<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
SCHEDULE TO
(RULE 14D-100)
TENDER OFFER STATEMENT UNDER SECTION 14 (D) (1)
OR SECTION 13 (E) (1) OF THE SECURITIES EXCHANGE ACT OF 1934
--------------
VERIO INC.
(Name of Subject Company (Issuer))
CHASER ACQUISITION, INC.
NTT COMMUNICATIONS CORPORATION
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
(Names of Filing Persons (Offerors))
--------------
COMMON STOCK, PAR VALUE $.001 PER SHARE
SERIES A 6.75% CONVERTIBLE PREFERRED STOCK,
PAR VALUE $.001 PER SHARE
(Title of Class of Securities)
--------------
923433106
923433502
923433304
(CUSIP Number of Class of Securities)
--------------
Kazuhiko Shimada
NTT Communications Corporation
1-1-6 Uchisaiwai-cho
Chiyoda-ku, Tokyo, Japan
Telephone: 011-81-3-3500-8290
(Name, address and telephone number of
person authorized to receive notices
and communications on behalf of filing persons)
Copy to:
Dennis V. Osimitz
Sidley & Austin
Bank One Plaza
10 South Dearborn Street
Chicago, Illinois 60603
Telephone: (312) 853-7000
CALCULATION OF FILING FEE
Transaction Valuation*: $5,880,895,910
Amount of Filing Fee: $1,176,180
- -------
*Estimated for purposes of calculating the amount of the filing fee only. This
calculation assumes the purchase of all outstanding shares of common stock,
par value $.001 per share, of Verio Inc. (the "Common Stock") at a price per
share of Common Stock of $60.00 in cash and the purchase of all outstanding
shares of Series A 6.75% Convertible Preferred Stock, par value $.001 per
share, of Verio Inc. ("Preferred Stock") at a price per share of Preferred
Stock of $62.136 (other than Common Stock already owned by NTT
Communications Corporation and its subsidiaries and other than Common Stock
owned by Verio Inc. and its subsidiaries). This calculation assumes that all
options to purchase shares of Common Stock outstanding as of April 30, 2000
(other than those held by NTT Communications Corporation and its
subsidiaries) and warrants to purchase 1,408,320 shares of Common Stock have
been exercised and assumes the purchase of all shares of Common Stock issued
in connection with such exercise. This calculation also assumes the payment
of consideration for additional warrants to purchase 1,306,228 shares of
Common Stock in an amount per share of Common Stock subject to such warrants
equal to $60.00 minus the applicable exercise price of such warrants. As of
May 11, 2000, there were 70,767,677 shares of Common Stock issued and
outstanding (not including 8,987,754 shares owned by a subsidiary of NTT
Communications Corporation and 2,860,000 shares held by a subsidiary of
Verio Inc.) and 7,200,000 shares of Preferred Stock outstanding. The amount
of the filing fee, calculated in accordance with Rule 0-11 of the Securities
Exchange Act of 1934, as amended, equals 1/50th of one percent of the value
of the transaction.
[_Check]the box if any part of the fee is offset as provided by Rule 0-
11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
Amount previously paid:
Not applicableFiling Party:
Not applicable
Form or registration No.:
Not applicableDate Filed:
Not applicable
[_Check]the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
Check the appropriate boxes below to designate any transactions to which
the statement relates:
[Xthird-party]tender offer subject to Rule 14d-1.
[_issuer]tender offer subject to Rule 13e-4.
[Xgoing-private]transaction subject to Rule 13e-3.
[Xamendment]to Schedule 13D under Rule 13d-2.
Check the following box if the filing is a final amendment reporting the
results of the tender offer: [_]
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<PAGE>
SCHEDULE 13D Page 2 of 12 Pages
CUSIP No. 923433 10 6
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
NTT Rocky, Inc.
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a)[_]
(b) [_]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
00
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e)
[_]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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7 SOLE VOTING POWER
0
NUMBER OF
SHARES
BENEFICIALLY
OWNED BY EACH
REPORTING
PERSON WITH
-----------------------------------------------------------------
8 SHARED VOTING POWER
9,053,754 shares/1/
-----------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
0
-----------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
9,053,754 shares/1/
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
9,053,754 shares/1/
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[_]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
10.9%
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14 TYPE OF REPORTING PERSON*
CO
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*SEE INSTRUCTIONS BEFORE FILLING OUT:
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING
EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
- --------
(/1/Includes)options to purchase 66,000 shares of Common Stock issued to NTT
Rocky, Inc. under Verio Inc.'s 1998 Non-Employee Director Stock Incentive
Plan.
2
<PAGE>
SCHEDULE 13D
Page 3 of 12 Pages
CUSIP No. 923433 10 6
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Nippon Telegraph and Telephone Corporation
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a)[_]
(b) [_]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
00
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e)
[_]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Japan
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7 SOLE VOTING POWER
0
NUMBER OF
SHARES
BENEFICIALLY
OWNED BY EACH
REPORTING
PERSON WITH
-----------------------------------------------------------------
8 SHARED VOTING POWER
9,053,754 shares/1/
-----------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
0
-----------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
9,053,754 shares/1/
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
9,053,754 shares/1/
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[_]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
10.9%
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14 TYPE OF REPORTING PERSON*
HC
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*SEE INSTRUCTIONS BEFORE FILLING OUT:
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING
EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
- --------
(/1/Includes)options to purchase 66,000 shares of Common Stock issued to NTT
Rocky, Inc. under Verio Inc.'s 1998 Non-Employee Director Stock Incentive
Plan.
3
<PAGE>
SCHEDULE 13D
Page 4 of 12 Pages
CUSIP No. 923433 10 6
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
NTT Communications Corporation
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a)[_]
(b) [_]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
00
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e)
[_]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Japan
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7 SOLE VOTING POWER
0
NUMBER OF
SHARES
BENEFICIALLY
OWNED BY EACH
REPORTING
PERSON WITH
-----------------------------------------------------------------
8 SHARED VOTING POWER
9,053,754 shares/1/
-----------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
0
-----------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
9,053,754 shares/1/
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
9,053,754 shares/1/
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[_]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
10.9%
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14 TYPE OF REPORTING PERSON*
HC
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*SEE INSTRUCTIONS BEFORE FILLING OUT:
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING
EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
- --------
(/1/Includes)options to purchase 66,000 shares of Common Stock issued to NTT
Rocky, Inc. under Verio Inc.'s 1998 Non-Employee Director Stock Incentive
Plan.
4
<PAGE>
This Tender Offer Statement on Schedule TO relates to the third-party
tender offer by Chaser Acquisition, Inc., a Delaware corporation ("Purchaser")
and an indirect wholly owned subsidiary of NTT Communications Corporation, a
limited liability joint stock company incorporated under the laws of Japan
("NTT Communications"), a wholly owned subsidiary of Nippon Telegraph and
Telephone Corporation, a limited liability joint stock company incorporated
under the laws of Japan ("NTT"), to purchase all of the issued and outstanding
shares of common stock, par value $.001 per share (the "Common Stock"), of
Verio Inc., a Delaware corporation (the "Company") (other than shares of
Common Stock already owned by NTT Communications and its subsidiaries), at a
purchase price of $60.00 per share, net to the seller in cash, without
interest thereon, and all of the issued and outstanding shares of Series A
6.75% Convertible Preferred Stock, par value $.001 per share ("Preferred
Stock" and together with the Common Stock, the "Shares"), of the Company at a
purchase price of $62.136 per share, plus, if the purchase of the shares of
Preferred Stock pursuant to the Offer (as defined below) occurs after July 31,
2000, accumulated and unpaid dividends on such share of Preferred Stock from
August 1, 2000 to and including the expiration date of the Offer, net to the
seller in cash, without interest thereon, upon the terms and subject to the
conditions set forth in the Offer to Purchase dated May 17, 2000 (the "Offer
to Purchase"), a copy of which is attached hereto as Exhibit (a)(1)(A), and in
the related Letter of Transmittal (the "Letter of Transmittal"), a copy of
which is attached hereto as Exhibit (a)(1)(C) (which, together with the Offer
to Purchase, as amended or supplemented from time to time, constitute the
"Offer"). In the Offer, Purchaser is also offering to purchase certain
outstanding warrants to purchase 1,306,228 shares of Common Stock at a
purchase price of $60.00 per warrant less the applicable warrant exercise
price and any applicable withholding taxes, net to the seller in cash, without
interest, on the terms and conditions set forth in the Offer.
The information in the Offer to Purchase, including all schedules and
annexes thereto, is hereby expressly incorporated herein by reference in
response to all the items of this Schedule TO, except as otherwise set forth
below.
ITEM 1. SUMMARY TERM SHEET.
The information set forth under "Summary of the Offer" in the Offer to
Purchase is incorporated herein by reference.
ITEM 2. SUBJECT COMPANY INFORMATION.
(a) The name of the subject company is Verio Inc., a Delaware corporation.
The Company's executive offices are located at 8005 South Chester, Suite 200,
Englewood, Colorado 80112, telephone: (303) 645-1900.
(b) The classes of securities to which this statement relates are the
common stock, par value $.001 per share, of the Company, of which 82,615,431
shares were issued and outstanding as of May 11, 2000 (2,860,000 of which are
held by a subsidiary of the Company), and the Series A 6.75% Convertible
Preferred Stock, par value $.001 per share, of which 7,200,000 shares were
issued and outstanding as of May 11, 2000. The Offer is also being made with
respect to certain warrants to purchase an aggregate of 1,306,228 shares of
Common Stock of the Company. The information set forth under "Introduction" in
the Offer to Purchase is incorporated herein by reference.
(c) The information set forth in Section 7 ("Price Range of the Shares") in
the Offer to Purchase is incorporated herein by reference.
ITEM 3. IDENTITY AND BACKGROUND OF FILING PERSON.
(a) This Tender Offer Statement is filed by NTT, NTT Communications and
Purchaser. The information set forth in Section 10 ("Certain Information
Concerning NTT, NTT Communications, and Purchaser") in the Offer to Purchase
and on Schedule I thereto is incorporated herein by reference.
(b) The information set forth in Section 10 ("Certain Information
Concerning NTT, NTT Communications and Purchaser") in the Offer to Purchase
and on Schedule I thereto is incorporated herein by reference.
5
<PAGE>
(c) The information set forth in Section 10 ("Certain Information
Concerning NTT, NTT Communications and Purchaser") in the Offer to Purchase
and on Schedule I thereto is incorporated herein by reference. During the last
five years, none of Purchaser, NTT Communications or NTT or, to the best
knowledge of Purchaser, NTT Communications and NTT, any of the persons listed
on Schedule I to the Offer to Purchase (i) has been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) or (ii) was
a party to any judicial or administrative proceeding (except for matters that
were dismissed without sanction or settlement) that resulted in a judgment,
decree or final order enjoining the person from future violations of, or
prohibiting activities subject to, federal or state or securities laws, or a
finding of any violation of such laws. Unless otherwise noted, the persons
listed on Schedule I to the Offer to Purchase are citizens of Japan.
ITEM 4. TERMS OF THE TRANSACTION.
The information set forth in the Offer to Purchase is incorporated herein
by reference.
ITEM 5. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.
(a) The information set forth in Section 1 ("Special Factors--Related Party
Transactions") and Section 1 ("Special Factors--Background of the Offer;
Contacts with Verio") in the Offer to Purchase is incorporated herein by
reference. Except as disclosed above in this Item 5(a), during the past two
years, there have been no transactions that would be required to be disclosed
under this Item 5(a) between any of Purchaser, NTT Communications or NTT, or,
to the best knowledge of Purchaser, NTT Communications, and NTT, any of the
persons listed on Schedule I to the Offer to Purchase, and the Company or any
of its executive officers, directors or affiliates.
(b) The information set forth under "Introduction," and Section 1 ("Special
Factors--Background of the Offer; Contacts With Verio"), Section 1 ("Special
Factors--The Merger Agreement") and Section 1 ("Special Factors--Related Party
Transactions") is incorporated herein by reference. Except as set forth under
"Introduction" and Section 1 ("Special Factors--Background of the Offer;
Contacts with Verio"), Section 1 ("Special Factors--The Merger Agreement") and
Section 1 ("Special Factors--Related Party Transactions") in the Offer to
Purchase, there have been no material contacts, negotiations or transactions
during the past two years which would be required to be disclosed under this
Item 5(b) between any of Purchaser, NTT Communications or NTT or any of their
respective subsidiaries or, to the best knowledge of Purchaser, NTT
Communications and NTT, any of those persons listed on Schedule I to the Offer
to Purchase and the Company or its affiliates concerning a merger,
consolidation or acquisition, a tender offer or other acquisition of
securities, an election of directors or a sale or other transfer of a material
amount of the assets.
ITEM 6. PURPOSE OF THE TRANSACTION AND PLANS OR PROPOSALS.
The information set forth under "Introduction", Section 1 ("Special
Factors--Background of the Offer; Contacts with Verio"), Section 1 ("Special
Factors--Purpose and Structure of the Offer and the Merger; Reasons of NTT
Communications for the Offer and the Merger"), Section 1 ("Special Factors--
The Merger Agreement"), Section 1 ("Special Factors--Statutory Requirements"),
Section 1 ("Special Factors--Appraisal Rights"), Section 1 ("Special Factors--
Plans for Verio After the Offer and the Merger"), Section 8 ("Possible Effects
of the Offer on the Market for the Shares; Nasdaq Listing; Exchange Act
Registration; Margin Regulations") and Section 12 ("Dividends and
Distributions") in the Offer to Purchase is incorporated herein by reference.
ITEM 7. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
The information set forth under Section 11 ("Source and Amount of Funds")
in the Offer to Purchase is incorporated herein by reference.
6
<PAGE>
ITEM 8. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a) The information set forth under "Introduction," Section 1 ("Special
Factors--Related Party Transactions"), Section 1 ("Special Factors--Beneficial
Ownership of Shares") and Section 10 ("Certain Information Concerning NTT, NTT
Communications and the Purchaser") in the Offer to Purchase is incorporated
herein by reference.
(b) The information set forth on Schedule II to the Offer to Purchase is
incorporated herein by reference.
ITEM 9. PERSONS/ASSETS RETAINED, EMPLOYED, COMPENSATED OR USED.
The information set forth under "Introduction" and Section 15 ("Fees and
Expenses") in the Offer to Purchase is incorporated herein by reference.
ITEM 10. FINANCIAL STATEMENTS.
Not applicable.
ITEM 11. ADDITIONAL INFORMATION.
(a) The information set forth in Section 1 ("Special Factors--Purpose and
Structure of the Offer and the Merger; Reasons of NTT Communications for the
Offer and the Merger"), Section 1 ("Special Factors--Related Party
Transactions"), Section 1 ("Special Factors--The Merger Agreement"), Section 1
("Special Factors--Statutory Requirements"), Section 1 ("Special Factors--
Appraisal Rights"), Section 1 ("Special Factors--Plans for Verio after the
Offer and the Merger") and Section 14 ("Legal Matters; Required Regulatory
Approvals") in the Offer to Purchase is incorporated herein by reference.
(b) The information set forth in the Offer to Purchase and Letter of
Transmittal is incorporated herein by reference.
ITEM 12. EXHIBITS.
<TABLE>
<C> <S>
(a)(1)(A) Offer to Purchase dated May 17, 2000.
(a)(1)(B) Omitted.
(a)(1)(C) Letter of Transmittal.
(a)(1)(D) Notice of Guaranteed Delivery.
(a)(1)(E) Letter from the Dealer Managers to Brokers, Dealers, Commercial
Banks, Trust Companies and Nominees.
(a)(1)(F) Letter to clients for use by Brokers, Dealers, Commercial Banks,
Trust Companies and Nominees.
(a)(1)(G) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
(a)(1)(H) Form of Summary Advertisement as published on May 17, 2000.
(a)(1)(I) Text of press release issued by Verio and NTT Communications dated
May 7, 2000 (incorporated by reference to Exhibit 99 to the Schedule
TO of NTT dated May 8, 2000).
(a)(1)(J) Text of press release issued by NTT Communications dated May 17,
2000.
</TABLE>
7
<PAGE>
<TABLE>
<C> <S>
(a)(5)(A) Pages 51 through 71 of the Annual Report on Form 10-K/A of Verio for
the year ended December 31, 1999 (incorporated by reference to the
Form 10-K/A of Verio, filed on March 27, 2000 (file No. 0-24219)).
(a)(5)(B) Pages 2 through 9 of the Quarterly Report on Form 10-Q of Verio for
the quarter ended March 31, 2000 (incorporated by reference to the
Form 10-Q of Verio, filed on May 10, 2000 (File No. 0-24219)).
(a)(5)(C) Complaint of Ari Rosner against Verio Inc., Steven Halstedt,
Yukimasa Ito, Justin L. Jaschke, James C. Allen, Trygve E. Myhren,
Paul J. Salem, Arthur L. Cahoon and Nippon Telegraph and Telephone
Corporation.
(a)(5)(D) Complaint of Steven Wolk against Arthur L. Cahoon, Paul J. Salem,
Steven C. Halstedt, James C. Allen, Justin L. Jaschke, Trygve E.
Myhren, Yukimasa Ito and Verio Inc.
(a)(5)(E) Complaint of Jacob Weinstock against Steven C. Halstedt, Justin L.
Jaschke, James C. Allen, Trygve E. Myhren, Paul J. Salem, Yukimasa
Ito, Arthur L. Cahoon, Verio Inc. and Nippon Telegraph and Telephone
Corporation.
(a)(5)(F) Complaint of David Brett against Steven C. Halstedt, Justin L.
Jaschke, James C. Allen, Trygve E. Myhren, Paul J. Salem, Yukimasa
Ito, Arthur L. Cahoon, Verio Inc. and Nippon Telegraph and Telephone
Corporation.
(a)(5)(G) Complaint of Susan Cody against Verio Inc., Herbert H. Hribar, Tom
Marinkovich, Trygve E. Myhren, Paul J. Salem, James C. Allen, Steven
C. Halstedt, George J. Still, Jr., Arthur L. Cahoon and Yukimasa
Ito.
(b) None.
(c)(1) Opinion of Salomon Smith Barney Inc. to the Board of Directors of
Verio, dated May 7, 2000 (included as Annex A to the Offer to
Purchase filed as Exhibit (a)(1)(A) hereto).
(c)(2) Materials presented by Salomon Smith Barney Inc. to the Board of
Directors of Verio.
(c)(3) Opinion of Deutsche Bank Securities Inc. to the Board of Directors
of NTT Communications, dated May 7, 2000 (included as Annex B of the
Offer to Purchase filed herewith as Exhibit (a)(1)(A)).
(c)(4) Materials presented by Deutsche Bank Securities Inc. to the
Management of NTT Communications.
(c)(5) Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated to the
Board of Directors of NTT Communications dated May 7, 2000 (included
as Annex C of the Offer to Purchase filed herewith as Exhibit
(a)(1)(A)).
(c)(6) Materials presented by Merrill Lynch, Pierce, Fenner & Smith
Incorporated to the Board of Directors of NTT Communications.
(d)(1) Agreement and Plan of Merger dated as of May 7, 2000, by and among
NTT Communications, Purchaser and Verio (incorporated by reference
to Exhibit 1 to Amendment No. 1 to the Schedule 13D of NTT filed on
May 10, 2000).
(d)(2) Investment Agreement dated April 7, 1998 between Verio and NTT
(incorporated by reference to Exhibit 2 to the Schedule 13D of NTT
filed on May 22, 1998).
(d)(3) Stock Purchase and Master Strategic Relationship Agreement dated as
of April 7, 1998 between Verio and NTT (incorporated by reference to
Exhibit 1 to the Schedule 13D of NTT filed on May 22, 1998).
(d)(4) Confidentiality Agreement between Verio and NTT Communications dated
as of April 7, 2000.
(e) Not applicable.
(f) Section 262 of the Delaware General Corporation Law (included as
Annex D of the Offer to Purchase filed herewith as Exhibit
(a)(1)(A)).
(g) None.
(h) None.
</TABLE>
8
<PAGE>
ITEM 13. INFORMATION REQUIRED BY SCHEDULE 13E-3.
The information set forth in the sections of the Offer to Purchase entitled
"Summary of the Offer", "Introduction", Section 7 ("Price Range of the
Shares"), Section 12 ("Dividends and Distributions"), Section 1 ("Special
Factors--Related Party Transactions"), Section 10 ("Certain Information
Concerning NTT, NTT Communications and Purchaser"), Section 2 ("Terms of the
Offer"), Section 1 ("Special Factors--The Merger Agreement"), Section 4
("Procedures For Accepting the Offer and Tendering Shares"), Section 5
("Withdrawal Rights"), Section 6 ("Material Federal Income Tax Consequences"),
Section 1 ("Special Factors--Background of the Offer; Contacts with Verio"),
Section 1 ("Special Factors--Purpose and Structure of the Offer and the
Merger; Reasons of NTT Communications For the Offer and the Merger"), Section
10 ("Certain Information Concerning NTT, NTT Communications and Purchaser"),
Section 1 ("Plans For Verio After the Offer and the Merger"), Section 8
("Possible Effects of the Offer on the Market for the Shares; Nasdaq Listing;
Exchange Act Registration; Margin Regulations"), Section 1 ("Special Factors--
Fairness of the Offer and the Merger"), Section 1 ("Special Factors--Position
of NTT, NTT Communications and Purchaser Regarding Fairness of the Offer and
the Merger"), Section 1 ("Special Factors--Opinion of Financial Advisor of
Verio"), Section 1 ("Special Factors--Opinion of Financial Advisors of NTT
Communications"), Section 11 ("Source and Amount of Funds"), Section 15 ("Fees
and Expenses"), Section 1 ("Special Factors--Transactions and Arrangements
Concerning the Shares"), Section 1 ("Special Factors--Interests of Certain
Persons in the Offer and the Merger"), Section 9 ("Certain Information
Concerning Verio"), Schedule I and Schedule II are incorporated by reference
herein.
9
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and
correct.
SCHEDULE TO AND SCHEDULE 13E-3
Nippon Telegraph and Telephone
Corporation
/s/ Kanji Koide
By: _________________________________
Kanji Koide
Name: _______________________________
Senior Vice President
Title: ______________________________
NTT Communications Corporation
/s/ Masanobu Suzuki
By: _________________________________
Masanobu Suzuki
Name: _______________________________
President
Title: ______________________________
Chaser Acquisition, Inc.
/s/ Junichi Nomura
By: _________________________________
Junichi Nomura
Name: _______________________________
President
Title: ______________________________
SCHEDULE 13D
Nippon Telegraph and Telephone
Company
/s/ Kanji Koide
By: _________________________________
Kanji Koide
Name: _______________________________
Senior Vice President
Title: ______________________________
NTT Communications Corporation
/s/ Masanobu Suzuki
By: _________________________________
Masanobu Suzuki
Name: _______________________________
President
Title: ______________________________
10
<PAGE>
NTT Rocky, inc.
/s/ Keisuke Nakasaki
By: _________________________________
Keisuke Nakasaki
Name: _______________________________
President
Title: ______________________________
SCHEDULE 13E-3
Verio Inc.
/s/ Justin L. Jaschke
By: _________________________________
Justin L. Jaschke
Name: _______________________________
Chief Executive Officer
Title: ______________________________
Date: May 17, 2000
11
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
(a)(1)(A) Offer to Purchase dated May 17, 2000.
(a)(1)(B) Omitted.
(a)(1)(C) Letter of Transmittal.
(a)(1)(D) Notice of Guaranteed Delivery.
(a)(1)(E) Letter from the Dealer Managers to Brokers, Dealers, Commercial
Banks, Trust Companies and Nominees.
(a)(1)(F) Letter to clients for use by Brokers, Dealers, Commercial Banks,
Trust Companies and Nominees.
(a)(1)(G) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
(a)(1)(H) Form of Summary Advertisement as published on May 17, 2000.
(a)(1)(I) Text of press release issued by Verio and NTT Communications dated
May 7, 2000 (incorporated by reference to Exhibit 99 to the
Schedule TO of NTT dated May 8, 2000).
(a)(1)(J) Text of press release issued by NTT Communications dated May 17,
2000.
(a)(5)(A) Pages F-51 through F-71 of the Annual Report on Form 10-K/A of
Verio for the year ended December 31, 1999 (incorporated by
reference to the Form 10-K/A of Verio, filed on March 27, 2000
(File No. 0-24219)).
(a)(5)(B) Pages 2 through 9 of the Quarterly Report on Form 10-Q of Verio
for the quarter ended March 31, 2000 (incorporated by reference to
the Form 10-Q of Verio, filed on May 10, 2000 (File No. 0-24219)).
(a)(5)(C) Complaint of Ari Rosner against Verio Inc., Steven Halstedt,
Yukimasa Ito, Justin L. Jaschke, James C. Allen, Trygve E. Myhren
J. Salem, Arthur L. Cahoon and Nippon Telegraph and Telephone
Corporation.
(a)(5)(D) Complaint of Steven Wolk against Arthur L. Cahoon, Paul J. Salem,
Steven C. Halstedt, James C. Allen, Justin L. Jaschke, Trygve E.
Myhren, Yukimasa Ito and Verio Inc.
(a)(5)(E) Complaint of Jacob Weinstock against Steven C. Halstedt, Justin L.
Jaschke, James C. Allen, Trygve E. Myhren, Paul J. Salem, Yukimasa
Ito, Arthur L. Cahoon, Verio Inc. and Nippon Telegraph and
Telephone Corporation.
(a)(5)(F) Complaint of David Brett against Steven C. Halstedt, Justin L.
Jaschke, James C. Allen, Trygve E. Myhren, Paul J. Salem, Yukimasa
Ito, Arthur L. Cahoon, Verio Inc. and Nippon Telegraph and
Telephone Corporation.
(a)(5)(G) Complaint of Susan Cody against Verio Inc., Herbert Hribar, Tom
Marinkovich, Trygve E. Myhren, Paul J. Salem, James C. Allen,
Steven C. Halstedt, George J. Still, Jr., Arthur L. Cahoon, Justin
L. Jaschke and Yukimasa Ito.
(b) None.
(c)(1) Opinion of Salomon Smith Barney Inc. to the Board of Directors of
Verio, dated May 7, 2000 (included as Annex A of the Offer to
Purchase filed herewith as Exhibit (a)(1)(A)).
(c)(2) Materials presented by Salomon Smith Barney Inc. to the Board of
Directors of Verio.
(c)(3) Opinion of Deutsche Bank Securities Inc. to the Board of Directors
of NTT Communications, dated May 7, 2000 (included as Annex B of
the Offer to Purchase filed herewith as Exhibit (a)(1)(A)).
(c)(4) Materials presented by Deutsche Bank Securities Inc. to the Board
of Directors of NTT Communications.
(c)(5) Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated to
the Board of Directors of NTT Communications dated May 7, 2000
(included as Annex C of the Offer to Purchase filed herewith as
Exhibit (a)(1)(A)).
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
(c)(6) Materials presented by Merrill Lynch, Pierce, Fenner & Smith
Incorporated to the Board of Directors of NTT Communications.
(d)(1) Agreement and Plan of Merger dated as of May 7, 2000, by and among
NTT Communications, Purchaser and Verio (incorporated by reference
to Exhibit 1 to Amendment No. 1 to the Schedule 13D of NTT filed
on May 10, 2000).
(d)(2) Investment Agreement dated April 7, 1998 between Verio and NTT
(incorporated by reference to Exhibit 2 to the Schedule 13D of NTT
filed on May 22, 1998).
(d)(3) Stock Purchase and Master Strategic Relationship Agreement dated
as of April 7, 1998 between Verio and NTT (incorporated by
reference to Exhibit 1 to the Schedule 13D of NTT filed on May 22,
1998).
(d)(4) Confidentiality Agreement between Verio and NTT Communications
dated as of April 7, 2000.
(e) Not applicable.
(f) Section 262 of the Delaware General Corporation Law (included as
Annex D of the Offer to Purchase filed herewith as Exhibit
(a)(1)(A)).
(g) None.
(h) None.
</TABLE>
13
<PAGE>
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
at
$60.00 Net Per Share
and
All Outstanding Shares of Series A 6.75% Convertible Preferred Stock
at
$62.136 Net Per Share
of
Verio Inc.
by
Chaser Acquisition, Inc.
an indirect wholly owned subsidiary of
NTT Communications Corporation
a wholly owned subsidiary of
Nippon Telegraph and Telephone Corporation
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON WEDNESDAY, JUNE 14, 2000, UNLESS THE OFFER IS EXTENDED.
A summary of the principal terms of the offer appears on pages (ii) through
(iv).
You should read this entire document carefully before deciding whether to
tender
your shares.
---------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------
The Dealer Managers for the Offer are:
Deutsche Banc Alex. Brown Merrill Lynch & Co.
May 17, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Special Factors....................................................... 3
Background of the Offer; Contacts with Verio........................... 3
Recommendation of the Verio Board...................................... 8
Fairness of the Offer and the Merger................................... 8
Opinion of Financial Advisor of Verio.................................. 11
Opinion of Financial Advisors of NTT Communications.................... 17
Position of NTT, NTT Communications and Purchaser Regarding Fairness of
the Offer and the Merger.............................................. 32
Purpose and Structure of the Offer and the Merger; Reasons of NTT
Communications for the Offer and the Merger........................... 32
Plans for Verio After the Offer and the Merger......................... 33
Preferred Stock........................................................
Verio Warrants.........................................................
The Merger Agreement................................................... 34
Confidentiality Agreement..............................................
Statutory Requirements................................................. 47
Appraisal Rights....................................................... 47
Related Party Transactions............................................. 50
Beneficial Ownership of Shares......................................... 55
Transactions and Arrangements Concerning the Shares.................... 57
Interests of Certain Persons in the Offer and the Merger............... 58
2. Terms of the Offer.................................................... 61
3. Acceptance for Payment and Payment for Shares......................... 63
4. Procedures for Accepting the Offer and Tendering Shares............... 64
5. Withdrawal Rights..................................................... 66
6. Material Federal Income Tax Consequences.............................. 67
7. Price Range of the Shares............................................. 68
8. Possible Effects of the Offer on the Market for the Shares; Nasdaq
Listing; Exchange Act Registration; Margin Regulations............... 69
9. Certain Information Concerning Verio.................................. 70
10. Certain Information Concerning NTT, NTT Communications and Purchaser.. 73
11. Source and Amount of Funds............................................ 74
12. Dividends and Distributions........................................... 74
13. Conditions of the Offer............................................... 74
14. Legal Matters; Required Regulatory Approvals.......................... 76
15. Fees and Expenses..................................................... 79
16. Miscellaneous......................................................... 80
</TABLE>
<PAGE>
<TABLE>
<C> <S>
--Directors and Executive Officers of Nippon Telegraph and
Schedule I Telephone Corporation
--Directors and Executive Officers of NTT Communications
Corporation
--Directors and Executive Officers of Chaser Acquisition, Inc.
Schedule II --Transactions of Certain Persons in Verio Common Stock
Annex A --Opinion of Salomon Smith Barney Inc.
Annex B --Opinion of Deutsche Bank Securities Inc.
Annex C --Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
Annex D --Excerpts from the General Corporation Law of the State of
Delaware relating to the Rights of Dissenting Stockholders
pursuant to Section 262
</TABLE>
<PAGE>
SUMMARY OF THE OFFER
Principal terms
. NTT Communications is offering to buy all of the outstanding shares of
common stock of Verio not owned by NTT Communications or its
subsidiaries. The tender price for the common stock is $60.00 per share,
in cash. Tendering stockholders will not have to pay brokerage fees or
commissions.
. NTT Communications is also offering to buy all of the outstanding shares
of preferred stock of Verio. The tender price for the preferred stock is
$62.136 per share, in cash, plus, if the purchase of shares of preferred
stock occurs after July 31, 2000, all accumulated and unpaid dividends
on the share of preferred stock from August 1, 2000 through the
expiration date of the offer. Tendering stockholders will not have to
pay brokerage fees or commissions. If before July 18, 2000 we purchase
shares of preferred stock tendered pursuant to the offer, we and Verio
will instruct the deposit agent that is holding funds in a deposit
account established for the benefit of holders of preferred stock to pay
the tendering holders an amount equal to $.8438 per share so purchased.
. The offer is the first step in our plan to acquire all of the
outstanding Verio shares, as provided in our merger agreement with
Verio. If the offer is successful, we will acquire each remaining share
of Verio common stock in a later merger for $60.00 per share in cash and
will acquire each remaining share of Verio preferred stock in the merger
for $62.136 per share, in cash, plus, if the merger becomes effective
after July 31, 2000, all accumulated dividends on the share of preferred
stock from August 1, 2000 through the effective time of the merger. If
the Effective Time of the Merger is before July 18, 2000, we and Verio
will instruct the deposit agent that is holding funds in a deposit
account established for the benefit of holders of preferred stock to pay
in respect of the preferred stock not purchased pursuant to the offer
(other than preferred stock as to which appraisal rights are exercised)
an additional amount equal to $.8438 per share.
. The offer will expire at 12:00 midnight, New York City time, on
Wednesday, June 14, 2000, unless we extend the offer.
. If we decide to extend the offer, we will issue a press release giving
the new expiration date no later than 9:00 a.m., New York City time, on
the first business day after the previously scheduled expiration of the
offer.
Verio board recommendation
. By unanimous vote of all directors, with the exception of the member of
the Verio board of directors that we designated pursuant to a prior
agreement between Verio and us, who did not participate in the meeting,
the Verio board of directors has approved the merger agreement, the
offer and the merger and determined that the terms of the offer and the
merger, taken together, are fair to, and in the best interests of, the
holders of Verio's common stock and preferred stock. The Verio board
recommends that stockholders of Verio accept the offer and tender their
shares in the offer.
Conditions
We are not required to complete the offer unless:
. the number of shares of common stock validly tendered and not withdrawn
prior to the expiration of the offer, when added to the number of shares
of common stock that NTT
S-1
<PAGE>
Communications and its subsidiaries already own, equals at least a
majority of the outstanding shares of Verio common stock, assuming the
exercise or conversion of all options or other securities convertible
into shares of common stock,
. we receive U.S. federal antitrust clearance for the acquisition of
shares, and
. we receive clearance for the acquisition of shares from the U.S.
Committee on Foreign Investment in the United States under the Exon-
Florio Amendment to the United States Defense Production Act of 1950.
Other conditions to the offer are described on pages 76 through 78. The
offer is not conditioned on our obtaining financing.
Ownership of Verio Shares by NTT Communications
. NTT Communications currently owns 8,987,754 shares of Verio common stock
through a subsidiary, constituting approximately 10.9% of Verio's issued
and outstanding shares of common stock. A subsidiary of NTT holds
options to purchase 66,000 shares of common stock issued under Verio's
1998 Non-Employee Director Stock Incentive Plan as a result of Yukimasa
Ito, our designee, being a member of the Verio board of directors.
. Shares of Verio common stock that NTT Communications and its
subsidiaries own will not be purchased pursuant to the offer and will be
cancelled in the merger without payment.
Procedures for tendering
If you wish to accept the offer, this is what you must do:
. If you are a record holder of Verio shares (i.e., a stock certificate
has been issued to you), you must complete and sign the enclosed letter
of transmittal and send it with your stock certificate to the depositary
for the offer or follow the procedures described in the offer for book-
entry transfer. These materials must reach the depositary before the
offer expires. Detailed instructions are contained in the letter of
transmittal and on pages 64 through 67 of this document.
. If you are a record holder but your stock certificate is not available
or you cannot deliver it to the depositary before the offer expires, you
may be able to tender your shares using the enclosed notice of
guaranteed delivery. Please call our information agent, Morrow & Co.,
Inc., at (800) 566-9061 for assistance. See page 66 for further details.
. If you hold your shares through a broker or bank, you should contact
your broker or bank and give instructions that your shares be tendered.
Withdrawal rights
. If, after tendering your shares in the offer, you decide that you do NOT
want to accept the offer, you can withdraw your shares by instructing
the depositary before the offer expires. If you tendered by giving
instructions to a broker or bank, you must instruct the broker or bank
to arrange for the withdrawal of your shares. See pages 67 and 68 for
further details.
No subsequent offering period
. We have agreed not to provide a subsequent offering period during which
Verio stockholders who do not tender in the offer would have another
opportunity to tender at the same price.
S-2
<PAGE>
Those stockholders will have to wait until after the merger is completed
to receive cash consideration, as further described below. See page 36
for further details.
Recent Verio trading prices; subsequent trading
. The Verio common stock is traded on the Nasdaq National Market. The
closing price for Verio common stock was:
$35 15/16 on May 5, 2000, the last trading day before we announced the
execution of the merger agreement with Verio, and
$57 3/8 on May 16, 2000, the last trading day before the commencement of
the offer.
. The Verio preferred stock is not publicly traded on any securities
exchange and is traded only on a limited basis in the over-the-counter
securities market. On May 5, 2000, the last trading day before we
announced the execution of the merger agreement with Verio, the closing
bid price for the Verio preferred stock was $45.799.
Before deciding whether to tender, you should obtain a current market
quotation for the shares.
. If the offer is successful, we expect the shares of Verio common stock
to be traded on the Nasdaq National Market until the time of the merger,
although we expect trading volume to be below its pre-offer level.
Further Information
If you have questions about the offer, you can call:
Our Information Agent:
MORROW & CO., INC.
445 Park Avenue
5th Floor
New York, New York 10022
Call Collect: (212) 754-8000
Banks and Brokerage Firms, Please Call: (800) 662-5200
Stockholders, Please Call: (800) 566-9061
Our Dealer Managers:
Deutsche Banc Alex. Brown Merrill Lynch & Co.
Deutsche Bank Securities Inc. 2 World Financial Center
31 West 52nd Street 6th Floor
New York, New York 10019 New York, New York 10281-6100
(212) 250-6000 (Call Collect) (212) 236-3790 (Call Collect)
S-3
<PAGE>
To: All holders of shares of Common Stock and Series A 6.75% Convertible
Preferred Stock of Verio Inc.
INTRODUCTION
Chaser Acquisition, Inc., a Delaware corporation ("Purchaser") and an
indirect wholly owned subsidiary of NTT Communications Corporation ("NTT
Communications"), a limited liability joint stock company incorporated under
the laws of Japan and a wholly owned subsidiary of Nippon Telegraph and
Telephone Corporation ("NTT"), a limited liability joint stock company
incorporated under the laws of Japan, is offering to purchase (a) all of the
outstanding shares of common stock, par value $.001 per share ("Common
Stock"), of Verio Inc., a Delaware corporation ("Verio") (other than shares of
Common Stock already owned by NTT Communications and its subsidiaries), at a
purchase price of $60.00 per share, net to the seller in cash, without
interest thereon (the "Offer Price"), and (b) all of the outstanding shares of
Series A 6.75% Convertible Preferred Stock, par value $.001 per share
("Preferred Stock" and, together with the Common Stock, the "Shares"), at a
purchase price of $62.136 per share, plus, if the purchase of shares of
Preferred Stock occurs after July 31, 2000, all accumulated and unpaid
dividends on such share of Preferred Stock from August 1, 2000 to and
including the expiration date of the Offer (as defined below), net to the
seller in cash, without interest thereon (the "Preferred Offer Price"), on the
terms and subject to the conditions set forth in this Offer to Purchase and in
the related Letter of Transmittal (which, as amended or supplemented from time
to time, collectively constitute the "Offer"). Purchaser is also offering to
purchase the Verio Warrants described below under "Special Factors--Verio
Warrants," at a purchase price of $60.00 per warrant less the applicable
warrant exercise price, and any applicable withholding taxes, net to its
sellers in cash, without interest, on the terms and subject to the conditions
set forth in the Offer. The Verio Warrants are held by four holders and
entitle the holders upon exercise to acquire an aggregate of 1,306,228 shares
of Common Stock. For purposes of this Offer to Purchase, the term "Offer"
shall include the offer for the Verio Warrants and the term "Shares" shall
include the Verio Warrants, except where the context otherwise requires.
You will not be required to pay brokerage fees or commissions or, except as
described in Instruction 6 of the Letter of Transmittal, stock transfer taxes
on the purchase of Shares in the Offer. However, if you do not complete and
sign the Substitute Form W-9 that is included in the Letter of Transmittal,
you may be subject to a required backup federal income tax withholding of 31%
of the gross proceeds payable to you. See Section 4. We will pay all charges
and expenses of Deutsche Bank Securities Inc. and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, as Dealer Managers, Norwest Bank Minnesota, N.A.,
as Depositary, and Morrow & Co., Inc., as Information Agent, incurred in
connection with the Offer. See Section 15.
The Board of Directors of Verio (the "Verio Board") has by a unanimous vote
(with the exception of our designee on the Verio Board, who did not
participate in the meeting) approved the Merger Agreement, the Offer and the
Merger (as defined below), has determined that the terms of the Offer and the
Merger, taken together, are fair to, and in the best interests of, holders of
Verio Common Stock and holders of Verio Preferred Stock, and recommends that
holders of Verio Common Stock and holders of Verio Preferred Stock accept the
Offer and tender their Shares pursuant to the Offer.
We are not required to purchase any Shares unless there shall have been
validly tendered and not withdrawn prior to the expiration of the Offer such
number of shares of Common Stock that, together with the shares of Common
Stock then owned by NTT Communications and its subsidiaries, would constitute
at least a majority of the shares of Common Stock that in the aggregate are
outstanding determined on a fully diluted basis (assuming the exercise of all
options to purchase shares of Common Stock, and the conversion or exchange of
all securities convertible or exchangeable into shares of Common Stock,
outstanding at the expiration date of the Offer) (the
1
<PAGE>
"Minimum Condition"). We reserve the right (subject to the applicable rules
and regulations of the Securities and Exchange Commission (the "SEC") and the
prior written consent of Verio), which we presently have no intention of
exercising, to waive or reduce the Minimum Condition and to elect to purchase
a smaller number of shares of Common Stock. The Offer is also subject to
certain other terms and conditions. See Sections 2, 13, and 14 below.
We are making the Offer under the Agreement and Plan of Merger (the "Merger
Agreement"), dated as of May 7, 2000, among Verio, NTT Communications and
Purchaser. Following the consummation of the Offer and the satisfaction or
waiver of certain conditions, Purchaser will merge with and into Verio (the
"Merger"), with Verio continuing as the surviving corporation (the "Surviving
Corporation"). In the Merger, (i) each share of Common Stock issued and
outstanding immediately prior to the Effective Time (as defined herein) (other
than shares of Common Stock owned by Verio or any wholly owned subsidiary of
Verio and any shares of Common Stock owned by NTT Communications or any wholly
owned subsidiary of NTT Communications and other than shares of Common Stock
held by stockholders who properly perfect appraisal rights under the Delaware
General Corporation Law (the "DGCL")) will be converted into the right to
receive $60.00 in cash, without interest, or any higher price paid per share
of Common Stock in the Offer (the "Merger Consideration"), and (ii) each share
of Preferred Stock issued and outstanding immediately prior to the Effective
Time (other than shares of Preferred Stock owned by Verio or any wholly owned
subsidiary of Verio and any shares of Preferred Stock owned by NTT
Communications or any wholly owned subsidiary of NTT Communications and other
than shares of Preferred Stock held by stockholders who properly perfect
appraisal rights under the DGCL) will be converted into the right to receive
$62.136, plus, if the Effective Time is after July 31, 2000, all accumulated
and unpaid dividends on such share of Preferred Stock from August 1, 2000 to
and including the Effective Time, in cash, without interest, (the "Preferred
Merger Consideration"). Section 1 below contains a more detailed description
of the Merger Agreement. Section 6 below describes the principal federal
income tax consequences of the sale or exchange of Shares in the Offer and the
Merger.
If shares of Preferred Stock are accepted for purchase pursuant to the
Offer prior to July 18, 2000 holders of the Preferred Stock whose shares of
Preferred Stock were purchased will be entitled to a payment from the deposit
account established at the time of the original sale of the Preferred Stock.
If the Effective Time is prior to July 18, 2000, holders of Preferred Stock
outstanding immediately prior to the Effective Time (other than Purchaser, NTT
Communications or any of its subsidiaries) will be entitled to a payment from
such deposit account provided such holders have not exercised their appraisal
rights. See "Special Factors--Preferred Stock."
Salomon Smith Barney Inc. ("Salomon Smith Barney"), Verio's financial
advisor, has delivered to the Verio Board a written opinion that, as of the
date of the Merger Agreement, the per Share consideration to be received by
the holders of Common Stock (other than NTT Communications and its
affiliates), and the per Share consideration to be received by the holders of
Preferred Stock in the Offer and the Merger, taken together, was fair from a
financial point of view to stockholders. A copy of the Salomon Smith Barney
opinion is attached as Annex A hereto, and stockholders are urged to read the
opinion in its entirety for a description of the assumptions made, matters
considered and limitations of the review undertaken by Salomon Smith Barney.
See "Special Factors--Opinion of Financial Advisor of Verio."
The approval and adoption of the Merger Agreement by Verio requires the
affirmative vote of holders of a majority of the outstanding shares of Common
Stock. As a result, if the Minimum Condition and the other conditions to the
Offer are satisfied and the Offer is completed, NTT and its subsidiaries will
own a sufficient number of shares of Common Stock to ensure that the Merger
Agreement will be approved by Verio's stockholders. See "Special Factors--
Statutory Requirements."
Verio has informed us that, as of May 11, 2000, there were (a) 82,615,431
shares of Common Stock issued and outstanding (2,860,000 of which are held by
a subsidiary of Verio and 8,987,754 of
2
<PAGE>
which are owned by a subsidiary of NTT Communications), (b) 17,787,264 shares
of Common Stock subject to issuance under outstanding options (66,000 of which
are held by a subsidiary of NTT Communications and 474,200 of which are
subject to option deferral agreements), (c) 1,306,228 shares of Common Stock
subject to issuance under the Verio Warrants, (d) 1,408,320 shares of Common
Stock subject to issuance under warrants issued by Verio in 1997 and (e)
7,200,000 shares of Preferred Stock issued and outstanding, which are
convertible into 7,456,302 shares of Common Stock. If Purchaser acquires at
least 49,092,796 shares of Common Stock in the Offer, ownership of such shares
and the shares of Common Stock already owned by NTT Communications and its
subsidiaries (which will be transferred to Purchaser) will give Purchaser
control of a majority of the outstanding shares of Common Stock (assuming the
exercise of all options to purchase shares of Common Stock and the conversion
or exchange of all securities convertible or exchangeable into shares of
Common Stock outstanding at the expiration date of the Offer). Accordingly,
Purchaser would have sufficient voting power to approve the Merger without the
affirmative vote of any other stockholder.
Verio has advised us that each of its executive officers and directors
intend to tender in the Offer all Shares that they own of record or
beneficially.
The Offer is conditioned upon the fulfillment of the conditions described
in Section 13 below. The Offer will expire at 12:00 midnight, New York City
time, on Wednesday, June 14, 2000, unless we extend it.
This Offer to Purchase and the related letter of transmittal contain
important information which you should read carefully before you make any
decision with respect to the Offer.
1. Special Factors.
Background of the Offer; Contacts with Verio.
On May 15, 1998, a U.S. subsidiary of NTT purchased 8,987,754 shares of
Common Stock pursuant to a stock purchase agreement between NTT and Verio. At
the time of the purchase of shares of Common Stock, NTT and Verio entered into
the Investment Agreement (as defined herein), which contains certain
restrictions on the shares of Common Stock purchased by the NTT subsidiary,
and which grants NTT the right to name one member of the Verio Board. See "--
Related Party Transactions."
In April of 1999, Verio's management met with representatives of Salomon
Smith Barney to discuss various possible alternatives available to Verio to
leverage its assets, customer base and distribution channels, and generally to
increase its stock performance. Verio formally engaged Salomon Smith Barney,
as of April 21, 1999, as its financial advisor for the purpose of assisting
Verio in identifying logical candidates for strategic relationships that would
further these efforts.
Over most of the remainder of 1999, Verio and its financial advisors met
with several companies to discuss possible strategic relationships that would
allow the two companies to leverage their respective capabilities. In several
instances, these discussions led to conversations about the possible merger of
the two companies' operations. In some cases, Verio and the other company
began to conduct preliminary due diligence investigations of each other.
However, none of these discussions proceeded past a preliminary due diligence
stage, and no firm proposals were presented.
On November 29, 1999, Justin Jaschke, the chief executive officer of Verio,
and Sean Brophy, the vice president of corporate development of Verio, based
on an introduction by an investment bank, met by videoconference with the
chief executive officer and the chief financial officer of a company in the
telecommunications industry (the "Interested Party") to discuss generally
areas of mutual interest and potential cooperation. At the end of the
videoconference, the parties agreed to attempt to have a subsequent, in-person
meeting and to have larger group meetings.
3
<PAGE>
At a meeting on December 16, 1999, in connection with its analysis of the
budget presented by management for 2000, and various alternative strategic
initiatives that might be undertaken by Verio, the Verio Board directed
management to explore strategic alternatives with respect to the Internet
access portion of its business, including the possibility of separating the
Internet access portion from the web-hosting and enhanced services aspects of
its business. During late 1999 and early 2000, Verio, along with Salomon Smith
Barney, began to consider potential alternatives and whether shareholder value
would be enhanced by disposing of the internet access portion of Verio's
business in order to focus its efforts more exclusively on the web-hosting and
enhanced services aspects of Verio's business. NTT Communications, through its
designee on the Verio Board, was aware of Verio's deliberations and
discussions concerning this possibility. NTT Communications informed Verio
that, if Verio decided to sell its internet access business, NTT
Communications might be interested in making a proposal to acquire that
business.
On January 12, 2000, Mr. Jaschke met with the senior management of another
telecommunications company during an industry conference sponsored by Salomon
Smith Barney. The parties discussed their respective business plans and
strategies and the potential synergies that could result from a combination of
their businesses. At the end of the meeting, Mr. Jaschke and this other
company's management agreed to have further in-person meetings. Senior
management teams from Verio and this other company then met on January 25,
2000 and continued the discussion of their respective businesses and potential
synergies. The meetings were completed without any determination being made as
to what further steps, if any, should be taken, and neither company thereafter
indicated of any significant interest in pursuing a potential combination, and
no other significant discussions on that topic took place between Verio and
the other company.
On February 10, 2000, Mr. Jaschke, Mr. Brophy, Peter Fritzinger, the chief
financial officer of Verio, and other Verio representatives met with
representatives of NTT Communications to discuss NTT Communications' potential
interest if Verio were to decide to sell its Internet business. They discussed
the feasibility of such a sale to NTT Communications, as well as a potential
timeline for separating these assets from the web hosting and other enhanced
services aspects of Verio's business.
On February 25, 2000, Mr. Jaschke, Mr. Brophy and Mr. Fritzinger met with
the chief executive officer and chief financial officer of the Interested
Party. The Interested Party reported that they had undertaken an evaluation of
the operations of the two companies and the relative benefits that could be
derived from various possible strategic and operational relationships, and had
concluded that the synergies could best be leveraged though a combination of
the two companies. Following this discussion, both parties agreed to have a
follow-up meeting at the Interested Party's facilities to provide additional
background on their respective companies.
On March 7, 2000, members of Verio's senior management met at the
Interested Party's headquarters with members of the Interested Party's
management team to discuss Verio's and the Interested Party's respective
business and operations. At the end of the meeting, they agreed to have a
follow-up due diligence session at Verio's headquarters. On March 23 and 24,
2000 the Interested Party's senior management and a team of its legal and
financial advisors performed a due diligence review of Verio at Verio's
headquarters.
On March 8 and 9, 2000, NTT Communications' representatives met with
Christopher DeMarche, the chief technical officer of Verio, and James
Treuting, the president of Verio's internet access operations, for the purpose
of better understanding Verio's internet access business. The next day, Mr.
Jaschke, Mr. Fritzinger and Carla Donelson, the general counsel and corporate
secretary of Verio, met by teleconference with representatives of NTT
Communications. They informed NTT Communications that they believed the
separation of Verio's two businesses would require substantial effort and at
least four to six months to complete, in light of the significantly integrated
nature of the operation of Verio's Internet access, web-hosting and enhanced
services businesses. They also noted that the Verio Board and management had
not determined that such a sale was appropriate or desirable, and that they
had not yet determined the process for conducting any sale that they might
consider. The parties agreed to meet again at some later time to further
discuss this.
4
<PAGE>
On March 30, 2000, Mr. Jaschke received a letter from the Interested Party,
which included a summary of terms for a possible combination of the two
companies. These terms contemplated a stock-for-stock merger in which the
Interested Party would acquire Verio and Verio's stockholders would receive
stock in the Interested Party. The term sheet also contemplated that the two
largest stockholders of Verio (which would include NTT Communications) would
sign agreements to vote for the merger, and that at the time of execution of
the definitive agreement with respect to the merger the parties also would
enter into mutual operational agreements providing that each would become a
provider to the other of their respective products and services. The
Interested Party's letter indicated that the proposal was subject to the entry
into a mutually satisfactory definitive agreement, as well as to confirmation
by the Interested Party of its assumptions regarding Verio's first quarter
2000 performance.
Pursuant to the Investment Agreement, Mr. Jaschke informed Yukimasa Ito, a
member of the Verio Board and an officer of NTT Communications, of Verio's
receipt of the Interested Party's proposal. Mr. Ito is the designee of NTT on
the Verio Board pursuant to the Investment Agreement. The Investment Agreement
generally prohibited NTT from making proposals to acquire Verio, subject to
exceptions described in that agreement. However, if Verio, among other things,
elected to enter into negotiations regarding a merger or other business
combination, then NTT and its affiliates were to be released from these
restrictions so that they could participate in the process for negotiating a
potential merger or combination in a manner substantially comparable to that
made available to the other participants in the process. Mr. Ito called Mr.
Jaschke later that day to say that NTT Communications might be interested in
making a proposal with respect to Verio.
At a meeting of the Verio Board on April 1, 2000, Mr. Jaschke reviewed with
the Verio Board the contents of the Interested Party's summary of terms. At
the meeting, Salomon Smith Barney reviewed the proposed terms and discussed
the preliminary relative valuations of Verio and the Interested Party. At the
same meeting, Verio's legal counsel discussed with the Verio Board the
fiduciary duties of the members of the Verio Board. The Verio Board members
then asked Mr. Ito to state whether NTT Communications would respond to the
Interested Party's term sheet. Mr. Ito replied that he was not yet in a
position to formally comment, but that NTT Communications might have an
interest in presenting its own proposal to acquire Verio. Mr. Ito was then
excused from further participation in this meeting as well as all future Verio
Board deliberations relating to possible business combinations involving
Verio, including the discussions of the proposals made by the Interested Party
and NTT Communications. The Verio Board also discussed the impact that the
announcement of certain strategic operational agreements that Verio was then
negotiating might have on the relative valuation of Verio.
At a meeting of the Verio Board held on April 5, 2000, Mr. Ito was once
again asked to state whether NTT Communications would respond to the
Interested Party's term sheet. Mr. Ito confirmed that NTT Communications
potentially was interested in submitting a proposal to Verio concerning NTT
Communication's acquisition of Verio's business operations. Mr. Ito concluded
by stating that NTT Communications was giving serious consideration to this
matter and expected to indicate its interest in such a transaction, if any, by
Saturday morning, April 8, 2000. After Mr. Ito was excused from the meeting,
the Verio Board discussed the Interested Party's term sheet and NTT
Communications' potential interest. The Verio Board also discussed the impact
that the announcement of certain strategic operational agreements that Verio
was then negotiating might have on the relative valuation of Verio. The Verio
Board directed Verio's management to continue its due diligence review of the
Interested Party and to continue its negotiations of the Interested Party's
term sheet, including the proposed exchange ratio, pending further indications
of interest from NTT Communications.
On April 5, 6 and 7, 2000 representatives of Verio's management and its
legal and financial advisors met with representatives of the Interested Party
and its advisors at the Interested Party's facilities to conduct due
diligence. During these meetings the Interested Party delivered to the Verio
representatives a draft definitive agreement.
5
<PAGE>
At a meeting of the NTT Communications board of directors on April 7, 2000,
the President and Chief Executive Officer of NTT Communications, Masanobu
Suzuki, reviewed with the board the possible acquisition of Verio. The board
authorized Mr. Suzuki to continue to explore the possibility of making a
proposal to acquire Verio by means of a tender offer.
After the board meeting, Mr. Suzuki sent a letter to Mr. Jaschke expressing
the general conditions under which NTT Communications might be interested in
acquiring Verio. This nonbinding indication of interest contemplated a tender
offer by a subsidiary of NTT Communications for all outstanding shares of
Verio Common Stock for $65 in cash per share, net to the seller, followed by a
merger of NTT Communications' subsidiary with and into Verio. Mr. Ito
indicated that NTT Communications had not yet approved any plan or proposal to
acquire Verio, and that NTT Communications' board of directors had only
authorized its management to explore the possibility of making a proposal on
the terms described in the letter. NTT Communications and Verio also signed a
confidentiality agreement, dated as of April 7, 2000.
On the basis of the non-binding indication of interest submitted by NTT
Communications, the Verio Board held a meeting on April 7, 2000 with its legal
and financial advisors to discuss NTT Communications' letter and the status of
negotiations with the Interested Party. After discussing the contents of the
letter, the Verio Board concluded that it needed additional information
regarding NTT Communications' interest. The Verio Board directed Mr. Jaschke
to discuss the indication of interest with NTT Communications' senior
management during upcoming meetings with them in Denver scheduled for April
11, 2000.
The Verio Board met on April 9, 2000, to discuss further the contents of
the NTT Communications' letter. Salomon Smith Barney provided advice to the
Verio Board concerning the financial implications of the proposals submitted
by the Interested Party and NTT Communications, and discussed the preliminary
relative valuations of the Interested Party and Verio. Salomon Smith Barney
also discussed its preliminary valuation of the potential NTT Communications
proposal, and the relative premium involved. Salomon Smith Barney also
discussed the results of its preliminary financial analysis with respect to
the Interested Party. Mr. Fritzinger summarized the results of Verio's on-site
due diligence review of the Interested Party and its business operations
during April 5 through 7, 2000 meetings.
During the week of April 10, 2000 Verio's management and its legal and
financial advisors continued their due diligence investigation of the
Interested Party. They also negotiated with the Interested Party's management
and legal and financial advisors the terms of the draft merger agreement that
the Interested Party had prepared.
On April 10, 2000, the chief financial officer of the Interested Party
disclosed to Mr. Jaschke that it wished to extend the discussions concerning
the proposed merger between the parties because of the significant volatility
being experienced on the Nasdaq National Market as well as in U.S. stock
markets generally. Both the Interested Party's management and Verio's
management were concerned with the difficulty in determining an appropriate
relative value for the two companies during a time of such extreme market
volatility. During the next two weeks, Verio and its legal advisors
nevertheless continued to communicate with the Interested Party's legal
advisors concerning the timing of a proposed transaction and to discuss the
terms of the draft merger agreement.
On April 11, 2000, Mr. Suzuki and other representatives of NTT
Communications' management and its legal and financial advisors met with
Verio's representatives and advisors at Verio's headquarters in Colorado to
discuss NTT Communications' summary of possible terms.
The Verio Board met on April 11, 2000 to discuss the status of the
respective negotiations with the Interested Party and NTT Communications. Mr.
Jaschke informed the Verio Board that the
6
<PAGE>
Interested Party had indicated its desire to extend the timing for the
discussions of the proposed merger transaction. Mr. Jaschke also noted that he
was still waiting for the Interested Party to respond with a new proposal
regarding the exchange ratio that would apply in a merger between Verio and
the Interested Party.
On April 12, 2000, NTT Communications' legal counsel delivered to Verio a
draft merger agreement. The management and legal and financial advisors of
Verio and NTT Communications proceeded to review and discuss the draft. During
these discussions, the representatives of NTT Communications said that NTT
Communications' offer, if made, would include an offer to purchase outstanding
Verio Preferred Stock at the price to be offered for Verio Common Stock,
adjusted for the ratio at which Verio Preferred Stock was then convertible
into shares of Verio Common Stock, and that shares of Verio Preferred Stock
cancelled in connection with the merger following the closing of the offer
would receive the same consideration.
The Verio Board met again on April 14, 2000 to discuss the status of the
respective negotiations. The Verio Board discussed the differences between the
two proposals, noting that neither proposal as yet reflected a binding
commitment.
Late on April 15, 2000, Mr. Suzuki informed Mr. Jaschke that NTT
Communications would have difficulty making a firm proposal at a $65 per share
price, given the stock market's continued volatility and general decline,
particularly the decline in internet and technology stocks, including Verio
Common Stock. Negotiations regarding NTT Communications' draft agreement were
then deferred until NTT Communications could be ready to make such a proposal.
On the afternoon of April 18, 2000, the Verio Board met to consider the
status of the respective negotiations with the Interested Party and NTT
Communications. Mr. Jaschke informed the Verio Board that he had been told
that NTT Communications did not believe that it could give further
consideration to a possible transaction with Verio during the next seven to
ten days because of continued stock market volatility. Mr. Jaschke also
informed the Verio Board that he had been told that the Interested Party's
board might meet soon to consider whether to continue the negotiations with
Verio.
The Verio Board met on April 20, 2000 with its advisors to receive updates
from Verio's management and to discuss the status of the respective
negotiations.
The Interested Party did not make any further proposals to Verio. On April
21, 2000 Mr. Jaschke informed the chief executive officer of the Interested
Party that Verio had received a draft merger agreement from another potential
bidder. The chief executive officer said that the Interested Party might be
interested in accelerating its deliberations on when and whether to proceed
with negotiations if Verio received a firm proposal from another party.
During a conversation with Mr. Jaschke over the weekend of April 29, 2000,
the chief executive officer of the Interested Party indicated a desire to
further delay discussions regarding the potential transaction until the end of
the following week, in light of continued market volatility. He also advised
Mr. Jaschke that the Interested Party wanted to delay further negotiations in
light of other disclosure issues that the Interested Party would face were the
discussions to proceed in the near term. The next week Verio's legal counsel,
at Verio's direction, asked the Interested Party's counsel when a revised
draft merger agreement would be available. The Interested Party's counsel
replied that a revised draft would be forthcoming but no draft was delivered.
The Verio Board met on April 30, 2000 with its advisors to receive updates
from Verio's management and to discuss the status of the respective
negotiations.
NTT Communications' negotiating team arrived in Denver on May 5, 2000 to
resume negotiations of its proposed merger agreement, while its senior
management in Tokyo continued to deliberate on whether to submit a firm
proposal to Verio with respect to price.
7
<PAGE>
During the night of May 5-6, 2000, Mr. Jaschke had various telephone calls
with NTT Communications' representatives, including Mr. Suzuki. During such
discussions, NTT Communications' representatives informed Mr. Jaschke that any
proposal that NTT Communications might be willing to make would likely not
include an offer price greater than the "mid-to-upper 50s," due to the
significantly changed market conditions since April 7, 2000 when their
original nonbinding proposal was submitted. Mr. Jaschke indicated to Mr.
Suzuki that he did not believe that the Verio Board would accept a proposal at
such a price. After discussing the matter with NTT Communications' senior
management in Tokyo, the next day Mr. Suzuki notified Mr. Jaschke that NTT
might be able to make a proposal of $60 per share of Verio Common Stock, if a
definitive agreement could be executed on May 6 or 7.
After internal discussions at NTT Communications, on the morning of May 6,
2000 Mr. Suzuki sent a second letter to Mr. Jaschke, in which NTT
Communications described the revised general conditions under which it was
authorized to explore the making of a proposal to acquire Verio. The letter
indicated that a proposal, if made, would provide for a cash tender offer to
acquire Verio for $60 per share of Verio Common Stock, followed by a merger
for the same consideration.
Later on May 6, 2000, Mr. Jaschke informed the chief executive officer of
the Interested Party that Verio had received an all cash proposal from another
bidder for $60 per share of Verio Common Stock. In a subsequent conversation
later that day, the chief executive officer of the Interested Party told Mr.
Jaschke that the Interested Party would not be prepared to submit a new
proposal to Verio for at least a few days.
Mr. Jaschke reported these developments to the Verio Board during a meeting
on May 6, 2000. The Verio Board discussed these developments and the
alternatives available to Verio, and authorized Verio's management to continue
to negotiate the potential transaction with NTT Communications. The Verio
Board then agreed to continue the same meeting of the Board at 8:00 a.m. the
following day. Members of Verio's management team then continued their
negotiations with NTT Communications and its advisors.
On the evening of May 7, 2000 (Tokyo Time), the board of directors of NTT
Communications received the final terms of the draft merger agreement and
approved execution of the definitive merger agreement with Verio. Later in the
evening of May 7, 2000, the board of directors of NTT accepted the decision of
NTT Communications to proceed with the transaction.
On May 7, 2000, at the continued meeting of the Verio Board, members of
Verio's management reported to the Verio Board on the status of the
negotiations with NTT Communications. The Verio Board reviewed the final terms
of the draft merger agreement. At this meeting, Salomon Smith Barney presented
its financial analysis of the proposed transaction and its oral opinion, later
confirmed in writing as of the same date, that, as of that date, the
consideration to be paid pursuant to the proposed tender offer and merger,
taken together, was fair, from a financial point of view, to the holders of
Verio Common Stock (other than NTT Communications) and Verio Preferred Stock.
After further discussion, the Verio Board approved, by unanimous vote of the
directors present (which included all directors other than Mr. Ito), the
transaction and the entry into the definitive agreements by Verio.
On the afternoon of May 7, 2000, the Merger Agreement was executed by
Verio, NTT Communications and Purchaser. Immediately after execution of the
Merger Agreement, a press release announcing the transaction was issued by
Verio and NTT Communications.
Recommendation of the Verio Board.
On May 7, 2000, the Verio Board, by unanimous vote (with the exception of
our designee on the Verio Board, who did not participate in the meeting),
determined that the terms of the Offer and the Merger, taken together, are
fair to, and in the best interests of, holders of Common Stock and holders
8
<PAGE>
of Preferred Stock and recommended that holders of Common Stock and holders of
Preferred Stock accept the Offer and tender their Shares pursuant to the
Offer.
Fairness of the Offer and the Merger.
In reaching its conclusions described above, the Verio Board identified
several potential benefits of the Offer and the Merger to stockholders,
including:
. The fact that the Offer Price of $60.00 per share of Common Stock and
the Preferred Offer Price of $62.136 per share of Preferred Stock to be
received by Verio's stockholders in both the Offer and the Merger
represent premiums of 67% and 35.7%, respectively, over the closing
market prices of the Common Stock and Preferred Stock of $35.9375 and
$45.799, respectively, on May 5, 2000, the last full trading day prior
to the date that NTT Communications delivered its proposal to the Verio
Board, and that the Offer Price represents a premium of 73.1% and 88.5%
over the average trading price of the Common Stock during the 5 and 20-
day trading periods prior to the execution of the Merger Agreement.
. The fact that the purchase price would be payable in cash, thus
eliminating any uncertainties in valuing the consideration to be
received by Verio's stockholders, which were particularly acute in light
of the recent volatility in the price of the Common Stock, as well as
volatility in the market prices of shares of other telecommunications
and Web hosting companies and in the Nasdaq Stock Market in general.
. The fact that the Offer and the Merger provide for a prompt cash tender
offer for all Shares to be followed by a merger for the same
consideration, thereby enabling Verio's stockholders to obtain cash in
exchange for their shares at the earliest possible time.
. The likelihood that the Offer and the Merger would be consummated,
including the fact that the Offer and the Merger would not be subject to
any financing condition and that NTT Communications has represented that
the funds necessary to consummate the Offer and the Merger will be
provided and has agreed to cause Purchaser to fully perform all of
Purchaser's obligations under the Merger Agreement.
The Verio Board also consulted with Verio's senior management, as well as
its legal counsel, independent accountants and financial advisors, in reaching
its decision to approve the Offer and the Merger. Among the factors considered
by the Verio Board in its deliberations were the following:
. The presentations and views expressed by Verio's management regarding,
among other things, the financial condition, results of operations, cash
flows, business and prospects of Verio and management's recommendation
of the Offer and the Merger.
. The presentation of Salomon Smith Barney at the meeting of the Verio
Board held on May 7, 2000 and the opinion of Salomon Smith Barney dated
May 7, 2000, that, as of such date, the per Share consideration to be
received by the holders of shares of Common Stock (other than NTT
Communications and its affiliates), and the per Share consideration to
be received by the holders of shares of Preferred Stock in the Offer and
the Merger, taken together, was fair from a financial point of view to
such stockholders. The full text of Salomon Smith Barney's written
opinion is attached hereto as Annex A and is incorporated herein by
reference. Such opinion should be read in its entirety for a description
of the procedures followed, assumptions and qualifications made, matters
considered and limitations of the review undertaken by Salomon Smith
Barney. Salomon Smith Barney did not express any opinion with respect to
the Verio Warrants. See "--Opinion of Financial Advisor of Verio."
. The volatility in the market price of, and recent trading activity in,
the Common Stock, as reflected on the Nasdaq National Market, and the
market prices of other telecommunications and Web hosting companies. In
particular, the Verio Board noted that the closing prices of the Common
Stock had fluctuated between $80 and $23.6875 during the three months
prior to the execution of the Merger Agreement.
9
<PAGE>
. Valuations based on premiums paid in comparable acquisition transactions
and discounted cash flow analysis.
. Verio's prospects if it were to remain independent, publicly traded
entity, including the risks of competing against companies that have far
greater resources, distribution capacity, product offerings and market
reach than Verio.
. Other potential strategic alternatives, such as a stock-for-stock
combination or a sale of portions of Verio's backbone infrastructure and
related operations as separate assets. Salomon Smith Barney had been
exploring such possible alternatives on behalf of Verio for a period of
more than one year prior to the execution of the Merger Agreement.
. The fact that the Merger Agreement permits Verio, under certain
circumstances, to enter into or participate in discussions or
negotiations with any person who makes an unsolicited bona fide written
offer to acquire Verio that could lead to a Superior Proposal (as
defined in the Merger Agreement).
. Provisions of the Merger Agreement that allow the Verio Board to
terminate the Merger Agreement if, prior to the closing of the Merger,
Verio has received a Superior Proposal and the Verio Board determines,
in its good faith judgement after consultation with independent legal
counsel, that failing to terminate the Merger Agreement would be
inconsistent with its fiduciary duties under applicable law.
. The fact that the only regulatory qualifications required to consummate
the Merger were (i) expiration or termination of the waiting period
under the HSR Act and (ii) expiration of the applicable review process
under the Exon-Florio Amendment without government action to block or
prevent the consummation of the Offer or the Merger, and the favorable
prospects for obtaining all such qualifications. See "--Legal Matters;
Required Regulatory Approvals."
. The limited ability of NTT Communications and Purchaser to terminate the
Offer or the Merger Agreement, including the absence of a termination
provision related to volatility of Verio's or NTT's stock prices or of
any market indices.
. The arm's-length negotiations between representatives of Verio and NTT
Communications leading to the belief of the Verio Board that $60.00 per
share of Common Stock and $62.136 per share of Preferred Stock
represented prices that were fair to and in the best interests of
Verio's stockholders given the facts and circumstances described above.
. Stockholders who believe that the terms of the Offer and the Merger are
not fair can pursue appraisal rights in the Merger under state law.
The Verio Board also identified and considered a number of uncertainties
and risks in its deliberations concerning the Offer and the Merger, including
the following:
. The possibility that, although the Offer gives Verio's stockholders the
opportunity to realize a premium over the price at which the Common
Stock traded immediately prior to the public announcement of the Offer
and the Merger, the price or value of the Common Stock may increase in
the future, and Verio's shareholders would not benefit from such future
increases.
. The circumstances under the Merger Agreement under which the $175
million Termination Fee and expense reimbursement of up to $5 million
become payable by Verio to NTT Communications and Purchaser.
. The fact that, pursuant to the Merger Agreement, between the execution
of the Merger Agreement and Effective Time, Verio is required to obtain
NTT Communications' consent before it can take certain actions.
In view of the wide variety of factors considered by the Verio Board, it
did not find it practical to, and did not, quantify or otherwise assign
relative weights to the foregoing factors or determine that any factor was of
particular importance. Rather, the Verio Board viewed its position and
recommendation as being based on the totality of the information presented to
and considered by it.
10
<PAGE>
Having considered all the foregoing, and other relevant factors, the Verio
Board concluded that the Offer and the Merger, taken together, was the best
available alternative for Verio and its stockholders and was fair to and in
the best interests of Verio's stockholders (other than NTT Communications and
its affiliates).
THE VERIO BOARD BY UNANIMOUS VOTE (WITH THE EXCEPTION OF OUR DESIGNEE ON
THE VERIO BOARD, WHO DID NOT PARTICIPATE IN THE MEETING) (A) DETERMINED THAT
THE TERMS OF THE OFFER AND THE MERGER, TAKEN TOGETHER, ARE FAIR TO AND IN THE
BEST INTERESTS OF, HOLDERS OF COMMON STOCK AND HOLDERS OF PREFERRED STOCK, (B)
APPROVED THE MERGER AGREEMENT, THE OFFER AND THE MERGER, AND (C) RECOMMENDS
THAT HOLDERS OF COMMON STOCK AND HOLDERS OF PREFERRED STOCK ACCEPT THE OFFER
AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
The Verio Board is comprised of eight members, one of whom is affiliated
with NTT Communications, one of whom is employed by Verio, and the remaining
six of whom are neither affiliated with NTT Communications nor employed by
Verio. The member of the Verio Board affiliated with NTT Communications was
excused from all Board deliberations relating to the Offer and the Merger, and
did not participate in the vote by the Verio Board on the Merger Agreement.
Salomon Smith Barney was retained by the Verio Board to act as the Verio
Board's financial advisor in connection with the Offer and the Merger and to
render to the Verio Board an opinion as to the fairness, from a financial
point of view, to the stockholders of Verio, other than those affiliated with
NTT Communications, of the consideration to be received by such stockholders
in the Offer and the Merger, taken together. The members of the Verio Board
who are not employees of Verio did not separately retain any unaffiliated
representative to act solely on behalf of the stockholders of Verio who are
not affiliated with Verio or NTT Communications for purposes of negotiating
the terms of the Merger Agreement and/or preparing a report concerning the
fairness of the consideration to be paid to the stockholders of Verio in the
Offer and the Merger.
Opinion of Financial Advisor of Verio.
Salomon Smith Barney was retained by Verio to act as its financial advisor
in connection with the Offer and the Merger. In connection with such
engagement, Verio requested that Salomon Smith Barney evaluate the fairness,
from a financial point of view, to holders of Common Stock and Preferred Stock
of the consideration to be received by such holders pursuant to the Offer and
the Merger. On May 7, 2000, at a meeting of the Verio Board, Salomon Smith
Barney delivered its oral opinion, which was subsequently confirmed in
writing, to the Verio Board to the effect that, based upon and subject to
certain matters stated therein, (a) as of May 7, 2000, the consideration to be
received in the Offer and the Merger, taken together, by holders of Common
Stock was fair to such holders (other than NTT Communications) from a
financial point of view and (b) as of May 7, 2000, the consideration to be
received in the Offer and the Merger, taken together, by holders of Preferred
Stock was fair to such holders from a financial point of view.
Verio stockholders are urged to read the Salomon Smith Barney opinion in
its entirety for information with respect to the procedures followed,
assumptions made, matters considered and limits of the review undertaken by
Salomon Smith Barney in rendering its opinion. References to the opinion in
this document and the summary of the opinion included below are qualified in
their entirety by reference to the full text of the opinion, which is included
as Annex A to this document. The Salomon Smith Barney opinion does not
constitute a recommendation concerning (i) whether Verio stockholders should
accept the Offer, (ii) how Verio stockholders should vote with respect to the
Merger Agreement or the Merger or (iii) whether Verio stockholders should
exercise appraisal rights in connection with the Merger. Salomon Smith Barney
was not asked to, and did not, express any opinion with respect to the Verio
Warrants.
11
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In connection with rendering its opinion, Salomon Smith Barney reviewed
certain publicly available information concerning Verio and certain other
financial information concerning Verio that was provided to Salomon Smith
Barney by Verio. Salomon Smith Barney discussed the past and current business
operations, financial condition and prospects of Verio with certain Verio
officers and employees. With Verio's consent, Salomon Smith Barney did not
review Verio's financial forecasts of Verio. Subject to the foregoing, Salomon
Smith Barney also considered such other information, financial studies,
analyses, investigations and financial, economic and market criteria that
Salomon Smith Barney deemed relevant.
In rendering its opinion, Salomon Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information and data publicly available or furnished to or otherwise
reviewed by or discussed with Salomon Smith Barney. Without limiting the
generality of the previous sentence, Salomon Smith Barney relied on advice
from Verio regarding the conversion-price adjustment and voting provisions of
the terms of the Preferred Stock in the event of a merger involving Verio.
Salomon Smith Barney did not assume any responsibility for any independent
evaluation or appraisal of any of the assets (including properties and
facilities) or liabilities of Verio.
The Salomon Smith Barney opinion is necessarily based upon conditions as
they existed and could be evaluated on the date of the opinion. The opinion
does not address Verio's underlying business decision to effect the Merger,
and it does not express any view on the effect on Verio of the Offer, the
Merger and related transactions. The opinion is directed only to the fairness,
from a financial point of view, to the holders of Common Stock and Preferred
Stock of the consideration to be received in the Offer and the Merger, taken
together.
The following is a summary of the report presented on May 7, 2000, to the
Verio Board by Salomon Smith Barney in connection with the Verio Board's
consideration of the proposed Offer and Merger. The summary of the financial
analyses includes information presented in tabular format. In order to
understand fully the financial analyses used by Salomon Smith Barney, these
tables must be read together with the text of each summary. The tables alone
do not constitute a complete description of the financial analyses.
Overview of Valuation Methodologies
Salomon Smith Barney prepared a valuation of Verio using several
methodologies, including a public market valuation or sum-of-the-parts
analysis, a discounted cash flow analysis, a premiums-based private market
analysis, a premiums-based private market analysis limited to comparable
companies and a multiples-based private market analysis. Each of these
methodologies was used to generate a reference range for the value of the
Common Stock, which was then compared to the $35.94 per share price of the
Common Stock as of May 5, 2000 and the Offer Price of $60.00 per share of
Common Stock as part of Salomon Smith Barney's evaluation of the fairness of
the consideration to be received in the Offer and the Merger, taken together.
The following table represents a compilation of implied reference ranges
derived using these different valuation methodologies. This table is not
intended to provide a complete understanding of the results of each of the
analyses employed, and the table must be read together with the textual
description of each procedure set forth below to understand the significance
of each set of conclusions.
<TABLE>
<CAPTION>
Implied
Reference Range
Per Share of
Valuation Methodology Common Stock
--------------------- ----------------
<S> <C>
Public Market Valuation................................... $40.40 to $51.38
Discounted Cash Flow...................................... $53.39 to $72.85
Premiums-Based Valuation in an Acquisition Context
(comparable companies)................................... $49.61 to $55.62
Premiums-Based Valuation in an Acquisition Context (all
transactions)............................................ $48.69 to $52.06
Multiples-Based Valuation in an Acquisition Context....... $43.12 to $45.75
</TABLE>
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Implied Transaction Premiums
Salomon Smith Barney reviewed implied transaction premiums using a range of
prices per share of Common Stock for the 60-day period ended May 5, 2000.
Salomon Smith Barney noted that the consideration to be received in the Offer
and the Merger represented a premium of:
. 67.0% to the closing stock price on May 5, 2000 of $35.94;
. 73.1% to the average closing stock price for the 5 trading days ended
May 5, 2000 of $34.66;
. 88.5% to the average closing stock price for the 20 trading days ended
May 5, 2000 of $31.83;
. 49.6% to the average closing stock price for the 40 trading days ended
May 5, 2000 of $40.12;
. $19.5% to the average closing stock price for the 60 trading days ended
May 5, 2000 of $50.21.
Public Market Valuation
Using both publicly available information and Wall Street research
estimates that were reviewed by Verio, Salomon Smith Barney analyzed each of
Verio's business segments--Internet connectivity, Web-hosting and other--to
determine valuation ranges for each business segment separately and, using a
sum-of-the-parts analysis, a valuation range for the enterprise as a whole.
Internet Connectivity. Salomon Smith Barney reviewed publicly available
financial and operating information of the following five public companies:
. Applied Theory Corp.
. EQUANT N.V.
. Internet Initiative Japan
. PSINet Inc.
. VIA NET.WORKS
In its review, Salomon Smith Barney relied on estimates of the future revenues
of the selected Internet connectivity companies developed by Wall Street
research analysts. For this analysis Salomon Smith Barney used trading
information as of May 5, 2000.
The table below sets forth some of Salomon Smith Barney's findings from its
review of these comparable companies:
<TABLE>
<CAPTION>
PSINet
Comparable Companies Range Mean Median Inc.
-------------------- ---------- ---- ------ ------
<S> <C> <C> <C> <C>
Firm value as a multiple of year's revenues:
2000 (estimated)............................ 4.7x-11.3x 8.3x 9.7x 5.3x
2001 (estimated)............................ 2.4x-9.2x 5.7x 5.5x 3.3x
</TABLE>
After determining that PSINet Inc. is the company most comparable to
Verio's Internet connectivity business, Salomon Smith Barney selected a range
of firm value/estimated 2000 revenue and firm value/estimated 2001 revenue
multiples for Verio's Internet connectivity business of 5.0x- 6.0x and 3.0x-
4.0x, respectively.
Web-Hosting. Salomon Smith Barney reviewed publicly available financial and
operating information of the following four public companies:
. Data Return
. Digex Inc.
13
<PAGE>
. Exodus Communications
. Navisite
After determining that Digex is the company most comparable to Verio's Web-
hosting business, Salomon Smith Barney limited its analysis of Verio's Web-
hosting business to Digex for comparative valuation purposes. In its review,
Salomon Smith Barney calculated Digex's growth-adjusted firm value/estimated
2000 revenue and growth-adjusted firm value/estimated 2001 revenue multiples
by dividing (a) the quotient of Digex's firm value to estimated 2000 (or 2001,
as the case may be) revenue by (b) Digex's estimated compounded annual revenue
growth for the period between year 2000 (or 2001, as the case may be) and
2003. Based on the foregoing, Salomon Smith Barney determined Digex's growth-
adjusted firm value/estimated 2000 revenue and growth-adjusted firm
value/estimated 2001 revenue to be 40.4x and 22.0x, respectively. For this
analysis Salomon Smith Barney used Digex's trading information as of May 5,
2000 and relied on estimates of Digex's future revenues produced by research
analysts.
Based on a 30% (low) to 10% (high) discount to Digex's growth-adjusted firm
value/revenue multiples, Salomon Smith Barney calculated a growth-adjusted
firm value/estimated 2000 revenue and growth-adjusted firm value/estimated
2001 revenue multiples for Verio's Web-hosting business of 28.3x-36.3x and
15.4x-19.8x, respectively.
Other. Salomon Smith Barney separated out Verio's other sources of
estimated revenues, including equipment, circuits and other revenues, and
applied a 1.0x firm value/estimated 2000 and firm value/estimated 2001
revenues multiple to that business.
The public market valuation, or sum-of-the-parts analysis, resulted in
implied values ranging from $40.40 to $51.38 per share of Common Stock.
Discounted Cash Flow Analysis
Using a discounted cash flow methodology, Salomon Smith Barney calculated
the present value of the projected future cash flows for Verio (without giving
effect to the Merger or any synergy estimates expected to be realized as a
result of the Merger). Salomon Smith Barney aggregated the present value of
the free cash flows over the ten-year forecast period with the present value
of the range of terminal values described below. The discounted cash flow
analysis of Verio was prepared using the following assumptions: projections
based on Wall Street research and reviewed by Verio management, a weighted
average cost of capital ranging from 15.5% to 17.5% and a terminal firm value
range equal to 10 to 12 times projected terminal 2009 EBITDA of $2,236
million.
The discounted cash flow analyses resulted in implied values ranging from
$53.39 to $72.85 per share of Common Stock.
Premiums-Based Private Market Analyses
Sector Transactions. Using publicly available information, Salomon Smith
Barney reviewed five transactions in the Internet and data services industry.
These transactions are presented in the following table:
<TABLE>
<CAPTION>
Acquiror Target
-------- ------
<S> <C>
Global Crossing IXnet
NEXTLINK Concentric Network
McLeodUSA Splitrock Services
Metromedia Fiber AboveNet Communications
Cable & Wireless InternetMCI
</TABLE>
14
<PAGE>
Salomon Smith Barney determined that, of these five transactions, the
acquisition of Concentric Network by NEXTLINK and the acquisition of Splitrock
Services by McLeodUSA were the most relevant transactions. Salomon Smith
Barney's review of these two transactions showed that for these two
transactions the offer price as a percentage premium above the target
company's closing stock price one day prior to the announcement of the
acquisition ranged from 33.8% to 50.0%. This premiums-based comparable-
transactions analysis resulted in implied values ranging from $49.61 to $55.62
per share of Common Stock.
All Transactions. Salomon Smith Barney reviewed the mean and median
premiums in a sample of 1,722 transactions during the 3 years ended December
31, 1999, as measured by a commercially available database of statistics on
publicly announced mergers, acquisitions and divestitures involving operating
entities. This premiums-based all-transactions analysis resulted in implied
values ranging from $48.69 to $52.06 per share of Common Stock.
Multiples-Based Private Market Analysis
Using publicly available information, Salomon Smith Barney reviewed two
comparable transactions: NEXTLINK's acquisition of Concentric and McLeodUSA's
acquisition of Splitrock. The review showed that for these transactions the
target company's firm value, based on the acquisition price at the
announcement, as a multiple of the target company's revenues ranged from (a)
19.0x to 20.6x based on the target company's revenues over the 12 months prior
to the announcement of the relevant acquisition, (b) 14.6x to 15.2x based on
four times the target company's revenues in the three-month period prior to
the announcement of the relevant acquisition and (c) 9.6x to 10.2x the target
company's estimated revenues for the 12-month period following the
announcement of the relevant acquisition. This multiples-based comparable-
transactions analysis resulted in implied values ranging from $43.12 to $45.75
per share of Common Stock.
Analysis of the Preferred Stock
Based on the closing price of the Common Stock of $35.94 as of May 5, 2000,
Salomon Smith Barney calculated a theoretical value of the Preferred Stock at
$46.86. Salomon Smith Barney compared this theoretical value to the market
value of the Preferred Stock of $45.79 as of May 5, 2000 and determined that
the market value represents a discount of 2.3% to the theoretical value.
Salomon Smith Barney then compared the Preferred Offer Price of $62.14 to the
market value of the Preferred Stock and determined that it represents a 35.7%
premium to the market value of Preferred Stock as of May 5, 2000. Finally, as
the chart below shows, Salomon Smith Barney determined an implied market value
of Preferred Stock assuming Common Stock prices equal to the low and high
valuation figures arrived at in its public market valuation of the Common
Stock and calculated that the Preferred Offer Price represents a premium of
26.5% and 8.0%, respectively, to such implied market values of Preferred
Stock.
<TABLE>
<CAPTION>
Common Stock
Public Market
Valuation
Range
-------------
Market 5/5/00 Low High
------------- ------ ------
<S> <C> <C> <C>
Common Stock Price............................. $35.94 $40.40 $51.38
Theoretical Value of Preferred Stock........... $46.86 $50.27 $58.91
Market Value of Preferred Stock................ $45.79 $49.11 $57.56
Market Discount to Theoretical Value........... 2.3% 2.3% 2.3%
Preferred Offer Price.......................... $62.14 $62.14 $62.14
Preferred Offer Price Premium to Implied Market
Value......................................... 35.7% 26.5% 8.0%
</TABLE>
The foregoing is a summary of the material financial analyses furnished by
Salomon Smith Barney to the Verio Board, but it does not purport to be a
complete description of the analyses performed by
15
<PAGE>
Salomon Smith Barney or of its presentations to the Verio Board. The
preparation of financial analyses and fairness opinions is a complex process
involving subjective judgments and is not necessarily susceptible to partial
analysis or summary description. Salomon Smith Barney made no attempt to
assign specific weights to particular analyses or factors considered but
rather made qualitative judgments as to the significance and relevance of the
analyses and factors considered. Accordingly, Salomon Smith Barney believes
that its analyses (and the summary set forth above) must be considered as a
whole, and that selecting portions of such analyses and of the factors
considered by Salomon Smith Barney, without considering all such analyses and
factors, could create a misleading or incomplete view of the process
underlying the analyses conducted by Salomon Smith Barney and its opinion.
With regard to the comparable public company analysis summarized above,
Salomon Smith Barney selected comparable public companies on the basis of
various factors, including the size of the public company and similarity of
the line of business; however, no public company utilized as a comparison in
such analysis, and no transaction utilized as a comparison in the comparable
transaction analyses summarized above, is identical to Verio, any business
segment of Verio or the Merger. As a result, these analyses are not purely
mathematical but also take into account differences in financial and operating
characteristics of the comparable companies and other factors that could
affect the transaction or public trading value of the comparable companies and
transactions to which Verio, the business segments of Verio and the Merger are
being compared. In its analyses, Salomon Smith Barney made numerous
assumptions with respect to Verio, industry performance, general business,
economic, market and financial conditions and other matters, many of which are
beyond the control of Verio. Any estimates contained in Salomon Smith Barney's
analyses are not necessarily indicative of actual values or predictive of
future results or values, which may be significantly more or less favorable
than those suggested by such analyses. Estimates of values of companies do not
purport to be appraisals or necessarily to reflect the prices at which
companies may actually be sold. Because such estimates are inherently subject
to uncertainty, none of Verio, NTT Communications, the Verio Board, Salomon
Smith Barney or any other person assumes responsibility if future results or
actual values differ materially from the estimates. Salomon Smith Barney's
analyses were prepared solely as part of Salomon Smith Barney's analysis of
the fairness, from a financial point of view, of the consideration to be
received in the Offer and the Merger, taken together, and were provided to the
Verio Board in that connection.
Salomon Smith Barney is an internationally recognized investment banking
firm engaged in, among other things, the valuation of businesses and their
securities in connection with mergers and acquisitions, restructurings,
leveraged buyouts, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. Verio selected Salomon
Smith Barney to act as its financial advisor on the basis of Salomon Smith
Barney's international reputation and Salomon Smith Barney's familiarity with
Verio. Salomon Smith Barney and its predecessors and affiliates have
previously rendered investment banking and financial advisory services to
Verio and NTT for which they have received or will receive customary
compensation. In addition, in the ordinary course of its business, Salomon
Smith Barney and its affiliates (including Citigroup Inc.) may actively trade
the debt and equity securities of both Verio and NTT for its own account and
for the accounts of customers and, accordingly, may at any time hold a long or
short position in such securities.
Pursuant to Salomon Smith Barney's engagement letter, Verio has agreed to
pay Salomon Smith Barney a fee of approximately $17 million, a substantial
portion of which is contingent upon consummation of the Merger. Verio has also
agreed to reimburse Salomon Smith Barney for its reasonable travel and other
out-of-pocket expenses incurred in connection with its engagement (including
the reasonable fees and disbursements of its counsel) and to indemnify Salomon
Smith Barney against certain liabilities and expenses relating to or arising
out of its engagement, including certain liabilities under the federal
securities laws.
As noted under the caption "-- Fairness of the Offer and the Merger," the
fairness opinion of Salomon Smith Barney was only one of several factors
considered by the Verio Board in determining
16
<PAGE>
to approve the Merger Agreement, the Offer and the Merger. The Merger
consideration to be received in the Offer and the Merger was determined by
arm's length negotiations between NTT Communications and Verio, which
consulted with Salomon Smith Barney in the process, and was not established by
Salomon Smith Barney.
A copy of the Salomon Smith Barney opinion is including as an exhibit to
the Tender Offer Statement on Schedule TO that we filed with the SEC and
attached hereto as Annex A. A copy of Salomon Smith Barney's presentation to
the Verio Board on May 7, 2000 is included as an exhibit to the Schedule TO.
Opinions of Financial Advisors of NTT Communications.
Deutsche Bank Securities Inc. ("Deutsche Bank") and Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") have acted as financial advisors
to NTT Communications in connection with the Offer and the Merger. In
connection with its internal consideration of the Offer and the Merger, NTT
Communications received opinions of Deutsche Bank and Merrill Lynch with
respect to the fairness of the consideration to be paid by NTT Communications
in the Offer and the Merger, taken together. Set forth below are descriptions
of these opinions. STOCKHOLDERS SHOULD NOTE THAT THESE OPINIONS ARE NOT
DIRECTED TO VERIO OR THE STOCKHOLDERS OF VERIO AND ARE NOT OPINIONS THAT THE
CONSIDERATION TO BE PAID BY NTT COMMUNICATIONS IN THE OFFER AND THE MERGER,
TAKEN TOGETHER, IS FAIR TO VERIO OR THE STOCKHOLDERS OF VERIO.
Opinion of Deutsche Bank.
Deutsche Bank has acted as financial advisor to NTT Communications in
connection with the proposed acquisition by NTT Communications of Verio under
the NTT Communications/Verio merger agreement. At its May 7, 2000 meeting, the
board of directors of NTT Communications was advised that Deutsche Bank was
prepared to render its opinion, subsequently delivered in writing as of the
same date, to the board of directors of NTT Communications to the effect that,
as of that date, based upon and subject to the assumptions made, matters
considered and limits on the review undertaken by Deutsche Bank, the
consideration to be paid by NTT Communications in the offer and merger under
the merger agreement was fair, from a financial point of view, to NTT
Communications.
Deutsche Bank's opinion is directed to the board of directors of NTT
Communications to assist it in connection with its consideration of the
proposed transaction and relates only to the fairness of the consideration to
be paid by NTT Communications from a financial point of view to NTT
Communications. DEUTSCHE BANK'S OPINION DOES NOT RELATE TO ANY OTHER ASPECT OF
THE TRANSACTION, IS NOT AN OPINION AS TO THE FAIRNESS OF THE TRANSACTION TO
VERIO OR ITS STOCKHOLDERS AND DOES NOT CONSTITUTE A RECOMMENDATION TO VERIO OR
ITS STOCKHOLDERS AS TO THE TRANSACTION OR AS TO WHETHER VERIO STOCKHOLDERS
SHOULD TENDER THEIR SHARES OR AS TO HOW THEY SHOULD VOTE WITH RESPECT TO THE
TRANSACTION. The full text of Deutsche Bank's written opinion, dated May 7,
2000, which sets forth, among other things, the assumptions made, matters
considered and limits on the review undertaken by Deutsche Bank in connection
with the opinion, is attached as Annex B to this Offer to Purchase and is
incorporated herein by reference. You are urged to read Deutsche Bank's
opinion in its entirety. The summary of Deutsche Bank's opinion set forth in
this Offer to Purchase is qualified in its entirety by reference to the full
text of Deutsche Bank's opinion.
Materials summarizing Deutsche Bank's analyses of Verio were presented to
the management of NTT Communications on April 7, 2000, and on May 7, 2000
before the meeting of the board of directors of NTT Communications. Copies of
these materials are available for inspection and copying at Verio's principal
executive offices at 8005 South Chester Street, Suite 200, Englewood, Colorado
17
<PAGE>
80112, during regular business hours, by any interested Verio stockholder or
representative who has been so designated in writing. We have also filed these
materials with the SEC as an exhibit to the tender offer statement on Schedule
TO. You may obtain these materials from the SEC in the same manner as set
forth for Verio's SEC filings in Section 9, "Certain Information Concerning
Verio."
In connection with Deutsche Bank's role as financial advisor to NTT
Communications, and in arriving at its opinion, Deutsche Bank has, among other
things:
. reviewed certain publicly available financial information and other
information concerning Verio;
. reviewed certain internal analyses and other information furnished to it
by NTT Communications and Verio;
. held discussions with the members of the senior managements of NTT
Communications and Verio regarding the businesses and prospects of
Verio, and with the members of the senior management of NTT
Communications regarding the joint prospects of a combined company;
. reviewed the reported prices and trading activity for the common stock
of Verio;
. compared certain financial and certain stock market information for
Verio with similar information for selected companies whose securities
are publicly traded;
. reviewed the financial terms of selected recent business combinations
which Deutsche Bank deemed comparable in whole or in part to the
proposed business combination of NTT Communications and Verio;
. reviewed the terms of the merger agreement and certain related
documents; and
. performed such other studies and analyses and considered such other
factors as it deemed appropriate.
In preparing its opinion, Deutsche Bank did not assume responsibility for
the independent verification of, and did not independently verify, any
information, whether publicly available or furnished to it, concerning Verio,
including, without limitation, any financial information, forecasts or
projections, considered in connection with the rendering of its opinion.
Accordingly, for purposes of its opinion, Deutsche Bank assumed and relied
upon the accuracy and completeness of all such information. Deutsche Bank did
not conduct a physical inspection of any of the properties or assets, and did
not prepare or obtain any independent evaluation or appraisal of any of the
assets or liabilities of Verio. With respect to the financial forecasts and
projections made available to Deutsche Bank and used in its analysis,
including analyses and forecasts of certain cost savings, operating
efficiencies, revenue effects and financial synergies expected by NTT
Communications to be achieved as a result of the transaction, Deutsche Bank
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of NTT
Communications as to the matters covered thereby. In rendering its opinion,
Deutsche Bank expressed no view as to the reasonableness of the financial
forecasts and projections, including analyses and forecasts of certain cost
savings, operating efficiencies, revenue effects and financial synergies
expected by NTT Communications to be achieved as a result of the transaction,
or the assumptions on which they are based. Deutsche Bank's opinion was
necessarily based upon economic, market and other conditions as in effect on,
and the information made available to Deutsche Bank as of, the date of its
opinion.
For purposes of rendering its opinion, Deutsche Bank assumed that, in all
respects material to its analysis:
. the representations and warranties of NTT Communications and Verio
contained in the merger agreement are true and correct;
. NTT Communications and Verio will each perform all of the covenants and
agreements to be performed by it under the merger agreement;
18
<PAGE>
. all conditions to the obligations of each of NTT Communications and
Verio to consummate the acquisition transactions under the merger
agreement will be satisfied without any waiver thereof;
. all material governmental, regulatory or other approvals and consents
required in connection with the consummation of the transactions
contemplated by the merger agreement will be obtained; and
. in connection with obtaining any necessary governmental, regulatory or
other approvals and consents, or any amendments, modifications or
waivers to any agreements, instruments or orders to which either NTT
Communications or Verio is a party or is subject or by which it is
bound, no limitations, restrictions or conditions will be imposed or
amendments, modifications or waivers made that would have a material
adverse effect on NTT Communications or Verio or materially reduce the
contemplated benefits of the transaction to NTT Communications.
The following is a summary of the material financial analyses used by
Deutsche Bank in reaching its opinion and does not purport to be a complete
description of the analyses performed by Deutsche Bank. The following
quantitative information, to the extent it is based on market data, is based
on market data as it existed at or about May 5, 2000 and is not necessarily
indicative of current market conditions. You should understand that the order
of analyses and the results derived from these analyses described below do not
represent relative importance or weight given to these analyses by Deutsche
Bank.
Historical Stock Performance. Deutsche Bank reviewed and analyzed recent
and historical market prices and trading volume for Verio common stock.
Deutsche Bank observed that the price on May 5, 2000, the price averages
during the one-week, one-month and three-month periods preceding that date and
the 52-week trading range preceding that date were as follows:
<TABLE>
<CAPTION>
Three-
One-week One-month month
Closing Average Average Average 52-Week 52-Week
Price Price Price Price Low High
------- -------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Verio Common Stock
(5/5/2000)................ $35.94 $34.66 $32.09 $51.09 $22.56 $84.94
</TABLE>
Analysis of Selected Publicly Traded Companies. Deutsche Bank compared
certain financial information and commonly used valuation measurements for
Verio to corresponding information and measurements for three groups of
publicly traded internet companies: a group of business Internet service
providers ("ISPs"), consisting of Concentric Network and PSINet; a group of
consumer ISPs, consisting of EarthLink, Inc., OneMain.com, Inc., Internet
America and Prodigy Communications Corp.; and a group of web hosting
companies, consisting of Data Return, Digex, Inc., Digital Island, Globix,
Interliant, Navisite, USInternetworking and Exodus Communications.
Financial information and valuation measurements analyzed by Deutsche Bank
include, among other things:
. common equity market valuation;
. common equity market value as adjusted for debt and cash, or total
enterprise value ("TEV");
19
<PAGE>
. book value;
. capitalization ratios;
. in the case of ISPs, total subscriber base; and
. trading multiples, including ratios of TEV to revenues, earnings before
interest expense, income taxes and depreciation and amortization
("EBITDA") and total subscriber base.
To calculate the trading multiples for Verio and the comparable companies,
Deutsche Bank used publicly available information concerning historical and
projected financial performance, including published historical financial
information and earnings estimates reported in published research analyst
reports. For each of Verio and the comparable companies, Deutsche Bank
calculated the following trading multiples:
. TEV to 1999, estimated 2000 and estimated 2001 revenues;
. one-month average TEV to 1999, estimated 2000 and estimated 2001
revenues;
. in the case of ISPs, TEV to 1999 and estimated 2000 EBITDA; and
. in the case of ISPs, TEV to total subscriber base.
While Deutsche Bank took each of these trading multiples into consideration,
it used TEV to estimated 2000 revenue, one-month average TEV to estimated 2000
revenue, TEV to estimated 2001 revenue and one-month average TEV to estimated
2001 revenue ratios to derive combined trading multiple ranges as a basis for
determining ranges of implied Verio value. Deutsche Bank calculated the
following mean and median trading multiples for each of Verio and the groups
of business ISPs, consumer ISPs, all ISPs and web hosting companies among the
comparable companies:
<TABLE>
<CAPTION>
One- One-
month month
Average Average
TEV/ TEV/ TEV/ TEV/
2000E 2000E 2001E 2001E
Revenue Revenue Revenue Revenue
------- ------- ------- -------
<S> <C> <C> <C> <C>
Verio, Inc. .................................... 9.7x 8.0x 5.9x 5.3x
Business ISPs(/1/)
Mean.......................................... 8.1 7.8 5.1 4.9
Median........................................ 9.6 8.7 5.9 5.3
Consumer ISPs
Mean.......................................... 1.7 1.7 1.4 1.4
Median........................................ 1.4 1.4 0.9 1.1
All ISPs(/1/)
Mean.......................................... 4.4x 4.3x 3.2 3.2
Median........................................ 2.9 2.7 2.8 2.8
Web Hosting Companies
Mean.......................................... 21.3 22.2 9.2 9.7
Median........................................ 14.9 17.0 7.5 7.8
</TABLE>
- --------
(/1/Includes)Verio.
Based on certain trading multiples of the comparable companies and NTT
Communications projections of Verio revenues, Deutsche Bank calculated implied
value ranges for Verio. Deutsche Bank calculated Verio's implied enterprise
value as the sum of the implied values of each of its three business segments:
dial-up service; dedicated line; and web-hosting and co-location. Implied
values for each Verio business segment were calculated based on revenue
projections for those segments by NTT Communications and segment-specific
trading multiple ranges. To determine segment-specific trading multiple
ranges, Deutsche Bank identified those of the comparable companies which, in
its
20
<PAGE>
judgment, more closely resemble the respective Verio business segment, and
assigned to each group of those companies a trading multiple range based on
TEV to revenue and one-month average TEV to revenue ratios for each of the
companies comprising those groups.
Deutsche Bank calculated implied value ranges for Verio based on:
. Verio's 2000 estimated revenue;
. Verio's 2001 estimated revenue, assuming no synergies from a combination
with NTT Communications; and
. Verio's 2001 estimated revenue, assuming certain synergies projected by
NTT Communications for a business combination of Verio and NTT
Communications.
The following table sets forth the implied value ranges for Verio, based on
Verio's estimated 2000 revenue:
<TABLE>
<CAPTION>
TEV/2000E
Revenue
and One-
month
Average Implied Verio
TEV/ 2000E Verio Value Range
Revenue 2000E -----------------
(Range) Revenue Low High
---------- ------- -------- --------
<S> <C> <C> <C> <C>
Dial-up Service........................ 1.5- 2.5x $ 19.5 $ 29.2 $ 48.7
Dedicated Line......................... 5.0- 8.5x $126.3 $ 631.4 $1,073.3
Web-Hosting and Co-location............ 18.0-22.0x $267.7 $4,818.5 $5,889.3
Implied Verio TEV......................................... $5,479.1 $7,011.3
Less: net debt(/1/)....................................... 43.7 43.7
Implied Verio Equity Value................................ $5,522.9 $7,055.1
Implied Verio Price per Share(/2/)........................ $ 52.15 $ 66.62
</TABLE>
- --------
(/1/Represents)$43.7 million excess cash after option proceeds are added back.
(/2/Based)on fully diluted shares of 105.9 million.
The following table sets forth the implied value ranges for Verio, based on
Verio's estimated 2001 revenue, assuming no synergies from a business
combination of Verio and NTT Communications:
<TABLE>
<CAPTION>
TEV/2001E Revenue Implied Verio
and One-month Verio Value Range
Average TEV/2001E 2001E -----------------
Revenue (Range) Revenue Low High
----------------- ------- -------- --------
<S> <C> <C> <C> <C>
Dial-up Service................. 1.0- 2.0x $ 21.4 $ 21.4 $ 42.7
Dedicated Line.................. 3.5- 5.5x $196.9 $ 689.0 $1,082.7
Web-Hosting and Co-location..... 8.5-11.0x $467.4 $3,972.5 $5,140.9
Implied Verio TEV......................................... $4,682.9 $6,266.4
Less: net debt(/1/)....................................... 43.7 43.7
Implied Verio Equity Value................................ $4,726.6 $6,310.1
Implied Verio Price per Share(/2/)........................ $ 44.63 $ 59.59
</TABLE>
- --------
(/1/Represents)$43.7 million excess cash after option proceeds are added back.
(/2/Based)on fully diluted shares of 105.9 million .
21
<PAGE>
The following tables set forth the implied value ranges for Verio, based on
Verio's estimated 2001 revenue, assuming certain synergies projected by NTT
Communications for a business combination of Verio and NTT Communications:
<TABLE>
<CAPTION>
TEV/2001E Revenue Implied Verio
and One-month Value Range
Average TEV/2001E Verio -----------------
Revenue (Range) 2001E Revenue Low High
----------------- ------------- -------- --------
<S> <C> <C> <C> <C>
Dial-up Service.......... 1.0- 2.0x $ 21.4 $ 21.4 $ 42.7
Dedicated Line........... 3.5- 5.5x $262.9 $ 920.0 $1,445.7
Web-Hosting and Co-
location................ 8.5-11.0x $520.4 $4,423.0 $5,723.9
Implied Verio TEV........................................ $5,364.4 $7,212.4
Less: net debt(/1/)...................................... 43.7 43.7
Implied Verio Equity Value............................... $5,408.1 $7,256.1
Implied Verio Price per Share(/2/)....................... $ 51.07 $ 68.52
</TABLE>
- --------
(/1/Represents)$43.7 million excess cash after option proceeds are added back.
(/2/Based)on fully diluted shares of 105.9 million.
None of the companies utilized as a comparison is identical to Verio.
Accordingly, Deutsche Bank believes the analysis of the publicly traded
comparable companies is not simply mathematical. Rather, it involves complex
considerations and qualitative judgments, reflected in Deutsche Bank's
opinion, concerning the differences in financial and operating characteristics
of comparable companies and other factors that could affect the public trading
value of the comparable companies.
Analysis of Selected Precedent Transactions. Deutsche Bank reviewed the
financial terms, to the extent publicly available, of 13 proposed, pending or
completed mergers and acquisition transactions since April 1996 involving
companies in the internet data services industry, consisting of 3 transactions
in the dedicated line segment, 3 transactions in the dial-up service segment,
3 transactions in the web hosting segment, and 4 other transactions. Deutsche
Bank calculated various financial multiples and premiums over market value
based on certain publicly available information for each of those transactions
and compared them to the corresponding financial multiples and premiums over
market value for the acquisition of Verio by NTT Communications, based on the
consideration to be paid by NTT Communications under the NTT
Communications/Verio merger agreement.
The transactions reviewed in the dedicated line segment were:
. NextLink Communications/Concentric, announced on January 10, 2000;
. McLeodUSA/Splitrock Services, announced on January 7, 2000; and
. MFS Communications/UUNET Technologies, announced on April 30, 1996.
The transactions reviewed in the dial-up service segment were:
. Mind Spring Enterprises/Netcom dial-up business (from ICG), announced on
January 6, 1999;
. ICG/Netcom, announced on October 13, 1997; and
. WorldCom/CompuServe, announced on September 8, 1997.
The transactions reviewed in the web hosting segment were:
. Metromedia Fiber Network/AboveNet, announced on June 23, 1999;
. Verio/Best Internet Comm. (d/b/a Hiway Technologies), announced on July
28, 1998; and
. Intermedia Communications/Digex, announced on June 5, 1997.
22
<PAGE>
Other transactions reviewed were:
. AT&T/IBM Global Network, announced on December 8, 1998;
. Qwest/Icon CMT Corp., announced on September 14, 1998;
. Cable & Wireless/MCI (Internet network only), announced on May 28, 1998;
and
. GTE Corporation/BBN, announced on May 6, 1997.
For these precedent transactions, Deutsche Bank calculated premiums over
the target company's equity market price on the day before the announcement
and over the target company's 30-trading-day equity market price average
immediately before the announcement; changes in the acquirer's equity market
price 1 trading day and 20 trading days, respectively, after the announcement;
the ratio of TEV to estimated forward revenues; and the ratio of TEV to gross
property, plant and equipment. While Deutsche Bank took each of these
transaction multiples into consideration, it used TEV to estimated forward
revenue multiples as a basis for determining ranges of implied Verio value.
Deutsche Bank calculated the following median TEV to estimated forward revenue
multiples for each of the four precedent transaction groups:
<TABLE>
<CAPTION>
TEV/Estimated
Forward
Revenue
-------------
<S> <C>
Dedicated Line
Median.................................................... 10.9x
Dial-up Service
Median.................................................... 1.0x
Web Hosting
Median.................................................... 9.1x
Other
Median.................................................... 2.2x
</TABLE>
Based on TEV to estimated forward revenue multiples and NTT Communications
projections of Verio 2000 revenues, Deutsche Bank calculated implied value
ranges for Verio. Deutsche Bank calculated Verio's implied enterprise value as
the sum of the implied values of each of its three business segments: dial-up
service; dedicated line; and web-hosting and co-location. Implied values for
each Verio business segment were calculated based on 2000 revenue projections
for those segments by NTT Communications and segment-specific transaction
multiple ranges. To determine segment-specific transaction multiple ranges,
Deutsche Bank assigned to each group of precedent transactions in the
dedicated line, dial-up service and web hosting segments a transaction
multiple range based on individual transaction multiples for each of the
companies comprising those groups.
The following tables set forth the implied value ranges for Verio:
<TABLE>
<CAPTION>
Precedent
Transactions
TEV/Estimated Implied Verio
Forward Value Range
Revenue Verio -----------------
(Range) 2000E Revenue Low High
------------- ------------- -------- --------
<S> <C> <C> <C> <C>
Dial-up Service............... 0.9- 1.2x $ 19.5 $ 17.5 $ 23.4
Dedicated Line................ 9.5-11.5x $126.3 $1,199.6 $1,452.2
Web Hosting and Co-location... 15.0-19.0x $267.7 $4,015.4 $5,086.2
Implied Verio TEV......................................... $5,232.6 $6,561.7
Less: net debt(/1/)....................................... 43.7 43.7
Implied Verio Equity Value................................ $5,276.3 $6,605.5
Implied Verio Price per Share(/2/)........................ $ 49.83 $ 62.38
</TABLE>
- --------
(/1/Represents)$43.7 million excess cash after option proceeds are added back.
(/2/Based)on fully diluted shares of 105.9 million.
23
<PAGE>
Because the reasons for, and circumstances surrounding, each of the
precedent transactions analyzed were so diverse, and due to the inherent
differences between the operations and financial conditions of Verio and the
companies involved in the precedent transactions, Deutsche Bank believes that
a comparable transaction analysis is not simply mathematical. Rather, it
involves complex considerations and qualitative judgments, reflected in
Deutsche Bank's opinion, concerning differences between the characteristics of
these transactions and the acquisition of Verio by NTT Communications that
could affect the value of the companies involved in the precedent transactions
on the one hand and of Verio on the other hand.
Discounted Cash Flow Analysis. Deusche Bank performed a discounted cash
flow analysis for Verio both as a stand-alone "no-synergies" business and as a
business generating synergies from a combination with NTT Communications.
Deutsche Bank calculated the discounted cash flow values for Verio as the sum
of the net present values of (i) Verio's estimated future cash flows for the
years 2000 through 2008, plus (ii) the value of Verio at the end of that
period. The estimated future cash flows were based on the financial
projections for Verio for the years 2000 through 2008 that the management of
NTT Communications provided based on published Deutsche Bank research
estimates, and on synergy projections by NTT Communications management. The
terminal values of Verio were calculated based on projected EBITDA for 2008
and a range of estimated 2008 EBITDA exit multiples of 12.5x to 14.5x.
Deutsche Bank used discount rates ranging from 14% to 16%. Deutsche Bank used
this discount rate range based on its judgment of the estimated weighted
average cost of capital of Verio as well as comparable companies, and used
estimated 2008 EBITDA exit multiples based on its review of the trading
characteristics of the common stock of selected companies Deutsche Bank deemed
comparable for that purpose. The analysis indicated TEVs, total equity values
and equity values per share of Verio as follows:
<TABLE>
<CAPTION>
Verio--
No Synergies Verio--Synergies
----------------- -----------------
<S> <C> <C>
Discount Rate Range..................... 14-16% 14-16%
2008E EBITDA Exit Multiple Range........ 12.5-14.5x 12.5-14.5x
TEV..................................... $5.0-$6.7 billion $6.4-$8.4 billion
Total Equity Value(/1/)................. $5.1-$6.7 billion $6.4-$8.4 billion
Equity Value Per Share(/2/)............. $48.03-$63.68 $60.64-$79.70
</TABLE>
- --------
(/1/Adjusted)for excess cash of $43.7 million, which includes $348.3 million
of cash proceeds from options and warrants exercised.
(/2/Based)on fully diluted shares of 105.9 million.
24
<PAGE>
Transaction Premiums Analysis. Deutsche Bank conducted an analysis of the
premiums paid in selected public market acquisitions relating to U.S.
technology and telecommunications target companies from 1995 to date. The
analysis comprised 12 cash transactions and 37 stock transactions, each valued
between $2 billion and $10 billion. For each transaction, Deutsche Bank
calculated the proposed acquisition price premium over the stock price on the
day before the announcement of the transaction and over the price averages
during the five-trading-day and thirty-trading-day periods before the
announcement date. From these premiums, Deutsche Bank derived median and mean
premium values for stock and cash transactions during the last year, the last
two years and the last five years as follows:
<TABLE>
<CAPTION>
Premium
-------------------------------------------------
5 Trading 30 Trading
Days Days
Average Average
Number 1 Day Prior Prior Prior
Technology and of ----------- ----------- -----------
Telecommunications Deals Median Mean Median Mean Median Mean
Company Acquisitions ------ ------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Last year
Stock....................... 19 29.9% 30.1% 39.9% 39.0% 53.9% 53.4%
Cash........................ 4 35.6 53.6 44.2 64.8 70.1 66.0
Last 2 years
Stock....................... 28 26.9% 31.1% 36.9% 40.0% 54.3% 62.5%
Cash........................ 8 27.5 47.5 38.8 57.9 55.3 60.6
Last 5 years
Stock....................... 37 27.6% 30.5% 36.5% 37.9% 53.2% 58.0%
Cash........................ 12 27.5 43.0 38.8 52.0 55.3 55.7
</TABLE>
- --------
Note: Premiums comprised of US targets only in the high-
tech/telecommunications industry with transaction values between $2.0 and
$10.0 billion.
Deutsche Bank compared these premium values to the corresponding premiums
implied in the price of $60 that NTT Communications is offering to pay for
each share of Verio common stock in the offer and merger. The implied premium
is 67.0% over the May 5, 2000 closing stock price of $35.94, 73.1% over the
price average of $34.66 during the one-week period before that date, 87.0%
over the price average of $32.09 during the one-month period before that date
and 17.4% over the price average of $51.09 during the three-month period
before that date.
The foregoing summary describes analyses and factors that Deutsche Bank
deemed material in its presentation to the NTT Communications board of
directors, but it is not a comprehensive description of all analyses performed
and factors considered by Deutsche Bank in connection with preparing its
opinion. The preparation of a fairness opinion is a complex process involving
the application of subjective business judgment in determining the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, is not readily
susceptible to summary description. Deutsche Bank believes that its analyses
must be considered as a whole and that considering any portion of such
analyses and of the factors considered without considering all analyses and
factors could create a misleading view of the process underlying the opinion.
In arriving at its fairness determination, Deutsche Bank did not assign
specific weights to any particular analyses.
In conducting its analyses and arriving at its opinions, Deutsche Bank
utilized a variety of generally accepted valuation methods. The analyses were
prepared solely for the purpose of enabling Deutsche Bank to provide its
opinion to the NTT Communications board of directors as to the fairness to NTT
Communications, from a financial point of view, of the consideration to be
paid by NTT Communications in the offer and merger under the NTT
Communications/Verio merger agreement. The analyses do not purport to be
appraisals or necessarily reflect the prices at which businesses or
25
<PAGE>
securities actually may be sold, which are inherently subject to uncertainty.
In connection with its analyses, Deutsche Bank made, and was provided by the
management of NTT Communications with, numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of NTT Communications or Verio.
Analyses based on estimates or forecasts of future results are not necessarily
indicative of actual past or future values or results, which may be
significantly more or less favorable than suggested by such analyses. Because
such analyses are inherently subject to uncertainty, being based upon numerous
factors or events beyond the control of NTT Communications, Verio or their
respective advisors, neither NTT Communications nor Deutsche Bank nor any
other person assumes responsibility if future results or actual values are
materially different from these forecasts or assumptions.
The terms of the offer and merger under the NTT Communications/Verio merger
agreement were determined through negotiations between NTT Communications and
Verio and were approved by the board of directors of NTT Communications.
Although Deutsche Bank provided advice to NTT Communications during the course
of these negotiations, the decisions to enter into the merger agreement was
solely that of the board of directors of NTT Communications. As described
above, the opinion and presentation of Deutsche Bank to the NTT Communications
board of directors was only one of a number of factors taken into
consideration by the NTT Communications board of directors in making its
determination to approve the transaction.
NTT Communications selected Deutsche Bank, an affiliate of Deutsche Bank
AG, which together with its affiliates comprises Deutsche Bank Group, as
financial advisor in connection with the proposed acquisition by NTT
Communications of Verio based on Deutsche Bank's qualifications, expertise,
reputation and experience in mergers and acquisitions. NTT Communications has
retained Deutsche Bank pursuant to an engagement letter dated February 23,
2000 between NTT Communications and a Deutsche Bank affiliate. As compensation
for Deutsche Bank's services in connection with the proposed acquisition, a
cash fee of 10 million Japanese yen became payable by NTT Communications to an
affiliate of Deutsche Bank upon signing of the engagement letter and the
performance of certain services under the engagement letter. Contingent on the
consummation of the offer and merger, NTT Communications will pay the Deutsche
Bank affiliate a fee of approximately $10 million, against which amount the
previously paid cash fee will be credited. Regardless of whether the offer or
merger are consummated, NTT Communications has agreed to reimburse the
Deutsche Bank affiliate for reasonable fees and disbursements of the Deutsche
Bank affiliate's counsel and all of the Deutsche Bank affiliate's reasonable
travel and other out-of-pocket expenses incurred in connection with the
transaction or otherwise arising out of the retention of the Deutsche Bank
affiliate under the engagement letter. NTT Communications has also agreed to
indemnify members of Deutsche Bank Group and certain related persons to the
full extent lawful against certain liabilities, including certain liabilities
under the federal securities laws arising out of its engagement or the offer
or merger.
Deutsche Bank is an internationally recognized investment banking firm
experienced in providing advice in connection with mergers and acquisitions
and related transactions. One or more members of the Deutsche Bank Group have,
from time to time, provided investment banking, commercial banking (including
extension of credit) and other financial services to NTT Communications and
Verio or their respective affiliates for which one or more members of the
Deutsche Bank Group have received compensation. NTT Communications has
retained Deutsche Bank as co-dealer manager in connection with the NTT
Communications offer to purchase the outstanding shares of Verio common and
preferred stock. In the ordinary course of business, members of Deutsche Bank
Group may actively trade in the securities and other instruments and
obligations of Verio or other affiliates of NTT Communications for their own
accounts and for the accounts of their customers. Accordingly, Deutsche Bank
Group may at any time hold a long or short position in such securities,
instruments and obligations.
26
<PAGE>
Opinion of Merrill Lynch NTT Communications retained Merrill Lynch to act
as its financial advisor in connection with a possible business combination.
On May 7, 2000, Merrill Lynch rendered its oral opinion, subsequently
confirmed in writing, to the management of NTT Communications, that, as of
such date and based upon and subject to the factors and assumptions set forth
therein, the $60.00 per share of Common Stock and the $62.136 per share
(subject to adjustment as set forth in the Agreement to include accumulated
and unpaid dividends from August 1, 2000 to the expiration of the tender
offer) of the Preferred Stock (the "Consideration") to be paid by Purchaser in
the tender offer and the Merger, taken together, for each outstanding share of
Common Stock other than the shares of Common Stock owned by NTT Communications
(the "Owned Shares") and for each share of Preferred Stock, respectively,
taking into account the Owned Shares, was fair from a financial point of view
to NTT Communications. The Offer and the Merger, taken together, are referred
to as the "Transaction."
The full text of Merrill Lynch's written opinion, which sets forth the
assumptions made, matters considered, and qualifications and limitations on
the review undertaken by Merrill Lynch, is attached as Annex C at the end of
this Offer to Purchase and is incorporated in this Offer to Purchase by
reference. The summary of the Merrill Lynch opinion set forth in this Offer to
Purchase is qualified in its entirety by reference to the full text of the
Merrill Lynch opinion. Verio stockholders are urged to read the Merrill Lynch
opinion in its entirety. STOCKHOLDERS SHOULD NOTE THAT THE MERRILL LYNCH
OPINION IS NOT DIRECTED TO VERIO OR THE STOCKHOLDERS OF VERIO AND IS NOT AN
OPINION THAT THE CONSIDERATION TO BE PAID BY NTT COMMUNICATIONS IN THE
TRANSACTION IS FAIR TO VERIO OR THE STOCKHOLDERS OF VERIO. The Merrill Lynch
opinion was provided to the management of NTT Communications solely for the
use and benefit of NTT Communications in its evaluation of the Transaction and
may not be used for any other purpose. The Merrill Lynch opinion does not
address the merits of the underlying decision by NTT Communications to engage
in the Transaction or the fairness of the transaction to Verio or its
stockholders. The Merrill Lynch opinion is not intended to be relied upon or
confer any rights or remedies upon any employee, creditor, stockholder or
other equity holder of NTT Communications, any affiliate of NTT
Communications, Verio or any stockholder of Verio or any other party.
Materials summarizing Merrill Lynch's analyses were presented to the
management of NTT Communications on April 27, 2000 and May 5, 2000. We have
filed these materials with the SEC as an exhibit to the tender offer statement
on Schedule TO. Copies of these materials are available for inspection and
copying at Verio's principal executive offices at 8005 South Chester Street,
Suite 200, Englewood, Colorado 80112, during regular business hours, by any
interested Verio stockholder or representative who has been so designated in
writing. You may also obtain these materials from the SEC in the same manner
as set forth for Verio's SEC filings in "Certain Information Concerning
Verio."
The Consideration to be paid by Purchaser in the Transaction was determined
through negotiations between Verio and NTT Communications. Merrill Lynch
provided advice to NTT Communications during the course of the negotiations.
The summary set forth below does not purport to be a complete description
of the analyses underlying the Merrill Lynch opinion. The preparation of a
fairness opinion is a complex analytic process involving various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to partial analysis
or summary description. In arriving at its opinion, Merrill Lynch did not
attribute any particular weight to any analysis or factor considered by it,
but rather made qualitative judgments as to the significance and relevance of
each analysis and factor. Accordingly, Merrill Lynch believes that its
analyses must be considered as a whole and that selecting portions of its
analyses, without considering all analyses, would create an incomplete view of
the process underlying its opinion.
27
<PAGE>
In performing its analyses, numerous assumptions were made with respect to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Merrill
Lynch, NTT Communications and Verio. Any estimates contained in the analyses
performed by Merrill Lynch are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than
suggested by those analyses. Additionally, estimates of the value of
businesses or securities do not purport to be appraisals or to reflect the
prices at which those businesses or securities might actually be sold.
Accordingly, these analyses and estimates are inherently subject to
substantial uncertainty. In addition, the Merrill Lynch opinion was among
several factors taken into consideration by the management of NTT
Communications in making its determination to approve the merger agreement and
the Transaction. Consequently, the Merrill Lynch analyses described below
should not be viewed as determinative of the decision of the board of
directors of NTT Communications or NTT Communication's management with respect
to the fairness of the consideration to be paid by Purchaser for each
outstanding share of Common Stock other than the Owned Shares and each share
of Preferred Stock, taking into account the Owned Shares in the Transaction.
In arriving at its opinion, Merrill Lynch, among other things:
(1) reviewed certain publicly available business and financial
information relating to Verio and NTT, the parent of NTT Communications,
that Merrill Lynch deemed relevant;
(2) reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets, liabilities and
prospects of Verio, as well as the amount and timing of the synergies
expected to result from the Transaction furnished to Merrill Lynch by Verio
and NTT Communications;
(3) conducted discussions with members of senior management of Verio and
NTT Communications concerning the matters described in clauses (1) and (2)
above, as well as their respective businesses and prospects before and
after giving effect to the Transaction and the amount and timing of the
synergies expected to result from the transaction;
(4) reviewed the market prices and valuation multiples for the Common
Stock and Preferred Stock and compared them with those of certain publicly
traded companies that Merrill Lynch deemed to be relevant;
(5) reviewed the results of operations of Verio and compared them with
those of certain publicly traded companies that Merrill Lynch deemed to be
relevant;
(6) considered and took into account the impact and effects of NTT
Communication's shareholding of approximately 11% of the currently
outstanding shares of the Common Stock and the consideration paid for the
approximately 9 million shares of Common Stock which were purchased by a
subsidiary of NTT Communications in May 1998 for approximately $11.13 per
share;
(7) compared the proposed financial terms of the Transaction with the
financial terms of certain other transactions that Merrill Lynch deemed to
be relevant;
(8) participated in discussions and negotiations among representatives
of Verio and NTT Communications and their financial and legal advisors;
(9) reviewed the potential pro forma impact of the Transaction on NTT;
(10) reviewed a draft of the agreement and plan of merger dated as of
April 16, 2000 by and among Verio, NTT Communications and Purchaser; and
(11) reviewed such other financial studies and analyses and took into
account such other matters as Merrill Lynch deemed necessary, including its
assessment of general economic, market and monetary conditions.
28
<PAGE>
In preparing its opinion, Merrill Lynch assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to
Merrill Lynch, discussed with or reviewed by or for Merrill Lynch, or publicly
available, and Merrill Lynch did not assume any responsibility for
independently verifying such information or undertake an independent
evaluation or appraisal of any of the assets or liabilities of Verio and was
not furnished with any such evaluation or appraisal. In addition, Merrill
Lynch did not assume any obligation to conduct any physical inspection of the
properties or facilities of Verio. With respect to the financial forecast
information and the amount and timing of the synergies expected to result from
the Transaction furnished to or discussed with Merrill Lynch by Verio or NTT
Communications, Merrill Lynch assumed that they had been reasonably prepared
and reflected the best currently available estimates and judgment of Verio's
or NTT Communication's management as to the expected future financial
performance of Verio or NTT Communications, as the case may be, and the amount
and timing of the synergies expected to result from the Transaction. Merrill
Lynch also assumed that the final form of the merger agreement by and among
Verio, NTT Communications and Purchaser would be substantially similar to the
last draft reviewed by Merrill Lynch.
Merrill Lynch did not express any opinion as to the prices at which any
securities of NTT Communications, Purchaser or their affiliates will trade
following the announcement or the consummation of the Merger.
Merrill Lynch's opinion is necessarily based upon market, economic and
other conditions as they exist and can be evaluated, and on the information
made available to Merrill Lynch as of the date of the opinion. Merrill Lynch
assumed that in the course of obtaining the necessary regulatory or other
consents or approvals (contractual or otherwise) for the Transaction, no
restrictions, including any divestiture requirements or amendments or
modifications, will be imposed that will have a material adverse effect on the
contemplated benefits of the transaction.
Set forth below is a summary of the material analyses presented by Merrill
Lynch to the management of NTT Communications on May 7, 2000 in connection
with the Merrill Lynch opinion.
Comparable Company Analysis. A comparable public company analysis reviews a
business's operating performance and outlook relative to a group of publicly
traded peer companies to determine an implied unaffected market trading value.
Merrill Lynch concluded that the business/revenue stream of Verio is composed
of six identifiable components. Accordingly, as a proxy for publicly traded
companies comparable to Verio, Merrill Lynch, using publicly available
information and estimates of future financial results taken from recent
Merrill Lynch and other selected Wall Street equity research reports, compared
certain financial and other operating information related to Verio with that
of a group of companies in the web-hosting and access industry. For purposes
of its analysis, Merrill Lynch identified the following eight companies in the
web-hosting and access industry:
1. Earthlink;
2. PSINet;
3. Interliant;
4. Globix;
5. Digital Island;
6. Exodus;
7. Digex; and
8. NaviSite.
29
<PAGE>
Merrill Lynch analyzed the firm value of each of the foregoing companies as
a multiple of estimated 2001 revenues. The high, low and mean of such
multiples are set forth in the table below.
<TABLE>
<CAPTION>
High Low Mean
----- ---- ----
<S> <C> <C> <C>
Estimated 2001 Revenues......................................... 15.1x 1.5x 7.8x
</TABLE>
Merrill Lynch then determined that the relevant range of multiples for
estimated 2001 revenues was from 4.0x to 9.0x. Based upon this range of
multiples, Merrill Lynch calculated a summary reference range of implied per
share value of Verio's common stock of $27 to $60. Merrill Lynch also
performed an analysis based on multiples of estimated 2000 revenue. Based on
this analysis, Merrill Lynch derived a lower range of implied per share value
of Verio, but Merrill Lynch determined that such value was not appropriate for
inclusion in their summary per share valuation.
No company in the group of comparable companies is identical to Verio.
Accordingly, an analysis of the results of such a comparison is not purely
mathematical; rather, it involves complex considerations and judgments
concerning differences in historical and projected financial, trading and
operating characteristics of the comparable companies and other factors that
could affect the value of such companies and Verio.
Comparable Acquisition Transaction Analysis. A comparable acquisition
transaction analysis provides a valuation range based upon financial
information of companies which have been acquired in selected recent
transactions and which are in the same or similar industries as the business
being valued. Merrill Lynch reviewed the publicly available financial terms
and financial statistics of fourteen selected acquisition transactions in the
internet access and enhanced services industry over an observation period
beginning April 1996 and extending through March 2000. For purposes of its
valuation analysis, Merrill Lynch determined that the following acquisition
transactions were most comparable to the proposed transaction between Verio
and NTT Communications:
1. Digex/Intermedia;
2. Metamor/PSINet;
3. Ebone/GTS;
4. Earthlink/Mindspring;
5. TABNet/Verio;
6. Voyager.net/CoreComm;
7. Earthlink/Sprint;
8. Verio/NTT;
9. Concentric/NEXTLINK;
10. Netscape/AOL;
11. UUNet/MFS;
12. SplitRock/McLeod USA;
13. IXNet/Global Crossing; and
14. AboveNet/MFN.
30
<PAGE>
For the selected acquisition transactions listed above, Merrill Lynch
analyzed the transaction value as a multiple of calendar year revenues of the
target company for the year in which the transaction occurred and the year
following the transaction. The transaction value of each of the selected
acquisition transactions was calculated by multiplying the offer price per
share by the number of outstanding shares plus debt plus preferred stock plus
minority interest minus cash and cash equivalents. The high, low, mean and
median of such multiples are as set forth in the table below.
<TABLE>
<CAPTION>
High Low Mean Median
----- ---- ---- ------
<S> <C> <C> <C> <C>
Estimated Calendar Year Revenues......................... 62.1x 2.9x 6.8x 6.4x
Estimated Calendar Year.................................. 20.8x 1.3x 4.2x 4.8x
+1 Revenues
</TABLE>
Merrill Lynch then determined that the relevant multiple range was 5.4x to
6.6x. Based upon the application of the multiple analysis for the comparable
acquisition transactions, Merrill Lynch calculated a summary reference range
of implied per share value of Common Stock of $37 to $45 per share.
No company utilized in the comparable acquisition transaction analysis was
identical to Verio. Accordingly, an analysis of the results of this comparison
is not purely mathematical; rather, it involves complex considerations and
judgments primarily concerning differences in historical and projected
financial, operating and trading characteristics of the companies involved in
such other acquisition transactions and the circumstances surrounding those
transactions.
Premium Analysis of Selected Comparable M&A Transactions. Merrill Lynch
analyzed the premiums with respect to 34 selected transactions in the internet
access and enhanced services industry from 1996 to 2000. In examining these
acquisitions, Merrill Lynch reviewed the premium to price of the acquisition
one month, one week and one day prior to the announcement of the transaction.
The maximum, minimum, mean and median of such premiums are as set forth in the
table below:
<TABLE>
<CAPTION>
Maximum Minimum Mean Median
------- ------- ---- ------
<S> <C> <C> <C> <C>
One Month Prior.................................... 167.9% 2.0% 45.7% 41.6%
One Week Prior..................................... 163.7% -6.0% 42.5% 36.4%
One Day Prior...................................... 138.9% -17.0% 37.0% 36.2%
</TABLE>
Merrill Lynch determined that the relevant range of premiums for the
selected transactions was from 35% to 80%, and then calculated a summary
reference range of implied per share value of Common Stock of $45 to $60.
Discounted Cash Flow Analysis. A discounted cash flow analysis provides
insight into the intrinsic value of a business based on the projected earnings
and capital requirements and the net present value of the subsequent cash
flows anticipated to be generated by the assets of the business. Merrill Lynch
performed a discounted cash flow analysis by estimating the present value of
the future streams of the stand-alone, unlevered, after-tax free cash flows
that could be produced by Verio for fiscal years 2000 through 2009, based upon
NTT Communications' base case forecasts with respect to Verio. Ranges of
estimated terminal values were calculated for fiscal year 2009 based on
estimated 2009 EBITDA exit multiples ranging from 9.0x to 11.0x. Merrill Lynch
discounted the free cash flow streams and the estimated terminal values to a
present value based upon an estimated discount rate ranging from 14.0% to
18.0%. Based upon the discounted cash flow analysis, Merrill Lynch calculated
a summary reference range of implied per share value of Common Stock of $45 to
$73, before taking into account estimated synergies anticipated by the
management of NTT Communications to result from the Transaction. Merrill Lynch
further determined that the summary reference range of implied per share value
of Common Stock would increase to $53 to $81 after taking into account those
31
<PAGE>
synergies. Merrill Lynch calculated the midpoint of such synergies using a
6.0x to 8.0x EBITDA terminal multiple and a 13.0% to 17.0% discount rate.
Merrill Lynch also observed that discounted cash flow analysis values vary
widely based on the underlying projections used. One Wall Street analyst had
significantly higher projected growth rates than those provided to Merrill
Lynch by NTT Communications for purposes of Merrill Lynch's analysis. Further,
these projections were significantly higher compared to other Wall Street
analyst's projections for Verio. The application of such projected growth
rates to the discounted cash flow analysis would have resulted in a
significantly higher implied per share value of the Common Stock but such
projections were not utilized by Merrill Lynch for purposes of determining its
summary reference range of implied per share value of Common Stock.
Sum-of-the-Parts Valuation Analysis. A sum-of-the-parts valuation analysis
reviews a business's operating performance and outlook on a segment-by-segment
basis and compares each segment's performance to a group of publicly traded
peer companies to determine an implied market trading value for the enterprise
as a whole. Merrill Lynch performed a sum-of-the-parts valuation analysis for
the Internet access and enhanced services components of the business by
separately analyzing revenue estimates based on Verio-provided growth rates.
The peer companies included PSINet, Digital Island, Earthlink and a
hypothetical combination of the following companies: Rhythms, Covad,
Northpoint and DSL.net with respect to the Internet access segment and
NaviSite, Globix, Exodus, Critical Path, PSINet, Digex and a hypothetical
combination of the following companies: Rhythms, Covad, Northpoint and DSL.net
with respect to the enhanced services segment. For the internet access and
enhanced services segments, Merrill Lynch analyzed estimated 2000 and 2001
revenue. Merrill Lynch applied relevant multiple ranges to those projections
to arrive at a range of enterprise values for each of those segments. After
subtracting net debt, Merrill Lynch calculated a summary reference range of
implied per share value of Common Stock of $41 to $55 with respect to 2000 and
$42 to $65 with respect to 2001.
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Historical Stock Price Analysis. Merrill Lynch observed that the 52-week
trading range of the Common Stock for the period preceding May 3, 2000 was
from $23.69 to $80.00. As of May 3, 2000, the price of the stock of Verio was
$33.38.
Research Analysts Price Targets. Merrill Lynch also reviewed publicly
available equity research reports from selected Wall Street investment banks,
including, but not limited to, Lehman Brothers, PaineWebber, Inc., Morgan
Stanley Dean Witter and Salomon Smith Barney, and observed that the range of
price targets for the per share value of the Common Stock published in those
reports ranged from $55 to $100.
As described above, Merrill Lynch's opinion and presentation to the
management of NTT Communications was one of many factors taken into
consideration by NTT Communications in making its determination to enter into
the Merger Agreement. Consequently, the analyses described above should not be
viewed as determinative of the opinion of the board of directors or management
of NTT Communications with respect to the value of Verio or whether the board
or management would have been willing to engage in the Transaction at a
different level of consideration.
NTT Communications retained Merrill Lynch to act as its financial advisor
in connection with the Transaction. Merrill Lynch was selected by NTT
Communications based on Merrill Lynch's qualifications, expertise and
reputation, as well as Merrill Lynch's familiarity with NTT Communications.
Merrill Lynch is an internationally recognized investment banking and advisory
firm. Merrill Lynch, as part of its investment banking business, is
continuously engaged in the valuation of businesses and securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other
purposes.
Pursuant to an engagement letter dated April 27, 2000, NTT Communications
engaged Merrill Lynch to provide financial advisory services to it in
connection with the Transaction, including, among other things, rendering the
Merrill Lynch opinion. Pursuant to the terms of the engagement letter, NTT
Communications agreed to pay Merrill Lynch a fee in an amount equal to (i)
(Yen)2.5 million upon the execution of the engagement letter and thereafter a
fee of (Yen)5 million each month, (ii) $500,000 payable upon completion of the
tender offer for the Verio Shares, (iii) $250,000 for delivery of the Merrill
Lynch opinion payable upon completion of the tender offer for the Verio Shares
and (iv) an additional fee of approximately $10 million payable upon the
consummation of the Transaction from which the fees set forth in (i) through
(iii) will be deducted. In addition, NTT Communications has agreed to
reimburse Merrill Lynch for its out-of-pocket expenses, including attorney's
fees, incurred in connection with its engagement, and to indemnify Merrill
Lynch and certain related persons against certain liabilities and expenses
arising out of or in conjunction with its rendering of services under its
engagement.
Merrill Lynch has, in the past, provided financial advisory and financing
services to NTT Communications, Verio and their affiliates and may continue to
do so and has received, and may receive, fees for the rendering of such
services. In addition, in the ordinary course of its business, Merrill Lynch
may actively trade the Common Stock and other securities of Verio, as well as
the securities of NTT Communications or its affiliates for its own account and
for the accounts of customers and accordingly, may at any time hold a long or
short position in such securities.
Position of NTT, NTT Communications and Purchaser Regarding Fairness of the
Offer and the Merger.
NTT, NTT Communications and Purchaser believe that the consideration to be
received by Verio's stockholders pursuant to the Offer and the Merger is fair
to and in the best interests of Verio's stockholders. NTT, NTT Communications
and Purchaser base their belief on the following factors: (i) the conclusions
and recommendations of the Verio Board that the terms of the Offer and the
Merger, taken together, are fair to and in the best interests of Verio's
stockholders, (ii) the fact that the Offer and the Merger and the other terms
and conditions of the Merger Agreement were the result of arm's
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length, good faith negotiations between Verio and NTT Communications and their
respective advisors, (iii) the fact that the Offer Price represents a premium
of approximately 67% over the reported closing sale price of the Common Stock
on the last full trading day prior to the announcement of the proposed
transaction and a premium in excess of 88.5% over the 20-trading day average
closing sale price of the Common Stock for the period prior to announcement of
the proposed transaction, (iv) the fact that the Preferred Offer Price
represents a premium of approximately 35.7% over the reported closing price of
the Preferred Stock on the last full trading day prior to announcement of the
proposed transaction and (v) the Offer and the Merger will each provide
consideration to the stockholders entirely in cash.
NTT, NTT Communications and Purchaser did not find it practicable to
assign, nor did they assign, relative weights to the individual factors
considered in reaching its conclusion as to fairness. The liquidation of
Verio's assets was not considered to be a viable course of action based on the
desire of NTT Communications for Verio to continue to conduct its business as
a subsidiary of NTT Communications. Therefore, no appraisal of liquidation
value was sought for purposes of valuing the Shares.
The foregoing discussion of the information and factors considered and
given weight by NTT, NTT Communications and Purchaser is not intended to be
exhaustive but is believed to include all material factors considered by NTT,
NTT Communications and Purchaser.
Purpose and Structure of the Offer and the Merger; Reasons of NTT
Communications for the Offer and the Merger.
The purpose of the Offer and the Merger is for NTT Communications and its
subsidiaries to increase their ownership of the shares of Common Stock and the
shares of Preferred Stock from approximately 10.9% of the outstanding shares
of Common Stock to 100% of all Shares. Upon the consummation of the Merger,
Verio will become an indirect wholly owned subsidiary of NTT Communications.
The acquisition of Shares not owned by NTT, NTT Communications, Purchaser or
their subsidiaries has been structured as a cash tender offer followed by a
cash merger in order to effect a prompt and orderly transfer of ownership of
Verio from the public stockholders to NTT Communications and provide
stockholders with cash for all of their Shares.
The determination to proceed with the Offer and the Merger at this time
would also, in the view of NTT Communications, afford Verio's stockholders an
opportunity to dispose of their shares at a premium over market prices.
NTT Communications has concluded that the Offer and the Merger, including
the Offer Price, the Merger Consideration, the Preferred Offer Price and the
Preferred Merger Consideration to be received by stockholders of Verio, are
fair to the holders of the Shares based upon the factors described above under
"Position of NTT, NTT Communications and Purchaser Regarding Fairness of the
Offer and the Merger."
Plans for Verio After the Offer and the Merger.
Pursuant to the Merger Agreement, upon completion of the Offer, NTT
Communications and Purchaser intend to effect the Merger in accordance with
the Merger Agreement. See "--The Merger Agreement."
Except as otherwise described in this Offer to Purchase, NTT Communications
has no current plans or proposals or negotiations which relate to or would
result in: (i) other than the Merger, an extraordinary corporate transaction,
such as a merger, reorganization or liquidation involving Verio; (ii) any
purchase, sale or transfer of a material amount of assets of Verio; (iii) any
change in the management of Verio or any change in any material term of the
employment contract of any executive
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officer of Verio; or (iv) any other material change in Verio's corporate
structure or business. Nevertheless, NTT Communications may initiate a review
of Verio and its assets, corporate structure, capitalization, operations,
properties, policies, management and personnel to determine what changes, if
any, would be desirable following the Merger in order best to organize and
integrate the activities of Verio and NTT.
Verio has informed us that it has outstanding $400,000,000 aggregate
principal amount of 11 5/8% Senior Notes due 2009, $400,000,000 aggregate
principal amount of 11 1/4% Senior Notes due 2008, $175,000,000 aggregate
principal amount of 10 3/8% Senior Notes due 2005 and $93,625,000 aggregate
principal amount of 13 1/2% Senior Notes due 2004 (collectively, the "Senior
Notes"). Pursuant to the terms of the indentures related to the Senior Notes,
the purchase of Shares pursuant to the Offer would constitute a "change of
control" which obligates Verio to offer to purchase the Senior Notes, within
60 days of such change of control, at a price equal to 101% of the unpaid
principal amount of the Senior Notes, plus accrued and unpaid interest. This
offer must remain open for at least 20 business days. Holders of Senior Notes
are not obligated to sell their Senior Notes to Verio and they may elect not
to do so. Promptly following consummation of the Offer, NTT Communications
intends to take the necessary actions to cause Verio to commence the required
offer to purchase the Senior Notes. In the Merger Agreement, Verio agreed to
assist NTT Communications in the solicitation of consents to amendments to the
indentures related to the Senior Notes or in making a tender offer to purchase
the Senior Notes if NTT Communications so requests. NTT Communications has not
determined whether to request that Verio solicit such consents or commence
such a tender offer for the Senior Notes, but may take either action in the
future. The successful completion of any such consent solicitation or tender
offer is not a condition to the Offer.
Preferred Stock.
When Verio sold the shares of Preferred Stock in July 1999, purchasers of
the shares deposited a portion of the purchase price into a deposit account
(the "Deposit Account") created under the deposit agreement (the "Deposit
Agreement") between Verio and Norwest Bank Minnesota, N.A., as deposit agent
(the "Deposit Agent"). The Deposit Account was established to provide for the
payment of the equivalent of the first year of dividends on the Preferred
Stock. The Deposit Agreement provides that holders of the Preferred Stock are
entitled to cash payments from the Deposit Account of an amount equal to
$.8438 per share on each of November 1, 1999, February 1, 2000, May 1, 2000
and August 1, 2000. The first three of these payments have been made, with the
final payment due on August 1, 2000 to holders of record of the Preferred
Stock on July 18, 2000 (ten business days prior to such payment date), subject
to certain exceptions specified in the Deposit Agreement.
If Purchaser accepts for purchase, prior to July 18, 2000, shares of
Preferred Stock tendered pursuant to the Offer, Purchaser, NTT Communications
and Verio will instruct the Deposit Agent to pay to the tendering holders from
the amounts held in the Deposit Account an amount in cash equal to $.8438 per
share of Preferred Stock so tendered and accepted for purchase. To the extent
practicable, such payment will be at the same time as payment of the Preferred
Offer Price is made to such holders.
If the Effective Time of the Merger is before July 18, 2000, Purchaser, NTT
Communications and Verio will instruct the Deposit Agent to pay to each holder
of Preferred Stock (other than Purchaser, NTT Communications or any of its
subsidiaries) immediately prior to the Effective Time from the Deposit Account
an amount in cash equal to $.8438 per share of Preferred Stock held by such
holder immediately prior to the Effective Time. To the extent practicable,
such payment will be at the same time as payment of the Preferred Merger
Consideration is made to such holders.
If the Offer or the Merger is consummated after July 18, 2000, then each
remaining holder of Preferred Stock (other than Purchaser, NTT Communications
or any of its subsidiaries) on July 18,
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2000 shall receive payment of $.8438 per share of Preferred Stock pursuant to
the terms of the Deposit Agreement as a regular payment from the Deposit
Account on August 1, 2000 and not in connection with the Offer or the Merger.
Any shares of Preferred Stock held by holders of Preferred Stock who have
properly exercised their appraisal rights, if any, with respect to the
Preferred Stock in accordance with Section 262 of the DGCL shall have no right
to any payments as described above.
With regard to any shares of Preferred Stock held by Purchaser, Purchaser,
NTT Communications and Verio shall instruct the Deposit Agent that Purchaser
waives any right to receive payments from the Deposit Account as a result of
Purchaser being a holder of Preferred Stock.
If the amount in the Deposit Account is insufficient to allow such payments
to be made in full, then Verio or NTT Communications will provide such
additional funds to the Deposit Agent as shall be necessary to allow such
payments to be made in full. Any amounts in the Deposit Account not required
to make such payments shall become property of Verio.
Verio Warrants.
Verio has outstanding warrants to acquire 1,306,228 shares of Common Stock
(the "Verio Warrants") at exercise prices of $3.85 per share with respect to
392,334 shares, which are held by three holders, and $3.53 per share with
respect to 913,894 shares (which are held by Arthur L. Cahoon, a director of
Verio). See "--Beneficial Ownership of Shares." The Verio Warrants were
initially issued by Hiway Technologies, Inc. and became convertible into
shares of Common Stock upon the acquisition of Hiway Technologies, Inc. by
Verio in January 1999. Purchaser is offering to purchase the Verio Warrants at
a purchase price of $60.00 per warrant less the applicable warrant exercise
price and any applicable withholding taxes, net to the seller in cash, without
interest, on the terms and subject to the conditions set forth in the Offer. A
letter of transmittal for use by holders of Verio Warrants wishing to tender
the Verio Warrants will be made available to them upon request made to
Purchaser.
The Merger Agreement.
The following summary description of the Merger Agreement is qualified in
its entirety by reference to the agreement itself, which we have filed as an
exhibit to the Schedule TO that we filed with the SEC, which you may examine
and copy as set forth in Section 9.
The Offer. The Merger Agreement provides for the commencement of the Offer
by Purchaser. The obligation of Purchaser to accept for payment and pay for
Shares validly tendered pursuant to the Offer is subject to the prior
satisfaction or waiver by Purchaser of the conditions to the Offer set forth
in Section 13 hereof. The Merger Agreement provides that, without the prior
written consent of Verio, Purchaser will not (a) reduce the number of Shares
subject to the Offer, (b) reduce the Offer Price or the Preferred Offer Price;
(c) impose additional conditions to the Offer other than the conditions set
forth in Section 13 or modify the conditions to the Offer (other than waive
any condition of the Offer to the extent permitted by the Merger Agreement),
(d) except as described in the next two paragraphs, extend the Offer, (e)
change the form of consideration payable in the Offer, or (f) amend any other
term of the Offer in a manner adverse to the holders of Shares.
We have agreed with Verio that we will not extend the Offer, without the
consent of Verio, provided, however, that without the consent of Verio, we may
extend the Offer (a) if, at the scheduled or extended expiration date of the
Offer any of the conditions to Purchaser's obligation to accept Shares for
payment are not satisfied or waived, until such time as such conditions are
satisfied or waived, (b) for any period reasonably determined by Purchaser
after consultation with its legal advisors to be required by any rule,
regulation, interpretation or position of the SEC or the staff thereof
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applicable to the Offer and (c) if all of the conditions to the Offer are
satisfied or waived but the sum of the number of shares of Common Stock
tendered pursuant to the Offer and the number of shares of Common Stock owned
by NTT Communications or one or more direct or indirect subsidiaries of NTT
Communications is less than 90% of the outstanding shares of Common Stock but
at least 85% of the outstanding shares of Common Stock, on one or more
occasions for an aggregate period of not more than five business days beyond
the latest expiration date that would otherwise be permitted under the terms
of the Merger Agreement (provided that all conditions to the Offer shall be
irrevocably deemed to have been satisified or waived if we elect to extend the
Offer pursuant to clause (c) of this sentence).
We have also agreed with Verio that if at any scheduled expiration date of
the Offer, the Minimum Condition or the conditions to the Offer relating to
the HSR Act or the Exon-Florio Amendment (each as defined in Section 14) or
the conditions to the Offer described in paragraph (e) or (f) of Section 13
shall not have been satisfied but the conditions to the Offer described in
paragraphs (a), (b), (c), (d), (g) and (h) of Section 13 shall then be
satisfied, or if not satisfied, be reasonably capable of being satisfied prior
to November 10, 2000, at the request of Verio, we will extend the Offer from
time to time (each such extension not to exceed 10 business days after the
previously scheduled expiration date of the Offer unless agreed upon by Verio,
NTT Communications and Purchaser), subject to any right of NTT Communications,
Purchaser or Verio to terminate the Merger Agreement pursuant to its terms.
The Merger. The Merger Agreement provides that Purchaser will be merged
with and into Verio following the satisfaction or waiver of the conditions to
the Merger contained in the Merger Agreement. As a result of the Merger, the
separate corporate existence of Purchaser will cease and Verio will continue
as the Surviving Corporation.
At the effective time of the Merger (the "Effective Time"), the Certificate
of Incorporation and Bylaws of Verio shall be the Certificate of Incorporation
and Bylaws of the Surviving Corporation and the directors of Purchaser shall
become the directors of the Surviving Corporation and the officers of Verio
shall become the officers of the Surviving Corporation.
Verio has agreed in the Merger Agreement that it will, as soon as
practicable following the purchase of Shares pursuant to the Offer, (a)
prepare and file with the SEC a proxy statement relating to the Merger
Agreement and use its reasonable best efforts to have it cleared by the SEC
and to cause the proxy statement to be mailed to its stockholders and (b)
convene a special meeting of its stockholders for the purpose of considering
the adoption of the Merger Agreement. The Merger Agreement also provides that,
notwithstanding the foregoing, if NTT Communications or one or more
subsidiaries of NTT Communications shall own at least 90% of the outstanding
shares of Common Stock, NTT Communications and Purchaser shall take all
necessary and appropriate action to cause the Merger to become effective as
soon as practicable after expiration of the Offer without a meeting of the
stockholders of Verio, in accordance with Section 253 of the DGCL.
Conversion of Securities. As of the Effective Time, by virtue of the Merger
and without any action on the part of Purchaser, Verio or the holders of any
securities of Purchaser or Verio, (a) each share of Common Stock (other than
shares of Common Stock owned by Verio, any wholly owned subsidiary of Verio,
NTT Communications or any wholly owned subsidiary of NTT Communications and
other than shares of Common Stock owned by stockholders, if any, who are
entitled to and who properly exercise dissenter's rights under the DGCL) shall
be converted into the right to receive from the Surviving Corporation, in
cash, without interest, the Merger Consideration and (b) each share of
Preferred Stock (other than shares of Preferred Stock owned by Verio, any
wholly owned subsidiary of Verio, NTT Communications or any wholly owned
subsidiary of NTT Communications and other than shares of Preferred Stock
owned by stockholders, if any, who are entitled to and who properly exercise
dissenter's rights under the DGCL) shall be converted into the right to
receive from the
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Surviving Corporation, in cash, without interest, the Preferred Merger
Consideration. Each share of stock of Purchaser issued and outstanding
immediately prior to the Effective Time shall, at the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of stock of Purchaser, be converted into and become one fully paid and
nonassessable share of common stock, $.01 par value, of the Surviving
Corporation.
The Merger Agreement provides that NTT Communications or the designated
paying agent will be entitled to deduct and withhold from the consideration
otherwise payable pursuant to the Merger Agreement to any holder of Shares
such amounts as NTT Communications or such paying agent is required to deduct
and withhold with respect to the making of such payment under the Internal
Revenue Code or the rules and regulations promulgated thereunder or any
provision of state, local or foreign tax law.
Representations and Warranties. In the Merger Agreement, Verio has made
customary representations and warranties to NTT Communications and Purchaser.
The representations and warranties of Verio relate, among other things, to its
organization, good standing and corporate power; capital structure; authority
to enter into the Merger Agreement and to consummate the transactions
contemplated thereby; required consents and approvals and no violations;
filings made by Verio with the SEC under the Securities Act of 1933, as
amended (the "Securities Act"), and the Securities Exchange Act of 1934 (the
"Exchange Act") (including financial statements included in the documents
filed by Verio under these acts); information supplied by Verio; the absence
of certain events since December 31, 1999; permits and compliance with laws;
tax matters; actions and proceedings; certain agreements; benefit plans and
employees and employment practices; liabilities; labor matters; intellectual
property matters; title to assets; state takeover statutes; required vote of
Verio stockholders; and brokers.
Purchaser and NTT Communications have also made customary representations
and warranties to Verio. Representations and warranties of Purchaser and NTT
Communications relate, among other things, to: their organization, good
standing and authority to enter into the Merger Agreement and to consummate
the transactions contemplated thereby; required consents and approvals and no
violations; information supplied; ownership of Shares; operations of
Purchaser; brokers; and financing.
Covenants Relating to the Conduct of Business. During the period from the
date of the Merger Agreement to the Effective Time, Verio has agreed as to
itself and its subsidiaries that, except as otherwise expressly contemplated
or permitted by the Merger Agreement, as disclosed to NTT Communications in
writing on the date of the Merger Agreement or except to the extent NTT
Communications shall otherwise consent in writing:
(a) Verio shall, and shall cause each of its subsidiaries to, in all
material respects carry on its business in the ordinary course of its
business as currently conducted and, to the extent consistent therewith, use
reasonable best efforts to preserve intact its current business
organizations, keep available the services of its current officers and
employees and preserve its relationships with customers, suppliers and others
having business dealings with it to the end that its goodwill and ongoing
business shall be unimpaired at the Effective Time;
(b) Verio shall not, and shall not permit any of its subsidiaries to, (i)
other than dividends paid by wholly-owned subsidiaries, and dividends that
holders of shares of Preferred Stock are entitled to receive under Verio's
Certificate of Incorporation and payments with respect to the shares of
Preferred Stock required to be made under the deposit agreement relating to
the shares of Preferred Stock, declare, set aside or pay any dividends on, or
make any other actual, constructive or deemed distributions in respect of,
any of its capital stock, or otherwise make any payments to its stockholders
in their capacity as such, (ii) other than in the case of any subsidiary,
split, combine or reclassify any of its capital stock or issue or authorize
the issuance of any other securities in
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respect of, in lieu of or in substitution for shares of its capital stock or
(iii) purchase, redeem or otherwise acquire any shares of capital stock of
Verio (other than shares of Preferred Stock upon the conversion thereof and
other than repurchases of shares of Common Stock pursuant to agreements with
holders of options who, in accordance with the terms thereof, exercise such
options prior to the normal vesting date subject to a repurchase option in
favor of Verio) or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities;
(c) Verio shall not, and shall not permit any of its subsidiaries to,
issue, deliver, sell, pledge, dispose of or otherwise encumber any shares of
its capital stock, any other voting securities or equity equivalent or any
securities convertible into, or any rights, warrants or options (including
options under Verio's stock option plans) to acquire any such shares, voting
securities, equity equivalent or convertible securities, other than (i) the
issuance of shares of Common Stock upon the exercise of stock options to
purchase shares of Common Stock outstanding on the date of the Merger
Agreement in accordance with their current terms, (ii) the issuance of shares
of Common Stock upon exercise of warrants or the conversion of the Preferred
Stock, and (iii) the grant of purchase rights or issuance of shares under
Verio's 1998 Employee Stock Purchase Plan in accordance with the provisions
of the Merger Agreement;
(d) Verio shall not, and shall not permit any of its subsidiaries to,
amend its or their charters or by-laws;
(e) Verio shall not, and shall not permit any of its subsidiaries to,
acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of or equity in, or by any
other manner, any business or any corporation, limited liability company,
partnership, association or other business organization or division thereof
or otherwise acquire or agree to acquire any assets, other than acquisitions
in which the aggregate amount of consideration to be paid in connection with
an individual acquisition does not exceed $5 million, and provided that, if
the aggregate consideration to be paid in connection with an individual
acquisition would exceed $5 million, Verio will submit to NTT Communications,
through its representative on the Verio Board, materials describing the
proposed acquisition in the form provided generally to the Verio Board for
consideration of the acquisition and NTT Communications shall respond with
its decision with respect to approval of the acquisition within the same time
period provided to the Verio Board for its consideration and approval;
(f) except as otherwise disclosed by Verio to NTT Communications in
writing on the date of the Merger Agreement, Verio shall not, and shall not
permit any of its subsidiaries to, sell, lease or otherwise dispose of, or
agree to sell, lease or otherwise dispose of, any of its assets with a fair
market value in excess of $500,000, other than sales of inventory, products
and services that are in the ordinary course of business consistent with past
practice and other than the sale or disposition of property or equipment that
has become worn out, obsolete or damaged or otherwise unsuitable for use in
connection with the business of Verio or its subsidiaries;
(g) Verio shall not, and shall not permit any of its subsidiaries to,
incur any indebtedness for borrowed money, guarantee any such indebtedness or
make any loans, advances or capital contributions to, or other investments
in, any other person, other than (i) in the ordinary course of business
consistent with past practices and, in the case of indebtedness and
guarantees, in an amount not to exceed $2.5 million, (ii) indebtedness,
loans, advances, capital contributions and investments between Verio and any
of its wholly-owned subsidiaries or between any of such wholly-owned
subsidiaries, in each case in the ordinary course of business consistent with
past practices and (iii) investments in any other person which, if such
investments were treated as an acquisition would otherwise be permitted by
paragraph (e) above;
(h) Verio shall not, and shall not permit any of its subsidiaries to,
alter in any material respect (through merger, liquidation, reorganization,
restructuring or in any other fashion) the corporate structure or ownership
of Verio or any subsidiary;
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(i) except as otherwise disclosed by Verio to NTT Communications in
writing on the date of the Merger Agreement, Verio shall not, and shall not
permit any of its subsidiaries to, enter into or adopt any, or amend any
existing, severance plan, agreement or arrangement or enter into or amend any
Company Benefit Plan (as defined in the Merger Agreement) or employment or,
except in the ordinary course of business consistent with past practice,
consulting agreement;
(j) except as otherwise disclosed by Verio to NTT Communications in
writing on the date of the Merger Agreement or permitted by the Merger
Agreement, Verio shall not, and shall not permit any of its subsidiaries to,
increase the compensation payable or to become payable to its directors,
officers or employees (except for increases in the ordinary course of
business consistent with past practice in salaries or wages and other than
increases disclosed by Verio to NTT Communications in writing on the date of
the Merger Agreement) or grant any severance or termination pay to, or enter
into any employment or severance agreement with, any director or officer of
Verio or any of its subsidiaries, or establish, adopt, enter into, or, except
as may be required to comply with applicable law, amend in any material
respect or take action to enhance in any material respect or accelerate any
rights or benefits under, any labor, collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or
other plan, agreement, trust, fund, policy or arrangement for the benefit of
any director, officer or employee;
(k) Verio shall not, and shall not permit any of its subsidiaries to,
knowingly violate or knowingly fail to perform any material obligation or
duty imposed upon it or any subsidiary by any applicable material federal,
state or local law, rule, regulation, guideline or ordinance;
(l) Verio shall not, and shall not permit any of its subsidiaries to, make
any change to accounting policies or procedures (other than actions required
to be taken by generally accepted accounting principles or applicable law);
(m) except as required by applicable law, Verio shall not, and shall not
permit any of its subsidiaries to, prepare or file any tax return
inconsistent with past practice or, on any such tax return, take any
position, make any election, or adopt any method that is inconsistent with
positions taken, elections made or methods used in preparing or filing
similar tax returns in prior periods;
(n) Verio shall not, and shall not permit any of its subsidiaries to,
settle or compromise any tax liability in excess of $500,000;
(o) except as disclosed by Verio to NTT Communications in writing on the
date of the Merger Agreement, Verio shall not, and shall not permit any of
its subsidiaries to, settle or compromise any claims or litigation in excess
of $1 million or commence any litigation or proceedings;
(p) except for matters that have been authorized or approved by the Verio
Board prior to the date of the Merger Agreement, either expressly or as part
of the overall operating plan and capital and operating budgets for Verio
(including the data center expansion project approved by the Verio Board
prior to the date of the Merger Agreement) and for any individual agreements
or contracts consistent with such approved budgets, Verio shall not, and
shall not permit any of its subsidiaries to, (i) enter into or amend any
agreement or contract having a term in excess of 12 months and which is not
terminable by Verio or a subsidiary without penalty or premium of less than
$500,000 by notice of 180 days or less, but not including individual customer
agreements, reseller agreements or "Powered by Verio" or similar distribution
agreements or other standard supplier agreements entered into in the ordinary
course of business consistent with past practice, (ii) enter into or amend
any agreement or contract which, in the case of any individual agreement or
contract or series of related agreements or contracts, involves or is
expected to involve payments of $3 million or more by Verio and its
subsidiaries during the term thereof (provided that in the case of
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agreements or contracts with any customer, the margins anticipated from any
such agreement or contract shall be consistent in all material respects with
historical margins); (iii) enter into or amend any other agreement or
contract material to Verio and its subsidiaries, taken as a whole and not
otherwise permitted by clause (i) or (ii) above; or (iv) purchase any real
property, or make or agree to make any new capital expenditure or
expenditures (other than the purchase of real property) which in the
aggregate are in excess of $1 million;
(q) Verio shall not, and shall not permit any of its subsidiaries to, pay,
discharge or satisfy any claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction of any such claims, liabilities or
obligations, in the ordinary course of business consistent with past practice
or in accordance with their terms or as permitted above; and
(r) Verio shall not, and shall not permit any of its subsidiaries to,
authorize, recommend, propose or announce an intention to do any of the
foregoing, or enter into any contract, agreement, commitment or arrangement
to do any of the foregoing.
No Solicitation. Verio shall not, and shall not authorize any of its
subsidiaries to, and shall not authorize any officer, director or employee of
or any financial advisor, attorney or other advisor or representative of,
Verio or any of its subsidiaries to, and Verio shall instruct its officers,
directors, financial advisors and attorneys not to (i) solicit, initiate or
encourage the submission of, any Takeover Proposal (as defined below), (ii)
enter into any agreement with respect to or approve or recommend any Takeover
Proposal or (iii) participate in any discussions or negotiations regarding, or
furnish to any person any information with respect to Verio or any subsidiary
of Verio in connection with, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Takeover Proposal; provided, however, that Verio and
its directors shall not be prohibited from furnishing information to, or
entering into or participating in discussions or negotiations with, any person
who makes an unsolicited bona fide written Takeover Proposal if, and only to
the extent that (i) Purchaser has not accepted Shares for payment pursuant to
the Offer, (ii) the Verio Board, after consultation with its independent legal
counsel, determines in good faith that taking such action is necessary for the
Verio Board to comply with its fiduciary duties to Verio's stockholders under
applicable law, (iii) the Verio Board, after consultation with Verio's
financial advisors, determines in good faith that such Takeover Proposal,
taking into account all legal, financial and regulatory aspects of such
proposal and the person making such proposal, could lead to a Superior
Proposal (as defined below), and (iv) prior to taking such action, Verio
provides the notice to NTT Communications required by the Merger Agreement and
receives from the person making such Takeover Proposal an executed
confidentiality agreement in reasonably customary form and containing terms,
taken as a whole, at least as stringent as the confidentiality agreement
entered into between Verio and NTT Communications. Verio has agreed to, and
has agreed to instruct its financial advisors, attorneys or other
representatives to, immediately (as of the date of the Merger Agreement) cease
any discussions or negotiations, if any, existing at the date of the Merger
Agreement with any persons conducted before the execution of the Merger
Agreement with respect to any Takeover Proposal. For purposes of the Merger
Agreement, "Takeover Proposal" means any proposal for (i) a merger or other
business combination involving Verio or any of its subsidiaries, (ii) any
proposal or offer to acquire in any manner, directly or indirectly, an equity
interest in or any voting securities of Verio representing 15% or more of the
shares of Common Stock or of the total voting securities of Verio outstanding
or (iii) an offer to acquire in any manner, directly or indirectly, a
substantial portion of the assets of Verio or any of its subsidiaries, other
than the transactions contemplated by the Merger Agreement, and "Superior
Proposal" means a bona fide Takeover Proposal made by a third party on terms
which the Verio Board determines in its good faith judgment to be more
favorable to Verio's stockholders than the transactions contemplated by the
Merger Agreement (after receipt of the advice from Verio's independent
financial advisor) and for which financing, to the extent required,
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is then committed or which, in the reasonable good faith judgment of the Verio
Board (after receipt of the advice of Verio's independent financial advisor),
is reasonably capable of being obtained by such third party; provided that for
purposes of such definition, clause (ii) of the definition of "Takeover
Proposal" above shall be deemed to read "(ii) any proposal or offer to acquire
in any manner, directly or indirectly, an equity interest in or any voting
securities of Verio representing 50% or more of the shares of Common Stock or
of the total voting securities of Verio outstanding."
The Merger Agreement provides further that Verio shall advise NTT
Communications in writing of (i) any Takeover Proposal or any inquiry with
respect to or which could reasonably be expected to lead to any Takeover
Proposal received by any officer or director of Verio or, to the knowledge of
Verio, any financial advisor, attorney or other advisor or representative of
Verio, (ii) the material terms of such Takeover Proposal (including a copy of
any written proposal), and (iii) the identity of the person making any such
Takeover Proposal or inquiry. Verio shall use reasonable best efforts to so
advise NTT Communications no later than 24 hours following receipt of such
Takeover Proposal or inquiry and shall advise NTT Communications no later than
48 hours following receipt of such Takeover Proposal or inquiry. If Verio
intends to furnish any person with any information with respect to any
Takeover Proposal, Verio is required to advise NTT Communications in writing
of such intention in advance of providing such information. Verio is further
required to keep NTT Communications fully informed of the status and material
terms of any such Takeover Proposal or inquiry.
The Merger Agreement provides that nothing contained therein shall prohibit
Verio or the Verio Board from taking a position and disclosing to Verio's
stockholders a position contemplated by the Exchange Act, referring a third
party to the section of the Merger Agreement relating to no solicitation of
Takeover Proposals or from making such disclosure to Verio's stockholders as,
in the good faith judgment of the Verio Board after consultation with Verio's
independent legal counsel, is required under applicable law.
Third Party Standstill Agreements. During the period from the date of the
Merger Agreement through the Effective Time, Verio has agreed (except, in each
case, to the extent that the Verio Board, after consultation with its
independent legal counsel, determines in good faith that such action or
inaction would be inconsistent with its fiduciary duties to Verio's
stockholders under applicable law) not to terminate, amend, modify or waive
any provision of any confidentiality or standstill agreement to which Verio or
any of its subsidiaries is a party (other than any confidentiality or
standstill agreement involving NTT Communications and any other
confidentiality agreement that is not related to, or does not arise from, a
Takeover Proposal) and to enforce, to the fullest extent permitted under
applicable law, the provisions of any such agreements, including obtaining
injunctions to prevent any breaches of such agreements and to enforce
specifically the terms and provisions thereof in any court of the United
States or any state thereof having jurisdiction.
Stock Based Compensation and Warrants. In the Merger Agreement, Verio has
agreed that, prior to the consummation of the Offer, the Verio Board (or, if
appropriate, a committee thereof) shall adopt such resolutions and take any
and all other action necessary or appropriate to cause each option (a "Stock
Option") to purchase shares of Common Stock issued under Verio's 1996 Stock
Option Plan, 1997 California Stock Option Plan, 1998 Stock Incentive Plan and
1998 Non-Employee Director Stock Incentive Plan (collectively, the "Verio
Stock Option Plans") that is outstanding as of the consummation of the Offer
to be canceled as of the consummation of the Offer, in consideration for which
the holder thereof (an "Option Holder") shall receive the right to receive
from Verio cash in an amount (the "Option Consideration") equal to (A) the
product of (1) the number of shares of Common Stock subject to such option and
(2) the excess, if any, of the Offer Price over the exercise price per share
for the purchase of Common Stock subject to such Stock Option, minus (B) all
applicable federal, state and local taxes required to be withheld in respect
of such payment, subject to the requirements set forth below. In the case of a
Stock Option or portion thereof that is exercisable at, on account of or
before consummation of the Offer, the Option Consideration shall be paid as
soon
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as reasonably practicable following the acceptance for payment of shares by
Purchaser pursuant to the Offer and the surrender of such Stock Option or
portion thereof to Verio. In the case of a Stock Option or portion thereof
that is not exercisable at the time the Offer is consummated, the Option
Consideration shall be paid to such Option Holder after (A) the end of the
calendar month which includes the date on which such option or portion thereof
would have become exercisable pursuant to the terms of the applicable Stock
Option agreement had such option or portion thereof not been canceled and been
assumed by a successor and (B) the surrender of such Stock Option or portion
thereof with respect to such option to Verio; and in the case of any such
Stock Option that by its terms could not under any circumstances, if it were
assumed, be exercised or become exercisable after consummation of the Offer,
excluding any such option that pursuant to its terms becomes fully exercisable
if not assumed or replaced prior to the consummation of the Offer, if the
employment of an Option Holder is terminated by Verio (or any of its related
entities) within 12 months after the Offer is consummated for any reason,
other than Cause (as defined below) as determined by Verio, the next
installment of Option Consideration with respect to such Option shall be
payable. An Option Holder's rights to Option Consideration under the
immediately preceding sentence shall be evidenced by an agreement in such form
as the Verio Board (or if appropriate, a committee thereof) shall approve with
terms substantially similar to those of the Stock Option to which the such
right to Option Consideration relates and are not inconsistent with the terms
hereof. "Cause" means the Option Holder (1) acts in bad faith and to the
detriment of Verio; (2) refuses or fails to act in accordance with any
specific direction or order of Verio; (3) exhibits in regard to his employment
unfitness or unavailability for service, unsatisfactory performance,
misconduct or incompetence, but not on account of disability; (4) exhibits
dishonesty or habitual neglect or (5) is convicted of a crime involving
dishonesty, breach of trust or physical or emotional harm to any person.
Pursuant to the Merger Agreement, Verio has agreed to take all actions
necessary to ensure that the Purchase Period (as defined in Verio's 1998
Employee Stock Purchase Plan) applicable to the options outstanding under
Verio's 1998 Employee Stock Purchase Plan is shortened so as to have an
Exercise Date (as defined in the 1998 Employee Stock Purchase Plan) that
occurs before the acceptance for payment by the Purchaser of Shares pursuant
to the Offer; and no current holder of an option to purchase Shares under the
1998 Employee Stock Purchase Plan is permitted to increase his or her rate of
payroll deduction under the plan from and after the date of the Merger
Agreement, except for any such increases a participant is entitled to elect in
accordance with the terms of the plan as in effect on the date of the Merger
Agreement.
Verio has also agreed to take all actions necessary to provide that,
effective as of acceptance for payment by Purchaser of Shares pursuant to the
Offer, the Verio Stock Option Plans, the 1998 Employee Stock Purchase Plan and
any similar plan or agreement of Verio will be terminated, any rights under
any other plan, program, agreement or arrangement relating to the issuance or
grant of any other interest in respect of the capital stock of Verio or any of
its subsidiaries will be terminated, and no holder of an option to purchase
Shares will have any right to receive any shares of capital stock of Verio or,
if applicable, the Surviving Corporation, upon exercise of any Stock Option or
option outstanding under Verio's 1998 Employee Stock Purchase Plan.
Verio has agreed that prior to the acceptance for payment of any Shares
pursuant to the Offer, Verio will use reasonable best efforts to obtain the
written confirmation, in form and substance reasonably satisfactory to NTT
Communications, from the holders of the warrants issued under the Verio
Warrants that after the Effective Time such warrants will represent the right
to receive an amount equal to (A) the product of (i) the number of shares of
Common Stock subject to such warrant and (ii) the excess, if any, of the Offer
Price over the exercise price per share of Common Stock subject to such
warrant, minus (B) all applicable federal, state and local taxes required to
be withheld in respect of such payment. See "--Verio Warrants."
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Indemnification. Pursuant to the Merger Agreement, from and after the
Effective Time, NTT Communications will cause the Surviving Corporation to
indemnify, defend and hold harmless (and make advances as incurred to) all
past and present officers and directors of Verio and of its subsidiaries to
the same extent and in the same manner such persons are entitled to
indemnification and advancement of expenses as of the date of the Merger
Agreement by Verio pursuant to the DGCL, Verio's Certificate of Incorporation
or Verio's Bylaws for acts or omissions occurring at or prior to the Effective
Time.
From and after the Effective Time, NTT Communications shall cause the
Surviving Corporation to perform, as of the consummation of the Offer, all of
the obligations set forth in Verio's Certificate of Incorporation or Bylaws
relating to indemnification and in the indemnification agreements identified
by Verio to NTT Communications on the date of the Merger Agreement. In
addition, NTT Communications shall cause the Surviving Corporation to pay all
amounts that become due and payable under Verio's Certificate of
Incorporation, Bylaws and such indemnification agreements.
NTT Communications has also agreed to cause the Surviving Corporation to
provide, for a period of not less than six years from the Effective Time, to
or for the persons covered at the date of the Merger Agreement or at the
Effective Time by Verio's director's and officers' insurance and
indemnification policy, insurance that is substantially similar to Verio's
existing policy or, if substantially equivalent insurance coverage is
unavailable, the best available coverage; provided, however, that the
Surviving Corporation will not be required to pay an annual premium for the
director's and officer's insurance in excess of 200% of the last annual
premium paid prior to the date of the Merger Agreement but in such case will
purchase as much coverage as possible for such amount.
Retention and Incentive Plan; Benefits. Pursuant to the Merger Agreement,
prior to the first scheduled expiration of the Offer, NTT Communications and
Verio shall discuss and explore mutually agreeable retention and incentive
plans with respect to the employees and officers of Verio and its
subsidiaries, to be adopted prior to the consummation of the Offer and
effective immediately after consummation of the Merger.
In the Merger Agreement, NTT Communications has agreed to cause Purchaser
and the Surviving Corporation and their subsidiaries to honor all enforceable
employment, change in control, deferred compensation, pension, retirement and
severance agreements, pay and personnel policies in effect on the date of the
Merger Agreement and as amended on the date of the Merger Agreement between
Verio or one of its subsidiaries and any employee of Verio or any of its
subsidiaries, or maintained for the benefit of any employee of Verio or any of
its subsidiaries, and honor all annual bonus awards made by Verio or any of
its subsidiaries prior to the date of the Merger Agreement, subject to the
power of Verio or its subsidiaries to amend, modify, invoke or terminate any
such policies and awards pursuant to their terms or applicable law. See "--
Interests of Certain Persons in the Offer and the Merger."
In the Merger Agreement, NTT Communications has agreed, for one year after
the Effective Time, to cause Purchaser and the Surviving Corporation to
provide employees of Verio and its subsidiaries with benefits (including
welfare benefits) that are no less favorable, taken as a whole, than the
benefits provided under Verio's and such subsidiary's benefits plans (other
than equity-based plans) as in effect on the date of the Merger Agreement. To
the extent that service is relevant for eligibility, vesting or benefit
calculations or allowances (including entitlements to vacation and sick days)
under any plan or arrangement of Verio or its subsidiaries, NTT Communications
shall ensure that such plan or arrangement shall credit employees for service
on or prior to the Effective Time with Verio or any of its subsidiaries.
Board Representation. The Merger Agreement provides that promptly after
such time as Purchaser acquires Shares pursuant to the Offer, Purchaser will
be entitled to the fullest extent
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permitted by law to designate at its option up to that number of directors
(rounded to the nearest whole number) of the Verio Board, subject to
compliance with Section 14(f) of the Exchange Act, as will make the percentage
of Verio's directors designated by Purchaser equal to the percentage of the
aggregate voting power of the shares of Common Stock held by NTT
Communications or any of its subsidiaries. However, in the event that
Purchaser's designees are elected to the Verio Board, until the Effective
Time, the Verio Board shall have at least three directors who were directors
of Verio on the date of the Merger Agreement (the "Continuing Directors"). If
the number of Continuing Directors shall be reduced below three for any reason
whatsoever, the Continuing Directors shall designate a person or persons to
fill such vacancy or vacancies, each of whom shall be deemed to be a
Continuing Director for purposes of the Merger Agreement or, if no Continuing
Directors then remain, the other directors of Verio shall designate three
persons to fill such vacancies who shall not be officers or affiliates of
Verio or any of its subsidiaries, or officers or affiliates of NTT
Communications or any of its subsidiaries, and such persons shall be deemed to
be Continuing Directors for purposes of the Merger Agreement and, in either
case, Purchaser shall cause such person or persons to be elected to fill such
vacancy or vacancies. Following the election or appointment of Purchaser's
designees to the Verio Board and prior to the Effective Time, any amendment,
or waiver of any term or condition, of the Merger Agreement or Verio's
Certificate of Incorporation or Bylaws, any termination of the Merger
Agreement by Verio, any extension by Verio of the time for the performance of
any of the obligations or other acts of Purchaser or NTT Communications or
waiver or assertion of any of Verio's rights under the Merger Agreement, and
any other consent or action by the Verio Board with respect to the Merger
Agreement, will require the concurrence of a majority of the Continuing
Directors and, except as required by applicable law, no other action by Verio,
including any action by any other director of Verio, shall be required for
purposes of the Merger Agreement. To the fullest extent permitted by law,
Verio will take all actions reasonably necessary to effect such election. In
connection with the foregoing, Verio will promptly, at the option of NTT
Communications, to the fullest extent permitted by law, Verio's Certificate of
Incorporation and Verio's Bylaws, either increase the size of the Verio Board
and/or obtain the resignation of such number of its current directors as is
necessary to enable Purchaser's designees to be elected or appointed to the
Verio Board as provided above.
Conditions Precedent. The respective obligations of each party to effect
the Merger shall be subject to the satisfaction (or waiver by each party)
prior to the Effective Time of the following conditions: (i) the Merger
Agreement shall have been approved and adopted by the affirmative vote of the
stockholders of Verio (unless the vote of stockholders is not required under
the DGCL and Verio's Certificate of Incorporation); (ii) any waiting period
(and any extension thereof) applicable to the consummation of the Merger under
the HSR Act shall have expired or been terminated; (iii) Purchaser shall have
previously accepted for payment and paid for Shares pursuant to the Offer,
except that this condition shall not apply if Purchaser shall have failed to
purchase Shares pursuant to the Offer in breach of its obligations under the
Merger Agreement; and (iv) no court or other Governmental Entity (as defined
in the Merger Agreement) having jurisdiction over Verio or NTT Communications
or any of their respective subsidiaries shall have enacted, issued,
promulgated, enforced or entered any law, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or
permanent) which is then in effect and has the effect of making the Merger
illegal.
Termination. The Merger Agreement provides that it may be terminated at any
time prior to the Effective Time, whether before or after adoption of the
Merger Agreement by the stockholders of Verio:
(a) by mutual written consent of NTT Communications and Verio;
(b) by either NTT Communications or Verio: (i) if (x) as a result of the
failure of any of the conditions to the Offer as set forth in Section 13 of
this Offer to Purchase, the Offer shall have terminated or expired in
accordance with its terms without Purchaser having accepted for payment any
Shares pursuant to the Offer or (y) Purchaser shall not have accepted for
payment
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any Shares pursuant to the Offer prior to (A) September 8, 2000, if the
condition to the Offer relating to the Exon-Florio Amendment has been
satisfied or waived prior to such date or (B) November 10, 2000 if the
condition to the Offer relating to the Exon-Florio Amendment shall not have
been satisfied or waived on or prior to September 8, 2000 (provided that
the right to terminate the Merger Agreement pursuant to this clause (b)(i)
shall not be available to any party whose failure to perform any of its
obligations under the Merger Agreement results in the failure of any such
condition to the Offer or if the failure of such condition results from
facts or circumstances that constitute a breach of any representation or
warranty under the Merger Agreement by such party) or (ii) if any
Governmental Entity shall have issued an order, decree or ruling or taken
any other action permanently enjoining, restraining or otherwise
prohibiting the acceptance for payment of, or payment for, Shares pursuant
to the Offer and such order, decree or ruling or other action shall have
become final and nonappealable;
(c) by NTT Communications or Purchaser prior to the purchase of Shares
pursuant to the Offer in the event of a breach by Verio of any
representation, warranty, covenant or other agreement contained in the
Merger Agreement which (i) would give rise to the failure of the Offer
conditions described in paragraph (e) or (f) of Section 13 and (ii) cannot
be or has not been cured within 30 days after the giving of written notice
to Verio;
(d) by NTT Communications or Purchaser if either NTT Communications or
Purchaser is entitled to terminate the Offer as a result of the occurrence
of any event set forth in paragraph (d) of Section 13;
(e) by Verio if the Verio Board determines that a Takeover Proposal
constitutes a Superior Proposal and the Verio Board determines in its good
faith judgment, after consultation with independent counsel, that failing
to terminate the Merger Agreement would be inconsistent with its fiduciary
duties under applicable law; provided, that it has complied in all material
respects with the notice and other provisions of the Merger Agreement
relating to no solicitation of Takeover Proposals and it complies to the
extent applicable with requirements of the Merger Agreement relating to
payment of Expenses and the Termination Fee (each as defined below under
"--Fees and Expenses"); and provided further that Verio may not terminate
the Merger Agreement pursuant to this clause (e) unless and until 72 hours
have elapsed following the delivery to NTT Communications of a written
notice of such determination by the Verio Board (such notice may be given
by Verio contingent on termination of the Merger Agreement becoming
effective immediately prior to Verio entering into a definitive agreement
with respect to a Superior Proposal);
(f) by Verio, if (i) any of the representations or warranties of NTT
Communications or Purchaser set forth in the Merger Agreement that are
qualified as to materiality shall not be true and correct in any respect or
any such representations or warranties that are not so qualified shall not
be true and correct in any material respect or (ii) NTT Communications or
Purchaser shall have failed to perform in any material respect any material
obligation or to comply in any material respect with any material agreement
or covenant of NTT Communications or Purchaser to be performed or complied
with by it under the Merger Agreement and such untruth, incorrectness or
failure cannot be or has not been cured within 30 days after the giving of
written notice to NTT Communications or Purchaser, as applicable; or
(g) by Verio, if the Offer has not been timely commenced.
In the event of a termination of the Merger Agreement by either Verio or
NTT Communications, the Merger Agreement shall become void and there shall be
no liability or obligation on the part of NTT Communications, Purchaser or
Verio or their respective officers or directors, other than for certain
provisions of the Merger Agreement pertaining to the payment of certain
expenses and fees and except for certain confidentiality obligations of the
parties and other than for liability for any breach of a representation or
warranty contained in the Merger Agreement, the breach of any covenant
contained in the Merger Agreement or for fraud.
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Fees and Expenses. Except as provided in the Merger Agreement, whether or
not the Merger is consummated, all costs and expenses incurred in connection
with the Merger Agreement and the transactions contemplated thereby shall be
paid by the party incurring such costs and expenses.
The Merger Agreement provides that Verio will pay, or cause to be paid, in
same day funds to NTT Communications the following amounts under the
circumstances and at the times set forth as follows:
(i) if NTT Communications or Purchaser terminates the Merger Agreement
in accordance with the provisions described in clause (d) under
"Termination" above, Verio shall pay the Expenses of NTT Communications and
a $175 million termination fee (the "Termination Fee") upon demand;
(ii) if Verio terminates the Merger Agreement in accordance with the
provision described in clause (e) under "Termination" above, Verio shall
pay the Termination Fee within one business day following such termination
and the Expenses of NTT Communications upon demand; or
(iii) if NTT Communications or Purchaser terminates the Merger Agreement
in accordance with the provision described in clause (c) under
"Termination" above as a result of the breach by Verio of any covenant or
agreement contained in the Merger Agreement resulting in a failure of the
conditions to the Offer set forth in paragraph (f) of Section 13 and at the
time of any such termination a Takeover Proposal shall have been made
(other than a Takeover Proposal made prior to the date of the Merger
Agreement), (x) Verio shall pay the Expenses of NTT Communications upon
demand, and (y) if concurrently therewith or within 12 months thereafter,
(A) Verio enters into a merger agreement, acquisition agreement or similar
agreement (including a letter of intent) with respect to a Takeover
Proposal, or a Takeover Proposal is consummated, involving any party (1)
with whom Verio had any discussions with respect to a Takeover Proposal,
(2) to whom Verio furnished information with respect to or with a view to a
Takeover Proposal or (3) who had submitted a proposal or expressed any
interest publicly in a Takeover Proposal, in the case of each of clauses
(1), (2) and (3), prior to such termination, or (B) Verio enters into a
merger agreement, acquisition agreement or similar agreement (including a
letter of intent) with respect to a Superior Proposal, or a Superior
Proposal is consummated, then, in the case of either (A) or (B) above,
Verio shall pay the Termination Fee upon the earlier of the execution of
such agreement or upon consummation of such Takeover Proposal or Superior
Proposal.
The Merger Agreement also provides that if NTT Communications or Verio
terminates the Merger Agreement pursuant to the provision described in clause
(b)(i)(y) under "Termination" above and at the time of such termination all
conditions to the Offer except the condition relating to the Exon-Florio
Amendment have been satisfied or waived, then NTT Communications shall pay, or
cause to be paid, to Verio, in same day funds, an amount equal to the Expenses
of Verio upon demand.
For purposes of the Merger Agreement, "Expenses" means documented out-of-
pocket fees and expenses, up to a maximum of $5,000,000, incurred or paid by
or on behalf of NTT Communications or Verio, as the case may be, in connection
with the Offer, the Merger or the consummation of any of the transactions
contemplated by the Merger Agreement, including all fees and expenses of law
firms, commercial banks, investment banking firms, accountants, experts and
consultants.
Senior Notes. If NTT Communications shall request, Verio shall either (i)
solicit consents of the holders of one or more of the series of Senior Notes
to such amendments of the related indentures as NTT Communications shall
determine or (ii) make a tender offer to purchase any or all of the series of
the Senior Notes (which tender offer may also include solicitation of consents
to the amendment of the related indentures) at such price or prices and such
terms as shall be determined by NTT Communications. NTT Communications and
Verio shall cooperate in the preparation of any documentation to be sent to
the holders of Senior Notes in connection with any such consent solicitation
or tender offer. It shall be a condition to the obligation of Verio to
complete any such
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consent solicitation or tender offer that Purchaser purchase Shares pursuant
to the Offer. The successful completion of any such consent solicitation or
tender offer is not a condition to the Offer.
Equity Swap Transaction. In the Merger Agreement, NTT Communications has
agreed to cause a loan to be made to Verio, LLC, a wholly owned subsidiary of
Verio, promptly following the purchase of Shares pursuant to the Offer in an
amount in cash not to exceed $40 million so as to permit Verio, LLC to effect
a settlement or termination of that certain Confirmation for Equity Swap
Transaction Between Salomon Brothers Holding Company Inc., Verio, LLC and
Verio dated as of March 17, 2000. Such loan shall be on such terms as shall be
reasonably acceptable to NTT Communications and Verio.
Confidentiality Agreement.
Verio and NTT Communications entered into a confidentiality agreement,
dated as of April 7, 2000 (the "Confidentiality Agreement"). The
Confidentiality Agreement provides that NTT Communications will not, and will
cause its directors, employees, members, financial advisers, lenders,
accountants, attorneys, agents and other persons or entities controlled by NTT
Communications to not, disclose to any third party any Confidential
Information and that NTT Communications will use Confidential Information
solely for the purpose of evaluating a possible transaction with Verio.
"Confidential Information" includes all information (whether communicated in
written form, orally, electronically or otherwise) reflecting information
concerning Verio, or any of its subsidiaries or affiliates, or any portion
thereof, together with all information (whether communicated in written form,
orally, electronically or otherwise) prepared by NTT Communications or its
representatives based in whole or in part on Confidential Information, subject
to certain customary exceptions.
The Confidentiality Agreement provides for (i) the prompt written
notification to Verio of any request for disclosure of any Confidential
Information by NTT Communications, in order to allow Verio to seek an
appropriate protective order, other remedy or to waive compliance by NTT
Communications with the provisions of the Confidentiality Agreement; (ii) the
acknowledgement by NTT Communications that it is aware that the U.S.
securities laws restrict persons with material non-public information
concerning a company obtained directly or indirectly from that company from
purchasing or selling securities of the company or its affiliates, or from
communicating such information to any other person under any circumstances in
which it is reasonably foreseeable that such person is likely to purchase or
sell such securities; and (iii) the prompt return by NTT Communications of all
Confidential Information and the destruction of all copies of any information
prepared using Confidential Information.
Additionally, NTT Communications agreed for a period of two years from the
date of the Confidentiality Agreement to be bound by its obligations of
confidentiality and other obligations under the Confidentiality Agreement,
even if the parties decide not to proceed with a transaction.
The summary set forth herein does not purport to be complete and is
qualified in its entirety by reference to the complete text of the
Confidentiality Agreement, a copy of which is filed as an exhibit to the
Schedule TO that we filed with the SEC and is incorporated by reference in its
entirety.
Statutory Requirements.
In general, under the DGCL a merger of two Delaware corporations requires
the adoption of a resolution by the board of directors of each of the
corporations desiring to merge and the adoption of an agreement of merger
containing provisions with respect to certain statutorily specified matters
and the adoption of such agreement of merger by the stockholders of each
corporation by the affirmative vote of the holders of a majority of all the
outstanding shares of stock entitled to vote on such merger. According to
Verio's Certificate of Incorporation, the shares of Common Stock are the only
securities of Verio which entitle the holders thereof to voting rights on a
Merger.
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The DGCL also provides that if a parent company owns at least 90% of each
class of stock of a subsidiary that is outstanding and would be entitled to
vote on a merger, the parent company can effect a short-form merger (a "short-
form merger") with that subsidiary without the action of the other
stockholders of the subsidiary. Accordingly, if as a result of the Offer or
otherwise Purchaser acquires or controls the voting power of at least 90% of
the shares of Common Stock, Purchaser could, and intends (subject to the
conditions to its obligations to effect the Merger contained in the Merger
Agreement) to, effect the Merger without prior notice to, or any action by,
any other stockholder of Verio. Pursuant to the Merger Agreement, under
certain circumstances we could extend the Offer for a limited period of time
in order to receive tenders such that our aggregate ownership will be at least
90% of the issued and outstanding shares of Common Stock to enable us to
effect a short-form merger. See "--The Merger Agreement--The Offer."
Appraisal Rights.
No appraisal rights are available in connection with the Offer. However, if
the Merger is consummated, any holder of Shares at the Effective Time (a
"Remaining Stockholder") will have certain rights under the DGCL to dissent
and demand appraisal of their Shares. Under Section 262 of the DGCL, a
Remaining Stockholder who does not wish to accept the Merger Consideration
pursuant to the Merger has the right to seek an appraisal and be paid the
"fair value" of its Shares at the Effective Time (exclusive of any element of
value arising from the accomplishment or expectation of the Merger) judicially
determined and paid to it in cash provided that such holder complies with the
provisions of Section 262 of the DGCL.
The following is a brief summary of the statutory procedures to be followed
by a Remaining Stockholder in order to dissent from the Merger and perfect
appraisal rights under Delaware law. This summary is not intended to be
complete and is qualified in its entirety by reference to Section 262 of the
DGCL, the text of which is set forth in Annex D hereto. Any Remaining
Stockholder considering demanding appraisal is advised to consult legal
counsel. Dissenters' rights will not be available unless and until the Merger
(or a similar business combination) is consummated.
Remaining Stockholders of record who desire to exercise their appraisal
rights must fully satisfy all of the following conditions. A written demand
for appraisal of Shares must be delivered to the Secretary of Verio (x) before
the taking of the vote on the adoption of the Merger Agreement if the Merger
is not being effected as a short-form merger but rather is being consummated
following approval thereof at a meeting of Verio's stockholders (a "long-form
merger") or (y) within 20 days after the date that the Surviving Corporation
mails to the Remaining Stockholders a notice (the "Notice of Merger") to the
effect that the Merger is effective and that appraisal rights are available
(and includes in such notice a copy of Section 262 of the DGCL and any other
information required thereby) if the Merger is being effected as a short-form
merger without a vote or meeting of Verio's stockholders. If the Merger is
effected as a long-form merger, the written demand for appraisal of Shares
must be in addition to and separate from any proxy or vote abstaining from or
voting against the adoption of the Merger Agreement, and neither voting
against, abstaining from voting, nor failing to vote on the Merger Agreement
will constitute a demand for appraisal within the meaning of Section 262 of
the DGCL. In the case of a long-form merger, any stockholder seeking appraisal
rights must hold the Shares for which appraisal is sought on the date of the
making of the demand, continuously hold such Shares through the Effective
Time, and otherwise comply with the provisions of Section 262 of the DGCL.
In the case of both a short-form merger and a long-form merger, a demand
for appraisal must be executed by or for the stockholder of record, fully and
correctly, as such stockholder's name appears on the stock certificates. If
Shares are owned of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, such demand must be executed by the fiduciary. If
Shares are owned of record by more than one person, as in a joint tenancy or
tenancy in common, such demand must be
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executed by all joint owners. An authorized agent, including an agent for two
or more joint owners, may execute the demand for appraisal for a stockholder
of record; however, the agent must identify the record owner and expressly
disclose the fact that, in exercising the demand, he is acting as agent for
the record owner.
A record owner, such as a broker, who holds Shares as a nominee for others,
may exercise appraisal rights with respect to the Shares held for all or less
than all beneficial owners of Shares as to which the holder is the record
owner. In such case the written demand must set forth the number of Shares
covered by such demand. Where the number of Shares is not expressly stated,
the demand will be presumed to cover all Shares outstanding in the name of
such record owner. Beneficial owners who are not record owners and who intend
to exercise appraisal rights should instruct the record owner to comply
strictly with the statutory requirements with respect to the exercise of
appraisal rights before the date of any meeting of stockholders of Verio
called to approve the Merger in the case of a long-form merger and within 20
days following the mailing of the Notice of Merger in the case of a short-form
merger.
Remaining Stockholders who elect to exercise appraisal rights must mail or
deliver their written demands to: Secretary, Verio Inc., 8005 South Chester
Street, Suite 200, Englewood, Colorado 80112. The written demand for appraisal
should specify the stockholder's name and mailing address, the number of
Shares covered by the demand and that the stockholder is thereby demanding
appraisal of such Shares. In the case of a long-form merger, Verio must,
within ten days after the Effective Time, provide notice of the Effective Time
to all stockholders who have complied with Section 262 of the DGCL and have
not voted for approval and adoption of the Merger Agreement.
In the case of a long-form merger, Remaining Stockholders electing to
exercise their appraisal rights under Section 262 must not vote for the
adoption of the Merger Agreement or consent thereto in writing. Voting in
favor of the adoption of the Merger Agreement, or delivering a proxy in
connection with the stockholders meeting called to adopt the Merger Agreement
(unless the proxy votes against, or expressly abstains from the vote on, the
adoption of the Merger Agreement), will constitute a waiver of the
stockholder's right of appraisal and will nullify any written demand for
appraisal submitted by the stockholder.
Regardless of whether the Merger is effected as a long-form merger or a
short-form merger, within 120 days after the Effective Time, either Verio or
any stockholder who has complied with the required conditions of Section 262
and who is otherwise entitled to appraisal rights may file a petition in the
Delaware Court of Chancery demanding a determination of the fair value of the
Shares of the dissenting stockholders. If a petition for an appraisal is
timely filed, after a hearing on such petition, the Delaware Court of Chancery
will determine which stockholders are entitled to appraisal rights and
thereafter will appraise the Shares owned by such stockholders, determining
the fair value of such Shares, exclusive of any element of value arising from
the accomplishment or expectation of the Merger, together with a fair rate of
interest to be paid, if any, upon the amount determined to be the fair value.
In determining fair value, the Delaware Court of Chancery is to take into
account all relevant factors. In Weinberger v. UOP, Inc., et al., the Delaware
Supreme Court discussed the factors that could be considered in determining
fair value in an appraisal proceeding, stating that "proof of value by any
techniques or methods which are generally considered acceptable in the
financial community and otherwise admissible in court" should be considered
and that "[f]air price obviously requires consideration of all relevant
factors involving the value of a company." The Delaware Supreme Court stated
that in making this determination of fair value the court must consider
"market value, asset value, dividends, earnings prospects, the nature of the
enterprise and any other facts which were known or which could be ascertained
as of the date of merger which throw any light on future prospects of the
merged corporation . . ." The Delaware Supreme Court has construed Section 262
of the DGCL to mean that "elements of future value, including the nature of
the enterprise, which are known or susceptible of proof as of the date of the
merger and not the product of speculation, may
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be considered." However, the court noted that Section 262 provides that fair
value is to be determined "exclusive of any element of value arising from the
accomplishment or expectation of the merger."
Remaining Stockholders who in the future consider seeking appraisal should
have in mind that the fair value of their Shares determined under Section 262
could be more than, the same as, or less than the Merger Consideration or the
Preferred Merger Consideration, as the case may be, if they do seek appraisal
of their Shares, and that opinions of investment banking firms as to fairness
from a financial point of view are not necessarily opinions as to fair value
under Section 262 of the DGCL. Moreover, NTT Communications intends to cause
the Surviving Corporation to argue in any appraisal proceeding that, for
purposes thereof, the "fair value" of the Shares is less than that paid in the
Offer. The cost of the appraisal proceeding may be determined by the Delaware
Court of Chancery and taxed upon the parties as the Delaware Court of Chancery
deems equitable in the circumstances. Upon application of a dissenting
stockholder, the Delaware Court of Chancery may order that all or a portion of
the expenses incurred by any dissenting stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable attorneys'
fees and the fees and expenses of experts, be charged pro rata against the
value of all Shares entitled to appraisal. In the absence of such a
determination or assessment, each party bears its own expenses.
Any Remaining Stockholder who has duly demanded appraisal in compliance
with Section 262 of the DGCL will not, after the Effective Time, be entitled
to vote for any purpose the Shares subject to such demand or to receive
payment of dividends or other distributions on such Shares, except for
dividends or other distributions payable to stockholders of record at a date
prior to the Effective Time.
At any time within 60 days after the Effective Time, any former holder of
Shares shall have the right to withdraw his or her demand for appraisal and to
accept the Merger Consideration. After this period, such holder may withdraw
his or her demand for appraisal only with the consent of Verio as the
Surviving Corporation. However, no petition timely filed in the Delaware Court
of Chancery demanding appraisal shall be dismissed as to any stockholder
without the approval of the Delaware Court of Chancery, and such approval may
be conditioned upon such terms as the Delaware Court of Chancery deems just.
If no petition for appraisal is filed with the Delaware Court of Chancery
within 120 days after the Effective Time, stockholder's rights to appraisal
shall cease and all stockholders shall be entitled to receive the Merger
Consideration or the Preferred Merger Consideration, as the case may be.
Inasmuch as Verio has no obligation to file such a petition, and NTT
Communications has no present intention to cause or permit the Surviving
Corporation to do so, any stockholder who desires such a petition to be filed
is advised to file it on a timely basis.
Failure to take any required step in connection with the exercise of
appraisal rights may result in the termination or waiver of such rights.
APPRAISAL RIGHTS CANNOT BE EXERCISED AT THIS TIME. THE INFORMATION SET
FORTH ABOVE IS FOR INFORMATIONAL PURPOSES ONLY WITH RESPECT TO ALTERNATIVES
AVAILABLE TO STOCKHOLDERS IF THE MERGER IS CONSUMMATED. STOCKHOLDERS WHO WILL
BE ENTITLED TO APPRAISAL RIGHTS IN CONNECTION WITH THE MERGER WILL RECEIVE
ADDITIONAL INFORMATION CONCERNING APPRAISAL RIGHTS AND THE PROCEDURES TO BE
FOLLOWED IN CONNECTION THEREWITH BEFORE SUCH STOCKHOLDERS HAVE TO TAKE ANY
ACTION RELATING THERETO.
STOCKHOLDERS WHO SELL SHARES IN THE OFFER WILL NOT BE ENTITLED TO EXERCISE
APPRAISAL RIGHTS WITH RESPECT THERETO BUT, RATHER, WILL RECEIVE THE PRICE PAID
IN THE OFFER THEREFOR.
Related Party Transactions.
1998 Agreements. On May 15, 1998, a U.S. subsidiary of NTT purchased
8,987,754 shares of Common Stock (after giving effect to Verio's two for one
stock split on August 20, 1999) pursuant to
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a Stock Purchase and Master Strategic Relationship Agreement dated as of April
7, 1998 (the "Stock Purchase Agreement") between Verio and NTT (the "Stock
Purchase"). The aggregate purchase price paid by NTT for the Shares was
$99,999,997.94.
Concurrently with the execution of the Stock Purchase Agreement, Verio and
a subsidiary of NTT Communications entered into an Outside Service Provider
Agreement dated as of April 7, 1998 (the "OSP Agreement"). The OSP Agreement
became effective upon consummation of the Stock Purchase. The OSP Agreement
provided general terms on which Verio was designated as the preferred provider
of Internet access and related services to customers of a subsidiary of NTT
Communications operating in North America on a reseller basis. In addition,
Verio and the NTT Communications subsidiary agreed to connect their backbones
and establish a peering and transit relationship, and that Verio would provide
the NTT Communications subsidiary with full back-office and engineering
support. The NTT Communications subsidiary agreed to pay Verio for Verio's
services at predetermined rates reflective of the strategic relationship
between the parties, under which the NTT Communications subsidiary is entitled
to "most favored customer" status and pricing concessions. In furtherance of
the OSP Agreement, Verio and another subsidiary of NTT Communications
subsequently executed a Strategic Partner Services Agreement on October 26,
1998 which set out the specific terms and conditions pursuant to which the OSP
Agreement would be implemented (see below).
Concurrently with their execution of the Stock Purchase Agreement, Verio
and NTT entered into an Investment Agreement dated as of April 7, 1998 (the
"Investment Agreement"), NTT's rights under which were subsequently assigned
to an indirect wholly owned U.S. subsidiary that owns shares of Common Stock.
The Investment Agreement provides that, from and after November 15, 1998, NTT
and its affiliates could acquire voting securities of Verio through open
market and privately negotiated purchases or otherwise, if, and only to the
extent that, after the acquisition thereof NTT and its affiliates collectively
would beneficially own in the aggregate no more than 17.5% (the "Percentage
Limitation") of the shares of Common Stock calculated on a fully diluted
basis. At all times prior to the termination of the Standstill Restrictions
(as defined below), NTT is required to give Verio written notice of the
intention of NTT or any of its affiliates to purchase additional securities of
Verio at least two business days prior to the date NTT or any such affiliate
purchases or agrees to purchase any such securities.
The Investment Agreement provides that, during the period commencing on
April 7, 1998 and ending on May 15, 2003 except as (a) specifically permitted
by the Investment Agreement or (b) specifically requested in writing in
advance by Verio upon the approval of the Verio Board (without any prior
solicitation or request (or other act encouraging the delivery of such a
writing) having been made to Verio or the Verio Board or otherwise having been
publicly made), NTT will not, and will ensure that its affiliates do not, in
any manner, directly or indirectly, take any of the following actions
(collectively, the "Standstill Restrictions"): (i) acquire, or offer or agree
to acquire, or make any proposal or indicate any interest with respect to the
acquisition of, directly or indirectly, by purchase or otherwise, any material
amount of the assets or property of, any amounts of the voting securities of,
or any material amounts of the securities (other than voting securities) of
Verio or any of its affiliates controlled by Verio; (ii) solicit proxies or
consents or become a "participant" in a "solicitation" (as such terms are
defined or used in Regulation 14A under the Exchange Act) of proxies or
consents with respect to any voting securities of Verio or any of its
successors or controlled affiliates, or initiate or become a participant in
any stockholder proposal or "election contest" (as such term is defined or
used in Rule 14a-11 under the Exchange Act) with respect to Verio or any of
its successors or controlled affiliates or induce others to initiate the same,
or otherwise seek to advise or influence any person with respect to the voting
of any voting securities of Verio or any of its successors or controlled
affiliates; (iii) take any action for the purpose of calling a stockholders'
meeting of Verio or any of its successors or controlled affiliates; (iv) make
any proposal or any public announcement relating to, or submit to Verio or any
of its directors, officers, representatives, trustees, employees, attorneys,
advisors, agents or
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affiliates any proposal for, a tender or exchange offer for voting securities
of Verio or any of its successors or controlled affiliates, the acquisition of
voting securities of Verio that would result in NTT (together with its
affiliates) exceeding the Percentage Limitation or a merger, business
combination, sale of assets, liquidation, restructuring, recapitalization or
other extraordinary corporate transaction relating to Verio or any of its
successors or controlled affiliates (other than with respect to joint
ventures, licenses, transactions contemplated by the OSP Agreement or other
transactions in the ordinary course of business) or take any action that might
require Verio or any of its successors or controlled affiliates to make any
public announcement regarding any of the foregoing; (v) deposit voting
securities of Verio or any of its successors or controlled affiliates held by
it into a voting trust or subject any such securities to voting agreements, or
grant any proxy with respect to any such securities to any person not
designated by Verio; (vi) form, join or in any way participate in a "group"
(within the meaning of Section 13(d)(3) of the Exchange Act) for the purpose
of acquiring, holding, voting or disposing of voting securities of Verio or
any of its successors or controlled affiliates or taking any other actions
restricted or prohibited under (i) through (v) above; (vii) disclose to any
person any intention, plan or arrangement inconsistent with the foregoing;
(viii) advise, assist or encourage any other person in connection with any of
the foregoing; (ix) enter into any discussions, negotiations, arrangements or
understandings with any other person with respect to, or aid, abet or
encourage any action prohibited by, any of the foregoing, (x) make (publicly
or to Verio or any of its directors, officers, representatives, trustees,
employees, attorneys, advisors, agents, affiliates or security holders,
directly or indirectly) any request or proposal to amend, waive or terminate
any of the Standstill Restrictions or related provisions or any inquiry or
statement relating thereto; or (xi) act, alone or in concert with others, to
seek to control or influence in any material respect the management or
policies of Verio.
The Investment Agreement provides that, notwithstanding the Standstill
Restrictions, in the event (i) Verio publicly announces or invites any person
other than NTT to make a proposal, or elects to enter into negotiations, with
respect to, or (ii) the Board adopts a plan or program regarding (whether or
not publicly announced) any merger, consolidation or other business
combination, liquidation or recapitalization of Verio, or any sale or transfer
of all or substantially all of the assets of Verio or any sale or transfer of
voting securities of Verio that, if consummated, would constitute a "change of
control" (as defined in the Investment Agreement) of Verio, then NTT and its
affiliates will be permitted to participate in any such process on terms that
are substantially comparable to those made available to any other participant
in such process.
The Investment Agreement provides that the Standstill Restrictions will
lapse and have no further force or effect (i) in the event of any agreement
between Verio and any other person or group pursuant to which, if consummated,
a change of control of Verio would occur (any such event being an "Acquisition
Event") or (ii) in the event any person or group shall commence a tender offer
or exchange offer which, if successful, would result in a change of control (a
"Third Party Offer"), and the bidder has financing or financial commitments
from responsible financial institutions sufficient to finance the cash portion
of such Third Party Offer, provided that in the event that the transactions
contemplated in connection with the Acquisition Event are not completed or the
Third Party Offer is not completed, all Standstill Restrictions will be
reinstated upon two business days' written notice to NTT and will remain
effective until subsequently terminated pursuant to the Investment Agreement.
NTT and its affiliates will be entitled to retain any equity securities of
Verio purchased by them following such termination but prior to such
reinstatement, provided that such equity securities and all subsequent
acquisitions of securities of Verio by NTT or any of its affiliates will be
subject to all of the provisions of the Investment Agreement.
Pursuant to the Investment Agreement, NTT may not, and is required to
ensure that its affiliates do not, transfer any equity securities of Verio
while there is pending, or otherwise transfer any such equity securities in
contemplation of, any Acquisition Proposal, unless such Acquisition Proposal
has been recommended publicly by the Verio Board to all Verio stockholders;
provided that if the Verio Board has not publicly recommended against such
Acquisition Proposal within three months of the
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later of (i) the initial public announcement thereof by the acquiror or (ii)
the formal presentation of such Acquisition Proposal to the Verio Board, then
such restrictions will lapse and have no further force or effect; provided,
further, that in the event such Acquisition Proposal is not completed, all
such restrictions will be reinstated upon two business days' written notice to
NTT and will remain effective until subsequently terminated pursuant to the
Investment Agreement.
The Investment Agreement provides that at all times prior to the
termination or lapsing of the Standstill Restrictions, NTT will take all
action as may be required so that all voting securities of Verio owned by NTT
and its affiliates are voted (i) with respect to elections of members of the
Verio Board, for the Verio Board's nominees to the Verio Board, and (ii) with
respect to all other matters to be voted on by stockholders, either (A) in
accordance with the recommendations of the Verio Board, or (B) for or against
any such matter in the same proportion as the shares owned by all other
stockholders (excluding NTT and each of its affiliates that is a stockholder
of Verio) are voted with respect to such matters. NTT and all affiliates of
NTT owning voting securities of Verio are required to be present, in person or
by proxy, at all meetings of the stockholders of Verio so that all such
securities owned by NTT and any such affiliate may be counted for the purposes
of determining the presence of a quorum at such meetings.
The Investment Agreement provides that, subject to specified exceptions,
neither NTT nor any of its affiliates may, directly or indirectly, sell,
pledge or otherwise dispose of any equity securities of Verio (except to NTT
or any affiliates of NTT) without first offering to sell all such equity
securities to Verio pursuant to a right of first offer or, in the case of a
Significant Transfer (as defined below), a right of first refusal. A
"Significant Transfer" is a proposed sale of equity securities to (i) any of
up to 15 persons that are, or that Verio reasonably believes are likely to
become, competitors of Verio in the business of providing access to the
Internet for business customers in the United States, as identified in a list
that may be updated or revised by Verio no more than semi-annually upon notice
to NTT, or (ii) any person that following such transfer would (alone or
collectively with all affiliates of such person) beneficially own more than
10% of the outstanding Shares. The parties' obligations with respect to such
rights of first offer and first refusal are subject to compliance with notice
and closing requirements and other conditions, some of which vary with the
market price of equity securities of Verio subject to the proposed transfer.
Each transferee of the equity securities of Verio is required to agree to be
bound by the same transfer restrictions as NTT and its affiliates if such
transferee's beneficial ownership of equity securities of Verio following the
transfer exceeds 7.5% of the shares of Common Stock calculated on a fully
diluted basis. Verio's rights of first offer and first refusal do not apply to
any transfer of Common Stock or securities convertible into, exchangeable for
or exercisable for Common Stock in a public distribution, in a transaction
pursuant to Rule 144 under the Securities Act, in certain other transactions
effected on a nationally recognized securities exchange or Nasdaq, in an
Acquisition Transaction or in connection with a pledge that satisfied
specified requirements.
Pursuant to the Investment Agreement, Verio became obligated to appoint to
the Verio Board an individual designated by NTT. The designee is entitled to
serve as a member of the Verio Board until the first annual stockholders
meeting following May 15, 2001 so long as NTT and its affiliates collectively
own beneficially either (i) at least 50% of the aggregate shares of Common
Stock purchased by NTT pursuant to the Stock Purchase Agreement (adjusted as
appropriate for any subsequent stock split or reverse stock split or other
similar action) or (ii) at least 5% of the shares of Common Stock of Verio
calculated on a fully diluted basis (the amount in clause (i) or (ii) above,
the "Ownership Threshold"). If at any time during such initial term NTT and
its affiliates collectively cease to own beneficially shares of Common Stock
at least equal to the Ownership Threshold, NTT will, upon the request of
Verio, be required to cause the designee to resign from the Verio Board.
Following the expiration of the initial term of the designee, until such time
as NTT and its affiliates collectively no longer beneficially own shares at
least equal to the Ownership Threshold, Verio will be required to take all
corporate action necessary to nominate for election to the Verio Board an
individual
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appointed by NTT and to recommend to Verio's stockholders such nominee's
election to the Verio Board. Yukimasa Ito has served as a member of the Verio
Board as NTT's designee since September 1998.
The Investment Agreement provides that, until such time as NTT and its
affiliates collectively no longer beneficially own shares of Common Stock at
least equal to the Ownership Threshold, (i) NTT also has the right to appoint
an observer who will have observer rights at meetings of the Verio Board and,
under specified circumstances, an observer who will have observer rights at
meetings of the executive committee of the Verio Board and (ii) at the request
of NTT, under specified circumstances, Verio will cause to be appointed to the
executive committee of the Verio Board the NTT designee appointed to the Board
or elected to the Verio Board in accordance with the provisions described in
the immediately preceding paragraph. The Investment Agreement provides that
NTT may designate up to three employees (the "Designated Employees") to be
employed by Verio, who shall have suitable experience and be reasonably
satisfactory to Verio, until the earlier of the date (i) NTT and its
affiliates collectively cease to own beneficially shares at least equal to the
Ownership Threshold (but not earlier than May 15, 2001), or (ii) the OSP
Agreement terminates or expires. Three Designated Employees have been working
in Verio's headquarters offices since shortly after the completion of NTT's
initial investment in Verio in the corporate development, marketing and
engineering areas.
The Investment Agreement provides that if requested by any underwriter of
the shares of Common Stock, in the case of any offering of securities of Verio
registered under the Securities Act, NTT will not, and will ensure that its
affiliates do not, directly or indirectly, sell, offer, pledge, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, warrant or right to purchase, or otherwise dispose
of or transfer, or enter into any swap or other agreement or any arrangement
that transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership in, any equity securities of Verio held by it or
them, during the period following the effective date of a registration
statement of Verio filed under the Securities Act equal to 90 days, except in
either case for equity securities included in such registration and provided
that, if directors and officers of Verio holding shares of Common Stock
generally are subject to holdback restrictions of shorter duration, such
shorter periods will apply to NTT and its affiliates.
Under the Investment Agreement, NTT is entitled to demand three
registrations by Verio (a "Demand Registration") of the shares of Common Stock
held by it and all other equity securities acquired by NTT or any of its
affiliates, together with any securities issued or issuable by Verio in
respect of any such securities by way of a distribution or split or in
connection with certain other specified types of transactions (collectively,
the "Registrable Securities"), at any time after the first anniversary of
Verio's initial public offering (subject to a maximum of three Demand
Registrations in total). Such demand is required to be made (i) by holders of
a majority of the outstanding Registrable Securities with respect to at least
25% of the Registrable Securities purchased by NTT pursuant to the Stock
Purchase Agreement or (ii) with respect to Registrable Securities the
anticipated aggregate offering price of which, net of underwriting discounts
and commissions, is at least $25 million or (iii) if Verio is then eligible to
file a registration statement on Form S-3 under the Securities Act, by any
holder or holders of Registrable Securities with respect to Registrable
Securities with an anticipated aggregate offering price, net of underwriting
discounts and commissions, in excess of $15 million. Upon such request, Verio
is required to use its reasonable best efforts to register securities held by
the requesting holders and any other permitted holders who desire to sell
shares of Common Stock pursuant to such Demand Registration. In addition the
Investment Agreement provides that, after the first anniversary of Verio's
initial public offering and subject to certain limitations, holders of
Registrable Securities may request to participate in any registration of
shares of Common Stock by Verio under the Securities Act (other than on Form
S-4 or S-8 under the Securities Act or in a registration in which the only
shares of Common Stock being registered are issuable upon the conversion of
other securities) (each, a "Piggyback Registration"). Verio is required to pay
all
54
<PAGE>
registration expenses (other than underwriting discounts and commissions,
transfer and documentary stamp taxes, if any, and fees and disbursements of
counsel of the holders other than Verio) with respect to all registered Demand
Registrations and Piggyback Registrations. Under the Investment Agreement,
Verio is required to indemnify the selling stockholders and other specified
persons, and the selling stockholders are required to indemnify Verio and
other specified persons, against certain liabilities, including liabilities
under the Securities Act, in respect of any registration statement covered by
the Investment Agreement.
NTT is permitted under the Investment Agreement to assign its registration
rights thereunder (but only with all related obligations) to any permitted
transferee to which it transfers no less than 20% of the Registrable
Securities purchased by NTT or any of its affiliates pursuant to the Stock
Purchase Agreement or as permitted by the Investment Agreement (determined on
an as-converted basis), subject to specified restrictions of the Investment
Agreement. Securities will no longer be considered Registrable Securities when
(i) a registration statement with respect to the sale of such securities shall
have become effective under the Securities Act and such securities shall have
been disposed of under such registration statement, (ii) such securities shall
have been transferred pursuant to Rule 144 under the Securities Act, (iii)
such securities shall have been otherwise transferred or disposed of, and new
certificates therefor not bearing a legend restricting further transfer shall
have been delivered by Verio, and subsequent transfer or disposition of such
securities shall not require registration or qualification under the
Securities Act or any similar state law then in force or (iv) such securities
shall have ceased to be outstanding. In addition, the right of any holder of
Registrable Securities to exercise the foregoing registration rights will
terminate at such time as all Registrable Securities held or entitled to be
held upon conversion by such holder may immediately be sold during any 90-day
period pursuant to Rule 144 under the Securities Act or any similar rule or
regulation.
Other Transactions. On October 26, 1998, Verio and a subsidiary of NTT
Communications entered into a Strategic Partner Services Agreement setting
forth the details for implementation of the specific technical and
administrative aspects of the OSP Agreement and generally further refining the
terms of the OSP Agreement. Verio agreed to charge the NTT Communications
subsidiary prices for the services resold under this agreement that are at
least as favorable as those Verio offers to any other strategic partner of
Verio. The agreement terminates on October 26, 2001. In 1998, Verio billed
approximately $72,261.27 to the NTT Communications subsidiary pursuant to the
agreement. In 1999, Verio billed approximately $1,681,741.55 to the NTT
Communications subsidiary and the NTT Communications subsidiary billed Verio
approximately $270,412.20 pursuant to the agreement. In 2000, Verio billed
approximately $937,043.63 to the NTT Communications subsidiary through April
30, 2000 and the NTT Communications subsidiary billed Verio approximately
$270,412.20 through April 30, 2000 pursuant to the agreement.
Pursuant to an agreement dated as of February 1, 1999, Verio and a
subsidiary of NTT agreed to cooperate to purchase certain equipment and
arrange for certain agents and certain architectural, engineering and
construction services related to improvements made to each of their facilities
located in the same buildings in New York, New York and San Jose, California.
Pursuant to this agreement, while no payments were made between the companies
in 1999, the NTT subsidiary paid to Verio approximately $1,758,827 between
February and early May 2000.
In addition, as of September 22, 1999, Verio entered into a License
Agreement with NTT Communications, enabling NTT Communications to provide
Verio's Web hosting services to the Japanese market. Under the agreement, the
entire NTT group of companies is able to market Verio's Web hosting services
to businesses in Japan on a co-branded, "Powered by Verio" basis. Pursuant to
the agreement, NTT Communications paid a one-time, up front license fee
payment of $1.3 million at the time the agreement was signed and agreed to pay
ongoing monthly fees based on actual services
55
<PAGE>
sold. For 1999, the total amount paid to Verio pursuant to the agreement was
approximately $1,577,777.77 and for 2000 the total amount billed by Verio
through March 31, 2000 was approximately $16,666.67. NTT Communications and
Verio are continuing to work together to plan and develop NTT Communications'
new data center in Tokyo, from which Verio's Web-hosting services will be
offered by NTT Communications in Japan beginning June 2000.
55-- 1
<PAGE>
Beneficial Ownership of Shares.
The following table sets forth information with respect to ownership of the
shares of Common Stock held by the directors and executive officers of NTT,
NTT Communications, Purchaser and Verio, and with respect to ownership by
persons believed by Verio to be the beneficial owners of more than 5% of its
outstanding shares of Common Stock, in each case, as of May 11, 2000, to the
extent available or unless otherwise noted in the following table and the
notes thereto. Also set forth below are shares of Common Stock subject to
options or warrants owned by such persons that are currently exercisable or
exercisable within 60 days of May 11, 2000. With regard to Justin L. Jaschke,
Sean G. Brophy, Chris J. DeMarche, Carla Hamre Donelson and Peter B.
Fritzinger, such information relating to options vesting within 60 days of May
11, 2000 includes options to purchase 840,000 shares, 269,600 shares, 232,800
shares, 278,400 shares and 276,000 shares, respectively, which represents in
each case the 80% of unvested options for each such person that immediately
vest prior to the consummation of the Offer as a result of the Stock Option
Deferral Agreement to be entered into between such persons and Verio.
Additionally, with regard to options granted to non-employee members of the
Board of Directors of Verio, information relating to options vesting within 60
days of May 11, 2000 includes for Steven C. Halstedt, James C. Allen, Trygve
E. Myhren, Paul J. Salem, Arthur L. Cahoon, Thomas A. Marinkovich and NTT
Rocky, Inc. options to purchase 66,000 shares, 66,000 shares, 146,000 shares,
46,000 shares, 46,000 shares, 25,000 shares and 66,000 shares, respectively,
which represents in each case options vesting immediately prior to the
consummation of the Offer as a result of the authorization of Board of
Directors of Verio, in connection with the approval of the transactions under
the Merger Agreement, to grant (i) the complete acceleration of all unvested
options for non-employee Directors who have served on the Board for more than
one year and (ii) acceleration of the vesting of 1/2 of the unvested options
held by Directors who have served on the Board for less than one year.
Beneficial ownership is calculated based on 82,615,431 total shares of common
stock issued and outstanding as of May 11, 2000. Except as indicated below and
pursuant to applicable community property laws, each of the persons named in
the table below has sole voting and investment power with respect to the
shares set forth opposite such person's name. Other than with respect to NTT,
NTT Communications, Purchaser and their directors and executive officers, all
information set forth below has been supplied by Verio. In presenting the
number of shares of Common Stock beneficially owned by a person and the
percentage ownership of that person, shares of Common Stock subject to options
or warrants owned by such person that are currently exercisable or exercisable
within 60 days of May 11, 2000 are deemed outstanding; provided that such
shares of Common Stock are not deemed outstanding for the purpose of computing
the percentage of ownership of any other person. Except as set forth below,
none of NTT, NTT Communications, Purchaser, their respective executive
officers and directors or their associates or subsidiaries beneficially own
any Shares.
<TABLE>
<CAPTION>
Number of
Shares of
Common Stock Percentage
Beneficially Beneficially Exercisable
Holders Owned Owned Options/Warrants
------- ------------ ------------ ----------------
<S> <C> <C> <C>
NTT Rocky, Inc. ................... 9,053,754 11.0% 66,000
c/o NTT Communications Corporation
1-1-6 Uchisaiwai-cho,
1 Chiyoda-Ku, Tokyo
###-##-#### Japan
Brooks Fiber Properties, Inc....... 5,128,262 6.2% 1,408,320
500 Clinton Center Drive
Clinton, Mississippi 39056
Steven C. Halstedt................. 122,988 * 66,000
Justin L. Jaschke**................ 1,722,758 2.0% 1,358,710
James C. Allen..................... 127,680 * 46,000
Trygve E. Myhren................... 166,000 * 146,000
Paul J. Salem...................... 197,419 * 46,000
Arthur L. Cahoon................... 993,366 1.2% 979,894
Yukimasa Ito....................... -- -- --
Thomas A. Marinkovich.............. 37,000 * 25,000
Sean G. Brophy**................... 410,999 * 383,194
Chris J. DeMarche**................ 507,793 * 315,670
Carla Hamre Donelson............... 516,883 * 484,103
Peter B. Fritzinger**.............. 423,463 * 384,743
All executive officers and
directors as a group (12
persons).......................... 5,226,299 5.9% 4,235,314
</TABLE>
56
<PAGE>
- --------
* Less than 1%
** With regard to Justin L. Jaschke, Sean G. Brophy, Chris J. DeMarche and
Peter B. Fritzinger, the number of shares of Common Stock beneficially
owned by each such person includes 480 shares, 29 shares, 292 shares and
314 shares, respectively, purchased by each such person pursuant to the
Verio 1998 Employee Stock Purchase Plan on May 12, 2000.
NTT Rocky, Inc., NTT Communications' indirect wholly owned subsidiary,
holds options to purchase 66,000 shares of Common Stock (of which 20,000 are
currently vested) issued under Verio's 1998 Non-Employee Director Stock
Incentive Plan as a result of Yukimasa Ito's position as a director of Verio.
Mr. Ito was designated as a director pursuant to the Investment Agreement
dated as of April 7, 1998 between Verio and NTT.
MCI WorldCom, formerly known as WorldCom, may be deemed to indirectly
beneficially own the shares of Common Stock owned by Brooks Fiber Properties,
Inc. as a result of the acquisition of Brooks Fiber Properties, Inc. by
WorldCom, which resulted in Brooks Fiber Properties, Inc. becoming a wholly
owned subsidiary of MCI WorldCom.
Mr. Halstedt holds 56,988 shares of Common Stock personally. Mr. Halstedt
disclaims beneficial ownership of the options exercisable for 60,000 shares of
Common Stock which were granted to him pursuant to Verio's 1998 Non-Employee
Director Stock Incentive Plan and subsequent option grants to him pursuant to
the plan (which include 6,000 shares granted on April 27, 2000), (of which
options exercisable for 20,000 shares of Common Stock vested on each of May
11, 1999 and May 11, 2000 and, immediately prior to consummation of the Offer,
all remaining unvested options will fully vest pursuant to resolutions of the
Board of Directors of Verio). By contract with Centennial Holdings, Inc., of
which he is an officer and director, Mr. Halstedt is required to transfer any
economic benefit deriving from such options to Centennial Holdings, Inc.
The shares of Common Stock held by Mr. Allen include 81,680 shares of
Common Stock that he transferred to the James C. Allen Revocable Trust. In
accordance with the rules of the Exchange Act, Mr. Allen may be deemed to be
the beneficial owner of such shares of Common Stock.
On September 30, 1998, Mr. Myhren assigned to Myhren Media, Inc. the
options exercisable for 60,000 shares of Common Stock which were granted to
him pursuant to Verio's 1998 Non-employee Director Stock Incentive Plan and
subsequent option grants to him pursuant to the plan (which include 6,000
shares granted on April 27, 2000), of which options exercisable for 20,000
shares of Common Stock vested on each of May 11, 1999 and May 11, 2000 and,
immediately prior to consummation of the Offer, all remaining unvested options
will fully vest pursuant to resolutions of the Board of Directors of Verio).
Mr. Myhren is the President of Myhren Media, Inc. and may be deemed to
indirectly beneficially own these options. Mr. Myhren disclaims beneficial
ownership of these options.
Mr. Salem holds 4,348 shares of Common Stock personally. The Navyn 2000
Securities Trust holds 147,701 shares of Common Stock. In accordance with the
rules of the Exchange Act, Mr. Salem may be deemed to be the beneficial owner
of such shares of Common Stock. On October 9, 1998, Mr. Salem assigned to
Providence Equity Partners Inc. the options exercisable for 60,000 shares of
Common Stock which were granted to him pursuant to Verio's 1998 Non-Employee
Director Stock Incentive Plan and subsequent option grants to him pursuant to
the plan (which include 6,000 shares granted on April 27, 2000), of which
options exercisable for 20,000 shares of Common Stock vested on each of May
11, 1999 and May 11, 2000 and, immediately prior to consummation of the Offer,
all remaining unvested options will fully vest pursuant to resolutions of the
Board of Directors of Verio. Providence Equity Partners Inc. exercised 20,000
vested stock options on May 12, 1999. Mr. Salem is Managing Director of
Providence Equity Partners Inc. and may be deemed to indirectly beneficially
own these options. Mr. Salem disclaims beneficial ownership of these options.
The shares of Common Stock held by Mr. Cahoon do not include the 43,784
shares of Common Stock held of record by Pam Fitch as Trustee of the Arthur
Logan Cahoon Grantor Retained Annuity Trust dated May 29, 1998. Mr. Cahoon may
be deemed to indirectly beneficially own the shares of Common Stock held by
the Trust. Mr. Cahoon disclaims beneficial ownership of these shares of Common
Stock. Mr. Cahoon holds Verio Warrants exercisable for 913,894 shares of
Common Stock.
The shares of Verio's common stock held by Mr. Marinkovich do not include
9,000 shares held of record by the Marinkovich Family Limited Partnership. Mr.
Marinkovich may be deemed to indirectly beneficially own the shares held by
the Partnership.
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<PAGE>
Transactions and Arrangements Concerning the Shares.
To Verio's, NTT's, NTT Communication's and Purchaser's knowledge, no
transactions in the Shares, except as set forth on Schedule II, have been
effected during the past 60 days by Verio or its executive officers,
directors, affiliates and any associates or majority owned subsidiaries and
any executive officers or directors of any subsidiary, or by NTT, NTT
Communications or Purchaser or their executive officers, directors, affiliates
and any associates or subsidiaries.
Since January 1, 1998 (being the commencement of Verio's second full fiscal
year preceding the date of this Offer to Purchase), no purchases of Shares
were made by Verio, NTT, NTT Communications or Purchaser, except as described
on Schedule II.
Except as set forth in this Offer to Purchase, neither Verio nor, to
Verio's knowledge, any of its affiliates, directors or executive officers or
any person controlling Verio is a party to any contract, arrangement,
understanding or relationship with any other person relating, directly or
indirectly, to, or in connection with, the Offer with respect to any
securities of Verio (including, without limitation, any contract, arrangement,
understanding or relationship concerning the transfer or the voting of any
such securities, joint ventures, loan or option arrangements, puts or calls,
guarantees of loans, guarantees against loss or the giving or withholding of
proxies, consents or authorizations). See "--Related Party Transactions."
Except as described in this Offer to Purchase, since January 1, 1998 (being
the commencement of Verio's second full fiscal year preceding the date of this
Offer to Purchase), no contracts or negotiations concerning a merger,
consolidation, or acquisition, a tender offer for or other acquisition of any
securities of Verio, an election of directors of Verio, or a sale or other
transfer of a material amount of assets of Verio has been entered into or has
occurred between any affiliates of Verio, NTT, NTT Communications or the
Purchaser or between Verio or any of its affiliates and any unaffiliated
person. Except as described in this Offer to Purchase, since January 1, 1997
(being the commencement of Verio's third full fiscal year preceding the date
of this Offer to Purchase), none of NTT, NTT Communications or Purchaser has
made any underwritten public offering of the Shares that was (i) registered
under the Securities Act or (ii) exempt from registration under the Securities
Act pursuant to Regulation A thereunder.
Interests of Certain Persons in the Offer and the Merger.
Stockholders of Verio should be aware that certain officers and directors
of Verio have certain interests in the Offer and the Merger, including those
referred to below, that present actual or potential conflicts of interest in
connection with the Offer and the Merger.
Interest of Non-Employee Directors with Respect to Shares. Non-employee
directors of Verio as a group beneficially own 1,644,453 shares of Common
Stock as of May 11, 2000. Assuming that all such shares are tendered pursuant
to the Offer, such persons would receive an aggregate of $98,667,180 for their
shares. In addition, non-employee directors of Verio hold Stock Options or
warrants to purchase an aggregate of 1,308,894 shares of Common Stock of which
all such options will vest immediately prior to consummation of the Offer as
described under "--Beneficial Ownership of Shares." Under the terms of the
1998 Non-Employee Director Stock Incentive Plan, the Offer would cause (i)
each initial option grant that is at the time outstanding to automatically
vest as to one-third of the total number of shares subject to such option, and
(ii) each subsequent option grant that is at the time outstanding to
automatically vest as to all of the shares subject to such option. In
connection with the approval of the transactions under the Merger Agreement,
the Verio Board authorized upon consummation of the Merger (i) the complete
acceleration of all unvested options for non-employee directors who have
served on the Verio Board for more than one year as of the date of the
corporate transaction and (ii) acceleration of the vesting of one-half of the
unvested options held by directors who have served on the Verio Board for less
than one year as of the date of the corporate transaction. Pursuant to this
approval, vesting will accelerate with respect to one-half of the options to
purchase 50,000 shares of Common Stock held by Thomas A. Marinkovich and
vesting will accelerate with respect to all other outstanding options held by
non-employee directors as described under "--Beneficial Ownership of Shares."
Pursuant to the Merger Agreement, holders of Stock Options are entitled to
receive Option Consideration equal to (A) the product of (1) the number of
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<PAGE>
shares of Common Stock subject to such option and (2) the excess, if any, of
the Offer Price over the exercise price per share for the purchase of shares
of Common Stock subject to such option, minus (B) all applicable federal,
state and local taxes required to be withheld in respect to such payment. The
non-employee directors of Verio do not own any shares of Preferred Stock.
Interests of Executive Officers with Respect to Shares. Executive officers
of Verio as a group beneficially own 3,581,846 shares of Common Stock as of
May 11, 2000.* Assuming that all such shares are tendered pursuant to the
Offer, such persons would receive an aggregate of $214,910,760 for their
shares. In addition, executive officers of Verio hold Stock Options to
purchase an aggregate of 2,926,420 shares of Common Stock of which all such
options will vest immediately prior to consummation of the Offer as described
under "--Beneficial Ownership of Shares." In addition, the acceleration of
options to purchase 474,200 shares will be deferred pursuant to stock option
deferral agreements to be entered into by such executive officers prior to
consummation of the Offer as described under "--Beneficial Ownership of
Shares." Executive officers will also be entitled to receive certain bonus
payments in connection with such stock option deferral agreements as described
further below under "--Compensation Protection Agreements and Subsequent
Letter Agreements." Pursuant to the Merger Agreement, holders of Stock Options
are entitled to receive Option Consideration equal to (A) the product of (1)
the number of shares of Common Stock subject to such option and (2) the
excess, if any, of the Offer Price over the exercise price per share for the
purchase of shares of Common Stock subject to such option, minus (B) all
applicable federal, state and local taxes required to be withheld in respect
to such payment. The executive officers of Verio do not own any shares of
Preferred Stock.
* With regard to Justin L. Jaschke, Sean G. Brophy, Chris J. DeMarche and
Peter B. Fritzinger, the number of shares of Common Stock beneficially owned
by each such person includes 480 shares, 29 shares, 292 shares and 314 shares,
respectively, purchased by each such person pursuant to the Verio 1998
Employee Stock Purchase Plan on May 12, 2000.
NTT Communications Designee on Verio Board. Yukimasa Ito, an officer of NTT
Communications, is a member of the Verio Board. Mr. Ito was elected to the
Verio Board as NTT's designee pursuant to the Investment Agreement. See "--
Related Party Transactions." Mr. Ito did not attend or participate in the
portions of the meetings of the Verio Board at which the Merger Agreement, the
Offer and the Merger were considered and approved because of the conflict of
interest resulting from his ties to NTT Communications.
Compensation Protection Agreements and Subsequent Letter Agreements. During
1998 and 1999, Verio entered into compensation protection agreements with
Justin L. Jaschke, Chris J. DeMarche, Carla Hamre Donelson, Sean G. Brophy,
Peter B. Fritzinger, James M. Keiffer, Isabel Ehringer, Barbara L. Goworowski,
Douglas R. Schneider, James P. Treuting and Mark A. Orland, each an officer of
Verio. Each of the compensation protection agreements contain substantially
similar terms, except that Justin Jaschke is entitled to a greater amount of
severance, as described below. The compensation protection agreements are for
a term of three years, subject to automatic yearly extensions. In no event
will the compensation protection agreements terminate within 12 months of a
change in control of Verio. For purposes of the compensation protection
agreements, a "change in control" includes, among other things, any of the
following:
. An acquisition, other than directly from Verio, of any voting
securities of Verio by any person immediately after which such person
has beneficial ownership (as defined in the Exchange Act) of 40% or
more of the combined voting power of Verio's then outstanding voting
securities. In determining whether a change in control has occurred,
voting securities which are acquired in a "non-control acquisition,"
as defined in the compensation protection agreements, do not
constitute an acquisition which would cause a change in control;
. If the individuals who, as of the date the compensation protection
agreements were approved by the Verio Board, were members of the
Verio Board, cease for any reason to constitute at least a majority
of the Verio Board (subject to certain provisos);
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<PAGE>
. Approval by stockholders of Verio of a merger, consolidation or
reorganization involving Verio, unless such merger, consolidation or
reorganization satisfies certain specified conditions;
. Any other event that at least two-thirds of the incumbent Verio Board
in its sole discretion determines constitutes a change in control;
and
. If a protected officer's employment is terminated prior to a change
in control and the Verio Board determines that such termination was
at the request of a third party who has indicated an intention or
taken steps reasonably calculated to effect a change in control and
who subsequently effectuates a change in control, or that such
termination occurred in connection with, or in anticipation of, a
change in control which actually occurs, then a change in control is
considered to have occurred with respect to that protected officer
immediately prior to the date of such termination.
If the Offer is consummated, a "change in control" will be deemed to have
occurred for purposes of the compensation protection agreements. As a result,
in the following circumstances involving termination of employment within 12
months following such change in control, a protected officer who is so
terminated will receive the following compensation and benefits:
. If a protected officer's employment with Verio is terminated for
cause or by reason of the protected officer's disability (each as
defined in the compensation protection agreements), death or
retirement, or by the protected officer other than for good reason
(as defined in the compensation protection agreements), then Verio
must pay to the protected officer accrued compensation due but not
paid through the date of termination. Accrued compensation includes
without limitation base salary, reimbursement for reasonable and
necessary expenses incurred by the protected officer on behalf of
Verio during the period ending on the termination date, and vacation
pay.
. If a protected officer's employment is terminated for any other
reason than specified above, the protected officer will receive:
. his or her accrued compensation;
. an amount equal to a fraction, the numerator of which is the
number of days in Verio's fiscal year through the termination date
and the denominator of which is 365, multiplied by the protected
officer's bonus amount, which is the greater of 100% of the last
annual incentive payment paid or payable to the protected officer
prior to the termination date, and the protected officer's
incentive target for the fiscal year in which the change in
control occurs;
. an amount equal to two times the sum of the protected officer's
annual base salary in effect immediately prior to the change in
control, plus the bonus amount paid pursuant to the immediately
preceding provision (except that the amount paid to Mr. Jaschke
will be three times that sum);
. until the third anniversary of the termination date, the same
rights with respect to benefits provided by Verio as were provided
to the protected officer as of the effective date of the
compensation protection agreement, or, if greater, at any time
within 90 days preceding the date of the change in control; and
. the immediate vesting and removal of all restrictions on any
outstanding incentive awards granted to the protected officer
under Verio's stock option and other stock incentive plans or any
other incentive plan or arrangement, the immediate vesting and
exercisability of all stock options and stock appreciation rights
granted to the protected officer and the immediate vesting of all
performance units granted to the protected officer.
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<PAGE>
The compensation protection agreements further provide that the protected
officers are not required to mitigate the amount of any payment by seeking
employment or otherwise. The compensation protection agreements contain a
"gross-up" provision pursuant to which any payment which would subject the
protected officer to certain "golden parachute" excise taxes would include an
additional gross-up payment resulting in the protected officer retaining an
additional amount equal to these excise taxes.
Simultaneously with the execution of the Merger Agreement, Verio entered
into letter agreements with each officer party to a compensation protection
agreement which amended the compensation protection agreements in certain
respects. The letter agreements amend the compensation protection agreements
to limit the circumstances under which an officer can receive the severance
benefits described above due to the officer's termination of employment within
12 months following a change in control for "good reason." The letter
agreements also entitle each protected officer who remains continuously
employed by Verio to receive cash bonus payments thirteen months after the
date the Offer is consummated and twenty-five months after the date the Offer
is consummated. Each cash bonus payment will be equal to 50% of the following
amount: two times the sum of (i) the protected officer's base salary in effect
immediately prior to the consummation of the Offer, including amounts then
deferred under Verio's qualified and non-qualified employee benefit plans, and
(ii) the greater of 100% of the last annual incentive payment paid or payable
to the protected officer prior to the consummation of the Offer under Verio's
cash bonus incentive plan or the protected officer's incentive target for the
fiscal year in which the Offer is consummated (except that the amount paid to
Mr. Jaschke will be three times that sum). The letter agreements do not affect
the provisions for gross-up payments for "golden parachute" excise taxes. The
amounts that may become payable to the protected officer pursuant to the
benefit awards to be granted as of the Effective Time under certain retention
and incentive plans to be adopted by Verio in accordance with the Merger
Agreement will be reduced by the amounts of these cash bonus payments. See "--
Retention and Incentive Plan; Benefits."
The letter agreements further provide that the protected officers'
continued employment by Verio after consummation of the Offer and their
participation in the incentive and retention programs thereafter are subject
to the protected officers' execution prior to consummation of the Offer of
agreements to remain employed by Verio immediately after the consummation of
the Offer, covenants not to compete with or solicit employees of Verio and its
affiliates in the United States for certain designated periods and
confidentiality agreements, in each case reasonably satisfactory to NTT
Communications and Verio. The letter agreements also require certain protected
officers to enter into stock option deferral agreements prior to the
consummation of the Offer which waive acceleration and defer vesting of 20% of
the unvested options held by such protected officers that otherwise would
become vested immediately prior to the consummation of the Offer. Under the
option deferral agreements, the right to receive the value of the deferred
options generally will vest as to one-half of the deferred options 13 months
after consummation of the Offer and as to the remaining one-half 25 months
after the Offer, provided the protected officer is employed by Verio on that
date. The option deferral agreements also provide for the payments of bonuses
to the protected officers if and when they receive payments for the value of
the deferred options. The bonus payable at the end of 13 months will be 50% of
the aggregate option consideration payable with respect to the deferred
options vesting on such date and the bonus payable at the end of 25 months
will be 100% of the aggregate option consideration payable with respect to the
deferred options vesting on such date.
The letter agreements, including the amendments to the compensation
protection agreements, cease to become effective upon termination of the
Merger Agreement pursuant to its terms.
2. Terms of the Offer.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any extension or
amendment), we will purchase all Shares
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validly tendered and not withdrawn in accordance with the procedures set forth
in Section 4 of this Offer to Purchase on or prior to the Expiration Date. The
term "Expiration Date" means 12:00 midnight, New York City time, on Wednesday,
June 14, 2000. We may terminate or withdraw the Offer or extend the offer from
time to time, if at the then-scheduled expiration date of the Offer, the
conditions to the Offer shall have not been satisfied or earlier waived. We
may also extend the Offer for any period required by applicable rules,
regulations, interpretations or positions of the SEC or its staff applicable
to the Offer. If we extend the Offer under any of these circumstances, the
term "Expiration Date" will mean the time and date at which the Offer, as so
extended, will expire.
Upon the terms and subject to the conditions of the Offer, we will
purchase, as soon as permitted under the terms of the Offer, all Shares
validly tendered and not withdrawn prior to the expiration of the Offer. If,
at the Expiration Date, the conditions to the Offer described in Section 13
have not been satisfied or earlier waived, then, subject to the provisions of
the Merger Agreement, we may extend the Expiration Date for an additional
period or periods of time by giving oral or written notice of the extension to
the Depositary. During any such extension, all Shares previously tendered and
not withdrawn will remain subject to the Offer and subject to your right to
withdraw Shares. See "Special Factors--The Merger Agreement--The Offer" and
Section 5.
Subject to the applicable regulations of the SEC and the terms of the
Merger Agreement, we also reserve the right, in our sole discretion, at any
time or from time to time, to: (a) delay purchase of or, regardless of whether
we previously purchased any Shares, payment for any Shares pending receipt of
any regulatory or governmental approvals or expiration of the applicable
regulatory or governmental waiting period specified in Section 14; (b)
terminate the Offer (whether or not any Shares have previously been purchased)
if any condition referred to in Section 13 has not been satisfied or upon the
occurrence of any event specified in Section 13; and (c) except as set forth
in the Merger Agreement, waive any condition or otherwise amend the Offer in
any respect, in each case, by giving oral or written notice of the delay,
termination, waiver or amendment to the Depositary and, other than in the case
of any waiver, by making a public announcement thereof. We acknowledge (a)
that Rule 14e-1(c) under the Exchange Act requires us to pay the consideration
offered or return the Shares tendered promptly after the termination or
withdrawal of the Offer and (b) that we may not delay purchase of, or payment
for (except as provided in clause (a) of the preceding sentence), any Shares
upon the occurrence of any event specified in Section 13 without extending the
period of time during which the Offer is open.
The rights we reserve in the preceding paragraph are in addition to our
rights described in Section 13. Any extension, delay, termination or amendment
of the Offer will be followed as promptly as practicable by a public
announcement. An announcement in the case of an extension will be made no
later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date. Without limiting the manner in which we
may choose to make any public announcement, subject to applicable law
(including Rules 14d-4(d) and 14d-6(c) under the Exchange Act, which require
that material changes be promptly disseminated to holders of Shares), we will
have no obligation to publish, advertise or otherwise communicate any such
public announcement other than by issuing a release to the Dow Jones News
Service.
In the Merger Agreement, we have agreed that, without the prior written
consent of Verio, we will not (a) reduce the number of Shares subject to the
Offer, (b) reduce the Offer Price or the Preferred Offer Price; or (c) impose
conditions to the Offer other than those set forth in Section 13, or modify
the conditions to the Offer (other than to waive any condition to the Offer to
the extent permitted by the Merger Agreement), (d) except as provided in the
Merger Agreement, extend the Offer, (e) change the form of consideration
payable in the Offer or (f) amend any other term of the Offer in a manner
adverse to the holders of Shares.
If we make a material change in the terms of the Offer, or if we waive a
material condition to the Offer, we will extend the Offer and disseminate
additional tender offer materials to the extent
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required by Rules 14d-4(d), 14d-6(c) and 14e-1 under the Exchange Act. The
minimum period during which a tender offer must remain open following material
changes in the terms of the offer, other than a change in price or a change in
percentage of securities sought, depends upon the facts and circumstances,
including the materiality of the changes. In the SEC's view, an offer should
remain open for a minimum of five business days from the date the material
change is first published, sent or given to stockholders, and, if material
changes are made with respect to information that approaches the significance
of price and the percentage of securities sought, a minimum of 10 business
days may be required to allow for adequate dissemination and investor
response. With respect to a change in price, a minimum 10 business-day period
from the date of the change is generally required to allow for adequate
dissemination to stockholders. Accordingly, if prior to the Expiration Date,
we decrease the number of Shares being sought, or increase or decrease the
consideration offered pursuant to the Offer, and if the Offer is scheduled to
expire at any time earlier than the period ending on the 10th business day
from the date that notice of the increase or decrease is first published, sent
or given to holders of Shares, we will extend the Offer at least until the
expiration of such period of 10 business days. For purposes of the Offer, a
"business day" means any day other than a Saturday, Sunday or a federal
holiday and consists of the time period from 12:01 a.m. through 12:00
midnight, New York City time.
The Offer is conditioned upon, among other things, the satisfaction of the
Minimum Condition.
Consummation of the Offer is also conditioned upon expiration or
termination of all waiting periods imposed by the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the regulations thereunder (the "HSR
Act"), the period of time for any applicable review process by CFIUS (as
defined in Section 14) under the Exon-Florio Amendment (as defined in Section
14) having expired and CFIUS not having taken any action or made any
recommendation to the President of the United States to block or prevent the
consummation of the Offer or the Merger, and the other conditions set forth in
Section 13. We reserve the right (but are not obligated), in accordance with
applicable rules and regulations of the SEC and with the Merger Agreement, to
waive any or all of those conditions. If, by the Expiration Date, any or all
of those conditions have not been satisfied, we may, without the consent of
Verio, elect to (a) extend the Offer and, subject to applicable withdrawal
rights, retain all tendered Shares until the expiration of the Offer, as
extended, subject to the terms of the Offer and the Merger Agreement; (b)
waive all of the unsatisfied conditions and, subject to complying with
applicable rules and regulations of the SEC, accept for payment all Shares so
tendered; or (c) terminate the Offer and not accept for payment any Shares and
return all tendered Shares to tendering stockholders. In the event that we
waive any condition set forth in Section 13, the SEC may, if the waiver is
deemed to constitute a material change to the information previously provided
to the stockholders, require that the Offer remain open for an additional
period of time and/or that we disseminate information concerning such waiver.
Verio has provided us with its stockholder lists and security position
listings for the purpose of disseminating the Offer to holders of Shares. We
will mail this Offer to Purchase, the related Letter of Transmittal and other
relevant materials to record holders of Shares and we will furnish the
materials to brokers, dealers, commercial banks, trust companies and similar
persons whose names, or the names of whose nominees, appear on the
securityholder lists or, if applicable, who are listed as participants in a
clearing agency's security position listing, for forwarding to beneficial
owners of Shares.
3. Acceptance for Payment and Payment for Shares.
Upon the terms and subject to the conditions of the Offer (including, if we
extend or amend the Offer, the terms and conditions of the Offer as so
extended or amended), we will purchase, by accepting for payment, and will pay
for, all Shares validly tendered and not withdrawn (as permitted
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<PAGE>
by Section 4) prior to the Expiration Date promptly after the later of (a) the
Expiration Date and (b) the satisfaction or waiver of the conditions to the
Offer set forth in Section 13. In addition, subject to applicable rules of the
SEC, we reserve the right to delay acceptance for payment of, or payment for,
Shares pending receipt of any regulatory or governmental approvals specified
in Section 14.
For information with respect to regulatory approvals that we are required
to obtain prior to the completion of the Offer, see Section 14.
In all cases, we will pay for Shares purchased in the Offer only after
timely receipt by the Depositary of (a) certificates representing the Shares
("Share Certificates") or timely confirmation (a "Book-Entry Confirmation") of
the book-entry transfer of the Shares into the Depositary's account at The
Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedures set forth in Section 4; (b) the appropriate Letter of Transmittal
(or a facsimile), properly completed and duly executed, with any required
signature guarantees or an Agent's Message (as defined below) in connection
with a book-entry transfer; and (c) any other documents that the Letter of
Transmittal requires.
The term "Agent's Message" means a message transmitted by the Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that the Book-Entry Transfer Facility
has received an express acknowledgment from the participant in the Book-Entry
Transfer Facility tendering the Shares which are the subject of the Book-Entry
Confirmation that the participant has received and agrees to be bound by the
terms of the Letter of Transmittal and that we may enforce that agreement
against the participant.
For purposes of the Offer, we will be deemed to have accepted for payment,
and purchased, Shares validly tendered and not withdrawn if, as and when we
give oral or written notice to the Depositary of our acceptance of the Shares
for payment pursuant to the Offer. In all cases, upon the terms and subject to
the conditions of the Offer, payment for Shares purchased pursuant to the
Offer will be made by deposit of the purchase price for the Shares with the
Depositary, which will act as agent for tendering stockholders for the purpose
of receiving payment from us and transmitting payment to validly tendering
stockholders.
Under no circumstances will we pay interest on the purchase price for
Shares, regardless of any extension of the Offer or any delay in making such
payment.
If we do not purchase any tendered Shares pursuant to the Offer for any
reason, or if you submit Share Certificates representing more Shares than you
wish to tender, we will return Share Certificates representing unpurchased or
untendered Shares, without expense to you (or, in the case of Shares delivered
by book-entry transfer into the Depositary's account at the Book-Entry
Transfer Facility pursuant to the procedures set forth in Section 4, the
Shares will be credited to an account maintained within the Book-Entry
Transfer Facility), as promptly as practicable following the expiration,
termination or withdrawal of the Offer.
If, prior to the Expiration Date, we increase the price offered to holders
of shares of Common Stock or holders of shares of Preferred Stock in the
Offer, we will pay the increased price to all holders of shares of Common
Stock or holders of shares of Preferred Stock, as the case may be, that we
purchase in the Offer, whether or not the Shares were tendered before the
increase in price.
We reserve the right, subject to the provisions of the Merger Agreement, to
transfer or assign, in whole or from time to time in part, to one or more of
our wholly owned subsidiaries the right to purchase all or any portion of the
Shares tendered in the Offer, but any such transfer or assignment will not
relieve us of our obligations under the Offer or prejudice your rights to
receive payment for Shares validly tendered and accepted for payment in the
Offer.
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4. Procedures for Accepting the Offer and Tendering Shares.
Valid Tender of Shares. Except as set forth below, in order for you to
tender Shares in the Offer, the Depositary must receive the Letter of
Transmittal (or a facsimile), properly completed and signed, together with any
required signature guarantees or an Agent's Message in connection with a book-
entry delivery of Shares and any other documents that the Letter of
Transmittal requires at one of its addresses set forth on the back cover of
this Offer to Purchase on or prior to the Expiration Date and either (a) you
must deliver Share Certificates representing tendered Shares to the Depositary
or you must cause your Shares to be tendered pursuant to the procedure for
book-entry transfer set forth below and the Depositary must receive Book-Entry
Confirmation, in each case on or prior to the Expiration Date, or (b) you must
comply with the guaranteed delivery procedures set forth below.
The method of delivery of Share Certificates, the Letter of Transmittal and
all other required documents, including delivery through the Book-Entry
Transfer Facility, is at your option and sole risk, and delivery will be
considered made only when the Depositary actually receives the Share
Certificates. If delivery is by mail, registered mail with return receipt
requested, properly insured, is recommended. In all cases, you should allow
sufficient time to ensure timely delivery.
Book-Entry Transfer. The Depositary will make a request to establish an
account with respect to the shares of Common Stock and the shares of Preferred
Stock at the Book-Entry Transfer Facility for purposes of the Offer within two
business days after the date of this Offer to Purchase. Any financial
institution that is a participant in the system of the Book-Entry Transfer
Facility may make book-entry delivery of Shares by causing the Book-Entry
Transfer Facility to transfer the Shares into the Depositary's account at the
Book-Entry Transfer Facility in accordance with the Book-Entry Transfer
Facility's procedures. However, although Shares may be delivered through book-
entry transfer into the Depositary's account at the Book-Entry Transfer
Facility, the Depositary must receive the Letter of Transmittal (or
facsimile), properly completed and signed, with any required signature
guarantees, or an Agent's Message in connection with a book-entry transfer,
and any other required documents, at one of its addresses set forth on the
back cover of this Offer to Purchase on or before the Expiration Date, or you
must comply with the guaranteed delivery procedure set forth below.
Delivery of documents to the Book-Entry Transfer Facility in accordance
with the Book-Entry Transfer Facility's procedures does not constitute
delivery to the Depositary.
Signature Guarantees. A bank, broker, dealer, credit union, savings
association or other entity which is a member in good standing of the
Securities Transfer Agents Medallion Program (an "Eligible Institution") must
guarantee signatures on all Letters of Transmittal, unless the Shares tendered
are tendered (a) by a registered holder of Shares who has not completed either
the box labeled "Special Payment Instructions" or the box labeled "Special
Delivery Instructions" on the Letter of Transmittal or (b) for the account of
an Eligible Institution. See Instruction 1 of the Letter of Transmittal.
If the Share Certificates are registered in the name of a person other than
the signer of the Letter of Transmittal, or if payment is to be made to, or
Share Certificates for unpurchased Shares are to be issued or returned to, a
person other than the registered holder, then the tendered certificates must
be endorsed or accompanied by appropriate stock powers, signed exactly as the
name or names of the registered holder or holders appear on the certificates,
with the signatures on the certificates or stock powers guaranteed by an
Eligible Institution as provided in the Letter of Transmittal. See
Instructions 1 and 5 of the Letter of Transmittal.
If the Share Certificates are forwarded separately to the Depositary, a
properly completed and duly executed Letter of Transmittal (or facsimile) must
accompany each delivery of Share Certificates.
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Guaranteed Delivery. If you want to tender Shares in the Offer and your
Share Certificates are not immediately available or time will not permit all
required documents to reach the Depositary on or before the Expiration Date or
the procedures for book-entry transfer cannot be completed on time, your
Shares may nevertheless be tendered if you comply with all of the following
guaranteed delivery procedures:
(a) your tender is made by or through an Eligible Institution;
(b) the Depositary receives, as described below, a properly completed
and signed Notice of Guaranteed Delivery, substantially in the form made
available by us, on or before the Expiration Date; and
(c) the Depositary receives the Share Certificates (or a Book-Entry
Confirmation) representing all tendered Shares, in proper form for
transfer together with a properly completed and duly executed Letter of
Transmittal (or facsimile), with any required signature guarantees (or,
in the case of a book-entry transfer, an Agent's Message) and any other
documents required by the Letter of Transmittal within three trading
days after the date of execution of the Notice of Guaranteed Delivery. A
"trading day" is any day on which the New York Stock Exchange is open
for business.
You may deliver the Notice of Guaranteed Delivery by hand, mail or
facsimile transmission to the Depositary. The Notice of Guaranteed Delivery
must include a guarantee by an Eligible Institution in the form set forth in
the Notice of Guaranteed Delivery.
Notwithstanding any other provision of the Offer, we will pay for Shares
only after timely receipt by the Depositary of Share Certificates for, or of
Book-Entry Confirmation with respect to, the Shares, a properly completed and
duly executed Letter of Transmittal (or facsimile thereof), together with any
required signature guarantees (or, in the case of a book-entry transfer, an
Agent's Message) and any other documents required by the appropriate Letter of
Transmittal. Accordingly, payment might not be made to all tendering
stockholders at the same time, and will depend upon when the Depositary
receives Share Certificates or Book-Entry Confirmation that the Shares have
been transferred into the Depositary's account at the Book-Entry Transfer
Facility.
Backup Federal Income Tax Withholding. Under the backup federal income tax
withholding laws applicable to certain stockholders (other than certain exempt
stockholders, including, among others, all corporations and certain foreign
individuals), the Depositary may be required to withhold 31% of the amount of
any payments made to those stockholders pursuant to the Offer. To prevent
backup federal income tax withholding, you must provide the Depositary with
your correct taxpayer identification number and certify that you are not
subject to backup federal income tax withholding by completing the Substitute
Form W-9 included in the Letter of Transmittal. See Instruction 8 of the
Letter of Transmittal.
Appointment as Proxy. By executing the Letter of Transmittal, you
irrevocably appoint our designees, and each of them, as your agents,
attorneys-in-fact and proxies, with full power of substitution, in the manner
set forth in the Letter of Transmittal, to the full extent of your rights with
respect to the Shares that you tender and that we accept for payment and with
respect to any and all other Shares and other securities or rights issued or
issuable in respect of those Shares on or after the date of this Offer to
Purchase. All such powers of attorney and proxies will be considered
irrevocable and coupled with an interest in the tendered Shares. This
appointment will be effective when we accept your Shares for payment in
accordance with the terms of the Offer. Upon such acceptance for payment, all
other powers of attorney and proxies given by you with respect to your Shares
and such other securities or rights prior to such payment will be revoked,
without further action, and no subsequent powers of attorney and proxies may
be given by you (and, if given, will not be deemed effective). Our designees
will, with respect to the Shares and such other securities and rights for
which the appointment is effective, be empowered to exercise all your voting
and other
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rights as they in their sole discretion may deem proper at any annual or
special meeting of Verio's stockholders, or any adjournment or postponement
thereof, or by consent in lieu of any such meeting or otherwise. In order for
Shares to be deemed validly tendered, immediately upon the acceptance for
payment of such Shares, we or our designee must be able to exercise full
voting, consent and other rights with respect to such Shares and other
securities, including voting at any meeting of stockholders.
Determination of Validity. All questions as to the form of documents and
the validity, eligibility (including time of receipt) and acceptance for
payment of any tender of Shares will be determined by us, in our sole
discretion, which determination will be final and binding on all parties. We
reserve the absolute right to reject any or all tenders determined by us not
to be in proper form or the acceptance of or payment for which may, in the
opinion of our counsel, be unlawful. We also reserve the absolute right to
waive any of the conditions of the Offer or any defect or irregularity in any
tender of Shares of any particular stockholder whether or not similar defects
or irregularities are waived in the case of other stockholders.
Our interpretation of the terms and conditions of the Offer will be final
and binding. No tender of Shares will be deemed to have been validly made
until all defects and irregularities with respect to the tender have been
cured or waived by us. None of NTT, NTT Communications, Purchaser or any of
their affiliates or assigns, the Dealer Managers, the Depositary, the
Information Agent or any other person or entity will be under any duty to give
any notification of any defects or irregularities in tenders or incur any
liability for failure to give any such notification.
Our acceptance for payment of Shares tendered pursuant to any of the
procedures described above will constitute a binding agreement between us and
you upon the terms and subject to the conditions of the Offer.
5. Withdrawal Rights.
Except as described in this Section 5, tenders of Shares made in the Offer
are irrevocable. You may withdraw Shares that you have previously tendered in
the Offer at any time on or before the Expiration Date and, unless theretofore
accepted for payment as provided herein, Shares may also be withdrawn at any
time after July 15, 2000.
If, for any reason, acceptance for payment of any Shares tendered in the
Offer is delayed, or we are unable to accept for payment or pay for Shares
tendered in the Offer, then, without prejudice to our rights set forth in this
document, the Depositary may, nevertheless, on our behalf, retain Shares that
you have tendered, and you may not withdraw your Shares except to the extent
that you are entitled to and duly exercise withdrawal rights as described in
this Section 5. Any such delay will be by an extension of the Offer to the
extent required by law.
In order for your withdrawal to be effective, you must deliver a written or
facsimile transmission notice of withdrawal to the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase. Any such
notice of withdrawal must specify your name, the number of Shares that you
want to withdraw, and (if Share Certificates have been tendered) the name of
the registered holder of the Shares as shown on the Share Certificate, if
different from your name. If Share Certificates have been delivered or
otherwise identified to the Depositary, then prior to the physical release of
such certificates, you must submit the serial numbers shown on the particular
certificates evidencing the Shares to be withdrawn and an Eligible Institution
must guarantee the signature on the notice of withdrawal, except in the case
of Shares tendered for the account of an Eligible Institution. If Shares have
been tendered pursuant to the procedures for book-entry transfer set forth in
Section 4, the notice of withdrawal must also specify the name and number of
the account at the appropriate Book-Entry Transfer Facility to be credited
with the withdrawn Shares, in which case a notice of withdrawal
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will be effective if delivered to the Depositary by any method of delivery
described in the first sentence of this paragraph. You may not rescind a
withdrawal of Shares. Any Shares that you withdraw will be considered not
validly tendered for purposes of the Offer, but you may tender your Shares
again at any time before the Expiration Date by following any of the
procedures described in Section 4.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by us, in our sole discretion, which
determination will be final and binding. None of NTT, NTT Communications,
Purchaser or any of their affiliates or assigns, the Dealer Managers, the
Depositary, the Information Agent or any other person or entity will be under
any duty to give any notification of any defects or irregularities in any
notice of withdrawal or incur any liability for failure to give any such
notification.
6. Material Federal Income Tax Consequences.
Your receipt of cash for Shares in the Offer or the Merger will be a
taxable transaction for federal income tax purposes and may also be a taxable
transaction under applicable state, local, foreign and other tax laws. For
federal income tax purposes, if you sell or exchange your Shares for cash in
the Offer or the Merger, you would generally recognize gain or loss equal to
the difference between the amount of cash received and your tax basis for the
Shares that you sold or exchanged. That gain or loss will be capital gain or
loss (assuming you hold your Shares as a capital asset) and any such capital
gain or loss will be long term if, as of the date of sale or exchange, you
have held the Shares for more than one year or will be short term if, as of
such date, you have held the Shares for one year or less. The excess of net
long-term capital gains over net short-term capital losses is currently taxed
at a maximum federal income tax rate of 20% for noncorporate taxpayers.
In general, any cash received by a stockholder who exercises appraisal
rights will result in the recognition of capital gain or loss. Any such
stockholder should consult his or her own tax advisor.
The discussion above may not be applicable to certain types of
stockholders, including stockholders who acquired Shares through the exercise
of employee stock options or otherwise as compensation, individuals who are
not citizens or residents of the United States, foreign corporations, or
entities that are otherwise subject to special tax treatment under the
Internal Revenue Code (such as insurance companies, tax-exempt entities and
regulated investment companies).
The federal income tax discussion set forth above is included for general
information only. You are urged to consult your tax advisor with respect to
the specific tax consequences to you of the Offer and Merger, including
federal, state, local and foreign tax consequences.
7. Price Range Of The Shares.
Common Stock. According to Verio's Annual Report on Form 10-K/A for the
fiscal year ended December 31, 1999, the shares of Common Stock are
principally traded on the Nasdaq National Market ("Nasdaq") under the symbol
"VRIO." The following table sets forth, for the periods indicated, the
reported high and low sale prices for the shares of Common Stock on Nasdaq, as
reported on Verio's Form 10-K for the fiscal year ended December 31, 1998 with
respect to periods occurring in fiscal 1998, Verio's Form 10-K/A with respect
to periods occurring in fiscal 1999 and published financial sources, with
respect to periods occurring in the current fiscal year.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Fiscal 1998
May 15, 1998 through June 30, 1998............................... $30.00 $16.50
Quarter Ended September 30, 1998................................. 31.88 18.00
Quarter Ended December 31, 1998.................................. 28.75 13.00
</TABLE>
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<TABLE>
<CAPTION>
High Low
----- -----
<S> <C> <C>
Fiscal 1999
Quarter Ended March 31, 1999........................................ 28.61 10.50
Quarter Ended June 30, 1999......................................... 29.00 20.81
Quarter Ended September 30, 1999.................................... 42.50 24.81
Quarter Ended December 31, 1999..................................... 55.63 27.50
Fiscal 2000
Quarter Ending March 31, 2000....................................... 84.94 41.44
Quarter Ending June 30, 2000 (through May 16, 2000)................. 58.31 23.69
</TABLE>
On May 5, 2000, the last full day of trading prior to the announcement of
the execution of the Merger Agreement, the reported closing price per share of
Common Stock on Nasdaq was $35 15/16. On May 16, 2000, the last full day of
trading prior to the commencement of the Offer, the reported closing price per
share of Common Stock on Nasdaq was $57 3/8.
Stockholders are urged to obtain current market quotations for the shares
of Common Stock.
Verio has never paid dividends on the shares of Common Stock. Under the
terms of the Merger Agreement, Verio is not permitted to declare or pay
dividends with respect to the shares of Common Stock without the written
consent of NTT Communications.
Preferred Stock. The shares of Preferred Stock are not traded on any
securities exchange. The following table sets forth, for the periods
indicated, the high and low bid prices for the shares of Preferred Stock in
the over the counter market.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Fiscal 1999
November 1, 1999 through December 31, 1999....................... $62.01 $50.45
Fiscal 2000
Quarter Ended March 31, 2000..................................... 87.63 54.73
Quarter Ended June 30, 2000 (through May 11, 2000)............... 61.43 31.49
</TABLE>
Verio has never paid dividends on its shares of Preferred Stock. Holders of
Preferred Stock as of the applicable date have received payments from the
Deposit Account in the amount of $.8438 per share on November 1, 1999,
February 1, 2000 and May 1, 2000. See "Special Factors--Preferred Stock."
After August 1, 2000, the holders of Preferred Stock will be entitled to
receive cumulative dividends on each share of Preferred Stock at a rate per
annum equal to 6.75% of the liquidation preference of $50.00 per share,
payable quarterly in arrears on each November 1, February 1, May 1 and August
1. Verio has the option to pay all or a portion of the dividends due on the
Preferred Stock through the issuance of shares of Common Stock based on the
market value of shares of Common Stock on the applicable record date.
8. Possible Effects of the Offer on the Market for the Shares; Nasdaq Listing;
Exchange Act Registration; Margin Regulations.
Possible Effects of the Offer on the Market for the Shares. The purchase of
Shares pursuant to the Offer will reduce the number of Shares that might
otherwise trade publicly and could adversely affect the liquidity and market
value of the remaining Shares held by the public. The purchase of Shares
pursuant to the Offer can also be expected to reduce the number of holders of
Shares. We cannot predict whether the reduction in the number of Shares that
might otherwise trade publicly would have an adverse or beneficial effect on
the market price for, or marketability of, the Shares or whether it would
cause future market prices to be greater or less than the Offer Price.
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Nasdaq Quotation of Common Stock. Depending upon the number of shares of
Common Stock purchased pursuant to the Offer, the Common Stock may no longer
meet the standards for continued inclusion in Nasdaq. According to published
guidelines, the Common Stock would not be eligible for continued inclusion if
the Common Stock fails to substantially meet, among other things, the
following standards: (i) 200,000 publicly held shares of Common Stock, (ii)
market value of publicly held shares of Common Stock of $1 million, and (iii)
400 holders of shares of Common Stock or 300 holders of shares of Common Stock
of round lots. If these standards are not met, the Common Stock might
nevertheless continue to be included in the Nasdaq Small Cap Market, but if,
among other things, the number of holders of shares of Common Stock falls
below 300, or if the number of publicly held shares of Common Stock falls
below 100,000, or if the aggregate market value of such publicly held shares
of Common Stock falls below $200,000 or if there are not at least two market
makers (one of which may be a market maker entering a stability bid), Nasdaq
rules provide that the Common Stock would no longer qualify for inclusion in
Nasdaq and Nasdaq would cease to provide any quotations. Shares of Common
Stock held, directly or indirectly, by an officer or director of the Company,
or by any beneficial owner of more than 10% of the shares of Common Stock,
ordinarily will not be considered as being publicly held for this purpose.
If the Common Stock is no longer eligible for Nasdaq quotation, quotations
might still be available from other sources. The extent of the public market
for the shares of Common Stock and the availability of such quotations would,
however, depend upon the number of holders of such shares of Common Stock
remaining at such time, the interest in maintaining a market in such shares of
Common Stock on the part of securities firms, the possible termination of
registration of such shares of Common Stock under the Exchange Act as
described below and other factors.
Exchange Act Registration. The shares of Common Stock are currently
registered under the Exchange Act. The purchase of the shares of Common Stock
pursuant to the Offer may result in the shares of Common Stock becoming
eligible for deregistration under the Exchange Act. Registration of the shares
of Common Stock may be terminated upon application by Verio to the SEC if the
shares of Common Stock are not listed on a "national securities exchange" and
there are fewer than 300 record holders of shares of Common Stock. Termination
of registration of the shares of Common Stock under the Exchange Act would
substantially reduce the information that Verio would be required to furnish
to its stockholders and the SEC and would make certain provisions of the
Exchange Act, such as the short-swing profit recovery provisions of Section
16(b) and the requirements of furnishing a proxy statement in connection with
stockholders' meetings pursuant to Section 14(a) or 14(c) and the related
requirement of an annual report, no longer applicable to Verio. If the shares
of Common Stock are no longer registered under the Exchange Act, the
requirements of Rule 13e-3 under the Exchange Act with respect to "going
private" transactions would no longer be applicable to Verio. In addition, the
ability of "affiliates" of Verio and persons holding "restricted securities"
of Verio to dispose of such securities pursuant to Rule 144 promulgated under
the Securities Act, may be impaired or, with respect to certain persons,
eliminated. If registration of the shares of Common Stock under the Exchange
Act were terminated, the shares of Common Stock would no longer be "margin
securities" or eligible for stock exchange listing or Nasdaq reporting. We
believe that the purchase of the shares of Common Stock pursuant to the Offer
may result in the shares of Common Stock becoming eligible for deregistration
under the Exchange Act, and it would be our intention to cause Verio to make
an application for termination of registration of the shares of Common Stock
as soon as possible after successful completion of the Offer if the shares of
Common Stock are then eligible for such termination.
If registration of the shares of Common Stock is not terminated prior to
the Merger, then the registration of the shares of Common Stock under the
Exchange Act and the listing of the shares of Common Stock on the Nasdaq will
be terminated following the completion of the Merger.
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Margin Regulations. The shares of Common Stock are currently "margin
securities" under the regulations of the Board of Governors of the Federal
Reserve System, which have the effect, among other things, of allowing brokers
to extend credit on the collateral of the shares of Common Stock for the
purpose of buying, carrying or trading in securities ("Purpose Loans").
Depending upon factors such as the number of record holders of the shares of
Common Stock and the number and market value of publicly held shares of Common
Stock, following the purchase of shares of Common Stock pursuant to the Offer,
the shares of Common Stock might no longer constitute "margin securities" for
purposes of the Federal Reserve Board's margin regulations and, therefore,
could no longer be used as collateral for Purpose Loans made by brokers. In
addition, if registration of the shares of Common Stock under the Exchange Act
were terminated, the shares of Common Stock would no longer constitute "margin
securities."
9. Certain Information Concerning Verio.
Verio's principal executive offices are located at 8005 South Chester
Street, Suite 200, Englewood, Colorado 80112. Its telephone number at such
offices is (303) 645-1900. The following description of Verio and its business
has been taken from Verio's Annual Report on Form 10-K/A for the fiscal year
ended December 31, 1999 and is qualified in its entirety by reference to
Verio's Form 10-K/A:
Verio is the world's largest operator of Web sites for businesses and a
leading provider of comprehensive Internet services with an emphasis on
serving the small and medium sized business market. Verio offers customers a
broad range of Internet solutions, including:
. Telecommunication circuits--permitting customers to make connections to
and transmit data over the Internet.
. Web hosting services--providing customers with a presence on the
Internet in the form of a Web site. Verio offers a complete suite of Web
hosting services, including shared and dedicated server hosting for
customers who prefer that it provide the server hardware, as well as co-
location services where customers bring their own servers to a Verio
data center.
. Domain name registration--providing a fast, on-line process for
customers to reserve their personalized Web address (such as
www.yourcompany.com).
. Electronic commerce services--enabling customers to conduct transactions
with their customers and vendors over the Internet.
. Application hosting services--providing customers with the functionality
and features of business-focused software and database applications on a
shared or rented basis via the Internet. These applications support and
automate office systems and business processes, such as financial
reporting, payroll, sales order entry, shipping, inventory management
and customer service systems.
. Secure Internet communication links--permitting customers to establish
"virtual private networks" in order to engage in private and secure
Internet communication with their employees, vendors, customers and
suppliers.
. Other enhanced value Internet services, such as automated Web site
development tools and templates.
Since its incorporation in March 1996, Verio has grown rapidly,
establishing a global presence through the acquisition, integration and
organic growth of over 50 local, regional, national and international
providers of Internet connectivity, Web hosting and other enhanced value
Internet products and services. Verio integrates the operations it acquires
onto its national network and common administrative support services in order
to capture economies of scale, derive operational efficiency and control, and
improve the quality, consistency and scalability of its services. Currently,
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Verio provides Web hosting services to customers in over 170 countries and
offers locally based sales and engineering support for its Internet services
in 41 of the top 50 metropolitan statistical areas in the U.S. Verio is now
the largest Web hosting company in the world based on the number of domain
names--such as your company.com--that it hosts.
Verio files annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements
or other information filed at the SEC's public reference room at 450 Fifth
Street, N.W. Washington, D.C. 20549, or at the SEC's public reference rooms in
New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-
0330 for further information on the public reference rooms. Verio's SEC
filings are also available to the public from commercial document retrieval
services and at the Internet World Wide Web site maintained by the SEC at
http://www.sec.gov.
Although we have no knowledge that any such information is untrue, we take
no responsibility for the accuracy or completeness of information contained in
this Offer to Purchase with respect to Verio or any of its subsidiaries or
affiliates or for any failure by Verio to disclose events which may have
occurred or may affect the significance or accuracy of any such information.
Set forth below is certain summary consolidated financial data with respect
to Verio excerpted or derived from financial information contained in Verio's
Annual Report on Form 10-K/A for the year ended December 31, 1999 and
Quarterly Report on Form 10-Q for the three months ended March 31, 2000.
Verio's audited consolidated balance sheets as of December 31, 1998 and 1999,
and the related consolidated statements of operations and comprehensive loss,
stockholders' equity (deficit) and cash flows for each of the years in the
three-year period ended December 31, 1999 and Verio's unaudited consolidated
balance sheets as of March 31, 1999 and 2000, and the related consolidated
statements of operations and comprehensive loss, stockholders equity and cash
flows for the quarters ended March 31, 1999 and 2000 are filed as exhibits to
our Schedule TO and incorporated by reference herein.
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<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MARCH 1, QUARTER QUARTER
1996) TO YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1996 1997 1998 1999 1999 2000
------------ ------------ ------------ ------------ --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenue........... $ 2,365 $ 35,692 $ 120,653 $ 258,336 $ 55,124 $ 81,140
Total costs and
expenses............... 8,645 75,981 211,671 376,403 84,656 128,256
Loss from operations.... (6,280) (40,289) (91,018) (118,067) (29,532) (47,116)
Loss before
extraordinary item..... (5,122) (46,069) (111,854) (181,906) (45,112) (66,950)
Net loss................ (5,122) (46,069) (121,955) (181,906) (45,112) (66,950)
Net loss attributable to
common stockholders.... (5,145) (46,329) (122,042) (192,774) (45,112) (73,025)
Loss per common share--
basic and diluted:
Loss per common share
before extraordinary
item................... (2.65) (20.24) (2.62) (2.56) (0.62) (0.93)
Loss per common share... (2.65) (20.24) (2.85) (2.56) (0.62) (0.93)
Weighted average common
shares outstanding --
basic and diluted...... 1,944 2,290 42,752 75,372 72,896 78,438
BALANCE SHEET DATA
Cash and cash
equivalents............ $66,467 $ 62,662 $ 433,424 $ 506,055 $ 204,975 $ 496,232
Securities available for
sale................... -- 9,924 143,963 358,969 133,623 338,640
Restricted cash and
securities............. -- 40,554 14,805 20,481 15,356 14,388
Goodwill, net........... 8,736 83,216 236,696 546,936 480,610 531,165
Total assets............ 82,628 246,471 933,712 1,763,724 1,025,353 1,783,672
Long-term debt and
capital lease
obligations, net of
discount............... 106 142,321 674,618 1,086,681 680,295 1,094,283
Redeemable preferred
stock.................. 76,877 97,249 -- -- -- --
Stockholders' equity
(deficit).............. (4,055) (27,001) 202,681 533,123 229,678 534,174
SUPPLEMENTAL FINANCIAL
DATA:
EBITDA.................. $(5,611) $ (29,665) $ (51,292) $ (8,562) $ (7,918) $ (9,960)
Cash flows used by
operations............. (2,326) (35,323) (64,239) (69,579) (9,721) (32,825)
Cash flows used by
investing activities... (9,123) (130,254) (284,891) (591,666) (216,284) (9,997)
Cash flows from
financing activities... 77,916 161,772 719,892 733,876 (2,444) 32,999
Capital expenditures.... 3,430 14,547 23,058 146,840 14.8 64.3
Cash dividends on common
stock.................. -- -- -- -- -- --
</TABLE>
The book value per share of Verio's Common Stock as of March 31, 2000 was
$2.35. Book value per share of Verio's Common Stock was derived by dividing (i)
assets minus liabilities minus Preferred Stock by (ii) number of shares of
Common Stock outstanding.
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RATIO OF EARNINGS TO FIXED CHARGES
(In Thousands)
<TABLE>
<CAPTION>
Period
from
Inception Three-Months
(March 1, 1996) Year Ended Ended
to December 31, March 31,
December 31, --------------------------- ----------------
1996 1997 1998 1999 1999 2000
--------------- ------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Pre-tax loss from
continuing operations
before adjustments for
minority interests in
consolidated
subsidiaries or income
or loss from equity
investees.............. (5,802) (47,993) (112,336) (181,906) (45,112) (66,950)
Add:
Interest on debt....... 115 11,826 35,946 87,163 20,358 31,794
Interest portion of
rentals ( 1/3
interest expense)..... 43 619 1,349 3,859 845 1,396
Amortization of debt
issuance costs........ 175 178 1,358 2,570 717 932
------ ------- -------- -------- ------- -------
Earnings (loss)
available for fixed
charges............. (5,469) (35,370) (73,683) (88,294) (23,192) (32,828)
====== ======= ======== ======== ======= =======
Fixed charges:
Interest on debt....... 115 11,826 35,946 87,183 20,358 31,794
Interest portion of
rentals
( 1/3 interest
expense).............. 43 619 1,349 3,859 845 1,396
Amortization of debt
issuance costs........ 175 178 1,358 2,570 717 932
Preferred stock
dividend requirements
of Verio.............. 23 260 87 10,868 -- 6,075
------ ------- -------- -------- ------- -------
Total fixed charges.. 356 12,883 38,740 104,480 21,920 40,197
====== ======= ======== ======== ======= =======
Ratio of earnings to
fixed charges.......... NM* NM* NM* NM* NM* NM*
Deficiency.............. (5,825) (48,253) (112,423) (192,774) (45,112) (73,025)
====== ======= ======== ======== ======= =======
</TABLE>
- --------
* NM--not meaningful due to losses in each period.
Year 2000 Budget Projections. Verio does not, as a matter of course, make
public forecasts or projections as to future sales, earnings or other income
statement data. However, Verio, as part of its Year 2000 budget, in January,
2000, provided to the members of the Verio Board, including Mr. Ito, the
designee of NTT on the Verio Board, certain non-public projections for the
year 2000 (the "Year 2000 Budget Projections").
The Year 2000 Budget Projections were prepared by Verio solely for internal
use and not for publication. The Year 2000 Budget Projections were not
prepared with a view to complying with the published guidelines of the SEC
regarding projections or with the American Institute of Certified Public
Accountants Guide for Prospective Financial Statements. Neither Verio's
independent auditors, nor any other independent accountants, have compiled,
examined or performed any procedures with respect to the prospective financial
information contained in the Year 2000 Budget Projections. The Year 2000
Budget Projections do not reflect any of the effects of the Offer, the Merger
or other changes that in the future may be deemed appropriate in light of the
circumstances then existing. The Year 2000 Budget Projections are included in
this Offer to Purchase only because they were furnished to Mr. Ito.
The Year 2000 Budget Projections necessarily are based upon numerous
estimates and assumptions that are inherently subject to significant economic,
industry and competitive risks, uncertainties and contingencies, including
industry performance, general business and economic conditions, and other
matters, all of which are difficult to predict and many of which are beyond
the control of Verio. Accordingly, there can be no assurance that the
projected results would be realized or that actual results would not be
significantly higher, or lower, than
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<PAGE>
those projected. The inclusion of this forward-looking information should not
be regarded as fact or an indication that NTT, NTT Communications, Purchaser
or Verio or anyone who received this information considered it a reliable
predictor of future results, and this information should not be relied on as
such. None of NTT, NTT Communications, Purchaser or Verio assumes any
responsibility for the validity, reasonableness, accuracy or completeness of
the forecasts. Verio does not intend to update or revise the Year 2000 Budget
Projections.
The following are the Year 2000 Budget Projections:
<TABLE>
<CAPTION>
Quarter Quarter Quarter
Ended Ended Quarter Ended Ended
March 31, June 30, September 30, December 31, Year 2000
2000 2000 2000 2000 Total
--------- -------- ------------- ------------ ---------
($ in millions)
<S> <C> <C> <C> <C> <C>
Revenue................. $ 84 $ 98 $117 $142 $ 442
Cost of Goods Sold...... 24 26 29 33 112
Operating Expense....... 67 77 82 92 317
EBITDA.................. (7) (5) 6 17 12
Net Income.............. (76) (80) (75) (69) (300)
Preferred Stock
Dividend............... (6) (6) (6) (6) (24)
Net Income Attributable
to Common
Stockholders........... (82) (86) (81) (75) (324)
</TABLE>
10. Certain Information Concerning NTT, NTT Communications and Purchaser.
NTT, through its subsidiaries, is the largest provider of
telecommunications services in Japan and operates one of the largest telephone
networks in the world. Its predominant business is providing nationwide
telecommunications services. These services fall into seven major classes:
telephone services, telegraph services, leased circuit services, data
communication facility services, ISDN (Integrated Services Digital Network)
services, sale of telecommunication equipment and other services.
The principal executive offices of NTT are located at 3-1, Otemachi 2-
chome, Chiyoda-ku, Tokyo 100-8116, Japan; telephone number: 011-81-3-5205-
5111.
NTT Communications, a limited liability joint stock company incorporated
under the laws of Japan, is a wholly owned subsidiary of NTT. NTT
Communications' principal business is providing international and long
distance telecommunications services and data transmission services. The
principal executive offices of NTT Communications are located at 1-1-6
Uchisaiwai-cho, 1 Chiyoda-ku, Tokyo 100-8019, Japan; telephone number: 011-81-
3-3500-8111.
Purchaser was formed in April, 2000 solely for the purpose of engaging in
the transactions contemplated by the Merger Agreement. The principal executive
offices of Purchaser are located at 101 Park Avenue, 41st Floor, New York, NY
10178; telephone number: (212) 661-0810.
The name, business address, citizenship, present principal occupation and
employment history for the past five years of each of the directors and
executive officers of NTT, NTT Communications and Purchaser are set forth in
Schedule I.
NTT files Forms 20-F, Forms 6-K and other documents with the SEC relating
to its business, financial condition and other matters. You may inspect or
copy these reports and other information at the SEC's public reference
facilities and they should be available for inspection in the same manner as
set forth with respect to Verio in Section 9.
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<PAGE>
11. Source and Amount of Funds.
NTT Communications estimates that the total amount of funds required to
purchase all of the Shares pursuant to the Offer will be approximately $5.1
billion (which amount excludes related fees and expenses). See Section 15
"Fees and Expenses." NTT Communications expects to obtain funds to consummate
the Offer from working capital, borrowings from lenders on a secured or
unsecured basis and from other sources that may be available to NTT
Communications, or some combination of the foregoing. No decision has been
made concerning which of the foregoing sources NTT Communications will
utilize. Such decision will be based on NTT Communication's review from time
to time of the advisability of particular options, as well as prevailing
interest rates and financial and other economic conditions and such other
factors as NTT Communications may deem appropriate. We will file an amendment
to our Schedule TO promptly after any such decision is made. Purchaser will
obtain the funds to purchase Shares in the Offer and the Merger directly or
indirectly from NTT Communications. The Offer is not conditional on obtaining
financing.
12. Dividends and Distributions.
The Merger Agreement provides that neither Verio nor any of its
subsidiaries shall, without the prior written consent of NTT Communications,
(i) other than dividends paid by wholly owned subsidiaries and dividends which
holders of Preferred Stock are entitled to receive under Verio's Certificate
of Incorporation and payments with respect to the shares of Preferred Stock
required to be made under the deposit agreement relating to the shares of
Preferred Stock, declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions in respect of, any of its capital
stock, or otherwise make any payments to its stockholders in their capacity as
such, (ii) other than in the case of any subsidiary, split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of
its capital stock or (iii) purchase, redeem or otherwise acquire any shares of
capital stock of Verio (other than shares of Preferred Stock upon the
conversion thereof and other than repurchases of shares of Common Stock
pursuant to agreements with holders of options who, in accordance with the
terms hereof, exercised such options prior to the normal vesting date subject
to a repurchase option in favor of Verio) or any other securities thereof or
any rights, warrants or options to acquire any such shares or other
securities.
13. Conditions of the Offer.
Notwithstanding any other term of the Offer or the Merger Agreement,
Purchaser shall not be required to accept for payment or, subject to any
applicable rules and regulations of the SEC, including Rule 14e-1(c) under the
Exchange Act (relating to Purchaser's obligation to pay for or return tendered
Shares after the termination or withdrawal of the Offer), to pay for any
Shares tendered pursuant to the Offer unless (i) the Minimum Condition shall
have been satisfied, (ii) any waiting period under the HSR Act applicable to
the purchase of Shares pursuant to the Offer shall have expired or been
terminated prior to the expiration date of the Offer, and (iii) the period of
time for any applicable review process by CFIUS (as defined in Section 14)
under the Exon-Florio Amendment (as defined in Section 14) shall have expired
and CFIUS shall not have taken any action or made any recommendation to the
President of the United States to block or prevent the consummation of the
Offer or the Merger. Furthermore, notwithstanding any other term of the Offer
or the Merger Agreement, Purchaser shall not be required to accept for payment
or, subject as aforesaid, to pay for any Shares not theretofore accepted for
payment or paid for, and may terminate the Offer if, at any time on or after
the date of the Merger Agreement and before the acceptance of such Shares for
payment or the payment therefor, any of the following conditions exists (other
than as a result of any action or inaction of NTT Communications or any of its
subsidiaries that constitutes a breach of the Merger Agreement):
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<PAGE>
(a) there shall be threatened or pending by any Governmental Entity (as
defined in the Merger Agreement) any suit, action or proceeding (i)
challenging the acquisition by NTT Communications or Purchaser of any Shares
under the Offer, seeking to restrain or prohibit the making or consummation
of the Offer or the Merger or the performance of any of the other
transactions contemplated by the Merger Agreement, or seeking to obtain from
Verio, NTT Communications or Purchaser any damages that, if awarded, would
have a Material Adverse Effect (as defined below) on Verio, (ii) seeking to
prohibit or materially limit the ownership or operation by Verio, NTT
Communications or any of their respective subsidiaries of a material portion
of the business or assets of Verio and its subsidiaries, taken as a whole, or
NTT Communications and its subsidiaries, taken as a whole, or to compel Verio
or NTT Communications to dispose of or hold separate any material portion of
the business or assets of Verio and its subsidiaries, taken as a whole, or
NTT Communications and its subsidiaries, taken as a whole, in each case, as a
result of the Offer or any of the other transactions contemplated by the
Merger Agreement, (iii) seeking to impose material limitations on the ability
of NTT Communications or Purchaser to acquire or hold, or exercise full
rights of ownership of, any shares of Common Stock to be accepted for payment
pursuant to the Offer, including the right to vote such shares of Common
Stock on all matters properly presented to the stockholders of Verio, (iv)
seeking to prohibit NTT Communications or any of its subsidiaries from
effectively controlling in any material respect any material portion of the
business or operations of Verio or its subsidiaries or (v) which otherwise is
reasonably likely to have a Material Adverse Effect on Verio, or there shall
be pending by any other person any suit, action or proceeding which would
have a Material Adverse Effect on Verio;
(b) there shall be enacted, entered, enforced, promulgated or deemed
applicable to the Offer or the Merger by any Governmental Entity any statute,
rule, regulation, judgment, order or injunction, other than the application
to the Offer or the Merger of applicable waiting periods under the HSR Act or
any applicable waiting periods under any foreign laws enacted as of the date
of the Merger Agreement, that is reasonably likely to result, directly or
indirectly, in any of the consequences referred to in clauses (i) through (v)
of paragraph (a) above;
(c) there shall have occurred any Material Adverse Change (as defined
below) with respect to Verio;
(d) (i) the Verio Board or any committee thereof shall have withdrawn or
modified in a manner adverse to NTT Communications or Purchaser its approval
or recommendation of the Offer, the Merger or the Merger Agreement, or
approved or recommended any Takeover Proposal or (ii) the Verio Board or any
committee thereof shall have resolved to take any of the foregoing actions;
(e) the representations and warranties of Verio set forth in the Merger
Agreement shall not be true and correct in each case at the date of the
Merger Agreement and at the scheduled or extended expiration of the Offer
unless the inaccuracies (without giving effect to any materiality or Material
Adverse Effect qualifications or exceptions contained therein) under such
representations and warranties, taking all the inaccuracies under such
representations and warranties together in their entirety, do not,
individually or in the aggregate, result in a Material Adverse Effect on
Verio or unless such inaccuracies are as a result of actions expressly
permitted by the provisions of the Merger Agreement described under "Special
Factors--The Merger Agreement--Covenants Relating to the Conduct of
Business;"
(f) Verio shall have failed to perform any obligation or to comply with
any agreement or covenant of Verio to be performed or complied with by it
under the Merger Agreement (other than any failures which would not have,
either individually or in the aggregate, a Material Adverse Effect on Verio),
which failure to perform or comply, if capable of being cured, continues for
more than 20 business days after the giving of written notice to Verio;
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<PAGE>
(g) any person or "group" (as defined in Section 13(d)(3) of the Exchange
Act), other than NTT Communications, Purchaser or their affiliates or any
group of which any of them is a member, shall have acquired or announced its
intention to acquire beneficial ownership (as determined pursuant to Rule
13d-3 promulgated under the Exchange Act) of 30% or more of the shares of
Common Stock;
(h) there shall have occurred and be continuing (i) any general suspension
of trading in, or limitation on prices for, securities on Nasdaq or any
national securities exchange in the United States (excluding any coordinated
trading halt triggered solely as a result of a specified decrease in a market
index), (ii) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or Japan or (iii) any
limitation (whether or not mandatory) by any Governmental Entity on, or other
event that materially adversely affects, the extension of credit by banks or
other lending institutions, or (iv) a commencement of a war or armed
hostilities or other national or international calamity directly or
indirectly involving the United States or Japan which in any case is
reasonably expected to have a Material Adverse Effect on Verio or to
materially adversely affect NTT Communications' or Purchaser's ability to
complete the Offer and/or the Merger or materially delay the consummation of
the Offer and/or the Merger; or
(i) the Merger Agreement shall have been terminated in accordance with its
terms.
"Material Adverse Change" or "Material Adverse Effect" means any change or
effect that is or could reasonably be expected (as far as can be foreseen at
the time) to be materially adverse to the business, operations, properties or
results of operations or the condition (financial or otherwise), with all such
matters being considered in the aggregate, of Verio and its subsidiaries,
taken as a whole; provided, that none of the following shall be deemed, either
alone or in combination, to have or constitute a Material Adverse Effect on or
a Material Adverse Change with respect to Verio: (i) changes in the market
price or trading volume of Verio's securities, (ii) conditions generally
affecting the internet service provider or web hosting industries, (iii)
general economic and business conditions, and (iv) any disruption of employee,
customer, supplier or other similar relationships, or other events or
circumstances arising out of or resulting from actions contemplated by Verio,
NTT Communications and Purchaser in connection with, or which are attributable
to, the execution and announcement of the Merger Agreement or the identity of
NTT Communications.
The foregoing conditions are for the sole benefit of NTT Communications and
Purchaser and may, subject to the terms of the Merger Agreement, be waived by
NTT Communications and Purchaser in whole or in part at any time and from time
to time in their sole discretion. The failure by NTT Communications or
Purchaser at any time to exercise any of the foregoing rights shall not be
deemed a waiver of any such right, the waiver of any such right with respect
to particular facts and circumstances shall not be deemed a waiver with
respect to any other facts and circumstances and each such right shall be
deemed an ongoing right that may be asserted at any time and from time to
time.
14. Legal Matters; Required Regulatory Approvals.
Except as set forth in this Offer to Purchase, based on our review of
publicly available filings by Verio with the SEC and other information
regarding Verio, we are not aware of any licenses or regulatory permits that
appear to be material to the business of Verio and its subsidiaries, taken as
a whole, and that might be adversely affected by our acquisition of Shares in
the Offer. In addition, except as described in this Offer to Purchase, we are
not aware of any filings, approvals or other actions by or with any
governmental authority or administrative or regulatory agency that would be
required for our acquisition or ownership of the Shares. Should any such
approval or other action be required, we expect to seek such approval or
action, except as described below under "State Takeover Laws." Should any such
approval or other action be required, we cannot be certain that we
78
<PAGE>
would be able to obtain any such approval or action without substantial
conditions or that adverse consequences might not result to Verio's or its
subsidiaries' businesses, or that certain parts of Verio's, NTT's, or any of
their respective subsidiaries' businesses might not have to be disposed of or
held separate in order to obtain such approval or action. In that event, we
may not be required to purchase any Shares in the Offer. See Introduction and
Section 13 for a description of the conditions to the Offer.
State Takeover Laws. The Company is incorporated under the laws of the
State of Delaware. In general, Section 203 of the DGCL ("Section 203")
prevents an "interested stockholder" (including a person who owns or has the
right to acquire 15% or more of a corporation's outstanding voting stock) from
engaging in a "business combination" (defined to include mergers and certain
other actions) with a Delaware corporation for a period of three years
following the date such person became an interested stockholder unless, among
other things, the "business combination" is approved by the Board of Directors
of such corporation prior to such date. The Verio Board has approved the Offer
and the Merger. Accordingly, Section 203 is inapplicable to the Offer and the
Merger. A number of other states have adopted laws and regulations applicable
to attempts to acquire securities of corporations which are incorporated, or
have substantial assets, stockholders, principal executive offices or
principal places of business or whose business operations otherwise have
substantial economic effects in such states. In 1982, the Supreme Court of the
United States, in Edgar v. Mite Corp., invalidated on constitutional grounds
the Illinois Business Takeovers Statute, which as a matter of state securities
law made takeovers of corporations meeting certain requirements more
difficult. The reasoning in that decision is likely to apply to certain other
state takeover statutes. In 1987, however, in CTS Corp. v. Dynamics Corp. of
America, the Supreme Court of the United States held that the State of Indiana
could as a matter of corporate law and, in particular, those aspects of
corporate law concerning corporate governance, constitutionally disqualify a
potential acquiror from voting on the affairs of a target corporation without
the prior approval of the remaining stockholders, as long as those laws were
applicable only under certain conditions. Subsequently, in TLX Acquisition
Corp. v. Telex Corp., a federal district court in Oklahoma ruled that the
Oklahoma statutes were unconstitutional insofar as they apply to corporations
incorporated outside Oklahoma, because they would subject those corporations
to inconsistent regulations. Similarly, in Tyson Foods, Inc. v. McReynolds, a
federal district court in Tennessee ruled that four Tennessee takeover
statutes were unconstitutional as applied to corporations incorporated outside
Tennessee. This decision was affirmed by the United States Court of Appeals
for the Sixth Circuit. In December 1988, a federal district court in Florida
held, in Grand Metropolitan PLC v. Butterworth, that the provisions of the
Florida Affiliated Transactions Act and Florida Control Share Acquisition Act
were unconstitutional as applied to corporations incorporated outside of
Florida.
We have not attempted to comply with any state takeover statutes in
connection with the Offer or the Merger. We reserve the right to challenge the
validity or applicability of any state law allegedly applicable to the Offer
or the Merger, and nothing in this Offer to Purchase nor any action that we
take in connection with the Offer is intended as a waiver of that right. In
the event that it is asserted that one or more takeover statutes apply to the
Offer or the Merger, and it is not determined by an appropriate court that the
statutes in question do not apply or are invalid as applied to the Offer or
the Merger, as applicable, we may be required to file certain documents with,
or receive approvals from, the relevant state authorities, and we might be
unable to accept for payment or purchase Shares tendered in the Offer or be
delayed in continuing or consummating the Offer. In that case, we may not be
obligated to accept for purchase, or pay for, any Shares tendered. See
Section 13.
Antitrust. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), and the related rules and regulations that have
been issued by the Federal Trade Commission (the "FTC"), certain acquisition
transactions may not be consummated until certain information and documentary
material has been furnished for review by the FTC and the Antitrust
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<PAGE>
Division of the Department of Justice (the "Antitrust Division") and certain
waiting period requirements have been satisfied. These requirements apply to
our acquisition of Shares in the Offer and the Merger.
Under the HSR Act, the purchase of Shares in the Offer may not be completed
until the expiration of a 15-calendar-day waiting period following the filing
of certain required information and documentary material concerning the Offer
with the FTC and the Antitrust Division, unless the waiting period is earlier
terminated by the FTC and the Antitrust Division. We expect to file a
Premerger Notification and Report Form under the HSR Act with the FTC and the
Antitrust Division in connection with the purchase of Shares in the Offer and
the Merger no later than May 30, 2000, and, in that event, the required
waiting period with respect to the Offer and the Merger will expire at 11:59
p.m., New York City time, on or about June 14, 2000, unless earlier terminated
by the FTC or the Antitrust Division or we receive a request for additional
information or documentary material prior to that time. If within the 15-
calendar-day waiting period either the FTC or the Antitrust Division requests
additional information or documentary material from us, the waiting period
with respect to the Offer and the Merger would be extended for an additional
period of 10 calendar days following the date of our substantial compliance
with that request. Only one extension of the waiting period pursuant to a
request for additional information is authorized by the HSR Act rules. After
that time, the waiting period could be extended only by court order or with
our consent. The FTC or the Antitrust Division may terminate the additional
10-calendar-day waiting period before its expiration. In practice, complying
with a request for additional information or documentary material can take a
significant period of time. Although Verio is required to file certain
information and documentary material with the FTC and the Antitrust Division
in connection with the Offer, neither Verio's failure to make those filings
nor a request made to Verio from the FTC or the Antitrust Division for
additional information or documentary material will extend the waiting period
with respect to the purchase of Shares in the Offer and the Merger.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as our acquisition of Shares in the
Offer and the Merger. At any time before or after our purchase of Shares, the
FTC or the Antitrust Division could take any action under the antitrust laws
that either considers necessary or desirable in the public interest, including
seeking to enjoin the purchase of Shares in the Offer and the Merger, the
divestiture of Shares purchased in the Offer or the divestiture of substantial
assets of NTT, Verio or any of their respective subsidiaries or affiliates.
Private parties as well as state attorneys general may also bring legal
actions under the antitrust laws under certain circumstances. See Section 13.
Based upon an examination of publicly available information relating to the
businesses in which Verio is engaged, we believe that the acquisition of
Shares in the Offer and the Merger should not violate the applicable antitrust
laws. Nevertheless, we cannot be certain that a challenge to the Offer and the
Merger on antitrust grounds will not be made, or, if such challenge is made,
what the result will be. See Section 13.
Exon-Florio Amendment. Section 721 of the Defense Production Act of 1950,
as amended (the "Exon-Florio Amendment") authorizes the President of the
United States or his designee to make an investigation to determine the
effects on national security of mergers, acquisitions and takeovers by or with
foreign persons which could result in foreign control of persons engaged in
interstate commerce in the United States. The President has delegated
authority to investigate proposed transactions to the Committee on Foreign
Investment in the United States ("CFIUS").
Reviews under the Exon-Florio Amendment are made in accordance with the
following timetable: (i) within 30 days following the receipt by CFIUS of
written notification of a proposed acquisition, CFIUS must determine whether
to commence an investigation; (ii) if CFIUS commences an investigation, it
must complete the investigation and submit a report and recommendation to the
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President within 45 days following the determination to commence an
investigation; and (iii) the President has 15 days following the completion of
the investigation to take action to suspend or prohibit the relevant
acquisition.
In order for the President to exercise his authority to suspend or prohibit
an acquisition, the President must make two findings: (i) that there is
credible evidence that leads the President to believe that the foreign
interest exercising control might take action that threatens to impair
national security and (ii) that provisions of law other than the Exon-Florio
Amendment and the International Emergency Economic Powers Act do not provide
adequate and appropriate authority for the President to protect the national
security in connection with the acquisition. The President's actions are not
subject to judicial review. If the President makes such findings, he may take
action for such time as he considers appropriate to suspend or prohibit the
relevant acquisition. The President may direct the Attorney General to seek
appropriate relief, including divestment relief, in the District Courts of the
United States in order to implement and enforce the Exon-Florio Amendment.
Absent certain conditions, the Exon-Florio Amendment does not obligate the
parties to an acquisition to notify CFIUS of a proposed transaction. However,
if notice of a proposed acquisition is not submitted, then the transaction
remains indefinitely subject to review by the President under the Exon-Florio
Amendment.
NTT Communications and Verio plan to file with CFIUS a joint notice of the
transactions contemplated by the Merger Agreement. Although NTT Communications
believes that the transactions contemplated by the Merger Agreement should not
raise any national security concerns, there can be no assurance that CFIUS
will not determine to conduct an investigation of the proposed transaction
and, if an investigation is commenced, there can be no assurance regarding the
outcome of such investigation. If the results of such investigation are
adverse to NTT Communications, Purchaser may not be obligated to accept for
payment or pay for any Shares tendered pursuant to the Offer. See Section 13.
Certain Foreign Laws. Verio and certain of its subsidiaries derive revenues
from several foreign countries where regulatory filings or approvals may be
required or desirable in connection with the consummation of the Offer.
Certain of such filings or approvals, if required or desirable, may not be
made or obtained prior to the expiration of the Offer. Purchaser is seeking
further information regarding the applicability of any such laws and currently
intends to take such action as may be required or desirable.
Certain Litigation Matters. Four lawsuits have been filed in the Chancery
Court in and for New Castle County, Delaware by plaintiffs seeking to assert
claims on behalf of a class of all stockholders of Verio. A fifth lawsuit has
been filed in the Colorado State District Court. Each lawsuit names as
defendants Verio and members of the Verio Board, and alleges that the Verio
Board breached its fiduciary duties to the Verio stockholders by entering into
the Merger Agreement allegedly at an inadequate price and without conducting
an adequate process. Three of the complaints additionally name NTT as a
defendant, and allege that NTT aided and abetted the Verio Board's alleged
breaches. Plaintiffs claim to seek injunctive relief against the transaction
and/or damages. Verio and NTT believe that these suits are without merit and
intend to defend the claims vigorously.
15. Fees and Expenses.
Purchaser and NTT Communications have retained Deutsche Bank and Merrill
Lynch to act as Dealer Managers in connection with the Offer. Purchaser has
also agreed to indemnify Deutsche Bank and Merrill Lynch against certain
liabilities and expenses in connection with its engagement, including
liabilities under the federal securities laws.
Purchaser and NTT Communications have retained Morrow & Co., Inc. as
Information Agent in connection with the Offer. The Information Agent may
contact holders of Shares by mail, telephone, telex, telegraph and personal
interview and may request brokers, dealers and other nominee stockholders to
forward material relating to the Offer to beneficial owners of Shares. We will
pay the Information Agent reasonable and customary compensation for these
services in addition to
81
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reimbursing the Information Agent for its reasonable out-of-pocket expenses.
We have agreed to indemnify the Information Agent against certain liabilities
and expenses in connection with the Offer, including certain liabilities under
the federal securities laws.
In addition, Purchaser and NTT Communications have retained Norwest Bank
Minnesota, N.A. as the Depositary. Purchaser and NTT Communications will pay
the Depositary reasonable and customary compensation for its services in
connection with the Offer, will reimburse the Depositary for its reasonable
out-of-pocket expenses and will indemnify the Depositary against certain
liabilities and expenses, including certain liabilities under the federal
securities laws.
The following is an estimate of fees and expenses to be incurred by
Purchaser in connection with the Offer:
<TABLE>
<S> <C>
Financial Advisors.............................................. $20,000,000
Legal........................................................... 2,000,000
Printing........................................................ 250,000
Advertising..................................................... 105,000
Filing.......................................................... 1,176,180
Depositary...................................................... 6,000
Information Agent (including mailing)........................... 40,000
Miscellaneous................................................... 22,820
-----------
$23,600,000
===========
</TABLE>
Except as described in "Special Factors--The Merger Agreement--Fees and
Expenses", Verio will not pay any of the fees and expenses to be incurred by
us in connection with the Offer.
Except as set forth above, we will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of Shares pursuant to
the Offer. We will reimburse brokers, dealers, commercial banks and trust
companies and other nominees, upon request, for customary clerical and mailing
expenses incurred by them in forwarding offering materials to their customers.
16. Miscellaneous.
We are not aware of any jurisdiction where the making of the Offer is
prohibited by any administrative or judicial action pursuant to any valid
state statute. If we become aware of any valid state statute prohibiting the
making of the Offer or the acceptance of the Shares, we will make a good faith
effort to comply with that state statute. If, after a good faith effort, we
cannot comply with the state statute, we will not make the Offer to, nor will
we accept tenders from or on behalf of, the holders of Shares in that state.
In any jurisdiction where the securities, blue sky or other laws require the
Offer to be made by a licensed broker or dealer, the Offer shall be deemed to
be made on behalf of Purchaser by the Dealer Managers or one or more
registered brokers or dealers licensed under the laws of such jurisdiction.
We have filed with the SEC a Tender Offer Statement on Schedule TO,
together with exhibits, furnishing certain additional information with respect
to the Offer, and may file amendments to our Schedule TO. Our Schedule TO and
any exhibits or amendments may be examined and copies may be obtained from the
SEC in the same manner as described in Section 9 with respect to information
concerning Verio.
We have not authorized any person to give any information or to make any
representation on our behalf not contained in this Offer to Purchase or in the
Letter of Transmittal and, if given or made, you should not rely on any such
information or representation as having been authorized.
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Neither the delivery of the Offer to Purchase nor any purchase pursuant to
the Offer will under any circumstances create any implication that there has
been no change in the affairs of NTT, NTT Communications, Purchaser, Verio or
any of their respective subsidiaries since the date as of which information is
furnished or the date of this Offer to Purchase.
CHASER ACQUISITION, INC.
May 17, 2000
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<PAGE>
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF NTT, NTT
COMMUNICATIONS AND PURCHASER
Directors and Executive Officers of NTT
The name, present principal occupation or employment and business address
and material occupations or employment for the past five years of each of the
directors and executive officers (or their Japanese equivalents) of NTT are
set forth below. Unless otherwise indicated below an individual's name, each
individual listed below has a business address of 3-1 Otemachi 2-chome,
Chiyoda-ku, Tokyo 100-8116, Japan. Each individual listed below is a citizen
of Japan.
<TABLE>
<CAPTION>
Name Principal Occupation
==== --------------------
<S> <C>
Shigeo Sawada................ Chairman and Representative Director from June
1996 to Present; Senior Executive Vice President,
Senior Executive Manager of Service Marketing and
Support Headquarters, 1-6 Uchisaiwai-cho 1-chome,
Chiyoda-ku, Tokyo, Japan from July 1993 to June
1996.
Jun-ichiro Miyazu............ President and Representative Director from June
1996 to Present; Senior Executive Vice President,
Senior Executive Manager of the Multimedia Service
Promotion Headquarters from July 1995 to June
1996; Senior Executive Vice President, Senior
Executive Manager of Multimedia Planning and
Promotion Office from June 1995 to July 1995;
Senior Executive Vice President, Senior Executive
Manager of Multimedia Planning and Promotion
Office from June 1994 to June 1995.
Norio Wada................... Senior Executive Vice President and Representative
Director from July 1999 to Present; Executive Vice
President and Senior Executive Manager of NTT-
Holding Provisional Headquarters from January 1999
to July 1999; Senior Executive Vice President and
Senior Executive Manager of Affiliated Business,
NTT-Holding Provisional Headquarters, 19-2 Nishi-
shinjuku 3-chome, Shinjuku-ku, Tokyo, Japan from
June 1998 to January 1999; Executive Vice
President and Senior Executive Manager of
Affiliated Business Headquarters, from June 1997
to June 1998; Senior Vice President and Senior
Executive Manager of Affiliated Business
Headquarters from June 1996 to June 1997; Senior
Vice President and General Manager of Tohoku
Regional Communications Sector, 2-1 Itsutsubashi
3-chome, Sendai-shi, Miyagi, Japan from June 1992
to June 1996.
Yusuke Tachibana............. Senior Executive Vice President and Representative
Director from July 1999 to Present; President of
Nippon Leisure Card-System Co., Ltd. Inc., 1-22
Muromachi 4-chome, Nihonbashi, Chuo-ku, Tokyo,
Japan from June 1996 to July 1999; Executive Vice
President and Chief Operating Officer, Industrial
Systems Sector of NTT Data Communications
Corporation, 3-3 Toyosu 3-chome, Koto-ku, Tokyo,
Japan from April 1994 to June 1996.
</TABLE>
I-1
<PAGE>
<TABLE>
<CAPTION>
Name Principal Occupation
==== --------------------
<S> <C>
Kunihiro Kato................ Senior Vice President and Director, NTT Cyber
Communications Laboratory Group, 1-1 Hikarinooka,
Yokosuka-shi, Kanagawa, Japan from July 1999 to
Present; Senior Vice President, NTT Cyber
Communications Laboratory Group, NTT-Holding
Provisional Headquarters from January 1999 to July
1999; Senior Vice President, Executive Manager of
NTT Multimedia System Laboratory Group and
Executive Director of NTT Multimedia Service
Promotion Headquarters from June 1997 to July
1999; Vice President, Senior Executive Manager of
NTT Multimedia System Laboratory Group, 1-2356
Take, Yokosuka-shi, Kanagawa, Japan from June 1996
to June 1997; Vice President, Executive Manager of
NTT Human Interface Laboratories from July 1995 to
June 1996; Vice President, Executive Manager of
Engineering Planning Headquarters from July 1993
to July 1995.
Kanji Koide.................. Senior Vice President, Executive Manager of
Department I and Director from July 1999 to
Present; Senior Vice President, Executive Manager
of Corporate Strategy Planning Office and
Executive Manager of Department I of NTT-Holding
Provisional Headquarters from January 1999 to July
1999; Senior Vice President and Executive Manager
of Marketing Strategy Department from June 1997 to
January 1999; Vice President and Executive Manager
of Marketing Strategy Promotion Department from
June 1996 to June 1997; Vice President and
Executive Manager of Marketing Strategy Department
from June 1995 to June 1996; Executive Manager of
Business Communications Headquarters, 9-1 Konan 1-
chome, Minato-ku, Tokyo, Japan from July 1994 to
June 1995.
Shigehiko Suzuki............. Senior Vice President, Director, Executive
Director of Department III and Executive Director
of Information Sharing Laboratory Group from July
1999 to Present; Senior Vice President, Executive
Director of Department III, NTT-Holding
Provisional Headquarters, and Executive Director
of Information Sharing Laboratory Group, NTT-
Holding Provisional Headquarters from January 1999
to July 1999; Senior Vice President, Deputy
Director General of NTT R&D Group, from July 1998
to January 1999; Senior Vice President, Director
of Telecommunication Network Laboratory Group, 9-
11 Midori-cho 3-chome, Musashino-shi, Tokyo, Japan
from June 1997 to July 1998; Vice President,
Director of Telecommunication Network Laboratory
Group, October 1996 to June 1997; Vice President,
Director of Network Service System Laboratories
from July 1996 to October 1996; Vice President,
Director of Network Service System Laboratories
from June 1995 to July 1996;
</TABLE>
I-2
<PAGE>
<TABLE>
<CAPTION>
Name Principal Occupation
==== --------------------
<S> <C>
Director of Network Service System Laboratories
from July 1994 to June 1995.
Hiromi Wasai................. Senior Vice President, Director and General
Manager of Business Development, NTT, Senior Vice
President of NTT Communications Corporation from
July 1999 to Present; Vice President, Executive
Manager, NTT-Holding Provisional Headquarters from
January 1999 to July 1999; Vice President, Deputy
General Manager of NTT-Holding Organizational
Office from June 1998 to January 1999; Vice
President, Deputy General Manager of Corporate
Strategy Planning Office from June 1996 to June
1998; Deputy General Manager of Corporate Strategy
Planning Office, from July 1995 to June 1996;
Deputy Executive Manager of Personnel Department
from August 1993 to July 1995.
Toyohiko Takabe.............. Senior Vice President, Executive Director of
Deparment V from July 1999 to Present; Vice
President, General Manager of Reorganization
Office and Executive Director of Department V,
NTT-Holding Provisional Headquarters from January
1999 to July 1999; Vice President, Executive
Manager, Co-ordination and Liaison Department from
June 1998 to January 1999; Vice General Manager of
Reorganization Planning Office from April 1997 to
June 1998; Vice President, General Manager of
Reorganization Planning Office, 2-3 Uchisaiwai-cho
2-chome, Chiyoda-ku, Tokyo, Japan from December
1996 to April 1997; Vice President, Senior
Manager, Multimedia Service Department from June
1996 to December 1996; Senior Manager of
Multimedia Service Department from July 1995 to
June 1996; General Manager of Multimedia Planning
and Promotion Office from February 1994 to July
1995.
Takashi Imai................. Senior Vice President of NTT Holding Company from
July 1999 to Present; Chairman of Japan Federation
of Economic Organizations, 9-4 Otemachi 1-chome,
Chiyoda-ku, Tokyo, Japan from May 1998 to Present;
Chairman, Nippon Steel Corporation, 6-3 Otemachi
2-chome, Chiyoda-ku, Tokyo, Japan from April 1998
to Present; President of Nippon Steel Corporation
from June 1993 to July 1999.
Yotaro Kobayashi............. Senior Vice President of NTT Holding Company from
July 1999 to Present; Chairman of Japan
Association of Corporate Executives, 4-5
Marunouchi 1-chome, Chiyoda-ku, Tokyo, Japan from
April 1999 to Present; Chairman of Fuji Xerox Co.,
Ltd., 17-22 Akasaka 2-chome, Chiyoda-ku, Tokyo,
Japan from January 1992 to Present.
</TABLE>
I-3
<PAGE>
Directors and Executive Officers of NTT Communications
The name and present principal occupation or employment and material
occupations or employment for the past five years of each of the directors and
executive officers of NTT Communications are set forth below. Unless otherwise
indicated, each individual listed below has a business address of 1-6
Uchisaiwa-cho, 1-chome, Chiyoda-ku, Tokyo 100-8019, Japan and is a citizen of
Japan.
<TABLE>
<CAPTION>
Directors/Officers Principal Occupation
------------------ --------------------
<S> <C>
Masanobu Suzuki.............. President and CEO, NTT Communications,1-6
Uchisaiwai-cho, 1-chome Chiyoda-ku, Tokyo, Japan
from July 1999 to Present; Executive Vice Presi-
dent, Senior Executive Manager of NTT-Long Dis-
tance and Global Provisional Headquarters, NTT
from January 1999 to July 1999; Executive Vice
President, NTT Senior Executive Manager of Global
Business Headquarters, Senior Executive Manager of
NTT-Long Distance and Global Organizational Of-
fice, NTT from June 1998 to January 1999; Execu-
tive Vice President, Senior Executive Manager of
Global Business Headquarters, NTT from June 1997
to June 1998; Executive Vice President, Deputy Se-
nior Executive Manager of International Affairs
Headquarters, NTT from February 1997 to June 1997;
Executive Vice President, Executive Manager of
Sales & Marketing Department, Business Communica-
tions Headquarters, Deputy Senior Executive Man-
ager of International Affairs Headquarters, NTT
from July 1996 to February 1997; Executive Vice
President, Executive Manager of Sales & Marketing
Department, Business Communications Headquarters,
NTT from June 1996 to July 1996; Senior Vice Pres-
ident, Executive Manager of Sales & Marketing De-
partment, Business Communications Headquarters,
NTT from July 1994 to June 1996.
Tadayuki Arai................ Senior Executive Vice President, NTT Communica-
tions from July 1999 to Present; Executive Vice
President, Executive Manager of NTT-Long Distance
and Global Provisional Headquarters, NTT from Jan-
uary 1999 to July 1999; Executive Vice President,
Executive Manager of Public Telephone Service De-
partment, NTT from June 1998 to January 1999; Se-
nior Vice President, Executive Manager of Sales &
Marketing Department, Business Communications
Headquarters, NTT from May 1998 to June 1998; Se-
nior Vice President, Executive Manager of Sales &
Marketing Department, Business Communications
Headquarters, NTT from June 1995 to May 1998; Vice
President, Senior Manager of Service Marketing and
Support Headquarters, NTT from September 1994 to
June 1995.
Katsuya Okimi................ Senior Executive Vice President, NTT
Communications from October 1999 to Present;
Senior Executive Vice President, General Manager
of Global Business Division, NTT Communications
from July 1999 to October 1999;
</TABLE>
I-4
<PAGE>
<TABLE>
<CAPTION>
Directors/Officers Principal Occupation
------------------ --------------------
<S> <C>
Executive Vice President, Executive Manager of
NTT-Long Distance and Global Provisional
Headquarters, Executive Manager of Global Business
Division, NTT-Long Distance and Global Provisional
Headquarters, NTT from January 1999 to July 1999;
Executive Vice President, Executive Manager of
Network Strategy Planning Department, Deputy
Senior Executive Manager of Global Business
Headquarters, NTT from June 1998 to January 1999;
Senior Vice President, Executive Manager of
Network Strategy Planning Department, NTT from
June 1997 to June 1998; Vice President, Executive
Manager of Sales & Marketing Department, Business
Communications Headquarters, Executive Manager of
Visual Communications Headquarters, NTT from July
1996 to June 1997; Vice President, Executive
Manager of Sales & Marketing Department, Business
Communications Headquarters, NTT from July 1994 to
July 1996.
Mamoru Ishida................ Executive Vice President, General Manager of Solu-
tion Business Division, NTT Communications from
July 1999 to Present; Executive Vice President,
Executive Manager of Solution Business Division,
NTT-Long Distance and Global Provisional Headquar-
ters, Executive Manager of Business Communications
Department Solution Business Division, NTT from
January 1999 to July 1999; Senior Vice President,
Executive Manager of Business Communications Head-
quarters, Executive Manager of Sales & Marketing
Department, NTT from June 1998 to January 1999;
Vice President, Executive Manager of Sales & Mar-
keting Department, Business Communications Head-
quarters, NTT from May 1998 to June 1998; Senior
Vice President Executive Manager of Sales & Mar-
keting Department, Business Communications Head-
quarters, NTT from June 1997 to May 1998; Vice
President, Senior Manager, Sales & Marketing De-
partment, Business Communications Headquarters,
NTT from July 1995 to June 1997; Senior Manager,
Sales & Marketing Department, Business Communica-
tions Headquarters, NTT from July 1994 to July
1995.
Shuji Tomita................. Senior Vice President, General Manager of Media
Technology Factory, NTT Communications from July
1999 to Present; Vice President, Executive Manager
of Media Technology Factory, NTT-Long Distance and
Global Provisional Headquarters, NTT from January
1999 to July 1999; Vice President, Senior Manager
of Global Business Headquarters, NTT from July
1996 to January 1999; Vice President, Senior
Manager of New Business Development Section,
Affiliated Business Headquarters, NTT from June
1994 to July 1996.
</TABLE>
I-5
<PAGE>
<TABLE>
<CAPTION>
Directors/Officers Principal Occupation
------------------ --------------------
<S> <C>
Yuichi Kawamori.............. Senior Vice President, General Manager of Sales &
Marketing Department, Solution Business Division,
NTT Communications from July 1999 to Present; Vice
President, Executive Manager of Sales & Marketing
Department, Solution Business Division, NTT-Long
Distance and Global Provisional Headquarters,
Executive Manager of Strategy Planning Department,
Solution Business Division, NTT-Long Distance and
Global Provisional Headquarters, NTT from January
1999 to July 1999; Vice President, Executive
Manager of Sales & Marketing Department, Business
Communications Headquarters I, Executive Manager
of Strategy Planning Department, Business
Communications Headquarters I, NTT from June 1998
to January 1999; Vice President, Senior Manager of
Sales & Marketing Department, Business
Communications Headquarters I, Executive Manager
of Strategy Planning Department, Business
Communications Headquarters I, NTT from May 1998
to June 1998; Vice President, Senior Manager of
Sales & Marketing Department, NTT from July 1997
to May 1998; Senior Manager of Sales & Marketing
Department, NTT from June 1996 to July 1997;
Deputy Senior Manager, Telephone Directory
Department, NTT from July 1992 to June 1996.
Hideya Inoue................. Senior Vice President, General Manager of Sales &
Marketing Department, Solution Business Division,
NTT Communications from July 1999 to Present; Vice
President, Executive Manager of Sales & Marketing
Department, Solution Business Division, NTT-Long
Distance and Global Provisional Headquarters, NTT
from January 1999 to July 1999; Vice President,
Executive Manager of Sales & Marketing Department,
Business Communications Headquarters I, Executive
Manager of Visual Communications Sector, NTT from
May 1998 to January 1999; Vice President, Execu-
tive Manager of Sales & Marketing Department,
Business Communications Headquarters, Executive
Manager of Visual Communications Sector, NTT from
June 1997 to May 1998; Vice President, Executive
Manager of System Service Department, Business
Communications Headquarters, NTT from June 1996 to
June 1997; Executive Manager of System Service De-
partment, Business Communications Headquarters,
NTT from June 1995 to June 1996; Senior Manager of
System Service Department, Business Communications
Headquarters, NTT from March 1995 to June 1995;
Executive Manager, Kansai Regional Communications
Sector, NTT, 15 Chuobaba-cho, 3-chome Osaka-si,
Osaka from July 1991 to March 1995.
Isamu Satoki................. Senior Vice President, General Manager of Consumer
& Office Users Business Division, NTT
Communications
</TABLE>
I-6
<PAGE>
<TABLE>
<CAPTION>
Directors/Officers Principal Occupation
------------------ --------------------
<S> <C>
from July 1999 to Present; Vice President, Execu-
tive Manager of Consumer & Office Users Business
Division, NTT-Long Distance and Global Provisional
Headquarters, NTT from January 1999 to July 1999;
Vice President, Executive Manager of Sales & Mar-
keting Department, Business Communications Head-
quarters I, NTT from July 1998 to January 1999;
Executive Manager, Sales & Marketing Department,
Business Communications Headquarters I, NTT from
May 1998 to July 1998; Executive Manager, Sales &
Marketing Department, Business Communications
Headquarters, NTT from October 1997 to May 1998;
Senior Manager, Sales & Marketing Department,
Business Communications Headquarters, NTT from
July 1994 to October 1997.
Shunsuke Amiya............... Senior Vice President, General Manager of
Corporate Planning Department, General Manager of
Personnel Department, General Manager of Training
Institute, NTT Communications from July 1999 to
Present; Vice President, Executive Manager of
Corporate Planning Department, NTT-Long Distance
and Global Provisional Headquarters, Executive
Manager of Personnel Department, NTT-Long Distance
and Global Provisional Headquarters, Executive
Manager of Training Institute, NTT-Long Distance
and Global Provisional Headquarters, NTT from
January 1999 to July 1999; Vice President,
Executive Manager of NTT-Long Distance and Global
Organizational Office, NTT from July 1998 to
January 1999; Executive Manager of NTT-Long
Distance and Global Organizational Office, NTT
from June 1998 to July 1998; Executive Manager of
Reorganization Planning Office, NTT from August
1997 to June 1998; Deputy Executive Manager of
Long-Distance Communications Sector, NTT, 19-20
Tsukiji, 6-chome Chuo-ku, Tokyo, Japan from July
1996 to August 1997; Senior Manager of Network
Services Department, Business Communications
Headquarters, NTT from July 1994 to July 1996.
Yoshio Sakata................ Senior Vice President, General Manager of Network
Business Division, NTT Communications, from July
1999 to Present; Vice President, General Manager
of Network Business Division, NTT-Long Distance
and Global Provisional Headquarters, NTT from
January 1999 to July 1999; Vice President, Senior
Executive Manager, Long-distance Communications
Sector, NTT from July 1998 to January 1999; Senior
Executive Manager, Long-distance Communications
Sector, NTT from June 1998 to July 1998; Deputy
Senior Executive Manager, Long-distance
Communications Sector, NTT from August 1997 to
June 1998; General Manager, Chuo Network Center,
NTT from March 1995 to August 1997; General
</TABLE>
I-7
<PAGE>
<TABLE>
<CAPTION>
Directors/Officers Principal Occupation
------------------ --------------------
<S> <C>
Manager, Kochi Branch office, NTT, 5-11 Obiyacho,
2-chome, Kochi-shi, Kochi, Japan, from August 1992
to March 1995.
Hisao Iizuka................. Senior Vice President, General Manager, Corporate
Users Business Division, NTT Communications from
July 1999 to Present; Vice President, General Man-
ager, Corporate Users Business Division, NTT-Long
Distance and Global Provisional Headquarters, NTT
from January 1999 to July 1999; Vice President,
Executive Manager, Procurement and Supply Depart-
ment, Executive Manager, International Procure-
ment, NTT, 20-2 Nishishinjuku, 3-chome, Shinjuku-
ku, Tokyo, Japan from July 1998 to January 1999;
Executive Manager, Procurement & Supply Depart-
ment, Executive Manager, International Procure-
ment, NTT from June 1997 to July 1998; Executive
Manager, Multimedia Business Development Depart-
ment, NTT from July 1995 to June 1997; Executive
Manager, Service Planning Department, NTT from Au-
gust 1994 to July 1995.
Kiyoshi Isozaki.............. Executive Vice President, NTT Communications, 14-1
Nishishinbashi 1-chome, Minato-ku, Tokyo, Japan
from July 1999 to Present; Vice President, Execu-
tive Manager, Global Business Division, NTT-Long
Distance and Global Provisional Headquarters, NTT
from January 1999 to July 1999; Vice President,
Executive Manager, Global Business Division, NTT
from July 1998 to January 1999; President and CEO,
NTT Worldwide Telecommunications Corporation from
July 1997 to July 1998; Vice President, Executive
Manager, Global Business Headquarters, NTT during
July 1997; Vice President, Executive Manager,
Sales & Marketing Department, Business Communica-
tions Headquarters, NTT from June 1995 to July
1997; Vice President, Executive Manager, Sales &
Marketing Department, Business Communications
Headquarters, NTT from July 1995 to July 1997; Se-
nior Manager, System Development Technology Cen-
ter, NTT Data from August 1993 to July 1995.
Satoshi Fujita............... Senior Vice President, General Manager, Global
Business Division, NTT Communications from October
1999 to Present; Senior Vice President, NTT Commu-
nications from July 1999 to October 1999; Vice
President, Senior Manager, Global Business Divi-
sion, NTT-Long Distance and Global Provisional
Headquarters, NTT from January 1999 to July 1999;
Vice President, Director, Global Business Head-
quarters, NTT, President, Chief Executive Officer,
NTT Worldwide Network Corporation from October
1997 to January 1999; Vice President, Executive
Manager, Sales & Marketing Department IV, Business
Communications Headquarters, International Affairs
Department, NTT from July 1996 to October 1997;
Vice
</TABLE>
I-8
<PAGE>
<TABLE>
<CAPTION>
Directors/Officers Principal Occupation
------------------ --------------------
<S> <C>
President, Senior Manager, International Affairs
Department, NTT from June 1996 to July 1996;
Senior Manager, International Affairs Department,
NTT from June 1996 to July 1996; Deputy General
Manager, Shinetsu Regional Communications Sector,
NTT, 1137-5 Shinden-cho, Nagano-shi, Nagano from
July 1994 to June 1996.
Hiromi Wasai................. Senior Vice President, General Manager of Business
Development, NTT, Senior Vice President of NTT
Communications Corporation from July 1999 to
Present; Vice President, Executive Manager, NTT-
Holding Provisional Headquarters from January 1999
to July 1999; Vice President, Deputy General
Manager of NTT-Holding Organizational Office from
June 1998 to January 1999; Vice President, Deputy
General Manager of Corporate Strategy Planning
Office from June 1996 to June 1998; Deputy General
Manager of Corporate Strategy Planning Office from
July 1995 to June 1996; Deputy Executive Manager
of Personnel Department from August 1993 to July
1995.
</TABLE>
Directors and Executive Officers of Purchaser
The name and present principal occupation or employment and business address
and material occupations or employment for the past five years of each of the
directors and executive officers of Purchaser is set forth below. Each
individual listed below is a citizen of Japan.
<TABLE>
<CAPTION>
Directors/Officers Principal Occupation
------------------ --------------------
<S> <C>
Junichi Nomura............... Presently Chairman, President and Director; Senior
Manager of Corporate Users Business Division, Ex-
ecutive Vice President of NTT PC Communications,
Inc. from July 1999 to Present; Senior Manager,
Corporate Users Business Division, NTT-Long Dis-
tance and Global Provisional Headquarters, from
January 1999 to July 1999; Senior Manager, New
Business Development Section Affiliated Business
Development Headquarters, 1-11 Shinbashi, 6-chome
Minato-ku, Tokyo, Japan from June 1996 to January
1999; Senior Manager of Group Business from July
1991 to July 1996.
Yoshio Katsumata............. Presently Vice President and Secretary and
Director; Senior Manager, Global Business Division
from July 1999 to Present; Senior Manager, Global
Business Division, NTT-Long Distance and Global
Provisional Headquarters from January 1999 to July
1999; Senior Manager, Global Business Headquarters
from April 1998 to July 1999; Manager, Global
Business Headquarters from November 1997 to April
1998; Manager, New Business Development Section
Affiliated Business Headquarters from July 1996 to
November 1997; Manager, New Technology & Business
Development Affiliated Business Development
Headquarters from March 1995 to July 1996.
</TABLE>
I-9
<PAGE>
SCHEDULE II
The following table sets forth information concerning transactions in
Verio's Common Stock or Preferred Stock during (i) the past two fiscal years
by NTT and its subsidiaries, (ii) during the past 60 days by the directors and
executive officers of NTT or its subsidiaries, and (iii) during the past 60
days by Verio, its subsidiaries, their respective directors and executive
officers and any pension, profit sharing or similar plan of Verio. Unless set
forth below, all transactions listed below involved open-market purchases or
sales of Verio's common stock.
NTT, Subsidiaries and Directors and Executive Officers
1. May 15, 1998--NTT purchased 8,987,757 shares of Common Stock (after
giving effect to a 2 for 1 stock split on August 20, 1999) from Verio.
2. NTT Rocky, Inc., an indirectly wholly owned subsidiary of NTT, was
granted options by Verio on September 11, 1998 to purchase 60,000 shares
(after giving effect to a 2 for 1 stock split on August 20, 1999) of Common
Stock under Verio's 1998 Non-Employee Director Stock Incentive Plan.
Options to purchase an additional 6,000 shares of Common Stock were issued
by Verio to NTT Rocky, Inc. under the same Plan on April 27, 2000.
Verio, Subsidiaries and Directors and Executive Officers
1. On March 15, 2000, Justin L. Jaschke exercised: (i) 62,735 vested stock
options under Verio's 1996 Stock Option Plan at a price per share of $1.50 and
(ii) 14,814 vested stock options under Verio's 1998 Stock Incentive Plan at a
price per share of $6.75. On March 20, 2000, Mr. Jaschke exercised 14,814
vested stock options under Verio's 1998 Stock Incentive Plan at a price per
share of $6.75. All of these transactions were effected in New York City.
2. On March 17, 2000, Verio entered into an equity swap transaction in New
York City with Verio, LLC, a wholly owned unrestricted subsidiary of Verio,
and Salomon Brothers Holding Company Inc. pursuant to which Verio, LLC sold
640,000 shares of Common Stock at a price of $52.50 per share to Salomon
Brothers Holding Company Inc. for proceeds in the amount of $33,600,000. In
connection with the equity swap transaction, Verio, LLC also pledged 1,360,000
shares of Common Stock to Salomon Smith Barney Inc. pursuant to the terms of a
Pledge Agreement, dated as of March 17, 2000 (the "Pledge Agreement").
3. On March 20, 2000, Steven C. Halstedt gifted 12,000 shares of Common
Stock to a donee.
4. On April 3, 2000, James C. Allen exercised 20,000 vested stock options
under Verio's 1998 Non-Employee Director Stock Incentive Plan at a price per
share of $10.75. The transaction was effected in New York City.
5. On April 5, 2000, the Verio Board of Directors authorized an additional
capital contribution of 1,500,000 shares of Common Stock to Verio, LLC. On
April 10, 2000, 773,000 of these 1,500,000 additional shares of Common Stock
were pledged to Salomon Smith Barney Inc., pursuant to the terms of the Pledge
Agreement. On April 25, 2000, the remaining 727,000 shares of Common Stock
authorized for issuance to Verio, LLC were also pledged to Salomon Smith
Barney Inc., pursuant to the terms of the Pledge Agreement. All of these
transactions were effected in New York City.
6. On May 12, 2000, a total of 62,915 shares of Common Stock were purchased
under the Verio 1998 Employee Stock Purchase Plan for the account of
participating employees of Verio, including the following executive officers,
with the respective shares purchased by each executive officer set forth
below: (i) Justin L. Jaschke purchased 480 shares of Common Stock at an
exercise price of $34.2125 per share; (ii) Sean G. Brophy purchased 29 shares
of Common Stock at an exercise price of $34.2125
II-1
<PAGE>
per share; (iii) Chris J. DeMarche purchased 292 shares of Common Stock at an
exercise price of $34.2125 per share; and (iv) Peter B. Fritzinger purchased
314 shares of Common Stock at an exercise price of $34.2125 per share. The
transactions were effected in New York City.
7. On May 15, 2000, Carla Hamre Donelson gifted 6,500 shares of Common
Stock to certain donees. The transaction was effected in Englewood, Colorado.
8. On May 16, 2000, Providence Equity Partners Inc. exercised 20,000 vested
stock options under Verio's 1998 Non-Employee Director Stock Incentive Plan at
a price per share of $10.75. The transaction was effected in New York City.
9. Effective on May 17, 2000, Verio re-purchased from former Verio employee
Deb M. Gahan 12,000 shares of Common Stock. The price paid by Verio for the
repurchased shares was $1.50 per share, reflecting the same price Ms. Gahan
paid to exercise options to purchase the 12,000 shares of Common Stock. The
transaction was effected in Englewood, Colorado pursuant to repurchase rights
granted to Verio in connection with the early exercise by Ms. Gahan of
unvested stock options.
II-2
<PAGE>
Annex A
May 7, 2000
Board of Directors
Verio Inc.
8005 South Chester Street, Suite 200
Englewood, CO 80112
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of common stock, par value $.001 per share ("Company
Common Stock"), of Verio Inc. (the "Company"), and the holders of the
Company's 6.75% Series A Convertible Preferred Stock, liquidation preference
$50.00 per share ("Preferred Stock"), of the consideration to be received by
such holders pursuant to the Agreement and Plan of Merger, dated as of May 7,
2000 (the "Merger Agreement"), among NTT Communications Corporation
("Parent"), Chaser Acquisition, Inc. ("Sub"), a wholly owned subsidiary of
Parent, and the Company. Each share of Preferred Stock is currently
convertible into 1.0356 shares of Company Common Stock. Pursuant to the Merger
Agreement, Sub will make an offer (the "Offer") to purchase all of the issued
and outstanding shares of Company Common Stock at a price per share of $60 and
any and all of the issued and outstanding shares of Preferred Stock at a price
per share of $62.136, including certain additional amounts in respect of
dividends in certain circumstances, in each case net to the seller in cash,
without interest thereon. Pursuant to the Merger Agreement, following the
consummation of the Offer, Sub will be merged (the "Merger") with an into the
Company. In the Merger, each issued and outstanding share of Company Common
Stock and Preferred Stock (other than shares owned directly or indirectly by
Parent or the Company and any shares the subject of appraisal rights) will be
converted into the right to receive the price per share of Company Common
Stock or Preferred Stock, as applicable, paid in the Offer.
In connection with rendering our opinion, we have reviewed certain publicly
available information concerning the Company and certain other financial
information concerning the Company that were provided to us by the Company. We
have discussed the past and current business operations, financial conditions
and prospects of the Company with certain officers and employees of the
Company. With the Company's consent, we did not review the Company's financial
forecasts for the Company. Subject to the foregoing, we have also considered
such other information, financial studies, analyses, investigations and
financial, economic and market criteria that we deemed relevant.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of the information reviewed by
us for the purpose of this opinion and we have not assumed any responsibility
for independent verification of such information. Without limiting the
generality of the foregoing, we have relied on advice from the Company
regarding the conversion price adjustment and voting provisions of the terms
of the Preferred Stock in the event of a merger involving the Company. We have
not assumed any responsibility for any independent evaluation or appraisal of
any of the assets (including properties and facilities) or liabilities of the
Company.
Our opinion is necessarily based upon conditions as they exist and can be
evaluated on the date hereof. Our opinion does not address the Company's
underlying business decision to enter into the Merger or the Merger Agreement,
and we express no view on the effect on the Company of the
SALOMON SMITH BARNEY INC. 388 Greenwich Street, New York, NY 10013
A-1
<PAGE>
Offer, the Merger and related transactions. Our opinion is directed only to
the fairness, from a financial point of view, of the consideration to be
received in the Offer and the Merger by holders of Company Common Stock and
Preferred Stock. Our opinion does not address the fairness of the allocation
between the Company Common Stock and the Preferred Stock of the aggregate
merger consideration to be paid in the transactions. Our opinion does not
constitute a recommendation concerning (i) whether holders of Company Common
Stock or Preferred Stock should accept the Offer, (ii) how holders of Company
Common Stock should vote with respect to the Merger Agreement or the Merger or
(iii) whether holders of Company Common Stock or Preferred Stock should
exercise appraisal rights in connection with the Merger.
We have acted as financial advisor to the Board of Directors of the Company
in connection with the Merger and will receive a fee for our services, a
significant portion of which is contingent upon consummation of the Merger. In
the ordinary course of business, we and our affiliates may actively trade the
securities of the Company and Parent for our own account and for the accounts
of customers and, accordingly, may at any time hold a long or short position
in such securities. In addition, we and our affiliates have previously
rendered certain investment banking and financial advisory services to the
Company and Parent for which we have received customary compensation. We and
our affiliates (including Citigroup Inc.) may have other business
relationships with the Company or Parent in the ordinary course of their
businesses.
Based upon and subject to the foregoing, it is our opinion that (a) as of
the date hereof, the consideration to be received in the Offer and the Merger,
taken together, by holders of Company Common Stock is fair to such holders
(other than Parent) from a financial point of view and (b) as of the date
hereof, the consideration to be received in the Offer and the Merger, taken
together, by holders of Preferred Stock is fair to such holders from a
financial point of view.
Very truly yours,
Salomon Smith Barney Inc.
A-2
<PAGE>
Annex B
[DEUTSCHE LETTERHEAD]
May 7, 2000
Board of Directors
NTT Communications Corporation
1-1-6 Uchisaiwai-cho
Chiyoda-ku, Tokyo 100-8019
JAPAN
Ladies and Gentlemen:
Deutsche Bank Securities Inc. ("Deutsche Bank") has acted as financial advisor
to NTT Communications Corporation ("Client") in connection with the proposed
acquisition by Client of Verio Inc. (the "Company") pursuant to the Agreement
and Plan of Merger dated as of May 7, 2000 among Client, Chaser Acquisition,
Inc. ("Acquisition Sub") and the Company (the "Merger Agreement"), which
provides, among other things, for a tender offer by Acquisition Sub for all of
the issued and outstanding shares of common stock of the Company for US$60 per
share and all of the issued and outstanding shares of preferred stock of the
Company for US$62.136 per share (the "Offer") and the merger of Acquisition
Sub with and into the Company (the "Merger" and, together with the Offer, the
"Transaction") as a result of which each outstanding share of common stock of
the Company not owned by Client or its subsidiaries will be converted into a
right to receive US$60, each outstanding share of preferred stock of the
Company not owned by Client or its subsidiaries will be converted into a right
to receive US$62.136 and the Company will become a wholly owned indirect
subsidiary of Client. The terms and conditions of the Transaction are more
fully set forth in the Merger Agreement.
You have requested Deutsche Bank's opinion, as investment bankers, as to the
fairness, from a financial point of view, to Client of the consideration to be
paid by Client in the Transaction.
In connection with Deutsche Bank's role as financial advisor to Client, and in
arriving at its opinion, Deutsche Bank has reviewed certain publicly available
financial and other information concerning Client and the Company and certain
internal analyses and other information furnished to it by Client and the
Company. Deutsche Bank has also held discussions with members of the senior
managements of Client and the Company regarding the businesses and prospects
of their respective companies and the joint prospects of a combined company.
In addition, Deutsche Bank has (i) reviewed the reported prices and trading
activity for the Company's common stock, (ii) compared certain financial and
stock market information for the Company with similar information for certain
companies whose securities are publicly traded, (iii) reviewed the financial
terms of certain recent business combinations which it deemed comparable in
whole or in part, (iv) reviewed the terms of the Merger Agreement and certain
related documents, and (v) performed such other studies and analyses and
considered such other factors as it deemed appropriate.
Deutsche Bank has not assumed responsibility for independent verification of,
and has not independently verified, any information, whether publicly
available or furnished to it, concerning Client or the Company,
B-1
<PAGE>
[DEUTSCHE LOGO]
NTT Communications Corporation
May 7, 2000
Page 2
including, without limitation, any financial information, forecasts or
projections considered in connection with the rendering of its opinion.
Accordingly, for purposes of its opinion, Deutsche Bank has assumed and relied
upon the accuracy and completeness of all such information and Deutsche Bank
has not conducted a physical inspection of any of the properties or assets, and
has not prepared or obtained any independent evaluation or appraisal of any of
the assets or liabilities, of Client or the Company. With respect to the
financial forecasts and projections, including the analyses and forecasts of
certain cost savings, operating efficiencies, revenue effects and financial
synergies expected by Client to be achieved as a result of the Transaction
(collectively, the "Synergies"), made available to Deutsche Bank and used in
its analyses, Deutsche Bank has assumed that they have been reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
management of Client or the Company, as the case may be, as to the matters
covered thereby. In rendering its opinion, Deutsche Bank expresses no view as
to the reasonableness of such forecasts and projections, including the
Synergies, or the assumptions on which they are based. Deutsche Bank's opinion
is necessarily based upon economic, market and other conditions as in effect
on, and the information made available to it as of, the date hereof.
For purposes of rendering its opinion, Deutsche Bank has assumed that, in all
respects material to its analysis, the representations and warranties of
Client, Acquisition Sub and the Company contained in the Merger Agreement are
true and correct, Client, Acquisition Sub and the Company will each perform all
of the covenants and agreements to be performed by it under the Merger
Agreement, and all conditions to the obligations of each of Client, Acquisition
Sub and the Company to consummate the Transaction will be satisfied without any
waiver thereof. Deutsche Bank has also assumed that all material governmental,
regulatory or other approvals and consents required in connection with the
consummation of the Transaction will be obtained and that in connection with
obtaining any necessary governmental, regulatory or other approvals and
consents, or any amendments, modifications or waivers to any agreements,
instruments or orders to which either Client or the Company is a party or is
subject or by which it is bound, no limitations, restrictions or conditions
will be imposed or amendments, modifications or waivers made that would have a
material adverse effect on Client or the Company or materially reduce the
contemplated benefits of the Transaction to Client.
This opinion is addressed to, and for the use and benefit of, the Board of
Directors of Client. This opinion is limited to the fairness, from a financial
point of view, to Client of the consideration to be paid in the Transaction,
and Deutsche Bank expresses no opinion as to the merits of the underlying
decision by Client to engage in the Transaction.
Deutsche Bank will be paid a fee for its services as financial advisor to
Client in connection with the Transaction, a substantial portion of which is
contingent upon consummation of the Transaction. We are an affiliate of
Deutsche Bank AG (together with its affiliates, the "DB Group"). One or more
members of the DB Group have, from time to time, provided investment banking,
commercial banking (including extension of credit) and other financial services
to Client or its affiliates and the Company for which it has received
compensation. In the ordinary course of business, members of the DB Group may
actively trade in the securities and other instruments and obligations of
Nippon Telegraph and Telephone Corporation (and its affiliates) and the Company
for their own accounts and for the accounts of their customers. Accordingly,
the DB Group may at any time hold a long or short position in such securities,
instruments and obligations.
B-2
<PAGE>
[DEUTSCHE LOGO]
NTT Communications Corporation
May 7, 2000
Page 3
Based upon and subject to the foregoing, it is Deutsche Bank's opinion as
investment bankers that the consideration to be paid by Client in the
Transaction is fair, from a financial point of view, to Client.
Very truly yours,
Deutsche Bank Securities Inc.
B-3
<PAGE>
Annex C
[MERRILL LYNCH LOGO]
May 7, 2000
Board of Directors
NTT Communications Corporation
1-1-6 Uchisaiwai-cho
Chiyoda-ku, Tokyo 100-8019
Japan
Members of the Board of Directors:
Verio Inc. (the "Company"), NTT Communications Corporation (the "Acquirer")
and Chaser Acquisition, Inc., a wholly-owned subsidiary of the Acquirer (the
"Acquisition Sub"), propose to enter into an Agreement and Plan of Merger
dated as of May 7, 2000 (the "Agreement") pursuant to which (i) the Acquirer
and the Acquisition Sub would commence a tender offer (the "Tender Offer") for
all the outstanding shares of the Company's common stock, par value $0.001 per
share, of the Company (the "Company Common Shares"), for $60.00 per share, net
to the seller in cash (the "Common Consideration") and for all of the
outstanding shares of Series A preferred stock, par value $0.001 per share
(the "Company Preferred Shares" and together with the Company Common Shares,
the "Company Shares") for $62.136 per share subject to adjustment as set forth
in the Agreement to include accumulated and unpaid dividends from August 1,
2000 to the expiration of the Tender Offer (the "Preferred Consideration" and
together with the Common Consideration, the "Consideration"), excluding the
approximately 9 million Company Common Shares held by the Acquirer which were
purchased in May 1998 for approximately $11.13 per share (the "Owned Shares")
and (ii) Acquisition Subsidiary would be merged with the Company in a merger
(the "Merger"), in which each Company Share not acquired in the Tender Offer,
other than Company Shares held in treasury or held by the Acquirer or any
affiliate of the Acquirer or as to which dissenters' rights have been
perfected, would be converted into the right to receive the Consideration. The
Tender Offer and the Merger, taken together, are referred to as the
"Transaction".
You have asked us whether, in our opinion, the Consideration to be paid by
the Acquirer for the Company Shares other than the Owned Shares, pursuant to
the Transaction, after taking into account the Owned Shares, is fair from a
financial point of view to the Acquirer.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial
information relating to the Company and NTT Corporation, the parent of the
Acquirer ("NTT"), that we deemed relevant;
(2) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets, liabilities and
prospects of the Company, as well as the amount and timing of the synergies
expected to result from the Transaction (the "Expected Synergies")
furnished to us by the Company and the Acquirer;
(3) Conducted discussions with members of senior management of the
Company and the Acquirer concerning the matters described in clauses 1 and
2 above, as well as their respective businesses and prospects before and
after giving effect to the Transaction and the Expected Synergies;
(4) Reviewed the market prices and valuation multiples for the Company
Shares and compared them with those of certain publicly traded companies
that we deemed to be relevant;
(5) Reviewed the results of operations of the Company and compared them
with those of certain publicly traded companies that we deemed to be
relevant;
C-1
<PAGE>
(6) Considered and taken into account the impact and effects of the
Acquirer's shareholding of approximately 11% of the currently outstanding
shares of common stock and the consideration paid for the Owned Shares;
(7) Compared the proposed financial terms of the Transaction with the
financial terms of certain other transactions which we deemed to be
relevant;
(8) Participated in discussions and negotiations among representatives
of the Company and the Acquirer and their financial and legal advisors;
(9) Reviewed the potential pro forma impact of the Transaction on NTT;
(10) Reviewed a draft dated April 24, 2000 of the Agreement; and
(11) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our assessment
of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have
not assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Company, or been furnished with any such evaluation or
appraisal. In addition, we have not assumed any obligation to conduct any
physical inspection of the properties or facilities of the Company. With
respect to the financial forecast information and the Expected Synergies,
furnished to or discussed with us by the Company or the Acquirer, we have
assumed that they have been reasonably prepared and reflect the best currently
available estimates and judgment of the Company's or the Acquirer's management
as to the expected future financial performance of the Company or the
Acquirer, as the case may be, and the Expected Synergies. We have also assumed
that the final form of the Agreement will be substantially similar to the last
draft reviewed by us.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available
to us as of, the date hereof. We have assumed that in the course of obtaining
the necessary regulatory or other consents or approvals (contractual or
otherwise) for the Transaction, no restrictions, including any divestiture
requirements or amendments or modifications, will be imposed that will have a
material adverse effect on the contemplated benefits of the Transaction.
We are acting as financial advisor to the Acquirer in connection with the
Transaction and will receive a fee from the Acquirer for our services, a
significant portion of which is contingent upon the consummation of the
Transaction. In addition, the Acquirer has agreed to indemnify us for certain
liabilities arising out of our engagement. We are currently, and have in the
past, provided financial advisory and financing services to the Acquirer, the
Company, NTT and/or their affiliates and may continue to do so and have
received, and may receive, fees for the rendering of such services. In
addition, in the ordinary course of our business, we may actively trade the
Company Shares and other securities of the Company, as well as the securities
of NTT or affiliates of NTT for our own account and for the accounts of
customers and accordingly, may at any time hold a long or short position in
such securities.
This opinion is solely for the use and benefit of the Board of Directors of
the Acquirer in its evaluation of the Transaction and shall not be used for
any other purpose. Our opinion does not address the merits of the underlying
decision by NTT and the Acquirer to engage in the Transaction. This opinion is
not intended to be relied upon or confer any rights or remedies upon any
employee, creditor, shareholder or other equity holder of NTT or the Acquirer,
or any other party. This opinion shall not be reproduced, disseminated,
quoted, summarized or referred to at any time, in any manner or for any
purpose, nor shall any public references to Merrill Lynch, Pierce, Fenner &
Smith
C-2
<PAGE>
Incorporated ("Merrill Lynch") or any of its affiliates be made by NTT, the
Acquirer or any of their affiliates, without the prior written consent of
Merrill Lynch.
We are not expressing any opinion herein as to the prices at which any
securities of NTT will trade following the announcement or consummation of the
Merger.
On the basis of and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Consideration to be paid by the Acquirer for the
Company Shares, other than the Owned Shares, pursuant to the Transaction,
after taking into account the Owned Shares, is fair from a financial point of
view to the Acquirer.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
C-3
<PAGE>
Annex D
DELAWARE CODE
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER, CONSOLIDATION OR CONVERSION
(S)262 Appraisal Rights.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing pursuant
to (S)228 of this title shall be entitled to an appraisal by the Court of
Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S)251 (other than a merger effected pursuant to
(S)251(g) of this title), (S)252, (S)254, (S)257, (S)258, (S)263 or (S)264 of
this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (S)251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
(S)(S)251, 252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
D-1
<PAGE>
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S)253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder's shares shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or consented to the
merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to (S)228 or
(S)253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation
D-2
<PAGE>
or (ii) the surviving or resulting corporation shall send such a second
notice to all such holders on or within 10 days after such effective date;
provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be
sent to each stockholder who is entitled to appraisal rights and who has
demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice
that such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more than
10 days prior to the date the notice is given, provided, that if the notice
is given on or after the effective date of the merger or consolidation, the
record date shall be such effective date. If no record date is fixed and
the notice is given prior to the effective date, the record date shall be
the close of business on the day next preceding the day on which the notice
is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms
offered upon the merger or consolidation. Within 120 days after the effective
date of the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting
from the consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after such stockholder's written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal
under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment
D-3
<PAGE>
or expectation of the merger or consolidation, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value.
In determining such fair value, the Court shall take into account all relevant
factors. In determining the fair rate of interest, the Court may consider all
relevant factors, including the rate of interest which the surviving or
resulting corporation would have had to pay to borrow money during the
pendency of the proceeding. Upon application by the surviving or resulting
corporation or by any stockholder entitled to participate in the appraisal
proceeding, the Court may, in its discretion, permit discovery or other
pretrial proceedings and may proceed to trial upon the appraisal prior to the
final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such
is required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under
this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of such stockholder's demand for an appraisal and an acceptance of the merger
or consolidation, either within 60 days after the effective date of the merger
or consolidation as provided in subsection (e) of this section or thereafter
with the written approval of the corporation, then the right of such
stockholder to an appraisal shall cease. Notwithstanding the foregoing, no
appraisal proceeding in the Court of Chancery shall be dismissed as to any
stockholder without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
D-4
<PAGE>
Facsimile copies of Letters of Transmittal, properly completed and duly
executed, will be accepted. The appropriate Letter of Transmittal,
certificates for Shares and any other required documents should be sent or
delivered by each stockholder of Verio or his broker, dealer, commercial bank,
trust company or other nominee to the Depositary at one of its addresses set
forth below:
The Depositary for the Offer is:
Norwest Bank Minnesota, N.A.
By Mail: By Hand in New York: By Hand or Overnight
Delivery:
Norwest Bank Minnesota, The Depository Trust
N.A. Company Norwest Bank Minnesota,
P.O. Box 64858 Transfer Agent Drop N.A.
St. Paul, MN 55164-0858 55 Water Street--1st 161 North Concord
Attn: Shareowner Floor Exchange
Services New York, NY 10041-0099 South St. Paul, MN 55075
Facsimile for Eligible Institutions only:
(651) 450-4163
To confirm receipt of Notice of Guaranteed Delivery:
(651) 450-4110
If you require additional information, please call Norwest Bank Minnesota,
N.A. at
(800) 468-9716 or (651) 450-4064
You may direct questions and requests for assistance to the Information
Agent or the Dealer Managers at their respective telephone numbers and
addresses set forth below. You may obtain additional copies of this Offer to
Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and
other tender offer materials from the Information Agent as set forth below and
they will be furnished promptly at our expense. You may also contact your
broker, dealer, commercial bank, trust company or other nominee for assistance
concerning the Offer.
The Information Agent for the Offer is:
MORROW & CO., INC.
445 Park Avenue
5th Floor
New York, New York 10022
Call Collect (212) 754-8000
Banks and Brokerage Firms, Please Call: (800) 662-5200
Stockholders, Please Call: (800) 566-9061
The Dealer Managers for the Offer are:
Deutsche Banc Alex. Brown Merrill Lynch & Co.
Deutsche Bank Securities Inc. 2 World Financial Center
31 West 52nd Street 6th Floor
New York, New York 10019 New York, New York 10281-6100
(212) 250-6000 (Call Collect) (212) 236-3790 (Call Collect)
<PAGE>
Exhibit (a)(1)(C)
Letter of Transmittal
To Tender Shares of Common Stock
and
To Tender Shares of Series A 6.75%
Convertible Preferred Stock
of
Verio Inc.
Pursuant to the Offer to Purchase
Dated May 17, 2000
by
Chaser Acquisition, Inc.
an indirect wholly owned subsidiary of
NTT Communications Corporation
a wholly owned subsidiary of
Nippon Telegraph and Telephone Corporation
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME,
ON WEDNESDAY, JUNE 14, 2000, UNLESS THE OFFER IS EXTENDED.
The Depositary for the Offer is:
Norwest Bank Minnesota, N.A.
By Mail: By Hand in New York: By Hand or Overnight
Delivery:
Norwest Bank Minnesota, The Depository Trust Company
N.A. Transfer Agent Drop Norwest Bank Minnesota,
P.O. Box 64858 55 Water Street--1st Floor N.A.
St. Paul, MN 55164-0858 New York, NY 10041-0099 161 North Concord Exchange
Attn: Shareowner Services South St. Paul, MN 55075
Facsimile for Eligible Institutions only:
(651) 450-4163
To confirm receipt of Notice of Guaranteed Delivery:
(651) 450-4110
If you require additional information, please call Norwest Bank Minnesota, N.A.
at
(800) 468-9716 or (651) 450-4064
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION OF
INSTRUCTIONS VIA A FACSIMILE TO A NUMBER, OTHER THAN AS SET FORTH ABOVE, DOES
NOT CONSTITUTE A VALID DELIVERY TO THE DEPOSITARY. YOU MUST SIGN THIS LETTER OF
TRANSMITTAL IN THE APPROPRIATE SPACE THEREFOR PROVIDED BELOW AND COMPLETE THE
SUBSTITUTE FORM W-9 SET FORTH BELOW.
<PAGE>
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be completed by stockholders of Verio
Inc., a Delaware corporation (the "Company"), if certificates are to be
forwarded herewith or, unless an Agent's Message (as defined in the Offer to
Purchase) is utilized, if delivery of Shares (as defined below) is to be made
by book-entry transfer to the Depositary's account at The Depository Trust
Company (hereinafter referred to as the "Book-Entry Transfer Facility")
pursuant to the procedures set forth in Section 3 of the Offer to Purchase (as
defined below). Delivery of documents to the Book-Entry Transfer Facility does
not constitute delivery to the Depositary.
Stockholders whose certificates for Shares are not immediately available or
who cannot deliver their Shares and all other documents required hereby to the
Depositary by the Expiration Date (as defined in the Offer to Purchase), or
who cannot comply with the book-entry transfer procedures on a timely basis,
may nevertheless tender their Shares pursuant to the guaranteed delivery
procedures set forth in Section 4 of the Offer to Purchase. See Instruction 2.
DESCRIPTION OF SHARES OF COMMON STOCK TENDERED
- ---------------------------
Name(s) and
Address(es)
of Shares of Common
Registered Stock Tendered
Holder(s) (Attach
(Please additional
fill in, if list if
blank) necessary)
- ---------------------------
<TABLE>
<S> <C> <C> <C>
Number of
Shares of Number of
Share Common Stock shares of
Certificate Represented by Common Stock
Number(s)* Certificate(s)* Tendered**
----
----
----
----
Total Shares
- -------------------------------------------------
</TABLE>
*Need not be completed by stockholders tendering by book-entry
transfer.
**Unless otherwise indicated, it will be assumed that all shares of
Common Stock represented by any certificates delivered to the
Depositary are being tendered. See Instruction 4.
DESCRIPTION OF SHARES OF PREFERRED STOCK TENDERED
- ----------------------------
Name(s) and
Address(es)
of Shares of Preferred
Registered Stock Tendered
Holder(s) (Attach
(Please additional
fill in, if list if
blank) necessary)
- ----------------------------
<TABLE>
<S> <C> <C> <C>
Number of
Shares of Number of
Preferred shares of
Share Stock Preferred
Certificate Represented by Stock
Number(s)* Certificate(s)* Tendered**
---
---
---
---
Total Shares
- ------------------------------------------------
</TABLE>
*Need not be completed by stockholders tendering by book-entry
transfer.
**Unless otherwise indicated, it will be assumed that all shares of
Preferred Stock represented by any certificates delivered to the
Depositary are being tendered. See Instruction 4.
2
<PAGE>
[_]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO
THE DEPOSITARY'S ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE
THE FOLLOWING:
Name of Tendering Institution _________________________________________________
Account No. at The Depository Trust Company: __________________________________
Transaction Code No.: _________________________________________________________
[_]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE
FOLLOWING:
Name(s) of Tendering Stockholder(s): _______________________________________
Date of Execution of Notice of Guaranteed Delivery: ________________________
Name of Institution which Guaranteed Delivery: _____________________________
If delivery is by book-entry transfer:
Name of Tendering Institution:___________________________________________
Account No. at The Depository Trust Company:_____________________________
Transaction Code No.:_______________________________________________________
3
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to Chaser Acquisition, Inc. ("Purchaser"), a
Delaware corporation and an indirect wholly owned subsidiary of NTT
Communications Corporation, a limited liability joint stock company
incorporated under the laws of Japan ("NTT Communications") and a wholly owned
subsidiary of Nippon Telegraph and Telephone Corporation, a limited liability
joint stock company incorporated under the laws of Japan ("NTT"), the above-
described shares of common stock, par value $.001 per share ("Common Stock"),
and/or shares of Series A 6.75% Convertible Preferred Stock, par value $.001
per share ("Preferred Stock", and together with the Common Stock, the
"Shares"), of Verio Inc., a Delaware corporation (the "Company"), pursuant to
Purchaser's offer to purchase all of the outstanding shares of Common Stock
(other than shares of Common Stock already owned by NTT Communications and its
subsidiaries) at a purchase price of $60.00 per share of Common Stock, net to
the seller in cash, without interest, and all outstanding shares of Preferred
Stock at a purchase price of $62.136 per share of Preferred Stock, plus, if
the purchase of shares of Preferred Stock occurs after July 31, 2000, all
accumulated and unpaid dividends on such shares of Preferred Stock from August
1, 2000 to and including the expiration date of the Offer, net to the seller
in cash, without interest, upon the terms and subject to the conditions set
forth in the Offer to Purchase, dated May 17, 2000 (the "Offer to Purchase"),
receipt of which is hereby acknowledged, and in this Letter of Transmittal
(which, together with the Offer to Purchase, and any amendments or supplements
hereto or thereto, collectively constitute the "Offer"). The Offer is being
made in connection with the Agreement and Plan of Merger, dated as of May 7,
2000 (the "Merger Agreement"), among NTT Communications, Purchaser and the
Company.
Subject to and effective upon acceptance for payment of and payment for the
Shares tendered herewith, the undersigned hereby sells, assigns and transfers
to or upon the order of Purchaser all right, title and interest in and to all
the Shares that are being tendered hereby (and any and all other Shares or
other securities issued or issuable in respect thereof) and appoints the
Depositary the true and lawful agent and attorney-in-fact of the undersigned
with respect to such Shares (and all such other Shares or securities), with
full power of substitution (such power of attorney being deemed to be an
irrevocable power coupled with an interest), to (a) deliver certificates for
such Shares (and all such other Shares or securities), or transfer ownership
of such Shares (and all such other Shares or securities) on the account books
maintained by the Book-Entry Transfer Facility, together, in any such case,
with all accompanying evidences of transfer and authenticity, to or upon the
order of Purchaser, (b) present such Shares (and all such other Shares or
securities) for transfer on the books of the Company and (c) receive all
benefits and otherwise exercise all rights of beneficial ownership of such
Shares (and all such other Shares or securities), all in accordance with the
terms of the Offer.
The undersigned hereby irrevocably appoints each designee of Purchaser as
the attorney-in-fact and proxy of the undersigned, each with full power of
substitution, to exercise all voting and other rights of the undersigned in
such manner as each such attorney and proxy or his substitute shall in his
sole judgment deem proper, with respect to all of the Shares tendered hereby
which have been accepted for payment by Purchaser prior to the time of any
vote or other action (and any and all other Shares or other securities or
rights issued or issuable in respect of such Shares) at any meeting of
stockholders of the Company (whether annual or special and whether or not an
adjourned meeting), any actions by written consent in lieu of any such meeting
or otherwise. This proxy is irrevocable and is granted in consideration of,
and is effective upon, the acceptance for payment of such Shares by Purchaser
in accordance with the terms of the Offer. Such acceptance for payment shall
revoke any other proxy or written consent granted by the undersigned at any
time with respect to such Shares (and all such other Shares or other
securities or rights), and no subsequent proxies will be given or written
consents will be executed by the undersigned (and if given or executed, will
not be deemed effective).
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Shares
tendered hereby (and any and all other Shares or other securities or rights
issued or issuable in respect of such Shares) and that when the same are
accepted for payment by Purchaser, Purchaser will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claims. The undersigned, upon
request, will execute
4
<PAGE>
and deliver any additional documents deemed by the Depositary or Purchaser to
be necessary or desirable to complete the sale, assignment and transfer of the
Shares tendered hereby (and all such other Shares or other securities or
rights).
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned, and any obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned. Except as stated in the Offer, this
tender is irrevocable.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described in Section 4 of the Offer to Purchase and in the
instructions hereto will constitute an agreement between the undersigned and
Purchaser upon the terms and subject to the conditions of the Offer.
Unless otherwise indicated under "Special Payment Instructions," please
issue the check for the purchase price of any Shares purchased, and return any
Shares not tendered or not purchased, in the name(s) of the undersigned.
Similarly, unless otherwise indicated under "Special Delivery Instructions,"
please mail the check for the purchase price of any Shares purchased and
return any certificates for Shares not tendered or not purchased (and
accompanying documents, as appropriate) to the undersigned at the address
shown below the undersigned's signature(s). In the event that both "Special
Payment Instructions" and "Special Delivery Instructions" are completed,
please issue the check for the purchase price of any Shares purchased and
return any Shares not tendered or not purchased in the name(s) of, and mail
said check and any certificates to, the person(s) so indicated. The
undersigned recognizes that Purchaser has no obligation, pursuant to the
"Special Payment Instructions," to transfer any Shares from the name of the
registered holder(s) thereof if Purchaser does not accept for payment any of
the Shares so tendered.
SPECIAL DELIVERY INSTRUCTIONS
SPECIAL PAYMENT INSTRUCTIONS (See Instructions 5 and 7)
(See Instructions 1, 5, 6 and 7)
To be completed ONLY if the check
To be completed ONLY if the for the purchase price of Shares
check for the purchase price of purchased or certificates for
Shares purchased or certificates Shares not tendered or not
for Shares not tendered or not purchased are to be mailed to
purchased are to be issued in the someone other than the
name of someone other than the undersigned or to the undersigned
undersigned or if Shares tendered at an address other than that
hereby and delivered by book- shown below the undersigned's
entry transfer which are not signature(s).
accepted for payment are to be
returned by credit to an account
at the Book-Entry Transfer
Facility other than designated
above.
Mail check and/or certificates
to:
Name: ____________________________
(Please Print)
Issue: [_] Check [_] Certificate Address: _________________________
to: ----------------------------------
(Zip Code)
Name: ___________________________ ----------------------------------
(Please Print) (Taxpayer Identification or
Address: _________________________ Social Security No.)
----------------------------------
(Zip Code) (See Substitute Form W-9)
----------------------------------
(Taxpayer Identification or
Social Security No.)
(See Substitute Form W-9)
[_Credit]Shares delivered by
book-entry transfer and not
purchased to The Depository
Trust Company
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Offer
1. Guarantee of Signatures. Except as otherwise provided below, signatures
on all Letters of Transmittal must be guaranteed by a firm that is a bank,
broker, dealer, credit union, savings association or other entity which is a
member in good standing of the Securities Transfer Agents Medallion Program
(an "Eligible Institution"), unless the Shares tendered thereby are tendered
(i) by a registered holder (which term, for purposes of this
5
<PAGE>
document, shall include any participant in the Book-Entry Transfer Facility
whose name appears on a security position listing as the owner of Shares) of
Shares who has not completed either the box labeled "Special Payment
Instructions" or the box labeled "Special Delivery Instructions" on the Letter
of Transmittal or (ii) for the account of an Eligible Institution. See
Instruction 5. If the certificates are registered in the name of a person or
persons other than the signer of this Letter of Transmittal, or if payment is
to be made or delivered to, or certificates evidencing unpurchased Shares are
to be issued or returned to, a person other than the registered owner or
owners, then the tendered certificates must be endorsed or accompanied by duly
executed stock powers, in either case signed exactly as the name or names of
the registered owner or owners appear on the certificates or stock powers,
with the signatures on the certificates or stock powers guaranteed by an
Eligible Institution as provided herein. See Instruction 5.
2. Delivery of Letter of Transmittal and Shares. This Letter of Transmittal
is to be used either if certificates are to be forwarded herewith or, unless
an Agent's Message (as defined in the Offer to Purchase) is utilized, if the
delivery of Shares is to be made by book-entry transfer pursuant to the
procedures set forth in Section 4 of the Offer to Purchase. Certificates for
all physically delivered Shares, or a confirmation of a book-entry transfer
into the Depositary's account of the Book-Entry Transfer Facility of all
Shares delivered electronically, as well as a properly completed and duly
executed Letter of Transmittal (or a manually signed facsimile thereof) and
any other documents required by this Letter of Transmittal, or an Agent's
Message in the case of a book-entry delivery, must be received by the
Depositary at one of its addresses set forth on the front page of this Letter
of Transmittal by the Expiration Date. Stockholders who cannot deliver their
Shares and all other required documents to the Depositary by the Expiration
Date must tender their Shares pursuant to the guaranteed delivery procedures
set forth in Section 4 of the Offer to Purchase. Pursuant to such procedures:
(a) such tender must be made by or through an Eligible Institution; (b) a
properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form provided by Purchaser, must be received by the
Depositary prior to the Expiration Date; and (c) the certificates for all
tendered Shares, in proper form for tender, or a confirmation of a book-entry
transfer into the Depositary's account at the Book-Entry Transfer Facility of
all Shares delivered electronically, as well as a properly completed and duly
executed Letter of Transmittal (or a manually signed facsimile thereof), and
any other documents required by this Letter of Transmittal must be received by
the Depositary within three trading days after the date of execution of such
Notice of Guaranteed Delivery, all as provided in Section 3 of the Offer to
Purchase. The term "trading day" is any day on which the New York Stock
Exchange is open for business.
The method of delivery of Shares, the Letter of Transmittal and all other
required documents, including delivery through the Book-Entry Transfer
Facility, is at the option and risk of the tendering stockholder. Shares will
be deemed delivered only when actually received by the Depositary (including,
in the case of a book-entry transfer, by a confirmation of a book-entry
transfer). If delivery is by mail, registered mail with return receipt
requested, properly insured, is recommended. In all cases, sufficient time
should be allowed to ensure timely delivery.
No alternative, conditional or contingent tenders will be accepted, and no
fractional Shares will be purchased. By executing this Letter of Transmittal
(or a manually signed facsimile thereof), the tendering stockholder waives any
right to receive any notice of the acceptance for payment of the Shares.
3. Inadequate Space. If the space provided herein is inadequate, the
certificate numbers and/or the number of Shares should be listed on a separate
schedule attached hereto.
4. Partial Tenders (not applicable to stockholders who tender by book-entry
transfer). If fewer than all the Shares represented by any certificate
delivered to the Depositary are to be tendered, fill in the number of Shares
which are to be tendered in the box entitled "Number of Shares Tendered." In
such case, a new certificate for the remainder of the Shares represented by
the old certificate will be sent to the person(s) signing this Letter of
Transmittal unless otherwise provided in the appropriate box on this Letter of
Transmittal, as promptly as practicable following the expiration or
termination of the Offer. All Shares represented by certificates delivered to
the Depositary will be deemed to have been tendered unless otherwise
indicated.
6
<PAGE>
5. Signatures on Letter of Transmittal; Stock Powers and Endorsements. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond with the name(s) as written
on the face of the certificates without alteration, enlargement or any change
whatsoever.
If any of the Shares tendered hereby are held of record by two or more
persons, all such persons must sign this Letter of Transmittal.
If any of the Shares tendered hereby are registered in different names on
different certificates, it will be necessary to complete, sign and submit as
many separate Letters of Transmittal as there are different registrations of
certificates.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered hereby, no endorsements of certificates or separate stock
powers are required unless payment of the purchase price is to be made, or
Shares not tendered or not purchased are to be returned, in the name of any
person other than the registered holder(s), in which case the certificate(s)
for such Shares tendered hereby must be endorsed, or accompanied by,
appropriate stock powers, in either case signed exactly as the name(s) of the
registered holder(s) appear(s) on the certificate for such Shares. Signatures
on any such certificates or stock powers must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares tendered hereby, the certificate must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the registered holder(s) appear(s) on the
certificates for such Shares. Signature(s) on any such certificates or stock
powers must be guaranteed by an Eligible Institution.
If this Letter of Transmittal or any certificate or stock power is signed
by a trustee, executor, administrator, guardian, attorney-in-fact, officer of
a corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and proper evidence
satisfactory to Purchaser of the authority of such person so to act must be
submitted.
6. Stock Transfer Taxes. Purchaser will pay any stock transfer taxes with
respect to the sale and transfer of any Shares to it or its order pursuant to
the Offer. If, however, payment of the purchase price is to be made to, or
Shares not tendered or not purchased are to be returned in the name of, any
person other than the registered holder(s), then the amount of any stock
transfer taxes (whether imposed on the registered holder(s), such other person
or otherwise) payable on account of the transfer to such person will be
deducted from the purchase price unless satisfactory evidence of the payment
of such taxes, or exemption therefrom, is submitted.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the certificates listed in this Letter of
Transmittal.
7. Special Payment and Delivery Instruction. If the check for the purchase
price of any Shares purchased is to be issued, or any Shares not tendered or
not purchased are to be returned, in the name of a person other than the
person(s) signing this Letter of Transmittal or if the check or any
certificates for Shares not tendered or not purchased are to be mailed to
someone other than the person(s) signing this Letter of Transmittal or to the
person(s) signing this Letter of Transmittal at an address other than that
shown above, the appropriate boxes on this Letter of Transmittal should be
completed. Stockholders tendering Shares by book-entry transfer may request
that Shares not purchased be credited to such account at the Book-Entry
Transfer Facility as such stockholder may designate under "Special Payment
Instructions." If no such instructions are given, any such Shares not
purchased will be returned by crediting the account at the Book-Entry Transfer
Facility designated above.
8. Substitute Form W-9. The tendering stockholder is required to provide
the Depositary with such stockholder's correct TIN on Substitute Form W-9,
which is provided below, unless an exemption applies. Failure to provide the
information on the Substitute Form W-9 may subject the tendering stockholder
to a $50 penalty and to 31% federal income tax backup withholding on the
payment of the purchase price for the Shares.
7
<PAGE>
9. Foreign Holders. Foreign holders must submit a completed IRS Form W-8 to
avoid 31% backup withholding. IRS Form W-8 may be obtained by contacting the
Depositary at one of the addresses on the face of this Letter of Transmittal.
10. Requests for Assistance or Additional Copies. Requests for assistance
or additional copies of the Offer to Purchase and this Letter of Transmittal
may be obtained from the Information Agent or the Dealer Manager at their
respective addresses or telephone numbers set forth below.
11. Waiver of Conditions. The conditions of the Offer may be waived by
Purchaser (subject to certain limitations in the Merger Agreement), in whole
or in part, at any time or from time to time, in Purchaser's sole discretion.
12. Lost, Destroyed or Stolen Certificates. If any certificates for Shares
have been lost, destroyed or stolen, the stockholder should promptly notify
the Company's Transfer Agent, Norwest Bank Minnesota, N.A., 161 North Concord
Exchange Street, South St. Paul, Minnesota 55075-6975, Telephone: (651) 552-
6975, Attention: John D. Baker, for instructions as to the procedures for
replacing the certificates for such Shares. This Letter of Transmittal and
related documents cannot be processed until the lost, destroyed or stolen
certificates have been replaced and the replacement certificates for such
Shares have been delivered to the Depositary in accordance with the procedures
set forth in Section 3 of the Offer to Purchase and the instructions contained
in this Letter of Transmittal.
Important: This Letter of Transmittal or a manually signed facsimile copy
hereof (together with certificates or confirmation of book-entry transfer and
all other required documents) or a Notice of Guaranteed Delivery must be
received by the Depositary on or prior to the Expiration Date (as defined in
the Offer to Purchase).
IMPORTANT TAX INFORMATION
Under federal income tax law, a stockholder whose tendered Shares are
accepted for payment is required to provide the Depositary with such
stockholder's correct TIN on the Substitute Form W-9. If such stockholder is
an individual, the TIN is such stockholder's Social Security Number. If the
Depositary is not provided with the correct TIN, the stockholder may be
subject to a $50 penalty imposed by the Internal Revenue Service. In addition,
payments that are made to such stockholder with respect to Shares purchased
pursuant to the Offer may be subject to backup withholding.
Certain stockholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, that stockholder must submit a statement, signed under penalties of
perjury, attesting to that individual's exempt status. Such statements may be
obtained from the Depositary. All exempt recipients (including foreign persons
wishing to qualify as exempt recipients) should see the enclosed Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional instructions.
If backup withholding applies, the Depositary is required to withhold 31%
of any payments made to the stockholder. Backup withholding is not an
additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If backup
withholding results in an overpayment of taxes, a refund may be obtained.
Purpose of Substitute Form W-9
To prevent backup federal income tax withholding on payments that are made
to a stockholder with respect to Shares purchased pursuant to the Offer, the
stockholder is required to notify the Depositary of such stockholder's correct
TIN by completing the form certifying that the TIN provided on the Substitute
Form W-9 is correct.
What Number to Give the Depositary
The stockholder is required to give the Depositary the Social Security
Number or Employer Identification Number of the record owner of the Shares. If
the Shares are in more than one name or are not in the name of the actual
owner, consult the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional guidelines on
which number to report.
8
<PAGE>
SIGN HERE
(Complete Substitute Form W-9 below)
____________________________________________________________________________
____________________________________________________________________________
Signature(s) of Owner(s)
____________________________________________________________________________
Name(s) ____________________________________________________________________
____________________________________________________________________________
Capacity (full title) ______________________________________________________
Address ____________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
_________________________________________________________ (Include Zip Code)
____________________________________________________________________________
Area Code and Telephone Number _____________________________________________
Taxpayer Identification or Social Security Number __________________________
(See Substitute Form W-9)
Dated: , 2000
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
stock certificate(s) or on a security position listing or by the person(s)
authorized to become registered holder(s) by certificates and documents
transmitted herewith. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, agent, officer of a corporation
or other person acting in a fiduciary or representative capacity, please
set forth full title and see Instruction 5.)
GUARANTEE OF SIGNATURE(S)
(See Instructions 1 and 5)
FOR USE BY FINANCIAL INSTITUTIONS ONLY. PLACE MEDALLION GUARANTEE IN SPACE
BELOW.
Authorized signature(s) ____________________________________________________
Name _______________________________________________________________________
Name of Firm _______________________________________________________________
Address ____________________________________________________________________
_________________________________________________________ (Include Zip Code)
Area Code and Telephone Number _____________________________________________
Dated: , 2000
9
<PAGE>
PAYOR'S NAME: Norwest Bank Minnesota, N.A.
- -------------------------------------------------------------------------------
Part I--PLEASE PROVIDE YOUR TIN:
TIN IN THE BOX AT THE RIGHT
AND CERTIFY BY SIGNING AND
DATING BELOW.
SUBSTITUTE Social Security Number
Form W-9 or
Department of Employer Identification
the Treasury, Number
Internal -------------------------------------------------------------
Revenue Service Part II--For Payees exempt from backup withholding, see
the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 and complete
as instructed therein.
Payer's Request
for
Taxpayer -------------------------------------------------------------
Identification (1) The number shown on this form is my correct TIN (or I
am waiting for a number to be issued to me); and
(2) I am not subject to backup withholding because (a) I
am exempt from backup withholding or (b) I have not
been notified by the Internal Revenue Service ("IRS")
that I am subject to backup withholding as a result of
a failure to report all interest or dividends, or (c)
the IRS has notified me that I am no longer subject to
backup withholding.
Number ("TIN") Certification--Under penalties of perjury, I certify that:
and
Certification
SIGNATURE: DATE:
Certification Instructions--You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after
being notified by the IRS that you were subject to backup withholding, you
received another notification from the IRS that you were no longer subject to
backup withholding, do not cross out item (2). (Also see the instructions in
the enclosed Guidelines.)
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING YOUR TIN.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a TIN has not been issued to
me, and either (1) I have mailed or delivered an application to receive a
TIN to the appropriate IRS Center or Social Security Administration Officer
or (2) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a TIN by the time of payment, 31% of
all payments pursuant to the Offer made to me thereafter will be withheld
until I provide a number.
Signature: ___________________________________________ Date:
The Information Agent for the Offer is:
MORROW & CO., INC.
445 Park Avenue
5th Floor
New York, New York 10022
(Call Collect) (212) 754-8000
Banks and Brokerage Firms, Please Call: (800) 662-5200
Stockholders, Please Call: (800) 566-9061
The Dealer Managers for the Offer are:
Deutsche Banc Alex. Brown Merrill Lynch & Co.
Deutsche Bank Securities Inc. 2 World Financial Center
31 West 52nd Street 6th Floor
New York, New York 10019 New York, New York 10281-6100
(212) 250-6000 (Call Collect) (212) 236-3790 (Call Collect)
10
<PAGE>
Exhibit (a)(1)(D)
Notice of Guaranteed Delivery
for
Tender of Shares of Common Stock
and
Tender of Shares of
Series A 6.75% Convertible Preferred Stock
of
Verio Inc.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, JUNE 14, 2000, UNLESS THE OFFER IS EXTENDED.
This form, or one substantially equivalent hereto, must be used to accept
the Offer (as defined below) if certificates for shares of common stock, par
value $.001 per share ("Common Stock"), or shares of Series A 6.75%
Convertible Preferred Stock, par value $.001 per share ("Preferred Stock" and
together with the Common Stock, the "Shares"), of Verio Inc., a Delaware
corporation (the "Company"), are not immediately available or if the procedure
for book-entry transfer cannot be completed on a timely basis or time will not
permit all required documents to reach the Depositary on or prior to the
Expiration Date (as defined in the Offer to Purchase). Such form may be
delivered by hand, facsimile transmission, or mail to the Depositary. See
Section 4 of the Offer to Purchase, dated May 17, 2000 (the "Offer to
Purchase").
The Depositary for the Offer is:
Norwest Bank Minnesota, N.A.
By Mail: By Hand in New York: By Hand or Overnight
Delivery:
Norwest Bank Minnesota, The Depository Trust
N.A. Company Norwest Bank Minnesota,
P.O. Box 64858 Transfer Agent Drop N.A.
St. Paul, MN 55164-0858 55 Water Street--1st 161 North Concord
Attn: Shareowner Services Floor Exchange
New York, NY 10041-0099 South St. Paul, MN 55075
Facsimile for Eligible Institutions only:
(651) 450-4163
To confirm receipt of Notice of Guaranteed Delivery:
(651) 450-4110
If you require additional information, please call Norwest Bank Minnesota,
N.A. at
(800) 468-9716 or (651) 450-4064
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS, OR
TRANSMISSION OF INSTRUMENTS VIA A FACSIMILE, OTHER THAN AS SET FORTH ABOVE,
DOES NOT CONSTITUTE A VALID DELIVERY TO THE DEPOSITARY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" (as defined in the Offer to Purchase)
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
The Eligible Institution that completes this form must communicate the
guarantee to the Depositary and must deliver the Letter of Transmittal or an
Agent's Message and certificates for Shares to the Depositary within the time
period shown herein. Failure to do so could result in a financial loss to such
Eligible Institution.
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Chaser Acquisition, Inc., a Delaware
corporation, upon the terms and subject to the conditions set forth in the
Offer to Purchase, and the related Letter of Transmittal, receipt of which are
hereby acknowledged, Shares of the Company, pursuant to the guaranteed
delivery procedure set forth in Section 4 of the Offer to Purchase.
Number of shares of Common Stock:__
SIGN HERE
Number of shares of Preferred
Stock:_____________________________
Name(s) of Record Holder(s):
Certificate No(s). (if available):
___________________________________
___________________________________
___________________________________
___________________________________
(Please Print)
If Securities will be tendered by Address(es):_______________________
book-entry transfer at The
Depository Trust Company, please
provide Account No.:_______________
___________________________________
(Zip Code)
Area Code and Telephone No(s):
___________________________________
Dated:_____________________________ ___________________________________
___________________________________
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a bank, broker, dealer, credit union, savings association
or other entity which is a member in good standing of the Securities Transfer
Agents Medallion Program, guarantees the delivery to the Depositary of the
Shares tendered hereby, together with a properly completed and duly executed
Letter of Transmittal (or manually signed facsimile(s) thereof) and any other
required documents, or an Agent's Message (as defined in the Offer to
Purchase) in the case of a book-entry delivery of Shares, all within three
trading days of the date hereof. A "trading day" is any day on which the New
York Stock Exchange is open for business.
Name of Firm:______________________
Title:_____________________________
___________________________________ Name:______________________________
(Authorized Signature)
(Please Print or Type)
Address:___________________________
Area Code and Telephone No.:_______
___________________________________ Dated:_____________________________
(Zip Code)
DO NOT SEND CERTIFICATES FOR SHARES WITH THIS FORM--CERTIFICATES SHOULD BE
SENT WITH YOUR LETTER OF TRANSMITTAL
2
<PAGE>
Exhibit (a)(1)(E)
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
At
$60.00 Net Per Share
And
All Outstanding Shares of Series A 6.75%
Convertible Preferred Stock
At
$62.136 Net Per Share
Of
Verio Inc.
By
Chaser Acquisition, Inc.
an indirect wholly owned subsidiary of
NTT Communications Corporation
a wholly owned subsidiary of
Nippon Telegraph and Telephone Corporation
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, JUNE 14, 2000, UNLESS THE OFFER IS EXTENDED.
May 17, 2000
To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees:
We have been appointed by Chaser Acquisition, Inc., a Delaware corporation
("Purchaser") and an indirect wholly owned subsidiary of NTT Communications
Corporation, a limited liability joint stock company incorporated under the
laws of Japan ("NTT Communications") and a wholly owned subsidiary of Nippon
Telegraph and Telephone Corporation, a limited liability joint stock company
incorporated under the laws of Japan ("NTT"), to act as Dealer Managers in
connection with Purchaser's offer to purchase all outstanding shares of common
stock, par value $.001 per share ("Common Stock"), of Verio Inc., a Delaware
corporation (the "Company") (other than shares of Common Stock already owned
by NTT Communications and its subsidiaries), at a purchase price of $60.00 per
share of Common Stock, net to the seller in cash, without interest, and all
outstanding shares of Series A 6.75% Convertible Preferred Stock, par value
$.001 per share ("Preferred Stock", and together with the Common Stock, the
"Shares"), of the Company at a purchase price of $62.136 per share, plus, if
the purchase of shares of Preferred Stock occurs after July 31, 2000, all
<PAGE>
accumulated and unpaid dividends on such share of Preferred Stock from August
1, 2000 to and including the expiration date of the Offer, net to the seller
in cash, without interest, upon the terms and subject to the conditions set
forth in the Offer to Purchase, dated May 17, 2000 (the "Offer to Purchase"),
and in the related Letter of Transmittal (which, together with any amendments
or supplements thereto, collectively constitute the "Offer") enclosed
herewith. The Offer is being made in connection with the Agreement and Plan of
Merger, dated as of May 7, 2000, among NTT Communications, Purchaser and the
Company (the "Merger Agreement"). Holders of Shares whose certificates for
such Shares (the "Certificates") are not immediately available or who cannot
deliver their Certificates and all other required documents to the Depositary
or complete the procedures for book-entry transfer prior to the Expiration
Date (as defined in Section 2 of the Offer to Purchase) must tender their
Shares according to the guaranteed delivery procedures set forth in Section 4
of the Offer to Purchase.
Please furnish copies of the enclosed materials to those of your clients
for whose accounts you hold Shares in your name or in the name of your
nominee.
Enclosed herewith for your information and forwarding to your clients are
copies of the following documents:
1. The Offer to Purchase, dated May 17, 2000.
2. The Letter of Transmittal to tender Shares for your use and for
the information of your clients. Facsimile copies of the Letter of
Transmittal (with manual signatures) may be used to tender Shares.
3. A letter to stockholders of the Company from Justin L. Jaschke,
the Chief Executive Officer of the Company, together with a
Solicitation/Recommendation Statement on Schedule 14D-9 filed with the
Securities and Exchange Commission by the Company and mailed to the
stockholders of the Company.
4. The Notice of Guaranteed Delivery for Shares to be used to
accept the Offer if the procedures for tendering Shares by delivery of
Certificates or by book-entry transfer set forth in the Offer to
Purchase cannot be completed on a timely basis.
5. A printed form of letter which may be sent to your clients for
whose accounts you hold Shares registered in your name, with space
provided for obtaining such clients' instructions with regard to the
Offer.
6. Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number on Substitute Form W-9.
7. A return envelope addressed to the Depositary.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS WILL
EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, JUNE 14, 2000,
UNLESS THE OFFER IS EXTENDED.
Please note the following:
1. The tender price for Common Stock is $60.00 per share, net to
the seller in cash without interest.
2. The tender price for Preferred Stock is $ 62.136 per share,
plus, if the purchase of shares of Preferred Stock occurs after July 31,
2000, all accumulated and unpaid dividends on such share of Preferred
Stock from August 1, 2000 to and including the expiration date of the
Offer, net to the sellers in cash without interest.
2
<PAGE>
3. The Offer is being made for all of the outstanding shares of
Common Stock (other than shares of Common Stock already owned by NTT
Communications and its subsidiaries) and all outstanding shares of
Preferred Stock.
4. The Offer and withdrawal rights will expire at 12:00 Midnight,
New York City time, on Wednesday, June 14, 2000, unless the Offer is
extended.
5. The Offer is conditioned upon, among other things, there being
validly tendered and not withdrawn prior to the expiration of the Offer
such number of shares of Common Stock that, together with the shares of
Common Stock then owned by NTT and its subsidiaries, would constitute at
least a majority of the shares of Common Stock that in the aggregate are
outstanding determined on a fully diluted basis (assuming the exercise
of all options to purchase shares of Common Stock, and the conversion or
exchange of all securities convertible or exchangeable into shares of
Common Stock outstanding at the expiration date of the Offer), any
waiting period under the HSR Act (as defined in the Offer to Purchase)
applicable to the purchase of Shares pursuant to the Offer having
expired or having been terminated prior to the expiration of the Offer,
and the period of time for any applicable review process by CFIUS (as
defined in the Offer to Purchase) under the Exon-Florio Amendment (as
defined in the Offer to Purchase) having expired and CFIUS not having
taken action or made any recommendation to the President of the United
States to block or prevent the consummation of the Offer or the Merger
(as defined in the Offer to Purchase). The Offer is also subject to the
other terms and conditions contained in the Offer to Purchase.
6. Tendering stockholders will not be obligated to pay brokerage
fees or commissions or, except as set forth in Instruction 6 of the
Letter of Transmittal, stock transfer taxes on the transfer of Shares
pursuant to the Offer.
In order to take advantage of the Offer, (i) a duly executed and properly
completed Letter of Transmittal (or a manually signed facsimile thereof) and
any required signature guarantees or, in the case of a book-entry transfer, an
Agent's Message (as defined in the Offer to Purchase) or other required
documents should be sent to the Depositary and (ii) Certificates representing
the tendered Shares on a timely Book-Entry Confirmation (as defined in the
Offer to Purchase) should be delivered to the Depositary in accordance with
the instructions set forth in the Offer.
If holders of Shares wish to tender, but it is impracticable for them to
forward their Certificates or other required documents or complete the
procedures for book-entry transfer prior to the Expiration Date, a tender must
be effected by following the guaranteed delivery procedures specified in
Section 4 of the Offer to Purchase.
Neither Purchaser, NTT Communications, NTT nor any officer, director,
stockholder, agent or other representative of Purchaser, NTT Communications or
NTT will pay any fees or commissions to any broker, dealer or other person
(other than the Dealer Managers, the Depositary and the Information Agent as
described in the Offer to Purchase) for soliciting tenders of Shares pursuant
to the Offer. Purchaser will, however, upon request, reimburse you for
customary mailing and handling expenses incurred by you in forwarding any of
the enclosed materials to your clients. Purchaser will pay or cause to be paid
any transfer taxes payable on the transfer of Shares to it, except as
otherwise provided in Instruction 6 of the Letter of Transmittal.
3
<PAGE>
Any inquiries you may have with respect to the Offer should be addressed to
Morrow & Co., Inc., the Information Agent for the Offer, at (800) 662-5200,
Deutsche Bank Securities Inc., a Dealer Manager for the Offer, at (212) 250-
6000 (call collect) or Merrill Lynch, Pierce, Fenner & Smith Incorporated, a
Dealer Manager for the Offer, at (212) 236-3790 (call collect).
Requests for copies of the enclosed materials may be directed to the
Information Agent at the above address and telephone number.
Very truly yours,
Deutsche Bank Securities Inc.
Merrill Lynch, Pierce, Fenner &
Smith Incorporated
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY OTHER PERSON THE AGENT OF NTT, NTT COMMUNICATIONS, PURCHASER, THE
DEPOSITARY, THE INFORMATION AGENT, THE DEALER MANAGERS OR ANY AFFILIATE OF ANY
OF THEM, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENT OR USE ANY
DOCUMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE
ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN.
4
<PAGE>
Exhibit (a)(1)(F)
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
at
$60.00 Net Per Share
and
All Outstanding Shares of Series A 6.75%
Convertible Preferred Stock
at
$62.136 Net Per Share
of
Verio Inc.
by
Chaser Acquisition, Inc.
an indirect wholly owned subsidiary of
NTT Communications Corporation
a wholly owned subsidiary of
Nippon Telegraph and Telephone Corporation
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, JUNE 14, 2000, UNLESS THE OFFER IS EXTENDED.
May 17, 2000
To Our Clients:
Enclosed for your consideration are the Offer to Purchase, dated May 17,
2000 (the "Offer to Purchase"), and the related Letter of Transmittal (which,
together with any amendments or supplements thereto, collectively constitute
the "Offer") relating to an offer by Chaser Acquisition, Inc., a Delaware
corporation ("Purchaser") and an indirect wholly owned subsidiary of NTT
Communications Corporation, a limited liability joint stock company
incorporated under the laws of Japan ("NTT Communications") and a wholly owned
subsidiary of Nippon Telegraph and Telephone Corporation, a limited liability
joint stock company incorporated under the laws of Japan ("NTT"), to purchase
all outstanding shares of common stock, par value $.001 per share ("Common
Stock"), of Verio Inc., a Delaware corporation (the "Company") (other than
shares of Common Stock already owned by NTT Communications and its
subsidiaries), at a purchase price of $60.00 per shares of
<PAGE>
Common Stock, net to the seller in cash, without interest, and all outstanding
shares of Series A 6.75% Convertible Preferred Stock, par value $.001 per
share ("Preferred Stock" and together with the Common Stock, the "Shares"), of
the Company at a purchase price of $62.136 per share of Preferred Stock, plus,
if the purchase of shares of Preferred Stock occurs after July 31, 2000, all
accumulated and unpaid dividends on such share of Preferred Stock from August
1, 2000 to and including the expiration date of the Offer, net to the seller
in cash, without interest, upon the terms and subject to the conditions set
forth in the Offer. The Offer is being made in connection with the Agreement
and Plan of Merger, dated as of May 17, 2000, among NTT Communications,
Purchaser and the Company (the "Merger Agreement"). This material is being
forwarded to you as the beneficial owner of Shares carried by us in your
account but not registered in your name.
A tender of such Shares can be made only by us as the holder of record and
pursuant to your instructions. The Letter of Transmittal is furnished to you
for your information only and cannot be used by you to tender Shares held by
us for your account.
Accordingly, we request instructions as to whether you wish to tender any
or all of the Shares held by us for your account, upon the terms and
conditions set forth in the Offer.
Please note the following:
1. The tender price for Common Stock is $60.00 per share, net to
you in cash without interest.
2. The tender price for Preferred Stock is $ 62.136 per share,
plus if the purchase of shares of Preferred Stock occurs after July 31,
2000, accumulated and unpaid dividends on such share of Preferred Stock
from August 1, 2000 to and including the expiration date of the Offer,
net to you in cash without interest.
3. The Offer is being made for all of the outstanding shares of
Common Stock (other than shares of Common Stock already owned by NTT
Communications and its subsidiaries) and all outstanding shares of
Preferred Stock.
4. The Offer and withdrawal rights will expire at 12:00 Midnight,
New York City time, on Wednesday, June 14, 2000, unless the Offer is
extended.
5. The Offer is conditioned upon, among other things, there being
validly tendered and not withdrawn prior to the expiration of the Offer
such number of shares of Common Stock that, together with the shares of
Common Stock then owned by NTT and its subsidiaries, would constitute at
least a majority of the shares of Common Stock that in the aggregate are
outstanding determined on a fully diluted basis (assuming the exercise
of all options to purchase shares of Common Stock, and the conversion or
exchange of all securities convertible or exchangeable into shares of
Common Stock outstanding at the expiration date of the Offer), any
waiting period under the HSR Act (as defined in the Offer to Purchase)
applicable to the purchase of Shares pursuant to the Offer having
expired or having been terminated prior to the expiration of the Offer,
and the period of time for any applicable review process by CFIUS (as
defined in the Offer to Purchase) under the Exon-Florio Amendment (as
defined in the Offer to Purchase) having expired and CFIUS not having
taken action or made any recommendation to the President of the United
States to block or prevent the consummation of the Offer or the Merger
(as defined in the Offer to Purchase). The Offer is also subject to the
other terms and conditions contained in the Offer to Purchase.
6. Tendering stockholders will not be obligated to pay brokerage
fees or commissions or, except as set forth in Instruction 6 of the
Letter of Transmittal, stock transfer taxes on the transfer of Shares
pursuant to the Offer.
If you wish to have us tender any or all of the Shares, please so instruct
us by completing, executing, detaching and returning to us the instruction
form contained in this letter. An envelope to
2
<PAGE>
return your instruction to us is enclosed. If you authorize tender of your
Shares, all such Shares will be tendered unless otherwise indicated in such
instruction form. Please forward your instructions to us as soon as possible
to allow us ample time to tender your Shares on your behalf prior to the
expiration of the Offer.
The Offer is made solely by the Offer to Purchase and the related Letter of
Transmittal and any supplements or amendments thereto. The Offer is not being
made to, nor will tenders be accepted from or on behalf of, holders of Shares
residing in any jurisdiction in which the making of the Offer or acceptance
thereof would not be in compliance with the securities laws of such
jurisdiction. In any jurisdiction where the securities, blue sky or other laws
require the Offer to be made by a licensed broker or dealer, the Offer will be
deemed to be made on behalf of Purchaser by Deutsche Bank Securities Inc. or
Merrill Lynch, Pierce, Fenner & Smith Incorporated or by one or more
registered brokers or dealers licensed under the laws of such jurisdiction.
3
<PAGE>
Instructions With Respect to
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
and
All Outstanding Shares of Series A 6.75% Convertible Preferred Stock
of
Verio Inc.
by
Chaser Acquisition, Inc.
The undersigned acknowledge(s) receipt of your letter and the enclosed
Offer to Purchase dated May 17, 2000 (the "Offer to Purchase"), and the
related Letter of Transmittal (which, together with any amendments or
supplements thereto, collectively constitute the "Offer") in connection with
the offer by Chaser Acquisition, Inc., a Delaware corporation ("Purchaser")
and an indirect wholly owned subsidiary of NTT Communications Corporation, a
limited liability joint stock company incorporated under the laws of Japan
("NTT Communications") and a wholly owned subsidiary of Nippon Telegraph and
Telephone Corporation, a limited liability joint stock company incorporated
under the laws of Japan ("NTT"), to purchase all outstanding shares of common
stock, par value $.001 per share ("Common Stock"), of Verio Inc., a Delaware
corporation (the "Company"), and all outstanding shares of Series A 6.75%
Convertible Preferred Stock, par value $.001 per share ("Preferred Stock" and
together with the Common Stock, the "Shares"), of the Company.
This will instruct you to tender to Purchaser the number of Shares
indicated below (or if no number is indicated below, all Shares) which are
held by you for the account of the undersigned, upon the terms and subject to
the conditions set forth in the Offer.
Number of shares of Common Stock to be Tendered: *
Number of shares of Preferred Stock to be Tendered: *
SIGN HERE
------------------------------------------
------------------------------------------
Signature(s)
Account Number: _________________
------------------------------------------
Date: , 2000 ------------------------------------------
(Print Name(s))
------------------------------------------
------------------------------------------
(Print Address(es))
------------------------------------------
(Area Code and Telephone Number(s))
------------------------------------------
(Taxpayer Identification or
Social Security Number(s))
- --------
*Unless otherwise indicated, it will be assumed that all Shares held by us for
your account are to be tendered.
4
<PAGE>
Exhibit (a)(1)(G)
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to Give the
Payer--Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by
only one hyphen: i.e. 00-0000000. The table below will help determine the
number to give the Payer.
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
For this type of account: Give the name and
SOCIAL SECURITY
number of--
- -----------------------------------------------
<S> <C>
1. Individual The individual
2. Two or more individuals The actual owner
(joint account) of the account
or, if combined
funds, the first
individual on the
account(1)
3. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
4. a. The usual revocable The grantor-
savings trust (grantor trustee(1)
is also trustee)
b. So-called trust account The actual
that is not a legal or owner(1)
valid trust under State
law
5. Sole proprietorship The owner(3)
</TABLE>
<TABLE>
<CAPTION>
Give the name and
For this type of account: EMPLOYER
IDENTIFICATION
number of --
--------
<S> <C>
6. Sole proprietorship The owner(3)
7. A valid trust, estate, or The legal entity
pension trust (Do not furnish
the identifying
number of the
personal
representative or
trustee unless
the legal entity
itself is not
designated in the
account
title.)(4)
8. Corporate The corporation
9. Association, club, The organization
religious, charitable,
educational, or other tax-
exempt organization
10. Partnership The partnership
11. A broker or registered The broker or
nominee nominee
12. Account with the The public entity
Department of Agriculture
in the name of a public
entity (such as a State or
local government, school
district, or prison) that
receives agricultural
program payments
</TABLE>
- ---------------------------------------
(1) List first and circle the name of the person whose number you furnish. If
only one person on a joint account has a SSN, that person's number must be
furnished.
---------------------------------------
(2) Circle the minor's name and furnish the minor's social security number.
(3) You must show your individual name, but you may also enter your business
or "doing business as" name. You may use either your social security
number or employment identification number (if you have one).
(4) List first and circle the name of the legal trust, estate or pension
trust.
Note: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Substitute Form W-9 PAGE 2
- --------------------------------------------------------------------------------
Obtaining a Number Payments of interest not generally
If you don't have a taxpayer subject to backup
identification number or you don't withholding include the following:
know your number, obtain Form SS-5, . Payments of interest on obligations
Application for a Social Security Card issued by individuals.
(for individuals), or Form SS-4, Note: You may be subject to backup
Application for Employer withholding if this
Identification Number (for businesses interest is $600 or more and is paid
and all other entities), or in the course of the payer's trade
Form W-7 for Individual Taxpayer or business and you have not
Identification Number (for provided your correct taxpayer
alien individuals required to file identification number to the payer.
U.S. tax returns), at an office of the Payments of tax-exempt interest
Social Security Administration or the . (including exempt-interest dividends
Internal Revenue Service. under section 852).
. Payments described in section
6049(b)(5) to nonresident
Payees Exempt from Backup Withholding aliens.
Payees specifically exempted from . Payments on tax-free covenant bonds
backup withholding on under section 1451.
Payments made by certain foreign
all payments include the following: organizations.
.
.An organization exempt from tax . Mortgage interest payments.
under section 501(a), or
an individual retirement plan or a Exempt payees described above should
custodial account under Section file a substitute
403(b)(7). Form W-9 to avoid possible erroneous
The United States or any agency or backup withholding. FILE THIS FORM
.instrumentality thereof. WITH THE PAYER, FURNISH YOUR TAXPAYER
.A State, the District of Columbia, a
possession of the IDENTIFICATION NUMBER, WRITE "EXEMPT"
United States, or any subdivision or ON THE FACE
instrumentality thereof. OF THE FORM, AND RETURN IT TO THE
A foreign government, a political PAYER. IF THE
.subdivision of a foreign government,
or any agency or instrumentality PAYMENTS ARE INTEREST, DIVIDENDS, OR
thereof. PATRONAGE
An international organization or any
.agency, or DIVIDENDS, ALSO SIGN AND DATE THE
instrumentality thereof. FORM.
Certain payments other than interest,
dividends, and
Payees that may be exempt from backup patronage dividends that are not
withholding, include, among others: subject to information
.A financial institution. reporting are also not subject to
.A corporation. backup withholding. For
.A registered dealer in securities or details, see Internal Revenue Code
commodities registered sections 6041, 6041A(a), 6042, 6044,
in the U.S. or a possession of the 6045, 6049, 6050A, and 6050N, and
U.S. their regulations.
Privacy Act Notice.--Section 6109
requires most recipients
A real estate investment trust. of dividend, interest or other
. payments to give correct taxpayer
.
A common trust fund operated by a identification numbers to payers who
bank under section must report the payments
584(a).
to the IRS. The IRS uses the numbers
.An entity registered at all times for identification purposes
during the tax year under and to help verify the accuracy of
the Investment Company Act of 1940. your tax return. Payers must be given
.A foreign central bank of issue. the numbers whether or not recipients
.A futures commission merchant are required to file tax returns.
registered with the Commodity Payers must generally withhold 31% of
Futures Trading Commission. taxable
.A middleman known in the investment interest, dividend and certain other
community as a nominee or custodian. payments to a payee who does not
.A trust exempt from tax under furnish a taxpayer identification
Internal Revenue Code section 664 or number to a payer.
described in section 4947. Certain penalties may also apply.
Payments of dividends and patronage Penalties
dividends not (1) Penalty for Failure to Furnish
generally subject to backup Taxpayer Identification
withholding include the following: Number.--If you fail to furnish your
Payments to nonresident aliens correct taxpayer identification number
.subject to withholding to a payer, you are subject to a
under section 1441. penalty of $50 for each such failure
.Payments to partnerships not engaged unless your failure is due to
in a trade or reasonable
business in the U.S. and which have
at least one cause and not to willful neglect.
(2) Civil Penalty for False
nonresident alien partner. Information With Respect to
.Payments of patronage dividends Withholding.--If you make a false
where the amount statement with no
received is not paid in money. reasonable basis which results in no
imposition of backup
.Payments made by certain foreign (3) Criminal Penalty for Falsifying
organizations. Information.--
Section 404(k) distributions made by withholding, you are subject to a
an ESOP. penalty of $500.
. Falsifying certifications or
affirmations may subject you to
criminal penalties including fines
and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT
YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE>
Exhibit (a)(1)(H)
This announcement is neither an offer to purchase nor a solicitation of an
offer to sell shares of Common Stock (as defined below) or shares of Preferred
Stock (as defined below). The Offer (as defined below) is made solely by the
Offer to Purchase, dated May 17, 2000, and the related Letter of Transmittal
(and any amendments or supplements thereto), and is being made to all holders
of Shares (as defined below). Purchaser (as defined below) is not aware of any
state where the making of the Offer is prohibited by administrative or
judicial action pursuant to any valid state statute. If Purchaser becomes
aware of any valid state statute prohibiting the making of the Offer or the
acceptance of the Shares pursuant thereto, Purchaser will make a good faith
effort to comply with such statute or seek to have such statute declared
inapplicable to the Offer. If, after such good faith effort, Purchaser cannot
comply with such state statute, the Offer will not be made to (nor will
tenders be accepted from or on behalf of) holders of Shares in such state. In
any jurisdiction where the securities, "blue sky" or other laws require the
Offer to be made by a licensed broker or dealer, the Offer will be deemed to
be made on behalf of Purchaser by Deutsche Bank Securities Inc. or Merrill
Lynch, Pierce, Fenner & Smith Incorporated (the "Dealer Managers"), or one or
more registered brokers or dealers licensed under the laws of such
jurisdiction.
Notice of Offer to Purchase for Cash
All Outstanding Shares of Common Stock
at $60.00 per share
and
All Outstanding Shares of Series A 6.75% Convertible Preferred Stock
at $62.136 per share
of
Verio Inc.
by
Chaser Acquisition, Inc.
an indirect wholly owned subsidiary of
NTT Communications Corporation
a wholly owned subsidiary of
Nippon Telegraph and Telephone Corporation
Chaser Acquisition, Inc., a Delaware corporation ("Purchaser") and an
indirect wholly owned subsidiary of NTT Communications Corporation, a limited
liability joint stock company incorporated under the laws of Japan ("NTT
Communications") and a wholly owned subsidiary of Nippon Telegraph and
Telephone Corporation, a limited liability joint stock company incorporated
under the laws of Japan ("NTT"), hereby offers to purchase all of the
outstanding shares of common stock, par value $.001 per share ("Common
Stock"), of Verio Inc., a Delaware corporation (the "Company") (other than
shares of Common Stock already owned by NTT Communications and its
subsidiaries), at a purchase price of $60.00 per share, net to the seller in
cash, without interest, and all of the outstanding shares of Series A 6.75%
Convertible Preferred Stock, par value $.001 per share ("Preferred Stock" and
together with the Common Stock, the "Shares"), of the Company at a purchase
price of $62.136 per share, plus, if the purchase of shares of Preferred Stock
pursuant to the Offer occurs after July 31,
<PAGE>
2000, all accumulated and unpaid dividends on such share of Preferred Stock
from August 1, 2000 to and including the expiration date of the Offer, net to
the seller in cash, without interest, upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated May 17, 2000 (the "Offer
to Purchase"), and in the related Letter of Transmittal (which, together with
any amendments or supplements thereto, collectively constitute the "Offer").
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, JUNE 14, 2000, UNLESS THE OFFER IS EXTENDED.
The Offer is conditioned upon, among other things, (i) there being validly
tendered and not withdrawn prior to the expiration of the Offer such number of
shares of Common Stock that, together with the shares of Common Stock then
owned by NTT and its subsidiaries, would constitute at least a majority of the
shares of Common Stock that in the aggregate are outstanding determined on a
fully diluted basis (assuming the exercise of all options to purchase shares
of Common Stock, and the conversion or exchange of all securities convertible
or exchangeable into shares of Common Stock, outstanding at the expiration
date of the Offer) (the "Minimum Condition"), (ii) any waiting period under
the HSR Act (as defined in the Offer to Purchase) applicable to the purchase
of Shares pursuant to the Offer having expired or having been terminated prior
to the expiration of the Offer (the "HSR Condition"), (iii) the period of time
for any applicable review process by CFIUS (as defined in the Offer to
Purchase) under the Exon-Florio Amendment (as defined in the Offer to
Purchase) having expired and CFIUS not having taken any action or made any
recommendation to the President of the United States to block or prevent the
consummation of the Offer or the Merger (as defined below) (the "Exon-Florio
Condition") and (iv) the satisfaction of certain other terms and conditions.
The Offer is being made pursuant to an Agreement and Plan of Merger dated
as of May 7, 2000 (the "Merger Agreement") among NTT Communications, Purchaser
and the Company. The Merger Agreement provides that following satisfaction or
waiver of the conditions set forth in the Merger Agreement and in accordance
with relevant provisions of the General Corporation Law of the State of
Delaware, as amended (the "DGCL"), Purchaser will be merged with and into the
Company (the "Merger"). At the effective time of the Merger (the "Effective
Time"), each share of Common Stock issued and outstanding immediately prior to
the Effective Time (other than shares of Common Stock owned by the Company,
any wholly owned subsidiary of the Company, NTT Communications or any wholly
owned subsidiary of NTT Communications, or by stockholders, if any, who are
entitled to and properly exercise dissenter's rights under the DGCL) will be
converted into the right to receive $60.00 in cash, without interest, or any
higher price that is paid for the shares of Common Stock in the Offer, and
each share of Preferred Stock issued and outstanding immediately prior to the
Effective Time (other than shares of Preferred Stock owned by the Company, any
wholly owned subsidiary of the Company, NTT Communications or any wholly owned
subsidiary of NTT Communications, or by stockholders, if any, who are entitled
to and properly exercise dissenter's rights under the DGCL) will be cancelled
and converted into the right to receive $62.136, plus, if the Effective Time
is after July 31, 2000, all accumulated and unpaid dividends on such share of
Preferred Stock to the Effective Time, in cash, without interest, or any
higher price that is paid for the shares of Preferred Stock in the Offer.
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE MERGER AGREEMENT AND
APPROVED THE OFFER AND THE MERGER, HAS DETERMINED THAT THE TERMS OF THE OFFER
AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY'S
STOCKHOLDERS, AND RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS ACCEPT THE OFFER
AND TENDER ALL THEIR SHARES PURSUANT TO THE OFFER.
2
<PAGE>
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment, and thereby purchased, Shares validly tendered and not withdrawn, if
and when Purchaser gives oral or written notice to Norwest Bank Minnesota,
N.A. (the "Depositary") of Purchaser's acceptance of such Shares for payment.
In all cases, payment for Shares purchased pursuant to the Offer will be made
by deposit of the purchase price with the Depositary, which shall act as agent
for tendering stockholders for the purpose of receiving payment from Purchaser
and transmitting payment to the tendering stockholders. Payment for Shares
accepted for payment pursuant to the Offer will be made only after timely
receipt by the Depositary (i) of certificates for such Shares or timely
confirmation of a book-entry transfer of such Shares into the Depositary's
account at the Book-Entry Transfer Facility (as defined in the Offer to
Purchase) pursuant to the procedures set forth in the Offer to Purchase, (ii)
a properly completed and duly executed Letter of Transmittal (or manually
signed facsimile thereof), with any required signature guarantees, or, in the
case of a book-entry transfer, an Agent's Message (as defined in the Offer to
Purchase) and (iii) any other documents required by the Letter of Transmittal.
Purchaser expressly reserves the right, in its sole discretion (subject to
the terms and conditions of the Merger Agreement), at any time and from time
to time, to extend the period of time during which the Offer is open for any
reason, including the failure of any of the conditions specified in Section 13
of the Offer to Purchase to be satisfied, and thereby delay acceptance for
payment of and payment for any Shares. The term "Expiration Date" shall mean
12:00 Midnight, New York City time, on Wednesday, June 14, 2000 unless
Purchaser shall have extended the period of time for which the Offer is open,
in which event the term "Expiration Date" shall mean the latest time and date
at which the Offer, as so extended by Purchaser, shall expire. Under the
Merger Agreement, under certain circumstances, the Company may require
Purchaser to extend the Offer from time to time, subject to the right of NTT
Communications and Purchaser to terminate the Merger Agreement pursuant to its
terms, if at the scheduled Expiration Date of the Offer certain of the
conditions set forth in Section 13 of the Offer to Purchase, including the
Minimum Condition, the HSR Condition or the Exon-Florio Condition, are not
satisfied and the other conditions to the Offer have been satisfied. No
subsequent offering period will be available.
Subject to the limitations set forth in the Offer and the Merger Agreement,
Purchaser reserves the right (but will not be obligated), at any time or from
time to time in its sole discretion, to extend the period during which the
Offer is open by giving oral or written notice of such extension to the
Depositary and by making a public announcement of such extension. There can be
no assurance that Purchaser will exercise its right to extend the Offer. Any
extension of the period during which the Offer is open will be followed, as
promptly as practicable, by public announcement thereof, such announcement to
be issued not later than 9:00 a.m., New York City Time, on the next business
day after the previously scheduled Expiration Date. During any such extension,
all Shares previously tendered and not withdrawn will remain subject to the
Offer, subject to the rights of a tendering stockholder to withdraw such
stockholder's Shares.
Except as otherwise provided in Section 5 of the Offer to Purchase, tenders
of Shares made pursuant to the Offer are irrevocable, except that Shares
tendered pursuant to the Offer may be withdrawn at any time prior to the
Expiration Date, and, unless theretofore accepted for payment, may also be
withdrawn at any time after July 15, 2000. For a withdrawal to be effective, a
written, telegraphic, telex or facsimile transmission notice of withdrawal
must be timely received by the Depositary at one of its addresses set forth on
the back cover of the Offer to Purchase. Any such notice of withdrawal must
specify the name of the person who tendered the Shares to be withdrawn, the
number of Shares to be withdrawn and the name of the registered holder if
different from the name of the person who tendered the Shares. If certificates
for Shares to be withdrawn have been delivered or otherwise identified to the
Depositary, then prior to the physical release of such certificates, the
serial numbers shown on such certificates must be submitted to the Depositary
and,
3
<PAGE>
unless such Shares have been tendered for the account of an Eligible
Institution (as defined in the Offer to Purchase), the signature on the notice
of withdrawal must be guaranteed by an Eligible Institution. All questions as
to the form and validity (including time of receipt) of a notice of withdrawal
will be determined by Purchaser, in its sole discretion, and its determination
shall be final and binding on all parties.
The information required to be disclosed by Rule 13e-3(e)(1) and Rule 14d-6
of the General Rules and Regulations under the Securities Exchange Act of
1934, as amended, is contained in the Offer to Purchase and is incorporated
herein by reference.
The Company has provided to Purchaser its lists of stockholders and
security position listings for the purpose of disseminating the Offer to
holders of Shares. The Offer to Purchase, the related Letter of Transmittal
and other related materials are being mailed to record holders of Shares and
will be mailed to brokers, dealers, commercial banks, trust companies and
similar persons whose names, or the names of whose nominees, appear on the
stockholder lists or, if applicable, who are listed as participants in a
clearing agency's security position listing, for subsequent transmittal to
beneficial owners of Shares.
The Offer to Purchase and the related Letter of Transmittal contain
important information that should be read before any decision is made with
respect to the Offer.
Any questions or requests for assistance or for copies of the Offer to
Purchase and the related Letter of Transmittal and other tender offer
materials may be directed to the Information Agent or the Dealer Managers as
set forth below, and copies will be furnished promptly at Purchaser's expense.
No fees or commissions will be payable to brokers, dealers or other persons
other than the Information Agent, the Dealer Managers and the Depositary for
soliciting tenders of Shares pursuant to the Offer.
The Information Agent for the Offer is:
MORROW & CO., INC.
445 Park Avenue
5th Floor
New York, New York 10022
Call Collect (212) 754-8000
Banks and Brokerage Firms, Please Call: (800) 662-5200
Shareholders, Please Call: (800) 566-9061
The Dealer Managers for the Offer are:
Deutsche Banc Alex. Brown Merrill Lynch & Co.
Deutsche Bank Securities Inc. 31 West 2 World Financial Center 6th Floor New
52nd Street New York, New York 10019 York, New York 10281-6100 (212) 236-
(212) 250-6000 (Call Collect) 3790 (Call Collect)
May 17, 2000
4
<PAGE>
Exhibit (a)(1)(J)
NEWS RELEASE
NTT COMMUNICATIONS COMMENCES TENDER OFFER FOR VERIO INC.
TOKYO, JAPAN, (May 17, 2000) NTT Communications Corporation ("NTT
Communications") today announced that it is commencing its previously announced
tender offer for all of the common stock, par value $.001 per share, of Verio
Inc. (NASDAQ: VRIO), at a purchase price of $60.00 per share, net to the seller,
in cash. NTT Communications is also offering to purchase all of the outstanding
shares of preferred stock of Verio at a purchase price of $62.136 per share, net
to the seller, in cash. The tender offer is being made pursuant to an agreement
and plan of merger dated as of May 7, 2000. The tender offer is scheduled to
expire on Wednesday, June 14, 2000.
Norwest Bank Minnesota, N.A. is the Depositary for the tender offer. Morrow &
Co., Inc. is the Information Agent. The Dealer Managers are Deutsche Banc Alex.
Brown and Merrill Lynch & Co.
For further information, please contact Morrow & Co., Inc. at (800) 566-9061.
About NTT Communications.
NTT Communications, a subsidiary of Nippon Telegraph and Telephone Corporation
provides long distance international telecommunications reaching over 200
countries worldwide. Headquartered in Tokyo, NTT Communications' Arcstar
services operate in about 50 countries and have significant presence in Asia,
North America and Europe. Arcstar global services provide managed data,
multimedia and Internet services to some of the largest companies in the world.
NTT Communications' investment in its Managed Services, IP Infrastructure and
Internet Portal will meet the growing demand for electronic commerce-based
services from its business customers and home users. NTT Communications, with
the OCN brand, is already one of the largest ISPs in Japan.
For more information about NTT Communications, visit the company's Web site at
http://www.ntt.com/index-e.html.
This news release does not constitute an offer to purchase or a solicitation of
an offer to sell any securities. The complete terms and conditions of the tender
offer are set forth in an offer to purchase and related letter of transmittal
which are included in a Tender Offer Statement which is being filed today with
the Securities and Exchange Commission. The offer to purchase and related letter
of transmittal will be mailed to Verio's stockholders. The Tender Offer
Statement (including the offer to purchase, letter of transmittal and related
documents) will also be available for free on the Commission's Web site at
http://www.sec.gov.
<PAGE>
Ex (a)(5)(C)
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
______________________________________________ x
ARI ROSNER, :
:
Plaintiff, :
:
v. : Case No. 18043NC
:
VERIO INC., STEVEN C. HALSTEDT, YUKIMASA ITO, :
JUSTIN L. JASCHKE, JAMES C. ALLEN, TRYGVE E. :
MYHREN, PAUL J. SALEM, ARTHUR L. CAHOON, and :
NIPPON TELEGRAPH AND TELEPHONE CORP., :
:
:
:
Defendants. :
______________________________________________ x
CLASS ACTION COMPLAINT
----------------------
Plaintiff, by his attorneys, for his class action complaint against
defendants, alleges upon information and belief, except for paragraph 2 hereof,
which is alleged upon knowledge as follows:
1. Plaintiff brings this action pursuant to Rule 23 of the Rules of the
Court of Chancery on his behalf and as a class action on behalf of all persons,
other than defendants and those in privity with them, who own the common stock
of Verio Inc. ("Verio" or the "Company").
2. Plaintiff has been the owner of the common stock of the Company since
prior to the wrongs herein complained of and continuously to date.
3. Defendant Verio is a corporation duly organized and existing under the
laws of the State of Delaware with principal executive offices at 8005 South
Chester Street, Englewood, Colorado. The Company is one of the world's largest
operators of Web sites for businesses and a leading provider of comprehensive
Internet services with an emphasis on serving the small and medium sized
business market. The Company has over 78 million shares
<PAGE>
of common stock issued and outstanding on a fully diluted basis, held by
thousands of shareholders of record, which shares trade on the NASDAQ.
4. Defendant Nippon Telegraph and Telephone Corporation ("NTT") is a
Japanese corporation and is the national telephone company of Japan. NTT owns or
controls approximately 11.4% of Verio. NTT acquired its Verio shares for
approximately $11 per share.
5. Defendant Steven C. Halstedt ("Halstedt") is and was at all relevant
times Verio's Chairman of the Board.
6. Defendant Yukimasa Ito is a director of the Company and an officer of
NTT Communications Corp.
7. Defendant Justin L. Jaschke ("Jaschke") is and was at all relevant
times Chief Executive Officer, and Director of the Company.
8. Defendants James C. Allen, Trygve E. Myhren, Paul J. Salem and Arthur
L. Cahoon are and were at all relevant times directors of the Company.
9. The Individual Defendants named in paragraphs 5 through 8 constitute
the Board of Directors of Verio (the "Board") and are in a fiduciary
relationship with plaintiff and the other public stockholders of Verio and owe
them the highest obligations of good faith and fair dealing.
CLASS ACTION ALLEGATIONS
10. Plaintiff brings this action on his own behalf and as a class action,
pursuant to Rule 23 of the Rules of the Court of Chancery, on behalf of all
common stockholders of the Company (except the defendants herein and any person,
firm, trust, corporation, or other entity related to or affiliated with any of
the defendants) and their successors in interest, who are or will be threatened
with injury arising from defendants' actions as more fully described herein (the
"Class").
11. This action is properly maintainable as a class action:
-2-
<PAGE>
a. The Class is so numerous that joinder of all members is
impracticable. There were in excess of 78 million shares of Verio common stock
outstanding, owned by thousands of shareholders located throughout the country.
b. There are questions of law and fact which are common to the Class
including, inter alia, the following: (i) whether defendants have breached their
fiduciary and other common law duties owed by them to plaintiff and the Class;
and (ii) whether the Class is entitled to injunctive relief or damages as a
result of defendants' wrongful conduct.
c. Plaintiff is committed to prosecuting this action and has retained
competent counsel experienced in litigation of this nature. The claims of the
plaintiff are typical of the claims of other members of the Class and plaintiff
has the same interests as the other members of the Class. Plaintiff will fairly
and adequately represent the Class.
d. Defendants have acted in a manner which similarly affects plaintiff
and all members of the Class, thereby making appropriate injunctive relief
and/or corresponding declaratory relief with respect to the Class as a whole.
e. The prosecution of separate actions by individual members of the
Class would create a risk of inconsistent or varying adjudications with respect
to individual members of the Class, which would establish incompatible standards
of conduct for defendants, or adjudications with respect to individual members
of the Class which would, as a practical matter, be dispositive of the interests
of other members or substantially impair or impede their ability to protect
their interests.
SUBSTANTIVE ALLEGATIONS
12. In September 1999, Verio announced that it had entered into an
agreement with NTT Communications, part of the Nippon Telegraph and Telephone
group of telecommunications companies, to provide Verio's Web hosting services
to the Japanese market. NTT currently holds approximately 9 million shares of
Verio's common stock, representing approximately 10% of its outstanding stock.
Under the agreement, the entire NTT group of companies will be able to market
Verio's Web hosting services to businesses in Japan on a co-branded, "Powered by
Verio" basis.
-3-
<PAGE>
13. On or about May 7, 2000, Reuters reported that NTT Communications, a
unit of Nippon Telegraph and Telephone Corp. would buy the 90 percent of Verio
not already owned by NTT for about $60 per share or $5.5 billion. Pursuant to
the terms of the transaction, NTT will commence a cash tender offer for Verio no
later than May 17, 2000.
14. The transaction represents a change in control and imposes heightened
fiduciary duties on the Individual Defendants to maximize shareholder value and
requires enhanced scrutiny by the Court. However, the terms of the proposed
transaction were not the result of an auction process or active market check;
they were arrived at without a full and thorough investigation by the Individual
Defendants; and they are intrinsically unfair and inadequate from the standpoint
of the Verio shareholders.
15. The Individual Defendants failed to make an informed decision, as no
market check of the Company's value was obtained. In agreeing to the
transaction, the Individual Defendants failed to properly inform themselves of
Verio's highest transactional value.
16. According to a May 8, 2000 Bloomberg's article, "[b]oth companies said
there was at least one rival suitor for Verio, though they declined to provide
details."
17. The Individual Defendants have violated the fiduciary duties owed to
the public shareholders of Verio. The Individual Defendants' agreement to the
terms of the transaction, its timing, and the failure to auction the Company and
invite other bidders, and defendants' failure to provide a market check
demonstrates a clear absence of the exercise of due care and loyalty to Verio's
public shareholders.
18. The Individual Defendants' fiduciary obligations under these
circumstances require them to:
(a) Undertake an appropriate evaluation of Verio's net worth as a
merger/acquisition candidate; and
(b) Engage in a meaningful auction with third parties in an attempt
to obtain the best value for Verio's public shareholders.
-4-
<PAGE>
19. The Individual Defendants have breached their fiduciary duties by
reason of the acts and transactions complained of herein, including their
decision to merge with NTT without making the requisite effort to obtain the
best offer possible.
20. In light of the foregoing, the Individual Defendants must, as their
fiduciary obligations require:
(a) Undertake an appropriate evaluation of Verio's net worth as a
merger/acquisition candidate; and
(b) Engage in a meaningful auction with third parties in an attempt
to obtain the best value for Verio's public shareholders.
21. As a result of the Individual Defendants' failure to take such steps
to date, plaintiff and the other members of the Class have been and will be
irreparably damaged in that they have not and will not receive their
proportionate share of the value of the Company's assets and business, and have
been and will be prevented from obtaining a fair price for their common stock.
22. NTT has knowingly aided and abetted the breaches of fiduciary duty
committed by Verio and the Individual Defendants.
23. Unless the proposed transaction is enjoined by the Court, defendants
will continue to breach their fiduciary duties owed to plaintiff and the members
of the Class, to the irreparable harm of the members of the Class.
24. Plaintiff and the other members of the Class have no adequate remedy
at law.
WHEREFORE, plaintiff prays for judgment and relief as follows:
A. Ordering that this action may be maintained as a class action and
certifying plaintiff as the Class representative.
B. Preliminarily and permanently enjoining defendants and their counsel,
agents, employees and all persons acting under, in concert with, or for them,
from proceeding with,
-5-
<PAGE>
consummating, or closing the proposed transaction or any business combination
with a third party, unless and until the Company adopts and implements a
procedure or process, such as an auction, to obtain the highest possible price
for the Company;
C. In the event the proposed transaction is consummated, rescinding it and
setting it aside, or awarding the Class rescissory damages;
D. Awarding compensatory damages against defendants individually and
severally in an amount to be determined at trial, together with prejudgment
interest at the maximum rate allowable by law;
E. Awarding plaintiff and the Class their costs and disbursements,
including plaintiff's counsel and experts' fees and expenses; and
F. Granting such other and further relief as the Court may deem just and
proper.
ROSENTHAL, MONHAIT, GROSS
& GODDESS, P.A.
By:__________________________
Suite 1401, Mellon Bank Center
P.O. Box 1070
Wilmington, DE 19899-1070
(302) 656-4433
OF COUNSEL
BULL & LIFSHITZ, LLP
246 West 38th Street
New York, New York 10018
-6-
<PAGE>
Exhibit (a)(5)(d)
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
-------------------------------------------------
IN AND FOR NEW CASTLE COUNTY
----------------------------
_______________________________________________ x
STEVEN WOLK, :
:
Plaintiff, :
:
v. :
:
ARTHUR L. CAHOON, PAUL J. SALEM, STEVEN C. : Case No. 18042NC
HALSTEDT, JAMES C. ALLEN, JUSTIN L. JASCHKE, :
TRYGVE E. MYHREN, YUKIMASA ITO and VERIO :
INC., :
:
Defendants. :
_______________________________________________ x
COMPLAINT
---------
Plaintiff, Steven Wolk, by his attorneys, alleges upon information and
belief, except as to paragraph 1 which is alleged upon personal knowledge, as
follows:
1. Plaintiff Steven Wolk ("plaintiff") is the owner of common stock of
Verio Inc. ("Verio" or the "Company") and has been the owner of such shares
continuously since prior to the wrongs complained of herein.
2. Defendant Verio is a corporation duly existing and organized under the
laws of the State of Delaware with principal executive offices at 8005 South
Chester Street, Suite 200, Englewood, Colorado. The Company is one of the
world's largest operators of Web sites for businesses and a leading provider of
comprehensive Internet services to small and mid-sized businesses.
3. Defendant Steven C. Halstedt ("Halstedt") is and at all times relevant
hereto has been Chairman of the Board of Verio.
4. Defendant Justin L. Jaschke ("Jaschke") is and at all times relevant
hereto has been Chief Executive Officer and a director of Verio.
<PAGE>
5. Defendants Arthur L. Cahoon, Paul J. Salem, James C. Alen, Trygve E.
Myhren and Yukimasa Ito are and at all times relevant hereto have been directors
of Verio.
6. The defendants referred to in paragraphs 3 through 5 are collectively
referred to herein as the "Individual Defendants."
7. By reason of the above Individual Defendants' positions with the
Company as officers and/or directors, said individuals are in a fiduciary
relationship with plaintiff and the other public stockholders of Verio, and owe
plaintiff and the other members of the class the highest obligations of good
faith, fair dealing, due care, loyalty and full and candid disclosure.
CLASS ACTION ALLEGATIONS
------------------------
8. Plaintiff brings this action on his own behalf and as a class action,
pursuant to Rule 23 of the Rules of the Court of Chancery, on behalf of himself
and holders of Verio common stock (the "Class"). Excluded from the Class are
defendants herein and any person, firm, trust, corporation or other entity
related to or affiliated with any of the defendants.
9. This action is properly maintainable as a class action.
a. The Class is so numerous that joinder of all members is
impracticable. As of May 5, 2000, there were approximately 78.7 million shares
of Verio common stock outstanding.
b. There are questions of law and fact which are common to the
Class, including, inter alia the following:
(i) whether the merger described herein is grossly unfair to
the Class;
(ii) whether plaintiff and the other members of the Class would
be irreparably damaged were the transactions complained of herein consummated;
and
(iii) whether defendants have breached their fiduciary and other
common law duties owed by them to plaintiff and the other members of the Class.
-2-
<PAGE>
c. Plaintiff is committed to prosecuting this action and has
retained competent counsel experienced in litigation of this nature. Plaintiff's
claims are typical of the claims of the other members of the Class and plaintiff
has the same interests as the other members of the Class. Accordingly, plaintiff
is an adequate representative of the Class and will fairly and adequately
protect the interests of the Class.
d. Defendants have acted in a manner which affects plaintiff and all
members of the Class alike, thereby making appropriate injunctive relief and/or
corresponding declaratory relief with respect to the Class as a whole.
e. The prosecution of separate actions by individual members of the
Class would create a risk of inconsistent or varying adjudications with respect
to individual members of the Class, which would establish incompatible standards
of conduct for defendants, or adjudications with respect to individual members
of the Class which would, as a practical matter, be dispositive of the interests
of other members or substantially impair or impede their ability to protect
their interests.
SUBSTANTIVE ALLEGATIONS
-----------------------
10. On May 8, 2000, it was announced that Nippon Telegraph & Telephone
Corp. ("NTT") has agreed to purchase all of the outstanding shares of Verio for
$5.5 billion (the "Merger"). NTT currently owns approximately 11.4% of the
outstanding shares of Verio. Pursuant to the terms of the Merger, NTT will pay
$60 in cash for each share of Verio that it does not already own. NTT said it
will make no change in Verio's management. NTT expects to make a tender offer on
May 17, 2000.
11. The Merger consideration to be paid to Class members is unfair and
inadequate because, among other things:
(a) the consideration agreed upon did not result from an appropriate
consideration of the value of Verio as the Individual Defendants
were presented with, and asked to evaluate, the proposed Merger
without any attempt to sufficiently ascertain the true value of
Verio through open bidding or a "market check" mechanism; and,
-3-
<PAGE>
(b) Verio common stock has traded as high as $80 per share as
recently as March 1, 2000.
12. The Individual Defendants have thus far failed to announce any active
or open bidding procedures best calculated to maximize shareholder value and
have, instead, agreed to the Merger which will only serve to inhibit the
maximization of shareholder value.
13. The Individual Defendants were and are under a duty:
(a) to fully inform themselves of Verio's market value before taking,
or agreeing to refrain from taking, action;
(b) to act in the interests of the equity owners;
(c) to maximize shareholder value;
(d) to obtain the best financial and other terms when the Company's
independent existence will be materially altered by a
transaction; and,
(e) to act in accordance with their fundamental duties of care and
loyalty.
14. Verio shareholders will, if the transaction is consummated, be
deprived of the opportunity for substantial gains which the Company may realize.
15. By reason of the foregoing acts, practices and course of conduct,
defendants have failed to exercise ordinary care and diligence in the exercise
of their fiduciary obligations toward plaintiff and the other Verio public
stockholders.
16. As a result of the actions of defendants, plaintiff and other members
of the Class have been and will be damaged in that they have not and will not
receive their fair proportion of the value of Verio's assets and businesses and
will be prevented from obtaining appropriate consideration for their shares of
Verio common stock.
17. Unless enjoined by this Court, the defendants will continue to breach
their fiduciary duties owed to plaintiff and the other members of the Class, and
will consummate the proposed transaction which will exclude the Class from its
fair proportionate share of Verio's valuable assets and businesses, and/or
benefit them in the unfair manner complained of herein, all to the irreparable
harms of the Class, as aforesaid.
-4-
<PAGE>
18. Plaintiff and the Class have no adequate remedy at law.
WHEREFORE, plaintiff demands judgement and preliminary and permanent
relief, including injunctive relief, in favor of the Class and against
defendants as follows:
A. Declaring that this action is properly maintainable as a class action
and certifying plaintiff as the representative of the Class;
B. Preliminarily and permanently enjoining defendants and their counsel
agents, employees and all persons acting under, in concert with, or for them,
from proceeding with, consummating, or closing the proposed transaction or any
business combination with a third party, unless and until the Company adopts and
implements a procedure or process, such as an auction, to obtain the highest
possible price for the Company;
C. Directing the Individual Defendants to exercise their fiduciary duties
to obtain a transaction which is in the best interests of shareholders until the
process for the sale or auction of the Company is completed and the highest
possible price is obtained;
D. In the event that the proposed transaction is consummated, rescinding
it and setting it aside, or awarding rescissory damages to the Class;
E. Awarding compensatory damages against defendants, individually and
severally, in an amount to be determined at trail, together with pre-judgement
and post-judgment interest at the maximum rate allowable by law, arising from
the proposed transaction;
F. Awarding plaintiff his costs and disbursements, including a reasonable
allowance for plaintiff's counsel and expert fees and expenses; and
G. Granting plaintiff and the Class such other and further relief as the
Court may deem just and proper.
-5-
<PAGE>
ROSENTHAL, MONHAIT, GROSS
& GODDESS, P.A.
By:__________________________
Mellon Bank Center, Suite 1401
Wilmington, DE 19899-1070
(302) 656-4433
Attorneys for Plaintiff
Of Counsel:
SCHIFERIN & BARROWAY, LLP
Marc A. Topaz
Patricia C. Weiser
Three Bala Plaza East
Suite 400
Bala Cynwyd, PA 19004
(610) 667-7706
-6-
<PAGE>
Exhibit (a)(5)(E)
IN THE COURT OF CHANCERY IN THE STATE OF DELAWARE
-------------------------------------------------
IN AND FOR NEW CASTLE COUNTY
----------------------------
___________________________________________________ x
JACOB WEINSTOCK, :
:
Plaintiff, :
:
v. :
:
STEVEN C. HALSTEDT, JUSTIN L. JASCHKE, : Case No. 18041NC
JAMES C. ALLEN, TRYGVE E. MYHREN, :
PAUL J. SALEM, YUKIMASA ITO, ARTHUR L. :
CAHOON, VERIO INC., and NIPPON :
TELEGRAPH AND TELEPHONE :
CORPORATION, :
:
Defendants. :
___________________________________________________ x
CLASS ACTION COMPLAINT
----------------------
Plaintiff alleges upon information and belief, except for paragraph 1
hereof, which is alleged upon knowledge, as follows:
1. Plaintiff has been the owner of the common stock of Verio Inc. ("Verio"
or the "Company") since prior to the wrongs herein complained of and
continuously to date.
2. Verio is a corporation duly organized and existing under the laws of
the State of Delaware. The Company is the largest provider of websites for
businesses and is a leading provider of comprehensive Internet services.
3. Defendant Nippon Telegraph and Telephone Corporation ("NTT") is a
Japanese corporation and is the national telephone company of Japan. NTT owns or
controls approximately 11.4% of Verio. NTT acquired its Verio shares for
approximately $11 per share.
<PAGE>
4. Defendant Steven C. Halstedt is Chairman of the Board of the Company.
5. Defendant Justin L. Jaschke is Chief Executive Officer and a Director
of the Company.
6. Defendant Yukimasa Ito is a Director of the Company and a Vice
President of NTT Communications Corp.
7. Defendants James C. Allen, Trygve E. Myhren, Paul J. Salem and
Arthur L. Cahoon are Directors of Verio.
8. The Individual Defendants are in a fiduciary relationship with
Plaintiff and the other public stockholders of Verio and owe them the highest
obligations of good faith and fair dealing.
CLASS ACTION ALLEGATIONS
------------------------
9. Plaintiff brings this action on his own behalf and as a class action,
pursuant to Rule 23 of the Rules of the Court of Chancery, on behalf of all
common stockholders of the Company (except the defendants herein and any person,
firm, trust, corporation, or other entity related to or affiliated with any of
the defendants) and their successors in interest, who are or will be threatened
with injury arising from defendants' actions as more fully described herein (the
"Class").
10. This action is properly maintainable as a class action because:
(a) The Class is so numerous that joinder of all members is
impracticable. As of March 14, 2000, there were approximately 78,724,424 shares
of Verio common stock outstanding owned by hundreds, if not thousands, of record
and beneficial holders;
(b) There are questions of law and fact which are common to the Class,
including, inter alia the following:
----- ----
(i) whether defendants have breached their fiduciary and other
common law duties owed by them to plaintiff and the members of the Class; and
-2-
<PAGE>
(ii) whether the Class is entitled to injunctive relief or
damages as a result of the wrongful conduct committed by defendants.
(c) Plaintiff is committed to prosecuting this action and has retained
competent counsel experienced in litigation of this nature. The claims of the
plaintiff are typical of the claims of other members of the Class and plaintiff
has the same interests as the other members of the Class. Plaintiff will fairly
and adequately represent the Class.
(d) Defendants have acted in a manner which affects plaintiff and all
members of the Class alike, thereby making appropriate injunctive relief and/or
corresponding declaratory relief with respect to the Class as a whole.
(e) The prosecution of separate actions by individual members of the
Class would create a risk of inconsistent or varying adjudications with respect
to individual members of the Class, which would establish incompatible standards
of conduct for defendants, or adjudications with respect to individual members
of the Class which would, as a practical matter, be dispositive of the interests
of other members or substantially impair or impede their ability to protect
their interests.
SUBSTANTIVE ALLEGATIONS
-----------------------
11. On May 7, 2000, Reuters reported that Verio and NTT announced that
they had entered into a definitive merger agreement whereby NTT will acquire the
Verio shares it does not already own for $60 per share in cash in a transaction
valued at $5.5 billion. Under the terms of the transaction as presently
proposed, a U.S. subsidiary of NTT will commence a cash tender offer for all of
Verio's outstanding common shares at a price of $60 per share no later than May
17, 2000.
12. Although the $60 per share offer represents a premium to Verio's
closing stock price on Friday, May 4, 2000, the offer is significantly below
Verio's recent high of $84 per share, reached in March 2000. Additionally, given
NTT's basis of $11 per share in the shares of Verio that it already owns, the
cost of the proposed acquisition to NTT will be approximately $55 per share.
-3-
<PAGE>
13. By entering into the agreement with NTT, the Verio Board has initiated
a process to sell the Company which imposes heightened fiduciary
responsibilities and requires enhanced scrutiny by the court. However, the terms
of the proposed transaction were not the result of an auction process or active
market check; they were arrived at without a full and thorough investigation by
the Individual Defendants; and they are intrinsically unfair and inadequate from
the standpoint of the Verio shareholders.
14. The Individual Defendants failed to make an informed decision, as no
market check of the Company's value was obtained. In agreeing to the merger, the
Individual Defendants failed to properly inform themselves of Verio's highest
transactional value.
15. According to a May 8, 2000 Bloomberg's article, "[b]oth companies said
there was at least one rival suitor for Verio, though they declined to provide
details."
16. The Individual Defendants have violated the fiduciary duties owed to
the public shareholders of Verio. The Individual Defendants' agreement to the
terms of the transaction, its timing, and the failure to auction the Company and
invite other bidders, and defendants' failure to provide a market check
demonstrate a clear absence of the exercise of due care and loyalty to Verio's
public shareholders.
17. The Individual Defendants' fiduciary obligations under these
circumstances require them to:
(a) Undertake an appropriate evaluation of Verio's net worth as a
merger/acquisition candidate; and
(b) Engage in a meaningful auction with third parties in an attempt
to obtain the best value for Verio's public shareholders.
18. The Individual Defendants have breached their fiduciary duties by
reason of the acts and transactions complained of herein, including their
decision to merge with NTT without making the requisite effort to obtain the
best offer possible.
-4-
<PAGE>
19. Plaintiff and other members of the Class have been and will be damaged
in that they have not and will not receive their fair proportion of the value of
Verio's assets and business, and will be prevented from obtaining fair and
adequate consideration for their shares of Verio common stock.
20. The consideration to be paid to Class members in the proposed merger
is unfair and inadequate because, among other things:
(a) The intrinsic value of Verio's common stock is materially in
excess of the amount offered for those securities in the merger
giving due consideration to the anticipated operating results,
net asset value, cash flow, and profitability of the Company;
(b) The merger price is not the result of an appropriate
consideration of the value of Verio because the Verio Board
approved the proposed merger without undertaking steps to
accurately ascertain Verio's value through open bidding or at
least a "market check mechanism"; and
(c) By entering into the agreement with NTT, the Individual
Defendants have allowed the price of Verio stock to be capped,
thereby depriving plaintiff and the Class of the opportunity to
realize any increase in the value of Verio stock.
21. By reason of the foregoing, each member of the Class will suffer
irreparable injury and damages absent injunctive relief by this Court.
22. NTT, because of its stock ownership and representation on Verio's
Board has access to information about the Company that gives it an unfair
advantage over other potential bidders. NTT used this information to negotiate a
transaction favorable to itself and unfair to Verio's public shareholders.
Additionally, NTT knowingly aided and abetted the breaches of fiduciary duty
committed by the Individual Defendants in order to buy Verio at the lowest
possible price.
-5-
<PAGE>
23. Plaintiff and other members of the Class have no adequate remedy at
law.
WHEREFORE, plaintiff and members of the Class demand judgement against
defendants as follows:
(a) Declaring that this action is properly maintainable as a class action
and certifying plaintiff as the representative of the Class;
(b) Preliminarily and permanently enjoining defendants and their counsel
agents, employees and all persons acting under, in concert with, or for them,
from proceeding with, consummating, or closing the proposed transaction;
(c) In the event that the proposed transaction is consummated, rescinding
it and setting it aside, or awarding rescissory damages to the Class;
(d) Awarding compensatory damages against defendants, individually and
severally, in an amount to be determined at trail, together with pre-judgement
and post-judgment interest at the maximum rate allowable by law, arising from
the proposed transaction;
(e) Awarding plaintiff his costs and disbursements, including a reasonable
allowance for plaintiff's counsel and expert fees and expenses; and
(f) Granting plaintiff and the Class such other and further relief as the
Court may deem just and proper.
Dated: May 8, 2000
ROSENTHAL, MONHAIT, GROSS &
GODDESS, P.A.
By: __________________________
Suite 1401, Mellon Bank Center
P.O. Box 1070
Wilmington, DE 19899-1070
(302) 656-4433
Attorneys for Plaintiff
OF COUNSEL:
BERNSTEIN LIEBHARD & LIESHITZ, LLP
10 East 40th Street
New York, NY 10016
(212) 779-1414
-6-
<PAGE>
Exhibit (a)(5)(F)
IN THE COURT OF CHANCERY IN THE STATE OF DELAWARE
-------------------------------------------------
IN AND FOR NEW CASTLE COUNTY
----------------------------
) Case No. 18046NC
DAVID BRETT, )
)
Plaintiff, )
)
v. )
)
STEVEN C. HALSTEDT, JUSTIN L. JASCHKE, JAMES C. )
ALLEN, TRYGVE E. MYHREN, PAUL J. SALEM, YUKIMASA )
ITO, ARTHUR L. CAHOON, VERIO INC., and NIPPON )
TELEGRAPH AND TELEPHONE CORPORATION, )
)
Defendants. )
)
)
CLASS ACTION COMPLAINT
----------------------
Plaintiff alleges upon information and belief, except for paragraph 1
hereof, which is alleged upon knowledge, as follows:
1. Plaintiff has been the owner of the common stock of Verio Inc.
("Verio" or the "Company") since prior to the wrongs herein complained of and
continuously to date.
2. Verio is a corporation duly organized and existing under the laws of
the State of Delaware. The Company is the largest provider of Web sites for
businesses and is a leading provider of comprehensive Internet services.
3. Defendant Nippon Telegraph and Telephone Corporation ("NTT") is a
Japanese corporation and is the national telephone company of Japan. NTT owns or
controls approximately 11.4% of Verio. NTT acquired its Verio shares for
approximately $11 per share.
4. Defendant Steven C. Halstedt is Chairman of the Board of the Company.
5. Defendant Justin L. Jaschke is Chief Executive Officer and a Director
of the Company.
<PAGE>
6. Defendant Yukimasa Ito is a Director of the Company and a Vice
President of NTT Communications Corp.
7. Defendants James C. Allen, Trygve E. Myhren, Paul J. Salem and
Arthur L. Cahoon are Directors of Verio.
8. The Individual Defendants are in a fiduciary relationship with
Plaintiff and the other public stockholders of Verio and owe them the highest
obligations of good faith and fair dealing.
CLASS ACTION ALLEGATIONS
------------------------
9. Plaintiff brings this action on his own behalf and as a class action,
pursuant to Rule 23 of the Rules of the Court of Chancery, on behalf of all
common stockholders of the Company (except the defendants herein and any person,
firm, trust, corporation, or other entity related to or affiliated with any of
the defendants) and their successors in interest, who are or will be threatened
with injury arising from defendants' actions as more fully described herein (the
"Class").
10. This action is properly maintainable as a class action because:
(a) The Class is so numerous that joinder of all members is
impracticable. As of March 14, 2000, there were approximately 78,724,424 shares
of Verio common stock outstanding owned by hundreds, if not thousands, of record
and beneficial holders;
(b) There are questions of law and fact which are common to the
Class, including, inter alia the following:
(i) whether defendants have breached their fiduciary and other
common law duties owed by them to plaintiff and the members of the Class; and
(ii) whether the Class is entitled to injunctive relief or
damages as a result of the wrongful conduct committed by defendants.
-2-
<PAGE>
(c) Plaintiff is committed to prosecuting this action and has
retained competent counsel experienced in litigation of this nature. The claims
of the plaintiff are typical of the claims of other members of the Class and
plaintiff has the same interests as the other members of the Class. Plaintiff
will fairly and adequately represent the Class.
(d) Defendants have acted in a manner which affects plaintiff and
all members of the Class alike, thereby making appropriate injunctive relief
and/or corresponding declaratory relief with respect to the Class as a whole.
(e) The prosecution of separate actions by individual members of the
Class would create a risk of inconsistent or varying adjudications with respect
to individual members of the Class, which would establish incompatible standards
of conduct for defendants, or adjudications with respect to individual members
of the Class which would, as a practical matter, be dispositive of the interests
of other members or substantially impair or impede their ability to protect
their interests.
SUBSTANTIVE ALLEGATIONS
-----------------------
11. On May 7, 2000, Reuters reported that Verio and NTT announced that
they had entered into a definitive merger agreement whereby NTT will acquire the
Verio shares it does not already own for $60 per share in cash in a transaction
valued at $5.5 billion. Under the terms of the transaction as presently
proposed, a U.S. subsidiary of NTT will commence a cash tender offer for all of
Verio's outstanding common shares at a price of $60 per share no later than May
17, 2000.
12. Although the $60 per share offer represents a premium to Verio's
closing stock price on Friday, May 4, 2000, the offer is significantly below
Verio's recent high of $84 per share, reached in March 2000. Additionally, given
NTT's basis of $11 per share in the shares of Verio that it already owns, the
cost of the proposed acquisition to NTT will be approximately $55 per share.
-3-
<PAGE>
13. By entering into the agreement with NTT, the Verio Board has initiated
a process to sell the Company which imposes heightened fiduciary
responsibilities and requires enhanced scrutiny by the court. However, the terms
of the proposed transaction were not the result of an auction process or active
market check; they were arrived at without a full and thorough investigation by
the Individual Defendants; and they are intrinsically unfair and inadequate from
the standpoint of the Verio shareholders.
14. The Individual Defendants failed to make an informed decision, as no
market check of the Company's value was obtained. In agreeing to the merger, the
Individual Defendants failed to properly inform themselves of Verio's highest
transactional value.
15. According to a May 8, 2000 Bloomberg's article, "[b]oth companies said
there was at least one rival suitor for Verio, though they declined to provide
details."
16. The Individual Defendants have violated the fiduciary duties owed to
the public shareholders of Verio. The Individual Defendants' agreement to the
terms of the transaction, its timing, and the failure to auction the Company and
invite other bidders, and defendants' failure to provide a market check
demonstrate a clear absence of the exercise of due care and loyalty to Verio's
public shareholders.
17. The Individual Defendants' fiduciary obligations under these
circumstances require them to:
(a) Undertake an appropriate evaluation of Verio's net worth as a
merger/acquisition candidate; and
(b) Engage in a meaningful auction with third parties in an attempt
to obtain the best value for Verio's public shareholders.
18. The Individual Defendants have breached their fiduciary duties by
reason of the acts and transactions complained of herein, including their
decision to merge with NTT without making the requisite effort to obtain the
best offer possible.
-4-
<PAGE>
19. Plaintiff and other members of the Class have been and will be damaged
in that they have not and will not receive their fair proportion of the value of
Verio's assets and business, and will be prevented from obtaining fair and
adequate consideration for their shares of Verio common stock.
20. The consideration to be paid to Class members in the proposed merger
is unfair and inadequate because, among other things:
(a) The intrinsic value of Verio's common stock is materially in
excess of the amount offered for those securities in the merger
giving due consideration to the anticipated operating results,
net asset value, cash flow, and profitability of the Company.
(b) The merger price is not the result of an appropriate
consideration of the value of the Verio because the Verio Board
approved the proposed merger without undertaking steps to
accurately ascertain Verio's value through open bidding or at
least a "market check mechanism"; and
(c) By entering into the agreement with NTT, the Individual
Defendants have allowed the price of Verio stock to be capped,
thereby depriving plaintiff and the Class of the opportunity to
realize any increase in the value of Verio stock.
21. By reason of the foregoing, each member of the Class will suffer
irreparable injury and damages absent injunctive relief by this Court.
22. NTT, because of its stock ownership and representation on Verio's
Board has access to information about the Company that gives it an unfair
advantage over other potential bidders. NTT used this information to negotiate a
transaction favorable to itself and unfair to Verio's public shareholders.
Additionally, NTT knowingly aided and abetted the breaches of fiduciary duty
committed by the Individual Defendants in order to buy Verio at the lowest
possible price.
-5-
<PAGE>
23. Plaintiff and other members of the Class have no adequate remedy at
law.
WHEREFORE, plaintiff and members of the Class demand judgement against
defendants as follows:
(a) Declaring that this action is properly maintainable as a class action
and certifying plaintiff as the representative of the Class;
(b) Preliminarily and permanently enjoining defendants and their counsel
agents, employees and all persons acting under, in concert with, or for them,
from proceeding with, consummating, or closing the proposed transaction;
(c) In the event that the proposed transaction is consummated, rescinding
it and setting it aside, or awarding rescissory damages to the Class;
(d) Awarding compensatory damages against defendants, individually and
severally, in an amount to be determined at trial, together with pre-judgment
and post-judgment interest at the maximum rate allowable by law, arising from
the proposed transaction;
(e) Awarding plaintiff his costs and disbursements, including a reasonable
allowance for plaintiff's counsel and expert fees and expenses; and
(f) Granting plaintiff and the Class such other and further relief as the
Court may deem just and proper.
-6-
<PAGE>
ROSENTHAL, MONHAIT, GROSS & GODDESS, P.A.
By: ______________________________
Suite 1401, Mellon Bank Center
P.O. Box 1070
Wilmington, DE 19899-1070
(302) 656-4433
Attorneys for the Plaintiff
OF COUNSEL:
STULL, STULL & BRODY
6 East 45th Street
New York, NY 10017
(212) 687-7230
WEISS & YOURMAN
551 Fifth Ave., #1600
New York, NY 10176
(212) 682-3025
-7-
<PAGE>
EXHIBIT (a)(5)(G)
DISTRICT COURT, COUNTY OF ARAPAHOE, COLORADO
Case No. 00CV1230, Division 3
-------- --
- --------------------------------------------------------------------------------
PLAINTIFFS' CLASS ACTION COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND DEMAND FOR
JURY
- --------------------------------------------------------------------------------
SUSAN CODY, On Behalf of Herself and All Others Similarly Situated,
Plaintiff,
vs.
VERIO INC., HERBERT H. HRIBAR, TOM MARINKOVICH, TRYGVE E. MYHREN, PAUL J. SALEM,
JAMES C. ALLEN, STEVEN C. HALSTEDT, GEORGE J. STILL, JR., ARTHUR L. CAHOON,
JUSTIN L. JASCHKE and YUKI ITO,
Defendants.
- --------------------------------------------------------------------------------
INTRODUCTION
1. This is a shareholder class action on behalf of the public
stockholders of Verio Inc. ("Verio" or the "Company") against Verio and its
Board of Directors arising out of their agreement to sell Verio to Nippon
Telephone & Telegraph Corp. ("NTT"), a Japanese telephone company, for $60 per
share, or approximately $5.5 billion.
2. In entering into the acquisition agreement, each of the defendants has
directly violated the fiduciary obligations owed by them to the public
shareholders of Verio. Absent judicial intervention, the acquisition will be
consummated which will result in irreparable injury to plaintiff and the Class.
This action seeks to enjoin the unreasonable steps taken by defendants in
entering into the acquisition agreement without attempting to maximize
shareholder value in order to obtain millions of dollars in benefits for
themselves.
JURISDICTION AND VENUE
3. This Court has jurisdiction over each of the defendants because they
conduct business in, reside in and/or are citizens of Colorado. Certain of the
defendants are citizens of Colorado, including defendant Verio which has its
principal place of business in this state, and defendants Jaschke and Halstedt
who reside in this state. The amount in controversy of plaintiff's claims
exclusive of interest and costs is less than
<PAGE>
$75,000. This action is not removable. Venue is proper in this Court because
defendants' wrongful acts arose in and emanated from this county.
PARTIES
4. Plaintiff Susan Cody is and has been at all times relevant hereto a
stockholder of Verio.
5. Defendant Verio is a Delaware corporation with its principal executive
offices located at 8005 South Chester Street, Suite 200, Englewood, Colorado.
Verio is a website operation based in Colorado. Verio's common shares are
publicly traded on NASDAQ. Verio has over 78.7 million shares outstanding held
by hundreds if not thousands of shareholders.
6. Defendant Tom Marinkovich has been a director of Verio since May 1,
2000.
7. Defendant Herbert H. Hribar is a director of Verio.
8. Defendant Trygve E. Myhren is a director of Verio.
9. Defendant Paul J. Salem is a director of Verio.
10. Defendant James C. Allen is a director of Verio.
11. Defendant Steven C. Halstedt is a director of Verio. Halstedt is also
Chairman of the Board of Verio.
12. Defendant George J. Still, Jr. is a director of Verio.
13. Defendant Arthur L. Cahoon is a director of Verio.
14. Defendant Yuki Ito has been a director of Verio since 1988.
15. Defendant Justin L. Jaschke ("Jaschke") has been a director of Verio
since 1999. Jaschke is also the CEO of Verio.
16. The defendants named in paragraphs 6-15 are sometimes collectively
referred to herein as the "Individual Defendants."
-2-
<PAGE>
17. By virtue of their positions as directors and/or officers of Verio,
the Individual Defendants have, and at all relevant times had, the power to
control and influence and did control and influence and cause Verio to engage
in the practices complained of herein.
FIDUCIARY DUTIES OF THE INDIVIDUAL DEFENDANTS
18. By reason of the above Individual Defendants' positions with the
Company as officers and/or directors, said individuals are in a fiduciary
relationship with plaintiff and the other public stockholders of Verio and owe
plaintiff and the other members of the Class a duty of highest good faith, fair
dealing, loyalty and full, candid and adequate disclosure.
19. The claims are brought under state laws which require every corporate
director to act in good faith, in the best interests of a corporation's
shareholders and with such care, including reasonable inquiry, as would be
expected of an ordinarily prudent person. In a situation where the directors of
a publicly traded company undertake a transaction that may result in a change
in corporate control (particularly when it involves a decision to eliminate the
shareholders' equity investment in a company), applicable law requires the
directors to take all steps reasonably required to maximize the value
shareholders will receive. To diligently comply with this duty, the directors of
a corporation may not take any action that:
A. adversely affects the value provided to the corporation's
shareholders;
B. contractually prohibits them from complying with or carrying out
their fiduciary duties;
C. discourages or inhibits alternative offers to purchase control of
the corporation or its assets;
D. subverts the interests of Verio public stockholders; or
E. will otherwise adversely affect their duty to search and secure
the best value reasonably available under the circumstances for the
corporation's shareholders.
20. As described herein, the Individual Defendants have breached their
fiduciary duties by taking actions designed to halt any other offers and deter
higher offers from other potential acquirers by, among other things, concealing
the Company's 10-Q.
-3-
<PAGE>
including its balance sheet, until after the defendants entered into and
disclosed the acquisition agreement together with concealing material
information in a document which defendants have refused to make public, thus
capping the price of Verio's common stock.
CLASS ACTION ALLEGATIONS
21. Plaintiff brings this action pursuant to Rule 23 of the Colorado Rules
of Civil Procedure on her own behalf and as a class action on behalf of all
holders of Verio common stock who are being and will be harmed by defendants'
actions described below (the "Class"). Excluded from the Class are defendants
herein and any person, firm, trust, corporation, or other entity related to or
affiliated with any defendant.
22. This action is properly maintainable as a class action.
23. The Class is so numerous that joinder of all members is impracticable.
There are over 78.7 million shares of Verio stock outstanding. The shares trade
on the NASDAQ and hundreds, if not thousands, of Verio stockholders of record
are located throughout the United States.
24. Questions of law and fact are common to the Class and predominate over
questions affecting any individual Class members. The common questions include,
inter alia, the following:
A. whether the defendants breached their fiduciary duties of care,
loyalty and/or candor owed by them to plaintiff and the other members of the
Class in connection with the proposed sale of Verio:
B. whether the defendants have, in bad faith or for improper motives,
failed to auction the Company and maximize shareholder value; and
C. whether plaintiff and other members of the Class would be
irreparably damaged were the conduct detailed herein allowed to persist.
25. The defendants have acted or refused to act on grounds generally
applicable to the Class thereby making appropriate final injunctive relief with
respect to the Class as a whole.
26. Plaintiff is committed to prosecuting this action and has retained
competent counsel experienced in litigation of this nature. The claims of
plaintiff are typical of the claims of the other members of the Class and
plaintiff has the same interests as the other
-4-
<PAGE>
members of the Class. Accordingly, plaintiff is an adequate representative of
the Class and will fairly and adequately protect the interests of the Class.
27. Plaintiff anticipates that there will be no difficulty in the
management of this litigation as a class action.
28. For the reasons stated herein, a class action is superior to other
available methods for the fair and efficient adjudication of this controversy.
BACKGROUND TO PROPOSED ACQUISITION
29. Verio is one of the world's largest operators of websites for
businesses and a leading provider of comprehensive Internet services with an
emphasis on serving the small and medium sized business market. The Company
offers customers a broad range of Internet solutions, including
telecommunication circuits, Web hosting services, domain name registration,
electronic commerce services, application hosting services, secure Internet
communication links, and other enhanced value Internet services. Currently, the
Company provides Web hosting services to customers in over 170 countries and
offers locally based sales and engineering support for its Internet services in
41 of the top 50 metropolitan statistical areas in the U.S. The Company is now
the largest Web hosting company in the world based on the number of domain
names.
30. In September 1999, Verio announced that it had entered into an
agreement with NTT, part of the Nippon Telegraph & Telephone group of
telecommunications companies, to provide Verio's Web hosting services to the
Japanese market. Prior to the date of the acquisition announcement, NTT held
8,987,754 shares of Verio's common stock, representing approximately 11% of the
outstanding stock. Under the agreement, the entire NTT group of companies will
be able to market Verio's Web hosting services to businesses in Japan on a co-
branded, "Powered by Verio" basis. NTT paid a one-time, up front license fee
payment of $1.3 million at the time the agreement was signed, and in the future
will pay ongoing monthly fees based on actual services sold. Verio and NTT were
in the process of working together to plan and develop NTT's new data center in
Tokyo, from which Verio's Web hosting services will be offered by NTT in Japan.
Verio and its investors were expecting to launch the co-branded services in
Japan in the spring of 2000.
31. On April 27, 2000, Verio announced positive financial results. The
Company recorded revenues of $81.1 million, a sequential increase of 11% over
the fourth quarter 1999, and 47% growth versus the same period last year. The
Company recorded an EBITDA loss of $9.6 million, 14% better than analysts'
forecasts of $11.2 million.
-5-
<PAGE>
32. The Company also announced an agreement with Gateway, whereby Verio
will provide a comprehensive suite of e-business products, such as Web hosting,
e-commerce, DSL and dial-up Internet access to Gateway's small and medium
business customers. This agreement is a positive development as it significantly
increases Verio's distribution channels.
33. By the end of April 2000, the shareholders' investment in Verio was
just beginning to pay off and benefits from the Company were on the verge of
becoming realized by both the Company and its shareholders. Although the April
27, 2000 press release confirmed Verio's success, Verio's shareholders were
still waiting for Verio's disclosure of its 10-Q which would include its
balance sheet, the launch of the NTT joint venture together with the benefits to
be derived therefrom and the impact on Verio resulting from its venture with
Gateway.
THE PROPOSED ACQUISITION
34. After issuing themselves benefits that would vest upon a "change of the
control" of the Company, and just as Verio and its shareholders were about to
reap the benefits of the NTT/Verio Web hosting joint venture for their
co-branded services, defendants announced on May 8, 2000 that they would sell
the Company to NTT for a mere $60 per share.
35. If the acquisition is consummated, plaintiff and the other members of
the Class will no longer own shares in a "growth" company, but rather will be
cashed out of their Verio shares for just $60 per share.
36. The shareholders have been denied the fair process and arm's-length
negotiated terms to which they are entitled in a sale of their Company. The
officers and directors are obligated to further the interests of Verio's public
stockholders and to maximize shareholder value, not structure a preferential
deal for themselves pursuant to which they will receive "change of control"
payments following the consummation of this proposed acquisition, and which
operates to the detriment of Verio's public stockholders, or conceal material
information from Verio's own shareholders.
37. By reason of their positions with Verio, the Individual Defendants are
in possession of non-public information concerning the financial condition and
prospects of Verio, including, but not limited to, the contents of the 10-Q for
the first quarter of 2000, and especially the true value and expected increased
future value of Verio and its assets, which they have not disclosed to Verio's
public stockholders, including, but not limited to, the value and benefits of
Verio's joint venture with NTT and Gateway for which NTT will reap full benefit.
-6-
<PAGE>
POST ACQUISITION REVELATIONS
38. On May 8, 2000, following Verio's announcement that it would sell
itself to NTT, it was reported that NTT was not the only potential bidder.
Incredibly, it was reported that Verio had admitted that other parties had
expressed interest in acquiring it.
39. Both NTT and Verio said there was at least one rival suitor for Verio.
In exchange for endorsing NTT's offer, NTT agreed not to change Verio's
management. Consistent with defendants' agreement to endorse the acquisition.
Verio Chief Executive Officer Jaschke publicly stated that the agreement between
the two companies is in the "best interest" of shareholders.
40. In entering into the agreement to sell the Company, defendants did not
maximize shareholder value, nor were they seeking to. Rather, defendants sought
to sell the Company to NTT in order to assure themselves of, among other things,
NTT's agreement to honor the "change of control" payments defendants had
arranged for themselves and their post acquisition lucrative positions with the
merged entity.
CAUSE OF ACTION
Breach of Fiduciary Duty of Loyalty
and Due Care Against All Defendants
41. Plaintiff repeats and realleges each allegation set forth herein.
42. The Individual Defendants have thus far failed to announce any active
auction, open bidding, or any other procedures best calculated to maximize
shareholder value. Instead of attempting to obtain the highest price reasonably
available for Verio's shareholders, the Individual Defendants have taken actions
that will only serve to inhibit the maximization of shareholder value.
43. The Individual Defendants were and are under a duty to:
A. fully inform themselves of the market value of Verio before
taking, or agreeing to refrain from taking, action;
B. act in the interests of the equity owners; and
C. act in accordance with their fundamental duties of due care and
loyalty.
-7-
<PAGE>
44. By the acts, transactions and courses of conduct alleged
herein, defendants, individually and as part of a common plan, or in breach of
their fiduciary duties to plaintiff and the other members of the Class, are
implementing and abiding by a process that will irreparably harm plaintiff and
other members of the Class.
45. Verio's shareholders will, if the defendants' actions are allowed to
stand, be deprived of the opportunity for substantial gains the plaintiff and
Class members may realize if an active auction or open bidding process is
allowed to occur.
46. By reason of the foregoing acts, practices and course of conduct, the
defendants have failed to exercise ordinary care and diligence in the exercise
of their fiduciary obligations toward plaintiff and the other Verio public
stockholders.
47. In light of the foregoing, plaintiff demands that the Individual
Defendants, as their fiduciary obligations require, immediately:
. Undertake an independent evaluation of Verio's worth as an acquisition
candidate.
. Rescind any and all provisions that inhibit the maximization of
shareholder value.
. Rescind the payoffs the defendants will receive upon the consummation
of the acquisition/change of control.
. Implement an active auction or open bidding process in order to
maximize shareholder value.
. Retain independent advisors and appoint a truly independent committee
so that the interests of Verio's public stockholders will be protected and
any subsequent offers will be considered and negotiated in the interest of
Verio's public stockholders.
48. Defendants are not acting in good faith toward plaintiff and the other
members of the Class, and have breached and are continuing to breach their
fiduciary duties to plaintiff and the members of the Class.
49. As a result of the defendants' unlawful actions, plaintiff and the
other members of the Class will be irreparably harmed. Unless the defendants'
actions are enjoined by the Court, defendants will continue to breach their
fiduciary duties owed to
-8-
<PAGE>
plaintiff and the members of the Class, and will engage in a process that
inhibits the maximization of shareholder value.
50. Plaintiff and the other members of the Class have no adequate remedy
at law.
PRAYER
WHEREFORE, plaintiff demands preliminary and permanent injunctive relief,
in plaintiff's favor and in favor of the Class and against defendants, as
follows:
A. Declaring that this action is properly maintainable as a class action;
B. Declaring and decreeing that the NTT acquisition agreement was entered
into in breach of the fiduciary duties of the Individual Defendants and is
therefore unlawful and unenforceable;
C. Enjoining defendants from proceeding with the NTT acquisition;
D. Enjoining defendants from consummating the acquisition, or a business
combination with a third party, unless and until the Company adopts and
implements a procedure or process, such as an auction, to obtain the highest
possible price for the Company;
E. Directing the Individual Defendants to exercise their fiduciary duties
to obtain a transaction which is in the best interests of shareholders until the
process for the sale or auction of the Company is completed and the highest
possible price is obtained and disclose the entire contents of the agreement
including all Company Disclosure Schedules and Verio's 10-Q;
F. Awarding plaintiff the costs and disbursements of this action,
including reasonable attorneys' and experts' fees;
G. Granting such other and further equitable relief as this Court may
deem just and proper; and
H. PLAINTIFF HEREBY DEMANDS A TRIAL BY JURY.
-9-
<PAGE>
DATED: May 9, 2000 DYER & SHUMAN,LLP
/S/ Kip Shuman
----------------------------
Robert J. Dyer III #5734
Kip B. Shuman, #23593
Jeffrey A. Berens, #28007
801 East 17th Avenue
Denver, CO 80218-1417
Telephone: 303/861-3003
MILBERG WEISS BERSHAD
HYNES & LERACH LLP
WILLIAM S. LERACH
DARREN J. ROBBINS
RANDALL H. STEINMEYER
600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: 619/231-1058
CAULEY & GELLER, LLP
PAUL J. GELLER
7200 W. Camino Real, Suite 203
Boca Raton, FL 33433
Telephone: 561/750-3000
Attorneys for Plaintiff
Plaintiff's Address:
- -------------------
P.O. Box 440712
Aurora, CO 80044
-10-
<PAGE>
EXHIBIT (C)(2)
Confidential
Project Northface
PRESENTATION TO THE BOARD OF DIRECTORS
May 7, 2000
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---------------------------
<PAGE>
PROJECT NORTHFACE
<TABLE>
<CAPTION>
Table of Contents
<C> <S>
1 EXECUTIVE SUMMARY
2 OVERVIEW OF VAIL
A. Summary of Vail Market Information
B. Summary Valuation Analysis of Vail
APPENDIX
A. Weighted Average Cost of Capital
B. Precedent Transactions and Premiums Analysis
C. Vail Comparable Company Analysis
</TABLE>
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---------------------------
<PAGE>
PROJECT NORTHFACE
Confidential Material Presented to the Board of Directors of Vail
The following pages contain material provided to the Board of Directors of
Vail in the context of a meeting held to consider a proposed transaction in
which Northface would acquire Vail. The accompanying material was compiled
or prepared on a confidential basis for use by the Board of Directors and
not with a view toward public disclosure under state or federal securities
laws. The basic information utilized in preparing this study was obtained
from Vail and other public sources. Any estimates and projections for Vail
contained herein have been prepared with the assistance of management, or
are based upon such estimates and projections, and involve numerous and
significant subjective determinations, which may or may not prove to be
correct. No representation or warranty, express or implied, is made as to
the accuracy or completeness of such information and nothing contained
herein is, or shall be relied upon as, a promise or representation, whether
as to the past or the future. Because this material was prepared for use in
the context of an oral presentation to the Board of Directors, which is
familiar with the business and affairs of Vail, and was not prepared to
comply with the disclosure standards set forth under state and federal
securities laws, none of Vail or Salomon Smith Barney Inc. or any of their
respective legal or financial advisors or accountants take any
responsibility for the accuracy or completeness of any of the material if
used by persons other than the Board of Directors of Vail. Neither Vail nor
Salomon Smith Barney Inc. undertakes any obligation to update or otherwise
revise the accompanying materials.
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---------------------------
<PAGE>
PROJECT NORTHFACE
1 EXECUTIVE SUMMARY
[SALOMON SMITH BARNEY LOGO]
---------------------------
<PAGE>
PROJECT NORTHFACE
Summary of Key Terms
<TABLE>
<CAPTION>
Term Summary Description
<S> <C>
Transaction Structure . Two-step merger (cash tender offer followed by a merger) in which a wholly owned
U.S. subsidiary (the "Merger Sub") of Northface will merge with and into Vail (the
"Surviving Corporation")
- ------------------------------------------------------------------------------------------------------------------------------------
Tender Offer . The Merger Sub will make a tender offer to purchase (i) any and all of the shares
of Vail Common Stock and (ii) any and all of the shares of Vail Series A Preferred
Stock
- ------------------------------------------------------------------------------------------------------------------------------------
Conditions of the Tender Offer . More than 50% of the Common Stock must tender on a fully diluted basis. Vail
shares already owned by Northface and the Merger Sub (approximately 8.3% of fully
diluted shares outstanding) will count toward the 50% condition
. Expiration of the HSR waiting period or any other waiting periods under applicable
foreign laws
. Expiration of any applicable review process under the Exon-Florio Act
. No Material Adverse Change shall have occurred
- ------------------------------------------------------------------------------------------------------------------------------------
Purchase Price . $60.00 per share of Vail Common Stock
. $62.14 per share of Vail Preferred Stock
- ------------------------------------------------------------------------------------------------------------------------------------
Termination Fee . Approximately 3% of Vail's equity value based on the offer price
- ------------------------------------------------------------------------------------------------------------------------------------
Non-Solicitation . Customary non-solicitation covenants
- ------------------------------------------------------------------------------------------------------------------------------------
Retention and Incentive Plan . Prior to the first scheduled expiration of the tender offer, Northface and Vail
shall discuss and explore mutually agreeable retention and incentive plans with
respect to the employees and officers of Vail and its subsidiaries, to be
adopted prior to the consummation of the tender offer and effective immediately
after consummation of the merger
- ------------------------------------------------------------------------------------------------------------------------------------
Options . Options to be monetized in accordance with the terms set forth in the Merger
Agreement
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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----------------------------
1
<PAGE>
PROJECT NORTHFACE
Premium Analysis
<TABLE>
<CAPTION>
(Dollars in millions, except per share data) Offer Price
Vail ----------------------------------
Data $60.00
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Market Prices Premium (Discount) to Market
Market (May 05, 2000) $35.94 67.0%
5 Trading Days Average 34.66 73.1
20 Trading Days Average 31.83 88.5
40 Trading Days Average 40.12 49.6
60 Trading Days Average 50.21 19.5
- --------------------------------------------------------------------------------------------------------------------
Market Capitalization $4,951
Equity Value (a) 6,184
Firm Value (b) 6,375
- --------------------------------------------------------------------------------------------------------------------
Revenues Firm Value/Revenues
1999A $258.3 24.7x
LQA (c) 324.4 19.7
2000E (d) 415.3 15.4
2001E (d) 706.0 9.0
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------------------------
(a) Based on 108.5 million fully diluted shares (assuming conversion of
convertible preferred shares and vesting of all options) and option proceeds
of $326 million.
(b) Net debt of $191 as of March 31, 2000, which is comprised of $1,104 debt
less $849 of cash less an investment in unconsolidated subsidiaries of $63.
(c) LQA results are for the quarter ended March 31, 2000.
(d) Based on Wall Street research estimates and reviewed by Vail management.
2
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<PAGE>
PROJECT NORTHFACE
Vail Price Performance
DAILY DATA: MAY/05/1999 THROUGH MAY/05/2000
[LINE CHART APPEARS HERE]
<TABLE>
<CAPTION>
Summary Statistics
High Low Average Latest
<S> <C> <C> <C> <C>
Vail 80.00 23.69 41.70 35.94
</TABLE>
Source: Salomon Smith Barney sb274673.wmf
(a) 06/17/99 Vail and AOL UK announces an exclusive marketing
agreement for Web-hosting, e-commerce and domain name registration services.
(b) 07/13/99 Vail announces the acquisition of digitalNATION for $100 mm
in cash.
(c) 07/15/99 Vail announces the completion of a $360 million convertible
offering.
(d) 07/22/99 Vail announces 2:1 stock split.
(e) 10/27/99 Vail announces 3rd Quarter results and reaches positive
EBITDA milestone.
(f) 11/04/99 Vail reaches 300,000 web-site benchmark.
(g) 11/16/99 Vail announces $400 million private debt offering.
(h) 12/14/99 Vail, CIBER and Centennial Ventures announce initial
intentions to form an Application Service Provider ("ASP") joint venture.
(i) 01/12/00 Vail launches Enhanced Global Domain Name Registration
Services.
(j) 01/31/00 Vail announces plans to accelerate Web Hosting and co-location
physical infrastructure, systems and personnel. Herb Hribar, President and
COO, announces resignation effective Feb 4th.
(k) 03/01/00 Vail announces 4Q99 earnings that are in line with Wall Street
estimates. Vail, CIBER and Centennial Ventures sign definitive agreements to
form a new ASP joint venture, Agilera.Com.
(l) 03/20/00 Vail asks its shareholders to increase its authorized common
shares to 750 million from 125 million and to increase authorized preferred
to 20 million from 12.5 million.
(m) 04/26/00 Vail and Gateway form strategic alliance to provide
comprehensive Internet services for small and medium-sized business.
Vail announces growth rate accelerates in first quarter.
3
[SALOMON SMITH BARNEY LOGO]
<PAGE>
PROJECT NORTHFACE
Current Price Offer Price
Per Share (a): Per Share:
$35.94 $60.00
Public Market Valuation
Discounted Cash Flow $40 $51
Valuation (b)
$53 $73
Premiums-Based
Private Market Valuation $50 $56
(Sector Transactions) (c)
$49 $52
Premiums-Based
Private Market Valuation $43 $46
(All Transactions) (d)
Multiples-Based
Private Market Valuation (c)
$0 $10 $20 $30 $40 $50 $60 $70 $80 $90
. 52 Week Trading Range
(a) Closing share price as of 5/5/00.
(b) Based on Wall Street research estimates and reviewed by Vail management.
(c) Private market valuation multiples and premiums are based on NEXTLINK's
acquisition of Concentric and McLeodUSA's acquisition of Splitrock.
(d) Based on a sample of 1,722 transactions over the last 3 years as measured
by Mergerstat (12/31/99).
4
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<PAGE>
PROJECT NORTHFACE
6.75% Series A Convertible Preferred Stock
<TABLE>
<CAPTION>
Common Public Market Valuation Range
Market ------------------------------------
05/05/00 Low High
<S> <C> <C> <C>
Common Stock Price $35.94 $40.40 $51.38
Common Stock Conversion Rate 1.0356 1.0356 1.0356
Offer Price Parity Value $62.14 $62.14 $62.14
Convertible Preferred Theoretical Valuation (a) $46.86 $50.27 $58.91
Convertible Preferred Market Valuation 45.79 49.11 57.56
Market Discount to Theoretical Valuation 2.3% 2.3% 2.3%
Parity Value Premium to Implied Market Valuation 35.7% 26.5% 8.0%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------
(a) Valuation assumes 30-Year Treasury of 6.19%, credit spread of 7.27% and
volatility of 50%.
5
[SALOMON SMITH BARNEY LOGO]
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<PAGE>
PROJECT NORTHFACE
2 OVERVIEW OF VAIL
[SALOMON SMITH BARNEY LOGO]
---------------------------
<PAGE>
PROJECT NORTHFACE
A. Summary of Vail Market Information
[SALOMON SMITH BARNEY LOGO]
---------------------------
<PAGE>
PROJECT NORTHFACE
Vail Relative Price Performance
DAILY DATA: MAY/05/1999 THROUGH MAY/05/2000
[LINE CHART APPEARS HERE]
<TABLE>
<CAPTION>
Summary Statistics:
<S> <C> <C> <C> <C>
High Low Average Latest
Vail 238% 70% 124% 106%
Web Hosting Comparables 746% 83% 297% 369%
Access Comparables 229% 99% 169% 139%
NASDAQ Composite Index 199% 93% 132% 150%
</TABLE>
Source: Salomon Smith Barney sb274670.wmf
Web Hosting Comparables: DRTN, DIGX, EXDS, NAVI
Access Comparables: ATHY, ENT, IIJI, PSIX, VNWI
6
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<PAGE>
PROJECT NORTHFACE
Selected Analyst Commentary--Vail
<TABLE>
<CAPTION>
Analyst Date Price at Report Date Rating Comment
<S> <C> <C> <C> <C>
Salomon Smith 04/27/00 $26.44 BUY "Vail has continued to demonstrate its successful shift towards its
Barney enhanced services business. The company has also successfully
Jack Grubman / partnered with major software and hardware vendors to deliver the
Stephen Mahedy best-of-breed, bundled Web hosting and managed services to its
small-to-medium sized business customers. We are reiterating our
1S (Buy, Speculative Risk) rating on shares of Vail."
- -----------------------------------------------------------------------------------------------------------------------------------
PaineWebber 05/03/00 $29.00 ATTRACTIVE "The shares are off significantly from their highs based on the
John Hodulik company's deceleration of revenue in the previous three quarters.
We believe the first quarter is a sign of things to come and expect
continue acceleration in the second and third quarter. Its enhanced
business lines are strong and product lines and distribution
continue to improve. We maintain an attractive rating and a
12-month price target of $75 per share based on our DCF analysis."
- -----------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers 05/01/00 $29.00 BUY "The company reported in-line 1Q00 results demonstrating revenue
Bill Garrahan acceleration and continued growth in web hosting and enhanced
services in the revenue mix. We continue to believe that Vail is
well positioned to attack the Small/Med. Bus. Mkt with a bundled
offering of hosting, E-Commerce, outsourced applications, and
broadband access. We reiterate our Buy rating on Vail. Vail is
trading at 4.5x '01 revenue which is less than 10% of our expected
revenue CAGR for '01-'04 of 48%. This is at the low end of
historic multiples."
- -----------------------------------------------------------------------------------------------------------------------------------
Credit Suisse 04/28/00 $29.00 BUY "We believe that Vail has the right strategy needed to sustain a
First Boston strong competitive position in the SME web hosting industry. Through
Tim Newington the offering of high margin value-added services, the company can
better service its customers' complex and sophisticated service
requirements, as they become more involved in the e-commerce
industry. Enhanced services will also allow Vail to increase the
potential revenue generated from each customer and strengthen its
ability to attract new customers and retain existing customers.
We believe the company has all the pieces in place to achieve our
revenue growth expectations of 58% for this year. We maintain
our Buy recommendation on the stock."
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
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---------------------------
<PAGE>
PROJECT NORTHFACE
Selected Analyst Commentary--Vail (continued)
<TABLE>
<CAPTION>
Analyst Date Price at Report Date Rating Comment
<S> <C> <C> <C> <C>
DLJ 04/28/00 $29.00 BUY "The Gateway relationship brings yet another powerful distribution
Harry E. Blount 0 channel to Vail. Under their agreement, Gateway will, over the
course of the next two months, begin to offer a wide-range of Vail
services including web hosting, domain name registration services,
DSL, and dedicated and dial-up Internet access. Overall, we are
pleased with the re-acceleration in the hosting and enhanced
services businesses. We believe this will be one of the most
critical variables for Vail to achieve an improved valuation. We
continue to rate Vail a Buy with a price target of $80."
- -----------------------------------------------------------------------------------------------------------------------------------
Deutsche Banc 04/28/00 $29.00 STRONG BUY "Despite its attractiveness, Vail shares trade at a 70%-plus
Alex. Brown 0 discount to other Web-hosting plays in it peer group. We believe
Michael G. Bowen this is from the residual perception of the company as an ISP
roll-up. We are reiterating our Strong Buy rating on the shares
and 4Q00 price target of $90 (enterprise value of 21.6x our 2000
revenue estimate and 13.0x our 2001 revenue estimate)."
- -----------------------------------------------------------------------------------------------------------------------------------
Morgan Stanley 04/28/00 $29.00 OUTPERFORM "Despite the space constraints at this early stage, co-location
Jeffrey Camp 0 revenues increased by 19% over the prior quarter. By product type,
shared hosting revenues increased by 10% and dedicated expanded by
50%. Vail is reportedly considering accelerating the offering of
higher-margin enhanced services in their new co-location
datacenters during 2000 versus their current plan of 2001. We
believe Vail is on track to produce accelerating revenues over the
course of 2000 and are maintaining our forecasts, Outperform rating
and $66 price target based upon a 10-year discounted cash flow
analysis."
- -----------------------------------------------------------------------------------------------------------------------------------
CIBC World 04/27/00 $28.56 BUY "Its solid 1Q00 results reinforce our thesis that, as we move to
Markets 0 network-centric computing, Vail should emerge as a leading
Stephen J. Internet/computing services supplier for small businesses because
Murphy of its wide sales channels, network and services infrastructure and
strong management team. We are setting a new price target of $60
which is 8x our 2001E revenue, on par where Vail has frequently
traded in the past."
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
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---------------------------
<PAGE>
PROJECT NORTHFACE
B. Summary Valuation Analysis of Vail
[SALOMON SMITH BARNEY LOGO]
---------------------------
<PAGE>
PROJECT NORTHFACE
<TABLE>
<CAPTION>
Current Price Offer Price
Per Share (a): Per Share:
$35.94 $60.00
<S> <C> <C>
Public Market Valuation $40 $51
Discounted Cash Flow
Valuation (b) $53 $73
Premiums-Based
Private Market Valuation
(Sector Transactions) (c) $50 $56
Premiums-Based
Private Market Valuation
(All Transactions) (d) $49 $52
Multiples-Based
Private Market Valuation (c) $43 $46
</TABLE>
52 Week Trading Range
(a) Closing share price as of 5/5/00.
(b) Based on Wall Street research estimates and reviewed by Vail management.
(c) Private market valuation multiples and premiums are based on NEXTLINK's
acquisition of Concentric and McLeodUSA's acquisition of Splitrock.
(d) Based on a sample of 1,722 transactions over the last 3 years as measured
by Mergerstat (12/31/99).
9
[SALOMON SMITH BARNEY LOGO]
---------------------------
<PAGE>
PROJECT NORTHFACE
Summary of Projections for Vail
(Dollars in Millions)
[BAR CHART APPEARS HERE]
<TABLE>
<CAPTION>
REVENUES EBITDA
<S> <C> <S> <C>
1999 $ 258 1999 $ (9)
2000E $ 415 2000E $ 6
2001E $ 706 2001E $ 72
2002E $1,094 2002E $ 155
2003E $1,634 2003E $ 277
2004E $2,345 2004E $ 457
2005E $3,233 2005E $ 705
2006E $4,272 2006E $1,019
2007E $5,402 2007E $1,392
2008E $6,521 2008E $1,811
2009E $7,499 2009E $2,236
</TABLE>
- ------------------
Source: Based on Wall Street research estimates and reviewed by Vail management.
10
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<PAGE>
PROJECT NORTHFACE
Summary of Projections for Vail
<TABLE>
<CAPTION>
(Dollars in Millions)
Fiscal Year Ending December 31,
-------------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Revenues
Dedicated $ 143 $ 188 $ 269 $ 384 $ 534 $ 721 $ 945 $1,199 $1,457 $1,693
Dial-up 21 30 32 34 35 35 34 32 28 23
Enhanced Services/Other 252 487 794 1,216 1,776 2,477 3,293 4,171 5,035 5,782
-------------------------------------------------------------------------------------------------
Total Revenues $ 415 $ 706 $1,094 $1,634 $2,345 $3,233 $4,272 $5,402 $6,521 $7,499
Gross Profit 297 519 819 1,226 1,759 2,416 3,168 3,969 4,752 5,423
EBITDA 6 72 155 277 457 705 1,019 1,392 1,811 2,236
EBIT (199) (210) (170) 28 226 447 735 1,161 1,555 1,957
Capital Expenditures 350 110 135 160 185 210 235 260 285 310
Operating Statistics
- --------------------------------------------------------------------------------------------------------------------------------
Total Revenue Growth 60.8% 70.0% 55.0% 49.3% 43.6% 37.9% 32.1% 26.4% 20.7% 15.0%
Gross Profit Growth 65.8 75.0 57.7 49.7 43.5 37.3 31.2 25.3 19.7 14.1
EBITDA Growth -- 1,055.1 113.6 79.2 65.1 54.2 44.5 36.7 30.O 23.5
EBIT Growth -- -- -- -- 697.3 97.7 64.2 58.1 33.9 25.8
- --------------------------------------------------------------------------------------------------------------------------------
Gross Margin 71.5% 73.6% 74.8% 75.1% 75.0% 74.7% 74.2% 73.5% 72.9% 72.3%
EBITDA Margin 1.5 10.2 14.1 16.9 19.5 21.8 23.8 25.8 27.8 29.8
EBIT Margin (47.8) (29.7) (15.5) 1.7 9.6 13.8 17.2 21.5 23.8 26.1
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(Dollars in Millions)
CAGR
- ---------------------------------------------------
'00-05 '00-09
- ---------------------------------------------------
<S> <C> <C>
Operating Revenues
Dedicated 38.2% 31.6%
Dial-up 11.5 1.5
Enhanced Services/Other 58.0 41.7
- ---------------------------------------------------
Total Revenues 50.8 37.9
Gross Profit 52.1 38.1
EBITDA 157.2 92.1
EBIT -- --
Capital Expenditures (9.7) (1.3)
Operating Statistics
- ---------------------------------------------------
Total Revenue Growth
Gross Profit Growth
EBITDA Growth
EBIT Growth
- ---------------------------------------------------
Gross Margin
EBITDA Margin
EBIT Margin
- ---------------------------------------------------
</TABLE>
- ---------------------------------
Note: Based on Wall Street research estimates and reviewed by Vail management.
11
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<PAGE>
PROJECT NORTHFACE
Vail Sum of Parts Valuation
<TABLE>
<CAPTION>
(Dollars in Millions, except per share data)
SUM OF THE PARTS
Firm Value/ Vail Implied Firm Value
------------------ ----------------------
Revenue Revenue(a) Low High
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Vail Connectivity (b)
2000 Revenue 5.0X - 6.Ox $163.6 $ 818 - $982
2001 Revenue 3.Ox - 4.Ox 218.6 656 - 874
-----------------------------------------------------------------------------------------------------------------
Mean $ 737 - $928
-----------------------------------------------------------------------------------------------------------------
Vail Web Hosting (c)
Growth Adjusted 2000 Revenue (d) 20.8x - 26.8x $213.7 $4,448 - $5,719
Growth Adjusted 2001 Revenue (d) 9.2x - 11.9X 436.6 4,032 - 5,184
-----------------------------------------------------------------------------------------------------------------
Mean $4,240 - $5,452
-----------------------------------------------------------------------------------------------------------------
Vail Other
Other 2000 Revenue (e) l.0X - 1.0X $38.0 $ 38 - $ 38
Other 2001 Revenue (e) l.0X - l.0X 50.7 51 - 51
-----------------------------------------------------------------------------------------------------------------
Mean $ 44 - $ 44
-----------------------------------------------------------------------------------------------------------------
Firm Value $5,022 - $6,424
Less: Net Debt and Option Proceeds (135) - (135)
-----------------------------------------------------------------------------------------------------------------
Equity Value $5,157 - $6,559
Shares Outstanding 108.5 108.5
----------------------
Implied Public Market Equity Value per Share Before Holding Company Discount $47.52 - $60.45
Holding Company Discount 15.0% - 15.0%
-----------------------------------------------------------------------------------------------------------------
Implied Public Market Equity Value per Share $40.40 - $51.38
-----------------------------------------------------------------------------------------------------------------
(a) Based on Wall Street research estimates and reviewed by Vail management.
(b) Vail Connectivity multiples based on a range of firm value/2000E and 2001E revenue multiples within the peer group.
(c) Vail Web Hosting revenues include shared web hosting, dedicated web hosting and collocation revenues.
(d) Vail Web Hosting multiples based on a 10-30% discount to Digex's'growth adjusted revenue multiples.
(e) Includes equipment, circuits and other revenue.
</TABLE>
12
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<PAGE>
PROJECT NORTHFACE
Vail Sum of Parts Valuation - Web Hosting
<TABLE>
<CAPTION>
(Dollars in Millions, except per share data)
<S> <C> <C> <C>
DIGEX REVENUE PROJECTIONS (a) DIGEX GROWTH ADJUSTED MULTIPLES
- ------------------------------------------------- ----------------------------------------------------------------
2000E Revenues $ 150 Firm Value $5,115
2001E Revenues 285 Firm Value / 200OF Revenue 34.1x
2003E Revenues 941 Firm Value / 2001E Revenue 17.9
2000E - 2003E CAGR 84.5% (Firm Value / 2000E Revenue) / ('OOE-'03E CAGR) 40.4
2001E - 2003E CAGR 81.7% (Firm Value / 2001E Revenue) / ('01E-'03E CAGR) 22.0
- ------------------------------------------------- ----------------------------------------------------------------
Selected Growth Adjusted Multiple Range
---------------------------------------
VALUATION OF VAIL WEB HOSTING Low (b) High (b)
- --------------------------------------------------------------------------------------------------
(Firm Value/ Revenue)/ Revenue CAGR
2000E - 2003E 28.3x 36.3x
2001E - 2003E 15.4 19.8
- --------------------------------------------------------------------------------------------------
Vail Web Hosting Revenue CAGRs
2000E - 2003E (a) 73.7% 73.7%
2001E - 2003E (a) 60.1% 60.1%
Vail Web Hosting Revenue
2000E Revenue $ 214 $ 214
2001E Revenue 437 437
2003E Revenue 1,119 1,119
- --------------------------------------------------------------------------------------------------
Implied Value of Vail Web Hosting
Based on 2000E - 2003E Revenue CAGR $4,448 $5,719
Based on 2001E - 2003E Revenue CAGR 4,032 5,184
- --------------------------------------------------------------------------------------------------
Selected Value Range $4,240 $5,452
- --------------------------------------------------------------------------------------------------
(a) Digex statistics based on Wall Street research estimates. Vail statistics based
Wall Street estimates and reviewed by Vail management.
(b) Based on a 10% (high) to 30% (low) discount of Digex's' growth adjusted
revenue multiple.
</TABLE>
13
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<PAGE>
PROJECT NORTHFACE
Vail Discounted Cash Flow Analysis Assumptions
<TABLE>
<CAPTION>
<S> <C>
. Vail projections are based on Wall Street research and reviewed by Vail management
. Weighted average cost of capital range of 15.5% - 17.5%
. Terminal EBITDA multiple range of 10x - 12x terminal 2009 EBITDA of $2,236 million
. Tax rate of 38%
. Net operating losses of $263 million as of December 31st, 1999
. Capitalization is based on March 31st, 2000, balance sheet information. Shares Outstanding
information is based on May 5, 2000, data:
</TABLE>
<TABLE>
<S> <C>
SHARES OUTSTANDING (IN MILLIONS) 3/31/00
--------------------
Common Shares Outstanding: 82.5
Shares Underlying Convertible Preferred: 7.5
Option/Warrant Shares Outstanding: 18.5
--------------------
Total Shares Outstanding: 108.5
------------------------------------------------------------------------------
NET DEBT OUTSTANDING (IN MILLIONS)
Total Debt: $ 1,104
Cash and Cash Equivalents: (849)
Investments in Unconsolidated Subsidiaries: (63)
Option Proceeds: (326)
--------------------
Total Net Debt $ (135)
--------------------
</TABLE>
14
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<PAGE>
PROJECT NORTHFACE
Vail Discounted Cash Flow Analysis
(Dollars in Millions, except per share data)
<TABLE>
<CAPTION>
(Dollars in Millions, except per share data)
Terminal Year 2009 EBITDA Multiple Range
------------------------------------------------------------------
10.0x 10.5x ll.0x 11.5x 12.0x
------------------------------------------------------------------
Terminal Year 2009 Value
------------------------------------------------------------------
$22,357 $23,475 $24,593 $25,711 $26,829
------------------------------------------------------------------
WACC Firm Value as of 4/30/00
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
15.5% $6,659 $6,937 $7,214 $7,492 $7,770
16.0% 6,392 6,658 6,925 7,191 7,457
16.5% 6,137 6,392 6,647 6,903 7,158
17.0% 5,892 6,137 6,382 6,627 6,872
17.5% 5,658 5,893 6,128 6,363 6,599
- -----------------------------------------------------------------------------------
WACC Implied Perpetuity Growth Rate
- -----------------------------------------------------------------------------------
15.5% 9.6% 9.8% 10.1% 10.3% 10.5%
16.0% 10.0 10.3 10.6 10.8 11.0
16.5% 10.5 10.8 11.0 11.3 11.5
17.0% 11.0 11.3 11.5 11.7 12.0
17.5% 11.5 11.7 12.0 12.2 12.4
- -----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Terminal Year 2009 EBITDA Multiple Range
------------------------------------------------------------------
10.0x 10.5x ll.0x 11.5x 12.0x
------------------------------------------------------------------
Terminal Year 2009 Value
------------------------------------------------------------------
$22,357 $23,475 $24,593 $25,711 $26,829
------------------------------------------------------------------
WACC Equity Value as of 4/30/00 (a)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
15.5% $6,794 $7,072 $7,349 $7,627 $7,905
16.0% 6,527 6,793 7,060 7,326 7,592
16.5% 6,272 6,527 6,782 7,038 7,293
17.0% 6,027 6,272 6,517 6,762 7,007
17.5% 5,793 6,028 6,263 6,498 6,733
- -----------------------------------------------------------------------------------
WACC Equity Value per Share as of 4/30/00 (b)
- -----------------------------------------------------------------------------------
15.5% $62.62 $65.18 $67.73 $70.29 $72.85
16.0% 60.16 62.61 65.06 67.52 69.97
16.5% 57.80 60.15 62.51 64.86 67.21
17.0% 55.55 57.80 60.06 62.32 64.58
17.5% 53.39 55.56 57.72 59.89 62.06
- -----------------------------------------------------------------------------------
</TABLE>
(a) Equity value is equal to firm value less net debt and option proceeds of
$(135) million.
(b) Assumes fully diluted shares outstanding of 108.5 million.
15 [SALOMON SMITH BARNEY LOGO]
<PAGE>
PROJECT NORTHFACE
Wall Street Research Valuation Methodology Comparison
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
DCF
----------------------------------------
WACC Terminal Multiple Years
Vail
<S> <C> <C> <C>
Salomon Smith Barney (3/16/00) 15.0% 14.9x 10
Morgan Stanley Dean Witter (3/16/00) 13.7% 12.6 10
Wasserstein Perella (3/2/00) 15.0% 9.0 10
Thomas Weisel Partners LLC (2/l/00) 14.0% 12.0 10
DLJ (1/11/00) 16.0% 10.0 10
Baird (12/22/99) 16.0% 11.0 7
- -------------------------------------------------------------------------------
</TABLE>
16
[SALOMON SMITH BARNEY LOGO]
---------------------------
<PAGE>
PROJECT NORTHFACE
Vail Premiums-Based Private Market Valuation
<TABLE>
<CAPTION>
(Dollars in Millions, except per share data)
PREMIUMS-BASED PRIVATE MARKET VALUATION (SECTOR TRANSACTIONS)
- -------------------------------------------------------------------------------------------------------------------------
Premium (a) Implied Firm Value
Viper ----------------- -------------------
Trailing Average Share Price Statistic Low High Low High
--------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
Midpoint Public Market Valuation $45.89 33.8% 50.0% $6,527 $7,334
1 Day 35.94 33.8 50.0 5,082 5,714
5 Day Average 34.66 33.8 50.0 4,897 5,507
20 Day Average 31.83 33.8 50.0 4,486 5,046
-------------------
Implied Firm Value $5,248 $5,900
Less: Net Debt and Option Proceeds (135) (135)
-------------------
Equity Value $5,383 $6,035
Shares Outstanding 108.5 108.5
-------------------
Price Per Share $49.61 $55.62
- -------------------------------------------------------------------------------------------------------------------------
PREMIUMS-BASED PRIVATE MARKET VALUATION (ALL TRANSACTIONS)
- -------------------------------------------------------------------------------------------------------------------------
Premium Implied Firm Value
Viper --------------------- -------------------
Trailing Average Share Price Statistic Low (b) High (b) Low High
--------- --------------------- -------------------
Midpoint Public Market Valuation $45.89 31.3% 40.4% $6,403 $6,856
1 Day 35.94 31.3 40.4 4,985 5,340
5 Day Average 34.66 31.3 40.4 4,803 5,145
20 Day Average 31.83 31.3 40.4 4,400 4,714
-------------------
Implied Firm Value $5,148 $5,514
Less: Net Debt and Option Proceeds (135) (135)
-------------------
Equity Value $5,283 $5,649
Shares Outstanding 108.5 108.5
-------------------
Price Per Share $48.69 $52.06
- -------------------------------------------------------------------------------------------------------------------------
(a) Premiums based on NEXTLINK's acquisition of Concentric and McLeodUSA's acquisition of Splitrock.
(b) Based on mean and median premiums of 1,722 transactions over the last 3 years as measured by Mergerstat.
</TABLE>
17
[SALOMON SMITH BARNEY LOGO]
<PAGE>
PROJECT NORTHFACE
Vail Multiples-Based Private Market Valuation
(Dollars in Millions, except per share data)
MULTIPLES-BASED PRIVATE MARKET VALUATION
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Multiple (a) Implied Firm Value
Vail ------------------------ -----------------------
Revenue Statistic Low High Low High
------------- ------------------------ -----------------------
<S> <C> <C> <C> <C> <C>
LTM 258.3 19.0X 20.6x $4,908 $5,322
LQA 324.4 14.6 15.2 4,736 4,931
Forward Twelve Months 415.3 9.6 10.2 3,987 4,236
-----------------------
Implied Firm Value $4,544 $4,829
Less: Net Debt and Option Proceeds (135) (135)
-----------------------
Equity Value $4,679 $4,964
Shares Outstanding 108.5 108.5
-----------------------
Price Per Share $43.12 $45.75
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Firm Value / Revenue multiples based on NEXTLINK's acquisition of Concentric
and McLeodUSA's acquisition of Splitrock.
18
[SALOMON SMITH BARNEY LOGO]
---------------------------
<PAGE>
PROJECT NORTHFACE
APPENDIX
[SALOMON SMITH BARNEY LOGO]
---------------------------
<PAGE>
PROJECT NORTHFACE
A. Weighted Average Cost of Capital
[SALOMON SMITH BARNEY LOGO]
---------------------------
<PAGE>
PROJECT NORTHFACE
Weighted Average Cost of Capital for Vail
<TABLE>
<CAPTION>
=======================================================================
Low High
---------------------
Cost of Equity
- -----------------------------------------------------------------------
<S> <C> <C>
U.S. Risk Free Rate (10 Year U.S. Treasury) 6.51% 6.51%
Equity Market Risk Premium (b) 5.50% 7.50%
Median Industry Equity Beta (c) 2.02 2.02
- -----------------------------------------------------------------------
Adjusted Equity Market Risk Premium 11.09% 15.13%
Cost of Equity 17.60% 21.63%
Cost of Debt
- -----------------------------------------------------------------------
U.S. Risk Free Rate (10 Year U.S. Treasury) (a) 6.51% 6.51%
Credit Spread 5.49% 5.49%
- -----------------------------------------------------------------------
Cost of Debt (Pretax) 12.00% 12.00%
Effective Marginal Tax Rate 38.00% 38.00%
- -----------------------------------------------------------------------
Cost of Debt (Aftertax) 7.44% 7.44%
Debt/Capitalization (Target) 30.00% 20.00%
WACC 14.55% 18.80%
- -----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
========================================================
Comparable Companies Equity Beta (d)
- --------------------------------------------------------
<S> <C>
AppliedTheory Corp. (ATHY) 1.85
Data Return Corp (DRTN) 1.08
Digex Inc (DIGX) 2.08
Equant N V (ENT) 0.75
Exodus Communications Inc (EXDS) 2.09
Internet Initiative Japan Inc (IIJI) 1.96
Navisite Inc (NAVI) 2.11
PSInet Inc (PSIX) 2.08
- --------------------------------------------------------
Median Industry Equity Beta 2.02
- --------------------------------------------------------
</TABLE>
- ----------------
Source: Salomon Smith Barney Financial Strategies Group.
(a) As of May 5, 2000.
(b) Equity market risk premium of 5.5% - 7.5%.
(c) Median equity beta for the Access and Web Hosting Industry.
(d) Source: Barra, March 31, 2000.
19
[SALOMON SMITH BARNEY LOGO]
---------------------------
<PAGE>
PROJECT NORTHFACE
B. Precedent Transactions and Premiums Analysis
[SALOMON SMITH BARNEY LOGO]
---------------------------
<PAGE>
PROJECT NORTHFACE
Precedent Transactions
(Dollars in Millions)
<TABLE>
<CAPTION>
Firm Value/Revenues Premium to Prior
Date Value of ----------------------------- ------------------------
Announced Target Name Acquiror Name Transaction LTM LQA Fwd 12-Mos 1 Day 1 Week 1 Month
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
02/22/00 IXnet Global Crossing $3,606 49.Ox 39.Ox 32.3x 18.1% 22.8% 34.7%
01/10/00 Concentric Network NEXTLINK 2,793 19.0 15.2 10.2 50.0 46.0 82.7
01/07/00 Splitrock Services McLeodUSA 1,849 20.6 14.6 9.6 33.8 53.0 34.2
06/23/99 AboveNet Communications Metromedia Fiber 1,683 174.2 109.3 35.9 35.9 66.5 47.7
07/16/98 InternetMCI Cable & Wireless 1,750 5.8 4.7 3.8 NA NA NA
======================================================================
Median 20.6x 15.2x 10.2x 34.9% 49.5% 41.2%
Mean 53.7 36.6 18.4 34.5 47.1 49.8
======================================================================
</TABLE>
20
[SALOMON SMITH BARNEY LOGO]
---------------------------
<PAGE>
PROJECT NORTHFACE
Historical M&A Premiums
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Premium Offered
---------------------- Number of
Year Average Median Deals
- -----------------------------------------------------------------
<S> <C> <C> <C>
1999 43.3% 34.6% 723
1998 40.7 30.1 512
1997 35.7 27.5 487
1996 36.6 27.3 381
1995 44.7 29.2 324
3 Years ('97-'99) 40.4 31.3 1,722
5 Years ('95-'99) 40.4 30.4 2,427
- -----------------------------------------------------------------
</TABLE>
- --------------
Source: Mergerstat (12/31/99).
Note: Premium calculations based on the target's closing market price five
trading days prior to announcement. Three- and five-year data
calculated based on yearly data weighted by the number of deals in
each respective year.
21
[SALOMON SMITH BARNEY LOGO]
---------------------------
<PAGE>
PROJECT NORTHFACE
C. Vail Comparable Company Analysis
[SALOMON SMITH BARNEY LOGO]
---------------------------
<PAGE>
PROJECT NORTHFACE
Web Hosting and Business Access Comparables
<TABLE>
<CAPTION>
52 Week Firm Value (b) /Revenues
($ in Millions, Except Stock Stock --------------- Equity Firm ---------------------------------------
Price & FV/ Subs) Price (a) Lo Hi Value Value (b) LQA 1999 2000E 2001E
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Web Hosting
Data Return (DRTN) $29.25 $15.06 $ 89.63 $ 1,208 $ 1,122 82.2x 165.Ox 40.6x 15.3x
Digex Inc. (DIGX) 77.38 15.50 171.50 5,440 5,115 45.7 85.6 34.1 17.9
Exodus Communications (EXDS) 85.75 17.55 173.31 22,216 22,049 41.1 91.1 28.1 13.7
Navisite (NAVI) 41.00 17.31 159.16 2,471 2,433 66.3 125.5 36.2 15.2
- --------------------------------------------------------------------------------------------------------------------------------
Median -- -- -- -- -- 56.Ox 108.3 35.1x 15.3x
Mean -- -- -- -- -- 58.8 116.8 34.7 15.5
- --------------------------------------------------------------------------------------------------------------------------------
Business Access
AppliedTheory Corp. (ATHY) $11.81 $ 8.75 $ 35.88 $ 304 $ 260 4.1 x 7.5x 4.7x 2.4x
EQUANT N.V. (ENT) 80.25 70.00 126.56 16,222 16,055 12.3 15.3 10.6 7.9
Internet Initiative Japan (IIJI) 59.94 28.50 129.13 2,695 2,624 11.9 12.2 11.3 9.2
PSINet Inc. (PSIX) 22.50 16.00 59.81 3,919 5,839 7.9 10.5 5.3 3.3
VIA NET.WORKS (VNWI) 21.00 13.75 71.75 1,188 888 11.1 22.6 9.7 5.5
- --------------------------------------------------------------------------------------------------------------------------------
Median -- -- -- -- -- 11.1x 12.2x 9.7x 5.5x
Mean -- -- -- -- -- 9.4 13.6 8.3 5.7
- --------------------------------------------------------------------------------------------------------------------------------
VAIL $35.94 $23.69 $80.00 $3,305 $3,856 11.9X 14.9x 9.3x 5.5x
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Operating Estimates from Wall Street Research.
(a) Stock Price as of May 5, 2000.
(b) Firm Value equals equity value (all fully diluted shares at the stock
price less any option proceeds) plus straight debt, minority interest,
straight preferred stock, all out-of-the-money convertibles, less
investments in unconsolidated affiliates and cash.
22
[SALOMON SMITH BARNEY LOGO]
---------------------------
<PAGE>
EXHIBIT (c)(4)
Strictly private & confidential
------------------------------------------------------------
Project Chaser
Discussion materials
April 7, 2000
Deutsche Banc Alex. Brown
[Deutsche Bank Logo]
<PAGE>
------------------------------------------------------------
These materials were prepared by Deutsche Bank Securities
Inc. ("Deutsche Bank") based on publicly available
information, information provided by Client, and certain
other available information, all without independent
verification by Deutsche Bank. All financial data including
forecasts are provided without any representation or warranty
in connection therewith by Deutsche Bank or any other party.
These materials are subject to due diligence and discussion
and do not constitute a specific transaction recommendation
or an opinion as to valuation or otherwise, and should not be
relied upon as the basis for any investment decision.
Deutsche Bank makes no representation or warranty (express or
implied) as to the accuracy or completeness of the
information herein. The materials are intended solely for use
by the intended recipient hereof. They are not for
publication.
Deutsche Banc Alex. Brown
[Deutsche Bank Logo]
<PAGE>
--------------------------------------------------
Contents
<TABLE>
<CAPTION>
Section
<S> <C> <C>
1 Overview of Chaser 1
2 Valuation analysis of Chaser 9
3 Premium analysis 14
4 Transaction strategic benefits 14
Appendix
I Financial projections of Chaser
II WACC analysis
III Exit EBITDA multiple analysis
IV Premium analysis detail
</TABLE>
Deutsche Banc Alex. Brown
[Deutsche Bank Logo]
<PAGE>
Overview of Chaser
------------------------------------------------------------
Section 1
Overview of Chaser
Deutsche Banc Alex. Brown
[Deutsche Bank Logo]
<PAGE>
Overview of Chaser
Chaser overview
Overview
- -----------------------------------------------------------------------
Business: 59 percent of revenues from web hosting and
co-location; 43 percent from access services; top
hosting company worldwide based on number of sites hosted
Mission: To be the premier, full-service provider of
Internet services
Target market: small and medium-sized enterprises
Customers: 305,000 web sites hosted; over 289,000
customer accounts
Headquarters: Englewood, Colorado
Employees (sales force): 1,700 (200 sales professionals;
over 4,000 resellers in US and over 170 in other
countries)
Network:
. Tier-one national network; 13 data centers; 29
national nodes, over 200 POPs and 100 peering partners
. Chaser has a 20-year deal to lease fiber-optic
capacity on Qwest's network. The network features
OC-12, OC-3 and DS-3 links
Geographical coverage: US
Marketing/distribution:
. Direct sales; online sales (general rotation and
keyword-specific Web banner ads); resellers;
preferential marketing agreements with leading Internet
online companies (e.g. AOL and NorthPoint); private
label and co-branded distribution relationships with
major telecommunications companies; in-house and
outsourced telemarketing operations
. Proprietary, large scale, low-cost, automated ordering
and provisioning system
Key alliances:
. NTT - September 1999, Web-hosting partnership for
Japanese market
. AOL - March 1999, exclusive rights to market its
Web-hosting and business-focused electronic commerce
services on AOL's four key online media properties.
Will transition roughly 7,000 PrimeHost and CompuServe
BusinessWeb hosting customers to Chaser
. NorthPoint - December 1998, joint DSL marketing to
rollout DSL services in 21 cities nationwide
. SGI, Intel, Sun and NT
Recent developments: Plan to add 50,000 sq. ft. of hosting
space to national network in 2000
Other:
. Ability to leverage cross selling of connectivity
products with web site and e-commerce applications, 40
percent of xDSL customers have web site from company
. Bulk of revenue from T-1 services; high growth in xDSL
roll out
. Gross margin estimates in 70 percent range
2000E revenue breakdown
- -------------------------------------------------------------------------------
[pie chart]
Dedicated internet access 34.1%
Web-hosting/value-added services 58.3%
Dial-up internet access 7.6%
Total 2000E revenue: $414
Source: Deutsche Banc Alex. Brown research estimates.
<TABLE>
<CAPTION>
Ownership/(1)/
- ------------------------------------------------------------------
Holding Percentage
(shares in mm)
<S> <C> <C>
Nippon Telegraph & Telephone Corp. 9.0 11.4%
Putnam Investment Management 7.1 9.0
MCI Worldcom Inc. 4.2 5.2
AMVESCAP Plc 4.2 5.2
Fidelity Management & Research Co. 4.1 5.1
(1) Ownership based on 78.7 million ordinary shares of
common stock outstanding.
Source: Chaser's proxy dated April 2000.
</TABLE>
Deutsche Banc Alex. Brown
[LOGO]
<PAGE>
Overview of Chaser Section
- --------------------------------------------------------------------------------
Chaser network
[INSERT MAP]
Current DS\3\ Capacity* Planned DS\3\ Capacity Chaser Network
Current OS\3\ Capacity* Current Chaser Network Nodes Operations Center
Current OC\12\ Capacity* Primary Data Centers
*Includes circuits on order as of 4/30/99
Deutsche Banc Alex. Brown
Deutsche Bank [LOGO]
<PAGE>
Overview of Chaser Section
- --------------------------------------------------------------------------------
Summary trading and financial statistics
<TABLE>
<CAPTION>
($mm, except per share data)
Trading statistics
- -------------------------------------------------------------------------------------------------------------
Trading statistics(1) Operating statistics
- ------------------------------------------------ ---------------------------------------------
<S> <C> <C> <C>
Price as of 04/06/00 $ 35.00 Fiscal year end 12/31/1999
LTM high 84.94 1998 revenues $ 120.7
LTM low 20.81 1999 revenues 258.3
2000E revenues 413.5
Shares outstanding(2) 97.6
Market value $3,416.7
Total enterprise value 3,635.9
Total enterprise value/ Balance sheet statistics (12/31/99)
- ------------------------------------------------ ---------------------------------------------
1998 revenue 30.1x Cash and equivalents $ 883.8
1999 revenue 14.1 Total debt 1,103.1
2000E revenue 8.8 Net debt 219.3
1998 EBITDA NM Book equity(3) 533.1
1999 EBITDA NM Net PP&E 205.1
2000E EBITDA 307.3
</TABLE>
(1) Trading statistics as of 4/6/2000.
(2) Fully-diluted shares using the treasury method; includes 2.9 million of
warrants.
(3) Includes convertible preferred stock of $347.3 million.
Deutsche Banc Alex.Brown
Deutsche Bank [LOGO]
<PAGE>
Overview of Chaser Section
- --------------------------------------------------------------------------------
Chaser - stock price performance
Chaser stock price-volume performance
- --------------------------------------------------------------------------------
1/19/00: Announced agreement with Covad to provide DSL service to home offices
1/12/00: Launched enhanced global domain name registration service
1/31/00: Chaser announces plans to expand its web-hosting and co-location
physical infrastructure, systems & personnel
2/3/00: Lycos and Chaser team to market Lycos shop to existing and potential
on-line
3/1/00: Chaser announces 4th quarter results
9/28/99: Announced web-hosting partnership with NTT for Japanese market
10/20/99: Announced web-hosting and e-commerce alliance with Italian telecom
firm Infostrada
11/4/99: Announced it surpassed 300,000 web-site milestone
11/16/99: Announced $400mm private debt offering
11/30/99: Announced dedicated-server hosting plans based on Sun Microsystems
technology with CIBER
12/14/99: Announced ASP joint venture with CIBER
[BAR GRAPH]
Daily: April 1, 1999 - April 6, 2000
Deutsche Banc Alex. Brown
Deutsche Bank [LOGO]
<PAGE>
Overview of Chaser Section
- -------------------------------------------------------------------------------
Price volume analysis - percentage by price range
<TABLE>
<CAPTION>
[BAR CHART]
<S> <C> <C> <C>
32.3% 65.8% 1.9%
5.00-10.00 10.01-15.00 15.01-20.00
Stock price range 1998
</TABLE>
<TABLE>
<CAPTION>
[BAR CHART]
<S> <C> <C> <C> <C> <C> <C> <C> <C>
8.3% 7.8% 13.9% 11.6% 23.4% 19.0% 8.5% 4.8% 2.7%
10.01- 15.01- 20.01- 25.01- 30.01- 35.01- 40.01- 45.01- 50.01-
15.00 20.00 25.00 30.00 35.00 40.00 45.00 50.00 55.00
Stock price range 1999
</TABLE>
<TABLE>
<CAPTION>
[BAR CHART]
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2.6% 2.2% 5.5% 15.8% 19.5% 23.5% 12.2% 14.1% 4.3%
35.01- 40.01- 45.01- 50.01- 55.01- 60.01- 65.01- 70.01- 75.01-
40.00 45.00 50.00 55.00 60.00 65.00 70.00 75.00 85.00
Stock price range YTD 2000(1)
(1) As of 4/5/2000.
</TABLE>
<TABLE>
<CAPTION>
[BAR CHART]
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4.8% 15.1% 5.3% 9.0% 7.5% 15.1% 12.8% 5.9% 4.3% 5.0% 4.0% 4.9% 2.5% 2.9% 0.9%
5.00- 10.01- 15.01- 20.01- 25.01- 30.01- 35.01- 40.01- 45.01- 50.01- 55.01- 60.01- 65.01- 70.01- above
10.00 15.00 20.00 25.00 30.00 35.00 40.00 45.00 50.00 55.00 60.00 65.00 70.00 75.00 75.00
</TABLE>
Stock price range Total (1998-YTD 2000)
Deutsche Banc Alex. Brown
[Deutsche Bank LOGO]
<PAGE>
Overview of Chaser Section
------------------------------------------------------------
Price volume analysis - cumulative percentage
10.00 32.3%
15.00 98.1%
20.00 100.0%
Stock price below 1998
[BAR CHART APPEARS HERE]
15.00 8.3%
20.00 16.2%
25.00 30.1%
30.00 41.6%
35.00 65.0%
40.00 84.0%
45.00 92.5%
50.00 97.3%
55.00 100.0%
Stock price below 1999
[BAR CHART APPEARS HERE]
40.00 2.6%
45.00 4.8%
50.00 10.2%
55.00 26.0%
60.00 45.5%
65.00 69.4%
70.00 81.7%
75.00 95.7%
85.00 100.0%
Stock price below YTD 2000(1)
(1) As of 4/5/2000.
[BAR CHART APPEARS HERE]
10.00 4.8%
15.00 19.8%
20.00 25.2%
25.00 34.1%
30.00 41.6%
35.00 56.7%
40.00 69.5%
45.00 75.5%
50.00 79.7%
55.00 84.7%
60.00 88.7%
65.00 93.7%
70.00 96.2%
75.00 99.1%
85.00 100.0%
Stock price below Total (1998-YTD 2000)
[BAR CHART APPEARS HERE]
Deutsche Banc Alex. Brown
[Deutsche Bank Logo]
<PAGE>
Overview of Chaser Section
- -------------------------------------------------------------------------------
Chaser - summary of analysts' commentary
<TABLE>
<CAPTION>
Analyst Price target Rating Comment
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Michael G. Bowen $90.00 Strong buy [ ] "We believe the biggest risk lies in the ability to efficiently
Deutsche Banc Alex. Brown manage growth (e.g., staffing and sales/systems scalability and
March 6, 2000 efficiency). The biggest potential upside is for Chaser to
increase customer penetration and layer on new computing and
communications services (e.g., application hosting and DSL) to
increase its share of customers' total spending."
Stephen J. Murphy 90.00 Buy [ ] "We continue to believe that the main risk to the Chaser story
CIBC World Markets is price reductions in the access are (viewed increasingly by
March 3, 2000 management as a complementary offering to hosting services)....
Chaser's end-game is to successfully leverage its leading shared
hosting position with small- and medium-sized businesses into
higher value areas like dedicated hosting, e-commerce and
application hosting. We believe the company is making
significant strides in building the infrastructure and scale to
do so."
Daniel J. Renouard 90.00 Market [ ] "Price target increase is attributable to the increased
Baird outperform valuations for the two acquirers of data-services companies,
March 2, 2000 NextLink and McLeod, which are both up significantly since their
acquisitions were announced earlier this year.
[ ] "We believe the recent run-up in the stock is at least partly
attributable to the company's acquisition potential, which
could be a risk to the stock should an acquisition not
materialize.
[ ] "We remain positive on the stock due to the company's
attractiveness as an acquisition candidate, shifting revenue
base to higher-growth value-add segments of e-commerce, web
hosting and ASP infrastructure. However, we note Chaser's
sequential growth rate of 7 percent pales in comparison to the
web-hosting pure-plays such as Digex or Exodus, which are
growing at least 35 percent sequentially."
[ ] "While we think the company is moving in the right direction, we
believe the near-term upside on the stock is limited to the
acquisition potential valuation until significantly higher
sequential growth rates can be demonstrated."
</TABLE>
Deutsche Banc Alex. Brown
[Deutsche Bank Logo]
<PAGE>
Valuation analysis of Chaser Section
------------------------------------------------------------
Section 2
Valuation analysis of Chaser
Deutsche Banc Alex. Brown
[Deutsche Bank Logo]
<PAGE>
Valuation analysis of Chaser Section
- --------------------------------------------------------------------------------
Chaser valuation summary - total equity value
<TABLE>
<CAPTION>
[BAR CHART APPEARS HERE]
($ in billions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Market cap
US$3.4 billion/(1)/
Discounted cash flow/(2)/ $4.8 $6.5
Transaction multiples; 2000 revenues $4.8 $6.0
Trading muiltiples; 2000 revenues $5.1 $7.0
Trading multiples; 2001 revenues $4.6 $6.3
--------------------------------------------------------------------------------------
$3.0 $3.5 $4.0 $4.5 $5.0 $5.5 $6.0 $6.5 $7.0 $7.5
Total equity valuation (US$bn)
</TABLE>
(1) Market cap at April 6, 2000.
(2) Discount rate of 13% - 17% and assumed EBITDA multiple of 13.5x assumed, as
previously presented in Work I and II.
Deutsche Banc Alex. Brown
[Deutsche Bank LOGO]
<PAGE>
<TABLE>
<CAPTION>
Valuation analysis of Chaser
- ---------------------------------------------------------------------------------------------
Chaser valuation summary - per share value
Share price
US$35.00/(1)/
<S> <C> <C>
Discounted cash flow/(2)/ $48.79 $66.19
Transaction multiples; 2000 revenues $48.83 $61.70
Trading multiples; 2000 revenues $52.40 $72.30
Trading multiples; 2001 revenues $47.44 $65.00
- ---------------------------------------------------------------------------------------------
$30.0 $40.0 $50.0 $60.0 $70.0 $80.0
Per share valuation (US$)
</TABLE>
(1) Share price at April 6, 2000.
(2) Discount rate of 13% - 17% and assumed EBITDA multiple of 13.5x assumed,
as previously presented in Work I and II.
Deutsche Banc Alex. Brown
(Deutsche Bank Logo)
<PAGE>
Valuation analysis of Chaser Section
- -------------------------------------------------------------------------------
Discounted cash flow/1/
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
($mm) 2000 2001 2002 2003 2004 2005 2006 2007 2008
- ------------------------------------------------------------------------------------------------------------------------
EBITDA $ 56.3 $ 114.0 $ 177.9 $ 284.0 $ 430.1 $ 626.7 $ 804.5 $ 995.4 $1,181.9
EBIT (99.0) (93.9) (76.4) (25.4) 56.9 182.7 282.8 387.8 479.8
Less:
Cash taxes/(1)/ 0.0 0.0 0.0 0.0 0.0 0.0 7.9 139.6 172.7
Tax-effected EBIT $ (99.0) $ (93.9) $ (76.4) $ (25.4) $ 56.9 $ 182.7 $ 274.9 $ 248.2 $ 307.1
Plus:
Depreciation and amortization 155.3 207.9 254.3 309.4 373.2 444.0 521.7 607.5 702.1
Unlevered cash flow 56.3 114.0 177.9 284.0 430.1 626.7 796.6 855.7 1,009.1
Minus:
Capital expenditures (65.0) (65.0) (80.0) (95.0) (110.0) (122.0) (134.0) (148.0) (163.0)
Investment in working capital (11.7) 20.9 0.1 41.4 57.4 (27.9) (71.4) (127.0) (186.0)
Free cash flow $ (20.5) $ 69.8 $ 98.0 $ 230.4 $ 377.5 $ 476.8 $ 591.2 $ 580.7 $ 660.1
</TABLE>
(1) Adjusted for NOL carryover.
<TABLE>
<CAPTION>
Sensitivity analysis - total enterprise value Sensitivity analysis - total equity value/(1)/ Sensitivity analysis - per share/(2)/
- --------------------------------------------- ---------------------------------------------- -------------------------------------
EBITDA multiple EBITDA multiple EBITDA multiple
-------------------------------- --------------------------------- --------------------------
12.0x 13.5x 15.0x 12.0x 13.5x 15.0x 12.0x 13.5x 15.0x
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
13.0% $6,090.3 $6,680.5 $7,270.6 13.0% $5,871.1 $6,461.2 $7,051.4 13.0% $60.14 $66.19 $72.23
14.0 5,655.7 6,200.9 6,746.0 14.0 5,436.5 5,981.6 6,526.8 14.0 55.69 61.27 66.86
15.0 5,256.3 5,760.2 6,264.2 15.0 5,037.0 5,541.0 6,044.9 15.0 51.60 56.76 61.92
16.0 4,889.0 5,355.1 5,821.3 16.0 4,669.7 5,135.9 5,602.0 16.0 47.84 52.61 57.39
17.0 4,550.8 4,982.3 5,413.9 17.0 4,331.6 4,763.1 5,194.6 17.0 44.37 48.79 53.21
</TABLE>
(1) Adjusted for net debt of $219.2 million.
(2) Assumes fully diluted shares outstanding of 97.6 million shares; includes
2.9 million warrants.
/1/ Financial data based on Deutsche Banc Alex. Brown research estimate; please
refer to Appendix I.
Deutsche Banc Alex. Brown
[Deutsche Bank Logo]
<PAGE>
<TABLE>
<CAPTION>
Valuation analysis of Chaser Section
- -------------------------------------------------------------------------------------------------------------------------
Transaction multiples (sum of the parts); 2000 revenues
Implied value range
Enterprise value/ Chaser -------------------
2000E revenue 2000E revenue/(1)/ Low High
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dial-up service
MindSpring Enterprises/Netcom dial-up bus.(from ICG) 1.1x
ICG/NETCOM 1.0x
WorldCom/Compuserve 1.0x
-----------------
Range 0.9 - 1.2x $ 31.2 $ 28.1 $ 37.5
Dedicated line
NEXTLINK Communications/Concentric/(1)/ 10.9x
McLeodUSA/Splitrock Services/(1)/ 11.2x
MFS Communications/UUNET Technologies 9.8x
-----------------
Range 9.5 - 11.5x $141.1 $1,340.5 $1,622.7
Web hosting and co-location
Metromedia Fiber Network/AboveNet 16.9x
Verio/Best Internet Comm.(d/b/a Hiway Technologies) N.A
Intermedia Communications/DIGEX 1.2x
-----------------
Range 15.0 - 19.0x $241.2 $3,617.5 $4,582.1
Implied Chaser
enterprise value $4,986.0 $6,242.3
Less: net debt (219.2) (219.2)
Implied Chaser equity
value 4,766.8 6,023.0
Implied Chaser price
per share/(1)/ $ 48.83 $ 61.70
</TABLE>
(1) Deutsche Banc Alex. Brown research estimates.
(2) Assumes fully diluted shares outstanding: 97.6 million shares; includes 2.9
million warrants.
Deutsche Banc Alex. Brown
[LOGO OF DEUTSCHE BANK APPEARS HERE]
<PAGE>
Valuation analysis of Chaser Section
- --------------------------------------------------------------------------------
Trading multiples (sum of the parts); 2000 revenues
<TABLE>
<CAPTION>
Implied value range
Enterprise value/ Chaser -------------------
2000E revenue 2000E revenue/(1)/ Low High
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dial-up service
Earthlink Network 1.5x
OneMain.com 1.2x
Prodigy Communications 3.0x
-------------------
Range 1.5 - 2.5x $ 31.2 $ 46.9 $ 78.1
Dedicated line
Concentric Network/(2)/ 10.3x
PSINet 4.8x
-------------------
Range 5.0 - 10.0x $141.1 $ 705.5 $1,411.0
Web hosting and co-locations
Digital Island/(3)/ 42.8x
Exodus Communications 34.1x
Globix 31.1x
Interliant 11.9x
-------------------
Range 19.0 - 24.0x $241.2 $4,582.1 $5,788.0
Implied Chaser enterprise value $5,334.5 $7,277.1
Less: net debt (219.2) (219.2)
Implied Chaser equity value 5,115.3 7,057.8
Implied Chaser price per $ 52.40 $ 72.30
share/(4)/
(1) Deutsche Banc Alex. Brown Equity research estimates.
(2) Multiple has been distorted by recent merger activity.
(3) Digital Island has been treated as an outlier and is considered less comparable.
(4) Assumes fully diluted shares outstanding: 97.6 million shares; includes 2.9 million warrants.
</TABLE>
Deutsche Banc Alex. Brown
[Deutsche Bank Logo]
<PAGE>
Valuation analysis of Chaser Section
- --------------------------------------------------------------------------------
Trading multiples (sum of the parts); 2001 revenues
<TABLE>
<CAPTION>
Implied value range
Enterprise value/ Chaser ----------------------
2001E revenue 2001E revenue/(1)/ Low High
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dial-up service
Earthlink Network N.A
OneMain.com 0.9x
Prodigy Communications 2.4x
------------------
Range 1.0x - 2.5x $ 57.1 $ 57.1 $ 142.75
Dedicated line
aoncentric Network/(2)/ 6.7x
PSINet 3.6x
------------------
Range 4.0 - 7.0x $215.0 $ 860.13 $1,505.23
Web hosting and co-location
Digital Island/(3)/ 21.6x
Exodus Communications 18.0x
Globix 16.5x
Interliant 6.7x
------------------
Range 12.0 - 15.0x $327.7 $3,932.39 $4,915.49
Implied Chaser enterprise value $ 4,849.6 $ 6,563.5
Less: net debt (219.2) (219.2)
Implied Chaser equity value $ 4,630.4 $ 6,344.2
Implied Chaser price per share/(4)/ $ 47.44 $ 65.00
</TABLE>
(1) Deutsche Banc Alex. Brown Equity research estimates.
(2) Multiple has been distorted by recent merger activity.
(3) Digital Island has been treated as an outlier and is considered less
comparable.
(4) Assumes fully diluted shares outstanding: 97.6 million shares; includes
2.9 million warrants.
Deutsche Banc Alex. Brown
Deutsche Bank [LOGO]
<PAGE>
Selected precedent transactions comparable in the Internet data services
industry
<TABLE>
<CAPTION>
Target premium/ Acquiror market
Transaction value announcement response Enterprise value/
------------------ ------------------ ------------------- -----------------
- 30 trading
Date/ days + 20 trading
announced Acquiror/target Equity Enterprise - 1 day average + 1 day days Ff. rev. G PP&E
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dedicated
01/10/00 Nextlink Communications/Concentric 2,824.1 2,891.1 50.0% 55.9% (9.6%) 21.3% 10.9x 25.1x
01/07/00 McLeodUSA/Splitrock Services 1,733.3 2,100.0 27.1 44.6 10.3 35.3 11.2 17.0
04/30/96 MFS Communications/UUNET Technologies 2,029.7 2,009.1 27.6 84.8 6.7 0.2 9.8 21.5
Median 27.6% 57.7% 6.7% 21.3% 10.9x 21.5x
Dial-up
01/06/99 Mind Spring Enterprises/Netcom dial-up
bus. (from ICG) 245.0 245.0 NA NA 32.2% 47.8% 1.1x 3.1x
10/13/97 ICG/NETCOM 266.7 206.3 NA NA (7.2) (11.4) 1.0 1.7
09/08/97 WorldCom/Compuserve 1,326.1 1,192.3 (5.2%) 6.8% 13.3 18.2 1.0 1.7
Median (5.2%) 6.8% 13.3% 18.2% 1.0x 1.7x
Hosting
06/23/99 Metromedia Fiber Network/AboveNet 1,550.0 1,357.5 35.9% 50.0% (13.2%) (16.0%) 16.9x 50.8x
07/28/98 Verio/Best Internet Comm. (d/b/a Hiway
Technologies) 353.0 354.3 NA NA (0.4) (4.7) NA 27.0
06/05/97 Intermedia Communications/Digex 177.5 154.5 NA NA 6.5 16.6 1.2 7.0
Median 35.9% 50.0% (0.4%) (4.7%) 9.1x 27.0x
Other
12/08/98 AT&T/IBM Global Network 5,000.0 5,000.0 NA NA 9.6% 22.8% 2.2x 0.9x
09/14/98 Qwest/Icon CMT Corp. 185.0 166.6 65.5% 15.1% 4.1 10.2 NA 9.4
05/28/98 Cable & Wireless/MCI (Internet network
only)/(1)/ 1,750.0 1,750.0 NA NA 0.7 5.9 6.8 17.5
05/06/97 GTE Corporation/BBN 634.3 681.8 28.2 59.6 (5.4) (2.2) 2.1 5.3
Median 46.8% 37.3% 2.4% 8.1% 2.2x 7.3x
</TABLE>
(1) Revenue multiple shown is based on LTM due to the unavailability of
projections, and Gross PP&E multiple is estimated based on total asset
value.
<PAGE>
The Internet landscape - market valuation of selected public companies
<TABLE>
<CAPTION>
Total
Stock price enterprise Total
Company/ticker 04/06/2000 Market value value/(1)/ Book value Debt/equity subscribers/(2)/
($mm) ($mm) ($mm)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Business ISPs
Concentric Network/(2)(3)/ $50.77 $ 2,757.1 $ 2,843.9 $ 103.5 1.9x 110,000
CNCX
PSINet/(4)/ 30.50 4,621.2 5,059.0 1,500.5 2.2 1,200,000
PSIX
Chaser 35.00 3,416.7 3,635.9 533.1 2.1 364,000
VRIO
Consumer ISPs
America Online/(5)/ $65.00 $171,638.5 $170,166.5 $6,251.0 0.3x 21,000,000
AOL
Earthlink, Inc/(8)(9)/ 17.31 2,113.0 1,615.6 758.5 0.2 3,100,000
ELNKD
OneMain.com, Inc. 8.88 211.3 176.5 310.9 0.0 701,000
ONEM
Internet America/(6)/ 7.44 74.7 73.8 37.7 0.0 147,000
GEEK
Prodigy Communications Corp./(7)/ 13.00 850.3 926.4 165.1 0.7 1,502,000
PRGY
</TABLE>
Note: Shares outstanding calculated on a treasury stock basis.
(1) Adjusted Market Value represents Market Value plus Total Debt less Balance
Sheet Cash.
(2) Not pro forma for merger closed October 18th.
(3) Not pro forma for merger announced January 10th.
(4) Pro forma for acquisition of TNI and other acquisitions.
(5) Not pro forma for merger announced January 10th.
(6) Not pro forma for merger announced September 13th.
(7) Not pro forma for merger closed October 5th.
(8) Financials updated for press release of revenue, EBITDA, and shares
outstanding.
(9) Revenue estimates based on combined estimates of pre-merger Earthlink and
MindSpring.
Deutsche Banc Alex. Brown
<PAGE>
The Internet landscape - market valuation of selected comparable public
companies
<TABLE>
<CAPTION>
($ in millions, except Adj. Mkt. Cap, Subscriber and EPS)
Revenues EBITDA
---------------------------- ----------------
Company/ticker 1999 2000 2001 1999 2000
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Business ISPs
Concentric Network/(2)/ $ 148.4 $ 275.1 $ 427.2 $(35.6) $(13.7)
CNCX
PSINet/(3)/ 548.8 1,044.4 1,403.3 (22.6) 113.8
PSIX
Chaser/(6)/ 258.3 413.5 599.8 (8.6) 56.3
VRIO
Consumer ISPs
America Online/(4)/ $5,585.0 $7,217.2 $8,662.9 $939.4 NA
AOL
Earthlink, Inc/(5)/ 668.8 1,106.0 NA (12.2) $ 89.9
ELNKD
OneMain.com, Inc. 99.7 146.7 200.3 (10.3) (13.3)
ONEM
Internet America 24.5 30.8 38.0 0.5 N.A
GEEK
Prodigy Communications Corp. 185.0 312.0 380.0 (49.0) 7.8
PRGY
</TABLE>
<TABLE>
<CAPTION>
Total enterprise value/
------------------------------------------------------------
Revenue EBITDA
---------------------------------------------------
1999 2000 2001 1999 2000 Subscribe
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Business ISPs
Concentric Network/(2)/ 19.2x 10.3x 6.7x NM NM $25,853
CNCX
PSINet/(3)/ 9.2 4.8 3.6 NM 44.5x 4,216
PSIX
Chaser/(6)/ 14.1 8.8 6.1 NM 64.6 9,989
VRIO
Consumer ISPs
America Online/(4)/ 30.5x 23.6x 19.6x 181.1x NA $ 8,103
AOL
Earthlink, Inc/(5)/ 2.4 1.5 NA NM 18.0x 521
ELNKD
OneMain.com, Inc. 1.8 1.2 0.9 NM NM 252
ONEM
Internet America 3.0 2.4 1.9 145.6 NA 502
GEEK
Prodigy Communications Corp. 5.0 3.0 2.4 NM 118.2 617
PRGY
Business ISPs
--------------------------------------------------------------------
Mean: 14.2x 8.0x 5.4x NM 54.6x $13,353
Median: 14.1 8.8 6.1 NM 54.6 9,989
Consumer ISPs (excludes AOL)
--------------------------------------------------------------------
Mean: 3.1x 2.0x 1.8x 145.6x 68.1x $ 473
Median: 2.7 1.9 1.9 145.6 68.1 511
All ISPs (excludes AOL)
--------------------------------------------------------------------
Mean: 7.8x 4.6x 3.6x 145.6x 61.3x $ 5,993
Median: 5.0 3.0 3.0 145.6 54.6 617
</TABLE>
(1) Adjusted Market Value represents Market Value plus Total Debt less Balance
Sheet Cash.
(2) Not pro forma for merger announced January 10th.
(3) Pro forma for acquisition of TNI and other acquisitions.
(4) Not pro forma for merger announced January 10th.
(5) Revenue estimates based on combined estimates of pre-merger Earthlink and
MindSpring.
(6) Source: Deutsche Banc Alex. Brown research analyst estimates.
Deutsche Banc Alex. Brown
<PAGE>
Valuation analysis of Chaser
- --------------------------------------------------------------------------------
Web hosting - market valuation of selected public companies
<TABLE>
<CAPTION>
Total
Company/ticker Stock price Market enterprise Book
04/06/2000 value value/(1)/ value Debt/equity
($mm) ($mm) ($mm)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Data Return $ 36.63 $ 1,547.3 $ 1,461.3 $ 96.0 0.1x
DRTN
Digex, Inc. 99.00 2,786.7 2,718.2 312.5 0.1
DIGX
Digital Island 41.31 2,828.7 2,805.1 1,029.7 0.0
ISLD
Globix 32.06 1,378.4 1,452.2 86.2 2.8
GBIX
Interliant 25.69 1,266.0 1,238.5 137.6 0.0
INIT
Navisite 63.69 3,578.4 3,543.0 81.7 0.0
NAVI
Usinternetworking 32.75 2,220.9 2,289.9 102.5 1.8
USIX
Chaser 35.00 3,416.7 3,635.9 533.1 2.1
VRIO
Exodus Communications 139.69 25,060.2 25,666.9 17.6 92.1
EXDS
</TABLE>
(1) Total enterprise value equals equity value plus debt less cash.
Deutsche Banc Alex. Brown
<PAGE>
Web hosting - market valuation of selected comparable public companies
<TABLE>
<CAPTION>
($mm) Total enterprise value/
----------------------------------------------
Revenues/(1)/ Revenue
--------------------------------------------------- ----------------------------------------------
Company/ticker 1999 2000 2001 1999 2000 2001
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Data Return $ 7.1 $ 24.2 $ 64.8 205.6x 60.5x 22.5x
DRTN
Digex, Inc. 59.8 138.3 270.4 45.5 19.7 10.1
DIGX
Digital Island 21.2 65.5 130.1 132.6 42.8 21.6
ISLD
Globix 28.4 46.7 87.9 51.1 31.1 16.5
GBIX
Interliant 47.1 103.8 185.1 26.3 11.9 6.7
INIT
Navisite 17.8 49.5 139.7 199.0 71.6 25.4
NAVI
Usinternetworking 35.5 101.0 206.0 64.5 22.7 11.1
USIX
Chaser/(2)/ 258.3 413.5 599.8 14.1 8.8 6.1
VRIO
Exodus Communications 242.2 752.9 1,427.3 106.0 34.1 18.0
EXDS
Min: 14.1x 8.8x 6.1x
Mean: 93.8 33.7 15.3
Median: 64.5 31.1 16.5
Max: 205.6 71.6 25.4
</TABLE>
(1) Estimate Sources: Data Return: CIBC; Digex: Ferris Baker Watts; Digital
Island: Pacific Crest; Globix: ING Barings; Interliant: CW Unterberg.
(2) Source: Deutsche Banc Alex. Brown research analyst estimates.
<PAGE>
Section 3
Premium analysis
<PAGE>
Premium analysis Section
- --------------------------------------------------------------------------------
Analysis of acquisition price range
<TABLE>
<CAPTION>
($mm, except per share values) Price per share
------------------------------------------
$60 $65 $70 $75
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Premium over:
Stock price (4/6/00) $35.00 71.4% 85.7% 100.0% 114.3%
1 week average prior 38.79 54.7 67.6 80.5 93.3
1 month average prior 49.94 20.1 30.2 40.2 50.2
x Fully diluted shares outstanding (mm) 100.4 100.7 101.0 101.2
Equity value $6,024.6 $6,546.2 $7,067.8 $7,589.4
+ Debt, minority interest 1,103.1 1,103.1 1,103.1 1,103.1
- Cash (883.8) (883.8) (883.8) (883.8)
Enterprise value $6,243.9 $6,765.5 $7,287.0 $7,808.6
Enterprise value as a multiple of:
2000E revenues $413.5 15.1x 16.4x 17.6x 18.9x
2001E revenues 599.8 10.4 11.3 12.1 13.0
</TABLE>
Deutsche Banc Alex. Brown
<PAGE>
Premium analysis Section
- --------------------------------------------------------------------------------
Transaction premium analysis (values $2 - $10 billion) - US targets only
<TABLE>
<CAPTION>
Premium
- -------------------------------------------------------------------------------------------------------------
Number 1 day prior 5 trading days average prior
of ------------------------------ ----------------------------------
deals High Low Median Mean High Low Median Mean
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Last year
Hi-Tech/Telecom - Stock 19 55.3% 0.9% 29.9% 30.1% 166.9% 4.9% 39.9% 39.0%
Hi-Tech/Telecom - Cash 4 196.2 8.8 35.6 53.6 63.6 24.8 44.2 64.8
Last 2 years
Hi-Tech/Telecom - Stock 28 81.6% (4.2%) 26.9% 31.1% 166.9% 2.0% 36.9% 40.0%
Hi-Tech/Telecom - Cash 8 196.2 8.8 27.5 47.5 131.7 20.0 38.8 57.9
Last 5 years
Hi-Tech/Telecom - Stock 37 81.6% (4.2%) 27.6% 30.5% 166.9% 2.0% 36.5% 37.9%
Hi-Tech/Telecom - Cash 12 196.2 4.8 27.5 43.0 131.7 3.1 38.8 52.0
</TABLE>
<TABLE>
<CAPTION>
Premium
- ------------------------------------------------------------------------
30 trading days average prior
--------------------------------------
High Low Median Mean
<S> <C> <C> <C> <C>
Last year
Hi-Tech/Telecom - Stock
Hi-Tech/Telecom - Cash 229.4% 7.2% 53.9% 53.4%
79.6 27.1 70.1 66.0
Last 2 years
Hi-Tech/Telecom - Stock
Hi-Tech/Telecom - Cash 229.4% 7.2% 54.3% 62.5%
135.5 19.0 55.3 60.6
Last 5 years
Hi-Tech/Telecom - Stock
Hi-Tech/Telecom - Cash 229.4% 5.2% 53.2% 58.0%
135.5 9.4 55.3 55.7
</TABLE>
Note: Premiums comprised of US targets only in the high-tech/telecommunications
industry with transaction values between $2.0 and $10.0 billion.
Deutsche Banc Alex. Brown
Deutsche Bank [LOGO]
<PAGE>
Historical exchange ratio between Chaser and Aspire/1/
Current 0.48x
1 week average 0.55
30 day average 0.60
90 day average 0.73
6 month average 0.78
Aspire's original proposed exchange ratio = 0.802
Daily: December 31, 1998 - April 6, 2000
It is understood that Aspire may have submitted a revised proposal. The terms of
this new proposal are not known
/1/ Exchange ratio defined as Chaser share price over Aspire share price.
Deutsche Banc Alex. Brown
2
<PAGE>
Premium analysis of Aspire's bid
<TABLE>
<CAPTION>
Premium of US$ value of impled Premium of assumed exchange ratio to
offer price to Chaser price historical exchange ratio
------------------------------------------ ----------------------------------------
Exchange Implied offer Chaser TEV at Close 1 day 1 week prior 1 month prior Close 1 day 1 week prior 1 month prior
ratio price/(1)/ offering price prior/(2)/ average/(3)/ average/(4)/ prior/(5)/ average/(6)/ average/(7)/
($bn)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0.802 $58.09 $5.9 66.0%/(2)/ 49.8%/(3)/ 16.3%/(4)/ 66.0% 46.5% 34.4%
0.900 65.19 6.6 86.3 68.1 30.5 86.3 64.4 50.8
1.000 72.44 7.3 107.0 86.7 45.0 107.0 82.6 67.6
</TABLE>
(1) Based on Aspire's closing price on 4/6/00 of $72.44.
(2) Based on Chaser's closing price on 4/6/00 of $35.00.
(3) Based on Chaser's average closing price for the 1 week prior of $38.79.
(4) Based on Chaser's average closing price for the 1 month prior of $49.94.
(5) Based on 1 day prior exchange ratio of 0.48.
(6) Based on 1 week average prior exchange ratio of 0.55.
(7) Based on 1 month average prior exchange ratio of 0.60.
<PAGE>
Section 4
Transaction strategic benefits
<PAGE>
Transaction strategic benefits
We believe the acquisition of Chaser could provide Himawari with certain
strategic benefits
. Immediately provides Himawari a significant presence/critical mass in North
America
. Enables Himawari to become a major Internet data services provider in the US
. Gains control of a high quality network infrastructure that could be
integrated into Himawari's global network
. Provides Himawari a solid platform for future global expansion
. Satisfies existing domestic multi-national customers' data services needs and
creates cross-selling opportunities
. Inherits Chaser's extensive client list and strong relationships with other
major telecommunications and technology alliances
. Provides an opportunity to demonstrate Himawari's execution of a global
strategy to the investment community thereby further enhancing Himawari's
status as a key global player
<PAGE>
Appendix I
Financial projections of Chaser
<PAGE>
Financial projections of Chaser Appendix
- --------------------------------------------------------------------------------
Financial projections/1/
<TABLE>
<CAPTION>
($mm) 2000E 2001E 2002E 2003E 2004E 2005E 2006E 2007E 2008E
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 413.5 $ 599.8 $ 808.6 $1,092.5 $1,483.1 $1,958.4 $2,514.1 $3,110.5 $3,693.3
Cost of sales 118.6 168.0 226.4 305.9 415.3 548.3 703.9 870.9 1,034.1
Gross profit 294.9 431.9 582.2 786.6 1,067.8 1,410.0 1,810.1 2,239.6 2,659.2
Operations expense 238.7 317.9 404.3 502.5 637.7 783.4 1,005.6 1,244.2 1,477.3
EBITDA 56.3 114.0 177.9 284.0 430.1 626.7 804.5 995.4 1,181.9
Depreciation and amortization 155.3 207.9 254.3 309.4 373.2 444.0 521.7 607.5 702.1
EBIT (99.0) (93.9) (76.4) (25.4) 56.9 182.7 282.8 387.8 479.8
Net interest expense (98.0) (100.7) (102.3) (102.6) (94.2) (76.7) (51.6) (17.4) 25.7
Pre-tax income (197.0) (194.6) (178.8) (128.0) (37.3) 106.0 231.2 370.4 505.5
Income tax benefit/(expense) 0.0 0.0 0.0 0.0 0.0 40.3 87.9 140.8 192.1
Net income (197.0) (194.6) (178.8) (128.0) (37.3) 146.3 319.1 511.2 697.6
</TABLE>
/1/ Source: Deutsche Banc Alex. Brown published research estimates.
Deutsche Banc Alex. Brown
<PAGE>
Financial projections of Chaser Appendix
- --------------------------------------------------------------------------------
Revenue breakdown/1/
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Set forth below is a
published research $261 $414 $600 $809 $1,092 $1,483 CAGR
analyst projection of $ 26 $ 31 $ 57 $ 75 $ 97 $ 120
segment revenue for $ 95 $141 $215 $287 $ 358 $ 469 Total: 41.5%
Chaser. Further due $140 $241 $328 $446 $ 638 $ 895 35.9%
diligence may be 37.5%
appropriate 1999 2000 2001 2002 2003 2004 44.9%
</TABLE>
Hosting Dedicated Dial-up
/1/ Source: Deutsche Banc Alex. Brown published research estimates.
Deutsche Banc Alex. Brown
Deutsche Bank [LOGO]
2
<PAGE>
WACC analysis Appendix II
- --------------------------------------------------------------------------------
Appendix II
WACC analysis
Deutsche Banc Alex. Brown
Deutsche Bank [LOGO]
<PAGE>
Weighted average cost of capital (WACC)/1/
<TABLE>
<CAPTION>
($mm)
Current levered Market value Debt/market Cost Unlevered
Company beta/(1)/ TEV of equity capital of debt/(2)/ beta WACC
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Chaser 0.90 $3,635.9 $3,416.7 6.3% 11.0% 0.87 12.8%
</TABLE>
(1) Historical Barra Beta, 3/31/00.
(2) Estimated average cost of debt.
<TABLE>
<CAPTION>
Capital structure Cost of equity Cost of debt
- ------------------------------ ------------------------ ------------------------ Wtd-avg
Debt/market Debt/market Relevered Cost of cost of
capital equity Beta/(1)/ equity Before tax After tax capital
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
0% 0% 0.87 13.3% 10.5% 6.7% 13.3%
5 5 0.89 13.6 11.0 7.0 13.2
10 11 0.93 13.8 11.5 7.4 13.2
15 18 0.96 14.1 12.0 7.7 13.2
20 25 1.00 14.5 12.5 8.0 13.2
25 33 1.05 14.9 13.0 8.3 13.2
30 43 1.10 15.3 13.5 8.6 13.3
</TABLE>
(1) Relevered Beta = Unlevered Beta* (1+ (Net debt/market equity)*(1-tax rate)).
<TABLE>
<CAPTION>
Assumptions
- --------------------------------------------------------------------------------
<S> <C> <C>
Marginal tax rate Risk free rate of return/(1)/ Market risk premium/(2)/
36.00% 5.97% 8.50%
</TABLE>
(1) 30 year US Treasury as of 3/31/00.
(2) Market risk premium is calculated as the arithmetic difference between the
long-term rate of return on common stocks from 1926-1997 and the return on
long-term government bonds, calculated annually. Plus 0.5 percent of size
adjustments. Source: Ibbotson.
/1/ Based on the Weighted Average Cost of Capital and the Capital Asset Pricing
Models.
<PAGE>
Weighted average cost of capital (WACC) (continued)
<TABLE>
<CAPTION>
($mm)
Current levered Market value Debt/market Debt/market Unlevered
Company Beta/(1)/ of equity capital/(2)/ capital/(2)/ Beta/(3)/ WACC/(4)/
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Concentric Network 2.38 $ 2,844 $ 2,757 3.1% 2.33 25.6%
PSINet 1.54 5,059 4,621 8.7 1.45 18.2
Earthlink/(5)/ 2.46 1,616 2,113 (30.8) 2.89 30.4
OneMain.com 0.58 177 211 (19.7) 0.65 11.1
Internet America 1.48 74 75 (1.3) 1.50 18.7
Prodigy Communications NM 926 850 8.2 NM NM
Median 1.54 $ 1,271 $ 1,482 0.9% 1.50 18.7%
Data Return NA 1,461 1,547 (5.9%) NA NA
Digex NA 2,718 2,787 (2.5) NA NA
Digital Island NA 2,805 2,829 (0.8) NA NA
Globix 1.26 1,452 1,378 5.1 1.22 15.7%
Interliant NA 1,239 1,266 (2.2) NA NA
Navisite NA 3,543 3,578 (1.0) NA NA
Usinternetworking NA 2,290 2,221 3.0 NA NA
Exodus Communications 2.82 25,667 25,060 2.4 2.77 28.0%
Median 2.04 $ 2,504 $ 2,504 (0.9%) 2.00 21.8%
</TABLE>
(1) Source: Barra Historical Betas.
(2) Assumes book value of debt approximates market value.
(3) Unlevered Beta = Levered Beta/(1+(Net debt/market equity)*(1-tax rate)).
(4) Based on individual companies' current capital structure.
(5) Not pro forma for the MindSpring acquisition.
<PAGE>
Appendix III
Exit EBITDA multiple analysis
<PAGE>
Exit EBITDA multiple analysis
<TABLE>
<CAPTION>
($mm) L-T EBTIDA (TEV/EBITDA multiple)/
TEV/(1)/ EBITDA (LTM) TEV/EBITDA growth rate (EBITDA growth rate) ratio
(A) (B) (A)/(B)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AT&T 201,806 19,804 10.2x 14.5% 0.703
MCI 144,988 12,242 11.8 15.0 0.789
Sprint 70,339 5,604 12.6 15.0 0.837
Bell Atlantic 121,261 19,937 6.1 11.7 0.520
SBC Communications 178,788 20,234 8.8 10.6 0.833
Average 0.736
Average EBITDA multiple/EBITDA growth rate X Chaser terminal EBITDA growth rate/(2)/ = Estimated exit EBITDA multiple
0.736 X 18.7% = 13.8x
</TABLE>
(1) As of 4/5/2000.
(2) 2007E-2008E EBITDA Growth rate based on Deutsche Banc Alex. Brown research
analyst estimates.
<PAGE>
Exit EBITDA multiple analysis Appendix
- --------------------------------------------------------------------------------
Exit EBITDA multiple analysis (continued)
[ ] The multiples at which companies are valued are related to the growth
prospects of the company being evaluated
- an earnings stream that is growing quickly is more valuable than an
earnings stream that is growing slowly
- accordingly, if two companies with the same EBITDA in the current year
have different growth prospects, the company with higher growth will have
higher intrinsic present value and will be more highly valued by investors
- as a result, higher growth companies will trade at higher multiples than
lower growth companies
[ ] Research analysts have observed the relationship between EBITDA multiples
for mature large capitalization telecom companies and found that the ratios
of EBITDA multiple to growth rate are currently approximately 0.6x - 0.8x
- for example, a company with a 20 percent expected EBITDA growth rate would
be expected to trade at EBITDA multiples of 0.6x x 20 = 12x to 0.8x x 20 =
16x
[ ] Extrapolating this observed relationship to companies such as Chaser after
they have matured for eight years suggests that an appropriate EBITDA exit
multiple could be inferred by assuming that the company would trade at
approximately 0.6x - 0.8x its EBITDA growth rate in those later years
Duetsche Banc Alex. Brown
[Deutsche Bank LOGO]
<PAGE>
Premium analysis detail Appendix
- --------------------------------------------------------------------------------
Appendix IV
Premium analysis detail
Deutsche Banc Alex. Brown
[Deutsche Bank LOGO]
<PAGE>
Premium analysis detail Appendix
- --------------------------------------------------------------------------------
Deals used in premium analysis of cash transactions
<TABLE>
<CAPTION>
Proposed Premium Premium Premium
acquisition 1 day to 5 trading to 30 trading
Total price prior to day average day average
Date enterprise per ann. trading trading
announced Target name Acquiror name value share date price price
($mm)
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C>
06/05/1995 Lotus Development Corp IBM Corp $2,959.9 $64.00 96.9% 72.8% 90.4%
01/08/1996 Loral Corp Lockheed Martin Corp 8,322.8 38.00 4.8 3.1 9.4
04/22/1996 StrataCom Inc Cisco Systems Inc 4,728.1 57.50 48.4 42.2 61.4
01/26/1998 Digital Equipment Corp Compaq Computer Corp 8,620.0 60.00 32.1 29.5 53.2
07/20/1998 General Signal Corp SPX Corp 2,309.4 45.00 19.6 20.0 19.0
02/22/1999 Sundstrand Corp United Technologies Corp 4,309.2 70.00 20.7 23.6 39.8
03/01/1999 Reltec Corp GEC PLC 2,102.4 29.50 35.6 26.0 33.9
03/29/1999 PLATINUM Technology Inc Computer Associates Intl Inc 3,505.0 29.25 196.2 131.7 135.5
04/26/1999 FORE Systems Inc GEC PLC 3,991.7 35.00 70.2 35.3 68.6
05/19/1999 Raychem Corp Tyco International Ltd 3,522.0 39.29 26.2 24.8 45.1
06/23/1999 Omnipoint Corp VoiceStream Wireless Corp 4,476.9 32.23 55.3 63.6 79.6
03/29/2000 IMS Health TriZetto Group Inc 8,476.8 27.03 25.0 26.5 27.1
</TABLE>
Deutsche Banc Alex. Brown
[Deutsche Bank LOGO]
<PAGE>
Premium analysis detail Appendix
- --------------------------------------------------------------------------------
Deals used in premium analysis of stock transactions
<TABLE>
<CAPTION>
Proposed Premium Premium Premium
acquisition 1 day to 5 trading to 30 trading
Total price prior to day average day average
Date enterprise per ann. trading trading
announced Target name Acquiror name value share date price price
($mm)
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C>
06/13/1995 First Financial Management First Data Corp $6,155.6 $ 90.20 17.5% 16.6% 22.4%
04/22/1996 StrataCom Inc Cisco Systems Inc 4,728.1 57.50 48.4 42.2 61.4
04/30/1996 UUNet Technologies Inc MFS Communications Co Inc 2,037.0 61.56 27.6 28.7 79.1
02/26/1997 US Robotics Corp 3Com Corp 6,596.6 68.50 11.4 14.6 5.2
06/23/1997 Tandem Computers Inc Compaq Computer Corp 2,873.9 22.40 49.3 38.9 53.5
01/05/1998 Southern New England Telecomm SBC Communications Inc 5,806.8 65.83 32.6 27.4 38.8
01/26/1998 Digital Equipment Corp Compaq Computer Corp 8,620.0 60.00 32.1 29.5 53.2
03/09/1998 LCI International Inc Qwest Communications Corp 4,808.2 42.00 22.2 20.6 39.8
03/16/1998 360 Communications Co ALLTEL Corp 6,021.4 33.90 15.4 10.2 32.8
06/04/1998 DSC Communications Corp Alcatel Alsthom CGE 5,084.9 35.76 81.6 78.6 97.6
06/15/1998 Excel Communications Inc Teleglobe Inc 6,899.5 45.69 85.3 80.1 95.6
06/15/1998 Bay Networks Inc Nortel Networks Corp 9,009.0 38.21 35.0 28.3 40.7
07/20/1998 General Signal Corp SPX Corp 2,309.4 45.00 19.6 20.0 19.0
11/24/1998 Netscape Communications Corp America Online Inc 4,095.8 40.16 120.8 2.0 49.6
01/19/1999 Excite Inc At Home Corp 6,038.2 106.28 57.5 37.3 90.4
01/27/1999 GeoCities Yahoo! Inc 4,580.4 118.86 67.4 80.1 139.7
02/22/1999 Sundstrand Corp United Technologies Corp 4,309.2 70.00 20.7 23.6 39.8
04/01/1999 Broadcast.Com Inc Yahoo! Inc 4,796.0 130.02 53.0 10.8 36.5
05/19/1999 Raychem Corp Tyco International Ltd 3,522.0 39.29 26.2 24.8 45.1
06/01/1999 Associated Group Inc Liberty Media Group(AT&T Corp) 1,694.1 67.47 3.8 5.6 7.2
</TABLE>
Deutsche Banc Alex. Brown
[LOGO]
<PAGE>
Deals used in premium analysis of stock transactions (continued)
<TABLE>
<CAPTION>
Proposed Premium Premium Premium
acquisition 1 day to 5 trading to 30 trading
Total price prior to day average day average
Date enterprise per ann. trading trading
announced Target name Acquiror name value share date price price
($mm)
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C>
06/23/1999 Omnipoint Corp VoiceStream Wireless Corp $4,476.9 $ 32.23 55.3% 63.6% 79.6%
07/21/1999 IXC Communications Inc Cincinnati Bell Inc 3,444.4 49.43 36.3 30.3 28.5
08/10/1999 International Network Services Lucent Technologies Inc 3,289.8 53.91 13.6 16.3 24.2
09/23/1999 EarthLink Network Inc MindSpring Enterprises Inc 1,993.5 53.09 22.1 87.9 83.3
10/04/1999 TV Guide Inc Gemstar International Group 9,532.8 54.97 32.4 166.9 229.4
11/04/1999 Optical Coating Laboratory Inc JDS Uniphase Corp 2,693.2 177.65 49.0 41.8 78.3
12/13/1999 USWeb/CKS Whittman-Hart Inc 7,217.0 68.55 34.7 38.1 62.2
01/10/2000 Concentric Network Corp NextLink Communications Inc 2,358.8 45.00 50.0 43.4 55.9
02/07/2000 InterVU Inc Akamai Technologies Inc 2,360.8 139.99 19.7 30.9 43.5
02/07/2000 Ortel Corp Lucent Technologies Inc 2,787.8 178.70 0.9 9.7 41.1
02/07/2000 Silknet Software Inc Kana Communications Inc 3,976.2 214.87 55.1 46.3 46.2
02/15/2000 Teleglobe Inc Bell Canada Enterprises Inc 9,719.8 33.22 3.2 4.9 20.1
02/22/2000 IPC Communications Inc Global Crossing Ltd 3,044.0 283.71 47.7 81.7 181.1
02/23/2000 Newbridge Networks Corp Alcatel SA 6,594.5 38.98 16.0 15.1 29.7
03/13/2000 Aspect Development Inc i2 Technologies Inc 4,637.1 114.40 35.0 35.2 88.0
03/15/2000 LHS Group Inc Sema Group PLC 4,244.5 69.51 75.4 57.9 71.3
03/27/2000 Spyglass Inc OpenTV Corp(MIH Ltd) 2,393.9 122.29 75.0 71.9 94.2
</TABLE>
<PAGE>
Strictly private & confidential
- --------------------------------------------------------------------------------
Project Chaser
Updated valuation analysis of Chaser
May 7, 2000
Deutsche Banc Alex. Brown identifies the US investment banking activities of DB
Alex. Brown LLC (formerly BT Alex. Brown Incorporated) and Deutsche Bank
Securities Inc. which are indirect subsidiaries of Deutsche Bank AG.
Deutsche Banc Alex. Brown
[Deutsche Bank Logo]
<PAGE>
- --------------------------------------------------------------------------------
The information contained in this presentation was obtained solely from Himawari
and from other sources that we believe to be reliable. Deutsche Banc Alex. Brown
has used and relied upon such information in the preparation of this
presentation and does not assume responsibility for independent verification of
any such information, and makes no representation or warranty in respect of the
accuracy or completeness of such information.
This presentation has been prepared for the use of the Board of Directors of
Himawari only, is confidential and may not be disclosed or provided to any third
parties.
This presentation is prepared as of May 7, 2000 and reflects information made
available to us prior to such date. It does not include information regarding
all of the assessments made by Deutsche Banc Alex. Brown in arriving at its
conclusions.
Deutsche Banc Alex. Brown
[Deutsche Bank Logo]
<PAGE>
- --------------------------------------------------------------------------------
Contents
Section
1 Valuation analysis of Chaser 1
Appendix
I Selected precedent transaction comparables 14
II Selected public companies trading comparables 16
III Financial projections detail and synergies assumptions 23
IV Chaser's fully diluted shares calculation 31
Deutsche Banc Alex. Brown
[Deutsche Bank Logo]
<PAGE>
Valuation analysis of Chaser Section
- --------------------------------------------------------------------------------
Section 1
Valuation analysis of Chaser
Deutsche Banc Alex. Brown
[Deutsche Bank Logo]
<PAGE>
Valuation analysis of Chaser Section
- --------------------------------------------------------------------------------
Financial projections - no synergies case/1/
Himawari views the following updated published research analyst estimates for
Chaser as reasonable and has instructed Deutsche Banc Alex. Brown to use them to
value Chaser before giving effect to any synergies
<TABLE>
<CAPTION>
CAGR
2000 -
($mm) 2000E 2001E 2002E 2003E 2004E 2005E 2006E 2007E 2008E 2008
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 413.5 $ 685.6 $ 949.1 $1,318.3 $1,750.2 $2,268.2 $2,857.4 $3,489.3 $4,110.8 33.3%
Cost of sales 118.4 192.0 265.8 369.1 490.1 635.1 800.1 977.0 1,151.0 32.9
Gross profit 295.0 493.6 683.4 949.1 1,260.1 1,633.1 2,057.3 2,512.3 2,959.8 33.4
Operations expense 290.1 431.9 522.0 659.1 787.6 952.6 1,143.0 1,395.7 1,644.3 24.2
EBITDA 5.0 61.7 161.4 290.0 472.6 680.4 914.4 1,116.6 1,315.5 100.8
Depreciation and amortization 197.5 240.0 204.6 201.0 204.7 229.1 255.9 285.5 318.1 6.1
EBIT (192.5) (178.3) (43.3) 89.0 267.8 451.3 658.5 831.1 997.4 NM
Net interest expense (103.1) (112.1) (116.0) (115.6) (104.4) (80.9) (47.7) (1.3) 56.2 NM
Pre-tax income (295.6) (290.5) (159.3) (26.6) 163.4 370.5 610.7 829.7 1,053.6 NM
Income tax benefit/(expense) 0.0 0.0 0.0 0.0 (62.1) (140.8) (232.1) (315.3) (400.4) NM
Net income (295.6) (290.5) (159.3) (26.6) 101.3 229.7 378.6 514.4 653.2 NM
</TABLE>
/1/ Does not take into account use of NOLs.
Source: Himawari based on Deutsche Banc Alex. Brown published research
estimates.
Deutsche Banc Alex. Brown
[Deutsche Bank Logo]
<PAGE>
Valuation analysis of Chaser Section
- --------------------------------------------------------------------------------
Synergies projected by Himawari/1/
Himawari provided the following synergies to Deutsche Banc Alex. Brown to use in
its analysis
<TABLE>
<CAPTION>
2000E 2001E 2002E 2003E 2004E 2005E 2006E 2007E 2008E
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Incremental revenue to Chaser
Sale of US IP Network to Asian customers/(1)/ $ 0 $ 50 $ 60 $ 72 $ 86 $104 $124 $137 $151
End-to-end VPN services/(1)/ 0 16 32 48 64 80 80 80 80
Revenue from Chaser's existing customers/(2)/ 0 13 26 39 52 52 52 52 52
Web-hosting/virtual-hosting/(2)/ 0 40 80 120 160 160 160 160 160
Total incremental revenue 0 119 198 279 362 396 416 429 443
Incremental EBITDA 0 49 100 159 224 246 256 262 269
Incremental depreciation and amortization 0 20 20 20 20 20 20 20 20
Incremental capital expenditure 100 0 0 0 0 100 0 0 0
</TABLE>
(1) Dedicated line revenue.
(2) Web-hosting and co-location revenue.
/1/ Source: Himawari operating management in consultation with Himawari
financial team.
Deutsche Banc Alex. Brown
[Deutsche Bank LOGO]
<PAGE>
Valuation analysis of Chaser Section
- --------------------------------------------------------------------------------
Financial projections -- synergies case/1/
The synergies would result in the following operating results for Chaser
<TABLE>
<CAPTION>
CAGR
2000-
($mm) 2000E 2001E 2002E 2003E 2004E 2005E 2006E 2007E 2008E 2008
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 413.5 $ 804.6 $1,147.1 $1,597.3 $2,112.6 $2,663.8 $3,273.8 $3,918.2 $4,553.4 35.0%
Cost of sales 118.4 221.4 305.4 416.9 548.9 702.2 872.4 1,052.4 1,229.9 34.0
Gross profit 295.0 583.2 841.7 1,180.3 1,563.7 1,961.6 2,401.4 2,865.8 3,323.5 35.4
Operations expense 290.1 472.9 580.7 730.9 867.6 1,035.6 1,231.2 1,487.1 1,739.1 25.1
EBITDA 5.0 110.3 261.0 449.4 696.2 926.0 1,170.3 1,378.7 1,584.4 105.6
Depreciation and amortization 197.5 260.0 224.6 221.0 224.7 249.1 275.9 305.5 338.1 7.0
EBIT (192.5) (149.8) 36.3 228.4 471.4 676.9 894.4 1,073.2 1,246.3 NM
</TABLE>
/1/ Source: Himawari.
Deutsche Banc Alex. Brown
[Deutsche Bank LOGO]
<PAGE>
Valuation analysis of Chaser Section
- --------------------------------------------------------------------------------
Chaser valuation summary - total equity value
We have performed
valuation analyses of
Chaser based on the
foregoing projections
and available
public information
<TABLE>
<CAPTION>
($bn) Market cap Himawari discussed
US$3.7 billion/(1)/ price US$6.4 billion/(2)/
<S> <C> <C>
Discounted cash flow - no synergies case : $5.1 -- $6.7
:
Discounted cash flow - synergies case : $6.4 -- $8.4
:
Transaction multiples; 2000 revenues : $5.3 -- $6.6
:
Trading multiples; 2000 revenues : $5.5 -- $7.0
:
Trading multiples; 2001 revenues - no synergies case : $4.7 -- $6.3
:
Trading multiples; 2001 revenues - synergies case : $5.4 -- $7.3
Total equity valuation (US$bn)
</TABLE>
(1) Market cap at May 5, 2000.
Deutsche Banc Alex. Brown
[Deutsche Bank LOGO]
<PAGE>
Valuation analysis of Chaser Section
- --------------------------------------------------------------------------------
Chaser valuation summary - per share value
<TABLE>
<CAPTION>
Share price Himawari discussed
US$35.94/(1)/ price US$60.00/(2)/
<S> <C> <C>
Discounted cash flow - no synergies case : $48.03 -- $63.68
:
Discounted cash flow - synergies case : $60.64 -- $79.70
:
Transaction multiples; 2000 revenues : $49.83 -- $62.38
:
Trading multiples; 2000 revenues : $52.15 -- $66.62
:
Trading multiples 2001 revenues - no synergies case : $44.63 -- $59.59
:
Trading multiples; 2001 revenues - synergies case : $51.07 -- $68.52
Per share valuation (US$)
</TABLE>
(1) Share price at May 5, 2000.
(2) Based on fully diluted shares of 105.9 million (see Appendix IV).
Deutsche Banc Alex. Brown
[Deutsche Bank LOGO]
<PAGE>
Valuation analysis of Chaser Section
- --------------------------------------------------------------------------------
Discounted cash flow -- no synergies case
<TABLE>
<CAPTION>
($mm) 2000 2001 2002 2003 2004 2005 2006 2007 2008
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA $ 5.0 $ 61.7 $161.4 $290.0 $ 472.6 $ 680.4 $ 914.4 $1,116.6 $1,315.5
EBIT (192.5) (178.3) (43.3) 89.0 267.8 451.3 658.5 831.1 997.4
Less:
Taxes on EBIT (36%)/(1)/ 0.0 0.0 0.0 0.0 0.0 67.7 237.0 299.2 359.0
Tax-effected EBIT $(192.5) $(178.3) $(43.3) $ 89.0 $ 267.8 $ 383.6 $ 421.4 $ 531.9 $ 638.3
Plus:
Depreciation and amortization 197.5 240.0 204.6 201.0 204.7 229.1 255.9 285.5 318.1
Unlevered cash flow 5.0 61.7 161.4 290.0 472.6 612.7 677.3 817.4 956.4
Minus:
Capital expenditures (350.0) (150.0) (80.0) (95.0) (110.0) (122.0) (134.0) (148.0) (163.0)
Investment in working capital 2.7 28.4 4.1 54.2 63.6 (36.9) (85.2) (144.2) (206.9)
Free cash flow $(342.3) $ (59.9) $ 85.4 $249.2 $ 426.1 $ 453.8 $ 458.1 $ 525.2 $ 586.6
</TABLE>
(1) Adjusted for NOL carryover.
<TABLE>
<CAPTION>
Sensitivity analysis - total enterprise value Sensitivity analysis - total equity value/(1)/ Sensitivity analysis - per share/(2)/
- --------------------------------------------- ---------------------------------------------- -------------------------------------
EBITDA multiple EBITDA multiple EBITDA multiple
-------------------------------- -------------------------------- --------------------------
12.5x 13.5x 14.5x 12.5x 13.5x 14.5x 12.5x 13.5x 14.5x
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
14.0% $5,890.9 $6,295.4 $6,699.9 14.0% $5,934.6 $6,339.2 $6,743.7 14.0% $56.04 $59.86 $63.68
15.0 5,448.6 5,822.5 6,196.5 15.0 5,492.3 5,866.3 6,240.2 15.0 51.87 55.40 58.93
16.0 5,042.2 5,388.1 5,734.0 16.0 5,086.0 5,431.9 5,777.8 16.0 48.03 51.29 54.56
</TABLE>
(1) Adjusted for excess cash of $43.7 million, which includes $348.3 million of
cash proceeds from options and warrants exercised.
(2) Based on fully diluted shares of 105.9 million (see Appendix IV).
Deustche Banc Alex. Brown
[Deutsche Bank LOGO]
<PAGE>
Valuation analysis of Chaser Section
- --------------------------------------------------------------------------------
Discounted cash flow - synergies case
<TABLE>
<CAPTION>
($mm) 2000 2001 2002 2003 2004 2005 2006 2007 2008
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA $5.0 $110.3 $261.0 $449.4 $696.2 $926.0 $1,170.3 $1,378.7 $1,584.4
EBIT (192.5) (149.8) 36.3 228.4 471.4 676.9 894.4 1,073.2 1,246.3
Less:
Taxes on EBIT (36%)/1/ 0.0 0.0 0.0 0.0 67.7 243.7 322.0 386.4 448.7
Tax-effected EBIT ($192.5) ($149.8) $36.3 $228.4 $403.8 $433.2 $572.4 $686.9 $797.6
Plus:
Depreciation and amortization 197.5 260.0 224.6 221.0 224.7 249.1 275.9 305.5 338.1
Unlevered cash flow 5.0 110.3 261.0 449.4 628.5 682.3 848.3 992.4 1,135.8
Minus:
Capital expenditures (350.0) (150.0) (80.0) (95.0) (110.0) (122.0) (134.0) (148.0) (163.0)
Investment in working capital 2.7 28.4 4.1 54.2 63.6 (36.9) (85.2) (144.2) (206.9)
Free cash flow ($342.3) ($11.4) $185.1 $408.6 $582.1 $523.4 $629.1 $700.2 $765.9
(1) Adjusted for NOL carryover.
</TABLE>
<TABLE>
<CAPTION>
Sensitivity analysis - total enterprise value Sensitivity analysis - total equity value/1/ Sensitivity analysis - per share/2/
- --------------------------------------------- --------------------------------------------- ------------------------------------
EBITDA multiple EBITDA multiple EBITDA multiple
--------------------------------- -------------------------------- ----------------------------------
12.5x 13.5x 14.5x 12.5x 13.5x 14.5x 12.5x 13.5x 14.5x
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
14.0% $7,421.3 $7,908.5 $8,395.7 14.0% $7,465.0 $7,952.3 $8,439.5 14.0% $70.49 $75.10 $79.70
15.0 6,877.8 7,328.2 7,778.5 15.0 6,921.5 7,371.9 7,822.3 15.0 65.36 69.62 73.87
16.0 6,378.1 6,794.7 7,211.4 16.0 6,421.8 6,838.5 7,255.1 16.0 60.64 64.58 68.51
(1) Adjusted for excess cash of $43.7 million, which includes $348.3 million of cash proceeds from options and warrants exercised.
(2) Based on fully diluted shares of 105.9 million (see Appendix IV).
</TABLE>
Deutsche Banc Alex. Brown
[Deutsche Bank LOGO]
<PAGE>
Valuation analysis of Chaser Section
- --------------------------------------------------------------------------------
Transaction multiples (sum of the parts); 2000 revenues
<TABLE>
<CAPTION>
Implied value range
Enterprise value/ Chaser -----------------------
2000E revenue 2000E revenue/(1)/ Low High
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dial-up service
MindSpring Enterprises/Netcom dial-up bus. (from ICG) 1.1x
ICG/NETCOM 1.0x
WorldCom/CompuServe 1.0x
-------------------
Range 0.9 - 1.2x $19.5 $17.5 $23.4
Dedicated line
NEXTLINK Communications/Concentric/(1)/ 10.9x
McLeodUSA/Splitrock Services/(1)/ 11.2x
MFS Communications/UUNET Technologies 9.8x
-------------------
Range 9.5 - 11.5x $126.3 $1,199.6 $1,452.2
Web hosting and co-location
Metromedia Fiber Network/AboveNet 16.9x
Verio/Best Internet Comm. (d/b/a Hiway Technologies) NA
Intermedia Communications/DIGEX 1.2x
-------------------
Range 15.0 - 19.0x $267.7 $4,015.4 $5,086.2
Implied Chaser enterprise value $5,232.6 $6,561.7
Less: net debt/(2)/ 43.7 43.7
Implied Chaser equity value $5,276.3 $6,605.5
Implied Chaser price per share/(3)/ $49.83 $62.38
</TABLE>
(1) Source: Himawari based on Deutsche Banc Alex. Brown research analyst
estimates.
(2) Represents $43.7 million excess cash after option proceeds are added back.
(3) Based on fully diluted shares of 105.9 million (see Appendix IV).
Deutsche Banc Alex. Brown
[Deutsche Bank LOGO]
<PAGE>
Valuation analysis of Chaser Section
- --------------------------------------------------------------------------------
Trading multiples (sum of the parts); 2000 revenues
<TABLE>
<CAPTION>
Current 1 month average Implied value range
Enterprise value/ Enterprise value/ Chaser -----------------------
2000E revenue 2000E revenue 2000E revenue/(1)/ Low High
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dial-up service
EarthLink Network 1.4x 1.3x
OneMain.com 1.0 1.1
Prodigy Communications 2.9 2.7
--------------------------------------
Range 1.5 - 2.5x $ 19.5 $ 29.2 $ 48.7
Dedicated line
Concentric Network(2) 9.6x 9.5x
PSINet 4.9 5.1
--------------------------------------
Range 5.0 - 8.5x $126.3 $ 631.4 $1,073.3
Web hosting and co-locations
Digital Island 24.9x 25.8x
Exodus Communications 27.0 31.5
Globix 9.6 10.6
Interliant 6.4 6.2
--------------------------------------
Range 18.0 - 22.0x $267.7 $4,818.5 $5,889.3
Implied Chaser enterprise value $5,479.1 $7,011.3
Less: net debt(3) 43.7 43.7
Implied Chaser equity value $5,522.9 $7,055.1
Implied Chaser price per share(4) $ 52.15 $ 66.62
</TABLE>
(1) Source: Himawari based on Deutsche Banc Alex. Brown research analyst
estimates.
(2) Multiple has been distorted by recent merger activity.
(3) Represents $43.7 million excess cash after option proceeds are added back.
(4) Based on fully diluted shares of 105.9 million (see Appendix IV).
Deutsche Banc Alex. Brown
[Deutsche Bank LOGO]
<PAGE>
Valuation analysis of Chaser Section
- --------------------------------------------------------------------------------
Trading multiples (sum of the parts); 2001 revenues
- - no synergies
<TABLE>
<CAPTION>
Current 1 month average Implied value range
Enterprise value/ Enterprise value/ Chaser --------------------------------
2001E revenue 2001E revenue 2001E revenue/(1)/ Low High
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dial-up service
EarthLink Network NA NM
OneMain.com 0.8x 0.9x
Prodigy Communications 2.4 2.3
--------------------------------------------------
Range 1.0 - 2.0x $ 21.4 $ 21.4 $ 42.7
Dedicated line
Concentric Network/(2)/ 6.1x 6.1x
PSINet 3.2 3.4
---------------------------------------------------
Range 3.5 - 5.5x $196.9 $ 689.0 $1,082.7
Web hosting and co-locations
Digital Island 10.1x 10.4x
Exodus Communications 13.2 15.4
Globix 5.3 5.9
Interliant 3.6 3.5
---------------------------------------------------
Range 8.5 - 11.0x $467.4 $3,972.5 $5,140.9
Implied Chaser enterprise value $4,682.9 $6,266.4
Less: net debt/(3)/ 43.7 43.7
Implied Chaser equity value $4,726.6 $6,310.1
Implied Chaser price per share/(4)/ $ 44.63 $ 59.59
(1) Source: Himawari based on Deutsche Banc Alex. Brown research analyst estimates.
(2) Multiple has been distorted by recent merger activity.
(3) Represents $43.7 million excess cash after option proceeds are added back.
(4) Based on fully diluted shares of 105.9 million (see Appendix IV).
</TABLE>
Deutsche Banc Alex. Brown
[Deutsche Bank Logo]
<PAGE>
Valuation analysis of Chaser Section
- --------------------------------------------------------------------------------
Trading multiples (sum of the parts); 2001 revenues
- - synergies
<TABLE>
<CAPTION>
Current 1 month average Implied value range
Enterprise value/ Enterprise value/ Chaser -------------------------------
2001E revenue 2001E revenue 2001E revenue(1) Low High
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dial-up service
EarthLink Network NA N.M
OneMain.com 0.8x 0.9x
Prodigy Communications 2.4 2.3
------------------------------------------------
Range 1.0 - 2.0x $ 21.4 $ 21.4 $ 42.7
Dedicated line
Concentric Network(2) 6.1x 6.1x
PSINet 3.2 3.4
------------------------------------------------
Range 3.5 - 5.5x $262.9 $ 920.0 $1,445.7
Web hosting and co-locations
Digital Island 10.1x 10.4x
Exodus Communications 13.2 15.4
Globix 5.3 5.9
Interliant 3.6 3.5
------------------------------------------------
Range 8.5 - 11.0x $520.4 $4,423.0 $5,723.9
Implied Chaser enterprise value $5,364.4 $7,212.4
Less: net debt(3) 43.7 43.7
Implied Chaser equity value $5,408.1 $7,256.1
Implied Chaser price per share(4) $ 51.07 $68.52
</TABLE>
(1) Source: Himawari based on Deutsche Banc Alex. Brown research analyst
estimates.
(2) Multiple has been distorted by recent merger activity.
(3) Represents $43.7 million excess cash after option proceeds are added back.
(4) Based on fully diluted shares of 105.9 million (see Appendix IV).
Deutsche Banc Alex. Brown
[Deutsche Bank Logo]
<PAGE>
Valuation analysis of Chaser Section
- --------------------------------------------------------------------------------
Analysis of acquisition price range
<TABLE>
<CAPTION>
($mm, except per data share values) Price per share
---------------------------------------------------------
$50 $55 $60 $65 $70
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Premium over:
Stock price (5/5/00) $35.94 39.1% 53.0% 67.0% 80.9% 94.8%
1 week average prior 34.66 44.2 58.7 73.1 87.5 101.9
1 month average prior 32.09 55.8 71.4 87.0 102.6 118.2
3 month average prior 51.09 (2.1) 7.6 17.4 27.2 37.0
x Fully diluted shares outstanding (mm)/(1)/ 105.9 105.9 105.9 105.9 105.9
Equity value $ 5,294.7 $ 5,824.2 $ 6,353.7 $ 6,883.2 $ 7,412.6
+ Debt, minority interest, preferred stock 1,153.9 1,153.9 1,153.9 1,153.9 1,153.9
- - Cash/(2)/ (1,197.6) (1,197.6) (1,197.6) (1,197.6) (1,197.6)
Enterprise value $ 5,251.0 $ 5,780.5 $ 6,310.0 $ 6,839.4 $ 7,368.9
Enterprise value as a multiple of:
CY 2000E revenues $413.5 12.7x 14.0x 15.3x 16.5x 17.8x
CY 2001E revenues 685.6 7.7 8.4 9.2 10.0 10.7
(1) Based on fully diluted shares of 105.9 million (see Appendix IV).
(2) Includes proceeds from vested, unvested options and warrants.
</TABLE>
Deutsche Banc Alex. Brown
[Deutsche Bank LOGO]
<PAGE>
Selected precedent transaction comparables Appendix
- --------------------------------------------------------------------------------
Appendix I
Deutsche Banc Alex. Brown
[Deutsche Bank LOGO]
<PAGE>
Selected precedent transaction comparables Appendix
- --------------------------------------------------------------------------------
Selected precedent transactions comparable in the Internet data services
industry
<TABLE>
<CAPTION>
Transaction Target premium/ Acquiror market Enterprise
value announcement response value/
------------------ --------------- --------------- -------------
- 30
trading + 20
Date/ Enter- - 1 days + 1 trading Ff.
announced Acquiror/target Equity prise day average day days rev. G PP&E
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dedicated
01/10/00 NextLink Communications/Concentric 2,824.1 2,891.1 50.0% 55.9% (9.6%) 21.3% 10.9x 25.1x
01/07/00 McLeodUSA/Splitrock Services 1,733.3 2,100.0 27.1 44.6 10.3 35.3 11.2 17.0
04/30/96 MFS Communications/UUNET Technologies 2,029.7 2,009.1 27.6 84.8 6.7 0.2 9.8 21.5
Median 27.6% 57.7% 6.7% 21.3% 10.9x 21.5x
Dial-up
01/06/99 Mind Spring Enterprises/Netcom dial-up
bus. (from ICG) 245.0 245.0 NA NA 32.2% 47.8% 1.1x 3.1x
10/13/97 ICG/NETCOM 266.7 206.3 NA NA (7.2) (11.4) 1.0 1.7
09/08/97 WorldCom/CompuServe 1,326.1 1,192.3 (5.2%) 6.8% 13.3 18.2 1.0 1.7
Median (5.2%) 6.8% 13.3% 18.2% 1.0x 1.7x
Hosting
06/23/99 Metromedia Fiber Network/AboveNet 1,550.0 1,357.5 35.9% 50.0% (13.2%) (16.0%) 16.9x 50.8x
07/28/98 Verio/Best Internet Comm.
(d/b/a Hiway Technologies) 353.0 354.3 NA NA (0.4) (4.7) NA 27.0
06/05/97 Intermedia Communications/Digex 177.5 154.5 NA NA 6.5 16.6 1.2 7.0
Median 35.9% 50.0% (0.4%) (4.7%) 9.1x 27.0x
Other
12/08/98 AT&T/IBM Global Network 5,000.0 5,000.0 NA NA 9.6% 22.8% 2.2x 0.9x
09/14/98 Qwest/Icon CMT Corp. 185.0 166.6 65.5% 15.1% 4.1 10.2 NA 9.4
05/28/98 Cable & Wireless/MCI (Internet
network only)/(1)/ 1,750.0 1,750.0 NA NA 0.7 5.9 6.8 17.5
05/06/97 GTE Corporation/BBN 634.3 681.8 28.2 59.6 (5.4) (2.2) 2.1 5.3
Median 46.8% 37.3% 2.4% 8.1% 2.2x 7.3x
/(1)/ Revenue multiple shown is based on LTM due to the unavailability of projections, and Gross PP&E multiple is estimated based
on total asset value.
</TABLE>
Deutsche Banc Alex. Brown
[Deutsche Bank LOGO]
<PAGE>
Selected public companies trading comparables Appendix
- --------------------------------------------------------------------------------
Appendix II
Selected public companies trading comparables
Deutsche Banc Alex. Brown
[Deutsche Bank LOGO]
<PAGE>
Selected public companies trading comparables Appendix
- -------------------------------------------------------------------------------
The Internet landscape - market valuation of selected public companies
<TABLE>
<CAPTION>
Total
Stock price enterprise Total
Company/ticker 5/5/2000 Market value value/1/ Book value Debt/equity subscribers
($mm) ($mm) ($mm)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Business ISPs
Concentric Network/2/ $43.89 $ 2,394.4 $ 2,610.2 $ 195.4 2.0x 110,000
CNCX
PSINet/3/ 22.50 3,885.9 5,430.8 723.0 4.6 1,200,000
PSIX
Chaser/4/ 35.94 3,707.3 4,011.9 534.2 2.2 395,000
Consumer ISPs
America Online(2) 56.88 149,739.2 148,224.2 6,391.0 0.3 22,200,000
AOL
EarthLink, Inc. 17.44 2,128.4 1,425.5 928.3 0.2 3,460,000
ELNKD
OneMain.com, Inc. 6.25 156.7 166.5 265.3 0.1 701,000
ONEM
Internet America 5.00 48.8 47.8 37.7 0.0 147,000
GEEK
Prodigy Communications Corp. 12.13 795.1 873.8 132.4 0.8 1,502,000
PRGY
Note: Shares outstanding calculated on a treasury stock basis except Chaser - see footnote 4.
(1) Adjusted Market Value represents Market Value plus Total Debt less Balance Sheet Cash.
(2) Not pro forma for merger announced January 10th.
(3) Pro forma for acquisition of TNI and other acquisitions.
(4) 103.2 million of shares are used for Chaser's market value calculation, which excludes approximately 2.7 million of other
non-public adjustments, includes not-yet disclosed options.
</TABLE>
Deutsche Banc Alex. Brown
[Deutsche Bank LOGO]
<PAGE>
Selected public companies trading comparables Appendix
- --------------------------------------------------------------------------------
The Internet landscape -- market valuation of selected comparable public
companies/1/
($mm, except Adj. Mkt. Cap., Subscriber and EPS)
<TABLE>
<CAPTION>
Total enterprise value/
--------------------------------------------------
CY revenues CY EBITDA CY revenues CY EBITDA
-------------------------- --------------- -------------------- ------------
Company/ticker 1999 2000 2001 1999 2000 1999 2000 2001 1999 2000 Subscriber
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Business ISPs
Concentric Network/(2)/ $147.1 $272.6 $427.2 ($34.6) ($13.7) 17.7x 9.6x 6.1x NM NM $23,728.9
CNCX
PSINet/(3)/ 554.7 1,108.3 1,683.9 (24.2) 104.1 9.8 4.9 3.2 NM 52.2x 4,525.7
PSIX
Chaser 258.3 413.5 685.6 (8.6) 5.0 15.5 9.7 5.9 NM 807.1 10,156.7
Consumer ISPs
America Online/(4)/ 6,213.0 7,650.0 10,002.7 1,374.7 2,105.4 23.9 19.4 14.8 107.8x 70.4 6,676.8
AOL
EarthLink, Inc. 668.8 999.5 NA (12.2) (105.8) 2.1 1.4 NA NM NM 412.0
ELNKD
OneMain.com, Inc. 99.7 161.0 208.0 (10.3) (8.0) 1.7 1.0 0.8 NM NM 237.5
ONEM
Internet America 27.6 37.1 53.2 0.2 1.4 1.7 1.3 0.9 201.8 34.5 325.0
GEEK
Prodigy Communications Corp. 185.0 301.0 364.0 (49.0) 7.8 4.7 2.9 2.4 NM 111.5 581.8
PRGY
Business ISPs
----------------------------------------------------------
Mean: 14.4x 8.1x 5.1x NM 429.6 $12,803.7
Median: 15.5 9.6 5.9 NM 429.6 10,156.7
Consumer ISPs (excludes AOL)
----------------------------------------------------------
Mean: 2.6x 1.7x 1.4x 201.8x 73.0x $389.1
Median: 1.9 1.4 0.9 201.8 73.0 368.5
All ISPs (excludes AOL)
----------------------------------------------------------
Mean: 7.6x 4.4x 3.2x 201.8x 251.3x $5,709.6
Median: 4.7 2.9 2.8 201.8 81.8 581.8
</TABLE>
(1) Adjusted Market Value represents Market Value plus Total Debt less Balance
Sheet Cash.
(2) Not pro forma for merger announced January 10th.
(3) Pro forma for acquisition of TNI and other acquisitions.
(4) Not pro forma for merger announced January 10th.
/1/ Source: Revenue and EBITDA estimates are based on various published research
analyst reports.
Deutsche Banc Alex. Brown
[Deutsche Bank LOGO]
<PAGE>
Selected public companies trading comparables Appendix
- --------------------------------------------------------------------------------
The Internet landscape - market valuation of selected public companies
<TABLE>
<CAPTION>
($mm, except per share data)
1 month avg. 1 month avg. Revenues Total enterprise value/revenues
stock price as total enterprise ----------------------------- -------------------------------
Company/ticker of 5/5/2000 value/(1)/ 1999 2000 2001 1999 2000 2001
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Business ISPs
Concentric Network/(2)/ $43.63 $ 2,594.3 $ 147.1 $ 272.6 $ 427.2 17.6x 9.5x 6.1x
CNCX
PSINet/(3)/ 23.78 5,672.3 554.7 1,108.3 1,683.9 10.2 5.1 3.4
PSIX
Chaser 32.09 3,614.5 258.3 413.5 685.6 12.8 8.0 5.3
Consumer ISPs
America Online/(4)/ 60.51 158,010.0 6,213.0 7,650.0 10,002.7 25.4 20.7 15.8
AOL
EarthLink, Inc. 16.08 1,257.3 668.8 999.5 NA 1.9 1.3 NM
ELNKD
OneMain.com, Inc. 6.69 177.6 99.7 161.0 208.0 1.8 1.1 0.9
ONEM
Internet America 5.97 58.1 27.6 37.1 53.2 2.1 1.6 1.1
GEEK
Prodigy Communications Corp. 11.41 826.6 185.0 301.0 364.0 4.5 2.7 2.3
PRGY
Business ISPs
-----------------------------------------
Mean: 14.0x 7.8x 4.9x
Median: 14.0 8.7 5.3
Consumer ISPs (excludes AOL)
-----------------------------------------
Mean: 2.6x 1.7x 1.4x
Median: 2.0 1.4 1.1
All ISPs (excludes AOL)
-----------------------------------------
Mean: 7.4x 4.3x 3.2x
Median: 4.5 2.7 2.8
</TABLE>
(1) Adjusted Market Value represents Market Value plus Total Debt less Balance
Sheet Cash.
(2) Not pro forma for merger announced January 10th.
(3) Pro forma for acquisition of TNI and other acquisitions.
(4) Not pro forma for merger announced January 10th.
Deutsche Banc Alex. Brown
[Logo for Deutsche Bank]
<PAGE>
<TABLE>
<CAPTION>
Selected public companies trading comparables Appendix
- -----------------------------------------------------------------------------------------------------------------------------------
Web hosting - market valuation of selected public companies
Stock price Total enterprise
Company/ticker 5/5/2000 Market value value/(1)/ Book value Debt/equity
($mm) ($mm) ($mm)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Data Return $ 29.25 $ 1,234.1 $ 1,148.2 $ 96.0 0.1x
DRTN
Digex, Inc. 77.38 2,141.1 2,072.6 290.2 0.1
DIGX
Digital Island 31.31 2,119.7 1,761.1 1,442.8 0.3
ISLD
Globix 21.25 890.6 964.5 86.2 2.8
GBIX
Interliant 20.13 988.8 960.3 137.6 0.0
INIT
Navisite 41.00 2,303.6 2,268.3 81.7 0.0
NAVI
USInternetworking 22.81 1,521.5 1,517.7 189.9 1.1
USIX
Chaser/(2)/ 35.94 3,707.3 4,011.9 534.2 2.2
Exodus Communications 85.75 19,688.1 20,294.7 17.6 92.1
EXDS
</TABLE>
Note: Shares outstanding calculated on a Treasury stock basis except Chaser -
see footnote 2.
(1) Total enterprise value equals equity value plus debt less cash.
(2) 103.2 million of shares are used for Chaser's market value calculation,
which excludes approximately 2.7 million of other non-public adjustment,
includes not-yet disclosed options.
<PAGE>
<TABLE>
<CAPTION>
Selected public companies trading comparables Appendix
- -----------------------------------------------------------------------------------------------
Web hosting - market valuation of selected comparable public companies
Total enterprise value/
($mm) -------------------------
CY revenues/(1)/ CY revenue
----------------------------- -------------------------
Company/ticker 1999 2000 2001 1999 2000 2001
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Data Return $ 7.1 $ 21.1 $ 64.8 161.5 54.4x 17.7x
DRTN
Digex, Inc. 59.8 139.5 275.3 34.7 14.9 7.5
DIGX
Digital Island 21.2 70.6 174.9 83.2 24.9 10.1
ISLD
Globix 37.0 100.2 181.3 26.0 9.6 5.3
GBIX
Interliant 47.1 150.5 265.0 20.4 6.4 3.6
INIT
Navisite 17.8 74.2 172.1 127.4 30.6 13.2
NAVI
USInternetworking 35.5 104.9 228.4 42.7 14.5 6.6
USIX
Chaser/(2)/ 258.3 413.5 685.6 14.3 8.9 5.4
Exodus Communications 242.2 750.9 1,538.0 83.8 27.0 13.2
EXDS
Min: 15.5x 6.4x 3.6x
Mean: 66.1 21.3 9.2
Median: 42.7 14.9 7.5
Max: 161.5 54.4 17.7
(1) Estimate sources: From various published research analyst reports.
(2) Source: Himawari based on Deutsche Banc Alex. Brown research analyst estimates.
</TABLE>
Deutsche Banc Alex. Brown
[Deutsche Bank Logo]
<PAGE>
Selected public companies trading comparables Appendix
- --------------------------------------------------------------------------------
Web hosting - market valuation of selected public companies
<TABLE>
<CAPTION>
($mm)
1 mo. avg. 1 mo. avg. 1 month average
stock price total Revenues total enterprise value/revenues
as of enterprise ------------------------ -------------------------------
Company/ticker 5/5/2000 value(2) 1999 2000 2001 1999 2000 2001
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Data Return $27.84 $ 1,088.4 $ 7.1 $ 21.1 $ 64.8 153.1x 51.5x 16.8x
DRTN
Digex, Inc. 73.13 1,946.0 59.8 139.5 275.3 32.5 14.0 7.1
DIGX
Digital Island 32.18 1,822.9 21.2 70.6 174.9 86.2 25.8 10.4
ISLD
Globix 23.41 1,061.8 37.0 100.2 181.3 28.7 10.6 5.9
GBIX
Interliant 19.47 927.9 47.1 150.5 265.0 19.7 6.2 3.5
INIT
Navisite 45.89 2,543.2 17.8 74.2 172.1 142.8 34.3 14.8
NAVI
USInternetworking 26.59 1,783.6 35.5 104.9 228.4 50.2 17.0 7.8
USIX
Chaser(2) 32.09 3,614.5 258.3 413.5 685.6 14.0 8.7 5.3
Exodus Communications 99.93 23,690.7 242.2 750.9 1,538.0 97.8 31.5 15.4
EXDS
Min: 14.0x 6.2x 3.5x
Mean: 69.4 22.2 9.7
Median: 50.2 17.0 7.8
Max: 153.1 51.5 16.8
</TABLE>
(1) Estimate sources: From various published research analyst reports.
(2) Source: Himawari based on Deutsche Banc Alex. Brown research analyst
estimates.
Deutsche Banc Alex. Brown
[Deutsche Bank LOGO]
<PAGE>
Financial projections detail and synergies assumptions Appendix
- --------------------------------------------------------------------------------
Appendix III
Financial projections detail and synergies assumptions
Deutsche Banc Alex. Brown
[Deutsche Bank LOGO]
<PAGE>
<TABLE>
<CAPTION>
Financial projections detail and synergies assumptions Appendix
- ----------------------------------------------------------------------------------------------------------------------------
Chaser modeling assumptions
($mm) 2000 2001 2002 2003 2004 2005 2006 2007 2008
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dial-up
Total net dial-up subs $ 79.6 $ 118.3 $163.6 $ 216.8 $ 271.1 $ 329.5 $ 395.4 $ 465.5 $ 526.2
Seq. % growth (20.4%) 48.6% 38.4% 32.5% 25.0% 21.6% 20.0% 17.7% 13.0%
Net dial-up subscriber adds (000) (20.4) 38.7 45.4 53.2 54.3 58.4 65.8 70.2 60.7
ASP per month $ 18.00 $17.50 $ 17.00 $ 16.50 $ 16.00 $ 15.50 $ 15.00 $ 15.00
Seq. % change in price (2.6%) (2.8%) (2.9%) (2.9%) (3.0%) (3.1%) (3.2%) 0.0%
Dial-up revenue ($mm) $ 19.5 $ 21.4 $ 29.6 $ 38.8 $ 48.3 $ 57.7 $ 67.4 $ 77.5 $ 89.3
Seq. % growth (22.1%) 9.7% 38.5% 31.1% 24.5% 19.4% 16.9% 14.9% 15.2%
Gross dial-up subscribers (000) 170.8 261.4 384.2 549.4 761.0 1,034.9 1,391.9 1,851.3 2,425.2
Seq. % growth 16.9% 53.0% 47.0% 43.0% 38.5% 36.0% 34.5% 33.0% 31.0%
Gross dial-up adds (000) 24.7 90.5 122.8 165.2 211.5 273.9 357.0 459.3 573.9
% Churn 24.00% 24.00% 24.00% 24.00% 24.00% 24.00% 24.00% 24.00%
Churn (000) 45.1 51.9 77.5 112.0 157.2 215.5 291.2 389.2 513.2
Dedicated
Dedicated access subs (000) 24.4 35.2 46.8 61.8 80.4 104.5 130.6 159.3 191.2
Seq. % growth 46.4% 44.0% 33.0% 32.0% 30.0% 30.0% 25.0% 22.0% 20.0%
ASP per month $550.00 $525.00 $ 515.00 $ 505.00 $ 495.00 $ 485.00 $ 475.00 $ 465.00
Seq. % change in price 8.5% (4.5%) (1.9%) (1.9%) (2.0%) (2.0%) (2.1%) (2.1%)
Dedicated revenue ($mm) $126.3 $ 196.9 $258.4 $ 335.7 $ 430.7 $ 548.9 $ 683.9 $ 826.1 $ 977.8
Seq. % growth 31.9% 55.9% 31.3% 29.9% 28.3% 27.4% 24.6% 20.8% 18.4%
Web hosting/collocation
Web hosting subs (000) 344.2 533.5 762.9 1,045.1 1,390.0 1,793.1 2,241.4 2,712.1 3,118.9
Seq. % growth 86.0% 55.0% 43.0% 37.0% 33.0% 29.0% 25.0% 21.0% 15.0%
ASP per month $ 86.83 $ 88.75 $ 85.00 $ 87.00 $ 87.00 $ 87.00 $ 87.00 $ 87.00 $ 87.00
Seq. % change in price (10.6%) (4.2%) 2.4% 0.0% 0.0% 0.0% 0.0% 0.0%
Web hosting revenue ($mm) $267.7 $ 467.4 $ 661.1 $ 943.8 $1,271.2 $1,661.6 $2,106.0 $2,585.7 $3,043.8
Seq. % growth 94.4% 74.6% 41.5% 42.8% 34.7% 30.7% 26.7% 22.8% 17.7%
</TABLE>
Deutsche Banc Alex. Brown
[Deutsche Bank Logo]
<PAGE>
<TABLE>
<CAPTION>
Financial projections detail and synergies assumptions Appendix
- --------------------------------------------------------------------------------------------------------------------------------
Chaser modeling assumptions (continued)
($mm) 2000 2001 2002 2003 2004 2005 2006 2007 2008
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue composition
Dial-up ($mm) $ 19.5 $ 21.4 $ 29.6 $ 38.8 $ 48.3 $ 57.7 $ 67.4 $ 77.5 $ 89.3
Seq. growth rate % (22%) 10% 39% 31% 24% 19% 17% 15% 15%
% total revenue 4.7% 3.1% 3.1% 2.9% 2.8% 2.5% 2.4% 2.2% 2.2%
Dedicated ($mm) $ 126.3 $ 196.9 $ 258.4 $ 335.7 $ 430.7 $ 548.9 $ 683.9 $ 826.1 $ 977.8
Seq. growth rate % 32% 56% 31% 30% 28% 27% 25% 21% 18%
% total revenue 30.5% 28.7% 27.2% 25.5% 24.6% 24.2% 23.9% 23.7% 23.8%
Web hosting/collocation ($mm) $ 267.7 $ 467.4 $ 661.1 $ 943.8 $1,271.2 $1,661.6 $2,106.0 $2,585.7 $3,043.82
Seq. growth rate % 94% 75% 41% 43% 35% 31% 27% 23% 18%
% total revenue 64.7% 68.2% 69.7% 71.6% 72.6% 73.3% 73.7% 74.1% 74.0%
Total revenue ($mm) $ 413.5 $ 685.6 $ 949.1 $1,318.3 $1,750.2 $2,268.2 $2,857.4 $3,489.3 $4,110.82
Seq. growth rate % 60.0% 65.8% 38.4% 38.9% 32.8% 29.6% 26.0% 22.1% 17.8
Total subscribers (000) 448.2 687.0 973.3 1,323.8 1,741.5 2,227.1 2,767.4 3,336.9 3,836.3
Seq. % growth 48.6% 53.3% 41.7% 36.0% 31.6% 27.9% 24.3% 20.6% 15.0%
Expenses & costs
Depreciation & amortization $ 197.5 $ 240.0 $ 204.6 $ 201.0 $ 204.7 $ 229.1 $ 255.9 $ 285.5 $ 318.1
Depreciation rate 31.9% 32.5% 25.0% 22.0% 20.0% 20.0% 20.0% 20.0% 20.0%
Net interest expense ($103.1) ($112.1) ($116.0) ($115.6) ($104.4) ($80.9) ($47.7) ($1.3) $ 56.2
Interest rate 9.6% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0%
Stock option related expenses $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
as % of revenue 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Tax expenses $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 62.1 $ 140.8 $ 232.1 $ 315.3 $ 400.4
Tax rate 0.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0%
Cost/subscriber/month ($) $ 23.29 $ 22.75 $ 23.24 $ 23.45 $ 23.76 $ 24.09 $ 24.40 $ 25.00
Cost of sales $ 118.4 $ 192.0 $ 265.8 $ 369.1 $ 490.1 $ 635.1 $ 800.1 $ 977.0 $ 1,151.0
Network costs (as % of revenue) 28.6% 28.0% 28.0% 28.0% 28.0% 28.0% 28.0% 28.0% 28.0%
SG&A $ 290.1 $ 431.9 $ 522.0 $ 659.1 $ 787.6 $ 952.6 $1,143.0 $1,395.7 $1,644.31
SG&A (as a % of revenue) 70.2% 63.0% 55.0% 50.0% 45.0% 42.0% 40.0% 40.0% 40.0%
Implied annual SG&A/employee ($) 255,789 294,431 354,058 402,916 464,137 530,351 616,808 692,0635
</TABLE>
Source: Himawari based on Deutsche Banc Alex. Brown estimates, company reports.
Deutsche Banc Alex.Brown
[Deutsche Bank LOGO]
<PAGE>
<TABLE>
<CAPTION>
Financial projections detail and synergies assumptions Appendix
- --------------------------------------------------------------------------------------------------------------------------------
Chaser balance sheet
($mm) 2000 2001 2002 2003 2004 2005 2006 2007 2008
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Cash & equivalents $ 412.6 $ 315.7 $ 326.2 $ 605.4 $1,194.7 $2,022.5 $3,182.4 $ 4,621.4 $ 6,319.3
Receivables 107.6 137.1 189.8 263.7 350.0 453.6 571.5 697.9 822.2
% of revenue 26% 20% 20% 20% 20% 20% 20% 20% 20%
Other 57.0 58.1 59.3 60.5 61.7 62.9 64.2 65.5 66.8
% of revenue 3% 8% 6% 5% 4% 3% 2% 2% 2%
Total current assets 577.2 510.9 575.3 929.5 1,606.4 2,539.1 3,818.0 5,384.7 7,208.2
Gross PP&E 618.5 738.5 818.5 913.5 1,023.5 1,145.5 1,279.5 1,427.5 1,590.5
Depreciation (195.5) (295.6) (320.2) (296.2) (200.9) (55.0) 129.1 368.6 650.5
Net PP&E 423.0 443.0 498.3 617.4 822.7 1,090.5 1,408.6 1,796.1 2,241.0
Other 627.0 547.0 427.0 232.0 (68.0) (443.0) (883.0) (1,408.0) (2,008.0)
Total assets 1,627.2 1,500.9 1,500.6 1,778.9 2,361.1 3,186.6 4,343.6 5,772.8 7,441.2
Liabilities & shareholders'
equity
Current liabilities 215.3 274.2 332.2 461.4 612.6 680.4 714.3 697.9 616.6
% of revenue 52% 40% 35% 35% 35% 30% 25% 20% 15%
LT debt 1,072.0 1,072.0 1,072.0 1,072.0 1,072.0 1,072.0 1,072.0 1,072.0 1,072.0
Other LT liabilities 196.7 326.2 451.6 627.2 832.7 1,079.1 1,359.4 1,660.1 1,955.7
Redeemable stock, options,
warrants 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Shareholders' equity
Retained earnings (686.2) (1,000.9) (1,184.5) (1,211.1) (985.6) (474.3) 368.5 1,513.5 2,967.4
Common 347.7 347.7 347.7 347.7 347.7 347.7 347.7 347.7 347.7
Other equity 455.6 455.6 455.6 455.6 455.6 455.6 455.6 455.6 455.6
Total liabilities &
shareholders' equity 1,601.1 1,474.8 1,474.5 1,752.8 2,335.0 3,160.5 4,317.6 5,746.8 7,415.1
Total operating capital =
working capital + net PP&E 361.3 354.0 387.6 420.6 519.2 792.7 1,170.9 1,667.8 2,290.9
</TABLE>
Deutsche Banc Alex. Brown
[Deutsche Bank Logo]
<PAGE>
<TABLE>
<CAPTION>
Financial projections detail and synergies assumptions Appendix
- --------------------------------------------------------------------------------------------------------------------------------
Chaser balance sheet (continued)
($mm) 2000 2001 2002 2003 2004 2005 2006 2007 2008
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Chaser statement of cash flow operations
Operations
Net income before charges ($295.6) ($290.5) ($159.3) ($26.6) $ 225.5 $ 511.3 $ 842.8 $1,145.0 $1,453.9
Depreciation & amortization 197.5 240.0 204.6 201.0 204.7 229.1 255.9 285.5 318.1
Other 2.7 28.4 4.1 54.2 63.6 (36.9) (85.2) (144.2) (206.9)
Operating cash flow (95.4) (22.1) 49.4 228.6 493.8 703.4 1,013.5 1,286.4 1,565.2
Investing
Capital expenditures ($350.0) ($120.0) ($80.0) ($95.0) ($110.0) ($122.0) ($134.0) ($148.0) ($163.0)
Finance receivables 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Investments (15.0) (60.0) (60.0) (30.0) 0.0 0.0 0.0 0.0 0.0
Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Cash from investments (365.0) (180.0) (140.0) (125.0) (110.0) (122.0) (134.0) (148.0) (163.0)
Financing
Net debt $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Net stocks issued 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Dividends (24.3) (24.3) (24.3) 0.0 0.0 0.0 0.0 0.0 0.0
Other 185.8 129.5 125.4 175.6 205.5 246.4 280.3 300.7 295.7
Cash flow from financing 161.5 105.2 101.1 175.6 205.5 246.4 280.3 300.7 295.7
Other adjustments $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Net inc./(dec.) in cash ($343.9) ($96.9) $ 10.5 $279.2 $ 589.3 $ 827.8 $1,159.8 $1,439.0 $1,697.9
Source: Himawari based on Deutsche Banc. Alex. Brown estimates, company reports.
</TABLE>
Deutsche Banc Alex. Brown
[Deutsche Bank LOGO]
<PAGE>
<TABLE>
<CAPTION>
Financial projections detail and synergies assumptions Appendix
- --------------------------------------------------------------------------------------------------------------------------------
Synergies assumptions from Himawari
($mm) 2000 2001 2002 2003 2004 2005 2006 2007 2008
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Incremental revenue to Chaser $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $103.7 $124.4 $136.9 $150.5
Sale of US IP network to Asian
customers (dedicated) 0.0 0.0 0.0 0.0 0.0 64.0 80.0 80.0 80.0
End-to-end VPN services (dedicated) 0.0 16.0 32.0 48.0 64.0 80.0 80.0 80.0 80.0
Revenue from Chaser's existing
customers (web hosting) 0.0 0.0 0.0 0.0 0.0 52.0 52.0 52.0 52.0
Web hosting/virtual hosting 0.0 40.0 80.0 120.0 160.0 160.0 160.0 160.0 160.0
Total 0.0 119.0 198.0 279.0 362.4 395.7 416.4 428.9 442.5
Incremental revenue to Chaser
(by major category)
Dial-up 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Dedicated line 0.0 66.0 92.0 120.0 150.4 183.7 204.4 216.9 230.5
Web hosting 0.0 53.0 106.0 159.0 212.0 212.0 212.0 212.0 212.0
Total 0.0 119.0 198.0 279.0 362.4 395.7 416.4 428.9 442.5
Cost of goods sold
Sale of US IP network to
Asian customers 0.0 18.3 19.0 19.2 21.6 25.9 31.1 34.2 37.6
End-to-end VPN services 0.0 5.9 10.1 12.8 16.0 20.0 20.0 20.0 20.0
Revenue from Chaser's existing
customers 0.0 1.3 2.6 3.9 5.2 5.2 5.2 5.2 5.2
Web hosting/virtual hosting 0.0 4.0 8.0 12.0 16.0 16.0 16.0 16.0 16.0
Total 0.0 29.5 39.7 47.8 58.8 67.1 72.3 75.4 78.8
Gross profit
Sale of US IP network to
Asian customers 0.0 31.7 41.0 52.8 64.8 77.8 93.3 102.6 112.9
End-to-end VPN services 0.0 10.1 21.9 35.2 48.0 60.0 60.0 60.0 60.0
Revenue from Chaser's existing
customers 0.0 11.7 23.4 35.1 46.8 46.8 46.8 46.8 46.8
Web hosting/virtual hosting 0.0 36.0 72.0 108.0 144.0 144.0 144.0 144.0 144.0
Total 0.0 89.5 158.3 231.2 303.6 328.6 344.1 353.4 363.7
Operating expenses (excl. D&A)
Sale of US IP network to
Asian customers 0.0 20.0 21.0 21.6 21.6 25.9 31.1 34.2 37.6
End-to-end VPN services 0.0 6.4 11.2 14.4 16.0 20.0 20.0 20.0 20.0
Revenue from Chaser's existing
customers 0.0 3.6 6.5 8.8 10.4 9.1 9.1 9.1 9.1
Web hosting/virtual hosting 0.0 11.0 20.0 27.0 32.0 28.0 28.0 28.0 28.0
Total 0.0 41.0 58.7 71.8 80.0 83.0 88.2 91.3 94.7
EBITDA
Sale of US IP network to Asian
customers 0.0 11.7 20.0 31.2 43.2 51.8 62.2 68.4 75.3
End-to-end VPN services 0.0 3.7 10.7 20.8 32.0 40.0 40.0 40.0 40.0
Revenue from Chaser's existing
customers 0.0 8.1 16.9 26.3 36.4 37.7 37.7 37.7 37.7
Web hosting/virtual hosting 0.0 25.0 52.0 81.0 112.0 116.0 116.0 116.0 116.0
Total 0.0 48.6 99.6 159.4 223.6 245.5 255.9 262.1 269.0
Depreciation & amortization 0.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0
EBIT $ 0.0 $ 28.6 $ 79.6 $139.4 $203.6 $225.5 $235.9 $242.1 $249.0
Capital expenditures $100.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $100.0 $ 0.0 $ 0.0 $ 0.0
</TABLE>
Deutsche Banc Alex. Brown
[Deutsche Bank LOGO]
<PAGE>
Financial projections detail and synergies assumptions Appendix
- --------------------------------------------------------------------------------
Source: Himawari.
Deutsche Banc Alex. Brown
[Deutsche Bank Logo]
<PAGE>
Financial projections detail and synergies assumptions Appendix
- --------------------------------------------------------------------------------
Synergies assumptions from Himawari (continued)
<TABLE>
2000 2001 2002 2003 2004 2005 2006 2007 2008
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth of incremental revenue to Chaser
Sale of US IP network to Asian customers NA NA 20.0% 20.0% 20.0% 20.0% 20.0% 10.0% 10.0%
End-to-end VPN services NA NA 100.0 50.0 33.3 25.0 0.0 0.0 0.0
Revenue from Chaser's existing customers NA NA 100.0 50.0 33.3 0.0 0.0 0.0 0.0
Web hosting/virtual hosting NA NA 100.0 50.0 33.3 0.0 0.0 0.0 0.0
COGS as a % of revenue
Sale of US IP network to Asian customers NA 36.6% 31.6% 26.6% 25.0% 25.0% 25.0% 25.0% 25.0%
End-to-end VPN services NA 36.6 31.6 26.6 25.0 25.0 25.0 25.0 25.0
Revenue from Chaser's existing customers NA 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0
Web hosting/virtual hosting NA 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0
Operating expenses (excl. D&A) as a % of revenue
Sale of US IP network to Asian customers NA 40.0% 35.0% 30.0% 25.0% 25.0% 25.0% 25.0% 25.0%
End-to-end VPN services NA 40.0 35.0 30.0 25.0 25.0 25.0 25.0 25.0
Revenue from Chaser's existing customers NA 27.5 25.0 22.5 20.0 17.5 17.5 17.5 17.5
Web hosting/virtual hosting NA 27.5 25.0 22.5 20.0 17.5 17.5 17.5 17.5
Source: Himawari.
</TABLE>
Deutsche Banc Alex. Brown
[Deutsche Bank Logo]
<PAGE>
Chaser's fully diluted shares calculation Appendix
- -------------------------------------------------------------------------------
Appendix IV
Chaser's fully diluted shares calculation
Deutsche Banc Alex. Brown
Deutsche Bank [Logo]
<PAGE>
<TABLE>
<CAPTION>
Chaser's fully diluted shares calculation Appendix
- ---------------------------------------------------------------------------------------------------------------------------------
Chaser's fully diluted shares calculation
Number of equivalent Weighted average Cash proceeds from
common shares options/warrants strike price options/warrants
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares outstanding 79,660,247
Convertible preferred stock 7,456,320
Options
Vested 2,619,818 $12.14 $ 31.8mm
Unvested
Tier 1 2,593,500 $13.47 $ 34.9
Tier 2(1) 6,029,169 22.32 134.6
Tier 3(1) 5,673,129 23.76 134.8
Non-employee director options 426,000 $13.93 $ 5.9
Related to terminated employee 130,464 11.61 1.5
Total options 17,472,080 $343.6
Warrants 1,306,228 $ 3.63 $ 4.7mm
Fully diluted shares 105,894,875 Total $348.3mm
(1) Includes options granted to April new hires (254,750 options).
Source: Chaser
</TABLE>
Deutsche Banc Alex. Brown
[Deutsche Bank Logo]
<PAGE>
EXHIBIT (c)(6)
================================================================================
Presentation to
[LOGO OF NTT COMMUNICATIONS]
Regarding Project Chaser
May 5, 2000
<PAGE>
The information contained in this presentation was obtained solely from NTT
Communications and from other sources that Merrill Lynch believes to be
reliable. Merrill Lynch used and relied upon such information in the preparation
of this presentation and did not assume any responsibility for independently
verifying such information. Merrill Lynch makes no representation or warranty
with respect to the accuracy of such information. This presentation is prepared
as of May 17, 2000 and reflects information made available to Merrill Lynch
prior to such date and does not include information regarding all of the
assessments.
THIS PRESENTATION WAS PREPARED SOLELY FOR THE USE AND BENEFIT OF NTT
COMMUNICATIONS IN ITS EVALUATION OF THE OFFER AND THE MERGER AND MAY NOT BE USED
FOR ANY OTHER PURPOSE. THIS PRESENTATION IS NOT DIRECTED TO VERIO OR THE
STOCKHOLDERS OF VERIO AND DOES NOT REPRESENT A JUDGMENT AS TO THE FAIRNESS OF
THE CONSIDERATION TO BE PAID BY NTT COMMUNICATIONS TO VERIO OR THE STOCKHOLDERS
OF VERIO.
<PAGE>
This presentation material is prepared for the confidential use of the board of
directors of NTT Communications Corporation. This presentation material shall be
kept confidential and shall not be disclosed to any third party.
The information contained in this presentation material is based on information
supplied or otherwise made available to us, discussed with or reviewed by or for
us, or publicly available. We have assumed and relied on the accuracy and
completeness of all such information, and we have not assumed any responsibility
for independently verifying such information or undertaken an independent
evaluation or appraisal of any of the assets or liabilities of the target
company. With respect to the financial forecast information and expected
synergies furnished to or discussed with us by you or the target company, we
have assumed that they have been reasonably prepared and reflect the best
currently available estimates and judgment of your or target company's
management as to the expected future financial performance of the target
company.
The information contained herein is necessarily based upon market, economic
and other conditions as they exist and can be evaluated on, and on the
information made available to us as of the date of this presentation material.
The information contained herein was based in part on market prices as of the
close of business May 3, 2000.
[Merrill Lynch LOGO]
<PAGE>
Table of Contents
- --------------------------------------------------------------------------------
1. Executive Summary
2. Valuation of Chaser
3. Assessment of Synergies
4. Impact on Himawari
5. Assessment of Other Bidder
[Merrill Lynch LOGO]
<PAGE>
- --------------------------------------------------------------------------------
Executive Summary
- --------------------------------------------------------------------------------
<PAGE>
Executive Summary
- --------------------------------------------------------------------------------
Summary Observations
. Provide updated valuation range for Chaser
. Market volatility increases uncertainty
. Chaser transition to higher growth business
model increases range of outcomes
. Extremely strong, well-received IQ results
. Web hosting companies have traded up recently
. Assess Synergies
. Value synergies
. Compare to synergies in other similar transactions
. Summarize impact on Himawari
. Significant transaction for Himawari
. Largest cash acquisition of IP services company
. Assess price other bidder can pay
. Aspire recent stock price strength may improve
its ability to bid aggressively
[Merrill Lynch LOGO] 1
<PAGE>
Executive Summary
================================================================================
Chaser: Strengths and Concerns
. Leading web hosting company with critical mass in U.S.
. Successful track record transitioning to higher growth IP services
. Strong U.S. and international distribution
. Significant customer base
. Sophisticated, scaleable national platform for IP services
. Dominant presence in high growth SME market
. Deep and numerous strategic partnerships
. Significant shift in business model
. Traditional business (access) commoditizing
. Historically high customer churn
. Increased competition from integrated providers
[Merrill Lynch LOGO] 2
<PAGE>
- --------------------------------------------------------------------------------
Valuation of Chaser
- --------------------------------------------------------------------------------
<PAGE>
Valuation of Chaser
- --------------------------------------------------------------------------------
Summary Per Share Valuation
<TABLE>
<CAPTION>
Equity Value per Share (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
[BAR CHART]
$80.00 $60.00 $65.00 $73.00 $81.00 $100.00 $45.00 $60.00
$23.69 $27.00 $42.00 $45.00 $53.00 $55.00 $37.00 $45.00 $33.38
Current Price
- -------------------------------------------------------------------------------------------------------------------- (5/3/00)
52 Week Public Sum of DCF(1) DCF(1) Analyst Acquisition Premium
Trading Comparables Parts(1) (No (w/ Price Comparables Analysis
Range Synergies) Synergies) Targets
</TABLE>
<TABLE>
<CAPTION>
2001E Revenue 9.0x - 11.0x
Multiples based 2009E EBITDA High and Low
on Public Terminal Multiple, DCF values plus
4.0x - 9.0x Comparable 14.0% - 18.0% Midpoint PV of
Methodology -- 2001E Revenue Companies WACC Synergies(2)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Implied Multiples:
2000E Revenues (1) 5.8x - 20.2x 6.7x - 15.2x 10.4x - 16.5x 11.1x - 18.3x 13.1x - 20.3x
2001E Revenues (1) 3.4x - 12.0x 4.0x - 9.0x 6.2x - 9.8x 6.6x - 10.9x 7.8x - 12.1x
35% - 80%
Premium to
Analyst Price 5.4x - 6.6x Recent Market
Methodology Targets 2001E Revenue Price
- ------------------------------------------------------------------------------------
Implied Multiples:
2000E Revenues (1) 13.8x - 25.3x 9.1x - 11.1x 11.2x - 15.1x
2001E Revenues (1) 8.2x - 15.0x 5.4x - 6.6x 6.7x - 9.0x
</TABLE>
(1) Based on Himawari's Base Case estimates.
(2) Midpoint PV of synergies based on 7.0x EBITDA terminal multiple and 15%
WACC.
(3) Fully diluted shares outstanding provided by Chaser. Adjusted to include
an additional 3.5 million options to be issued prior to closing.
3
<PAGE>
A012255
Valuation of Chaser
- --------------------------------------------------------------------------------
Summary Per Share Valuation - Pricing Matrix
<TABLE>
<CAPTION>
Price per Share $45 $50 $55 $60 $65 $70
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
% Premium
Closing Price (5/3/00) 34.8% 49.8% 64.8% 79.8% 94.8% 109.7%
1 Week Average 34.7% 49.6% 64.6% 79.6% 94.5% 109.5%
1 Month Average 38.9% 54.3% 69.8% 85.2% 100.6% 116.1%
Implied Equity Value (EV) $4,795.0 $5,327.8 $5,860.6 $6,393.4 $6,926.2 $7,458.9
Plus: Net Debt (124.6) (124.6) (124.6) (124.6) (124.6) (124.6)
--------- --------- --------- --------- --------- ---------
Implied Firm Value (FV) $4,670.4 $5,203.2 $5,736.0 $6,268.8 $6,801.5 $7,334.3
Firm Value
2000E Revenue/(1)/ 11.2x 12.5x 13.8x 15.1x 16.3x 17.6x
2001E Revenue/(1)/ 6.7x 7.4x 8.2x 8.9x 9.7x 10.5x
</TABLE>
- ----------------------------
(1) Based on Himawari's Base Case.
[LOGO OF MERRILL LYNCH APPEARS HERE]------------------------------------------ 4
<PAGE>
A012255
Valuation of Chaser
- --------------------------------------------------------------------------------
Summary Implied Per Share Valuation - Pricing Matrix
<TABLE>
<CAPTION>
Offer Price per Share $45 $50 $55 $60 $65 $70
Implied Price per Share $42 $47 $51 $56 $60 $65
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
% Premium
Closing Price (5/3/00) 26.3% 40.0% 53.7% 67.4% 81.1% 94.9%
1 Week Average 26.1% 39.8% 53.5% 67.2% 80.9% 94.6%
1 Month Average 30.1% 44.2% 58.4% 72.5% 86.6% 100.8%
Implied Equity Value (EV) $4,490.6 $4,978.4 $5,466.3 $5,954.1 $6,442.0 $6,929.8
Plus: Net Debt (124.6) (124.6) (124.6) (124.6) (124.6) (124.6)
--------- --------- --------- --------- --------- ---------
Implied Firm Value (FV) $4,366.0 $4,853.8 $5,341.7 $5,829.5 $6,317.3 $6,805.2
Firm Value/
2000E Revenue/(1)/ 10.5x 11.7x 12.8x 14.0x 15.2x 16.3x
2001E Revenue/(1)/ 6.2x 6.9x 7.6x 8.3x 9.0x 9.7x
</TABLE>
- ----------------------------
(1) Based on Himawari's Base Case.
[LOGO OF MERRILL LYNCH APPEARS HERE]------------------------------------------ 5
<PAGE>
Valuation of Chaser
================================================================================
Stock Price Performance vs. Peer Group and NASDAQ (5/3/99 - 5/3/00)
. Chaser had underperformed Peer Group and NASDAQ
. Over last 12 months
. More pronounced over last 3 months
. 1Q earnings release and analyst commentary narrowed gap
[LINE GRAPH APPEARS HERE]
Data Index
+66.4%
NASDAQ
+46.2%
Chaser
-4.1%
____Chaser _____NASDAQ ____Data Index/(1)/
- -------------------------
(1) Data index includes Exodus, Digex, PSINet, Globix, Earthlink, Interliant
and Digital Island.
6
<PAGE>
Valuation of Chaser
- --------------------------------------------------------------------------------
Stock Price Performance (1/1/00 - 5/3/00)
<TABLE>
<S> <C> <C>
[LINE CHART APPEARS HERE]
Share Price
300% 1/31/00: 2/9/00:
Chaser announces plans to Chaser teams with Oracle to
accelerate web hosting and deliver hosted database
colocation services. applications to SMEs.
250% 4/26/00:
Chaser announces 1Q
revenue of $81.1mm
(+11% seq.). Also,
announces strategic
200% alliance with Gateway.
150%
Exodus -2.2%
100% Digex -1.8%
3/1/00: 3/6/00:
Chaser announces 4Q revenue of $73.0mm Chaser announces shared web hosting Chaser -27.7%
and full-year revenue of $258.3mm (+114% and e-commerce agreement with Globix -30.0%
vs. 1998). Also, signs definitive agreement Qwest.
50% to invest $30mm for 39% of Agilera.com
0%
1/1/00 1/13/00 1/25/00 2/6/00 2/19/00 3/2/00 3/14/00 3/27/00 4/8/00 4/20/00 5/3/00
---------------------------------------------
----Chaser ----Exodus ----Digex ----Globix
---------------------------------------------
</TABLE>
7
<PAGE>
Valuation of Chaser
- --------------------------------------------------------------------------------
Chaser Trading History (5/3/99 - 5/3/00)
. Approximately 85% of Chaser's stock has traded at less than $65 per
share in last year
. Majority of stock traded in $24-$40 range in the last twelve months
. Since 1Q earnings release, approximately 10.9 million shares have traded
at an average price of $33.41
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
[BAR CHART APPEARS HERE]
Shares Traded (000's) Percent of Volume Which Traded Within Stock Price Range
140,000
32.4%
120,000
100,000
21.7%
80,000
60,000 14.8%
10.8%
40,000 9.7%
7.3%
20,000 3.3%
0
$24-$32 $32-$40 $40-$48 $48-$56 $56-$64 $64-$72 $72-$80
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
[BAR CHART APPEARS HERE]
Cumulative Shares Traded Percent of Volume Which Traded Below Stock Price
(000's)
450,000
100.0%
400,000 96.7%
350,000 87.0%
300,000 79.7%
250,000 64.9%
54.2%
200,000
150,000
100,000 21.7%
50,000
0
$32.00 $40.00 $48.00 $56.00 $64.00 $72.00 $80.00
</TABLE>
- ---------------------------
Source: FactSet Research.
8
<PAGE>
Valuation of Chaser
================================================================================
Revenue Segmentation Overview
($ in Millions)
=========================================================================
. Chaser business/revenue stream has 6 identifiable components
. Identifiable components within access and hosting are similar
but closer to certain identified publicly traded companies
=========================================================================
<TABLE>
<CAPTION>
1st Q2000
1Q '00 Revenue Contribution Revenue Segment Revenue Public Comparables
----------------------------------- ---------------------------------- ---------- -----------------------------
<S> <C> <C> <C>
Access
[PIE CHART] ------
[ ] Dial Up Access $ 5.9 Earthlink, PSINet
[ ] Dedicated Access 25.8 PSINet, Digital Island,
DSL Providers
Hosting and Enhanced Services
-----------------------------
[ ] Dedicated Hosting 5.5 Digex
[ ] Collocation 5.7 Exodus, Globix
[ ] Shared Hosting and 26.3 NaviSite, Globix,
e-Commerce Services Exodus, PSINet, Critical Path
[ ] Telco Circuits/Other 11.9 PSINet, DSL Providers
-----
$81.1
=====
[Merrill Lynch Logo]
=========================================================================================================== 9
</TABLE>
<PAGE>
Valuation of Chaser
================================================================================
Public Comparables/(1)/
[GRAPH APPEARS HERE]
1.9x 4.1x 6.0x 8.2x 8.5x 22.1x 25.6x 29.8x 32.0x
48.8% 40.3% 263.5% 61.1% 141.4% 342.5% 211.0% 133.2% 539.4%
[BAR GRAPH]
1.5x 3.2x 3.4x 4.7x 4.9x 9.4x 11.3x 13.4x 15.1x
25.7% 29.5% 76.1% 81.0% 68.4% 134.7% 126.2% 137.9% 97.4%
Implied Value for Chaser
- ------------------------
4.0x - 9.0x 2000E Revenues/(4)/: $16.80 - $36.33
4.0x - 9.0x 2001E Revenues/(4)/: $27.49 - $60.38
- ----------------------
(1) Price as of 5/3/00.
(2) Excludes Chaser.
(3) Pro Forma Mindspring.
(4) Based on Himawari's Base Case.
10
<PAGE>
Valuation of Chaser
================================================================================
Sum-of-the-Parts
% Firm Value by Segment
- -----------------------
[PIE CHART APPEARS HERE]
11.5% 42.4% 6.4% 0.8% 0.9% 18.3% 19.9%
Collocation Hosting- Telco Dial-Up Access Agilera.com Access Hosting-
Shared Circuits/ Dedicated Dedicated
Other
Firm Value by Segment ($ Millions)
- ----------------------------------
[GRAPH APPEARS HERE]
$910 $987 $569 $2,094 $319 $38 $45 $4,962
Dedicated Hosting Collocation Hosting Teleco Dial-Up Agilera. Total
Access Dedicated Shared Circuits com Firm
Other Value
% Firm Value by Segment
- -----------------------
[GRAPH APPEARS HERE]
14.4% 32.6% 4.6% 0.7% 0.8% 14.1% 32.8%
Collocation Hosting- Telco Dial-Up Access Agilera.com Access Hosting-
Shared Circuits/ Dedicated Dedicated
Other
Firm Value by Segment ($ Millions)
- ----------------------------------
[GRAPH APPEARS HERE]
$790 $1,833 $804 $1,824 $253 $38 $45 $5,587
Dedicated Hosting Collocation Housing Teleco Dial-Up Agilera. Total
Access Dedicated Shared Circuits com Firm
Other Value
- ----------------------
(1) Based on Himawari's Base Case.
11
<PAGE>
Valuation of Chaser
- --------------------------------------------------------------------------------
Sum-of-the-Parts - 2000E Revenue Multiples
<TABLE>
<CAPTION>
Multiple Range Enterprise Value Trading Multiples
2000E -------------- ---------------------- Public -----------------
Revenue(1) Low High Low High Midpoint Comparables Low High
---------- -------------- ---------------------- -------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Internet Access
- ---------------
Dedicated $130.0 6.0x 8.0x $780.0 $1,040.0 $910.0 PSINet 4.2x 4.4x
Digital Island 19.5x 26.0x
DSL Providers 17.2x 21.5x
Dial-Up 25.1 1.0x 2.0x 25.1 50.2 37.7 Earthlink 1.5x 2.3x
PSINet 4.2x 4.4x
Enhanced Services
- -----------------
Hosting - Shared 135.1 13.0x 18.0x 1,756.3 2,431.8 2,094.1 Navisite 28.4x 38.2x
Globix 7.4x 10.5x
Exodus 24.4x 26.6x
Critical Path 17.3x 24.5x
PSINet 4.2x 4.4x
Hosting - Dedicated 47.0 18.0x 24.0x 846.0 1,128.0 987.0 Digex 22.4x 35.2x
Collocation 33.5 15.0x 19.0x 502.5 636.5 569.5 Exodus 24.4x 26.6x
Globix 7.4x 10.5x
Telco Circuits/Other 45.6 6.0x 8.0x 273.6 364.8 319.2 PSINet 4.2x 4.4x
DSL Providers 17.2x 21.5x
Agilera.com (39%) $30.0(2) 1.0x 2.0x 30.0 60.0 45.0
--------- --------- ---------
Firm Value $4,213.5 $5,711.3 $4,962.4
Less: Net Debt ($124.6) ($124.6) ($124.6)
--------- ---------- ---------
Equity Value $4,338.1 $5,835.9 $5,087.0
Shares Outst. 106.6 106.6 106.6
Value per Share $40.71 $54.77 $47.74
----------------------------------------------------------
| Implied Revenue Multiples |
| ------------------------- |
| Internet Access 5.2x 7.0x 6.1x |
| Enhanced Services 12.9x 17.5x 15.2x |
| Total 10.1x 13.7x 11.9x |
----------------------------------------------------------
- --------------------------------------------
(1) Based on Himawari's Base Case estimates.
(2) Total amount invested.
</TABLE>
[Merrill Lynch Appears Here]------------------------------------------------- 12
<PAGE>
Valuation of Chaser
- --------------------------------------------------------------------------------
Sum-of-the-Parts - 2001E Revenue Multiples
<TABLE>
<CAPTION>
Multiple Range Enterprise Value Trading Multiples
2001E -------------- ---------------------- Public ----------------- Value
Revenue(1) Low High Low High Midpoint Comparables Low High Contrib.
---------- -------------- ---------------------- -------- ----------- ----------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Internet Access
- ---------------
Dedicated $175.5 3.0x 6.0x $526.5 $1,053.0 $789.8 PSINet 3.3x 3.4x 14.1%
Digital Island 8.3x 11.1x
DSL Providers 6.1x 7.6x
Dial-Up 25.1 1.0x 2.0x 25.1 50.2 37.7 Earthlink 1.5x 1.9x 0.7%
PSINet 3.3x 3.4x
Enhanced Services
- -----------------
Hosting - Shared 202.7 7.0x 11.0x 1,418.6 2,229.2 1,823.9 Navisite 12.0x 16.0x 32.6%
Globix 4.1x 5.8x
Exodus 10.8x 11.8x
Critical Path 8.6x 12.2x
PSINet 3.3x 3.4x
Hosting - Dedicated 141.0 11.0x 15.0x 1,551.0 2,115.0 1,833.0 Digex 11.3x 17.8x 32.8%
Collocation 100.5 6.0x 10.0x 603.0 1,005.0 804.0 Exodus 10.8x 11.8x 14.4%
Globix 4.1x 5.8x
Telco Circuits/Other 56.3 3.0x 6.0x 169.0 338.0 253.5 PSINet 3.3x 3.4x 4.5%
DSL Providers 6.1x 7.6x
Agilera.com (39%) $30.0(2) 1.0x 2.0x 30.0 60.0 45.0 0.8%
--------- --------- ---------
Firm Value $4,323.1 $6,850.3 $5,586.7 100.0%
Less: Net Debt ($124.6) ($124.6) ($124.6)
--------- ---------- ---------
Equity Value $4,447.8 $6,974.9 $5,711.3
Shares Outst. 106.6 106.6 106.6
Value per Share $41.74 $65.46 $53.60
----------------------------------------------------------
| Implied Revenue Multiples |
| ------------------------- |
| Internet Access 2.7x 5.5x 4.1x |
| Enhanced Services 7.5x 11.4x 9.4x |
| Total 6.2x 9.8x 8.0x |
----------------------------------------------------------
- --------------------------------------------
(1) Himawari's Base Case estimates.
(2) Amount invested.
</TABLE>
13
<PAGE>
Valuation of Chaser
- --------------------------------------------------------------------------------
Discounted Cash Flow Analysis Summary Per Share Valuation
[GRAPH APPEARS HERE]
. DCF values vary widely based on underlying projections
. One Wall Street analyst (Wasserstein Perella) has extremely high projected
growth
. Chaser management has pointed towards these projections for guidance
. Merrill Lynch has analyzed Himawari's Base Case with more moderate growth
scenarios
<TABLE>
<CAPTION>
<S> <C> <C> <C>
E
q
u $180.00
i
t $160.00 $161.02
y
$140.00
V ____________
a $120.00
l
u $100.00 $99.51
e $80.52
$80.00 ----------
p | $72.67 |
e $60.00 __________
r $44.67
$40.00
S __________________________________________________________________________________ $33.28
h $20.00 Current Price
a (5/3/00)
r $0.00 -------------------------------------------|-----------------------------------|
e Wasserstein Perella Himawari's Base Case
------
| | With Synergies/(2)/
______
- --------------------------------------------------------------------------------------------
9.0x - 11.0x 2009 EBITDA 9.0x - 11.0x 2009 EBITDA
Methodology Terminal Multiple, Terminal Multiple,
14.0% - 18.0% WACC 14.0% - 18.0% WACC
- --------------------------------------------------------------------------------------------
Implied Multiples:
2000E Revenue/(1)/ 25.2x - 40.9x 11.1x - 18.3x
2001E Revenue/(1)/ 14.9x - 24.3x 6.6x - 10.9x
- -------------------------------------------------------------------------------------------
</TABLE>
- ----------------
(1) Based on Himawari's Base Case estimates.
(2) Midpoint of synergies calculated using 6.0x-8.0x EBITDA terminal multiple
and 13.0%-17.0% WACC.
14
<PAGE>
A012255
Valuation of Chaser
- --------------------------------------------------------------------------------
Summary of Projections
($ in Millions)
<TABLE>
<CAPTION>
Wasserstein Perella Himawari's Base Case
--------------------- ---------------------
<S> <C> <C>
2000 Revenue $411.3 $416.3
2001 Revenue $699.5 $701.1
Peak EBITDA Margin 32% 32%
</TABLE>
<TABLE>
<CAPTION>
'00-'09
1999P 2000P 2001P 2005P 2009P CAGR
------ ------ ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Internet Access
- ---------------
Dedicated $ 96.3 $130.0 $175.5 $481.2 $923.9 24.3%
year % growth 35.0% 35.0% 24.0% 14.0%
Dial-Up 25.1 25.1 25.1 25.1 25.1 0.0%
year % growth 0.0% 0.0% 0.0% 0.0%
Enhanced Services
- -----------------
Total Enhanced Services $136.9 $261.2 $500.5 $2,187.7 $5,576.4 40.5%
year % growth 90.8% 91.6% 33.6% 21.9%
------ ------ ------ -------- --------
Total Revenue $258.3 $416.3 $701.1 $2,694.0 $6,525.4 35.8%
====== ====== ====== ======== ========
year % growth 61.2% 68.4% 31.4% 20.6%
Revenue Contribution
Dedicated Access 37.3% 31.2% 25.0% 17.9% 14.2%
Dial-Up Access 9.7% 6.0% 3.6% 0.9% 0.4%
Enhanced Services 53.0% 62.7% 71.4% 81.2% 85.5%
------ ------ ------ -------- --------
Total 100.0% 100.0% 100.0% 100.0% 100.0%
</TABLE>
15
<PAGE>
Valuation of Chaser
- --------------------------------------------------------------------------------
DCF Assumptions and Summary
($ in Millions, Except per Share Amounts)
Benchmarking Comparison of Growth Assumptions for Hosting and Enhanced Services
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Hosting Revenue (2000E)/(1)/ Growth ('00-'04)/(1)/ 1Q Seq. Rev. Growth
---------------------------- --------------------- -------------------
<S> <C> <C> <C>
Exodus $752.7 76.8% 32%
Digex 140.2 52.9% 29%
Globix 100.2 63.9% 11%
--------------------- -------------------
Mean: 64.5% 24%
Chaser
Himawari's Base Case 261.2 58.2% 16%/(2)/
</TABLE>
- ----------------------------
(1) Merrill Lynch Research.
(2) Hosting and enhanced services only.
[Merrill Lynch LOGO] 16
<PAGE>
Valuation of Chaser
- --------------------------------------------------------------------------------
DCF Sensitivity Analysis
. DCF values most sensitive to changes in the WACC
- ----------------------------------------------------------------------
Per Share
Change in DCF Value
--------------------
Sensitivity Analysis Himawari's Base Case
- ---------------------------------------------- --------------------
(+-)1% Revenue CAGR $3.78
(+-)1% Peak EBITDA Margin $1.76
(+-)1 Year Attaining Base Case $4.15
(+-)1.0x Terminal EBITDA Multiple $4.61
(+-)1.0% WACC $4.85
+$75mm Annually in Incremental Capex ('01-'09) $2.21
- ----------------------------------------------------------------------
[Merrill Lynch LOGO] 17
<PAGE>
Valuation of Chaser
- --------------------------------------------------------------------------------
Chaser Discounted Cash Flow Analysis - Himawari's Base Case /(1)/
($ in Millions, Except per Share Amounts)
<TABLE>
<CAPTION>
------------- ------------------------- -------------------------
A + B = C
------------- ------------------------- -------------------------
PV of Terminal Value Firm Value with 2009 Implied FCF Growth
PV or FCF Multiple of 2009 EBITDA EBITDA Terminal Multiple of 2009 EBITDA Multiple
Cash Flows ------------------------- ------------------------- -----------------------
Discount Rate (2000-2009) 9.0x 10.0x 11.0x 9.0x 10.0x 11.0x 9.0x 10.0x 11.0x
- --------------- ------------- ========================= ========================= =======================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
14.0% $1,216 $5,238 $5,820 $6,402 $6,455 $7,037 $7,619 7.8% 8.4% 8.9%
15.0% 1,126 4,811 5,345 5,880 5,936 6,471 7,005 8.8% 9.4% 9.9%
16.0% 1,042 4,421 4,912 5,404 5,463 5,954 6,446 9.7% 10.3% 10.8%
17.0% 964 4,066 4,518 4,970 5,031 5,482 5,934 10.7% 11.3% 11.8%
18.0% 892 3,742 4,158 4,574 4,635 5,051 5,467 11.6% 12.2% 12.7%
------------------------- ------------------------- -----------------------
</TABLE>
<TABLE>
<CAPTION>
------------- -------------------------
D = E
------------- ------------------------- Private Market Valuation PV of Terminal Value
Net Debt/(2)/ Equity Value Equity Value per Share Over Firm Value
------------------------- ------------------------- -----------------------
Discount Rate 9.0x 10.0x 11.0x 9.0x 10.0x 11.0x 9.0x 10.0x 11.0x
- --------------- ------------- ========================= ========================= =======================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
14.0% ($125) $6,579 $7,161 $7,743 $61.74 $67.21 $72.67 81.2% 82.7% 84.0%
15.0% (125) 6,061 6,595 7,130 56.88 61.90 66.91 81.0% 82.6% 83.9%
16.0% (125) 5,588 6,079 6,570 52.44 57.05 61.66 80.9% 82.5% 83.8%
17.0% (125) 5,155 5,607 6,059 48.38 52.62 56.86 80.8% 82.4% 83.7%
18.0% (125) 4,760 5,175 5,591 44.67 48.57 52.47 80.7% 82.3% 83.7%
------------- ------------------------- ------------------------- -----------------------
</TABLE>
- ---------------------------------------------------------------
(1) Based on Himawari Base Case. DCF value as of 3/31/00.
(2) Provided by Chaser as of 3/31/00.
18
<PAGE>
Valuation of Chaser
- --------------------------------------------------------------------------------
DCF Methodologies for Chaser
<TABLE>
<CAPTION>
Company Target Price Methodology
- ------------------------------------ ------------ --------------------------------------------------------
<S> <C> <C>
Robert W. Baird & Co. $70.00 11.0x EBITDA; 16% WACC; 7 year model
Thomas Weisel Partners $77.00 DCF: 12.0x 2009 FCF Terminal Multiple and 14% WACC
Wasserstein Perella Securities, Inc. $85.00 DCF: 9.0x 2008 EV/EBITDA Terminal Multiple and 15% WACC
Deutsche Banc Alex. Brown $90.00 13.0x 2008E EBITDA; 15% WACC
ING Barings (11/19/99) $53.00 5.0x FCF; 15% WACC; terminal year not disclosed
Lazard Freres (12/13/99) $63.00 6% perpetual growth rate in FCF; 12% WACC
H&Q (11/30/99) NA 30.0x 2005E cash flow; 15-20% WACC
</TABLE>
- --------------------------------------------------------------------------------
Merrill Lynch Observations
- --------------------------
. WACC analysis of peer group indicates 17% - 20% range
. Perpetual free cash flow growth of 9-11% implies 9-12x EBITDA multiple
+ Aggressive but reasonable
+ Business relatively mature by 2009
+ Implies 3% inflation rate, 6-8% real growth
+ Current trading multiples of mature telcos range from 7.0x - 9.0x
2000E EBITDA
- --------------------------------------------------------------------------------
[Merrill Lynch LOGO] 19
<PAGE>
Valuation of Chaser
- --------------------------------------------------------------------------------
Summary Analyst Price Targets
<TABLE>
<CAPTION>
Publication Price at Time
Firm Date Recommendation Price Target of Report
------------------------------------ ----------- ----------------- ------------ -------------
<S> <C> <C> <C> <C>
Lehman Brothers 5/1/00 Buy $88.00 $37.56
CIBC World Markets 5/1/00 Buy 90.00 37.56
PaineWebber, Inc. 5/1/00 Attractive 75.00 37.56
Robert W. Baird & Co. 4/28/00 Buy 70.00 29.00
Credit Suisse First Boston 4/28/00 Market Outperform 95.00 29.00
Deutsche Banc Alex. Brown 4/28/00 Strong Buy 90.00 29.00
Morgan Stanley Dean Witter 4/28/00 Outperform 66.00 29,00
Wasserstein Perella Securities, Inc. 4/28/00 Strong Buy 85.00 29.00
Donaldson, Lufkin & Jenrette 4/28/00 Buy 80.00 29,00
Pacific Crest 4/28/00 Strong Buy 100.00 29.00
First Albany 4/28/00 Strong Buy 60.00 29.00
First Union 4/28/00 Top Rating 85.00 29.00
Hibernia Southcoast 4/28/00 Strong Buy 55.00 29.00
Janney Montgomery Scott 4/27/00 Accumulate 86.00 26.44
Thomas Weisel Partners 4/27/00 Strong Buy 77.00 26.44
Salomon Smith Barney 4/27/00 Buy 85.00 26.44
---------------------------------------
Range $55.00 - $100.00
---------------------------------------
</TABLE>
20
<PAGE>
Valuation of Chaser
- --------------------------------------------------------------------------------
Comparable Transactions Analysis
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
2.9x 3.1x 5.6x 5.6x 6.0x 6.2x 6.3x
Tax Acquirer: DIGEX PSINet Ebone Earthlink TABNet Voyager.net Earthlink
Intermedia Matamor GTS Mindspring Verio CoreComm Sprint
Date Announced: 6/5/97 3/22/00 5/14/98 9/23/99 7/7/98 3/13/00 2/11/98
6.4x 9.1x 9.6x 9.9x 10.9x 28.6x 62.1x
Tax Acquirer: Verio Concentric Netscape UUNet SplitRock IXNet AboveNet
NTT NEXTLINK AOL MFS McLeodUSA Global MFN
Crossing
Date Announced: 4/8/98 1/10/00 11/24/98 4/29/96 1/7/00 2/22/00 6/23/99
</TABLE>
<TABLE>
<CAPTION>
MCLD/
NXLK/ Split
High Low Mean/(2)/ Median Concentric Rock
---- --- --------- ------ ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Metric/(1)/ 62.1x 2.9x 6.8x 6.4x 9.1x 10.9x
Implied Share Value $243.79 $12.50 $27.74 $26.17 $36.72 $43.75
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
N/A N/A 1.3x 2.5x 3.1x 3.2x 4.0x
Tax Acquirer: Ebone TABNet DIGEX PSINet Verio Earthlink Earthlink
GTS Verio Intermedia Matamor NTT Mindspring Sprint
Date Announced: 5/14/98 7/7/98 6/5/97 3/22/00 4/8/98 9/23/99 2/11/98
4.2x 5.4x 5.6x 5.8x 6.6x 18.7x 20.8x
Tax Acquirer: Voyager.net Concentric UUNet Netscape SplitRock IXNet AboveNet
CoreComm NEXTLINK MFS AOL McLeodUSA Global MFN
Crossing
Date Announced: 3/13/00 1/10/00 4/29/96 11/24/98 1/7/00 2/22/00 6/23/99
</TABLE>
<TABLE>
MCLD/
NXLK/ Split
High Low Mean/(2)/ Median Concentric Rock
---- --- --------- ------ ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Metric/(1)/ 20.8x 1.3x 4.2x 4.8x 5.4x 6.6x
Implied Share Value $138.02 $9.72 $28.80 $32.75 $36.70 $44.59
</TABLE>
- -------------
(1) Based on Himawari's Base Case 2000 and 2001 revenue estimates.
(2) Excludes IXNet/Global Crossing and AboveNet/MFN.
21
<PAGE>
Valuation of Chaser
- --------------------------------------------------------------------------------
Premiums Paid in Selected Comparable M&A Transactions
($ in Billions)
<TABLE>
<CAPTION>
Premium to Price
---------------------------------
Announcement Est Transaction One Month One Week One Day
Date Acquirer Target Size Prior Prior Prior
- ------------ -------------------------------- -------------------------- --------------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
3/22/00 PSINet Metamor $1.9 167.9% 163.7% 138.9%
3/13/00 CoreComm Voyager.net $0.6 30.6% 37.9% 42.2%
2/29/00 Telecorp Tritel $5.3 63.9% 66.5% 39.2%
2/23/00 Global Crossing IXNet $3.6 12.7% 19.3% 36.3%
2/22/00 SBC Commun. Sterling Commerce $3.6 40.2% 36.7% 58.0%
2/15/00 BCE Teleglobe $6.7 5.6% 3.4% 28.8%
1/10/00 NEXTLINK Concentric 2.9 63.3% 46.0% 50.0%
1/7/00 McLeod USA SplitRock Services 2.1 64.3% 53.5% 37.9%
10/5/99 MCI WorldCom Sprint 127.1 55.0% 31.4% 20.1%
7/21/99 Cincinati Bell IXC Communications 3.1 27.1% 32.4% 36.3%
7/15/99 Qwest U S West 40.5 26.2% 25.6% 10.8%
6/23/99 Voicestream Omnipoint 4.7 90.3% 77.8% 54.2%
6/23/99 Metromedia Fiber Network Inc. AboveNet Communications Inc. 1.6 47.7% 94.9% 35.9%
4/22/99 AT&T MediaOne 62.1 53.3% 41.1% 39.9%
3/17/99 Global Crossing Ltd. Frontier Corp. 12.5 79.1% 70.7% 61.0%
1/15/99 Vodafone Airtouch 62.1 58.6% 56.3% 56.9%
12/18/98 ALLTEL Corp. Aliant Commun. 1.6 33.0% 26.0% 27.0%
10/5/98 AT&T Vanguard Cellular 1.5 22.0% 24.0% 18.0%
7/2/98 Welsh, Carson, Anderson & Stowe Centennial Cell. Corp. 1.2 25.3% 24.5% 24.9%
6/24/98 AT&T TCI 42.7 61.0% 61.0% 44.0%
6/14/98 Teleglobe Excel 3.7 2.0% -6.0% -17.0%
5/11/98 SBC Common. Ameritech Corp. 69.1 21.0% 26.0% 27.0%
4/15/98 Fonorola Call-Net 1.2 25.5% 30.4% 30.1%
3/16/98 ALLTEL Corp. 360 Communications 6.0 50.0% 30.0% 15.0%
3/9/98 Prime Cellular American Cellular 0.8 12.1% 12.0% 13.0%
3/9/98 Qwest Commun. LCI Int'l Inc. 4.4 55.0% 24.0% 22.0%
1/9/98 AT&T Teleport Commun. 12.9 2.0% 7.0% 9.0%
1/5/98 SBC Common. Southern N.E. Tel. 5.8 43.0% 36.0% 33.0%
11/28/97 Teleport Communications ACC Corp. 1.0 27.1% 42.0% 43.5%
11/10/97 WorldCom MCI 41.9 58.0% 64.0% 65.0%
10/1/97 WorldCom Brooks Fiber 2.5 84.0% 58.0% 36.0%
6/6/97 Excel Communications Telco Communications Group 1.2 23.1% 23.6% 22.0%
8/23/96 WorldCom MFS 14.0 87.0% 60.0% 59.0%
4/l/96 SBC Commun. Pacific Telesis 22.4 37.0% 42.0% 39.0%
-------------------------------------------------------------------------------
Maximum $127.1 167.9% 163.7% 138.9%
Mean 16.9 45.7% 42.5% 37.0%
Median 4.1 41.6% 36.4% 36.2%
Minimum 0.6 2.0% -6.0% -17.0%
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Implied Maximum $113.19 $76.47 $79.73
Chaser Price Mean 61.56 41.31 45.71
Median 59.83 39.54 45.44
Minimum 43.10 27.26 27.70
-------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
================================================================================
Assessment of Synergies
================================================================================
<PAGE>
Assessment of Synergies
- --------------------------------------------------------------------------------
Synergy Analysis(1)
$ in Millions
[BAR GRAPH]
$35.4 $83.1 $139.3 $203.1 $219.7
2001(3) 2002 2003 2004 2005
$ in Millions
[BAR GRAPH]
$189.0 $111.2 $142.3 $394.7 $837.2
Implied
Per Share
Value(4): $1.77 $1.04 $1.33 $3.70 $7.86
. IP Sales to Asia . End-to-End VPN . Existing Chaser Customers
. e-Commerce . Cumulative
- -------------
(1) Source: Himawari
(2) Terminal EBITDA multiple of 7.0x and discount rate of 15.0%. Discounted to
3/31/00.
(3) Does not reflect estimated transaction expenses.
(4) Midpoint of Synergy PV values.
23
<PAGE>
Assessment of Synergies
================================================================================
Potential Synergies Benchmark Analysis
($ in Billions, Except Per Share Data)
Chaser Synergy Value Range: $0.7 - $1.1
Aggregate
Aggregrate Premium to Market for Chaser /(1)/: Offer Price Premium
----------- ----------
$45 $1.2
$55 $2.3
$65 $3.4
[GRAPH APPEARS HERE]
$0.6 $0.7 $0.9 $0.8 $1.0 $1.0 $0.8 [$ ] $1.5 $3.1 $2.4 $0.6 $6.0 $0.0
ALLTEL/ WorldCom/ NEXTLINK/ Himawari/ Global Qwest/ Bell
360 (degrees) Brooks Concentric Chaser Crossing/ LCI Atlantic/
Comm. Fiber Frontier NYNEX
$6.6 $0.6 $7.0 $3.7 $9.0 $4.7 $10.5 $7.3 $10.5 $13.2 $13.5 $0.0
AT&T/ SBC/ WorldCom/ AT&T/ SBC/ Bell
Teleport Pactel MFS TCI AIT Atlantic/
GTE
$14.2 $12.0 $15.2 $6.0 $19.5 $18.9 $28.5 $14.1
AT&T/ Qwest/ MCI WorldCom/
Media One U S West WorldCom/ MCI
Sprint
. PV of Synergies . Premium Paid
PV as % of
Combined
Firm Value 9.7% 2.2% 5.1% 0.3% 4.2% 17.5% 8.9% 5.6% 11.9% 36.0% 6.2%
6.2% 8.1% 5.0% 20.4% 7.3% 41.7%
PV as % of
Target
Firm Value 11.3% 37.5% 54.7% 24.4% 12.0% 52.2% 18.1% 58.0% 34.8% 95.3% 31.2%
18.5% 18.0% 29.1% 33.1% 18.1% 105.5%
First Yr. Pre-Tax
Synergies
($mm) $80 $80 $40 $35 $83 $30 $600 $1,000 $300 $460 $1,000 $630
$800 $2,188 $180 $1,900 $2,450
- -------------------------
(1) Based on stock price of $33.38 as of 5/3/00.
24
<PAGE>
================================================================================
Impact on Himawari
================================================================================
<PAGE>
Impact on Himawari
- --------------------------------------------------------------------------------
Side-by-Side Financial and Trading Analysis
($ in Millions, Except per Share Amounts)
<TABLE>
<CAPTION>
-----------------------------------------------------------------
Himawari/(1)/ Chaser/(2)/
--------------- -----------
<S> <C> <C>
Share Price (5/3/00) $13,063.48/(3)/ $33.38
Market Value/(4)/ $207,225.9 $3,556.3
Net Debt 42,616.0 (124.6)
---------- --------
Market Capitalization $249,841.9 $3,431.7
========== ========
Market Value/Net Income
2000E 84.3x NM
2001E 54.8x NM
Market Cap./EBITDA
2000E 6.7x NM
2001E 6.3x 53.3x
Market Cap./Revenue
2000E 4.2x 8.2x
2001E 4.1x 4.9x
Financial Statistics:
---------------------
Revenue:
2000E $58,877.6 $416.3
2001E 61,453.5 701.1
2000E-2004E Revenue CAGR 2.8% 49.0%
2000E EBITDA $37,019.8 $2.5
-----------------------------------------------------------------
</TABLE>
- ----------------------------------------
(1) Based on Merrill Lynch research.
(2) Chaser projections based on Himawari Base Case.
(3) Based on exchange rate of 108.7 Yen/$.
(4) Based on fully diluted shares, including conversion of convertible debt.
25
<PAGE>
Impact on Himawari
- --------------------------------------------------------------------------------
Accretion/Dilution Analysis
($ in Millions, Except per Share Data)
- --------------------------------------------------------------------------------
In 2001, for Himawari's share price to remain at current trading levels,
analysts would have to believe growth accelerates and reward Himawari with the
following higher multiples.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Breakeven
Current Multiple
--------- -----------
. At $55 offer price,
P/E multiple: 54.8x 67.0x
EBITDA multiple: 6.34x 6.46x
. At $60 offer price,
P/E multiple: 54.8x 68.0x
EBITDA multiple: 6.34x 6.47x
. At $65 offer price,
P/E multiple: 54.8x 69.0x
EBITDA multiple: 6.34x 6.48x
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
00-'05
2000E/(1)/ 2001E 2002E 2003E 2004E 2005E CAGR
----------------------------------------------------------------- ---------
Standalone Himawari Net Income/(2)/ $2,458.9 $3,784.0 $5,094.8 $5,707.1 $6,290.7 $6,826.5 22.7%
Fully Diluted Shares Outstanding (mm) 15.9 15.9 15.9 15.9 15.9 15.9
- -------------------------------------------------------------------------------------------------------
Fully Diluted Recurring EPS $ 155.01 $ 238.54 $ 321.17 $ 359.77 $ 396.56 $ 430.34 22.7%
- -------------------------------------------------------------------------------------------------------
Current P/E 84.3x 54.8x 40.7x 36.3x 32.9x 30.4x
Himawari EBITDA Multiple 6.75x 6.34x 6.05x 6.02x 5.81x 5.74x
Chaser Net Income/(3)/ $ (295.6) $ (290.5) $ (159.3) $ (26.6) $ 225.5 $ 511.3 NM
$55/Share Offer Price
- ---------------------
Adjustments (431.0) (402.4) (368.7) (330.4) (320.5) (317.3)
Pro Forma Himawari Net Income $1,732.2 $3,091.1 $4,566.7 $5,350.1 $6,195.7 $7,020.5 32.3%
- -------------------------------------------------------------------------------------------------------
Pro Forma EPS $ 109.20 $ 194.86 $ 287.89 $ 337.27 $ 390.58 $ 442.57 32.3%
Accretion/(Dilution) $ (45.81) $ (43.68) $ (33.29) $ (22.50) $ (5.99) $ 12.23
Accretion/(Dilution) (29.6)% (18.3)% (10.4)% (6.3)% (1.5)% 2.8%
Pre-Tax Synergies to Breakeven $1,397.4 $1,332.4 $1,015.4 $ 686.5 $ 182.6 $ 0.0
Breakeven P/E Multiple 119.6x 67.0x 45.4x 38.7x 33.4x 29.5x
Breakeven EBITDA Multiple 6.89x 6.46x 6.13x 6.07x 5.83x 5.73x
- -------------------------------------------------------------------------------------------------------
$60/Share Offer Price
- ---------------------
Adjustments (474.6) (446.0) (412.3) (374.0) (364.0) (360.8)
Pro Forma Himawari Net Income $1,688.7 $3,047.6 $4,523.2 $5,306.6 $6,152.2 $6,977.0 32.8%
- -------------------------------------------------------------------------------------------------------
Pro Forma EPS $ 106.46 $ 192.12 $ 285.14 $ 334.52 $ 387.83 $ 439.83 32.8%
Accretion/(Dilution) $ (48.55) $ (46.42) $ (36.03) $ (25.25) $ (8.73) $ 9.48
Accretion/(Dilution) (31.3)% (19.5)% (11.2)% (7.0)% (2.2)% 2.2%
Pre-Tax Synergies to Breakeven $1,481.1 $1,416.2 $1,099.2 $ 770.2 $ 266.4 $ 0.0
Breakeven P/E Multiple 122.7x 68.0x 45.8x 39.1x 33.7x 29.7x
Breakeven EBITDA Multiple 6.90x 6.47x 6.15x 6.08x 5.84x 5.74x
- -------------------------------------------------------------------------------------------------------
$65/Share Offer Price
- ---------------------
Adjustments (518.1) (489.5) (455.8) (417.5) (407.6) (404.4)
Pro Forma Himawari Net Income $1,645.2 $3,004.0 $4,479.7 $5,263.0 $6,108.7 $6,933.4 33.3%
- -------------------------------------------------------------------------------------------------------
Pro Forma EPS $ 103.71 $ 189.37 $ 282.40 $ 331.78 $ 385.09 $ 437.08 33.3%
Accretion/(Dilution) $ (51.30) $ (49.17) $ (38.78) $ (27.99) $ (11.48) $6.74
Accretion/(Dilution) (33.1)% (20.6)% (12.1)% (7.8)% (2.9)% 1.6%
Pre-Tax Synergies to Breakeven $1,564.9 $1,499.9 $1,182.9 $ 854.0 $ 350.1 $ 0.0
Breakeven P/E Multiple 126.0x 69.0x 46.3x 39.4x 33.9x 29.9x
Breakeven EBITDA Multiple 6.92x 6.48x 6.16x 6.09x 5.85x 5.75x
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents Himawari's FY2000 which is March 31, 2001 and Chaser FY2000
which is December 31, 2000.
(2) Merrill Lynch research estimates.
(3) Deutsche Bank research estimates dated March 16, 2000.
26
<PAGE>
================================================================================
Assessment of Other Bidder
================================================================================
<PAGE>
Assessment of Other Bidder
- --------------------------------------------------------------------------------
Assessment of Aspire
. Recent stock price strength increases likelihood it will compete
aggressively for Chaser
- Improvement in equity capital market over past several days has
recharged Aspire currency
- Aspire analyst meeting on May 3rd received well by Wall Street
- Implied offer price based on earlier 0.802x exchange rate is
- As of 5/3/00: $60.95
- 1-Week Avg.: $57.83
- 1-Month Avg.: $53.80
. Ability to pay affected by several factors:
- Significant value creation through cost and revenue synergies
- Aspire's need to acquire data capabilities and skills immediately,
rather than develop them organically
- Dwindling number of players that provide scale and scope
. Chaser represents critical acquisition for Aspire
- Ability to leverage existing network
- Complementary customer base
- Significantly enhanced ability to provide bundled service package
- Acquire large direct and indirect salesforce and channels
. Based on NEXTLINK/Concentric transaction, Aspire could generate
synergies with NPV of $1.3 - $1.9 billion or $12 - $18 per Chaser share
27
<PAGE>
Assessment of Other Bidder
- -------------------------------------------------------------------------------
Chaser/Aspire Historical Exchange Ratio (5/3/99 - 5/3/00)
<TABLE>
<CAPTION>
Implied Chaser
Ex. Ratio Offer Price/(2)/
--------- ----------------
<S> <C> <C>
Current/(1)/ 0.439x $33.38
1-Week 0.447x 33.98
1-Month 0.477x 36.23
3-Month 0.619x 47.01
6-Month 0.730x 55.45
Max 1.174x 89.22
Min 0.358x 27.22
Mean 0.852x 64.72
Offer 0.802x 60.95
At time of offer (3/31) 0.559x 42.48
</TABLE>
Original Offer
of 0.802x
Historical Exchange Ratio
[Line Chart]
- ----------------
(1) As of 5/3/00.
(2) Based on Aspire closing price of $76.00 on 5/3/00.
28
<PAGE>
Assessment of Other Bidder
- --------------------------------------------------------------------------------
Aspire
Stock Price
-----------
Current $ 76.00
52-Week High 105.75
52-Week Low 22.83
1-Week Avg. 72.10
1-Month Avg. 67.19
<TABLE>
<CAPTION>
Exchange Ratio
-------------------------------------------------------------------------------
0.6500x 0.7000x 0.7500x 0.8020x 0.8500x 0.9000x 0.9500x
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Implied Offer Price $ 49.40 $ 53.20 $ 57.00 $ 60.95 $ 64.60 $ 68.40 $ 72.20
New Issued Aspire Shares 69.26 74.59 79.92 85.46 90.57 95.90 101.23
Pro Forma Shares Outstanding 164.65 169.98 175.31 180.85 185.96 191.29 196.62
Ownership
- --------------------
Aspire Shareholders 57.9% 56.1% 54.4% 52.7% 51.3% 49.9% 48.5%
Chaser Shareholders 42.1% 43.9% 45.6% 47.3% 48.7% 50.1% 51.5%
</TABLE>
<TABLE>
<CAPTION>
Implied Offer Price @ Ex. Ratio of
---------------------------------------------------------------
Premium/(Disc.) Aspire
to Current Price Stock Price 0.6500x 0.7000x 0.7500x 0.8020x 0.8500x 0.9000x 0.9500x
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
40.0% $106.40 $69.16 $74.48 $79.80 $85.33 $90.44 $95.76 $101.08
30.0% 98.80 64.22 69.16 74.10 79.24 83.98 88.92 93.86
20.0% 91.20 59.28 63.84 68.40 73.14 77.52 82.08 86.64
10.0% 83.60 54.34 58.52 62.70 67.05 71.06 75.24 79.42
- ----------------------------------------------------------------------------------------------------------------------
Current Share Price 0.0% 76.00 49.40 53.20 57.00 60.95 64.60 68.40 72.20
- ----------------------------------------------------------------------------------------------------------------------
-10.0% 68.40 44.46 47.88 51.30 54.86 58.14 61.56 64.98
-20.0% 60.80 39.52 42.56 45.60 48.76 51.68 54.72 57.76
-30.0% 53.20 34.58 37.24 39.90 42.67 45.22 47.88 50.54
-40.0% 45.60 29.64 31.92 34.20 36.57 38.76 41.04 43.32
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
EXHIBIT (d)(4)
CONFIDENTIAL
------------
April 7, 2000
NTT Communications Corporation
1-1-6, Uchisaiwai-cho
Chiyoda-ku, Tokyo 100-8019
Japan
Attention: Junichi Nomura
Fax: 81-3-3519-5273
CONFIDENTIALITY AGREEMENT
-------------------------
Dears Sirs:
In connection with the analysis of a possible negotiated financial or
business transaction (the "Transaction") between Verio Inc. (the "Company") and
NTT Communications Corporation (the "Interested Party"), the Company has
delivered or may deliver to the Interested Party or its Representatives (as
defined below), certain Information (as defined below) concerning the Company.
(The Company and the Interested Party are referred to collectively as the
"Parties" and individually as a "Party".)
As used herein, "Information" means all oral and written communications,
data, reports, analyses, compilations, studies, interpretations, forecasts,
records, notes, asset lists, financial statements and other materials or
information (in whatever form maintained, whether documentary, computer storage
or otherwise) that contain or otherwise reflect information concerning the
Company or any of its subsidiaries or affiliates, or any portion of any thereof,
that the Company or its Representatives may provide to the Interested Party or
its Representatives in the course of the evaluation of the Transaction
("Provided Information"), together with all oral and written communications,
data, reports, analyses, compilations, studies, interpretations, forecasts,
records, notes, asset lists, financial statements or other materials or
information (in whatever form maintained, whether documentary, computer storage
or otherwise) prepared by the Interested Party or its Representatives that
contain or otherwise reflect or are based upon, in whole or in part, any
Provided Information ("Derived Information").
<PAGE>
NTT Communications Corporation CONFIDENTIAL
April 7, 2000
Page Two
As used herein, "Representatives" means, collectively, the controlled
affiliates of the Interested Party or the Company, as the case may be, and the
respective directors, employees, members, financial advisers, lenders,
accountants, attorneys, agents and controlling persons of the Interested Party
or the Company, as the case may be, or their controlled affiliates. As used
herein, the term "person" shall be broadly interpreted to include, without
limitation, any corporation, limited liability company, entity, partnership,
trust, group or individual.
The Interested Party agrees that, in consideration of being furnished with
the Information, all Information shall be kept confidential and shall not,
except as required by law or applicable stock exchange or NASDAQ rule, without
the prior written consent of the Company, be disclosed by the Interested Party
or its Representatives in any manner whatsoever, in whole or in part, other than
to the Interested Party's Representatives, and shall not be used, directly or
indirectly, for any purpose other than in connection with evaluating the
Transaction and not in any way directly or indirectly detrimental to the
Company. Moreover, the Interested Party agrees to reveal Information only to its
Representatives if and to the extent that such Representatives, in the
reasonable judgment of the Interested Party, need to know any Information for
the purpose of evaluating the Transaction and are informed of the confidential
nature of the Information. The Interested Party shall be responsible for any
breach of this Agreement by its Representatives (including Representatives who,
subsequent to the first date of disclosure of Information hereunder, become
former Representatives).
To the extent that any Information may include material subject to the
attorney-client privilege, work product doctrine or any other applicable
privilege concerning pending or threatened legal proceedings or governmental
investigations, the parties understand and agree that they have a commonality of
interest with respect to such matters and it is their desire, intention and
mutual understanding that the sharing of such material is not intended to, and
shall not, waive or diminish in any way the confidentiality of such material or
its continued protection under the attorney-client privilege, work product
doctrine or other applicable privilege. All Information provided by the Company
that is entitled to protection under the attorney-client privilege, work product
doctrine or other applicable privilege shall remain entitled to such protection
under these privileges, this letter agreement, and under the joint defense
doctrine. Nothing in this letter agreement obligates any party to reveal
material subject to the attorney-client privilege, work product doctrine or any
other applicable privilege.
If the Interested Party determines that it does not wish to proceed with
the Transaction, it shall promptly advise the Company of that decision. In such
case, or if a Transaction is not otherwise consummated, or if the Company so
requests, the Interested Party shall promptly return to the Company all copies
of the Information in its possession and in the possession of its
Representatives, and will destroy all copies of
<PAGE>
NTT Communications Corporation CONFIDENTIAL
April 17, 2000
Page Three
any Derived Information, provided, however, that documents reflecting the
Interested Party's final evaluation of the Transaction and the reasons for its
decision not to proceed with such a Transaction will not need to be returned or
destroyed, but provided, further, that this Agreement will continue to apply to
such information on the terms set forth herein. Notwithstanding the return or
destruction of any Information, or documents or material containing or
reflecting any Information, the Interested Party will continue to be bound by
its obligations of confidentiality and other obligations hereunder for a period
of two years from the date of this Agreement, except as otherwise specifically
provided herein.
The Interested Party shall not initiate or maintain contact in
contemplation of a possible Transaction with any officer, director, stockholder,
employee or agent of the Company or its subsidiaries regarding its business,
operations, prospects or finances, except with the express written permission of
the Company. It is understood that the Company will arrange for appropriate
contacts for due diligence purposes. It is further understood that all (i)
communications regarding a possible Transaction, (ii) requests for additional
information, (iii) requests for on-site access or management meetings and (iv)
discussions or questions regarding procedures, will be submitted or directed to
the designated legal counsel and financial advisors for the respective parties
listed below in the notice provisions.
This Agreement shall not apply to such of the Information as: (i) is or
becomes generally available to the public other than as a result of any
disclosure or other action or inaction by the Interested Party or anyone to whom
the Interested Party or any of its Representatives transmit or have transmitted
any Information; (ii) is or becomes known or available to the Interested Party
or any of its Representatives on a nonconfidential basis from a source (other
than the Company or any of its subsidiaries, affiliates or Representatives or
pursuant hereto) that, to the best of the Interested Party's knowledge, is not
prohibited from disclosing such Information to the Interested Party by a
contractual, legal or fiduciary obligation owed to the Company or its
Representatives; (iii) is already in the possession of the Interested Party or
any of its Representatives or is independently developed by the Interested Party
or any of its Representatives without violation of any obligation under this
Agreement; or (iv) is or becomes known to the Interested Party or any of its
Representatives prior to the Company's disclosure of such Information to the
Interested Party.
The Interested Party (i) acknowledges that neither the Company nor any of
its subsidiaries or affiliates or any of its Representatives make any
representation or warranty (express or implied) as to the accuracy or
completeness of any Information, and (ii) agrees to assume full responsibility
for all conclusions it derives from the Information. The Interested Party shall
be entitled to, and shall, rely solely on representations and warranties made in
any final agreement relating to the Transaction. Nothing contained in this
Agreement nor the conveying of Information hereunder shall
<PAGE>
NTT Communications Corporation CONFIDENTIAL
April 7, 2000
Page Four
be construed as granting or conferring any rights by license or otherwise in any
intellectual property.
In the event that the Interested Party or any person to whom it or its
Representatives transmit or have transmitted Information become legally
compelled (by oral questions, interrogatories, requests for Information or
documents, subpoenas, civil investigative demands or otherwise) to disclose any
such Information, the Interested Party shall provide the Company with prompt
written notice so that the Company may seek a protective order or other
appropriate remedy, or both, or waive compliance with the provisions of this
Agreement. In the event that the Company is unable to obtain a protective order
or other appropriate remedy, or if it so directs the Interested Party, the
Interested Party shall furnish only that portion of the Information which the
Interested Party is advised by written opinion of its counsel is legally
required to be furnished by it and shall exercise its reasonable best efforts to
obtain reliable assurance that confidential treatment shall be accorded such
Information.
The Interested Party hereby acknowledges that it is aware and that its
Representatives have been advised that the United States securities laws
prohibit any person who has material nonpublic information about a company from
purchasing or selling securities of such company, or from communicating such
material nonpublic information to any other person under circumstances in which
it is reasonably foreseeable that such person is likely to purchase or sell such
securities.
The Parties also understand and agree that no contract or agreement
providing for a Transaction with the other Party shall be deemed to exist
between the Parties unless and until a definitive Transaction agreement has been
executed and delivered. The Parties also agree that unless and until a
Transaction agreement between the Parties has been executed and delivered, the
Parties have no legal obligation of any kind whatsoever with respect to any such
Transaction by virtue of this Agreement or any other written or oral expression
with respect to such Transaction except, in the case of this Agreement, for the
matters specifically agreed to herein. For purposes of this Agreement, the term
"Transaction agreement" does not include an executed letter of intent or any
other preliminary written agreement in principle.
This Agreement shall inure to the benefit of and be binding upon the
Interested Party and the Company and their respective successors and permitted
assigns.
In the event of litigation relating to this Agreement, if a court of
competent jurisdiction determines in a final, non-appealable order that the
Interested Party has breached this Agreement, then the Interested Party shall be
liable and pay to the Company the reasonable legal fees the Company has incurred
in connection with such litigation, including any appeal therefrom.
<PAGE>
NTT Communications Corporation CONFIDENTIAL
April 7, 2000
Page Five
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Delaware. The Parties also hereby irrevocably and
unconditionally consent to submit to the exclusive jurisdiction of the courts of
the State of Delaware and of the United States of America located in the State
of Delaware for any actions, suits or proceedings arising out of or relating to
this Agreement and the Transactions contemplated hereby (and the Parties agree
not to commence any action, suit or proceeding relating thereto except in such
courts), and further agree that service of any process, summons, notice or
document by U.S. registered mail to the other Parties' address set forth below
shall be effective services of process for any action, suit or proceeding
brought in any such court. The Interested Party hereby appoints Lexis Document
Services, Inc. as its agent for service of process in Delaware. The Parties
hereby irrevocably and unconditionally waive any objection to the laying of
venue of any action, suit or proceeding arising out of this Agreement or the
Transaction contemplated hereby, in the courts of the State of Delaware or the
United States of America located in the State of Delaware, and hereby further
irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum.
All notices required to be provided pursuant to this Agreement shall be
addressed:
in the case of the Company:
Verio Inc.
8005 S. Chester Street
Suite 200
Englewood, Colorado 80012
Facsimile: (303) 792-3879
Attn: Carla Hamre Donelson, Esq.
Fax: 303-792-3879
with a copy to:
Morrison & Foerster LLP
425 Market Street
San Francisco, California 94105
Facsimile: (415) 268-7522
Attn: Gavin B. Grover, Esq.
Fax: 415-268-7522
<PAGE>
NTT Communications Corporation CONFIDENTIAL
April 7, 2000
Page Six
in the case of the Interested Party:
NTT Communications Corporation
1-1-6, Uchisaiwai-cho
Chiyoda-ku, Tokyo 100-8019
Attn: Junichi Nomura
Fax: 81-3-3519-5273
with copies to:
NTT Communications Corporation
Kowa Nishi-shinbashi Building B Tower
14-1, Nishi-shinbashi 2-chome
Minato-ku, Tokyo 105-0003
Attn: Yoshio Katsumata
Fax: 81-3-3539-4645
and
Sidley & Austin
Bank One Plaza
10 S. Dearborn St.
Chicago, Illinois 60603
Attn: Dennis V. Osimitz
Fax: 312-853-7036
No failure or delay by either Party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise thereof preclude any other further exercise of any right, power
or privilege hereunder.
Any assignment of this Agreement by the Interested Party without the prior
written consent of the Company shall be void.
Except as otherwise specifically provided herein, this Agreement shall
terminate two years from the date hereof.
This Agreement contains the entire agreement between the Parties concerning
confidentiality of the Information and related matters, and no modifications of
this Agreement or waiver of the terms and conditions hereof shall be binding
upon the parties, unless approved in writing by each of the Company and the
Interested Party. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms,
<PAGE>
NTT Communications Corporation CONFIDENTIAL
April 7, 2000
Page Seven
provisions, covenants and restrictions shall remain in full force and effect,
and shall in no way be affected, impaired or invalidated.
This Agreement may be executed in one or more counterparts, each of which
shall constitute an original, but together which shall constitute one and the
same instrument.
No written consent required by this Agreement shall be unreasonably
withheld.
If the foregoing reflects our agreement, kindly sign and return the
duplicate copy of this Agreement to me.
Sincerely,
Verio Inc.
By: /s/ Justin L. Jaschke
----------------------------
Name: Justin L. Jaschke
--------------------------
Title:
-------------------------
Agreed to as of the date set forth above:
NTT Communications Corporation
By: /s/ Junichi Nomura
----------------------------
Name: Junichi Nomura
--------------------------
Title:
-------------------------
