work. Landlord shall not be
obligated to disburse any of the Allowance until Tenant shall have paid for, and
provided evidence of completion and payment for, such portion of the Finish Work
as reflects in total the amount of the estimated costs of the Finish Work in
excess of the Allowance; Landlord's disbursement of the Allowance shall be for
other Finish Work thereafter completed and paid for by Tenant. As design,
engineering, and construction work is completed and Tenant receives invoices
therefor, Tenant will submit requests for payment to Landlord not more
frequently than monthly, along with appropriate lien waivers (substantially in
the forms attached hereto as Exhibit C) and such other documentation as Landlord
requires. Following receipt of such documentation, Landlord will pay the amounts
requested by delivery to Tenant of Landlord's check(s) payable to Tenant or, at
Landlord's option, payable to Tenant and Tenant's Contractors jointly; provided,
however, to the extent that the costs set forth in Tenant's Contract plus the
costs of preparing the Final Working Drawings are estimated to exceed the
Allowance, the Allowance shall be disbursed by Landlord only for costs other
than, and after payment by Tenant for, such excess amounts. Notwithstanding the
foregoing, Landlord shall have no obligation to expend more than Fifty Cents per
rentable square foot of the Premises for preparation of the Final Working
Drawings prior to commencement of construction of the Finish Work; if Tenant's
Architect or the Engineers require payment in excess of such amount, Tenant
shall pay such excess when required to be paid and later receive reimbursement
from the Allowance to the extent that the Allowance is not expended for other
purposes as of the Commencement Date. Unless otherwise agreed by Landlord and
Tenant in writing and subject to delays beyond Tenant's reasonable control, if
any portion of the costs to be reimbursed by the Allowance has not been
requested by Tenant on or before December 31, 1998, such amount will be
forfeited by Tenant to Landlord.
2.7 Landlord will, during completion of the Finish Work and immediately
thereafter, reasonably cooperate in the balancing of the Building HVAC system
serving the Premises at Tenant's sole cost and expense. Tenant will pay all such
expenses within 10 days after billing from Landlord.
2.8 Tenant will indemnify, defend and hold harmless Landlord, Building
Manager, and Landlord's Contractors from and against liability, costs or
expenses, including attorney's fees on account of damage to the person or
property of any third party arising out of, or resulting from the performance of
the Finish Work, including, but not limited to, mechanics' or other liens or
claims (and all costs associated therewith). Tenant will also repair or cause to
be repaired at its expense all damage caused to the Premises or the Building by
Tenant's Contractors or its subcontractors. Further, Landlord will have the
right as described in Section 12.1 of the Lease to post and maintain notices of
non-liability.
2.9 Tenant agrees to submit to Landlord upon completion of all work one
reverse mylar sepia and two blueprint copies of the as built drawings (the Final
Drawings showing all changes thereon).
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2.10 Notwithstanding anything to the contrary in the Lease, the actual
"Commencement Date" will be the later of (i) the scheduled Commencement Date set
forth in Section 1 of the Lease or (ii) the 69 days after the Delivery Date.
Notwithstanding any provision herein or in the Lease to the contrary, the
Commencement Date and Tenant's Rent obligations and other obligations will not
be delayed or extended by any delay in completion of the Finish Work unless such
delay is caused by "Net Landlord Delay." The term "Landlord Delay" means any
delay in the preparation, finalization or approval of the Approved Plan or Final
Drawings or completion of the Finish Work caused by Landlord's failure to
perform its obligations under this Work Letter within the time limits set forth
herein. All delays other than Landlord Delay are deemed "Tenant Delay." "Net
Landlord Delay" means the number of days, if any, by which Landlord Delay
exceeds Tenant Delay and the Commencement Date will be delayed by a number of
days equal to the number of days of Net Landlord Delay, if any. If the Delivery
Date does not occur by February 1, 1998 (which date shall be subject to
extension for Tenant Delay) (the "Termination Date"), Tenant shall have a right
to terminate this Lease by written notice delivered to Landlord within fifteen
(15) days following such date but prior to the Delivery Date; provided, however,
that Landlord shall have a right to delay the Termination Date until Landlord
then estimates the Delivery Date will occur (not in any event to exceed 3
months) (the "Estimated Delivery Date") by either (1) arranging for Tenant to
remain in Tenant's existing space (the space subject to the Solarium Lease and
the space located at 9250 East Costilla Avenue; collectively, the "Existing
Premises") and Landlord paying the portion of such holdover rental that is in
excess of the rentals being paid under such leases prior to such holdover, or
(2) making temporary substitute space of reasonably comparable quality to the
Existing Premises in the southeast suburban metropolitan Denver area available
for occupancy by Tenant until 90 days following the Estimated Delivery Date at a
cost to Tenant not to exceed the rentals attributable to the Existing Premises
being substituted, with Landlord being responsible for all rental costs in
excess of such rentals and all costs of relocating Tenant and of preparing the
temporary substitute space for occupancy by Tenant and making it reasonably
suitable for the conduct of Tenant's business. In the event Landlord is able to
make such space available in accordance with clauses (1) or (2) above, the
Termination Date shall be extended to the Estimated Delivery Date. If the
Delivery Date does not occur on the extended Termination Date, Landlord (if
Landlord has been unable to meet the Delivery Date deadline for reasons beyond
Landlord's reasonable control) or Tenant shall have the right to terminate the
Lease within fifteen (15) days of the extended Termination Date. In the event
this Lease is terminated in accordance with the foregoing provisions, the Lease
shall be deemed terminated effective as of Tenant's delivery of its notice of
termination and Landlord and Tenant shall be relieved of all obligations arising
thereafter under the Lease, as if it had expired in accordance with its terms
and Landlord shall return the Deposit and the Letter of Credit to Tenant.
2.11 Tenant designates and authorizes Cynthia Lucas to act for Tenant in
this Work Letter. Tenant has the right by written notice to Landlord to change
its designated representative.
2.12 Landlord designates and authorizes Greg Pohle to act for Landlord in
this Work Letter. Landlord has the right by written notice to Tenant to change
its designated representative.
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2.13 All notices required hereunder will be in writing in accordance with
Section 28 of the Lease.
Very truly yours,
HIGHLAND PARK VENTURERS, LLC, a
Colorado limited liability company
By:
------------------------------------
Authorized Signatory
"Landlord"
ACCEPTED AND APPROVED this
____ day of ____________. 19__.
VERIO INC., a Delaware corporation
By:
--------------------------------
Print Name:
-----------------------
Print Title:
-----------------------
ATTEST:
By:
--------------------------------
Print Name:
-----------------------
Print Title:
-----------------------
"Tenant"
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LIST OF EXHIBITS
Exhibit A Space Plan and Drawings Requirements
Exhibit B Landlord's Requirements of Tenant the Contractors
Exhibit C Form of Lien Waivers
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EXHIBIT A TO OPTION B WORK LETTER
SPACE PLANS AND ARCHITECTURAL DRAWINGS REQUIREMENTS
I. Space Plans
Tenant's Space Plans will comply with the following requirements which are
intended to assist Tenant and Tenant's Architect in defining all information
required for Landlord's review of the space usages and evaluation of the
improvements contemplated thereby.
1. All Space Plans will be drawn to 1/8" scale and may be produced on
CAD equipment.
2. Tenant will submit one reverse mylar sepia and two blue prints of
all Space Plans with notes describing the general intent of the
usage and the improvement requirements.
3. The Space Plans and the notes thereon will depict the quality of
the work which will be not less than the quality of the existing
Building improvements.
4. The Space Plans and notes shall include: (a) partition layout and
door locations; (b) depiction of electrical and communication
equipment requirements other than for normal office equipment,
including modifications required to floor or main telephone or
electric closets; (c) reflected ceiling plan showing non-standard
lighting and ceiling construction or constraints which will affect
mechanical, electrical, fire protection or life safety systems;
(d) Tenant's special mechanical and plumbing requirements; (e)
Tenant's special floor loading requirements; (f) Tenant's
requirements for floor penetrations, including but not limited to
special stairs, dumbwaiters, conveyors, pneumatic systems,
elevators or architectural features; and (g) approximate
information regarding anticipated structural and mechanical,
electrical, fire protection, controls and life safety systems
design requirements.
II. Architectural Drawings
Tenant's submission of Architectural Drawings (construction documents
inclusive of one reverse mylar and two blueprints of Architectural
Drawings and Specifications) to Landlord will comply with the following
requirements which are intended to assist Tenant and Tenant's Architect
in defining all information required by Landlord to complete Landlord's
review of space usages and the quality and extent of the proposed
construction and its effect upon the building and building systems.
Tenant, upon receipt of the Approved Space Plan from Landlord, will
coordinate them with the Architectural Drawings prepared by Tenant's
Architect, it being understood that the Architectural Drawings will be
consistent with and a logical extension of the Approved Space Plans.
Tenant is responsible for consistency between the Architectural
Drawings and the Approved Space Plans.
The Architectural Drawings will depict the quality of the work to be
performed (the "Finish Work") and must provide for a quality level
equal to (as determined by Landlord)
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or exceeding the requirements of the base building core and shell
construction contract documentation.
The Architectural Drawings will include but not be limited to: (a)
partition layout and door locations; (b) electrical outlets, including
the location and usage; (c) telephone outlets, including description of
system, size of conduit servicing each outlet, power and mechanical
requirements for system and any requirements affecting base building
construction, including modifications required to floor or main
telephone rooms; (d) reflected ceiling plan showing standard and
non-standard lighting, switching requirements and ceiling construction
or constraints which will affect mechanical, electrical, fire
protection or life safety systems, and will include all necessary
specifications and details of items or construction; (e) Tenant's
occupancy capacity, usage equipment loads for all spaces, particularly
special usage rooms, including but not limited to conference rooms,
lounges, coffee rooms, copy rooms, computer terminal or keypunch rooms,
audio-visual rooms and reproduction or print rooms which require
special heating, ventilating, air conditioning or fire protection (all
specifications on usage or equipment therein, including BTU per hour
output of all equipment and parameters as to extent of special work
required); (f) Tenant's floor loading for all spaces (all
specifications, weight, vibration and vibration isolation for each item
sufficiently complete for structural engineering design), particularly
special usage rooms, including, but not limited to file rooms, storage
rooms, computer rooms and reproduction or print rooms; (g) floor
penetrations, including but not limited to special stairs, dumbwaiters,
conveyors, pneumatic systems, elevators or architectural features; and
(h) all structural, mechanical, electrical, fire protection, controls
and life safety systems requirements.
The Architectural Drawings will include the following as well: (1) all
millwork and equipment which will be part of the Finish Work and become
part of the Premises; (2) a complete finish schedule for all floors,
walls, ceilings, including millwork, door frames, etc.; (3) keying
schedules; (4) special blocking requirements as may be required to
support wall or ceiling hung furniture or equipment; and (5) all other
information necessary to complete construction of the Premises,
including the architect's stamp if required by the Building Department.
The Architectural Drawings when approved by Landlord and Tenant will be
acknowledged as such by Tenant and Landlord initialing each sheet
thereof. These drawings are referred to hereafter as "Final
Architectural Drawings."
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EXHIBIT B TO OPTION B WORK LETTER
LANDLORD REQUIREMENTS OF THE CONTRACT
The Contract will be subject to review and approval of Landlord and will fully
incorporate the following provisions. In the event of any conflict between any
provisions of the Contract and the provisions below, the provisions below will
control.
1. The Contract will be in writing and will cover all aspects of the Finish
Work. No Finish Work will be performed except pursuant to the Contract.
fully executed copies of the Contract will be delivered to Landlord. If
Landlord determines that the Contract does not comply with the provisions
hereof, it will immediately be corrected and no work will be commenced in
the Premises until the deficiencies have been corrected. Any delays in
completion resulting from modifications will be Tenant Delays. Following
delivery of a copy of the Contract to Landlord and its [review] [approval],
no modification will be effective unless and until a copy thereof has been
delivered to Landlord for its review.
2. Changes in the Final Drawings will be made only upon prior written approval
of Landlord which will be deemed given if Tenant has not been informed
otherwise in writing or by oral communication confirmed in writing within 5
days of Landlord's receipt of the requested changes.
3. Scheduling of Finish Work: The Contract will obligate Tenant's Contractor
to perform Finish Work in accordance with time schedules acceptable to
Tenant, Tenant's Contractor and Landlord. Any schedule proposed by Tenant's
Contractor will be based upon Tenant's Contractor applying its best efforts
to the Finish Work.
4. Tenant's Contractor will not knowingly perform Finish Work which will
result in a lesser quality installation or provide inferior performance
than that established by the base shell and core drawings and
specifications covering similar work items. Landlord will have the right at
any time during the performance of Finish Work or thereafter to require
replacement and reconstruction at Tenant's Expense of Finish Work not
conforming to the standards and specifications in the Final Drawings.
5. Tenant and Tenant's Contractor will give all notices and comply with all
laws, ordinances, rules, regulations and orders of any public authority
relating to the performance of the Finish Work. If either party observes
that any Finish Work is at variance with any applicable codes, ordinances,
laws, rules and regulations (collectively, "Applicable Laws"), it will
promptly notify the other party and Landlord in writing, and necessary
changes will be made by Tenant. If Tenant's Contractor performs any Finish
Work that it knows is contrary to Applicable Laws, and fails to deliver
prior notice to Tenant and Landlord, Tenant's Contractor will assume full
responsibility therefor and will bear all costs attributable to repair,
replacement or correction. Tenant, Tenant's Contractor and its
subcontractors will comply with Federal, State and local tax laws, social
security acts, unemployment compensation acts and such other acts and laws
as are applicable to the performance of Finish Work.
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6. All risk of loss to all property of Tenant, Tenant's Contractor and its
subcontractors will be the sole responsibility of Tenant, Tenant's
Contractor and its subcontractors, and Landlord will have no responsibility
therefor.
7. Tenant and Tenant's Contractor agree that in order to maintain Landlord's
warranties and guarantees for the mechanical, electrical, control life
safety, and fire protection systems, all Finish Work affecting these
systems will be completed by the base shell core subcontractors performing
the respective base shell and core Work items; provided, however, at
Landlord's sole option, it may allow other subcontractors to perform work
in the Building on special systems which may require connection into the
foregoing base building systems.
8. The following insurance requirements will be complied with:
a. Minimum Coverage - Prior to any Finish Work being commenced by
Tenant's Contractor, it will obtain and maintain insurance with
minimum coverage and limits to protect Tenant and Landlord from the
claims hereafter set forth which may arise or result from Tenant's
Contractor's performance of any Finish Work, whether such work is
performed by Tenant's Contractor, its subcontractors, or by anyone for
whose acts such parties may be liable as follows (subject to the
provisions below, such limits may be provided by an appropriate
"umbrella" policy):
(1) Workmen's Compensation and occupational disease insurance at the
statutory limits provided for by the State of Colorado;
(2) Employer's liability insurance in an amount not less than
$100,000 for all damages arising from each accident or
occupational disease;
(3) Commercial general liability insurance covering: (i) Operations
premises liability;
(ii) Owner's and Contractor's protective liability;
(iii) Completed operations;
(iv) Product liability;
(v) Contractual liability;
(vi) Broad form property damage endorsement and property
damage caused by conditions otherwise subject to exclusion for
explosion, collapse or underground damage.
(4) Insurance limits:
Bodily Injury:
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$1,000,000 each occurrence; $1,000,000 aggregate completed
operations products
Property Damage
$500,000 each occurrence; $500,000 aggregate operations; $500,000
aggregate protective; $500,000 aggregate completed operations
products
(5) Comprehensive automobile liability insurance covering all owned,
hired or non-owned vehicles including the loading and unloading
thereof with limits of no less than:
Automobile Bodily Injury:
$500,000 each person; $1,000,000 each occurrence;
Automobile Property Damage:
$500,000 each person
b. Physical damage insurance covering the completed value of the Finish
Work which will afford coverage against "all risks" for physical loss
or damage.
c. Cancellation - All such insurance will be carried with a company
satisfactory to Landlord and Tenant and the liability policy will name
Landlord and Tenant and their employees and agents as additional
insured parties. Each policy will provide that it will not be
cancelled or altered except after 15 days prior written notice to
Tenant and Landlord, and the certificate of insurance will so state.
d. Policy Termination - Tenant's Contractor and each subcontractor will
maintain all insurance required hereunder during the term of the
Contract and for a period ending one year after the date of completion
of all Finish Work done pursuant to the Contract to the extent such
insurance is written in a "claims made basis."
e. Policies - Prior to commencement of work by Tenant's Contractor, it
will deliver one copy of the policies or certificates evidencing such
insurance to Tenant and Landlord. Such policies must be approved by
Tenant and Landlord prior to commencement of work. Notwithstanding the
above, Landlord may require greater coverage or larger limits by
serving notice upon Tenant. Without the written consent of Landlord,
Tenant's Contractor agrees that it will not allow any subcontractor to
commence work within the building until such subcontractor has
obtained the required insurance.
f. Umbrella Liability Insurance - Umbrella liability insurance with
limits of liability for claims of bodily injury, personal injury and
property damage liability not less than $10,000,000 each occurrence
and $10,000,000 aggregate.
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g. Waiver of Subrogation - Tenant and Tenant's Contractor will waive all
rights against each other and the subcontractors, sub-subcontractors,
agents and employees, for damages caused by fire or other perils
available under the normal "All Risk" I.S.O. insurance policy on the
work itself and the Building. [Upon receipt of evidence satisfactory
to Landlord that all insurance required to be carried hereunder has
been obtained, Landlord will, upon request of Tenant, execute a
document evidencing its agreement to waive all rights it would
otherwise have against Tenant or Tenant's Contractor for damage
covered by its property insurance on the Building.]
9. Tenant's Contractor will indemnify, defend, and hold harmless Tenant and
Landlord and their respective representatives, agents and employees from
and against all claims, damages, losses and expenses, including, but not
limited to reasonable attorney's fees, arising out of or resulting from the
performance of Finish Work or Tenant's Contractor's failure to perform in
accordance with the Contract (but specifically excluding the Finish Work
itself and the Building) which are: a) caused in whole or in part by any
negligent act or omission of Tenant's Contractor, any subcontractor, anyone
directly or indirectly employed by any of them or anyone for whose acts any
of them may be liable, regardless of whether or not such claim, loss,
damage or expense is caused in part by a party indemnified hereunder, and
b) attributable to bodily injury, sickness, disease or death, or
destruction of or damage to tangible property including loss of use
resulting from any of the foregoing acts.
Tenant's indemnification obligation under this Paragraph 9 will not be
limited by any limitation on the amount or type of damages, compensation or
benefits payable by or for the Contractor or any subcontractor under
workmen's compensation acts, disability benefit acts or other employee
benefit acts.
10. Tenant's Contractor and Tenant will agree that while Landlord may make
available to Tenant's Contractor for incorporation into the Finish Work
materials previously purchased by Landlord, Landlord is not the
manufacturer of such materials nor is it the commercial supplier of such
materials. Accordingly, Tenant and Tenant's Contractor will agree that if
either one or both of them have any claim with respect to any of such
materials supplied by Landlord for incorporation into the Finish Work,
whether such claims relate to any alleged breach of an express warranty or
an implied warranty or otherwise, any claims against Landlord whether
directly or by way of defense, counterclaim, cross claim or offset are
waived and released and such claims will be brought exclusively against the
person or entity from whom Landlord purchased such materials or against the
manufacturer. Landlord will execute such documents as may be reasonably
necessary to assign any rights Landlord would otherwise have against a
supplier or manufacturer.
11. Landlord or Tenant may require Tenant's Contractor to provide payment and
performance bonds for any or all Finish Work, such bonds to be provided at
Tenant's expense. Any bond will be requested and provided prior to
commencement of Finish Work.
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12. If Tenant's Contractor is adjudicated a bankrupt, or makes a general
assignment for the benefit of its creditors, or if a receiver is appointed
on account of Tenant's Contractor's insolvency, or if Tenant's Contractor
persistently or repeatedly refuses or fails, except in cases where delay is
justified, to supply enough properly skilled workmen or proper materials or
if Tenant's Contractor persistently disregards Applicable Laws, or
otherwise is guilty of a substantial violation of a provision of the
Contract, Tenant may, without prejudice to any right or remedy and after
giving Tenant's Contractor and its surety, if any, 7 business days' written
notice, terminate the Contract and take possession of all materials,
equipment, tools, construction equipment and machinery owned by Tenant's
Contractor and will thereafter complete the Finish Work by whatever method
it may deem expedient. In such case, Tenant's Contractor will not be
entitled to receive any further payments until completion of all Finish
Work; provided, however, that Tenant's actions will not release Tenant's
Contractor from any obligations to Tenant arising from its performance or
nonperformance prior to the date of such termination. Following completion,
Tenant will pay Tenant's Contractor an amount equal to the aggregate of the
amounts actually due under the Contract at the time of the termination,
less the cost to Tenant of completing the Finish Work.
13. Prior to commencement of any Finish Work in the Premises, Tenant's
Contractor will give written notice to Landlord and Tenant of the date work
will commence. If a subcontractor or materialman files a mechanics' lien as
a result of performing Finish Work pursuant to the Contract, then, provided
Tenant's Contractor has been paid for such work, Tenant's Contractor will
indemnify and defend Tenant and Landlord from said lien and will, when
requested by Tenant or Landlord, furnish (as Landlord or Tenant may
specify) either a bond sufficient to discharge the lien, deposit in an
escrow approved by Landlord and Tenant a sum equal to 150% of the amount of
such lien or obtain for Landlord an endorsement through Landlord's title
policy insuring against loss or damage resulting from such lien. Subject to
any restrictions of Landlord's Mortgagee on the Building, Tenant's
Contractor may, in cooperation with Landlord and Tenant, contest the
validity of a mechanics' lien, including the right to prosecute any appeals
so long as during the pendency of any contest, Tenant's Contractor will
effectively stay any official or judicial sale of the Building, upon
execution or otherwise, and so long as Tenant's Contractor immediately pays
any final judgment entered and procures record satisfaction thereof. If
Tenant or Landlord is a party to any such contest, or any other action
resulting from or arising out of the performance of the Finish Work,
Tenant's Contractor will pay all legal fees and other costs and expenses
incurred by Landlord and Tenant in such action. If Tenant's Contractor
fails to provide a bond, cash escrow or title endorsement, or otherwise
fails to fully satisfy and obtain the release of a lien in accordance with
the provisions hereof, Tenant's Contractor will be obligated to refund
Tenant or Landlord, as the case may be, all monies that the latter may pay
in discharging any such lien including costs and reasonable attorneys' fees
incurred in settling, defending against, appealing or in any other manner
dealing with any such lien.
14. Tenant's Contractor will warrant and agree at its expense to correct or
cause to be corrected any defects in the Finish Work (including, but not
limited to, defects due to defective workmanship or materials whether
supplied, installed or performed by Tenant's Contractor or any
subcontractor or supplier) which occur within one year after Tenant's
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Contractor has substantially completed the Finish Work, including
completion of all punchlist items, or for such longer period as may be set
forth in the Final Drawings. Tenant's Contractor will require a similar
warranty in all subcontracts, and will deliver to Landlord and Tenant,
together with appropriate assignments, if required, all warranties of
subcontractors and suppliers. All warranties will extend to both Landlord
and Tenant, as their respective interests in such Finish Work exist
pursuant to the Lease.
15. Tenant's Contractor will: (a) comply with all reasonable rules relating to
construction activities in the Building promulgated by Landlord or
Landlord's Contractor; (b) be responsible for reaching agreement with
Landlord as to the conditions for use of the elevators, systems
interfacing, use of temporary utilities, access to the Premises and use of
truck docks and storage areas.
16. Landlord has no obligation to Tenant's Contractor except for the provision
of those services which Landlord provides to other tenant finish
contractors in the Building without preference or privilege.
17. Landlord and Landlord's Contractor may, from time to time, inspect or
perform work within the Premises. Such inspections or work will not
conflict with Tenant's Contractor's work unless it is necessary for
completion of Landlord's Work, or is an emergency situation. Landlord may
suspend Tenant's Contractor's work in the Premises if such work, in the
opinion of Landlord or of Landlord's Contractor, presents a danger to life,
safety, or property, or in an emergency situation.
18. Tenant will give Landlord reasonable prior notice of all inspections,
punchouts and other reviews during the course of construction so that
Landlord may observe such events. Landlord will be likewise informed of all
Building Department inspections and requirements for issuance of the
Certificate of Occupancy for the Premises. Landlord's observation of any
such events will, in no event be construed or interpreted as a review or
approval by Landlord of any such work nor will it prevent Landlord, if it
thereafter discovers any deficiency in such Work, from requiring
correction. Tenant's Contractor will be solely responsible for obtaining a
Certificate of Occupancy and will submit to Landlord the original prior to
Tenant's occupancy of the Premises for the purpose of conducting business.
19. Landlord's Engineer or other agent will have the option of reviewing all
equipment and materials to be used in the construction of the Finish Work
and all work prior to Tenant move-in. Such review will in no event
constitute approval by Landlord.
20. Tenant will promptly furnish Landlord a copy of the building permit issued
to Tenant's Contractor after issuance.
21. Tenant's Contractor will not store materials or supplies in or outside the
Building (other than within the Premises) without the prior approval of
Landlord or Landlord's Contractor.
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22. All deliveries except hand-held items must be taken to the floors via the
freight elevator and not the passenger elevators. The passenger elevators
are only for passenger use not for freight or handcarts.
23. Tenant's Contractor will provide at all times direct supervision of all
work being performed for Tenant.
24. Tenant's Contractor will cooperate with Landlord in disposing refuse
resulting from the Finish Work. This may include the use of Landlord's
dumpster and a proration of charges associated with such use or at
Landlord's option at Tenant's expense the placement of Tenant Contractor's
dumpster at a location specified by Landlord.
25. Tenant's Contractor will acknowledge that the work to be performed by it
for Tenant is also for the direct benefit of Landlord. Landlord will have
the right to pursue in its own name directly against Tenant's Contractor
any rights or remedies including, without limitation, claims for damages
granted to Tenant.
If any legal action or arbitration proceeding is commenced to enforce the
provisions of the Contract or to recover damages as a result of the alleged
breach of the provisions thereof, the prevailing party will be entitled to
recover all reasonable costs incurred in connection therewith, including
attorneys' fees.
The Contract will be construed in accordance with the laws of the State of
Colorado. Subject to Paragraph 26, any litigation or other proceeding will
be decided by the District Court In and For the City and County of Denver,
State of Colorado.
26. All claims, disputes and other matters in question between Tenant and
Tenant's Contractor arising out of, or relating to, the Contract, will be
decided by arbitration in accordance with the Construction Industry
Arbitration Rules of the American Arbitration Association then obtaining
unless the parties mutually agree otherwise. No such arbitration will
include Landlord, its employees or consultants, except by written consent
of Landlord and any other party sought to be joined.
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EXHIBIT C TO OPTION B WORK LETTER
FORM OF LIEN WAIVERS
Appropriate lien waivers substantially in the forms attached hereto as Exhibits
C-1, C-2, C-3, and C-4, as the case may be, will accompany all requests for
payment by Tenant.
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EXHIBIT C-1 TO OPTION B WORK LETTER
STATE OF COLORADO ) INTERIM CONTRACTOR'S
) ss. AFFIDAVIT RELEASE AND
COUNTY OF _____________ ) LIEN WAIVER
TO WHOM IT MAY CONCERN:
The undersigned, being first duly sworn, deposes and says that:
1. He is _______________ of the ____________________, who is the general
Contractor for the project hereinafter identified (the "Contractor"), and that
the undersigned is authorized to execute and deliver this document on behalf of
the Contractor.
2. The Contractor is the contractor for the performance of certain work
and/or the furnishing of certain materials or supplies (the "Work") pursuant to
a Contract between Contractor and Verio Inc. ("Verio"), for the improvements and
project commonly known as _________________________ upon property legally
described as: _________________________, County of __________, State of
__________, hereinafter referred to as the "Property." The Property is owned by
Highland Park Venturers, LLC, a Colorado limited liability company, ("Owner").
3. This instrument is executed and delivered in consideration of and for
the purpose of inducing Verio Inc. and the Owner to make an interim payment of
$__________ under the Contract, subject to collection of any check given as
payment. The total amount of the Contract including change orders is
$__________, and the undersigned acknowledges that upon receipt of this interim
payment, the Contractor has received interim payments totalling $__________
under the Contract.
4. The undersigned for the Contractor, subject to the receipt and
collection of the interim payment herein requested, warrants and represents
that: (i) all materials delivered to said project by or for the Contractor are
for use therein only; (ii) title to all work, materials and equipment covered by
said payment, whether or not incorporated in the improvement on the Property,
has passed to the Owner, free and clear of all liens, claims, security or
encumbrances (hereinafter all referred to as "liens"); (iii) all taxes
applicable to the materials furnished for use in or on the Property and all
taxes for the Work performed under the Contract have been fully paid; and (iv)
all laborers, mechanics, subcontractors, materialmen and suppliers for all work
done and for all materials, machinery, equipment, fixtures, tools, scaffolding
and appliances furnished for the performance of the Contract and for any other
indebtedness connected therewith for which Verio or the Owner of the Property
might be responsible have been paid in full to the date hereof. Contractor, to
the extent of the total of interim payments received, for itself, its
successors, and on behalf of all persons able to claim through or under the
Contractor: (a) waives, relinquishes and releases all liens and rights of claims
to liens for labor or materials furnished in the construction, improvement,
alteration or repair involved in performance under the Contract; (b) agrees (1)
to save Verio and Owner harmless from all liability, costs and expenses,
including reasonable attorneys' fees, resulting from mechanic's and/or
materialmen's liens for the performance of work or the furnishing of materials
or supplies pursuant to the
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Contract, (2) to discharge (by bond or otherwise) or to defend suit to enforce
any mechanic's or materialmen's lien, claim to or right of action for any such
lien which may be filed, and (3) to satisfy any claims or demands which arise
out of, which are due to or which may be made for, any work performed or
supplies furnished under the Contract or in furtherance of the construction or
completion of the Contract, whether directly or indirectly attributable to the
Contract; and (c) hereby releases Verio and the present and any future Owner of
the Property, the Property, and any lender who may now or hereafter have a
security interest in the Property, from all claims, rights of action,
liabilities and liens which may be filed or asserted in connection with the
Contract.
Dated this _____ day of __________, 19___.
------------------------------------------
Authorized representative of Contractor
SUBSCRIBED AND SWORN TO before me this _____ day of __________, 19___.
My commission expires ____________________.
-----------------------------------------
Notary Public
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EXHIBIT C-2 TO OPTION B WORK LETTER
STATE OF COLORADO ) FINAL CONTRACTOR'S
) AFFIDAVIT, RELEASE AND
COUNTY OF _____________ ) LIEN WAIVER
TO WHOM IT MAY CONCERN:
The undersigned, being first duly sworn, deposes and says that:
1. He is _______________ of the ____________________, who is the general
Contractor for the project hereinafter identified (the "Contractor"), and that
the undersigned is authorized to execute and deliver this document on behalf of
the Contractor.
2. The Contractor is the contractor for the performance of certain work
and/or the furnishing of certain materials or supplies (the "Work") pursuant to
a Contract between Contractor and Verio Inc. ("Verio") for the improvements and
project commonly known as _________________________ upon property legally
described as: _________________________, County of __________, State of
__________, hereinafter referred to as the "Property." The Property is owned by
Highland Park Venturers, LLC, a Colorado limited liability company ("Owner").
3. This instrument is executed and delivered in consideration of and for
the purpose of inducing Verio and the Owner to make final payment of $__________
under the Contract, subject to collection of any check given as payment. The
total amount of the Contract including change orders is $__________, and the
undersigned acknowledges that upon receipt of this final payment, the Contractor
has been paid in full the total contract price under the Contract.
4. The undersigned for the Contractor, subject to the receipt and
collection of the final payment herein requested, warrants and represents that:
(i) all materials delivered to said project by or for the Contractor are for use
therein only; (ii) title to all work, materials and equipment covered by said
payment, whether or not incorporated in the improvement on the Property, has
passed to the Owner, free and clear of all liens, claims, security or
encumbrances (hereinafter all referred to as "liens"); (iii) all taxes
applicable to the materials furnished for use in or on the Property and all
taxes for the Work performed under the Contract have been fully paid; and (iv)
all laborers, mechanics, subcontractors, materialmen and suppliers for all work
done and for all materials, machinery, equipment, fixtures, tools, scaffolding
and appliances furnished for the performance of the Contract and for any other
indebtedness connected therewith for which Verio and the Owner of the Property
might be responsible have been paid in full. Contractor for itself, its
successors, and on behalf of all persons able to claim through or under the
Contractor: (a) waives, relinquishes and releases all liens and rights of claims
to liens for labor or materials furnished in the construction, improvement,
alteration or repair involved in performance under the Contract; (b) agrees (1)
to save Verio and Owner harmless from all liability, costs and expenses,
including reasonable attorneys' fees, resulting from mechanic's and/or
materialmen's liens for the performance of work or the furnishing of materials
or supplies pursuant to the Contract, (2) to discharge (by bond or otherwise) or
to defend suit to enforce any mechanic's or materialmen's lien, claim to or
right of action for any such lien which may be
2
<PAGE> 77
filed, and (3) to satisfy any claims or demands which arise out of, which are
due to or which may be made for, any work performed or supplies furnished under
the Contract or in furtherance of the construction or completion of the
Contract, whether directly or indirectly attributable to the Contract; and (c)
hereby releases Verio and the present and any future Owner of the Property, the
Property, and any lender who may now or hereafter have a security interest in
the Property, from all claims, rights of action, liabilities and liens which may
be filed or asserted in connection with the Contract.
Dated this _____ day of __________, 19___.
---------------------------------------
Authorized representative of Contractor
SUBSCRIBED AND SWORN TO before me this _____ day of __________, 19___.
My commission expires ____________________.
---------------------------------------
Notary Public
2
<PAGE> 78
EXHIBIT C-3 TO OPTION B WORK LETTER
- ------------------------------------ INTERIM SUBCONTRACTOR'S OR
Project MATERIAL SUPPLIER'S AFFIDAVIT,
RELEASE AND LIEN WAIVER
- ------------------------------------
Job Address
- ------------------------------------
Job Number
STATE OF COLORADO )
) ss.
COUNTY OF __________ )
The undersigned subcontractor or material supplier (herein referred to as
"Subcontractor"), being first duly sworn, deposes and says that: He is over the
age of 21 years and resides at: ____________________.
(IF SUBCONTRACTOR IS AN INDIVIDUAL:)
1._______He is the Subcontractor referred to herein.
(IF SUBCONTRACTOR IS A PARTNERSHIP:)
1._______He is a general partner in _____________________, a co-partnership
composed of the undersigned and carrying on business at _______________, City of
______________. Said co-partnership is the Subcontractor referred to herein.
(IF SUBCONTRACTOR IS A CORPORATION:)
1._______He holds the title of _____________, in __________________, a
corporation organized under the laws of the State of ________________, carrying
on business at ______________, City of __________________, State of
_______________, which corporation is the Subcontractor referred to herein. The
undersigned is authorized to execute this instrument on its behalf.
2._______Subcontractor is a subcontractor or material supplier for the
performance of certain work and/or the furnishing of certain materials or
supplies pursuant to an agreement or purchase order, as the case may be
(hereinafter called the "Subcontract, "which term will refer to the agreement or
purchase order, as the case may be), under a general contract
between--(hereinafter called "Contractor"), and Verio Inc. (hereinafter called
"Verio"), for the improvements or project known as ____________________, at
____________________, City of ______________________, County of
_____________________, State of _______________ (hereinafter called the
"Property"). The Property is owned by Highland Park Venturers, LLC, a Colorado
limited liability company ("Owner").
3 .______This instrument is delivered in consideration of and for the
purpose of inducing Contractor to make interim payment of $__________ under the
Subcontract, subject to collection of any check given as payment. Subcontractor
acknowledges that upon receipt of this interim
1
<PAGE> 79
payment, Subcontractor has received from Contractor interim payments totaling
$_________ under the Subcontract.
4._______Subcontractor warrants and represents that: (i) all materials
delivered to said project by or for Subcontractor are for use therein only; (ii)
title to all work, material and equipment covered by said payment, whether or
not incorporated in the Property, has passed to the Owner, free and clear of all
liens, claims, security interests or encumbrances (hereinafter all referred to
as "liens"); (iii) all taxes applicable to the materials furnished and the work
performed under the Subcontract have been fully paid; and (iv) all laborers,
mechanics, sub-subcontractors, materialmen and suppliers for all work done and
for all materials, machinery, equipment, fixtures, tools, scaffolding and
appliances furnished for the performance of the Subcontract and for any other
indebtedness connected therewith for which Verio or the Owner of the Property
might be responsible have been paid in full to the date hereof. Subcontractor,
to the extent of the total of interim payments received, for itself, its
successors, and on behalf of all persons able to claim through or under
Subcontractor: (a) waives, relinquishes and releases all liens and right or
claim to a lien for labor or materials furnished in the construction
improvement, alteration or repair involved in performance under the Subcontract;
(b) agrees to save Contractor harmless from all liability, costs and expenses,
including reasonable attorneys' fees, to: (1) discharge (by bond or otherwise)
or to defend suit to enforce, any mechanics' or materialmen's lien, claim to or
right of action for such lien, which may be filed and (2) satisfy any claims or
demands arising out of, due or which may be made, directly or indirectly
attributable to the Subcontract, any work performed or supplies furnished
thereunder, or in furtherance of the construction or completion of the
Subcontract work; and (c) hereby releases Contractor, any money earned by
Contractor, Contractor's sureties, Verio, the present and any future Owner, the
Property and any lender who may now or hereafter have a security interest
therein, from all claim, right of action, liability and lien which may be filed
or asserted in connection with the Subcontract.
Dated this _____ day of __________, 19__.
---------------------------------------------------
As Subcontractor, General Partner of Subcontractor,
or Authorized Officer of Subcontractor, above
described
STATE OF ____________ )
) ss.
COUNTY OF __________ )
Subscribed and sworn to before me this _______ day of ____________, 19__,
by ______________, known to me to be the above-named signatory, who personally
appeared before me and acknowledged that the foregoing instrument was freely and
voluntarily executed for the uses and purposes and on behalf of the
Subcontractor therein mentioned.
My commission expires ________________.
---------------------------------------------------
Notary Public in and for
said County and State
2
<PAGE> 80
EXHIBIT C-4 TO OPTION B WORK LETTER
- ------------------------------------ INTERIM SUBCONTRACTOR'S OR
Project MATERIAL SUPPLIER'S AFFIDAVIT,
RELEASE AND LIEN WAIVER
- ------------------------------------
Job Address
- ------------------------------------
Job Number
STATE OF COLORADO )
) ss.
COUNTY OF __________ )
The undersigned subcontractor or material supplier (herein referred to as
"Subcontractor"), being first duly sworn, deposes and says that: He is over the
age of 21 years and resides at: _________________.
(IF SUBCONTRACTOR IS AN INDIVIDUAL:)
1. He is the Subcontractor referred to herein.
(IF SUBCONTRACTOR IS A PARTNERSHIP:)
1. He is a general partner in __________________________________, a
co-partnership composed of the undersigned and carrying on business at
______________________________, City of _____________. Said co-partnership is
the Subcontractor referred to herein.
(IF SUBCONTRACTOR IS A CORPORATION:)
1. He holds the title of ______________, in
____________________________, a corporation organized under the laws of the
State of ________________________, carrying on business at
________________________, City of ________________, State of ________________,
which corporation is the Subcontractor referred to herein. The undersigned is
authorized to execute this instrument on its behalf.
2. Subcontractor is a subcontractor or material supplier for the
performance of certain work and/or the furnishing of certain materials or
supplies pursuant to an agreement or purchase order, as the case may be
(hereinafter called the "Subcontract," which term will refer to the agreement or
purchase order, as the case may be), under a general contract between
(hereinafter called "Contractor"), and Verio Inc. (hereinafter called the
"Verio"), for the improvements or project known as ___________________ at
___________________________, City of ____________, County of ______________,
State of ___________ (hereinafter called the "Property"). The Property is owned
by Highland Park Venturers, LLC, a Colorado limited liability company ("Owner").
3. This instrument is delivered in consideration of and for the
purpose of inducing Contractor to make final payment of $__________, subject to
collection of any check given as payment. Subcontractor acknowledges that upon
receipt of this final payment, Subcontractor has
1
<PAGE> 81
been paid in full the total subcontract price of $__________, for all of the
work performed under the Subcontract, including retainage, if any.
4. Subcontractor warrants and represents that: (i) all materials
delivered to said project by or for Subcontractor are for use therein only; (ii)
title to all work, material and equipment covered by said payment, whether or
not incorporated in the Property, has passed to the Owner, free and clear of all
liens, claims, security interests or encumbrances (hereinafter all referred to
as "liens"); (iii) all taxes applicable to the materials furnished and the work
per-formed under the Subcontract have been fully paid; and (iv) all laborers,
mechanics, sub-subcontractors, materialmen and suppliers for all work done and
for all materials, machinery, equipment, fixtures, tools, scaffolding and
appliances furnished for the performance of the Subcontract and for any other
indebtedness connected therewith for which Verio or the Owner of the Property
might be responsible have been paid in full. Subcontractor for itself, its
successors, and on behalf of all persons able to claim through or under
Subcontractor: (a) waives, relinquishes and releases all liens and right or
claim to a lien for labor or materials furnished in the construction
improvement, alteration or repair involved in performance under the Subcontract;
(b) agrees to save Contractor harmless from all liability, costs and expenses,
including reasonable attorneys' fees, to: (1) discharge (by bond or otherwise)
or to defend suit to enforce, any mechanics' or materialmen's lien, claim to or
right of action for such lien, which may be filed and (2) satisfy any claims or
demands arising out of, due or which may be made, directly or indirectly
attributable to the Subcontract, any work performed or supplies furnished
thereunder, or in furtherance of the construction or completion of the
subcontract work; and (c) hereby releases Contractor, any money earned by
Contractor, Contractor's sureties, Verio, the present and any future Owner, the
Property and any lender who may now or hereafter have a security interest
therein, from all claim, right of action, liability and lien which may be filed
or asserted in connection with the Subcontract.
Dated this ______ day of ___________________, 19__.
---------------------------------------
As Subcontractor, General Partner of
Subcontractor, or Authorized Officer of
Subcontractor, above described
2
<PAGE> 82
STATE OF ____________ )
) ss.
COUNTY OF __________ )
Subscribed and sworn to before me this ___ day of ___________, 19__, by
____________________, known to me to be the above-named signatory, who
personally appeared before me and acknowledged that the foregoing instrument was
freely and voluntarily executed for the uses and purposes and on behalf of the
Subcontractor therein mentioned.
My commission expires __________________.
--------------------------------
Notary Public in and for said
County and State
3
<PAGE> 83
FIRST AMENDMENT TO LEASE AGREEMENT
THIS FIRST AMENDMENT TO LEASE AGREEMENT, dated as of December 16,
1997, is entered into by and between HIGHLAND PARK VENTURERS, LLC, a Colorado
limited liability company ("Landlord") and VERIO INC., a Delaware corporation
("Tenant").
Recitals:
A. Landlord and Tenant entered into a written lease agreement, dated
June 20, 1997 (the "Lease"). (Initially capitalized terms not otherwise defined
herein have the same meaning as in the Lease.)
B. Tenant has exercised its Right of First Offer set forth in
Paragraph 2 of the Addendum to the Lease (the "Right"). In addition, Tenant
desires to lease additional space adjacent to the space subject to the Right.
C. Landlord and Tenant desire to amend the Lease in the manner and
form hereinafter set forth to evidence the addition of the Right of First Offer
Space and such additional space.
NOW, THEREFORE, for good and valuable consideration, Landlord and
Tenant hereby agree as follows:
1. Tenant has exercised its Right prior to the Commencement Date of
the Lease and, accordingly, the Right of First Offer Space (approximately 5,600
rentable square feet of space as depicted on Exhibit A-2 to the Lease) is added
to the Lease effective as of the Commencement Date of the Lease (as determined
in accordance with the Work Letter) for the Initial Term on all terms and
conditions of the Lease. In addition, Landlord and Tenant agree that an
additional 348 rentable square feet of space adjacent to the Right of First
Offer Space shall be added to the Lease effective at the same time and on the
same terms and conditions as otherwise applicable to the Right of First Offer
Space. The Right of First Offer Space and such additional 348 rentable square
feet, collectively approximately 5,948 rentable square feet as depicted on
Exhibit A-3, attached hereto and incorporated herein by this reference, are
referred to as the "Additional Space." Upon completion of the RFO Final Drawings
for the Additional Space, such space shall be subject to remeasurement in
accordance with Paragraph 1.A of the Addendum, in which event the square footage
of the Additional Space, Tenant's Pro Rata Share, the RFO Allowance and the
Parking Spaces, all as attributable to the Additional Space, shall be revised to
reflect such remeasurement.
2. Monthly Base Rent for the Additional Space, payable in addition to
Base Rent for the initially demised Premises and in accordance with the Lease,
shall be as follows (subject to final adjustment in accordance with Paragraph 1
of the Addendum to the Lease as referred to above):
<TABLE>
<CAPTION>
Period Monthly
------ -------
<S> <C>
Months 1-36 $10,830.32
Months 37-60 $10,904.67
</TABLE>
3. The Premises shall consist of approximately 39,248 rentable square
feet of space and Tenant's Pro Rata Share set forth in Section 1.5 is amended to
40.2139%, subject to final adjustment in accordance with Paragraph 1 of the
Addendum to the Lease.
<PAGE> 84
4. The Additional Space shall not be considered part of the Premises
for purposes of completing tenant finish work under the Work Letter attached to
the Lease; however, Landlord shall provide the Allowance prorated for the
Additional Space and Landlord shall contract for completion of the RFO Finish
Work for the Additional Space in accordance with the RFO Work Letter attached
hereto.
5. Concurrent with execution hereof, Tenant will deposit with Landlord
$10,830.32 as an additional Security Deposit for a total Security Deposit of
$71,464.07, to be held by Landlord in accordance with the Lease.
6. The LC Maximum as provided in the Paragraph 4 of the Addendum is
increased to $1,354,056.00 based on the 39,248 rentable square feet referred to
in Paragraph 3 above and on the execution hereof Tenant shall provide Landlord
with an endorsement or amendment to the Letter of Credit increasing the amount
under the Letter of Credit to the revised LC Maximum or Tenant shall provide a
substitute Letter of Credit in such LC Maximum amount (in which event, Landlord
shall surrender the original Letter of Credit upon determination that the
substitute Letter of Credit complies with the terms of the Lease). Such amount
shall be subject to further readjustment based on the remeasurement of the
Premises as provided in Paragraph 4 of the Addendum.
7. Section 1.9 of the Lease shall be amended to 181 surface spaces and
7 covered spaces.
8. Tenant represents it has not employed any broker with respect to
this Amendment and has no knowledge of any broker's involvement in this
transaction except the Brokers listed in Sections 1.14 and 1.15 of the Lease.
Tenant and Landlord shall each indemnify the other against any expense incurred
by other Landlord as a result of any claim for commissions or fees by any other
broker, finder, or agent, whether or not meritorious, employed by the other or
claiming by, through, or under the other, other than the Brokers. Tenant
acknowledges Landlord is not liable for any representations by the Brokers
regarding this Amendment.
9. If there is any conflict between the terms of this Amendment and
the terms of the Lease, the terms of this Amendment govern. The Lease as hereby
amended is in full force and effect, is hereby ratified and affirmed by the
parties, and is binding upon the parties in accordance with its terms.
10. Time is of the essence herein.
2
<PAGE> 85
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year first above written and is effective upon delivery of a fully
executed copy to Tenant.
VERIO INC., a Delaware corporation HIGHLAND PARK VENTURERS, LLC, a
Colorado limited liability company
By: /s/ DEB M. GAHAN
----------------------------------
Print Name: DEB M. GAHAN By: /s/ [ILLEGIBLE]
-------------------------- --------------------------------
Print Title: VP Finance Authorized Signatory
ATTEST: "Landlord"
By:
----------------------------------
Print Name:
--------------------------
Print Title:
-------------------------
"Tenant"
3
<PAGE> 86
EXHIBIT A-3
LEVEL ONE PLAN
ONE HIGHLAND PARK
OFFICE BUILDING
<PAGE> 1
EXHIBIT 10.6
SECOND AMENDMENT TO LEASE
COMMENCEMENT DATE & RENTAL COMMENCEMENT DATE ADJUSTMENT
THIS SECOND AMENDMENT TO LEASE ("Amendment") by and between IM JOINT VENTURE, a
Texas joint vent VERIO, INC. a Delaware corporation ("Tenant"), is executed as
of the 17th day of July, 1997.
W I T N E S S E T H
WHEREAS, Landlord and Tenant have heretofore entered into that certain Lease,
dated May 24, 1997, and that certain First Amendment to Lease dated June 16,
1997 (collectively the "Lease"), under the terms of which Landlord [eased to
Tenant certain "Leased Premises" located in the "Building" (as those terms are
defined in the Lease);
Now, THEREFORE, for and in consideration of the Premises. the mutual covenants
contained herein and in the Lease, and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged and confessed,
Landlord and Tenant hereby covenant and agree as follows:
1. DEFINED TERMS. Terms defined in the lease and delineated
herein by initial capital letters shall have the same meaning ascribed
thereto in the Lease, except to the extent that the meaning of such
term is specifically modified by the provisions hereof In addition,
other terms not defined in the Lease but defined herein will, when
delineated with initial capital letters, have the meanings ascribed
thereto in this Amendment. Terms and phrases which are not delineated
by initial capital letters shall have the meanings commonly ascribed
thereto.
2. COMMENCEMENT DATE, Section 1.5 of the Lease Agreement is
hereby amended as follows:
Commencement Date shall mean June 21, 1997. Tenant shall be deemed to
commence occupancy of the Leased Premises on the date Tenant takes
possession of the Leased Premises for the purpose of equipping,
furnishing, and improving the Leased Premises.
3. RENTAL COMMENCEMENT DATE. Section 1.21 of the Lease Agreement
is hereby amended as follows:
Rental Commencement Date shall mean July 21, 1997.
4. BASE RENTAL . Section 1. 1. of the Lease Agreement is hereby
amended and hereafter Base Rental shall mean:
From the "Commencement Date" (defined in Section 2. of this Second
Amendment to Lease) until the "Rental Commencement Date" (defined in
Section 3 of this Second Amendment to Lease), the sum of Zero and
00/100ths Dollars ($0.00) per month;
<PAGE> 2
From July 21. 1997 through September 20, 1997, the sum of Five
Thousand Eight Hundred and 89/100ths Dollars ($5,800.89) per month,
From September 21, 1997 through April 20, 1998, the sum of Twelve
Thousand Nine Hundred Forty-two and 68/100ths Dollars ($I 2,942.68)
per month;
From April 21, 1998 through July 20, 1999, the sum of Seventeen
Thousand Eighty and 07/100ths Dollars ($17,080.07) per month;
From July 21, 1999 through July 20, 2000, the sum of Seventeen
Thousand Six Hundred Sixty-four and 17/100ths Dollars ($I 7,664.17)
per month;
From July 21, 2000 through July 20, 2001, the sum of Seventeen
Thousand Nine Hundred Fifty-six and 33/100ths Dollars ($17,956.33) per
month; and
From July 21, 2001 through July 20, 2002, the sum of Eighteen Thousand
Fourteen and 65/100ths Dollars ($18,014.65) per month.
6. LEASED PREMISES. Paragraph I of the First Amendment to Lease
is hereby amended and hereafter Definition of Leased Premises shall
mean:
SECTION 1.10. LEASED PREMISES shall mean,
collectively, (i) Suite 2004 in the Building ("Initial
Premises"), Suite 2005 in the Building ("Suite 2005 Space"),
and Suite 2006 in the Building ("Suite 2006 Space").
Notwithstanding anything in this Lease to the contrary, Tenant
shall have no right to occupy the Suite 2006 Space until July
21, 1997, and shall have no right to occupy or store any of
its property in the Suite 2005 Space until April 21, 1998,
unless Tenant shall have obtained Landlord's prior written
consent to an earlier occupancy of the applicable portion or
portions of the Leased Premises. The Base Rental payable by
Tenant has been calculated on the basis of the portion of the
Leased Premises to be occupied by Tenant during each
applicable period during the Lease Term. In the event that
Tenant takes earlier occupancy of a portion of the Leased
Premises, the Base Rental shall be adjusted accordingly.
5. COMMISSIONS. Landlord and Tenant hereby indemnify and hold
each other harmless against any loss, claim, expense or liability with
respect to any commissions due or brokerage fees claimed on account of
the execution of this Amendment due to any action of the indemnifying
party.
6. EFFECT OF AMENDMENT. Except as expressly amended by the
provisions hereof, the terms and provisions contained in the Lease
shall continue to govern the rights and obligations of the parties;
and all provisions and covenants in the Lease shall remain in full
force and effect as stated therein. except to the extent specifically
modified b the provisions of this Amendment. This amendment and the
Lease shall be construed as one instrument.
<PAGE> 3
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the
day and year first above written.
LANDLORD
--------
IM JOINT VENTURE, a Texas joint venture
By: IFM PARTNERSHIP, a Texas general
partnership, a Joint Venturer
By: /s/ Harlan R. Crow
-----------------------------------
Name: Harlan R. Crow
---------------------------------
Title: Partner
TENANT
------
VERIO, INC., a Delaware corporation
By:
-----------------------------------
Name: James M. Kieffer
---------------------------------
Title: Vice President, Officer
--------------------------------
Operations
--------------------------------
<PAGE> 4
LEASE AGREEMENT
between
IM JOINT VENTURE
and
VERIO, INC,
<PAGE> 5
LEASE AGREEMENT
between
IM JOINT VENTURE
and
VERIO, INC.
<PAGE> 6
LEASE AGREEMENT
INFOMART
WHERE TECHNOLOGY LIVES
THIS LEASE AGREEMENT (the "Lease") is made and entered into as of the 24th day
of July, 1997, by and between IM JOINT VENTURE, a Texas joint venture
("Landlord"), whose address is 1950 Stemmons Freeway, Dallas, Texas 75207 and
VERIO, INC., a Delaware corporation ("Tenant"), whose address is 9250 East
Costilla Avenue, Suite 400, Englewood, Colorado 80112. If there shall be more
than one party executing this Lease as Tenant, their obligations shall be
joint and several. As used in this Lease, the terms set forth in Article I of
this Lease shall have the respective meanings indicated in such Article.
Subject to all of the terms and conditions of this Lease, and in consideration
of the mutual covenants and obligations contained in this Lease, Landlord and
Tenant agree as follows:
ARTICLE I - DEFINITIONS
SECTION II. BASE RENTAL shall mean
From the "Commencement Date" (defined in Section 1.5 hereof) until the
"Rental Commencement Date" (defined in Section 1.21 hereof), the sum
of Zero and 00/100ths Dollars ($0.00) per month; and
From July 1, 1997 through August 31, 1997, the sum of Five Thousand
Eight Hundred and 89/100ths Dollars ($5,800.89) per month; and
From September 1, 1997 through March 31, 1998, the sum of Twelve
Thousand Nine Hundred Forty-two and 68/100ths Dollars ($12,942.68) per
month; and
From April 1, 1998 through June 30, 1999, the sum of Seventeen
Thousand Eighty and 07/100ths Dollars ($17,080.07) per month; and
From July 1, 1999 through June 30, 2000, the sum of Seventeen Thousand
Six Hundred Sixty-four and 17/100ths Dollars ($17,664.17) per month;
and
From July 1, 2000 through June 30, 2001, the sum of Seventeen Thousand
Nine Hundred Fifty-six and 33/100ths Dollars ($17,956.33) per month;
and
From July 1, 2001 through June 30, 2002, the sum of Eighteen Thousand
Fourteen and 65/100ths Dollars (S18,014.65 per month.
SECTION 1.2. BASE YEAR shall mean 1997.
SECTION 1.3. THE "BUILDING" shall mean the information processing market
center located upon the real property (the "Property") described in Exhibit "A"
attached hereto and incorporated herein.
<PAGE> 7
SECTION 1.4. BUILDING RULES shall mean rules and regulations adopted and
altered by Landlord from time to time for the safety, care and cleanliness of
the Leased Premises and the Building and for the preservation of good order
therein, all of which will be sent by Landlord to Tenant in writing and shall
thereafter be carried out and observed by Tenant. The initial Building Rules
are attached hereto as Exhibit "B".
SECTION 1.5. COMMENCEMENT DATE shall mean the earlier of the date Tenant
actually occupies the Leased Premises or June 1, 1997, except as the same may
be delayed pursuant to Section 2.1 of this Lease. Tenant shall be deemed to
commence occupancy of the Leased Premises on the date Tenant takes possession
of the Leased Premises for the purpose of equipping, furnishing, and improving
the Leased Premises.
SECTION 1.6. COMMON AREAS shall mean those areas devoted to corridors,
elevator foyers, restrooms, mechanical rooms, janitorial closets, electrical
and telephone closets, vending areas, lobby areas, meeting rooms, auditoriums,
exhibit halls and other similar facilities provided for the common use or
benefit of tenants generally.
SECTION 1.7. INFOMART shall mean "INFOMART - Where Technology Lives" and shall
include that certain Building and Property as the same currently exists or as
it may from time to time hereafter be expanded or modified.
SECTION 1.8. INSURANCE COSTS shall mean all costs incurred by Landlord in
providing insurance. including but not limited to, property, liability and
casualty insurance, on the Building and Property, but excluding all insurance
costs which Tenant is required to provide under Section 5.3 hereof
SECTION 1.9. LEASE TERM shall mean a term which begins on the Commencement
Date and continues for sixty (60) months after the Rental Commencement Date.
SECTION 1.10. LEASED PREMISES shall mean Suite 2004 in the Building, as
defined in Section 1.13, and as outlined or marked in red on the floor plan of
the Building attached to this Lease as Exhibit "C".
SECTION 1.11. PERMITTED USE shall mean use for the display and marketing of
information processing and communications products and services and for
offices, storage and service areas incidental and related to such use, and to
include Internet customer support operation.
SECTION 1.12. RELOCATION SPACE shall mean a space designated by Landlord of
comparable size to the Leased Premises.
SECTION 1.13. RENTABLE SQUARE FEET shall mean the Usable Square Feet of the
Leased Premises, together with an additional amount representing a portion of
the Common Areas, Service Areas and other non-tenant space on floors two (2)
through six (6) in the Building. For purposes of this Lease, the parties have
agreed that the Leased Premises shall be deemed to consist of 5,828 Rentable
Square Feet (Suite 2004) from June 1, 1997 through June 30, 1997; and 10,177
Rentable Square Feet (Suites 2004 and 2006) from July 1, 1997 through March 31,
1998; and
<PAGE> 8
12,842 Rentable Square Feet (Suites 2004, 2005 and 2006) from April 1, 1998
through June 30, 2002 on floors two (2) through six (6) of the Building which
shall be deemed to consist of 1,056,200 Rentable Square Feet. However, both
Landlord and Tenant acknowledge that neither of these figures was calculated by
measuring the areas of actual Common Areas, Service Areas and other non-tenant
spaces in the Building and neither Landlord nor Tenant shall have a right to
demand remeasurement or recalculation of the Rentable Square Feet amounts for
Floors two (2) through six (6) or the Leased Premises.
SECTION 1.14. SECURITY DEPOSIT as used in Section 6.9 hereof shall mean Nine
Thousand Nine Hundred Thirty-Five and 08/100ths Dollars ($9,935.08).
SECTION 1.15. SERVICE AREAS shall mean those areas within the outside walls
used for elevator mechanical rooms, building stairs, elevator shafts, flues,
vents, stacks, pipe shafts and vertical penetrations (but shall not include any
such areas for the exclusive use of a particular tenant).
SECTION 1.16. TAXES shall mean all taxes and assessments and governmental
charges, whether federal, state, county or municipal, and whether they be by
taxing districts or authorities presently taxing the Leased Premises or the
Property or any part thereof, or by others, subsequently created or otherwise,
and any other taxes and assessments attributable to the Property or its
operation.
SECTION 1.17. TENANT'S PROPORTIONATE SHARE shall mean a fraction, the
numerator of which is the number of Rentable Square Feet comprising the Leased
Premises, and the denominator of which is the number of Rentable Square Feet
comprising floors two (2) through six (6) of the Building. Accordingly, the
parties acknowledge and agree that Tenant's Proportionate Share under this
Lease is .552 percent from June 1, 1997 through June 30, 1997; .964 percent
from July 1, 1997 through March 31, 1998 and 1.22 percent from April 1, 1998
through June 30, 2002.
SECTION 1.18. TRADE FIXTURES shall mean any and all signs placed by Tenant
within the Leased Premises pursuant to provisions hereof and any and all items
of property used by Tenant in the Leased Premises, including but not limited to
furniture and equipment; provided, however, that the term Trade Fixtures shall
not include any permanent leasehold improvements, including but not limited to
any floor, wall or ceiling coverings, any interior walls or partitions, any
lighting fixtures, track lights or any property which is a part of or
associated with any electrical, plumbing, or mechanical system, notwithstanding
that the same may have been installed within the Leased Premises.
SECTION 1.19. USABLE SQUARE FEET shall mean the gross number of square feet
enclosed by the surface of the exterior glass walls, the midpoint of any walls
separating portions of the Leased Premises from those of adjacent tenants, the
stab penetration line of all walls separating the Leased Premises from Service
Areas and the corridor side of walls separating the Leased Premises from Common
Areas.
<PAGE> 9
SECTION 1.20. UTILITY COSTS shall mean all costs incurred by Landlord in
providing electricity, gas, water and sewage disposal facilities to the
Building, including, without limitation, electricity used for heating, air
conditioning, operation of office machines and other equipment used on or about
the Building, and elevator and escalator service and lighting, but excluding
all such costs which Tenant may, from time to time, be obligated under the
provisions of Section 2.5 hereof to pay on a separately metered basis.
SECTION 1.21. RENTAL COMMENCEMENT DATE shall mean July 1, 1997.
ARTICLE 2
SECTION 2.1. LEASED PREMISES AND TERM. Landlord does hereby lease, demise and
let to Tenant and Tenant does hereby lease and take from Landlord the Leased
Premises for a term beginning on the Commencement Date and continuing in full
force and effect for the Lease Term, unless this Lease is terminated earlier
pursuant to the provisions hereof. The Leased Premises are demised hereby
subject to all easements, restrictions, agreements of record, mortgages and
deeds of trust, and zoning and building laws. If Landlord is unable to deliver
possession of the Leased Premises to Tenant as of the Commencement Date
specified in Article I for any reason, including, without limitation, the
holding over of any tenant or occupant of the Leased Premises, then the term
"Commencement Date" shall mean such subsequent date upon which the Landlord is
able to deliver possession of the Leased Premises to Tenant, and such failure
to deliver possession of the Leased Premises on the Commencement Date specified
in Article I hereof shall not constitute a default by Landlord hereunder or
render Landlord liable for any loss or damage that may be incurred as a result
of such failure. If the Leased Premises are delivered to Tenant for occupancy
on a date prior to the Commencement Date specified in Article I hereof, Tenant
agrees to accept and occupy the Leased Premises on such date and the term
"Commencement Date" shall mean such date. Tenant shall commence to furnish,
equip, and improve the Leased Premises, in accordance with Section 4.2(a)
hereof, on the Commencement Date. Landlord shall have no obligation to
furnish, equip or improve the Leased Premises. By occupying the Leased
Premises, Tenant shall be deemed to have accepted the same and to have
acknowledged that the same comply fully with Landlord's covenants and
obligations hereunder.
SECTION 2.2. USE. The Leased Premises shall be used and occupied by Tenant
solely for the Permitted Use and for no other purpose. Warehousing and on-site
delivery to customers is prohibited in the Building or any part thereof.
Payment for products or services that are of a retail sales nature are
prohibited (provided, however, that payment or partial payment for orders taken
at the Leased Premises for future delivery to a buyer will be allowed if it is
within the Tenant's normal business practice and is not of a retail sales
nature, it being the intention hereof to permit payments or partial payments
intended to bind an order for future delivery without in any way qualifying or
circumventing the prohibition within the Building against retail sales).
Tenant warrants and represents to Landlord that it is a producer of hardware,
software or services utilizing information processing equipment (and, if the
Tenant's business includes the resale of products or services, Tenant warrants
and represents that it adds to or enhances the value of such products or
services). Tenant shall not refuse to take purchase orders from any such
person by reason of the geographical location of such person's business.
Tenant shall not use or allow the Leased
<PAGE> 10
Premises to be used in any manner which obstructs or interferes with the rights
of other tenants of the Building or injures or annoys such tenants, and Tenant
shall not cause, maintain or permit any nuisance in, on or about the Leased
Premises or the Building, or permit or suffer to be committed any defacement,
injury or waste to, in, on, or about the Leased Premises or the Building.
SECTION 2.3. BASE RENTAL. Tenant agrees to pay the Base Rental to Landlord
for each month during the Lease Term as herein provided. Base Rental for the
first month of the Lease Term shall be due and payable in advance on the Rental
Commencement Date, and Base Rental for each and every month thereafter during
the Lease Term shall be due and payable in advance on the first day of the
month and be deemed delinquent by the fifth (5th) business day thereafter. If
the Rental Commencement Date is a day other than the first day of a calendar
month or in the event this Lease terminates on other than the last day of a
calendar month, then Base Rental for such month or months shall be prorated and
the installment or installments so prorated shall be paid in advance. In the
event that Tenant fails to make any payment of Base Rental or any other sums
due hereunder on or before the date any such payment becomes due and payable,
the Tenant shall also be obligated to pay interest on such past due amounts at
a rate equal to the lesser of eighteen percent (18%) per annum or the highest
rate permitted by law, such interest being in addition to and cumulative of any
other rights and remedies which Landlord may have hereunder with regard to the
failure of Tenant to make any payment of Base Rental or any other sum due
hereunder.
SECTION 2.4. TENANT'S PROPORTIONATE SHARE OF TAXES, INSURANCE COSTS AND
UTILITY COSTS. In addition to the payment of Base Rental, Tenant shall pay to
Landlord Tenant's Proportionate Share of Utility Costs, Insurance Costs and
Taxes, in accordance with the following provisions:
(a) Tenant shall pay to Landlord, either in the form of a lump sum
payment due and payable upon demand by Landlord or on a
monthly basis contemporaneously with the payment of Base
Rental, as Landlord may elect, (i) an amount reasonably
estimated by Landlord to be Tenant's Proportionate Share of
all Utility Costs for each calendar year or portion thereof
during the Lease Term, (ii) an amount reasonably estimated by
Landlord to be Tenant's Proportionate Share of all Insurance
Costs for each calendar year or portion thereof during the
Lease Term and (iii) an amount reasonably estimated by
Landlord to be Tenant's Proportionate Share of the amount, if
any, by which Taxes for each calendar year or portion thereof
during the term of this Lease exceed Taxes for the Base Year.
(b) If at any time Landlord shall have reasonable grounds to
believe that actual Utility Costs, Insurance Costs or Taxes
incurred will vary from such estimates, then Landlord reserves
the right to revise such estimates accordingly. Upon any,
such revision, Landlord may, at Landlord's election, either
(i) require Tenant to make a lump sum payment to Landlord
reflecting such revised estimate or (ii) require that the
monthly payments due and payable to Landlord by Tenant under
this Section be revised to an amount which will amortize such
revised estimate over the remainder of the calendar year in
which any such revision is made by Landlord.
<PAGE> 11
(c) Within sixty (60) days after the end of any calendar year
during which such payments were made by Tenant, a lump sum
payment (or credit against the next succeeding installments of
Base Rental, if any, in case of amounts owed by Landlord to
Tenant) shall be made from Tenant to Landlord or from Landlord
to Tenant, as the case may be, so that Tenant shall have paid
to Landlord only Tenant's Proportionate Share of (i) Utility
Costs for the previous calendar year, (ii), Insurance Costs
for the previous calendar year, and (iii) the amount, if any,
by which Taxes for the previous calendar year exceed Taxes for
the Base Year and no more, which obligation to make such
reconciliation payment shall survive the termination of the
Lease.
(d) If the Rental Commencement Date is a day other than the first
day of a calendar month or if this Lease terminates on other
than the last day of a calendar month, then the amounts due
and owing by Tenant to Landlord under this Section shall be
prorated accordingly.
SECTION 2.5. SEPARATELY METERED UTILITIES AND UTILITY USAGE. Tenant shall pay
upon demand or receipt of an invoice all amounts due and owing with respect to
utilities furnished to the Leased Premises which may, from time to time, be
separately measured and charged to the Tenant by Landlord or any public utility
as may furnish such utilities to the Leased Premises. In the event that any
electrical services required or used in the Leased Premises shall exceed seven
(7) watts per square foot of Usable Square Feet within the Leased Premises.
Landlord may, at Tenant's sole cost and expense, cause the installation of all
facilities necessary to separately meter electrical usage within the Leased
Premises and/or cause the installation of such riser or risers, wiring,
transformer, or electrical panels as are required to meet Tenant's excess
electrical requirements (the cost and expenses incurred with respect to any
such installation to be due and payable by Tenant to Landlord upon demand), and
Tenant shall pay to Landlord or, at the election of Landlord, to the applicable
public utility, promptly upon receiving any invoice, all charges for electrical
usage within the Leased Premises in excess of seven (7) watts per square foot
of Usable Square Feet within the Leased Premises; which payment, if any, shall
be in addition to sums required to be paid by Tenant pursuant to Section 2.4
above. Notwithstanding the foregoing, Landlord may refuse to install, and may
withhold consent for Tenant's installation of, any riser, wiring, transformer,
or electrical panel if, in Landlord's sole judgment, the same are not necessary
or would cause permanent damage or injury to the Building or the Leased
Premises or cause or create a dangerous or hazardous condition or entail
excessive or unreasonable alterations, repairs, or expense or interfere with or
disturb other tenants or occupants of the Building. In no event shall Landlord
incur any liability or obligation with respect to Landlord's refusal to
install, or withholding consent for Tenant's installation of, any such
additional electrical facilities or equipment.
SECTION 2.6. ADDITIONAL RENT: PAYMENTS. All sums of money due and payable by
Tenant to Landlord under the term of this Lease in addition to the Base Rental
shall constitute additional rent hereunder. Landlord shall have the same
remedies for default in the payment of additional rent as are available to
Landlord in the case of a default in the payment of Base Rental. All rent
shall be payable at Landlord's address as provided herein (or at such other
address as may
<PAGE> 12
be designated by Landlord from time to time). Tenant agrees to pay all rent
under this Lease at the times and in the manner herein provided, without
demand, counterclaim or set-off.
ARTICLE 3
SECTION 3.1. UTILITIES. Landlord shall use reasonable efforts to cause public
utilities to furnish electricity to the Leased Premises and water to the
Building to the extent and in such manner as is reasonably deemed by Landlord
to be standard for the Building.
SECTION 3.2. SERVICES TO BE FURNISHED BY LANDLORD TO TENANT. Landlord shall
furnish or cause to be furnished during the Lease Term:
(a) Central heating and air conditioning to the Leased Premises
and enclosed public areas of the Building in season;
(b) Non-exclusive passenger escalator and elevator service and
non-exclusive freight elevator service;
(c) Electric lighting service for all public areas of the
Building;
(d) Janitorial service for the corridors and other public areas of
the Building; and
(e) Public toilets and restrooms and public drinking fountains;
Such services shall be provided during normal business hours, reasonably
established by Landlord, at such locations, in such manner and to the extent
deemed reasonable by Landlord, to be adequate for the use and occupancy of the
Building, with due regard for the prudent control of energy.
SECTION 3.3. LANDLORD'S FAILURE TO PROVIDE UTILITIES OR SERVICES. Failure by
Landlord to any extent to furnish or cause to be furnished the utilities or
services described in Section 3.1 and 3.2, or any cessation or interruption
thereof, resulting from any cause, including without limitation, mechanical
breakdown, overhaul or repair of equipment, strikes, riots, acts of God,
shortages of labor or material, compliance by Landlord with any voluntary or
similar governmental or business guidelines, governmental laws, regulations or
restrictions, or any other similar causes shall not render the Landlord liable
in any respect for damages to either person or property, for any economic loss
or other consequential damages incurred by Tenant as a result thereof, be
construed as an eviction of Tenant, result in an abatement of rent, or relieve
Tenant from its obligation to perform or observe any covenant or agreement
contained in this Lease. Notwithstanding the foregoing, in the event that the
Leased Premises are rendered untenantable due to the failure or interruption of
the utilities described in Section 3.1 hereof (for any reason other than
Tenants fault or neglect) for sixty (60) or more consecutive days, Landlord
agrees to reimburse Tenant for any Base Rental owed during that period.
SECTION 3.4. PEACEFUL ENJOYMENT. Subject to the other terms of this Lease,
Landlord covenants that Tenant shall, and may peacefully have, hold and enjoy
the Leased Premises for the Lease Term free of any claims by any party claiming
by, through or under Landlord, provided that
<PAGE> 13
Tenant pays the rent to be paid by Tenant under this Lease and performs all of
Tenant's covenants and agreements herein provided. Landlord shall be entitled
to cause Tenant to relocate from the Leased Premises to a Relocation Space
within the Building at any time upon reasonable written notice to Tenant (which
notice shall not be given in excess of ninety (90) days prior to such
relocation). At the time Landlord notifies Tenant of Landlord's exercise of
the relocation right, Landlord shall notify Tenant of the proposed Relocation
Space and the terms of such relocation. Tenant shall have fifteen (15) days
from the receipt of Landlord's notice to accept or reject the proposed
Relocation Space. In the event Tenant rejects such Relocation Space, Tenant
may, upon ten (I 0) days written notice to Landlord terminate this Lease for
the Leased Premises upon payment to Landlord an amount equal to the unamortized
balance of Allowance (as defined in Exhibit "E" attached hereto) as of the date
Tenant terminates this Lease. In the event Tenant does not respond to Landlord
within such fifteen (15) day period, Tenant shall be deemed to have accepted
the Relocation Space and Landlord and Tenant shall enter into an agreement
specifying the terms and conditions of such relocation. Landlord or the third
party tenant replacing Tenant in the Leased Premises shall pay all reasonable
costs of accomplishing such relocation.- Such a relocation shall not terminate
or otherwise affect or modify this Lease except that from and after the date of
such relocation, "Leased Premises' shall refer to the Relocation Space into
which Tenant has been moved, rather than the original Leased Premises as herein
defined.
ARTICLE 4
SECTION 4.1. OPERATION. During all market exhibitions and shows designated by
Landlord as dealing with the class of goods and services specified in Article I
of this Lease under the definition of Permitted Use, and during such other
shows and market exhibitions as Landlord reasonably deems necessary, and, if
the Leased Premises front on the atrium within the Building, at all other times
during all normal business hours of the Building, Tenant shall keep the Leased
Premises open for business for the Permitted Use, with adequate staff, during
the entire period of each such market or show. If the Leased Premises front on
the atrium of the Building, the failure of Tenant to initially occupy the
Leased Premises and open the same for business for the Permitted Use by
September 1, 1997 with adequate staff, shall, at the option of Landlord, be an
event of default hereunder.
SECTION 4.2. ALTERATIONS, IMPROVEMENTS AND ADDITIONS.
(a) Tenant shall furnish, equip and improve the Leased Premises
with partitions, lighting fixtures, wall and floor coverings,
paintings and other interior decoration suitable for a trade
mart and of a quality and design consistent with the standards
generally observed by Landlord. Prior to the commencement of
any such work, Tenant shall submit to Landlord for its written
approval, detailed plans and specifications providing for the
initial furnishing, equipping and improving of the Leased
Premises. Two (2) complete sets of final working drawings and
specifications of materials relating to all improvements
("Improvements") that Tenant desires to be installed in the
Leased Premises shall be submitted to Landlord no later than
thirty (30) days prior to the date specified in Section 1.5
hereof. Such drawings and the specifications of materials
shall be subject to approval by
<PAGE> 14
Landlord. Any delay occasioned as a result of Landlord's
disapproval of Tenant's plans and specifications shall not
delay the Commencement Date under this Lease. Upon the
approval of the plans and specifications by Landlord, Tenant
shall commence to equip, furnish, and improve the Leased
Premises, and shall diligently and continuously prosecute such
work to completion on or before September 1, 1997. The
failure of Tenant to complete such work on or before the date
specified in the preceding sentence shall, at the option of
Landlord, be an event of default hereunder. Any further
alterations, improvements or additions to the Leased Premises
(including constructing partitions, installing light fixtures
or painting or changing the color of any painted surface or
the color type of any wall, floor or ceiling covering) shall
likewise require Landlord's prior written approval.
(b) Any and all furnishing, equipping and improving of or other
alteration or addition to the Leased Premises shall be:
(i) made at Tenant's sole cost, risk and expense;
(ii) performed in a prompt, good and workmanlike manner
with labor and materials of such quality as Landlord
may reasonably require;
(iii) constructed in accordance with all plans and
specifications approved in writing by Landlord prior
to the commencement of any such work, provided,
however, that Landlord shall have no responsibility
with respect to, nor any liability as a result of,
defects or deficiencies therein;
(iv) prosecuted diligently and continuously to completion
and in such manner so as to minimize interference
with the normal business operations of other tenants
in the Building, the performance of Landlord's
obligations under this Lease or any mortgage or
around lease covering or affecting all or any part of
the Building or the Property, and any work being done
by contractor engaged by Landlord with respect to or
in connection with the Building; and
(v) performed by contractors approved in writing by
Landlord, and if requested by Landlord any such
contractor and all work to be performed by such
contractor shall be fully bonded with companies and
in amounts acceptable to Landlord in its sole
discretion.
(c) Any and all alterations, improvements and additions to the
Leased Premises (except for Trade Fixtures as specified in
Section 4.4 hereof) shall constitute a part of the Leased
Premises, and shall be owned by and become the property of
Landlord effective as of the termination of this Lease.
Tenant shall have no (and hereby waives all) rights to payment
or compensation for any such alteration, improvement or
addition to the Leased Premises.
SECTION 4.3. MAINTENANCE AND REPAIRS. Tenant shall maintain the Leased
Premises, all plate glass and all Trade Fixtures and other improvements
situated therein in first class, clean,
<PAGE> 15
and safe condition. Tenant shall repair or replace any damage to the Building,
or any part thereof, caused by Tenant or Tenant's agents, employees, customers
or invitees. All such repair or replacement shall be performed in accordance
with the conditions set forth in Section 4.2.(b)(i), (ii), (iii), (iv) and (v).
SECTION 4.4. TRADE FIXTURES. Landlord and Tenant agree that all Trade
Fixtures installed in the Leased Premises shall be and remain the property of
Tenant and, so long as Tenant is not in default hereunder, may be removed by
Tenant prior to or upon the expiration of the Lease Tenn. Tenant shall repair
any damage caused by such removal and restore the Leased Premises to such
condition as existed prior to the installation of such Trade Fixtures. Any
such repair and restoration shall be performed in accordance with the
conditions set forth in Section 4.2(b)(i), (ii), (iii), (iv) or (v). Any Trade
Fixtures which are not removed from the Leased Premises upon cessation of
occupancy by Tenant shall become the property of Landlord. Tenant shall have
no (and hereby waives all) rights to payment or compensation for any such item.
SECTION 4.5. LAWS AND REGULATIONS, BUILDING RULES: INFOMART POLICY STATEMENT.
(a) Tenant shall comply with all laws, ordinances, rules and
regulations of any governmental authority relating to the use,
condition or occupancy of the Leased Premises or the Building,
including the furnishing, equipping and improving thereof.
(b) Tenant shall, and shall cause its employees, agents, customers
and invitees to comply with the Building Rules adopted and
altered by Landlord from time to time. All changes in such
rules will be sent by Landlord to Tenant in writing.
(c) Landlord has prepared a policy statement with respect to the
operation of the Building attached hereto as Exhibit "D" which
may from time to time be amended, revised or supplemental at
Landlord's sole discretion (the "INFOMART Policy Statement").
Tenant shall be responsible for conducting its operations
within the Leased Premises and the Building in compliance with
the INFOMART Policy Statement. The failure of the Landlord to
successfully enforce any provisions of the INFOMART Policy
Statement against Tenant, or against any other tenant or
occupant of the Building, shall not be deemed to be a waiver
of the requirements of the INFOMART Policy Statement.
Landlord shall not be responsible to Tenant for nonperformance
by any other tenant or occupant of the Building of any of the
requirements of the Building Rules or the INFOMART Policy
Statement; and Tenant shall be liable for all injuries or
damages sustained by Landlord or Landlord's agents or by other
tenants, occupants, or invitees of the Building arising by
reason of any breach of the requirements of the Building Rules
or the INFOMART Policy Statement by Tenant or Tenant's agents,
employees or invitees.
SECTION 4.6. LANDLORD'S ACCESS. Landlord and its representatives, agents,
officers and contractors shall have the right to enter upon the Leased Premises
at any reasonable time for any
<PAGE> 16
reasonable purpose, at any time for any emergency, and if a default by Tenant
exists hereunder, at any time to show the Leased Premises to prospective
tenants. Landlord agrees that to the extent possible it will not unreasonably
interfere with the conduct of Tenant's business in the exercise of its rights
hereunder.
SECTION 4.7. ASSIGNMENT AND SUBLETTING BY TENANT
(a) Tenant shall not, by operation of law or otherwise, (i)
assign, transfer, mortgage, pledge, hypothecate or otherwise
encumber this Lease. the Leased Premises or any interest
therein, (ii) grant any concession or license within the
Leased Premises, (iii) grant or transfer any management
privileges or rights with respect to the Leased Premises, (iv)
sublet all or any part of the Leased Premises or any right or
privilege appurtenant to le Leased Premises, or (v) permit any
other party to occupy or use all or any part of the Leased
Premises. If Tenant is other than an individual person. any
conveyance, assignment or transfer of any interest in Tenant
shall be deemed to constitute a transfer or assignment
prohibited by the immediately preceding sentence, except for
sales and other transfers of Tenant's stock to the extent
Tenant is a publicly-traded company whose stock is traded on a
recognized national exchange or inter-dealer quotation system,
or to the extent that the existing owners retain at least a
25% interest in the Company. No consent granted by Landlord
to any transfer, assignment or other transaction prohibited by
this Section shall release Tenant from any of Tenant's
obligations under this Lease or be deemed to constitute a
consent to any subsequent assignment, subletting, occupancy or
use of the Leased Premises by another person. Subject to the
foregoing, the rights and obligations of the parties to this
Lease shall inure to the benefit of and be binding upon their
respective successors, assigns, heirs and legal
representatives. Any attempted assignment or sublease by
Tenant in violation of the terms and covenants of this
paragraph shall be void and constitute a default by Tenant.
Notwithstanding the foregoing, Tenant may, upon written notice
to Landlord of the identity of the Affiliate, assign or sublet
its interest under this Lease in the Leased Premises to an
'Affiliate" of Tenant, provided (i) that such assignee or
subtenant assumes, in full, the obligations of Tenant under
this Lease, (ii) such Affiliate's business operations are
consistent with the Permitted Use, and (iii) such sublease or
assignment shall not operate to release Tenant from its
obligations under this Lease. As used herein, the term
"Affiliate" shall be a corporation which controls, is
controlled by, or is under common control with Tenant (control
to be determined, for purposes hereof, by the ownership of in
excess of fifty percent (50%) of the issued and outstanding
voting stock of such entity).
(b) All cash or other proceeds of any assignment, sale or sublease
of Tenant's interest in this Lease and/or the Leased Premises,
whether consented to by Landlord or not, shall be paid to
Landlord notwithstanding the fact that such proceeds exceed
the rents called for hereunder, unless Landlord agrees to the
contrary in writing, and Tenant hereby assigns all rights it
might have or ever acquire in any such proceeds to Landlord.
This covenant and assignment shall benefit Landlord and its
<PAGE> 17
successors in ownership of the Building and shall bind Tenant,
Tenant's heirs, executors, administrators, personal
representatives, successors and assigns. Any assignee,
sublessee, or purchaser of Tenant's interest in this Lease
(all such assignees, sublessees or purchasers being
hereinafter referred to as 'Successors"), by occupying the
Leased Premises and/or assuming Tenant's obligations
hereunder, shall be deemed to have assumed liability to
Landlord for all amounts paid to persons other than Landlord
by such Successor in consideration of any such sale,
assignment or subletting, in violation of the provision hereof
The acceptance by Landlord of any rent from any sublessee or
assignee of Tenant shall not constitute Landlord's consent to
such assignment or sublease.
SECTION 4.8. LIGHT, AIR AND VIEW. Neither the diminution nor the shutting off
of any natural light, air, or view nor any other effect on the Leased Premises
by any structure or condition now or hereafter existing on property adjacent to
the Building shall affect this Lease, abate rent, or otherwise impose any
liability on Landlord.
SECTION 4.9. TAXES. Tenant shall pay all ad valorem and similar taxes or
assessments levied upon or applicable to any of Tenant's Trade Fixtures or any
other improvements, equipment, fixtures, furniture or other property situated
in the Leased Premises and all license and other fees or charge imposed on the
business conducted by Tenant on the Leased Premises. Upon request by Landlord,
Tenant will furnish Landlord annually with official tax receipts and other
official receipts showing payment of such taxes, assessments, fees and charges.
If Landlord shall be required to pay a higher ad valorem tax as a result of
Tenant's leasehold improvements, then Tenant shall pay to Landlord, upon
demand, the amount of such increase in ad valorem taxes.
SECTION 4.10. LIENS. Tenant shall not place or permit to be placed any lien,
affidavit, charge or order upon INFOMART, the Building or the Leased Premises
or any part thereof or any interest therein. In the event that any such lien,
affidavit, charge or order attaches, regardless of the validity or
enforceability thereof, Tenant shall immediately cause the same to be
discharged of record. In the event any such lien is attached to the INFOMART,
the Leased Premises or the Building, then in addition to any other right or
remedy of Landlord, Landlord may but shall not be obligated to discharge the
same. Any amount paid by Landlord for any of the aforesaid purposes shall be
paid by the Tenant to Landlord on demand as additional rent.
SECTION 4.11. SUBORDINATION TO MORTGAGES AND LEASES. This Lease shall be
subject and subordinate at all times to (a) all ground or underlying leases now
existing or which may hereinafter be executed affecting the Building, the
Leased Premises and/or the Property (b) the lien or liens of all mortgages and
deeds of trust in any amount or amounts whatsoever now or hereafter placed on
the Building, the Leased Premises and/or the Property or Landlord's interest or
estate therein or on or against such ground or underlying leases and (c) all
renewals, modifications, consolidations, replacements and extensions thereof.
The subordinations set forth herein shall be self-operative and effective
without the necessity of execution of any further instruments by any party;
provided, however, Tenant shall execute and deliver upon demand by Landlord any
instruments, releases or other documents requested by any lessor or mortgager
for the purpose of confirming the provisions hereof or further subjecting and
subordinating this Lease to any such
<PAGE> 18
ground lease, mortgage or deed of trust. Tenant hereby constitutes and
appoints Landlord the Tenant's attorney-in-fact to execute any such
instruments, releases or documents for or on behalf of Tenant. In the event of
the enforcement by the trustee or the beneficiary under any such mortgage or
deed of trust, of the remedies provided for by law or by such mortgage or deed
of trust, upon request of any person or party succeeding to the interest of
Landlord as a result of such enforcement, Tenant will automatically become the
Tenant of such successor in interest without change in the terms or provisions
of this Lease; provided. however, that such successor in interest shall not be
bound by (i) any payment of rent or additional rent for more than one month in
advance except prepayments actually delivered to such successor in the nature
of security for the performance by Tenant of its obligations under this Lease,
(ii) any payment of the security deposit or any other deposit unless such
security deposit or other deposit has actually been delivered to such successor
or (iii) any amendment or modification of this Lease made without the written
consent of such trustee or such beneficiary or such successor in interest, and
Tenant shall execute and deliver an instrument or instruments confirming the
attornment and other agreements provided for herein. Further, notwithstanding
anything contained in this Lease to the contrary, in the event of any default
by Landlord in the performance of its covenants or obligations hereunder which
would give Tenant the right to terminate this Lease, Tenant shall not exercise
such right unless and until (i) Tenant gives written notice of such default
(which notice shall specify the exact nature of said default and the steps
necessary to cure same) to the holder of any mortgage or deed of trust
encumbering the Building, the Leased Premises and/or the Property who has
theretofore notified Tenant in writing of its interest and the address to which
notices are to be sent, and (ii) such holder, upon becoming entitled to do so,
through foreclosure of its lien, or accepting a deed in lieu of foreclosure, or
otherwise, fails to cure or cause to be cured such default within thirty (30)
days from the later of the receipt of such notice from Tenant or its becoming
entitled to do so, or, if such default relates to a condition which cannot
reasonably be cured within such period, such holder commences to cure within
such period and thereafter diligently prosecutes the completion of such cure.
SECTION 4.12. CERTIFICATES. At any time and from time to time during the
Lease Term, within five (5) days after written request by Landlord, Tenant will
execute, acknowledge and deliver to Landlord and any other persons specified by
Landlord a certificate certifying (i) that this Lease is in full force and
effect, (ii) the date and nature of each modification to this Lease , (iii) the
date to which rental and other sums payable to this Lease have been paid, (iv)
that Tenant is not aware of any default under this Lease which has not been
cured, except such defaults as may be specified in said certificate, and (v)
such other matters as may be reasonably requested by Landlord. Any such
certificate may be relied upon by Landlord and by any other person to whom it
is delivered for such purpose.
SECTION 4.13. LIMITATION ON WEIGHT. Tenant shall not permit upon the floor of
the Leased Premises any weight exceeding seventy-five (75) pounds per square
foot of floor area.
ARTICLE 5
SECTION 5.1. CONDEMNATION. If all of the Building, or the whole or
substantially the whole of the Property (including surface and covered parking
associated with the Building) or the
<PAGE> 19
Leased Premises should be taken for any public or quasi-public use, by right of
eminent domain or otherwise or should be sold in lieu of condemnation, then
this Lease shall terminate as of the date when physical possession of the
Building, or the Leased Premises, or the Property is taken by the condemning
authority. If less than the whole of the Building or less than the whole or
substantially the whole of the Property (including surface and covered parking
associated therewith) or the Leased Premises is thus taken or sold, Landlord
(whether or not the Leased Premises are affected thereby) may terminate this
Lease by giving written notice thereof to Tenant; in which event this Lease
shall terminate as of the date when physical possession of such portion of the
Building, Property, or Leased Premises is taken by the condemning authority.
If this Lease is not so terminated upon any such taking or sale, the Base
Rental payable hereunder shall be diminished by a prorata amount representing
that portion of the Base Rental allocable to the portion, if any, of the Leased
Premises subject to such taking, and Landlord shall, to the extent Landlord
deems feasible, restore the Building shell to substantially their former
condition, but such work shall not exceed the scope of the work done by
landlord in originally constructing the Building, nor shall Landlord in any
event be required to spend for such work an amount in excess of the amount
received by Landlord as compensation for such taking. All amounts awarded upon
a taking of any part or all of the Property, the Building or the Leased
Premises shall belong to Landlord, and Tenant shall not be entitled to and
expressly waives all claim to any such compensation. Tenant shall have the
right to terminate this Lease within thirty (30) days of any condemnation which
takes more than thirty percent (30%) of Tenant's Leased Premises upon payment
to Landlord an amount equal to the unamortized balance of Allowance (as defined
in Exhibit "E" attached hereto) as of the date Tenant terminates this Lease.
SECTION 5.2. CASUALTY DAMAGE. If the Leased Premises or any part thereof
shall be damaged by fire or other casualty, Tenant shall give prompt written
notice thereof to Landlord. In case the Building shall be so damaged that
substantial alteration or reconstruction of the Building shall, in Landlord's
sole discretion, be required (whether or not the Leased Premises shall have
been damaged by such casualty) or in the event any mortgagee of Landlord's
should require that the insurance proceeds payable as a result of a casualty be
applied to the payment of the mortgage debt or in the event of any material
uninsured loss to the Building, Landlord may, at its option, terminate this
Lease by notifying Tenant in writing of such termination within ninety (90)
days after the date of such casualty. In the event, and only in the event,
that Landlord estimates restoration of the Building shell will require in
excess of ninety (90) days and Landlord has not elected to terminate this
Lease, Tenant may, at its option, terminate this Lease by notifying Landlord in
writing of such termination within fifteen (15) days of receipt of Landlord's
notice as to Landlord's estimate of the restoration period. If Landlord does
not thus elect to terminate this Lease, Landlord shall commence and proceed
with reasonable diligence to restore the Building shell; except that Landlord's
obligation to restore shall not require Landlord to spend for such work an
amount in excess of the insurance proceeds actually received by Landlord as a
result of the casualty. When the repairs described in the preceding sentence
have been completed by Landlord, Tenant shall restore all improvement necessary
to permit Tenant's re-occupancy of the Leased Premises, and the restoration of
Tenant furniture and equipment. All cost and expense of reconstructing the
Leased Premises shall be borne by Tenant. Landlord shall not be liable for any
inconvenience or annoyance to Tenant or injury to the business of Tenant
resulting in any way from such damage or the repair thereof, except that,
subject to the provisions of the next sentence,
<PAGE> 20
Landlord shall allow Tenant a fair diminution of rent during the time and to
the extent the Leased Premises are unfit for occupancy and are unoccupied. If
the Leased Premises or any other portion of the Building be damaged by fire or
other casualty resulting from the fault or negligence of Tenant or any Tenant's
agents, employees, or invitees, the rent hereunder shall not be diminished
during the repair and restoration of the Building and Tenant shall be liable to
Landlord for rent and for the cost of repair and restoration of the Building
caused thereby to the extent such cost and expense is not covered by insurance
proceeds actually received by Landlord.
SECTION 5.3. INSURANCE.
(a) Landlord shall not be obligated to insure any of Tenant's
goods. Trade Fixtures, furniture or any other property placed
in or incorporated in the Leased Premises or the Building.
(b) Tenant shall, at its sole cost and expense, procure and
maintain during the Lease Term, commercial general liability
insurance (such insurance to afford minimum protection of not
less than $5,000,000.00 combined single limit coverage of
bodily injury, property damage or combination thereof),
property insurance with respect to Tenant's personal property,
inventory and leasehold improvements written on an all "All
Risk" basis for full replacement cost, worker's compensation
and employer's liability insurance, comprehensive catastrophe
liability insurance and such other insurance as Landlord may,
from time to time, reasonably require. In addition, Tenant
agrees to obtain a fire legal liability endorsement or other
coverage satisfactory to Landlord which removes the "owned,
rented or occupied' property exclusion from Tenant's liability
policy. All such insurance shall be maintained by companies
on forms and in amounts approved by Landlord.
(c) In the event that Tenant fails to take out or maintain any
policy required by this Article to be maintained by Tenant,
such failure shall be a defense to any claim asserted by
Tenant against Landlord by reason of any loss sustained by
Tenant that would have been covered by such policy.
(d) All policies of insurance required to be maintained by Tenant
shall provide that the Landlord shall be given at least thirty
(30) days prior written notice of any cancellation or
non-renewal of any such policy, except ten (10) days for
premium non-payment. A duplicate original of each such policy
or a duly executed certificate of insurance with respect to
each such policy shall be deposited with Landlord by Tenant on
or before the Commencement Date, and a duplicate original of
each subsequent policy or a duly executed certificate of
insurance with respect to each subsequent policy shall be
deposited with Landlord at least fifteen (15) days prior to
the expiration of the policy then in force.
(e) Tenant shall not do or permit anything to be done in the
Building or about the Leased Premises nor bring nor keep nor
permit anything to be brought to or kept therein, which will
in any way increase the existing rate of or affect any fire or
other insurance which Landlord carries upon any part of the
Building or any of its
<PAGE> 21
contents, or cause a cancellation or invalidation of any such
insurance. If the annual premiums to be paid by Landlord with
respect to any insurance obtained by Landlord covering any
part of the Building or any of its contents shall exceed the
standard rates because of Tenant's operations, or contents of
the Leased Premises or because improvements with respect to
the Leased Premises result in extra- hazardous exposure,
Tenant shall pay the excess amount of the premium within
thirty (30) days of Tenant's receipt of written notice by
Landlord; and in the event such increase is due to extra-
hazardous exposure, Landlord shall have the further right,
exercisable in Landlord's sole discretion, to terminate this
Lease by giving written notice of such election to Tenant.
provided Landlord permits Tenant fifteen (15) business days to
eliminate the extra-hazardous exposure.
(f) Subject to the conditions hereinafter specified in this
Subsection (f) and only to the extent that and so long as the
same is permitted under the laws and regulations governing the
writing of insurance within the State of Texas with respect to
the respective insurance that is to be carried by either
Landlord or Tenant covering losses arising out of the
destruction or damage to the Leased Premises or its contents
or to other portions of the Building or to Tenant's occupancy
and operation of the Leased Premises without invalidating or
nullifying any such policy, or providing a defense to the
applicable insurance carrier with respect to the coverage of
any such policy, all such insurance carried by either Landlord
or Tenant shall provide for a waiver of rights of subrogation
against Landlord and Tenant on the part of the insurance
carrier. Notwithstanding the foregoing, nothing contained
herein shall require either party to obtain the inclusion of
such a waiver of rights of subrogation in the event that,
because of the cost or premium attributable to such waiver,
the obtaining of such waiver is not feasible and reasonable.
Except as otherwise provided in Section 5.2 hereof or in the
event that such waivers contemplated by this sentence will
invalidate, nullify, or provide a defense to coverage under
any such insurance policy or are not obtainable for the
reasons described in this Subsection (f), Landlord and Tenant
each hereby waive any and all rights of recovery, claims,
actions or causes of action against the other, its agents,
officers, or employees, or any loss or damage that may occur
to the Leased Premises or the Building, or any improvements
thereto, which loss or damage is covered by valid and
collectible insurance policies, to the extent that such loss
and damage is recoverable under such insurance policy. The
waivers set forth in the immediately preceding sentence shall
be in addition, and not substitution for. any other waivers,
indemnities, or exclusions of liabilities as set forth in this
Lease, including, without limitation, Sections 5.5 and 5.6 of
the Lease.
SECTION 5.4. SURRENDER OF LEASED PREMISES. Upon termination of this Lease or
Tenant's right to possession of the Leased Premises, Tenant shall peaceably and
quietly surrender the Leased Premises to Landlord, broom-clean and in a good
state of repair and condition, excepting only ordinary wear and tear. Upon
request of Landlord, Tenant shall demolish or remove all or any portion of any
Trade Fixtures and other property or the making of any such alteration,
improvement, addition or change. All such demolition, removal and restoration
shall be
<PAGE> 22
performed in accordance with the conditions set forth in Section 4.2(b). Upon
termination of this Lease, Tenant will also surrender to Landlord all keys to
the Leased Premises and inform Landlord of all combinations on locks, safe, and
vaults, if any, at the Leased Premises.
SECTION 5.5. DAMAGES FROM CERTAIN CAUSES. Landlord and Landlord's agents and
employees shall not be liable or responsible to Tenant or any person claiming
through Tenant for any loss or damage or injury to business or to any property
or person in, upon or about the Leased Premises or any other portion of the
Building arising at any time from any cause, negligent or otherwise, other than
solely by reason of the gross negligence or willful misconduct of Landlord or
of Landlord's employees or agents acting within the scope of their employment
or authority.
SECTION 5.6. HOLD HARMLESS. Landlord shall not be liable to Tenant, or to
Tenant's agents, employees, contractors, customers or invitees or to any other
person whomsoever for any injury or damage to person or property caused by or
arising out of an act, omission or neglect of Tenant, its agents, contractors,
subtenants, employees, customers, licensees, concessionaires or invitees or any
other person entering the Building under express or implied invitation of
Tenant or other tenants of the Building, and Tenant agrees to indemnify and
hold Landlord harmless from all liability and claims for any such damage and
from all claims, costs, damages or liabilities arising out of the foregoing,
including without limitation attorneys' fees and all other out-of-pocket
expenses incurred in connection therewith. In any case in which Tenant has
agreed to indemnify Landlord or any other person, such indemnity shall be
deemed to include an obligation on the part of Tenant to appear on behalf of
the indemnified party in any and all proceedings involving a claim or cause of
action covered by such indemnity and to defend the, indemnified party against
such claim or cause of action, all at Tenant's cost; provided, however, at the
option of any party indemnified hereunder, such party shall have the right to
appear on its own behalf, employ its own legal counsel and defend any claim or
cause of action indemnified in this Section, all at Tenant's cost.
ARTICLE 6
SECTION 6.1. DEFAULT BY TENANT. The occurrence of any one or more of the
following events shall constitute a default by Tenant under this Lease:
(a) Failure of the Tenant to pay rent or any other amount due
under this Lease as and when due and payable within five (5)
days after Tenant's receipt of Landlord's written notice of
such failure to pay. Failure to pay any other amount due
under this Lease within thirty (30) days after Tenant's
receipt of Landlord's written notice of such failure to pay.
Landlord shall be required to give such notice only twice in
any twelve (12) month period;
(b) Failure of the Tenant to perform, observe, or comply with or
default under any of the terms, covenants, conditions or
provisions contained in Section 4.1 of this Lease within
twenty-four (24) hours after written notice to Landlord with
respect thereto, provided that Landlord shall be required to
give such notice only twice in any twelve (12) month period
and the third violation of the provisions contained in
<PAGE> 23
Section 4.1 hereof by Tenant shall constitute a default by
Tenant hereunder whether or not Landlord shall provide Tenant
with notice thereof,
(c) Failure of the Tenant to perform, observe, or comply with or
default under any negative covenant or agreement set forth in
the Lease and all other covenants and agreements set forth in
this Lease which prohibit or restrict Tenant from taking or
omitting to take any action without the consent of the
Landlord or which requires the Tenant to take action upon the
request of the Landlord;
(d) Failure of the Tenant to perform, observe, or comply with or
default under any of the terms, covenants, conditions or
provisions contained in this Lease (other than covenants to
pay rent, the covenants set forth in Section 4.1 of this
Lease, negative covenants and agreements set forth in this
Lease and all other covenants and agreements set forth in this
Lease which prohibit or restrict the Tenant from taking or
omitting to take any action upon request of the Landlord) and
such failure or default is not cured to Landlord's
satisfaction within fifteen (15) calendar days after the
Landlord has given Tenant written notice thereof,
(e) The interest of Tenant under this Lease shall be levied on
under execution or other legal process;
(f) Any petition in bankruptcy or other insolvency proceedings
shall be filed by or against Tenant, or any petition shall be
filed or other action taken to declare Tenant a bankrupt or to
delay, reduce or modify Tenant's debts or obligations or to
reorganize or modify Tenant's capital structure or
indebtedness or to appoint a trustee, receiver or liquidator
of Tenant or of any property of Tenant, or any proceeding or
other action shall be commenced or taken by any governmental
authority for the dissolution or liquidation of Tenant;
(g) Tenant shall become insolvent, or Tenant shall make an
assignment for the benefit of creditors, or Tenant shall make
a transfer in fraud of creditors, or a receiver or trustee
shall be appointed for Tenant or any of its properties;
(h) Tenant shall abandon or vacate the Leased Premises or any
substantial portion thereof,
(i) Tenant shall do or permit to be done anything which creates or
causes to be filed a lien, security interest or other
encumbrance (whether consensual or created by operation of law
or otherwise) against all or any part of the Leased Premises,
the Building or any property situated therein or Tenant's
interest in this Lease; or
(j) The death or legal incapacity of Tenant if Tenant is an
individual person or the termination, dissolution or
liquidation of Tenant, if Tenant is a corporation,
partnership, or other entity.
<PAGE> 24
SECTION 6.2. LANDLORD'S REMEDIES. Upon the occurrence of any default by
Tenant under this Lease, Landlord may, at its sole option, do any one or more
of the following, without any notice or demand for possession whatsoever, and
Tenant hereby waives any and all notice and demand requirements imposed by
applicable law:
(a) Terminate this Lease, whereupon Landlord shall have the
remedies set forth in Section 6.3 below;
(b) Without having terminated this Lease, enter upon and take
possession of the Leased Premises, whereupon Landlord shall
have the remedies set forth in Section 6.4 below; or
(c) Upon Tenant's failure to perform, observe or comply with the
covenants set forth in Sections 2.2, 4. 1, or 4.7 of this
Lease, Landlord may, without terminating this Lease and
without taking possession of the Leased Premises, collect from
Tenant (after notice as provided in Section 6.1 hereof), in
addition to any rent payable by Tenant to Landlord under this
Lease, as liquidated damages, a sum equal to twice the Base
Rental (computed on a daily basis) for each day or any portion
thereof that such default by Tenant continues, Landlord and
Tenant agreeing that actual damages which might be sustained
by Landlord by reason of such failure are uncertain and
difficult to ascertain and that said sum would be reasonable
and just compensation for such failure.
SECTION 6.3. TERMINATION OF LEASE. Upon termination of this Lease by
Landlord, pursuant to Section 6.2(a), Landlord may forthwith repossess the
Leased Premises and be entitled to recover as damages a sum of money equal to
the total of (i) the cost of recovering the Leased Premises, (ii) the cost of
removing and storing Tenant's or any other occupant's property, (iii) the
unpaid rent accrued at the date of termination, and (iv) any other sum of money
or damages that may be owed to Landlord as the result of the exercise of
Landlord's rights at law or in equity.
SECTION 6.4. TERMINATION OF POSSESSION. Upon termination of Tenant's right of
possession to the Leased Premises pursuant to Section 6.2(b), Landlord may
repossess the Leased Premises by forcible entry or detainer suit or otherwise,
without demand or notice of any kind to Tenant and without terminating this
Lease, in which event Landlord may (but shall not be obligated to) relet the
same for the account of Tenant for such rent and upon such terms as shall be
satisfactory to Landlord. In such event, Tenant shall be liable for and shall
pay to Landlord all rent payable by Tenant under this Lease plus an amount
equal to (i) the cost of recovering possession, (ii) the cost of decorations,
repairs, changes, alterations and additions to the Leased Premises, (iii) the
cost of collection of the rent accruing from such reletting, and (iv) any other
costs incurred by Landlord in connection with such reletting, reduced by any
sums received by Landlord through reletting the Leased Premises; provided.
however, that in no event shall Tenant be entitled to any excess of any sums
obtained by reletting over and above rent provided in this Lease to be paid by
Tenant to Landlord. For the purpose of such reletting, Landlord is authorized
to decorate or to make any repairs, changes, alterations or additions in or to
the Leased Premises that Landlord may deem necessary or advisable. Landlord
may file suit to recover any sums falling due under the
<PAGE> 25
terms of this Section from time to time, and no delivery to or recovery by
Landlord of any portion due Landlord hereunder shall be any defense in any
action to recover any amount not theretofore reduced to judgment in favor of
Landlord. No reletting shall be construed as an election on the part of
Landlord to terminate this Lease unless a written notice of such intention is
given to Tenant by Landlord. Notwithstanding any such reletting without
termination, Landlord may at any time thereafter elect to terminate this Lease
for such previous default.
SECTION 6.5. LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS. Should Tenant
fail to perform any of its obligations hereunder, and such breach is not cured
by Tenant after Tenant's receipt of written notice from Landlord and within the
time periods specified in Section 6.1(d) above, Landlord may (but shall not be
obligated to), enter upon the Leased Premises and perform all or any part of
such obligations. Upon demand, Tenant shall reimburse Landlord for the cost to
Landlord of performing such obligations plus profit and overhead in an amount
equal to fifteen percent (15%) of such cost. No action taken by Landlord under
this Section shall relieve Tenant from any of its obligations under this Lease
or from any consequences or liabilities arising from the failure to perform
such obligations.
SECTION 6.6. CUMULATIVE REMEDIES. The rights and remedies of Landlord under
this Article shall be non-exclusive and shall be in addition to and cumulative
of all other remedies available to Landlord under this Lease or at law or in
equity.
SECTION 6.7. LANDLORD'S LIEN.
(a) In order to secure payment of all rent payable by Tenant to
Landlord under this Lease and the faithful performance and
observance of all covenants and agreements of Tenant under
this Lease, Tenant grants to Landlord a lien and security
interest on all Trade Fixtures, and all goods, wares,
fixtures, equipment, furniture and other personal property now
or hereafter placed in or upon the Leased Premises. Such
property shall not be removed from the Leased Premises unless
such removal is in the ordinary course of Tenant's business
and Tenant is not at the time of such removal in default under
this Lease. Tenant shall execute as debtor such financing
statements as Landlord may now or hereafter reasonably request
in order to perfect such security interest under the Uniform
Commercial Code as enacted and enforced in the State of Texas,
and Landlord may at its election at any time file a copy of
this Lease as a financing statement. Landlord, as secured
party, shall be entitled to all of the rights and remedies
afforded a secured party under said Uniform Commercial code,
in addition to and cumulative of the Landlord's liens and
rights provided by law or by the other terms and provisions of
the Lease. The lien and security interest granted to Landlord
hereby foreclosed with or without court proceedings by public
or private sale, provided that Landlord shall give Tenant at
least five (5) days prior notice of the time and place of said
sale, which Tenant hereby acknowledges and agrees to be
reasonable notice of such sale; and Landlord shall have the
right to become a purchaser on being the highest bidder at any
such sale.
<PAGE> 26
(b) Provided that an event of default by tenant under this Lease
(as defined in Section 6.1 hereof) does not then exist,
Landlord agrees that upon written request of Tenant, Landlord
shall execute and deliver to Tenant an agreement, reasonably
satisfactory in form to Landlord and Landlord's attorneys,
subordinating all of Landlord's liens and security interests,
both statutory and contractual, to the lien or security
interest of any lender taking or succeeding to a purchase
money security interest on the Trade Fixtures, equipment,
furniture and other personal property of Tenant located within
the Leased Premises specified in such request. Such agreement
shall contain a detailed and complete list of the specific
items to which such agreement shall be applicable and shall
also provide: (i) that such agreement shall be applicable only
to property which Tenant has the right to remove upon
expiration or earlier termination of the Lease and (ii) that
any damage to the Leased Premise caused by the removal of the
encumbered property shall be repaired to Landlord's
satisfaction by the lender at no cost to Landlord.
SECTION 6.8. HOLDING OVER. In the event Tenant remains in possession of the
Leased Premises after the expiration or termination of this Lease without the
execution of a new lease, then Tenant shall be deemed to be occupying the
Leased Premises as a tenant from month to month at a rental equal to twice the
Base Rental and shall otherwise remain subject to all the conditions,
provisions and obligations of this Lease insofar as the same are applicable to
a month to month tenancy. No holding over by Tenant after the expiration or
termination of this Lease shall be construed to extend the Lease Term or in any
other manner be construed as permission by Landlord to hold over.
SECTION 6.9. SECURITY DEPOSIT. Tenant shall pay the Security Deposit to
Landlord on the date this Lease is executed by Tenant. Landlord may commingle
the Security Deposit with its other funds and shall receive and hold the
Security Deposit without liability for interest. Upon default by Tenant,
Landlord may, from time to time, without prejudice to any other remedy, apply
such Security Deposit to the extent necessary to make good any arrears of
rental or any other damage, injury, expense or liability caused by Landlord by
reason of default by the Tenant. After any such application of Security
Deposit, Tenant shall, upon request of Landlord, pay to Landlord the amount so
applied so as to restore the Security Deposit to its original amount. Any
remaining balance of the Security Deposit shall be returned by Landlord to
Tenant within a reasonable period of time after the termination of this Lease.
If Landlord transfers its interest in the Leased Premises during the term of
this Lease, Landlord may assign the Security Deposit to the transferee and
thereafter shall have no further liability for the return of such Security
Deposit.
ARTICLE 7
SECTION 7.1. ATTORNEY'S FEES AND OTHER EXPENSES. In the event of the default
by either party hereto in the performance or observance of any of the terms,
agreements or conditions contained in this Lease, the defaulting party shall be
liable for and shall pay the prevailing party all expenses incurred by the
prevailing party in enforcing any of the prevailing
<PAGE> 27
party's remedies for any such default, including, without limitation, the
prevailing party's reasonable attorney's fees.
SECTION 7.2. AMENDMENTS, BINDING EFFECT. This Lease may not be altered,
changed or amended, except by instrument in writing signed by both parties
hereto. No provision of this Lease shall be deemed to have been waived by
Landlord unless such waiver be in writing signed by Landlord and addressed to
Tenant, nor shall any custom or practice which may evolve between the parties
in the administration of the terms hereof be construed to waiver or lessen the
right of Landlord to insist upon the performance by Tenant in strict accordance
with the terms hereof. The terms and conditions contained in this Lease shall
apply to, inure to the benefit of, and be binding upon the parties hereto, and
upon their respective successors in interest and legal representatives, except
as otherwise herein expressly provided.
SECTION 7.3. NON-WAIVER. No course of dealing between Landlord and Tenant or
any other person, nor any delay on the part of Landlord in exercising any
rights under this Lease, nor any failure to enforce any provision of this
Lease, nor the acceptance of rental by Landlord shall operate as a waiver of
any rights of Landlord, except to the extent, if any, expressly waived in
writing by Landlord. The waiver by Landlord of any agreement, condition or
provision herein contained shall not be deemed a waiver of any subsequent
breach of the same or any other agreement, condition or provision herein
contained.
SECTION 7.4. NOTICES. Any notice or other communications to Landlord or
Tenant required or permitted to be given under this Lease must be in writing
and shall be effectively given if hand delivered to the addresses for Landlord
and Tenant stated above or if sent by United States Mail, certified or
registered, return receipt requested, to said addresses. Any notice mailed
shall be deemed to have been given three (3) calendar days following the date
of deposit of such item in a depository of the United States Postal Service.
Notice effected other than by mail shall be deemed to have been given at the
time of actual delivery. Either party shall have the right to change its
address to which notices shall thereafter be sent by giving the other written
notice thereof.
SECTION 7.5. INTEREST. All amounts of money payable by Tenant to Landlord
under this Lease shall bear interest from the date due until paid at the
maximum rate of interest permitted by law.
SECTION 7.6. MERGER OF ESTATES. The voluntary or other surrender of this
Lease by Tenant or a mutual cancellation thereof, shall not constitute a
merger; and upon such surrender or cancellation of this Lease, Landlord shall
have the option, in Landlord's sole discretion, to (i) either terminate all or
any existing subleases or subtenancies, or (ii) assume Tenant's interest in any
or all subleases or subtenancies.
SECTION 7.7. OTHER TENANTS OF BUILDING. Neither this Lease nor Tenant's
continued occupancy of the Leased Premises is conditioned upon the opening of
any store or business in the Building, nor upon the continued operation of any
such store or business.
SECTION 7.8. CONSENT BY LANDLORD. In all circumstances under this Lease where
the prior consent or permission of Landlord is required before Tenant is
authorized to take any
<PAGE> 28
particular type of action, such consent must be in writing and the matter of
whether to grant such consent or permission shall be within the sole and
exclusive judgment and discretion of Landlord, and it shall not constitute any
nature of breach by Landlord under this Lease or any defense to the performance
of any covenant, duty or obligation of Tenant under this Lease that Landlord
delayed or withheld the granting of such consent or permission.
SECTION 7.9. LEGAL INTERPRETATION. This lease and the rights and obligations
of the parties hereto shall be interpreted construed and enforced in accordance
with the laws of the State of Texas and the United States. All obligations of
the parties hereto shall be performable in, and all legal actions to enforce or
construe this Lease shall be instituted in the courts of Dallas County, Texas.
The determination that one or more provisions of this Lease is invalid, void,
illegal or unenforceable shall not affect or invalidate the remainder. All
obligations of either party requiring any performance after the expiration of
the Lease Term shall survive the expiration of the Lease Term and shall be
fully enforceable in accordance with those provisions pertaining thereto.
Section titles appearing in this Lease are for convenient reference only and
shall not be used to interpret or limit the meaning of any provision of this
Lease.
SECTION 7.10. ENTIRE AGREEMENT. Tenant agrees that this Lease supersedes and
cancels any and all previous statements, negotiations, arrangements, brochures,
agreements and understandings, if any, between Landlord and Tenant or displayed
by Landlord to Tenant with respect to the subject matter of this Lease, the
Leased Premises or the Building, and that there are no representations,
agreements or warranties (express or implied, oral or written) between Landlord
and Tenant with respect to the subject matter of this Lease, the Leased
Premises or the Building other than contained in this Lease.
SECTION 7.11. ASSIGNMENT BY LANDLORD. Landlord shall have the right at any
time to transfer and assign in whole or in part, by operation of law or
otherwise, its rights, benefits, privileges, duties and obligations hereunder
or in the Property.
SECTION 7.12. TENANT'S AUTHORITY. Tenant represents and warrants that it has
the full right, power and authority to enter into this Lease and to perform its
obligations hereunder, and that upon execution of this Lease by Tenant, this
Lease shall constitute a valid and legally binding obligation of Tenant. If
Tenant signs as a corporation, each of the persons executing this Lease on
behalf of Tenant does hereby covenant and warrant that Tenant is a duly and
validly existing corporation, that the execution of this Lease by such persons
on behalf of Tenant has been duly authorized by all necessary corporate action
and that Tenant is qualified to do business in the State of Texas.
SECTION 7.13. LANDLORD'S LIABILITY. Any provisions of this Lease to the
contrary notwithstanding, Tenant hereby agrees that no personal, partnership or
corporate liability of any kind or character whatsoever now attaches or at any
time hereafter under any condition shall attach to Landlord or its partners or
venturers for payment of any amounts payable under this Lease or for the
performance of any obligation under this Lease. The exclusive remedy of Tenant
for the failure of Landlord to perform any of its obligations under this Lease
shall be to proceed against the interest of Landlord in and to the Building.
In no event shall Landlord incur any liability or
<PAGE> 29
obligation to Tenant or other person or entity with respect to any action,
omission, or inaction, negligent or otherwise, of Landlord, except as such may
be due to the gross negligence or willful misconduct of Landlord.
SECTION 7.14. TIME OF ESSENCE. In all instances where Tenant is required
under this Lease to pay any sum or do any act at a particular time or within a
particular period, it is understood that time is of the essence.
SECTION 7.15. INSTRUMENTS AND EVIDENCE REQUIRED TO BE SUBMITTED TO LANDLORD.
Each written instrument and all evidence of the existence or non-existence of
any circumstances or condition which is required by this Lease 'Lo be furnished
to Landlord shall in all respects be in form and substance satisfactory to
Landlord, and the duty to furnish such written instrument or evidence shall not
be considered satisfied until Landlord shall have acknowledged that it is
satisfied therewith.
SECTION 7.16. COUNTERPARTS. This Lease may be executed in any number of
counterparts, each of which when so executed and delivered shall be an
original, but such counterparts shall together constitute one and the same
instrument.
SECTION 7.17. GENDER AND NUMBER. The pronouns of any gender shall include the
other gender and either the singular or the plural shall include the other.
SECTION 7.18. RECORDATION. Tenant agrees not to record this Lease or any
instrument to which this Lease may now or hereafter be attached.
ARTICLE 8
SECTION 8.1. FORCEMAJEURE. Whenever a period of time is herein prescribed for
the taking of any action by Landlord, Landlord shall not be liable or
responsible for, and there shall be excluded from the computation of such
period of time, any delays due to strikes, riots, acts of God, shortages of
labor or materials, war, governmental laws, regulations or restrictions, or any
other cause whatsoever beyond the control of Landlord.
SECTION 8.2. COMMISSIONS. Tenant represents and warrants that no broker has
represented it in this lease transaction and that no broker is owed a
commission or fee in connection with the consummation of this lease
transaction. Tenant hereby indemnifies and holds Landlord harmless against any
loss, claim, expense or liability with respect to any commissions or brokerage
fees claimed on account of the execution and/or renewal of this Lease or the
expansion of the Leased Premises hereunder, if applicable, due to any action by
Tenant. The provisions of this paragraph shall survive the termination of this
Lease.
SECTION 8.3. USE OF THE TERM "INFOMART". Tenant shall not use the term
"INFOMART" in any of its activities, including, without limitation, advertising
and marketing activities, without the prior written consent of Landlord.
Copies of all proposed written materials and advertising containing reference
to the term "INFOMART" shall be furnished to Landlord in advance for its review
and written approval. Any permitted use of the term "INFOMART" by
<PAGE> 30
Tenant shall additionally include the phrase "Where Technology Lives'
immediately after such use. Tenant shall not permit any third party to use the
term "INFOMART" in any of its activities and shall report to Landlord any
unauthorized uses of such term which comes to its attention. The breach by
Tenant of any provisions of this Section 8.3 shall constitute an event of
default under this Lease and shall entitle Landlord to exercise any right or
remedy available to Landlord hereunder, at law or in equity. Tenant shall
indemnify and hold Landlord harmless from against any loss, cost. claim,
liability, cause of action, or expense whatsoever (including, without
limitation, attorney's fees and other costs and expenses of defending against
any such claim) arising or alleged to arise from any unauthorized use by
Tenant, or its agents or employees of the term "INFOMART".
SECTION 8.4. EFFECT OF DELIVERY OF THIS LEASE. Landlord has delivered a copy
of this Lease to Tenant for Tenant's review only, and the delivery hereof does
not constitute an offer or option to Tenant. This Lease shall not be effective
until a copy executed by both Landlord and Tenant is delivered to and accepted
by Landlord, and this Lease has been approved by Landlords mortgagee.
SECTION 8.5. EXHIBITS, SCHEDULES AND RIDERS. The Exhibits and Riders attached
to this Lease are hereby incorporated herein and hereby made a part of this
Lease.
IN TESTIMONY HEREOF, the parties have executed this Lease as of the day and
year first above written.
LANDLORD
--------
IM JOINT VENTURE, a Texas joint venture
By: IFM PARTNERSHIP, a Texas general
partnership, a Joint Venturer
By:
-----------------------------------
Name:
---------------------------------
Title: Partner
TENANT
------
VERIO, INC., a Delaware corporation
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE> 31
Exhibit "A" - Property Description
Exhibit "B" - Building Rules
Exhibit "C" - Designation of Leased Premises
Exhibit "D" - INFOMART Policy Statement
Exhibit "E" - Work Letter (Allowance)
Exhibit "F" - Right of First Refusal
Exhibit "G" - Renewal Option
Exhibit "H" - Parking
<PAGE> 32
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<PAGE> 33
EXHIBIT "A"
To Lease Agreement By and Between IM Joint Venture, as Landlord and
VERIO, INC., as Tenant
PROPERTY DESCRIPTION
BEING a 25.454 acre tract of land situated in the City of Dallas, Dallas
County, Texas and out of the James A. Sylvester Survey, Abstract No. 1383 and
being a part of City of Dallas Block No. 6053, also being the same tract of
land conveyed to Dallas Market Center Company by a Special Warranty Deed
recorded in Volume 82113, Page 3240 of the Deed Records of Dallas County,
Texas, said 25.454 acre tract of land being more particularly described as
follows:
BEGINNING at a 1/2 inch iron rod found for the point of intersection of the
southwesterly right-of-way line of the Chicago Rock Island and Pacific Railroad
with the northwesterly right-of-way line of Oak Lawn Avenue;
THENCE with the northwesterly right-of-way line of Oak Lawn Avenue the
following:
South 31 31'40" West a distance of 366.74 feet to an "X" chiseled in
concrete found for comer in a curve to the right, the radius point of
said curve bearing North 50 08'58" West a distance of 241.00 feet from
said "XI";
Southwesterly with said curve to the right through a central angle of
03 09'20" an arc distance of 13.27 feet to an "XI" chiseled in
concrete set for the point of reverse curvature of a curve to the left
having a radius of 259.00 feet;
Southwesterly with said curve to the left through a central angle of
11 28'43" an arc distance of 51.89 feet to a 1/2 inch iron rod found
for the point of reverse curvature of a curve to the right having
radius of 129.00 feet;
Southwesterly with said curve to the right through a central angle of
24 06'22" an arc distance of 138.22 feet to a 1/2 inch iron rod set
for the point of compound curvature of a curve to the right having a
radius of 50.00 feet;
Northwesterly with said curve to the right through a central angle of
24 06'22" an arc distance of 21.04 feet to a 1/2 inch iron rod found
in the northeasterly right-of-way line of Stemmons Freeway for the
point of compound curvature of a curve to the right having a radius of
1 130.92 feet;
THENCE with the northeasterly right-of-way line of Stemmons Freeway
the following:
Northwesterly with said curve to the right through a central angle of
07 24'40" an arc distance of 146.28 feet to a 1/2 inch iron rod found
for the point of tangency of said curve;
North 55 33'45" West a distance of 816.18 feet to a 1/2 inch iron rod
found for point of curvature of a curve to the left having a radius of
3289.04 feet;
<PAGE> 34
Northwesterly with said curve to the left through a central angle of 0
1 23'21 " an arc distance of 79.74 feet to a bolt in concrete found
for the most southerly comer of a tract of land leased to Southwestern
Furniture Mart Co. from Industrial Properties Corporation as recorded
in Volume 67076, Page 0690 of the Deed Records of Dallas County,
Texas;
THENCE departing the northerly right-of-way line of Stemmons Freeway with the
easterly line of the Southwestern Furniture Mart Company tract, North 09 21'30'
East a distance of 1064.46 feet to a 1/2 inch iron rod found for comer in the
curving southwesterly right-of-way line of the Chicago, Rock Island and Pacific
Railroad, the radius point of said curve being situated South 33 11'48" West a
distance of 1599.88 feet;
THENCE with the southerly right-of-way lien of the Chicago, Rock Island and
Pacific Railroad the following:
Southeasterly with said curve to the right through a central angle of
02 41'48" an arc distance of 75.30 feet to a 1/2 inch iron rod found
for comer;
North 52 07'00" East a distance of 30.1 1 feet to a 1/2 inch iron rod
found for comer in a curve to the right, the radius point of said
curve being situated South 32 19'18" West a distance of 1553.95 feet;
Northwesterly with said curve to the right through a central angle of
21 26'39" an arc distance of 581.59 feet to a 1/2 inch iron rod set
for comer;
North 45 16'10" East a distance of 53.07 feet to 1/2 inch iron rod set
for comer;
South 31 48'40" East a distance of 976.20 feet to he POINT OF
BEGINNING;
CONTAINING an area of 25.454 acres of land,
<PAGE> 35
EXHIBIT "B"
To Lease Agreement By and Between IM Joint Venture, as Landlord and
VERIO, INC., as Tenant
RULES AND REGULATIONS
1. No additional locks shall be placed on the doors of the Leased
Premises by Tenant, nor shall any existing locks be changed unless
Landlord is immediately furnished with two keys thereto. Landlord
will without charge furnish Tenant with two keys for each lock
existing upon the entrance doors when Tenant assumes possession with
the understanding that at the termination of the lease these keys
shall be returned or paid for at five dollars ($5.00) each. A deposit
of one dollar ($1.00) each shall be required for additional keys.
2. Tenant shall not at any time display a "For Rent" sign upon the
Building or the Leased Premises, or advertise the Leased Premises for
rent.
3. Safes and other unusually heavy objects shall be placed by Tenant only
in such places as may be approved by Landlord. Any damage caused by
overloading the floor or by taking in or removing any object from the
Leased Premises or the Building shall be paid by Tenant.
4. Windows facing on corridors shall at all times be wholly clear and
uncovered (except for such signs as Landlord may approve) so that a
full unobstructed view of the interior of the Leased Premises may be
had from the corridors, unless otherwise approved in writing by
Landlord.
5. No vehicles or animals shall be brought into the Building, other than
as required by handicapped persons.
6. Tenant shall not make any changes in the pipes, ducts, or wiring
serving the Leased Premises or add any additional pipes, ducts, or
wiring without the prior written consent of Landlord, and any such
changes or additions shall be made in such manner as Landlord
may-direct.
7. No sign, tag, label, picture, advertisement, or notice (other than
price tags of customary size used in marking samples) shall be
displayed. distributed, inscribed, painted or affixed by Tenant on any
part of the outside of the Building or of the Leased Premises without
the prior written consent of the Landlord.
8. In the event Landlord should advance upon the request, or for the
account of the Tenant, any amount for labor, material, packing,
shipping, postage, freight or express upon articles delivered to the
Leased Premises or for the safety, care, and cleanliness of the Leased
Premises, the amount so paid shall be regarded as additional rent and
shall be due and payable forthwith to the Landlord from the Tenant.
<PAGE> 36
9. The corridors and hallways of the Building shall not be used by Tenant
for any purpose other than ingress to or egress from the Leased
Premises.
10. Tenant shall not do or permit to be done within the Leased Premises
anything which would unreasonably annoy or interfere with the rights
of other tenants in the Building, or which might constitute a
potential hazard to other tenants or visitors.
11. During the thirty (30) days prior to the expiration of this Lease,
Landlord may show the Leased Premises to prospective tenants.
12. Tenant shall not put or operate any steam engine, boiler, industrial
machinery or stove in the Building or upon the Leased Premises or do
any cooking thereon or use or allow to be kept in the Building or upon
the Leased Premises any explosives or any kerosene, camphene, bottled
gas, oil or other highly flammable materials, except gas supplied
through metal pipes for heating purposes and normal and customary
cleaning and janitorial supplies to the extent permitted under
applicable laws.
13. Landlord reserves the right to prescribe reasonable qualifications for
admission into the Building.
14. Models, salespersons or other employees or representatives of Tenant,
shall not model, demonstrate display, or show in any manner any
merchandise outside of the Leased Premises in the Building or on the
Property without Landlord's prior written consent.
15. As a courtesy, but not as an obligation, Landlord may, at Landlord's
option, upon request by Tenant, receive and store articles or
merchandise delivered to Tenant at the Building; provided, however
that such articles of merchandise are properly addressed and
identified and all postage, handling and delivery charges are prepaid
by Tenant. Landlord assumes no responsibility whatsoever for the
loss, damage or destruction of such articles of merchandise received
at the Building by Landlord on behalf of Tenant, and Tenant hereby
waives all claims against Landlord for any damage or loss arising at
any time from the loss, damage or destruction of such articles of
merchandise. Tenant agrees to pay to Landlord as additional rent the
amount of all storage, delivery, handling and other expenses incurred
by Landlord as a result of the receipt and storage of such articles of
merchandise.
16. Canvassing, peddling, soliciting and distribution of handbills or any
other written material in the Building or in the Building's parking
areas are prohibited, and each tenant shall cooperate to prevent the
same.
17. If the Leased Premises front on the atrium within the Building, Tenant
shall cause the Leased Premises to be kept open for business and
occupied by Tenant's personnel during all normal business hours of the
Building.
18. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part. the
terms, covenants, agreements and conditions of any lease of space in
the Building.
<PAGE> 37
19. Landlord reserves the right to make such other and reasonable rules
and regulations as in its judgment may from time to time be needed for
the safety, care and cleanliness of the Building, and for the
preservation of good order therein.
20. Smoking is permitted within the Building only in areas so designated
by Landlord. Smoking within the Leased Premises is at the discretion
of Tenant, provided, however, that such smoke does not migrate into
the Building's common areas, hallways, etc. or into another tenant's
premises. Tenant hereby indemnifies Landlord from any and all claims
resulting from Tenant's permitting of smoking within the Leased
Premises. Landlord reserves the right to change areas where smoking
is permitted and change these Regulations, including designating the
Building as non-smoking.
21. Tenant shall comply with the INFOMART Policy Statement. Tenant shall
be liable for all injuries and damages sustained by Landlord or
Landlord's agents or by other tenants, occupants, or invitees of the
Building by reason of any breach of the requirements of the INFOMART
Policy Statement by Tenant or Tenant's agents, employees or invitees.
22. Landlord may amend these Rules and Regulations from time to time and
such changes shall be binding upon Tenant.
<PAGE> 38
EXHIBIT "C"
To Lease Agreement By and Between IM Joint Venture, as Landlord and
VERIO, INC., as Tenant
- --------------------------------------------------------------------------------
DESIGNATION OF LEASED PREMISES
(For illustrative purposes only)
[CHART]
<PAGE> 39
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<PAGE> 40
EXHIBIT "D"
To Lease Agreement By and Between IM Joint Venture, as Landlord and
VERIO, NC., as Tenant
INFOMART POLICY STATEMENT
GENERAL POLICIES AND PROCEDURES REGARDING INFOMART, DALLAS
1. PERMANENT TENANT QUALIFICATIONS. Permanent tenants must be producers
of hardware, software or services utilizing information processing
equipment unless otherwise specifically approved by Landlord. If the
tenant's business includes the resale of products or services, the
tenant must add to or enhance the value of such products or services.
2. TEMPORARY EXHIBITOR REGULATIONS.
(a) During designated temporary trade events sponsored by Landlord
which are conducted in conjunction with the use of permanent
showrooms and which include the rental of temporary exhibit
space, permanent tenants will be offered a priority selection
of such temporary exhibit space based in the initial year upon
the dates on which such permanent tenants entered into leases
for space within the Building and in subsequent years on a
priority basis reasonably determined by Landlord.
(b) When temporary exhibit space is used in conjunction with
permanent showrooms, non-information processing industry
representatives may display wares for specific trade markets.
(c) Temporary space areas may be rented independent of permanent
showrooms, in which event Landlord will have sole discretion
as to exhibition policies.
3. BUSINESS HOURS. Permanent showrooms bounded by an atrium wholly or
partially will be open and staffed during all normal business hours of
the Building. Showrooms must be open during all Landlord sponsored
trade events with exceptions approved in writing by Landlord. The
hours of these events will be established by Landlord.
4. SALES POLICY. Warehousing and on-site delivery to customers is
prohibited in permanent showrooms and in exhibit space when used in
conjunction with showrooms. Payment for products or services that are
of a retail sales nature are prohibited (provided, however, that
payment or partial payment for orders taken at the Building for future
delivery to a buyer will be allowed if it is within the applicable
tenant's normal business practice and is not of a retail sales nature,
it being the intention hereof to permit payments or partial payments
intended to bind an order for future delivery without in any way
qualifying or circumventing the prohibition within the Building
against retail sales).
<PAGE> 41
5. ACCESS AND ADMISSION OF VISITORS. Landlord reserves the right to
implement and/or use any or all of the following policies with regard
to access and admission of visitors into the Building. Tenant will
receive prior notice of any change in the policy.
(a) All entrants to the Building will be registered and issued an
identification badge with the exception of visitors with a
pre-arranged appointment with a specific tenant.
Appointment-only visitors will be issued a badge which
requires such visitors to be accompanied by the applicable
inviter. Appointment- only visitors will not be required to
register on the Building's visitor database.
(b) Terms of issuance of badges will be annual with the exception
of specific trade events, including without limitation
conferences and symposia, in which event badges will be valid
only during the scheduled event. Temporary user badges will
be issued to non-scheduled daily visitors.
(c) A registration fee will be established by Landlord which will
defray the cost of registration and better ensure the quality
of visitors.
(d) Permanent tenants' badges will be issued based on one badge
per 500 Usable Square Feet of space, with additional badges
available upon payment of a registration fee cost or annual
renewal cost.
(e) Members of the press and educational institutions will be
issued a maximum of five annual complimentary badges with
additional badges available upon payment of the standard
registration fee.
(f) Employees and agents of Landlord will be issued badges at the
discretion of Landlord.
(g) Visitor registration information deemed appropriate by
Landlord will be made available to permanent tenants.
Information regarding tenant invitees will be proprietary and
not available to tenants. Attendee registration lists of
externally sponsored events will be the property of the
sponsoring group.
6. PUBLIC FUNCTION/ON-SITE ACCOMMODATIONS.
(a) A visitor information directory system will be provided by
Landlord to assist visitors in locating vendors. Tenant and
exhibitor listings will be categorized by company name and
product offerings. Each tenant is eligible to multiple
product listings applicable, up to a maximum of one product
category listing per 500 Usable Square Feet of permanent lease
space. Additional listings may be issued at a nominal fee
subject to product eligibility.
(b) Tenant's meeting room use will be coordinated on a reservation
basis and all tenants will be eligible. Standard fees will be
applied and Landlord will control the rental of these areas
and the use of the areas will be coordinated by the
buyer/tenant
<PAGE> 42
services department of Landlord. Reservations for meeting
room space within the Building will be on a first-come
first-served basis.
7. MERCHANDISING OF INFOMART. INFOMART reserves the right to list
tenants, partially or in entirety, of INFOMART in merchandising programs and
agrees that such use shall not contain editorial references regarding specific
tenants.
8. TENANT PARKING. On-site parking for employees and guests of tenants
shall be made available. Tenants are eligible to one parking space per 1,000
Rentable Square Feet of permanent lease space, subject to such terms and
conditions (including without limitation such rental or other charges) as
Landlord may from time to time impose.
9. AMENDMENTS TO GENERAL POLICIES AND PROCEDURES. Landlord may amend its
policies from time to time and such changes shall be binding upon Tenant.
<PAGE> 43
EXHIBIT "E'
To Lease Agreement By and Between IM Joint Venture, as Landlord and
VERIO, INC., as Tenant
WORK LETTER (ALLOWANCE)
This Work Letter ("Work Letter") describes and specifies the right and
obligations of Landlord and Tenant with respect to certain allowances granted
to Tenant hereunder and rights and responsibilities of Landlord and Tenant with
respect to the design, construction and payment for the completion of Tenant's
initial leasehold improvements ("Initial Improvements") within the Leased
Premises.
1. DEFINITIONS. Terms which are defined in the Lease shall have the same
meaning in this Work Letter. Additionally, as used in this Work
Letter, the following terms (when delineated with initial capital
letters) shall have the respective meaning indicated for each as
follows:
(a) "Allowance" shall mean an amount not to exceed Ninety-Eight
Thousand One Hundred Forty-three and 70/100ths Dollars
($98,143.70).
(b) "Basic Construction of the Building" shall mean the structure
of the Building as built on the date of this Work Letter.
(c) "Landlord's Architect" shall mean the architect designated by
Landlord as its architect, from time to time, to perform the
functions of Landlord's Architect hereunder.
(d) "Plans and Specifications" shall mean collectively, the plans,
specifications and other information prepared or to be
prepared by Tenant's Architect and, where necessary, by
Landlord's electrical, mechanical and structural engineers,
all at Tenant's expense, which shall detail the Work required
by Tenant in the Premises and which shall be approved in
writing by both Tenant and Landlord prior to the commencement
of such Work.
(e) "Tenant's Architect" shall mean ________________________ who
is an architect licensed to practice in the State of Texas.
(f) "Work" shall mean all materials and labor to be added to the
Basic Construction of the Building in order to complete the
installation of the Initial Improvements within the Leased
Premises for Tenant in accordance with the Plans and
Specifications, including, without limitation any
modifications to the Building, any electrical or plumbing work
required to meet Tenant's electrical and plumbing
requirements, and any special air conditioning work required
to be performed in the Leased Premises.
<PAGE> 44
(g) "Cost of the Work" shall mean the cost of all materials and
labor to be added to the Basic Construction of the Building in
order to complete the installation of the Initial Improvements
within the Leased Premises in accordance with the Plans and
Specifications.
(h) "Tenant's Costs" shall mean that portion of the Cost of the
Work in excess of Allowance.
(i) "Change Costs" shall mean all costs or expenses attributable
to any change in the Plans and Specifications which, when
added to other costs and expenses incurred in completing the
Work, exceed Allowance, including, without limitation, (i) any
cost caused by direction of Tenant to omit any item of Work
contained in the Plans and Specifications, (ii) and additional
architectural or engineering services, (iii) any changes to
materials in the process of fabrication, (iv) the cancellation
or modification of supply or fabricating contracts, (v) the
removal or alteration of any Work or any plans completed or in
process, or (vi) delays affecting the schedule of the Work.
(j) "Working Days" shall mean all days of the week other than
Saturday, Sunday, and legal holidays.
(k) "Contractor" shall mean the contractor or contractors engaged
by Tenant to perform the Work in accordance with the
provisions of Section 4.2(b) of the Lease.
2. PROCEDURE AND SCHEDULES FOR THE COMPLETION OF PLANS AND
SPECIFICATIONS. The Plans and Specifications shall be completed in
accordance with the following procedure and time schedules:
(a) Design Drawings. Within thirty (30) Working Days from
execution of the Lease, Tenant shall submit to Landlord four
(4) sets of prints of design drawings, specifying the intended
design, character and finishing of the Initial Improvements
within the Leased Premises. Such package shall include
separate drawings for signs in accordance with Landlord's sign
criteria. The design drawings shall set forth the
requirements of Tenant with respect to the installation of the
Initial Improvements within the Leased Premises, and such
drawings shall include, without limiting their scope, a Tenant
approved space plan, architectural design of the space,
including office front, plans, elevations, sections, and
renderings indicating materials, color selections and
finishes.
(i) After receipt of design drawings, Landlord shall
return to Tenant one set of Prints of design drawings
with Landlord's suggested modifications and/or
approval. If, upon receipt of approved design
drawings bearing Landlord's comments, Tenant wishes
to take exception thereto, Tenant may do so in
writing, by certified mail addressed to Landlord,
within five (5) Working Days from the date of receipt
of Landlord's comments on the design
<PAGE> 45
drawings. Unless such action is taken, Tenant will
be deemed to have accepted and approved all of
Landlord's comments on the design drawings.
(ii) If design drawings are returned to Tenant with
comments, but not bearing approval of Landlord, the
design drawings shall be immediately revised by
Tenant and resubmitted to Landlord for approval
within ten (10) Working Days of their receipt by
Tenant.
(b) Completion of Plans and Specifications. All Plans and
Specifications shall be prepared in strict compliance with
applicable Building standards and requirements, this Work
Letter and otherwise, and shall also adhere to the design
drawings approved by Landlord. In order to assure the
compatibility of Tenant's electrical and mechanical systems
and the compatibility of Tenant's structural requirements with
the existing Building and in order to expedite the preparation
of Tenant's electrical, mechanical and structural drawings,
Tenant or Tenant's Architect shall deliver to Landlord's
Architect, not later than thirty (30) Working Days from the
date of Landlord's approval of design drawings, a detailed
plan setting forth any and all electrical, mechanical and
structural requirements, and Landlord's Architect shall
retain, at Tenant's expense, Landlord's electrical, mechanical
and structural engineers to prepare all necessary electrical,
mechanical and structural construction drawings which shall be
included as a part of the Plans and Specifications. All
construction documents and calculations prepared by Tenant's
Architect shall be submitted by Tenant, in the form of four
(b) sets of blueline prints. to Landlord for approval within ten
(10) Working Days after the date of receipt by Tenant of
Landlord's approval of design drawings. If the Plans and
Specifications are returned to Tenant with comments, but not
bearing approval of Landlord, the Plans and Specifications
shall be immediately revised by Tenant and resubmitted to
Landlord for approval within fifteen (I 5) Working Days of
their receipt by Tenant.
(i) The fees for Tenant's Architect and any consultants
or engineers retained by or on behalf of Tenant or
Tenant's Architect (including, but not limited to,
the electrical, mechanical and structural engineers
required to be retained under this paragraph) shall
be paid by Tenant. Tenant shall also pay for any
preliminary drawings by Landlord's Architect for
review of the design drawings, the Plans and
Specifications, and any revisions to such documents,
and the fees and expenses of Landlord's Architect for
inspection of the Work, as required by Landlord.
Tenant may use funds from the Allowance to make such
payments.
(ii) Tenant shall have the sole responsibility for
compliance of the Plans and Specifications with all
applicable statutes, codes, ordinances and other
regulations, and the approval of the Plans and
Specifications or calculations included therein by
Landlord shall not constitute an indication,
<PAGE> 46
representation or certification by Landlord that such
Plans and Specifications or calculations are in
compliance with said statutes, codes, ordinances and
other regulations. In instances where several sets
of requirements must be met. the requirements of
Landlord's insurance underwriter or the strictest
applicable requirements shall apply where not
prohibited by applicable codes.
3. TERMINATION RIGHT. If for any reason Landlord and Tenant have not
agreed in writing upon final Plans and Specifications on or before the
date which is ninety (90) Working Days from the date hereof, then
Landlord or Tenant shall have the right to terminate the Lease by
providing the other party with written notice of the electing parties'
decision to terminate this Lease within thirty (30) days from the
expiration of such ninety (90) day period. The failure of either
party to exercise such termination right in the manner and within the
time period specified above shall be deemed to be an irrevocable
waiver of such right.
4. PAYMENT. In the event Landlord acts as the general contractor for the
Initial Improvements in the Leased Premises, the Allowance will be
applied to offset the amounts due Landlord as reflected in the monthly
invoices therefor submitted by Landlord to Tenant. In the event
Landlord does not act as the general contractor for the Initial
Improvements in the Leased Premises, Landlord shall pay the Allowance
to Tenant within thirty (30) days of Landlord's receipt of invoices
submitted by Tenant to Landlord. Any amount required over the
Allowance will be paid by Tenant-, any savings will be credited toward
Tenant's Base Rental.
5. PERFORMANCE OF WORK AND DELAYS. Tenant shall cause the Contract or to
perform the Work in strict accordance with the Plans and
Specifications. If a delay shall occur in the completion of the Work
by tenant as the probable result of (i) any failure to furnish when
due Tenant's design drawings, Tenant's electrical, mechanical and/or
structural requirements, Tenant's Plans and Specifications or any
revision to any such documents, (ii) any change by Tenant in any of
the Plans and Specifications, (iii) any state of facts which gives
rise to a change referred to in the definition of Change Costs or any
changes resulting in a Change Cost, (iv) any other act or omission of
Tenant, its agents or employees, including any violation of the
provisions of the Lease or any delay in giving authorizations or
approvals pursuant to this Work Letter, or (v) any other cause except
(a) as specified in Section 8.1 of the Lease or (b) arising from a
default by Landlord, then any such delay shall not justify any
extension of the Commencement Date of the Lease.
6. CHANGE ORDERS. All changes and modifications in the Work from that
contemplated in the Plans and Specifications, whether or not such
change or modification gives rise to a Change Cost, must be evidenced
by a written Change Order executed by both Landlord and Tenant. In
that regard, Tenant shall submit to Landlord such information as
Landlord shall require with respect to any Change Order requested by
Tenant. After receipt of requested Change Order, together with such
information as Landlord shall require with respect thereto, Landlord
shall return to Tenant either the executed Change Order, which
<PAGE> 47
will evidence Landlord's approval thereof, or the Plans and
Specifications with respect thereto with Landlord's suggested
modification.
7. WHOLE AGREEMENT; NO ORAL MODIFICATION. This Work Letter embodies all
representations, warranties and agreements of Landlord and Tenant with
respect to the matter described herein, and this Work Letter may not
be altered or modified except by an agreement in writing signed by the
parties.
8. PARAGRAPH HEADINGS. The paragraph headings contained in this Work
Letter are for convenient reference only and shall not in any way
affect the meaning or interpretation of such paragraphs.
9. NOTICES. All notices required or contemplated hereunder shall be
given to the parties in the manner specified for giving notices under
the Lease.
10. BINDING EFFECT. This Work Letter shall be construed under the laws of
the State of Texas and shall be binding upon and shall inure to the
benefit of the parties hereto and their respective permitted
successors and assigns.
11. CONFLICT. In the event of conflict between this Work Letter and any
other exhibits or addenda to this Lease, this Work Letter shall
prevail.
<PAGE> 48
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<PAGE> 49
EXHIBIT "F"
To Lease Agreement By and Between IM Joint Venture, as Landlord and
VERIO, INC., as Tenant
RIGHT OF FIRST REFUSAL
This Exhibit "F" describes and specifies the right of first refusal option
hereby granted by Landlord to Tenant with respect to certain space within the
Building described below, which is being granted upon the following terms and
conditions:
1. DEFINED TERMS. For purposes of this Exhibit "I"', all terms defined
in the Lease (including other exhibits to the Lease) will be utilized
herein without further definition. In addition, when delineated with
initial capital letters, the following terms shall have the following
respective definitions and meanings:
(a) "Refusal Right" shall refer to the right of first refusal
being granted to Tenant during the Lease Term pursuant to the
provisions of Paragraph 2 below.
(b) "Refusal Space" shall mean approximately 9,205 Rentable Square
Feet, Suite 2001, located on the second floor of the Building
as designated on the floor plan attached and incorporated
herein as Schedule "A".
(c) "Expansion Effective Date' shall mean the date on which any
Refusal Space is delivered to Tenant pursuant to the exercise
by Tenant of its Refusal Right.
2. GRANT OF REFUSAL RIGHT. Provided that Tenant is not in material
default under the Lease, Landlord hereby grants Tenant the Refusal
Right with respect to the Refusal Space .
3. EXERCISE OF REFUSAL RIGHT. Landlord shall, in the event that Landlord
receives an offer from a bona fide third-party tenant to lease all or
any part of the Refusal Space during the first twelve (12) months of
the Lease Term notify Tenant in writing of such offer ("Offer
Notice"). Tenant shall have five (5) business days from the receipt
of such notice to notify Landlord, in writing, of the exercise of
Tenant of Tenant's Refusal Right with respect to the Refusal Space;
and in the event Tenant fails to so notify Landlord within such five
(5) business day period, Tenant shall be deemed to have irrevocably
waived its Refusal Right with respect to the Refusal Space.
4. RENTAL. In the event Tenant exercises Tenant's Refusal Right within
the first twelve (12) months of the Lease Term, the Base Rental
applicable to the Refusal Space shall be at the then current market
rate.
5. DELIVERY OF REFUSAL SPACE. In the event that Tenant elects to
exercise its Refusal Right and does in fact exercise such option in
the manner and within the time periods specified herein, Landlord and
Tenant shall, within fifteen (15) days after Tenant
<PAGE> 50
delivers to Landlord notice of its election, enter into a written
agreement modifying and supplementing the Lease and containing such
other terms and provisions as Landlord may deem appropriate. Except
as may be specifically modified in such written agreement and except
with respect to the Base Rental applicable to the subject Refusal
Space, the terms and provisions of the Lease shall, on the applicable
Expansion Effective Date, automatically and without the necessity of
further documentation, become and be deemed to be a part of the Leased
Premises. Effective as of the applicable Expansion Effective Date,
the Rentable Square Feet within the subject Refusal Space shall be
included within the determination of Tenant's Proportionate Share as
provided in Section 2.4 of this Lease.
Any Refusal Space shall be delivered to Tenant vacant and unoccupied
and 'as is". Landlord shall use reasonable diligence to deliver the
applicable Refusal Space on the date specified by Landlord, but in no
event shall Landlord have any liability for the failure to deliver the
subject space to Tenant on such date, nor shall any such failure
impair the validity of the Lease, extend the Lease Term, or impair any
obligations of Tenant under the Lease, it being understood that the
Base Rental applicable to the subject Refusal Space shall be abated
until possession is delivered to Tenant in full settlement of all
claims that Tenant might otherwise have against Landlord by reason of
its failure to deliver possession of the subject space to Tenant.
6. TERMINATION OF REFUSAL RIGHT. The Refusal Right shall automatically
terminate upon (i) June 1, 1998, (ii) the expiration or termination of
the Lease Term, whether by Landlord upon the occurrence of an event of
default or otherwise, or (iii) an assignment, subletting, or other
transfer by Tenant of any part of its leasehold interest hereunder to
any person or entity other than an Affiliate, whether or not with the
approval of Landlord. In addition, the Refusal Right shall not be
applicable during any renewal or extension of the Lease Term.
<PAGE> 51
SCHEDULE "A"
To Exhibit "F" to Lease Agreement By and Between IM Joint Venture, as Landlord
and VERIO, INC., as Tenant
REFUSAL SPACE
(For illustrative purposes only)
[CHART]
<PAGE> 52
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<PAGE> 53
EXHIBIT "G"
To Lease Agreement By and Between IM Joint Venture, as Landlord and
VERI0, NC., as Tenant
RENEWAL OPTION
1. DEFINED TERMS. For purposes of this Exhibit "G", all terms defined in
the Lease (including other exhibits to the Lease) will be utilized
herein without further definition. In addition, when delineated with
initial capital letters, the following term shall have the following
definition and meaning:
(a) "Renewal Date' shall mean the first day next following the
expiration date of the Lease Term.
2. GRANT OF OPTION. Tenant shall have the following option ("Option") to
renew this Lease:
Tenant may, by notifying Landlord of its election in writing at least
six (6) full calendar months prior to the end of the Lease Term, renew
this Lease for an additional lease term (the "Second Lease Term')
beginning on the first (1st) Renewal Date and continuing for five (5)
years thereafter. Such renewal shall be on all of the terms and
conditions of this Lease which are not inconsistent herewith, except
that no renewal option shall exist during the Second Lease Term.
The Base Rental payable beginning on the first (1st) Renewal Date and
continuing thereafter shall be at the then current market rate.
Failure by Tenant to notify Landlord of Tenant's election to exercise
the renewal option herein granted within the time limits set forth for
such exercise shall constitute a waiver of such Option.
Notwithstanding the foregoing, the Option shall not be applicable at
any time when there is an uncured event of default under the Lease.
In addition, the Option shall automatically terminate upon the
termination of the Lease Term, whether by Landlord upon the occurrence
of an event of default or otherwise or, at the option of Landlord, in
its sole discretion, upon the assignment, subletting, or other
transfer by Tenant, whether or not with the approval of Landlord to
any person or entity other than an Affiliate.
<PAGE> 54
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<PAGE> 55
EXHIBIT "H"
To Lease Agreement By and Between IM Joint Venture, as Landlord and
VERIO, NC., as Tenant
PARKING
This Exhibit "H" ("Exhibit") supersedes Rule 8 of Exhibit "D" attached to the
Lease and describes and specifies Tenant's non-exclusive right to use four (4)
non-reserved parking spaces ("Spaces") located inside the Building's card
access parking garage ("Parking Garage"). Spaces in the surface parking lots
associated with the Building and located on the Property ('Surface Parking")
are provided for the non-exclusive and common use of Landlord, all tenants of
the Building, and their respective guests and invitees. Utilization of the
Surface Parking is subject to availability (and Landlord shall have no
obligation to provide available Surface Parking) and to such rules and
regulations as may be promulgated by Landlord from time to time. Use of the
Parking Garage and the Surface Parking is subject to the terms and conditions
set forth below.
1. DEFINITIONS. The terms which are defined in the Lease shall have the
same meaning in this Exhibit.
2. GRANT. Provided no event of default has occurred and is continuing
under the Lease, Tenant shall be permitted, free of charge,
non-exclusive use of Spaces in the Parking Garage during the Lease
Term for the parking of four (4) vehicles. Tenant shall also have the
right to use the Surface Parking, free of charge, during the Lease
Term.
3. RISK. All motor vehicles (including all contents thereof) shall be
parked in the Spaces or in the Surface Parking, as applicable, at the
sole risk of Tenant. its employees, agents, invitees and licensees, it
being expressly agreed and understood that Landlord has no duty to
insure any of said motor vehicles (including the contents thereof),
and that Landlord is not responsible for the protection and security
of such vehicles. Landlord shall have no liability whatsoever for any
property damage and/or personal injury which might occur as a result
of or in connection with the parking of said motor vehicles in any of
the Spaces or in the Surface Parking, as applicable, and Tenant hereby
agrees to indemnify and hold Landlord harmless from and against any
and all costs, claims, expenses, and/or causes of action which
Landlord may incur in connection with or arising out of Tenant's use
of the Spaces or the Surface Parking pursuant to this Agreement.
4. RULES AND REGULATIONS. In its use of the Spaces and the Surface
Parking, Tenant shall follow all of the Rules and Regulations of the
Building (attached to the Lease as Exhibit "B") applicable thereto, as
the same may be amended from time to time. Upon the occurrence of any
breach of such rules or default by Tenant under the Lease, Landlord
shall be entitled to terminate this Exhibit, in which event Tenant's
right to utilize the Spaces and/or the Surface Parking shall thereupon
automatically cease.
5. SECURITY. Landlord shall be entitled to utilize whatever access
device Landlord deems necessary (including but not limited to the
issuance of parking stickers or access cards), to
<PAGE> 56
insure that only tenants authorized to use spaces in the Parking
Garage are using such spaces. In the event Tenant, its agents or
employees wrongfully park in any of the Parking Garage's spaces,
Landlord shall be entitled and is hereby authorized to have any such
vehicle towed away, at Tenant's sole risk and expense, and Landlord is
further authorized to impose upon Tenant a penalty of $25.00 for each
such occurrence. Tenant hereby agrees to pay all amounts failing due
hereunder upon demand therefor, and the failure to pay any such amount
shall additionally be deemed an event of default under the Lease,
entitling Landlord to all of its rights and remedies thereunder.
6. ADDITIONAL SPACES. In the event that Tenant expands the Leased
Premises, Tenant shall been titled to additional Spaces within the
Parking Garage based upon a ratio of one (1) additional Space per
additional 1,000 Usable Square Feet incorporated into the Leased
Premises. Such additional Spaces shall be subject to such monthly
rates, terms, conditions, and regulations as are, from time to time,
promulgated by Landlord and charged or applicable to patrons of said
Parking Garage for spaces similarly situated within said Parking
Garage. The parking rate for each of the Spaces as of the date hereof
is $45.00.
<PAGE> 57
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<PAGE> 1
EXHIBIT 10.8
VERIO INC.
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
MAY 20, 1997
<PAGE> 2
VERIO INC.
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
THIS AMENDED AND RESTATED STOCKHOLDERS AGREEMENT (this "Agreement") dated
as of May 20, 1997 is entered into by and among (i) VERIO INC., a Delaware
corporation (the "Company"), (ii) the holders of the Company's Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
identified on the signature pages hereto (the "Investors"), and (iii) the
members of the Company's management identified on the signature pages hereto or
that have otherwise agreed to be bound by the provisions hereof (the "Management
Holders") and replaces the Stockholders Agreement dated December 5, 1996, as
amended, by and among the Company and the Company's existing Investors and
Management Holders. The Investors and the Management Holders are referred to
collectively as the "Stockholders."
Certain of the Investors and the Company are parties to a Series C
Preferred Stock Purchase Agreement of even date herewith (the "Purchase
Agreement"). Such Investors' obligations under the Purchase Agreement are
conditioned upon the execution and delivery of this Agreement by the
Stockholders and the Company.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the following
respective meanings:
1.1 "AFFILIATE" of a person means any other person that controls, is
controlled by, or is under common control with, such person.
1.2 "CLOSING" shall mean the date of the initial sale of shares of the
Company's Series C Preferred Stock pursuant to the Purchase Agreement.
1.3 "COMMISSION" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
1.4 "COMMON STOCK" shall mean the Company's Common Stock, $.001 par value
per share.
1.5 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934 (or any
similar successor federal statute), as amended, and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
1.6 "INITIATING HOLDERS" shall mean holders of Registrable Securities
representing not less than twenty-five percent (25%) of the then-outstanding
Registrable Securities.
1.
<PAGE> 3
1.7 "INVESTOR STOCK" shall mean (i) shares of Common Stock owned by the
Investors or any transferee thereof; (ii) shares of Common Stock issued or
issuable upon the conversion or exercise of any stock (including, without
limitation, the Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock) warrants, options or other securities of the Company owned by
the Investors or any transferee thereof; and (iii) any shares of Common Stock
issued as a dividend or other distribution with respect to or in exchange for or
in replacement of the shares referenced in (i) and (ii) above.
1.8 "MANAGEMENT STOCK" shall mean (i) shares of Common Stock owned by the
Management Holders or any Permitted Transferee thereof; (ii) shares of Common
Stock issued or issuable upon the conversion or exercise of any options or other
securities of the Company owned by the Management Holders; and (iii) any shares
of Common Stock issued as a dividend or other distribution with respect to or in
exchange for or in replacement of the shares referenced in (i) and (ii) above.
1.9 "PERMITTED TRANSFEREE" shall mean, (i) with respect to a Management
Holder, a member of such Management Holder's immediate family, a trust
established for the benefit of members of such Management Holder's immediate
family, or a transferee of such Management Holder by will or the laws of
intestate succession, and (ii) with respect to a holder of Investor Stock, any
Affiliate of such Stockholder or any partner, shareholder or other equity owner
of such Stockholder or, in the case of Providence Equity Partners L.P. or
Providence Equity Partners II L.P. (collectively, "Providence"), the members of
their sole general partners on the date hereof.
1.10 "QUALIFIED PUBLIC OFFERING" shall mean an underwritten public offering
of Common Stock resulting in proceeds to the Company of not less than $30
million (prior to expenses and underwriting commissions) and at an offering
price per share equal to at least $15.00 (as appropriately adjusted for future
stock splits, stock dividends, recapitalizations and similar transactions
affecting the Common Stock).
1.11 "REGISTRABLE SECURITIES" shall mean the Investor Stock; provided,
however, that Registrable Securities shall not include any shares of Investor
Stock that have previously been registered under the Securities Act or that have
otherwise been sold to the public in an open-market transaction under Rule 144.
1.12 The terms "REGISTERS," "REGISTERED" and "REGISTRATION" shall refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act and the declaration or ordering of the
effectiveness of such registration statement by the Commission.
1.13 "REGISTRATION EXPENSES" shall mean all expenses incurred in effecting
any registration pursuant to this Agreement, including without limitation all
registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for the Company, blue sky fees and expenses,
expenses of any regular or special audits incident to or required by any such
registration, and the fees and expenses of one counsel for the selling holders
of Registrable Securities, but excluding Selling Expenses.
2.
<PAGE> 4
1.14 "RULE 144" shall mean Rule 144 as promulgated by the Commission under
the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
1.15 "SECURITIES ACT" shall mean the Securities Act of 1933 (or any similar
successor federal statute), as amended, and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
1.16 "SELLING EXPENSES" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities.
1.17 "SERIES A PREFERRED STOCK" shall mean the Company's Series A Preferred
Stock, $.001 par value per share.
1.18 "SERIES B PREFERRED STOCK" shall mean the Company's Series B Preferred
Stock, $.001 par value per share.
1.19 "SERIES C PREFERRED STOCK" shall mean the Company's Series C Preferred
Stock, $.001 par value per share.
1.20 "SIGNIFICANT HOLDER" shall mean a holder of Registrable Securities
representing at least five percent (5%) of the fully diluted Common Stock of the
Company.
1.21 "SUBSIDIARIES" shall refer to the Company's wholly-owned subsidiaries:
CCNet, Inc., a California corporation, Global Enterprises Services, Inc., a
Colorado corporation, NorthWestNet, Inc., an Oregon corporation, Pioneer Global
Telecommunications, Inc., a Massachusetts corporation, and RustNet, Inc., a
Colorado corporation, and any other corporation or other entity that becomes a
wholly-owned subsidiary of the Company.
ARTICLE 2
REGISTRATION RIGHTS
2.1 DEMAND REGISTRATIONS.
(a) REQUEST FOR REGISTRATION. At any time or times after the effective
date of the first registration statement filed by the Company under the
Securities Act, the Initiating Holders may require that the Company effect a
registration under the Securities Act (i) in the case of a requested
registration on Form S-1 or any similar form (a "Long Form Registration"), with
respect to at least ten percent (10%) of the Registrable Securities then
outstanding or (ii) in the case of a requested registration on Form S-3 or any
similar form, if available (a "Short-Form Registration"), with respect to
Registrable Securities with an anticipated offering price of $5,000,000 or more
(each a "Demand Registration"). Upon receipt of written notice of such demand,
the Company will promptly give written notice of the proposed registration to
all other holders of Registrable Securities and will include in such
registration all Registrable Securities specified in such demand, together with
all Registrable Securities of any other holder of
3.
<PAGE> 5
Registrable Securities joining in such demand as are specified in a written
request received by the Company within twenty (20) days after delivery of the
Company's notice.
(b) DEFERRAL OF DEMAND REGISTRATION. The Company shall file a
registration statement with respect to each Demand Registration requested
pursuant to Section 2.1(a) as soon as practicable after receipt of the demand of
the Initiating Holders; provided, however, that if in the good faith judgment of
the Board of Directors of the Company, such registration would be seriously
detrimental to the Company in that such registration would interfere with a
proposed primary registration of securities by the Company or any other material
corporate transaction and the Board of Directors concludes, as a result, that it
is advisable to defer the filing of such registration statement at such time (as
evidenced by an appropriate resolution of the Board), then the Company shall
have the right to defer such filing for the period during which such
registration would be seriously detrimental; provided, however, that (x) the
Company may not defer the filing for a period of more than one hundred eighty
(180) days after receipt of the demand of the Initiating Holders, (ii) the
Company shall not exercise its right to defer a Demand Registration more than
once, and (iii) if the Company undertakes a primary registration following an
exercise of its deferral right, the holders of Registrable Securities shall have
"piggyback" rights under Section 2.2 hereof with respect to not less than
one-third (1/3) of the number of shares of Common Stock to be sold in such
offering.
(c) UNDERWRITING. If the Initiating Holders intend to distribute the
Registrable Securities covered by a Demand Registration by means of an
underwriting, they shall so advise the Company as a part of their demand made
pursuant to Section 2.1 and the Company shall include such information in its
written notice to holders of Registrable Securities. The Initiating Holders
shall have the right to select the managing underwriter(s) for an underwritten
Demand Registration, subject to the approval of the Company's Board of Directors
(which will not be unreasonably withheld or delayed). The right of any holder of
Registrable Securities to participate in an underwritten Demand Registration
shall be conditioned upon such holder's participation in such underwriting in
accordance with the terms and conditions thereof, and the Company and such
holders will enter into an underwriting agreement in customary form.
(d) PRIORITIES. The holders of Registrable Securities will have
absolute priority over any other securities included in a Demand Registration.
If other securities are included in any Demand Registration that is not an
underwritten offering, all Registrable Securities included in such offering
shall be sold prior to the sale of any of such other securities. If other
securities are included in any Demand Registration that is an underwritten
offering, and the managing underwriter for such offering advises the Company
that in its opinion the amount of securities to be included exceeds the amount
of securities which can be sold in such offering without adversely affecting the
marketability thereof, the Company will include in such registration all
Registrable Securities requested to be included therein prior to the inclusion
of any other securities. If the number of Registrable Securities requested to be
included in such registration exceeds the amount of securities which in the
opinion of such underwriter can be sold without adversely affecting the
marketability of such offering, such Registrable Securities shall be included
pro rata among the holders thereof based on the percentage of the outstanding
Common Stock held by each such Stockholder (assuming the conversion of the
Series A
4.
<PAGE> 6
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
and the exercise of all options, warrants and similar rights held by such
Stockholder).
2.2 PIGGYBACK REGISTRATIONS.
(a) REQUEST FOR INCLUSION. If the Company shall determine to register
any of its securities for its own account or for the account of other security
holders of the Company on any registration form (other than Form S-4 or S-8)
which permits the inclusion of Registrable Securities (a "Piggyback
Registration"), the Company will promptly give each holder of Registrable
Securities written notice thereof and, subject to Section 2.2(c), shall include
in such registration all the Registrable Securities requested to be included
therein pursuant to the written requests of holders of Registrable Securities
received within twenty (20) days after delivery of the Company's notice.
(b) UNDERWRITING. If the Piggyback Registration relates to an
underwritten public offering, the Company shall so advise the holders of
Registrable Securities as a part of the written notice given pursuant to Section
2.2(a). In such event, the right of any holder of Registrable Securities to
participate in such registration shall be conditioned upon such holder's
participation in such underwriting in accordance with the terms and conditions
thereof. All holders of Registrable Securities proposing to distribute their
securities through such underwriting shall (together with the Company) enter
into an underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by the Company.
(c) PRIORITIES. If such proposed Piggyback Registration is an
underwritten offering and the managing underwriter for such offering advises the
Company that the securities requested to be included therein exceeds the amount
of securities that can be sold in such offering, except as provided in Section
2.l(b), any securities to be sold by the Company in such offering shall have
priority over any Registrable Securities, and the number of shares to be
included by a holder of Registrable Securities in such registration shall be
reduced pro rata on the basis of the percentage of the outstanding Common Stock
held by such Stockholder (assuming the conversion of the Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock and the exercise of
all options, warrants and similar rights held by such Stockholder) and all other
holders exercising similar registration rights.
2.3 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with up to two Long-Form Registrations and all Short-Form and
Piggyback Registrations shall be borne by the Company; provided, however, that
(x) no registration shall count as one of the Company-paid Long Form
Registrations unless the holders of Registrable Securities are able to register
and sell at least ninety percent (90%) of the Registrable Securities requested
to be included therein, and (y) the holders of Registrable Securities shall be
entitled to additional Long-Form Registrations, so long as such holders agree to
bear all Registration Expenses associated therewith. All Selling Expenses
relating to Registrable Securities included in any Demand or Piggyback
Registration shall be borne by the holders of such securities pro rata on the
basis of the number of shares sold by them.
5.
<PAGE> 7
2.4 REGISTRATION PROCEDURES. In the case of each registration effected by
the Company pursuant to this Article II, the Company will keep each holder of
Registrable Securities advised in writing as to the initiation of such
registration and as to the completion thereof. At its expense, the Company will
use its best efforts to:
(a) cause such registration to be declared effective by the Commission
and, in the case of a Demand Registration, keep such registration effective for
a period of one hundred eighty (180) days or until the holders of Registrable
Securities included therein have completed the distribution described in the
registration statement relating thereto, whichever first occurs;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement (including post-effective amendments) as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement;
(c) obtain appropriate qualifications of the securities covered by
such registration under state securities or "blue sky" laws in such
jurisdictions as may be requested by the holders of Registrable Securities;
provided, however, that the Company shall not be required to file a general
consent to service of process in any jurisdiction in which it is not otherwise
subject to service in order to obtain any such qualification;
(d) furnish such number of prospectuses and other documents incident
thereto, including any amendment of or supplement to the prospectus, as a holder
of Registrable Securities from time to time may reasonably request;
(e) 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 happening of any event
as a result of which 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 or incomplete in the 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 a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such 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 or
incomplete in the light of the circumstances then existing;
(f) cause all Registrable Securities covered by such registration to
be listed on each securities exchange or inter-dealer quotation system on which
similar securities issued by the Company are then listed;
(g) 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;
6.
<PAGE> 8
(h) otherwise comply with all applicable rules and regulations of the
Commission, and make available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at least twelve (12)
months, but not more than eighteen (18) months, beginning with the first month
after the effective date of the registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act; and
(i) in connection with any underwritten Demand Registration, the
Company will enter into an underwriting agreement reasonably satisfactory to the
Initiating Holders containing customary underwriting provisions, including
indemnification and contribution provisions.
2.5 INDEMNIFICATION.
(a) The Company will indemnify each holder of Registrable Securities,
each of such holders' officers, directors, partners, agents, employees and
representatives, and each person controlling such holder within the meaning of
Section 15 of the Securities Act, with respect to each registration,
qualification or compliance effected pursuant to this Article II, against all
expenses, claims, losses, damages and liabilities (or actions, proceedings or
settlements in respect thereof) arising out of or based on any untrue statement
(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
indemnified person 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 any 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 holder
of Registrable Securities and stated to be specifically for use therein. It is
agreed that the indemnity agreement contained in this Section 2.5(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 has not been unreasonably withheld).
(b) Each holder of Registrable Securities included in any registration
effected pursuant to this Article II shall indemnify the Company, each of its
directors, officers, agents, employees and representatives, and each person who
controls the Company within the meaning of Section 15 of the Securities Act,
each other such holder of Registrable Securities and each of their officers,
directors and partners, and each person controlling such holders, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus, offering
circular or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements
7.
<PAGE> 9
therein not misleading, and will reimburse such indemnified persons for any
legal or any other expenses reasonably incurred in connection with investigating
or defending any such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in strict conformity with written information furnished to the Company by such
holder of Registrable Securities; provided, however, that (x) no holder of
Registrable Securities shall be liable hereunder for any amounts in excess of
the net proceeds received by such holder pursuant to such registration, and (y)
the obligations of such holder of Registrable Securities hereunder shall not
apply to amounts paid in settlement of any such claims, losses, damages or
liabilities (or actions in respect thereof) if such settlement is effected
without the consent of such holder (which consent has not been unreasonably
withheld).
(c) Each party entitled to indemnification under this Section 2.5 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such 2 Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought, and
shall permit the Indemnifying Party to assume the defense of any such claim or
any litigation resulting therefrom, provided that counsel for the Indemnified
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 2.5 to the extent such
failure is not prejudicial. No Indemnifying Party in the defense of any such
claim or litigation shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include an unconditional release of such Indemnified Party from all liability in
respect to such claim or litigation. Each Indemnified Party shall furnish such
information regarding itself or the claim in question as an Indemnifying Party
may reasonably request in writing and as shall be reasonably required in
connection with defense of such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this Section 2.5 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 which 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, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
8.
<PAGE> 10
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in an 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.
2.6 OTHER OBLIGATIONS. With a view to making available the benefits of
certain rules and regulations of the Commission which may effectuate the
registration of Registrable Securities or permit the sale of Registrable
Securities to the public without registration, the Company agrees to:
(a) after its initial registration under the Securities Act, exercise
best efforts to cause the Company to be eligible to utilize Form S-3 (or any
similar form) for the registration of Registrable Securities;
(b) at such time as any Registrable Securities are eligible for
transfer under Rule 144(k), upon the request of the holder of such Registrable
Securities, remove any restrictive legend from the certificates evidencing such
securities at no cost to such holder;
(c) make and keep available public information as defined in Rule 144
under the Securities Act at all times from and after ninety (90) days following
its initial registration under the Securities Act;
(d) file with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
at any time after it has become subject to such reporting requirements;
(e) furnish any holder of Registrable Securities upon request a
written statement by the Company as to its compliance with the reporting
requirements of Rule 144 (at any time from and after ninety (90) days following
the effective date of the first registration statement filed by the Company for
an offering of its securities to the general public), and of the Securities Act
and the Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents as a holder of Registrable
Securities may reasonably request in availing itself of any rule or regulation
of the Commission (including Rule 144A) allowing a holder of Registrable
Securities to sell any such securities without registration.
2.7 HOLD-BACK AGREEMENTS. If requested by the Company or any underwriter
of Common Stock of the Company, a holder of Registrable Securities shall not
sell or otherwise transfer or dispose of any Common Stock (other than pursuant
to such registration) during (a) in the case of the Company's initial public
offering of Common Stock for its own account, the one hundred eighty (180) day
period following the effective date of such registration statement, and (b) in
the case of all subsequent registrations of the Company's Common Stock, the
ninety (90) day period following the effective date of such registration
statement; provided, however, that if holders of Management Stock are subjected
to hold-back restrictions of shorter duration, such shorter periods shall apply
to holders of Registrable Securities. The obligations described in this Section
2.7 shall not apply to a registration on Form S-4 or Form S-8 or similar forms
which may
9.
<PAGE> 11
be promulgated in the future and, except in the case of the Company's
initial public offering, shall not apply to a holder of Registrable Securities
representing less than 1% of the then-outstanding Common Stock.
2.8 TERMINATION OF REGISTRATION RIGHTS. The right of any holder of
Registrable Securities to request inclusion of Registrable Securities in any
registration pursuant to this Article 2 shall terminate when (i) all Registrable
Securities beneficially owned by such holder of Registrable Securities may
immediately be sold under Rule 144(k), and (ii) the Company's Common Stock is
listed on a national securities exchange or traded in The Nasdaq National Market
System; provided, however, that the provisions of this Section 2.8 shall not
apply to any holder of Registrable Securities representing more than five
percent (5%) of the Company's then-outstanding Common Stock.
ARTICLE 3
TRANSFER RESTRICTIONS
3.1 PROHIBITION ON TRANSFER. No Stockholder shall sell, transfer, assign,
pledge or otherwise dispose of any interest in any Stockholder Shares (a
"transfer") other than in compliance with this Article III. Each Stockholder
agrees not to consummate any transfer (other than a transfer to a Permitted
Transferee pursuant to Section 3.4) until the expiration of a 30-day period (the
"Election Period") following delivery by such Stockholder of a Sale Notice
pursuant to Section 3.2 or an Offer Notice pursuant to Section 3.3, as
applicable.
3.2 RIGHTS OF FIRST REFUSAL. If at any time a Management Holder receives a
bona fide offer from any person to purchase shares of Common Stock held by such
Management Holder (a "Third-Party Offer"), such Management Holder shall cause
such Third-Party Offer to be reduced to writing and shall notify the Company and
each holder of Investor Stock of such Management Holder's desire to accept the
Third-Party Offer. The Management Stockholder's notice (the "Sale Notice") shall
contain an irrevocable offer to sell such Common Stock to the Company at a
purchase price equal to the price contained in, and on the same terms and
conditions of, the Third-Party Offer and shall be accompanied by a true copy of
the Third-Party Offer (which shall identify the offeror). At any time within
twenty (20) days after the date of receipt by the Company of the Sale Notice,
the Company shall have the right to purchase all or any portion of the Common
Stock covered by the Third-Party Offer at the same price and on the same terms
and conditions as the Third-Party Offer; provided, however, that (i) any shares
not purchased by the Company shall be reoffered to the holders of Investor
Stock, each of whom shall have the right, exercisable by delivery of written
notice to the transferring Management Holder within ten (10) days following the
expiration of such 20-day period, to purchase all (but not less than all) of its
pro rata share (equal to such electing holder's percentage interest in the
outstanding Investor Stock) and (ii) the Company or the holders of Investor
Stock may pay cash to the selling Management Holder equal in amount to the fair
market value of any non-cash consideration offered in the Third-Party Offer. If
the Company and/or the holders of Investor Stock have not notified the selling
Management Holder in writing of their election to purchase any Common Stock
covered by the Third Party Offer as set forth herein prior to the expiration of
10.
<PAGE> 12
the Election Period, the selling Management Holder may within sixty (60) days
thereafter sell such Common Stock on the terms set forth in the original
Third-Party Offer. Any Management Stock covered by the Third Party Offer that is
not so transferred during such 60-day period shall again be subject to this
Section 3.2.
3.3 RIGHT OF FIRST OFFER. Prior to any transfer of Investor Stock, the
transferring Stockholder shall deliver a written notice (the "Offer Notice") to
the Company and the other holders of Investor Stock disclosing in reasonable
detail the number of shares of Investor Stock proposed to be transferred (the
"Offered Shares") and the terms and conditions of such proposed transfer. Each
other holder of Investor Stock shall have the right, exercisable by delivery of
written notice to the transferring Stockholder within twenty (20) days after
delivery of the Offer Notice, to purchase all (but not less than all) of its pro
rata share (equal to such electing holder's percentage interest in the
outstanding Investor Stock) of the Offered Shares on the terms and conditions
set forth in the Offer Notice. In the event that any holder of Investor Stock
declines to exercise its right of first offer, the remaining unpurchased portion
of the Offered Shares shall be reoffered to the electing holders of Investor
Stock on a pro rata basis for a period of ten (10) days following the expiration
of such 20-day period. To the extent that the holders of Investor Stock have not
elected to purchase all of the Offered Shares prior to the expiration of the
Election Period, the transferring Stockholder may, within ninety (90) days after
the expiration of the Election Period, transfer such Offered Shares to one or
more third parties at a price not less that ninety-five percent (95%) of the
price per share specified in the Offer Notice. Any Offered Shares not
transferred during such 90-day period shall again be subject to the provisions
of this Section 3.3 upon subsequent transfer.
3.4 EXEMPT TRANSACTIONS. The restrictions set forth in this Article III
shall not apply to transfers of Management Stock or Investor Stock to a
Permitted Transferee of the transferring Stockholder; provided, however, that
such Permitted Transferee shall agree in writing to be bound by such
restrictions in connection with subsequent transfers.
ARTICLE 4
COVENANTS OF THE COMPANY
The Company hereby covenants and agrees, so long as any Registrable
Securities are outstanding, as follows:
4.1 BASIC FINANCIAL INFORMATION. The Company will furnish the following
reports to each Significant Holder and to each holder of Registrable Securities
who has a representative serving on the Company's Board of Directors:
(a) As soon as practicable after the end of each fiscal year of the
Company, a consolidated balance sheet of the Company and its consolidated
subsidiaries, if any, as of the end of such fiscal year, and consolidated
statements of income and cash flow of the Company and its consolidated
subsidiaries, if any, for such year, prepared in accordance with generally
accepted accounting principles consistently applied and setting forth in each
case in comparative form the
11.
<PAGE> 13
figures for the previous fiscal year, all in reasonable detail and certified by
independent public accountants of recognized national standing selected by the
Company.
(b) As soon as practicable after the end of each quarterly accounting
period in each fiscal year of the Company, a consolidated balance sheet of the
Company and its consolidated subsidiaries, if any, as of the end of each such
quarterly period, and consolidated statements of income and cash flow of the
Company and its subsidiaries, if any, for such period and for the current fiscal
year to date, prepared in accordance with generally accepted accounting
principles consistently applied and setting forth in comparative form the
figures for the corresponding periods of the previous fiscal year, subject to
changes resulting from normal year-end audit adjustments, all in reasonable
detail and certified by the chief financial officer of the Company (or the chief
accounting officer if no CFO is in place), except that such statements need not
contain the notes required by generally accepted accounting principles.
(c) As soon as practicable after the end of each monthly accounting
period, a consolidated balance sheet of the Company and its consolidated
subsidiaries, if any, as of the end of such month and consolidated statements of
income of the Company and its consolidated subsidiaries, if any, for each month
and for the current fiscal year of the Company to date, all subject to normal
year-end audit adjustments, prepared in accordance with generally accepted
accounting principles consistently applied and certified by the chief financial
officer of the Company (or the chief accounting officer if no CFO is in place),
except that such statements need not contain the notes required by generally
accepted accounting principles.
4.2 ADDITIONAL INFORMATION RIGHTS.
(a) The Company will permit each Significant Holder to visit and
inspect any of the properties of the Company, including its books of account and
other records (and make copies thereof and take extracts therefrom), and to
discuss its affairs, finances and accounts with the Company's officers and its
independent public accountants, all at such reasonable times and as often as any
such person may reasonably request.
(b) The Company will deliver the reports described below in this
Section 4.2(b) to each Significant Holder:
(i) Annually (but in any event at least thirty (30) days prior to
the commencement of each fiscal year of the Company) the financial plan of the
Company, in such manner and form as approved by the Board of Directors of the
Company, which financial plan shall include an operating budget for such fiscal
year and an updated five-year strategic plan for the Company.
(ii) Concurrently with delivery thereof, copies all reports and
other written material submitted to the Board of Directors.
(iii) Concurrently with delivery thereof, copies of any reports or
communications delivered to the financial community, including all press
releases.
12.
<PAGE> 14
(c) Each Significant Holder hereby agrees to hold in confidence and
trust and not to misuse or disclose any confidential information provided
pursuant to this Section 4.2; provided, however, that a Significant Holder shall
not be prohibited from using any such information for the purpose of generating
and delivering portfolio valuation information to its investors.
4.3 PROMPT PAYMENT OF TAXES, ETC. The Company will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company or any Subsidiary; provided,
however, that any such tax, assessment, charge or levy need not be paid if the
validity thereof shall currently be contested in good faith by appropriate
proceedings and if the Company shall have set aside on its books adequate
reserves with respect thereto; and provided, further, that the Company will pay
all such taxes, assessments, charges or levies forthwith upon the commencement
of proceedings to foreclose any lien which may have attached as security
therefor. The Company will promptly pay or cause to be paid when due, in
conformance with customary trade terms, all other obligations incident to the
operations of the Company.
4.4 MAINTENANCE OF PROPERTIES AND LEASES. The Company will keep its
properties and those of the Subsidiaries in good repair, working order and
condition, reasonable wear and tear excepted, and from time to time make all
needful and proper repairs, renewals, replacements, additions and improvements
thereto; and the Company and the Subsidiaries will at all times comply with each
material provision of all leases to which any of them is a party or under which
any of them occupies property if the breach of such provision might have a
material and adverse effect on the condition, financial or otherwise, or
operations of the Company.
4.5 INSURANCE. The Company will keep its assets and those of the
Subsidiaries which are of an insurable character insured by financially sound
and reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in the Company's line of business, and
the Company will maintain, with financially sound and reputable insurers,
insurance against other hazards and risks and liability to persons and property
to the extent and in the manner customary for companies in similar businesses
similarly situated.
4.6 ACCOUNTS AND RECORDS. The Company will keep true records and books of
account in which full, true and correct entries will be made of all dealings or
transactions in relation to its business and affairs in accordance with
generally accepted accounting principles applied on a consistent basis.
4.7 INDEPENDENT ACCOUNTANTS. The Company will retain a "Big Six" national
accounting firm as its independent public accountants who shall certify the
Company's financial statements at the end of each fiscal year. In the event the
services of the independent public accountants so selected are terminated, the
Company will promptly thereafter notify the holders of Investor Stock and will
request the firm of independent public accountants whose services are terminated
to deliver to the Investors a letter from such firm setting forth the reasons
for the termination of their services. In the event of such termination, the
Company will promptly
13.
<PAGE> 15
thereafter engage another "Big Six" national accounting firm as its independent
public accountants. In its notice to the holders of Investor Stock the Company
shall state whether the change of accountants was recommended or approved by the
Board of Directors of the Company or any committee thereof.
4.8 COMPLIANCE WITH LAWS. The Company and the Subsidiaries shall duly
observe and conform to all applicable laws and valid requirements of
governmental authorities relating to the conduct of their businesses or to their
properties or assets.
4.9 MAINTENANCE OF CORPORATE EXISTENCE, ETC. The Company shall maintain in
full force and effect its corporate existence, rights and franchises and all
licenses and other rights in patents, processes, licenses, trademarks, trade
names or copyrights owned or possessed by it or any Subsidiary and deemed by the
Company to be necessary to the conduct of their business.
4.10 PREEMPTIVE RIGHTS. In the event that the Company proposes to issue any
Common Stock or any other equity securities, the Company shall give not less
than thirty (30) days' prior written notice to the Specified Investors (as
defined below) setting forth the terms and conditions of such proposed issuance
(the "Issuance Notice"). The Specified Investors shall have the preemptive right
to purchase up to eighty percent (80%) of the securities so offered on the terms
and conditions set forth in the Issuance Notice by giving written notice to the
Company within fifteen (15) days after receipt of the Issuance Notice (the
"Election Period"). Each electing Specified Investor shall have the right to
purchase its pro rata share of the offered securities (determined by dividing
such Specified Investor's percentage interest in the Common Stock on a
fully-diluted basis by the aggregate percentage interest of all electing
Specified Investors in the Common Stock on a fully-diluted basis and multiplying
such quotient by eighty percent (80%) of the offered securities); provided,
however, that if any Specified Investor declines to exercise its preemptive
right in full, the remaining electing Specified Investors shall be entitled to
purchase such Specified Investor's unpurchased portion of the offered securities
on a pro rata basis. The Company may issue and sell all offered securities not
purchased by the Specified Investors on the terms and conditions set forth in
the Issuance Notice within ninety (90) days after the expiration of the Election
Period; provided, however, that any offered securities not sold within such
90-day period or any offered securities that are proposed to be sold on terms
and conditions less favorable to the Company than those set forth in the
Issuance Notice shall again be subject to the procedure set forth in this
Section 4.10 prior to issuance. The provisions of this Section 4.10 shall not
apply to any Permitted Issuance (as defined in Section 6 of Article Four of the
Company's Restated Certificate of Incorporation, as amended) or any issuance of
equity securities for non-cash consideration to non-Affiliates of the Company. A
Specified Investor may assign its rights pursuant to this Section 4.10 to one or
more of its Affiliates, subject only to compliance with applicable securities
laws. For purposes of this Section 4.10, a Specified Investor shall mean each of
the following Investors: Bessemer Venture Partners, WNA; BCV Partners WNA;
Boston Capital Ventures III, L.P.; Brooks Fiber Properties, Inc.; Centennial
Entrepreneurs Fund V, L.P.; Centennial Fund IV, L.P.; Centennial Fund V, L.P.;
Centennial Holdings, Inc.; Centennial Holdings I, LLC; Fleet Equity Partners VI,
L.P.; Fleet Venture Resources, Inc.; GC&H Investments, Inc.; Norwest Equity
Partners V, L.P.; Providence Equity Partners II, L.P.; Providence
14.
<PAGE> 16
Equity Partners L.P.; Telecom Partners, L.P. and WNA - DMG Investors, LLC.
ARTICLE 5
CORPORATE GOVERNANCE
5.1 BOARD OF DIRECTORS.
(a) Concurrently with the Closing and at all times thereafter, each
Stockholder agrees to vote all securities of the Company over which such
Stockholder has voting control and to take all other necessary or desirable
actions within its control (whether as a stockholder, director or officer of the
Company or otherwise, and including without limitation attendance at meetings in
person or by proxy for purposes of obtaining a quorum and execution of written
consents in lieu of meetings), and the Company shall take all necessary and
desirable actions within its control (including, without limitation, calling
special board and stockholder meetings), so that:
(i) the Company shall have a Board of Directors comprised of no
more than nine members;
(ii) the following persons shall be elected to the Board of
Directors:
(A) Two representatives of management, one of whom shall be
the Company's chief executive officer and one of whom shall be the Company's
President (the "Management Directors");
(B) Four representatives designated by the holders of the
outstanding Series A Preferred Stock (the "Series A Directors"), one of which
shall be designated by Centennial Fund IV, L.P. ("Centennial"), one of which
shall be designated by Telecom Partners, L.P., one of which shall be designated
by Norwest Equity Partners V and one of which shall be designated by Brooks
Fiber Properties, Inc., in each case so long as such Investor and/or its
Affiliates continue to hold at least sixty-six and two-thirds percent (66-2/3%)
of the Series A Preferred Stock (or shares of underlying Common Stock) held by
such Investor on the date hereof;
(C) One representative designated by Providence Equity
Partners L.P. so long as Providence continues to hold, in the aggregate, at
least sixty-six and two-thirds percent (66-2/3%) of the Series B Preferred Stock
(or shares of underlying Common Stock) held by such Investor as of the date
hereof (the "Series B Director" and together with the Series A Directors, the
"Investor Directors"); and
(D) Up to two directors selected by the nominating committee
of the Board of Directors and approved by the Board and the holders of a
majority of the outstanding Investor Stock (the "Outside Directors"), such
approval not to be unreasonably withheld. It is intended that one such Outside
Director shall have significant business and/or
15.
<PAGE> 17
technical experience in the internet or related industries and that such Outside
Director may be a representative of one of the Company's core internet service
provider affiliates.
(iii) in the event that any director for any reason ceases to
serve as a member of the Board during his term of office, the resulting vacancy
on the Board shall be filled by a majority of the Stockholders entitled to elect
such director as provided in this Section 5.1; and
(iv) if the Stockholders fail to designate a representative to
fill a directorship pursuant to the terms of this Section 5.1, except as
otherwise provided in the Company's certificate of incorporation, the election
of such director shall be accomplished in accordance with the Company's
certificate of incorporation and bylaws and applicable law.
(b) To the extent that such Stockholder does not have a representative
on the Board of Directors, each Significant Holder shall have the right to
designate a non-voting observer (an "Observer") to attend all meetings of the
Board.
(c) To the extent that any provision of the Company's certificate of
incorporation or by-laws is inconsistent with the provisions of this Agreement,
the Stockholders agree to take all actions necessary to effect such amendments
to the certificate of incorporation or by-laws as may be necessary and
appropriate to give full effect to the provisions of this Agreement.
5.2 MEETINGS OF THE BOARD. The Board of Directors will meet at least four
times each year in accordance with an agreed-upon schedule.
5.3 COMMITTEES. The audit committee previously established by the Board of
Directors shall not include any of the Management Directors. Centennial's
representative on the Board of Directors shall be a member of each of the audit
and nominating committees.
5.4 REIMBURSEMENT OF EXPENSES. The reasonable travel expenses of each
Investor Director or Observer incurred in attending or observing Board or
committee meetings shall be reimbursed by the Company. If, following the
Company's initial public offering, the Company adopts any plan or arrangement to
compensate its "outside" or "independent" directors generally for service as a
director either with cash or with stock options, then the Company will also
extend the same compensation to the Investor Directors and in the case of stock
options, such options shall be freely transferable by the Investor Directors to
their respective firms.
ARTICLE 6
MISCELLANEOUS
6.1 GOVERNING LAW. This Agreement shall be governed in all respects by the
laws of the State of Colorado as such laws are applied to agreements between
Colorado residents entered into and performed entirely in Colorado, except that
the General Corporation Law of the State of Delaware shall govern as to matters
of corporate law.
16.
<PAGE> 18
6.2 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.
6.3 ENTIRE AGREEMENT; AMENDMENT AND WAIVER. This Agreement and the
Purchase Agreement constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof. Neither this Agreement
nor any term hereof may be amended, waived, discharged or terminated except by a
written instrument signed by the Company and the holders of at least two-thirds
(2/3) of the outstanding Investor Stock, and any such amendment, waiver,
discharge or termination shall be binding on all the Stockholders; provided,
however, that no such amendment, waiver, discharge or termination, which applies
specifically to a named Stockholder to the exclusion of other Stockholders,
shall be binding on such Stockholder without a written instrument signed by such
Stockholder.
6.4 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by United States
first-class mail, postage prepaid, or delivered personally addressed by hand or
special courier (a) if to a Stockholder, to the address reflected in the
Company's stock ledger, or at such other address as such Stockholder shall have
furnished to the Company in writing, or (b) if to the Company, at 9250 E.
Costilla Avenue, Suite 400, Englewood, Colorado 80112, Attention: General
Counsel, or at such other address as the Company shall have furnished to each
Stockholder in writing. All such notices and other written communications shall
be effective (i) if mailed, five (5) days after mailing and (ii) if delivered,
upon delivery.
6.5 DELAYS OR OMISSIONS. No delay or omission to exercise any right, power
or remedy accruing to any Stockholder under this Agreement shall impair any such
right, power or remedy of such Stockholder nor shall it be construed to be a
waiver of any such breach or default, or an acquiescence therein, or of or in
any similar breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofor or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of any Stockholder of any breach or default
under this Agreement or any waiver on the part of any Stockholder of any
provisions or conditions of this Agreement must be made in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
Stockholder, shall be cumulative and not alternative.
6.6 SEVERABILITY. Unless otherwise expressly provided herein, a
Stockholder's rights hereunder are several rights, not rights jointly held with
any of the other Stockholders. In case any provision of the Agreement 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.
6.7 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.
17.
<PAGE> 19
6.8 TERMINATION. The provisions of this Agreement (other than Article 2
hereof) shall terminate upon consummation of a Qualified Public Offering. The
provisions of Article 2 shall terminate on the tenth anniversary of the date
hereof.
6.9 SPECIFIC ENFORCEMENT. Any holder of Investor Stock shall be entitled
to specific enforcement of its rights under this Agreement. The parties
acknowledge that money damages would be an inadequate remedy for a breach of
this Agreement and consent to an action for specific performance or other
injunctive relief in the event of any such breach.
6.10 PRIOR AGREEMENT. The Stockholders Agreement among the Company and
certain of the Stockholders originally executed on December 5, 1996, as amended,
is hereby terminated and of no further force and effect.
18.
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Stockholders Agreement effective as of the day and year first above
written.
VERIO INC.
By: /s/ Justin L. Jaschke
------------------------------------------
Justin L. Jaschke
Chief Executive Officer
INVESTORS:
CENTENNIAL FUND IV, L.P.
By: Centennial Holdings IV, L.P.
Its General Partner
By: /s/ Steven C. Halstedt
------------------------------------------
A General Partner
CENTENNIAL FUND V, L.P.
By: Centennial Holdings V, L.P.
Its General Partner
By: /s/ Steven C. Halstedt
------------------------------------------
A General Partner
CENTENNIAL ENTREPRENEURS FUND V, L.P.
By: Centennial Holdings V, L.P.
Its General Partner
By: /s/ Steven C. Halstedt
------------------------------------------
A General Partner
<PAGE> 21
CENTENNIAL HOLDINGS, INC.
By: /s/ Steven C. Halstedt
------------------------------------------
Title: Chairman
---------------------------------------
CENTENNIAL HOLDINGS I, LLC
By: /s/ Steven C. Halstedt
------------------------------------------
Title: Chairman
---------------------------------------
TELECOM PARTNERS, L.P.
By: Telecom Management LLC
Its General Partner
By: /s/ Steven W. Schovee
------------------------------------------
Title: Managing Member
---------------------------------------
NORWEST EQUITY PARTNERS, V
A Minnesota Limited Liability Partnership
By: Itasca Partners V, L.L.P.
Its General Partner
By: Illegible
------------------------------------------
Title:
---------------------------------------
BROOKS FIBER PROPERTIES, INC.
By: /s/ James C. Allen
------------------------------------------
Title: CEO
---------------------------------------
FLEET VENTURE RESOURCES, INC.
By: /s/ Cynthia L. Balesco
------------------------------------------
Title: Vice President and CFO
---------------------------------------
<PAGE> 22
FLEET EQUITY PARTNERS VI, L.P.
By: Growth Resources II, Inc.
Its Corporate General Partner
By: /s/ Cynthia L. Balesco
------------------------------------------
Title: Vice President and CFO
---------------------------------------
PROVIDENCE EQUITY PARTNERS L.P.
By: Providence Equity Partners L.L.C.
A Delaware limited liability company
Its General Partner
By: /s/ Paul J. Salem
------------------------------------------
Title: Managing Director
---------------------------------------
PROVIDENCE EQUITY PARTNERS II L.P.
By: Providence Equity Partners L.L.C.
A Delaware limited liability company
Its General Partner
By: /s/ Paul J. Salem
------------------------------------------
Title: Managing Director
---------------------------------------
BESSEMER VENTURE PARTNERS, WNA
By: Bessemer Venture Partners IV L.P.
Its Managing General Partner
By: Deer IV & Co. LLC
Its General Partner
By: /s/ Ravi Mhatre
------------------------------------------
Title: Manager
---------------------------------------
<PAGE> 23
BOSTON CAPITAL VENTURES III, LIMITED
PARTNERSHIP
By: BD Partners Limited Partnership
By: /s/ Suresh Shanmughan
----------------------------------------
General Partner
BCV PARTNERS WNA
By: /s/ Suresh Shanmughan
----------------------------------------
General Partner
WNA - DMG INVESTORS, LLC
By:
---------------------------------------
Name:
---------------------------------------
Title:
/s/ John R. Loungo
--------------------------------------------
John R. Luongo
/s/ Aneel Bhusri
--------------------------------------------
Aneel Bhusri
/s/ Margaret L. Taylor
--------------------------------------------
Margaret L. Taylor
/s/ Gordon Campbell
--------------------------------------------
Gordon Campbell
<PAGE> 24
DAVID A. DUFFIELD TRUST, DTD 07/14/88
By:
----------------------------------------
Trustee:
BERKMAN ASSOCIATES, L.P.
By:
----------------------------------------
Partner
GC&H INVESTMENTS
By:
----------------------------------------
Title:
-------------------------------------
MANAGEMENT HOLDERS:
/s/ Justin L. Jaschke
--------------------------------------------
Justin L. Jaschke
/s/ Sean G. Brophy
--------------------------------------------
Sean G. Brophy
/s/ Chris J. DeMarche
--------------------------------------------
Chris J. DeMarche
/s/ Deborah Mayfield Gahan
--------------------------------------------
Deborah Mayfield Gahan
/s/ Danny E. Stroud
--------------------------------------------
Danny E. Stroud
<PAGE> 25
/s/ James M. Kieffer
--------------------------------------------
James M. Kieffer
/s/ Darin Brannan
--------------------------------------------
Darin Brannan
/s/ Carla Hamre Donelson
--------------------------------------------
Carla Hamre Donelson
/s/ Andrew Partan
--------------------------------------------
Andrew Partan
/s/ Mark Johnson
--------------------------------------------
Mark Johnson
/s/ Trygve Myhren
--------------------------------------------
Trygve Myhren
<PAGE> 26
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1 CERTAIN DEFINITIONS............................................................................1
ARTICLE 2 REGISTRATION RIGHTS............................................................................3
2.1 Demand Registrations...........................................................................3
2.2 Piggyback Registrations........................................................................5
2.3 Expenses of Registration.......................................................................5
2.4 Registration Procedures........................................................................6
2.5 Indemnification................................................................................7
2.6 Other Obligations..............................................................................9
2.7 Hold-Back Agreements...........................................................................9
2.8 Termination of Registration Rights............................................................10
ARTICLE 3 TRANSFER RESTRICTIONS.........................................................................10
3.1 Prohibition on Transfer.......................................................................10
3.2 Rights of First Refusal.......................................................................10
3.3 Right of First Offer..........................................................................11
3.4 Exempt Transactions...........................................................................11
ARTICLE 4 COVENANTS OF THE COMPANY......................................................................11
4.1 Basic Financial Information...................................................................11
4.2 Additional Information Rights.................................................................12
4.3 Prompt Payment of Taxes, Etc..................................................................13
4.4 Maintenance of Properties and Leases..........................................................13
4.5 Insurance.....................................................................................13
4.6 Accounts and Records..........................................................................13
4.7 Independent Accountants.......................................................................13
4.8 Compliance with Laws..........................................................................14
4.9 Maintenance of Corporate Existence, Etc.......................................................14
4.10 Preemptive Rights.............................................................................14
ARTICLE 5 CORPORATE GOVERNANCE..........................................................................15
5.1 Board of Directors............................................................................15
5.2 Meetings of the Board.........................................................................16
5.3 Committees....................................................................................16
5.4 Reimbursement of Expenses.....................................................................16
ARTICLE 6 MISCELLANEOUS.................................................................................17
6.1 Governing Law.................................................................................17
6.2 Successors and Assigns........................................................................17
6.3 Entire Agreement; Amendment and Waiver........................................................17
6.4 Notices, Etc..................................................................................17
6.5 Delays or Omissions...........................................................................17
6.6 Severability..................................................................................18
6.7 Counterparts..................................................................................18
</TABLE>
i
<PAGE> 27
TABLE OF CONTENTS
CONTINUED
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
6.8 Termination...................................................................................18
6.9 Specific Enforcement..........................................................................18
6.10 Prior Agreement...............................................................................18
</TABLE>
ii
<PAGE> 1
EXHIBIT 10.9
VERIO INC.
1996 STOCK OPTION PLAN
ADOPTED MAY 29, 1996
AMENDED FEBRUARY 2, 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.
<PAGE> 2
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 Three Million Twenty-Five Thousand
(3,025,000) 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.
<PAGE> 4
(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.
<PAGE> 5
(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
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 twenty-five thousand (725,000) 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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<PAGE> 9
"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 10.11
VERIO INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1998 Employee
Stock Purchase Plan of Verio Inc.
1. Purpose. The purpose of the Plan is to provide employees of the Company
and its Designated Parents or Subsidiaries with an opportunity to purchase
Common Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Code. The provisions of the Plan, accordingly,
shall be construed so as to extend and limit participation in a manner
consistent with the requirements of that section of the Code.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Accrual Period" means a period of approximately six months,
commencing on May 15 and November 15 of each year and terminating on the
next following November 14 or May 14, respectively; provided, however, that
the first Accrual Period shall commence on the Effective Date and shall end
on November 15, 1998.
(b) "Board" means the Board of Directors of the Company.
(c) "Change in Control" means a change in ownership or control of
the Company effected through the direct or indirect acquisition by any person
or related group of persons (other than an acquisition from or by the Company
or by a Company-sponsored employee benefit plan or by a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Company) of beneficial ownership (within the meaning of Rule 13d-3 of the
Exchange Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Common Stock" means the common stock of the Company.
(e) "Company" means Verio Inc., a Delaware corporation.
(f) "Compensation" means an Employee's base salary, bonuses, annual
awards, and other incentive payments from the Company or one or more Designated
Parents or Subsidiaries, including such amounts of base salary, bonuses, annual
awards and other incentive payments as are deferred by the Employee (i) under a
qualified cash or deferred arrangement described in Section 401(k) of the Code,
or (ii) to a plan qualified under Section 125 of the Code. Compensation does
not include overtime, reimbursements or other expense allowances, fringe
benefits (cash or noncash), moving expenses, deferred compensation,
contributions (other than contributions described in the first sentence) made
on the Employee's behalf by the Company or
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one or more Designated Parents or Subsidiaries under any employee benefit or
welfare plan now or hereafter established, and any other payments not
specifically referenced in the first sentence.
(g) "Corporate Transaction" means any of the following stockholder-
approved transactions to which the Company is a party:
(1) 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;
(2) 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
complete liquidation or dissolution of the Company; or
(3) 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; provided,
however that if such merger is preceded by a Change in Control within
six (6) months of the merger, then a Corporate Transaction will be
deemed to have occurred if securities possessing more than fifty
percent (50%) of the total combined voting power of the Company's
outstanding securities are transferred pursuant to the merger to a
person or persons different from those who held such securities
immediately prior to such Change in Control.
(h) "Designated Parents or Subsidiaries" means the Parents or
Subsidiaries which have been designated by the Plan Administrator from time to
time as eligible to participate in the Plan.
(i) "Effective Date" means the effective date of the Registration
Statement relating to the Company's initial public offering of its Common
Stock. However, should any Designated Parent or Subsidiary become a
participating company in the Plan after such date, then such entity shall
designate a separate Effective Date with respect to its employee-participants.
(j) "Employee" means any individual, including an officer or director,
who is an employee of the Company or a Designated Parent or Subsidiary for
purposes of Section 423 of the Code. For purposes of the Plan, the employment
relationship shall be treated as continuing intact while the individual is on
sick leave or other leave of absence approved by the individual's employer.
Where the period of leave exceeds ninety (90) days and the individual's right
to reemployment is not guaranteed either by statute or by contract, the
employment relationship will be deemed to have terminated on the ninety-first
(91st) day of such leave, for purposes of determining eligibility to
participate in the Plan.
(k) "Enrollment Date" means the first day of each Purchase Period.
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(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Exercise Date" means the last day of each Accrual Period.
(n) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(1) Where there exists a public market for the Common Stock, the
Fair Market Value shall be (A) the closing price for a share of Common
Stock 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 Plan 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 of Common Stock 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 Plan Administrator deems reliable;
or
(2) In the absence of an established market of the type described
in (1), above, for the Common Stock, and subject to (3), below, the
Fair Market Value thereof shall be determined by the Plan
Administrator in good faith; or
(3) On the Effective Date, the Fair Market Value shall be the
price at which the Board, or if applicable, the Pricing Committee of
the Board, and the underwriters agree to offer the Common Stock to the
public in the initial public offering of the Common Stock, net of
discounts and underwriting commissions.
(o) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(p) "Participant" means an Employee of the Company or Designated
Parent or Subsidiary who is actively participating in the Plan.
(q) "Plan" means this Employee Stock Purchase Plan.
(r) "Plan Administrator" means either the Board or a committee of the
Board that is responsible for the administration of the Plan as is designated
from time to time by resolution of the Board.
(s) "Purchase Period" means a purchase period established pursuant to
Section 4 hereof.
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(t) "Purchase Price" shall mean an amount equal to 85% of the Fair
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(u) "Reserves" means the sum of the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(v) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Eligibility.
(a) General. Any individual who is an Employee on a given Enrollment
Date shall be eligible to participate in the Plan for the Purchase Period
commencing with such Enrollment Date.
(b) Limitations on Grant and Accrual. Any provisions of the Plan to
the contrary notwithstanding, no Employee shall be granted an option under the
Plan (i) if, immediately after the grant, such Employee (taking into account
stock owned by any other person whose stock would be attributed to such
Employee pursuant to Section 424(d) of the Code) would own stock and/or hold
outstanding options to purchase stock possessing five percent (5%) or more of
the total combined voting power or value of all classes of stock of the Company
or of any Parent or Subsidiary, or (ii) which permits his/her rights to
purchase stock under all employee stock purchase plans of the Company and its
Parents or Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand
Dollars ($25,000) worth of stock (determined at the Fair Market Value of the
shares at the time such option is granted) for each calendar year in which such
option is outstanding at any time. The determination of the accrual of the
right to purchase stock shall be made in accordance with Section 423(b)(8) of
the Code and the regulations thereunder.
(c) Other Limits on Eligibility. Notwithstanding Subsection (a),
above, the following Employees shall not be eligible to participate in the Plan
for any relevant Purchase Period: (i) Employees whose customary employment is
20 hours or less per week; (ii) Employees whose customary employment is for not
more than 5 months in any calendar year; (iii) Employees who have been so
employed for fewer than 6 months; and (iv) Employees who are subject to rules
or laws of a foreign jurisdiction that prohibit or make impractical the
participation of such Employees in the Plan.
4. Purchase Periods.
(a) The Plan shall be implemented through overlapping or consecutive
Purchase Periods until such time as (i) the maximum number of shares of Common
Stock available for issuance under the Plan shall have been purchased or (ii)
the Plan shall have been sooner terminated in accordance with Section 19
hereof. The maximum duration of a Purchase
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Period shall be twenty-seven (27) months. Initially, the Plan shall be
implemented through overlapping Purchase Periods of twelve (12) months'
duration commencing each May 15 and November 15 following the Effective Date
(except that the initial Purchase Period shall commence on the Effective Date
and shall end on May 14, 1999). The Plan Administrator shall have the authority
to change the length of any Purchase Period and the length of Accrual Periods
within any such Purchase Period subsequent to the initial Purchase Period by
announcement at least thirty (30) days prior to the commencement of the
Purchase Period and to determine whether subsequent Purchase Periods shall be
consecutive or overlapping.
(b) A Participant shall be granted a separate option for each Purchase
Period in which he/she participates. The option shall be granted on the
Enrollment Date and shall be automatically exercised in successive installments
on the Exercise Dates ending within the Purchase Period.
(c) An Employee may participate in only one Purchase Period at a time.
Accordingly, except as provided in Section 4(d), an Employee who wishes to join
a new Purchase Period must withdraw from the current Purchase Period in which
he/she is participating and must also enroll in the new Purchase Period prior
to the Enrollment Date for that Purchase Period.
(d) If on the first day of any Accrual Period in a Purchase Period in
which a Participant is participating, the Fair Market Value of the Common Stock
is less than the Fair Market Value of the Common Stock on the Enrollment Date
of the Purchase Period (after taking into account any adjustment during the
Purchase Period pursuant to Section 18(a)), the Purchase Period shall be
terminated automatically and the Participant shall be enrolled automatically in
the new Purchase Period which has its first Accrual Period commencing on that
date, provided the Participant is eligible to participate in the Plan on that
date and has not elected to terminate participation in the Plan.
(e) Except as specifically provided herein, the acquisition of Common
Stock through participation in the Plan for any Purchase Period shall neither
limit nor require the acquisition of Common Stock by a Participant in any
subsequent Purchase Period.
5. Participation.
(a) An eligible Employee may become a Participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the designated payroll office of
the Company at least ten (10) business days prior to the Enrollment Date for
the Purchase Period in which such participation will commence, unless a later
time for filing the subscription agreement is set by the Plan Administrator for
all eligible Employees with respect to a given Purchase Period.
(b) Payroll deductions for a Participant shall commence with the first
partial or full payroll period beginning on the Enrollment Date and shall end
on the last complete payroll period during the Purchase Period, unless sooner
terminated by the Participant as provided in Section 10.
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6. Payroll Deductions.
(a) At the time a Participant files his/her subscription agreement,
he/she shall elect to have payroll deductions made during the Purchase Period
in amounts between one percent (1%) and not exceeding ten percent (10%) of the
Compensation which he/she receives during the Purchase Period.
(b) All payroll deductions made for a Participant shall be credited to
his/her account under the Plan and will be withheld in whole percentages only.
A Participant may not make any additional payments into such account.
(c) A Participant may discontinue his/her participation in the Plan as
provided in Section 10, or may decrease the rate of his/her payroll deductions
during the Purchase Period by completing and filing with the Company a new
subscription agreement authorizing a decrease in the payroll deduction rate.
The decrease in rate shall be effective with the first full payroll period
commencing ten (10) business days after the Company's receipt of the new
subscription agreement unless the Company elects to process a given change in
participation more quickly. A Participant may increase the rate of his/her
payroll deductions for a future Purchase Period by filing with the Company a
new subscription agreement authorizing an increase in the payroll deduction
rate within ten (10) business days (unless the Company elects to process a
given change in participation more quickly) before the commencement of the
upcoming Purchase Period. A Participant may not increase the rate of his/her
payroll deductions for an existing Purchase Period. A Participant's
subscription agreement shall remain in effect for successive Purchase Periods
unless terminated as provided in Section 10. The Plan Administrator shall be
authorized to limit the number of payroll deduction rate changes during any
Purchase Period.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) herein, a Participant's
payroll deductions may be decreased to 0% at such time during any Accrual
Period which is scheduled to end during the current calendar year (the "Current
Accrual Period") that the aggregate of all payroll deductions which were
previously used to purchase stock under the Plan in a prior Accrual Period
which ended during that calendar year plus all payroll deductions accumulated
with respect to the Current Accrual Period equal $21,250. Payroll deductions
shall recommence at the rate provided in such Participant's subscription
agreement at the beginning of the first Accrual Period which is scheduled to
end in the following calendar year, unless terminated by the Participant as
provided in Section 10.
7. Grant of Option. On the Enrollment Date, each Participant in such
Purchase Period shall be granted an option to purchase on each Exercise Date of
such Purchase Period (at the applicable Purchase Price) up to a number of
shares of the Common Stock determined by dividing such Participant's payroll
deductions accumulated prior to such Exercise Date and retained in the
Participant's account as of the Exercise Date by the applicable Purchase Price;
provided (i) that such purchase shall be subject to the limitations set forth
in Sections 3(b) and 12 hereof, and (ii) the maximum number of shares of Common
Stock a Participant shall be permitted to purchase in any Accrual Period shall
be one thousand two hundred fifty (1,250)
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shares, subject to adjustment as provided in Section 18 hereof. Exercise of the
option shall occur as provided in Section 8, unless the Participant has
withdrawn pursuant to Section 10, and the option, to the extent not exercised,
shall expire on the last day of the Purchase Period.
8. Exercise of Option. Unless a Participant withdraws from the Plan as
provided in Section 10, below, his/her option for the purchase of shares will
be exercised automatically on each Exercise Date, and the maximum number of
full shares subject to the option shall be purchased for such Participant at
the applicable Purchase Price with the accumulated payroll deductions in
his/her account. No fractional shares will be purchased; any payroll deductions
accumulated in a Participant's account which are not sufficient to purchase a
full share shall be carried over to the next Accrual Period or Purchase Period,
whichever applies, or returned to the Participant, if the Participant withdraws
from the Plan. Notwithstanding the foregoing, any amount remaining in a
Participant's account following the purchase of shares on the Exercise Date due
to the application of Section 423(b)(8) of the Code or Section 7, above, shall
be returned to the Participant and shall not be carried over to the next
Purchase Period. During a Participant's lifetime, a Participant's option to
purchase shares hereunder is exercisable only by him/her.
9. Delivery. Upon receipt of a request from a Participant after each
Exercise Date on which a purchase of shares occurs, the Company shall arrange
the delivery to such Participant, as promptly as practicable, of a certificate
representing the shares purchased upon exercise of his/her option.
10. Withdrawal; Termination of Employment.
(a) A Participant may withdraw all but not less than all the payroll
deductions credited to his/her account and not yet used to exercise his/her
option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the Participant's payroll deductions
credited to his/her account will be paid to such Participant as promptly as
practicable after receipt of notice of withdrawal, such Participant's option
for the Purchase Period will be automatically terminated, and no further
payroll deductions for the purchase of shares will be made during the Purchase
Period. If a Participant withdraws from a Purchase Period, payroll deductions
will not resume at the beginning of the succeeding Purchase Period unless the
Participant delivers to the Company a new subscription agreement.
(b) Upon a Participant's ceasing to be an Employee for any reason or
upon termination of a Participant's employment relationship (as described in
Section 2(j)), the payroll deductions credited to such Participant's account
during the Purchase Period but not yet used to exercise the option will be
returned to such Participant or, in the case of his/her death, to the person or
persons entitled thereto under Section 14, and such Participant's option will
be automatically terminated.
11. Interest. No interest shall accrue on the payroll deductions
credited to a Participant's account under the Plan.
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12. Stock.
(a) The maximum number of shares of Common Stock which shall be made
available for sale under the Plan shall be three million (3,000,000) shares,
subject to adjustment upon changes in capitalization of the Company as provided
in Section 18. If on a given Exercise Date the number of shares with respect to
which options are to be exercised exceeds the number of shares then available
under the Plan, the Plan Administrator shall make a pro rata allocation of the
shares remaining available for purchase in as uniform a manner as shall be
practicable and as it shall determine to be equitable.
(b) A Participant will have no interest or voting right in shares
covered by his/her option until such shares are actually purchased on the
Participant's behalf in accordance with the applicable provisions of the Plan.
No adjustment shall be made for dividends, distributions or other rights for
which the record date is prior to the date of such purchase.
(c) Shares to be delivered to a Participant under the Plan will be
registered in the name of the Participant or in the name of the Participant and
his/her spouse.
13. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all persons.
14. Designation of Beneficiary.
(a) Each Participant will file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the Participant's account
under the Plan in the event of such Participant's death. If a Participant is
married and the designated beneficiary is not the spouse, spousal consent shall
be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the Participant
(and his/her spouse, if any) at any time by written notice. In the event of the
death of a Participant and in the absence of a beneficiary validly designated
under the Plan who is living at the time of such Participant's death, the
Company shall deliver such shares and/or cash to the executor or administrator
of the estate of the Participant, or if no such executor or administrator has
been appointed (to the knowledge of the Plan Administrator), the Plan
Administrator, in its discretion, may deliver such shares and/or cash to the
spouse or to any one or more dependents or relatives of the Participant, or if
no spouse, dependent or relative is known to the Plan Administrator, then to
such other person as the Plan Administrator may designate.
15. Transferability. Neither payroll deductions credited to a
Participant's account nor any rights with regard to the exercise of an option
or to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the Participant. Any
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such attempt at assignment, transfer, pledge or other disposition shall be
without effect, except that the Plan Administrator may treat such act as an
election to withdraw funds from a Purchase Period in accordance with Section
10.
16. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose,
and the Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each
Participant in the Plan. Statements of account will be given to Participants at
least annually, which statements will set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
18. Adjustments Upon Changes in Capitalization; Corporate
Transactions.
(a) Adjustments Upon Changes in Capitalization. Subject to any
required action by the stockholders of the Company, the Reserves, as well as
the Purchase Price, 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. Such adjustment shall
be made by the Plan Administrator, whose determination in that respect shall be
final, binding and conclusive. Except as expressly provided herein, no issue 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 thereof
shall be made with respect to, the number or price of shares of Common Stock
subject to an option. The Plan Administrator may, if it so determines in the
exercise of its sole discretion, make provision for adjusting the Reserves, as
well as the Purchase Price, in the event the Company effects one or more
reorganizations, recapitalizations, rights offerings or other increases or
reductions of shares of its outstanding Common Stock.
(b) Corporate Transactions. In the event of a proposed Corporate
Transaction, each option under the Plan shall be assumed or an equivalent
option shall be substituted by such successor corporation or a parent or
subsidiary of such successor corporation, unless the Plan Administrator
determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, to shorten the Purchase Period then in progress by
setting a new Exercise Date (the "New Exercise Date"). If the Plan
Administrator shortens the Purchase Period then in progress in lieu of
assumption or substitution in the event of a Corporate Transaction, the Plan
Administrator shall notify each Participant in writing, at least ten (10) days
prior to the New Exercise Date, that the Exercise Date for his/her option has
been changed to the New Exercise Date and that his/her option will be exercised
automatically on the New Exercise Date, unless prior to such date he/she has
withdrawn from the Purchase Period as provided in Section 10. For purposes of
this Subsection, an option granted under the Plan shall be deemed to be assumed
if, following the Corporate Transaction, the option confers the right to
purchase with substantially equivalent terms as the original option, for each
share of Common Stock subject to the option immediately prior to the Corporate
Transaction, the consideration (whether stock, cash or other
9
<PAGE> 10
securities or property) received in the Corporate Transaction by holders of
Common Stock for each share of Common Stock held on the effective date of the
Corporate Transaction (and if such holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding shares of Common Stock); provided, however, that if such
consideration received in the Corporate Transaction was not solely common stock
of the successor corporation or its Parent, the Plan Administrator may, with
the consent of the successor corporation and the Participant, provide for the
consideration to be received upon exercise of 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.
19. Amendment or Termination.
(a) The Plan Administrator may at any time and for any reason
terminate or amend the Plan. Except as provided in Section 18, no such
termination can affect options previously granted, provided that a Purchase
Period may be terminated by the Plan Administrator on any Exercise Date if the
Plan Administrator determines that the termination of the Purchase Period is in
the best interests of the Company and its stockholders. Except as provided in
Section 18, no amendment may make any change in any option theretofore granted
which adversely affects the rights of any Participant. To the extent necessary
to comply with Section 423 of the Code (or any successor rule or provision or
any other applicable law or regulation), the Company shall obtain stockholder
approval in such a manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether any
Participant rights may be considered to have been "adversely affected," the
Plan Administrator shall be entitled to limit the frequency and/or number of
reductions in the amount withheld during Purchase Periods, establish the
exchange ratio applicable to amounts withheld in a currency other than U.S.
dollars, establish additional terms, conditions, rules or procedures to
accommodate the rules or laws of applicable foreign jurisdictions, permit
payroll withholding in excess of the amount designated by a Participant in
order to adjust for delays or mistakes in the Company's processing of properly
completed withholding elections, establish reasonable waiting and adjustment
periods and/or accounting and crediting procedures to ensure that amounts
applied toward the purchase of Common Stock for each Participant properly
correspond with amounts withheld from the Participant's Compensation, and
establish such other limitations or procedures as the Plan Administrator
determines in its sole discretion advisable and which are consistent with the
Plan.
20. Notices. All notices or other communications by a Participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Plan Administrator at the
location, or by the person, designated by the Plan Administrator for the
receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such
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<PAGE> 11
shares pursuant thereto shall comply with all applicable provisions of law,
domestic or foreign, including, without limitation, the Securities Act of 1933,
as amended, the Exchange Act, the rules and regulations promulgated thereunder,
and the requirements of any stock exchange upon which the shares may then be
listed, and shall be further subject to the approval of counsel for the Company
with respect to such compliance. As a condition to the exercise of an option,
the Company may require the Participant 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 of
the aforementioned applicable provisions of law. In addition, no options shall
be exercised or shares issued hereunder before the Plan shall have been
approved by stockholders of the Company as provided in Section 23.
22. 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 under Section 19.
23. 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. If such stockholder approval is obtained at
a duly held stockholders' meeting, the Plan must be approved by a majority of
the votes cast at such stockholders' meeting at which a quorum representing a
majority of all outstanding voting stock of the Company is, either in person or
by proxy, present and voting on the Plan. If such stockholder approval is
obtained by written consent, it must be obtained by the written consent of the
holders of a majority of all outstanding voting stock of the Company. However,
approval at a meeting or by written consent may be obtained by a lesser degree
of stockholder approval if the Plan Administrator determines, after
consultation with the Company's legal counsel if the Plan Administrator deems
such consultation advisable, that such a lesser degree of stockholder approval
will comply with all applicable laws and will not adversely affect the
qualification of the Plan under Section 423 of the Code.
24. No Employment Rights. The Plan does not, directly or indirectly,
create any right for the benefit of any employee or class of employees to
purchase any shares under the Plan, or create in any employee or class of
employees any right with respect to continuation of employment by the Company
or a Designated Parent or Subsidiary, and it shall not be deemed to interfere
in any way with such employer's right to terminate, or otherwise modify, an
employee's employment at any time.
25. Effect of Plan. The provisions of the Plan shall, in accordance
with its terms, be binding upon, and inure to the benefit of, all successors of
each Participant, including, without limitation, such Participant's estate and
the executors, administrators or trustees thereof, heirs and legatees, and any
receiver, trustee in bankruptcy or representative of creditors of such
Participant.
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<PAGE> 12
27. Applicable Law. The laws of the State of Colorado (excluding that
body of law pertaining to its conflicts of law) will govern all matters
relating to this Plan except to the extent it is superseded by the laws of the
United States.
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<PAGE> 13
EXHIBIT A
VERIO INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
________ Original Application Enrollment Date:_____________
________ Change in Payroll Deduction Rate
________ Change of Beneficiary(ies)
1. I,________________________, hereby elect to participate in
the Verio Inc. 1998 Employee Stock Purchase Plan (the "Plan") and subscribe to
purchase shares of the Company's Common Stock in accordance with this
Subscription Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in
the amount of ______% of my Compensation on each paycheck during the Purchase
Period. I understand that this amount must not be less than one percent (1%) and
not more than ten percent (10%) of my Compensation during the Purchase Period
and that no fractional percentages are permitted. I further understand that:
(a) all payroll deductions made by me shall be credited
to my account under the Plan;
(b) I may not make additional payments into such account;
(c) all payments made by me shall be accumulated for the
purchase of Common Stock at the applicable Purchase
Price determined in accordance with the Plan;
(d) no interest will be credited on funds held in my
account at any time for any reason including, but not
limited to, before or after the purchase of shares
under the Plan or in connection with any refund
caused by my withdrawal from the Plan;
(e) I may discontinue my participation in the Plan at
any time prior to an Exercise Date as provided in
Section 10 of the Plan, but if I do not withdraw from
the Plan, any accumulated payroll deductions will be
used to automatically purchase Common Stock;
(f) I may decrease the rate of my payroll deductions in
whole percentage increments to not less than one
percent (1%) on one occasion during any Accrual
Period by completing and filing a
A-1
<PAGE> 14
new Subscription Agreement with such decrease taking
effect as of the beginning of the payroll period
following the date of filing of a new Subscription
Agreement, filed at least ten (10) business days
prior to the beginning of such payroll period;
(g) I may not increase the rate of my payroll
deductions during any ongoing Purchase Period:
(h) I may increase or decrease the rate of payroll
deductions for future Purchase Periods by filing a
new Subscription Agreement, and that change will be
effective as of the beginning of the next Purchase
Period; and
(i) unless I discontinue my participation in the Plan
as provided in Section 10 of the Plan, my election
for payroll deductions will continue to be effective
for each successive Purchase Period.
4. I have received a copy of the complete "Verio Inc. 1998
Employee Stock Purchase Plan." I understand that my participation in the Plan
is in all respects subject to the terms of the Plan. I understand that the
grant of the option by the Company under this Subscription Agreement is subject
to obtaining stockholder approval of the Employee Stock Purchase Plan.
5. Until I request delivery of certificates, Shares purchased
for me under the Plan shall be owned by my beneficially and shall be held in
street name of the nominee of the third party administrator selected by the Plan
Administrator to administer the Plan records or in such other nominee name as
shall be designated from time to time by the Plan Administrator. Upon delivery,
shares should be issued in the name(s) of (name of employee or employee and
employee's spouse only):
---------------------------------------------------
---------------------------------------------------
6. I understand that if I dispose of any shares received by me
pursuant to the Employee Stock Purchase Plan within two (2) years after the
Enrollment Date (the first day of the Purchase Period during which I purchased
such shares) or within one (1) year after the Exercise Date (the date I
purchased such shares), I will be treated for federal income tax purposes as
having received ordinary income at the time of such disposition in an amount
equal to the excess of the fair market value of the shares on the date such
shares were purchased for me over the price which I paid for the shares. I
hereby agree to notify the Company in writing within 30 days after the date of
any such disposition and I will make adequate provision for foreign, federal,
state or other tax withholding obligations, if any which arise upon the
disposition of the Common Stock. The Company may, but will not be obligated to,
withhold from my compensation the amount necessary to meet any applicable
withholding obligation including any
A-2
<PAGE> 15
withholding necessary to make available to the Company any tax deductions or
benefits attributable to sale or early disposition of Common Stock by me. If I
dispose of such shares at any time after the expiration of the 2-year and 1-year
holding periods described above, I understand that I will be treated for federal
income tax purposes as having received income only at the time of such
disposition, and that such income will be taxed as ordinary income only to the
extent of an amount equal to the lesser of (1) the excess of the fair market
value of the shares at the time of such disposition over the purchase price
which I paid for the shares, or (2) 15% of the fair market value of the shares
on the first day of the Purchase Period. The remainder of the gain, if any,
recognized on such disposition will be taxed as long-term capital gain. I also
understand that the foregoing income tax consequences contained herein is only a
summary of some of the basic provisions of the current federal income tax law
and related regulations applicable to the Plan and are subject to change. I
further understand that the Company is not giving tax advice, is not responsible
for advising me of any changes in the applicable tax rules, and that I should
consult a tax advisor concerning the tax consequences of the purchase and sale
of Common Stock under the Plan.
7. I hereby agree to be bound by the terms of the Employee
Stock Purchase Plan. The effectiveness of this Subscription Agreement is
dependent upon my eligibility to participate in the Employee Stock Purchase
Plan.
8. In the event of my death, I hereby designate the following
as my beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan.
NAME: (Please print)
--------------------------------------------------------
(First) (Middle) (Last)
Relationship:
--------------------------------------------------------
Address:
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
Employee's Social
Security Number:
--------------------------------------------------------
Employee's Home Address:
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
A-3
<PAGE> 16
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE PURCHASE PERIODS UNLESS TERMINATED BY ME
Employee's Signature:
-------------------------------------------------------
Dated:
-------------------------------------------------------
Signature of spouse
if beneficiary is other
than spouse:
-------------------------------------------------------
Dated:
-------------------------------------------------------
A-4
<PAGE> 17
EXHIBIT B
VERIO INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
NOTICE OF WITHDRAWAL
The undersigned Participant in the Purchase Period of the
Verio Inc. 1998 Employee Stock Purchase Plan which began on _________________,
19___, hereby notifies the Company that he or she hereby withdraws from the
Purchase Period. He or she hereby directs the Company to pay to the undersigned
as promptly as practicable all the payroll deductions credited to his/her
account with respect to such Purchase Period. The undersigned understands and
agrees that his/her option for such Purchase Period will be automatically
terminated. The undersigned understands further that no further payroll
deductions will be made for the purchase of shares in the current Purchase
Period and the undersigned shall be eligible to participate in succeeding
Purchase Periods only by delivering to the Company a new Subscription Agreement.
Name and Address
of Participant:
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
Signature:
--------------------------------------------------------
Date:
--------------------------------------------------------
B-1
<PAGE> 1
EXHIBIT 10.12
VERIO INC.
1998 STOCK INCENTIVE PLAN
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, Director or Consultant shall not be considered
interrupted in the case of (i) any approved leave of
1
<PAGE> 2
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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<PAGE> 3
(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 within
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.
3
<PAGE> 4
(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 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 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 5,450,000 shares of Common Stock, increased by (i) any
Shares available for future awards under Section 3(a) hereof as of the
Conversion Date and (ii) any Shares that are represented by Awards under the
Prior Plans or under Section 3(a) hereof 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 5,450,000 shares of Common Stock, increased by any
Shares available for future award of Incentive Stock Options under the Section
3(a) hereof as of the Conversion Date. 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.
4
<PAGE> 5
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;
5
<PAGE> 6
(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
6
<PAGE> 7
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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<PAGE> 8
(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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<PAGE> 9
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
9
<PAGE> 10
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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<PAGE> 11
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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<PAGE> 12
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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<PAGE> 1
EXHIBIT 10.14
MASTER SERVICE AGREEMENT
Confidential
MSA No: WNA-1
This MASTER SERVICE AGREEMENT between the below-named Customer and MFS Datanet,
Inc. ("MFSDN") (collectively referred to as the "Parties") establishes the
terms and conditions under which MFSDN will provide communications services to
Customer.
Customer: World Net Access, Inc.
State of Incorporation: Colorado
Principal Place of Business: Address for Notices:
1999 Broadway, Suite 2100 1999 Broadway, Suite 2100
Denver, Colorado 80202 Denver, Colorado 80202
Attn: John Gainer
MFSDN: MFS Datanet, Inc.
State of Incorporation: Delaware
Principal Place of Business: Address for Notices:
55 S. Market St., Suite 1250 55 S. Market St., Suite 1250
San Jose, CA 95113 San Jose, CA 95113
Attn: Contract Administration
1. The Parties anticipate that Customer may, at Customer's sole discretion,
issue one or more Data Service Orders ("Service Orders") describing certain
services which Customer desires to purchase from MFSDN, and which set forth the
prices, minimum term of service and other service specific details. All Service
Orders shall be subject to the terms and conditions of this Master Service
Agreement for the duration of the Service Order. If a Service Order is accepted
in writing by an authorized representative of MFSDN, it shall supersede any and
all prior agreements or understandings with respect to the service described
therein, and shall comprise the full and final Agreement of the Parties. No
term or condition hereof shall be modified except by written agreement of both
Parties and any preprinted terms and conditions which may appear on Customer's
order form are expressly rejected and are void. As used in this document, the
word "Term" shall mean the total duration of a Service Order and the phrase
"Initial Term" shall mean the minimum term of service as specified in a Service
Order. The word "Agreement" shall apply to all promises, terms and conditions
of the Parties contained in this Master Service Agreement or a Service Order.
2. The Initial Term of this Agreement shall be as set forth in the Service
Order placed hereunder and shall extend thereafter until terminated by either
Party upon no less than ninety (90) days' prior written notice. However, MFSDN
may terminate this Agreement or suspend service hereunder at any time upon: (a)
any failure of Customer to pay any undisputed amounts as provided in this
Agreement; (b) any breach by Customer of any material provision of this
Agreement continuing for thirty (30) days after receipt of notice thereof; (c)
any insolvency, bankruptcy, assignment for the benefit of creditors,
appointment of a trustee or receiver or similar event with respect to Customer;
or (d) any governmental prohibition or required alteration of services to be
provided hereunder or any violation of an applicable law, rule or regulation.
Any
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<PAGE> 2
termination shall not relieve Customer of its obligation to pay any charges
incurred hereunder prior to such termination. The Parties' rights and
obligations which by their nature would extend beyond the termination,
cancellation or expiration of this Agreement shall survive such termination,
cancellation or expiration.
3. Customer is responsible for all Recurring and Non-Recurring Charges from and
after the Date of Acceptance. For purposes of this Agreement, the Date of
Acceptance is the earlier of 1) date Customer signs a Customer Acceptance
Letter or 2) two (2) business days after MFSDN establishes a connection in
which the MFSDN provided service is functioning properly. Recurring Charges
will be prorated for the first and last month of the Agreement if service is
not provided for a complete month. Proration of monthly charge will be based on
number of days connection was available divided by total days in the month.
MFSDN's targeted service installation intervals are thirty (30) days after
order acceptance for on-net services and forty-five (45) days for off-net
services. In the event Customer requests MFSDN to attempt to accelerate the
order process to install services more quickly, Customer shall pay an Order
Expedite charge of $500. Order Expedite charges will apply to each site
ordered for which expedited installation is requested.
4. During the Term Customer shall pay MFSDN for services at the rates set forth
in the Service Order. MFSDN shall not increase pricing during the Initial Term,
but thereafter MFSDN may increase pricing upon ninety (90) days' written
notice. Normal service charges shall be invoiced monthly in advance. All
amounts owed by Customer thereunder shall be paid within thirty days after the
date of the invoice and MFSDN reserves the right to charge interest on all
delinquent payments at an annualized rate of 2 percentage points above the
prime rate as announced in the Wall Street Journal from time to time.
5. MFSDN's bill shall separately identify any excise, sales, use, or other
taxes applicable to MFSDN's provision of service or equipment to Customer, and
all such taxes, however designated (excepting those based on MFSDN's net
income), shall be paid by Customer in addition to any other amount owing. MFSDN
will not collect any otherwise applicable tax if Customer first provides MFSDN
with a valid tax exemption certificate.
6. At Customer's request, MFSDN will respond to Customer's report of service
interruption and attempt to resolve all problems of connectivity. MFSDN'S
targeted Mean Time to Repair (MTTR) for any major failure or malfunction of the
service (defined as any loss of connectivity between two sites) is two (2)
hours for On-Net sites. For Off-Net sites, the targeted MTTR is four (4) hours
for any MFSDN provided equipment and service and the length of time committed
to by the provider for the local loop circuit. MFSDN'S targeted response time
for any other defect or non-conformity is within four (4) hours of such
request, or such later time as may result from delays requested by CUSTOMER to
schedule the remedial activities so as to minimize disruptions to CUSTOMER'S
business operations. If it is determined that all facilities, systems and
equipment furnished by MFSDN are functioning property, and that the
connectivity problem arose from some other cause, MFSDN will recover labor and
materials cost for services actually performed at the following rates, which
shall be the usual and customary rates for similar services provided by MFSDN
to all customers in the same locality.
Labor (4 hour Minimum Charge):
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<PAGE> 3
7 a.m. to 7 p.m. week days/$150.00 per hour per Technician
All other times: $225 per hour per Technician
Materials: Cost to MFSDN x 1.15
MFSDN reserves the right to modify the above rates upon ninety (90) days'
advance written notice to Customer provided such rates remain MFSDN's usual and
customary rates for similar services provided by MFSDN to all customers in the
same locality.
7. MFSDN may substitute, change or rearrange any equipment, facility or system
used in providing services at any time and from time to time, but shall not
thereby alter the technical parameters of the services provided thereunder or
cause unreasonable interruption in services being provided to Customer.
8. Customer shall not cause or allow any facility or equipment of MFSDN to be
rearranged, moved, removed, disconnected, altered, or repaired without MFSDN's
prior written consent, which consent shall not be unreasonably withheld.
Customer shall not create or allow any liens or other encumbrances to be placed
on any MFSDN equipment facility or system arising from any act, transaction or
circumstance relating to Customer. If Customer elects to relocate or otherwise
change the place of services after commencement of the installation of
facilities, Customer shall pay any disconnection, early cancellation or
termination charges reasonably incurred by MFSDN for the original location and
installation charges for the new location.
9. MFSDN will grant a credit allowance for service interruption calculated and
credited in fifteen (15) minute increments. A service interruption will be
deemed to have occurred only if service becomes unusable to Customer as a
result of failure of MFSDN's facility, equipment, or personnel used to provide
the service in question, and only where the interruption is not the result of:
(i) the negligence or acts of Customer or its agents; (ii) the failure or
malfunction of equipment or systems not provided by MFSDN as a component of the
service; or (iii) a service interruption caused by scheduled service
maintenance, alteration, or implementation of which Customer is Provided at
least forty eight (48) hours advance notice. Such credits will be granted only
if; (a) Customer affords MFSDN full and free access to Customer's premises to
make appropriate repairs, maintenance, testing, etc.; and (b) Customer does not
unreasonably continue to use the service on an impaired basis.
For purposes of canceling or terminating a service provided under this
Agreement for a MFSDN service interruption, such service interruption must
equal either twenty four (24) hours of cumulative service outages during any
continuous twelve (12) month period or a single outage of eight (8) hours or
more.
The foregoing states Customer's sole remedy for service interruption under the
Agreement, and in no event shall MFSDN be liable for harm to business, lost
revenues, lost savings, or lost profits suffered by Customer, regardless of the
form of action, whether in contract, warranty, strict liability, or tort,
including without limitation negligence of any kind, whether active or passive.
10. MFSDN's entire liability for any claim, loss, damage or expense from any
cause whatsoever shall in no event exceed sums actually paid to MFSDN by
Customer for the specific service
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<PAGE> 4
giving rise to the claim. Notwithstanding the foregoing, neither MFSDN or
Customer shall be liable for any indirect, incidental, consequential, punitive
or special damages. No action or proceeding against MFSDN shall be commenced
more than one (1) year after service is rendered.
11. There are no warranties, representations or agreements, expressed or implied
either in fact or by operation of law, statutory or otherwise, including
warranties of merchantability or fitness for a particular purpose, except those
expressly set forth herein.
12. In the event that Customer cancels or terminates service at any time during
the Initial Tenn of this Agreement or any renewal thereof for any reason
whatsoever other than a service interruption (as defined in Paragraph 9 above),
Customer agrees to pay MFSDN liquidated damages (which shall not be deemed a
penalty) the following sums which shall become due and owing as of the effective
date of cancellation or termination and be payable in accordance with Paragraph
3 above: 1) all Non-Recurring charges specified in the Service Order and
reasonably expended by MFSDN to establish service to Customer; plus 2) any
disconnection, early cancellation or termination charges reasonably incurred by
MFSDN; plus 3) an amount equal to the difference between the total charges paid
for such service at the rates cited in the Service Order and an amount equal to
the charges that would have otherwise been due for that service at the next
shortest term of service normally offered by MFSDN and for which Customer would
have otherwise qualified, given the actual period of time that Customer has
maintained the service.
For example, a service ordered for an Initial Term of twenty four months which
is canceled in the fourteenth month would result in charges equal to the
difference between the amount paid by Customer for service during the fourteen
month effective term of service and MFSDN's standard rates for such services
under an agreement with a one year Initial Term. MFSDN offers services under
one, three, and five year terms. The minimum term of service offered by MFSDN is
one year. Liquidated damages for a termination prior to completion of at least
twelve months of service would be the difference between the cumulative amount
paid under the Service Order and an amount equal to twelve months of service at
the rate applicable to service provided under a one year term of service.
13. Customer shall allow MFSDN continuous access and right-of-way to Customer's
premises to the extent reasonably determined by MFSDN to be appropriate to the
provision and maintenance of services, equipment, facilities, and systems
hereunder. Customer shall furnish MFSDN, at no charge, such equipment space and
electrical power as is reasonably determined by MFSDN to be required and
suitable to render services hereunder.
14. Customer shall be liable for any damages to MFSDN equipment, facility, and
system which is caused by: (a) negligent or willful acts or omissions of
Customer; or (b) malfunction or failure of any equipment or facility provided by
Customer or its agents, employees or suppliers. Customer is responsible for
identifying, monitoring, removing and disposing of any existing hazardous
materials (e.g., friable asbestos) prior to any construction or installation
work being performed by MFSDN and Customer shall indemnify, defend, and hold
MFSDN harmless from any claim, suit, loss, cost, or expense, including fines,
abatement charges, legal fees and court costs incurred in connection with
hazardous materials on Customer's premises.
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<PAGE> 5
15. Neither Party may assign this Agreement without the express written consent
of the other Party, which consent shall not be unreasonable withheld, except
that either Party may assign its rights and obligations hereunder (a) to any
subsidiary, parent company, or affiliate of that Party; (b) pursuant to any
sale or transfer of substantially all of the business of that Party; or (c)
pursuant to any financing, merger, or reorganization of that Party.
If, however, any assignment by Customer permitted under the proceeding sentence
should cause MFSDN reasonable concern that the assignee possesses insufficient
financial resources to perform all the obligations hereunder, the assignee
shall be required to deposit with MFSDN an irrevocable unconditional letter of
credit, or other acceptable form of security, in an amount sufficient to
insure the obligations of the assignee.
16. If any provision of this Agreement is held by a court to be invalid, void
or unenforceable, the remainder of this Agreement shall nevertheless remain
unimpaired and in effect.
17. No license, joint venture or partnership, express or implied, is granted by
MFSDN pursuant to this Agreement.
18. Each Party agrees to maintain in strict confidence all plans, designs,
drawings, trade secrets, and other proprietary information of the other Party
which is disclosed pursuant to this Agreement. No obligation of confidentiality
shall apply to disclosed information which the recipient 1) already possessed
without obligation of confidentiality; 2) develops independently; or 3)
rightfully receives without obligation of confidentiality from a third party.
19. Neither Party shall be liable for any delay or failure in performance of
any part of this Agreement to the extent such delay or failure is caused by an
event of Force Majeure, including but not limited to, fire, flood explosion,
accident, war, strike, embargo, governmental requirement, civil or military
authority, Act of God, inability to secure materials, labor or transportation,
acts or omissions of common carrier or warehouseman, or any other causes beyond
their reasonable control. Any such delay or failure shall suspend the Agreement
until the Force Majeure condition ceases and the Term shall be extended by
the length of the suspension.
20. If this Agreement is entered into by more than one Customer, each is
jointly and severally liable for all agreements, covenants and obligations
herein.
21. This Agreement shall be governed by the laws of the State of California
without regard to its choice of law provisions. In any action between the
Parties to enforce any material provision of this Agreement, the prevailing
Party shall be entitled to recover its legal fees and court costs from the
non-prevailing Party in addition to whatever other relief a court may award.
22. Each person executing this Agreement on behalf of MFSDN or Customer
represents and warrants that he or she has been fully empowered to do so, and
that all necessary corporate actions (if any) required for the execution of
agreements have been taken.
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<PAGE> 6
MFSDN: Customer:
By: [ILLEGIBLE] By: /s/ DAN E. STROUD
----------------------------- --------------------------
Title: Executive Vice President Title: VP, Network Operations
-------------------------- ------------------------
Date: 8/23/96 Date: 8/9/96
------------------------- ------------------------
page 6 of 6
<PAGE> 1
EXHIBIT 10.15
AGREEMENT FOR TERMINAL FACILITY
COLLOCATION SPACE
THIS AGREEMENT made this 8th day of August, 1996, (the
"Effective Date") by and between MFS TELECOM, INC., a Delaware corporation,
hereinafter called "MFS" and World Net Access, Inc., a Delaware corporation,
hereinafter called "Customer."
RECITALS
WHEREAS, MFS owns, controls, or is affiliated with entities
(hereinafter, "MFS Affiliates") having leasehold interests in certain office
and storage space within commercial buildings throughout the United States
(generally described herein as the "Premises") which may be suitable for the
placement and operation of telecommunications equipment; and
WHEREAS, Customer desires access to the Premises in one or
more locations for the purpose of placing therein certain telecommunications
equipment and cabling (hereinafter, the "Equipment") each individual location
for such. Equipment to be referred to herein as a "Terminal Facility"; and
WHEREAS, one or more of the MFS Affiliates may be willing to
grant Customer licenses to occupy or use portions of the Terminal Facilities
upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, MFS and Customer (collectively the "Parties") hereby agree as
follows:
I. LICENSE TO OCCUPY, PERMISSIBLE USE AND RELOCATION PROVISIONS.
A. This document shall comprise a complete and binding agreement between
Customer and an MFS Affiliate only upon execution by the MFS Affiliate and
Customer of a Collocation Schedule pertaining to an individual Terminal
Facility, of which the MFS Affiliate has a leasehold interest. Each Collocation
Schedule, and any amendments thereto, when dated and subscribed by Customer and
the applicable MFS affiliate, shall incorporate the terms and conditions of this
Agreement. References in this Agreement to rights or obligations of MFS shall
refer to the rights and obligations of the MFS affiliate named in the
appropriate Collocation Schedule for the Terminal Facility to which it
pertains. In the event of any conflict or inconsistency between this Agreement
and the terms set forth in a Collocation Schedule, terms of the Collocation
Schedule shall in all cases prevail, but only for the Terminal Facility
identified in the conflicting or inconsistent Collocation Schedule.
B. Each Collocation Schedule shall have attached thereto the following
Exhibits: Facility Drawings, identified as "Exhibit 1", General Description of
Work Tasks and Special Terms and Conditions, identified as "Exhibit 2"; and
Dispatch Labor Charges; identified as "Exhibit 3."
<PAGE> 2
C. Except as expressly provided in this paragraph 1.C, Customer shall
utilize the Space only for interconnection of the Equipment to the network
services of MFS. If Customer requires telecommunications services that MFS is
unable or unwilling to provide (after having been given a reasonable
opportunity by Customer to provide the required services) Customer shall have
the right to interconnect the Equipment to facilities of the dominant local
exchange carrier (LEC). Customer must obtain the prior written consent of MFS
before allowing the Equipment to be interconnected with the LEC network,
which consent shall not be unreasonably withheld, and any consent not given
or denied within three business days after such written notice shall be
deemed to be granted.
D. In connection with the Space made available hereunder, MFS shall perform
services which support the overall operation of the Terminal Facility (e.g.,
janitorial services, environmental systems maintenance, and power plant
maintenance) at no additional charge to Customer. However, Customer shall be
required to maintain the Collocation Space in an orderly manner and shall be
responsible for the removal of trash, packing, cartons, etc. from the Space.
Further, Customer shall maintain the Space in a safe condition, including but
not limited to the preclusion of storing combustible materials in the Space.
E. Unless otherwise provided in the Collocation Schedule, each visit by
Customer to the Space will be deemed to utilize escort services furnished by
MFS from the time Customer's Employee(s) sign(s) in upon entering the Terminal
Facility to the time Customer's employee(s) sign(s) out upon leaving the
Terminal Facility. Charges for escort services are consistent with the dispatch
labor charges (the "Dispatch Labor Charges") depicted in Exhibit 3 to the
Collocation Schedule.
F. Customer acknowledges that it his been granted only a license to occupy
the Space and that it has not been granted any real property interests in the
Space.
II. TERM OF AGREEMENT, TERMINATION AND RENEWAL.
A. Customer's license to occupy each Collocation Space shall begin on the
"Requested Service Date," as set forth in paragraph 3 of each individual
Collocation Schedule or on the date MFS completes the build-out of the Space,
whichever is later. The minimum term of the Customer's license to occupy the
Space shall be the period set forth in the Collocation Schedule (the "Minimum
Term").
B. If MFS fails for any reason to tender possession of the Space to Customer
on or before the Requested Service Date (specified in the Collocate Schedule
relevant thereto) this Agreement shall not be void or voidable. Notwithstanding
the foregoing, if MFS fails to tender possession of the Space to Customer
within a sixty (60) day period after such Requested Service Date (due to any
reason other than the acts or omissions of Customer), Customer may, upon
written notice to MFS, declare the relevant Collocate Schedule null and void
with no further obligation by Customer under the relevant Collocate Schedule,
and MFS shall refund all fees and charges paid in advance by Customer. In the
event that MFS is delayed in tendering possession of the Space to Customer for
any reason other than the acts or omissions of Customer, Customer shall not be
obligated to pay the Occupancy Fee or Service Fee (as hereinafter defined)
hereunder until such
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time as MFS tenders possession of the Space to the Customer. Except as provided
herein, MFS shall not be liable to Customer in any way as a result of such
delay or failure to tender possession.
C. Subject to the conditions specified in this Section II, and provided
Customer is not in default of its Agreements with MFS, Customer shall have the
option, upon thirty (30) days prior written notice to MFS, to renew its license
to occupy the Space (the "Renewal Periods") for the period(s) of time and on
the terms and conditions which are set forth in this Agreement and the
Collocation Schedule relevant thereto. The Minimum Term and any Renewal
Periods may be collectively referred to as the "Term."
D. Any option granted to Customer to renew its license to occupy the Space
shall be contingent on the election by MFS to continue to own or lease the
Premises in which the Space is located for the duration of the Renewal
Period(s), such election to be exercised at the sole discretion of MFS.
E. Following the expiration of the Term for each Space or failure of the
Parties to enter into any Renewal Periods, Customer's license shall continue in
effect on a month-to-month basis upon the same terms and conditions specified
herein, unless terminated by either Customer or MFS upon thirty (30) days prior
written notice.
F. Upon termination or expiration of the Term for each Space, Customer
agrees to remove the Equipment and other property that has been installed by
Customer or Customer's agents. In the event such Equipment or property has not
been removed within thirty (30) days of the effective termination or expiration
date, the Equipment shall be deemed abandoned and Customer shall lose all
rights and title thereto.
G. In the event the Terminal Facility becomes the subject of a taking by
eminent domain by any authority having such power, MFS shall have the right to
terminate this Agreement. MFS shall attempt to give Customer reasonable advance
notice of the removal schedule. Customer shall have no claim against MFS for
any relocation expenses, any part of any award that may be made for such taking
or the value of any unexpired term or renewed periods that result from a
termination by MFS under this provision, or any loss of business from full or
partial interruption or interference due to any termination. However, nothing
contained in this Agreement shall prohibit Customer from seeking any relief or
remedy against the condemning authority in the event of an eminent domain
proceeding or condemnation that affects the Space. Should MFS elect to relocate
the Terminal Facility as a result of an eminent domain proceeding, Customer
shall have the option of relocating Equipment to any comparable facility MFS
may establish for the purpose of the colocation of Customer equipment and MFS
and Customer will work together in good faith to minimize any disruption of
Customers services as a result of such relocation.
III. PRICES AND PAYMENT TERMS.
A. Customer shall pay MFS monthly recurring fees (the "Recurring Fees"),
which shall include charges for use and occupancy of the Space (the "Occupancy
Fees"), as well as cross-connect fees (the "Cross-Connect Fees") and power
charges (the "Power Charges"), if applicable. In addition to any Recurring
Fees, Customer shall be charged non-recurring fees for build-out of the Space
(the "Build-Out Charges"), including, where applicable, cross-connect
installation fees and/or
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Dispatch Labor Charges, where applicable, which shall be set forth in the
relevant Collocation Schedule and the Exhibits thereto. If Customer requests
that MFS provide services not delineated herein or in the collocation schedules
at any time during the Term, Customer agrees to pay MFS' price for such
services in effect at the time such service was rendered.
B. Prices do not include taxes, except as specifically stated herein.
Customer agrees to pay or reimburse MFS for any applicable taxes that are
levied based on the transactions hereunder, exclusive of taxes on MFS' income
and real estate taxes on the Terminal Facility. Any such charges shall be
invoiced and payable within the payment terms of this Agreement. MFS agrees to
provide Customer with reasonable documentation to support invoiced amounts for
taxes within thirty (30) calendar days of receipt of a Customer's written
request.
C. The Occupancy Fee and/or Power Charges shall be increased by any
increases incurred by MFS and required under the lease relevant to the Premises
in which the Space is located. Customer shall pay to MFS its pro rata share of
any such increases based on the number of square feet of the Space compared to
the number of square feet leased by MFS under the applicable lease. MFS shall
notify Customer of any such increase as soon as practicable.
D. All Recurring Fees shall be invoiced in the beginning of each month
commencing on the first day of the Term as identified in the Collocation
Schedule and thereafter, on the first day of each calendar month. Charges for
partial months shall be prorated accordingly. All Recurring Fees shall be
payable net thirty (30) days from date of invoice. Late payments shall be
subject to late charges if payment is not received within the payment term
period. The late payment charges will be calculated based on 1.5% per month of
the unpaid amount.
E. Charges delineated in the Collocation Schedule for build-out of the Space
shall be invoiced and paid by Customer when invoiced. MFS may require payment
of up to fifty percent (50%) of the "Build Out Fees" prior to commencing
construction.
F. Customer agrees to reimburse MFS for all reasonable repair or restoration
costs associated with damage or destruction caused by Customer's personnel,
Customer's agents or Customer's suppliers/contractors or Customer's visitors
during the Term or as a consequence of Customer's removal of the Equipment or
property installed in the Space.
IV. ADDITIONAL TERMS GOVERNING USE OF COLLOCATION SPACE; INSTALLATION OF
EQUIPMENT.
A. Before beginning any delivery, installation, replacement or removal work,
Customer must obtain MFS' written approval of Customer's choice of suppliers
and contractors which approval shall not be unreasonably withheld or unduly
delayed. MFS may request additional information before granting approval and
may require scheduling changes and substitution of suppliers and contractors as
conditions of its approval. Approval by MFS is not an endorsement of Customer's
supplier or contractor, and Customer will remain solely responsible for the
selection of the supplier or contractor and all payments for construction work.
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B. Customer shall not make any construction changes or material alterations
to the interior or exterior portions of the Space, including any cabling or
power supplies for the Equipment, without obtaining MFS, written approval for
Customer to have the work performed or have MFS perform the work. MFS reserves
the right to perform and manage any construction or material alterations within
the Terminal Facility and Collocation Space areas at rates to be negotiated
between the Parties hereto.
C. Customer's use of the Space, installation of Equipment and access to the
Terminal Facility shall at all times be subject to Customer's adherence to
generally accepted industry standards and security rules and rules of conduct
that may be posted in the Terminal Facility or provided to Customer at the time
Equipment is installed in the facility. Customer agrees not to erect any signs
or devices to the exterior portion of the Space without submitting the request
to MFS and obtaining MFS' written approval.
D. Customer may not provide, or make available to any third party, space
within the Collocation Space without MFS' prior written consent. If Customer
should provide, or make available to any third party, space within the
Collocation Space without obtaining the written consent of MFS, Customer shall
be in breach of this Agreement and MFS may pursue any legal or equitable
remedy, including but not limited to the immediate termination of the license
pursuant to Section VI, below.
E. MFS shall not arbitrarily or discriminatorily require Customer to
relocate the Equipment; however, upon sixty (60) days prior written notice or,
in the event of an emergency, such time as may be reasonable, MFS reserves the
right to change the location of the Space or the Terminal Facility to a site
which shall afford comparable environmental conditions for the Equipment and
comparable accessibility to the Equipment. MFS and Customer will work together
in good faith to minimize any disruption of Customer's services as a result of
such relocation. MFS shall be responsible for the cost of improving the Space
to which the Equipment may be relocated, and for relocation of Equipment
interconnected to MFS services, except that MFS shall not be responsible for
relocating facilities installed in violation of Section IV(B) below.
V. INSURANCE.
Customer agrees to maintain, at Customer's expense, during the entire time this
Agreement is in effect for each Collocation Space (i) Comprehensive General
Liability Insurance in an amount not less than One Million Dollars
($1,000,000.00) per occurrence for bodily injury or property damage, (ii)
Employers Liability in an amount not less than Five Hundred Thousand Dollars
($500,000.00) per occurrence, and (iii) Workers' Compensation in an amount not
less than that prescribed by statutory limits. Prior to taking occupancy of the
Collocation Space, Customer shall furnish MFS with certificates of insurance
which evidence the minimum levels of insurance set forth herein and which name
MFS as an additional insured.
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VI. DEFAULT.
A. If Customer fails to perform its obligations, or fails to pay for
services rendered hereunder, MFS may, at its sole option and with written
notice, issue a default notice letter to Customer, demanding the default
condition be cured. If the default condition is not remedied within the time
period specified in the notice letter, which shall not be less than fourteen
(14) calendar days, MFS may then, without the necessity of any further notice,
discontinue performance and terminate this Agreement, for default, and pursue
any other remedies available at law or in equity. MFS' failure to exercise any
of its rights hereunder shall not constitute or be construed by Customer as
being a waiver of any past, present, or future right or remedy.
B. At any time during the term of this Agreement, MFS may, at MFS' sole
option, immediately terminate this Agreement if Customer is not then
maintaining the Equipment solely for the purpose of originating and/or
terminating telecommunications transmissions carried over the MFS Network or as
otherwise set forth in Paragraph I of this Agreement, or pursuant to the terms
and conditions, if any, contained in any Collocation Schedule identified
herewith.
C. If Customer commits an act of default under any Collocation Schedule to
which this agreement pertains, MFS and MFS Affiliates may, in their sole
discretion, declare Customer to be in default of any and all other Collocation
Schedules then in effect, without the necessity of showing separate failures,
acts or omissions by Customer.
D. If Customer commits an act of default with respect to the purchase of
telecommunications services from MFS, which would entitle MFS under its
separate tariffs and agreements to terminate its services to Customer, then MFS
and all MFS Affiliates shall be entitled to terminate this Agreement and all
Collocation Schedules to which this Agreement pertains.
VII. INFRINGEMENT WARRANTIES, REMEDIES AND DISCLAIMERS.
A. MFS shall, at MFS' own expense, defend Customer against any and all
claims that the Collocation Space used by Customer hereunder infringes on any
third party's property or ownership rights. MFS shall, at MFS' sole option,
either (i) settle any such claim, (ii) secure valid rights for Customer's
continued use, or (iii) furnish equivalent Collocation Space that is not
infringing and that can be used to satisfy the original specifications in MFS'
reasonable determination. This warranty and remedy by MFS shall be valid only
if (i) Customer gives MFS prompt written notice upon Customer's receipt of any
such claim, (ii) Customer provides MFS with all pertinent information in its
possession relative to such claim and (iii) MFS shall have sole control over
the settlement or defense of such claim. The remedies provided in this
paragraph VII A are exclusive with respect to the subject matter addressed and
are in lieu of all other infringement remedies with respect thereto.
B. Customer acknowledges that in the event of any Customer loss resulting
from Customer's use of the Collocation Space or Customer's Operation of the
Equipment within the Collocation Space, Customer's primary source of recovery
will be Customer's own insurance. However, in the event of such loss, MFS
agrees to assist Customer in recovering uninsured losses from any third party
whose acts, omissions, or use of the Terminal Facility may have caused or
contributed to Customer's losses. The foregoing shall not be deemed an
indemnity, nor shall MFS be obligated
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to pursue claims on behalf of Customer or itself against third parties which,
in the reasonable judgment of MFS, would be detrimental to MFS interests.
Customer waives any claim to be a third party beneficiary of agreements between
MFS and any third party
C. THE SPACE IS ACCEPTED "AS IS" BY CUSTOMER. CUSTOMER ACKNOWLEDGES THAT NO
REPRESENTATION HAS BEEN MADE BY MFS AS TO THE FITNESS OF THE COLLOCATION SPACE
FOR CUSTOMER'S INTENDED PURPOSE. EXCEPT FOR THE WARRANTIES SET FORTH IN THIS
ARTICLE, THERE ARE NO WARRANTIES, WHETHER EXPRESS, IMPLIED, ORAL, OR WRITTEN,
WITH RESPECT TO THE COLLOCATION SPACE OR SERVICES COVERED OR FURNISHED PURSUANT
TO THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE:
VII. EXCUSED PERFORMANCE.
Neither Party shall be liable to the other Party under this Agreement for any
failure nor delay in performance that is due to causes beyond its reasonable
control, including but not limited to, acts of nature, governmental actions,
fires, civil disturbances, interruptions of power, or transportation problems.
IX. ASSIGNMENT OR TRANSFER.
Customer shall not assign or transfer the rights or obligations associated with
this Agreement, in whole or in part, without MFS' prior written consent, which
consent will not be unreasonably withheld or delayed.
X. PUBLICITY.
Customer shall not use MFS' name in publicity or press releases without MFS'
prior written consent.
XI. LIMITATION OF LIABILITY.
A. In no event shall MFS, MFS Affiliates, Customer, or any of their
respective officers or employees, be liable, one to the other, for any loss of
profit or revenue or for indirect, incidental, special, punitive or exemplary
damages incurred or suffered by each other, arising from or pertaining to
Customer's use or occupancy of the Collocation Space including (without
limitation) damages arising from interruption of electrical power or HVAC
services.
B. Customer shall indemnify and hold harmless MFS, MFS Affiliates, and
their respective officers and employees, servants, and agents from and against
any and all claims, cost, expenses or liability (including reasonable
attorney's fees) arising out of Customer's use of the Collocation Space or
Customer's operation of the Equipment within the Collocation Space.
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C. Each Party shall be liable to the other for damage to property and death
or injury to persons if such damage, loss, or injury is caused by the negligent
or willful acts or omissions of such Party, or its officers, employees,
servants, agents, affiliates or contractors, or by the malfunction of any
equipment supplied or operated by said Party.
XII. SURVIVAL PROVISIONS.
The Parties' rights and obligations which by their nature would extend beyond
the termination, cancellation or expiration of this Agreement, shall survive
such termination, cancellation or expiration.
XIII. NOTICES.
All formal notifications and transmittals to MFS issued pursuant to the
provisions of this Agreement shall be sent to:
MFS Telecom, Inc.
One Tower Lane, Suite #1600
Oakbrook Terrace, FL 60181
ATTN: General Counsel/Real Estate
All formal notices and transmittals to Customer shall be sent to:
World Net Access, Inc.
1999 Broadway - Suite 2100
Denver, CO 80202
ATTN: John Gainer
Either Party may change the notice address or addressee by providing prior
written notice.
XIV. APPLICABLE LAW
This Agreement shall be governed by the laws of the State of Illinois, without
regard to Illinois' choice of law principles.
XV. ENTIRE AGREEMENT.
This Agreement, including all Attachments, constitutes the entire agreement
between the Parties pertaining to the subject matter hereof and supersedes all
prior and contemporaneous agreements of such Parties in connection herewith.
Customer acknowledges that it has not been induced to enter into this Agreement
by any representative or promise not specifically expressed in this Agreement.
Any modification made hereto shall not be valid and binding unless it is in
writing and signed by both Parties.
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
MFS TELECOM, INC.
BY: /s/ ILLEGIBLE
--------------------------------
TITLE: EXECUTIVE VICE PRESIDENT
-----------------------------
WORLD NET ACCESS, INC.
BY: /s/ DAN E. STROUD
--------------------------------
TITLE: VP, NETWORK OPERATIONS
-----------------------------
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EXHIBIT 10.16
BILATERAL PEERING AGREEMENT
In this Agreement made as of 5/19/97 ("Effective Date") VERIO Inc. with a
principal place of business at Suite 400, 9250 East Costilla Avenue, Englewood,
Colorado 80112 ("VERIO"), and AT&T Corp., with a principal place of business at
295 N. Maple Ave., Basking Ridge, New Jersey 07920 ("AT&T"), agree as follow:
RECITALS
A. Each of VERIO and AT&T operates an Internet Network, as defined below;
and
B. The parties wish to provide for the interconnection of, and exchange
of traffic between, their respective Internet Networks on the terms and
conditions herein.
1. DEFINITIONS
a. "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; "control" means (i)
the direct or indirect ownership or control of more than 50% of the stock or
other equity interest entitled to vote for the election of directors or
equivalent governing body, or (ii) VERIO's or AT&T's ownership of an option to
acquire direct or indirect ownership or control of more than 50% of the stock
or other equity interest entitled to vote for the election of directors or
equivalent governing body.
b. "Internet Network" means a communications network running the
TCP/IP and other Internet protocols.
c. "Interconnection Point" means 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 in Schedule 1
attached hereto, and Schedule 1 shall be amended by the agreement of VERIO and
AT&T in the event of any changes.
2. EXCHANGE OF TRAFFIC
a. Each party agrees to exchange digital communications traffic
with the other party over its Internet Network at the Interconnection Points
and/or in one or more direct interconnections, subject to the terms and
conditions set forth in this Agreement. Each party shall provide, at its own
expense, a connection from its Internet Network to the Interconnection Points
or direct interconnections hereunder, upon a schedule to be mutually agreed.
<PAGE> 2
b. The data rate at which the parties will connect hereunder is
set forth in Schedule 1. The exchange of digital communications traffic at each
Interconnection Point will begin on or about the date specified in Schedule 1,
or as the parties otherwise agree.
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. 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 VERIO or AT&T
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 Non-Disclosure
Agreement described in Section 19, 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. 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.
3. PAYMENTS
The parties agree that during the 12 month period immediately following the
Effective Date 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 that 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 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 ending one year after the Effective
Date. Either party may terminate this Agreement: (a) upon 90 calendar days'
written notice to the other
Bilateral Peering Agreement - Page 2
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within the six month period following the Effective Date; (b) upon 60 calendar
days' written notice to the other at any time after that six month period; (c)
upon one week's notice if the other party is not prepared to interconnect at at
least one of the Interconnection Points within 30 days after the earliest date
specified in Schedule 1; or (d) upon 15 days' notice if the other party is not
prepared to interconnect at all of the Interconnection Points within 30 days
after the latest date specified in Schedule 1. 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 60 calendar
days written notice to the other. Sections 2(d) (Data Collection), 8
(Liability, Consequential Damages), 19 (Confidentiality), and 20 (Disputes)
shall survive termination of this Agreement for any reason.
5. TECHNICAL AND OPERATIONAL MATTERS
a. Each party represents that the Interconnection Points set
forth in Schedule 1 are, and during the term of this Agreement shall be,
connected as part of an internal network architecture comprised of multiple,
cross-country circuits of at least DS3 (45 Mbps) 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 (i)
Affiliates of a party, or (ii) customers whose transit traffic is carried by
the other party or the other party's Affiliates. 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.
Both parties will present the same autonomous system number at the
Interconnection Points listed in Schedule 1.
(i) The parties will work together during the term of
this Agreement to establish mutually agreed performance objectives and
operational procedures to enable each party to provide the highest practical
quality of service over its Internet Network and the interconnections provided
hereunder, in a cost-effective fashion. In connection therewith, the parties
shall make reasonable efforts to achieve a minimum end-to-end one-way packet
delay.
(ii) Each of the parties will make reasonable efforts to
achieve a mean time to repair of four hours or less for all outages at the
Interconnection Points set forth on Schedule 1. The parties will cooperate with
each other in each party's efforts under this paragraph 5.c.
(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 five minutes. Each party
Bilateral Peering Agreement - Page 3
<PAGE> 4
agrees to give the other three calendar days' advance notice for scheduled
maintenance that is expected to result in 30 minutes 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 NOC support in cooperation with the other to
maintain the smooth operational procedures for the interworking of their
respective Internet Networks, including without limitation inter-NOC problem
management information exchanges (eg, 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 make 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 AND AFFILIATE RELATIONS
Each party will be responsible for communicating with its own customers
and Affiliates with respect to its Internet Network. Each party shall be
responsible to screen the traffic of its own customers and Affiliates not
desiring public Internet access from distribution across the Interconnection
Points. Each party will independently establish the charges to its own
customers and Affiliates for the services provided in connection with this
Agreement.
7. NONEXCLUSIVITY
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; CONSEQUENTIAL DAMAGES
a. EACH PARTY DISCLAIMS ALL REPRESENTATIONS AND WARRANTIES, EXPRESS
AND IMPLIED, CONCERNING OR RELATING TO THE
Bilateral Peering Agreement - Page 4
<PAGE> 5
EXCHANGE OF TRAFFIC OR OTHER ACTIVITIES UNDER THIS AGREEMENT, INCLUDING ANY
REPRESENTATIONS OR WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, OR PERTAINING TO THE SECURITY OR DELIVERY OF TRAFFIC, OR THAT ANY
ROUTING INFORMATION OR OTHER INFORMATION PROVIDED IS ACCURATE AND COMPLETE AND
DOES NOT INFRINGE ANY PATENT, COPYRIGHT, OR OTHER INTELLECTUAL PROPERTY RIGHT.
b. 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; (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 19 (Confidentiality).
c. 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.
Each party's liability for direct damages in connection with this Agreement
shall be limited to an aggregate of US$50,000. This Section 8(c) shall not
apply to breaches of Sections 2.d (Data Collection) or 19 (Confidentiality).
d. 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.
9. 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.
10. 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
Bilateral Peering Agreement - Page 5
<PAGE> 6
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.
11. 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.
12. 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.
13. ASSIGNMENT
Except as this Section 13 provides, neither party may assign or
otherwise transfer this Agreement, or any of their respective rights or
obligations under this Agreement, to any third party without the other party's
prior written consent, which the other party may grant or withhold in its
discretion. Either party may at any time, on written notice to the other,
assign this Agreement and all of the assigning party's rights and obligations
under this Agreement to any Affiliate (except an Affiliate which is an
Affiliate solely by virtue of a control relationship described in Section
1(a)(ii)). Notwithstanding any such assignment, the assigning party will
remain responsible for its financial obligations to the other outstanding as of
the effective date of the assignment. This Agreement will be binding upon and
inure to the benefit of the parties and their respective successors and
permitted assigns.
14. NOTICES
All notices required or permitted under this Agreement and all
requests for approvals, consents, and waivers must be in writing and must be
delivered by a method providing for proof of delivery (including express
courier, and facsimile or email if receipt is acknowledged by the recipient).
Any notice or request will be deemed to have been given on the date of receipt.
Notices and requests must be delivered to the addresses set forth on the
signature page of this Agreement until a different address has been designated
by notice to the other.
Bilateral Peering Agreement - Page 6
<PAGE> 7
15. ENTIRE AGREEMENT
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.
16. SEVERABILITY
If any provision of this agreement is held by an arbitrator or a court
of competent jurisdiction to be contrary to law, the remaining provisions of
this Agreement will remain in full force and effect.
17. AMENDMENT
This Agreement may be modified only by a written amendment signed by
both parties.
18. NO THIRD PARTY BENEFICIARIES
Nothing contained in this Agreement shall be deemed to confer any
rights in any third party not a signatory to this Agreement.
19. CONFIDENTIALITY
AT&T and VERIO will enter into a separate mutually agreed to
Non-Disclosure Agreement concurrent with the signing of this Agreement. Such
agreement is attached hereto as Schedule 2. Neither party shall issue any press
release or make any statement to the public or the press about this Agreement
or about the parties' relationship under this Agreement without the prior
consent of the other party, except that VERIO may, without the consent of AT&T,
make such statements in disclosure documents used in its capital raising
efforts so long as the statements are accurate and not misleading.
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.
20. DISPUTES
The parties agree that resolving disputes as promptly and efficiently
as possible will best serve their respective interests. If the parties cannot
resolve through negotiation a dispute regarding any matter under or relating to
this Agreement, the dispute shall be referred to officers of the parties, who
will attempt to resolve the dispute within 10 business
Bilateral Peering Agreement - Page 7
<PAGE> 8
days of the referral. If those officers are unable to resolve the dispute
within that 10 business day period, the parties shall further seek to resolve
the dispute pursuant to nonbinding mediation conducted in New York City by the
CPR Institute for Dispute Resolution ("CPR") in accordance with CPR's
then-current "Model Mediation Procedure for Business Disputes" and the
procedures of this Section. Each party shall bear its own expenses in connection
with the mediation, and shall share equally the fees and expenses of CPR and the
mediator. All disputes which cannot be amicably resolved as described above
shall be settled exclusively by binding arbitration in accordance with CPR's
then-current "Non-Administered Arbitration Rules". The arbitration shall be
held in New York City and shall be conducted by a single neutral arbitrator who
shall be familiar with the business of Internet service providers. The
arbitrator shall be bound by and shall strictly enforce the terms of the
Agreement and may not limit, expand, or otherwise modify the terms of this
Agreement. The arbitrator shall not have the power to award damages in excess
the limits set forth herein or to award punitive damages or any damages that are
excluded under Section 9 of this Agreement, and each party irrevocably waives
any claim thereto. The arbitrator shall not have the power to order pre-hearing
discovery of documents or the taking of depositions. The arbitrator shall
render a written and reasoned decision within six months after being selected,
which decision shall be final and binding upon the parties and may be enforced
by either party in any court of competent jurisdiction. Each party will bear
its own expenses in connection with the arbitration, and will share equally the
fees and expenses of the CPR and the arbitrator, unless the award otherwise
provides. This Section shall not be construed to prohibit either party from
seeking preliminary or permanent injunctive relief in any court of competent
Jurisdiction however, the arbitrator hearing the dispute to which the injunction
pertains will have the power to modify or dissolve any such injunction, or to
order additional injunctive relief, in connection with the final arbitration
award. The parties, their representatives, other participants, and the mediator
and arbitrator shall hold the existence, content, and result of any mediation
and arbitration in confidence except to the extent necessary to enforce a final
settlement agreement or to obtain and secure enforcement of or a judgment on an
arbitration decision and award. The United States Arbitration Act, 9 U.S.C.
Sections 1-14, governs the interpretation and enforcement of this Section 20;
New York law (excluding its choice of law rules to the extent such rules would
require application of the laws of a Jurisdiction other than New York, and laws
concerning arbitration) governs all other substantive matters pertaining to the
interpretation and enforcement of the other terms of this Agreement. If court
proceedings to stay litigation or compel arbitration under this Section are
necessary, the party who unsuccessfully opposes such proceedings shall pay all
associated costs, expenses, and attorneys' fees that the other party reasonably
incurs in connection with such court proceedings.
Bilateral Peering Agreement - Page 8
<PAGE> 9
Accepted:
AT&T CORP. VERIO Inc.
Signed:/s/ ERIK K. GRIMMELMANN Signed:/s/ CHRIS DEMARCHE
--------------------------------- -----------------------------
Printed: Erik K. Grimmelman Printed: Chris DeMarche
-------------------------------- ----------------------------
Title: Network and Access Vice President Title: CTO
--------------------------------- ------------------------------
Date: May 19, 1997 Date: May 28, 1997
----------------------------------- -------------------------------
Notice Address: Notice Address:
AT&T WorldNet Service VERIO Inc.
55 Corporate Drive 9250 East Costilla Avenue
Bridgewater, NJ 08807 Suite 400
Attn: VP - WorldNet Network and Access Englewood, Colorado 80112
Fax: 908 658-5370 Attn: Randy Bush
Email:[email protected] Email: [email protected]
with a courtesy copy to: with a courtesy copy to:
AT&T Law Division VERIO Inc., Legal Dept.
295 N. Maple Ave. 9250 East Costilla Avenue
Basking Ridge, NJ 07920 Suite 400
Attn: Chief Counsel - AT&T WorldNet Englewood, Colorado 80112
Bilateral Peering Agreement - Page 9
<PAGE> 1
EXHIBIT 10.17
DUPLICATE
INSIGHT INVESTMENTS, CORP
MASTER LEASE #6269
MASTER LEASE NO. 6269, DATED NOVEMBER 17, 1997, BY AND BETWEEN INSIGHT
INVESTMENTS, CORP., A CALIFORNIA CORPORATION ("LESSOR"), 265 SOUTH ANITA DRIVE,
SUITE 200, ORANGE, CALIFORNIA 92868 AND VERIO INC., A DELAWARE CORPORATION
("LESSEE"), 9250 E. COSTILLA AVE., ENGLEWOOD, CO 80112.
FOR AND IN CONSIDERATION OF THE MUTUAL COVENANTS AND PROMISES SET FORTH HEREIN
AND THE PAYMENT OF RENT AS PROVIDED HEREIN, LESSOR AND LESSEE AGREE AS FOLLOWS:
1. LEASE OF EQUIPMENT. Lessor leases to Lessee, and Lessee leases from Lessor,
all of the personal property, together with all replacements, parts and repairs
incorporated therein (collectively, the "Equipment"; and individually, an
"Item") described in each Equipment Schedule ("Schedule") executed and
delivered from time to time pursuant to this Master Lease.
2. SCHEDULES. Each Schedule shall incorporate the terms and conditions of this
Master Lease and such other terms and conditions as Lessor and Lessee shall
agree upon. Each Schedule is a separate and independent lease and contractual
obligation. In the event of a conflict between the provisions of the Master
Lease and those of any Schedule, the provisions of the Schedule shall control.
The term "Lease" shall mean an individual Schedule which incorporates the terms
and conditions of this Master Lease. The Lease shall be effective upon
execution by Lessee and subsequent acceptance by Lessor at its principal place
of business.
3. LEASE TERM. The term of lease ("Lease Term") for each Item shall begin on
its Acceptance Date and continue after the Commencement Date for that number of
months specified in the Schedule as the "Initial Lease Term", and thereafter
until terminated by either party upon not less than ninety (90) days prior
notice (which notice shall apply to all the Equipment and may not be revoked
without the consent of the other party). The term "Commencement Date" means the
first day of the month immediately following the month during which the
Acceptance Date occurs for the Item to be last installed or delivered, as
applicable.
4. ACCEPTANCE. The Acceptance Date for each Item shall be the earliest of (i)
the date the manufacturer, or other party acceptable to Lessor, installs the
Item and certifies that Item to be in good working order, or (ii) if Lessee has
caused a delay in the installation of an Item, then the fifth day after the Item
is delivered to the location specified in the Schedule, or (iii) if Lessee is
to install the Item, the fifth day after delivery; or (iv) if the Item does not
require installation, the third day after the day the Item is delivered to
Lessee. If the Equipment is already installed at the Lessee's location, the
Acceptance Date shall be the date on which the Lessor pays for the Equipment.
On each Acceptance Date, Lessee shall execute and deliver to Lessor a
Certificate of Acceptance.
5. RENT.
(a) "Rent" as used herein shall mean and include all of the following:
(1) INTERIM RENT. Lessee's interim rental obligation for each Item shall
commence on its Acceptance Date and continue through the day immediately
preceding the Commencement Date ("Interim Rent"). Interim Rent for each Item
shall be one-thirtieth (1/30) of the Monthly Rent for that Item, with Interim
Rent for all Items being due and payable on the Commencement Date. If the
Acceptance Date for all the Equipment is the first day of a calendar month,
there shall be no Interim Rent.
(2) MONTHLY RENT. Lessee shall pay Lessor Monthly Rent for the Equipment in the
amount set forth in the Schedule. Monthly Rent shall begin to accrue on the
Commencement Date and shall be due and payable by Lessee in advance on the
Commencement Date and on the first day of each month thereafter during the
Lease Term.
(3) ADDITIONAL RENT. Lessee shall also owe to Lessor, as additional rent
("Additional Rent") any and all charges, expenses, indemnities and other sums
which become due by Lessee to Lessor under the terms of this Lease. Any such
Additional Rent shall be paid to Lessor within thirty (30) days after the date
that Lessor gives notice to Lessee that such Additional Rent is due, unless a
longer or shorter period is otherwise specified herein.
(b) LATE CHARGE. If Lessee fails to pay to Lessor within ten (10) days after
the due date thereof (and without regard as to whether Lessor has given Lessee
notice of such failure or whether an Event of Default has occurred) any Rent
due hereunder, then Lessee shall also owe to Lessor Late Charges on such
delinquent payment from the due date until paid at the lower of two percent
(2%) per month or the maximum rate permitted by applicable law.
(c) METHOD OF PAYMENT. All payment of Rent, Late Charges or other amounts
required to be paid by Lessee shall be paid to Lessor by check or wire transfer
so as to constitute immediately available funds at the address of Lessor set
forth above or at such other place as Lessor shall designate in writing, or, if
to an Assignee of Lessor, at such place as such Assignee shall designate in
writing.
6. USE AND LOCATION.
(a) USE. Lessee shall use the Equipment in a careful and proper manner in
conformance with all manufacturer's specifications and shall comply with all
federal, state, municipal and other laws, ordinances and regulations in any way
relating to the possession, use or maintenance of the Equipment, and in
compliance with all requirements of the insurance policies required to be
maintained by Lessee pursuant to Section 12 herein.
(b) LOCATION. Each Item will at all times be and remain in Lessee's sole
possession and control at the place of installation/location shown in the
Schedule. The Equipment, may be moved to another location of Lessee within the
continental contiguous United States on written notification to Lessor. Lessor
may require Lessee to execute such documents, including, but not limited to,
Uniform Commercial Code ("UCC") financing statements, as Lessor may
<PAGE> 2
reasonably require to provide notice, perfect, or maintain the notification or
perfection of, Lessor's or Assignee's interest in such Equipment. Any
relocation of the Equipment pursuant to this Section and all UCC financing
statement filing fees shall be at the sole expense of Lessee.
7. MAINTENANCE AND REPAIR. Lessee hereby assumes the sole duty to maintain the
Equipment and shall not look to Lessor or any Assignee for such maintenance. At
its own expense, Lessee shall maintain and keep the Equipment in good repair,
condition and working order and shall furnish any and all parts, mechanisms,
devices and labor required therefor, and shall enter into and maintain during
the Lease Term a maintenance agreement with the Equipment manufacturer or other
party acceptable to Lessor. Lessee shall furnish a copy of such agreement to
Lessor upon Lessor's request.
8. QUIET ENJOYMENT. Lessor hereby warrants and represents and covenants that so
long as no Event of Default has occurred, Lessee shall and may quietly have,
hold and enjoy the Equipment in accordance with the terms and conditions of the
Lease, free from disturbance by Lessor or anyone claiming by or through Lessor.
9. LESSOR'S RIGHT TO INSPECT. Lessor shall at all times during business hours,
and subject to Lessee's reasonable security requirements, have the right to
enter upon the premises where an Item may be located for the purpose of
inspecting such Item.
10. EQUIPMENT IMPROVEMENTS.
(a) Lessee may, with the prior consent of Lessor and subject to compliance with
this Section 10, affix or install any accessory, feature or device to the
Equipment and make any improvement, upgrade, modification, alteration or
addition to the Equipment (each of the foregoing being an "Improvement"). The
affixing or installation of the Improvement must not adversely affect the
Equipment manufacturer's warranties or maintenance agreement, or require that
substantial original parts of the Equipment be removed; nor can it impair the
originally intended function, value or use of the Equipment. Title to each
Improvement shall, without further action, upon the affixing or installing of
such Improvement, vest solely in Lessor. Upon the expiration or earlier
termination of this Lease, Lessee may remove and retain any readily detachable
Improvement provided that: (i) no Event of Default has occurred; (ii) by such
removal the Equipment is not rendered any less useful or valuable to Lessor
than if such Improvement had not been made and later removed, and (iii) the
Equipment is returned in compliance with Section 13 herein. Upon Lessee's
permitted removal of a detachable Improvement and compliance with this Section
10, title shall thereupon revert to Lessee free and clear of any claims of
Lessor whatsoever.
(b) Lessee shall notify Lessor not less than sixty (60) days prior to the
anticipated Acceptance Date of the type of Improvement Lessee desires to
obtain. Lessor may, within fifteen (15) days after receipt of such notice,
offer to lease or sell the Improvement to Lessee upon mutually agreeable terms
and conditions. If Lessee leases the Improvement from Lessor, such Improvement
shall be on a separate Schedule with an Initial Lease Term co-terminus with
that of the Equipment. (c) Nothing in this section 10 shall preclude or limit
Lessee's ability to maintain and support the Equipment or require Lessee's
prior consent to such normal and customary maintenance.
11. LOSS AND DAMAGES; STIPULATED LOSS VALUE.
(a) LESSEE'S ASSUMPTION OF RISK. Lessee hereby assumes and shall bear the
entire risk of loss, damage, theft or destruction to the Equipment from any
cause whatsoever, or governmental taking. No loss, damage, theft or destruction
to the Equipment, or any part thereof, or governmental taking shall affect any
obligation of Lessee under this Lease, which shall continue in full force and
effect notwithstanding any such loss or damage. Lessee's assumption of risk of
loss shall commence when the Equipment or Item is placed in transit to Lessee
and shall continue until Lessor has received and accepted the surrendered
Equipment pursuant to Section 13.
(b) NOTICE OF LOSS OR DAMAGE. Lessee shall promptly notify Lessor of the loss,
damage, destruction, theft or governmental taking of any Item.
(c) DUTY TO REPAIR. Unless such Item is lost, stolen, damaged beyond repair or
there is a governmental taking ("Casualty Loss"), Lessee shall promptly repair
and restore such Item to the same condition, working order and appearance as of
the Acceptance Date.
(d) CASUALTY LOSS; PAYMENT OF STIPULATED LOSS VALUE. If the Equipment or any
Item is a Casualty Loss, then Lessee, at Lessee's option:
(1) shall pay Lessor in cash the Stipulated Loss Value (as per Attachment A to
this Master Lease) for such Equipment or Item calculated as of the next Monthly
Rent payment date, which amount shall be due and payable not later than thirty
(30) days after the date of the occurrence of the Casualty Loss. Upon payment
of the Stipulated Loss Value, and provided that no Event of Default (as
hereinafter defined) has occurred:
(i) Lessee's obligation to pay Rent for all remaining Items shall
remain in full force and effect and shall terminate only with respect to such
Casualty Loss Item.
(ii) Lessee shall become entitled to such Item, as-is, where-is,
without warranty, express or implied, with respect to any matter whatsoever;
OR,
(2) shall continue all payments under the Lease without interruption as if no
such loss had occurred, and shall request that Lessor, within thirty (30) days
after the date of the occurrence of the Casualty Loss, replace the Casualty
Loss Item with a "Replacement Item". Lessee shall pay all costs of such
Replacement Item. Unless otherwise mutually agreed, the Replacement Item shall
be of the same manufacture, model and type and of at least equal capacity,
function and value as the Casualty Loss Item.
(e) INSURANCE PROCEEDS. Lessee's obligation to repair or pay Stipulated Loss
Value shall not be contingent upon receipt of any insurance proceeds.
12. INSURANCE. Lessee shall at its expense keep each Item insured from every
cause whatever for not less than the Stipulated Loss Value thereof, and shall
carry public liability and property damage insurance of $2,500,000 or more. All
such insurance shall be with companies reasonably acceptable to Lessor, and
shall name Lessor and any Assignee as additional insureds and, as to the
all-risk insurance, loss payees as their interests may appear. Such insurance
policies shall provide that they may not be invalidated against Lessor or any
Assignee by reason of any violation of a condition or breach of warranty of the
policies or the application therefor by Lessee and that Lessor shall be given
written notice thirty (30) days prior to any alteration or cancellation of such
policies. The proceeds of such insurance, if Lessee is not in default
hereunder, shall be applied to reimburse Lessee for Stipulated Loss Value to
the extent previously paid by Lessee; or shall be paid to Lessor or Assignee to
the extent of Stipulated Loss Value not previously paid by Lessee; or shall be
applied to repair the Equipment or to reimburse Lessee for repairs for which
Lessee previously paid. If Lessee is in default hereunder, then such insurance
proceeds shall be paid to Lessor or Assignee to be applied to the satisfaction
of Lessee's obligations under the Lease.
<PAGE> 3
13. DELIVERY AND SURRENDER.
Lessee hereby assumes all cost and expense of the transportation, rigging,
drayage, unpacking and in-transit insurance to Lessee's premises and
installation of the Equipment. Upon the expiration of the Lease Term, or sooner
termination of this Lease with respect to any Item, Lessee shall (unless Lessee
had paid Lessor the Stipulated Loss Value of such Item pursuant to Section 11)
return at its expense, including but not limited to the expenses of
deinstallation, packing, transportation and in-transit insurance, the Item to a
location designated by Lessor in the same repair, condition, appearance and
working order as of the Acceptance Date, ordinary wear and tear from proper use
alone excepted, and certified as acceptable by the Equipment manufacturer for
the standard manufacturer's maintenance agreement.
14. TAX BENEFITS. Lessee acknowledges that Lessor or other owner of the
Equipment shall be entitled to claim for federal tax purposes (i) deductions on
Lessor's cost of the Equipment for each of its tax years during the Lease Term
under any method of depreciation or other cost recovery formula permitted by
the Internal Revenue Code of 1986, as amended (the "Code"); (ii) interest
deductions as permitted by the Code on the aggregate interest paid to any
Assignee; and (iii) investment tax credit, or similar credit, as may be
available as of the Acceptance Date to the owner of the Equipment (all the
foregoing being hereafter referred to as the "Tax Benefits"). Lessee agrees to
take no action inconsistent with the foregoing or which would result in the
loss, disallowance, recapture or unavailability of the Tax Benefits to Lessor
or other owner of the Equipment. Lessee hereby indemnifies Lessor or other
owner of the Equipment from and against (a) any loss, disallowance,
unavailability or recapture of any Tax Benefit resulting from any action or
failure to act of Lessee, plus (b) all interest, penalties, costs (including
legal fees) or additions to tax resulting from such loss, disallowance,
unavailability or recapture.
15. TAXES. In addition to the Rent as provided in Section 5, Lessee shall be
responsible for the payment of all taxes (exclusive of taxes based on Lessor's
net income), fees, charges, licenses and assessments whatsoever, however
designated, whether based on the Rent or levied, assessed or imposed upon the
Equipment or upon or in respect of the manufacture, purchase, delivery,
ownership, leasing, use or return of the Equipment, now or hereafter levied,
assessed or imposed during the Lease Term by a federal, state or local taxing
jurisdiction, regardless of when and by whom payable, and Lessee shall timely
prepare, file and pay all applicable tax returns.
16. LESSOR'S PAYMENT. If Lessee fails to procure or maintain insurance or to
pay fees, assessments, charges, taxes or expenses, all as herein required,
Lessor shall have the right, but not the obligation, to pay the premiums for
such insurance and such fees, assessments, charges, taxes and expenses. In such
event, the cost thereof shall be Additional Rent payable to Lessor with the
next installment of Rent, plus interest, taxes and penalties, if any, imposed
by the charging entity, and the Late Charge from the date of such payment by
Lessor until receipt by Lessor of reimbursement from Lessee.
17. DISCLAIMER OF WARRANTIES.
(a) The following acknowledgments by Lessee are integral to this Lease and are
made to induce Lessor to enter into and perform under this Lease:
(1) EACH ITEM IS, AS OF ITS ACCEPTANCE DATE, OF A SIZE, DESIGN, TYPE AND
MANUFACTURE SELECTED BY LESSEE AND, AS BETWEEN LESSOR AND LESSEE, LESSEE HAS
UNCONDITIONALLY ACCEPTED SUCH ITEM.
(2) SINCE LESSOR IS NOT THE MANUFACTURER OF THE EQUIPMENT OR AGENT OF THE
MANUFACTURER, LESSEE ACCEPTS THE EQUIPMENT FROM LESSOR "AS IS".
(3) LESSOR SHALL HAVE NO LIABILITY TO LESSEE FOR ANY CLAIM, LOSS OR DAMAGE
CAUSED OR ALLEGED TO BE CAUSED DIRECTLY, INDIRECTLY, INCIDENTLY OR
CONSEQUENTIALLY BY THE EQUIPMENT, BY ANY INADEQUACY THEREOF OR DEFECT THEREIN,
OR BY ANY INCIDENT WHATSOEVER IN CONNECTION THEREWITH, ARISING IN STRICT
LIABILITY, NEGLIGENCE OR OTHERWISE, OR IN ANY WAY RELATING TO OR ARISING OUT OF
THE LEASE, WHETHER OR NOT KNOWN OR DISCLOSED TO LESSOR.
(4) APART FROM ITS WARRANTY UNDER SECTION 8, LESSOR MAKES NO EXPRESS OR IMPLIED
WARRANTIES OF ANY KIND, INCLUDING THOSE OF MERCHANTABILITY, DURABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR USE, OR RELATING TO PATENT INFRINGEMENT OR
THE LIKE WITH RESPECT TO THE EQUIPMENT AND EXPRESSLY DISCLAIMS THE SAME.
(5) IT IS AGREED AND UNDERSTOOD THAT LESSOR SHALL HAVE NO OBLIGATION TO
INSTALL, TEST, ADJUST, REPAIR OR SERVICE THE EQUIPMENT.
(b) Lessor warrants that Lessor has the right to lease the Equipment to Lessee
under the terms of this Lease. Lessor assigns to Lessee all rights Lessor may
have against the supplier or manufacturer of the Equipment to enable Lessee to
obtain the benefit of and enforce in Lessee's own name and at Lessee's sole
expense such rights and benefits. Such assignment to remain in effect so long
as Lessee is not in default.
18. INDEMNIFICATION. Except for the gross negligence of Lessor, Lessee hereby
assumes liability for and indemnifies, protects, saves and keeps harmless
Lessor and its Assignees from and against any and all liabilities, losses,
damages, penalties, claims, actions, suits, costs and expenses, including
attorney's fees and other legal expenses, imposed on, incurred by, or asserted
against Lessor or its Assignees (whether or not also indemnified against by any
other person) in any way relating to or arising out of the manufacture,
purchase, ownership, delivery, lease, possession, use, operation, condition,
return or other disposition of the Equipment by Lessor or Lessee, including
without limitation, latent and other defects, whether or not discoverable by
Lessor or Lessee, any claim for patent, trademark or copyright infringement, or
any claim arising out of strict liability. Lessee agrees to give Lessor, and
Lessor agrees to give Lessee, prompt written notice of any claim or liability
hereby indemnified against. The indemnities and assumptions of liability set
forth in this Section 18 do not guarantee a residual value of the Equipment;
nor shall they be construed to limit or restrict Lessee's right to prosecute
any claim, action or suit against the manufacturer of the Equipment.
19. EVENTS OF DEFAULT; REMEDIES.
(a) EVENTS OF DEFAULT. Occurrence of any of the following events or conditions
shall constitute an Event of Default hereunder:
(1) Lessee's failure to pay, when due, any Rent, and such failure continues for
a period of ten (10) days after notice that such Rent is overdue; or
(2) Except as expressly permitted in the Lease, Lessee attempts to remove,
sell, encumber, assign or sublease or fails to insure the Equipment, or fails
(within five (5) days after notice of such failure) to deliver any document
required of Lessee under the Lease; or
(3) Failure of Lessee to perform, within thirty (30) days after Lessor gives
Lessee notice of such failure (or, with respect to performance which cannot be
completed in such time, failure to commence such performance within such time
and to pursue such performance diligently thereafter) any other obligation,
term or condition of this Lease; or
<PAGE> 4
(4) A writ, order of attachment, execution or other legal process is levied on
or charged against any Item and not released or satisfied within ten (10) days
after Lessee is notified thereof; or
(5) The filing by or against Lessee of a petition under any federal or state
bankruptcy or insolvency law or law providing for the relief of debtors, the
making by Lessee of any general assignment for the benefit of creditors, the
appointment of a receiver or trustee for Lessee or for any of Lessee's assets,
or any formal or informal proceeding for the dissolution, liquidation,
settlement of claims against, or winding up of the affairs of Lessee, any of
which remains undismissed for forty-five (45) days; or the making by Lessee of a
transfer of all or a material portion of Lessee's assets or inventory not in the
ordinary course of business, or the admission by Lessee of inability to pay
debts as they become due; or
(6) The occurrence of any event described in Subsection 19(a)(5) with respect
to any guarantor or any other party liable for payment or performance of this
Lease; or
(7) If any certificate, statement, representation, warranty or financial
information previously or hereafter furnished by or on behalf of Lessee or any
guarantor or other party liable for payment or performance of the Lease proves
to have been false or misleading in any material respect as of the time made or
furnished to Lessor, or to have been afterward breached; and Lessor sustains
actual damage as a consequence thereof; or
(8) The giving to Lessee of three (3) notices pursuant to one or more of
Subsections 19(a)(1), (2) or (3) within any consecutive twelve (12) month
period, notwithstanding Lessee's cure of the defaults within the notice periods
applicable.
(b) REMEDIES. Upon the occurrence of an Event of Default:
(1) Lessee hereby authorizes Lessor without notice or process of law to enter
any premises where the Equipment is located and take possession of and remove
the Equipment; and
(2) Lessee shall forthwith and without demand pay to Lessor as liquidated
damages for loss of a bargain and not as a penalty an amount equal to the
Stipulated Loss Value for the Equipment computed as of the date of the Monthly
Rent payment last received by Lessor, plus all previously due but unpaid Rent
and all legal and other expenses incurred by Lessor in enforcing its remedies
hereunder; and
(3) Lessor may upon notice to Lessee effective immediately terminate the Lease,
but such termination shall not affect Lessor's right to enforce the remedies
granted to Lessor in this Subsection 19(b); and
(4) Lessor may pursue any other remedy available at law or in equity.
(5) Lessor may in a commercially reasonable manner sell the Equipment at public
or private sale, without notice or may lease, otherwise dispose of all or keep
idle all or part of the Equipment; subject, however, to Lessor's obligation to
mitigate damages. The proceeds of any such sale, lease or other disposition, if
any, of the Equipment shall be applied as follows: FIRST, to Lessor's costs and
expenses incurred in taking, removing, holding, repairing and selling, leasing
or otherwise disposing of the Equipment including legal fees and costs; SECOND,
to pay to Lessor the Stipulated Loss Value to the extent not previously paid by
Lessee and all previously due but unpaid Rent; THIRD, to reimburse to Lessee
the Stipulated Loss Value to the extent previously paid by Lessee pursuant to
Subsection 19(b)(2); and FOURTH, any surplus to Lessor.
Notwithstanding repossession or any other action which Lessor may take, Lessee
shall be and remain liable for the full performance of all its obligations
under this Lease. No right or remedy of Lessor herein granted is exclusive of
any other right or remedy herein or by law or equity provided or permitted; but
each shall be cumulative of every other right or remedy given hereunder or now
or hereafter existing at law or in equity or by statute or otherwise, and may
be enforced concurrently or from time to time, and in any order.
(c) LESSOR'S EXPENSES. Lessee shall pay Lessor all reasonably documented costs
and expenses, including attorneys fees, incurred by Lessor in exercising any of
its rights or remedies hereunder or enforcing any of the terms, conditions, or
provisions hereof.
20. ASSIGNMENT.
(a) BY LESSEE. LESSEE SHALL KEEP THE LEASE AND THE EQUIPMENT FREE AND CLEAR OF
ALL LIENS AND ENCUMBRANCES OF WHATSOEVER KIND (EXCEPT THOSE CREATED BY OR
THROUGH LESSOR) AND LESSEE SHALL NOT ASSIGN, TRANSFER, SUBLEASE OR IN ANY WAY
TRANSFER OR DISPOSE OF ITS INTERESTS OR OBLIGATIONS UNDER THE LEASE OR IN THE
EQUIPMENT OTHER THAN TO AN ACQUIRER OF ALL, OR SUBSTANTIALLY ALL, OF LESSEE'S
ASSETS WHO AGREES TO BE BOUND BY THE TERM OF THE LEASE WITHOUT LESSOR'S PRIOR
WRITTEN CONSENT. NO ASSIGNMENT, TRANSFER, SUBLEASE OR OTHER DISPOSITION BY
LESSEE SHALL IN ANY MANNER WHATSOEVER RELIEVE LESSEE OF ANY OBLIGATION
HEREUNDER, AND LESSEE SHALL REMAIN PRIMARILY LIABLE TO PAY RENT AND PERFORM ALL
ITS OBLIGATIONS HEREUNDER.
(b) BY LESSOR. All rights of Lessor hereunder or to the Equipment may be sold,
assigned, pledged, mortgaged or otherwise transferred, either in whole or in
part, without notice to Lessee but always, however, subject to the rights of
Lessee under this Lease. If Lessor sells the Equipment or assigns this Lease or
the Rent due or to become due hereunder or any other interest herein, whether
as security for any of its indebtedness or otherwise, no breach or default by
Lessor hereunder or pursuant to any other agreement between Lessor and Lessee,
should there be one, shall excuse performance by Lessee of any provision
hereof. No such vendee or assignee (each an "Assignee") shall be obligated to
perform any duty, covenant or condition required to be performed by Lessor
under the terms of this Lease; except that Lessor covenants with Lessee not to
transfer any interest in the Lease or the Equipment to any Assignee unless such
Assignee agrees in writing not to disturb Lessee's quiet enjoyment of the
Equipment while no Event of Default has occurred. Lessee acknowledges that any
such sale, assignment or grant of security interest shall not materially change
Lessee's obligations under this Lease nor materially increase the burdens
imposed upon Lessee. Lessee agrees and acknowledges that any such Assignee
shall rely on and be entitled to the benefit of the provisions of this Lease.
Lessee agrees to acknowledge any such assignment within five (5) days of
receipt of written request to do so in the form requested by Lessor. LESSEE'S
OBLIGATION TO PAY RENT IS ABSOLUTE AND UNCONDITIONAL AND LESSEE SHALL NOT
ASSERT AGAINST ANY ASSIGNEE ANY DEFENSE, COUNTERCLAIM OR SETOFF THAT THE LESSEE
MAY HAVE AGAINST THE LESSOR OR ANY OTHER PARTY, AND LESSEE ACKNOWLEDGES THAT
ANY ASSIGNEE IS RELYING ON THE FOREGOING. NOTHING HEREIN SHALL PREVENT LESSEE
FROM ASSERTING ANY DEFENSE OR CLAIM DIRECTLY AGAINST LESSOR FOR ACTUAL DAMAGES.
21. OWNERSHIP. Lessee shall have no right, title or interest in the Equipment
except as expressly set forth in the Lease, which interest is a leasehold
interest. Lessor and Lessee agree, and Lessee represents for the benefit of
Lessor and its Assignees, that the Lease is intended to be a "finance lease"
and not a "lease intended as security" as those terms are used in Article 2A of
the UCC. Lessor may upon notice to Lessee advise Lessee that certain Items are
leased to Lessor and provided to Lessee under the Lease as a sublease.
<PAGE> 5
Lessee agrees to execute and deliver such acknowledgments and assignments in
connection with such Lease as are reasonably required. If, at any time during
the Lease Term, Lessor's right to lease the Equipment expires, Lessor may remove
the Equipment from Lessee's premises and immediately provide identical
substitute Equipment. All expenses of such substitution shall be borne by
Lessor.
22. PERSONAL PROPERTY. The Equipment is, and shall at all times be and remain,
personal property, notwithstanding that the Equipment or any Item or part
thereof may now be, or hereafter become, in any manner affixed or attached to
any real property. If requested by Lessor prior to or at any time during the
Lease Term, Lessee will obtain and deliver to Lessor waivers of interest or
liens in recordable form and satisfactory to Lessor, from all persons claiming
any interest in the real property on which such Item or Equipment is installed
or located.
23. NET LEASE; OFFSET. This lease is a net lease, it being the intention of the
parties that all costs, expenses and liabilities associated with the Equipment
or its lease shall be the obligations of Lessee. Except in the event of a
Casualty Loss and payment of Stipulated Loss Value pursuant to Section 11,
Lessee shall not be entitled, and hereby waives any right it may have, to any
abatement of Rent or other payments due hereunder or any reduction thereof
under any circumstances or for any reason whatsoever.
24. FINANCIAL AND OTHER COVENANTS.
(a) Lessee hereby represents, warrants and agrees with Lessor and any Assignee
as follows:
(1) Lessee is a legal entity, duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization and in each
jurisdiction where the Equipment will be located and has adequate power to
enter into and perform the Master Lease and each Schedule.
(2) The Master Lease and each Schedule have been duly authorized, executed and
delivered by Lessee, and constitute valid, legal and binding agreements of
Lessee, enforceable in accordance with their terms.
(3) The entering into and performance of the Master Lease and each Schedule
does not and will not violate any judgment, order, law or regulation applicable
to Lessee or any provision of Lessee's Articles of Incorporation or Bylaws, or
result in any breach of, or constitute a default under, or result in the
creation of any lien, charge, security interest or other encumbrance upon any
assets of Lessee or on the Equipment pursuant to any instrument to which Lessee
is a party or by which it or its assets may be bound.
(4) There are no actions, suits or proceedings pending, or to the knowledge of
Lessee threatened, before any court, administrative agency, arbitrator or
governmental body which will, if determined adversely to Lessee, materially
adversely affect its ability to perform its obligations under this Master
Lease, any Schedule or any related agreement to which it is a party.
(5) No consent or approval of, giving of notice to, registration with, or
taking of any other action in respect of any state, federal or other
governmental authority or agency is required with respect to the execution,
delivery and performance by Lessee of the Master Lease or any Schedule, or, if
any such approval, notice, registration or action is required, it has been
obtained.
(6)(i) Within forty-five (45) days after the end of each fiscal quarter, Lessee
shall provide Lessor with a balance sheet and an income statement as of the end
of such quarter prepared by Lessee's own accounting staff in accordance with
generally accepted accounting principles and practices consistently applied
("GAAP"); and within ninety (90) days after the end of each fiscal year, Lessee
shall provide Lessor with a balance sheet, an income statement, a statement of
cash flows and a statement of stockholders equity as of the end of such fiscal
year prepared in accordance with GAAP and audited by an independent accounting
firm reasonably acceptable to Lessor. (ii) Lessor acknowledges that any
non-public information furnished by Lessee to Lessor under this paragraph (6)
or any other non-public information concerning Lessee's business disclosed by
Lessee to Lessor during the Lease Term is confidential and proprietary
information of Lessee ("Confidential Information"). Lessor will not disclose
the Confidential Information to any third party or use the Confidential
Information other than for purposes of evaluating this Lease without Lessee's
prior written consent; provided, however that Lessor may disclose the
Confidential Information to its assignee, or to employees or legal and
financial representatives of its assignee or its assignee's assignee or
potential assignee (collectively, the "Assignee") who are bound to observe the
provisions of this paragraph 6 and provided that such individuals or entities
only use the Confidential Information for the purposes of evaluating this Lease
and do not otherwise use or disclose the Confidential Information. If Lessor or
Assignee are compelled to disclose any Confidential Information either by
judicial or administrative process, or in the reasonable opinion of its
counsel, by other requirements of law, Lessor or Assignee shall, to the extent
reasonably practical, notify Lessee in advance of such disclosure.
Notwithstanding anything to the contrary set forth herein, any Confidential
Information in the public domain through no fault of Lessor or Assignee later
acquired by Lessor or Assignee from other sources not in violation of any
similar confidentiality agreement, need not be held in confidence as provided
hereunder.
(b) Upon Lessor's request, Lessee shall, with respect to each Lease, deliver to
Lessor (i) a certificate of a secretarial officer of Lessee certifying the
bylaw, resolution (specific or general) or corporate action authorizing the
transaction contemplated in the Lease; (ii) an incumbency certificate
certifying that the person signing this Master Lease and the Schedule holds the
office the person purports to hold and has authority to sign on behalf of
Lessee; (iii) an opinion of counsel with respect to the representations in this
Section 24; (iv) an agreement with Lessor's Assignee with regard to any
assignment as referred to in Subsection 20(b); (v) purchase documents if Lessee
has sold or assigned its interest in the Equipment to Lessor; (vi) an insurance
certificate evidencing the insurance provided by Lessee pursuant to Section 12;
and (vii) Certificate of Acceptance(s) duly executed by Lessee.
(c) The foregoing representations, warranties and agreements shall continue
throughout the Lease Term and shall, upon request of Lessor, be made to any
Assignee.
25. LESSEE CHANGE OF OWNERSHIP; FINANCIAL CONDITION.
During the Lease Term should controlling interest in Lessee be acquired by
another company, or should a substantial portion of Lessee's assets be acquired
by another entity, such other company or entity shall agree in writing to be
bound by the terms and conditions of this Lease and any existing Guaranty's of
Lessee's affiliates. This section 25 does not apply to public offering of
shares in Lessee.
26. ADDITIONAL DOCUMENTS.
(a) NOTICE OR PERFECTION OF INTEREST. Lessee shall execute and deliver to
Lessor such documents as Lessor shall deem necessary or desirable to protect
Lessor's or Assignee's title to or interest in the Equipment and the Lease
including, without limitation, UCC financing statements, which shall be filed
at Lessee's expense.
(b) OTHER DOCUMENTS. Lessee shall execute and deliver to Lessor, duly
acknowledged and in recordable form if so requested, any other document
reasonably requested by Lessor.
<PAGE> 6
27. NON-WAIVER. No covenant or condition of this Lease can be waived except by
written consent of Lessor. The waiver by Lessor of any breach of Lessee shall
not be a waiver of any other breach of the same or any other obligation. The
subsequent acceptance of Rent by Lessor shall not be deemed a waiver of any
such prior existing breach at the time of acceptance of such Rent payment.
28. NOTICES. Any notice, consent or request required or permitted hereunder
shall be in writing and will be conclusively deemed to have been received by a
party hereto on the day it is delivered to such party at the address set forth
above (or at such other address as such party specifies to the other in
writing) and shall be sent by registered mail, return receipt requested,
overnight courier service, or facsimile (with telephonic verification of
receipt).
29. SEVERABILITY. Any provision of the Lease prohibited by or unlawful or
unenforceable under any applicable law or any jurisdiction shall be ineffective
as to such jurisdiction without invalidating the remaining provisions of the
Lease.
30. SECURITY INTEREST. Each Schedule shall be executed in three counterparts,
consecutively numbered. To the extent, if any, that a Schedule constitutes
chattel paper (as such term is defined in the UCC) no security interest may be
created through the transfer or possession of any counterpart other than that
designated "Counterpart No. 1". The Master Lease, in the form of a photocopy, is
incorporated into the Schedule and is not chattel paper by itself.
31. SUSPENSION OF OBLIGATIONS OF LESSOR. Prior to delivery of any Item
hereunder, the obligations of Lessor will be suspended to the extent that it is
hindered or prevented from complying therewith because of labor disturbances,
including but not limited to, strikes and lockouts, or acts of God, fires,
storms, accidents, failure of the manufacturer to deliver any Item,
governmental regulations or interference or any cause whatsoever not within the
exclusive control of Lessor.
32. NON-SPECIFIED FEATURES. If Equipment delivered pursuant to any Lease
contains any feature not specified therein, Lessee grants Lessor, at Lessor's
option and expense, the right to remove or deactivate any such feature. Such
removal or deactivation shall be performed by the manufacturer or other
acceptable party at the request of Lessor at a time convenient to Lessee,
provided that Lessee shall not unreasonably delay the removal or deactivation
of such feature.
33. MISCELLANEOUS.
(a) Lessor and Lessee acknowledge that there are no agreements or
understandings, written or oral, between Lessor and Lessee with respect to the
Equipment, other than as set forth in the Lease, and the Lease contains the
entire agreement between Lessor and Lessee with respect thereto. NEITHER THE
MASTER LEASE NOR ANY SCHEDULE MAY BE ALTERED, MODIFIED, TERMINATED OR
DISCHARGED EXCEPT BY A WRITING SIGNED BY BOTH PARTIES, AND AGREEMENT TO THE
FOREGOING IS EVIDENCED BY THE FOLLOWING INITIALS:
Lessor: [ILLEGIBLE] Lessee: [ILLEGIBLE]
------------- -------------
(b) If there is more than one Lessee named in this Lease, the liability of each
shall be joint and several.
(c) Section headings are for convenience only and shall not be construed as
part of the Lease.
(d) Time is of the essence of this Lease and each and all of its provisions.
(e) This Lease shall be governed by the laws of the State of California without
giving effect to the principles of conflict of laws, and shall be deemed to
have been made in California.
NO RIGHTS OR REMEDIES REFERRED TO IN ARTICLE 2A OF THE UCC WILL BE CONFERRED ON
LESSOR OR LESSEE UNLESS EXPRESSLY GRANTED IN THIS MASTER LEASE OR THE SCHEDULE.
(f) Lessee's obligations and liabilities hereunder shall not be affected by,
and shall survive, the expiration or earlier termination of this Lease.
(g) This Lease shall inure to the benefit of and shall be binding upon Lessee
and Lessor and their respective successors and assigns.
IN WITNESS WHEREOF, THE PARTIES HAVE EXECUTED THIS MASTER LEASE AS OF THE DATE
FIRST ABOVE WRITTEN.
LESSOR: INSIGHT INVESTMENT, CORP. LESSEE: VERIO INC.
By: /s/ JOHN FORD By: /s/ PETER B. FRITZINGER
-------------------------- ------------------------------
Name: JOHN FORD Name: Peter B. Fritzinger
-------------------------- ------------------------------
Title: PRESIDENT Title: CFO
-------------------------- ------------------------------
<PAGE> 1
EXHIBIT 10.18
MASTER LEASE AGREEMENT
No.
---
This Master Lease Agreement (the "MLA") is entered into by and between
Cisco Capital Systems Corporation ("Lessor"), having its principal place of
business at 3535 Garrett Drive, Santa Clara, CA 95054 and Verio, Inc.
("Lessee"), having its principal place of business at 9250 East Costilla
Avenue, Suite 400, Englewood, CO 80112.
1. LEASE AGREEMENT. Lessor agrees to lease to Lessee, and Lessee agrees
to lease from Lessor, the equipment (the "Equipment") referenced in each of the
Schedules (the "Schedule" or "Schedules") which incorporate this MLA therein
(the "Lease"). The Equipment covered by this MLA and each Schedule includes
software and related rights only to the extent that such rights are
specifically licensed to Lessee by Cisco Systems, Inc. ("Cisco") pursuant to
the Domestic Internet Service Provider Agreement between Cisco and Lessee.
2. TERM. Each Lease shall be effective upon the execution of the MLA and
the related Schedule by the Lessor and the Lessee. The lease term (the "Lease
Term") of the Equipment referenced in each of the Schedules shall commence on
the rent commencement date specified in each Schedule (the "Rent Commencement
Date"). The Rent Commencement Date shall be the date 30 days from the date that
the Equipment is shipped by the supplier (the "Ship Date") as evidenced by a
shipping document provided by the supplier related to the Equipment (the
"Shipping Document"). Lessor will provide Lessee with a copy of the Shipping
Document evidencing the Ship Date.
3. RENT. The rent (the "Rent") for the Equipment referenced in any
Schedule shall be as stated in such Schedule and shall be payable according to
the provisions of such Schedule. If any amount payable under a Schedule is not
received by Lessor within 10 days of the due date, Lessee agrees to pay an
Overdue Charge, as defined herein, with respect to such amount.
4. SELECTION AND ASSIGNMENT. Lessee will select the type, quantity and
Supplier of each item of Equipment designated in a Schedule, and Lessee hereby
assigns to Lessor all of its right, title and interest in and to the related
equipment purchase agreement, a copy of which has been provided to Lessor by
Lessee (the "Agreement"). The Agreement may be amended with the consent of
Lessor. Any such assignment with respect to Equipment shall become binding upon
Lessor when Lessor and Lessee have entered into a Lease with respect to such
Equipment and as of the Rent Commencement Date referenced in such Lease. Upon
such an assignment becoming effective, Lessor shall be obligated to purchase
the Equipment from the Supplier in accordance with the provisions of the
Agreement. It is expressly agreed that Lessee shall at all times remain liable
to Supplier under the Agreement to perform all duties and obligations of Lessee
thereunder, except for the obligation to purchase the Equipment to the extent
expressly assumed by the Lessor hereunder, and that the Lessee shall be
entitled to the same rights of the purchaser of the Equipment under the
Agreement, except such right, title and interest in the Equipment retained
exclusively by the Lessor as owner of the Equipment. Lessor shall have no
liability for a Supplier's failure to meet the terms and conditions of the
Agreement.
5. DELIVERY AND INSTALLATION. Lessee shall be responsible for payment of
all transportation, packing, installation, testing and other charges associated
with the delivery, installation or use of any Equipment which are not included
in the Agreement with respect to such Equipment.
6. WARRANTIES. SUBJECT TO THE DOMESTIC INTERNET SERVICE PROVIDER
AGREEMENT BETWEEN CISCO AND LESSEE AND THE LEASE ASSIGNMENT OF PURCHASE ORDER
BETWEEN CISCO, LESSEE AND LESSOR, LESSOR MAKES NO REPRESENTATION OR WARRANTY OF
ANY KIND, EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE EQUIPMENT, ITS
MERCHANTABILITY, OR ITS FITNESS FOR A PARTICULAR PURPOSE. LESSOR SHALL NOT BE
LIABLE TO LESSEE OR ANY OTHER PERSON FOR DIRECT, INDIRECT, SPECIAL, INCIDENTAL
OR CONSEQUENTIAL DAMAGES ARISING FROM LESSEE'S USE OF THE EQUIPMENT, OR FOR
DAMAGES BASED ON STRICT OR ABSOLUTE TORT LIABILITY OR LESSOR'S PASSIVE
NEGLIGENCE. LESSEE HEREBY ACKNOWLEDGES THAT ANY MANUFACTURER'S OR SUPPLIER'S
WARRANTIES WITH RESPECT TO THE EQUIPMENT ARE FOR THE BENEFIT OF BOTH LESSOR AND
LESSEE. NOTWITHSTANDING THE FOREGOING, LESSEE'S OBLIGATIONS TO PAY EACH RENT
PAYMENT DUE, OR OTHERWISE PERFORM ITS OBLIGATIONS, UNDER THIS LEASE ARE
ABSOLUTE AND UNCONDITIONAL.
7. TITLE TO AND LOCATION OF EQUIPMENT. Lessor shall retain title to each
item of Equipment. Lessee, at its expense, shall protect Lessor's title and
keep the Equipment free from all claims, liens, encumbrances and legal
processes. The Equipment is personal property and is not to be regarded as part
of the real estate on which it may be situated. If requested by Lessor, Lessee
will, at Lessee's expense, furnish a landlord or mortgagee waiver with respect
to the Equipment. The Equipment shall not be removed from the location
specified in the Schedule without the written consent of Lessor. Lessee shall,
upon Lessor's request, affix and maintain plates, tags or other identifying
labels, showing Lessor's ownership of the Equipment in a prominent position on
the Equipment.
<PAGE> 2
8. USE OF EQUIPMENT, INSPECTION AND REPORTS. The use of the Equipment by
Lessee shall conform with all applicable laws, insurance policies, and
warranties of the manufacturer or Supplier of the Equipment, together with
specifications supplied to Lessee by the manufacturer or Supplier of the
Equipment. Lessor shall have the right to inspect the Equipment at the premises
where the Equipment is located. Lessee shall notify Lessor promptly of any
claims, liens, encumbrances or legal processes with respect to the Equipment.
During the term of this MLA, Lessee shall keep the Equipment free from all
liens, security interests and encumbrances, except to the extent approved in
writing in advance by Lessor.
9. FURTHER ASSURANCES. Lessee shall execute and deliver to Lessor such
instruments as Lessor deems necessary for the confirmation of this Lease and
Lessor's rights hereunder. Lessor is authorized to file financing statements
signed only by the Lessor in accordance with the Uniform Commercial Code, or
financing statements signed by Lessor as Lessee's attorney-in-fact. Any such
filing with respect to the Equipment leased pursuant to a true lease shall not
be deemed evidence of any intent to create a security interest under the
Uniform Commercial Code.
10. MAINTENANCE AND REPAIRS. Lessee shall, at its expense, maintain each
item of Equipment in good condition, normal wear and tear excepted. Lessee
shall not make any addition, alteration, or attachment to the Equipment without
Lessor's prior written consent. Lessee shall make no repair, addition,
alteration or attachment to the Equipment which interferes with the normal
operation or maintenance thereof creates a safety hazard, or might result in
the creation of a mechanic's or materialman's lien.
11. LESSOR'S PERFORMANCE OF LESSEE'S OBLIGATIONS. If Lessee fails to
perform any of its obligations under a Lease, Lessor may perform any act or
make any payment which Lessor deems necessary for the maintenance and
preservation of the Equipment subject thereto and Lessor's title thereto. All
sums so paid by Lessor (together with all related Overdue Charges), and
reasonable attorneys' fees incurred by Lessor in connection therewith, shall be
additional rent payable to Lessor on demand. The performance of any such act or
the making of any such payment by Lessor shall not be deemed a waiver or
release of any obligation or default on the part of Lessee.
12. INDEMNIFICATION. Lessee assumes liability for, and hereby agrees to
indemnify, protect and hold harmless, Lessor, and its agents, employees,
officers, directors, partners and successors and assigns, from and against, all
liabilities, obligations, losses, damages, injuries, claims, demands, penalties,
actions, costs and expenses, including, without limitation, reasonable
attorneys' fees, of whatever kind and nature, in contract or in tort, arising
out of the use, condition, operation, ownership, selection, delivery, leasing
or return of any item of Equipment, regardless of when, how and by whom
operated, or any failure on the part of Lessee to perform or comply with any of
its obligations under a Lease, excluding, however, any of the foregoing which
result from the gross negligence or willful misconduct of Lessor. Such
indemnities and assumptions of liabilities and obligations shall continue in
full force and effect, notwithstanding the expiration or other termination of
such Lease. Nothing contained in any Lease shall authorize Lessee to operate
the Equipment subject thereto so as to incur or impose any liability on, or
obligation for or on behalf of, Lessor.
13. NO OFF-SET. All Rents shall be paid by Lessee irrespective of any
off-set, counterclaim, recoupment, defense or other right which Lessee may have
against Lessor, the manufacturer or Supplier of the Equipment or any other
party.
14. ASSIGNMENT BY LESSEE. Lessee shall not, without Lessor's prior
written consent, (a) sell, assign, transfer, pledge, hypothecate, or otherwise
dispose of, encumber or suffer to exist a lien upon or against, any of the
Equipment or any Lease or any interest therein, by operation of law or
otherwise (provided that the foregoing shall not apply in connection with the
sale or disposition, by means of merger or otherwise, of all or substantially
all of the assets of Lessee), or (b) sublease or lend any of the Equipment or
permit any of the Equipment to be used by anyone other than Lessee other than
to an affiliate of Lessee.
15. ASSIGNMENT BY LESSOR. Lessor may assign, sell or encumber its
interest in any of the Equipment and any Lease. Upon Lessor's written consent,
Lessee shall pay directly to the assignee of any such interest all Rent and
other sums due under an assigned Lease. THE RIGHTS OF ANY SUCH ASSIGNEE SHALL
NOT BE SUBJECT TO ANY ABATEMENT, DEDUCTION, OFF-SET, COUNTERCLAIM, RECOUPMENT,
DEFENSE OR OTHER RIGHT WHICH LESSEE MAY HAVE AGAINST LESSOR OR ANY OTHER PERSON
OR ENTITY. Notwithstanding the foregoing, any such assignment (a) shall be
subject to Lessee's right to possess and use the Equipment subject to a lease
so long as Lessee is not in default thereunder, and (b) shall not release any
of Lessor's obligations hereunder.
16. RETURN OF EQUIPMENT. Unless Lessee has exercised its option, if any,
to renew a lease or purchase the Equipment subject thereto, upon expiration of
the then current Lease Term of such Lease, Lessee shall, at its expense, cause
such Equipment to be removed, disassembled, and placed in the same condition as
when delivered to Lessee (reasonable wear and tear excepted) and properly crate
such Equipment for shipment and deliver it to a common carrier designated by
Lessor. Lessee will ship such Equipment, F.O.B. destination, to any address
specified in writing by Lessor within the continental United States. All
additions, attachments, alterations and repairs made or placed upon any of the
Equipment shall become part of such Equipment and shall be the property of
Lessor, unless Lessor requires that Lessee remove such additions, attachments,
alterations, and repairs prior to returning such Equipment to Lessor.
EVENTS OF DEFAULT. The occurrence of any of the following shall be deemed to
constitute an Event of Default hereunder: (a) Lessee fails to pay Rent, any
other amount it is obligated to pay under a Lease or any other amount it is
obligated to pay to Lessor and does not cure such
-2-
<PAGE> 3
failure within 10 days of such amount becoming due; (b) Lessee fails to perform
or observe any obligation or covenant to be performed or observed by Lessee
hereunder or under any Schedule, including, without limitation, supplying all
requested documentation, and does not cure such failure within 10 days of
receiving written notice thereof from Lessor; (c) any warranty, representation
or statement made or furnished to Lessor by or on behalf of Lessee is proven to
have been false in any material respect when made or furnished; (d) the
attempted sale or encumbrance by Lessee of the Equipment, or the making of any
levy, seizure or attachment thereof or thereon; or (e) the dissolution,
termination of existence, discontinuance of business, insolvency, or
appointment of a receiver of any part of the property of Lessee, assignment by
Lessee for the benefit of creditors, the commencement of proceedings under any
bankruptcy, reorganization or arrangement laws by or against Lessee, or any
other act of bankruptcy on the part of Lessee, or, (f) Lessee defaults in the
performance of its obligations under any guaranty in favor of Lessor of the
obligations of any affiliate, person or entity party to an agreement or
schedule now or hereafter made with Lessor.
17. REMEDIES OF LESSOR. At any time after the occurrence of any Event of
Default, Lessor may exercise one or more of the following remedies: (a) Lessor
may terminate any or all of the Leases with respect to any or all items of
Equipment subject thereto; (b) Lessor may recover from Lessee all Rent and
other amounts then due and to become due under any or all of the Leases; (c)
Lessor may take possession of any or all items of Equipment, wherever the same
may be located, without demand or notice, without any court order or other
process of law and without liability to Lessee for any damages occasioned by
such taking of possession, and any such taking of possession shall not
constitute a termination of any Lease; (d) Lessor may demand that Lessee return
any or all items of Equipment to Lessor in accordance with Paragraph 16; and
(e) Lessor may pursue any other remedy available at law or in equity,
including, without limitation, seeking damages, specific performance or an
injunction.
Upon repossession or return of any item of the Equipment, Lessor shall
sell, lease or otherwise dispose of such item in a commercially reasonable
manner, with or without notice and on public or private bid, and apply the net
proceeds thereof (after deducting the estimated fair market value of such item
at the expiration of the term of the applicable Lease, in the case of a sale,
or the rents due for any period beyond the scheduled expiration of such Lease,
in the case of any subsequent lease of such item, and all expenses, including,
without limitation, reasonable attorneys' fees, incurred in connection
therewith) towards the Rent and other amounts due under such Lease, with any
excess net proceeds to be retained by Lessor.
Each of the remedies under this Lease shall be cumulative, and not
exclusive, and in addition to any other remedy referred to herein or otherwise
available to Lessor in law or in equity. Any repossession or subsequent sale or
lease by Lessor of any item of Equipment shall not bar an action for a
deficiency as herein provided, and the bringing of an action or the entry of
judgment against Lessee shall not bar Lessor's right to repossess any or all
items of Equipment.
18. CREDIT AND FINANCIAL INFORMATION. Within 90 days of the close of
each of Lessee's fiscal years, Lessee shall deliver to Lessor a copy of
Lessee's annual report, if any, and an audited balance sheet and profit and
loss statement with respect to such year. If audited financial statements of
Lessee for such year are not prepared, Lessee may provide financial statements
certified by an officer of Lessee. At Lessor's request, Lessee shall deliver to
Lessor a balance sheet and profit and loss statement for any of its fiscal
quarters, certified by an officer of Lessee.
19. INSURANCE. Risk of loss shall pass to Lessee upon delivery of the
applicable Equipment to the carrier or Lessee's representative at the FCA
point. As of the date that risk of loss for the Equipment passes from the
Supplier to the Lessee under the terms of the Agreement, Lessee shall obtain
and maintain through the end of the Lease Term of each Lease (and any renewal
or extension thereof), at its own expense, property damage and personal
liability insurance and insurance against loss or damage to the Equipment,
including, without limitation, loss by fire (with extended coverage), theft and
such other risks of loss as are customarily insured against with respect to the
types of Equipment leased hereunder and by the types of businesses in which
such Equipment will be used by Lessee. Such insurance shall be in such amounts,
with such deductibles, in such form and with such insurers as shall be
satisfactory to Lessor; provided, however, that the amount of the insurance
against loss or damage to the Equipment shall not be less than the greater of
the replacement value of the Equipment, from time to time, or the original
purchase price of the Equipment. Each insurance policy shall name Lessee as an
insured and Lessor as an additional insured or loss payee, and shall contain a
clause requiring the insurer to give Lessor at least 30 days prior written
notice of any alteration in the terms of such policy or of the cancellation
thereof. Lessee shall furnish to Lessor a certificate of insurance or other
evidence satisfactory to Lessor that such insurance coverage is in effect;
provided, however, that Lessor shall be under no duty either to ascertain the
existence of or to examine such insurance policy or to advise Lessee in the
event such insurance coverage shall not comply with the requirements hereof.
Lessee shall give Lessor prompt notice of any damage to, or loss of, any of the
Equipment, or any part thereof, or any personal injury or property damage
occasioned by the use of any of the Equipment.
20. TAXES. Lessee hereby assumes liability for, and shall pay when due,
and, on a net after-tax basis, shall indemnify, protect and hold harmless
Lessor against all fees, taxes and governmental charges (including, without
limitation, interest and penalties) of any nature imposed on or in any way
relating to Lessor, Lessee, any item of Equipment or any Lease, except state
and local taxes on or measured by Lessor's net income (other than any such tax
which is in substitution for or relieves Lessee from the payment of taxes it
would otherwise be obligated to pay or reimburse to Lessor as herein provided)
and federal taxes on Lessor's net income. Lessee shall, at its expense, file
when due with the
-3-
<PAGE> 4
appropriate authorities any and all tax and similar returns, and reports
required to be filed with respect thereto, for which it has indemnified Lessor
hereunder or, if requested by Lessor, notify Lessor of all such requirements
and furnish Lessor with all information required for Lessor to effect such
filings. Any fees, taxes or other charges paid by Lessor upon failure of Lessee
to make such payments shall, at Lessor's option, become immediately due from
Lessee to Lessor and shall be subject to the Overdue Charge from the date paid
by Lessor until the date reimbursed by Lessee.
21. SEVERABILITY. If any provision of any Lease is held to be invalid by
a court of competent jurisdiction, such invalidity shall not affect the other
provisions of such Lease or any provision of any other Lease.
22. NOTICES. All notices hereunder shall be in writing and shall be
deemed given when sent by certified mail, postage prepaid, return receipt
requested, addressed to the party to which it is being sent at its address set
forth herein or to such other address as such party may designate in writing to
the other party.
23. AMENDMENTS, WAIVERS AND EXTENSIONS. This MLA and each Schedule and,
if applicable, the Lease Assignment of Purchase Order Agreement between Lessor,
Lessee and Cisco constitute the entire agreement between Lessor and Lessee with
respect to the lease of the Equipment subject to such Schedule, and supersede
all previous communications, understandings, and agreements, whether oral or
written, between the parties with respect to such subject matter. No provision
of any Lease may be changed, waived, amended or terminated except by a written
agreement, specifying such change, waiver, amendment or termination, signed by
both Lessee and Lessor, except that Lessor may insert, on the appropriate
schedule, the serial number of Equipment, after delivery of such Equipment, and
the Installation Date for the Equipment, after receiving a Certificate of
Installation with respect thereto. No waiver by Lessor of any Event of Default
shall be construed as a waiver of any future Event of Default or any other
Event of Default. At the expiration of the Lease Term with respect to a Lease,
upon notice given by Lessee at least ninety (90) days prior thereto, (a) such
Lease shall be renewed or the Equipment subject thereto shall be purchased
under the terms and conditions set forth herein for a term and rent amount or
purchase price, as the case may be, to be agreed upon, or (b) if no such
agreement is reached prior to the expiration of such Lease Term or such notice
specifies that Lessee intends to return the Equipment, then Lessee shall return
the Equipment to Lessor in the manner prescribed in Paragraph 16 of this MLA.
In the absence of Lessor's timely receipt of the notice contemplated by the
preceding sentence, the Lease shall be automatically extended, on a
month-to-month basis, until terminated (upon notice by either party given at
least ninety (90) days prior to the end of the month on which the termination
is to be effective) or until renewed or the Equipment subject thereto is
purchased by agreement of the parties. Unless otherwise agreed, Lessee shall
continue to pay Rent for each month following such Lease Term until the
Equipment subject to such Lease is returned pursuant to Paragraph 16 of this
MLA.
24. CONSTRUCTION. This MLA shall be governed by and construed in
accordance with the internal laws, but not the choice of laws provisions, of
the State of California. The titles of the sections of this MLA are for
convenience only and shall not define or limit any of the terms or provisions
hereof. Time is of the essence in each of the provisions hereof.
25. PARTIES. This MLA shall be binding upon, and inure to the benefit
of, the permitted assigns, representatives and successors of the Lessor and
Lessee. If there is more than one Lessee named in this MLA, the liability of
each shall be joint and several.
26. COUNTERPARTS. Each Lease may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
27. OVERDUE CHARGE. Overdue Charge shall mean an amount equal to 2% per
month of any payment under a Lease which is past due, including, without
limitation, any amounts not included in any payment of Rent hereunder, or the
highest charge permitted by law, whichever is lower.
The person executing this MLA on behalf of Lessee hereby certifies that he or
she has read, and is duly authorized to execute, this MLA.
Accepted by:
LESSOR: Cisco Systems Capital LESSEE: Verio, Inc.
-------------------------- --------------------------
BY: /s/ Sam Zaidins BY: /s/ PETER B. FRITZINGER
------------------------------- -------------------------------
NAME: Sam Zaidins NAME: Peter B. Fritzinger
----------------------------- -----------------------------
Print Print
TITLE: Mgr, Operation & Customer Service TITLE: Chief Financial Officer
---------------------------- ----------------------------
DATE: January 5, 1998 DATE: Oct. 27, 1997
---------------------------- ----------------------------
-4-
<PAGE> 1
Exhibit 21.1
List of Subsidiaries of the Registrant
as of December 31, 1997
Name State of Organization Doing Business As
- ------- --------------------- -----------------
Aimnet Corporation California --
Clark Internet Services, Inc. Maryland --
Compute Intensive Inc. California Network Intensive
Global Enterprise Services, Inc. Colorado Verio Northeast
Global Internet Network
Services, Inc. Nebraska --
Verio Web Hosting, Inc. Utah i-Server
Monumental Network Systems, Inc. Virginia --
Verio-Pennsylvania, Inc. Colorado PREPnet
Verio-San Diego, Inc. Colorado ATMnet
NorthWestNet, Inc. Washington --
On-Ramp Technologies, Inc. Texas --
<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.
KPMG Peat Marwick LLP
Denver, Colorado
February 26, 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.
KPMG Peat Marwick LLP
Seattle, Washington
February 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 93,601
<SECURITIES> 0
<RECEIVABLES> 9,533
<ALLOWANCES> 1,233
<INVENTORY> 0
<CURRENT-ASSETS> 105,822
<PP&E> 35,432
<DEPRECIATION> 7,219
<TOTAL-ASSETS> 246,471
<CURRENT-LIABILITIES> 31,137
<BONDS> 142,321
97,249
10,200
<COMMON> 1
<OTHER-SE> 14,272
<TOTAL-LIABILITY-AND-EQUITY> 246,471
<SALES> 35,692
<TOTAL-REVENUES> 35,692
<CGS> 15,974
<TOTAL-COSTS> 15,974
<OTHER-EXPENSES> 60,007
<LOSS-PROVISION> 1,116
<INTEREST-EXPENSE> 11,826
<INCOME-PRETAX> 46,329
<INCOME-TAX> 0
<INCOME-CONTINUING> 46,329
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46,329
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
