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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 25, 2000
REGISTRATION NO. 333-91051
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
VERIO INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 84-1339720
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
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CARLA H. DONELSON, ESQ.
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
VERIO INC.
8005 SOUTH CHESTER STREET, SUITE 200 8005 SOUTH CHESTER STREET, SUITE 200
ENGLEWOOD, COLORADO 80112 ENGLEWOOD, COLORADO 80112
(303) 645-1900 (303) 645-1900
(Address, including zip code, and telephone number, (Name, address, including zip code, and telephone number,
including including
area code, of registrant's principal executive offices) area code, of agent for service)
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With a copy to:
GAVIN B. GROVER, ESQ.
MORRISON & FOERSTER LLP
425 MARKET STREET, SAN FRANCISCO, CALIFORNIA 94105-2482
(415) 268-7000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this registration statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, check the following box:
[ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
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If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS TO BE OFFERING PRICE AGGREGATE REGISTRATION
OF SECURITIES TO BE REGISTERED(1) REGISTERED PER SHARE OFFERING PRICE FEE
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6.75% Series A Convertible Preferred Stock, par value $0.001
per share(2)................................................ 7,200,000 $ 48.50(3) $349,200,000.00 (3) $97,078(13)
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Common Stock, par value $0.001 per share, issuable upon
conversion of the 6.75% Series A Convertible Preferred
Stock(4).................................................... 7,456,302(5) N.A. N.A. (6)
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Common Stock, par value $0.001 per share, that may be paid
as dividends on the 6.75% Series A Convertible Preferred
Stock or that may be delivered in exchange for funds held in
the deposit account on behalf of the holders of the 6.75%
Series A Convertible Preferred Stock(7)..................... 1,705,346 $37.9375(8) $ 64,696,563.875(8) $17,986(13)
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Common Stock, par value $0.001 per share(9)................. 332,704 $37.9375(8) $ 12,621,958.00 (8) $ 3,509(13)
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Common Stock, par value $0.001 per share(10)................ 128,772 $61.1875(11) $ 7,879,236.75 (11) $ 2,081
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Common Stock, par value $0.001 per share(12)................ 2,000,000 $61.1875(11) $122,375,000.00 (11) $32,307
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(1) The securities covered by this registration statement may be sold or
otherwise distributed separately or together with other securities covered
by this registration statement. This registration statement covers offers,
sales and other distributions of the securities listed in this table from
time to time at prices to be determined, and shares of 6.75% Series A
Convertible Preferred Stock so offered or sold that are convertible into
shares of Common Stock.
(2) Including the accompanying interest in the deposit account prior to any
payment therefrom.
(3) Estimated solely for calculating the registration fee pursuant to Rule
457(c) based on the average of the bid and asked prices of the registrant's
6.75% Series A Convertible Preferred Stock as quoted on the Portal Market
on November 11, 1999.
(4) Pursuant to Rule 416, an indeterminate number of additional shares of
Common Stock are registered hereunder which may be issued in the event that
applicable antidilution provisions relating to stock splits, stock
dividends and similar transactions with respect to conversion of the 6.75%
Series A Convertible Preferred Stock become operative.
(5) The number of shares of Common Stock underlying the 6.75% Series A
Convertible Preferred Stock has been calculated by taking the product of
Common Stock (rounding down to the nearest whole share) equal to (a)
7,200,000 shares of 6.75% Series A Convertible Preferred Stock multiplied
by (b) the conversion ratio of 1.03559763303.
(6) Pursuant to Rule 457(i), a registration fee is not required in connection
with the registration of Common Stock issuable upon conversion of the 6.75%
Series A Convertible Preferred Stock.
(7) For purposes only of estimating the registration fee, the number of shares
of Common Stock that may be paid as dividends on the 6.75% Series A
Convertible Preferred Stock was determined by dividing the aggregate
quarterly dividend payments accruing on the 6.75% Series A Convertible
Preferred Stock from August 1, 2000 through July 31, 2001 by an assumed
Common Stock price of $25.00 per share. Similarly, for purposes only of
estimating the registration fee, the number of shares of Common Stock that
may be delivered in exchange for funds held in the deposit account was
determined by dividing the amount in the deposit account as of November 1,
1999 by an assumed Common Stock price of $25.00 per share. The registrant
has made no determination to date to take any actions necessary to cause
Common Stock to be delivered in exchange for funds held in the deposit
account.
(8) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) based on the average of the high and low prices of
the registrant's Common Stock, as quoted on the Nasdaq National Market on
November 10, 1999.
(9) Represents Common Stock issued pursuant to the exercise of certain warrants
assumed by the registrant and carrying certain registration rights for the
holders thereof, which such registration rights have been invoked by
certain of such holders.
(10) Represents shares of Common Stock the registrant has agreed to register for
an individual who sold his company to the registrant and Common Stock
issued pursuant to the exercise of a warrant assumed by the registrant and
carrying certain registration rights for the holder thereof, which such
registration rights have been invoked by the holder.
(11) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) based on the average of the high and low prices of
the registrant's Common Stock, as quoted on the Nasdaq National Market on
January 18, 2000.
(12) These shares represent potential primary issuances of the registrant.
(13) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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The information in this prospectus is not complete and may be changed. The
securities described herein cannot be sold until the registration statement
filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and is not soliciting
an offer to buy these securities in any state where the offer or sale is
not permitted.
SUBJECT TO COMPLETION AND AMENDMENT
PRELIMINARY PROSPECTUS, DATED JANUARY 25, 2000
PROSPECTUS
[VERIO LOGO]
UP TO 11,623,124 SHARES OF COMMON STOCK
7,200,000 SHARES OF 6.75% SERIES A CONVERTIBLE PREFERRED STOCK
This prospectus is being used in connection with offerings from time to time
by some of our stockholders, who we refer to as selling stockholders. The
selling stockholders collectively own the following stock being registered here:
- 7,200,000 shares of 6.75% Series A convertible preferred stock, par value
$0.001 per share, which we refer to as the convertible preferred stock;
- shares of common stock issuable upon conversion of the convertible
preferred stock;
- 411,476 shares of common stock issued upon the exercise of warrants that
we assumed on January 5, 1999;
- 50,000 shares of common stock we agreed to register on behalf of an
individual who sold his company to us.
This prospectus also relates to shares of common stock that we may issue in
lieu of cash to pay dividends on the convertible preferred stock and shares of
common stock that we may issue for funds held in an account, called the deposit
account, opened for the benefit of the holders of the convertible preferred
stock.
We and/or our wholly-owned subsidiary, Verio, LLC, may also offer from time
to time up to 2,000,000 shares of our common stock, $0.001 par value per share.
Any offering we make will be in amounts, at prices and on terms that we will
determine at the time of offering.
Holders of convertible preferred stock have a right to receive the funds
deposited in the deposit account. These payments will consist of either
quarterly cash payments of $0.8438 per share or an equivalent amount in common
stock, at our choice. These payments will end on August 1, 2000 at the latest.
On and after November 1, 2000, or earlier if the deposit account is
terminated, holders of convertible preferred stock have the right to receive
quarterly cumulative dividends if our board of directors declares any dividends.
These cumulative dividends have the following features:
- they have an annual rate of return of $3.375 per share;
- they may be paid at our choice in either cash or common stock.
Holders of the convertible preferred stock may convert their shares of
convertible preferred stock into shares of common stock at any time at a
conversion ratio of 1.03559763303 shares of common stock for each share of
convertible preferred stock, subject to some anti-dilution adjustments.
We may redeem the convertible preferred stock on or after August 1, 2001,
but prior to August 1, 2002, if the trading price of our common stock equals or
exceeds $144.8438 per share for a specified period. The redemption price in this
case will be 102.0000% of the liquidation preference, which is $50.00. If we
redeem the convertible preferred stock, holders of it also will receive all
accumulated and unpaid dividends and an additional payment equal to the present
value of the dividends that would have been payable on the convertible preferred
stock through and including August 1, 2002. Beginning August 1, 2002, we may
redeem the convertible preferred stock initially at a redemption price of
103.8571% of the liquidation preference and thereafter at prices declining to
100.0000% on and after August 1, 2006, plus, in each case, all accumulated and
unpaid dividends. We may effect any redemption, in whole or in part, by
delivering cash, shares of our common stock or a combination of both.
Selling stockholders may offer for sale the convertible preferred stock or
common stock at various times at market prices prevailing at the time of sale or
at privately negotiated prices. The selling stockholders may sell the
convertible preferred stock or common stock to or through underwriters,
broker-dealers or agents, who may receive compensation in the form of discounts,
concessions or commissions. We may offer on each of February 1, May 1, and
August 1, 2000, common stock in exchange for the funds held in the deposit
account on behalf of the holders of the convertible preferred stock.
We will provide to you, where required, specific terms of any offering of
securities sold under this prospectus in a prospectus supplement.
The selling stockholders will receive all of the net proceeds from the sale
of their shares. We will receive the net proceeds from the sale of common stock
that we and/or Verio, LLC decide to sell or that we decide to deliver in
exchange for funds held in the deposit account opened on behalf of the holders
of our convertible preferred stock. The registration of the shares on behalf of
the selling stockholders, however, does not necessarily mean that any of the
selling stockholders will offer or sell their shares.
We do not intend to list the convertible preferred stock on any securities
exchange or have it quoted on any automated quotation system. The convertible
preferred stock is eligible for trading in the Portal Market of the National
Association of Securities Dealers, Inc. The convertible preferred stock is not
expected to remain eligible for trading in the Portal Market. There is currently
no public market for our convertible preferred stock and we do not anticipate
that there will be one. Our common stock is traded on the Nasdaq National Market
under the symbol "VRIO." On January 24, 2000, the last reported sale price of
our common stock was $72 per share.
Our principal executive offices are located at 8005 South Chester Street,
Suite 200, Englewood, Colorado 80112, and our telephone number is (303)
645-1900.
You should read this prospectus and any prospectus supplements carefully
before you decide to invest.
THIS INVESTMENT INVOLVES RISKS. SEE THE "RISK FACTORS" SECTION BEGINNING ON
PAGE 2.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
This prospectus is dated , 2000.
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TABLE OF CONTENTS
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PAGE
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THE COMPANY................................................. 1
FORWARD-LOOKING STATEMENTS.................................. 1
RISK FACTORS................................................ 2
USE OF PROCEEDS............................................. 18
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS........................................... 19
SELLING STOCKHOLDERS........................................ 19
DESCRIPTION OF THE SERIES A CONVERTIBLE PREFERRED STOCK..... 28
DESCRIPTION OF CAPITAL STOCK................................ 43
FEDERAL TAX CONSIDERATIONS.................................. 48
PLAN OF DISTRIBUTION........................................ 55
LEGAL OPINIONS.............................................. 58
EXPERTS..................................................... 58
WHERE YOU CAN FIND MORE INFORMATION ABOUT US................ 59
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This prospectus, and any prospectus supplements issued in relation to it,
contain trademarks of Verio and its affiliates, and may contain trademarks,
tradenames and service marks of other parties. Unless we indicate otherwise,
references to "Verio" or to "we" or "us" are to Verio Inc. and its subsidiaries.
Information contained on Verio's Internet sites is not a part of this prospectus
or any prospectus supplement issued subsequently.
THE COMPANY
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. Currently, 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;
- electronic commerce -- enabling our customers to conduct transactions
with their customers and vendors over the Internet;
- 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; and
- other enhanced value Internet services.
We were incorporated in March 1996. Verio, LLC is a single-member limited
liability company and wholly-owned subsidiary of ours. It was formed under
Delaware law on December 17, 1999 and currently conducts no business. The
address of our and Verio, LLC's principal executive offices is 8005 South
Chester Street, Suite 200, Englewood, Colorado 80112, and the telephone number
for both is (303) 645-1900.
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FORWARD-LOOKING STATEMENTS
This prospectus includes "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 Securities Exchange Act of 1934, as amended, and the Securities Act of 1933,
as amended, apply to forward-looking statements made by us. These
forward-looking statements involve risks and uncertainties, including those
identified within "Risk Factors" beginning on page 2 and elsewhere in, or
incorporated by reference into, this prospectus. The actual results that we
achieve may differ materially from any forward-looking statements, due to such
risks and uncertainties. These forward-looking statements are based on current
expectations, and we assume no obligation to update this information. Readers
are urged to carefully review and consider the various disclosures made by us in
this prospectus, any subsequent prospectus supplement 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 our business.
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RISK FACTORS
An investment in Verio involves a high degree of risk. In addition to the
other information included in this prospectus and any subsequent prospectus
supplement, you should carefully consider the following risk factors in
determining whether or not to purchase the securities offered under this
prospectus and any subsequent prospectus supplement. These matters should be
considered in conjunction with the other information included or incorporated by
reference in this prospectus or any subsequent prospectus supplement. 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. Prospective purchasers of our securities 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 since our inception in March 1996. For the
period from inception to December 31, 1996, we had a loss of $(5.1) million, and
for the years ended December 31, 1997 and 1998, and the nine months ended
September 30, 1999, we had losses of $(46.1) million, $(122.0) million and
$(137.5) 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 from the
period of our inception to December 31, 1996; to approximately $35.7 million in
1997; to approximately $120.7 million in 1998; and to approximately $185.4
million for the nine months ended September 30, 1999.
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 acquisition and integration
efforts, build out our national network operations, expand and enhance our
product and service offerings, and further establish 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 and national level; and
- potential regulatory developments that may affect our operations.
In order to achieve profitability, Verio 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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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
September 30, 1999, our total long-term liabilities were approximately $694.2
million, representing 59% of our total capitalization. In addition, we completed
in November 1999 an offering of 10 5/8% Senior Notes due 2009 in the aggregate
principal amount of $400.0 million, which we refer to as the November 1999
Notes, and we have a $100.0 million revolving credit facility from a group of
financial institutions. 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. Of the $54.4 million cash flow used by our operations for the
nine months ended September 30, 1999, $43.2 million, or approximately
79%, was used to pay interest on our debt. Of this amount, 16% was used
for interest on the $100.0 million outstanding principal amount of
13 1/2% Senior Notes due 2004 -- which we refer to as the 1997 Notes; 21%
was used for interest on the $175.0 million outstanding principal amount
of 10 3/8% Senior Notes due 2005 -- which we refer to as the March 1998
Notes; 54% was used for interest on the $400.0 million outstanding
principal amount of 11 1/4% Senior Notes due 2008 -- which we refer to as
the November 1998 Notes; and 9% was used for interest on capital leases
and other obligations. Interest on our debt continues to be a significant
use of cash.
- 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. In addition, we may need to incur
additional indebtedness in the future. Many of these factors are beyond our
control. 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 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 (interest on these
notes is paid from an escrow account until June 2000);
- $18.2 million in annual interest on the March 1998 Notes;
- $45.0 million in annual interest on the November 1998 Notes;
- up to $24.3 million in annual dividends we may pay on our convertible
preferred stock, plus any additional dividends owed thereon depending on
certain contingencies, beginning in November 2000;
- $42.5 million in annual interest on the November 1999 Notes; or
- any debt obligations we may incur under the credit facility, if drawn
upon.
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
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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.
IT IS UNLIKELY THAT INVESTORS WILL RECEIVE A RETURN ON OUR COMMON STOCK THROUGH
THE PAYMENT OF CASH DIVIDENDS
We have never declared or paid cash dividends on our common stock and have
no intention of doing so in the foreseeable future. In addition, although we
have the option of paying dividends in cash, our ability to pay cash dividends
is substantially restricted under various covenants and conditions contained in
our debt instruments. In any event, under Delaware law we are permitted to pay
dividends on our capital stock only out of our surplus, or if we have no
surplus, out of our net profits for the year in which a dividend is declared or
for the immediately preceding fiscal year. Surplus is defined as the excess of a
company's total assets over the sum of its total liabilities and convertible
preferred stock plus the par value of its outstanding capital stock. At
September 30, 1999, we had a stockholders' equity of approximately $492.3
million. We have had a history of losses and expect to operate at a net loss for
the next several years. These net losses will reduce our stockholders' equity.
For the nine months ended September 30, 1999, we had a net loss attributable to
common stockholders of $137.5 million. We cannot predict what the value of our
assets or the amount of our liabilities will be in the future.
PAYMENT OF DIVIDENDS AND ADDITIONAL DIVIDENDS IN SHARES OF COMMON STOCK MAY NOT
RESULT IN STATED DIVIDEND YIELD
In the event dividends or additional dividends, if any, on our convertible
preferred stock are paid in shares of common stock, the number of shares of
common stock to be issued on each dividend payment date will be determined by
dividing the total dividend and additional dividends, if any, to be paid on each
share of convertible preferred stock by the Market Value Amount, as defined
under "Description of the Series A Convertible Preferred Stock -- General," on
the record date for such dividend. If the market value applicable in determining
the Market Value Amount is higher than the market value for the common stock on
the dividend payment date and you sell at such lower price, your actual dividend
yield could be lower than the stated dividend yield on the convertible preferred
stock. In addition, you are likely to incur commissions and other transaction
costs in connection with the sale of such common stock.
THE CONVERTIBLE PREFERRED STOCK IS SUBORDINATED TO ALL OUR LIABILITIES
In the event of bankruptcy, liquidation or reorganization of Verio, our
assets will be available to pay obligations on the convertible preferred stock
only after all indebtedness and other liabilities, including our existing senior
notes and all subsequent series of preferred stock of Verio which rank senior to
the convertible preferred stock, have been paid. There may not be sufficient
assets remaining to pay amounts due on any or all of the convertible preferred
stock then outstanding. While we consider the funds placed in the deposit
account to be the property of the purchasers of the convertible preferred stock
and not our property, in a bankruptcy proceeding, our creditors or a trustee in
bankruptcy could claim that those funds constitute property of our bankrupt
estate. If that were to occur, access to the funds in the deposit account by the
purchasers of the convertible preferred stock would be denied until all our
indebtedness had been paid in full. As of September 30, 1999, the convertible
preferred stock is junior in right of payment to $670.8 million total
indebtedness and other obligations of Verio, of which $2.0 million is attributed
to our subsidiaries. In addition, in November 1999, we completed the offering of
the November 1999 Notes in the aggregate principal amount of $400.0 million. As
a result, the convertible preferred stock is also junior in right of payment to
this indebtedness.
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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:
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EARNINGS NON-CASH
DEFICIENCY CHARGES
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(IN THOUSANDS)
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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
Nine months ended September 30, 1999........................ $(137,537) $94,779
</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 CONVERTIBLE PREFERRED STOCK HAS NEVER BEEN PUBLICLY TRADED
There has been no public trading market for the convertible preferred
stock. We do not intend to list the convertible preferred stock on any national
securities exchange. The convertible preferred stock is eligible for trading in
the Portal Market; however, no assurance can be given as to the liquidity of, or
trading market for, the convertible preferred stock. Accordingly, there can be
no assurance that any market for the convertible preferred stock will be
maintained. If an active market for the convertible preferred stock fails to
develop or be sustained, the trading price of such convertible preferred stock
could be materially adversely affected.
THE MARKET PRICE AND TRADING VOLUME OF OUR COMMON STOCK ARE VOLATILE
The market price of our common stock has fluctuated significantly in the
past, and is likely to continue to be highly volatile. In addition, the trading
volume in our common stock has fluctuated, and significant price variations can
occur as a result. We cannot assure you that the market price of our common
stock will not fluctuate or decline significantly in the future. In addition,
the U.S. equity markets have from time to time experienced significant price and
volume fluctuations that have particularly affected the market prices for the
stocks of technology and telecommunications companies. These broad market
fluctuations may materially adversely affect the market price of our common
stock in the future. Such variations may be the result of changes in our
business, operations or prospects, announcements of technological innovations
and new products by competitors, new contractual relationships with strategic
partners by us or our competitors, proposed acquisitions by us or our
competitors, financial results that fail to meet public market analyst
expectations, regulatory considerations and domestic and international market
and economic conditions.
FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD ADVERSELY AFFECT OUR
STOCK PRICE AND OUR ABILITY TO RAISE FUNDS IN NEW EQUITY OFFERINGS
No prediction can be made as to the effect, if any, that future sales of
shares of common stock or the availability for future sale of shares of common
stock or securities convertible into or exercisable for our common stock will
have on the market price of common stock prevailing from time to time. Sale, or
the availability for sale, of substantial amounts of common stock by existing
stockholders under Rule 144, through the exercise of registration rights or the
issuance of shares of common stock upon the exercise of
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stock options or warrants or the conversion of our convertible preferred stock,
or the perception that such sales or issuances could occur, could adversely
affect prevailing market prices for our common stock and could materially impair
our future ability to raise capital through an offering of equity securities.
See "Description of Capital Stock."
WE ARE SUBJECT TO ANTI-TAKEOVER PROVISIONS THAT COULD DELAY OR PREVENT AN
ACQUISITION AND COULD ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK
Our certificate of incorporation and bylaws, certain provisions of Delaware
law and the certificate of designation governing the convertible preferred stock
may make it difficult in some respects to cause a change in control of Verio and
replace incumbent management. In addition, Nippon Telegraph and Telephone
Corporation has the right to designate a member of our board of directors and is
subject to certain standstill and other limitations on its ability to make
further acquisitions of our stock that could delay, defer or prevent a change of
control. The existence of these provisions may collectively have a negative
impact on the price of the common stock, may discourage third-party bidders from
making a bid for Verio, or may reduce any premiums paid to stockholders for
their common stock. In addition, the board of directors has the authority to fix
the rights and preferences of, and to issue shares of, our preferred stock,
which may have the effect of delaying or preventing a change in control of Verio
without action by our stockholders. See "Description of Capital
Stock -- Anti-Takeover Provisions."
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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OUR OPERATING RESULTS FLUCTUATE DUE TO A VARIETY OF FACTORS AND ARE NOT 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.
OUR SUCCESS IS HIGHLY DEPENDENT ON THE GROWTH OF OUR EXISTING INTERNET ACCESS
AND WEB HOSTING CORE SERVICES, AND ON OUR ABILITY TO EXPAND OUR SERVICE
OFFERINGS AND DISTRIBUTION CHANNELS
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. 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.
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;
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- 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 values of the net 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.
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, Inc.), which we refer to as
Hiway, we recorded gross goodwill totaling approximately $240.5 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 does 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.
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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 have had varying degrees of internal controls and detailed
financial information. Therefore, the financial information included in this
prospectus or incorporated by reference includes financial information
concerning certain recently completed acquisitions for which audited financial
statements may not be available. Our subsequent audits of these recently
acquired companies may reveal significant issues with respect to revenues,
expenses and liabilities, contingent or otherwise, of any of these providers.
OUR RAPID GROWTH PUTS A SIGNIFICANT STRAIN ON OUR RESOURCES
As a result of our 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 acquire
substantial network capacity to support their needs. 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 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 and 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, 1998, and for the nine months ended September 30, 1999,
we estimate that approximately 10% of our total revenues was 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
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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, certain risks inherent in doing business on an international level
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;
- 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 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 strict 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 access
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 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:
- other independent providers of Web hosting and other enhanced value
Internet services;
- national, regional and local Internet service providers;
- global, national and regional long distance and local exchange
telecommunications companies;
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- cable television companies;
- direct broadcast satellite and wireless communications providers; and
- on-line service providers.
We believe that the following are the primary competitive factors in this
market:
- a secure and reliable national network 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;
- 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 and compete with us. The
recent sweeping reforms in the federal regulation of the telecommunications
industry have 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 their
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 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
or 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 offer for sale
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 lines circuits. These circuits, which
provide higher speed and lower latency Internet connections than a standard
dialup phone connection, compete with our dedicated connectivity offerings.
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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 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.
WE DEPEND UPON OUR NETWORK INFRASTRUCTURE
Our success depends upon our ability to implement and expand our national
network infrastructure and support services at an acceptable cost. This may
require us to enter into additional agreements with providers of infrastructure
capacity and equipment and support services. 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
may be necessary in order to respond to growth in the number of customers
served, increased demands to transmit larger amounts of data and changes to our
customers' product and service requirements. This will require substantial
financial, operational and managerial resources. 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. Also, we may not be
able to deploy successfully any expanded and adapted network infrastructure.
OUR NETWORK SYSTEM 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 network, and other networks providing services to us, are
vulnerable to damage or cessation of operations from fires, earthquakes, severe
storms, power losses, telecommunications failures and similar events,
particularly if the events occur within a high-traffic location of the network.
We have designed our network to minimize the risk of such system failure, for
instance, with redundant circuits among point of presence facilities to allow
traffic rerouting. In addition, we perform lab and field testing before
integrating new and emerging technology into the network, and we engage in
capacity planning. Nonetheless, we cannot assure you that we will not experience
failures or shutdowns relating to individual point of presence facilities or
even catastrophic failure of the entire network.
While historically we have not, as a general matter, offered our customers
a service-level warranty, our customers are increasingly requiring that we
provide a standard service-level warranty for our services. Many of our
competitors have begun to do so. As a result, in order to remain competitive, we
now expect to implement a standard policy under which we offer such a warranty
to our customers. To the extent that we provide such a service-level warranty 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. In addition, certain of
the companies we acquired did offer various warranties under their customer
contracts. For example, Hiway historically has offered its customers a
service-level warranty under which Hiway commits that a customer's Web site will
be available at least 99.9% of the time in each calendar month for as long as
the customer is using the services. If uptime falls below this level in any
month, the customer is entitled to certain service credits for that month. By
acquiring Hiway, we inherited these warranty obligations.
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
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liability or limiting liability to a usage credit based upon the amount of time
that the system was down. We cannot assure 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 certain 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 computer viruses,
break-ins and similar 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. Furthermore, 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 to organizations such as the CERT Coordination Center at
Carnegie Mellon University, which facilitates responses of the Internet
community to computer security events. Addressing problems caused by computer
viruses or 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.
WE MAY BE LIABLE TO CUSTOMERS FOR SECURITY BREACHES
The security services that we offer in connection with our customers'
networks cannot ensure complete protection from computer viruses, break-ins and
other disruptive problems. Inappropriate use of the Internet by third parties
could also potentially jeopardize the security of confidential information
stored in the computer systems of our customers. Although we attempt to limit
contractually our liability in such instances, the occurrence of these problems
may result in claims against us or liability on our part. 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.
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 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 increasing peering
requirements in order to maintain our peering relationships. Failure to maintain
peering relationships or establish new ones, if necessary, will increase our
operating expenses.
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;
- inability to integrate business applications on the Internet;
- the need to deal with multiple and frequently incompatible vendors;
- inadequate protection of the confidentiality of stored data and
information moving across the Internet; and
- a lack of tools to simplify Internet access and use.
In particular, numerous published reports have indicated that a perceived
lack of security of commercial data, such as credit card numbers, has
significantly impeded commercial 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 which have historically relied upon alternative means of commerce
and communication, generally requires the understanding and acceptance of a new
way of conducting business and exchanging information. In particular,
enterprises that have already invested substantial resources in other means of
conducting commerce and exchanging information may be particularly reluctant or
slow to adopt a new strategy that may make their existing personnel and
infrastructure obsolete. 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, to
continue to develop our technical expertise, to enhance our current services, to
develop new products and services that meet changing customer needs, and to
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 LIABILITY FOR INFORMATION DISSEMINATED THROUGH OUR NETWORK
The law relating to liability of Internet service providers for information
carried on or disseminated through their networks is not completely settled. A
number of lawsuits have sought to impose such liability for defamatory speech
and infringement of copyrighted materials. The U.S. Supreme Court has let stand
a lower court ruling which held that an Internet service provider was protected
from liability for material posted on its system by a provision of the
Communications Decency Act. However, the findings in that case may not be
applicable in other circumstances. Other courts have held that on-line service
providers and Internet service providers may, under certain circumstances, be
subject to damages for copying or distributing copyrighted materials. Certain
provisions of the Communications Decency Act, which imposed criminal penalties
for using an interactive computer service for transmitting obscene or indecent
communications, have been found unconstitutional by the U.S. Supreme Court.
However, on October 21, 1998, federal legislation was enacted that requires
limitations on access to pornography and other material deemed "harmful to
minors" within the meaning contained in the legislation. This legislation has
been successfully attacked in the U.S. district court as a violation of the
First Amendment. This decision is on appeal and was recently argued before the
U.S. Court of Appeals for the Third Circuit. We are unable to predict the
outcome of this appeal. In addition, the Federal Trade Commission has adopted
final rules that are to become 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, and proposals to enact federal and state
legislation addressing issues relating to Internet content and liability are
submitted regularly. The imposition upon Internet service providers or Web
server hosts 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.
The law relating to the regulation and liability of Internet access
providers in relation to information carried or disseminated also is 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.
WE MAY BECOME SUBJECT TO GOVERNMENT REGULATION
Although we are not currently subject to direct government regulation other
than regulations applicable to businesses generally, changes in the regulatory
environment relating to the Internet connectivity market could affect our
pricing. 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, it is possible that additional
laws and regulations may be adopted. Additional laws and regulations could cover
issues such as content, user pricing, privacy, libel, intellectual property
protection and infringement, and technology export and other controls. 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 not
regulated, it is expected that future
15
<PAGE> 19
Internet service provider regulatory status will continue to be uncertain.
Indeed, in that 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 the 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 Verio.
Nonetheless, the imposition of access charges would affect our costs of serving
dialup customers and could have a material adverse effect on our business,
financial condition and results of operations.
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 available only from limited sources. For example, we currently rely
primarily on Cisco Systems to supply routers critical to our network. We could
be adversely affected if routers from Cisco were to become unavailable on
commercially reasonable terms. Qwest, Sprint, MCI WorldCom and MFS, who sell
products and services that compete with ours, also are 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.
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 service 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.
OUR BUSINESS MAY BE ADVERSELY IMPACTED BY YEAR 2000 ISSUES
The commonly referred to Year 2000 or Y2K issue results from the fact that
many computer programs and systems were developed without considering the
possible impact of a change in the century
16
<PAGE> 20
designation that occurred on January 1, 2000. As a result, these programs and
systems use only two digits instead of four to identify the year in the date
field. Systems that do not properly recognize this date could generate wrong
data, calculate erroneous results, or fail if the issue was or remains
uncorrected. The Year 2000 problem is pervasive and complex, as virtually every
company's computer operations potentially could be affected in some way.
We have identified two main areas of potential Y2K risk in our business:
- our internal systems or embedded chips could be disrupted or fail, which
could negatively impact our services and productivity; and
- computer systems or embedded technology of third parties, such as our
suppliers, vendors, customers, landlords, telecommunication service
providers, outsource providers, and others could be disrupted or fail,
and thereby adversely affect our operations.
In order to evaluate the potential impact of the Y2K problem on our
business, and to help ensure that our network operations and services to our
customers were not and are not interrupted due to the Y2K problem, we undertook
an extensive inventory, assessment and remediation program to evaluate and
remediate the Y2K compliance status of our equipment, network and systems. We
established a Y2K assessment team that was responsible for overseeing this
effort.
Verio assessed the compliance status of all potentially affected systems
and equipment, identified from the inventory phase of our Y2K compliance effort,
throughout our operations. Compliance status was checked against third party
information sources including public statements made by hardware and software
vendors, correspondence directly with such vendors, and compilations of
compliance information published by other parties. Verio did not independently
verify compliance of such hardware and software components utilized within our
service or independently verify the contents of the republications.
We believe that, as a result of our detailed assessment and remediation
efforts, the Y2K issue has not posed significant operational problems for us.
However, if Y2K compliance problems have not been discovered, or if requisite
modifications or remedies have not been undertaken or made, it is possible that
the Y2K problem still could have a material impact on our operations. We cannot
currently estimate the magnitude of such a possible impact.
Through the end of 1999, we surveyed, among others, critical vendors,
suppliers, customers and financial institutions for Year 2000 compliance. We
evaluated the Year 2000 preparedness of our telecommunications providers on
which we rely for the network services crucial to our business. In order to
reduce potential adverse impacts, we have maintained diverse providers for such
network services. However, failure of any one provider could still have a
material impact on Verio's operations. Our survey of our third party suppliers
indicates that many of them were still working on their own Year 2000 compliance
issues through the end of 1999. We are heavily dependent upon the veracity of
their testing and statements of compliance as we cannot replicate and
independently test the services supplied to us. Though most of these suppliers
indicated that their critical systems and technology were Year 2000 ready, at
this time we cannot estimate the effect, if any, that non-compliant systems
supplied by these entities could have on us. It is possible that the impact on
us could be material if one or more of these systems were not Y2K compliant at
the end of last year. We continue to work with each of these suppliers to obtain
the latest information on their compliance status to assist us in evaluating and
developing contingency plans. If any of our material third party suppliers or
vendors were not Y2K ready and their non-compliance causes a material disruption
to any of their respective businesses or services, our business, operations
and/or services could be materially and adversely affected.
The most significant risks that the Y2K issues continue to present to us
include, without limitation, disruption, delay or cessation of operations. Other
potential adverse Y2K scenarios include the failure or impairment of software
that is provided by a third party and incorporated in one of our service
platforms as a result of a Y2K problem. In that case, the particular service
that the software supports could likewise become inoperable or perform
incorrectly. Further, in the event that third-party-supplied equipment
(including customer premise equipment) contains non-Y2K-compliant technology,
the systems, operations
17
<PAGE> 21
or services supported by that equipment also could fail or be interrupted. Other
potential disruptions could include the interruption in delivery of key supplies
from vendors and other interruptions in the normal course of our operations.
Even though the date is now past January 1, 2000, and we have not experienced
any immediate adverse impact from the transition to the Year 2000, we cannot
provide assurance that, in the event that a failure does occur, our services
would not suffer degradation or complete failure without warning or remedy,
resulting in substantial potential expense.
While our expenditures to date in our Year 2000 program efforts have not
been material, it is possible that the costs associated with our Y2K efforts
could increase if it is determined that additional resources are required or if
important operational or systems equipment must yet be remediated or replaced.
The total cost of our Y2K compliance program is funded through cash on hand and
we are expensing these costs, as appropriate. While the financial impact of
making all required systems changes or other remediation efforts cannot be known
precisely, it is not expected to be material to our financial position, results
of operations, or cash flows. We have not cancelled any principal information
technology projects as a result of our Y2K efforts, although we have rescheduled
and reprioritized some internal tasks in order to accommodate these efforts.
While we believe that we have adequately addressed the Y2K issue, we cannot
assure you that our Y2K compliance effort has prevented every potential
interruption or failure, or that the cost and liabilities associated with the
Y2K issue will not materially adversely impact our business, prospects,
revenues, or financial position.
USE OF PROCEEDS
We will not receive any proceeds from the sale of shares of our convertible
preferred stock and common stock by the selling stockholders or from the
issuance of common stock as dividends. To the extent that we determine to issue
shares of our common stock in exchange for funds held in the deposit account on
behalf of the holders of the convertible preferred stock, the net proceeds from
this issuance will not be in excess of the amount in the deposit account, the
aggregate amount of which as of November 11, 1999, was approximately $18.3
million. Unless otherwise indicated in a prospectus supplement, the net proceeds
from this sale or any sale of common stock by us and/or Verio, LLC will be added
to our general corporate funds and may be used for general corporate purposes.
These purposes include continuing the development and implementation of the
national backbone, customer care center, network operations center and billing
and accounting services and furthering our acquisition and investment strategy.
In that regard, we are continually evaluating possible acquisition and
investment opportunities to strategically expand our geographic scope and
product offering capabilities, and anticipate that we will undertake and
effectuate transactions from time to time following the date of this prospectus.
We continue to evaluate additional businesses for investment or acquisition and
are currently in negotiations with several potential third parties. We may use a
portion of the net proceeds from the sale of common stock by us and/or Verio,
LLC to fund potential investments and acquisitions. Pending application of the
proceeds as described above, the net proceeds from the issuance of the common
stock in exchange for funds held in the deposit account on behalf of the holders
of the convertible preferred stock or any sale of common stock by us and/or
Verio, LLC will be invested in short-term, investment-grade securities.
18
<PAGE> 22
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table shows the deficiency of earnings to cover combined
fixed charges and preferred stock dividends of Verio for the last three years
and the nine month periods ended September 30, 1998, and September 30, 1999.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- ------------------
1996 1997 1998 1998 1999
------ ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Deficiency of earnings to cover combined
fixed charges and preferred stock
dividends(*)................................ (5,825) (48,253) (112,423) (78,750) (137,537)
</TABLE>
- ---------------
(*) 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.
COMMON STOCK SPLIT AND LOSS PER COMMON SHARE
On August 20, 1999, we completed a two-for-one stock split of our common
stock. Share and per share information in historical and pro forma financial
statements issued subsequent to August 20, 1999 reflect the effects of the stock
split for all periods presented. Accordingly, some loss per share information
included in consolidated historical and pro forma financial statements for
periods prior to the stock split, which are incorporated by reference in this
prospectus, has been adjusted for the stock split as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1997 1998
------ ------- --------
<S> <C> <C> <C>
Loss per common stock share -- basic and diluted............ $(2.65) $(20.24) $ (2.85)
Weighted average common shares outstanding (in thousands)... 1,944 2,290 42,752
Loss per common share before extraordinary item -- pro
forma..................................................... (2.87)
Weighted average common shares outstanding -- pro forma (in
thousands)................................................ 52,527
</TABLE>
SELLING STOCKHOLDERS
The following table sets forth certain information, received through
January 25, 2000, with respect to the number of shares of convertible preferred
stock beneficially owned and to be registered, the number of shares of common
stock beneficially owned and/or to be owned upon conversion of the convertible
preferred stock, the percentage of common stock beneficially owned and/or to be
owned after conversion of the convertible preferred stock prior to this
offering, and the number of shares of common stock to be registered, by the
selling stockholders named below. The information is based on information
provided by or on behalf of the selling stockholders and, with regard to the
beneficial holdings of the selling stockholders, is accurate only to the extent
beneficial holdings information was disclosed to us by or on behalf of the
selling stockholders. The selling stockholders and holders listed in any
supplement to this prospectus, and any transferors, pledgees, donees or
successors to these persons, may from time to time offer and sell, pursuant to
this prospectus and any subsequent prospectus supplement, any and all of these
shares. Any supplement to this prospectus may contain certain additional or
varied information about the selling stockholders and/or additional holders, and
any of their transferors, pledgees, donees or successors, and the aggregate
principal amount of the shares beneficially owned by each person that they are
offering. This information will be obtained from the selling stockholders.
The selling stockholders may offer all, some or none of the convertible
preferred stock or common stock listed below. Because the selling stockholders
may offer all, some or none of the convertible preferred stock or common stock,
no estimate can be given as to the amount or percentage of the convertible
preferred stock or common stock that will be held by the selling stockholders
upon termination of any of the sales. In addition, the selling stockholders
identified below may have sold, transferred or otherwise disposed of all or a
portion of their convertible preferred stock or common stock since the date
19
<PAGE> 23
on which they provided the information regarding their convertible preferred
stock or common stock to us in transactions exempt from the registration
requirements of the Securities Act of 1933, as amended.
Verio has filed with the SEC, under the Securities Act, a registration
statement on Form S-3 of which this prospectus, and any subsequent prospectus
supplements, form a part with respect to the resale of the shares of convertible
preferred stock from time to time in the PORTAL Market and the resale of the
shares of common stock from time to time on the Nasdaq National Market or in
privately-negotiated transactions.
READERS ARE ENCOURAGED TO READ THE FOLLOWING TABLE IN CONNECTION WITH THE
"DESCRIPTION OF THE SERIES A CONVERTIBLE PREFERRED STOCK" SECTION IMMEDIATELY
FOLLOWING THIS SECTION.
The shares offered by this prospectus may be offered from time to time by
the selling stockholders named below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF PERCENTAGE OF
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
OWNED AND/OR TO OWNED AND/OR TO
NUMBER OF BE OWNED AFTER BE OWNED AFTER NUMBER OF
SHARES OF CONVERSION OF CONVERSION OF SHARES OF NUMBER OF
CONVERTIBLE THE CONVERTIBLE THE CONVERTIBLE CONVERTIBLE SHARES OF
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK
BENEFICIALLY PRIOR TO THIS PRIOR TO THIS REGISTERED AS REGISTERED AS
OWNED PRIOR TO OFFERING OFFERING PART OF THIS PART OF THIS
NAME OF SELLING STOCKHOLDER(1) THIS OFFERING (2)(3) (3) OFFERING OFFERING
- ------------------------------ --------------- --------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Deutsche Bank Securities
Inc.(4)...................... 297,600 308,193 * 297,600 308,193
Pacific Life Insurance Company
(Raymond J. Lee/Elaine M.
Havens).................... 30,000 31,067 * 30,000 31,067
Forest Fulcrum Fund L.P.
(Michael A. Boyd, Jr.)..... 25,000 25,889 * 25,000 25,889
Forest Performance Fund L.P.
(Michael A. Boyd, Jr.)..... 8,000 8,284 * 8,000 8,284
Forest Convertible Fund L.P.
(Michael A. Boyd, Jr.)..... 6,000 6,213 * 6,000 6,213
Forest Alternative Strategies
Fund Series A5M (Michael A.
Boyd, Jr.)................. 500 517 * 500 517
Forest Alternative Strategies
Fund Series A5I (Michael A.
Boyd, Jr.)................. 1,500 1,553 * 1,500 1,553
Forest Global Convertible Fund
Series A5 (Michael A. Boyd,
Jr.)....................... 76,500 79,223 * 76,500 79,223
Sylvan IMA LTD. c/o Forest
Investment Mgmt. (Michael A.
Boyd, Jr.)................. 11,000 11,391 * 11,000 11,391
Summer Hill Global Partners
L.P. (Arthur W. Berry/
Robert J. Cresci) ......... 1,600 1,656 * 1,600 1,656
Christian Science Trustees For
Gifts and Endowments (Arthur
W. Berry/Robert J.
Cresci).................... 6,000 6,213 * 6,000 6,213
</TABLE>
20
<PAGE> 24
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF PERCENTAGE OF
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
OWNED AND/OR TO OWNED AND/OR TO
NUMBER OF BE OWNED AFTER BE OWNED AFTER NUMBER OF
SHARES OF CONVERSION OF CONVERSION OF SHARES OF NUMBER OF
CONVERTIBLE THE CONVERTIBLE THE CONVERTIBLE CONVERTIBLE SHARES OF
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK
BENEFICIALLY PRIOR TO THIS PRIOR TO THIS REGISTERED AS REGISTERED AS
OWNED PRIOR TO OFFERING OFFERING PART OF THIS PART OF THIS
NAME OF SELLING STOCKHOLDER(1) THIS OFFERING (2)(3) (3) OFFERING OFFERING
- ------------------------------ --------------- --------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
General Motors Welfare Benefit
Trust (L-T Veba) (John B.
Wagner/Jeffrey S. Smith/
Daniel J. Sakai/Wai Y. Cheng
(Albin)/Roy Astrachan)....... 61,500 63,689 * 61,500 63,689
The Retail Clerks Pension
Trust (John B.
Wagner/Jeffrey S.
Smith/Daniel J. Sakai/ Wai
Y. Cheng (Albin)/Roy
Astrachan)................. 23,000 23,818 * 23,000 23,818
Peoples Benefit Life Insurance
Company (John B. Wagner/
Jeffrey S. Smith/Daniel J.
Sakai/Wai Y. Cheng
(Albin)/Roy Astrachan)..... 163,500 169,320 * 163,500 169,320
National Electrical Benefit
Fund (John Hague).......... 25,000 25,889 * 25,000 25,889
TECO Energy Retirement Plan
(John Hague)............... 5,000 5,177 * 5,000 5,177
PIMCO Total Return Fund
(William Gross)............ 45,000 46,601 * 45,000 46,601
PIMCO Convertible Bond Fund
(Sandra Durn).............. 20,000 20,711 * 20,000 20,711
City University of New York
(Paul Latronica/Tracy
Maitland).................. 1,386 1,435 * 1,386 1,435
New Orleans Firefighters (Paul
Latronica/Tracy Maitland)... 2,254 2,334 * 2,254 2,334
Shell Pension Trust (Paul
Latronica/Tracy Maitland)... 2,987 3,093 * 2,987 3,093
Maryland State Retirement
System (Paul Latronica/
Tracy Maitland)............ 30,518 31,604 * 30,518 31,604
Occidental Petroleum (Paul
Latronica/Tracy Maitland)... 3,718 3,850 * 3,718 3,850
TQA Master Fund, Ltd. (John
Idone/Paul Bucci).......... 27,500 28,478 * 27,500 28,478
TQA Master Plus Fund, Ltd.
(John Idone/Paul Bucci).... 35,000 36,245 * 35,000 36,245
LDG Limited (John Idone/ Paul
Bucci)..................... 5,000 5,177 * 5,000 5,177
</TABLE>
21
<PAGE> 25
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF PERCENTAGE OF
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
OWNED AND/OR TO OWNED AND/OR TO
NUMBER OF BE OWNED AFTER BE OWNED AFTER NUMBER OF
SHARES OF CONVERSION OF CONVERSION OF SHARES OF NUMBER OF
CONVERTIBLE THE CONVERTIBLE THE CONVERTIBLE CONVERTIBLE SHARES OF
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK
BENEFICIALLY PRIOR TO THIS PRIOR TO THIS REGISTERED AS REGISTERED AS
OWNED PRIOR TO OFFERING OFFERING PART OF THIS PART OF THIS
NAME OF SELLING STOCKHOLDER(1) THIS OFFERING (2)(3) (3) OFFERING OFFERING
- ------------------------------ --------------- --------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
JMG Convertible Investments
L.P. (Jonathan M. Glaser).... 105,000 108,737 * 105,000 108,737
Triton Capital Investments,
LTD (Jonathan M. Glaser)... 105,000 108,737 * 105,000 108,737
Donaldson, Lufkin & Jenrette
Securities Corp. (Jake
Albright/Zoltan
Zsitvay)(5)................ 670,000 693,850 * 670,000 693,850
Allegheny Teledyne Inc.
Pension Plan (Gerald B.
Unterman).................. 43,000 44,530 * 43,000 44,530
Colgate-Palmolive Company
Retirement Trust (Gerald B.
Unterman).................. 14,000 14,498 * 14,000 14,498
Golden Rule Insurance Company
(Gerald B. Unterman)....... 41,000 42,459 * 41,000 42,459
GranGem 23 41 LLC (Gerald B.
Unterman).................. 12,000 12,427 * 12,000 12,427
State of Maryland Retirement
Fund (Gerald B.
Unterman).................. 56,200 58,200 * 56,200 58,200
NMS Services, Inc. (Kevin
Beauregard)(6)............. 50,000 51,779 * 50,000 51,779
Banc of America Securities LLC
(Jonathan
Sandelman)................. 357 369 * 357 369
NMS Services (Cayman) Inc.
(Deidre Hicks)(7).......... 0 97,774 * 0 97,774
Lipper Convertibles, L.P.
(Kenneth Lipper)........... 399,500 413,721 * 399,500 413,721
Allstate Insurance Company
(David V. Goacher)......... 56,300 58,304 * 56,300 58,304
Fidelity Mt. Vernon Street
Trust: Fidelity Aggressive
Growth Fund(8)............. 800,000 4,579,878 5.5% 800,000 828,478
Fidelity Financial Trust:
Fidelity Convertible
Securities Fund(8)......... 55,500 57,475 * 55,500 57,475
BI Partners LLC (Thomas C.
Barry)(9).................. 0 60,000 * 0 39,386
</TABLE>
22
<PAGE> 26
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF PERCENTAGE OF
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
OWNED AND/OR TO OWNED AND/OR TO
NUMBER OF BE OWNED AFTER BE OWNED AFTER NUMBER OF
SHARES OF CONVERSION OF CONVERSION OF SHARES OF NUMBER OF
CONVERTIBLE THE CONVERTIBLE THE CONVERTIBLE CONVERTIBLE SHARES OF
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK
BENEFICIALLY PRIOR TO THIS PRIOR TO THIS REGISTERED AS REGISTERED AS
OWNED PRIOR TO OFFERING OFFERING PART OF THIS PART OF THIS
NAME OF SELLING STOCKHOLDER(1) THIS OFFERING (2)(3) (3) OFFERING OFFERING
- ------------------------------ --------------- --------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Merrill Lynch, Pierce, Fenner
& Smith Incorporated (Val
Mihan)....................... 102,750 301,951 * 102,750 301,951
Tribeca Investments L.L.C.
(Allan Tett) .............. 138,200 143,119 * 138,200 143,119
Value Line Convertible Fund,
Inc. ...................... 5,000 5,177 * 5,000 5,177
Putnam Funds Trust-Putnam High
Yield Fund II.............. 143,760 148,877 * 143,760 148,877
Agway Inc. Employees'
Retirement Trust........... 3,260 3,376 * 3,260 3,376
Abbot Laboratories Annuity
Retirement Plan............ 6,000 6,213 * 6,000 6,213
Mobile Oil Corporation....... 5,600 5,799 * 5,600 5,799
Strategic Global Fund-High
Yield Fixed Income (Putnam)
Fund....................... 6,480 6,710 * 6,480 6,710
Ameritech Pension Trust...... 6,000 6,213 * 6,000 6,213
Southern Farm Bureau Annuity
Insurance Co............... 6,400 6,627 * 6,400 6,627
Children's Hospital
Corporation Pension Plan... 8,500 8,802 * 8,500 8,802
Children's Hospital
Corporation Maintenance
Employees Pension Plan..... 213 220 * 213 220
Putnam High Yield Managed
Trust...................... 24,200 25,061 * 24,200 25,061
Putnam High Yield Fixed Income
Fund, LLC.................. 10,000 10,355 * 10,000 10,355
CPR (USA) Inc. (Richard
Meckler/Steven Rogers/
Olivier Mirat/Bernard Crutz/
Bernard Dennery/Alec de
Lesardiere/Warren Stein)... 14,000 14,498 * 14,000 14,498
Pell Rudman Trust Company
(Jeffrey Thomas)(10)....... 4,650 63,565 * 4,650 4,815
ICI American Holdings Trust
(George A. Froley III/
Andrea O'Connell/James
Barry/Ravi Malik).......... 28,350 29,359 * 28,350 29,359
Zeneca Holdings Trust (George
A. Froley III/ Andrea
O'Connell/James Barry/Ravi
Malik)..................... 22,950 23,766 * 22,950 23,766
</TABLE>
23
<PAGE> 27
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF PERCENTAGE OF
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
OWNED AND/OR TO OWNED AND/OR TO
NUMBER OF BE OWNED AFTER BE OWNED AFTER NUMBER OF
SHARES OF CONVERSION OF CONVERSION OF SHARES OF NUMBER OF
CONVERTIBLE THE CONVERTIBLE THE CONVERTIBLE CONVERTIBLE SHARES OF
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK
BENEFICIALLY PRIOR TO THIS PRIOR TO THIS REGISTERED AS REGISTERED AS
OWNED PRIOR TO OFFERING OFFERING PART OF THIS PART OF THIS
NAME OF SELLING STOCKHOLDER(1) THIS OFFERING (2)(3) (3) OFFERING OFFERING
- ------------------------------ --------------- --------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Delaware Pers (George A.
Froley III/Andrea
O'Connell/James Barry/Ravi
Malik)..................... 49,500 51,262 * 49,500 51,262
Starvest Combined Portfolio
(George A. Froley III/
Andrea O'Connell/James
Barry/Ravi Malik).......... 10,250 10,614 * 10,250 10,614
State of Oregon Equity (George
A. Froley III/ Andrea
O'Connell/James Barry/Ravi
Malik)..................... 151,750 157,151 * 151,750 157,151
C&H Sugar Company, Inc.
(George A. Froley III/
Andrea O'Connell/James
Barry/Ravi Malik).......... 2,825 2,925 * 2,825 2,925
Aloha Airlines Non-Pilots
Pension Trust (George A.
Froley III/Andrea
O'Connell/James Barry/Ravi
Malik)..................... 1,800 1,864 * 1,800 1,864
Aloha Airlines Pilots
Retirement Trust (George A.
Froley III/Andrea
O'Connell/James Barry/Ravi
Malik)..................... 1,050 1,087 * 1,050 1,087
Hawaiian Airlines Pension Plan
for Salaried Employees
(George A. Froley III/
Andrea O'Connell/James
Barry/Ravi Malik).......... 400 414 * 400 414
Hawaiian Airlines Pilots
Retirement Plan (George A.
Froley III/Andrea
O'Connell/James Barry/Ravi
Malik)..................... 2,425 2,511 * 2,425 2,511
Hawaiian Airlines Employees
Pension Plan -- IAM (George
A. Froley III/ Andrea
O'Connell/James Barry/Ravi
Malik)..................... 1,575 1,631 * 1,575 1,631
</TABLE>
24
<PAGE> 28
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF PERCENTAGE OF
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
OWNED AND/OR TO OWNED AND/OR TO
NUMBER OF BE OWNED AFTER BE OWNED AFTER NUMBER OF
SHARES OF CONVERSION OF CONVERSION OF SHARES OF NUMBER OF
CONVERTIBLE THE CONVERTIBLE THE CONVERTIBLE CONVERTIBLE SHARES OF
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK
BENEFICIALLY PRIOR TO THIS PRIOR TO THIS REGISTERED AS REGISTERED AS
OWNED PRIOR TO OFFERING OFFERING PART OF THIS PART OF THIS
NAME OF SELLING STOCKHOLDER(1) THIS OFFERING (2)(3) (3) OFFERING OFFERING
- ------------------------------ --------------- --------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Queens Health Plan (George A.
Froley III/Andrea O'Connell/
James Barry/Ravi Malik).... 650 673 * 650 673
Nalco Chemical Company (George
A. Froley III/ Andrea
O'Connell/James Barry/Ravi
Malik)..................... 6,500 6,731 * 6,500 6,731
Island Holdings, Inc. (George
A. Froley III/ Andrea
O'Connell/James Barry/Ravi
Malik)..................... 250 258 * 250 258
Public Employees' Retirement
Association of Colorado
(Norman Benedict)(11)...... 20,000 298,611 * 20,000 20,711
Jackson Investment Fund Ltd... 2,400 2,485 * 2,400 2,485
SoundShore Opportunity
Holdings Fund Ltd. (Howard
I. Fischer)(12)............ 17,500 18,122 * 17,500 18,122
LLT Limited (Michael Boyd)... 1,500 1,553 * 1,500 1,553
Paloma Strategic Securities
Limited (S. Donald
Sussman)................... 50,000 51,779 * 50,000 51,779
Warburg Dillon Read LLC...... 347,500 359,870 * 347,500 359,870
BNP Arbitrage SNC (Greg
Levinson).................. 85,357 88,395 * 85,357 88,395
Calamos Market Neutral
Fund -- Calamos Investment
Trust (John P. Calamos/ John
P. Calamos Jr./Nick
Calamos)................... 1,500 1,553 * 1,500 1,553
Consulting Group Capital
Markets Funds (John P.
Calamos/John P. Calamos
Jr./Nick Calamos).......... 3,000 3,106 * 3,000 3,106
CIBC World Markets........... 177,500 183,818 * 177,500 183,818
Donald Gene Smith (Donald Gene
Smith)(13)................. 0 157,544 * 0 78,772
Lincoln National Convertible
Securities Fund (Robert
Schwartz).................. 50,000 51,779 * 50,000 51,779
</TABLE>
25
<PAGE> 29
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF PERCENTAGE OF
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
OWNED AND/OR TO OWNED AND/OR TO
NUMBER OF BE OWNED AFTER BE OWNED AFTER NUMBER OF
SHARES OF CONVERSION OF CONVERSION OF SHARES OF NUMBER OF
CONVERTIBLE THE CONVERTIBLE THE CONVERTIBLE CONVERTIBLE SHARES OF
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK
BENEFICIALLY PRIOR TO THIS PRIOR TO THIS REGISTERED AS REGISTERED AS
OWNED PRIOR TO OFFERING OFFERING PART OF THIS PART OF THIS
NAME OF SELLING STOCKHOLDER(1) THIS OFFERING (2)(3) (3) OFFERING OFFERING
- ------------------------------ --------------- --------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
McMahan Securities Company,
L.P. (Ronald Fertig)....... 546 565 * 546 565
Argent Classic Convertible
Arbitrage Fund (Bermuda)
L.P. (Henry Cox)........... 15,000 15,533 * 15,000 15,533
Morgan Stanley Dean Witter
Convertible Securities Trust
(Ellen Gold)............... 50,000 51,779 * 50,000 51,779
Douglas Robert Schneider
(Douglas Robert
Schneider)(14)............. 0 53,530 * 0 50,000
Granville Capital
Corporation................ 240,000 248,543 * 240,000 248,543
Morgan Stanley Dean Witter... 168,600 174,601 * 168,600 174,601
Salomon Smith Barney Inc.
(Mark Hunt)(15)............ 61,726 63,923 * 61,726 63,923
Any other holder of
convertible preferred stock
or future transferee from
any such holder(16)(17).... 1,819,663 1,884,438 2.4% 1,819,663 1,884,438
--------- ---------- ---- --------- ---------
Totals.............. 7,200,000 12,239,223 14.3% 7,200,000 7,917,728
========= ========== ==== ========= =========
</TABLE>
- ---------------
* Less than 1%.
(1) The name of selling stockholders and the number of securities held by
selling stockholders may be amended subsequent hereto pursuant to Rule
424(b)(3) of the Securities Act of 1933, as amended.
(2) Assumes that, for each selling stockholder, the aggregate number of shares
of convertible preferred stock held by that selling stockholder is
converted to common stock pursuant to a ratio of one convertible preferred
stock equal to 1.03559763303 shares of common stock. This latter figure has
been calculated by dividing the liquidation preference of $50.00 per share
by the conversion price of $48.2813. The conversion price of $48.2813
represents the conversion price after taking into account and adjusting for
our two-for-one stock split completed on August 20, 1999. Based upon the
aggregate conversion, a cash payment will be made in lieu of any fractional
interest.
(3) Unless otherwise indicated in the table or by footnote, all shares of
common stock beneficially owned by the selling stockholders are shares
issuable upon conversion of the convertible preferred stock. Percentage
ownership is based on 85,530,113 shares of our common stock, representing
78,073,811 total shares of our common stock outstanding as of January 19,
2000 plus 7,456,302 shares of our common stock to be issued if all of our
convertible preferred stock converts to common stock pursuant to the
conversion ratio in footnote 2 above. The percentage ownership does not
include shares of common stock that may be issued by us as dividends on the
convertible preferred stock or in exchange for funds in the deposit
account.
(4) Deutsche Bank Securities Inc. was involved in underwriting the convertible
preferred stock in the Rule 144A offering completed on July 20, 1999.
26
<PAGE> 30
(5) Donaldson, Lufkin & Jenrette Securities Corporation was involved in
underwriting the convertible preferred stock in the Rule 144A offering
completed on July 20, 1999. It also was a co-manager in our 1998 offering
of 11 1/4% Senior Notes due 2008 and in our 1998 initial public offering.
(6) NMS Services, Inc. is a subsidiary of Banc of America Securities LLC.
(7) NMS Services (Cayman) Inc. is a subsidiary to Banc of America Securities
LLC.
(8) In addition to the shares registered here, Fidelity Mt. Vernon Street
Trust: Fidelity Aggressive Growth Fund owns 3,751,400 shares of our common
stock as of November 8, 1999. In addition, Fidelity Management & Research
Company, a subsidiary of FMR Corp. and an investment advisor to Fidelity
Mt. Vernon Street Trust: Fidelity Aggressive Growth Fund and Fidelity
Financial Trust: Fidelity Convertible Securities Fund, beneficially owns as
of November 5, 1999, 7,230,000 shares of our common stock as a result of
acting as investment advisor to such entities and certain others. FMR Corp.
holds indirectly, as of November 5, 1999, 7,744,300 shares of our common
stock and the entire amount of convertible preferred stock being registered
herein.
(9) BI Partners LLC beneficially owns 60,000 shares of common stock as of
January 13, 2000, of which 39,386 shares are included in this offering
pursuant to the terms of a warrant assumed by us on January 5, 1999. Until
January 4, 1999, Thomas C. Barry, managing member of BI Partners LLC, was a
director of Best Internet Communications, Inc., our wholly-owned subsidiary
as of January 5, 1999.
(10) In addition to the shares registered here, Pell Rudman Trust Company
beneficially owns 58,750 shares of our common stock as of November 4, 1999.
(11) In addition to the shares registered here, Public Employees' Retirement
Association of Colorado beneficially owns 277,900 shares of our common
stock as of January 24, 2000.
(12) In addition to the shares registered here, SoundShore Opportunity Holdings
Fund Ltd. beneficially owns as of November 10, 1999 an option position for
50 Verio Inc. December 1999 25 Puts, the underlying security of which is
our common stock.
(13) Donald Gene Smith beneficially owns 157,544 shares of our common stock as
of January 12, 2000, of which 78,772 shares are included in this offering
pursuant to the terms of a warrant assumed by us on January 5, 1999.
(14) In addition to the shares registered here, Douglas Robert Schneider
beneficially owns 3,530 shares of our common stock as of January 24, 2000.
Mr. Schneider also is an employee of our company.
(15) Salomon Smith Barney Inc. was involved in underwriting the convertible
preferred stock in the Rule 144A offering completed on July 20, 1999.
(16) Information concerning other holders of convertible preferred stock will be
set forth in prospectus supplements from time to time, if required.
(17) Assumes that any other holders of convertible preferred stock or any future
transferees from any such holders do not beneficially own any common stock
other than common stock into which the convertible preferred stock is
convertible at the conversion ratio of one convertible preferred stock
equal to 1.03559763303 shares of common stock.
Names of natural persons appearing in parentheses after the names of
selling stockholders in the table above denote information supplied to us by or
on behalf of the selling stockholders as to the natural persons with voting or
investment control over our convertible preferred stock and/or common stock.
Other than as noted above, none of the selling stockholders has had any
material relationship with us or our affiliates within the past three years. All
of the convertible preferred stock and common stock set forth above were
"restricted securities" under the Securities Act of 1933, as amended, prior to
this registration.
We agreed with the selling stockholders to file the registration statement
to register the resale of the shares. We agreed to prepare and file all
necessary amendments and supplements to the registration
27
<PAGE> 31
statement to keep it effective until such time as all of the securities covered
by this registration statement may be freely sold by the selling stockholders
without registration pursuant to Rule 144(k) of the Securities Act of 1933, as
amended, assuming none of the selling stockholders is an affiliate of Verio.
However, with regard to BI Partners LLC and Donald Gene Smith, on the one hand,
and Merrill Lynch, Pierce, Fenner & Smith Incorporated and NMS Services (Cayman)
Inc., on the other hand, we have agreed only to keep the registration statement
effective as to our common stock for at least 180 days in the case of the former
and 120 days in the case of the latter. For Merrill Lynch, Pierce, Fenner &
Smith Incorporated, this latter limitation only applies to the extent that the
common stock it holds was not received as a result of converting our convertible
preferred stock to common stock.
DESCRIPTION OF THE SERIES A CONVERTIBLE PREFERRED STOCK
On July 20, 1999, we issued and sold 7,200,000 shares of our 6.75% Series A
convertible preferred stock, par value $0.001 per share. We issued the
convertible preferred stock, in part, in order to raise funds to continue the
development and implementation of our national backbone, customer care center,
network operations center and billing and accounting services. We also raised
the funds to support our general working capital purposes and to further our
acquisition and investment strategy.
The following summary description of our convertible preferred stock and
the deposit account is qualified in its entirety by reference to our certificate
of incorporation, the certificate of designation governing the convertible
preferred stock and the deposit agreement. Our certificate of incorporation, the
certificate of designation and the deposit agreement have been filed, or are
incorporated by reference, as exhibits to the registration statement on Form S-3
filed with the Securities and Exchange Commission. This prospectus is a part of
that registration statement. Copies of the forms of the certificate of
designation and deposit agreement will be made available to prospective
investors upon request.
RANKING
The convertible preferred stock ranks:
- senior to all classes of our common stock and to all classes of capital
stock or series of preferred stock that do not expressly provide that
they rank senior to or on a parity with the convertible preferred stock
as to dividend distributions and distributions upon liquidation, winding
up and dissolution;
- on a parity with any preferred stock issued by Verio in the future and
any classes of capital stock or series of preferred stock that expressly
provide that they rank on a parity with the convertible preferred stock
as to dividend distributions and distributions upon liquidation, winding
up and dissolution; and
- junior to all classes of capital stock and series of preferred stock that
expressly provide that they rank senior to the convertible preferred
stock as to dividend distributions and distributions upon liquidation,
winding up and dissolution.
The convertible preferred stock also ranks junior in right of payment to
all indebtedness and other liabilities of Verio.
DEPOSIT ACCOUNT
When we sold the shares of convertible preferred stock on July 20, 1999,
purchasers of the shares deposited at the same time $24,275,155.89 of the total
purchase price of $348,300,000 into an account, which we call the deposit
account. The deposit account was established to provide for the payment of the
equivalent of the first year of dividends on the convertible preferred stock and
because various covenants and conditions contained in our debt instruments
otherwise limit our ability to pay directly cash dividends on our securities.
Norwest Bank Minnesota, N.A. holds the deposit account on behalf of the holders
of the convertible preferred stock and acts as the deposit agent for the
convertible preferred stock. The funds in
28
<PAGE> 32
the deposit account have been invested in U.S. government obligations or U.S.
government guaranteed obligations which, together with the earnings on those
funds, will be sufficient to pay in quarterly installments the equivalent of the
first year of dividends on the convertible preferred stock.
Through August 1, 2000, holders of the convertible preferred stock are
entitled to a quarterly cash payment from the deposit account in an amount equal
to $0.8438 per share, subject to our rights to cause shares of our common stock
to be purchased in lieu of cash. The quarterly cash payment from the deposit
account is called the quarterly return amount. Payments of the quarterly return
amount commenced November 1, 1999, and another payment will occur on February 1,
2000. Payments will continue through August 1, 2000, unless earlier terminated.
After that date, dividends will begin to accrue on the convertible preferred
stock. However, as we discuss below, dividends may begin to accrue earlier if
the deposit account is earlier terminated.
Prior to each of May 1 and August 1, 2000, we may elect to issue shares of
our common stock in lieu of releasing cash from the deposit account to satisfy
the quarterly return amount. If we choose to issue common stock, Norwest Bank
will purchase from us, for transfer to each holder of our convertible preferred
stock, that number of whole shares of our common stock determined by dividing
the quarterly return amount by either,
(A) 97% of the market value (calculated as described below) of our
common stock, if (1) the shares of common stock are issued pursuant to a
registration statement, (2) a shelf registration statement registering the
resale of the shares is effective, or (3) the shares are eligible for
immediate resale pursuant to Rule 144(k) under the Securities Act; or
(B) in all other cases, 93% of the market value of our common stock,
in each case as of the date of the notice. In that instance, holders of
convertible preferred stock will receive shares of our common stock rather than
a cash payment. Clause (A) or (B), as the case may be, is referred to as the
"Market Value Amount."
Market value is calculated, as of any particular date, based on the average
daily closing price over the five consecutive trading days ending immediately
prior to the particular date. The closing price for each day will be the last
sales price or, if no reported sales take place on that day, the average of the
last reported bid and asked price on that day. The closing price will be
determined from shares of our common stock admitted to trading or listed on the
principal national securities exchange for our common stock, or if not listed or
admitted to trading on the exchange, the representative closing bid price as
reported by the Nasdaq National Market or other similar organization if the
Nasdaq National Market is no longer reporting the information, or if not
available, the fair market price as determined in good faith by our board of
directors.
Unless we have delivered to Norwest Bank a notice instructing Norwest Bank
to purchase shares of common stock from us, Norwest Bank will deliver to each
holder of convertible preferred stock the quarterly return amount on May 1 and
August 1, 2000, each such date being called a deposit payment date and the last
date also being called the deposit expiration date, unless the deposit account
is terminated earlier in the manner described below. If we choose to deliver to
Norwest Bank a notice, the notice must be given at any time prior to or on the
tenth business day prior to the applicable deposit payment date or deposit
expiration date, as the case may be. The following table sets forth each deposit
payment date/deposit expiration date and the corresponding last day that we may
give a notice relating to it:
<TABLE>
<CAPTION>
DEPOSIT PAYMENT DATE/DEPOSIT
EXPIRATION DATE LAST DAY FOR NOTICE
- ---------------------------- -------------------
<S> <C>
May 1, 2000........................................ April 17, 2000
August 1, 2000..................................... July 18, 2000
</TABLE>
29
<PAGE> 33
If we have delivered a notice to Norwest Bank, Norwest Bank will, as
instructed by us in the notice, purchase from us, for delivery to each holder of
convertible preferred stock in lieu of all or a portion of the quarterly return
amount which has not been previously paid in cash or shares of our common stock,
on the next deposit payment date, that number of whole shares of common stock
determined by dividing such quarterly return amount by the Market Value Amount
as of the notice date. Norwest Bank's obligation to purchase shares of common
stock from us is secured by the funds in the deposit account.
For example, if we gave a notice to Norwest Bank on April 14, 2000 invoking
our right to have shares of common stock purchased from us in lieu of the
quarterly return amount to be paid on May 1, 2000, Norwest Bank would purchase
from us that number of whole shares of our common stock equal to the quarterly
return amount each holder of convertible preferred stock is to receive divided
by the Market Value Amount on April 14, 2000. Assuming that the resale
registration statement, of which this prospectus is a part, is effective at the
time that we give notice, the Market Value Amount on April 14, 2000 would be 97%
of the market value of our common stock. In this example, the market value would
be calculated as of April 14, 2000, based on the average of the daily closing
price for the five consecutive trading days ending on April 13, 2000. Assuming
the closing price for each day is the last sales price of our common stock on
the Nasdaq National Market, and assuming that the last sales price of our common
stock on each of the five consecutive trading days is $50.00 per share, the
Market Value Amount would be 97% of $50.00, or $48.50. Consequently, assuming
that there is only one holder of convertible preferred stock, the quarterly
return amount for that holder would be $0.8438 multiplied by 7,200,000 shares of
convertible preferred stock, or $6,075,360, and the number of whole shares to be
purchased would be $6,075,360 divided by $48.50, or an aggregate 125,265 shares
of our common stock.
To the extent that we choose to have shares of common stock delivered in
lieu of cash from the deposit account, we must deliver, for and on behalf of the
deposit agent, the shares of common stock acquired by the deposit agent directly
to holders of our convertible preferred stock.
In the event of any conversion of the convertible preferred stock into
shares of our common stock prior to the deposit expiration date, we will be paid
any funds remaining in the deposit account allocable to those shares of
convertible preferred stock so converted. As a result, holders of convertible
preferred stock will not receive any partial payment from the deposit account if
they convert their shares prior to the record date for such full quarterly
return amount.
On the deposit expiration date, Norwest Bank is obligated to deliver to the
holders of convertible preferred stock any cash remaining in the deposit account
on that date, after first paying itself for any fees and expenses it is owed as
a result of acting as the deposit agent, unless, prior to the deposit expiration
date, we deliver a notice to Norwest Bank requiring it to purchase from us for
delivery to holders who are entitled to the proceeds from the deposit account
that number of whole shares of our common stock determined by dividing the
balance remaining in the deposit account by the Market Value Amount as of the
date of the notice.
We retain the right to terminate the deposit account before the deposit
expiration date if:
(A) we obtain amendments to the covenants under our various debt
obligations permitting us to pay cash dividends; and
(B) the trading price, on any date, for the convertible preferred
stock equals or exceeds $50.00 per share.
We will give notice to the holders of the convertible preferred stock, and
instruct Norwest Bank in writing immediately to distribute the remaining balance
of the deposit account to us. If we elect early termination of the deposit
account, the convertible preferred stock will begin to accrue dividends from the
last deposit payment date preceding the election to terminate the deposit
account.
Upon the final resolution, including the final resolution of all appeals or
rights to appeal in any court, of any voluntary or involuntary dissolution,
liquidation or winding up of our company, Norwest Bank will
30
<PAGE> 34
be required to return to the holders of the convertible preferred stock any
funds at the time remaining in the deposit account, after first paying itself
for any fees and expenses it is owed as a result of acting as the deposit agent.
While we consider the funds placed in the deposit account to be the property of
the purchasers of the convertible preferred stock and not our property, in a
bankruptcy proceeding, our creditors or a trustee in bankruptcy could claim that
those funds constituted property of our bankrupt estate. If that claim were
upheld, access to the funds in the deposit account by the purchasers of the
convertible preferred stock would be denied until all our indebtedness had been
paid in full.
References throughout this prospectus to common stock issuable as dividends
shall be deemed to include common stock purchased from us by the deposit agent
pursuant to the deposit agreement.
DIVIDENDS
The holders of shares of the convertible preferred stock are entitled to
receive cumulative dividends on and after August 1, 2000, or earlier if the
deposit account is terminated, and when, as and if our board of directors
declares a dividend. Any cumulative dividends are subject to the prior rights of
holders of any preferred stock ranking senior to, or on a parity with, the
convertible preferred stock.
The cumulative dividends are payable at a rate per annum of 6.75% of the
liquidation preference of $50.00 per share, or $3.375 per share. To the extent
declared and paid, the cumulative dividends shall be distributed quarterly on
each November 1, February 1, May 1 and August 1 -- each, a dividend payment
date. If any of these dates is not a business day, the payment shall be made on
the next succeeding business day. Dividends will be paid to holders of record as
they appear on our stock register on a particular date, not more than 60 days
nor less than 10 days preceding the dividend payment date, as fixed by our board
of directors -- each, a record date. Dividends will be payable at our option:
- in cash;
- by delivery of fully paid and non-assessable shares of our common stock
to holders (determined as described below); or
- any combination of the foregoing.
Although we have the option of paying dividends in cash, we are restricted
from doing so by the various covenants and conditions contained in our debt
instruments. Because of these restrictions, it is unlikely that we will pay
dividends in cash.
If we pay dividends in shares of common stock, the number of shares of
common stock to be issued on each dividend payment date will be determined by
dividing the total dividend to be paid on each share of convertible preferred
stock by the Market Value Amount as of the applicable record date.
For example, if a record date is established by our board of directors for
October 18, 2000 relating to the dividend to be paid on November 1, 2000, and if
we elect to pay the dividend in shares of common stock, the number of shares of
common stock to be issued on November 1, 2000 to each holder of convertible
preferred stock would be that number of whole shares of our common stock equal
to the quarterly dividend payment amount each holder of convertible preferred
stock is to receive divided by the Market Value Amount on October 18, 2000.
Assuming that the resale registration statement, of which this prospectus is a
part, is effective at the time that we give notice, the Market Value Amount on
October 18, 2000 would be 97% of the market value of our common stock. In this
example, the market value would be calculated as of October 18, 2000, based on
the average of the daily closing price for the five consecutive trading days
ending on October 17, 2000. Assuming the closing price for each day is the last
sales price of our common stock on the Nasdaq National Market, and assuming that
the last sales price of our common stock on each of the five consecutive trading
days is $60.00 per share, the Market Value Amount would be 97% of $60.00, or
$58.20. Consequently, assuming that there are two holders holding collectively
all 7,200,000 shares of convertible preferred stock, the quarterly dividend
payment for each holder would be $0.8438 multiplied by 3,600,000 shares of
convertible preferred stock, or $3,037,680, and the number of
31
<PAGE> 35
whole shares to be purchased would be $3,037,680 divided by $58.20, or an
aggregate 52,193 shares of our common stock.
We will not issue fractional shares of common stock as dividends. Instead,
proceeds from the sale of aggregated fractional interests will be distributed to
the holders of the convertible preferred stock in cash. We will pay the expenses
of the transfer agent with respect to the sale of the aggregated fractional
interests, including brokerage commissions. In the event the sale by the
transfer agent of the aggregated fractional interests would be restricted, Verio
and the transfer agent will agree upon other appropriate arrangements for
obtaining cash in lieu of the fractional interests. Dividends payable on the
convertible preferred stock for any period greater or less than a full quarterly
dividend period will be computed on the basis of a 360-day year consisting of
twelve 30-day months.
Dividends on the convertible preferred stock will accrue:
- whether or not we have earnings or profits;
- whether or not there are funds legally available for the payment of such
dividends; and
- whether or not dividends are declared.
Dividends will accumulate interest free to the extent they are not paid on
the dividend payment date for the period to which they relate.
We will only declare dividends if all dividends for preceding periods have
been declared and paid.
We will not declare and pay any dividends on or redeem or purchase any of
our stock ranking junior to or ratably with the convertible preferred stock,
unless full cumulative dividends on the convertible preferred stock have been
paid or declared and a sum sufficient for the payment of dividends is set apart.
However, regardless of whether we have paid full cumulative dividends on the
convertible preferred stock, we may do the following:
(1) declare and pay a dividend on junior stock payable solely in
shares of the junior stock or options, warrants or rights to purchase the
junior stock;
(2) declare and pay a dividend on stock ranking ratably with the
convertible preferred stock payable solely in shares of our stock ranking
junior to or ratably with the convertible preferred stock or options,
warrants or rights to purchase our stock ranking junior to or ratably with
the convertible preferred stock;
(3) declare and pay any dividend on, or redeem or purchase, stock
ranking junior to or ratably with the convertible preferred stock so long
as the money for the dividend, redemption or purchase is derived from the
proceeds of the offering of the same securities or a substantially
concurrent offering of related securities; and
(4) we may make cash payments in lieu of fractional shares pursuant to
any stock split or warrant, option or other similar agreement.
If full dividends have not been declared and paid or set apart on the
convertible preferred stock and any other preferred stock ranking ratably with
the convertible preferred stock as to dividends, dividends may be declared and
paid on the convertible preferred stock and the other ratable preferred stock.
In this case, the dividends shall be declared and paid pro rata so that the
amounts of dividends declared per share on the convertible preferred stock and
the other ratable preferred stock will in all cases bear the same ratio to each
other that accrued and unpaid dividends per share on the shares of the
convertible preferred stock and the other preferred stock bear to each other.
Moreover, if the dividends are paid in cash on the other ratable preferred
stock, dividends will also be paid in cash on the convertible preferred stock.
The holders of convertible preferred stock at the close of business on a
record date will be entitled to receive the dividend payment on those shares on
the corresponding dividend payment date. This right applies even if the holder
subsequently converts the convertible preferred stock to our common stock. This
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right also applies even if we default in our payment of the dividend due on that
dividend payment date. Except for shares of convertible preferred stock
converted after a dividend record date, we will make no payment or allowance for
unpaid dividends on shares of our convertible preferred stock converted into our
common stock or for dividends on the shares of our common stock issued upon
conversion of our convertible preferred stock.
CONVERSION RIGHTS
Each share of convertible preferred stock is convertible at any time at the
option of the holder into that number of shares of our common stock equal to the
liquidation preference of $50.00 divided by a conversion price of $48.2813.
However, the conversion price may be adjusted as described below. We refer to
the conversion price as adjusted as the conversion price in this prospectus.
For example, under the conversion price in effect as of the date of this
prospectus, if all 7,200,000 shares of convertible preferred stock were held by
one holder and were converted to common stock, the convertible preferred stock
would convert into 7,456,302 shares of our common stock. If this same conversion
of the convertible preferred stock had occurred on December 17, 1999, when there
were 77,740,607 shares of our common stock outstanding, the conversion would
have resulted in an aggregate 85,196,909 shares of common stock outstanding. The
common stock issued upon the conversion of the convertible preferred stock on
December 17, 1999 would have represented approximately 8.75% of total amount of
common stock outstanding.
We have the option of paying all accumulated and unpaid dividends in cash
or by issuing shares of our common stock equal to the amount of accumulated and
unpaid dividends divided by the Market Value Amount as of the conversion date.
Convertible preferred stock surrendered for conversion during the period
between the close of business on any record date and the opening of business on
the corresponding dividend payment date must be accompanied by payment of an
amount equal to the dividend payable on the shares on the dividend payment date.
This does not apply if the convertible preferred stock is converted after the
issuance of a notice of redemption and the redemption date occurs during the
same period or coincides with the dividend payment date. In this case, the
holder will continue to be entitled to the dividend.
A holder of convertible preferred stock on a record date who, or whose
transferee, tenders any of the shares for conversion into shares of common stock
on the dividend payment date will receive the dividend payable by Verio on the
shares of convertible preferred stock on the dividend payment date. The
converting holder need not include payment of the amount of the dividend upon
surrender of convertible preferred stock for conversion.
Except as provided above, we will make no payment or allowance for unpaid
dividends on converted shares or for dividends on the common stock issued upon
conversion of the convertible preferred stock.
If we call our convertible preferred stock for redemption, the conversion
right will terminate at the close of business on the date immediately prior to
the date fixed for redemption. The conversion right will be lost if not
exercised prior to that time, unless we default in payment of our redemption
obligation.
We will not issue any fractional shares of common stock upon conversion of
the convertible preferred stock. Instead we will pay a cash adjustment in
respect of any fractional interest based on the then current market price of the
common stock.
The conversion price on our convertible preferred stock is subject to
adjustment upon the occurrence of any of the following dilutive events:
- any redemption or dividend or other distribution payable in shares of our
common stock to all holders of any class of capital stock of our company;
however, this bullet point does not apply if we issue shares of our
common stock in connection with (1) any redemption of, dividend on or
conversion of the convertible preferred stock or (2) any payment to all
holders of the convertible
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<PAGE> 37
preferred stock based upon the number of shares of our common stock into
which the convertible preferred stock is then convertible;
- any issuance to all holders of our common stock of rights, options or
warrants entitling them to subscribe for or purchase shares of our common
stock or securities convertible into or exchangeable for shares of our
common stock at less than market value as of the date of issuance; if the
rights, options or warrants are only exercisable upon the occurrence of
certain triggering events, then the conversion price will not be adjusted
until the triggering events occur; however, no adjustment will be made if
the holder of shares of the convertible preferred stock would be entitled
to receive the rights, options or warrants upon conversion at any time of
the convertible preferred stock into our common stock;
- any subdivision, combination or reclassification of our common stock;
- any distribution consisting exclusively of cash, other than a transaction
for which the last paragraph in this section "-- Conversion Rights" below
is applicable, to all holders of shares of our common stock in an
aggregate amount that, combined together with (1) all other such cash
distributions made within the then preceding 12 months in respect of
which no adjustment has been made and (2) any cash and the fair market
value of other consideration paid or payable in respect of any tender
offer by us or any of our subsidiaries for shares of our common stock
concluded within the then preceding 12 months in respect of which no
adjustment has been made, exceeds 15% of our market capitalization
immediately prior to the distribution; market capitalization is defined
as the product of the then current market price of our common stock times
the number of shares of our common stock then outstanding on the record
date of the distribution;
- the completion of a tender or exchange offer which is made for shares of
our common stock and involves an aggregate consideration that, together
with (1) any cash and other consideration payable in a tender or exchange
offer for shares of any of our common stock expiring within the then
preceding 12 months in respect of which no adjustment has been made and
(2) the aggregate amount of any cash distributions referred to in the
fourth bullet point of this paragraph to all holders of our common stock
within the then preceding 12 months in respect of which no adjustments
have been made, exceeds 15% of our market capitalization immediately
prior to the expiration of the tender offer; or
- a distribution to all holders of our common stock consisting of evidences
of indebtedness, shares of capital stock other than our common stock or
assets, including securities; this bullet point does not apply to those
dividends and those issuances of rights, options, warrants and other
distributions for which an adjustment to the conversion price as referred
to above is applicable; this bullet point also does not apply to a
distribution in connection with a merger effected solely to reflect a
change in the jurisdiction of incorporation of our company.
No adjustment of the conversion price will be required to be made:
- until cumulative adjustments amount to one percent of the conversion
price; and
- with respect to rights or warrants issued pursuant to certain employee
benefit plans.
Upon each event causing an adjustment of the conversion price, we shall
calculate the adjusted conversion price pursuant to a particular, detailed
formula. For example, when we carried out our two-for-one stock split that was
completed on August 20, 1999, a conversion price adjustment was made. In that
case, the adjustment was calculated using the following formula: the product of
(A) the quotient of the number of shares of common stock outstanding immediately
prior to the stock split, divided by the number of shares of common stock
outstanding immediately after the completion of the stock split, such quotient
in this case being 0.5, multiplied by (B) the conversion price existing
immediately prior to the stock split, in this case $96.5625. As a result, the
adjusted conversion price reflected by the product of (A) and (B) is $48.2813.
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We also may choose to decrease the conversion price by any amount for any
period of at least 20 days, so long as the decrease is irrevocable during that
period. Any time that we determine to make a decrease we shall give at least 15
days' notice before carrying it out.
In addition to the adjustments described above, we are permitted to make
reductions in the conversion price as we determine to be advisable in order that
any stock dividend, subdivision of shares, distribution of rights to purchase
stock or securities or distribution of securities convertible into or
exchangeable for stock made by Verio to our stockholders will not be taxable to
the recipients. In the event we elect to make this type of reduction in the
conversion price, we will comply with the requirements of Rule 14e-1 under the
Securities Exchange Act of 1934, and any other securities laws and regulations
under the Securities Exchange Act, if and to the extent that these laws and
regulations are applicable in connection with the reduction of the conversion
price. See "Federal Tax Considerations."
As provided above, anti-dilution adjustments occur if we distribute to all
holders of our common stock rights or warrants entitling them to subscribe for
or purchase shares of our common stock or securities convertible into or
exchangeable for shares of our common stock at less than market value as of the
date of issuance. In the event that we distribute to all holders of our common
stock rights or warrants other than these less-than-market rights and warrants,
and so long as the rights or warrants that we do distribute have not expired or
been redeemed by us, each holder of convertible preferred stock will be entitled
to receive upon conversion of the convertible preferred stock, in addition to
the common stock then issuable upon conversion, which we call the conversion
shares, a number of rights or warrants to be determined as follows:
- if the conversion occurs on or prior to the date for the distribution to
the holders of rights or warrants of separate certificates evidencing the
rights or warrants, called the distribution date, the same number of
rights or warrants to which a holder of a number of shares of our common
stock equal to the number of conversion shares is entitled at the time of
the conversion in accordance with the terms and provisions applicable to
the rights or warrants, and
- if the conversion occurs after the distribution date, the same number of
rights or warrants to which a holder of the number of shares of our
common stock into which the convertible preferred stock was convertible
immediately prior to the distribution date would have been entitled on
the distribution date in accordance with the terms and provisions of and
applicable to the rights or warrants.
Except as stated above, the conversion price will not be adjusted for the
issuance of common stock, or any securities convertible into or exchangeable for
common stock or carrying the right to purchase any of the foregoing, in exchange
for cash, property or services.
There will be no adjustment of the conversion price in any of the following
three cases:
(1) any merger or consolidation of our company, other than a merger or
consolidation in which we are the continuing corporation and in which the
common stock outstanding immediately prior to the merger or consolidation
is not exchanged for cash, securities or other property of another
corporation;
(2) any sale or transfer to another corporation of the property of
Verio as an entirety or substantially as an entirety; or
(3) any statutory exchange of securities with another corporation,
other than in connection with a merger or acquisition.
Instead, each share of the then outstanding convertible preferred stock will
become convertible only into the kind and amount of securities, cash or other
property receivable upon the merger, consolidation, sale, transfer or statutory
exchange by a holder of the number of shares of common stock into which the
convertible preferred stock was convertible immediately prior to the merger,
consolidation, sale, transfer or statutory exchange, assuming the holder of
common stock failed to exercise his rights of election, if any, as
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to the kind or amount of securities, cash or other property receivable upon the
merger, consolidation, sale, transfer or statutory exchange. In the case of a
merger of our company with or into another company or any other transaction of
the type mentioned above that results in the payment of cash to the holders of
our common stock, the effect of these provisions would be that, after their
application, each share of convertible preferred stock would be convertible at
the conversion price in effect at the time into the same amount of cash per
share into which each share of convertible preferred stock would have been
convertible had the share been converted into common stock immediately prior to
the effective date of the cash merger or transaction. Depending upon the terms
of the cash merger or transaction, the aggregate amount of cash into which the
shares of convertible preferred stock would be converted could be more or less
than the liquidation preference of $50.00 per share with respect to the
convertible preferred stock.
CHANGE OF CONTROL
Upon any cash change of control of Verio, as defined in the next paragraph,
holders of convertible preferred stock will, if the market value of our common
stock at the time of the cash change of control is less than the conversion
price, have a one time option, upon not less than 30 days' notice nor more than
60 days' notice, to convert all of their outstanding shares of convertible
preferred stock into shares of our common stock at an adjusted conversion price
equal to the greater of (1) the market value of our common stock as of the date
of the cash change of control and (2) $49.0208. In lieu of issuing the shares of
our common stock issuable upon conversion of the convertible preferred stock in
the event of a cash change of control, we may, at our option, make a cash
payment equal to the market value of the common stock otherwise issuable.
Our certificate of designation for the convertible preferred stock defines
a cash change of control as any of the following events:
- our company consolidates or merges with or into any person or conveys,
transfers or leases all or substantially all of our assets to any person,
or any corporation consolidates or merges into or with our company, in
any of these events pursuant to a transaction in which our outstanding
voting stock is changed into or exchanged for consideration in which 50%
or less of the value received by holders of the stock consists of common
stock that has been admitted for listing on a national securities
exchange or quoted on the Nasdaq National Market; or
- our company is liquidated or dissolved or adopts a plan of liquidation or
dissolution.
The phrase "all or substantially all" of the assets of our company is
likely to be interpreted by reference to applicable state law at the relevant
time, and will be dependent on the facts and circumstances existing at that
time. As a result, there may be a degree of uncertainty in ascertaining whether
a sale or transfer is of "all or substantially all" of our assets.
LIQUIDATION RIGHTS
Upon any liquidation, dissolution or winding up of Verio, the holders of
convertible preferred stock are entitled to receive a liquidation preference of
$50.00 per share, plus an amount equal to any accrued and unpaid dividends to
the date of payment. These amounts shall be paid before any distribution of
assets is made to holders of common stock or any other stock that ranks junior
to the convertible preferred stock as to liquidation rights. The rights granted
to holders of shares of convertible preferred stock are subject to the rights of
creditors of Verio and holders of any preferred stock senior or on a parity in
right of payment to the rights possessed by the holders of convertible preferred
stock in the event of a liquidation, dissolution or winding up of Verio.
The holders of convertible preferred stock and all series or classes of
Verio's stock issued after the date of the issuance of the convertible preferred
stock that rank on a parity as to liquidation rights with the convertible
preferred stock are entitled to share ratably, in accordance with the respective
preferential amounts payable on the stock, in any distribution which is not
sufficient to pay in full the aggregate of all amounts to which the holders are
entitled.
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After payment in full of the liquidation preference on the convertible
preferred stock, the holders of the convertible preferred stock will not be
entitled to participate in any distribution of our remaining assets.
A merger, consolidation, or other business combination of our company with
or into another company or other entity, a statutory exchange of securities with
another company and a sale or transfer of all or part of our assets for cash,
securities or other property will not be considered a liquidation, dissolution
or winding up of Verio unless the merger, consolidation, combination, exchange,
sale or transfer shall be in connection with a liquidation, dissolution or
winding up of Verio.
REDEMPTION
Provisional Redemption
The convertible preferred stock is not subject to any sinking fund or other
similar provisions. We may redeem the convertible preferred stock at a
redemption price of 102.0000% of the liquidation preference, plus accumulated
and unpaid dividends, if any, to the redemption date -- which we refer to in
this prospectus as the provisional redemption date -- on or after August 1,
2001, but prior to August 1, 2002 -- which we refer to in this prospectus as the
provisional redemption -- if the trading price of our common stock equals or
exceeds $144.8438 per share for 20 trading days within any 30 trading day
period.
If we undertake a provisional redemption, holders of convertible preferred
stock that we call for redemption will also receive a payment -- which we call
the additional payment -- in an amount equal to the present value of the total
value of the dividends that would have been payable on the convertible preferred
stock after the provisional redemption date for the period from the provisional
redemption date to August 1, 2002 -- which we call the additional period. The
present value will be calculated using the bond equivalent yield on U.S.
Treasury notes or bills having a term nearest in length to that of the
additional period.
Optional Redemption
Except in the foregoing circumstances, we may not redeem the convertible
preferred stock prior to August 1, 2002. Beginning on August 1, 2002, we may
redeem the convertible preferred stock during the twelve-month periods
commencing on August 1 of the years indicated below -- which we refer to in this
prospectus as the optional redemption -- at the following redemption prices,
expressed as a percentage of the liquidation preference of $50.00 per share,
plus in each case all accumulated and unpaid dividends to the date of
redemption.
<TABLE>
<CAPTION>
REDEMPTION PRICE
YEAR PER SHARE
- ---- ----------------
<S> <C>
2002................................................. 103.8571%
2003................................................. 102.8929%
2004................................................. 101.9286%
2005................................................. 100.9643%
2006 and thereafter.................................. 100.0000%
</TABLE>
Redemption Procedures
We may effect any provisional or optional redemption, in whole or in part,
by delivering notice of the redemption to the holders of the convertible
preferred stock not less than 20 nor more than 60 days prior to the scheduled
redemption date. The redemption price, including any additional payment, due to
any holder of convertible preferred stock may be paid at our option, subject to
applicable law:
- in cash;
- through delivery of fully paid and non-assessable shares of our common
stock; or
- a combination of both.
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In the event that fewer than all the outstanding shares of convertible
preferred stock are to be redeemed, the shares to be redeemed will be determined
pro rata or by lot. If we elect to make redemption payments in shares of our
common stock, the number of shares of our common stock that we distribute will
be calculated by dividing the redemption payment, including any additional
payment, by the Market Value Amount as of the redemption notice date. From and
after the applicable redemption date, unless we default in the payment of the
redemption price, including any additional payment, dividends on the shares of
convertible preferred stock to be redeemed on the redemption date shall cease to
accumulate. Additionally, the shares of convertible preferred stock shall no
longer be deemed to be outstanding, and all rights of the holders of the
convertible preferred stock as stockholders will cease, except for the right to
receive the redemption price, including any additional payment. If any dividends
on the convertible preferred stock are in arrears, no shares of convertible
preferred stock will be redeemed unless all outstanding shares of convertible
preferred stock are simultaneously redeemed.
Our ability to redeem any of the convertible preferred stock is, and may
continue to be, limited by the terms of our other financing arrangements and
applicable law. In fact, we would currently be prohibited by the terms of our
credit facility and our outstanding senior notes from redeeming the convertible
preferred stock.
VOTING RIGHTS
The holders of the convertible preferred stock will have no voting rights
except as described below or as required by law. In exercising any vote as
allowed below or as required by law, each outstanding share of convertible
preferred stock will be entitled to one vote. However, shares of convertible
preferred stock held by Verio or any entity controlled by Verio will have no
voting rights.
If the dividends on the convertible preferred stock are in arrears for six
quarters, whether or not consecutive, the number of directors of Verio will be
increased by two, and the holders of the convertible preferred stock -- voting
separately as a class with holders of any outstanding shares of stock on a
parity as to dividends with the convertible preferred stock on which like voting
rights have been conferred and are exercisable -- will be entitled to elect the
two additional directors to the board of directors at any meeting of
stockholders of Verio at which directors are to be elected. A special meeting
will be scheduled at the direction of 25% of the holders of convertible
preferred stock for this purpose. These voting rights will continue until the
time that the dividend arrearage on the convertible preferred stock has been
paid in full or sums set aside for payment of the dividend arrearage.
In addition, so long as any convertible preferred stock is outstanding, we
will not, without the affirmative vote or consent of the holders of at least a
majority of all outstanding shares of convertible preferred stock, amend, alter
or repeal any provision of our certificate of incorporation or bylaws so as to
affect materially and adversely the relative rights, preferences,
qualifications, limitations or restrictions of the convertible preferred stock.
The certificate of designation also provides that, except as set forth above,
(1) the creation, authorization or issuance of any shares or series of preferred
stock, or (2) the increase or decrease in the amount of authorized capital stock
of any class, including any preferred stock, shall not require the consent of
the holders of convertible preferred stock and shall not be deemed to affect
adversely the rights, preferences, privileges or voting rights of the
convertible preferred stock.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which a vote would otherwise be required shall be
effected, all outstanding shares of convertible preferred stock shall have been
redeemed or called for redemption upon proper notice, and we shall have reserved
sufficient shares of common stock, or set aside sufficient cash, to effect the
redemption.
REGISTRATION RIGHTS; ADDITIONAL DIVIDENDS
Pursuant to a registration rights agreement, we have granted a number of
rights to the holders of the convertible preferred stock and common stock issued
or issuable as dividends or upon conversion of the
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convertible preferred stock and common stock purchased from the deposit
account -- which we refer to as the subject securities. These rights include the
following:
- we must have filed, at our cost, by November 17, 1999, a shelf
registration statement with the Securities and Exchange Commission with
respect to resales of the convertible preferred stock and the common
stock issuable upon conversion and the issuance and resale of the common
stock issuable by us as dividends;
- we will use our reasonable best efforts to cause the shelf registration
statement to be declared effective under the Securities Act by February
15, 2000; and
- we will keep the shelf registration statement continuously effective and
useable under the Securities Act, with some exceptions, until the date on
which any subject securities received or receivable by non-affiliates of
Verio may be freely sold by their holders without restriction pursuant to
Rule 144(k) or any successor provision promulgated by the Securities and
Exchange Commission under the Securities Act or otherwise.
If the shelf registration statement:
- had not been filed with the Securities and Exchange Commission by
November 17, 1999, or has not been declared effective by the Securities and
Exchange Commission by February 15, 2000; or
- is filed and declared effective but thereafter ceases to be
effective, without being succeeded immediately by a replacement shelf
registration statement filed and declared effective, or useable for the
offer and sale of Transfer Restricted Securities, as defined below, for a
period of time exceeding any suspension period defined below,
then either event will be considered a registration default. If we incur a
registration default, then additional dividends will accrue on the convertible
preferred stock constituting "Transfer Restricted Securities", as defined below,
held by each holder who has complied with its obligations under the registration
rights agreement.
In the first quarterly period following a registration default, an
additional dividend will accrue at a rate of 0.25% per quarterly period. The
rate of the additional dividend will increase by an additional 0.25% per
quarterly period until we cure all registration defaults. After we cure all
registration defaults, the rate at which dividends accrue on the convertible
preferred stock will return to 6.75% per annum.
The amount of additional dividends that accrue for any quarterly period may
be paid, at our option:
- in cash;
- by delivery of fully paid and non-assessable shares of our common stock;
or
- a combination of both of the above.
If we elect to pay the additional dividends in shares of our common stock,
the number of shares that we distribute will be calculated by dividing the
additional dividend amount by the Market Value Amount as of the record date.
"Transfer Restricted Securities" means each share of convertible preferred
stock, each share of common stock issued or issuable as a dividend or upon
conversion of the convertible preferred stock and each share of common stock
purchased from the deposit account until the date on which such security:
(A) has been transferred pursuant to the shelf registration statement
or another registration statement covering the security which has been
filed with the Securities and Exchange Commission pursuant to the
Securities Act, in either case after the registration statement has become
effective under the Securities Act;
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(B) has been transferred pursuant to Rule 144 under the Securities
Act, or any similar provision then in force;
(C) may be freely sold or transferred pursuant to Rule 144(k) under
the Securities Act, or any similar provision then in force; or
(D) in the opinion of counsel to Verio may be freely sold without
restriction under the Securities Act by the holder thereof.
A holder of convertible preferred stock or the common stock issuable as a
dividend or upon conversion of the convertible preferred stock that sells the
securities pursuant to a shelf registration statement is required to be named as
a selling security holder in the related prospectus and to deliver a prospectus
and any subsequent prospectus supplement to purchasers. The holder also will be
subject to various civil liability provisions under the Securities Act in
connection with the sales, and will be bound by the provisions of the
registration rights agreement that are applicable to the holder, including
indemnification and contribution rights or obligations with respect to the
information supplied by the holder.
We have distributed a questionnaire to each beneficial holder of
convertible preferred stock as of a specified date to obtain information
regarding the selling security holders for inclusion in this prospectus. We will
pay all expenses of the shelf registration statement.
Each holder of convertible preferred stock, or the common stock issuable as
a dividend or upon conversion of the convertible preferred stock, will be
provided with copies of this prospectus and any subsequent prospectus
supplement, which will be a part of the shelf registration statement. In
addition, we will take other actions as are required to permit unrestricted
resales of the convertible preferred stock and common stock.
We will be permitted to suspend the use of any prospectus which is a part
of the shelf registration statement for a suspension period not to exceed 60
days in any 90-day period and not to exceed 90 days in any 12-month period under
various circumstances relating to pending corporate developments, public filings
with the Securities and Exchange Commission and similar events. If we suspend
the use of the prospectus for a period that exceeds the periods specified in the
foregoing sentence, additional dividends will begin to accrue on the convertible
preferred stock at the rates described above.
BOOK-ENTRY, DELIVERY AND FORM
The convertible preferred stock sold was issued in the form of one or more
global securities. The global securities were deposited with, or on behalf of,
the Depository Trust Company, which we refer to as the Depositary, and
registered in the name of the Depositary or its nominee. Except as provided
below, the global securities may be transferred, in whole and not in part, only
to the Depositary or another nominee of the Depositary. Investors may hold their
beneficial interests in the global securities directly through the Depositary if
they have an account with the Depositary or indirectly through organizations
which have accounts with the Depositary.
Shares of convertible preferred stock that are issued as described below
under the section "Certificated Convertible Preferred Stock" will be issued in
definitive form. Upon the transfer of convertible preferred stock in definitive
form, the convertible preferred stock will be exchanged for an interest in the
global securities representing the liquidation preference of convertible
preferred stock being transferred, unless the global securities have previously
been exchanged for convertible preferred stock in definitive form.
The Depositary has advised us as follows:
- The Depositary is a limited-purpose trust company organized under the
laws of the State of New York and is a member of the Federal Reserve
System;
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- The Depositary is a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered pursuant
to the provisions of Section 17A of the Securities Exchange Act of 1934,
as amended;
- The Depositary was created to hold securities of institutions that have
accounts with the Depositary -- which we refer to as participants -- and
to facilitate the clearance and settlement of securities transactions
among its participants in these securities through electronic book-entry
changes in accounts of the participants, thereby eliminating the need for
physical movement of securities certificates;
- The Depositary's participants include securities brokers and dealers,
which may include the initial purchasers of the convertible preferred
stock, banks, trust companies, clearing corporations and other
organizations;
- Access to the Depositary'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 securities, the Depositary credited, on its
book-entry registrations and transfer system, the liquidation preference of the
convertible preferred stock of $50.00 per share represented by such global
securities to the accounts of participants. The accounts credited were
designated by the initial purchasers of the convertible preferred stock.
Ownership of beneficial interests in the global securities is limited to
participants or persons that may hold interests through participants. Ownership
of beneficial interests in the global securities are shown on, and the transfer
of those ownership interests will be effected only through, records maintained
by the Depositary, with respect to participants' interest, and the participants,
with respect to the owners of beneficial interests in the global securities
other than participants. The laws of some jurisdictions may require that some
purchasers of securities take physical delivery of the securities in definitive
form. These limits and laws may impair the ability to transfer or pledge
beneficial interests in the global securities.
So long as the Depositary, or its nominee, is the registered holder and
owner of the global securities, the Depositary or the nominee, as the case may
be, will be considered for all purposes the sole legal owner and holder of the
related convertible preferred stock. Except as provided below, owners of
beneficial interest in the global securities:
- will not be entitled to have the convertible preferred stock, represented
by the global securities, registered in their names;
- will not receive or be entitled to receive physical delivery of
certificated convertible preferred stock in definitive form; and
- will not be considered to be the owners or holders of any convertible
preferred stock under the global securities.
We understand that under existing industry practice, in the event an owner
of a beneficial interest in the global securities desires to take any action
that the Depositary, as the holder of the global securities, is entitled to
take, the Depositary will authorize the participants to take the action, and
that the participants will authorize beneficial owners owning through the
participants to take the action or would otherwise act upon the instructions of
beneficial owners owning through them.
Payment in respect of dividends and redemption payments on convertible
preferred stock represented by the global securities registered in the name of
and held by the Depositary or its nominee will be made to the Depositary or its
nominee, as the case may be, as the registered owner and holder of the global
securities.
Upon receipt of any dividend or redemption payment on the global
securities, the Depositary or its nominee is expected to credit participants'
accounts with payments in amount proportionate to their
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respective beneficial interests in the liquidation preference of the global
securities as shown on the records of the Depositary or its nominee. Payments by
participants to owners of beneficial interest in the global securities held
through the participants are expected to be governed by standing instructions
and customary practices and are expected to be the responsibility of the
participants.
We 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 the global securities for any convertible preferred stock. We also
will not have any responsibility or liability for maintaining, supervising or
reviewing any records relating to the beneficial ownership interest. Moreover,
we will not have any responsibility or liability for any other aspect of the
relationship between the Depositary and its participants or the relationship
between the participants and the owners of beneficial interest in the global
securities owning through the participants.
Unless and until they are exchanged in whole or in part for certificated
convertible preferred stock in definitive form, the global securities may not be
transferred except as a whole:
- by the Depositary to a nominee of the Depositary;
- by a nominee of the Depositary to the Depositary; or
- by a nominee of the Depositary to another nominee of the Depositary.
Although the Depositary has agreed to the foregoing procedures in order to
facilitate transfers of interests in the global securities among participants of
the Depositary, it is under no obligations to perform or continue to perform
these procedures, and these procedures may be discontinued at any time. We and
our transfer agent will not have any responsibility for the performance by the
Depositary or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
CERTIFICATED CONVERTIBLE PREFERRED STOCK
The convertible preferred stock represented by the global securities is
exchangeable for certificated convertible preferred stock in definitive form of
like tenor as the convertible preferred stock if either of the following is
applicable:
- the Depositary notifies us that it is unwilling or unable to continue as
Depositary for the global securities and a successor is not promptly
appointed or if at any time the Depositary ceases to be a clearing agency
registered under the Exchange Act; or
- we in our discretion at any time determine not to have all of the
convertible preferred stock represented by the global securities.
Any convertible preferred stock that is exchangeable pursuant to the
preceding paragraph is exchangeable for certificated convertible preferred stock
issuable in authorized denominations and registered in such names as the
Depositary shall direct. Except as provided above, the global securities are not
exchangeable, except for global securities of the same aggregate denominations
to be registered in the name of the Depositary or its nominee.
In addition, certificates will bear a legend restricting transfer of the
certificates although, with respect to the convertible preferred stock, the
legend does allow for some transfers. We also may determine that the
certificates will no longer bear a legend in accordance with applicable law.
In connection with the provisions set forth above, after transfer of any
convertible preferred stock or common stock issued as a dividend on or upon
conversion of the convertible preferred stock during the period of effectiveness
of this registration statement, the requirement that the particular convertible
preferred stock or common stock be issued in global form shall cease to apply
and the shares of convertible preferred stock or common stock, as the case may
be, will be available to the transferee in global or fully registered
certificated form.
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OTHER PROVISIONS
The shares of convertible preferred stock and the common stock issuable by
us as dividends and upon conversion of the convertible preferred stock, when
issued, were or will be duly and validly issued, fully paid and non-assessable.
The holders of shares of convertible preferred stock and the shares of common
stock have no preemptive rights with respect to any securities of Verio.
The registrar, transfer agent, conversion agent, and dividend disbursing
agent for the convertible preferred stock and the transfer agent and registrar
for the common stock issuable as dividends and upon conversion of the
convertible preferred stock will be Norwest Shareowner Services.
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock is based upon our
certificate of incorporation, our bylaws, our warrants outstanding, and the
registration rights relating to certain of our shares. The description is not
complete and is qualified in its entirety by reference to all of these
documents, each of which has been filed with the Securities and Exchange
Commission.
AUTHORIZED CAPITAL STOCK
Our authorized capital stock consists of 137,500,000 shares, consisting of
125,000,000 shares of common stock, par value $0.001 per share, and 12,500,000
shares of preferred stock, par value $0.001 per share. As of January 19, 2000,
there were 78,073,811 shares of common stock outstanding and, as of January 18,
2000, there were 7,200,000 shares of 6.75% Series A convertible preferred stock
outstanding.
COMMON STOCK
Holders of our common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any then outstanding preferred stock,
holders of our common stock are entitled to receive ratably such dividends as
may be declared by the board out of funds that are legally available. In the
event of a liquidation, dissolution or winding up of Verio, holders of our
common stock are entitled to share ratably in all assets remaining after payment
of liabilities and the liquidation of preferences of any outstanding shares of
preferred stock, if any. Holders of our common stock have no preemptive rights
or rights to convert their shares into any other securities. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and non-assessable. The rights
of holders of common stock are subject to, and may be adversely affected by, the
rights of any series of preferred stock which we have issued or may issue in the
future. The common stock is admitted for trading on the Nasdaq National Market
under the symbol "VRIO." The transfer agent for the common stock is Norwest
Shareowner Services.
PREFERRED STOCK
The board has the authority to issue from time to time up to 12,500,000
shares of preferred stock in one or more series and to fix the powers,
designations, preferences and relative, participating, optional or other rights
thereof, including dividend rights, conversion rights, voting rights, redemption
terms, liquidation preferences -- any or all of which may be greater than the
rights of the common stock -- and the number of shares constituting each such
series, without any further vote or action by our stockholders. Except for the
6.75% Series A convertible preferred stock, there are no other shares of
preferred stock outstanding.
WARRANTS
As of January 7, 2000, we had warrants outstanding to purchase an aggregate
of approximately 248,920 shares of common stock at an exercise price per share
of $0.01. These warrants were issued in
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connection with the issuance of the 1997 Notes and are currently exercisable by
the holders. Holders of these warrants also are entitled to certain registration
rights. See "-- Registration Rights."
In addition, in connection with our acquisition of Hiway, each former Hiway
warrant was assumed by Verio. Such warrant became a warrant to purchase, at the
same aggregate exercise price and on substantially the same terms and conditions
as such Hiway warrant, that number of shares of our common stock which the
holder would have been entitled to receive had such warrant been exercised prior
to the completion of the acquisition, and had the total consideration we paid
been entirely in shares of our common stock. As of December 31, 1999, we had
warrants outstanding to purchase an aggregate of approximately 1,306,228 shares
of common stock resulting from our assumption of former Hiway warrants. The
exercise price for these warrants range from $3.53 to $3.85 per share. Holders
of these former Hiway warrants also are entitled to certain registration rights.
See "-- Registration Rights."
ANTI-TAKEOVER PROVISIONS
Delaware Takeover Statute
As a Delaware corporation, we are subject to the provisions of Section 203
of the Delaware General Corporation Law, as amended from time to time. Section
203 provides, with certain exceptions, that a publicly-held corporation is
prohibited from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder unless:
- prior to such date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder; or
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned (x) by persons who are
directors and also officers, and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
- at or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.
A "business combination" includes (1) any merger or consolidation involving
the corporation and the interested stockholder, (2) any sale, transfer, pledge
or other disposition of 10% or more of the assets of the corporation involving
the interested stockholder, (3) subject to certain exceptions, any transaction
that results in the issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder, (4) any transaction involving the
corporation that has the effect of increasing the proportionate share of the
stock of any class or series of the corporation beneficially owned by the
interested stockholder, or (5) the receipt by the interested stockholder of the
benefit of any loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock. Section 203 could have the effect of delaying,
deterring or preventing a future takeover or change in control of Verio. It also
may render the removal of directors and management more difficult.
In addition, our certificate of incorporation and bylaws, as amended and
restated, contain provisions that are intended to enhance the likelihood of
continuity and stability in the composition of our board and of the policies
formulated by our board which may discourage a future unsolicited takeover of
Verio.
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These provisions also may have the effect of discouraging or preventing certain
types of transactions involving an actual or threatened change of control of
Verio, including unsolicited takeover attempts, even though such a transaction
may offer our stockholders the opportunity to sell their stock at a price above
the prevailing market price.
Restated Certificate of Incorporation and Bylaws
Certain provisions of our certificate of incorporation and bylaws could
have the effect of discouraging potential acquisition proposals or making a
tender offer or delaying or preventing a change of control of Verio. In
particular, our certificate of incorporation and bylaws, as applicable, among
other things:
(1) provide that all stockholder actions must be effected at a duly
called meeting and not by a consent in writing, and an affirmative vote of
the holders of 80% of our capital stock would be required to amend such
provision;
(2) provide that our board of directors will be divided into three
classes of directors (disregarding the effect of any voting rights of
holders of convertible preferred stock), as nearly equal in number as is
reasonably possible, serving staggered terms so that directors' initial
terms will expire at the first, second and third succeeding annual meeting
of the stockholders following our initial public offering, respectively. At
each such succeeding annual meeting, directors elected to succeed those
directors whose terms are expiring at such meeting shall be elected for a
three-year term of office. A vote of at least 80% of our capital stock
would be required to amend such provision;
We believe that a classified board of directors will help to assure the
continuity and stability of our board of directors and our business strategies
and policies, since a majority of the directors at any given time will have had
prior experience as directors of Verio. We also believe that this, in turn, will
permit our board of directors to more effectively represent the interest of
stockholders. With a classified board of directors, at least two annual meetings
of stockholders, instead of one, will generally be required to effect a change
in the majority of the board. As a result, a provision relating to a classified
board may discourage proxy contests for the election of directors or purchases
of a substantial block of our common stock because its provisions could operate
to prevent obtaining control of the board in a relatively short period of time.
Under Delaware law, a director on a classified board may be removed by the
stockholders of the corporation only for cause;
(3) provide that special meetings of the stockholders may be called
only by the President or, at the direction of the board, the Secretary of
Verio. Advance written notice is required, which generally must be received
by the Secretary not less than 30 days nor more than 60 days prior to the
meeting, by a stockholder of a proposal or director nomination which such
stockholder desires to present at a meeting of stockholders. Any amendment
of this provision would require a vote of at least 80% of our capital
stock;
(4) does not include a provision for cumulative voting in the election
of directors. Under cumulative voting, a minority stockholder holding a
sufficient number of shares may be able to ensure the election of one or
more directors. The absence of cumulative voting may have the effect of
limiting the ability of minority stockholders to effect changes in the
board and, as a result, may have the effect of deterring a hostile takeover
or delaying or preventing changes in control or management of Verio;
(5) provide that vacancies on our board may be filled by a majority of
directors in office, although less than a quorum, and not by the
stockholders; and
(6) allow us to issue up to 5,300,000 shares of currently undesignated
preferred stock with rights senior to those of the common stock and that
otherwise could adversely affect the rights and powers, including voting
rights, of the holders of common stock. In certain circumstances, such
issuance could have the effect of decreasing the market price of the common
stock, as well as having the anti-takeover effect discussed above.
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These provisions are intended to enhance the likelihood of continuity and
stability in the composition of our board and in the policies formulated by
them, and to discourage certain types of transactions that may involve an actual
or threatened change of control of Verio. These provisions are designed to
reduce our vulnerability to an unsolicited acquisition proposal and to
discourage certain tactics that may be used in proxy fights. However, such
provisions could have the effect of discouraging others from making tender
offers for our shares that could result from actual or rumored takeover
attempts. Such provision also may have the effect of preventing changes in our
management.
REGISTRATION RIGHTS
Initial Investors
Pursuant to a stockholders agreement we entered into with certain of our
initial investors, the initial investors are entitled to certain demand and
piggyback registration rights with respect to the registration of certain
registrable securities -- as defined in the stockholders agreement -- held by
the initial investors under the Securities Act. The initial investors owning 25%
or more of the registrable securities may require that we register their
registrable securities under the Securities Act, subject to the right of the
board to defer such registration for a period of up to 180 days. In addition, if
we propose to register securities under the Securities Act, other than a
registration statement on Form S-8 or S-4, whether or not for our own account,
then any of the initial investors has a right, subject to quantity limitations
determined by underwriters if the offering involves an underwriting, to request
that we register such investor's registrable securities. We will bear all
registration expenses incurred in connection with up to two long-form and all
short-form and piggyback registrations. Each initial investor will pay for its
own selling expenses on a pro rata basis. These registration rights are subject
to certain conditions and limitations, among them the right of the underwriters
of an offering to limit the number of shares included in such registration.
1997 Notes
In connection with the issuance of the 1997 Notes, the holders of a number
of the warrants, warrant shares and registrable securities -- as defined in a
registration rights agreement entered into in connection with the issuance of
the 1997 Notes -- equivalent to a majority of the warrant shares subject to the
originally issued warrants, will be entitled to require Verio to effect one
registration under the Securities Act subject to certain limitations. These
holders also will have the right to include such registrable securities in any
registration statement under the Securities Act filed by Verio, other than:
(1) a registration statement on Form S-8 or S-4;
(2) a registration statement filed in connection with an offer of
securities solely to existing security holders; or
(3) a demand registration, whether or not for our own account.
These registrations rights are subject to certain conditions and
limitations, among them the right of the underwriters of an offering to limit
the number of shares included in such registration.
Nippon Telegraph and Telephone Corporation
Pursuant to the investment agreement entered into with Nippon Telegraph and
Telephone Corporation, after May 15, 1999, Nippon Telegraph and Telephone
Corporation and any transferee of its rights may require, on up to three
occasions, that we effect a registration statement under the Securities Act with
respect to:
(1) at least 25% of the shares of common stock that it purchased,
including any securities issued or issuable by way of a distribution, stock
split or the like -- which we refer to as the NTT Registrable Securities;
or
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(2) NTT Registrable Securities with an anticipated aggregate net
offering price of at least $25.0 million, unless we are eligible at such
time to effect a registration statement on Form S-3, in which case the
aggregate net offering price must be at least $15.0 million.
We must effect any such registration as promptly as practicable, subject,
in certain circumstances, to our right to defer such demand for registration for
specified periods. In addition, if we propose to register our securities under
the Securities Act, or another holder of common stock exercises its demand
registration rights, then Nippon Telegraph and Telephone Corporation has a
right, subject to certain cutbacks determined by the underwriters in the event
of an underwritten offering, to include the NTT Registrable Securities in any
such offering. We will bear all registration expenses, subject to certain
exceptions, other than selling expenses which must be paid by Nippon Telegraph
and Telephone Corporation. In the event that any shares of our common stock that
it purchased are included in a registration statement, we have agreed to
indemnify Nippon Telegraph and Telephone Corporation against certain losses for
which Nippon Telegraph and Telephone Corporation may become liable under the
Securities Act.
Hiway Acquisition
In connection with our acquisition of Hiway, we entered into a registration
rights agreement with certain principal affiliate shareholders of Hiway. We also
agreed, as part of our assumption of the former Hiway warrants, to honor the
registration rights obligations contained in such warrants. In both cases, we
agreed to grant the specified shareholders and warrant holders certain piggyback
registration rights, and with regard to the certain warrant holders, demand
registration rights, with respect to the registration of certain registrable
securities -- as defined in the registration rights agreement and former Hiway
warrants -- under the Securities Act.
If at any time we propose to register any common stock under the Securities
Act, then each specified shareholder and warrant holder has the right, subject
to certain limitations, including, to the extent applicable, certain specific
limitations addressed below, to request that we register its registrable
securities. With respect to certain warrant holders, this right does not apply
if we register on a Form S-8 or S-4, although with respect to certain other
warrant holders the piggyback registration right is inapplicable only when we
make a registration relating solely to employee benefit plans or a Rule 145
transaction. With respect to the specified shareholders, this piggyback
registration right does not apply if we register on a Form S-8 or S-4, or any
other form for a limited purpose, or any registration statement covering only
securities proposed to be issued in exchange for securities or assets of another
entity, in connection with an offering of our common stock.
Pursuant to the terms of the former Hiway warrants, prior to the
effectiveness of any registration statement, we may terminate the filing or,
under the terms of certain former Hiway warrants, delay the effectiveness of the
applicable registration statement. Under the terms of the registration rights
agreement with the specified shareholders, subject to certain limitations, we
may delay the filing or effectiveness of, or suspend, the applicable
registration statement, and require that all specified shareholders immediately
cease sale of our common stock pursuant to the registration statement, in any
period during which we are engaged in any activity or transaction required to be
disclosed by Verio pursuant to the Securities Act.
All these piggyback registration rights terminate upon the earlier to occur
of:
(1) such time as all such registrable securities may be immediately
sold pursuant to Rule 144 and/or (for the specified shareholders) Rule 145
under the Securities Act within any 90-day period; or
(2) upon any sale of such registrable securities pursuant to a
registration statement or Rule 144 and/or (for the specified shareholders)
Rule 145 under the Securities Act.
We will bear all registration expenses, other than underwriting discounts
and commissions and, for the warrant holders, certain other expenses, incurred
in connection with any such registrations, except for any
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expenses of any counsel retained by any specified shareholder or individual
warrant holder in connection with such registration.
These registration rights are subject to certain limitations and
conditions. In particular, with regard to certain warrant holders, they may
register up to no more than 50% of their registrable securities in a particular
registration statement, depending upon the total number of shares of common
stock to be registered. Additionally, if the managing underwriter of an offering
seeks to limit the number of shares included in such offering, then the managing
underwriter may, with regard to certain warrant holders, limit or exclude such
warrant holders' registrable securities in the registration statement and, with
regard to certain other warrant holders, Verio shall include the shares sought
to be registered in the following order:
(A) Verio and any holders of demand registration rights shall be
entitled to register all securities that Verio or such holders propose to
sell for their own account;
(B) to the extent that inclusion would not have a material adverse
effect, registrable securities of the warrant holders and other equity and
debt securities requested for inclusion in the offering by holders of such
other securities shall be included pro rata on the basis of the relative
number of registrable securities, other equity securities and the principal
amount of debt securities requested to be included in such offering.
With regard to the specified shareholders, if the underwriters of an
offering seek to limit the number of shares included in such offering, then the
underwriters will apportion the shares sought to be registered as follows:
(1) Verio and any holders of demand registration rights shall be
entitled to register all securities that Verio or such holders propose to
sell for their own account;
(2) any holders of piggyback registration rights as and to the extent
that such registration rights have priority over the registration rights
granted to the specified shareholders; and
(3) any specified shareholder, together with any holders of other
piggyback registration rights as and to the extent that such piggyback
registration rights rank equally with the piggyback registration rights
granted to the specified shareholders, shall be entitled to register, on a
proportionate basis, up to that number of registrable securities and other
shares of common stock that is equal to the remaining shares of common
stock that the lead managing underwriter will permit to be registered after
giving effect to the apportionment in clauses (1) and (2) above, in
connection with such offering. This is subject to any conflicting cut-back
priority provided to MCI WorldCom pursuant to a registration rights
agreement dated June 17, 1997 and based on the number of shares of common
stock owned by each specified shareholder.
Finally, certain warrant holders also retain the right to cause us to file
a shelf registration with respect to the registrable securities, provided that
(A) we shall only be required to effect one registration for all such warrant
holders possessing this right and (B) we shall not be required to effect such a
registration other than in accordance with Rule 415 on Form S-3.
FEDERAL TAX CONSIDERATIONS
The following is a summary of certain material U.S. federal tax
considerations relevant to the purchase, ownership and disposition of our
convertible preferred stock and common stock. This summary is based on the
current provisions of the Internal Revenue Code of 1986, Treasury regulations
and judicial and administrative authority, all of which are subject to change,
possibly on a retroactive basis. This summary applies only to investors who hold
our convertible preferred stock or common stock as capital assets, within the
meaning of section 1221 of the Internal Revenue Code, and does not discuss the
tax consequences to special classes of investors, such as dealers in securities
or currencies, financial institutions, tax-exempt entities, life insurance
companies, persons holding our convertible preferred stock or common stock as a
part of a hedging, short sale or conversion transaction or a straddle, investors
whose
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functional currency is not the United States dollar, persons who hold our
convertible preferred stock or common stock through partnerships or other
pass-through entities, or, except as specifically noted, certain U.S.
expatriates. State, local and foreign tax consequences of ownership of our
convertible preferred stock and common stock are not summarized.
We have not requested, and do not intend to request, any rulings from the
Internal Revenue Service concerning the federal tax consequences of an
investment in our convertible preferred stock or common stock. You are advised
to consult with your own tax advisor regarding the consequences of acquiring,
holding or disposing of our convertible preferred stock or common stock in light
of current tax laws, your particular investment circumstances, and the
application of state, local and foreign tax laws.
When we refer in this summary to a "United States Holder," we mean a
beneficial owner of convertible preferred stock or common stock that is:
- a citizen or resident of the United States for United States federal
income tax purposes;
- a corporation created or organized in the United States or under the laws
of the United States or of any political subdivision thereof;
- an estate whose income is includible in gross income for United States
federal income tax purposes regardless of its source; or
- a trust if a court within the United States is able to exercise primary
supervision of the administration of the trust and one or more United
States persons has the authority to control all substantial decisions of
the trust.
When we refer in this summary to a "Non-United States Holder," we mean a
beneficial owner of convertible preferred stock or common stock that is not a
United States Holder.
UNITED STATES HOLDERS
Deposit Account
Although there is no authority directly applicable to the treatment of the
deposit account, we believe that the treatment described below is appropriate
because the cash is intended to not be subject to the claims of our creditors,
and we will not be entitled to receive the cash in the deposit account except
under limited circumstances.
Pursuant to the terms of the deposit agreement, each holder of convertible
preferred stock will be treated by us as owning a pro-rata portion of the cash
deposited in the deposit account. Accordingly, each holder of convertible
preferred stock should not treat its portion of the cash deposited in the
deposit account as part of the cost of the convertible preferred stock for
purposes of determining the holder's adjusted tax basis in such stock.
Cash distributions of $0.8438 per share of convertible preferred stock on
each deposit payment date for each quarterly period should be treated as
withdrawals by the holders of the convertible preferred stock of amounts
deposited in the deposit account. Income earned on the cash deposited in the
deposit account, if any, should be included in income by each holder of shares
of convertible preferred stock pro rata in proportion to the number of shares of
convertible preferred stock held by such holder. Each holder should include such
amounts in income in the same manner as though the holder directly owned a pro
rata share of the cash in the deposit account. Distributions of common stock by
the deposit agent to the holders of the convertible preferred stock following
our election to transfer common stock to the deposit agent should be treated as
a purchase by each holder of convertible preferred stock of such common stock
for an amount equal to the convertible preferred stockholder's share of the cash
deposited in the deposit account allocated to such purchase. To the extent that
the fair market value of the common stock exceeds the amount paid for such
common stock, the excess should be treated as a distribution on the convertible
preferred stock.
In the event that we exercise our right to have the deposit account paid to
us, the holders of the convertible preferred stock should be treated as having
made an additional payment to us with respect to
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their convertible preferred stock, and, accordingly, should receive an increase
in the tax basis of their convertible preferred stock.
Distributions
We have the right to pay distributions on the convertible preferred stock
in cash or in shares of our common stock. If we distribute our common stock, the
amount of the distribution for federal income tax purposes will be the fair
market value of the common stock on the date the distribution is paid, and the
distribution will be subject to federal income tax to the same extent as a cash
distribution.
A distribution on the convertible preferred stock or common stock will be
treated as a dividend to the extent of our current or accumulated earnings and
profits attributable to the distribution as determined under U.S. federal income
tax principles. The amount of our earnings and profits at any time will depend
upon our future actions and financial performance. If the amount of the
distribution exceeds our current and accumulated earnings and profits
attributable to the distribution, the distribution will be treated as a
nontaxable return of capital and will be applied against and reduce a holder's
adjusted tax basis in the convertible preferred stock, but not below zero. The
reduction in tax basis will increase the amount of any gain, or reduce the
amount of any loss, which a holder would otherwise realize on the sale or other
taxable disposition of the convertible preferred stock. If the distribution
exceeds both our current and accumulated earnings and profits attributable to
the distribution and a holder's adjusted tax basis in the convertible preferred
stock, the excess will be treated as capital gain and will be either long-term
or short-term capital gain depending on the holder's holding period for the
convertible preferred stock.
Corporate investors in our convertible preferred stock generally should be
eligible for the 70% dividends-received deduction with respect to the portion of
any distribution on the stock taxable as a dividend. However, corporate
investors should consider certain provisions that may limit the availability of
a dividend received deduction, including the 46-day holding period required by
section 246(c) of the Internal Revenue Code, the rules of section 246A which
reduce the dividends-received deduction of dividends on certain debt-financed
stock, and the rules in section 1059 of the Internal Revenue Code that reduce
the basis of stock in respect of certain extraordinary dividends, as well as the
effect of the dividends-received deduction on the determination of alternative
minimum tax liability.
Optional redemption for common stock or cash
If we redeem our convertible preferred stock for common stock, the exchange
should constitute a recapitalization within the meaning of Section 368(a)(1)(E)
of the Internal Revenue Code. A holder will not recognize gain or loss on the
exchange unless some of the common stock is received in discharge of dividend
arrearages, in which case the redemption will be treated as a distribution on
the convertible preferred stock to the extent of the dividends in arrears. The
amount constituting a distribution will be taxed as a dividend to the extent of
our current or accumulated earnings and profits attributable to the distribution
at the time, in accordance with the treatment described above for distributions.
A holder's tax basis in our common stock received pursuant to the redemption
generally will equal that holder's tax basis in the convertible preferred stock
surrendered in exchange, and that holder's holding period for the common stock
generally will include the period the holder held the convertible preferred
stock. However, the tax basis of common stock received in discharge of dividend
arrearages will be its fair market value on the date received and the holding
period of that stock will commence on the day after its receipt.
If we redeem our convertible preferred stock for cash, the redemption will
be taxable to a holder of the convertible preferred stock. The redemption
generally will be treated as a sale or exchange if the holder of the convertible
preferred stock does not own, actually or constructively within the meaning of
section 318 of the Internal Revenue Code, any stock of Verio other than the
redeemed convertible preferred stock. If the holder of the convertible preferred
stock does own, actually or constructively, other stock of Verio, a cash
redemption of the convertible preferred stock may be taxable in accordance with
the treatment described above for distributions. Such treatment as a
distribution will not apply if the redemption (1) is "substantially
disproportionate" with respect to the holder under section 302(b)(2) of
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the Internal Revenue Code, or (2) is "not essentially equivalent to a dividend"
under section 302(b)(1) of the Internal Revenue Code. A distribution to a holder
will be "not essentially equivalent to a dividend" if it results in a meaningful
reduction in the holder's stock interest in Verio, which should be the case if
the holder's proportionate ownership interest, taking into account any actual
ownership of common stock and any stock constructively owned, is reduced, the
holder's relative stock interest in Verio is minimal, and the holder exercises
no control over our business affairs.
If a cash redemption of a holder's convertible preferred stock is treated
as a sale or exchange, it will result in capital gain or loss equal to the
difference between the amount of cash received and the holder's adjusted tax
basis in the convertible preferred stock redeemed, except to the extent that the
redemption price includes unpaid dividends which we declare prior to the
redemption. The capital gain or loss will be long term if the holder has held
the convertible preferred stock for more than one year. Any cash the holder
receives in discharge of dividend arrearages on the convertible preferred stock
will be treated as a distribution on the convertible preferred stock to the
extent of the dividends in arrears, taxable in accordance with the treatment
described above for distributions.
If the cash a holder receives on redemption of the convertible preferred is
taxed as a dividend, the tax basis (reduced for amounts, if any, treated as
return of capital) in the redeemed convertible preferred stock will be
transferred to any remaining other Verio stock the holder owns, subject, in the
case of a corporate taxpayer, to reduction or possible gain recognition under
section 1059 of the Internal Revenue Code in an amount equal to the nontaxed
portion of such dividend. If a holder does not actually own any other Verio
stock, having a remaining stock interest only constructively, the holder may
lose the benefit of its tax basis in the convertible preferred stock but the tax
basis may be shifted to the stock of the related person whose stock the holder
constructively owns.
Under some circumstances, section 305(c) of the Internal Revenue Code
requires that any excess of the redemption price of preferred stock over its
issue price be treated as constructively distributed on a periodic basis prior
to actual receipt. However, these rules do not apply if you and Verio are not
"related" within the meaning of Treasury regulations under section 305(c), there
are no plans, arrangements or agreements that effectively require or are
intended to compel us to redeem the convertible preferred stock, and our
exercise of the right to redeem would not reduce the yield of the convertible
preferred stock, as determined under the regulations. We intend to take the
position that the existence of our optional redemption rights does not result in
a constructive distribution under section 305(c). The preferred stock will also
be issued with a liquidation premium, since the liquidation preference will
exceed the proceeds received by Verio after excluding amounts deposited in the
deposit account. Although the regulations under section 305(c) do not
specifically address the treatment of liquidation premiums, we believe that a
similar rationale should apply to such premiums.
Conversion
A holder of our convertible preferred stock generally will not recognize
gain or loss on conversion of shares of convertible preferred stock into our
common stock, except with respect to any cash paid in lieu of fractional shares
of common stock. However, a holder may recognize gain or dividend income to the
extent there are dividends in arrears on the stock at the time of conversion
into common stock. A holder's tax basis in the common stock received upon
conversion of convertible preferred stock generally will be equal to the
holder's tax basis in the converted preferred stock and the holding period of
the common stock generally will include the holder's holding period for the
converted preferred stock. However, the tax basis of any common stock received
on conversion which is treated as a dividend will be equal to its fair market
value on the date of the distribution and the holding period of that common
stock will commence on the day after its receipt.
A holder of our convertible preferred stock may be deemed to have received
a constructive distribution of stock taxable as a dividend if the conversion
ratio of the convertible preferred stock is adjusted to reflect a cash or
property distribution on our common stock or to prevent dilution in the case of
certain issuances of rights or warrants to purchase common stock at below market
prices. Although an
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adjustment to the conversion price made pursuant to a bona fide reasonable
adjustment formula which has the effect of preventing the dilution of a holder's
interest in Verio generally will not be considered to result in a constructive
distribution of stock, some of the possible adjustments may trigger this rule.
If a nonqualifying adjustment is made, or if we fail to make an adjustment in
some cases, a holder might be deemed to have received a taxable stock dividend.
If so, the amount of the dividend to be included in income would be the fair
market value of the additional common stock to which a holder would be entitled
by reason of the increase in the holder's proportionate equity interest in
Verio.
Sale or other taxable disposition
If a holder sells or disposes of convertible preferred stock or common
stock in a taxable transaction other than a redemption or conversion by us, the
holder will recognize capital gain or loss equal to the difference between the
amount of cash and the fair market value of property received and the holder's
tax basis in the convertible preferred stock or common stock. The gain or loss
will be long-term capital gain or loss if the holder's holding period for the
stock exceeds one year. For corporate taxpayers, long-term capital gains are
taxed at the same rate as ordinary income. For individual taxpayers, net capital
gains -- the excess of the taxpayer's net long-term capital gains over net
short-term capital losses -- are subject to a maximum tax rate of 20% if the
stock is held for more than one year.
NON-UNITED STATES HOLDERS
Deposit Account
Because we will treat cash distributions from the deposit account as
non-taxable withdrawals, a Non-United States Holder generally will not be
subject to United States tax on these distributions. Distributions from the
deposit account attributable to interest earned on amounts held in the deposit
account and invested in United States government obligations also should be
exempt from United States withholding tax as portfolio interest provided that
the Non-United States Holder provides us a properly completed Internal Revenue
Service Form W-8.
Distributions
Distributions received by a holder as a Non-United States Holder in respect
of the convertible preferred stock, whether in cash or shares of common stock,
and distributions in respect of common stock, to the extent considered dividends
for U.S. federal income tax purposes, generally will be subject to withholding
of United States federal income tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty, unless the dividend is effectively
connected with the holder's conduct of a trade or business within the United
States or, where a tax treaty applies, is attributable to a United States
permanent establishment the holder maintains. If the dividend is effectively
connected with a holder's conduct of a trade or business within the United
States or, where a tax treaty applies, is attributable to a holder's United
States permanent establishment, the dividend will be subject to federal income
tax on a net income basis at applicable graduated individual or corporate rates
and will be exempt from the 30% withholding tax.
In addition to the graduated rate described above, dividends received by a
corporate Non-United States Holder that are effectively connected with a United
States trade or business or, where a tax treaty applies, is attributable to a
holder's United States permanent establishment, may, under some circumstances,
be subject to an additional "branch profits tax" at a 30% rate or at a lower
rate specified by an applicable income tax treaty.
For purposes of obtaining a reduced rate of withholding under an income tax
treaty, a holder will be required to provide certain information concerning the
holder's country of residence and entitlement to tax treaty benefits. If a
holder claims exemption from withholding with respect to dividends effectively
connected with the holder's conduct of a business within the United States, the
holder must provide appropriate certification, currently, Internal Revenue
Service Form 4224, to Verio or its paying agent. If a
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holder is eligible for a reduced rate of U.S. federal withholding tax, the
holder may obtain a refund of any excess withheld amounts by timely filing an
appropriate claim for refund.
If a distribution exceeds our current and accumulated earnings and profits
attributable to the distribution, it will be treated first as a return of a
holder's tax basis in the stock to the extent of the holder's basis and then as
gain from the sale of a capital asset which would be taxable as described below.
Any withholding tax on distributions in excess of our current and accumulated
earnings and profits is refundable to a holder upon the timely filing of an
appropriate claim for refund with the Internal Revenue Service.
Under currently applicable Treasury regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of such
country, unless the payor has knowledge to the contrary, for purposes of the
withholding discussed above, and, under the current interpretation of these
Treasury regulations, for purposes of determining the applicability of a tax
treaty rate. Under Treasury regulations currently scheduled to be effective with
respect to dividends paid after December 31, 2000, a Non-United States Holder of
Verio stock who wishes to claim the benefit of an applicable treaty rate, and to
avoid backup withholding as discussed below, will be required to satisfy
applicable certification and other requirements.
Disposition of convertible preferred stock or common stock
Generally, a holder will not be subject to United States federal income tax
on any gain recognized upon the sale or other disposition of convertible
preferred stock or common stock. However, a holder will be subject to federal
income tax on the gain if:
(1) the gain is effectively connected with your United States trade
or, if a tax treaty applies, attributable to a holder's United States
permanent establishment;
(2) a holder is an individual who is a former citizen of the United
States who lost such citizenship within the preceding ten-year period, or
former long-term resident of the United States who relinquished United
States residency on or after February 6, 1995, and the loss of citizenship
or permanent residency had as one of its principal purposes the avoidance
of United States tax; or
(3) a holder is a non-resident alien individual, is present in the
United States for 183 days or more days in the taxable year of disposition
and either (a) have a "tax home" in the United States for United States
federal income tax purposes or (b) the gain is attributable to an office or
other fixed place of business the holder maintains in the United States.
A holder of our convertible preferred stock will also be subject to federal
income tax on the gain from sale of our convertible preferred stock if we are or
have been a "United States real property holding corporation" -- which we refer
to in this prospectus as USRPHC -- within the meaning of section 897(c)(2) of
the Internal Revenue Code at any time the holder held the stock, or within the
five-year period preceding the sale of the stock if the holder holds the stock
for more than five years. A holder would also be subject to federal income tax
on sale of our common stock if we were a USRPHC during the specified time
periods; however, since our common stock is traded on an established securities
market, a holder would be subject to tax only if the holder holds, directly or
indirectly, common stock with a fair market value in excess of 5% of the fair
market value of all Verio common stock outstanding. Verio believes it is not now
a USRPHC, that it has not been an USRPHC at any time since it was formed, and
that it is unlikely to become a USRPHC. Nevertheless, since our convertible
preferred stock will not be traded on an established securities market, on the
sale or other taxable disposition of our convertible preferred stock, the
purchaser would be required to withhold 10% of the proceeds of such disposition,
unless Verio were to provide a certification that it is not a USRPHC, and has
not been a USRPHC during a specific period, or another exemption applied.
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Redemption and conversion of convertible preferred stock
As a Non-United States Holder, the holder generally will not recognize any
gain or loss for United States federal income tax purposes upon conversion of
convertible preferred stock into common stock, except with respect to any cash
paid in lieu of fractional shares of common stock, which would be subject to the
rules described under "Disposition of convertible preferred stock or common
stock." However, the holder may recognize gain or dividend income to the extent
there are dividends in arrears on the convertible preferred stock at the time of
conversion into common stock.
A redemption of convertible preferred stock for cash will be an event which
will constitute either a dividend to the extent of our current and accumulated
earnings and profits or a sale or exchange. See "United States
Holders -- Optional redemption for common stock or cash." To the extent the
redemption is treated as a dividend, the tax consequences are described in
"Non-United States Holders -- Distributions," and to the extent the redemption
is treated as a sale or exchange, the tax consequences are described in
"Non-United States Holders -- Disposition of convertible preferred stock or
common stock."
Federal estate taxes
If a holder is an individual Non-United States Holder, convertible
preferred stock or common stock the holder holds or is treated as owning at the
time of the holder's death will be included in the holder's United States gross
estate for United States federal estate tax purposes and may be subject to
United States federal estate tax, unless an applicable estate tax treaty
provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Verio generally will be required to report to some holders of its
convertible preferred stock or common stock and to the Internal Revenue Service
the amount of any dividends paid to the holder in each calendar year and the
amounts of tax withheld, if any, with respect to these payments. Copies of the
information returns reporting these dividends and withholding may also be made
available to the tax authorities in the country in which a Non-United States
Holder resides under the provisions of an applicable income tax treaty.
Each holder of convertible preferred stock or common stock -- other than an
exempt holder such as a corporation, tax-exempt organization, qualified pension
or profit-sharing trust, individual retirement account, or a nonresident alien
individual who provides certification as to his or her status as a
nonresident -- will be required to provide, under penalties of perjury, a
certification setting forth the holder's name, address, correct federal taxpayer
identification number and a statement that the holder is not subject to backup
withholding. If a nonexempt holder fails to provide the required certification,
we will be required to withhold 31% of the amount otherwise payable to the
holder, and remit the withheld amount to the Internal Revenue Service as a
credit against the holder's federal income tax liability. You should consult
your own tax advisor regarding your qualification for exemption from backup
withholding and the procedure for obtaining any applicable exemption.
Payment of the proceeds of a sale of convertible preferred stock or common
stock by or through a United States office of a broker is subject to both backup
withholding and information reporting unless the beneficial owner certifies
under penalties of perjury that it is a Non-United States Holder or otherwise
establishes an exemption. In general, backup withholding and information
reporting will not apply to a payment of the proceeds of a sale of convertible
preferred stock or common stock by or through a foreign office of a broker. If,
however, such broker is, for United States federal income tax purposes a United
States person, a "controlled foreign corporation" for U.S. federal tax purposes,
or a foreign person that derives 50% or more of its gross income for a certain
period from the conduct of a trade or business in the United States, or, for
taxable years beginning after December 31, 2000, a foreign partnership in which
one or more United States persons, in the aggregate, own more than 50% of the
income or capital interests in the partnership or if the partnership is engaged
in a trade or business in the United States, these payments will be subject to
information reporting, but not backup withholding, unless (1) the broker has
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documentary evidence in its records that the beneficial owner is a Non-United
States Holder and some other conditions are met, or (2) the beneficial owner
otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules may be allowed as a
refund or a credit against the holder's United States federal income tax
liability provided the required information is furnished to the Internal Revenue
Service.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION AND IS NOT TAX ADVICE.
ACCORDINGLY, EACH PROSPECTIVE HOLDER OF CONVERTIBLE PREFERRED STOCK OR COMMON
STOCK SHOULD CONSULT ITS TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO IT
OF THE CONVERTIBLE PREFERRED STOCK AND COMMON STOCK, INCLUDING THE APPLICABILITY
AND EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME TAX LAWS, AND ANY RECENT OR
PROSPECTIVE CHANGES IN APPLICABLE TAX LAWS.
PLAN OF DISTRIBUTION
Secondary Offering
We will not receive any proceeds from any sales of the convertible
preferred stock or common stock by selling stockholders. The shares of common
stock issuable by us in lieu of cash as dividends on the convertible preferred
stock and the shares of common stock issuable by us at our option through, at
the latest, August 1, 2000, in exchange for funds held in the deposit account on
behalf of the holders of the convertible preferred stock may be issued by us to
holders of record of the convertible preferred stock in accordance with the
terms under which the convertible preferred stock has been issued. See
"Description of the Series A Convertible Preferred Stock -- Deposit Account" and
"Description of the Series A Convertible Preferred Stock -- Dividends".
Shares of our convertible preferred stock and common stock held by the
selling stockholders and covered by this prospectus and, if applicable, any
prospectus supplement may be offered and sold from time to time by the selling
stockholders in one or more transactions. These transactions may involve crosses
or block transactions. The selling stockholders will act independently of us in
making decisions with respect to the timing, manner and size of each sale. The
selling stockholders, which term includes their transferees, pledgees or donees
or their successors, may sell the shares being offered here as follows:
- on any of the United States securities exchanges or quotation services
where the convertible preferred stock or common stock is listed or quoted
at the time of sale, including the Nasdaq National Market where our
common stock is listed;
- in transactions otherwise than on the exchanges or services described
above;
- in the over-the-counter market;
- in negotiated transactions or otherwise, including an underwritten
offering;
- in connection with short sales of our shares;
- by pledge or by grant of a security interest in the shares to secure
debts and other obligations;
- through the writing of options, whether the options are listed on an
options exchange or otherwise;
- in connection with the writing of non-traded and exchange-traded call
options or put options, in hedge transactions and in settlement of other
transactions in standardized or over-the-counter options;
- through the distribution of the shares by any selling stockholder to its
partners, members or stockholders; or
- in a combination of any of the above transactions.
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In connection with the sale of the convertible preferred stock or common
stock or otherwise, the selling stockholders may enter into hedging transactions
with broker-dealers or other financial institutions. These broker-dealers or
other financial institutions may in turn engage in short sales of the
convertible preferred stock or common stock and deliver these securities to
close out these short positions. They also may loan or pledge the convertible
preferred stock or common stock to broker-dealers that in turn may sell these
securities.
The selling stockholders may sell their shares at market prices prevailing
at the time of sale, at prices related to the prevailing market prices, at
negotiated prices or at fixed prices. Each of the selling stockholders reserves
the right to accept and, together with their agents from time to time, to
reject, in whole or in part, any proposed purchase of the convertible preferred
stock or common stock to be made directly or through agents.
The selling stockholders are subject to the provisions of the Exchange Act
of 1934, as amended, and the rules under it relating to stock manipulation,
particularly Regulation M. They are not to engage in any transaction in
violation of these provisions.
The selling stockholders may sell their shares directly to purchasers or
may use underwriters, broker-dealers or agents to sell their shares.
Underwriters, broker-dealers or agents who sell the shares may receive
compensation in the form of discounts, concessions, or commissions from the
selling stockholders or they may receive compensation from purchasers of the
shares for whom they acted as agents or to whom they sold the shares as
principal, or both. The compensation as to a particular underwriter, broker-
dealer or agent will not be in excess of eight percent (8%) of the selling price
of the shares sold by the particular underwriter, broker-dealer or agent. The
selling stockholders and any underwriters, broker-dealers or agents that
participate in the sale of their convertible preferred stock or common stock may
be deemed to be "underwriters" within the meaning of the Securities Act of 1933,
as amended. Any discounts, commissions, concessions or profits received by these
underwriters, broker-dealers or agents on any resale of the shares may be
underwriting discounts and commissions under the Securities Act of 1933, as
amended. Selling stockholders who are "underwriters" within the meaning of the
Securities Act of 1933, as amended, will be subject to the prospectus delivery
requirements of the Securities Act.
We will pay all fees and expenses incurred in connection with preparing and
filing this prospectus and any prospectus supplement and the registration
statement and any amendments thereto. The selling stockholders will pay any
brokerage commissions and similar selling expenses, if any, attributable in
connection with the sale of the shares of common stock, including stock transfer
taxes due or payable in connection with the sale of the shares.
We have agreed to keep the registration statement, of which this prospectus
and any subsequent prospectus supplements constitute a part, effective until all
of the securities covered by this registration statement may be freely sold by
the selling stockholders without registration pursuant to Rule 144(k) of the
Securities Act, assuming none of the selling stockholders is an affiliate of
Verio. However, with regard to BI Partners LLC and Donald Gene Smith, on the one
hand, and Merrill Lynch, Pierce, Fenner & Smith Incorporated and NMS Services
(Cayman) Inc., on the other hand, we have agreed only to keep the registration
statement effective as to our common stock for at least 180 days in the case of
the former and 120 days in the case of the latter. For Merrill Lynch, Pierce,
Fenner & Smith Incorporated, this latter limitation only applies to the extent
that the common stock it holds was not received as a result of converting our
convertible preferred stock to common stock. There can be no assurance that the
selling stockholders will sell all or any of the shares of convertible preferred
stock or common stock offered here.
Under the securities laws of certain states, the securities may be sold in
such states only through registered or licensed brokers or dealers.
Selling stockholders may also resell all or a portion of their securities
in open market transactions in reliance upon Rule 144 under the Securities Act
of 1933, as amended. However, to do so, they must meet the criteria and conform
to the requirements of that Rule. In addition, any securities covered by this
prospectus which qualify for sale pursuant to Rule 144A of the Securities Act,
as amended, may be sold
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under Rule 144A rather than pursuant to this prospectus. A selling stockholder
may not sell any convertible preferred stock or common stock by means other than
as described in this prospectus.
In all but one case, we have entered into registration rights agreements
and/or obligations for the benefit of the selling stockholders to register their
convertible preferred stock and/or common stock under applicable federal and
state securities laws under various circumstances and at various times. Pursuant
to these registration rights agreements and obligations, we have agreed to
indemnify the selling stockholders, and the selling stockholders have agreed to
indemnify us, and each of us has agreed to indemnify other persons named and/or
described in the registration rights agreements and obligations, in each case
against various liabilities, including some liabilities arising under the
Securities Act of 1933, as amended, in connection with the offer and sale of the
convertible preferred stock and common stock by the selling stockholders. These
indemnification obligations of ours and the selling stockholders generally
include obligations to indemnify each underwriter (if any) that participates in
the offering or sale of the convertible preferred stock and/or common stock by
the selling stockholders and each person (if any) who controls each underwriter.
Primary Offering
We and/or Verio, LLC may sell our common stock pursuant to any applicable
prospectus supplement directly to one or more purchasers or though agents or
underwriters. We and/or Verio, LLC may sell our common stock pursuant to any
applicable prospectus supplement in at-the-market equity offerings or on a
negotiated or competitive bid basis through underwriters or dealers or directly
to other purchasers or through agents. We will name any underwriter or agent
involved in the offer and sale of the securities in the applicable prospectus
supplement.
We and/or Verio, LLC may distribute the securities from time to time in one
or more transactions:
- at a fixed price or prices, which may be changed;
- at market prices prevailing at the time of sale;
- at prices related to prevailing market prices; or
- at negotiated prices.
We and/or Verio, LLC also may, from time to time, authorize underwriters
acting as our agents to offer and sell our common stock upon the terms and
conditions as set forth in the applicable prospectus supplement. In connection
with the sale of our common stock, underwriters may be deemed to have received
compensation from us in the form of underwriting discounts or commissions and
may also receive commissions from purchasers of the common stock for whom they
may act as agent. Underwriters may sell the common stock to or through dealers,
and dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agent.
We will describe in the applicable prospectus supplement any underwriting
compensation we and/or Verio, LLC pay to underwriters or agents in connection
with the offering of our common stock, and any discounts, concessions or
commissions allowed by underwriters to participating dealers. Dealers and agents
participating in the distribution of our common stock may be deemed to be
underwriters, and any discounts and commissions received by them and any profit
realized by them on resale of our common stock may be deemed to be underwriting
discounts and commissions. We and/or Verio, LLC may enter into agreements to
indemnify underwriters, dealers and agents against certain civil liabilities,
including liabilities under the Securities Act, and to reimburse these persons
for certain expenses. We will describe any indemnification agreements in the
applicable prospectus supplement.
Any shares of common stock sold by us and/or Verio, LLC pursuant to a
prospectus supplement may be listed on the NASDAQ National Market System,
subject to official notice of issuance.
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If indicated in the applicable prospectus supplement, we and/or Verio, LLC
may authorize dealers acting as our agents to solicit offers by certain
institutions to purchase our common stock at the public offering price set forth
in the prospectus supplement pursuant to delayed delivery contracts providing
for payment and delivery on the date or dates stated in the prospectus
supplement. We and/or Verio, LLC may make delayed delivery with various
institutions, including commercial and savings banks, insurance companies,
pension funds, investment companies and educational and charitable institutions.
Delayed delivery contracts will not be subject to any conditions except:
- the purchase by an institution of our common stock covered by its delayed
delivery contracts shall not at the time of delivery be prohibited under
the laws of any jurisdiction in the United States to which the
institution is subject; and
- if our common stock is sold to underwriters, we and/or Verio, LLC shall
have sold to the underwriters the total principal amount of the offered
common stock less the principal amount covered by the delayed delivery
contracts.
To facilitate the offering of our common stock, some persons participating
in the offering may engage in transactions that stabilize, maintain, or
otherwise affect the price of our common stock. This may include over-allotments
or short sales of the common stock, which involves the sale by persons
participating in the offering of more common stock than we and/or Verio, LLC
sold to them. In these circumstances, these persons would cover the
over-allotments or short positions by making purchases in the open market or by
exercising their over-allotment option. The effect of these transactions may be
to stabilize or maintain the market price of the securities at a level above
that which might otherwise prevail in the open market. These transactions may be
discontinued at any time.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for, us in the ordinary course
of business.
LEGAL OPINIONS
The validity of the shares of convertible preferred stock and common stock
offered hereby will be passed upon by Morrison & Foerster LLP, San Francisco,
California.
EXPERTS
The consolidated financial statements of Verio and its subsidiaries as of
December 31, 1997 and 1998 and for the period from inception (March 1, 1996) to
December 31, 1996, and the years ended December 31, 1997 and 1998 and the
financial statements of NSNet, Inc. as of December 31, 1996 and 1997 and for the
years ended December 31, 1996 and 1997 and the period from January 1, 1998 to
February 27, 1998; Access One, Inc. as of December 31, 1997 and for the year
ended December 31, 1997 and the period from January 1, 1998 to February 27,
1998; STARnet, L.L.C. as of December 31, 1997 and for the year ended December
31, 1997 and the period from January 1, 1998 to April 14, 1998; Computing
Engineers Inc. as of December 31, 1996 and 1997 and for the years ended December
31, 1996 and 1997 and the period from January 1, 1998 to April 15, 1998; LI Net,
Inc. as of April 30, 1997 and January 31, 1998 and for the years ended April 30,
1996 and 1997, the nine months ended January 31, 1998 and the period from
February 1, 1998 to April 9, 1998; NTX, Inc. as of and for the nine months ended
June 30, 1998; and Best Internet Communications, Inc. and its subsidiaries as of
and for the year ended December 31, 1998, have been incorporated by reference
herein and in the registration statement in reliance upon the reports 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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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-3 under the Securities Act of 1933. This
prospectus and any subsequent prospectus supplements do 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 offered securities. Each time offered securities are to be
sold, we will provide, if and so far as required, a prospectus supplement that
will contain specific information about the terms of that offering. The
prospectus supplement may also add, update or change any information contained
in this prospectus. You should read both this prospectus and any prospectus
supplement together with the additional information described under this
heading.
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
and any subsequent prospectus supplement. Information that we file subsequently
with the SEC will automatically update this prospectus and any outstanding
prospectus supplements. 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, 1998. This report contains the audited and consolidated financial
statements for us and our subsidiaries as of December 31, 1997 and 1998 and
for the period from inception (March 1, 1996) to December 31, 1996 and the
years ended December 31, 1997 and 1998;
(ii) Our current report on Form 8-K dated January 11, 1999;
(iii) Our quarterly report on Form 10-Q for our fiscal quarter ended
March 31, 1999;
(iv) Our quarterly report on Form 10-Q for our fiscal quarter ended
June 30, 1999;
(v) Our quarterly report on Form 10-Q for our fiscal quarter ended
September 30, 1999;
(vi) Our current report on Form 8-K dated November 18, 1999;
(vii) The following sections contained in our registration statement
on Form S-4 (registration number 333-70727) dated January 15, 1999, as
amended: "Management," "Certain Transactions," "Description of Capital
Stock," and pro forma condensed combined financial statements and the
financial statements of certain acquired affiliates appearing on pages F-3
to F-8 and F-30 to F-89; and
(viii) The description of our common stock contained in our
registration statement on Form 8-A dated May 8, 1998, filed under the
Exchange Act, as amended, including any amendment or report filed for the
purpose of updating the description.
59
<PAGE> 63
We are also incorporating by reference in this prospectus and any
subsequent prospectus supplement all reports and other documents that we file
pursuant to Sections 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
offering of convertible preferred stock and common stock. These reports and
documents will be incorporated by reference in and considered to be a part of
this prospectus and any subsequent prospectus supplement 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 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 or in any subsequent prospectus supplement will be modified or
superseded for purposes of this prospectus or any subsequent prospectus
supplement to the extent that a statement contained in this prospectus or
incorporated in this prospectus or in any prospectus supplement or in any
document that we file after the date of this prospectus that also is
incorporated by reference in this prospectus or in any subsequent prospectus
supplement 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 or any subsequent prospectus supplement.
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.
You should rely only on the information contained or incorporated by
reference in this prospectus or any applicable prospectus supplement. 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 or any applicable prospectus supplement
is accurate as of any date other than the dates on the front of those documents.
60
<PAGE> 64
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an estimate, subject to future contingencies, of the
expenses to be incurred by us in connection with the issuance and distribution
of the securities being registered:
<TABLE>
<S> <C>
Registration Fee............................................ $152,961
Legal Fees and Expenses*.................................... $ 50,000
Accounting Fees and Expenses*............................... $ 15,000
Printing and Engraving Fees*................................ $ 5,000
Listing Fees*............................................... $ 17,500
Miscellaneous*.............................................. $ 5,000
--------
Total............................................. $245,461
========
</TABLE>
- ---------------
* Estimated pursuant to instruction to Item 511 of Regulation S-K.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the Delaware General Corporation Law (the "DGCL")
provides in relevant part that "a corporation shall have the power to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by the person in connection with
such action, suit or proceeding if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interest of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the person's conduct was
unlawful." With respect to derivative actions, Section 145(b) of the DGCL
provides in relevant part that "[a] corporation shall have the power to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor...[by reason of his service in
one of the capacities specified in the preceding sentence] against expenses
(including attorneys' fees) actually and reasonably incurred by the person in
connection with the defense or settlement of such action or suit if the person
acted in good faith and in a manner the person reasonably believed to be in or
not opposed to the best interest of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper."
Verio's Second Restated Certificate of Incorporation provides that each
person who is or was or who had agreed to become a director or officer of Verio
or who had agreed at the request of Verio's Board of Directors or an officer of
Verio to serve as an employee or agent of Verio or as a director, officer,
employee or agent or another corporation, partnership, joint venture, trust or
other enterprise, shall be indemnified by Verio to the full extent permitted by
the DGCL or any other applicable laws. Such Second Restated Certificate of
Incorporation also provides that Verio may enter into one or more agreements
with any person which provides for indemnification greater or different than
that provided in such Certificate, and that no amendment or repeal of such
Certificate shall apply to or have any effect on the right to indemnification
permitted or authorized thereunder for or with respect to claims asserted before
or after
II-1
<PAGE> 65
such amendment or repeal arising from acts or omissions occurring in whole or in
part before the effective date of such amendment or repeal.
Verio's Bylaws provide that Verio shall indemnify to the fullest extent
authorized by law any person made or threatened to be made a party to an action
or a proceeding, whether criminal, civil, administrative or investigative, by
reason of the fact that he, his testator or intestate was or is a director,
officer or employee of Verio or any predecessor of Verio or serves or served any
other enterprise as a director, officer or employee at the request of Verio or
any predecessor of Verio.
Verio has entered into indemnification agreements with its directors and
certain of its officers.
Verio has purchased and maintains insurance on behalf of any person who is
or was a director or officer against loss arising from any claim asserted
against him and incurred by him in any such capacity, subject to certain
exclusions.
See also the undertakings set out in response to Item 17 herein.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 -- Form of Underwriting Agreement*
3.1 -- Certificate of Designations of the Powers, Preferences
and Relative, Participating, Optional and Other Special
Rights of Series A 6.75% Convertible Preferred Stock and
Qualifications, Limitations and Restrictions Thereof
dated July 20, 1999. Exhibit 3.1 to Verio's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999
is incorporated herein by reference.
3.2 -- Restated Certificate of Incorporation.
3.3 -- Bylaws of the registrant.
4.1 -- Certificate of Designations (see Exhibit 3.1 to this
registration statement).
4.2 -- Registration Rights Agreement, dated as of July 20, 1999,
by and among Verio Inc., Salomon Smith Barney Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation,
Credit Suisse First Boston Corporation, Deutsche Bank
Securities Inc. and First Union Capital Markets Corp.
Exhibit 4.2 to Verio's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999 is incorporated herein by
reference.
4.3 -- Deposit Agreement, dated as of July 20, 1999, by and
between Verio Inc. and Norwest Bank Minnesota, N.A.
Exhibit 4.1 to Verio's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999, is incorporated herein
by reference.
4.4 -- Reference is made to Exhibits 3.2 and 3.3 to this
registration statement.
5.1 -- Opinion of Morrison & Foerster LLP together with consent.
8.1 -- Opinion of Morrison & Foerster LLP regarding tax matters
together with consent.
12.1 -- Statement regarding Computation of Ratios.**
23.1 -- Consent of Morrison & Foerster LLP (contained in the
opinions of counsel filed as Exhibit 5.1 and Exhibit 8.1
to this registration statement).
23.2 -- Consent of KPMG LLP, independent public accountants.
24.1 -- Powers of Attorney.**
</TABLE>
- ---------------
* To be filed, as applicable, to a particular offering of common stock as an
exhibit to a Current Report on Form 8-K pursuant to Regulation S-K, Item
601(b)(1).
** Previously filed.
II-2
<PAGE> 66
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Securities and Exchange Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more than
a 20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
with or furnished to the Securities and Exchange Commission by the
registrant pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-3
<PAGE> 67
(d) The undersigned registrant hereby undertakes that for purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
of 1933 shall be deemed to be part of this registration statement as of the time
it was declared effective.
(e) The undersigned registrant hereby undertakes that for the purpose of
determining any liability under the Securities Act of 1933, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-4
<PAGE> 68
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Englewood, Colorado on January 25, 2000.
VERIO INC.
By: /s/ JUSTIN L. JASCHKE
----------------------------------
Justin L. Jaschke
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the registration statement has been signed by the following persons in
the capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ STEVEN C. HALSTEDT* Chairman of the Board January 25, 2000
- -----------------------------------------------------
Steven C. Halstedt
/s/ JUSTIN L. JASCHKE* Chief Executive Officer and January 25, 2000
- ----------------------------------------------------- Director
Justin L. Jaschke
/s/ HERBERT R. HRIBAR* President, Chief Operating January 25, 2000
- ----------------------------------------------------- Officer and Director
Herbert R. Hribar
/s/ JAMES C. ALLEN* Director January 25, 2000
- -----------------------------------------------------
James C. Allen
/s/ TRYGVE E. MYHREN* Director January 25, 2000
- -----------------------------------------------------
Trygve E. Myhren
/s/ PAUL J. SALEM* Director January 25, 2000
- -----------------------------------------------------
Paul J. Salem
/s/ YUKIMASA ITO* Director January 25, 2000
- -----------------------------------------------------
Yukimasa Ito
/s/ ARTHUR L. CAHOON* Director January 25, 2000
- -----------------------------------------------------
Arthur L. Cahoon
/s/ PETER B. FRITZINGER* Chief Financial Officer January 25, 2000
- ----------------------------------------------------- (Principal Accounting
Peter B. Fritzinger Officer)
*By: /s/ CARLA HAMRE DONELSON
------------------------------------------------
Carla Hamre Donelson
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 69
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 -- Form of Underwriting Agreement*
3.1 -- Certificate of Designations of the Powers, Preferences
and Relative, Participating, Optional and Other Special
Rights of Series A 6.75% Convertible Preferred Stock and
Qualifications, Limitations and Restrictions Thereof
dated July 20, 1999. Exhibit 3.1 to Verio's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999
is incorporated herein by reference.
3.2 -- Restated Certificate of Incorporation.
3.3 -- Bylaws of the registrant.
4.1 -- Certificate of Designations (see Exhibit 3.1 to this
registration statement).
4.2 -- Registration Rights Agreement, dated as of July 20, 1999,
by and among Verio Inc., Salomon Smith Barney Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation,
Credit Suisse First Boston Corporation, Deutsche Bank
Securities Inc. and First Union Capital Markets Corp.
Exhibit 4.2 to Verio's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999 is incorporated herein by
reference.
4.3 -- Deposit Agreement, dated as of July 20, 1999, by and
between Verio Inc. and Norwest Bank Minnesota, N.A.
Exhibit 4.1 to Verio's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999 is incorporated herein by
reference.
4.4 -- Reference is made to Exhibits 3.2 and 3.3 to this
registration statement.
5.1 -- Opinion of Morrison & Foerster LLP together with consent.
8.1 -- Opinion of Morrison & Foerster LLP regarding tax matters
together with consent.
12.1 -- Statement regarding Computation of Ratios.**
23.1 -- Consent of Morrison & Foerster LLP (contained in the
opinions of counsel filed as Exhibit 5.1 and Exhibit 8.1
to this registration statement).
23.2 -- Consent of KPMG LLP, independent public accountants.
24.1 -- Powers of Attorney.**
</TABLE>
- ---------------
* To be filed, as applicable, to a particular offering of common stock as an
exhibit to a Current Report on Form 8-K pursuant to Regulation S-K, Item
601(b)(1).
** Previously filed.
<PAGE> 1
EXHIBIT 3.2
RESTATED CERTIFICATE OF INCORPORATION
OF
VERIO INC.
(Originally incorporated under: WORLD-NET ACCESS, INC.)
Verio Inc., a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
1. That the name of the Corporation is Verio Inc. The Corporation was
originally incorporated under the same name; and the original Certificate of
Incorporation and the Restated Certificate of Incorporation of the Corporation
were filed with the Secretary of State of the State of Delaware on the 1st day
of March, 1996, and the 19th day of November, 1997, respectively.
2. That at a meeting of the Board of Directors of Verio Inc. duly held
on February 18, 1998, resolutions were duly adopted setting forth the proposed
amendment and restatement of the Restated Certificate of Incorporation of the
Corporation and declaring said amendment and restatement to be advisable. The
resolution setting forth the proposed amendment and restatement is as follows:
RESOLVED, that the Restated Certificate of Incorporation of
the Corporation be, and it hereby is, amended and restated in its
entirety to read as set forth in the attached Second Restated
Certificate of Incorporation.
3. That thereafter, the Directors and the stockholders of the
Corporation took action by executing a written consent in lieu of a meeting in
accordance with Section 108(c) and Section 228(a), respectively, of the General
Corporation Law of the State of Delaware.
4. That said amendment and restatement was duly adopted in accordance
with the provisions of Sections 242 and 245 of the General Corporation Law of
the State of Delaware. This Second Restated Certificate of Incorporation
restates and integrates and further amends the provisions of the Restated
Certificate of Incorporation of the Corporation.
1
<PAGE> 2
IN WITNESS WHEREOF, the Corporation has caused this Second Restated
Certificate of Incorporation to be signed by its duly authorized officer, this
26th day of May, 1998.
VERIO INC.
By: /s/ Justin L. Jaschke
-----------------------------
Justin L. Jaschke
Chief Executive Officer
2
<PAGE> 3
SECOND RESTATED CERTIFICATE OF INCORPORATION
OF
VERIO INC.
ARTICLE ONE
The name of the Corporation is Verio Inc.
ARTICLE TWO
The address of the registered office of the Corporation in the State of
Delaware is:
Corporation Service Company
1013 Service Road
Wilmington, Delaware 19805
County of New Castle
The name of the Corporation's registered agent at such address is the
Corporation Service Company.
ARTICLE THREE
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
ARTICLE FOUR
1. CAPITAL STOCK
The total number of shares of all classes of stock that the Corporation
is authorized to issue is one hundred thirty-seven million five hundred thousand
(137,500,000) shares, consisting of one hundred twenty-five million
(125,000,000) shares of Common Stock, par value ($.001) per share, and twelve
million five hundred thousand (12,500,000) shares of Preferred Stock, par value
($.001) per share.
Any of the shares of Preferred Stock may be issued from time to time in
one or more series. Subject to the limitations and restrictions set forth in
this Article Four, the Board of Directors or a Committee of the Board of
Directors, to the extent permitted by law and the bylaws of the Corporation or a
resolution of the Board of Directors, by resolution or resolutions, is
authorized to create or provide for any such series, and to fix the
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, including,
without limitation, the authority to fix or alter the dividend rights, dividend
rates, conversion rights, exchange rights, voting rights, rights and terms of
redemption
1
<PAGE> 4
(including sinking and purchase fund provisions), the redemption price or
prices, the dissolution preferences and the rights in respect to any
distribution of assets of any wholly unissued series of Preferred Stock and the
number of shares constituting any such series, and the designation thereof, or
any of them and to increase or decrease the number of shares of any series so
created, subsequent to the issue of that series but not below the number of
shares of such series then outstanding. In case the number of shares of any
series shall be so decreased, the shares constituting such decrease shall resume
the status which they had prior to the adoption of the resolution originally
fixing the number of shares of such series.
There shall be no limitation or restriction on any variation between
any of the different series of Preferred Stock as to the designations,
preferences and relative, participating, optional or other special rights, and
the qualifications, limitations or restrictions thereof; and the several series
of Preferred Stock may, except as otherwise expressly provided herein, vary in
any and all respects as fixed and determined by the resolution or resolutions of
the Board of Directors or by Committee of the Board of Directors, providing for
the issuance of the various series; provided, however, that all shares of any
one series of Preferred Stock shall have the same designation, preferences and
relative, participating, optional or other special rights and qualifications,
limitations and restrictions.
Except as otherwise required by law, or as otherwise fixed by
resolution or resolutions of the Board of Directors with respect to one or more
series of Preferred Stock, the entire voting power and all voting rights shall
be vested exclusively in the Common Stock, and each stockholder of the
Corporation who at the time possesses voting power for any purpose shall be
entitled to one vote for each share of such stock standing in his name on the
books of the Corporation.
2. BOARD OF DIRECTORS
(a) Number, Qualifications and Term of Office.
(i) Except as otherwise provided herein or the General
Corporation Law of the State of Delaware, the business and affairs of
the Corporation shall be managed by or under the direction of a board
of directors consisting of one or more members.
(ii) Directors need not be stockholders of the Corporation.
(iii) The number of directors shall be fixed from time to
time, within the limits specified in the Bylaws, by a Bylaw or
amendment thereof duly adopted by the vote of a majority of the shares
entitled to vote represented at a duly held meeting at which a quorum
is present, or by the board of directors.
(iv) The directors shall be divided into three classes,
designated Class I, Class II and Class III, as nearly equal in number
as the then total number of directors permits, serving staggered terms
so that the initial terms of each such class will expire, respectively,
at the first, second and third succeeding annual meetings of the
stockholders held following the initial public offering of the
Corporation's Common Stock. At each
2
<PAGE> 5
such succeeding annual meeting of stockholders, directors elected to
succeed those directors whose terms are expiring at such meeting shall
be elected for a term of office to expire at the third succeeding
annual meeting of stockholders following such election. If the number
of directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of directors in each
class as nearly equal as possible, and any additional directors of any
class elected to fill a vacancy resulting from an increase in such
class shall hold office for a term that shall coincide with the
remaining term of that class, but in no case will a decrease in the
number of directors shorten the term of any incumbent director.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of preferred stock issued by the Corporation shall
have the right, voting separately by class or series, to elect
directors at an annual or special meeting of stockholders, the
election, term of office, filling of vacancies and other features of
such directorships shall be governed by the terms of this Certificate
of Incorporation or the Bylaws applicable thereto, and such directors
so elected shall not be divided into classes pursuant to this Section 2
unless expressly provided by such terms.
(v) Any amendment, change or repeal of this Section 2, or any
other amendment to this Certificate of Incorporation that will have the
effect of permitting circumvention of or modifying this Section 2,
shall require the favorable vote, at a stockholders' meeting, of the
holders of at least eighty percent (80%) of the then-outstanding shares
of stock of the Corporation entitled to vote.
(vi) Except as provided in paragraph (b) below, the directors
shall be elected by a plurality vote of the shares represented in
person or by proxy at the stockholders annual meeting in each year and
entitled to vote on the election of directors. Elected directors shall
hold office until the next annual meeting for the years in which their
terms expire and until their successors shall be duly elected and
qualified. If, for any cause, the board of directors shall not have
been elected at an annual meeting, they may be elected as soon
thereafter as convenient at a special meeting of the stockholders
called for that purpose in the manner provided in this Certificate of
Incorporation or the Bylaws.
(b) Vacancies. Except as otherwise provided by the Certificate of
Incorporation or any amendments thereto, vacancies and newly created
directorships resulting from any increase in the number of authorized directors
may be filled by a majority of the directors then in office, although less than
a quorum, or by a sole remaining director, and each director so elected shall
hold office for the unexpired portion of the term of the director whose place
shall be vacant, and until his successor shall have been duly elected and
qualified. A vacancy in the board of directors shall be deemed to exist under
this paragraph (b) in the case of the death, removal or resignation of any
director, or if the stockholders fail at any meeting of stockholders at which
directors are to be elected to elect the number of directors then constituting
the whole board.
(c) Resignation. Any director may resign by delivering his written
resignation to the Corporation at its principal office, addressed to the
president or secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event. When one or more directors shall resign from the board, effective
at a future date, a majority of the directors then in office, including those
who have so
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resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each director so chosen shall hold office for the unexpired portion of the term
of the director whose place shall be vacated and until his successor shall have
been duly elected and qualified.
ARTICLE FIVE
The Corporation is to have perpetual existence.
ARTICLE SIX
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors of the Corporation is expressly authorized to
make, alter or repeal the Bylaws of the Corporation.
ARTICLE SEVEN
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws of the Corporation may provide. The books of the
Corporation may be kept outside the State of Delaware at such place or places as
may be designated from time to time by the Board of Directors or in the Bylaws
of the Corporation. Elections of directors need not be by written ballot unless
the Bylaws of the Corporation shall so provide.
ARTICLE EIGHT
The Corporation shall indemnify, to the fullest extent permitted by
Section 145 of the General Corporation Law of Delaware, as amended from time to
time, all officers and directors of the Corporation whom it may indemnify
pursuant thereto. The personal liability of a director of the Corporation to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director shall be limited to the fullest extent permitted by the
General Corporation Law of the State of Delaware, as it now exists or may
hereafter be amended. The Corporation may indemnify, to the fullest extent
permitted by Section 145 of the General Corporation Law of Delaware, as amended
from time to time, any or all employees or agents of the Corporation whom it may
indemnify pursuant thereto. Any repeal or modification of this Article by the
stockholders of the Corporation shall not adversely affect any right or
protection of an officer or director of the Corporation existing at the time of
such repeal or modification.
ARTICLE NINE
The Corporation expressly elects to be governed by Section 203 of the
General Corporation Law of the State of Delaware.
ARTICLE TEN
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed herein and by the laws of the State of Delaware, and all
rights conferred upon stockholders herein are
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granted subject to this reservation, provided, that any amendment, alteration,
change or repeal of any provision of this Certificate of Incorporation that will
have the effect of permitting circumvention of or modifying Article Four,
Section 2 and Article Eleven, shall require the favorable vote, at a
stockholders' meeting, of the holders of at least 80% of the then-outstanding
shares of stock of the Corporation entitled to vote.
ARTICLE ELEVEN
Notwithstanding anything in this Certificate of Incorporation to the
contrary, any action required or permitted to be taken by a vote of the
stockholders of the Corporation may not be taken by written consent.
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IN WITNESS WHEREOF, Verio Inc. has caused this Restated Certificate of
Incorporation to be signed by Justin L. Jaschke, its Chief Executive Officer,
this 26th day of May, 1998.
By: /s/ Justin L. Jaschke
----------------------------------
Chief Executive Officer
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EXHIBIT 3.3
VERIO INC.
AMENDED AND RESTATED BYLAWS
ARTICLE I
Offices and Agent
1. Principal Office. The principal office of the Corporation may be
located within or without the State of Delaware, as designated by the board of
directors. The Corporation may have other offices and places of business at such
places within or without the State of Delaware as shall be determined by the
directors or as may be required by the business of the Corporation.
2. Registered Office and Agent. The Corporation shall have and maintain
at all times (a) a registered office in the State of Delaware, which office
shall be located at 1013 Centre Road, Wilmington, Delaware 19805, and (b) a
registered agent located at such address whose name is Corporation Service
Company, until changed from time to time as provided by the General Corporation
Law of the State of Delaware ("Delaware Corporation Law").
ARTICLE II
Stockholders Meetings
3. Annual Meetings. The annual meeting of stockholders for the election
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on such date and at such time as
determined by resolution of the board of directors. If at the place of the
meeting, this date shall fall upon a legal holiday, then such meeting shall be
held on the next succeeding business day at the same hour. If no annual meeting
is held in accordance with the foregoing provisions, the board of directors
shall cause the meeting to be held as soon thereafter as convenient.
4. Special Meetings. Special meetings of the stockholders of the
Corporation may be called for any purpose at any time by the president, and
shall be called by the secretary if directed by the board of directors. Special
meetings of the stockholders of the Corporation may not be called by any other
person or persons. No business may be transacted at any special meeting except
that referred to in the notice thereof. Any amendment, change or repeal of this
Section 4, or any other amendment to these Bylaws that will have the effect of
permitting circumvention of or modifying this Section 4, shall require the
favorable vote, at a stockholders' meeting, of the holders of at least eighty
percent (80%) of the then-outstanding shares of stock of the Corporation
entitled to vote.
5. Place of Meetings. All meetings of stockholders of the Corporation
shall be held within or without the State of Delaware as may be designated by
the board of directors or the president, or, if not designated, at the
registered office of the Corporation.
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6. Notice of Meeting.
(a) Except as otherwise provided in these Bylaws or Delaware
Corporation Law, written notice of any meeting of stockholders, stating the
place, date and hour of the meeting and, in the case of a special meeting, the
purpose for which the meeting is called, shall be delivered either personally or
by mail to each stockholder of record entitled to vote at such meeting not less
than ten (10) nor more than sixty (60) days before the date of the meeting by or
at the direction of the board of directors, the president or the secretary. If
mailed, such notice shall be deemed to be delivered as to any stockholder of
record when deposited in the United States mail addressed to the stockholder at
his address as it appears on the stock transfer books of the Corporation, with
postage prepaid.
(b) When a meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken. At the adjourned
meeting the Corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
7. Waiver of Notice. Any stockholder, either before or after any
stockholders' meeting, may waive in writing notice of the meeting, and his
waiver shall be deemed the equivalent of giving notice. Attendance at a meeting
by a stockholder shall constitute a waiver of notice, except when the
stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened.
8. Fixing of Record Date. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors of the Corporation may fix in
advance a record date, which shall be not more than sixty (60) days nor less
than ten (10) days prior to the date of such meeting, nor more than sixty (60)
days prior to any other action. If no record date is fixed, the record date for
determining the stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. The record date for
determining stockholders for any purpose shall be at the close of business on
the day on which the board of directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or vote at a
meeting of stockholders shall apply to any adjournment of the meeting, provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
9. Stockholders List. The officer who has charge of the stock ledger of
the Corporation shall prepare and make, at least ten (10) days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting arranged in alphabetical order
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and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting at a
place within the city where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present.
10. Proxies.
(a) A stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act for him by proxy,
which proxy shall be filed with the secretary at or before the meeting at which
it is used. No proxy shall be voted or acted upon after three (3) years from its
date, unless the proxy provides for a longer period.
(b) Without limiting the manner in which a stockholder may
authorize another person or persons to act for him as proxy pursuant to
subsection (a) of this Section, the following shall constitute a valid means by
which a stockholder may grant such authority:
(1) A stockholder may execute a writing authorizing
another person or persons to act for him as proxy. Execution may be accomplished
by the stockholder or his authorized officer, director, employee or agent
signing such writing or causing his signature to be affixed to such writing by
any reasonable means including, but not limited to, by facsimile signature.
(2) A stockholder may authorize another person or
persons to act for him as proxy by transmitting or authorizing the transmission
of a telegram, cablegram or other means of electronic transmission to the person
who will be the holder of the proxy or to a proxy solicitation firm, proxy
support service organization or like agent duly authorized by the person who
will be the holder of the proxy to receive such transmission, provided, that any
such telegram, cablegram or other means of electronic transmission must either
set forth or be submitted with information from which it can be determined that
the telegram, cablegram or other electronic transmission was authorized by the
stockholder. Such authorization can be established by the signature of the
stockholder on the proxy, either in writing or by a signature stamp or facsimile
signature, or by a number or symbol from which the identity of the stockholder
can be determined, or by any other procedure deemed appropriate by the
inspectors or other persons making the determination as to due authorization. If
it is determined that such telegrams, cablegrams or other electronic
transmissions are valid, the inspectors or, if there are no inspectors, such
other persons making that determination shall specify the information upon which
they relied.
(c) Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to subsection (c)
of this section may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided, that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
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11. Voting. Each stockholder shall have one vote for each share of
stock entitled to vote held of record by such stockholder and a proportionate
vote for each fractional share so held, unless otherwise provided in the
Certificate of Incorporation.
Persons holding stock in a fiduciary capacity shall be entitled to vote
the shares so held. Persons whose stock is pledged shall be entitled to vote,
unless in the transfer by the pledgor on the books of the Corporation he has
expressly empowered the pledgee to vote thereon, in which case only the pledgee,
or his proxy, may represent such stock and vote thereon.
If shares having voting power stand of record in the names of two or
more persons, whether fiduciaries, members of a partnership, joint tenants,
tenants in common, tenants by the entirety, or otherwise, or if two or more
persons have the same fiduciary relationship respecting the same shares, unless
the secretary is given written notice to the contrary and is furnished with a
copy of the instrument or order appointing them or creating the relationship
wherein it is so provided, their acts with respect to voting shall have the
following effect: (i) if only one votes, his act binds all; (ii) if more than
one vote, the act of the majority so voting binds all; and (iii) if more than
one vote, but the vote is evenly split on any particular matter, each fraction
may vote the securities in question proportionately, or any person voting the
shares or a beneficiary, if any, may apply to the Court of Chancery or any court
of competent jurisdiction in the State of Delaware to appoint an additional
person to act with the persons so voting the shares. The shares shall then be
voted as determined by a majority of such persons and the person appointed by
the court. If a tenancy is held in unequal interests, a majority or even-split
for the purpose of this sub-section shall be a majority or even-split in
interest.
12. Quorum and Required Vote. Except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws, the holders of a majority of the
shares entitled to vote at the meeting, present in person or by proxy, shall
constitute a quorum for the transaction of business. If a quorum is present, the
affirmative vote of a majority of the shares present or represented by proxy at
the meeting and entitled to vote on the subject matter shall be the act of the
stockholders, and, if there are two or more classes of stock entitled to vote as
separate classes, then, in the case of each such class, the affirmative vote of
a majority of the shares of that class present or represented by proxy at the
meeting shall be the vote of such class unless a different vote is required by
an express provision of law, the Certificate of Incorporation or these Bylaws.
13. Voting Procedures and Inspections of Elections.
(a) The Corporation shall, in advance of any meeting of
stockholders, appoint one or more inspectors to act at the meeting and make a
written report thereof. The Corporation may designate one or more persons as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate is able to act at a meeting of stockholders, the person presiding
at the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector with strict impartiality
and according to the best of his ability.
(b) The inspectors shall (i) ascertain the number of shares
outstanding and the voting power of each, (ii) determine the shares represented
at a meeting and the validity of proxies and ballots, (iii) count all votes and
ballots, (iv) determine and retain for a reasonable
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period a record of the disposition of any challenges made to any determination
by the inspectors, and (v) certify their determination of the number of shares
represented at the meeting and their count of all votes and ballots. The
inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of the duties of the inspectors.
(c) The date and time of the opening and the closing of the
polls for each matter upon which the stockholders will vote at a meeting shall
be announced at the meeting. No ballot, proxies or votes, nor any revocations
thereof or changes thereto, shall be accepted by the inspectors after the
closing of the polls unless the Court of Chancery upon application by a
stockholder shall determine otherwise.
(d) In determining the validity and counting of proxies and
ballots, the inspectors shall be limited to an examination of the proxies, any
envelopes submitted with those proxies, any information provided in accordance
with Section 212(c)(2) of the Delaware Corporation Law, the ballots and the
regular books and records of the corporation, except that the inspectors may
consider other reliable information for the limited purpose of reconciling
proxies and ballots submitted by or on behalf of banks, brokers, their nominees
or similar persons which represent more votes than the holder of a proxy is
authorized by the record owner to cast or more votes than the stockholder holds
of record. If the inspectors consider other reliable information for the limited
purpose permitted herein, the inspectors at the time they make their
certification pursuant to sub-section (b)(v) above shall specify the precise
information considered by them, including the person or persons from whom they
obtained the information, when the information was obtained, the means by which
the information was obtained and the basis for the inspectors' belief that such
information is accurate and reliable.
14. Stockholder Proposals at Annual Meetings.
(a) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the board of directors, otherwise properly brought before the
meeting by or at the direction of the board of directors or otherwise properly
brought before the meeting by a stockholder. In addition to any other applicable
requirements, for business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the secretary. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than thirty (30) days nor more than sixty (60) days prior to the meeting;
provided, that in the event that less than forty (40) days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the tenth (10th) day following the day on which such notice
of the date of the annual meeting was mailed or such public disclosure was made.
A stockholder's notice to the secretary shall set forth, as to each matter the
stockholder proposes to bring before the annual meeting, (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and record
address of the stockholder proposing such business, (iii) the class and number
of shares of the corporation which are beneficially owned by the stockholder,
and (iv) any material interest of the stockholder in such business;
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(b) Notwithstanding anything in these Bylaws to the contrary,
no business shall be conducted at the annual meeting except in accordance with
the procedures set forth in this Section 14; provided, that nothing in this
Section 14 shall be deemed to preclude discussion by any stockholder of any
business properly brought before the annual meeting in accordance with said
procedure.
(c) The presiding officer of an annual meeting shall, if the
facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
Section 14, and any such business not properly brought before the meeting shall
not be transacted.
15. Nominations of Persons for Election to the Board of Directors.
(a) In addition to any other applicable requirements, only
persons who are nominated in accordance with the following procedures shall be
eligible for election as directors. Nominations of persons for election to the
board of directors may be made at a meeting of stockholders by or at the
direction of the board of directors, by any nominating committee or person
appointed by the board of directors or by any stockholder of the Corporation
entitled to vote for the election of directors at the meeting who complies with
the notice procedures set forth in this Section 15.
(b) Such nominations, other than those made by or at the
direction of the board of directors, shall be made pursuant to timely notice in
writing to the secretary. To be timely, a stockholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than thirty (30) days nor more than sixty (60) days prior
to the meeting; provided, that in the event that less than forty (40) days'
notice or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth (10th) day following the day on
which such notice of the date of the meeting was mailed or such public
disclosure was made. Such stockholder's notice shall set forth (i) as to each
person whom the stockholder proposes to nominate for election or re-election as
a director, (A) the name, age, business address and residence address of the
person, (B) the principal occupation or employment of the person, (C) the class
and number of shares of the Corporation which are beneficially owned by the
person, and (D) any other information relating to the person that is required to
be disclosed in solicitations for proxies for election of directors pursuant to
Rule 14a under the Securities Exchange Act of 1934; and (ii) as to the
stockholder giving the notice, (A) the name and record address of the
stockholder, and (B) the class and number of shares of the Corporation which are
beneficially owned by the stockholder. The Corporation may require any proposed
nominee to furnish such other information as may reasonably be required by the
Corporation to determine the eligibility of such proposed nominee to serve as a
director of the Corporation. No person shall be eligible for election as a
director of the Corporation unless nominated in accordance with the procedures
set forth herein. These provisions shall not apply to nomination of persons, if
any, entitled to be separately elected by holders of preferred stock.
(c) The presiding officer of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and the defective nomination shall be
disregarded.
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16. Conduct of Meetings. The board of directors may adopt by resolution
such rules and regulations for the conduct of meetings of stockholders as it
shall deem appropriate. Except to the extent inconsistent with such rules and
regulations as adopted by the board of directors, the presiding officer of any
meeting of stockholders shall have the right and authority to prescribe such
rules, regulations and procedures and to do all such acts as, in the judgment of
such presiding officer, are appropriate for the proper conduct of the meeting.
Such rules, regulations and procedures, whether adopted by the board of
directors or prescribed by the presiding officer of the meeting, may include,
without limitation, the following: (i) the establishment of an agenda or order
of business for the meeting; (ii) rules and procedures for maintaining order at
the meeting and the safety of those present; (iii) limitations on attendance at
or participation in the meeting to stockholders of record, their duly authorized
and constituted proxies or such other persons as the presiding officer of the
meeting shall determine; (iv) restrictions on entry to the meeting after the
time fixed for the commencement thereof; and (v) limitations on the time
allotted to questions and/or comments by participants. Unless and to the extent
determined by the board of directors or the presiding officer of the meeting,
meetings of stockholders shall not be required to be held in accordance with the
rules of parliamentary procedure.
17. Adjournment. In case a quorum shall not be present at any meeting,
the presiding officer of the meeting or a majority in interest of the
stockholders entitled to vote thereat present in person or by proxy shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until the requisite amount of stock entitled to
vote shall be represented. At any such adjourned meeting at which the requisite
amount of stock entitled to vote shall be represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed, but only those stockholders entitled to vote at the meeting as
originally noticed shall be entitled to vote at any adjournment or adjournments
thereof. In addition, the board of directors may adjourn a meeting of the
stockholders if the board of directors determines that adjournment is necessary
or appropriate in order to enable the stockholders (i) to consider fully
information that the board of directors determines has not been made
sufficiently or timely available to stockholders or (ii) to otherwise
effectively exercise their voting rights.
18. Informal Action by Stockholders. Effective from and after an
initial public offering of the Common Stock of the Corporation (an "IPO"), any
action required by the provisions of Delaware Corporation Law to be taken by the
stockholders of the Corporation must be taken at a stockholders' meeting and not
by written consent or consents without a meeting. Prior to an IPO, any such
action may be taken without a meeting, by a consent or consents in writing, and
the Board of Directors shall determine the procedures for obtaining such written
consent or consents from the stockholders of the Corporation in accordance with
the provisions of the Delaware Corporation Law. Any amendment, change or repeal
of this Section 18, or any other amendment to these Bylaws that will have the
effect of permitting circumvention of or modifying this Section 18, shall
require the favorable vote, at a stockholders' meeting, of the holders of at
least eighty percent (80%) of the then-outstanding shares of stock of the
Corporation entitled to vote.
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ARTICLE III
Board of Directors
19. Number, Qualifications and Term of Office.
(a) Prior to an IPO, except as otherwise provided in the
Certificate of Incorporation or the Delaware Corporation Law, the business and
affairs of the Corporation shall be managed by or under the direction of a board
of directors consisting of one or more members. Directors need not be
stockholders of the Corporation. The board of directors, by resolution, may
increase or decrease the number of directors from time to time. Except as
otherwise provided in these Bylaws, each director shall be elected at each
annual meeting of stockholders and shall hold such office until the next annual
meeting of stockholders and until his successor shall be elected and shall
qualify. No decrease in the number of directors shall have the effect of
shortening the term of any incumbent director.
(b) Effective from and after an IPO, the Board of Directors
shall be constituted as follows:
(1) Except as otherwise provided in the Certificate
of Incorporation or the Delaware Corporation Law, the business and affairs of
the Corporation shall be managed by or under the direction of a board of
directors consisting of one or more members.
(2) Directors need not be stockholders of the
Corporation.
(3) The number of directors of the Corporation shall
not be less than five (5) nor more than eleven (11) until changed by amendment
of the Certificate of Incorporation or by a Bylaw amending this Section 19 duly
adopted by the vote or written consent of holders of a majority of the
outstanding shares or by the board of directors. The exact number of directors
shall be fixed from time to time, within the limits specified in the Certificate
of Incorporation or in this Section 19, by a Bylaw or amendment thereof duly
adopted by the vote of a majority of the shares entitled to vote represented at
a duly held meeting at which a quorum is present or by the board of directors.
Subject to the foregoing provisions for changing the number of directors, the
number of directors of the Corporation has been fixed at eleven (11), with four
members being, respectively, Class I and Class II directors (as defined below)
and three members being Class III directors (as defined below).
(4) Upon consummation of an IPO, the directors shall
be divided into three classes, designated Class I, Class II and Class III, as
nearly equal in number as the then total number of directors permits, serving
staggered terms so that the initial terms of each such class will expire,
respectively, at the first, second and third succeeding annual meetings of the
stockholders held following the IPO. At each such succeeding annual meeting of
stockholders, directors elected to succeed those directors whose terms are
expiring at such meeting shall be elected for a term of office to expire at the
third succeeding annual meeting of stockholders following such election. If the
number of directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of directors in each class as
nearly equal as possible, and any additional directors of any class elected to
fill a vacancy resulting from an increase in such class shall hold office for a
term that shall coincide
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with the remaining term of that class, but in no case will a decrease in the
number of directors shorten the term of any incumbent director. Notwithstanding
the foregoing, whenever the holders of any one or more classes or series of
preferred stock issued by the Corporation shall have the right, voting
separately by class or series, to elect directors at an annual or special
meeting of stockholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of these
Bylaws applicable thereto, and such directors so elected shall not be divided
into classes pursuant to this Section 19 unless expressly provided by such
terms.
(5) Any amendment, change or repeal of this Section
19, or any other amendment to these Bylaws that will have the effect of
permitting circumvention of or modifying this Section 19, shall require the
favorable vote, at a stockholders' meeting, of the holders of at least eighty
percent (80%) of the then-outstanding shares of stock of the Corporation
entitled to vote.
(6) Except as provided in Section 20 of these Bylaws,
the directors shall be elected by a plurality vote of the shares represented in
person or by proxy at the stockholders annual meeting in each year and entitled
to vote on the election of directors. Elected directors shall hold office until
the next annual meeting for the years in which their terms expire and until
their successors shall be duly elected and qualified. If, for any cause, the
board of directors shall not have been elected at an annual meeting, they may be
elected as soon thereafter as convenient at a special meeting of the
stockholders called for that purpose in the manner provided in these Bylaws.
20. Vacancies. Except as otherwise provided by the Certificate of
Incorporation or any amendments thereto, vacancies and newly created
directorships resulting from any increase in the number of authorized directors
may be filled by a majority of the directors then in office, although less than
a quorum, or by a sole remaining director, and each director so elected shall
hold office for the unexpired portion of the term of the director whose place
shall be vacant, and until his successor shall have been duly elected and
qualified. A vacancy in the board of directors shall be deemed to exist under
this Section 20 in the case of the death, removal or resignation of any
director, or if the stockholders fail at any meeting of stockholders at which
directors are to be elected to elect the number of directors then constituting
the whole board.
21. Resignation. Any director may resign by delivering his written
resignation to the Corporation at its principal office, addressed to the
president or secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event. When one or more directors shall resign from the board, effective
at a future date, a majority of the directors then in office, including those
who have so resigned, shall have power to fill such vacancy or vacancies, the
vote thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office for the unexpired
portion of the term of the director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
22. Compensation. Directors may be paid such compensation for their
services and such reimbursements for expenses of attendance at meetings as the
board of
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directors may from time to time determine. No such payment shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor.
ARTICLE IV
Meetings of the Board
23. Place of Meetings. The regular or special meetings of the board of
directors or any committee designated by the board shall be held at the
principal office of the Corporation or at any other place within or without the
State of Delaware that a majority of the board of directors or any such
committee, as the case may be, may designate from time to time by resolution.
24. Regular Meetings. The board of directors shall meet each year
immediately after and at the same place as the annual meeting of the
stockholders for the purpose of electing officers and transacting such other
business as may come before the meeting. The board of directors or any committee
designated by the board may provide, by resolution, for the holding of
additional regular meetings within or without the State of Delaware without
notice of the time and place of such meeting other than such resolution;
provided, that any director who is absent when such resolution is made shall be
given notice of said resolution.
25. Special Meetings. Special meetings of the board of directors or any
committee designated by the board may be held at any time and place, within or
without the State of Delaware, designated in a call by the chairman of the
board, if any, by the president or by a majority of the members of the board of
directors or any such committee, as the case may be.
26. Notice of Special Meetings. Except as otherwise provided by these
Bylaws or the laws of the State of Delaware, written notice of each special
meeting of the board of directors or any committee thereof setting forth the
time and place of the meeting shall be given to each director by the secretary
or by the officer or director calling the meeting not less than two (2) days
prior to the time fixed for the meeting. Notice of special meetings may be
either given in person, by telephone, or by sending a copy of the notice through
the United States mail or by telegram, telex or telecopy, charges prepaid, to
the address of each director appearing on the books of the Corporation. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail so addressed, with postage prepaid thereon. If notice be given by
telegram, telex or telecopy, such notice shall be deemed to be delivered when
the telegram, telex or telecopy is delivered to the telegraph, telex or telecopy
operator. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the board of directors need be specified in the
notice or waiver of notice of such meeting.
27. Waiver of Notice. A director may waive, in writing, notice of any
special meeting of the board of directors or any committee thereof, either
before, at, or after the meeting, and his waiver shall be deemed the equivalent
of giving notice. By attending or participating in a regular or special meeting,
a director waives any required notice of such meeting unless the director, at
the beginning of the meeting, objects to the holding of the meeting or the
transaction of business at the meeting.
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28. Quorum and Action at Meeting. At meetings of the board of directors
or any committee designated by the board, a majority of the total number of
directors, or a majority of the members of any such committee, as the case may
be, shall constitute a quorum for the transaction of business. In the event one
or more of the directors shall be disqualified to vote at any meeting, then the
required quorum shall be reduced by one for each such director so disqualified;
provided, that in no case shall less than one-third (1/3) of the number so fixed
constitute a quorum. If a quorum is present, the act of the majority of
directors in attendance shall be the act of the board of directors or any
committee thereof, as the case may be, unless the act of a greater number is
required by these Bylaws, the Certificate of Incorporation or the Delaware
Corporation Law. If a quorum shall not be present at any meeting of the board of
directors, the directors present thereat may adjourn that meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
29. Presumption of Assent. A director who is present at a meeting of
the board of directors or a committee thereof when action is taken is deemed to
have assented to the action taken unless: (i) he objects at the beginning of
such meeting to the holding of the meeting or the transacting of business at the
meeting; (ii) he contemporaneously requests that his dissent from the action
taken be entered in the minutes of such meeting; or (iii) he gives written
notice of his dissent to the presiding officer of such meeting before its
adjournment or to the secretary of the Corporation immediately after adjournment
of such meeting. The right of dissent as to a specific action taken at a meeting
of the board or a committee thereof is not available to a director who votes in
favor of such action.
30. Committees. The board of directors may, by a resolution passed by a
majority of the whole board of directors, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members of the committee present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the board of directors to act at the meeting in the
place of the absent or disqualified member. Any such committee, to the extent
provided in the resolution of the board of directors and subject to the
provisions of Delaware Corporation Law, shall have and may exercise all the
powers and authority of the board of directors in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all such papers which may require it. Each such committee shall
keep minutes and make such reports as the board of directors may from time to
time request. Except as the board of directors may otherwise determine, any
committee may make rules for the conduct of its business, but, unless otherwise
provided by the directors or in such rules, its business shall be conducted as
nearly as possible in the same manner as is provided in these Bylaws for the
board of directors.
31. Informal Action by Directors. Except as otherwise provided in the
Certificate of Incorporation, any action required or permitted by Delaware
Corporation Law to be taken at any meeting of the board of directors or any
committee thereof may be taken without a meeting if all members of the board or
committee, as the case may be, consent to the action in writing and the written
consents are filed with the minutes of proceedings of the board or committee.
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32. Telephonic Meetings. Directors or any members of any committee may
participate in a meeting of the board or committee by means of a conference
telephone or similar communications equipment by which all persons participating
in the meeting can hear each other at the same time. Such participation shall
constitute presence in person at the meeting.
ARTICLE V
Officers and Agents
33. Enumeration, Election and Term. The officers of the Corporation
shall consist of a president, a secretary, a treasurer and such other officers
with such other titles as may be deemed necessary or desirable by the board of
directors, including a chief executive officer, chief financial officer, one or
more vice presidents, a controller, assistant treasurers and assistant
secretaries and a chairman of the board. Any number of offices may be held by
the same person, and no officer need be a stockholder or a resident of the State
of Delaware. Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, each officer shall hold office until his
successor is elected and qualified or until his earlier death, resignation or
removal. The officers of the Corporation shall be elected annually by the board
of directors at the first meeting of the board held after each annual meeting of
the stockholders.
34. General Duties. All officers and agents of the Corporation, as
between themselves and the Corporation, shall have such authority and shall
perform such duties in the management of the Corporation as may be provided in
these Bylaws or as may be determined by resolution of the board of directors not
inconsistent with these Bylaws. In all cases where the duties of any officer,
agent or employee are not prescribed by these Bylaws or by the board of
directors, such officer, agent or employee shall follow the orders and
instructions of the president.
35. Vacancies. The board of directors may fill any vacancy occurring in
any office for any reason and may, in its discretion, leave any vacancy unfilled
for such period as it may determine, other than a vacancy in the office of
president or secretary. The officer so selected shall hold office until his
successor is elected and qualified or until his earlier death, resignation or
removal.
36. Compensation. The board of directors from time to time shall fix
the compensation of the officers of the Corporation. The compensation of other
agents and employees of the Corporation may be fixed by the board of directors,
by any committee designated by the board or by an officer to whom that function
has been delegated by the board.
37. Resignation and Removal. Any officer may resign by delivering his
written resignation to the Corporation at its principal office, addressed to the
president or secretary. Such resignation shall be effective upon receipt, unless
it is specified to be effective at some other time or upon the happening of some
other event. Any officer or agent of the Corporation may be removed, with or
without cause, by a vote of the majority of the members of the board of
directors whenever in its judgment the best interests of the Corporation may be
served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment of an officer
or an agent shall not of itself create contract rights.
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38. Chairman of the Board. The chairman of the board, if any, shall
preside as chairman at meetings of the stockholders and the board of directors.
He shall, in addition, have such other duties as the board may prescribe that he
perform. At the request of the president, the chairman of the board may, in the
case of the president's absence or inability to act, temporarily act in his
place. In the case of death of the president or in the case of his absence or
inability to act without having designated the chairman of the board to act
temporarily in his place, the chairman of the board shall perform the duties of
the president, unless the board of directors, by resolution, provides otherwise.
If the chairman of the board shall be unable to act in place of the president,
the vice presidents may exercise such powers and perform such duties as provided
below.
39. Chief Executive Officer. The chief executive officer, if any, shall
see that all orders and resolutions of the board of directors are carried into
effect and shall oversee the strategic planning and policy development of the
Corporation. The chief executive officer shall have the authority to execute
bonds, mortgages and other contracts requiring a seal, under the seal of the
Corporation, except where required by law to be otherwise signed and executed
and except where the signing and execution thereof shall be expressly delegated
by the board of directors to some other officer or agent of the Corporation. The
chief executive officer shall perform other duties commonly incident to this
office and shall perform such other duties and have such other powers as the
board of directors may from time to time prescribe.
40. President. The president shall have general supervision of the
business of the Corporation. In the event the position of chairman of the board
shall not be occupied or the chairman shall be absent or otherwise unable to
act, the president shall preside at meetings of the stockholders and directors
and shall discharge the duties of the presiding officer. The president shall
have the authority to execute bonds, mortgages and other contracts requiring a
seal under the seal of the Corporation, except where required by law to be
otherwise signed and executed and except where the signing and execution thereof
shall be expressly delegated by the board of directors to some other officer or
agent of the Corporation. At each annual meeting of the stockholders, the
president shall give a report of the business of the Corporation for the
preceding fiscal year and shall perform whatever other duties the board of
directors may from time to time prescribe.
41. Chief Financial Officer. The chief financial officer, or if none
the treasurer, shall have custody of corporate funds and securities and shall
keep full and accurate accounts of receipts and disbursements and shall deposit
all corporate monies and other valuable effects in the name and to the credit of
the Corporation in the depository or depositories of the Corporation, and shall
render an account of his or her transactions as chief financial officer and of
the financial condition of the Corporation to the president and/or the board of
directors upon request. Such power given to the treasurer to deposit and
disburse funds shall not, however, preclude any other officer or employee of the
Corporation from also depositing and disbursing funds when authorized to do so
by the board of directors. The chief financial officer shall, if required by the
board of directors, give the Corporation a bond in such amount and with such
surety or sureties as may be ordered by the board of directors for the faithful
performance of the duties of his office. The chief financial officer shall have
such other powers and perform such other duties as may be from time to time
prescribed by the board of directors or the president. In the absence of the
chief financial officer or his inability to act, the treasurer (or, in his
absence,
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the assistant treasurers or controller, if any) shall act with the same
authority and shall be subject to the same restrictions as are applicable to the
chief financial officer.
42. Vice Presidents. Each vice president shall have such powers and
perform such duties as the board of directors may from time to time prescribe or
as the president may from time to time delegate to him. At the request of the
president, in the case of the president's absence or inability to act, any vice
president may temporarily act in his place. In the case of the death of the
president, or in the case of his absence or inability to act without having
designated a vice president or vice presidents to act temporarily in his place,
the board of directors, by resolution, may designate a vice president or vice
presidents to perform the duties of the president. If no such designation shall
be made, the chief executive officer, if any, shall exercise such powers and
perform such duties, as provided above, but, if the Corporation has no chief
executive officer, or if the chief executive officer is unable to act in place
of the president, all of the vice presidents may exercise such powers and
perform such duties.
43. Secretary. The secretary shall keep or cause to be kept in books
provided for that purpose, the minutes of the meetings of the stockholders,
executive committee, if any, and any other committees, and of the board of
directors; shall see that all notices are duly given in accordance with the
provisions of these Bylaws and as required by law; shall be custodian of the
records and of the seal of the Corporation and see that the seal is affixed to
all documents, the execution of which on behalf of the Corporation under its
seal is duly authorized and in accordance with the provisions of these Bylaws;
and, in general, shall perform all duties incident to the office of secretary
and such other duties as may, from time to time, be assigned to him by the board
of directors or by the president. In the absence of the secretary or his
inability to act, the assistant secretaries, if any, shall act with the same
powers and shall be subject to the same restrictions as are applicable to the
secretary.
44. Delegation of Duties. Whenever an officer is absent, or whenever,
for any reason, the board of directors may deem it desirable, the board may
delegate the powers and duties of an officer to any other officer or officers or
to any director or directors.
ARTICLE VI
Indemnification of Officers, Directors and Others
45. Indemnification.
(a) Each person who was or is a party or is threatened to be
made a party to or is involved (as a party, witness or otherwise), in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "Proceeding"), by
reason of the fact that he, or a person of whom he is the legal representative,
is or was a director or officer of the Corporation or is or was serving at the
request of the Corporation as a director or officer of another corporation or of
a partnership, joint venture, trust, or other enterprise, including service with
respect to employee benefit plans, whether the basis of the Proceeding is
alleged action in an official capacity as a director or officer or in any other
capacity while serving as a director or officer, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the Delaware
Corporation Law, as the same exists or may hereafter be amended or interpreted
(but, in the case of any such amendment or
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interpretation, only to the extent that such amendment or interpretation permits
the Corporation to provide broader indemnification rights than were permitted
prior thereto) against all expenses, liability and loss (including attorneys'
fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid or to
be paid in settlement, and any interest, assessments or other charges imposed
thereon, and any federal, state, local or foreign taxes imposed on any person
indemnified hereby as a result of the actual or deemed receipt of any payments
under this Article VI) reasonably incurred or suffered by such person in
connection with investigating, defending, being a witness in, or participating
in (including on appeal), or preparing for any of the foregoing in, any
Proceeding (hereinafter "Losses"); provided, however, that except as to actions
to enforce indemnification rights pursuant to Section 47, the Corporation shall
indemnify any officer or director seeking indemnification in connection with a
Proceeding (or part thereof) initiated by such person only if the Proceeding (or
part thereof) was authorized by the Board of Directors of the Corporation. The
right to indemnification conferred in this Article VI shall be a contract right.
(b) Each person who was or is a party or is threatened to be
made a party to or is involved (as a party, witness or otherwise), in any
threatened, pending or completed Proceeding, by reason of the fact that he, or a
person of whom he is the legal representative, is or was an employee or agent
(other than an officer or director) of the Corporation or is or was serving at
the request of the Corporation as an employee or agent (other than an officer or
director) of another corporation or of a partnership, joint venture, trust, or
other enterprise, including service with respect to employee benefit plans,
whether the basis of the Proceeding is alleged action in an official capacity as
an employee or agent or in any other capacity while serving as an employee or
agent, may be indemnified and held harmless by the Corporation to the fullest
extent authorized by the Delaware Corporation Law, as the same exists or may
hereafter be amended or interpreted (but, in the case of any such amendment or
interpretation, only to the extent that such amendment or interpretation permits
the Corporation to provide broader indemnification rights than were permitted
prior thereto) against all Losses.
46. Authority to Advance Expenses. Expenses incurred by an officer or
director (acting in his capacity as such) in defending a Proceeding shall be
paid by the Corporation in advance of the final disposition of such Proceeding,
provided, that if required by the Delaware Corporation Law, as amended, such
expenses shall be advanced only upon delivery to the Corporation of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized in this Article VI or otherwise. Expenses incurred
by employees or other agents of the Corporation (or by the directors or officers
not acting in their capacity as such, including service with respect to employee
benefit plans) may be advanced upon such terms and conditions as the Board of
Directors deems appropriate. Any obligation to reimburse the Corporation for
expense advances shall be unsecured and no interest shall be charged thereon.
47. Right of Claimant to Bring Suit. If a claim under Section 45 or 46
is not paid in full by the Corporation within 30 days after a written claim has
been received by the Corporation, the claimant may at any time thereafter bring
suit against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense (including attorneys' fees) of prosecuting such claim. It shall
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be a defense to any such action (other than an action brought to enforce a claim
for expenses incurred in defending a Proceeding in advance of its final
disposition where the required undertaking has been tendered to the corporation)
that the claimant has not met the standards of conduct that make it permissible
under the Delaware Corporation Law for the Corporation to indemnify the claimant
for the amount claimed. The burden of proving such a defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel or stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper under the circumstances because he has met the applicable
standard of conduct set forth in the Delaware Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel or stockholders) that the claimant had not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that claimant has not met the applicable standard of conduct.
48. Provisions Nonexclusive. The rights conferred on any person by this
Article shall not be exclusive of any other rights that such person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in an official capacity and as to action in another
capacity while holding such office. To the extent that any provision of the
Certificate, agreement or vote of the stockholders or disinterested directors is
inconsistent with these bylaws, the provision, agreement or vote shall take
precedence.
49. Authority to Insure. The corporation may purchase and maintain
insurance to protect itself and any director, officer, employee or other agent
(collectively, "Agents") against any Losses, whether or not the Corporation
would have the power to indemnify the Agent against such Losses under applicable
law or the provisions of these Bylaws.
50. Survival of Rights. The rights provided by this Article VI shall
continue as to a person who has ceased to be an Agent and shall inure to the
benefit of the heirs, executors, and administrators of such a person.
51. Settlement of Claims. The Corporation shall not be liable to
indemnify any Agent under this Article (a) for any amounts paid in settlement of
any action or claim effected without the Corporation's written consent, which
consent shall not be unreasonably withheld; or (b) for any judicial award if the
Corporation was not given a reasonable and timely opportunity, at its expense,
to participate in the defense of such action.
52. Effect of Amendment. Any amendment, repeal or modification of this
Article shall not adversely affect any right or protection of any Agent existing
at the time of such amendment, repeal or modification.
53. Subrogation. In the event of payment under this Article VI, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Agent, who shall execute all papers required and shall
do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Corporation effectively to
bring suit to enforce such rights.
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54. No Duplication of Payments. The Corporation shall not be liable
under this Article to make any payment in connection with any claim made against
the Agent to the extent the Agent has otherwise actually received payment (under
any insurance policy, agreement, vote or otherwise) of the amounts otherwise
indemnifiable hereunder.
ARTICLE VII
Capital Stock
55. Certificates of Stock. The shares of the Corporation shall be
represented by certificates, provided that the board of directors of the
Corporation may, by resolution, provide that some or all of any or all classes
or series of its stock shall be uncertificated shares. Any such resolution shall
not apply to shares represented by a certificate until such certificate is
surrendered to the Corporation. Notwithstanding the adoption of such a
resolution by the board of directors, every holder of stock represented by
certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate signed by, or in the name of the Corporation by,
the chairman or vice chairman of the board of directors, or the president or
vice president, and by the treasurer or an assistant treasurer, or the secretary
or an assistant secretary, representing the number of shares registered in
certificate form. Any or all the signatures on the certificate may be a
facsimile. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
56. Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the Corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the Corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by resolution of the board of directors in such manner,
for such consideration and on such terms as the board of directors may
determine. Consideration for such shares of capital stock shall be expressed in
dollars, and shall not be less than the par value or stated value therefor, as
the case may be. The par value for shares, if any, shall be stated in the
Certificate of Incorporation, and the stated value for shares, if any, shall be
fixed from time to time by the board of directors.
57. Lost Certificates. The board of directors may direct a new
certificate to be issued in place of any previously issued certificate alleged
to have been destroyed or lost if the owner makes an affidavit or affirmation of
that fact and produces such evidence of loss or destruction as the board may
require. The board, in its discretion, may as a condition precedent to the
issuance of a new certificate require the owner to give the Corporation a bond
as indemnity against any claim that may be made against the Corporation relating
to the allegedly destroyed or lost certificate.
58. Transfer of Shares. Subject to applicable law, shares of stock of
the Corporation may be transferred on its books upon the surrender to the
Corporation or its transfer agent of the certificates representing such shares,
if any, duly endorsed or accompanied by a written assignment or power of
attorney duly executed and with such proof of authority or authenticity of
signature as the Corporation or its transfer agent may reasonably require. In
that
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event, the surrendered certificates shall be cancelled, new certificates issued
to the persons entitled to them, if any, and the transaction recorded on the
books of the Corporation.
59. Registered Stockholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of the other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of the State of Delaware.
60. Stock Ledger. An appropriate stock journal and ledger shall be kept
by the secretary or such registrars or transfer agents as the directors by
resolution may appoint in which all transactions in the shares of stock of the
Corporation shall be recorded.
61. Restriction on Transfer of Shares. Notice of any restriction on the
transfer of the stock of the Corporation shall be placed on each certificate of
stock issued or, in the case of uncertificated shares, contained in the notice
sent to the registered owner of such shares in accordance with the provisions of
the Delaware Corporation Law.
ARTICLE VIII
Fiscal Year
The fiscal year of the Corporation shall be determined by the board of
directors and set forth in the minutes of the meetings of the directors. Said
fiscal year may be changed from time to time by the board of directors in its
discretion.
ARTICLE IX
Dividends
Dividends upon the capital stock of the Corporation, subject to the
provisions of the Certificate of Incorporation, if any, may be declared by the
board of directors at any regular or special meeting, pursuant to law. Dividends
may be paid in cash, in property or in shares of the capital stock, subject to
the provisions of the Certificate of Incorporation. Before payment of any
dividend, there may be set aside out of any funds of the Corporation available
for dividends such sum or sums as the directors from time to time, in their
absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for such other purpose as the directors shall
think in the best interests of the Corporation, and the directors may modify or
abolish any such reserve in the manner in which it was created.
ARTICLE X
Amendments
These Bylaws may be repealed, altered or amended or new Bylaws adopted
at any meeting of the stockholders, either annual or special, by the affirmative
vote of a majority of the stock entitled to vote at such meeting, unless a
larger vote is required by these Bylaws or the Certificate of Incorporation. The
board of directors shall also have the authority to repeal, alter
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or amend these Bylaws or adopt new Bylaws (including, without limitation, the
amendment of any Bylaws setting forth the number of directors who shall
constitute the whole board of directors) by unanimous written consent or at any
annual, regular or special meeting by the affirmative vote of a majority of the
whole number of directors, subject to the power of the stockholders to change or
repeal such Bylaws; provided, that the board of directors shall not make or
alter any Bylaws fixing the qualifications, classifications, or term of office
of directors.
ARTICLE XI
Miscellaneous
62. Gender. Whenever required by the context, the singular shall
include the plural, the plural the singular, and one gender shall include all
genders.
63. Invalid Provision. The invalidity or unenforceability of any
particular provision of these Bylaws shall not affect the other provisions
herein, and these Bylaws shall be construed in all respects as if such invalid
or unenforceable provision were omitted.
64. Governing Law. These Bylaws shall be governed by and construed in
accordance with the laws of the State of Delaware.
I, Carla Hamre Donelson, as Secretary of the Corporation, do hereby
certify that the foregoing Bylaws were adopted by the Board of Directors of the
Corporation effective as of September 3, 1998.
/s/ Carla Hamre Donelson
-----------------------------------
Secretary
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EXHIBIT 5.1
[MORRISON & FOERSTER LLP LETTERHEAD]
January 25, 2000
Verio Inc.
8005 South Chester Street, Suite 200
Englewood, Colorado 80112
Ladies and Gentlemen:
At your request, we have examined the Registration Statement, as
amended, on Form S-3 of Verio Inc., a Delaware corporation (the "Company"), to
be filed with the Securities and Exchange Commission (the "Registration
Statement"), relating to the registration under the Securities Act of 1933, as
amended, of up to 2,000,000 shares of Common Stock, $.001 par value per share
(the "Common Stock"), of the Company (the "Primary Common Stock"), of up to
7,200,000 shares of the Company's 6.75% Series A Convertible Preferred Stock,
$0.001 par value per share (the "Convertible Preferred Stock"), up to 7,456,302
shares of the Company's Common Stock issuable upon conversion of the Convertible
Preferred Stock (the "Conversion Stock"), up to 1,705,346 shares of the
Company's Common Stock that may be paid as dividends on the Convertible
Preferred Stock (the "Dividend Stock") or that may be delivered in exchange for
funds held in a deposit account on behalf of the holders of the Company's
Convertible Preferred Stock (the "Deposit Stock"), and 461,476 shares of the
Company's Common Stock where such Common Stock is held by certain holders who
have invoked their contractual registration rights with the Company or for whom
the Company has agreed to register the shares (the "Piggyback Registration
Stock"). The Primary Common Stock may be issued by the Company and sold to the
public by the Company and/or its wholly-owned subsidiary, Verio, LLC. The
Convertible Preferred Stock, Conversion Stock, Dividend Stock, Deposit Stock and
Piggyback Registration Stock may be sold to the public by the selling
stockholders named in the Registration Statement; the Dividend Stock may be
issued and paid by the Company to the holders of the Convertible Preferred
Stock; and the Deposit Stock may be sold by the Company to Norwest Bank
Minnesota, N.A., as Deposit Agent (the "Deposit Agent"), for delivery directly
to the holders of the Convertible Preferred Stock, pursuant to the terms of that
certain Deposit Agreement, dated as of July 20, 1999, by and between the Company
and the Deposit Agent.
As counsel to the Company, we have examined the proceedings taken by
the Company in connection with the issuance or possible future issuance, as the
case may be, by the Company of the Primary Common Stock, Convertible Preferred
Stock, Conversion Stock, Dividend Stock, Deposit Stock and Piggyback
Registration Stock.
We are of the opinion that:
1) The shares of the Convertible Preferred Stock and the Piggyback
Registration Stock issued, sold and delivered by the Company have been duly
authorized and have been legally issued, are fully paid and are nonassessable.
<PAGE> 2
2) Upon conversion of the Convertible Preferred Stock, the Conversion
Stock, when issued by the Company in the manner described in the Registration
Statement, will be duly authorized and legally issued, fully paid and
nonassessable.
3) If, when and as issued by the Company in the manner described in the
Registration Statement and in accordance with the resolutions adopted by the
Board of Directors of the Company, the Dividend Stock will be legally issued,
fully paid and nonassessable.
4) If, when and as issued and sold by the Company in the manner
described in the Registration Statement and in accordance with the resolutions
adopted by the Board of Directors of the Company, the Deposit Stock will be
legally issued, fully paid and nonassessable.
5) If, when and as issued by the Company and sold by the Company and/or
its wholly-owned subsidiary, Verio, LLC, in the manner described in the
Registration Statement and in accordance with the resolutions adopted by the
Board of Directors of the Company, the Primary Common Stock will be legally
issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us in the Registration
Statement, the prospectus constituting a part thereof and any supplements and
amendments thereto.
Very truly yours,
/s/ Morrison & Foerster LLP
<PAGE> 1
EXHIBIT 8.1
[MORRISON & FOERSTER LLP LETTERHEAD]
January 25, 2000
Verio Inc.
8005 South Chester Street, Suite 200
Englewood, Colorado 80112
Ladies and Gentlemen:
We have acted as counsel to Verio Inc. ("Verio"), a Delaware
corporation, in connection with the offering (a) from time to time by certain
holders of (1) 6.75% Series A convertible preferred stock, par value $0.001 per
share, of Verio ("Convertible Preferred Stock"), (2) common stock, par value
$0.001 per share, of Verio ("Common Stock") issuable upon conversion of the
Convertible Preferred Stock, (3) Common Stock that may be paid as dividends on
the Convertible Preferred Stock or that may be delivered by Verio in exchange
for funds held in a deposit account on behalf of the holders of the Convertible
Preferred Stock, and (4) Common Stock where such Common Stock is held by certain
holders who have invoked their contractual registration rights with Verio or for
whom Verio has agreed to register the shares, (b) at Verio's option (1) of
shares of Common Stock that may be paid by Verio, in lieu of cash, as dividends
on the Convertible Preferred Stock from time to time during the two-year period
from the date that the Convertible Preferred Stock was issued by Verio, and (2)
of shares of Common Stock that may be issued by Verio at its option through, at
the latest, August 1, 2000, in exchange for funds held in the deposit account on
behalf of the holders of the Convertible Preferred Stock, and (c) by Verio
and/or its wholly-owned subsidiary, Verio, LLC, from time to time of up to
2,000,000 shares of Common Stock (hereinafter, collectively, the "Offering").
The Offering is described in the Registration Statement on Form S-3, as amended
(the "Registration Statement"), filed on the date hereof with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), which includes a prospectus of Verio (the
"Prospectus"). In that connection, we have reviewed the Prospectus and such
other materials as we have deemed necessary or appropriate for purposes of our
opinion, and we have assumed the truth and accuracy thereof.
<PAGE> 2
The conclusion expressed herein represents our judgment of the proper
treatment of certain aspects of the Offering under the income tax laws of the
United States based upon the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury Regulations, rulings and other pronouncements of the Internal
Revenue Service (the "IRS") currently in effect, and judicial decisions, all of
which are subject to change, prospectively or retroactively. No assurance can be
given that such changes will not take place, or that such changes would not
affect the conclusion expressed herein. Furthermore, our opinion represents only
our best judgment of how a court would conclude if presented with the issues
addressed herein and is not binding upon either the IRS or any court. Thus, no
assurance can be given that a position taken in reliance on our opinion will not
be challenged by the IRS or rejected by a court.
Our opinion relates solely to the tax consequences of certain portions
of the Offering under the federal income tax laws of the United States, and we
express no opinion (and no opinion should be inferred) regarding the tax
consequences of the Offering under the laws of any other jurisdiction. This
opinion addresses only the specific issue set forth below, and does not address
any other tax consequences that may result from the Offering or any other
transaction.
Based upon and subject to the foregoing, it is our opinion that the
discussion contained in the Registration Statement under the caption "Federal
Tax Considerations," to the extent that it pertains to matters of law or legal
conclusions, is correct in all material respects.
This opinion is being furnished in connection with the Registration
Statement. You may rely upon and refer to the foregoing opinion in the
Prospectus. In addition, we hereby consent to the inclusion of this opinion as
an exhibit to the Prospectus. Any variation or difference in any fact from those
set forth or assumed either herein or in the Prospectus may affect the
conclusions stated herein.
We hereby consent to the use of our name in the Prospectus and to the
filing of this opinion as an Exhibit to the Registration Statement. In giving
this consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act or the rules and
regulations of the Commission thereunder.
Very truly yours,
/s/ Morrison & Foerster LLP
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Verio Inc.:
We consent to the use of our reports incorporated herein by reference
and to the reference to our firm under the heading "Experts" in the Prospectus.
/s/ KPMG LLP
KPMG LLP
Denver, Colorado
January 24, 2000
