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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14D-9
(RULE 14D-101)
SOLICITATION/RECOMMENDATION STATEMENT
UNDER SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
VERIO INC.
(Name of Subject Company)
VERIO INC.
(Name of Person(s) Filing Statement)
Common Stock, par value $.00l per share
Series A 6.75% Convertible Preferred Stock, par value $.001 per share
(Title of Class of Securities)
923433106 (Common Stock)
923433502 (Preferred Stock)
923433304 (Preferred Stock)
(CUSIP Number of Class of Securities)
Justin L. Jaschke
Chief Executive Officer
8005 South Chester Street, Suite 200
Englewood, Colorado 80112
(303) 645-1900
(Name, address and telephone number of person authorized to receive
notice and communications on behalf of the person(s) filing statement)
With a Copy to:
Gavin B. Grover, Esq.
Morrison & Foerster LLP
425 Market Street
San Francisco, California 94105
(415) 268-7000
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Item 1. Subject Company Information.
(a) The name of the subject company is Verio Inc., a Delaware corporation
("Verio" or the "Company"), and the address of the principal executive offices
of the Company is 8005 South Chester Street, Suite 200, Englewood, Colorado
80112; telephone number: (303) 645-1900.
(b) The title of the classes of equity securities to which this statement
relates is the common stock, par value $.001 per share, of the Company (the
"Common Stock"), and the Company's Series A 6.75% Convertible Preferred Stock,
par value $.001 per share (the "Preferred Stock" and together with the Common
Stock, the "Shares"). As of May 11, 2000, 82,615,431 shares of Common Stock
and 7,200,000 shares of Preferred Stock were outstanding.
Item 2. Identity and Background of Filing Person.
(a) Name and Address. The name, address and telephone number of the Company,
which is the person filing this Schedule 14D-9, are set forth in Item 1(a)
above.
(b) Tender Offer. This statement relates to a 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") and a wholly-owned subsidiary of Nippon Telegraph and
Telephone Corporation, a limited liability joint stock company incorporated
under the laws of Japan ("NTT"), disclosed in a Tender Offer Statement on
Schedule TO, dated May 17, 2000 (the "Schedule TO"), to purchase all of the
issued and 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, net to the seller in cash, without interest
thereon, and all of the issued and outstanding shares of Preferred Stock 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, and 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 thereon, 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 (the "Letter of
Transmittal") (which, together with the Offer to Purchase, as amended or
supplemented from time to time, constitute the "Offer").
As more fully described in the Offer to Purchase, 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, and other than shares of Preferred Stock with respect to which
appraisal rights are exercised) will be entitled to a payment from such
deposit account.
The Offer is also being made with respect to certain warrants to purchase an
aggregate of 1,306,228 shares of Common Stock (the "Verio Warrants").
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 will be made available to
them.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of May 7, 2000 (the "Merger Agreement"), among Purchaser, NTT
Communications and the Company. The Merger Agreement provides, among other
things, that as soon as practicable after the satisfaction or waiver of the
conditions set forth in the Merger Agreement, Purchaser will be merged with
and into the Company (the "Merger"), and the Company will continue as the
surviving corporation (the "Surviving Corporation"). A copy of the Merger
Agreement is filed as Exhibit (e)(1) hereto, and incorporated herein by
reference.
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As set forth in the Schedule TO, 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. The principal executive offices of NTT
Communications are located at 1-1-6 Uchisaiwaicho-cho, Chiyoda-ku, Tokyo 100-
8019, Japan; telephone number: 011-81-3-3500-8111. The principal executive
offices of Purchaser are located at 101 Park Avenue, 41st Floor, New York, NY
10178; telephone number: (212) 661-0810.
Item 3. Past Contacts, Transactions, Negotiations and Agreements.
Except as set forth in this Item 3, or in Schedule I attached hereto or as
incorporated by reference herein, to the knowledge of the Company, as of the
date hereof, there are no material agreements, arrangements or understandings
or any actual or potential conflicts of interest between the Company or its
affiliates, on the one hand, and: (i) the Company's executive officers,
directors or affiliates; or (ii) Purchaser, its executive officers, directors
or affiliates, on the other hand.
Certain agreements, arrangements or understandings between the Company or
its affiliates and certain of its directors, executive officers and affiliates
are described in the Information Statement of the Company attached to this
statement as Schedule I (the "Information Statement"). The Information
Statement is being furnished to the Company's stockholders pursuant to Section
14(f) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and Rule 14f-1 issued under the Exchange Act in connection with Purchaser's
right (after acquiring 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), pursuant to
the Offer to designate persons to the Board of Directors of the Company (the
"Verio Board") other than at a meeting of the stockholders of the Company. The
Information Statement is incorporated by reference herein.
The Merger Agreement.
The following is a summary of the Merger Agreement, which summary is
qualified in its entirety by reference to the Merger Agreement, which is filed
as Exhibit (e)(1) hereto. Capitalized terms not otherwise defined herein have
the meanings set forth in the Merger Agreement.
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
below. 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 below
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.
Purchaser and NTT Communications have agreed with Verio that they will not
extend the Offer, without the consent of Verio, provided, however, that
without the consent of Verio, Purchaser and NTT Communications 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 Securities and Exchange Commission (the
"SEC") or the staff thereof 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
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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 should be
irrevocably deemed to have been satisfied or waived if we elect to extend the
Offer pursuant to clause (c) of this sentence).
Purchaser and NTT Communications have also agreed with Verio that if at any
scheduled expiration date of the Offer, the Minimum Condition (as defined
below in "--Conditions of the Offer") or the conditions to the Offer relating
to the HSR Act or the Exon-Florio Amendment (each as defined in Item 8) or the
conditions to the Offer described in paragraph (e) or (f) of "--Conditions of
the Offer" below shall not have been satisfied but all other conditions to the
Offer shall then be satisfied, or if not satisfied, be reasonably capable of
being satisfied prior to November 10, 2000, at the request of Verio, Purchaser
and NTT Communications 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.
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) 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 "Minimum
Condition"), (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 Item 8) under the Exon-
Florio Amendment 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):
(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
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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;
(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;
(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
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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.
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 Delaware General
Corporation Law (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 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.
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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 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; certain 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 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;
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(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;
(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;
7
(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 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
8
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. "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, 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 not less than 24 hours 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.
9
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 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 Verio Warrants that after the
Effective Time such warrants will
10
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.
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.
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 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
11
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 requested by NTT Communications and 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 of the Merger. 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 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
12
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.
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;
13
(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 its 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 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
14
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 Exhibit (e)(2), hereto
and is incorporated by reference in its entirety.
Item 4. The Solicitation or Recommendation.
(a) Recommendation.
At a meeting held on May 7, 2000, the Verio Board (1) determined that the
Offer and the Merger were fair to, and in the best interests of, holders of
Preferred Stock and holders of Common Stock, (2) approved the Merger Agreement
and the transactions contemplated by the Merger Agreement, including the Offer
and the Merger, and (3) recommended that Verio's stockholders accept the Offer
and tender their Shares thereunder and adopt the Merger Agreement.
A press release announcing the commencement of the Offer and a letter to the
stockholders communicating the Verio Board's recommendation are filed herewith
as Exhibits (a)(1)(I) and (a)(2), respectively, and are incorporated by
reference herein in their entirety.
(b) Reasons.
Background of the Offer.
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
an Investment Agreement, dated as of April 7, 1998 (the "Investment
Agreement") 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 "Certain Relationships and Related
Transactions--Other Transactions" in the Information Statement.
15
In April of 1999, Verio's management met with representatives of Salomon
Smith Barney Inc. ("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.
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 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
16
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.
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
17
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.
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.
18
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 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.
19
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.
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.
20
Fairness of the Offer and the Merger.
In reaching the conclusions described in Item 4 (a) 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 Schedule II 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 "Special Factors--Opinion of Financial Advisor
of Verio" in the Offer to Purchase.
. 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.
. Valuations based on premiums paid in comparable acquisition transactions
and discounted cash flow analysis.
21
. 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 Item 8.
. 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 Communications'
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.
22
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 holders of Preferred Stock and holders of Common Stock
(other than NTT Communications and its affiliates).
(c) Intent to Tender.
To Verio's knowledge after reasonable inquiry, all of Verio's executive
officers and directors currently intend to tender all Shares held of record or
beneficially (other than Shares held directly or indirectly by other public
companies, as to which Verio has no knowledge) by them pursuant to the Offer
or to vote in favor of the Merger. The foregoing does not include any Shares
over which, or with respect to which, any such executive officer or director
acts in a fiduciary or representative capacity or is subject to the
instructions of a third party with respect to such tender. Neither Verio nor
its subsidiaries intend to tender their shares pursuant to the Offer. To
Verio's knowledge, neither NTT Communications nor its subsidiaries will be
tendering their Shares pursuant to the Offer.
23
Item 5. Persons/Assets Retained, Employed, Compensated or Used.
Salomon Smith Barney Inc.
Salomon Smith Barney was retained by Verio pursuant to a letter agreement
dated April 21, 1999 (the "SSB Engagement Letter"). Salomon Smith Barney was
retained, among other things, to provide investment banking services to the
Company and to serve as the Company's financial advisor with respect to a
possible sale, transfer or other disposition to certain specified parties,
directly or indirectly, of all or substantially all of the business, assets or
at least 30% of the equity securities of Verio through a merger or
consolidation, tender or exchange offer, negotiated purchase or other business
combination of the Company.
On May 7, 2000, at the 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.
Pursuant to the SSB 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.
Item 6. Interest in Securities of the Subject Company.
The following summary sets forth information concerning transactions in
Verio's Common Stock or Preferred Stock (i) during the past 60 days by NTT,
its directors, executive officers, affiliates and subsidiaries, and (ii)
during the past 60 days by Verio, its subsidiaries, affiliates, directors and
executive officers.
(1) NTT Rocky, Inc., an indirectly wholly owned subsidiary of NTT, was
granted options by Verio on April 27, 2000 to purchase 6,000 shares of Common
Stock at an exercise price of $26.438 per share 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.
(2) 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.
(3) 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 pursuant to the terms of a
Pledge Agreement, dated as of March 17, 2000 (the "Pledge Agreement").
24
(4) On March 20, 2000, Steven C. Halstedt gifted 12,000 shares of Common
Stock to a donee. The transaction was effected in Chicago, Illinois.
(5) 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.
(6) 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, 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, pursuant to the terms of the Pledge Agreement. All of these
transactions were effected in New York City.
(7) 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 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.
(8) On May 15, 2000, Carla Hamre Donelson gifted 6,500 shares of Common
Stock to certain donees. The transaction was effected in Englewood, Colorado.
(9) 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.
(10) Effective on May 17, 2000, Verio repurchased 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.
Item 7. Purposes of the Transaction and Plans or Proposals.
(1) (i) Except as indicated in Items 3 and 4 above, no negotiations are
being undertaken or are underway by Verio in response to the Offer which
relate to a tender offer or other acquisition of Verio's securities by Verio,
any subsidiary of Verio or any other person.
(ii) Except as indicated in Items 3 and 4 above, no negotiations are being
undertaken or are underway by Verio in response to the Offer which relate
to, or would result in, (1) any extraordinary transaction, such as a
merger, reorganization or liquidation, involving Verio or any subsidiary of
Verio, (2) any purchase, sale or transfer of a material amount of assets by
Verio or any subsidiary of Verio, or (3) any material change in the present
dividend rate or policy, or indebtedness or capitalization of Verio.
(2) Except as indicated in Items 3 and 4 above, there are no transactions,
Verio Board resolutions, agreements in principle or signed contracts in
response to the Offer that relate to or would result in one or more of the
matters referred to in this Item 7.
25
Item 8. Additional Information.
Information Statement.
The Information Statement attached as Schedule I hereto is being furnished
in connection with the possible designation by Purchaser, pursuant to the
Merger Agreement, of certain persons to be appointed to the Verio Board other
than at a meeting of the Company's stockholders as described in Item 3 above,
and is incorporated herein by reference.
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.
DGCL Section 253.
Under Section 253 of the DGCL, if Purchaser acquires, pursuant to the Offer
or otherwise, at least 90% of the outstanding Common Stock, Purchaser will be
able to effect the Merger after consummation of the Offer without a vote by
Verio's stockholders. However, if Purchaser does not own at least 90% of the
outstanding Common Stock as a result of the Offer or otherwise, a vote by
Verio's stockholders will be required under the DGCL to effect the Merger.
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 Division of the
Department of Justice (the "Antitrust Division") and certain waiting period
requirements have been satisfied. These requirements apply to Purchaser's
acquisition of Shares in the Offer and the Merger.
26
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. NTT Communications and
Purchaser 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 Purchaser's 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 Communications, 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.
Based upon an examination of publicly available information relating to the
businesses in which Verio is engaged, Verio believes that the acquisition of
Shares in the Offer and the Merger should not violate the applicable antitrust
laws. Nevertheless, Verio 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.
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
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
27
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 to CFIUS, 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.
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 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. Any Remaining Stockholder
considering demanding appraisal is advised to consult legal counsel. Appraisal
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,
28
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 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 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."
29
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.
Certain Litigation Matters.
Three complaints, entitled Rosner v. Verio Inc., et al., Weinstock v.
Halstedt, et al., and Brett v. Halstedt, et al., were filed in the Court of
Chancery of the State of Delaware in New Castle County against Verio, NTT and
directors of Verio, as purported class actions. The Rosner and Weinstock
actions were filed on May 8, 2000 and the Brett action was filed on May 10,
2000. A fourth purported class action, entitled Wolk v. Cahoon, et al., was
filed against Verio and directors of Verio, in the Court of Chancery of the
State of Delaware in New Castle County on May 8, 2000. On May 9, 2000, a fifth
purported class action, entitled Cody v. Verio Inc., et al., was filed in the
Colorado State District Court, County of Arapahoe against Verio and directors
of Verio.
30
The Rosner, Weinstock, Brett and Wolk complaints (collectively, the
"Delaware Class Complaints"), seek compensatory and rescissiory damages and
injunctive relief based on the Merger Agreement. The Cody action
seeks preliminary and permanent injunctive relief and declaratory relief. The
Delaware Class Complaints and Cody action also seek costs and disbursements,
and attorneys' and experts' fees in connection with their claims.
The Delaware Class Complaints and Cody action allege, among other things,
that the individual defendants breached their fiduciary duties by failing to
properly determine Verio's value as a merger candidate, failing to conduct an
appropriate auction or market check or to invite other bidders and failing to
obtain adequate consideration for Verio's common stock.
NTT, Verio and the individual defendants believe that these complaints are
meritless and they will be defended vigorously.
Item 9. Material to Be Filed as Exhibits.
Exhibit No. Description
----------- -----------
(a)(1)(A) Offer to Purchase dated May 17, 2000*+
(a)(1)(B) Letter of Transmittal*+
(a)(1)(C) Notice of Guaranteed Delivery*+
(a)(1)(D) Letter from the Dealer Manager to Brokers, Dealers, Commercial
Banks, Trust Companies and Nominees*+
(a)(1)(E) Letter to clients for use by Brokers, Dealers, Commercial Banks,
Trust Companies and Nominees*+
(a)(1)(F) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9*+
(a)(1)(G) Form of Summary Advertisement as published on May 17, 2000*
(a)(1)(H) Text of press release issued by NTT Communications dated May 17,
2000*
(a)(1)(I) Joint Press Release of the Company and NTT Communications dated
May 7, 2000**
(a)(2) Letter to Stockholders from Justin L. Jaschke, dated May 17, 2000+
(a)(3) None
(a)(4) None
(a)(5)(A) Pages F-51 through F-71 of the Company's Annual Report on Form 10-
K for the year ended December 31, 1999 (incorporated by reference
to the Company's Form 10-K filed with the Securities and Exchange
Commission on March 27, 2000) (File No. 0-24219)
(a)(5)(B) 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)(C) Complaint of Steven Wolk against Arthur L. Cahoon, Paul J. Salem,
Steven C. Halstedt, James C. Allen, Trygve E. Myhren, Yukimasa Ito
and Verio Inc.*
(a)(5)(D) 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)(E) 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)(F) Complaint of Susan Cody against the Company, 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*
31
Exhibit No. Description
----------- -----------
(a)(5)(G) Opinion of Salomon Smith Barney Inc. to the Board of Directors of
Verio, dated May 7, 2000 (incorporated by reference to Schedule II
attached to this Schedule 14D-9)+
(e)(1) Agreement and Plan of Merger, dated as of May 7, 2000, among
Chaser Acquisition, Inc., NTT Communications Corporation and the
Company**
(e)(2) Confidentiality Agreement, dated April 7, 2000, between the
Company and NTT Communications Corporation*
(e)(3) Information Statement Pursuant to Section 14(f) of the Securities
Exchange Act of 1934 and Rule 14f-1 thereunder (incorporated by
reference to Schedule I attached to this Schedule 14D-9)+
(e)(4) Letter Agreement, dated May 7, 2000, between the Company and
Justin L. Jaschke
(e)(5) Letter Agreement, dated May 7, 2000, between the Company and Sean
G. Brophy
(e)(6) Letter Agreement, dated May 7, 2000, between the Company and Chris
DeMarche
(e)(7) Letter Agreement, dated May 7, 2000, between the Company and Carla
Hamre Donelson
(e)(8) Letter Agreement, dated May 7, 2000, between the Company and Peter
B. Fritzinger
(e)(9) Letter Agreement, dated May 7, 2000, between the Company and James
M. Kieffer
(e)(10) Letter Agreement, dated May 7, 2000, between the Company and Mark
A. Orland
(e)(11) Letter Agreement, dated May 7, 2000, between the Company and
Barbara L. Goworowski
(e)(12) Letter Agreement, dated May 7, 2000, between the Company and James
P. Treuting
(e)(13) Letter Agreement, dated May 7, 2000, between the Company and
Douglas R. Schneider
(e)(14) Letter Agreement, dated May 7, 2000, between the Company and
Isabel Ehringer
(g) None
- --------
* Incorporated by reference to Schedule TO filed by NTT Communications
Corporation and Nippon Telegraph and Telephone Corporation.
** Incorporated by reference to Form 8-K filed by the Company on May 8, 2000.
+ Included in copies mailed to the Company's stockholders.
32
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.
Dated: May 17, 2000.
/s/ Justin L. Jaschke
By: _________________________________
Justin L. Jaschke
Chief Executive Officer and
Director
33
SCHEDULE I
VERIO INC.
8005 SOUTH CHESTER STREET, SUITE 200
ENGLEWOOD, COLORADO 80112
INFORMATION STATEMENT PURSUANT TO SECTION 14(f) OF THE
SECURITIES EXCHANGE ACT OF 1934 AND RULE 14f-1 THEREUNDER
This Information Statement is being mailed on or about May 17, 2000, as a
part of the Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of Verio Inc. ("Verio" or the "Company") with respect to the
tender offer by 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"), a wholly-owned subsidiary of Nippon Telegraph and
Telephone Corporation, a limited liability joint stock company incorporated
under the laws of Japan ("NTT"), to the holders of record of shares of Common
Stock, par value $.001 per share, of the Company (the "Common Stock") and to
the holders of record of shares of Series A 6.75% Convertible Preferred Stock,
par value $.001 per share, of the Company (the "Preferred Stock" and together
with the Common Stock, the "Shares"). Capitalized terms used and not otherwise
defined herein shall have the meaning set forth in the Schedule 14D-9. You are
receiving this Information Statement in connection with the possible election
of persons designated by NTT Communications to a majority of the seats on the
Board of Directors of the Company (the "Board" or the "Verio Board").
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 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 Securities Exchange Act of 1934, as
amended (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 remaining
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 requested by
NTT Communications and 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.
This Information Statement is required by Section 14(f) of the Exchange Act
and Rule 14f-1 thereunder in connection with the appointment of Purchaser's
designees to the Verio Board.
1
You are urged to read this Information Statement carefully. You are not,
however, required to take any action.
Pursuant to the Merger Agreement, Purchaser commenced the Offer on May 17,
2000. The Offer is scheduled to expire at midnight, New York City time, on
June 14, 2000, unless the Offer is extended, at which time, if all conditions
to the Offer have been satisfied or waived, Purchaser will purchase all of the
Shares validly tendered pursuant to the Offer and not properly withdrawn.
The information contained in this Information Statement (including
information incorporated by reference) concerning NTT Communications,
Purchaser and Purchaser's designees has been furnished to the Company by NTT
Communications, and the Company assumes no responsibility for the accuracy or
completeness of such information.
PURCHASER DESIGNEES
NTT Communications has informed the Company that it will choose Purchaser's
designees from the executive officers of NTT Communications listed in Schedule
I of the Offer to Purchase, a copy of which is being mailed to stockholders of
the Company. The information with respect to such officers in Schedule I is
hereby incorporated by reference. NTT Communications has informed the Company
that each of the officers listed in Schedule I of the Offer to Purchase has
consented to act as a director of the Company, if so designated.
Based solely on the information set forth in Schedule I of the Offer to
Purchase filed by Purchaser, none of the executive officers and directors of
NTT Communications or Purchaser (i) is currently a director of, or holds any
position with, the Company (other than Yukimasa Ito, who is an officer of NTT
Communications), or (ii) has a familial relationship with any directors or
executive officers of the Company. The Company has been advised that, to the
best knowledge of NTT Communications and Purchaser, none of NTT
Communications' or Purchaser's directors or executive officers beneficially
owns any equity securities (or rights to acquire such equity securities) of
the Company and none have been involved in any transactions with the Company
or any of its directors, executive officers, affiliates or associates which
are required to be disclosed pursuant to the rules and regulations of the
Securities and Exchange Commission.
It is expected that Purchaser's designees may assume office at any time
following the purchase by Purchaser of a specified minimum number of Shares
pursuant to the Offer, which purchase cannot be earlier than June 15, 2000,
and that, upon assuming office, Purchaser's designees will thereafter
constitute at least a majority of the Board. This step will be accomplished at
a meeting or by written consent of the Board providing that the size of the
Board will be increased and/or sufficient numbers of current directors will
resign such that, immediately following such action, the number of vacancies
to be filled by Purchaser's designees will constitute at least a majority of
the available positions on the Board. It is currently not known which of the
current directors of the Company will resign.
CERTAIN INFORMATION CONCERNING VERIO
The authorized capital stock of the Company consists of (a) 750,000,000
shares of Common Stock and (b) 20,000,000 shares of Preferred Stock. As of the
close of business on May 11, 2000, there were 82,615,431 shares of Common
Stock and 7,200,000 shares of Preferred Stock issued and outstanding
(including 2,860,000 shares of Common Stock held by a subsidiary of Verio).
The Company's Bylaws authorize the number of directors to be not less than
five nor more than eleven. The Board currently consists of eight members, with
one vacancy.
Each share of Common Stock entitles the record holder to one vote. Shares of
Preferred Stock have no voting rights except as provided by law and by the
Company's Certificate of Designations for the Preferred Stock. The Company's
Board of Directors is divided into three classes: Class I, Class II and Class
III. Each class serves staggered terms with the initial term of each class
expiring, respectively, at the first, second and third succeeding annual
meeting of the stockholders of the Company held following the Company's
initial public offering in May 1998. The Board is currently composed three
Class III Directors (Messrs. Justin L. Jaschke, Trygve E. Myhren and Yukimasa
Ito), whose terms will expire upon the election and qualification of directors
at
2
the annual meeting of stockholders to be held in 2001; and three Class I
Directors (Messrs. Arthur L. Cahoon, Thomas A. Marinkovich and Paul J. Salem),
whose terms will expire upon the election and qualification of directors at
the annual meeting of stockholders to be held in 2002 and two Class II
Directors (Messrs. Steven C. Halstedt and James C. Allen), whose terms will
expire in 2003. At each annual meeting of stockholders, directors will be
elected for full terms of three years to succeed those directors whose terms
are expiring.
Set forth below are the name, age and position of each director, executive
officer and certain other members of senior management of the Company.
Name Age Position(s)
---- --- -----------
Steven C. Halstedt............ 53 Chairman of the Board
Justin L. Jaschke............. 42 Chief Executive Officer, Director
James C. Allen................ 53 Director
Trygve E. Myhren.............. 63 Director
Paul J. Salem................. 36 Director
Yukimasa Ito.................. 44 Director
Arthur L. Cahoon.............. 44 Director
Thomas A. Marinkovich......... 59 Director
Sean G. Brophy................ 41 Vice President of Corporate Development
Chris J. DeMarche............. 43 Chief Technical Officer
Carla Hamre Donelson.......... 44 Vice President, General Counsel and Secretary
Isabel Ehringer............... 36 Vice President of Technology Services
Peter B. Fritzinger........... 41 Chief Financial Officer
Vice President of Marketing and Chief
Barbara L. Goworowski......... 39 Marketing Officer
Douglas R. Schneider.......... 37 President of Web Services
Edric N. Starbird............. 34 Vice President of Customer Operations
James P. Treuting............. 38 President of eBusiness Services
The following are brief biographies of each director, executive officer and
certain other members of senior management of the Company (including present
principal occupation or employment, and material occupations, positions,
offices or employments for the past five years). To the knowledge of the
Company no director or executive officer of the Company has been convicted in
a criminal proceeding during the last five years (excluding traffic violations
or similar misdemeanors) and no director or executive officer of the Company
was a party to any judicial or administrative proceeding during the last five
years (except for any 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 securities laws, or a finding of any violation of federal or
state securities laws. Unless otherwise indicated, each such person is a
citizen of the United States and each individuals business address is
8005 South Chester Street, Suite 200, Englewood, Colorado 80112.
Steven C. Halstedt has served as Chairman of the Board since the Company was
formed in March 1996. Mr. Halstedt is a co-founder of The Centennial Funds.
Mr. Halstedt has 18 years of direct venture capital experience and serves as a
general partner of each of the Centennial Holdings' partnerships. Prior to co-
founding The Centennial Funds in 1981, he was Executive Vice President and
Director of Daniels & Associates, Inc., a private communications service
company involved in cable television system operations. Mr. Halstedt is a
member of the board of directors of Formus Communications, Inc., Gabriel
Communications, Inc. and VeloCom, Inc. He is a former Chairman of the Board of
OneComm Corporation, PageAmerica Group, Inc. and Orion Network Systems, Inc.,
all publicly traded telecommunications companies. Mr. Halstedt received a
Bachelor of Science with distinction in management engineering from Worcester
Polytechnic Institute, and earned a Master of Business Administration from the
Amos Tuck School of Business Administration at Dartmouth College, where he was
named an Edward Tuck Scholar. He attended the University of Connecticut School
of Law. He was a Platoon Leader and Battalion Operations Officer in a U.S.
Army Combat Engineer Battalion in Vietnam.
Justin L. Jaschke has served as Chief Executive Officer of the Company since
it was formed in March 1996. He also is a member of the Board. Prior to
forming the Company, Mr. Jaschke served as Chief Operating Officer for Nextel
Communications following its merger with OneComm in July of 1995. Mr. Jaschke
served as
3
OneComm's President and as a member of its board of directors from the time
that he joined that company in April 1993 until the company's merger with
Nextel. Mr. Jaschke currently serves on the board of directors of Metricom, a
leading wireless data communications provider, and on the board of directors
of Dobson Communications, a rural cellular and local exchange provider. From
May 1990 to April 1993, Mr. Jaschke served as President and CEO of Bay Area
Cellular Telephone Company. From November 1987 to May 1990, Mr. Jaschke was
Vice President of Corporate Development of PacTel Cellular, and from 1985 to
1987, was Director of Mergers and Acquisitions for PacTel Corporation. Prior
to that, Mr. Jaschke was a management consultant with Marakon Associates. Mr.
Jaschke received a Bachelor of Science degree summa cum laude in mathematics
from the University of Puget Sound and a Master of Science degree in
management from the Sloan School of Management at MIT.
James C. Allen has served as a director of the Company since May 1996. Mr.
Allen is an Investment Director and member of the general partner of Meritage
Private Equity Fund. Mr. Allen served as CEO of Brooks Fiber Properties, Inc.
from April 1993 until its acquisition by MCI WorldCom in February 1998. Mr.
Allen has 25 years of experience as an entrepreneur, operator, financier,
expert witness and advisor in cable television and broadband
telecommunications. Prior to joining Brooks in 1993, he served as Chief
Financial Officer and Chief Operating Officer of David Lipscomb University
from which he holds a Bachelor of Science degree. Mr. Allen was a founder and
former President, CFO and COO of Cencom Cable Associates, which was purchased
by a subsidiary of Hallmark Cards, and a former Vice President of Operations
of Telecom Engineering, Inc., a telecommunications engineering and consulting
firm with clients in both the telephone and cable television industries. Mr.
Allen previously held positions as Vice President of Operations of United
Cable Television, Divisional Manager of Continental Telephone Corporation, and
Vice President of Finance for National Communications Service Corporation. Mr.
Allen is a member of the board of directors of MCI WorldCom, Inc. and
Completel, LLC. Mr. Allen also previously was a member of the board of
directors of MetroNet Communications Corp., a local exchange carrier.
Trygve E. Myhren has served as a director of the Company since April 1997.
Mr. Myhren is President of Myhren Media, Inc., a private investment firm
concentrating in media, telecommunications, software and Internet-related and
consumer products companies. From 1990 to 1996, Mr. Myhren was President and a
director of The Providence Journal Company. From 1975 until 1988, Mr. Myhren
was an officer of American Television and Communications Corporation, the
cable television subsidiary of Time, Inc., now Time/Warner Cable, serving as
Chairman and CEO from 1980 to 1988. Mr. Myhren also serves on the boards of
The Providence Journal Company, Advanced Marketing Services, Peapod, Inc.,
CableLabs, J.D. Edwards, Inc., WNP, Inc., Founders Funds and The University of
Denver. Previously, Mr. Myhren served as chairman of the National Cable
Television Association, and also served on the boards of Turner Broadcasting
Systems, Continental Cablevision, Inc., Citizens Bank and several internal
Time, Inc. boards, including Home Box Office, Temple-Eastex and Time Magazine
Group. He also served on the Federal Communications Commission's Advisory
Committee on High Definition TV. Mr. Myhren has an undergraduate degree in
political science and philosophy from Dartmouth and a Master of Business
Administration from the Amos Tuck Graduate School at Dartmouth. He served
three and one-half years as a naval officer with the U.S. Pacific Fleet.
Paul J. Salem has served as a director of the Company since December 1996.
Mr. Salem is Managing Director of Providence Equity Partners, Inc., and is a
partner of the general partner of Providence's private equity funds.
Providence manages over $500 million in equity and specializes in
communications and media investments. Mr. Salem has been responsible for many
of Providence's investment activities, including its investments in
competitive local exchange companies, enhanced specialized mobile radio,
wireless data networks, radio representation, telecommunications
infrastructure and other areas. From February 1992 to December 1996, Mr. Salem
was a Vice President at Narragansett Capital, Inc., an investment management
company. He is currently a director of AT&T Canada, Inc., Mpower
Communications and Tele1Europe AB. Prior to joining Providence, Mr. Salem
worked for Morgan Stanley & Co. in corporate finance and mergers and
acquisitions. Previously, Mr. Salem spent four years with Prudential
Investment Corporation, an affiliate of Prudential Insurance, where his
responsibilities included private placement financings, leveraged buyout
4
transactions and establishing Prudential's European investment office. Mr.
Salem received a Bachelor of Arts in business from Brown University and a
Master of Business Administration from Harvard Business School.
Yukimasa Ito has been a director of the Company since September 1998. Mr.
Ito is Vice President, Global IP Business of NTT Communications. From November
1997 until October 1999, Mr. Ito was Vice President, Service Planning of NTT
Worldwide Telecommunications Inc., a corporation specializing in providing
various international telecommunications services to end-users. NTT
Communications Corp. is a subsidiary of NTT which, in turn, is an affiliate of
the Company. From August 1994 to October 1997, Mr. Ito was Vice President,
Service Planning of NTT PC Communications, Inc. and from August 1991 until
July 1994, he was Director, Corporate Planning of NTT America, Inc. Mr. Ito
has worked for NTT or its subsidiaries since 1980. Mr. Ito holds a Bachelor of
Engineering degree from Waseda University and a Master of Business
Administration from the University of Washington. In 1990, Mr. Ito was a M.Sc.
Sloan Fellow at Stanford University. Mr. Ito is a citizen of Japan.
Arthur L. Cahoon was appointed to the Board upon completion of the
acquisition of the Company's acquisition of Best Internet Communications, Inc.
(which does business as Hiway Technologies ) ("Hiway") in January 1999. Mr.
Cahoon is President of Rock Creek Capital, an investment company. Mr. Cahoon
previously served as Chairman of Hiway's board of directors, CEO and a
director of Hiway since May 1998. From October 1997 to May 1998, he was
Chairman of Hiway Florida. Since March 1993, he has served as general partner
of Rock Creek Partners, Ltd., an investment company, and executive vice
president of James Dahl & Co., an investment banking company. Since January
1995, Mr. Cahoon also has served as Executive Vice President of Timberland
Investment Services, LLP, an investment management company which he co-
founded. Mr. Cahoon is a member of the board of directors of Mobile America.
In addition, from June 1995 to June 1996, he served as President of QuinStone
Industries, Inc., a manufacturing company. Prior to March 1993, Mr. Cahoon
served as Executive Vice President and CFO of Cain & Bultman, Inc., a
wholesale distributor. Mr. Cahoon holds a Bachelor in Business Administration
degree in accounting and finance from Stetson University.
Thomas A. Marinkovich was appointed to the Board on April 27, 2000 and
serves as chairman of the audit committee. In 1980 Mr. Marinkovich served as
chief financial officer of Daniels & Associates. From 1981 to 1988 he served
as president and chief operating officer of Daniels. As president and COO, he
was responsible for the daily administration and management of all Daniels
divisions including brokerage, investment banking, cable system operations and
paging communications. Prior to his tenure at Daniels & Associates, Mr.
Marinkovich was a partner at Price Waterhouse, where he was in charge of the
Denver tax practice beginning in 1978. He joined Price Waterhouse in 1962
after earning a Bachelor of Science degree in accounting from Seattle
University. Mr. Marinkovich currently sits on the board of directors of
Centennial Holdings, LLC of Denver, Colorado, the managing partner of the
Centennial Funds.
Sean G. Brophy has served as Vice President of Corporate Development since
November 1997, and prior to that served as Vice President of Marketing and
Business Development for the Company since joining the Company in May 1996.
Mr. Brophy served as Vice President of Marketing for OneComm and then Nextel
from 1994 to 1996. He worked at Northern Telecom from 1990 through 1994 in a
variety of capacities, including strategic planning and product management,
where he had global responsibilities for new products for Personal
Communications Services. Prior to that he worked at Bell Northern Research,
the research and development arm of Northern Telecom, designing telephone
equipment and services ranging from the DMS-100 to key systems. While there he
was awarded patent and design excellence awards. Mr. Brophy holds a Bachelor
of Science degree in computer engineering from McMaster University, a Master
of Science degree in electrical engineering from Carleton University and a
Master of Science degree in management from the Sloan School of Management at
MIT.
Chris J. Demarche has been Chief Technical Officer of the Company since
joining the Company in May 1996. From 1995 to 1996, Mr.DeMarche was CTO and
Senior Vice President of Nextel, where he was credited with addressing many
critical technology issues. From 1993 to 1995, he was Senior Vice President of
Engineering and Technology at OneComm, where he was responsible for building a
national engineering team and designing and implementing wireless
communication networks. Mr. DeMarche also worked in advanced
5
technology areas at PacTel Corporation and Hughes Aircraft Corporation and
served in the U.S. Naval Submarine Force. Mr. DeMarche received his Master of
Business Administration from UCLA in 1990, his Master of System Management
from the University of Southern California in 1986, and his Bachelor of
Science from the United States Naval Academy in 1978.
Carla Hamre Donelson has served as Vice President, General Counsel and
Secretary of the Company since joining the Company in October 1996 from the
law firm of Morrison & Foerster LLP, where she had practiced law since March
1987. She served as a partner in that firm's business department from 1990 and
as head of the Denver business practice from 1993. While in private practice,
Ms. Donelson was engaged in a general corporate and transactional practice,
focused primarily on the communications and related technology industries,
representing domestic and foreign entities in numerous financing, merger,
acquisition, investment, and licensing transactions. Ms. Donelson received her
Bachelor of Arts degree in molecular biology from the University of Colorado,
her Juris Doctor degree from the University of Denver College of Law, and is a
member of the Colorado Bar Association.
Isabel Ehringer has served as Vice President of Technology Services since
November 1999. She joined the Company in November 1996, serving initially as
the President of our Northern California regional operations and then of our
Western U.S. operations. In that capacity, Ms. Ehringer was responsible for
integrating the operations of local and regional ISPs that the Company
acquired in California, Oregon, New Mexico and Washington, and managing
regional sales, marketing, and customer operations. Prior to joining the
Company, Ms. Ehringer served as Vice President of Information Technology for
Nextel Communications, Inc. from 1991 to November 1996. Prior to that, Ms.
Ehringer was Director of Development Projects for McCaw Communications, which
later became AT&T Wireless. Ms. Ehringer received her Bachelor of Science
degree in Electrical Engineering and Computer Science from the University of
California at Berkeley.
Peter B. Fritzinger has served as Chief Financial Officer of the Company
since June 1997. From November 1993 until June 1997, Mr. Fritzinger served as
Chief Financial Officer of Louis Dreyfus Natural Gas Corp., an independent,
publicly held oil and gas company headquartered in Oklahoma City. From 1991 to
1993, he was Vice President of Finance and Treasurer of Louis Dreyfus Energy
Corp., a diversified, global enterprise with investments in oil and gas
reserves and other petroleum-related industries. Mr. Fritzinger joined Louis
Dreyfus Energy Corp. from J.P. Morgan, where he was a Vice President in its
corporate finance group, having held various positions with Morgan Guaranty
Trust Company of New York since 1980. Mr. Fritzinger received his Bachelor of
Arts degree in math and psychology from Amherst College.
Barbara L. Goworowski was appointed as the Company's Vice President of
Marketing and Chief Marketing Officer in October 1999. Ms. Goworowski is
responsible for leading the Company's worldwide marketing organization,
including product marketing, product management, marketing communications,
advertising and public relations. Previously, Ms. Goworowski served as Vice
President of Marketing for Ameritech Corporation from 1996 to October 1999.
She has more than 15 years of marketing experience, including several
executive positions at Ameritech Corporation and US West, Inc. Ms. Goworowski
holds a Master of Business Administration degree from DePaul University and a
Bachelor of Science degree in marketing from Marquette University.
Douglas R. Schneider has served as President of Web Services since April
1999, managing the day-to-day aspects of the Company's shared and dedicated
hosting, e-commerce, and application hosting operations. He joined the Company
in May 1997 as President of Verio Colorado, heading the Company's efforts to
establish and build a Rocky Mountain regional presence, and subsequently was
appointed President of the Company's Rocky Mountain and Western regional
operations. From 1994 to 1997, Mr. Schneider was President of AllCall, a
regional distribution company he co-founded that performed customized
equipment fulfillment services for OneComm, Nextel, and their dealer channels
in the Rocky Mountain and Midwest states. From 1991 to 1994, he served in
marketing and sales roles with CellularOne. Mr. Schneider received his Master
of Business Administration degree from the Kellogg School of Management at
Northwestern University and his Bachelor of Science degree in Mechanical
Engineering from the University of California at Davis.
6
Edric N. Starbird was appointed as the Company's Vice President of Customer
Operations in October 1999. Mr. Starbird was Vice President of Enterprise
Operations for MediaOne from October 1997 to August 1999, where he was
responsible for customer operations, strategy and operational improvements in
12 markets, responsible for 6,000 employees and a $600 million annual budget.
Prior to MediaOne, Mr. Starbird was Executive Director of Market Strategy
Development for US West Media Group where he oversaw domestic and
international broadband and wireless opportunities. Mr. Starbird also has
extensive consulting experience in the telecommunications industry through his
four years of work at ATKearny, EDS-MCS, and Ernst & Young. Mr. Starbird
received his Master of Business Administration degree from Columbia Business
School and holds a Bachelor of Science in Industrial Engineering from Stanford
University.
James P. Treuting has served as President of eBusiness Services since
December 1999. In this role, he manages the day-to-day aspects of the
Company's Internet access and co-location operations. Previously, he served as
Vice President of Sales and Field Marketing from September 1999, and prior to
that served as the regional President for the Company's Central U.S.,
Southeast and Western regions. Mr. Treuting joined the Company in October 1997
when the Company acquired Communique, Inc., an ISP headquartered in New
Orleans, where he served as Chairman and CEO of that company from 1994 until
its acquisition by the Company. At Communique, Mr. Treuting was responsible
for overall leadership and direction and directly managed all marketing,
operations, technical support, and customer care operations. From 1992 to
1994, Mr. Treuting worked for Conway Computer Consultants, where he held
several key leadership positions including Divisional Manager for the
Louisiana Division, which grew 700% during his tenure. From 1984 to 1992, Mr.
Treuting worked for IBM, where he was awarded the 100% Quota Achievement Award
in each year with direct sales responsibilities and the IBM Golden Circle
Award for being in the top one percent of IBM's sales force. Mr. Treuting
received his Bachelor of Business Administration degree from Loyola University
of the South.
OTHER INFORMATION CONCERNING CURRENT DIRECTORS
Meetings and Committees of the Board of Directors
During 1999, the Board met nine times and acted by written consent three
times. No director attended fewer than 75% of the aggregate of either (1) the
total number of Board meetings held during the period for which he was a
director, except for Mr. Allen, or (2) the total number of committee meetings
of the Board, on which he served, held during the period for which he was a
director.
During 1999, the Board had five committees: an Executive Committee, a
Finance Committee, a Compensation Committee, an Audit Committee and a
Nominating Committee.
During 1999, the Executive Committee held no meetings and acted by written
consent three times. From January 1, 1999 through April 14, 1999, the
Executive Committee was composed of Messrs. Halstedt and Jaschke. Herbert R.
Hribar was subsequently appointed to the Executive Committee effective on
April 15, 1999 and served in such capacity until his resignation as President,
Chief Operating Officer and a director of Verio on February 4, 2000. The
Executive Committee is responsible for reviewing and, where appropriate,
authorizing corporate action with respect to the conduct of the business of
Verio between Board meetings.
The Finance Committee held two meetings in 1999. From January 1, 1999
through April 14, 1999, the Finance Committee was composed of Messrs.
Halstedt, Jaschke, Still and Myhren. The Finance Committee was reconstituted
effective as of April 15, 1999, so that its members now include Messrs. Allen,
Jaschke and Salem. The Finance Committee is responsible for reviewing and,
where appropriate, authorizing certain corporate actions with respect to the
finances of the Company and certain acquisitions of affiliates not involving
the issuance of stock.
The Compensation Committee held six meetings in 1999. From January 1, 1999
through April 14, 1999, the Compensation Committee was composed of Messrs.
Allen and Myhren, as well as Stephen W. Schovee, who served on the Board from
the time of the Company's inception until his resignation in January 1999. The
7
membership of the Compensation Committee was modified on April 15, 1999 to
include Messrs. Myhren and Cahoon, as well as George J. Still, Jr., who served
on the Board from the time of the Company's inception until his resignation in
October 1999. The Compensation Committee is responsible for reviewing and
establishing the compensation structure for the Company's officers and
directors, including salary rates, participation in incentive compensation and
benefit plans, 401(k) plans, stock option and purchase plans and other forms
of compensation.
The Audit Committee held one meeting in 1999. From January 1, 1999 through
April 14, 1999, the Audit Committee was composed of Mr. Myhren, as well as
Stephen W. Schovee, until his resignation from the Board in January 1999.
Effective as of April 27, 2000, the Audit Committee membership was changed to
consist of Messrs. Cahoon and Halstedt as well as Mr. Marinkovich. The Audit
Committee recommends the firm to be appointed as independent accountants to
audit the Company's financial statements, discussing the scope and results of
the audit with the independent accountants, reviewing the functions of
management and independent accountants with respect to the Company's financial
statements and performing such other related duties and functions as are
deemed appropriate by the Audit Committee and the Board. The Audit Committee
has a written charter that has been adopted by the Board.
During 1999, the Nominating Committee, which was established in April 1999,
held no meetings and did not act by written consent. The Nominating Committee
is composed of Messrs. Halstedt and Jaschke. George J. Still, Jr. also served
on the Nominating Committee from its establishment until his resignation from
the Board in October 1999. The Nominating Committee is tasked with making
recommendations to the Board concerning the recruitment and selection of
potential Board candidates. In addition, this committee assesses the
performance of the Board, reviews the size and composition of the Board and
its committees, and makes appropriate recommendations with respect to possible
changes.
Directors' Compensation
During calendar year 1999, each non-employee director received an annual
retainer fee of $5,000 and a fee of $1,000 for each meeting of the Board
attended in person or $500 for each meeting attended by telephone. The fee for
Board committee meetings was $500 per meeting, whether attended in person or
by telephone. A director may elect to receive these payments in the form of
common stock. In April 1998, the Company adopted the 1998 Non-Employee
Director Stock Incentive Plan ("Director Option Plan") under which options may
be granted and shares of Common Stock may be issued to non-employee directors
in order to better attract and retain highly qualified outside directors.
Under the terms of the Director Option Plan, upon the effective date of the
registration statement filed with the SEC in connection with the Company's
initial public offering, each non-employee director was automatically granted
an option to acquire 60,000 shares of Common Stock at an exercise price per
share equal to the price per share in the initial public offering of the
Common Stock less underwriting discounts and commissions. Such options vest
and become exercisable in three equal installments on each yearly anniversary
of the grant date. Non-employee directors elected or appointed to the Board
following the initial public offering at the time of their election or
appointment also were automatically granted an option to acquire 60,000 shares
of Common Stock with the same terms and conditions at an exercise price equal
to the then fair market value of the Common Stock. In accordance with these
terms, on May 11, 1998 (the effective date of the Company's initial public
offering registration statement), each of Messrs. Halstedt, Allen, Myhren and
Salem were granted options to purchase 60,000 shares of Common Stock, at an
exercise price of $10.75 per share under the Director Option Plan. (That
number of shares and the exercise price have been adjusted to reflect the
Company's two-for-one Common Stock split that was effected on August 20,
1999.) Thereafter, automatically on their respective appointments to the
Board, on September 11, 1998, Mr. Ito was granted an option to purchase 60,000
shares of Common Stock, at an exercise price of $10.25 per share, and on
January 5, 1999, Mr. Cahoon was granted an option to purchase 60,000 shares of
Common Stock, at an exercise price of $11.375 per share, under the Director
Option Plan. Each of Messrs. Halstedt, Myhren, Salem, Ito and Cahoon have
assigned their respective options to Centennial Holdings, Inc., Myhren Media,
Inc., Providence Equity Partners Inc., NTT Rocky, Inc. and the Arthur L.
Cahoon Investments Trust, UA 12/23/99, David A. Damico, Trustee, respectively.
8
Under the initial terms of the Director Option Plan, after the initial three
year vesting period for the automatic 60,000 options, non-employee directors
would receive automatic annual grants of options to acquire an additional
6,000 shares of Common Stock at an exercise price equal to the fair market
value of the Common Stock at the date of grant. Such additional options vest
and become exercisable on the first anniversary of the grant date.
On December 15, 1999, the Compensation Committee adopted a proposal to
modify the non-employee director compensation policy, effective as of January
1, 2000, increasing the annual retainer fee from $5,000 to $15,000 (paid
quarterly), while eliminating the payment of all individual Board and
committee meeting fees. Non-employee Board members still have the ability to
elect annually to apply the retainer fee to the automatic purchase of the
Company's Common Stock. The Compensation Committee also recommended that the
Director Option Plan be amended to provide for an initial grant of 50,000
stock options when a new Board member is appointed to the Board, with these
options vesting over the same three-year period as under the initial plan
terms, and with subsequent annual grants of 6,000 options being made annually
beginning with the first annual stockholders meeting to take place following a
Board member's first full year of service on the Board (i.e., without waiting
until the initial grant is fully vested). Both of these proposals were
approved by the Board on December 16, 1999.
Under the terms of the Director Option 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 Board of
Directors of the Company authorized upon consummation of the Merger (i) the
complete acceleration of all unvested options for non-employee Directors who
have served on the 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 Board for less than
one year as of the date of the corporate transaction.
9
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
Verio Board, 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, 46,000 shares, 146,000 shares, 46,000 shares,
66,000 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.
Number of Shares Percentage
of Common Stock Beneficially Exercisable
Holders Beneficially Owned Owned Options/Warrants
------- ------------------ ------------ ----------------
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
10
- --------
* 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.
11
EXECUTIVE COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND OFFICERS
Executive Compensation
The following table sets forth certain summary information for the years ended
December 31, 1999, 1998 and 1997, respectively, concerning the compensation
paid and awarded to (a) the Company's Chief Executive Officer and (b) the
Company's four most highly compensated executive officers whose salaries and
bonuses exceeded $100,000 who were serving as executive officers as of
December 31, 1999. These individuals are referred to collectively as the
"Named Executive Officers."
As part of the Company's standard cash compensation package offered to all
employees (including the Named Executive Officers), the Company provides
targeted annual cash bonuses, the payment of which is based on the Company's
overall achievement of performance goals established by the Board at the
beginning of the year. Actual performance by the Company is measured against
those goals at or following the end of the year, and the actual amount of the
targeted bonus levels paid is determined based on actual performance relative
to those objectives.
Salary information for 1997 for Mr. Fritzinger and for 1998 for Mr. Hribar
reflect compensation paid to each in his principal position commencing in June
1997 and July 1998, respectively. The bonus amount paid to Mr. Hribar in 1988
includes a signing bonus of $125,000, plus a "gross up" for taxes, paid by the
Company at the time of his initial employment in July 1998. Information shown
under "All Other Compensation" represents the cost of providing relocation
benefits to Messrs. Hribar and Fritzinger.
SUMMARY COMPENSATION TABLE
Underlying
Annual Long-term Restricted
Name and Principal Fiscal Compensation Stock Compensation Securities All Other
Position Year Salary($) Bonus($) Awards($) Options(#) Compensation($)
- ------------------ ------ ------------ --------- ------------ ---------- ---------------
Justin L. Jaschke....... 1999 307,575 -- -- 620,000 --
Chief Executive Officer 1998 221,041 -- -- 300,000 --
1997 175,003 66,500 85,000 -- --
Herbert R. Hribar(1).... 1999 454,299 -- -- 500,000 --
President and Chief 1998 125,004 235,998 -- 350,000 29,646
Operating Officer 1997 -- -- -- -- --
Chris J. DeMarche....... 1999 191,825 -- -- 35,000 --
Chief Technical Officer 1998 173,541 -- -- 100,000 --
1997 160,004 60,800 25,000 20,000 --
Carla Hamre Donelson.... 1999 192,867 -- -- 40,000 --
Vice President, General 1998 173,541 -- -- 140,000 --
Counsel and Secretary 1997 160,004 57,760 -- 20,000 --
Peter B. Fritzinger..... 1999 194,950 -- -- 100,000 --
Chief Financial Officer 1998 173,541 -- -- 110,000 --
1997 89,443 31,287 -- 75,000 70,267
- --------
(1) Mr. Hribar, who served as President and Chief Operating Officer of the
Company for all of 1999, subsequently resigned on February 4, 2000.
12
Employment Agreements
As a general matter, the Company does not enter into employment agreements,
and has not entered into employment agreements with any of its officers.
Rather, the employment relationship with each officer is "at will." However,
in connection with the initial employment of each officer, the Company and the
officer execute an offer letter in which the general compensation and benefits
provided to the officer are outlined, including base salary, targeted annual
bonus, option grants, employee benefits and severance. The compensation levels
established in such offer letters are subject to change from time to time at
the discretion of the Compensation Committee.
Compensation Protection Agreements and Subsequent Letter Agreements
During 1998 and 1999, the Company 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 the Company. 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 the Company.
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 the Company, of any voting
securities of the Company 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 the Company'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 Board, were members of the Board, cease
for any reason to constitute at least a majority of the Board (subject
to certain provisos);
. Approval by stockholders of the Company of a merger, consolidation or
reorganization involving the Company, unless such merger, consolidation
or reorganization satisfies certain specified conditions;
. Any other event that at least two-thirds of the incumbent 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 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 the Company 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 the Company must pay to
the protected officer accrued compensation due
13
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
the Company during the period ending on the termination date, and
vacation pay.
. If a protected officer's employment is terminated within 12 months of a
change in control 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 the Company'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 the Company 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
the Company'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.
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, the Company
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 of control for "good reason".
The letter agreements also entitle each protected officer who remains
continuously employed by the Company 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 (three times in the case of Justin
Jaschke) 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 the Company'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 the Company's cash bonus incentive plan or the protected officer's
incentive target for the fiscal year in which the Offer is consummated. The
letter agreements do not affect the provisions for gross-up payments for
"golden parachute" excise taxes. Payments under the amended compensation
protection agreements continue to be subject to excise tax gross-up
protection. 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 the Company in
accordance with the Merger Agreement will be reduced by the amounts of these
cash bonus payments.
14
The letter agreements further provide that the protected officers' continued
employment by the Company 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 the Company immediately after the
consummation of the Offer, covenants not to compete with or solicit employees
of the Company and its affiliates in the United States for certain designated
periods and confidentiality agreements, in each case reasonably satisfactory
to NTT Communications and the Company.
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.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Exchange
Act, that might incorporate future filings, in whole or in part, the following
report and the Performance Graph which follows shall not be deemed to be
incorporated by reference into any such filings.
The Compensation Committee of the Board, which is comprised solely of
independent, non-employee Board members, has the authority and responsibility
to establish the overall compensation strategy for the Company, including
salary and bonus levels, to administer the Company's incentive compensation
and benefit plans, 401(k) plans, and stock option and purchase plans, and to
review and make recommendations to the Board with respect to the compensation
of the Company's executives. Trygve Myhren and Arthur Cahoon are the current
members of the Compensation Committee.
Compensation Policy
The Company's overall compensation philosophy is to provide a competitive
compensation program that enables the Company to attract, reward, incent, and
retain highly capable executives and other employees who have the skills and
experience necessary to promote the short and long-term financial performance
and growth of the Company. The Company's compensation program is designed to
link the annual compensation received by its executives to the Company's
financial performance, growth and achievement of other strategic and
operational goals established annually by the Company's Board. In addition,
the Company's officers receive longer-term incentives, provided principally in
the form of stock options, thereby aligning their interests with those of the
Company's stockholders.
The Company's executive compensation consists of three principal components,
the amounts of which are established in order to provide overall compensation
that is comparable to that offered by similarly situated companies. These
components include:
. a base salary;
. an annual cash bonus opportunity that is dependent on the achievement of
company-wide performance objectives established annually by the Board;
and
15
. awards of stock options to provide a long-term incentive that aligns
management's interests with stockholders' interests.
During 1999, the Compensation Committee engaged an independent consulting
firm to evaluate its overall compensation program to determine its
competitiveness and appropriateness based on an analysis of the compensation
programs and levels of other comparable companies. Specifically, the
consultant evaluated the salary, bonus and long-term incentive levels of the
Company's officers, comparing the levels paid by the Company to its officers
to those levels paid by numerous other similarly situated companies. This
comparison took into account relative market capitalization, industry, revenue
and growth levels, and other relevant factors for the Company and the
comparison companies. Based on this evaluation, and the recommendations of the
consultant resulting from this evaluation, the Compensation Committee
determined that certain compensation adjustments, both to annual salary and
option levels, were appropriate for certain executive officers as well as
other employees. As a result, certain salary levels were adjusted and
additional option grants were made during 1999 to executive officers. Details
of the stock options granted to certain executive officers in 1999 are
provided in the table entitled "Stock Options Granted in 1999" below.
Salary. The base salaries of the Company's executive officers are initially
established, and thereafter periodically reviewed and adjusted, by the
Compensation Committee. When setting and adjusting base salary levels, in a
manner consistent with the Compensation Committee's policy outlined above, the
Compensation Committee takes into account, in addition to the performance of
the individual executive officer, which is the primary consideration, other
relevant factors such as competitive market conditions for executive
compensation, the Company's financial and stock price performance, historical
compensation levels, and internal comparability considerations.
Bonus. Each executive officer (as well as each employee of the Company
generally) is provided an annual cash bonus opportunity that is typically a
targeted percentage of base salary. At the beginning of each year, the Board
establishes performance objectives for the year. The actual amount of the
bonus paid is determined at the end of the year based on the Company's actual
performance against those objectives. While the specific performance
objectives vary from year to year, the general approach in establishing the
objectives is to (1) foster a single company attitude across the Company's
operations, (2) emphasize the importance of teamwork and the interdependent
efforts required for success while also recognizing individual performance,
(3) compensate based on actual results measured against established goals, and
(4) provide fair, objective and easily measurable performance parameters.
For the year ended December 31, 1999, the performance objectives established
for the payment of bonuses were based primarily on the achievement of
specific, internally established, financial performance thresholds determined
at the beginning of the year that were based on projected revenue and EBITDA
levels to be reached by year end. In evaluating the Company's actual
performance against the designated objectives for the year, the Compensation
Committee determined that the Company's actual performance against the
internally targeted financial criteria warranted payment of bonuses at 80% of
the full targeted levels. The Committee determined that at the more senior
employee level, including management, bonuses will be paid in the form of
fully vested stock option grants, while the remaining employees will receive
their bonuses paid 60% in cash and 40% in fully vested stock options. It is
anticipated that these option grants will be made during the first half of
2000. In keeping with the requirements of the Company's 1998 Stock Incentive
Plan, these option grants will be at an exercise price equal to the trading
price of the Company's Common Stock at the time of the grant. The number of
options that will be granted will be based on a formula of six options for
every $100 of bonus, a formula that was derived based in part on a Black
Sholes valuation methodology applied to the options. The Board or the
Compensation Committee in the future will continue to establish performance
criteria with respect to bonuses paid to executive officers for any given
fiscal year, which will vary based on the Company's operations, prospects and
strategy at the time.
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Long-term Incentive Compensation. The Company believes that stock option
grants:
. align executive officer interests with stockholder interests by creating
a direct link between compensation and stockholder return;
. give executive officers a significant, long-term interest in the
Company's success;
. provide each executive officer with a significant incentive to manage
the Company's operations from the perspective of an owner with an equity
stake in the business; and
. help retain key executive officers in a competitive market for executive
talent.
The Company's Stock Incentive Plan authorizes the Board, or a committee of
the Board, to grant stock options to employees, directors, consultants and
executive officers of the Company. Stock option grants generally are made to
all of the Company's employees, including executive officers, at the time of
initial employment. Thereafter, additional grants may be made to individual
employees, including executive officers, from time to time, in order to
continue to incent retention and long-term performance. Additional options are
not necessarily granted to each executive officer during each year, but rather
are made based on factors such as individual performance, the Company's
overall growth and financial performance, the number of unvested options held
by the individual at the time, and various competitive factors. The relative
weight given to these various factors may vary from individual to individual,
at the Committee's discretion.
Options granted to executive officers generally are subject to vesting
provisions, so that the options vest over a four-year period, in equal annual
increments beginning on the first annual anniversary of the date of the grant
and on the three subsequent annual anniversaries. Vesting typically is subject
to acceleration upon the occurrence of certain events, such as a change of
control of the Company, and in certain cases coupled with the termination, or
effective termination, of the executive's employment. The options generally
have an eight-year term. Prior to the adoption of the 1998 Stock Incentive
Plan, grants of options to the Company's employees, including the executive
officers, were made under two earlier plans. Options granted under those plans
were for a 10-year term, and generally were made on a 20% per year, five-year
vesting schedule. This vesting schedule likewise is subject to acceleration
upon the occurrence of certain events.
Compensation of Chief Executive Officer. The Compensation Committee
establishes, and periodically adjusts, the base salary of Mr. Jaschke, who has
served as the Company's Chief Executive Officer since its formation in March
1996, with the objective of compensating him fairly based on his individual
efforts and the overall performance and success of the Company, while
maintaining the competitiveness of his base salary with salaries paid to
similarly situated chief executive officers. Typical of its policy with
respect to base salaries provided to employees generally, it has been the
Committee's intent to provide Mr. Jaschke with a level of stability and
certainty each year in the form of a base salary that is not tied specifically
to the achievement of established criteria, while payment of Mr. Jaschke's
annual performance bonus is determined based on the same annually determined
company-wide performance factors as those that apply to all of the Company's
employees. Mr. Jaschke's compensation, including his annual salary and option
levels, were evaluated and adjusted as part of the Compensation Committee's
overall evaluation of the Company's compensation policies and levels during
1999. As discussed above, performance-based bonuses for 1999 were to be paid
to the executive officers, including Mr. Jaschke, at 80% of the targeted
levels for 1999, and were to be paid in the form of the grant of stock options
during the first half of 2000 on the terms described above. Mr. Jaschke
received grants of options to purchase a total of 620,000 shares of the
Company's stock during 1999.
Compensation Policy Regarding Deductibility. Section 162(m) of the Internal
Revenue Code, enacted in 1993, generally disallows a tax deduction to publicly
held companies for compensation exceeding $1 million paid to certain of the
company's executive officers. The limitation applies only to compensation that
is not considered to be performance-based. The non-performance based
compensation paid to the Company's executive officers in 1999 did not exceed
the $1 million limit per officer. The 1998 Stock Incentive Plan is structured
so that any compensation deemed paid to an executive officer in connection
with the exercise of option grants made under that plan will qualify as
performance-based compensation which is not subject to the $1 million
limitation.
17
The Compensation Committee limited the dollar amount of all other compensation
payable to the Company's executive officers to no more than $1 million. The
Compensation Committee is aware of the limitations imposed by Section 162(m),
and the exemptions available therefrom, and will address the issue of
deductibility when and if circumstances warrant and may use such exemptions in
addition to the exemption contemplated under the 1998 Stock Incentive Plan.
Submitted by the Compensation
Committee:
Trygve E. Myhren
Arthur L. Cahoon
Compensation Committee Interlocks and Insider Participation
From January 1, 1999 through April 14, 1999, the Compensation Committee was
composed of Messrs. Allen and Myhren, as well as Stephen W. Schovee, who
served on the Board from the time of the Company's inception until his
resignation in January 1999. The membership of the Compensation Committee was
modified on April 15, 1999 to consist of Messrs. Myhren and Cahoon, as well as
George J. Still, Jr., who served in that capacity until his resignation in
October 1999. Mr. Myhren serves as the chairman of the Compensation Committee.
No member of this Committee is a present or former officer or employee of the
Company or any of its subsidiaries. No member of this Committee served on the
board of directors or compensation committee of any entity which has one or
more executive officers serving as a member of the Board or Compensation
Committee.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Directors and Executive Officers
As a condition to the closing of the acquisition of Best Internet
Communications, Inc. (which does business as Hiway Technologies and which the
Company refers to as "Hiway"), which occurred on January 5, 1999, all related
party indebtedness was to be repaid to Hiway on or prior to closing. However,
the Company agreed to waive the condition that Arthur L. Cahoon repay his
indebtedness to Hiway in the principal amount of $280,409 with interest at the
then prime rate.
The Company has invested a total of approximately $8.25 million in
convertible preferred stock of VIANet.Works, Inc. which represents
approximately 5.9% of the outstanding capital stock of VIANet.Works after the
recent completion of that company's IPO in February 2000. Mr. Halstedt, who
serves on the Company's Board of Directors, served as a member of
VIANet.Works' board of directors until September 1999, when he resigned from
that board. Mr. Hribar, who served on the Company's Board of Directors during
1999, also served on VIANet.Works' board until April 1999, when he resigned
from that board.
Non-employee members of the Verio Board have received grants of options
under the Director Option Plan that would accelerate as to certain shares
subject to such options upon consummation of the Offer. See "Other Information
Concerning Current Directors--Directors' Compensation."
Certain of the Company's executive officers have compensation arrangements
with the Company that will be affected by the consummation of the Offer. See
"Executive Compensation and Other Information Concerning Directors and
Officers--Compensation Protection Agreements and Subsequent Letter
Agreements."
Other Transactions
On May 15, 1998, a U.S. subsidiary of NTT purchased 8,987,754 shares of
Common Stock (after giving effect to the Company's two for one stock split on
August 20, 1999) pursuant to a Stock Purchase and Master
18
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, the Company
and a subsidiary of NTT 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 NTT America, Inc. ("NTT
America") on a reseller basis. In addition Verio and NTT America agreed to
connect their backbones and establish a peering and transit relationship, and
that Verio would provide NTT America with full back-office and engineering
support. NTT America agreed to pay Verio for Verio's services at predetermined
rates reflective of the strategic relationship between the parties, under
which NTT America is entitled to "most favored customer" status and pricing
concessions. In furtherance of the OSP Agreement, Verio and a subsidiary of
NTT America 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, the
Company 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 its 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 the Company 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 the Company 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 the Company upon the approval of the Board (without any prior
solicitation or request (or other act encouraging the delivery of such a
writing) having been made to the Company or to the 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
the Company or any of its affiliates controlled by the Company, (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 the Company 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 the Company or any of its successors or
controlled affiliates; (iii) take any action for the purpose of calling a
stockholders' meeting of the Company or any of its successors or controlled
affiliates; (iv) make any proposal or any public announcement relating to, or
submit to the Company or any of its directors, officers, representatives,
trustees, employees, attorneys, advisors, agents or affiliates any proposal
for, a tender or exchange offer for voting securities of the Company or any of
its successors or controlled affiliates, the acquisition of voting securities
of the Company 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 the Company or any of its
19
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 the Company or any of its successors or controlled affiliates to make
any public announcement regarding any of the foregoing; (v) deposit voting
securities of the Company 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 the Company; (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 the Company 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 the Company 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 the Company.
The Investment Agreement provides that, notwithstanding the Standstill
Restrictions, in the event (i) the Company 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 the Company, or
any sale or transfer of all or substantially all of the assets of the Company
or any sale or transfer of voting securities of the Company that, if
consummated, would constitute a "change of control" (as defined in the
Investment Agreement) of the Company, 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 the Company and any other person or group pursuant to which, if
consummated, a change of control of the Company 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 the Company 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 the Company
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 Board to all of the Company's
stockholders; provided that if the Board has not publicly recommended against
such Acquisition Proposal within three months of the later of (i) the initial
public announcement thereof by the acquiror or (ii) the formal presentation of
such Acquisition Proposal to the 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.
20
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 the Company owned by NTT and its
affiliates are voted (i) with respect to elections of members of the Board,
for the Board's nominees to the Board, and (ii) with respect to all other
matters to be voted on by stockholders, either (A) in accordance with the
recommendations of the 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 the Company) are voted
with respect to such matters. NTT and all affiliates of NTT owning voting
securities of the Company are required to be present, in person or by proxy,
at all meetings of the stockholders of the Company 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 the Company (except to
NTT or any affiliates of NTT) without first offering to sell all such equity
securities to the Company 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 the Company reasonably believes are likely
to become, competitors of the Company 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 the Company 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 the Company subject to the proposed
transfer. Each transferee of the equity securities of the Company 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
the Company following the transfer exceeds 7.5% of the shares of Common Stock
calculated on a fully diluted basis. The Company'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, the Company became obligated to
appoint to the Board an individual designated by NTT. The designee is entitled
to serve as a member of the 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 the
Company 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
the Company, be required to cause the designee to resign from the 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, the Company will be required to take
all corporate action necessary to nominate for election to the Board an
individual appointed by NTT and to recommend to the Company's stockholders
such nominee's election to the Board. Yukimasa Ito has served as a member of
the Board as NTT's designee since September 1998. Additionally, under the
Investment Agreement, NTT designated three individuals to be employed by Verio
in corporate development, technical and marketing positions to assist in
implementing and carrying out the commercial relationship between Verio and
NTT.
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 Board and, under
specified circumstances, an observer who will have observer rights at meetings
of the executive committee of the Board and (ii) at the
21
request of NTT, under specified circumstances, the Company will cause to be
appointed to the executive committee of the Board the NTT designee appointed
to the Board or elected to the 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 headquarter 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 the
Company 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 the Company
held by it or them, during the period following the effective date of a
registration statement of the Company 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 the Company
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 three demand
registrations by the Company (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 the Company 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 the
Company'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, the
Company 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 the
Company'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 the Company 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"). The Company is
required to pay all 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 the Company) with respect
to all registered Demand Registrations and Piggyback Registrations. Under the
Investment Agreement, the Company is required to indemnify the selling
stockholders and other specified persons, and the selling stockholders are
required to indemnify the Company 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
22
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, (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 the Company, 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.
On October 26, 1998, the Company 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.
The Company agreed to charge the NTT Communications subsidiary prices for the
services resold under this agreement that are at least as favorable as those
the Company offers to any other strategic partner of the Company. 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 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 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 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.
23
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder return on the
Company's Common Stock with the cumulative total return on The Nasdaq Composite
Index and The Nasdaq Telecommunications Index. The period shown commences on
May 12, 1998, the date that the Company's Common Stock was registered under
Section 12 of the Exchange Act, and ends on December 31, 1999, the end of the
Company's last fiscal year. The graph assumes an investment of $100 on May 12,
1998, and the reinvestment of any dividends.
The comparisons in the graph below are based upon historical data and are not
indicative of, nor intended to forecast, future performance of the Company's
Common Stock.
COMPARISON OF CUMULATIVE TOTAL RETURN TO STOCKHOLDERS
MAY 12, 1998 TO DECEMBER 31, 1999
[GRAPH APPEARS HERE]
5/12/98 5/31/98 6/30/98 7/31/98 8/31/98 9/30/98 10/31/98 11/30/98
Verio Inc. 100.00 84.53 91.92 104.39 81.76 91.46 51.27 70.21
NASDAQ Composite 100.00 95.63 101.86 100.66 80.60 91.06 95.23 104.80
Index
NASDAQ Telecom 100.00 98.92 107.91 112.01 85.33 95.00 104.10 110.96
Index
12/31/98 1/31/99 2/28/99 3/31/99 4/30/99 5/31/99 6/30/99 7/31/99
Verio Inc. 82.68 119.64 104.86 170.45 262.36 200.47 256.82 263.51
NASDAQ Composite 117.88 134.71 123.00 132.32 136.70 132.81 144.40 141.84
Index
NASDAQ Telecom 130.90 151.20 149.69 161.58 171.05 170.47 171.20 167.13
Index
8/31/99 9/20/99 10/31/99 11/30/99 12/31/99
Verio Inc. 274.84 229.10 275.76 265.60 341.35
NASDAQ Composite 147.26 147.63 159.47 179.35 217.02
Index
NASDAQ Telecom 163.08 163.28 193.79 214.52 258.87
Index
SHARES AND OPTION AMOUNT WITH RESPECT TO THE COMPANY'S
DIRECTORS AND EXECUTIVE OFFICERS
Stock Options Granted in 1999
The following table contains information concerning the grant of stock
options by the Company under the Company's stock option plans to the Named
Executive Officers in 1999. All stock options were granted at an exercise price
equal to the market price of the common stock on the last trading day before
the date of grant.
24
The potential realizable value is calculated based on the fair market value
on the date of grant, which is equal to the exercise price of the options,
assuming that the stock appreciates in value from the date of grant,
compounded annually, until the end of the option term at the rate specified
(5% or 10%) and that the option is exercised and sold on the last day of the
option term for the appreciated stock price. Potential realizable value is net
of the option exercise price. The assumed rates of appreciation are specified
in the rules and regulations of the Securities and Exchange Commission and do
not represent the Company's estimate or projection of future stock price.
Actual gains, if any, resulting from stock option exercises and common stock
holdings are dependent on the future performance of the common stock and
overall stock market conditions. There can be no assurance that the amounts
reflected in this table will be achieved.
Potential Realizable
Value
at assumed Annual
Percent of Rates
Total Options or Stock Price
Number of Granted to Appreciation
Shares Employees in Exercise for Option Terms($)
Underlying Fiscal Year Price Expiration ---------------------
Name Option (%) $/Share Date 5% 10%
- ---- ---------- ------------- -------- ---------- ---------- ----------
Justin L. Jaschke....... 120,000 1.4% $ 15.50 3/3/2007 3,959,688 4,236,816
500,000 6.0% $25.565 6/16/2007 11,466,200 12,620,900
Herbert R. Hribar....... 300,000 3.6% $ 15.50 3/3/2007 9,899,220 10,592,040
200,000 2.4% $25.565 6/16/2007 4,586,480 5,048,360
Chris J. DeMarche....... 35,000 0.4% $ 29.75 10/14/2007 656,159 736,988
Carla Hamre Donelson.... 40,000 0.5% $ 29.75 10/14/2007 749,896 842,272
Peter B. Fritzinger..... 100,000 1.2% $ 29.75 10/14/2007 1,874,740 2,105,680
Fiscal Year-End Option Values
The following table sets forth certain information with respect to the Named
Executive Officers regarding the stock options exercised during 1999. It shows
the aggregate number of unexercised options to purchase Common Stock granted
in all years and held by the Named Executive Officers as of December 31, 1999,
and the value of unexercised in-the-money options (i.e., options that had a
positive spread between the exercise price and the fair market value of the
Common Stock) as of December 31, 1999. The value of unexercised options at
year-end is based on the December 31, 1999 closing price of $46.188 per share
of Common Stock as reported on the Nasdaq National Market.
Number of
Securities Number of Securities
Underlying Underlying Options at
Shares Options at Fiscal Year-end ($)
acquired or Value Fiscal Year-end -------------------------
Name exercise ($) Realized ($) ($) Exercisable Unexercisable
- ---- ------------ ------------ ----------------- ----------- -------------
Justin L. Jaschke....... -- -- 430,000 1,150,000 18,215,840 34,678,700
Herbert R. Hribar....... -- -- 56,600 1,025,000 2,005,666 32,601,575
Chris J. DeMarche....... 66,666 1,858,315 107,334 241,000 4,331,542 8,611,058
Carla Hamre Donelson.... -- -- 182,000 298,000 7,478,216 10,447,024
Peter B. Fritzinger..... 30,000 622,500 85,000 355,000 3,315,980 11,591,740
COMPLIANCE WITH SECTION 16(a)
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's directors and
officers and persons who own more than 10% of the Common Stock of the Company
to file initial reports of ownership and reports of changes in ownership of
common stock and other equity securities of the Company with the SEC and
Nasdaq Stock Market and to furnish the Company with copies of all Section
16(a) reports they file. Based on its review of the copies of such reports
received by it, the Company believes that during 1999, its directors, officers
and ten percent beneficial owners complied with all applicable reporting
requirements.
25
Schedule II
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 and 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 condition
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 Offer, the Merger
and related transactions. Our opinion is directed only to the fairness, from a
financial point of view, of the consideration to
SALOMON SMITH BARNEY INC. 388 Greenwich Street, New York, NY 10013
1
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.
2