<PAGE>
As filed with the Securities and Exchange Commission on November 24, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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VIA NET.WORKS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 7370 84-1412512
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
------------
12100 Sunset Hills Road, Suite 110
Reston, VA 20190
(703) 464-0300
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive office)
------------
David M. D'Ottavio
Chief Executive Officer
VIA NET.WORKS, Inc.
12100 Sunset Hills Road, Suite 110
Reston, VA 20190
(703) 464-0300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------
Copies to:
Steven A. Museles David J. Johnson, Jr.
Suzanne A. Barr David G. Pommerening
Hogan & Hartson L.L.P. O'Melveny & Myers LLP
555 Thirteenth Street, N.W. 555 Thirteenth Street, N.W.
Washington, DC 20004-1109 Washington, DC 20004-1109
(202) 637-5600 (202) 383-5300
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
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, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed Maximum
Title of each Class of Aggregate Amount of
Securities to be Registered Offering Price(1) Registration Fee
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<S> <C> <C>
Common Stock, $.001 par value............... $200,000,000 $55,600
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
Explanatory Note
This Registration Statement contains two forms of prospectus: one to be used
in connection with a United States and Canadian offering, the U.S. prospectus,
and one to be used in a concurrent international offering, the international
prospectus. The two prospectuses will be identical in all respects except for
the front and back cover pages. The pages to be included in the international
prospectus and not the U.S. prospectus are marked "alternate page" and appear
immediately before Part II of this Registration Statement.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+We will amend and complete the information in this prospectus. Although we +
+are permitted by U.S. federal securities laws to offer these securities using +
+this prospectus, we may not sell them or accept your offer to buy them until +
+the registration statement filed with the SEC relating to these securities +
+has been declared effective. This prospectus is not an offer to sell these +
+securities or our solicitation of your offer to buy these securities in any +
+jurisdiction where that would not be permitted or legal. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION - NOVEMBER 24, 1999
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Prospectus
, 2000
[INSERT LOGO]
Shares of Common Stock
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VIA: The Offering:
. We are a leading . We are offering
international shares of our
provider of common stock. This
Internet access prospectus relates
and services to an offering of
focusing on small shares in the
and mid-sized United States and
businesses Canada. In
located in Europe addition, we are
and Latin offering
America. shares outside the
United States and
. VIA NET.WORKS, Canada in an
Inc. 12100 Sunset international
Hills Road, Suite offering.
110 Reston, VA
20190 (703) 464- . The U.S.
0300 underwriters have
an option to
Proposed Symbol & purchase an
Market: additional
shares from us to
.VNWI/Nasdaq cover over-
National Market allotments.
. This is our
initial public
offering and we
anticipate that
the initial public
offering price
will be between
$ and $ per
share.
. We intend to use
the net proceeds
of this offering
for general
corporate
purposes,
including funding
our operations,
capital
expenditures,
network expansion,
working capital
and acquisitions
of Internet
services providers
in our target
markets.
. Closing: ,
2000
------------------------------------------
<TABLE>
<CAPTION>
Per Share Total
--------------------------------------------------
<S> <C> <C>
Public offering price: $ $
Underwriting fees: $ $
Proceeds to VIA NET.WORKS, Inc.: $ $
--------------------------------------------------
</TABLE>
This investment involves risks. See "Risk Factors" beginning on Page 6.
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Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete, nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
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Donaldson, Lufkin & Jenrette
Morgan Stanley Dean Witter
-------------------------
Salomon Smith Barney DLJdirect Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary.................................................... 1
Risk Factors.......................................................... 6
Special Note Regarding Forward-Looking Statements..................... 12
Use of Proceeds....................................................... 13
Dividend Policy....................................................... 13
Capitalization........................................................ 14
Dilution.............................................................. 15
Selected Consolidated Financial Data.................................. 16
Selected Combined Pro Forma Financial Data............................ 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................ 21
Business.............................................................. 30
Management............................................................ 45
Transactions with Related Parties..................................... 53
Principal Stockholders................................................ 56
Description of Capital Stock.......................................... 58
Shares Eligible For Future Sale....................................... 59
Material Federal Income Tax Consequences to Non-United States
Stockholders......................................................... 61
Underwriting.......................................................... 63
Validity of the Shares................................................ 67
Experts............................................................... 67
Where You Can Find More Information................................... 68
Index to Financial Statements......................................... F-1
</TABLE>
i
<PAGE>
PROSPECTUS SUMMARY
The information below is only a summary of more detailed information included
in other sections of this prospectus. This summary may not contain all the
information that is important to you or that you should consider before buying
shares in this offering. The other information is important, so please read
this entire prospectus carefully.
VIA NET.WORKS, Inc.
VIA NET.WORKS is a leading international provider of Internet access and
services focused on small and mid-sized businesses in Europe and Latin America.
By targeting these customers and regions, we are positioned to capitalize on
some of the most rapidly growing areas of the Internet market. Both of these
regions have a relatively low number of total Internet users, and small and
mid-sized businesses in each region have a relatively low number of Internet
services available to them. By choosing to serve these market segments, we have
the opportunity to sell our services to a large number of small and mid-sized
businesses who have identifiable Internet needs but little or no Internet
experience. Once we have developed relationships with these customers, we can
upgrade them from entry-level Internet access services to more sophisticated
and higher margin products and services like web hosting, virtual private
networks and e-commerce solutions which will allow them to compete in both
local and global markets.
Since our founding in late 1997, we have rapidly established our
international presence by acquiring, integrating and growing 17 business-
focused Internet services providers in 11 European and Latin American
countries. As of September 30, 1999, pro forma for an acquisition we made after
September 30, 1999, we had 80,600 customers in Europe, of which 44.2% were
businesses, and 34,900 customers in Latin America, of which 40.3% were
businesses. Pro forma for this acquisition, as of September 30, 1999 we hosted
17,000 web sites and had registered 46,700 domain names. For the nine months
ended September 30, 1999, we had pro forma revenue of $42.1 million and pro
forma net losses of $30.4 million. To date, our operations have been funded by
investments of $181.0 million from our current investors, which include The
Centennial Funds, Norwest Equity Capital, Telecom Partners II, HarbourVest
International, Providence Equity Partners, Verio Inc. and Boston Millennia
Partners.
We are a customer-focused sales, marketing and service organization. We
leverage our local marketing, sales and customer care efforts with the benefits
of our global scale by providing our local operations international network
capacity, marketing support, capital and management resources. We believe that
our local focus combined with our global capabilities will allow us to increase
both our market share and revenue.
Our Products and Services
We offer a suite of bundled and stand-alone Internet products and services
which can be tailored to the individual needs of our small and mid-sized
business customers. Our products and services include
. dedicated high speed and dial-up Internet access
. hosting of customer web sites
. co-location services, where a customer places equipment in our facilities
for the purposes of hosting software, database, web site and other
applications
. e-mail services
. e-commerce solutions including secure electronic payment processing,
electronic procurement and business portal design and hosting
1
<PAGE>
. Internet virtual private networks which provide individual commercial
customers with greater security for their electronic communications over
the Internet
. domain name registration of Internet addresses, such as
www.customername.com
. Internet security products, which protect the integrity of customer data
and networks, authenticate users and provide secure data transmissions
Our Markets
Internet access and services markets are among the fastest growing segments
of the global telecommunications marketplace. Total spending by businesses on
Internet access and services in Western Europe is projected by International
Data Corporation to grow 32.9% annually from $3.0 billion in 1998 to $12.5
billion in 2003. According to The Yankee Group, Internet access revenues in
Latin America are forecasted to increase from an estimated $750.0 million in
1998 to $6.0 billion in 2002, or 68.2% annually. Favorable trends which should
help fuel continued growth in both geographic markets include
. increasing availability and affordability of computer hardware
. increasing Internet penetration, which is the ratio of World Wide Web
users to total population
. increasing adoption of the Internet and related technologies to drive
productivity and e-commerce revenue
. continuing telecommunications industry deregulation, which encourages
improved infrastructure and competitive pricing
Our Network
We own and operate a European and trans-Atlantic network which carries
Internet traffic generated by our operating companies. The backbone of this
network provides 155 Mbps of redundant capacity on two fiber optic rings. The
first ring provides trans-Atlantic capacity between New York City and London.
The second ring provides pan-European capacity which we will initially use to
establish network connection points in seven European cities. We currently have
network connection points in London, Dusseldorf and Amsterdam and plan to
establish a Paris connection point by the end of 1999 and connection points in
three additional cities during 2000. We believe that combining the transmission
capacity requirements of our operating companies onto our network increases
efficiency, reduces costs and results in higher service quality than our
operating companies could obtain on their own. We manage the European and
trans-Atlantic network from a regional network operations center located in
Germany. This facility provides network monitoring and service 24 hours a day,
seven days a week. We also operate 109 network points of presence throughout
Europe and Latin America which provide our customers with access to the
Internet. We plan to add points of presence to further expand our international
service capabilities.
Our Strategy
Our goal is to become the premier international provider of Internet access
and services to small and mid-sized businesses in Europe and Latin America. We
intend to reach our goal by
. maintaining a strong local presence through locally managed operating
companies
. leveraging our brand name and international network
. delivering single-source Internet solutions to our customers
. delivering quality customer service supported by continued investment in
billing, back-office and customer care systems
. continuing investment in network infrastructure and product development
. accelerating our growth through strategic acquisitions
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by us............. shares
Common stock to be outstanding after shares
this offering.........................
Use of proceeds........................ We intend to use the net proceeds of
this offering for general corporate
purposes, including funding our
operations, capital expenditures,
network expansion, working capital and
acquisitions of Internet services
providers in our target markets.
Proposed Nasdaq National Market VNWI
symbol................................
</TABLE>
Some of our stockholders have the right to purchase up to an aggregate of 5%
of the shares offered by us in this offering under a stockholders agreement we
entered into with them.
The common stock to be outstanding after this offering is based on the number
of shares outstanding as of November 15, 1999 and excludes
. 6,770,001 shares of non-voting common stock that will be outstanding
after the offering, each of which is convertible into one share of common
stock at any time
. 4,622,500 shares of common stock issuable upon the exercise of options
granted under our 1998 Stock Option and Restricted Stock Plan and
outstanding as of November 15, 1999 with a weighted average exercise
price of $6.08 per share
. 5,000 shares of common stock reserved for issuance pursuant to a purchase
right granted under our Key Employee Equity Plan
. 100,000 shares of common stock reserved for the exercise of an
outstanding warrant at an exercise price of $2.40 per share
. any shares we may issue under the underwriters' over-allotment option
------------
We were incorporated in Delaware in June 1997. Our principal executive
offices are located at 12100 Sunset Hills Road, Suite 110, Reston, Virginia
20190 and our telephone number is (703) 464-0300. Our website can be found at
www.via-net-works.com. Information contained on our website is not intended to
be a prospectus and is not incorporated into this prospectus.
3
<PAGE>
Summary Consolidated and Combined Pro Forma Financial Data
The table below summarizes
. our historical consolidated financial data for the period from inception,
June 13, 1997, to December 31, 1997, for the year ended December 31, 1998
and for the nine months ended September 30, 1998 and September 30, 1999
. our combined pro forma financial data for the year ended December 31,
1998 and for the nine months ended September 30, 1999
. our pro forma as adjusted balance sheet data as of September 30, 1999,
which give effect to our sale of shares of common stock at an assumed
initial public offering price of $ per share less underwriting fees and
estimated offering expenses
Our historical statement of operations data for the period from inception,
June 13, 1997, to December 31, 1997 and for the year ended December 31, 1998
are derived from our audited consolidated financial statements. Our statement
of operations data for the nine months ended September 30, 1998 and 1999 and
our balance sheet data as of September 30, 1999 are derived from our unaudited
interim financial statements and, in the opinion of our management, include all
material adjustments, consisting only of normal and recurring adjustments,
necessary for a fair presentation of the results of operations and financial
condition. Operating results for the nine months ended September 30, 1999 are
not necessarily indicative of the results that may be expected for the full
year.
Our pro forma statement of operations and other financial data for the year
ended December 31, 1998 and the nine months ended September 30, 1999 give
effect to our acquisition of 15 companies between January 1, 1998 and
September 30, 1999 and our acquisition of InfoAcces, which was completed after
September 30, 1999, as though these acquisitions had occurred on January 1,
1998. The pro forma balance sheet data and operating statistics as of September
30, 1999 give effect to our acquisition of InfoAcces. The pro forma statement
of operations and balance sheet data also give effect to the conversion of all
of our outstanding mandatorily redeemable convertible preferred stock into
common stock and the pro forma balance sheet data are further adjusted to
reflect this offering. The pro forma financial data for the year ended December
31, 1998 and the nine months ended September 30, 1999 are not necessarily
indicative of the results that would have occurred if the transactions had been
consummated as of January 1, 1998 and are not intended to indicate expected
results for any future period.
As used in the table below, "EBITDA" represents earnings or loss from
operations before interest, taxes, depreciation, amortization and non-cash
stock compensation charges. The primary measure of operating performance is net
earnings. Although EBITDA is a measure commonly used in our industry, it should
not be considered an alternative to net earnings, when determined in accordance
with generally accepted accounting principles or GAAP, as an indicator of
operating performance or as an alternative to cash flows from operating
activities, determined in accordance with GAAP. In addition, the measure of
EBITDA we use may not compare to other similarly titled measures used by other
companies.
The summary consolidated and combined pro forma financial data shown below
should be read together with our audited consolidated financial statements, our
unaudited interim financial statements, our unaudited pro forma condensed
combined financial statements, our acquired companies' financial statements and
related notes, and other financial information including "Management's
Discussion and Analysis of Financial Condition and Results of Operations," all
of which are included elsewhere in this prospectus.
4
<PAGE>
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------------------------------ --------------------------
Period from
Inception Nine Months Ended Year Nine Months
(June 13, 1997) Year Ended September 30, Ended Ended
to December 31, December 31, ------------------- December 31, September 30,
1997 1998 1998 1999 1998 1999
--------------- ------------ -------- --------- ------------ -------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Europe................. $ -- $ 2,697 $ -- $ 19,378 $ 28,579 $ 28,859
Latin America.......... -- 651 -- 3,988 13,531 13,237
------- -------- -------- --------- ---------- ----------
Total revenues........ -- 3,348 -- 23,366 42,110 42,096
Operating costs and
expenses............... 336 9,415 2,867 43,090 77,668 75,366
------- -------- -------- --------- ---------- ----------
Loss from operations.... (336) (6,067) (2,867) (19,724) (35,558) (33,270)
Interest income, net.... 15 1,425 962 1,333 24 1,083
Loss in unconsolidated
affiliates............. -- (1,199) (447) (177) -- --
Foreign currency gains.. -- 115 -- 1,269 194 1,109
------- -------- -------- --------- ---------- ----------
Loss before minority
interest and income
taxes................... (321) (5,726) (2,352) (17,299) (35,340) (31,078)
Income tax benefit
(expense).............. -- 145 -- -- (80) (172)
Minority interest....... -- 239 -- 1,087 (232) 852
------- -------- -------- --------- ---------- ----------
Net loss attributable to
common stockholders..... $ (321) $ (5,342) $ (2,352) $ (16,212) $ (35,652) $ (30,398)
======= ======== ======== ========= ========== ==========
Net loss per common
share.................. $(10.66) $ (24.29) $ (11.64) $ (20.50) $ (2.84) $ (2.08)
======= ======== ======== ========= ========== ==========
Weighted average common
shares outstanding..... 30,063 219,964 202,077 790,953 12,549,030 14,620,793
Other Financial Data:
Cash flows from
operating activities... $ (233) $ (3,784) $ (1,618) $ (6,943)
Cash flows from
investing activities... (8) (14,383) (3,185) (61,678)
Cash flows from
financing activities... 1,048 52,187 52,237 125,994
EBITDA.................. (336) (4,763) (2,864) (8,585)
Depreciation and
amortization........... -- 1,304 3 10,656
Non-cash stock
compensation charges... -- -- -- 483
Capital expenditures.... 8 868 45 12,810
</TABLE>
<TABLE>
<CAPTION>
As of September 30, 1999
--------------------------------
Pro Forma
Historical Pro Forma As Adjusted
---------- --------- -----------
(Dollars in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.................... $ 91,503 $ 40,769
Restricted cash.............................. -- 15,000
Goodwill..................................... 91,507 122,728
Total assets................................. 215,132 219,443
Total long-term debt and capital leases, net
of current portion.......................... 10,792 11,162
Mandatorily redeemable convertible preferred
stock....................................... 180,933 --
Total stockholders' equity (deficit)......... (13,378) 167,555
Operating Statistics:
Number of PoPs............................... 101 109
Number of business customers................. 44,856 49,684
Number of consumer customers................. 54,612 65,844
Number of web-sites hosted................... 16,612 16,981
Number of domain names registered............ 45,947 46,704
</TABLE>
5
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors and all of the other
information included in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. Any of the
following risks could cause our quarterly operating results to fluctuate or
materially adversely affect our business, operating results or financial
condition and could result in a complete loss of your investment.
Risks Related to our Business
We are not profitable and do not expect to achieve profitability in the near
future, if at all.
We have not achieved profitability. We expect to continue to incur net losses
for the foreseeable future and may never become profitable. We incurred net
losses of $321,000 from inception through December 31, 1997. For the year ended
December 31, 1998, we incurred additional net losses of $5.3 million. For the
nine months ended September 30, 1999, we incurred additional net losses of
$16.2 million and had an accumulated deficit of $21.9 million as of September
30, 1999.
We expect to continue to incur net losses in future periods as we acquire and
invest in operating companies and the infrastructure required to support them.
So long as we continue to make these acquisitions, we will continue to amortize
a substantial amount of goodwill, which will reduce our earnings.
We have a history of negative cash flow, and we may never achieve positive cash
flow.
For the year ended December 31, 1998, we had losses from operations, before
depreciation and amortization, of $4.8 million. For the nine months ended
September 30, 1999, we had losses from operations, before depreciation and
amortization, of $9.1 million. Additionally, we used $14.4 million in 1998 and
$61.7 million in the first nine months of 1999 to acquire operations and fixed
assets. If we are unable to increase our revenue to cover our costs and
investment expenditures, we will continue to experience negative cash flow.
We may not be able to obtain sufficient funds to execute our business plan.
We expect that the net proceeds of this offering will fund our operations for
the next 12 months. After we have used the net proceeds from this offering, we
will need to obtain additional financings to fund operations, capital
expenditures for expansion of network and information systems, and
acquisitions. If we are unable to obtain these financings on favorable terms,
we may be unable to implement our business plan.
Our combined operating history is limited and may not be indicative of our
future performance.
Although a number of the operating companies we have acquired have been in
operation for some time, VIA itself has a limited history of operations.
Consequently, the financial information in this prospectus may not be
indicative of our future performance.
Because we have grown rapidly and we expect our growth to continue, we may have
difficulty managing our growth effectively, which could adversely affect the
quality of our services and the results of our operations.
We have grown rapidly and expect to continue to grow rapidly by acquiring new
companies, increasing the number of customers served and increasing the number
and types of products and services we offer. We have acquired 17 companies
since June 1998 and the total number of our employees grew from five to 798
between June 1, 1998 and October 31, 1999. To manage our expected growth
effectively, we must
. implement additional management information systems
. develop additional operating, administrative, financial and accounting
systems and controls
. hire and train additional personnel
6
<PAGE>
If we are unable to meet these demands, the quality of our services may
suffer, causing us to lose customers and revenues.
If we fail to integrate operating systems, networks and management of our
acquired companies successfully, we may suffer operating inefficiencies and
reduced operating cash flow.
We may not be able to integrate our acquired companies successfully because
we currently operate in 11 different countries with different governmental
regulations, languages, customs, currencies and availabilities of
telecommunication capacity to carry data. We will have to commit substantial
management, operating, financial and other resources to integrate our operating
companies and implement our business model, which will reduce our operating
cash flow.
Because we operate in markets where extended vacations are typical, and since
in some of these markets, we receive a portion of our revenues based on
customer usage, we may experience seasonal variation in our quarterly revenue
and operating results that could cause our stock price to decline.
In Europe and Latin America, four or more weeks of vacation is typical and
often mandated under law. As a result, extended summer and winter holiday
vacations are common and it is difficult to attract new customers during these
periods. In these markets, our customers also pay their telephone companies for
the number of minutes they spend on-line, even if we provide a local telephone
number that they can use for access. We may receive a portion of these fees
from the telephone companies as payment for generating usage, and customer
usage generally declines in the summer months and in December. As a result, we
may experience lower revenues during these periods and our operating results
may be affected. To the extent our quarterly results fluctuate more widely than
expected by us, securities analysts and investors, our stock price could
decline.
We face increasing competition for the purchase of local Internet services
providers, which may impede our ability to make future acquisitions or may
increase the cost of these acquisitions.
Our business strategy depends, in part, upon our ability to identify and
acquire new local Internet services providers that meet our acquisition
criteria. In pursuing these opportunities, we compete with other Internet
services providers, local, regional, national and global telecommunication
companies and other buyers. These competitors may drive up the price of our
acquisition targets or may acquire our acquisition targets. Many of these
competitors are larger than we are and have greater financial and other
resources than we have. Increasing competition has raised the price we have
paid for acquisitions in some markets and may continue to do so. In addition,
our acquisition targets may find our competitors more attractive because they
may have greater resources, may be willing to pay more, or may have a more
compatible operating philosophy.
Financial information on which we rely to make future acquisitions may not be
accurate, which may result in our acquiring undisclosed liabilities or
experiencing lower than expected operating results.
The companies we target for acquisition typically do not have audited
financial statements and have varying degrees of internal controls and detailed
financial information. As a result, we may acquire undisclosed liabilities or
experience lower-than-expected revenues or higher-than-expected costs, which
could adversely affect our operating results.
Fluctuations in the exchange rate between the U.S. dollar and the various
currencies in which we conduct business may affect our operating results.
Fluctuations in foreign currency exchange rates may adversely affect our
revenues, expenses and results of operations as well as the value of our assets
and liabilities. These fluctuations may adversely affect the comparability of
period-to-period results. For example, the value of the Brazilian Real
fluctuated by 45.6% in relation to the U.S. dollar during the nine months ended
September 30, 1999 and ended the period 37.2% lower than its value to the U.S.
dollar in the beginning of the year. Since each Real converted to fewer U.S.
dollars, our U.S. dollar revenue was reduced.
7
<PAGE>
Logistical problems or economic downturns that could result from the
introduction of the Euro may affect our ability to operate and adversely impact
our operating results.
On January 1, 1999, 11 of the 15 European Union member countries adopted the
Euro as their common legal currency, at which time their respective individual
currencies became fixed at a rate of exchange to the Euro, and the Euro became
a currency in its own right. During a January 1, 1999 to January 1, 2002
transition period, we must manage transactions with our customers and our
third-party vendors who conduct business in Euro participating countries in
both the Euro and the individual currencies. If we, our customers or our
vendors experience systems problems in converting to the Euro, we could be
unable to bill and collect from customers or pay vendors for services, and our
operating results could be materially adversely affected.
The establishment of the European Monetary Union may have a significant
effect on the economies of the participant countries. Since a substantial
portion of our revenue will be denominated in the Euro or currencies of
European Union countries, our operating results could be adversely affected if
there is a downturn in the economies of participating countries or if the Euro
weakens against other currencies.
Our brand names are difficult to protect and may infringe on the intellectual
property rights of third parties.
We are aware of other companies using our trademarks and variations of those
marks. The users of these or similar marks may have senior rights if they were
ever to assert a claim against us for trademark infringement. If an
infringement suit were instituted against us, even if groundless, it could
result in substantial litigation expenses in defending the suit. If such a suit
were to be successful, we could be forced to cease using the mark and to pay
damages.
In addition, we have applied to register several of our trademarks in various
countries. Our application to register in Argentina the trademark "VIA Net
Works Argentina" has been opposed by a third party. If any of our applications
are unsuccessful, we may be required to discontinue the use of those
trademarks.
Risks Related to our Industry
Regulatory and economic conditions of the countries where our operating
companies are located are uncertain and may decrease demand for our services,
increase our cost of doing business or otherwise reduce our business prospects.
Our operating companies are located in countries with rapidly changing
regulatory and economic conditions which may affect the Internet services
industry. Any new law or regulation pertaining to the Internet or
telecommunications, or the application or interpretation of existing laws,
could decrease demand for our services, increase our costs or otherwise reduce
our profitability or business prospects. Specific examples of the types of laws
or regulations that could adversely affect us include laws that
. impose taxes on transactions made over the Internet
. impose telecommunications access fees on Internet services providers
. directly or indirectly affect telecommunications costs generally or the
costs of Internet telecommunications specifically
. prohibit the transmission over the Internet of various types of
information and content
. impose requirements on Internet services providers to protect Internet
users' privacy
. increase the likelihood or scope of competition from telecommunications
or cable companies
For example, some states of Brazil impose a tax of up to 30% on revenues
generated by communications services. There has been no judicial determination
that Internet access services constitute communications services. If Internet
services providers are ultimately required to pay this tax, our Brazilian
operations would be negatively and significantly impacted.
8
<PAGE>
These laws could require us to incur costs to comply with them or to incur
new liability. They could also increase our competition or change our
competitive environment so that customer demand for our products and services
is affected. For a discussion of specific regulatory proposals that may affect
our business, see "Business--Regulatory Matters."
In addition to risks we face from new laws or regulations, we face
uncertainties in connection with the application of existing laws to the
Internet. It may take years to determine the manner in which existing laws
governing issues like property ownership, libel, negligence and personal
privacy will be applied to communications and commerce over the Internet.
Increasing competition for customers in our markets may cause us to reduce our
prices or increase spending, which may negatively affect our revenues and
operating results.
There are competitors in our markets with more significant market presence
and brand recognition and greater financial, technical and personnel resources
than we have. As a result of this competition, we currently face and expect to
continue to face significant pressure to reduce our prices and improve the
products and services we offer. Although the competitors we face vary depending
on the market and the country, these competitors may include local and regional
Internet services providers, telecommunication companies and cable companies.
Some of our competitors, especially the telecommunications companies, have
large networks in place as well as a significant existing customer base.
If demand for Internet services in our markets does not grow as we expect, our
ability to grow our revenues will be negatively affected.
Internet use in our markets is relatively low. If the market for Internet
services fails to develop, or develops more slowly than expected, we may not be
able to increase our revenues. Obstacles to the development of Internet
services in our markets include:
. low rates of personal computer ownership and usage
. lack of developed infrastructure to develop Internet access and
applications
. limited access to Internet services
We are in a rapidly evolving industry in which the products and services we
offer, their methods of delivery and their underlying technologies are changing
rapidly, and if we do not keep pace with these changes, we may fail to retain
and attract customers which would reduce our revenues.
The Internet services market is characterized by changing customer needs,
frequent new service and product introductions, evolving industry standards and
rapidly changing technology. Our success will depend, in part, on our ability
to recognize and respond to these changes in a timely and cost-effective
manner. If we fail to do so, we will not be able to compete successfully.
We rely on telecommunications companies in our markets to provide our customers
with reliable access to our services, and failures or delays in providing
access could limit our ability to service our customers and impact our revenues
and operating results.
Our customers access our services either through their normal telephone lines
or dedicated lines provided by local telecommunications companies specifically
for that use. In some of our markets, we experience delays in delivery of new
telephone lines that have prevented our customers from accessing our services.
These delays result in lost revenues. Additionally, some local
telecommunications companies that provide Internet services provide delivery of
telephone or dedicated lines to their Internet customers on a preferential
basis, which may cause us to lose current and potential customers. We also
lease network capacity from telecommunications companies and rely on the
quality and availability of their service. These companies may experience
9
<PAGE>
disruptions of service which could disrupt our services to, or limit Internet
access for, our customers. We may not be able to replace or supplement these
services on a timely basis or in a cost-effective manner, which may result in
customer dissatisfaction and lost revenues.
We depend on the reliability of our network, and a system failure or a breach
of our security measures could result in a loss of customers and reduced
revenues.
We are able to deliver services only to the extent that we can protect our
network systems against damages from telecommunication failures, computer
viruses, natural disasters and unauthorized access. Any system failure,
accident or security breach that causes interruptions in our operations could
impair our ability to provide Internet services to our customers and negatively
impact our revenues and results of operations. To the extent that any
disruption or security breach results in a loss or damage to our customer's
data or applications, or inappropriate disclosure of confidential information,
we may incur liability as a result. In addition, we may incur additional costs
to remedy the damages caused by these disruptions or security breaches.
If we fail to attract and retain qualified personnel or lose the services of
our key personnel, our operating results may suffer.
Our success depends on our key management, engineers, sales and marketing
personnel, technical support representatives and other personnel, many of whom
may be difficult to replace. If we lose key personnel, we may not be able to
find suitable replacements which may negatively affect our business. In
addition, since the demand for qualified personnel in our industry is very
high, we may have to increase the salaries and fringe benefits we may offer to
our personnel, which may affect our operating results. We do not maintain key
person life insurance on, or restrictive employment agreements with, any of our
executive officers.
We may be liable for information disseminated over our network.
We may face liability for information carried on or disseminated through our
network. For information about the applicable laws that may affect our
liability for information carried or disseminated through our network, please
see "Business--Regulatory Matters."
The Year 2000 issue could impair our ability to provide services to our
customers, increase our costs, or reduce our revenues or profitability.
Year 2000 issues may adversely affect our business and our customers'
businesses. Many computer systems may fail or malfunction because they are
unable to distinguish 21st century dates from 20th century dates. We have
incurred costs to upgrade our computers to address the year 2000 issue and may
in the future incur additional costs. Our customers may also need to incur
costs to either upgrade their computers or correct any problems their computers
may encounter, which may reduce our revenues by diverting our customers'
information systems resources away from our products and services. In addition,
if our computer systems or those of our telecommunications suppliers fail or
malfunction as a result of Year 2000 issues, our ability to provide services to
our customers will be disrupted, which could result in lost revenues, lost
customers or claims for damages, which could lead to costly litigation. For
information on how we are addressing year 2000 issues, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Readiness Disclosure."
Risks Related to this Offering
We have discretion over the use of all of the net proceeds from this offering
and may fail to use them effectively to grow our business.
We will retain discretion over how to use the net proceeds of this offering.
Because the proceeds are not required to be allocated to any specific
investment or transaction, you will not be able to determine at this time the
value or appropriateness of our use of the proceeds.
10
<PAGE>
You will pay a higher price for our common stock than was paid by existing
stockholders and will experience immediate and substantial dilution.
If you purchase common stock in this offering, you will pay more for your
shares than the amounts paid by existing stockholders for their shares. As a
result, assuming an initial public offering price of $ per share, you will
experience immediate and substantial dilution of approximately $ per share.
41,951,321, or %, of our total outstanding shares may be sold into the market
in the near future. These sales could cause the market price of our common
stock to drop significantly, even if our business is doing well.
After this offering, we will have outstanding shares of common stock.
This includes the shares we are selling in this offering, which may be
resold in the public market immediately. The remaining %, or 41,951,321
shares, of our total outstanding shares will become available for resale in the
public market, subject to restrictions under federal securities laws, as shown
in the chart below. For information regarding these restrictions, see "Shares
Eligible for Future Sale."
As restrictions on resale end, the market price could drop significantly if
the holders of these restricted shares sell them or are perceived by the market
as intending to sell them.
<TABLE>
<CAPTION>
Number of shares/
% of total outstanding Date of availability for resale into public market
---------------------- --------------------------------------------------
<C> <S>
/ % 180 days after the date of this prospectus due to an
agreement these stockholders have with the
underwriters. However, the underwriters can waive this
restriction and allow these stockholders to sell their
shares at any time.
/ % Between 90 and 365 days after the date of this
prospectus due to the requirements of the federal
securities laws.
</TABLE>
In addition, holders of 40,326,676 shares of common stock and non-voting
common stock will be entitled to registration rights with respect to their
common stock. If these holders exercise their registration rights, causing a
large number of shares to be sold in the public market, our market price may
drop significantly.
Our stock has not traded publicly and may not trade actively after this
offering.
Prior to this offering, you could not buy or sell our common stock publicly.
We cannot assure you that an active public trading market for our stock will
develop or be sustained after this offering.
The market price of our common stock, like the market prices of stocks of other
Internet-related and technology companies, may fluctuate widely and rapidly.
The securities of many companies have experienced extreme price and volume
fluctuations in recent years, often unrelated to the companies' operating
performance. Specifically, market prices for securities of Internet-related and
technology companies have frequently reached elevated levels following their
initial public offerings. These levels may be unsustainable and may not bear
any relationship to these companies' operating performances. If the market
price of our common stock reaches an elevated level following this offering, it
may materially and rapidly decline. Fluctuations in our common stock's market
price may affect our visibility and credibility in the Internet services
provider market.
In the past, following periods of volatility in the market price of a
company's securities, stockholders have often instituted securities class
action litigation against the company. If we were to become involved in a class
action suit, it could be costly and divert the attention of management.
Furthermore, if adversely determined, a class action suit may have a material
adverse effect on our business, financial condition and results of operations.
The price per share of our common stock in this offering may not be indicative
of the market price that will prevail after this offering.
Since our stock has not yet traded publicly, our management and the
underwriters will negotiate the common stock's initial public offering price
per share. The price they determine may not be indicative of the
11
<PAGE>
market price that will prevail after this offering. For example, the market
price of our common stock after this offering could vary from the initial
public offering price in response to any of the following factors, some of
which are beyond our control:
. changes in earnings estimates or recommendations by analysts
. future announcements concerning us or our competitors of key personnel
changes, significant contracts, strategic partnerships, acquisitions,
technological innovations or capital commitments
. additions or departures of key personnel
. quarterly fluctuations in operating results
. fluctuations in the stock price and volume of traded shares, especially
in the traditionally volatile Internet-related and technology sectors
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute forward-
looking statements. Forward-looking statements relate to future events or our
future financial performance. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "could," "believes," "estimates," "predicts," "potential" or
"continue" or the negative of these terms or other similar words. These
statements are only predictions. Actual events or results may differ
materially. In evaluating these statements, you should specifically consider
various factors, including the risks outlined under "Risk Factors." These
factors may cause our actual results to differ materially from any forward-
looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future events or results.
12
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the shares of common
stock we are offering will be approximately $ based upon an assumed initial
public offering price of $ per share, after deducting the estimated
underwriting discounts and commissions and estimated offering expenses. If the
underwriters exercise their over-allotment option in full, we estimate that the
net proceeds will be $ .
We intend to use the net proceeds of this offering for general corporate
purposes, including funding our operations, capital expenditures, network
expansion, working capital and acquisitions of Internet services providers in
our target markets. As part of our growth strategy, we are continually
evaluating, engaging in discussions with and entering into letters of intent
with acquisition candidates. There can be no assurance that any of these
discussions or letters of intent will lead to completed transactions. Until
they are used, the net proceeds of the offering will be invested in short-term
marketable securities.
DIVIDEND POLICY
We have not paid any dividends to date, and we do not anticipate paying any
dividends on any of our common stock in the foreseeable future. We currently
intend to retain all of our earnings, if any, for use in our business. We may
also incur debt in the future which may prohibit or restrict the payment of
dividends.
13
<PAGE>
CAPITALIZATION
The following table shows our cash and cash equivalents and capitalization on
. an actual basis as of September 30, 1999
. a pro forma basis to reflect one of the two acquisitions we made after
September 30, 1999 as though this acquisition had occurred on September
30, 1999 and the conversion of our outstanding mandatorily redeemable
convertible preferred stock on a one-for-one basis into common stock and
non-voting common stock, which will occur concurrently with the
completion of this offering
. a pro forma as adjusted basis to further reflect
.the sale of the shares of common stock we are offering at an assumed
initial public offering price of $ per share, after deducting the
underwriting fees and estimated offering expenses
.an increase in the number of our authorized shares of common stock, a
reduction in the number of our authorized shares of preferred stock and
elimination of our currently designated series of mandatorily redeemable
convertible preferred stock from our certificate of incorporation to be
effected concurrently with this offering.
This table should be read together with the unaudited interim financial
statements and unaudited pro forma condensed financial statements and the
related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of September 30, 1999
-------------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- -------- -----------
(Dollars in thousands)
<S> <C> <C> <C>
Cash, cash equivalents and restricted cash..... $ 91,503 $ 55,769 $
======== ======== =====
Short-term notes and current portion of long-
term debt..................................... $ 9,266 $ 10,120 $
Long-term debt, less current portion........... 10,792 11,162
Mandatorily redeemable convertible preferred
stock:
48,800,000 shares authorized actual and pro
forma; no shares authorized as adjusted;
33,223,649 voting shares issued and
outstanding actual; 6,770,001 non-voting
shares issued and outstanding actual; no
shares issued and outstanding pro forma and
as adjusted................................. 180,933 --
Stockholders' equity (deficit):
Preferred stock, $.001 par value; no shares
authorized actual and pro forma; 10,000,000
shares authorized as adjusted; no shares
issued and outstanding...................... -- --
Common stock, $.001 par value; 57,000,000
shares authorized actual and pro forma;
100,000,000 shares authorized as adjusted;
1,957,671 shares issued and outstanding
actual; 35,181,320 shares issued and
outstanding pro forma; shares issued and
outstanding as adjusted..................... 2 35
Non-voting common stock, $.001 par value;
7,500,000 shares authorized actual, pro
forma, and as adjusted; no shares issued and
outstanding actual, 6,770,001 shares issued
and outstanding pro forma and as adjusted;
shares issued and outstanding as
adjusted.................................... -- 7
Additional paid-in capital..................... 13,313 194,206
Deferred compensation.......................... (1,333) (1,333)
Accumulated deficit............................ (21,875) (21,875)
Accumulated other comprehensive loss........... (3,485) (3,485)
-------- -------- -----
Total stockholders' equity (deficit)....... (13,378) 167,555
-------- -------- -----
Total capitalization..................... $187,613 $188,837 $
======== ======== =====
</TABLE>
14
<PAGE>
DILUTION
Our net tangible book value at September 30, 1999 was $78.4 million, or $1.87
per share of common stock. Net tangible book value per share represents the
amount of total tangible assets less total liabilities, divided by the number
of shares of common stock outstanding.
Dilution per share to new investors represents the difference between the
amount per share paid by purchasers of common stock in this offering and the
net tangible book value per share of common stock immediately after completion
of this offering. After giving effect to the sale of shares of common stock
in the offering at an assumed initial public offering price of $ per share
and after deducting underwriting fees and estimated offering expenses, our
adjusted net tangible book value at September 30, 1999 would have been $ , or
$ per share. This represents an immediate increase in tangible book value
per share to existing stockholders of $ and an immediate dilution in
tangible book value per share to new investors purchasing shares in the
offering of $ per share. The following table illustrates this per share
dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $
Net tangible book value per share at September 30, 1999....... $1.87
Increase per share attributable to new investors.............. $
-----
Net tangible book value per share after the offering............
---
Dilution per share to new investors............................. $
===
</TABLE>
The following table presents on an adjusted pro forma basis as of September
30, 1999, the difference between the number of shares of common stock purchased
from us, the total consideration paid to us and by new investors, before
deduction of the underwriting discount and commissions and estimated offering
expenses payable by us:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------- ---------------------- Average Price
Number Percent Amount Percent Per Share
-------- -------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... % $ % $
New investors...........
-------- -------- ---------- -------- ----
Total................. % $ % $
======== ======== ========== ======== ====
</TABLE>
The above discussion excludes
. 4,622,500 shares of common stock issuable upon the exercise of
options granted under our 1998 Stock Option and Restricted Stock Plan
and outstanding as of November 15, 1999 with a weighted average
exercise price of $6.08 per share. To the extent any of these stock
options are exercised, there will be further dilution to new
investors.
. 5,000 shares of common stock reserved for issuance pursuant to a
purchase right granted under our Key Employee Equity Plan at a price
of $8.25 per share.
. 100,000 shares of common stock reserved for the exercise of an
outstanding warrant at an exercise price of $2.40 per share.
. any shares we may issue under the underwriters' over-allotment
option.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
Our selected consolidated statement of operations data for the period from
inception, June 13, 1997, to December 31, 1997 and for the year ended December
31, 1998 and our balance sheet data as of December 31, 1997 and 1998 are
derived from our consolidated financial statements which have been audited by
PricewaterhouseCoopers LLP, independent accountants. Our statement of
operations data for the nine months ended September 30, 1998 and 1999 and our
balance sheet data as of September 30, 1999 are derived from our unaudited
interim financial statements and, in the opinion of our management, include all
material adjustments, consisting only of normal and recurring adjustments
necessary for a fair presentation of the results of operations and financial
condition. Operating results for the nine months ended September 30, 1999 are
not necessarily indicative of the results that may be expected for the full
year.
As used in the table below, "EBITDA" represents earnings or loss from
operations before interest, taxes, depreciation, amortization and non-cash
stock compensation charges. The primary measure of operating performance is net
earnings. Although EBITDA is a measure commonly used in our industry, it should
not be considered an alternative to net earnings, when determined in accordance
with generally accepted accounting principles or GAAP, as an indicator of
operating performance or as an alternative to cash flows from operating
activities, determined in accordance with GAAP. In addition, the measure of
EBITDA we use may not compare to other, similarly titled measures used by other
companies.
The selected consolidated financial data and accompanying notes should be
read together with our audited consolidated financial statements, our unaudited
interim financial statements, our acquired companies' financial statements and
related notes, and other financial information including "Management's
Discussion and Analysis of Financial Condition and Results of Operations," all
of which are included elsewhere in this prospectus.
16
<PAGE>
<TABLE>
<CAPTION>
Period from Inception Nine Months Nine Months
(June 13, 1997) to Year Ended Ended Ended
December 31, 1997 December 31, 1998 September 30, 1998 September 30, 1999
--------------------- ----------------- ------------------ ------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Access................. $ -- $ 3,212 $ -- $ 17,225
Value-added services... -- 136 -- 5,777
Other.................. -- -- -- 364
------- -------- -------- ---------
Total revenues......... -- 3,348 -- 23,366
Operating costs and
expenses:
Internet services...... -- 1,724 -- 10,321
Selling, general and
administrative........ 336 6,387 2,864 22,113
Depreciation and
amortization.......... -- 1,304 3 10,656
------- -------- -------- ---------
Total operating costs
and expenses.......... 336 9,415 2,867 43,090
------- -------- -------- ---------
Loss from operations.... (336) (6,067) (2,867) (19,724)
Other operating
expenses:
Interest income, net... 15 1,425 962 1,333
Loss in unconsolidated
affiliates............ -- (1,199) (447) (177)
Foreign currency
gains................. -- 115 -- 1,269
------- -------- -------- ---------
Loss before minority
interest and income
taxes.................. (321) (5,726) (2,352) (17,299)
Income tax benefit..... -- 145 -- --
Minority interest...... -- 239 -- 1,087
------- -------- -------- ---------
Net loss attributable to
common stockholders.... $ (321) $ (5,342) $ (2,352) $ (16,212)
======= ======== ======== =========
Basic and diluted loss
per share attributable
to common
stockholders........... $(10.66) $ (24.29) $ (11.64) $ (20.50)
======= ======== ======== =========
Shares used in computing
basic and diluted loss
per share.............. 30,063 219,964 202,077 790,953
Other Financial Data:
Net cash used in
operating activities... (233) (3,784) (1,618) (6,943)
Net cash used in
investing activities... (8) (14,383) (3,185) (61,678)
Net cash provided by
financing activities... 1,048 52,187 52,237 125,994
EBITDA.................. (336) (4,763) (2,864) (8,585)
Depreciation and
amortization........... -- 1,304 3 10,656
Non-cash stock
compensation charges... -- -- -- 483
Capital expenditures.... 8 868 45 12,810
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of
--------------------- September 30,
1997 1998 1999
--------- ---------- --------------
(Dollars in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............... $ 807 $ 34,711 $ 91,503
Goodwill................................ -- 29,848 91,507
Other assets............................ 14 8,466 32,122
--------- ---------- --------
Total assets............................ $ 821 $ 73,025 $215,132
Short-term notes and current portion of
long-term debt......................... $ -- $ 11,182 $ 9,266
Long-term debt and capital lease
obligations, net of current portion.... -- 565 10,792
Other liabilities....................... 94 6,487 22,564
Minority interest in consolidated
subsidiaries........................... -- 7,597 4,955
Mandatorily redeemable convertible
preferred stock........................ 1,018 53,075 180,933
Total stockholders' deficit............. (291) (5,881) (13,378)
--------- ---------- --------
Total liabilities and stockholders'
deficit................................ $ 821 $ 73,025 $215,132
</TABLE>
17
<PAGE>
SELECTED COMBINED PRO FORMA FINANCIAL DATA
Our pro forma statement of operations data for the year ended December 31,
1998 and the nine months ended September 30, 1999 give effect to our
acquisition of 15 companies between January 1, 1998 and September 30, 1999, our
acquisition of InfoAcces, which was made after September 30, 1999, as though
such acquisitions had occurred on January 1, 1998 and the conversion of all of
the outstanding mandatorily redeemable convertible preferred stock into common
stock. The pro forma balance sheet data as of September 30, 1999 give effect to
our acquisition of InfoAcces and the conversion of all of the outstanding
mandatorily redeemable convertible preferred stock into common stock. The pro
forma financial data for the year ended December 31, 1998 and the nine months
ended September 30, 1999 are not necessarily indicative of the results that
would have occurred if the transactions had been consummated as of January 1,
1998 and are not intended to indicate expected results for any future period.
The selected unaudited pro forma combined financial data and accompanying
notes should be read together with our audited consolidated financial
statements, unaudited interim financial statements, unaudited pro forma
condensed combined financial statements, our acquired companies' financial
statements and related notes and other financial information including
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations," all of which are included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Year Ended December 31, 1998
------------------------------------------------
Completed Pro Forma
VIA Acquisitions Adjustments Pro Forma
------- ------------ ----------- ----------
(Dollars in thousands, except per share
Statement of Operations Data: data)
<S> <C> <C> <C> <C>
Revenues:
Access....................... $ 3,212 $27,514 $ -- $ 30,726
Value-added services......... 136 9,251 -- 9,387
Other........................ -- 1,997 -- 1,997
------- ------- ---------- ----------
Total revenues............... 3,348 38,762 -- 42,110
Operating costs and expenses:
Internet services ........... 1,724 15,831 -- 17,555
Selling, general and
administrative.............. 6,387 22,733 -- 29,120
Depreciation and
amortization................ 1,304 2,991 26,698 (1) 30,993
------- ------- ---------- ----------
Total operating costs and
expenses.................... 9,415 41,555 26,698 77,668
------- ------- ---------- ----------
Loss from operations.......... (6,067) (2,793) (26,698) (35,558)
Interest income, net.......... 1,425 (769) (632)(2) 24
Gain (loss) in unconsolidated
affiliate.................... (1,199) -- 1,199 (3) --
Foreign currency gains........ 115 79 -- 194
------- ------- ---------- ----------
Loss before minority interest
and income taxes............. (5,726) (3,483) (26,131) (35,340)
Income tax benefit (expense).. 145 (225) -- (80)
Minority interest............. 239 -- (471)(4) (232)
------- ------- ---------- ----------
Net loss attributable to
common stockholders.......... $(5,342) $(3,708) $ (26,602) $ (35,652)
======= ======= ========== ==========
Basic and diluted loss per
share attributable to common
stockholders................. $(24.29) $ (2.84)
======= ==========
Shares used in computing basic
and diluted loss per share... 219,964 12,329,066 (5) 12,549,030
</TABLE>
- ---------------------
(1) Reflects the additional goodwill amortization expense which would have been
recognized if all acquisitions had occurred on January 1, 1998.
(2) Reflects the additional interest expense on notes related to various
acquisitions which would have accrued had the acquisitions occurred on
January 1, 1998.
(3) Reverses the loss in unconsolidated affiliate.
(4) Reverses the minority interest recognized for one subsidiary, which is
treated as if 100% was acquired on January 1, 1998 and reflects additional
minority interest which would have been recognized if all acquisitions had
occurred on January 1, 1998.
(5) Reflects the conversion of our outstanding mandatorily redeemable
convertible preferred stock into common stock and the issuance of shares in
connection with the purchase of various subsidiaries.
18
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999
-------------------------------------------------
Completed Pro Forma
VIA Acquisitions Adjustments Pro Forma
-------- ------------ ----------- ----------
(Dollars in thousands, except per share)
<S> <C> <C> <C> <C>
Revenues:
Access...................... $ 17,225 $10,258 $ -- $ 27,483
Value-added services........ 5,777 6,252 -- 12,029
Other....................... 364 2,220 -- 2,584
-------- ------- ---------- ----------
Total revenues.............. 23,366 18,730 -- 42,096
Operating costs and expenses:
Internet services........... 10,321 7,323 -- 17,644
Selling, general and
administrative............. 22,113 11,409 -- 33,522
Depreciation and
amortization............... 10,656 1,390 12,154 24,200
-------- ------- ---------- ----------
Total operating costs and
expenses................... 43,090 20,122 12,154 (1) 75,366
-------- ------- ---------- ----------
Loss from operations......... (19,724) (1,392) (12,154) (33,270)
Interest income, net......... 1,333 (173) (77)(2) 1,083
Gain (loss) in unconsolidated
affiliate................... (177) -- 177 (3) --
Foreign currency gain........ 1,269 (160) -- 1,109
-------- ------- ---------- ----------
Loss before minority interest
and income taxes............ (17,299) (1,725) (12,054) (31,078)
Income tax benefit
(expense)................... -- (172) -- (172)
Minority interest............ 1,087 -- (235)(4) 852
-------- ------- ---------- ----------
Net loss attributable to
common stockholders......... $(16,212) $(1,897) $ (12,289) $ (30,398)
======== ======= ========== ==========
Basic and diluted loss per
share attributable to common
stockholders................ $ (20.50) $ (2.08)
======== ==========
Shares used in computing
basic and diluted loss per
share....................... 790,953 13,829,840 (5) 14,620,793
</TABLE>
- ---------------------
(1) Reflects the additional goodwill amortization expense which would have been
recognized if all acquisitions had occurred on January 1, 1998.
(2) Reflects the additional interest expense on notes related to various
acquisitions which would have accrued had the acquisitions occurred on
January 1, 1998.
(3) Reverses the loss in unconsolidated affiliate.
(4) Reverses the minority interest recognized for one subsidiary, which is
treated as if 100% was acquired on January 1, 1998 and reflects additional
minority interest which would have been recognized if all acquisitions had
occurred on January 1, 1998.
(5) Reflects the conversion of our outstanding mandatorily redeemable
convertible preferred stock into common stock and the issuance of shares in
connection with the purchase of various subsidiaries.
19
<PAGE>
<TABLE>
<CAPTION>
As of September 30, 1999
-----------------------------------------------
Pro Forma
VIA InfoAcces Adjustments Pro Forma
-------- --------- ----------- ---------
(Dollars in thousands, except per share)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents.... $ 91,503 $ 232 $ (50,966)(1) $ 40,769
Restricted cash.............. -- 15,000 (1) 15,000
Trade and other accounts
receivable.................. 6,833 3,143 -- 9,976
Other current assets......... 1,916 426 -- 2,342
-------- ------- --------- --------
Total current assets......... 100,252 3,801 (35,966) 68,087
Property and equipment, net... 22,843 2,749 -- 25,592
Goodwill...................... 91,507 -- 31,221 (1) 122,728
Other assets.................. 530 1,506 1,000 (1) 3,036
-------- ------- --------- --------
Total assets................. $215,132 $ 8,056 $ (3,745) $219,443
======== ======= ========= ========
Liabilities, Mandatorily
Redeemable Convertible
Preferred Stock And
Stockholders Equity (Deficit)
Current liabilities:
Accounts payable............. $ 7,189 $ 2,074 $ -- $ 9,263
Other taxes payable.......... 1,975 -- -- 1,975
Current portion of long-term
debt........................ 9,266 854 -- 10,120
Deferred revenue............. 8,795 508 -- 9,303
Other current liabilities and
accrued expenses............ 4,336 469 -- 4,805
-------- ------- --------- --------
Total current liabilities.... 31,561 3,905 35,466
Long-term debt, less current
portion..................... 10,792 370 -- 11,162
Other non current
liabilities................. 269 36 -- 305
-------- ------- --------- --------
Total liabilities............ 42,622 4,311 46,933
Minority interest in
consolidated subsidiaries.... 4,955 -- -- 4,955
Mandatorily redeemable
convertible preferred stock.. 180,933 -- (180,933)(2) --
Stockholders' equity
(deficit):
Preferred stock.............. -- -- -- --
Common stock................. 2 5,210 (5,170)(1)(2) 42
Additional paid in capital... 13,313 389 180,504 (1)(2) 194,206
Accumulated deficit.......... (21,875) (1,854) 1,854 (1) (21,875)
Deferred compensation........ (1,333) -- -- (1,333)
Accumulated other
comprehensive loss.......... (3,485) -- -- (3,485)
-------- ------- --------- --------
Total stockholders' equity
(deficit)................... (13,378) 3,745 177,188 167,555
-------- ------- --------- --------
Total liabilities,
mandatorily redeemable
convertible preferred stock
and stockholders' equity
(deficit).................. $215,132 $ 8,056 $ (3,745) $219,443
======== ======= ========= ========
</TABLE>
- ---------------------
(1) Reflects the consolidation of InfoAcces as if it were acquired on
September 30, 1999.
(2) Reflects the conversion of our outstanding mandatorily redeemable
convertible preferred stock on a one-for-one basis into common stock, which
will occur concurrently with completion of this offering.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis is based on the consolidated historical
results of VIA NET.WORKS, Inc. and the historical results for each of our
operating companies for which separate data have been included in this
prospectus.
Overview
We are a leading international provider of Internet access and services
focused on small and mid-sized businesses in Europe and Latin America. We have
built our business through the acquisition, integration and growth of 17
Internet services providers in 11 countries, all of which have been acquired
since June 1998. We currently operate in Argentina, Brazil, France, Germany,
Ireland, Mexico, the Netherlands, Portugal, Spain, Switzerland and the United
Kingdom.
Our financial statements for the period from inception through December 31,
1997 include only corporate expenses. We were a development stage company
during this period and had no revenue-producing operations. Our consolidated
financial statements as of and for the year ended December 31, 1998 include the
results of the four wholly or majority-owned operating companies we acquired
during 1998. These statements also recognize our equity interest in a fifth
operating company, i-way, in which we acquired a minority interest during 1998.
Our consolidated financial statements as of and for the nine months ended
September 30, 1999, include the results of the 14 wholly or majority-owned
operating companies we acquired during 1998 and the first nine months of 1999.
These statements also recognize our equity interest in i-way through August 5,
1999. On that date we purchased the remaining equity in i-way and began
recognizing its results on a consolidated basis.
We evaluate our business based on our geographic regions. The following table
presents information about our European and Latin American market segments
individually and on a consolidated basis, which includes corporate financial
data, for the years ended December 31, 1997 and December 31, 1998, and for the
nine months ended September 30, 1998 and September 30, 1999.
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
-------------- -----------------
1997 1998 1998 1999
----- ------- ------- --------
(In thousands)
<S> <C> <C> <C> <C>
Europe
Total revenue.............................. $ -- $ 2,697 $ -- $ 19,378
EBITDA..................................... -- (45) -- (2,032)
Total assets............................... -- 7,666 -- 14,178
Latin America
Total revenue.............................. -- 651 -- 3,988
EBITDA..................................... -- (329) -- (902)
Total assets............................... -- 4,407 3,294 (995)
Consolidated
Total revenue.............................. -- 3,348 -- 23,366
EBITDA..................................... (336) (4,763) (2,864) (8,585)
Total assets............................... 821 73,025 54,287 215,132
</TABLE>
As used in the above table and in the table under "Quarterly Results of
Operations" in this section, "EBITDA" represents earnings or loss from
operations before interest, taxes, depreciation, amortization and non-cash
stock compensation charges. The primary measure of operating performance is net
earnings. Although EBITDA is a measure commonly used in our industry, it should
not be considered an alternative to net earnings, when determined in accordance
with generally accepted accounting principles or GAAP, as an indicator of
operating performance or as an alternative to cash flows from operating
activities, determined in accordance with GAAP. In addition, the measure of
EBITDA we use may not compare to other, similarly titled measures used by other
companies.
21
<PAGE>
Revenues
We generate revenue from the sale of Internet access and value-added
services. Revenue from Internet access services, both dial-up and dedicated,
comes primarily from subscriptions purchased by businesses and consumers. These
subscriptions, most often for three, six or 12-month service periods, are
generally paid for in advance. Larger business customers may be billed monthly
with payment generally being made by direct charge to a credit or debit
account. Additionally, in some countries we receive revenue in the form of
payments from the telecommunications companies that our customers use to access
our services. These providers charge by the minute for both local and long
distance calls, and pay us a portion of the fees they generate from our
customers' Internet use. All of our access revenues are recognized as they are
earned.
Revenue from Internet value-added services comes from web hosting,
applications hosting, domain name registration, sales, installation and
maintenance of hardware and software, training and consulting and other
services. Services such as web and applications hosting and domain name
registration are often sold on a subscription basis and are paid for in advance
or by monthly direct charges to credit or debit accounts. These revenues are
recognized over the period in which services are provided. Revenues from
hardware and software sales, installation and maintenance, training and
consulting, and other services are usually on a contract basis. These services
are billed periodically and revenues are recognized as they are earned.
Internet access charges and fees for value-added services vary among our
operating companies, depending on competition, economic and regulatory
environments and other market factors. In some markets, we have reduced prices,
especially for access services, as a result of competitive pressure. We expect
that this pressure will continue in our markets as the demand for, and supply
of, Internet services continue to grow.
Expenses
Our Internet services operating costs are the costs we incur to carry
customer traffic to and over the Internet. We lease lines that connect our
points of presence, or PoPs, either to our own network or to other network
providers. We pay other network providers for transit, which allows us to
transmit our customers' information to or from the Internet over their
networks. We also pay other recurring telecommunications costs, including the
cost of the local telephone lines our customers use to reach our PoPs and
access our services. We expect that our Internet services operating costs will
increase as we increase capacity to meet customer demand. We anticipate that
these costs will decline as a percentage of revenue, however, as we expand our
owned network facilities and as competition drives the overall price of network
capacity downward.
Our largest selling, general and administrative expenses are compensation
costs and the costs associated with marketing our products and services.
Compensation costs include salaries and related benefits, commissions and
bonuses. In many of our markets, we are required to make significant mandatory
payments for government-sponsored social welfare programs, and we have little
control over these costs. Our marketing expenses include the costs of direct
mail and other mass marketing programs, advertising, customer communications,
trade show participation, web site management and other promotional costs.
Other selling, general and administrative expenses include the costs of travel,
rent, utilities, insurance and professional fees. We expect that our selling,
general and administrative expenses will increase to support our growth.
The largest component of our depreciation and amortization expense is the
amortization of the goodwill arising from our acquisitions. Goodwill, which we
amortize over five years, is created when the price at which we acquire a
company exceeds the value of its tangible and intangible assets. We expect
goodwill amortization expense to increase as we make additional acquisitions
and as competition pushes the prices of those acquisitions higher. We also
recognize depreciation expense primarily related to telecommunications
equipment, computers and network infrastructure. We depreciate these assets
over their useful lives, generally ranging from three to five years. Our
network infrastructure is depreciated over 20 or 25 years, depending on the
contract term. We expect depreciation expense to increase as we expand our
network infrastructure and acquire additional operations.
22
<PAGE>
When applicable, we also recognize interest income and expense, our interest
in an unconsolidated subsidiary and minority interest. We earn interest income
primarily by investing our available cash in short-term treasury securities
funds. To date, this interest income has been partially offset by interest
expense, largely arising from purchase and lease financing in our operating
subsidiaries. Interest in an unconsolidated subsidiary recognizes the value of
our minority investment in i-way. In August 1999 we acquired all the remaining
shares of i-way and began consolidating the results of that subsidiary. For
subsidiaries where we own less than 100% of the equity, minority interest
eliminates a portion of operating results equal to the percentage of equity we
do not own.
We have recorded deferred stock compensation totaling $1.8 million in
connection with the grant of stock options to employees. This amount represents
the difference between the deemed fair market value of our common stock on the
dates these options were granted and the exercise price of the options. The
amount is included as a reduction of stockholders' equity and is being
amortized over the vesting period of the individual options, generally four
years. For the nine months ended September 30, 1999, we recorded $483,000 in
non-cash, deferred stock compensation charges, leaving $1.3 million to be
recognized over the remaining vesting periods of the stock options. As a
result, we expect to recognize $575,000 in non-cash, deferred stock
compensation charges in the year ending December 31, 1999, $369,000 in the year
ending December 31, 2000, $368,000 in each of the years ending December 31,
2001 and 2002 and $137,000 in the year ending December 31, 2003.
Results of Operations
Nine months ended September 30, 1999 compared with nine months ended September
30, 1998
Revenue. For the nine months ended September 30, 1999, we had revenue of
$23.4 million. This revenue was generated by the 15 consolidated subsidiaries
that we owned for all or a portion of the period. Of this revenue, 73.7% came
from the sale of Internet access and 26.3% came from the sale of value-added
and other services. Of our value-added and other services revenue, 72.0% came
from web site services including web hosting, web design and domain name
registration. We had no revenue for the nine months ended September 30, 1998 as
we acquired our first consolidated subsidiary on September 24, 1998 and did not
recognize revenue from that operation until October 1998.
Internet services operating costs. Our Internet services operating costs were
$10.3 million for the nine months ended September 30, 1999. We incurred these
costs primarily to lease lines and purchase transit for the local networks
maintained by the 15 consolidated subsidiaries that we owned for all or a
portion of the period, as well as for operating costs associated with our
international network. We had no Internet services operating costs for the nine
months ended September 30, 1998. We acquired our first consolidated subsidiary
on September 24, 1998 and did not consolidate the results of that operation
until October 1998. Additionally, we did not establish our international
network until June 1999.
Selling, general and administrative. We incurred selling, general and
administrative expenses of $22.1 million for the nine months ended September
30, 1999, a 673.5% increase over the $2.9 million we incurred for the nine
months ended September 30, 1998. This increase was primarily due to the
addition of costs incurred by the 15 consolidated subsidiaries that we owned
for all or a portion of the 1999 period, but that we did not own for the 1998
period. During the 1999 period, $16.0 million, or 72.3%, of these expenses were
incurred by our local operations and $6.1 million, or 27.7%, were incurred by
our corporate organization. The expenses incurred by our corporate organization
increased by 114.5% between the 1998 and 1999 periods, largely due to the costs
associated with employing a larger number of corporate and regional personnel
and identifying and acquiring an increasing number of operating companies.
Depreciation and amortization. Our depreciation and amortization expense was
$10.7 million for the nine months ended September 30, 1999, up from $3,000 for
the nine months ended September 30, 1998. This increase was primarily due to
the amortization of goodwill arising from the acquisitions of the 15
consolidated subsidiaries completed between September 24, 1998 and September
30, 1999. The acquisition of these
23
<PAGE>
subsidiaries and the implementation of our international network also increased
our depreciation expense for telecommunications equipment, computers and other
fixed assets. For the 1999 period, $8.1 million, or 76.2%, of our depreciation
and amortization expense was related to the amortization of acquisition
goodwill and $2.6 million, or 23.8% was related to the depreciation of fixed
assets. For the 1998 period, all of this expense was related to the
depreciation of fixed assets.
Interest income and expense. For the nine months ended September 30, 1999, we
earned $2.3 million in interest income, a 139.8% increase over the $962,000 we
earned for the nine months ended September 30, 1998. Interest income in both
periods was generated primarily from investing funds generated by the sale of
preferred shares until those funds were used for acquisitions, operating
expenses or capital expenditures. We raised $127.9 million in April 1999, $51.6
million in May 1998 and $1.5 million between August 1997 and April 1998 from
these sales. For the 1999 period, we also incurred $974,000 in interest
expense, primarily for purchase and lease financing of equipment in our
operating subsidiaries. We incurred no interest expense for the 1998 period.
Interest in unconsolidated subsidiary. For the nine months ended September
30, 1999, we recognized a $177,000 loss related to our minority investment in
i-way. This compared to a $447,000 loss recognized for the nine months ended
September 30, 1998 related to the same minority investment. This improvement
was due to i-way's significantly increased revenue and operating results,
largely related to a single contract under which it provides managed bandwidth
for another Internet services provider. In August 1999, we purchased all of the
remaining equity in i-way.
Foreign currency gains. We recognized a $1.3 million foreign currency gain
for the nine months ended September 30, 1999. In conjunction with some of our
acquisitions, we incurred debts to the acquired companies or their selling
stockholders denominated in foreign currencies. During this period, the U.S.
dollar strengthened relative to these currencies, and the related reduction in
the U.S. dollar value of these debts created a gain. We had no similar debts
for the nine months ended September 30, 1998 and so incurred no foreign
currency gains or losses for the period.
Year ended December 31, 1998 compared with period from inception, June 13,
1997, to December 31, 1997
Revenue. For the year ended December 31, 1998, we had revenue of $3.3
million. This revenue was generated by the four consolidated subsidiaries that
we owned for all or a portion of the period. We had no operations and therefore
no revenue for the period from inception to December 31, 1997.
Internet services operating costs. Our Internet services operating costs were
$1.7 million for the year ended December 31, 1998. We incurred these costs to
expand and maintain the network capabilities of the four consolidated
subsidiaries that we owned for all or a portion of the period. We had no
operations and therefore no Internet services operating costs for the period
from inception to December 31, 1997.
Selling, general and administrative. We incurred selling, general and
administrative expenses of $6.4 million for the year ended December 31, 1998,
up from $336,000 for the period from inception to December 31, 1997. This
increase was due to the addition of costs incurred by the four consolidated
subsidiaries that we owned for a portion of 1998 but that we did not own for
the 1997 period, and for the expansion of our corporate organization. During
1998, $2.0 million, or 31.3%, of these expenses were incurred by our local
operations and $4.4 million, or 68.7%, were incurred by our corporate
organization. All of the costs for the period from inception to December 31,
1997 were incurred in conjunction with the start-up of our corporate
organization.
Depreciation and amortization. Our depreciation and amortization expense was
$1.3 million for the year ended December 31, 1998. This expense was largely
made up of the amortization of goodwill arising from the acquisition of four
consolidated subsidiaries during 1998, and of depreciation expense for
telecommunications
24
<PAGE>
equipment, computers and other fixed assets in these operations. For 1998,
$936,000, or 71.8%, of our depreciation and amortization expense was related to
the amortization of acquisition goodwill and $368,000, or 28.2% was related to
the depreciation of fixed assets. We had no depreciation and amortization
expense for the period from inception to December 31, 1997.
Interest income and expense. For the year ended December 31, 1998, we earned
$1.5 million in interest income, up from $15,000 for the period from inception
to December 31, 1997. Interest income in both periods was generated primarily
from investing funds generated by the sale of preferred shares until those
funds were used for operating expenses, capital expenditures or, in 1998,
acquisitions. We raised $51.6 million in May 1998 and $1.5 million between
August 1997 and April 1998 from these sales. For 1999, we also incurred $29,000
in interest expense for purchase and lease financing of equipment in our
operating subsidiaries. We incurred no interest expense for the 1997 period.
Interest in unconsolidated subsidiary. For the year ended December 31, 1998,
we recognized a $1.2 million loss related to our minority investment in i-way.
We acquired this minority interest in June 1998 and therefore had recognized no
gains or losses for the period from inception to December 31, 1997.
Foreign currency gains. We recognized a $115,000 foreign currency gain for
the year ended December 31, 1998. In conjunction with some of our acquisitions,
we incurred debts to the acquired companies or their selling stockholders
denominated in foreign currencies. During this period, the U.S. dollar
strengthened relative to these currencies, and the related reduction in the
U.S. dollar value of these debts created a gain. We had no similar debts for
the period from inception to December 31, 1997 and so incurred no foreign
currency gains or losses for the period.
25
<PAGE>
Quarterly Results of Operations
The following tables present our results of operations for the four quarters
ended December 31, 1998, March 31, 1999, June 30, 1999 and September 30, 1999.
This information has been compiled from our unaudited financial statements. In
the opinion of our management, our unaudited financial statements have been
prepared on the same basis as our audited financial statements which appear
elsewhere in this prospectus, and include all adjustments, consisting only of
normal recurring adjustments, that we consider necessary to fairly present this
information. The results of operations for any quarter are not necessarily
indicative of the results of operations for any future period.
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------
December 31, March 31, June 30, September 30,
1998 1999 1999 1999
------------ --------- -------- -------------
(In thousands)
<S> <C> <C> <C> <C>
Revenues:
Access......................... $ 3,212 $ 4,447 $ 5,241 $ 7,537
Value-added services........... -- 1,011 1,376 3,389
Other.......................... 136 56 (29) 338
------- ------- ------- -------
Total revenues............... 3,348 5,514 6,588 11,264
Operating costs and expenses:
Internet services costs........ 1,724 2,757 3,022 4,542
Selling, general and
administrative................ 3,528 4,547 7,093 10,473
Depreciation and amortization.. 1,297 1,907 3,003 5,746
------- ------- ------- -------
Total operating costs and
expenses.................... 6,549 9,211 13,118 20,761
------- ------- ------- -------
Loss from operations............. $(3,201) $(3,697) $(6,530) (9,497)
EBITDA........................... $(1,904) $(1,790) $(3,137) $(3,658)
<CAPTION>
As a Percentage of Revenues
----------------------------------------------
December 31, March 31, June 30, September 30,
1998 1999 1999 1999
------------ --------- -------- -------------
<S> <C> <C> <C> <C>
Total revenues................... 100.0% 100.0% 100.0% 100.0%
Operating costs and expenses:
Internet services.............. 51.5 50.0 45.9 40.3
Selling, general and
administrative................ 105.4 82.5 107.7 93.0
Depreciation and amortization.. 38.7 34.6 45.6 51.0
------- ------- ------- -------
Total operating costs and
expenses.................... 195.6 167.1 199.2 184.3
------- ------- ------- -------
Loss from operations............. (95.6)% (67.1)% (99.1)% (84.3)%
EBITDA........................... (56.9)% (32.5)% (47.6)% (32.5)%
</TABLE>
Provision for Income Taxes
We incurred operating losses from inception through September 30, 1999 and
therefore have not recorded a provision for income taxes. We have recorded a
valuation allowance for the full amount of our net deferred taxes as the future
realization of the net tax benefit is not currently likely.
As of December 31, 1998, we had U.S. net operating loss carry-forwards of
approximately $1.4 million, which can be used to reduce future taxable income
through 2018. We also had foreign net operating loss carry-forwards of
$406,000, the majority of which will begin to expire in 2003.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through the sale
of equity securities. We have raised an aggregate of $181.0 million in three
private preferred stock offerings since August 1997, and at
26
<PAGE>
September 30, 1999, we had cash and cash equivalents of $91.5 million. We used
an additional $38.1 million to acquire InfoAcces and M&Cnet after September 30,
1999. We are pursuing an aggressive internal growth and acquisition strategy
that we anticipate will require significant additional funding before becoming
self-sustaining.
Net cash used in operating activities was $6.9 million for the nine months
ended September 30, 1999, $3.8 million for the year ended December 31, 1998 and
$233,000 for the period from inception through December 31, 1997. In each
period, cash was primarily used to fund operating losses.
Net cash used in investing activities was $61.7 million for the nine months
ended September 30, 1999, $14.4 million for the year ended December 31, 1998
and $8,000 for the period from inception through December 31, 1997. For the
nine months ended September 30, 1999 and the year ended December 31, 1998, cash
was primarily used for acquisitions, including, in 1998, our equity investment
in an unconsolidated subsidiary. We also made purchases of property and
equipment in each of the three periods.
Net cash provided by financing activities was $126.0 million for the nine
months ended September 30, 1999, $52.2 million for the year ended December 31,
1998 and $1.0 million for the period from inception through December 31, 1997.
In each period, cash was primarily generated by the sale of equity securities.
In conjunction with our acquisition of InfoAcces, we have agreed to pay
additional purchase price consideration of up to $30.0 million based on that
company's revenue growth between the time of acquisition and December 31, 2000.
Additional purchase price, if earned, will be paid quarterly beginning in
February 2000, with the last possible payment date being February 2001. We have
restricted cash of $15.0 million to secure the payment of any additional earned
purchase price. This amount will be reduced as payments are made. Additionally,
in conjunction with the acquisitions of some other operating companies, we have
issued notes to selling shareholders that, at maturity, will be valued at the
greater of principal plus interest or a percentage of the value of the
operating company based on a predetermined formula which considers revenue
growth, operating results and cash flow. As of October 31, 1999, the aggregate
principal amount of these notes outstanding was $7.7 million. Currently, the
principal amount of these notes is, in aggregate, greater than the value that
would be calculated using the formula. We expect, however, that some or all of
these operating companies will achieve results that will increase the value of
these notes and that we will have to recognize and pay additional purchase
price.
We believe that the proceeds of this offering, together with our cash and
cash equivalents, will be sufficient to fund our operations for the next 12
months. If our internal growth exceeds our expectations, or if we make more or
larger-than-anticipated acquisitions, we may need to raise additional capital
from debt or equity sources. We cannot be sure that we will be able to obtain
this additional financing or that, if we can, the terms will be acceptable to
us. If we cannot obtain additional financing on terms acceptable to us, we may
be forced to curtail our expansion and may be unable to fund our ongoing
operations.
Foreign Currency Exchange Risks
We conduct business in 11 different currencies. With the exception of the
Argentine Peso, the value of these currencies fluctuates in relation to the
U.S. dollar. At the end of each reporting period, the revenues and expenses of
our operating companies are translated into U.S. dollars using the average
exchange rate for that period, and their assets and liabilities are translated
into U.S. dollars using the exchange rate in effect at the end of that period.
Fluctuations in these exchange rates impact our financial condition, revenues
and results of operations, as reported in U.S. dollars.
Exchange rates can vary significantly, including exchange rates between Euro-
linked currencies and the U.S. dollar. This is possible because, although these
currencies are linked to the Euro, the exchange rates of these currencies into
U.S. dollars fluctuates independently from the exchange rate of the Euro into
U.S. dollars. During the first nine months of 1999, we experienced exchange
rate fluctuations in the Euro-linked currencies, and particularly in the German
Mark. The Mark varied by 15.2% in relation to the U.S. dollar during this
27
<PAGE>
period, and ended the period 8.7% below where it was nine months earlier. We
also experienced a devaluation of the Brazilian Real in January 1999. The Real
varied by 45.6% in relation to the U.S. dollar during the first nine months of
the year, and ended the period 37.2% below where it began. We also experienced
fluctuations in other exchange rates but they did not have a material impact on
our results.
Our local operations collect revenues and pay expenses in their home
currencies. They do not have significant assets, liabilities or other accounts
denominated in currencies other than their home currency, and therefore are not
subject to exchange rate risk with respect to their normal operations.
Year 2000 Readiness Disclosure
Many currently installed computer systems and software products are coded to
accept only two-digit year entries in the date code field. Consequently, on
January 1, 2000, many of theses systems could fail or malfunction because they
may be unable to distinguish 21st century dates from 20th century dates. As a
result, computer systems and software used by many companies, including us, our
suppliers, our customers and our potential customers, may need upgrades to
comply with Year 2000 requirements.
Internal readiness assessment. The Year 2000, or Y2K, problem may affect the
network infrastructure, computers, software and other equipment that we use,
operate or maintain for our operations. As a result, we have a formal Year 2000
compliance plan, implemented by our internal Y2K task group. This group is
responsible for monitoring the assessment and remediation status of our Year
2000 projects. Under our Year 2000 compliance plan, the Y2K task group has
compiled a listing of all items critical to our operations, both internally
developed and externally purchased, which may be impacted by the Year 2000
problem. We believe that we have identified most of the major computers,
software applications and related equipment used in connection with our
internal operations that will need to be modified, upgraded or replaced to
minimize the possibility of a material disruption to our business. In 1999 we
upgraded our network and operating systems and purchased Year 2000 compliant
servers, workstations, software packages and peripheral devices. As a result of
our upgrades, new purchases and Year 2000 testing, we believe that our
principal internal systems are Year 2000 compliant. However, we will continue
to assess and test our internal systems to ensure that all additions and
modifications to our systems meet our specifications for Year 2000 compliance.
Because we and our customers depend, to a very substantial degree, upon the
proper functioning of our computer systems, a failure of our systems to
correctly recognize dates beyond December 31, 1999 could materially disrupt our
operations and adversely affect our business, financial condition and results
of operations.
Third-party readiness assessment. We have obtained verification or validation
from most of our independent third-party suppliers whose products and services
are deemed critical to our operations as part of our assessment of any Year
2000 problems we may encounter. We have also obtained verification or
validation from most of our customers concerning Year 2000 compliance. However,
we have limited or no control over the actions of these third-party suppliers
and customers. Thus, while we expect that we will be able to resolve any
significant Year 2000 problems with these third-parties, we cannot be certain
that these business relationships will resolve any or all Year 2000 problems
before the occurrence of a material disruption to our operations. Any failure
of these third-parties to resolve Year 2000 problems with their systems in a
timely manner could significantly harm our business, financial condition and
results of operations.
Costs. To date, we have funded the costs to become Year 2000 compliant and
have not separately accounted for these costs. These costs have not been
material. We will incur additional costs related to Year 2000 compliance for
administrative personnel to manage the process of remaining Year 2000
compliant.
Most likely consequences of Year 2000 problems. We expect to identify and
resolve all Year 2000 problems that could significantly harm our business.
However, we believe that the possibility exists that we may experience problems
and costs with Year 2000 compliance which could divert our time and resources
from ordinary business activities and have a material adverse effect on our
business, financial condition and results
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<PAGE>
of operations. The worst case scenario for Year 2000 problems for us would be
the need to cease normal operations for an indefinite period or time while we
attempt to respond to our Year 2000 problems.
Contingency plans. We have developed contingency plans to be implemented if
our efforts to identify and correct Year 2000 problems are not effective. We
expect our contingency plans to be ready for implementation by December 31,
1999.
Conversion to the Euro
On January 1, 1999, 11 of the 15 European Union member countries adopted the
Euro as their common legal currency, at which time their respective individual
currencies became fixed at a rate of exchange to the Euro, and the Euro became
a currency in its own right. Presently, the following 11 currencies are subject
to the Euro conversion: the Austrian Schilling, the Belgian Franc, the Dutch
Guilder, the Finnish Markka, the French Franc, the German Mark, the Irish Punt,
the Italian Lire, the Luxembourg Franc, the Portuguese Escudo and the Spanish
Peseta.
During a January 1, 1999 until January 1, 2002 transition period, the Euro
will exist in electronic form only and the participating countries' individual
currencies will continue in tangible form as legal tender in fixed
denominations of the Euro. During the transition period, we must manage
transactions with our customers and our third-party vendors in both the Euro
and the participating countries' respective individual currencies. We have
purchased and specified our business support systems, including accounting and
billing, to accommodate Euro transactions and dual currency operations during
the transition period. In addition, we intend to require all vendors supplying
third-party software to us to warrant that their software will be Euro
compliant.
We conduct business transactions with customers, network suppliers, banks and
other businesses, and we will be exposed to Euro conversion problems in these
third-party systems. During the transition period, to the extent we are
supplying local service, we can continue billings and collections in the
individual currencies to avoid Euro conversion problems. However, to the extent
we have cross-border transactions in European Union countries, we will be
exposed to Euro-related risks. The establishment of the European Monetary Union
may have a significant effect on the economies of the participant countries.
While we believe that the introduction of the Euro will eliminate exchange rate
risks in respect of the currencies of those member states that have adopted the
Euro, there can be no assurance as to the relative strength of the Euro against
other currencies. Since a substantial portion of our net sales will be
denominated in the Euro or currencies of European Union countries, we will be
exposed to that risk.
Quantitative and Qualitative Disclosures about Market Risk
We are primarily exposed to market rate risk with respect to foreign currency
denominated debt obligations. With the exception of debt incurred in
conjunction with our acquisitions, the substantial majority of our debt
obligations have fixed interest rates and are denominated in the functional
currencies of our various operating companies. As of December 31, 1998 our non-
acquisition debt obligations amounted to $1.1 million. As of December 31, 1998,
we also had notes payable to the selling shareholders of U-Net in the aggregate
principal amount of (Pounds)4.9 million which accrued interest at 7.561% per
annum and were due October 29, 1999. In October 1999, a portion of these notes
was repaid and the remainder, accruing interest at 7.125%, was extended at the
option of each holder. At December 31, 1998 the aggregate carrying amount of
the notes was $8.3 million, which was equal to the approximate fair market
value on that date.
Our investments are generally fixed rate short-term investment grade and
government securities denominated in U.S. dollars. At December 31, 1998, all of
our investments were due to mature within 12 months and the carrying value of
such investments approximated fair value. We actively monitor the capital and
investing markets in analyzing our capital raising and investing decisions.
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<PAGE>
BUSINESS
We have 17 operating companies in 11 countries in Europe and Latin America.
These operating companies provide local service and support to over 49,700
business customers in our two targeted regional markets. The table below
provides information on the countries in which we operate, their Internet
penetration, which is the percentage of population using the World Wide Web,
the number of customers we had as of September 30, 1999, giving pro forma
effect to one of two acquisitions we made after September 30, 1999 and our pro
forma revenues for the three months ended September 30, 1999.
<TABLE>
<CAPTION>
Pro Forma
Revenues for
Country the Three
VIA Operating Internet Number of Months Ended
Company Countries Penetration(1) VIA Customers September 30, 1999
----------------- -------------- ------------- ------------------
(In thousands)
<S> <C> <C> <C>
Europe:
France................ 6.9% 1,500 $ 217.0
Germany............... 12.4 1,900 2,303.7
Ireland............... 8.6 2,900 279.5
Netherlands........... 15.7 11,400 953.1
Portugal.............. 4.7 11,600 953.6
Spain................. 5.1 9,500 364.8
United Kingdom........ 15.1 41,800 5,709.9
------ ---------
Total Europe........ 80,600 $10,781.6
Latin America:
Argentina............. 1.5% 11,000 $ 970.2
Brazil................ 2.0 7,800 548.6
Mexico................ 2.5 16,100 2,817.2
------ ---------
Total Latin
America............ 34,900 $ 4,336.0
</TABLE>
---------------------
(1)According to IDC for Europe, and The Yankee Group for Latin
America.
The number of customers in the table above does not include the end user
customers that are served by our direct customers who resell our access
services.
Our Markets
Overview. The rapidly growing demand for Internet access and other value-
added Internet services, coupled with low barriers to entry into the
marketplace, have resulted in a highly fragmented Internet services industry.
There are currently over 8,000 Internet services providers, of which 3,000
operate outside of the United States. We believe small and mid-sized businesses
in our targeted markets are under-served by both large and small Internet
services providers. Large Internet services providers in Europe and Latin
America, which generally focus on Internet access products and rely on indirect
sales, telemarketing and remote customer call centers to serve their customers,
typically lack the local presence needed to provide customized, hands-on
solutions to small and mid-sized business customers. Small, local Internet
services providers in these markets typically cannot provide dedicated, high-
capacity Internet access, round-the-clock support and a complete range of
competitively priced service offerings.
Market size. The Internet experienced rapid growth in the 1990s and has
emerged as a global medium for communications and commerce. Internet access and
services represent two of the fastest growing segments of the
telecommunications services market. This growth is driven by a number of
factors, including:
. the large and increasing number of personal computers and other devices,
in both offices and homes, that are linked to the Internet
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<PAGE>
. advances in network design which allow for rapid retrieval of information
from the Internet
. increased availability of Internet-based software and applications
. the emergence of useful content and e-commerce technologies
. Internet access becoming more widely available, convenient and
inexpensive
As shown below, market studies forecast strong growth in Internet services
revenue in our target markets. International Data Corporation, or IDC, predicts
that business Internet services revenues will grow 32.9% annually in Western
Europe from $3.0 billion in 1998 to $12.5 billion in 2003. These revenues come
from the sale of access and value-added services, along with the sale of
network capacity and traffic management services to other Internet service
providers. According to IDC, the greatest growth during this period will occur
in the value-added services area, where revenues are forecasted to increase
from $528 million in 1998 to $3.7 billion in 2003, or 48% annually. IDC also
expects that overall business access revenue growth will remain strong,
averaging nearly 29% annually during the same period.
[A bar graph appears here, showing the projected amount (in billions of
dollars) of Western Europe Business Internet Revenues for Business Access,
Value-Added Services, and Managed Bandwidth Services for each of the years
1998-2003]
According to a December 1998 Yankee Group study of active Internet accounts,
Internet usage in Latin America grew by 120% in 1998, the highest growth rate
of any region in the world. The region remains one of the world's least
penetrated, with an estimated 15 Internet users for each 1,000 people. The same
study predicts that the number of active Internet access accounts will grow
80.0% annually to 26.4 million in 2002, as Latin American markets become
deregulated, network infrastructure improves and local content becomes more
available. The Yankee Group also estimates that Internet access revenues alone
should increase by 68.2% annually, to $6.0 billion in 2002.
Business use of the Internet. Businesses initially used the Internet by
establishing web sites to improve internal and external corporate
communications. Today, businesses worldwide increasingly are using the Internet
for critical applications, such as on-line sales and marketing, customer
service, purchasing and project management. The Internet presents a compelling
profit opportunity for businesses by enabling them to reduce operating costs,
access valuable information and reach new markets. Internet access provides a
company with a basic gateway to the Internet, allowing it to use e-mail, access
information, and communicate and conduct transactions with employees, customers
and suppliers. A web site provides a company with an identity and interactive
presence on the Internet, allowing it to post company information and automate
business processes such as sales, order entry and customer service.
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<PAGE>
In Europe, we have seen the emergence of "free Internet" providers. These
companies offer Internet access at no charge, generating income instead through
revenue sharing arrangements with the local telephone providers. In contrast to
the United States where individuals and businesses typically obtain local
telephone service for flat-rate monthly charges, in Europe and Latin America,
customers generally pay on a per-minute basis. We believe the "free Internet"
providers create an opportunity for us because these providers bring a large
number of new Internet users on-line, which makes it more important for small
and mid-sized businesses to have an Internet presence.
Our targeted customers recognize the benefit of having a business presence on
the Internet. However, they often do not have the resources to implement and
maintain rapidly changing technologies, create and update content and
communicate with employees, customers and suppliers electronically. Outsourcing
arrangements provide a simple and cost-effective solution to these challenges.
Effect of deregulation. In recent years, European and Latin American
governments have, to varying degrees, pursued efforts to deregulate and
liberalize their telecommunications markets. These efforts, which include the
gradual opening up of the long-held monopolies of the incumbent national
telephone companies and the gradual reduction of price controls and other
regulatory burdens on market competitors, create an environment which fosters
new entrants and competition.
The immediate effect of deregulation on the Internet market in these
countries has been improved and expanded network infrastructure for the support
of advanced corporate Internet services. These improvements take the form of
greater numbers of both local dial-up access lines and dedicated, high speed
business lines, as well as improved national and international network
capacity, being made available to business users. Over time, deregulation has
proven to be a catalyst for new entrants to enter the market and not only
compete for the business of the existing customers, but also introduce new
service delivery models, such as cable, digital subscriber line, and broadband
wireless platforms for the delivery of telephone, Internet and multimedia
services.
The VIA Strategy
Our goal is to become the premier international provider of Internet access
and services to small and mid-sized businesses in Europe and Latin America. We
intend to reach our goal by:
Maintaining a strong local presence through locally managed operating
companies. In our experience, small and mid-sized businesses generally seek a
provider with locally based personnel who are available to respond to technical
issues, who can assist in developing and implementing effective Internet
solutions and with whom they can establish a long-term relationship. To date,
we have acquired 17 companies in 11 European and Latin American countries. We
targeted these companies based on an overall evaluation of the capabilities of
their management teams, their focus on providing Internet solutions to small
and mid-sized businesses and their history of customer satisfaction. At VIA,
local management teams retain the authority to manage day-to-day operations to
meet the demands of their specific business environments. They also participate
in the development of new products and services so that we can ensure that
customer needs in diverse markets are considered and met.
Leveraging our brand name and international network. Our high capacity trans-
Atlantic and pan-European network and centralized operations support enable our
local market service providers to compete on a global scale and to provide
their customers international Internet solutions, while retaining their
advantage of quality local service. By linking our operations to our own
European and trans-Atlantic network, we significantly reduce our incremental
data communications costs. In addition, our European and trans-Atlantic network
delivers the high level of Internet services increasingly demanded by
businesses. Because a majority of Internet traffic originating in Europe is
directed through the United States, Internet access from Europe is often
characterized by substantial delays and data loss. Because we can control
congestion on our European and
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<PAGE>
trans-Atlantic network, we can reduce delays and minimize resultant data loss.
We believe similar economic efficiencies and improvements in overall service
levels will result from the investments we are currently making and planning to
make for upgrades to our local, regional and international network and regional
back office, accounting, billing, and customer care systems.
By being part of an international Internet services provider, our local
operations gain competitive marketing advantage. The companies we acquire
usually retain their pre-acquisition names and add the VIA name as a co-brand.
Additionally, VIA develops commonly branded products that are offered by our
various operating companies across all of our markets. Over time, and as market
conditions allow, we may convert these local operations exclusively to the VIA
brand.
Delivering single-source Internet solutions to our customers. We believe that
small and mid-sized businesses are seeking to increase their use of the
Internet as a business tool and are integrating web-based products and services
into their business processes. We intend to capitalize on this trend by
offering a single-source solution to our business customers' Internet products
and services needs. By providing our customers with a single source solution,
we can increase customer satisfaction, reduce customer churn and better
leverage our network infrastructure and sales and marketing resources. We
currently offer a wide range of corporate Internet products and services
designed to respond to these needs and to allow our customers to add additional
services as their needs grow. To provide an easy and cost effective way for our
customers to start and expand their Internet presence, we offer a suite of
bundled corporate Internet services under the Expresso brand. We believe these
products and services will allow us to strengthen our relationships with our
customers and offer them higher margin services.
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<PAGE>
The following chart shows how our access and value-added services, both
individually and in bundled service offerings, anticipate the evolving business
Internet needs of our customers. By offering products and services at each step
on this value chain, we can expand our customers' Internet usage, help them
transform their business processes to an Internet platform, and increase our
profitability by selling higher margin services.
[A graphic depicting the steps in the Internet Services Value Chain appears
here, as listed below:
Products & Services Benefits
1. Access . Dial-up and dedicated access . Conduct market & product
. E-mail research
. Lower communications costs
. Increase productivity
2. Presence . Web design . Provide customer service
. Web/Application Hosting . Create brand recognition
. Server Co-location . Recruit employees
. Attract and inform investors
3. Transact . E-commerce . Process transactions
. Security securely on-line
. Internet Virtual Private Networks . Increase revenues
. Replace expensive multi-
site private networks
. Increase productivity
4. Transform . Managed Hosting . Streamline operations
. Intranets & Extranets . Manage supply chains and
. Business-to-Business E-commerce inventories
. Achieve operating cost
efficiencies]
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<PAGE>
Delivering quality customer service supported by continued investment in
billing, back-office and customer care systems. Our customers will benefit from
our continuing investment in billing, back-office and customer care systems
through quality and responsive customer service. We intend to establish local,
national or regional customer care facilities to provide to all our customers
around-the-clock technical support and customer service. Our goal is to be
recognized by our customers as a provider of quality service.
Continuing investment in network infrastructure and product development. We
intend to continue to make significant investments to improve and expand our
operating infrastructure. We are upgrading and expanding our network capacity
in each of the 11 countries where we now operate. In Europe, we integrate our
local operating companies' networks into our international network. We plan to
extend this network into Latin America as trans-oceanic and land-based network
capacity becomes commercially available. We are significantly increasing the
web hosting, server co-location, data storage and processing capacities at each
of our operating companies. In many of the countries in which we have local
operations, we are continuing to expand our market opportunities by building
new Internet points of presence in commercial centers in those countries. We
are also in the process of upgrading the customer care and billing facilities
of our local companies, as necessary, and integrating them into regional back
office management information data centers. These infrastructure expansions and
improvements will give us the capacity we need to continue to expand the
services we offer to our current customers and to offer services to additional
customers.
Accelerating our growth through strategic acquisitions. We intend to continue
to acquire business-focused Internet products and services providers. In
identifying acquisition targets, we seek companies that are run by experienced
managers, are well positioned in their markets and will enhance our portfolio
of products and services. Given the increasingly competitive environment in our
targeted markets and the capital resources required to offer a broad base of
reliable Internet services and accommodate rapid anticipated growth, we believe
that under-capitalized local Internet services providers in our markets will
continue to benefit from combining their operations with ours.
Our Network
Our European and trans-Atlantic network provides our European operating
companies with high-capacity, redundant Internet Protocol transit. Our network
is connected to the Internet by multiple high-speed fiber connections and by
peering arrangements at major commercial Internet exchanges. Using these
diverse connections, our network dynamically routes traffic over the network of
the provider best able to deliver the data in the most efficient manner. Direct
connections to multiple major carriers and Internet exchanges assure reliable
service levels, protecting against traffic congestion and network outages. We
have designed a redundant network to avoid any single point of failure. Our
Latin American operations are currently connected to the Internet by multiple
leased, high-speed links. We expect to expand our network and network
operations center infrastructure to Latin America as capacity becomes
commercially available.
Our European operating companies' local networks are connected with our
international network via high-capacity optical transmission media and co-
location of routers. Where co-location is not an option, our operating
companies access our international network through high-speed data
communications facilities. Our European network operations center, which is
located in Germany, is staffed 24 hours a day, 7 days a week, by Internet
systems engineers who are responsible for monitoring the performance of our
network equipment. From this center, we are able to efficiently identify and
correct network problems either remotely or by local dispatch.
We are currently expanding our network infrastructure by replacing individual
Internet transit arrangements previously entered into by our operating
companies. Our network expansion is designed to offer greater reliability,
improved performance and additional functionality at a lower cost per
transmitted data packet.
The backbone of our network is made up of two STM-1 fiber optic cable rings,
each providing 155 Mbps of redundant capacity. The first ring provides trans-
Atlantic capacity and connects our New York City and London network nodes. We
acquired a 25-year Indefeasible Right of Use, or IRU, from Global Crossing, an
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<PAGE>
owner of fiber optic cable systems, in June 1999. Our agreement with Global
Crossing also provides us with the right to acquire additional network capacity
at favorable rates. Global Crossing may suspend services provided to us under
the IRU if we fail to make the required payments or are in a breach of the IRU.
The second ring provides pan-European capacity and allows us to establish
network nodes in up to seven European cities. We acquired a 20-year IRU from
iaxis, an owner of fiber optic cable systems, in July 1999. The iaxis IRU may
be terminated upon written notice by either party if the other party is in
material breach, or may be terminated or suspended upon the occurrence of
specified events, such as insolvency, bankruptcy or material damage by VIA to
the network. We currently have network nodes in London, Dusseldorf and
Amsterdam and plan to connect a Paris node by the end of 1999 and nodes in
three additional cities during 2000. Future cities we are considering
connecting to this network include Madrid and Geneva.
In the United States, we have co-located routers at the major public peering
locations in Washington, DC, Palo Alto, Chicago and New York. Our U.S. network
nodes are interconnected through diverse, redundant DS-3, or 45 Mbps capacity,
data communications facilities provided by local telephone companies, inter-
exchange carriers and specialized carriers.
VIA's network has multiple, redundant connections to Tier 1 Internet transit
providers and major public peering locations in London, Frankfurt and
Amsterdam, where we have co-located routers. A substantial number of our
operating companies have established peering relationships with other local or
regional Internet services providers. In peering relationships, Internet
services providers agree to carry each others' traffic on their networks to
improve performance and reduce congestion and costs. We are in the process of
establishing additional peering relationships with international Internet
services providers. Peering relationships can take the form of either public
peering or private peering. Public peering takes place at a physical location,
usually a network access point, designed for the exchange of Internet traffic
between private Internet services providers. Private peering involves an
agreement between two Internet service providers allowing traffic to pass
between each other's networks at private connection points without having to
traverse the public Internet and public peering points. We are actively
pursuing both private and public peering agreements.
Products and Services
We currently offer a comprehensive range of bundled and stand-alone Internet
access and value-added products and services. The specific products offered in
each market are determined by the needs of the market and local regulations and
competition. We intend to continue to develop a broad range of innovative and
flexible value-added products and services independently, through acquisitions
and through strategic relationships with key vendors.
Connectivity services. We offer a variety of connectivity solutions,
including Internet access and third-party software and hardware implementations
and configuration services, which are offered in bundled and stand-alone
packages. Internet access currently includes leased line access and corporate
and consumer dial-up connectivity. We also offer a full range of hardware and
software required to connect to the Internet, including routers, servers,
browsers and other products.
Value-added services. We believe that our customers will increasingly use the
Internet as a business tool and, as a result, will require an expanding array
of services. We currently offer a wide range of services which provide
additional value to our customers, and we intend to continue expanding our
service offerings through
internal development, acquisitions and strategic relationships with software,
hardware and content providers. We do not currently offer all of these services
in each of our markets. The value-added services we offer include the
following:
. Web hosting, domain name registration and co-location. Web hosting offers
business customers a presence on the Internet, enabling them to take
advantage of the marketing, customer service, internal company
information, or intranets, and other benefits offered by this presence.
We currently offer our
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customers web hosting services through Internet data centers located in
our local operations. The services include the full range of web hosting,
web design, web site maintenance and ongoing consulting services through a
combination of internal efforts and the use of independent partners. We
also offer web site co-location, where a customer-owned web server is
located at one of our local provider's points of presence, or PoPs, for
higher reliability. This solution allows the customer to own its own web
server without having to maintain and manage the data center environment.
We also intend to implement emerging content distribution technologies
such as content replication, also known as mirroring, and caching for
enhanced end user performance. Currently, we have registered over 46,700
domains and host web sites for 17,000 customers.
. Virtual private networks, or VPNs. Many companies today use private data
communication networks, often referred to as wide area networks, or WANs,
to transfer proprietary data between office locations. These networks are
built using leased lines from traditional telecom providers. We offer
companies a less expensive alternative to WANs through VPNs which provide
secure transmission of private Internet traffic through the Internet.
Additionally, many companies require that their employees have remote
access to these private networks from home or while traveling. Through
our VPN products, we can provide intranet and extranet services.
Intranets are corporate/organizational networks that rely on Internet-
based technologies to provide secure links between corporate offices.
Extranets expand the network to selected business partners through
secured links on the Internet. Increasingly, companies are finding that
intranets and extranets can enhance corporate productivity more easily
and less expensively than proprietary systems.
. Electronic commerce solutions. Electronic commerce, or e-commerce,
solutions give businesses the ability to process transactions and perform
other business functions over the Internet. We provide e-commerce
solutions that allow our customers to sell products or services directly
to customers, purchase supplies, coordinate inventory systems with
suppliers, process electronic payments, track shipments and perform other
business functions, all in a secure on-line environment. To take full
advantage of the business opportunity offered by e-commerce, we intend to
construct additional single-source e-commerce applications and hosting
environments, making use of our own software development capabilities as
well as those of third-party software development partners.
. Security. Security solutions are a vital component for most businesses
connected to the Internet. Our security solutions provide customers
.an ability to prevent unauthorized users from accessing its corporate
network
.authentication of users attempting to gain access to proprietary or
confidential information
.encryption services, providing secured transmission of company data
through the Internet
. E-mail. We provide e-mail services that enable our business customers to
outsource their e-mail requirements and e-mail management to our trained
systems administrators and support staff. We establish accounts, manage
the associated mail servers and provide full accessibility to e-mail for
our customers while saving them the investment in additional servers and
staff.
. National and global roaming. We offer the ability for employees of small
and mid-sized businesses to access their e-mail and the Internet while
traveling. Currently, many users either cannot do so because of the
limitations of their local service provider or because they are required
to pay expensive long distance access charges. We are in the process of
implementing a global dial-up access roaming product to enable business
customers to access the Internet locally as they travel throughout their
countries and abroad.
. Professional services. Our target customers typically do not have the
internal resources or personnel to design and maintain Internet services.
As more businesses use the Internet for mission critical applications, we
expect they will rely on outside support for many of their information
technology applications. As a result, we believe it will be increasingly
important for us to offer onsite, technical
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<PAGE>
consulting to customers. Our local providers currently offer a broad range
of professional services to their customers, including network and system
design, web content creation, security system needs analysis and
implementation, virtual private network design and implementation, and
other Internet-related consulting projects. We intend to invest in
additional professional services capabilities to provide customers with
single-source Internet solutions.
. Enhanced products and services. Customers are increasingly seeking to
tailor the use of the Internet to their business. We plan to serve these
needs through the packaging and configuration of third-party
applications, such as data storage and retrieval, Internet Protocol
telephony, which permits users to make voice calls on the Internet,
Internet faxing, Internet audio and video conferencing solutions, and
other applications that may be developed. As businesses commit to using
the Internet, we believe that the advanced applications product category
will continue to expand, offering additional revenue opportunities.
Bundled Services. To expand market share, increase customer loyalty and
develop strong VIA NET.WORKS brand recognition among the small and mid-sized
businesses in our targeted markets, we are bundling Internet services under a
single brand name, Expresso. We are offering the Expresso suite of products in
each of our markets, with only slight differences in features depending upon
local tariffs and network infrastructure. Our entry-level product, ExpressoWeb,
is designed to give the small and mid-sized business customer a simple, cost
effective way to establish a presence on the Internet. By moving up to our
higher level products, ExpressoNet and ExpressoWay, the same business can
expand its Internet capabilities to meet its increasing needs, without
interrupting its ongoing Internet-based business processes.
ExpressoNet enables businesses that use local area networks, or LANs, to
route e-mail and other information to users quickly and efficiently while
reducing their call charges and other telecommunications costs. ExpressoWay
offers all of the benefits of ExpressoNet and allows businesses to provide
their employees with Internet access at home or while travelling.
The features of the various Expresso products generally consist of the
following:
<TABLE>
<CAPTION>
Product
------------------------------------------
Feature ExpressoWeb ExpressoNet ExpressoWay
- ------- -------------- ------------- -------------
<S> <C> <C> <C>
Internet Access Unlimited Unlimited Unlimited
Connection to Internet 56 Kbps Dialup 128 Kbps ISDN 128 Kbps ISDN
LAN router N/A Fully Managed Fully Managed
Domain name registration/transfer Yes Yes Yes
Domain-based e-mail addresses Up to 10 Up to 30 Unlimited
Number of dial-up accounts for
remote access N/A Up to 10 Up to 20
Amount of web hosting space at VIA
facilities Up to 50 Mb Up to 100 Mb Up to 100 Mb
Quick-install web-authoring tool Yes Yes Yes
</TABLE>
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<PAGE>
Organization
We have 17 locally managed operating companies located in 11 countries in
Europe and Latin America. These companies focus on providing a full range of
Internet solutions to small and mid-sized business customers in their local
markets. To best serve the market-specific needs of our target customer base,
each of our operations is staffed with local management, sales, technical and
customer care personnel. Our local managers retain the authority to manage the
day-to-day operations of their businesses, allowing them to establish business
practices, create or customize products and services and develop product
delivery mechanisms that meet the Internet business needs of customers in their
local markets. In every aspect of their relationships with us, our customers
are served in their own language, their own currency and by people who
understand the regulations and business practices in the markets in which they
operate. We believe that by maintaining this type of presence within each of
our markets, we are in the best position to understand, and provide solutions
for, the Internet needs of our customers. The following table summarizes our
operations in Europe and Latin America by country, operating company and
percentage ownership. Ecce Terram and INS are each 100% owned by GTN, which is
51% owned by us.
VIA Operating Companies
<TABLE>
<CAPTION>
Percentage
Country of Owned as of
Operation Operating Company November 15, 1999
---------- ----------------- -----------------
<S> <C> <C>
Europe:
France ArtInternet 51%
Germany GTN 51
Ecce Terram 51
INS 51
Ireland MediaNet 60
The Netherlands bART 100
Portugal Esoterica 100
Spain Interbook 87
Switzerland M&Cnet 60
United Kingdom i-way 100
U-Net 100
WWS 100
Netlink 100
Latin America:
Argentina VIA Net Works Argentina 100%
ServiceNet 100
Brazil Dialdata 53
Mexico InfoAcces 100
</TABLE>
39
<PAGE>
We have agreements with the minority stockholders of each of our majority-
owned operating companies that give us the right to purchase their shares in
those operating companies based on predetermined price formulas which consider
revenue growth, operating results and cash flows. In some cases, the minority
stockholders have the right to purchase our shares in those operating companies
if we do not exercise our purchase right by a specified date.
Regional operating, marketing and financial personnel, hired in the regions
they serve, support our local operations. In both Europe and Latin America, a
Regional Vice President is responsible for monitoring the results of,
coordinating efforts among, and assisting in the operations of our local
operating companies. In Europe, regional marketing personnel develop products
for regional deployment, create marketing and advertising programs to promote
cross-market brand recognition and assist our operating managers with local
product, marketing and sales efforts. European financial personnel assist our
local operating companies with financial reporting, budget preparation and the
implementation of proper financial policies, procedures and controls. We are
currently recruiting similar regional marketing and financial positions to
support our Latin American operations.
We maintain a small corporate staff, located in Reston, Virginia, to perform
and coordinate company-wide activities. These activities include raising
capital and managing its deployment to fund growth, creating and implementing
international network and management information systems, acquiring additional
operating companies in our target markets and creating strategic vendor,
product and service relationships. We intend to keep our corporate staff small,
performing as many functions as possible within the local operating companies
and the regions.
Sales and Marketing
We sell our products and services through local sales efforts, supported by
local, regional and international advertising and promotion programs. Our
direct sales and marketing force of 237 locally based, technically competent
and experienced Internet sales representatives is our primary sales tool, but
we also maintain significant distribution capabilities through local reseller
and referral channels. We will continue to expand both our direct and indirect
sales capabilities, as well as develop new product and strategic relationships
to support those efforts.
Direct sales. Each of our local operating companies has a direct sales force.
Depending on the market, the local sales force may include both telemarketing
and field representatives. Typically, telemarketing representatives, both
inbound and outbound, handle sales of basic services, where consulting,
customization or training is not required. Field sales representatives handle
sales of more complex services. Our field representatives are technically
proficient Internet specialists who understand the environment in which their
customers do business and who can create or tailor Internet solutions to meet
customer and market specific needs.
Our local operating companies maintain customer and prospect data that is
used to identify likely users of existing and new services. They also maintain
competitive data that is used to identify areas of opportunity for new products
and services. Depending on the accepted practices and regulations in their
markets, our operating companies may use techniques such as direct mail or fax,
outbound telemarketing, seminars and trade shows to target large potential
customer groups that they believe would benefit from our Internet business
applications and services.
Indirect sales. In many of our markets, indirect sales channels represent a
significant source of revenue and revenue growth. Currently, our operating
companies have various indirect sales channels within their markets. These
include reseller and distributor relationships with systems integrators, value-
added resellers, marketers of other subscription-based products and others who
have established relationships with our target customers and sales forces
capable of selling Internet services. Our operating companies also maintain
relationships with referral partners, such as web designers or advertising
agencies, whose core businesses typically do not include providing Internet
services, but who represent a valuable source of leads.
40
<PAGE>
We are also developing company-wide reseller and referral programs that will
permit us to increase the number of indirect sales channels available to our
operating companies. We will also use these programs to expand the
relationships our local operating companies currently have to a regional or
international basis.
New products and strategic marketing relationships. To support our local
direct and indirect sales efforts, we are developing strategic relationships
with providers of related technology, products and services, for use in all of
our markets. These relationships will allow our operating companies to offer an
expanded range of Internet services to their customers by giving them access to
new stand-alone or bundled solutions. Our first agreement is with Trellix
Corporation, under which we both resell their web development software on a
stand-alone basis and bundle it into our Expresso products in some of our
markets. By bundling our services with those of related product and service
providers, we believe that we can not only provide expanded services to our
customers, but strengthen our relationship with them as well.
Competition
Competition in the market for Internet access and value-added services has
increased significantly in our markets as Internet usage has grown, and we
expect this trend to continue. Though Internet usage remains lower in Europe
and Latin America than in more mature markets such as the United States, high
recent growth rates and large potential market sizes have attracted many new
entrants. Though our specific competitors vary from market to market, they
generally are international, regional and local Internet services providers,
long distance and local exchange telecommunications companies, cable television
companies or on-line services providers.
Internet services providers. According to Boardwatch magazine, there are over
8,000 Internet services providers worldwide with approximately 3,000 of those
located outside of the United States. Depending on the market, our primary
competitors may be small, local services providers with limited ranges of
service and geographic reach, or large international or regional services
providers with broad services offerings, large network capacities and wide
geographic presence. The small, local providers often focus on consumer dial-up
Internet access and frequently do not have the services or expertise to assist
small and mid-sized businesses in establishing a presence on the Internet or
creating an Internet platform to support their business processes. The large
international and regional providers also often focus on consumer dial-up
Internet access. While these large Internet services providers may have the
range of services required to meet the needs of small and mid-sized businesses,
they may not have the local personnel and market expertise to effectively
implement solutions for this customer base. By combining local market expertise
and service with an international network and a wide range of services targeted
towards small and mid-sized business customers, we believe we can compete
effectively with both large and small Internet services providers.
Telecommunications companies. Many of the major international
telecommunications companies offer Internet services in our markets, either
directly or through subsidiaries or alliances. In several of our markets,
former telecommunications monopolies have been deregulated and privatized, and
have also become providers of Internet services. New telecommunications company
entrants to these markets are beginning to use high-speed wireless technology
to bypass overcrowded, existing networks and are offering Internet and
corporate data services as well. Generally, these network-based companies focus
on consumer dial-up Internet access and large corporate accounts, customer
bases that can generate high volume data traffic to carry on their networks. We
believe that our focus on providing products and services that meet the
Internet needs of small and mid-sized businesses will allow us to compete
effectively with telecommunications company competitors.
Cable television companies. Cable operators in some of our markets have
either introduced or announced that they intend to introduce Internet access
services, both by upgrading their networks and using new, cable modem
technology. Their existing customers are primarily residential and their
physical networks are largely limited to residential areas. We therefore expect
these companies to present relatively little competition for small and mid-
sized business customers in our markets.
41
<PAGE>
On-line service providers. We compete with large on-line and portal services
providers in Europe and Latin America. These on-line services providers
generally have business models which rely on consumer dial-up access and
advertising revenue.
Regulatory Matters
There exists no uniform body of law in Europe or Latin America specific to
the regulation of Internet services or Internet services providers. However,
many local laws which are not specific to Internet services and use of the
Internet apply to the provision of our services generally. As a new and
important medium for communication and business transactions, the Internet is
undergoing considerable legal and regulatory scrutiny worldwide. New laws and
regulations regarding the Internet have been proposed or are currently being
considered in many countries in which we operate, covering issues such as user
privacy and information security, obscenity and child protection, defamation,
taxation, and intellectual property rights. At the same time, the application
of existing laws to communications and the transaction of business through the
Internet are being clarified and refined. We cannot predict what impact future
judicial, legislative or regulatory changes will have on the industry in
general or our operating results specifically, or whether local regulatory
bodies will question our compliance with applicable regulations.
For example, due to the global nature of the Internet, it is possible that,
although the equipment and software used to provide our services is based in
Europe or Latin America and transmission by us and our users of content over
the Internet would originate primarily in these regions, the governments of
countries in other regions might attempt to regulate the content contained on
or transmitted using our services or prosecute us for violations of their laws.
As content produced by us or our users is available over the Internet in
countries all around the world, these countries may also claim that we are
required to qualify to do business in their jurisdictions. Any application of
existing laws and regulations from jurisdictions whose laws do not currently
apply to our business, or the application of existing laws and regulations to
the Internet and other online services, could have a material adverse effect on
our business, results of operations and financial condition.
Further, future regulatory developments might decrease the growth of the
Internet, impose taxes or other costly technical requirements, create
uncertainty in the market or in some other manner have a material adverse
effect on our business, financial conditions or results of operations.
The regulatory framework in each of the two major markets in which we provide
services is described further below.
European Union
Overview. Our European operations, other than in Switzerland, are all located
in member countries of the European Union. Within the European Union, the
European Commission, in coordination with the Council of Ministers, can enact
legislation that is enforceable in each of the member states. It is rare,
however, for the European Commission to take legislative action directly.
Instead, it typically adopts "directives" which require member states to enact
laws within their own countries implementing the principles and rules
established by the directive.
Data Protection. In October 1995, the European Union adopted the "directive
on the protection of individuals with regard to the processing of personal data
and the free movement of such data." This directive imposes restrictions on the
collection, use and processing of personal data. Member states of the European
Union were required to implement the directive into national laws by October
24, 1998, but many of them, including the Netherlands, France, Germany and
Ireland, have yet to do so. In these countries, however, there is prior
legislation that deals with the protection of personal information in varying
degrees.
The data protection directive is intended to permit the free-flow of personal
information among member states, but also prohibit the transfer of such
information to countries outside the European Union that do not maintain
adequate standards of privacy and data protection. Currently, the European
Union considers the United
42
<PAGE>
States to not have an adequate level of protection in relation to the
processing of personal data. Therefore, except under limited circumstances, we
would not be permitted to cause any of our operations located within European
Union member states to transfer their customers' or employees' personal
information to the United States, including to our Reston, Virginia
headquarters. We cannot predict how the current difference between the United
States and the European Union regarding data protection will be resolved, or
what impact the directive may have on our operations and our effective use of
data collection. In addition, until specific implementing legislation is
enacted in the member states in which we operate, it is unclear how our
operations might be impacted by restrictions that might be established in each
European Union country with respect to the use of personal information about
our customers and employees that we collect in the ordinary course of business.
Content Regulation and Liability. While there currently are no specific laws
within European Union member states governing liability of Internet services
providers for the content transmitted from or stored on their facilities,
courts in several countries have recognized the general principle that Internet
services providers should not be responsible for content created or maintained
by a third party which the provider makes available to users unless the
provider has knowledge of such content and is technically able and can
reasonably be expected to block the use of such content.
In November 1998, the European Union published a "proposed directive on
certain legal aspects of electronic commerce in the Internet Market." The draft
of the proposed directive is expected to be adopted by the beginning of 2000
and implemented within one year by all European Union member states. The
proposed directive provides that Internet services providers would not be
liable for any information hosted unless the Internet services provider knew
that the information hosted was illegal. In addition, the proposed directive
provides that Internet services providers, as mere carriers of information
over, or providers of access to, communications networks will not be liable for
the content of that information.
On December 21, 1998 the European Union approved an "action plan to promote
safer use of the Internet by combating illegal and harmful content on global
networks." This directive would serve as the basis of new laws in member states
relating to the protection of minors, rating and filtering systems and content.
Any legislation that is adopted by European Union member states relating to
this directive could impose additional obligations and expenses on our
operations.
Licensing Requirements. In the United Kingdom, the Telecommunications Act of
1984 provides that it is a criminal offense to run a telecommunications system
without a license. While Internet services providers fall within a class
license called the Telecommunications Services License and are not required to
hold individual licenses under the Telecommunications Act, we own and operate
our own network facilities in the UK connecting our trans-Atlantic backbone to
connection points in the city of London. Accordingly, we have acquired an
individual public telecommunications operator license issued under the
Telecommunications Act 1984. Under our license, we are legally permitted to
negotiate for direct interconnection with British Telecom and other licensed
network operators in the United Kingdom. Our license also imposes conditions on
us, including the obligation to provide, at our cost, the technical means for
authorized government agencies to intercept communications traffic on our
network within the United Kingdom. If we were to fail to continue to satisfy in
any material respect the conditions on which we hold our license, we would not
be permitted to operate our trans-Atlantic 155 Mbs network within the United
Kingdom, which would have a materially adverse effect on our operations.
Latin America
In all Latin America markets in which we currently operate, the provision of
Internet access and value-added services, with the exception of Internet
telephony, is completely deregulated, and companies may satisfy all the
licensing requirements necessary to become an authorized provider of Internet
access and value-added services by obtaining a value-added services license.
All of our Latin American local providers possess these licenses.
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<PAGE>
In each of the countries in Latin America in which we are operating, there
are restrictions against the provision of basic, public telephony services over
the Internet by companies other than the licensed basic services providers. The
provision of private corporate network Internet telephony services remains a
gray area. We do not intend to offer either public or private Internet
telephony services in these countries until the respective regulatory
authorities explicitly permit Internet services providers to do so.
As in Europe, Latin American countries in which we operate are considering
specific legislation with respect to the Internet, covering issues such as user
privacy, obscenity, libel, child protection, taxation, advertising,
intellectual property rights, and information security.
Our Brazilian local operating company, Dialdata, is located in the state of
Sao Paulo, which levies a 25% sales tax on communication services. The question
of whether providing access to the Internet is a communication service has not
been addressed by the courts or tax authorities in Brazil. Dialdata does not
charge this tax to its customers or pay it to the state tax authority. If
Internet access providers are ultimately required to pay the tax, our operating
results in Brazil would be significantly and negatively impacted.
In Mexico, the Federal Telecommunications Law prohibits Internet services
providers from building and operating a public telecommunications network or
national satellite connection without first obtaining a concession. Under the
concession scheme, non-Mexican ownership of the concession holder may not
exceed 49%. As a result in Mexico, we will not be able to own our own network
facilities without partnering with a Mexican company or person.
Legal Proceedings
We are not a party to any material legal proceedings.
Employees
At October 31, 1999, we employed 798 people on a full-time equivalent basis.
26 employees were located in our Reston, Virginia headquarters and 772 were
located in our local operating companies or European and Latin American
regional offices. Of our total employees, 237 were involved in sales and
marketing, 107 were employed in customer care, 241 were involved in technical
and engineering and the remaining 213 were devoted to finance, legal, strategic
planning and other administrative functions. Relations with our employees are
good. Some of our operating companies in Latin America are parties to
collective bargaining agreements.
Labor laws in Europe and Latin America are generally more protective of
employees than in the United States. Unlike in the United States where an
employer will often have the right to terminate an employee at will, most
countries in Europe and Latin America have laws protecting employees from being
terminated without proper cause or without paying terminated employees
severance compensation in established statutory amounts. In some European
countries, the law establishes a minimum number of vacation days. In Argentina,
Brazil and Spain, employees are entitled to an additional month's salary each
year as a compulsory bonus. In Portugal, employees are entitled to two
additional months' salary, a summer bonus and a winter holiday vacation bonus.
In Mexico and Brazil, profit-sharing with employees is mandatory.
Facilities
Our principal executive offices are located in leased facilities at 12100
Sunset Hills Road, Reston, Virginia. Additionally, we lease space in our
operating markets for offices, network operations centers, data centers and
points of presence. We believe that our present facilities are in good
condition and are currently suitable for our business needs. We anticipate that
we will need additional space, particularly in our operating markets, as we
expand, and that we will be able to obtain suitable space where and as needed.
44
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MANAGEMENT
Directors and Executive Officers
The following table shows information about each of our directors and
executive officers as of the date of this prospectus.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
David M. D'Ottavio...... 50 Chief Executive Officer and Chairman of the Board of Directors
Michael J. Simmons...... 46 President
C. Elliott Bardsley..... 48 Vice President, Corporate Development
Kenneth Blackman........ 43 Vice President, European Region
Catherine A. Graham..... 39 Vice President, Chief Financial Officer and Treasurer
Kevin T. Malone......... 50 Vice President, Information Systems
Matt S. Nydell.......... 40 Vice President, General Counsel and Secretary
Roy D. Stubbs II........ 57 Vice President, Engineering and Technical Operations
Antonio Tavares......... 50 Vice President, Latin American Region
Gabriel A. Battista..... 55 Director
Stephen J. Eley......... 39 Director
William J. Elsner....... 48 Director
Adam Goldman............ 39 Director
William A. Johnston..... 48 Director
Mark J. Masiello........ 32 Director
John G. Puente.......... 69 Director
Erik Torgerson.......... 34 Director
</TABLE>
Executive Officers
David M. D'Ottavio has served as VIA's Chief Executive Officer and a Director
since April 1998 and as VIA's Chairman of the board of directors since November
1999. From April 1998 to June 1999, he also served as President. From January
1995 to August 1997, Mr. D'Ottavio served as Senior Managing Director of United
Philips Communications, B.V., now United Pan-Europe Communications N.V., or
UPC, responsible for all acquisition, business development, finance, marketing
and administration functions and launched UPC's telephony, Internet services
provider and high-speed data services. From 1991 to 1994, Mr. D'Ottavio was
Chief Operating Officer for United International Holdings, Inc., now
UnitedGlobalCom, Inc., and was responsible for cable, MMDS and telephone
operations in 14 countries. Previously, Mr. D'Ottavio served as Regional Vice
President for Comcast Cable Communications and held various management
positions with Westinghouse Electric Corporation. Mr. D'Ottavio received his
B.B.A. in Economics from Kent State University.
Michael J. Simmons has served as VIA's President since June 1999. From
September 1998 to June 1999 he was Vice President, European Region. Mr. Simmons
was employed by United Pan-Europe Communications, serving as Managing
Director--Portugal, from July 1995 to September 1998, and as Vice President--
Marketing for A2000, the UPC and MEDIA ONE joint venture in Amsterdam. In that
role, he was responsible for telephony and cable modem Internet products in
both the residential and business markets, as well as all sales, customer
service and call center operations. From September 1987 to December 1994, Mr.
Simmons was employed by Comcast Cable Communications, serving first as General
Manager of Comcast's Ft. Wayne, Indiana system and then as Area Vice President
in New Jersey. Previously, he held marketing, sales and operating positions
with Insight Communications and Westinghouse Broadcasting and Cable. Mr.
Simmons received his B.A. in History and Communications from St. Mary's
University of Minnesota.
45
<PAGE>
C. Elliott Bardsley joined VIA in September 1997 as Vice President, Corporate
Development and was Treasurer through August 1998. From September 1992 to March
1997, he was Vice President, Asia Pacific, for Orion Network Systems, Inc.
where he was responsible for developing Orion's satellite business in the Asia
Pacific region. Since May 1995, Mr. Bardsley also has been Chairman of Dark
Horse Multimedia, Inc., an international Internet and telecommunications
consulting firm. Mr. Bardsley received a B.S. degree, cum laude, in Computer
Science from Union College and an M.B.A. from Stanford University.
Kenneth Blackman joined VIA in May 1999 when we acquired WorldWide Web
Services, the company he founded. He became Vice President, European Region in
June 1999 after serving as Chairman and Managing Director of WorldWide Web
Services since its founding in June 1996. Mr. Blackman also co-founded The
Training Centre Ltd., a privately-held PC software training company, in 1990
and remained there until it was sold to Admiral plc, an international
information technology services company, in January 1994. From January 1994 to
June 1996, Mr. Blackman sat on the boards of various information technology
service companies mostly within the Admiral plc group. Mr. Blackman received an
honors degree in Physics from Bangor University in the United Kingdom.
Catherine A. Graham joined VIA in July 1998 as Vice President, Chief
Financial Officer and Treasurer. From January 1996 to July 1998, she was Vice
President, Finance and Investor Relations Officer for Yurie Systems, Inc., a
publicly traded telecommunications equipment manufacturer subsequently
purchased by Lucent Technologies. Ms. Graham was responsible for Yurie's
financial and risk management infrastructure, managing Yurie's initial public
offering and handling communications with the investment community. From August
1994 to December 1995, she was with Smith Barney, Inc. as a consultant in the
Corporate and Institutional Services Group. From August 1991 to April 1994, she
was Chief Financial Officer, Treasurer and Senior Investor Relations Officer
for DavCo Restaurants, Inc., the largest franchisee of Wendy's International.
Ms. Graham received a B.A. in Economics from the University of Maryland and an
M.B.A. from Loyola College.
Kevin T. Malone joined VIA in July 1998 as Vice President, Information
Technology. From January 1998 to July 1998, he was a General Partner in
Infomatrix, a firm offering consulting services to software and communications
companies. From May 1994 to January 1998, he worked as an independent
consultant through Confluent Technologies, focusing on the design and
development of billing, customer care and other back office systems. From 1981
to 1994, he held various positions with US Computer Services/Cabledata,
including Vice President, International Software Development, where he was
responsible for developing international billing and customer care
applications. Mr. Malone studied Electrical Engineering at Southern Methodist
University.
Matt S. Nydell joined VIA in August 1998 as Vice President, General Counsel
and Secretary. From November 1996 to August 1998, he was Director, Ventures and
Alliances for MCI Communications Corporation, where he oversaw MCI's interest
in Concert Communications Company, an international telecommunications joint
venture with British Telecommunications. From June 1994 to November 1996, he
was Senior Counsel in MCI's legal group responsible for supporting MCI's Mass
Markets' advanced technologies and its information technology groups. Prior to
joining MCI, Mr. Nydell was an attorney with the Washington office of Donovan
Leisure Newton and Irvine, focusing on telecommunications and multimedia
issues, and general corporate and commercial matters. Mr. Nydell received a
J.D./M.A., foreign affairs, from the University of Virginia, and a B.A., with
honors, in Philosophy from Bucknell University.
Roy D. Stubbs II joined VIA in July 1998 as Vice President, Engineering and
Technical Operations. From November 1997 to July 1998, he directed Engineering
and Operations for Enterprise Network Applications, Inc., a company providing
Operations Support System software to second and third tier telephone
companies. From July 1991 to November 1997, Mr. Stubbs was also President and
owner of DataSciences Atlanta, Inc., a company providing operating, strategic
and network technology planning services to users and providers of
telecommunications services. He served as Vice President, Technical Operations
at AccessLine Technologies, Inc., a personal communications services company,
from May 1994 to October 1995. Previously, Mr. Stubbs held various management
positions with Bell South. Mr. Stubbs received a B.S. in Electrical Engineering
from the University of Florida and an M.S. in Management Science from Pace
University.
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<PAGE>
Antonio Tavares joined VIA in December 1998 when we acquired Dialdata S.A.
Internet Systems and became Vice President, Latin American Region in May 1999.
He had been President of Dialdata, a corporate Internet services provider in
Brazil, since he founded it in 1993. Mr. Tavares was General Manager of
Habasit, a Swiss manufacturer of industrial products, operating in Brazil, from
April 1986 to May 1994. Since November 1996, he has served as President of
ABRANET, the Brazilian Internet service providers association, responsible for
leading the development of the Brazilian Internet industry. He also is the IT
Director of FIESP, the Sao Paulo State Industry Association, and Director of
Camara Portuguesa de Comercio do Brasil. Mr. Tavares is also a member of the
National Advise of Telecommunications, a private council made up of several
private telecommunication associations in Brazil. Mr. Tavares has completed the
general course of Commerce at Escola Comercial Oliveira Martins in Portugal and
also of Sales & Marketing at Fundacao Getulio Vargas in Brazil.
Directors
Gabriel A. Battista has served as a Director of VIA since June 1999. He is
Chairman and Chief Executive Officer of Talk.com, Inc., where he has served
since January 1999. From October 1996 to December 1998, he served as Chief
Executive Officer of Network Solutions, Inc. From May 1994 to October 1996, he
was Chief Executive Officer of Cable & Wireless, Inc., the nation's largest
telecommunications services provider that exclusively serves businesses. Mr.
Battista has also served as Chief Operating Officer of National Telephone
Services and President of U.S. Sprint's Eastern Group and has held various
positions with GTE Telenet and General Electric Information Services. Mr.
Battista is a member of the board of directors of Axent Technologies, Inc.,
Capitol College, Systems & Computer Technology Corporation and Online
Technologies Group, Inc. He is also a registered Professional Engineer in the
State of Pennsylvania. Mr. Battista received a B.S.E.E. from Villanova
University, an M.S.E.E. from Drexel University and an M.B.A. from Temple
University.
Stephen J. Eley has served as a Director of VIA since April 1999. Since
January 1990, he has been a general partner of each of BCI Growth III, IV & V,
private equity funds focused on providing growth capital to later stage
companies. Prior to joining BCI, Mr. Eley was employed by AMEV Holdings/Venture
Management in New York from 1986 to 1989 and by Peat Marwick Mitchell & Co.
from 1983 to 1986. Mr. Eley received his B.S. in accounting in 1982 from the
University of Rhode Island.
William J. Elsner has served as a Director of VIA since September 1997. Since
October 1997, he has been a Managing Member of Telecom Management II, L.L.C., a
general partner of Telecom Partners II, L.P., a venture capital fund focused on
early stage telecommunications services companies. From November 1995 until
November 1997, Mr. Elsner was a private investor. From July 1991 until November
1995, Mr. Elsner was the Chief Executive Officer of United International
Holdings, Inc., now UnitedGlobalCom, Inc., an international cable television
operator he co-founded. Mr. Elsner is currently Chairman of the board of
directors of Formus Communications and a member of the board of directors of
Allied Riser Communications and VeloCom Inc. Mr. Elsner received a B.S. in
Accounting from Regis University and an M.B.A. from the University of Denver.
Adam Goldman has served as a Director of VIA since September 1999. Since
April 1993, Mr. Goldman has been a general partner of Centennial Funds IV and V
and is a managing principal of Centennial Fund VI. He serves as a senior vice
president of Centennial Holdings, Inc., which he joined in 1992. From 1989
through 1991, Mr. Goldman was an associate of Booz, Allen and Hamilton in the
strategy practice. Mr. Goldman is a member of the board of directors of
Advanced TelCom Group and Chairman of the board of directors of Exactis.com.
Previously, he served on the boards of Prime Video and Spectrum Resources of
the Midwest and was Chairman of the board of directors of Centennial
Telecommunications. Mr. Goldman is the Chairman of the board of directors and
former President of the Venture Capital Association of Colorado. Mr. Goldman
received a Bachelor of Arts in economics from Northwestern University and a
Masters of Management from the J.L. Kellogg School of Management at
Northwestern University.
William A. Johnston has served as a Director of VIA since May 1998 and served
as Chairman of VIA's board of directors from December 1998 through November
1999. Since January 1997, he has served as a
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managing director of both Hancock Venture Partners, Inc. and HarbourVest
Partners, LLC. He joined Hancock Venture Partners as a Vice President in
January 1983 after working in the corporate finance department of John Hancock
from 1981. He serves on the advisory council of the Centennial Funds and the
advisory committees of Austin Ventures and Highland Capital Partners.
Additionally, Mr. Johnston is a member of the board of directors of Benchmark
Media, Inc., Epoch Networks, Inc., Formus Communications, Inc., Golden Sky
Systems, Inc., The Marks Group, Inc. and Pangea, Ltd. Mr. Johnston received a
B.S. from Colgate University and an M.B.A. from Syracuse University School of
Management.
Mark J. Masiello has served as a Director of VIA since September 1999. Since
1989, Mr. Masiello has been a principal of Providence Equity Partners Inc., and
he is a member of the general partner of Providence's private equity funds. Mr.
Masiello has been with Providence since 1989 and he currently serves as a
director of MGC Communications Inc., Netcom Canada and Netcom UK. Mr. Masiello
received a B.A. from Brown University.
John G. Puente has served as a Director of VIA since April 1998. From 1987
through 1997, he held various positions at Orion Network Systems, Inc., most
recently as the Chairman, Chief Executive Officer and member of the board of
directors. He was a founder, and Chairman, of SouthernNet, Inc., and was
instrumental in the founding of the National Telecommunications Network, a
consortium of long distance fiber optic companies for which he served as the
first Chairman. Mr. Puente was also a founder of DCC, Inc., which was merged
with Microwave Associates in 1978 to form M/A-Com, subsequently acquired by
Hughes Aircraft, now known as Hughes Network Systems, Inc. Mr. Puente is a
member of the board of directors of Primus Telecommunications Group Inc. and
Micros Systems, Inc. He is also Chairman of the board of directors of Internet
Cargo Services, Inc. and Capitol College. Mr. Puente received a B.S.E.E. from
Polytechnic University and an M.S.E.E. from Stevens Institute of Technology.
Erik Torgerson has served as a Director of VIA since May 1999. He is a
general partner of Norwest Equity Partners. Prior to joining Norwest Equity
Partners in 1993, Mr. Torgerson was employed by Arthur Andersen & Co. in the
financial consulting and audit practice. Mr. Torgerson currently serves on the
board of directors at Norigen Communications, Inc., Golden Sky Systems, Inc.
and Norwesco, Inc. He is a C.P.A. and received his B.S. degree from the
University of Minnesota and his M.B.A. from the University of Iowa.
Some of our stockholders have the right to designate members of our board of
directors under the terms of a stockholders agreement we entered into with
them. Specifically, each of Providence Equity Partners, L.P., BCI Growth V,
LLC, Norwest Equity Partners, LLC, Centennial Fund VI, L.P., Telecom Partners
II, L.P., Verio Inc. and HarbourVest International Private Equity Partners III-
Direct Fund L.P. has a right to designate one member of our board of directors.
The director designees of these stockholders are as follows:
(1) Mr. Johnston is the director designee for HarbourVest International
Private Equity Partners III-Direct Fund L.P.
(2) Mr. Eley is the director designee for BCI Growth V, LLC
(3) Mr. Elsner is the director designee for Telecom Partners II, L.P.
(4) Mr. Goldman is the director designee for Centennial Fund VI, L.P.
(5) Mr. Masiello is the director designee for Providence Equity Partners,
L.P.
(6) Mr. Torgerson is the director designee for Norwest Equity Partners,
LLC
The stockholders agreement also provides that parties to the agreement shall
vote to elect our chief executive officer and two independent directors to the
board of directors. Upon completion of this offering, these board designation
rights will terminate.
There are no family relationships among any of our directors or executive
officers.
48
<PAGE>
Board of Directors
Our board of directors is authorized to have up to ten members and we
currently have nine. Directors each serve for a one-year term.
Committees of the Board of Directors
Our board of directors has established an audit committee, a compensation
committee, a finance committee and a nominating committee.
Among other functions, the audit committee
. nominates independent auditors for approval by our stockholders
. reviews the scope, results and costs of the audit with our independent
auditors
. reviews our financial statements
. reviews and evaluates our internal control practices
The members of the audit committee are Mr. Torgerson, who is Chairman, and
Messrs. Puente and Eley.
The compensation committee is responsible for administering our 1998 Stock
Option and Restricted Stock Plan and our Key Employee Equity Plan, both of
which are described below, and for reviewing and approving all compensation
arrangements for our officers. The members of the compensation committee are
Mr. Puente, who is Chairman, and Messrs. Battista and Goldman.
The finance committee is responsible for reviewing and making recommendations
on proposed debt and equity financings. The members of the finance committee
are Mr. Elsner, who is Chairman, and Messrs. Goldman, Johnston and Masiello.
The nominating committee is responsible for identifying, evaluating and
recommending individuals for membership on our board of directors and its
committees. The members of the nominating committee are Mr. Battista, who is
Chairman, and Messrs. D'Ottavio, Eley and Elsner.
None of the members of the audit committee or the compensation committee
performs the same function for any other entity whose executive officers serve
on our board of directors.
Limitation of Liability and Indemnification Matters
We have adopted provisions in our amended and restated certificate of
incorporation which provide that our directors shall not be liable for monetary
damages to us or our stockholders for any breach of fiduciary duties to the
fullest extent permitted by Delaware law. Such limitation of liability does not
affect the availability of equitable remedies such as injunctive relief or
rescission.
In addition, our certificate of incorporation and by-laws require us to
indemnify our directors and officers to the fullest extent permitted by
Delaware law. At present, we are not aware of any pending or threatened
material litigation or proceeding involving any director or officer where
indemnification will be required or permitted. We believe that these provisions
in our certificate of incorporation and bylaws are necessary to attract and
retain qualified persons as directors and officers.
49
<PAGE>
Executive Compensation
The following table presents a summary of compensation paid to our Chief
Executive Officer and each of our other executive officers whose salary and
bonus exceeded $100,000 during the year ended December 31, 1998, all of whom we
refer to as our named executive officers:
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------- ------------------
Securities
Name and Principal Positions Salary Bonus Underlying Options
- ---------------------------- ------------------- ------------------
<S> <C> <C> <C>
David M. D'Ottavio(1)................... $ 212,500 $ 100,000 300,000
Chief Executive Officer
C. Elliott Bardsley..................... 142,598 75,162 110,000
Vice President, Corporate Development
Catherine A. Graham(2).................. 78,570 33,000 110,000
Vice President, Chief Financial Officer
& Treasurer
</TABLE>
- ---------------------
(1) Mr. D'Ottavio joined VIA on April 14, 1998.
(2) Ms. Graham joined VIA on July 13, 1998.
Option Grants in Last Fiscal Year. The following table provides information
relating to options to purchase common stock we granted our named executive
officers during the year ended December 31, 1998. The percentages in the table
below are based on the options to purchase shares of our common stock we
granted under our 1998 Stock Option and Restricted Stock Plan in the year ended
December 31, 1998. The options described in the table below become exercisable
over a period of four years and have a term of ten years. The exercise price
per share of each option was equal to the fair market value of the common stock
on the date of grant as determined by our board of directors. Potential
realizable values are net of exercise price before taxes and are based on the
assumption that our common stock appreciates at the annual rates shown,
compounded annually, from the date of grant until the expiration of the 10-year
term. These numbers are calculated based on the requirements of the SEC and do
not reflect our estimates of future stock price growth.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Share
Price Appreciation
Individual Grants for Option Term
------------------------------- ----------------------
Number of Percent of Total
Securities Options
Underlying Granted to
Options Employees in Exercise Price Expiration
Name Granted Fiscal Year Per Share Date 5% 10%
- ---- ---------- ---------------- -------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
David M. D'Ottavio...... 300,000 29.6% $1.00 4/14/08 $188,668 $478,122
C. Elliott Bardsley..... 110,000 10.8 2.40 5/1/08 166,028 420,748
Catherine A. Graham..... 110,000 10.8 2.40 8/1/08 166,028 420,748
</TABLE>
Option Exercises and Fiscal Year-End Option Values. The table below presents
summary information with respect to stock options owned by our named executive
officers at December 31, 1998, none of whom exercised stock options in 1998. We
have calculated the value of unexercised in-the-money options based on our
determination that the fair value of our common stock on December 31, 1998 was
$2.40 per share. We determined this value on a basis consistent with the method
we used to price shares of preferred stock we sold to our investors.
50
<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
<TABLE>
<CAPTION>
Dollar
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options
Options at December 31, 1998 at December 31, 1998
--------------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- -------------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
David M. D'Ottavio...... -- 300,000 -- $420,000
C. Elliott Bardsley..... 32,083 77,917 -- --
Catherine A. Graham..... -- 110,000 -- --
</TABLE>
Key Employee Equity Plan
In 1998, we adopted the Key Employee Equity Plan to attract and retain
qualified officers, key employees, directors and other persons at VIA and our
operating companies by granting them the right to purchase shares of our common
stock. Typically, purchase rights under this plan are fully vested on the date
of the grant and expire two months from the date of the grant unless earlier
terminated.
A total of 800,000 shares have been reserved for issuance under our Key
Employee Equity Plan, of which 445,158 have been issued and are currently
outstanding, and an additional 5,000 are subject to outstanding purchase
rights, as of the date of this prospectus.
Our compensation committee, which administers the Key Employee Equity Plan,
has full power and final authority to designate the grantees, to determine the
number of purchase rights awarded, and to determine the terms and conditions
relating to the vesting, exercise, transfer or forfeiture of the grant,
including the exercise price. Upon termination of a grantee's employment or
other relationship with us, any unexercised purchase rights held by the grantee
terminate immediately.
1998 Stock Option and Restricted Stock Plan
We have adopted the 1998 Stock Option and Restricted Stock Plan, which allows
us to issue restricted shares of our common stock or options to purchase shares
of our common stock. The total number of shares of our common stock available
for issuance under the 1998 plan is 9,200,000, no more than 125,000 of which
may be issued in the form of restricted common stock. No person may be granted
more than 125,000 shares of restricted stock or options to purchase more than
400,000 shares of stock in any calendar year.
The 1998 plan is administered by the compensation committee. Except as
described in the plan, our compensation committee determines the grantees, the
type of grant, number of shares subject to each grant, and the term, exercise
price, and vesting schedules for each grant. All of our employees are eligible
to participate under the 1998 plan. The maximum term of options granted under
the 1998 plan is ten years.
As of the date of this prospectus, options to purchase 4,622,500 shares of
common stock have been issued and are outstanding under the 1998 plan. All of
these options are subject to vesting requirements based on continued
employment, typically vesting over two to four years, and have an exercise
price equal to what the board determined the fair market value of the common
stock to be on the date of the grant.
Employment Agreements
We have entered into an agreement with Mr. Kenneth Blackman under which he
receives an annual salary of approximately $160,000, is eligible to receive an
annual bonus of up to 50% of his annual base salary and is entitled to other
specified benefits. In addition, Mr. Blackman is entitled to receive 12 months'
notice prior to termination until June 22, 2000 and six months' notice after
June 22, 2000.
We also have entered into an agreement with Mr. Antonio Tavares under which
he became one of our executive officers. This agreement entitles Mr. Tavares to
receive an annual bonus of up to 60% of his base annual salary through December
31, 1999. Beginning January 1, 2000, Mr. Tavares' maximum annual bonus will be
50% of his base annual salary.
51
<PAGE>
Compensation of Directors
During fiscal year 1998, our directors were not compensated for serving as
members of the board of directors. Beginning in 1999, each of our independent
directors who is not an employee of VIA or a board designee of one of our
preferred stockholders receives an annual fee of $5,000 for serving on our
board, plus a $1,000 fee for each regularly scheduled meeting he or she attends
and a $500 fee for each special meeting and each committee meeting he or she
attends. In addition, each of these directors, upon joining our board, receives
an option to purchase 100,000 shares of our common stock at an exercise price
equal to the fair market value of the stock on the date of grant. Currently
Messrs. Battista and Puente are our only directors who have received this
compensation. During fiscal year 1999, Mr. Battista also received and exercised
the right to purchase 50,000 shares of our common stock under our Key Employee
Equity Plan at a per share price of $4.00. All of our directors are reimbursed
for travel and other expenses relating to attendance at meetings of the board
of directors or committees of the board of directors.
52
<PAGE>
TRANSACTIONS WITH RELATED PARTIES
Preferred Stock Purchases
In connection with our preferred stock financings, some of our directors, our
executive officers, and persons who hold 5% or more of our stock, or entities
affiliated with these persons, purchased stock from us. Details regarding these
purchases by 5% stockholders are shown in the table below. Share amounts and
prices in the following table give effect to the conversion upon the closing of
this offering of each outstanding share of our preferred stock into one share
of our common stock.
<TABLE>
<CAPTION>
Number of
Aggregate Shares of
Additional Relationship to Date of Purchase Price Common Stock
Purchaser VIA Purchase (In thousands) Purchased
--------- -------------------------- --------- -------------- ------------
<S> <C> <C> <C> <C>
The Centennial Funds.... Adam Goldman, a director, is August 97 $ 200 200,000
a general partner of April 98 90 90,951
Centennial Funds IV and V May 98 8,000 2,666,667
and is a managing principal April 99 27,720 4,620,033
of Centennial Fund VI. He
serves as a senior vice
president of Centennial
Holdings, Inc.
Norwest Equity Capital.. Eric Torgerson, a director, August 97 200 200,000
is a general partner of April 98 91 91,928
Norwest Equity Partners. May 98 6,000 2,000,000
April 99 26,500 4,416,667
Telecom Partners II..... William J. Elsner, a August 97 200 200,000
director, has been a April 98 91 91,928
managing member of Telecom May 98 8,000 2,666,667
Management II, L.L.C., an April 99 7,000 1,166,667
affiliate of Telecom
Partners II, L.P., since
November 1997
HarbourVest William Johnston, a May 98 8,000 2,666,667
International.......... director, is a managing April 99 7,000 1,166,667
director of HarbourVest
Partners, LLC.
Providence Equity Mark Masiello, a director, April 99 19,999 3,333,333
Partners............... is a principal of Providence
Equity Partners Inc., and is
a member of the general
partner of Providence's
private equity funds
Verio................... None August 97 200 200,000
April 98 91 91,928
May 98 8,000 2,666,667
Boston Millennia None May 98 4,389 1,463,333
Partners............... April 99 7,000 1,166,667
</TABLE>
Stockholders Agreement. We entered into a stockholders agreement with the
purchasers of our preferred stock. As amended in April 1999, this agreement
gives each of the following stockholders the right to designate one director to
our board: Providence Equity Partners, L.P., BCI Growth V, LLC, Norwest Equity
Partners, LLC, Centennial Fund VI, L.P., Telecom Partners II, L.P., Verio Inc.
and HarbourVest International Private Equity Partners III-Direct Fund L.P. The
stockholders agreement also gives our preferred stockholders a right of first
refusal to purchase some or all of the shares of stock that are proposed to be
sold by us, by some of our officers or by other preferred stockholders. In the
context of our initial public offering, the stockholders agreement gives our
preferred stockholders the right to purchase in the aggregate up to 5% of the
shares of stock sold in the offering. All of these rights will terminate upon
the closing of this offering.
The stockholders agreement also gives our preferred stockholders the right to
require us to register their shares of common stock for resale and to pay the
expenses of registering their shares. These registration rights will continue
until 2009, but will terminate early for any stockholder whose shares may be
sold under Rule 144(k) under the Securities Act, so long as that stockholder
holds less than 2% of our then outstanding shares of common stock.
53
<PAGE>
Common Stock Purchases
The following table gives information about purchases of our common stock
since inception by our directors or executive officers where the value of the
stock purchased was $60,000 or more:
<TABLE>
<CAPTION>
Number of
Aggregate Shares of
Date of Purchase Price Common Stock
Purchaser Relationship to VIA Purchase (In thousands) Purchased
--------- ---------------------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
David M. D'Ottavio...... Chief Executive Officer and April 98 $150 150,000
Chairman of the Board of
Directors
Michael J. Simmons...... President January 99 120 50,000
C. Elliott Bardsley..... Vice President, Corporate January 99 120 50,000
Development
Catherine A. Graham..... Vice President, Chief January 99 120 50,000
Financial Officer and
Treasurer
Kevin T. Malone......... Vice President, Information January 99 120 50,000
Systems
Matt S. Nydell.......... Vice President, General January 99 95 39,584
Counsel and Secretary
Antonio Tavares......... Vice President, Latin July 99 140 35,000
American Region
Gabriel Battista........ Director August 99 200 50,000
Kenneth Blackman........ Vice President, European September 99 160 40,000
Region
September 99 631 76,506
</TABLE>
Registration Rights. We have entered into a registration rights agreement
with some purchasers of our common stock, including Mr. Blackman. Under this
agreement, if at any time after our initial public offering we decide to
register shares of our common stock for our own account or for the account of
other stockholders, then our stockholders who are parties to the registration
rights agreement may require us to register their shares of common stock as
well. We are obligated to pay all expenses incurred in connection with
registering shares of common stock under the registration rights agreement.
Options and Warrants
The table below shows information about stock options we have granted to our
directors and executive officers that have a value in excess of $60,000, based
on the difference between the option exercise price per share and the value of
the underlying stock on the date of grant. Each of these options is subject to
vesting based on the grantee's continued employment or service as a director
and vests over a period of three or four years from the date of grant.
<TABLE>
<CAPTION>
Number of Shares of
Common Stock
Grantee Relationship to VIA Date of Grant Underlying Grant
------- ------------------------ ------------- -------------------
<C> <S> <C> <C>
Chief Executive Officer
David M. D'Ottavio and Chairman of the April 6, 1999 100,000
Board of Directors May 25, 1999 100,000
Michael J. Simmons President April 6, 1999 35,000
June 7, 1999 100,000
Vice President, European
Kenneth Blackman Region June 7, 1999 75,000
Vice President, Latin
Antonio Tavares American Region May 25, 1999 75,000
Gabriel A. Battista Director June 7, 1999 100,000
</TABLE>
54
<PAGE>
In April 1998 we issued a warrant to Steven C. Halstedt, who at the time was
a director of VIA, to purchase 100,000 shares of our common stock at a per
share price of $2.40. The warrant, which was exercisable upon issuance and has
a term of five years, was issued in consideration of Mr. Halstedt's services to
VIA as acting president. Centennial Fund V, L.P., of which Mr. Halstedt is a
principal, and which holds more than 5% of our outstanding stock, has informed
us that it is entitled to the economic benefit of this warrant under the terms
of its partnership agreement.
Acquisitions of Dialdata and WorldWide Web Services
In December 1998, we purchased stock totaling 51% of the outstanding stock of
Dialdata S.A. Internet Systems, located in Brazil, from Dialdata and from some
of Dialdata's shareholders. In exchange for the shares we purchased from
Dialdata, we paid $1.4 million in cash and $4.1 million in notes bearing
interest at an annual rate of 4% and payable in ten equal monthly installments,
the last of which we paid in October 1999. Mr. Antonio Tavares, a co-founder of
Dialdata who owned 35.7% of Dialdata prior to our acquisition and 19.2% after
our acquisition, became one of our executive officers after our acquisition of
Dialdata. As part of our acquisition, Mr. Tavares also sold us shares of stock
in Dialdata for $960,000 in cash. In July 1999, we acquired additional shares
representing 2.3% of Dialdata's stock from Mr. Tavares in exchange for 35,000
shares of VIA common stock.
In May 1999, we acquired all of the outstanding stock of WorldWide Web
Services, Inc., located in the United Kingdom, for $7.3 million in cash and
promissory notes, which bore interest at an annual rate of 5%. We paid off the
entire outstanding balance due under the notes in September 1999. Mr. Kenneth
Blackman owned 23.0% of WorldWide Web Services prior to our acquisition of the
company. Mr. Blackman became one of our executive officers subsequent to our
acquisition of WorldWide Web Services.
Our acquisitions of Dialdata and WorldWide Web Services were each consummated
in the local currency for these companies. As a result, the dollar amounts
stated above are based on the exchange rates we used to make these
calculations.
55
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table shows the number and percentage of outstanding shares of
our common stock that were owned as of November 15, 1999 and that will be owned
immediately following this offering by:
. each person who we know to be the beneficial owner of more than 5% of our
outstanding common stock
. each of our directors and named executive officers
. all of our directors and executive officers as a group.
Share numbers and percentages in this table and the related footnotes assume
that each share of our mandatorily redeemable convertible preferred common
stock has been converted into one share of our common stock or our non-voting
common stock, which will occur concurrently with the closing of this offering.
Information in this section also assumes the underwriters' over-allotment
option is not exercised.
As of November 15, 1999, there were 35,181,320 shares of common stock
outstanding and 6,770,001 shares of non-voting common stock outstanding.
Following this offering, we will have shares of common stock outstanding and
6,770,001 shares of non-voting common stock outstanding.
The total number of shares of common stock outstanding used in calculating
the percentage owned by each person includes the shares of common stock
issuable upon conversion of our non-voting common stock or upon the exercise of
options held by that person that are exercisable within 60 days of November 15,
1999.
Unless indicated otherwise below, the address for our directors and officers
is c/o VIA NET.WORKS, Inc., 12100 Sunset Hills Road, Suite 110, Reston, VA
20190. Except as indicated below, the persons named in the table have sole
voting and investment power with respect to all shares of common stock
beneficially owned by them.
<TABLE>
<CAPTION>
Percentage of Shares
Beneficially Owned
Number of Shares ------------------------
Beneficially Owned Before After
Name Before Offering Offering Offering
---- ------------------ ---------- ----------
<S> <C> <C> <C>
Norwest Equity Capital, L.L.C.
and related entity(1).......... 6,708,595 16.7%
Telecom Partners II, L.P. and
related entity(2).............. 4,175,262 11.9
Centennial Fund V, L.P.(3)...... 4,005,806 11.4
HarbourVest International
Private Equity Partners III-
Direct Fund L.P.(4)............ 3,833,334 10.9
Providence Equity Partners L.P.
and affiliated entity(5)....... 3,333,333 9.3
Centennial Fund VI, L.P.(6)..... 3,189,792 9.1
Verio Inc.(7)................... 2,958,595 8.4
Boston Millennia Partners
Limited Partnership and
affiliated entities(8)......... 2,630,006 7.5
David M. D'Ottavio(9)........... 337,449 1.0
C. Elliott Bardsley(10)......... 207,313 *
Catherine A. Graham(11)......... 113,955 *
Gabriel A. Battista............. 50,000 *
Stephen J. Eley(12)............. 1,666,666 4.7
William J. Elsner(2)............ 4,175,262 11.9
Adam Goldman(3)................. -- --
William A. Johnston(4).......... -- --
Mark J. Masiello(5)............. -- --
John G. Puente.................. 50,000 *
Erik M. Torgerson(13)........... 2,500,000 6.7
All directors and executive
officers as a group
(17 persons)(14)............... 9,579,230 25.4
</TABLE>
- ---------------------
* Less than 1%.
(1) Consists of 5,050,000 shares of common stock issuable upon the conversion
of shares of non-voting common stock held by Norwest Equity Capital,
L.L.C., 1,366,667 shares of common stock held by Norwest Equity Capital,
L.L.C. and 291,928 shares of common stock held by Norwest Venture Partners
VI, L.P., an entity affiliated with Norwest Equity Capital. Mr. Torgerson
is a General Partner of Norwest Equity Partners, an entity affiliated with
Norwest Venture Partners and Norwest Equity Capital and, as
56
<PAGE>
such, shares voting and investment power over Norwest Equity Capital's
shares. Mr. Torgerson disclaims beneficial ownership over these shares
except to the extent of his pecuniary interest in them. The address of
Norwest Equity Capital and Norwest Venture Partners is 2800 Piper Jaffray
Tower, 222 South Ninth Street, Minneapolis, Minnesota 55402.
(2) Consists of 408,333 shares held by Telecom Partners, an entity affiliated
with Telecom Partners II, L.P. and 3,766,929 shares held by Telecom
Partners II. Mr. Elsner is a managing member of the general partner of
Telecom Partners II and, as such, may be deemed to share voting and
investment power over these shares. Mr. Elsner disclaims beneficial
ownership over these shares except to the extent of his pecuniary interest
in them. The address of Telecom Partners II, L.P. and Mr. Elsner is 4600
South Syracuse, Suite 1000, Denver, Colorado 80237.
(3) Excludes 3,189,792 shares held by Centennial Fund VI, L.P. and 429,991
shares held by other entities affiliated with Centennial Fund V, L.P.,
over which Centennial Fund V has no voting or investment control. Mr.
Goldman, who is a general partner or managing principal of the general
partner of each of Centennial Fund V and Centennial Fund VI, has no voting
or investment power over any of these shares and disclaims beneficial
ownership over any of these shares except to the extent of his pecuniary
interest in them. The address for Centennial Fund V, L.P. is 1428
Fifteenth Street, Denver, Colorado 80202.
(4) Sole voting and investment power over these shares is held by the managing
members of HarbourVest Partners, LLC, which is the managing member of
HIPEP III--Direct Associates L.L.C., which in turn is the general partner
of HarbourVest International Private Equity Partners III-Direct Fund L.P.
The address of HarbourVest International Private Equity Partners III and
of Mr. Johnston is c/o HarbourVest Partners, LLC, One Financial Center,
44th Floor, Boston, Massachusetts 02111.
(5) Includes 833,334 shares of non-voting common stock held by Providence
Equity Partners II L.P. and 45,840 shares of common stock held by
Providence Equity Partners II L.P., an entity affiliated with Providence
Equity Partners. Mr. Masiello, who is a principal of Providence Equity
Partners Inc., the investment advisor to Providence Equity Partners and
Providence Equity Partners II, has no voting or investment power over
these shares and disclaims beneficial ownership of these shares except to
the extent of his pecuniary interest in them. The address for Providence
Equity Partners and Providence Equity Partners II is 50 Kennedy Plaza, 900
Fleet Center, Providence, Rhode Island 02903.
(6) Excludes 4,005,806 shares held by Centennial Fund V, L.P. and 429,991
shares held by other entities affiliated with Centennial Fund VI, L.P.,
over which Centennial Fund VI has no voting or investment control. The
address for Centennial Fund VI, L.P. is 1428 Fifteenth Street, Denver,
Colorado 80202.
(7) The address of Verio Inc. is 8005 South Chester Street, Suite 200,
Englewood, Colorado 80112.
(8) Includes 50,636 shares held by entities affiliated with Boston Millennia
Partners Limited Partnership. The address of Boston Millennia Partners is
30 Rowes Wharf, Boston, Massachusetts 02110.
(9) Includes 187,499 shares of common stock issuable upon the exercise of
options held by Mr. D'Ottavio that are exercisable within 60 days.
(10) Includes 74,371 shares of common stock issuable upon the exercise of
options held by Mr. Bardsley that are exercisable within 60 days.
(11) Includes 63,955 shares of common stock issuable upon the exercise of
options held by Ms. Graham that are exercisable within 60 days.
(12) Consists of 1,633,333 shares held by BCI Growth V, LP and 33,333 shares
held by BCI Investors LLC. Mr. Eley is a general partner of BCI Growth V
and, as such, may be deemed to share voting and investment power over
these shares. Mr. Eley disclaims beneficial ownership of these shares
except to the extent of his pecuniary interest in them.
(13) Consists of 433,962 shares of common stock held by Norwest Equity Capital
and 2,066,038 shares issuable upon the conversion of shares of non-voting
common stock held by Norwest Equity Capital. See note (1).
(14) Includes 2,066,038 shares of common stock issuable upon the conversion of
shares of non-voting common stock and 512,270 shares of common stock
issuable upon the exercise of options held by our directors and executive
officers that are exercisable within 60 days. See notes (1) through (13).
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DESCRIPTION OF CAPITAL STOCK
General
Until the closing of this offering, our authorized capital stock will consist
of 57,000,000 shares of common stock, par value $0.001 per share, 7,500,000
shares of non-voting common stock, par value $0.001 per share, and 48,800,000
shares of preferred stock, par value $0.001 per share. As of November 15, 1999,
there were 1,957,671 shares of common stock outstanding and 39,993,650 shares
of mandatorily redeemable convertible preferred stock outstanding which will
convert into 33,223,649 shares of common stock and 6,770,001 shares of non-
voting common stock concurrently with the closing of this offering. Our
outstanding shares were held by 66 stockholders of record. In addition, as of
November 15, 1999 there were outstanding stock options to purchase a total of
4,622,500 shares of common stock at a weighted average exercise price of $6.08
per share, a warrant to purchase a total of 100,000 shares of common stock at
an exercise price of $2.40 per share and a right to purchase 5,000 shares of
common stock for $8.25 per share.
Following this offering, based on the number of shares of common and
mandatorily redeemable convertible preferred stock outstanding on November 15,
1999, we will have outstanding shares of common stock and 6,770,001 shares
of non-voting common stock.
Upon the closing of this offering, our certificate of incorporation will be
amended and restated to include the following provisions:
Common Stock
We will be authorized to issue 100,000,000 shares of common stock and
7,500,000 shares of non-voting common stock. Each stockholder of record will be
entitled to one vote for each outstanding share of our common stock owned by
that stockholder on every matter properly submitted to the stockholders for
their vote. Holders of non-voting common stock will not be entitled to vote
except as required by law, and each share of non-voting common stock will be
convertible into one share of common stock at the holder's option at any time.
In all other respects, the rights of the non-voting common stock will be the
same as those of the common stock. After satisfaction of the dividend rights of
holders of preferred stock, holders of common stock are entitled to any
dividend declared by the board of directors out of funds legally available for
this purpose, and, after the payment of liquidation preferences to holders of
preferred stock, holders of common stock are entitled to receive, on a pro rata
basis, all our remaining assets available for distribution to the stockholders
in the event of our liquidation, dissolution or winding up. Holders of common
stock do not have any preemptive right to become subscribers or purchasers of
additional shares of any class of our capital stock. The outstanding shares of
common stock are, and the shares of common stock offered in this offering will
be, when issued and paid for, fully paid and non-assessable. The rights,
preferences and privileges of holders of common stock may be adversely affected
by the rights of the holders of shares of any series of preferred stock that we
may designate and issue in the future.
Preferred Stock
Our certificate of incorporation will allow us to issue without stockholder
approval preferred stock having rights senior to those of the common stock. Our
board of directors will be authorized, without further stockholder approval, to
issue up to 10,000,000 shares of preferred stock in one or more series and to
fix the rights, preferences, privileges and restrictions of any series of
preferred stock, including dividend rights, conversion rights, voting rights,
terms of redemption and liquidation preferences and to fix the number of shares
constituting any series and the designations of these series.
Our issuance of preferred stock may have the effect of delaying or preventing
a change in control. Our issuance of preferred stock could decrease the amount
of earnings and assets available for distribution to the holders of common
stock or could adversely affect the rights and powers, including voting rights,
of the holders of common stock. The issuance of preferred stock could also have
the effect of decreasing the market price of the common stock.
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Transfer Agent and Registrar
The transfer agent and registrar for our common stock is .
Listing
We intend to apply to have our common stock approved for quotation on the
Nasdaq National Market under the trading symbol "VNWI."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market could
adversely affect our common stock's prevailing market price. Upon completion of
this offering, we will have outstanding shares of our common stock and
6,770,001 shares of our non-voting common stock, assuming no exercise of the
underwriters' over-allotment option and no exercise of outstanding options.
Because each share of non-voting common stock may be converted into one share
of common stock at the holder's option, information in this section assumes the
conversion of each share of non-voting common stock into one share of common
stock. Of these shares, all of the shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act,
unless the shares are purchased by "affiliates" of VIA as that term is defined
in Rule 144 under the Securities Act.
The remaining 41,951,321 shares of common stock held by existing stockholders
are "restricted securities" as that term is defined in Rule 144 under the
Securities Act. Restricted securities may be sold in the public market only if
registered or if they qualify for an exemption from registration under
Securities Act Rule 144 or 701. We summarize these two rules below. The
provisions of Rules 144 and 701 provide that the restricted securities will be
available for sale in the public market on the date which is one year from the
date they were issued and fully paid for, so long as the sellers of restricted
securities comply with the volume limitations and other conditions of Rule 144.
Rule 144
Under Rule 40,652,810 shares of common stock will be freely tradable 90 days
after this offering closes. Sales of some of these shares of common stock will
be limited under lock-up agreements with the underwriters. In general, under
Rule 144, beginning 90 days after the closing of this offering, a person who
has owned shares of our common stock for at least one year would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of:
. 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering; or
. the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to that sale.
Sales under Rule 144 are also governed by manner of sale provisions and
notice requirements, and current public information about VIA must be
available.
Under Rule 144(k), an additional 225,000 shares of common stock will be
freely tradable after this offering closes. Some of these shares of common
stock will be restricted from sale under lock-up agreements. Under Rule 144(k),
a person who is not one of our affiliates at any time during the 90 days
preceding a sale, and who has owned the shares proposed to be sold for at least
two years, is entitled to sell the shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
Therefore, unless otherwise restricted, "Rule 144(k) shares" may be sold
immediately upon the completion of this offering.
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Rule 701
As of November 15, 1999, 102,000 shares of common stock had been issued or
were issuable upon the exercise of options granted in reliance on Rule 701. All
of these shares will be eligible for sale in reliance on Rule 701 beginning 90
days after the closing of this offering. Of these shares of common stock,
transfers of will be restricted by lock-up agreements. In general, under
Rule 701 as currently in effect, any of our employees who have purchased shares
from us in connection with a compensatory plan or other agreement is eligible
to resell those shares 90 days after the effective date of this offering in
reliance on Rule 144, but without compliance with restrictions, including the
holding period, contained in Rule 144.
Registration Rights
Upon the closing of this offering, the holders of 40,326,676 shares of common
stock and non-voting common stock that are restricted securities will be
entitled to require us to register sales of their shares of common stock with
the SEC. Under the stockholders agreement we entered into with purchasers of
our mandatorily redeemable convertible preferred stock, holders of 39,993,650
shares of common stock and non-voting common stock will be entitled to have us
register their shares of common stock, including common stock issuable upon the
conversion of their non-voting common stock, upon request, so long as the
shares to be sold represent at least 10% of the securities subject to the
stockholders agreement or so long as we are eligible to file a short-form
registration statement with the SEC and the shares to be sold will be sold for
an anticipated offering price of at least $5,000,000. In addition, if we
register any of our securities under the Securities Act for our own account or
for the account of other stockholders, these stockholders are entitled to
notice of the registration and are entitled to include their shares of common
stock in the registration, subject to limitations in the case of an
underwritten offering. In most circumstances, we will be required to pay the
expense of registering these stockholders' shares.
In addition, the holders of 332,926 shares of our common stock have entered
into a registration rights agreement with us. Under the registration rights
agreement, if at any time after this offering we register any of our securities
under the Securities Act for our own account or for the account of other
stockholders, these stockholders are entitled to notice of the registration and
are entitled to include their shares of common stock in the registration,
subject to limitations in the case of an underwritten offering. Under the
registration rights agreement, we will be required to pay the expense of
registering these stockholders' shares.
Stock Options
As soon as practicable after this offering, we intend to file a registration
statement under the Securities Act covering 9,200,000 shares of common stock
reserved for issuance under our stock plan. As of November 15, 1999, options to
purchase 4,622,500 shares of common stock were outstanding. The registration
statement is expected to be filed and become effective as soon as practicable
after the effective date of this offering. Accordingly, shares registered under
this registration statement will, provided options have vested and Rule 144
volume limitations applicable to our affiliates are complied with, be available
for sale in the open market shortly after this offering closes, and in the case
of our officers, directors and stockholders who have entered into lock-up
agreements, after the 180-day lock-up agreements expire.
Lock-Up Agreements
All of VIA's officers and directors, and several of its stockholders, who
will beneficially own shares of common stock after this offering closes,
will sign lock-up agreements with the underwriters under which they will agree,
among other things, not to offer, sell or agree to sell, directly or
indirectly, or otherwise dispose of any shares of common stock or any
securities convertible into or exercisable or exchangeable for shares of common
stock, for a period of 180 days after the date of this prospectus. Transfers or
dispositions can be made sooner with the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation. This consent may be given at any time
without public notice.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES TO NON-UNITED STATES STOCKHOLDERS
This is a general summary of material United States federal income and estate
tax considerations with respect to your acquisition, ownership and disposition
of common stock if you are a holder other than:
. a citizen or resident of the United States
. a corporation, partnership or other entity created or organized in, or
under the laws of, the United States or of any political subdivision of
the United States
. an estate, the income of which is subject to United States federal
income taxation regardless of its source
. a trust, if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions
of the trust or
. a trust that existed on August 20, 1996 and elected to be treated as a
domestic trust as of that date
This summary does not address all United States federal income and estate tax
considerations that may be relevant to you in light of your particular
circumstances or if you are a holder subject to special treatment under United
States income tax laws, such as insurance companies, tax-exempt organizations,
financial institutions, brokers, dealers in securities, and certain U.S.
expatriates. This summary does not discuss any aspects of state, local or non-
United States taxation. This summary is based on current provisions of the
Internal Revenue Code, Treasury regulations, judicial opinions, published
positions of the IRS, and all other applicable authorities, all of which are
subject to change, possibly with retroactive effect.
We urge prospective non-United States investors to consult their tax advisors
regarding the United States federal, state, local and non-United States income
and other tax considerations of acquiring, holding and disposing of shares of
our common stock.
Dividends
As described above, we do not expect to pay you dividends. If we later decide
to pay dividends, any dividends we pay to you generally would be subject to
United States withholding tax at a rate of 30%, or a lower rate prescribed by
an applicable income tax treaty, of the gross amount of the dividends unless
the dividends were effectively connected with your conduct of a trade or
business within the United States, or if selected tax treaties apply, were
attributable to a United States permanent establishment maintained by you, and
you file the appropriate documentation with us. Dividends effectively connected
with a United States trade or business generally would be subject to United
States federal income tax on a net income basis, in the same manner as
generally applied to United States persons. If you are a corporation,
effectively connected income could also be subject to the branch profits tax at
a rate of 30%, or a lower rate as may be specified by an applicable income tax
treaty, on the repatriation from the United States of your "effectively
connected earnings and profits," subject to adjustments. If we later decide to
pay dividends, you should consult any applicable income tax treaties that may
provide for a lower rate of tax or other rules different from those described
above. You could be required to satisfy certification requirements to claim
treaty benefits or otherwise claim a reduction of, or exemption from,
withholding under these rules.
Sale or Other Dispositions of the Common Stock
You generally will not be subject to United States federal income tax on any
gain realized upon the sale or other disposition of your shares of common stock
unless:
. the gain is effectively connected with the conduct of a trade or
business within the United States, or, if some tax treaties apply, is
attributable to a United States permanent establishment you maintain
. you are an individual, you hold shares of common stock as a capital
asset, you are present in the United States for 183 days or more in the
taxable year of disposition and you meet other requirements
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. you are subject to tax pursuant to the provisions of the Internal
Revenue Code regarding the taxation of some U.S. expatriates or
. we are or have been a "United States real property holding corporation"
for United States federal income tax purposes, which we do not believe
that we are or will become, and you hold or have held, directly or
indirectly, at any time within the shorter of the five-year period
preceding disposition or your holding period for the shares of the
common stock, more than 5% of the common stock
Gain that is effectively connected with your conduct of a trade or business
within the United States generally will be subject to United States federal
income tax on a net income basis, in the same manner as generally applied to
United States persons, and if you are a corporation, the branch profits tax may
also apply in some circumstances, but you will not be subject to withholding.
If you are described in the second bullet point above, you generally will be
subject to tax at a rate of 30% on the gain realized, although the gain may be
offset by some United States capital losses. You should consult any applicable
income tax treaties that may provide for a lower rate of tax or other rules
different from those described above.
Information Reporting and Backup Withholding
We do not currently anticipate paying dividends to you, but if we decide to
pay dividends in the future, we would be required to report annually to the IRS
and to you the amount of dividends we pay you and any tax we withhold. These
reporting requirements would apply regardless of whether withholding is reduced
by an applicable income tax treaty. Backup withholding, currently at a rate of
31%, could also apply under special circumstances.
Under current Treasury regulations, United States information reporting
requirements and backup withholding tax at a rate of 31% will generally apply
to payments to you of the proceeds of a sale of the common stock by a United
States office of a broker unless you certify, under penalties of perjury, that
you are not a U.S. holder or otherwise establish an exemption. Information
reporting, but not backup withholding, generally will also apply to payments of
the proceeds of sales of the common stock by foreign offices of United States
brokers, or foreign brokers with some types of relationships with the United
States, unless the broker has documentary evidence in its records that you are
not a U.S. holder and some other conditions are met, or you otherwise establish
an exemption.
The IRS has issued Treasury regulations generally effective for payments made
after December 31, 2000 that will affect the procedures to be followed by you
in establishing that you are not a U.S. holder for purposes of the backup
withholding and information reporting requirements. Among other things, if you
are not currently required to furnish certification of foreign status, you may
be required to furnish certification of foreign status in the future. You
should consult your tax advisor concerning the effect of this regulation on an
investment in the common stock.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to you can be refunded or credited
against your United States federal income tax liability, if any, if the
required information is furnished to the IRS.
Pursuant to applicable tax treaties or other agreements, any information
reported to us also may be made available to the tax authorities in the country
in which you reside or are established.
Estate Tax
Common stock owned or treated as owned by an individual who is not a citizen
or resident, as defined for United States federal estate tax purposes, of the
United States at the time of his or her death, or specified lifetime transfers
made by the individual, will be includible in the individual's gross estate for
United States federal estate tax purposes, unless an applicable estate tax
treaty provides otherwise, and therefore may be subject to United States
federal estate tax.
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UNDERWRITING
Subject to the terms and conditions of an underwriting agreement, dated as
of , 2000, the U.S. underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, Morgan Stanley & Co.
Incorporated, Salomon Smith Barney Inc. and DLJdirect Inc., and the
international managers named below, together with the U.S. underwriters, the
"underwriters," who are represented by Donaldson, Lufkin & Jenrette
International, Morgan Stanley & Co. International Limited, Salomon Brothers
International Limited,Cazenove & Co. and MeesPierson, N.V., together with the
U.S. representatives, the "representatives," have severally agreed to purchase
from us the respective number of shares of common stock shown opposite their
names below.
<TABLE>
<CAPTION>
U.S. Underwriters Number of Shares
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation............
Morgan Stanley & Co. Incorporated .............................
Salomon Smith Barney Inc.......................................
DLJdirect Inc..................................................
----
Subtotal.....................................................
----
<CAPTION>
International Managers Number of Shares
<S> <C>
Donaldson, Lufkin & Jenrette International.....................
Morgan Stanley & Co. International Limited.....................
Salomon Brothers International Limited.........................
Cazenove & Co. ................................................
MeesPierson, N.V. .............................................
----
Subtotal.....................................................
----
Total..........................................................
====
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of common stock
included in this offering are subject to approval of legal matters by their
counsel and to customary conditions, including the effectiveness of the
registration statement, the continuing correctness of our representations, the
receipt of a "comfort letter" from our accountants, the listing of the common
stock for quotation on the Nasdaq National Market and no occurrence of an event
that would have a material adverse effect on us. The underwriters are obligated
to purchase and accept delivery of all the shares of common stock, other than
those covered by the over-allotment option described below, if they purchase
any of the shares of common stock.
The underwriters propose to offer initially some of the shares of common
stock directly to the public at the public offering price on the cover page of
this prospectus and some of the shares of common stock to dealers, including
the underwriters, at the initial public offering price less a concession not in
excess of $. per share. The underwriters may allow, and these dealers may re-
allow, a concession not in excess of $. per share to other dealers. After the
initial offering of the common stock to the public, the representatives of the
underwriters may change the public offering price and these concessions. The
underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
The following table shows the underwriting fees to be paid to the
underwriters by us in this offering. These amounts are shown assuming both no
exercise and full exercise of the underwriters' option to purchase additional
shares of common stock.
<TABLE>
<CAPTION>
No Full
Exercise Exercise
<S> <C> <C>
Per share..................................................... $ $
Total......................................................... $ $
</TABLE>
We estimate expenses related to the offering will be $ .
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VIA has granted to the U.S. underwriters an option, exercisable within 30
days after the date of the underwriting agreement, to purchase up to
additional shares of common stock at the initial public offering price less
underwriting fees. The U.S. underwriters may exercise this option solely to
cover over-allotments, if any, made in connection with the offering. To the
extent that the U.S. underwriters exercise this option, each U.S. underwriter
will become obligated, subject to conditions, to purchase a number of
additional shares approximately proportionate to that U.S. underwriter's
initial purchase commitment.
VIA has agreed to indemnify the underwriters against specified liabilities,
including liabilities under the Securities Act, or to contribute to payments
that the underwriters may be required to make in respect of any of those
liabilities.
VIA, our executive officers, directors and some of our stockholders have
agreed, for a period of 180 days from the date of this prospectus and subject
to some exceptions, they will not, without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation, do either of the
following:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
. enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any common
stock.
Either of the foregoing transfer restrictions will apply regardless of
whether a covered transaction is to be settled by the delivery of common stock
or such other securities, in cash or otherwise. In addition, during this 180
day period and subject to specified exceptions, VIA has agreed not to file any
registration statement with respect to, and each of our executive officers,
directors and some of our stockholders has agreed not to make any demand for,
or exercise any right with respect to, the registration of any shares of common
stock or any securities convertible into or exercisable for common stock
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation.
At our request, the underwriters have reserved for sale up to shares of
common stock offered by this prospectus for sale at the initial public offering
price to our employees, officers and directors and other persons designated by
us. The number of shares of common stock available for sale to the general
public will be reduced to the extent these individuals purchase or confirm for
purchase, orally or in writing, these reserved shares. Any reserved shares not
purchased or confirmed for purchase will be offered by the underwriters to the
general public on the same basis as the other shares offered by this
prospectus.
We intend to apply to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "VNWI."
Under an intersyndicate agreement between the U.S. underwriters and
international managers, each U.S. underwriter has represented and agreed that,
with some exceptions:
. it is not purchasing any shares of common stock included in this offering
for the account of anyone other than a United States or Canadian person;
and
. it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares of common stock included in this offering or
distribute any prospectus relating to the shares of common stock outside
the United States or Canada or to anyone other than a United States or
Canadian person.
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Under the intersyndicate agreement, each international manager has
represented and agreed that, with some exceptions:
. it is not purchasing any shares of common stock included in this offering
for the account of any United States or Canadian person; and
. it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares of common stock included in this offering or
distribute any prospectus relating to the shares of common stock in the
United States or Canada or to any United States or Canadian person.
With respect to any underwriter that is both a U.S. underwriter and an
international manager, these representations and agreements made by it in its
capacity as a U.S. underwriter apply only to it in its capacity as a U.S.
underwriter and made by it in its capacity as an international manager apply
only to it in its capacity as an international manager. These limitations do
not apply to stabilization transactions and to other transactions specified in
the intersyndicate agreement. As used in this section, "United States or
Canadian person" means any individual who is resident in the United States or
Canada, or any corporation, pension, profit-sharing or other trust or other
entity organized under or governed by the laws of the United States or Canada
or of any political subdivision thereof, other than the foreign branch of any
United States or Canadian person, and includes any United States or Canadian
branch of a person other than a United States or Canadian person.
Under the intersyndicate agreement, sales may be made between the syndicates
of U.S. underwriters and international managers of a number of the shares of
common stock included in this offering as may be mutually agreed. Unless
otherwise determined by the representatives of the U.S. underwriters and
international managers, the per share price of any shares of common stock so
sold shall be the initial public offering price set forth on the cover page
hereof, in United States dollars, less an amount not greater than the per share
amount of the concession to dealers described above.
Under the intersyndicate agreement, each U.S. underwriter has represented and
agreed that:
. it has not offered or sold and will not offer or sell, directly or
indirectly, any shares of common stock included in this offering in any
province or territory of Canada or to, or for the benefit of, any
resident of any province or territory of Canada in contravention of the
applicable securities laws; and
. without limiting the generality of the foregoing, any offer or sale of
shares of common stock in Canada will be made only pursuant to an
exemption from the requirement to file a prospectus in the province or
territory of Canada in which the offer or sale is made.
Each U.S. underwriter has further agreed to send to any dealer who purchases
from it any shares of common stock included in this offering a notice stating
in substance that by purchasing those shares of common stock the dealer
represents and agrees that:
. it has not offered or sold and will not offer or sell, directly or
indirectly, any of those shares of common stock in any province or
territory of Canada or to, or for the benefit of, any resident of any
province or territory of Canada in contravention of applicable securities
laws;
. any offer or sale of those shares of common stock in Canada will be made
only pursuant to an exemption from the requirement to file a prospectus
in the province or territory of Canada in which the offer or sale is
made; and
. it will send to any other dealer to whom it sells any of those shares of
common stock a notice containing substantially the same statement as is
contained in this sentence.
Under the intersyndicate agreement, each international manager has
represented and agreed that:
. it has not offered or sold and, prior to the date six months after the
closing date for the sale of shares of common stock to the international
managers under the Underwriting Agreement, will not offer or sell, any
shares of common stock included in this offering to persons in the United
Kingdom except to
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persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments, as principal or agent, for the
purposes of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulations
1995;
. it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the shares of common stock included in this offering in, from
or otherwise involving the United Kingdom; and
. it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with this
offering to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions)
Order 1996 or is a person to whom the document may otherwise lawfully be
issued or passed on.
Under the intersyndicate agreement, each international manager has
represented and agreed that it has not offered or sold and will not offer or
sell, directly or indirectly, any shares of common stock acquired in connection
with the distribution contemplated in this prospectus in Japan or to or for the
account of any resident thereof, except for offers or sales to Japanese
international managers or dealers and except pursuant to an exemption from the
registration requirements of the Securities and Exchange Law of Japan and
otherwise in compliance with applicable provisions of Japanese law. Each
international manager has agreed to send to any dealer who purchases from it
any shares of common stock included in this offering a notice stating in
substance that by purchasing those shares of common stock that dealer
represents and agrees that:
. it has not offered or sold and will not offer or sell, directly or
indirectly, any of those shares of common stock in Japan or to or for the
account of any resident thereof, except for offers or sales to Japanese
international managers or dealers and except pursuant to an exemption
from the registration requirements of the Securities and Exchange Law of
Japan and otherwise in compliance with applicable provisions of Japanese
law; and
. it will send to any other dealer to whom it sells any of those shares of
common stock a notice containing substantially the same statement as is
contained in this sentence.
Other than in the United States, no action has been taken by VIA or the
underwriters that would permit a public offering of the shares of common stock
offered by this prospectus in any jurisdiction where action for that purpose is
required. The shares of common stock offered through this prospectus may not be
offered or sold, directly or indirectly, nor may this prospectus or any other
offering material or advertisements associated with the offer and sale of any
the shares of common stock offered through this prospectus be distributed or
published in any jurisdiction, except under circumstances that will result in
compliance with the applicable rules and regulations of that jurisdiction. You
should inform yourself and observe any restrictions relating to the offering of
the common stock and the distribution of this prospectus. This prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any shares
of common stock included in this offering in any jurisdiction where that would
not be permitted or legal.
Stabilization
In connection with the offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock.
Specifically, the underwriters may over-allot the offering, creating a
syndicate short position. The underwriters may bid for and purchase shares of
common stock in the open market to cover a syndicate short position or to
stabilize the price of the common stock. In addition, the underwriting
syndicate may reclaim selling concessions from syndicate members and selected
dealers if Donaldson, Lufkin & Jenrette Securities Corporation repurchases
previously distributed common stock in syndicate covering transactions, in
stabilization transactions or otherwise if Donaldson, Lufkin & Jenrette
Securities Corporation receives a report that indicates that the clients of
such syndicate members have "flipped" the common stock. These activities may
stabilize or maintain the market price of the common stock
66
<PAGE>
above independent market levels. The underwriters are not required to engage in
these activities, and may end any of these activities at any time.
Pricing of the Offering
Prior to the offering, there has been no established trading market for our
common stock. The initial public offering price of our common stock will be
determined by negotiation among VIA and the representatives of the
underwriters. The factors to be considered in determining the initial public
offering price include:
.the history of and the prospects for the industry in which VIA competes
.VIA's past and present operations
.VIA's historical results of operations
.VIA's prospects for future earnings
.the recent market prices of securities of generally comparable companies
and
.the general condition of the securities markets at the time of the
offering
VALIDITY OF THE SHARES
Hogan & Hartson L.L.P., Washington, D.C., will pass upon the validity of the
issuance of the shares being offered. O'Melveny & Myers LLP will act as counsel
for the underwriters.
EXPERTS
The consolidated financial statements of VIA NET.WORKS, Inc. as of December
31, 1997 and 1998 and for the period from June 13, 1997 (inception) to December
31, 1997 and for the year ended December 31, 1998 included in this prospectus
have been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statements of VIA Net Works Argentina S.A. as of December 31,
1997 and September 24, 1998 and for the year ended December 31, 1997 and for
the period from January 1, 1998 to September 24, 1998 included in this
prospectus have been so included in reliance on the report of Price Waterhouse
& Co., independent accountants, given on the authority of said firm as experts
in auditing and accounting.
The financial statements of GTN Gesellschaft fur Telekommunikations und
Netzwerkdienste mbH as of December 31, 1997 and October 9, 1998 and for the
year ended December 31, 1997 and for the period from January 1, 1998 to October
9, 1998 included in this prospectus have been so included in reliance on the
report of PricewaterhouseCoopers GmbH, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of U-Net Limited as of July 31, 1997 and 1998 and
October 29, 1998 and for the years ended July 31, 1997 and 1998 and for the
period from August 1, 1998 to October 29, 1998 included in this prospectus have
been so included in reliance on the report of PricewaterhouseCoopers,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statements of Dialdata S.A. Internet Systems as of December 31,
1997 and December 29, 1998 and for the year ended December 31, 1997 and for the
period from January 1, 1998 to December 29, 1998 included in this prospectus
have been so included in reliance on the report of PricewaterhouseCoopers,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The consolidated financial statements of I-Way Limited as of April 30, 1997
and 1998 and December 31, 1998 and for the two years ended April 30, 1998 and
for the period from May 1, 1998 to December 31, 1998 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
67
<PAGE>
The consolidated financial statements of bART Holding B.V. as of December 31,
1998 and for the year then ended included in this prospectus have been so
included in reliance on the report of PricewaterhouseCoopers N.V., independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of Esoterica-Novas Tecnologias de Informacao SA as
of December 31, 1998 and for the year then ended included in this prospectus
have been so included in reliance on the report of PricewaterhouseCoopers-
Auditores e Consultores, Lda, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
The financial statements of WorldWide Web Services Limited as of May 27, 1999
and for the period from July 1, 1998 to May 27, 1999 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The financial statements of Netlink Internet Services Limited as of December
31, 1998 and for the year then ended included in this prospectus have been so
included in reliance on the report of PricewaterhouseCoopers, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of Disbumad, SL as of December 31, 1998 and for the
year then ended included in this prospectus have been so included in reliance
on the report of PricewaterhouseCoopers Auditores, S.L., independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of Infoacces, S.A. de C.V. as of December 31, 1997
and 1998, and for each of the years in the two-year period ended December 31,
1998, have been included herein and in the registration statement in reliance
upon the report of KPMG CARDENAS DOSAL, S.C., independent accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange commission a registration
statement on Form S-1 under the Securities Act of 1933 with respect to the
common stock being offered. This prospectus contains all information about VIA
and our common stock that would be material to an investor. The registration
statement includes exhibits and schedules to which you should refer for
additional information about us. You may inspect a copy of the registration
statement and the exhibits and schedules to the registration statement without
charge at the offices of the Securities and Exchange Commission at Judiciary
Plaza, 450 Fifth Street, Washington, D.C. 20549. You may obtain copies of all
or any part of the registration statement from the Public Reference Section of
the SEC, 450 Fifth Street, Washington, D.C. 20549 upon the payment of the
prescribed fees. You may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a web
site at www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants like us that file electronically with
the SEC.
68
<PAGE>
VIA NET.WORKS INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Unaudited Pro Forma Condensed Combined Financial Statements
Pro Forma Condensed Combined Balance Sheet as of September 30, 1999
(unaudited)............................................................ F-4
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1998 (unaudited).......................................... F-6
Pro Forma Condensed Combined Statement of Operations for the nine months
ended.................................................................. F-7
September 30, 1999 (unaudited)..........................................
Notes to Unaudited Pro Forma Condensed Combined Financial Statements.... F-8
VIA NET.WORKS, Inc. and subsidiaries -- Consolidated Financial Statements
Report of Independent Accountants....................................... F-13
Consolidated Balance Sheets as of December 31, 1997 and 1998 and
September 30, 1999 (unaudited)......................................... F-14
Consolidated Statements of Operations for the period from inception
(June 13, 1997) to December 31, 1997, the year ended December 31, 1998
and the nine months ended September 30, 1998 and 1999 (unaudited)...... F-15
Consolidated Statement of Stockholders' Deficit for the period from
inception (June 13, 1997) to year ended December 31, 1997, the year
ended December 31, 1998 and the nine months ended September 30, 1999
(unaudited)............................................................ F-16
Consolidated Statements of Cash Flows for the period from inception
(June 13, 1997) to December 31, 1997, the year ended December 31, 1998
and the nine months ended September 30, 1998 and 1999 (unaudited)...... F-17
Notes to Consolidated Financial Statements.............................. F-18
VIA Net Works Argentina, S.A. -- Financial Statements
Report of Independent Accountants....................................... F-33
Balance Sheets as of December 31, 1997 and September 24, 1998........... F-34
Statements of Operations for the year ended December 31, 1997 and for
the period from January 1, 1998 to September 24, 1998.................. F-35
Statement of Stockholders' Deficit for the year ended December 31, 1997
and for the period from January 1, 1998 to September 24, 1998.......... F-36
Statements of Cash Flows for the year ended December 31, 1997 and for
the period from January 1, 1998 to September 24, 1998.................. F-37
Notes to Financial Statements........................................... F-38
Gesellschaft fur Telekommunikations und Netzwerkdienste mbH ("GTN") --
Financial Statements
Report of Independent Accountants....................................... F-46
Balance Sheets as of December 31, 1997 and October 9, 1998.............. F-47
Statements of Operations for the year ended December 31, 1997 and for
the period from January 1, 1998 to October 9, 1998..................... F-48
Statement of Stockholders' Equity for the year ended December 31, 1997
and for the period from January 1, 1998 to October 9, 1998............. F-49
Statements of Cash Flows for the year ended December 31, 1997 and for
the period from January 1, 1998 to October 9, 1998..................... F-50
Notes to Financial Statements........................................... F-51
U-Net Limited -- Financial Statements
Report of Independent Accountants....................................... F-56
Balance Sheets as of July 31, 1997 and 1998 and October 29, 1998........ F-57
Statements of Operations for the years ended July 31, 1997 and 1998 and
for the period from August 1, 1998 to October 29, 1998................. F-58
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
Statement of Stockholders' Deficit for the years ended July 31, 1997
and 1998 and for the period from August 1, 1998 to October 29, 1998... F-59
Statements of Cash Flows for the years ended July 31, 1997 and 1998 and
for the period from August 1, 1998 to October 29, 1998................ F-60
Notes to Financial Statements.......................................... F-61
Dialdata S.A., Internet Systems -- Financial Statements
Report of Independent Accountants...................................... F-66
Balance Sheets as of December 31, 1997 and December 29, 1998........... F-67
Statements of Operations for the year ended December 31, 1997 and for
the period from January 1, 1998 to December 29, 1998.................. F-68
Statement of Stockholders' Equity for the year ended December 31, 1997
and for the period from January 1, 1998 to December 29, 1998.......... F-69
Statements of Cash Flows for the year ended December 31, 1997 and for
the period from January 1, 1998 to December 29, 1998.................. F-70
Notes to Financial Statements.......................................... F-71
I-Way Limited and Subsidiary -- Consolidated Financial Statements
Report of Independent Accountants...................................... F-76
Consolidated Balance Sheets as of April 30, 1997 and 1998 and December
31, 1998 and June 30, 1999 (unaudited)................................ F-77
Consolidated Statements of Operations for the years ended April 30,
1997 and 1998 and for the period from May 1, 1998 to December 31, 1998
and for the six months ended June 30, 1998 and 1999 (unaudited)....... F-78
Consolidated Statements of Cash Flows for the years ended April 30,
1997 and 1998 and for the period from May 1, 1998 to December 31, 1998
and for the six months ended June 30, 1998 and 1999 (unaudited)....... F-79
Consolidated Statement of Stockholders' Equity (Deficit) for the years
ended April 30, 1997 and 1998 and for the period from May 1, 1998 to
December 31, 1998 and for the six months ended June 30, 1999
(unaudited)........................................................... F-80
Notes to Consolidated Financial Statements............................. F-81
bART Holding B.V. and Subsidiaries -- Consolidated Financial Statements
Report of Independent Accountants...................................... F-87
Consolidated Balance Sheet as of December 31, 1998..................... F-88
Consolidated Statement of Operations for the year ended December 31,
1998.................................................................. F-89
Consolidated Statement of Stockholders' Deficit for the year ended
December 31, 1998..................................................... F-90
Consolidated Statement of Cash Flows for the year ended December 31,
1998.................................................................. F-91
Notes to Consolidated Financial Statements............................. F-92
ESOTERICA-Novas Tecnologias de Informacao S.A. -- Financial Statements
Report of Independent Accountants...................................... F-99
Balance Sheet as of December 31, 1998.................................. F-100
Statement of Operations for the year ended December 31, 1998........... F-101
Statement of Stockholders' Deficit for the year ended December 31,
1998.................................................................. F-102
Statement of Cash Flows for the year ended December 31, 1998........... F-103
Notes to Financial Statements.......................................... F-104
Worldwide Web Services Limited -- Financial Statements
Report of Independent Accountants...................................... F-108
Balance Sheet as of May 27, 1999....................................... F-109
Statement of Operations for the period from July 1, 1998 to May 27,
1999.................................................................. F-110
Statement of Stockholders' Deficit for the period from July 1, 1998 to
May 27, 1999.......................................................... F-111
Statement of Cash Flows for the period from July 1, 1998 to May 27,
1999.................................................................. F-112
Notes to Financial Statements.......................................... F-113
</TABLE>
F-2
<PAGE>
<TABLE>
<S> <C>
Netlink Internet Services Limited -- Financial Statements
Report of Independent Accountants...................................... F-118
Balance Sheets as of December 31, 1998 and June 30, 1999 (unaudited)... F-119
Statements of Operations for the year ended December 31, 1998 and for
the six months ended June 30, 1998 and 1999 (unaudited)............... F-120
Statement of Stockholders' Deficit for the year ended December 31, 1998
and for the six months ended June 30, 1999 (unaudited)................ F-121
Statements of Cash Flows for the year ended December 31, 1998 and for
the six months ended June 30, 1998 and 1999 (unaudited)............... F-122
Notes to Financial Statements.......................................... F-123
Disbumad, S L -- Financial Statements
Report of Independent Accountants...................................... F-128
Balance Sheets as of December 31, 1998 and June 30, 1999 (unaudited)... F-129
Statement of Operations for the year ended December 31, 1998 and for
the six months ended June 30, 1998 and June 30, 1999 (unaudited)...... F-130
Statement of Stockholders' Deficit for the years ended December 31,
1998 and for the 6 month period ended June 30, 1999 (unaudited)....... F-131
Statements of Cash Flows for the year ended December 31, 1998 and for
the six months ended June 30, 1998 and June 30, 1999 (unaudited)...... F-132
Notes to Financial Statements.......................................... F-133
InfoAcces S.A. de C.V. and Subsidiary -- Financial Statements
Independent Auditors' Report........................................... F-140
Consolidated Balance Sheets as of December 31, 1997 and 1998 and
September 30, 1999 (unaudited)........................................ F-141
Consolidated Statements of Operations for the years ended December 31,
1997 and 1998 and for the nine months ended September 30, 1998 and
September 30, 1999 (unaudited)........................................ F-142
Consolidated Statements of Changes in Stockholders' Equity for the year
ended December 31, 1998 and for the nine months ended September 30,
1999 (unaudited)...................................................... F-143
Consolidated Statements of Changes in Financial Position for the years
ended December 31, 1997 and 1998 and for the nine months ended
September 30, 1998 and September 30, 1999 (unaudited)................. F-144
Notes to Consolidated Financial Statements............................. F-145
</TABLE>
F-3
<PAGE>
VIA NET.WORKS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
During the period beginning September 24, 1998 through November 23, 1999,
VIA NET.WORKS, Inc. (the "Company") completed numerous business combinations,
whereby the Company acquired either 100% or a majority of the voting stock of
companies operating as Internet services providers in Europe and Latin America
(collectively, the "Completed Acquisitions"). All of the Completed Acquisitions
have been or will be accounted for using the purchase method of accounting. The
Completed Acquisitions are described in Note 1--Basis of Presentation to the
accompanying unaudited pro forma condensed combined financial statements.
The unaudited pro forma condensed combined balance sheet as of September 30,
1999 gives effect to the acquisition of InfoAcces S.A. de C.V. ("InfoAcces")
which occurred subsequent to September 30, 1999 and the conversion of the
outstanding mandatorily redeemable convertible preferred stock into common
stock. The unaudited pro forma condensed combined statements of operations for
the year ended December 31, 1998 and for the nine-month period ended
September 30, 1999 give effect to the acquisition of 15 companies between
January 1, 1998 and September 30, 1999 and the acquisition of InfoAcces, as
though these acquisitions had occurred on January 1, 1998.
The unaudited pro forma condensed combined statements of operations are not
necessarily indicative of the results of operations that would actually have
occurred if the transactions had been consummated as of January 1, 1998 and is
not intended to indicate the expected results for any future period. These
statements should be read in conjunction with the historical consolidated
financial statements and related notes thereto of the Company, and the
financial statements of certain of the completed acquisitions, included herein.
The allocation of the purchase price to the acquired tangible and intangible
assets of certain of Completed Acquisitions has not been finalized pending an
analysis of the nature of the intangible assets acquired. The actual purchase
accounting adjustments may be revised, and the Company may allocate a portion
of the purchase price to intangible assets other than goodwill. Such intangible
assets may have an estimated useful life that differs from the five-year life
used for the amortization of goodwill. Any adjustment could have a material
impact on the pro forma statements of operations.
F-4
<PAGE>
VIA NET.WORKS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1999
(Amounts in thousands)
<TABLE>
<CAPTION>
Historical
--------------------
Pro Forma
VIA InfoAccess Adjustments Pro Forma
-------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents... $ 91,503 $ 232 $ (50,966)(a) $ 40,769
Restricted cash............. 15,000 (a) 15,000
Trade and other accounts
receivable................. 6,833 3,143 -- 9,976
Other current assets........ 1,916 426 -- 2,342
-------- ------- --------- --------
Total current assets...... 100,252 3,801 (35,966) 68,087
Property and equipment, net... 22,843 2,749 -- 25,592
Goodwill...................... 91,507 -- 31,221 (b) 122,728
Other assets.................. 530 1,506 1,000 (b) 3,036
-------- ------- --------- --------
Total assets.............. $215,132 $ 8,056 $ (3,745) $219,443
======== ======= ========= ========
LIABILITIES, MANDATORILY REDEEMABLE
CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............ $ 7,189 $ 2,074 $ -- $ 9,263
Other taxes payable......... 1,975 -- -- 1,975
Current portion of long-term
debt....................... 9,266 854 -- 10,120
Deferred revenue............ 8,795 508 -- 9,303
Other current liabilities
and accrued expenses 4,336 469 -- 4,805
-------- ------- --------- --------
Total current
liabilities.............. 31,561 3,905 -- 35,466
Long-term debt, less current
portion 10,792 370 -- 11,162
Other non-current
liabilities.................. 269 36 -- 305
-------- ------- --------- --------
Total liabilities......... 42,622 4,311 -- 46,933
Minority interest in
consolidated subsidiaries.... 4,955 -- -- 4,955
Mandatorily redeemable
preferred stock.............. 180,933 -- (180,933)(c) --
Stockholders' equity
(deficit):
Common stock................ 2 5,210 (5,170)(c)(d) 42
Additional paid in capital.. 13,313 389 180,504 (c)(d) 194,206
Accumulated deficit......... (21,875) (1,854) 1,854 (d) (21,875)
Deferred compensation....... (1,333) -- -- (1,333)
Accumulated other
comprehensive loss......... (3,485) -- -- (3,485)
-------- ------- --------- --------
Total stockholders' equity
(deficit)................ (13,378) 3,745 177,188 167,555
Total liabilities,
mandatorily redeemable
convertible preferred
stock and stockholders'
equity (deficit)......... $215,132 $ 8,056 $ (3,745) $219,443
======== ======= ========= ========
</TABLE>
See accompanying notes to pro forma statements.
F-5
<PAGE>
VIA NET.WORKS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
Historical
----------------------
Completed Pro Forma
VIA Acquisitions Adjustments Pro Forma
-------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Access.................. $ 3,212 $27,514 $ -- $ 30,726
Value-added services.... 136 9,251 -- 9,387
Other................... -- 1,997 -- 1,997
-------- ------- ----------- -----------
Total revenue......... 3,348 38,762 -- 42,110
Operating costs and
expenses:
Internet services....... 1,724 15,831 -- 17,555
Selling, general and
administrative......... 6,387 22,733 -- 29,120
Depreciation and
amortization........... 1,304 2,991 26,698 (e) 30,993
-------- ------- ----------- -----------
Total operating costs
and expenses......... 9,415 41,555 26,698 77,668
-------- ------- ----------- -----------
Loss from operations...... (6,067) (2,793) (26,698) (35,558)
-------- ------- ----------- -----------
Interest income, net...... 1,425 (769) (632)(f) 24
Loss in unconsolidated
affiliate................ (1,199) -- 1,199 (g) --
Foreign currency
gain/(loss).............. 115 79 -- 194
-------- ------- ----------- -----------
Loss before minority
interest and income
taxes.................... (5,726) (3,483) (26,131) (35,340)
Income tax
benefit/(expense)........ 145 (225) -- (80)
Minority interest......... 239 -- (471)(g) (232)
-------- ------- ----------- -----------
Net loss attributable to
common stockholders...... $ (5,342) $(3,708) $ (26,602) $ (35,652)
======== ======= =========== ===========
Basic and diluted loss per
share attributable to
common stockholders...... $ (24.29) $ (2.84)
======== ===========
Shares used in computing
basic and diluted loss
per share................ 219,964 12,329,066(h) 12,549,030
</TABLE>
See accompanying notes to pro forma statements.
F-6
<PAGE>
VIA NET.WORKS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
Historical
-----------------------
Completed Pro Forma
VIA Acquisitions Adjustments Pro Forma
--------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Access................. $ 17,225 $10,258 $ -- $ 27,483
Value-added services... 5,777 6,252 -- 12,029
Other.................. 364 2,220 -- 2,584
--------- ------- ----------- -----------
Total revenue........ 23,366 18,730 42,096
Operating costs and
expenses:
Internet services...... 10,321 7,323 -- 17,644
Selling, general and
administrative........ 22,113 11,409 -- 33,522
Depreciation and
amortization.......... 10,656 1,390 12,154 (e) 24,200
--------- ------- ----------- -----------
Total operating costs
and expenses.......... 43,090 20,122 12,154 75,366
--------- ------- ----------- -----------
Loss from operations..... (19,724) (1,392) (12,154) (33,270)
Interest income, net..... 1,333 (173) (77)(f) 1,083
Loss in unconsolidated
affiliate............... (177) -- 177 (g) --
Foreign currency
gain/(loss)............. 1,269 (160) -- 1,109
--------- ------- ----------- -----------
Loss before minority
interest and income
taxes................... (17,299) (1,725) (12,054) (31,078)
Income tax
benefit/(expense)....... -- (172) -- (172)
Minority interest........ 1,087 -- (235)(g) 852
--------- ------- ----------- -----------
Net loss attributable to
common stockholders..... $ (16,212) $(1,897) $ (12,289) $ (30,398)
========= ======= =========== ===========
Basic and diluted loss
per share attributable
to common stockholders.. $ (20.50) $ (2.08)
========= ===========
Shares used in computing
basic and diluted loss
per share............... 790,953 13,829,840 (h) 14,620,793
</TABLE>
See accompanying notes to pro forma statements.
F-7
<PAGE>
VIA NET.WORKS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
Through November 23, 1999, the Company completed the following acquisitions.
All of the Completed Acquisitions have been or will be accounted for using the
purchase method of accounting.
<TABLE>
<CAPTION>
Ownership
Percentage
for the
Completed
Acquisitions Consideration
Through -----------------------------------
November 23 Common
Completed Acquisitions Acquisition Date(s) 1999 Cash Notes Stock Total
---------------------- ------------------- ------------ -------- ------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
i-way Ltd. ("i-way").... June 22, 1998 36% $ 2,387 $ -- -- $ 2,387
August 5, 1999 64% 10,473 -- $2,539(b) 13,012
--- -------- ------- ------ --------
100% 12,860 2,539 15,399
--- -------- ------- ------ --------
VIA Net Works Argentina
S.A. ("VNWA").......... September 24, 1998 51% 1,313 $ 2,944 -- 4,257
July 31, 1999 49% 1,356 -- 1,237(b) 2,593
--- -------- ------- ------ --------
100% 2,669 2,944 1,237 6,850
--- -------- ------- ------ --------
Gesellschaft fur
Telekommunikations und
Netzwerkdienste mbH
("GTN")................ October 9, 1998 51% 3,976 6,127 -- 10,103
U-Net Ltd. ("U-Net").... October 29, 1998 100% 8,553 8,212 16,765
Dialdata S. A. Internet
Systems ("Dialdata")... December 29, 1998 53% 3,196 2,800 140(b) 6,136
bArt Holding B. V.
("bART")............... March 25, 1999 100% 7,000 -- -- 7,000
MediaNet Ireland Ltd.
("Medianet")........... April 19, 1999 60% 1,466 -- -- 1,466
Ecce Terram GmbH ("Ecce
Terram") (a) .......... April 30, 1999 100% 68 585 653
Artinternet S.A.
("Artinternet")........ May 5, 1999 51% 1,455 1,455
Esoterica-Novas
Technologias de
Informacao S. A.
("Esoterica").......... May 13, 1999 100% 6,903 986 7,889
Worldwide Web Services
("WWS")................ May 27, 1999 100% 3,658 3,658 7,316
Informationstechnik,
Netzwerke und Systeme
Vertriebs GmbH ("INS")
(a) ................... June 30, 1999 100% 1,874 1,188 3,062
Netlink Internet
Services Ltd.
("Netlink")............ July 9, 1999 100% 8,744 3,153(b) 11,897
Service Net S.A.
("Service Net")........ July 30, 1999 100% 1,125 1,125
Disbumad, SL
("Interbook").......... August 26, 1999 87% 4,334 1,471 5,805
InfoAcces S.A. de C.V.
("InfoAcces").......... October 10, 1999 100% 35,000 -- -- 35,000
-------- ------- ------ --------
Total................. $102,881 $27,971 $7,069 $137,921
======== ======= ====== ========
</TABLE>
- ---------------------
(a) These entities were acquired by GTN, a 51% consolidated entity of VIA.
(b) Represents shares of common stock valued at $8.25 per share. This per share
value was determined by the Company's Board of Directors based on
comparable valuation methodologies based on multiples of revenue and arms-
length negotiated values.
F-8
<PAGE>
VIA NET.WORKS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The total consideration, including acquisition costs, for the Completed
Acquisitions has been allocated as follows (amounts in thousands):
<TABLE>
<S> <C>
Total consideration................................................... $137,921
Acquisition costs..................................................... 5,618
--------
Total purchase price.............................................. $143,539
========
Allocated as follows:
Property and equipment and other assets............................. $ 39,059
Goodwill............................................................ 129,501
Net current liabilities............................................. (25,021)
--------
Total purchase price.............................................. $143,539
========
</TABLE>
Promissory notes included in total consideration are as follows (amounts in
thousands):
<TABLE>
<CAPTION>
Outstanding at
Original November 23,
Amount 1999
-------- --------------
<S> <C> <C>
Payable to sellers................................... $16,100 $7,737
Payable to less than wholly-owned entities........... 11,871 520
------- ------
$27,971 $8,257
======= ======
</TABLE>
The acquisition of M & C Management & Communications S.A., which was
completed on October 11, 1999, has been excluded from the pro forma financial
statements.
F-9
<PAGE>
VIA NET.WORKS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(2)HISTORICAL CONDENSED STATEMENTS OF OPERATIONS INFORMATION--COMPLETED
ACQUISITIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
Historical condensed statements of operations information for the Completed
Acquisitions for the year ended December 31, 1998 including the periods from
January 1, 1998 to the dates of consolidation for acquisitions occurring during
1998 and for the 12 months ended December 31, 1998 for acquisitions occurring
during 1999 are as follows. Amounts are presented in accordance with U.S. GAAP
and have been translated into U.S. dollars using average exchange rates for the
period.
<TABLE>
<CAPTION>
Ecce
VNWA GTN U-Net Dialdata bART Medianet Terram Artinternet
--------- ------ ------ -------- ------- --------- ------- -----------
(amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Access................. $1,393 $3,608 $6,539 $2,315 $2,544 $ 468 $ -- $ 135
Value-added services... -- 338 -- 793 607 284 -- 602
Other.................. 1 -- -- (514) (259) 34 499 9
------ ------ ------ ------ ------ ----- ------- ------
Total revenue........... 1,394 3,946 6,539 2,594 2,892 786 499 746
Operating costs and
expenses:
Internet services...... 301 2,697 2,726 598 856 201 226 264
Selling general and
administrative........ 1,501 1,210 2,920 1,005 2,186 754 280 402
Depreciation and
amortization.......... 124 72 711 97 521 77 24 47
------ ------ ------ ------ ------ ----- ------- ------
Total operating costs
and expenses.......... 1,926 3,979 6,357 1,700 3,563 1,032 530 713
------ ------ ------ ------ ------ ----- ------- ------
Loss from operations.... (532) (33) 182 894 (671) (246) (31) 33
Interest income, net.... (49) (1) (121) (57) (89) (13) (3) (1)
Foreign currency
gain/(loss)............ -- 3 -- -- -- -- -- --
------ ------ ------ ------ ------ ----- ------- ------
Loss before taxes....... (581) (31) 61 837 (760) (259) (34) 32
Income tax
benefit/(expense)...... -- -- -- (236) (2) -- -- --
------ ------ ------ ------ ------ ----- ------- ------
Net income (loss) before
discontinued operations
and extraordinary
gain................... $ (581) $ (31) $ 61 $ 601 $ (762) $(259) $ (34) $ 32
====== ====== ====== ====== ====== ===== ======= ======
<CAPTION>
Service
Esoterica WWS INS Netlink Net Interbook i-way InfoAcces TOTAL
--------- ------ ------ -------- ------- --------- ------- ----------- -------
(amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Access................. $1,388 $ 693 $ 588 $ -- $ 801 $ 546 $ 1,712 $4,783 $27,514
Value-added services... 143 1,202 324 1,446 -- 338 1,526 1,648 9,251
Other.................. 247 9 745 -- -- (11) (422) 1,660 1,997
------ ------ ------ ------ ------ ----- ------- ------ -------
Total revenue........... 1,778 1,904 1,657 1,446 801 873 2,816 8,091 38,762
Operating costs and
expenses:
Internet services...... 971 264 344 634 211 264 1,270 4,002 15,831
Selling general and
administrative........ 806 1,600 1,140 1,313 559 630 2,734 3,691 22,733
Depreciation and
amortization.......... 246 74 124 85 82 49 222 437 2,991
------ ------ ------ ------ ------ ----- ------- ------ -------
Total operating costs
and expenses.......... 2,023 1,938 1,608 2,032 852 943 4,226 8,130 41,555
------ ------ ------ ------ ------ ----- ------- ------ -------
Loss from operations.... (245) (34) 49 (586) (51) (70) (1,410) (39) (2,793)
Interest income, net.... (69) -- (17) (22) (31) (38) (58) (199) (769)
Foreign currency
gain/(loss)............ -- -- -- (4) -- -- -- 80 79
------ ------ ------ ------ ------ ----- ------- ------ -------
Loss before taxes....... (314) (34) 32 (612) (82) (108) (1,468) (158) (3,483)
Income tax
benefit/(expense)...... -- -- -- -- -- -- -- 13 (225)
------ ------ ------ ------ ------ ----- ------- ------ -------
Net income (loss) before
discontinued operations
and extraordinary
gain................... $ (314) $ (34) $ 32 $ (612) $ (82) $(108) $(1,468) $ 145 $(3,708)
====== ====== ====== ====== ====== ===== ======= ====== =======
</TABLE>
F-10
<PAGE>
VIA NET.WORKS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
Historical condensed statement of operations information for the Completed
Acquisitions for the nine-months ended September 30, 1999, including the
periods from January 1, 1999 to the dates of consolidation are as follows.
Amounts are presented in accordance with U.S. GAAP and have been translated
into U.S. dollars using average exchange rates for the period.
<TABLE>
<CAPTION>
Ecce
bART Medianet Terram ArtInternet Esoterica WWS INS Netlink
----- -------- ------ ----------- --------- ------ ---- -------
(amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Access................. $ 895 $ 241 $-- $ 10 $1,103 $ 714 $446 $ --
Value-added services... 161 83 -- 82 96 787 445 1,136
Other.................. (218) -- 173 2 155 (273) 41 --
----- ----- ---- ----- ------ ------ ---- ------
Total revenue........... 838 324 173 94 1,354 1,228 932 1,136
Operating costs and
expenses:
Internet services...... 224 109 92 59 609 311 80 193
Selling general and
administrative........ 639 285 132 182 467 1,006 652 997
Depreciation and
amortization.......... 111 27 13 26 178 47 48 57
----- ----- ---- ----- ------ ------ ---- ------
Total operating costs
and expenses.......... 974 421 237 267 1,254 1,364 780 1,247
Loss from operations.... (136) (97) (64) (173) 100 (136) 152 (111)
Interest income, net.... (21) (4) (2) 6 (31) -- (6) (5)
Foreign currency
gain/(loss)............ -- -- -- -- -- -- -- (13)
----- ----- ---- ----- ------ ------ ---- ------
Loss before taxes....... (157) (101) (66) (167) 69 (136) 146 (128)
Income tax
benefit/(expense)...... -- -- -- -- -- -- -- --
----- ----- ---- ----- ------ ------ ---- ------
Net income (loss) before
discontinued operations
and extraordinary
gain................... $(157) $(101) $(66) $(167) $ 69 $ (136) $146 $ (128)
===== ===== ==== ===== ====== ====== ==== ======
</TABLE>
<TABLE>
<CAPTION>
Service Net Interbook i-way InfoAcces TOTAL
----------- --------- ------ --------- -------
(amounts in thousands)
<S> <C> <C> <C> <C> <C>
Revenue:
Access....................... $542 $ 487 $1,423 $4,396 $10,258
Value-added services......... -- 352 1,458 1,653 6,252
Other........................ -- 136 (453) 2,658 2,220
---- ----- ------ ------ -------
Total revenue................. 542 975 2,428 8,707 18,730
Operating costs and expenses:
Internet services............ 160 635 814 4,036 7,323
Selling general and
administrative.............. 387 520 1,461 4,678 11,409
Depreciation and
amortization................ 23 38 245 516 1,390
---- ----- ------ ------ -------
Total operating costs and
expenses.................... 570 1,193 2,520 9,290 20,122
Loss from operations.......... (28) (218) (92) (583) (1,392)
Interest income, net.......... (23) (12) (19) (57) (173)
Foreign currency gain/(loss).. -- -- -- (147) (160)
---- ----- ------ ------ -------
Loss before taxes............. (51) (230) (111) (781) (1,724)
Income tax benefit/(expense).. -- -- -- (172) (172)
---- ----- ------ ------ -------
Net income (loss) before
discontinued operations and
extraordinary gain........... $(51) $(230) $ (111) $ (958) $(1,896)
==== ===== ====== ====== =======
</TABLE>
F-11
<PAGE>
VIA NET.WORKS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(3) PRO FORMA ADJUSTMENTS
Pro Forma Condensed Combined Balance Sheet
(a) To reflect cash of $35.0 million paid for the acquisition of InfoAcces,
including estimated acquisition costs of $966,000. Under the terms of the
purchase agreement for InfoAcces, the sellers may be entitled to additional
consideration based on the results of InfoAcces following the acquisition in an
amount not to exceed $30.0 million. Such additional consideration has not been
reflected in the accompanying pro forma balance sheet but will be reflected as
additional goodwill when paid. Under the terms of the acquisition, the Company
was required to place $15.0 million in escrow (declining $0.50 for every $1.00
of contingent consideration earned and paid out) pending determination of the
contingent consideration.
(b) To reflect the allocation of the purchase price in excess of the
historical book value of the acquired assets of InfoAcces. Based on preliminary
estimates, in the opinion of management, the historical balances of all other
assets acquired and liabilities have been determined to approximate fair value.
Of the total purchase price $1.0 million has been allocated to a two-year non-
compete agreement and $31.2 million has been allocated to goodwill.
(c) To reflect the conversion of outstanding manditorily redeemable
convertible preferred stock of the Company into common stock to occur in
conjunction with the offering, including common stock of $40,000 and additional
paid in capital of $180.9 million.
(d) To eliminate the historical equity of InfoAcces including common stock of
$5.2 million, additional paid in capital of $389,000 and accumulated deficit of
$1.8 million.
Pro Forma Condensed Combined Statements of Operations
(e) To reflect amortization expense of goodwill based on an estimated life of
five years and non-compete agreement based on an estimated life of two years.
<TABLE>
<CAPTION>
Year ended Nine months ended
December 31, September 30,
1998 1999
------------ -----------------
<S> <C> <C>
Pro forma goodwill for completed acquisitions.. $132,050 $132,050
======== ========
Amortization over 5 years...................... 26,410 19,808
Effect of exchange rate changes................ 1,224 431
-------- --------
Pro forma amortization of goodwill for
completed acquisitions........................ 27,634 20,238
Amount reflected in the historical consolidated
statement of operations....................... (936) (8,084)
-------- --------
Adjustment for goodwill........................ 26,198 11,779
-------- --------
Adjustment for non-compete agreement........... 500 375
-------- --------
Total adjustment............................... $ 26,698 $ 12,154
======== ========
</TABLE>
(f) To reflect the impact of additional interest expense arising from notes
issued in conjunction with Completed Acquisitions for the period from January
1, 1998 to the date of acquisition.
(g) To eliminate minority interests and losses in unconsolidated affiliates
upon acquisition of 100% ownership interests of VIA Net Works Argentina and i-
way and to reflect additional minority interest in income(loss) on acquisitions
of less than 100% owned companies, including GTN, Dialdata, MediaNet,
Artinternet, and Interbook.
(h) To reflect the impact on earnings per share of:
<TABLE>
<CAPTION>
Year ended Nine months ended
December 31, 1998 September 30, 1999
----------------- ------------------
<S> <C> <C>
Number of shares of common stock issued in
conjunction with the acquisitions........ 861,545 638,147
Number of shares of common stock issued
upon conversion of preferred stock in
conjunction with the offering............ 11,467,521 13,191,693
---------- ----------
12,329,066 13,829,840
========== ==========
</TABLE>
F-12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of VIA NET.WORKS, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' deficit and cash flows
present fairly, in all material respects, the financial position of VIA
NET.WORKS, Inc. and its subsidiaries at December 31, 1997 and 1998, and the
results of their operations and their cash flows for the period from June 13,
1997 (inception) through December 31, 1997 and for the year ended December 31,
1998, in conformity with generally accepted accounting principles. These
consolidated financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
McLean, Virginia
August 26, 1999, except for Note 13,
which is as of October 11, 1999
F-13
<PAGE>
VIA NET.WORKS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. Dollars, except share data)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
December 31, Equity at
--------------- September 30, September 30,
1997 1998 1999 1999
------ ------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........ $ 807 $34,711 $ 91,503
Trade and other accounts
receivable, net of allowance of
$0, $217, $657 (unaudited),
respectively.................... -- 1,566 6,833
Other current assets............. 6 951 1,916
------ ------- --------
Total current assets............. 813 37,228 100,252
Property and equipment, net....... 8 4,280 22,843
Goodwill.......................... -- 29,848 91,507
Other assets...................... -- 1,669 530
------ ------- --------
Total assets..................... $ 821 $73,025 $215,132
====== ======= ========
LIABILITIES, MANDATORILY
REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable................. $ 94 $ 3,284 $ 7,189
Other taxes payable.............. -- -- 1,975
Short-term notes and current
portion of long-term debt....... -- 11,182 9,266
Deferred revenue................. -- 1,710 8,795
Other current liabilities and
accrued expenses................ -- 1,458 4,336
------ ------- --------
Total current liabilities........ 94 17,634 31,561
Long-term debt, less current
portion.......................... -- 565 10,792
Other noncurrent liabilities...... -- 35 269
------ ------- --------
Total liabilities................ 94 18,234 42,622
Commitments and contingencies
Minority interest in consolidated
subsidiaries..................... -- 7,597 4,955
Mandatorily redeemable convertible
preferred stock:
Series A convertible preferred
stock $.001 par value; 1,500,000
shares authorized; 1,025,000,
1,488,657, and 1,488,657 shares
issued and outstanding
(liquidation preference of
$1,489 at December 31, 1998 and
September 30, 1999)............. 1,018 1,489 1,489 $ --
Series B-1 voting convertible
preferred stock, $.001 par
value; 17,200,000 shares
authorized; 15,795,335 shares
issued and outstanding
(liquidation preference of
$47,386 at December 31, 1998 and
September 30, 1999
(unaudited)).................... -- 47,386 47,386 --
Series B-2 non-voting convertible
preferred stock, $.001 par
value; 2,700,000 shares
authorized; 1,400,000 shares
issued and outstanding
(liquidation preference of
$4,200 at December 31, 1998 and
September 30, 1999
(unaudited)).................... -- 4,200 4,200 --
Series C-1 voting convertible
preferred stock, $.001 par
value; 21,400,000 shares
authorized; 15,939,657 issued
and outstanding (liquidation
preference of $95,638 at
September 30, 1999
(unaudited)).................... -- -- 95,638 --
Series C-2 non-voting convertible
preferred stock, $.001 par
value; 6,000,000 shares
authorized; 5,370,001 issued and
outstanding (liquidation
preference of $32,220 at
September 30, 1999
(unaudited)).................... -- -- 32,220 --
------ ------- -------- --------
1,018 53,075 180,933 --
Stockholders' deficit:
Preferred stock, $.001 par value;
no shares authorized; no shares
issued and outstanding.......... -- -- -- --
Voting common stock, $.001 par
value; 57,000,000 shares
authorized; 60,100 and 273,042,
and 1,957,671 shares issued and
outstanding..................... -- -- 2 35
Non-voting common stock, $.001
par value; 7,500,000 shares
authorized; no shares issued and
outstanding..................... -- -- -- 7
Additional paid in capital....... 30 216 13,313 194,206
Accumulated deficit.............. (321) (5,663) (21,875) (21,875)
Deferred compensation............ -- -- (1,333) (1,333)
Accumulated other comprehensive
loss............................ -- (434) (3,485) (3,485)
------ ------- -------- --------
Total stockholders' deficit...... (291) (5,881) (13,378) $167,555
------ ------- -------- ========
Total liabilities, mandatorily
redeemable convertible preferred
stock and stockholders'
deficit......................... $ 821 $73,025 $215,132
====== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-14
<PAGE>
VIA NET.WORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands of U.S. Dollars, except share and per share data)
<TABLE>
<CAPTION>
For the period
from
June 13, 1997 For the year Nine months ended
(Inception) to ended September 30,
December 31, December 31, ------------------
1997 1998 1998 1999
-------------- ------------ -------- --------
(unaudited)
<S> <C> <C> <C> <C>
Revenue....................... $ -- $ 3,348 $ -- $ 23,366
------- ------- -------- --------
Operating costs and expenses:
Internet services........... -- 1,724 -- 10,321
Selling, general and
administrative............. 336 6,387 2,864 22,113
Depreciation and
amortization............... -- 1,304 3 10,656
------- ------- -------- --------
Total operating costs and
expenses................. 336 9,415 2,867 43,090
------- ------- -------- --------
Loss from operations.......... (336) (6,067) (2,867) (19,724)
------- ------- -------- --------
Interest income............... 15 1,454 962 2,307
Interest expense.............. -- (29) -- (974)
Loss in unconsolidated
affiliate.................... -- (1,199) (447) (177)
Foreign currency gains........ -- 115 -- 1,269
------- ------- -------- --------
Loss before minority interest
and income taxes............. (321) (5,726) (2,352) (17,299)
Income tax benefit............ -- 145 -- --
Minority interest in loss of
consolidated subsidiaries.... -- 239 -- 1,087
------- ------- -------- --------
Net loss attributable to
common stockholders.......... $ (321) $(5,342) (2,352) (16,212)
======= ======= ======== ========
Basic and diluted loss per
share attributable to common
stockholders................. $(10.66) $(24.29) $ (11.64) $ (20.50)
======= ======= ======== ========
Shares used in computing basic
and diluted loss per share... 30,063 219,964 202,077 790,953
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-15
<PAGE>
VIA NET.WORKS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(In thousands of U.S. Dollars, except share data)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Total
---------------- Paid-In Accumulated Deferred Comprehensive Stockholders'
Shares Amount Capital Deficit Compensation Loss Deficit
--------- ------ ---------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, inception June
13, 1997............... -- $-- $ -- $ -- $ -- $ -- $ --
Net loss and
comprehensive loss..... -- -- -- (321) -- -- (321)
Issuance of common
stock.................. 60,100 -- 30 -- -- -- 30
--------- ---- ------- -------- -------- ------- --------
Balance, December 31,
1997................... 60,100 -- 30 (321) -- -- (291)
Comprehensive loss:
Net loss............... -- -- -- (5,342) -- -- (5,342)
Foreign currency
translation
adjustment............ -- -- -- -- -- (434) (434)
--------
Total comprehensive
loss................... (5,776)
Issuance of common
stock.................. 212,942 -- 186 -- -- -- 186
--------- ---- ------- -------- -------- ------- --------
Balance, December 31,
1998................... 273,042 -- 216 (5,663) -- (434) (5,881)
Comprehensive loss:
Net loss (unaudited)... -- -- -- (16,212) -- -- (16,212)
Foreign currency
translation adjustment
(unaudited)........... -- -- -- -- -- (3,051) (3,051)
--------
Total comprehensive loss
(unaudited)............ -- -- -- -- -- -- (19,263)
Grant of employee stock
options below fair
market value
(unaudited)............ -- -- 1,816 -- (1,816) -- --
Amortization of deferred
compensation
(unaudited)............ -- -- -- -- 483 -- 483
Issuance of common stock
(unaudited)............ 1,684,629 2 11,281 -- -- -- 11,283
--------- ---- ------- -------- -------- ------- --------
Balance, September 30,
1999 (unaudited)....... 1,957,671 $ 2 $13,313 $(21,875) $ (1,333) $(3,485) $(13,378)
========= ==== ======= ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-16
<PAGE>
VIA NET.WORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. Dollars)
<TABLE>
<CAPTION>
For the period
from
June 13, 1997 For the year Nine months ended
(Inception) to ended September 30,
December 31, December 31, ------------------
1997 1998 1998 1999
-------------- ------------ -------- --------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss..................... $ (321) $ (5,342) $ (2,352) $(16,212)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization.............. -- 1,304 3 10,656
Employee stock
compensation.............. -- -- -- 483
Deferred taxes............. (145) -- --
Provision for doubtful
accounts receivable....... -- 26 -- --
Unrealized foreign currency
transaction gain.......... -- (126) -- (1,269)
Minority interest in loss
of consolidated
subsidiaries.............. -- (239) -- (1,087)
Loss in unconsolidated
affiliate................. -- 1,199 447 177
Changes in assets and
liabilities, net of
acquisitions:
Accounts receivable........ -- (164) -- (740)
Other current assets....... (6) (679) (2) (23)
Accounts payable........... 94 106 286 139
Other current liabilities
and accrued expenses...... -- 233 -- (407)
Deferred revenue........... -- 43 -- 1,340
------ -------- -------- --------
Net cash used in
operating activities.... (233) (3,784) (1,618) (6,943)
------ -------- -------- --------
Cash flows from investing
activities:
Acquisitions, net of cash
acquired.................... -- (11,005) (504) (49,916)
Purchases of property and
equipment................... (8) (520) (45) (11,318)
Purchase of equity
investment.................. -- (2,781) (2,636) --
Other assets................. -- (77) -- (444)
------ -------- -------- --------
Net cash used in
investing activities.... (8) (14,383) (3,185) (61,678)
------ -------- -------- --------
Cash flows from financing
activities:
Repayment of debt............ -- (56) -- (3,389)
Proceeds from issuance of
common stock................ 30 186 180 1,525
Proceeds from issuance of
manditorily redeemable
convertible preferred
stock....................... 1,018 52,057 52,057 127,858
------ -------- -------- --------
Net cash provided by
financing activities.... 1,048 52,187 52,237 125,994
------ -------- -------- --------
Effect of currency exchange
rate changes on cash.......... -- (116) -- (581)
------ -------- -------- --------
Net increase in cash and cash
equivalents................... 807 33,904 47,434 56,792
Cash and cash equivalents,
beginning of period........... -- 807 807 34,711
------ -------- -------- --------
Cash and cash equivalents, end
of period..................... $ 807 $ 34,711 $ 48,241 $ 91,503
====== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-17
<PAGE>
VIA NET.WORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. Dollars, except share and per share data)
1. Organization and Summary of Significant Accounting Policies
Organization and Nature of Operations
VIA NET.WORKS, Inc. (the "Company" or "VIA") was founded on June 13, 1997 for
the purpose of acquiring existing Internet services providers around the world.
The focus of the Company is to be a leading, full-service global provider of
Internet connectivity and services, including web hosting, e-commerce, Internet
security and other services, primarily to the small and mid-sized business
market. In 1997, the Company was considered a development stage enterprise, as
it had no significant revenue from principal operations through December 31,
1997. In 1998, the Company acquired or invested in five companies, four of
which have been consolidated in the accompanying consolidated financial
statements. The Company is no longer considered a development stage enterprise.
In 1999, the Company amended its Certificate of Incorporation to change the
Company's name from V-I-A Internet, Inc. to VIA NET.WORKS, Inc.
Risks and Uncertainties
The Company has a limited operating history and its operations are subject to
certain risks and uncertainties, including those associated with: the ability
to meet obligations; continuing losses, negative cash flow and fluctuations in
operating results; funding expansion; acquisitions and strategic alliances,
including their integration; managing rapid growth and expansion; international
business activities; suppliers; financing arrangement terms that may restrict
operations; possible Year 2000 issues; regulatory issues; competition in the
Internet services industry; technology trends and evolving industry standards;
and delivering reliable service.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company to make estimates, judgments and
assumptions that affect the reported amounts of assets, liabilities, revenue
and expenses, together with amounts disclosed in the related notes to the
consolidated financial statements. Actual results could differ from the
recorded estimates.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its majority-owned and controlled subsidiaries, as described in
Note 3. All significant intercompany accounts and transactions have been
eliminated in consolidation. Investments in 20% to 50% owned affiliates over
which the Company has the ability to exercise significant influence are
accounted for under the equity method. Under the equity method of accounting,
an investee's results of operations are not reflected within the Company's
consolidated accounts; however, the Company's share of the earnings or losses
of the investee is reflected in the caption "loss in unconsolidated affiliate"
in the consolidated statements of operations. In applying the equity method to
investments in voting preferred stock, the Company recognizes losses based on
its share of ownership interest of the preferred stock once common equity of
the investee has been fully depleted.
Revenue Recognition
Revenue from Internet connectivity and value-added Internet services are
recognized as the services are provided. The Company records deferred revenue
for amounts billed and/or collected in advance. Revenue from consulting,
installation and maintenance services are recognized as the services are
provided. Revenue from hardware and third-party software sales is recognized
upon delivery or installation of the respective products, depending on the
terms of the arrangement.
F-18
<PAGE>
VIA NET.WORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. Dollars, except share and per share data)
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration
of credit risk consist of cash and cash equivalents, and accounts receivable.
The Company's cash and investment policies limit investments to short-term,
investment grade instruments. Concentration of credit risk with respect to
accounts receivable are limited due to the large number and geographic
dispersion of customers comprising the Company's customer base.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation,
which is provided on the straight-line method over the estimated useful lives
of the assets, generally three to five years. Cost includes major expenditures
for improvements and replacements, which extend useful lives or increase
capacity of the assets. Expenditures for maintenance and repairs are expensed
as incurred.
Goodwill
The Company has recorded goodwill related to its acquisitions. Goodwill is
amortized over five years.
Long-Lived Assets
The Company periodically evaluates the carrying value of property and
equipment to be held and used when events and circumstances warrant such a
review. The carrying value of property and equipment is considered impaired
when the anticipated undiscounted cash flows from the asset is separately
identifiable and is less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair
value of the asset. Fair value is determined primarily using the anticipated
cash flows discounted at a rate commensurate with the risk involved. Losses on
assets to be disposed of are determined in a similar manner, except that fair
values are reduced for the cost to dispose.
Advertising Costs
Costs related to advertising and promotion of service are charged to
operating expense as incurred. Advertising expense was $5 and $975 for the
period from June 13, 1997 (inception) to December 31, 1997 and the year ended
December 31, 1998, respectively.
Income Taxes
The Company accounts for income taxes under the asset and liability method,
which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the carrying
amounts and tax bases of assets and liabilities. The Company provides a
valuation allowance on net deferred tax assets when it is more likely than not
that such assets will not be realized. In conjunction with business
acquisitions, the Company records acquired deferred tax assets and liabilities.
Future reversals of the valuation allowance on acquired deferred tax assets
will first be applied against goodwill and other intangibles before recognition
of a benefit in the consolidated statements of operations.
Stock-Based Compensation
SFAS No. 123, Accounting for Stock-Based Compensation, encourages, but does
not require companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to account for stock-
based compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the estimated fair value
F-19
<PAGE>
VIA NET.WORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. Dollars, except share and per share data)
of the Company's stock at the date of the grant over the amount an employee
must pay to acquire the stock. The Company has adopted the "disclosure only"
alternative described in SFAS No. 123 which requires pro forma disclosures of
net income and earnings per share as if the fair value method of accounting has
been applied.
Foreign Currency
The functional currency for the Company's international subsidiaries is the
applicable local currency. Accordingly, net assets are translated at year-end
exchange rates while revenue and expenses are translated at the average
exchange rates. Adjustments resulting from these translations are accumulated
and reported as a component of accumulated other comprehensive loss in
stockholders' deficit. At December 31, 1997 and 1998, the cumulative foreign
currency translation adjustment was $0 and $434, respectively. Transaction
gains or losses, including gains or losses on foreign currency denominated
intercompany balances, are recorded in the consolidated statements of
operations.
Fair Value of Financial Instruments
Carrying amounts of certain of the Company's financial instruments, including
cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses and other liabilities approximate fair value due to their short
maturities. Based upon borrowing rates currently available to the Company for
loans with similar terms, the carrying value of debt and capital lease
obligations approximate their fair value.
Loss Per Share
Basic loss per share is computed using the weighted-average number of shares
of common stock outstanding during the year. Diluted loss per share is computed
using the weighted-average number of shares of common stock, adjusted for the
dilutive effect of common stock, equivalent shares of common stock options and
warrants and contingently issuable shares of common stock. Common stock
equivalent shares are calculated using the treasury stock method. All stock
options, convertible preferred stock and warrants outstanding have been
excluded from the computation of diluted loss per share, as their effect would
be antidilutive. Accordingly, there is no reconciliation between basic and
diluted loss per share for each of the periods presented.
Comprehensive Income
The Company adopted SFAS No. 130, Reporting Comprehensive Income, in 1998.
SFAS No. 130 establishes standards for reporting and displaying comprehensive
income and its components. Comprehensive loss consists of net loss and foreign
currency translation adjustments as presented in the consolidated statement of
stockholders' deficit. The adoption of SFAS No. 130 had no impact on total
stockholders' deficit or net loss.
Segment Reporting
The Company adopted SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information, during 1998. SFAS No. 131 replaces the "industry
segment" approach with the "management" approach to reporting financial
information about an enterprise's segments. The management approach designates
the internal organization that is used by management for allocating resources
and assessing performance as the source of the Company's reportable segments.
SFAS No. 131 also requires disclosures about products and services, geographic
areas, and major customers. The adoption of SFAS No. 131 did not effect the
Company's results of operations or financial position.
F-20
<PAGE>
VIA NET.WORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. Dollars, except share and per share data)
Recent Pronouncements
In 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, and SOP 98-5, Reporting on the
Costs of Start-Up Activities, both of which are required to be adopted for
fiscal years beginning after December 15, 1998. SOP 98-1 provides guidance on
accounting for the costs of computer software developed or obtained for
internal use, determining whether computer software is for internal use, and
when costs incurred for internal-use computer software are and are not
capitalized. SOP 98-5 requires costs of start-up activities and organization
costs to be expensed as incurred. The adoption of SOP 98-1 and SOP 98-5 did not
have a material effect on the Company's consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"). SFAS No. 133 establishes a new model for accounting for derivatives and
hedging activities and supersedes and amends a number of existing standards.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999, but
earlier application is permitted as of the beginning of any fiscal quarter
subsequent to June 15, 1998. Upon initial application, all derivatives are
required to be recognized in the statement of financial position as either
assets or liabilities and measured at fair value. In addition, all hedging
relationships must be reassessed and documented pursuant to the provisions of
SFAS No. 133. Subsequent to the issuance of SFAS No. 133, the Financial
Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133", which defers the effective date of SFAS No. 133 to periods
beginning after June 15, 2000. The Company has not committed or expects to
commit to any derivative instrument transactions, and thus does not anticipate
that this pronouncement will have a significant effect on its results.
Interim Financial Information (Unaudited)
Interim financial information for the nine months ended September 30, 1998
and 1999 included herein is unaudited. However, the Company believes the
interim financial information includes all adjustments, consisting of only
normal recurring adjustments, necessary for a fair presentation of the results
of interim periods. The results of operations for the nine months ended
September 30, 1999 are not necessarily indicative of the results to be expected
for the year ending December 31, 1999.
Pro Forma Stockholder's Equity (Unaudited)
The unaudited pro forma stockholders' equity presents the effect of the
automatic conversion of all of the outstanding mandatorily redeemable
convertible preferred stock into shares of common stock on a one-for-one basis
upon the closing of an Initial Public Offering (IPO) (see Note 8). The
conversion of the mandatorily redeemable convertible preferred stock has been
reflected in the accompanying unaudited pro forma stockholders' equity as if it
had occurred on September 30, 1999.
2. Investment in Affiliate
In June 1998, the Company acquired a 36% interest in i-way Limited (i-way) an
Internet services provider located in the United Kingdom. The Company purchased
voting preferred stock for $2,781. The Company had the option to purchase the
remaining 64% equity interest in i-way pursuant to certain conditions as set
forth in the purchase agreement. Further, the i-way common shareholders had the
option to require the Company to purchase a number of common shares that would
increase its fully diluted equity interest to 50%. The option was to expire in
December 2001.
F-21
<PAGE>
VIA NET.WORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. Dollars, except share and per share data)
Subsequent to the date of the preferred stock investment and for the year
ended December 31, 1998, and the nine months ended September 30, 1999, i-way
incurred losses of $1,137 and $253 (unaudited), respectively. As discussed in
Note 1, because the common equity of i-way has been fully depleted, the Company
has recognized the full amount of the investee's loss arising subsequent to the
date of the investment. Additionally, the Company is amortizing the accumulated
deficit of i-way, at the date of acquisition, over a five-year period. The
amortization is included in the Company's consolidated statements of operations
in the amount of $62 for the year ended December 31, 1998.
In June 1999, the Company negotiated the purchase of the remaining 64% equity
interest in i-way for total consideration of $13,097, comprised of $10,479 in
cash and 317,421 of the Company's common stock, valued at $8.25 per share. The
transaction was consummated on August 5, 1999.
3. Acquisitions of Certain Businesses
1998 Acquisitions
During 1998, the Company completed four acquisitions for cash and notes
payable:
<TABLE>
<CAPTION>
Fair Value of
Aggregate Ownership --------------------
Purchase Interest Assets Liabilities
Business Acquired Location Acquisition Date Price Acquired Acquired Assumed
----------------- --------- ------------------ --------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
VIA Net Works Argentina
S.A.................... Argentina September 24, 1998 $ 4,456 51% $ 603 $2,108
Gesellschaft fur
Telekommunikations und
Netzwerkdienste mbH
("GTN")................ Germany October 9, 1998 $10,652 51% $1,402 $1,215
U-Net Ltd............... UK October 29, 1998 $17,498 100% $3,513 $3,670
Dialdata S.A. Internet
Systems................ Brazil December 29, 1998 $ 6,611 51% $ 938 $ 155
</TABLE>
Each of the acquisitions was accounted for using the purchase method of
accounting and, accordingly, the net assets and results of operations of the
acquired companies have been included in the Company's consolidated financial
statements since the acquisition dates. The purchase price of the acquisitions
was allocated to assets acquired, including intangible assets, and liabilities
assumed, based on their respective fair values at the acquisition dates. The
companies acquired are Internet services providers, offering services including
Internet connectivity, web hosting, e-commerce, Internet security and other
services, primarily small and mid-sized businesses. See Note 7 regarding
disclosure of notes payable issued in connection with these acquisitions.
The Company has the right to purchase the remaining 49% interest in VIA Net
Works Argentina, GTN and Dialdata during certain contractual time periods
ending March 24, 2002, October 9, 2002, and May 29, 2002, respectively. In
connection with the Dialdata acquisition, assuming the Company does not
exercise its option, the existing stockholders have the right to purchase all
the shares held by VIA over a period of 90 days beginning on May 30, 2002.
Pursuant to these purchase agreements, the Company entered into employment
agreements with varying terms, with certain officers of the acquired companies.
The following presents the unaudited pro forma results of operations of the
Company for the years ended December 31, 1998 and 1997 as if the acquisitions
had consummated on January 1, 1997. The unaudited pro forma results of
operations include certain pro forma adjustments, including the amortization of
goodwill relating to the acquisitions.
F-22
<PAGE>
VIA NET.WORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. Dollars, except share and per share data)
<TABLE>
<CAPTION>
December 31,
------------------
1997 1998
-------- --------
(unaudited)
<S> <C> <C>
Revenue................................................. $ 12,023 $ 16,692
Net loss................................................ $ (5,970) $(10,751)
Basic and diluted loss per share........................ $(398.05) $ (50.69)
</TABLE>
The unaudited pro forma results of operations are prepared for comparative
purposes only and do not necessarily reflect the results that would have
occurred had the acquisitions occurred at January 1, 1997 or the results that
may occur in the future.
1999 Acquisitions
Through September 30, 1999, the Company completed additional acquisitions for
cash, promissory notes payable, and issuance of common stock:
<TABLE>
<CAPTION>
Aggregate Ownership
Business Aquiree Acquisition Purchase Interest
Acquired Location Date Price Acquired
-------- ----------- --------------- --------- ---------
<S> <C> <C> <C> <C>
bART Holding B.V.............. Netherlands March 25, 1999 $ 7,095 100%
MediaNet Ireland Ltd.......... Ireland April 19, 1999 $ 1,698 60%
Ecce Terram GmbH.............. Germany April 30, 1999 $ 920 100%
Artinternet S.A............... France May 5, 1999 $ 1,723 51%
Esoterica-Novas Technologias Portugal May 13, 1999
de Informacao S.A............ $ 8,322 100%
Worldwide Web Services........ UK May 27, 1999 $ 7,408 100%
Informationstechnik, Netzwerke Germany June 30, 1999
und Systeme Vertriebs GmbH... $ 3,115 100%
Netlink Internet Services UK July 9, 1999
Ltd.......................... $12,354 100%
Service Net S.A............... Argentina July 30, 1999 $ 1,149 100%
Disbumad, S.L................. Spain August 26, 1999 $ 6,163 87%
</TABLE>
All companies were acquired directly by the Company, except for
Informationstechnik, Netzwerke und Systeme Vertriebs GmbH and Ecce Terram GmbH
("Ecce Terram"), which were acquired by GTN, a majority-owned subsidiary.
Netlink was acquired for $9,068 in cash and 394,124 shares of the Company's
common stock, valued at $8.25 per share. In conjunction with the acquisitions
of Esoterica-Novas Technologias de Informacao S.A.("Esoterica"), Worldwide Web
Services ("WWS"), and Ecce Terram, the Company entered into promissory notes
with the selling shareholders for a portion of the the purchase price, as
follows:
<TABLE>
<CAPTION>
Principal Amount Maturity
---------------- -----------------
<S> <C> <C>
WWS....................................... $3,658 May 27, 2000
Esoterica................................. $ 986 May 18, 2000
Ecce Terram............................... $ 585 April 30, 2001
Disbumad.................................. $1,471 February 26, 2001
</TABLE>
The promissory notes are denominated and payable in the applicable local
currency. All notes bear interest at 5% per annum. Upon maturity, certain of
the promissory notes are payable at an amount equal to the greater of the
principal and accrued interest or a valuation formula based on the revenues and
earnings before interest,
F-23
<PAGE>
VIA NET.WORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. Dollars, except share and per share data)
taxes, depreciation and amortization of the acquired business, as calculated at
maturity. The Esoterica and WWS notes require the continued employment of
certain of the selling shareholders to entitle the holders to receive the
amount based on the valuation formula.
The Esoterica and WWS promissory notes are payable in common stock or cash at
the option of the holder. If the holder elects payment in common stock, the
stock will be valued at fair value. Upon an IPO of the Company, payment of the
promissory notes can be accelerated at the option of the Company or the holder
in which case the common stock will be valued at the IPO price. Payment date
for the notes may be extended for 6 months at the option of the holder. The
Disbumad promissory notes are payable 50% in cash and 50% in common stock
valued at fair value.
The principal amount of these promissory notes has been included as a
component of the initial purchase price. Upon payment of the Ecce Terram
promissory note, any excess of the amount determined under the valuation
formula over the principal amount will be recorded as additional purchase
consideration at that time. Because the valuation formula of the WWS and
Esoterica promissory notes is only applicable in the event that certain selling
shareholders remain with as employees of the Company, any excess of the
valuation formula over the principal amount will be recognized as a additional
compensation expense.
In September 1999, the Company negotiated the early retirement of the WWS
promissory note for $4,124, (inclusive of accrued interest) paid in 332,926
shares of common stock valued at $8.25 per share and $1,377 in cash. The
Company recognized approximately $400,000 (unaudited) in compensation expense
in the nine months ended September 30, 1999.
In July 1999, the Company purchased the remaining 49% equity interest in VIA
Net Works Argentina S.A. for $2,595, comprised of $1,357 in cash and 150,000 of
the Company's common stock, valued at $8.25 per share.
4. Property and Equipment
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------------
1997 1998
-------------
<S> <C> <C>
Machinery and equipment....................................... $ 8 $ 3,305
Furniture and fixture......................................... -- 1,034
Purchased software............................................ -- 309
----- -------
8 4,648
Accumulated depreciation and amortization..................... -- (368)
----- -------
Property and equipment, net................................... $ 8 $ 4,280
===== =======
</TABLE>
Total depreciation expense was $0 and $368 in 1997 and 1998, respectively. As
of December 31, 1998, the Company held $1,558 of machinery and equipment under
capital lease arrangements. The related accumulated amortization was $70.
In June 1999 the Company entered into a series of agreements to purchase two
indefeasible rights of use (IRU) on fiber-optic telecommunications systems
spanning from New York to London and connecting the cities of London, Amsterdam
and Dusseldorf, respectively. The purchase price for this capacity aggregated
$11,500.
F-24
<PAGE>
VIA NET.WORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. Dollars, except share and per share data)
Of this amount $6,270 was paid prior to September 30, 1999, $1,330 is required
to be paid prior to December 31, 1999 and the remaining amount, plus accrued
interest at 12%, is due in quarterly installments through June 2002. The cost
has been recorded as a component of property and equipment and will be
depreciated over the contractual life of the IRU, ranging from 20 to 25 years.
In addition the Company is required to make quarterly payments for certain
operations and maintenance services totaling $7,750 over the life of the
agreements.
5. Goodwill
Goodwill consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------ September 30,
1997 1998 1999
---- ------- -------------
(unaudited)
<S> <C> <C> <C>
Goodwill........................................ $-- $30,784 $100,703
Accumulated amortization........................ -- (936) (9,196)
---- ------- --------
Total......................................... $-- $29,848 $ 91,507
==== ======= ========
</TABLE>
Total amortization expense was $936 in 1998, and $8,167 (unaudited) in the
nine months ended September 30, 1999.
6. Related Party Obligations
At December 31, 1998, the Company had $2,245 due to certain of the former
shareholders of Dialdata. The obligation was settled by a cash payment in
January 1999.
At December 31, 1998, the Company had $32 and $88 due to certain directors of
U-Net and VIA Net Works Argentina, respectively, representing cash advances
from the directors to the subsidiaries that were made prior to the acquisition.
7. Short-Term Notes and Long-Term Debt
Debt consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------
1997 1998
---- -------
<S> <C> <C>
Acquisition debt for U-Net Ltd. at LIBOR+1% ................. $-- $ 8,280
Acquisition obligation for Dialdata.......................... -- 2,245
Capital lease obligations at interest rates ranging from 7.8%
to 8.0%..................................................... -- 980
Advances from directors of subsidiaries...................... -- 121
Note payable at an interest rate of 6.5%..................... -- 121
---- -------
-- 11,747
Less current portion......................................... -- (11,182)
---- -------
Long-term portion............................................ $-- 565
==== =======
</TABLE>
8. Mandatorily Redeemable Convertible Preferred Stock
In 1997 and 1998, the Company issued 1,025,000 shares and 463,657 shares,
respectively, of mandatorily redeemable convertible Series A preferred stock
("Series A") at $1.00 per share.
F-25
<PAGE>
VIA NET.WORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. Dollars, except share and per share data)
In May 1998, the Company issued 15,795,335 shares of mandatorily redeemable
convertible Series B-1 preferred stock ("Series B-1") and 1,400,000 shares of
mandatorily redeemable convertible Series B-2 non-voting preferred stock
("Series B-2"), collectively ("Series B") at $3.00 per share.
In April 1999, the Company issued 15,939,657 shares of Series C-1 mandatorily
redeemable convertible preferred stock ("Series C-1") and 5,370,001 shares of
mandatorily redeemable convertible Series C-2 non-voting preferred stock
("Series C-2"), collectively ("Series C") at $6.00 per share.
The shares of Series A, Series B-1 and Series C-1 are convertible, at the
option of the holder, into equivalent shares of common stock. The shares of
Series B-2 and Series C-2 are convertible, at the option of the holder, into
equivalent shares of non-voting common stock. Shares of Series B-2 and C-2 are
convertible into shares of Series B-1 and Series C-1, respectively on a share-
for-share basis at the option of the holder. The conversion ratios are subject
to adjustment for antidilution provisions.
In the event of liquidation, dissolution or winding up of the Company, the
Series C holders will be entitled to a liquidation preference over payments to
Series B holders, Series A holders and common stockholders equal to the
investment price plus all declared but unpaid dividends. The holders of Series
B will be entitled to be paid out of the assets prior and in preference to any
payments to Series A and common stockholders. The holders of Series A will be
entitled to be paid out of the assets prior and in preference to any payments
to common stockholders. The preference payments would be in an amount per share
equal to the investment price plus all declared but unpaid dividends. The
holders of Series A and Series B-1 shares, voting as a single class, may elect
four directors to serve on the Company's Board of Directors. The holders of
Series C-1 shares, voting as a single class, may elect three directors to serve
on the Company's Board of Directors.
Series C participates on an as-converted basis in all dividends payable to
the holders of common stock. Both the Series A and Series B shares are
noncumulative and nonparticipating. Any declared, but unpaid dividends may also
be converted at the option of the holder, into shares of common stock on the
same terms as the underlying preferred stock.
Concurrent with the private placement of Series C, the Company amended and
restated its Articles of Incorporation (the "Amendment"). The Amendment
increased the total authorized shares of voting common stock of the Company to
57,000,000 shares, increased the total authorized shares of non-voting common
stock of the Company to 7,500,000 shares, increased the total authorized shares
of the preferred stock of the Company to 48,000,000 shares and modified the
redemption rights of the preferred stock whereby the Company must redeem for
cash all outstanding shares of Series A, Series B, and Series C on May 31,
2008.
The Amendment also amended the automatic conversion feature of all
outstanding preferred stock in the event of an IPO. Upon the closing of an IPO
in which the IPO price per share is at least $12.00 per share, and the gross
cash proceeds to the Company are at least $50,000, each share of the Series A,
Series B-1, Series B-2, Series C-1 and Series C-2 preferred stock automatically
converts into shares of voting or non-voting common stock, based upon the then
effective conversion price, currently on a one-for-one basis.
9. Stock Compensation and Retirement Plans
Key Employee Equity Plan
During 1998, the Company adopted the V-I-A Internet Inc. Key Employee Equity
Plan (the "KEEP Plan"), an incentive plan. The KEEP Plan provides for the
granting of stock purchase rights to key employees of the Company. Rights are
granted with an exercise price as determined by the Company's Board of
Directors.
F-26
<PAGE>
VIA NET.WORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. Dollars, except share and per share data)
The stock purchase rights vest immediately and expire on dates specified by the
Board of Directors. As of December 31, 1998 and September 30, 1999, the Company
has reserved 400,000 and 800,000 (unaudited), respectively, common shares for
issuance under the KEEP Plan.
Stock Option Plan
During 1998, the Company adopted the V-I-A Internet Inc. Stock Option and
Restricted Stock Plan (the "Option Plan"). The Option Plan allows the Company
to issue employees either incentive or non-qualified options, which options
vest over such periods as may be determined by the Board of Directors. The
vesting period is established in each grant award agreement agreed by the Board
of Directors, generally two to four years. The options expire ten years after
grant date. The Option Plan allows for grants, which would allow the grantees
to exercise their options prior to vesting in exchange for restricted common
stock or restricted stock units, however, no such grants have been made.
Options are granted with an exercise price equal to the estimated fair value of
the common stock at the date of grant as determined by the Company's Board of
Directors. As of December 31, 1998 and September 30, 1999 the Company has
reserved 1,600,000 and 4,200,000 (unaudited), respectively, common shares for
issuance under the Option Plan.
Warrants for Common Stock
In April 1998, the Company issued warrants to purchase 100,000 shares of
common stock at an exercise price of $2.40, to a non-employee member of the
Board of Directors. These warrants vest immediately and expire five years from
the grant date. As of December 31, 1998 no warrants have been exercised.
Fair Value of Stock Options and Warrants
For disclosure purposes under SFAS No. 123, the fair value of each stock
option and warrant granted is estimated on the date of grant using the Black
Scholes option-pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
KEEP Plan Option Plan Warrants
--------- ----------- --------
<S> <C> <C> <C>
Expected life (in months)..................... 2 48-60 60
Risk-free interest rate....................... 4.5% 5.0% 5.0%
Volatility.................................... 0% 0% 0%
Dividend yield................................ 0% 0% 0%
</TABLE>
Utilizing these assumptions, the weighted-average fair value of the stock
options and warrants granted in 1998 was $0.02, and $0.36, and $0.53 for the
KEEP Plan, Option Plan, and warrants, respectively.
Under the above model, the total value of stock options and warrants granted
was approximately $440 in 1998, which would be amortized on a pro forma basis
over the option-vesting period. Had the Company determined compensation cost
for these plans in accordance with SFAS No. 123, the Company's pro forma
results for the year ended December 31, 1998 would have been as follows:
<TABLE>
<CAPTION>
As Reported Pro Forma
----------- ---------
<S> <C> <C>
Net loss............................................... $(5,342) $(5,403)
Net loss per share..................................... $(24.29) $(24.56)
</TABLE>
F-27
<PAGE>
VIA NET.WORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. Dollars, except share and per share data)
Following is a summary of the Company's stock purchase right, stock option
and warrant activity through September 30, 1999:
<TABLE>
<CAPTION>
Number of Shares of Common
Stock Weighted-
----------------------------- Average
KEEP ISO Price Per Exercise
Plan Plan Warrants Share Price
-------- --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1997................... -- -- -- $ -- $ --
Granted................. 365,000 1,080,000 100,000 $1.00-$2.40 $1.99
Exercised............... -- -- -- -- --
Forfeited............... (25,000) (50,000) -- $ 2.40 $2.40
-------- --------- -------
Balance at December 31,
1998................... 340,000 1,030,000 100,000 $1.00-$2.40 $2.11
-------- --------- -------
Granted (unaudited)..... 252,000 1,641,500 -- $4.00-$8.25 $5.17
Exercised (unaudited)... (489,834) -- -- $2.40-$4.00 $3.33
Forfeited (unaudited)... (102,166) -- -- $2.40-$4.00 $2.94
-------- --------- -------
Balance at September 30,
1999 (unaudited)....... -- 2,671,500 100,000 $1.00-$4.00 $3.95
======== ========= =======
</TABLE>
All stock purchase rights and options granted during 1998 were granted with
exercise prices equal to the fair market value as determined by the Board of
Directors. During the nine months ended September 30, 1999, the Company
determined that the fair value of the underlying common stock exceeded the
exercise price of certain stock purchase right and stock option grants by
$1,816 (unaudited.) Such amount will be amortized over the vesting period. The
Company recognized an expense of $483 (unaudited) in the nine months ended
September 30, 1999.
In October 1999, the Company granted 1,890,000 (unaudited) stock options, at
an exercise price of $9.00 (unaudited) per share. None of these options have
been exercised.
10. Income Taxes
The differences between the U.S. federal statutory tax rate and the Company's
effective tax rate are as follows:
<TABLE>
<CAPTION>
For the period
from December
June 13, 1997 For the year
(Inception) to ended
December 31, December 31,
1997 1998
-------------- ------------
<S> <C> <C>
Statutory U.S. federal income tax rate........... 34% 34%
Minority interest................................ -- 1
Goodwill amortization............................ -- (5)
State income taxes, net.......................... -- 1
Change in valuation allowance.................... (34) (19)
Loss on unconsolidated subsidiary................ -- (7)
Other............................................ -- (2)
---
Effective income tax rate........................ 0% 3%
=== ===
</TABLE>
F-28
<PAGE>
VIA NET.WORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. Dollars, except share and per share data)
The benefit from income taxes is summarized below:
<TABLE>
<CAPTION>
For the period
from December
June 13, 1997 For the year
(Inception) to Ended
December 31, December 31,
1997 1998
-------------- ------------
<S> <C> <C>
Deferred income taxes:
International.................................. $-- $(145)
Federal........................................ -- --
State.......................................... -- --
Total deferred income taxes...................... -- (145)
---- -----
Total benefit from income taxes.................. $-- $(145)
==== =====
</TABLE>
The components of loss before income taxes and minority interest are as
follows:
<TABLE>
<CAPTION>
For the period
from December
June 13, 1997 For the year
(Inception) to ended
December 31, December 31,
1997 1998
-------------- ------------
<S> <C> <C>
U.S operations.......... $(321) $(4,107)
Non-U.S. operations..... -- (1,619)
----- -------
Loss before minority
interest and income
taxes.................. $(321) $(5,726)
===== =======
</TABLE>
Deferred tax assets and liabilities were comprised of the following:
<TABLE>
<CAPTION>
1997 1998
---- ------
<S> <C> <C>
Deferred tax assets:
NOL carryforward............................................. $117 $ 539
Start-up costs............................................... -- 523
International subsidiaries................................... -- 145
---- ------
Gross deferred tax assets...................................... 117 1,207
---- ------
Deferred tax liabilities:
Unrealized foreign currency gain............................. -- (48)
---- ------
Gross deferred tax liabilities................................. -- (48)
---- ------
Net deferred tax asset......................................... $117 $1,159
---- ------
Valuation allowance............................................ (117) (1,159)
---- ------
Net deferred tax asset......................................... $-- $ --
==== ======
</TABLE>
The gross deferred tax assets have been reduced by a valuation allowance
because it is currently more likely than not that such benefits will not be
realized. The change in the valuation allowance was an increase of $1,042 in
1998, which is primarily related to additional losses from operations and
start-up costs.
F-29
<PAGE>
VIA NET.WORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. Dollars, except share and per share data)
At December 31, 1997 and 1998, the Company has a U.S. net operating loss
carryforward of approximately $321 and $1,419, respectively, which may be used
to offset future taxable income. This carryforward expires in 2018 and 2012,
respectively. The Internal Revenue Code places certain limitations on the
annual amount of net operating loss carryforwards which can be utilized if
certain changes in the Company's ownership occur.
At December 31, 1997, the Company did not have any net operating losses
generated from foreign subsidiaries. At December 31, 1998, the Company has net
operating losses generated from its foreign subsidiaries of approximately $406
of which $364 will begin to expire in 2003 and $42 which have an indefinite
carryforward period.
11. Commitments and Contingencies
Operating and Capital Lease Commitments
The Company leases office space and equipment under noncancelable operating
leases expiring on various dates through 2004. Rent expense for the year ended
December 1998 and for the period from June 13, 1997 (inception) to December 31,
1997 was $178 and $0, respectively.
The Company also leases telecommunications and other equipment under capital
leases.
Future minimum lease payments under noncancelable operating leases and
capital leases at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Operating Capital
--------- -------
<S> <C> <C>
Year Ending December 31,
1999..................................................... $ 558 $ 556
2000..................................................... 521 364
2001..................................................... 485 145
2002..................................................... 495 9
2003..................................................... 378 8
Thereafter............................................... 521 6
------ -----
$2,958 1,088
====== -----
Less amount representing interest.......................... (108)
-----
Present value of future minimum lease payments............. $ 980
=====
</TABLE>
Contingencies
From time to time, the Company is subject to claims arising in the ordinary
course of business. In the opinion of management, no such matter, individually
or in the aggregate, exists which is expected to have a material effect on the
results of operations, cash flows or financial position of the Company.
12. Segment Reporting
The Company offers Internet connectivity, web hosting, e-commerce, Internet
security and related services to businesses and consumers in Europe and Latin
America. Both segments generate Internet-related revenues from leased lines,
dial-up Internet access, web hosting and design, consulting services, and
hardware and software sales.
Each of these geographic operating segments is considered a reportable
segment, and the accounting policies of the operating segments are the same as
those described in Note 1. The Company evaluates the performance of its
segments based on revenue and earnings before interest, taxes, depreciation and
amortization
F-30
<PAGE>
VIA NET.WORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. Dollars, except share and per share data)
and non-cash compensation charges ("EBITDA"). The table below presents
information about the reported revenue, EBITDA and assets of the Company's
segments for the year ended December 31, 1998, and nine months ended September
30, 1998 and 1999 (unaudited). The Company had only the Corporate segment prior
to 1998, since it had not yet acquired any operating companies.
<TABLE>
<CAPTION>
Latin
Corporate Europe America Total
--------- ------- ------- --------
<S> <C> <C> <C> <C>
The year ended December 31, 1998:
Revenue.............................. $ -- $ 2,697 $ 651 $ 3,348
EBITDA............................... $ (4,389) $ (45) (329) $ (4,763)
Assets............................... $ 60,952 $ 7,666 4,407 $ 73,025
The nine months ended September 30,
1998
Revenue (unaudited).................. $ -- $ -- $ -- $ --
EBITDA (unaudited)................... $ (2,864) $ -- $ -- $ (2,864)
Assets (unaudited)................... $ 50,992 $ -- $3,294 $ 54,286
The nine months ended September 30,
1999
Revenue (unaudited).................. $ -- $19,378 $3,988 $ 23,366
EBITDA (unaudited)................... $ (5,651) $(2,032) $ (902) $ (8,585)
Assets (unaudited)................... $201,949 $14,178 $ (995) $215,132
</TABLE>
Adjustments that are made to the total EBITDA in order to arrive at loss
before income taxes and minority interest are as follows:
<TABLE>
<CAPTION>
For the Nine
Months Ended
For the year ended September 30,
December 31, -----------------
1998 1998 1999
------------------ ------- --------
(unaudited)
<S> <C> <C> <C>
EBITDA............................... $(4,763) $(2,864) $ (8,585)
Non-cash compensation................ -- -- (483)
Depreciation and amortization........ (1,304) (3) (10,656)
------- ------- --------
Loss from operations................. (6,067) (2,867) (19,724)
Other income and interest income,
net................................. 1,540 962 2,602
Loss in unconsolidated affiliate..... (1,199) (447) (177)
------- ------- --------
Loss before income taxes and minority
interest............................ $(5,726) $(2,352) $(17,299)
======= ======= ========
</TABLE>
For the year ended December 31, 1998 the Company recognized revenues from the
United Kingdom, Germany and Argentina in the amounts of $1,203, $1,495 and
$652, respectively.
13. Subsequent Events
Acquisitions of Businesses
Subsequent to September 30, 1999 the Company made two additional
acquisitions:
<TABLE>
<CAPTION>
Aggregate Ownership
Business Aquiree Acquisition Purchase Interest
Acquired Location Date Price Acquired
-------- ----------- ---------------- --------- ---------
<S> <C> <C> <C> <C>
InfoAcces S.A. de C.V.
(InfoAcces).............. Mexico October 10, 1999 $35,000 100%
Management and
Communications S.A.
(M&C).................... Switzerland October 11, 1999 $ 3,300 60%
</TABLE>
In October 1999, the Company acquired all of the outstanding common stock of
InfoAcces, an Internet services provider located in Mexico City. The purchase
consideration consisted of a $35.0 million initial cash payment and a maximum
of $30.0 million of contingent earn-out payments based on a formula valuation
through December 2000. In connection with the contingent consideration, the
Company has placed $15.0 million in escrow.
F-31
<PAGE>
VIA NET.WORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. Dollars, except share and per share data)
Additionally, in October 1999, the Company acquired 60% of the outstanding
shares of M&C an Internet services provider operating in Switzerland. The
purchase price consisted of cash of $2.1 million payable over a 12 month
period. Following twelve months from the closing of the transaction or under
certain other circumstances, including an IPO, the Company has an option to
acquire the remaining interest in M&C based on a valuation formula, payable in
shares of the Company.
The purchase price will be allocated to the acquired tangible and intangible
assets of the acquired businesses. It is anticipated that any resultant
goodwill will be amortized over a 5-year period.
F-32
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of VIA Net Works Argentina S.A.
In our opinion, the accompanying balance sheets and the related statements of
operations, stockholders' deficit, and cash flows expressed in Argentine pesos,
present fairly, in all material respects, the financial position of VIA Net
Works Argentina S.A. as of September 24, 1998 and December 31, 1997, and the
results of its operations and its cash flows for the period from January 1,
1998 to September 24, 1998 and the year ended December 31, 1997, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards in Argentina which are
substantially similar to generally accepted auditing standards in the United
States of America which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse & Co.
Jorge C. Bacher (Partner)
By __________________________________
Buenos Aires, Argentina
July 30, 1999
F-33
<PAGE>
VIA NET WORKS ARGENTINA S.A.
BALANCE SHEETS
(All amounts in thousands of AR$, except share and per share data)
<TABLE>
<CAPTION>
December 31, September 24,
1997 1998
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 19 $ 28
Accounts receivable, net of allowance of $38 and
$11 at September 24, 1998 and December 31, 1997,
respectively..................................... 33 189
Prepaid expenses and other current assets......... 10 21
----- ------
Total current assets............................ 62 238
Equipment and furniture, net........................ 124 393
Intangibles and other assets........................ 9 12
----- ------
Total assets.................................... $ 195 $ 643
===== ======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.................................. $ 345 $ 608
Stockholder deposits.............................. 380 380
Accrued liabilities............................... 270 271
Loans payable to stockholders..................... 16 88
Short-term portion of capital lease obligations... -- 73
Value Added Tax and other taxes................... 79 502
Deferred revenues................................. 29 40
----- ------
Total current liabilities....................... 1,119 1,962
Commitments and contingencies
Long-term liabilities:
Capital lease obligations, net of current
portion.......................................... -- 146
Value added tax and other taxes................... -- 40
----- ------
Total liabilities............................... 1,119 2,148
----- ------
Stockholders' deficit:
Common stock (1,200 shares authorized, issued and
outstanding at
September 24, 1998 and December 31, 1997, with a
par value of $0.01).............................. 12 12
Accumulated deficit............................... (936) (1,517)
----- ------
Total stockholders' deficit..................... (924) (1,505)
----- ------
Total liabilities and stockholders' deficit..... $ 195 $ 643
===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
VIA NET WORKS ARGENTINA S.A.
STATEMENTS OF OPERATIONS
(All amounts in thousands of AR$)
<TABLE>
<CAPTION>
For the For the period
year ended January 1 to
December 31, September 24,
1997 1998
------------ --------------
<S> <C> <C>
Revenue............................................ $1,064 $1,394
Cost of revenue.................................... 209 301
------ ------
Gross profit..................................... 855 1,093
Selling, general and administrative expenses....... 1,175 1,501
Depreciation and amortization...................... 55 124
------ ------
Loss from operations............................... (375) (532)
Interest expense................................... 26 49
------ ------
Net loss........................................... $ (401) $ (581)
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
VIA NET WORKS ARGENTINA S.A.
STATEMENTS OF STOCKHOLDERS' DEFICIT
(All amounts in thousands of AR$ except share and per share data)
<TABLE>
<CAPTION>
Common Stock
------------- Accumulated
Shares Amount Deficit Total
------ ------ ----------- -------
<S> <C> <C> <C> <C>
Balance at January 1, 1997.................. 1,200 $12 $ (535) $ (523)
Net loss for the year....................... -- -- (401) (401)
----- --- ------- -------
Balance at December 31, 1997................ 1,200 12 (936) (924)
Net loss for the period..................... -- -- (581) (581)
----- --- ------- -------
Balance at September 24, 1998............... 1,200 $12 $(1,517) $(1,505)
===== === ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE>
VIA NET WORKS ARGENTINA S.A.
STATEMENTS OF CASH FLOW
(All amounts in thousands of AR$)
<TABLE>
<CAPTION>
For the period
For the year ended January 1, 1998 to
December 31, 1997 September 24, 1998
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................ $(401) $(581)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation.......................... 55 124
Allowance for doubtful accounts....... 11 27
Changes in operating assets and
liabilities:
Accounts receivable................. (44) (183)
Prepaid expenses and other current
assets............................. 2 (11)
Intangibles and other assets........ 3 (3)
Accounts payable.................... 265 263
Accrued liabilities................. 200 1
Deferred revenue.................... (37) 11
Value Added Tax and other taxes..... 71 463
----- -----
Net cash provided by operating
activities....................... 125 111
----- -----
Cash flows from investing activities:
Acquisition of equipment and
furniture............................ (113) (117)
----- -----
Net cash used in investing
activities....................... (113) (117)
----- -----
Cash flows from financing activities:
Payments of capital lease
obligations.......................... -- (57)
Proceeds from loans payable to
stockholders......................... -- 72
----- -----
Net cash provided by financing
activities....................... -- 15
----- -----
Net increase in cash and cash
equivalents............................ 12 9
Cash and cash equivalents, beginning of
period................................. 7 19
----- -----
Cash and cash equivalents, end of
period................................. $ 19 $ 28
===== =====
Supplemental disclosure of cash flow
information:
Acquisition of equipment under capital
leases............................... $ -- $ 276
===== =====
Cash paid for interest................ $ 9 $ 10
===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE>
VIA NET WORKS ARGENTINA S.A.
NOTES TO FINANCIAL STATEMENTS
(All amounts in thousands of AR$ except share and per share data)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Operations
VIA Net Works Argentina S.A. ("the Company") was formed on September 22,
1995, to operate as an Internet Services Provider (ISP) in the city of Buenos
Aires. Operations commenced in 1996. On September 24, 1998, 51% of the common
stock shares were acquired by VIA NET.WORKS, Inc. for total consideration of
AR$3,926. On July 27, 1999, VIA NET.WORKS, Inc. acquired the remaining 49% of
the Company for total consideration of AR$2,594.
Basis of Presentation
The Company maintains its accounting records in accordance with generally
accepted accounting principles (GAAP) in the country of Argentina. These
financial statements have been prepared in accordance with GAAP in the United
States for purposes of filing with the Securities and Exchange Commission and
do not represent the statutory financial statements of the Company. The
accompanying financial statements include the results of the Company for the
year ended December 31, 1997 and for the period from January 1, 1998 to
September 24, 1998 (the date that the Company was acquired by VIA NET.WORKS,
Inc.).
Amounts in these financial statements are presented in Argentine pesos (AR$)
unless otherwise indicated. Since inception of the Company, the exchange rate
with the U.S. dollar has been AR$1 = US$1.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company to make estimates, judgements and
assumptions that affect the reported amounts of assets, liabilities, revenue
and expenses, together with amounts disclosed in the related notes to the
financial statements. Actual results could differ from the recorded estimates.
Fair Value of Financial Instruments
Carrying amounts of certain of the Company's financial instruments, including
cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses and other liabilities approximate fair value due to their short
maturities. Based upon borrowing rates currently available to the Company for
loans with similar terms, the carrying value of debt and capital lease
obligations approximate their fair value.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration
of credit risk consist of cash, cash equivalents and accounts receivable. The
Company's accounts receivable are derived from revenue earned from customers
located primarily in the city of Buenos Aires. The Company performs ongoing
credit evaluations of its customers' financial condition and, generally,
requires no collateral from its customers. The Company maintains an allowance
for doubtful accounts receivable based upon the expected collectibility of
accounts receivable.
F-38
<PAGE>
VIA NET WORKS ARGENTINA S.A.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts in thousands of AR$ except share and per share data)
Revenues in the period ended December 31, 1997 and the year ended September
24, 1998 and receivables at December 31, 1997 and September 24, 1998 were
concentrated principally with four customers as follows (amounts represent
percentage of revenue and accounts receivable, respectively):
<TABLE>
<CAPTION>
Revenues Accounts Receivable
--------------------------- --------------------------
For the period
For the year from January 1
ended to
December 31, September 24, December 31, September 24,
Company 1997 1998 1997 1998
- ------- ------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
A........................ -- % 18.25% -- % 16.80%
B........................ -- % -- % -- % 16.10%
C........................ -- % -- % 55.40% 10.00%
D........................ -- % -- % 24.20% -- %
</TABLE>
Equipment and Furniture
Equipment and furniture are recorded at cost less accumulated depreciation,
which is provided on the straight-line method over the estimated useful lives
of the assets, generally three to ten years. Communication and computer
equipment is depreciated over 3 years and furniture and fixtures over 10 years.
Cost includes major expenditures for improvements and replacements which extend
the useful life or increase capacity of the asset. Expenditures for maintenance
and repairs are expensed as incurred.
Costs for internal use software are expensed as incurred.
Long-Lived Assets
The Company periodically evaluates the carrying value of property and
equipment to be held and used when events and circumstances warrant such a
review. The carrying value of property and equipment is considered impaired
when the anticipated undiscounted cash flows from the asset is separately
identifiable and is less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair
value of the asset. Fair value is determined primarily using the anticipated
cash flows discounted at a rate commensurate with the risk involved. Losses on
assets to be disposed of are determined in a similar manner, except that fair
values are reduced for the cost to dispose.
Management estimates that there is no impairment of assets.
Advertising Expense
Costs related to advertising and promotion of services is charged to sales
and marketing expense as incurred. Advertising expense for all periods
presented is immaterial.
Dismissal Indemnities
Dismissal indemnities, required in the event of involuntary termination and
payable in accordance with Argentine law, are expensed when incurred.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". SFAS No. 109 is an asset and liability approach
that requires the recognition of deferred tax assets and
F-39
<PAGE>
VIA NET WORKS ARGENTINA S.A.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts in thousands of AR$ except share and per share data)
liabilities for the expected future tax consequences attributable to
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and their respective tax bases, and for operating
loss and tax credit carryforwards. In estimating future tax consequences, SFAS
No. 109 generally considers all expected future events other than the enactment
of changes in tax laws or rates.
Revenue Recognition
Internet services are recognized as the services are provided. The Company
records deferred revenue for amounts billed and collected in advance.
Revenue from consulting services is recognized as the services are provided.
Revenue from hardware and third-party software sales is recognized upon
shipment of the respective products. Through December 31, 1998, such sales have
been immaterial.
Costs of Revenues
Costs of access revenues consists of telecommunication expenses inherent in
the network infrastructure.
Sources of Suppliers
The Company relies on local telephone companies and other companies to
provide data communications. Athough management believes that alternative
telecommunication facilities could be found in a timely manner, any disruption
of these services could have an adverse effect on operating results.
Comprehensive Income
The Company has adopted the accounting treatment prescribed by SFAS No. 130,
"Comprehensive Income". FAS No. 130 establishes standards for reporting and
displaying comprehensive income and its components. The adoption of this
statement has not impacted the Company's financial statements as a result of
the Company not having any comprehensive income other than net loss during the
periods presented.
Segment Reporting
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," during 1998. SFAS No. 131 replaces the
"industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
allocating resources and assessing performance as the source of the Company's
reportable segments. SFAS No. 131 also requires disclosures about products and
services, geographic areas, and major customers. The adoption of SFAS No. 131
did not affect the Company's results of operations or financial position. The
Company operates in one segment, all within the city of Buenos Aires and its
metropolitan area in Argentina.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"). SFAS No. 133 establishes a new model for accounting for derivatives and
hedging activities and supersedes and amends a number of existing standards.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999, but
earlier application is permitted as of the beginning of any fiscal quarter
subsequent to June 15, 1998. Upon initial application, all derivatives are
required to be
F-40
<PAGE>
VIA NET WORKS ARGENTINA S.A.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts in thousands of AR$ except share and per share data)
recognized in the statement of financial position as either assets or
liabilities and measured at fair value. In addition, all hedging relationships
must be reassessed and documented pursuant to the provisions of SFAS No. 133.
Subsequent to the issuance of SFAS No. 133, the Financial Accounting Standards
Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133" ("SFAS
No. 137"), which defers the effective date of SFAS No. 133 to periods beginning
after June 15, 2000. The Company has not committed or expects to commit to any
derivative instrument transactions, and thus does not anticipate that this
pronouncement will have a significant effect on its results.
In 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," which is required to be
adopted for fiscal years beginning after December 15, 1998. SOP 98-1 provides
guidance on accounting for the costs of computer software developed or obtained
for internal use, determining whether computer software is for internal use,
and when costs incurred for internal-use computer software are and are not
capitalized. The adoption of SOP 98-1 is not expected to have a material effect
on the Company's financial statements.
NOTE 2: EQUIPMENT AND FURNITURE
Equipment and furniture is comprised of the following:
<TABLE>
<CAPTION>
December 31, September 24,
1997 1998
------------ -------------
<S> <C> <C>
Communication and computer equipment.............. $140 $ 529
Furniture and fixtures............................ 64 68
---- -----
204 597
Accumulated depreciation.......................... (80) (204)
---- -----
$124 $ 393
==== =====
</TABLE>
Depreciation expense for the period ended December 31, 1997 and year ended
September 24, 1998 was $55 and $124, respectively.
The cost of communication and computer equipment at September 24, 1998
includes approximately $276 in equipment under capital leases. Depreciation
during the period then ended was approximately $55.
NOTE 3: ACCRUED LIABILITIES
Accrued liabilities is comprised of the following:
<TABLE>
<CAPTION>
December 31, September 24,
1997 1998
------------ -------------
<S> <C> <C>
Salaries payable and vacation accrual............. $ 54 $ 93
Social security charges........................... 181 89
Directors' fees and bonus......................... -- 20
Accrual for legal and other expenses.............. 35 69
---- ----
$270 $271
==== ====
</TABLE>
F-41
<PAGE>
VIA NET WORKS ARGENTINA S.A.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts in thousands of AR$ except share and per share data)
NOTE 4: LONG-TERM LIABILITIES
At September 24, 1998 long-term liabilities consist of the following:
<TABLE>
<S> <C>
Communication and computer equipment capital lease obligations,
bearing interest at 8% per annum, with monthly payments through
2001, and a purchase option equivalent to two months rent, secured
by leased assets.................................................... $ 219
Value Added Tax and other taxes covered by long-term payment plan,
bearing interest at 15% per annum, with monthly payments through
2000................................................................ 76
-----
295
Less: current portion................................................ (109)
-----
$ 186
=====
</TABLE>
The above obligations are payable as follows:
<TABLE>
<CAPTION>
Period ending December 31,
<S> <C>
1998................................................................... $ 26
1999................................................................... 110
2000................................................................... 97
2001................................................................... 57
2002................................................................... 5
----
$295
====
</TABLE>
NOTE 5: COMMITMENTS AND CONTINGENCIES
Leases
The Company leases office space under operating leases which expire in May
2000 and provide for rental payments on a graduated scale. The Company
recognizes rent expense on a straight-line basis over the lease period and has
accrued for rent expense incurred but not paid. Rent expense for the period
ended December 31, 1997 and the year ended September 24, 1998 was $53 and $50,
respectively. Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
Period ending December 31,
<S> <C>
1998................................................................... $ 17
1999................................................................... 68
2000................................................................... 29
----
$114
====
</TABLE>
Contingencies
From time to time, the Company is subject to claims arising in the ordinary
course of business. In the opinion of management, no such matter, individually
or in the aggregate, exists which is expected to have a material effect on the
results of operations, cash flows or financial position of the Company.
F-42
<PAGE>
VIA NET WORKS ARGENTINA S.A.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts in thousands of AR$ except share and per share data)
NOTE 6: STOCKHOLDERS' EQUITY
At December 31, 1997 and at September 24, 1998, there were 1,200 Class A
ordinary common stock shares, of $10 par value each, authorized, issued and
outstanding.
In a Stockholders' meeting held on September 24, 1998, a capital increase was
approved for an amount of $3,926 in connection with the VIA Net.Works, Inc.
purchase of a 51% interest in the Company. The related capital contribution was
made subsequent to September 24, 1998 in exchange for newly issued preferred
stock to VIA NET.WORKS, Inc.. After this increase, outstanding shares were as
follows:
Class A common shares 1,110 of $0.01 par value each.
Class B preferred shares 1,155 of $0.01 par value each.
Preferred shares grant special rights upon liquidation for an amount
equivalent to the $3,926 paid by VIA NET.WORKS, Inc. Additionally, the
preferred shares have voting rights equivalent to the common stock.
Argentine law requires that 5% of a company's annual net income be
transferred to a legal reserve within stockholders' equity, until such reserve
reaches an amount equivalent to 20% of the Company's capital stock. This
requirement is effectively a restriction on the Company's ability to distribute
a portion of future earnings.
NOTE 7: INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
For the year For the period
ended January 1 to
December 31, September 24,
1997 1998
------------- --------------
<S> <C> <C>
Income tax benefit.............................. $ 90 $ 92
Valuation allowance............................. (90) (92)
---- ----
$ -- $ --
==== ====
</TABLE>
The provisions for income taxes for the period ended December 31, 1997 and
the year ended September 24, 1998 differ from amounts computed at the statutory
rate as follows:
<TABLE>
<CAPTION>
December 31, September 24,
1997 1998
------------ -------------
<S> <C> <C>
Income tax benefit at national statutory rate... $132 $192
Permanent differences:
--Non deductible travel expenses.............. (2) (32)
--Forgiveness of receivables from directors... -- (62)
--Directors' fees............................. (40) (6)
---- ----
Income tax benefit.............................. $ 90 $ 92
==== ====
</TABLE>
F-43
<PAGE>
VIA NET WORKS ARGENTINA S.A.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts in thousands of AR$ except share and per share data)
Deferred tax assets consist of the following:
<TABLE>
<CAPTION>
December 31, September 24,
1997 1998
------------ -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................ $ 134 $ 299
Deferred expenses............................... 50 38
Allowance for doubtful accounts................. 4 12
Accrual and reserves............................ 17 10
Software development costs...................... 62 --
----- -----
Net deferred tax assets........................... 267 359
Valuation allowance............................... (267) (359)
----- -----
$ -- $ --
===== =====
</TABLE>
The Company has established a valuation allowance for net deferred tax assets
of its operations since realization of these benefits cannot be reasonably
assured. These net operating loss carryforwards expire at various future dates
through 2003. While the need for the valuation allowance is subject to periodic
review, if the allowance is reduced, the tax benefit of the carryforwards will
be recorded in future operations as a reduction of the Company's income tax
expense. No cash was paid for income taxes in the year ended December 31, 1997
or the period ended September 24, 1998.
The Company's net operating loss carry-forwards as of September 24, 1998
expire as follows:
<TABLE>
<CAPTION>
Amount
Expiration date ------
<S> <C>
December 31, 2001..................................................... $321
December 31, 2002..................................................... 85
December 31, 2003..................................................... 500
----
$906
====
</TABLE>
The net operating loss carry-forward of $500 to expire in 2003 results from
the estimated tax loss for the period ended September 24, 1998, which will be
included in the annual income tax return for 1998.
NOTE 8: RELATED PARTY TRANSACTIONS
During 1996 and 1998, the Company borrowed $16 and $72, respectively, from
its stockholders. At December 31, 1997 and September 24, 1998, the aggregate
outstanding principal balance was $16 and $88, respectively. The loans bear
interest at 4% per annum and have no specified maturity dates. The Company
repaid the loans in 1999.
In connection with the investment by a VIA NET.WORKS, Inc., it was agreed
that the Company would forgive certain amounts receivable from founding
stockholders, aggregating approximately $90. Such amount is included in
operating expenses for the period ended September 24, 1998 in the accompanying
Statement of Operations.
At December 31, 1997 and September 24, 1998, the Company held stockholders'
deposits for future capital stock increases in the amount of $380.
Stockholders' deposits for future capital increases represent cash deposits in
anticipation of future conversion into capital stock. The deposits are
considered to represent
F-44
<PAGE>
VIA NET WORKS ARGENTINA S.A.
NOTES TO FINANCIAL STATEMENTS
(All amounts in thousands of AR$ except share and per share data)
stockholders' equity under accounting principles generally accepted in
Argentina. Such deposits are intended to be converted into capital through the
issuance of shares of stock, although the law does not require such a
conversion. Also, until such time, if any, that deposits are converted into
capital, the law does not preclude the stockholder from obtaining a repayment
of the deposit. Therefore, stockholders' deposits aggregating $380 are
presented as current liabilities in the accompanying balance sheet in
accordance with accounting principles generally accepted in the United States.
F-45
<PAGE>
Report of Independent Accountants
To the Board of Directors and
Stockholders of GTN Gesellschaft fur Telekommunikations-
und Netzwerkdienste mbH
In our opinion, the accompanying balance sheets and the related statements of
operations, stockholders' equity, and cash flows expressed in Deutschmarks
present fairly, in all material respects, the financial position of GTN
Gesellschaft fur Telekommunikations- und Netzwerkdienste mbH ("GTN") as of
December 31, 1997 and October 9, 1998, and the results of its operations and
its cash flows for the year ended December 31, 1997 and the period from
January 1, 1998 to October 9, 1998, in conformity with generally accepted
accounting principles in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards in Germany which are substantially
similar to generally accepted auditing standards in the United States of
America which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers GmbH
Wirtschaftsprufungsgesellschaft
I. Trauer A. Jacobs
Dusseldorf, Germany
November 19, 1999
F-46
<PAGE>
GTN
BALANCE SHEETS
(All amounts in thousands of DM except share data)
<TABLE>
<CAPTION>
December 31, October 9,
1997 1998
------------ ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ DM 126 DM 110
Accounts receivable, net of allowance of DM 70 and DM
97 at December 31, 1997 and October 9, 1998,
respectively........................................ 989 1,328
Accounts receivable stockholders..................... 27 96
Income taxes......................................... 109 92
Other accounts receivable and current assets......... 2 --
Inventory............................................ 55 --
------- -------
Total current assets............................... 1,308 1,626
Property and equipment, net............................ 382 655
Other assets........................................... 10 14
------- -------
Total assets....................................... DM1,700 DM2,295
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... DM 582 DM1,227
Accrued liabilities.................................. 145 139
Notes payable........................................ 67 274
Value added taxes and other taxes.................... 177 69
Other current liabilities............................ 85 50
------- -------
Total current liabilities........................... 1,056 1,759
Deferred taxes......................................... 281 230
------- -------
Total liabilities................................... 1,337 1,989
------- -------
Commitments
Stockholders' equity:
Common stock, par value DM 51; 12 shares authorized,
issued and outstanding.............................. 51 51
Retained earnings.................................... 312 255
------- -------
Total stockholders' equity......................... 363 306
------- -------
Total liabilities and stockholders' equity......... DM1,700 DM2,295
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statement.
F-47
<PAGE>
GTN
STATEMENTS OF OPERATIONS
(All amounts in thousands of DM)
<TABLE>
<CAPTION>
For the For the period
year ended January 1, 1998
December 31, to October 9,
1997 1998
------------ ---------------
<S> <C> <C>
Revenue............................................ DM8,014 DM7,046
Cost of revenue.................................... 5,022 4,816
------- -------
Gross profit..................................... 2,992 2,230
------- -------
Selling, general and administrative costs.......... 2,111 2,214
Depreciation and amortization...................... 337 128
------- -------
Income (loss) from operations...................... 544 (112)
Interest expense................................... 15 2
Other (income) expense............................. 9 (5)
------- -------
Income (loss) before income taxes.................. 520 (109)
Income tax (benefit) expense....................... 259 (52)
------- -------
Net income (loss).................................. DM 261 DM (57)
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statement.
F-48
<PAGE>
GTN
STATEMENT OF STOCKHOLDERS' EQUITY
(All amounts in thousands of DM except share data)
<TABLE>
<CAPTION>
Common Stock Total
------------- Retained Stockholders'
Shares Amount Earnings Equity
------ ------ -------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996............... 6 DM51 DM214 DM265
Net income................................. -- -- 261 261
Dividends.................................. -- -- (163) (163)
--- ---- ----- -----
Balance at December 31, 1997............... 12 51 312 363
Net loss................................... -- -- (57) (57)
--- ---- ----- -----
Balance at October 9, 1998................. 12 DM51 DM255 DM306
=== ==== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statement.
F-49
<PAGE>
GTN
STATEMENTS OF CASH FLOWS
(All amounts in thousands of DM)
<TABLE>
<CAPTION>
For the year For the period
ended January 1, 1998
December 31, to October 9,
1997 1998
------------ ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................ DM 261 DM (57)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization................... 334 125
Provision for doubtful accounts................. 40 27
Deferred taxes.................................. 234 (51)
Changes in operating assets and liabilities:
Accounts receivable............................ 127 (366)
Inventory...................................... (23) 55
Other accounts receivable and current assets... (133) (50)
Other assets................................... (10) (4)
Accounts payable............................... (203) 645
Accrued liabilities............................ (55) (6)
Value Added Tax and other taxes................ 108 (108)
Other current liabilities...................... 6 (35)
------ ------
Net cash provided by operating activities..... 686 175
------ ------
Cash flows from investing activities:
Purchases of furniture and equipment............ (269) (398)
------ ------
Net cash used in investing activities......... (269) (398)
------ ------
Cash flows from financing activities:
Proceeds from (repayment of) short-term debt.... (130) 207
Dividends paid.................................. (163) --
------ ------
Net cash (used in) provided by financing
activities................................... (293) 207
Net increase (decrease) in cash and cash
equivalents.................................. 124 (16)
------ ------
Cash and cash equivalents, beginning of period.... 2 126
------ ------
Cash and cash equivalents, end of period.......... DM 126 DM 110
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statement.
F-50
<PAGE>
GTN
NOTES TO FINANCIAL STATEMENTS
(All amounts in thousands of DM except share data)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Operations
GTN (also referred to as the "Company") was formed on April 2, 1993 to
operate as an Internet Services Provider (ISP) in the city of Kaarst, Germany.
On October 9, 1998, 51% of the common stock was acquired by VIA NET.WORKS, Inc.
for total consideration of DM 16,533.
Basis of Presentation
The Company maintains its accounting records in accordance with generally
accepted accounting principals (GAAP) in the country of Germany. These
financial statements have been prepared in accordance with GAAP in the United
States of America for purposes of filing with the Securities and Exchange
Commission and do not represent the statutory financial statements of the
Company. The accompanying financial statements include the results of the
Company for the year ended December 31, 1997 and for the period from January 1,
1998 to October 9, 1998 (the date that the Company was acquired by VIA
NET.WORKS, Inc.)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company to make estimates, judgements and
assumptions that affect the reported amounts of assets, liabilities, revenue
and expenses, together with amounts disclosed in the related notes to the
financial statements. Actual results could differ from the recorded estimates.
Fair Value of Financial Instruments
Carrying amounts of certain of the Company's financial instruments, including
cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses and other liabilities approximate fair value due to their short
maturities. Based upon borrowing rates currently available to the Company for
loans with similar terms, the carrying value of debt approximate their fair
value.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration
of credit risk consist of cash, cash equivalents, and accounts receivable. The
Company's accounts receivable are derived from revenue earned from customers
located in Germany. The Company performs ongoing credit evaluations of its
customers' financial condition and, generally, requires no collateral from its
customers. The Company maintains an allowance for doubtful accounts receivable
based upon the expected collectibility of accounts receivable.
Inventory
Inventory as of December 31, 1997 includes DM 55 of finished goods and is
stated at the lower of cost or market, cost being determined by the specific
identification method.
F-51
<PAGE>
GTN
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts in thousands of DM except share data)
Property and Equipment
Property and equipment is recorded at cost less accumulated depreciation,
which is provided on the straight-line method over the estimated useful lives
of the assets, generally three to five years. Expenditures for maintenance and
repairs are expensed as incurred.
Long-Lived Assets
The Company periodically evaluates the carrying value of property and
equipment to be held and used when events and circumstances warrant such a
review. The carrying value of property and equipment is considered impaired
when the anticipated undiscounted cash flows from the asset is separately
identifiable and is less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair
value of the asset. Fair value is determined primarily using the anticipated
cash flows discounted at a rate commensurate with the risk involved. Losses on
assets to be disposed of are determined in a similar manner, except that fair
values are reduced for the cost to dispose.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". SFAS No. 109 is an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences attributable to differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
their respective tax bases, and for operating loss and tax credit
carryforwards. In estimating future tax consequences, SFAS No. 109 generally
considers all expected future events other than the enactment of changes in tax
laws or rates.
Revenue Recognition
Internet services are recognized as the services are provided. Revenue from
consulting services is recognized as the services are provided. Revenue from
hardware and third-party software sales is recognized upon shipment of the
respective products through October 9, 1998, such sales have been immaterial.
Other revenues include network installation, maintenance and consulting
services. These services are provided on a time-and-material basis and revenue
is recognized based upon time (at established rates) and other direct costs as
incurred.
Costs of Revenues
Costs of access revenues primarily consist of telecommunication expenses
inherent in the network infrastructure. Costs of access revenues also include
fees paid for lease of the Company's network infrastructure, product costs, and
contractor fees for operation and support services.
Sources of Suppliers
The Company relies on local telephone companies and other companies to
provide data communications. Although management feels alternative
telecommunication facilities could be found in a timely manner, any disruption
of these services could have an adverse effect on operating results.
Comprehensive Income
The Company adopted SFAS No. 130, "Comprehensive Income" in 1998. SFAS No.
130 establishes standards for reporting and displaying comprehensive income and
its components. The adoption of this
F-52
<PAGE>
GTN
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts in thousands of DM except share data)
statement had no impact on the Company's financial statements as a result of
the Company not having any comprehensive income other than net income and loss
during the periods presented.
Segment Reporting
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," during 1998. SFAS No. 131 replaces the
"industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
allocating resources and assessing performance as the source of the Company's
reportable segments. SFAS No. 131 also requires disclosures about products and
services, geographic areas, and major customers. The adoption of SFAS No. 131
did not affect results of operations or financial position. The Company
operates in one segment, all within the country of Germany.
Recent Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"). SFAS No. 133 establishes a new model for accounting for derivatives and
hedging activities and supersedes and amends a number of existing standards.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999, but
earlier application is permitted as of the beginning of any fiscal quarter
subsequent to June 15, 1998. Upon initial application, all derivatives are
required to be recognized in the statement of financial position as either
assets or liabilities and measured at fair value. In addition, all hedging
relationships must be reassessed and documented pursuant to the provisions of
SFAS No. 133. Subsequent to the issuance of SFAS No. 133, the Financial
Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133" ("SFAS No. 137"), which defers the effective date of SFAS
No. 133 to periods beginning after June 15, 2000. The Company has not committed
or expects to commit to any derivative instrument transactions, and thus does
not anticipate that this pronouncement will have a significant effect on its
results.
In 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use", which is required to be
adopted for fiscal years beginning after December 15, 1998. SOP 98-1 provides
guidance on accounting for the costs of computer software developed or obtained
for internal use, determining whether computer software is for internal use,
and when costs incurred for internal-use computer software are and are not
capitalized. The adoption of SOP 98-1 is not expected to have a material effect
on the Company's financial statements.
NOTE 2: PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
December 31, October 9,
1997 1998
------------ ----------
<S> <C> <C>
Furniture and equipment................................. DM 866 DM1,264
Accumulated depreciation and amortization............... DM(484) DM (609)
------ -------
DM 382 DM 655
====== =======
</TABLE>
F-53
<PAGE>
GTN
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts in thousands of DM except share data)
NOTE 3: BORROWINGS
Lines of Credit
At October 9, 1998, the Company had a DM 200 line of credit with Commerzbank
Monchengladbach, Germany. Under the line agreement, borrowings are secured by
personal guarantees of the shareholders, assignment of accounts receivable, a
subordination agreement by all shareholders and a pledge of security accounts
owned by shareholders. The line of credit expired March 31, 1999 and charged
interest at a rate of 7.5% per annum. Under the line of credit, the Company was
restricted from paying dividends as long as the equity ratio was less than 20%
and the ratio of fixed assets to equity was less than 100%. Dividends may be
paid if they are immediately deposited as shareholders' loans. At October 9,
1998, there was no outstanding principal or interest.
At October 9, 1998, the Company had DM 274 outstanding under a line of credit
with Raiffeisenbank Kaarst/Germany. The line of credit which has been agreed in
writing provides for borrowings of up to DM 160, which are secured by personal
guarantees of shareholders and pledge of security accounts owned by
shareholders. The line of credit originally expired in 1997 but is revolving
and charges interest at a rate of 7.75% per annum. Borrowings in excess of DM
160 are overdraft facilities granted without written contract.
At December 31, 1997 the Company had DM 67 outstanding under the above
mentioned line of credit.
NOTE 4: COMMITMENTS
Leases
The Company leases office space and equipment under noncancelable operating
leases with various expiration dates through May 2003. Rent expense for the
year ended December 31, 1997 and period ended October 9, 1998 was DM 232 and DM
243, respectively. The terms of the facility lease provide for rental payments
increased at 2.5% per year. The Company recognizes rent expense on a straight-
line basis over the lease period, and has accrued for rent expense incurred but
not paid. Future minimum lease payments under noncancelable operating leases,
including lease commitments entered into subsequent to October 9, 1998 as
follows:
<TABLE>
<CAPTION>
Period Ended
December 31
<S> <C>
1998................................................................. DM 99
1999................................................................. 393
2000................................................................. 385
2001................................................................. 359
2002................................................................. 364
Thereafter........................................................... 153
-------
Total................................................................ DM1,753
=======
</TABLE>
F-54
<PAGE>
GTN
NOTES TO FINANCIAL STATEMENTS
(All amounts in thousands of DM except share data)
NOTE 5: INCOME TAXES
The (benefit from) provision for income taxes is as follows:
<TABLE>
<CAPTION>
For the year For the period from
ended January 1, 1998 to
December 31, October 9,
1997 1998
------------ -------------------
<S> <C> <C>
Current:
German corporation tax
(federal).............. DM 17 DM 24
German trade tax on
income (municipal)..... 8 (25)
----- -----
25 (1)
----- -----
Deferred:
German corporation tax
(federal).............. 145 (31)
German trade tax on
income (municipal)..... 89 (20)
----- -----
234 (51)
----- -----
(Benefit from) provision
for income taxes......... DM259 DM(52)
===== =====
</TABLE>
The provision for income taxes differs from amounts computed at the statutory
rate as follows:
<TABLE>
<CAPTION>
December 31, October 9,
1997 1998
------------ ----------
<S> <C> <C>
Federal statutory rate............................... 48.3% 48.3%
Other................................................ 1.5 (0.6)
---- ----
Effective Income tax rate............................ 49.8% 47.7%
==== ====
</TABLE>
Deferred tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
December 31, October 9,
1997 1998
------------ ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carry forwards.................. DM-- DM 86
----- -----
Deferred tax liabilities:
Depreciation and other............................. 281 316
----- -----
Net deferred tax liability........................... DM281 DM230
===== =====
</TABLE>
In the year ended December 31, 1997 and for the period ended October 9, 1998
the Company received DM 34 and paid DM 134 in income tax, respectively.
NOTE 6: RELATED PARTY TRANSACTIONS
<TABLE>
<CAPTION>
December 31, October 9,
1997 1998
------------ ----------
<S> <C> <C>
Accounts receivable stockholders..................... DM27 DM96
</TABLE>
The receivables concern cost of the information document prepared by Regent
Associates which have to be born by stockholders. The amounts due have been
advanced by GTN.
F-55
<PAGE>
Report of Independent Accountants
To the Board of Directors and
Stockholders of V-I-A Internet, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations of cash flows present fairly, in all material respects, the
financial position of U-Net Limited at October 29, 1998 and July 31, 1998 and
1997, and the results of its operations and changes in retained earnings and
its cash flows for the period from August 1, 1998 to October 29, 1998 and the
years ended July 31, 1998 and 1997 in conformity with generally accepted
accounting principles in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards in the United States which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers
Manchester
July 14, 1999
F-56
<PAGE>
U-NET LIMITED
BALANCE SHEETS
(All amounts in thousands GBP except share data)
<TABLE>
<CAPTION>
July 31,
---------------------------- October 29,
1997 1998 1998
------------- ------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....... (Pounds) 140 (Pounds) 355 (Pounds) 290
Accounts receivable, net of
allowance of (Pounds)18,
(Pounds)35 and (Pounds)65,
respectively................... 98 104 101
Prepaid expenses and other
current assets................. 82 172 170
------------- ------------- -------------
Total current assets.......... 320 631 561
Property and equipment, net....... 836 1,455 1,535
------------- ------------- -------------
Total assets.................. (Pounds)1,156 (Pounds)2,086 (Pounds)2,096
============= ============= =============
LIABILITIES AND STOCKHOLDERS'
DEFICIT
Current Liabilities:
Accounts payable................ (Pounds) 183 (Pounds) 468 (Pounds) 478
Accrued liabilities............. 27 18 38
Deferred revenue................ 457 903 1,005
Value Added Tax and other
taxes.......................... 81 75 92
Current portion of capital lease
obligations.................... 87 242 244
Short-term debt................. 29 29 29
------------- ------------- -------------
Total current liabilities..... 864 1,735 1,886
Long-term debt.................... 130 76 68
Deferred taxes.................... 15 20 2
Capital lease obligations, net of
current portion.................. 164 274 235
------------- ------------- -------------
Total liabilities............. 1,173 2,105 2,191
============= ============= =============
Commitments
Stockholders' deficit:
Common stock, par value
(Pounds)0.01, (Pounds)0.01, and
(Pounds)1, respectively, 5,000,
500,000 and 500,000 shares
authorized, issued and
outstanding, respectively...... 5 5 5
Accumulated deficit............. (22) (24) (100)
------------- ------------- -------------
Total stockholders' deficit... (17) (19) (95)
------------- ------------- -------------
Total liabilities and
stockholders deficit......... (Pounds)1,156 (Pounds)2,086 (Pounds)2,096
============= ============= =============
</TABLE>
F-57
<PAGE>
U-NET LIMITED
STATEMENTS OF OPERATIONS
(All amounts in thousands of GBP)
<TABLE>
<CAPTION>
For the period
August 1,
For the year For the year 1998 to
ended ended October 29,
July 31, 1997 July 31, 1998 1998
------------- ------------- --------------
<S> <C> <C> <C>
Revenue.......................... (Pounds)1,744 (Pounds)2,997 (Pounds)932
Cost of revenue.................. 715 1,245 405
------------- ------------- -----------
Gross profit................... 1,029 1,752 527
Selling, general and
administrative.................. 890 1,290 476
Depreciation and amortization.... 195 376 130
------------- ------------- -----------
(Loss) income from operations.... (56) 86 (79)
Interest expense................. 28 83 15
------------- ------------- -----------
(Loss) income from operations
before income taxes............. (84) 3 (94)
Income (benefit) tax provision... (7) 5 (18)
------------- ------------- -----------
Net loss......................... (Pounds) (77) (Pounds) (2) (Pounds)(76)
============= ============= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-58
<PAGE>
U-NET LIMITED
STATEMENT OF STOCKHOLDERS' DEFICIT
(All amounts in thousands of GBP except share data)
<TABLE>
<CAPTION>
Common Stock Retained Earnings
----------------- (Accumulated
Shares Amount Deficit) Total
------- --------- ----------------- -----------
<S> <C> <C> <C> <C>
Balance at August 1, 1996..... 5,000 (Pounds)5 (Pounds) 55 (Pounds) 60
Net loss...................... -- -- (77) (77)
------- --------- ------------ -----------
Balance at July 31, 1997...... 5,000 5 (22) (17)
Net loss...................... -- -- (2) (2)
Stock split................... 495,000 -- -- --
------- --------- ------------ -----------
Balance at July 31, 1998...... 500,000 5 (24) (19)
Net loss...................... -- -- (76) (76)
------- --------- ------------ -----------
Balance at October 29, 1998... 500,000 (Pounds)5 (Pounds)(100) (Pounds)(95)
======= ========= ============ ===========
</TABLE>
F-59
<PAGE>
U-NET LIMITED
STATEMENTS OF CASH FLOWS
(All amounts in thousands of GBP)
<TABLE>
<CAPTION>
For the period
August 1,
For the year For the year 1998 to
ended July 31, ended July 31, October 29,
1997 1998 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss........................ (Pounds)(77) (Pounds) (2) (Pounds)(76)
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Depreciation.................... 195 376 130
Provision for doubtful
accounts....................... 16 17 30
Deferred taxes.................. (4) 5 (18)
Changes in operating assets and
liabilities:
Accounts receivable........... (40) (23) (27)
Prepaid expenses and other
current assets............... (71) (90) 2
Accounts payable and other
accrued liabilities.......... 25 276 30
Deferred revenue.............. 300 446 102
Other creditors............... 86 155 2
Value Added Tax and other
taxes........................ 69 (6) 17
----------- ----------- -----------
Net cash provided by
operating activities....... 499 1,154 192
----------- ----------- -----------
Cash flows from investing
activities:
Purchases of property and
equipment........................ (620) (995) (210)
----------- ----------- -----------
Net cash used in investing
activities................. (620) (995) (210)
----------- ----------- -----------
Cash flows from financing
activities:
Proceeds from (repayment of)
note payable................... 56 (54) (8)
Payments for capital lease
obligations....................
Proceeds from (repayment of)
bank borrowings, net........... 147 110 (39)
----------- ----------- -----------
Net cash provided by (used
in) financing activities... 203 56 (47)
----------- ----------- -----------
Net increase (decrease) in
cash and cash equivalents.. 82 215 (65)
Cash and cash equivalents,
beginning of period.............. 58 140 355
----------- ----------- -----------
Cash and cash equivalents, end of
period........................... (Pounds)140 (Pounds)355 (Pounds)290
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-60
<PAGE>
U-NET LIMITED
NOTES TO FINANCIAL STATEMENTS
(All amounts in thousands GBP, except share data)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Operations
U-Net Limited (the "Company") was formed on July 26, 1994 to operate as an
Internet service provider (ISP) in the city of Manchester. On October 29, 1998,
100% of the common stock was acquired by VIA NET.WORKS, Inc.
Basis of Presentation
The Company maintains its accounting records in accordance with generally
accepted accounting principals (GAAP) in the United Kingdom. These financial
statements have been prepared in accordance with GAAP in the United States of
America for purposes of filing with the Securities and Exchange Commission and
do not represent the statutory financial statements of the Company. The
accompanying financial statements include the results of the Company for the
year ended July 31, 1997 and 1998 and for the period from August 1, 1998 to
October 29, 1998 (the date that the Company was acquired by VIA NET.WORKS,
Inc.)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company to make estimates, judgements and
assumptions that affect the reported amounts of assets, liabilities, revenue
and expenses, together with amounts disclosed in the related notes to the
financial statements. Actual results could differ from the recorded estimates.
Fair Value of Financial Instruments
Carrying amounts of certain of the Company's financial instruments, including
cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses and other liabilities approximate fair value due to their short
maturities. Based upon borrowing rates currently available to the Company for
loans with similar terms, the carrying value of debt and capital lease
obligations approximate fair value.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration
of credit risk consist of cash, cash equivalents, short-term investments and
accounts receivable. The Company's accounts receivable are derived from revenue
earned from customers located in the United Kingdom. The Company performs
ongoing credit evaluations of its customers' financial condition and,
generally, requires no collateral from its customers. The Company maintains an
allowance for doubtful accounts receivable based upon the expected
collectibility of accounts receivable.
Property and Equipment
Property and equipment is recorded at cost less accumulated depreciation,
which is provided on the straight-line method over the estimated useful lives
of the assets, generally three to five years. Cost includes major expenditures
for improvements and replacements which extend useful lives or increase
capacity of the
F-61
<PAGE>
U-NET LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts in thousands GBP, except share data)
asset and interest costs associated with significant capital additions.
Expenditures for maintenance and repairs are expensed as incurred.
Costs for internal use software are expensed as incurred.
Long-Lived Assets
The Company periodically evaluates the carrying value of property and
equipment to be held and used when events and circumstances warrant such a
review. The carrying value of property and equipment is considered impaired
when the anticipated undiscounted cash flows from the asset is separately
identifiable and is less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair
value of the asset. Fair value is determined primarily using the anticipated
cash flows discounted at a rate commensurate with the risk involved. Losses on
assets to be disposed of are determined in a similar manner, except that fair
values are reduced for the cost to dispose.
Advertising Costs
Costs related to advertising and promotion of services are charged to sales
and marketing expense as incurred. Advertising expense was (Pounds)22,
(Pounds)133 and (Pounds)108 for the period ended October 29, 1998 and the years
ended July 31, 1998 and 1997, respectively.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". SFAS No. 109 is an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences attributable to differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
their respective tax bases, and for operating loss and tax credit
carryforwards. In estimating future tax consequences, SFAS No. 109 generally
considers all expected future events other than the enactment of changes in tax
laws or rates.
Revenue Recognition
Revenue from Internet connectivity and enhanced Internet services are
recognized as the services are provided, net of Value Added Tax and trade
discounts. Income from subscriptions is recognized ratably over the
subscriptions term, generally a twelve month period. The Company records
deferred revenue for amounts billed and/or collected in advance.
Costs of Revenues
Costs of access revenues primarily consist of telecommunication expenses
inherent in the network infrastructure. Costs of access revenues also include
fees paid for lease of the Company's network infrastructure, as well as license
fees for web browser software based on a per-user charge, other license fees
paid to third-party software vendors, product costs, and contractor fees for
operation and support services.
Sources of Suppliers
The Company relies on local telephone companies and other companies to
provide data communications. Although management feels alternative
telecommunication facilities could be found in a timely manner, any disruption
of these services could have an adverse effect on operating results.
F-62
<PAGE>
U-NET LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts in thousands GBP, except share data)
Comprehensive Income
The Company adopted SFAS No. 130, "Comprehensive Income," in 1998. SFAS No.
130 establishes standards for reporting and displaying comprehensive income and
its components. The adoption of this statement had no impact on the Company's
financial statements as a result of the Company not having any comprehensive
income other than net loss during the periods presented.
Segment Reporting
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," during 1998. SFAS No. 131 replaces the
"industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
allocating resources and assessing performance as the source of the Company's
reportable segments. SFAS No. 131 also requires disclosures about products and
services, geographic areas, and major customers. The adoption of SFAS No. 131
did not affect results of operations or financial position. The Company
operates in one segment, all within the United Kingdom.
Recent Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"). SFAS No. 133 establishes a new model for accounting for derivatives and
hedging activities and supersedes and amends a number of existing standards.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999, but
earlier application is permitted as of the beginning of any fiscal quarter
subsequent to June 15, 1998. Upon initial application, all derivatives are
required to be recognized in the statement of financial position as either
assets or liabilities and measured at fair value. In addition, all hedging
relationships must be reassessed and documented pursuant to the provisions of
SFAS No. 133. Subsequent to the issuance of SFAS No. 133, the Financial
Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133" ("SFAS No. 137"), which defers the effective date of SFAS
No. 133 to periods beginning after June 15, 2000. The Company has not committed
or expects to commit to any derivative instrument transactions, and thus does
not anticipate that this pronouncement will have a significant effect on its
results.
In 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, which is required to be
adopted for fiscal years beginning after December 15, 1998. SOP 98-1 provides
guidance on accounting for the costs of computer software developed or obtained
for internal use, determining whether computer software is for internal use,
and when costs incurred for internal-use computer software are and are not
capitalized. The adoption of SOP 98-1 is not expected to have a material effect
on the Company's financial statements.
NOTE 2: PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following:
<TABLE>
<CAPTION>
July 31,
---------------------------- October 29,
1997 1998 1998
------------- ------------- -------------
<S> <C> <C> <C>
Office and computer
equipment................... (Pounds)1,000 (Pounds)1,895 (Pounds)2,090
Furniture and fixtures....... 89 126 140
------------- ------------- -------------
1,089 2,021 2,230
Accumulated depreciation..... (253) (566) (695)
------------- ------------- -------------
(Pounds) 836 (Pounds)1,455 (Pounds)1,535
============= ============= =============
</TABLE>
F-63
<PAGE>
U-NET LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts in thousands GBP, except share data)
As of July 31, 1997 and 1998, and October 29, 1998, the Company had 285, 713,
and 739, respectively, in capitalized equipment under lease arrangements.
Accumulated depreciation related to equipment under capital leases approximated
44 and 164 as of and for the years ended July 31, 1997 and 1998, respectively,
and 209 as of October 29, 1998 of and for the period from August 1, 1998 to
October 29, 1998.
NOTE 3: DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
July 31,
------------------------
October 29,
1997 1998 1998
----------- ----------- -----------
<S> <C> <C> <C>
Notes payable under line of credit,
6.5%, interest and principal payable
monthly............................... (Pounds)114 (Pounds) 86 (Pounds) 78
Note payable to stockholder, non-
inbterest bearing, balloon payment due
October 1999.......................... 45 19 19
----------- ----------- -----------
Total long-term debt................... 159 105 97
Less current portion................... (29) (29) (29)
----------- ----------- -----------
Long-term debt, net of current
portion............................... (Pounds)130 (Pounds) 76 (Pounds) 68
=========== =========== ===========
</TABLE>
At October 29, 1998, the Company had (Pounds)78 outstanding and due under a
line of credit with NatWest Bank. The line of credit provides for borrowings of
up to (Pounds)131. The line of credit converts into term notes with various
payment terms, bearing interest at a minimum rate of 6.5% per annum.
Scheduled future maturities of long-term debt for the next four years are as
follows:
<TABLE>
<CAPTION>
October 29,
-----------
<S> <C>
1999......................................................... (Pounds)45
2000......................................................... 25
2001......................................................... 24
2002......................................................... 3
----------
Total........................................................ (Pounds)97
==========
</TABLE>
NOTE 4: COMMITMENTS
At October 29, 1998, the Company had the following:
Future minimum lease payments and contractual payments under capital leases
and noncancelable purchase commitment, respectively, for the next five years:
<TABLE>
<CAPTION>
Capital Purchase
Leases Commitment
----------- -------------
October 29,
-----------
<S> <C> <C>
1999......................................... (Pounds)285 (Pounds) 326
2000......................................... 187 326
2001......................................... 62 326
2002......................................... 3 54
2003......................................... 7 --
----------- -------------
Less amount representing interest............ 544 (Pounds)1,032
----------- =============
Present value of future minimum lease
payments.................................... (65)
-----------
(Pounds)479
===========
</TABLE>
F-64
<PAGE>
U-NET LIMITED
NOTES TO FINANCIAL STATEMENTS
(All amounts in thousands GBP, except share data)
NOTE 5: STOCKHOLDERS' EQUITY
On December 1, 1997, the shareholders approved an increase in the number of
authorized common shares from 5,000 to 500,000 and a decrease in the par value
from (Pounds)1 to (Pounds).01. This allowed the Company to effect a 100-for-1
stock split previously authorized by the Board of Directors.
NOTE 6: INCOME TAXES
The provision for income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
For the period
For the year ended July from August 1,
31, 1998 to
------------------------ October 29,
1997 1998 1998
<S> <C> <C> <C>
Current:
U.K. federal--current.............. (Pounds) (3) (Pounds)-- (Pounds)--
U.K. federal--deferred............. (4) 5 (18)
----------- ----------- -----------
(Benefit from) provision for income
taxes............................. (Pounds) (7) (Pounds) 5 (Pounds)(18)
=========== =========== ===========
The provisions for income taxes differ from amounts computed at the statutory
rate as follows:
<CAPTION>
July 31,
------------------------ October 29,
1997 1998 1998
----------- ----------- --------------
<S> <C> <C> <C>
Income tax (benefit) provision at
federal statutory rate............ (Pounds)(26) (Pounds)1 (Pounds)(29)
Increase in taxes resulting from:
Non-deductible items............... 1 2 4
Other.............................. 18 2 7
----------- ----------- -----------
(Benefit) income tax provision..... (Pounds) (7) (Pounds)5 (Pounds)(18)
=========== =========== ===========
</TABLE>
Deferred tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
July 31,
------------------------ October 29,
1997 1998 1998
----------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards... (Pounds) 25 (Pounds) 80 (Pounds)91
Deferred tax liabilities:
Depreciation and other............. (40) (100) (93)
----------- ----------- ----------
Net deferred tax liabilities......... (Pounds)(15) (Pounds)(20) (Pounds)(2)
=========== =========== ==========
</TABLE>
NOTE 7: RELATED PARTY TRANSACTIONS
A stockholder of the Company is a director of U-Sci Limited which received
(Pounds)34, (Pounds)78 and (Pounds)15 from U-Net Limited in the form of
consultancy fees for services provided in the years ended July 31, 1997 and
1998, and the period ended October 29, 1998, respectively.
A stockholder of the Company is a director of Mulgrove Limited which received
(Pounds)8, (Pounds)12 and (Pounds)3 from U-Net Limited in the form of
consultancy fees for services provided in the years ended July 31, 1997 and
1998, and the period ended October 29, 1998, respectively.
F-65
<PAGE>
Report of Independent Accountants
April 9, 1999
To the Board of Directors and
Stockholders of Dialdata S.A., Internet Systems
In our opinion, the accompanying balance sheets and the related statements of
operations, changes in stockholders' equity, and of cash flows expressed in
U.S. dollars, present fairly, in all material respects, the financial position
of Dialdata S.A. Internet Systems at December 29, 1998 (date of acquisition)
and December 31, 1997 and the results of its operations and its cash flows for
the period from January 1, 1998 to December 29, 1998 and the year ended
December 31, 1997, in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards in Brazil which are substantially similar to generally accepted
auditing standards in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers
Auditores Independentes
CRC 2SP000160/O-5
Timothy Leonard
Contador CRC 1PA003866/T-7 "T" SP001641
F-66
<PAGE>
DIALDATA S.A. INTERNET SYSTEMS
BALANCE SHEETS
(In thousands of U.S. Dollars except share data)
<TABLE>
<CAPTION>
December 31, December 29,
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 81 $ 35
Accounts receivable................................ 115 158
Tax receivable..................................... 11 12
---- ----
Total current assets............................. 207 205
Property and equipment, net........................ 603 766
---- ----
Total assets..................................... $810 $971
==== ====
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 21 $ 65
Tax payable........................................ 66 51
Accrued employee benefits.......................... 35 39
---- ----
Total current liabilities........................ 122 155
---- ----
Stockholders' equity:
Common stock, no par value; 100,000 shares
Authorized; 11,000 and 69,010 issued and
outstanding, respectively......................... 11 564
Retained earnings.................................. 677 233
Accumulated other comprehensive income............. -- 19
---- ----
Total stockholders' equity....................... 688 816
---- ----
Total liabilities and stockholders' equity....... $810 $971
==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-67
<PAGE>
DIALDATA S.A. INTERNET SYSTEMS
STATEMENTS OF OPERATIONS
(In thousands of U.S. Dollars)
<TABLE>
<CAPTION>
For the period
For the year January 1,
ended 1998 to
December 31, December 29,
1997 1998
------------ --------------
<S> <C> <C>
Revenue............................................. $2,234 $3,008
Cost of revenue..................................... 340 694
------ ------
Gross profit........................................ 1,894 2,314
Operating expenses:
Selling, general and administrative............... 829 1,166
Depreciation...................................... 77 112
------ ------
Income from operations.............................. 988 1,036
Interest expense.................................... 87 66
Foreign currency gain............................... (2) --
------ ------
Net income before income taxes...................... 903 970
Income tax expense.................................. 194 274
------ ------
Net income.......................................... $ 709 $ 696
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-68
<PAGE>
DIALDATA S.A. INTERNET SYSTEMS
STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands of U.S. Dollars except share data)
<TABLE>
<CAPTION>
Accumulated
Other
Common Stock Retained Comprehensive
Shares Amount Earnings Income Total
------ ------ -------- ------------- ------
<S> <C> <C> <C> <C> <C>
Balance at January 31, 1996...... 11,000 $ 11 $ 371 $-- $ 382
Net income....................... -- -- 709 -- 709
Dividends........................ -- -- (403) -- (403)
------ ---- ----- ---- ------
Balance, December 31, 1997....... 11,000 11 677 -- 688
Issuance of common stock......... 58,010 553 -- -- 553
Net income....................... -- -- 696 -- 696
Foreign currency translation
adjustment...................... -- -- -- 19 19
Dividends........................ -- 1,140 1,140
------ ---- ----- ---- ------
Balance at December 29, 1998..... 69,010 $564 $ 233 $ 19 $ 816
====== ==== ===== ==== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-69
<PAGE>
DIALDATA S.A. INTERNET SYSTEMS
STATEMENT OF CASH FLOWS
(In thousands of US Dollars)
<TABLE>
<CAPTION>
For the period
For the year January 1,
ended 1998 to
December 31, December 29,
1997 1998
------------ --------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income........................................ $709 $ 696
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 77 112
Changes in current assets and liabilities:
Increase in accounts receivable............... (42) (54)
Increase in tax receivable.................... (6) (2)
Increase in accounts payable and accrued
employee benefits............................ 13 48
Decrease in taxes payable..................... (10) (3)
---- ------
Net cash provided by operating activities... 741 797
---- ------
Cash flows from investing activities:
Purchase of property and equipment, net......... (277) (258)
---- ------
Net cash used in investing activities......... (277) (258)
---- ------
Cash flows from financing activities:
Issuance of common stock........................ -- 553
Dividends....................................... (403) (1,140)
---- ------
Net cash used in financing activities......... (403) (587)
---- ------
Effect of exchange rates on cash.................. (1) 2
---- ------
Net increase (decrease) in cash and cash
equivalents...................................... 60 (46)
Cash and cash equivalents, beginning of period.... 21 81
---- ------
Cash and cash equivalents, end of period.......... $ 81 $ 35
==== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-70
<PAGE>
DIALDATA S.A. INTERNET SYSTEMS
NOTES TO FINANCIAL STATEMENTS
(In thousands of US dollars, except share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Operations
-------------------
Dial-Data Informatica e Assessoria Ltda. ("the Company") was formed on
February 1, 1993, to operate as an Internet service provider (ISP) in Brazil.
On December 29, 1998, 51% of the common stock was acquired by V-I-A Internet
Holdings Brasil Ltda. for total consideration of $5,996, and the name of the
Company changed to Dialdata S.A. Internet Systems.
At the same date, a further 30,990 newly authorized shares were subscribed by
V-I-A Internet Holdings Brasil Ltda. and will be paid-up in installments
totaling R$5,158 thousand (equivalent to US$3,750 on that date) during 1999.
Basis Of Presentation
---------------------
The Company maintains its accounting records in Brazilian reais in accordance
with generally accepted accounting principals (GAAP) in Brazil. These financial
statements have been prepared in U.S. dollars and in accordance with GAAP in
the United States of America for purposes of filing with the Securities and
Exchange Commission and do not represent the statutory financial statements of
the Company. The accompanying financial statements include the results of the
Company for the period ended December 29, 1998 and the year ended December 31,
1997.
For the year ended December 31, 1997 Brazil was a hyperinflationary economy,
defined as having cumulative inflation in excess of 100% for the prior three-
year period. In accordance with United States GAAP for companies operating in a
hyperinflationary economy, the functional currency of the company for purposes
of remeasuring the local currency under Financial Accounting Standards
Statement 52 (SFAS 52) was the U.S. dollar. Consequently, non-monetary assets
and liabilities and stockholders' equity were translated at historical exchange
rates, all other assets and liabilities being translated at the year-end
exchange rate. The statements of operations and cash flows, except for
depreciation, have been translated at the average monthly exchange rate.
As of January 1, 1998 Brazil was no longer considered to be a
hyperinflationary economy. Accordingly, as of and for the period ended December
29, 1998 the functional currency is the Brazilian real and the financial
statements have therefore been translated into U.S. dollars using the average
exchange rate for the period for the statements of operations and cash flows
and using the period-end rate for assets and liabilities. The adjustment at
January 1, 1998 to reflect the change in the functional currency and the
translation adjustment arising during the period are shown in accumulated other
comprehensive income.
Use Of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company to make estimates, judgements and
assumptions that affect the reported amounts of assets, liabilities, revenue
and expenses, together with amounts disclosed in the related notes to the
financial statements. Actual results could differ from the recorded estimates.
Fair Value Of Financial Instruments
-----------------------------------
Carrying amounts of certain of the Company's financial instruments, including
cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses and other liabilities approximate fair value due to their short
maturities.
F-71
<PAGE>
DIALDATA S.A. INTERNET SYSTEMS
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands of US dollars, except share data)
Cash And Cash Equivalents
-------------------------
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
Concentration Of Credit Risk
----------------------------
Financial instruments that potentially subject the Company to a concentration
of credit risk consist of cash, cash equivalents, short-term investments and
accounts receivable. The Company's accounts receivable are derived from revenue
earned from customers located in Brazil. The Company performs ongoing credit
evaluations of its customers' financial condition and requires no collateral
from its customers.
Property And Equipment
----------------------
Property and equipment is recorded at cost less accumulated depreciation,
which is provided on the straight-line method over the estimated useful lives
of the assets, generally five to ten years. Cost includes major expenditures
for improvements and replacements which extend useful lives or increase
capacity of the asset and interest costs associated with significant capital
additions. Expenditures for maintenance and repairs are expensed as incurred.
Leasehold improvements include costs associated with telecommunications
equipment, installations and building improvements.
Long-Lived Assets
-----------------
The Company periodically evaluates the carrying value of property and
equipment to be held and used when events and circumstances warrant such a
review. The carrying value of property and equipment is considered impaired
when the anticipated undiscounted cash flows from the asset is separately
identifiable and is less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair
value of the asset. Fair value is determined primarily using the anticipated
cash flows discounted at a rate commensurate with the risk involved. Losses on
assets to be disposed of are determined in a similar manner, except that fair
values are reduced for the cost to dispose.
Advertising Costs
-----------------
Costs related to advertising and promotion of services are charged to sales
and marketing expense as incurred. Advertising expenses for all periods were
not significant.
Income Taxes
------------
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income
Taxes". SFAS No. 109 is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences attributable to differences between the carrying amounts of assets
and liabilities for financial reporting purposes and their respective tax
bases, and for operating loss and tax credit carryforwards. In estimating
future tax consequences, SFAS No. 109 generally considers all expected future
events other than the enactment of changes in tax laws or rates.
Revenue Recognition
-------------------
Revenue from Internet and consulting services is recognized as the services
are provided. Revenue also includes network installation, maintenance and
consulting services. These services are provided on a time-and-
F-72
<PAGE>
DIALDATA S.A. INTERNET SYSTEMS
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands of US dollars, except share data)
material basis and revenue is recognized based upon time (at established rates)
and other direct costs as incurred.
Costs of Revenues
-----------------
Costs of access revenues primarily consists of telecommunication expenses
inherent in the network infrastructure, which are recognized on the accrual
basis.
Sources of Suppliers
--------------------
The Company relies on local telephone companies and other companies to
provide data communications. Although management feels alternative
telecommunication facilities could be found in a timely manner, any disruption
of these services could have an adverse effect on operating results.
Comprehensive Income
--------------------
The Company adopted the accounting treatment prescribed by SFAS No. 130,
"Comprehensive Income", in 1998. SFAS No. 130 establishes standards for
reporting and displaying comprehensive income and its components. Comprehensive
income consists of net income and foreign currency translation adjustments as
presented in the statement of operations and other comprehensive loss. The
adoption of SFAS No. 130 had no impact on total stockholders' equity or net
income.
Segment Reporting
-----------------
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," during 1998. SFAS No. 131 replaces the
"industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
allocating resources and assessing performance as the source of the Company's
reportable segments. SFAS No. 131 also requires disclosures about products and
services, geographic areas, and major customers. The adoption of SFAS No. 131
did not affect results of operations or financial position. The Company
operates in one segment, all within the country of Brazil.
Recent Accounting Pronouncements
--------------------------------
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use", which is required
to be adopted for fiscal years beginning after December 15, 1998. SOP 98-1
provides guidance on accounting for the costs of computer software developed or
obtained for internal use, determining whether computer software is for
internal use, and when costs incurred for internal-use computer software are
and are not capitalized. The adoption of SOP 98-1 is not expected to have a
material effect on the Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"). SFAS No. 133 establishes a new model for accounting for derivatives and
hedging activities and supersedes and amends a number of existing standards.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999, but
earlier application is permitted as of the beginning of any fiscal quarter
subsequent to June 15, 1998. Upon initial application, all derivatives are
required to be recognized in the statement of financial position as either
assets or liabilities and measured at fair value. In
F-73
<PAGE>
DIALDATA S.A. INTERNET SYSTEMS
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands of US dollars, except share data)
addition, all hedging relationships must be reassessed and documented pursuant
to the provisions of SFAS No. 133. Subsequent to the issuance of SFAS No. 133,
the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date
of FASB Statement No. 133" ("SFAS No. 137"), which defers the effective date of
SFAS No. 133 to periods beginning after June 15, 2000. The Company has not
committed or expects to commit to any derivative instrument transactions, and
thus does not anticipate that this pronouncement will have a significant effect
on its results.
2. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
December 31, December 29,
1997 1998
------------ ------------
<S> <C> <C>
Internet and computer equipment.................... $ 226 $ 504
Furniture and fixtures............................. 31 30
Software........................................... 339 348
Leasehold improvements............................. 80 84
Phone lines and trademarks......................... 93 62
----- ------
769 1,028
Accumulated depreciation........................... (166) (262)
----- ------
Property and equipment, net........................ $ 603 $ 766
===== ======
</TABLE>
3. STOCKHOLDERS' EQUITY
On December 29, 1998, the Company increased capital in cash and declared a
stock dividend to shareholders currently on record, thereby issuing 58,010
additional shares of common stock.
4. INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
For the period
For the year January 1,
ended 1998 to
December 31, December 29,
1997 1998
------------ --------------
<S> <C> <C>
Current taxes:
Income tax and social contribution expense.... $ 194 $ 274
Paid during the year/period................... (141) (247)
------ ------
Provision at the year/period.................. $ 53 $ 27
====== ======
The income tax and social contribution expense can be summarized as follows:
Gross revenue, tax basis........................ $2,407 $3,168
Basis of calculation (32% of gross revenue)..... $ 770 $1,014
Income tax and social contribution expense...... $ 194 $ 274
</TABLE>
F-74
<PAGE>
DIALDATA S.A. INTERNET SYSTEMS
NOTES TO FINANCIAL STATEMENTS
(In thousands of US dollars, except share data)
Brazilian tax law provides an alternative income tax and social contribution
computation method for small businesses that are wholly-owned by Brazilian
residents, referred to as the presumed profits method. The Company employed the
presumed profits method for calculating its income taxes and social
contribution and as a result there were no temporary differences that would
give rise to deferred tax assets or liabilities. Accordingly, as of December
31, 1997 and December 29, 1998, the Company had no deferred tax assets nor
deferred tax liabilities. Also as a result of this option, the effective tax
rate was 27% compared with a standard tax rate of 33%.
5. SUBSEQUENT EVENTS
Devaluation of local currency
On January 15, 1999, the Brazilian Central Bank decided to abandon the
foreign exchange rate controls which were then in force. As a result of this
decision and of the market reaction, the Brazilian real was immediately and
significantly devalued, having traded stable since then. On April 9, 1999 the
closing exchange rate was US$1 : R$1.71, equivalent to an accumulated
devaluation of approximately 40% from December 31, 1998.
Given that no prediction can be made of the future trend of the exchange
rate, of its effects on suppliers' prices and of the market's capacity to
absorb price increases, it is not possible to estimate the final effects of
these events on the company's future operations. From an immediate financial
perspective, the real devaluation had no significant impact on the Company's
cash flows, as no major U.S. dollar or other foreign currency denominated
balances existed at the devaluation date.
F-75
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
I-Way Limited
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity (deficit) and of
cash flows expressed in British Pounds, present fairly, in all material
respects, the financial position of I-Way Limited as of April 30, 1997 and
1998, and December 31, 1998, and the results of its operations and its cash
flows for each of the two years in the period ended April 30, 1998, and the
period from May 1, 1998 to December 31, 1998, in conformity with generally
accepted accounting principles in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards in the United Kingdom which are
substantially similar to generally accepted auditing standards in the United
States of America which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers
Reading, United Kingdom
November 19, 1999
F-76
<PAGE>
I-WAY LIMITED
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands of GBP, except share data)
<TABLE>
<CAPTION>
April 30,
------------------------
December 31,
1997 1998 1998 June 30, 1999
----------- ----------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.................. (Pounds)105 (Pounds) 3 (Pounds) 297 (Pounds) 425
Restricted cash....... -- -- 316 --
Accounts receivable,
net of allowance of
(Pounds)35,(Pounds)27,
(Pounds)33 and
(Pounds)33
(unaudited),
respectively......... 214 237 235 771
Prepaid expenses and
other current
assets............... 105 123 105 122
----------- ----------- ------------- -------------
Total current
assets............. 424 363 953 1,318
Property and
equipment, net....... 127 185 392 958
Goodwill, net......... -- 79 57 41
----------- ----------- ------------- -------------
Total assets........ (Pounds)551 (Pounds)627 (Pounds)1,402 (Pounds)2,317
----------- ----------- ------------- -------------
LIABILITIES AND
STOCKHOLDERS' (DEFICIT)
EQUITY
Current liabilities:
Accounts payable and
accrued liabilities.. (Pounds)231 (Pounds)257 (Pounds) 489 (Pounds) 786
Deferred revenue...... 274 456 574 931
Value Added Tax and
other taxes.......... 58 61 33 74
Capital lease
obligations.......... -- 81 66 35
Short-term debt....... -- 85 -- --
----------- ----------- ------------- -------------
Total current
liabilities........ 563 940 1,162 1,826
Long-term loan from
Parent............... -- -- -- 330
----------- ----------- ------------- -------------
Total liabilities... 563 940 1,162 2,156
Commitments
STOCKHOLDERS' (DEFICIT)
EQUITY:
Convertible preferred
stock, par value
(Pounds).001,
authorized 50,000
shares, 0, 0, 26,789
and 26,789
(unaudited) issued
and outstanding,
respectively......... -- -- 27 27
Preferred stock, par
value (Pounds).001,
authorized 100,000,
100,000, 0,
(unaudited) shares,
50,000, 50,000, 0 and
0 (unaudited) issued
and outstanding,
respectively......... 50 50 -- --
Common stock, par
value (Pounds).001;
authorized 100,000,
100,000, 150,000 and
150,000 (unaudited)
shares, issued and
outstanding 45,000,
47,725, 47,725, and
47,725 (unaudited)
shares,
respectively......... 45 48 48 48
Additional paid-in
capital.............. -- 19 1,310 1,310
Accumulated deficit... (107) (430) (1,145) (1,224)
----------- ----------- ------------- -------------
Total stockholders'
(deficit) equity... (12) (313) 240 161
----------- ----------- ------------- -------------
Total liabilities
and stockholders'
(deficit) equity... (Pounds)551 (Pounds)627 (Pounds)1,402 (Pounds)2,317
=========== =========== ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-77
<PAGE>
I-WAY LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands of GBP)
<TABLE>
<CAPTION>
Year ended Period from Six months ended
---------------------------- May 1 to ---------------------------
April 30 April 30 December 31 June 30 June 30
1997 1998 1998 1998 1999
------------- ------------- ------------- ------------ -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue................. (Pounds)1,010 (Pounds)1,355 (Pounds)1,015 (Pounds) 762 (Pounds)1,490
Cost of revenue......... 386 570 472 350 504
------------- ------------- ------------- ------------ -------------
Gross profit............ 624 785 543 412 986
Selling, general and
administrative
expenses............... 595 972 1,148 492 862
Depreciation and
amortization........... 64 132 75 140 192
------------- ------------- ------------- ------------ -------------
659 1,104 1,223 632 1,054
Loss from operations.... (35) (319) (680) (220) (68)
Interest expense........ (2) (4) (35) (5) (11)
------------- ------------- ------------- ------------ -------------
Net loss................ (Pounds) (37) (Pounds) (323) (Pounds) (715) (Pounds)(225) (Pounds) (79)
============= ============= ============= ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-78
<PAGE>
I-WAY LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands of GBP)
<TABLE>
<CAPTION>
Period from
Year ended May 1, 1998 Six months ended
-------------------------- to --------------------------
April 30, April 30, December 31, June 30, June 30,
1997 1998 1998 1998 1999
----------- ------------- ------------ ------------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss................ (Pounds)(37) (Pounds) (323) (Pounds)(715) (Pounds) (225) (Pounds)(79)
----------- ------------- ------------ ------------- -----------
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities.
Depreciation and
amortization......... 64 132 75 140 192
Provision for doubtful
accounts............. 35 27 33 -- 33
Changes in assets and
liabilities:
Accounts receivable... (174) (43) (30) (18) (569)
Prepaid expenses and
other current
assets............... (103) (18) 19 90 (17)
Accounts payable and
other accrued
liabilities.......... 83 30 235 (97) 297
Deferred revenue...... 274 130 126 145 357
Value Added Tax and
other taxes.......... 58 3 (28) (13) 41
----------- ------------- ------------ ------------- -----------
Net cash (used in)
provided by operating
activities............. 200 (62) (285) 22 255
----------- ------------- ------------ ------------- -----------
Cash flows from
investing activities:
Acquisition of property
and equipment.......... (130) (143) (261) (103) (742)
----------- ------------- ------------ ------------- -----------
Net cash used in
investing activities... (130) (143) (261) (103) (742)
----------- ------------- ------------ ------------- -----------
Cash flows from
financing activities:
Capital lease
repayments........... -- (4) (27) (77) (31)
Restricted cash....... -- -- (316) -- 316
Bank overdraft........ -- 57 (57) -- --
Proceeds from issuance
of (payment of)
stockholder loans.... -- 28 (28) -- 330
Proceeds from issuance
of common stock...... -- 22 -- 2 --
Proceeds from issuance
of preferred stock... -- -- 1,318 1,318 --
Redemption of
preferred stock...... -- -- (50) (50) --
----------- ------------- ------------ ------------- -----------
Net cash provided by
financing activities... -- 103 840 1,193 615
----------- ------------- ------------ ------------- -----------
Net increase (decrease)
in cash................ 70 (102) 294 1,112 128
Cash, beginning of
period................. 35 105 3 41 297
----------- ------------- ------------ ------------- -----------
Cash, end of period..... (Pounds)105 (Pounds) 3 (Pounds) 297 (Pounds)1,153 (Pounds)425
=========== ============= ============ ============= ===========
</TABLE>
Supplemental disclosure of cash flow information:
The Company paid approximately (Pounds)2 and (Pounds)6 for interest during the
years ended April 30, 1997 and 1998, respectively, and (Pounds)35 for the
period ended Deecember 31, 1998. For the unaudited periods from January 1, 1998
to June 30, 1998 and January 31, 1999 to June 30, 1999 the amounts paid were
(Pounds)5 and (Pounds)11 respectively (unaudited).
The accompanying notes are an integral part of these financial statements.
F-79
<PAGE>
I-WAY LIMITED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(All amounts in thousands of GBP)
<TABLE>
<CAPTION>
Common stock Preferred Stock Additional
----------------- ----------------- Paid-in Accumulated Total Stockholders'
Shares Amount Shares Amount Capital Deficit Equity (Deficit)
------ ---------- ------ ---------- -------------- --------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 1, 1996.. 45 (Pounds)45 50 (Pounds)50 (Pounds) -- (Pounds) (70) (Pounds) 25
Net loss................ -- -- -- -- -- (37) (37)
--- ---------- --- ---------- -------------- --------------- -----------
Balance at April 30,
1997................... 45 45 50 50 -- (107) (12)
Net loss................ -- -- -- -- -- (323) (323)
Issuance of common
stock.................. 3 3 -- -- 19 -- 22
--- ---------- --- ---------- -------------- --------------- -----------
Balance at April 30,
1998................... 48 48 50 50 19 (430) (313)
Issuance of convertible
preferred stock........ -- -- 27 27 1,291 -- 1,318
Redemption of preferred
stock.................. -- -- (50) (50) -- -- (50)
Net loss................ -- -- -- -- -- (715) (715)
--- ---------- --- ---------- -------------- --------------- -----------
Balance at December 31,
1998................... 48 48 27 27 1,310 (1,145) 240
Net loss (unaudited).... -- -- -- -- -- (79) (79)
--- ---------- --- ---------- -------------- --------------- -----------
Balance at June 30, 1999
(unaudited)............ 48 (Pounds)48 27 (Pounds)27 (Pounds) 1,310 (Pounds) (1,224) (Pounds)161
--- ========== === ========== ============== =============== ===========
</TABLE>
The accompaanying notes are an integral part of these financial statements.
F-80
<PAGE>
I-WAY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands of GBP, except share and per share data)
NOTE 1: SUMMARY OF SIGNIFICANT POLICIES
Business Operations
I-Way Limited ("the Company") was formed on March 6, 1995 and commenced
operation as an internet service provider (ISP) on May 1, 1995 in Reading,
United Kingdom. On June 18, 1998, 36% of the Company's outstanding stock was
acquired by VIA NET.WORKS, Inc., a company incorporated in the USA for
approximately (Pounds)1,347. On August 5, 1999 VIA NET.WORKS, Inc. acquired the
remainder of the Company's outstanding stock for (Pounds)8,078.
Basis of Presentation
The Company maintains its accounting records in accordance with generally
accepted accounting principles (GAAP) in the United Kingdom. These financial
statements have been prepared in accordance with GAAP in the United States for
purposes of filing with the Securities and Exchange Commission and do not
represent the statutory financial statements of the Company. The accompanying
consolidated financial statements include the results of the Company for the
year ended April 30, 1997 and 1998 and for the periods from May 1, 1998 to
December 31, 1998, January 1, 1998 to June 30, 1998 (unaudited) and January 1,
1999 to June 30, 1999 (unaudited).
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary, I-way Oxford Limited. All
significant intercompany accounts and transactions have been eliminated on
consolidation.
Interim Financial Information (Unaudited)
Interim financial information for the six months ended June 30, 1998 and 1999
included herein is unaudited. However, the Company believes that interim
financial information includes all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the results of
interim periods. The results of operations for the six months ended June 30,
1999 are not necessarily indicative of the results to be expected for the year
ending December 31, 1999.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company to make estimates, judgements and
assumptions that affect the reported amounts of assets, liabilities, revenue
and expenses, together with amounts disclosed in the related notes to the
financial statements. Actual results could differ from the recorded estimates.
Fair Value of Financial Instruments
Carrying amounts of certain of the Company's financial instruments, including
cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses and other liabilities approximate fair value due to their short
maturities. Based upon borrowing rates currently available to the Company for
loans with similar terms, the carrying value of debt and capital lease
obligations approximate their fair value.
F-81
<PAGE>
I-WAY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All amounts in thousands of GBP, except share and per share data)
Cash and Cash Equivalents
The Company maintains its cash accounts at a major financial institution and
has not experienced any losses on its cash deposits as of December 31, 1998.
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration
of credit risk consist of cash, cash equivalents, short-term investments and
accounts receivable. The Company's accounts receivable are derived from revenue
earned from customers located in the United Kingdom. The Company performs
ongoing credit evaluations of its customers' financial condition and,
generally, requires no collateral from its customers. The Company maintains an
allowance for doubtful accounts receivable based upon the expected
collectibility of accounts receivable.
At April 30, 1997 one customer represented 19% of accounts receivables.
During the year ended April 30, 1998 one customer represented 11% of the
Company's consolidated revenues.
Property and Equipment
Property and equipment is recorded at cost less accumulated depreciation,
which is provided on the straight-line method over the estimated useful lives
of the assets, generally a three-year period. Cost includes major expenditures
for improvements and replacements, which extend usefulness or increase capacity
of the asset and interest costs associated with significant capital additions.
Expenditures for maintenance and repairs are expensed as incurred. When
property or equipment is retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the appropriate accounts, with the
resulting gain or loss included in current operations.
The costs of internal use software are expensed as incurred.
Intangible Assets
Intangible assets represent the goodwill arising from the purchase of I-Way
Oxford Limited in October 1997. This balance represents the difference between
the fair value of the assets acquired and the fair value of consideration given
on the date of purchase. Intangible assets are recorded at cost less
accumulated amortization over the estimated useful economic lives of the
assets, generally a three-year period.
Long-Lived Assets
The Company periodically evaluates the carrying value of property and
equipment to be held and used when events and circumstances warrant such a
review. The carrying value of property and equipment is considered impaired
when the anticipated undiscounted cash flows from the asset is separately
identifiable and is less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair
value of the asset. Fair value is determined primarily using the anticipated
cash flows discounted at a rate commensurate with the risk involved. Losses on
assets to be disposed of are determined in a similar manner, except that fair
values are reduced for the cost to dispose.
F-82
<PAGE>
I-WAY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All amounts in thousands of GBP, except share and per share data)
Advertising Costs
Costs related to advertising and promotion of services is charged to
operating expense as incurred. Advertising expense was (Pounds)42, (Pounds)43,
and (Pounds)71 for the years ended April 30, 1997 and 1998, and the period from
May 1, 1998 to December 31, 1998, respectively.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
No. 109"). SFAS No. 109 is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences attributable to differences between the carrying amounts of assets
and liabilities for financial reporting purposes and their respective tax
bases, and for operating loss and tax credit carryforwards. In estimating
future tax consequences, SFAS No. 109 generally considers all expected future
events other than the enactment of changes in tax laws or rates.
The Company provides a valuation allowance against net deferred tax assets
if, based upon available evidence, it is more likely than not that some or all
of the deferred tax assets may not be realized.
Revenue Recognition
Internet services are recognized as the services are provided. The Company
records deferred revenue for amounts billed and/or collected in advance.
Revenue from consulting services is recognized as the services are provided.
Revenue from third party hardware and software re-sales is recognized upon
shipment of the respective products. Through December 31, 1998, such sales have
been immaterial. Other revenues include network installation and maintenance.
These services are provided on a time-and-material basis and revenue is
recognized based upon time (at established rates) and other direct costs as the
services are provided.
Costs of Revenues
Costs of revenues consist primarily of telecommunication expenses inherent in
the network infrastructure. Costs of revenues also includes license fees for
software, third-party Web designers, product costs, and contractor fees for
operation and support services.
Sources of Suppliers
The Company relies on local telephone companies and other companies to
provide data communications. Although management feels alternative
telecommunication facilities could be found in a timely manner, any disruption
of these services could have an adverse effect on operating results.
Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"), in 1998. SFAS No. 130
establishes standards for reporting and displaying comprehensive income and its
components. Comprehensive income consists of net income as presented in the
consolidated statements of income. The adoption of SFAS No. 130 had no impact
on the Company's financial statements as a result of the Company not having any
comprehensive income other than net loss during the periods presented.
F-83
<PAGE>
I-WAY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All amounts in thousands of GBP, except share and per share data)
Segment Reporting
The Company adopted Statement of Financial Accounting Standard No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
No. 131"), during 1998. SFAS No. 131 replaces the "industry segment" approach
with the "management" approach. The management approach designates the internal
organization that is used by management for allocating resources and assessing
performance as the source of the Company's reportable segments. SFAS No. 131
also requires disclosures about products and services, geographic areas, and
major customers. The adoption of SFAS No. 131 did not affect results of
operations or financial position. The Company operates in one segment, all
within the United Kingdom.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") No. 98-1, "Software for Internal Use," which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. SOP No. 98-1 is effective for financial statements
for fiscal years beginning after December 15, 1998. The early adoption of SOP
98-1 did not have a material effect on the Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"). SFAS No. 133 establishes a new model for accounting for derivatives and
hedging activities and supersedes and amends a number of existing standards.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999, but
earlier application is permitted as of the beginning of any fiscal quarter
subsequent to June 15, 1998. Upon initial application, all derivatives are
required to be recognized in the statement of financial position as either
assets or liabilities and measured at fair value. In addition, all hedging
relationships must be reassessed and documented pursuant to the provisions of
SFAS No. 133. Subsequent to the issuance of SFAS No. 133, the Financial
Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133" ("SFAS No. 137"), which defers the effective date of SFAS
No. 133 to periods beginning after June 15, 2000. The Company has not committed
or expects to commit to any derivative instrument transactions, and thus does
not anticipate that this pronouncement will have a significant effect on its
results.
NOTE 2: PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following:
<TABLE>
<CAPTION>
April 30,
------------------------- December 31,
1997 1998 1998
----------- ------------ ------------
<S> <C> <C> <C>
Machinery and equipment............. (Pounds)169 (Pounds) 326 (Pounds) 569
Furniture and fixtures.............. 22 36 54
----------- ------------ ------------
191 362 623
Accumulated depreciation............ (64) (177) (231)
----------- ------------ ------------
(Pounds)127 (Pounds) 185 (Pounds) 392
=========== ============ ============
</TABLE>
Depreciation expense for the years ended April 30, 1997 and 1998, and the
period from May 1, 1998 through December 31, 1998 was (Pounds)64, (Pounds)113
and (Pounds)53, respectively.
F-84
<PAGE>
I-WAY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All amounts in thousands of GBP, except share and per share data)
NOTE 3: COMMITMENTS
Operating Leases
The Company leases office space and equipment under non-cancelable operating
leases with various expiration dates through December 2001. Rent expenses for
the years ended April 30, 1997 and 1998, and the period ended December 31, 1998
were (Pounds)30, (Pounds)68, and (Pounds)47, respectively. The terms of the
facility lease provide for rental payments on a graduated scale. The Company
recognizes rent expense on a straight-line basis over the lease period, and has
accrued for rent expense incurred but not paid. Future minimum lease payments
under non-cancelable operating leases, including lease commitments entered into
subsequent to December 31, 1998 under non-cancelable operating leases are as
follows:
<TABLE>
<S> <C>
1999............................................................. (Pounds) 59
2000............................................................. 86
2001............................................................. 75
-----------
Total............................................................ (Pounds)220
===========
</TABLE>
Capital Leases
At April 30, and December 31, 1998, the Company had (Pounds)81 and (Pounds)66
outstanding and due under capital lease agreements with Lombard Network
Services. The assets held under these capital lease agreements comprise
machinery and equipment, and fixtures and fittings. Future minimum lease
payments under non-cancelable capital leases, including lease commitments
entered into subsequent to December 31, 1998 were settled during 1999. These
amounted to payments of (Pounds)68, including interest of (Pounds)2.
NOTE 4: BANK OVERDRAFT
Short-term debt consists of bank overdrafts at April 30, 1998. The bank
overdrafts accrued interest at a rate of 2.5% per annum above the bank's base
rate and are repayable on demand.
Interest expense for the year ended April 30, 1998 was (Pounds)2.
NOTE 5: STOCKHOLDERS' EQUITY
At April 30, 1998, and 1997, there were 100,000 6% preferred stock shares
authorized, of which 50,000 shares were issued and outstanding.
In the period ended December 31, 1998 the Company redeemed 50,000 shares of
6% preferred stock, and the 100,000 6% preferred stock shares authorized were
cancelled. On the same date two new classes of preferred stock shares were
created being 26,789 Series A convertible preferred shares of (Pounds)1 each
and 23,211 Series B convertible preferred shares of (Pounds)1 each. 26,789 of
the Series A shares were then issued and remain outstanding.
The 6% preferred stock shares were entitled to a 6% dividend, payable in
arrears and only when the company has available distributable profits. Rights
to unpaid dividends were waived when these shares were redeemed.
The preferred Series A and B convertible shares participate in all dividends
payable to holders of the ordinary shares as if all preferred shares had been
converted into ordinary shares. Any holders of preferred
F-85
<PAGE>
I-WAY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands of GBP, except share and per share data)
shares may convert all or any portion of the preferred shares into a number of
fully paid ordinary shares. On winding up the holders have priority before all
other classes of shares to receive repayment of capital plus any arrears of
dividend. The holders have voting rights at general meetings, one vote per
share.
NOTE 6: INCOME TAXES
There were no provisions for income taxes in any of the periods.
The benefits from income taxes differ from amounts computed at the statutory
rate as follows:
<TABLE>
<CAPTION>
For the year ended Period from
April 30, May, 1 to
------------------------- December 31,
1997 1998 1998
----------- ------------ ------------
<S> <C> <C> <C>
Income tax benefit at federal
statutory rate....................... (Pounds) (8) (Pounds) (76) (Pounds)--
Permanent differences................. 1 4 --
Deferred tax movement not recognized.. 6 59 --
Tax effect of U.S. GAAP adjustments... -- 13 --
Deferred tax movement in tax rate..... 1 -- --
----------- ------------ -----------
Income tax provision (benefit)........ (Pounds)-- (Pounds) -- (Pounds)--
=========== ============ ===========
Deferred tax assets (liabilities) consist of the following:
<CAPTION>
April 30,
------------------------- December 31,
1997 1998 1998
----------- ------------ ------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.... (Pounds) 20 (Pounds) 81 (Pounds)140
Accruals and reserves............... -- 1 --
Deferred tax liabilities:
Depreciation and other.............. -- (3) (1)
----------- ------------ -----------
Net deferred tax assets............... 20 79 139
Valuation allowance................... (20) (79) (139)
----------- ------------ -----------
(Pounds)-- (Pounds) -- (Pounds)--
=========== ============ ===========
</TABLE>
The Company has established a valuation allowance for net deferred tax assets
of its operations since realization of these benefits cannot be reasonably
assured. While the need for the valuation allowance is subject to periodic
review, if the allowance is reduced, the tax benefits of the carryforwards will
be recorded in future operations as a reduction of the Company's income tax
expense. No cash was paid for income taxes in the years ended April 30, 1997
and 1998, or the period ended December 31, 1998.
Net operating losses for tax purposes can be carried forward indefinitely for
offset against future taxable income.
NOTE 7: RELATED PARTY TRANSACTIONS
At April 30, 1998 the Company had loans outstanding and repayable to three
stockholders in the amounts of (Pounds)8, (Pounds)10 and (Pounds)10,
respectively. These loans were non-interest bearing and were repaid before
December 31, 1998.
At June 30, 1999 the Company had a loan outstanding from VIA NET.WORKS, Inc.
of (Pounds)330. The loan was interest bearing at a rate equal to the base rate
of the National Westminster Bank PLC plus three quarters of one percent.
Repayments of this loan are by twelve quarterly repayments commencing
June 2000.
F-86
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of bART Holding B.V.,
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders'deficit and of cash flows
expressed in Dutch guilders present fairly, in all material respects, the
financial position of bART Holding B.V. and its subsidiaries at December 31,
1998, and the results of their operations and their cash flows for the year
then ended in conformity with generally accepted accounting principles in the
United States of America. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards in the
Netherlands which are substantially similar to generally accepted auditing
standards in the United States of America which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers N.V.
Rotterdam, the Netherlands
November 17, 1999
F-87
<PAGE>
bART HOLDING B.V.
CONSOLIDATED BALANCE SHEET
(In thousands of NLG, except share data and per share data)
<TABLE>
<CAPTION>
December 31,
Note 1998
------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash..................................................... 1 NLG 26
Accounts receivable, net of allowance of doubtful
accounts of NLG 327..................................... 1 642
Prepaid expenses......................................... 85
---------
Total current assets................................... 753
Property and equipment, net.............................. 1,2 803
Intangible assets, net................................... 3 57
---------
Total assets........................................... NLG 1,613
=========
Current liabilities:
Short term borrowings.................................... 5 NLG 484
Accounts payable and accrued liabilities................. 4 2,233
Related party payables................................... 1,7 80
Deferred Revenue......................................... 1 1,737
Capital Lease Obligations................................ 1,2, 5 177
---------
Total current liabilities.............................. 4,711
Long-term debt............................................. 6 1,032
Related party loans........................................ 1, 7 500
---------
Total liabilities...................................... 6,243
---------
Commitments and contingencies.............................. 12
Stockholders' deficit:
Common stock, 100,000 shares authorized, 75,000 issued
and outstanding, par value of NLG 10 per share.......... 10 NLG 750
Additional paid-in capital............................... 10 3,990
Accumulated deficit...................................... (9,370)
---------
Total stockholders' deficit............................ (4,630)
---------
Total liabilities and stockholders' deficit............ NLG 1,613
=========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-88
<PAGE>
bART HOLDING B.V.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands of NLG)
<TABLE>
<CAPTION>
Year ended
Note December 31, 1998
---- -----------------
<S> <C> <C>
Revenue.................................................. NLG 5,726
Costs of revenue......................................... 1,697
---------
Gross margin............................................. 4,029
---------
Operating expenses:
Selling, general and administrative.................... 4,329
Write-off of customer lists............................ 86
Depreciation and amortization.......................... 945
---------
Total operating expenses............................... 5,360
Interest expense....................................... 175
---------
Total expenses and other income...................... 5,535
---------
Loss before extraordinary items.......................... (1,506)
Gain on restructuring of trade payables................ 9 875
---------
Net loss................................................. NLG (631)
=========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-89
<PAGE>
bART HOLDING B.V.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(In thousands of NLG, except share data and per share data )
<TABLE>
<CAPTION>
Shares Total
------------- Additional Accumu- Stock-
Par Paid-in lated Holders'
Number value Capital Deficit Deficit
------ ------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1998..... 75,000 NLG750 NLG3,384 NLG(8,739) NLG(4,605)
Net loss....................... -- -- (631) (631)
Capital contributions from
stockholders.................. -- 606 -- 606
------ ------ -------- --------- ---------
Balance at December 31, 1998... 75,000 NLG750 NLG3,990 NLG(9,370) NLG(4,630)
====== ====== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-90
<PAGE>
bART HOLDING B.V.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands of NLG)
<TABLE>
<CAPTION>
Year ended
December 31, 1998
-----------------
<S> <C>
Cash flows from operating activities:
Net loss................................................... NLG(1,331)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................ 945
Write-off of customer lists.............................. 86
Provision for doubtful accounts.......................... 459
Decrease (increase) in assets:
Accounts receivable...................................... (516)
Prepaid expenses......................................... 197
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities................. (2,215)
Deferred revenue......................................... 520
---------
Total adjustments...................................... (524)
---------
Net cash (used in)/provided by operating activities.......... NLG(1,855)
---------
Cash flows from investing activities:
Acquisitions of property and equipment..................... (260)
Purchase of customer lists................................. (86)
---------
Net cash used in investing activities........................ NLG (346)
---------
Cash flows from financing activities:
Capital contributions from stockholders.................... 606
Proceeds from borrowings................................... 569
Payments on capital leases................................. (228)
---------
Net cash provided by financing activities.................... NLG 947
---------
Net (decrease)/increase in cash.............................. (1,254)
Cash at beginning of period................................ 1,280
---------
Cash at end of period........................................ NLG 26
=========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-91
<PAGE>
bART HOLDING B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of NLG, except share data and per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operation
bART Holding B.V. ("the Company", "bART"), formerly Anjantus Altissima was
incorporated on August 26, 1996 to operate as an Internet service provider
("ISP").
On March 25, 1999, the Company was acquired by VIA NET.WORKS, Inc. for
NLG 13,450.
At December 31, 1998, bART Holding B.V. is the parent company of the wholly
owned subsidiaries: Arameta B.V., Xenovic B.V., bART Noord Nederland B.V., bART
Midden Nederland B.V., and bART Den Haag B.V.("bART Internet Services").
Basis of Presentation
These financial statements have been prepared in accordance with generally
accepted accounting principles in the United States of America for purposes of
inclusion into the filing of VIA NET.WORKS, Inc. with the Securities and
Exchange Commission and do not represent the statutory financial statements of
the Company. The accompanying financial statements include the results of the
Company for the year ended December 31, 1998.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its majority-owned and controlled subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates, judgements and assumptions that affect the reported amounts of
assets and liabilities, revenues and expenses, together with the amounts
disclosed in the related notes to the financial statements. Actual results
could differ from these estimates.
Fair Value of Financial Instruments
Carrying amounts of certain of the Company's financial instruments, including
cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses and other liabilities approximate fair value due to their short
maturities. Based upon borrowing rates currently available to the Company for
loans with similar terms, the carrying value of debt and capital lease
obligations approximate their fair value.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentration of credit risk consist primarily of cash, cash equivalents, and
accounts receivable. Accounts receivable are typically unsecured and are
derived from revenues earned from customers located in the Netherlands. The
Company
F-92
<PAGE>
bART HOLDING B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of NLG, except share data and per share data)
performs ongoing credit evaluations of its customers' financial condition and,
generally, requires no collateral from its customers. The Company maintains an
allowance for doubtful accounts receivable based upon the expected
collectibility of accounts receivable. At December 31, 1998, no one customer
accounted for 10% or more of the accounts receivable balance.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation,
which is recorded on the straight-line method over the estimated useful lives
of the assets, generally three to five years.
Costs capitalized include major expenditures for improvements which extend
useful lives or increase capacity of the asset and interest costs associated
with significant capital additions. Expenditures for maintenance and repairs
are expensed as incurred. Leasehold improvements include costs associated with
telecommunications equipment installations and building improvements.
Gains or losses on the disposal of property and equipment are included in
income and the related costs and accumulated depreciation are removed from the
accounts.
The Company finances part of its data communications equipment and other
fixed assets under capital lease agreements. The assets and liabilities under
capital leases are recorded at the lesser of the present value of aggregate
future minimum lease payments, including estimated bargain purchase options, or
the fair value of the asset under lease. Assets under these capital leases are
depreciated over the terms of the related leases.
Long-Lived Assets
The Company periodically evaluates the carrying value of property and
equipment to be held and used when events and circumstances warrant such a
review. The carrying value of property and equipment is considered impaired
when the anticipated undiscounted cash flows from the asset is separately
identifiable and is less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair
value of the asset. Fair value is determined primarily using the anticipated
cash flows discounted at a rate commensurate with the risk involved. Losses on
assets to be disposed of are determined in a similar manner, except that fair
values are reduced for the cost to dispose.
Income Taxes
The Company accounts for income taxes under SFAS No. 109, "Accounting for
Income Taxes". SFAS 109 is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences attributable to differences between carrying amounts of assets and
liabilities for financial reporting purposes and their respective tax bases,
and for operating loss and tax credit carry forwards. Valuation allowances are
established on deferred tax assets when management estimates that it is more
likely than not that the related benefit will not be realised.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with the
provisions of Accounting Principles Board (APB) No. 25, "Accounting for Stock
Issued to Employees" and complies with the disclosure provisions of Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation.". Under APB 25, compensation cost is recognised over the vesting
period based on the differences if any, on the date of the grant between the
fair value of the Company's stock and the exercise price.
F-93
<PAGE>
bART HOLDING B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of NLG, except share data and per share data)
Revenue Recognition
Internet services are recognised as the services are provided. The Company
records deferred revenue for amounts billed in advance of the service that is
provided.
The Company provides consulting services. Revenue from these services is
recognized as the services are provided.
Costs of Revenues
Costs of access revenues primarily consist of telecommunication expenses
inherent in the network infrastructure. Costs of access revenues also include
fees paid for lease of the network infrastructure, as well as license fees for
Web browser software based on a per-user charge, other license fees paid to
third-party software vendors, product costs, and contractor fees for operation
and support services. Discounts received are set against the related expenses.
Sources of Suppliers
The Company relies on local telephone companies and other companies to
provide data communications. Although management feels alternative
telecommunications facilities could be found in a timely manner, any disruption
of these services could have an adverse effect on operating results.
Recently Issued Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued a Statement of Position ("SOP") 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use, and SOP 98-5,
Reporting on the Costs of Start-Up Activities, both of which are required to be
adopted for fiscal years beginning under December 15, 1998. SOP 98-1 provides
guidance on accounting for the costs of computer software developed or obtained
for internal use, determining whether computer software is for internal use,
and when costs incurred for internal-use computer software are and are not
capitalised. SOP 98-5 requires costs of start-up activities and organisation
costs to be expensed as incurred. The adoption of SOP 98-1 and SOP 98-5 would
not have a material effect on the Company's consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"). SFAS No. 133 establishes a new model for accounting for derivatives and
hedging activities and supersedes and amends a number of existing standards.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999, but
earlier application is permitted as of the beginning of any fiscal quarter
subsequent to June 15, 1998. Upon initial application, all derivatives are
required to be recognized in the statement of financial position as either
assets or liabilities and measured at fair value. In addition, all hedging
relationships must be reassessed and documented pursuant to the provisions of
SFAS No. 133. Subsequent to the issuance of SFAS No. 133, the Financial
Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133" ("SFAS No. 137"), which defers the effective date of SFAS
No. 133 to periods beginning after June 15, 2000. The Company has not committed
or expects to commit to any derivative instrument transactions, and thus does
not anticipate that this pronouncement will have a significant effect on its
results.
Segment Reporting
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" during 1998. SFAS No. 131 replaces the
"industry segment" approach with the "management"
F-94
<PAGE>
bART HOLDING B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of NLG, except share data and per share data)
approach. The management approach designates the internal organisation that is
used by management for allocating resources and assessing performance as the
source of the Company's reportable segments. SFAS No. 131 also requires
disclosure about products and services, geographic areas, and major customers.
The adoption of SFAS No. 131 did not affect results of operations or financial
position. The Company operates in one segment, all within the country of the
Netherlands.
2. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 consists of the following:
<TABLE>
<CAPTION>
1998
---------
<S> <C>
Computer equipment, including assets held under capital lease... NLG 1,991
Furniture and fixtures.......................................... 250
---------
2,241
Accumulated depreciation........................................ (1,438)
---------
Total........................................................... NLG 803
=========
</TABLE>
As of December 31, 1998, the Company held NLG 745 of equipment under capital
lease arrangements. The related accumulated depreciation was NLG 603.
Depreciation expense for the year ended December 31, 1998 was NLG 254.
3. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at December 31, 1998 consist of the
following:
<TABLE>
<CAPTION>
1998
---------
<S> <C>
Accounts Payable.................................................. NLG 1,151
Other creditors................................................... 209
Supplier Payable for User fees.................................... 479
Wages taxation payable............................................ 366
VAT............................................................... 28
---------
Total............................................................. NLG 2,233
=========
</TABLE>
4. SHORT-TERM BORROWINGS
Lines of Credit
At December 31, 1998, the Company had NLG 484 outstanding and due under a
short-term facility of with ABN-Amro Bank N.V. The line of credit provides for
borrowings of up to NLG 850 which was collateralised by the Company's current
assets. Interest was charged at rates from 5.75 to 7.5% per annum. This line of
credit was paid subsequent to the year on March 31, 1999.
F-95
<PAGE>
bART HOLDING B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of NLG, except share data and per share data)
Capital Lease Obligations
At December 31, 1998, the Company had NLG 177 outstanding and due under an
equipment lease financing agreement which had an interest rate of 12.7% per
annum. The capital lease obligation was paid in May 1999.
5. LONG TERM DEBT
At December 31, 1998, the Company had NLG 792 outstanding and due under a
long-term facility of credit with ABN-Amro Bank N.V. The lines of credit
provided for borrowings of up to NLG 950 which are collateralised by the
Company's trading assets and by credit insurance. NLG 792 is due in the year
ended December 31, 2001. Interest was charged at rates from 5.75 to 7.5% per
annum. The lines of credit were paid subsequent to the year on March 31, 1999.
As at December 31, 1998, the Company had a loan of NLG 200 outstanding and
due under an agreement with Ontwikkelings Bedrijf Rotterdam, repayable in
December 2001. The interest rate for this arrangement was 7.5% and the interest
expense was NLG 15 for the year ended December 31, 1998.
At December 31, 1998, the Company had a note payable of NLG 40 with VIA Home
Vision B.V. which is due after 2000.
Repayments of long-term debt are as follows:
<TABLE>
<CAPTION>
December
31, 1998
--------
<S> <C>
1999................................................................ --
2000................................................................ 264
2001................................................................ 504
Thereafter.......................................................... 264
-----
Total Long Term Debt................................................ 1,032
=====
</TABLE>
6. RELATED PARTY TRANSACTIONS
In 1998, a loan from the stockholders of NLG 500 was given to the Company
which had an interest rate of 6%. The purpose of the loan was for immediate
cash needs. The interest expense for the year ended December 31, 1998 was NLG
14.
These loans were repaid subsequent to year end.
During the year ended December 31, 1998, management fees of NLG 462 were paid
to former stockholders of the Company, Goede Paard B.V. and Conew B.V.
7. INCOME TAXES
The Company has a deferred tax asset which consists of net operating loss
carryforwards of NLG 6,777. These net operating loss carryforwards have an
indefinite life. While this tax position is subject to periodic review, the tax
benefits of the carry forwards will be recorded in the future operations as a
reduction of the Company's income tax expense.
During the year ended December 31, 1998, there were not any net operating
losses utilised in the current year as the entities did not have any profit.
F-96
<PAGE>
bART HOLDING B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of NLG, except share data and per share data)
A 100% valuation allowance has been provided against the deferred tax asset
as the Company has determined that it is not likely that these amounts will be
realized in the future. The Company will continue to review this valuation
allowance and make adjustments when and if deemed appropriate.
8. EXTRAORDINARY ITEM
During 1998, the Company negotiated a settlement with certain of its trade
creditors. The settlement reduced the amounts owed by NLG 875. This gain has
been disclosed as an extraordinary items as it meets the criteria as defined in
APB 30 "Reporting the Results of Operations--Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, Gains and Losses from Unusual
and Infrequent Occurrences."
9. STOCKHOLDERS' DEFICIT
The Company's Articles of Incorporation, as amended, authorise the Company to
issue 100,000 shares of NLG 10 par value common stock.
During 1998, the stockholders contributed capital of NLG 606 in cash for
operating purposes.
10. STOCK COMPENSATION AGREEMENTS
On April 25, 1998, the Company granted stock options to certain of its
stockholders. The stock option agreements with the stockholders consisted of
the right to purchase an aggregate of 5,625 newly issued shares of bART at an
exercise price of NLG 62 per share. The option was exercisable on April 25,
2000 (2 years from April 25, 1998) or in the event of the shares and/or
activities of bART being sold. The expiration date of the options is April 22,
2002.
On April 28, 1998, the Company granted stock options to directors. The stock
option agreements with the directors consist of the right to purchase an
aggregate of 2,250 newly issued shares of bART at an exercise price of NLG 31
per share. The options are exercisable on or after April 25, 2000 or in the
event of the shares and/or activities of bART being sold. The options expire 5
years after the date of the grant.
For disclosure purposes under SFAS No. 123, the fair value of each stock
option and granted is estimated on the date of the grant using the minimum
value method. The assumptions used in the minimum value method are as follows:
<TABLE>
<S> <C>
Risk free interest rate................. 6%
Expected life........................... 2 years
Dividend yield.......................... 0
</TABLE>
The expected life was assumed to be 2 years as the options are exercisable
after 2 years from the grant date.
Under the above method, the total value of the stock options granted to the
directors is NLG 7 which would be amortised over the vesting period defined as
two years. Had the Company determined compensation cost for these plans with
SFAS No. 123, the Company's pro forma results would not have differed
materially from the reported amounts.
The value of the options granted to the stockholders is NLG 37 which would be
considered a stock dividend as these options would not be treated as
compensation expense.
F-97
<PAGE>
bART HOLDING B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of NLG, except share data and per share data)
Following is a summary of the Company's stock option activity:
<TABLE>
<CAPTION>
Number of Weighted Average
Stock Options Exercise Price (in NLG)
------------- -----------------------
<S> <C> <C>
Balance at January 1, 1998........... -- --
Granted to Directors ................ 2,250 31
Granted to Stockholders.............. 5,625 62
Exercised............................ -- --
----- ---
Balance at December 31, 1998......... 7,875 53
----- ---
Number of Options Vested at December
31, 1998............................ --
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
Rent expense for the year ended December 31, 1998 was NLG 233. The Company
recognises rent expense on a straight-line basis over the lease period, and has
accrued for rent expense incurred but not paid. During 1999, the Company moved
to new offices and has entered into a new agreement which results in total
commitments of NLG 1,725 over a five-year period.
The Company leases office equipment under non-cancelable operating and
capital leases with various expiration dates through 2001.
Future minimum lease payments under non-cancelable operating leases,
including lease commitments entered into subsequent to the year ended December
31, 1998 under non-cancelable operating leases:
As of December 31, 1998, the Company had the following commitments:
<TABLE>
<CAPTION>
Operating
leases
Year ending December 31 ---------
<S> <C>
1999............................................................... 226
2000............................................................... 446
2001............................................................... 376
2002............................................................... 345
2003............................................................... 345
Thereafter......................................................... 230
-----
Total minimum payments required.................................... 1,968
=====
</TABLE>
12. SUBSEQUENT EVENTS
On March 31, 1999, VIA purchased all the outstanding equity securities of
bART from the existing stockholders for NLG 13,450. All short and long term
borrowings and the related party loans were paid in April 1999 after the
acquisition.
F-98
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of ESOTERICA--Novas Tecnologias de Informacao, SA
In our opinion, the accompanying balance sheet and the related statements of
operations, changes in stockholders' deficit, and of cash flows expressed in
thousand Escudos (PTE), present fairly, in all material respects, the
financial position of ESOTERICA--Novas Tecnologias de Informacao, SA on
December 31, 1998, and the results of its operations and its cash flows for
the year then ended, in conformity with accounting principles generally
accepted in the United States of America.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit of these statements in accordance with generally
accepted auditing standards in Portugal, which are substantially similar to
generally accepted auditing standards in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers--Auditores e Consultores, Lda
Lisbon, Portugal
October 20, 1999
F-99
<PAGE>
ESOTERICA -- NOVAS TECNOLOGIAS DE INFORMACAO, SA
BALANCE SHEET
(All amounts in thousand PTE, except for share data)
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... PTE 15,545
Accounts receivable............................................. 62,337
Other accounts receivable....................................... 42,146
Prepaid expenses................................................ 6,637
Inventory....................................................... 30
Other current assets............................................ 460
-----------
Total current assets.......................................... 127,155
Property and equipment, net....................................... 61,694
Investment in affiliated company at cost.......................... 2,435
-----------
Total assets.................................................. PTE 191,284
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable................................................ PTE 79,269
Accrued liabilities............................................. 31,013
Deferred revenue................................................ 42,589
Current portion of long-term debt............................... 41,000
Other current liabilities....................................... 44,252
-----------
Total current liabilities....................................... 238,123
Long-term debt, net of current portion.......................... 100,000
Other liabilities............................................... 9,797
-----------
Total liabilities............................................. 347,920
Commitments
Stockholders' Deficit:
Common stock, PTE 1,000 par value; PTE 100,000 authorized,
issued and outstanding shares.................................. PTE 100,000
Accumulated deficit............................................. (256,636)
-----------
Total stockholders' deficit................................... (156,636)
-----------
Total liabilities and stockholders' deficit................... PTE 191,284
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-100
<PAGE>
ESOTERICA--NOVAS TECNOLOGIAS DE INFORMACAO, SA
STATEMENT OF OPERATIONS
(All amounts in thousand PTE)
<TABLE>
<CAPTION>
Year ended
December 31,
1998
------------
<S> <C>
Revenue........................................................... PTE320,323
Cost of revenue................................................... (174,903)
----------
Gross profit...................................................... 145,420
Operating expenses:
Selling, general and administrative............................. (145,218)
Depreciation and amortization................................... (44,311)
----------
Total operating expenses........................................ (189,529)
----------
Loss from operations.............................................. (44,109)
Interest expense.................................................. (12,520)
----------
Net loss.......................................................... PTE(56,629)
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-101
<PAGE>
ESOTERICA -- NOVAS TECNOLOGIAS DE INFORMACAO, SA
STATEMENT OF STOCKHOLDERS' DEFICIT
(All amounts in thousand PTE except share data)
<TABLE>
<CAPTION>
Common Stock
------------------------
Accumulated Total
No. of shares Amount Deficit Stockholders' Deficit
------------- ---------- ----------- ---------------------
<S> <C> <C> <C> <C>
Balance at December 31,
1997................... 45,000 PTE 45,000 PTE(200,007) PTE(155,007)
Issuance of common
stock.................. 55,000 55,000 -- 55,000
Net loss................ -- -- (56,629) (56,629)
------- ---------- ----------- -----------
Balance at December 31,
1998................... 100,000 PTE100,000 PTE(256,636) PTE(156,636)
======= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-102
<PAGE>
ESOTERICA -- NOVAS TECNOLOGIAS DE INFORMACAO, SA
STATEMENT OF CASH FLOWS
(All amounts in thousand PTE)
<TABLE>
<CAPTION>
Year ended
December
31,
1998
----------
<S> <C>
Cash flows from operating activities:
Net loss........................................................ PTE(56,629)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................... 44,311
Changes in assets and liabilities:
Accounts receivable............................................. (80,441)
Prepaid expenses................................................ 79
Other current assets............................................ 7,321
Accounts payable................................................ 5,291
Accrued liabilities............................................. 18,849
Deferred income................................................. 33,835
Other liabilities............................................... 11,727
----------
Net cash used in operating activities......................... (15,657)
Cash flows from investing activities:
Acquisition of property and equipment........................... 72,073
----------
Net cash used in investing activities......................... (72,073)
Cash flows from financing activities:
Proceeds from debt.............................................. 46,000
Proceeds from issuance of common stock.......................... 55,000
----------
Net cash provided by financing activities..................... 101,000
----------
Net increase in cash and cash equivalents....................... 13,270
Cash and cash equivalents, beginning of year.................... 2,275
----------
Cash and cash equivalents, end of year.......................... PTE 15,545
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-103
<PAGE>
ESOTERICA--NOVAS TECNOLOGIAS DE INFORMACAO, SA
NOTES TO FINANCIAL STATEMENTS
(All amounts in thousand PTE except share data)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Operations
Esoterica--Novas Tecnologias de Informacao, SA ("Company") was formed on
February 17, 1995 to operate as an Internet service provider (ISP) in the city
of Oporto. The Company now provides a full range of typical ISP services
throughout Portugal, and has its headoffice in Lisbon. On May 13, 1999, 100% of
the common stock was acquired by VIA NET.WORKS Europe Holding BV, a wholly-
owned subsidiary of VIA NET.WORKS, Inc.
Basis of Presentation
The Company is required to maintain its accounting records in accordance with
generally accepted accounting principles (GAAP) in the country of Portugal.
These financial statements have been prepared in accordance with GAAP in the
United States of America for the purposes of filing with the Securities and
Exchange Commission and do not represent the statutory financial statements of
the Company, which in are significantly different. The accompanying financial
statements include the results of the Company for the year ended December 31,
1998.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company to make estimates, judgements and
assumptions that affect the reported amounts of assets, liabilities, revenue
and expenses, together with amounts disclosed in the related notes to the
financial statements. Actual results could differ from the recorded estimates.
Fair Value of Financial Instruments
Carrying amounts of certain of the Company's financial instruments, including
cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses and other liabilities approximate fair value due to their short
maturities. Based upon borrowing rates currently available to the Company for
loans with similar terms, the carrying value of debt and capital lease
obligations approximate their fair value.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
Risks and Uncertainties
The Company has a limited operating history and its operations are subject to
certain risks and uncertainties, including those associated with: the ability
to meet obligations, continuing losses, negative cash flow and fluctuations in
operating results; funding expansion; acquistions and strategic alliances,
including their integration; managing rapid growth and expansion; international
business activities; suppliers; financing arrangement terms that may restrict
operations; possible Year 2000 issues; regulatory issues; competition in the
Internet services industry; technology trends and evolving industry standards;
and delivering reliable service.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration
of credit risk consist of cash, cash equivalents and accounts receivable. The
Company's accounts receivable are derived from revenue earned
F-104
<PAGE>
ESOTERICA--NOVAS TECNOLOGIAS DE INFORMACAO, SA
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts in thousand PTE except for share data)
from customers located in Portugal. The Company performs ongoing credit
evaluations of its customers' financial condition and, generally, requires no
collateral from its customers. The Company maintains an allowance for doubtful
accounts receivable based upon the expected collectibility of accounts
receivable.
Inventory
Inventory includes mainly CD ROMs and is stated at the lower of cost or
market, cost being determined using the first in first out (FIFO) method.
Property and Equipment
Property and equipment is recorded at cost less accumulated depreciation,
which is provided on the straight-line method over the estimated useful lives
of the assets, generally three to five years. Cost includes major expenditures
for improvements and replacements that extend useful lives or increase capacity
of the asset and interest costs associated with significant capital additions.
Expenditures for maintenance and repairs are expensed as incurred. Leasehold
improvements include costs associated with telecommunications equipment
installations and building improvements.
The Company finances part of its data communications equipment and other
fixed assets under capital lease agreements. The assets and liabilities under
capital leases are recorded at the lesser of the present value of aggregate
future minimum lease payments, including estimated bargain purchase options, or
the fair value of the assets under lease. Assets under these capital leases are
depreciated over their estimated useful lives of three to five years, which are
generally longer than the terms of the leases.
Costs for internal use software are expensed as incurred.
Long-Lived Assets
The Company periodically evaluates the carrying value of property and
equipment to be held and used when events and circumstances warrant such a
review. The carrying value of property and equipment is considered impaired
when the anticipated undiscounted cash flows from the asset is separately
identifiable and is less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair
value of the asset. Fair value is determined primarily using the anticipated
cash flows discounted at a rate commensurate with the risk involved. Losses on
assets to be disposed of are determined in a similar manner, except that fair
values are reduced for the cost to dispose.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income
Taxes". SFAS No. 109 is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences attributable to differences between the carrying amounts of assets
and liabilities for financial reporting purposes and their respective tax
bases, and for operating loss and tax credit carryforwards. In estimating
future tax consequences, SFAS No. 109 generally considers all expected future
events other than the enactment of changes in tax laws or rates.
Revenue Recognition
Internet services are recognized as the services are provided. The Company
records deferred revenue for amounts billed and/or collected in advance.
F-105
<PAGE>
ESOTERICA--NOVAS TECNOLOGIAS DE INFORMACAO, SA
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts in thousand PTE except for share data)
Revenue from consulting services is recognized as the services are provided.
Revenue from hardware and third-party software sales is recognized upon
shipment of the respective products. Through December 31, 1998, such sales have
been immaterial. Other revenues include network installation, maintenance and
consulting services. These services are provided on a time-and-material basis
and revenue is recognized based upon time (at established rates) and other
direct costs as incurred.
Costs of Revenues
Costs of access revenues primarily consists of telecommunication expenses
inherent in the network infrastructure. Costs of access revenues also includes
fees paid for the network infrastructure, as well as other license fees paid to
third-party software vendors, product costs, and contractor fees for operation
and support services.
Sources of Suppliers
The Company relies on local telephone companies and other companies to
provide data communications. Although management feels alternative
telecommunication facilities could be found in a timely manner, any disruption
of these services could have an adverse effect on operating results.
Recent Pronouncements
In 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, and SOP 98-5, Reporting on the
Costs of Start-Up Activities, both of which are required to be adopted for
fiscal years beginning after December 15, 1998. SOP 98-1 provides guidance on
accounting for the costs of computer software developed or obtained for
internal use, determining whether computer software is for internal use, and
when costs incurred for internal-use computer software are and are not
capitalized. SOP 98-5 requires costs of start-up activities and organization
costs to be expensed as incurred. The early adoption of SOP 98-1 and SOP 98-5
did not have a material effect on the Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133").
SFAS No. 133 establishes a new model for accounting for derivatives and hedging
activities and supersedes and amends a number of existing standards. SFAS No.
133 is effective for fiscal years beginning after June 15, 1999, Upon initial
application, all derivatives are required to be recognized in the statement of
financial position as either assets or liabilities and measured at fair value.
In addition, all hedging relationships must be reassessed and documented
pursuant to the provisions of SFAS No. 133. Subsequent to the issuance of SFAS
No. 133, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133" ("SFAS No. 137"), which defers the
effective date of SFAS No. 133 to periods beginning after June 15, 2000. The
Company has not committed or expects to commit to any derivative instrument
transactions, and thus does not anticipate that this pronouncement will have a
significant effect on its results.
F-106
<PAGE>
ESOTERICA--NOVAS TECNOLOGIAS DE INFORMACAO, SA
NOTES TO FINANCIAL STATEMENTS
(All amounts in thousand PTE except for share data)
NOTE 2: EQUIPMENT, FURNITURE AND FIXTURES
Equipment, furniture and fixtures are comprised of the following:
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
Internet and computer equipment................................. PTE127,672
Furniture and fixtures.......................................... 10,786
Accumulated depreciation........................................ (76,764)
----------
Total......................................................... PTE 61,694
==========
</TABLE>
NOTE 3: BORROWINGS
Notes payable
At December 31, 1998, the Company had PTE 100,000 outstanding with Barclays
Bank. The note expires in October 3, 2001 and bears interest at a rate of
Lisbor (3 months) + 2.5% per annum. The note is guaranteed by the Company and
its shareholders.
Line of credit
i) At December 31, 1998, the Company had PTE 31,000 outstanding and due under
a line of credit with Barclays Bank. The line of credit provides for borrowings
of up to PTE 50,000. This line of credit does not expire and charges interest
at a rate of Lisbor (3 months) + 2.5% per annum. The line of credit is
guaranteed by the Company and its shareholders.
ii) At December 31, 1998, the Company had PTE 10,000 outstanding and due
under a line of credit with Banco Mello. The line of credit provides for
borrowings of up to PTE 10,000. This line of credit expires on December 31,
1999 and interest is charged at a rate of 7% per annum. The line of credit is
guaranteed by the Company and its shareholders.
NOTE 4: COMMITMENTS
Leases
The Company leases office space and equipment under non-cancelable operating
leases with various expiration dates through March 16, 2000 and December 31,
2001. At December 31, 1998, the Company had PTE 27,975 outstanding and due
under an equipment lease financing line with Mello Leasing (Mello Locacao e
Renault Gest), with annual installments due of approximately PTE 10,000. The
terms of the facility lease provide for rental payments on a graduated scale.
The Company recognizes rent expense on a straight-line basis over the lease
period, and has accrued for rent expense incurred but not paid.
NOTE 5: INCOME TAXES
The gross deferred tax assets have been reduced by a valuation allowance
because it is currently more likely than not that such benefits will not be
realized. At December 31, 1998, the Company has potential net operating loss
carryforwards of approximately PTE 255,000, which may be used to offset future
taxable income. These carryforwards expire after 6 years from the date they are
reported in the fiscal tax return.
NOTE 6: SUBSEQUENT EVENT
Following the Company's acquisition on May 13, 1999, all bank borrowings have
been repaid and replaced with advances from VIA NET.WORKS, Inc. in the amount
of approximately PTE102,000.
F-107
<PAGE>
Report of Independent Accountants
To the Board of Directors and
Stockholders of Worldwide Web Services Limited
In our opinion, the accompanying balance sheet and the related statements of
operations, changes in stockholders' deficit, and of cash flows expressed in
British Pounds present fairly, in all material respects, the financial position
of Worldwide Web Services Limited as of May 27, 1999, and the results of its
operations and its cash flows for the period from July 1, 1998 to May 27, 1999,
in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards in the
United Kingdom which are substantially similar to generally accepted auditing
standards in the United States of America which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers
Reading, United Kingdom
November 19, 1999
F-108
<PAGE>
WORLDWIDE WEB SERVICES LIMITED
BALANCE SHEET
(All amounts in thousands of GBP, except share data)
<TABLE>
<CAPTION>
May 27,
1999
-----------
<S> <C>
ASSETS
Current assets:
Cash........................................................... (Pounds) 21
Accounts receivable, net of allowance of (Pounds)11............ 532
Inventory...................................................... 23
Prepaid expenses............................................... 45
-----------
Total current assets......................................... 621
Property and equipment, net.................................... 199
-----------
Total assets................................................. (Pounds)820
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable............................................... (Pounds)252
Accrued liabilities............................................ 57
Deferred revenue............................................... 559
Related party loan............................................. 50
Value Added Tax and other taxes................................ 307
-----------
Total current liabilities.................................... 1,225
Commitments
STOCKHOLDERS' DEFICIT
Common stock, (Pounds)1.00 par value, 100,000 shares Authorized;
55,556 shares issued and outstanding............................ 56
Additional paid-in capital....................................... 449
Accumulated deficit.............................................. (910)
-----------
Total stockholders' deficit.................................. (405)
-----------
Total liabilities and stockholders' deficit.................. (Pounds)820
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-109
<PAGE>
WORLDWIDE WEB SERVICES LIMITED
STATEMENT OF OPERATIONS
(All amounts in thousands of GBP)
<TABLE>
<CAPTION>
For the period
from July 1,
1998
to May 27,
1999
--------------
<S> <C>
Revenue......................................................... (Pounds)1,438
Cost of revenue:
Telecommunications services................................... 252
Related party services........................................ 6
-------------
258
-------------
Gross profit.................................................... 1,180
Selling, general and administrative expenses.................... 1,890
Depreciation.................................................... 56
-------------
Net loss........................................................ (Pounds) (766)
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-110
<PAGE>
WORLDWIDE WEB SERVICES LIMITED
STATEMENT OF STOCKHOLDERS' DEFICIT
(All amounts in thousands of GBP, except share data)
<TABLE>
<CAPTION>
Common Stock Additional Total
----------------- Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Deficit
------ ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at July 1,
1998................... 50 (Pounds)50 (Pounds)-- (Pounds)(144) (Pounds) (94)
Stock based
compensation........... 6 6 449 -- 455
Net loss................ -- -- -- (766) (766)
--- ---------- ----------- ------------ ------------
Balance at May 27,
1999................... 56 (Pounds)56 (Pounds)449 (Pounds)(910) (Pounds)(405)
=== ========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-111
<PAGE>
WORLDWIDE WEB SERVICES LIMITED
STATEMENT OF CASH FLOWS
(All amounts in thousands of GBP)
<TABLE>
<CAPTION>
For the Period
From July 1,
1998
to May 27,
1999
--------------
<S> <C>
Cash flows from operating activities:
Net loss....................................................... (Pounds)(766)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation.................................................. 56
Provision for doubtful accounts............................... 8
Stock based compensation expense.............................. 449
Changes in operating assets and liabilities:
Accounts receivable.......................................... (266)
Inventory.................................................... (7)
Other current assets......................................... 12
Accounts payable............................................. 99
Accrued expenses............................................. 34
Value Added Tax and other taxes.............................. 281
Deferred revenues............................................ 216
------------
Net cash provided by operating activities................... 116
Cash flows from investing activities:
Purchases of property and equipment........................... (124)
------------
Net cash used in investing activities....................... (124)
Cash flows from financing activities:
Proceeds from issuance of common stock........................ 6
------------
Net cash provided by financing activities................... 6
Net decrease in cash and cash equivalents................... (2)
Cash at beginning of period..................................... 23
------------
Cash at end of period........................................... (Pounds) 21
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-112
<PAGE>
WORLDWIDE WEB SERVICES LIMITED
NOTES TO FINANCIAL STATEMENTS
(All amounts in thousands of GBP, except share and per share data)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Operations
Worldwide Web Services Limited ("the Company") was formed on May 24, 1996 to
operate as an internet service provider (ISP) in the town of Staines, England.
On May 27, 1999, 100% of the common stock was acquired by VIA NET.WORKS, Inc.
Worldwide Web Services Limited was acquired for total consideration
of (Pounds)4,550.
Basis of Presentation
The Company maintains its accounting records in accordance with generally
accepted accounting principles (GAAP) in the United Kingdom. These financial
statements have been prepared in accordance with GAAP in the United States for
purposes of filing with the Securities and Exchange Commission and do not
represent the statutory financial statements of the Company. The accompanying
financial statements include the results of the Company for the period from
July 1, 1998 to May 27, 1999 (the date that the Company was acquired by VIA
NET.WORKS Inc.).
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles in the United States requires the Company to make
estimates, judgments and assumptions that affect the reported amounts of
assets, liabilities, revenue and expenses, together with amounts disclosed in
the related notes to the financial statements. Actual results could differ from
the recorded estimates.
Fair Value of Financial Instruments
The Company's financial instruments include cash and cash equivalents,
accounts receivable, accounts payable, accrued liabilities and other current
liabilities. The carrying amounts of financial instruments approximate fair
value due to their short-term maturities.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration
of credit risk consist of cash, cash equivalents and accounts receivable. The
Company's accounts receivable are derived from revenue earned from customers
located in United Kingdom. The Company performs ongoing credit evaluations of
its customers' financial condition and, generally, requires no collateral from
its customers. The Company maintains an allowance for doubtful accounts
receivable based upon the expected collectibility of accounts receivable.
Inventory
Inventory consists primarily of work-in-progress regarding web site authoring
and is stated at cost.
F-113
<PAGE>
WORLDWIDE WEB SERVICES LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts in thousands of GBP, except share and per share data)
Property and Equipment
Property and equipment is recorded at cost less accumulated depreciation,
which is provided on the straight-line method over the estimated useful lives
of the assets as follows:
<TABLE>
<S> <C>
Machinery and Equipment................... 4 years
Vehicles.................................. 4 years
Furniture and Fixtures.................... 4 years
</TABLE>
Cost includes major expenditures for improvements and replacements which
extend useful lives or increase capacity of the asset and interest costs
associated with significant capital additions. Expenditures for maintenance and
repairs are expensed as incurred.
Costs for internal use software are expensed as incurred.
Long-Lived Assets
The Company periodically evaluates the carrying value of property and
equipment to be held and used when events and circumstances warrant such a
review. The carrying value of property and equipment is considered impaired
when the anticipated undiscounted cash flows from the asset is separately
identifiable and is less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair
value of the asset. Fair value is determined primarily using the anticipated
cash flows discounted at a rate commensurate with the risk involved. Losses on
assets to be disposed of are determined in a similar manner, except that fair
values are reduced for the cost to dispose.
Income Taxes
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns in accordance with SFAS No. 109, "Accounting for
Income Taxes" ("SFAS 109"). Deferred tax liabilities and assets are determined
on the basis of the difference between the income tax basis of assets and
liabilities and their respective financial reporting amounts at tax rates in
effect for the periods in which the differences are expected to reverse. The
Company provides a valuation allowance for deferred tax assets when it is more
likely than not, based on available evidence, that some portion or all of the
deferred tax assets will not be realized.
Revenue Recognition
Internet services are recognized as the services are provided. The Company
records deferred revenue for amounts billed and/or collected in advance, and
releases to revenue ratably over subscription term ranging from three to twelve
months.
Revenue from consulting services is recognized as the services are provided.
Revenue from hardware and third party software sales is recognized upon
shipment of the respective products. Through May 27, 1999, such sales have been
immaterial. Other revenues include network installation, maintenance and
consulting services. These services are provided on a time-and-material basis
and revenue is recognized based upon time (at established rates) and other
direct costs as incurred.
F-114
<PAGE>
WORLDWIDE WEB SERVICES LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts in thousands of GBP, except share and per share data)
Costs of Revenues
Costs of access revenues primarily consist of telecommunication expenses
inherent in the network infrastructure, license fees for Web browser software
based on a per-user charge, other license fees paid to third-party software
vendors, product costs, and contractor fees for operation and support services.
Advertising Costs
Advertising costs are charged to operations when incurred. There were no
advertising expenses incurred for the period from July 1, 1998 to May 27, 1999.
Sources of Suppliers
The Company relies on local telephone companies and other companies to
provide data communications. Although management feels alternative
telecommunication facilities could be found in a timely manner, any disruption
of these services could have an adverse effect on operating results.
Recent Pronouncements
In March 1998, the American Institute of Certified Public Accounts ("AICPA")
issued Statement of Position ("SOP") No. 98-1, "Software for Internal Use,"
which provides guidance on accounting for the cost of computer software
developed or obtained for internal use. SOP No. 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998. The early
adoption of SOP 98-1 did not have a material effect on the Company's financial
statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"). SFAS No. 133 establishes a new model for accounting for derivatives and
hedging activities and supersedes and amends a number of existing standards.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999, but
earlier application is permitted as of the beginning of any fiscal quarter
subsequent to June 15, 1998. Upon initial application, all derivatives are
required to be recognized in the statement of financial position as either
assets or liabilities and measured at fair value. In addition, all hedging
relationships must be reassessed and documented pursuant to the provisions of
SFAS No. 133. Subsequent to the issuance of SFAS No. 133, the Financial
Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133" ("SFAS No. 137"), which defers the effective date of SFAS
No. 133 to periods beginning after June 15, 2000. The Company has not committed
or expects to commit to any derivative instrument transactions, and thus does
not anticipate that this pronouncement will have a significant effect on its
results.
NOTE 2: PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following :
<TABLE>
<S> <C>
Machinery and equipment......................................... (Pounds)274
Vehicles........................................................ 13
Furniture and fixtures.......................................... 20
-----------
307
Less: Accumulated depreciation.................................. (108)
-----------
Total......................................................... (Pounds)199
===========
</TABLE>
Depreciation expense for the period from July 1, 1998 to May 27, 1999 was
(Pounds)56.
F-115
<PAGE>
WORLDWIDE WEB SERVICES LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts in thousands of GBP, except share and per share data)
NOTE 3: COMMITMENTS
Operating Leases
The Company leases office space under noncancelable operating leases that
expire in 2007. Rent expense for the period from July 1, 1998 to May 27, 1999
was (Pounds)83. The terms of the facility lease provide for rental payments on
a graduated scale. The Company recognizes rent expense as incurred over the
lease period. Future minimum lease payments under noncancelable operating
leases, including lease commitments entered into subsequent to May 27, 1999
under noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
Operating
Period Ended Leases
May 27, -----------
<S> <C>
2000............................................................. (Pounds)114
2001............................................................. 114
2002............................................................. 114
2003............................................................. 114
2004............................................................. 114
Thereafter....................................................... 314
-----------
Total minimum lease payments..................................... (Pounds)884
===========
</TABLE>
In March of 2002, the Company's operating leases will be reviewed by the
landlord and a new monthly rental expense will be assessed at that time through
March of 2007.
NOTE 4: STOCKHOLDERS' DEFICIT
The Company's Memorandum and Articles of Association, as amended, authorize
the Company to issue 100,000 shares of (Pounds)1.00 par value common stock.
Holders of the Company's common stock are entitled to one vote per share. The
Board of Directors is elected by a majority vote of the shares of common stock
voting thereon and any action to be taken by the stockholders requires a
majority vote of the shares of common stock voting thereon.
In May 1999, 5,556 common stock shares were issued to two key employees at a
price below the fair market value at the date of the issuance. The exercise
price paid by the employees was (Pounds)1 per share. Fair market value at the
date of issuance was (Pounds)81.89 per share. The Company recognized
(Pounds)449 in compensation expense and (Pounds)235 in related taxes, during
the period from July 1, 1998 to May 27, 1999 in connection with the issuance of
common stock. Compensation expense is equal to the difference between what the
employees paid for the shares and the amount that VIA NET.WORKS, Inc.
subsequently paid to acquire the shares. Had the Company determined
compensation cost for these shares in accordance with SFAS No. 123, the
Company's pro forma results would not have differed materially from the
reported amount.
NOTE 5: INCOME TAXES
No provision for income taxes was recorded from the period July 1, 1998
through May 27, 1999 as the Company incurred net operating losses during the
period. The components of the net deferred tax asset as of May 27, 1999 is as
follows:
<TABLE>
<S> <C>
Net operating loss carry forwards....... (Pounds)43
Cumulative temporary differences........ (8)
-----------
35
Valuation allowance..................... (35)
-----------
Net deferred tax asset.................. (Pounds)--
===========
</TABLE>
F-116
<PAGE>
WORLDWIDE WEB SERVICES LIMITED
NOTES TO FINANCIAL STATEMENTS
(All amounts in thousands of GBP, except share and per share data)
Management has evaluated the positive and negative evidence impacting the
realizeability on the deferred tax asset. Management has considered the history
of losses and has concluded that as of May 27, 1999, the deferred tax asset
more likely than not will not be realized. Therefore, management has recorded a
full valuation allowance against the deferred tax asset. Net operating losses
for tax purposes can be carried forward indefinitely to offset future taxable
income from Internet services.
NOTE 6: RELATED PARTY TRANSACTIONS
During the period presented, the Company purchased goods and services for a
total of (Pounds)6 from a related party, a relative of a director. At May 27,
1999 the Company owed a total of (Pounds)50 to two related parties, split
equally. The related parties were a director and a company in which a director
has an interest. Neither loan was interest bearing and both were repaid
subsequent to May 27, 1999 shortly after the end of the period.
F-117
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Netlink Internet Services Limited
In our opinion, the accompanying balance sheet and the related statements of
operations, changes in stockholders' deficit, and of cash flows expressed in
British Pounds present fairly, in all material respects, the financial position
of Netlink Internet Services Limited as of December 31, 1998, and the results
of its operations and its cash flows for the year then ended, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards in the United Kingdom which are
substantially similar to generally accepted auditing standards in the United
States of America which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers
Reading, United Kingdom
November 19, 1999
F-118
<PAGE>
NETLINK INTERNET SERVICES LIMITED
BALANCE SHEETS
(All amounts in thousands of GBP, except share data)
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash............................................... (Pounds) 2 (Pounds)207
Accounts receivable, net of allowance of (Pounds)79
in 1998 and (Pounds)65 (unaudited) in 1999........ 62 181
Prepaid expenses................................... 97 132
----------- -----------
Total current assets............................. 161 520
Property and equipment, net.......................... 72 119
----------- -----------
Total assets..................................... (Pounds)233 (Pounds)639
----------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities........... (Pounds)220 (Pounds)233
Deferred revenue................................... 605 780
Bank overdraft..................................... 53 137
Loan due to VIA NET.WORKS, Inc..................... -- 200
Other current liabilities.......................... 7 19
Loan from stockholder.............................. 94 86
Value Added Tax and other taxes.................... 79 83
----------- -----------
Total current liabilities............................ 1,058 1,538
Commitments
STOCKHOLDERS' DEFICIT
Common stock, (Pounds)0.01 par value; authorized: 400
shares; authorized issued and outstanding 200 shares
in 1998 and 400 shares in 1999 (unaudited).......... -- --
Additional paid-in capital........................... -- 1
Accumulated deficit.................................. (825) (900)
----------- -----------
Total stockholders' deficit.......................... (825) (899)
----------- -----------
Total liabilities and stockholders' deficit.......... (Pounds)233 (Pounds)639
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-119
<PAGE>
NETLINK INTERNET SERVICES LIMITED
STATEMENTS OF OPERATIONS
(All amounts in thousands of GBP)
<TABLE>
<CAPTION>
Six Months Six Months
For the Year Ended Ended
Ended June 30, June 30,
December 31, 1998 1999
1998 (Unaudited) (Unaudited)
------------ ------------ -----------
<S> <C> <C> <C>
Revenue............................... (Pounds) 873 (Pounds) 373 (Pounds)702
Cost of revenue....................... 383 119 119
------------ ------------ -----------
Gross profit.......................... 490 254 583
Operating expenses:
Selling, general and administrative
expenses........................... 792 382 617
Research and development............ 32 -- --
Depreciation........................ 52 10 30
------------ ------------ -----------
Loss from operations.................. (386) (138) (64)
Other expenses:
Interest expense.................... 13 5 3
Foreign currency loss............... 3 -- 8
------------ ------------ -----------
Net loss.............................. (Pounds)(402) (Pounds)(143) (Pounds)(75)
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-120
<PAGE>
NETLINK INTERNET SERVICES LIMITED
STATEMENTS OF STOCKHOLDERS' DEFICIT
(All amounts in thousands of GBP, except share data)
<TABLE>
<CAPTION>
Common Stock Additional Total
------------------ Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Deficit
------ ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1997................... 200 (Pounds)-- (Pounds)-- (Pounds)(423) (Pounds)(423)
Net loss................ -- -- -- (402) (402)
--- ----------- ----------- ------------ ------------
Balance at December 31,
1998................... 200 (Pounds)-- -- (Pounds)(825) (Pounds)(825)
Issuance of common stock
(unaudited)............ 200 -- 1 -- 1
Net loss (unaudited).... -- -- -- (75) (75)
--- ----------- ----------- ------------ ------------
Balance at June 30, 1999
(unaudited)............ 400 (Pounds)-- (Pounds) 1 (Pounds)(900) (Pounds)(899)
=== =========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statement.
F-121
<PAGE>
NETLINK INTERNET SERVICES LIMITED
STATEMENTS OF CASH FLOWS
(All amounts in thousands of GBP)
<TABLE>
<CAPTION>
Six Months Six Months
For the Ended Ended
Year Ended June 30, June 30,
December 1998 1999
31, 1998 (Unaudited) (Unaudited)
------------ ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................. (Pounds)(402) (Pounds)(143) (Pounds)(75)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation....................... 52 10 30
Provision for doubtful accounts.... 51 -- --
Changes in operating assets and
liabilities:
Accounts receivable.............. (54) (100) (119)
Prepaid expenses................. (96) (2) (35)
Accounts payable and accrued
liabilities..................... 108 52 13
Deferred revenue................. 330 218 175
Value Added Tax and other taxes.. 54 26 4
Other creditors.................. (41) (48) 12
------------ ------------ -----------
Net cash provided by operating
activities.......................... 2 13 5
Cash flows from investing activities:
Acquisition of property and
equipment........................... (67) (26) (77)
------------ ------------ -----------
Net cash used in investing
activities.......................... (67) (26) (77)
Cash flows from financing activities:
Proceeds from loan due to VIA
NET.WORKS Inc..................... -- -- 200
Bank overdraft..................... -- -- 84
Payments on short-term debt........ 39 (14)
Proceeds from issuance of common
stock............................. -- -- 1
Amounts owed to stockholder........ 26 12 (8)
------------ ------------ -----------
Net cash provided by (used in)
financing activities................ 65 (2) 277
Net (decrease) increase in cash...... -- (15) 205
Cash, beginning of period............ 2 2 2
------------ ------------ -----------
Cash, end of period.................. (Pounds) 2 (Pounds) (13) (Pounds)207
============ ============ ===========
</TABLE>
Supplementary disclosure of cash flow information:
The Company paid approximately (Pounds)13 for interest for the year ended
December 31, 1998 and (Pounds)5 and (Pounds)3 for the unaudited six month
periods ended June 30, 1998 and 1999, respectively.
The accompanying notes are an integral part of these financial statements.
F-122
<PAGE>
NETLINK INTERNET SERVICES LIMITED
NOTES TO FINANCIAL STATEMENTS
(All amounts in thousands GBP, except share and per share data)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Operations
Netlink Internet Services, Ltd. ("the Company") was formed on September 7,
1995 to operate as an Internet service provider (ISP) in the city of London,
England. On July 9, 1999, 100% of the common stock was acquired by VIA
NET.WORKS, Inc., for total consideration of (Pounds)7,500.
Basis of Presentation
The Company maintains its accounting records in accordance with generally
accepted accounting principles (GAAP) in the United Kingdom. These financial
statements have been prepared in accordance with GAAP in the United States for
purposes of filing with the Securities and Exchange Commission and do not
represent the statutory financial statements of the Company. The accompanying
financial statements include the results of the Company for the year ended
December 31, 1998 and for the unaudited six month periods ended June 30, 1998
and 1999.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles in the United States requires the Company to make
estimates, judgments and assumptions that affect the reported amounts of
assets, liabilities, revenue and expenses, together with amounts disclosed in
the related notes to the financial statements. Actual results could differ from
the recorded estimates.
Fair Value of Financial Instruments
Carrying amounts of certain of the Company's financial instruments, including
cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses and other liabilities approximate fair value due to their short
maturities. Based upon borrowing rates currently available to the Company for
loans with similar terms, the carrying value of long-term debt and capital
lease obligations approximate fair value.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
Property and Equipment
Property and equipment is recorded at cost less accumulated depreciation,
which is provided on the straight-line method over the estimated useful lives
of the assets, generally three years. Cost includes major expenditures for
improvements and replacements which extend useful lives or increase capacity of
the asset and interest costs associated with significant capital additions.
Expenditures for maintenance and repairs are expensed as incurred.
Costs for internal use software are expensed as incurred.
Long-Lived Assets
The Company periodically evaluates the carrying value of property and
equipment to be held and used when events and circumstances warrant such a
review. The carrying value of property and equipment is
F-123
<PAGE>
NETLINK INTERNET SERVICES LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts in thousands GBP, except share and per share data)
considered impaired when the anticipated undiscounted cash flows from the asset
is separately identifiable and is less than its carrying value. In that event,
a loss is recognized based on the amount by which the carrying value exceeds
the fair value of the asset. Fair value is determined primarily using the
anticipated cash flows discounted at a rate commensurate with the risk
involved. Losses on assets to be disposed of are determined in a similar
manner, except that fair values are reduced for the cost to dispose.
Income Taxes
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns in accordance with SFAS No. 109, "Accounting for
Income Taxes" ("SFAS 109"). Deferred tax liabilities and assets are determined
on the basis of the difference between the income tax basis of assets and
liabilities and their respective financial reporting amounts at tax rates in
effect for the periods in which the differences are expected to reverse. The
Company provides a valuation allowance for deferred tax assets when it is more
likely than not, based on available evidence, that some portion or all of the
deferred tax assets will not be realized.
Revenue Recognition
Internet services are recognized as the services are provided. The Company
records deferred revenue for amounts billed and/or collected in advance and
releases to revenue ratably over subscription term ranging from three to twelve
months.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration
of credit risk consist of cash, cash equivalents and accounts receivable. The
Company's accounts receivable are derived from revenue earned from customers
located in United Kingdom and from other European countries. The Company
performs ongoing credit evaluations of its customers' financial condition and,
generally, requires no collateral from its customers. The Company maintains an
allowance for doubtful accounts receivable based upon the expected
collectibility of accounts receivable.
Costs of Revenues
Costs of access revenues primarily consist of telecommunication expenses
inherent in the network infrastructure. Costs of access revenues also includes
fees paid for lease of the company's network infrastructure, as well as license
fees for Web browser software based on a per-user charge, other license fees
paid to third-party software vendors, product costs, and contractor fees for
operation and support services.
Advertising Costs
Advertising costs are charged to operations when incurred. Advertising
expense for the year ended December 31, 1998, was (Pounds)126.
Sources of Suppliers
The Company relies on local telephone companies and other companies to
provide data communications. Although management feels alternative
telecommunication facilities could be found in a timely manner, any disruption
of these services could have an adverse effect on operating results.
F-124
<PAGE>
NETLINK INTERNET SERVICES LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts in thousands GBP, except share and per share data)
Research and Development
Costs incurred in research and development are charged to operations when
incurred. Research and development expense for the year ended December 31, 1998
and the unaudited periods ended June 30, 1998 and 1999 were (Pounds)32,
(Pounds)Nil (unaudited) and (Pounds)Nil (unaudited) respectively.
Recent Pronouncements
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 98-1, "Software for Internal
Use," which provides guidance on accounting for the cost of computer software
developed or obtained for internal use. SOP No. 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998. The early
adoption of SOP 98-1 did not have a material effect on the Company's financial
statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"). SFAS No. 133 establishes a new model for accounting for derivatives and
hedging activities and supersedes and amends a number of existing standards.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999, but
earlier application is permitted as of the beginning of any fiscal quarter
subsequent to June 15, 1998. Upon initial application, all derivatives are
required to be recognized in the statement of financial position as either
assets or liabilities and measured at fair value. In addition, all hedging
relationships must be reassessed and documented pursuant to the provisions of
SFAS No. 133. Subsequent to the issuance of SFAS No. 133, the Financial
Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133" ("SFAS No. 137"), which defers the effective date of SFAS
No. 133 to periods beginning after June 15, 2000. The Company has not committed
or expects to commit to any derivative instrument transactions, and thus does
not anticipate that this pronouncement will have a significant effect on its
results.
Unaudited Interim Financial Information
The interim financial information for the six months ended June 30, 1998 and
1999 included herein is unaudited. However, the company believes that interim
financial information includes all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the results of
interim periods. The results of operations for the six months ended June 30,
1999 are not necessarily indicative of the results to be expected for the year
ending December 31, 1999.
NOTE 2: PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following:
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
Computer equipment............................................. (Pounds)132
Furniture and fixtures......................................... 12
-----------
144
Less: accumulated depreciation................................. (72)
-----------
Total........................................................ (Pounds) 72
===========
</TABLE>
F-125
<PAGE>
NETLINK INTERNET SERVICES LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts in thousands GBP, except share and per share data)
NOTE 3: OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
Value Added Tax and other taxes................................. (Pounds) 79
Other creditors................................................. 7
Amounts owed to director (see Note 8)........................... 94
-----------
Total......................................................... (Pounds)180
===========
</TABLE>
NOTE 4: BANK OVERDRAFT
Short-term debt consists of bank overdrafts at December 31, 1998 and June 30,
1999 (unaudited). The bank overdrafts accrued interest at a rate of 2.5% per
annum above the bank's base rate and are repayable on demand.
Interest expense for the year ended December 31, 1998 and the unaudited
periods ended June 30, 1998 and 1999 were (Pounds)13, (Pounds)5 and (Pounds)3
respectively.
NOTE 5: COMMITMENTS
Operating Leases
The Company leases office space under noncancelable operating leases with
various expiration dates through 2000 with options for renewals. Rent expense
totalled approximately (Pounds)36 for the year ended December 31, 1998 and
(Pounds)16 and (Pounds)18 for the unaudited six month periods ended June 30,
1998 and 1999, respectively. The terms of the facility lease provide for rental
payments on a graduated scale. The Company recognizes rent expense on a
straight-line basis over the lease period, and has accrued for rent expense
incurred but not paid. Future minimum lease payments under noncancelable
operating leases are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
<S> <C>
1999.............................................................. (Pounds)35
2000.............................................................. 9
----------
(Pounds)44
==========
</TABLE>
NOTE 6: STOCKHOLDERS' EQUITY
Common Stock
The Company's Articles of Incorporation authorized the Company to issue 400
shares of (Pounds)0.01 par value Common Stock. Holders of the Company's Common
Stock are entitled to one vote per share. The Board of Directors is elected by
a majority vote of the shares of Common Stock voting thereon and any action to
be taken by the shareholders requires a majority vote of the shares of Common
Stock voting thereon.
F-126
<PAGE>
NETLINK INTERNET SERVICES LIMITED
NOTES TO FINANCIAL STATEMENTS
(All amounts in thousands GBP, except share data)
NOTE 7: INCOME TAXES
Deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
Deferred tax assets:
Net operating losses......................................... (Pounds) 51
Gross deferred tax liabilities:
Depreciation and other....................................... (5)
-----------
Net deferred tax asset......................................... 46
Valuation allowance.......................................... (46)
-----------
(Pounds)--
===========
</TABLE>
The Company has established a valuation allowance for net deferred tax assets
of its operations since realization of these benefits cannot be reasonably
assured. These net operating losses are available for carryforward indefinitely
and can be offset against future profits of the same trade. While the need for
the valuation allowance is subject to periodic review, if the allowance is
reduced, the tax benefits of the carryforwards will be recorded in future
operations as a reduction of the Company's income tax expense. No cash was paid
for income taxes in the year ended December 31, 1998.
NOTE 8: RELATED PARTY TRANSACTIONS
Throughout the year ended December 31, 1998 and the unaudited six months
period ended June 30, 1999, a director of Netlink Internet Services Limited
paid trade invoices in the amount of (Pounds)6 and (Pounds)0 nil, respectively,
for normal operating expenses on behalf of the Company. The Company repaid the
outstanding liability to the director in July of 1999 and was not required to
pay interest on the amounts owed.
On February 8, 1999 VIA NET.WORKS, Inc. loaned (Pounds)200 (unaudited) to
Netlink Internet Services Limited. This is due for repayment on December 1,
1999 together with interest charged at a per annum rate of 6.6875%.
F-127
<PAGE>
Report of Independent Accountants
To the Board of Directors and
Stockholders of DISBUMAD, SL
In our opinion, the accompanying balance sheet and the related statements of
operations, stockholders' deficit and cash flows present fairly, in all
material respects, the financial position of Disbumad, SL at December 31, 1998,
and the results of its operations and its cash flows for the year ended
December 31, 1998 in conformity with generally accepted accounting principles
in the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above.
Yours faithfully,
PricewaterhouseCoopers Auditores, S.L.
Seville, Spain
October 29, 1999
F-128
<PAGE>
DISBUMAD, SL
BALANCE SHEETS
(All amounts expressed in thousands of pesetas--Pths)
<TABLE>
<CAPTION>
June 30,
December 1999
31, 1998 (Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents.......................... Pths 20,591 Pths 11,570
Trade accounts receivable (net of allowance of Pths
3 and Pths 4 at December 31, 1998 and June 30,
1999, respectively)............................... 3,024 5,932
Inventory.......................................... 7,694 --
Prepayments and other accounts receivable.......... 7,830 2,642
----------- -----------
Total Current Assets............................. 39,139 20,144
Tangible Fixed assets, net........................... 96,391 21,727
Intangible assets, net............................... 1,669 1,775
Assets transferred to shareholders................... -- 84,430
----------- -----------
TOTAL ASSETS..................................... Pths137,199 Pths128,076
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable................................... Pths 43,926 Pths 40,504
Accrued liabilities................................ 10,184 10,184
Loans payable to stockholders...................... 30,596 30,596
Other short-term debt.............................. 6,417 5,282
Short-term portion of capital lease obligations.... 1,527 1,574
Other creditors.................................... 8,378 18,090
Taxes payable...................................... 9,391 8,167
Deferred revenue................................... 76,308 103,425
----------- -----------
Total Current Liabilities ....................... 186,727 217,822
Long-term debt....................................... 52,669 49,898
Capital lease obligations............................ 3,844 3,011
Commitments and Contingencies (see note 5)........... -- --
----------- -----------
Total Liabilities ............................... 243,240 270,731
Stockholders' Deficit
Common stock Pths 10 Par Value; 4,849 Shares
Authorized, Issued and Outstanding ................. 48,490 48,490
Accumulated deficit.................................. (154,531) (191,145)
----------- -----------
Total............................................ (106,041) (142,655)
----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT........ Pths137,199 Pths128,076
=========== ===========
</TABLE>
F-129
<PAGE>
DISBUMAD, SL
STATEMENTS OF OPERATIONS
(All amounts expressed in thousands of pesetas--Pths)
<TABLE>
<CAPTION>
Six months Six months
ended ended
Year ended June 30, June 30,
December 31, 1998 1999
1998 (Unaudited) (Unaudited)
------------ ------------ ------------
<S> <C> <C> <C>
Revenue............................. Pths 140,953 Pths 60,471 Pths 104,374
------------ ------------ ------------
Internet Services Operating Costs... 49,515 29,939 75,417
Selling, General and Administrative
Expenses........................... 95,741 42,234 50,042
Depreciation and Amortization....... 7,248 3,098 4,578
------------ ------------ ------------
Loss from Operations................ (11,551) (14,800) (25,663)
Interest Expense.................... 5,729 2,632 1,285
------------ ------------ ------------
Net loss, before Discontinued
Operations......................... (17,280) (17,432) (26,948)
------------ ------------ ------------
Discontinued Operations............. (21,866) (3,073) (9,666)
------------ ------------ ------------
Net Loss............................ Pths (39,146) Pths (20,505) Pths (36,614)
============ ============ ============
</TABLE>
F-130
<PAGE>
DISBUMAD, SL
STATEMENTS OF STOCKHOLDERS' DEFICIT
(All amounts expressed in thousands of pesetas--Pths except share amounts)
<TABLE>
<CAPTION>
Common Stock Total
------------------ Accumulated Stockholders'
Shares Amount Deficit Deficit
------ ----------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at January 1, 1998.... 4,849 Pths 48,490 Pths (115,385) Pths (66,895)
Net loss for the year......... -- -- (39,146) (39,146)
Balance at December 31, 1998.. 4,849 48,490 (154,531) (106,041)
Net loss for the period
(Unaudited).................. -- -- (36,614) (36,614)
----- ----------- ------------- ------------
Balance at June 30, 1999
(Unaudited).................. 4,849 Pths 48,490 Pths (191,145) Pths(142,655)
===== =========== ============= ============
</TABLE>
F-131
<PAGE>
DISBUMAD, SL
STATEMENTS OF CASH FLOWS
(All amounts expressed in thousands of pesetas--Pths)
<TABLE>
<CAPTION>
Six months Six months
ended ended
Year ended June 30, June
December 31, 1998 30, 1999
1998 (Unaudited) (Unaudited)
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss.......................... Pths (39,146) Pths (20,505) Pths (36,614)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization....... 9,996 4,432 5,952
Changes in assets and liabilities:
Allowance for doubtful accounts..... 821 410 1,712
Accounts receivable................. 9,875 4,168 (4,620)
Prepaid expenses and other.......... (7,073) (508) 5,188
Inventory........................... 555 265 (1,977)
Accounts payable, accrued
liabilities and other creditors.... 27,656 4,561 6,290
Deferred revenue.................... 39,389 23,247 27,117
Value Added Tax and other taxes..... (3,677) (4,761) (1,224)
------------ ------------ ------------
Net cash provided by operating
activities......................... 38,396 11,309 1,824
------------ ------------ ------------
Cash flows from investing
activities:
Acquisition of equipment and
furniture.......................... (13,478) (3,254) (6,153)
------------ ------------ ------------
Net cash used in investing
activities......................... (13,478) (3,254) (6,153)
------------ ------------ ------------
Cash flows from financing
activities:
Payments of capital lease
obligations........................ (1,676) (957) (786)
Payment of loans.................... (8,180) (4,861) (3,906)
------------ ------------ ------------
Net cash used in financing
activities......................... (9,856) (5,818) (4,692)
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents................... 15,062 2,237 (9,021)
------------ ------------ ------------
Cash and cash equivalents, beginning
of period.......................... 5,529 5,529 20,591
------------ ------------ ------------
Cash and cash equivalents, end of
period............................. Pths 20,591 Pths 7,766 Pths 11,570
============ ============ ============
</TABLE>
F-132
<PAGE>
DISBUMAD, SL
NOTES TO THE FINANCIAL STATEMENTS
(Information for the six months ended June 30, 1999 and June 30, 1998 is
unaudited)
(All amounts expressed in thousands of pesetas--Pths except share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Operations
DISBUMAD, SL (the "Company") was formed on October 27, 1994 to operate as an
online bookshop. During 1997, the company started its activities as an Internet
Services Provider (ISP) in Spain. On August 26, 1999 the Company was acquired
by VIA NET.WORKS, Inc.
Basis of Presentation
The Company maintains its accounting records in accordance with generally
accepted accounting principles (GAAP) in Spain. These financial statements have
been prepared in accordance with GAAP in the United States of America for
purposes of filing with the Securities and Exchange Commission and do not
represent the statutory financial statements of the Company. The accompanying
financial statements include the results of the Company for the year ended
December 31, 1998.
Interim Financial Information
Interim financial information for the six months ended June 30, 1998 and 1999
included herein is unaudited. However, the Company believes the interim
financial information includes all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the results of
interim periods. The results of operations for the six months ended June 30,
1999 are not necessarily indicative of the results to be expected for the year
ending December 31, 1999.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company to make estimates, judgments and
assumptions that affect the reported amounts of assets, liabilities, revenue
and expenses, together with amounts disclosed in the related notes to the
financial statements. Actual results could differ from the recorded estimates.
Fair Value of Financial Instruments
Carrying amounts of certain of the Company's financial instruments, including
cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses and other liabilities approximate fair value due to their short
maturities. Based upon borrowing rates currently available to the Company for
loans with similar terms, the carrying value of debt and capital lease
obligations approximate their fair value.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration
of credit risk consist of cash, cash equivalents and accounts receivable. The
Company performs ongoing credit evaluations of its customers' financial
condition and, generally, requires no collateral from its customers. The
Company maintains an allowance for doubtful accounts receivable based upon the
expected collectibility of accounts receivable. No significant concentration of
credit risk exists.
F-133
<PAGE>
DISBUMAD, SL
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1999 and June 30, 1998 is
unaudited)
(All amounts expressed in thousands of pesetas--Pths except share amounts)
Inventory
Inventory consists of books and is stated at the lower of cost or market,
cost being determined by their purchase price.
Tangible Fixed Assets
Fixed assets are recorded at cost less accumulated depreciation, which is
provided on the straight-line method over the estimated useful lives of the
assets, generally four to ten years. Cost includes major expenditures for
improvements and replacements which extend the useful life or increase capacity
of the asset and interest cost associated with significant capital additions.
Expenditures for maintenance and repairs are expensed as incurred.
Costs for internally generated internal use software are expensed as
incurred.
Long-Lived Assets
The Company periodically evaluates the carrying value of property and
equipment to be held and used when events and circumstances warrant such a
review. The carrying value of property and equipment is considered impaired
when the anticipated undiscounted cash flows from the asset is separately
identifiable and is less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair
value of the asset. Fair value is determined primarily using the anticipated
cash flows discounted at a rate commensurate with the risk involved. Losses on
assets to be disposed of are determined in a similar manner, except that fair
values are reduced for the cost to dispose.
Advertising Expense
Costs related to advertising and promotion of services is charged to sales
and marketing expense as incurred.
The Company contracted for an advertising campaign on November 15, 1998 for a
twelve-month period for a total amount of Pths 4,644. As of December 31, 1998
the balance of Pths 4,562 related to this contract is included as a prepayment
and will be expensed as the services are rendered.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". SFAS No. 109 is an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences attributable to differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
their respective tax bases, and for operating loss and tax credit
carryforwards. In estimating future tax consequences, SFAS No. 109 generally
considers all expected future events other than the enactment of changes in tax
laws or rates.
Revenue Recognition
Internet services are recognized as the services are provided. The Company
records deferred revenue for amounts billed and collected in advance.
Revenue from consulting services is recognized as the services are provided.
Revenue from books sales is recognized upon shipment of the product.
F-134
<PAGE>
DISBUMAD, SL
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1999 and June 30, 1998 is
unaudited)
(All amounts expressed in thousands of pesetas-Pths except share amounts)
Cost of Revenues
Costs of access revenues consists of telecommunication expenses inherent in
the network infrastructure.
Cost of books sold are recorded at their carrying value.
Sources of Suppliers
The Company relies on local telephone companies and other companies to
provide data communications. Although Management believes that alternative
telecommunication facilities could be found in a timely manner, however any
disruption of these services could have an adverse effect on operating results.
Comprehensive Income
The Company has adopted the accounting treatment prescribed by SFAS No. 130,
Comprehensive Income. FAS No. 130 establishes standards for reporting and
displaying comprehensive income and its components. The adoption of this
statement has not impacted the Company's financial statements as a result of
the Company not having any comprehensive income other than net loss during the
periods presented.
Segment Reporting
The Company adopted SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information, during 1998. SFAS No. 131 replaces the "industry
segment" approach with the "management" approach. The management approach
designates the internal organization that is used by management for allocating
resources and assessing performance as the source of the Company's reportable
segments. SFAS No. 131 also requires disclosures about products and services,
geographic areas, and major customers. The adoption of SFAS No. 131 did not
effect the Company's results of operations or financial position. The Company
operates in two segments, bookshop and ISP. All operations are made within
Spain.
Recent Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"). SFAS No. 133 establishes a new model for accounting for derivatives and
hedging activities and supersedes and amends a number of existing standards.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999, but
earlier application is permitted as of the beginning of any fiscal quarter
subsequent to June 15, 1998. Upon initial application, all derivatives are
required to be recognized in the statement of financial position as either
assets or liabilities and measured at fair value. In addition, all hedging
relationships must be reassessed and documented pursuant to the provisions of
SFAS No. 133. Subsequent to the issuance of SFAS No. 133, the Financial
Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133" ("SFAS No. 137"), which defers the effective date of SFAS
No. 133 to periods beginning after June 15, 2000. The Company has not committed
or expects to commit to any derivative instrument transactions, and thus does
not anticipate that this pronouncement will have a significant effect on its
results.
In 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, which is required to be
adopted for fiscal years beginning after December 15, 1998. SOP 98-1 provides
guidance on accounting for
F-135
<PAGE>
DISBUMAD, SL
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1999 and June 30, 1998 is
unaudited)
(All amounts expressed in thousands of pesetas-Pths except share amounts)
the costs of computer software developed or obtained for internal use,
determining whether computer software is for internal use, and when costs
incurred for internal-use computer software are and are not capitalized. The
adoption of SOP 98-1 is not expected to have a material effect on the Company's
financial statements.
2. TANGIBLE FIXED ASSETS
Fixed assets are comprised of the following:
<TABLE>
<CAPTION>
December 31, 1998
-----------------
<S> <C>
Buildings.................................................. Pths 83,441
Computers & equipment...................................... 30,971
Vehicles................................................... 128
Furniture & fixtures....................................... 9,085
-----------
Total Tangible Assets...................................... 123,625
Accumulated depreciation................................... (27,234)
-----------
Pths 96,391
===========
</TABLE>
Depreciation expense for the year ended December 31, 1998 was Pths 9,255.
The cost of fixed assets at December 31, 1998 and June 30, 1999 includes
approximately Pths 6,418 in equipment under capital leases. Related
depreciation during the year ended December 31, 1998 was Pths 1,605.
The Companys building is mortgaged by a loan signed with La Caixa (see note
4).
3. OTHER CREDITORS
Other creditors consist of the following:
<TABLE>
<CAPTION>
December 31, 1998
-----------------
<S> <C>
Bonuses to be paid......................................... Pths 3,387
Commissions................................................ 4,582
Others..................................................... 409
----------
Total.................................................... Pths 8,378
==========
</TABLE>
4. CURRENT AND LONG-TERM DEBT
Current and long-term debt consist of the following:
<TABLE>
<CAPTION>
December 31,1998
----------------
<S> <C>
Loan payable to bank........................................ Pths 16,757
Mortgaged loan.............................................. 42,329
-----------
Total..................................................... 59,086
-----------
Less current portion........................................ (6,417)
-----------
Long term debt.............................................. Pths 52,669
===========
</TABLE>
F-136
<PAGE>
DISBUMAD, SL
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1999 and June 30, 1998 is
unaudited)
(All amounts expressed in thousands of pesetas--Pths except share amounts)
The above obligations are payable as follows:
<TABLE>
<CAPTION>
December 31, 1998
-----------------
<S> <C>
1999....................................................... Pths 6,417
2000....................................................... 7,788
2001....................................................... 7,975
2002....................................................... 8,173
2003....................................................... 4,382
Thereafter................................................. 24,351
-----------
Total debt............................................... Pths 59,086
===========
</TABLE>
The loan payable to BSCH bank totalling Pths 20,000 was formalised on January
30, 1998 with a maturity date of January 30, 2003. This loan bears interest at
an annual rate of 5.85%. The mortgaged loan was formalised with La Caixa
totalling Pths 49,030 on November 15, 1994 and has a maturity date of November
15, 2009. This loan bears interest rate of 5.75%. The building is mortgaged to
guarantee the payment of said loan.
Prior to the acquisition by VIA NET.WORKS, Inc. the mortgaged loan was
transferred to its previous stockholders (see note 10).
Leases
The Company leases computers under capital leases which expire in 2002. The
Company depreciates these assets over the life of the lease agreement or
estimated life of the asset, which ever is shorter.
Future minimum lease payments under capital leases for the next four years
net of the interest component are as follows:
<TABLE>
<CAPTION>
December 31, 1998
-----------------
<S> <C>
1999....................................................... Pths 1,527
2000....................................................... 1,572
2001....................................................... 1,572
2002....................................................... 700
----------
Total lease debt......................................... Pths 5,371
==========
</TABLE>
5. CONTINGENCIES
From time to time, the Company is subject to claims arising in the ordinary
course of business. In the opinion of management, no such matter, individually
or in the aggregate, exists which is expected to have a material effect on the
results of operations or financial position of the Company.
6. STOCKHOLDERS' DEFICIT
As of December 31, 1998, there were 4,849 ordinary common stock shares of
10,000 pesetas par value each, authorised, issued and outstanding.
According to Spanish law, the Company is in situation of legal dissolution as
it presents negative equity in the two periods disclosed (see note 10).
F-137
<PAGE>
DISBUMAD, SL
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1999 and June 30, 1998 is
unaudited)
(All amounts expressed in thousands of pesetas--Pths except share amounts)
7. INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
December 31, 1998
-----------------
<S> <C>
Income Tax benefit......................................... 13,701
Valuation allowance........................................ (13,701)
-------
--
=======
</TABLE>
The amounts of assets and liabilities for financial reporting purposes under
US GAAP differ significantly from their respective tax bases, which are similar
to the local statutory reporting basis. The most significant difference relates
to deferred revenue. Deferred taxes are calculated at the statutory rate of
35%.
Deferred tax assets consist of the following:
<TABLE>
<CAPTION>
December 31, 1998
-----------------
<S> <C>
Tax credit on statutory loss carryforward.................. 2,478
Temporary differences (statutory vs US GAAP)............... 51,608
-------
54,086
Valuation allowance........................................ (54,086)
-------
Net Deferred Tax Asset..................................... --
=======
</TABLE>
The Company has established a valuation allowance for deferred tax assets of
its operations since realization of these benefits cannot be reasonably
assured. The related operating loss carryforwards expire at various future
dates through 2008. While the need for the valuation allowance is subject to
periodic review, if the allowance is reduced, the tax benefit of the
carryforwards will be recorded in future operations as a reduction of the
Company's income tax expense. No cash was paid for income taxes in the periods
reported.
The Company's net tax loss carry-forwards as of December 31, 1998 expire as
follows:
<TABLE>
<CAPTION>
Amount
Expiration date ------
<S> <C>
December 31, 2006..................................................... 1,469
December 31, 2007..................................................... 5,611
-----
7,080
=====
</TABLE>
An additional loss carry-forward of Pths 9,432 to expire in 2009 results from
the estimated tax loss for the period ended June 30, 1999, which will be
included in the annual income tax return for 1999.
Temporary differences will be accounted for in local statutory accounting
records at 1999 year-end, therefore generating additional tax loss
carryforwards that will expire in year 2009.
8. RELATED PARTY TRANSACTIONS
During 1995 and 1996, the Company borrowed Pths 12,754 and Pths 10,000
respectively from its stockholders. At December 31, 1998 and June 30, 1999, the
aggregate outstanding principal balances were Pths 30,596 and Pths 30,596
respectively. The loans bear interest at 9.3% per annum and have no specified
maturity dates. The Company repaid the loans in August 1999.
F-138
<PAGE>
DISBUMAD, SL
NOTES TO THE FINANCIAL STATEMENTS
(Information for the six months ended June 30, 1999 and June 30, 1998 is
unaudited)
(All amounts expressed in thousands of pesetas--Pths except share amounts)
As of December 31, 1998 and June 30, 1999, there was accrued interest
relating to these loans for Pths 10,184 and Pths 10,184, respectively.
Disbumad, SL purchases books from its stockholders. The purchases in the year
ended December 31, 1998 and in the six-month periods ended June 30, 1999 were
Pths 15,529 and Pths 7,948. The outstanding amounts to be paid as of December
31, 1998 and June 30, 1999 were Pths 3,031 and Pths 3,837.
The Company made payments of Pths 2,175 and Pths 6,080 to the members of the
Board of Directors in the year ended December 31, 1998 and in the six-month
period ended June 30, 1999, respectively.
Prior to the acquisition by VIA NET.WORKS, Inc. the Company paid the
outstanding balances owed to its stockholders.
9. SEGMENT INFORMATION
<TABLE>
<CAPTION>
Year ended Six months ended Six months ended
December 31, 1998 June 30, 1998 June 30, 1999
--------------------------- ---------------------------- ------------------------------
Bookshop Internet Total Bookshop Internet Total Bookshop Internet Total
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ 41,687 140,953 182,640 22,793 60,471 83,264 17,127 104,374 121,501
Cost of revenue......... 29,180 49,515 78,695 11,900 29,939 41,839 11,012 75,417 86,429
Selling, general and
administrative
expenses............... 29,057 95,741 124,798 11,236 42,234 53,470 13,751 50,042 63,793
Depreciation and
Amortization........... 2,748 7,248 9,996 1,334 3,098 4,432 1,374 4,578 5,952
------- ------- ------- ------ ------- ------- ------ ------- -------
Loss from operations.... (19,298) (11,551) (30,849) (1,677) (14,800) (16,477) (9,010) (25,663) (34,673)
Interest expenses....... 2,568 5,729 8,297 1,396 2,632 4,028 656 1,285 1,941
------- ------- ------- ------ ------- ------- ------ ------- -------
Net Loss................ (21,866) (17,280) (39,146) (3,073) (17,432) (20,505) (9,666) (26,948) (36,614)
======= ======= ======= ====== ======= ======= ====== ======= ======= ===
Total Assets at period
end.................... 68,286 68,913 137,199 63,056 56,501 119,557 64,851 63,225 128,076
======= ======= ======= ====== ======= ======= ====== ======= =======
</TABLE>
10. SUBSEQUENT EVENTS
Audited
VIA NET.WORKS, Inc. acquired 85.23% of Disbumad, SL common stock as of August
26, 1999. Subject to the purchase agreement, Disbumad, SL will increase its
equity by Pths 303,000 in three tranches.
The first increase has been completed in August, 1999 for Pths 101,000. This
increase was formalized with a common stock increase of Pths 5,390 and a
premium of Pths 95,610. The following increases are expected for the same
amount in February, 2000 and August, 2000.
Prior to the acquisition by VIA NET.WORKS, the Company sold the assets
relating to the bookshop activity to its previous stockholders. The main assets
sold were the office building, some equipment, furniture and inventory for a
total amount of Pths 85,076. This operation had a positive impact of Pths 71 in
the Profit and Loss account in August, 1999.
Unaudited
During November 1999, the Board of Directors will submit to the approval of
the shareholders, the merger of Disbumad, SL with its Holding Company, Via Net
Works Spain Holdings, SL. Management expects that this transaction will not
have any impact in the activities of the Company.
F-139
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Infoacces, S. A. de C. V. and Subsidiary:
We have audited the consolidated balance sheets of Infoacces, S. A. de C. V.
and Subsidiary as of December 31, 1997 and 1998, and the related consolidated
statements of operations, changes in stockholders' equity and changes in
financial position for each of the years in the two-year period ended December
31, 1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Mexico which are substantially the same as those followed in the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement, and are prepared in accordance with generally accepted
accounting principles. An audit consists of examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As discussed in note 1a., the consolidated financial statements have been
restated in order to present all periods of the consolidated financial
statements in constant pesos as of the most recent balance sheet date as
required by Bulletin B-10 "Recognition of the Effects of Inflation on the
Financial Information" issued by the Mexican Institute of Public Accountants.
The above mentioned consolidated financial statements have been restated from
amounts previously reported to reflect the purchasing power of the Mexican peso
as of September 30, 1999.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Infoacces, S. A. de
C. V. and Subsidiary at December 31, 1997 and 1998, and the results of their
operations, the changes in their stockholders' equity and the changes in their
financial position for each of the years in the two-year period ended December
31, 1998, in accordance with generally accepted accounting principles in
Mexico.
Generally accepted accounting principles in Mexico vary in certain significant
respects from generally accepted accounting principles in the United States.
Application of generally accepted accounting principles in the United States
would have affected results of operations for each of the years in the two-year
period ended December 31, 1998, and stockholders' equity as of December 31,
1997 and 1998 to the extent summarized in note 15 to the consolidated financial
statements.
KPMG CARDENAS DOSAL, S. C.
Luis Gonzalo Garcia Delgado
Mexico City, Mexico
April 23, 1999, except as to
note 15 and the restatement
described in the third
paragraph of this report
which are as of October 10,
1999.
F-140
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Constant Mexican pesos as of September 30, 1999)
<TABLE>
<CAPTION>
(Unaudited-
note 1b.)
September
December 31, 30,
------------------------ -----------
1997 1998 1999
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................ Mp$ 134,953 3,018,485 2,226,432
Accounts receivable, net (note 5)........ 7,724,699 6,975,163 10,226,736
Notes and accounts receivable from To2
Mexico, S.A. de C.V. (note 14).......... -- -- 14,224,099
Due from related parties (note 4)........ 445,920 -- 1,949,309
Inventory................................ 595,099 416,333 384,151
Prepaid expenses, advertising and other
assets.................................. 593,102 2,434,877 3,687,723
------------- ---------- ----------
Total current assets.................... 9,493,773 12,844,858 32,698,450
Furniture and equipment, net (note 6).... 17,704,384 24,850,755 26,365,983
Long-term receivable due from To2 Mexico,
S. A. de C. V. (note 14)................ -- -- 20,378,000
Other assets (note 7).................... 3,842,247 7,566,123 2,351,646
------------- ---------- ----------
Mp$31,040,404 45,261,736 81,794,079
============= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
(Unaudited-
note 1b.)
September
December 31, 30,
------------------------- -----------
Liability and Stockholders' Equity 1997 1998 1999
<S> <C> <C> <C>
Current liabilities:
Current installments of long-term debt
(note 9)............................. Mp$ 1,222,846 911,150 3,208,364
Current installments of obligations
under capital leases (note 10)....... 320,842 931,261 825,002
Notes payable to To2 Mexico, S. A. de
C. V. (note 14)...................... -- -- 4,158,032
Accounts payable...................... 10,493,705 16,988,346 16,567,620
Accrued expenses (note 8)............. 2,811,831 2,187,490 2,072,496
Due to related parties (note 4)....... 456,515 1,522,982 349,193
Income taxes payable.................. 690,462 235,752 4,156,640
Employees' statutory profit sharing... 583,767 531,000 1,246,158
Deferred revenue...................... 1,554,276 4,346,002 4,869,833
Deferred income taxes (note 12)....... -- 144,376 131,814
------------- ---------- -----------
Total current liabilities............ 18,134,244 27,798,359 37,585,152
Long-term debt, excluding current
installments (note 9)................ 524,642 1,703,888 3,081,472
Long- term obligations under capital
leases, excluding current
installments (note 10)............... 623,663 724,207 465,331
Deferred income taxes (note 12)....... -- 577,501 430,315
------------- ---------- -----------
Total liabilities.................... 19,282,549 30,803,955 41,562,270
------------- ---------- -----------
Stockholders' equity (note 11):
Common stock.......................... 15,092,546 19,272,680 49,966,960
Additional paid-in capital............ 1,826,804 1,826,804 3,728,606
Accumulated deficit................... (5,213,298) (6,667,989) (13,463,757)
------------- ---------- -----------
Total majority stockholders' equity.. 11,706,052 14,431,495 40,231,809
Minority interest.................... 51,803 26,286 --
------------- ---------- -----------
Total stockholders' equity........... 11,757,855 14,457,781 40,231,809
Contingent liabilities and commitments
(note 13).............................
Subsequent events (note 14)............
------------- ---------- -----------
Mp$31,040,404 45,261,736 81,794,079
============= ========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-141
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Constant Mexican pesos as of September 30, 1999)
<TABLE>
<CAPTION>
(Unaudited--note 1b.)
----------------------
Nine-months ended
Years ended December 31, September 30,
------------------------- ----------------------
1997 1998 1998 1999
<S> <C> <C> <C> <C>
Service revenue............. Mp$65,249,803 88,243,150 66,633,990 78,734,741
Cost of service revenue..... 32,218,821 43,305,610 31,618,874 36,246,062
------------- ---------- ---------- ----------
Gross profit.............. 33,030,982 44,937,540 35,015,116 42,488,679
------------- ---------- ---------- ----------
Operating expenses:
General and
administrative............ 9,133,136 7,523,432 6,703,934 11,468,880
Selling and marketing...... 17,433,055 29,539,396 20,245,460 30,571,891
Depreciation and
amortization.............. 5,028,220 6,305,386 3,465,506 6,137,213
------------- ---------- ---------- ----------
Total operating
expenses............... 31,594,411 43,368,214 30,414,900 48,177,984
------------- ---------- ---------- ----------
Operating income (loss)... 1,436,571 1,569,326 4,600,216 (5,689,305)
------------- ---------- ---------- ----------
Comprehensive financing
income (cost):
Interest expense........... (556,322) (822,171) (413,153) (1,174,006)
Interest gain.............. 205,445 25,132 19,651 320,889
Foreign exchange loss,
net....................... (757,552) (690,859) (937,653) (1,197,218)
Monetary gain (loss)....... 865,225 815,112 615,318 (502,373)
------------- ---------- ---------- ----------
Net comprehensive
financing cost......... (243,204) (672,786) (715,837) (2,552,708)
------------- ---------- ---------- ----------
Other income (expenses):
Other income (expenses),
net....................... 729,273 466,446 167,517 341,456
Loss on acquisition of
subsidiary company
(note 2).................. (154,411) -- -- --
Gain on To2's project sale
(note 14)................. -- -- -- 3,546,098
Gain on sale of fixed
assets.................... -- -- -- 363,809
Gain on sale of subsidiary
company (note 14)......... -- -- -- 1,025,790
------------- ---------- ---------- ----------
Other income, net....... 574,862 466,446 167,517 5,277,153
Income (loss) before
income taxes and
employees' statutory
profit sharing, and
extraordinary item....... 1,768,229 1,362,986 4,051,896 (2,964,860)
------------- ---------- ---------- ----------
Income tax (note 12)....... 1,661,965 1,620,815 1,749,709 4,156,640
Benefit from excess in
income tax provision...... -- -- -- (1,377,247)
Employees' statutory profit
sharing (note 12)......... 576,750 500,502 106,030 1,187,611
Deferred income taxes (note
12)....................... -- 721,877 -- (99,616)
------------- ---------- ---------- ----------
Total income tax and
employees' statutory
profit sharing......... 2,238,715 2,843,194 1,855,739 3,867,388
------------- ---------- ---------- ----------
(Loss) income before
extraordinary item........ (470,486) (1,480,208) 2,196,157 (6,832,248)
Extraordinary item--tax
benefit from tax loss
carryforwards............. 396,109 -- -- --
------------- ---------- ---------- ----------
Consolidated net (loss)
income................. (74,377) (1,480,208) 2,196,157 (6,832,248)
Minority interest net
income................. 8,447 25,517 47,409 36,480
------------- ---------- ---------- ----------
Majority interest net
(loss) income.......... Mp$ (65,930) (1,454,691) 2,243,566 (6,795,768)
============= ========== ========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-142
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Constant Mexican pesos as of September 30, 1999)
<TABLE>
<CAPTION>
Total
Common stock majority
------------------------------------ Additional Accumulated stockholders' Minority
Shares Subscribed Unpaid Net paid-in capital deficit equity interest
---------- ------------- ---------- ---------- --------------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1996........... 5,569,000 Mp$11,593,343 -- 11,593,343 1,212,608 (5,147,368) 7,658,583 --
Issuance of
common stock
(note 11)...... 2,431,000 3,499,203 -- 3,499,203 614,196 -- 4,113,399 60,250
Net loss........ -- -- -- -- -- (65,930) (65,930) (8,447)
---------- ------------- ---------- ---------- --------- ----------- ---------- -------
Balance at
December 31,
1997........... 8,000,000 15,092,546 -- 15,092,546 1,826,804 (5,213,298) 11,706,052 51,803
Issuance of
common stock
(note 11)...... 800,000 8,849,371 (4,669,237) 4,180,134 -- -- 4,180,134 --
Net loss........ -- -- -- -- -- (1,454,691) (1,454,691) (25,517)
---------- ------------- ---------- ---------- --------- ----------- ---------- -------
Balances at
December
31, 1998....... 8,800,000 23,941,917 (4,669,237) 19,272,680 1,826,804 (6,667,989) 14,431,495 26,286
Issuance of
common stock
(unaudited)
(note 11)...... 1,560,000 29,555,043 1,139,237 30,694,280 1,901,802 -- 32,596,082 10,194
Net loss
(unaudited).... -- -- -- -- -- (6,795,768) (6,795,768) (36,480)
---------- ------------- ---------- ---------- --------- ----------- ---------- -------
Balance at
September 30,
1999
(Unaudited).... 10,360,000 Mp$53,496,960 (3,530,000) 49,966,960 3,728,606 (13,463,757) 40,231,809 --
========== ============= ========== ========== ========= =========== ========== =======
<CAPTION>
Total
stockholders'
equity
-------------
<S> <C>
Balance at
December 31,
1996........... 7,658,583
Issuance of
common stock
(note 11)...... 4,173,649
Net loss........ (74,377)
-------------
Balance at
December 31,
1997........... 11,757,855
Issuance of
common stock
(note 11)...... 4,180,134
Net loss........ (1,480,208)
-------------
Balances at
December
31, 1998....... 14,457,781
Issuance of
common stock
(unaudited)
(note 11)...... 32,606,276
Net loss
(unaudited).... (6,832,248)
-------------
Balance at
September 30,
1999
(Unaudited).... 40,231,809
=============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-143
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(Constant Mexican pesos as of September 30, 1999)
<TABLE>
<CAPTION>
(Unaudited--note 1b.)
-----------------------
Nine-months ended
Years ended December 31, September 30,
------------------------- -----------------------
1997 1998 1998 1999
<S> <C> <C> <C> <C>
Operating activities:
Majority interest net
(loss) income............ Mp$ (65,930) (1,454,691) 2,243,566 (6,795,768)
Add charges (deduct
credits) not requiring
(providing) funds:
Minority interest net
income.................. (8,447) (25,517) (47,266) (36,480)
Net income sale of
furniture and
equipment............... (438,584) -- -- (517,213)
Depreciation and
amortization............ 5,028,220 6,305,386 3,465,506 6,137,213
Deferred income taxes.... -- 721,877 -- (159,748)
------------ ----------- ---------- -----------
Funds provided by
operations............. 4,515,259 5,547,055 5,661,806 (1,371,996)
Accounts receivable, net.. 717,604 749,536 (61,616) (3,943,180)
Related parties, net...... 504,044 1,512,387 (10,595) (1,173,789)
Deferred revenue.......... (250,763) 2,791,726 54,529 523,831
Accounts payable and
accrued expenses......... (3,207,465) 5,817,533 4,926,572 231,712
Income taxes payable...... 690,462 (454,710) (690,462) 3,920,888
Prepaid expenses.......... 3,194,804 (1,841,775) (69,032) (1,687,877)
Inventory................. 291,419 178,766 (991,336) 32,182
------------ ----------- ---------- -----------
Funds provided by (used
in) operating
activities............. 6,455,364 14,300,518 8,819,866 (3,468,229)
------------ ----------- ---------- -----------
Financing activities:
Proceeds from (repayment
of) bank loans and
capital leases, net...... (3,623,654) 1,578,513 1,672,116 3,494,861
Increases in capital
stock.................... 4,063,399 4,180,134 -- 34,004,562
Increases in minority
interest................. 51,803 -- -- 10,194
Due from related parties.. -- -- -- (1,949,309)
Additional paid-in
capital.................. -- -- -- --
------------ ----------- ---------- -----------
Funds provided by
financing activities... 491,548 5,758,647 1,672,116 35,560,308
------------ ----------- ---------- -----------
Investing activities:
Acquisition of furniture
and equipment............ (8,629,225) (13,399,035) (5,275,038) (12,684,275)
Income in sale of
furniture and equipment.. 1,581,789 601,972 -- 7,189,297
Acquisition of CSI shares,
net...................... (1,289,184) -- -- --
Disposition of (investment
in) other assets......... 1,264,228 (4,378,570) (4,046,113) 3,574,227
Sale of To2 project....... -- -- -- (30,444,067)
Sale of investment in CSI,
S.A. de C.V. ............ -- -- -- (519,314)
------------ ----------- ---------- -----------
Funds used in investing
activities............. (7,072,392) (17,175,633) (9,321,151) (32,884,132)
------------ ----------- ---------- -----------
(Decrease) increase in
cash and cash
equivalents............ (125,480) 2,883,532 1,170,831 (792,053)
Cash and cash equivalents:
At beginning of period.... 260,433 134,953 134,953 3,018,485
------------ ----------- ---------- -----------
At end of period.......... Mp$ 134,953 3,018,485 1,305,784 2,226,432
============ =========== ========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-144
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998
(Constant Mexican pesos as of September 30, 1999)
(1) Operations and summary of significant accounting policies:
Infoacces, S. A. de C. V. (Infoaccess or "the Company") was organized in
October 1993. The Company is an internet data communications carrier and
provides a wireline internet connectivity and internet services through its
network capability. The Company also provides internet connectivity in largest
metropolitan areas in Mexico and renders professional, technical and designed
web services and its derivatives.
The Company's operations are subject to certain risks and uncertainties
including those associated with: acquisition and utilization of bandwidth;
dependence on key personnel; dependence on suppliers; possible year 2000
issues; regulatory issues; competition in the internet services industry;
technology trends; economy changes and evolving industry standards; and,
delivering reliable service.
On November 30, 1996, Infoacces merged with Infoserv, S. A. de C. V.
(affiliate), Alta Corporativo, S. A. de C. V. (affiliate) and Infoserve
Information Services, S. A. de C. V. (holding company) becoming Infoacces the
sucessor Company.
Accounting policies and practices used by the Company, in the preparation of
the accompanying consolidated financial statements are as follows:
a. Financial statement presentation--The accompanying financial statements
have been prepared in accordance with generally accepted accounting
principles in Mexico, which include the recognition of the effects of
inflation on the financial information, and are expressed in Mexican
pesos of constant purchasing power as of the date of the most recent
balance sheet presented. The inflation is computed based on the National
Consumer Price Index (NCPI) provided by the Banco de Mexico (Central
Bank). The related factors derived therefrom have been used to express
the financial statements in constant Mexican pesos as of September 30,
1999. The corresponding notes have been revised from the notes
originally prepared under Mexican GAAP in order to comply with the
disclosure requirements of Accounting Principles Generally Accepted in
the United States (U.S. GAAP) and with the regulations of the U.S.
Securities and Exchange Commission (SEC).
<TABLE>
<CAPTION>
December 31,
-------------
1997 1998 September 30, 1999
------ ------ ------------------
<S> <C> <C> <C>
Inflation restatement factor.............. 1.1572 1.1861 1.0953
</TABLE>
b. Unaudited interim financial statements--In the opinion of the
management, all adjustments (consisting of only normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the nine months ended September 30, 1999
are not necessarily indicative of results that may be expected for the
year ending December 31, 1999.
c. Principles of consolidation--The consolidated financial statements
include those of Infoacces and its subsidiary CSI, S. A. de C. V. (CSI)
in which the Company holds a majority interest and has control.
All significant intercompany balances and transactions have been
eliminated in consolidation.
d. Revenue recognition--Revenue and related direct costs from customer
contracts are recognized ratably over the terms of the contract, which
are generally three months to one year. Cash received in advance of
revenues earned is recorded as deferred revenue. The Company also
provides connectivity software products and design services. Revenue
from the sale of software and services is recognized when software and
designed web are delivered and accepted by the customer.
F-145
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Constant Mexican pesos as of September 30, 1999)
e. Advertising expenses--The Company expenses all advertising costs in the
period incurred. Advertising expense was Mp$3,796,309, Mp$5,972,671 and
Mp$4,973,000 for the years ended December 31, 1997 and 1998, and for
nine months ended September 30, 1999 (unaudited), respectively.
f. Cash and cash equivalents--Cash and cash equivalents include all highly
liquid investments purchased with original maturities of three months or
less. Cash equivalents consist of approximately Mp$3,428 and Mp$5,203 at
December 31, 1997 and 1998, respectively. Gains or losses resulting from
changes in market value and the effects of inflation are included in the
accompanying statements of operations as part of comprehensive financing
income or costs.
g. Inventories and cost of sales--Inventory consists primarily of wireless
modems and accessories and is stated at the lower of cost or market.
Cost is determined using identified cost. The inventory of the Company
is subject to rapid technological changes which could have an adverse
impact on its realization in future periods.
h. Fair value of financial instruments--The carrying amounts of the
Company's financial instruments, which include cash equivalents,
accounts receivable, obligations under capital leases accounts payable
and accrued expenses approximate their fair values. The carrying amounts
of long term debt and obligations approximate fair value based upon the
Company's borrowing activities and assessment of current prices offered
for similar loans.
i. Concentration of credit risk--Financial instruments that potentially
subject the Company to a concentration of credit risk consist of
accounts receivable. The Company extends credit to its customers on a
unsecured basis in the normal course of business. As of December 31,
1998, the Company had concentration of trade receivable denominated in
foreign currency from two customers of approximately Mp$2,380,000. The
Company maintains reserves for potential credit losses.
j. Furniture and equipment--Furniture and equipment are updated using
factors derived from the NCPI.
Depreciation is computed under the straight-line method, according to
the estimated useful lives of the assets, at the annual rates mentioned
in note 6. The costs of leasehold improvements are capitalized and
amortized using the straight-line method over the lesser of the lease
term or the estimated useful life of the asset.
Leasehold improvements include costs associated with telecommunications
equipment installation and building improvements. No interest was
capitalized in 1997 and 1998.
The Company finances part of its data communication equipment and other
fixed assets under capital lease agreements. The assets and liabilities
under capital leases are recorded at the lesser of the present value of
aggregate future minimum lease payments, or the fair value of the
assets under lease. Assets under these capital leases are depreciated
over their estimated useful life three to ten years.
The carrying value of property, plant and equipment is assessed
annually and/or when factors indicating possible impairment are
present. If an impairment is present, the assets are reported at the
lower of carrying value or fair value.
k. Other assets--Other assets principally comprise capitalized pre-
operating expenses and capitalized costs of "Contenidos" project
(virtual information newspaper developed and customized over the
internet-web page) updated through NCPI factors. These assets are
amortized at annual rates ratably over the estimated life of the
project.
At December 31, 1998 "Contenidos" project had not been amortized
because it was in the development stage. The Company has estimated that
this project will be launched during 1999. (See notes 7 and 14).
l. Long-lived assets--The Company's policy is to review long lived assets
for impairment whenever events or changes in circumstances indicate that
the carrying amounts may not be recoverable.
F-146
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Constant Mexican pesos as of September 30, 1999)
Impairment is measured by comparing the carrying value of the asset to
the estimated undiscounted future cash flows expected to result from use
of the assets and their eventual disposition. The measurement of the
impairment loss to be recognized is based upon the difference between
the fair value and the carrying amounts of the assets. The Company
determined that as of December 31, 1997 and 1998, there had been no
impairment in the carrying value of long-lived assets.
m. Income tax (IT) and employees' statutory profit sharing (ESPS)--IT and
ESPS expenses include the amounts payable and, in addition, recognize
the effects on IT and ESPS of significant timing differences between
taxable and book income, on which it may reasonably be estimated that
over a defined period a tax benefit or liability will arise; other
effects are recognized when realized.
n. Seniority premiums and severance payments--Seniority premiums to which
employees are entitled upon retirement after 15 years or more of
service, in accordance with the Federal Labor Law, have not been
recognized as cost of the years in which services are rendered, because
the accrued liability, based on Company's estimates, is not material.
Any other payments to which employees may be entitled in the event of
dismissal, disability or death are charged to operations for the year in
which paid.
o. Foreign currency transactions and exchange differences--Foreign currency
transactions are recorded at the rates of exchange prevailing on the
date of execution or settlement. Foreign currency assets and liabilities
are translated at the exchange rates in force at the balance sheet date.
Exchange differences arising from assets or liabilities denominated in
foreign currencies are charged to operations for the year, and included
under comprehensive financing income or cost.
p. Monetary gain (loss)--Determined by multiplying the difference between
monetary assets and liabilities, at the beginning of each month, by
inflation through year-end. The aggregate of these results represents
the monetary gain or loss for the year, arising from inflation.
q. Updating of common stock, additional paid-in capital and accumulated
deficit--Determined by multiplying stockholders' contributions and
accumulated deficit by factors derived from the NCPI, which measure
accumulated inflation from the dates contributions were made and
earnings (losses) arose through year-end. The resulting amounts
represent the constant values of stockholders' equity.
r. Use of estimates--The preparation of consolidated financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(2) Acquisition and sale of CSI:
On October 9, 1997, the Company acquired 95% interest of CSI, S. A. de C. V.
(CSI). The acquisition was accounted using the purchase method of accounting
and, accordingly, the net assets and results of operations of the acquired
company has been included in the Company's consolidated financial statements
since the acquisition date. The purchase price of the acquisition was
allocated to assets acquired and liabilities assumed, based on their
respective fair values at the acquisition date.
CSI develops and designs web pages and other web applications.
F-147
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Constant Mexican pesos as of September 30, 1999)
In connection with this acquisition, the Company paid approximately
Mp$1,299,000. The amount paid exceeded its fair market value of the net assets
of Mp$154,411, which were recorded in the statements of operations.
In July 1, 1999, the Company sold its 95% interest of CSI, for approximately
Mp$1,410,000 (unaudited). In connection with the transaction, the Company no
longer consolidates the assets and liabilities of CSI. The net assets of CSI
consolidated into the amounts of the Company was approximately Mp$674,000 as of
June 30, 1999. As a result of this transaction, the Company recognized a gain
of approximately Mp$1,026,000 (unaudited) in the nine months ended September
30, 1999 (see note 14).
The following represents the results of operations of the Company for the
years ended December 31, 1997 and 1998 as if the acquisition was consummated on
January 1, 1997.
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1998
-------------- ----------
<S> <C> <C>
Revenue........................................... Mp$ 67,459,542 88,243,150
Consolidated Net income (loss).................... 33,306 (1,480,208)
============== ==========
</TABLE>
(3) Foreign currency exposure:
Monetary assets and liabilities denominated in U.S. dollars are as follows:
<TABLE>
<CAPTION>
Thousands of
U.S. dollars
December 31,
--------------
1997 1998 Nine months ended
------ ------ September 30, 1999
(Unaudited)
------------------
<S> <C> <C> <C>
Assets:
Current................................. -- 402 706
------ ------ ----
Liabilities:
Current................................. (644) (866) (960)
Long-term............................... (50) -- --
------ ------ ----
(694) (866) (960)
------ ------ ----
Net liabilities......................... (694) (464) (254)
====== ====== ====
</TABLE>
The exchange rate of the Mexican peso to the U.S. dollar at December 31,
1997, 1998 and September 30, 1999 was Mp$8.06, Mp$9.94 and Mp$9.34,
respectively. At April 23, 1999, the exchange rate was Mp$9.33.
At December 31, 1998 and September 30, 1999, the Company had no foreign
exchange risk hedge instruments.
At December 31, 1997 and 1998 and September 30, 1999 (unaudited) the Company
had foreign inventories amounting to U.S.$83,927, U.S.$24,053 and U.S.$41,575,
respectively.
Cost of services related to transactions carried out abroad during 1997, 1998
and September 30, 1999 (unaudited) amounted to U.S.$1,093,792, U.S.$1,316,065
and U.S.$706,272 dollars, respectively. Service revenue amounted to
U.S.$1,576,457 and U.S.$1,238,696 dollars during 1998 and for the nine-month
period ended September 30, 1999 (unaudited), respectively.
F-148
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Constant Mexican pesos as of September 30, 1999)
(4) Transactions and balances with related parties:
Transactions carried out with affiliated companies and other related parties,
during the years ended December 31, 1998 and 1997, and for the nine months
ended September 30, 1998 and 1999 (unaudited) were as follows:
<TABLE>
<CAPTION>
December 31, September 30,
---------------------- 1999
1997 1998 (Unaudited)
------------ --------- -------------
<S> <C> <C> <C>
Services rendered (1).................. Mp$1,418,946 -- --
Services received (2).................. 605,524 7,920,415 13,820,679
============ ========= ==========
</TABLE>
- ---------------------
(1) The Company provided administrative services to CSI related party.
(2) The Company was billed for management, consulting, payroll and
administrative services by Carral Asociados, S. C.
Non-interest bearing accounts receivable from and payable to related parties
are as follows:
<TABLE>
<CAPTION>
December 31, September 30,
-------------------- 1999
1997 1998 (Unaudited)
---------- --------- -------------
<S> <C> <C> <C>
Accounts receivable
Holding Alta, S. A. de C. V. .............. Mp$426,430 -- --
Alta Integracion, S. A. de C. V. .......... 19,490 -- --
CSI, S. A. de C. V. (Promissory note--note
14)....................................... -- -- 1,949,309
---------- --------- ---------
Mp$445,920 -- 1,949,309
========== ========= =========
Accounts payable
Carral y Asociados, S. C. ................. Mp$456,515 1,522,982 349,193
========== ========= =========
</TABLE>
(5) Accounts receivable:
Accounts receivable are analyzed as follows:
<TABLE>
<CAPTION>
December 31, September 30,
---------------------- 1999
1997 1998 (Unaudited)
------------ --------- -------------
<S> <C> <C> <C>
Trade..................................... Mp$7,820,151 6,808,773 11,847,685
Prepaid services.......................... -- 504,946 --
Prepaid taxes............................. 44,503 355,585 --
Officers and employees.................... 770,817 218,422 548,500
Shareholders'............................. 213,858 283,667 65,998
Telefonos de Mexico, S. A. de C. V........ -- -- 598,432
Others debtors............................ 153,578 223,480 393,948
------------ --------- ----------
9,002,907 8,394,873 13,454,563
Less allowance for doubtful accounts...... 1,278,208 1,419,710 3,227,827
------------ --------- ----------
Mp$7,724,699 6,975,163 10,226,736
============ ========= ==========
</TABLE>
F-149
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Constant Mexican pesos as of September 30, 1999)
(6) Furniture and equipment:
Furniture and equipment is analyzed as follows:
<TABLE>
<CAPTION>
December 31, September 30, Annual
------------------------ 1999 depreciation
1997 1998 (Unaudited) rate
------------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Computer equipment...... Mp$ 6,508,620 11,596,594 10,527,647 25% and 30%
Data communication
equipment.............. 9,592,540 11,879,985 14,460,151 10% and 30%
Furniture and
equipment.............. 2,405,815 2,753,816 3,725,391 10%
Transportation
equipment.............. 80,710 312,829 146,897 25%
Telecommunication
bandwith and lines..... 6,044,268 7,488,785 11,346,509 (1)
Leasehold improvements.. 1,227,012 2,960,084 2,949,791 (2)
Less accumulated
depreciation........... 8,817,487 14,085,263 18,322,491
------------- ---------- ----------
17,041,478 22,906,830 24,833,895
------------- ---------- ----------
Data communication
equipment under capital
leases................. -- 1,059,636 -- 10% and 30%
Furniture and equipment
under capital leases... -- 457,236 481,790 10%
Transportation equipment
under capital leases... 662,906 662,902 1,423,270 25%
------------- ---------- ----------
662,906 2,179,774 1,905,060
Less accumulated
amortization........... -- 235,849 372,972
------------- ---------- ----------
-- 1,943,925 1,532,088
------------- ---------- ----------
Furniture and equipment,
net.................... Mp$17,704,384 24,850,755 26,365,983
============= ========== ==========
</TABLE>
- ---------------------
(1) Shorter of useful life or indefeasible right of use lease agreement,
generally ten years, beginning when telecommunication bandwith and lines
are available for use.
(2) Shorter of lease or useful life, generally five years.
F-150
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Constant Mexican pesos as of September 30, 1999)
(7) Other assets:
Other assets are analyzed as follows:
<TABLE>
<CAPTION>
December 31, September 30,
------------------------ 1999
1997 1998 (Unaudited)
------------- ---------- -------------
<S> <C> <C> <C>
Preoperating expenses:
Organization........................... Mp$ 2,203,267 2,203,267 748,410
Internet project....................... 3,179,482 3,179,482 3,167,745
Contenidos project costs (1)............. 409,502 4,707,197 --
Deposits................................. 162,354 443,229 1,212,784
------------- ---------- ---------
5,954,605 10,533,175 5,128,939
Less accumulated amortization............ 2,112,358 2,967,052 2,777,293
------------- ---------- ---------
Other assets, net........................ Mp$ 3,842,247 7,566,123 2,351,646
============= ========== =========
</TABLE>
- ---------------------
(1) On September 1, 1999, the Company sold Contenidos' Project to To2. (See
note 14--unaudited).
(8) Accrued expenses:
Accrued expenses are analyzed as follows:
<TABLE>
<CAPTION>
December 31, September 30,
----------------------- 1999
1997 1998 (Unaudited)
------------- --------- -------------
<S> <C> <C> <C>
Value added tax payable.................. Mp$ 441,836 517,010 1,234,014
Accrued withholding taxes payable........ 2,165,566 1,095,656 546,248
Accrued payroll and related taxes........ 204,429 405,986 292,234
Other accrued expenses................... -- 168,838 --
------------- --------- ---------
Total.................................. Mp$ 2,811,831 2,187,490 2,072,496
============= ========= =========
</TABLE>
F-151
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Constant Mexican pesos as of September 30, 1999)
(9) Long-term debt:
The long-term debt is comprised as follows:
<TABLE>
<CAPTION>
December 31,
---------------------- September 30,
1997 1998 1999
------------ --------- -------------
(Unaudited)
<S> <C> <C> <C>
Line of credit with the California
Commerce Bank, amounting to 166,720
and 50,054 U.S. dollars, at December
31, 1997 and 1998, respectively, due
in 35 consecutive monthly
installments, beginning on August 5,
1996, with a final payment due on
July 5, 1999, guaranteed by the
stockholders, bearing interest at the
rate of 11.82% (10.52% in 1997)...... Mp$1,747,488 544,922 --
Mp$1,890,000 and Mp$6,289,836
unsecured loans from Banca Quadrum,
maturing on various dates up to
December 15, 2001, bearing interest
at the TIIE (28 day) rate, averaging
25.19% and 21.94% at December 31,
1998 and September 30, 1999,
respectively (1)..................... -- 2,070,116 6,289,836
------------ --------- ---------
1,747,488 2,615,038 6,289,836
Less current installments............. 1,222,846 911,150 3,208,364
------------ --------- ---------
Long-term debt, excluding current
installments......................... Mp$ 524,642 1,703,888 3,081,472
============ ========= =========
</TABLE>
Long-term debt is payable as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(Unaudited)
<S> <C> <C>
2000.............................................. Mp$ 760,796 --
2001.............................................. 943,092 3,081,472
------------ ---------
Mp$1,703,888 3,081,472
============ =========
</TABLE>
- ---------------------
(1) In October 1999, the Company fully repaid Banca Quadrum's loans
(unaudited).
(10) Leases:
The Company is obligated under various capital leases for equipment that
expire in 2001. These leases are payable to Banca Quadrum, S. A. de C. V. in
Mexican Pesos and Capital Corporation de Mexico, S. A. de C. V. in U.S. dollars
in monthly installments through 2001, and bear interest at the TIIE (28 day)
rate for pesos and 11.96% for dollars. TIIE rate averaged 24.77%, 25.19% and
21.94% in 1997, 1998 and the nine-month period ended September 30, 1999,
respectively. The related balances are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------- September 30,
1997 1998 1999
---------- --------- -------------
(Unaudited)
<S> <C> <C> <C>
Principal payable....................... Mp$944,505 1,655,468 1,290,333
Less current installments............... 320,842 931,261 825,002
---------- --------- ---------
Obligations under capital leases,
excluding current installments......... Mp$623,663 724,207 465,331
========== ========= =========
</TABLE>
F-152
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Constant Mexican pesos as of September 30, 1999)
Future minimum lease payments under capital leases are as follows:
<TABLE>
<CAPTION>
December 31,
------------------ September 30,
1997 1998 1999
---------- ------- -------------
(Unaudited)
<S> <C> <C> <C>
1999........................................ Mp$320,881 -- --
2000........................................ 302,782 724,207 --
2001........................................ -- -- 465,331
========== ======= =======
</TABLE>
(11) Stockholders' equity:
Following is a description of the main characteristics of the stockholders'
equity accounts:
a. Effects of inflation:
<TABLE>
<CAPTION>
Capital Additional Accumulated
stock paid-in capital deficit
------------- --------------- -----------
<S> <C> <C> <C>
December 31, 1997
Historical pesos..................... Mp$ 8,000,000 (170,544) (2,566,054)
Effects of inflation................. 7,092,546 1,997,348 (2,647,244)
------------- --------- -----------
Constant pesos..................... Mp$15,092,546 1,826,804 (5,213,298)
============= ========= ===========
December 31, 1998
Historical pesos..................... Mp$11,737,025 (170,544) (3,780,890)
Effects of inflation................. 7,535,655 1,997,348 (2,887,099)
------------- --------- -----------
Constant pesos..................... Mp$19,272,680 1,826,804 (6,667,989)
============= ========= ===========
September 30, 1999 (unaudited)
Historical pesos..................... Mp$41,174,000 1,646,989 (8,418,884)
Effects of inflation................. 8,792,960 2,081,617 (5,044,873)
------------- --------- -----------
Constant pesos..................... Mp$49,966,960 3,728,606 (13,463,757)
============= ========= ===========
</TABLE>
b. Changes in stockholders' equity:
--At the Extraordinary Stockholders' Meeting held on January 28, 1997, it
was agreed to increase the fixed portion of common stock, issuing
1,824,998 Series "A" shares, with a par value of one Mexican peso each,
equivalent to Mp$2,674,809 (Mp$1,824,998 historical). These shares were
paid through capitalization of contributions for future capital stock
increases, previously paid in cash.
It was also agreed to change the minimum fixed portion of common stock,
so that it be represented by 5,750,000 Series "A" shares, not subject to
withdrawal.
--At the Extraordinary Stockholders' Meeting held on May 14, 1997, final
approval was granted for the merger of Infoserv, S. A. de C. V., Alta
Corporativo, S. A. de C. V. (affiliated companies) and Infoserve
Information Services, S. A. de C. V. (parent company) into Infoacces, S.
A. de C. V. and Subsidiary, effective November 30, 1996. Infoacces, S. A
de C. V. was the successor company.
F-153
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Constant Mexican pesos as of September 30, 1999)
As a result of the above, the variable portion of the capital stock was
increased issuing 256,002 Series "B" shares, with a par value of one peso
each, equivalent to Mp$358,216 ($256,002 historical), which had been
previously recognized as additional paid-in capital. The new shares are
represented by registered provisional certificates, to be delivered to
the stockholders upon signature of the protocolization document of this
Meeting's minutes. Such provisional certificates must be exchanged for
final certificates within one year from the date of the meeting.
--At the Stockholders' Meeting held on October 15, 1997, it was agreed to
increase the variable portion of common stock, issuing of 350,000 Series
"B" shares, with a par value of one peso each, equivalent to Mp$466,178
(Mp$350,000 historical); it was also agreed that these shares were paid
with a premium of Mp$972,412 (Mp$730,000 historical), through
capitalization of contributions for future capital stock increases,
previously paid in cash.
--At the Extraordinary Stockholders' Meeting held on August 11, 1998, it
was agreed to transfer 2,250,000 shares of the variable portion to the
fixed minimum common stock. After this change, the minimum fixed portion
of common stock was represented by 8,000,000 common, registered Series
"A" shares with a par value of one Mexican peso each.
--At the Extraordinary Stockholders' Meeting held on November 26, 1998 it
was agreed to increase the variable portion of common stock by
Mp$8,849,371 (Mp$8,000,000 historical), issuing 800,000 Series "B"
shares, with no par value. Mp$4,180,134 (Mp$3,737,025 historical) was
paid in cash, while Mp$4,669,237 is still unpaid. It was also agreed to
eliminate the par value of the shares.
--At the Ordinary Stockholders' Meeting held on November 30, 1998, it was
agreed to issue common stock aggregating Mp$657,180 (Mp$600,000
historical), represented by 600,000 limited vote, common, registered
shares with no par value, identified as Series "V". The Board of
Directors was granted the authority to sell these shares and/or to
establish a trust for an employees' plan, which serves as an incentive to
retain key personnel. To date, the trust has not been established.
After the above agreements, the capital stock at December 31, 1998 is
represented by 8,000,000 Series "A" shares, representing the fixed
portion of the common stock, and 800,000 Series "B" shares, representing
the variable portion, which is unlimited. The shares have no par value.
Subsequent events (unaudited):
--At the Extraordinary Stockholders' Meeting held on January 22, 1999, it
was agreed to increase the variable portion of common stock by
Mp$31,744,440, issuing 1,560,000 Series "A". The shares have no par
value.
--At the Extraordinary Stockholders' Meeting held on May 3, 1999, it was
agreed to adopt the par value of the common stock of U.S.$2 dollars per
share. The Stockholders' agreed to adopt retroactively the par value of
the stock regarding the resolution made on January 22, 1999. As a result
of this change, the increase of the variable portion of common stock was
Mp$29,555,043 (Mp$28,704,000 historical). Therefore, the difference
between the par value and the price paid at the subscription date of
Mp$1,901,802 (Mp$1,817,533 historical) it was considered as an additional
paid-in capital in the accompanying statement of changes in stockholders'
equity.
--During October 1999, the stockholders' subscribed all unpaid common
stock.
F-154
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Constant Mexican pesos as of September 30, 1999)
c. Retained earnings:
Retained earnings are subject to the following restrictions:
--5% of net income for the year should be appropriated to the legal reserve
until it reaches one-fifth of the capital stock. At December 31, 1998,
the legal reserve was zero.
--Earnings of subsidiaries may not be distributed until received as
dividends in the parent company.
d. Restrictions to stockholders' equity:
The amount updated on tax bases of stockholders' contributions and retained
earnings, on which income tax has been paid, when applicable, may be reimbursed
or distributed to the stockholders tax-free. Other refunds and distributions,
in excess of these amounts, pursuant to the procedure set forth by the Law, are
subject to income tax at the rate of 35%. Therefore, stockholders may only
receive of 65% of such amounts. Beginning January 1, 1999, profits distributed
to individuals or residents abroad are subject to an additional 5% income tax
withholding.
(12) Income tax (IT), tax on assets (TA), employees' statutory profit sharing
(ESPS) and tax loss carryforwards:
Under the current tax laws, companies must pay the greater of IT or TA. Both
taxes recognize the effects of inflation, computed on a basis other than
generally accepted accounting principles in Mexico.
ESPS is computed practically on the same basis as IT, but without recognizing
the effects of inflation.
The TA Law establishes a 1.8% tax on assets updated for inflation, reduced by
certain liabilities. TA payable in excess of IT for the year may be recovered
in the ten succeeding years, updated for inflation, provided that IT exceeds TA
in any such years. In 1998 and 1997 the Company was not subject to TA in
accordance with the provisions of the Law.
IT and ESPS expense are summarized as follows:
<TABLE>
<CAPTION>
(Unaudited)
December 31, September 30
---------------------- -------------------
1997 1998 1998 1999
------------ --------- --------- ---------
<S> <C> <C> <C> <C>
Current income tax................. Mp$1,661,965 1,620,815 1,749,709 4,156,640
Employees' profit sharing.......... 576,750 500,502 106,030 1,187,611
Utilization of tax loss
carryforward...................... 396,109 -- -- --
============ ========= ========= =========
</TABLE>
The Company and its subsidiary file their income tax and tax on assets
returns on an individual basis. Therefore, the amounts of these items included
in the accompanying consolidated financial statements represents the sum of
individual results of each company. For employees' statutory profit sharing
purposes, the amount presented represents the sum of individual results of each
company.
In accordance with the Mexican IT Law, the net operating losses of a year,
updated for inflation, may be carried forward to the taxable income of the ten
succeeding years. Tax losses have no effect on ESPS. The remaining net
operating losses sustained in prior years, amounting to Mp$1,165,026, were
carried to the 1997 taxable income, resulting in a tax benefit of Mp$396,109,
reported as an extraordinary item in the consolidated statement of operation of
such year.
F-155
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Constant Mexican pesos as of September 30, 1999)
At December 31, 1998 the Company has accumulated tax loss carryforwards as
follows:
<TABLE>
<CAPTION>
Year in which tax Amount of Year of
loss ocurred carryforward expiration
<S> <C> <C>
1997................................................. Mp$ 300,541 2008
1998................................................. 149,923 2009
===========
</TABLE>
At December 31, 1997, 1998 and September 30, 1999, there are net timing
differences on which no deferred IT and ESPS of Mp$199,798, Mp$1,025,314 and
Mp$2,894,243 (unaudited), respectively have been recognized, since it is
considered that they do not meet the requirements established by generally
accepted accounting principles in Mexico. These differences may reduce the
taxable income in future years, and include the following:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------
1997 1998 September 30, 1999
--------------------------- ---------------------- ----------------------
IT ESPS IT ESPS IT ESPS
--------------- ---------- ---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts receivable.... Mp$ (1,278,208) (1,278,208) (1,419,710) (1,419,710) (3,227,827) (3,227,827)
Inventories............. 595,099 595,099 416,333 416,333 384,151 348,151
Fixed assets and pre-
operating expenses..... 558,332 5,948,190 2,039,767 6,882,472 845,617 5,577,498
Prepaid expenses........ -- -- 1,598,219 1,598,219 -- --
Deferred revenue........ (1,554,276) (1,554,276) (4,346,002) (4,346,002) (4,869,833) (4,869,833)
Other reserves.......... -- -- (1,643,239) (1,643,239) (607,289) (607,289)
--------------- ---------- ---------- ---------- ---------- ----------
Mp$ (1,679,053) 3,710,805 (3,354,632) 1,448,073 (7,475,181) 2,779,300
=============== ========== ========== ========== ========== ==========
</TABLE>
At December 31, 1998, the Company considered tax deductible the aggregate
expenses associated with leasehold improvements (note 8), resulting in a
benefit of Mp$2,062,506. As a result, deferred taxes amounting to Mp$721,877
were charged to operations in 1998.
(13) Contingent liabilities and commitments:
a. There is a contingent liability arising from labor obligations referred
to in note 1.
b. Beginning January 1, 1997, pursuant to the amendments to the Income Tax
Law, companies carrying out transactions with related parties, whether
domestic or foreign, are subject to important tax limitations and
obligations regarding the determination of transfer prices, since such
prices should be similar to those that would be used in arm's-length
transactions.
In the event the tax authorities review the prices and reject the
amounts determined, they could demand, in addition to the tax and
corresponding additional charges (updating and surcharges), fines on
the omitted taxes, which could be of up to 100% of the updated amounts
of taxes.
c. The Company has a plan (unaudited) to address the "Year 2000" issue.
This plan addresses the impact of the Year 2000 problem in the computer
systems that affect the Company's operations, its transactions with
third parties and its financial information. Notwithstanding the steps
being taken by the Company and due to the general uncertainty inherent
in the Year 2000 problem, there may be
F-156
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Constant Mexican pesos as of September 30, 1999)
internal undetected problems or consequences arising from transactions
with third parties, which the Company is unable to determine or quantify
at this time. Not sufficient elements were available to determine the
costs incurred in connection with this plan for the year ended December
31, 1998 and the overall project cost.
d. The Company is obligated under non cancelable operating leases,
principally office space, in five different locations. Future minimum
payments under these non-cancelable operating leases as of December 31,
1998 and September 30, 1999 are as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(Unaudited)
<S> <C> <C>
Year ending December 31:
1999............................................ Mp$1,363,260 522,781
2000............................................ 1,024,672 1,453,224
2001............................................ 916,661 1,120,202
2002............................................ 758,412 872,045
2003 and there after............................ 309,760 473,039
------------ ---------
Mp$4,372,765 4,441,291
============ =========
</TABLE>
Rental expense for 1997, 1998 and nine months period ended September 30,
1999 (unaudited) amounted to Mp$951,210, Mp$1,440,114 and Mp$1,590,493,
respectively.
e. The Company's contracts with customers contain commitments, for
remaining periods ranging from three months to one year, to provide
internet and customer services.
(14) Subsequent events (unaudited):
Sale of CSI and To2 project:
On July 1, 1999, the Company entered into a stock purchase agreement with
the former shareholders' to sell its 95% interest in CSI, S. A. de C. V. (CSI)
for approximately Mp$1,410,000. As a result of this transactions, the Company
recognized a gain of approximately Mp$1,026,000 in the accompanying
consolidated statement of operations for the period ended September 30, 1999.
On September 1, 1999, the Company entered into a purchase agreement with To2
Mexico, S. A. de C. V. (To2) to sell the To2 project (developed web page) for
approximately Mp$24,353,000 to former shareholders. To2 project consisted in
the research, design and development of the web page (virtual newspaper
developed under internet platform); the Company sold all related To2's project
costs such as indirect and direct costs, capital expenditures and other fixed
assets. Research and development expenses had been capitalized since the
inception of the project which were included in other assets at December 31,
1997 and 1998. As a result of this transaction the Company recognized a gain
of approximately Mp$3,546,000 in the accompanying consolidated statement of
operations for the period ended September 30, 1999.
During 1999, the Company sold part of its fixed assets to CSI, (subsidiary
Company until July 1, 1999). As a result of this transaction, the Company
recognized a loss of approximately Mp$20,000 in the accompanying consolidated
statement of operations. Account receivable arising from this transaction was
formalized with notes receivable of approximately Mp$958,000. In October 1999,
CSI paid the amount related to fixed assets sale.
F-157
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Constant Mexican pesos as of September 30, 1999)
In October 1999, To2 paid approximately Mp$12,183,000 (U.S.$1,287,000
dollars) via wire-transfer to Infoacces. Furthermore, on October 9, 1999, To2
formalized its outstanding debt with credit instrument of approximately
Mp$20,378,000 (U.S.$2,154,000 dollars), plus interest thereon at an annual rate
of 5%. Such instrument must be exchanged for common stock of To2 within two to
four years according with the terms of the purchase agreement. The number of
shares for which the instrument will be exchanged shall be determined based on
the current per share price which may not be less than the price prevailing at
the date of the last subscription made. Infoacces shall in no event assign the
aforesaid instrument to a competitor of To2 or to any person with direct or
indirect equity interest in a To2 competitor.
In addition, on October 8, 1999, Infoacces entered into a non-compete
agreement with To2 for two year period commencing on the execution date of the
purchase agreement. As consideration for this agreement, Infoacces paid
U.S.$1,150,000 dollars. The agreement shall be terminated: a) after the
expiration of the two-year term; b) change in shareholder control of To2 board.
After the above mentioned transactions, the unaudited notes and accounts
receivable balance from To2 Mexico, S. A. de C. V. as of September 30, 1999, is
comprised as follows:
<TABLE>
<S> <C>
"Contenidos" (To2 project)..................................... Mp$28,006,455
CSI shares..................................................... 1,410,000
Fixed assets................................................... 2,679,044
Trade.......................................................... 1,478,062
Notes receivables.............................................. 1,028,538
-------------
34,602,099
Less Current position -- Long term portion..................... 20,378,000
-------------
Mp$14,224,099
=============
</TABLE>
Notes payable to To2 as of September 30, 1999 is comprised by three
documents, bearing interest at annual rate of 15% and maturing on October 1999,
and amounts to U.S.$444,790 dollars. During October 1999, the Company fully
repaid the loans mentioned.
(15) Reconciliation between Mexican (Mexican GAAP) and United States of America
(U.S. GAAP) Generally Accepted Accounting Principles:
The Company's consolidated financial statements are prepared in accordance
with Mexican GAAP, which differ in certain significant respects from U.S. GAAP.
The Mexican GAAP consolidated financial statements include the effects of
inflation as provided for under Bulletin B-10, "Recognition of the Effects of
Inflation on the Financial Information". The application of this statement
represents a comprehensive measure of the effects of price level changes in the
Mexican economy and is believed to result in a more meaningful presentation
than historical cost-based financial reporting for both Mexican and U.S.
accounting purposes. Therefore, the following reconciliation to U.S. GAAP does
not include the reversal of such inflationary effects.
The principal differences between Mexican GAAP and U.S. GAAP are summarized
in the following pages with an explanation, where appropriate, of the effects
on consolidated results of operations and stockholders' equity.
F-158
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Constant Mexican pesos as of September 30, 1999)
Reconciliation of consolidated results of operations:
<TABLE>
<CAPTION>
December 31, September 30,
------------------------- -----------------------
1997 1998 1998 1999
------------- ---------- ---------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Net (loss) income of
majority interest under
Mexican GAAP.............. Mp$ (65,930) (1,454,691) 2,243,565 (6,795,768)
Approximate U.S. GAAP
adjustments:
Pre-operating expenses
and deferred costs (a).. 335,122 (1,552,885) (1,176,665) 1,265,267
Deferred income taxes and
employees' statutory
profit sharing (b)...... (1,409,043) 2,307,996 1,493,416 254,258
Unrealized gain on To2
Project and
CSI Stock (j)........... -- -- -- (4,571,888)
Imputed dividend on
acquisition of
subsidiary.............. 154,411 -- -- --
Monetary (loss) on
previous years U.S. GAAP
adjustments............. (545,004) (261,925) (181,062) (158,317)
------------- ---------- ---------- -----------
Approximate net loss of
majority interest under
U.S. GAAP, including the
effects of inflation...... Mp$(1,530,444) (961,505) 2,379,254 (10,006,448)
============= ========== ========== ===========
Basic and diluted loss per
common share under U.S.
GAAP...................... Mp$ (.2000) (.1182) (.2974) (.9943)
============= ========== ========== ===========
Basic and diluted weighted
average number of common
shares outstanding........ 7,652,166 8,133,333 8,000,000 10,063,888
============= ========== ========== ===========
</TABLE>
Reconciliation of stockholders' equity:
<TABLE>
<CAPTION>
Nine months ended
December 31, September 30,
------------------------- ----------------------
1997 1998 1998 1999
------------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Majority stockholders'
equity balance under
Mexican GAAP............... Mp$11,706,052 14,431,495 16,050,113 40,231,809
Pre-operating and deferred
costs (a).................. (3,679,899) (5,232,784) (4,856,564) (3,967,517)
Deferred income taxes and
employees' profit sharing
on current and previous
years U.S. GAAP adjustments
(b)........................ 2,624,829 4,932,825 4,118,245 5,187,083
Unrealized gain on To2
Project and CSI shares
(j)........................ -- -- -- (4,571,888)
Monetary loss on current and
previous years U.S. GAAP
adjustments................ (545,004) (806,929) (726,066) (965,246)
------------- ---------- ---------- ----------
Approximate majority
stockholders' equity
balance under U.S. GAAP.... Mp$10,105,978 13,324,607 14,585,728 35,914,241
============= ========== ========== ==========
</TABLE>
F-159
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Constant Mexican pesos as of September 30, 1999)
An analysis of the changes in majority stockholders' equity under U.S. GAAP
is as follows:
<TABLE>
<CAPTION>
Nine months ended
December 31, September 30,
------------------------- ----------------------
1997 1998 1998 1999
------------- ---------- ---------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Balance at beginning of
period.................... Mp$ 7,677,434 10,105,978 10,105,978 13,324,607
Stock issuance............. 4,113,399 4,180,134 2,100,496 32,596,082
Imputed dividend on
acquisition of
subsidiary................ (154,411) -- -- --
Net loss under U.S. GAAP... (1,530,444) (961,505) 2,379,254 (10,006,448)
------------- ---------- ---------- -----------
Balance at end of period... MP$10,105,978 13,324,607 14,585,728 35,914,241
============= ========== ========== ===========
</TABLE>
a. Preoperating other assets and deferred costs
Under Mexican GAAP, all preoperating costs incurred by the Company prior to
commencement of operations are capitalized and amortized over their related
useful lives. In addition, all direct and indirect costs related to the
Contenidos Project are capitalized and amortized over the estimated life of the
project. For U.S. GAAP purposes, the Company expenses all preoperating costs
and project costs that are incurred in the preliminary project stage. Costs
incurred during the application stage are capitalized and amortized over the
estimated life of the project. At December 31, 1998, the Company had
capitalized approximately Mp$1,890,000 for US GAAP purposes.
The Company capitalized various costs under Mexican GAAP that may not
qualified for U.S. GAAP. These costs were identified and expensed for U.S. GAAP
purposes.
b. Deferred income taxes and employees' statutory profit sharing
Under Mexican GAAP deferred income taxes are recognized only for
identifiable, non-recurring timing differences between taxable and book income.
The benefit for utilizing tax loss carryforwards and assets tax credits is not
recognized until realized, at which time it is presented as an extraordinary
item.
The Company follows Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes" for U.S. GAAP reconciliation purposes. This
statement requires an asset and liability approach for financial accounting and
reporting for income taxes under the following basic principles: (a) a current
tax liability or asset is recognized for the estimated taxes payable or
refundable on tax returns for the current year, (b) a deferred tax liability or
asset is recognized for the estimated future tax effects attributable to
temporary differences and tax loss and tax credit carryforwards, (c) the
measurement of current and deferred tax liabilities and assets is based on
provisions of the enacted tax law and the effects of future changes in tax laws
or rates are not anticipated, (d) the measurement of deferred tax assets is
reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized. Under this method,
deferred taxes are recognized with respect to all temporary differences, and
the benefit from utilizing tax loss carryforwards and asset tax credits is
recognized in the year in which the loss or credits arise (subject to a
valuation allowance with respect to any tax benefits not expected to be
realized). The subsequent realization of this benefit does not affect income.
Consequently, such realization does not give rise to extraordinary items from
this for U.S. GAAP purposes. The effect on deferred taxes of a change in tax
rates is recognized in income in the period that includes the enactment date.
The temporary differences under SFAS No. 109 are determined based on the
differences between the indexed tax basis amount of the asset or liability and
the related amount reported in the financial statements.
F-160
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Constant Mexican pesos as of September 30, 1999)
Deferred tax expense or benefit is calculated as the difference between (a)
deferred tax assets and liabilities net of any valuation allowances reported at
the end of the current year determined as indicated above and (b) deferred tax
assets and liabilities net of any valuation allowances reported at the end of
the prior year, remeasured to units of current general purchasing power at the
end of the current period.
Since employees' profit sharing is calculated based on taxable income after
certain adjustments and is subject to future consequences of temporary
differences in the same manner as income taxes, the deferred employee's
statutory profit sharing, which is not recorded under Mexican GAAP, must be
included in the reconciliation of Mexican to U.S. GAAP.
The components of the income tax expense under U.S. GAAP are as follows:
<TABLE>
<CAPTION>
Nine months ended
December 31, September 30,
----------------------- ---------------------
1997 1998 1998 1999
------------ ---------- ---------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Current......................... Mp$1,265,856 1,620,815 1,749,709 2,779,393
Deferred (benefit).............. 1,250,675 (1,268,009) (1,510,425) (299,388)
------------ ---------- ---------- ---------
Net effect.................... Mp$2,516,531 352,806 239,284 2,480,005
============ ========== ========== =========
</TABLE>
Current and deferred employees' statutory profit sharing expense were
reclassified in note 15n. to operating expenses in order to comply with U.S.
GAAP presentation.
F-161
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Constant Mexican pesos as of September 30, 1999)
The income tax and employees' statutory profit sharing effects of significant
items comprising the Company's net deferred tax and liabilities and employees'
statutory profit sharing under SFAS No. 109 are as follows:
<TABLE>
<CAPTION>
December 31, Nine-months ended September 30,
------------------------------------------- ------------------------------------------
1997 1998 1998 1999
---------------------- ------------------- ------------------- ---------------------
Profit Income Profit Income Profit Profit
Income tax sharing tax sharing tax sharing Income tax sharing
------------ -------- --------- -------- --------- -------- ---------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Deferred income tax and
employees' statutory
profit sharing assets:
Net operating loss
carryforwards......... Mp$ 132,750 -- 194,128 -- 194,128 -- -- --
Fixed assets,
preoperating expenses
and other assets...... 1,245,537 -- 1,095,000 -- 2,237,038 -- 102,636 --
Deferred revenue....... 528,440 155,423 1,523,877 435,394 646,038 184,582 1,704,442 486,983
Unrealized gain on To2
project and CSI
shares................ -- -- -- -- -- -- 2,500,291 714,369
Other reserves......... 401,366 118,049 1,170,508 334,430 850,997 243,142 1,342,289 383,512
------------ -------- --------- -------- --------- -------- ---------- ---------
Total deferred income
tax and employees'
profit sharing
assets................ 2,308,093 273,472 3,983,513 769,824 3,928,201 427,724 5,649,658 1,584,864
Valuation allowance..... (132,750) -- (194,128) -- (194,128) -- (2,500,291) (714,369)
------------ -------- --------- -------- --------- -------- ---------- ---------
Net deferred income tax
and employees'
statutory profit
sharing assets........ 2,175,343 273,472 3,789,385 769,824 3,734,073 427,724 3,149,367 870,495
------------ -------- --------- -------- --------- -------- ---------- ---------
Deferred income tax and
employees' statutory
profit sharing
liabilities:
Fixed assets,
preoperating expenses
and other assets...... -- (172,652) -- (171,413) -- (274,943) -- (443,864)
Prepaid expenses....... -- -- (559,377) (159,822) (268,972) (76,849) -- --
Other.................. (151,766) (44,572) (255,692) (73,055) (150,380) (42,966) (134,453) (38,415)
------------ -------- --------- -------- --------- -------- ---------- ---------
Total deferred income
tax and employees'
statutory profit
sharing liability..... (151,766) (217,224) (815,069) (404,290) (419,353) (394,758) (134,453) (482,279)
------------ -------- --------- -------- --------- -------- ---------- ---------
Net deferred income tax
and employees'
statutory profit
sharing asset U.S.
GAAP.................. 2,023,577 56,248 2,974,316 365,534 3,314,720 32,966 3,014,914 388,216
Inflation effects....... 511,491 33,513 828,763 42,335 730,949 39,610 1,143,813 78,010
Deferred tax liability
recorded under Mexican
GAAP.................. -- -- 721,877 -- -- -- 562,129 --
------------ -------- --------- -------- --------- -------- ---------- ---------
U.S. GAAP adjustments
to stockholders'
equity................ Mp$2,535,068 89,761 4,524,956 407,869 4,045,669 72,576 4,720,857 466,226
============ ======== ========= ======== ========= ======== ========== =========
</TABLE>
F-162
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Constant Mexican pesos as of September 30, 1999)
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. During 1997, 1998 and the
nine-month period ended September 30, 1999, the valuation allowance for
deferred income tax assets and statutory employees' profit sharing increased by
Mp$136,655, Mp$68,170 and Mp$3,009,835 (unaudited), respectively. The increase
to the allowance was the result of additional net operating loss carryforwards
of its subsidiary and unrealized gain in To2 project and CSI shares as
described in note 15j. The Company is not expecting to apply such net operating
loss carryforwards against future taxable income as well as the uncertainty of
the realization of the deferred tax assets derived from the sales of some
assets. The amount of the deferred tax asset considered realizable could,
however, be reduced in the near term if estimates of future taxable income
during the carryforward period are reduced.
Effective December 31, 1998, the Company increased its income tax rate from
34% to 35% for temporary differences to give effect to the enactment of the new
income tax law in Mexico. This resulted in a reduction in the deferred tax
benefit of Mp$77,586 for U.S. GAAP purposes in 1998.
c. Accrued vacation cost
Under Mexican GAAP, vacation expense is recognized when taken rather than
during the period in which it is earned by the employees. The Company's policy
and practice is that any vacation not taken by employees prior to the end of
the year is lost. The Company has, therefore, not recorded a liability for
vacation pay as of December 31, 1997, 1998 and September 30, 1999.
F-163
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Constant Mexican pesos as of September 30, 1999)
d. Accrued termination benefits
Under Mexican GAAP, an accrual is not provided for estimable termination
benefits, and they are recognized in the results of the Company when they are
paid to terminated employees. In order to comply with U.S. GAAP, the Company
estimated the benefits it would pay to terminated employees in the future as of
December 31, 1997, 1998 and September 30, 1999. These amounts were not
considered significant by the Company's management.
e. Other employee benefits
The Company has no postretirement health care insurance or other benefit
plans; therefore. SFAS No. 106. "Employers' Accounting for Postretirement
Benefits Other than Pensions" and SFAS No. 112, "Employers' Accounting for
Postemployment Benefits" would have no effect on the Company's financial
position.
f. Minority interest
Under Mexican GAAP, Bulletin B-8, minority interests in subsidiaries must be
included as a component of stockholders' equity. Consequently, minority
interest in the income of subsidiaries is not presented as an expense in the
statement of operations. Under U.S. GAAP, minority interest in subsidiaries is
classified as a separate component bin total liabilities & stockholders equity
in the consolidated balance sheet and is excluded from stockholders' equity.
g. Monetary gain/(loss)
The U.S. GAAP financial information reflects the effects of inflation as this
provides more meaningful information in inflationary economies.
h. Extraordinary items
Infoacces utilized tax loss carryforwards of Ps$1,165,026 (Mp$896,769
historically) for the year ended December 31, 1997. Under Mexican GAAP, the
utilization of these items is presented as extraordinary items in the statement
of operations. Under U.S. GAAP, the utilization of tax loss carryforwards and
tax credits is included in the provision for income taxes.
i. Segment information under U.S. GAAP
The Company divides its operations principally into three different business
units: internet services, network and web development. The Company makes
resource allocation decisions on individual business unit level, and therefore,
segment data has been presented for the Company's significant units. During
1997, the company had one business unit only, therefore no financial data is
provided for such year.
F-164
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Constant Mexican pesos as of September 30, 1999)
A summary of selected financial information under Mexican GAAP by business
unit is presented as follow:
<TABLE>
<CAPTION>
Internet services
---------------------------------
December 31,
1998 September 30, 1999
------------- ------------------
(unaudited)
<S> <C> <C>
Revenue.................................... Mp$56,698,535 50,272,907
Operating (loss) income.................... 15,257,743 14,672,837
<CAPTION>
Network
---------------------------------
December 31,
1998 September 30, 1999
------------- ------------------
(unaudited)
<S> <C> <C>
Revenue.................................... Mp$30,247,806 27,852,228
Operating (loss) income.................... (10,961,478) (17,036,986)
<CAPTION>
Web development
---------------------------------
December 31,
1998 September 30, 1999
------------- ------------------
(unaudited)
<S> <C> <C>
Revenue.................................... Mp$ 739,111 --
Operating (loss) income.................... (1,722,621) --
<CAPTION>
Others
---------------------------------
December 31,
1998 September 30, 1999
------------- ------------------
(unaudited)
<S> <C> <C>
Revenue.................................... Mp$ 557,698 609,606
Operating (loss) income.................... (1,004,318) (3,325,156)
</TABLE>
j. Sale of To2 project and CSI stock
The gain obtained from the To2 project sale and CSI's shares of Mp$3,546,098
and Mp$1,025,790, respectively, recognized for Mexican GAAP purposes (note 14)
is considered as an unrealized gain for U.S. GAAP purposes; These transactions
are not considered to be the culmination of the earnings process, and the
company's investment in the new entity will be reflected at the original
recorded amount.
k. Comprehensive income (loss)
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income". SFAS 130 establishes standards for reporting
and display of comprehensive income and its components in a full set of
financial statements. Comprehensive income (loss) is defined as the change in
equity during the period from transactions and other events and circumstances
from non-owner sources. Comprehensive income (loss) and net income (loss) is
the same at December 31, 1997 and 1998. Adoption of this statement did not have
an impact on the Company's financial condition or result of operations as it
only relates to changes in, or additions to, the financial statements
disclosures.
l. Recent pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). The
statement provides guidance for accounting for all
F-165
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Constant Mexican pesos as of September 30, 1999)
derivative and hedging activities. All derivative instruments are to be
recognized as assets or liabilities in the balance sheet and measured at fair
value. In accounting for a fair value hedge, the derivative hedging instrument
will be measured at fair value with the market to fair value being recorded in
earnings. SFAS No. 133 is effective for fiscal quarters or fiscal years
beginning after June 15, 2000. The Company is not expected to have a
significant impact from the adoption of this standards.
In March 1998, the AICPA Accounting for Standards Executive Committee (AcSEC)
issued Statements for Position 98-1 "Accounting for the Cost of Computer
Software Developed of obtained for internal Use" (SOP 98-1), which provides
guidance on accounting for the costs of computer software developed or obtained
for internal use. SOP 98-1 requires that certain costs related to the
development or purchase of internal-use software be capitalized and amortized
over the estimated useful life of the software and that costs related to the
preliminary project stage and post-implementation operations stage (as defined
in SOP 98-1), in an internal-use computer software development project be
expensed as incurred. SOP 98-1 is not expected to have a significant impact on
the Company's financial position, results of operations or cash flows.
In April 1998, the AcSEC issued Statement of Position 98-5 "Reporting on the
Costs of Start-Up Activities" (SOP 98-5), which requires that costs incurred
during start-up activities, including organization costs, be expensed as
incurred. SOP 98-5 is effective for financial statements for fiscal years
beginning after December 15, 1998. Under U.S. GAAP, the Company expenses costs
of start-up activities as incurred and, consequently, the Company believes that
the adoption of this SOP will not have a material impact on its results of
operations, financial position or cash flows.
The Mexican Institute of Public Accountants issued Bulletin D-4 "Accounting
for Deferred Income Taxes, Tax on Assets and Employees' Statutory Profit
Sharing," which provides guidance an accounting for deferred employees'
statutory profit sharing and income taxes. This statement requires an asset and
liability approach for financial accounting and reporting for deferred income
taxes and statement of operations approach for deferred employees' statutory
profit sharing. This bulletin is similar as SFAS No. 109 for U.S. GAAP, as
described in note 15b. "D-4" is effective for fiscal years beginning after
December 31, 1999, although early application is encouraged.
m. Cash flow information
The following table summarizes the cash flow items as required under SFAS 95
provided by (used in) operating, investing and financing activities for the
years ended December 31, 1997 and 1998, and for the nine months ended September
30, 1998 and 1999, giving effect to the U.S. GAAP adjustments, excluding the
effects of inflation required by Bulletin B-10. The following information is
presented on a historical peso basis and it is not presented in constant
purchasing power.
<TABLE>
<CAPTION>
Nine months ended
December 31, September 30,
-------------------------- -----------------------
1997 1998 1998 1999
------------- ----------- ---------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Net cash provided (used
in) by operating
activities.............. Mp$ 4,851,866 9,399,960 6,356,620 (7,205,936)
Net cash used in
investing activities.... (5,106,820) (10,817,457) (7,246,427) (30,800,757)
Net cash provided by
financing activities.... Mp$ 185,592 4,069,470 1,913,353 37,477,273
</TABLE>
F-166
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Constant Mexican pesos as of September 30, 1999)
Supplemental disclosure of cash flow information:
<TABLE>
<CAPTION>
December 31, September 30,
--------------------- -------------------
1997 1998 1998 1999
----------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Cash paid during the year
for:
Interest................ Mp$ 239,754 557,604 298,086 888,548
=========== ========= ========= =========
Income taxes............ Mp$ 974,386 2,318,404 1,511,212 495,025
=========== ========= ========= =========
Capital lease
obligations incurred... Mp$ 510,281 1,384,892 1,384,892 1,136,629
=========== ========= ========= =========
</TABLE>
Supplemental disclosure of noncash investing activities:
In 1997, the Company acquired a 95% interest in CSI, S. A. de C. V. (CSI). In
connection with this acquisition, the Company capitalized notes receivable from
CSI of approximately Mp$1,000,000 in exchange for CSI stock. The acquisition
has been accounted for using the purchase method of accounting (see note 2).
n. Condensed balance sheets and statements of operations
The following condensed balance sheets and statements of operations reflect
the effects of the principal differences between Mexican GAAP and U.S. GAAP:
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1998 September 30, 999
-------------- ---------- -----------------
(Unaudited)
<S> <C> <C> <C>
Balance sheets
Current assets.................... Mp$ 10,500,673 15,260,848 36,442,532
Furniture and equipment, net...... 17,704,384 24,850,755 26,365,983
Deferred taxes.................... 1,072,885 923,585 --
Long-term notes receivable from
To2 Mexico, S. A. de C. V. -- -- 13,234,311
Other assets...................... 162,388 2,397,783 1,212,784
-------------- ---------- ----------
Total assets.................... Mp$29,440,330 43,432,971 77,255,610
============== ========== ==========
Short-term debt................... 1,543,688 1,842,411 4,033,366
Notes payable to To2.............. -- -- 4,158,032
Accounts payable and accrued
liabilities...................... 13,889,303 19,706,836 19,886,274
Deferred revenue.................. 1,554,276 4,346,002 4,869,833
Income taxes...................... 690,462 235,752 4,156,640
Other current liabilities......... 456,515 1,522,982 349,193
-------------- ---------- ----------
Total current liabilities....... 18,134,244 27,653,983 37,453,338
Deferred taxes.................... -- -- 341,228
Long-term debt.................... 1,148,305 2,428,095 3,546,803
-------------- ---------- ----------
Total liabilities............... 19,282,549 30,082,078 41,341,369
-------------- ---------- ----------
Minority interest................. 51,803 26,286 --
Stockholders' equity.............. 10,105,978 13,324,607 35,914,241
-------------- ---------- ----------
10,157,781 13,350,893 35,914,241
-------------- ---------- ----------
Total liabilities and
stockholders' equity........... Mp$ 29,440,330 43,432,971 77,255,610
============== ========== ==========
</TABLE>
F-167
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Constant Mexican pesos as of September 30, 1999)
<TABLE>
<CAPTION>
Nine months ended
December 31, September 30,
------------------------- -----------------------
1997 1998 1998 1999
------------- ---------- ---------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Revenue................... Mp$65,249,803 88,243,150 66,633,990 78,734,741
Cost of revenue........... 32,218,821 43,305,610 31,618,874 36,246,062
------------- ---------- ---------- -----------
Gross profit.............. 33,030,982 44,937,540 35,015,116 42,488,679
Operating expenses........ 31,994,405 45,063,632 31,714,605 48,045,842
------------- ---------- ---------- -----------
Operating income (loss)... Mp$ 1,036,577 (126,092) 3,300,511 (5,557,163)
Comprehensive financing
cost:
Interest expense, net... Mp$ (350,877) (797,039) (393,502) (853,117)
Foreign exchange loss,
net.................... (757,552) (690,859) (937,653) (1,197,218)
Monetary gain (loss).... 320,198 553,189 434,232 (660,690)
------------- ---------- ---------- -----------
Net comprehensive
financing cost........... (788,231) (934,709) (896,923) (2,711,025)
------------- ---------- ---------- -----------
Other income.............. 729,294 426,585 167,541 705,265
------------- ---------- ---------- -----------
Income (loss) before taxes
and minority interest.... 977,640 (634,216) 2,571,129 (7,562,923)
Income tax expense........ (2,516,531) (352,806) (239,284) (2,480,005)
------------- ---------- ---------- -----------
(Loss) income before
minority interest........ (1,538,891) (987,022) 2,331,845 (10,042,928)
Minority interest......... 8,447 25,517 47,409 36,480
------------- ---------- ---------- -----------
Net (loss) income and
comprehensive income
(loss)................... Mp$(1,530,444) (961,505) 2,379,254 (10,006,448)
============= ========== ========== ===========
</TABLE>
F-168
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 2000
[LOGO]
Shares of Common Stock
----------------
PROSPECTUS
----------------
Donaldson, Lufkin & Jenrette Morgan Stanley Dean Witter
------------------------------------------
Salomon Smith Barney DLJdirect Inc.
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in the prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted. Neither the delivery of this prospectus nor any sales
made hereunder after the date of this prospectus should create an implication
that the information contained in this prospectus or the affairs of VIA have
not changed since the date of this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 2000 (25 days after the date of this prospectus), all dealers
that effect transactions in these securities may be required to deliver a
prospectus. This is in addition to the dealer's obligation to deliver a
prospectus when acting as an underwriter in this offering and when selling
previously unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+We will amend and complete the information in this prospectus. Although we +
+are permitted by U.S. federal securities laws to offer these securities using +
+this prospectus, we may not sell them or accept your offer to buy them until +
+the registration statement filed with the SEC relating to these securities +
+has been declared effective. This prospectus is not an offer to sell these +
+securities or our solicitation of your offer to buy these securities in any +
+jurisdiction where that would not be permitted or legal. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[Alternate Page]
SUBJECT TO COMPLETION - NOVEMBER 24, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Prospectus
, 2000
[INSERT LOGO]
Shares of Common Stock
- --------------------------------------------------------------------------------
VIA: The Offering:
. We are a leading . We are offering
international shares of our
provider of common stock. This
Internet access prospectus relates
and services to an offering of
focusing on small shares outside
and mid-sized the United States
businesses and Canada. In
located in Europe addition, we are
and Latin offering
America. shares in the
United States and
. VIA NET.WORKS, Canada.
Inc. 12100 Sunset
Hills Road, Suite . The U.S.
110 Reston, VA underwriters have
20190 (703) 464- an option to
0300 purchase an
additional
Proposed Symbol & shares from us to
Market: cover over-
allotments.
.VNWI/Nasdaq
National Market . This is our
initial public
offering and we
anticipate that
the initial public
offering price
will be between
$ and $ per
share.
. We intend to use
the net proceeds
of this offering
for general
corporate
purposes,
including funding
our operations,
capital
expenditures,
network expansion,
working capital
and acquisitions
of Internet
services providers
in our target
markets.
. Closing: ,
2000
<TABLE>
<CAPTION>
--------------------------------------------------
Per Share Total
--------------------------------------------------
<S> <C> <C>
Public offering price: $ $
Underwriting fees: $ $
Proceeds to VIA NET.WORKS, Inc.: $ $
--------------------------------------------------
</TABLE>
This investment involves risks. See "Risk Factors" beginning on Page 6.
- --------------------------------------------------------------------------------
Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete, nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette International Morgan Stanley International
------------
Cazenove & Co. MeesPierson N.V. Salomon Smith Barney International
<PAGE>
[Alternate Page]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 2000
[LOGO]
Shares of Common Stock
----------------
PROSPECTUS
----------------
Donaldson, Lufkin & Jenrette International Morgan Stanley International
------------------
Cazenove & Co. MeesPierson N.V. Salomon Smith Barney International
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in the prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted. Neither the delivery of this prospectus nor any sales
made hereunder after the date of this prospectus should create an implication
that the information contained in this prospectus or the affairs of VIA have
not changed since the date of this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 2000 (25 days after the date of this prospectus), all dealers
that effect transactions in these securities may be required to deliver a
prospectus. This is in addition to the dealer's obligation to deliver a
prospectus when acting as an underwriter in this offering and when selling
previously unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table shows the various fees and expenses, other than the
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of the common stock being registered under this registration
statement. All amounts shown are estimates except for the Securities and
Exchange Commission registration fee, the NASD filing fee and the Nasdaq
National Market listing fee.
<TABLE>
<S> <C>
Registration fee................................................. $55,600
NASD filing fee.................................................. 20,500
Nasdaq National Market listing fee............................... 95,000
Printing and engraving expenses.................................. *
Legal fees and expenses.......................................... *
Accounting fees and expenses..................................... *
Blue Sky fees and expenses (including legal fees)................ *
Transfer agent and registrar fees and expenses................... *
Miscellaneous.................................................... *
-------
Total........................................................ $ *
=======
</TABLE>
VIA will bear all expenses shown above.
- ---------------------
* To be filed by amendment.
Item 14. Indemnification of Directors and Officers.
Upon completion of this offering, the Certificate of Incorporation and Bylaws
of the Registrant will provide for the indemnification of the Registrant's
directors and officers to the fullest extent authorized by, and subject to the
conditions set forth in the Delaware General Corporation Law (the "DGCL"),
except that the Registrant will indemnify a director or officer in connection
with a proceeding (or part thereof) initiated by the person only if the
proceeding (or part thereof) was authorized by the Registrant's Board of
Directors. The indemnification provided under the Certificate of Incorporation
and Bylaws includes the right to be paid by the Registrant the expenses
(including attorneys' fees) in advance of any proceeding for which
indemnification may be had in advance of its final disposition, provided that
the payment of those expenses (including attorneys' fees) incurred by a
director or officer in advance of the final disposition of a proceeding may be
made only upon delivery to the Registrant of an undertaking by or on behalf of
the director or officer to repay all amounts so paid in advance if it is
ultimately determined that the director or officer is not entitled to be
indemnified.
As permitted by the DGCL, the Registrant's Certificate of Incorporation will
provide that directors of the Registrant shall not be liable to the Registrant
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Registrant or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL, relating to unlawful payment of
dividends or unlawful stock purchase or redemption or (iv) for any transaction
from which the director derived an improper personal benefit. As a result of
this provision, the Registrant and its stockholders may be unable to obtain
monetary damages from a director for breach of his or her duty of care.
Under the Bylaws, the Registrant will have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the Registrant, or is or was serving at the request of the
Registrant as a director, officer, employee, partner (limited or general) or
agent of another corporation or of a partnership, joint venture, limited
liability company, trust or other enterprise, against any liability asserted
against the person or incurred by the person in that capacity, or arising out
of the person's status, and related
II-1
<PAGE>
expenses, whether or not the Registrant would have the power to indemnify the
person against liability under the provisions of the DGCL. The Registrant has
purchased director and officer liability insurance on behalf of its directors
and officers.
The Underwriting Agreement provides that the underwriters are obligated,
under specified circumstances, to indemnify directors, officers and
controlling persons of VIA against specified liabilities, including
liabilities under the Securities Act of 1933, as amended. Reference is made to
the form of Underwriting Agreement to be filed as Exhibit 1.1 hereto.
Item 15. Recent Sales of Unregistered Securities.
Since its formation in June 1997, VIA has sold and issued the following
unregistered securities:
(a) In August 1997, VIA sold 100 shares of common stock to one accredited
investor for an aggregate purchase price of $50, and sold 900,000 shares of
Series A Preferred Stock ("Series A Preferred") for an aggregate purchase
price of $900,000 to seven accredited investors.
(b) In September 1997, VIA sold 60,000 shares of common stock to one
executive of VIA for an aggregate purchase price of $30,000.
(c) In October 1997, VIA sold 125,000 shares of Series A Preferred for an
aggregate purchase price of $125,000 to two accredited investors.
(d) In January 1998, VIA sold 22,942 shares of common stock to one executive
of VIA for an aggregate purchase price of $11,471.
(e) In February 1998, VIA sold 30,000 shares of common stock to two
executives of VIA for an aggregate purchase price of $15,000.
(f) In April 1998, VIA sold 150,000 shares of common stock to one executive
of VIA for an aggregate purchase price of $150,000, and sold 463,657 shares of
Series A Preferred for an aggregate purchase price of $463,657 to nine
accredited investors.
(g) Effective April 1998, VIA granted a warrant to purchase 100,000 shares
of common stock to Steven C. Halstedt for an aggregate purchase price of
$240,000 as compensation for services rendered by Mr. Halstedt to VIA.
(h) In May 1998, VIA sold 17,195,335 shares of Series B Preferred Stock
("Series B Preferred") for an aggregate purchase price of $51,586,005 to 23
accredited investors.
(i) In June 1998, VIA sold 10,000 shares of common stock to one executive of
VIA for an aggregate purchase price of $10,000 in reliance on Rule 701 under
the Securities Act.
(j) In January 1999, VIA sold 272,284 shares of common stock to nine
executives and employees of VIA for an aggregate purchase price of $653,482 in
reliance on Section 4(2) of the Securities Act and Rule 701 under the
Securities Act.
(k) In April 1999, VIA sold 21,309,658 shares of Series C Preferred Stock
("Series C Preferred") for an aggregate purchase price of $127,857,948 to 30
accredited investors.
(l) In July 1999, VIA sold 394,124 shares of common stock to the
stockholders of one of VIA's operating companies in connection with the
operating subsidiary's acquisition by VIA. These shares were valued at
approximately $3,152,992 and were issued in consideration for stock of the
operating subsidiary. This sale was made in reliance on Regulation S under the
Securities Act. In addition, VIA sold 127,874 shares of common
II-2
<PAGE>
stock to 12 executives, employees and consultants of VIA for an aggregate
purchase price of $511,496 in reliance on Regulation S and Rule 701 under the
Securities Act and Section 4(2) of the Securities Act.
(m) In August 1999, VIA sold 317,421 shares of common stock to the
stockholders of one of VIA's operating companies in connection with the
operating subsidiary's acquisition by VIA. These shares were valued at
approximately $2,539,368 and were issued in consideration for stock of the
operating subsidiary. This sale was made in reliance on Regulation S under the
Securities Act. Further, VIA sold 150,000 shares of common stock to the
stockholders of one of VIA's operating companies in connection with the
acquisition by VIA of the remaining shares in the operating subsidiary. These
shares were valued at approximately $1,237,500 and were issued in consideration
for stock of the operating subsidiary. This sale was made in reliance on
Regulation S under the Securities Act. In addition, VIA sold 50,000 to a
director for an aggregate purchase price of $200,000 in reliance on Section
4(2) of the Securities Act.
(n) In September 1999, VIA sold 332,926 shares of common stock to pay off the
outstanding notes held by the stockholders of one of VIA's operating companies
in connection with the operating subsidiary's acquisition by VIA. These shares
were valued at approximately $2,746,640 and were issued in reliance on
Regulation S under the Securities Act. In addition, VIA sold 40,000 shares of
common stock to an employee for an aggregate purchase price of $160,000 in
reliance on Section 4(2) of the Securities Act.
Except where otherwise indicated, the sales and issuances of securities in
the transactions described above were exempt from registration under the
Securities Act by virtue of Section 4(2) of the Securities Act.
Appropriate legends are affixed to the stock certificates issued in the
aforementioned transactions. Similar legends were imposed in connection with
any subsequent sales of any such securities. All recipients received adequate
information about VIA or had access, through employment or other relationships,
to such information.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Form of Amended and Restated Certificate of Incorporation of
VIA NET.WORKS, Inc.
3.2* Form of Amended and Restated Bylaws of VIA NET.WORKS, Inc.
4.1* Specimen certificate representing the Common Stock
5.1* Opinion of Hogan & Hartson L.L.P. with respect to legality of
the common stock.
10.1* 1998 Stock Option and Restricted Stock Plan, as amended
10.2* Form of 1998 Stock Option and Restricted Stock Plan Incentive
Stock Option Agreement for employee
10.3 Key Employee Equity Plan, as amended
10.4* 401(k) Plan
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<C> <S>
10.5# Indefeasible Right of Use Agreement in Inland Capacity (United
Kingdom), dated as of
June 21, 1999, by and between GT U.K. Ltd. and VIA NET.WORKS
Europe Holding B.V.
10.6# Indefeasible Right of Use Agreement in Inland Capacity (United
States), dated as of June 21, 1999, by and between GT Landing
Corp. and VIA NET.WORKS Europe Holding B.V.
10.7# Capacity Purchase Agreement, dated as of June 21, 1999, by and
between Atlantic Crossing Ltd. and VIA NET.WORKS Europe Holding
B.V.
10.8# Customer Agreement for an IRU Capacity, dated as of July 21,
1999, by and between iaxis Limited and VIA NET.WORKS Europe
Holding B.V.
10.9# Software License and Support Agreement by and between Portal
Software, Inc. and VIA Net Works UK Limited, dated as of
October 29, 1999
10.10 Distribution and Revenue Sharing Agreement, dated as of June
30, 1999, by and between Trellix Corporation and VIA NET.WORKS,
Inc.
10.11 Amended and Restated Stockholders Agreement by and among VIA
NET.WORKS, Inc. and the additional parties named therein, dated
as of April 20, 1999
10.12* Registration Rights Agreement by and among VIA NET.WORKS, Inc.
and the stockholders named therein
10.13 Transit Service Agreement, dated as of August 1, 1999, between
Verio Inc. and VIA NET.WORKS, Inc.
21.1 List of subsidiaries
23.1 Consent of Pricewaterhousecoopers LLP (VIA NET.WORKS, Inc.)
23.2 Consent of Price Waterhouse & Co. (VIA Net Works Argentina,
S.A.)
23.3 Consent of PricewaterhouseCoopers Auditores Independentes
(Dialdata S.A. Internet Systems)
23.4 Consent of PricewaterhouseCoopers (Netlink Internet Services,
Limited)
23.5 Consent of PricewaterhouseCoopers Auditores, S.L. (Disbumad,
S.L.)
23.6 Consent of PricewaterhouseCoopers GmbH (GTN Gesellschaft fur
Telekommunikations-und Netzwerkdienste mbH)
23.7 Consent of PricewaterhouseCoopers (U-Net Limited)
23.8 Consent of PricewaterhouseCoopers N.V. (bART Holding B.V.)
23.9 Consent of PricewaterhouseCoopers (I-Way Limited)
23.10 Consent of PricewaterhouseCoopers-Auditores e Consultores, Lda
(Esoterica-Novas Tecnologias de Informacao SA)
23.11 Consent of PricewaterhouseCoopers (WorldWide Web Services
Limited)
23.12 Consent of KPMG Cardenas Dosal, S.C. (Infoacces, S.A. de C.V.)
23.13* Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- ---------------------
* To be filed by amendment.
# Confidential treatment has been requested for portions of this exhibit.
II-4
<PAGE>
(b) Financial Statement Schedules:
Schedule II Valuation and Qualifying Accounts
All other schedules are omitted because they are not required, are not
applicable or the information is included in the consolidated financial
statements or notes thereto.
Item 17. Undertakings.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) 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 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) 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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Reston, Commonwealth of
Virginia, on November 23, 1999.
VIA NET.WORKS, Inc.
/s/ David D'Ottavio
By: _________________________________
David D'Ottavio
Chief Executive Officer and Chairman
of the Board of Directors
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints David
D'Ottavio and Catherine A. Graham, and each of them, his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, from such person and in each person's name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this registration statement or any registration
statement relating to this registration statement under Rule 462 under the
Securities Act of 1933 and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents or any of them, or his, her or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed as of November 23, 1999 by the following persons in
the capacities indicated.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ David D'Ottavio Chief Executive Officer and Chairman of the
______________________________________ Board of Directors (Principal Executive
David M. D'Ottavio Officer)
/s/ Michael J. Simmons President
______________________________________
Michael J Simmons
/s/ Catherine A. Graham Vice President, Chief Financial Officer and
______________________________________ Treasurer (Principal Financial and Accounting
Catherine A. Graham Officer)
/s/ William A. Johnston Director
______________________________________
William A. Johnston
/s/ Gabriel Battista Director
______________________________________
Gabriel Battista
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Stephen J. Eley Director
______________________________________
Stephen J. Eley
/s/ William J. Elsner Director
______________________________________
William J. Elsner
/s/ Adam Goldman Director
______________________________________
Adam Goldman
/s/ Mark J. Masiello Director
______________________________________
Mark J. Masiello
/s/ John G. Puente Director
______________________________________
John G. Puente
/s/ Erik Torgerson Director
______________________________________
Erik Torgerson
</TABLE>
II-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of VIA NET.WORKS, Inc.
Our audits of the consolidated financial statements referred to in our report
dated August 26, 1999, except for Note 13 which is as of October 11, 1999,
appearing in this Registration Statement on Form S-1 also included an audit of
the consolidated financial statement schedule included in this Registration
Statement. In our opinion, this consolidated financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
McLean, Virginia
August 26, 1999
S-1
<PAGE>
SCHEDULE II
VIA NET.WORKS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Balance at Charged Balance at
Beginning to Costs End of
Description of Period Acquired and Expenses Deductions Period
----------- ---------- -------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Period from Inception
(June 13, 1997) to
December 31, 1997:
Allowance for doubtful
Accounts............. $ 0 0 0 0 $ 0
=== === === === ====
Year ended December 31,
1998:
Allowance for doubtful
Accounts............. $ 0 200 17 0 $217
=== === === === ====
</TABLE>
S-2
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Form of Amended and Restated Certificate of Incorporation of
VIA NET.WORKS, Inc.
3.2* Form of Amended and Restated Bylaws of VIA NET.WORKS, Inc.
4.1* Specimen certificate representing the Common Stock
5.1* Opinion of Hogan & Hartson L.L.P. with respect to legality of
the common stock.
10.1* 1998 Stock Option and Restricted Stock Plan, as amended
10.2* Form of 1998 Stock Option and Restricted Stock Plan Incentive
Stock Option Agreement for employee
10.3 Key Employee Equity Plan, as amended
10.4* 401(k) Plan
10.5# Indefeasible Right of Use Agreement in Inland Capacity (United
Kingdom), dated as of
June 21, 1999, by and between GT U.K. Ltd. and VIA NET.WORKS
Europe Holding B.V.
10.6# Indefeasible Right of Use Agreement in Inland Capacity (United
States), dated as of June 21, 1999, by and between GT Landing
Corp. and VIA NET.WORKS Europe Holding B.V.
10.7# Capacity Purchase Agreement, dated as of June 21, 1999, by and
between Atlantic Crossing Ltd. and VIA NET.WORKS Europe Holding
B.V.
10.8# Customer Agreement for an IRU Capacity, dated as of July 21,
1999, by and between iaxis Limited and VIA NET.WORKS Europe
Holding B.V.
10.9# Software License and Support Agreement by and between Portal
Software, Inc. and VIA Net Works, UK Limited, dated as of
October 29, 1999
10.10 Distribution and Revenue Sharing Agreement, dated as of June
30, 1999, by and between Trellix Corporation and VIA NET.WORKS,
Inc.
10.11 Amended and Restated Stockholders Agreement by and among VIA
NET.WORKS, Inc. and the additional parties named therein, dated
as of April 20, 1999
10.12* Registration Rights Agreement by and among VIA NET.WORKS, Inc.
and the stockholders named therein
10.13 Transit Service Agreement, dated as of August 1, 1999, between
Verio Inc. and VIA NET.WORKS, Inc.
21.1 List of subsidiaries
23.1 Consent of Pricewaterhousecoopers LLP (VIA NET.WORKS, Inc.)
23.2 Consent of Price Waterhouse & Co. (VIA Net Works Argentina,
S.A.)
23.3 Consent of PricewaterhouseCoopers Auditores Independentes
(Dialdata S.A. Internet Systems)
23.4 Consent of PricewaterhouseCoopers (Netlink Internet Services,
Limited)
23.5 Consent of PricewaterhouseCoopers Auditores, S.L. (Disbumad,
S.L.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<C> <S>
23.6 Consent of PricewaterhouseCoopers GmbH (GTN Gesellschaft fur
Telekommunikations-und Netzwerkdienste mbH)
23.7 Consent of PricewaterhouseCoopers (U-Net Limited)
23.8 Consent of PricewaterhouseCoopers N.V. (bART Holding B.V.)
23.9 Consent of PricewaterhouseCoopers (I-Way Limited)
23.10 Consent of PricewaterhouseCoopers--Auditores e Consultores,
Lda. (Esoterica-Novas Tecnologias de Informacao SA)
23.11 Consent of PricewaterhouseCoopers (WorldWide Web
Services Limited)
23.12 Consent of KPMG Cardenas Dosal, S.C. (Infoacces, S.A. de C.V.)
23.13* Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- ---------------------
* To be filed by amendment.
# Confidential treatment has been requested for portions of this exhibit.
<PAGE>
EXHIBIT 10.3
V-I-A INTERNET, INC.
KEY EMPLOYEE EQUITY PLAN
V-I-A Internet, Inc., a Delaware corporation (the "Company"), sets forth
herein the terms of its Key Employee Equity Plan (the "Plan") as follows:
1. PURPOSE
The Plan is intended to enhance the Company's ability to attract and retain
highly qualified officers, key employees, directors and other persons, and to
motivate such officers, key employees, directors, and other persons to serve the
Company and its affiliates (as defined herein) and to expend maximum effort to
improve the business results and earnings of the Company, by providing to such
officers, key employees, directors and other persons an opportunity to acquire
or increase a direct proprietary interest in the operations and future success
of the Company. To this end, the Plan provides for the grant of stock options in
accordance with the terms hereof.
2. DEFINITIONS
For purposes of interpreting the Plan and related documents (including
Award Agreements), the following definitions shall apply:
2.1 "affiliate" of, or person "affiliated" with, a person means any
company or other trade or business that controls, is controlled by or is under
common control with such person within the meaning of Rule 405 of Regulation C
under the Securities Act.
2.2 "Award Agreement" means the stock option agreement or other written
agreement between the Company and a Grantee that evidences and sets out the
terms and conditions of a Grant.
2.3 "Board" means the Board of Directors of the Company.
2.4 "Change of Control" means (i) the dissolution or liquidation of the
Company or a merger, consolidation, or reorganization of the Company with one or
more other entities in which the Company is not the surviving entity, (ii) a
sale of substantially all of the assets of the Company to another entity, or
(iii) any transaction (including without limitation a merger or reorganization
in which the Company is the surviving entity) which results in any person or
entity (other than persons who are shareholders or affiliates of the Company at
the time the Plan is approved by the Company's shareholders) owning 50% or more
of the combined voting power of all classes of stock of the Company.
2.5 "Code" means the Internal Revenue Code of 1986, as now in effect or as
hereafter amended.
2.6 "Committee" means a committee of, and designated from time to time by
resolution of, the Board, which shall consist of no fewer than two members of
the Board, none of whom shall be an officer or other salaried employee of the
Company or any affiliate of the Company.
2.7 "Company" means V-I-A Internet, Inc.
2.8 "Effective Date" means November __, 1998, the date on which the Plan
was adopted by the Board.
<PAGE>
2.9 "Exchange Act" means the Securities Exchange Act of 1934, as now in
effect or as hereafter amended.
2.10 "Fair Market Value" means the value of a share of Stock, determined as
follows: if on the Grant Date or other determination date the Stock is listed on
an established national or regional stock exchange, is admitted to quotation on
the NASDAQ National Market, or is publicly traded on an established securities
market, the Fair Market Value of a share of Stock shall be the closing price of
the Stock on such exchange or in such market (the highest such closing price if
there is more than one such exchange or market) on the Grant Date or such other
determination date (or if there is no such reported closing price, the Fair
Market Value shall be the mean between the highest bid and lowest asked prices
or between the high and low sale prices on such trading day) or, if no sale of
Stock is reported for such trading day, on the next preceding day on which any
sale shall have been reported. If the Stock is not listed on such an exchange,
quoted on such system or traded on such a market, Fair Market Value shall be the
value of the Stock as determined by the Board in good faith. In making its
determination of the value of the Stock, the Board may consider, among other
factors, the following: (a) the then-most recent price for the Stock or other
capital stock of the Company as established in a private equity placement by the
Company, (b) the Option Price established for the Stock in the then-most recent
Grant under this Plan or other stock option plan maintained by the Company, (c)
the value attributed to the Stock under the most recent appraisal conducted by a
third party on behalf of the Company, a shareholder, a Grantee, or a third
party, and (d) the value of the Stock determined using one or more methodologies
typically employed by third party appraisers for similarly situated companies,
including but not limited to: book value, tangible book value, comparable
company valuations, discounted cash flow, and P/E multiples. The Board shall not
be obligated to rely upon any one or more of these methods of valuation in
making its determination, which it shall do in its sole discretion.
2.11 "Grant" means an award of an Option under the Plan.
2.12 "Grant Date" means, as determined by the Board or authorized
Committee, (1) the date as of which the Board or such Committee approves a
Grant, (ii) the date on which the recipient of a Grant first becomes eligible to
receive a Grant under Section 6 hereof, or (iii) such other date as may be
specified by the Board or such Committee.
2.13 "Grantee" means a person who receives or holds an Option under the
Plan.
2.14 "Option" means an option to purchase one or more shares of Stock
pursuant to the Plan.
2.15 "Option Period" means the period during which Options may be
exercised as set forth in Section 9 hereof.
2.16 "Option Price" means the purchase price for each share of Stock
subject to an Option.
2.17 "Plan" means this V-I-A Internet, Inc. Key Employee Equity Plan.
2.18 "Reporting Person" means a person who is required to file reports
under Section 16(a) of the Exchange Act.
2.19 "Securities Act" means the Securities Act of 1933, as now in effect
or as hereafter amended.
2.20 "Service Provider" means a consultant or adviser to the Company, a
manager of the Company's properties or affairs, or other similar service
provider or affiliate of the Company, and
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employees of any of the foregoing, as such persons may be designated from time
to time by the Board pursuant to Section 6 hereof.
2.21 "Stock" means shares of Common Stock, par value $.01 per share, of the
Company.
2.22 "Subsidiary" means any "subsidiary corporation" of the Company within
the meaning of Section 424(f) of the Code.
2.23 "Termination Date" shall be the date upon which an Option shall
terminate or expire, as set forth in Section 9 hereof.
3. ADMINISTRATION OF THE PLAN
3.1. Board.
The Board shall have such powers and authorities related to the
administration of the Plan as are consistent with the Company's certificate of
incorporation and by-laws and applicable law. The Board shall have full power
and authority to take all actions and to make all determinations required or
provided for under the Plan, any Grant or any Award Agreement, and shall have
full power and authority to take all such other actions and make all such other
determinations not inconsistent with the specific terms and provisions of the
Plan that the Board deems to be necessary or appropriate to the administration
of the Plan, any Grant or any Award Agreement. All such actions and
determinations shall be by the affirmative vote of a majority of the members of
the Board present at a meeting or by unanimous consent of the Board executed in
writing in accordance with the Company's certificate of incorporation and by-
laws and applicable law. The interpretation and construction by the Board of any
provision of the Plan, any Grant or any Award Agreement shall be final and
conclusive.
3.2. Committee.
The Board from time to time may delegate to a Committee such powers and
authorities related to the administration and implementation of the Plan, as set
forth in Section 3.1 above and in other applicable provisions, as the Board
shall determine, consistent with the certificate of incorporation and by-laws of
the Company and applicable law. In the event that the Plan, any Grant or any
Award Agreement entered into hereunder provides for any action to be taken by or
determination to be made by the Board, such action may be taken by or such
determination may be made by the Committee if the power and authority to do so
has been delegated to the Committee by the Board as provided for in this
Section. Unless otherwise expressly determined by the Board, any such action or
determination by the Committee shall be final, binding and conclusive.
3.3. Grants.
Subject to the other terms and conditions of the Plan, the Board shall have
full and final authority (i) to designate Grantees, (ii) to determine the type
or types of Grant to be made to a Grantee, (iii) to determine the number of
shares of Stock and the type or types of Stock to be subject to a Grant, (iv) to
establish the terms and conditions of each Grant (including, but not limited to,
the exercise price of any Option and the nature and duration of any restriction
or condition (or provision for lapse thereof) relating to the vesting, exercise,
transfer, or forfeiture of a Grant or the shares of Stock subject thereto), (v)
to prescribe the form of each Award Agreement evidencing a Grant, and (vi) to
amend, modify, or supplement the terms of any outstanding Grant. Such authority
specifically includes the authority, in order to effectuate the purposes of the
Plan but without amending the Plan, to modify Grants to eligible individuals who
are foreign nationals or are individuals who are employed outside the United
States to recognize differences in local law, tax policy, or custom. As a
condition to any subsequent Grant, the Board shall have the right, at its
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discretion, to require Grantees to return to the Company any unexercised Grants
previously awarded under the Plan. Subject to the terms and conditions of the
Plan, any such new Grant shall be upon such terms and conditions as are
specified by the Board at the time the new Grant is made.
3.4. No Liability.
No member of the Board or of the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any Grant or
Award Agreement.
4. STOCK SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 13 hereof, the number of
shares of Stock available for issuance under the Plan shall be 400,000 shares of
Common. Stock issued or to be issued under the Plan shall be authorized but
unissued shares. If any shares covered by a Grant are not purchased or are
forfeited, or if a Grant otherwise terminates without delivery of any Stock
subject thereto, then the number of shares of Stock counted against the
aggregate number of shares available under the Plan with respect to such Grant
shall, to the extent of any such forfeiture or termination, again be available
for making Grants under the Plan.
5. EFFECTIVE DATE AND TERM OF THE PLAN
5.1. Effective Date.
The Plan shall be effective as of the Effective Date.
5.2. Term.
The Plan has no termination date.
6. OPTION GRANTS
6.1. Company or Subsidiary Employees.
Grants may be made under the Plan to any employee of, or Service Provider
providing, or who has provided, services to, the Company or any Subsidiary,
including any such employee who is an officer or director of the Company or of
any Subsidiary, as the Board shall determine and designate from time to time.
6.2. Successive Grants.
An eligible person may receive more than one Grant, subject to such
restrictions as are provided herein.
7. AWARD AGREEMENT
Each Grant pursuant to the Plan shall be evidenced by an Award Agreement,
in such form or forms as the Board shall from time to time determine. Award
Agreements granted from time to time or at the same time need not contain
similar provisions but shall be consistent with the terms of the Plan.
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8. OPTION PRICE
The Option Price of each Option shall be fixed by the Board and stated in
the Award Agreement evidencing such Option. In no case shall the Option Price of
any Option be less than the par value of a share of Stock.
9. VESTING, TERM AND EXERCISE OF OPTIONS
9.1. Vesting and Option Period.
Subject to Sections 9.2 and 9.3 hereof, each Option granted under the Plan
shall be exercisable from the Grant Date and under such conditions as shall be
determined by the Board and stated in the Award Agreement. For purposes of this
Section 9.1, fractional numbers of shares of Stock subject to an Option shall be
rounded down to the next nearest whole number. The period during which any
Option shall be exercisable shall constitute the "Option Period" with respect to
such Option.
9.2. Term.
Each Option granted under the Plan shall terminate, and all rights to
purchase shares of Stock thereunder shall cease, upon the expiration of ten
years from the date such Option is granted, or under such circumstances and on
such date prior thereto as is set forth in the Plan or as may be fixed by the
Board and stated in the Award Agreement relating to such Option (the
"Termination Date").
9.3. Termination of Employment or Other Relationship.
Upon the termination of a Grantee's employment or other relationship with
the Company (or Grantee's death), any Option or portion thereof held by such
Grantee that has not been exercised shall terminate immediately. Upon
termination of an Option or portion thereof, the Grantee shall have no further
right to purchase shares of Stock pursuant to such Option or portion thereof.
Whether a leave of absence or leave on military or government service shall
constitute a termination of employment or other relationship for purposes of the
Plan shall be determined by the Board, which determination shall be final and
conclusive. For purposes of the Plan, a termination of employment, service or
other relationship shall not be deemed to occur if the Grantee is immediately
thereafter a director of the Company.
9.4. Limitations on Exercise of Option.
Notwithstanding any other provision of the Plan, in no event may any Option
be exercised, in whole or in part, after ten years following the date upon which
the Option is granted, or after the occurrence of an event referred to in
Section 13 hereof which results in termination of the Option.
9.5. Method of Exercise.
An Option that is exercisable may be exercised by the Grantee's delivery to
the Company of written notice of exercise on any business day, at the Company's
principal office, addressed to the attention of the Board. Such notice shall
specify the number of shares of Stock with respect to which the Option is being
exercised and shall be accompanied by payment in full of the Option Price of the
shares for which the Option is being exercised. The minimum number of shares of
Stock with respect to which an Option may be exercised, in whole or in part, at
any time shall be the lesser of (i) 100 shares or such lesser number set forth
in the applicable Award Agreement or (ii) the maximum number of shares available
for purchase under the Option at the time of exercise. Payment of the Option
Price for the shares purchased pursuant to the exercise of an Option shall be
made in cash or
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in cash equivalents. Unless otherwise stated in the applicable Award Agreement,
an individual holding or exercising an Option shall have none of the rights of a
shareholder (for example, the right to receive cash or dividend payments or
distributions attributable to the subject shares of Stock or to direct the
voting of the subject shares of Stock) until the shares of Stock covered thereby
are fully paid and issued to such individual. Except as provided in Section 13
hereof, no adjustment shall be made for dividends, distributions or other rights
for which the record date is prior to the date of such issuance.
9.6. Delivery of Stock Certificates.
Promptly after the exercise of an Option by a Grantee and the payment in
full of the Option Price, such Grantee shall be entitled to the issuance of a
stock certificate or certificates evidencing his or her ownership of the shares
of Stock subject to the Option.
10. TRANSFERABILITY OF OPTIONS; REPURCHASE RIGHTS
10.1. Transferability of Options
Only the Grantee may exercise an Option. No Option shall be assignable or
transferable by the Grantee to whom it is granted.
10.2. Repurchase Rights.
The Company shall have the right (a "Repurchase Right"), as set forth
in this Section, to purchase from a Grantee (or the Grantee's estate or other
representative, as applicable) all of the shares of Stock acquired by the
Grantee pursuant to Options granted under this Plan, in the event that (i) each
employment or similar relationship (whether as employee, director, independent
contractor or otherwise) between the Grantee and the Company and its affiliates
is terminated by the Grantee during the two year period (the "Minimum Employment
Period") commencing on the date Grantee commenced employment with the Company,
other than by reason of death or "permanent and total disability" (within the
meaning of Section 22(e)(3) of the Code), or (ii) if the employment of the
Grantee with the Company is terminated by the Company "for cause." The
Repurchase Right shall not apply if the employment of the Grantee with the
Company is terminated by the Company other than "for cause." Each Repurchase
Right shall commence on the date of the Grantee's termination of employment and
end 30 days thereafter. The price per share for each share purchased pursuant to
a Repurchase Right shall be at a price equal to the Fair Market Value of such
shares on the date of termination. Termination "for cause" shall mean
termination because of the Grantee's willful misconduct, breach of a fiduciary
duty to the Company resulting in personal profit to the Grantee, conviction of a
felony or crime involving moral turpitude, or material breach of any agreement
between the Grantee and the Company regarding confidential information, trade
secrets, inventions, non-competition or similar matters. The Company may assign
its repurchase rights (but not its obligations), under this Section 10.2 and the
applicable Award Agreement, in whole or in part, to (1) any Stockholder, (2) any
affiliate or (3) any other person or entity that the Board of Directors of the
Company determines has a sufficient relationship with or interest in the
Company. The Company shall give reasonable written notice to the Grantee (or the
Grantee's estate or other representative, as applicable) of any assignment of
its rights under this Section.
10.3. Transferability of Stock
No Grantee shall, during the "No-Sale Period" as defined below, sell
or transfer any shares of Stock acquired by the individual pursuant to this Plan
under an Option, and any such transfer shall be deemed void and of no effect.
The "No-Sale Period" shall mean the period commencing on the Grant Date and
ending on the later of (i) the expiration of the Minimum Employment Period or
(ii) if the Company has a Repurchase Right under Section 10.2, the
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expiration of the Repurchase Period (or, if the Repurchase Right was exercised,
prior to the closing of the repurchase), to any purchaser or transferee other
than the Company; provided, however, that a transfer shall not be prohibited if
the transferee is an affiliate or immediate family member of such Grantee and
the transferee enters into an agreement reasonably acceptable to the Company to
be bound by this Agreement.
10.4. Sale Rights.
The Grantee (or the Grantee's estate or other representative, as
applicable) shall have the right (a "Sale Right"), as set forth in this Section,
to sell to the Company all of the shares of Stock acquired by the Grantee
pursuant to Options granted under this Plan, in the event of death or "permanent
and total disability" (within the meaning of Section 22(e)(3) of the Code) of
the Grantee during the Minimum Employment Period (an "Involuntary Termination"),
subject to receipt by the Company of all required approvals under the Company's
Certificate of Incorporation (including all Certificates of Designations), By-
laws and material contracts. Each Sale Right shall commence on the date of the
Grantee's Involuntary Termination and end 60 days thereafter. The price per
share for each share purchased pursuant to a Sale Right shall be at a price
equal to the Fair Market Value of such shares on the date of the Involuntary
Termination. The Company may assign the right (but not its obligation) to
acquire Stock following exercise of a Sale Right under this Section 10.4, in
whole or in part, to (1) any Stockholder, (2) any affiliate or (3) any other
person or entity that the Board of Directors of the Company determines has a
sufficient relationship with or interest in the Company. The Company shall give
reasonable written notice to the Grantee (or the Grantee's estate or other
representative, as applicable) of any assignment of its rights under this
Section.
10.5. Publicly Traded Stock
If the Stock is listed on an established national or regional stock
exchange or is admitted to quotation on the National Association of Securities
Dealers Automated Quotation System, or is publicly traded in an established
securities market, the foregoing transfer restrictions of Sections 10.2 and 10.3
shall terminate as of the first date that the Stock is so listed, quoted or
publicly traded.
10.6. Legend
In order to enforce the restrictions imposed upon shares of Stock
under this Plan or as provided in an Award Agreement, the Board may cause a
legend or legends to be placed on any certificate representing shares issued
pursuant to this Plan that complies with the applicable securities laws and
regulations and makes appropriate reference to the restrictions imposed under
it.
11. REQUIREMENTS OF LAW
11.1. General.
The Company shall not be required to sell or issue any shares of Stock
under any Grant if the sale or issuance of such shares would constitute a
violation by the Grantee, any other individual exercising an Option, or the
Company of any provision of any law or regulation of any governmental authority,
including without limitation any federal or state securities laws or
regulations. If at any time the Company shall determine, in its discretion, that
the listing, registration or qualification of any shares subject to a Grant upon
any securities exchange or under any governmental regulatory body is necessary
or desirable as a condition of, or in connection with, the issuance or purchase
of shares hereunder, no shares of Stock may be issued or sold to the Grantee or
any other individual exercising an Option pursuant to such Grant unless such
listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Company, and
any delay caused thereby shall in no way affect the date of termination of the
Grant.
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Specifically, in connection with the Securities Act, upon the exercise of any
Option, unless a registration statement under such Act is in effect with respect
to the shares of Stock covered by such Grant, the Company shall not be required
to sell or issue such shares unless the Board has received evidence satisfactory
to it that the Grantee or any other individual exercising an Option may acquire
such shares pursuant to an exemption from registration under the Securities Act.
Any determination in this connection by the Board shall be final, binding, and
conclusive. The Company may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Securities Act. The Company shall not
be obligated to take any affirmative action in order to cause the exercise of an
Option or the issuance of shares of Stock pursuant to the Plan to comply with
any law or regulation of any governmental authority. As to any jurisdiction that
expressly imposes the requirement that an Option shall not be exercisable until
the shares of Stock covered by such Option are registered or are exempt from
registration, the exercise of such Option (under circumstances in which the laws
of such jurisdiction apply) shall be deemed conditioned upon the effectiveness
of such registration or the availability of such an exemption.
11.2. Rule 16b-3.
During any time when the Company has a class of equity security registered
under Section 12 of the Exchange Act, it is the intent of the Company that
Grants pursuant to the Plan and the exercise of Options granted hereunder will
qualify for the exemption provided by Rule 16b-3 under the Exchange Act. To the
extent that any provision of the Plan or action by the Board does not comply
with the requirements of Rule 16b-3, it shall be deemed inoperative to the
extent permitted by law and deemed advisable by the Board, and shall not affect
the validity of the Plan. In the event that Rule 16b-3 is revised or replaced,
the Board may exercise its discretion to modify this Plan in any respect
necessary to satisfy the requirements of, or to take advantage of any features
of, the revised exemption or its replacement.
12. AMENDMENT AND TERMINATION OF THE PLAN
The Board may, at any time and from time to time, amend, suspend, or
terminate the Plan as to any shares of Stock as to which Grants have not been
made. The Company may retain the right in an Award Agreement to cause a
forfeiture of the gain realized by a Grantee on account of the Grantee taking
actions in "competition with the Company," as defined in the applicable Award
Agreement. Furthermore, the Company may annul a Grant if the Grantee is an
employee of the Company or an affiliate and is terminated "for cause" as defined
in the applicable Award Agreement. Except as permitted under this Section 12 or
Section 13 hereof, no amendment, suspension, or termination of the Plan shall,
without the consent of the Grantee, alter or impair rights or obligations under
any Grant theretofore awarded under the Plan.
13. EFFECT OF CHANGES IN CAPITALIZATION
13.1. Changes in Stock.
If the number of outstanding shares of Stock is increased or decreased or
the shares of Stock are changed into or exchanged for a different number or kind
of shares or other securities of the Company on account of any recapitalization,
reclassification, stock split, reverse split, combination of shares, exchange of
shares, stock dividend or other distribution payable in capital stock, or other
increase or decrease in such shares effected without receipt of consideration by
the Company occurring after the Effective Date, the number and kinds of shares
for which Grants of Options may be made under the Plan shall be adjusted
proportionately and accordingly by the Company. In addition, the number and kind
of shares for which Grants are outstanding shall be adjusted proportionately and
accordingly so that the proportionate interest of the Grantee immediately
following such event shall, to the extent practicable, be the same as
immediately before such event. Any such adjustment in outstanding Options shall
not change the aggregate Option Price payable
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with respect to shares that are subject to the unexercised portion of an Option
outstanding but shall include a corresponding proportionate adjustment in the
Option Price per share. The conversion of any convertible securities of the
Company shall not be treated as an increase in shares effected without receipt
of consideration.
13.2. Reorganization in Which the Company Is the Surviving Entity and in
Which No Change of Control Occurs.
Subject to Section 13.3 hereof, if the Company shall be the surviving
entity in any reorganization, merger, or consolidation of the Company with one
or more other entities and in which no Change in Control occurs, any Option
theretofore granted pursuant to the Plan shall pertain to and apply to the
securities to which a holder of the number of shares of Stock subject to such
Option would have been entitled immediately following such reorganization,
merger, or consolidation, with a corresponding proportionate adjustment of the
Option Price per share so that the aggregate Option Price thereafter shall be
the same as the aggregate Option Price of the shares remaining subject to the
Option immediately prior to such reorganization, merger, or consolidation.
13.3. Reorganization, Sale of Assets or Sale of Stock Which Involves a
Change of Control.
Upon consummation of any Change of Control, the Plan and all outstanding
but unexercised Options shall terminate. The Board shall send written notice of
an event that will result in such a termination to all individuals who hold
Options not later than the time at which the Company gives notice thereof to its
shareholders. This Section 13.3 shall not apply to any Change of Control to the
extent that (A) provision is made in writing in connection with such Change of
Control for the continuation of the Plan or the assumption of the Options
theretofore granted, or for the substitution for such Options of new options
covering the stock of a successor entity, or a parent or subsidiary thereof,
with appropriate adjustments as to the number and kinds of shares or units and
exercise prices, in which event the Plan and Options theretofore granted shall
continue in the manner and under the terms so provided or (B) a majority of the
full Board determines that such Change of Control shall not trigger application
of the provisions of this Section 13.3.
13.4. Adjustments.
Adjustments under this Section 13.4 related to shares of Stock or
securities of the Company shall be made by the Board, whose determination in
that respect shall be final, binding and conclusive. No fractional shares or
other securities shall be issued pursuant to any such adjustment, and any
fractions resulting from any such adjustment shall be eliminated in each case by
rounding downward to the nearest whole share.
13.5. No Limitations on Company.
The making of Grants pursuant to the Plan shall not affect or limit in any
way the right or power of the Company to make adjustments, reclassifications,
reorganizations, or changes of its capital or business structure or to merge,
consolidate, dissolve, or liquidate, or to sell or transfer all or any part of
its business or assets.
14. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Grant or Award Agreement shall be
construed to confer upon any individual the right to remain in the employ or
service of the Company or any affiliate, or to interfere in any way with any
contractual or other right or authority of the Company either to increase or
decrease the compensation or other payments to any individual at any time, or to
terminate any employment or other relationship between any individual and the
Company. In
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addition, notwithstanding anything contained in the Plan to the contrary,
unless otherwise stated in the applicable Award Agreement, no Grant awarded
under the Plan shall be affected by any change of duties or position of the
Optionee, so long as such Grantee continues to be a director, officer,
consultant or employee of the Company. The obligation of the Company to pay any
benefits pursuant to this Plan shall be interpreted as a contractual obligation
to pay only those amounts described herein, in the manner and under the
conditions prescribed herein. The Plan shall in no way be interpreted to require
the Company to transfer any amounts to a third party trustee or otherwise hold
any amounts in trust or escrow for payment to any participant or beneficiary
under the terms of the Plan. No Grantee shall have any of the rights of a
shareholder with respect to the shares of Stock subject to an Option except to
the extent the certificates for such shares of Stock shall have been issued upon
the exercise of the Option.
15. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan nor the submission of the Plan to the
shareholders of the Company for approval shall be construed as creating any
limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable either
generally to a class or classes of individuals or specifically to a particular
individual or particular individuals) as the Board in its discretion determines
desirable, including, without limitation, the granting of stock options
otherwise than under the Plan.
16. WITHHOLDING TAXES
The Company or a Subsidiary, as the case may be, shall have the right to
deduct from payments of any kind otherwise due to a Grantee any Federal, state,
or local taxes of any kind required by law to be withheld upon the issuance of
any shares of Stock upon the exercise of an Option. At the time of such
exercise, the Grantee shall pay to the Company or the Subsidiary, as the case
may be, any amount that the Company or the Subsidiary may reasonably determine
to be necessary to satisfy such withholding obligation. Subject to the prior
approval of the Company or the Subsidiary, which may be withheld by the Company
or the Subsidiary, as the case may be, in its sole discretion, the Grantee may
elect to satisfy such obligations, in whole or in part, (i) by causing the
Company or the Subsidiary to withhold shares of Stock otherwise issuable to the
Grantee or (ii) by delivering to the Company or the Subsidiary shares of Stock
already owned by the Grantee. The shares of Stock so delivered or withheld shall
have an aggregate Fair Market Value equal to such withholding obligations. The
Fair Market Value of the shares of Stock used to satisfy such withholding
obligation shall be determined by the Company or the Subsidiary as of the date
that the amount of tax to be withheld is to be determined. A Grantee who has
made an election pursuant to this Section 16 may satisfy his or her withholding
obligation only with shares of Stock that are not subject to any repurchase,
forfeiture, unfulfilled vesting, or other similar requirements.
17. CAPTIONS
The use of captions in this Plan or any Award Agreement is for the
convenience of reference only and shall not affect the meaning of any provision
of the Plan or such Award Agreement.
18. OTHER PROVISIONS
Each Grant awarded under the Plan may contain such other terms and
conditions not inconsistent with the Plan as may be determined by the Board, in
its sole discretion.
19. NUMBER AND GENDER
With respect to words used in this Plan, the singular form shall include
the plural form, the masculine gender shall include the feminine gender, etc.,
as the context requires.
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20. SEVERABILITY
If any provision of the Plan or any Award Agreement shall be determined to
be illegal or unenforceable by any court of law in any jurisdiction, the
remaining provisions hereof and thereof shall be severable and enforceable in
accordance with their terms, and all provisions shall remain enforceable in any
other jurisdiction.
21. GOVERNING LAW
The validity and construction of this Plan and the instruments evidencing
the Grants awarded hereunder shall be governed by the laws of the State of
Delaware.
* * *
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The Plan was duly adopted and approved by the Board of Directors of the
Company as of November 24, 1998.
/S/ Justin Jaschke, Chairman
-----------------------------
Justin Jaschke,
Chairman
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Amendment No. 1
to
V-I-A INTERNET, INC.
KEY EMPLOYEE EQUITY PLAN
Effective October 1, 1999, the V-I-A Internet, Inc. Key Employee Equity
Plan, is hereby amended in the following respects:
1. Section 4 is amended by deleting the first sentence and replacing it
with the following language:
"Subject to adjustment as provided in Section 13 hereof, the number of shares of
Stock available for issuance under the Plan shall be 800,000 shares of Common."
IN WITNESS WHEREOF, the Board of Directors of VIA NET.WORKS, Inc., formerly
V-I-A Internet, Inc., has caused this instrument to be executed, as of the
effective date hereof.
VIA NET.WORKS, Inc.
By:/s/ William Johnston
--------------------
William Johnston
ATTEST:
/s/ Matt S. Nydell
------------------
Matt S. Nydell,
Secretary
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EXHIBIT 10.5
Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated by [*****]. A complete version of this exhibit has been
filed separately with the Securities and Exchange Commission.
ATLANTIC CROSSING/AC-1
SUBMARINE CABLE SYSTEM
INDEFEASIBLE RIGHT OF USE AGREEMENT
IN
INLAND CAPACITY
(United Kingdom)
THIS AGREEMENT (as amended, supplemented or otherwise modified from time to
time, this "Agreement"), made and entered into as of this 21st day of June,
1999, by and among GT U.K. LTD. ("Grantor") and VIA NET WORKS EUROPE HOLDING
B.V., a company organized and existing under the laws of The Netherlands (the
"Purchaser").
WITNESSETH:
----------
WHEREAS, the Purchaser and Atlantic Crossing Ltd. ("ACL") are parties to
the Capacity Purchase Agreement, dated as of June 21, 1999 (as amended,
supplemented or otherwise modified from time to time, the "Capacity Purchase
Agreement"), to which this Agreement is attached;
WHEREAS, capitalized terms used herein and not otherwise defined herein
shall have the meanings given to them in the Capacity Purchase Agreement;
WHEREAS, Grantor has acquired rights to capacity in order to give the
Purchaser the option to extend the Purchased Capacity acquired on the System
beyond the Cable Station to a certain point(s) of interface in the city
specified on Schedule I hereto; and
WHEREAS, the Purchaser desires to acquire rights with respect to the Inland
Capacity (as defined herein) set forth on Schedule I hereto on an indefeasible
right of use basis ("IRU") and such Inland Capacity represents capacity between
the System Interface point of the Cable Station and the point of interface in
the applicable city set forth on Schedule I hereto; and
<PAGE>
2
WHEREAS, the IRU in the Inland Capacity provided hereunder, together with
the IRU in the S and T Capacity provided under the Capacity Purchase Agreement,
convey to the Purchaser service between such S Capacity and the point of
interface at the applicable city set forth on Schedule I hereto;
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants contained herein covenant and agree with each other as follows:
1. DEFINITIONS. Terms defined in the preamble and in the recitals hereto
--------------
shall have their respective meanings when used herein and the following terms
shall have the following meanings:
"Backhaul Agreement" means any agreement between Grantor and a Backhaul
------------------
Provider, pursuant to which Grantor acquires rights in Inland Capacity.
"Backhaul Provider" means any entity providing Grantor rights to Inland
-----------------
Capacity.
"business day" means a day other than a Saturday, Sunday or other day on
------------
which commercial banks in New York City or Bermuda are authorized or required by
law to close.
"Cable Station" means the cable station described on Schedule I hereto.
-------------
"Dollars" or "$" means United States dollars.
------- -
"Grantor's Account" means the bank account of Grantor maintained with
-----------------
Deutsche Bank AG, New York Branch, at 31 West 52nd Street, New York, New York
10019 (account number 105330260016) or such other account as Grantor may
designate to the Purchaser in writing. Wire instructions for the above-
referenced account are as follows:
Account Name: Atlantic Crossing Ltd.
Account Number: 105330260016
Bank Name: Deutsche Bank AG, New York Branch
ABA No.: 026 003 780
Reference: Atlantic Crossing Attn: Lydia Zaininger
"Initial Payment Date" means, with respect to the IRU granted in respect of
--------------------
any Inland Capacity set forth on Schedule I hereto, the date on which the
Purchaser pays Grantor, in immediately available Dollars, the initial amount
required to be paid by the Purchaser for such Inland Capacity in accordance with
Section 3(b) of this Agreement.
<PAGE>
3
"Inland Capacity" means capacity on a fiber optic telecommunications system
---------------
which connects the System Interface at the Cable Station to the Inland Point of
Interface.
"Inland Capacity Purchase Price" means, with respect to the IRU granted in
------------------------------
respect of any Inland Capacity set forth on Schedule I hereto, the amount
payable by the Purchaser in respect of such Inland Capacity and set forth under
the heading "Purchase Price" on Schedule I hereto.
"Inland Point of Interface" means the point of interface in the applicable
-------------------------
city set forth on Schedule I hereto.
"Minimum Capacity Unit" or "MCU" means the minimum capacity to be purchased
--------------------- ---
by the Purchaser in the Inland Capacity. An STM-1 is designated as the MCU for
purposes of this Agreement.
"Payment Due Date" means, with respect to the IRU granted in respect of any
----------------
Inland Capacity, the payment date as set forth in Schedule I hereto.
"RFS Date" means, with respect to any Inland Capacity, the date on which
--------
such Inland Capacity will be available for service and has achieved the RFS
Standard described in Attachment 2.
"Total Purchase Price" means the aggregate amount payable by the Purchaser
--------------------
for the IRU in the Inland Capacity and set forth on the bottom of Schedule I to
this Agreement opposite the phrase "Total Purchase Price."
2. IRU FOR INLAND CAPACITY. Effective on the Initial Payment Date, Grantor
--------------------------
grants to the Purchaser, for the term of this Agreement, an IRU in the Inland
Capacity on the terms and conditions set forth herein. So long as no event has
occurred which entitles Grantor to suspend service under this Agreement, the
Purchaser shall be entitled to the quiet enjoyment and use of the rights granted
hereunder free from interference from the Grantor or any person claiming through
Grantor, such as Grantor's lenders.
3. PAYMENT FOR CAPACITY. (a) Financing. Grantor shall finance the Purchase
----------------------- ---------
Price for the Purchased Capacity in accordance with Schedule II of the Capacity
Purchase Agreement. Payments by Purchaser shall (i) be calculated to pay Grantor
interest calculated at the rate set out therein, (ii) be pre- payable, in whole
or in part, without penalty, and (iii) be secured by Grantor retaining a
security interest in the IRU until the Purchase Price is fully paid. Each of the
parties shall, at its expense, take all such actions and make all such filings
and recordings as are reasonably requested to establish, perfect and protect the
other party's interest in such IRU.
<PAGE>
4
(b) Payment of Inland Capacity Purchase Price. In exchange for the IRU
-----------------------------------------
interest granted pursuant to this Agreement in any Inland Capacity, the
Purchaser shall, on or before each Payment Due Date, pay to the Grantor's
Account in immediately available Dollars, an amount equal to the Inland Capacity
Purchase Price; provided, however, the aggregate payments made by the Purchaser
-------- -------
under paragraphs (a) and (b) of this Section 3 shall not exceed the Total
Purchase Price.
(c) Taxes. All payments made by the Purchaser under this Section 3 shall be
-----
made without any deduction or withholding for or on account of any tax, duty or
other charges of whatever nature imposed by any taxing or governmental authority
in the jurisdiction from which payment by the Purchaser originates or in any
other jurisdiction claiming the right to impose such tax, duty or charge due to
the location of any business or properties of the Purchaser (collectively
"Taxes"). If the Purchaser is or was required by law to make any deduction or
withholding for or on account of any Taxes from any payment due hereunder to
Grantor, then, notwithstanding anything to the contrary contained in this
Agreement, the gross amount payable by the Purchaser to Grantor will be
increased so that, after any such deduction or withholding for Taxes, the net
amount received by Grantor will not be less than Grantor would have received had
no such deduction or withholding been required. If any taxing or government
authority asserts that the Purchaser should have made a deduction or withholding
for on account of any Taxes with respect to all or a portion of any payment made
hereunder, the Purchaser hereby agrees to indemnify the Grantor for such Taxes
and hold the Grantor harmless on an after-tax basis from and against any Taxes,
interest or penalties levied or asserted in connection therewith.
4. OPERATION AND MAINTENANCE OF INLAND CAPACITY.
-----------------------------------------------
(a) Except as otherwise set forth in this Agreement, the Purchaser shall
not be required to make any additional payments for costs associated with
operating, maintaining and repairing the Inland Capacity in which an IRU has
been granted hereunder.
(b) Grantor shall use reasonable commercial efforts to cause the Inland
Capacity in which an IRU has been granted hereunder to be maintained in
efficient working order and in accordance with industry standards and, to the
extent applicable, the Maintenance Performance Standards set forth in Schedule
IV to the Capacity Purchase Agreement which Schedule IV is incorporated herein
by reference. Grantor represents that at all times it shall use commercially
reasonable efforts to require the applicable Backhaul Provider with which it has
contracted to provide routine, preventive and corrective maintenance for the
Inland Capacity in accordance with performance standards that at least meet
prudent industry standards. Grantor will use reasonable commercial efforts to
cause the Backhaul Provider with which it has contracted to perform its
obligations under the applicable Backhaul Agreement.
<PAGE>
5
(c) Grantor will have sole responsibility for negotiating, executing and
administering contracts related to the acquisition of rights in any Inland
Capacity from Backhaul Providers.
(d) Should any condition exist in any Inland Capacity in which an IRU has
been granted hereunder that may impair the integrity of such Inland Capacity,
Grantor shall take reasonable actions to cause to be initiated maintenance on
such Inland Capacity and Grantor shall take reasonable actions to cause to be
initiated planned maintenance on such Inland Capacity in each case which may
include the deactivation of such Inland Capacity. Grantor shall, to the extent
reasonably practicable, advise the Purchaser in writing at least thirty (30)
days (or such shorter period as may be agreed) prior to the initiation of a
planned maintenance operation of the timing and scope of such planned
maintenance operation.
(e) In addition to fulfilling its obligations as set forth in Section 4(b),
in the event of disruption of service, Grantor shall use commercially reasonable
efforts to cause service to be restored as quickly as reasonably possible, and
Grantor shall take such measures as are reasonably necessary to obtain such
objective.
5. INVOICES; DEFAULT INTEREST. (a) Invoices. Grantor or its authorized
----------------------------- --------
agent shall render invoices under this Agreement in Dollars, and the Purchaser
shall pay such amount in Dollars. The Purchaser shall make all payments by means
of a wire transfer to the Grantor's Account. Any payments required to be made
pursuant to this Agreement shall, save for the Initial Payment which shall be
made in accordance with the provisions of Section 3(b), be made on the later of
(i) the date when due or (ii) thirty (30) business days after an invoice is
received from Grantor by Purchaser. In the event the Purchaser has a dispute, in
respect of payment(s), and such dispute is of a reasonable, good faith,
commercial and uncapricious nature, the Purchaser shall be entitled to withhold
such payment(s) until the dispute is resolved. The Purchaser shall, however, be
obliged to use best efforts to assist in resolving such dispute referred to in
this Section 5(a).
(b) Any invoice rendered under this Agreement which is not paid when due,
shall accrue interest at the annual rate of six percent (6%) above the rate for
U.S. dollar LIBOR for one month as quoted in The Wall Street Journal on the
-----------------------
first business day of the month in which such payment is due. Such interest
shall accrue from the day following the date payment was due until it is paid in
full. In the event that applicable law does not allow the imposition of "default
interest" at the rate established in accordance with this Section 5(b), such
"default interest" shall be at the highest rate permitted by applicable law. For
purposes of this Section, "paid" shall mean that funds are available for
immediate use by Grantor.
<PAGE>
6
6. DEFAULT. (a) Subject to Section 5(a) hereof, if the Purchaser fails to
----------
make any payment required by this Agreement on the date that it is due or if the
Purchaser is otherwise in breach of this Agreement, and such payment default
continues unremedied for a period of at least five (5) days or such other breach
continues for a period of at least thirty (30) days, Grantor or its authorized
agent may notify the Purchaser in writing of such payment default or other
breach and if full payment is not received or such other breach is not fully
remedied within fifteen (15) days of such notification, Grantor (i) may suspend
all service provided to Purchaser hereunder (including suspending Purchaser's
right to use the Inland Capacity), until such payment default or other breach
has been cured (including payment of default interest, if any) and (ii) shall be
entitled to pursue any and all rights and legal and equitable remedies
(including its rights and remedies to enforce the Purchaser's obligations under
this Agreement).
(b) If the Grantor is in breach of this Agreement and such breach continues
for a period of at least thirty (30) days, the Purchaser may notify the Grantor
in writing of such breach and if such breach is not fully remedied within
fifteen (15) days of such notification, the Purchaser shall be entitled to
pursue any and all rights and legal and equitable remedies, including its rights
and remedies to enforce Grantor's obligations under this Agreement and further
including the right to terminate this Agreement and receive a pro-rata refund of
the Purchase Price based upon the remaining term. The Purchaser's right to
pursue any and all rights and legal and equitable remedies shall continue for so
long as such breach continues, provided, however, that a subsequent cure of any
such breach by Grantor shall not prejudice (i) any right or remedy properly
exercised by the Purchaser prior to the time such cure has been effected, or
(ii) the Purchaser's right to claim damages with respect to the period prior to
the time such cure has been effected.
7. USE OF CAPACITY. (a) The use of the Inland Capacity granted hereunder
------------------
and any equipment associated therewith shall be such as not to interrupt,
interfere with, or impair service over any of the facilities comprising the
System or the Inland Capacity, or impair privacy of any communications over such
facilities, cause damage to plant or create hazards to employees, affiliates or
connecting companies of ACL, the Grantor, any Backhaul Provider or any other
user, owner or operator of the System or the Inland Capacity or the public. The
Purchaser shall bear the cost of any additional protective apparatus reasonably
required to be installed because of the use of such facilities by the Purchaser,
any lessees or permitted transferees of the Purchaser, or any customer or
customers of the Purchaser or of any such lessee or transferee, provided,
however, that this Section 7(a) shall only apply to the extent that such use is
outside the ordinarily anticipated use of such facilities. The Grantor will
cause all other purchasers of capacity in Inland Capacity provided hereunder to
undertake obligations comparable to those of the Purchaser set forth in this
Section, and the Purchaser shall cause all permitted users of the IRU in the
Inland Capacity granted hereunder to undertake comparable obligations.
<PAGE>
7
(b) The IRU in the Inland Capacity granted hereunder shall be made
available to Grantor or the Backhaul Providers (or any of their subsidiaries or
agents), at such times agreeable to the Purchaser and Grantor or the Backhaul
Providers, as the case may be, to permit Grantor or the Backhaul Providers to
conduct such tests and adjustments as may be necessary for such capacity to be
maintained in efficient working order.
8. DURATION OF AGREEMENT. (a) This Agreement shall become effective on the
------------------------
day and year set forth in the preamble hereto and shall continue in operation
until the twenty-fifth (25th) anniversary of the RFS Date for the System (the
"Term").
----
(b) The termination of this Agreement (whether under this Section or
otherwise) shall not relieve the Purchaser from any liabilities arising prior to
such termination.
9. APPROVALS; LICENSES. The performance of this Agreement by each party
----------------------
hereto is contingent upon the obtaining and the continuance of such approvals,
consents, governmental authorizations, licenses and permits as may be required
or reasonably deemed necessary by such party for performance by such party
hereunder and as may be satisfactory to it. The parties shall use reasonable
efforts to obtain and continue, and to have continued, such approvals, consents,
licenses and permits. No license under patents is granted by Grantor or shall be
implied or arise by estoppel in the Purchaser's favor with respect to any
apparatus, system or method used by the Purchaser in connection with the use of
the Inland Capacity granted to it hereunder.
10. DISCLAIMER. (a) Grantor has entered into Backhaul Agreements to obtain
--------------
plant, equipment and services necessary to allow the Inland Capacity to be
placed into operation on the applicable scheduled RFS Date. UNLESS SPECIFICALLY
SET FORTH IN THIS AGREEMENT, ANY OTHER WARRANTIES, EXPRESSED OR IMPLIED,
INCLUDING BUT NOT LIMITED TO, THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR
A PARTICULAR PURPOSE ARE SPECIFICALLY DISCLAIMED.
(b) The Purchaser has entered into the Capacity Purchase Agreement with ACL
in order to acquire an IRU in certain capacity on the System. The Purchaser
acknowledges and agrees that Grantor does not warrant or guarantee the
performance of the Capacity Purchase Agreement (or the Right of Use Agreement)
and shall have no liability with respect thereto.
11. LIMITATIONS OF LIABILITY. (a) Except as otherwise provided in this
----------------------------
Agreement, in no event shall any party hereto be liable to the other for
<PAGE>
8
consequential, incidental, indirect or special damages, including, but not
limited to, loss of revenue, loss of business opportunity or the costs
associated with the use of external restoration facilities, including, without
limitation, for any loss or damage sustained by reason of any failure in or
breakdown of any Inland Capacity or the facilities associated therewith, the
failure of any Backhaul Provider to perform the terms and conditions of any
Backhaul Agreement to which it is a party or for any interruption of service,
whatever the cause and however long it shall last.
(b) Grantor shall not be liable to the Purchaser for any loss or damage
which may be suffered by the Purchaser by reason of any circumstances beyond the
control of Grantor and having an adverse effect on the provision of any part of
the Inland Capacity in which the Purchaser is entitled to capacity or has any
other right or interest under this Agreement. Failure by a subcontractor of any
of the parties to comply with its contractual commitments to such party shall
not be deemed to be an event beyond the reasonable control of such party for the
purposes of this Section 11.
(c)(i) Grantor shall not be liable to the Purchaser for any loss or damage
which may be suffered by the Purchaser as a result of, related to, or in
connection with, the Purchaser's compliance or non-compliance with any
applicable state, federal, foreign governmental, international (foreign or
domestic) or other law related to the transfer of the IRU in, or the use of, the
Inland Capacity granted hereunder.
(ii) The Purchaser shall not be liable to Grantor for any loss or damage
which may be suffered by Grantor as a result of, related to, or in connection
with, Grantor's non-compliance with any applicable state, federal, foreign
governmental, international (foreign or domestic) or other law related to the
transfer by Grantor of the IRU to the Purchaser in, or Grantor's operation,
ownership or use of, the Inland Capacity.
12. EXPORT CONTROL. The parties hereto acknowledge that to the extent any
------------------
products, software or technical information provided under this Agreement are or
may be subject to any applicable export laws and regulations, the parties hereto
agree that they will not use, distribute, transfer or transmit the products,
software or technical information (even if incorporated into other products)
except in compliance with such export laws and regulations (or licenses or
orders issued pursuant thereto). If requested by either party hereto the other
party agrees to sign all necessary export-related documents as may be required
to comply therewith.
13. REPRESENTATIONS; INDEMNITY. (a) Grantor hereby represents and warrants
------------------------------
to Purchaser that (i) it is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its organization; (ii)
the execution, delivery and performance of this Agreement by Grantor has been
duly authorized by all necessary corporate action on the part of Grantor and
this Agreement is a valid, binding and enforceable obligation of Grantor
enforceable in accordance with
<PAGE>
9
its terms and (iii) the execution, delivery and performance of this Agreement by
Grantor does not violate, conflict with or constitute a breach of, the
organizational documents or any order, decree or judgment of any court, tribunal
or governmental authority binding on Grantor.
(b) Purchaser hereby represents and warrants to Grantor that (i) Purchaser
is a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization; (ii) the execution, delivery and
performance of this Agreement by Purchaser has been duly authorized by all
necessary corporate action on the part of Purchaser and this Agreement is a
valid, binding and enforceable obligation of Purchaser enforceable in accordance
with its terms; and (iii) the execution, delivery and performance of this
Agreement by Purchaser does not violate, conflict with or constitute a breach
of, the organizational documents or any order, decree or judgment of any court,
tribunal or governmental authority binding on Purchaser.
(c) Each party hereby represents and warrants to the other party that it
has obtained all approvals, consents, governmental authorizations, licenses and
permits as may be required to enter into this Agreement, and grant or acquire,
as the case may be, the IRU in the Inland Capacity and otherwise to perform its
obligations hereunder.
(d) The foregoing representations and warranties shall survive the
execution and delivery of this Agreement.
(e) Subject to Section 11, the Purchaser agrees to indemnify and hold
harmless Grantor and its officers, directors, employees, agents,
representatives, successors and assigns (each, an "indemnitee") from and against
any loss, damage, expense or cost arising out of or in connection with (i) any
breach or violation by the Purchaser of applicable law or governmental
regulation, and (ii) any claims of whatever nature by third parties with respect
to services provided by the Purchaser.
(f) Subject to Section 11, Grantor agrees to indemnify and hold harmless
the Purchaser and its officers, directors, employees, agents and representatives
from and against any loss, damage, expense or cost arising out of or in
connection with: (i) any breach or violation by Grantor of applicable law or
governmental regulation, and (ii) any claims of whatever nature by third parties
with respect to the services provided by Grantor.
14. RELATIONSHIP OF THE PARTIES. This Agreement shall not form a joint
-------------------------------
venture or partnership or similar business arrangement between the parties
hereto, and nothing contained herein shall be deemed to constitute a partnership
or joint venture or similar business arrangement.
15. NO THIRD PARTY BENEFICIARIES. This Agreement does not provide and is
--------------------------------
not intended to provide third parties (including, but not limited to,
<PAGE>
10
customers of the Purchaser, any permitted transferee of the Inland Capacity
acquired hereunder or any other permitted user of the Inland Capacity) with any
remedy, claim, liability, reimbursement, cause of action, or any other right,
except for assignees pursuant to an assignment which is permitted under Section
16 of this Agreement. Furthermore, the Purchaser acknowledges that it is not a
third party beneficiary of any agreement entered into by Grantor including, but
not limited to, the Backhaul Agreements.
16. ASSIGNMENT.
--------------
(a) This Agreement and all of the provisions hereof shall be binding upon
and inure to the benefit of the parties hereto, the Subsidiary
Grantors and their respective successors and permitted assigns.
(b) The Grantor shall solely be responsible for complying with all of the
terms binding on the "Grantor" hereunder and shall not be permitted to
assign, transfer or otherwise dispose of any or all of its right,
title or interest hereunder or delegate any or all of its obligations
hereunder to any person or entity except that the Grantor and the
------
Subsidiary Grantors shall be permitted to (i) effect a collateral
assignment of their respective rights hereunder to one or more lenders
to Grantor or its affiliates and (ii) assign, transfer or otherwise
dispose of any or all of their rights hereunder and under the
Subsidiary IRU Agreement and delegate any or all of their obligations
hereunder and under the Subsidiary IRU Agreement to any present or
future affiliated company of the Grantor or to an entity controlled
by, under the same control as, or controlling, the Grantor. The
Grantor shall give the Purchaser notice of any such assignment,
transfer or other disposition or any such delegation.
(c) The Purchaser shall solely be responsible for complying with all of
the terms binding on the "Purchaser" hereunder and shall not be
permitted to assign, transfer or otherwise dispose of any or all of
its right, title or interest hereunder or under the Subsidiary IRU
Agreement (except for leases, licenses and transfers of the right to
use Capacity to the extent set forth in Section 16(d) below) or
delegate any or all of its obligations hereunder or under the
Subsidiary IRU Agreement to any person or entity except (i) a
collateral assignment of its rights hereunder to one or more lenders
to the Purchaser or its affiliates, and (ii) to any present or future
affiliated company of the Purchaser or to an entity controlled by,
under the same control as, or controlling, the Purchaser; and (iii)
incident to the transfer of all or substantially all of its business
or a substantial portion of its business (which shall include, without
limitation, a transfer of assets); provided, however, that the
--------
Purchaser shall remain responsible for the
<PAGE>
11
performance of its obligations hereunder to the extent the assignee
fails to perform such obligations.
(d) (i) The Purchaser may enter into one or more agreements to lease or
license the right to use any Purchased Capacity, so long as all such
leases or licenses with any particular lessee or licensee (including
all affiliates thereof) involve in the aggregate less than one (1) MCU
of Purchased Capacity;
(ii) The Purchaser may transfer a right to use any Purchased Capacity
to a Carrier Party, so long as all such transfers to any particular
transferee (including all affiliates thereof) involve in the aggregate
less than one MCU of Purchased Capacity;
(iii) Purchaser may not enter into any arrangements to lease, license
or transfer a right to use an aggregate (in any combination of such
arrangements) of one or more MCUs of Purchased Capacity to any
particular lessee, licensee or transferee (including all affiliates
thereof).
(iv) No lease, license or transfer permitted by this Section 16(d)
shall involve any delegation or other transfer of any of Purchaser's
obligations or liabilities hereunder. Each lessee, licensee and
transferee of any right to use Purchased Capacity shall derive all of
its rights solely through the Purchaser and such rights shall be
enforceable solely against the Purchaser. No such lessee, licensee or
transferee shall become a third party beneficiary of this Agreement or
obtain any right, title or interest in, to or under this Agreement or
the Subsidiary IRU Agreement or the ability to enforce any provision
hereof or thereof nor shall any thereof have any rights or claims
against the Grantor for any reason whatsoever. The rights of any
lessee, licensee or transferee of a right to use any Purchased
Capacity shall be subject and subordinate to all the terms of this
Agreement (including the Grantor's right to suspend service in the
event of a default by Purchaser hereunder) and Purchaser shall remain
primarily liable hereunder for the performance of all the terms of
this Agreement to the same extent as if such lease, license or
transfer had not occurred. Any such lease, license or transfer
agreement shall prohibit further assignment, transfer or other
disposition of Purchased Capacity except in accordance with the terms
of this Section 16.
(e) The Grantor will cause to be maintained a Customer Care Center to
provide service to the Purchaser and other users of the System. Only
Carrier Parties which have acquired and hold the right to use one or
more whole MCUs of Capacity shall be entitled to utilize the services
of the Customer Care Center. Every entity which has the right to use
one or
<PAGE>
12
more MCUs of Capacity shall promptly contact the Customer Care Center
and provide all such information reasonably requested by the Customer
Care Center.
(f) Any assignment, transfer or other disposition by either Party
which is in violation of this Section shall be void and of no force
and effect.
17. CONDITION TO PURCHASER'S OBLIGATIONS. The Purchaser's obligation
----------------------------------------
to pay for an IRU with respect to any Inland Capacity connecting with any
Purchased Capacity on any Segment other than Segment S-1 (for which the RFS Date
has already occurred) shall terminate if the RFS Date for such Purchased
Capacity has not occurred by June 30, 1999. In any such event, the Purchaser may
terminate this Agreement in its entirety and receive a complete refund of all
amounts paid hereunder or the Purchaser may terminate this Agreement only with
respect to such Inland Capacity in which case Grantor shall refund all amounts
paid by the Purchaser, if any, with respect to such Inland Capacity as to which
Purchaser's obligation has terminated within thirty (30) days after the
applicable date.
18. NOTICES. Each notice, demand, certification or other communication
-----------
given or made under this Agreement shall be in writing and shall be delivered by
hand or sent by registered mail or by facsimile transmission to the address of
the respective party as set forth below its signature hereto (or such other
address as may be designated in writing to the other party hereto in accordance
with the terms of this Section). Any change to the name, address and facsimile
numbers may be made at any time by giving fifteen (15) days prior written notice
in accordance with this Section. Any such notice, demand or other communication
shall be deemed to have been received, if delivered by hand, at the time of
delivery or, if posted, at the expiration of seven (7) days after the envelope
containing the same shall have been deposited in the post maintained for such
purpose, postage prepaid, or, if sent by facsimile, at the date of transmission
if confirmed receipt is followed by postal notice.
19. INCORPORATION BY REFERENCE. The provisions of Sections 12, 14, 15,
------------------------------
23, 24, 25 and 26 of the Capacity Purchase Agreement are hereby incorporated
herein by reference, mutatis mutandis, and shall be deemed a part of this
Agreement as if fully set forth herein.
20. PUBLICITY AND CONFIDENTIALITY. (a) The provisions of this
---------------------------------
Agreement and any non-public information, written or oral, with respect to this
Agreement ("Confidential Information") will be kept confidential and shall not
be disclosed, in whole or in part, to any person other than affiliates,
officers, directors, employees, agents or representatives of a party
(collectively, "Representatives") who need to know such Confidential Information
for the purpose of negotiating, executing and implementing this Agreement. Each
party agrees to inform each of its Representatives of the non-public nature of
the Confidential Information and to direct
<PAGE>
13
such persons to treat such Confidential Information in accordance with the terms
of this Section 20. Nothing herein shall prevent a party from disclosing
Confidential Information (i) upon the order of any court or administrative
agency, (ii) upon the request or demand of, or pursuant to any regulation of,
any regulatory agency or authority, (iii) to the extent reasonably required in
connection with the exercise of any remedy hereunder, (iv) to a party's legal
counsel or independent auditors, (v) to prospective lenders to the Grantor, and
(vi) to any actual or proposed assignee, transferee or lessee of all or part of
its rights hereunder provided that such actual or proposed assignee agrees in
writing to be bound by the provisions of this Section 20.
(b) The foregoing shall not restrict either party from publicly announcing
that it has entered into this Agreement with the parties hereto, but without
including any details contained in this Agreement.
<PAGE>
14
IN WITNESS WHEREOF, the parties have executed this Agreement effective on the
date first written above.
VIA NET WORKS EUROPE HOLDING B.V.
By: VIA NET.WORKS, INC., its
Managing Director
By: /s/ Matt Nydell
---------------
Name: Matt Nydell
-----------
Title: VP & General Counsel
--------------------
c/o VIA NET.WORKS, Inc.
121000 Sunset Hills Road, Suite 110
Reston, VA 20190 USA
Attention: Matt S. Nydell,
Esq., V.P., General Counsel
and Secretary
Facsimile: 703-464-0608
GT U.K. LTD.
By: /s/ Doug Molyneux
-----------------
Name: Doug Molyneux
-------------
Title: Under a Power of Attorney
-------------------------
c/o Atlantic Crossing Ltd.
Wessex House
45 Reid Street
Hamilton HM 12
Bermuda
Attention: President
Facsimile: 441 296 8606
<PAGE>
15
SCHEDULE I
*****Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.*****
DESCRIPTION OF INLAND CAPACITY
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Date of Transaction Inland Capacity Number of Whole MCUs Price Per Whole (c) x (d)
MCU Purchase Price
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Whitesands, England One (1) [*****] [*****]
to (See Note 1) (See Note 1)
London, England
======================================================================================================
Total Purchase Price [*****]
Payment Received May 28 [*****]
Less Deposit on Signing [*****]
Purchase Price To Be Financed [*****]
</TABLE>
<PAGE>
*****Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.*****
VIA Net Works
INSTALLMENT PAYMENTS
UK BACKHAUL
Price per MCU [*****]
Payment Due Date September 30, 1999
Payment Terms
- -------------
Date Payment
- ---- -------
Payment received May 28, 1999 [*****]
Deposit upon signing [*****]
September 30, 1999 [*****]
December 31, 1999 [*****]
March 31, 2000 [*****]
June 30, 2000 [*****]
September 30, 2000 [*****]
December 31, 2000 [*****]
March 31, 2001 [*****]
June 30, 2001 [*****]
September 30, 2001 [*****]
December 31, 2001 [*****]
March 31, 2002 [*****]
June 30, 2002 [*****]
Total [*****]
VIA Net Works
By:________________
Name:
Date:
<PAGE>
ATTACHMENT II
RFS STANDARD
RFS Standard means for any Inland Capacity that (a) the fiber optic
telecommunications system carrying such capacity has the ability to carry
commercial traffic between the System Interface at the Cable Station to the
Inland Point of Interface meeting performance criteria of ITU-T G.826 and has
protection switching capability and (b) the interface to the System shall be
STM-1 (optical interface) as specified in ITU Recommendation G.957 and 1+1
protected or equivalent.
<PAGE>
EXHIBIT 10.6
Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated by [*****]. A complete version of this
exhibit has been filed separately with the Securities and Exchange Commission.
ATLANTIC CROSSING/AC-1
SUBMARINE CABLE SYSTEM
INDEFEASIBLE RIGHT OF USE AGREEMENT
IN
INLAND CAPACITY
(United States)
THIS AGREEMENT (as amended, supplemented or otherwise modified from time to
time, this "Agreement"), made and entered into as of this 21 day of June, 1999,
by and among GT LANDING CORP. ("Grantor") and VIA NET WORKS EUROPE HOLDING B.V.,
a company organized and existing under the laws of The Netherlands (the
"Purchaser").
WITNESSETH:
----------
WHEREAS, the Purchaser and Atlantic Crossing Ltd. ("ACL") are parties to
the Capacity Purchase Agreement, dated as of June 21, 1999 (as amended,
supplemented or otherwise modified from time to time, the "Capacity Purchase
Agreement"), to which this Agreement is attached;
WHEREAS, capitalized terms used herein and not otherwise defined herein
shall have the meanings given to them in the Capacity Purchase Agreement;
WHEREAS, subject to the terms and conditions set forth in the Capacity
Purchase Agreement, the Purchaser intends to acquire an IRU in the Purchased
Capacity which represents capacity on the System between the System Interface
points at the Cable Stations;
WHEREAS, Grantor has acquired rights to capacity in order to give the
Purchaser the option to extend the Purchased Capacity acquired on the System
beyond the Cable Station to a certain point(s) of interface in the city
specified on Schedule I hereto;
WHEREAS, the Purchaser desires to acquire rights with respect to the Inland
Capacity (as defined herein) set forth on Schedule I hereto on an indefeasible
right of use basis ("IRU") and such Inland Capacity represents capacity between
the System Interface point of the Cable Station and the point of interface in
the applicable city set forth on Schedule I hereto; and
<PAGE>
2
WHEREAS, the IRU in the Inland Capacity provided hereunder, together with
the IRU in the S and T Capacity provided under the Capacity Purchase Agreement,
convey to the Purchaser service between such S Capacity and the point of
interface at the applicable city set forth on Schedule I hereto;
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants contained herein covenant and agree with each other as follows:
1. DEFINITIONS. Terms defined in the preamble and in the recitals hereto
--------------
shall have their respective meanings when used herein and the following terms
shall have the following meanings:
"Backhaul Agreement" means any agreement between Grantor and a
------------------
Backhaul Provider, pursuant to which Grantor acquires rights in Inland
Capacity.
"Backhaul Provider" means any entity providing Grantor rights to
-----------------
Inland Capacity.
"business day" means a day other than a Saturday, Sunday or other day
------------
on which commercial banks in New York City or Bermuda are authorized or
required by law to close.
"Cable Station" means the cable station described on Schedule I
-------------
hereto.
"Dollars" or "$" means United States dollars.
------- -
"Grantor's Account" means the bank account of Grantor maintained with
-----------------
Deutsche Bank AG, New York Branch, at 31 West 52nd Street, New York, New York
10019 (account number 105330260016) or such other account as Grantor may
designate to the Purchaser in writing. Wire instructions for the above-
referenced account are as follows:
Account Name: Atlantic Crossing Ltd.
Account Number: 105330260016
Bank Name: Deutsche Bank AG, New York Branch
ABA No.: 026 003 780
Reference: Atlantic Crossing Attn: Lydia Zaininger
"Initial Payment Date" means, with respect to the IRU granted in
--------------------
respect of any Inland Capacity set forth on Schedule I hereto, the date on
which the Purchaser pays Grantor, in immediately available Dollars, the
initial amount required to be paid by the Purchaser for such Inland Capacity
in accordance with Section 3(b) of this Agreement.
"Inland Capacity" means capacity on a fiber optic telecommunications
---------------
system which connects the System Interface at the Cable Station to the Inland
Point of Interface.
"Inland Capacity Purchase Price" means, with respect to the IRU granted
------------------------------
in respect
<PAGE>
3
of any Inland Capacity set forth on Schedule I hereto, the amount payable by
the Purchaser in respect of such Inland Capacity and set forth under the
heading "Purchase Price" on Schedule I hereto.
"Inland Point of Interface" means the point of interface in the
-------------------------
applicable city set forth on Schedule I hereto.
"Minimum Capacity Unit" or "MCU" means the minimum capacity to be
--------------------- ---
purchased by the Purchaser in the Inland Capacity. An STM-1 is designated as
the MCU for purposes of this Agreement.
"Payment Due Date" means, with respect to the IRU granted in respect
----------------
of any Inland Capacity, the payment date as set forth in Schedule I hereto.
"RFS Date" means, with respect to any Inland Capacity, the date on
--------
which such Inland Capacity will be available for service and has achieved the
RFS Standard described in Attachment 2.
"Total Purchase Price" means the aggregate amount payable by the
--------------------
Purchaser for the IRU in the Inland Capacity and set forth on the bottom of
Schedule I to this Agreement opposite the phrase "Total Purchase Price."
2. IRU FOR INLAND CAPACITY. Effective on the Initial Payment Date, Grantor
--------------------------
grants to the Purchaser, for the term of this Agreement, an IRU in the Inland
Capacity on the terms and conditions set forth herein. So long as no event has
occurred which entitles Grantor to suspend service under this Agreement, the
Purchaser shall be entitled to the quiet enjoyment and use of the rights granted
hereunder free from interference from the Grantor or any person claiming through
Grantor, such as Grantor's lenders.
3. PAYMENT FOR CAPACITY. (a) Financing. Grantor shall finance the Purchase
----------------------- ---------
Price for the Purchased Capacity in accordance with Schedule II of the Capacity
Purchase Agreement. Payments by Purchaser shall (i) be calculated to pay Grantor
interest calculated at the rate set out therein, (ii) be pre-payable, in whole
or in part, without penalty, and (iii) be secured by Grantor retaining a
security interest in the IRU until the Purchase Price is fully paid. Each of the
parties shall, at its expense, take all such actions and make all such filings
and recordings as are reasonably requested to establish, perfect and protect the
other party's interest in such IRU.
(b) Payment of Inland Capacity Purchase Price. In exchange for the IRU
-----------------------------------------
interest granted pursuant to this Agreement in any Inland Capacity, the
Purchaser shall, on or before each Payment Due Date, pay to the Grantor's
Account in immediately available Dollars, an amount equal to the Inland Capacity
Purchase Price; provided, however, the aggregate payments made by the Purchaser
-------- -------
under paragraphs (a) and (b) of this Section 3 shall not exceed the Total
Purchase Price.
(c) Taxes. All payments made by the Purchaser under this Section 3 shall be
-----
made without any deduction or withholding for or on account of any tax, duty or
other charges of
<PAGE>
4
whatever nature imposed by any taxing or governmental authority in the
jurisdiction from which payment by the Purchaser originates or in any other
jurisdiction claiming the right to impose such tax, duty or charge due to the
location of any business or properties of the Purchaser (collectively "Taxes").
If the Purchaser is or was required by law to make any deduction or withholding
for or on account of any Taxes from any payment due hereunder to Grantor, then,
notwithstanding anything to the contrary contained in this Agreement, the gross
amount payable by the Purchaser to Grantor will be increased so that, after any
such deduction or withholding for Taxes, the net amount received by Grantor will
not be less than Grantor would have received had no such deduction or
withholding been required. If any taxing or government authority asserts that
the Purchaser should have made a deduction or withholding for on account of any
Taxes with respect to all or a portion of any payment made hereunder, the
Purchaser hereby agrees to indemnify the Grantor for such Taxes and hold the
Grantor harmless on an after-tax basis from and against any Taxes, interest or
penalties levied or asserted in connection therewith.
4. OPERATION AND MAINTENANCE OF INLAND CAPACITY.
------------------------------------------------
(a) Except as otherwise set forth in this Agreement, the Purchaser shall
not be required to make any additional payments for costs associated with
operating, maintaining and repairing the Inland Capacity in which an IRU has
been granted hereunder.
(b) Grantor shall use reasonable commercial efforts to cause the Inland
Capacity in which an IRU has been granted hereunder to be maintained in
efficient working order and in accordance with industry standards and, to the
extent applicable, the Maintenance Performance Standards set forth in Schedule
IV to the Capacity Purchase Agreement which Schedule IV is incorporated herein
by reference. Grantor represents that at all times it shall use commercially
reasonable efforts to require the applicable Backhaul Provider with which it has
contracted to provide routine, preventive and corrective maintenance for the
Inland Capacity in accordance with performance standards that at least meet
prudent industry standards. Grantor will use reasonable commercial efforts to
cause the Backhaul Provider with which it has contracted to perform its
obligations under the applicable Backhaul Agreement.
(c) Grantor will have sole responsibility for negotiating, executing and
administering contracts related to the acquisition of rights in any Inland
Capacity from Backhaul Providers.
(d) Should any condition exist in any Inland Capacity in which an IRU has
been granted hereunder that may impair the integrity of such Inland Capacity,
Grantor shall take reasonable actions to cause to be initiated maintenance on
such Inland Capacity and Grantor shall take reasonable actions to cause to be
initiated planned maintenance on such Inland Capacity in each case which may
include the deactivation of such Inland Capacity. Grantor shall, to the extent
reasonably practicable, advise the Purchaser in writing at least thirty (30)
days (or such shorter period as may be agreed) prior to the initiation of a
planned maintenance operation of the timing and scope of such planned
maintenance operation.
(e) In addition to fulfilling its obligations as set forth in Section 4(b),
in the event of disruption of service, Grantor shall use commercially reasonable
efforts to cause service to be
<PAGE>
5
restored as quickly as reasonably possible, and Grantor shall take such measures
as are reasonably necessary to obtain such objective.
5. INVOICES; DEFAULT INTEREST. (a) Invoices. Grantor or its authorized
----------------------------- --------
agent shall render invoices under this Agreement in Dollars, and the Purchaser
shall pay such amount in Dollars. The Purchaser shall make all payments by means
of a wire transfer to the Grantor's Account. Any payments required to be made
pursuant to this Agreement shall, save for the Initial Payment which shall be
made in accordance with the provisions of Section 3(b), be made on the later of
(i) the date when due or (ii) thirty (30) business days after an invoice is
received from Grantor by Purchaser. In the event the Purchaser has a dispute, in
respect of payment(s), and such dispute is of a reasonable, good faith,
commercial and uncapricious nature, the Purchaser shall be entitled to withhold
such payment(s) until the dispute is resolved. The Purchaser shall, however, be
obliged to use best efforts to assist in resolving such dispute referred to in
this Section 5(a).
(b) Any invoice rendered under this Agreement which is not paid when due,
shall accrue interest at the annual rate of six percent (6%) above the rate for
U.S. dollar LIBOR for one month as quoted in The Wall Street Journal on the
-----------------------
first business day of the month in which such payment is due. Such interest
shall accrue from the day following the date payment was due until it is paid in
full. In the event that applicable law does not allow the imposition of "default
interest" at the rate established in accordance with this Section 5(b), such
"default interest" shall be at the highest rate permitted by applicable law. For
purposes of this Section, "paid" shall mean that funds are available for
immediate use by Grantor.
6. DEFAULT. (a) Subject to Section 5(a) hereof, if the Purchaser fails to
----------
make any payment required by this Agreement on the date that it is due or if the
Purchaser is otherwise in breach of this Agreement, and such payment default
continues unremedied for a period of at least five (5) days or such other breach
continues for a period of at least thirty (30) days, Grantor or its authorized
agent may notify the Purchaser in writing of such payment default or other
breach and if full payment is not received or such other breach is not fully
remedied within fifteen (15) days of such notification, Grantor (i) may suspend
all service provided to Purchaser hereunder (including suspending Purchaser's
right to use the Inland Capacity), until such payment default or other breach
has been cured (including payment of default interest, if any) and (ii) shall be
entitled to pursue any and all rights and legal and equitable remedies
(including its rights and remedies to enforce the Purchaser's obligations under
this Agreement).
(b) If the Grantor is in breach of this Agreement and such breach continues
for a period of at least thirty (30) days, the Purchaser may notify the Grantor
in writing of such breach and if such breach is not fully remedied within
fifteen (15) days of such notification, the Purchaser shall be entitled to
pursue any and all rights and legal and equitable remedies, including its rights
and remedies to enforce Grantor's obligations under this Agreement and further
including the right to terminate this Agreement and receive a pro-rata refund of
the Purchase Price based upon the remaining term. The Purchaser's right to
pursue any and all rights and legal and equitable remedies shall continue for so
long as such breach continues, provided, however, that a subsequent cure of any
such breach by Grantor shall not prejudice (i) any right or remedy properly
exercised by the Purchaser prior to the time such cure has been effected, or
(ii) the Purchaser's right to claim
<PAGE>
6
damages with respect to the period prior to the time such cure has been
effected.
7. USE OF CAPACITY. (a) The use of the Inland Capacity granted hereunder
------------------
and any equipment associated therewith shall be such as not to interrupt,
interfere with, or impair service over any of the facilities comprising the
System or the Inland Capacity, or impair privacy of any communications over such
facilities, cause damage to plant or create hazards to employees, affiliates or
connecting companies of ACL, the Grantor, any Backhaul Provider or any other
user, owner or operator of the System or the Inland Capacity or the public. The
Purchaser shall bear the cost of any additional protective apparatus reasonably
required to be installed because of the use of such facilities by the Purchaser,
any lessees or permitted transferees of the Purchaser, or any customer or
customers of the Purchaser or of any such lessee or transferee, provided,
however, that this Section 7(a) shall only apply to the extent that such use is
outside the ordinarily anticipated use of such facilities. The Grantor will
cause all other purchasers of capacity in Inland Capacity provided hereunder to
undertake obligations comparable to those of the Purchaser set forth in this
Section, and the Purchaser shall cause all permitted users of the IRU in the
Inland Capacity granted hereunder to undertake comparable obligations.
(b) The IRU in the Inland Capacity granted hereunder shall be made
available to Grantor or the Backhaul Providers (or any of their subsidiaries or
agents), Iat such times agreeable to the Purchaser and Grantor or the Backhaul
Providers, as the case may be, to permit Grantor or the Backhaul Providers to
conduct such tests and adjustments as may be necessary for such capacity to be
maintained in efficient working order.
8. DURATION OF AGREEMENT. (a) This Agreement shall become effective on the
------------------------
day and year set forth in the preamble hereto and shall continue in operation
until the twenty-fifth (25th) anniversary of the RFS Date for the System (the
"Term").
----
(b) The termination of this Agreement (whether under this Section or
otherwise) shall not relieve the Purchaser from any liabilities arising prior to
such termination.
9. APPROVALS; LICENSES. The performance of this Agreement by each party
----------------------
hereto is contingent upon the obtaining and the continuance of such approvals,
consents, governmental authorizations, licenses and permits as may be required
or reasonably deemed necessary by such party for performance by such party
hereunder and as may be satisfactory to it. The parties shall use reasonable
efforts to obtain and continue, and to have continued, such approvals, consents,
licenses and permits. No license under patents is granted by Grantor or shall be
implied or arise by estoppel in the Purchaser's favor with respect to any
apparatus, system or method used by the Purchaser in connection with the use of
the Inland Capacity granted to it hereunder.
10. DISCLAIMER. (a) Grantor has entered into Backhaul Agreements to obtain
--------------
plant, equipment and services necessary to allow the Inland Capacity to be
placed into operation on the applicable scheduled RFS Date. UNLESS SPECIFICALLY
SET FORTH IN THIS AGREEMENT, ANY OTHER WARRANTIES, EXPRESSED OR IMPLIED,
INCLUDING BUT NOT LIMITED TO, THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR
A PARTICULAR PURPOSE ARE SPECIFICALLY DISCLAIMED.
<PAGE>
7
(b) The Purchaser has entered into the Capacity Purchase Agreement with ACL
in order to acquire an IRU in certain capacity on the System. The Purchaser
acknowledges and agrees that Grantor does not warrant or guarantee the
performance of the Capacity Purchase Agreement (or the Right of Use Agreement)
and shall have no liability with respect thereto.
11. LIMITATIONS OF LIABILITY. (a) Except as otherwise provided in this
----------------------------
Agreement, in no event shall any party hereto be liable to the other for
consequential, incidental, indirect or special damages, including, but not
limited to, loss of revenue, loss of business opportunity or the costs
associated with the use of external restoration facilities, including, without
limitation, for any loss or damage sustained by reason of any failure in or
breakdown of any Inland Capacity or the facilities associated therewith, the
failure of any Backhaul Provider to perform the terms and conditions of any
Backhaul Agreement to which it is a party or for any interruption of service,
whatever the cause and however long it shall last.
(b) Grantor shall not be liable to the Purchaser for any loss or damage
which may be suffered by the Purchaser by reason of any circumstances beyond the
control of Grantor and having an adverse effect on the provision of any part of
the Inland Capacity in which the Purchaser is entitled to capacity or has any
other right or interest under this Agreement. Failure by a subcontractor of any
of the parties to comply with its contractual commitments to such party shall
not be deemed to be an event beyond the reasonable control of such party for the
purposes of this Section 11.
(c)(i) Grantor shall not be liable to the Purchaser for any loss or damage
which may be suffered by the Purchaser as a result of, related to, or in
connection with, the Purchaser's compliance or non-compliance with any
applicable state, federal, foreign governmental, international (foreign or
domestic) or other law related to the transfer of the IRU in, or the use of, the
Inland Capacity granted hereunder.
(ii) The Purchaser shall not be liable to Grantor for any loss or damage
which may be suffered by Grantor as a result of, related to, or in connection
with, Grantor's non-compliance with any applicable state, federal, foreign
governmental, international (foreign or domestic) or other law related to the
transfer by Grantor of the IRU to the Purchaser in, or Grantor's operation,
ownership or use of, the Inland Capacity.
12. EXPORT CONTROL. The parties hereto acknowledge that to the extent any
------------------
products, software or technical information provided under this Agreement are or
may be subject to any applicable export laws and regulations, the parties hereto
agree that they will not use, distribute, transfer or transmit the products,
software or technical information (even if incorporated into other products)
except in compliance with such export laws and regulations (or licenses or
orders issued pursuant thereto). If requested by either party hereto the other
party agrees to sign all necessary export-related documents as may be required
to comply therewith.
13. REPRESENTATIONS; INDEMNITY. (a) Grantor hereby represents and warrants
------------------------------
to Purchaser that (i) it is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its organization; (ii)
the execution, delivery and
<PAGE>
8
performance of this Agreement by Grantor has been duly authorized by all
necessary corporate action on the part of Grantor and this Agreement is a valid,
binding and enforceable obligation of Grantor enforceable in accordance with its
terms and (iii) the execution, delivery and performance of this Agreement by
Grantor does not violate, conflict with or constitute a breach of, the
organizational documents or any order, decree or judgment of any court, tribunal
or governmental authority binding on Grantor.
(b) Purchaser hereby represents and warrants to Grantor that (i) Purchaser
is a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization; (ii) the execution, delivery and
performance of this Agreement by Purchaser has been duly authorized by all
necessary corporate action on the part of Purchaser and this Agreement is a
valid, binding and enforceable obligation of Purchaser enforceable in accordance
with its terms; and (iii) the execution, delivery and performance of this
Agreement by Purchaser does not violate, conflict with or constitute a breach
of, the organizational documents or any order, decree or judgment of any court,
tribunal or governmental authority binding on Purchaser.
(c) Each party hereby represents and warrants to the other party that it
has obtained all approvals, consents, governmental authorizations, licenses and
permits as may be required to enter into this Agreement, and grant or acquire,
as the case may be, the IRU in the Inland Capacity and otherwise to perform its
obligations hereunder.
(d) The foregoing representations and warranties shall survive the
execution and delivery of this Agreement.
(e) Subject to Section 11, the Purchaser agrees to indemnify and hold
harmless Grantor and its officers, directors, employees, agents,
representatives, successors and assigns (each, an "indemnitee") from and against
any loss, damage, expense or cost arising out of or in connection with (i) any
breach or violation by the Purchaser of applicable law or governmental
regulation, and (ii) any claims of whatever nature by third parties with respect
to services provided by the Purchaser.
(f) Subject to Section 11, Grantor agrees to indemnify and hold harmless
the Purchaser and its officers, directors, employees, agents and representatives
from and against any loss, damage, expense or cost arising out of or in
connection with: (i) any breach or violation by Grantor of applicable law or
governmental regulation, and (ii) any claims of whatever nature by third parties
with respect to the services provided by Grantor.
14. RELATIONSHIP OF THE PARTIES. This Agreement shall not form a joint
-------------------------------
venture or partnership or similar business arrangement between the parties
hereto, and nothing contained herein shall be deemed to constitute a partnership
or joint venture or similar business arrangement.
15. NO THIRD PARTY BENEFICIARIES. This Agreement does not provide and is
--------------------------------
not intended to provide third parties (including, but not limited to, customers
of the Purchaser, any permitted transferee of the Inland Capacity acquired
hereunder or any other
<PAGE>
9
permitted user of the Inland Capacity) with any remedy, claim, liability,
reimbursement, cause of action, or any other right, except for assignees
pursuant to an assignment which is permitted under Section 16 of this Agreement.
Furthermore, the Purchaser acknowledges that it is not a third party beneficiary
of any agreement entered into by Grantor including, but not limited to, the
Backhaul Agreements.
<PAGE>
16. ASSIGNMENT.
---------------
(a) This Agreement and all of the provisions hereof shall be binding upon and
inure to the benefit of the parties hereto, the Subsidiary Grantors and
their respective successors and permitted assigns.
(b) The Grantor shall solely be responsible for complying with all of the terms
binding on the "Grantor" hereunder and shall not be permitted to assign,
transfer or otherwise dispose of any or all of its right, title or interest
hereunder or delegate any or all of its obligations hereunder to any person
or entity except that the Grantor and the Subsidiary Grantors shall be
------
permitted to (i) effect a collateral assignment of their respective rights
hereunder to one or more lenders to Grantor or its affiliates and (ii)
assign, transfer or otherwise dispose of any or all of their rights
hereunder and under the Subsidiary IRU Agreement and delegate any or all of
their obligations hereunder and under the Subsidiary IRU Agreement to any
present or future affiliated company of the Grantor or to an entity
controlled by, under the same control as, or controlling, the Grantor. The
Grantor shall give the Purchaser notice of any such assignment, transfer or
other disposition or any such delegation.
(c) The Purchaser shall solely be responsible for complying with all of the
terms binding on the "Purchaser" hereunder and shall not be permitted to
assign, transfer or otherwise dispose of any or all of its right, title or
interest hereunder or under the Subsidiary IRU Agreement (except for
leases, licenses and transfers of the right to use Capacity to the extent
set forth in Section 16(d) below) or delegate any or all of its obligations
hereunder or under the Subsidiary IRU Agreement to any person or entity
except (i) a collateral assignment of its rights hereunder to one or more
lenders to the Purchaser or its affiliates, and (ii) to any present or
future affiliated company of the Purchaser or to an entity controlled by,
under the same control as, or controlling, the Purchaser; and (iii)
incident to the transfer of all or substantially all of its business or a
substantial portion of its business (which shall include, without
limitation, a transfer of assets); provided, however, that the Purchaser
--------
shall remain responsible for the performance of its obligations hereunder
to the extent the assignee fails to perform such obligations.
(d) (i) The Purchaser may enter into one or more agreements to lease or
license the right to use any Purchased Capacity, so long as all such leases
or licenses with any particular lessee or licensee (including all
affiliates thereof) involve in the aggregate less than one (1) MCU of
Purchased Capacity;
(ii) The Purchaser may transfer a right to use any Purchased Capacity to a
Carrier Party, so long as all such transfers to any particular transferee
(including all affiliates thereof) involve in the aggregate less than one
MCU of Purchased Capacity;
(iii) Purchaser may not enter into any arrangements to lease, license or
transfer a right to use an aggregate (in any combination of such
arrangements) of one or more
<PAGE>
11
MCUs of Purchased Capacity to any particular lessee, licensee or transferee
(including all affiliates thereof).
(iv) No lease, license or transfer permitted by this Section 16(d) shall
involve any delegation or other transfer of any of Purchaser's obligations
or liabilities hereunder. Each lessee, licensee and transferee of any right
to use Purchased Capacity shall derive all of its rights solely through the
Purchaser and such rights shall be enforceable solely against the
Purchaser. No such lessee, licensee or transferee shall become a third
party beneficiary of this Agreement or obtain any right, title or interest
in, to or under this Agreement or the Subsidiary IRU Agreement or the
ability to enforce any provision hereof or thereof nor shall any thereof
have any rights or claims against the Grantor for any reason whatsoever.
The rights of any lessee, licensee or transferee of a right to use any
Purchased Capacity shall be subject and subordinate to all the terms of
this Agreement (including the Grantor's right to suspend service in the
event of a default by Purchaser hereunder) and Purchaser shall remain
primarily liable hereunder for the performance of all the terms of this
Agreement to the same extent as if such lease, license or transfer had not
occurred. Any such lease, license or transfer agreement shall prohibit
further assignment, transfer or other disposition of Purchased Capacity
except in accordance with the terms of this Section 16.
(e) The Grantor will cause to be maintained a Customer Care Center to provide
service to the Purchaser and other users of the System. Only Carrier
Parties which have acquired and hold the right to use one or more whole
MCUs of Capacity shall be entitled to utilize the services of the Customer
Care Center. Every entity which has the right to use one or more MCUs of
Capacity shall promptly contact the Customer Care Center and provide all
such information reasonably requested by the Customer Care Center.
(f) Any assignment, transfer or other disposition by either Party which is in
violation of this Section shall be void and of no force and effect.
17. CONDITION TO PURCHASER'S OBLIGATIONS. The Purchaser's obligation to pay
----------------------------------------
for an IRU with respect to any Inland Capacity connecting with any Purchased
Capacity on any Segment other than Segment S-1 (for which the RFS Date has
already occurred) shall terminate if the RFS Date for such Purchased Capacity
has not occurred by June 30, 1999. In any such event, the Purchaser may
terminate this Agreement in its entirety and receive a complete refund of all
amounts paid hereunder or the Purchaser may terminate this Agreement only with
respect to such Inland Capacity in which case Grantor shall refund all amounts
paid by the Purchaser, if any, with respect to such Inland Capacity as to which
Purchaser's obligation has terminated within thirty (30) days after the
applicable date.
18. NOTICES. Each notice, demand, certification or other communication
-----------
given or made under this Agreement shall be in writing and shall be delivered by
hand or sent by registered mail or by facsimile transmission to the address of
the respective party as set forth below its
<PAGE>
12
signature hereto (or such other address as may be designated in writing to the
other party hereto in accordance with the terms of this Section). Any change to
the name, address and facsimile numbers may be made at any time by giving
fifteen (15) days prior written notice in accordance with this Section. Any such
notice, demand or other communication shall be deemed to have been received, if
delivered by hand, at the time of delivery or, if posted, at the expiration of
seven (7) days after the envelope containing the same shall have been deposited
in the post maintained for such purpose, postage prepaid, or, if sent by
facsimile, at the date of transmission if confirmed receipt is followed by
postal notice.
19. INCORPORATION BY REFERENCE. The provisions of Sections 12, 14, 15, 23,
------------------------------
24, 25 and 26 of the Capacity Purchase Agreement are hereby incorporated herein
by reference, mutatis mutandis, and shall be deemed a part of this Agreement as
if fully set forth herein.
20. PUBLICITY AND CONFIDENTIALITY. (a) The provisions of this Agreement and
---------------------------------
any non-public information, written or oral, with respect to this Agreement
("Confidential Information") will be kept confidential and shall not be
disclosed, in whole or in part, to any person other than affiliates, officers,
directors, employees, agents or representatives of a party (collectively,
"Representatives") who need to know such Confidential Information for the
purpose of negotiating, executing and implementing this Agreement. Each party
agrees to inform each of its Representatives of the non-public nature of the
Confidential Information and to direct such persons to treat such Confidential
Information in accordance with the terms of this Section 20. Nothing herein
shall prevent a party from disclosing Confidential Information (i) upon the
order of any court or administrative agency, (ii) upon the request or demand of,
or pursuant to any regulation of, any regulatory agency or authority, (iii) to
the extent reasonably required in connection with the exercise of any remedy
hereunder, (iv) to a party's legal counsel or independent auditors, (v) to
prospective lenders to the Grantor, and (vi) to any actual or proposed assignee,
transferee or lessee of all or part of its rights hereunder provided that such
actual or proposed assignee agrees in writing to be bound by the provisions of
this Section 20.
(b) The foregoing shall not restrict either party from publicly announcing
that it has entered into this Agreement with the parties hereto, but without
including any details contained in this Agreement.
<PAGE>
13
IN WITNESS WHEREOF, the parties have executed this Agreement effective on
the date first written above.
VIA NET WORKS EUROPE HOLDING B.V.
By: VIA NET.WORKS, INC., its
Managing Director
By: /s/ Matt Nydell
-------------------------
Name: Matt Nydell
-----------------------
Title: VP & General Counsel
-----------------------
c/o VIA NET.WORKS, Inc.
121000 Sunset Hills Road, Suite 110
Reston, VA 20190 USA
Attention: Matt S. Nydell, Esq., V.P., General
Counsel and Secretary
Facsimile: 703-464-0608
GT LANDING CORP.
By: /s/ Doug Molyneux
----------------------------
Name: Doug Molyneux
--------------------------
Title: Under a Power of Attorney
--------------------------
c/o Atlantic Crossing Ltd.
Wessex House
45 Reid Street
Hamilton HM 12
Bermuda
Attention: President
Facsimile: 441-296-8606
<PAGE>
SCHEDULE I
*****Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.*****
DESCRIPTION OF INLAND CAPACITY
<TABLE>
<CAPTION>
============================================================================================================
(a) (b) (c) (d) (e)
Date of Inland Capacity (set forth Number of Whole MCUs Price Per Whole (c) x (d)
Transaction Cable Station and Inland MCU Purchase Price
Point of Interface)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Brookhaven, NY One (1) [*****] [*****]
to (See Note 1) (See Note 1)
60 Hudson Street
New York City
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
============================================================================================================
</TABLE>
Total Purchase Price [*****]
Payment Received May 28 [*****]
Net Purchase Price Due [*****]
Purchase Price To Be Financed [*****]
Note 1 : Subject to Section 2(a) hereof.
<PAGE>
*****Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the the omitted portions.*****
VIA Net Works
INSTALLMENT PAYMENTS
US BACKHAUL
Price per MCU [*****]
Payment Due Date September 30, 1999
Payment Terms
- -------------
Date Payment
- ---- -------
Payment received May 28, 1999 [*****]
Deposit upon signing [*****]
September 30, 1999 [*****]
December 31, 1999 [*****]
March 31, 2000 [*****]
June 30, 2000 [*****]
September 30, 2000 [*****]
December 31, 2000 [*****]
March 31, 2001 [*****]
June 30, 2001 [*****]
September 30, 2001 [*****]
December 31, 2001 [*****]
March 31, 2002 [*****]
June 30, 2002 [*****]
Total [*****]
VIA Net Works
By:
-----------------
Name:
Date:
<PAGE>
ATTACHMENT II
RFS STANDARD
RFS Standard means for any Inland Capacity that (a) the fiber optic
telecommunications system carrying such capacity has the ability to carry
commercial traffic between the System Interface at the Cable Station to the
Inland Point of Interface meeting performance criteria of ITU-T G.826 and has
protection switching capability and (b) the interface to the System shall be
STM-1 (optical interface) as specified in ITU Recommendation G.957 and 1+1
protected or equivalent.
<PAGE>
EXHIBIT 10.7
Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated by [*****]. A complete version of this exhibit has been
filed separately with the Securities and Exchange Commission.
ATLANTIC CROSSING/AC-1
SUBMARINE CABLE SYSTEM
CAPACITY PURCHASE AGREEMENT
THIS AGREEMENT (as amended, supplemented or otherwise modified from
time to time, this "Agreement"), made and entered into as of this 21st day of
June, 1999, between ATLANTIC CROSSING LTD., a company organized and existing
under the laws of Bermuda and having its principal office in Bermuda (the
"Grantor"), and VIA NET WORKS EUROPE HOLDING B.V., a company organized and
existing under the laws of The Netherlands and having its principal office at
Veena 723C-6, PO Box 3013 AM, Rotterdam, The Netherlands (the "Purchaser").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Grantor, (formerly known as Global Telesystems Ltd.),
certain of its subsidiaries, SSI Atlantic Crossing LLC and AT&T Submarine
Systems, Inc., now known as Tyco Submarine Systems Ltd. (together with its
successors and assigns, "TSSL") have entered into the Project Development and
Construction Contract, dated March 18, 1997 (as amended, supplemented or
otherwise modified from time to time, the "Supply Contract"), pursuant to which
TSSL has agreed to design, manufacture, construct, install and deliver a fiber
optic cable system connecting (a) the United States to the United Kingdom, (b)
the United Kingdom to the Netherlands, (c) the Netherlands to Germany and (d)
Germany to the United States (the "System");
WHEREAS, the Grantor, certain of its subsidiaries, SSI Atlantic
Crossing LLC and TSSL have also entered into the Operations, Administration and
Maintenance Agreement, dated as of March 25, 1997 (as amended, supplemented or
otherwise modified from time to time, the "OA&M Agreement"), pursuant to which
TSSL has agreed, in accordance with the terms thereof, to operate, administer
and maintain the System;
WHEREAS, the Purchaser desires to acquire rights with respect to the
Purchased Capacity (as defined herein) on an indefeasible right of use basis
("IRU") and such Purchased Capacity represents capacity on the System between
the System Interface (as defined herein) of the applicable cable stations;
WHEREAS, the Purchased Capacity is comprised of: (a) S Capacity (as
defined herein), which will be conveyed by the Grantor to the Purchaser pursuant
to this Agreement; and (b) to the extent necessary to allow the Purchaser to use
its IRU in the applicable S Capacity, T Capacity (as defined herein), which will
be conveyed by subsidiaries of the Grantor to the Purchaser pursuant to the
Indefeasible Right of Use
<PAGE>
Agreement, attached hereto as Annex A; and
WHEREAS, in order to obtain inland connection services in the United
States and the United Kingdom for the purpose of extending the Purchased
Capacity inland to a location in New York City and London (the "Inland
Capacity"), the Purchaser has the option of entering into separate agreements
(the "Inland Capacity Agreements") with subsidiaries or affiliates of the
Grantor located in the United States and the United Kingdom (the "Inland
Affiliates");
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants contained herein, covenant and agree with each other as follows:
1. DEFINITIONS. Terms defined in the preamble, in the recitals and Annex B
hereto shall have their respective meanings when used herein and the
following terms shall have the following meanings:
"Access Connection" as defined in Annex B to this Agreement.
-----------------
"Adjusted Pro Rata Share" as defined in Annex B to this Agreement.
-----------------------
"Advisory Committee" as defined in Paragraph 5 of Annex B to this
------------------
Agreement.
"business day" means a day other than a Saturday, Sunday or other day
------------
on which commercial banks in New York City or Bermuda are authorized
or required to close.
"Dollars" or "$" means United States dollars.
--------------
"European Segment" means Segment S-3a, S-3b and/or S-3c.
----------------
"Grantor's Account" means the bank account of the Grantor maintained
-----------------
with Deutsche Bank AG, New York Branch, at 31 West 52nd Street, New
York, New York 10019 (account number 10-533026-0016) or such other
account as the Grantor may designate to the Purchaser in writing.
Wire instructions for the above-referenced account are as follows:
Account Name: Atlantic Crossing Ltd.
Account Number: 10-533026-0016
Bank Name: Deutsche Bank AG, New York Branch
ABA No.: 026-003-780
Reference: Atlantic Crossing Attn: Lydia Zaininger
"Initial Payment Date" means, with respect to the IRU granted in
--------------------
respect of the Purchased Capacity, the date on which the Purchaser
pays the Grantor (for the benefit of the Grantor and the benefit of
the Subsidiary Grantors), in immediately available Dollars, the
initial amount required to
2
<PAGE>
be paid by the Purchaser for such Purchased Capacity in accordance
with Section 3(b) of this Agreement.
"Maintenance Costs" as defined in Section 4(a) of this Agreement.
-----------------
"Minimum Capacity Unit" or "MCU" means the minimum capacity to be
--------------------- ---
purchased by the Purchaser in the System. A STM-1 is designated as the
MCU for purposes of this Agreement.
"Operator" means TSSL and its successors and assigns as operator under
--------
the OA&M Agreement or any successor operator of the System appointed
by Grantor.
"Payment Due Date" means, with respect to the IRU granted in respect
----------------
of any Purchased Capacity, the payment date as set forth in Schedule
II hereto.
"Purchased Capacity" means the S Capacity set forth on Schedule I
------------------
hereto, together with to the extent necessary to allow the Purchaser
to use its IRU in the applicable S Capacity, the applicable T
Capacity.
"Purchase Price" means, with respect to the IRU granted in respect of
--------------
any Purchased Capacity, the amount payable by the Purchaser to the
Grantor (for the benefit of the Grantor and the benefit of the
Subsidiary Grantors) in respect of such Purchased Capacity and set
forth under the heading "Total Purchase Price" on Schedule I to this
Agreement.
"RFS Date" means, with respect to any Segment, the date on which such
--------
Segment will be available for service, which shall be the date on
which the Grantor certifies that (i) such Segment has achieved the
standard described in Attachment 4 to Annex B hereto, (ii) such
Segment has been accepted by Grantor as ready for commercial service
under the Supply Contract and (iii) the independent engineer engaged
by Grantor's senior lenders has concurred with such acceptance. The
RFS Date for Segment S-1 (and the related T Segments) was May 22,
1998. The RFS Date for Segment S-2 was November 30, 1998. The RFS Date
for Segment S-3a, Segment S-3b, Segment S-3c, Segment S-4 and the
entire System was February 22, 1999.
"Right of Use Agreement" means the Indefeasible Right of Use
----------------------
Agreement, dated as of the date hereof, made by GT Landing Corp., GT
U.K. Ltd., Global Telesystems GmbH and GT Netherlands B.V. in favor of
purchasers of capacity on the System (including the Purchaser) and
attached as Annex A to this Agreement, as such agreement may be
amended, supplemented or otherwise modified from time to time in
accordance with Paragraph 9 thereof.
"S Capacity" means capacity on the System available on any S Segment.
----------
3
<PAGE>
"S Segments" the collective reference to Segment S-1, S-2 and S-3a,
----------
S-3b, S-3c and S-4, as necessary.
"Segment S-1" as defined in Annex B to this Agreement.
-----------
"Segment S-2" as defined in Annex B to this Agreement.
-----------
"Segment S-3a" as defined in Annex B to this Agreement.
------------
"Segment S-3b" as defined in Annex B to this Agreement.
------------
"Segment S-3c" as defined in Annex B to this Agreement.
------------
"Segment S-4" as defined in Annex B to this Agreement.
-----------
"Segment T-1" as defined in Annex B to this Agreement.
-----------
"Segment T-2" as defined in Annex B to this Agreement.
-----------
"Segment T-3" as defined in Annex B to this Agreement.
-----------
"Segment T-4" as defined in Annex B to this Agreement.
-----------
"Segments" the collective reference to the S Segments and the T
--------
Segments.
"Stub Period" as defined in Section 4(a) hereof.
-----------
"Subsidiary Grantors" the collective reference to GT Landing Corp., GT
-------------------
U.K. Ltd., Global Telesystems GmbH and GT Netherlands B.V. each a
wholly- owned subsidiary of the Grantor.
"Supplier" means TSSL and its successors and assigns as contractor
--------
under the Supply Contract or any successor contractor of the System
appointed by Grantor.
"T Capacity" means capacity on the System available on any T Segment.
----------
"T Segments" the collective reference to Segment T-1, T-2, T-3 and
----------
T-4.
"Transatlantic Segment" means Segment S-1, S-2 or S-4.
---------------------
"Total Purchase Price" means the aggregate amount payable by the
--------------------
Purchaser to the Grantor (for the benefit of the Grantor and the
benefit of the Subsidiary Grantors) for the IRU of the Purchased
Capacity as set forth on the bottom of Schedule I to this Agreement
opposite the phrase "Total Purchase Price."
4
<PAGE>
2. PURCHASE OF IRU FOR PURCHASED CAPACITY.
--------------------------------------
(a) Purchase Agreement and Grant of IRU. Purchaser hereby agrees to
------------------ ------------
purchase MCU(s) of Purchased Capacity on the terms and conditions set
forth herein and under the Right of Use Agreement. Effective on the
Initial Payment Date, the Grantor, together with the applicable
Subsidiary Grantors pursuant to the Right of Use Agreement, grants to
the Purchaser, for the term of this Agreement, an IRU in the
Purchased Capacity. The purchase and grant of the IRU in the
Purchased Capacity takes place in Bermuda.
(b) Quiet Enjoyment. So long as no event has occurred which entitles
---------------
Grantor to suspend service under this Agreement, the Purchaser shall
be entitled to the quiet enjoyment and use of the rights granted
hereunder free from interference from the Grantor or any person
claiming through Grantor, such as Grantor's lenders.
(c) Annex B. Certain rights and obligations with respect to the IRU of
-------
the Purchased Capacity are described in Annex B hereto, which is
incorporated herein by reference.
3. PAYMENT FOR CAPACITY.
--------------------
(a) Financing. Grantor shall finance the Purchase Price for the Purchased
---------
Capacity in accordance with Schedule II hereto. Payments by Purchaser
shall (i) be calculated to pay Grantor interest calculated at the
rate set out therein, (ii) be pre-payable, in whole or in part,
without penalty, and (iii) be secured by Grantor retaining a security
interest in the IRU until the Purchase Price is fully paid. Each of
the parties shall, at its expense, take all such actions and make all
such filings and recordings as are reasonably requested to establish,
perfect and protect the other party's interest in such IRU.
(b) Payment of Purchase Price. In exchange for the IRU interest granted
-------------------------
pursuant to this Agreement and the Right of Use Agreement in any
Purchased Capacity, the Purchaser shall, on or before each Payment
Due Date, pay to the Grantor's Account (for the benefit of the
Grantor and the benefit of the Subsidiary Grantors), in immediately
available Dollars, the amounts set forth in Schedule II hereto.
(c) Additional Service Payment. The Purchaser shall be required to make,
--------------------------
at the request of the Grantor, additional payments in respect of the
right of use granted under this Agreement, or the Right of Use
Agreement, for access connection rearrangement requested by the
Purchaser as set forth in Schedule III to this Agreement and such
other reasonable costs in respect of additional services or equipment
to be provided hereunder or in connection herewith as the parties
shall mutually agree.
5
<PAGE>
(d) Taxes. All payments made by the Purchaser under this Section 3 shall
-----
be made without any deduction or withholding for or on account of any
tax, duty or other charges of whatever nature imposed by any taxing
or governmental authority in the jurisdiction from which payment by
the Purchaser originates or in any other jurisdiction claiming the
right to impose such tax, duty or charge due to the location of any
business or properties of the Purchaser (collectively "Taxes"). If
the Purchaser is or was required by law to make any deduction or
withholding for or on account of any Taxes from any payment due
hereunder to the Grantor (for the benefit of the Grantor and the
benefit of the Subsidiary Grantors ), then, notwithstanding anything
to the contrary contained in this Agreement, the gross amount payable
by the Purchaser to the Grantor (for the benefit of the Grantor and
the benefit of the Subsidiary Grantors) will be increased so that,
after any such deduction or withholding for Taxes, the net amount
received by the Grantor (for the benefit of the Grantor and the
benefit of the Subsidiary Grantors) will not be less than the Grantor
(for the benefit of the Grantor and the benefit of the Subsidiary
Grantors) would have received had no such deduction or withholding
been required. If any taxing or government authority asserts that the
Purchaser should have made a deduction or withholding for on account
of any Taxes with respect to all or a portion of any payment made
hereunder, the Purchaser hereby agrees to indemnify the Grantor for
such Taxes and hold the Grantor harmless on an after-tax basis from
and against any Taxes, interest or penalties levied or asserted in
connection therewith.
4. OPERATION AND MAINTENANCE OF SYSTEM.
-----------------------------------
(a) Maintenance Payments. The Purchaser shall pay to the Grantor (for the
--------------------
benefit of the Grantor and the benefit of the Subsidiary Grantors),
in immediately available Dollars, amounts ("Maintenance Costs") which
are based on its allocated share of the costs for operating,
maintaining and repairing the System in accordance with and subject
to the limitations set forth in Paragraph 8 of Annex B. Maintenance
Costs shall be payable quarterly in advance on each January 1, April
1, July 1 and October 1, commencing with the first January 1 after
the applicable Payment Due Date, except that on the applicable
Payment Due Date for the Purchased Capacity the Purchaser shall make
a proportional payment for the period (the "Stub Period") from the
applicable Payment Due Date to the first January 1 thereafter.
(b) Maintenance. (i) The Grantor shall use reasonable commercial efforts
-----------
to cause the System to be maintained in efficient working order and
in accordance with industry standards and the Maintenance Performance
Standards set forth in Schedule IV to this Agreement which is
incorporated herein by reference. The Grantor represents that (A) the
OA&M Agreement (the "OA&M Agreement") is in full force and effect and
that neither the Grantor nor, to the best of the Grantor's knowledge,
any other
6
<PAGE>
party to the OA&M Agreement is in material default of any provision
thereof; (B) that the OA&M Agreement requires and at all times the
Grantor shall require TSSL to provide routine, preventive and
corrective maintenance for the System in accordance with performance
standards that at least meet prudent industry standards; and (C) the
Grantor shall maintain the OA&M Agreement in full force and effect
and will use reasonable commercial efforts to cause TSSL to perform
its obligations under the OA&M Agreement and the Supply Contract.
(ii) The Grantor together with the Subsidiary Grantors will have
sole responsibility for negotiating, executing and
administering contracts and all other aspects related to the
construction, operation, maintenance and repair of the System.
(iii) Should any condition exist in any Segment that may impair the
integrity of the System, the Grantor shall initiate and
coordinate planned maintenance (or shall cause such action to
occur), on such relevant Segment which may include the
deactivation of such Segment. The Grantor shall, to the extent
reasonably practicable, advise the Purchaser in writing at
least sixty (60) days (or such shorter period as may be
necessary), prior to initiating a planned maintenance
operation, of the timing, scope and costs of such planned
maintenance operation.
(iv) In addition to fulfilling its obligations as set forth in
Section 4(b)(i), in the event of disruption of service due to
force majeure or other emergency, the Grantor shall cause
service to be restored as quickly as reasonably possible, and
the Grantor shall take such measures as are reasonably
necessary to obtain such objective.
(v) In addition to fulfilling its obligations as set forth in
Section 4(b)(i), the Grantor shall provide the Customer Care
Center services as described in Schedule V to this Agreement,
which is incorporated by reference herein.
(vi) In fulfilling its obligations as set forth in Section 4(b)(i),
the Grantor shall not provide any preference for the repair of
its or any other party's facilities, but rather shall perform
such services in a manner that does not discriminate against
the Purchaser.
5. INVOICES; DEFAULT INTEREST.
--------------------------
(a) Invoices. The Grantor (and/or the Subsidiary Grantors) or its
--------
authorized agent (which may include the Operator), shall render
invoices under this Agreement in Dollars, and the Purchaser shall pay
such amount in Dollars. The Purchaser shall make all payments by
means of a wire transfer to Grantor's Account (for the benefit of the
Grantor and the Subsidiary
7
<PAGE>
Grantors). Any payments required to be made pursuant to this
Agreement shall be made on the later of (i) the date when due or (ii)
thirty (30) business days after an invoice is received from Grantor
by Purchaser. In the event the Purchaser has a dispute, in respect of
payment(s), and such dispute is of a reasonable, good faith,
commercial and uncapricious nature, the Purchaser shall be entitled
to withhold such payment(s) until the dispute is resolved. The
Purchaser shall, however, be obliged to use best efforts to assist in
resolving such dispute referred to in this Section 5(a).
(b) Default Interest. Any invoice rendered under this Agreement which is
----------------
not paid when due, shall accrue interest at the annual rate of six
percent (6%) above the rate for U.S. dollar LIBOR for one month as
quoted in The Wall Street Journal on the first business day of the
-----------------------
month in which such payment is due. Such interest shall accrue from
the day following the date payment was due until it is paid in full.
In the event that applicable law does not allow the imposition of
"default interest" at the rate established in accordance with this
Section 5(b), such "default interest" shall be at the highest rate
permitted by applicable law. For purposes of this Section, "paid"
shall mean that funds are available for immediate use by the Grantor.
6. DEFAULT
-------
(a) Subject to Section 5(a) hereof, if the Purchaser fails to make any
payment required by this Agreement on the date that it is due, or if
the Purchaser is otherwise in breach of this Agreement, and such
payment default continues unremedied for a period of at least five
(5) days or such other breach continues for a period of at least
thirty (30) days, the Grantor, or its authorized agent, may notify
the Purchaser in writing of such payment default or other breach and
if full payment is not received or such other breach is not fully
remedied within fifteen (15) days of such notification, the Grantor:
(i) may suspend all service provided to Purchaser hereunder and under
the Right of Use Agreement (including suspending Purchaser's right to
use the Purchased Capacity), until such payment default or other
breach has been cured (including payment of default interest, if any)
and (ii) shall be entitled to pursue any and all rights and legal and
equitable remedies (including its rights and remedies to enforce the
Purchaser's obligations under this Agreement).
(b) If the Grantor is in breach of this Agreement and such breach
continues for a period of at least thirty (30) days, the Purchaser
may notify the Grantor in writing of such breach and if such breach
is not fully remedied within fifteen (15) days of such notification,
the Purchaser shall, for so long as such breach continues, be
entitled to pursue any and all rights and legal and equitable
remedies, including its rights and remedies to enforce Grantor's
obligations under this Agreement and further including the right to
terminate this Agreement and receive a pro-rata refund of the
Purchase
8
<PAGE>
Price based upon the remaining term. The Purchaser's right to pursue
any and all rights and legal and equitable remedies shall continue
for so long as such breach continues, provided, however, that a
subsequent cure of any such breach by Grantor shall not prejudice (i)
any right or remedy properly exercised by the Purchaser prior to the
time such cure has been effected, or (ii) the Purchaser's right to
claim damages with respect to the period prior to the time such cure
has been effected.
7. USE OF CAPACITY.
---------------
(a) The operation of the Purchased Capacity and any equipment associated
therewith shall be such as not to interrupt, interfere with, or
impair service over any of the facilities comprising the System, or
impair privacy of any communications over such facilities, cause
damage to plant or create hazards to employees, affiliates or
connecting companies of the Grantor, any Subsidiary Grantor, the
Purchaser, or any other user, owner or operator of the System or the
public. The Purchaser shall bear the cost of any additional
protective apparatus reasonably required to be installed because of
the use of such facilities by the Purchaser, any lessees or permitted
transferees of the Purchaser, or any customer or customers of the
Purchaser or of any such lessee or transferee provided, however, that
this Section 7(a) shall only apply to the extent that such use is
outside the ordinarily anticipated use of such facilities. The
Grantor will cause all other purchasers of capacity in the System to
undertake obligations comparable to those of the Purchaser set forth
in this Section, and the Purchaser shall cause all permitted users of
the IRU in the Purchased Capacity to undertake comparable
obligations.
(b) The Purchased Capacity granted to the Purchaser shall be made
available to the Grantor (or its subsidiaries, its agents or the
Operator), at such times agreeable to the Purchaser and the Grantor,
to permit the Grantor and the Subsidiary Grantors to conduct such
tests and adjustments as may be necessary for such capacity to be
maintained in efficient working order.
8. DURATION OF AGREEMENT.
---------------------
(a) This Agreement shall become effective on the day and year set forth
in the preamble hereto and shall continue in operation until the
twenty-fifth (25th) anniversary of the RFS Date for the System.
(b) The termination of this Agreement (whether under this Section or
otherwise) shall not relieve either party from any liabilities
arising prior to such termination.
(c) Upon the termination of this Agreement, so long as Purchaser is not
in default hereunder, the Purchaser may elect to extend its rights in
the System, for so long as the System exists or has not been retired,
by giving written notice to Grantor and paying to Grantor one (1)
Dollar. Such election to extend shall not affect or delay the
termination of the Grantor's
9
<PAGE>
obligations under this Agreement. Upon such election to extend and
payment, the Purchaser, together with all other purchasers of capacity
on the System that also elect to so extend, shall become the sole
owners of the System. The ownership interests of the Purchaser and
such other purchasers shall be in proportion to the amount of capacity
covered by IRU's previously granted to the Purchaser and such other
purchasers. The Grantor shall execute and deliver such documentation
as may be reasonably required to effect such transfer of ownership.
Without limitation to the generality of the foregoing provisions,
Grantor shall have no obligation to operate or maintain the System
during such extension.
(d) The parties hereto shall discuss with each other and the other
purchasers of capacity on the System establishing a procedure for the
early retirement of the System if such retirement appears to be
commercially appropriate.
9. APPROVALS; LICENSES.
-------------------
The performance of this Agreement by each party hereto is contingent upon
the obtaining and continuance of such approvals, consents, governmental
authorizations, licenses and permits as may be required or reasonably
deemed necessary by such party for performance by such party hereunder and
as may be satisfactory to it. The parties shall use (and in the case of the
Grantor, shall cause the Subsidiary Grantors to use) reasonable efforts to
obtain and continue, and to have continued, such approvals, consents,
licenses and permits. No license under patents is granted by the Grantor or
any of the Subsidiary Grantors or shall be implied or arise by estoppel in
the Purchaser's favor with respect to any apparatus, system or method used
by the Purchaser in connection with the use of the capacity granted to it
hereunder or under the Right of Use Agreement.
10. DISCLAIMER.
----------
(a) The Grantor and the Subsidiary Grantors have entered into the Supply
Contract to obtain plant, equipment and services necessary to allow
the Purchased Capacity to be placed into operation on the applicable
scheduled RFS Date. UNLESS SPECIFICALLY SET FORTH IN THIS AGREEMENT,
ANY OTHER WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED
TO, THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE ARE SPECIFICALLY DISCLAIMED.
(b) In order to make it more convenient for the Purchaser to connect the
Purchased Capacity to inland networks, the Grantor and the Subsidiary
Grantors have permitted certain Inland Carriers to collocate at the
cable stations located at each T Segment. Neither the Grantor, any
Subsidiary Grantor or any of their respective affiliates warrants or
guarantees any agreement between the Purchaser and any Inland Carrier
and neither the Grantor, any Subsidiary Grantor or any of their
respective affiliates shall
10
<PAGE>
have any liability to the Purchaser for any failure of any Inland
Carrier to perform the terms and conditions of any such agreement.
11. LIMITATIONS OF LIABILITY.
------------------------
(a) Except as otherwise provided in this Agreement or in the Right of Use
Agreement, in no event shall the Purchaser, the Grantor or any
Subsidiary Grantor be liable to the other for consequential,
incidental, indirect or special damages, including, but not limited
to, loss of revenue, loss of business opportunity, or the costs
associated with the use of external restoration facilities, including,
without limitation, for any loss or damage sustained by reason of any
failure in or breakdown of the System or the facilities associated
with the System, the failure of any Inland Carrier to perform the
terms and conditions of any agreement to which it and the Purchaser
are parties or for any interruption of service, whatever the cause and
however long it shall last.
(b) Neither the Grantor nor any Subsidiary Grantor shall be liable to the
Purchaser for any loss or damage which may be suffered by the
Purchaser by reason of any circumstances beyond the control of the
Grantor and the Subsidiary Grantors and having an adverse effect on
the provision of any part of the System in which the Purchaser is
entitled to capacity or has any other right or interest under this
Agreement or under the Right of Use Agreement. Failure by a
subcontractor of any of the parties to comply with its contractual
commitments to such party shall not be deemed to be an event beyond
the reasonable control of such party for the purposes of this Section
11.
(c) (i) Neither the Grantor nor any Subsidiary Grantor shall be liable to
the Purchaser for any loss or damage which may be suffered by the
Purchaser as a result of, related to, or in connection with, the
Purchaser's compliance or non-compliance with any applicable state,
federal, foreign governmental, international (foreign or domestic) or
other law related to the transfer of the IRU in, or the use of, the
Purchased Capacity.
(ii) The Purchaser shall not be liable to the Grantor or any
Subsidiary Grantor for any loss or damage which may be suffered by
Grantor or any Subsidiary Grantor as a result of, related to, or in
connection with, Grantor's or Subsidiary Grantor's non-compliance with
any applicable state, federal, foreign governmental, international
(foreign or domestic) or other law related to the transfer by Grantor
of the IRU to the Purchaser in, or Grantor's operation, ownership or
use of, the System.
11
<PAGE>
12. SETTLEMENT OF DISPUTES.
----------------------
(a) The parties hereto shall endeavor to settle amicably by mutual
discussions any disputes, differences, or claims whatsoever related to
this Agreement.
(b) Failing such amicable settlement, any controversy, claim or dispute
arising under or relating to this Agreement, including the existence,
validity, interpretation, performance, termination or breach thereof,
shall finally be settled by arbitration in accordance with the
International Arbitration Rules of the American Arbitration
Association ("AAA"). There shall be three (3) arbitrators (the
"Arbitration Tribunal"), the first of which shall be appointed by the
claimant in its notice of arbitration, the second of which shall be
appointed by the respondent within thirty (30) days of the appointment
of the first arbitrator and the third of which shall be jointly
appointed by the party-appointed arbitrators within thirty (30) days
thereafter. The language of the arbitration shall be English. The
Arbitration Tribunal will not have authority to award punitive damages
to either party. Each party shall bear its own expenses, but the
parties shall share equally the expenses of the Arbitration Tribunal
and the AAA. This Agreement shall be enforceable, and any arbitration
award shall be final, and judgment thereon may be entered in any court
of competent jurisdiction. The arbitration shall be held in New York,
New York, USA.
13. INCREASE OF INITIAL DESIGN CAPACITY.
-----------------------------------
The Grantor and the Subsidiary Grantors shall have authority to increase,
at their own cost and expense, the Initial Design Capacity of the System.
14. GOVERNING LAW.
-------------
This agreement shall be governed by and construed in accordance with the
laws of the State of New York, United States of America without regard to
the conflicts of laws rules of such State or any other jurisdiction that
would apply the law of a different jurisdiction.
15. WAIVER OF IMMUNITY.
------------------
The parties hereto acknowledge that this Agreement is commercial in nature,
and each party hereto expressly and irrevocably waives any claim or right
which it may have to immunity (whether sovereign immunity, act of state or
otherwise) for itself or with respect to any of its assets in connection
with an arbitration, arbitral award or other proceeding to enforce this
Agreement, including, without limitation, immunity from service of process,
immunity of any of its assets from pre- or post-judgment attachment or
execution and immunity from the jurisdiction of any court or arbitral
tribunal.
12
<PAGE>
16. EXPORT CONTROL.
--------------
The parties hereto acknowledge that to the extent any products, software or
technical information provided under this Agreement or the Right of Use
Agreement are or may be subject to any applicable export laws and
regulations, the parties hereto agree that they will not use, distribute,
transfer or transmit the products, software or technical information (even
if incorporated into other products) except in compliance with such export
laws and regulations (or licenses or orders issued pursuant thereto). If
requested by either party hereto the other party agrees to sign all
necessary export-related documents as may be required to comply therewith.
17. REPRESENTATIONS; INDEMNITY
--------------------------
(a) The Grantor hereby represents and warrants to Purchaser that (i)
Grantor is a corporation duly organized and validly existing under the
laws of Bermuda; (ii) the execution, delivery and performance of this
Agreement by Grantor has been duly authorized by all necessary
corporate action on the part of Grantor and this Agreement is a valid,
binding and enforceable obligation of Grantor enforceable in
accordance with its terms and (iii) the execution, delivery and
performance of this Agreement by Grantor does not violate, conflict
with or constitute a breach of, the organizational documents or any
order, decree or judgment of any court, tribunal or governmental
authority binding on Grantor.
(b) Purchaser hereby represents and warrants to Grantor that (i) Purchaser
is a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization; (ii) the
execution, delivery and performance of this Agreement by Purchaser has
been duly authorized by all necessary corporate action on the part of
Purchaser and this Agreement is a valid, binding and enforceable
obligation of Purchaser enforceable in accordance with its terms; and
(iii) the execution, delivery and performance of this Agreement by
Purchaser does not violate, conflict with or constitute a breach of,
the organizational documents or any order, decree or judgment of any
court, tribunal or governmental authority binding on Purchaser.
(c) Each Party hereby represents and warrants to the other party that it
has obtained all approvals, consents, governmental authorizations,
licenses and permits as may be required to enter into this Agreement,
and grant or acquire, as the case may be, the IRU in the Purchased
Capacity and otherwise to perform its obligations hereunder.
(d) The foregoing representations and warranties shall survive the
execution and delivery of this Agreement.
13
<PAGE>
(e) Subject to Section 11, the Purchaser agrees to indemnify and hold
harmless the Grantor and the Subsidiary Grantors and their respective
affiliates, officers, directors, employees, agents, representatives,
successors and assigns from and against any loss, damage, expense or
cost arising out of or in connection with: (i) any breach or violation
by the Purchaser of applicable law or governmental regulation and (ii)
any claims of whatever nature by third parties with respect to the
services provided by the Purchaser.
(f) Subject to Section 11, the Grantor agrees to indemnify and hold
harmless the Purchaser and its affiliates, officers, directors,
employees, agents, representatives, successors and assigns from and
against any loss, damage, expense or cost arising out of or in
connection with: (i) any breach or violation by the Grantor or any
Subsidiary Grantor of applicable law or governmental regulation, and
(ii) any claims of whatever nature by third parties with respect to
the services provided by the Grantor or any Subsidiary Grantor.
18. RELATIONSHIP OF THE PARTIES.
---------------------------
This Agreement shall not form a joint venture or partnership or similar
business arrangement between the parties hereto and the Subsidiary
Grantors, and nothing contained herein or in the Right of Use Agreement
shall be deemed to constitute a partnership or joint venture or similar
business arrangement.
19. NO THIRD PARTY BENEFICIARIES.
----------------------------
This Agreement does not provide and is not intended to provide third
parties (including, but not limited to, customers of the Purchaser, any
permitted transferee of the Purchased Capacity or any other permitted user
of the Purchased Capacity) with any remedy, claim, liability,
reimbursement, cause of action, or any other right, except for the
Subsidiary Grantors and assignees pursuant to an assignment which is
permitted under Section 20(c) of this Agreement. Furthermore, the Purchaser
acknowledges that, except as set forth in the Right of Use Agreement, it is
not a third party beneficiary of any agreement entered into by the Grantor
or the Subsidiary Grantors including, but not limited to, the Supply
Contract and the OA&M Agreement.
20. ASSIGNMENT.
----------
(a) This Agreement and all of the provisions hereof shall be binding upon
and inure to the benefit of the parties hereto, the Subsidiary
Grantors and their respective successors and permitted assigns.
(b) The Grantor shall solely be responsible for complying with all of the
terms binding on the "Grantor" hereunder and shall not be permitted to
assign, transfer or otherwise dispose of any or all of its right,
title or interest
14
<PAGE>
hereunder or delegate any or all of its obligations hereunder to any
person or entity except that the Grantor and the Subsidiary Grantors
------
shall be permitted to (i) effect a collateral assignment of their
respective rights hereunder to one or more lenders to Grantor or its
affiliates and (ii) assign, transfer or otherwise dispose of any or
all of their rights hereunder and under the Subsidiary IRU Agreement
and delegate any or all of their obligations hereunder and under the
Subsidiary IRU Agreement to any present or future affiliated company
of the Grantor or to an entity controlled by, under the same control
as, or controlling, the Grantor. The Grantor shall give the Purchaser
notice of any such assignment, transfer or other disposition or any
such delegation.
(c) The Purchaser shall solely be responsible for complying with all of
the terms binding on the "Purchaser" hereunder and shall not be
permitted to assign, transfer or otherwise dispose of any or all of
its right, title or interest hereunder or under the Subsidiary IRU
Agreement (except for leases, licenses and transfers of the right to
use Capacity to the extent set forth in Section 25(d) below) or
delegate any or all of its obligations hereunder or under the
Subsidiary IRU Agreement to any person or entity except (i) a
collateral assignment of its rights hereunder to one or more lenders
to the Purchaser or its affiliates, and (ii) to any present or future
affiliated company of the Purchaser or to an entity controlled by,
under the same control as, or controlling, the Purchaser; and (iii)
incident to the transfer of all or substantially all of its business
or a substantial portion of its business (which shall include, without
limitation, a transfer of assets); provided, however, that the
--------
Purchaser shall remain responsible for the performance of its
obligations hereunder to the extent the assignee fails to perform such
obligations.
(d) (i) The Purchaser may enter into one or more agreements to lease or
license the right to use any Purchased Capacity, so long as all such
leases or licenses with any particular lessee or licensee (including
all affiliates thereof) involve in the aggregate less than one (1) MCU
of Purchased Capacity;
(ii) The Purchaser may transfer a right to use any Purchased Capacity
to a Carrier Party, so long as all such transfers to any particular
transferee (including all affiliates thereof) involve in the aggregate
less than one MCU of Purchased Capacity;
(iii) Purchaser may not enter into any arrangements to lease, license
or transfer a right to use an aggregate (in any combination of such
arrangements) of one or more MCUs of Purchased Capacity to any
particular lessee, licensee or transferee (including all affiliates
thereof).
15
<PAGE>
(iv) No lease, license or transfer permitted by this Section 25(d)
shall involve any delegation or other transfer of any of Purchaser's
obligations or liabilities hereunder. Each lessee, licensee and
transferee of any right to use Purchased Capacity shall derive all of
its rights solely through the Purchaser and such rights shall be
enforceable solely against the Purchaser. No such lessee, licensee or
transferee shall become a third party beneficiary of this Agreement or
obtain any right, title or interest in, to or under this Agreement or
the Subsidiary IRU Agreement or the ability to enforce any provision
hereof or thereof nor shall any thereof have any rights or claims
against the Grantor for any reason whatsoever. The rights of any
lessee, licensee or transferee of a right to use any Purchased
Capacity shall be subject and subordinate to all the terms of this
Agreement (including the Grantor's right to suspend service in the
event of a default by Purchaser hereunder) and Purchaser shall remain
primarily liable hereunder for the performance of all the terms of
this Agreement to the same extent as if such lease, license or
transfer had not occurred. Any such lease, license or transfer
agreement shall prohibit further assignment, transfer or other
disposition of Purchased Capacity except in accordance with the terms
of this Section 25.
(e) The Grantor will cause to be maintained a Customer Care Center to
provide service to the Purchaser and other users of the System. Only
Carrier Parties which have acquired and hold the right to use one or
more whole MCUs of Capacity shall be entitled to utilize the services
of the Customer Care Center. Every entity which has the right to use
one or more MCUs of Capacity shall promptly contact the Customer Care
Center and provide all such information reasonably requested by the
Customer Care Center.
(f) Any assignment, transfer or other disposition by either Party which is
in violation of this Section shall be void and of no force and effect.
21. CONDITION TO PURCHASER'S OBLIGATIONS.
------------------------------------
The Purchaser's obligation to pay for an IRU with respect to any Purchased
Capacity shall terminate if the RFS Date for such Purchased Capacity has
not occurred by June 30, 1999. In any such event, the Purchaser may
terminate this Agreement in its entirety and receive a complete refund of
all amounts paid hereunder or the Purchaser may terminate this Agreement
only with respect to such Purchased Capacity in which case the Grantor
shall refund all amounts paid by the Purchaser, if any, with respect to
such Purchased Capacity as to which Purchaser's obligation has terminated
within thirty (30) days after the applicable date.
16
<PAGE>
22. NOTICES.
-------
Each notice, demand, certification or other communication given or made
under this Agreement shall be in writing and shall be delivered by hand or
sent by registered mail or by facsimile transmission to the address of the
respective party as shown below (or such other address as may be designated
in writing to the other party hereto in accordance with the terms of this
Section):
If to the Purchaser: VIA Net Works Europe Holding B.V.
c/o VIA NET WORKS, Inc.
121000 Sunset Hills Road, Suite 110
Reston, VA 20190 USA
Attention: Matt S. Nydell, Esq., V.P., General
Counsel and Secretary
Fax No.: 703-464-0608
If to the Grantor: Atlantic Crossing Ltd.
Wessex House
45 Reid Street
Hamilton HM12, Bermuda
Attn: President
Fax No.: 441-296-8606
Any change to the name, address and facsimile numbers may be made at any
time by giving fifteen (15) days prior written notice in accordance with
this Section. Any such notice, demand or other communication shall be
deemed to have been received, if delivered by hand, at the time of delivery
or, if posted, at the expiration of seven (7) days after the envelope
containing the same shall have been deposited in the post maintained for
such purpose, postage prepaid, or, if sent by facsimile, at the date of
transmission if confirmed receipt is followed by postal notice.
23. SEVERABILITY.
------------
If any provision of this Agreement is found for any reason and to any
extent by an arbitral, judicial or regulatory authority having jurisdiction
to be invalid or unenforceable, the remainder of this Agreement and
application of such provision to other persons or circumstances shall be
interpreted so as best to reasonably effect the intent of the parties
hereto. The parties further agree to replace such void or unenforceable
provision with a provision which will achieve, to the extent possible, the
economic, business and other purposes of the void or unenforceable
provision.
17
<PAGE>
24. HEADINGS.
--------
The Section headings of this Agreement are for convenience of reference
only and are not intended to restrict, affect or influence the
interpretation or construction of provisions of such Section.
25. COUNTERPARTS.
------------
This Agreement may be executed in counterparts, each of which when executed
and delivered shall be deemed an original. Such counterparts shall together
(as well as separately) constitute one and the same instrument.
26. ENTIRE AGREEMENT.
----------------
This Agreement together with the Schedules, Annexes and Attachments thereto
supersedes all prior oral or written understandings between the parties
hereto and constitutes the entire agreement with respect to the subject
matter herein. This Agreement shall not be modified or amended except by a
writing signed by authorized representatives of the parties hereto.
27. PUBLICITY AND CONFIDENTIALITY.
-----------------------------
(a) The provisions of this Agreement and any non-public information,
written or oral, with respect to this Agreement ("Confidential
Information") will be kept confidential and shall not be disclosed, in
whole or in part, to any person other than affiliates, officers,
directors, employees, agents or representatives of a party
(collectively, "Representatives") who need to know such Confidential
Information for the purpose of negotiating, executing and implementing
this Agreement. Each party agrees to inform each of its
Representatives of the non-public nature of the Confidential
Information and to direct such persons to treat such Confidential
Information in accordance with the terms of this Section 27. Nothing
herein shall prevent a party from disclosing Confidential Information
(i) upon the order of any court or administrative agency, (ii) upon
the request or demand of, or pursuant to any regulation of, any
regulatory agency or authority, (iii) to the extent reasonably
required in connection with the exercise of any remedy hereunder, (iv)
to a party's legal counsel or independent auditors, (v) to prospective
lenders , and (vi) to any actual or proposed assignee, transferee or
lessee of all or part of its rights hereunder provided that such
actual or proposed assignee agrees in writing to be bound by the
provisions of this Section 27.
(b) The foregoing shall not restrict either party from publicly announcing
that it has entered into this Agreement with the parties hereto, but
without including any details contained in this Agreement.
18
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement effective on
the date first written above.
ATLANTIC CROSSING LTD.
By: /s/ Doug Molyneux
---------------------
Name: Doug Molyneux
-------------------
Title: Vice President
------------------
VIA NET WORKS EUROPE HOLDING B.V.
By: VIA NET.WORKS, INC., its
Managing Director
By: /s/ Matt Nydell
-----------------------
Name: Matt Nydell
---------------------
Title: VP & General Counsel
--------------------
19
<PAGE>
AMENDMENT NO. 1 TO
CAPACITY PURCHASE AGREEMENT
This Amendment No. 1 (the "Amendment") is made as of the 23 day of August,
1999, by and between Atlantic Crossing Ltd. ("Grantor") and VIA Net Works Europe
Holding B.V. ("Purchaser"),
WHEREAS, Grantor and Purchaser are parties to that certain Capacity
Purchase Agreement dated as of June 21, 1999 (the "Agreement"); and
WHEREAS, the parties wish to make certain clarifications in the Agreement;
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants contained herein, and for other good and valuable consideration,
covenant and agree with each other as follows:
A. Amendment to the Agreement. Sections 8(d) and 8(f) of Annex B to the
--------------------------
Agreement - Details Relating to Capacity Purchase Agreement, shall be deleted in
their entirety and Section 8(e) of Annex B shall be amended to delete the words
"Except as provided in clause (d) above" at the beginning of such Section. This
Amendment shall be effective as of June 21, 1999 as if such Amendment had been
made upon execution of the Agreement.
B. Terms and Conditions of the Agreement. Except for the above amendments,
-------------------------------------
all terms and conditions of the Agreement are unamended and shall remain in full
force and effect.
C. Governing Law. This Amendment shall be governed by and construed in
-------------
accordance with the laws of the State of New York, United States of America,
without regard to the conflicts of laws rules of such State or any other
jurisdiction that would apply the law of a different jurisdiction.
IN WITNESS WHEREOF, Grantor and Purchaser have executed this Amendment as
of the day and year first above written.
ATLANTIC CROSSING LTD.
By: /s/ Doug Molyneux
------------------------------
Name: Doug Molyneux
-------------------------
Title: Director
------------------------
<PAGE>
VIA NET WORKS EUROPE HOLDING
B.V.
By: VIA NET.WORKS, INC., its Managing
Director
By: /s/ Matt Nydell
---------------------------------
Name: Matt Nydell
----------------------------
Title: VP & General Counsel
---------------------------
2
<PAGE>
*****Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.*****
ADDENDUM TO AGREEMENTS
DATED JUNE 21, 1999
BETWEEN EACH OF
ATLANTIC CROSSING LTD.,
GT LANDING CORP. AND
GT U.K. LTD.
AND
VIA NET WORKS EUROPE HOLDING B.V.
This Addendum is made and entered into concurrently with (i) a Capacity
Purchase Agreement (the "CPA") of even date herewith by and between Atlantic
Crossing Ltd. ("Grantor") and VIA Net Works Europe Holding B.V. ("Purchaser"),
(ii) an Indefeasible Right of Use Agreement in Inland Capacity (United States)
(the "US Backhaul Agreement") of even date herewith by and between GT Landing
Corp. and Purchaser, and (iii) an Indefeasible Right of Use Agreement in Inland
Capacity (United Kingdom) (the "UK Backhaul Agreement") of even date herewith by
and between GT U.K. Ltd. and Purchaser. The CPA, the US Backhaul Agreement and
the UK Backhaul Agreement are referred to collectively as the "Agreements". If
there is any inconsistency between the terms and conditions of this Addendum and
the Agreements, the terms and conditions of this Addendum shall control.
Capitalized terms used in this Addendum without separate definition shall have
the meanings set forth in the Agreements.
1. Interim Lease Arrangement. Notwithstanding anything in the Agreements to
-------------------------
the contrary, Grantor hereby Leases on an interim basis the Purchased Capacity
to Purchaser in accordance with the terms and conditions of this Addendum (the
"Interim Lease"). This Interim Lease shall be in lieu of the transfer of an IRU
in the Purchased Capacity and the Inland Capacity as described in the
Agreements. This Interim Lease shall commence as of the Effective Date and shall
remain in effect for an initial term of six months (the "Initial Term"). In
consideration of the Purchased Capacity and the Inland Capacity to be provided
to Purchaser, Purchaser shall make Interim Lease payments of US [*****] per
quarter, payable on or before the first day of each quarter.
2. Conversion to Purchase Agreement. Purchaser shall have the option to
--------------------------------
convert the Interim Lease into a purchase of an IRU in the Purchased Capacity
and the Inland Capacity in accordance with the terms and conditions originally
set forth in the Agreements. Such option shall be exercisable in Purchaser's
sole discretion at any time during the Initial Term; provided, however, that
Purchaser shall be required to exercise such option within 15 days after
Purchaser receives such licenses as Purchaser requires in
<PAGE>
order to hold title to the IRU in the Purchased Capacity and the Inland Capacity
in Europe. Upon exercise of the option, Purchaser shall provide written notice
of exercise to Grantor, which notice shall be accompanied by payment of the
remaining portion of the down payment for the Purchased Capacity and the Inland
Capacity as set forth in Part B of Schedule II of the CPA. In determining the
remaining portion of the down payment for the Purchased Capacity and the Inland
Capacity, Purchaser shall receive full credit for any Interim Lease payments
made pursuant to this Addendum. Following the exercise of such conversion
option, Purchaser shall pay the remaining balance of the Purchase Price for the
Purchased Capacity and the Inland Capacity in accordance with the terms and
conditions originally set forth in the Agreements.
3. Conversion to Three Year Lease. If Purchaser is unable to obtain such
------------------------------
licenses as Purchaser requires in order to hold title to the IRU in the
Purchased Capacity and the Inland Capacity in Europe and does not otherwise
Ichoose to exercise the purchase option described in Section 2 of this Addendum
during the Initial Term, the parties shall, effective as of the termination of
the Initial Term, convert the Interim Lease into a three year lease with
payments as agreed by the parties. To the extent reasonably possible, all other
terms applicable to the three year lease shall be the same as the terms set
forth in the Agreements. The parties shall cooperate with one another and shall
execute and deliver, or cause to be executed and delivered, all such documents
and instruments, in addition to those otherwise required by this Addendum, as
may be reasonably required to reflect such three year lease.
4. OA&M Charges. OA&M charges on the System are not included in Interim
------------
Lease payments and shall be made separately during the Initial Term in
accordance with the CPA. If Purchaser is unable to convert the Interim Lease
into a purchase of the Purchased Capacity within the Initial Term and
subsequently enters into the three year lease, the OA&M charges will be credited
to the Purchaser against the next following three year lease payment(s).
5. Exception to Purchaser Representations and Warranties. Grantor hereby
-----------------------------------------------------
acknowledges that Purchaser has disclosed to Grantor that Purchaser is in the
process of obtaining the licenses it needs in order to hold title to the IRU in
the Purchased Capacity and the Inland Capacity in Europe and that the need to
obtain such licenses is an exception to Purchaser's representations and
warranties as set forth in Section 17(c) of the CPA and Section 13 (c) of each
of the US Backhaul Agreement and the UK Backhaul Agreement.
6. Terms and Conditions of Agreements. During the Initial Term, the parties
----------------------------------
shall construe any terms of the Agreements in such a manner as to be consistent
with the Interim Lease provided herein. Except for the amendments set forth in
this Addendum, all terms and conditions of the Agreements are unamended and
shall remain in full force and effect, including without limitation terms and
conditions requiring Grantor to provide maintenance for the System.
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Addendum concurrently
with the execution of the Agreement.
ATLANTIC CROSSING LTD.
By: /s/ Doug Molyneux
-------------------------------------
Name: Doug Molyneux
-----------------------------
Title: Vice President
----------------------------
GT LANDING CORP.
By: /s/ Doug Molyneux
-------------------------------------
Name: Doug Molyneux
-----------------------------
Title: Under a Power of Attorney
----------------------------
GT U.K. LTD.
By: /s/ Doug Molyneux
-------------------------------------
Name: Doug Molyneux
-----------------------------
Title: Under a Power of Attorney
----------------------------
VIA NET WORKS EUROPE HOLDING
B.V.
By: VIA NET.WORKS, INC., its
Managing Director
By: /s/ Matt Nydell
----------------------------
Name: Matt Nydell
----------------------
Title: VP & General Counsel
--------------------
3
<PAGE>
*****Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.*****
<TABLE>
<CAPTION>
Description of Purchased Capacity
-------------------- ----------------- ---------------------------------- -------------------- -------------------- ---------------
(a) (b) (c) (d) (e) (f)
Payment Due Date
Date of Transaction Appropriate S-Segment and Related Number of Whole MCUs Price per Whole MCU Purchase Price
T-Segments (d)x(e)
Note (1)
-------------------- ----------------- ---------------------------------- -------------------- -------------------- ---------------
May 1999 On activation Brookhaven, New York One (1) [*****] [*****]
to (See Note 2) (See Note 2)
Whitesands, England
-------------------- ----------------- ---------------------------------- -------------------- -------------------- ---------------
<S> <C> <C> <C> <C> <C>
-------------------- ----------------- ---------------------------------- -------------------- -------------------- ---------------
-------------------- ----------------- ---------------------------------- -------------------- -------------------- ---------------
-------------------- ----------------- ---------------------------------- -------------------- -------------------- ---------------
-------------------- ----------------- ---------------------------------- -------------------- -------------------- ---------------
-------------------- ----------------- ---------------------------------- -------------------- -------------------- ---------------
</TABLE>
Total Purchase Price [*****]
Less Payment Received (May 28) [*****]
Net Purchase Price Due [*****]
Purchase Price to be Financed [*****]
Note:
(1) The S-Segment and related T-Segments are set forth for purposes of
showing the point of entry and exit with respect to Purchased
Capacity. Purchased Capacity is not dependent on any specified
routing.
(2) Subject to Section 2(a) of this Agreement.
<PAGE>
SCHEDULE II
CAPACITY PURCHASE AGREEMENT
Part A
------
Notwithstanding anything to the contrary contained in the Capacity Purchase
Agreement to which this Schedule II is attached (as amended, supplemented or
otherwise modified from time to time, the "Capacity Purchase Agreement"):
In exchange for the IRU interest granted pursuant to this Agreement and the
Right of Use Agreement in any Purchased Capacity, the Purchaser shall, on or
before (the "Initial Payment Due Date"), pay the Grantor (for the benefit of the
Grantor and the benefit of the Subsidiary Grantors), in immediately available
funds equal to an amount set out in the Payment Schedule attached hereto (the
"Initial Payment"). Thereafter, the Purchaser shall pay the remaining balance of
the Purchase Price for such Purchased Capacity quarterly, with the first such
payment being due on the date which is three months after such Initial Payment
Due Date and each remaining payment being due quarterly thereafter. Such
payments shall be in the amounts set forth in Part B of Schedule II to this
Agreement, it being understood that the aggregate amount paid will exceed the
Purchase Price set forth in Schedule I because the amounts set forth in said
Part B include an interest calculation. The amounts set forth in Part B of
Schedule II to this Agreement may be prepaid, in whole or in part, by Purchaser
at any time. In the event of prepayment, the installments shall be reduced to
their present value calculated at 12% per annum, to the date of payment. Title
in the IRU to the Purchased Capacity shall pass to Purchaser upon payment to the
Grantor's Account of the amount specified in the first sentence of this
paragraph.
The parties agree to co-operate in good faith to structure payments
hereunder so that the interest component thereof should not be subject to
withholding taxes under current law (at the time the first payment is made
hereunder) in the reasonable opinion of the Grantor and the Purchaser; provided
that if in the Grantor's reasonable opinion such interest component will be, or
if at any time prior to the first installment payment hereunder, the Internal
Revenue Service asserts that such interest component is, subject to withholding
taxes under current law, the Grantor will reduce the 12% per annum interest rate
payable hereunder such that the total interest cost (including withholding taxes
payable on such reduced interest rate) to the Purchaser will not exceed 12% per
annum.
The definition of the term "Purchase Price" contained in the Capacity
<PAGE>
Purchase Agreement shall be modified to add the following phrase immediately at
the end of said definition:
, as such amount may be adjusted and paid in accordance with Part B of
Schedule II to this Agreement.
Clause (ii) of Section 20 (c) of the Capacity Purchase Agreement shall be
modified to include the following phrase immediately after the phrase
"maintenance expenses":
and in respect of payments for the Purchase Price for Purchased Capacity.
Part B
------
The attached amortization schedule sets forth the dates and amounts
for installment payments for Purchased Capacity based on the Purchase Price
as set forth in Schedule I.
Notwithstanding anything to the contrary in Section 21, the right to
receipt of payments hereunder shall be transferable only upon surrender for
cancellation of this Schedule II, and the issuance of a new Schedule II
registered in the name of the transferee. In addition, the Purchaser shall
maintain a register in which it shall record the name of the Grantor and
the Subsidiary Grantors or any transferee, and no transfer shall be valid
unless so registered.
Capitalized terms used in this Schedule II and not otherwise defined
in this Schedule II shall have the meanings assigned to them in the
Capacity Purchase Agreement.
This Schedule II shall be deemed a part of the Capacity Purchase
Agreement with respect to each Purchaser signing this Schedule II below and
the terms set forth in this Schedule II shall be incorporated into the
Capacity Purchase Agreement with respect to each such Purchaser as if fully
set forth therein.
Purchaser hereby represents and warrants that its chief executive
office is located at 12100 Sunset Hills Road, Suite 110, Reston, VA 20190.
Purchaser agrees to promptly notify Grantor of any change in such location.
<PAGE>
*****Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.*****
VIA Net Works
INSTALLMENT PAYMENTS
SUBSEA
Price per MCU [*****]
Payment Due Date September 30, 1999
Payment Terms
- -------------
Date Payment
- ----
Payment received May 28, 1999 [*****]
Deposit upon signing [*****]
September 30, 1999 [*****]
December 31, 1999 [*****]
March 31, 2000 [*****]
June 30, 2000 [*****]
September 30, 2000 [*****]
December 31, 2000 [*****]
March 31, 2001 [*****]
June 30, 2001 [*****]
September 30, 2001 [*****]
December 31, 2001 [*****]
March 31, 2002 [*****]
June 30, 2002 [*****]
Total [*****]
VIA Net Works
By:
--------------
Name:
Date:
<PAGE>
Schedule III
*****Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.*****
<TABLE>
<CAPTION>
AC-1 Additional Charges
=========================================================== ========================================================
Function Fees
- ----------------------------------------------------------- --------------------------------------------------------
<S> <C>
Access Connection Initial Service None
- ----------------------------------------------------------- --------------------------------------------------------
Access Connection Rearrangement per STM-1 [*****] / Occurrence
=========================================================== ========================================================
</TABLE>
<PAGE>
SCHEDULE IV
CAPACITY PURCHASE AGREEMENT
MAINTENANCE PERFORMANCE STANDARDS
1. GENERAL
This Schedule IV supplements the Capacity Purchase Agreement and describes (i)
additional maintenance and performance responsibilities of Grantor to Purchaser
and (ii) certain remedies available to Purchaser with respect to the provision
of Purchased Capacity thereunder. Capitalized terms used in this Schedule
without separate definition shall have the meanings specified in the Capacity
Purchase Agreement, as the context requires.
2. OVERVIEW
Grantor is initially providing to Purchaser an STM-1 "SDH self-healing ring
protected" service between New York City, New York, USA, and London, UK. This
Schedule applies to such capacity and to any further capacity provided by
Grantor to Purchaser.
While Purchaser understands that Grantor may sub-contract some services, such as
terrestrial backhaul and/or maintenance services with respect to the System and
the Purchased Capacity, such sub-contracting is transparent to Purchaser, and
therefore, Grantor shall appear as the single vendor providing these services to
Purchaser.
3. NETWORK OPERATIONS CENTER (NOC)
Grantor shall maintain a round-the-clock NOC (i.e., it operates 24 hours a day,
seven days a week), which shall be staffed by trained and qualified personnel
who are familiar with the operation and maintenance of the System and the
Purchased Capacity. Grantor shall provide Purchaser with a NOC telephone number,
which Purchaser shall use to report troubles with respect to the use of the
Purchased Capacity, to input service requests, and to request service
information.
4. TROUBLE REPORTING AND RESOLUTION
When Purchaser reports a major service affecting trouble (i.e., the Purchased
----
Capacity fails to meet the standards set forth in the Capacity Purchase
Agreement or this Schedule or connectivity is lost between two or more of the
cities in which service is purchased) Grantor will, without interruption, work
the trouble to completion. When a service affecting trouble (as described
herein) occurs, the Grantor NOC will provide updates to Purchaser in accordance
with Grantor's standard practices.
Prior to activation of any part of the Purchased Capacity, Grantor shall provide
Purchaser with an operations management organization chart showing the
escalation path for reporting service affecting troubles. Purchaser shall be
provided the telephone
<PAGE>
SCHEDULE IV
Page 2 of 3
numbers, through the Vice Presidential level, for the escalation of service
affecting troubles. Grantor shall promptly update such chart to reflect any
changes.
5. SYSTEM PERFORMANCE STM-1
This section applies to the STM-1 capacity, including without limitation the S
Capacity, the T Capacity and any connecting backhaul or inland capacity.
5.1 STM-1 to STM-1 Transmission
Grantor shall provide STM-1 to STM-1 transmission of 155 Mbps clear channel
capacity service. Grantor shall provide both service and protection pairs to
Purchaser at each offered termination point of the service.
STM-1 Transmission Performance shall equal or exceed the standards shown in
column AC-1, below:
<TABLE>
<CAPTION>
--------------------------------------- ----------------------------------------------------------------
Performance Standards Cable Station
to Cable Station
--------------------------------------- ----------------------------------------------------------------
Segment AC-1 I.T.U Std G826
--------------------------------------- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
SESR1 BBER2 SESR BBER
--------------------------------------- ---------------- ---------------- --------------- --------------
US-Germany 0.00017 0.000017 0.00034 0.000034
--------------------------------------- ---------------- ---------------- --------------- --------------
UK-Netherlands 0.00004 0.000004 0.00008 0.000008
--------------------------------------- ---------------- ---------------- --------------- --------------
Netherlands-Germany 0.00003 0.000003 0.00060 0.000060
--------------------------------------- ---------------- ---------------- --------------- --------------
Germany-UK 0.00005 0.000005 0.00010 0.000001
--------------------------------------- ---------------- ---------------- --------------- --------------
US-UK 0.00014 0.000014 0.00028 0.000028
--------------------------------------- ---------------- ---------------- --------------- --------------
</TABLE>
Grantor commits this SESR and this BBER to the performance standard throughout
the life of the system.
5.2 Protection Switching
Grantor shall provide protection switching in respect of the AC-1 System in the
following forms:
Span Switching - protects against a failure affecting the service line traffic
between service termination points. Span switching reroutes service traffic onto
the protection fiber pair in the common cable segment.
- ----------------------------
1 Severely Errored Second Ratio
2 Background Bit Error Ratio
<PAGE>
SCHEDULE IV
Page 3 of 3
Ring Switching - protects against a failure affecting both the service and
protection fibers in one cable segment between service termination points. Ring
switching reroutes service traffic over the other cable segments in the ring.
Grantor shall protect the STM-1 service against a single cable failure in less
than 300 ms (milli-seconds).
5.3 Service Traffic
Grantor shall provide a common protection facility shared by all switching nodes
or landing sites, which provides for full service traffic capacity in the event
of a failure.
5.4 Service Traffic Availability
Grantor's STM-1 155 Mbps "SDH self-healing ring protected" service between
Purchaser's interfaces shall have a service availability of at least 99.995 %.
This availability figure equates to no more than twenty-six (26) minutes of
service outage in any given twelve (12) month period.
Excluded from this calculation shall be planned service outages for the purpose
of Purchaser initiated upgrades or modifications to the service.
Service availability will be maintained and calculated monthly based on the
following formula:
Time Service Available
Availability (%) = -----------------------------------------------
Time Service Scheduled to be Available
In the event that the service falls below 99.995%, Grantor will, for a maximum
period of thirty (30) months, credit forty (40%) percent of any month's OA&M
where service levels fall below the 99.995% threshold listed above. The credit
will be applied to the following quarter's OA&M charges.
5.5 Routing Capability
Grantor confirms that any STM-1 tributary and any landing site can be routed in
either direction of transmission to any other landing site, providing maximum
flexibility in traffic provisioning between the landing sites.
5.6 STM-1 Backhaul
Grantor will, where terrestrial backhaul providers are used to complete the
STM-1 transmission facilities, ensure that such backhaul is ring and span
protected with geographically diverse routes and entry points into the service
termination points.
5.7 Mean-Time-Between-Failure (MTBF) / Mean-Time-To-Restore (MTTR)
Grantor shall protect the STM-1 service against a single cable failure in less
than 300 ms (milli-seconds).
<PAGE>
SCHEDULE V
CUSTOMER REFERENCE MANUAL
<PAGE>
[LOGO OF GLOBAL CROSSING]
CUSTOMER CARE CENTER
HAMILTON, BERMUDA
CUSTOMER REFERENCE MANUAL
Prepared expressly for
ABC COMPANY, INC.
1
<PAGE>
TABLE OF CONTENTS
Operational Roles & Responsibilities.................................. 3
Customer Care Contact Numbers......................................... 3
Escalation Procedures................................................. 4
Interconnect Service Ordering Procedures.............................. 5
Service Intervals..................................................... 7
Request for Service Form Instructions................................. 8
Request for Service Form.............................................. 11
Access Disconnect/Change Request Form................................. 15
Form Descriptions..................................................... 18
Order Confirmation Form............................................... 19
Assignment Order Form................................................. 20
Order Completion Form................................................. 22
Activation Authorization Form......................................... 24
Backhaul & Collocation Contacts....................................... 25
Customer Care Feedback Form........................................... 30
Transfer of Service & Transfer of IRU Forms........................... 32
2
<PAGE>
OPERATIONAL ROLES & RESPONSIBILITIES
The Global Crossing Customer Care Center (CCC) will provide a single point of
contact for purchasers of undersea capacity in the areas of contract
management, service provisioning, interconnect support, billing inquiry, project
management and report requests.
All correspondence should be addressed to:
GLOBAL CROSSING CUSTOMER CARE CENTER
45 Reid Street
Hamilton, Bermuda HM12
The Customer Care Center is open from 4am to 8pm Monday through Friday
(Bermuda time). Calls requiring immediate attention during non-business
-------------------------------------------------------
hours should be directed (using appropriate prompts provided by our
-------------------------------------------------------------------
Automated Attendant System) to our Out of Hours Emergency Mailbox. All of
-------------------------------------------------------------------------
these immediate attention messages will be automatically referred to a duty
---------------------------------------------------------------------------
Specialist who will get back to you as quickly as possible. For messages
------------------------------------------------------------
not requiring immediate call back, you will be prompted to leave a message
in your Specialist's Mailbox. These calls will be returned at the start of
the next business day. The telephone numbers for our Center are as
follows:
888.371.0702*
441.296.9464**
441.296.9461 (Fax)
*Your local international 800# access prefix is required when
dialing from outside of the United States.
**If you cannot dial 800 service from your location, use this
number.
The following listing shows the Customer Care Specialist assigned to your
account along with an alternate and the name of our Customer Care Center
Manager.
Primary Specialist
------------------
Name 1 (ext xxxx)
E-Mail: [email protected]
Alternate Specialist
--------------------
Name 2 (ext xxxx)
E-Mail: [email protected]
Customer Care Center Manager
----------------------------
Kara Janzen (ext 2213)
E-Mail: [email protected]
3
<PAGE>
ESCALATION PROCEDURES
If you are ever not satisfied with the assistance provided by either of your
---
assigned Specialists, please do not hesitate to contact the following Global
Crossing Personnel:
Customer Care Center Manager
Kara Janzen 888.371.0702 (ext 2213) or
441.296.9464 (ext 2213
Customer Care Center Director
Jean S. Wentzel 888.371.0702 (ext 2204) or
441.296.9464 (ext 2204)
Senior Vice President-Operations
S W Dawson 441.296.8600
4
<PAGE>
INTERCONNECT SERVICES ORDERING PROCEDURES
(ISOP)
After contract signing, requests for cable capacity assignments are to be placed
with the Customer Care Center located in Hamilton, Bermuda. Capacity
assignments and service order initiation will be completed by Customer Care
Center personnel while service activation procedures will be performed by the
Network Operations Center. The Customer Care Center will also fulfill Project
--------------------------------------------------
Management responsibilities until an RFS is received from the customer. At that
- ----------------------------------------------------------------------
point in time, a conference call with the customer, Customer Care, the Network
Operations Center (NOC) and any other required group will be held to discuss all
aspects of the RFS. Project Management responsibilities will be turned over to
----------------------------------------------------------
the NOC on that conference call.
- --------------------------------
CUSTOMER CARE CENTER TEAM RESPONSIBILITIES
The Customer Care Center Team responsibilities include:
1. Providing the Purchasers of Capacity on Global Crossing undersea cables
with a single point of contact for answering questions, resolving problems
and collecting the appropriate information regarding service
implementation, pre-service testing and billing.
2. Interfacing with Purchasers of Capacity to coordinate any of the
services (listed below) that have been contracted with Global Crossing Ltd.
Or any of it's divisions:
a. Assisting the customer in Designating Circuits using ITU Standards
b. Providing undersea cable capacity assignments
c. Capacity installations, disconnects or changes
d. Overall testing and circuit turn up
3. Proactively monitoring the quality of service delivered and providing
customer reports of exceptions to the contracted performance.
4. Assigning an individual at the Customer Care Center as your personal
point of contact (the Customer Care Specialist) who will confirm
receipt of a properly completed Request for Service form, initiate the
order within 24 hours and provide ongoing status of the installation
5. Entering the required data regarding service implementation into the
ordering system so that Network Operations personnel can initiate the
required work order(s). This would include the following activities:
. To accept Requests for Service via electronic mail to your
Specialist's E- Mail ID or the Customer Care Center fax machine
(441.296.9461). Verbal requests for service will not be accepted.
Customers may obtain Request for Service forms from either the
Global Crossing web site once the internet address is available
or their Specialists. A copy of the form is provided in this
manual.
5
<PAGE>
. Provide confirmation via electronic mail or fax within 24 hours of
receipt of a Request for Service. Customer Care Center personnel will
also acknowledge that the appropriate action has been performed to
support the request, as well as provide a projected completion date by
using the Order Confirmation form. The Customer Care Specialist will
assist Customers, Inland Providers and Account Team members with
identification of the required data needed to properly complete the
Request for Service.
. Once circuit design has been completed, provide the customer with
assignment information necessary for Inland Providers and/or Local
Loop Providers
. Proactively provide service order status relating to the requested
service order activity. Upon notification of service completion, the
Customer Care Specialist will confirm completion with the customer, by
using the Order Completion form.
. After all appropriate deposits and payments for requested services
have been made, forward the Activation Authorization to the customer.
The AA provides the capacity purchaser with authorization (for Inland
Provider) to connect as well as the Bay, Panel and Jack interconnect
tie down information used by the Inland Provider(s).
6
<PAGE>
GLOBAL CROSSING CUSTOMER CARE CENTER
SERVICE DELIVERY INTERVALS
<TABLE>
<CAPTION>
<S> <C> <C>
ACTIVITY RESPONSIBILITY INTERVAL
-------- -------------- --------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
Path Provisioning
- ---------------------------------------------------------------------------------------------------
Cable Station to Cable Station Customer Care Center 4 Business Days
- ---------------------------------------------------------------------------------------------------
or
- ---------------------------------------------------------------------------------------------------
Inland Provider ODF to Inland Provider ODF Customer Care Center 4 Business Days
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
Inland Provider ODF to Customers network interface. Customer Varies
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
City to City To Be Provided
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
London
- ---------------------------------------------------------------------------------------------------
New York
- ---------------------------------------------------------------------------------------------------
</TABLE>
It is important to remember that the intervals listed above are for the Global
Crossing provided portion of your circuits. As the line graph below indicates,
you should decide on your requested date of service enough in advance to insure
that your local loop provider and your backhaul provider (in the case of Basic
or single extended service) will also be able to meet your requested service
date.
RFS Issued Svc Date
Global Crossing Circuit 4 Days
Backhaul Ordered Unknown Interval (If Basic or Single Extended)
Local Loop Ordered
Unknown Interval
7
<PAGE>
CUSTOMER CARE CENTER
REQUEST FOR SERVICE
(Blank form on Page 11)
FIELD DESCRIPTIONS & INSTRUCTIONS
ORIGINATOR INFORMATION
- ----------------------
All fields in this section must be completed by the originator. The originator
of the request is "Customer Number One". "Customer Number Two" information is
required only if capacity was purchased in a "half STM arrangement" by each of
two customers.
1. Business Name - Corporate name of the capacity purchaser
2. Contact Name - Name of the person authorized to order service and
----- ---
coordinate installation on behalf of the capacity purchaser and its
-----------------------
customers
3. Telephone Number - Telephone number of the capacity purchaser's ordering
contact
4. Fax Number - Fax number of the capacity purchaser's ordering contact
5. Electronic Mail ID - Electronic mail address of the capacity purchaser
contact
6. Customer Requested Due Date - The date that the customer requests service
to be activated.
SERVICE ORDER ACTIVITY REQUESTED
- --------------------------------
This section indicates the type of request to be processed.
7. Activate New Service - Request to initiate service. Customer must indicate
Basic, Single Ended Extended, or Double Ended Extended service.
8. Discontinue Existing Service - Request to disconnect existing service
9. Matching Order Number - Related order that may accompany the request (i.e.
Customer Number Two has a pending order for the west end that needs to be
coordinated with a request for the east end).
8
<PAGE>
SERVICE DETAILS
- ---------------
International Telecommunications Union Facility Designation
As previously stated, the Customer Care Center will assist you in assigning
overall circuit designations per ITU Standards for each circuit identified in
your CPA. This assignment will be made as soon as possible after your CPA has
been received. From that point on, whenever communicating with Customer Care or
the Network Operations Center regarding your circuits, you must use this ITU
circuit designation!
10. ITU Standard Circuit Designation - Alpha-numeric designator (as outlined
above) that identifies the end to end circuit that the capacity purchaser
is activating, changing or disconnecting.
11. Terminal City A and Terminal City Z - Cities that compose the two ends of
the circuit that is being initiated, rearranged, or disconnected.
UNDERSEA NETWORK TRANSPORT DETAILS
- ----------------------------------
12. Network Name - Name of the cable system (eg--AC-1).
13. Level (STM-n) and Quantity - Indicates STM 1 or 16 and whether the service
is Protected, Service only or Protection only.
Transport Designation and Terminals
For Basic Service only
- ----------------------
If basic service was ordered (ie-undersea capacity only), customer must also
have a signed collocation agreement (or an agreement with an Inland Provider
that has an existing collocation agreement) and furnish the appropriate tie down
information at the collocated space (cage) at each cable station.
14. Optical Distribution Frame Assignments - Inland Capacity Provider Name and
Service and protection bay, panel and jack assignments for each cable
station from which the customer requests basic service (A and Z ends).
***Jack assignments must be issued in pairs for both service and protection
(i.e. Svc J 10/11; Prt J 20/21) in order to accommodate both send and
receive traffic.
INLAND NETWORKS
- ---------------
For Single or Double Extended Service
- -------------------------------------
Inland Networks- If extended service was ordered, then customer must provide the
Alternate Access and/or the Local Loop Provider's name and tie down information
at the POP or meeting point with the Inland Provider. (In the case of extended
service, customer chooses only the location where their Alternate Access/Local
Loop Provider meets the Inland Provider--they do not choose the Inland
Provider.)
Location Number One
- -------------------
15. Inland Provider
9
<PAGE>
Name of Alternate Access/Local Loop Provider customer has selected if
Extended Service at this end was ordered.
16. Level (STM-n) and Quantity
Indicates STM-1 or 16 bandwidth of service.
17. Alternate Access/Local Loop Provider
Name of the vendor(s) that will carry traffic from the Inland
Provider's central office (i.e. 60 Hudson Street, Docklands, etc.) to
the end user's premise.
Location Number Two
-------------------
18. Inland Provider
Name of Inland Provider customer has selected if Basic Service only
was ordered.
19. Level (STM-n) and Quantity
Indicates STM-1 or 16 bandwidth of service.
20. Alternate Access/Local Loop Provider - See #17
21. Additional Information - Section provided to allow customer room for
remarks pertaining to the request. This area should be used to explain
whatever details are necessary in order to insure that adequate
information is provided the Customer Care Center.
10
<PAGE>
GLOBAL CROSSING CUSTOMER CARE CENTER
REQUEST FOR SERVICE
ORIGINATOR INFORMATION DATE:____________
- ----------------------
<TABLE>
<CAPTION>
Customer Number One Customer Number Two
(If applicable)
<C> <S> <C>
1. Business Name Business Name
- -------------------------------------------------------------------------------------------
2. Contact Name Contact Name
- -------------------------------------------------------------------------------------------
3. Telephone Number Telephone Number
- -------------------------------------------------------------------------------------------
4. Fax Number Fax Number
- -------------------------------------------------------------------------------------------
5. Electronic Mail ID Electronic Mail ID
- -------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. Customer Requested Due Date:
- --------------------------------------------------------------------------------
</TABLE>
SERVICE ORDER ACTIVITY REQUESTED
- --------------------------------
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
7. Activate New Service Basic: Single Extended: Double Extended:
- ---------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
8. Discontinue Existing Service:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
9. Matching Order Number: (If applicable)
- ----------------------------------------------------
SERVICE DETAILS
--------------
International Telecommunications Union Facility (Circuit) Designation
- --------------------------------------------------------------------------------
10. ITU Standard Circuit Designation: (Customer provided
Circuit ID )
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
11. Terminal City A: Terminal City Z:
- --------------------------------------------------------------------------------
UNDERSEA NETWORK TRANSPORT DETAILS
-----------------------------------
- --------------------------------------------------------------------------------
12. Network Name: (Cable System)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
13. Level (STM-n) Svc #: Prot#:
- --------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
GLOBAL CROSSING CUSTOMER CARE CENTER
REQUEST FOR SERVICE
For Basic Service only
- ----------------------
14. Inland Capacity Provider's Optical Distribution Frame (ODF) Assignments in
Cable Station Co-location area
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Terminal A Inland Capacity
Provider:
- --------------------------------------------------------------------------------------------
Bay Panel/Module/Shelf Transmit Jack Receive Jack
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SERVICE
- --------------------------------------------------------------------------------------------
PROTECTION
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Terminal Z Inland Capacity
Provider:
- --------------------------------------------------------------------------------------------
Bay Panel/Module/Shelf Transmit Jack Receive Jack
- --------------------------------------------------------------------------------------------
SERVICE
- --------------------------------------------------------------------------------------------
PROTECTION
- --------------------------------------------------------------------------------------------
</TABLE>
For Single or Double Extended Service only:
- -------------------------------------------
INLAND NETWORKS
- ---------------
Location Number One
- -------------------
- --------------------------------------------------------------------------------
15. Location 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
16. Level (STM-n)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
17. Alternate Accesss Vendor: Local Loop Provider:
- --------------------------------------------------------------------------------
Contact: Telephone:
- --------------------------------------------------------------------------------
Local Loop Provider:
- --------------------------------------------------------------------------------
Contact: Telephone:
- --------------------------------------------------------------------------------
Location Number Two
- -------------------
- --------------------------------------------------------------------------------
18. Location 2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
19. Level (STM-n)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
<S> <C> <C>
20. Alternate Accesss Vendor: Local Loop Provider:
- -----------------------------------------------------------------------------------
Contact: Telephone:
- -----------------------------------------------------------------------------------
Local Loop Provider:
- -----------------------------------------------------------------------------------
Contact: Telephone:
- -----------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
GLOBAL CROSSING CUSTOMER CARE CENTER
REQUEST FOR SERVICE
21. Additional Information (Detailed description of circuit, work involved,
- ----------------------------
related orders or any additional information that helps describe what has been
requested)__
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
13
<PAGE>
ACCESS DISCONNECT/CHANGE REQUESTS
Use the form on the following page to request a change in access to the network.
Provide current (From) information and new (To) information. This form contains
fields named ITU Circuit Designation and Overseas Channel Assignment (OCA) that
are Global Crossing's identifiers of the customer's circuit(s). Please include
this information on any change requests. The remaining fields on this form are
defined on the previous pages outlining how to fill out an RFS.
14
<PAGE>
GLOBAL CROSSING CUSTOMER CARE CENTER
ACCESS DISCONNECT/CHANGE REQUEST FORM
ORIGINATOR INFORMATION
- ----------------------
Customer Number One Customer Number Two
(If applicable)
- --------------------------------------------------------------------------------
1. Business Name Business Name
- --------------------------------------------------------------------------------
2. Contact Name Contact Name
- --------------------------------------------------------------------------------
3. Telephone Number Telephone Number
- --------------------------------------------------------------------------------
4. Fax Number Fax Number
- --------------------------------------------------------------------------------
5. Electronic Mail ID Electronic Mail ID
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. Customer Requested Due Date:
- --------------------------------------------------------------------------------
SERVICE DETAILS
- ---------------
International Telecommunications Union Facility Designations
- --------------------------------------------------------------------------------
7. Overseas Channel Assignment (OCA)
- --------------------------------------------------------------------------------
8. Numeric Designation: (Customer ITU Ckt ID)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
9. Terminal City A Terminal City A
- --------------------------------------------------------------------------------
UNDERSEA NETWORK TRANSPORT ASSIGNMENT
- --------------------------------------
- --------------------------------------------------------------------------------
10. Network Name: (Cable System) Segment
- --------------------------------------------------------------------------------
11. Level (STM-n) Quantity
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12. FROM: Cable Station Optical Distribution Frame (ODF) Assignments
(Basic service only)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Terminal A (Location 1) Capacity Provider:
- ---------------------------------------------------------------------------------------------------
Bay Panel/Module/Shelf Transmit Jack Receive Jack
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SERVICE
- ---------------------------------------------------------------------------------------------------
PROTECTION
- ---------------------------------------------------------------------------------------------------
- -----------------------
Terminal Z (Location 2)
- ---------------------------------------------------------------------------------------------------
Bay Panel/Module/Shelf Transmit Jack Receive Jack
- ---------------------------------------------------------------------------------------------------
SERVICE
- ---------------------------------------------------------------------------------------------------
PROTECTION
- ---------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
GLOBAL CROSSING CUSTOMER CARE CENTER
ACCESS DISCONNECT/CHANGE REQUEST FORM
- --------------------------------------------------------------------------------
13. TO: Cable Station Optical Distribution Frame (ODF) Assignments
(Basic service only)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Terminal A (Location 1) Capacity Provider:
- ----------------------------------------------------------------------------------------------------
Bay Panel/Module/Shelf Transmit Jack Receive Jack
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SERVICE
- ----------------------------------------------------------------------------------------------------
PROTECTION
- ----------------------------------------------------------------------------------------------------
- -----------------------
Terminal Z (Location 2)
- ----------------------------------------------------------------------------------------------------
Bay Panel/Module/Shelf Transmit Jack Receive Jack
- ----------------------------------------------------------------------------------------------------
SERVICE
- ----------------------------------------------------------------------------------------------------
PROTECTION
- ----------------------------------------------------------------------------------------------------
</TABLE>
INLAND NETWORKS (Extended service only)
- ---------------
Location Number One
- -------------------
FROM: TO:
- --------------------------------------------------------------------------------
14. AAV/LL Provider AAV/LL Provider
- --------------------------------------------------------------------------------
15. Numeric Designation Numeric Designation
- --------------------------------------------------------------------------------
Location Number Two
- -------------------
FROM: TO:
- --------------------------------------------------------------------------------
16. AAV/LL Provider AAV/LL Provider
- --------------------------------------------------------------------------------
17. Numeric Designation Numeric Designation
- --------------------------------------------------------------------------------
16
<PAGE>
GLOBAL CROSSING CUSTOMER CARE CENTER
ACCESS DISCONNECT/CHANGE REQUEST FORM
18. Additional Information:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
17
<PAGE>
Order Confirmation
Order Completion
Assignment Order (AO)
Activation Authorization (AA)
Order Confirmation
The information that is provided on this form is straight forward and serves
only to indicate to you that Customer Care has received your RFS and is
beginning to process the Request. The ITU Circuit Designation is the name you
have called the circuit. The Order Number is the installation order number that
Global Crossing has assigned to the installation order. The scheduled due date
is the requested date you placed on the RFS. The Overseas Channel Assignment is
the identification number of the undersea portion of the circuit.
Assignment Order
The information for the Assignment Order will come to you after Global Crossing
has designed the circuit. This form can be sent to the Inland Provider, the
Alternate Access Vendor or the Local Loop Provider that you have contracted for
your portion of the circuit. It tells them what assignments have been made on
the Global Crossing portion of the circuit.
Order Completion
Once notification is received from the NOC that the order has been completed, we
will notify you using the Order Completion Form. The information on this form
tells you that the Order has been completed, the date it was completed, the ITU
Circuit Designation, the Overseas Channel Assignment, the Order type (add,
disconnect or change) and the Bay, Panel and Jack information for extended
service.
Activation Authorization
The Activation Authorization will be sent to you once the circuit has been
completed and we have verified that all financial obligations have been met. It
authorizes the Capacity Providers that you have contracted with to turn up the
service associated with the listed circuit(s).
18
<PAGE>
CUSTOMER CARE CENTER
--------------------
ORDER CONFIRMATION
Customer Name:
-----------------------------------------
Customer ID:
-------------------------------------------
Attention:
---------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
ITU Circuit Designation Order Number Scheduled Due Date Overseas Channel Assignment
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
Dear :
------------------------------
The above orders associated with your request for service have been issued. If
you have any questions, please feel free to contact me in the Customer Care
Center.
Customer Care Specialist:
1.888.371.0702
1.441.296.9464
19
<PAGE>
Assignment Order
Date:
Global Crossing Customer Care Center does hereby recognize
-------------------
Customer Name
as a legitimate Capacity Purchaser. This customer is therefore authorized to
initiate service requests for interconnection to Global Crossing high
capacity bandwidth. The Bay / Panel / Jack information listed below will be
required to engineer the interconnection to the customer's circuit. The
following will provide specific information necessary to fulfill the
customer's immediate connection request. This is not an authorization
activate the service.
1st Capacity Provider
--------------------------------------------------------------------------
Company Name
------------
----------------------------------------------------------------------------
Name of Customer Contact
----------------------------------------------------------------------------
Company Street Address
----------------------------------------------------------------------------
City, State, Postal Code / Zip
----------------------------------------------------------------------------
Telephone
----------------------------------------------------------------------------
Provider Name (ICP/CLP/LLP):
- -----------------------------------------------------------------------------
ITU Circuit Designation:
- -----------------------------------------------------------------------------
Circuit Type:
- -----------------------------------------------------------------------------
Refer To Order:
- -----------------------------------------------------------------------------
Provider Circuit Designation:
- -----------------------------------------------------------------------------
Order Type (Check One): New [_] ReArrangement [_] Disconnect [_]
----------
- --------------------------------------------------------------------------------
Assignments: Bay Panel Jack
- --------------------------------------------------------------------------------
Service:
- --------------------------------------------------------------------------------
Protection:
-----------------------------------------------------------------------------
Overseas Channel Assignment(s):
------------------------------------------------------------------
Customer Termination: Optical [_] Electrical [_]
------------------------------------------------------------------
Specialist Name (Printed):
--------------------------------------------------------------------------
Specialist Signature:
--------------------------------------------------------------------------
Date:
--------------------------------------------------------------------------
Customer Signature:
--------------------------------------------------------------------------
Date signed:
--------------------------------------------------------------------------
2nd Capacity Provider:
--------------------------------------------------------------------------
Company Name
------------
--------------------------------------------------------------------------
Name of Customer Contact
--------------------------------------------------------------------------
Company Street Address
--------------------------------------------------------------------------
City, State, Postal Code / Zip
--------------------------------------------------------------------------
Telephone
--------------------------------------------------------------------------
Provider Name (ICP/CLP/LLP):
--------------------------------------------------------------------------
20
<PAGE>
Assignment Order (Cont'd)
----------------------------------------------------------------------
ITU Circuit Designation:
----------------------------------------------------------------------
Circuit Type:
----------------------------------------------------------------------
Refer To Order:
----------------------------------------------------------------------
Provider Circuit Designation:
- --------------------------------------------------------------------------------
Order Type (Check One): New [_] ReArrangement [_] Disconnect [_]
----------
- --------------------------------------------------------------------------------
Assignments: Bay Panel Jack
- --------------------------------------------------------------------------------
Service:
- --------------------------------------------------------------------------------
Protection:
- --------------------------------------------------------------------------------
Overseas Channel Assignment:
--------------------------------------------------------------------------
Customer Termination: Optical [_] Electrical [_]
------------------------------------------------------------------
Specialist Name (Printed):
------------------------------------------------------------------
Specialist Signature:
----------------------------------------------------------------------
Date:
----------------------------------------------------------------------
Customer Signature:
----------------------------------------------------------------------
Date signed:
----------------------------------------------------------------------
3rd Capacity Provider:
----------------------------------------------------------------------
Company Name
------------
----------------------------------------------------------------------
Name of Customer Contact
----------------------------------------------------------------------
Title
----------------------------------------------------------------------
Company Street Address
----------------------------------------------------------------------
City, State, Postal Code / Zip
----------------------------------------------------------------------
Telephone
----------------------------------------------------------------------
Provider Name (ICP/CLP/LLP):
----------------------------------------------------------------------
ITU Circuit Designation:
----------------------------------------------------------------------
Circuit Type:
----------------------------------------------------------------------
Refer To Order:
----------------------------------------------------------------------
Provider Circuit Designation:
- --------------------------------------------------------------------------------
Order Type (Check One): New [_] ReArrangement [_] Disconnect [_]
----------
- --------------------------------------------------------------------------------
Assignments: Bay Panel Jack
- --------------------------------------------------------------------------------
Service:
- --------------------------------------------------------------------------------
Protection:
- --------------------------------------------------------------------------------
Overseas Channel Assignment:
-----------------------------------------------------------------
Customer Termination: Optical [_] Electrical [_]
-----------------------------------------------------------------
Specialist Name (Printed):
----------------------------------------------------------------------
Specialist Signature:
----------------------------------------------------------------------
Date:
----------------------------------------------------------------------
Customer Signature:
----------------------------------------------------------------------
Date signed:
----------------------------------------------------------------------
21
<PAGE>
GLOBAL CROSSING CUSTOMER CARE CENTER
ORDER COMPLETION FORM
Customer
--------
Name:
---------------------------------------
Attention:
-----------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Order Completion ITU Standard Overseas Channel Order Bay, panel and Jack
Number Date Circuit ID Assignment (OCA) Type (Extended Service Only)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------------------------------------------------------
Reason for delay in completion date (if order not completed when scheduled):
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
The above order(s) have been completed based on your (day\month\year) service
order request. If you have any questions, please feel free to contact me in the
Customer Care Center.
Customer Care Specialist
1.888.371.0702 Ext
-----
1.441.296.9464 Ext
-----
22
<PAGE>
23
<PAGE>
[LOGO OF GLOBAL CROSSING]
Activation Authorization
Date:
Global Crossing Customer Care Center does hereby recognize
----------------------
Customer Name
as a legitimate Capacity Purchaser on the ___________ to __________ cable
system. Local Loop Providers and Inland Capacity Providers are hereby
authorized to turn up for service their respective circuits included as part of
the following Global Crossing high capacity bandwidth circuit.
- --------------------------------------------------------------------------------
Company Name
- --------------------------------------------------------------------------------
Name of Customer Contact
- --------------------------------------------------------------------------------
Title
- --------------------------------------------------------------------------------
Company Street Address
- --------------------------------------------------------------------------------
City, State, Postal Code / Zip
- --------------------------------------------------------------------------------
Telephone
- --------------------------------------------------------------------------------
Customer Signature
- --------------------------------------------------------------------------------
Date signed
- --------------------------------------------------------------------------------
ITU Circuit Designation:
Inland Provider (IP) Name:
Inland Provider (IP) CKT ID:
Overseas Channel Assignment
(OCA/TCA):
ITU Circuit Designation:
Local Loop Provider (LLP) Name:
Inland Provider (IP) CKT ID:
Overseas Channel Assignment
(OCA/TCA):
Authorized by:
Printed Global Crossing Representative Name
Authorizing Title: Customer Service Specialist
---------------------------
Authorized Signature:
---------------------------------------------
24
<PAGE>
ATLANTIC CROSSING BACKHAUL PROVIDERS
UNITED STATES
<TABLE>
<CAPTION>
60 Hudson Street 75 Broad Street
New York, NY, USA New York, NY, USA
<S> <C>
Cablevision Lightpath Inc. Teleport Communications Group
- -------------------------- -----------------------------
Mr. Dan Matthews Steve Huston
Strategic Account Manager National Account Manager
111 New South Road 672 Mohawk Street
Hicksville, NY 11801 Columbus, OH 43206
516 393-3468 phone 732-805-5758 phone
516 393-0455 fax
[email protected]
- ------------------------
International Optical Network (ION)
- --------------------------------------
Customer Care/Sales
Cathy Hanzich
110 E. 42nd Street, suite 1405
New York, NY 10017
212 687-9177
[email protected]
- -----------------
COLLOCATION CONTACTS
- --------------------
60 Hudson Street 75 Broad Street
New York, NY, USA New York, NY, USA
Williams Real Estate Co. LaSalle Real Estate Co.
- ------------------------ -----------------------
New York, NY New York, NY
Audrey Novia Tom Garden
212 716-3500 212 341-0218
</TABLE>
25
<PAGE>
ATLANTIC CROSSING BACKHAUL PROVIDERS
UNITED KINGDOM
<TABLE>
<CAPTION>
Docklands Telehouse
- --------- ---------
<S> <C>
London London
Cable & Wireless International Optical Network (ION)
- ---------------- ---------------------------------------
Mrs. Carol Mills Customer Care/Sales
26 Red Lion Square Mrs. Cathy Hanzich
London WC1R 4HQ 110 East 42nd St. Suite 1405
1+800+11+66+77+22 phone New York, NY 10017
44+171+528+1826 phone 212-687-9177 phone
44+171+528+3007 fax 212-687-9188 fax
[email protected] [email protected] email
</TABLE>
COLLOCATION CONTACTS
- ---------------------
Cable & Wireless
Mrs. Carol Mills
26 Red Lion Square
London WC1R 4HQ
44+800+11+66+77+22 phone
44+171+528+1826 phone
44+171+528+3007 fax
[email protected]
26
<PAGE>
ATLANTIC CROSSING BACKHAUL PROVIDERS
GERMANY
Deutsche Telekom
- ----------------
<TABLE>
<CAPTION>
North America North America
- ------------- -------------
<S> <C>
Area Carrier Relation Manager Area Carrier Relation Manager
Mr. Kevin Mulholland Joseph Miranda
1-732-933-4900 phone 1-732-933-4900 phone
1-732-933-4354 fax 1-732-933-4354 fax
1 732-763-0565 mobile 1-908-890-8102 mobile
[email protected] [email protected]
Latin America Northern Europe, Scandinavia, UK, Netherlands,
- ------------- ----------------------------------------------
Belgium
-------
Area Carrier Relation Manager Area Carrier Relations Manager
Mr. John Phillips Mr. Alain Cockburn
1-732-933-4900 phone +44-171-432-6267 phone
1-732-933-4354 fax +44-171-432-6276 fax
1-908-890-8103 mobile 44-385-316-107 mobile
[email protected] [email protected]
Southern Europe, France, Italy, Portugal, Spain,
- ------------------------------------------------
Monaco, Andorra, Luxemburg
- --------------------------
Area Carrier Relation Manager Area Carrier Relation Manager
Philippe Nieto Claudia Sunkel
+33 1 44 43 00 30 phone +44 171 432 6253 phone
+33 1 44 43 00 10 fax +44 171 432 6276 fax
+33 607 012 461 mobile +44 385 316 107 mobile
[email protected] [email protected]
</TABLE>
27
<PAGE>
ATLANTIC CROSSING BACKHAUL PROVIDERS
GERMANY
Deutsche Telekom
- ----------------
<TABLE>
<CAPTION>
Singapore, East Asia, Israel Russia, CIS
- ----------------------------- -----------
<S> <C>
Area Carrier Relations Manager Area Carrier Relations Manager
Francis Wong Natalia Gavrilova
+65 438 9140 phone +7 095 956 5434 phone
+65 438 9144 fax +49 40 650 1993 phone
+65 966 886 95 mobile +7 095 956 5433 fax
[email protected] +49 40 650 2050 fax
+7 095 767 4730 mobile
[email protected]
Middle East
- -----------
Area Carrier Relations Senior Manager North Asia, Japan
Calvin Wee Sing Lee -----------------
+65 438 9142 phone Area Carrier Relations Senior Manager
+65 438 9144 fax Masayoshi Akimoto
+65 9633 4478 mobile +813 5213 8702 phone
[email protected] +813 5213 8777 fax
+812 0743 2515 mobile
[email protected]
West Asia East Europe
- --------- -----------
Assistant Relation Manager Area Carrier Relations Manager
Eugene Lim Thomas Dreischhoff
+65 438 9141 phone +7 095 956 5434 phone
+65 438 9144 fax +49 40 650 1993 phone
+65 9787 1920 mobile +7 095 956 5433 fax
[email protected] +49 40 650 2050 fax
+7 095 767 4729 mobile
Australia, Pacific Region [email protected]
- -------------------------
Area Carrier Relation Manager
Shigeo Araki
+813 5213 8741 phone
+813 5213 8777 fax
+818 0806 6539 mobile
[email protected]
</TABLE>
28
<PAGE>
ATLANTIC CROSSING BACKHAUL PROVIDERS
THE NETHERLANDS
PTT Telecom BV
- --------------
Senior Facility Manager
Marieke ten Wolde
PO Box 30150
2500 GD
The Hague
The Netherlands
31-70-343-9320 phone
31-70-343-8319 fax
PTT Telecom BV
- --------------
Manager, Stream & Market Management
Mr. Peter Smink
PO Box 30150
2500 GD
The Hague
The Netherlands
31-70-343-2739 phone
31-70-343-8319 fax
29
<PAGE>
CUSTOMER CARE FEEDBACK FORM
1. Date of Request:
________________________________________________________________________________
2. Who handled your request?
________________________________________________________________________________
3. What was the nature of your request?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
4. Was your request handled in a timely manner?
________________________________________________________________________________
________________________________________________________________________________
5. How would you rate your overall satisfaction with the Customer Care Center?
Excellent [_]
Good [_]
Fair [_]
Poor [_]
If your response is Fair or Poor, please explain.
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
6. Any additional feedback or suggestions:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Please send to: Global Crossing Customer Care Center
45 Reid Street
Hamilton, Bermuda HM12
Attention: Customer Care Manager
Fax to: 1.441.296.9461
30
<PAGE>
31
<PAGE>
Transfer of Indefeasible Right of Use and Transfer of Service
The Transfer of Indefeasible Right of Use form is used when a Capacity Purchaser
exercises its right to assign its use of capacity only, as described in its
---------------------
individual Capacity Purchase Agreement. The Transfer of Service form is used
when a Capacity Purchaser exercises its right to transfer all of its obligations
----------------------
as described in its individual Capacity Purchase Agreement.
Please prepare the following form(s) and forward via mail or fax to Global
Crossing Ltd. for approval:
Wessex House
First Floor
45, Reid Street
Hamilton HM 12
Bermuda
Fax: 1.441.296.9461
32
<PAGE>
Global Crossing Customer Care Center
TRANSFER OF SERVICE AGREEMENT
Current Customer: _________________________________________________________
New Customer: _____________________________________________________________
Atlantic Crossing Ltd. Service(s) to be transferred (referred to in this
Agreement as the "Identified Service"): are outlined in Attachment A.
___________________________________________________________________________
1. Current Customer is Atlantic Crossing Ltd.'s existing customer of record for
the identified Service. Current Customer hereby requests that Atlantic Crossing
Ltd. transfer the Identified Service to New Customer. Current Customer
understands that it will no longer be Atlantic Crossing Ltd.'s customer for the
identified Service after the Effective Date of the transfer.
2. New Customer agrees to assume all obligations of Current Customer as of the
Effective Date of the Transfer. These obligations include, for example: all
outstanding indebtedness for the Identified Service and the ongoing maintenance
and interconnection charges (where applicable). This transfer of service does
not relieve or discharge Current Customer from remaining jointly and severally
liable with New Customer for any obligations existing as of the Effective Date
of the transfer.
3. Whereas the Service being transferred is half of a Minimum Capacity Unit,
the customer of record (concurring customer) for the matching Capacity must
agree to the transfer of service to the new customer.
4. The Effective Date of the transfer will be the earlier of: (a) date on
which Atlantic Crossing Ltd. accepts the transfer in writing; or (b) the
fifteenth day after Atlantic Crossing Ltd. receives a fully executed original
of this Transfer of Service form, unless, within such fifteen-day period,
Atlantic Crossing Ltd. rejects the transfer or assignment.
5. The service is not to be interrupted at the time the transfer is made.
<TABLE>
<S> <C> <C>
Current Customer New Customer Concurring Customer
By: By: By:
-------------------------- ---------------------------- -----------------------------
(Signature of Authorized (Signature of Authorized (Signature of Authorized
Representative) Representative) Representative)
- ------------------------------ ---------------------------------- -------------------------------------
(Typed or Printed Name) (Typed or Printed Name) (Typed or Printed Name)
- ------------------------------ ---------------------------------- -------------------------------------
(Title) (Title) (Title)
- ------------------------------ ---------------------------------- -------------------------------------
(Date) (Date) (Date)
Authorized by Atlantic Crossing Ltd.:
______________________________ ___________
(Signature) (Date)
</TABLE>
33
<PAGE>
Attachment A
TRANSFER OF SERVICE AGREEMENT
IDENTIFIED SERVICES
Date Required by Customer:
-------------------------------------------
Description of Capacity Services being transferred:
Segment Circuit Number Capacity Unit
- ------- -------------- -------------
34
<PAGE>
GLOBAL CROSSING CUSTOMER CARE CENTER
TRANSFER OF INDEFEASIBLE RIGHT OF USE
The following signed parties authorize the transfer and acceptance of the
Indefeasible Right of Use for ______ STM-1(s) on segment(s) ____________ of the
AC-1 Cable System from _______ until _______. The purchaser understands that
its obligations under the Capacity Purchase Agreement are not transferable and
remain the responsibility of said purchaser. Furthermore, both purchaser and
assignee acknowledge that said assignee is not a third party beneficiary of the
Capacity Purchase Agreement or the Right of Use Agreement.
Segment Landing Points
--------- --------------
S-1 T-1 and T-2
S-2 T-2 and T-3
S-3a T-1 and T-4
S-3b T-3 and T-4
S-3c T-1 and T-3
S-4 T-2 and T-4
T-1 -- A cable station in Brookhaven, New York, United States, together with
that portion of the System that is located between such cable station
and the point that is one half mile beyond the United States territorial
limit.
T-2 -- A cable station in Whitesands, United Kingdom together with that portion
of the System that is located between such cable station and the point
that is one half mile beyond the United Kingdom territorial limit.
T-3 -- A cable station in Sylt, Germany together with that portion of the
System that is located between such cable station and the point that is
one half mile beyond the German territorial limit.
T-4 -- A cable station in Beverwijk, Netherlands, together with that portion of
the System which is located between such cable station and the point
that is one half mile beyond the Netherlands territorial limit.
<TABLE>
<S> <C>
Purchaser: ________________________ Assignee:______________________________
(Corporate Name) (Corporate Name)
Signature: ________________________ Signature: ____________________________
(Signature of Authorized Representative)(Signature of Authorized Representative)
Printed Name: ______________________ Printed Name:__________________________
Title: _____________________________ Title:_________________________________
Telephone Number: _________________ Telephone Number:______________________
Fax Number: ________________________ Fax Number:____________________________
Date: __________________ Date: ____________________
</TABLE>
35
<PAGE>
Accepted by Atlantic Crossing Ltd. Date:
-------------------------------- --------
Signature
GLOBAL CROSSING CUSTOMER CARE CENTER
TRANSFER OF SERVICE CONFIRMATION FORM
<TABLE>
<S> <C>
Date of Request: ___________
Originator's Name: _________________
The following parties authorize the transfer and acceptance of service for
______ STM-1(s) on segment(s) ____________ of the AC-1 Cable System.
Capacity Purchaser: ________________________ Assignee: ___________________________
(Corporate Name) (Corporate Name)
Approved ______ Denied _______ Date _________
Customer Care Manager: ____________________
Telephone Number: ________________________
Fax Number: ________________________
</TABLE>
36
<PAGE>
GLOBAL CROSSING CUSTOMER CARE CENTER
TRANSFER OF INDEFEASIBLE RIGHT OF USE CONFIRMATION FORM
<TABLE>
<S> <C>
Date of Request: ___________
Originator's Name: _________________
The following parties authorize the transfer and acceptance of the Indefeasible
Right of Use for ______ STM-1(s) on segment(s) ____________ of the AC-1 Cable
System from _________ until ________.
Capacity Purchaser: ________________________ Assignee: __________________________
(Corporate Name) (Corporate Name)
Approved __________ Denied __________ Date __________
Customer Care Manager: ____________________
Telephone Number: ________________________
Fax Number: ________________________
</TABLE>
37
<PAGE>
ANNEX A
INDEFEASIBLE RIGHT OF USE AGREEMENT
THIS AGREEMENT (as amended, supplemented or otherwise modified from time to
time, this "Agreement") is made and entered into as of this 21st day of June,
1999, between and among VIA Net Works Europe Holding B.V. (the "Purchaser") and
GT Landing Corp., GT U.K. Ltd., Global Telesystems GmbH and GT Netherlands B.V.
(collectively, the "Subsidiary Grantors").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, each Subsidiary Grantor is a wholly-owned subsidiary of Atlantic
Crossing Ltd. (the "Parent") who is the grantor under the Capacity Purchase
Agreement (as amended, supplemented or otherwise modified from time to time, the
"Capacity Purchase Agreement") to which a copy of this Agreement is attached;
WHEREAS, capitalized terms used in this Agreement and not otherwise defined
in this Agreement shall have the meanings assigned to them in the Capacity
Purchase Agreement;
WHEREAS, upon completion of the construction and installation of the
System, GT Landing Corp. will have an IRU in the whole of Segment T-1, GT U.K.
Ltd. will own Segment T-2, Global Telesystems GmbH will own Segment T-3 (except
with respect to that portion of Segment T-3 which comprises Subsegment T-3B in
which Global Telesystems GmbH shall have rights) and GT Netherlands B.V. will
own Segment T-4 (except with respect to that portion of Segment T-4 which
comprises Subsegment T-4B in which GT Netherlands B.V. shall have rights);
WHEREAS, subject to and in accordance with the terms of the Capacity
Purchase Agreement, the Parent is conveying certain S Capacity to the Purchaser
on an indefeasible right of use basis;
WHEREAS, each Subsidiary Grantor desires to grant to the Purchaser, at no
additional charge and for so long as the Purchaser maintains an IRU in any S
Capacity, an indefeasible right of use with respect to its respective T Segment
to the extent required by the Purchaser to use its IRU in such S Capacity; and
WHEREAS, the Subsidiary Grantors acknowledge and agree that the Purchaser
has relied upon this Agreement in entering into the Capacity Purchase Agreement;
NOW, THEREFORE, the Subsidiary Grantors covenant and agree as follows:
1. Upon the effectiveness of the grant to the Purchaser of an indefeasible
right of use with respect to any S Capacity (including in any Residual
Capacity) in accordance
<PAGE>
with the Capacity Purchase Agreement, each Subsidiary Grantor grants to the
Purchaser, at no additional charge and for so long as the Purchaser
maintains an IRU in such S Capacity, an indefeasible right of use with
respect to its respective T Segment to the extent required by the Purchaser
to use its IRU in the S Capacity.
2. Subject to Sections 10 and 11 of the Capacity Purchase Agreement, each
Subsidiary Grantor shall use commercially reasonable efforts to maintain,
or cause the Operator to maintain, its respective T Segment in accordance
with the provisions set forth in the Capacity Purchase Agreement.
3. The performance of this Agreement by each of the Subsidiary Grantors is
contingent upon the continuance of the Capacity Purchase Agreement and upon
the obtaining and continuance of such approvals, consents, governmental
authorizations, licenses and permits as may be required or deemed necessary
by such parties and as may be satisfactory to them. The Subsidiary Grantors
shall use all reasonable efforts to obtain and continue such approvals,
consents, governmental authorizations, licenses and permits. No license
under patents is granted by the Subsidiary Grantor or shall be implied or
arise by estoppel in the Purchaser's favor with respect to any apparatus,
system or method used by the Purchaser in connection with the use of the T
Segment(s) granted hereunder.
4. The Subsidiary Grantors and the Parent have entered into the Supply
Contract to obtain plant, equipment and services necessary to allow the T
Segments to be placed into operation on the applicable scheduled RFS Date.
UNLESS SPECIFICALLY SET FORTH IN THIS AGREEMENT, ANY OTHER WARRANTIES,
EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED TO, THE WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE SPECIFICALLY
DISCLAIMED.
5. In no event shall any Subsidiary Grantor or the Purchaser be liable to the
other for consequential, incidental, indirect or special damages,
including, but not limited to, loss of revenue, loss of business
opportunity, or the costs associated with the use of restoration
facilities.
6. This Agreement shall not form a joint venture or partnership or similar
business arrangement between the parties hereto or between the parties
hereto, the Parent and the Purchaser, and nothing contained herein shall be
deemed to constitute a partnership or joint venture or similar business
arrangement.
7. This Agreement does not provide and is not intended to provide third
parties (including, but not limited to, customers of the Purchaser, any
permitted transferee of the Purchased Capacity or any other permitted user
of Purchased Capacity) with any remedy, claim, liability, reimbursement,
cause of action, or any other right.
8. This Agreement and all of the provisions hereof shall be binding upon and
inure to the benefit of the Purchaser and the Subsidiary Grantors and their
respective successors and permitted assigns under the Capacity Purchase
Agreement.
<PAGE>
9. This Agreement shall not be modified or amended except by a writing signed
by authorized representatives of the parties hereto.
10. This Agreement shall become effective on the date set forth above and shall
continue in effect for the duration of the Capacity Purchase Agreement, and
shall immediately terminate without any further action upon the termination
of the Capacity Purchase Agreement.
11. The provisions of Sections 10, 11, 12, 14, 23 and 25 of the Capacity
Purchase Agreement are hereby incorporated herein by reference, mutatis
mutandis, and shall be deemed a part of this Agreement as if fully set
forth herein.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement effective on
the date first written above.
ATLANTIC CROSSING LTD.
By: /s/ Doug Molyneux
--------------------------------
Name: Doug Molyneux
---------------------------
Title: Vice President
--------------------------
GT LANDING CORP.
By: /s/ Doug Molyneux
--------------------------------
Name: Doug Molyneux
---------------------------
Title: Under a Power of Attorney
--------------------------
GT U.K. LTD.
By: /s/ Doug Molyneux
--------------------------------
Name: Doug Molyneux
---------------------------
Title: Under a Power of Attorney
--------------------------
GLOBAL TELESYSTEMS GmbH
By: /s/ Ian McLean
--------------------------------
Name: Ian McLean
---------------------------
Title: Director
--------------------------
GT NETHERLANDS B.V.
By: /s/ Ian McLean
--------------------------------
Name: Ian McLean
---------------------------
Title: Director
--------------------------
VIA NET WORKS EUROPE HOLDING B.V.
By: VIA NET.WORKS, INC., its
Managing Director
By: /s/ Matt Nydell
---------------------------
Name: Matt Nydell
---------------------------
Title: VP & General Counsel
--------------------------
<PAGE>
ANNEX B
ATLANTIC CROSSING
SUBMARINE CABLE SYSTEM
DETAILS RELATING TO CAPACITY PURCHASE AGREEMENT
<PAGE>
ATLANTIC CROSSING
SUBMARINE CABLE SYSTEM
ANNEX B
TABLE OF CONTENTS
-----------------
PARAGRAPH PAGE
- --------- ----
1. Definitions........................................................2
-----------
2. Cable System Configuration and Segments............................4
---------------------------------------
3. Ownership and Provision of Segments and Additional Property........6
-----------------------------------------------------------
4. Access / Inland Connection Services................................7
-----------------------------------
5. The System Advisory Committee......................................8
-----------------------------
6. Transfer of Rights to Use Purchased Capacity.......................9
--------------------------------------------
7. Intentionally Omitted..............................................9
---------------------
8. Operations, Administration and Maintenance of Segments and Access
-----------------------------------------------------------------
Connections......................................................9
-----------
9. Keeping and Inspection of Books...................................11
-------------------------------
10. Termination; Realization of Assets...............................11
----------------------------------
ATTACHMENTS
-----------
Attachment 1 - ...Configuration of the Atlantic Crossing Submarine Cable System
Attachment 2 - .....Terms of Reference for Assignments, Routing and Restoration
Attachment 3 - ................Terms of Reference for Operation and Maintenance
Attachment 4 - ........................................................RFS Date
<PAGE>
ATLANTIC CROSSING SUBMARINE CABLE SYSTEM
ANNEX B TO CAPACITY PURCHASE AGREEMENT
--------------------------------------
1. Definitions.
-----------
Definitions are as described in the specific Paragraphs or in the Capacity
Purchase Agreement to which this Annex B is attached. Except as otherwise
provided, the following definitions shall apply throughout this Annex B:
Adjusted Pro Rata Share (for apportionment of Residual Capacity): with
---------------------------------------------------------------
respect to each of the Segment S-1 Residual Capacity, Segment S-2 Residual
Capacity, Segment S-3a Residual Capacity, Segment S-3b Residual Capacity,
Segment S-3c Residual Capacity and Segment S-4 Residual Capacity, a
fraction:
(i) the numerator of which equals the sum of (A) the number of STM-1s on
the applicable S Segment in which the Purchaser acquired an IRU from the
Grantor pursuant to this Agreement and which were deemed contracted for
prior to October 10, 1997, multiplied by 3, (B) the number of STM-1s on
the applicable S Segment in which the Purchaser acquired an IRU from the
Grantor pursuant to this Agreement and which were contracted for on and
after October 10, 1997 but prior to June 1, 1998, multiplied by 2 and (C)
the number of STM-1s on the applicable S Segment in which the Purchaser
acquired an IRU from the Grantor pursuant to this Agreement and which
were contracted for on and after June 1, 1998 but prior to the earlier of
(x) the RFS Date for the entire System and (y) November 30, 1998; and
(ii) the denominator of which equals the sum of (A) the number of STM-1s
on the applicable S Segment that all purchasers acquired an IRU in from
the Grantor and which were deemed contracted for prior to October 10,
1997, multiplied by 3, (B) the number of STM-1s on the applicable S
Segment that all purchasers acquired an IRU in from the Grantor and which
were contracted for on and after October 10, 1997 but prior to June 1,
1998 multiplied by 2 and (C) the number of STM-1s on the applicable S
Segment that all purchasers acquired an IRU in from the Grantor and which
were contracted for on and after June 1, 1998 but prior to the earlier of
(x) the RFS Date for the entire System and (y) November 30, 1998.
The Adjusted Pro Rata Share shall be calculated by the Grantor and shall be
conclusive absent manifest error.
Basic System Module: A Basic System Module of the System shall consist of a
-------------------
digital line section in each direction with interface in accordance with ITU
Recommendations G.703 and G.707 to G.709 and containing sixteen (16) STM-
1's.
<PAGE>
Cable Landing Point: Cable Landing Point shall be the beach joint at each cable
- -------------------
landing location or the mean high water mark of ordinary spring tides if there
is no beach joint.
Carrier Party: Any entity authorized or permitted under the laws of its
- -------------
respective country, to acquire and use facilities for the provision of
international telecommunication services.
Initial Design Capacity: The Initial Design Capacity of each Segment of the
- -----------------------
System shall consist of four (4) fiber pairs providing a minimum of sixteen (16)
Basic System Modules (eight will be used for service and the remaining eight
will be used for restoration) initially supplying STM-1's or any increase as
determined from time to time by the Grantor in its sole discretion.
Inland Carrier: An entity authorized or permitted under the laws of its
- --------------
respective country to provide for inland communications services.
Maintenance Authority: An entity designated by the Grantor which shall be
- ---------------------
primarily responsible for the operations and maintenance of the wet plant as set
forth in Paragraph 8(b).
Segment S-1 Residual Capacity, Segment S-2 Residual Capacity, Segment S-3a
- ------------------------------ ------------------------------ ------------
Residual Capacity, Segment S-3b Residual Capacity, Segment S-3c Residual
- ------------------ ------------------------------- ---------------------
Capacity and Segment S-4 Residual Capacity: With regard to each of the S
- -------- -----------------------------
Segments, as of the date which is 12-1/2 years after the RFS Date for the entire
System, 80% of that portion of the service capacity on the applicable S Segment
which is available as of such date to be sold by the Grantor to prospective
purchasers, together with, to the extent necessary to use such S Capacity, the
applicable T Capacity. The amount of Residual Capacity for each such S Segment
shall be determined solely by the Grantor and shall not, in any event, include
any capacity on the applicable S Segment which the Grantor has determined should
be reserved for restoration purposes.
System Interface: The nominal 155 Mb/s (STM-1) digital/optical input/output
- ----------------
ports on the digital/optical distribution frame (including the digital/optical
distribution frame itself) where the Basic System Module connects with other
transmission facilities or equipment.
Terminal Parties: The Terminal Parties are GT U.K. Ltd., Global Telesystems
- ----------------
GmbH, GT Landing Corp. and GT Netherlands B.V., each of which are wholly-owned
subsidiaries of the Grantor.
<PAGE>
2. Cable System Configuration and Segments
---------------------------------------
(a) The configuration of the System shall be as shown in Attachment 1.
(b) In accordance with the arrangements contained in this Annex B, the
System shall be regarded as consisting of the following Segments:
Segment S-1: A submarine cable linking Segments T-2 and
T-1.
Segment S-2: A submarine cable linking Segments T-1 and
T-3.
Segment S-3a: A submarine cable linking Segments T-4 and T-2.
Segment S-3b: A submarine cable linking Segments T-3 and T-4.
Segment S-3c: A submarine cable linking Segments T-2 and T-3
(which goes through Segment T-4).
Segment S-4: The portion of the System linking Segments T-1
and T-4
Segment T-1: A cable station in Brookhaven, New York, United
States, together with that portion of the System which
is located between such cable station and the point
which is one-half mile beyond the United States
territorial limit.
Segment T-2: A cable station in Whitesands, United Kingdom,
together with that portion of the System which is
located between such cable station and the point which
is one-half mile beyond the United Kingdom territorial
limit.
Segment T-3: A cable station in Sylt, Germany, together with that
portion of the System which is located between such
cable station and the point which is one-half mile
beyond the Germany territorial limit.
Segment T-4: A cable station in Beverwijk, Netherlands, together
with that portion of the System which is located
between such cable station and the
<PAGE>
point which is one-half mile beyond the Netherlands
territorial limit.
It is assumed that under the current law of the United Kingdom, the United
States, the Netherlands and Germany, the territorial waters of such country
extend twelve nautical miles seaward from the coast of such country. If such
assumption shall prove to be incorrect, or if a law shall change such assumption
and in fact the territorial waters of any such country extend beyond twelve
nautical miles, the parties hereto shall adjust the T Segment of the applicable
Terminal Party.
(c) Except as provided herein, Segments T-1 and T-2 shall include, as
appropriate:
(i) the transmission cable and equipment associated with the submersible
plant between the point which is one-half mile beyond the territorial
waters of the United Kingdom or the United States, as appropriate, up to
the nominal 155 Mb/s (STM-1) digital/optical or input/output ports on the
digital/optical distribution frame (including the digital/optical
distribution frame itself) where the Basic System Module connects with
other transmission facilities or equipment;
(ii) the land, civil works and buildings at the specified locations for the
cable landing and for the cable route including cable rights-of- way and
ducts between the applicable cable station and its respective Cable Landing
Point, and common services and equipment at each of the locations, together
with equipment in each of those cable stations which is solely associated
with the System; and
(iii) the sea earth cable and electrode system and/or the land earth
system, or an appropriate share thereof, associated with the terminal power
feeding equipment.
(d) Except as provided herein, Segment T-3 consists of Subsegment T-3A and
Subsegment T-3B.
Subsegment T-3A shall consist of:
(i) the transmission cable and equipment associated with the submersible
plant between the point which is one-half mile beyond the territorial
waters of Germany up to the nominal 155 Mb/s (STM-1) digital/optical or
input/output ports on the digital/optical distribution frame (including the
digital/optical distribution frame itself) where the Basic System Module
connects with other transmission facilities or equipment, together with
equipment in the cable station which is solely associated with the System;
<PAGE>
(ii) the sea earth cable an electrode system and/or the land earth
system associated with the terminal power feeding equipment;
and
(iii) all of Global Telesystems GmbH's leasehold interest or other
rights in Subsegment T-3B.
Subsegment T-3B shall consist of all the land, civil works and building in
Sylt, Germany for the cable landing and the cable rights of way and ducts
between the cable station and the Cable Landing Point.
(e) Except as provided herein, Segment T-4 consists of Subsegment T-4A
and Subsegment T-4B.
Subsegment T-4A shall consist of:
(i) the transmission cable and equipment associated with the
submersible plant between the point which is one-half mile
beyond the territorial waters of the Netherlands up to the
nominal 155 Mb/s (STM-1) digital/optical or input/output ports
on the digital/optical distribution frame (including the
digital/optical distribution frame itself) where the Basic
System Module connects with other transmission facilities or
equipment, together with equipment in the cable station which is
solely associated with the System;
(ii) the sea earth cable an electrode system and/or the land earth
system associated with the terminal power feeding equipment;
and
(iii) all of GT Netherlands B.V.'s leasehold interest or other
rights in Subsegment T-4B.
Subsegment T-4B shall consist of all the land, civil works and building in
Beverwijk, Netherlands for the cable landing and the cable rights of way and
ducts between the cable station and the Cable Landing Point.
(f) Each S Segment shall also include the transmission cable equipped
with appropriate repeaters and joint housings between the respective
T Segments.
3. Ownership and Provision of Segments and Additional Property
-----------------------------------------------------------
(a) Segments S-1, S-2, S-3a, S-3b, S-3c and S-4 shall be owned and
provided by the Grantor.
(b) GT Landing Corp., a wholly-owned United States subsidiary of the
Grantor, shall own (or shall have a right of use for) and provide
Segment T-1. Segment T-2 shall be owned and provided by GT UK Ltd.,
a wholly-owned United Kingdom subsidiary of the Grantor. Subsegment
T-3A shall
<PAGE>
be owned and provided by Global Telesystems GmbH, a wholly- owned
German subsidiary of the Grantor. Subsegment T-4A shall be owned and
provided by GT Netherlands B.V. a wholly-owned Netherlands subsidiary
of the Grantor.
(c) Global Telesystems GmbH has procured rights in Subsegment T-3B of the
System from Deutsche Telekom and or its subsidiary Deutsche Telekom
Immobilen und Service GmbH.
(d) GT Netherlands B.V. has procured rights in Subsegment T-4B of the
System from KPN Telecom.
4. Access /Inland Connection Services
----------------------------------
(a) Access connection services refers to the transmission facilities and
the equipment required for interconnection between the demarcation
equipment point associated with the System and the demarcation point
associated with inland communications services ("Access Connections").
Within the Cable Stations, the Operator of the System shall provide
STM-1 Access Connections. Each Access Connection provides full-time
digital private line transmission on a two point basis. Access
Connections may be changed or modified upon written request of the
Purchaser,; provided that such changes or modifications shall be
provided subject to the availability of equipment, facilities and
personnel necessary to establish the Access Connection in accordance
with the schedule of fees set forth at Schedule II to the Capacity
Purchase Agreement.
(b) This Annex and the Capacity Purchase Agreement is a master agreement
under which service orders for Access Connections ("Service Orders")
may be placed by the Purchaser. All Service Orders will be governed by
the terms and conditions of the Capacity Purchase Agreement and this
Annex B. Access Connections shall be ordered by the Purchaser in
accordance with the Interconnection Services Ordering Procedures manual
("ISOP Manual") which the Grantor shall publish from time to time.
Grantor shall not change the ISOP Manual in a manner which has a
material adverse effect upon the Purchaser without, in the first
instance, discussing such change with the Purchaser. The Purchaser
shall submit all Service Orders under this Agreement to the Grantor (or
its designated agent). When the Service Order is received, the
Purchaser shall be notified of such receipt and the Grantor shall make
a reasonable effort to make (or cause to have made) the Access
Connection available on the date requested by the Purchaser if
requested in accordance with this Annex B and in accordance with the
ISOP Manual. Upon request, the Grantor shall use reasonable efforts to
improve upon circuit activation and provisioning intervals. Each
Service Order must provide such information as may be
<PAGE>
reasonably required in order to design, install and maintain the
Access Connection ordered.
(c) Once placed, the Service Order will be processed in accordance with
the ISOP Manual and a due date will be established.
(d) The provisions of Section 7 of the Capacity Purchase Agreement shall
apply to all Access Connections hereunder.
(e) The Purchaser may obtain inland connection services ("Inland
Connections") for the purpose of extending the Purchaser's Capacity
inland through an agreement with entities related to the Grantor which
have acquired rights in additional inland capacity so that the
Purchased Capacity can be extended to certain points of interface in
certain cities.
(f) Deutsche Telekom is the provider of Inland Connections from the cable
station located in Sylt, Germany.
5. The System Advisory Committee
-----------------------------
(a) For the purpose of directing the progress of the System, an advisory
committee (the "Advisory Committee") shall be formed consisting of the
Grantor, each Terminal Party, certain Carrier Parties having purchased
a minimum of 5 STM-1s and certain other purchasers having purchased
multiple STM-1s. The Grantor shall appoint a Chairman or several Co-
Chairmen and each such appointee(s) shall serve as a Chairman until
such time as the Grantor shall appoint a replacement Chairman. The
Co-Chairmen may appoint one secretary as an assistant to the Chairman.
The Advisory Committee shall make recommendations to the Grantor (for
the benefit of the Grantor and the Terminal Parties) in respect of the
construction and installation of the System and the operation and
maintenance thereof, which the Grantor may accept or reject in its
sole discretion.
(b) The Advisory Committee will meet on the call of the Chairman or Co-
Chairmen or whenever requested by one or more of its members. The
Chairman or Co-Chairmen shall give the Advisory Committee at least
thirty (30) days advance written notice of each meeting, together with
a copy of the draft agenda. In case of emergency, such notice period
may be reduced upon the request of the Grantor. Documents to be
discussed at any meeting of the Advisory Committee shall be made
available to the Advisory Committee members at least fourteen (14)
days before the meeting, but the Advisory Committee may agree to
discuss documents distributed on less than fourteen (14) days notice.
<PAGE>
(c) To aid the Advisory Committee in the performance of its duties, the
following Expert Working Groups (hereafter "EWG's") shall be formed
(whose members need not be on the Advisory Committee), and said EWG's,
under the direction of the Advisory Committee, shall be responsible
for making recommendations to the Advisory Committee for their
respective areas of interest listed in Attachment 2 and Attachment 3
and any other areas of interest designated by the Advisory Committee:
(i) Assignments, Routing and Restoration (the "A&R EWG"); and
(ii) Operations and Maintenance (the "O&M EWG").
(d) The Chairman or Co-Chairmen of the Advisory Committee and the Grantor
in consultation with the Advisory Committee may establish such other
groups as they shall determine in their discretion to provide
assistance in the Advisory Committee's performance of its
responsibilities hereunder. The Chairman or Co-Chairmen of the
Advisory Committee and the Grantor in consultation with the Advisory
Committee shall appoint the Chairman or several Co-Chairmen of the A&R
and O&M EWGs. Each of which EWGs shall meet at least once annually
and more frequently, if necessary, until two (2) years following the
RFS Date for the System, and thereafter as may be appropriate.
Meetings of such groups may be called to consider specific questions
at the discretion of its Chairman or Co-Chairmen, or whenever
requested by the Grantor or a majority of the members of the Advisory
Committee. On or about two (2) years after the RFS Date for the
System, the Advisory Committee shall determine whether any of its EWGs
should remain in existence or be disbanded.
(e) The Grantor shall perform or cause to have performed customary duties
and responsibilities pertaining to a Network Administrator/Customer
Care Center for the System.
(f) Participation by the Purchaser on the Advisory Committee or any EWG,
should such participation be offered to the Purchaser, shall in no way
limit or otherwise affect the Grantor's or any Subsidiary Grantor's
obligations to the Purchaser under this Agreement or any of the
Schedules or Attachments thereto.
6. Transfer of Rights to Use Purchased Capacity.
---------------------------------------------
(a) The Purchaser shall be permitted to transfer its right to use the
Purchased Capacity only in accordance with Section 20 of the Capacity
Purchase Agreement. In the event Purchaser transfers (as permitted by
said Section 20) its right to use in the aggregate one (1) of more
MCUs of Purchased Capacity to a single Carrier Party the Purchaser
shall immediately notify the Network Administrator/Customer Care
Center of the identity of the
<PAGE>
transferee Carrier Party and shall provide all other information
reasonably requested by the Network Administrator/Customer Care
Center.
(b) Subject to clause (a) of this Paragraph 6, the Purchaser may transfer
its rights to use in the aggregate one (1) or more MCUs of Purchased
Capacity to a single Carrier Party at anytime by giving immediate
notice to the Network Administrator/Customer Care Center.
(c) The Purchaser may not transfer its rights to use in the aggregate one
(1) or more MCUs of Purchased Capacity to a single Carrier Party
without written notification to the Network Administrator/Customer
Care Center.
(d) Confirmation of such transfer of the rights to use in the aggregate
one (1) or more MCUs of Purchased Capacity to a single Carrier Party
shall be provided by the Network Administrator/Customer Care Center
within 7 days after completion.
7. Intentionally Omitted.
----------------------
8. Operations, Administration and Maintenance of Segments and Access
-----------------------------------------------------------------
Connections
-----------
(a) The operation and maintenance of the dry plant for Segments T-1, T-2,
T-3 and T-4 (and to the extent applicable the Access Connections)
shall include the following functions:
(i) monitoring and routine maintenance of terminal equipment; and
(ii) testing, troubleshooting, fault location and replacement of
faulty terminal equipment using existing spare parts inventory.
(b) The Grantor shall cause the designated Maintenance Authority to
operate and maintain the wet plant for Segments S-1, S-2, S-3a, S-3b,
S-3c and S-4 and Segments T-1, T-2, T-3 and T-4; which shall include
the following functions:
(i) determining the need for System repair;
(ii) planning and directing maintenance work;
(iii) providing ship owners and ship operators with the System's
documentation necessary for repairs;
(iv) being responsible for delivery, control and allocation of System
spares between shore storage depots and cable ships; and
(v) providing trained personnel to perform repair functions and
supplemental cable ship personnel.
Failure of the designated Maintenance Authority to operate and
maintain the wet plant shall not in any way relieve Grantor from its
obligations to
<PAGE>
maintain the System, including the wet plant, under the Capacity
Purchase Agreement.
(c) Maintenance Costs include but are not limited to the following:
(i) dry maintenance including the land segment to the beach joint;
(ii) wet maintenance;
(iii) cable protection and at sea repairs;
<PAGE>
*****Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.*****
(iv) common equipment costs associated with the Atlantic Crossing
equipment at the cable stations; and
(v) operating costs associated with operating each cable station,
=
including but not limited to ad valorem, property and personal
property taxes with respect to the System.
(d) Intentionally deleted by amendment.
(e) Except as provided in clause (d) above the annual Maintenance Costs
for the first four (4) years will be [*****] per STM-1 and,
thereafter, [*****] per year (and a pro rata portion thereof for the
--------
period from the applicable RFS Date to the first January 1 quarterly
payment date thereafter). The Maintenance Costs for the Stub Period
per STM-1 shall be a pro rata portion of the Maintenance Costs per
--------
STM-1 for the relevant full calendar year or partial calendar year as
applicable.
<PAGE>
(f) Intentionally deleted by amendment.
9. Keeping and Inspection of Books
--------------------------------
The Grantor shall keep and maintain, or cause to have kept and maintained,
copies of such books, records, and accounts relating to Maintenance Costs as
shall be reasonably necessary for the Purchaser to verify the calculation of
Maintenance Costs under Paragraph 8 above, for a period of five (5) years from
the date of billing and shall afford the Purchaser and/or the Purchaser's
designated representative the right to review such books, records and accounts
during such period.
10. Termination; Realization of Assets
----------------------------------
(a) The Purchaser understands and agrees to abide by all rules,
regulations and requirements reasonably set forth by each entity
having rights in any S Segment or T Segment, including, but not
limited to, equipment and floor spacing equipment, specifications and
equipment.
(b) Nothing contained in this Annex B or the Capacity Purchase Agreement
to which this Annex B is attached shall be deemed to vest in the
Purchaser any salvage rights in any Segment.
<PAGE>
ATTACHMENT 1
CONFIGURATION OF THE SYSTEM
[FLOWCHART]
Segment S-4 is the portion of the system between Segments T-1 and T-4.
Segment S-3c is the portion of the System between Segments T-2 and T-3.
<PAGE>
ATTACHMENT 2
TERMS OF REFERENCE OF ASSIGNMENTS,
----------------------------------
ROUTING, AND RESTORATION EWG
----------------------------
The responsibilities of the A&R EWG shall include the following:
. Review the principles governing the development of the System's
Routing Plan, as prepared by the Cable Administrator, and concur or
comment, as appropriate.
. Make recommendations with respect to the digital interworking
arrangements, including a detailed multiplex plan and synchronization
arrangements, according to the optimum routing plan developed by the
Cable Administrator.
. Study and recommend extension arrangements.
. Make recommendations with respect to the deployment and timely
provision of compatible interface arrangements with all connecting
facilities necessary to meet restoration and operational requirements.
. Make recommendations with respect to the availability of inland
extensions, transit facilities necessary to meet service and
restoration requirements.
. Make recommendations with respect to the implementation of the initial
capacity assignments of MCU's including fascicles within the System.
. Study and recommend restoration plans for the System.
. Make recommendations with respect to the normal service and
restoration equipment requirements.
. Make recommendations with respect to the plans for restoration
exercise testing.
. Develop and recommend detailed procedures in compliance with the terms
and conditions of this Agreement with respect to:
- Increase, decrease or assignment of capacity
<PAGE>
2
- Report regularly, as appropriate, to the Advisory Committee on
the A&R EWG activities
. The A&R EWG shall carry out such other responsibilities as the
Advisory Committee may direct.
. All decisions made by the A&R EWG shall be subject in the first place
to consultation among the members of the A&R EWG and the Grantor who
shall make every reasonable effort to reach agreement. In the event
agreement cannot be reached, the issue shall be decided by the
Grantor.
<PAGE>
ATTACHMENT 3
TERMS OF REFERENCE FOR THE OPERATIONS AND
-----------------------------------------
MAINTENANCE EXPERTS WORKING GROUP
---------------------------------
The responsibilities of the O&M EWG shall include the following:
. Recommend to the Grantor any project changes pertaining to the
technical, operational and maintenance aspects that O&M EWG deems
appropriate for the construction of the System.
. Recommend to the Grantor the required quantity of spare equipment for
submersible and terminal equipment. Make recommendations with respect
to depot storage and location of spare equipment in consultation with
the Maintenance Authorities.
. Provide assistance and support as may be requested by the Grantor.
. Make recommendations with respect to the testing, operation and
maintenance methods to be used for the System as proposed by the
suppliers or Maintenance Authorities, as appropriate.
. Study other matters and make recommendations with respect to problems
affecting maintenance of the System as may be identified by the
Maintenance Authorities.
. Oversee TSSL under the OA&M Agreement.
. Report on a regular basis to, or when requested by, the Advisory
Committee.
. The O&M EWG shall carry out such other responsibilities as the
Advisory Committee may direct.
. All decisions made by this EWG shall be subject in the first place to
consultation among the members thereof and the Grantor who shall make
every reasonable effort to reach agreement. In the event agreement
cannot be reached, the issue shall be decided by the Grantor.
<PAGE>
ATTACHMENT 4
RFS STANDARD
RFS Standard means (i) for any Segment that (a) such Segment has the
ability to carry commercial traffic between the two landing points of such
Segment meeting performance criteria of ITU-T G.826 and has line monitoring and
protection switching capability and (b) TSSL has tested and provided for STM-1
interconnectivity capability to the Segment terminal equipment according to ITU-
T G.826, and (ii) for the System, (a) that the System has the ability to carry
commercial traffic throughout the System meeting performance criteria of ITU-T
G.826 with self healing ring protection capability and per Segment protection
capability, has line monitoring and per Segment protection switching capability
and has network management capability and (b) TSSL has tested and provided for
STM-1 interconnectivity capability to the System terminal equipment according to
ITU-T G.826.
<PAGE>
EXHIBIT 10.8
Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated by [*****]. A complete version of this exhibit has been
filed separately with the Securities and Exchange Commission.
VIA Net Works Europe Holding B.V.
Customer Agreement
(Ref.: C450004)
(for an IRU of a Unit of Capacity)
Issue 1.1
Date: 21/07/99
- --------------------------------------------------------------------------------
Page 1 of 10
<PAGE>
DOCUMENT DETAILS
Author Mike Sweeney (Marketing - Product Manager)
- --------------------------------------------------------------------------------
Current Version Issue 1.1
- --------------------------------------------------------------------------------
Date 21/07/99
- --------------------------------------------------------------------------------
Document Reference i:\sweeneym\contracts\via networks\via net
works customer agreement.doc
- --------------------------------------------------------------------------------
AMENDMENT RECORD
Version Date Issue/Amendment Details
Released
- --------------------------------------------------------------------------------
Issue 1.1 21/07/99 Issue 1.1 incorporating final comments.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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Page 2 of 10
<PAGE>
IAXIS - CUSTOMER AGREEMENT FOR AN IRU OF CAPACITY
Customer Reference Number: C450004
This Agreement sets out the terms and conditions of the relationship between
iaxis Limited ("iaxis") whose address is 46 Aldgate High Street, London, EC3 1AL
and VIA Net Works Europe Holding B.V. (the "Customer") whose address is Weena
723C-6, 3013 AM Rotterdam, Netherlands with company registration number
34115551.
1. Definitions
To make sure that this Agreement is clear and unambiguous, the following
definitions are used to clarify certain words, phrases and/or expressions used
in this Agreement:
"Associated Company" means any person or entity controlled by, controlling, or
under common control with either party, as defined in Sections 736 and 736A of
the Companies Act 1985 (or its replacement or amendment).
"Agreement" means this Agreement together with any Order(s), Service Level
Agreement and Technical or Product Specifications, as agreed between both
parties and forming part of this Agreement.
"Capacity" means either an Open Optical Link ("OOL") or the bandwidth ordered
under this Agreement either as a part of the iaxisenroute network or as
otherwise agreed.
"Customer Equipment" means all equipment, systems, cabling and facilities
provided by the Customer, or purchased by iaxis on behalf of the Customer and
used in conjunction with the Capacity.
"Duration" shall be the duration of this Agreement and Order(s).
"iaxis Equipment" means the equipment, systems, cabling and facilities which
form part of the Capacity and which is provided by iaxis or its third party
suppliers.
"iaxisenroute network" means the European terrestrial fibre optic cable system
including the iaxis Points of Presence ("PoPs"), all iaxis Equipment and system
interface points as may be provided by iaxis.
"IRU" means an indefeasible right of use of a unit of capacity on all or a part
of the iaxisenroute network, as iaxis may be capable of granting from time to
time
"Order" means the order form supplied to the Customer on which the terms agreed
between the parties are found in respect of the Capacity under this Agreement
and any Service Level Agreements, Technical or Product Specifications, or other
attachments.
"us", "we" or "our" means iaxis
"you", or " your" means the Customer
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2. SERVICE PROVISION
On signing this Order, we hereby grant you an IRU in the agreed Capacity on the
iaxisenroute network, for the Duration. We represent, warrant and covenant that
you will peaceably and quietly have enjoyment of all pertinent rights of use of
the IRU in the agreed Capacity.
3. OPERATIONAL CLAUSES
3.1 iaxis' Obligations
We will use the reasonable care and skill of a Capacity provider in providing
the Capacity to you, and will operate and maintain the Capacity to the service
levels in accordance with the Service Level Agreement ("SLA"). In fulfilling
our obligations as set forth in the SLA and the Order Form attached hereto and
this Agreement, we shall use reasonable endeavours not to provide any preference
for the repair of our or any other party's facilities and to perform such
services in a manner that does not discriminate against you.
All of our Customers are important to us and therefore if we fail to achieve the
service levels, we will pay you the compensation set out in the SLA, which SLA
dated July 21st 1999 is attached to this Agreement and is a part of this
Agreement and our relationship with you. We also agree that any compensation
schemes referred to in the SLA are not exclusive and you are free to pursue any
other remedies that may be available to you at law or in equity in respect of
any material breach by us of this Agreement.
To the extent that the same are required we have and/or will obtain and use
reasonable endeavours to maintain all regulatory licenses, consents and
approvals necessary for us to enter into this Agreement and to meet our
obligations hereunder.
We shall use all reasonable endeavours to ensure that all iaxis Equipment and
the iaxisenroute network used to provide the Capacity is "Year 2000 Compliant",
as defined herein. We shall, to the extent that we are able to do so, pass on to
you the benefit of, and supply you if requested with appropriate copies of, any
guarantees, representations and warranties provided to us by our contractors and
suppliers relative to the extent of iaxis Equipment and the iaxisenroute network
being Year 2000 Compliant. "Year 2000 Compliant" means that any function of the
iaxis Equipment and the iaxisenroute network containing or calling on a calendar
function, including, without limitation, any function indexed to the CPU clock,
and any function providing specific dates or days, or calculating spans of dates
or days, shall record, store, process, provide and, where appropriate, insert,
true and accurate dates and calculations for dates and spans prior to, including
and following January 1, 2000 and shall correctly recognize and process the date
of February 29, and any related data, during leap years and that the iaxis
Equipment and the iaxisenroute network shall continue to operate in accordance
with the service levels set forth in the SLA prior to, including and following
January 1, 2000 without error, interruption or decreased performance relating to
date/time data.
In the event that it becomes known to us that any iaxis Equipment or any part of
the iaxisenroute network is not or may fail to be Year 2000 Compliant by
December 31 1999 we hereby undertake to notify you in writing at the earliest
practicable opportunity.
We have clearly set out the promises that we make in this Agreement and
therefore all implied representations and warranties are excluded.
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3.2 Customer's Obligations
3.2.1 You, our Customer, agree to:
(i) pay all amounts due to us in full and in accordance with this Agreement
without any set-off or deduction, provided, however, that you will not be
required to pay any amounts which are in good faith dispute until such
time as the dispute has been resolved;
(ii) provide us and our authorised agents with reasonable access to your
premises so that we can fulfil our obligations under this Agreement;
(iii) provide us with such space and environmental operating conditions as both
of us have agreed are necessary to allow us to keep to our obligations
under this Agreement; and
(iv) ensure, to the extent that the same are required, that you have and/or
will obtain and use all reasonable endeavours to maintain all regulatory
licenses, consents and approvals necessary for you to enter into this
Agreement and to meet your obligations hereunder.
3.2.2 You also agree not to:
---
(i) interrupt or interfere with the use of any other Capacity on the
iaxisenroute network; or
(ii) prevent the use of similar equipment by other owners or operators of the
iaxisenroute network; or
(iii) impair the privacy of any communications over such iaxisenroute network;
or
(iv) damage any equipment; or
(v) create hazards to either of us, our Associated Companies or agents, or any
other user, owner or operator of the system or the public
in your use or operation of the Capacity. Notwithstanding anything herein to
the contrary, you shall not be deemed to have breached this Section 3.2.2
provided that your use of the Capacity was for the purposes agreed with us and
subject to compliance with any specific written instructions reasonably given to
you which are consistent with the purposes of this Agreement.
3.3 Acceptance Test Procedure
Prior to handover of the Capacity, and as set out in the SLA, you may attend the
acceptance testing of the Capacity to be provided as agreed in the Order. We
will deliver the Acceptance Test results to you on their successful completion.
3.4 Payment
Payment terms will be as set out in the Order, however the following will also
apply:
(i) You will be responsible for all amounts due for the Duration.
(ii) We may charge interest on any overdue amounts at a rate of 3% over LIBOR
or its substitute or replacement in force at any given time and interest
will continue to accrue on overdue amounts, whether or not this Agreement
has been terminated.
(iii) All amounts due to us will be exclusive of VAT or other appropriate tax
with respect to such amounts, which shall not include taxes due with
respect to our income, which tax if lawfully due, you will pay to us in
addition to the sums due for the Capacity.
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3.5 Assignment
We may assign or sub-contract this Agreement to any of our Associated Companies
or anyone else upon notifying you in writing. However, if we do this, we will
remain liable to you for our obligations under this Agreement.
You may make (A) a collateral assignment of your rights hereunder to one or more
of your or your affiliates' lenders, and (B) a lease of any excess Capacity not
required by you, provided that no lessee shall be a third party beneficiary of
this Agreement or have any rights or claims against us for any reason whatsoever
PROVIDED THAT
(i) You do not lease, re-sell, assign or attempt to re-sell or assign more
than was granted or rented to you under this Agreement;
(ii) You remain liable to us for the performance of your obligations to us
under this Agreement; and
(iii) You do not lease, re-sell or assign any Capacity greater than a single
STM-1.
Provided that the above requirements of clauses (i), (ii) and (iii) are met, and
you have obtained our prior written approval which shall not be unreasonably
withheld you may make (C) an assignment to any present or future affiliated
company or to an entity controlled by, under the same control as, or
controlling, you; and (D) an assignment incidental to the transfer of all or
substantially all of your business or a substantial portion of your business
(which shall include, without limitation, a transfer of assets).
3.6 Notices
Any notice required by this Agreement must be made in writing and delivered to
the other party (either by hand, by first class registered mail, or by facsimile
with a hard copy by first class registered mail) at the following addresses:
The Customer:
VIA Net Works Europe Holding B.V.
c/o VIA NET.WORKS, Inc.
12100 Sunset Hills Road, Suite 110
Reston, VA 20190 USA
Fax: 703-464-0608
Marked for the attention of Matt S. Nydell, Esq., V.P., General Counsel and
Secretary:
The Service Provider:
iaxis Limited
46 Aldgate High Street
London
EC3N 1AL
Fax +44 171 767 3501
Marked for the attention of Tom McGlew, Chief Operating Officer
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In the event either party changes its address, the other should be notified
immediately in writing.
Any notice or demand is deemed to have been received at the time of delivery, if
delivered by hand, 7 days after posting, if sent by first class registered post,
or on the date of transmission if sent by facsimile, if followed by postal
notice.
4. LEGAL CLAUSES
4.1 Entire Contract
This Agreement shall be the whole agreement between both of us and will
supersede any previous agreement that may exist between us in respect of the
subject matter of this Agreement. Any changes that we wish to make to this
Agreement shall only be valid if agreed in writing by both of us.
4.2 Relationship
Neither of us is the agent, partner, or representative of the other.
4.3 Termination
If either of us is in material breach of this Agreement (i.e. a breach not
reasonably capable of remedy), the other can terminate this Agreement with
immediate effect upon written notice.
4.3.1 If the breach is capable of remedy, then the same shall be remedied within
a reasonable time, having regard to the nature of the breach. Compliance
with a notice to remedy shall not exceed 14 days of receipt of a written
notice to remedy, failing which the notifying party may at its option
terminate this Agreement immediately upon written notice to the other.
In addition to the above, if either of us:
(i) becomes insolvent (according to the definition contained in section 123 of
the Insolvency Act 1986 or its replacement), or
(ii) makes, or seeks to make, any arrangement with its creditors, or otherwise
seeks protection from its creditors under any law in any jurisdiction, or
(iii) allows or suffers a liquidator, receiver, administrator, trustee, or any
other custodian to be appointed to manage the business or take possession
of any part of that party's property and assets, or
(iv) proceedings have been commenced for dissolution, liquidation, or winding
up whether voluntary or otherwise, or
(v) ceases to continue trading
the other party may choose to terminate this Agreement immediately upon
written notice to the other.
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4.3.2 In addition to Termination, we have the option to suspend this Agreement
by disconnecting you or otherwise (and your equipment) from the
iaxisenroute network, if:
(i) you fail to pay any amount due, or
(ii) you have materially damaged (or in our reasonable opinion are likely to
materially damage) the iaxisenroute network, or
(iii) you are otherwise in breach of the terms of this Agreement;
provided, however, that we shall first provide you with written notice of
such failure, damage or potential damage or breach, and you shall comply
with the time limit stated in the notice (which shall be reasonable
having regard to the nature of the breach, and further which shall be not
less than 14 days except under circumstances in which in our reasonable
opinion you are likely to materially damage the iaxisenroute network) in
which to remedy such failure, damage or potential damage or breach.
4.4 Consequences of Termination
If we terminate this Agreement you will disconnect and remove your Equipment
from the iaxisenroute network. If the termination is due to your fault, we may
carry out this work at your expense and you agree to pay us for this.
If there are any amounts due to us under this Agreement, then the termination of
this Agreement will not enable you to refuse to pay those amounts to us.
4.5 Force Majeure
4.5.1 Neither party will be liable to the other for any failure to perform its
obligations under this Agreement if anything happens beyond its
reasonable control, which includes but is not limited to an Act of God,
inclement weather, act or omission of government or other competent
authority, military operations, war, riot, insurrection, or other civil
disturbance. Failure of a subcontractor to either of the parties to
fulfil its obligations to such party shall not be deemed to be an event
beyond the reasonable control of such party for purposes of this
Agreement.
4.5.2 If as a result of any such circumstances we are unable to perform this
Agreement and the Capacity is unavailable for use by you for a period
longer than sixty (60) days, you shall be entitled, upon written notice
to us, to terminate this Agreement and receive a pro-rata refund of any
amounts paid with respect to the IRU in the Capacity based upon the
remaining term of the Duration plus a pro-rata portion of any maintenance
paid for the term then in effect plus any amount paid for any future
maintenance term.
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4.6 Liability
Neither party limits its liability for causing death or personal injury due to
its negligence or intentional misconduct.
The maximum liability either party has to the other under this Agreement for any
direct loss, other than payments properly due under this Agreement, is limited
to (Pounds)1,000,000 (one million pounds sterling) for any one event or series
of connected events, subject to a maximum of (Pounds)5,000,000 (five million
pounds sterling), in any twelve month period.
Neither party will be liable to the other for any indirect or consequential
loss or damage, which includes loss of bargain, loss of business, loss of
contract, loss of future profit, loss of opportunity, loss of savings, loss of
sales, or loss of turnover including negligence however caused.
Our relationship is with you and therefore you also agree to indemnify us from
any claims from a third party who has a relationship with you where you supply
services over the iaxisenroute network.
4.7 Waiver and Severability
No delay, tolerance, or indulgence by either party shall constitute a waiver of
its rights and in the event that any part of this Agreement is found to be void,
invalid or unenforceable, it will not affect the remainder of the Agreement.
4.8 Maintenance
We will give you at least 5 days notice of our intention to carry out any
scheduled maintenance that might affect you or the provision of the Capacity to
you. Sometimes we need to carry out emergency maintenance and if we do, we will
give you as much notice as is reasonably possible in the circumstances.
4.9 Internal Escalation
Should a dispute arise between the parties, both parties will attempt to resolve
the dispute in accordance with the following procedure:
Any dispute which cannot be resolved within 14 days of first arising may be
escalated to a line manager (or equivalent) in writing, and if it is not
resolved within a further 7 days, may be escalated by notice in writing to
senior management:
i) Our line manager is the Director of Operations
Your line manager is the ISP Systems Engineer
ii) Our senior management is the Chief Operating Officer and/or Chief
Executive Officer. Your senior management is the President and/or Chief
Executive Officer.
The procedure in this paragraph does not prevent either party from having
recourse to the courts if the circumstances necessitate it.
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4.10 Governing law
This Agreement shall be interpreted in accordance with the English law and both
parties agree to have it dealt with in the exclusive jurisdiction of the English
Courts.
Signed for and on behalf of the VIA Signed for and on behalf of
Net Works iaxis
/s/ J. De Bosdari
- ----------------------------------- -------------------------------
By: By: J. De Bosdari
Title: Title: Business Development
Director
Date: Date: 27/7/1999
By: VIA NET.WORKS, Inc., its
Managing Director
By: /s/ Matt Nydell
---------------
Matt Nydell, its Vice President & General Counsel
July 21, 1999
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VIA Net Works Europe Holding B.V.
Order Form - IRU
(Ref.: C450004/OF1)
Issue 1.1
Date: 21/07/99
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Page 1 of 5
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DOCUMENT DETAILS
Author Mike Sweeney (Marketing - Product Manager)
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Current Version Issue 1.1
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Date 21/07/99
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Document Reference i:\sweeneym\contracts\via networks\via net
works order form - iru.doc
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AMENDMENT RECORD
Version Date Issue/Amendment Details
Released
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Issue 1.1 21/07/99 Issue 1.1 incorporating final comments.
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*****Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.*****
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Customer Name VIA Net Works Europe Holding B.V.
Registered Office Address Weena 723C-6, 3013 AM Rotterdam, The
Netherlands, registration number 34115551
Invoice Address 12100 Sunset Hills Road,
Suite 110, Reston, VA 20190, USA
Contact Information Contact: Mr R.D. Stubbs (II)
Tel. 001 701-464-3609
Fax. 001 701-464-0608
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Service Provider iaxis Limited (Registered number 3545698)
Registered Office Address 46 Aldgate High Street, London, EC3N 1AL
Business Address 46 Aldgate High Street, London, EC3N 1AL
Customer Point of Contact Contact: William Henley
Tel + 44 171-767-3500 Fax + 44 171-767-3501
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Product Initial configuration is 3 * STM-1s (protected
SDH) point to point links configured as a ring
connecting the cities of London, Amsterdam,
and Dusseldorf, and expandable on customer's
schedule (subject to iaxis agreement on Phase
I - III implementation schedule) to 7 * STM-1s
(protected SDH) point to point links
configured as a ring connecting seven cities.
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Bandwidth Initial configuration is 3 * STM-1s (i.e. 3 *
155 Mbps circuits) expandable on customer's
schedule (subject to iaxis agreement on
Phase I - III implementation schedule) to 7 *
STM-1s (i.e. 7 * 155 Mbps circuits).
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Payment Option IRU
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Term 20 years
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Ready for Service (RFS) Date 5th August 1999 for first three circuits.
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Initial Charge Initial charge of [*****] payable 7 (seven)
calendar days after signing of Customer
Agreement and associated Order Form(s).
Residual payment of [*****] payable on 1st
December 1999.
Total payment includes all 7 STM-1s (protected
SDH) point to point links configured as a ring
connecting 7 cities.
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*****Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.*****
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Recurring Charge [*****] per annum will be invoiced and
(O&M Costs) payable quarterly in advance for the
Duration from the RFS date.
First payment of [*****] due on RFS date.
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Recurring Interval Quarterly in advance for the Duration.
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Customer Agreement Number and Date Customer Agreement ref. C450004 dated
21/07/99
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Service Level Agreement (SLA) Service Level Agreement ref. C450004/SLA1
Reference and Date dated 21/07/99
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Technical Specification Not applicable
(if applicable)
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This Order Form ("Order") forms the basis of an Agreement between iaxis and VIA
Net Works Europe Holding B.V. which is effective from the date of signature by
both parties.
The Agreement consists of:
1. this Order;
2. the Customer Agreement C450004 prepared on 21/07/99;
3. the Service Level Agreement C450004/SLA1 prepared on 21/07/99;
4. the Product and/or Technical Specifications [references]; and
5. any attachments.
If there is any discrepancy between this Order and the Customer Agreement, this
Order will take precedence.
If there are to be any attachments or amendments, they should be listed here:
1. Attachments
2. Customer Agreement amendments (incorporated into Customer Agreement ref.
C450004)
3. Service Level Agreement amendments (incorporated into Service Level
Agreement ref. C450004/SLA1)
4. Technical Specification amendments (not applicable)
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Upon signing this Order iaxis will sell to you and you will take, for the
Duration, an Indefeasible Right of Use (IRU) of a unit of Capacity on all or
part of the iaxisenroute network or System, as described in this Order, subject
to the terms of the Customer Agreement (the "Agreement") referred to herein.
iaxis will ensure your quiet enjoyment of the IRU subject to your compliance
with the terms of the Agreement.
Signed for and on behalf of VIA Net Works: Signed for and on behalf of iaxis:
/s/ J. De Bosdari
- ------------------------------------------ ----------------------------------
By: By: J. De Bosdari
Title: Title: Business Development
Director
Date: Date: 27/7/1999
By: VIA NET.WORKS, Inc., its
Managing Director
By: /s/ Matt Nydell
---------------
Matt Nydell, its Vice President & General Counsel
July 21, 1999
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VIA Net Works Europe Holding B.V.
Service Level Agreement
(Ref.: C450004/SLA1)
Issue 1.1
Date: 21/07/99
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Page 1 of 30
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DOCUMENT DETAILS
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Author Mike Sweeney (Marketing - Product Manager)
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Current Version Issue 1.1
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Date 21/07/99
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Document Reference i:\sweeneym\contracts\via networks\via net
works sla.doc
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AMENDMENT RECORD
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Version Date Issue/Amendment Details
Released
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Issue 1.1 21/07/99 Issue 1.0 incorporating final comments.
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Page 2 of 30
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Contents
1.0 iaxisenroute European Points of Presence (PoPs)......... 5
1.1 Service Locations..................................... 5
1.2 iaxisenroute Pan-European Network..................... 5
2.0 Network Operations & Fault Management................... 7
2.1 Overview.............................................. 7
2.2 Fault Reporting and Service Levels.................... 7
2.3 Fault Handling........................................ 8
2.4 Services Provided..................................... 8
3.0 Key Performance Indicators.............................. 9
3.1 Network Availability - Optical Circuits............... 9
3.2 Service Availability - Protected SDH Circuits......... 9
3.3 Service Availability - Unprotected SDH Circuits....... 9
3.4 NOC Response Times.................................... 10
3.5 Repair Times:......................................... 10
3.5.1 Fibre Faults...................................... 10
3.5.2 CIENA and Nortel equipment:....................... 10
3.5.3 Building Environmental Alarms..................... 10
3.5.4 Fault Classification.............................. 11
4.0 Procedures.............................................. 12
4.1 Fault Management Procedure............................ 12
4.2 Escalation Procedure.................................. 14
4.3 Change Management Procedure........................... 16
4.4 Service Interruption Procedure........................ 18
4.5 Management Reporting.................................. 20
4.6 Planned Maintenance................................... 20
4.7 Customer Visits....................................... 20
5.0 Service Levels and Compensation Schemes................. 21
5.1 Services Covered...................................... 21
5.2 Ready For Services (RFS) Dates........................ 21
5.3 Services Restoration Time (SRT)....................... 21
5.3.1 IRUs.............................................. 21
5.3.2 Rentals........................................... 22
5.4 Service Availability.................................. 22
5.4.1 SDH Service Availability.......................... 22
5.4.2 Optical & Unprotected SDH Circuit Service 23
Availability......................................
5.5 Cancellation of Service by Customer................... 23
5.5.1 IRUs.............................................. 23
5.5.2 Rentals........................................... 24
5.6 Conditions of Service Level Agreement................. 24
5.6.1 IRUs.............................................. 24
5.6.2 Rentals........................................... 24
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6.0 Acceptance Tests........................................ 25
6.1 ITU-T Recommendations................................. 25
6.2 iaxis Acceptance Test................................. 25
7.0 Open Optical Links (OOLs)............................... 26
7.1 Technical Data........................................ 26
8.0 SDH Service - Technical Overview........................ 27
8.1 Managed SDH Service................................... 27
8.2 iaxisenroute SDH Network.............................. 27
8.3 Main Advantages of the iaxisenroute SDH Network....... 27
8.4 Conformance to Standards.............................. 27
8.5 Functionality......................................... 28
8.6 Protection Approach................................... 28
8.7 Network Management Capability......................... 29
8.8 Main iaxisenroute Network SDH Components.............. 29
8.8.1 Nortel TN-16X..................................... 29
8.8.2 Nortel TN-4X/E.................................... 30
8.8.3 Nortel TN-1X...................................... 30
9.0 Operation & Maintenance Costs........................... 31
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1.0 iaxisenroute European Points of Presence (PoPs)
1.1 Service Locations
To date iaxisenroute has Points of Presence (PoPs) capable of providing fully
managed (SDH), dedicated, point-to-point, bandwidth services at the following
European locations:
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Phase 1 Phase 2 Phase 3
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. London . Hamburg . Madrid
. Paris . Bremen . Barcelona
. Strasbourg/Kehl . Hanover . Bordeaux
. Frankfurt . Leipzig . Marseille
. Dusseldorf . Nurnberg . Toulouse
. Amsterdam . Berlin . plus others still to be
. Rotterdam . Munich determined
. Antwerp . Stuttgart
. Brussels . Zurich
. Geneva
. Lyons
. Milan
. Copenhagen
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Notes
1. Open Optical Link (OOL) breakout capability is currently available at all
Phase 1 PoPs except for the Strasbourg/Kehl PoP which will be available in
October 1999.
2. Additional breakout points may be provided at Customer's request (at
additional cost).
1.2 iaxisenroute Pan-European Network
iaxis will use its best endeavours to deploy the iaxisenroute network throughout
Europe in three distinct phases (or rings). Phase 1 will be lit by June 1st;
Phase 2 should be lit by September 31st; and Phase 3 should be lit by December
31st 1999.
The iaxisenroute fibre ring comprises 1 fibre pair and employs advanced Ciena
DWDM technology to increase bandwidth capacity. The Ciena equipment provides
initially for up to 40 distinct wavelengths at a capacity of 2.5 Gigabits per
wavelength (a total of 100 Gigabits). Based on Ciena technology currently under
development and expected to be available in July 2000, iaxis should be able to
expand the iaxisenroute network capacity to 96 wavelengths, and by December 2000
to 192 wavelengths each with 10 Gigabits of capacity, which will bring the total
capacity to two Terabits. iaxis can achieve this increase in capacity on its
existing pair of fibre optic cables without laying or leasing additional fibre
optic cables or incurring significant costs and network downtime. iaxis is the
first telecommunications company in Europe to utilise Ciena's 96-wavelength
system technology.
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2.0 Network Operations & Fault Management
2.1 Overview
iaxis will manage the network 24 hours a day * 7 days a week * 52 weeks a year
from its Network Operations Centre (NOC). A full-time NOC team manages the
network to ensure stated service levels are achieved. The NOC shall proactively
monitor services and automatically flag service-affecting faults. Customer shall
be notified and fault reports shall be made available to the Customer whenever
service-affecting faults occur.
The NOC is a secure facility offering a Single Point of Contact (SPOC) for all
iaxis Customer calls and is the interface between Customer and iaxisenroute
Network Operations. A single telephone number in the NOC will be provided where
all calls are processed.
iaxis will provide a single point of contact (SPOC) for use by Customer to
address payment issues and provide billing support.
Customer will have remote access capability to allow direct monitoring of
network performance.
2.2 Fault Reporting and Service Levels
All faults will be reported to iaxis Network Operations personnel on a number
located in the iaxis NOC. Faults may also be automatically detected by one of
the network management tools available to the Network Operations Centre
engineers. On receipt of a fault report or automatic detection of a fault, NOC
engineers shall initiate primary diagnostics with the intent of clearing the
fault remotely. If this is not possible, first-line maintenance personnel shall
be despatched to site to clear the fault. Iaxis shall also inform Customer of
the fault and shall continue to provide updates and advisory information
necessary to keep Customer fully informed of progress towards fault resolution
and restoration of service.
All faults shall be recorded on the iaxis Fault Management System (FMS). The FMS
shall record all faults, date and time stamp them, and maintain a true and
accurate record of the progress of the fault resolution through to clearance.
The FMS shall permit tracing of all faults from initiation through to clearance.
Faults shall be recorded in sufficient detail to allow detailed post-fault
analysis and ensure that a record of the fault and actions taken is available
for future reference.
iaxis enters into a detailed Service Level Agreement (SLA) with each of its
fibre and equipment suppliers as well as each of its Customers. The FMS
configuration shall permit automatic checking of all faults against prevailing
SLAs to ascertain whether or not criteria have been met. All SLAs shall be
agreed prior to the service being handed over to ensure that the performance
criteria are both realistic and achievable.
Customers shall be able to view on-line their own service faults via a password
and username accessed web screen. This functionality will be further expanded
(date still to be finalised) to enable Customers to view progress associated
with service provisioning.
- --------------------------------------------------------------------------------
Page 6 of 30
<PAGE>
2.3 Fault Handling
All fault handling shall be managed in accordance with the procedure as outlined
in Section 3.1. All faults are shall be managed in accordance with the service
levels detailed below.
2.4 Services Provided
The NOC management team shall provide the following services:
. 24 hours per day x 7 days per week x 365 days per annum network management
. notification to customer of updates and current information as required
. alarm handling and management
. fault co-ordination and restoration of services
. network change management
. network and service interruption co-ordination and management
. network build provisioning and changes
. customer service provisioning and changes
. network and service reporting
. host Customer visits to the NOC
. preventive monitoring and maintenance
. preventive field maintenance and control
- --------------------------------------------------------------------------------
Page 7 of 30
<PAGE>
3.0 Key Performance Indicators
3.1 Network Availability - Optical Circuits
Targets Open Optical Links (OOL)
Equipment Fibre
- ----------------------------------------------------------------------
Availability % 99.95% 98.46%/1/
- ----------------------------------------------------------------------
Mean Time Between Failure (Years) 23.24 0.13
- ----------------------------------------------------------------------
Maximum Time To Repair (Hours) 4 18
- ----------------------------------------------------------------------
BER 10/-15/ N/A
- ----------------------------------------------------------------------
3.2 Service Availability - Protected SDH Circuits
<TABLE>
<CAPTION>
Targets Single Tributary Card Duplicated Tributary Cards
<S> <C> <C>
Availability % 99.95% 99.99%/2/
- -------------------------------------------------------------------------------------------
Mean Time Between Failure (Years) 24.99 24.99
- -------------------------------------------------------------------------------------------
Maximum Time To Repair (Hours) 4 4
- -------------------------------------------------------------------------------------------
BER 10/-15/ 10/-15/
- -------------------------------------------------------------------------------------------
</TABLE>
3.3 Service Availability - Unprotected SDH Circuits
<TABLE>
<CAPTION>
Targets Unprotected SDH Circuits
SDH Equipment Point to Point Unprotected
Circuit
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Availability % 99.95% 98.46%/3/
- -------------------------------------------------------------------------------------------
Mean Time Between Failure (Years) 24.99 0.13
- -------------------------------------------------------------------------------------------
Maximum Time To Repair (Hours) 4 18
- -------------------------------------------------------------------------------------------
BER 10/-15/ N/A
- -------------------------------------------------------------------------------------------
</TABLE>
Notes
1. (OOLs): A fibre availability of 98.46% is based on a network length of 3000
Km, 1 break per 400 Km per year, and an 18 hour fix time.
2. The basic level of service provided is a fully redundant (SDH) service.
3. Unprotected SDH point to point circuits provide the same level of network
availability as Open Optical Links.
4. Planned outages are not included in these performance figures.
- --------------------------------------------------------------------------------
Page 8 of 30
<PAGE>
3.4 NOC Response Times
Time to Answer Call Percentage of Calls Answered
- -------------------------------------------------------------------------------
Calls answered within 10 seconds 95%
- -------------------------------------------------------------------------------
Call back returned within 5 minutes 100%
- -------------------------------------------------------------------------------
3.5 Repair Times:
Diagnosis and repair times shall be measured from the earliest time a fault is
detected in the iaxis NOC, either as a result of Customer reporting a fault or
of the NOC personnel or systems detecting the fault directly.
3.5.1 Fibre Faults
Target Repair Time - 18 hours
3.5.2 CIENA and Nortel equipment:
<TABLE>
<CAPTION>
Fault Classification Diagnosis Time (from Fault Target Repair Time (Time to
detection) Restore Service)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Critical Fault 30 minutes 4 hours
- -----------------------------------------------------------------------------------------------------------
Major Fault 30 minutes 8 hours
- -----------------------------------------------------------------------------------------------------------
Minor Fault 2 hours Next working day
- -----------------------------------------------------------------------------------------------------------
</TABLE>
3.5.3 Building Environmental Alarms
Target Repair Times will be as per relevant support contract. Alarms will be
provided to ensure that environmental conditions such as temperature and
relative humidity are maintained.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Environmental Conditions Range
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Normal temperature 0 - 40 degrees Celsius
- ---------------------------------------------------------------------------------------------------------
Short-term operating temperature -5 to +45 degrees Celsius
- ---------------------------------------------------------------------------------------------------------
Relative humidity 20 - 55% or 3.6Kpa water vapour pressure, whichever
is less, over normal operating temperature range,
no condensation
- ---------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Page 9 of 30
<PAGE>
3.5.4 Fault Classification
1. A critical fault is service-affecting.
2. A major fault involves a loss of network or service diversity.
3. A minor fault is a configuration discrepancy, not service or diversity
affecting.
- --------------------------------------------------------------------------------
Page 10 of 30
<PAGE>
4.0 Procedures
4.1 Fault Management Procedure
All reported or suspected faults are managed as detailed below. A fault
management flowchart outlining the fault management procedure is presented in
Figure 1.
. Fault detected by Netcool or reported by Customer
. Fault located based on Netcool information and network management tools
. Log fault on FMS
. Inform iaxis Network Operations manager
. First-line primary diagnostics using network management tools
. If fault can be cleared remotely, clear, otherwise call out first-line
maintenance / field personnel / maintainers.
. If first-line maintenance fails, call out second-line support to clear fault.
. Fault escalation according to escalation procedure, if required.
. Following clearance, confirm on the fault management system and advise
Customer
. Clear on FMS, add reporting information:
. Fault start time
. Time to respond
. Time to site (if applicable)
. Clearance time
. Escalation procedure carried out (if applicable)
. Corrective and preventive action taken
- --------------------------------------------------------------------------------
Page 11 of 30
<PAGE>
[FLOW CHART]
Fault Management Procedure
Fault detected by Netcool or
reported by Customer
Fault located based on
Netcool-provided
information
Log fault on FMS
Inform iaxis Network
Operations manager (via
mobile telephone)
First-line primary diagnostics
using Network Management
System
Can fault be cleared Yes
remotely? Clear fault remotely
No
Call our relevant maintainers
as per Operational Contact
List
Regular updating of Network
Management System and iaxis
Operations Manager
Clear fault locally, escalate (if
required) as per Escalation
Procedure
Following clearance, confirm
clear on network management
system and with Customer
Update FMS, incorporating
management reporting
information:
. Fault start time
. Time to respond
. Time to site (if applicable)
. Clearance time
. Escalation proc carried out
. Corrective and preventive
action taken
Figure 1: Fault Management Procedure
- --------------------------------------------------------------------------------
Page 12 of 30
<PAGE>
4.2 Escalation Procedure
The flow diagram in Figure 2 outlines the Escalation Procedure that the iaxis
NOC uses whenever a fault needs to be escalated to a higher level within the
organisation. In finalising the operational interfaces between the Customer and
iaxis, it is accepted that the Escalation Procedure may need to be refined.
Escalation path is as follows:
- --------------------------------------------------------------------------------
Escalation Level Contact Name (Position) Contact Number
- --------------------------------------------------------------------------------
1 iaxis NOC Supervisor Tel: +44 171 767 3555
- --------------------------------------------------------------------------------
2 (Network Operations Manager) Tel: +44 171 767 3569
Mobile: +44 789 999 6901
- --------------------------------------------------------------------------------
3 (Technical Director) Tel: +44 171 767 3514
Mobile: +44 777 552 2424
- --------------------------------------------------------------------------------
4 (Chief Operating Officer) Tel: +44 171 767 3503
Mobile: +44 467 884 452
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Page 13 of 30
<PAGE>
Escalation Procedure
[FLOW CHART]
Escalation
required
after 1 hour
LEVEL 1
Escalation
YES NO
After 2 hours LEVEL 2
Service Escalation
restored
YES NO
After 4 hours LEVEL 3
Service Escalation
restored
Customer YES YES After 6 hours
service affected Solution
Found?
NO NO
Liase with
customer LEVEL 4
Escalation
Implement Solution
solution agreed
Figure 2: Escalation Procedure
- --------------------------------------------------------------------------------
Page 14 of 30
<PAGE>
4.3 Change Management Procedure
The flow diagram in Figure 3 outlines the Change Management Procedure that the
iaxis NOC use whenever a change request is received.
. Customer issues circuit/network change request
. iaxis Network Operations standardise format
. Network Operations pass to NOC for network impact analysis
. NOC report findings back to Network Operations and await go-ahead
. If go-ahead not received, change archived as incomplete
. If go-ahead is given, NOC will implement circuit change using the network
management tools, within the agreed timescales
. NOC inform Network Operations when change is completed
. Network Operations update Network Information System (NIS)
. Network Operations archive change as complete
. Network Operations inform originator as to status of change
Please note that changes requested by a customer may impact the commercial
agreement.
- --------------------------------------------------------------------------------
Page 15 of 30
<PAGE>
Change Management Procedure
Customer issues
circuit/network change
request
Network Operations
standardise format
Network Operations pass
to NOC for network impact
analysis
NOC report findings back to
Network Operations and
await go-ahead
Go-ahead given by Network Operations
Network No archive change as
Operations? incomplete
Yes
NOC implement change on
Network Management
System, within agreed
timescale
NOC inform Network Operations
when completed
Network Operations update
NMS
Network Operations archive
change as complete
Operations inform
originator of status of
change
Figure 3: Change Management Procedure
- --------------------------------------------------------------------------------
Page 16 of 30
<PAGE>
4.4 Service Interruption Procedure
The flow diagram in Figure 4 outlines the Service Interruption Procedure that
iaxis NOC follows whenever a planned service interruption occurs.
. Network outage requested by iaxis
. Network Operations pass to NOC for network and Customer impact analysis
. NOC report findings back to Network Operations
. If authority to proceed not received, outage rescheduled, postponed or
abandoned
. Customer notifications sent out, warning of service interruption
. If authority to proceed not received from Customer, outage rescheduled,
postponed or abandoned
. NOC produce outage record
. Outage carried out in accordance with planned work procedure
. If outage did not proceed as planned, Network Operations carry out post-
failure investigation
. After outage, Network Operations produce report, review and recommendations
. In the event of planned works being imminent, when an unplanned outage on
another part of the network occurs, the planned works shall be postponed
until the fault has been cleared.
- --------------------------------------------------------------------------------
Page 17 of 30
<PAGE>
Service Interruption Procedure
[FLOWCHART]
Figure 4: Service Interruption
- --------------------------------------------------------------------------------
Page 18 of 30
<PAGE>
4.5 Management Reporting
The iaxis NOC will provide the following reports, to be delivered via e-mail or
other media as required by Customer, to Customer's NOC, and to other recipients
designated in writing by Customer:
. Fault report detailing Customer or network faults - analysis within 24 hours
. Ad-hoc Customer service reports, including:
. Service availability
. Service interruptions and downtime
. Service delivery against requirements
. Total number of faults
. Fault resolution against SLA
4.6 Planned Maintenance
iaxis shall maintain its buildings and equipment. Accordingly iaxis shall
provide its Customers with a comprehensive maintenance schedule which covers all
aspects of iaxis planned maintenance activities. It will include, among other
things, planned maintenance for active equipment, fibre, buildings and building
services. The network may be maintained by a number of parties under the
control of the iaxis Network Operations Manager who shall have overall
responsibility for the operational network.
iaxis shall perform preventive maintenance on all equipment contributing to the
iaxis network in accordance with manufacturers' specifications.
Planned maintenance activities will only be undertaken after prior consultation
with the Customer has taken place, and when the timing, frequency and duration
of the planned outage(s) has been mutually agreed. In situations where emergency
maintenance (e.g. for potentially service affecting faults) is required, prior
permission may not be sought from the Customer.
Downtime as a result of planned maintenance outages will not be included in the
Service Availability calculations and consequently will not incur compensation
payments from iaxis.
4.7 Customer Visits
Customer shall have the right to visit the iaxis NOC to observe NOC operations,
procedures, capabilities and equipment. Should Customers wish to visit the
iaxis NOC iaxis will agree mutually convenient times and make appropriate
arrangements for Customer visits in advance.
- --------------------------------------------------------------------------------
Page 19 of 30
<PAGE>
5.0 Service Levels and Compensation Schemes
iaxis is committed to providing high quality point-to-point and managed
bandwidth services to our Customers. This section details the service levels and
compensation schemes that apply to iaxis service provision.
5.1 Services Covered
All Open Optical Links and managed bandwidth services between the iaxis PoPs.
5.2 Ready For Services (RFS) Dates
iaxis target Ready For Service (RFS) dates are:
. 7 days for DS3 and STM-1 circuits
. 10 days for STM-4 and OOL circuits
. 15 days for STM-16 circuits.
When an order is placed with iaxis the RFS date shall be confirmed in writing.
If iaxis fails to meet this date and cannot demonstrate that the delay was
caused by circumstances beyond its reasonable control, the Customer shall be
entitled to compensation for late delivery.
For IRUs compensation will be in the form of a credit of 1% of the annual
Operating & Maintenance (O&M) charge for each working day or part thereof beyond
the agreed RFS date (up to a max. of 50 days).
For rentals compensation will be in the form of a credit of 1% of the annual
rental charge for each working day or part thereof beyond the agreed RFS date
(up to a maximum of 5 days).
5.3 Services Restoration Time (SRT)
The fault resolution process will be initiated immediately a fault has been
auto-detected by the FMS or has been reported to the NOC by the Customer.
In the event that iaxis fails to repair service-affecting faults of either fibre
or equipment within the Target Repair Time (TRT), measured from the agreed fault
start time, the Customer shall be entitled to compensation as detailed in the
table below. The Target Repair Time (TRT) referred to below is defined as the
time from the agreed fault start time to the time that the service is restored.
5.3.1 IRUs
<TABLE>
<CAPTION>
Hours past Target Repair Time Percentage of the Operating & Maintenance Annual
Charge as Compensation (Cumulative)
- --------------------------------------------------------------------------------
<S> <C>
0 - 4 hours 0%
- --------------------------------------------------------------------------------
between 4 - 6 hours 1%
- --------------------------------------------------------------------------------
between 6 - 8 hours 2%
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Page 20 of 30
<PAGE>
- --------------------------------------------------------------------------------
More than 8 hours up to 48 hours 1% for each successive four hours
- --------------------------------------------------------------------------------
5.3.2 Rentals
<TABLE>
<CAPTION>
Hours past Target Repair Time Percentage of the Annual Rental Charge as
Compensation
- --------------------------------------------------------------------------------
<S> <C>
Up to 4 hours 0%
- --------------------------------------------------------------------------------
between 4 - 6 hours 0.25%
- --------------------------------------------------------------------------------
between 6 - 8 hours 0.5%
- --------------------------------------------------------------------------------
More than 8 hours up to 48 hours 0.25% for each successive four hours
- --------------------------------------------------------------------------------
</TABLE>
Compensation will not be payable for failure to repair non-service affecting
faults within the Target Repair Times for Minor Faults.
5.4 Service Availability
iaxis shall provide end-to-end circuit availability for all managed bandwidth
products in each 3 month period following the RFS date to the levels set forth
in this section. Where the availability of the service falls below the specified
levels the Customer shall be entitled to compensation in accordance with the
table below.
5.4.1 SDH Service Availability
<TABLE>
<CAPTION>
Service Level Availability for IRU Rental
SDH Service Percentage of the Operating & Percentage of the Quarterly Rental
Maintenance Quarterly Charge as Charge as Compensation
Compensation
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Better than 99.99% 0% 0%
- ------------------------------------------------------------------------------------------------------------
Between 99.99 - 99.5% 3% 1.5%
- ------------------------------------------------------------------------------------------------------------
Between 99.5 - 99.0% 5% 2.5%
- ------------------------------------------------------------------------------------------------------------
Below 99.0% 7.5% 4.0%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
5.4.2 Optical & Unprotected SDH Circuit Service Availability
<TABLE>
<CAPTION>
Service Level Availability for IRU Rental
Open Optical Links and Percentage of the Operating & Percentage of the Quarterly Rental
Unprotected SDH Circuits Maintenance Quarterly Charge as Charge as Compensation
Compensation
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Better than 98.46% 0% 0%
- ------------------------------------------------------------------------------------------------------------
Between 98.46- 98.0% 3% 1.5%
- ------------------------------------------------------------------------------------------------------------
Between 98.0 - 97.0% 5% 2.5%
- ------------------------------------------------------------------------------------------------------------
Below 97.0% 7.5% 4.0%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Page 21 of 30
<PAGE>
Circuit Availability will be calculated on a quarterly basis from the
anniversary of the RFS date. The total time of Service Availability (SA) is
calculated as follows:
SA = (Ts * 100)/MST %
Where:
Ts = Total time for which service is available across all circuits during
the previous 3 month period
MST = Maximum Service Time, the total amount of time (maximum circuit
minutes) which the service could have been available across all
circuits i.e. the number of circuit minutes for 100% availability in
a given 3 month period.
5.5 Cancellation of Service by Customer
If a service is cancelled prior to the RFS date, iaxis reserves the right make a
Cancellation Charge to cover costs incurred as a result of the cancellation. The
level of these charges is laid out in the table below.
5.5.1 IRUs
<TABLE>
<CAPTION>
New iaxis PoP or Breakout Point1 Existing iaxis PoP or Breakout
Point1
- ------------------------------------------------------------------------------------------------------------
Number of working days before Percentage of annual O&M Charge Percentage of annual O&M Charge
RFS date when cancellation payable as Cancellation Charge payable as Cancellation Charge
takes place
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
0 - 5 100% 100%
- -------------------------------------------------------------------------------------------------------------
6 - 10 80% 75%
- -------------------------------------------------------------------------------------------------------------
11 - 20 70% 50%
- -------------------------------------------------------------------------------------------------------------
21 - 30 50% 25%
- -------------------------------------------------------------------------------------------------------------
31 - 40 25% 0%
- -------------------------------------------------------------------------------------------------------------
More than 40 0% 0%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Page 22 of 30
<PAGE>
5.5.2 Rentals
<TABLE>
<CAPTION>
New iaxis PoP or Breakout Point/1/ Existing iaxis PoP or Breakout
Point/1/
- -----------------------------------------------------------------------------------------------------------
Number of working days before Number of Months Rental payable as Number of Months Rental payable as
RFS date when cancellation Cancellation Charge Cancellation Charge
takes place
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
0 - 10 3 months 2 months
- -----------------------------------------------------------------------------------------------------------
10 - 20 2 months 1 month
- -----------------------------------------------------------------------------------------------------------
20 - 30 1 month 0 months
- -----------------------------------------------------------------------------------------------------------
More than 40 0 months 0 months
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Note
1. A new iaxis PoP or Breakout Point is one where iaxis has no previous
presence; an existing iaxis PoP or Breakout Point is one where iaxis is
already present at the effective date.
5.6 Conditions of Service Level Agreement
When compensation is due to the Customer for failure to meet the Service
Restoration Time or Service Availability Targets in respect of any fault, then
whichever is the greater will apply.
Compensation for failure to meet Service Restoration Time will be calculated on
an annual basis commencing from the RFS date. Claims will be settled by the
issue of a credit note that may be used to offset future charges. At the end of
the minimum Contract Period the Customer may request an outstanding credit note
to be settled by the issue of a cheque to reduce the account to zero (provided
the customer account with iaxis is in credit).
5.6.1 IRUs
iaxis' aggregate liability under this Service Level Agreement in any 12 month
period for each circuit purchased as an IRU is limited to 50% of the annual
Operating & Maintenance charge in respect of failure to achieve the agreed RFS
date; 13% of the annual Operating & Maintenance charge for that period in
respect of failure to meet Service Restoration Times; and 7.5% of the annual
Operating & Maintenance charge for that period in respect of failure to meet
Service Availability targets.
5.6.2 Rentals
iaxis aggregate liability under this Service Level Agreement in any 12 month
period for each rental of a circuit is limited to 5% of the annual rental charge
in respect of failure to achieve the agreed RFS date; 3.25% of the annual rental
charge for that period in respect of failure to meet Service Restoration Times;
and 4.0% of the annual rental charge for that period in respect of failure to
meet Service Availability targets.
- --------------------------------------------------------------------------------
Page 23 of 30
<PAGE>
6.0 Acceptance Tests
6.1 ITU-T Recommendations
Prior to the RFS date for Capacity and upgrades, iaxis will conduct a 5-day
acceptance test. Acceptance testing shall be carried out on all circuits (E1,
E3, DS3, STM-1, STM-4, STM-16 and OOLs) as per the following ITU-T
recommendations:
. ITU-T Recommendation M2110 Bringing-into-service of International PDH paths,
sections and transmission systems and SDH paths and multiplex sections.
. ITU-T Recommendation M2100 Performance limits for bringing-into-service and
maintenance of international PDH paths, sections and transmission systems.
. ITU-T Recommendation M2101 Performance limits for bringing-into-service and
maintenance of international SDH paths and multiplex sections.
6.2 iaxis Acceptance Test
21 days prior to acceptance testing iaxis will provide Customer with a detailed
system and equipment specification including technical configuration,
performance data, and a detailed Acceptance Test Schedule for the Capacity and
equipment to be tested. The Customer shall be allowed to witness the tests.
Acceptance Test Schedule will detail the following:
. nature of the tests to be carried out
. order in which the tests will be carried out
. duration of each test
. pass/fail criteria for each test
. who is responsible for carrying out the test
. how the test will be witnessed by Customer's technical staff
. who is responsible for approving and signing-off the tests
. circumstances under which retesting is required
For each Capacity the following Circuit Acceptance Test testing will be applied.
Circuit Type Description of Test
- --------------------------------------------------------------------------------
DS3 24 hour end-to-end BER test
- --------------------------------------------------------------------------------
STM-1, STM-4, STM-16, and Open Optical Links 72 hour end-to-end BER test
- --------------------------------------------------------------------------------
On successful completion of the circuit acceptance test iaxis will formally
handover the circuit (service) together with the acceptance test results. The
Customer will have 5 days to accept the circuit. Once Capacity has been formally
accepted and the acceptance test results signed-off Capacity billing will
commence.
- --------------------------------------------------------------------------------
Page 24 of 30
<PAGE>
7.0 Open Optical Links (OOLs)
7.1 Technical Data
An Open Optical Link (OOL) is a transmission channel of 2.5 Gbit/s between two
Points of Presence (PoP). This channel conforms to the technical standards set
out below as defined in ITU-T Standards. The facility includes all regeneration
of signals required between the two Points of Presence to maintain transmission
integrity. This is provided using dense wave division multiplexing (DWDM)
equipment on a pair of optical fibres.
Capacity (Ciena Terminals):
. January 1999 = 40 x 2.5 Gbit/s
. July 2000 = 96 x 10 Gbit/s
. December 2000 = 192 x 10 Gbit/s
Format: OC-48/STM16, OC-48c/STM16c
Channel Plan: 50 Ghz
System BER: (less than)10/15/
Connector Type: FC/PC
Channel Interface:
622 Mbit/s:
Format: Short Reach = 1.5K or Intermediate reach = 15Km, OC-12/STM4 1-4 & S.4.1
Input Signal Level: -18 to -3 dBm
Output Signal Level: -5dBm +/-0.5 dB
Input Wavelength: 1250 to 1600 nm
2.5Gbit/s:
Format: Short Reach = 1.5Km or Intermediate reach = 15Km, OC-48/STM16 1-16 |&
S.16.1
Input Signal Level: -18 to -3 dBm
Output Signal Level: 5dBm +/-0.5 dB
Input Wavelength: 1250 to 1600 nm
Output Wavelength: 1300 nm
10 Gbit/s:
Format: Short Reach = 1.5Km or Intermediate reach = 15Km, OC-192 STM64
Input Signal Level: -18 to -3 dBm
Output Signal Level: 5dBm +/-0.5 dB
Input Wavelength: 1250 to 1600 nm
Output Wavelength: 1300 nm
Channel Performance Monitoring: Channel bit errors via B1 in Sonnet/SDH
overhead (only available in 2.5 Gbps and 10 Gbps). Optical Power at all
repeaters and terminals.
Page 25 of 30
<PAGE>
8.0 SDH Service - Technical Overview
8.1 Managed SDH Service
iaxis shall provide the Customer with SDH circuits as described in this Section.
Circuits shall be presented to Customer at the System Interface Points, which
shall be located in the iaxis Points of Presence set forth in the Agreement
unless otherwise jointly agreed to in writing by iaxis and Customer. Circuit
hand-off and presentation shall conform to applicable industry standards, to the
technical specifications set forth in this Agreement, and to Customer's
requirements as detailed in writing by Customer as part of the circuit
provisioning process.
8.2 iaxisenroute SDH Network
The iaxisenroute network is the terrestrial fibre optic cable system (initially
operating at per wavelength digital transmission capacity of 2.5 Gbit/s),
initially with the configuration set forth in this Agreement, and all plant and
equipment between and including all the System Interface Points, including all
SDH and OOL equipment, as such shall be modified and upgraded from time to time.
8.3 Main Advantages of the iaxisenroute SDH Network
. Simplified multiplexing/demultiplexing techniques compared to PDH.
. Access to lower speed tributaries without the need to multiplex/demultiplex
the entire high-speed signal. This facilitates efficient drop and insert of
channels and cross connect applications.
. Embedded network management channels that provide enhanced Operations,
Administration and Maintenance (OAM) capabilities enabling the network to
be more efficiently controlled.
. Facilitates easy growth to higher multiplexing levels.
. Enables the transport of digital signals at the hierarchy bit rates
specified in ITU-T Recommendation G.702 and at broadband channel bit rates.
This permits SDH equipment to be introduced directly into existing networks
and also facilitates the introduction of a wide range of additional
services.
. Defines an optical interface that allows mid span fibre meets between
equipment from different suppliers.
8.4 Conformance to Standards
The iaxisenroute network shall conform to ITU-T Recommendation G.707 - Network
Node Interface for the Synchronous Digital Hierarchy, and other published
standards and recommendations including (but not limited to) ITU-T G.702, G.708,
G.709, G.781, G.782, G.783, G.803, G.826, G.957, and G.958, which detail the
international standards covering synchronous digital multiplexing and
transmission systems
Page 26 of 30
<PAGE>
8.5 Functionality
ITU-T Recommendation G.702, and others, define the line rates permitted in and
supported by SDH networks. The iaxisenroute network will offer equipment and
configurations capable of supporting the following data rates:
- ------------------------------------------------------------------
Synchronous Transport Module Line Rate (Mbps)
- ------------------------------------------------------------------
STM-1 155 Mbps
- ------------------------------------------------------------------
STM-4 622 Mbps
- ------------------------------------------------------------------
STM-16 2.5 Gbps
- ------------------------------------------------------------------
Although the ITU-T has defined the STM-1 data rate as the basic building block
of all SDH networks, allowances were made for any of the current transmission
rates to be mapped into an STM-1. This is done by using Virtual Containers,
which can be combined into standard formats in order to form the payload of the
STM-1 signal. Different containers can be mixed, allowing for different rates to
be carried simultaneously with the same structure.
Therefore, iaxisenroute network will supply STM-1 and STM-4 signals as well as
support mapping of E1 signals into VC-12s, and E3 and DS-3 signals into VC-3s
allowing for a complete range of traffic signals which can be both added to
and/or dropped from the iaxisenroute network.
8.6 Protection Approach
The ITU-T, when defining the content of SDH allowed for an overhead that would
carry management information. This is broken down into the following:
. Path Overhead - including trace, labelling, error monitoring and status
information for PDH Signals
. Regenerator Section Overhead - including framing, error monitoring, trace
and data communications information, and
. Multiplexer Section Overhead - including error monitoring, automatic
protection switching, data communications and synchronisation status
information
Practical uses of the overhead extend to flexible management of the iaxisenroute
network. Automatic protection switching data, otherwise known as K-bytes, K1 and
K2, carries information on faults throughout the network. Where a fault such as
a broken fibre occurs in the network the K-bytes carries messages throughout the
network instructing the network elements to take appropriate action to minimise
traffic disruptions.
iaxisenroute network shall employ a protection mechanism called 2-Fibre
Multiplexer Section Protection Ring (2F MSPRing) throughout the network. This is
a very efficient protection strategy defined in the ITU-T recommendation G.841,
which allows eight of the STM-1s in an STM-16 channel to be used for protection.
Where a protection switch occurs the traffic that would otherwise be lost is
transported around the ring using these protection channels. The tributaries are
protected by adopting a 1+1 protection scheme consisting of two identical
channels per tributary - one working and one protecting - both of which may
carry traffic.
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By utilising the 2F MSPRing protection strategy combined with 1+1 protection
switching at the tributary level throughout the iaxisenroute network, iaxis will
deliver a service availability of 99.99%.
8.7 Network Management Capability
The Data Communications Channel (DCC) in the overhead is used to carry
miscellaneous information throughout the network as well as being the main route
for management information from the Network Operations Centre (NOC) to the
Network Elements (NE).
The iaxis NOC is situated in London with the NEs being distributed throughout
Europe. iaxis uses an E1 to connect the Integrated Network Manager (INM) to a
gateway NE at Telecity. The DCC then carries information throughout the network.
Through the DCC the Network Operator can remotely configure the network, check
for alarms and download new software from a single site. For example, should the
network SDH equipment require a software upgrade, the download can be initiated
from the INM to every NE in the iaxisenroute network without having to visit any
remote site. This management feature allows for flexible reconfiguration and
surveillance of the network.
It is also possible to reconfigure the network remotely from the iaxis NOC.
Physical connections to the ports (where the connections originate and
terminate) can often be made in advance of the actual provisioning of a circuit.
Accurate forecasting of network circuit requirements can significantly reduce
the period between the actual ordering of circuits and their being provisioned.
8.8 Main iaxisenroute Network SDH Components
8.8.1 Nortel TN-16X
The Nortel TN-16X equipment on the iaxisenroute network is configured as an Add-
Drop Multiplexer. This is equipped with plug-in units divided into core,
aggregate and tributary units together with Network Element software to support
Rings, Hubs, Point-to-Point and Add-Drop chain configurations.
- --------------------------------------------------------------------------------
Tributary Quantity Allowed
- --------------------------------------------------------------------------------
STM-1 Electrical Tributary Up to 4 per quadrant
Total of 16 per TN-16X
- --------------------------------------------------------------------------------
STM-1 Electrical/PDH 140Mbit/s Tributary
- --------------------------------------------------------------------------------
STM-1 Optical Tributary - Unprotected or 1+1 Protected
- --------------------------------------------------------------------------------
STM-4 Optical Tributary - Unprotected or 1+1 Protected Up to 4 per quadrant
Total of 16 per TN-16X
- --------------------------------------------------------------------------------
Aggregate Quantity Allowed
- --------------------------------------------------------------------------------
STM-16 Optical Aggregate - 2F MSPRing Protected 2
- --------------------------------------------------------------------------------
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8.8.2 Nortel TN-4X/E
The Nortel TN-4X/E uses a 550 mm high subrack that can fit in a standard ETSI
rack. The TN-4X/E provides multiplexing and cross-connectivity between tributary
and aggregate ports as follows:
- --------------------------------------------------------------------------------
Tributary Quantity Allowed
- --------------------------------------------------------------------------------
32-Port E1 Electrical Tributary Up to 8
- --------------------------------------------------------------------------------
Dual Port STM-1 Electrical/PDH 140Mbit/s Tributary Up to 8
- --------------------------------------------------------------------------------
Dual Port STM-1 Optical Tributary Up to 8
- --------------------------------------------------------------------------------
Aggregate Quantity Allowed
- --------------------------------------------------------------------------------
STM-4 Optical Aggregate - SNCP Protected Up to 2
- --------------------------------------------------------------------------------
8.8.3 Nortel TN-1X
The TN-1X uses a 525 mm high subrack that can fit in a standard ETSI rack. The
TN-1X will provide multiplexing and cross-connection between tributary and
aggregate ports as follows:
Tributary Quantity Allowed
- --------------------------------------------------------------------------------
16-Port E1 Electrical Tributary Up to 4
- --------------------------------------------------------------------------------
34M/45M Electrical Port Up to 3
- --------------------------------------------------------------------------------
Aggregate Quantity Allowed
- -------------------------------------------------------------------------------
STM-1 Optical Aggregate - Dedicated Protection Ring Up to 2
- -------------------------------------------------------------------------------
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9.0 Operation & Maintenance Costs
Operation and Maintenance (O&M) costs in respect of the network management
services set forth in the Customer Agreement ref. C450004 dated 21/07/99 will be
limited to a maximum of $180,000 per annum for the Duration.
O&M costs will invoiced and payable quarterly in advance for the Duration from
the RFS date.
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PORTAL PROPRIETARY & CONFIDENTIAL
Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated by [*****]. A complete version of this exhibit has been
filed separately with the Securities and Exchange Commission.
EXHIBIT 10.9
SOFTWARE LICENSE AND SUPPORT AGREEMENT
This Software License and Support Agreement is entered into by and between
Portal Software, Inc, a Delaware corporation with principal offices at 20883
Stevens Creek Boulevard, Cupertino, California 95014 ("Portal") and VIA Net
Works UK, Limited a limited liability company duly organized under the laws of
the United Kingdom, with principal offices at 830 Birchwood Boulevard,
Birchwood, Warrington, United Kingdom. ("Licensee") and describes the terms and
conditions pursuant to which Portal shall license to Licensee and support
certain Licensed Software (as defined below). This Agreement shall become
effective on the date it is signed by Portal ("Effective Date").
1 1 Definitions
1.1 "Affiliate" means an entity Controlled by VIA NET.WORKS Inc. or its
Affiliates, or Controlling, a Party, where Control means the ownership or
control, directly or indirectly, of more than fifty percent (50%) of the
voting power of the shares (or other securities or rights) entitled to vote
for the election of directors or other governing authority, as of the
Effective Date of the Agreement or thereafter while this Agreement remains
in effect; provided that such entity shall be considered a Affiliate only
for the time during which such Control exists.
1.2 "Agreement" means this Software License and Support Agreement, including
any and all attached Schedules.
1.3 "Application" means the specific Application set forth in Schedule A hereto
of the Licensed Software running on one or more related computers at a
single location, that share the same Licensed Software Database.
1.4 "Confidential Information" means this Agreement and all its Schedules, any
addenda hereto signed by both parties, all software listings,
Documentation, information, data, drawings, benchmark tests,
specifications, trade secrets, strategic business information, market
information, marketing information, customer information, object code and
machine-readable copies of the Licensed Software, and any other proprietary
information supplied to Licensee by Portal or by Licensee to Portal which
is clearly marked as "confidential" if in tangible form, or identified as
"confidential" if orally disclosed. Further, any information which by its
nature or character or by the circumstances surrounding disclosure should
reasonably be deemed confidential shall be deemed Confidential Information
under this Agreement.
1.5 "Documentation" means the documentation and user manuals relating to the
use of the Licensed Software delivered by Portal to Licensee in either
printed or electronic form.
1.6 "Licensed Software" means (i) the software products designated on Schedule
A hereto provided to Licensee by Portal in executable form (but not the
Source Code), (ii) Documentation, (iii) any source code or object code
which Portal in its sole discretion may provide to Licensee from time to
time and (iv) any Updates, modifications, maintenance releases, bug fixes
or work-arounds which Portal may provide to Licensee from time to time.
1.7 "Licensed Software Database(s)" means any customer database(s) associated
with the Licensed Software which contains the Customer Records.
1.8 "Production Site(s)" means the address and location of the server
computer(s) on which the Licensed Software will be installed as set forth
on Schedule A as such addresses and locations may be modified from time to
time by Licensee on written notice to Portal.
1.9 "Restricted Release" means any version of the Licensed Software marked
alpha, beta or which is otherwise designated as a Restricted Release.
1.10 "Subscriber" means an individual customer record account object ("Customer
Record") in the Licensed Software Database. The total number of Subscribers
is exactly equal to the number of Customer Records in the Licensed Software
Database. If the Licensed Software is used to authenticate, bill, rate or
otherwise track the activities of individual users within a corporate or
group account, each such individual user will be deemed a Subscriber for
the purposes of this Agreement.
1.11 "Updates" means any changes to the Licensed Software licensed hereunder
which Portal, in its discretion, makes generally available to its Licensed
Software licensees. Updates includes, without limitation, all major and
minor releases of the Licensed Software, but does not include new products,
features or modules which Portal licenses separately.
2 Grant of License
2.1 For so long as this Agreement remains in force Portal grants to Licensee a
perpetual, non-exclusive and non-transferable right to use the Licensed
Software at the designated Production Sites only for the specified
Application. Licensee may possess only the number of copies of any Licensed
Software necessary for the type of use specified herein and may use such
copies only in accordance with this Agreement and the Documentation. Portal
shall at all times retain ownership of all Licensed Software including any
Documentation and any copies thereof. Licensee may sublicense the licenses
granted in this Section 2 to its Affiliates provided that
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PORTAL PROPRIETARY & CONFIDENTIAL
(i) each such Affiliate shall become bound in writing (for Portal's
benefit) to Licensee's obligations under the Agreement, (ii) Licensee
assumes full responsibility for and guarantees the compliance of its
Affiliates with all such obligations (including without limitation all
payment obligations accrued by an Affiliate).
2.2 Portal will deliver to Licensee, as soon as is practicable, the necessary
password to enable Licensee to download from Portal's website one
machine-readable copy of the Licensed Software per each Production Site,
along with one machine-readable copy of the Documentation. Licensee may
not reproduce Licensed Software or Documentation except as expressly
provided under this Agreement.
2.3 Licensee may copy the Licensed Software and Documentation for backup,
testing and other internal, non-production uses or archival purposes
provided that all titles, trademark symbols, copyright symbols and
legends, and other proprietary markings are reproduced.
2.4 Licensee shall be permitted to develop, use and modify APIs, macros and
user interfaces provided by Portal. For the purposes of this Agreement,
such development shall be deemed an authorized modification of the
Licensed Software.
2.5 Portal grants and Licensee receives no other rights or licenses to the
Licensed Software, derivative works (as defined in the United States
copyright Act of 1976, Title 17 USC Section 101 et. Seq.) or any
intellectual property rights related thereto, whether by implication,
estoppel or otherwise, except those rights expressly granted in this
Section 2.
3 LICENSE RESTRICTIONS
3.1 Licensee agrees, except to the extent provided by Section 2.1 above, that
it will not itself, or through any parent, subsidiary, affiliate, agent
or other third party:
3.1.1 sell, lease, license, sublicense, or encumber with any portion of the
Licensed Software or Documentation;
3.1.2 except to the minimum extent necessary to comply with EC Directive, if
applicable, or other applicable legislation, decompile, disassemble,
or reverse engineer any portion of the Licensed Software or attempt to
discover any source code or underlying ideas or algorithms of any
Licensed Software;
3.1.3 other than to the extent permitted by Section 2.4 above, create any
Derivative Work based on the Licensed Software or any Portal
Confidential Information;
3.1.4 except to the extent provided by Section 2.1 above, use the Licensed
Software to provide processing services to third parties, commercial
timesharing, rental or sharing arrangements, or on a "service bureau"
basis or otherwise use or allow others to use the Licensed Software
for the benefit of any third party;
3.1.5 provide, disclose, divulge or make available to, or permit use of the
Licensed Software by persons other than employees and subcontractors
of Licensee and its Affiliates who are bound by confidentiality
obligations consistent with the terms and provisions herein, without
Portal's prior written consent;
3.1.6 use any Licensed Software, or allow the transfer, transmission,
export, or re-export of any Licensed Software or portion thereof in
violation of any export control laws or regulations administered by
the U.S. Commerce Department, OFAC, or any other government agency.
All the limitations and restrictions on the Licensed Software in this
Agreement also apply to the Documentation. At the present time, Portal
warrants that as of the Effective date the Licensed Software may be
exported to the European Union, Switzerland, Brazil, Argentina and/or
Mexico.
4 PAYMENTS AND TAXES
4.1 Unless otherwise agreed in writing, all payments due hereunder shall be
made in U.S. dollars. In addition to any remedies Portal may have
hereunder or at law, any payments more than forty five (45) days overdue
will bear a late payment fee of 1.5% per month, or, if lower, the maximum
rate allowed by law. Delinquency in payment will result in a delay or
suspension of the Licensed Software implementation timetable or services
(including Support Services) provided by Portal. Resumption of services
will occur after Licensee has brought itself current on all of its
outstanding payment obligations to Portal. The services will be scheduled
in accordance with the availability of Portal resources. Portal will not
be liable for any damages caused by rescheduling of suspended services
pursuant to this Section 4.1.
4.2 Licensee agrees to pay or reimburse Portal for all federal, state,
dominion, provincial, or local sales, use, personal property, payroll,
excise or other taxes, fees, or duties arising out of this Agreement or
the transactions contemplated by this Agreement (other than taxes on the
net income of Portal.) If any tax is payable by Licensee under this
Section 4.2, then the Licensee shall provide evidence of payment to
Portal and Portal shall use all reasonable efforts to obtain a credit,
rebate, or benefit for that amount against its own tax, and if it
receives such credit, rebate, or benefit it shall refund to Licensee an
amount equal to the lesser of the amount paid by Licensee and the credit,
rebate, or benefit obtained by Portal.
5 LICENSE FEE
In consideration of the rights granted herein, Licensee shall pay Portal the
license fee(s) as set forth in Schedule A. 6 Maintenance and Technical Support
6 MAINTENANCE AND TECHNICAL SUPPORT
6.1 Upon payment of the annual maintenance and support fee set forth on
Schedule A, Licensee shall be entitled to receive Updates and technical
support in accordance with Portal's Gold Level Support Policy ("Support
Services). Portal's current Gold Level Support Policy appears at Schedule
B. Support Services shall commence on the Effective Date of this
Agreement.
6.2 In the event Licensee fails to make any required Support Services payment
or otherwise elects to
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PORTAL PROPRIETARY & CONFIDENTIAL
discontinue Support Services, Portal shall have no obligation to provide
the Support Services described in this Section 6. In order to reinstate or
renew Support Services, Licensee must first pay Portal the then current
annual support services fee and all past support service fees. In the event
Licensee fails to make any required payment or in the event Licensee
breaches any of its material obligations under the Support Services
provisions and such breach has not been cured within sixty (60) days of
receipt of notice of breach, Portal may suspend or cancel Support Services.
No Updates of the Licensed Software will be provided to Licensee and no
Updates may be copied by Licensee to update any copies of the Licensed
Software unless Support Services have been purchased for such copies.
Support Services fees shall be billed on an annual basis, payable in
advance.
6.3 Portal shall have no obligation to support (a) altered, damaged or modified
Licensed Software (except as authorized by Portal) or any portion of the
Licensed Software incorporated into other software, (b) Licensed Software
that is not the then current or immediately previous sequential release,
but in any event Portal shall support each major release of the Licensed
Software for at least eighteen (18) months from its initial applicable
release date and at least six months from the initial general availability
of the next major release, (c) problems caused by Licensee's gross
negligence, abuse, or misapplication, or use of the Licensed Software other
than as specified in all material respects in Portal's user documentation
or other causes beyond the control of Portal, or (d) Licensed Software
installed in an operating environment or hardware environment for which the
Licensed Software has not been licensed. Portal shall have no liability for
any changes in Licensee's hardware which may be necessary to use the
Licensed Software.
6.4 Portal reserves the right to change its technical support guidelines and
procedures provided (i) Portal provides Licensee with at least sixty (60)
days prior written notice of such changes, and (ii) such changes do not
diminish Portal's overall technical support obligations to Licensee in any
material respect.
7 Restricted Release
If Licensee is selected for participation and elects to participate in a
Restricted Release program, Licensee agrees (i) Portal shall have no obligation
to correct errors in or deliver updates to the Restricted Release, (ii) Portal
shall have no obligation to otherwise support the Restricted Release, (iii)
Licensee will provide Portal with appropriate test data for the Restricted
Release if necessary to resolve problems in the Restricted Release encountered
by Licensee and will promptly report to Portal any error discovered in the
Restricted Release, (iv) the Restricted Release is experimental, may contain
problems and errors and is being provided to Licensee on an "AS-IS" basis with
no warranty of any kind, express or implied, (v) neither party will be
responsible to the other for any losses, claims or damages of whatever nature,
arising out of or in connection with the performance or nonperformance of the
Restricted Release, (vi) Licensee will not use the Restricted Release in
production applications without the prior written approval of Portal, and (vii)
Licensee will stop using and return or destroy any Restriction Release promptly
upon Portal's request.
8 Termination
8.1 This Agreement commences on the Effective Date and will remain in force
until it is terminated.
8.2 Portal may, by written notice to Licensee, terminate this Agreement if for
nonpayment or if Licensee is in breach in any material respect of Sections
2, 3, or 14 of this Agreement, which nonpayment or breach is not cured
within thirty (30) days after Portal gives Licensee written notice of such
breach;
8.3 Termination will become effective immediately or on the date set forth in
the written notice of termination and any payment obligations under this
Agreement shall immediately become due and owing. Termination of this
Agreement will not affect the provisions regarding Licensee's or Portal's
treatment of Confidential Information, provisions relating to the payments
of amounts due, provisions limiting or disclaiming Portal's liability,
and/or provisions regarding applicable law, which provisions will survive
termination of this Agreement. In the event of such termination of this
Agreement or any Licensed Software product license granted hereunder,
Portal will promptly refund all applicable pro-rated, prepaid annual
maintenance Support Services fees relating to the period following the
termination.
8.4 Upon termination, all licenses granted hereunder shall cease to be
effective and Licensee shall immediately cease all use of any affected
Licensed Software, Documentation and Portal Confidential Information.
8.5 Within fourteen (14) days of the date of termination or discontinuance of
this Agreement for any reason whatsoever, Licensee shall return the
Licensed Software and all copies thereof, in whole or in part, all related
Documentation and all copies thereof, and any other Confidential
Information in its possession. Licensee shall furnish Portal, at Portal's
request, with a certificate signed by an executive officer of Licensee
verifying that the same has been done.
8.6 Termination is not an exclusive remedy and all other remedies will be
available whether or not termination occurs.
9 Patent and copyright indemnity
9.1 Portal will defend and indemnify Licensee for all costs (including
reasonable attorneys fees) arising from a claim that the Licensed Software
infringes a copyright or patent or constitutes a violation of a trade
secret provided that (i) Licensee notifies Portal in writing within thirty
(30) days of the claim (ii) Portal has sole control of the defense and all
related settlement negotiations, and (iii) Licensee provides Portal with
the assistance, information, and authority necessary to perform the above;
reasonable out-of- pocket expenses incurred by Licensee in providing such
assistance will be reimbursed by Portal.
9.2 Portal shall have no liability for any claim of infringement based on (i)
use of a superseded or altered release of the Licensed Software, except for
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PORTAL PROPRIETARY & CONFIDENTIAL
which alteration(s) or modification(s) has been made by Portal or under
Portal's direction, if such infringement would have been avoided by the use
of the current unaltered release of the Licensed Software that Portal
provides to Licensee, or (ii) the combination, operation, or use of any
Licensed Software furnished under this Agreement with programs or data not
furnished by Portal if such infringement would have been avoided by the use
of the Licensed Software without such programs or data.
9.3 In the event that the Licensed Software is held or believed by Portal to
infringe, or Licensee's use of the Licensed Software is enjoined, Portal
shall have the option, at its expense, and preferably in the following
order to the extent commercially practicable, (a) obtain for Licensee a
license to continue using the Licensed Software, (b) modify the Licensed
Software to be non-infringing in a manner that does not materially reduce,
restrict or adversely impact the functionality of the Licensed Software,
(c) substitute the Licensed Software with other software reasonably
suitable to Licensee, or (d) if none of the foregoing remedies are
commercially feasible, terminate the license for the infringing Licensed
Software and refund the fees paid for that Licensed Software, prorated over
a five-year term from the Effective Date of this Agreement or applicable
amendment or additions schedule. This Section 9.3 states Portal's entire
liability for infringement.
10 Warranty
10.1 Portal warrants that it has title to and/or the authority to grant licenses
of the Licensed Software, including without limitation, any third party
products that may contained therein or distributed therewith.
10.2 Portal warrants to Licensee that the Licensed Software will perform in
substantial accordance with the Documentation for a period of one hundred
eighty (180) days from the Effective Date. If the Licensed Software does
not perform as herein warranted, Portal shall undertake at its own expense
to correct the non- conforming part of the Licensed Software. If correction
is not reasonably possible or commercially practicable, Portal shall refund
the monies paid by Licensee for that non-conforming Licensed Software.
10.3 Portal warrants that the Licensed Software is designed to be used prior to,
during and after the calendar year 2000 and that the Licensed Software will
operate during each such time period without error relating to, or the
product of, date data which references different centuries or more than one
century. If the Licensed Software does not perform as warranted, Portal
shall undertake at its own expense to correct the non-conforming part of
the Licensed Software, or if correction is reasonably not possible, replace
such non-conforming part of the Licensed Software free of charge. If
neither of the foregoing is commercially practicable, Portal shall refund
the license and annual maintenance support fees paid by Licensee for the
non-conforming Licensed Software. If a refund is made in the manner herein
contemplated, the parties will amend the definition of "Licensed Software"
in Schedule A to reflect the same. The foregoing Year 2000 Warranty shall
not apply (i) if the Licensed Software is used or interfaced with other
software, data or operating systems which are not Year 2000 compliant, (ii)
if the Licensed Software has been modified in a manner not authorized by
Portal, or (iii) if Licensee fails to install an Update if the
non-compliance would have been avoided by installation of such Update.
10.4 Portal's warranty obligations as set forth above are made to and for the
benefit of Licensee only and shall be enforceable against Portal only if:
10.4.1 The Licensed Software has been properly installed and has been used
at all times in accordance with the Documentation and this Agreement;
10.4.2 All modifications, alterations or additions to the Licensed Software, if
any, have been made using Licensed Software Customization Tools provided
by Portal to Licensee or in a manner authorized by Portal.
10.5 Except as set forth in this Section 10, Portal makes no warranties, whether
express or implied, or statutory regarding or relating to the Licensed
Software or the Documentation, or any materials or services furnished or
provided to Licensee under this Agreement. Specifically, Portal does not
warrant that the Licensed Software will be error free or will perform in an
uninterrupted manner. To the maximum extent allowed by law, Portal
specifically disclaims all implied warranties of merchantability and
fitness for a particular purpose (even if Portal had been informed of such
purpose) with respect to the Licensed Software, Documentation and support
and with respect to the use of any of the foregoing.
11 Limitation of liability
11.1 IN NO EVENT WILL PORTAL OR ITS SUBCONTRACTORS BE LIABLE FOR ANY LOSS OF
PROFITS, LOSS OF USE, BUSINESS INTERRUPTION, LOSS OF DATA, COST OF COVER OR
INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND IN
CONNECTION WITH OR ARISING OUT OF THE FURNISHING, PERFORMANCE OR USE OF THE
LICENSED SOFTWARE OR SERVICES PERFORMED HEREUNDER OR ANY DELAY IN DELIVERY
OR FURNISHING THE LICENSED SOFTWARE OR SAID SERVICES WHETHER ALLEGED AS A
BREACH OF CONTRACT OR TORTIOUS CONDUCT, INCLUDING NEGLIGENCE, EVEN IF
PORTAL HAD BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.
11.2 PORTAL'S MAXIMUM AGGREGATE LIABILITY FOR DAMAGES OR LOSS, HOWSOEVER ARISING
OR CAUSED, WHETHER OR NOT ARISING FROM PORTAL'S NEGLIGENCE, SHALL IN NO
EVENT BE GREATER THAN (A) IN THE EVENT SUCH DAMAGE IS NOT RELATED TO
SUPPORT, THE LICENSE FEE SPECIFIED IN SCHEDULE A RELATED TO THE PARTICULAR
LICENSED SOFTWARE PROGRAM WHICH CAUSED THE DAMAGE OR LOSS, OR (B) IN THE
EVENT SUCH DAMAGE OR LOSS IS RELATED TO SUPPORT, THE SUPPORT FEES PAID BY
LICENSEE FOR THE THEN CURRENT SUPPORT TERM.
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PORTAL PROPRIETARY & CONFIDENTIAL
11.3 No employee, agent, representative or affiliate of Portal has authority to
bind Portal to any oral representations or warranty concerning the Licensed
Software. Any written representation or warranty not expressly contained in
this Agreement is unenforceable.
12 AUDIT RIGHTS/QUARTERLY REPORTS
12.1 Licensee shall keep and maintain full and accurate records regarding its
obligations under this Agreement and the number of Subscribers of the
Licensed Software Database. Portal or its representatives shall be entitled
to review and audit such books and records, no more often than once per
year, and/or Licensee's compliance with the provisions of this Agreement
from time to time during normal business hours by providing written notice
to Licensee at least ten (10) business days prior to such audit. If any
such audit reveals a deficiency in any amounts due to Portal hereunder,
Licensee will immediately pay such amounts as are required to re-establish
compliance with the terms of this Agreement.
12.2 Commencing on the third anniversary of the Effective Date, Licensee will
provide Portal with annual reports setting forth the gross annual revenue
(to be determined in accordance with GAAP) for Licensee and its Affiliates
for the immediate preceding year and a reasonable description of any
amounts owed to Portal under this Agreement.
13 ASSIGNMENT/BINDING AGREEMENT
13.1 Neither this Agreement nor any rights under this Agreement may be assigned
or otherwise transferred by Licensee (by operation of law or otherwise), in
whole or in part, without Portal's prior written consent. Notwithstanding
the foregoing:
13.1.1 In the event that Licensee is acquired by a third party by way of merger,
acquisition, or a sale of all or substantially all of Licensee's assets
in one or more related transactions, but where there is no co-mingling of
the assets of Licensee and the third party acquirer, such acquisition
shall not be deemed a prohibited transfer or assignment and Licensee and
its Affiliates shall have the right to continue using the Licensed
Software as if no such transfer or assignment had occurred and the third
party acquirer and its affiliates (excluding Licensee and its Affiliates)
shall have no rights to use the Licensed Software.
13.1.2 Subject to Section 13.2 below, Licensee may assign this Agreement in its
entirety to an Affiliate by providing written notice to Portal.
13.1.3 Subject to Sections 13.1.4, 13.1.5, and 13.2 below, Licensee may assign
this Agreement in its entirety by way of merger, acquisition or sale of
all or substantially all of its voting rights in one or more related
transactions.
13.1.4 In the event of an assignment of this Agreement pursuant to Section
13.1.3 above occurring within three years of the Effective Date, the
number of Subscribers in the Licensed Software Database(s) shall be
counted immediately prior to the assignment and the acquiring entity and
the original VIA NET.WORKS Inc. Affiliates shall have a perpetual license
for that number of Subscribers plus 10% (which number shall be
distributed across the acquiring entity and the Affiliates). The annual
maintenance Support Services fee for those Subscriber licenses shall be
an amount equal to 20% of the aggregate license fees due or paid to
Portal on the first day of the applicable annual maintenance Support
Services term. During the six month period immediately following the
assignment Portal will negotiate in good faith with the acquiring entity
to determine the applicable future license and Support Services fees.
13.1.5 In the event of a transfer or assignment of this Agreement pursuant to
Section 13.1.3 above occurring more than three years from the Effective
Date, the acquiring entity and the original Affiliates shall be permitted
to continue using the Licensed Software for up to six (6) months
following the assignment provided such entity and Affiliates shall pay
Portal all amounts (appropriately adjusted to reflect the six months of
usage) that would have been owed by Licensee and its Affiliates had no
assignment occurred. During the aforementioned six month period Portal
will negotiate in good faith with the acquiring entity to determine the
applicable future license and Support Services fees.
13.2 Notwithstanding the foregoing or anything else in this Agreement, no
transfer or assignment of this Agreement shall be effective unless and
until (i) the purported assignee/transferee becomes bound in writing to all
of Licensee's obligations under this Agreement; (ii) Licensee must not be
in default of any material provision of this Agreement, including without
limitation any payment obligations hereunder, at the time of transfer or
assignment. The license(s) transferred to the assignee/transferee shall be
restricted to the continued operation of Licensee's original business and
Application and shall not apply to other businesses of the
assignee/transferee, even if such businesses are similar to or the same as
the original Application. Further, the rights granted to Licensee with
respect to its Affiliates shall not be applicable to the subsidiaries or
affiliates of the assignee/transferee.
14 CONFIDENTIALITY
14.1 Each Party acknowledges that the Confidential Information constitutes
valuable trade secrets and each party agrees that it shall use the
Confidential Information of the other party solely in accordance with the
provisions of this Agreement and it will not disclose, or permit to be
disclosed, the same directly or indirectly, to any third party without the
other party's prior written consent. Each party agrees to exercise due care
in protecting the Confidential Information from unauthorized use and
disclosure. However, neither party bears any responsibility for
safeguarding any information that it can document in writing (i) is in the
public domain through no fault of its own, (ii) was properly known to it,
without restriction, prior to disclosure by Disclosing Party, (iii) was
properly disclosed to it, without restriction, by another person with the
legal authority to do so, (iv) is independently developed by Receiving
Party without use or reference to Disclosing Party's
Software License & Support Agreement Page 5 of 7
<PAGE>
PORTAL PROPRIETARY & CONFIDENTIAL
Proprietary Information or (v) is required to be disclosed pursuant to a
judicial or legislative order or proceeding; provided that, to the extent
permitted by and practical under the circumstances, Receiving Party
provides to Disclosing Party prior notice of the intended disclosure and an
opportunity to respond or object to the disclosure or if prior notice is
not permitted or practical under the circumstances, prompt notice of such
disclosure.
14.2 In the event of actual or threatened breach of the provisions of Section 3
or Section 14, the non-breaching party will be entitled to immediate
injunctive and other equitable relief, without bond and without the
necessity of showing actual damage.
15 NOTICE
Any notice required or permitted under the terms of this Agreement or required
by law must be in writing and will be deemed delivered on the date set forth in
the written notice of confirmation of delivery. Notice will be sent to the
following addresses:
For Licensee:
Director of Information Technology
VIA NET.WORKS, Inc.
12100 Sunset Hills Road, Suite 110
Reston, VA 20190
cc:
General Counsel
VIA NET.WORKS, Inc.
12100 Sunset Hills Road, Suite 110
Reston, VA 20190
For Portal:
General Counsel
Portal Software, Inc.
20883 Stevens Creek Boulevard
Cupertino, CA 95014
16 MISCELLANEOUS
16.1 Force Majeure. Neither party will incur any liability to the other on
-------------
account of any loss or damage resulting from any delay or failure to
perform all or any part of this Agreement if such delay or failure is
caused, in whole or in part, by events, occurrences, or causes beyond its
control and without negligence of the parties. Such events, occurrences or
causes will include, without limitation, acts of God, strikes, lockouts,
riots, acts of war, earthquakes, fire and explosions, but the ability to
meet financial obligations is expressly excluded.
16.2 Waiver. Any waiver of the provisions of this Agreement or of a party's
------
rights or remedies under this Agreement must be in writing to be effective.
Failure, neglect or delay by a party to enforce the provisions of this
Agreement or its rights or remedies at any time will not be construed to be
deemed a waiver of such party's rights under this Agreement and will not in
any way affect the validity of the whole or any part of this Agreement or
prejudice such party's right to take subsequent action.
16.3 Severability. If any term, condition or provision in this Agreement is
------------
found to be invalid, unlawful or unenforceable to any extent, the parties
shall endeavor in good faith to agree to such amendments that will
preserve, as far as possible, the intentions expressed in this Agreement.
If the parties fail to agree on such an amendment, such invalid term,
condition or provision will be severed from the remaining terms, conditions
and provisions, which will continue to be valid and enforceable to the
fullest extent permitted by law.
16.4 Entire Agreement. This Agreement (including the Schedules and any addenda
----------------
hereto signed by both parties) contains the entire agreement of the parties
with respect to the subject matter of this Agreement and supercedes all
previous communications, representations, understandings and agreements,
either oral or written, between the parties with respect to said subject
matter.
16.5 Standard Terms of Licensee. No terms, provisions or conditions of any
--------------------------
purchase order, acknowledgement or other business form that Licensee may
use in connection with the acquisition or licensing of the Licensed
Software will have any effect on the rights, duties or obligations of the
parties under, or otherwise modify, this Agreement, regardless of any
failure of Portal to object to such terms, provisions, or conditions.
16.6 Public Announcements/Publicity. Licensee and Portal agree to cooperate
------------------------------
regarding mutually agreed upon public relations activities, including
public announcements, joint press releases, and other activities to be
mutually agreed. Neither party will perform such activities without the
prior written consent of the other party, which consent shall not be
unreasonably withheld. Notwithstanding the foregoing, the parties will
cooperate in good faith to issue a mutually acceptable joint press releases
within 30 days of the Effect Date and within 30 days of the first
production use of the Licensed Software. Licensee agrees to participate, on
a commercially reasonable basis, with Portal in joint marketing and public
relations activities including without limitation issuance of a joint press
release and, at Portal's request, participation in Portal's Success Stories
customer profile program; provided that any material expenses incurred by
Licensee in such participation shall be borne by Portal. Notwithstanding
anything else in this Agreement, neither party shall be precluded from
making disclosures concerning the subject matter of this Agreement to the
extent such disclosures are required to comply with securities law, court
order or similar order of an administrative or regulatory agency. Further,
either party shall be entitled to disclose this Agreement and its terms and
conditions to its financing source, auditors, attorneys and other agents to
the extent necessary to enforce such party's rights or perform its
obligations pursuant to this Agreement; provided that such financing
sources, auditors, attorneys and agents keep such information confidential.
Licensee agrees to be a reference account for Portal and will participate
in at least four (4) telephone reference inquiries per year and at least
one (1) onsite visit per year provided that Portal shall give Licensee
reasonable advanced notice of not less than (i) 48 hours in the case of a
telephone reference visit and (ii) 7 days in the case of an onsite visit.
Further,
Software License & Support Agreement Page 6 of 7
<PAGE>
PORTAL PROPRIETARY & CONFIDENTIAL
Portal shall be permitted to identify Licensee as a customer so long as
such use does not imply endorsement. Licensee shall not be required to host
any direct competitor of Licensee and Licensee reserves the right to
approve in advance all hosting dates and times.
16.7 Counterparts. This Agreement may be executed in counterparts, each of which
------------
so executed will be deemed to be an original and such counterparts together
will constitute one and the same Agreement.
16.8 Applicable Law. This Agreement will be interpreted and construed pursuant
--------------
to the laws of the State of California and the United States without regard
to conflict of laws provisions thereof, and without regard to the United
Nations Convention on the International Sale of Goods. Any legal action or
proceeding relating to this Agreement shall be instituted in a state or
federal court in Santa Clara County, California. Portal and Licensee agree
to submit to the jurisdiction of, and agree that venue is proper in, these
courts in any such action or proceeding. The prevailing party in any action
to enforce this Agreement will be entitled to recover its attorney's fees
and costs in connection with such action. Licensee represents that it is
not a government agency and it is not acquiring the license pursuant to a
government contract or with government funds.
IN WITNESS WHEREOF, the authorized representatives of the parties hereby bind
the parties by signing below:
VIA Net Works UK, Limited
"Licensee"
By: /s/ Matt Nydell
-------------------------------------
Print Name: Matt Nydell
-----------------------------
Title: Director
----------------------------------
Date: 10-25-99
-----------------------------------
Portal Software, Inc.
"Portal"
By: /s/ Mitch Gayner
-------------------------------------
Print Name: Mitch Gayner
-----------------------------
Title: General Counsel
----------------------------------
Date: 10-29-99
-----------------------------------
Software License & Support Agreement Page 7 of 7
<PAGE>
Portal Proprietary & Confidential
SCHEDULE A
SECTION 1.0 LICENSED SOFTWARE
The following Portal Software products and their associated online documentation
will be provided by Portal and will comprise the "Licensed Software":
. Infranet 6.0 (including DNA Manager, Business Account Manager and Virtual
ISP Manager and Infranet 5.5.3 and the following language localizations:
English, French, German, Spanish, Japanese, Simplified Chinese,
Traditional Chinese and Korean)
. Infranet Report Developer, including one (1) Seagate(R) Crystal Info
Designer Add-in Tool and five (5) Seagate(R) Crystal Info Desktop Client
Licenses
. Infranet standard issue policy facilities modules source code and
application programming interfaces
. Dial-up Manager
. Mail Server Manager
. LDAP Manager
SECTION 2.0 APPLICATION DESCRIPTION//INITIAL SUBSCRIBER LIMIT
2.1 Application: Billing and customer care of Subscribers to Licensee's ISP
services.
2.2 Initial Subscriber Limit: Unlimited during the initial seven year term of
this Agreement. Six months prior to the seventh year anniversary of the
Effective Date of this Agreement the parties will negotiate in the good
faith the license and maintenance Support Services fees going forward.
The parties will take into consideration such factors as Portal's then-
current pricing in license agreements entered into with customers
licensing the Licensed Software in comparable volumes for the same
Application. If the parties, despite their good faith efforts, are unable
to reach agreement by the seventh anniversary of the Effective Date this
Agreement, Licensee shall have a perpetual license to use the Licensed
Software for the number and type of Subscribers in the Licensed Software
Databases on the last day of the seven year term. Unless the parties
otherwise agree in writing, the annual Gold Level support fee after the
seven year term shall be equal to the annual Gold Level Maintenance
Support Services fee for the seventh year increased annually by the then-
current CPI. The foregoing shall not preclude Licensee from changing to
another then-offered Support Services plan or terminating Support
Services at Licensee's option.
SECTION 3.0 INSTALLATION SITES
3.1 Production Site(s): [to be determined]
3.2 Development Site(s): [to be determined]
3.3 Backup Site(s): [to be determined]
SLSA Schedule A Page A-1
<PAGE>
Portal Proprietary & Confidential
*****Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.*****
SECTION 4.0 LICENSE AND MAINTENANCE SUPPORT SERVICE FEES
4.1 Software License Fees
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Description License Fees Payment Due Dates
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
License Fee Payment No. 1 [*****] December 1, 1999
- --------------------------------------------------------------------------------------------------------------------
License Fee Payment No. 2 [*****] June 1, 2000
- --------------------------------------------------------------------------------------------------------------------
License Fee Payment No. 3 [*****] December 1, 2000
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The foregoing table sets forth the non-refundable, non-cancelable license
fees for the Licensed Software for the Application for an unlimited number of
Subscribers for the first three years of this Agreement. Within thirty (30) days
of the fourth (4th) anniversary of the Effective Date, Licensee will provide
Portal with a written report setting forth the total annual gross revenues
(under GAAP) for Licensee and its Affiliates in connection with the Application
("Annual Revenue"). Licensee will pay Portal a license fee in an amount equal to
[*****] less an amount equal to all Licensed Software license fees previously
paid to Portal under this Agreement. Licensee will provide Portal with similar
Annual Revenue reports and associated payments on the 5th, 6th and 7th
anniversaries of the Effective Date.
4.2 Annual Gold Level Support Services Fees
Portal will provide one year of Gold Level Maintenance Support Services for
the number of Subscribers set forth in Section 2.2 above for the annual fees set
forth below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Portal Support Services Annual Fee Annual Payment Date
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
December 1, 1999
Gold Level Support Services [*****] --------------------------------------
(first three (3) years) December 1, 2000
--------------------------------------
December 1, 2001
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
After the first three years the annual fee for Gold Level maintenance
Support Services shall be calculated as being an amount equal to 20% of the
aggregate license fees paid to Portal plus all license fees due or payable on or
before the time of maintenance Support Services renewal.
SLSA Schedule A Page A-2
<PAGE>
EXHIBIT 10.10
DISTRIBUTION AND REVENUE SHARING AGREEMENT
THIS AGREEMENT is made as of this 30th day of June, 1999 (the "Effective
Date")
BETWEEN: TRELLIX CORPORATION, a corporation organized under the laws of
Delaware, having its principal place of business at 51 Sawyer
Road, 5th Floor Waltham, MA 02453 ("TRELLIX")
AND: VIA NET.WORKS, INC., a company incorporated under the laws of
Delaware having its principal place of business at 12100 Sunset
Hills Road, Suite 110, Reston, VA 20190, on behalf of itself and
its wholly-owned or controlled subsidiaries identified on the
attached Schedule 1, which may be supplemented and amended from
time to time by agreement of the parties (collectively, "VIA
NET.WORKS").
WHEREAS TRELLIX has developed the Software (as defined below), and is engaged in
the business of distributing and marketing the Software;
WHEREAS VIA NET.WORKS possesses sufficient technical and commercial expertise to
market and distribute effectively the Software and offer first-line support
services to End-Users and Authorized Dealers (as defined below) in accordance
with the provisions contained herein; and
WHEREAS TRELLIX wishes VIA NET.WORKS to actively and effectively promote the
licensing of the Software in the Territories (as defined below);
WHEREAS VIA NET.WORKS engages in commercial web hosting, whereby users post web
site content to a storage device and such site content becomes posted and
accessible to the World Wide Web thereby;
WHEREAS VIA NET.WORKS and TRELLIX desire to share revenue generated by VIA
NET.WORKS through the acquisition of End-Users who have created web sites using
the Software and a predesignated VIA NET.WORKS one-step publish feature of the
Software;
NOW THEREFORE, the parties agree as follows:
1. DEFINITIONS
1.1 "Authorized Dealer(s)" shall mean those dealers and remarketers
authorized by VIA NET.WORKS and TRELLIX to distribute the Software
solely to End-Users pursuant to a Dealer License Agreement.
1.2 "Confidential Information" shall have the meaning set forth in
Section 10.1 hereof.
1
<PAGE>
1.3 "Dealer License Agreement" shall mean a written agreement made
between VIA NET.WORKS and an Authorized Dealer that authorizes an
Authorized Dealer to distribute Software to End-Users pursuant to
Section 2.3 hereof.
1.5 "Software" shall mean computer software programs, in object code
format, proprietary to TRELLIX or its licensors, identified in
Appendix "A", including Documentation, and any Updates, Maintenance
Patches and Improvements thereto.
1.6 "Documentation" shall mean all instructional or supplementary
materials related to Software and provided by TRELLIX to VIA
NET.WORKS for use in connection with Software or included as `online'
help from within the Software.
1.7 "End-User" shall mean a single licensee that obtains a right to use
the Software pursuant to the terms and conditions of an End-User
License Agreement, and not for redistribution, remarketing, or third
party service use.
1.8 "End-User License Agreements" shall mean the end-user software
license agreements entered into between TRELLIX and End-Users in
substantially the forms attached hereto as Appendix "D", as such
forms may be amended by TRELLIX from time to time.
1.9 "First Tier Support" shall mean support services provided by VIA
NET.WORKS and Authorized Dealers to End-Users pursuant to a Support
Contract. In no event shall TRELLIX have any obligation to provide
First Tier Support.
1.10 "Hosting Fee" shall mean both the setup fee and the monthly hosting
fee actually received by VIA NET.WORKS from End-Users for Web
Hosting.
1.11 "Web Hosting" shall mean the hosting by VIA NET.WORKS on its or an
End User's storage device of an End-User Web Site created by the
Software and referred thereby by VIA NET.WORKS One Step Publish and
which web site continues to utilize the Software while resident on
such storage device, as determined by the Hosting Bounty Reporting
method of Schedule 1.
1.12 "VIA NET.WORKS One Step Publish" shall mean that feature of the
Software whereby the End-User posts the End Users Software-created
web site directly to a web hosting storage device for the Hosting
Fee.
1.13 "Revision" shall mean any correction, bug fix, modification,
improvement, enhancement, update, upgrade, new version, or new
release of the Software provided by TRELLIX at it sole discretion.
1.14 "Second Tier Support" shall mean assistance provided by (i) TRELLIX
to VIA NET.WORKS or (ii) VIA NET.WORKS to an Authorized Dealer in
2
<PAGE>
connection with VIA NET.WORKS or an Authorized Dealer's provision of
First Tier Support to End-Users.
1.15 "Statement of Work" shall mean the Statement of Work, if any, to be
delivered upon the determination by either party hereto that there
shall be necessary any modifications to the Software or any special
marketing or packaging requirements on the part of either party
hereto in order to fully perform this Agreement.
1.16 "Support Contract" shall mean an agreement between VIA NET.WORKS or
Authorized Dealer, as the case may be, and an End-User for First Tier
Support that conforms to TRELLIX's support policies and standards as
set forth in the attached Appendix "C", which agreement may be
incorporated as a part of the web-hosting services subscription
agreement between VIA NET.WORKS and the End-User, set out in a stand-
alone agreement between VIA NET.WORKS and the End-User, or form a
part of the End-User support policies generally adhered to by VIA
NET.WORKS and offered to End-Users as posted on the VIA NET.WORKS web
sites.
1.17 "Territories" shall mean the countries listed in the attached
Appendix "A".
1.18 "Third Person Assertion" shall have the meaning set forth in Section
11.2 hereof.
1.19 "Third Party Hardware" shall mean third party hardware upon which the
Software will be used and stored, as well as other hardware
peripherals manufactured by third party suppliers, which may be used
in connection with the Software.
2. LICENSE GRANTS
2.1 Subject to the terms and conditions of this Agreement, TRELLIX hereby
grants VIA NET.WORKS a nonexclusive, nontransferable right and
license to distribute the Software (in the form delivered to VIA
NET.WORKS, without modifications) to End-Users in the Territories
pursuant to the End-User License Agreement applicable to such
Software as specified in Appendix "B" attached hereto, including
distribution through web site downloads and `bundling' on media with
other software content.
2.2 Subject to the terms and conditions of this Agreement, TRELLIX hereby
grants VIA NET.WORKS a nonexclusive, nontransferable right and
license to use the Software product in the Territories to fulfill its
support obligations set forth in Section 8 hereof, and for
demonstrations connected with the promotion and marketing of Software
pursuant to Section 2.5 hereof.
3
<PAGE>
2.3 Subject to the terms and conditions of this Agreement, TRELLIX hereby
grants VIA NET.WORKS a nonexclusive, nontransferable right and
license to make a reasonable number of copies of the Software as are
necessary for VIA NET.WORKS to exercise its rights under Sections 2.1
and 2.2 hereof. The right to copy shall not be sublicensed by VIA
NET.WORKS.
2.4 VIA NET.WORKS may sublicense the rights granted to it pursuant to
Sections 2.1, 2.2, and 2.3 hereof to Authorized Dealers who have been
previously identified to TRELLIX by VIA NET.WORKS, provided that each
such sublicense is made pursuant to a Dealer License Agreement, which
shall be subject to the consent and approval of TRELLIX (which shall
not be unreasonably withheld,) and which shall contain terms no less
favorable to TRELLIX as this Agreement (including, but not limited
to, the End User License Agreement of TRELLIX). VIA NET.WORKS shall
promptly provide TRELLIX with a copy of each Dealer License Agreement
proposed to be entered into between VIA NET.WORKS and an Authorized
Dealer.
2.5 The licenses granted to VIA NET.WORKS pursuant to this Section 2
shall include rights under any applicable patents, copyrights, and
trade secrets owned by TRELLIX, but only to the extent necessary to
give effect to such limited licenses. Except as specifically provided
for in this Agreement, VIA NET.WORKS shall not sublicense or permit
the sublicense of any of the rights granted to VIA NET.WORKS
hereunder. Without limiting the generality of the foregoing, in no
event may an Authorized Dealer distribute Software to any third party
other than an End-User as provided for in Section 2.1 hereof.
2.6 TRELLIX grants the rights set forth in this Section 2 to VIA
NET.WORKS on the express condition that VIA NET.WORKS undertakes to
use its commercially reasonable, consistent with good business
practice, to market and distribute the Software in the Territory.
2.7 VIA NET.WORKS understands and agrees that the operation of the
Software may require operating system software owned by third
parties, and that in certain instances it may be necessary for the
VIA NET.WORKS, Authorized Dealer, or End-User to enter into license
agreements with third parties with regard to such operating system
software in order to make use of the Software. Software of any third
party suppliers shall remain the property of their respective owners.
2.8 Whenever the term "sale" or "purchase" of the Software is referred to
in this Agreement, such reference shall be deemed to include the
purchase of an applicable license with respect to the Software, and
not be deemed to include the actual sale of the intellectual property
rights underlying the Software.
4
<PAGE>
2.9 VIA NET.WORKS agrees that in the event of any breach of this Section
2, TRELLIX shall have no adequate remedy at law and therefore shall
be entitled to seek injunctive and/or other equitable relief, in
addition to any other remedies afforded by law.
3. RELATIONSHIP OF THE PARTIES
3.1 The relationship of TRELLIX and VIA NET.WORKS is that of independent
contractors, and it is expressly agreed that nothing contained herein
shall be construed to constitute the parties as a company , joint
ventures, co-owners, or participants in a joint or common
undertaking, or otherwise to create a relationship of principal and
agent, it being intended that each shall remain independent
contractors responsible for their own actions. Neither party shall
have the right to enter into contracts or pledge the credit of or
incur expenses or liabilities on behalf of the other party.
3.2 VIA NET.WORKS is not authorized to make any warranties or
representations with respect to the specifications, features, or
capabilities of the Software which are inconsistent with the
published literature distributed by TRELLIX and the terms and
conditions of this Agreement. In addition, VIA NET.WORKS is not
authorized to create any obligations or representations of
responsibility, express or implied, on behalf of TRELLIX or its
subsidiaries and affiliates.
3.3 TRELLIX is not authorized to make any warranties or representations
with respect to the specifications, features, or capabilities of the
Web Hosting which are inconsistent with the published literature
distributed by VIA NET.WORKS and the terms and conditions of this
Agreement. In addition, TRELLIX is not authorized to create any
obligations or representations of responsibility, express or implied,
on behalf of VIA NET.WORKS or its subsidiaries and affiliates.
3.4 Except as specifically provided for in this Agreement, VIA NET.WORKS
agrees that the rights and obligations granted herein do not extend
to its subsidiaries and affiliates, or any other third party.
3.5 VIA NET.WORKS shall in all marketing and promotion materials relating
to the Software clearly indicate that it is acting as an authorized
distributor of TRELLIX and shall not indicate that it is an author or
developer of the Software.
4. OBLIGATIONS OF VIA NET.WORKS
4.1 Except as set forth on Schedule I, VIA NET.WORKS shall assume all of
----------
its own costs associated with the marketing and distribution of the
Software.
4.2 VIA NET.WORKS agrees to use commercially reasonable efforts to
include the Software and reference to the Software capabilities in
its
5
<PAGE>
efforts to market web-hosting services and to distribute the Software
in the Territories in accordance with the terms and conditions of
this Agreement.
4.3 VIA NET.WORKS shall not loan or lease the Software, except as
authorized in writing by TRELLIX. In addition, VIA NET.WORKS agrees
that it shall not make or have made any copies of the Software or
portions thereof, except as expressly provided for herein.
4.4 VIA NET.WORKS and its affiliates agrees that it shall not
disassemble, decompile, or reverse engineer any portion of the
Software, or permit any third party to do so, except as permitted by
applicable law and then solely to the extent that TRELLIX is not
permitted by such applicable law to exclude or limit such rights.
TRELLIX may provide to VIA NET.WORKS, upon written request, technical
information, including but not limited to Software interfaces and
API's, that is required to install or operate and maintain third
party software products which are functionally interconnectable with
the Software.
4.5 VIA NET.WORKS shall use the Software solely for the purposes set
forth in this Agreement, and shall allow access to the Software by
its employees and affiliates solely on a need to know basis. VIA
NET.WORKS agrees to notify TRELLIX promptly after it becomes aware of
any unauthorized access, disclosure, distribution, possession,
alteration, transfer, reproduction or other unauthorized use of the
Software or any portion thereof.
4.6 VIA NET.WORKS shall promptly inform TRELLIX of any use of TRELLIX's
trade names, trademarks or brand identification in violation of this
Agreement or violation of TRELLIX's intellectual property rights of
which VIA NET.WORKS becomes aware, and agrees to safeguard the
intellectual property rights and interests of TRELLIX at least to the
same extent it safeguards its own intellectual property rights and
interests.
4.7 VIA NET.WORKS shall be entitled to license the Software to its
Authorized Dealers and End-Users at such prices as it may determine
and, at the request of TRELLIX, agrees to provide TRELLIX with its
up-to-date price list for the Software.
4.8 VIA NET.WORKS shall not use in relation to the Software any
advertising, promotional and selling materials except as approved in
writing by TRELLIX, which such approval shall be deemed to have been
given if no objection in writing has been received by VIA NET.WORKS
within 5 business days of TRELLIX receipt of such information, and,
at the request of TRELLIX, agrees to provide TRELLIX with copies of
any such sales aids, including but not limited to catalogues, sales
brochures and sales manuals used in relation to the marketing and
distribution of the Software. Without limiting the generality of the
foregoing, in no event shall VIA NET.WORKS use or permit the use of
any trademarks or
6
<PAGE>
tradenames of TRELLIX without the prior written consent of TRELLIX.
Any such use shall be subject to TRELLIX's trademark and tradename
VIA NET.WORKS guidelines, as such guidelines may be amended by
TRELLIX from time to time.
4.10 VIA NET.WORKS shall cause those subsidiaries of VIA NET.WORKS listed
in Schedule I attached hereto to display on their world wide web site
a hyperlink (in form mutually acceptable to the parties hereto) to be
utilized for Software download or referring web users directly to the
web site of the TRELLIX. Such web link shall contain TRELLIX's
tradename and trademark and shall be displayed on such web site's
homepage.
4.11 VIA NET.WORKS and its affiliates shall display or cause to be
displayed prominently TRELLIX's trademark and tradename as it appears
on Schedule I in all advertising and marketing VIA NET.WORKS or its
----------
affiliates undertakes to promote and co-market the Software.
4.12 VIA NET.WORKS shall, to the extent permitted under VIA's policies
relating to the protection of user privacy and relevant laws,
including, but not limited to, the EU Directive on Data Protection
and the Electronic Communication Privacy Act, provide to TRELLIX (a)
the information relating to VIA NET.WORKS Web-Hosting End-Users
contained in the Schedule I, Section 1.1 and (b) such other
information relating to VIA NET.WORKS Web-Hosting End-Users as the
parties may from agree, including but not limited to name and e-mail
address; provided that no such information may be provided except
with respect to VIA NET.WORKS Web-Hosting End-Users who have agreed
that such information may be released by the VIA NET.WORKS subsidiary
to VIA NET.WORKS (U.S.) and to TRELLIX. TRELLIX agrees that all
information provided by VIA NET.WORKS or its subsidiaries pursuant to
this Section 4.12 shall be considered "Confidential Information" of
VIA NET.WORKS under Section 10 below. Under no circumstances shall
TRELLIX disclose any such information to any third party, nor shall
TRELLIX use any such information for any purpose other than to verify
and validate the billing information provided by VIA NET.WORKS to
TRELLIX, or such other purposes and under such conditions as may have
been expressly approved by the VIA NET.WORKS Web-Hosting End-Users in
granting consent to the use of the information. The parties
contemplate that VIA NET.WORKS will obtain approval from each End-
User for the information described in (a) above in the course of the
End-User's agreement to abide by the terms and conditions of service
provided by VIA NET.WORKS. Consent to use any additional information
such as that described in (b) above shall be obtained by specific
"check the box" approval by the End-User obtained during the process
of registering as a Web-Hosting End-User of VIA NET.WORKS.
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5. OBLIGATIONS OF TRELLIX
5.1 Within ten (10) days from the Effective Date of this Agreement,
TRELLIX shall provide VIA NET.WORKS with (10) copies of technical
literature in the language prevailing in each of the VIA NET.WORKS
subsidiaries listed from time to time in Schedule I, to support VIA
NET.WORKS in marketing the Software hereunder. A reasonable number of
additional copies of TRELLIX marketing materials shall be provided at
no charge to VIA NET.WORKS by TRELLIX.
5.2 During the term of this Agreement, TRELLIX will:
(i) provide such assistance, including supplying maintenance patches or
code corrections, as necessary, to cause the Software to perform in
accordance with the applicable specifications for the most current
version of the Software ("Maintenance Patches") as set forth in the
Documentation provided to VIA NET.WORKS and as updated by TRELLIX
from time to time;
(ii) provide such improvements, enhancements, extensions, upgrades and
other changes to the Software which TRELLIX generally provides to
other licensees of the product ("Improvements");
(iii) supply, when necessary and as long as technically feasible, updated
software required to cause the Software to operate under new versions
or releases of the operating system or other system software on which
the Software operates ("Updates") so long as such Updates are made
generally available to TRELLIX's other customers; and
(iv) provide telephone support to VIA NET.WORKS in order to assist VIA
NET.WORKS to locate and correct functional or operational problems
with the Software.
(v) To the extent that TRELLIX, in its discretion, plans on issuing an
Update or Improvement which relates to the one-step publish feature
of the Software, TRELLIX shall provide VIA NET.WORKS with product
enhancement information together with a schedule of planned
availability dates, 7 days prior to the planned release of such
Update or Improvement to the Public; provided, however, that TRELLIX
may release to the public and to other partners any Maintenance
Patches at the same time such Maintenance Patches are released to VIA
NET.WORKS.
5.3 TRELLIX shall not by virtue of this Agreement be restricted or
otherwise precluded from making sales to End-Users, either directly
or through other resellers, distributors, OEMs and the like
representing TRELLIX.
5.4 At VIA NET.WORKS request and if required, TRELLIX may assist VIA
NET.WORKS in its sales activities. Any and all out-of-pocket and
travel
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expenses incurred by TRELLIX for such assistance shall be borne by
VIA NET.WORKS.
5.5 TRELLIX shall make reasonable modifications to the Software as may be
required for the Software to effectively achieve the VIA NET.WORKS
One Step Publish, such as extensions and the like.
5.6 TRELLIX shall cause to be displayed prominently on TRELLIX's world
wide web site a `hot link' (in form mutually acceptable to the
parties hereto) referring web users directly to the web site of the
VIA NET.WORKS.
5.7 TRELLIX will use its reasonable efforts to make functional
enhancements reasonably requested by VIA NET.WORKS and which the
parties hereto agree would be enhance the Software in a beneficial,
efficient and inexpensive manner
5.8 TRELLIX agrees that it shall inform all prospective Original
Equipment Manufacturers ("OEMs") who sell, distribute or market Third
party Hardware in the Territories or in any other countries other
than the U.S. that VIA NET.WORKS has operations and with respect to
which TRELLIX determines to initiate marketing and distribution of
the Software, of the web hosting services of VIA NET.WORKS and this
agreement between the parties hereto (but only to the extent
necessary to provide such OEM with information regarding VIA
NET.WORKS One Step Publish and other beneficial features of the
Software, if any, resulting from this Agreement). VIA NET.WORKS will
be identified as a premier personal web hosting companies and,
subject to the completion of an agreement between TRELLIX and such
OEM, will be given the opportunity to be a preferred `one-step
publishing' web hosting company for any bundled copies of the
Software or other web building product of TRELLIX to be bundled with
such OEMs product.
TRELLIX shall provide this information and such opportunity to such
OEM in the same manner as TRELLIX provides identical information to
such OEM for any other web hosting company of TRELLIX. It is
understood that TRELLIX is under no obligation to require such OEM to
agree to VIA NET.WORKS or any other web hosting company of TRELLIX.
It is further understood that TRELLIX shall have multiple web hosting
company and that the decision by an OEM to agree to one or another of
such company as the preferred `one-button' publishing' web hosting
company may be based on factors solely within the discretion of such
OEM and TRELLIX as they may mutually agree upon.
TRELLIX shall not make to any OEM any warranties or representations
with respect to VIA NET.WORKS or the specifications, features, or
capabilities of the VIA NET.WORKS web hosting. TRELLIX shall, at VIA
NET.WORKS request, deliver to any OEM on whose machines the
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Software will be bundled, the end user terms of service which
contains VIA NET.WORKS disclaimer of warranty and shall request that
any such OEM acknowledge such end user terms of service.
6. TRADE SHOWS; MARKETING EFFORTS
6.1 TRELLIX and VIA NET.WORKS agree to consult each other regarding the
desirability of joint participation in trade shows and demonstration
seminars.
6.2 VIA NET.WORKS and TRELLIX shall each be responsible for their own
out-of-pocket and travel expenses associated with such participation.
6.3 TRELLIX may provide a demonstration artist or technician to assist at
trade shows and demonstration seminars.
6.4 TRELLIX and VIA NET.WORKS agree to use commercially reasonable
efforts to engage in marketing efforts for the Software, which may
include web site coordination and other Internet efforts.
6.5 Upon signing of this Agreement, or at a time mutually agreed upon by
the parties hereto, TRELLIX and VIA NET.WORKS shall cooperate on the
drafting and issuance of a mutual press release relating to this
Agreement, such press release to be in form and substance mutually
acceptable to the parties hereto.
7. SUPPORT SERVICES
7.1 TRAINING
7.1.1 TRELLIX shall provide technical training for up to (6)
technical personnel of VIA NET.WORKS to help enable VIA
NET.WORKS to provide First Tier Support to End-Users and
Second Tier Support to Authorized Dealers. Such training shall
consist of not more than (2) days duration, shall be conducted
for no charge at the executive offices of TRELLIX, and shall
be held in accordance with a mutually agreed upon schedule.
VIA NET.WORKS shall be required to complete such training
within thirty (30) days after the receipt by VIA NET.WORKS of
the Software (provided that such period shall not run during
any time the Software requires any Maintenance Patches or
Updates). Training shall be provided at any other reasonable
location requested by VIA NET.WORKS for two days at a cost
payable to TRELLIX of $1,000 plus TRELLIX's reasonable out-of-
pocket and travel expenses associated therewith.
7.1.2 Any additional training requested by VIA NET.WORKS shall be
provided by TRELLIX at TRELLIX's sole discretion, and at
TRELLIX'S then prevailing charges, in accordance with a
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schedule mutually agreed to between TRELLIX and VIA NET.WORKS.
7.1.3 VIA NET.WORKS shall in its sole discretion train each Authorized
Dealer on the use of the Software so that such Authorized Dealer
is enabled to provide First Tier Support to End-Users.
7.2 FIRST TIER SUPPORT
7.2.1 VIA NET.WORKS and/or its Authorized Dealers shall be responsible
for providing First Tier Support to End-Users with respect to
Software distributed pursuant to this Agreement or a Dealer
License Agreement. Any intentional failure to provide such
support shall be deemed to be a material breach of this
Agreement. In no event shall TRELLIX have responsibility to
provide First Tier Support.
7.2.2 VIA NET.WORKS shall take reasonable steps to insure that End-
Users are aware that any End-User support for Software
distributed pursuant to this Agreement or a Dealer License
Agreement shall be provided by either VIA NET.WORKS or an
Authorized Dealer.
7.3 SECOND TIER SUPPORT
7.3.1 TRELLIX shall provide Second Tier Support (which shall not
include TRELLIX support as described under Section 5.2 above) to
VIA NET.WORKS during the term of this Agreement, provided,
however, that TRELLIX's provision of Second Tier Support shall be
limited to reasonable telephone, E-mail, and/or facsimile
communication with VIA NET.WORKS during weekdays and TRELLIX's
normal business hours and during the normal business hours of
those subsidiaries of VIA NET.WORKS offering Web Hosting. If such
efforts are inadequate due to no fault of VIA NET.WORKS, TRELLIX
will then communicate directly with End-Users.
7.3.2 VIA NET.WORKS shall be responsible for any Second Tier Support
of Authorized Dealers, provided, however, that between the
Effective Date of this Agreement and the earlier of: (i) the
date that VIA NET.WORKS completes its training pursuant to
Section 7.1.1 hereof, or (ii) thirty (30) days after the
Effective Date, TRELLIX shall have the right, but no obligation,
to provide Second Tier Support to Authorized Dealers. To the
extent TRELLIX provides such Second Tier Support, it shall be
limited to reasonable telephone, E-mail, and/or facsimile
communication with an Authorized Dealer during weekdays and
TRELLIX's normal business hours.
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7.4 Any support services other than as provided for in Sections 7.2 and
7.3 hereof may be provided at TRELLIX's sole discretion, and at
TRELLIX's then prevailing charges, in accordance with a schedule
mutually agreed to between TRELLIX and VIA NET.WORKS.
7.5 Any and all reasonable out-of-pocket expenses related to travel and
incurred by TRELLIX for the purpose of providing training or support
pursuant to this Section 7 shall be borne by VIA NET.WORKS.
8. PRICES, PAYMENT & AUDIT
8.1 For each copy of the Software VIA NET.WORKS or its subsidiaries
distributes, VIA NET.WORKS shall pay TRELLIX the royalty fee (the
"Product Royalty"), if any, as provided on Schedule I. VIA NET.WORKS
----------
shall pay to TRELLIX the "TRELLIX Hosting Bounty" set forth on
Schedule I. VIA NET.WORKS shall pay to TRELLIX within 30 days from
----------
the date hereof the participation fee (the "Participation Fee") set
forth on Schedule I.
----------
8.4 All prices for the Software distributed by VIA NET.WORKS hereunder
exclude sales, use, and VAT taxes, as well as other taxes, duties, or
charges which may be imposed upon VIA NET.WORKS by any governmental
agency.
8.5 For so long as VIA NET.WORKS shall be contractually obligated to make
payments pursuant to Section 8 hereof and for a period of six months
thereafter, VIA NET.WORKS and its subsidiaries shall keep at their
respective principal place of business adequate records for the
accurate determination of all payments due pursuant to this Agreement.
All the records books and server devices on which End-Users have
posted web sites of VIA NET.WORKS or its affiliates necessary for the
determination of such payments (subject to applicable privacy laws)
shall be made available during normal business hours upon no less than
three (3) business days notice during the term hereof and for a period
of six months thereafter for examination, inspection, and audit by
TRELLIX or duly authorized independent chartered accountants
designated by TRELLIX. No more frequently than once each 12 months
during the term of this Agreement and any extensions thereof, TRELLIX
and its chartered accountants shall be entitled to examine, inspect,
and audit the records and books of VIA NET.WORKS or its subsidiaries
which relate to the use by End-Users of the Software and server
devices on which End-Users have posted web sites to investigate all
business transactions that relate to the required payments hereunder.
VIA NET.WORKS hereby agrees to conduct its business (as it relates to
VIA NET.WORKS performance of this Agreement) in such a manner as to
reasonably facilitate the tracking
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and record keeping necessary to properly determine in an orderly and
efficient manner all payments required hereunder.
In the event that TRELLIX conducts or has conducted an examination,
audit or inspection of records and, as a result of such examination,
audit, or inspection of records, it is determined that there are
unreported amounts payable to TRELLIX, such amounts shall be deemed to
be payable when due and VIA NET.WORKS shall immediately pay to TRELLIX
such payments and any interest due thereon. In addition, if the
unreported payments exceed fifteen percent (15%) of the amounts
actually due, VIA NET.WORKS shall reimburse TRELLIX for its costs and
expenses in conducting such examination, audit, inspection of records.
9. INTELLECTUAL PROPERTY RIGHTS
9.1 VIA NET.WORKS acknowledges that all right, title, and interest in and
to the Software and any extensions or modifications created pursuant
to this Agreement (including, without limitation, all rights under any
applicable patents, copyrights, trademarks, trade secrets, and mask
works) belongs to and shall remain the exclusive property of TRELLIX
or its subsidiaries, affiliates or licensors. To the extent permitted
by applicable law, VIA NET.WORKS agrees that it shall not, either
directly or indirectly, dispute or challenge the ownership or any such
rights of TRELLIX, during or at any time after expiration or
termination of this Agreement.
9.2 VIA NET.WORKS agrees that it shall not alter, remove or conceal any
copyright, trademark, trade name, or other proprietary rights or
commercial markings which may appear on any copies of the Software.
9.3 VIA NET.WORKS shall not, during or at any time after the expiration or
termination of this Agreement, use or adopt any trademark, trade name
or commercial designation that may be mistaken for or confused with
the trademarks, trade names, and other proprietary rights or
commercial markings of TRELLIX.
9.4 VIA NET.WORKS shall not, either directly or indirectly, deposit or
register the Software with any governmental agency or entity for any
purpose or make any claim, whether in TRELLIX's name or otherwise,
with any governmental agency or entity for copyright, trademark,
patent, or any other form of intellectual property protection.
9.5 VIA NET.WORKS at the expense of TRELLIX, use commercially reasonable
effort to TRELLIX in maintaining the validity and enforceability of
the intellectual property of TRELLIX during the term of this
Agreement.
9.6 VIA NET.WORKS and its affiliates shall not use any of the trademarks
of TRELLIX in any manner that will prejudice their distinctiveness or
validity, or otherwise affect the goodwill of any TRELLIX trademark.
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10. CONFIDENTIALITY AND NON-DISCLOSURE
10.1 As used in this Section 10, the term "Confidential Information" shall
mean any information disclosed by one party to the other pursuant to
this Agreement which is in written, graphic, machine readable or
other tangible form and is marked "Confidential", "Proprietary" or in
some other manner to indicate its confidential nature. Confidential
Information may also include oral information disclosed by one party
to the other pursuant to this Agreement, provided that such
information is designated as confidential at the time of disclosure
and is reduced to writing by the disclosing party within a reasonable
time (not to exceed thirty (30) days) after its oral disclosure, and
such writing is marked in a manner to indicate its confidential
nature and delivered to the receiving party. Notwithstanding the
foregoing designation requirements, the source code underlying the
Software shall be deemed to be Confidential Information of TRELLIX.
VIA NET.WORKS and its affiliates shall also protect the
confidentiality of any third party software contained in the Software
in the same fashion that it is required to protect the Software
itself.
10.2 Each party shall treat as confidential all Confidential Information
of the other party, shall not use such Confidential Information
except as set forth herein, and shall not disclose such Confidential
Information to any third party. Without limiting the foregoing, each
of the parties shall use at least the same degree of care which it
uses to prevent the disclosure of its own confidential information of
like importance to prevent the disclosure of Confidential Information
disclosed to it by the other party under this Agreement, provided,
however, that in no event shall such degree of care be less than
reasonable in light of general industry practice.
10.3 Notwithstanding the foregoing, neither party shall have liability to
the other with regard to any Confidential Information of the other
which:
(i) was in the public domain at the time it was disclosed or
becomes in the public domain through no fault of the
receiver;
(ii) was known to the receiver, without restriction, at the time of
disclosure as shown by the files of the receiver in
existence at the time of disclosure;
(iii) is disclosed with the prior written approval of the disclosure;
(iv) was independently developed by the receiver without any use of
the Confidential Information;
(v) becomes known to the receiver, without restriction, from a
source other than the discloser without breach of this
Agreement by the receiver; or
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(vi) is disclosed pursuant to the order or requirement of a court,
administrative agency, or other governmental body, provided,
however, that the receiver shall provide prompt notice
thereof to enable the discloser to seek a protective order
to otherwise prevent such disclosure.
10.4 Each party shall use all reasonable efforts, including, but not
limited to, the execution of proprietary non-disclosure agreements
with employees to enforce compliance with the provisions of this
Section 10 by its directors, officers, employees, and any third party
having access to the other party's Confidential Information.
10.5 VIA NET.WORKS and its affiliates agree to notify TRELLIX promptly in
writing of the existence of any circumstances surrounding unauthorized
access, disclosure, distribution, possession, alteration, transfer,
reproduction or use of the Software or any portions thereof.
10.6 Each party agrees that in the event of any breach of this Section 10
by the other party hereto, there shall be no adequate remedy at law
and therefore such party shall be entitled to seek injunctive and/or
other equitable relief, in addition to any other remedies afforded by
law.
11. INDEMNIFICATION
11.1 TRELLIX shall defend, at its expense, VIA NET.WORKS and its affiliates
from and against claims brought by third parties alleging that
the Software infringes any (i) patent issued on or before the
Effective Date, (ii) trademark issued on or before the Effective Date,
(iii) copyright, or (iv) trade secret, and shall indemnify VIA
NET.WORKS against all damages assessed against VIA NET.WORKS as part
of a final judgment or settlement thereof. In addition, should the
Software become, or in TRELLIX's opinion be likely to become, the
subject of a claim of infringement, TRELLIX shall (a) obtain for VIA
NET.WORKS the right to continue using the Software pursuant to the
terms and conditions of this Agreement, (b) replace or modify the
Software so that it becomes noninfringing but functionally equivalent,
or if TRELLIX determines that neither of the foregoing is commercially
reasonable, (c) provide for the return to VIA NET.WORKS of an amount
equal to the fees paid by VIA NET.WORKS to TRELLIX for all copies of
the Software subject to the claim of infringement, provided that VIA
NET.WORKS and its affiliates returns to TRELLIX all such copies in its
possession, upon which the licenses granted for the Software in this
Agreement in the infringing jurisdiction shall terminate. Such
indemnification obligation shall not apply to any claim based on (A)
software not claimed to be owned or developed by or on behalf of
TRELLIX, (B) the combination of the Software with other products not
claimed to be owned or developed by or on behalf of TRELLIX, (C)
software supplied by TRELLIX in accordance
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with VIA NET.WORKS designs, specifications, or instructions, or (D)
arising from the failure of VIA NET.WORKS and its affiliates to use
updated Software provided by TRELLIX for avoiding such infringement.
11.2 If VIA NET.WORKS seeks indemnification pursuant to this Section 11
from or against the assertion of any claim by a third person (a "Third
Person Assertion"), it shall give prompt notice to TRELLIX, provided,
--------
however, that failure to give prompt notice will not relieve TRELLIX
-------
of any liability hereunder (except to the extent that TRELLIX has
suffered actual material prejudice by such failure).
11.3 Within ten (10) business days of receipt of notice from VIA NET.WORKS
or its affiliates pursuant to Section 11.2 hereof, TRELLIX shall have
the right, exercisable by written notice to VIA NET.WORKS, to assume
the defense of a Third Person Assertion. If TRELLIX assumes such
defense, TRELLIX may select counsel, which shall be reasonably
acceptable to VIA NET.WORKS.
11.4 If TRELLIX (a) does not assume the defense of any Third Person
Assertion in accordance with Section 11.3 hereof; (b) having so
assumed such defense, unreasonably fails to defend against such Third
Person Assertion; or (c) has been advised by the written opinion of
counsel to VIA NET.WORKS that the use of the same counsel to represent
both TRELLIX and VIA NET.WORKS would present a conflict of interest,
then, upon ten (10) days' written notice to TRELLIX, VIA NET.WORKS may
assume the defense of such Third Person Assertion. In such event, VIA
NET.WORKS shall be entitled under this Section 11 as part of its
damages to indemnification for the costs of such defense.
11.5 The party controlling the defense of a Third Person Assertion, will
have the right to consent to the entry of judgment with respect to, or
otherwise settle, such Third Person Assertion with the prior written
consent of the other party, which consent shall not be unreasonably
withheld.
11.6 TRELLIX and VIA NET.WORKS (and each of its affiliates, as applicable)
shall cooperate in the defense or prosecution of any Third Person
Assertion. TRELLIX or VIA NET.WORKS, as the case may be, shall have
the right to participate, at its own expense, in the defense or
settlement of any Third Person Assertion.
11.7 THE FOREGOING STATES THE ENTIRE LIABILITY OF TRELLIX TO VIA NET.WORKS
OR ANY OF ITS AFFILIATES AND ANY AND ALL THIRD PARTIES, WHETHER FOR
DAMAGES OR OTHERWISE, FOR CLAIMS OF INFRINGEMENT OF ANY COPYRIGHT,
PATENT, TRADEMARK, TRADE SECRET, OR OTHER INTELLECTUAL PROPERTY RIGHT.
11.8 If a claim has been made that the Software infringes any (i) patent,
(ii) trademark, (iii) copyright, or (iv) trade secret, and to the
extent that
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TRELLIX is exposed to liability therefrom arising from VIA NET.WORKS
continued use or distribution of the Software, TRELLIX may in its
discretion terminate the rights and licenses granted hereunder with
respect to the Software.
12. VIA NET.WORKS WARRANTY
12.1 VIA NET.WORKS represents and warrants that it has full power and
authority to enter into this Agreement and to bind each of its
subsidiaries hereunder, and that it and each of its subsidiaries to
whom it sub-licenses the Software hereunder shall perform its
respective obligations hereunder in compliance with all applicable
laws and in a manner so as not to violate this Agreement or the rights
of any third party. VIA NET.WORKS shall indemnify, defend, and hold
TRELLIX and its subsidiaries and affiliates harmless from and against
any and all liability, loss, or claim (including reasonable legal
fees) resulting from any suit or proceeding that may be brought
against TRELLIX or its subsidiaries and affiliates to the extent that
such claims relate to the VIA NET.WORKS breach of this warranty or its
obligations under this Agreement and shall indemnify TRELLIX against
any loss or damage arising out of or in connection with any breach of
the terms of this Agreement or any sublicense hereunder by any
subsidiary of VIA NET.WORKS.
13. LIMITED WARRANTY
13.1 SOFTWARE WARRANTY: FOR A PERIOD OF 90 DAYSAFTERRECEIPT BY VIA
NET.WORKS OF THE SOFTWARE (PROVIDED THAT SUCH PERIOD SHALL NOT RUN
DURING ANY TIME THE SOFTWARE REQUIRES ANY MAINTENANCE PATCHES OR
UPDATES) FOLLOWING THE DATE OF THIS AGREEMENT, THE SOFTWARE WILL
ACHIEVE THE FUNCTIONALITY DESCRIBED IN THE DOCUMENTATION, OTHERWISE
TRELLIX AND ITS SUPPLIERS MAKE NO WARRANTIES WHATSOEVER. TO THE EXTENT
PERMITTED BY APPLICABLE LAW, TRELLIX SPECIFICALLY DISCLAIMS ALL
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY
IMPLIED WARRANTIES OF TITLE, MERCHANTABILITY, AND FITNESS FOR A
PARTICULAR PURPOSE. NO EMPLOYEE, AGENT, DEALER, OR RESELLER IS
AUTHORIZED TO MAKE ANY ADDITIONAL WARRANTIES OR MODIFY THE FOREGOING
LIMITED WARRANTY. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING,
TRELLIX DOES NOT WARRANT THAT THE SOFTWARE WILL MEET ALL OF VIA
NET.WORKS OR ITS AUTHORIZED DEALERS' OR END-USERS' REQUIREMENTS; WILL
OPERATE IN ALL OF THE COMBINATIONS WHICH MAY BE SELECTED FOR USE BY
THE VIA NET.WORKS OR ITS AUTHORIZED DEALERS OR END-
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USERS; OR THAT THE OPERATION OF THE SOFTWARE WILL BE ERROR FREE OR
UNINTERRUPTEDVIA NET.WORKS HEREBY WAIVES ALL WARRANTIES OR CONDITIONS
NOT SPECIFICALLY SET FORTH HEREIN.
The Software is Year 2000 compliant.
Year 2000 compliance means that the product, when used in
accordance with its documentation, will be capable upon installation
of accurately processing, providing and/or receiving date data from,
into and between the 20th and 21st centuries, including the years 1999
and 2000 and leap year calculations, through 2035. This Year 2000
compliance definition does not apply to the extent that the Software
interoperates or exchange date-related data with other software,
hardware, firmware, or data that is not Year 2000 compliant.
13.2 THIRD PARTY HARDWARE WARRANTY: Any Third Party Hardware is subject to
the Third Party Hardware manufacturer's warranty terms and conditions.
TRELLIX is not responsible for and makes no warranties with respect to
any Third Party Hardware.
13.3 TRELLIX represents and warrants that it has full power and authority
to enter into this Agreement, and that it shall perform its
obligations hereunder in compliance with all applicable laws and in a
manner so as not to violate the rights of any third party. TRELLIX
shall indemnify, defend, and hold VIA NET.WORKS and its subsidiaries
and affiliates harmless from and against any and all liability, loss,
or claim (including reasonable legal fees) resulting from any suit or
proceeding that may be brought against VIA NET.WORKS or its
subsidiaries and affiliates to the extent that such claims relate to
the TRELLIX breach of this warranty or its obligations under this
Agreement.
13.4 TRELLIX warrants that it owns all rights and interest in and to the
Software (including but not limited to all intellectual property and
marketing and distributing rights) as is necessary to provide VIA
NET.WORKS with the license rights set forth herein.
14. LIMITATION OF LIABILITY
14.1 TO THE EXTENT PERMITTED BY APPLICABLE LAW, AND EXCEPT FOR DAMAGES
ARISING OUT OF EITHER PARTY'S BREACH OF SECTIONS 2, 4.4, 4.5, 4.6, 9
and 10 OF THIS AGREEMENT, IT IS EXPRESSLY AGREED THAT EACH PARTY'S
MAXIMUM LIABILITY FOR DAMAGES HEREUNDER, REGARDLESS OF THE FORM OF
LEGAL ACTION, WHETHER IN CONTRACT OR IN TORT, INCLUDING NEGLIGENCE,
SHALL IN
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NO EVENT EXCEED THE UNPAID LICENSE OR OTHER FEES ACCUMULATED
HEREUNDER, THE ACTUAL PAYMENTS RECEIVED BY TRELLIX OR THE SOFTWARE AND
ANY SERVICES PROVIDED BY TRELLIX TO VIA NET.WORKS HEREUNDER. IN
ADDITION, TO THE EXTENT PERMITTED BY APPLICABLE LAW EXCEPT FOR DAMAGES
ARISING OUT OF EITHER PARTY'S BREACH OF SECTIONS 2, 4.4, 4.5, 4.6, 9
and 10 OF THIS AGREEMENT, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR
(I) ANY SPECIAL, INDIRECT, CONSEQUENTIAL, INCIDENTAL, PUNITIVE, OR
MULTIPLE DAMAGES, INCLUDING, WITHOUT LIMITATION, LOSS OF PROFITS, LOSS
OF REVENUE, OR LOSS OF DATA, EVEN IF ADVISED OF THE POSSIBILITY
THEREOF, (II) ANY CLAIM AGAINST VIA NET.WORKS BY ANY THIRD PARTY,
EXCEPT AS PROVIDED IN SECTION 11 ABOVE, OR (III) ANY DAMAGES
WHATSOEVER RESULTING FROM A FORCE MAJEURE, AN ACT OF A THIRD PARTY, OR
CIRCUMSTANCES INVOLVING NO FAULT ON EITHER PARTIES BEHALF.
THE FOREGOING SHALL NOT IN ANY WAY LIMIT THE LIABILITY OF EITHER PARTY
HERETO RELATING TO DAMAGES ARISING OUT OF EITHER PARTY'S BREACH OF
SECTIONS 2, 4.4, 4.5, 4.6, 9 and 10 OF THIS AGREEMENT.
15. TERMINATION
15.1 This Agreement shall continue in full force and effect for twelve (12)
months from the Effective Date unless earlier terminated in accordance
with this Section 15. Thereafter, this Agreement shall renew
automatically for additional one year term(s) unless written notice of
nonrenewal is given by a party hereto at least thirty (30) days prior
to the expiration of the initial or any renewal term.
15.2 Either party may terminate this Agreement in the event of a material
breach of this Agreement by the other party, which breach is not cured
within thirty (30) days after written notice by the non-breaching
party. Notwithstanding the foregoing, the Company may terminate this
Agreement immediately without a cure period in the event that VIA
NET.WORKS or any of its affiliates breaches Sections 4.4, 9.1 and 10
hereof.
15.3 Subject to Section 15.7 hereof, upon any expiration or termination of
this Agreement, VIA NET.WORKS and each of its affiliates shall
promptly (i) discontinue all use of the Software; (ii) erase or
destroy any Software contained in any software cartridge, computer
memory or data storage apparatus under the control of VIA NET.WORKS
and its affiliates; (iii) return to TRELLIX all tangible copies of the
Software in VIA
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NET.WORKS and its affiliates possession; (iv) cease to use the
trademarks, trade names, and commercial markings of TRELLIX; (v)
advise any customers who seek to obtain the Software from VIA NET.WORK
that VIA NET.WORKS is no longer authorized to market and distribute or
support the Software; and (vi) at the request of TRELLIX certify in
writing to TRELLIX, within thirty (30) days after receipt of such
notice that VIA NET.WORKS and its affiliates have complied with the
foregoing.
15.4 The expiration or termination of this Agreement shall be without
prejudice to the rights of End-Users to continue to use the Software
in accordance with the terms of the End-User License Agreements with
TRELLIX.
15.5 Sections 1, 9, 10, 13, 16, and 17, hereof shall survive any expiration
or termination of this Agreement. In addition, any payment obligations
of a party hereto outstanding as of the date of any expiration or
termination of this Agreement shall survive such expiration or
termination.
15.6 Notwithstanding anything contained herein to the contrary, the license
granted to VIA NET.WORKS pursuant to Section 2.2 hereof shall survive
so long as any End-User of VIA NET.WORKS continues to use the Software
and VIA NET.WORKS continues to pay the Hosting Bounty with respect to
such End User. Thereafter VIA NET.WORKS shall be required to fully
comply with Section 15.3 hereof.
16. MISCELLANEOUS
16.1 The parties agree that any notice which is required to be given
hereunder shall be in writing in the English language and shall be
delivered by courier service or mailed by prepaid registered post
addressed to the parties at their respective addresses as provided
herein.
16.2 Any waiver of any term or condition of this Agreement shall only be
deemed to have been made if expressed in writing by the party granting
such waiver. The failure or neglect by either party to enforce, in
any one or more instances, any of the terms and conditions of this
Agreement shall not be construed as a waiver of the future performance
of any such term or condition, or any other terms or conditions of
this Agreement.
16.3 In the event that a particular provision of this Agreement is held by
a court of competent jurisdiction to be invalid, such provision shall
be severed from the Agreement and shall not affect the validity of
this Agreement as a whole or any of its other provisions. The parties
hereto agree to replace such invalid provision with a new provision
that has the most nearly similar permissible, economic, or other
effect.
16.4 Except for payment obligations, neither party shall be liable or
deemed to be in default for any delay or failure in performance under
this Agreement or interruption of services resulting directly or
indirectly from acts of God,
20
<PAGE>
civil or military authority, war, riots, civil disturbances,
accidents, fire, earthquakes, flood, strikes, lockouts, labor
disturbances, court or governmental order, or any other cause beyond
the reasonable control of such party. Each party agrees to provide
the other with notice upon becoming aware of an event of force
majeure, such notice to contain details of the circumstances giving
rise to the event of force majeure. If a default due to an event of
force majeure shall continue for more than twelve (12) consecutive
weeks, then the party not in default shall be entitled to terminate
this Agreement. Except for payment obligations, neither party shall
have any liability whatsoever to the other in respect to the
termination of this Agreement as a result of an event of force
majeure.
16.5 This Agreement shall be construed in accordance with and governed by
the laws of the Commonwealth of Massachusetts without regard to
conflict of law rules which would cause the laws of any other
jurisdiction to apply The parties hereto expressly exclude the
application of the United Nations Convention on Contracts for the
International Sale of Goods from this Agreement and any transaction
that may be entered into between the parties in connection with this
Agreement.
17. ASSIGNMENT
17.1 This Agreement is for the benefit of and shall bind the parties
hereto and their respective successors and assigns, provided,
however, that neither this Agreement nor any rights or obligations
hereunder may be assigned or otherwise transferred, in whole or in
part, by either party hereto or to any third party without prior
written consent.
18. ENTIRE AGREEMENT
18.1 This Agreement and each Appendix attached hereto (each of which is
incorporated herein by reference) constitutes the entire
understanding between the parties, and supersedes all prior
discussions, representations, understandings or agreements whether
oral or in writing between the parties with respect to the subject-
matter of this Agreement. In the event of any inconsistency between
the main body of this Agreement and any Appendix, the terms and
conditions of the main body shall prevail. Any modification or
amendment to this Agreement must be in writing signed by and on
behalf of both parties, provided, however, that the forms of End-User
License Agreements may be amended solely by TRELLIX.
19. FURTHER ASSURANCES
20.1 Each party hereto shall execute, acknowledge, and deliver, or cause
to be executed, acknowledged, and delivered, such instruments and
take such other action as may be necessary or advisable to carry out
its obligations hereunder and to implement the terms and conditions
of this Agreement.
20. HEADINGS
21
<PAGE>
21.1 The headings in this Agreement are for convenience of reference only
and shall have no bearing on the construction or interpretation of
this Agreement.
21. COUNTERPARTS
21.1 This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which shall
constitute one and the same instrument.
22
<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement by their duly
authorized representatives as of the Effective Date.
TRELLIX CORPORATION VIA NET.WORKS, INC.
/s/ Don Bulens /s/ Matt Nydell
- ----------------------- -------------------------------
(Authorized Signature) (Authorized Signature)
Don Bulens Matt Nydell
- ----------------------- -------------------------------
(Name in Print) (Name in Print)
President and Chief Vice Pres., General Counsel
Executive Officer and Secretary
- ----------------------- -------------------------------
(Title) (Title)
June 30, 1999 June 30, 1999
- ----------------------- -------------------------------
(Date) (Date)
23
<PAGE>
Appendix A
----------
Territory - Worldwide
Software - Trellix Web for VIA NET.WORKS
24
<PAGE>
Appendix B
----------
End User License Agreement
25
<PAGE>
Appendix C
----------
[Support policy and Standards]
26
<PAGE>
Schedule I
----------
<TABLE>
<CAPTION>
Section
Reference Item Description
================================================================================
<S> <C> <C>
1.11 Hosting Bounty VIA NET.WORKS will provide TRELLIX a monthly
Reporting report containing that information described
in Attachment A. The report will identify the
location of all web sites hosted by VIA
NET.WORKS that, at such time qualify for
bounty payments. VIA NET.WORKS may from time
to time update the report to reflect accounts
with discontinued service as long as an audit
trail is maintained for verification by
TRELLIX or a third party. Discontinued service
includes but is not limited to web sites
discontinued by the End-User, web sites
discontinued by VIA NET.WORKS for non-payment,
or web sites not then maintained using the
TRELLIX software.
4.1 Marketing Costs To be furnished under separate cover
4.10 Trellix Trademark To be furnished under separate cover
and Tradenames
4.11 Trellix Trademark To be furnished under separate cover
and Tradenames
8.1 Product Royalty The Product Royalty shall be $0.00 for so long
as VIA NET.WORKS distributes the Software for
free; thereafter, the Product Royalty shall be
90% of the license fee for the Software
charged by VIA NET.WORKS. If VIA NET.WORKS
`bundles' the Software with other software and
VIA NET.WORKS charges for such bundled
software product, the Product Royalty shall be
agreed between TRELLIX and VIA NET.WORKS prior
to distribution.
8.2 TRELLIX The Trellix Hosting Bounty shall be due and
Hosting Bounty payable to TRELLIX every other month beginning
with the first day of the second month after
the effective date of this Agreement. Except
for the first payment which shall cover the
first month
</TABLE>
27
<PAGE>
<TABLE>
<S> <C> <C>
after the effective date, each bi-monthly
payment will cover the two month period
beginning three months prior to the due date.
For each site created with Trellix Web VNE, in
whole or in part, or with other versions of
TRELLIX that has one-step publish to VIA
NET.WORKS companies, VIA NET.WORKS will pay
TRELLIX for as long as the site is hosted on
VIA NET.WORKS hosting service a commission as
follows:
[See attached]
8.3 Participation Fee If, within 30 days of the date of this
Agreement, VIA NET.WORKS is selected by
Hewlett Packard as the preferred Trellix Web
Hosting Partner for versions of the Software
to be bundled on Hewlett Packard machines, VIA
NET.WORKS shall pay to Trellix $50,000.
$10,000 of this Participation Fee shall be
credited against the TRELLIX Hosting Bounty as
it becomes due and payable.
8.4 VIA NET.WORKS U-NET Limited; Artinternet S.A., GTN mBH
Subsidiaries
</TABLE>
28
<PAGE>
FEE SCHEDULE
As of the date of this Agreement, the Interbank exchange rate for Dollars to
Euros is .9681
As of the date of this Agreement, the Interbank exchange rate for GBP ((Pounds))
to Euros is 1.5389
As of the date of this Agreement, the Interbank exchange rate for to GBP
((Pounds)) to US$ is 1.5885
For each package of Web-hosting services offered by a VIA NET.WORKS subsidiary
to End-Users, VIA NET.WORKS shall pay TRELLIX as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Web-Hosting Bounty Fee (monthly)
- --------------------------------------------------------------------------------
One Year/ Annual End-User US$ Euro GBP ((Pounds))
charge equivalent equivalent equivalent
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
*(Pounds)250/Euro 307.78 15% annual 15% annual 15% annual
charge charge charge
- --------------------------------------------------------------------------------
(Pounds)$200-250/Euro 307.78- 5 4.8405 3.147
-384.725________
- --------------------------------------------------------------------------------
**(Pounds)200/Euro307.78 4 3.8724 2.518
- --------------------------------------------------------------------------------
</TABLE>
* More than
** Less than
The Euro equivalent for charges and Web-Hosting Bounty fee shall be applicable
for Euro compliant countries, GBP equivalent for the UK, and US$ equivalent for
all others.
The Web-Hosting Bounty Fee shall be payable by VIA NET.WORKS to TRELLIX as noted
above in US$ only. The amount payable shall be determined by calculating the
aggregate monthly fees payable by VIA NET.WORKS subsidiaries in the appropriate
currencies as noted in the chart above and applying the Euro to Dollar and GBP
to Dollar Interbank exchange rate (as applicable) in effect as of five (5)
business days prior to each date the Web-Hosting Bounty Fee is due and payable
to TRELLIX. VIA NET.WORKS shall make payment to TRELLIX by wire transfer to the
TRELLIX bank with the following wire instructions:
- --------
- --------
At the request of either party, the US Dollar/Euro/GBP exchange rate will be
reviewed on a quarterly basis to determine whether any adjustments to the above
table should be made to account for material changes in currency equivalencies
in order to ensure that the economics of this Agreement do not materially change
for either party.
29
<PAGE>
Attachment A
Trellix Web WPP Provisioning Information
- ----------------------------------------
This document outlines the data that is required to be sent to Trellix on a
monthly basis to record sites created by the software hosted on VIA companies
Servers.
. WPP must provide a Web site for the user to sign-up. This is a Trellix
branded Web site
. WPP must also give us a Publish URL: Used to publish end user site
. WPP must also provide us a URL where we can go to review the usage log
Usage Log
Any user interaction needs to be logged. This includes both Sign-up and
Publish. Publish will be logged twice, once at the beginning of Publish and
once at the end. The log is used for accounting or audit purposes, and is also
a place that we can identify possible technical problems. The log should be a
comma delimited format that is acceptable to MS Access.
The log format should be as follows:
. Date/time stamp: date and time transaction completed
. Site name: end user or WPP assigned domain name
. Event: 0 = register, 1 = start publish, 2 = end publish
. SKU: Trellix SKU identifying version and language
30
<PAGE>
EXHIBIT 10.11
Execution Copy
AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
This Amended and Restated Stockholders Agreement (this "Agreement") dated
as of April 20, 1999 by and among (i) VIA Net Works, Inc., a Delaware
corporation formerly known as "V-I-A Internet, Inc." (the "Company"), (ii) the
-------
holders of the Company's Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock identified on the signature pages hereto (the
"Investors"), and (iii) the members of the Company's management that have
---------
previously agreed or subsequently agree to be bound by the provisions hereof
(the "Management Holders"). The Investors and the Management Holders are
------------------
referred to collectively as the "Stockholders".
------------
Certain of the Investors and the Company are parties to a Series A
Preferred Stock Purchase Agreement dated August 27, 1997, a Series B Preferred
Stock Purchase Agreement dated May 20, 1998 and an Amended and Restated
Stockholders Agreement dated as of May 20, 1998 (the "Prior Stockholder
-----------------
Agreement"). The Prior Stockholder Agreement is hereby superseded in its
- ---------
entirety by this Agreement.
Certain of the Investors and the Company are parties to a Series C
Preferred Stock Subscription Agreement dated as of the date hereof (the "Series
------
C Subscription Agreement"). Such Investors' obligations under the Series C
- ------------------------
Subscription Agreement are conditioned upon the execution and delivery of this
Agreement by the Stockholders and the Company.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the
following respective meanings:
1.1 "Affiliate" of a Person means any other Person that controls, is
---------
controlled by, or is under common control with, such Person.
1.2 "Closing" shall mean the date of the initial sale of shares of
-------
the Company's Series C Preferred Stock pursuant to the Series C Subscription
Agreement.
1
<PAGE>
1.3 "Commission" shall mean the Securities and Exchange Commission or
----------
any other federal agency at the time administering the Securities Act.
1.4 "Common Stock" shall mean, collectively, the Company's Common
------------
Stock, $.001 par value per share, and Nonvoting Common Stock, $.001 par value
per share.
1.5 "Convertible Preferred" shall mean, collectively, the Series A
---------------------
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock.
1.6 "Exchange Act" shall mean the Securities Exchange Act of 1934 (or
------------
any similar successor federal statute), as amended, and the rules and
regulations thereunder, all as the same shall be in effect from time to time.
1.7 "Initiating Holders" shall mean holders of Registrable Securities
------------------
representing, in the case of a Long-Form Registration, not less than 25% of the
then-outstanding Registrable Securities and, in the case of a Short-Form
Registration, not less than 10% of the then-outstanding Registrable Securities.
1.8 "Investor Stock" shall mean (i) shares of Common Stock owned by
--------------
the Investors or any transferee thereof; (ii) shares of Common Stock issued or
issuable upon the conversion or exercise of any stock (including, without
limitation, the Series A Preferred Stock, the Series B Preferred Stock and the
Series C Preferred Stock), warrants, options or other securities of the Company
owned by the Investors or any transferee thereof; and (iii) any shares of Common
Stock issued as a dividend or other distribution with respect to or in exchange
for or in replacement of the shares referenced in (i) and (ii) above.
1.9 "Management Stock" shall mean (i) those shares of Common Stock
----------------
owned by any Management Holder or any Permitted Transferee (other than shares
issued prior to the date hereof which such Management Holder has not otherwise
agreed are subject to this Agreement), (ii) shares of Common Stock issued or
issuable upon the conversion or exercise of any options or other securities of
the Company owned by the Management Holders; and (iii) any shares of Common
Stock issued as a dividend or other distribution with respect to or in exchange
for or in replacement of the shares referenced in (i) and (ii) above.
1.10 "Permitted Transferee" shall mean, (i) with respect to a
--------------------
Management Holder, a member of such Management Holder's immediate family, a
trust established for the benefit of members of such Management Holder's
immediate family, or a transferee of such Management Holder by will or the laws
of intestate succession, and (ii) with respect to a holder of Investor Stock,
any Affiliate of such Stockholder or any partner, shareholder or other equity
owner of such Stockholder.
1.11 "Person" shall mean any individual, partnership, corporation,
------
limited liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, governmental authority or other
entity of whatever nature.
2
<PAGE>
1.12 "Qualified Public Offering" shall mean an underwritten public
-------------------------
offering of Common Stock resulting in proceeds to the Company of not less than
$50.0 million (prior to expenses and underwriting commissions) and at an
offering price per share equal to at least $12.00 (as appropriately adjusted for
future stock splits, stock dividends, recapitalizations and similar transactions
affecting the Common Stock).
1.13 "Registrable Securities" shall mean the Investor Stock; provided,
----------------------
however, that Registrable Securities shall not include any shares of Investor
Stock that have previously been sold pursuant to an effective registration
statement under the Securities Act or that have otherwise been sold to the
public in an open-market transaction under Rule 144.
1.14 The terms "registers," "registered" and "registration" shall
--------- ---------- ------------
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and the declaration or ordering
of the effectiveness of such registration statement by the Commission.
1.15 "Registration Expenses" shall mean all expenses incurred in
---------------------
effecting any registration pursuant to this Agreement, including without
limitation all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, blue sky fees
and expenses, expenses of any regular or special audits incident to or required
by any such registration, and the fees and expenses of one counsel for the
selling holders of Registrable Securities, but excluding Selling Expenses.
1.16 "Rule 144" shall mean Rule 144 as promulgated by the Commission
--------
under the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
1.17 "Securities Act" shall mean the Securities Act of 1933 (or any
--------------
similar successor federal statute), as amended, and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
1.18 "Selling Expenses" shall mean all underwriting discounts and
----------------
selling commissions applicable to the sale of Registrable Securities.
1.19 "Series A Preferred Stock" shall mean the Company's Series A
------------------------
Preferred Stock, $.001 par value per share.
1.20 "Series B Preferred Stock" shall mean, collectively, the
------------------------
Company's Series B-1 Preferred Stock, $.001 par value per share, and Series B-2
Preferred Stock, $.001 par value per share.
3
<PAGE>
1.21 "Series C Preferred Stock" shall mean, collectively, the
------------------------
Company's Series C-1 Preferred Stock, $.001 par value per share, and Series C-2
Preferred Stock, $.001 par value per share.
ARTICLE II
REGISTRATION RIGHTS
2.1 Demand Registrations.
--------------------
(a) Request for Registration. At any time or times after the
------------------------
effective date of the first registration statement filed by the Company under
the Securities Act, the Initiating Holders may require that the Company effect a
registration under the Securities Act (i) in the case of a requested
registration on Form S-1 or any similar form (a "Long Form Registration"), with
----------------------
respect to at least ten percent (10%) of the Registrable Securities then
outstanding, or (ii) in the case of a requested registration on Form S-3 or any
similar form, if available (a "Short-Form Registration"), with respect to
-----------------------
Registrable Securities with an anticipated offering price of $5,000,000 or more
(each a "Demand Registration"). Upon receipt of written notice of such demand,
-------------------
the Company will promptly give written notice of the proposed registration to
all other holders of Registrable Securities and will include in such
registration all Registrable Securities specified in such demand, together with
all Registrable Securities of any other holder of Registrable Securities joining
in such demand as are specified in a written request received by the Company
within twenty (20) days after delivery of the Company's notice.
(b) Deferral of Demand Registration. The Company shall file a
-------------------------------
registration statement with respect to each Demand Registration requested
pursuant to Section 2.1 (a) as soon as practicable after receipt of the demand
of the Initiating Holders; provided, however, that if in the good faith judgment
of the Board of Directors of the Company, such registration would be seriously
detrimental to the Company in that such registration would interfere with a
proposed primary registration of securities by the Company or any other material
corporate transaction and the Board of Directors concludes, as a result, that it
is advisable to defer the filing of such registration statement at such time (as
evidenced by an appropriate resolution of the Board), then the Company shall
have the right to defer such filing for the period during which such
registration would be seriously detrimental; provided, however, that (x) the
Company may not defer the filing for a period of more than one hundred eighty
(180) days after receipt of the demand of the Initiating Holders, (ii) the
Company shall not exercise its right to defer a Demand Registration more than
once, and (iii) if the Company undertakes a primary registration following an
exercise of its deferral right, the holders of Registrable Securities shall have
"piggyback" rights under Section 2.2 hereof with respect to not less than one-
third (1/3) of the number of shares of Common Stock to be sold in such offering.
(c) Underwriting. If the Initiating Holders intend to distribute the
------------
Registrable Securities covered by a Demand Registration by means of an
underwriting, they shall so advise the Company as a part of their demand made
pursuant to Section 2.1 and the Company shall include such information in its
written notice to holders of Registrable Securities. The Initiating Holders
shall have the right to select the managing underwriter(s) for an underwritten
Demand Registration, subject to the approval of the Company's Board of Directors
(which will not be unreasonably withheld or delayed). The right of any
4
<PAGE>
holder of Registrable Securities to participate in an underwritten Demand
Registration shall be conditioned upon such holder's participation in such
underwriting in accordance with the terms and conditions thereof, and the
Company and such holders will enter into an underwriting agreement in customary
form.
(d) Priorities. The holders of Registrable Securities will have
----------
absolute priority over any other securities included in a Demand Registration.
If other securities are included in any Demand Registration that is not an
underwritten offering, all Registrable Securities included in such offering
shall be sold prior to the sale of any of such other securities. If other
securities are included in any Demand Registration that is an underwritten
offering, and the managing underwriter for such offering advises the Company
that in its opinion the amount of securities to be included exceeds the amount
of securities which can be sold in such offering without adversely affecting the
marketability thereof, the Company will include in such registration all
Registrable Securities requested to be included therein prior to the inclusion
of any other securities. If the number of Registrable Securities requested to be
included in such registration exceeds the amount of securities which in the
opinion of such underwriter can be sold without adversely affecting the
marketability of such offering, such Registrable Securities shall be included
pro rata among the holders thereof based on the percentage of the outstanding
Common Stock held by each such Stockholder (assuming the conversion of the
Convertible Preferred and the exercise of all options, warrants and similar
rights held by such Stockholder).
2.2 Piggyback Registrations
-----------------------
(a) Request for Inclusion. If the Company shall determine to
---------------------
register any of its securities for its own account or for the account of other
security holders of the Company on any registration form (other than Form S-4 or
S-8) which permits the inclusion of Registrable Securities (a "Piggyback
---------
Registration"), the Company will promptly give each holder of Registrable
- ------------
Securities written notice thereof and, subject to Section 2.2(c), shall include
in such registration all the Registrable Securities requested to be included
therein pursuant to the written requests of holders of Registrable Securities
received within twenty (20) days after delivery of the Company's notice.
(b) Underwriting. If the Piggyback Registration relates to an
------------
underwritten public offering, the Company shall so advise the holders of
Registrable Securities as a part of the written notice given pursuant to Section
2.2(a). In such event, the right of any holder of Registrable Securities to
participate in such registration shall be conditioned upon such holder's
participation in such underwriting in accordance with the terms and conditions
thereof. All holders of Registrable Securities proposing to distribute their
securities through such underwriting shall (together with the Company) enter
into an underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by the Company.
(c) Priorities. If such proposed Piggyback Registration is an
----------
underwritten offering and the managing underwriter for such offering advises the
Company that the securities requested to be included therein exceeds the amount
of securities that can be sold in such offering without adversely affecting the
marketability thereof, except as provided in Section 2.1(b), any securities to
be sold by the Company in such offering shall have priority over any Registrable
Securities, and the Registrable Securities to be sold in such
5
<PAGE>
offering shall have priority over any other securities. In the event that less
than all the Registrable Securities proposed to be sold are included in such
registration as a result of the priorities set forth in this Section 2.2(c), the
number of shares to be included by a holder of Registrable Securities in such
registration shall be reduced pro rata on the basis of the percentage of the
outstanding Common Stock held by such Stockholder (assuming the conversion of
the Convertible Preferred and the exercise of all options, warrants and similar
rights held by such Stockholder) and all other holders exercising similar
registration rights. The Company shall not grant any registration rights that
entitle the holders of other securities to any priority over the Registrable
Securities in any Piggyback Registration without the prior consent of the
holders of a majority or more of the then-outstanding Registrable Securities.
2.3 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with up to two Long-Form Registrations and all Short-Form and
Piggyback Registrations shall be borne by the Company; provided, however, that
(x) no registration shall count as one of the Company-paid Long Form
Registrations unless the holders of Registrable Securities are able to register
and sell at least 90% of the Registrable Securities requested to be included
therein, and (y) the holders of Registrable Securities shall be entitled to
additional Long-Form Registrations so long as such holders agree to bear all
Registration Expenses associated therewith. All Selling Expenses relating to
Registrable Securities included in any Demand or Piggyback Registration shall be
borne by the holders of such securities pro rata on the basis of the number of
shares sold by them.
2.4 Registration Procedures. In the case of each registration
-----------------------
effected by the Company pursuant to this Article II, the Company will keep each
holder of Registrable Securities advised in writing as to the initiation of such
registration and as to the completion thereof. At its expense, the Company will
use its best efforts to:
(a) cause such registration to be declared effective by the
Commission and, in the case of a Demand Registration, keep such registration
effective for a period of one hundred eighty (180) days or until the holders of
Registrable Securities included therein have completed the distribution
described in the registration statement relating thereto, whichever first
occurs;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement (including post-effective amendments) as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement;
(c) obtain appropriate qualifications of the securities covered by
such registration under state securities or "blue sky" laws in such
jurisdictions as may be requested by the holders of Registrable Securities;
provided, however, that the Company shall not be required to file a general
consent to service of process in any jurisdiction in which it is not otherwise
subject to service in order to obtain any such qualification;
6
<PAGE>
(d) furnish such number of prospectuses and other documents incident
thereto, including any amendment of or supplement to the prospectus, as a holder
of Registrable Securities from time to time may reasonably request;
(e) notify each holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such holder, prepare and
furnish to such holder a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading or
incomplete in the light of the circumstances then existing;
(f) cause all Registrable Securities covered by such registration to
be listed on each securities exchange or inter-dealer quotation system on which
similar securities issued by the Company are then listed;
(g) provide a transfer agent and registrar for all Registrable
Securities covered by such registration and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration;
(h) otherwise comply with all applicable rules and regulations of the
Commission, and make available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at least twelve
months, but not more than 18 months, beginning with the first month after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act; and
(i) in connection with any underwritten Demand Registration, the
Company will enter into an underwriting agreement reasonably satisfactory to the
Initiating Holders containing customary underwriting provisions, including
indemnification and contribution provisions.
2.5 Indemnification.
---------------
(a) The Company will indemnify each holder of Registrable Securities,
each of such holder's officers, directors, partners, agents, employees and
representatives, and each person controlling such holder within the meaning of
Section 15 of the Securities Act, with respect to each registration,
qualification or compliance effected pursuant to this Article II, against all
expenses, claims, losses, damages and liabilities (or actions, proceedings or
settlements in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other
7
<PAGE>
document (including any related registration statement, notification or the
like) incident to any such registration, qualification or compliance, or based
on any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or any violation by the Company of the Securities Act or any rule or regulation
thereunder applicable to the Company and relating to action or inaction required
of the Company in connection with any such registration, qualification or
compliance, and will reimburse each such indemnified person for any legal and
any other expenses reasonably incurred in connection with investigating and
defending or settling any such claim, loss, damage, liability or action;
provided, however, that the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability or expense arises out of or
is based on any untrue statement or omission based upon written information
furnished to the Company by such holder of Registrable Securities and stated to
be specifically for use therein. It is agreed that the indemnity agreement
contained in this Section 2.5(a) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Company (which consent has not been
unreasonably withheld).
(b) Each holder of Registrable Securities included in any
registration effected pursuant to this Article II shall indemnify the Company,
each of its directors, officers, agents, employees and representatives, and each
person who controls the Company within the meaning of Section 15 of the
Securities Act, each other participating holder of Registrable Securities and
each of their officers, directors and partners, and each person controlling such
holders, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
such indemnified persons for any legal or any other expenses reasonably incurred
in connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in strict conformity with written
information furnished to the Company by such holder of Registrable Securities;
provided, however, that (x) no holder of Registrable Securities shall be liable
hereunder for any amounts in excess of the net proceeds received by such holder
pursuant to such registration, and (y) the obligations of such holder of
Registrable Securities hereunder shall not apply to amounts paid in settlement
of any such claims, losses, damages or liabilities (or actions in respect
thereof) if such settlement is effected without the consent of such holder
(which consent has not been unreasonably withheld).
(c) Each party entitled to indemnification under this Section 2.5
(the "Indemnified Party") shall give notice to the party required to provide
-----------------
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
------------------
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom through counsel approved by the Indemnified Party
(whose approval shall not unreasonably be withheld), and the Indemnified Party
may participate in such defense at such party's expense; provided, however, that
the failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Section 2.5 to the
extent such failure is not prejudicial. No Indemnifying Party in the defense of
any such claim or litigation shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
8
<PAGE>
not include an unconditional release of such Indemnified Party from all
liability in respect to such claim or litigation. Each Indemnified Party shall
furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with defense of such claim and litigation resulting
therefrom.
(d) If the indemnification provided for in this Section 2.5 is held
by a court of competent jurisdiction to be unavailable to an Indemnified Party
with respect to any loss, liability, claim, damage or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. Notwithstanding the foregoing, no holder of Registrable
Securities shall be required to contribute amounts in excess of the amounts that
such holder would have been required to pay pursuant to the indemnification
provisions of this Section 2.5 (assuming such provisions were enforceable).
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in an underwriting agreement
entered into in connection with an underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
2.6 Other Obligations. With a view to making available the benefits
-----------------
of certain rules and regulations of the Commission that may effectuate the
registration of Registrable Securities or permit the sale of Registrable
Securities to the public without registration, the Company agrees to:
(a) after its initial registration under the Securities Act, exercise
best efforts to cause the Company to be eligible to utilize Form S-3 (or any
similar form) for the registration of Registrable Securities;
(b) at such time as any Registrable Securities are eligible for
transfer under Rule 144(k), upon the request of the holder of such Registrable
Securities, remove any restrictive legend from the certificates evidencing such
securities at no cost to such holder;
(c) make and keep available public information as defined in Rule 144
under the Securities Act at all times from and after ninety (90) days following
its initial registration under the Securities Act;
9
<PAGE>
(d) file with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
at any time after it has become subject to such reporting requirements;
(e) furnish any holder of Registrable Securities upon request a
written statement by the Company as to its compliance with the reporting
requirements of Rule 144 (at any time from and after ninety (90) days following
the effective date of the first registration statement filed by the Company for
an offering of its securities to the general public), and of the Securities Act
and the Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents as a holder of Registrable
Securities may reasonably request in availing itself of any rule or regulation
of the Commission (including Rule 144A) allowing a holder of Registrable
Securities to sell any such securities without registration.
2.7 Hold-Back Agreements. If requested by the Company or any
--------------------
underwriter of Common Stock of the Company, a holder of Registrable Securities
shall not sell or otherwise transfer or dispose of any Common Stock (other than
pursuant to such registration) during (a) in the case of the Company's initial
public offering of Common Stock for its own account, the one hundred eighty
(180) day period following the effective date of such registration statement,
and (b) in the case of all subsequent registrations of the Company's Common
Stock, the ninety (90) day period following the effective date of such
registration statement; provided, however, that if holders of Management Stock
are subjected to hold-back restrictions of shorter duration, such shorter
periods shall apply to holders of Registrable Securities. The obligations
described in this Section 2.7 shall not apply to a registration on Form S-4 or
Form S-8 or similar forms which may be promulgated in the future and, except in
the case of the Company's initial public offering, shall not apply to a holder
of Registrable Securities representing less than one percent (1%) of the then-
outstanding Common Stock.
2.8 Termination of Registration Rights. The right of any holder of
----------------------------------
Registrable Securities to request inclusion of Registrable Securities in any
registration pursuant to this Article II shall terminate when (i) all
Registrable Securities beneficially owned by such holder of Registrable
Securities may immediately be sold under Rule 144(k), and (ii) the Company's
Common Stock is listed on a national securities exchange or traded in The Nasdaq
Stock Market; provided, however, that the provisions of this Section 2.8 shall
not apply to any holder of Registrable Securities representing more than two
percent (2%) of the then-outstanding Common Stock.
ARTICLE III
TRANSFER RESTRICTIONS
3.1 Prohibition on Transfer. No Stockholder shall sell, transfer,
-----------------------
assign, pledge or otherwise dispose of any interest in any Common Stock (a
"Transfer") other than in compliance with this Article III. Each Stockholder
--------
agrees not to consummate any Transfer (other than a Transfer to a Permitted
Transferee pursuant to Section 3.4) until the expiration of a 30-day period (the
"Election Period") following
---------------
10
<PAGE>
delivery by such Stockholder of a Sale Notice pursuant to Section 3.2 or an
Offer Notice pursuant to Section 3.3, as applicable.
3.2 Right of First Refusal. If at any time a Management Holder
----------------------
receives a bona fide offer from any person to purchase shares of Common Stock
held by such Management Holder (a "Third-Party Offer"), such Management Holder
-----------------
shall cause such Third-Party Offer to be reduced to writing and shall notify the
Company and each holder of Investor Stock of such Management Holder's desire to
accept the Third-Party Offer. The Management Holder's notice (the "Sale
----
Notice") shall contain an irrevocable offer to sell such Common Stock to the
- ------
Company at a purchase price equal to the price contained in, and on the same
terms and conditions of, the Third-Party Offer and shall be accompanied by a
true copy of the Third-Party Offer (which shall identify the offeror). At any
time within 20 days after the date of receipt by the Company of the Sale Notice,
the Company shall have the right, exercisable by delivery of written notice to
the transferring Stockholder, to purchase all or any portion of the Common Stock
covered by the Sale Notice at the same price and on the same terms and
conditions as the Sale Notice. In the event that the Company does not elect to
acquire all of the Common Stock specified in the Sale Notice, each holder of
Investor Stock shall have the right, exercisable by delivery of written notice
to the transferring Stockholder prior to the expiration of the Election Period,
to purchase all or any portion of its pro rata share (equal to such electing
Stockholder's percentage interest in the outstanding Investor Stock) of the
remaining shares covered by the Sale Notice. The Company or the holders of
Investor Stock may pay cash to the selling Management Holder equal in amount to
the fair market value of any non-cash consideration offered in the Third-Party
Offer. If the Company and/or the holders of Investor Stock have not notified
the selling Management Holder in writing of their election to purchase all
shares of such Common Stock as set forth herein prior to the expiration of the
Election Period, the selling Management Holder may within 60 days thereafter
sell the balance of such Common Stock not purchased by the Company and/or the
holders of Investor Stock on the terms set forth in the original Third-Party
Offer. Any Management Stock covered by the Third Party Offer that is not so
transferred during such 60-day period shall again be subject to this Section
3.2.
3.3 Right of First Offer. Prior to any Transfer of Investor Stock,
--------------------
the transferring Stockholder shall deliver a written notice (the "Offer Notice")
------------
to the Company and the other holders of Investor Stock disclosing in reasonable
detail the number of shares of Investor Stock proposed to be transferred (the
"Offered Shares") and the terms and conditions of such proposed Transfer. Each
- ---------------
other holder of Investor Stock shall have the right, exercisable by delivery of
written notice to the transferring Stockholder within 20 days after delivery of
the Offer Notice, to purchase all (but not less than all) of its pro rata share
(equal to such electing holder's percentage interest in the outstanding Investor
Stock) of the Offered Shares on the terms and conditions set forth in the Offer
Notice. In the event that any holder of Investor Stock declines to exercise its
right of first offer, the remaining unpurchased portion of the Offered Shares
shall be reoffered to the electing holders of Investor Stock on a pro rata basis
until the expiration of the Election Period. To the extent that the holders of
Investor Stock have not elected to purchase all of the Offered Shares prior to
the expiration of the Election Period, the transferring Stockholder may, within
90 days after the expiration of the Election Period, Transfer such Offered
Shares to one or more third parties at a price not less than 95% of the price
per share specified in the Offer Notice. Any Offered Shares not transferred
during such 90-day period shall again be subject to the provisions of this
Section 3.3 upon subsequent Transfer.
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<PAGE>
3.4 Exempt Transactions. The restrictions set forth in this Article
-------------------
III shall not apply to Transfers of Management Stock or Investor Stock to a
Permitted Transferee of the transferring Stockholder; provided, however, that
such Permitted Transferee shall agree in writing to be bound by such
restrictions in connection with subsequent Transfers.
3.5 Repurchase Restrictions. In the event of termination of a
-----------------------
Management Holder's employment with the Company and its subsidiaries for any
reason, the Company shall have the right, exercisable by written notice to the
Management Holder at any time prior to the expiration of a 30-day period
following such termination of employment, to repurchase all or any portion of
the Management Stock held by such Management Holder and its Permitted
Transferees at a cash price per share equal to the fair market value of the
Common Stock as determined in good faith by the Company's Board of Directors as
of the date of termination or, in the case of Management Stock that is subject
to vesting or similar restrictions at the time of termination, at the Management
Holder's original purchase price for such shares of Management Stock. The
closing of the repurchase of Management Stock shall occur within 90 days of
termination of the Management Holder's employment or such longer period of time
determined by the Company in good faith to be necessary to avoid the loss of
"qualified small business stock" treatment under Section 1202 of the Internal
Revenue Code for any Stockholder other than the terminated Management Holder.
ARTICLE IV
COVENANTS OF THE COMPANY
The Company hereby covenants and agrees, so long as any Registrable
Securities are outstanding, as follows:
4.1 Basic Financial Information. The Company will furnish the
---------------------------
following reports to each holder of Registrable Securities:
(a) As soon as practicable after the end of each fiscal year of the
Company, and in any event within one hundred twenty (120) days thereafter, a
consolidated balance sheet of the Company and its subsidiaries, if any, as of
the end of such fiscal year, and consolidated statements of income and cash flow
of the Company and its subsidiaries, if any, for such year, prepared in
accordance with generally accepted accounting principles consistently applied
and setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail and certified by independent public
accountants of recognized national standing selected by the Company.
(b) As soon as practicable after the end of each quarterly accounting
period in each fiscal year of the Company, and in any event within forty-five
(45) days thereafter, a consolidated balance sheet of the Company and its
subsidiaries, if any, as of the end of each such quarterly period, and
consolidated statements of income and cash flow of the Company and its
subsidiaries, if any, for such period and for the current fiscal year to date,
prepared in accordance with generally accepted accounting principles
consistently applied and setting forth in comparative form the figures for the
corresponding periods of the
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<PAGE>
previous fiscal year, subject to changes resulting from normal year-end audit
adjustments, all in reasonable detail and certified by the chief financial
officer of the Company, except that such statements need not contain the notes
required by generally accepted accounting principles.
(c) As soon as practicable after the end of each monthly accounting
period and in any event within thirty (30) days thereafter, a consolidated
balance sheet of the Company and its subsidiaries, if any, as of the end of such
month and consolidated statements of income and of cash flow of the Company and
its subsidiaries, if any, for each month and for the current fiscal year of the
Company to date, all subject to normal year-end audit adjustments, prepared in
accordance with generally accepted accounting principles consistently applied
and certified by the chief financial officer of the Company, except that (x)
such statements need not contain the notes required by generally accepted
accounting principles, and (y) with respect to any non-U.S. subsidiary of the
Company that has been a subsidiary of the Company for less than nine months, the
Company shall be obligated only to use its best efforts to include such
subsidiary in such consolidated financial statements.
4.2 Additional Information Rights.
-----------------------------
(a) The Company will permit each holder of Registrable Securities
representing at least five percent (5%) of the fully-diluted Common Stock (a
"Significant Holder"), to visit and inspect any of the properties of the
Company, including its books of account and other records (and make copies
thereof and take extracts therefrom), and to discuss its affairs, finances and
accounts with the Company's officers and its independent public accountants, all
at such reasonable times and as often as any such person may reasonably request.
For purposes of the definition of Significant Holder, BCI Growth V, L.P., BCI
Investors, LLC and First Union Investors, Inc. shall be considered a single
holder and the stock holdings of such entities shall be aggregated.
(b) The Company will deliver the reports described below in this
Section 4.2(b) to each Significant Holder:
(i) Annually (but in any event at least thirty (30) days prior
to the commencement of each fiscal year of the Company) the financial
plan of the Company, in such manner and form as approved by the Board
of Directors of the Company, which financial plan shall include an
operating budget for such fiscal year and an updated five-year
strategic plan for the Company.
(ii) Concurrently with delivery thereof, copies of all reports
and other written material submitted to the Board of Directors
(subject to such reasonable confidentiality policies and procedures as
the Board of Directors may adopt in good faith from time to time).
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<PAGE>
(iii) As soon as practicable after delivery thereof, copies of
any reports or communications delivered to the financial community,
including all press releases.
(c) Each Significant Holder hereby agrees to hold in confidence and
trust and not to misuse or disclose any confidential information provided
pursuant to this Section 4.2; provided, however, that an Investor shall not be
prohibited from using any such information for the sole purpose of generating
and delivering portfolio valuation information to its investors.
4.3 Prompt Payment of Taxes, etc. The Company will promptly pay and
-----------------------------
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company or any subsidiary; provided,
however, that any such tax, assessment, charge or levy need not be paid if the
validity thereof shall currently be contested in good faith by appropriate
proceedings and if the Company shall have set aside on its books adequate
reserves with respect thereto; and provided, further, that the Company will pay
all such taxes, assessments, charges or levies forthwith upon the commencement
of proceedings to foreclose any lien which may have attached as security
therefor. The Company will promptly pay or cause to be paid when due, in
conformance with customary trade terms, all other obligations incident to the
operations of the Company.
4.4 Maintenance of Properties and Leases. The Company will keep its
------------------------------------
properties and those of its subsidiaries, if any, in good repair, working order
and condition, reasonable wear and tear excepted, and from time to time make all
needful and proper repairs, renewals, replacements, additions and improvements
thereto; and the Company and its subsidiaries will at all times comply with each
material provision of all leases to which any of them is a party or under which
any of them occupies property if the breach of such provision might have a
material and adverse effect on the condition, financial or otherwise, or
operations of the Company.
4.5 Insurance. The Company will keep its assets and those of its
---------
subsidiaries which are of an insurable character insured by financially sound
and reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in the Company's line of business, and
the Company will maintain, with financially sound and reputable insurers,
insurance against other hazards and risks and liability to persons and property
to the extent and in the manner customary for companies in similar businesses
similarly situated.
4.6 Accounts and Records. The Company will keep true records and
--------------------
books of account in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and affairs in accordance
with generally accepted accounting principles applied on a consistent basis.
4.7 Independent Accountants. The Company will retain a "Big Five"
-----------------------
national accounting firm as its independent public accountants who shall certify
the Company's financial statements at the end of each fiscal year. In the event
the services of the independent public accountants so selected are terminated,
the Company will promptly thereafter notify the holders of Investor Stock and
will request the
14
<PAGE>
firm of independent public accountants whose services are terminated to deliver
to the Investors a letter from such firm setting forth the reasons for the
termination of their services. In the event of such termination, the Company
will promptly thereafter engage another "Big Five" national accounting firm as
its independent public accountants. In its notice to the holders of Investor
Stock the Company shall state whether the change of accountants was recommended
or approved by the Board of Directors of the Company or any committee thereof.
4.8 Compliance with Laws. The Company and all its subsidiaries shall
--------------------
duly observe and conform to all applicable laws and valid requirements of
governmental authorities relating to the conduct of their businesses or to their
properties or assets.
4.9 Maintenance of Corporate Existence. etc. The Company shall
---------------------------------------
maintain in full force and effect its corporate existence, rights and franchises
and all licenses and other rights in or to use patents, processes, licenses,
trademarks, trade names or copyrights owned or possessed by it or any subsidiary
and deemed by the Company to be necessary to the conduct of their business.
4.10 Preemptive Rights. In the event that the Company proposes to
-----------------
issue any Common Stock or any other equity securities, the Company shall give
not less than 30 days' prior written notice to the Investors setting forth the
terms and conditions of such proposed issuance (the "Issuance Notice"). The
---------------
Investors shall have the preemptive right to purchase up to 80% of the
securities so offered on the terms and conditions set forth in the Issuance
Notice by giving written notice to the Company within fifteen days after receipt
of the Issuance Notice (the "Preemptive Election Period"). Each electing
--------------------------
Investor shall have the right to purchase all or any portion of its pro rata
share of the offered securities (determined by dividing such Investor's
percentage interest in the Common Stock on a fully-diluted basis by the
aggregate percentage interest of all electing Investors and multiplying such
quotient by 80% of the offered securities); provided, however, that if any
Investor declines to exercise its preemptive right in full, the remaining
electing Investors shall be entitled to purchase such Investor's unpurchased
portion of the offered securities on a pro rata basis. The Company may issue and
sell all offered securities not purchased by the Investors on the terms and
conditions set forth in the issuance Notice within 90 days after the expiration
of the Preemptive Election Period; provided, however, that any offered
securities not sold within such 90 day period or any offered securities that are
proposed to be sold on terms and conditions less favorable to the Company than
those set forth in the Issuance Notice shall again be subject to the procedure
set forth in this Section 4.10 prior to issuance. The provisions of this
Section 4.10 shall not apply to any Permitted Issuance (as defined in Section 6
of Article Four of the Company's Certificate of Incorporation, as amended) or
any issuance of equity securities for non-cash consideration to non-Affiliates
of the Company. For purposes of this Section 4.10, an Investor and its
Affiliates shall be deemed to be one person, and an Investor may assign its
rights pursuant to this Section 4.10 to one or more of such Affiliates, subject
only to compliance with applicable securities laws.
4.11 Directed Share Program. In connection with the Company's
----------------------
initial public offering of Common Stock, to the extent permitted by applicable
laws and the rules and regulations of the Commission, the Company will set aside
not less than 5.0% of the securities proposed to be offered to the public for
purchase by holders of Investor Stock, which holders shall be entitled to
subscribe for such
15
<PAGE>
securities on a pro rata basis (determined by dividing each participating
holder's percentage interest in the fully-diluted Common Stock by the aggregate
percentage interest of all participating holders).
4.12 Issuance of Management Stock. The Company shall not issue
----------------------------
any shares of Common Stock to its officers or employees unless such persons
agree in writing to be bound by the provisions hereof as a Management Holder.
4.13 Investment Company Act. The Company shall conduct its
----------------------
operations such that it does not become subject to regulation as an "investment
company" as that term is defined in the Investment Company Act of 1940, as
amended, and the rules and regulations of the Commission thereunder.
ARTICLE V
CORPORATE GOVERNANCE
5.1 Board of Directors.
------------------
(a) Concurrently with the Closing and at all times thereafter, each
Stockholder agrees to vote all securities of the Company over which such
Stockholder has voting control and to take all other necessary or desirable
actions within its control (whether as a stockholder, director or officer of the
Company or otherwise, and including without limitation attendance at meetings in
person or by proxy for purposes of obtaining a quorum and execution of written
consents in lieu of meetings), and the Company shall take all necessary and
desirable actions within its control (including, without limitation, calling
special board and stockholder meetings), so that:
(i) the Company shall have a Board of Directors comprised of
no more than ten members;
(ii) the following persons shall be elected to the Board of
Directors:
(A) The Company's chief executive officer at such time
as a chief executive officer is appointed by the Board (the
"Management Director");
-------------------
(B) Three representatives designated by the holders of
the outstanding Series C-1 Preferred Stock, one of which shall be
designated by Providence Equity Partners, L.P., one of which shall be
designated by BCI Growth V, LLC and one of which shall be designated
by Norwest Equity Partners, LLC, in each case so long as such Investor
and/or its Affiliates continue to constitute a Significant Holder (the
"Series C Directors");
------------------
(C) Four representatives designated by the holders of
the outstanding Series A Preferred Stock and Series B-1 Preferred
Stock, one of which shall be designated by Centennial Fund VI, L.P.,
one of which shall be designated by Telecom Partners II, L.P., one of
which shall be designated by Verio Inc., and one of which shall be
designated by
16
<PAGE>
HarbourVest International Private Equity Partners III-Direct Fund
L.P., in each case so long as such Investor and/or its Affiliates
continue to constitute a Significant Holder (together with the Series
C Directors, the "Investor Directors"); and
------------------
(D) Two independent directors selected by the Board of
Directors and approved by the Board and the holders of a majority of
the outstanding Investor Stock (the "Outside Directors"), such
-----------------
approval not to be unreasonably withheld.
(iii) in the event that any director for any reason ceases to
serve as a member of the Board during his term of office, the
resulting vacancy on the Board shall be filled by a majority vote of
the Stockholders entitled to elect such director as provided in this
Section 5.1; and
(iv) if the Stockholders fail or cease to be entitled to
designate a representative to fill a directorship pursuant to the
terms of this Section 5.1, the election of such director shall be
accomplished, in the case of a Series C Director, by vote of the
holders of Series C-1 Preferred or, in the case of any other Investor
Director, by the holders of Series A and Series B-1 Preferred, in each
case in accordance with the Company's certificate of incorporation and
bylaws and applicable law.
(b) To the extent that such Stockholder does not have a
representative on the Board of Directors, each Significant Holder shall have the
right to designate a non-voting observer (an "Observer") to attend all meetings
--------
of the Board.
(c) To the extent that any provision of the Company's certificate of
incorporation or by-laws is inconsistent with the provisions of this Agreement,
the Stockholders agree to take all actions necessary to effect such amendments
to the certificate of incorporation or by-laws as may be necessary and
appropriate to give full effect to the provisions of this Agreement. The
Company and the Stockholders further agree, promptly following the execution of
this Agreement, to take all steps necessary to amend the Company's certificate
of incorporation to increase the number of authorized shares of Series C-2
Preferred Stock to 6,000,000 shares and thereafter to take all necessary actions
to amend the Company's certificate of incorporation to authorize additional
shares of its capital stock from time to time to the extent required to satisfy
conversion rights of the Convertible Preferred.
5.2 Meetings of the Board. The Board of Directors will meet at
---------------------
least four times each year in accordance with an agreed-upon schedule.
5.3 Committees. The Board of Directors shall maintain an audit,
----------
nominating and compensation committees and shall delegate to such committees
those duties and powers as are customarily performed by committees of such type.
The audit committee shall not include any representatives of the Company's
management.
17
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5.4 Reimbursement of Expenses. The reasonable travel expenses of
-------------------------
each Investor Director or Observer incurred in attending or observing Board or
committee meetings shall be reimbursed by the Company.
ARTICLE VI
MISCELLANEOUS
6.1 Governing Law. This Agreement shall be governed in all respects
-------------
by the laws of the State of Delaware as such laws are applied to agreements
between Delaware residents entered into and performed entirely in Delaware.
Without limiting the foregoing, the General Corporation Law of the State of
Delaware shall govern as to matters of corporate law.
6.2 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
6.3 Entire Agreement: Amendment and Waiver. This Agreement and the
--------------------------------------
Purchase Agreement constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof. Neither this Agreement
nor any term hereof may be amended, waived, discharged or terminated except by a
written instrument signed by the Company and the holders of at least two-thirds
of the outstanding Investor Stock, and any such amendment, waiver, discharge or
termination shall be binding on all the Stockholders. Notwithstanding the
foregoing, no amendment to Section 5.1(a)(ii)(B) or (C) of this Agreement that
adversely affects an Investor's right to designate an Investor Director shall be
effective without the consent of the affected Investor. Notwithstanding any
other provision of this Agreement, in no event shall any vote or consent
otherwise required hereunder of any holder (as such) of nonvoting securities of
the Company that is subject to the Bank Holding Company Act of 1956, as amended,
and the regulations thereunder be so required (i) unless the matter subject to
such vote or consent would "significantly and adversely affect the rights or
preferences of the security or interest" of such holder, as such terms are used
in Section 225.2(q)(2)(i) of Regulation Y of the Board of Governors of the
Federal Reserve System or (ii) if the requirement for such vote or consent would
be to cause the shares of Series B-2 Preferred or Series C-2 Preferred held by
such holder to be considered "voting securities" for purposes of Regulation Y.
6.4 Notices, etc. All notices and other communications required or
-------------
permitted hereunder shall be in writing and shall be mailed by United States
first-class mail, postage prepaid, or delivered personally addressed by hand or
special courier (a) if to a Stockholder, to the address reflected in the
Company's stock ledger, or at such other address as such Stockholder shall have
furnished to the Company in writing, or (b) if to the Company, at 12100 Sunset
Hills Road, Reston, Virginia 20190, ATTN: General Counsel or at such other
address as the Company shall have furnished to each Stockholder in writing. All
such notices and other written communications shall be effective (i) if mailed,
five (5) days after mailing and (ii) if delivered, upon delivery.
18
<PAGE>
6.5 Delays or Omissions. No delay or omission to exercise any
-------------------
right, power or remedy accruing to any Stockholder under this Agreement shall
impair any such right, power or remedy of such Stockholder nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any Stockholder of
any breach or default under this Agreement or any waiver on the part of any
Stockholder of any provisions or conditions of this Agreement must be made in
writing and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement or by law or otherwise
afforded to any Stockholder, shall be cumulative and not alternative.
6.6 Severability. Unless otherwise expressly provided herein, a
------------
Stockholder's rights hereunder are several rights, not rights jointly held with
any of the other Stockholders. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
6.7 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
6.8 Termination. The provisions of this Agreement (other than
-----------
Article II hereof) shall terminate upon consummation of a Qualified Public
Offering. The provisions of Article II shall terminate on the tenth anniversary
of the date hereof.
6.9 Specific Enforcement. Any holder of Investor Stock shall be
--------------------
entitled to specific enforcement of its rights under this Agreement. The
parties acknowledge that money damages would be an inadequate remedy for a
breach of this Agreement and consent to an action for specific performance or
other injunctive relief in the event of any such breach.
* * * * *
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Stockholders
Agreement effective as of the day and year first above written.
VIA NET WORKS, INC.
By: /s/ David D'Ottavio
----------------------------------
Name: David D'Ottavio
-------------------------------
Title: President
-------------------------------
INVESTORS:
CENTENNIAL FUND VI, L.P.
By: Centennial Holdings VI, LLC
Its General Partner
By: /s/ Steven C. Halstedt
----------------------------------
Name: Steven C. Halstedt
-------------------------------
Title: Managing Principal
-------------------------------
CENTENNIAL FUND V, L.P.
By: Centennial Holdings V, L.P.
Its General Partner
By: /s/ Steven C. Halstedt
----------------------------------
Name: Steven C. Halstedt
-------------------------------
Title: General Partner
-------------------------------
CENTENNIAL HOLDINGS I, LLC
By: /s/ Steven C. Halstedt
----------------------------------
Name: Steven C. Halstedt
-------------------------------
Title: President & CEO
-------------------------------
20
<PAGE>
CENTENNIAL ENTREPRENEURS FUND V, L.P.
By: Centennial Holdings V, L.P.
Its General Partner
By: /s/ Steven C. Halstedt
------------------------------------
Name: Steven C. Halstedt
----------------------------------
Title: General Partner
----------------------------------
TELECOM PARTNERS II, L.P.
By: Telecom Management II, LLC
Its General Partner
By: /s/ Mark D. Adolph
-----------------------------------
Name: Mark D. Adolph
----------------------------------
Title: CFO
---------------------------------
NORWEST VENTURE PARTNERS VI, L.P.
By: Itasca VC Partners VI, LLP
By: /s/ John P. Whaley
-----------------------------------
Name: John P. Whaley
----------------------------------
Title: Partner
---------------------------------
NORWEST EQUITY CAPITAL, LLC
By: Itasca NEC, L.L.C.
Its Managing Member
By: /s/ John P. Whaley
------------------------------------
Name: John P. Whaley
----------------------------------
Title: Member
---------------------------------
VERIO INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
21
<PAGE>
SIS INTERNATIONAL HOLDING, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
CHASE EQUITY ASSOCIATES
By: /s/ Mitchell Blutt, MD
------------------------------------
Name: Mitchell Blutt, MD
----------------------------------
Title: Executive Partner
---------------------------------
MILLENNIAL HOLDINGS LLC
By: /s/ Laura I. Beller
------------------------------------
Name: Laura I. Beller
----------------------------------
Title: Managing Member
---------------------------------
BESSEMER VENTURE INVESTORS L.P.
By: Deer IV & Co. LLC
By: /s/ Robert H. Buescher
------------------------------------
Name: Robert H. Buescher
Title: Manager
BESSEMER VENTURE PARTNERS IV L.P.
By: Deer IV & Co. LLC
By: /s/ Robert H. Buescher
------------------------------------
Name: Robert H. Buescher
Title: Manager
22
<PAGE>
BESSEC VENTURES IV L.P.
By: Deer IV & Co. LLC
By: /s/ Robert H. Buescher
------------------------------------
Name: Robert H. Buescher
Title: Manager
HARBOURVEST INTERNATIONAL PRIVATE
EQUITY PARTNERS III - DIRECT FUND L.P.
By: HIPEP III-Direct Associates L.L.C.
Its General Partner
By: HarbourVest Partners, LLC
Its Managing Member
By: /s/ William A. Johnston
------------------------------------
Name: William A. Johnston
----------------------------------
Title: Managing Director
---------------------------------
CRESCENDO WORLD FUND, LLC
By: Crescendo Ventures World Fund, LLC
Its Managing Member
By: /s/ Jeffrey R. Tolletson
------------------------------------
Name: Jeffrey R. Tolletson
----------------------------------
Title: General Partner
---------------------------------
EAGLE VENTURES WF, LLC
By: /s/ Jeffrey R. Tolletson
------------------------------------
Name: Jeffrey R. Tolletson
----------------------------------
Title: General Partner
---------------------------------
23
<PAGE>
BOSTON MILLENNIA PARTNERS LIMITED
PARTNERSHIP
By: Glen Partners Limited Partnership
Its General Partner
By: [SIGNATURE ILLEGIBLE]
------------------------------------
General Partner
BOSTON MILLENNIA ASSOCIATES I
PARTNERSHIP
By: [SIGNATURE ILLEGIBLE]
------------------------------------
General Partner
RHO MANAGEMENT TRUST I
By: Rho Management Company, Inc., Investment
Advisor
By: [SIGNATURE ILLEGIBLE]
------------------------------------
General Partner
CITIZENS CAPITAL, INC.
By: Robert E. Garrow
------------------------------------
Vice President
CHESTNUT INVESTMENT ASSOCIATES 1998
By: Albert A. Holman III
------------------------------------
General Partner
24
<PAGE>
FIMA FINANCIAL MANAGEMENT INC.
By: /s/ N. Peter Ruys
------------------------------------
Name: N. Peter Ruys
----------------------------------
Title: Director
---------------------------------
/s/ Josef von Rickenbach
---------------------------------------
Josef von Rickenbach
/s/ Joshua B. Tanzer
---------------------------------------
Joshua B. Tanzer
/s/ Allyn C. Woodward, Jr.
---------------------------------------
Allyn C. Woodward, Jr.
/s/ Leon Seynave
---------------------------------------
Leon Seynave
BCI GROWTH V, L.P.
By: Glenpointe Associates V, LLC
Its General Partner
By: /s/ Stephen Eley
------------------------------------
Name: Stephen Eley
----------------------------------
Title: Managing Member
---------------------------------
BCI INVESTORS, LLC
By: /s/ Stephen Eley
------------------------------------
Name: Stephen Eley
----------------------------------
Title: Managing Member
---------------------------------
25
<PAGE>
PROVIDENCE EQUITY PARTNERS, L.P.
By: Providence Equity Partners LLC
Its General Partner
By: /s/ Paul J. Salem
------------------------------------
Name: Paul J. Salem
----------------------------------
Title: Managing Director
---------------------------------
PROVIDENCE EQUITY PARTNERS II, L.P.
By: Providence Equity Partners LLC
Its General Partner
By: /s/ Paul J. Salem
------------------------------------
Name: Paul J. Salem
----------------------------------
Title: Managing Director
---------------------------------
FIRST UNION INVESTORS, INC.
By: /s/ Lee Hamrick III
------------------------------------
Name: Lee Hamrick III
----------------------------------
Title: SVP
---------------------------------
26
<PAGE>
Exhibit 10.13
VERIO
8005 S. Chester Street, Suite 200
Englewood, Colorado 80112
303 - 645 - 1900 (phone)
303 - 708 - 2490 (fax)
Verio Transit Service Agreement
This Transit Services Agreement ("Agreement") is made as of 1 August, 1999
between Verio Inc. ("VERIO") and the Customer identified below. Subject to the
terms and conditions of this Agreement, Customer agrees to purchase and VERIO
agrees to provide the services set forth in Paragraph (6) below (collectively,
the "Services").
1) Customer name and address:
Company Name: VIA Net Works, Inc.
Address: 12100 Sunset Hills Road, Suite 110
Reston, VA 20190
Phone: (703) 464 0300
Fax: (703) 464 0608
2) Company Contact and notice address:
Name: Roy Stubbs
Address: As in 1) above.
Phone: (703) 464 3609
Fax: (703 464 0608
e-mail: [email protected]
A copy of any notice to Customer to be sent to (if different from above):
Name: Matt S. Nydell
Address: As in 1) above
Phone: 703 464 3607
Fax: 703 464 0608
e-mail: [email protected]
3) Billing Contact: Name: Maritza Carnegie
Address: As in 1) above.
Phone: (703) 464 3614
Fax: (703) 464 0608
e-mail: [email protected]
4) Technical Contact:Name: Schon Hubeny
Address: As in 1) above.
Phone: (703) 464 3610
Fax: (703) 464 0608
e-mail: [email protected]
5) VERIO Contact: Name: Tony Humpage
Address: Verio Inc.
8005 S. Chester Street, Suite 200
Englewood, Colorado 80112
Phone: (503) 471 0800
Fax: (503) 227 5945
e-mail: [email protected]
<PAGE>
A copy of any notice to Verio to be sent to:
Verio Inc.
Attn: Legal Department
8005 S. Chester St., Ste 200
Englewood, CO 80112
6) Services to be delivered:
Dedicated DS3 IP service at Verio's POP at 60 Hudson, New York. Uncapped
DS3 interface with capability to burst to the full interface capacity.
Proactive monitoring of the connection 24 hours per day, 365 days per year.
Customer support available 24 hours per day, 365 days per year. Colocation
space for one rack at Verio's POP location at 60 Hudson, New York
(additional terms to be defined).
Installation of the connection between Customer's and Verio's routers.
7) Customer supplied equipment/facilities and provision of local loops:
VIA will colocate one rack of equipment with Verio at 60 Hudson.
(additional terms to be defined.)
No local loops required. This is a local interconnect at 60 Hudson between
Customer's router and Verio's backbone router.
Customer will provide, at its cost, a DS3 interface on its router at 60
Hudson for the Verio IP connection.
8) Service Date: Will enter date as soon as one is available from Qwest.
9) Fees and Charges:
a) One time fees:
Installation and startup fee for DS3 interface: $2,000
Colocation installation and startup: $1,000
b) Monthly recurring fees:
IP charges are based on measured usage of the interface.
Verio will sample the traffic level on the interface no less frequently
than once every 5 minutes. Traffic level is determined by the maximum
of the input or output level on the interface. Measured usage is the
traffic level under which 95% of samples fall over each calendar month.
If Customer orders a second Verio connection at a different Verio
backbone location, this price will apply to the sum of the measured
usage for the two locations, with each location being separately
measured as above.
Price per megabit:
Measured usage Price/Mbps
Less than 10 Mbps $1,100
<PAGE>
10 Mbps to 19.99 Mbps $975
20 Mbps to 45 Mbps $900
45 Mbps - 75 Mbps $850
75 Mbps - 99.99 Mbps $800
100 Mbps and more $750
Minimum monthly fee for IP services is $3,300 per month. Services will
be billed monthly in arrears and will be based on the prior month's
actual usage.
Colocation monthly fee: $625.
10) Term Commitment: 36 months from the Commencement Date (defined below).
11) Duration of offer: Prices in this Agreement are good provided Customer
signs this Agreement by July 30, 1999.
12) Other Terms and Conditions
a) Customer Obligations: Customer shall be responsible for providing and
--------------------
maintaining, at Customer's cost, all equipment and space, conduit,
electrical power and environmental conditions required to enable VERIO
to offer the Services. Customer shall also be responsible for
provisioning local loops, unless VERIO has specifically agreed to
provide local loops as noted in paragraph (7) above. VERIO has no
responsibility for Customer provided equipment and/or facilities. In
the event that Customer's equipment and/or facilities impair Customer's
use of the Services, Customer shall nevertheless be liable for payment
for the Services. In addition, should Customer's use of or failure to
maintain its equipment and/or facilities cause or be likely to cause in
VERIO'S reasonable judgment hazard, interference or obstruction of
VERIO's or its suppliers' networks or services, VERIO shall be entitled
to terminate or suspend the Services.
b) Fees and Payment: Customer shall pay the fees and other charges
----------------
("Service charges") set forth in Paragraph (9) for each Service as
provided in this Agreement. Billing for transport services shall
commence on the later of the Service Date, or the date that VERIO can
provide end to end connectivity ("Commencement Date"). In the event
that VERIO has failed to deliver the Services within forty-five (45)
days of the Service Date (other than as the result of a failure by
Customer to meet its obligations under Paragraph 12(a) or Customer's
failure to accept installation of the Services), Customer may, as its
sole and exclusive remedy for VERIO's failure to provide the Services,
terminate this Agreement. Service charges shall be invoiced monthly in
advance, unless otherwise agreed, and payment shall be due on the date
specified in the invoice ("Due Date"). Set-Up charges shall be invoiced
upon installation of Services by VERIO. Customer shall pay a late
payment charge equal to 1.5% (or the highest amount permitted by law,
whichever Is lower) per month or portion thereof on the outstanding
balance of any invoice remaining unpaid thirty (30) days after the Due
Date. Customer's failure to pay the invoiced amount in full by the end
of the thirty (30) day period shall entitle VERIO to suspend or
terminate the Services. Such suspension or termination shall not
relieve Customer of its obligation to pay the Service charges. Customer
agrees to pay VERIO its reasonable expenses, including attorney's fees
and collection agency fees, incurred in enforcing VERIO's rights under
this Agreement. Customer shall pay all federal, state, and local sales,
use, value added, excise, duty and any other taxes assessed with
respect to the Services, except taxes based on VERIO's net income. In
addition,
<PAGE>
Customer may also be required to pay telco installation and
recurring fees, domain name registration fees, and other equipment
costs. All payments shall be in U.S. dollars.
c) Customer Representations and Warranties: Customer represents and
---------------------------------------
warrants that: i) Customer has received all necessary permits, licenses
approvals and grants necessary to carry out the businesses in which
Customer is engaged; ii) Customer has complied and will comply for the
term of this Agreement with all laws, regulations, orders and statues
which may be applicable to Customer. A breach by Customer of this
paragraph 12(c) shall entitle VERIO to immediately terminate this
Agreement.
d) Use of Services: Customer shall use and permit the use of the Services
---------------
solely for provision by Customer of data services, and not for the
provision of telephony services. Customer shall ensure that the
Services are not used for any unlawful purposes, or in violation of any
applicable law, regulation, order or statute. Customer's use of the
Services shall i) not interfere with or impair service over VERIO's or
its suppliers' networks or facilities; ii) impair privacy of any
communications over such networks or facilities; iii) cause damage of
any nature to VERIO's or its suppliers' assets. Customer shall at all
times adhere and shall ensure that its customers and authorized users
shall adhere to the VERIO Acceptable Use Policy located at
http://www.verio.net/isite/policy.html as amended from time to time by
--------------------------------------
VERIO, with amendments becoming effective upon posting of the revised
policy at the URL. A breach by Customer of this paragraph 12(d) shall
entitle VERIO to take immediate corrective action, including
disconnection or discontinuance of any and all service, and/or
termination of this Agreement.
e) Term and Termination: This Agreement shall commence on the date hereof
--------------------
and continue through the end of the Term Commitment. This Agreement
shall be automatically renewed on a month to month basis at the end of
the Term Commitment until terminated by either party on sixty (60) days
prior written notice to the other party. This Agreement may be
terminated by either party if (i) the other party is in breach or
default of any term of this Agreement and fails to cure such breach or
default within thirty (30) days from the date of written notice
specifying such breach or default or (ii) the other party becomes
insolvent, fails to pay its debts as they become due, or becomes the
subject of any proceeding in bankruptcy, liquidation, dissolution,
receivership, attachment, or composition or general assignment for the
benefit of creditors. In the event that this agreement is terminated by
VERIO as provided in Paragraphs 12(a), (c), (d), or (e) by Customer
(other than for a breach of this Agreement by VERIO) prior to the end
of the Term Commitment, Customer will be required to pay for each month
remaining in the Term Commitment either i) for fixed rate contracts,
75% of VERIO's standard monthly charge, or ii) for burst transit
contracts, 40% of the full utilization rate for the circuit. Customer
will also be required to pay to VERIO any charges or costs incurred by
VERIO in terminating local loop facilities (if any) provided by VERIO
hereunder. VERIO reserves the right to change the rates it charges for
Services at the end of the Term Commitment. VERIO will provide sixty
(60) days notice of any such change. Any IP address space delegated by
VERIO to the Customer must be returned to VERIO within three months of
termination of this Agreement.
f) Provision of Services: VERIO exercises no control over, and accepts no
---------------------
responsibility for, the content of the information passing through
VERIO's host computers, network hubs and points of presence.
THE SERVICES AND HARDWARE AND SOFTWARE ARE PROVIDED BY VERIO "AS IS".
VERIO MAKES NO WARRANTIES OF ANY KIND, EITHER EXPRESSED OR IMPLIED,
INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT IN ELATION TO THE
PROVISION OF THE SERVICES OR ANY SOFTWARE OR EQUIPMENT VERIO
PROVIDES,OR PERTAINING TO THE SECURITY OR DELIVERY OF CUSTOMER'S
TRAFFIC, OR THAT ANY ROUTING INFORMATION OR OTHER INFORMATION PROVIDED
IS ACCURATE AND COMPLETE. CUSTOMER ASSUMES
<PAGE>
TOTAL RESPONSIBILITY AND RISK FOR CUSTOMER'S AND ITS CUSTOMERS' AND
AUTHORIZED USERS USE OF THE SERVICES. NONE OF VERIO, ITS EMPLOYEES,
AFFILIATES, AGENTS, THIRD-PARTY INFORMATION PROVIDERS, MERCHANTS,
LICENSORS OR THE LIKE, WARRANT THAT THE SERVICES WILL NOT BE
INTERRUPTED OR WILL BE ERROR FREE. VERIO IS NOT LIABLE FOR THE CONTENT
OF ANY DATA TRANSFERRED EITHER TO OR FROM CUSTOMER OR STORED BY
CUSTOMER OR ANY OF ITS CUSTOMERS VIA THE SERVICE(S) PROVIDED BY VERIO.
g) VERIO is acting only as a reseller of any hardware and software
offered under this Agreement, which was manufactured or licensed by a
third party ("Manufacturer"). VERIO shall not be responsible for any
changes in Service(s) that cause hardware or software to become
obsolete, require modification or alteration, or otherwise affect the
performance of the Services. Any malfunction or manufacturer's defects
of equipment either sold or provided by VERIO to Customer or purchased
directly by Customer in connection with the Service(s) will not be
deemed a breach of VERIO's obligations under this Agreement. Customer
shall use its best efforts to protect and keep confidential all
intellectual property provided by VERIO to Customer and shall make no
attempt to copy, alter, reverse-engineer, or tamper with such
intellectual property or to use it other than in connection with the
Services and in accordance with Manufacturer's provided terms and
conditions.
h) Contingency and Authorizations: VERIO's obligation to provide Services
------------------------------
is contingent upon (i) VERIO's ability to obtain any and all licenses,
waivers, consents, registrations and approvals, (provided, however,
that Verio shall use commercially reasonable best efforts to obtain and
maintain all such licenses, waivers, consents, registrations and
approvals necessary to enable delivery of the Services hereunder) (ii)
VERIO's ability to obtain any necessary telecommunications services or
facilities. VERIO reserves the right to modify, suspend or terminate
the provision of Services if VERIO is reasonably required to do so in
order to comply with governmental requirements
i) Indemnification. Customer agrees to indemnify, save harmless, and
---------------
defend VERIO and all employees, officers, directors and agents of VERIO
(collectively "indemnified parties") from and against any and all
claims, damages, losses, liabilities, suits, actions, demands,
proceedings (whether legal or administrative) and expenses (including
but not limited to reasonable attorneys' fees) threatened, asserted, or
filed by a third party against any of the indemnified parties arising
out of or relating to the use of the Services by Customer or its users,
including any violation of the VERIO Acceptable Use Policy by any of
them and any claims arising from the placement or transmission or
content of any message on the Internet by Customer or its users.
j) Limitation of Liability. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR
-----------------------
ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, OR LOSS OF
PROFITS, REVENUE, OR DATA (EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE
POSSIBLITY OF SUCH DAMAGES) TO THE OTHER PARTY OR ANY THIRD PARTY, IN
CONNECTION WITH THE SERVICES OR OTHER MATTERS COVERED BY THIS
AGREEMENT, WHETHER SUCH CLAIM IS BASED ON AN ACTION IN CONTRACT OR TORT
OR STRICT LIABILITY OR OTHER LEGAL THEORY. With the exception of any
indemnity obligation or a breach of paragraph (l) below, in no event
shall either party's liability for any damages, losses and causes of
actions whether in contract or tort (including negligence or otherwise)
exceed the actual dollar amount paid or payable by Customer for the
Services which gave rise to such damages, losses and causes of actions
during the 12-month period prior to the date the damage or loss
occurred or the cause of action arose. Neither party shall be liable
for failure or delay in performing its obligations hereunder if such
failure or delay is due to circumstances beyond its reasonable control,
including, without limitation, acts of any governmental body, war,
insurrection, sabotage, embargo, fire, flood, strike or other labor
disturbance, interruption of or delay in transportation, interruption
or delay in telecommunications
<PAGE>
services or inability to obtain raw materials, supplies, or power used
in or equipment needed for provision of the Services. In the event that
the Services are subject to chronic Interruptions (meaning that there
occurs Interruptions of more than four hours in the aggregate in any
thirty (30) day period or three (3) or more Interruptions in any thirty
(30) day period) during the term of this Agreement, Customer may on
notice to VERIO terminate this Agreement without any further liability
to VERIO, apart from the obligation to pay for Services rendered to the
date of the termination. For the purposes of this paragraph (j),
"Interruption" means a service outage that is not due to scheduled
maintenance or to any action or inaction on the part of Customer.
k) Miscellaneous: The validity, interpretation, enforceability, and
-------------
performance of this Agreement shall be governed by and construed in
accordance with the law of the State of Colorado. This Agreement may
not be amended except with the written consent of the parties. No
failure to exercise and no delay in exercising any right, remedy, or
power hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any right, remedy, or power hereunder preclude
any other or further exercise thereof or the exercise of any other
right, remedy, or power provided herein or by law or in equity. The
waiver by any party of the time for performance of any act or condition
hereunder shall not constitute a waiver of the act or condition itself.
This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors, and permitted assigns.
Customer may not assign this Agreement without the prior written
consent of VERIO. If any provision of this Agreement shall be held by a
court of competent jurisdiction to be invalid, unenforceable, or void,
the remainder of this Agreement shall remain in full force and effect.
All notices required or permitted under this Agreement must be in
writing and must be delivered by a method providing for proof of
delivery (including express courier, and facsimile or email if receipt
is acknowledged by the recipient) to the addresses set forth in
Paragraphs (1) and (2) above, or such other addresses as may be
notified by the parties. Any notice or request shall be deemed given on
the date of delivery.
l) Confidentiality: Each party agrees to keep confidential and to use only
---------------
for the purposes of performing obligations under this Agreement, (i)
any proprietary or confidential information of the other party
disclosed pursuant to this Agreement which is appropriately marked as
confidential or which would reasonably be considered to be of a
confidential nature ("Confidential Information") and (ii) the terms of
this Agreement and all negotiations relating thereto. The obligation of
confidentiality shall not apply to information which is publicly
available through authorized disclosure, is known by the receiving
party at the time of disclosure as evidenced by a writing in the
possession of the receiving party at the time of disclosure, is
rightfully obtained from a third party who has the right to disclose
it, or which is required by law to be disclosed. Upon any termination
of this Agreement, the receiving party shall return all Confidential
Information of the disclosing party, and all copies thereof, in the
possession or control of the receiving party.
m) Entire Agreement: This agreement supersedes all previous
----------------
representations, understandings or agreements and shall prevail
notwithstanding any variance with the terms and conditions of any order
submitted by Customer.
<PAGE>
Accepted by:
Customer: VERIO:
Signature: /s/ Matt Nydell Signature: /s/ Carla H. Donelson
----------------------- ---------------------
Name & Title: Matt S. Nydell, V.P. Name & Title: Carla H. Donelson
----------------------- ---------------------
Date: 5 August 1999 Date: Vice President &
----------------------- ---------------------
General Counsel
Tax ID Number:
-----------------------
<PAGE>
Exhibit 21.1
------------
SUBSIDIARIES OF THE REGISTRANT
------------------------------
<TABLE>
<CAPTION>
Name Jurisdiction of Formation
- ---- -------------------------
<S> <C>
A. VIA NET.WORKS NY Corp. New York
B. VIA NET.WORKS HoldCo Inc. Delaware
1. VIA Net Works Europe Holding B.V. (10 shares) The Netherlands
a. Esoterica-Novas Technologias de Informacao, S.A. Portugal
a(1). Expobyte, Conferencias e Exposicoes, S.A.
b. Artinternet, S.A. France
c. VIA NET.WORKS Spain Holding S.L. Spain
c(1). Disbumad, S.L. Spain
d. MediaNet Ireland Limited Ireland
e. Gesellschaft fur Telekommunikations
und Netzwerkdienst mbH Germany
e(1). INS Vertriebs GmbH Germany
e(2). Ecce Terram GmbH Germany
f. bART Holding B.V. The Netherlands
f(1). Home Vision B.V. The Netherlands
f(2). Xenovic B.V. The Netherlands
i. bART Den Haag B.V. The Netherlands
ii. bART Noord Nederland The Netherlands
iii. bART Midden Nederland The Netherlands
f(3). Arameta B.V. The Netherlands
2. Netlink Internet Services Limited United Kingdom
3. i-way Limited United Kingdom
a. i-Way Soho Limited United Kingdom
b. i-way Reading Limited United Kingdom
c. i-way Swindon Limited United Kingdom
d. i-way Brentford Limited United Kingdom
e. i-Way Oxford Limited United Kingdom
4. U-Net Limited United Kingdom
5. WorldWide Web Services Ltd. United Kingdom
a. Alphadial Limited United Kingdom
D. VIA Net Works UK Ltd. United Kingdom
E. Via Net.Works IRUCo. Limited Ireland
</TABLE>
<PAGE>
F. VIA Net Works Cayman Cayman Islands
1. VIA Net Works Argentina, S.A. Argentina
2. V-I-A Holdings Brasil, Ltd. Brazil
a. Dialdata S.A. Brazil
G. InfoAcces S.A. de C.V. Mexico
H. M&C Management & Communications, S.A. Switzerland
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated August 26, 1999, except for Note 13 which is as of October 11,
1999, relating to the consolidated financial statements and financial data
schedule of VIA NET.WORKS INC., which appear in such Registration Statement. We
also consent to the references to us under the headings "Experts" and "Selected
Financial Data" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
McLean, Virginia
November 23, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated July 30, 1999 relating to the financial statements of VIA Net Works
Argentina S.A., which appears in such Registration Statement. We also consent to
the reference to us under the headings "Experts" in such Registration Statement.
/s/ Price Waterhouse & Co.
Buenos Aires, Argentina
November 19, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated April 9, 1999 relating to the financial statements of Dialdata S.A.
Internet Systems, which appears in such Registration Statement. We also consent
to the reference to us under the heading "Experts" in such Registration
Statement.
Sao Paulo, Brazil
November 19, 1999
/s/ PricewaterhouseCoopers
PricewaterhouseCoopers
Auditores Independentes
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated, 19 November 1999 relating to the financial statements of Netlink
Internet Services Limited., which appears in such Registration Statement. We
also consent to the reference to us under the heading "Experts" in such
Registration Statement.
/s/ PricewaterhouseCoopers
PricewaterhouseCoopers
Reading
United Kingdom
19 November 1999
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated October 29, 1999 relating to the financial statements of Disbumad,
SL, which appears in such Registration Statement. We also consent to the
reference to us under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers
PricewaterhouseCoopers Auditores, S.L.
Seville, Spain
November 19, 1999
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated November 19, 1999 relating to the financial statements of GTN
Gesellschaft fur Telekommunikations-und Netzwerkdienste mbH, which appears in
such Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.
PricewaterhouseCoopers GmbH
Wirtschaftsprufungsgesellschaft
/s/ I. Trauer /s/ A. Jacobs
Dusseldorf, Germany
November 19, 1999
<PAGE>
EXHIBIT 23.7
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated July 14, 1999 relating to the financial statements of U-Net
Ltd., which appears in such Registration Statement. We also consent to the
reference to us under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers
PricewaterhouseCoopers
Manchester, UK
November 19, 1999
<PAGE>
EXHIBIT 23.8
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated November 17, 1999 relating to the financial statements of bArt
Holding B.V., which appears in such Registration Statement. We also consent to
the reference to us under the heading "Experts" in such Registration Statement.
PricewaterhouseCoopers N.V.
Rotterdam, the Netherlands
November 19, 1999
/s/ PricewaterhouseCoopers N.V.
<PAGE>
EXHIBIT 23.9
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated, 19 November 1999 relating to the financial statements of I-Way
Limited., which appears in such Registration Statement. We also consent to the
reference to us under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers
PricewaterhouseCoopers
Reading
United Kingdom
19 November 1999
<PAGE>
EXHIBIT 23.10
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated October 20, 1999 relating to the financial statements of Esoterica-
Novas Tecnologias de Informacao SA, which appears in such Registration
Statement. We also consent to the reference to us under the heading "Experts" in
such Registration Statement.
/s/ PricewaterhouseCoopers
PricewaterhouseCoopers - Auditores e Consultores, Lda
Lisbon, Portugal
November 19, 1999
<PAGE>
EXHIBIT 23.11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated, 19 November 1999 relating to the financial statements of Worldwide
Web Services Limited, which appears in such Registration Statement. We also
consent to the reference to us under the heading "Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers
PricewaterhouseCoopers
Reading
United Kingdom
19 November 1999
<PAGE>
[KPMG LETTERHEAD]
EXHIBIT 23.12
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Infoacces, S.A. de C.V. and Subsidiary:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG CARDENAS DOSAL, S.C.
/s/ Luis Gonzalo Garcia Delgado
Luis Gonzalo Garcia Delgado
Mexico City, Mexico
November 22, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 SEP-30-1999
<CASH> 34,711 91,503
<SECURITIES> 0 0
<RECEIVABLES> 1,783 7,490
<ALLOWANCES> 217 657
<INVENTORY> 0 0
<CURRENT-ASSETS> 37,228 100,252
<PP&E> 4,648 30,656
<DEPRECIATION> 368 7,813
<TOTAL-ASSETS> 73,025 215,132
<CURRENT-LIABILITIES> 17,634 31,561
<BONDS> 0 0
53,075 180,933
0 0
<COMMON> 0 2
<OTHER-SE> (5,881) (13,380)
<TOTAL-LIABILITY-AND-EQUITY> 73,025 215,132
<SALES> 3,348 23,366
<TOTAL-REVENUES> 3,348 23,366
<CGS> 1,724 10,321
<TOTAL-COSTS> 1,724 10,321
<OTHER-EXPENSES> 7,691 32,769
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 29 974
<INCOME-PRETAX> (5,487) (16,212)
<INCOME-TAX> 145 0
<INCOME-CONTINUING> (5,342) (16,212)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,342) (16,212)
<EPS-BASIC> (24.29) (20.50)
<EPS-DILUTED> (24.29) (20.50)
</TABLE>
