<PAGE>
As filed with the Securities and Exchange Commission on January 19, 2000
Registration No. 333-91615
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-----------
Amendment No. 2
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------
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. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
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<CAPTION>
Proposed maximum Proposed maximum Amount of
Title of class of securities to be Amount to offering price aggregate registration
registered be registered per share offering price fee (1)
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<S> <C> <C> <C> <C>
Common stock, $.001 par value per
share (2)........................... 15,995,000 $17.00 $271,915,000 $74,586
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</TABLE>
(1) Calculated pursuant to Rule 457(a). $55,600 of the filing fee was paid with
the initial filing of the Registration Statement.
(2) The shares are not being registered for sales outside the United States.
-----------
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 an underwritten United States and Canadian offering, the
underwritten prospectus, and one to be used in a concurrent direct offering to
preferred stockholders of the registrant, the direct offering prospectus. The
two prospectuses will be identical in all respects except for the front and
back cover pages, the table of contents and the sections captioned "Legal
Matters" and "Underwriting" or "Plan of Distribution." The pages to be included
in the direct offering prospectus and not the underwritten 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 - JANUARY 19, 2000
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Prospectus
, 2000
[LOGO OF VIA NET.WORKS]
13,300,000 Shares of Common Stock
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VIA NET.WORKS, The Offering:
Inc.:
. We are a leading . We are offering
international shares of our
provider of common stock. This
Internet access prospectus relates
and services to an underwritten
focusing on small offering of
and mid-sized 6,650,000 shares
businesses in the United
located in Europe States and Canada.
and Latin In addition, we
America. are offering
6,650,000 shares
. VIA NET.WORKS, outside the United
Inc. 12100 Sunset States and Canada
Hills Road, Suite in an underwritten
110 Reston, VA international
20190 (703) 464- offering. We are
0300 also directly
offering 700,000
Proposed Symbol & shares to our
Markets: preferred
stockholders in a
.VNWI concurrent
offering.
.Nasdaq National
Market
.Amsterdam Stock . The U.S.
Exchange underwriters have
an option to
purchase an
additional
1,995,000 shares
from us to cover
over-allotments.
. This is our
initial public
offering and we
anticipate that
the initial public
offering price
will be between
$15.00 and $17.00
per share.
. Closing:
February , 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>
[A Map of Europe and North and South America appears here, on which is marked
the following:
Current Network Connection Points:
London, Amsterdam, Dusseldorf, New York and Washington D.C.
Network Connection Points expected by the end of February 2000:
Paris, Palo Alto, Chicago
Network Connection Points proposed for 2000:
Madrid, Geneva and Milan.
Operating Companies:
i-way, Reading, UK M&Cnet, Fribourg, SU
MediaNet, Dublin, IE DNS, Paris, FR
U-Net, Warrington, UK Artinternet, Paris, FR
WWS, Staines, UK Interbook, Sevilla, ES
Netlink, London, UK Esoterica, Lisbon, PT
bART, Rotterdam, NL Dialdata, Sao Paulo, BR
Ecce Terram, Oldenberg, DE VIA Net Works Argentina, Buenos Aires, AR
INS, Castrop-Rauxel, DE ServiceNet, Buenos Aires, AR
GTN, Duisburg, DE InfoAcces, Mexico City, MX
Net4You, Klagenfurt, AU
Rights to 155 Mbps capacity: Proposed Routes for Rights to 155 Mbps
capacity:
New York to London Dusseldorf to Milan
London to Amsterdam Milan to Geneva
Amsterdam to Dusseldorf Geneva to Madrid
Dusseldorf to Paris Madrid to Paris
Paris to London
Leased capacity: Leased capacity proposed for end of
February 2000:
Palo Alto to London New York to
New York to Palo Alto
Washington, D.C. Chicago
Lisbon
Washington, D.C. to
Warrington
London to
Reading
Dublin
Warrington
Staines
"VIA NET.WORKS owns and operates a European and trans-Atlantic network which
carries Internet traffic generated by our operating companies."]
<PAGE>
[LOGO OF VIA NET.WORKS]
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary............................... 1
Risk Factors..................................... 6
Special Note Regarding Forward-
Looking Statements.............................. 14
Use of Proceeds.................................. 15
Dividend Policy.................................. 15
Capitalization................................... 16
Dilution......................................... 17
Selected Consolidated Financial
Data............................................ 18
Selected Combined Pro Forma
Financial Data.................................. 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations................................... 23
Business......................................... 33
Management....................................... 49
Transactions with Related Parties................ 58
Principal Stockholders........................... 61
Description of Capital Stock..................... 64
Shares Eligible For Future Sale.................. 67
Material Federal Income Tax Consequences to Non-
United States Stockholders...................... 70
Material Netherlands Tax Consequences............ 73
Underwriting..................................... 76
Legal Matters.................................... 80
Experts.......................................... 80
Where You Can Find More Information.............. 81
Index to Financial Statements.................... F-1
</TABLE>
<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 19 business-
focused Internet services providers in 12 European and Latin American
countries. In addition, we recently agreed to purchase one additional Internet
services provider concurrently with the closing of this offering. As of
September 30, 1999, pro forma for four acquisitions we made after September 30,
1999 and one pending acquisition, we had 87,900 customers in Europe, of which
45.7% were businesses, and 25,500 customers in Latin America, of which 32.7%
were businesses. Pro forma for these acquisitions, as of September 30, 1999 we
hosted 18,200 web sites and had registered 50,700 domain names. For the nine
months ended September 30, 1999, we had pro forma revenue of $48.0 million and
pro forma net losses of $33.1 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. Favorable trends which should
help fuel continued growth in Europe and Latin America 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 with network connection points
in London, Dusseldorf and Amsterdam, and we plan to establish connection points
in four additional cities during 2000. We also operate 138 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. 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.
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 Offerings
<TABLE>
<S> <C>
Common stock offered by us in our
underwritten initial public offering... 13,300,000 shares
Common stock offered directly by us in a
concurrent offering to our preferred
stockholders........................... 700,000 shares
Total common stock offered by us........ 14,000,000 shares
Common stock to be outstanding after 56,068,821 shares
this offering..........................
Use of proceeds......................... We intend to use the net proceeds of
these offerings 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 and
Amsterdam Stock Exchange symbol........ VNWI
</TABLE>
We are making our offering of 700,000 shares directly to our preferred
stockholders in fulfillment of our obligations under a stockholders agreement.
Although our underwritten initial public offering is not contingent on our
completing the offering to our preferred stockholders, the completion of our
offering to our preferred stockholders is contingent on our completing our
underwritten initial public offering. We refer to these offerings throughout
this prospectus collectively as this offering.
The common stock to be outstanding after this offering is based on the number
of shares outstanding as of January 14, 2000 and assumes the underwriters do
not exercise their over-allotment option. For further information regarding how
we calculated the number of our outstanding shares, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources," "Management," "Transactions with Related
Parties," "Description of Capital Stock."
------------
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 14,000,000 shares of common stock at an
assumed initial public offering price of $16.00 per share less applicable
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 19 companies between January 1, 1998 and January
14, 2000 and one pending acquisition 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 four companies after
September 30, 1999 and one pending acquisition. 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. 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, 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 $ -- $ 18,373 $ 33,315 $ 34,772
Latin America.......... -- 651 -- 3,988 13,946 13,237
------- -------- -------- --------- ---------- ----------
Total revenues........ -- 3,348 -- 22,361 47,261 48,009
Operating costs and
expenses............... 336 9,415 2,867 41,973 86,735 83,525
------- -------- -------- --------- ---------- ----------
Loss from operations.... (336) (6,067) (2,867) (19,612) (39,474) (35,516)
Interest income, net.... 15 1,425 962 1,308 (210) 951
Loss in unconsolidated
affiliate.............. -- (1,199) (447) (177) -- --
Foreign currency gains.. -- 115 -- 1,283 194 1,123
------- -------- -------- --------- ---------- ----------
Loss before minority
interest and income
taxes................... (321) (5,726) (2,352) (17,198) (39,490) (33,442)
Income tax benefit
(expense).............. -- 145 -- -- (673) (649)
Minority interest....... -- 239 -- 1,241 (317) 1,006
------- -------- -------- --------- ---------- ----------
Net loss attributable to
common stockholders..... $ (321) $ (5,342) $ (2,352) $ (15,957) $ (40,480) $ (33,085)
======= ======== ======== ========= ========== ==========
Net loss per common
share.................. $(10.66) $ (24.29) $ (11.64) $ (20.17) $ (3.20) $ (2.25)
======= ======== ======== ========= ========== ==========
Weighted average common
shares outstanding..... 30,063 219,964 202,077 790,953 12,661,530 14,733,293
Other Financial Data:
Cash flows from
operating activities... $ (233) $ (3,784) $ (1,618) $ (6,877)
Cash flows from
investing activities... (8) (14,383) (3,185) (61,616)
Cash flows from
financing activities... 1,048 52,187 52,237 125,994
EBITDA.................. (336) (4,763) (2,864) (8,494)
Depreciation and
amortization........... -- 1,304 3 10,635
Non-cash stock
compensation charges... -- -- -- 483
Capital expenditures.... 8 520 45 11,318
</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.................... $ 91,502 $ 21,178 227,943
Restricted cash.............................. -- 15,000 15,000
Goodwill..................................... 91,535 147,602 147,602
Total assets................................. 215,095 227,498 434,263
Total long-term debt and capital leases, net
of current portion.......................... 13,551 14,973 14,973
Mandatorily redeemable convertible preferred
stock....................................... 180,933 -- --
Total stockholders' (deficit) equity ........ (13,245) 169,487 376,252
Operating Statistics:
Number of PoPs............................... 101 138
Number of business customers................. 38,876 48,517
Number of consumer customers................. 50,083 64,877
Number of web-sites hosted................... 16,612 18,163
Number of domain names registered............ 45,947 50,683
</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
$16.0 million and had an accumulated deficit of $21.6 million as of September
30, 1999, and we expect to report additional net losses for the period since
September 30, 1999.
Our business plan calls for us to continue to acquire and invest in operating
companies. As a result, we will continue to amortize substantial amounts of
goodwill. As we grow, we expect that the amount of goodwill we will amortize in
connection with these investments will represent an increasingly smaller
portion of our expenses. Therefore, we expect to continue to incur net losses
until that point in time when the goodwill we amortize represents a
sufficiently small amount of our expenses that it is exceeded by our net income
before amortization. Because we cannot predict the nature, size and timing of
future acquisitions, we do not know when we will become profitable, if ever.
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 $9.0 million, and we expect to report additional losses for
the period since September 30, 1999. Additionally, we used $14.3 million in
1998 and $61.3 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 debt or equity financings to fund operations,
capital expenditures for expansion of network and information systems, and
acquisitions. If we obtain debt financings, we may be required to agree to
restrictions on our activities that could impair our ability to execute our
business plan. For example, these restrictions may prohibit us from incurring
additional debt or making acquisitions without prior lender approval. If we
obtain additional equity financings, the per share value of our outstanding
common stock may be diluted. In general, 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.
6
<PAGE>
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 19 companies
since June 1998, and agreed to acquire one other company, and the total number
of our employees grew from five to 903 between June 1, 1998 and January 14,
2000. 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
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 12 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, July and August in Europe and
January and February in Latin America, 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.
7
<PAGE>
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. To date, no issues
of this kind have arisen that have materially adversely affected our results;
however, they may arise in the future.
Fluctuations in the exchange rate between the U.S. dollar and the various
currencies in which we conduct business may affect our operating results.
We record the revenues and expenses of our local operations in their home
currencies and translate these amounts into U.S. dollars. As a result,
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. 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. In the past, the
currencies of many Latin American countries, including Brazil and Mexico in
particular, have experienced substantial devaluation and volatility.
Our Latin American markets have a history of political and economic
instability which may disrupt our operations and adversely affect our results.
We derive and expect to continue to derive a significant portion of our
revenues from the Latin American markets. Latin America has experienced
periods of political and economic instability. If these conditions were to
reoccur, our business could be adversely affected. Historically, instability
in Latin American countries has been caused by
. extensive governmental involvement, control or ownership of industries in
local economies, including telecommunications facilities, financial
institutions and other commerce infrastructure
. unexpected changes in regulatory requirements such as imposing licensing
requirements or levying new taxes
. slow or negative growth as a result of recessionary trends caused by
foreign currency devaluations, interest rate hikes and inflation
. imposition of trade barriers through trade restrictions, high tariffs and
taxes
. wage and price controls that reduce potential profitability of businesses
Any occurrence of adverse political and economic conditions may deter growth
in Internet usage or create uncertainty regarding our operating climate, which
my adversely impact our business. Currently, we do not have political risk
insurance to guard against business interruptions and other losses caused by
political acts.
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.
8
<PAGE>
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 or claiming to have rights to use our
trademarks and variations of those marks, including the VIA NET.WORKS mark. In
particular, one company has notified us that it believes our use of the VIA
NET.WORKS mark in Brazil infringes upon its trademark applications. The users
of these or similar marks may be found to 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.
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.
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
9
<PAGE>
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
In particular, we depend on increasing demand for Internet services by small
to mid-sized businesses in our geographic markets. Demand for Internet services
by these businesses will depend partly on the degree to which these businesses'
customers and suppliers adopt the Internet as a means of doing business, and
partly on the extent to which these businesses adopt Internet technologies to
deal with internal business processes, such as internal communications.
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
disruptions of service which could disrupt our services to, or limit Internet
access for, our customers. We may
10
<PAGE>
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.
Although we currently possess errors and omissions insurance and business
interruption insurance, these policies may not provide effective coverage upon
the occurrence of all events. We do not have insurance specifically to guard
against losses resulting from computer viruses and 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. Some types of laws that may result in our liability for information
disseminated over our network include:
. laws designed to protect intellectual property, including trademark and
copyright laws
. laws relating to publicity and privacy rights and laws prohibiting
defamation
. laws restricting the collection, use and processing of personal data and
. laws prohibiting the sale, dissemination or possession of pornographic
material
The laws governing these matters vary from jurisdiction to jurisdiction. For
information about the applicable laws that may affect our liability for
information carried or disseminated through our network, see "Business--
Regulatory Matters."
The availability of protection for intellectual property rights in the context
of the Internet remains uncertain.
We rely on trademark and copyright law, laws restricting unfair trade
practices, laws relating to trade secret protection and confidentiality and/or
license agreements with our employees, customers, partners and others to
protect our intellectual property rights. The applicability and enforceability
of legal principles concerning intellectual property rights in an Internet
context remains substantially uncertain as the courts and legislatures in each
country in which we operate continue to address the issues. Substantially all
of the countries in which we operate are signatories to the same international
treaties relating to the protection of intellectual property to which the
United States adheres. Nonetheless, in many of these countries, the courts have
not had the opportunity to address the legal issues within the Internet context
to the same degree as U.S. courts. It is therefore uncertain whether the
intellectual property of our non-U.S. operations will be subject to a lesser or
different degree of protection than that generally afforded in the United
States.
11
<PAGE>
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.
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 $16.00 per share, you will
experience immediate and substantial dilution of approximately $10.95 per
share, and our existing stockholders will experience an unrealized gain of
$136.2 million in the aggregate.
42,068,821, or 75.0%, 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 56,068,821 shares of common
stock. This amount includes the 14,000,000 shares we are selling in this
offering, which may be resold in the public market immediately. The remaining
75.0%, or 42,068,821 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>
40,682,282/ 180 days after the date of this prospectus due to an
72.6% agreement these stockholders have agreed to deliver to
the underwriters. However, the underwriters can waive
this restriction and allow these stockholders to sell
their shares at any time.
1,386,539/ Between 90 and 365 days after the date of this
2.5% prospectus due to the requirements of the federal
securities laws.
</TABLE>
12
<PAGE>
In addition, holders of approximately 41,340,721 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 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
13
<PAGE>
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.
14
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the 14,000,000 shares of
common stock we are offering, consisting of 13,300,000 shares offered in our
underwritten public offering and 700,000 shares offered in our concurrent
direct offering, will be approximately $206.8 million based upon an assumed
initial public offering price of $16.00 per share, after deducting the
estimated applicable 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 $236.5 million.
We intend to use $9.0 million of the net proceeds of this offering to pay the
purchase price for one pending acquisition, $8.8 million to pay the cash
portion of the consideration for one acquisition we closed in escrow, $906,700
to acquire the minority interest in one of our operating companies and $908,300
to repay promissory notes we issued for some of our prior acquisitions. As of
January 14, 2000 these notes bore interest at a weighted average interest rate
of 5.0% and had maturity dates of May 18, 2000 and February 26, 2001. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" for more information regarding
the consideration to be paid for our acquisitions.
We intend to use the remaining 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.
15
<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 four acquisitions we made after September
30, 1999 and one pending acquisition as though these acquisitions 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 14,000,000 shares of common stock we are offering at an
assumed initial public offering price of $16.00 per share, after
deducting the applicable underwriting fees and estimated offering
expenses
. an increase in the number of our authorized shares of common stock we
expect to effect in February 2000 and a reduction in the number of our
authorized shares of preferred stock and the elimination of our
currently designated series of mandatorily redeemable convertible
preferred stock from our certificate of incorporation to be effected
shortly after the closing of this offering
The information regarding stockholders' equity in the table below excludes
the issuance of an estimated 575,745 shares of common stock concurrently with
the closing of this offering to repay indebtedness associated with prior
acquisitions and to acquire the minority interest in one operating company.
This information also excludes stock options, warrants, and rights to purchase
an aggregate of 5,635,000 shares outstanding on January 14, 2000 and assumes
the underwriters do not exercise their over-allotment option.
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..... $ 91,502 $ 36,178 $242,943
======== ======== ========
Short-term notes and current portion of long-
term debt..................................... $ 6,489 $ 7,439 $ 7,439
Long-term debt, less current portion........... 13,551 14,973 14,973
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' (deficit) equity:
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;
125,000,000 shares authorized as adjusted;
1,957,671 shares issued and outstanding
actual; 35,293,820 shares issued and
outstanding pro forma; 49,293,820 shares
issued and outstanding as adjusted.......... 2 35 49
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;
6,770,001 shares issued and outstanding as
adjusted.................................... -- 7 7
Additional paid-in capital..................... 13,313 196,005 402,756
Deferred compensation.......................... (1,333) (1,333) (1,333)
Accumulated deficit............................ (21,620) (21,620) (21,620)
Accumulated other comprehensive loss........... (3,607) (3,607) (3,607)
-------- -------- --------
Total stockholders' (deficit) equity....... (13,245) 169,487 376,252
-------- -------- --------
Total capitalization..................... $187,728 $191,899 $398,664
======== ======== ========
</TABLE>
16
<PAGE>
DILUTION
Our net tangible book value at September 30, 1999 was $75.9 million, or $1.81
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 14,000,000 shares of
common stock in this offering at an assumed initial public offering price of
$16.00 per share and after deducting applicable underwriting fees and estimated
offering expenses, our adjusted net tangible book value at September 30, 1999
would have been $282.9 million, or $5.05 per share. This amount represents an
immediate increase in net tangible book value per share to existing
stockholders of $3.24 and an immediate dilution in net tangible book value per
share to new investors purchasing shares in this offering of $10.95 per share.
The following table illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............ $16.00
Net tangible book value per share at September 30, 1999.. $1.81
Increase per share to existing investors................. 3.24
-----
Net tangible book value per share, as of September 30,
1999, after this offering................................. 5.05
------
Dilution per share to new investors........................ $10.95
======
</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 applicable 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..... 42,063,821 75% $196,047,000 47% $ 4.66
New investors............. 14,000,000 25 224,000,000 53 $16.00
---------- --- ------------ ---
Total................... 56,063,821 100% $420,047,000 100%
========== === ============ ===
</TABLE>
The above discussion excludes
. 575,745 shares of common stock to be issued upon the closing of this
offering to repay indebtedness associated with prior acquisitions and
to acquire the minority interest in one operating company, assuming
an initial public offering price of $16.00 per share and assuming
applicable foreign exchange rates on January 13, 2000. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" for a
description of these issuances.
. 5,437,500 shares of common stock issuable upon the exercise of
options granted under our 1998 Stock Option and Restricted Stock Plan
and outstanding as of January 14, 2000 with a weighted average
exercise price of $6.75 per share. To the extent any of these stock
options are exercised, there will be further dilution to new
investors.
. 97,500 shares of common stock reserved for issuance pursuant to
purchase rights granted under our Key Employee Equity Plan at a
weighted average exercise price of $12.15 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.
17
<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. 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, 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.
18
<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 $ -- $ 16,253
Value-added services... -- 136 -- 5,461
Other.................. -- -- -- 647
------- -------- -------- ---------
Total revenues......... -- 3,348 -- 22,361
Operating costs and
expenses:
Internet services...... -- 1,724 -- 9,649
Selling, general and
administrative........ 336 6,387 2,864 21,689
Depreciation and
amortization.......... -- 1,304 3 10,635
------- -------- -------- ---------
Total operating costs
and expenses.......... 336 9,415 2,867 41,973
------- -------- -------- ---------
Loss from operations.... (336) (6,067) (2,867) (19,612)
Other operating
expenses:
Interest income, net... 15 1,425 962 1,308
Loss in unconsolidated
affiliates............ -- (1,199) (447) (177)
Foreign currency
gains................. -- 115 -- 1,283
------- -------- -------- ---------
Loss before minority
interest and income
taxes.................. (321) (5,726) (2,352) (17,198)
Income tax benefit..... -- 145 -- --
Minority interest...... -- 239 -- 1,241
------- -------- -------- ---------
Net loss attributable to
common stockholders.... $ (321) $ (5,342) $ (2,352) $ (15,957)
======= ======== ======== =========
Basic and diluted loss
per share attributable
to common
stockholders........... $(10.66) $ (24.29) $ (11.64) $ (20.17)
======= ======== ======== =========
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) (6,877)
Net cash used in
investing activities... (8) (14,383) (3,185) (61,616)
Net cash provided by
financing activities... 1,048 52,187 52,237 125,994
EBITDA.................. (336) (4,763) (2,864) (8,494)
Depreciation and
amortization........... -- 1,304 3 10,635
Non-cash stock
compensation charges... -- -- -- 483
Capital expenditures.... 8 520 45 11,318
</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 $ 91,502
Goodwill................................. -- 29,848 91,535
Other assets............................. 14 8,466 32,058
--------- ---------- --------
Total assets............................. $ 821 $ 73,025 $215,095
Short-term notes and current portion of
long-term debt.......................... $ -- $ 11,182 $ 6,489
Long-term debt and capital lease
obligations, net of current portion..... -- 565 13,551
Other liabilities........................ 94 6,487 22,566
Minority interest in consolidated
subsidiaries............................ -- 7,597 4,801
Mandatorily redeemable convertible
preferred stock......................... 1,018 53,075 180,933
Total stockholders' deficit.............. (291) (5,881) (13,245)
--------- ---------- --------
Total liabilities, minority interest,
mandatorily redeemable convertible
preferred stock and stockholders
deficit................................. $ 821 $ 73,025 $215,095
</TABLE>
19
<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 19 companies between January 1, 1998 and January 14, 2000 and
one pending acquisition as though these 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 four companies after
September 30, 1999 and one pending acquisition 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
and Pending 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 $30,083 $ -- $ 33,295
Value-added services......... 136 10,243 -- 10,379
Other........................ -- 3,587 -- 3,587
------- ------- ---------- ----------
Total revenues............... 3,348 43,913 -- 47,261
Operating costs and expenses:
Internet services ........... 1,724 18,030 -- 19,754
Selling, general and
administrative.............. 6,387 24,267 -- 30,654
Depreciation and
amortization................ 1,304 3,211 31,812(1) 36,327
------- ------- ---------- ----------
Total operating costs and
expenses.................... 9,415 45,508 31,812 86,735
------- ------- ---------- ----------
Loss from operations.......... (6,067) (1,595) (31,812) (39,474)
Interest income (expense),
net.......................... 1,425 (791) (844)(2) (210)
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) (2,307) (31,457) (39,490)
Income tax benefit (expense).. 145 (818) -- (673)
Minority interest............. 239 -- (556)(4) (317)
------- ------- ---------- ----------
Net loss attributable to
common stockholders.......... $(5,342) $(3,125) $ (32,013) $ (40,480)
======= ======= ========== ==========
Basic and diluted loss per
share attributable to common
stockholders................. $(24.29) $ (3.20)
======= ==========
Shares used in computing basic
and diluted loss per share... 219,964 12,441,566 (5) 12,661,530
</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 various acquisitions.
20
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999
-------------------------------------------------
Completed
and Pending Pro Forma
VIA Acquisitions Adjustments Pro Forma
-------- ------------ ----------- ----------
(Dollars in thousands, except per share
data)
<S> <C> <C> <C> <C>
Revenues:
Access...................... $ 16,253 $15,411 $ -- $ 31,664
Value-added services........ 5,461 6,767 -- 12,228
Other....................... 647 3,470 -- 4,117
-------- ------- ---------- ----------
Total revenues.............. 22,361 25,648 -- 48,009
Operating costs and expenses:
Internet services........... 9,649 10,212 -- 19,861
Selling, general and
administrative............. 21,689 14,056 -- 35,745
Depreciation and
amortization............... 10,635 1,552 15,732(1) 27,919
-------- ------- ---------- ----------
Total operating costs and
expenses................... 41,973 25,820 15,732 83,525
-------- ------- ---------- ----------
Loss from operations......... (19,612) (172) (15,732) (35,516)
Interest income, net......... 1,308 (165) (192)(2) 951
Gain (loss) in unconsolidated
affiliate................... (177) -- 177 (3) --
Foreign currency gain........ 1,283 (160) -- 1,123
-------- ------- ---------- ----------
Loss before minority interest
and income taxes............ (17,198) (497) (15,747) (33,442)
Income tax expense........... -- (649) -- (649)
Minority interest............ 1,241 -- (235)(4) 1,006
-------- ------- ---------- ----------
Net loss attributable to
common stockholders......... $(15,957) $(1,146) $ (15,982) $ (33,085)
======== ======= ========== ==========
Basic and diluted loss per
share attributable to common
stockholders................ $ (20.17) $ (2.25)
======== ==========
Shares used in computing
basic and diluted loss per
share....................... 790,953 13,942,340 (5) 14,733,293
</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 various acquisitions.
21
<PAGE>
<TABLE>
<CAPTION>
As of September 30, 1999
---------------------------------------------------
Completed and
Pending
Acquisitions
Subsequent to
September 30, Pro Forma
VIA 1999 Adjustments Pro Forma
-------- ------------- ----------- ---------
(Dollars in thousands, except per share
data)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents............. $ 91,502 $ 2,149 $ (72,473)(1) $ 21,178
Restricted cash.......... -- -- 15,000 (1) 15,000
Trade and other accounts
receivable.............. 6,833 4,699 -- 11,532
Other current assets..... 1,916 1,073 -- 2,989
-------- ------- --------- --------
Total current assets..... 100,251 7,921 (57,473) 50,699
Property and equipment,
net...................... 22,843 3,083 -- 25,926
Goodwill.................. 91,535 -- 56,067 (1) 147,602
Other assets.............. 466 1,805 1,000 (1) 3,271
-------- ------- --------- --------
Total assets............. $215,095 $12,809 $ (406) $227,498
======== ======= ========= ========
Liabilities, Mandatorily
Redeemable Convertible
Preferred Stock And
Stockholders Equity
(Deficit)
Current liabilities:
Accounts payable......... $ 7,189 $ 3,169 $ -- $ 10,358
Current portion of long-
term debt............... 6,489 740 210 (1) 7,439
Deferred revenue......... 8,795 934 -- 9,729
Other current liabilities
and accrued expenses.... 6,311 2,042 -- 8,353
-------- ------- --------- --------
Total current
liabilities............. 28,784 6,885 210 35,879
Long-term debt, less
current portion......... 13,551 436 986 (1) 14,973
Other noncurrent
liabilities............. 271 1,043 -- 1,314
-------- ------- --------- --------
Total liabilities........ 42,606 8,364 1,196 52,166
Minority interest in
consolidated
subsidiaries............. 4,801 -- 1,044 (1) 5,845
Mandatorily redeemable
convertible preferred
stock.................... 180,933 -- (180,933)(2) --
Stockholders' equity
(deficit):
Common stock............. 2 5,223 (5,190)(1)(2) 35
Non-voting common stock.. -- -- 7 (2) 7
Additional paid in
capital................. 13,313 128 182,564 (1)(2) 196,005
Accumulated deficit...... (21,620) (1,204) 1,204 (2) (21,620)
Deferred compensation.... (1,333) -- -- (1,333)
Accumulated other
comprehensive loss...... (3,607) 298 (298) (2) (3,607)
-------- ------- --------- --------
Total stockholders'
equity (deficit)........ (13,245) 4,445 178,287 169,487
-------- ------- --------- --------
Total liabilities,
minority interest,
mandatorily redeemable
convertible preferred
stock and stockholders'
equity (deficit)....... $215,095 $12,809 $ (406) $227,498
======== ======= ========= ========
</TABLE>
- ---------------------
(1) Reflects the consolidation of InfoAcces, M&CNet, Net4You, DNS and ISAR as
if they 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.
22
<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 19
Internet services providers in 12 countries, all of which have been acquired
since June 1998. In addition, we have agreed to acquire another Internet
services provider concurrently with the closing of this offering. We currently
operate in Argentina, Austria, 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, and we evaluate
performance based on revenues and EBITDA. 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 $ -- $ 18,373
EBITDA..................................... -- (45) -- (1,928)
Total assets............................... -- 7,666 -- 14,177
Latin America
Total revenue.............................. -- 651 -- 3,988
EBITDA..................................... -- (329) -- (902)
Total assets............................... -- 4,407 3,294 (1,015)
Consolidated
Total revenue.............................. -- 3,348 -- 22,361
EBITDA..................................... (336) (4,763) (2,864) (8,494)
Total assets............................... 821 73,025 54,286 215,095
</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. 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, 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.
23
<PAGE>
Recent Acquisitions
On October 10, 1999, we acquired all of the outstanding common stock of
InfoAcces, an Internet services provider headquartered in Mexico City, Mexico,
for a $35.0 million initial cash payment and a maximum of an additional $30.0
million of contingent earn-out payments. In connection with the contingent
consideration, we have placed $15.0 million in escrow.
On October 11, 1999, we acquired 60% of the outstanding shares of M&CNet, an
Internet services provider headquartered in Fribourg, Switzerland, for $3.3
million, $1.2 million of which is payable in two installments six and 12 months
following this acquisition. We have an option, for 42 months following our
acquisition of M&CNet, to acquire the remaining interest in M&CNet. The
exercise price for this option is determined based on annualized revenues of
the six months preceding the date of exercise and is payable in shares of our
common stock.
On January 4, 2000, we acquired 57.5% of the outstanding capital of Net4You,
an Internet services provider headquartered in Klagenfurt, Austria, for
approximately $2.8 million, $210,000 of which is payable 12 months following
this acquisition. Between 12 and 36 months from the date of closing, we have
the right to purchase the remaining interest held by the shareholders of
Net4You. The exercise price for this option is determined based on annualized
revenues for the six months preceding the date of exercise and is payable in
cash or shares of our common stock at the election of the Net4You shareholders.
If we do not exercise our call right by the end of this period, the Net4You
shareholders may require us to sell our 57.5% interest in Net4You to them. We
also have a right of first refusal pursuant to which the shareholders must
offer to sell their shares to us if they receive an offer from a third party to
purchase their shares.
On January 7, 2000, we acquired 100% of DNS Telecom, an Internet services
provider located in Paris, France. We issued a promissory note in the amount of
approximately $986,000, issued 112,500 shares of our common stock and are
obligated to pay approximately $8.8 million in cash to the sellers of DNS
Telecom. The transaction was closed in escrow, which will be released upon the
payment of the cash portion of the consideration concurrently with the closing
of this offering.
On January 13, 2000, we entered into an agreement to acquire 100% of ISAR, an
Internet services provider located in Munich, Germany, concurrently with the
closing of this offering for approximately $9.0 million, in cash. We may be
obligated to pay additional consideration of up to approximately $3.7 million
based on ISAR's operating results for the year ending December 31, 2000.
Revenues
Our operating companies generally have both business and consumer customers
at the time we acquire them. After acquisition, our strategy is to grow the
customer base and revenues primarily by marketing value-added services to the
small and mid-sized businesses in our markets. Given this focus, we expect that
our number of business customers will grow more rapidly than our number of
consumer customers, and that revenue from the sale of value-added services will
increase more rapidly than revenue from the sale of Internet access. Therefore,
our current customer and revenue mix is not expected to be indicative of the
future.
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 and related maintenance, domain name registration, sales
of hardware and third-party software, installation, training and
24
<PAGE>
consulting and other services. Services such as web and applications hosting
and domain name registration are 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 the services are provided.
Revenues from hardware and third-party software sales, installation,
maintenance, training and consulting, and other services are on a contract
basis. We bill our customers when the product is shipped or when services are
rendered. Revenues from installation, maintenance, training and consulting are
recognized over the contract term as the related services are provided.
Revenues from hardware and third-party software sales are recognized upon
delivery or installation of the products, depending on the terms of the
arrangement, and when the fee is fixed or determinable and collectibility is
considered probable.
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.
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, through September 30,
1999. This amount represents the difference between the deemed
25
<PAGE>
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. For the three months ended December 31, 1999 we
anticipate recording an additional $12.7 million in deferred stock
compensation. As a result, we expect to recognize $1.3 million in non-cash,
deferred stock compensation charges in the year ended December 31, 1999, $3.5
million in each of the years ended December 31, 2000, 2001 and 2002 and $2.7
million in the year ended 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
$22.4 million. This revenue was generated by the 15 consolidated subsidiaries
that we owned for all or a portion of the period. Of this revenue, 72.7% came
from the sale of Internet access and 27.3% 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
$9.6 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 $21.7 million for the nine months ended September
30, 1999, a 657.3% 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, $15.5 million, or 71.7%, of these expenses were
incurred by our local operations and $6.2 million, or 28.3%, were incurred by
our corporate organization. The expenses incurred by our corporate organization
increased by 114.6% 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
$10.6 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 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 76.6%, of our depreciation and amortization expense
was related to the amortization of acquisition goodwill and $2.5 million, or
23.4% 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 137.2% 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
26
<PAGE>
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. $1.3 million of this gain
was generated by the devaluation of the Brazilian Real and $307,000 was
generated by the devaluation of the German Mark, offset by losses of $340,000
in other foreign currencies. 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 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 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 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
27
<PAGE>
$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. The majority of this gain was
created by fluctuations in the British Pound, offset in part by losses in other
foreign currencies. 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.
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 $ 3,601 $ 5,143 $ 7,509
Value-added services........... -- 873 1,325 3,263
Other.......................... 136 35 120 492
------- ------- ------- -------
Total revenues............... 3,348 4,509 6,588 11,264
Operating costs and expenses:
Internet services costs........ 1,724 2,086 3,021 4,542
Selling, general and
administrative................ 3,528 4,109 7,107 10,473
Depreciation and amortization.. 1,297 1,870 3,002 5,763
------- ------- ------- -------
Total operating costs and
expenses.................... 6,549 8,065 13,130 20,778
------- ------- ------- -------
Loss from operations............. $(3,201) $(3,556) $(6,542) (9,514)
EBITDA........................... $(1,904) $(1,686) $(3,150) $(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 46.3 45.9 40.3
Selling, general and
administrative................ 105.4 91.1 107.9 93.0
Depreciation and amortization.. 38.7 41.5 45.6 51.2
------- ------- ------- -------
Total operating costs and
expenses.................... 195.6 178.9 199.3 184.5
------- ------- ------- -------
Loss from operations............. (95.6)% (78.9)% (99.3)% (84.5)%
EBITDA........................... (56.9)% (37.4)% (47.8)% (32.5)%
</TABLE>
28
<PAGE>
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 September 30, 1999,
we had cash and cash equivalents of $91.5 million. We used an additional $39.7
million to acquire InfoAcces, M&CNet and Net4You after September 30, 1999. In
addition, upon the closing of this offering we expect to pay $8.8 million to
pay the cash portion of the consideration for our acquisition of DNS, which was
closed into escrow, and $9.0 million to acquire ISAR pursuant to a purchase
agreement we signed on January 13, 2000. We are pursuing an aggressive internal
growth and acquisition strategy that we anticipate will require significant
additional funding before becoming self-sustaining.
Additionally, upon the closing of this offering we expect to pay an estimated
$1.8 million and issue an estimated 575,745 shares of our common stock to repay
notes we issued to the sellers of U-Net, Esoterica and Disbumad, also known as
Interbook, and to acquire the minority interest in Dialdata. The exact amount
of cash to be paid and stock to be issued assumes an initial public offering
price of $16.00 per share and that the exchange rates that were in effect on
January 13, 2000 for the British Pound, the Portuguese Escudo and the Spanish
Peseta remain constant.
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 $61.6 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.
A formula, based largely on multiples of revenue categories, will be applied to
the annualized revenues for each of five consecutive quarters beginning with
the fourth quarter of 1999 to arrive at the additional purchase price to be
paid, if any. Any additional purchase price, if earned, will be paid on or
prior to the 45th day after the end of each calendar quarter 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.
In conjunction with the acquisitions of some other operating companies, we
have issued notes to former owners and to less than wholly owned subsidiaries.
The amount and terms of these notes are disclosed in Note 1 to the Unaudited
Pro Forma Condensed Combined Financial Statements. At maturity, some of the
notes
29
<PAGE>
to former owners 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
January 14, 2000, the aggregate principal amount of these notes outstanding was
$8.9 million, and we intend to repay $8.4 million of this amount upon the
closing of this offering. 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 plan to continue acquiring and investing in operating companies. As a
result, we will continue to amortize substantial amounts of goodwill. As we
grow, we expect that the amount of goodwill we will amortize in connection with
our investments will represent an increasingly smaller portion of our expenses.
Therefore, we expect to continue to incur net losses until that point in time
when the goodwill we amortize represents a sufficiently small amount of our
expenses that it is exceeded by our net income before amortization. Exactly
when that point in time will occur depends on the nature, size and timing of
future acquisitions, which we cannot predict.
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 12 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
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. On a
consolidated basis, we are subject to exchange rate risks because we translate
our local operations' financial data into U.S. dollars. These risks cannot be
reduced through hedging arrangements.
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,
beginning 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,
30
<PAGE>
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. To date, we have experienced no reported
problems due to the year 2000.
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.
We have also undertaken a program to address the Year 2000 problem with
respect to our non-information technology systems, such as buildings, plants,
equipment, telephone systems, power supplies and other infrastructure.
Third-party readiness assessment. We have obtained verification or validation
from most of our independent third-party suppliers and service providers whose
products and services are deemed critical to our operations as part of our
assessment of any Year 2000 problems we may encounter. 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. Because our acquired operating companies generally have short
operating histories, most of their systems were already Year 2000 compliant
when these systems were acquired and implemented. In addition, to the extent
necessary, most of our operating companies already had funded the costs of
upgrading their systems prior to our acquisition of them.
A significant portion of our costs to become Year 2000 compliant has been
personnel- and administrative-related and, to date, we have funded these costs
in the normal course of operations and have not separately accounted for these
costs. These costs have not been material and we do not expect any additional
material costs.
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 of operations.
We have identified three most reasonably likely worst case scenarios which
are
.loss of public power supplies
31
<PAGE>
.loss of communication infrastructure
.failure of our mission critical information technology systems and
infrastructure
Within these three most reasonably likely worst case scenarios, our goal is
to identify actions that can be taken that would minimize or mitigate the
effects of the failures should they occur after January 1, 2000.
Contingency plans. We have developed contingency plans to be implemented if
our efforts to identify and correct Year 2000 problems are not effective. Both
at the management and the operating company levels, we have implemented a
detailed plan to minimize the negative effects of Year 2000 problems. At the
operating company level, we dispatched a team of employees who were on call to
carefully monitor all systems and regularly communicate with supervisors and
teams of other operating companies during the December 31, 1999 to January 2,
2000 "rollover period." These teams were placed to ensure that if a Year 2000
problem did arise, they could communicate with each other and re-allocate
equipment and resources as necessary to resolve the problem.
Our contingency plan was adopted with the following goals, among others, in
mind:
.keeping customers in service
.communicating frequently to assess and evaluate any potential trouble
.maintaining trouble reporting and response
.shifting resources as necessary to cure trouble spots
To date, we have experienced no reported problems due to the year 2000.
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. Because our acquired European companies generally have short
operating histories, most of their systems were acquired and implemented after
the Euro was already contemplated. Consequently, any expenditures related to
Euro compliance have largely been, and will be, in the normal course of
business.
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.
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<PAGE>
BUSINESS
We have 19 operating companies in 12 countries in Europe and Latin America.
These operating companies provide local service and support to over 48,500
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 four acquisitions we made after September 30, 1999 and one pending
acquisition, 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:
Austria............... 11.1% 3,200 $ 323.8
France................ 6.9 800 1,449.3
Germany............... 12.4 3,000 3,101.3
Ireland............... 8.6 3,300 279.5
Netherlands........... 15.7 10,000 953.1
Portugal.............. 4.7 11,600 953.6
Spain................. 5.1 8,700 350.8
Switzerland........... 14.4 2,600 402.9
United Kingdom........ 15.1 44,700 5,709.9
------ ---------
Total Europe........ 87,900 $13,524.2
Latin America:
Argentina............. 1.5% 3,700 $ 962.1
Brazil................ 2.0 4,300 548.6
Mexico................ 0.6 17,500 2,294.9
------ ---------
Total Latin
America............ 25,500 $ 3,805.6
</TABLE>
---------------------
(1)According to IDC (March 1999) for Europe, and The Yankee Group
(December 1998) 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 over 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
33
<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 32.7% 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 47.6% annually. IDC also
expects that overall business access revenue growth will remain strong,
averaging nearly 28.5% 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 14 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 19 companies in 12 European and Latin American countries and
agreed to acquire one additional company. 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 trans-Atlantic network, we can reduce delays and
minimize resultant data loss. We believe similar economic
35
<PAGE>
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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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.
[CHART]
[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]
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 12 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
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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 Duisburg, 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
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 February 2000 and nodes in three
additional cities later in 2000. Future cities we are considering connecting to
this network include Madrid, Geneva and Milan.
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We maintain a network in the United States to facilitate access by our
European customers to the large number of web sites hosted 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, Amsterdam,
Washington, DC and Palo Alto, 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. In most cases, the
software we provide to our customers in connection with these services has been
developed by third parties. We do not currently offer all of our 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 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. As of
September 30, 1999, giving effect to
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four subsequently completed acquisitions and one pending acquisition, we
had registered 50,700 domains and host web sites for 18,200 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 their
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 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
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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 Up to 30
Number of dial-up accounts for
remote access N/A N/A 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>
Organization
We have 19 locally managed operating companies located in 12 countries in
Europe and Latin America and have agreed to acquire one company in Europe
concurrently with the closing of this offering. These companies focus on
providing a full range of Internet solutions to small and mid-sized business
customers in their local markets. All of our operating companies provide a
range of value added services, and all of the companies except Netlink, Ecce
Terram and DNS provide Internet access. 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
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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. We have agreed to acquire ISAR concurrently with
the closing of this offering.
VIA Operating Companies
<TABLE>
<CAPTION>
Percentage Owned as
of January 14, Percentages of Total
2000, Pro Forma for Pro Forma Revenue
Country of One Pending for the Nine Months
Operation Operating Company Acquisition Ended September 30, 1999
---------- ----------------- ------------------- ------------------------
<S> <C> <C> <C>
Europe:
Austria Net4You 58% 2%
France Artinternet 51 1
DNS 100 6
Germany GTN 51 10
Ecce Terram 51 1
INS 51 3
ISAR 100 4
Ireland MediaNet 60 2
The
Netherlands bART 100 5
Portugal Esoterica 100 5
Spain Interbook 87 2
Switzerland M&CNet 60 3
United
Kingdom i-way 100 8
U-Net 100 12
WWS 100 5
Netlink 100 4
Latin
America:
Argentina VIA Net Works Argentina 100% 4%
ServiceNet 100 1
Brazil Dialdata 53 4
Mexico InfoAcces 100 18
</TABLE>
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
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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 284 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.
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
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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.
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.
Other providers. Recently, two large Brazilian banks announced their
intention to sell Internet access, which due to their large, existing customer
base, could create additional competition for us in Brazil.
Intellectual Property and Proprietary Rights
We rely on trademark and copyright law, laws restricting unfair trade
practices, laws relating to trade secret protection and confidentiality and/or
license agreements with our employees, customers, partners and others to
protect our intellectual property rights. The applicability and enforceability
of legal principles concerning intellectual property rights in an Internet
context remain substantially uncertain as the courts and legislatures in each
country continue to address the issues. Substantially all of the countries in
which we operate are signatories to international treaties relating to the
protection of intellectual property. Nonetheless, in many of these countries,
the courts have not had the opportunity to address the legal issues within the
Internet context to the same degree as United States courts. It is therefore
uncertain whether the intellectual property of our non-U.S. operations will be
subject to a lesser or different degree of protection than that generally
afforded in the United States.
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In Latin America and Europe, we pursue the registration of our trademarks for
marks that we believe are particularly unique and that will be used in our
business over a long period of time. Conversely, we have not pursued
registration of trademarks of our local operations where we have decided to
transition entirely to the VIA NET.WORKS mark over a short period of time. We
have applied for registration of the VIA Net Works Argentina mark in Argentina.
We have also applied for registration of the Expresso Web and Expresso Net
marks and the VIA NET.WORKS mark and variations of that mark in Mexico. In
Portugal we have registered some marks since registration is required as a
condition to obtaining the right to use specified domain names. We hold
trademarks and registrations for other marks in some other countries as well.
Except as noted above, we have generally not pursued the registration of the
trademark VIA NET.WORKS, or variations of this mark. Consequently, a competitor
with senior rights in a mark similar to ours may be able to argue successfully
that we should be barred from continuing to use our mark, or our competitors
may adopt product or service names similar to ours, thereby impeding our
ability to build brand identity and possibly leading to customer confusion.
Defending trademark infringement litigation and policing unauthorized use of
our marks is also difficult and expensive. For more information regarding
difficulties we may have in protecting our brand names, please see "Risk
Factors."
We actively seek to protect our marks against similar and confusing marks of
third parties by
.using our local law firms and management teams to identify applications to
register trademarks
.filing oppositions to third parties' applications for trademarks and
.if necessary, bringing lawsuits against infringers
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.
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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 prohibit the transfer of
personal 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 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. 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 some
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 contrast, courts in other
countries have determined that an Internet services provider may be liable for
content made available to users even though the provider did not have knowledge
of the content. Because this area of law is still developing, there is
uncertainty in some of our operating countries about the potential liability of
providers for content carried on their networks.
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.
On December 7, 1999, the Council of Ministers of the European Union adopted
the proposed electronic commerce directive. The proposal must still be examined
on second reading by the European Parliament pursuant to the co-decision
process. The proposal calls for implementation of the directive by Member
States within twelve months after its entry into force. The text currently
provides, among other things, that an Internet services provider would not be
liable for information hosted unless the Internet services provider knew that
the information was illegal, so long as the Internet services provider acts
promptly to remove or disable access to the information upon becoming aware
that it is illegal. In addition, the proposal currently states that an Internet
services provider providing access to communication networks or transmitting
over communication networks
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information that is provided by its customers will not be liable for that
information provided that the Internet services provider does not initiate the
transmission, does not select the recipient of the transmission and does not
modify the transmitted information.
Licensing Requirements. In the United Kingdom, the Telecommunications Act
1984 provides that it is a criminal offense to run a telecommunications system
without a license. Licenses take two forms--Class and Individual licenses.
Internet services providers are permitted to provide services within the United
Kingdom and acquire international capacity from other carriers under
Telecommunications Services Class Licenses and are generally not required to
hold individual licenses under the Telecommunications Act. However, we own and
operate our own network facilities in the United Kingdom 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 which permits us to carry international
traffic across international network facilities that we own. In connection with
this license, we were placed on Annex 2 of the Interconnection Directive by the
United Kingdom regulator, OFTEL, which permits us 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, other than in Brazil, where no
licenses are required, 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 licenses where required.
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. Our Mexican
operating company, InfoAcces, leases all the network facilities it requires
from local public telecommunications network operators.
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Restrictions on the Import and Export of Encrypted Material or Encryption
Software.
None of the countries in which we do business imposes any material import
restrictions on cryptography. Among the countries in which we do business,
Brazil and Mexico do not currently restrict the export of cryptography devices.
However, all of the other countries in which we operate do maintain export
controls to some degree on encryption software and devices. The United States,
Argentina, Switzerland and the European Union member countries restrict the
export of technology that could be used for both commercial and military
purposes. These restrictions extend to encryption hardware and software,
including World Wide Web browsers, e-mail applications and e-commerce servers.
Our operating companies generally offer customers, among other services,
encryption services, providing the customer with the ability to transmit
company data over the Internet in a secure fashion. However, in most cases, our
operating companies do not design, develop, manufacture, or distribute their
own encryption software, but instead, rely upon third-party vendors and
manufacturers. We are not aware that our operating companies have experienced
any difficulty in obtaining from commercial vendors security software or
devices containing the level of encryption technology required by our
customers.
Many of the most widely used cryptography devices are developed by companies
based in the United States. To the extent that U.S. export laws would impede or
prevent the use by our customers of any U.S. vendor's software, we believe that
we would be able to substitute other available encryption software, of other
than U.S. origin, for our customers' requirements and therefore would not
experience any material adverse impact as a result.
Legal Proceedings
We are not a party to any material legal proceedings.
Employees
At January 14, 2000, giving effect to one pending acquisition, we employed
903 people on a full-time equivalent basis. 32 employees were located in our
Reston, Virginia headquarters and 871 were located in our local operating
companies or European and Latin American regional offices. Of our total
employees, 284 were involved in sales and marketing, 135 were employed in
customer care, 227 were involved in technical and engineering and the remaining
257 were devoted to finance, legal, strategic planning and other administrative
functions. On January 1, 1999, we employed 230 people on a full-time equivalent
basis, including 13 in Northern Virginia and 217 in our local operating
companies or European regional offices. Of these, 58 were employed in sales and
marketing, 22 in customer care, 87 in technical and engineering and 63 in
various administrative functions. On January 1, 1998, we employed two people on
a full-time equivalent basis. Relations with our employees are good. Some of
our operating companies 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 and
Latin American 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.
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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......... 51 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......... 51 Vice President, Latin American Region
Gabriel A. Battista..... 55 Director
Edward D. Breen......... 43 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>
Each of our directors and executive officers can be reached c/o VIA
NET.WORKS, Inc., 12100 Sunset Hills Road, Suite 110, Reston, Virginia 20190.
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 December 1997, and as Vice President--
Marketing for A2000, the UPC and MEDIA ONE joint venture in Amsterdam from
December 1997 to September 1998. 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
Company, Inc. and
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Westinghouse Broadcasting and Cable. Mr. Simmons received his B.A. in History
and Communications from St. Mary's University of Minnesota.
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, Inc. 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
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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 BellSouth Corporation. Mr. Stubbs received a B.S. in Electrical
Engineering from the University of Florida and an M.S. in Management Science
from Pace University.
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 Corporation and President of U.S. Sprint's Eastern Group and has held
various positions with GTE Telenet and GE Information Services, Inc. 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.
Edward D. Breen has served as a Director of VIA since November 1999. Mr.
Breen became Executive Vice President of Motorola, Inc. in January 2000
following the merger of General Instrument Corporation with Motorola, Inc. From
December 1997 to January 2000, Mr. Breen served as Chairman of the Board,
President and Chief Executive Officer of General Instrument Corporation, which
provides integrated and interactive broadband access solutions, after having
served as its Acting Chief Executive Officer and President from October 1997 to
December 1997. Mr. Breen was President of General Instrument's predecessor
entity, General Semiconductor Inc.'s Broadband Networks Group from February
1996 to October 1997 and Vice President of General Semiconductor from November
1996 until October 1997. From October 1994 to January 1996 Mr. Breen was
Executive Vice President, Terrestrial Systems of General Semiconductor. Mr.
Breen is also a member of the board of directors of CommScope, Inc.
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, Inc. and a member of the board of directors
of Allied Riser Communications Corporation and VeloCom Inc. Mr. Elsner received
a B.S. in Accounting from Regis University and an M.B.A. from the University of
Denver.
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Adam Goldman has served as a Director of VIA since September 1999. Since
April 1993, Mr. Goldman has been a general partner of Centennial Holdings IV
and V and is a managing principal of Centennial Holdings 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 ATG Group and Chairman of the board of directors of Exactis.com,
Inc. 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 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, Inc. and Netcom Internet
Limited. 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,
Incorporated 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.
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(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.
Board of Directors
Our board of directors is authorized to have 11 members and we currently have
ten. After this offering closes, our board size will be reduced to ten members,
and directors will be divided into three classes. Stephen Eley, Mark Masiello
and William Johnston will serve as Class I directors, and their terms will
expire at our 2001 annual stockholders meeting. William Elsner, Adam Goldman
and Eric Torgerson will serve as Class II directors, and their terms will
expire at our 2002 annual stockholder meeting. David D'Ottavio, Gabriel
Battista, Edward Breen and John Puente will serve as Class III directors, and
their terms will expire at our 2003 annual stockholders meeting. At each annual
meeting, the successors to the directors whose terms expire will be elected to
serve three-year terms. Our directors may be removed without cause only upon
the vote of holders of two-thirds of our outstanding common stock, or for cause
upon the vote of holders of a majority of our outstanding common stock.
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.
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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. This 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. We have entered into indemnification agreements with our
directors and officers which may, in some cases, be broader than the specific
indemnification provisions of applicable law. The indemnification agreements
may require us, among other things, to indemnify our directors and officers
against liabilities that arise because of their status or service as directors
or officers, to reimburse or advance the expenses they may incur as a result of
threatened claims or proceedings brought against them, and to cover them under
our directors' and officers' liability insurance policies to the maximum extent
that insurance coverage is maintained.
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, bylaws and indemnification agreements are necessary to attract
and retain qualified persons as directors and officers.
Executive Compensation
In the year ended December 31, 1999, we paid all of our executive officers an
aggregate of $1,586,869 in salary. We also expect to pay our executive officers
bonuses for services rendered in 1999. In addition, we sold shares of our
common stock and granted stock purchase rights to some of our executive
officers. These sales or purchase rights are described below and in
"Transactions with Related Parties."
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, 1999, all of whom we
refer to as our named executive officers:
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
--------------------- ------------------
Securities
Name and Principal Positions Year Salary Bonus(1) Underlying Options
- ---------------------------- ---- ---------- ---------- ------------------
<S> <C> <C> <C> <C>
David M. D'Ottavio(2)............. 1999 $ 300,000 $ -- 700,000
Chief Executive Officer 1998 212,500 100,000 300,000
Michael J. Simmons................ 1999 200,630 -- 335,000
President
Catherine A. Graham(3)............ 1999 177,792 -- 265,000
Vice President, Chief Financial
Officer & Treasurer 1998 78,570 33,000 110,000
Matt S. Nydell.................... 1999 156,875 -- 265,000
Vice President, General Counsel
and Secretary
C. Elliott Bardsley............... 1999 156,604 -- 155,000
Vice President, Corporate
Development 1998 142,598 75,162 110,000
</TABLE>
- ---------------------
(1) We expect that the bonuses to be paid for services rendered in 1999 will be
determined by the compensation committee of the board of directors in March
2000 based on the achievement of corporate and individual goals.
(2) Mr. D'Ottavio joined VIA on April 14, 1998.
(3) Ms. Graham joined VIA on July 13, 1998.
54
<PAGE>
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, 1999. 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, 1999. The options described in the table below become exercisable
over a period of four years and have a term of ten years. The market value per
share presented in the table below has been determined on a basis consistent
with the method we used to price shares of preferred stock we sold our
investors. 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
Individual Grants Appreciation for Option Term
------------------------------------------------------------ ----------------------------
Number of Percent of Total
Securities Options Market
Underlying Granted to Value
Options Employees in Exercise Price Per Expiration
Name Granted Fiscal Year Per Share Share Date 0% 5% 10%
- ---- ---------- ---------------- -------------- ------ ---------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David M. D'Ottavio...... 100,000 2.4% $4.00 $4.80 04/05/09 $ 80,000 $ 344,637 $ 731,815
100,000 2.4 4.00 4.80 05/24/09 80,000 344,637 731,815
500,000 11.9 9.00 9.00 10/21/09 0 2,480,976 6,110,766
Michael J. Simmons...... 35,000 0.8 4.00 4.80 04/05/09 28,000 120,623 256,135
100,000 2.4 4.00 6.40 06/06/09 240,000 592,850 1,109,087
200,000 4.8 9.00 9.00 10/21/09 0 992,390 2,444,306
Catherine A. Graham..... 35,000 0.8 4.00 4.80 04/05/09 28,000 120,623 256,135
30,000 0.7 4.00 4.80 05/24/09 24,000 103,391 219,545
200,000 4.8 9.00 9.00 10/21/09 0 992,390 2,444,306
Matt S. Nydell.......... 35,000 0.8 4.00 4.80 04/05/09 28,000 120,623 256,135
30,000 0.7 4.00 4.80 05/24/09 24,000 103,391 219,545
200,000 4.8 9.00 9.00 10/21/09 0 992,390 2,444,306
C. Elliot Bardsley...... 35,000 0.8 4.00 4.80 04/05/09 28,000 120,623 256,135
20,000 0.5 4.00 4.80 05/24/09 16,000 68,927 146,363
100,000 2.4 9.00 9.00 10/21/09 0 496,195 1,222,153
</TABLE>
Option Exercises and Fiscal Year-End Option Values. The following table
presents summary information with respect to stock options owned by our named
executive officers at December 31, 1999, none of whom exercised stock options
in 1999. We have calculated the value of unexercised in-the-money options based
on an assumed initial public offering price of $16.00 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.
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, 1999 at December 31, 1999
-------------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- -------------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
David M. D'Ottavio...... 160,416 839,584 $2,072,912 $8,327,088
Michael J. Simmons...... 45,832 389,168 513,320 3,866,680
Catherine A. Graham..... 53,331 321,669 615,306 3,060,694
Matt S. Nydell.......... 51,039 323,961 584,135 3,091,865
C. Elliot Bardsley...... 67,914 197,086 868,639 1,987,361
</TABLE>
55
<PAGE>
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 495,158 have been issued and are currently
outstanding, and an additional 97,500 are subject to outstanding purchase
rights, as of Janurary 14, 2000.
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
1,000,000 shares of stock in any calendar year following this offering.
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 plus one month.
As of January 14, 2000, options to purchase 5,437,500 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.
Compensation of Directors
During the year ended December 31, 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
56
<PAGE>
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. These options typically vest over three
years. Currently Messrs. Battista, Breen and Puente are our only directors who
have received this compensation. During the year ended December 31, 1999,
Messrs. Battista and Breen also received the right to purchase 50,000 shares of
our common stock under our Key Employee Equity Plan. Mr. Battista exercised his
right to purchase all 50,000 shares at a per share price of $4.00. Subsequent
to January 14, 2000, Mr. Breen exercised his right to purchase all 50,000
shares at a price of $9.75. 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.
Because our directors may serve as executive officers or directors of
companies that compete with us for acquisition candidates, we have adopted a
policy on confidentiality to protect our confidential information and prevent
our directors from facing conflicts of interest which may not be able to be
resolved. Under this policy, our directors are not required to bring to our
attention any information about potential acquisitions of Internet services
providers and other related services providers of which they become aware
exclusively through their affiliations with, or membership on the boards of
directors of, other specified companies, and we do not consider this type of
opportunity to constitute a corporate opportunity of ours. Specifically, we
have entered into agreements under this policy with Edward D. Breen relating to
his relationship with Motorola, Inc. and with John G. Puente relating to his
relationship with Primus Telecommunications Group. In addition, under this
policy, our directors are required to maintain the confidentially of our
financial and operating information.
57
<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 91 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 92 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 92 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 20,000 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 92 91,928
May 98 8,000 2,666,667
Boston Millennia None May 98 4,390 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.
58
<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
Edward D. Breen......... Director January 00 488 50,000
</TABLE>
Registration Rights. We have entered into a registration rights agreement
with some of the former shareholders of our operating companies who received
shares of our common stock in connection with our acquisition of these
companies, including Mr. Blackman, who formerly owned 23.0% of WorldWide Web
Services, Inc. None of our other directors, officers or beneficial owners of 5%
or more of our outstanding stock is a party to this registration rights
agreement. 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. For a description of these and other registration rights, see
"Shares Eligible for Future Sale--Registration Rights."
59
<PAGE>
Warrant
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 Centennial Holdings I, LLC, an entity affiliated with Centennial Fund
V, 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 addition, upon the closing of this offering and our acquisition of the
minority interest in Dialdata, Mr. Tavares will receive $602,800 and 16,146
shares of common stock, based on an assumed initial public offering price of
$16.00 per share. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" for a
description of this transaction.
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.
Loans and Guarantees
We have no outstanding loans to, or guarantees on behalf of, any of our
directors or executive officers.
60
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table shows the number and percentage of outstanding shares of
our common stock that were owned as of January 14, 2000 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 section and the following table and
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 January 14, 2000, there were 35,298,820 shares of common stock and
6,770,001 shares of non-voting common stock outstanding. Following this
offering and based on the numbers of shares of our common stock outstanding on
January 14, 2000, we will have 49,298,820 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 January 14,
2000.
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(1)
---- ------------------ -------- -----------
<S> <C> <C> <C>
Norwest Equity Capital, L.L.C. and
related entity(2).................... 6,708,595 16.6% 12.3%
Telecom Partners II, L.P.(3).......... 4,175,262 11.8 8.5
Centennial Fund V, L.P.(4)............ 4,005,806 11.3 8.1
HarbourVest International Private
Equity Partners III-Direct Fund
L.P.(5).............................. 3,833,334 10.9 7.8
Providence Equity Partners L.P. and
affiliated entity(6)................. 3,333,333 9.2 6.6
Centennial Fund VI, L.P.(7)........... 3,189,792 9.0 6.5
Verio Inc.(8)......................... 2,958,595 8.4 6.0
Boston Millennia Partners Limited
Partnership and affiliated
entities(9).......................... 2,630,000 7.5 5.2
David M. D'Ottavio(10)................ 391,665 1.0 *
C. Elliott Bardsley(11)............... 220,227 * *
Catherine A. Graham(12)............... 135,203 * *
Michael J. Simmons(13)................ 127,080 * *
Matt S. Nydell(14).................... 122,495 * *
Gabriel A. Battista................... 50,000 * *
Edward D. Breen(15)................... 50,000 * *
Stephen J. Eley(16)................... 1,666,666 4.7 3.4
William J. Elsner(3).................. 4,175,262 11.8 8.5
Adam Goldman(4)(7).................... -- * *
William A. Johnston(5)................ -- * *
Mark J. Masiello(6)................... -- * *
John G. Puente........................ 50,000 * *
Erik M. Torgerson(17)................. 2,500,000 6.7 4.9
All directors and executive officers
as a group (18 persons)(18).......... 9,807,340 25.3 18.5
</TABLE>
- ---------------------
* Less than 1%.
61
<PAGE>
(1) Excludes shares which may be acquired by holders of our preferred stock in
connection with our offering of 700,000 shares of common stock directly to
these stockholders in connection with this offering. Each preferred
stockholder is entitled to purchase his, her or its pro rata share of such
shares, plus a pro rata share of any shares not purchased by other
preferred stockholders, pursuant to a stockholders agreement.
(2) 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 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.
(3) 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.
(4) 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.,
including 124,274 shares held by Centennial Entrepreneurs Fund V, L.P. and
225,972 shares held by Centennial Holdings I, LLC, an entity affiliated
with Centennial Fund V. Centennial Fund V has no voting or investment power
over these shares and disclaims beneficial ownership of them. Centennial
Entrepreneurs Fund V disclaims beneficial ownership of shares held by
Centennial Fund V. Centennial Holdings V, L.P. is the sole general partner
of Centennial Fund V and of Centennial Entrepreneurs Fund V and,
accordingly, may be deemed to be the indirect beneficial owner of the
shares of common stock they hold by virtue of its authority to make
decisions regarding the voting and disposition of such shares. Also
excludes 100,000 shares of common stock issuable upon the exercise of a
warrant held by Steven Halstedt that is exercisable within 60 days. While
this warrant is held in Mr. Halstedt's name, it is held for the benefit of
Centennial Holdings, Inc., the managing member of Centennial Holdings I,
and Centennial Holdings, Inc. has the voting and investment power over this
warrant and may be deemed the beneficial owner of these shares. Mr.
Halstedt disclaims beneficial ownership of the shares underlying the
warrant. Mr. Halstedt is a unit holder, officer and director of Centennial
Holdings I. Acting alone, Mr. Halstedt does not have voting or investment
power with respect to any of the shares directly held by Centennial
Holdings I and, as a result, Mr. Halstedt disclaims beneficial ownership of
shares held by Centennial Holdings I. Mr. Goldman, who is one of five
general partners of Centennial Holdings V, has no voting or investment
power over any of these shares and disclaims beneficial ownership of these
shares except to the extent of his pecuniary interest in them. The address
for Centennial Fund V is 1428 Fifteenth Street, Denver, Colorado 80202.
(5) Sole voting and investment power over these shares is held by Mr. Edward
Kane and Mr. Brooks Zug, 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. Although Mr. William Johnston is a managing
director and owner, or member, of HarbourVest Partners, LLC, Mr. Johnston
is not a managing member of HarbourVest Partners, LLC and accordingly has
no voting or investment power over these shares. 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.
(6) 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.
62
<PAGE>
(7) 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.,
including 79,745 shares held by Centennial Entrepreneurs Fund VI, L.P. and
225,972 shares held by Centennial Holdings I, LLC, an entity affiliated
with Centennial Fund VI. Centennial Fund VI has no voting or investment
power over these shares and disclaims beneficial ownership of them.
Centennial Entrepreneurs Fund VI disclaims beneficial ownership of shares
held by Centennial Fund VI. Centennial Holdings VI, LLC is the sole general
partner of Centennial Fund VI and of Centennial Entrepreneurs Fund VI and,
accordingly, may be deemed to be the indirect beneficial owner of the
shares of common stock they hold by virtue of its authority to make
decisions regarding the voting and disposition of such shares. See note (4)
for more information regarding the holdings of Mr. Halstedt, Centennial
Holdings I and Centennial Holdings, Inc. Mr. Goldman, who is one of five
managing principals of Centennial Holdings, VI, has no voting investment
power over any of these shares and disclaims beneficial ownership of any of
these shares except to the extent of his pecuniary interest in them. The
address for Centennial Fund VI is 1428 Fifteenth Street, Denver, Colorado
80202.
(8) The address of Verio Inc. is 8005 South Chester Street, Suite 200,
Englewood, Colorado 80112.
(9) Includes 50,630 shares held by entities affiliated with Boston Millennia
Partners Limited Partnership. The address of Boston Millennia Partners is
30 Rowes Wharf, Boston, Massachusetts 02110.
(10) Includes 241,665 shares of common stock issuable upon the exercise of
options held by Mr. D'Ottavio that are exercisable within 60 days.
(11) Includes 87,285 shares of common stock issuable upon the exercise of
options held by Mr. Bardsley that are exercisable within 60 days.
(12) Includes 85,203 shares of common stock issuable upon the exercise of
options held by Ms. Graham that are exercisable within 60 days.
(13) Includes 77,080 shares of common stock issuable upon the exercise of
options held by Mr. Simmons that are exercisable within 60 days.
(14) Includes 82,911 shares of common stock issuable upon the exercise of
options held by Mr. Nydell that are exercisable within 60 days.
(15) Includes 50,000 shares of common stock issuable upon the exercise of
options held by Mr. Breen that are exercisable within 60 days.
(16) 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.
(17) 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 (2).
(18) Includes 2,066,038 shares of common stock issuable upon the conversion of
shares of non-voting common stock and 740,380 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 (2) through (17)
for more information regarding these options. Excludes an estimated 16,146
shares of common stock we intend to issue to Antonio Tavares upon the
closing of this offering in connection with our acquisition of the
minority interest in Dialdata.
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DESCRIPTION OF CAPITAL STOCK
General
Giving effect to an amendment to our certificate of incorporation we expect
to effect in February 2000, our authorized capital stock consists of
125,000,000 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 voting and non-voting preferred stock, par value $0.001 per share. As
of January 14, 2000, there were 2,075,171 shares of common stock outstanding,
33,223,649 shares of voting preferred stock outstanding and 6,770,001 shares of
non-voting preferred stock outstanding. Our non-voting preferred stock is held
by some of our stockholders whose acquisition of our voting stock is restricted
due to bank regulations or antitrust restrictions. Upon the closing of this
offering, each share of voting preferred stock will automatically convert into
one share of common stock and each share of non-voting preferred stock will
automatically convert into one share of non-voting common stock. As of January
14, 2000, our outstanding shares were held by 70 stockholders of record. In
addition, as of January 14, 2000, there were outstanding stock options to
purchase a total of 5,437,500 shares of common stock at a weighted average
exercise price of $6.75 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 rights to
purchase 97,500 shares of common stock for a weighted average exercise price of
$12.15 per share.
Following this offering, based on the number of shares of common stock and
mandatorily redeemable convertible preferred stock outstanding on January 14,
2000, we will have outstanding 49,298,820 shares of common stock and 6,770,001
shares of non-voting common stock. This amount excludes an estimated 575,745
shares of common stock we intend to issue concurrently with the closing of this
offering to repay indebtedness associated with prior acquisitions and to
acquire the minority interest in one operating company, assuming an initial
public offering price of $16.00 per share and assuming applicable foreign
exchange rates that were in effect on January 13, 2000 remain constant. See
"Management's Discussion and Analysis of Financial Condition and Results of
operations--Liquidity and Capital Resources" for a description of these
issuances.
Certificate of Incorporation and Bylaws; Delaware law
Upon the closing of this offering, our amended and restated bylaws will
become effective. Giving effect to the amendment to our certificate of
incorporation we expect to effect in February 2000, our amended and restated
certificate of incorporation and bylaws will contain the provisions described
below.
General
Under our certificate of incorporation, our purpose is to engage in any
lawful act or activity for which corporations may be organized under Delaware
law. In accordance with Delaware law and except as described below, provisions
in our certificate of incorporation regarding capitalization and stockholder
rights may be amended only with the approval of our board of directors and of a
majority of each class of our stock outstanding entitled to vote on these
amendments.
Common Stock
We are authorized by our certificate of incorporation to issue 125,000,000
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 so long as the holder is permitted by
applicable laws to hold the underlying shares of common stock. In all other
respects, the rights of the non-voting common stock will be the same as those
of the common stock. We anticipate that our non-voting common stock will be
held only by current stockholders of ours who may not be able to acquire shares
of our voting stock due to bank regulations or antitrust restrictions. After
satisfaction of the dividend rights of holders of preferred stock, holders of
common stock are
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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 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 allows us to issue without stockholder
approval preferred stock having rights senior to those of the common stock.
Shortly after the closing of this offering we intend to file an amended and
restated certificate of incorporation which will authorize our board of
directors, 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. This provision
could have the effect of delaying or preventing a change in control of VIA or
of reducing the price that investors might be willing to pay for our common
stock.
Anti-Takeover Provisions
General
Our certificate of incorporation and bylaws contain some provisions that are
intended to enhance the likelihood of continuity and stability in the
composition of our board of directors and in the policies formulated by our
board of directors. These provisions could have the effect of discouraging
attempts to acquire VIA or remove incumbent management even if some or a
majority of our stockholders believe this action to be in their best interest,
including attempts that might result in the stockholders receiving a premium
over the market price for the shares of common stock they hold.
Classified board and stockholder meetings
Our certificate of incorporation provides that each director will serve for a
three-year term with approximately one-third of the directors to be elected
annually. Candidates for director may be nominated only by the board of
directors or by a stockholder who gives us written notice between 60 and 90
days prior to the first anniversary of the last annual meeting of stockholders.
Two-thirds of the board may pass a resolution changing the size of the board to
between three and 15 directors. Between stockholder meetings, the board may
appoint new directors to fill vacancies or newly created directorships. The
certificate of incorporation does not provide for cumulative voting at
stockholder meetings for election of directors. As a result, stockholders
controlling more than 50% of the outstanding common stock can elect the entire
board of directors, while stockholders controlling 49% or less of the common
stock may not be able to elect any directors. A director may be removed from
office without cause only by the affirmative vote of two-thirds of the combined
voting power of the then outstanding shares entitled to vote generally in the
election of directors and for cause only by the affirmative vote of a majority
of the combined voting power. These provisions will prevent stockholders from
removing incumbent directors without cause and filling the resulting vacancies
with their own nominees.
In addition, special meetings of VIA stockholders may be called only by the
board of directors, the chairperson of the board, the chief executive officer
or president of VIA, or by any person or persons holding shares representing at
least a majority of our outstanding stock then entitled to vote in an election
of directors.
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Amendments
Our certificate of incorporation further provides that the approval of the
holders of at least two-thirds of the shares entitled to vote and the approval
of a majority of our entire board of directors will be necessary for the
alteration, amendment or repeal of sections of our certificate of incorporation
relating to the election, classification and removal of members of the board of
directors and the vote requirement for these amendments.
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.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.
Listing
We have applied to have our common stock approved for quotation on the Nasdaq
National Market and intend to apply for approval for listing on the Official
Segment of the Amsterdam Exchange N.V.'s stock market under the trading symbol
"VNWI."
Trading through the Amsterdam Security Account System
Trading of shares of our common stock on the Amsterdam Stock Exchange will
take place through the improved Amsterdam Security Account System, or New ASAS,
in the form of ASAS rights.
Under New ASAS, the legal owner of the common stock traded on the Amsterdam
Stock Exchange will be the Nominee Amsterdam Stock Exchange N.V., or the ASAS
Nominee, a wholly-owned subsidiary of the Amsterdam Stock Exchange. The shares
of common stock owned by the ASAS Nominee will be deposited to its account with
the Bank of New York. For each share of common stock so deposited, the ASAS
Nominee will create an ASAS right representing the share of common stock. This
ASAS right will be deposited with the Netherlands securities settlement system,
Nederlands Centraal Instituut voor Giraal Effectenverkeer B.V., or NECIGEF. The
ASAS rights representing shares of our common stock will trade on the Amsterdam
Stock Exchange and be cleared by its securities clearing division, AEX-
Effectenclearing, and settled through NECIGEF.
Investors holding ASAS rights will have a claim, through NECIGEF, for
delivery of the shares of common stock owned by the ASAS Nominee in respect of
which the ASAS rights have been created.
Prices of the ASAS rights representing our shares of common stock on the
Amsterdam Stock Exchange will be quoted in the Euro.
Payments, if any, we make in respect of our shares of common stock traded
through New ASAS will be made through that system. Pursuant to New ASAS
procedures, stockholder notices will not be sent directly to investors holding
ASAS rights, but will instead be published in the Daily Official List
(Officiele Prijscourant) of the Amsterdam Stock Exchange and in at least one
Netherlands newspaper indicating, when applicable, where stockholders can
obtain copies of any documents referred to in the notice.
The above description is only a summary of New ASAS. Investors should consult
with their professional advisors if they require more information or if they
have any questions about New ASAS or the Amsterdam Stock Exchange.
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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. Based on the
number of shares of our common stock outstanding on January 14, 2000, upon
completion of this offering, we will have outstanding 49,298,820 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, and without giving effect to the estimated 575,745 shares
of our common stock we expect to issue concurrently with the closing of this
offering. For a description of these issuances, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources." 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 42,068,821 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.
Rule 144
Under Rule 144, 40,090,350 shares of common stock will be tradable 90 days
after the date on which the registration statement of which this prospectus is
a part becomes effective, subject to the restrictions discussed below. 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
date on which the registration statement of which this prospectus is a part
becomes effective, 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 492,988 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 approximately 825,100 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.
Rule 701
As of January 14, 2000, approximately 113,000 shares of common stock had been
issued in reliance on Rule 701. An additional approximately 827,000 shares of
common stock are issuable upon the exercise of options outstanding on January
14, 2000 that were issued in reliance on Rule 701. All of these shares may be
eligible for sale in reliance on Rule 701 beginning 90 days after the date on
which the registration statement of
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which this prospectus is a part becomes effective. 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 approximately 41,340,721
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.
The holders of 1,347,071 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 and Purchase Rights
As soon as practicable after this offering, we intend to file a registration
statement under the Securities Act covering an aggregate of 9,504,842 shares of
common stock reserved for issuance under our 1998 Stock Option and Restricted
Stock Plan and Key Employee Equity Plan. As of January 14, 2000, options to
purchase 5,437,500 shares of common stock were outstanding under our 1998 Plan
and rights to purchase 97,500 shares of common stock were outstanding under our
Key Employee Equity Plan. 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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In addition, in accordance with the rules for admission to listing on the
Amsterdam Stock Exchange governing issuers with less than three years of net
profit, all of our directors who directly hold shares of our common stock or
non-voting common stock as of the date of this prospectus have agreed with VIA
that they will not, for a period of one year after the date of admission to
listing, dispose of any of the shares of common stock they hold directly as of
the date of this prospectus. Under the terms of these agreements, a director
may sell shares to another director who is subject to the same restrictions,
provided that the director who purchases the shares agrees to be bound by the
same restrictions with respect to the transferred shares.
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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 was treated as a domestic trust on August 20, 1996 and has
elected to continue 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
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. 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
. 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.
Under current Treasury regulations, dividends paid to a non-U.S. holder at an
address within the United States may be subject to backup withholding at a rate
of 31% if the non-U.S. holder fails to establish that the holder is entitled to
an exemption or to provide a correct taxpayer identification number and other
information to the payer. Backup withholding will generally not apply to
dividends paid to non-U.S. holders at an address outside the United States on
or prior to December 31, 2000 unless the payer has knowledge that the payee is
a U.S. person. Under the recently finalized Treasury regulations regarding
withholding and information reporting, payment of dividends to non-U.S. holders
at an address outside the United States after December 31, 2000 may be subject
to backup withholding at a rate of 31% unless such non-U.S. holder satisfies
specified certification requirements.
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.
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Pursuant to applicable tax treaties or other agreements, any information
reported by 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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MATERIAL NETHERLANDS TAX CONSEQUENCES
The following overview of material Netherlands taxes is intended only for
individuals and corporate entities who reside in the Netherlands and invest in
our common stock. The overview describes the tax consequences that will
generally apply to these investors under the Netherlands tax laws in force and
in effect as of the date of this prospectus and is subject to changes in
Netherlands law, including changes that could have retroactive effect. Not
every potential tax consequence of an investment in the common stock under the
laws of the Netherlands is addressed in this section. Therefore, we recommend
that purchasers of our common stock who reside in the Netherlands consult their
own tax adviser with respect to the tax consequences of an investment in our
common stock.
Individual and Corporate Income Tax
Individuals Not Engaged in an Enterprise
As a general rule, an individual who resides or is deemed to reside in the
Netherlands and who holds shares of our common stock that are not attributable
to an enterprise carried on by or on behalf of the individual is subject to
income tax at progressive rates or, under some circumstances, at a flat rate of
45%, on distributions made by us as well as on some distributions deemed made
by us as described below, unless the stockholder has a substantial interest in
us, as discussed below.
Distributions to Netherlands Stockholders
Taxable distributions by us made to stockholders who are subject to
Netherlands income tax may include, but are not limited to
. distributions in cash or in kind, deemed and constructive distributions
and repayments of paid-in capital not recognized for Netherlands income
tax purposes;
. liquidation proceeds, proceeds of redemption of shares of our common
stock or, as a general rule, consideration we pay to repurchase shares of
our common stock in excess of the average paid-in capital recognized for
Netherlands income tax purposes;
. the par value of shares issued to a stockholder or an increase of the par
value of shares, as the case may be, to the extent that it does not
appear that a contribution, recognized for the Netherlands income tax
purposes, has been made or will be made; and
. partial repayment of paid-in capital, recognized for Netherlands dividend
withholding tax purposes, if and to the extent that there are anticipated
net profits, unless stockholders have previously approved of the
repayment and provided that the par value of the shares on which
repayment is made has been reduced by the amount of the repayment
pursuant to an amendment to our certificate of incorporation.
Capital Gains
Capital gains realised on the disposition of shares of our common stock by an
individual who resides in or is deemed to reside in the Netherlands are
generally exempt from Netherlands income tax if the resident does not have a
substantial interest in us, as discussed below, and the shares of common stock
are not attributable to an enterprise carried on by or on behalf of such
individual. For a discussion of whether shares of our common stock will be
considered to be attributable to an enterprise carried on by or on behalf of an
individual, see "--Individuals Engaged in an Enterprise, Companies and Other
Entities" below.
Substantial Interest
A Netherlands resident will be subject to tax, generally at a rate of 25%,
with respect to any dividend or deemed dividend derived from, and any gain or
deemed gain realised on the disposal, deemed or actual, of shares of our common
stock if the holder has or is deemed to have a substantial interest in us.
Generally, a
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holder of our common stock will not have a substantial interest in us unless
the holder, together with the holder's spouse, specified other relatives,
including foster children, and other persons sharing the holder's household,
holds, directly or indirectly, the ownership of, or specified other rights
over, shares of our common stock representing five percent or more of our total
issued and outstanding capital or the issued and outstanding capital of any
class of our common stock, or holds rights to acquire our common stock, whether
or not already issued, that represent at any time, and from time to time, five
percent or more of our total issued and outstanding capital, or the issued and
outstanding capital of any class of our common stock, or holds the ownership of
specified profit participating certificates that relate to five percent or more
of our annual profit and/or five percent or more of our liquidation proceeds. A
deemed substantial interest is present if all or part of a substantial interest
has been disposed of, or is deemed to have been disposed of, on a non-
recognition basis.
Individuals Engaged in an Enterprise, Companies and Other Entities
Individuals who are or are deemed to be Netherlands residents and who own
shares of our common stock that are attributable to an enterprise carried on by
or on behalf of the individual, and companies or other entities subject to
Netherlands corporate income tax, that are resident in the Netherlands for
Netherlands tax purposes and that own our common stock, are generally subject
to income tax or corporate income tax with respect to distributions made by us
as well as with respect to specified distributions deemed made by us and with
respect to any gain realised on the disposal of our common stock.
Netherlands Qualifying Pension Funds and Investment Institutions
("Beleggingsinstellingen")
A Netherlands qualifying pension fund is not subject to corporate income tax.
Furthermore, qualifying investment institutions residing in the Netherlands are
subject to corporate income tax at a special rate of zero percent.
Net Wealth Tax
Individuals who reside in or are deemed to reside in the Netherlands are
subject to Netherlands net wealth tax based on their world-wide net wealth,
which includes the fair market value of shares of our common stock they hold.
Gift, Estate and Inheritance Taxes
Gift, estate and inheritance taxes will arise in the Netherlands with respect
to an acquisition of our common stock by way of a gift by, or on the death of,
a holder of our common stock who resides or is deemed to reside in the
Netherlands.
For purposes of Netherlands gift, estate and inheritance taxes, an individual
who holds the Netherlands nationality will be deemed to be resident in the
Netherlands if he or she has resided in the Netherlands at any time during the
ten years preceding the date of the gift or his death. In addition, for
purposes of the Netherlands gift tax, an individual not holding the Netherlands
nationality will be deemed to be resident in the Netherlands if he or she has
resided in the Netherlands at any time during the 12 months preceding the date
of the gift.
Withholding Tax
Under the tax treaty between the Netherlands and the United States as
currently in effect, dividends distributed by us to qualifying Netherlands
stockholders are generally subject to a United States dividend withholding tax
rate which shall not exceed 15% of the gross amount of the dividends. The
United States dividend withholding tax shall not exceed five percent of the
gross amount of the dividends if the beneficial owner of the dividends is a
qualifying Netherlands company which holds directly at least ten percent of our
voting power. Subject to the Netherlands tax position of the qualifying
Netherlands stockholder, this United States withholding may be creditable
against Netherlands tax.
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Other Taxes and Duties
No Netherlands capital tax, registration tax, transfer tax, stamp duty or any
other similar documentary tax or duty will be payable in the Netherlands in
respect of or in connection with the subscription, issue, placement, allotment
or delivery of our common stock.
TAX REFORM 2001
In the Netherlands, a major tax reform is pending which should become
effective as of January 1, 2001. If effected, this reform will change the
taxation relating to shares held by individual stockholders residing or deemed
to be residing in the Netherlands. Under the proposed legislation, individuals
who reside or are deemed to reside in the Netherlands and who hold our common
stock will be taxed annually at a rate of 30% on a deemed income of 4% of the
annual average value of the shares, regardless of whether any dividends are
received, capital gains are realised, or capital losses are suffered.
Furthermore, under the proposed legislation, the net wealth tax would be
abolished. We cannot predict whether this legislation will come into effect or,
if it does come into effect, whether it will come into effect in the form
proposed.
You should consult legal and tax advisors in the countries of your
citizenship, residence and domicile to determine the possible tax consequences
of purchasing, holding and redeeming our common stock under the laws of your
jurisdiction.
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<PAGE>
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..................................................... 6,650,000
----------
<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..................................................... 6,650,000
----------
Total.......................................................... 13,300,000
==========
</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
listing of the common stock for quotation on the Nasdaq National Market and for
trading on the Amsterdam Stock Exchange 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>
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<PAGE>
We estimate expenses related to this offering will be $2.9 million.
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 1,995,000
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 have agreed not to 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 665,000 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.
Under the terms of a stockholders agreement with those stockholders of ours
who currently hold our preferred stock, we have reserved 700,000 shares of
common stock to be offered directly to them in a concurrent offering at a price
equal to the initial public offering price. The underwriters will not receive
underwriting fees with respect to these shares. Each of these stockholders has
agreed not to dispose of the shares for a period of 180 days.
We have applied to have our common stock approved for quotation on the Nasdaq
National Market, and we intend to apply for approval for trading on the
Amsterdam Stock Exchange 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
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. 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.
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.
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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 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.
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.
DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation is facilitating the distribution of the shares sold in this
offering over the Internet. Some of the underwriters and their affiliates
engage in transactions with, and perform services for, VIA and its affiliates,
and have engaged in and may in the future engage in commercial and investment
banking and other transactions with VIA and its affiliates. In connection with
these transactions, VIA has agreed to pay fees and reimburse related expenses
aggregating less than $1.0 million to affiliates of Donaldson, Lufkin &
Jenrette Securities Corporation, Morgan Stanley & Co. Incorporated and Salomon
Smith Barney Inc.
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 purchased the common stock and immediately resold
the shares for a profit. These activities may stabilize or maintain the market
price of the common stock above independent market levels. The underwriters are
not required to engage in these activities, may end any of these activities at
any time, and in any event will discontinue these activities no later than 30
days after the closing of this offering.
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<PAGE>
Pricing of the Common Stock
Prior to this 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 this
offering
This prospectus may be used by underwriters and dealers in connection with
offers and sales of the common stock to persons located in the United States.
LEGAL MATTERS
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. Matters relating to Dutch tax law have been passed upon
by Nauta Dutilh.
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
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<PAGE>
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 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.
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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-5
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 September 30, 1999 (unaudited)................................... F-7
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-15
Consolidated Balance Sheets as of December 31, 1997 and 1998 and
September 30, 1999 (unaudited)......................................... F-16
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-17
Consolidated Statement of Stockholders' Deficit for the period from
inception (June 13, 1997) to December 31, 1997, December 31, 1998 and
the nine months ended September 30, 1999 (unaudited)................... F-18
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-19
Notes to Consolidated Financial Statements.............................. F-20
VIA Net Works Argentina, S.A. -- Financial Statements
Report of Independent Accountants....................................... F-36
Balance Sheets as of December 31, 1997 and September 24, 1998........... F-37
Statements of Operations for the year ended December 31, 1997 and for
the period from January 1, 1998 to September 24, 1998.................. F-38
Statement of Stockholders' Deficit for the year ended December 31, 1997
and for the period from January 1, 1998 to September 24, 1998.......... F-39
Statements of Cash Flows for the year ended December 31, 1997 and for
the period from January 1, 1998 to September 24, 1998.................. F-40
Notes to Financial Statements........................................... F-41
Gesellschaft fur Telekommunikations und Netzwerkdienste mbH ("GTN") --
Financial Statements
Report of Independent Accountants....................................... F-48
Balance Sheets as of December 31, 1997 and October 9, 1998.............. F-49
Statements of Operations for the year ended December 31, 1997 and for
the period from January 1, 1998 to October 9, 1998..................... F-50
Statement of Stockholders' Equity for the year ended December 31, 1997
and for the period from January 1, 1998 to October 9, 1998............. F-51
Statements of Cash Flows for the year ended December 31, 1997 and for
the period from January 1, 1998 to October 9, 1998..................... F-52
Notes to Financial Statements........................................... F-53
U-Net Limited -- Financial Statements
Report of Independent Accountants....................................... F-58
Balance Sheets as of July 31, 1997 and 1998 and October 29, 1998........ F-59
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-60
</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-61
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-62
Notes to Financial Statements.......................................... F-63
Dialdata S.A., Internet Systems -- Financial Statements
Report of Independent Accountants...................................... F-69
Balance Sheets as of December 31, 1997 and December 29, 1998........... F-70
Statements of Operations for the year ended December 31, 1997 and for
the period from January 1, 1998 to December 29, 1998.................. F-71
Statement of Stockholders' Equity for the year ended December 31, 1997
and for the period from January 1, 1998 to December 29, 1998.......... F-72
Statements of Cash Flows for the year ended December 31, 1997 and for
the period from January 1, 1998 to December 29, 1998.................. F-73
Notes to Financial Statements.......................................... F-74
I-Way Limited and Subsidiary -- Consolidated Financial Statements
Report of Independent Accountants...................................... F-79
Consolidated Balance Sheets as of April 30, 1997 and 1998 and December
31, 1998 and June 30, 1999 (unaudited)................................ F-80
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-81
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-82
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-83
Notes to Consolidated Financial Statements............................. F-84
bART Holding B.V. and Subsidiaries -- Consolidated Financial Statements
Report of Independent Accountants...................................... F-90
Consolidated Balance Sheet as of December 31, 1998..................... F-91
Consolidated Statement of Operations for the year ended December 31,
1998.................................................................. F-92
Consolidated Statement of Stockholders' Deficit for the year ended
December 31, 1998..................................................... F-93
Consolidated Statement of Cash Flows for the year ended December 31,
1998.................................................................. F-94
Notes to Consolidated Financial Statements............................. F-95
ESOTERICA-Novas Tecnologias de Informacao S.A. -- Financial Statements
Report of Independent Accountants...................................... F-102
Balance Sheet as of December 31, 1998.................................. F-103
Statement of Operations for the year ended December 31, 1998........... F-104
Statement of Stockholders' Deficit for the year ended December 31,
1998.................................................................. F-105
Statement of Cash Flows for the year ended December 31, 1998........... F-106
Notes to Financial Statements.......................................... F-107
Worldwide Web Services Limited -- Financial Statements
Report of Independent Accountants...................................... F-111
Balance Sheet as of May 27, 1999....................................... F-112
Statement of Operations for the period from July 1, 1998 to May 27,
1999.................................................................. F-113
Statement of Stockholders' Deficit for the period from July 1, 1998 to
May 27, 1999.......................................................... F-114
Statement of Cash Flows for the period from July 1, 1998 to May 27,
1999.................................................................. F-115
Notes to Financial Statements.......................................... F-116
</TABLE>
F-2
<PAGE>
<TABLE>
<S> <C>
Netlink Internet Services Limited -- Financial Statements
Report of Independent Accountants...................................... F-121
Balance Sheets as of December 31, 1998 and June 30, 1999 (unaudited)... F-122
Statements of Operations for the year ended December 31, 1998 and for
the six months ended June 30, 1998 and 1999 (unaudited)............... F-123
Statement of Stockholders' Deficit for the year ended December 31, 1998
and for the six months ended June 30, 1999 (unaudited)................ F-124
Statements of Cash Flows for the year ended December 31, 1998 and for
the six months ended June 30, 1998 and 1999 (unaudited)............... F-125
Notes to Financial Statements.......................................... F-126
Disbumad, S.L. -- Financial Statements
Report of Independent Accountants...................................... F-131
Balance Sheets as of December 31, 1998 and June 30, 1999 (unaudited)... F-132
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-133
Statement of Stockholders' Deficit for the years ended December 31,
1998 and for the 6 month period ended June 30, 1999 (unaudited)....... F-134
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-135
Notes to Financial Statements.......................................... F-136
InfoAcces S.A. de C.V. and Subsidiary -- Consolidated Financial
Statements
Independent Auditors' Report........................................... F-143
Consolidated Balance Sheets as of December 31, 1997 and 1998 and
September 30, 1999 (unaudited)........................................ F-144
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-145
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-146
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-147
Notes to Consolidated Financial Statements............................. F-148
</TABLE>
F-3
<PAGE>
VIA NET.WORKS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
During the period beginning September 24, 1998 through January 14, 2000,
VIA NET.WORKS, Inc. (the "Company") completed 19 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 (the
"Completed Acquisitions"). Additionally, on January 10, 2000, the Company
entered into an agreement to acquire a 100% interest in I.S.A.R Netzwerke
Dienstleistungs GmbH ("ISAR") with the cash proceeds from the IPO (the "Pending
Acquisition"). All of the Completed and Pending Acquisitions have been or will
be accounted for using the purchase method of accounting. The Completed and
Pending 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"),
M&C Management & Communications S.A. ("M&CNet") Net4You EDV Dienstleistungs and
Handelges.m.b.h. ("Net4You") and DNS Telecom SAS ("DNS") and the pending
acquisition of ISAR 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 Completed and Pending
Acquisitions, as though these acquisitions had occurred on January 1, 1998. The
unaudited pro forma condensed combined financial statements do not give effect
to the payment of $1.8 million and the issuance of 575,745 shares of common
stock to be issued upon closing of these offerings to repay indebtedness
associated with prior acquisitions and to acquire the minority interest in one
operating company, assuming an initial public offering price of $16.00 per
share and assuming applicable foreign exchange rates remain constant.
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 InfoAccess, Net4You, DNS and ISAR has not been finalized pending an
analysis of the amount of tangible and intangible assets and liabilities
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 as customer base, employee workforce and tradename. Such
intangible assets may have an estimated useful life that differs from the five-
year life used for the amortization of goodwill. Any adjustment would not have
a material impact on the pro forma statements of operations. With respect to
the acquisitions prior to September 30, 1999 and M&CNet, because the Company's
operating strategy following the acquisitions is intended to change the nature
of the existing target market from residential subscribers to small to mid-
sized businesses, the value of the acquired customer base was determined to not
be significant. The Company has also determined, due to the short histories of
these acquired businesses, that there is significant uncertainty regarding the
future rate of employee retention following the acquisitions and accordingly,
the Company has concluded that the value of the employee workforce was nominal.
The Company has likewise determined that the value of the tradenames acquired
was not significant based on the intention to modify the branding of the
acquired businesses following the acquisition. Therefore, with respect to these
acquisitions, the entire excess purchase price over the tangible net assets
acquired has been allocated to goodwill.
F-4
<PAGE>
VIA NET.WORKS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1999
(Amounts in thousands)
<TABLE>
<CAPTION>
Historical
-----------------------------
Completed and
Pending
Acquisitions Pro Forma
Subsequent to Adjustments
September 30, 1999 (See Note
VIA (See Note 2) 4) Pro Forma
----------------------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ 91,502 $ 2,149 $ (72,473)(a) $ 21,178
Restricted cash........ -- -- 15,000 (a) 15,000
Trade and other
accounts receivable... 6,833 4,699 -- 11,532
Other current assets... 1,916 1,073 -- 2,989
--------- -------- --------- --------
Total current
assets.............. 100,251 7,921 (57,473) 50,699
Property and equipment,
net..................... 22,843 3,083 -- 25,926
Goodwill................. 91,535 -- 56,067 (b) 147,602
Other assets............. 466 1,805 1,000 (b) 3,271
--------- -------- --------- --------
Total assets......... $ 215,095 $ 12,809 $ (406) $227,498
========= ======== ========= ========
LIABILITIES, MANDATORILY REDEEMABLE
CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable....... $ 7,189 $ 3,169 $ -- $ 10,358
Current portion of
long-term debt........ 6,489 740 210 (c) 7,439
Deferred revenue....... 8,795 934 -- 9,729
Other current
liabilities and
accrued expenses...... 6,311 2,042 -- 8,353
--------- -------- --------- --------
Total current
liabilities......... 28,784 6,885 210 35,879
Long-term debt, less
current portion 13,551 436 986 (c) 14,973
Other non-current
liabilities............. 271 1,043 -- 1,314
--------- -------- --------- --------
Total liabilities.... 42,606 8,364 1,196 52,166
Minority interest in
consolidated
subsidiaries............ 4,801 -- 1,044 (d) 5,845
Mandatorily redeemable
preferred stock......... 180,933 -- (180,933)(e) --
Stockholders' equity
(deficit):
Common stock........... 2 5,223 (5,190)(e)(f) 35
Non-voting common
stock................. -- -- 7 (e) 7
Additional paid in
capital............... 13,313 128 182,564 (e) 196,005
Accumulated deficit.... (21,620) (1,204) 1,204 (f) (21,620)
Deferred compensation.. (1,333) -- -- (1,333)
Accumulated other
comprehensive loss.... (3,607) 298 (298)(f) (3,607)
--------- -------- --------- --------
Total stockholders'
equity (deficit).... (13,245) 4,445 178,287 169,487
--------- -------- --------- --------
Total liabilities,
minority interest,
mandatorily
redeemable
convertible
preferred stock and
stockholders' equity
(deficit)........... $ 215,095 $ 12,809 $ (406) $227,498
========= ======== ========= ========
</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
and Pending Adjustments
Acquisitions (see Note
VIA (see Note 3) 4) Pro Forma
-------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Access.................. $ 3,212 $30,083 $ 33,295
Value-added services.... 136 10,243 10,379
Other................... -- 3,587 3,587
-------- ------- ----------- -----------
Total revenue......... 3,348 43,913 -- 47,261
Operating costs and
expenses:
Internet services....... 1,724 18,030 -- 19,754
Selling, general and
administrative......... 6,387 24,267 -- 30,654
Depreciation and
amortization........... 1,304 3,211 31,812 (g) 36,327
-------- ------- ----------- -----------
Total operating costs
and expenses......... 9,415 45,508 31,812 86,735
-------- ------- ----------- -----------
Loss from operations...... (6,067) (1,595) (31,812) (39,474)
-------- ------- ----------- -----------
Interest income (expense),
net...................... 1,425 (791) (844)(h) (210)
Loss in unconsolidated
affiliate................ (1,199) -- 1,199 (i) --
Foreign currency gain..... 115 79 -- 194
-------- ------- ----------- -----------
Loss before minority
interest and income
taxes.................... (5,726) (2,307) (31,457) (39,490)
Income tax
benefit/(expense)........ 145 (818) -- (673)
Minority interest......... 239 -- (556)(i) (317)
-------- ------- ----------- -----------
Net loss attributable to
common stockholders...... $ (5,342) $(3,125) $ (32,013) $ (40,480)
======== ======= =========== ===========
Basic and diluted loss per
share attributable to
common stockholders...... $ (24.29) $ (3.20)
======== ===========
Shares used in computing
basic and diluted loss
per share................ 219,964 12,441,566 (j) 12,661,530
</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
and Pending Adjustments
Acquisitions (see Note
VIA (see Note 3) 4) Pro Forma
--------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Access................. $ 16,253 $15,411 $ -- $ 31,664
Value-added services... 5,461 6,767 -- 12,228
Other.................. 647 3,470 -- 4,117
--------- ------- ----------- -----------
Total revenue........ 22,361 25,648 48,009
Operating costs and
expenses:
Internet services...... 9,649 10,212 -- 19,861
Selling, general and
administrative........ 21,689 14,056 -- 35,745
Depreciation and
amortization.......... 10,635 1,552 15,732 (g) 27,919
--------- ------- ----------- -----------
Total operating costs
and expenses.......... 41,973 25,820 15,732 83,525
--------- ------- ----------- -----------
Loss from operations..... (19,612) (172) (15,732) (35,516)
Interest income
(expense), net.......... 1,308 (165) (192)(h) 951
Loss in unconsolidated
affiliate............... (177) -- 177 (i) --
Foreign currency
gain/(loss)............. 1,283 (160) -- 1,123
--------- ------- ----------- -----------
Loss before minority
interest and income
taxes................... (17,198) (497) (15,747) (33,442)
Income tax expense....... -- (649) -- (649)
Minority interest........ 1,241 -- (235)(i) 1,006
--------- ------- ----------- -----------
Net loss attributable to
common stockholders..... $ (15,957) $(1,146) $ (15,982) $ (33,085)
========= ======= =========== ===========
Basic and diluted loss
per share attributable
to common stockholders.. $ (20.17) $ (2.25)
========= ===========
Shares used in computing
basic and diluted loss
per share............... 790,953 13,942,340 (j) 14,733,293
========= =========== ===========
</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 January 14, 2000, the Company has completed or anticipates completing
the following acquisitions. All of the Completed and Pending Acquisitions have
been or will be accounted for using the purchase method of accounting. Under
the purchase method of accounting the purchase price is allocated to assets
acquired, including intangible assets, and liabilities assumed based on their
respective fair values on the acquisition date. Primarily all purchase price in
excess of net tangible assets has been recorded as goodwill.
<TABLE>
<CAPTION>
Ownership
Percentage for
the Completed
and Pending
Acquisitions Consideration
Through -----------------------------------
January 14, Common
Completed and Pending Acquisitions Acquisition Date(s) 2000 Cash Notes Stock Total Goodwill
---------------------------------- ------------------- -------------- -------- ------- ------ -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
i-way Ltd. ("i-way")................... June 22, 1998 36% $ 2,387 $ -- $ -- $ 2,387 $ --
August 5, 1999 64% 10,472 -- 2,619(b) 13,091 14,174
---- -------- ------- ------ -------- --------
100% 12,859 -- 2,619 15,478 14,174
---- -------- ------- ------ -------- --------
VIA Net Works Argentina S.A. ("VNWA").. September 24, 1998 51% 1,313 2,944 -- 4,257 3,222
July 31, 1999 49% 1,356 -- 1,237(b) 2,593 1,913
---- -------- ------- ------ -------- --------
100% 2,669 2,944 1,237 6,850 5,135
---- -------- ------- ------ -------- --------
Gesellschaft fur Telekommunikations und
Netzwerkdienste mbH ("GTN")........... October 9, 1998 51% 3,976 6,127 -- 10,103 5,923
U-Net Ltd. ("U-Net")................... October 29, 1998 100% 8,553 8,212 -- 16,765 17,664
Dialdata S. A. Internet Systems
("Dialdata").......................... December 29, 1998 53% 3,196 2,800 140(b) 6,136 4,452
bArt Holding B. V. ("bART")............ March 25, 1999 100% 6,707 -- -- 6,707 9,557
MediaNet Ireland Ltd. ("Medianet")..... April 19, 1999 60% 1,466 -- -- 1,466 2,276
Ecce Terram GmbH ("Ecce
Terram") (a)(c) ...................... April 30, 1999 100% 68 585 -- 653 745
Artinternet S.A. ("Artinternet")....... May 5, 1999 51% 1,455 -- -- 1,455 1,385
Esoterica-Novas Technologias de
Informacao S. A. ("Esoterica")........ May 13, 1999 100% 6,995 986 -- 7,981 9,006
Worldwide Web Services Ltd. ("WWS").... May 27, 1999 100% 3,658 3,658 -- 7,316 8,051
Informationstechnik, Netzwerke und
Systeme Vertriebs GmbH
("INS") (a)(c) ....................... June 30, 1999 100% 1,874 1,188 -- 3,062 2,947
Netlink Internet Services Ltd.
("Netlink")........................... July 9, 1999 100% 8,744 -- 3,153(b) 11,897 13,742
Service Net S.A. ("Service Net")....... July 30, 1999 100% 1,125 -- -- 1,125 1,299
Disbumad, SL ("Interbook")............. August 26, 1999 87% 4,433 1,471 -- 5,904 6,513
InfoAcces S.A. de C.V.
("InfoAcces") (c)..................... October 10, 1999 100% 35,000 -- -- 35,000 31,633
M&C Communications & Management, S.A.
("M&CNet")............................ October 11, 1999 60% 2,139 1,190 -- 3,329 2,549
Net4You EDV Dienstleistungs und
Handelges. m.b.h. ("Net4You")......... January 4, 2000 57.5% 2,259 581 -- 2,840 2,370
DNS Telecom SAS ("DNS") (c)............ January 7, 2000 100% 8,766 986 1,800(d) 11,552 11,205
I.S.A.R. Netzwerke Dienstleistungs GmbH
("ISAR") (c).......................... Pending 100% 8,959 -- -- 8,959 8,333
-------- ------- ------ -------- --------
Total................................ $124,901 $30,728 $8,949 $164,578 $158,959
======== ======= ====== ======== ========
</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.
(c) The purchase agreement for this acquisition includes a provision that the
selling shareholders could receive additional consideration based on the
performance of the acquired operation following the date of acquisition,
calculated in accordance with a formula based on revenues and EBITDA.
(d) Represents shares of common stock valued at $16.00 per share. This per
share value was determined by the Board of Directors based on the mid point
of the range of the assumed IPO price.
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 and
Pending Acquisitions has been allocated as follows (amounts in thousands):
<TABLE>
<S> <C>
Total consideration................................................... $164,578
Acquisition costs..................................................... 6,356
--------
Total purchase price.............................................. $170,934
========
Allocated as follows:
Property and equipment and other assets............................. $ 50,958
Goodwill............................................................ 158,959
Net current liabilities............................................. (38,983)
--------
Total purchase price.............................................. $170,934
========
</TABLE>
Promissory notes included in total consideration are as follows (amounts in
thousands):
<TABLE>
<CAPTION>
Outstanding at
Original January 14, Interest
Amount 2000 Rate
-------- -------------- --------
<S> <C> <C> <C>
Payable to sellers
U-Net......................... $ 8,212 $3,582 6.563%
Ecce Terram................... 585 566 5%
Esoterica..................... 986 939 5%
WWS........................... 3,658 -- 5%
INS........................... 1,188 1,179 no interest, total
amount due 12 months
after closing
Interbook..................... 1,471 1,412 5%
DNS........................... 986 980 5%
Net4You....................... 210 211 no interest, total
------- ------- amount due 12 months
after closing
Subtotal Payable to
sellers.................... 17,296 8,869
Payable to less than wholly-
owned entities
VNWA.......................... 2,944 -- 4%
GTN........................... 6,127 -- 5%
Dialdata...................... 2,800 186 4%
M&CNet........................ 1,190 1,140 no interest, $547 due
6 months after closing
and $643 due 12 months
after closing
Net4You....................... 371 373 no interest, total
------- ------- amount due 6 months
after closing
Subtotal Payable to wholly-
owned entities............. 13,432 1,699
------- -------
Total......................... $30,728 $10,568
======= =======
</TABLE>
F-9
<PAGE>
VIA NET.WORKS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(2)HISTORICAL CONDENSED COMBINED BALANCE SHEET INFORMATION--ACQUISITIONS
SUBSEQUENT TO SEPTEMBER 30, 1999
SEPTEMBER 30, 1999
Historical condensed balance sheet information at September 30, 1999 for the
four acquisitions which occurred subsequent to September 30, 1999 and the
pending acquisition of ISAR are as follows. Amounts are presented in accordance
with U.S. GAAP and have been translated into U.S. Dollars using the exchange
rate at September 30, 1999.
<TABLE>
<CAPTION>
InfoAcces M&CNet Net4You DNS ISAR Total
--------- ------ ------- ------ ------ -------
(amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents... $ 238 $ 36 $ 10 $ 788 $1,077 $ 2,149
Trade and other accounts
receivable................. 2,601 223 307 893 675 4,699
Other current assets........ 816 6 115 136 -- 1,073
------- ----- ----- ------ ------ -------
Total current assets...... 3,655 265 432 1,817 1,752 7,921
Fixed assets, net........... 2,468 278 224 66 47 3,083
Other assets................ 1,768 7 2 28 -- 1,805
------- ----- ----- ------ ------ -------
Total assets.............. $ 7,891 $ 550 $ 658 $1,911 $1,799 $12,809
======= ===== ===== ====== ====== =======
Current liabilities:
Accounts payable............ $ 2,383 $ 126 $ 327 $ 252 $ 81 $ 3,169
Current portion of long-term
debt....................... 431 195 14 89 11 740
Deferred revenue............ 482 285 -- 167 -- 934
Other current liabilities
and accrued expenses....... 726 90 79 1,045 102 2,042
------- ----- ----- ------ ------ -------
Total..................... 4,022 696 420 1,553 194 6,885
Long-term debt, less current
portion.................... 330 -- 106 -- -- 436
Other noncurrent
liabilities................ 86 -- -- -- 957 1,043
------- ----- ----- ------ ------ -------
Total liabilities......... 4,438 696 526 1,553 1,151 8,364
------- ----- ----- ------ ------ -------
Stockholders' equity(deficit):
Common stock................ 4,857 267 77 8 14 5,223
Additional paid-in capital.. 128 -- -- -- -- 128
Accumulated deficit......... (1,829) (415) 55 351 634 (1,204)
Other comprehensive loss.... 297 2 -- (1) -- 298
------- ----- ----- ------ ------ -------
Total..................... 3,453 (146) 132 358 648 4,445
------- ----- ----- ------ ------ -------
Total liabilities and
stockholders' equity
(deficit)................ $ 7,891 $ 550 $ 658 $1,911 $1,799 $12,809
======= ===== ===== ====== ====== =======
</TABLE>
F-10
<PAGE>
VIA NET.WORKS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(3)HISTORICAL CONDENSED STATEMENTS OF OPERATIONS INFORMATION--COMPLETED
ACQUISITIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
Historical condensed statements of operations information for the Completed
and Pending 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 and 2000 are as follows. Information for
InfoAcces, M&CNet, Net4You, DNS and ISAR, which were acquired or anticipated to
be acquired after September 30, 1999, and all other acquisitions is presented
as though they were acquired on January 1, 1998. 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 Esoterica WWS
------ ------ ------ -------- ------ -------- ------ ----------- --------- -----
(amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Access................. $1,393 $3,608 $4,768 $2,176 $2,335 $ 468 $-- $135 $1,388 $ 693
Value-added services... -- 338 -- 745 557 284 -- 602 143 1,202
Other.................. 1 -- -- 86 -- 34 499 9 247 9
------ ------ ------ ------ ------ ----- ---- ---- ------ -----
Total revenue........... 1,394 3,946 4,768 3,007 2,892 786 499 746 1,778 1,904
Operating costs and
expenses:
Internet services...... 301 2,697 1,954 694 856 201 226 264 971 264
Selling general and
administrative........ 1,501 1,210 2,157 1,166 2,188 754 280 402 806 1,600
Depreciation and
amortization.......... 124 72 711 112 521 77 24 47 246 74
------ ------ ------ ------ ------ ----- ---- ---- ------ -----
Total operating costs
and expenses.......... 1,926 3,979 4,822 1,972 3,565 1,032 530 713 2,023 1,938
------ ------ ------ ------ ------ ----- ---- ---- ------ -----
Income (loss) from
operations............. (532) (33) (54) 1,035 (673) (246) (31) 33 (245) (34)
Interest income
(expense), net......... (49) (1) (121) (66) (89) (13) (3) (1) (69) --
Foreign currency
gain/(loss)............ -- 3 -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ----- ---- ---- ------ -----
Income (loss) before
taxes.................. (581) (31) (175) 969 (762) (259) (34) 32 (314) (34)
Income tax expense...... -- -- -- (274) -- -- -- -- -- --
------ ------ ------ ------ ------ ----- ---- ---- ------ -----
Net income (loss) before
discontinued operations
and extraordinary
gain................... $ (581) $ (31) $ (175) $ 695 $ (762) $(259) $(34) $ 32 $ (314) $ (34)
====== ====== ====== ====== ====== ===== ==== ==== ====== =====
</TABLE>
<TABLE>
<CAPTION>
Service
INS Netlink Net Interbook i-way InfoAcces M&CNet Net4You ISAR DNS TOTAL
----- ------- ------- --------- ------- --------- ------ ------- ------ ------ -------
(amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Access................. $ 588 $ -- $801 $ 468 $ 1,487 $4,783 $ 658 $ 613 $1,290 $2,431 $30,083
Value-added services... 324 1,446 -- 290 1,326 1,648 848 490 -- -- 10,243
Other.................. 745 -- -- 187 3 1,660 1 72 -- 34 3,587
----- ----- ---- ----- ------- ------ ------ ----- ------ ------ -------
Total revenue........... 1,657 1,446 801 945 2,816 8,091 1,507 1,175 1,290 2,465 43,913
Operating costs and
expenses:
Internet services...... 344 634 211 332 1,270 4,002 438 516 54 1,801 18,030
Selling general and
administrative........ 1,140 1,313 559 641 2,734 3,679 1,006 452 256 423 24,267
Depreciation and
amortization.......... 124 85 82 49 222 437 78 106 2 18 3,211
----- ----- ---- ----- ------- ------ ------ ----- ------ ------ -------
Total operating costs
and expenses.......... 1,608 2,032 852 1,022 4,226 8,118 1,522 1,074 312 2,242 45,508
----- ----- ---- ----- ------- ------ ------ ----- ------ ------ -------
Income (loss) from
operations............. 49 (586) (51) (77) (1,410) (27) (15) 101 978 223 (1,595)
Interest income
(expense), net......... (17) (22) (31) (38) (58) (199) (7) (10) 4 (1) (791)
Foreign currency
gain/(loss)............ -- (4) -- -- -- 80 -- -- -- -- 79
----- ----- ---- ----- ------- ------ ------ ----- ------ ------ -------
Income (loss) before
taxes.................. 32 (612) (82) (115) (1,468) (146) (22) 91 982 222 (2,307)
Income tax expense...... -- -- -- -- -- -- -- (8) (453) (83) (818)
----- ----- ---- ----- ------- ------ ------ ----- ------ ------ -------
Net income (loss) before
discontinued operations
and extraordinary
gain................... $ 32 $(612) $(82) $(115) $(1,468) $ (146) $ (22) $ 83 $ 529 $ 139 $(3,125)
===== ===== ==== ===== ======= ====== ====== ===== ====== ====== =======
</TABLE>
F-11
<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
and Pending Acquisitions for the nine-months ended September 30, 1999,
including the periods from January 1, 1999 to the dates of consolidation
(September 30, 1999 for InfoAcces, M&CNet, Net4You, DNS and ISAR) are as
follows. Information for the four completed acquisitions and one pending
acquisition after September 30, 1999, and all other acquisitions is presented
as though they were acquired on January 1, 1998. 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................. $ 709 $ 241 $-- $ 10 $1,103 $ 585 $446 $ --
Value-added services... 127 83 -- 82 96 644 445 1,136
Other.................. 1 -- 173 2 155 -- 41 --
----- ----- ---- ----- ------ ------ ---- ------
Total revenue........... 837 324 173 94 1,354 1,229 932 1,136
Operating costs and
expenses:
Internet services
operating costs....... 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
Income (loss) from
operations............. (137) (97) (64) (173) 100 (135) 152 (111)
Interest income
(expense), net......... (21) (4) (2) 6 (31) -- (6) (5)
Foreign currency loss... -- -- -- -- -- -- -- (13)
----- ----- ---- ----- ------ ------ ---- ------
Income (loss) before
minority interest and
taxes.................. (158) (101) (66) (167) 69 (135) 146 (129)
Income tax expense...... -- -- -- -- -- -- -- --
----- ----- ---- ----- ------ ------ ---- ------
Net income (loss)
attributable to common
shareholders .......... $(158) $(101) $(66) $(167) $ 69 $ (135) $146 $ (129)
===== ===== ==== ===== ====== ====== ==== ======
</TABLE>
<TABLE>
<CAPTION>
Service Net Interbook i-way InfoAcces M&CNet Net4You DNS ISAR TOTAL
----------- --------- ------ --------- ------ ------- ------ ------ -------
(amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Access................. $542 $ 434 $1,159 $4,396 $ 484 $570 $2,610 $2,122 $15,411
Value-added services... -- 314 1,188 1,653 742 257 -- -- 6,767
Other.................. -- 226 81 2,658 2 80 51 -- 3,470
---- ----- ------ ------ ------ ---- ------ ------ -------
Total revenue........... 542 974 2,428 8,707 1,228 907 2,661 2,122 25,648
Operating costs and
expenses:
Internet services
operating costs....... 160 635 814 4,036 342 376 1,768 404 10,212
Selling general and
administrative........ 387 520 1,461 4,866 904 409 584 565 14,056
Depreciation and
amortization.......... 23 38 245 576 66 67 17 13 1,552
---- ----- ------ ------ ------ ---- ------ ------ -------
Total operating costs
and expenses.......... 570 1,193 2,520 9,478 1,312 852 2,369 982 25,820
Income (loss) from
operations............. (28) (219) (92) (771) (84) 55 292 1,140 (172)
Interest income
(expense), net......... (23) (12) (19) (57) (4) (4) (1) 18 (165)
Foreign currency loss... -- -- -- (147) -- -- -- -- (160)
---- ----- ------ ------ ------ ---- ------ ------ -------
Income (loss) before
minority interest
taxes.................. (51) (231) (111) (975) (88) 51 291 1,158 (497)
Income tax expense...... -- -- -- -- -- (18) (96) (535) (649)
---- ----- ------ ------ ------ ---- ------ ------ -------
Net income (loss)
attributable to common
shareholders........... $(51) $(231) $ (111) $ (975) $ (88) $ 33 $ 195 $ 623 $(1,146)
==== ===== ====== ====== ====== ==== ====== ====== =======
</TABLE>
F-12
<PAGE>
VIA NET.WORKS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(4)PRO FORMA ADJUSTMENTS
Pro Forma Condensed Combined Balance Sheet
(a) To reflect cash and acquisition costs paid for the Completed and Pending
Acquisitions subsequent to September 30, 1999.
<TABLE>
<CAPTION>
Acquisition Cash Acquisition Total
Date Payment Costs Cost
---------------- ------- ----------- -----
<S> <C> <C> <C> <C>
InfoAcces.... October 10, 1999 $35.0 million $1.1 million $36.1 million
M&CNet....... October 11, 1999 1.5 0.2 1.7
Net4You...... January 4, 2000 1.9 -- 1.9
DNS.......... January 7, 2000 8.8 -- 8.8
ISAR......... Pending 9.0 -- 9.0
----- ---- -----
Total........ $56.2 $1.3 $57.5
Restricted
cash in
escrow...... 15.0 -- 15.0
----- ---- -----
Total
Adjustment.. $71.2 $1.3 $72.5
===== ==== =====
</TABLE>
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. A formula,
based largely on multiples of revenue categories, will be applied to the
annualized revenues for each of five consecutive quarters beginning with the
fourth quarter of 1999 to arrive at the additional purchase price to be paid,
if any. Any additional purchase price will be paid 45 days after the end of
each calendar quarter beginning in February 2000, with the last possible
payment date being February 2001. Such additional consideration has not been
reflected in the accompanying pro forma balance sheet but will be reflected as
additional goodwill when paid. 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. The
purchase agreements for DNS and ISAR provide that the sellers may be entitled
to additional consideration calculated in accordance with a valuation formula
based on future results. There was no such contingent consideration or escrow
agreement related to the purchase of M&CNet and Net4You.
(b) To reflect the allocation of the purchase price in excess of the
historical book value of the acquired assets of the companies that were
acquired or are anticipated to be acquired after September 30, 1999. Based on
preliminary estimates, in the opinion of management, the historical balances of
all other assets acquired and liabilities assumed have been determined to
approximate fair value. The excess purchase price has been allocated to
goodwill as reflected in the table below.
<TABLE>
<CAPTION>
Goodwill
--------
<S> <C>
InfoAcces........................................ $31.6 million
M&CNet........................................... 2.6
Net4You.......................................... 2.4
DNS.............................................. 11.2
ISAR............................................. 8.3
-----
Total Adjustment................................. $56.1
=====
</TABLE>
In addition, $1.0 million of the purchase price for InfoAcces was allocated to
a two-year non-compete agreement.
(c) To reflect notes to the sellers of Net4You and DNS in accordance with the
respective purchase agreements.
(d) To reflect the minority interest in M&CNet and Net4You.
(e) To reflect the conversion of the outstanding manditorily redeemable
convertible preferred stock of the Company into voting and non-voting common
stock to occur in conjunction with the offering, including voting common stock
of $33,000, non-voting common stock of $7,000 and additional paid in capital of
$180.9 million.
F-13
<PAGE>
To also reflect the issuance of 112,500 shares of common stock in connection
with the acquisition of DNS on January 7, 2000. For purposes of computing the
estimated purchase price, the value of the shares has been determined using an
estimated value of $16.00 per share, the mid-point of the range of the assumed
IPO price.
(f) To eliminate the historical equity of the four completed acquisitions and
one pending acquisition subsequent to September 30, 1999.
Pro Forma Condensed Combined Statements of Operations
(g) To reflect amortization expense of goodwill based on an estimated life of
five years and non-compete agreement based on a contractual life of two years.
Goodwill amortization reflected in the pro forma financial statements has been
translated using average exchange rates during the applicable periods. The
impact of exchange rate changes on the amount of amortization as well as total
goodwill amortization is reflected in the table below.
<TABLE>
<CAPTION>
Year ended Nine months ended
December 31, September 30,
1998 1999
------------ -----------------
<S> <C> <C>
Pro forma goodwill for completed and pending
acquisitions.................................. $158,959 $158,959
Amortization period............................ 5 5
-------- --------
Amortization of goodwill for completed and
pending acquisitions.......................... 31,792 23,844
Impact of exchange rate changes on pro forma
amortization.................................. 956 33
-------- --------
Pro forma amortization of goodwill for
completed and pending acquisitions............ 32,748 23,877
Amount reflected in the historical consolidated
statement of operations....................... (936) (8,145)
-------- --------
Total adjustment............................... $ 31,812 $ 15,732
======== ========
</TABLE>
(h) 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 as follows.
<TABLE>
<CAPTION>
Year ended Nine months ended
December 31, 1998 September 30, 1999
----------------- ------------------
<S> <C> <C>
U-Net note for (Pounds)4.9 million at a
rate of 6.563%.......................... $444 $--
Ecce Terram note for DEM 1.1 million at a
rate of 5%.............................. 31 10
Esoterica note for XEU 915,000 at a rate
of 5%................................... 51 18
WWS note for (Pounds)2.2 million at a
rate of 5%.............................. 188 75
Disbumad note for ptas 229,000,000 at a
rate of 5%.............................. 77 50
DNS note for DEM 6.3 million at a rate of
5%...................................... 53 39
---- ----
Total adjustment......................... $844 $192
==== ====
</TABLE>
(i) 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, Interbook, M&CNet and Net4You.
(j) 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>
Weighted average number of shares of
common stock issued in conjunction with
the acquisitions........................ 974,045 750,647
Weighted average number of shares of
common stock issued upon conversion of
preferred stock in conjunction with the
offering................................ 11,467,521 13,191,693
---------- ----------
12,441,566 13,942,340
========== ==========
</TABLE>
F-14
<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
the first three paragraphs of Note 13, which are as of October 11, 1999
F-15
<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 $ 91,502
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 37,228 100,251
Property and equipment, net....... 8 4,280 22,843
Goodwill.......................... -- 29,848 91,535
Other assets...................... -- 1,669 466
------ ------- --------
Total assets..................... $ 821 $73,025 $215,095
====== ======= ========
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 6,489
Deferred revenue................. -- 1,710 8,795
Other current liabilities and
accrued expenses................ -- 1,458 4,336
------ ------- --------
Total current liabilities........ 94 17,634 28,784
Long-term debt, less current
portion.......................... -- 565 13,551
Other noncurrent liabilities...... -- 35 271
------ ------- --------
Total liabilities................ 94 18,234 42,606
Commitments and contingencies
Minority interest in consolidated
subsidiaries..................... -- 7,597 4,801
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; none
issued and outstanding pro forma
(unaudited) (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; none
issued and outstanding pro forma
(unaudited) (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; none
issued and outstanding pro forma
(unaudited) (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; none issued and
outstanding pro forma
(unaudited) (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; none issued and
outstanding pro forma
(unaudited) (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.......... -- -- -- --
Common stock, $.001 par value;
57,000,000 shares authorized;
60,100 and 273,042, and
1,957,671 shares issued and
outstanding; 35,181,820 issued
and outstanding pro forma
(unaudited)..................... -- -- 2 35
Non-voting common stock, $.001
par value; 7,500,000 shares
authorized; no shares issued and
outstanding; 6,770,001 shares
issued and outstanding pro forma
(unaudited)..................... -- -- -- 7
Additional paid-in capital....... 30 216 13,313 194,206
Accumulated deficit.............. (321) (5,663) (21,620) (21,620)
Deferred compensation............ -- -- (1,333) (1,333)
Accumulated other comprehensive
loss............................ -- (434) (3,607) (3,607)
------ ------- -------- --------
Total stockholders' deficit...... (291) (5,881) (13,245) $167,688
------ ------- -------- ========
Total liabilities, mandatorily
redeemable convertible preferred
stock and stockholders'
deficit......................... $ 821 $73,025 $215,095
====== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-16
<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 $ -- $ 22,361
------- ------- -------- --------
Operating costs and expenses:
Internet services........... -- 1,724 -- 9,649
Selling, general and
administrative............. 336 6,387 2,864 21,689
Depreciation and
amortization............... -- 1,304 3 10,635
------- ------- -------- --------
Total operating costs and
expenses................. 336 9,415 2,867 41,973
------- ------- -------- --------
Loss from operations.......... (336) (6,067) (2,867) (19,612)
------- ------- -------- --------
Interest income............... 15 1,454 962 2,282
Interest expense.............. -- (29) -- (974)
Loss in unconsolidated
affiliate.................... -- (1,199) (447) (177)
Foreign currency gains........ -- 115 -- 1,283
------- ------- -------- --------
Loss before minority interest
and income taxes............. (321) (5,726) (2,352) (17,198)
Income tax benefit............ -- 145 -- --
Minority interest in loss of
consolidated subsidiaries.... -- 239 -- 1,241
------- ------- -------- --------
Net loss attributable to
common stockholders.......... $ (321) $(5,342) (2,352) (15,957)
======= ======= ======== ========
Basic and diluted loss per
share attributable to common
stockholders................. $(10.66) $(24.29) $ (11.64) $ (20.17)
======= ======= ======== ========
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-17
<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)... -- -- -- (15,957) -- -- (15,957)
Foreign currency
translation adjustment
(unaudited)........... -- -- -- -- -- (3,173) (3,173)
--------
Total comprehensive loss
(unaudited)............ -- -- -- -- -- -- (19,130)
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 $(21,620) $ (1,333) $(3,607) $(13,245)
========= ==== ======= ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-18
<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) $(15,957)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization.............. -- 1,304 3 10,635
Employee stock
compensation.............. -- -- -- 483
Deferred taxes............. (145) -- --
Provision for doubtful
accounts receivable....... -- 26 -- --
Unrealized foreign currency
transaction gain.......... -- (126) -- (1,283)
Minority interest in loss
of consolidated
subsidiaries.............. -- (239) -- (1,241)
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) (6,877)
------ -------- -------- --------
Cash flows from investing
activities:
Acquisitions, net of cash
acquired.................... -- (11,005) (504) (49,944)
Purchases of property and
equipment................... (8) (520) (45) (11,318)
Purchase of equity
investment.................. -- (2,781) (2,636) --
Other assets................. -- (77) -- (354)
------ -------- -------- --------
Net cash used in
investing activities.... (8) (14,383) (3,185) (61,616)
------ -------- -------- --------
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) -- (710)
------ -------- -------- --------
Net increase in cash and cash
equivalents................... 807 33,904 47,434 56,791
Cash and cash equivalents,
beginning of period........... -- 807 807 34,711
------ -------- -------- --------
Cash and cash equivalents, end
of period..................... $ 807 $ 34,711 $ 48,241 $ 91,502
====== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-19
<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 is
recognized as the services are provided. The Company records deferred revenue
for amounts billed and/or collected in advance. Revenue from consulting,
training, installation and maintenance services is 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, and when the fee is fixed or determinable and
collectibility is considered probable.
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)
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 using the straight-line method over a five-year period.
Long-Lived Assets
The Company periodically evaluates the carrying value of long-lived assets to
be held and used, primarily property and equipment, and goodwill, under the
provisions of Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of. The carrying value of long-lived assets is considered impaired
when the separately identifiable undiscounted cash flows from the asset is less
than its carrying value. In addition, the recoverability of goodwill is further
evaluated under the provisions of Accounting Principles Board Opinion No. 17,
Intangible Assets, based upon undiscounted cash flows. In the event that the
carrying amount exceeds undiscounted cash flows, a loss is recognized based on
the amount by which the carrying value exceeds the fair value of the asset.
Fair value is determined 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 of the assets.
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
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)
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 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. The following
securities that were outstanding for each of the periods presented have been
excluded from the computation of diluted loss per share, as their effect would
be antidilutive:
<TABLE>
<CAPTION>
Convertible
Stock Preferred
Options Warrants Stock
--------- -------- -----------
<S> <C> <C> <C>
December 31, 1997 -- -- 1,025,000
December 31, 1998 1,365,000 100,000 18,683,992
September 30, 1998 (unaudited) 905,000 100,000 18,683,992
September 30, 1999 (unaudited) 2,752,500 100,000 39,993,650
</TABLE>
F-22
<PAGE>
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.
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
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)
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.
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 $103 (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 goodwill at the
date of the initial acquisition (June 1998), 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 $13,104, comprised of $10,473 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. On the date of acquisition the
fair value of net assets acquired was $208. Goodwill of $14,174 was recognized
on the acquisition.
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.
Identifiable intangible assets as of the date of acquisition primarily consists
of a customer base, employee workforce and the tradename. Because the Company's
operating strategy following the acquisitions is intended to change the nature
of the existing target market from residential subscribers to
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)
small to mid-sized businesses, the value of the acquired customer base was
determined to not be significant. Due to the short histories of these acquired
businesses, the Company has also determined that there is significant
uncertainty regarding the future rate of employee retention following the
acquisitions and accordingly has concluded that the value of the employee
workforce would be nominal. The Company has likewise determined that the value
of the tradenames acquired was not significant based on the intention to modify
the branding of the acquired businesses following the acquisition. Accordingly,
no portion of the purchase price has been allocated to other intangible assets
and the excess purchase price over the tangible net assets acquired has been
allocated to goodwill. 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.
<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........................ $(198.61) $ (48.88)
</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 $ 1,696 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>
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)
All companies were acquired directly by the Company, except for
Informationstechnik, Netzwerke und Systeme Vertriebs GmbH ("INS") 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"), Ecce Terram, INS and Disbumad 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
INS....................................... $1,188 June 30, 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, 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.
Also, in conjunction with the acquisition of INS, the Company agreed to make
an additional payment to the selling shareholders based on the performance of
INS for the 12 months following the date of acquisition. Any payments required
under this agreement will be reflected as additional purchase consideration.
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 $417 (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.
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)
4. Property and Equipment
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------- September 30,
1997 1998 1999
------------- -------------
(unaudited)
<S> <C> <C> <C>
Machinery and equipment........................ $ 8 $ 3,305 $16,797
Indefeasible rights of use..................... -- -- 11,500
Furniture and fixture.......................... -- 1,034 1,480
Purchased software............................. -- 309 879
----- ------- -------
8 4,648 30,656
Accumulated depreciation and amortization...... -- (368) (7,813)
----- ------- -------
Property and equipment, net.................... $ 8 $ 4,280 $22,843
===== ======= =======
</TABLE>
Total depreciation expense was $0, $368, and $2,490 (unaudited) in 1997,
1998, and for the nine months ended September 30, 1999, 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. Of this amount $6,407 was paid prior to September 30, 1999, $1,457 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 excluding interest has been recorded as a component of property and
equipment and will be amortized over the contractual life of the IRU, ranging
from 20 to 25 years as a component of depreciation and amortization expense. 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 $100,793
Accumulated amortization........................ -- (936) (9,258)
---- ------- --------
Total......................................... $-- $29,848 $ 91,535
==== ======= ========
</TABLE>
Total goodwill amortization expense was $936 in 1998, and $8,145 (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.
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)
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.
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.
Holders of Series A, Series B and Series C shares participate on an as-
converted basis in all dividends payable to the holders of common 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
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)
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 48,800,000
shares and modified the redemption rights of the preferred stock to require the
Company to redeem for cash all outstanding shares of Series A, Series B, and
Series C on May 31, 2008. In the event of redemption, each share of Series C
must be redeemed for its investment price ($6) plus all accrued but unpaid
dividends prior to any redemption of shares of Series A or Series B, after
which each share of Series A and Series B must be redeemed for its investment
price ($1 for each Series A share and $3 for each Series B share) plus all
accrued but unpaid dividends.
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.
If issued, holders of non-voting common stock will not be entitled to vote
except as required by law. Each share of non-voting common stock will be
convertible into one share of common stock at the holder's option at any time,
provided the holder is permitted by law to hold the share of common stock. In
all other respects, the rights of the non-voting common stock will be the same
as those of the common stock.
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. 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 9,200,000 (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.
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)
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>
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 $2.13
Exercised............... -- -- -- -- --
Forfeited............... (25,000) (55,000) -- $ 2.40 $2.40
-------- --------- -------
Balance at December 31,
1998................... 340,000 1,025,000 100,000 $1.00-$2.40 $2.11
-------- --------- -------
Granted (unaudited)..... 272,000 1,707,500 -- $4.00-$8.25 $5.16
Exercised (unaudited)... (490,158) -- -- $2.40-$4.00 $3.11
Forfeited (unaudited)... (101,842) -- -- $2.40-$4.00 $2.94
-------- --------- -------
Balance at September 30,
1999 (unaudited)....... 20,000 2,732,500 100,000 $1.00-$8.25 $4.03
======== ========= =======
</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. In November 1999, the Company granted
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)
705,000 (unaudited) stock options, at an exercise price of $9.75 (unaudited)
per share. None of these options have been exercised, through December 31,
1999.
Also in November 1999, the Company granted 60,000 (unaudited) stock purchase
rights, at an exercise price of $9.75 (unaudited) per share, none of which have
been exercised. Of the 20,000 (unaudited) stock purchase rights outstanding at
September 30, 1999, 15,000 (unaudited) have expired and 5,000 (unaudited) have
been exercised, through December 31, 1999.
The Company determined that the fair value of the underlying common stock
related to the October and November 1999 stock option grants and stock purchase
rights exceeded the exercise price of these grants by $12.7 million
(unaudited). Such amount will be amortized over the vesting period.
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>
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>
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)
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.
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.
F-32
<PAGE>
VIA NET.WORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. Dollars, except share and per share data)
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 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.
F-33
<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>
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).................. $ -- $18,373 $ 3,988 $ 22,361
EBITDA (unaudited)................... $ (5,664) $(1,928) $ (902) $ (8,494)
Assets (unaudited)................... $201,933 $14,177 $(1,015) $215,095
</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) $ (8,494)
Non-cash compensation................ -- -- (483)
Depreciation and amortization........ (1,304) (3) (10,635)
------- ------- --------
Loss from operations................. (6,067) (2,867) (19,612)
Other income and interest income,
net................................. 1,540 962 2,591
Loss in unconsolidated affiliate..... (1,199) (447) (177)
------- ------- --------
Loss before income taxes and minority
interest............................ $(5,726) $(2,352) $(17,198)
======= ======= ========
</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, $1,494 and
$651, respectively.
13. Subsequent Events
Acquisitions of Businesses in 1999
Subsequent to September 30, 1999 the Company made two additional acquisitions
in 1999:
<TABLE>
<CAPTION>
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&CNet).................. Switzerland October 11, 1999 $ 3,329 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-34
<PAGE>
VIA NET.WORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. Dollars, except share and per share data)
Also, in October 1999, the Company acquired 60% of the outstanding shares of
M&CNet an Internet services provider operating in Switzerland. The purchase
price consisted of cash of $2.1 million payable over a 12 month period and a
note in the amount of $1.2 million. 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&CNet based on a
valuation formula, payable in shares of the Company.
Acquisitions of Businesses in 2000 (unaudited)
In January 2000, the Company acquired 57.5% of the outstanding shares of
Net4You EDV Dienstleistungs und Handelges.m.b.H ("Net4You") an Internet
services provider operating in Austria. The total purchase price was $2.8
million, including a note payable to the sellers in the amount of $210 due 12
months from the acquisition date. The Company has the right to purchase the
remaining 42.5% interest in Net4You during a contractual time period ending
January 4, 2003. 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 January 4, 2003.
Also in January 2000 the Company acquired 100% of DNS Telecom SAS an Internet
services provider operating in France. The total purchase price of $11.6
million consisted of cash of $8.8 million, a note payable in the amount of $986
and 112,500 shares of common stock valued at $16 per share. The note payable
accrues interest at 5% per month and is payable July 7, 2001 at an amount equal
to the greater of the principal amount and accrued interest or an amount
determined based on a valuation formula.
In addition, in January 2000 the Company entered into an agreement to acquire
100% of I.S.A.R Netzwerke Dienstleistungs GmbH, an Internet services provider
operating in Germany. The total purchase price of $9.0 million is payable upon
closing, to occur within five days of the Company's anticipated initial public
offering. The sellers are entitled to receive additional consideration, not to
exceed $3.7 million based on operating results for the year ended December 31,
2000. The additional consideration is payable in cash and common stock.
F-35
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of VIA Net Works Argentina S.A.
In our opinion, the accompanying balance sheets and the related statements of
operations, stockholders' deficit and cash flows expressed in Argentine pesos,
present fairly, in all material respects, the financial position of VIA Net
Works Argentina S.A. as of December 31, 1997 and September 24, 1998 and the
results of its operations and its cash flows for the year ended December 31,
1997 and the period from January 1, 1998 to September 24, 1998, in conformity
with generally accepted accounting principles in the United States of America.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards in Argentina which are substantially
similar to generally accepted auditing standards in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse & Co.
Jorge C. Bacher (Partner)
By __________________________________
Buenos Aires, Argentina
July 30, 1999
F-36
<PAGE>
VIA NET WORKS ARGENTINA S.A.
BALANCE SHEETS
(All amounts in thousands of AR$, 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-37
<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-38
<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) $(1,505)
===== === ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE>
VIA NET WORKS ARGENTINA S.A.
STATEMENTS OF CASH FLOW
(All amounts in thousands of AR$)
<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-40
<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$1.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company to make estimates, judgements and
assumptions that affect the reported amounts of assets, liabilities, revenue
and expenses, together with amounts disclosed in the related notes to the
financial statements. Actual results could differ from the recorded estimates.
Fair Value of Financial Instruments
Carrying amounts of certain of the Company's financial instruments, including
cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses and other liabilities approximate fair value due to their short
maturities. Based upon borrowing rates currently available to the Company for
loans with similar terms, the carrying value of debt and capital lease
obligations approximate their fair value.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration
of credit risk consist of cash, cash equivalents and accounts receivable. The
Company's accounts receivable are derived from revenue earned from customers
located primarily in the city of Buenos Aires. The Company performs ongoing
credit evaluations of its customers' financial condition and, generally,
requires no collateral from its customers. The Company maintains an allowance
for doubtful accounts receivable based upon the expected collectibility of
accounts receivable.
F-41
<PAGE>
VIA NET WORKS ARGENTINA S.A.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts in thousands of AR$ except share and per share data)
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 employees are
terminated.
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-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)
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
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)
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: 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 $271
==== ====
</TABLE>
F-44
<PAGE>
VIA NET WORKS ARGENTINA S.A.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts in thousands of AR$ 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.
NOTE 6: STOCKHOLDERS' EQUITY
At December 31, 1997 and at September 24, 1998, there were 1,200 Class A
ordinary common stock shares, of $10 par value each, authorized, issued and
outstanding.
F-45
<PAGE>
VIA NET WORKS ARGENTINA S.A.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts in thousands of AR$ except share and per share data)
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>
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>
F-46
<PAGE>
VIA NET WORKS ARGENTINA S.A.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts in thousands of AR$ except share and per share data)
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
officers/stockholders, aggregating approximately $190 related to advances on
future director fees. 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 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-47
<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. TrauerA. Jacobs
Dusseldorf, Germany
November 19, 1999
F-48
<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-49
<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-50
<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-51
<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-52
<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-53
<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-54
<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-55
<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-56
<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 preparation of the
information document was commissioned by the stockholders of GTN to facilitate
selling their financial interest in the Company. The amounts due have been
advanced by GTN.
F-57
<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
operation of cash flows present fairly, in all material respects, the financial
position of U-Net Limited as of July 31, 1997 and 1998 and the period ended
October 29, 1998, and the results of its operations and changes in retained
earnings and its cash flows for the years ended July 31, 1997 and 1998 and the
period from August 1, 1998 to October 29, 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 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, United Kingdom
July 14, 1998
F-58
<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, 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-59
<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-60
<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..... 500,000 (Pounds)5 (Pounds) 55 (Pounds) 60
Net loss...................... -- -- (77) (77)
------- --------- ------------ -----------
Balance at July 31, 1997...... 500,000 5 (22) (17)
Net loss...................... -- -- (2) (2)
------- --------- ------------ -----------
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-61
<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)
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-62
<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-63
<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-64
<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.
F-65
<PAGE>
U-NET LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts in thousands GBP, except share data)
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>
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>
F-66
<PAGE>
U-NET LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts in thousands GBP, except share data)
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>
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. All shares have
been adjusted to give retroactive effect to this stock split.
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>
F-67
<PAGE>
U-NET LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts in thousands GBP, except share data)
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-68
<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 31, 1997 and December 29, 1998
(date of acquisition) 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
December 29, 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 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
Partner
Contador CRC 1PA003866/T-7 "T" SP001641
Sao Paulo, Brazil
F-69
<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-70
<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-71
<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-72
<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-73
<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-74
<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-75
<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-76
<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>
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
F-77
<PAGE>
DIALDATA S.A. INTERNET SYSTEMS
NOTES TO FINANCIAL STATEMENTS
(In thousands of US dollars, except share data)
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-78
<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-79
<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-80
<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-81
<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-82
<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-83
<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-84
<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.
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.
F-85
<PAGE>
I-WAY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All amounts in thousands of GBP, except share and per share data)
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.
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
F-86
<PAGE>
I-WAY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All amounts in thousands of GBP, except share and per share data)
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.
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
F-87
<PAGE>
I-WAY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All amounts in thousands of GBP, except share and per share data)
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 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.
F-88
<PAGE>
I-WAY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands of GBP, except share and per share data)
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-89
<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-90
<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-91
<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-92
<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-93
<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-94
<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
F-95
<PAGE>
bART HOLDING B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of NLG, except share data and per share data)
unsecured and are derived from revenues earned from customers located in the
Netherlands. 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 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
F-96
<PAGE>
bART HOLDING B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of NLG, except share data and per share data)
differences if any, on the date of the grant between the fair value of the
Company's stock and the exercise price.
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.
F-97
<PAGE>
bART HOLDING B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of NLG, except share data and per share data)
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 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-98
<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.
F-99
<PAGE>
bART HOLDING B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of NLG, except share data and per share data)
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.
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 fair value of the underlying stock on
the date of grant. The options were 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 incentive stock options to certain
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,
1998 and can be exercised until April 25, 2003 when they expire.
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>
Fair value of underlying stock on date
of grant............................... NLG 62
Risk free interest rate................. 6%
Expected life........................... 2 years
Dividend yield.......................... 0
</TABLE>
Under the above method, the total value of the stock options granted to the
directors is NLG 78 which would be recognized upon grant. Had stock
compensation been recognized in accordance with SFAS 123, pro forma net loss
would have been NLG 709.
The total value of the stock options granted to the shareholders is NLG 37
which would be recognized as an equity transaction.
F-100
<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-101
<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, and
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-102
<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-103
<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-104
<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-105
<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-106
<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-107
<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-108
<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-109
<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-110
<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-111
<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-112
<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-113
<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-114
<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-115
<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-116
<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-117
<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>
F-118
<PAGE>
WORLDWIDE WEB SERVICES LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts in thousands of GBP, except share and per share data)
Depreciation expense for the period from July 1, 1998 to May 27, 1999 was
(Pounds)56.
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.
F-119
<PAGE>
WORLDWIDE WEB SERVICES LIMITED
NOTES TO FINANCIAL STATEMENTS
(All amounts in thousands of GBP, except share and per share data)
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>
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-120
<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-121
<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-122
<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-123
<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-124
<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-125
<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-126
<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-127
<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-128
<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-129
<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-130
<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 provide a reasonable basis for the opinion expressed above.
Yours faithfully,
PricewaterhouseCoopers Auditores, S.L.
Seville, Spain
October 29, 1999
F-131
<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-132
<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-133
<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-134
<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-135
<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-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)
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-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)
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-138
<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-139
<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-140
<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-141
<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>
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-142
<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-143
<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.)
December 31, September 30,
------------------------- -------------
Assets 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 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$31,040,404 45,261,736 81,794,079
============= ========== ===========
<CAPTION>
(Unaudited-
note 1b.)
December 31, September 30,
------------------------- -------------
Liabilities and Stockholders' Equity 1997 1998 1999
<S> <C> <C> <C>
Current liabilities:
Current installments of long-term
debt (note 9)....................... Mp$ 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-144
<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 income............ 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 project sale
(note 14)................. -- -- -- 3,546,098
Gain on sale of furniture
and equipment............. -- -- -- 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
loss................... 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-145
<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$53,496,960 (3,530,000) 49,966,960 3,728,606 (13,463,757) 40,231,809 --
========== ============= ========== ========== ========= =========== ========== =======
<CAPTION>
Total
stockholders'
equity
-------------
<S> <C>
Balance at
December 31,
1996........... 7,658,583
Issuance of
common stock
(note 11)...... 4,173,649
Net loss........ (74,377)
-------------
Balance at
December 31,
1997........... 11,757,855
Issuance of
common stock
(note 11)...... 4,180,134
Net loss........ (1,480,208)
-------------
Balances at
December
31, 1998....... 14,457,781
Issuance of
common stock
(unaudited)
(note 11)...... 32,606,276
Net loss
(unaudited).... (6,832,248)
-------------
Balance at
September 30,
1999
(Unaudited).... 40,231,809
=============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-146
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(Constant Mexican pesos as of September 30, 1999)
<TABLE>
<CAPTION>
(Unaudited--note 1b.)
-----------------------
Nine-months ended
Years ended December 31, September 30,
------------------------- -----------------------
1997 1998 1998 1999
<S> <C> <C> <C> <C>
Operating activities:
Majority interest net
(loss) income............ Mp$ (65,930) (1,454,691) 2,243,566 (6,795,768)
Add charges (deduct
credits) not requiring
(providing) funds:
Minority interest net
loss.................... (8,447) (25,517) (47,409) (36,480)
Gain on To2 project
sale.................... -- -- -- (3,546,098)
Gain on sale of
subsidiary company...... -- -- -- (1,025,790)
Gain on sale of
furniture and
equipment............... -- -- -- (363,809)
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 (used
in) operations......... 4,953,843 5,547,055 5,661,663 (5,790,480)
Accounts receivable, net.. 717,604 749,536 (61,616) (3,943,180)
Related parties, net...... 504,044 1,512,387 (10,595) (13,189,165)
Inventory................. 291,419 178,766 (991,336) 32,182
Prepared expenses......... 3,194,804 (1,841,775) (69,032) (1,687,877)
Accounts payable and
accrued expenses......... (3,704,496) 5,817,533 4,926,715 231,712
Income taxes payable...... 690,462 (454,710) (690,462) 3,920,888
Deferred revenue.......... (250,763) 2,791,726 54,529 523,831
------------ ----------- ---------- -----------
Funds provided by (used
in) operating
activities............. 6,396,917 14,300,518 8,819,866 (19,902,089)
------------ ----------- ---------- -----------
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 common
stock.................... 3,499,203 4,180,134 -- 30,694,280
Increases in minority
interest................. 60,250 -- -- 10,194
Additional paid-in
capital.................. 614,196 -- -- 1,901,802
------------ ----------- ---------- -----------
Funds provided by
financing activities... 549,995 5,758,647 1,672,116 36,101,137
------------ ----------- ---------- -----------
Investing activities:
Acquisition of furniture
and equipment............ (8,629,225) (13,399,035) (5,275,038) (12,684,275)
Proceeds from 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) (16,881,011)
Long-term note
receivable............... -- -- -- (20,378,000)
Proceeds from sale of To2
project.................. -- -- -- 24,353,098
Proceeds from sale of CSI,
S.A. de C.V. shares...... -- -- -- 1,409,790
------------ ----------- ---------- -----------
Funds used in investing
activities............. (7,072,392) (17,175,633) (9,321,151) (16,991,101)
------------ ----------- ---------- -----------
(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-147
<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.
Significant 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 consolidated
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 to the financial
statements 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 and costs of revenue--Revenue from Internet
connectivity services is recognized ratably over the terms of the
contract as the services are provided, which are generally three months
to one year. Cash received in advance of revenues earned is recorded as
deferred revenue. Revenue from third party interconnectivity software
products re-sales is recognized upon shipment of the respective
products, depending on the terms of the arrangement. Revenue from
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)
designed services and network installation is recognized upon customer
acceptance which installation and designed time-frame vary from one to
two months.
Costs of access revenues primarily consist of telecommunication expenses
inherent to the network infrastructure which are expensed as incurred.
Costs of revenues also include license fees for software, Web designer
labor costs, product costs, and contractor fees for operation and
support services.
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 the
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. Inventories are updated
using factors derived from the NCPI.
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 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.
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)
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 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. 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 or more years 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 for using the purchase method of
accounting and, accordingly, the net assets and results of
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)
operations of the acquired company has been included in the Company's
consolidated financial statements since the date of acquisition. The purchase
price 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.
In connection with this acquisition, the Company paid approximately
Mp$1,299,000. The amount paid exceeded the fair market value of the net assets
acquired by Mp$154,411, which were carried to operations for the year.
On July 1, 1999, the Company sold its 95% interest of CSI, for approximately
Mp$1,410,000 (unaudited). As a result of this 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$1,026,000 (unaudited) in the nine-month period ended
September 30, 1999 (see note 14).
The following represents the results of operations of the Company for the
years ended December 31, 1997 and 1998 as if the acquisition was consummated on
January 1, 1997.
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1998
-------------- ----------
<S> <C> <C>
Revenue........................................... Mp$ 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 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.
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)
Cost of services related to transactions carried out abroad during 1997, 1998
and the nine-month period ended 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
the nine-month period ended September 30, 1999 (unaudited), respectively.
(4) Transactions and balances with related parties:
Transactions carried out with affiliated companies and other related parties,
during the years ended December 31, 1997 and 1998, and for the nine months
ended September 30, 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, before
the acquisition.
(2) The Company was billed for management, consulting, payroll and
administrative services by Carral y 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$7,724,699 6,975,163 10,226,736
============ ========= ==========
</TABLE>
F-152
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Constant Mexican pesos as of September 30, 1999)
(6) Furniture and equipment:
Furniture and equipment is analyzed as follows:
<TABLE>
<CAPTION>
December 31, September 30, Annual
------------------------ 1999 depreciation
1997 1998 (Unaudited) rate
------------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Computer equipment...... Mp$ 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$17,704,384 24,850,755 26,365,983
============= ========== ==========
</TABLE>
- ---------------------
(1) Shorter of useful life or indefeasible right of use lease agreement,
generally ten years, beginning when telecommunication bandwith and lines
are available for use.
(2) Shorter of lease or useful life, generally five years.
F-153
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Constant Mexican pesos as of September 30, 1999)
(7) Other assets:
Other assets are analyzed as follows:
<TABLE>
<CAPTION>
December 31, September 30,
------------------------ 1999
1997 1998 (Unaudited)
------------- ---------- -------------
<S> <C> <C> <C>
Preoperating expenses:
Organization........................... Mp$ 2,203,273 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................................. 162,348 443,229 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 Contenido (To2) Project to To2
Mexico, S.A. de C.V. (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-154
<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,
payable in 35 consecutive monthly
installments, beginning on August 5,
1996, with a final payment on July 5,
1999, guaranteed by the stockholders,
and bearing interest at the rate of
10.52% in 1997 and 11.82% in 1998.... Mp$1,747,488 544,922 --
Mp$1,890,000 and Mp$6,289,836
unsecured loans from Banca Quadrum,
maturing on various dates through
December 15, 2001, bearing interest
at the TIIE (28 day) rate, averaging
25.19% and 21.94% at December 31,
1998 and September 30, 1999,
respectively (1)..................... -- 2,070,116 6,289,836
------------ --------- ---------
1,747,488 2,615,038 6,289,836
Less current installments............. 1,222,846 911,150 3,208,364
------------ --------- ---------
Long-term debt, excluding current
installments......................... Mp$ 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-155
<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. effective November 30, 1996. Infoacces, S. A de C. V. was the
successor company.
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)
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
Mexican peso each, equivalent to Mp$358,216 (Mp$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 Mexican 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" shares. 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) was considered as an additional
paid-in capital in the accompanying statement of changes in stockholders'
equity.
--During October 1999, the stockholders fully paid all the unpaid common
stock.
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)
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:
In accordance with Mexican 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 provides for a 1.8% tax on assets updated for inflation, net of
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' statutory profit shar-
ing............................... 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 the
individual results of each company. For employees' statutory profit sharing
purposes, the amount presented represents the sum of the 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$396,109,
reported as an extraordinary item in the consolidated statement of operation of
such year.
F-158
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Constant Mexican pesos as of September 30, 1999)
At December 31, 1998 the Company has accumulated tax loss carryforwards as
follows:
<TABLE>
<CAPTION>
Year in which tax Amount of Year of
loss ocurred carryforward expiration
<S> <C> <C>
1997................................................. Mp$ 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............. 595,099 595,099 416,333 416,333 384,151 384,151
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) (2,743,300)
=============== ========== ========== ========== ========== ==========
</TABLE>
At December 31, 1998, the Company considered tax deductible the aggregate
expenses associated with leasehold improvements (note 6), 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 1n.
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 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
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)
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 cancellable operating leases,
principally office space, in five different locations. Future minimum
payments under these non-cancellable 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 thereafter............................. 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 nine-month 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 nine-month period ended September 30, 1999.
During 1999, the Company sold part of its fixed assets to CSI, (subsidiary
Company through 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. The accounts receivable arising from this transaction
was supported with notes receivable approximating Mp$958,000. In October 1999,
CSI paid the amount related to the fixed assets sale.
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)
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 at an annual rate of 5%.
Such instrument must be exchanged for common stock of To2 within two to four
years in accordance with the terms of the purchase agreement. The number of
shares to be exchanged for the instrument 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 a 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 or b) because of a 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 long term portion......................................... 20,378,000
-------------
Current portion................................................ Mp$14,224,099
=============
</TABLE>
Notes payable to To2 as of September 30, 1999 are represented by three
documents, bearing interest at an annual rate of 15% maturing in October 1999,
and amounting to U.S.$444,790 dollars. During October 1999, the Company fully
repaid these loans.
(15) Reconciliation between Mexican (Mexican GAAP) and United States of America
(U.S. GAAP) Generally Accepted Accounting Principles:
The Company's consolidated financial statements are prepared in accordance
with Mexican GAAP, which differ in certain significant respects from U.S. GAAP.
The Mexican GAAP consolidated financial statements include the effects of
inflation as provided for under Bulletin B-10, "Recognition of the Effects of
Inflation on the Financial Information". The application of this statement
represents a comprehensive measure of the effects of price level changes in the
Mexican economy and is believed to result in a more meaningful presentation
than historical cost-based financial reporting for both Mexican and U.S.
accounting purposes. Therefore, the following reconciliation to U.S. GAAP does
not include the reversal of such inflationary effects.
The principal differences between Mexican GAAP and U.S. GAAP are summarized
below with an explanation, where appropriate, of the effects on consolidated
results of operations and stockholders' equity.
F-161
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Constant Mexican pesos as of September 30, 1999)
Reconciliation of consolidated results of operations:
<TABLE>
<CAPTION>
December 31, September 30,
------------------------- -----------------------
1997 1998 1998 1999
------------- ---------- ---------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Net (loss) income of
majority interest under
Mexican GAAP.............. Mp$ (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 -- -- --
Accrued vacations (c).... -- -- -- (150,000)
Monetary (loss) on prior
years U.S. GAAP
adjustments............. (545,004) (261,925) (181,062) (158,317)
------------- ---------- ---------- -----------
Approximate net (loss)
income of majority
interest under U.S. GAAP,
including the effects of
inflation................. Mp$(1,530,444) (961,505) 2,379,254 (10,156,448)
============= ========== ========== ===========
Basic and diluted loss per
common share under U.S.
GAAP...................... Mp$ (0.2000) (0.1182) (0.2974) (1.0092)
============= ========== ========== ===========
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 prior 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 stock (j).. -- -- -- (4,571,888)
Accrued vacations (c)....... -- -- -- (150,000)
Monetary loss on current and
prior years U.S. GAAP
adjustments................ (545,004) (806,929) (726,066) (965,246)
------------- ---------- ---------- ----------
Approximate majority
stockholders' equity
balance under U.S. GAAP.... Mp$10,105,978 13,324,607 14,585,728 35,764,241
============= ========== ========== ==========
</TABLE>
F-162
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Constant Mexican pesos as of September 30, 1999)
An analysis of the changes in majority stockholders' equity under U.S. GAAP
is as follows:
<TABLE>
<CAPTION>
Nine months ended
December 31, September 30,
------------------------- ----------------------
1997 1998 1998 1999
------------- ---------- ---------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Balance at beginning of
period.................... Mp$ 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) income under
U.S. GAAP................. (1,530,444) (961,505) 2,379,254 (10,156,448)
------------- ---------- ---------- -----------
Balance at end of period... MP$10,105,978 13,324,607 14,585,728 35,764,241
============= ========== ========== ===========
</TABLE>
a. Preoperating expenses 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 projects are capitalized and amortized over the estimated life of
the project. For U.S. GAAP purposes, the Company expenses all preoperating and
project costs that are incurred in the preliminary project stage. Costs
incurred after technological feasibility is reached are capitalized and
amortized over the estimated life of the project. At September 1, 1999,
Contenidos project was in a development stage when the Company sold it (note
14) thus, all costs incurred were recognized as cost of the project sold in the
accompanying statements of operations. The Company had capitalized
approximately Mp$1,890,000 for US GAAP purposes.
The Company capitalized approximately Mp$5,792,000 and Mp$10,090,000 as of
December 31, 1997 and 1998, respectively of preoperating and deferred costs
such as start-up, organizational, administrative, consulting fees, among others
under Mexican 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.
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)
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.
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 employees'
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$2,516,531 352,806 239,284 2,480,005
============ ========== ========== =========
</TABLE>
Current and deferred employees' statutory profit sharing expense was
reclassified in note 15n. to operating expenses in order to comply with U.S.
GAAP presentation.
F-164
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Constant Mexican pesos as of September 30, 1999)
The income tax and employees' statutory profit sharing effects of significant
items comprising the Company's net deferred tax and liabilities and employees'
statutory profit sharing under SFAS No. 109 are as follows:
<TABLE>
<CAPTION>
December 31, Nine-months ended September 30,
------------------------------------------- ------------------------------------------
1997 1998 1998 1999
---------------------- ------------------- ------------------- ---------------------
Profit Income Profit Income Profit Profit
Income tax sharing tax sharing tax sharing Income tax sharing
------------ -------- --------- -------- --------- -------- ---------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Deferred income tax and
employees' statutory
profit sharing assets:
Net operating loss
carryforwards......... Mp$ 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'
statutory 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) (268,973) (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 liabilities... (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 1,143,814 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-165
<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$132,750, Mp$61,378 and Mp$3,020,532 (unaudited), respectively. The increase
to the allowance was the result of additional net operating loss carryforwards
of its subsidiary and unrealized gain on 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 arising from the sale of certain
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 and 1998.
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 between 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.
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)
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 reported 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 accrual 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.
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
As a result of the To2 project and CSI's share sales, the Company generated a
gain of approximately Mp$3,546,000 and Mp$1,026,000, respectively for Mexican
GAAP purposes. However, for US GAAP purposes, it is considered as an unrealized
gain since other transactions and events offset the cash flows of the To2 and
CSI sales (see note 14), as follows:
. The company formalized its outstanding account receivable of
approximately Mp$20,378,000 (US$2,154,000) with a credit instrument which
is required to be exchanged for a minority interest in the
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)
common stock of To2 Mexico SA de CV within two to four years at the price
prevailing on the date of last subscription date, and collected in cash
approximately MP$12,183,000 (US$1,287,000) derived from the purchase
agreement between To2 and the Company.
. The Company entered into a non-compete agreement with To2 for a two-year
period. As consideration of this agreement Infoacces paid US$1,150,000 in
cash. As a result of this payment, the Company offset the cash collected
in the aforementioned agreement.
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 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 of Position 98-1 "Accounting for the Cost of Computer
Software Developed or 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 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 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
F-168
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Constant Mexican pesos as of September 30, 1999)
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 by
(used in) operating
activities.............. Mp$ 4,851,866 9,399,960 6,356,620 (18,186,212)
Net cash used in
investing activities.... (5,106,820) (10,817,457) (7,246,427) (19,820,481)
Net cash provided by
financing activities.... Mp$ 185,592 4,069,470 1,913,353 37,477,273
</TABLE>
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$1,000,000 in exchange for CSI stock. The acquisition
has been accounted for using the purchase method of accounting (see note 2).
F-169
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Constant Mexican pesos as of September 30, 1999)
n. Condensed balance sheets and statements of operations
The following condensed balance sheets and statements of operations reflect
the effects of the principal differences between Mexican GAAP and U.S. GAAP:
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1998 September 30, 999
-------------- ---------- -----------------
(Unaudited)
<S> <C> <C> <C>
Balance sheets
Current assets.................... Mp$ 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$29,440,330 43,432,971 77,255,610
============== ========== ==========
Short-term debt................... 1,543,688 1,842,411 4,033,366
Notes payable to To2.............. -- -- 4,158,032
Accounts payable and accrued
liabilities...................... 13,889,303 19,706,836 19,886,274
Deferred revenue.................. 1,554,276 4,346,002 4,869,833
Income taxes...................... 690,462 235,752 4,156,640
Other current liabilities......... 456,515 1,522,982 499,193
-------------- ---------- ----------
Total current liabilities....... 18,134,244 27,653,983 37,603,338
Deferred taxes.................... -- -- 341,228
Long-term debt.................... 1,148,305 2,428,095 3,546,803
-------------- ---------- ----------
Total liabilities............... 19,282,549 30,082,078 41,491,369
-------------- ---------- ----------
Minority interest................. 51,803 26,286 --
Stockholders' equity.............. 10,105,978 13,324,607 35,764,241
-------------- ---------- ----------
10,157,781 13,350,893 35,764,241
-------------- ---------- ----------
Total liabilities and
stockholders' equity........... Mp$ 29,440,330 43,432,971 77,255,610
============== ========== ==========
</TABLE>
F-170
<PAGE>
INFOACCES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Constant Mexican pesos as of September 30, 1999)
Statements of operations
<TABLE>
<CAPTION>
Nine months ended
December 31, September 30,
------------------------- -----------------------
1997 1998 1998 1999
------------- ---------- ---------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Revenue................... Mp$65,249,803 88,243,150 66,633,990 78,734,741
Cost of revenue........... 32,218,821 43,305,610 31,618,874 36,246,062
------------- ---------- ---------- -----------
Gross profit.............. 33,030,982 44,937,540 35,015,116 42,488,679
Operating expenses........ 31,994,405 45,063,632 31,714,605 48,195,842
------------- ---------- ---------- -----------
Operating income (loss)... Mp$ 1,036,577 (126,092) 3,300,511 (5,707,163)
Comprehensive financing
cost:
Interest expense, net... (350,877) (797,039) (393,502) (853,117)
Foreign exchange loss,
net.................... (757,552) (690,859) (937,653) (1,197,218)
Monetary gain (loss).... 320,219 553,189 434,256 (660,690)
------------- ---------- ---------- -----------
Net comprehensive
financing cost........... (788,210) (934,709) (896,899) (2,711,025)
------------- ---------- ---------- -----------
Other income.............. 729,273 426,585 167,517 705,265
------------- ---------- ---------- -----------
Income (loss) before taxes
and minority interest.... 977,640 (634,216) 2,571,129 (7,712,923)
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 (10,192,928)
Minority interest......... 8,447 25,517 47,409 36,480
------------- ---------- ---------- -----------
Net (loss) income and
comprehensive
(loss)/income............ Mp$(1,530,444) (961,505) 2,379,254 (10,156,448)
============= ========== ========== ===========
</TABLE>
F-171
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 2000
[LOGO OF VIA NET.WORKS]
13,300,000 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 - JANUARY 19, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Prospectus
, 2000
[LOGO OF VIA NET.WORKS]
700,000 Shares of Common Stock
- --------------------------------------------------------------------------------
VIA NET.WORKS, Inc.: The Offering:
. We are a leading
international . We are offering
provider of shares of our
Internet access common stock. This
and services prospectus relates
focusing on small to an offering of
and mid-sized 700,000 shares we
businesses located are making directly
in Europe and to our preferred
Latin America. stockholders. In
addition, we are
. VIA NET.WORKS, offering
Inc. 12100 Sunset 13,300,000 shares
Hills Road, Suite in a concurrent
110 Reston, VA underwritten
20190 (703) 464- offering.
0300
. We have granted the
Proposed Symbol & U.S. underwriters
Markets: of the underwritten
offering an option
.VNWI to purchase an
additional
.Nasdaq National 1,995,000 shares
Market from us to cover
over-allotments.
.Amsterdam Stock
Exchange
. This is our initial
public offering and
we anticipate that
the initial public
offering price will
be between $15.00
and $17.00 per
share.
---------------------------------------------
<TABLE>
<CAPTION>
Per Share Total
--------------------------------------------------
<S> <C> <C>
Public offering price: $ $
Proceeds to VIA NET.WORKS, Inc.: $ $
--------------------------------------------------
</TABLE>
. Closing: February
, 2000
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.
- --------------------------------------------------------------------------------
<PAGE>
[Alternate Page]
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary.............................. 1
Risk Factors.................................... 6
Special Note Regarding Forward-
Looking Statements............................. 14
Use of Proceeds................................. 15
Dividend Policy................................. 15
Capitalization.................................. 16
Dilution........................................ 17
Selected Consolidated Financial Data............ 18
Selected Combined Pro Forma
Financial Data................................. 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations.................................. 23
Business........................................ 33
Management...................................... 49
Transactions with Related Parties............... 58
Principal Stockholders.......................... 61
Description of Capital Stock.................... 64
Shares Eligible For Future Sale................. 67
Material Federal Income Tax Consequences to Non-
United States Stockholders..................... 70
Material Netherlands Tax Consequences........... 73
Plan of Distribution............................ 76
Legal Matters................................... 76
Experts......................................... 76
Where You Can Find More Information............. 78
Index to Financial Statements................... F-1
</TABLE>
<PAGE>
[Alternate Page]
PLAN OF DISTRIBUTION
Under a stockholders agreement, VIA is obligated to offer 700,000 shares of
common stock to its preferred stockholders.
Subject to the terms and conditions of purchase agreements, dated as of
, 2000, of our preferred stockholders have severally agreed to purchase
from us the respective number of shares of common stock set forth in those
purchase agreements.
The purchase agreements provide that the obligations of the several
purchasers to purchase and accept delivery of the shares of common stock
included in this offering are subject to customary conditions, including the
effectiveness of the registration statement, the continuing correctness of our
representations, the listing of the common stock for quotation on the Nasdaq
National Market and for trading on the Amsterdam Stock Exchange and no
occurrence of an event that would have a material adverse effect on us.
We estimate expenses related to the offering will be $2.9 million.
We have applied to have our common stock approved for quotation on the Nasdaq
National Market and intend to apply for trading on the Amsterdam Stock Exchange
under the symbol "VNWI."
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
conducting the underwritten offering. 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
LEGAL MATTERS
Hogan & Hartson L.L.P., Washington, D.C., will pass upon the validity of the
issuance of the shares being offered.
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.
76
<PAGE>
[Alternate Page]
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.
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.
77
<PAGE>
[Alternate Page]
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.
78
<PAGE>
[Alternate Page]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 2000
[LOGO OF VIA NET.WORKS]
700,000 Shares of Common Stock
----------------
PROSPECTUS
----------------
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
<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>
SEC Registration fee.......................................... $ 74,586
NASD filing fee............................................... 26,502
Nasdaq National Market listing fee............................ 95,000
Amsterdam Stock Exchange listing fee.......................... 5,000
Printing and engraving expenses............................... 350,000
Legal fees and expenses....................................... 600,000
Accounting fees and expenses.................................. 1,700,000
Blue Sky fees and expenses (including legal fees)............. 3,500
Transfer agent and registrar fees and expenses................ 7,000
Miscellaneous................................................. 8,998
----------
Total..................................................... $2,870,586
==========
</TABLE>
VIA will bear all expenses shown above.
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.
Additionally, we have entered into indemnification agreements with certain
of our directors and officers, which may, in some cases, be broader than the
specific indemnification provisions contained under applicable law. The
indemnification agreements may require us, among other things, to indemnify
such officers and directors against liabilities that arise by reason of their
status or service as our directors or officers, to reimburse or advance the
expenses they may incur as a result of threatened claims or proceedings
brought against them, and to cover them under our directors' and officers'
liability insurance policies to the maximum extent that insurance coverage is
maintained. Some of our directors who serve on our board at the request of our
stockholders may also be indemnified by these stockholders under agreements or
pursuant to these stockholders' formation documents.
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.
II-2
<PAGE>
(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 company's
acquisition by VIA. These shares were valued at approximately $3,152,992 and
were issued in consideration for stock of the operating company. This sale was
made in reliance on Regulation S under the Securities Act. In addition, VIA
sold 127,874 shares of common
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 company's acquisition by VIA. These shares were valued at
approximately $2,539,368 and were issued in consideration for stock of the
operating company. 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 company. These
shares were valued at approximately $1,237,500 and were issued in consideration
for stock of the operating company. 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 company'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.
(o) In November 1999, VIA sold 5,000 shares of common stock to one employee
for an aggregate of $41,250 in reliance on Rule 701 under the Securities Act.
(p) In January 2000, VIA sold 112,500 shares of common stock to the
stockholders of one of VIA's operating companies in connection with the
operating company's acquisition by VIA. These shares were valued at
approximately $1,800,000 and were issued in reliance on Regulation S under the
Securities Act.
(q) In January 2000, VIA sold 50,000 shares of common stock to a director for
an aggregate purchase price of $487,500.
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
3.1.1 Form of Amended and Restated Certificate of Incorporation of
VIA NET.WORKS, Inc. to be filed before the closing of this
offering
3.1.2 Form of Amended and Restated Certificate of Incorporation of
VIA NET.WORKS, Inc. to be filed after the closing of this
offering
3.2 Form of Amended and Restated Bylaws of VIA NET.WORKS, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<C> <S>
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 Amended and Restated 1998 Stock Option and Restricted Stock
Plan
10.2A* Form of 1998 Stock Option and Restricted Stock Plan Incentive
Stock Option Agreement for executive employee
10.2B* Form of 1998 Stock Option and Restricted Stock Plan Incentive
Stock Option Agreement for non-executive employee
10.3* Key Employee Equity Plan, as amended
10.3.1 Amendment No. 2 to Key Employee Equity Plan
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.
10.14.1* Employment Letter Agreement between VIA and Kenneth Blackman
10.14.2* Employee Confidentiality Agreement between VIA and Kenneth
Blackman
10.15.1* Employment Letter Agreement between VIA and Antonio Tavares
10.15.2* Supplemental Letter Agreement between VIA and Antonio Tavares
10.15.3* Retention Agreement by and between Dialdata and Antonio Tavares
10.15.4* Termination Agreement by and between Dialdata and Antonio
Tavares
10.16 Form of Indemnification Agreement by and between VIA and its
officers and directors
10.17** Form of Purchase Agreement by and between VIA and its preferred
stockholders
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)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<C> <S>
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
27.1* Financial Data Schedule
</TABLE>
- ---------------------
* Previously filed.
** To be filed by amendment.
# Confidential treatment has been requested for portions of this exhibit.
(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 January 18, 2000.
VIA NET.WORKS, INC.
/s/ David M. D'Ottavio
By: _________________________________
David M. D'Ottavio
Chief Executive Officer and Chairman
of the Board of Directors
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed as of January 18, 2000 by the following persons in
the capacities indicated.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ David M. D'Ottavio Chief Executive Officer and Chairman of the
______________________________________ Board of Directors
David M. D'Ottavio (Principal Executive 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)
* Director
______________________________________
William A. Johnston
* Director
______________________________________
Gabriel Battista
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
* Director
______________________________________
Edward D. Breen
* Director
______________________________________
Stephen J. Eley
* Director
______________________________________
William J. Elsner
* Director
______________________________________
Adam Goldman
* Director
______________________________________
Mark J. Masiello
* Director
______________________________________
John G. Puente
* Director
______________________________________
Erik M. Torgerson
/s/ David M. D'Ottavio
*By: _________________________________
David M. D'Ottavio
Attorney-in-fact
</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 the first three paragraphs of Note 13, which
are 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
3.1.1 Form of Amended and Restated Certificate of Incorporation of
VIA NET.WORKS, Inc. to be filed before the closing of this
offering
3.1.2 Form of Amended and Restated Certificate of Incorporation of
VIA NET.WORKS, Inc. to be filed after the closing of this
offering
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 Amended and Restated 1998 Stock Option and Restricted Stock
Plan
10.2A* Form of 1998 Stock Option and Restricted Stock Plan Incentive
Stock Option Agreement for executive employee
10.2B* Form of 1998 Stock Option and Restricted Stock Plan Incentive
Stock Option Agreement for non-executive employee
10.3* Key Employee Equity Plan, as amended
10.3.1 Amendment No. 2 to Key Employee Equity Plan
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.
10.14.1* Employment Letter Agreement between VIA and Kenneth Blackman
10.14.2* Employee Confidentiality Agreement between VIA and Kenneth
Blackman
10.15.1* Employment Letter Agreement between VIA and Antonio Tavares
10.15.2* Supplemental Letter Agreement between VIA and Antonio Tavares
10.15.3* Retention Agreement by and between Dialdata and Antonio Tavares
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<C> <S>
10.15.4* Termination Agreement by and between Dialdata and Antonio
Tavares
10.16 Form of Indemnification Agreement by and between VIA and its
officers and directors
10.17** Form of Purchase Agreement by and between VIA and its
preferred stockholders
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
27.1* Financial Data Schedule
</TABLE>
- ---------------------
* Previously filed.
** To be filed by amendment.
# Confidential treatment has been requested for portions of this exhibit.
<PAGE>
Exhibit 3.1.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
VIA NET.WORKS, INC.
----------------------------------
Pursuant to Section 245 of the
General Corporation Law
of the State of Delaware
VIA NET.WORKS, INC., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
1. The Corporation was originally incorporated under the name
"Centennial International Access Corp." The present name of the Corporation is
VIA NET.WORKS, Inc.
2. The Certificate of Incorporation (as amended, the
"Certificate of Incorporation") of the Corporation was filed in the office of
the Secretary of State of the State of Delaware on June 13, 1997.
3. The text of the Certificate of Incorporation, as heretofore
amended, is hereby amended and restated to read in its entirety as follows:
Article 1. NAME
The name of this Corporation is VIA NET.WORKS, Inc.
Article 2. REGISTERED OFFICE AND AGENT
The registered office of the Corporation shall be located at
1013 Centre Road, in the City of Wilmington, County of New Castle, in the State
of Delaware. The registered agent for the Corporation at such address shall be
Corporation Services Company.
Article 3. PURPOSE AND POWERS
The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware (the "Delaware General Corporation
Law"). The
<PAGE>
Corporation shall have all power necessary or convenient to the conduct,
promotion or attainment of such acts and activities.
Article 4. CAPITAL STOCK
4.1. Authorized Shares
The total number of shares of all classes of stock that the
Corporation shall have the authority to issue is 181,300,000, of which
125,000,000 of such shares shall be common stock having a par value of $.001 per
share ("Voting Common Stock"), 7,500,000 of such shares shall be non-voting
common stock having a par value of $.001 per share ("Nonvoting Common Stock")
and 48,800,000 of such shares shall be preferred stock, having a par value of
$.001 per share ("Preferred Stock").
4.2. Voting Common Stock and Nonvoting Common Stock
4.2.1. Relative Rights
Except as expressly provided by this Article 4, Voting Common
Stock and Nonvoting Common Stock (collectively, the "Common Shares") shall be
pari passu in all respects. Except as required by law, Nonvoting Common Stock
shall not be entitled to vote on any matter submitted for approval by the
Corporation's stockholders. If the Corporation shall in any manner subdivide (by
stock split, stock dividend or otherwise) or combine (by reverse stock split or
otherwise) the outstanding shares of Voting Common Stock, the outstanding shares
of Nonvoting Common Stock shall be proportionally subdivided or combined, and
vice versa. No dividends shall be declared and paid on Voting Common Stock
unless equivalent dividends are simultaneously paid on Nonvoting Common Stock,
and vice versa; provided, however, that in the case of a dividend payable in
shares of Voting Common Stock, the holders of Voting Common Stock shall receive
additional shares of Voting Common Stock and the holders of Nonvoting Common
Stock shall receive additional shares of Nonvoting Common Stock.
Nonvoting Common Stock shall be convertible into Voting Common
Stock on a share-for-share basis at the option of the holder thereof; provided,
however, that no holder of Nonvoting Common Stock shall be entitled to convert
any such shares into Voting Common Stock to the extent that, as a result of such
conversion, such holder and its Affiliates would directly or indirectly own,
control or have voting power with respect to a greater number of shares of stock
or other securities of the Corporation than such holder and its Affiliates would
be permitted to own, control or have voting power with respect thereto under any
law, regulation, rule or other requirement of any governmental authority at the
time applicable to such holder or its Affiliates, including without limitation
the Bank Holding Company Act of 1956, as amended, and the regulations thereunder
(the "BHCA").
-2-
<PAGE>
The Corporation shall not be required to record the conversion of, and no holder
shall be entitled to convert, shares of Nonvoting Common Stock into Voting
Common Stock unless such conversion is permitted under applicable law; provided,
however, that the Corporation shall be entitled to rely without independent
verification upon the representation of any holder that such conversion is
permitted under applicable law, and in no event shall the Corporation be liable
to such holder or any third party arising from any such conversion whether or
not permitted by applicable law. For the purposes of this Section 4.2.1.,
"Affiliates" shall mean, with respect to any person, any other person
Controlling, Controlled by or under common Control with such person. "Control"
(including the terms "Controlled by" and "under common Control with") shall
mean, as used with respect to any person, possession, directly or indirectly or
as a trustee or executor, of power to direct or cause the direction of
management or policies of such person (whether through ownership of voting
securities, as trustee or executor, by agreement or otherwise). "Person" shall
mean an individual, partnership, corporation, firm, association, joint stock
company, trust, joint venture, unincorporated organization, or governmental,
quasi-governmental or regulatory authority (or any department, agency or
political subdivision thereof), or any other legally recognized entity.
In addition, the Common Shares shall be subject to all of the
rights, privileges, preferences and priorities of Preferred Stock as set forth
in the certificate of designations filed to establish the respective series of
Preferred Stock. Each share of Voting Common Stock shall have the same relative
rights as, and be identical in all respects to, all other shares of Voting
Common Stock.
4.2.2. Dividends
Whenever there shall have been paid, or declared and set aside
for payment, to the holders of shares of any class of stock having preference
over the Common Shares as to the payment of dividends, the full amount of
dividends and of sinking fund or retirement payments, if any, to which such
holders are respectively entitled in preference to the Common Shares, then
dividends may be paid on the Common Shares and on any class or series of stock
entitled to participate therewith as to dividends, out of any assets legally
available for the payment of dividends thereon, but only when and as declared by
the Board of Directors of the Corporation (the "Board of Directors").
4.2.3. Dissolution, Liquidation, Winding Up
In the event of any dissolution, liquidation, or winding up of
the Corporation, whether voluntary or involuntary, the holders of the Common
Shares, and holders of any class or series of stock entitled to participate
therewith, in whole or in part, as to the distribution of assets in such event,
shall become entitled to participate in the distribution of any assets of the
Corporation remaining after the Corporation shall have paid, or provided for
payment of, all debts and liabilities of
-3-
<PAGE>
the Corporation and after the Corporation shall have paid, or set aside for
payment, to the holders of any class of stock having preference over the Common
Shares in the event of dissolution, liquidation or winding up the full
preferential amounts (if any) to which they are entitled.
4.2.4. Voting Rights
Each holder of shares of Voting Common Stock shall be entitled
to attend all special and annual meetings of the stockholders of the Corporation
and, share for share and without regard to class, together with the holders of
all other classes of stock entitled to attend such meetings and to vote (except
any class or series of stock having special voting rights), to cast one vote for
each outstanding share of Voting Common Stock so held upon any matter or thing
(including, without limitation, the election of one or more directors) properly
considered and acted upon by the stockholders.
4.2.5. Reservation of Voting Common Stock Issuable Upon
Conversion of Nonvoting Common Stock
The Corporation shall at all times reserve and keep available
out of its authorized but unissued shares of Voting Common Stock, solely for the
purpose of effecting the conversion of the shares of Nonvoting Common Stock,
such number of its shares of Voting Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of Nonvoting
Common Stock. If at any time the number of authorized but unissued shares of
Voting Common Stock shall not be sufficient to effect the conversion of all
then-outstanding shares of Nonvoting Common Stock, the Corporation will take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Voting Common Stock to such
number of shares as shall be sufficient for such purpose.
4.3. Preferred Stock
4.3.1. Designation of Preferred Stock
The Board of Directors is authorized, subject to limitations
prescribed by the Delaware General Corporation Law and the provisions of this
Amended and Restated Certificate of Incorporation, to provide, by resolution or
resolutions from time to time and by filing a certificate of designations
pursuant to the Delaware General Corporation Law, for the issuance of the shares
of Preferred Stock in series, to establish from time to time the number of
shares to be included in each such series, to fix the powers, designations,
preferences and relative, participating, optional or other special rights of the
shares of each such series and to fix the qualifications, limitations or
restrictions thereof.
-4-
<PAGE>
4.3.2. Designation of Series A, Series B-1 and Series B-2
and Series C-1 and C-2 Preferred Stock
One million five hundred thousand (1,500,000) of the
authorized shares of Preferred Stock are hereby designated as "Series A
Preferred Stock" (the "Series A Preferred"), seventeen million two hundred
thousand (17,200,000) of the authorized shares of Preferred Stock are hereby
designated as "Series B-1 Preferred Stock" (the "Series B-1 Preferred"), two
million seven hundred thousand (2,700,000) of the authorized shares of Preferred
Stock are hereby designated as "Series B-2 Preferred Stock" (the "Series B-2
Preferred"), twenty-one million four hundred thousand (21,400,000) of the
authorized shares of Preferred Stock are hereby designated as "Series C-1
Preferred Stock" (the "Series C-1 Preferred") and six million (6,000,000) of the
authorized shares of Preferred Stock are hereby designated as "Series C-2
Preferred Stock" (the "Series C-2 Preferred").
Except as expressly provided by this Article Four, Series B-1
Preferred and Series B-2 Preferred (collectively, the "Series B Preferred")
shall be pari passu in all respects. If the Corporation shall in any manner
subdivide (by stock split, stock dividend or otherwise) or combine (by reverse
stock split or otherwise) the outstanding shares of Series B-1 Preferred, the
outstanding shares of Series B-2 Preferred shall be proportionally subdivided or
combined, and vice versa. No dividends shall be declared and paid on the Series
B-1 Preferred unless equivalent dividends are simultaneously paid on the Series
B-2 Preferred, and vice versa; provided, however, that in the case of a dividend
payable in shares of Series B Preferred, the holders of Series B-1 Preferred
shall receive additional shares of Series B-1 Preferred and the holders of
Series B-2 Preferred shall receive additional shares of Series B-2 Preferred.
The Series B-2 Preferred shall be convertible into Series B-1
Preferred on a share-for-share basis at the option of the holder thereof;
provided, however, that no holder of Series B-2 shall be entitled to convert any
such shares into Series B-1 Preferred to the extent that, as a result of such
conversion, such holder and its Affiliates would directly or indirectly own,
control or have voting power with respect to a greater number of shares of stock
or other securities of the Corporation than such holder and its Affiliates would
be permitted to own, control or have voting power with respect thereto under any
law, regulation, rule or other requirement of any governmental authority at the
time applicable to such holder or its Affiliates, including without limitation
the BHCA. The Corporation shall not be required to record the conversion of, and
no holder shall be entitled to convert, shares of Series B-2 Preferred into
Series B-1 Preferred unless such conversion is permitted under applicable law;
provided, however, that the Corporation shall be entitled to rely without
independent verification upon the representation of any holder that such
conversion is permitted under applicable law, and in no event shall the
Corporation be liable to such holder or any third party arising from any such
-5-
<PAGE>
conversion whether or not permitted by applicable law. Series B-1 Preferred held
by a person subject to the BHCA shall be convertible into Series B-2 Preferred
on a share-for-share basis upon delivery by such holder to the Corporation of a
certification that such conversion is required in order for such holder to
comply with the BHCA.
Except as expressly provided by this Article Four, Series C-1
Preferred and Series C-2 Preferred (collectively, the "Series C Preferred")
shall be pari passu in all respects. If the Corporation shall in any manner
subdivide (by stock split, stock dividend or otherwise) or combine (by reverse
stock split or otherwise) the outstanding shares of Series C-1 Preferred, the
outstanding shares of Series C-2 Preferred shall be proportionally subdivided or
combined, and vice versa. No dividends shall be declared and paid on the Series
C-1 Preferred unless equivalent dividends are simultaneously paid on the Series
C-2 Preferred, and vice versa; provided, however, that in the case of a dividend
payable in shares of Series C Preferred, the holders of Series C-1 Preferred
shall receive additional shares of Series C-1 Preferred and the holders of C-2
Preferred shall receive additional shares of Series C-2 Preferred.
The Series C-2 Preferred shall be convertible into Series C-1
Preferred on a share-for-share basis at the option of the holder thereof;
provided, however, that no holder of Series C-2 shall be entitled to convert any
such shares into Series C-1 Preferred to the extent that, as a result of such
conversion, such holder and its Affiliates would directly or indirectly own,
control or have voting power with respect to a greater number of shares of stock
or other securities of the Corporation than such holder and its Affiliates would
be permitted to own, control or have voting power with respect thereto under any
law, regulation, rule or other requirement of any governmental authority at the
time applicable to such holder or its Affiliates, including without limitation
the BHCA. The Corporation shall not be required to record the conversion of, and
no holder shall be entitled to convert, shares of Series C-2 Preferred into
Series C-1 Preferred unless such conversion is permitted under applicable law;
provided, however, that the Corporation shall be entitled to rely without
independent verification upon the representation of any holder that such
conversion is permitted under applicable law, and in no event shall the
Corporation be liable to such holder or any third party arising from any such
conversion whether or not permitted by applicable law. Series C-1 Preferred held
by a person subject to the BHCA shall be convertible into Series C-2 Preferred
on a share-for-share basis upon delivery by such holder to the Corporation of a
certification that such conversion is required in order for such holder to
comply with the BHCA.
The relative rights, preferences, privileges, restrictions and
other matters relating to the Series A Preferred, Series B-1 Preferred, Series
B-2
-6-
<PAGE>
Preferred, Series C-1 Preferred and Series C-2 Preferred (collectively, the
"Convertible Preferred") are as follows:
1. Dividend Rights.
(a) Holders of Convertible Preferred, in preference to the
holders of Common Shares and any other stock of the Corporation that is not by
its terms expressly senior to in right of payment to the Convertible Preferred
(collectively, "Junior Stock"), shall be entitled to receive dividends, when and
as declared by the Corporation's Board of Directors, but only out of funds that
are legally available therefor. In the event that the Corporation declares or
pays any dividends upon the Common Shares (whether payable in cash, securities
or other property) other than dividends payable solely in Common Shares, the
Corporation shall also declare and pay to the holders of the Convertible
Preferred at the same time that it declares and pays such dividends to the
holders of Common Shares, the dividends which would have been declared and paid
with respect to the Common Shares issuable upon conversion of the Convertible
Preferred had all of the outstanding Convertible Preferred been converted
immediately prior to the record date for such dividend, or if no record date is
fixed, the date as of which the record holders of Common Shares entitled to such
dividends are to be determined. No dividends shall be paid on either the Series
A, Series B or Series C Preferred unless equivalent dividends (determined on an
as-converted basis) are concurrently paid on all of the Series A, Series B and
Series C Preferred.
(b) So long as any Convertible Preferred remains outstanding,
without the prior written consent of the holders of at least 70% of the
outstanding shares of Convertible Preferred (other than Series B-2 Preferred and
Series C-2 Preferred) voting as a single class (the "Required Holders"), the
Corporation shall not, nor shall it permit any Subsidiary to, directly or
indirectly redeem, purchase or otherwise acquire any Junior Stock, nor shall the
Corporation directly or indirectly pay or declare any dividend or make any
distribution upon any Junior Stock. The provisions of this Section 1(b) shall
not, however, apply to (i) the acquisition of shares of any Junior Stock solely
in exchange for shares of any other Junior Stock, or (ii) the repurchase of
Management Stock or Reserved Employee Stock from former employees, directors or
consultants in connection with termination of employment or service as a
director or consultant pursuant to contractual repurchase rights or that is
otherwise approved by a majority of the disinterested members of the
Corporation's Board of Directors.
2. Voting Rights.
(a) Generally. Except as otherwise provided herein or as
required by law, (i) the Series A Preferred, Series B-1 Preferred and Series C-1
Preferred shall vote with the shares of the Voting Common Stock (and not as a
separate class) at any annual or special meeting of stockholders of the
Corporation, and may act by
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written consent in the same manner as the Voting Common Stock, in either case
upon the following basis: each holder of shares of Convertible Preferred shall
be entitled to such number of votes as shall be equal to the whole number of
shares of Voting Common Stock into which such holder's aggregate number of
shares of Convertible Preferred are convertible pursuant to Section 5 below
immediately after the close of business on the record date fixed for such
meeting or the effective date of such written consent, and (ii) the Series B-2
Preferred and Series C-2 Preferred shall be non-voting. The holders of Voting
Common Stock or Nonvoting Common Stock shall not be entitled to vote as a
separate class in the event of an amendment to this Certificate of Incorporation
to increase or decrease the number of authorized shares of Voting Common Stock
or Nonvoting Common Stock. Notwithstanding any other provision of this
Certificate of Incorporation, in no event shall any vote or consent otherwise
required under the provisions of this Certificate of Incorporation of any holder
(as such) of Series B-2 Preferred or Series C-2 Preferred that is subject to the
BHCA 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 such Regulation Y.
(b) Election of Directors. In the election of directors of the
Corporation, (i) the holders of the Series A Preferred and Series B-1 Preferred,
voting separately as a single class to the exclusion of all other classes of the
Corporation's capital stock and with each share of Series A Preferred and Series
B-1 Preferred entitled to one vote, shall be entitled to elect four directors to
serve on the Corporation's Board of Directors and (ii) the holders of the Series
C-1 Preferred, voting separately as a single class to the exclusion of all other
classes of the Corporation's capital stock and with each share of Series C-1
Preferred entitled to one vote, shall be entitled to elect three directors to
serve on the Corporation's Board of Directors. Each director elected by the
holders of Convertible Preferred shall serve until such person's successor is
duly elected by the holders of Convertible Preferred entitled to elect such
director or such person is removed from office by such holders. If the holders
of Convertible Preferred for any reason fail to elect a director to fill any
such directorship, such position shall remain vacant until such time as the
holders of Convertible Preferred elect a director to fill such position and
shall not be filled by resolution or vote of the Corporation's Board of
Directors or the Corporation's other stockholders.
(c) Class Vote Requirements. Without the affirmative vote or
consent of the Required Holders, the Corporation will not (i) amend the
Corporation's Certificate of Incorporation or by-laws in a manner that adversely
affects the holders of the Convertible Preferred, (ii) create, issue or
authorize the issuance of any additional Convertible Preferred or any other
capital stock of the
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Corporation that is senior to or pari passu with the Convertible Preferred with
respect to the payment of dividends, redemptions or payments in connection with
the liquidation of the Corporation, (iii) engage in any Acquisition or Asset
Transfer (as defined in Section 3(e)) or any other merger, consolidation,
recapitalization, liquidation or sale of substantial assets outside the ordinary
course of business, (iv) engage in any business other than the business of the
Corporation described in the Company's most recent annual business plan approved
by the Board of Directors of the Corporation and activities incidental thereto,
(v) increase the amount of Reserved Employee Stock, (vi) engage in any
transaction with an affiliate of the Corporation that is not approved by a
majority of the Corporation's disinterested directors, or (vii) repurchase any
Management Stock other than in connection with termination of the holder's
employment or service as a director of or consultant to the Corporation. In
addition, without the affirmative vote or consent of the holders of two-thirds
of the outstanding shares of Series B-2 Preferred or Series C-2 Preferred, as
applicable, the Corporation will not amend its Certificate of Incorporation or
by-laws in a manner that adversely affects the holders of the Series B-2
Preferred or Series C-2 Preferred, as applicable.
3. Liquidation Rights.
(a) Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, before any distribution or
payment shall be made to the holders of any Junior Stock or to the holders of
Series A Preferred or Series B Preferred, the holders of Series C Preferred
shall be entitled to be paid out of the assets of the Corporation with respect
to each share of Series C Preferred an amount (the "Series C Liquidation Value")
equal to the sum of (i) $6.00 (as appropriately adjusted for any future stock
splits, stock combinations, stock dividends or similar transactions affecting
the Series C Preferred, the "Original Series C Issue Price") plus (ii) all
declared but unpaid dividends thereon. If, upon any liquidation, dissolution or
winding up, the assets of the Corporation shall be insufficient to make payment
in full to all holders of Series C Preferred, then such assets shall be
distributed among the holders Series C Preferred at the time outstanding,
ratably in proportion to the full amounts to which they would otherwise be
respectively entitled.
(b) After payment of the full liquidation preference of the
Series C Preferred as set forth in Section 3(a) above, the holders of Series B
Preferred shall be entitled to be paid out of the assets of the Corporation with
respect to each share of Series B Preferred an amount (the "Series B Liquidation
Value") equal to the sum of (i) $3.00 (as appropriately adjusted for any future
stock splits, stock combinations, stock dividends or similar transactions
affecting the Series B Preferred, the "Original Series B Issue Price") plus (ii)
all declared but unpaid dividends thereon. If, upon any liquidation, dissolution
or winding up, the assets of the Corporation shall be insufficient to make
payment in full to all holders of
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Series B Preferred, then such assets shall be distributed among the holders of
Series B Preferred at the time outstanding, ratably in proportion to the full
amounts to which they would otherwise be respectively entitled.
(c) After payment of the full liquidation preference of the
Series B Preferred and Series C Preferred as set forth in Sections 3(a) and 3(b)
above, the holders of the Series A Preferred shall be entitled to be paid out of
the remaining assets of the Corporation with respect to each share of Series A
Preferred an amount (the "Series A Liquidation Value") equal to the sum of (i)
$1.00 (as appropriately adjusted for any future stock splits, stock
combinations, stock dividends or similar transactions affecting the Series A
Preferred, the "Original Series A Issue Price") plus (ii) all declared but
unpaid dividends thereon. If, upon any liquidation, dissolution or winding up,
the assets of the Corporation shall be insufficient to make payment in full to
all holders of Series A Preferred, then such assets shall be distributed among
the holders of Series A Preferred at the time outstanding, ratably in proportion
to the full amounts to which they would otherwise be respectively entitled.
(d) After the payment of the full liquidation preference of
the Series C Preferred, Series B Preferred and Series A Preferred as set forth
in Sections 3(a), 3(b) and 3(c) above, the remaining assets of the Corporation
legally available for distribution, if any, shall be distributed to the holders
of Junior Stock entitled to a preference over Common Shares and, thereafter, to
the holders of Common Shares. The holders of Convertible Preferred shall be
entitled to participate in distributions to holders of Common Shares such that,
giving effect to all distributions pursuant to Sections 3(a), 3(b) and 3(c)
above and all exercises of Options and conversions of Convertible Securities
effected on or prior to the date on which distributions are made to holders of
Common Shares, the holders of Convertible Preferred receive aggregate
distributions equal to the greater of Series A Liquidation Value, Series B
Liquidation Value or Series C Liquidation Value (as applicable) or the amounts
that such holders would have received if the Convertible Preferred had been
converted into Common Shares immediately prior to such liquidation, dissolution
or winding up of the Corporation.
(e) At the option of the Required Holders, the following
events shall be considered a liquidation for purposes of Section 3(a):
(i) any merger, consolidation, business combination,
reorganization or recapitalization of the Corporation in which the Corporation
is not the surviving entity or in which the stockholders of the Corporation
immediately prior to such transaction own capital stock representing less than
fifty percent (50%) of the Corporation's voting power immediately after such
transaction, or any transaction or series of related transactions in which
capital stock representing in excess of fifty percent (50%) of the Corporation's
voting power is transferred (an "Acquisition"); or
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(ii) a sale, lease or other disposition of all or
substantially all of the assets of the Corporation (an "Asset Transfer").
4. Redemption Rights.
(a) Redemption. The Corporation shall redeem all
then-outstanding shares of Series A, Series B and Series C Preferred on May 31,
2008 (the "Redemption Date"), at a price per share equal to the Series A
Liquidation Value, Series B Liquidation Value or Series C Liquidation Value, as
applicable.
(b) Redemption Payments. For each share of Convertible
Preferred which is to be redeemed hereunder, the Corporation shall be obligated
on the Redemption Date to pay to the holder thereof (upon surrender by such
holder at the Corporation's principal office of the certificate representing
such share) an amount in cash equal to the Series A Liquidation Value, Series B
Liquidation Value or Series C Liquidation Value, as applicable. If the funds of
the Corporation legally available for redemption of Convertible Preferred on the
Redemption Date are insufficient to redeem the total number of shares to be
redeemed on such date, those funds which are legally available shall be used (i)
first, to redeem the maximum possible number of shares of Series C Preferred pro
rata among the holders thereof based on the respective numbers of shares held by
each such holder, and (ii) second, to the extent of any funds remaining after
redemption of all shares of Series C Preferred, to redeem the maximum possible
number of shares of Series A Preferred and Series B Preferred pro rata among the
holders of Series A and Series B Preferred to be redeemed based upon the
aggregate Liquidation Value of such shares held by each such holder. At any time
thereafter when additional funds of the Corporation are legally available for
the redemption of Convertible Preferred, such funds shall immediately be used to
redeem, in the same order of priority specified above, the balance of the shares
which the Corporation has become obligated to redeem on the Redemption Date but
which it has not redeemed.
(c) Notice of Redemption. Except as otherwise provided herein,
the Corporation shall mail written notice of the redemption of Convertible
Preferred to each record holder thereof not more than 60 nor less than 30 days
prior to the Redemption Date. The holders of Convertible Preferred shall in any
event have the right to convert their shares into Common Shares at any time
prior to the close of business on the Redemption Date.
(d) Other Redemptions or Acquisitions. The Corporation shall
not, nor shall it permit any Subsidiary to, redeem or otherwise acquire any
shares of Convertible Preferred, except as expressly authorized herein or
pursuant to a purchase offer made to all holders of each class of Convertible
Preferred in the same order of priority specified above with respect to
redemptions.
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5. Conversion Rights.
The holders of the Convertible Preferred shall have the
following rights with respect to the conversion of the Convertible Preferred
into shares of Voting Common Stock in the case of the Series A Preferred, Series
B-1 Preferred or Series C-1 Preferred or shares of Nonvoting Common Stock in the
case of Series B-2 Preferred or Series C-2 Preferred:
(a) Optional Conversion. Subject to and in compliance with the
provisions of this Section 5, any shares of Convertible Preferred may, at the
option of the holder, be converted at any time into fully-paid and nonassessable
Common Shares. The number of Common Shares to which a holder of Series A
Preferred shall be entitled upon conversion shall be the product obtained by
multiplying the "Series A Conversion Rate" then in effect (determined as
provided in Section 5(b)) by the number of shares of Series A Preferred being
converted. The number of Common Shares to which a holder of Series B Preferred
shall be entitled upon conversion shall be the product obtained by multiplying
the "Series B Conversion Rate" then in effect (determined as provided in Section
5(b)) by the number of shares of Series B Preferred being converted. The number
of Common Shares to which a holder of Series C Preferred shall be entitled upon
conversion shall be the product obtained by multiplying the "Series C Conversion
Rate" then in effect (determined as provided in Section 5(b)) by the number of
shares of Series C Preferred being converted.
(b) Conversion Rates. The conversion rate in effect at any
time for conversion of the Series A Preferred (the "Series A Conversion Rate")
shall be the quotient obtained by dividing the Series A Liquidation Value by the
"Series A Conversion Price" calculated as provided in Section 5(c). The
conversion rate in effect at any time for conversion of the Series B Preferred
(the "Series B Conversion Rate") shall be the quotient obtained by dividing the
Series B Liquidation Value by the "Series B Conversion Price" calculated as
provided in Section 5(c). The conversion rate in effect at any time for
conversion of the Series C Preferred (the "Series C Conversion Rate") shall be
the quotient obtained by dividing the Series C Liquidation Value by the "Series
C Conversion Price" calculated as provided in Section 5(c).
(c) Conversion Prices. The conversion price for the Series A
Preferred (the "Series A Conversion Price") shall initially be the Original
Series A Issue Price, the conversion price for the Series B Preferred (the
"Series B Conversion Price") shall initially be the Original Series B Issue
Price, and the conversion price for the Series C Preferred (the "Series C
Conversion Price") shall initially be the Original Series C Issue Price. Such
initial Conversion Prices shall be adjusted from time to time in accordance with
this Section 5. If and whenever on or after the date of original issuance of
shares of Series C Preferred (the "Original Issue Date") the Corporation issues
or sells, or in accordance with
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this Section 5(c) is deemed to have issued or sold, any Common Shares (other
than pursuant to a Permitted Issuance) for a consideration per share less than
the Series A Conversion Price in effect immediately prior to the time of such
issue or sale, then immediately upon such issue or sale or deemed issue or sale
the Series A Conversion Price shall be reduced to the amount determined by
dividing (a) the sum of (1) the product derived by multiplying the Series A
Conversion Price in effect immediately prior to such issue or sale by the number
of Common Shares Deemed Outstanding immediately prior to such issue or sale,
plus (2) the consideration, if any, received or deemed to have been received by
the Corporation upon such issue or sale, by (b) the number of Common Shares
Deemed Outstanding immediately after such issue or sale. If and whenever on or
after the Original Issue Date the Corporation issues or sells, or in accordance
with this Section 5(c) is deemed to have issued or sold, any Common Shares
(other than pursuant to a Permitted Issuance) for a consideration per share less
than the Series B Conversion Price in effect immediately prior to the time of
such issue or sale, then immediately upon such issue or sale or deemed issue or
sale the Series B Conversion Price shall be reduced to the amount determined by
dividing (a) the sum of (1) the product derived by multiplying the Series B
Conversion Price in effect immediately prior to such issue or sale by the number
of Common Shares Deemed Outstanding immediately prior to such issue or sale,
plus (2) the consideration, if any, received or deemed to have been received by
the Corporation upon such issue or sale, by (b) the number of Common Shares
Deemed Outstanding immediately after such issue or sale. If and whenever on or
after the Original Issue Date the Corporation issues or sells, or in accordance
with this Section 5(c) is deemed to have issued or sold, any Common Shares
(other than pursuant to a Permitted Issuance) for a consideration per share less
than the Series C Conversion Price in effect immediately prior to the time of
such issue or sale, then immediately upon such issue or sale or deemed issue or
sale the Series C Conversion Price shall be reduced to the amount determined by
dividing (a) the sum of (1) the product derived by multiplying the Series C
Conversion Price in effect immediately prior to such issue or sale by the number
of Common Shares Deemed Outstanding immediately prior to such issue or sale,
plus (2) the consideration, if any, received or deemed to have been received by
the Corporation upon such issue or sale, by (b) the number of Common Shares
Deemed Outstanding immediately after such issue or sale. All references to the
Series A Conversion Price, Series B Conversion Price or Series C Conversion
Price herein shall mean the Series A, Series B or Series C Conversion Price as
so adjusted. For purposes of determining the adjusted Conversion Prices, the
following shall be applicable:
(i) Issuance of Rights or Options. If the
Corporation in any manner grants or sells any Options and the price per share
for which Common Stock is issuable upon the exercise of such Options, or upon
conversion or exchange of any Convertible Securities issuable upon exercise of
such Options, is less than the applicable Conversion Price in effect immediately
prior to the time of the granting or sale of such Options, then the total
maximum number of Common
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Shares issuable upon the exercise of such Options or upon conversion or exchange
of the total maximum amount of such Convertible Securities issuable upon the
exercise of such Options shall be deemed to have been issued and sold by the
Corporation at the time of the granting or sale of such Options for such price
per share. For purposes of this paragraph, the "price per share for which Common
Stock is issuable" shall be determined by dividing (A) the total amount, if any,
received or receivable by the Corporation as consideration for the granting or
sale of such Options, plus the minimum aggregate amount of additional
consideration payable to the Corporation upon exercise of all such Options, plus
in the case of such Options which relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable to the Corporation
upon the issuance or sale of such Convertible Securities and the conversion or
exchange thereof, by (B) the total maximum number of Common Shares issuable upon
the exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options. No further
adjustment of the applicable Conversion Price shall be made when Convertible
Securities are actually issued upon the exercise of such Options or when Common
Shares are actually issued upon the exercise of such Options or the conversion
or exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the
Corporation in any manner issues or sells any Convertible Securities and the
price per share for which Common Stock is issuable upon conversion or exchange
thereof is less than the applicable Conversion Price in effect immediately prior
to the time of such issue or sale, then the maximum number of Common Shares
issuable upon conversion or exchange of such Convertible Securities shall be
deemed to have been issued and sold by the Corporation at the time of the
issuance or sale of such Convertible Securities for such price per share. For
the purposes of this paragraph, the "price per share for which Common Stock is
issuable" shall be determined by dividing (A) the total amount received or
receivable by the Corporation as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the conversion or
exchange thereof, by (B) the total maximum number of Common Shares issuable upon
the conversion or exchange of all such Convertible Securities. No further
adjustment of the applicable Conversion Price shall be made when Common Shares
are actually issued upon the conversion or exchange of such Convertible
Securities, and if any such issue or sale of such Convertible Securities is made
upon exercise of any Options for which an adjustment of such Conversion Price
had been or are to be made pursuant to other provisions of this Section 5, no
further adjustment of such Conversion Price shall be made by reason of such
issue or sale.
(iii) Change in Option Price or Conversion Rate.
If the purchase price provided for in any Options, the additional consideration,
if any, payable upon the conversion or exchange of any Convertible Securities or
the rate
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at which any Convertible Securities are convertible into or exchangeable for
Common Shares changes at any time (other than changes in the Conversion Prices
of the Convertible Preferred resulting from the anti-dilution provisions of this
Section 5), the Conversion Prices in effect at the time of such change shall be
immediately adjusted to the Conversion Prices which would have been in effect at
such time had such Options or Convertible Securities still outstanding provided
for such changed purchase price, additional consideration or conversion rate, as
the case may be, at the time initially granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised
Convertible Securities. Upon the expiration of any Option or the termination of
any right to convert or exchange any Convertible Security without the exercise
of any such Option or right, the Conversion Prices then in effect hereunder
shall be adjusted immediately to the Conversion Prices which would have been in
effect at the time of such expiration or termination had such Option or
Convertible Security, to the extent outstanding immediately prior to such
expiration or termination, never been issued.
(v) Calculation of Consideration Received.
If any Common Shares, Option or Convertible Security is issued or sold or deemed
to have been issued or sold for cash, the consideration received therefor shall
be deemed to be the amount received by the Corporation therefor (net of
discounts, commissions and related expenses). If any Common Shares, Options or
Convertible Securities are issued or sold for a consideration other than cash,
the amount of the consideration other than cash received by the Corporation
shall be the fair value of such consideration. If any Common Shares, Options or
Convertible Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Corporation is the surviving
corporation, the amount of consideration therefor shall be deemed to be the fair
value of such portion of the net assets and business of the non-surviving entity
as is attributable to such Common Shares, Options or Convertible Securities, as
the case may be. The fair value of any consideration other than cash and
securities shall be determined jointly by the Corporation and the holders of a
majority of the outstanding shares of Convertible Preferred (other than Series
B-2 Preferred and Series C-2 Preferred) voting as a single class (the "Majority
Holders"). If such parties are unable to reach agreement within a reasonable
period of time, the fair value of such consideration shall be determined by an
independent appraiser experienced in valuing such type of consideration jointly
selected by the Corporation and the Majority Holders. The determination of such
appraiser shall be final and binding upon the parties, and the fees and expenses
of such appraiser shall be borne by the Corporation.
(vi) Integrated Transactions. In case any Option
is issued in connection with the issue or sale of other securities of the
Corporation, together comprising one integrated transaction in which no specific
consideration is allocated
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to such Option by the parties thereto, the Option shall be deemed to have been
issued for a consideration of $.01.
(vii) Treasury Shares. The number of Common
Shares outstanding at any given time shall not include shares owned or held by
or for the account of the Corporation or any Subsidiary, and the disposition of
any shares so owned or held shall be considered an issue or sale of Common
Shares.
(d) Adjustment for Stock Splits and Combinations. If the
Corporation shall at any time or from time to time after the Original Issue Date
effect a subdivision of the outstanding Common Shares, the Conversion Prices in
effect immediately before that subdivision shall be proportionately decreased.
Conversely, if the Corporation shall at any time or from time to time after the
Original Issue Date combine the outstanding Common Shares into a smaller number
of shares, the Conversion Prices in effect immediately before the combination
shall be proportionately increased. Any adjustment under this Section 5(d) shall
become effective at the close of business on the date the subdivision or
combination becomes effective.
(e) Adjustment for Common Stock Dividends and Distributions.
If the Corporation at any time or from time to time after the Original Issue
Date makes, or fixes a record date for the determination of holders of Common
Shares entitled to receive, a divided or other distribution payable in
additional Common Shares, in each such event the Conversion Prices then in
effect shall be decreased as of the time of such issuance or, in the event such
record date is fixed, as of the close of business on such record date, by
multiplying each Conversion Price then in effect by a fraction (1) the numerator
of which is the total number of Common Shares issued and outstanding immediately
prior to the time of such issuance or the close of business on such record date,
and (2) the denominator of which is the total number of Common Shares issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date plus the number of Common Shares issuable in
payment of such dividend or distribution; provided, however, that if such record
date is fixed and such dividend is not fully paid or if such distribution is not
fully made on the date fixed therefor, the Conversion Prices shall be recomputed
accordingly as of the close of business on such record date and thereafter the
Conversion Prices shall be adjusted pursuant to this Section 5(e) to reflect the
actual payment of such dividend or distribution.
(f) Adjustments for Other Dividends and Distributions. If the
Corporation at any time or from time to time after the Original Issue Date
makes, or fixes a record date for the determination of holders of Common Shares
entitled to receive, a dividend or other distribution payable in securities of
the Corporation other than Common Shares, in each such event provision shall be
made so that the holders of the Convertible Preferred shall receive upon
conversion
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thereof, in addition to the number of Common Shares receivable thereupon, the
amount of other securities of the Corporation which they would have received had
their Convertible Preferred been converted into Common Shares on the date of
such event and had they thereafter, during the period from the date of such
event to and including the conversion date, retained such securities receivable
by them as aforesaid during such period, subject to all other adjustments called
for during such period under this Section 5 with respect to the rights of the
holders of the Convertible Preferred or with respect to such other securities by
their terms. Notwithstanding the foregoing, appropriate provision shall be made
so that holders of Series B-2 Preferred and Series C-2 Preferred receive non-
voting securities upon such conversion.
(g) Adjustment for Reclassification, Exchange and
Substitution. If at any time or from time to time after the Original Issue Date,
the Common Shares issuable upon the conversion of the Convertible Preferred are
changed into the same or a different number of shares of any class or classes of
stock, whether by recapitalization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend or a reorganization,
merger or consolidation provided for elsewhere in this Section 5), in any such
event each holder of Convertible Preferred shall have the right thereafter to
convert such stock into the kind and amount of stock and other securities and
property receivable in connection with such recapitalization, reclassification
or other change with respect to the maximum number of Common Shares into which
such shares of Convertible Preferred could have been converted immediately prior
to such recapitalization, reclassification or change, all subject to further
adjustments as provided herein or with respect to such other securities or
property by the terms thereof. Notwithstanding the foregoing, appropriate
provision shall be made so that holders of Series B-2 Preferred and Series C-2
Preferred receive non-voting securities upon such conversion.
(h) Reorganizations, Mergers or Consolidations. If at any time
or from time to time after the Original Issue Date, the Common Shares are
converted into other securities or property, whether pursuant to a
reorganization, merger, consolidation or otherwise (other than a
recapitalization, subdivision, combination, reclassification, exchange or
substitution of shares provided for elsewhere in this Section 5), as a part of
such transaction, provision shall be made so that the holders of the Convertible
Preferred shall thereafter be entitled to receive upon conversion thereof the
number of shares of stock or other securities or property to which a holder of
the maximum number of Common Shares deliverable upon conversion would have been
entitled in connection with such transaction, subject to adjustment in respect
of such stock or securities by the terms thereof. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 5
with respect to the rights of the holders of Convertible Preferred after such
transaction to the end that the provisions of this Section 5 (including
adjustment of the Conversion Prices then in effect and the number of
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shares issuable upon conversion of the Convertible Preferred) shall be
applicable after that event and be as nearly equivalent as practicable. The
Corporation shall not be a party to any reorganization, merger or consolidation
in which the Corporation is not the surviving entity unless the entity surviving
such transaction assumes, by written instrument satisfactory to the Required
Holders, all of the Corporation's obligations hereunder. Notwithstanding the
foregoing, appropriate provision shall be made so that holders of Series B-2
Preferred and Series C-2 Preferred receive non-voting securities upon such
conversion.
(i) Certificate of Adjustment. In each case of an adjustment
or readjustment of the Series A, Series B or Series C Conversion Prices or the
number of Common Shares or other securities issuable upon conversion of the
Convertible Preferred, the Corporation, at its expense, shall compute such
adjustment or readjustment in accordance with the provisions hereof and prepare
a certificate showing such adjustment or readjustment, and shall mail such
certificate, by first class mail, postage prepaid, to each registered holder of
Convertible Preferred at the holder's address as shown in the Corporation's
books. The certificate shall set forth such adjustment or readjustment, showing
in detail the facts upon which such adjustment or readjustment is based,
including a statement of (1) the consideration received or deemed to be received
by the Corporation for any additional Common Shares issued or sold or deemed to
have been issued or sold, (2) the Conversion Prices in effect before and after
such adjustment, (3) the number of additional Common Shares issued or sold or
deemed to have been issued or sold, and (4) the type and amount, if any, of
other property which at the time would be received upon conversion of the
Convertible Preferred.
(j) Notices of Record Date. Upon (i) any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, or (ii) any Acquisition (as defined in Section
3(c)) or other capital reorganization of the Corporation, any reclassification
or recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation with or into any other corporation, any Asset
Transfer (as defined in Section 3(c)), or any voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, the Corporation shall
mail to each holder of Convertible Preferred at least twenty (20) days prior to
the record date specified therein a notice specifying (1) the date on which any
such record is to be taken for the purpose of such dividend or distribution and
a description of such dividend or distribution, (2) the date on which any such
Acquisition, reorganization, reclassification, transfer, consolidation, merger,
Asset Transfer, dissolution, liquidation or winding up is expected to become
effective, and (3) the date, if any, that is to be fixed for determining the
holders of record of Common Shares (or other securities) that shall be entitled
to exchange their Common Shares (or other securities) for securities or other
property deliverable upon such Acquisition, reorganization, reclassification,
transfer, consolidation, merger, Asset Transfer, dissolution, liquidation or
winding up.
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(k) Automatic Conversion. Each share of Convertible Preferred
shall automatically be converted into shares of Voting Common Stock (in the case
of Series A, Series B-1 or Series C-1 Preferred) or Nonvoting Common Stock (in
the case of Series B-2 Preferred or Series C-2 Preferred), based on the
then-effective Conversion Prices, (x) at any time at the election of the
Required Holders, or (y) immediately upon the closing of a firmly underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, covering the offer and sale of Common Shares
for the account of the Corporation in which (i) the per share price to the
public is at least $12.00 per share (as adjusted for stock splits,
recapitalizations and the like occurring after the Original Issue Date), and
(ii) the gross cash proceeds to the Corporation (before underwriting discounts,
commissions and fees) are at least $50,000,000.00.
(l) Mechanics of Conversion.
(i) Optional Conversion. Each holder of
Convertible Preferred who desires to convert the same into Common Shares
pursuant to this Section 5 shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or any transfer agent
for the Convertible Preferred, and shall give written notice to the Corporation
at such office that such holder elects to convert the same. Such notice shall
state the number of shares of Convertible Preferred being converted. Thereupon,
the Corporation shall promptly issue and deliver at such office to such holder a
certificate or certificates for the number of Common Shares to which such holder
is entitled. Such conversion shall be deemed to have been made at the close of
business on the date of such surrender of the certificate representing the
shares of Convertible Preferred to be converted, and the person entitled to
receive the Common Shares issuable upon such conversion shall be treated for all
purposes as the record holder of such Common Shares on such date. Such
provisions shall also apply to (i) a conversion of Voting Common Stock into
Nonvoting Common Stock, and vice versa, (ii) a conversion of Series B-1
Preferred into Series B-2 Preferred, and vice versa, and (iii) a conversion of
Series C-1 Preferred into Series C-2 Preferred, and vice versa; provided,
however, that any such conversion notice shall be accompanied by any
certification otherwise required under this Certificate of Incorporation.
(ii) Automatic Conversion. Upon the occurrence
of the event specified in Section 5(k) above, the outstanding shares of
Convertible Preferred shall be converted into Common Shares automatically
without any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Corporation or its
transfer agent; provided, however, that the Corporation shall not be obligated
to issue certificates evidencing the Common Shares issuable upon such conversion
unless the certificates evidencing such shares of Convertible Preferred are
either delivered to the Corporation or its transfer agent as provided below, or
the holder notifies the
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Corporation or its transfer agent that such certificates have been lost, stolen
or destroyed and executes an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection with such
certificates. Upon surrender by any holder of the certificates formerly
representing shares of Convertible Preferred at the office of the Corporation or
any transfer agent for the Convertible Preferred, there shall be issued and
delivered to such holder promptly at such office and in its name as shown on
such surrendered certificate or certificates, a certificate or certificates for
the number of Common Shares into which the shares of Convertible Preferred
surrendered were convertible on the date on which such automatic conversion
occurred. Until surrendered as provided above, each certificate formerly
representing shares of Convertible Preferred shall be deemed for all corporate
purposes to represent the number of Common Shares resulting from such automatic
conversion.
(m) Fractional Shares. No fractional Common Shares shall be
issued upon conversion of Convertible Preferred. All Common Shares (including
fractions thereof) issuable upon conversion of more than one share of
Convertible Preferred by a holder thereof shall be aggregated for purposes of
determination whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion would
result in the issuance of any fractional share, the Corporation shall, in lieu
of issuing any fractional share, pay cash equal to the product of such fraction
multiplied by the Common Shares' fair market value (as determined by the Board)
on the date of conversion.
6. Certain Definitions.
"Affiliate" means, with respect to any person, any other
person Controlling, Controlled by or under common Control with such person.
"Control" (including the terms "Controlled by" and "under common Control with")
means, as used with respect to any person, possession, directly or indirectly or
as a trustee or executor, of power to direct or cause the direction of
management or policies of such person (whether through ownership of voting
securities, as trustee or executor, by agreement or otherwise).
"Common Stock Deemed Outstanding" means, at any given time,
the sum of the number of Common Shares actually outstanding at such time plus
the number of Common Shares deemed to have been issued pursuant to subparagraphs
5(c)(i) and 5(c)(ii) hereof whether or not the Options or Convertible Securities
are actually exercisable at such time.
"Convertible Securities" means any stock or securities
directly or indirectly convertible into or exchangeable for Common Shares.
"Management Stock" means the Common Shares held by members of
the Company's management.
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"Options" means any rights, warrants or options to subscribe
for or purchase Common Shares or Convertible Securities.
"Permitted Issuance" means (i) any issuance of Common Shares
upon conversion of shares of Convertible Preferred, (ii) any issuance, including
any deemed issuance, of Reserved Employee Stock, or (iii) any issuance of
warrants to purchase equity securities of the Corporation in connection with a
commercial loan or leasing transaction approved by the Corporation's Board of
Directors. In addition, a Series A Dilutive Offering, a Series B Dilutive
Offering or a Series C Dilutive Offering shall constitute a Permitted Issuance
with respect to any shares (but only those shares) of Series A Preferred, Series
B Preferred or Series C Preferred held by a holder that (together with its
Affiliates) does not purchase such holder's Pro Rata Share (or a greater amount)
of such Series A Dilutive Offering, Series B Dilutive Offering or Series C
Dilutive Offering.
"person" means an individual, partnership, corporation, firm,
association, joint stock company, trust, joint venture, unincorporated
organization, or governmental, quasi-governmental or regulatory authority (or
any department, agency or political subdivision thereof), or any other legally
recognized entity.
"Pro Rata Share" means the amount of Common Shares, Options or
Convertible Securities that a holder of Convertible Preferred would have to
purchase in an offering such that following the offering the holder would hold
the same percentage of the Common Stock Deemed Outstanding as the holder held
immediately prior to the offering, but in no event to exceed the amount of
Common Shares, Options or Convertible Securities that such holder is permitted
by the Corporation to purchase in such offering pursuant to Section 4.10 of the
Amended and Restated Stockholders Agreement dated as of the Original Issue Date
(without regard to the ability to purchase securities offered to and not
purchased by other stockholders).
"Reserved Employee Stock" means up to 10,000,000 Common Shares
issuable to employees, directors or consultants of the Corporation and its
Subsidiaries as determined by the Corporation's Board of Directors with vesting
and buy-back restrictions approved by the Board.
"Series A Dilutive Offering" means an offering of Common
Shares, Options or Convertible Securities (other than pursuant to a transaction
referred to in clauses (i), (ii) or (iii) of the definition of Permitted
Issuance) to each holder of Series A Preferred that would (without giving effect
to the last sentence of the definition of Permitted Issuance), upon consummation
of such offering, trigger a reduction in the Series A Conversion Price pursuant
to Section 5(c).
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"Series B Dilutive Offering" means an offering of Common
Shares, Options or Convertible Securities (other than pursuant to a transaction
referred to in clauses (i), (ii) or (iii) of the definition of Permitted
Issuance) to each holder of Series B Preferred that would (without giving effect
to the last sentence of the definition of Permitted Issuance), upon consummation
of such offering, trigger a reduction in the Series B Conversion Price pursuant
to Section 5(c).
"Series C Dilutive Offering" means an offering of Common
Shares, Options or Convertible Securities (other than pursuant to a transaction
referred to in clauses (i), (ii) or (iii) of the definition of Permitted
Issuance) to each holder of Series C Preferred that would (without giving effect
to the last sentence of the definition of Permitted Issuance), upon consummation
of such offering, trigger a reduction in the Series C Conversion Price pursuant
to Section 5(c).
"Subsidiary" means any corporation of which the shares of
outstanding capital stock possessing the voting power (under ordinary
circumstances) in electing the board of directors are, at the time as of which
any determination is being made, owned by the Corporation either directly or
indirectly through Subsidiaries.
7. Amendment and Waiver.
No amendment, modification or waiver of any of the terms or
provisions of any series of the Convertible Preferred shall be binding or
effective without the prior written consent of the holders of two-thirds of the
outstanding shares of such series, and no such change may be accomplished by
merger or consolidation of the Corporation with another corporation or entity
unless the Corporation has obtained the prior written consent of the holders of
two-thirds of the outstanding shares of such series. Any amendment, modification
or waiver of any of the terms or provisions of any series of the Convertible
Preferred by the
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<PAGE>
holders of two-thirds of the outstanding shares of such series, whether
prospective or retroactively effective, shall be binding upon all holders of
such series of Convertible Preferred Stock. Notwithstanding the foregoing,
except as may be required by applicable provisions of the Delaware General
Corporation Law, any amendment, modification or waiver that affects (i) the
Series B-1 and Series B-2 Preferred on an equal basis or (ii) the Series C-1 and
Series C-2 Preferred on an equal basis shall require the consent of the holders
of two-thirds of the outstanding shares of the Series B-1 and Series B-2
Preferred or the holders of two-thirds of the outstanding shares of the Series
C-1 and Series C-2 Preferred, as applicable, in each case taken together as a
single group.
8. Registration of Transfer.
The Corporation shall keep at its principal office a register
for the registration of the Convertible Preferred. Upon the surrender of any
certificate representing Convertible Preferred at such place, the Corporation
shall, at the request of the record holder of such certificate, execute and
deliver (at the Corporation's expense) a new certificate or certificates in
exchange therefor representing in the aggregate the number of shares represented
by the surrendered certificate. Each such new certificate shall be registered in
such name and shall represent such number of shares as is requested by the
holder of the surrendered certificate and shall be substantially identical in
form to the surrendered certificate.
9. Replacement.
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Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder shall be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing shares of Convertible Preferred, and in the case of any such loss,
theft or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or in the case
of any such mutilation upon surrender of such certificate, the Corporation shall
(at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of shares of such class and
series represented by such lost, stolen, destroyed or mutilated certificate and
dated the date of such lost, stolen, destroyed or mutilated certificate.
10. Reservation of Common Stock Issuable Upon Conversion.
The Corporation shall at all times reserve and keep available
out of its authorized but unissued Common Shares, solely for the purpose of
effecting the conversion of the shares of the Convertible Preferred, such number
of its Common Shares as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Convertible Preferred. If at any
time the number of authorized but unissued Common Shares shall not be sufficient
to effect the conversion of all then-outstanding shares of the Convertible
Preferred, the Corporation will take such corporate action as may, in the
opinion of its counsel, be
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necessary to increase its authorized but unissued Common Shares to such number
of shares as shall be sufficient for such purpose.
11. Notices.
Any notice required by the provisions of this Article Four
shall be in writing and shall be deemed effectively given: (i) upon personal
delivery to the party to be notified, (ii) when sent by confirmed telex or
facsimile if sent during normal business hours of the recipient; if not, then on
the next business day, (iii) five (5) days after having been sent by registered
or certified mail, return receipt requested, postage prepaid, or (iv) one (1)
day after deposit with a nationally recognized overnight courier, specifying
next day delivery, with written verification of receipt. All notices to
stockholders shall be addressed to each holder of record at the address of such
holder appearing on the books of the Corporation.
12. Payment of Taxes.
The Corporation will pay all taxes (other than taxes based
upon income) and other governmental charges that may be imposed with respect to
the issue or delivery of Common Shares upon conversion of shares of Convertible
Preferred, excluding any tax or other charge imposed in connection with any
transfer involved in the issue and delivery of Common Shares in a name other
than that in which the shares of Convertible Preferred so converted were
registered.
13. No Dilution or Impairment.
The Corporation shall not amend its Certificate of
Incorporation or participate in any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, for the purpose of avoiding or seeking to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation.
14. No Reissuance of Convertible Preferred.
No share or shares of Convertible Preferred acquired by the
Corporation by reason of redemption, purchase, conversion or otherwise shall be
reissued other than in connection with a conversion of Series B-1 Preferred into
Series B-2 Preferred, or vice versa, or a conversion of Series C-1 Preferred
into Series C-2 Preferred, or vice versa.
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Article 5. BOARD OF DIRECTORS
5.1. Number; Election
The number of directors of the Corporation shall be such
number as from time to time shall be fixed by, or in the manner provided in, the
bylaws of the Corporation.
Subject to the rights of holders of any series of Preferred
Stock to elect additional directors under specified circumstances, following the
closing of the initial public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of Voting Common Stock to the public (the "Initial Public Offering"), the
directors shall be divided into three classes, as nearly equal in number as
possible, designated as Class I, Class II and Class III, respectively. Directors
shall be assigned to each class in accordance with a resolution or resolutions
adopted by the Board of Directors. At the first annual meeting of stockholders
following the closing of the Initial Public Offering, the term of office of the
Class I directors shall expire and Class I directors shall be elected for a full
term of three years. At the second annual meeting of stockholders following the
closing of the Initial Public Offering, the term of office of the Class II
directors shall expire and Class II directors shall be elected for a full term
of three years. At the third annual meeting of stockholders following the
closing of the Initial Public Offering, the term of office of the Class III
directors shall expire and Class III directors shall be elected for a full term
of three years. At each succeeding annual meeting of stockholders, directors
shall be elected for a full term of three years to succeed the directors of the
class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article 5,
each director shall serve until his or her successor is duly elected and
qualified or until his or her death, resignation or removal. No decrease in the
number of directors constituting the Board of Directors shall shorten the terms
of any incumbent director.
With respect to newly created directorships resulting from an
increase in the number of directors, the Board of Directors shall determine and
designate to which class of directorships each director belongs. Unless and
except to the extent that the bylaws of the Corporation shall otherwise require,
the election of directors of the Corporation need not be by written ballot.
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5.2. Management of Business and Affairs of the Corporation
The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors. Except as otherwise
provided in this Amended and Restated Certificate of Incorporation, each
director of the Corporation shall be entitled to one vote per director on all
matters voted or acted upon by the Board of Directors.
5.3. Vacancies; Resignation; Removal
Vacancies and newly created directorships resulting from any
increase in the number of directors constituting the whole Board of Directors
may be filled only by the affirmative vote of a majority of the directors then
in office, although fewer than a quorum, or by a sole remaining director.
Whenever the holders of any class or classes of stock or series thereof are
entitled to elect one or more directors by the provisions of this Amended and
Restated Certificate of Incorporation, vacancies and newly created directorships
of such class or classes or series may be filled by the affirmative vote of a
majority of the directors elected by such class or classes or series thereof
then in office, or by a sole remaining director so elected. Each director so
chosen shall hold office until the next election of directors of the class to
which such director was appointed, and until such director's successor is
elected and qualified, or until the director's earlier death, resignation or
removal. A director may resign at any time upon written notice to the
Corporation, and the resignation shall take effect at the time it specifies,
without any need for acceptance by the Board of Directors. In the event that one
or more directors resigns from the Board of Directors, effective at a future
date, a majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, with the vote
thereon to take effect when such resignation or resignations becomes effective.
Subject to the rights of any holder of Preferred Stock, directors may be removed
without cause only upon the affirmative vote of at least two-thirds of the
holders of all the then-outstanding shares of stock of the Corporation entitled
to vote generally in the election of directors, voting together as a single
class.
5.4. Limitation of Liability
No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that this provision shall not eliminate or limit
the liability of a director (a) for any breach of the director's duty of loyalty
to the Corporation or its stockholders, (b) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law, (c)
under Section 174 of the Delaware General Corporation Law or (d) for any
transaction from which the director derived an improper personal benefit. Any
repeal or modification of this Section 5.4 shall be prospective only and shall
not adversely affect any right or protection of, or any
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limitation of the liability of, a director of the Corporation existing at, or
arising out of facts or incidents occurring prior to, the effective date of such
repeal or modification.
Article 6. COMPROMISE OR ARRANGEMENTS
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
Article 7. SECTION 203 OF DELAWARE GENERAL CORPORATION LAW
The Corporation expressly elects not to be governed by Section
203 of the Delaware General Corporation Law.
Article 8. AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred
by the Delaware General Corporation Law, the Board of Directors of the
Corporation by majority vote is expressly authorized and empowered to adopt,
amend and repeal the bylaws of the Corporation.
Article 9. RESERVATION OF RIGHT TO AMEND CERTIFICATE OF INCORPORATION
The Corporation reserves the right at any time, and from time
to time, to amend, alter, change, or repeal any provision contained in this
Amended and Restated Certificate of Incorporation, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted, in the manner
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now or hereafter prescribed by law; and all rights, preferences, and privileges
of any nature conferred upon stockholders, directors or any other persons by and
pursuant to this Amended and Restated Certificate of Incorporation in its
present form or as hereafter amended are granted subject to the rights reserved
in this Article 8.
The approval of the holders of at least two-thirds of the
shares entitled to vote thereon and the approval of a majority of the entire
Board of Directors shall be required to amend, alter or repeal, or adopt any
provisions inconsistent with sections of this Amended and Restated Certificate
of Incorporation relating to the election, classification and removal of members
of the Board of Directors and the vote requirement for such amendment.
* * * * *
4. This Amended and Restated Certificate of Incorporation was
duly adopted by the Board of Directors of the Corporation in accordance with the
provisions of Sections 242 and 245 of the General Corporation Law of Delaware
and was duly adopted by vote of the stockholders of the Corporation in
accordance with the provisions of Sections 228 and 242 of the General
Corporation Law of Delaware.
IN WITNESS WHEREOF, the undersigned hereby certifies that the
facts hereinabove stated are truly set forth, and accordingly executes this
Amended and Restated Certificate of Incorporation this ____ day of
________________, 2000.
VIA NET.WORKS, INC.
By:
-------------------------------------------
Name: Matt S. Nydell
Title: Vice President, General Counsel and
Secretary
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Exhibit 3.1.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
VIA NET.WORKS, INC.
----------------------------------
Pursuant to Section 245 of the
General Corporation Law
of the State of Delaware
VIA NET.WORKS, INC., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
1. The Corporation was originally incorporated under the name
"Centennial International Access Corp." The present name of the Corporation is
VIA NET.WORKS, Inc.
2. The Certificate of Incorporation (as amended, the
"Certificate of Incorporation") of the Corporation was filed in the office of
the Secretary of State of the State of Delaware on June 13, 1997.
3. The text of the Certificate of Incorporation, as heretofore
amended, is hereby amended and restated to read in its entirety as follows:
Article 1. NAME
The name of this Corporation is VIA NET.WORKS, Inc.
Article 2. REGISTERED OFFICE AND AGENT
The registered office of the Corporation shall be located at
1013 Centre Road, in the City of Wilmington, County of New Castle, in the State
of Delaware. The registered agent for the Corporation at such address shall be
Corporation Services Company.
Article 3. PURPOSE AND POWERS
The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware (the "Delaware General Corporation
Law"). The
<PAGE>
Corporation shall have all power necessary or convenient to the conduct,
promotion or attainment of such acts and activities.
Article 4. CAPITAL STOCK
4.1. Authorized Shares
The total number of shares of all classes of stock that the
Corporation shall have the authority to issue is 142,500,000, of which
125,000,000 of such shares shall be common stock having a par value of $.001 per
share ("Voting Common Stock"), 7,500,000 of such shares shall be non-voting
common stock having a par value of $.001 per share ("Nonvoting Common Stock")
and 10,000,000 of such shares shall be preferred stock, having a par value of
$.001 per share ("Preferred Stock").
4.2. Voting Common Stock and Nonvoting Common Stock
4.2.1. Relative Rights and Conversion
Except as expressly provided by this Article 4, Voting Common
Stock and Nonvoting Common Stock (collectively, the "Common Shares") shall be
pari passu in all respects. Except as required by law, Nonvoting Common Stock
shall not be entitled to vote on any matter submitted for approval by the
Corporation's stockholders. If the Corporation shall in any manner subdivide (by
stock split, stock dividend or otherwise) or combine (by reverse stock split or
otherwise) the outstanding shares of Voting Common Stock, the outstanding shares
of Nonvoting Common Stock shall be proportionally subdivided or combined, and
vice versa. No dividends shall be declared and paid on Voting Common Stock
unless equivalent dividends are simultaneously paid on Nonvoting Common Stock,
and vice versa; provided, however, that in the case of a dividend payable in
shares of Voting Common Stock, the holders of Voting Common Stock shall receive
additional shares of Voting Common Stock and the holders of Nonvoting Common
Stock shall receive additional shares of Nonvoting Common Stock.
Nonvoting Common Stock shall be convertible into Voting Common
Stock on a share-for-share basis at the option of the holder thereof; provided,
however, that no holder of Nonvoting Common Stock shall be entitled to convert
any such shares into Voting Common Stock to the extent that, as a result of such
conversion, such holder and its Affiliates would directly or indirectly own,
control or have voting power with respect to a greater number of shares of stock
or other securities of the Corporation than such holder and its Affiliates would
be permitted to own, control or have voting power with respect thereto under any
law, regulation, rule or other requirement of any governmental authority at the
time applicable to such holder or its Affiliates, including without limitation
the Bank Holding Company Act of 1956, as amended, and the regulations thereunder
(the "BHCA").
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The Corporation shall not be required to record the conversion of, and no holder
shall be entitled to convert, shares of Nonvoting Common Stock into Voting
Common Stock unless such conversion is permitted under applicable law; provided,
however, that the Corporation shall be entitled to rely without independent
verification upon the representation of any holder that such conversion is
permitted under applicable law, and in no event shall the Corporation be liable
to such holder or any third party arising from any such conversion whether or
not permitted by applicable law. For the purposes of this Section 4.2.1.,
"Affiliates" shall mean, with respect to any person, any other person
Controlling, Controlled by or under common Control with such person. "Control"
-------
(including the terms "Controlled by" and "under common Control with") shall
------------- -------------------------
mean, as used with respect to any person, possession, directly or indirectly or
as a trustee or executor, of power to direct or cause the direction of
management or policies of such person (whether through ownership of voting
securities, as trustee or executor, by agreement or otherwise). "Person" shall
mean an individual, partnership, corporation, firm, association, joint stock
company, trust, joint venture, unincorporated organization, or governmental,
quasi-governmental or regulatory authority (or any department, agency or
political subdivision thereof), or any other legally recognized entity.
Each holder of Nonvoting Common Stock who desires to convert
the same into shares of Voting Common Stock pursuant to this Section 4.2.1 shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or any transfer agent for the Nonvoting Common Stock, and
shall give to the Corporation at such office (1) written notice that such holder
elects to convert the same and (2) a written representation certifying that such
conversion is permitted under applicable law. Such notice shall state the number
of shares of Nonvoting Common Stock being converted. Thereupon, the Corporation
shall promptly issue and deliver at such office to such holder a certificate or
certificates for the number of shares of Voting Common Stock to which such
holder is entitled. Such conversion shall be deemed to have been made at the
close of business on the date of such surrender of the certificate representing
the shares of Nonvoting Common Stock to be converted, and the person entitled to
receive the shares of Voting Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder of such Voting Common Stock on
such date.
In addition, the Common Shares shall be subject to all of the
rights, privileges, preferences and priorities of Preferred Stock as set forth
in the certificate of designations filed to establish the respective series of
Preferred Stock. Each share of Voting Common Stock shall have the same relative
rights as, and be identical in all respects to, all other shares of Voting
Common Stock.
4.2.2. Dividends
Whenever there shall have been paid, or declared and set aside
for payment, to the holders of shares of any class of stock having preference
over the
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Common Shares as to the payment of dividends, the full amount of dividends and
of sinking fund or retirement payments, if any, to which such holders are
respectively entitled in preference to the Common Shares, then dividends may be
paid on the Common Shares and on any class or series of stock entitled to
participate therewith as to dividends, out of any assets legally available for
the payment of dividends thereon, but only when and as declared by the Board of
Directors of the Corporation (the "Board of Directors").
4.2.3. Dissolution, Liquidation, Winding Up
In the event of any dissolution, liquidation, or winding up of
the Corporation, whether voluntary or involuntary, the holders of the Common
Shares, and holders of any class or series of stock entitled to participate
therewith, in whole or in part, as to the distribution of assets in such event,
shall become entitled to participate in the distribution of any assets of the
Corporation remaining after the Corporation shall have paid, or provided for
payment of, all debts and liabilities of the Corporation and after the
Corporation shall have paid, or set aside for payment, to the holders of any
class of stock having preference over the Common Shares in the event of
dissolution, liquidation or winding up the full preferential amounts (if any) to
which they are entitled.
4.2.4. Voting Rights
Each holder of shares of Voting Common Stock shall be entitled
to attend all special and annual meetings of the stockholders of the Corporation
and, share for share and without regard to class, together with the holders of
all other classes of stock entitled to attend such meetings and to vote (except
any class or series of stock having special voting rights), to cast one vote for
each outstanding share of Voting Common Stock so held upon any matter or thing
(including, without limitation, the election of one or more directors) properly
considered and acted upon by the stockholders.
4.2.5. Reservation of Voting Common Stock Issuable Upon
Conversion of Nonvoting Common Stock
The Corporation shall at all times reserve and keep available
out of its authorized but unissued shares of Voting Common Stock, solely for the
purpose of effecting the conversion of the shares of Nonvoting Common Stock,
such number of its shares of Voting Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of Nonvoting
Common Stock. If at any time the number of authorized but unissued shares of
Voting Common Stock shall not be sufficient to effect the conversion of all
then-outstanding shares of Nonvoting Common Stock, the Corporation will take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Voting Common Stock to such
number of shares as shall be sufficient for such purpose.
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4.3. Preferred Stock
The Board of Directors is authorized, subject to limitations
prescribed by the Delaware General Corporation Law and the provisions of this
Amended and Restated Certificate of Incorporation, to provide, by resolution or
resolutions from time to time and by filing a certificate of designations
pursuant to the Delaware General Corporation Law, for the issuance of the shares
of Preferred Stock in series, to establish from time to time the number of
shares to be included in each such series, to fix the powers, designations,
preferences and relative, participating, optional or other special rights of the
shares of each such series and to fix the qualifications, limitations or
restrictions thereof.
Article 5. BOARD OF DIRECTORS
5.1. Number; Election
The number of directors of the Corporation shall be such
number as from time to time shall be fixed by, or in the manner provided in, the
bylaws of the Corporation.
Subject to the rights of holders of any series of Preferred
Stock to elect additional directors under specified circumstances, following the
closing of the initial public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of Voting Common Stock to the public (the "Initial Public Offering"), the
directors shall be divided into three classes, as nearly equal in number as
possible, designated as Class I, Class II and Class III, respectively. Directors
shall be assigned to each class in accordance with a resolution or resolutions
adopted by the Board of Directors. At the first annual meeting of stockholders
following the closing of the Initial Public Offering, the term of office of the
Class I directors shall expire and Class I directors shall be elected for a full
term of three years. At the second annual meeting of stockholders following the
closing of the Initial Public Offering, the term of office of the Class II
directors shall expire and Class II directors shall be elected for a full term
of three years. At the third annual meeting of stockholders following the
closing of the Initial Public Offering, the term of office of the Class III
directors shall expire and Class III directors shall be elected for a full term
of three years. At each succeeding annual meeting of stockholders, directors
shall be elected for a full term of three years to succeed the directors of the
class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article 5,
each director shall serve until his or her successor is duly elected and
qualified or until his or her death, resignation or removal. No decrease in the
number of directors constituting the Board of Directors shall shorten the terms
of any incumbent director.
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With respect to newly created directorships resulting from an
increase in the number of directors, the Board of Directors shall determine and
designate to which class of directorships each director belongs. Unless and
except to the extent that the bylaws of the Corporation shall otherwise require,
the election of directors of the Corporation need not be by written ballot.
5.2. Management of Business and Affairs of the Corporation
The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors. Except as otherwise
provided in this Amended and Restated Certificate of Incorporation, each
director of the Corporation shall be entitled to one vote per director on all
matters voted or acted upon by the Board of Directors.
5.3. Vacancies; Resignation; Removal
Vacancies and newly created directorships resulting from any
increase in the number of directors constituting the whole Board of Directors
may be filled only by the affirmative vote of a majority of the directors then
in office, although fewer than a quorum, or by a sole remaining director.
Whenever the holders of any class or classes of stock or series thereof are
entitled to elect one or more directors by the provisions of this Amended and
Restated Certificate of Incorporation, vacancies and newly created directorships
of such class or classes or series may be filled by the affirmative vote of a
majority of the directors elected by such class or classes or series thereof
then in office, or by a sole remaining director so elected. Each director so
chosen shall hold office until the next election of directors of the class to
which such director was appointed, and until such director's successor is
elected and qualified, or until the director's earlier death, resignation or
removal. A director may resign at any time upon written notice to the
Corporation, and the resignation shall take effect at the time it specifies,
without any need for acceptance by the Board of Directors. In the event that one
or more directors resigns from the Board of Directors, effective at a future
date, a majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, with the vote
thereon to take effect when such resignation or resignations becomes effective.
Subject to the rights of any holder of Preferred Stock, directors may be removed
without cause only upon the affirmative vote of at least two-thirds of the
holders of all the then-outstanding shares of stock of the Corporation entitled
to vote generally in the election of directors, voting together as a single
class.
5.4. Limitation of Liability
No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director,
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provided that this provision shall not eliminate or limit the liability of a
director (a) for any breach of the director's duty of loyalty to the Corporation
or its stockholders, (b) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (c) under Section
174 of the Delaware General Corporation Law or (d) for any transaction from
which the director derived an improper personal benefit. Any repeal or
modification of this Section 5.4 shall be prospective only and shall not
adversely affect any right or protection of, or any limitation of the liability
of, a director of the Corporation existing at, or arising out of facts or
incidents occurring prior to, the effective date of such repeal or modification.
Article 6. COMPROMISE OR ARRANGEMENTS
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
Article 7. SECTION 203 OF DELAWARE GENERAL CORPORATION LAW
The Corporation expressly elects not to be governed by Section
203 of the Delaware General Corporation Law.
Article 8. AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred
by the Delaware General Corporation Law, the Board of Directors of the
Corporation by majority vote is expressly authorized and empowered to adopt,
amend and repeal the bylaws of the Corporation.
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Article 9. RESERVATION OF RIGHT TO AMEND CERTIFICATE OF INCORPORATION
The Corporation reserves the right at any time, and from time
to time, to amend, alter, change, or repeal any provision contained in this
Amended and Restated Certificate of Incorporation, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted, in the manner now or hereafter prescribed by law; and all
rights, preferences, and privileges of any nature conferred upon stockholders,
directors or any other persons by and pursuant to this Amended and Restated
Certificate of Incorporation in its present form or as hereafter amended are
granted subject to the rights reserved in this Article 8.
The approval of the holders of at least two-thirds of the
shares entitled to vote thereon and the approval of a majority of the entire
Board of Directors shall be required to amend, alter or repeal, or adopt any
provisions inconsistent with sections of this Amended and Restated Certificate
of Incorporation relating to the election, classification and removal of members
of the Board of Directors and the vote requirement for such amendment.
* * * * *
4. This Amended and Restated Certificate of Incorporation was
duly adopted by the Board of Directors of the Corporation in accordance with the
provisions of Sections 242 and 245 of the General Corporation Law of Delaware
and was duly adopted by vote of the stockholders of the Corporation in
accordance with the provisions of Sections 228 and 242 of the General
Corporation Law of Delaware.
IN WITNESS WHEREOF, the undersigned hereby certifies that the
facts hereinabove stated are truly set forth, and accordingly executes this
Amended and Restated Certificate of Incorporation this ____ day of
________________, 2000.
VIA NET.WORKS, INC.
By:
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Name: Matt S. Nydell
Title: Vice President, General Counsel
and Secretary
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Exhibit 3.2
AMENDED AND RESTATED BYLAWS
OF
VIA NET.WORKS, INC.
1. OFFICES
1.1. Registered Office
The registered office of the Corporation shall be in Wilmington,
Delaware.
1.2. Other Offices
The Corporation may also have offices at such other places, both
within and without the State of Delaware, as the Board of Directors of the
Corporation (the "Board") may from time to time determine or as may be
necessary or useful in connection with the business of the Corporation.
2. MEETINGS OF STOCKHOLDERS
2.1. Place of Meetings
All meetings of the stockholders shall be held at such place as may be
fixed from time to time by the Board, the Chairperson, Chief Executive Officer
or the President.
2.2. Annual Meetings
(a) The Corporation shall hold annual meetings of stockholders on such
date and at such time as shall be designated from time to time by the Board, the
Chairperson, the Chief Executive Officer or the President. At each annual
meeting, the stockholders shall elect by a plurality vote (as provided in
Section 2.9 hereof) directors to succeed those whose terms expire at the time of
the annual meeting. The nomination of persons for election to the Board and the
proposal of any other business to be transacted at an annual meeting may be made
only (i) by or at the direction of the Board or (ii) by any stockholder of
record who gives notice in accordance with the procedures set forth in paragraph
(b) of this Section 2.2 and who is a stockholder of record both on the date of
giving such notice and on the
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record date for the determination of stockholders entitled to vote at such
annual meeting; only persons thereby nominated shall be eligible to serve as
directors and only business thereby proposed shall be transacted at an annual
meeting. The presiding officer of the annual meeting shall determine whether a
nomination or any proposal of business complies or complied with this Section
2.2.
(b) For nominations and other business to be brought properly before
an annual meeting by a stockholder pursuant to clause (ii) of paragraph (a) of
this Section 2.2, the stockholder must deliver notice to the Secretary of the
Corporation at the principal executive offices of the Corporation in accordance
with this Section 2.2(b). The notice must be received by the Secretary not less
than 60 days nor more than 90 days prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
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date of the annual meeting is advanced by more than 30 days or delayed by more
than 60 days from such anniversary date, the stockholder must so deliver the
notice not earlier than the 90th day prior to such annual meeting and not later
than the close of business on the later of the 60th day prior to such annual
meeting or the tenth day following the day on which public announcement of the
date of such meeting is first made; provided further, however, that in the event
-------- ------- -------
that the number of directors to be elected to the Board is increased and there
is no public announcement naming all of the nominees for director or specifying
the size of the increased Board made by the Corporation at least 70 days prior
to the first anniversary of the preceding annual meeting, with respect to
nominees for any new position created by the increase, the stockholder must so
deliver the notice not later than the close of business on the tenth day
following the day on which such public announcement is first made. The
stockholder's notice must set forth: (i) as to each person whom the stockholder
proposes to nominate for election or reelection as a director, all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors pursuant to Section 14(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and the rules and
regulations thereunder (together with such person's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected), whether or not the Corporation is then subject to Section 14(a) and
such rules and regulations; (ii) as to any other business that the stockholder
proposes to transact at the meeting, a brief description of the business desired
to be brought before the meeting, the reasons for conducting the business at the
meeting and any material interest in the business of the stockholder and of the
beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made, the name and address of the
stockholder, as they appear on the Corporation's books, and of such beneficial
owner, the class and number of shares of the Corporation that are owned
beneficially and of record by such stockholder and such beneficial owner and a
representation that the stockholder intends to appear in person or by proxy at
the annual meeting to bring such business before the meeting. For purposes of
this Section 2.2 and Section 2.3 hereof, a "public announcement" means
disclosure in
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a press release reported by the Dow Jones News Service, Associated Press or
comparable news service, in a document publicly filed with the Securities and
Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act (or
their successor provisions), or in a notice of meeting or proxy statement mailed
generally to the Corporation's stockholders. In giving notice under this Section
2.2, a stockholder must also comply with state law and the Exchange Act (and the
rules and regulations thereunder). Nothing in this Section 2.2 shall be deemed
to affect the rights of a stockholder to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 (or its successor
provision) under the Exchange Act.
2.3. Special Meetings
Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute, may be called only by the Board, the
Chairperson, the Chief Executive Officer, or the President or by the holders of
a majority of the then outstanding shares of stock of the Corporation entitled
to vote generally in the election of directors. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice relating to such meeting (or to the purposes for which the meeting is
called if such notice is waived or is not required as provided in the General
Corporation Law of the State of Delaware (the "Delaware General Corporation
Law") or these Bylaws). In the case of a special meeting of stockholders called
for the purpose of electing directors, nominations may be made only (i) by or at
the direction of the Board or (ii) by any stockholder of record who delivers to
the Secretary, no later than the tenth day following the day on which public
announcement of the special meeting is made, a notice that complies with and is
delivered in accordance with Section 2.2(b) above.
2.4. Notice of Meetings
Written notice of any meeting of stockholders, stating the place, date
and hour of the meeting, and (if it is a special meeting) the purpose or
purposes for which the meeting is called, shall be given to each stockholder
entitled to vote at such meeting not less than ten nor more than 60 days before
the date of the meeting (except to the extent that such notice is waived or is
not required as provided in the Delaware General Corporation Law or these
Bylaws). Such notice shall be given in accordance with, and shall be deemed
effective as set forth in, Section 222 (or any successor section) of the
Delaware General Corporation Law.
2.5. Waivers of Notice
Whenever the giving of any notice is required by statute, the
Certificate of Incorporation or these Bylaws, a waiver thereof, in writing and
delivered to the Corporation, signed by the person or persons entitled to said
notice,
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whether before or after the event as to which such notice is required, shall be
deemed equivalent to notice. Attendance of a stockholder at a meeting shall
constitute a waiver of notice (1) of such meeting, except when the stockholder
at the beginning of the meeting objects to holding the meeting or transacting
business at the meeting, and (2) (if it is a special meeting) of consideration
of a particular matter at the meeting that is not within the purpose or purposes
described in the meeting notice, unless the stockholder objects to considering
the matter at the time during the meeting at which the matter is first
identified as a matter to be considered at the meeting.
2.6. List of Stockholders
After the record date for a meeting of stockholders has been fixed, at
least ten days before such meeting, the officer who has charge of the stock
ledger of the Corporation shall make a list of all stockholders entitled to vote
at the meeting, arranged in alphabetical order and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place in the city where the meeting
is to be held, which place is to be specified in the notice of the meeting, or
at the place where the meeting is to be held. Such list shall also, for the
duration of the meeting, be produced and kept open to the examination of any
stockholder who is present at the time and place of the meeting.
2.7. Quorum at Meetings
Stockholders may take action on a matter at a meeting only if a quorum
exists with respect to that matter. Except as otherwise provided by statute or
by the Certificate of Incorporation, the holders of a majority of the shares
entitled to vote at the meeting, and who are present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business. Where a separate vote by a class or classes is
required, a majority of the outstanding shares of such class or classes, present
in person or represented by proxy, shall constitute a quorum entitled to take
action with respect to that vote on that matter. Once a share is represented for
any purpose at a meeting (other than solely to object (1) to holding the meeting
or transacting business at the meeting, or (2) (if it is a special meeting) to
consideration of a particular matter at the meeting that is not within the
purpose or purposes described in the meeting notice), it is deemed present for
quorum purposes for the remainder of the meeting and for any adjournment of that
meeting unless a new record date is or must be set for the adjourned meeting.
The holders of a majority of the voting shares represented at a meeting, whether
or not a quorum is present, may adjourn such meeting from time to time.
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2.8. Voting and Proxies
Unless otherwise provided in the Delaware General Corporation Law or
in the Corporation's Certificate of Incorporation, and subject to the other
provisions of these Bylaws, each stockholder shall be entitled to one vote on
each matter, in person or by proxy, for each share of the Corporation's capital
stock that has voting power and that is held by such stockholder. No proxy shall
be voted or acted upon after three years from its date, unless the proxy
provides for a longer period. A duly executed appointment of proxy shall be
irrevocable if the appointment form states that it is irrevocable and if, and
only as long as, it is coupled with an interest sufficient in law to support an
irrevocable power.
2.9. Required Vote
When a quorum is present at any meeting of stockholders, all matters
shall be determined, adopted and approved by the affirmative vote (which need
not be by ballot) of the holders of a majority of the shares present in person
or represented by proxy at the meeting and entitled to vote with respect to the
matter, unless the proposed action is one upon which, by express provision of
statutes or of the Certificate of Incorporation, a different vote is specified
and required, in which case such express provision shall govern and control with
respect to that vote on that matter. Where a separate vote by a class or classes
is required, the affirmative vote of the holders of a majority of the shares of
such class or classes present in person or represented by proxy at the meeting
shall be the act of such class. Notwithstanding the foregoing, directors shall
be elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors.
2.10. Action Without a Meeting
Any action required or permitted to be taken at a stockholders'
meeting may be taken without a meeting, without prior notice and without a vote,
if the action is taken by persons who would be entitled to vote at a meeting and
who hold shares having voting power equal to not less than the minimum number of
votes of each class or series that would be necessary to authorize or take the
action at a meeting at which all shares of each class or series entitled to vote
were present and voted. The action must be evidenced by one or more written
consents describing the action taken, signed by the stockholders entitled to
take action without a meeting, and delivered to the Corporation in the manner
prescribed by the Delaware General Corporation Law for inclusion in the minute
book. No consent shall be effective to take the corporate action specified
unless the number of consents required to take such action are delivered to the
Corporation within sixty days of the delivery of the earliest-dated consent.
Written notice of the action taken shall be given in accordance with the
Delaware General Corporation Law to all stockholders who do not participate in
taking the action who would have been
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entitled to notice if such action had been taken at a meeting having a record
date on the date that written consents signed by a sufficient number of holders
to take the action were delivered to the Corporation.
2.11. Inspectors
Prior to any meeting of stockholders, the Board, the Chief Executive
Officer, or the President shall appoint one or more inspectors to act at such
meeting and make a written report thereof and may designate one or more persons
as alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at the meeting of stockholders, the person
presiding at the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspectors shall ascertain the number of shares outstanding and the
voting power of each, determine the shares represented at the meeting and the
validity of proxies and ballots, count all votes and ballots, determine and
retain for a reasonable period a record of the disposition of any challenges
made to any determination by the inspectors and certify their determination of
the number of shares represented at the meeting and their count of all votes and
ballots. The inspectors may appoint or retain other persons to assist them in
the performance of their duties. The date and time of the opening and closing of
the polls for each matter upon which the stockholders will vote at a meeting
shall be announced at the meeting. No ballot, proxy or vote, nor any revocation
thereof or change thereto, shall be accepted by the inspectors after the closing
of the polls. In determining the validity and counting of proxies and ballots,
the inspectors shall be limited to an examination of the proxies, any envelopes
submitted therewith, any information provided by a stockholder who submits a
proxy by telegram, cablegram or other electronic transmission from which it can
be determined that the proxy was authorized by the stockholder, ballots and the
regular books and records of the Corporation, and they may also consider other
reliable information for the limited purposes of reconciling proxies and ballots
submitted by or on behalf of banks, brokers, their nominees or similar persons
that represent more votes than the holder of a proxy is authorized by the record
owner to cast or more votes than the stockholder holds of record. If the
inspectors consider other reliable information for such purpose, they shall, at
the time they make their certification, specify the precise information
considered by them, including the person or persons from whom they obtained the
information, when the information was obtained, the means by which the
information was obtained and the basis for the inspectors' belief that such
information is accurate and reliable.
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3. Directors
3.1. Powers
The business and affairs of the Corporation shall be managed by or
under the direction of the Board, which may exercise all such powers of the
Corporation and do all such lawful acts and things, subject to any limitation
set forth in the Certificate of Incorporation or as otherwise may be provided in
the Delaware General Corporation Law.
3.2. Number and Election
The number of directors constituting the entire Board shall be not
less than three nor more than 15. The exact number of directors shall be set
within these limits from time to time by a resolution approved by not less than
two-thirds of the number of directors constituting the entire Board. Unless the
Certificate of Incorporation provides otherwise, the directorships (i.e., the
particular seats on the Board) shall be classified into three classes
(designated as Class I, Class II and Class III) as nearly equal in number as
possible.
The directors shall be elected at the annual meetings of the
stockholders, except as provided in Section 3.3 hereof, and each director
elected shall hold office until such director's successor is elected and
qualified or until the director's earlier death, resignation or removal.
Directors need not be stockholders.
3.3. Vacancies; Resignation
Vacancies and newly created directorships resulting from any increase
in the number of directors on the Board may be filled only by the affirmative
vote of a majority of the directors then in office, even if less than a quorum,
or by a sole remaining director. Whenever the holders of any class or classes of
stock or series thereof are entitled to elect one or more directors by the
provisions of the Certificate of Incorporation, vacancies and newly created
directorships of such class or classes or series may be filled by the
affirmative vote of a majority of the directors elected by such class or classes
or series thereof then in office, or by a sole remaining director so elected.
Each director so chosen shall hold office until the next annual meeting of
stockholders at which the terms of the other directors of the same class expire,
and until such director's successor is elected and qualified, or until the
director's earlier death, resignation or removal.
A director may resign at any time upon written notice to the
Corporation, and the resignation shall take effect at the time it specifies,
without any need for acceptance by the Board. In the event that one or more
directors resigns from the Board, effective at a future date, a majority of the
directors then in office, including those who have so resigned, shall have power
to fill such vacancy or
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vacancies, with the vote thereon to take effect when such resignation or
resignations becomes effective.
3.4. Meetings
3.4.1. Regular Meetings
Regular meetings of the Board may be held without notice at such time
and at such place as shall from time to time be determined by the Board.
3.4.2. Special Meetings
Special meetings of the Board may be called by the Chairperson, the
Chief Executive Officer or the President on one day's notice to each director,
either personally or by telephone, express delivery service (so that the
scheduled delivery date of the notice is at least one day in advance of the
meeting), telegram or facsimile transmission, and on five days' notice by mail
(effective upon deposit of such notice in the mail). The notice need not
describe the purpose of a special meeting.
3.4.3. Telephone Meetings
Members of the Board may participate in a meeting of the Board by any
communication by means of which all participating directors can simultaneously
hear each other during the meeting. A director participating in a meeting by
this means is deemed to be present in person at the meeting.
3.4.4. Action Without Meeting
Any action required or permitted to be taken at any meeting of the
Board may be taken without a meeting if the action is taken by all members of
the Board. The action must be evidenced by one or more written consents
describing the action taken, signed by each director, and delivered to the
Corporation for inclusion in the minute book.
3.4.5. Waiver of Notice of Meeting
A director may waive any notice required by statute, the Certificate
of Incorporation or these Bylaws before or after the date and time stated in the
notice. Except as set forth below, the waiver must be in writing, signed by the
director entitled to the notice, and delivered to the Corporation for inclusion
in the minute book. Notwithstanding the foregoing, a director's attendance at or
participation in a meeting waives any required notice to the director of the
meeting unless the director at the beginning of the meeting objects to holding
the meeting or transacting business at the meeting and does not thereafter vote
for or assent to action taken at the meeting.
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<PAGE>
3.5. Quorum and Vote at Meetings
At all meetings of the Board, a quorum of the Board consists of a
majority of the total number of directors comprising the full Board as
established pursuant to Section 3.2 of these Bylaws. The vote of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the Board, except as may be otherwise specifically provided by statute or by
the Certificate of Incorporation or by these Bylaws.
3.6. Committees of Directors
The Board may designate one or more committees, each committee to
consist of one or more directors. The Board may designate one or more directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. If a member of a committee
shall be absent from any meeting, or disqualified from voting thereat, the
remaining member or members present and not disqualified from voting, whether or
not such member or members constitute a quorum, may, by unanimous vote, appoint
another member of the Board to act at the meeting in the place of such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board, shall have and may exercise all the powers and
authority of the Board in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers that may require it; but no such committee shall have the power or
authority in reference to approving or adopting, or recommending to the
stockholders, any action or matter expressly required by the Delaware General
Corporation Law to be submitted to stockholders for approval or adopting,
amending or repealing any Bylaw of the Corporation; and unless the resolution
designating the committee, these Bylaws or the Certificate of Incorporation
expressly so provide, no such committee shall have the power or authority to
declare a dividend, to authorize the issuance of stock, or to adopt a
certificate of ownership and merger pursuant to Section 253 of the Delaware
General Corporation Law. Such committee or committees shall have such name or
names as may be determined from time to time by resolution adopted by the Board.
Each committee shall keep regular minutes of its meetings and report the same to
the Board, when required. Unless otherwise specified in the Board resolution
appointing the Committee, all provisions of the Delaware General Corporation Law
and these Bylaws relating to meetings, action without meetings, notice (and
waiver thereof), and quorum and voting requirements of the Board apply, as well,
to such committees and their members. Notwithstanding anything herein to the
contrary, the presence of at least 50% of the members of the Finance Committee
of the corporation shall constitute a quorum of the Finance Committee.
3.7. Compensation of Directors
The Board shall have the authority to fix the compensation of
directors. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
-9-
<PAGE>
4. Officers
4.1. Positions
The officers of the Corporation shall be a Chairperson, a Chief
Executive Officer, a President, a Chief Operating Officer, a Chief Financial
Officer, a Treasurer, and a Secretary, and such other officers as the Board (or
an officer authorized by the Board) from time to time may appoint, including one
or more Vice Chairpersons, Executive Vice Presidents, Senior Vice Presidents,
Vice Presidents, Assistant Secretaries and Assistant Treasurers. Each such
officer shall exercise such powers and perform such duties as shall be set forth
below and such other powers and duties as from time to time may be specified by
the Board or by any officer(s) authorized by the Board to prescribe the duties
of such other officers. Any number of offices may be held by the same person,
except that in no event shall the President and the Secretary be the same
person. Each of the Chairperson, Chief Executive Officer, President, Chief
Operating Officer, Chief Financial Officer and/or any Vice President may execute
bonds, mortgages, contracts, and other instruments and documents under the seal
of the Corporation, if required, except where required or permitted by law to be
otherwise executed and except where the execution thereof shall be expressly
delegated by the Board to some other officer or agent of the Corporation.
4.2. Chairperson
The Chairperson shall (when present and unless otherwise provided by
resolution of the Board or delegated by the Chairperson) preside at all meetings
of the Board and stockholders, and shall ensure that all orders and resolutions
of the Board and stockholders are carried into effect.
4.3. Chief Executive Officer
The Chief Executive Officer of the Corporation shall see that all
orders and resolutions of the Board are carried into effect and shall oversee
the strategic planning and policy development of the Corporation. The Chief
Executive Officer shall have the authority to execute bonds, mortgages and other
contracts requiring a seal, under the seal of the Corporation, except where
required by law to be otherwise signed and executed and except where the signing
and execution thereof shall be expressly delegated by the Board to some other
officer or agent of the Corporation. The Chief Executive Officer shall perform
other duties commonly incident to this office and shall perform such other
duties and have such other powers as the Board may from time to time prescribe.
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<PAGE>
4.4. President
The President shall have general supervision of the business of the
Corporation. In the event the position of Chairperson shall not be occupied or
the Chairperson shall be absent or otherwise unable to act, the President shall
preside at meetings of the stockholders and directors and shall discharge the
duties of the presiding officer. The President shall have the authority to
execute bonds, mortgages and other contracts requiring a seal under the seal of
the Corporation, except where required by law to be otherwise signed and
executed and except where the signing and execution thereof shall be expressly
delegated by the Board to some other officer or agent of the Corporation. The
President shall perform whatever duties the Board may from time to time
prescribe.
4.5. Chief Operating Officer
The Board may designate a Chief Operating Officer who shall have such
responsibilities and duties as are assigned by the Chief Executive Officer, the
President, the Board or the Executive Committee (if any).
4.6. Chief Financial Officer
The Board may designate a Chief Financial Officer who shall have such
responsibilities and duties as are assigned by the Chief Executive Officer, the
President, the Board or the Executive Committee (if any). Such responsibilities
may include all responsibilities assumed by the Treasurer, and may also include
the management of any and all Treasurers and Assistant Treasurers.
4.7. Executive Vice President
The Board may designate one or more Executive Vice Presidents who
shall have such responsibilities and duties as are assigned by the Chief
Executive Officer, the President, the Board or the Executive Committee (if any).
The responsibilities of any such Executive Vice President may include all
responsibilities assumed by any Senior Vice President or Vice President, and may
also include the management of any and all Senior Vice Presidents and Vice
Presidents.
4.8. Senior Vice President
The Board may designate one or more Senior Vice Presidents who shall
have such responsibilities and duties as are assigned by the Chief Executive
Officer, the President, the Board or the Executive Committee (if any). The
responsibilities
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<PAGE>
of any such Senior Vice President may include all responsibilities assumed by
any Vice President, and may also include the management of any and all Vice
Presidents.
4.9. Vice Presidents
In the absence of the Chief Executive Officer and the President, or in
the event of the inability or refusal to act by the Chief Executive Officer and
the President, the Vice President (or in the event there is more than one Vice
President, the Vice Presidents in the order designated, or in the absence of any
designation, then in the order of their election) shall perform the duties of
the President, and when so acting shall have all the powers of, and be subject
to all the restrictions upon, the President. Unless the order is otherwise
designated, (i) the Chief Operating Officer shall come in order before any
Executive Vice President, Senior Vice President and any Vice President and (ii)
the Chief Operating Officer, any Executive Vice President and Senior Vice
President shall come in order before any Vice President.
4.10. Secretary
The Secretary shall have responsibility for preparation of minutes of
meetings of the Board and of the stockholders and for authenticating records of
the Corporation. The Secretary shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board. The Secretary or
an Assistant Secretary may also attest all instruments signed by any other
officer of the Corporation.
4.11. Assistant Secretary
The Assistant Secretary, or if there be more than one, the Assistant
Secretaries in the order determined by the Board (or if there shall have been no
such determination, then in the order of their election), shall, in the absence
of the Secretary or in the event of the Secretary's inability or refusal to act,
perform the duties and exercise the powers of the Secretary.
4.12. Treasurer
The Treasurer, if one is appointed, shall have responsibility for the
custody of the corporate funds and securities and shall see to it that full and
accurate accounts of receipts and disbursements are kept in books belonging to
the Corporation. The Treasurer, if one is appointed, shall render to the
Chairperson, the Chief Executive Officer, the President, the Chief Financial
Officer, and the Board, upon request, an account of all financial transactions
and of the financial condition of the Corporation.
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<PAGE>
4.13. Assistant Treasurer
The Assistant Treasurer, or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board (or if there shall
have been no such determination, then in the order of their election), shall, in
the absence of the Treasurer or in the event of the Treasurer's inability or
refusal to act, perform the duties and exercise the powers of the Treasurer.
4.14. Term of Office
The officers of the Corporation shall hold office until their
successors are chosen and qualify or until their earlier resignation or removal.
Any officer may resign at any time upon written notice to the Corporation. Any
officer elected or appointed by the Board may be removed at any time, with or
without cause, by the affirmative vote of a majority of the Board.
4.15. Compensation
The compensation of officers of the Corporation shall be fixed by the
Board or by any officer(s) authorized by the Board to prescribe the compensation
of such other officers.
4.16. Fidelity Bonds
The Corporation may secure the fidelity of any or all of its officers
or agents by bond or otherwise.
5. Capital Stock
5.1. Certificates of Stock; Uncertificated Shares
The shares of the Corporation shall be represented by certificates,
provided that the Board may provide by resolution that some or all of any or all
classes or series of the Corporation's stock shall be uncertificated shares. Any
such resolution shall not apply to shares represented by a certificate until the
certificate is surrendered to the Corporation. Notwithstanding the adoption of
such a resolution by the Board, every holder of stock represented by
certificates, and upon request every holder of uncertificated shares, shall be
entitled to have a certificate (representing the number of shares registered in
certificate form) signed in the name of the Corporation by the Chairperson, the
President, or any Vice President, and by the Treasurer, Secretary or any
Assistant Treasurer or Assistant Secretary of the Corporation. Any or all the
signatures on the certificate may be facsimile. In case any officer, transfer
agent or registrar whose signature or facsimile signature appears on a
certificate shall have ceased to be such officer, transfer agent or
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<PAGE>
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if such person were such officer, transfer agent or
registrar at the date of issue.
5.2. Lost Certificates
The Board, Chairperson, Chief Executive Officer, President or
Secretary may direct a new certificate of stock to be issued in place of any
certificate theretofore issued by the Corporation and alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming that the certificate of stock has been lost, stolen or destroyed. When
authorizing such issuance of a new certificate, the Board or any such officer
may, as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or certificates, or such owner's legal
representative, to advertise the same in such manner as the Board or such
officer shall require and/or to give the Corporation a bond or indemnity, in
such sum or on such terms and conditions as the Board or such officer may
direct, as indemnity against any claim that may be made against the Corporation
on account of the certificate alleged to have been lost, stolen or destroyed or
on account of the issuance of such new certificate or uncertificated shares.
5.3. Record Date
5.3.1. Actions by Stockholders
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders, the Board may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board, and which record date
shall not be more than 60 days nor less than ten days before the date of such
meeting. If no record date is fixed by the Board, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be the close of business on the day next preceding the day on
which notice is given, or, if notice is waived, at the close of business on the
day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting, unless the Board
fixes a new record date for the adjourned meeting.
In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board, and which record date
shall not be more than ten days after the date upon which the resolution fixing
the record date is adopted by the Board. If no record date has been fixed by the
Board, the record date for determining stockholders entitled to consent to
corporate action in writing
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<PAGE>
without a meeting, when no prior action by the Board is required by the Delaware
General Corporation Law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the Corporation in the manner prescribed by Section 213(b) of the Delaware
General Corporation Law. If no record date has been fixed by the Board and prior
action by the Board is required by the Delaware General Corporation Law, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting shall be at the close of business on the day on
which the Board adopts the resolution taking such prior action.
5.3.2. Payments
In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board may fix a record date, which record date shall not precede the
date upon which the resolution fixing the record date is adopted, and which
record date shall be not more than 60 days prior to such action. If no record
date is fixed, the record date for determining stockholders for any such purpose
shall be at the close of business on the day on which the Board adopts the
resolution relating thereto.
5.4. Stockholders of Record
The Corporation shall be entitled to recognize the exclusive right of
a person registered on its books as the owner of shares to receive dividends, to
receive notifications, to vote as such owner, and to exercise all the rights and
powers of an owner. The Corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise may be provided by the Delaware General Corporation Law.
6. INDEMNIFICATION; INSURANCE
6.1. Authorization of Indemnification
Each person who was or is a party or is threatened to be made a party
to or is involved in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative and whether
by or in the right of the Corporation or otherwise (a "proceeding"), by reason
of the fact that he or she is or was a director or officer of the Corporation or
is or was serving at the request of the Corporation as a director or officer of
another corporation or of a partnership, joint venture, limited liability
company, trust or other enterprise, including service with respect to an
employee benefit plan, shall be (and shall be
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<PAGE>
deemed to have a contractual right to be) indemnified and held harmless by the
Corporation (and any successor to the Corporation by merger or otherwise) to the
fullest extent authorized by, and subject to the conditions and (except as
provided herein) procedures set forth in, the Delaware General Corporation Law,
as the same exists or may hereafter be amended (but any such amendment shall not
be deemed to limit or prohibit the rights of indemnification hereunder for past
acts or omissions of any such person insofar as such amendment limits or
prohibits the indemnification rights that said law permitted the Corporation to
provide prior to such amendment), against all expenses, liabilities and losses
(including attorneys' fees, judgments, fines, ERISA taxes or penalties and
amounts paid or to be paid in settlement) actually and reasonably incurred or
suffered by such person in connection therewith if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal
proceeding, had no reasonable cause to believe such person's conduct was
unlawful; provided, however, that the Corporation shall indemnify any such
-------- -------
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person (except for a suit or action pursuant to Section 6.2
hereof) only if such proceeding (or part thereof) was authorized by the Board.
Persons who are not directors or officers of the Corporation and are not so
serving at the request of the Corporation may be similarly indemnified in
respect of such service to the extent authorized at any time by the Board. The
indemnification conferred in this Section 6.1 also shall include the right to be
paid by the Corporation (and such successor) the expenses (including attorneys'
fees) incurred in the defense of or other involvement in any such proceeding in
advance of its final disposition; provided, however, that if and to the extent
-------- -------
the Delaware General Corporation Law requires, the payment of such expenses
(including attorneys' fees) incurred by a director or officer in advance of the
final disposition of a proceeding shall be made only upon delivery to the
Corporation of an undertaking by or on behalf of such director or officer to
repay all amounts so paid in advance if it shall ultimately be determined that
such director or officer is not entitled to be indemnified under this Section
6.1 or otherwise; and provided further, that, such expenses incurred by other
-------- -------
employees and agents may be so paid in advance upon such terms and conditions,
if any, as the Board deems appropriate.
6.2. Right of Claimant to Bring Action Against the Corporation
If a claim under Section 6.1 is not paid in full by the Corporation
within 60 days after a written claim has been received by the Corporation, the
claimant may at any time thereafter bring an action against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of prosecuting such
action. It shall be a defense to any such action (other than an action brought
to enforce a claim for expenses incurred in connection with any proceeding in
advance of its final disposition where the required undertaking, if any is
required, has been
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<PAGE>
tendered to the Corporation) that the claimant has not met the standards of
conduct that make it permissible under the Delaware General Corporation Law for
the Corporation to indemnify the claimant for the amount claimed or is otherwise
not entitled to indemnification under Section 6.1, but the burden of proving
such defense shall be on the Corporation. The failure of the Corporation to have
made a determination (in the manner provided under the Delaware General
Corporation Law) prior to or after the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or she
has met the applicable standard of conduct set forth in the Delaware General
Corporation Law shall not be a defense to the action or create a presumption
that the claimant has not met the applicable standard of conduct. Unless
otherwise specified in an agreement with the claimant, an actual determination
by the Corporation (in the manner provided under the Delaware General
Corporation Law) after the commencement of such action that the claimant has not
met such applicable standard of conduct shall not be a defense to the action,
but shall create a presumption that the claimant has not met the applicable
standard of conduct.
6.3. Non-exclusivity
The rights to indemnification and advance payment of expenses provided
by Section 6.1 hereof shall not be deemed exclusive of any other rights to which
those seeking indemnification and advance payment of expenses may be entitled
under any Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office.
6.4. Survival of Indemnification
The indemnification and advance payment of expenses and rights thereto
provided by, or granted pursuant to, Section 6.1 hereof shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee, partner or agent and shall inure to the
benefit of the personal representatives, heirs, executors and administrators of
such person.
6.5. Insurance
The Corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee, 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 such person or
incurred by such person in any such capacity, or arising out of such person's
status as such, and related expenses,
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<PAGE>
whether or not the Corporation would have the power to indemnify such person
against such liability under the provisions of the Delaware General Corporation
Law.
7. General Provisions
7.1. Inspection of Books and Records
Any stockholder, in person or by attorney or other agent, shall, upon
written demand under oath stating the purpose thereof, have the right during the
usual hours for business to inspect for any proper purpose the Corporation's
stock ledger, a list of its stockholders, and its other books and records, and
to make copies or extracts therefrom. A proper purpose shall mean a purpose
reasonably related to such person's interest as a stockholder. In every instance
where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
Corporation at its registered office or at its principal place of business.
7.2. Dividends
The Board may declare dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation and
the laws of the State of Delaware.
7.3. Reserves
The directors of the Corporation may set apart, out of the funds of
the Corporation available for dividends, a reserve or reserves for any proper
purpose and may abolish any such reserve.
7.4. Execution of Instruments
All checks, drafts or other orders for the payment of money, and
promissory notes of the Corporation shall be signed by such officer or officers
or such other person or persons as the Board may from time to time designate.
7.5. Fiscal Year
The fiscal year of the Corporation shall be fixed by resolution of the
Board.
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<PAGE>
7.6. Seal
The corporate seal shall be in such form as the Board shall approve.
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or otherwise reproduced.
* * * * *
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<PAGE>
EXHIBIT 4.1
[LOGO OF VIA NET.WORKS, INC. APPEARS HERE]
COMMON STOCK COMMON STOCK
NUMBER SHARES
VIA NET.WORKS, INC.
SEE REVERSE FOR CERTAIN DEFINITIONS CUSIP 925912 10 7
AND STATEMENTS AS TO THE RIGHTS. PREFERENCES,
PRIVILEGES AND RESTRICTIONS ON SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
This certifies that
is the owner of
fully paid and non-assessable shares of common stock, par value $.001 per share
of
VIA NET.WORKS, INC.
(the "Corporation"), a Delaware Corporation
The shares represented by this certificate are transferable only on the
stock transfer books of the Corporation by the holder of record hereof or by
duly authorized attorney upon the surrender of this certificate properly
endorsed. This certificate is not valid until countersigned and registered by
the Corporation's Transfer agent and Registrar.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
executed by the facsimile signatures of its duly authorized officers and has
caused a facsimile of its corporate seal to be hereunto affixed.
Dated:
[SEAL OF VIA NET.WORKS, INC. APPEARS HERE]
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
The corporation is authorized to issue more than one class or series of
stock. The Corporation will furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights. Such request may be made to the Secretary of the Company.
The following abbreviations, when used in the inscription on the face of
each certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common
UNIF TRANSFER MIN ACT - Custodian
-------------------- -------------------
(Cust) (Minor)
under Uniform Transfers to Minors
Act
-----------------------------------
(State)
Additional abbreviations may also be used though not in the above list
For value received, ___________________________________hereby sell(s),
assign(s) and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------
- --------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- ---------------------------------------------------------------------
of the common stock evidenced by this certificate, and do (does) hereby
irrevocably constitute and appoint
, Attorney,
- -------------------------------------------------------------------
to transfer the said shares on the books of the Corporation, with full power of
substitution in the premises.
Dated
------------------------- -------------------------------
Signature
-------------------------------
Signature
In presence of
---------------------------
NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME OF THE
STOCKHOLDER(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE>
Exhibit 10.1
VIA NET.WORKS, INC.
AMENDED AND RESTATED
1998 STOCK OPTION AND RESTRICTED STOCK PLAN
<PAGE>
TABLE OF CONTENTS
Page
----
1. PURPOSE ............................................................... 1
2. DEFINITIONS ........................................................... 1
3. ADMINISTRATION OF THE PLAN ............................................ 3
3.1. Board............................................................ 3
3.2. Committee........................................................ 3
3.3. Grants........................................................... 3
3.4. No Liability..................................................... 4
4. STOCK SUBJECT TO THE PLAN ............................................. 4
5. EFFECTIVE DATE AND TERM OF THE PLAN ................................... 4
5.1. Effective Date................................................... 4
5.2. Term............................................................. 4
6. OPTION GRANTS ......................................................... 4
6.1. Company or Subsidiary Employees.................................. 4
6.2. Successive Grants................................................ 4
7. LIMITATIONS ON GRANTS ................................................. 4
7.1. Limitation on Shares of Stock Subject to Grants.................. 4
7.2. Limitations on Incentive Stock Options........................... 5
8. AWARD AGREEMENT ....................................................... 5
9. OPTION PRICE .......................................................... 5
10.VESTING, TERM AND EXERCISE OF OPTIONS.................................. 5
10.1. Vesting and Option Period........................................ 5
10.2. Term............................................................. 5
10.3. Acceleration..................................................... 6
10.4. Termination of Employment or Other Relationship.................. 6
10.5. Rights in the Event of Death..................................... 6
10.6. Rights in the Event of Disability................................ 6
10.7. Limitations on Exercise of Option................................ 6
10.8. Method of Exercise............................................... 7
10.9. Delivery of Stock Certificates................................... 7
11.TRANSFERABILITY OF OPTIONS; REPURCHASE RIGHTS.......................... 7
11.1. Transferability of Options....................................... 7
11.2. Family Transfers................................................. 7
11.3. Nontransferability of Shares..................................... 8
11.4. Repurchase Rights................................................ 8
11.5. Publicly Traded Stock............................................ 8
11.6. Legend........................................................... 8
12.RESTRICTED STOCK....................................................... 8
12.1. Grant of Restricted Stock or Restricted Stock Units.............. 8
12.2. Restrictions..................................................... 9
12.3. Restricted Stock Certificates.................................... 9
<PAGE>
12.4. Rights of Holders of Restricted Stock............................ 9
12.5. Rights of Holders of Restricted Stock Units...................... 9
12.6. Termination of Employment or Other Relationship.................. 9
12.7. Rights in the Event of Death..................................... 10
12.8. Rights in the Event of Disability................................ 10
12.9. Delivery of Stock and Payment Therefor........................... 10
13.PARACHUTE LIMITATIONS.................................................. 10
14.REQUIREMENTS OF LAW.................................................... 11
14.1. General.......................................................... 11
14.2. Rule 16b-3....................................................... 11
15.AMENDMENT AND TERMINATION OF THE PLAN.................................. 11
16.EFFECT OF CHANGES IN CAPITALIZATION.................................... 11
16.1. Changes in Stock................................................. 11
16.2. Reorganization in Which the Company Is the Surviving
Entity and in Which No Change of Control Occurs.................. 12
16.3. Reorganization, Sale of Assets or Sale of Stock Which
Involves a Change of Control..................................... 12
16.4. Adjustments...................................................... 12
16.5. No Limitations on Company........................................ 13
17.DISCLAIMER OF RIGHTS................................................... 13
18.NONEXCLUSIVITY OF THE PLAN............................................. 13
19.WITHHOLDING TAXES...................................................... 13
20.CAPTIONS............................................................... 13
21.OTHER PROVISIONS....................................................... 14
22.NUMBER AND GENDER...................................................... 14
23.SEVERABILITY........................................................... 14
24.POOLING................................................................ 14
25.GOVERNING LAW.......................................................... 14
<PAGE>
Exhibit 10.1
VIA NET.WORKS, INC.
AMENDED AND RESTATED
1998 STOCK OPTION AND RESTRICTED STOCK PLAN
VIA NET.WORKS, Inc., a Delaware corporation (the "Company"), sets forth
herein the terms of its 1998 Stock Option and Restricted Stock 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, 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 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, restricted stock and
restricted stock units in accordance with the terms hereof. Stock options
granted under the Plan may be non-qualified stock options or incentive stock
options, as provided herein.
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, restricted stock
agreement, restricted stock unit 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 "Benefit Arrangement" shall have the meaning set forth in Section 13
hereof.
2.4 "Board" means the Board of Directors of the Company.
2.5 "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.
2.6 "Code" means the Internal Revenue Code of 1986, as now in effect or
as hereafter amended.
2.7 "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.
2.8 "Company" means VIA NET.WORKS, Inc.
2.9 "Effective Date" means April 14, 1998, the date on which the Plan was
adopted by the Board.
2.10 "Exchange Act" means the Securities Exchange Act of 1934, as now in
effect or as hereafter amended.
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2.11 "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 day immediately preceding
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. Notwithstanding the foregoing, Fair Market Value shall not
be less than the par value of a share of Stock.
2.12 "Grant" means an award of an Option, Restricted Stock or Restricted
Stock Units under the Plan.
2.13 "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.
2.14 "Grantee" means a person who receives or holds an Option, Restricted
Stock or Restricted Stock Units under the Plan.
2.15 "Immediate Family Members" means the spouse, children and
grandchildren of the Grantee.
2.16 "Incentive Stock Option" means an "incentive stock option" within the
meaning of Section 422 of the Code, or the corresponding provision of any
subsequently enacted tax statute, as amended from time to time.
2.17 "Option" means an option to purchase one or more shares of Stock
pursuant to the Plan.
2.18 "Option Period" means the period during which Options may be
exercised as set forth in Section 10 hereof.
2.19 "Option Price" means the purchase price for each share of Stock
subject to an Option.
2.20 "Other Agreement" shall have the meaning set forth in Section 13
hereof.
2.21 "Plan" means this VIA NET.WORKS, Inc. 1998 Stock Option and
Restricted Stock Plan.
2.22 "Reporting Person" means a person who is required to file reports
under Section 16(a) of the Exchange Act.
2.23 "Restricted Period" means the period during which Restricted Stock or
Restricted Stock Units are subject to restrictions or conditions pursuant to
Section 12.2 hereof.
2.24 "Restricted Stock" means shares of Stock, awarded to a Grantee
pursuant to Section 12 hereof, that are subject to restrictions and to a risk of
forfeiture.
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2.25 "Restricted Stock Unit" means a unit awarded to a Grantee pursuant to
Section 12 hereof, which represents a conditional right to receive a share of
Stock in the future, and which is subject to restrictions and to a risk of
forfeiture.
2.26 "Securities Act" means the Securities Act of 1933, as now in effect
or as hereafter amended.
2.27 "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 employees of any of the foregoing, as
such persons may be designated from time to time by the Board pursuant to
Section 6 hereof.
2.28 "Stock" means the common stock, par value $0.001 per share, of the
Company.
2.29 "Subsidiary" means any "subsidiary corporation" of the Company within
the meaning of Section 424(f) of the Code.
2.30 "Termination Date" shall be the date upon which an Option shall
terminate or expire, as set forth in Section 10.2 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 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, 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, and any terms or
conditions that may be necessary to qualify Options as Incentive Stock Options),
(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
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recognize differences in local law, tax policy, or custom. As a condition to any
subsequent Grant, the Board shall have the right, at its discretion, to require
Grantees to return to the Company 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 16 hereof, the number of
shares of Stock available for issuance under the Plan shall be 9,200,000, no
more than 125,000 of which may be issued pursuant to awards of Restricted Stock
or Restricted Stock Units. 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, subject to approval
of the Plan within one year of the Effective Date, by a majority of the votes
cast on the proposal at a meeting of shareholders, provided that the total votes
cast represent a majority of all shares entitled to vote or by the written
consent of the holders of a majority of the Company's shares of Stock entitled
to vote. Upon approval of the Plan by the shareholders of the Company as set
forth above, all Grants made under the Plan on or after the Effective Date shall
be fully effective as if the shareholders of the Company had approved the Plan
on the Effective Date. If the shareholders fail to approve the Plan within one
year after the Effective Date, any Grants made hereunder shall be null and void
and of no effect.
5.2. Term.
The Plan has no termination date; however, no Incentive Stock Option may be
granted under the Plan on or after the tenth anniversary of the Effective Date.
6. OPTION GRANTS
6.1. Company or Subsidiary Employees.
Grants (including Grants of Incentive Stock Options) may be made under the
Plan to any employee or non-employee director 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. LIMITATIONS ON GRANTS
7.1. Limitation on Shares of Stock Subject to Grants.
During any time when the Company has a class of equity security registered
under Section 12 of the Exchange Act, no person eligible for a Grant under
Section 6 hereof may be awarded Options in any calendar year exercisable for
greater than 1,000,000 shares of Stock (subject to adjustment as provided in
Section 16
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hereof). During any time when the Company has a class of equity security
registered under Section 12 of the Exchange Act, the maximum number of shares of
Restricted Stock that can be awarded under the Plan (including for this purpose
any shares of Stock represented by Restricted Stock Units) to any person
eligible for a Grant under Section 6 hereof is 125,000 per calendar year
(subject to adjustment as provided in Section 16 hereof).
7.2. Limitations on Incentive Stock Options.
An Option shall constitute an Incentive Stock Option only (i) if the
Grantee of such Option is an employee of the Company or any Subsidiary of the
Company; (ii) to the extent specifically provided in the related Award
Agreement; and (iii) to the extent that the aggregate Fair Market Value
(determined at the time the Option is granted) of the shares of Stock with
respect to which all Incentive Stock Options held by such Grantee become
exercisable for the first time during any calendar year (under the Plan and all
other plans of the Grantee's employer and its affiliates) does not exceed
$100,000. This limitation shall be applied by taking Options into account in the
order in which they were granted. Options which are not Incentive Stock Options
shall be deemed non-qualified stock options.
8. 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. Each
Award Agreement evidencing a Grant of Options shall specify whether such Options
are intended to be non-qualified stock options or Incentive Stock Options, and
in the absence of such specification such options shall be deemed non-qualified
stock options.
9. OPTION PRICE
The Option Price of each Option shall be fixed by the Board and stated in
the Award Agreement evidencing such Option. The Option Price shall be the Fair
Market Value on the Grant Date of a share of Stock; provided, however, that in
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the event that a Grantee would otherwise be ineligible to receive an Incentive
Stock Option by reason of the provisions of Sections 422(b)(6) and 424(d) of the
Code (relating to ownership of more than ten percent of the Company's
outstanding Stock), the Option Price of an Option granted to such Grantee that
is intended to be an Incentive Stock Option shall be not less than the greater
of the par value or 110 percent of the Fair Market Value of a share of Stock on
the Grant Date. In no case shall the Option Price of any Option be less than the
par value of a share of Stock.
10. VESTING, TERM AND EXERCISE OF OPTIONS
10.1. Vesting and Option Period.
Subject to Sections 10.2 and 16.3 hereof, each Option granted under the
Plan shall become exercisable at such times and under such conditions as shall
be determined by the Board and stated in the Award Agreement. For purposes of
this Section 10.1, 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. An Option may, but need not, include a provision whereby
the Grantee may elect at any time while an employee or a Service Provider to
exercise the Option as to any part or all of the shares subject to the Option
prior to the full vesting of the Option. Any unvested shares so purchased may be
subject to a repurchase right in favor of the Company or to any other
restrictions, conditions and terms that the Board determines to be appropriate.
10.2. 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"); provided, however, that in the event that the Grantee would
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otherwise be ineligible to receive an Incentive Stock Option by reason of the
provisions of Sections 422(b)(6) and 424(d) of the Code (relating to ownership
of more than ten percent of the
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outstanding Stock), an Option granted to such Grantee that is intended to be an
Incentive Stock Option shall not be exercisable after the expiration of five
years from its Grant Date. Notwithstanding the foregoing and pursuant to the
Board's authority as set forth in Section 3.3, an Option not intended to qualify
as an Incentive Stock Option may have a Termination Date of up to 10 years and
one month after the date the Option is granted if such Option is granted to an
eligible individual who is a foreign national or is employed outside the United
States.
10.3. Acceleration.
Any limitation on the exercise of an Option contained in any Award
Agreement may be rescinded, modified or waived by the Board, in its sole
discretion, at any time and from time to time after the Grant Date of such
Option, so as to accelerate the time at which the Option may be exercised.
Notwithstanding any other provision of the Plan, no Option shall be exercisable
in whole or in part prior to the date the Plan is approved by the shareholders
of the Company as provided in Section 5.1 hereof.
10.4. Termination of Employment or Other Relationship.
Upon the termination of a Grantee's employment or other relationship 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), any Option or portion
thereof held by such Grantee that has not vested in accordance with the
provisions of Section 10.1 hereof shall terminate immediately, and any Option or
portion thereof that has vested in accordance with the provisions of Section
10.1 hereof but has not been exercised shall terminate at the close of business
on the 90th day following the Grantee's termination of employment or other
relationship (or, if such 90th day is a Saturday, Sunday or holiday, at the
close of business on the next preceding day that is not a Saturday, Sunday or
holiday), unless the Board, in its discretion, extends the period during which
the Option may be exercised (which period may not be extended beyond the
original term of the Option). 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.
10.5. Rights in the Event of Death.
If a Grantee dies while employed by or providing services to the Company,
all Options granted to such Grantee shall fully vest on the date of death, and
the executors or administrators or legatees or distributees of such Grantee's
estate shall have the right, at any time within one year after the date of such
Grantee's death (or such longer period as the Board, in its discretion, may
determine prior to the expiration of such one-year period) and prior to
termination of the Option pursuant to Section 10.2 above, to exercise any Option
held by such Grantee at the date of such Grantee's death.
10.6. Rights in the Event of Disability.
If a Grantee's employment or other relationship with the Company is
terminated by reason of the "permanent and total disability" (within the meaning
of Section 22(e)(3) of the Code) of such Grantee, such Grantee's Options shall
continue to vest, and shall be exercisable to the extent that they are vested,
for a period of one year after such termination of employment or service (or
such longer period as the Board, in its discretion, may determine prior to the
expiration of such one-year period), subject to earlier termination of the
Option as provided in Section 10.2 above. Whether a termination of employment or
service is to be considered by reason of "permanent and total disability" for
purposes of the Plan shall be determined by the Board, which determination shall
be final and conclusive.
10.7. 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, prior to the date the Plan is approved by the
shareholders of the Company as provided herein, or after ten years following the
date upon which the Option is granted, or after the occurrence of an event
referred to in Section 16 hereof which results in termination of the Option.
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10.8. 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 and (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 (i) in cash or in cash equivalents; (ii) through the tender to the
Company of shares of Stock, which shares, if acquired from the Company, shall
have been held for at least six months and which shall be valued, for purposes
of determining the extent to which the Option Price has been paid thereby, at
their Fair Market Value on the date of exercise; or (iii) by a combination of
the methods described in (i) and (ii). The Board may provide, by inclusion of
appropriate language in an Award Agreement, that payment in full of the Option
Price need not accompany the written notice of exercise provided that the notice
of exercise directs that the certificate or certificates for the shares of Stock
for which the Option is exercised be delivered to a licensed broker acceptable
to the Company as the agent for the individual exercising the Option and, at the
time such certificate or certificates are delivered, the broker tenders to the
Company cash (or cash equivalents acceptable to the Company) equal to the Option
Price for the shares of Stock purchased pursuant to the exercise of the Option
plus the amount (if any) of federal and/or other taxes which the Company may in
its judgment, be required to withhold with respect to the exercise of the
Option. An attempt to exercise any Option granted hereunder other than as set
forth above shall be invalid and of no force and effect. 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 16 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.
10.9. 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.
11. TRANSFERABILITY OF OPTIONS; REPURCHASE RIGHTS
11.1. Transferability of Options
Except as provided in Section 11.2, during the lifetime of a Grantee,
only the Grantee (or, in the event of legal incapacity or incompetency, the
Grantee's guardian or legal representative) may exercise an Option. Except as
provided in Section 11.2, no Option shall be assignable or transferable by the
Grantee to whom it is granted, other than by will or the laws of descent and
distribution.
11.2. Family Transfers.
If authorized in the applicable Award Agreement, a Grantee may
transfer all or part of an Option which is not an Incentive Stock Option to (i)
any Immediate Family Member, (ii) a trust or trusts for the exclusive benefit of
any Immediate Family Member, or (iii) a partnership in which Immediate Family
Members are the only partners, provided that (x) there may be no consideration
for any such transfer, and (y) subsequent transfers of transferred Options are
prohibited except those in accordance with this Section 11.2 or by will or the
laws of descent and distribution. Following transfer, any such Option shall
continue to be subject to the same terms and conditions as were applicable
immediately prior to transfer, provided that for purposes of Section 11.2 hereof
the term "Grantee" shall be deemed to refer the transferee. The events of
termination of the employment or other relationship of Section 10.4 hereof shall
continue to be applied with respect to the original Grantee, following which the
Option shall be exercisable by the transferee only to the extent, and for the
periods specified in Sections 10.4, 10.5 or 10.6.
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11.3. Nontransferability of Shares
A Grantee (or such other individual who is entitled to exercise an
Option) shall not sell, pledge, assign, gift, transfer, or otherwise dispose of
any shares of Stock acquired pursuant to an Option to any person or entity
without first offering such shares to the Company for purchase on the same terms
and conditions as those offered the proposed transferee. The Company may assign
its right of first refusal under this Section 11.3 in whole or in part, to (1)
any holder of stock or other securities of the Company (a "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 of any
such assignment of its rights. The restrictions of this Section 11.3 re-apply to
any person to whom Stock that was originally acquired pursuant to an Option is
sold, pledged, assigned, bequeathed, gifted, transferred or otherwise disposed
of, without regard to the number of such subsequent transferees or the manner in
which they acquire the Stock, but the restrictions of this Section 11.3 do not
apply to a transfer of Stock that occurs as a result of the death of the Grantee
or of any subsequent transferee (but shall apply to the executor, the
administrator or personal representative, the estate, and the legatees,
beneficiaries and assigns thereof).
11.4. Repurchase Rights.
Upon the termination of a Grantee's employment or other relationship
with the Company or an affiliate (whether as an employee, a director, an
independent contractor providing services to the Company or an affiliate, or
otherwise), the Company shall have the right, at any time prior to the
expiration of a 30-day period following such termination, to repurchase any or
all of the shares acquired by the individual pursuant to this Plan under an
Option (including shares that were previously transferred pursuant to Sections
11.1, 11.2 or 11.3 above, unless otherwise specified in the Award Agreement), at
a price equal to the Fair Market Value of such shares as of the date of
termination. Upon the exercise of an Option following termination of a Grantee's
employment or other relationship with the Company or an affiliate (whether as an
employee, a director, an independent contractor providing services to the
Company or an affiliate, or otherwise), the Company shall have the right, for a
period of up to 30 days following such exercise, to repurchase any or all such
shares of Stock acquired by the Grantee pursuant to such exercise of such Option
at a price that is equal to the Fair Market Value of such shares (including
shares that were previously transferred pursuant to Sections 11.1, 11.2 or 11.3
above) on the date of exercise (or at such other price or the Fair Market Value
on such other date as shall have been specified by the Board at the time of
grant and set out in the appropriate Award Agreement with respect to the grant).
The closing of the repurchase shall occur within 90 days of the date of
termination 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 Code for any stockholder other than the
terminated Grantee.
11.5. 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 11.3 and 11.4
shall terminate as of the first date that the Stock is so listed, quoted or
publicly traded.
11.6. 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.
12. RESTRICTED STOCK
12.1. Grant of Restricted Stock or Restricted Stock Units.
The Board may from time to time grant Restricted Stock or Restricted Stock
Units to persons eligible to receive Grants under Section 6 hereof, subject to
such restrictions, conditions and other terms as the Board may determine.
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12.2. Restrictions.
At the time a Grant of Restricted Stock or Restricted Stock Units is made,
the Board shall establish a period of time (the "Restricted Period") applicable
to such Restricted Stock or Restricted Stock Units. Each Grant of Restricted
Stock or Restricted Stock Units may be subject to a different Restricted Period.
The Board may, in its sole discretion, at the time a Grant of Restricted Stock
or Restricted Stock Units is made, prescribe restrictions in addition to or
other than the expiration of the Restricted Period, including the satisfaction
of corporate or individual performance objectives, which may be applicable to
all or any portion of the Restricted Stock or Restricted Stock Units. Such
performance objectives shall be established in writing by the Board prior to the
ninetieth day of the year in which the Grant is made and while the outcome is
substantially uncertain. Performance objectives shall be based on Stock price,
market share, sales, earnings per share, return on equity or costs. Performance
objectives may include positive results, maintaining the status quo or limiting
economic losses. Subject to the second sentence of this Section 12.2, the Board
also may, in its sole discretion, shorten or terminate the Restricted Period or
waive any other restrictions applicable to all or a portion of the Restricted
Stock or Restricted Stock Units. Neither Restricted Stock nor Restricted Stock
Units may be sold, transferred, assigned, pledged or otherwise encumbered or
disposed of during the Restricted Period or prior to the satisfaction of any
other restrictions prescribed by the Board with respect to such Restricted Stock
or Restricted Stock Units.
12.3. Restricted Stock Certificates.
The Company shall issue, in the name of each Grantee to whom Restricted
Stock has been granted, stock certificates representing the total number of
shares of Restricted Stock granted to the Grantee, as soon as reasonably
practicable after the Grant Date. The Secretary of the Company shall hold such
certificates for the Grantee's benefit until such time as the Restricted Stock
is forfeited to the Company, or the restrictions lapse.
12.4. Rights of Holders of Restricted Stock.
Unless the Board otherwise provides in an Award Agreement, holders of
Restricted Stock shall have the right to vote such Stock and the right to
receive any dividends declared or paid with respect to such Stock. The Board may
provide that any dividends paid on Restricted Stock must be reinvested in shares
of Stock, which may or may not be subject to the same vesting conditions and
restrictions applicable to such Restricted Stock. All distributions, if any,
received by a Grantee with respect to Restricted Stock as a result of any stock
split, stock dividend, combination of shares, or other similar transaction shall
be subject to the restrictions applicable to the original Grant.
12.5. Rights of Holders of Restricted Stock Units.
Unless the Board otherwise provides in an Award Agreement, holders of
Restricted Stock Units shall have no rights as stockholders of the Company. The
Board may provide in an Award Agreement evidencing a Grant of Restricted Stock
Units that the holder of such Restricted Stock Units shall be entitled to
receive, upon the Company's payment of a cash dividend on its outstanding Stock,
a cash payment for each Restricted Stock Unit held equal to the per-share
dividend paid on the Stock. Such Award Agreement may also provide that such cash
payment will be deemed reinvested in additional Restricted Stock Units at a
price per unit equal to the Fair Market Value of a share of Stock on the date
that such dividend is paid.
12.6. Termination of Employment or Other Relationship.
Upon the termination of a Grantee's employment or other relationship 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), any shares of Restricted
Stock or Restricted Stock Units held by such Grantee that have not vested, or
with respect to which all applicable restrictions and conditions have not
lapsed, shall immediately be deemed forfeited, unless the Board, in its
discretion, determines otherwise. Upon forfeiture of Restricted Stock or
Restricted Stock Units, the Grantee shall have no further rights with respect to
such Grant, including but not limited to any right to vote Restricted Stock or
any right to receive dividends with respect to shares of Restricted Stock or
Restricted Stock Units. 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-
<PAGE>
12.7. Rights in the Event of Death.
If a Grantee dies while employed by the Company, all Restricted Stock or
Restricted Stock Units granted to such Grantee shall fully vest on the date of
death, and the shares of Stock represented thereby shall be deliverable in
accordance with the terms of the Plan to the executors, administrators, legatees
or distributees of the Grantee's estate.
12.8. Rights in the Event of Disability.
If a Grantee's employment or other relationship with the Company is
terminated by reason of the "permanent and total disability" (within the meaning
of Section 22(e)(3) of the Code) of such Grantee, such Grantee's Restricted
Stock or Restricted Stock Units shall continue to vest in accordance with the
applicable Award Agreement for a period of one year after such termination of
employment or service (or such longer period as the Board, in its discretion,
may determine prior to the expiration of such one-year period), subject to the
earlier forfeiture of such Restricted Stock or Restricted Stock Units in
accordance with the terms of the applicable Award Agreement. Whether a
termination of employment or service is to be considered by reason of "permanent
and total disability" for purposes of the Plan shall be determined by the Board,
which determination shall be final and conclusive.
12.9. Delivery of Stock and Payment Therefor.
Upon the expiration or termination of the Restricted Period and the
satisfaction of any other conditions prescribed by the Board, the restrictions
applicable to shares of Restricted Stock or Restricted Stock Units shall lapse,
and, upon payment by the Grantee to the Company, in cash or by check, of the
aggregate par value of the shares of Stock represented by such Restricted Stock
or Restricted Stock Units, a stock certificate for such shares shall be
delivered, free of all such restrictions, to the Grantee or the Grantee's
beneficiary or estate, as the case may be.
13. PARACHUTE LIMITATIONS
Notwithstanding any other provision of this Plan or of any other agreement,
contract, or understanding heretofore or hereafter entered into by a Grantee
with the Company or any Subsidiary, except an agreement, contract, or
understanding hereafter entered into that expressly modifies or excludes
application of this paragraph (an "Other Agreement"), and notwithstanding any
formal or informal plan or other arrangement for the direct or indirect
provision of compensation to the Grantee (including groups or classes of
participants or beneficiaries of which the Grantee is a member), whether or not
such compensation is deferred, is in cash, or is in the form of a benefit to or
for the Grantee (a "Benefit Arrangement"), if the Grantee is a "disqualified
individual," as defined in Section 280G(c) of the Code, any Option, Restricted
Stock or Restricted Stock Unit held by that Grantee and any right to receive any
payment or other benefit under this Plan shall not become exercisable or vested
(i) to the extent that such right to exercise, vesting, payment, or benefit,
taking into account all other rights, payments, or benefits to or for the
Grantee under this Plan, all Other Agreements, and all Benefit Arrangements,
would cause any payment or benefit to the Grantee under this Plan to be
considered a "parachute payment" within the meaning of Section 280G(b)(2) of the
Code as then in effect (a "Parachute Payment") and (ii) if, as a result of
---
receiving a Parachute Payment, the aggregate after-tax amounts received by the
Grantee from the Company under this Plan, all Other Agreements, and all Benefit
Arrangements would be less than the maximum after-tax amount that could be
received by the Grantee without causing any such payment or benefit to be
considered a Parachute Payment. In the event that the receipt of any such right
to exercise, vesting, payment, or benefit under this Plan, in conjunction with
all other rights, payments, or benefits to or for the Grantee under any Other
Agreement or any Benefit Arrangement would cause the Grantee to be considered to
have received a Parachute Payment under this Plan that would have the effect of
decreasing the after-tax amount received by the Grantee as described in clause
(ii) of the preceding sentence, then the Grantee shall have the right, in the
Grantee's sole discretion, to designate those rights, payments, or benefits
under this Plan, any Other Agreements, and any Benefit Arrangements that should
be reduced or eliminated so as to avoid having the payment or benefit to the
Grantee under this Plan be deemed to be a Parachute Payment.
-10-
<PAGE>
14. REQUIREMENTS OF LAW
14.1. 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. Specifically, in connection with the Securities Act, upon the exercise of
any Option or the delivery of any shares of Restricted Stock or Stock underlying
Restricted Stock Units, 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.
14.2. 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.
15. 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; provided, however, that the Board shall not, without approval of the
-------- -------
Company's shareholders, amend the Plan such that it does not comply with the
Code. 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 15 or
Section 16 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.
16. EFFECT OF CHANGES IN CAPITALIZATION
16.1. 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
-11-
<PAGE>
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, Restricted
Stock and Restricted Stock Units 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 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.
16.2. Reorganization in Which the Company Is the Surviving Entity and in
Which No Change of Control Occurs.
Subject to Section 16.3 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.
Subject to any contrary language in an Award Agreement evidencing a Grant of
Restricted Stock, any restrictions applicable to such Restricted Stock shall
apply as well to any replacement shares received by the Grantee as a result of
the reorganization, merger or consolidation.
16.3. Reorganization, Sale of Assets or Sale of Stock Which Involves a
Change of Control.
Subject to the exceptions set forth in the last sentence of this Section
16.3, (i) upon the occurrence of a Change of Control, all outstanding shares of
Restricted Stock and Restricted Stock Units shall be deemed to have vested, and
all restrictions and conditions applicable to such shares of Restricted Stock
and Restricted Stock Units shall be deemed to have lapsed, immediately prior to
the occurrence of such Change of Control, and (ii) fifteen days prior to the
scheduled consummation of a Change of Control, all Options outstanding hereunder
shall become immediately exercisable and shall remain exercisable for a period
of fifteen days. Any exercise of an Option during such fifteen-day period shall
be conditioned upon the consummation of the event and shall be effective only
immediately before the consummation of the event. 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
16.3 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, Restricted Stock and
Restricted Stock Units theretofore granted, or for the substitution for such
Options, Restricted Stock and Restricted Stock Units of new options, restricted
stock and restricted stock units 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, Restricted Stock and Restricted Stock Units 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 16.3 subject to Section 24.
16.4. Adjustments.
Adjustments under this Section 16 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.
-12-
<PAGE>
16.5. 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.
17. 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 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.
18. 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.
19. 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 with respect to the
vesting of or other lapse of restrictions applicable to Restricted Stock or
Restricted Stock Units or upon the issuance of any shares of Stock upon the
exercise of an Option. At the time of such vesting, lapse, or 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 19 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.
20. 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.
-13-
<PAGE>
21. 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.
22. 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.
23. 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.
24. Pooling
Notwithstanding anything in the Plan to the contrary, if any right under or
feature of the Plan would cause to be ineligible for pooling of interest
accounting a transaction that would, but for the right or feature hereunder, be
eligible for such accounting treatment, the Board may modify or adjust the right
or feature so that the transaction will be eligible for pooling of interest
accounting. Such modification or adjustment may include payment of cash or
issuance to a Grantee of Stock having a Fair Market Value equal to the cash
value of such right or feature.
25. 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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<PAGE>
Exhibit 10.3.1
Amendment No. 2
to
V-I-A Internet, Inc.
KEY EMPLOYEE EQUITY PLAN
Effective January 14, 2000, the V-I-A Internet, Inc. Key Employee
Equity Plan (the "Plan") is hereby amended in the following respects:
1. The name of the plan is changed to the "VIA NET.WORKS, Inc. Key
Employee Equity Plan" and all references in the Plan to "V-I-A Internet, Inc."
are hereby deleted and replaced with "VIA NET.WORKS, Inc."
<PAGE>
Exhibit 10.16
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made and entered into
as of the ___ day of ______________, by and between VIA NET.WORKS, INC., a
Delaware corporation (the "Company"), and the undersigned, [a director] [an
officer] of the Company ("Indemnitee"). For the purposes of this Agreement, all
references to the "Company" shall include all subsidiaries, affiliates,
partnerships, enterprises, employee benefit plans or other entities on behalf of
which Indemnitee serves or will serve at the Company's request as an officer,
director, trustee, partner, employee or agent or in a related capacity.
WHEREAS, Indemnitee has agreed to serve, at the request of the
Company, as a [a director] [an officer] of the Company; and
WHEREAS, Indemnitee is willing to serve on behalf of the Company on
the condition that Indemnitee be indemnified.
NOW, THEREFORE, in consideration of Indemnitee's agreement to serve as
a [a director] [an officer] of the Company, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties to this Agreement do hereby agree as follows:
1. General Indemnity Provisions. To the maximum extent that Delaware
----------------------------
law in effect from time to time permits, the Company shall indemnify Indemnitee
against liability to the Company or to the Company's stockholders for money
damages (unless the liability arises from a proceeding initiated by the
Indemnitee and unauthorized by the Company's Board of Directors (the "Board")).
If Indemnitee is a Director of the Company, in the absence of any Delaware
statute limiting the liability of directors of a Delaware corporation for money
damages in a suit by or on behalf of the Company or by any stockholder of the
Company, Indemnitee shall not be liable to the Company or to the Company's
stockholders for money damages except to the extent that (i) Indemnitee actually
received an improper benefit or profit in money, property, or services, for the
amount of the benefit or profit in money, property, or services actually
received, or (ii) a judgment or other final adjudication adverse to Indemnitee
is entered in a proceeding based on a finding in the proceeding that
Indemnitee's action or failure to act was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding.
2. Express Exculpatory Clauses in Instruments. Indemnitee shall not
------------------------------------------
be liable under any written instrument creating an obligation of the Company by
reason of Indemnitee's being a [a director] [an officer] of the Company, and all
persons shall look solely to the Company for the payment of any claim under or
for the performance of that instrument. The omission of the foregoing
exculpatory
<PAGE>
language from any instrument shall not affect the validity or enforceability of
such instrument and shall not render Indemnitee liable thereunder to any third
party, nor shall Indemnitee be liable to anyone as a result of such omission.
3. Indemnification. The Company shall indemnify Indemnitee, whether
---------------
serving the Company or at its request any other entity, to the full extent
required or permitted by the laws of the State of Delaware applicable to
business corporations now or hereafter in force, including the advance for
expenses under the procedures and to the full extent permitted by such laws,
except with respect to indemnification for liability arising from a proceeding
initiated by the Indemnitee and unauthorized by the Board. Nothing contained
herein shall be construed to protect Indemnitee against any liability to the
extent such protection would violate Delaware statutory or decisional law
applicable to business corporations organized under Title 8 of the Delaware Code
Annotated or any successor provisions ("Delaware Corporate Law"). No amendment
of the Company's Amended and Restated Certificate of Incorporation or repeal of
any of its provisions shall limit or eliminate the rights of indemnification
provided hereunder with respect to acts or omissions occurring prior to such
amendment or repeal.
4. Expenses Incurred by Indemnitee to Enforce this Agreement.
---------------------------------------------------------
Expenses incurred by Indemnitee in connection with Indemnitee's request for
indemnification hereunder shall be borne by the Company to the full extent
required or permitted by Delaware Corporation Law, unless Indemnitee is
determined not to be entitled to indemnification for any liability or expense
hereunder. In the event that Indemnitee is a party or intervenes in any
proceeding in which the validity or enforceability of this Agreement is at issue
or seeks an adjudication or award in arbitration to enforce Indemnitee's rights
under, or to recover damages for breach of, this Agreement, Indemnitee, if
Indemnitee prevails in whole or in part in such action, shall be entitled to
recover from the Company and shall be indemnified by the Company against any
expenses actually and reasonably incurred by Indemnitee.
5. Termination of Service. Indemnitee's right to indemnification
----------------------
pursuant to this Agreement shall continue regardless of whether Indemnitee has
ceased for any reason to be an officer, trustee, director, partner, employee or
agent of the Company and shall inure to the benefit of the heirs of Indemnitee
or the executors or administrators of Indemnitee's estate.
6. No Duplication of Payments. The Company shall not be liable under
--------------------------
this Agreement to make any payment in connection with any action to the extent
Indemnitee has otherwise actually received payment (under any insurance policy,
by-law provision or otherwise) of the amounts otherwise indemnifiable hereunder.
7. Non-Exclusivity. Indemnitee's rights under this Agreement shall
---------------
be in addition to, and not in lieu of, any other rights Indemnitee may have,
<PAGE>
whether under the Company's Bylaws, the Company's Amended and Restated
Certificate of Incorporation, Delaware Corporate Law, or any other agreements or
contracts with the Company, or pursuant to any directors or officers liability
insurance. Nothing in this Agreement shall be deemed to diminish or otherwise
restrict Indemnitee's right to indemnification under any provision of the
Company's Bylaws, the Company's Amended and Restated Certificate of
Incorporation, Delaware Corporate Law, or any other agreement or contract with
the Company, or pursuant to any directors and officers liability insurance.
8. Binding Effect. This Agreement shall be binding upon and inure to
--------------
the benefit of and be enforceable by the parties hereto and their respective
successors, assigns (including any direct or indirect successor by merger or
consolidation), heirs, executors and administrators.
9. Governing Law. This Agreement shall be deemed to be made in, and
-------------
in all respects shall be interpreted, construed, and governed by and in
accordance with the laws of the State of Delaware.
10. Severability. The Company and Indemnitee agree that the
------------
agreements and provisions contained in this Agreement are severable and
divisible, that each such agreement and provision does not depend upon any other
provision or agreement for its enforceability, and that each such agreement and
provision set forth herein constitutes an enforceable obligation between the
Company and Indemnitee. Consequently, the parties hereto agree that neither the
invalidity nor the unenforceability of any provision of this Agreement shall
affect the other provisions hereof, and this Agreement shall remain in full
force and effect and be construed in all respects as if such invalid or
unenforceable provision were omitted.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this
Agreement as of the date first above written.
-----------------------------
Name:
[Director] [Officer]
VIA NET.WORKS, INC.
By:
---------------------------
David D'Ottavio
Chief Executive Officer
<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. Portugal
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
g. Netlink Internet Services Limited United Kingdom
h. i-way Limited United Kingdom
h(1) I-Way Soho Limited. United Kingdom
h(2) I-way Reading Limited. United Kingdom
h(3) I-way Swindon Limited. United Kingdom
h(4) I-way Brentford Limited. United Kingdom
h(5) I-Way Oxford Limited. United Kingdom
i. U-Net Limited United Kingdom
j. WorldWide Web Services Ltd. United Kingdom
j(1) Alphadial Limited United Kingdom
k. VIA Net Works UK Limited United Kingdom
l. VIA Net.Works IRUCo. Limited Ireland
2. M&C Management & Communications, S.A. Switzerland
3. Delivery Network Systems SAS France
a. DNS Telecom, SAS France
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name Jurisdiction of Formation
- ---- -------------------------
<S> <C>
C. VIA Net Works Holdings Cayman Cayman Islands
1. VIA NET WORKS Argentina Argentina
2. ServiceNet S.A. Argentina
3. V-I-A Holdings Brasil, Ltda. Brazil
a. Dialdata S.A. Internet Systems Brazil
D. InfoAcces S.A. de C.V. Mexico
E. Net4You EDV Dienstleistungs und Handelges m.b.H. Austria
</TABLE>
<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, of which the first three
paragraphs are 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
January 14, 2000
<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 references to us under the headings "Experts" in such Registration
Statement.
/s/ Price Waterhouse & Co.
Buenos Aires, Argentina
January 13, 2000
<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
January 13, 2000
/s/ PricewaterhouseCoopers
PricewaterhouseCoopers
Auditores Independentes
/s/ Timothy Leonard
Timothy Leonard
Partner
<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
January 14, 2000
<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
January 13, 2000
<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
January 14, 2000
<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, United Kingdom
January 14, 2000
<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, Netherlands
January 13, 2000
/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
January 14, 2000
<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
January 13, 2000
<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
January 14, 2000
<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
January 14, 2000
