SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
JULY 31, 2000
Date of Report
(Date of earliest event
reported)
INTERNAP NETWORK SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
WASHINGTON 000-27265 91-1896926
(State or other (Commission File (IRS Employer
jurisdiction of No.) Identification No.)
incorporation)
601 Union St., Suite 1000
SEATTLE, WASHINGTON 98101
(Address of principal executive offices, including zip code)
(206) 441-8800
(Registrant's telephone number, including area code)
Page 1 of 9
Exhibit Index on Page 9
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
The undersigned Registrant hereby amends in the manner set forth below and in
the pages attached hereto Item 7 and the exhibits of its Current Report on
Form 8-K, filed on August 14, 2000, relating to the Registrant's acquisition
of VPNX.com, Inc. on July 31, 2000 as described in such Current Report.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
See Exhibit 99.3 for the audited financial statements of VPNX.com, Inc.
(b) PRO FORMA FINANCIAL INFORMATION
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
On July 31, 2000, InterNAP Network Services Corporation ("InterNAP") completed
the acquisition of certain assets and liabilities of VPNX.com, Inc. ("VPNX").
The acquisition was recorded by InterNAP using the purchase method of accounting
under APB Opinion No. 16. InterNAP issued 2,027,092 shares of common stock,
assumed options to purchase 278,963 shares of common stock, and incurred certain
costs of acquisition, resulting in an aggregate purchase price of $88.0 million.
CO Space, Inc. ("CO Space") was acquired on June 20, 2000 for 6,881,018 shares
of common stock, $200,000 in cash and assumption of options and the results of
its operations since that date are included with those of InterNAP. Financial
information for CO Space is included in Form 8-K/A filed September 5, 2000.
InterNAP's balance sheet as of June 30, 2000 on Form 10-Q as filed with the
Securities and Exchange Commission on August 11, 2000 reflects the acquisition
of CO Space.
The unaudited pro forma combined condensed balance sheet is based on the
individual historical balance sheets of InterNAP and VPNX and has been prepared
to reflect the acquisition by InterNAP of VPNX as if the transaction had
occurred on June 30, 2000.
The unaudited pro forma combined condensed statements of operations are based on
individual historical results of operations of InterNAP, CO Space and VPNX for
the year ended December 31, 1999 and for the six months ended June 30, 2000, as
if the acquisitions of CO Space and VPNX had occurred on January 1, 1999.
The unaudited pro forma condensed statements of operations should be read in
conjunction with the historical financial statements and notes thereto of
InterNAP included in its 1999 annual report on Form 10-K and VPNX included
herein. The pro forma adjustments and assumptions described in the accompanying
notes to the unaudited pro forma combined condensed statements of operations are
based on estimates, evaluations, and other data currently available. The
unaudited pro forma combined condensed statements of operations are presented
for illustrative purposes only and are not necessarily indicative of results of
operations that would have actually occurred had the acquisitions CO Space and
VPNX been effected on the dates assumed.
2.
Unaudited Pro Forma Combined Condensed Balance Sheet
June 30, 2000
(in thousands)
Pro Forma Pro Forma
InterNAP VPNX Adjustments Combined
-------- ---------- ----------- -----------
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 123,266 $ 3,946 $ 127,212
Short-term investments and investment income
receivable....................................... 125,097 125,097
Accounts receivable, net........................... 10,527 10 10,537
Prepaid expenses and other assets.................. 1,614 60 1,674
---------- ---------- -----------
Total current assets......................... 260,504 4,016 264,520
Property and equipment, net........................... 91,001 856 91,857
Patents and trademarks, net........................... 194 194
Restricted cash....................................... 4,620 4,620
Investments........................................... 52,355 52,355
Goodwill and other intangible assets, net............. 256,691 $ 70,489 (A) 327,180
Deposits and other assets, net........................ 3,986 116 4,102
---------- ---------- ---------- ----------
Total assets................................. $ 669,351 $ 4,988 $ 70,489 $ 744,828
========== ========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities........... $ 43,820 $ 679 $ 950 (A),(B) $ 45,449
Deferred revenue................................... 545 4,156 (2,224) (F) 2,477
Notes payable, current portion..................... 1,723 2,531 4,254
Line of credit..................................... 1,525 1,525
Capital lease obligations, current portion......... 11,269 11,269
---------- ---------- ---------- ----------
Total current liabilities.................... 58,882 7,366 (1,274) 64,974
Deferred revenue...................................... 8,870 8,870
Notes payable, less current portion................... 2,724 291 3,015
Capital lease obligations, less current portion....... 19,367 19,367
---------- ---------- ---------- ----------
Total liabilities............................ 89,843 7,657 (1,274) 96,226
---------- ---------- ---------- ----------
Commitments and contingencies
Shareholders' equity (deficit)
Convertible preferred stock........................ 6 (6) (D)
Common stock....................................... 145 10 (10) (D) 147
2 (C)
Additional paid-in capital......................... 688,023 9,539 (9,539) (D) 780,253
92,230 (A),(C)
Full recourse notes receivable..................... (3) (3)
Deferred stock compensation........................ (11,604) (1,707) (5,135) (E) (16,739)
1,707 (D)
Accumulated deficit................................ (102,878) (10,514) 10,514 (D) (120,878)
(18,000) (A)
Accumulated items of other comprehensive income.... 5,822 5,822
---------- ---------- ---------- ----------
Total shareholders' equity (deficit)......... 579,508 (2,669) 71,763 648,602
---------- ---------- ---------- ----------
Total liabilities and shareholders' equity
(deficit).................................. $ 669,351 $ 4,988 $ 70,489 $ 744,828
========== ========== ========== ===========
See accompanying notes to the unaudited pro forma combined condensed
financial information
3.
Unaudited Pro Forma Combined Condensed Income Statement
(in thousands)
Six Months ended June 30, 2000
-----------------------------------------------------------------
Pro Forma Pro Forma
InterNAP CO Space VPNX Adjustments Combined
-------- --------- -------- ------------ ---------
Revenues................. $ 22,538 $ 994 $ 1,215 $ 24,747
-------- --------- -------- ---------
Costs and expenses
Cost of network and
customer support.... 35,801 6,622 42,423
Product development... 3,441 3,033 6,474
Sales and marketing... 15,689 2,480 738 18,907
General and
administrative...... 9,694 4,384 727 14,805
Amortization of
deferred stock
compensation........ 5,624 1,412 83 $ 1,284 (E) 8,403
Amortization of
goodwill and other
intangibles......... 2,157 52,732 (A) 54,889
-------- --------- -------- ----------- --------
Total operating
costs and
expenses........ 72,406 14,898 4,581 54,016 145,901
-------- --------- -------- ----------- --------
Loss from operations..... (49,868) (13,904) (3,366) (54,016) (121,154)
Other income (expense)
Interest income....... 7,338 122 205 7,665
Interest and
financing expense... (890) (113) (1,003)
-------- --------- -------- ----------- --------
Net loss............ $(43,420) $ (13,782) $ (3,274) $ (54,016) $(114,492)
======== ========= ======== =========== =========
Basic and diluted net
loss per share........ $ (0.32) $ (0.79)
======== =========
Weighted average shares
used in computing
basic and diluted net
loss per share........ 135,406 8,908 (G) 144,314
======== ========== =========
Twelve Months ended December 31, 1999
-------------------------------------------------------------------
Pro Forma Pro Forma
InterNAP CO Space VPNX Adjustments Combined
-------- -------- ------- ----------- ---------
Revenues................. $ 12,520 $ 258 $ 3,867 $ 16,645
-------- -------- ------- ---------
Costs and expenses
Cost of network and
customer support.... 27,412 2,706 30,118
Product development... 3,919 6,128 10,047
Sales and marketing... 17,523 488 1,283 19,294
General and
administrative...... 8,328 2,970 1,201 12,499
Amortization of
deferred stock
compensation........ 7,569 89 $ 2,568 (E) 10,226
Amortization of
goodwill and other
intangibles......... 109,779 (A) 109,779
-------- -------- -------- ---------- ---------
Total operating
costs and
expenses........ 64,751 6,253 8,612 112,347 191,963
-------- -------- -------- ---------- ---------
Loss from operations..... (52,231) (5,995) (4,745) (112,347) (175,318)
Other income (expense)
Interest income....... 3,388 38 330 3,756
Interest and
financing expense... (1,074) (86) (1,160)
-------- -------- -------- ---------- ---------
Net loss............ $(49,917) $ (5,957) $ (4,501) $ (112,347) $(172,722)
======== ======== ======== ========== =========
Basic and diluted net
loss per share........ $ (1.31) $ (3.68)
======== =========
Weighted average shares
used in computing
basic and diluted net
loss per share........ 37,994 8,908 (G) 46,902
======== ========== =========
See accompanying notes to the unaudited pro forma combined condensed
financial information
4.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
PRO FORMA ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
(A) InterNAP estimates the purchase price for CO Space and VPNX to be
approximately $275.3 million and $88.0 million, respectively, based on the
consideration to be paid to shareholders including common stock issued,
assumption of options, plus acquisition related expenses incurred.
For purposes of estimating the value of the CO Space purchase
consideration for the pro forma presentation, the value of the InterNAP
common stock to be issued for the acquisition of CO Space was based on the
closing price of InterNAP's common stock on June 16, 2000, the date the
total number of shares to be issued was determined per the merger
agreement, multiplied by the InterNAP shares to be issued based upon the
exchange ratio set forth in the merger agreement. The fair value of
options to be assumed was estimated using the Black Scholes valuation
model assuming no expected dividends and the following weighted average
assumptions: risk-free interest rate of 6%; volatility of 100%; and an
expected life of three years.
For purposes of estimating the value of the VPNX purchase consideration
for the pro forma presentation, the value of the InterNAP common stock to
be issued for the acquisition of VPNX was based on the average closing
price of InterNAP's common stock over the three day periods before and
after July 6, 2000, the date the acquisition was announced, multiplied by
the InterNAP shares to be issued based upon the exchange ratio set forth
in the merger agreement. The fair value of options to be assumed was
estimated using the Black Scholes valuation model assuming no expected
dividends and the following weighted average assumptions: risk-free
interest rate of 6%; volatility of 100%; and an expected life of three
years.
InterNAP is currently in the process of finalizing its assessment of the
fair value of the net assets acquired. For purposes of the preparation of
the pro form combined condensed financial information, InterNAP has
allocated $16.5 million and $(0.4) million of the purchase prices of CO
Space and VPNX, respectively, to the tangible assets acquired from each of
these respective companies net of liabilities assumed, based on the book
value as of June 30, 2000. In addition, InterNAP has allocated $18.0
million of the VPNX purchase price to in-process research and development
which, for purposes of the pro forma presentation, has been excluded from
expense. The remainder of the purchase price has been allocated to
intangible assets acquired from CO Space and VPNX, which include:
CO Space VPNX
---------- ----------
(in thousands)
Completed real estate leases........ $ 19,300
Customer relationships.............. 1,800
Workforce in place including
covenants not to compete.......... 2,000 $ 15,100
Trademarks.......................... 2,800
Developed technologies.............. 3,400
Goodwill............................ 232,948 51,989
---------- ----------
$ 258,848 $ 70,489
========== ==========
Based on an estimated useful life of three years for such intangible
assets, the unaudited pro forma combined condensed financial information
includes adjustments of $54.9 million and $109.8 million for amortization
expense for the six months ended June 30, 2000 and year ended December 31,
1999, respectively. The allocation of the purchase prices to tangible and
intangible assets, as well as the related amortization expense may change
materially as a result of the completion of InterNAP's evaluation of the
fair value or the net assets acquired and changes in purchase
consideration.
(B) Increase in accrued expenses for estimated acquisition related expenses.
(C) Increase in shareholders' equity for the issuance of shares of InterNAP
common stock.
(D) Elimination of VPNX shareholder equity accounts.
(E) The Financial Accounting Standards Board has issued Financial
Interpretation No. 44 which is effective for acquisitions after June 30,
2000, and requires that the portion of the intrinsic value of unvested
options assumed in purchase business combination be recognized as deferred
stock compensation and amortized to deferred stock compensation expense
over the remaining vesting period. Accordingly, InterNAP has estimated the
intrinsic
5.
value of the unvested options assumed in the VPNX acquisition to
be $5.1 million, and has included related pro forma adjustments of $1.3
million and $2.5 million for the six months ended June 30, 2000 and year
ended December 31, 1999, respectively. The intrinsic value associated with
unvested options was deducted from the fair value of the awards for
purposes of the allocation of the purchase price to the other assets
acquired.
(F) The deferred revenue balance recorded by VPNX at the date of acquisition
has been reduced by a pro forma adjustment to reflect the cost of services
to be provided subsequent to the acquisition date plus an allowance for
normal profit on those services.
(G) The unaudited pro forma combined per share amounts are based on the pro
forma combined weighted average number of shares of InterNAP common stock,
which equals InterNAP's weighted average number of shares of InterNAP
common stock outstanding for the period plus shares of InterNAP common
stock that were issued at the completion of the acquisitions of CO Space
and VPNX. All potential common stock equivalents of InterNAP, CO Space and
VPNX have been excluded from the calculation of pro forma net loss from
operations per common share as their inclusion would be anti-dilutive.
6.
(c) EXHIBITS
The following exhibits are filed as part of this report:
Exhibit
NUMBER DESCRIPTION
------ -----------
2.1* Agreement and Plan of Merger and Reorganization,
dated as of July 6, 2000, by and among Registrant,
Virginia Acquisition Corp., a Delaware corporation,
and VPNX.com, Inc., a Delaware corporation.
4.1* Form of Registration Rights Agreement by and among
Registrant and the stockholders of VPNX.com, Inc., a
Delaware corporation.
99.1* Press Release entitled "InterNAP to Add VPN
Technology Expertise to Its Ranks through the Planned
Acquisition of VPNX.com," issued July 6, 2000.
99.2* Press Release entitled "InterNAP Completes
Acquisition of VPNX.com," issued July 31, 2000.
99.3 VPNX.com, Inc. Financial Statements (Audited).
---------------
* - Previously filed.
7.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
INTERNAP NETWORK SERVICES CORPORATION
Dated: October 4, 2000 By: /s/ Paul E. McBride
----------------------- -------------------------------------
Paul E. McBride
Senior Vice President and
Chief Financial Officer
8.
INDEX TO EXHIBITS
Exhibit
NUMBER DESCRIPTION
------- -----------
2.1* Agreement and Plan of Merger and Reorganization,
dated as of July 6, 2000, by and among Registrant,
Virginia Acquisition Corp., a Delaware corporation,
and VPNX.com, Inc., a Delaware corporation.
4.1* Form of Registration Rights Agreement by and among
Registrant and the stockholders of VPNX.com, Inc., a
Delaware corporation.
99.1* Press Release entitled "InterNAP to Add VPN
Technology Expertise to Its Ranks through the Planned
Acquisition of VPNX.com," issued July 6, 2000.
99.2* Press Release entitled "InterNAP Completes
Acquisition of VPNX.com," issued July 31, 2000.
99.3 VPNX.com, Inc. Financial Statements (Audited).
---------------
* - Previously filed.
9.