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FILED PURSUANT TO RULE 424(b)(4)
REGISTRATION NO. 333-31184
PROSPECTUS
MAY 16, 2000
VERIO INC.
EXCHANGE OFFER FOR ALL OUTSTANDING 10 5/8% SENIOR NOTES DUE 2009
Verio will receive no proceeds from the exchange offer.
TERMS OF EXCHANGE OFFER
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o EXCHANGE OFFER
We will exchange old notes for new notes.
o EXCHANGE OFFER EXPIRATION
June 14, 2000 at 5:00 p.m., New York City time.
o OLD NOTES
Verio issued and sold $400,000,000 10 5/8% Senior Notes due 2009 on
November 19, 1999.
If you tender your old notes in the exchange offer, interest will cease
to accrue before your new notes are issued. If you do not tender in the
exchange offer, your old notes will continue to be subject to the same terms
and restrictions except that we will not be required to register your old
notes under the Securities Act.
o VERIO
8005 South Chester Street, Suite 200, Englewood, Colorado 80112. (303)
645-1900.
o NEW NOTES
Identical to the old notes except that the new notes will be registered
under the Securities Act.
- Maturity: November 15, 2009.
- Interest: Paid every six months on May 15 and November 15, starting
May 15, 2000.
- Redemption: Any time on or after November 15, 2004.
- Ranking: The new notes will be general unsecured obligations, ranking:
(1) equally with all our unsecured unsubordinated liabilities;
(2) senior to all our unsecured subordinated liabilities;
(3) junior to all our secured liabilities and liabilities of our
subsidiaries.
INVESTMENT IN THE NOTES TO BE ISSUED IN THE EXCHANGE OFFER INVOLVES RISKS.
SEE THE RISK FACTORS SECTION BEGINNING ON PAGE 13.
THIS PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL ARE FIRST BEING
MAILED TO HOLDERS OF OUTSTANDING NOTES ON OR ABOUT MAY 16, 2000.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE NOTES OR PASSED UPON THE ADEQUACY
OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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TABLE OF CONTENTS
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PAGE
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Where You Can Find More Information About Us................ 3
Forward-Looking Statements.................................. 4
Prospectus Summary.......................................... 5
Ratio of Earnings to Fixed Charges.......................... 12
Risk Factors................................................ 13
The Exchange Offer.......................................... 29
Use of Proceeds............................................. 36
Dividend Policy............................................. 36
Capitalization.............................................. 37
Description of the Notes.................................... 38
Book-Entry; Delivery and Form............................... 62
Material Federal Income Tax Considerations.................. 64
Plan of Distribution........................................ 67
Legal Matters............................................... 68
Experts..................................................... 68
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
ANY OTHER INFORMATION. THE SECURITIES OFFERED IN THIS PROSPECTUS MAY ONLY BE
OFFERED IN STATES WHERE THE OFFER IS PERMITTED, AND WE AND THE SELLING
STOCKHOLDERS ARE NOT MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE
OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATES ON THE FRONT OF THOSE
DOCUMENTS.
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WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We have filed with the Securities and Exchange Commission, or the SEC, a
registration statement on Form S-4 under the Securities Act of 1933. This
prospectus does not contain all of the information in the registration
statement. We have omitted from this prospectus some parts of the registration
statement, as permitted by the rules and regulations of the SEC. This prospectus
provides you only with a general description of the notes.
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may inspect and copy the registration statement,
including exhibits, and any reports, statements or other information that we
file at the SEC's public reference rooms at 450 Fifth Street, N.W., Washington,
D.C. 20549. You can call the SEC at 1-800-SEC-0330 for further information about
the public reference rooms. In addition, the SEC maintains an Internet site
(http://www.sec.gov) that contains reports, proxy and information statements,
and other information regarding issuers that file electronically with the SEC.
Our common stock is quoted on The Nasdaq National Market. Reports, proxy and
information statements and other information concerning us may be inspected at
The Nasdaq Stock Market, Reports Section, at 1735 K Street, N.W., Washington,
D.C. 20006.
The SEC allows us to "incorporate by reference" information into this
prospectus and any subsequent prospectus supplement, which means that we can
disclose important information to you by referring you to another document filed
separately with the SEC. This prospectus incorporates by reference documents
which are not presented in this prospectus or delivered to you with it. The
information incorporated by reference is an important part of this prospectus.
Information that we file subsequently with the SEC will automatically update
this prospectus. We incorporate by reference the documents listed below and
amendments to them. These documents and their amendments were previously filed
with the SEC. These documents contain important information about us and our
finances. The information in some of these documents was provided prior to our
two-for-one stock split completed on August 20, 1999. Accordingly, all share
numbers and operative share price information in these documents, where
appropriate, should be adjusted to give effect to the stock split.
(i) Our annual report on Form 10-K for our fiscal year ended December
31, 1999, filed with the SEC on March 24, 2000, as amended by Amendment No.
1 thereto, filed with the SEC on Form 10-K/A on March 27, 2000. This report
contains our audited consolidated balance sheets as of December 31, 1999
and 1998 and the related consolidated statements of operations and
comprehensive loss, stockholders' equity (deficit), and cash flows for the
years ended December 31, 1997, 1998 and 1999;
(ii) Our current report on Form 8-K dated February 28, 2000;
(iii) Our current report on Form 8-K dated March 1, 2000;
(iv) Our current report on Form 8-K dated May 1, 2000;
(v) Our current report on Form 8-K dated May 8, 2000;
(vi) Our quarterly report on Form 10-Q dated May 10, 2000; and
(vii) The following sections contained in our registration statement
on Form S-4 (registration number 333-70727) dated January 15, 1999, as
amended: "Management" and "Certain Transactions."
We are also incorporating by reference in this prospectus all reports and
other documents that we file pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act of 1934, as amended, after the date of this prospectus and
prior to the termination of this exchange offer. These reports and documents
will be incorporated by reference in and considered to be a part of this
prospectus as of the date of filing the reports and documents.
Upon request, we will provide without charge to each person to whom a copy
of this prospectus is delivered, including any beneficial owner, a copy of the
information that has been or may be incorporated by reference in this
prospectus, other than exhibits to the relevant documents. We will send exhibits
to these documents to you for a reasonable fee. Direct any request for copies to
the office of the Secretary, at our
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corporate headquarters, located at 8005 South Chester Street, Suite 200,
Englewood, Colorado 80112 (telephone number (303) 645-1900).
Any statement contained in a document which is incorporated by reference in
this prospectus will be modified or superseded for purposes of this prospectus
to the extent that a statement contained in this prospectus or incorporated in
this prospectus or in any document that we file after the date of this
prospectus that also is incorporated by reference in this prospectus modifies or
supersedes the prior statement. Any modified or superseded statement shall not
be deemed, except as so modified or superseded, to constitute a part of this
prospectus. Subject to the foregoing, all information appearing in this
prospectus is qualified in its entirety by the information appearing in the
documents incorporated by reference in this prospectus.
FORWARD-LOOKING STATEMENTS
Except for the historical information contained in this prospectus, the
matters discussed in this prospectus, or otherwise incorporated by reference
into this prospectus are "forward-looking statements," as such term is defined
in the Private Securities Litigation Reform Act of 1995. These statements can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy that involve risks and uncertainties. The safe harbor provisions of the
Exchange Act and the Securities Act, apply to forward-looking statements made by
Verio. These forward-looking statements involve risks and uncertainties,
including those identified within "Risk Factors" beginning on page 13 and
elsewhere in, or incorporated by reference into, this prospectus. The actual
results that Verio achieves may differ materially from any forward-looking
projections due to such risks and uncertainties. These forward-looking
statements are based on current expectations, and Verio assumes no obligation to
update this information. Readers are urged to carefully review and consider the
various disclosures made by Verio in this prospectus and in our other reports
filed with the Securities and Exchange Commission that attempt to advise
interested parties of the risks and factors that may affect Verio's business.
This prospectus contains trademarks of Verio and its affiliates, and may
contain trademarks, trade names and service marks of other parties. Unless we
indicate otherwise, references to "Verio" are to Verio Inc. and its
subsidiaries.
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PROSPECTUS SUMMARY
This summary highlights some information from this prospectus. It may not
contain all of the information that may be important to you. For a more complete
understanding of the exchange offer, we encourage you to read the entire
prospectus and the documents we have referred you to.
THE COMPANY
GENERAL
Verio is the world's largest operator of Web sites for businesses and a
leading provider of comprehensive Internet services with an emphasis on serving
the small and medium sized business market. We offer customers a broad range of
Internet solutions, including:
- telecommunication circuits -- permitting our customers to make
connections to and transmissions over the Internet;
- Web hosting services -- providing our customers with a presence on the
Internet in the form of a Web site. We offer a complete suite of Web
hosting services, including shared and dedicated server hosting for
customers who prefer that we provide the server hardware, as well as
co-location services where customers bring their own servers to a Verio
data center;
- electronic commerce -- enabling our customers to conduct transactions
with their customers and vendors over the Internet;
- Domain name registration -- providing a fast, on-line process for our
customers to reserve their personalized Web address (such as
www.yourcompany.com);
- secure Internet communication links -- permitting our customers to
establish "virtual private networks" in order to engage in private and
secure Internet communication with their employees, vendors, customers
and suppliers;
- Application hosting services -- providing our customers with the
functionality and features of business-focused software and database
applications on a shared or rented basis via the Internet. These
applications support and automate office systems and business processes,
such as financial reporting, payroll, sales order entry, shipping,
inventory management and customer service systems; and
- other enhanced value Internet services, such as automated Web site
development tools and templates.
We believe that small and medium sized businesses represent an attractive
target market for the provision of Internet services because of this market's
low current penetration levels and the expanding Internet needs of these
businesses. Because of their limited internal technical resources and operating
scale, small and medium sized businesses are increasingly looking to outsource
Internet and information technology functions at a reasonable cost. They also
typically require hands-on local support to help analyze their needs, configure
solutions and provide ongoing technical support. We believe that these
businesses currently are under-served by both the local and other national
Internet service providers. While the other national Internet service providers
typically lack the local presence to provide customized hands-on support, the
local Internet service providers often lack the requisite scale and resources to
provide a full range of services at acceptable quality and pricing levels.
However, we believe that we have a unique competitive advantage in serving small
and medium sized business customers. We combine our technical expertise and
hands-on support provided through our local sales and engineering personnel with
the quality and economic efficiency of our national network, operational
infrastructure and financial strength.
Since our incorporation in March 1996, Verio has grown rapidly,
establishing a global presence through the acquisition, integration and growth
of over 50 local, regional, national and international providers of Internet
connectivity, Web hosting and other enhanced value Internet products and
services. We integrate the operations we have acquired onto our national network
and common administrative support services in order
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to capture economies of scale, derive operational efficiency and control, and
improve the quality, consistency and scalability of our services. Currently, we
provide locally based sales and engineering support for our Internet services in
41 of the top 50 metropolitan statistical areas in the U.S. We also provide Web
hosting services to customers in over 170 countries.
We are now the largest Web hosting company in the world based on the number
of domain names -- such as yourcompany.com -- that we host. To drive continued
growth, we have created a powerful global sales and marketing engine that
includes:
- preferential marketing agreements with leading Internet on-line
companies;
- private label and co-branded distribution relationships with major
telecommunications companies;
- telemarketing operations;
- direct sales through over 240 sales professionals;
- over 5,000 resellers and referral partners in the U.S. and over 170 other
countries; and
- on-line sales through our www.verio.com Web site;
As of March 31, 2000, Verio served over 315,000 customer accounts, hosting
over 395,000 Web sites. For the three months ended March 31, 2000, we had
revenues of approximately $81.1 million, over half of which was derived from our
Web hosting and other enhanced value Internet services.
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THE EXCHANGE OFFER
Old Notes.................. 10 5/8% Senior Notes due 2009, Series A, which were
issued in November 1999.
New Notes.................. 10 5/8% Senior Notes due 2009, Series B, which we
are offering hereby. The old notes and the new
notes are referred to collectively as the notes.
The Exchange Offer......... We are offering to exchange $1,000 principal amount
of new notes in exchange for each $1,000 principal
amount of old notes. The new notes are being
offered in exchange for up to $400.0 million
principal amount of old notes. The issuance of the
new notes is intended to satisfy our obligations
contained in the registration rights agreement we
entered into with the initial purchasers of the old
notes in connection with the issuance of the old
notes. See "The Exchange Offer -- Terms of the
Exchange Offer."
Expiration Date............ The exchange offer will expire at 5:00 p.m., New
York City time, on June 14, 2000, or such later
date and time if we extend the exchange offer, in
which case the term "expiration date" means the
latest date and time to which the exchange offer is
extended. See "The Exchange Offer -- Terms of the
Exchange Offer."
Withdrawal................. Tenders of old notes may be withdrawn at any time
prior to 5:00 p.m. New York City time, on the
expiration date. See "The Exchange Offer --
Expiration Date; Extensions; Amendments."
Conditions of the Exchange
Offer...................... The exchange offer is not conditioned upon any
minimum principal amount of old notes being
tendered for exchange. The only condition to the
exchange offer is for the Securities and Exchange
Commission to declare the registration statement,
of which this prospectus is a part, effective. See
"The Exchange Offer -- Conditions of the Exchange
Offer."
Procedures for Tendering
Old Notes.................. If you want to tender your old notes in the
exchange offer, you must complete, sign and date
the accompanying letter of transmittal according to
the instructions contained in this prospectus and
the letter of transmittal. You also must mail or
otherwise deliver the letter of transmittal,
together with your old notes and any other required
documents, to the exchange agent at the exchange
agent's address prior to 5:00 p.m., New York City
time, on the expiration date. If you own old notes
which are registered in the name of a broker,
dealer, commercial bank trust company or other
nominee and you wish to tender such old notes in
the exchange offer, you should give instructions
promptly to tender your old notes on your behalf.
Guaranteed Delivery
Procedures................. If you wish to tender your old notes and (1) your
old notes are not immediately available or (2) you
cannot deliver your old notes together with the
letter of transmittal to the exchange agent prior
to the expiration date, you may tender your old
notes according to the guaranteed delivery
procedures contained in the letter of transmittal.
See "The Exchange Offer -- Guaranteed Delivery
Procedures."
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Acceptance of Old Notes and
Delivery of New Notes.... After the registration statement becomes effective
and the exchange offer is commenced, we will accept
any and all old notes that are properly tendered in
the exchange offer prior to 5:00 p.m., New York
City time, on the expiration date. The new notes
will be delivered promptly after acceptance of the
old notes. See "The Exchange Offer -- Terms of the
Exchange Offer."
The Exchange Agent......... U.S. Bank Trust National Association has agreed to
serve as the exchange agent in the exchange offer.
See "The Exchange Offer -- The Exchange Agent;
Assistance."
Material Federal Income Tax
Considerations........... With respect to the exchange of old notes for new
notes:
- the exchange should not constitute a taxable
exchange for U.S. federal income tax purposes;
- you should not recognize gain or loss upon
receipt of the new notes; and
- you must include interest on the new notes in
gross income to the same extent as the old notes.
Use of Proceeds............ We will receive no proceeds from the exchange
offer. Net proceeds from the sale of the old notes
were approximately $388.0 million. As of March 31,
2000, we had not used any of the net proceeds from
the sale of the old notes. See "Use of Proceeds."
Fees and Expenses.......... We will bear all expenses for the completion of the
exchange offer and compliance with the registration
rights agreement. The expenses of the exchange
offer are estimated to be approximately $450,000.
We also will pay certain transfer taxes to the
extent applicable to the exchange offer. See "The
Exchange Offer -- Fees and Expenses."
Accrued Interest........... Interest will accrue on the new notes at a rate of
10 5/8% per annum. If your old notes are accepted
for exchange you will receive interest accrued on
your old notes from the date of original issuance
or date of the last interest payment, to, but not
including, the date of issuance of your new notes.
Interest on your old notes will cease to accrue on
the day before your new notes are issued. See
"Description of the Notes -- Maturity, Interest and
Principal."
Resales of New Notes....... Based on an interpretation by the Securities and
Exchange Commission set forth in no-action letters
issued to third parties, we believe that you may
resell or otherwise transfer new notes issued
pursuant to the exchange offer in exchange for old
notes. However, there are exceptions to this
general statement. You may not freely transfer the
new notes if:
- you are an "affiliate" of Verio within the
meaning of Rule 405 under the Securities Act of
1933,
- you are a broker-dealer who acquired the old
notes directly from us without compliance with
the registration and prospectus delivery
provisions of the Securities Act,
- you did not acquire the new notes in the ordinary
course of your business, or
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- you have engaged in, intend to engage in, or have
an arrangement or understanding with any person
to participate in the distribution of the new
notes.
Any holder subject to any of the exceptions above
and each participating broker-dealer that receives
new notes for its own account in the exchange offer
in exchange for old notes that were acquired as a
result of market-making, must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with the resale
of the new notes.
Effect of Not Tendering Old
Notes for Exchange....... If you do not tender your old notes or your old
notes are not properly tendered, the existing
transfer restrictions will continue to apply. We
will have no further obligations to provide for the
registration under the Securities Act of your old
notes. Your old notes will, following the
expiration date, bear interest at the same rate as
the new notes.
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DESCRIPTION OF NEW NOTES
The form and terms of the new notes and the old notes will be identical,
except that:
(1) the new notes have been registered under the Securities Act and,
therefore, will not bear legends restricting their transfer; and
(2) the holders of the new notes will not be entitled to further
registration rights under the registration rights agreement.
The new notes will evidence the same debt as the old notes and will be
entitled to the benefits of the indenture under which the old notes were issued.
The exchange offer will be considered completed once we deliver to the
exchange agent new notes in the same aggregate principal amount as the aggregate
principal amount of old notes that are validly tendered by holders. See "The
Exchange Offer -- Procedures for Tendering Old Notes" and "Description of the
Notes."
Notes Offered.............. $400.0 million aggregate principal amount of
10 5/8% Senior Notes due 2009.
Maturity................... November 15, 2009.
Interest Payment Dates..... May 15 and November 15, commencing May 15, 2000.
Ranking.................... The old notes and the new notes will be senior
unsecured obligations ranking equally with all our
existing and future unsecured and unsubordinated
debt including:
- $100.0 million outstanding principal amount of
13 1/2% Senior Notes due 2004 (which we refer to
as our 1997 Notes),
- the $175.0 million outstanding principal amount
of 10 3/8% Senior Notes due 2005 (which we refer
to as our March 1998 Notes), and
- the $400.0 million outstanding principal amount
of 11 1/4% Senior Notes due 2008 (which we refer
to as our November 1998 Notes).
The old notes and the new notes also will be senior
to all our existing and future subordinated debt.
The old notes and the new notes will be junior to
all our secured debt to the extent of the value of
the assets securing such debt and structurally
subordinated to indebtedness of our subsidiaries.
At March 31, 2000 we had:
- approximately $48.3 million of secured
indebtedness outstanding to which holders of the
notes would be effectively subordinated in right
of payment; and
- approximately $24.6 million of subsidiary
indebtedness to which holders of notes would be
structurally subordinated; all of which is
included in the secured long-term figure above.
See "Description of the Notes -- General."
Sinking Fund............... None.
Optional Redemption........ On or after November 15, 2004, we may redeem some
or all of the notes at specific redemption prices
described in this prospectus, plus accrued
interest. See "Description of the
Notes -- Redemption -- Optional Redemption."
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Prior to November 15, 2002, we also may be able to
redeem up to 35% of the original aggregate
principal amount of the notes at a redemption price
of 110.625% of the principal amount, plus accrued
and unpaid interest. See "Description of the
Notes -- Redemption -- Optional Redemption."
Change of Control.......... In the event of a change of control, we will be
required to make an offer to purchase the notes at
a purchase price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest.
Furthermore, we would be required to repay any
funds drawn under a bank facility in the event of a
change of control. See "Description of the
Notes -- Certain Covenants -- Change of Control."
Certain Covenants.......... The indenture governing the new notes will, among
other things, restrict our ability to:
- borrow money;
- make restricted payments;
- permit liens to exist;
- change our business;
- issue guarantees;
- sell certain assets or merge with or into other
companies;
- pay dividends;
- restrict issuances and sales of preferred stock
by restricted subsidiaries;
- engage in transactions with affiliates;
- designate or create unrestricted subsidiaries;
and
- make investments.
These covenants are subject to important exceptions
and qualifications. See "Description of the
Notes -- Certain Covenants."
Exchange Rights............ Holders of the new notes will not be entitled to
any exchange or registration rights. This exchange
offer is intended to satisfy our obligation under
the registration rights agreement. We will have no
further obligations to register any of the old
notes not tendered once the exchange offer is
completed. See "Risk Factors -- There may be
adverse consequences if you fail to exchange your
old notes."
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RATIO OF EARNINGS TO FIXED CHARGES
The following table shows the deficiency of earnings to cover fixed charges
of Verio for the last four years and the three month periods ended March 31,
1999 and 2000 (in thousands):
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THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
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1996 1997 1998 1999 1999 2000
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Deficiency of earnings to cover fixed
charges(*)......................... (5,825) (48,253) (112,423) (192,774) (45,112) (73,025)
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(*) Earnings consist of net loss plus fixed charges. Fixed charges consist of
interest expense, including amortization of debt issuance costs, the portion
of rent expense considered to be interest (one-third), and preferred stock
dividends.
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RISK FACTORS
Before you participate in the exchange offer, you should be aware that
there are various risks, including the ones listed below. You should carefully
consider these risk factors and the other information contained in this
prospectus in evaluating the exchange offer. 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 Verio, our directors or our officers primarily with
respect to the future operating performance of Verio. You 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".
WE HAVE A HISTORY OF LOSSES AND LIMITED OPERATING AND FINANCIAL DATA
We have incurred net losses attributable to common stockholders since our
inception in March 1996. For the period from inception to December 31, 1996, we
had a loss attributable to common stockholders of $5.1 million, and for the
years ended December 31, 1997, 1998, 1999 and the three months ended March 31,
2000, we had losses attributable to common stockholders of $46.3 million, $122.0
million, $192.8 million and $73.0 million, respectively. Because we have a
relatively short operating history, there is little operating and financial data
about us, which makes an evaluation of our business operations and prospects
more difficult. We have experienced annual growth in revenue from approximately
$2.4 million for the period from our inception to December 31, 1996; to
approximately $35.7 million in 1997; to approximately $120.7 million in 1998; to
approximately $258.3 million in 1999; and to approximately $81.1 million for the
three months ended March 31, 2000.
WE EXPECT CONTINUING LOSSES AND CANNOT ASSURE YOU THAT WE WILL BECOME PROFITABLE
We expect to continue to operate at a net loss in the near term as we
continue to use significant amounts of cash for our data center expansion, our
acquisition and integration efforts, the build out of our national network
operations, the expansion and enhancement of our product and service offerings
and the further establishing of our brand name recognition. The extent to which
we experience negative cash flow will depend upon a number of factors, including
the following:
- the number and size of any additional acquisitions and investments;
- the expense and time required to integrate prior and future acquired
operations;
- the time and effort required to capture operating efficiencies;
- our ability to generate increased revenues;
- the amount of our expenditures at the corporate, national and network
operations levels; and
- potential regulatory developments that may affect our operations.
In order to achieve profitability, we must develop and market products and
services that gain broad commercial acceptance. We cannot assure you that our
products and services will ever achieve broad commercial acceptance or that we
will achieve profitability. Although we have experienced significant growth in
revenues on an annual basis, this growth rate is not necessarily indicative of
future operating results. We cannot assure you that we will achieve or sustain
positive operating cash flow or generate net income in the future.
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OUR SUCCESS IS HIGHLY DEPENDENT ON THE EVOLUTION OF OUR OVERALL MARKET, THE
GROWTH OF OUR EXISTING INTERNET ACCESS AND WEB HOSTING CORE SERVICES, AND ON OUR
ABILITY TO EXPAND OUR SERVICE OFFERINGS AND DISTRIBUTION CHANNELS
The market for Web site and application hosting and related services has
only recently begun to develop and is evolving rapidly. Although certain
industry analysts project significant growth for this market, their projections
may not be realized. Our future growth, if any, will depend on the continued
trend of businesses outsourcing their Web site and application hosting and our
ability to market our services effectively. There can be no assurance that the
market for our services will grow, that our services will be adopted, or that
businesses will use these Internet-based services to the degree or in the manner
that we expect. It is possible that at some point businesses may find it
cheaper, more secure or otherwise preferable to host their Web sites and
applications internally and decide not to outsource the management of their Web
sites and applications. If we are unable to react quickly to changes in the
market, if the market fails to develop, or develops more slowly than expected,
or if our services do not achieve market acceptance, then we are unlikely to
become or remain profitable.
While we continue to pursue acquisitions and investments both in the U.S.
and internationally, our success is highly dependent on the growth of our
existing Internet access and Web hosting core service platforms, as well as the
growth of our e-commerce, application hosting, and other enhanced service
offerings. We expect to drive this internal growth by expanding and enhancing
our product service base with additional enhanced value Internet service
capabilities and by establishing further distribution capabilities. We may
develop these further product and distribution capabilities internally, but we
primarily plan to form strategic relationships with various vendors and
distribution partners. Accordingly, it will be important that we either develop
these capabilities internally or identify suitable potential product and service
vendors and distributors with whom we are able to complete agreements on
acceptable terms. We expect that competition for strategic relationships with
key vendors and potential distributors could be significant and that we may have
to compete with other companies with greater financial and other resources to
obtain these important relationships. We cannot assure you that we will be able
to identify suitable partnering candidates or be able to complete agreements on
acceptable terms with these parties. Once implemented, we cannot assure you that
any additional service capabilities that we launch will achieve general
commercial acceptance or generate significant revenue, or that any particular
distribution channels will prove to be effective.
WE HAVE SUBSTANTIAL LIABILITIES WHICH MAY IMPACT OUR FUTURE OPERATIONS AND
AFFECT OUR ABILITY TO MEET OUR DEBT OBLIGATIONS
We have substantial amounts of outstanding debt and other liabilities. At
March 31, 2000, our total long-term liabilities were approximately $1,096.3
million, representing 67% of our total capitalization. In addition, we have a
$100.0 million revolving credit facility from a group of financial institutions.
To date, we have not drawn any funds under this credit facility.
High levels of debt have had and could have several important effects on
our future operations. Some of these consequences include the following:
- A substantial portion of our cash flow from operations must be used to
pay interest on our debt and will not be available for other business
purposes.
- Covenants imposed under certain of our financing agreements limit our
ability to pursue our business strategy, borrow additional funds to grow
our business, acquire and dispose of assets, and make capital
expenditures, and may otherwise restrict our operations and growth.
Our ability to meet our debt and other obligations and to reduce our total
debt depends on our future operating performance and on economic, financial,
competitive, regulatory and other factors. Many of these factors are beyond our
control. In addition, we may need to incur additional indebtedness in the
future. We believe that our existing current assets, combined with working
capital from our operations, our existing credit facility, capital lease
financings and proceeds of future equity or debt financings will be adequate to
meet our existing financial obligations. We cannot assure you, however, that our
business will generate
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sufficient cash flow or that future financings will be available to provide
sufficient proceeds to meet these obligations or to service our total debt. In
particular, our cash flow may not be sufficient to pay:
- $13.5 million in annual interest on the 1997 Notes;
- $18.2 million in annual interest on the March 1998 Notes;
- $45.0 million in annual interest on the November 1998 Notes;
- $42.5 million in annual interest on the notes comprising this exchange
offer, plus any additional amounts owed thereon depending on certain
contingencies; or
- any debt obligations we may incur under the credit facility, if drawn
upon.
In addition to the required interest payments on our debt, beginning in
November 2000, we will have to pay up to $24.3 million in annual dividends on
our convertible preferred stock, plus any additional dividends owed thereon,
depending on certain contingencies. These dividends may be paid in the form of
shares of our common stock. However, if it is not possible or practical to issue
shares of common stock at the time such dividend payments are due, then these
payments would have to be made in cash.
OUR EARNINGS HAVE BEEN INSUFFICIENT TO PAY OUR COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
Our earnings were insufficient to pay our combined fixed charges and
preferred stock dividends during those periods and by the amounts set forth in
the table below, although our combined fixed charges and preferred stock
dividends included substantial non-cash charges for depreciation, amortization
and non-cash interest expense on some of our debt:
<TABLE>
<CAPTION>
EARNINGS NON-CASH
DEFICIENCY CHARGES
---------- --------
(IN THOUSANDS)
<S> <C> <C>
Period from inception to December 31, 1996.................. $ (5,825) $ 784
Fiscal year ended December 31, 1997......................... $ (48,253) $ 11,468
Fiscal year ended December 31, 1998......................... $(112,423) $ 48,516
Fiscal year ended December 31, 1999......................... $(192,774) $113,669
Three months ended March 31, 2000........................... $ (73,025) 58,395
</TABLE>
We anticipate that earnings will be insufficient to cover our combined
fixed charges and preferred stock dividends for the next several years. In order
for us to meet our debt obligations, we will need to substantially improve our
operating results. We cannot assure you that our operating results will be of
sufficient magnitude to enable us to meet our debt and preferred stock
obligations. In the absence of such operating results, we could face substantial
liquidity problems and may be required to raise additional financing through the
issuance of debt or equity securities. We cannot assure you, however, that we
would be successful in raising such financing on acceptable terms or otherwise.
OUR RAPID GROWTH PUTS SIGNIFICANT STRAIN ON OUR RESOURCES
As a result of our growth and acquisition strategy, we have been growing
rapidly and expect to continue to grow rapidly. This rapid growth has placed,
and is likely to continue to place, a significant strain on our managerial,
operating, financial and other resources, including our ability to ensure
customer satisfaction. For example, as our customer base grows, and the need for
high capacity Internet data transmission capability expands, we will need to
continue to acquire substantial network capacity to support these needs. We
recently announced a capital budget of $350 million that we expect to expend
during 2000 to significantly expand our Web hosting and co-location
infrastructure, systems and personnel. In addition to the significant capital
requirements, our expansion efforts also require significant time commitments
from our senior management and place a strain on their ability to manage our
existing business. We also may be required to manage multiple relationships with
third parties as we expand our enhanced value service offerings, including Web
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hosting. Our future performance will depend, in part, upon our ability to manage
this growth effectively. To that end, we will have to undertake the following
improvements, among others:
- implement additional management information systems capabilities;
- further develop our operating, administrative, financial and accounting
systems and controls;
- improve coordination between our engineering, accounting, finance,
marketing and operations; and
- hire and train additional personnel.
WE DEPEND UPON THIRD-PARTY CHANNEL PARTNERS FOR SALES OF OUR PRODUCTS AND
SERVICES
We depend on third-party channel partners to stimulate demand for our
products and services both where we do not have a direct sales force, and as an
alternative means for generating sales to customers. These channel partners
include computer and telecommunications providers, Internet companies and
portals, value-added resellers, original equipment manufacturers, systems
integrators, Web designers and advertising agencies. Many of our channel partner
distribution relationships involve untested or novel modes of distributing our
products and services, and not all of these channel partners have been
successful in meeting our objectives for generating additional sales of our
products and services. If we fail to gain commercial acceptance in certain
markets, channel partners may discontinue their relationships with us or we may
fail to achieve a return on our investment in certain channel partner
distribution arrangements. Conflicts may develop between our direct sales force
efforts and those of our channel partners as well as among different channel
partners. The loss of channel partners, the failure of such parties to perform
under agreements with us, or the inability to attract other channel partners
with the expertise and industry experience required to market our products and
services could adversely affect us. Furthermore, sales through channel partners
are usually at discounted rates or may require us to incur additional sales and
marketing expenses. Therefore, the resulting revenues and gross margins will be
less than if we had sold the same services directly.
WE FACE RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS AND EXPANSION
We provide Web hosting services to customers in over 170 countries. For the
year ended December 31, 1999 and the three months ended March 31, 2000, we
estimate that approximately 10% of our total revenues were from international
operations. We expect to continue to expand in these and other international
markets. However, the rate of development and adoption of the Internet has been
slower outside the U.S., and the cost of transmitting data over the Internet
outside the U.S. has been higher, which may adversely affect our ability to
expand operations, and may increase our costs of operations internationally. We
cannot assure you that acceptance of the Internet or demand for Internet access,
Web hosting and other enhanced value Internet services will increase
significantly in any international markets.
We may need to enter into joint ventures or other outsourcing agreements
with third parties, acquire complementary businesses or operations, or establish
or maintain new operations outside the U.S. in order to conduct our foreign
operations successfully. However, we cannot assure you that we will be able to
obtain the permits and operating licenses required to operate, to hire and train
employees, or to market, sell and deliver high quality services in these
markets. In addition, there are certain risks inherent in doing business on an
international level. These risks include:
- unexpected changes in, or delays resulting from, regulatory requirements,
tariffs, customs, duties and other trade barriers;
- difficulties in staffing and managing foreign operations;
- longer payment cycles and problems in collecting accounts receivable;
- political instability, expropriation, nationalization, war, insurrection
and other political risks;
- fluctuations in currency exchange rates and foreign exchange controls
which restrict or prohibit repatriation of funds;
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- technology export and import restrictions or prohibitions;
- employment laws and practices in foreign countries;
- delays from customs brokers or government agencies;
- differences in technology standards;
- seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world; and
- potentially adverse tax consequences.
We cannot assure you that any of these factors will not have an adverse
effect on our future international operations. In addition, changes in existing
foreign laws or administrative practice relating to taxation, foreign exchange,
regulatory or other matters could adversely affect us. For example, the European
Union recently enacted its own privacy regulations. Future decisions, laws,
regulations and other activities regarding regulation and content liability may
significantly affect our business. Certain foreign governments, such as Germany,
have enforced laws and regulations related to content distributed over the
Internet that are more restrictive than those currently in place in the U.S.
This could adversely affect our investment in international operations such as
WWW -- Service Online -- Dienstleistungen GmbH.
Effective January 1, 1999, 11 of the 15 member countries of the European
Union established fixed conversion rates between their existing sovereign
currencies and the euro, and adopted the euro as their common legal currency. We
have not commenced any assessment of the effects or potential impact that the
euro conversion would have on us.
WE FACE A HIGH LEVEL OF COMPETITION IN THE INTERNET SERVICES INDUSTRY
The tremendous growth and potential market size of the Internet services
market and the absence of substantial barriers to entry have attracted many new
start-ups as well as existing businesses from the telecommunications, cable and
technology industries. As a result, the market for Internet access, Web hosting
and related services is extremely competitive. We anticipate that competition
will continue to intensify as the use of the Internet grows. Current and
prospective competitors include:
- national, regional and local Internet service providers;
- other independent providers of Web hosting and other enhanced value
Internet services;
- global, national and regional long distance and local exchange
telecommunications companies;
- cable television companies;
- direct broadcast satellite and wireless communications providers;
- on-line service providers; and
- computer hardware and software manufacturers and vendors.
We believe that the following are the primary competitive factors in this
market:
- a secure and reliable national network and technology platforms with
sufficient capacity, quality of service and scalability to support
continued growth;
- a knowledgeable and effective sales force, and broad and effective
distribution channels;
- knowledgeable and capable technical support personnel, and prompt and
efficient customer care services;
- Internet system engineering and other technical expertise;
- competitive prices;
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- timely introductions of new products and services;
- sufficient financial resources; and
- a recognized and trusted brand name.
Many of our competitors have significantly greater market presence, brand
recognition, and financial, technical, network capacity and personnel resources
than we do. All of the major long distance companies, also known as
interexchange carriers, offer Internet access services that compete with us. The
reforms in the federal regulation of the telecommunications industry brought
about by the Telecommunications Act of 1996 created greater opportunities for
local exchange carriers, including the regional Bell operating companies, to
enter the Internet access market. In order to address the Internet access
requirements of the current business customers of long distance and local
carriers, many carriers are integrating horizontally through acquisitions of or
joint ventures with Internet service providers, or by wholesale purchase of
Internet access from Internet service providers. In addition, many of the major
cable companies and other alternative service providers -- such as those
companies utilizing wireless terrestrial and satellite-based service
technologies -- have announced plans to offer Internet access and related
services. Accordingly, we expect that we will experience increased competition
from traditional and emerging telecommunications providers. Many of these
companies, in addition to their substantially greater network coverage, market
presence and financial, technical and personnel resources, also have large
existing commercial customer bases. Furthermore, they may have the ability to
bundle Internet access, Web hosting and related services with basic local and
long distance telecommunications services. This bundling of services may have an
adverse effect on our ability to compete effectively with them and may result in
pricing pressure on us that would adversely affect our business, financial
condition and results of operations.
The recent deployment and further planned deployment of broadband services
and high capacity data transmission capabilities by cable and telephone
companies through new technologies such as cable modems and various digital
subscriber lines also creates further competitive pressure on our business.
While these providers initially targeted the residential consumer, more recently
a number of digital subscriber lines providers also have announced their intent
to offer services to our target business market. This may significantly affect
the pricing of our Internet access service offerings. Although we sell digital
subscriber line services to business customers in a large number of markets,
there are numerous providers of digital subscriber lines competing with these
product offerings, and several providers have launched their services in
conjunction with Internet service providers, allowing those providers to offer
Internet access over digital subscriber line circuits. These circuits, which
provide higher speed and lower latency Internet connections than a standard
dial-up phone connection, compete with our dedicated connectivity offerings.
The market for Web server hosting services is highly fragmented and
extremely competitive. Because there are no substantial barriers to entry, we
expect that competition will intensify in the future. As a result of an increase
in the number of competitors, and vertical and horizontal integration in the
industry, we currently encounter and expect 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 we cannot predict the effect that ongoing or future developments
may have on the Internet connectivity and Web server hosting markets generally
or on us specifically.
As we continue to expand internationally, we will encounter new
competitors. In some cases, we will be forced to compete with and buy services
from government-owned or subsidized telecommunications providers. Some of these
providers may enjoy a monopoly on telecommunications services essential to our
business. We cannot assure you that we will be able to purchase these services
at a reasonable price or at all. In addition to the risks associated with our
local competitors, foreign competitors may pose an even greater risk, as they
may possess a better understanding of their local markets and may have better
working relationships with local infrastructure providers and others. We cannot
assure you that we can obtain similar levels of local knowledge. Failure to
obtain that knowledge and those relationships could place us at a significant
competitive disadvantage.
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WE DEPEND UPON OUR NETWORK AND FACILITIES INFRASTRUCTURE
Our success depends upon our ability to implement, expand and adapt our
national network and data center infrastructure and support services to
accommodate an increasing amount of data traffic and evolving customer
requirements at an acceptable cost. This has required and will continue to
require that we enter into agreements with providers of infrastructure capacity,
equipment, facilities and support services on an ongoing basis. We cannot assure
you that any of these agreements can be obtained on satisfactory terms and
conditions. We also anticipate that future expansions and adaptations of our
network infrastructure and data center facilities may be necessary in order to
respond to growth in the number of customers served, increased demands to
transmit and host larger amounts of data and more complex applications, and
changes to our customers' product and service requirements. This will require
substantial financial, operational and managerial resources. For example, in
January 2000, we announced a capital budget of $350 million that we plan to
expend during 2000 to significantly expand our Web hosting and co-location
infrastructure, systems and personnel. Typically, there is a several month lead
time required in order to select the appropriate location for a new data center,
construct the necessary facilities, install equipment and telecommunications
infrastructure and hire operations and sales personnel. As a result,
expenditures commence well before the data center opens and it takes an extended
period of time for us to achieve break-even capacity utilization. As a result,
we expect that individual data centers will experience losses for a period of
time after they are opened. We incur further expenses for sales personnel hired
to test market our services in markets where there is no local data center.
Growth in the number of data centers is likely to increase the amount and
duration of losses. In addition, if we do not attract customers to new data
centers in a timely manner, or at all, our business would be adversely affected.
We cannot assure you that we will be able to expand or adapt our network
infrastructure to meet the industry's evolving standards or our customers'
growing demands and changing requirements on a timely or cost-effective basis,
or at all.
WE DEPEND UPON SUPPLIERS, WHO ARE OFTEN OUR COMPETITORS, AND HAVE LIMITED
SOURCES OF SUPPLY FOR CERTAIN PRODUCTS AND SERVICES
We rely on other companies to supply certain key products and services that
we resell and certain components of our network infrastructure. The products and
services that we resell, and certain components that we require for our network,
are only available from limited sources. For example, we currently rely heavily
on Cisco Systems and Juniper Networks to supply routers critical to our network.
We could be adversely affected if routers from Cisco and/or Juniper were to
become unavailable on commercially reasonable terms. Qwest, Sprint, MCI WorldCom
and MFS, who sell products and services that compete with ours, are also our
primary providers of data communications facilities and network capacity.
Northpoint Communications and Covad Communications provide us with digital
subscriber line services for resale to our customers. We also are dependent upon
local exchange carriers, which often are our competitors, to provide
telecommunications services and lease physical space to us for routers, modems
and other equipment. From time to time, we experience delays in the delivery and
installation of telecommunications services, which can lead to the loss of
existing or potential customers or delays in generating revenues from sales to
customers. We cannot assure you that, on an ongoing basis, we will be able to
obtain third-party products and services cost-effectively and on the scale and
within the time frames we require, or at all. Failure to obtain or to continue
to make use of such third-party products and services would have a material
adverse effect on our business, financial condition and results of operations.
OUR COSTS WILL INCREASE IF WE FAIL TO MAINTAIN OUR PEERING RELATIONSHIPS
The establishment and maintenance of peering relationships with other
Internet service providers are necessary in order to exchange traffic with other
Internet service providers with networks of roughly equivalent size without
paying transit costs. The basis on which the large national Internet service
providers make peering available or impose settlement charges is evolving.
Recently, companies that previously offered peering have cut back or eliminated
peering relationships and are establishing new, more restrictive criteria for
peering, requiring substantial data transmission volume and broad national
scale. Global network capabilities also may become a requirement. We may have to
comply with new and more stringent peering
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requirements in order to maintain our peering relationships. Consolidation among
some of the large network providers (such as the pending merger of MCI WorldCom
and Sprint) could result in a significant imbalance in relative traffic levels
between the various providers' networks, and therefore make the ability to meet
peering criteria more difficult or impossible. Failure to maintain peering
relationships or establish new ones, if necessary, will increase our operating
expenses.
OUR NETWORK, WEB HOSTING PLATFORMS OR DATA CENTERS COULD FAIL, WHICH COULD
NEGATIVELY IMPACT OUR REVENUES
Our success depends upon our ability to deliver reliable, high-speed access
to the Internet and upon the ability and willingness of our telecommunications
providers to deliver reliable, high-speed telecommunications service through
their networks. Our customers often have business-critical and confidential
information in the Web sites we host for them, so we also must provide a
reliable and secure platform for our Web hosting services, in a robust, reliable
and secure physical environment. Our network and facilities, and other networks
and facilities providing services to us, are vulnerable to damage, unauthorized
access, or cessation of operations from human error and tampering, breaches of
security, fires, earthquakes, severe storms, power losses, telecommunications
failures, software defects, intentional acts of vandalism including computer
viruses, and similar events, particularly if the events occur within a high
traffic location of the network or at one of our data centers. A significant
portion of our computer equipment, including components critical to the
operation of our national backbone, is located at our network operations center
facility in Dallas, Texas, at various other points of presence along the
network, and in our data centers. Occasionally, we experience temporary outages
and service interruptions in these facilities as a result of various events and
factors. We believe that this type of service interruption is not abnormal in
the industry. However, the occurrence of a natural disaster or other
unanticipated problems at the network operations center, key sites at which we
locate routers, switches and other computer equipment which make up the backbone
of our network infrastructure, or at one or more of our data centers, could
substantially impact our business. Furthermore, the failure of an individual
point of presence would result in interruption of service to the customers
served by such point of presence until necessary repairs were effected or
replacement equipment was installed.
We have designed our network and facilities to minimize the risk of such
system failure, by providing such things as back-up power generators, redundant
high capacity connections to the Internet and continuous monitoring capabilities
at our data centers, and redundant circuits among point of presence facilities
to allow traffic rerouting in our national network. In addition, we engage in
capacity planning and perform lab and field testing before integrating new and
emerging technology into the network. Nonetheless, we cannot assure you that we
will not experience failures or shutdowns relating to individual facilities or
even catastrophic failure of the entire network. Despite precautions we have
taken, a natural disaster or other unanticipated problems at one or more of our
Internet data centers could result in interruptions in our services or
significant damage to customer equipment. Any damage to or failure of our
systems or service providers could result in reductions in, or terminations of,
services supplied to our customers, which could have a material adverse effect
on our business.
Our customers are increasingly requiring that we provide a service-level
warranty for our services and many of our competitors have begun to do so. As a
result, in order to remain competitive, we offer service-level warranties for
certain of our products and services, and expect that we will continue to
evaluate and offer additional such warranties in the future. Typically, these
warranties are based on service downtime, and provide a customer with service or
payment credits for the month in which we do not meet the required service
levels. In the future, we could experience a material decline in our revenues in
connection with any significant system downtime experienced by our customers or
other material changes associated with such warranty coverage.
We carry business personal property insurance at both scheduled locations
and unscheduled locations, with a blanket property limit of $10.0 million per
location and business interruption insurance with a blanket limit of $2.0
million per location. This insurance may not be adequate or available to
compensate us. In addition, we generally attempt to limit our liability to
customers by contractually disclaiming liability or limiting liability to a
usage credit based on the amount of time that the system was down. We cannot
assure
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you, however, that such limitations of liability will be enforceable. In any
event, significant or prolonged system failures or shutdowns could damage our
reputation and cause us to lose our customers.
ALTHOUGH WE HAVE IMPLEMENTED NETWORK SECURITY MEASURES, OUR NETWORK MAY
EXPERIENCE SECURITY BREACHES
We have implemented various network security measures, such as limiting
physical and network access to our routers. Nonetheless, we cannot assure you
that our network infrastructure will not be vulnerable to human error,
intentional acts of vandalism including computer viruses, break-ins and similar
security breaches and disruptive problems caused by our customers or other
Internet users. Computer viruses, break-ins or other problems caused by third
parties could lead to interruptions, delays or cessation in service to our
customers. Such incidents could deter potential customers and adversely affect
existing customer relationships.
Security problems represent an ongoing threat to public and private data
networks. Attacks upon the security of Internet sites and infrastructure
continue to be reported with highly public and visible ramifications to some of
the largest and most visited commercial Web sites. Inappropriate use of the
network by third parties could potentially jeopardize the security of
confidential information stored in our computer systems and our customer's
computer systems. We may face liability and may lose potential subscribers as a
result. Although we intend to continue to implement industry-standard security
measures, such measures occasionally have been circumvented in the past, and we
cannot assure you that our security measures will not be circumvented in the
future. Addressing problems caused by computer viruses, break-ins or other
problems caused by third parties could have a material adverse effect on us, and
the cost of eliminating these security breaches could be prohibitively
expensive.
PROVIDING SERVICES TO CUSTOMERS WITH MISSION-CRITICAL WEB SITES AND WEB-BASED
APPLICATIONS COULD POTENTIALLY EXPOSE US TO LAWSUITS FOR CUSTOMERS' LOST PROFITS
OR OTHER DAMAGES
Because our Web site and application hosting services are critical to many
of our customers' businesses, any significant security breaches or interruption
in our services could result in claims of lost profits or other indirect or
consequential damages by our customers. Our customers are required as a general
matter to sign server order forms that incorporate our standard terms and
conditions. Although these terms disclaim our liability for any such damages, a
customer could still bring a lawsuit against us claiming lost profits or other
consequential damages as the result of a service interruption or other Web site
or application problems that the customer may ascribe to us. There can be no
assurance a court would enforce any limitations on our liability, and the
outcome of any lawsuit would depend on the specific facts of the case and legal
and policy considerations. We also believe we would have meritorious defenses to
any such claims, but there can be no assurance we would prevail. In such cases,
we could be liable for substantial damage awards. Such damage awards might
exceed our liability insurance by unknown but significant amounts, which would
seriously harm our business.
Such claims, regardless of their ultimate outcome, could result in costly
litigation and adversely affect our business or reputation or our ability to
attract and retain customers. Moreover, the security and privacy concerns of
existing and potential customers may inhibit the growth of the Internet service
industry and our customer base and revenues.
WE DEPEND ON THE INTERNET AND INTERNET INFRASTRUCTURE DEVELOPMENT
Our products and services are targeted toward users of the Internet, which
has experienced rapid growth. Critical issues concerning the commercial use of
the Internet remain unresolved and may impact the growth of Internet use,
especially in our target business market. 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:
- inconsistent quality of service;
- lack of availability of cost-effective, high-speed options;
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- a limited number of local access points for corporate users;
- an 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 the perceived
lack of security of commercial data, such as credit card numbers, has
significantly impeded commercial use of the Internet to date. There can be no
assurance that encryption or other technologies will 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. The adoption of the Internet
for commerce and communication, particularly by those individuals and
enterprises that 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. If the market for Internet access services fails to develop, develops
more slowly than expected, or becomes saturated with competitors, or if Internet
access and services are not broadly accepted, our business, financial condition
and results of operations will be materially adversely affected. In addition,
the rate of development and adoption of the Internet has been slower outside the
United States and the cost of transmitting data over the Internet has been
higher. The recent growth in the use of the Internet has caused frequent periods
of performance degradation, requiring the upgrade of routers and switches,
telecommunications links and other components forming the infrastructure of the
Internet by providers and other organizations with links to the Internet. Any
perceived degradation in the performance of the Internet as a whole could
undermine the benefits of our services. Consequently, the emergence and growth
of the market for our services is dependent on improvements being made to the
entire Internet infrastructure to alleviate overloading and congestion.
WE MUST KEEP UP WITH TECHNOLOGY TRENDS AND EVOLVING INDUSTRY STANDARDS
The market for Internet access and related services is characterized by
rapidly changing technology, evolving industry standards, changes in customer
needs and frequent new product and service introductions. Our future success
will depend, in part, on our ability to effectively use leading technologies,
continue to develop our technical expertise, enhance our current services, to
develop new products and services that meet changing customer needs and
influence and respond to emerging industry standards and other technological
changes on a timely and cost-effective basis. We cannot assure you that we will
be successful in accomplishing these tasks or that such new technologies or
enhancements will achieve market acceptance. We believe that our ability to
compete successfully is also dependent upon the continued compatibility and
interoperability of our services with products and architectures offered by
various vendors. We cannot assure you that we will be able to effectively
address the compatibility and interoperability issues raised by technological
changes or new industry standards. In addition, we cannot assure you that
services or technologies developed by others will not render our services or
technology uncompetitive or obsolete. For example, our services rely on the
continued widespread commercial use of transmission control protocol/ Internet
protocol. Alternative open and proprietary protocol standards that compete with
transmission control protocol/Internet protocol, including proprietary protocols
developed by IBM and Novell, Inc., have been or are being developed. The failure
of the market for business-related Internet solutions to continue to develop
would adversely impact our business financial condition and results of
operations.
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WE FACE POTENTIAL COSTS AND LIABILITY IN CONNECTION WITH THE INFORMATION WE HOST
AND THAT IS DISSEMINATED THROUGH OUR NETWORK
We are not currently subject to direct federal, state or local government
regulation, other than regulations applicable to businesses generally. There
currently is only a small body of laws and regulations directly applicable to
the provision of access to or commerce services on the Internet. For example, in
late 1998, Congress enacted the Digital Millennium Copyright Act, which includes
a limitation on liability of on-line service providers for copyright
infringement for transmitting, routing or providing connections, storage or
caching of data at the direction of a user. This limitation on liability applies
if the service provider has no actual knowledge that the particular data
infringed on third party intellectual property rights and if certain other
conditions are met. Because this law is relatively new, we are not sure how it
will be applied to limit any liability that we may face in the future for
possible copyright infringement-related issues that arise in connection with the
services we provide. This law also requires that service providers follow
certain notice and take-down procedures with respect to allegedly infringing
materials in order to take advantage of the limitation on liability provided by
the Digital Millenium Copyright Act. We are in the process of implementing these
sorts of procedures across our operations. Certain provisions of the
Communications Decency Act, which imposes criminal penalties for using an
interactive computer service for transmitting obscene or indecent
communications, have been found unconstitutional by the U.S. Supreme Court.
Other federal legislation that was enacted to require limitations on access to
pornography and other material deemed harmful to minors was determined to
violate the First Amendment, but that decision is on appeal. We are unable to
predict the outcome of this appeal or whether other similar legislation will be
enacted or enforced. In addition, the Federal Trade Commission adopted final
rules, effective April 21, 2000, regarding the Children's Online Privacy
Protection Act's prohibition of unfair and deceptive acts and practices in
connection with the collection and use of personal information from and about
children on the Internet. The rules provide that Web sites directed at children
under 13 years of age must obtain verifiable parental consent before collecting
personal information from children and must take other measures intended to
safeguard children's privacy. Additional requirements may be imposed on Web site
operations relating to the use, dissemination and collection of personal
information. We have adopted a standard acceptable use policy that applies to
all of our customers and that prohibits them from posting, transmitting, or
storing material on or through our services that we determine to be in violation
of third party intellectual property rights. Our acceptable use policy also
imposes other restrictions on our customers in connection with the use of our
services, including prohibitions on illegal activity or other activity that is
destructive or potentially destructive to our business or reputation or to our
customers. We initially designed and continue to evolve our acceptable use
policy to promote the security, reliability and privacy of our systems and
network. However, we cannot assure you that our policy will accomplish this goal
or shield us from liability under the Digital Millennium Copyright Act or
otherwise with respect to the activities of, or the content hosted or
transmitted by, our customers or other Internet users.
Because of the increased popularity and use of the Internet, it is likely
that a number of additional laws and regulations may be adopted at the federal,
state and local levels, governing such issues as user privacy, freedom of
expression, pricing, taxation, advertising, intellectual property rights,
information security and the convergence of traditional telecommunications
services with on-line services and Internet communications. Legislation
addressing such things as on-line security, privacy, mass unsolicited commercial
e-mail messages, and the regulation of sales of products, such as
pharmaceuticals, firearms, drug paraphernalia and gambling, is proposed
regularly in many states and in Congress. The implementation of any such
legislation could result in direct or indirect regulation of on-line service
providers generally, including us. In that case, it is likely that we would have
to implement additional policies and procedures designed to assure our
compliance with the particular legislation.
The imposition on Internet service providers or Web hosting providers of
potential liability for materials carried on or disseminated through their
systems could require us to implement measures to reduce our exposure to such
liability. These measures may require that we spend substantial resources or
discontinue certain product or service offerings. Any of these actions could
have a material adverse effect on our business, financial condition and results
of operations. Further, the adoption of such laws and regulations
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might decrease growth of the Internet generally, which in turn could negatively
impact our business. In addition, applicability to the Internet of existing laws
governing such things as property ownership, intellectual property rights,
taxation, obscenity, defamation, libel and personal property is uncertain.
Because so many of the existing laws on these topics were adopted prior to the
advent of the Internet and related technologies, they do not contemplate,
address or readily apply to the unique issues that the Internet and its use
create.
The law relating to the regulation and liability of Internet access
providers in relation to information carried or disseminated is also developing
in other countries. For example, the European Union has enacted its own data
privacy regulations, and Australia has imposed new obligations on Internet
service providers to block access to certain types of content. Decisions, laws,
regulations and other activities regarding regulation and content liability may
significantly affect the development and profitability of companies offering
on-line and Internet access services.
We carry an errors and omissions insurance policy. This insurance may not
be adequate or available to compensate us for all liability that may be imposed.
OUR INTERNET ACCESS OPERATIONS MAY BE IMPACTED BY GOVERNMENT REGULATION
Although as an Internet access provider we are not currently subject to
direct federal governmental regulation other than regulations applicable to
businesses generally, changes in the regulatory environment relating to the
Internet connectivity market could affect our business, financial condition and
results of operations. For example, regulations at the Federal Communications
Commission require discounted Internet connectivity rates for schools and
libraries. Due to the increasingly widespread use of the Internet for the
hosting, use and transmission of content, it is likely that additional laws and
regulations will be adopted at the federal, state and local level, especially
that is content related, that will apply directly or indirectly to us. For
example, legislation concerning unsolicited commercial e-mail messages, on-line
gambling, on-line sales of pharmaceuticals, drug paraphernalia and other illegal
or controlled goods and services, privacy, libel, intellectual property
protection and infringement, technology export and other controls is pending
and, in some cases, has been adopted in various states as well as at the federal
level. We may be subject to similar or other laws and regulations in non-U.S.
jurisdictions.
Moreover, the Federal Communications Commission continues to review its
regulatory position on the usage of the basic network and communications
facilities by Internet service providers. Although in an April 1998 report the
Federal Communications Commission determined that Internet service providers
should not be treated as telecommunications carriers and, therefore, need not be
regulated, future Internet service provider regulatory status remains uncertain.
Indeed, in its 1998 report, the Federal Communications Commission concluded that
certain services offered over the Internet, such as phone-to-phone Internet
protocol telephony, may be functionally indistinguishable from traditional
telecommunications service offerings and their non-regulated status may have to
be re-examined.
Changes in the regulatory structure and environment affecting the Internet
access market, including regulatory changes that directly or indirectly affect
telecommunications costs or increase the likelihood of competition from regional
bell operating companies or other telecommunications companies, could adversely
affect us. Although the Federal Communications Commission has decided not to
allow local telephone companies to impose per-minute access charges on Internet
service providers, and that decision has been upheld by a reviewing court,
further regulatory and legislative consideration of this issue is likely. In
addition, some telephone companies are seeking relief through the Federal
Communications Commission and state regulatory agencies. Such rules, if adopted,
are likely to have a greater impact on consumer-oriented Internet access
providers than on business-oriented Internet service providers such as us.
Nonetheless, the imposition of access charges would affect our costs of serving
dial-up customers and could have a material adverse effect on our business,
financial condition and results of operations.
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OUR SUCCESS DEPENDS ON OUR ABILITY TO SUCCESSFULLY INTEGRATE THE OPERATIONS WE
HAVE ACQUIRED AND MAY ACQUIRE IN THE FUTURE
A key element of our business strategy is to grow through acquisitions, and
our success depends in large part on our ability to integrate the operations and
management of the independent Internet operations we have acquired and those we
may acquire in the future. To integrate our newly acquired Internet operations
successfully, we must:
- install and standardize adequate operational and control systems;
- deploy standard equipment and telecommunications facilities;
- employ qualified personnel to provide technical and marketing support in
new as well as existing locations;
- eliminate redundancies in overlapping network systems and personnel;
- incorporate acquired technology and products into our existing service
offerings;
- implement and maintain uniform standards, procedures and policies;
- standardize marketing and sales efforts under the common Verio brand; and
- continue the expansion of our managerial, operational, technical and
financial resources.
The process of consolidating and integrating acquired operations takes a
significant period of time, places a significant strain on our managerial,
operating and financial resources, and could prove to be even more expensive and
time-consuming than we have predicted. We may increase expenditures in order to
accelerate the integration and consolidation process with the goal of achieving
longer-term cost savings and improved profitability.
The key integration challenges we face in connection with our acquisitions
include:
- acquired operations, facilities, equipment, service offerings, networks,
technologies, brand names and sales, marketing and service development
efforts may not be effectively integrated with our existing operations;
- anticipated cost savings and operational benefits may not be realized;
- in the course of integrating an acquired operation, we may discover facts
or circumstances that we did not know at the time of the acquisition that
adversely impact our business or operations, or make the integration more
difficult or expensive;
- integration efforts may divert our resources from our existing business;
- standards, controls, procedures and policies may not be maintained;
- employees who are key to the acquired operations may choose to leave; and
- we may experience unforeseen delays and expenses.
WE FACE RISKS ASSOCIATED WITH ACQUISITIONS GENERALLY
We expect to continue our acquisition and expansion strategy. Future
acquisitions could materially adversely affect our operating results as a result
of dilutive issuances of equity securities and the incurrence of additional
debt. In addition, the purchase price for many of these acquired businesses
likely will significantly exceed the current fair value of the net identifiable
assets of the acquired businesses. As a result, material goodwill and other
intangible assets would be required to be recorded which would result in
significant amortization charges in future periods. These charges, in addition
to the financial impact of such acquisitions, could have a material adverse
effect on our business, financial condition and results of operations.
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We have recorded all business acquisitions under the purchase method of
accounting. With the acquisition on January 5, 1999, of Best Internet
Communications, Inc. (d/b/a Hiway Technologies), which we refer to as Hiway, we
recorded gross goodwill totaling approximately $241.5 million which is being
amortized over a ten-year period from the acquisition date. On July 13, 1999, we
acquired all of the outstanding stock of Computer Services Group, Inc. (which
conducted business as digitalNATION) for $100.0 million in cash, the goodwill
associated with which is being amortized over a ten-year period from the
acquisition date. We cannot assure you of the number, timing or size of future
acquisitions, or the effect that any such acquisitions might have on our
operating or financial results.
THE FINANCIAL INFORMATION CONCERNING BUSINESSES WE ACQUIRE MAY BE INACCURATE
A number of the Internet businesses we have acquired did not have audited
financial statements, and this may be true for subsequent acquisitions as well.
These companies often have varying degrees of internal controls and detailed
financial information, and the financial information we are able to provide for
recently completed acquisitions may not be audited. Our subsequent audits of
those acquired companies may reveal significant issues with respect to revenues,
expenses and liabilities, contingent or otherwise.
OUR OPERATING RESULTS FLUCTUATE DUE TO A VARIETY OF FACTORS AND ARE NOT
NECESSARILY A MEANINGFUL INDICATOR OF FUTURE PERFORMANCE
Our operating results have fluctuated in the past and may fluctuate
significantly in the future depending upon a variety of factors, including the
incurrence of capital costs and the introduction of new products and services.
Additional factors that may contribute to variability of operating results
include:
- the pricing and mix of services we offer;
- our customer retention rate;
- changes in pricing policies and product offerings by our competitors;
- growth in demand for network and Internet access services;
- one-time costs associated with acquisitions and the consolidation and
integration of our acquired operations; and
- general telecommunications services' performance and availability.
We also have experienced seasonal variation in Internet use. Accordingly,
our revenue streams may fluctuate. In response to competitive pressures, we may
take certain pricing or marketing actions that could have a material adverse
effect on our business, financial condition and results of operations.
Therefore, we believe that period-to-period comparisons of our operating results
are not necessarily meaningful and cannot be relied upon as indicators of future
performance. If our operating results in any future period fall below the
expectations of securities analysts and investors, the market price of our
securities would likely decline.
We depend on key personnel and could be affected by the loss of their
services because of the limited number of qualified people in our industry.
Competition for qualified employees and personnel in the Internet services
industry is intense and there are a limited number of people with knowledge of
and experience in the Internet services industry. The process of locating
personnel with the combination of skills and attributes required to carry out
our strategies is often lengthy. Our success depends to a significant degree
upon our ability to attract and retain qualified management, technical,
marketing and sales personnel and upon the continued contributions of such
people. We cannot assure you that we will be successful in attracting and
retaining qualified executives and personnel. In addition, our employees may
voluntarily terminate their employment with us at any time. The loss of the
services of key personnel or our failure to attract additional qualified
personnel could have a material adverse effect on our business, financial
condition and results of operations.
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OUR NOTES ARE EFFECTIVELY SUBORDINATED TO ALL OF OUR SECURED INDEBTEDNESS AND
THE LIABILITIES OF OUR SUBSIDIARIES
Our notes are general senior unsecured obligations, ranking pari passu in
right of payment with all of our existing and future unsecured and
unsubordinated indebtedness, in particular, the 1997 Notes, the March 1998
Notes, the November 1998 Notes, and the notes comprising this exchange offer,
and are senior in right of payment to all of our existing and future
subordinated indebtedness. Our notes are effectively subordinated to all of our
secured indebtedness to the extent of the value of the assets securing such
indebtedness, and structurally subordinated to all indebtedness of our
subsidiaries. At March 31, 2000, we had approximately $48.3 million of secured
indebtedness outstanding to which holders of our notes would have been
effectively subordinated in right of payment and approximately $24.6 million of
subsidiary indebtedness to which holders of our notes would have been
structurally subordinated. Our revolving credit facility is secured and
therefore our notes are effectively subordinated to the revolving credit
facility.
We are a holding company that conducts substantially all of our revenue
producing operations through our operating subsidiaries. Claims of holders of
our notes will be effectively subordinated to the indebtedness and other
liabilities and commitments of our subsidiaries and claims by Verio as an equity
holder in our non-wholly owned subsidiaries and minority interests will be
limited to the extent of our direct or indirect investment in such entities. The
ability of creditors, including the holders of our notes, to participate in the
assets of any of our subsidiaries upon any liquidation or bankruptcy of any such
entity will be subject to the prior claims of that entity's creditors, including
trade creditors, and any prior or equal claim of any other equity holder. In
addition, the ability of our creditors, including the holders of notes, to
participate in distributions of assets of our subsidiaries will be limited to
the extent that the outstanding shares of any of our subsidiaries are either
pledged to secure other creditors (which is the case under our revolving credit
facility) or are not owned by Verio.
WE WILL DEPEND UPON THE CASH FLOW OF OUR SUBSIDIARIES TO REPAY OUR NOTES
Our notes are obligations solely of Verio. Our ability to pay interest on
the notes or to repay the notes at maturity or otherwise will be dependent upon
the cash flows of our operating subsidiaries and the payment of funds by those
subsidiaries to us in the form of repayment of loans, dividends, management fees
or otherwise. Our operating subsidiaries have no obligation, contingent or
otherwise, to pay amounts pursuant to the notes or to make funds available
therefor, whether in the form of loans, dividends or other distributions. In
addition, to the extent we make minority investments and investments in joint
ventures as a part of our strategy, we may not have access to the cash flows of
such entities. Accordingly, our ability to repay the notes at maturity or
otherwise may be dependent upon our ability to refinance the notes, which will
in turn depend, in large part, upon factors beyond our control. While at the
present time there are no material agreements in place which prohibit or
restrict our subsidiaries' right or ability to make such payments, future
agreements may contain covenants prohibiting them from distributing or advancing
funds to Verio under certain circumstances, including to fund interest payments
in respect of the notes.
WE ARE SUBJECT TO RESTRICTIVE COVENANTS THAT LIMIT OUR FLEXIBILITY
Our $100.0 million revolving credit facility may only be used if we meet
certain financial tests. Our credit facility and other debt instruments contain
customary covenants limiting our flexibility, including covenants limiting our
ability to incur additional debt, make liens, make investments, consolidate,
merge or acquire other businesses and sell assets, pay dividends and other
distributions, make capital expenditures and enter into transactions with
affiliates. Such covenants may make it difficult for us to pursue our business
strategies. Failure to comply with the terms of the credit facility would
entitle the secured lenders to foreclose on certain of our assets, including the
capital stock of our subsidiaries. The secured lenders would be repaid from the
proceeds of the liquidation of those assets before the assets would be available
for distribution to other creditors and, lastly, to the holders of Verio's
capital stock. Our ability to satisfy the financial and other restrictive
covenants may be affected by events beyond our control.
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WE MAY BE UNABLE TO RAISE ADDITIONAL FUNDS THAT WE WILL NEED TO REMAIN
COMPETITIVE
We depend on a number of different financing sources to fund our growth and
continued losses from operations. However, we cannot assure you that we will be
able to raise such funds on favorable terms or at all. In the event that we are
unable to obtain such additional funds on acceptable terms or otherwise, we may
be unable or determine not to take advantage of new opportunities or take other
actions that otherwise might be important to our operations.
We expect to make significant capital expenditures in order to maintain our
competitive position and continue to meet the increasing demands for service
quality, availability and competitive pricing. In addition to our continuing
acquisition efforts, we currently expect that our significant capital
expenditures will include the following:
- network equipment;
- network operating and data centers;
- network monitoring equipment;
- information technology systems; and
- customer support systems.
We believe that we will have a reasonable degree of flexibility to adjust
the amount and timing of these capital expenditures. However, we may need to
raise additional funds in order to take advantage of unanticipated
opportunities, such as acquisition opportunities that may arise in the U.S. and
internationally. In addition, we may need to raise additional funds to develop
new products or otherwise respond to changing business conditions or
unanticipated competitive pressures. We may be required to delay or abandon some
of our planned future expansion or expenditures if we fail to raise sufficient
funds.
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THE EXCHANGE OFFER
The following discussion summarizes the provisions of a registration rights
agreement that we entered into with the initial purchasers of the old notes. It
does not purport to be complete and reference is made to the provisions of the
registration rights agreement, which has been filed as an exhibit to the
registration statement of which this prospectus constitutes a part, and copies
of which are available upon request to Verio.
PURPOSE AND EFFECT
The old notes were sold by us to Salomon Smith Barney Inc., Donaldson,
Lufkin & Jenrette Securities Corporation and Morgan Stanley Dean Witter, as
initial purchasers, on November 16, 1999. The initial purchasers subsequently
resold the old notes in reliance on Rule 144A under the Securities Act. We
entered into a registration rights agreement with the initial purchasers that
requires, among other things, that we:
- file, on or prior to February 17, 2000, a registration statement with the
Securities and Exchange Commission under the Securities Act concerning
the exchange offer with respect to the notes;
- use our best efforts (a) to cause the registration statement to be
declared effective by the Securities and Exchange Commission on or before
May 17, 2000, and (b) to complete the exchange offer on or before June
16, 2000; and
- keep the exchange offer open for a period of not less than 20 business
days (or longer if required by applicable law) after the date the notice
of the exchange offer is mailed to the holders of the old notes.
The exchange offer is intended to satisfy our obligations under the
registration rights agreement.
By tendering, each registered holder will represent to us that, among other
things:
(1) any new notes received will be acquired by the holder and the
beneficial owner of the old notes in the ordinary course of business of the
holder and each beneficial owner;
(2) the holder and the beneficial owner are not participating, do not
intend to participate, and have no arrangement or understanding with any
person to participate, in the distribution of the new notes;
(3) the holder and the beneficial owner acknowledge and agree that any
person participating in the exchange offer for the purpose of distributing
the new notes must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction of the new notes acquired by such person and cannot rely on the
position of the staff of the Securities and Exchange Commission in its
no-action letters that are discussed below under "-- Resales of New Notes;"
(4) that if the holder is a broker-dealer that acquired old notes as a
result of market making or other trading activities, it will deliver a
prospectus in connection with any resale of new notes acquired in such
exchange offer;
(5) the holder and the beneficial owner understand that a secondary
resale transaction described in clause (3) above should be covered by an
effective registration statement containing the selling security holder
information required by item 507 of Regulation S-K of the Securities and
Exchange Commission; and
(6) neither the holder nor the beneficial owner is an "affiliate," as
defined under Rule 405 of the Securities Act, of Verio except as otherwise
disclosed to Verio in writing.
In connection with a book-entry transfer, each participant will confirm
that it makes the representations and warranties contained in the letter of
transmittal.
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CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
After the exchange offer expires, holders of old notes not tendered, or not
properly tendered, will not have any further registration rights. These old
notes will continue to be subject to the existing transfer restrictions.
Accordingly, the liquidity of the market for a holder's old notes could be
adversely affected after the exchange offer expires if such holder elects not to
participate in the exchange offer.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions described below, the
registration rights agreement and the accompanying letter of transmittal, we
will accept for exchange any and all old notes that are validly tendered on or
prior to 5:00 p.m., New York City time, on the expiration date upon satisfaction
or waiver of all the conditions to the exchange offer. The new notes will be
delivered promptly after acceptance of the old notes.
We will issue $1,000 principal amount of new notes in exchange of each
$1,000 principal amount of outstanding old notes accepted in the exchange offer.
You may tender some or all of your old notes in the exchange offer. However, old
notes may be tendered only in integral multiples of $1,000. The new notes will
evidence the same debt as the old notes and will be entitled to the benefits of
the indenture. The form and terms of the new notes are substantially the same as
the form and terms of the old notes, except that:
- the new notes have been registered under the Securities Act and will not
bear legends restricting their transfer; and
- holders of the new notes generally will not be entitled to certain rights
under the registration rights agreement, which rights generally will
terminate upon completion of the exchange offer.
You may withdraw the tender of your old notes at any time prior to 5:00
p.m., New York City time, on the expiration date. The exchange offer is not
conditioned upon any minimum principal amount of old notes being tendered for
exchange. See "-- Conditions of the Exchange Offer."
As of the date of this prospectus, $400.0 million in aggregate principal
amount of the old notes is outstanding. As of May 8, 2000, there was one
registered holder of old notes with approximately 38 Depository Trust Company
participants. Only a holder of the old notes, or such holder's legal
representative or attorney-in-fact, may participate in the exchange offer. There
will be no fixed record date for determining holders of the old notes entitled
to participate in the exchange offer. We believe that, as of the date of this
prospectus, no holder of old notes is an "affiliate," as defined in Rule 405
under the Securities Act, of Verio.
We will be deemed to have accepted validly tendered notes when, as and if
we have given oral or written notice to the exchange agent. The exchange agent
will act as agent for the tendering holders of old notes and for the purposes of
receiving the new notes from us. Issuances of new notes for old notes that are
accepted in the exchange offer will be made only after timely receipt by the
exchange agent of such old notes, a properly completed and duly executed letter
of transmittal and all other required documents, or of confirmation of a
book-entry transfer of such old notes into the exchange agent's account at the
Depository Trust Company; provided, however, that we reserve the absolute right
to waive any defects or irregularities in the tender or conditions of the
exchange offer. If any tendered old notes are not accepted for exchange because
of an invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any unaccepted old notes will be returned, without
expense, to the tendering holder as promptly as practicable after the expiration
date.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The expiration date shall be June 14, 2000 at 5:00 p.m., New York City
time, unless we decide in our sole discretion to extend the exchange offer, in
which case the expiration date shall be the latest date and time to which the
exchange offer is extended.
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In order to extend the exchange offer, we will notify the exchange agent of
any extension by oral or written notice and will make a public announcement,
each prior to 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date.
We reserve the right, in our sole discretion, (1) to delay accepting any
old notes, (2) to extend the exchange offer, and (3) to amend the terms of the
exchange offer in any manner. Any such delay in acceptance, extension or
amendment will be followed as promptly as practicable by a public announcement.
If the exchange offer is amended in a manner determined by us to constitute a
material change, we will promptly disclose such amendments by means of a
prospectus supplement that will be distributed to the registered holders of the
old notes subject to the exchange offer. Modifications of the exchange offer,
including but not limited to extension of the period during which the exchange
offer is open, may require that at least five business days remain in the
exchange offer.
CONDITIONS OF THE EXCHANGE OFFER
The exchange offer is not conditioned upon any minimum principal amount of
the old notes being tendered for exchange. However, the exchange offer is
conditioned upon the declaration by the Securities and Exchange Commission of
the effectiveness of the registration statement of which this prospectus
constitutes a part.
ACCRUED INTEREST
The new notes will bear interest at a rate equal to 10 5/8% per annum from
and including their date of issuance. Holders whose old notes are accepted for
exchange will have the right to receive accrued interest from the last date on
which interest was paid on the old notes, or if no interest had been paid on
such old notes, from the date of their original issue, to, but not including,
the date of issuance of the new notes accepted for exchange. Interest accrued on
the old notes at the rate of 10 5/8% per annum, and will cease to accrue on the
day the issuance of the new notes. See "Description of the Notes -- Maturity,
Interest and Principal."
PROCEDURE FOR TENDERING OLD NOTES
The tender by a holder and the acceptance by Verio will constitute a
binding agreement between the tendering holder and Verio upon the terms and
subject to the conditions contained in this prospectus and in the accompanying
letter of transmittal.
Except as described below, a holder who wishes to tender old notes in the
exchange offer must transmit such old notes, together with a properly completed
and signed letter of transmittal, including all other documents required by such
letter of transmittal, to the exchange agent prior to 5:00 p.m., New York City
time, on the expiration date. The method of delivery of old notes, letters of
transmittal and all other required documents is at the election and risk of the
holder. If such delivery is by mail, it is recommended that registered mail,
properly insured, with return receipt requested, be used. Instead of delivery by
mail, it is recommended that the holder use an overnight or hand delivery
service. In all cases, sufficient time should be allowed to ensure timely
delivery.
Any financial institution that is a participant in the Depository Trust
Company's book-entry transfer facility system may make book-entry delivery of
the old notes by causing the Depository Trust Company to transfer such old notes
into the exchange agent's account in accordance with the Depository Trust
Company's procedures for such transfer. In connection with a book-entry
transfer, a letter of transmittal need not be transmitted to the exchange agent,
provided that the book-entry transfer procedure is made in accordance with the
Depository Trust Company's Automated Tender Offer Program procedures for
transfer and such procedures are complied with prior to 5:00 p.m., New York City
time, on the expiration date.
The Depository Trust Company's Automated Tender Offer Program is the only
method of processing exchange offers through the Depository Trust Company. To
accept the exchange offer through the Automated Tender Offer Program,
participants in the Depository Trust Company must send electronic instructions
to the
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Depository Trust Company through the Depository Trust Company's communication
system, prior to 5:00 p.m., New York City time, on the expiration date, in place
of sending a signed, hard copy letter of transmittal. The Depository Trust
Company is obligated to communicate those electronic instructions to the
exchange agent by an agent's message. The term "agent's message" means a message
transmitted by the Depository Trust Company received by the exchange agent and
forming part of the book-entry confirmation, which states:
- that the Depository Trust Company has received an express acknowledgment
from a participant in the Depository Trust Company's Automated Tender
Offer Program that is tendering old notes which are the subject of such
book entry confirmation; and
- that such participant has received and agrees to be bound by the terms of
the letter of transmittal, or, in the case of an agent's message relating
to guaranteed delivery, that such participant has received, and agrees to
be bound by the applicable notice of guaranteed delivery, and that the
agreement may be enforced against such participant.
To tender old notes through the Automated Tender Offer Program, the electronic
instructions sent to the Depository Trust Company and transmitted by the
Depository Trust Company to the exchange agent must contain the participant's
acknowledgement of its receipt of and agreement to be bound by the letter of
transmittal for such old notes.
Each signature on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the old notes surrendered for exchange
are tendered (1) by a registered holder of the old notes who has not completed
either the box entitled "Special Exchange Instructions" or the box entitled
"Special Delivery Instructions" in the letter of transmittal, or (2) for the
account of an eligible institution, which means a firm which is a member of a
registered national securities exchange or the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the U.S. or otherwise is an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act.
In the event that a signature on a letter of transmittal or a notice of
withdrawal, as the case may be, is required to be guaranteed, such guarantee
must be by an eligible institution. If the letter of transmittal is signed by a
person other than the registered holder of the old notes, the old notes
surrendered for exchange must be endorsed or accompanied by a properly completed
bond power, in form satisfactory to us in our sole discretion, signed by the
registered holder, as such registered holder's name appears on such old notes,
with the signature guaranteed by an eligible institution.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance and withdrawal of old notes tendered for exchange will be
determined by us in our sole discretion, which determination will be final and
binding. We reserve the absolute right to reject any and all old notes not
properly tendered and to reject any old notes acceptance of which might, in our
judgment or the judgment of our counsel, be unlawful. We also reserve the
absolute right to waive any defects or irregularities or conditions of the
exchange offer as to particular old notes either before or after the expiration
date, including the right to waive the ineligibility of any holder who seeks to
tender old notes in the exchange offer. The interpretation of the terms and
conditions of the exchange offer, including the letter of transmittal and the
instructions thereto, by us will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of old notes
for exchange must be cured within such period of time as we shall determine.
Although we will use reasonable efforts to notify holders of defects or
irregularities with respect to tenders of old notes, none of Verio, the exchange
agent or any other person shall incur any liability for failure to give such
notification. Tenders of the old notes will not be deemed to have been made
until such irregularities have been cured or waived.
If any letter of transmittal, endorsement, bond power, power of attorney or
any other document required by the letter of transmittal is signed by a trustee,
executor, corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and, unless waived by us,
proper evidence satisfactory to us, in our sole discretion, of such person's
authority to so act must be submitted.
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<PAGE> 33
If you are a beneficial owner of old notes and the old notes are registered
in the name of a broker, dealer, commercial bank, trust company or other
nominee, and you wish to tender old notes in the exchange offer, you should
contact such registered holder promptly and instruct such registered holder to
tender on your behalf. If you are a beneficial owner and you wish to tender
directly, you must, prior to completing and executing the letter of transmittal
and tendering old notes, make appropriate arrangements to register ownership of
the old notes in your name. Beneficial owners should be aware that the transfer
of registered ownership may take considerable time.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their old notes and (1) whose old notes are not
immediately available, (2) who cannot deliver their old notes or any other
documents required by the letter of transmittal to the exchange agent prior to
the expiration date, or (3) who cannot complete the procedure for book-entry
transfer on a timely basis, may effect a tender if:
(a) the tender is made by or through an eligible institution and a
notice of guaranteed delivery is signed by such holder;
(b) on or prior to the expiration date, the exchange agent receives
from the holder and the eligible institution a properly completed and duly
executed notice of guaranteed delivery, by facsimile transmission, mail or
hand delivery, containing the name and address of the holder, the
certificate number or numbers of the tendered old notes, and the principal
amount of tendered old notes, stating that the tender is being made thereby
and guaranteeing that, within five New York Stock Exchange trading days
after the date of delivery of the notice of guaranteed delivery, the
tendered old notes, a duly executed letter of transmittal and any other
required documents will be deposited by the eligible institution with the
exchange agent; and
(c) such properly completed and executed documents required by the
letter of transmittal and the tendered old notes in proper form for
transfer, or confirmation of a book-entry transfer of such old notes into
the exchange agent's account at the Depository Trust Company, is received
by the exchange agent within five New York Stock Exchange trading days
after the expiration date.
Any holder who wishes to tender old notes pursuant to the guaranteed
delivery procedures described above must ensure that the exchange agent receives
the notice of guaranteed delivery and letter of transmittal relating to such old
notes prior to 5:00 p.m., New York City time, on the expiration date. The
Depository Trust Company participants may also submit the notice of guaranteed
delivery through the Automated Tender Offer Program.
WITHDRAWAL RIGHTS
Tenders of the old notes may be withdrawn, at any time prior to 5:00 p.m.,
New York City time, on the expiration date. To withdraw a tender of old notes in
the exchange offer, a written notice must be received by the exchange agent, at
its address set forth on the back cover page of this prospectus, or holders must
comply with the appropriate procedures of the Depository Trust Company's
Automated Tender Offer Program. Any such notice of withdrawal must:
- specify the name of the person having deposited the old notes to be
withdrawn;
- identify the old notes to be withdrawn, including the certificate number
or numbers and principal amount of such old notes, as applicable;
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which such old notes were tendered,
including any required signature guarantees, or be accompanied by a bond
power in the name of the person withdrawing the tender, in a form
satisfactory to us in our sole discretion, duly executed by the
registered holder, with the signature thereon guaranteed by an eligible
institution together with the other documents required upon transfer by
the indenture; and
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<PAGE> 34
- specify the name in which such old notes are to be re-registered, if
different from the person depositing the old notes to be withdrawn.
Any questions as to the validity, form and eligibility, including time of
receipt, of such notices will be determined by us, in our sole discretion. The
withdrawn old notes will be deemed not to have been validly tendered for
exchange for purposes of the exchange offer. Any old notes which have been
tendered for exchange but which are withdrawn will be returned to the holder
without cost to such holder as soon as practicable after withdrawal. Properly
withdrawn old notes may be retendered by following one of the procedures
described under " -- Procedure for Tendering Old Notes" at any time on or prior
to the expiration date.
THE EXCHANGE AGENT; ASSISTANCE
U.S. Bank Trust National Association is the exchange agent for the exchange
offer. Questions and requests for assistance and requests for additional copies
of this prospectus, the letter of transmittal and other related documents should
be addressed to the exchange agent as follows:
By Hand, or Overnight Courier:
U.S. BANK TRUST NATIONAL ASSOCIATION
180 East Fifth Street
St. Paul, MN 55101
Attn: Specialized Finance Department
Facsimile Transmissions (Eligible Institutions Only):
(651) 244-1537
To confirm by telephone or for information call:
(651) 244-5011
By Mail:
U.S. BANK TRUST NATIONAL ASSOCIATION
180 East Fifth Street
St. Paul, MN 55101
Attn: Specialized Finance Department
FEES AND EXPENSES
All expenses incurred in completing the exchange offer and complying with
the registration rights agreement, will be borne by Verio, including, without
limitation:
- all applicable Securities and Exchange Commission, stock exchange or
National Association of Securities Dealers, Inc. registration and filing
fees;
- 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 qualifications of any of the new notes, and compliance with the
rules of the National Association of Securities Dealers, Inc.;
- all applicable expenses we incur 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 the registration rights agreement;
- all rating agency fees, if any; and
- the fees and disbursements of counsel.
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<PAGE> 35
We estimate that the amount of these fees and expenses will be
approximately $450,000.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers others soliciting
acceptance of the exchange offer. We, however, will pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection therewith.
We will pay all transfer taxes, if any, applicable to the exchange of old
notes pursuant to the exchange offer. If, however, a transfer tax is imposed for
any reason other than the exchange of old notes pursuant to the exchange offer,
then the amount of any such transfer taxes, whether imposed on the registered
holder or any other persons, will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption is not submitted
with the letter of transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.
ACCOUNTING TREATMENT
The new notes will be recorded at the same carrying value as the old notes,
as reflected in Verio's accounting records on the date of the exchange.
Accordingly, no gain or loss will be recognized by Verio for accounting
purposes. The costs of the exchange offer will be amortized over the term of the
new notes.
RESALES OF THE NEW NOTES
Based on the position of the staff of the Securities and Exchange
Commission contained in no-action letters issued to third parties, we believe
that the new notes issued pursuant to the exchange offer to any holder of old
notes in exchange for old notes may be offered for resale, resold and otherwise
transferred by such holder without further compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such holder
is acquiring the new notes in the ordinary course of business and is not
participating, and has no arrangement or understanding with any person to
participate, in the distribution of the new notes. This does not apply to a
broker-dealer who purchased old notes directly from Verio for resale pursuant to
Rule 144A under the Securities Act or any other available exemption under the
Securities Act, or a person that is an "affiliate" of Verio within the meaning
of Rule 405 under the Securities Act.
We have not sought our own interpretive letter and there can be no
assurance that the Securities and Exchange Commission would make a similar
determination with respect to the exchange offer. Verio and holders of old notes
are not entitled to rely on interpretive advice provided by the staff or other
persons, which advice was based on the facts and conditions represented in such
letters. However, the exchange offer is being conducted in a manner intended to
be consistent with the facts and conditions represented in such letters. If any
holder acquires new notes in the exchange offer for the purpose of distributing
or participating in a distribution of the new notes, such holder cannot rely on
the position of the staff of the Securities and Exchange Commission enunciated
in Morgan Stanley & Co. Incorporated, available June 5, 1991, and Exxon Capital
Holdings Corporation, available May 13, 1989, or interpreted in the Securities
and Exchange Commission's letter to Shearman and Sterling, available July 2,
1993, or similar no-action or interpretive letters. The holder must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction, unless an exemption from
registration is otherwise available. Each broker-dealer that receives new notes
for its own account in exchange for old notes, where such old notes were
acquired by such broker-dealer as a result of market making or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such new notes. See "Plan of Distribution."
It is expected that the new notes will be freely transferable by the
holders thereof, subject to the limitations described in the immediately
preceding paragraph. Sales of new notes acquired in the exchange offer by
holders who are "affiliates" of Verio within the meaning of the Securities Act
will be subject to certain limitations on resale under Rule 144 of the
Securities Act, if applicable. Such persons will only be entitled to sell new
notes in compliance with the volume limitations set forth in Rule 144, and sales
of new notes by affiliates will be subject to certain Rule 144 requirements as
to the manner of sale, notice and the availability of current public information
regarding Verio. The foregoing is a summary only of Rule 144 as it
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<PAGE> 36
may apply to affiliates of Verio. Any such persons must consult their own legal
counsel for advice as to any restrictions that might apply to the resale of
their new notes.
USE OF PROCEEDS
We will receive no cash proceeds from the issuance of the new notes
pursuant to the exchange offer.
The exchange offer is intended to satisfy our obligations under the
registration rights agreement. In consideration for issuing the new notes as
contemplated in this prospectus, we will receive in exchange old notes in like
principal amount, the form and terms of which are the same in all material
respects as the form and terms of the new notes except that the new notes will
be registered under the Securities Act and hence do not include registration
rights. The old notes surrendered in exchange for new notes will be retired and
canceled and cannot be reissued. Accordingly, issuance of the new notes will not
increase our total debt.
The net proceeds from the offering of the old notes, after deducting the
initial purchasers' discounts and expenses, were approximately $388.0 million.
As of March 31, 2000, we had not used any of the net proceeds from the sale of
the old notes. The net proceeds from the sale of the old notes are expected to
be used to further our 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
our general working capital purposes. Pending application of the proceeds as
described above, we have invested the net proceeds of the issuance of the old
notes in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
Verio has never declared or paid any dividends on its common stock and does
not expect to pay dividends in the foreseeable future. Our current policy is to
retain all of our earnings, if any, to finance future growth and acquisitions.
Furthermore, the terms of the indentures relating to the notes, the 1997 Notes,
the March 1998 Notes and the November 1998 Notes, as well as the $100.0 million
revolving credit facility, place limitations on our ability to pay dividends.
Future dividends, if any, will be at the discretion of our board of directors
and will depend upon, among other things, our operations, capital requirements
and surplus, general financial condition, contractual restrictions and such
other factors as our board may deem relevant.
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<PAGE> 37
CAPITALIZATION
The following table sets forth the cash and cash equivalents, restricted
cash and securities, long-term debt and capital lease obligations, and the
capitalization of Verio at March 31, 2000.
Long-term liabilities do not include any amounts related to our $100.0
million revolving credit facility, which matures in September 2002 and which has
never been drawn. Stockholders' equity does not include approximately 14.4
million shares of our common stock reserved for issuance pursuant to outstanding
stock options or approximately 2.7 million shares issuable upon exercise of
outstanding warrants, each as of March 31, 2000.
This table should be read in conjunction with the "Selected Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our Consolidated Financial Statements and related
notes incorporated in this prospectus by reference.
<TABLE>
<CAPTION>
AS OF
MARCH 31, 2000
--------------
ACTUAL
--------------
(IN THOUSANDS)
<S> <C>
Cash and cash equivalents and securities available for
sale...................................................... $ 834,872
Restricted cash and securities.............................. 14,388
==========
Long-term debt and capital lease obligations, net of current
portions, and other long-term liabilities................. 1,096,318
----------
Stockholders equity:
Convertible preferred stock; 12,500,000 shares authorized;
7,200,000 shares of 6.75% Series A issued and
outstanding -- liquidation preference of
$360,000,000........................................... 347,216
Common stock, par value $0.001 per share; 250,000,000
shares authorized; 80,980,754 shares issued and
79,620,754 shares outstanding; and additional paid in
capital................................................ 502,452
Accumulated deficit....................................... (439,315)
Other comprehensive income................................ 123,821
----------
Total stockholders' equity........................ 534,174
----------
Total capitalization.............................. $1,630,492
==========
</TABLE>
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<PAGE> 38
DESCRIPTION OF THE NOTES
The old notes were issued and the new notes will be issued under the
indenture between Verio and U.S. Bank Trust National Association, as trustee.
The indenture is subject to and governed by the Trust Indenture Act of 1939, as
amended. Except as otherwise indicated, the following summary applies to both
the old notes and the new notes. In this summary, the word "Verio" refers to
Verio and not to any of its subsidiaries, and the term "notes" means the old
notes and the new notes. A copy of the indenture is available upon request to
Verio, 8005 South Chester Street, Suite 200, Englewood, Colorado 80112;
attention: General Counsel; telephone: (303) 645-1900.
The form and terms of the new notes will be identical in all material
respects to the form and terms of the old notes, except that the new notes will
be registered under the Securities Act. As a result, the new notes will not be
subject to some of the transfer restrictions and registration rights applicable
to the old notes. See "The Exchange Offer."
The following is a summary of material provisions of the new notes. It does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, the Trust Indenture Act, and to all of the provisions of the
indenture, including the definitions of certain terms and those terms made a
part of the indenture by reference to the Trust Indenture Act, as in effect on
the date of the indenture. We urge you to read the indenture because it, and not
this summary, defines your rights as holders of the notes. For definitions of
certain capitalized terms used in the following summary, see "Certain
Definitions."
GENERAL
The notes:
- are general unsecured obligations of Verio;
- rank equally with all Verio's unsecured unsubordinated indebtedness;
- are senior to all Verio's unsecured subordinated indebtedness;
- are subordinated to all Verio's secured indebtedness and indebtedness of
Verio's subsidiaries;
- have been issued only in fully registered form without coupons, in
denominations of $1,000 principal amount and integral multiples of such
amount; and
- will not be subject to any service charge for any registration of
transfer, exchange or redemption, except in certain circumstances, a tax
or other governmental charge may be imposed.
Principal of, premium, if any, and interest on the notes are payable, and
the notes are exchangeable and transferable, at the office or agency of Verio in
New York City maintained for such purposes, which initially will be the
corporate trust office of the trustee. See " -- Book-Entry; Delivery and Form."
MATURITY, INTEREST AND PRINCIPAL
The notes are limited to $400,000,000 aggregate principal amount and will
mature on November 15, 2009. Verio will not be required to make any mandatory
sinking fund payments in respect of the notes. Interest on the notes will accrue
at a rate of 10 5/8% per annum and be payable in cash semi-annually in arrears
on May 15 and November 15, commencing May 15, 2000. Verio will make each
interest payment to the registered holders on the immediately preceding May 1 or
November 1, as the case may be. Interest on the notes will accrue from the most
recent interest payment date to which interest has been paid or duly provided
for or, if no interest has been paid or duly provided for, from the Issue Date.
Cash interest will be computed on the basis of a 360-day year of twelve 30-day
months. If Verio defaults on any payment of principal and/or premium, whether
upon redemption or otherwise, cash interest will accrue on the amount in default
at the rate of interest borne by the notes. Interest on overdue principal and
premium and, to the extent permitted by law, on overdue installments of interest
will accrue at the rate of interest borne by the notes.
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<PAGE> 39
REDEMPTION
Optional Redemption. The notes are redeemable, at Verio's option, in whole
or in part, on or after November 15, 2004 upon not less than 30 nor more than 60
days' written notice. The notes may be redeemed at the following redemption
prices, expressed as a percentage of principal amount, plus accrued and unpaid
interest, if any, to the applicable redemption date, if redeemed during the
twelve-month period beginning on November 15 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2004........................................................ 105.313%
2005........................................................ 103.542%
2006........................................................ 101.771%
2007........................................................ 100.000%
</TABLE>
In addition, prior to November 15, 2002, Verio may redeem, at its option,
up to a maximum of 35% of the initially outstanding aggregate principal amount
of notes from the net proceeds of an Equity Sale -- which is the issuance in one
or more transactions of Capital Stock, other than Disqualified Stock, of Verio
to one or more Strategic Equity Investors or in any Equity Offering -- at a
redemption price equal to 110.625% of the principal amount of the notes,
together with accrued and unpaid interest to the date of redemption. However, at
least $260.0 million aggregate principal amount of notes must be outstanding
following such redemption. Any such redemption may only be effected once and
must be effected upon not less than 30 nor more than 60 days' notice given
within 180 days after such Equity Sale.
Selection; Effect of Redemption Notice. If less than all the notes are to
be redeemed, selection of the notes for redemption will be made pro rata, by lot
or such other method as the trustee in its sole discretion deems appropriate and
just. However, any redemption pursuant to the provisions relating to an Equity
Sale will be made on a pro rata basis or on as nearly a pro rata basis as
practicable, subject to the Depository Trust Company's procedures. No notes of a
principal amount of $1,000 or less may be redeemed in part. Notice of redemption
will be mailed by first-class mail at least 30 but not more than 60 days before
the redemption date to each holder of notes to be redeemed at its registered
address. If any note is to be redeemed in part only, the notice of redemption
that relates to such note must state the portion of the principal amount to be
redeemed. A new note in a principal amount equal to the unredeemed portion will
be issued in the name of the holder upon surrender for cancellation of the
original note. Upon giving of a redemption notice, interest on the notes called
for redemption will cease to accrue from and after the date fixed for redemption
and such notes will cease to be outstanding. Interest on the notes will continue
to accrue if Verio defaults in providing the funds for such redemption.
RANKING
The indebtedness evidenced by the notes ranks:
- senior in right of payment to all subordinated indebtedness of Verio;
- equally in right of payment with all other existing and future
unsubordinated indebtedness of Verio including the 1997 Notes, the March
1998 Notes and the November 1998 Notes; and
- junior to all Verio's secured indebtedness and indebtedness of its
subsidiaries.
Verio has no existing unsecured and unsubordinated indebtedness or any
existing subordinated indebtedness. Accordingly, there is no existing debt that
is subordinated to the notes.
Verio is a holding company with limited assets and no significant business
operations of its own. Verio operates its business through its subsidiaries. Any
right of Verio and its creditors, including holders of the notes, to participate
in the assets of any of Verio's subsidiaries upon any liquidation or
administration of any such subsidiary will be subject to the prior claims of the
subsidiary's creditors, including trade creditors. As of March 31, 2000, Verio
had approximately $48.3 million of secured indebtedness outstanding to which
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<PAGE> 40
holders of notes would have been effectively subordinated in right of payment
and approximately $24.6 million of subsidiary indebtedness to which holders of
notes would have been structurally subordinated, all of which is included in the
secured long-term figure above. In addition, the $100.0 million revolving credit
facility is secured by certain assets, including the equity of the subsidiaries
that Verio owns currently or may own in the future, and thus the notes are
effectively subordinated to the credit facility to the extent of the value of
such assets. For a discussion of certain adverse consequences of Verio being a
holding company and of the terms of potential future indebtedness of Verio and
its subsidiaries, see "Risk Factors -- The notes are effectively subordinated to
all of our secured indebtedness and the liabilities of our subsidiaries."
CERTAIN COVENANTS
The indenture contains, among others, the following covenants:
Limitation on Additional Indebtedness. Verio will not, and will not permit
any Restricted Subsidiary to, directly or indirectly, incur any Indebtedness
(including any Acquired Indebtedness), except for Permitted Indebtedness
(including Acquired Indebtedness to the extent it would constitute Permitted
Indebtedness); provided, however, that:
(1) Verio will be permitted to incur Indebtedness (including Acquired
Indebtedness); and
(2) a Restricted Subsidiary will be permitted to incur Acquired
Indebtedness,
if, in either case, after giving pro forma effect to such incurrence, including
the application of the net proceeds therefrom, the ratio of Total Consolidated
Indebtedness to Consolidated Annualized Pro Forma Operating Cash Flow would be
less than 6.0 to 1.0.
Limitation on Restricted Payments. Verio will not, and will not permit any
of the Restricted Subsidiaries to, make, directly or indirectly, any Restricted
Payment unless:
(1) no Default shall have occurred and be continuing at the time of or
upon giving effect to such Restricted Payment;
(2) immediately after giving effect to such Restricted Payment, Verio
would be able to incur $1.00 of Indebtedness under the proviso of the
covenant "Limitation on Additional Indebtedness;" and
(3) 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 made on or after the Issue Date
does not exceed an amount equal to the sum of, without duplication:
(a) 50% of the Consolidated Net Income of Verio accrued on a
cumulative basis during the period beginning on October 1, 1999 and
ending on the last day of the fiscal quarter of Verio immediately
preceding the date of such proposed Restricted Payment (or, if such
cumulative Consolidated Net Income of Verio for such period is a
deficit, minus 100% of such deficit); plus
(b) the aggregate net cash proceeds received by Verio either (x) as
capital contributions to Verio after the Issue Date or (y) from the
issue and sale (other than to a Restricted Subsidiary of Verio) 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 Verio from the issuance
(other than to a Restricted Subsidiary of Verio) on or after the Issue
Date of its Capital Stock (other than Disqualified Stock) upon the
conversion of, or in exchange for, Indebtedness of Verio; 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 (x) pursuant to clause (6) of
the second following paragraph that are not subject to clause (e) of
this paragraph below, and (y) pursuant to clause (7) 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
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<PAGE> 41
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
Verio 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 Verio and
the Restricted Subsidiaries in such Subsidiary at the time of
Revocation; plus
(f) the amount of capacity available for "Restricted Payments"
under clause (iii) of the first paragraph under the covenant "Limitation
on Restricted Payments" under the November 1998 Note Indenture (which is
similar to this paragraph) determined as of the Issue Date (without
regard to clause (i) or (ii) of such covenant but taking account of the
effect of the balance of such covenant, in each case as of the Issue
Date).
For purposes of the preceding clauses (b)(y) and (c), as applicable, the
value of the aggregate net proceeds received by Verio 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 Verio 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 covenant shall not prohibit the following (each of
which shall be given independent effect):
(1) 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;
(2) the purchase, redemption, retirement or other acquisition of any
shares of Capital Stock of Verio in exchange for, or out of the net cash
proceeds of the substantially concurrent issue and sale (other than to a
Restricted Subsidiary of Verio) of, shares of Capital Stock of Verio (other
than Disqualified Stock); provided that any such net cash proceeds are
excluded from clause (3)(b) of the second preceding paragraph;
(3) so long as no Default shall have occurred and be continuing, the
purchase, redemption, retirement, defeasance or other acquisition of
Subordinated Indebtedness made by exchange for, or out of the net cash
proceeds of, a substantially concurrent issue and sale (other than to a
Restricted Subsidiary of Verio) of (x) Capital Stock (other than
Disqualified Stock) of Verio 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 (3)(b) of
the second preceding paragraph;
(4) bonds, notes, debentures or other securities received as a result
of Asset Sales pursuant to and in compliance with the covenant "Disposition
of Proceeds of Asset Sales;"
(5) 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 Verio 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;
(6) 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 Verio or (2) issue or sale of Capital Stock (other than
Disqualified Stock) of Verio (other than to a Restricted Subsidiary of
Verio); provided that any such proceeds are excluded from clause (3)(b) of
the second preceding paragraph;
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(7) loans or advances to employees of Verio or any Restricted
Subsidiary made in the ordinary course of business, including to fund the
purchase of Capital Stock of Verio (provided that any proceeds from such
purchase are excluded from clause (3)(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; and
(8) cash payments in lieu of fractional shares pursuant to any
warrant, option or other similar agreement.
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 clause
(3) of the first paragraph of this covenant, amounts expended since the Issue
Date pursuant to clauses (1), (4) and (5) of the second preceding paragraph
above shall be included, without duplication, as Restricted Payments.
Limitation on Liens Securing Certain Indebtedness. Verio will not, and will
not permit any Restricted Subsidiary to, create, incur, assume or suffer to
exist any Liens of any kind against or upon any property or assets of Verio 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 Verio 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.
Limitation on Business. Verio will not, and will not permit any of the
Restricted Subsidiaries to, engage in a business which is not substantially an
Internet Service Business.
Limitation on Certain Guarantees and Indebtedness of Restricted
Subsidiaries. Verio will not permit any Restricted Subsidiary, directly or
indirectly, to assume, guarantee or in any other manner become liable with
respect to:
(1) any Subordinated Indebtedness; or
(2) any Indebtedness of Verio that is not Subordinated Indebtedness
(other than, in the case of this clause (2), 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 (2), as the case may be. Each guarantee created pursuant to such
provisions is referred to as a "Guarantee" and the issuer of each such
Guarantee, so long as the Guarantee remains outstanding, is referred to as a
"Guarantor."
Notwithstanding the foregoing, in the event of the unconditional release of
any Guarantor from its obligations in respect of the Indebtedness which gave
rise to the requirement that a Guarantee be given, such Guarantor shall be
released from all obligations under its Guarantee. In addition, upon any sale or
disposition (by merger or otherwise) of any Guarantor by Verio or a Restricted
Subsidiary of Verio to any person that is not an Affiliate of Verio or any of
its Restricted Subsidiaries which is otherwise in compliance with the terms of
the Indenture and as a result of which such Guarantor ceases to be a Restricted
Subsidiary of Verio, 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 the "Disposition
of Proceeds of Asset Sales" covenant.
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Change of Control. If a Change of Control occurs (the date being the
"Change of Control Date"), Verio 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.
Except as described above with respect to a Change of Control, the
indenture will not contain provisions that permit the holders of the notes to
require that Verio 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 Verio
will have available funds sufficient to pay for all of the notes that might be
delivered by holders of notes seeking to accept the Change of Control Offer.
Verio 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 Verio and purchases all notes validly tendered
and not withdrawn under such Change of Control Offer.
If Verio is required to make a Change of Control Offer, Verio 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.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. Verio 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 Verio or any
Restricted Subsidiary;
(b) pay any Indebtedness owed to Verio or any Restricted Subsidiary;
(c) make any Investment in Verio or any Restricted Subsidiary; or
(d) transfer any of its properties or assets to Verio or to any
Restricted Subsidiary, except for (in each case except as otherwise noted
in the following clause (2)):
(1) any encumbrance or restriction in existence on the Issue Date;
(2) any encumbrance or restriction existing under agreements
relating to an Investment in an ISP (which in the case of clause (a) and
(b) shall not be permitted in the case of ISPs that are Restricted
Subsidiaries) to the extent consistent with past practice;
(3) customary non-assignment provisions;
(4) any encumbrances or restrictions pertaining to an asset subject
to a Lien to the extent set forth in the security documentation
governing such Lien;
(5) 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;
(6) 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;
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(7) 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
(8) 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 the indenture and the notes and other Indebtedness that is
solely an obligation of Verio, 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 Verio or any Restricted Subsidiary, customary restrictions on
transactions with affiliates, and customary subordination provisions
governing Indebtedness owed to Verio or any Restricted Subsidiary.
Disposition of Proceeds of Asset Sales. Verio will not, and will not permit
any Restricted Subsidiary to, make any Asset Sale unless:
(a) Verio 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, Cash
Equivalents or Qualified Consideration, provided that the following shall
be treated as cash for purposes of this covenant:
(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 Verio 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).
Verio or the applicable Restricted Subsidiary, as the case may be, may:
(1) 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 Verio 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;
(2) 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
(3) 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 Verio 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 (2) of the preceding sentence or invested in
Replacement Assets within the 365-day period as set forth in clause (3) shall
constitute "Excess Proceeds." Any Excess Proceeds not used as set forth in
clause (1) of the second preceding sentence shall constitute "Offer Excess
Proceeds" subject to disposition as provided below.
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When the aggregate amount of Offer Excess Proceeds equals or exceeds $10.0
million, Verio 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, Verio 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.
If Verio is required to make an Asset Sale Offer, Verio will 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 and regulations.
Limitation on Issuances and Sales of Preferred Stock by Restricted
Subsidiaries. Verio will not permit any Restricted Subsidiary to issue any
Preferred Stock (other than to Verio or a Restricted Subsidiary).
Limitation on Transactions with Affiliates. Verio 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 of a Restricted Subsidiary that are not also
Affiliates of Verio or any Wholly Owned Restricted Subsidiary) or any beneficial
holder of 10% or more of the Common Stock of Verio or any officer or director of
Verio (each, an "Affiliate Transaction"), unless the terms of the Affiliate
Transaction are set forth in writing, and are fair and reasonable to Verio 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, Verio may obtain a written opinion from an Independent Financial
Advisor stating that the terms of such Affiliate Transaction to Verio or the
Restricted Subsidiary, as the case may be, are fair from a financial point of
view. For purposes of this covenant, 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 Verio and the Restricted Subsidiaries, as the case may be, and,
therefore, shall be permitted under this covenant.
However, the restrictions in this covenant shall not apply to:
(1) transactions with or among, or solely for the benefit of, Verio
and/or any of the Restricted Subsidiaries;
(2) transactions pursuant to agreements and arrangements existing on
the Issue Date;
(3) transactions related to the provision of internet services in the
ordinary course of business; provided that (x) such transactions are
entered into on an arm's length basis and are fair and reasonable to Verio
or such Restricted Subsidiary, as the case may be, and (y) in the good
faith judgment of Verio or the applicable Restricted Subsidiary, the Fair
Market Value of the consideration received by Verio or such Restricted
Subsidiary, as the case may be, reasonably approximates the Fair Market
Value of the services provided;
(4) dividends paid by Verio pursuant to and in compliance with the
covenant "Limitation on Restricted Payments;"
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(5) customary directors' fees, indemnification and similar
arrangements, consulting fees, employee salaries bonuses, employment
agreements and arrangements, compensation or employee benefit arrangements
or legal fees;
(6) transactions contemplated by any of the Permitted Affiliate
Agreements as in effect on the Issue Date; and
(7) grants of customary registration rights with respect to securities
of Verio.
Reports. Whether or not Verio has a class of securities registered under
the Exchange Act, Verio shall furnish without cost to each holder of notes and
file with the trustee and file with the Securities and Exchange Commission:
(1) within the applicable time period required under the Exchange Act,
after the end of each fiscal year of Verio, the information required by
Form 10-K, or any successor form, under the Exchange Act with respect to
such period;
(2) within the applicable time period required under the Exchange Act
after the end of each of the first three fiscal quarters of each fiscal
year of Verio, the information required by Form 10-Q, or any successor
form, under the Exchange Act with respect to such period; and
(3) any current reports on Form 8-K, or any successor forms, required
to be filed under the Exchange Act.
Limitation on Designations of Unrestricted Subsidiaries. Verio will not
designate any Subsidiary of Verio (other than a newly created Subsidiary in
which no Investment has previously been made) as an "Unrestricted Subsidiary"
under the indenture (a "Designation") unless:
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation;
(b) except in the case of a Permitted Investment or an Investment made
pursuant to clause (6) of the third paragraph of the covenant "Limitation
on Restricted Payments," immediately after giving effect to such
Designation, Verio would be able to incur $1.00 of Indebtedness under the
proviso of the covenant "Limitation on Additional Indebtedness;" and
(c) Verio would not be prohibited under the 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 Verio or any other Restricted
Subsidiary in such Restricted Subsidiary on such date.
In the event of any such Designation made on or after the Issue Date, Verio
shall be deemed to have made an Investment constituting a Restricted Payment
pursuant to the covenant "Limitation on Restricted Payments" for all purposes of
the indenture in the Designation Amount. Neither Verio 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 Verio
may pledge Capital Stock or Indebtedness of any Unrestricted Subsidiary on
a nonrecourse basis such that the pledgee has no claim whatsoever against
Verio 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),
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except in the case of clause (x) or (y) to the extent permitted under the
covenants "Limitation on Restricted Payments" and "Limitation on Transactions
with Affiliates."
In addition, Verio will not revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation") unless:
(a) no Default shall have occurred and be continuing at the time of
and after giving effect to such Revocation; and
(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred for all purposes of the
indenture.
All Designations and Revocations must be evidenced by Board Resolutions
delivered to the trustee certifying compliance with the foregoing provisions.
Limitation on Status as Investment Company. Verio will not, and will not
permit any of its Subsidiaries or controlled Affiliates to, conduct its business
in a fashion that would cause Verio 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
Verio'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.
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
Verio will not:
(1) 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
(2) 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 Verio and the
Restricted Subsidiaries on a consolidated basis, unless, in the case of
either (1) or (2):
(a) Verio shall be the continuing person or, if Verio 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 Verio under the notes and the 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), Verio or
the surviving entity (assuming such surviving entity's assumption of
Verio's obligations under the notes and the indenture), as the case may
be, would be able to incur $1.00 of Indebtedness under the proviso of
the covenant "Limitation on Additional Indebtedness"; 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
Verio or the surviving entity and the Restricted Subsidiaries would have
been able to incur all of their outstanding Indebtedness as Permitted
Indebtedness;
(d) immediately after giving effect to such transaction or series
of transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in
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connection with or in respect of such transaction or series of
transactions), no Default shall have occurred and be continuing; and
(e) Verio 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 the
indenture relating to the transaction or series of transactions have
been satisfied.
Upon any consolidation or merger or any sale, assignment, conveyance,
lease, transfer or other disposition of all or substantially all of the assets
of Verio in accordance with the foregoing in which Verio 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 Verio 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, Verio or
such Restricted Subsidiary, as the case may be, under the indenture with the
same effect as if such successor corporation had been named as Verio or such
Restricted Subsidiary therein; and thereafter, except in the case of (1) any
lease or (2) any sale, assignment, conveyance, transfer, lease or other
disposition to a Restricted Subsidiary of Verio, Verio shall be discharged from
all obligations and covenants under the indenture and the notes.
For all purposes of the indenture and the notes (including the provision of
this covenant and the covenants "Limitation on Additional Indebtedness,"
"Limitation on Restricted Payments" and "Limitation on Liens Securing Certain
Indebtedness"), Subsidiaries of any surviving entity will, upon such transaction
or series of related transactions, become Restricted Subsidiaries or
Unrestricted Subsidiaries as provided pursuant to the covenant "Limitation on
Designations of Unrestricted Subsidiaries" and all Indebtedness, and all Liens
on property or assets, of Verio 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.
EVENTS OF DEFAULT
The following are "Events of Default" under the indenture:
(1) default in the payment of interest on the notes when it becomes
due and payable and continuance of such default for a period of 30 days or
more; or
(2) default in the payment of the principal of, or premium, if any, on
the notes when due; or
(3) default in the performance, or breach, of any covenant described
under "-- Certain Covenants -- Change of Control," "-- Disposition of
Proceeds of Asset Sales" or "-- Consolidation, Merger, Sale of Assets,
Etc."; or
(4) default in the performance, or breach, of any covenant in the
indenture (other than defaults specified in clause (1), (2) or (3) above),
and continuance of such default or breach for a period of 30 days or more
after written notice to Verio by the trustee or to Verio and the trustee by
the holders of at least 25% in aggregate principal amount of the
outstanding notes (in each case, when such notice is deemed received in
accordance with the indenture); or
(5) failure to perform any term, covenant, condition or provision of
one or more classes or issues of Indebtedness in an aggregate principal
amount of $15.0 million or more under which Verio 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
(6) any holder of at least $15.0 million in aggregate principal amount
of Indebtedness of Verio or any Material Restricted Subsidiary shall
commence judicial proceedings or take any other action to foreclose upon,
or dispose of assets of Verio or any Material Restricted Subsidiary having
an aggregate Fair Market Value, individually or in the aggregate, of $15.0
million or more or shall have exercised any
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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, Verio 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
(7) one or more judgments, orders or decrees for the payment of money
of $15.0 million or more, either individually or in the aggregate, shall be
entered into against Verio 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
(8) certain events of bankruptcy, insolvency, reorganization,
administration or similar proceedings with respect to Verio or any Material
Restricted Subsidiary shall have occurred.
If an Event of Default (other than an Event of Default specified in clause
(8) above with respect to Verio) occurs and is continuing, then the trustee or
the holders of at least 25% in principal amount of the outstanding notes may, by
written notice, and the trustee upon the request of the holders of not less than
25% in principal amount of the outstanding notes shall, declare the principal
amount of, premium (if any) on, and any accrued and unpaid interest on, all
outstanding notes to be immediately due and payable and upon any such
declaration such amounts shall become immediately due and payable. If an Event
of Default specified in clause (8) above with respect to Verio 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. The holders of a majority in
principal amount of the outstanding notes also have the right to waive past
defaults under the indenture, except a default in the payment of principal of,
premium (if any) on, or any interest on, any outstanding note, or in respect of
certain covenants or a provisions that cannot be modified or amended without the
consent of all holders of notes.
No holder of any of the notes has any right to institute any proceeding
with respect to the indenture or any remedy thereunder, unless the holders of at
least 25% in principal amount of the outstanding notes have made written
request, and offered reasonable security or indemnity, to the trustee to
institute such proceeding as trustee, the trustee has failed to institute such
proceeding within 60 days after receipt of such notice and the trustee has not
within such 60-day period received directions inconsistent with such written
request by holders of a majority in principal amount of the outstanding notes.
Such limitations do not apply, however, to a suit instituted by a holder of a
note for the enforcement of the payment of the principal of, premium (if any)
on, or any accrued and unpaid interest on, such note on or after the respective
due dates expressed in such note.
During the existence of an Event of Default, the trustee is required to
exercise such rights and powers vested in it under the indenture and use the
same degree of care and skill in its exercise thereof as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
Subject to the provisions of the indenture relating to the duties of the
trustee, if an Event of Default shall occur and be continuing, the trustee is
not under any obligation to exercise any of its rights or powers under the
indenture at the request or direction of any of the holders unless such holders
shall have offered to such trustee reasonable security or indemnity. Subject to
certain provisions concerning the rights of the trustee, the holders of a
majority in principal amount of the outstanding notes 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.
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The trustee will, within 45 days after the occurrence of any Default, give
to the holders of the notes notice of such Default known to it, unless such
Default shall have been cured or waived; provided that the trustee shall be
protected in withholding such notice if it determines in good faith that the
withholding of such notice is in the interest of such holders.
Verio is required to furnish to the trustee annually a statement as to its
compliance with all conditions and covenants under the indenture.
DEFEASANCE
Verio may at any time terminate all of its obligations with respect to the
notes ("defeasance"), except for certain obligations, including those regarding
any trust established for a defeasance and obligations to register the transfer
or exchange of the notes, to replace mutilated, destroyed, lost or stolen notes
as required by the indenture and to maintain agencies in respect of notes. Verio
may at any time terminate its obligations under certain covenants set forth in
the indenture, some of which are described under "-- Certain Covenants" above,
and any omission to comply with such obligations shall not constitute a Default
with respect to the notes ("covenant defeasance"). To exercise either defeasance
or covenant defeasance, Verio must irrevocably deposit in trust, for the benefit
of the holders of the notes, with the trustee money (in United States dollars)
or U.S. government obligations (denominated in United States dollars), or a
combination thereof, in such amounts as will be sufficient to pay the principal
of, and premium, if any, and interest on the notes to redemption or maturity and
comply with certain other conditions, including the delivery of a legal opinion
as to certain tax matters.
SATISFACTION AND DISCHARGE
The indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of notes)
as to all outstanding notes when either:
(a) all such notes theretofore authenticated and delivered (except
lost, stolen or destroyed notes that have been replaced or paid and notes
whose payment has been deposited in trust or segregated and held in trust
by Verio and thereafter repaid to Verio or discharged from such trust) have
been delivered to the trustee for cancellation; or
(b) (1) all such notes not delivered to the trustee for cancellation
have become due and payable and Verio has irrevocably deposited or caused
to be deposited with the trustee as trust funds in trust for the purpose an
amount of money sufficient to pay and discharge the entire indebtedness on
the notes not delivered to the trustee for cancellation, for principal
amount, premium, if any, and accrued interest to the date of such deposit;
(2) Verio has paid all sums payable by it under the indenture; and
(3) Verio has delivered irrevocable instructions to the trustee to
apply the deposited money toward the payment of the notes at maturity or
on the redemption date, as the case may be.
In addition, Verio must deliver an officers' certificate and an opinion of
counsel stating that all conditions precedent to satisfaction and discharge have
been complied with.
AMENDMENT AND WAIVERS
Verio may at any time, when authorized by resolutions of the Board, and the
trustee, without the consent of the holders of the notes, amend, waive or
supplement the indenture or the notes for certain specified purposes, including,
among other things, curing ambiguities, defects or inconsistencies, maintaining
the qualification of the indenture under the Trust Indenture Act or making any
change that does not adversely affect the rights of any holder. Other amendments
and modifications of the indenture and the notes may be made by Verio and the
trustee by supplemental indenture with the consent of the holders of not less
than a
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majority of the aggregate principal amount of the outstanding notes. However, no
modification or amendment may, without the consent of the holder of each
outstanding note affected thereby:
(1) reduce the principal amount of, change the fixed maturity of, or
alter the redemption provisions of, the notes;
(2) change the currency in which any notes or amounts owing thereon is
payable;
(3) 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 the indenture or the notes;
(4) impair the right to institute suit for the enforcement of any
payment on or with respect to the notes;
(5) waive a default in payment with respect to the notes;
(6) reduce the rate or change the time for payment of interest on the
notes;
(7) following the occurrence of a Change of Control or an Asset Sale,
alter Verio's obligation to purchase the notes in accordance with the
indenture or waive any default in the performance thereof;
(8) affect the ranking of the notes in a manner adverse to the holder
of the notes; or
(9) release any Guarantee except in compliance with the terms of the
indenture.
GOVERNING LAW
The indenture and the notes are to be governed by and construed in
accordance with laws of the State of New York without giving effect to
principles of conflicts of law.
CERTAIN DEFINITIONS
"1997 Notes" means Verio's 13 1/2% Senior Notes due 2004.
"Acquired Indebtedness" means Indebtedness of a person existing at the time
such person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition by such person and not incurred in connection with, or in
anticipation of, such person becoming a Restricted Subsidiary or such Asset
Acquisition; provided that Indebtedness of such person which is redeemed,
defeased, retired or otherwise repaid at the time of or immediately upon
consummation of the transactions by which such person becomes a Restricted
Subsidiary or such Asset Acquisition shall not constitute Acquired Indebtedness.
"Affiliate" of any specified person means any other person which, directly
or indirectly, controls, is controlled by or is under direct or indirect common
control with, such specified person. For the purposes of this definition,
"control" when used with respect to any person means the power to direct the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise, and the terms
"affiliated," "controlling" and "controlled" have meanings correlative to the
foregoing.
"Asset Acquisition" means:
(1) 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 Verio or any Restricted Subsidiary in any
other person, or any acquisition or purchase of Capital Stock of any other
person by Verio 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 Verio or any Restricted Subsidiary; or
(2) any acquisition by Verio 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.
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"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
Verio or a Restricted Subsidiary, in one transaction or a series of related
transactions, of:
(1) any Capital Stock of any Restricted Subsidiary (other than
customary stock option programs);
(2) any assets of Verio or any Restricted Subsidiary which constitute
substantially all of an operating unit or line of business of Verio and the
Restricted Subsidiaries; or
(3) any other property or asset of Verio or any Restricted Subsidiary
outside of the ordinary course of business.
For the purposes of this definition, the term "Asset Sale" shall not
include (1) any disposition of properties and assets of Verio that is governed
under "-- Consolidation, Merger, Sale of Assets, Etc." above, (2) sales of
property or equipment that have become worn out, obsolete or damaged or
otherwise unsuitable for use in connection with the business of Verio or any
Restricted Subsidiary, as the case may be, and (3) for purposes of the covenant
"Disposition of Proceeds of Asset Sales," 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:
(1) 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
(2) 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 Verio or any
Restricted Subsidiary.
"Bank Facility" means the $100.0 million revolving credit facility among
Verio, as borrower, Citicorp USA, Inc., as administrative agent, First Union
National Bank, as documentation agent, and Salomon Smith Barney Inc., as lead
arranger and book manager, and the financial institutions party thereto from
time to time as lenders, as such credit facility may be amended or supplemented
from time to time.
"Board" means the Board of Directors of Verio.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of Verio 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.
"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 the 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:
(1) any evidence of Indebtedness (with, for purposes of the covenant
"Disposition of Proceeds of Asset Sales" 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
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United States is pledged in support thereof or such Indebtedness
constitutes a general obligation of such country);
(2) deposits, certificates of deposit or acceptances (with, for
purposes of the covenant "Disposition of Proceeds of Asset Sales" 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;
(3) commercial paper with a maturity of 365 days or less issued by a
corporation (other than an Affiliate of Verio) 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;
(4) 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;
(5) other debt obligations maturing in 365 days or less issued by a
corporation (other than an Affiliate of Verio) organized under the laws of
the United States or any state thereof and rated at least "A-" by S&P or
"A3" by Moody's; and
(6) money market funds which invest substantially all of their assets
in securities of the type described in the preceding clauses (1) through
(5).
"Change of Control" is defined to 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), excluding WorldCom, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a person shall be deemed to have "beneficial ownership" of
all securities that such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total Voting Stock of
Verio; or
(b) Verio 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, Verio, in any such event pursuant to a
transaction in which the outstanding Voting Stock of Verio is converted
into or exchanged for cash, securities or other property, other than any
such transaction where:
(1) the outstanding Voting Stock of Verio is converted into or
exchanged for (x) Voting Stock (other than Disqualified Stock) of the
surviving or transferee corporation or its parent corporation and/or (y)
cash, securities and other property in an amount which could be paid by
Verio as a Restricted Payment under the indenture; and
(2) immediately after such transaction no "person" or "group" (as
such terms are used in Sections 13(d) and 14(d) of the Exchange Act),
excluding WorldCom, is the "beneficial owner" (as defined in Rules 13d-3
and 13d-5 under the Exchange Act, except that a person shall be deemed
to have "beneficial ownership" of all securities that such person has
the right to acquire, whether such right is 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 Verio was approved by a vote of a majority of the
directors then still in office who were either directors at the beginning
of such period or whose election or nomination for election was previously
so approved) cease for any reason (other than by action of WorldCom) to
constitute a majority of the Board then in office.
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The good faith determination by the Board, based upon advice of outside
counsel, of the beneficial ownership of securities of Verio 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 Securities and Exchange Commission.
"Common Stock" means, with respect to any person, any and all shares,
interest or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of such person's common stock whether
outstanding at the Issue Date, and includes, without limitation, all series and
classes of such common stock.
"Consolidated Annualized Pro Forma Operating Cash Flow" means, at any date
of determination, Consolidated Operating Cash Flow for the latest fiscal quarter
for which consolidated financial statements of Verio are available multiplied by
four. For purposes of calculating "Consolidated Operating Cash Flow" for any
fiscal quarter for purposes of this definition, (1) any Subsidiary of Verio that
is a Restricted Subsidiary on the date of the transaction (the "Transaction
Date") giving rise to the need to calculate "Consolidated Annualized Pro Forma
Operating Cash Flow" shall be deemed to have been a Restricted Subsidiary at all
times during such fiscal quarter and (2) any Subsidiary of Verio 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 fiscal quarter. In addition to and
without limitation of the foregoing, for purposes of this definition,
"Consolidated Operating Cash Flow" shall be calculated after giving effect on a
pro forma basis for the applicable fiscal quarter to, without duplication, any
Asset Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of
Verio or one of the Restricted Subsidiaries (including any person who becomes a
Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming
or otherwise being liable for Acquired Indebtedness) occurring during the period
commencing on the first day of such fiscal quarter to and including the
Transaction Date, as if such Asset Sale or Asset Acquisition occurred on the
first day of such fiscal quarter.
"Consolidated Income Tax Expense" means, with respect to any period, the
provision for United States corporation, local, foreign and other income taxes
of Verio 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:
(1) the interest expense of Verio and the Restricted Subsidiaries for
such period as determined on a consolidated basis in accordance with GAAP,
including, without limitation:
(a) any amortization of debt discount;
(b) the net cost under Interest Rate Obligations (including any
amortization of discounts);
(c) the interest portion of any deferred payment obligation;
(d) all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing and
similar transactions; and
(e) all accrued interest;
(2) the interest component of Capitalized Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by Verio and the Restricted
Subsidiaries during such period as determined on a consolidated basis in
accordance with GAAP; and
(3) the amount of dividends in respect of Disqualified Stock paid by
Verio 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, the 1997 Notes, the March 1998 Notes
and the November 1998 Notes, and fees related to any Indebtedness under a
Permitted Credit Facility.
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"Consolidated Net Income" means, with respect to any period, the
consolidated net income of Verio and the Restricted Subsidiaries for such
period, adjusted, to the extent included in calculating such consolidated net
income, by excluding, without duplication:
(1) 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;
(2) income of Verio 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
Verio or any Restricted Subsidiary;
(3) the portion of net income (or loss) of such person allocable to
minority interests in Restricted Subsidiaries for such period;
(4) 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;
(5) any gain or loss, net of taxes, realized by such person upon the
termination of any employee pension benefit plan during such period;
(6) gains or losses in respect of any Asset Sales (net of fees and
expenses relating to the transaction giving rise thereto) during such
period;
(7) except in the case of any restriction or encumbrance permitted
under clause (8) of the covenant "Limitation on Dividends and Other Payment
Restrictions Affecting Restricted Subsidiaries," 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; and
(8) dividends or other distributions paid in respect of Capital Stock
(other than Disqualified Stock) to the extent that such dividend or
distribution would constitute a Restricted payment or be paid out of the
deposit account in respect of Verio's 6.75% Series A Convertible Preferred
Stock.
"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 Commission) of such person.
"Consolidated Operating Cash Flow" means, with respect to any period, the
Consolidated Net Income of Verio 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:
(1) the Consolidated Income Tax Expense of Verio 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);
(2) Consolidated Interest Expense for such period;
(3) depreciation of Verio and the Restricted Subsidiaries for such
period;
(4) amortization of Verio 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
(5) other non-cash charges decreasing Consolidated Net Income.
"consolidation" means, with respect to Verio, the consolidation of the
accounts of the Restricted Subsidiaries with those of Verio, all in accordance
with GAAP; provided that "consolidation" will not
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include consolidation of the accounts of any Unrestricted Subsidiary with the
accounts of Verio. The term "consolidated" has a correlative meaning to the
foregoing.
"Debt Securities" means any debt securities issued by Verio 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.
"Designation" has the meaning set forth under " -- Certain
Covenants -- Limitation on Designations of Unrestricted Subsidiaries."
"Disinterested Director" means, with respect to any transaction or series
of related transactions, a member of the Board other than a director who (1) has
any material direct or indirect financial interest in or with respect to such
transaction or series of related transactions or (2) is an employee or officer
of Verio or an Affiliate that is itself a party to such transaction or series of
transactions or an Affiliate of a party to such transaction or series of related
transactions.
"Disqualified Stock" means, with respect to any person, any Capital Stock
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or becomes mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or becomes exchangeable for Indebtedness at the option
of the holder thereof, or becomes redeemable at the option of the holder
thereof, in whole or in part, on or prior to the 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
of Verio or any Restricted Subsidiary 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
"Disposition of Proceeds of Asset Sales" and "Change of Control" covenants
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
Verio's repurchase of such notes as are required to be repurchased pursuant to
the "Disposition of Proceeds of Asset Sales" and "Change of Control" covenants
described above.
"Equity Offering" means an underwritten offering of Capital Stock (other
than Disqualified Stock) made pursuant to a registration statement filed with
the Commission under the Securities Act or pursuant to Rule 144A under the
Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder.
"Existing ISP" means any ISP in which Verio or a Subsidiary of Verio 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 the
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.
"guarantee" means, as applied to any obligation, (1) 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 (2) an agreement, direct or indirect, contingent or
otherwise, the
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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.
"incur" means, with respect to any Indebtedness or other obligation of any
person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation including by acquisition of Subsidiaries or the recording, as
required pursuant to GAAP or otherwise, of any such Indebtedness or other
obligation on the balance sheet of such person (and "incurrence," "incurred,"
"incurrable" and "incurring" shall have meanings correlative to the foregoing);
provided that a change in GAAP that results in an obligation of such person that
exists at such time becoming Indebtedness shall not be deemed an incurrence of
such Indebtedness and that neither the accrual of interest nor the accretion of
original issue discount shall be deemed an Incurrence of Indebtedness.
Indebtedness otherwise incurred by a person before it becomes a Subsidiary of
Verio (whether by merger, consolidation, acquisition or otherwise) shall be
deemed to have been incurred at the time at which such person becomes a
Subsidiary of Verio.
"Indebtedness" means, with respect to any person, without duplication:
(1) any liability, contingent or otherwise, of such person (A) for
borrowed money (whether or not the recourse of the lender is to the whole
of the assets of such person or only to a portion thereof) or (B) evidenced
by a note, debenture or similar instrument or letter of credit (including a
purchase money obligation) or (C) for the payment of money relating to a
Capitalized Lease Obligation or other obligation relating to the deferred
purchase price of property (except to the extent representing funds
deposited in escrow to secure the deferred purchase price of an Asset
Acquisition or Permitted Investment) or (D) in respect of an Interest Rate
Obligation or currency agreement; or
(2) any liability of others of the kind described in the preceding
clause (1) which the person has guaranteed or which is otherwise its legal
liability; or
(3) 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 (1) or (2) or (3) 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);
(4) all Disqualified Stock valued at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued and unpaid
dividends; and
(5) 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 (1), (2), (3) or (4).
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 the covenants "Limitation on Additional
Indebtedness" and "Limitation on Restricted Payments" and the definition of
"Events of Default," in determining the principal amount of any Indebtedness to
be incurred by Verio or a Restricted Subsidiary or which is outstanding at any
date, (x) the principal amount of any Indebtedness issued with original issue
discount shall be the face amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at such
date as determined in conformity with GAAP and (y) the principal amount of any
Indebtedness shall be reduced by any amount of cash or Cash Equivalent
collateral securing on a perfected basis, and dedicated for disbursement
exclusively to the payment of principal of and interest on, such Indebtedness.
"Independent Financial Advisor" means a United States investment banking
firm of national or regional standing in the United States (1) which does not,
and whose directors, officers and employees or Affiliates do
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not have, a direct or indirect financial interest in Verio and (2) which, in the
judgment of the Board, is otherwise independent and qualified to perform the
task for which it is to be engaged.
"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, development
and hosting of software and software applications in connection with the
services described herein, 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 Verio or any Restricted Subsidiary
on the Issue Date), and any business reasonably related or ancillary 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 Verio in exchange for Capital Stock, property or assets
of another person constitute an Investment by Verio in such other person.
"ISP" means any person engaged principally in an Internet Service Business.
"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.
"March 1998 Notes" means Verio's 10 3/8% Senior Notes due 2005.
"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 Issuer (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
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furnished by any New York Stock Exchange member firm that is selected from time
to time by Verio for that purpose and is reasonably acceptable to the trustee.
"Material Restricted Subsidiary" means any Restricted Subsidiary of Verio,
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 Verio
which, at any date of determination, is an obligor under any Indebtedness in an
aggregate principal amount equal to or exceeding $15.0 million.
"Maturity Date" means, with respect to any note, the date specified in such
note as the fixed date on which the principal of such note is due and payable.
"Moody's" means Moody's Investors Service.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash (including assumed liabilities and other items
deemed to be cash under the proviso to the first sentence of the covenant
"Disposition of Proceeds of Asset Sales") 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 Verio or any Restricted Subsidiary) net of:
(1) brokerage commissions and other fees and expenses (including fees
and expenses of legal counsel and investment bankers) related to such Asset
Sale;
(2) provisions for all taxes payable as a result of such Asset Sale;
(3) amounts required to be paid to any person (other than Verio or any
Restricted Subsidiary) owning a beneficial interest in or having a
Permitted Lien on the assets subject to the Asset Sale; and
(4) appropriate amounts to be provided by Verio 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 Verio 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 Verio or a Subsidiary of Verio makes its
first Investment after the Issue Date.
"November 1998 Notes" means Verio's 11 1/4% Senior Notes due 2008.
"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:
(1) 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 Verio outstanding at the
time of the applicable Asset Sale with respect to which Verio is required
to use Excess Proceeds to repay or make an offer to purchase or repay; and
(2) 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 Verio outstanding at the time of the applicable Asset Sale
Offer with respect to which Verio is required to use the applicable Excess
Proceeds to offer to repay or make an offer to purchase or repay.
"Permitted Affiliate Agreement" means each of the Series A Purchase
Agreement, the Series B Purchase Agreement, the Series C Purchase Agreement and
the Stockholders Agreement, each as in effect on the Issue Date.
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"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 including, without limitation, the
Bank Facility.
"Permitted Equipment Financing" means any credit facility or other
financing arrangement (including in the form of Capitalized Lease Obligations
and guarantees of Indebtedness of Restricted Subsidiaries) 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 the indenture;
(b) Indebtedness of Verio and/or any Restricted Subsidiary outstanding
on the Issue Date, including, without limitation, the 1997 Notes, the March
1998 Notes and the November 1998 Notes;
(c) (1) Indebtedness of any Restricted Subsidiary owed to and held by
Verio or a Restricted Subsidiary and (2) Indebtedness of Verio, 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 Verio or a Restricted Subsidiary
referred to in this clause (c) to a person (other than Verio 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 Verio or another Restricted
Subsidiary such that such Restricted Subsidiary, in any such case, ceases
to be a Restricted Subsidiary;
(d) Interest Rate Obligations of Verio and/or any Restricted
Subsidiary relating to Indebtedness of Verio 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 the "Limitation on Additional Indebtedness" covenant), but only to
the extent that the notional principal amount of such Interest Rate
Obligations does not exceed the principal amount of the Indebtedness
(and/or Indebtedness subject to commitments) to which such Interest Rate
Obligations relate;
(e) Indebtedness of Verio and/or any Restricted Subsidiary in respect
of performance bonds of Verio or any Restricted Subsidiary or surety bonds
provided by Verio or any Restricted Subsidiary incurred in the ordinary
course of business;
(f) Indebtedness of Verio and/or any Restricted Subsidiary to the
extent it represents a replacement, renewal, refinancing or extension (a
"Refinancing") of outstanding Indebtedness of Verio 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 the covenant
"Limitation on Additional Indebtedness"; provided that (1) Indebtedness of
Verio 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 Verio such that, after giving effect to the
incurrence thereof, the total aggregate principal amount of Indebtedness
incurred under this clause (g) plus the aggregate principal amount of
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the November 1998 Notes and the notes outstanding, and any Refinancings
thereof otherwise incurred in compliance with the Indenture, would not
exceed 200% of Total Incremental Equity;
(h) Indebtedness of Verio and/or any Restricted Subsidiary incurred
under any Permitted Credit Facility and/or Indebtedness of Verio
represented by Debt Securities of Verio, and any Refinancings of the
foregoing otherwise incurred in compliance with the indenture, in an
aggregate principal amount not to exceed $250.0 million at any time
outstanding;
(i) Indebtedness of Verio and/or any Restricted Subsidiary incurred
under any Permitted Equipment Financing in an aggregate principal amount
not to exceed the Fair Market Value of the assets acquired with the
proceeds thereof;
(j) Acquired Indebtedness and other Indebtedness of Verio and/or any
Restricted Subsidiary incurred in connection with the acquisition of, or an
Investment in, a New ISP, including any obligations in respect of the
deferred purchase price (whether or not subject to a contingency) of any
such acquisition or Investment, in an aggregate principal amount not to
exceed $100.0 million at any time outstanding; and
(k) in addition to the items referred to in clauses (a) through (j)
above, Indebtedness of Verio and/or the Restricted Subsidiaries having an
aggregate principal amount not to exceed $50.0 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 the covenant
"Limitation on Additional Indebtedness;"
(d) the extension by Verio and the Restricted Subsidiaries of (1)
trade credit to Subsidiaries of Verio and the ISPs, represented by accounts
receivable, extended on usual and customary terms in the ordinary course of
business or (2) 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 the covenant "Limitation on Additional Indebtedness;"
(e) Strategic Investments; and
(f) Investments in Unrestricted Subsidiaries in an amount not to
exceed $50.00 million at any time outstanding.
"Permitted Liens" means:
(a) Liens on property of a person existing at the time such person is
merged into or consolidated with Verio 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 Verio 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
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conducted; provided that any reserve or other appropriate provision as
shall be required in conformity with GAAP shall have been made therefor;
(e) easements, rights of way, restrictions and other similar
easements, licenses, restrictions on the use of properties, or minor
imperfections of title that, in the aggregate, are not material in amount
and do not in any case materially detract from the properties subject
thereto or interfere with the ordinary conduct of the business of Verio or
the Restricted Subsidiaries;
(f) Liens to secure the performance of statutory obligations, surety
or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(g) Liens securing any Permitted Credit Facility or Permitted
Equipment Financing;
(h) Liens to secure Indebtedness incurred in compliance with clause
(k) of "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 Verio or any Restricted Subsidiary.
"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.
"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.
"Refinancing" has the meaning set forth in clause (f) of the definition of
"Permitted Indebtedness."
"Restricted Payment" means any of the following:
(1) the declaration or payment of any dividend or any other
distribution on Capital Stock of Verio or any payment made to the direct or
indirect holders (in their capacities as such) of Capital Stock of Verio
(other than dividends or distributions payable solely in Capital Stock
(other than Disqualified Stock) of Verio or in options, warrants or other
rights to purchase Capital Stock (other than Disqualified Stock) of Verio);
(2) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of Verio (other than any such Capital Stock
owned by Verio or a Wholly Owned Restricted Subsidiary);
(3) 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); or
(4) the making by Verio or any Restricted Subsidiary of any Investment
(other than a Permitted Investment) in any person (other than an Investment
by a Restricted Subsidiary in Verio or an Investment by Verio or a
Restricted Subsidiary in a Restricted Subsidiary or a person that becomes a
Restricted Subsidiary as a result of such Investment). It is not intended
that payments made out of the deposit account in respect of Verio's 6.75%
Series A Convertible Preferred Stock be considered Restricted Payments.
"Restricted Subsidiary" means any Subsidiary of Verio 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
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the covenant "Limitation on Designations of Unrestricted Subsidiaries." 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:
(1) which is not subordinated to any other Indebtedness of such
Restricted Subsidiary; and
(2) in respect of which Verio is not also obligated (by means of a
guarantee or otherwise) other than, in the case of this clause (2),
Indebtedness under any Permitted Credit Facilities.
"Revocation" has the meaning set forth under "-- Certain
Covenants -- Limitation on Designations of Unrestricted Subsidiaries."
"Rollup" means:
(1) 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
(2) 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
(3) a merger or consolidation of any ISP with Verio.
"S&P" means Standard & Poor's Corporation.
"Securities Act" means the Securities Act of 1933, as amended, together
with the rules and regulations promulgated thereunder.
"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.
"Strategic Investment" means an Investment in any person (other than an
Unrestricted Subsidiary) whose primary business is an Internet Service Business
provided that the Investment is determined by the Board of Directors of Verio to
promote or significantly benefit the business of Verio and the Restricted
Subsidiaries on the date of the Investment.
"Subordinated Indebtedness" means any Indebtedness of Verio or any
Guarantor which is expressly subordinated in right of payment to any other
Indebtedness of Verio or such Guarantor.
"Subsidiary" means, with respect to any person:
(1) 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
(2) 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 Verio 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:
(1) the aggregate cash proceeds received by Verio from capital
contributions in respect of existing Capital Stock (other than Disqualified
Stock) or the issuance or sale of Capital Stock (other than Disqualified
Stock but including Capital Stock issued upon the conversion of convertible
Indebtedness or from the exercise of options, warrants or rights to
purchase Capital Stock (other than Disqualified Stock)) subsequent to the
Issue Date, other than to a Subsidiary of Verio; plus
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(2) the Fair Market Value (determined at the time of issuance) of any
Capital Stock (other than Disqualified Stock) of Verio issued as
consideration for the acquisition of Capital Stock of an ISP (other than
the acquisition of Capital Stock of an Existing ISP); plus
(3) the Fair Market Value (determined at the time of issuance) of any
Capital Stock (other than Disqualified Stock) of Verio issued 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
(4) the aggregate cash proceeds received by Verio or any Restricted
Subsidiary from the sale, disposition or repayment (in whole or in part) of
any Investment that is or was made after the Issue Date and that
constitutes a Restricted Payment that has been deducted from Total
Incremental Equity pursuant to clause (5) 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
(5) the aggregate amount of all Restricted Payments declared or made
on and after the Issue Date (other than a Restricted Payment made pursuant
to clauses (3) or (7) of the third paragraph of the covenant "Limitation on
Restricted Payments"), plus
(6) the amount, as of the Issue Date, of the "Total Incremental
Equity" as defined and determined under the November 1998 Notes Indenture.
"Unrestricted Subsidiary" means any Subsidiary of Verio designated as such
pursuant to and in compliance with the covenant "Limitation on Designations of
Unrestricted Subsidiaries." Any such designation may be revoked by a Board
Resolution delivered to the trustee, subject to the provisions of such covenant.
"Voting Stock" means, with respect to any person, the Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors
or other members of the governing body of such person.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary of
which 99% or more of the outstanding Capital Stock is owned by Verio or another
Wholly Owned Restricted Subsidiary; provided NorthWestNet shall be deemed a
Wholly Owned Restricted Subsidiary notwithstanding its existing stock option
plan and any stock options issued thereunder. For the purposes of this
definition, any directors' qualifying shares or investments by foreign nationals
mandated by applicable law shall be disregarded in determining the ownership of
a Restricted Subsidiary.
"WorldCom" means WorldCom, Inc. (and its successors by merger or
consolidation) and its controlled Affiliates.
BOOK-ENTRY; DELIVERY AND FORM
Except as set forth under "-- Certificated Securities," the new notes will
be issued in the form of one global new note. Such global new note will be
deposited with, or on behalf of, the Depository Trust Company and registered in
the name of the Depository Trust Company or its nominee. Except as set forth
below, such global new note may be transferred, in whole and not in part, only
to the Depository Trust Company or another nominee of the Depository Trust
Company.
Investors may hold their beneficial interests in such global new note
directly through the Depository Trust Company if they have an account with the
Depository Trust Company or indirectly through organizations which have accounts
with the Depository Trust Company.
The Depository Trust Company has advised Verio as follows: The Depository
Trust Company is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code, and "a
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clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. The Depository Trust Company was created to hold securities of
institutions that have accounts with the Depository Trust Company
("participants") and to facilitate the clearance and settlement of securities
transactions among its participants in such securities through electronic
book-entry changes in accounts of the participants, thereby eliminating the need
for physical movement of securities certificates. The Depository Trust Company's
participants include securities brokers and dealers, which may include the
initial purchasers, banks, trust companies, clearing corporations and certain
other organizations. Access to the Depository Trust Company's book-entry system
is also available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
whether directly or indirectly.
Upon the issuance of the global new note, the Depository Trust Company will
credit, on its book-entry registration and transfer system, the principal amount
of the new notes represented by such global new note to the accounts of
participants. Ownership of beneficial interests in such global new note will be
limited to participants or persons that may hold interests through participants.
Ownership of beneficial interests in such global new note will be shown on, and
the transfer of those ownership interests will be effected only through records
maintained by the Depository Trust Company, with respect to participants'
interest, and such participants, with respect to the owners of beneficial
interests in such global new note other than participants. The laws of some
jurisdictions may require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and laws may impair
the ability to transfer or pledge beneficial interests in such global new note.
So long as the Depository Trust Company, or its nominee, is the registered
holder and owner of a global new note, the Depository Trust Company or such
nominee, as the case may be, will be considered the sole legal owner and holder
of the related new notes for all purposes of such new notes and the indenture.
Except as set forth below, owners of beneficial interests in the global new note
will not be entitled to have the new notes represented by the global new note
registered in their names, will not receive or be entitled to receive physical
delivery of certificated new notes in definitive form and will not be considered
to be the owners or holders of any new notes under the global new note. Verio
understands that under existing industry practice, in the event an owner of a
beneficial interest in the global new note desires to take any action that the
Depository Trust Company, as the holder of the global new note is entitled to
take, the Depository Trust Company would authorize the participants to take such
action, and that the participants would authorize beneficial owners owning
through such participants to take such action or would otherwise act upon the
instructions of beneficial owners owning through them.
Payment of principal of and interest on new notes represented by a global
new note registered in the name of and held by the Depository Trust Company or
its nominee will be made to the Depository Trust Company or its nominee, as the
case may be, as the registered owner and holder of the global new note.
Verio expects that the Depository Trust Company or its nominee, upon
receipt of any payment of principal of or interest on a global new note, will
credit participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the global new note
as shown on the records of the Depository Trust Company or its nominee. Verio
also expects that payments by participants to owners of beneficial interests in
a global new note held through such participants will be governed by standing
instructions and customary practices and will be the responsibility of such
participants. Verio will not have any responsibility or liability for any aspect
of the records relating to, or payments made on account of, beneficial ownership
interests in a global new note for any new note or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests or for
any other aspect of the relationship between the Depository Trust Company and
its participants or the relationship between such participants and the owners of
beneficial interests in the global new notes owning through such participants.
Unless and until it is exchanged in whole or in part for certificated new
notes in definitive form, the global new note may not be transferred except as a
whole by the Depository Trust Company to a nominee of the Depository Trust
Company or by a nominee of the Depository Trust Company to the Depository Trust
Company or another nominee of the Depository Trust Company.
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Although the Depository Trust Company has agreed to the foregoing
procedures in order to facilitate transfers of interests in the global new note
among participants of the Depository Trust Company, it is under no obligation to
perform or continue to perform such procedures, and such procedures may be
discontinued at any time. None of the trustee, Verio nor the paying agent will
have any responsibility for the performance by the Depository Trust Company or
its participants or indirect participants of their respective obligations under
the rules and procedures governing their operations.
Certificated Securities. Interests in the global new note will be exchanged
for certificated securities if (1) the Depository Trust Company notifies Verio
that it is unwilling or unable to continue as Depository Trust Company for the
global new note, or the Depository Trust Company ceases to be a "clearing
agency" registered under the Exchange Act, and a successor Depository Trust
Company is not appointed by Verio within 90 days, or (2) an Event of Default has
occurred and is continuing with respect to the new notes. Upon the occurrence of
any of the events described in the preceding sentence, Verio will cause the
appropriate certificated securities to be delivered.
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
consequences that apply to the exchange of old notes for new notes and the
ownership and disposition of the new notes. It is based on the Internal Revenue
Code of 1986, as amended, applicable U.S. Treasury Regulations, judicial
authority, and administrative rulings and practice, as of the date of this
exchange offer. The discussion below does not address any state, local or
foreign tax consequences of an exchange of old notes for new notes, or of
ownership and disposition of the new notes. Your tax treatment may vary
depending upon your particular situation. You may also be subject to special
rules not discussed below if you are a certain kind of note owner, including:
- an owner which did not purchase the old notes for cash at original issue;
- a financial institution or broker-dealer;
- an insurance company;
- a tax-exempt organization; or
- a holder of a note as part of a hedge, straddle or conversion
transaction.
The following discussion assumes that you hold your old notes as capital
assets at the time of the exchange and will hold your new notes as capital
assets.
The tax law upon which this discussion is based is subject to change at any
time, and any change may be applied retroactively in a manner that could
adversely affect you. In addition, Verio has not requested an advance ruling
from the Internal Revenue Service as to the tax consequences of the exchange
offer. The Internal Revenue Service could take different positions concerning
the tax consequences of the exchange offer and the tax consequences of ownership
and disposition of the new notes discussed below and such positions could be
sustained.
The tax consequences to you of the exchange offer and of ownership and
disposition of the new notes may depend upon whether you are a "U.S. holder."
You are a "U.S. holder" if you are a beneficial owner of notes who or that is:
- a citizen or resident of the United States;
- a corporation, partnership or other legal entity created or organized in
or under the laws of the United States or one of its political
subdivisions;
- an estate, if your income is subject to U.S. federal income taxation
regardless of its source;
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- a trust if (A) a U.S. court is able to exercise primary supervision over
your administration and (B) one or more U.S. persons (as defined in
Section 7701(c)(30) of the Internal Revenue Code) has authority to
control all of your substantial decisions; or
- otherwise subject to U.S. federal income tax on a net income basis with
respect to the new notes.
If you are not a U.S. holder under these rules, you should review the
discussion below with respect to ownership of the new notes by a non-U.S.
holder.
WE STRONGLY URGE YOU TO CONSULT WITH YOUR OWN TAX ADVISOR REGARDING THE
PARTICULAR TAX CONSEQUENCES OF THE EXCHANGE OFFER TO YOU, AND REGARDING YOUR
PARTICULAR TAX CONSEQUENCES IN OWNING AND DISPOSING OF THE NEW NOTES, INCLUDING
THE EFFECT OF U.S. FEDERAL ESTATE AND GIFT TAX LAWS, AS WELL AS WITH RESPECT TO
THE EFFECT OF ANY FOREIGN, STATE, OR LOCAL LAWS APPLICABLE TO YOU.
EXCHANGE OFFER
Your exchange of old notes for new notes in the exchange offer will not be
treated as a taxable event for U.S. federal income tax purposes because the old
notes do not differ materially in kind or extent from the new notes. Your new
notes will be treated as a continuation of the old notes. You will have the same
tax basis and holding period in the new notes as you had in the old notes
immediately before the exchange.
OWNERSHIP AND DISPOSITION OF NEW NOTES BY U.S. HOLDERS
Taxation of interest. Stated interest on your new notes generally will be
taxable to you as ordinary income at the time it is paid or accrued, depending
on your method of accounting for federal income tax purposes. The new notes are
not expected to give rise to "original issue discount" to you.
Sale or redemption of a new note. You will recognize gain or loss upon the
sale, retirement, redemption or other taxable disposition of your new note. The
amount of gain or loss will be equal to the difference between the amount of
cash and the fair market value of other property you receive (except for cash or
other property attributable to accrued but unpaid stated interest), and your
adjusted tax basis in the new note. The gain or loss will be capital gain or
loss. However, you should know that a purchaser of a new note from you may be
subject to the "market discount" rules, discussed below.
Under the "market discount" rules of the Internal Revenue Code, someone who
purchases a new note from you at a discount generally will be required to
include as ordinary income a portion of any gain realized upon the subsequent
disposition or retirement of the new note equal to the amount of the market
discount the purchaser has not previously included in income.
OWNERSHIP AND DISPOSITION OF NEW NOTES BY NON-U.S. HOLDERS
U.S. withholding and income tax. You will not be subject to U.S.
withholding tax on interest payments on the new notes provided:
- you do not actually or constructively own 10% or more of the total
combined voting power of all classes of Verio stock;
- you are not a controlled foreign corporation for U.S. federal income tax
purposes that is related to Verio through stock ownership;
- you are not a bank that received the old note on an extension of credit
made pursuant to a loan agreement with Verio entered into in the ordinary
course of your trade or business; and
- you provide a statement to Verio signed under penalties of perjury that
includes your name and address and you certify that you are not a United
States person, as required by applicable tax regulations.
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If you cannot meet these requirements, you generally will be subject to
U.S. withholding tax at a rate of 30% on interest payments, unless you are
eligible for a reduced withholding tax rate under a U.S. tax treaty.
If you are engaged in a trade or business in the United States, and the
interest paid or accrued on the new note is effectively connected with your
conduct of that trade or business, you will be subject to federal income tax on
the interest to the same extent as if you were a U.S. holder. However, you will
not be subject to withholding tax if you provide a properly completed Internal
Revenue Service Form 4224 to Verio.
Sale or retirement of a new note. Any gain realized by you on a sale,
exchange, or redemption of a new note will not be subject to U.S. withholding or
income tax unless the gain is effectively connected with your conduct of a trade
or business in the United States or you are an individual who is present in the
United States for 183 days or more during the taxable year in which you realize
the gain and certain other conditions are satisfied.
U.S. estate tax. If you hold the new notes at the time of your death, the
new notes generally will not be includible in your estate for U.S. estate tax
purposes. However, the new notes will be included in your estate if, at the time
of your death, you owned, actually or constructively, 10% or more of the total
combined voting power of all classes of Verio stock or if the new notes were
effectively connected with your conduct of a trade or business in the United
States.
INFORMATION REPORTING AND BACKUP WITHHOLDING
If you are a U.S. person and are not a corporation, you may be subject to
information reporting to the Internal Revenue Service with respect to the new
notes. You may also be subject to backup withholding at a rate of 31% on
payments of principal and interest on the new notes, and on the proceeds from
disposition of the new notes. However, backup withholding will be imposed on you
only if:
- you fail to furnish to Verio your taxpayer identification number, which,
if you are an individual, is normally your social security number;
- you furnish to Verio an incorrect taxpayer identification number;
- you are notified by the Internal Revenue Service you have failed to
properly report the receipt of interest or dividend income; or
- under certain circumstances, you fail to certify to Verio, under
penalties of perjury, that you have furnished Verio a correct taxpayer
identification number and that you have not been notified by the Internal
Revenue Service that you are subject to backup withholding.
Verio will also start backup withholding if the Internal Revenue Service
instructs it to do so.
You should consult your own tax advisor to determine whether you may
qualify for an exemption from information reporting or backup withholding and
the procedure for obtaining an exemption.
If you certify to Verio that you are a non-U.S. holder, you will not be
subject to information reporting or backup withholding with respect to payments
of interest on the new notes unless Verio has actual knowledge that you are a
U.S. holder.
If you dispose of the new notes to or through the U.S. office of any
broker, you will be subject to information reporting and you may be subject to
backup withholding unless you certify to the broker that you are a non-U.S.
holder or that you otherwise are exempt from information reporting or backup
withholding. You will also be subject to information reporting and may be
subject to backup withholding if the broker has actual knowledge that you are a
U.S. holder or that the conditions of your claimed exemption are not satisfied.
If you dispose of the new notes to or through a non-U.S. office of a
non-U.S. broker that is not a "U.S. related person" you will not be subject to
information reporting or backup withholding. For this purpose, a "U.S. related
person" is a corporation which is a "controlled foreign corporation" for U.S.
income tax purposes, or a foreign person, 50% or more of whose gross income from
all sources for the
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3-year period ending with the close of its taxable year preceding the payment,
or the period of the person's existence, if less than 3 years, is derived from
activities that are effectively connected with the conduct of a U.S. trade or
business.
If you dispose of the new notes to or through a non-U.S. office of a broker
that is a U.S. related person, information reporting will be required unless the
broker has documentary evidence in its files that you are a non-U.S. holder and
the broker has no knowledge to the contrary. However, backup withholding will
not apply to these payments unless the broker has actual knowledge that you are
a U.S. holder.
If a payment to you is subject to backup withholding, you will be allowed a
credit for the amount withheld against your U.S. income tax liability for the
year, or you may obtain a refund of the withheld amount if no tax is due and you
follow the necessary procedures for claiming a refund.
PROSPECTIVE TAX REGULATIONS AFFECTING NON-U.S. HOLDERS
In 1997, the Internal Revenue Service published new regulations to modify
the requirements imposed on non-U.S. holders and certain intermediaries to
establish the status of the holder as a non-U.S. holder eligible for exemption
from or reduction in U.S. withholding tax and from the backup withholding rules.
The new regulations generally will be effective for payments made after December
31, 2000, subject to certain transition rules. In general, the new regulations
do not significantly alter the substantive withholding and information reporting
requirements. Rather, they unify certification procedures and forms and clarify
reliance standards. In addition, the new regulations impose more stringent
conditions on the ability of financial intermediaries acting for non-U.S.
holders to provide certification on behalf of non-U.S. holders. Under the new
regulations, an intermediary may be required to enter into an agreement with the
Internal Revenue Service to audit certain documentation with respect to such
certifications. You should consult your own tax adviser to determine the effects
of the application of the new regulations to your particular circumstances.
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of new notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of new notes received in exchange for old notes where such old
notes were acquired as a result of market-making activities or other trading
activities. Verio has agreed that, starting on the expiration date and ending
180 days after the expiration date, it will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any
resale. In addition, until such date, all dealers effecting transactions in the
new notes may be required to deliver a prospectus.
Verio will not receive any proceeds from any sales of new notes by
broker-dealers or others. New notes received by broker-dealers for their own
account in the exchange offer may be sold from time to time in one or more
transactions:
- in the over-the-counter market, in negotiated transactions;
- through the writing of options on the new notes; or
- a combination of such methods of resale.
They can be sold at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such new notes. Any
broker-dealer that resells new notes that were received by it for its own
account in the exchange offer and any broker or dealer that participates in a
distribution of such new notes may be deemed to be an "underwriter" within the
meaning of the Securities Act. Any profit or commissions received by them from
any resale may be deemed to be underwriting compensation under the Securities
Act. The letter of transmittal states that by acknowledging that it will
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deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the expiration date, Verio will promptly
send additional copies of this prospectus, including any amendment or
supplement, to any broker-dealer that requests such documents in the letter of
transmittal. Verio has agreed to pay all expenses incident to the exchange
offer, including the expenses of one counsel for the holders of the respective
notes, other than commissions or concessions of any brokers or dealers and will
indemnify the holders of the notes, including any broker-dealers, against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the new notes will be passed upon for Verio by Morrison &
Foerster LLP, San Francisco, California.
EXPERTS
The consolidated balance sheets of Verio Inc. and subsidiaries as of
December 31, 1998 and 1999, and the related consolidated statements of
operations and comprehensive loss, stockholders' equity (deficit), and cash
flows for each of the years in the three-year period ended December 31, 1999
have been incorporated by reference herein and elsewhere in the registration
statement, in reliance upon the report of KPMG LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
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OFFER TO EXCHANGE ALL OUTSTANDING
10 5/8% SENIOR NOTES DUE 2009
FOR
10 5/8% SENIOR NOTES DUE 2009
VERIO
----------
PROSPECTUS
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Dated May 16, 2000
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YOU SHOULD DIRECT ALL TENDERED OLD NOTES, EXECUTED LETTERS OF TRANSMITTAL
AND OTHER RELATED DOCUMENTS TO THE EXCHANGE AGENT. YOU SHOULD DIRECT ALL
QUESTIONS AND REQUESTS FOR ASSISTANCE AND REQUEST FOR ADDITIONAL COPIES OF THIS
PROSPECTUS, THE LETTER OF TRANSMITTAL AND OTHER RELATED DOCUMENTS TO THE
EXCHANGE AGENT.
The exchange agent for this exchange offer is:
U.S. BANK TRUST NATIONAL ASSOCIATION
180 East Fifth Street
St. Paul, MN 55101
Attn: Specialized Finance Department
Facsimile Transmissions
(Eligible Institutions Only)
(651) 244-1537
To confirm by telephone
or for information call:
(651) 244-5011
By mail
U.S. BANK TRUST NATIONAL ASSOCIATION
180 East Fifth Street
St. Paul, MN 55101
Attn: Specialized Finance Department
(YOU SHOULD PROMPTLY SEND ORIGINALS OF ALL DOCUMENTS SUBMITTED BY FACSIMILE BY
HAND, OVERNIGHT COURIER, OR REGISTERED OR CERTIFIED MAIL.)
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Verio has not authorized any dealer, salesperson or other person to give
any information or represent anything not contained in this prospectus. You must
not rely on any unauthorized information. This prospectus does not offer to sell
or solicit an offer to buy, in any jurisdiction where, or to any person to whom,
it is unlawful. The delivery of this prospectus or any sale does not, under any
circumstances, create any implication that there has been no change in Verio's
affairs since the date as of which information is given in this prospectus.
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UNTIL NOVEMBER 12, 2000 (180 DAYS AFTER THE COMMENCEMENT OF THIS EXCHANGE
OFFER), ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT
PARTICIPATING IN THIS EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
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