-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FwRKiIncnydI7RFEXlHUwzweKfuhQRpsTJr4ZowRu1UumsXFAuql/vjlIh0+oXSd jRFGj/Y3CTMQqq5UWlFjyQ== 0000950109-99-004246.txt : 19991125 0000950109-99-004246.hdr.sgml : 19991125 ACCESSION NUMBER: 0000950109-99-004246 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 24 FILED AS OF DATE: 19991124 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VIA NET WORKS INC CENTRAL INDEX KEY: 0001098402 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 841412512 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-91615 FILM NUMBER: 99763994 BUSINESS ADDRESS: STREET 1: 12100 SUNSET HILLS RD STREET 2: SUITE 110 CITY: RESTON STATE: VA ZIP: 20190 BUSINESS PHONE: 7034640300 MAIL ADDRESS: STREET 1: 12100 SUNSET HILLS RD STREET 2: SUITE 110 CITY: RESTON STATE: VA ZIP: 20190 S-1 1 ORIGINAL FILING As filed with the Securities and Exchange Commission on November 24, 1999 Registration No. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------ VIA NET.WORKS, INC. (Exact name of Registrant as specified in its charter) Delaware 7370 84-1412512 (State or other (Primary Standard (I.R.S. Employer jurisdiction of Industrial Identification No.) incorporation or Classification Code organization) Number) ------------ 12100 Sunset Hills Road, Suite 110 Reston, VA 20190 (703) 464-0300 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive office) ------------ David M. D'Ottavio Chief Executive Officer VIA NET.WORKS, Inc. 12100 Sunset Hills Road, Suite 110 Reston, VA 20190 (703) 464-0300 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------ Copies to: Steven A. Museles David J. Johnson, Jr. Suzanne A. Barr David G. Pommerening Hogan & Hartson L.L.P. O'Melveny & Myers LLP 555 Thirteenth Street, N.W. 555 Thirteenth Street, N.W. Washington, DC 20004-1109 Washington, DC 20004-1109 (202) 637-5600 (202) 383-5300 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] ------------ CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Proposed Maximum Title of each Class of Aggregate Amount of Securities to be Registered Offering Price(1) Registration Fee - -------------------------------------------------------------------------------- Common Stock, $.001 par value............... $200,000,000 $55,600 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act. ------------ The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Explanatory Note This Registration Statement contains two forms of prospectus: one to be used in connection with a United States and Canadian offering, the U.S. prospectus, and one to be used in a concurrent international offering, the international prospectus. The two prospectuses will be identical in all respects except for the front and back cover pages. The pages to be included in the international prospectus and not the U.S. prospectus are marked "alternate page" and appear immediately before Part II of this Registration Statement. ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +We will amend and complete the information in this prospectus. Although we + +are permitted by U.S. federal securities laws to offer these securities using + +this prospectus, we may not sell them or accept your offer to buy them until + +the registration statement filed with the SEC relating to these securities + +has been declared effective. This prospectus is not an offer to sell these + +securities or our solicitation of your offer to buy these securities in any + +jurisdiction where that would not be permitted or legal. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION - NOVEMBER 24, 1999 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Prospectus , 2000 [INSERT LOGO] Shares of Common Stock - -------------------------------------------------------------------------------- VIA: The Offering: . We are a leading . We are offering international shares of our provider of common stock. This Internet access prospectus relates and services to an offering of focusing on small shares in the and mid-sized United States and businesses Canada. In located in Europe addition, we are and Latin offering America. shares outside the United States and . VIA NET.WORKS, Canada in an Inc. 12100 Sunset international Hills Road, Suite offering. 110 Reston, VA 20190 (703) 464- . The U.S. 0300 underwriters have an option to Proposed Symbol & purchase an Market: additional shares from us to .VNWI/Nasdaq cover over- National Market allotments. . This is our initial public offering and we anticipate that the initial public offering price will be between $ and $ per share. . We intend to use the net proceeds of this offering for general corporate purposes, including funding our operations, capital expenditures, network expansion, working capital and acquisitions of Internet services providers in our target markets. . Closing: , 2000 ------------------------------------------
Per Share Total -------------------------------------------------- Public offering price: $ $ Underwriting fees: $ $ Proceeds to VIA NET.WORKS, Inc.: $ $ --------------------------------------------------
This investment involves risks. See "Risk Factors" beginning on Page 6. - -------------------------------------------------------------------------------- Neither the SEC nor any state securities commission has determined whether this prospectus is truthful or complete, nor have they made, nor will they make, any determination as to whether anyone should buy these securities. Any representation to the contrary is a criminal offense. - -------------------------------------------------------------------------------- Donaldson, Lufkin & Jenrette Morgan Stanley Dean Witter ------------------------- Salomon Smith Barney DLJdirect Inc. TABLE OF CONTENTS
Page Prospectus Summary.................................................... 1 Risk Factors.......................................................... 6 Special Note Regarding Forward-Looking Statements..................... 12 Use of Proceeds....................................................... 13 Dividend Policy....................................................... 13 Capitalization........................................................ 14 Dilution.............................................................. 15 Selected Consolidated Financial Data.................................. 16 Selected Combined Pro Forma Financial Data............................ 18 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................ 21 Business.............................................................. 30 Management............................................................ 45 Transactions with Related Parties..................................... 53 Principal Stockholders................................................ 56 Description of Capital Stock.......................................... 58 Shares Eligible For Future Sale....................................... 59 Material Federal Income Tax Consequences to Non-United States Stockholders......................................................... 61 Underwriting.......................................................... 63 Validity of the Shares................................................ 67 Experts............................................................... 67 Where You Can Find More Information................................... 68 Index to Financial Statements......................................... F-1
i PROSPECTUS SUMMARY The information below is only a summary of more detailed information included in other sections of this prospectus. This summary may not contain all the information that is important to you or that you should consider before buying shares in this offering. The other information is important, so please read this entire prospectus carefully. VIA NET.WORKS, Inc. VIA NET.WORKS is a leading international provider of Internet access and services focused on small and mid-sized businesses in Europe and Latin America. By targeting these customers and regions, we are positioned to capitalize on some of the most rapidly growing areas of the Internet market. Both of these regions have a relatively low number of total Internet users, and small and mid-sized businesses in each region have a relatively low number of Internet services available to them. By choosing to serve these market segments, we have the opportunity to sell our services to a large number of small and mid-sized businesses who have identifiable Internet needs but little or no Internet experience. Once we have developed relationships with these customers, we can upgrade them from entry-level Internet access services to more sophisticated and higher margin products and services like web hosting, virtual private networks and e-commerce solutions which will allow them to compete in both local and global markets. Since our founding in late 1997, we have rapidly established our international presence by acquiring, integrating and growing 17 business- focused Internet services providers in 11 European and Latin American countries. As of September 30, 1999, pro forma for an acquisition we made after September 30, 1999, we had 80,600 customers in Europe, of which 44.2% were businesses, and 34,900 customers in Latin America, of which 40.3% were businesses. Pro forma for this acquisition, as of September 30, 1999 we hosted 17,000 web sites and had registered 46,700 domain names. For the nine months ended September 30, 1999, we had pro forma revenue of $42.1 million and pro forma net losses of $30.4 million. To date, our operations have been funded by investments of $181.0 million from our current investors, which include The Centennial Funds, Norwest Equity Capital, Telecom Partners II, HarbourVest International, Providence Equity Partners, Verio Inc. and Boston Millennia Partners. We are a customer-focused sales, marketing and service organization. We leverage our local marketing, sales and customer care efforts with the benefits of our global scale by providing our local operations international network capacity, marketing support, capital and management resources. We believe that our local focus combined with our global capabilities will allow us to increase both our market share and revenue. Our Products and Services We offer a suite of bundled and stand-alone Internet products and services which can be tailored to the individual needs of our small and mid-sized business customers. Our products and services include . dedicated high speed and dial-up Internet access . hosting of customer web sites . co-location services, where a customer places equipment in our facilities for the purposes of hosting software, database, web site and other applications . e-mail services . e-commerce solutions including secure electronic payment processing, electronic procurement and business portal design and hosting 1 . Internet virtual private networks which provide individual commercial customers with greater security for their electronic communications over the Internet . domain name registration of Internet addresses, such as www.customername.com . Internet security products, which protect the integrity of customer data and networks, authenticate users and provide secure data transmissions Our Markets Internet access and services markets are among the fastest growing segments of the global telecommunications marketplace. Total spending by businesses on Internet access and services in Western Europe is projected by International Data Corporation to grow 32.9% annually from $3.0 billion in 1998 to $12.5 billion in 2003. According to The Yankee Group, Internet access revenues in Latin America are forecasted to increase from an estimated $750.0 million in 1998 to $6.0 billion in 2002, or 68.2% annually. Favorable trends which should help fuel continued growth in both geographic markets include . increasing availability and affordability of computer hardware . increasing Internet penetration, which is the ratio of World Wide Web users to total population . increasing adoption of the Internet and related technologies to drive productivity and e-commerce revenue . continuing telecommunications industry deregulation, which encourages improved infrastructure and competitive pricing Our Network We own and operate a European and trans-Atlantic network which carries Internet traffic generated by our operating companies. The backbone of this network provides 155 Mbps of redundant capacity on two fiber optic rings. The first ring provides trans-Atlantic capacity between New York City and London. The second ring provides pan-European capacity which we will initially use to establish network connection points in seven European cities. We currently have network connection points in London, Dusseldorf and Amsterdam and plan to establish a Paris connection point by the end of 1999 and connection points in three additional cities during 2000. We believe that combining the transmission capacity requirements of our operating companies onto our network increases efficiency, reduces costs and results in higher service quality than our operating companies could obtain on their own. We manage the European and trans-Atlantic network from a regional network operations center located in Germany. This facility provides network monitoring and service 24 hours a day, seven days a week. We also operate 109 network points of presence throughout Europe and Latin America which provide our customers with access to the Internet. We plan to add points of presence to further expand our international service capabilities. Our Strategy Our goal is to become the premier international provider of Internet access and services to small and mid-sized businesses in Europe and Latin America. We intend to reach our goal by . maintaining a strong local presence through locally managed operating companies . leveraging our brand name and international network . delivering single-source Internet solutions to our customers . delivering quality customer service supported by continued investment in billing, back-office and customer care systems . continuing investment in network infrastructure and product development . accelerating our growth through strategic acquisitions 2 The Offering Common stock offered by us............. shares Common stock to be outstanding after shares this offering......................... Use of proceeds........................ We intend to use the net proceeds of this offering for general corporate purposes, including funding our operations, capital expenditures, network expansion, working capital and acquisitions of Internet services providers in our target markets. Proposed Nasdaq National Market VNWI symbol................................
Some of our stockholders have the right to purchase up to an aggregate of 5% of the shares offered by us in this offering under a stockholders agreement we entered into with them. The common stock to be outstanding after this offering is based on the number of shares outstanding as of November 15, 1999 and excludes . 6,770,001 shares of non-voting common stock that will be outstanding after the offering, each of which is convertible into one share of common stock at any time . 4,622,500 shares of common stock issuable upon the exercise of options granted under our 1998 Stock Option and Restricted Stock Plan and outstanding as of November 15, 1999 with a weighted average exercise price of $6.08 per share . 5,000 shares of common stock reserved for issuance pursuant to a purchase right granted under our Key Employee Equity Plan . 100,000 shares of common stock reserved for the exercise of an outstanding warrant at an exercise price of $2.40 per share . any shares we may issue under the underwriters' over-allotment option ------------ We were incorporated in Delaware in June 1997. Our principal executive offices are located at 12100 Sunset Hills Road, Suite 110, Reston, Virginia 20190 and our telephone number is (703) 464-0300. Our website can be found at www.via-net-works.com. Information contained on our website is not intended to be a prospectus and is not incorporated into this prospectus. 3 Summary Consolidated and Combined Pro Forma Financial Data The table below summarizes . our historical consolidated financial data for the period from inception, June 13, 1997, to December 31, 1997, for the year ended December 31, 1998 and for the nine months ended September 30, 1998 and September 30, 1999 . our combined pro forma financial data for the year ended December 31, 1998 and for the nine months ended September 30, 1999 . our pro forma as adjusted balance sheet data as of September 30, 1999, which give effect to our sale of shares of common stock at an assumed initial public offering price of $ per share less underwriting fees and estimated offering expenses Our historical statement of operations data for the period from inception, June 13, 1997, to December 31, 1997 and for the year ended December 31, 1998 are derived from our audited consolidated financial statements. Our statement of operations data for the nine months ended September 30, 1998 and 1999 and our balance sheet data as of September 30, 1999 are derived from our unaudited interim financial statements and, in the opinion of our management, include all material adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of the results of operations and financial condition. Operating results for the nine months ended September 30, 1999 are not necessarily indicative of the results that may be expected for the full year. Our pro forma statement of operations and other financial data for the year ended December 31, 1998 and the nine months ended September 30, 1999 give effect to our acquisition of 15 companies between January 1, 1998 and September 30, 1999 and our acquisition of InfoAcces, which was completed after September 30, 1999, as though these acquisitions had occurred on January 1, 1998. The pro forma balance sheet data and operating statistics as of September 30, 1999 give effect to our acquisition of InfoAcces. The pro forma statement of operations and balance sheet data also give effect to the conversion of all of our outstanding mandatorily redeemable convertible preferred stock into common stock and the pro forma balance sheet data are further adjusted to reflect this offering. The pro forma financial data for the year ended December 31, 1998 and the nine months ended September 30, 1999 are not necessarily indicative of the results that would have occurred if the transactions had been consummated as of January 1, 1998 and are not intended to indicate expected results for any future period. As used in the table below, "EBITDA" represents earnings or loss from operations before interest, taxes, depreciation, amortization and non-cash stock compensation charges. The primary measure of operating performance is net earnings. Although EBITDA is a measure commonly used in our industry, it should not be considered an alternative to net earnings, when determined in accordance with generally accepted accounting principles or GAAP, as an indicator of operating performance or as an alternative to cash flows from operating activities, determined in accordance with GAAP. In addition, the measure of EBITDA we use may not compare to other similarly titled measures used by other companies. The summary consolidated and combined pro forma financial data shown below should be read together with our audited consolidated financial statements, our unaudited interim financial statements, our unaudited pro forma condensed combined financial statements, our acquired companies' financial statements and related notes, and other financial information including "Management's Discussion and Analysis of Financial Condition and Results of Operations," all of which are included elsewhere in this prospectus. 4
Historical Pro Forma ------------------------------------------------ -------------------------- Period from Inception Nine Months Ended Year Nine Months (June 13, 1997) Year Ended September 30, Ended Ended to December 31, December 31, ------------------- December 31, September 30, 1997 1998 1998 1999 1998 1999 --------------- ------------ -------- --------- ------------ ------------- (Dollars in thousands, except per share data) Statement of Operations Data: Revenues: Europe................. $ -- $ 2,697 $ -- $ 19,378 $ 28,579 $ 28,859 Latin America.......... -- 651 -- 3,988 13,531 13,237 ------- -------- -------- --------- ---------- ---------- Total revenues........ -- 3,348 -- 23,366 42,110 42,096 Operating costs and expenses............... 336 9,415 2,867 43,090 77,668 75,366 ------- -------- -------- --------- ---------- ---------- Loss from operations.... (336) (6,067) (2,867) (19,724) (35,558) (33,270) Interest income, net.... 15 1,425 962 1,333 24 1,083 Loss in unconsolidated affiliates............. -- (1,199) (447) (177) -- -- Foreign currency gains.. -- 115 -- 1,269 194 1,109 ------- -------- -------- --------- ---------- ---------- Loss before minority interest and income taxes................... (321) (5,726) (2,352) (17,299) (35,340) (31,078) Income tax benefit (expense).............. -- 145 -- -- (80) (172) Minority interest....... -- 239 -- 1,087 (232) 852 ------- -------- -------- --------- ---------- ---------- Net loss attributable to common stockholders..... $ (321) $ (5,342) $ (2,352) $ (16,212) $ (35,652) $ (30,398) ======= ======== ======== ========= ========== ========== Net loss per common share.................. $(10.66) $ (24.29) $ (11.64) $ (20.50) $ (2.84) $ (2.08) ======= ======== ======== ========= ========== ========== Weighted average common shares outstanding..... 30,063 219,964 202,077 790,953 12,549,030 14,620,793 Other Financial Data: Cash flows from operating activities... $ (233) $ (3,784) $ (1,618) $ (6,943) Cash flows from investing activities... (8) (14,383) (3,185) (61,678) Cash flows from financing activities... 1,048 52,187 52,237 125,994 EBITDA.................. (336) (4,763) (2,864) (8,585) Depreciation and amortization........... -- 1,304 3 10,656 Non-cash stock compensation charges... -- -- -- 483 Capital expenditures.... 8 868 45 12,810
As of September 30, 1999 -------------------------------- Pro Forma Historical Pro Forma As Adjusted ---------- --------- ----------- (Dollars in thousands) Balance Sheet Data: Cash and cash equivalents.................... $ 91,503 $ 40,769 Restricted cash.............................. -- 15,000 Goodwill..................................... 91,507 122,728 Total assets................................. 215,132 219,443 Total long-term debt and capital leases, net of current portion.......................... 10,792 11,162 Mandatorily redeemable convertible preferred stock....................................... 180,933 -- Total stockholders' equity (deficit)......... (13,378) 167,555 Operating Statistics: Number of PoPs............................... 101 109 Number of business customers................. 44,856 49,684 Number of consumer customers................. 54,612 65,844 Number of web-sites hosted................... 16,612 16,981 Number of domain names registered............ 45,947 46,704
5 RISK FACTORS You should carefully consider the following risk factors and all of the other information included in this prospectus before purchasing our common stock. Investing in our common stock involves a high degree of risk. Any of the following risks could cause our quarterly operating results to fluctuate or materially adversely affect our business, operating results or financial condition and could result in a complete loss of your investment. Risks Related to our Business We are not profitable and do not expect to achieve profitability in the near future, if at all. We have not achieved profitability. We expect to continue to incur net losses for the foreseeable future and may never become profitable. We incurred net losses of $321,000 from inception through December 31, 1997. For the year ended December 31, 1998, we incurred additional net losses of $5.3 million. For the nine months ended September 30, 1999, we incurred additional net losses of $16.2 million and had an accumulated deficit of $21.9 million as of September 30, 1999. We expect to continue to incur net losses in future periods as we acquire and invest in operating companies and the infrastructure required to support them. So long as we continue to make these acquisitions, we will continue to amortize a substantial amount of goodwill, which will reduce our earnings. We have a history of negative cash flow, and we may never achieve positive cash flow. For the year ended December 31, 1998, we had losses from operations, before depreciation and amortization, of $4.8 million. For the nine months ended September 30, 1999, we had losses from operations, before depreciation and amortization, of $9.1 million. Additionally, we used $14.4 million in 1998 and $61.7 million in the first nine months of 1999 to acquire operations and fixed assets. If we are unable to increase our revenue to cover our costs and investment expenditures, we will continue to experience negative cash flow. We may not be able to obtain sufficient funds to execute our business plan. We expect that the net proceeds of this offering will fund our operations for the next 12 months. After we have used the net proceeds from this offering, we will need to obtain additional financings to fund operations, capital expenditures for expansion of network and information systems, and acquisitions. If we are unable to obtain these financings on favorable terms, we may be unable to implement our business plan. Our combined operating history is limited and may not be indicative of our future performance. Although a number of the operating companies we have acquired have been in operation for some time, VIA itself has a limited history of operations. Consequently, the financial information in this prospectus may not be indicative of our future performance. Because we have grown rapidly and we expect our growth to continue, we may have difficulty managing our growth effectively, which could adversely affect the quality of our services and the results of our operations. We have grown rapidly and expect to continue to grow rapidly by acquiring new companies, increasing the number of customers served and increasing the number and types of products and services we offer. We have acquired 17 companies since June 1998 and the total number of our employees grew from five to 798 between June 1, 1998 and October 31, 1999. To manage our expected growth effectively, we must . implement additional management information systems . develop additional operating, administrative, financial and accounting systems and controls . hire and train additional personnel 6 If we are unable to meet these demands, the quality of our services may suffer, causing us to lose customers and revenues. If we fail to integrate operating systems, networks and management of our acquired companies successfully, we may suffer operating inefficiencies and reduced operating cash flow. We may not be able to integrate our acquired companies successfully because we currently operate in 11 different countries with different governmental regulations, languages, customs, currencies and availabilities of telecommunication capacity to carry data. We will have to commit substantial management, operating, financial and other resources to integrate our operating companies and implement our business model, which will reduce our operating cash flow. Because we operate in markets where extended vacations are typical, and since in some of these markets, we receive a portion of our revenues based on customer usage, we may experience seasonal variation in our quarterly revenue and operating results that could cause our stock price to decline. In Europe and Latin America, four or more weeks of vacation is typical and often mandated under law. As a result, extended summer and winter holiday vacations are common and it is difficult to attract new customers during these periods. In these markets, our customers also pay their telephone companies for the number of minutes they spend on-line, even if we provide a local telephone number that they can use for access. We may receive a portion of these fees from the telephone companies as payment for generating usage, and customer usage generally declines in the summer months and in December. As a result, we may experience lower revenues during these periods and our operating results may be affected. To the extent our quarterly results fluctuate more widely than expected by us, securities analysts and investors, our stock price could decline. We face increasing competition for the purchase of local Internet services providers, which may impede our ability to make future acquisitions or may increase the cost of these acquisitions. Our business strategy depends, in part, upon our ability to identify and acquire new local Internet services providers that meet our acquisition criteria. In pursuing these opportunities, we compete with other Internet services providers, local, regional, national and global telecommunication companies and other buyers. These competitors may drive up the price of our acquisition targets or may acquire our acquisition targets. Many of these competitors are larger than we are and have greater financial and other resources than we have. Increasing competition has raised the price we have paid for acquisitions in some markets and may continue to do so. In addition, our acquisition targets may find our competitors more attractive because they may have greater resources, may be willing to pay more, or may have a more compatible operating philosophy. Financial information on which we rely to make future acquisitions may not be accurate, which may result in our acquiring undisclosed liabilities or experiencing lower than expected operating results. The companies we target for acquisition typically do not have audited financial statements and have varying degrees of internal controls and detailed financial information. As a result, we may acquire undisclosed liabilities or experience lower-than-expected revenues or higher-than-expected costs, which could adversely affect our operating results. Fluctuations in the exchange rate between the U.S. dollar and the various currencies in which we conduct business may affect our operating results. Fluctuations in foreign currency exchange rates may adversely affect our revenues, expenses and results of operations as well as the value of our assets and liabilities. These fluctuations may adversely affect the comparability of period-to-period results. For example, the value of the Brazilian Real fluctuated by 45.6% in relation to the U.S. dollar during the nine months ended September 30, 1999 and ended the period 37.2% lower than its value to the U.S. dollar in the beginning of the year. Since each Real converted to fewer U.S. dollars, our U.S. dollar revenue was reduced. 7 Logistical problems or economic downturns that could result from the introduction of the Euro may affect our ability to operate and adversely impact our operating results. On January 1, 1999, 11 of the 15 European Union member countries adopted the Euro as their common legal currency, at which time their respective individual currencies became fixed at a rate of exchange to the Euro, and the Euro became a currency in its own right. During a January 1, 1999 to January 1, 2002 transition period, we must manage transactions with our customers and our third-party vendors who conduct business in Euro participating countries in both the Euro and the individual currencies. If we, our customers or our vendors experience systems problems in converting to the Euro, we could be unable to bill and collect from customers or pay vendors for services, and our operating results could be materially adversely affected. The establishment of the European Monetary Union may have a significant effect on the economies of the participant countries. Since a substantial portion of our revenue will be denominated in the Euro or currencies of European Union countries, our operating results could be adversely affected if there is a downturn in the economies of participating countries or if the Euro weakens against other currencies. Our brand names are difficult to protect and may infringe on the intellectual property rights of third parties. We are aware of other companies using our trademarks and variations of those marks. The users of these or similar marks may have senior rights if they were ever to assert a claim against us for trademark infringement. If an infringement suit were instituted against us, even if groundless, it could result in substantial litigation expenses in defending the suit. If such a suit were to be successful, we could be forced to cease using the mark and to pay damages. In addition, we have applied to register several of our trademarks in various countries. Our application to register in Argentina the trademark "VIA Net Works Argentina" has been opposed by a third party. If any of our applications are unsuccessful, we may be required to discontinue the use of those trademarks. Risks Related to our Industry Regulatory and economic conditions of the countries where our operating companies are located are uncertain and may decrease demand for our services, increase our cost of doing business or otherwise reduce our business prospects. Our operating companies are located in countries with rapidly changing regulatory and economic conditions which may affect the Internet services industry. Any new law or regulation pertaining to the Internet or telecommunications, or the application or interpretation of existing laws, could decrease demand for our services, increase our costs or otherwise reduce our profitability or business prospects. Specific examples of the types of laws or regulations that could adversely affect us include laws that . impose taxes on transactions made over the Internet . impose telecommunications access fees on Internet services providers . directly or indirectly affect telecommunications costs generally or the costs of Internet telecommunications specifically . prohibit the transmission over the Internet of various types of information and content . impose requirements on Internet services providers to protect Internet users' privacy . increase the likelihood or scope of competition from telecommunications or cable companies For example, some states of Brazil impose a tax of up to 30% on revenues generated by communications services. There has been no judicial determination that Internet access services constitute communications services. If Internet services providers are ultimately required to pay this tax, our Brazilian operations would be negatively and significantly impacted. 8 These laws could require us to incur costs to comply with them or to incur new liability. They could also increase our competition or change our competitive environment so that customer demand for our products and services is affected. For a discussion of specific regulatory proposals that may affect our business, see "Business--Regulatory Matters." In addition to risks we face from new laws or regulations, we face uncertainties in connection with the application of existing laws to the Internet. It may take years to determine the manner in which existing laws governing issues like property ownership, libel, negligence and personal privacy will be applied to communications and commerce over the Internet. Increasing competition for customers in our markets may cause us to reduce our prices or increase spending, which may negatively affect our revenues and operating results. There are competitors in our markets with more significant market presence and brand recognition and greater financial, technical and personnel resources than we have. As a result of this competition, we currently face and expect to continue to face significant pressure to reduce our prices and improve the products and services we offer. Although the competitors we face vary depending on the market and the country, these competitors may include local and regional Internet services providers, telecommunication companies and cable companies. Some of our competitors, especially the telecommunications companies, have large networks in place as well as a significant existing customer base. If demand for Internet services in our markets does not grow as we expect, our ability to grow our revenues will be negatively affected. Internet use in our markets is relatively low. If the market for Internet services fails to develop, or develops more slowly than expected, we may not be able to increase our revenues. Obstacles to the development of Internet services in our markets include: . low rates of personal computer ownership and usage . lack of developed infrastructure to develop Internet access and applications . limited access to Internet services We are in a rapidly evolving industry in which the products and services we offer, their methods of delivery and their underlying technologies are changing rapidly, and if we do not keep pace with these changes, we may fail to retain and attract customers which would reduce our revenues. The Internet services market is characterized by changing customer needs, frequent new service and product introductions, evolving industry standards and rapidly changing technology. Our success will depend, in part, on our ability to recognize and respond to these changes in a timely and cost-effective manner. If we fail to do so, we will not be able to compete successfully. We rely on telecommunications companies in our markets to provide our customers with reliable access to our services, and failures or delays in providing access could limit our ability to service our customers and impact our revenues and operating results. Our customers access our services either through their normal telephone lines or dedicated lines provided by local telecommunications companies specifically for that use. In some of our markets, we experience delays in delivery of new telephone lines that have prevented our customers from accessing our services. These delays result in lost revenues. Additionally, some local telecommunications companies that provide Internet services provide delivery of telephone or dedicated lines to their Internet customers on a preferential basis, which may cause us to lose current and potential customers. We also lease network capacity from telecommunications companies and rely on the quality and availability of their service. These companies may experience 9 disruptions of service which could disrupt our services to, or limit Internet access for, our customers. We may not be able to replace or supplement these services on a timely basis or in a cost-effective manner, which may result in customer dissatisfaction and lost revenues. We depend on the reliability of our network, and a system failure or a breach of our security measures could result in a loss of customers and reduced revenues. We are able to deliver services only to the extent that we can protect our network systems against damages from telecommunication failures, computer viruses, natural disasters and unauthorized access. Any system failure, accident or security breach that causes interruptions in our operations could impair our ability to provide Internet services to our customers and negatively impact our revenues and results of operations. To the extent that any disruption or security breach results in a loss or damage to our customer's data or applications, or inappropriate disclosure of confidential information, we may incur liability as a result. In addition, we may incur additional costs to remedy the damages caused by these disruptions or security breaches. If we fail to attract and retain qualified personnel or lose the services of our key personnel, our operating results may suffer. Our success depends on our key management, engineers, sales and marketing personnel, technical support representatives and other personnel, many of whom may be difficult to replace. If we lose key personnel, we may not be able to find suitable replacements which may negatively affect our business. In addition, since the demand for qualified personnel in our industry is very high, we may have to increase the salaries and fringe benefits we may offer to our personnel, which may affect our operating results. We do not maintain key person life insurance on, or restrictive employment agreements with, any of our executive officers. We may be liable for information disseminated over our network. We may face liability for information carried on or disseminated through our network. For information about the applicable laws that may affect our liability for information carried or disseminated through our network, please see "Business--Regulatory Matters." The Year 2000 issue could impair our ability to provide services to our customers, increase our costs, or reduce our revenues or profitability. Year 2000 issues may adversely affect our business and our customers' businesses. Many computer systems may fail or malfunction because they are unable to distinguish 21st century dates from 20th century dates. We have incurred costs to upgrade our computers to address the year 2000 issue and may in the future incur additional costs. Our customers may also need to incur costs to either upgrade their computers or correct any problems their computers may encounter, which may reduce our revenues by diverting our customers' information systems resources away from our products and services. In addition, if our computer systems or those of our telecommunications suppliers fail or malfunction as a result of Year 2000 issues, our ability to provide services to our customers will be disrupted, which could result in lost revenues, lost customers or claims for damages, which could lead to costly litigation. For information on how we are addressing year 2000 issues, see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Year 2000 Readiness Disclosure." Risks Related to this Offering We have discretion over the use of all of the net proceeds from this offering and may fail to use them effectively to grow our business. We will retain discretion over how to use the net proceeds of this offering. Because the proceeds are not required to be allocated to any specific investment or transaction, you will not be able to determine at this time the value or appropriateness of our use of the proceeds. 10 You will pay a higher price for our common stock than was paid by existing stockholders and will experience immediate and substantial dilution. If you purchase common stock in this offering, you will pay more for your shares than the amounts paid by existing stockholders for their shares. As a result, assuming an initial public offering price of $ per share, you will experience immediate and substantial dilution of approximately $ per share. 41,951,321, or %, of our total outstanding shares may be sold into the market in the near future. These sales could cause the market price of our common stock to drop significantly, even if our business is doing well. After this offering, we will have outstanding shares of common stock. This includes the shares we are selling in this offering, which may be resold in the public market immediately. The remaining %, or 41,951,321 shares, of our total outstanding shares will become available for resale in the public market, subject to restrictions under federal securities laws, as shown in the chart below. For information regarding these restrictions, see "Shares Eligible for Future Sale." As restrictions on resale end, the market price could drop significantly if the holders of these restricted shares sell them or are perceived by the market as intending to sell them.
Number of shares/ % of total outstanding Date of availability for resale into public market ---------------------- -------------------------------------------------- / % 180 days after the date of this prospectus due to an agreement these stockholders have with the underwriters. However, the underwriters can waive this restriction and allow these stockholders to sell their shares at any time. / % Between 90 and 365 days after the date of this prospectus due to the requirements of the federal securities laws.
In addition, holders of 40,326,676 shares of common stock and non-voting common stock will be entitled to registration rights with respect to their common stock. If these holders exercise their registration rights, causing a large number of shares to be sold in the public market, our market price may drop significantly. Our stock has not traded publicly and may not trade actively after this offering. Prior to this offering, you could not buy or sell our common stock publicly. We cannot assure you that an active public trading market for our stock will develop or be sustained after this offering. The market price of our common stock, like the market prices of stocks of other Internet-related and technology companies, may fluctuate widely and rapidly. The securities of many companies have experienced extreme price and volume fluctuations in recent years, often unrelated to the companies' operating performance. Specifically, market prices for securities of Internet-related and technology companies have frequently reached elevated levels following their initial public offerings. These levels may be unsustainable and may not bear any relationship to these companies' operating performances. If the market price of our common stock reaches an elevated level following this offering, it may materially and rapidly decline. Fluctuations in our common stock's market price may affect our visibility and credibility in the Internet services provider market. In the past, following periods of volatility in the market price of a company's securities, stockholders have often instituted securities class action litigation against the company. If we were to become involved in a class action suit, it could be costly and divert the attention of management. Furthermore, if adversely determined, a class action suit may have a material adverse effect on our business, financial condition and results of operations. The price per share of our common stock in this offering may not be indicative of the market price that will prevail after this offering. Since our stock has not yet traded publicly, our management and the underwriters will negotiate the common stock's initial public offering price per share. The price they determine may not be indicative of the 11 market price that will prevail after this offering. For example, the market price of our common stock after this offering could vary from the initial public offering price in response to any of the following factors, some of which are beyond our control: . changes in earnings estimates or recommendations by analysts . future announcements concerning us or our competitors of key personnel changes, significant contracts, strategic partnerships, acquisitions, technological innovations or capital commitments . additions or departures of key personnel . quarterly fluctuations in operating results . fluctuations in the stock price and volume of traded shares, especially in the traditionally volatile Internet-related and technology sectors SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Some of the statements under "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and elsewhere in this prospectus constitute forward- looking statements. Forward-looking statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "could," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other similar words. These statements are only predictions. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various factors, including the risks outlined under "Risk Factors." These factors may cause our actual results to differ materially from any forward- looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events or results. 12 USE OF PROCEEDS We estimate that the net proceeds from the sale of the shares of common stock we are offering will be approximately $ based upon an assumed initial public offering price of $ per share, after deducting the estimated underwriting discounts and commissions and estimated offering expenses. If the underwriters exercise their over-allotment option in full, we estimate that the net proceeds will be $ . We intend to use the net proceeds of this offering for general corporate purposes, including funding our operations, capital expenditures, network expansion, working capital and acquisitions of Internet services providers in our target markets. As part of our growth strategy, we are continually evaluating, engaging in discussions with and entering into letters of intent with acquisition candidates. There can be no assurance that any of these discussions or letters of intent will lead to completed transactions. Until they are used, the net proceeds of the offering will be invested in short-term marketable securities. DIVIDEND POLICY We have not paid any dividends to date, and we do not anticipate paying any dividends on any of our common stock in the foreseeable future. We currently intend to retain all of our earnings, if any, for use in our business. We may also incur debt in the future which may prohibit or restrict the payment of dividends. 13 CAPITALIZATION The following table shows our cash and cash equivalents and capitalization on . an actual basis as of September 30, 1999 . a pro forma basis to reflect one of the two acquisitions we made after September 30, 1999 as though this acquisition had occurred on September 30, 1999 and the conversion of our outstanding mandatorily redeemable convertible preferred stock on a one-for-one basis into common stock and non-voting common stock, which will occur concurrently with the completion of this offering . a pro forma as adjusted basis to further reflect .the sale of the shares of common stock we are offering at an assumed initial public offering price of $ per share, after deducting the underwriting fees and estimated offering expenses .an increase in the number of our authorized shares of common stock, a reduction in the number of our authorized shares of preferred stock and elimination of our currently designated series of mandatorily redeemable convertible preferred stock from our certificate of incorporation to be effected concurrently with this offering. This table should be read together with the unaudited interim financial statements and unaudited pro forma condensed financial statements and the related notes included elsewhere in this prospectus.
As of September 30, 1999 ------------------------------- Pro Pro Forma Actual Forma As Adjusted -------- -------- ----------- (Dollars in thousands) Cash, cash equivalents and restricted cash..... $ 91,503 $ 55,769 $ ======== ======== ===== Short-term notes and current portion of long- term debt..................................... $ 9,266 $ 10,120 $ Long-term debt, less current portion........... 10,792 11,162 Mandatorily redeemable convertible preferred stock: 48,800,000 shares authorized actual and pro forma; no shares authorized as adjusted; 33,223,649 voting shares issued and outstanding actual; 6,770,001 non-voting shares issued and outstanding actual; no shares issued and outstanding pro forma and as adjusted................................. 180,933 -- Stockholders' equity (deficit): Preferred stock, $.001 par value; no shares authorized actual and pro forma; 10,000,000 shares authorized as adjusted; no shares issued and outstanding...................... -- -- Common stock, $.001 par value; 57,000,000 shares authorized actual and pro forma; 100,000,000 shares authorized as adjusted; 1,957,671 shares issued and outstanding actual; 35,181,320 shares issued and outstanding pro forma; shares issued and outstanding as adjusted..................... 2 35 Non-voting common stock, $.001 par value; 7,500,000 shares authorized actual, pro forma, and as adjusted; no shares issued and outstanding actual, 6,770,001 shares issued and outstanding pro forma and as adjusted; shares issued and outstanding as adjusted.................................... -- 7 Additional paid-in capital..................... 13,313 194,206 Deferred compensation.......................... (1,333) (1,333) Accumulated deficit............................ (21,875) (21,875) Accumulated other comprehensive loss........... (3,485) (3,485) -------- -------- ----- Total stockholders' equity (deficit)....... (13,378) 167,555 -------- -------- ----- Total capitalization..................... $187,613 $188,837 $ ======== ======== =====
14 DILUTION Our net tangible book value at September 30, 1999 was $78.4 million, or $1.87 per share of common stock. Net tangible book value per share represents the amount of total tangible assets less total liabilities, divided by the number of shares of common stock outstanding. Dilution per share to new investors represents the difference between the amount per share paid by purchasers of common stock in this offering and the net tangible book value per share of common stock immediately after completion of this offering. After giving effect to the sale of shares of common stock in the offering at an assumed initial public offering price of $ per share and after deducting underwriting fees and estimated offering expenses, our adjusted net tangible book value at September 30, 1999 would have been $ , or $ per share. This represents an immediate increase in tangible book value per share to existing stockholders of $ and an immediate dilution in tangible book value per share to new investors purchasing shares in the offering of $ per share. The following table illustrates this per share dilution. Assumed initial public offering price per share................. $ Net tangible book value per share at September 30, 1999....... $1.87 Increase per share attributable to new investors.............. $ ----- Net tangible book value per share after the offering............ --- Dilution per share to new investors............................. $ ===
The following table presents on an adjusted pro forma basis as of September 30, 1999, the difference between the number of shares of common stock purchased from us, the total consideration paid to us and by new investors, before deduction of the underwriting discount and commissions and estimated offering expenses payable by us:
Shares Purchased Total Consideration ------------------- ---------------------- Average Price Number Percent Amount Percent Per Share -------- -------- ---------- ---------- ------------- Existing stockholders... % $ % $ New investors........... -------- -------- ---------- -------- ---- Total................. % $ % $ ======== ======== ========== ======== ====
The above discussion excludes . 4,622,500 shares of common stock issuable upon the exercise of options granted under our 1998 Stock Option and Restricted Stock Plan and outstanding as of November 15, 1999 with a weighted average exercise price of $6.08 per share. To the extent any of these stock options are exercised, there will be further dilution to new investors. . 5,000 shares of common stock reserved for issuance pursuant to a purchase right granted under our Key Employee Equity Plan at a price of $8.25 per share. . 100,000 shares of common stock reserved for the exercise of an outstanding warrant at an exercise price of $2.40 per share. . any shares we may issue under the underwriters' over-allotment option. 15 SELECTED CONSOLIDATED FINANCIAL DATA Our selected consolidated statement of operations data for the period from inception, June 13, 1997, to December 31, 1997 and for the year ended December 31, 1998 and our balance sheet data as of December 31, 1997 and 1998 are derived from our consolidated financial statements which have been audited by PricewaterhouseCoopers LLP, independent accountants. Our statement of operations data for the nine months ended September 30, 1998 and 1999 and our balance sheet data as of September 30, 1999 are derived from our unaudited interim financial statements and, in the opinion of our management, include all material adjustments, consisting only of normal and recurring adjustments necessary for a fair presentation of the results of operations and financial condition. Operating results for the nine months ended September 30, 1999 are not necessarily indicative of the results that may be expected for the full year. As used in the table below, "EBITDA" represents earnings or loss from operations before interest, taxes, depreciation, amortization and non-cash stock compensation charges. The primary measure of operating performance is net earnings. Although EBITDA is a measure commonly used in our industry, it should not be considered an alternative to net earnings, when determined in accordance with generally accepted accounting principles or GAAP, as an indicator of operating performance or as an alternative to cash flows from operating activities, determined in accordance with GAAP. In addition, the measure of EBITDA we use may not compare to other, similarly titled measures used by other companies. The selected consolidated financial data and accompanying notes should be read together with our audited consolidated financial statements, our unaudited interim financial statements, our acquired companies' financial statements and related notes, and other financial information including "Management's Discussion and Analysis of Financial Condition and Results of Operations," all of which are included elsewhere in this prospectus. 16
Period from Inception Nine Months Nine Months (June 13, 1997) to Year Ended Ended Ended December 31, 1997 December 31, 1998 September 30, 1998 September 30, 1999 --------------------- ----------------- ------------------ ------------------ (Dollars in thousands, except per share data) Statement of Operations Data: Revenues: Access................. $ -- $ 3,212 $ -- $ 17,225 Value-added services... -- 136 -- 5,777 Other.................. -- -- -- 364 ------- -------- -------- --------- Total revenues......... -- 3,348 -- 23,366 Operating costs and expenses: Internet services...... -- 1,724 -- 10,321 Selling, general and administrative........ 336 6,387 2,864 22,113 Depreciation and amortization.......... -- 1,304 3 10,656 ------- -------- -------- --------- Total operating costs and expenses.......... 336 9,415 2,867 43,090 ------- -------- -------- --------- Loss from operations.... (336) (6,067) (2,867) (19,724) Other operating expenses: Interest income, net... 15 1,425 962 1,333 Loss in unconsolidated affiliates............ -- (1,199) (447) (177) Foreign currency gains................. -- 115 -- 1,269 ------- -------- -------- --------- Loss before minority interest and income taxes.................. (321) (5,726) (2,352) (17,299) Income tax benefit..... -- 145 -- -- Minority interest...... -- 239 -- 1,087 ------- -------- -------- --------- Net loss attributable to common stockholders.... $ (321) $ (5,342) $ (2,352) $ (16,212) ======= ======== ======== ========= Basic and diluted loss per share attributable to common stockholders........... $(10.66) $ (24.29) $ (11.64) $ (20.50) ======= ======== ======== ========= Shares used in computing basic and diluted loss per share.............. 30,063 219,964 202,077 790,953 Other Financial Data: Net cash used in operating activities... (233) (3,784) (1,618) (6,943) Net cash used in investing activities... (8) (14,383) (3,185) (61,678) Net cash provided by financing activities... 1,048 52,187 52,237 125,994 EBITDA.................. (336) (4,763) (2,864) (8,585) Depreciation and amortization........... -- 1,304 3 10,656 Non-cash stock compensation charges... -- -- -- 483 Capital expenditures.... 8 868 45 12,810
As of December 31, As of --------------------- September 30, 1997 1998 1999 --------- ---------- -------------- (Dollars in thousands) Balance Sheet Data: Cash and cash equivalents............... $ 807 $ 34,711 $ 91,503 Goodwill................................ -- 29,848 91,507 Other assets............................ 14 8,466 32,122 --------- ---------- -------- Total assets............................ $ 821 $ 73,025 $215,132 Short-term notes and current portion of long-term debt......................... $ -- $ 11,182 $ 9,266 Long-term debt and capital lease obligations, net of current portion.... -- 565 10,792 Other liabilities....................... 94 6,487 22,564 Minority interest in consolidated subsidiaries........................... -- 7,597 4,955 Mandatorily redeemable convertible preferred stock........................ 1,018 53,075 180,933 Total stockholders' deficit............. (291) (5,881) (13,378) --------- ---------- -------- Total liabilities and stockholders' deficit................................ $ 821 $ 73,025 $215,132
17 SELECTED COMBINED PRO FORMA FINANCIAL DATA Our pro forma statement of operations data for the year ended December 31, 1998 and the nine months ended September 30, 1999 give effect to our acquisition of 15 companies between January 1, 1998 and September 30, 1999, our acquisition of InfoAcces, which was made after September 30, 1999, as though such acquisitions had occurred on January 1, 1998 and the conversion of all of the outstanding mandatorily redeemable convertible preferred stock into common stock. The pro forma balance sheet data as of September 30, 1999 give effect to our acquisition of InfoAcces and the conversion of all of the outstanding mandatorily redeemable convertible preferred stock into common stock. The pro forma financial data for the year ended December 31, 1998 and the nine months ended September 30, 1999 are not necessarily indicative of the results that would have occurred if the transactions had been consummated as of January 1, 1998 and are not intended to indicate expected results for any future period. The selected unaudited pro forma combined financial data and accompanying notes should be read together with our audited consolidated financial statements, unaudited interim financial statements, unaudited pro forma condensed combined financial statements, our acquired companies' financial statements and related notes and other financial information including "Management's Discussion and Analysis of Financial Conditions and Results of Operations," all of which are included elsewhere in this prospectus.
Year Ended December 31, 1998 ------------------------------------------------ Completed Pro Forma VIA Acquisitions Adjustments Pro Forma ------- ------------ ----------- ---------- (Dollars in thousands, except per share Statement of Operations Data: data) Revenues: Access....................... $ 3,212 $27,514 $ -- $ 30,726 Value-added services......... 136 9,251 -- 9,387 Other........................ -- 1,997 -- 1,997 ------- ------- ---------- ---------- Total revenues............... 3,348 38,762 -- 42,110 Operating costs and expenses: Internet services ........... 1,724 15,831 -- 17,555 Selling, general and administrative.............. 6,387 22,733 -- 29,120 Depreciation and amortization................ 1,304 2,991 26,698 (1) 30,993 ------- ------- ---------- ---------- Total operating costs and expenses.................... 9,415 41,555 26,698 77,668 ------- ------- ---------- ---------- Loss from operations.......... (6,067) (2,793) (26,698) (35,558) Interest income, net.......... 1,425 (769) (632)(2) 24 Gain (loss) in unconsolidated affiliate.................... (1,199) -- 1,199 (3) -- Foreign currency gains........ 115 79 -- 194 ------- ------- ---------- ---------- Loss before minority interest and income taxes............. (5,726) (3,483) (26,131) (35,340) Income tax benefit (expense).. 145 (225) -- (80) Minority interest............. 239 -- (471)(4) (232) ------- ------- ---------- ---------- Net loss attributable to common stockholders.......... $(5,342) $(3,708) $ (26,602) $ (35,652) ======= ======= ========== ========== Basic and diluted loss per share attributable to common stockholders................. $(24.29) $ (2.84) ======= ========== Shares used in computing basic and diluted loss per share... 219,964 12,329,066 (5) 12,549,030
- --------------------- (1) Reflects the additional goodwill amortization expense which would have been recognized if all acquisitions had occurred on January 1, 1998. (2) Reflects the additional interest expense on notes related to various acquisitions which would have accrued had the acquisitions occurred on January 1, 1998. (3) Reverses the loss in unconsolidated affiliate. (4) Reverses the minority interest recognized for one subsidiary, which is treated as if 100% was acquired on January 1, 1998 and reflects additional minority interest which would have been recognized if all acquisitions had occurred on January 1, 1998. (5) Reflects the conversion of our outstanding mandatorily redeemable convertible preferred stock into common stock and the issuance of shares in connection with the purchase of various subsidiaries. 18
Nine Months Ended September 30, 1999 ------------------------------------------------- Completed Pro Forma VIA Acquisitions Adjustments Pro Forma -------- ------------ ----------- ---------- (Dollars in thousands, except per share) Revenues: Access...................... $ 17,225 $10,258 $ -- $ 27,483 Value-added services........ 5,777 6,252 -- 12,029 Other....................... 364 2,220 -- 2,584 -------- ------- ---------- ---------- Total revenues.............. 23,366 18,730 -- 42,096 Operating costs and expenses: Internet services........... 10,321 7,323 -- 17,644 Selling, general and administrative............. 22,113 11,409 -- 33,522 Depreciation and amortization............... 10,656 1,390 12,154 24,200 -------- ------- ---------- ---------- Total operating costs and expenses................... 43,090 20,122 12,154 (1) 75,366 -------- ------- ---------- ---------- Loss from operations......... (19,724) (1,392) (12,154) (33,270) Interest income, net......... 1,333 (173) (77)(2) 1,083 Gain (loss) in unconsolidated affiliate................... (177) -- 177 (3) -- Foreign currency gain........ 1,269 (160) -- 1,109 -------- ------- ---------- ---------- Loss before minority interest and income taxes............ (17,299) (1,725) (12,054) (31,078) Income tax benefit (expense)................... -- (172) -- (172) Minority interest............ 1,087 -- (235)(4) 852 -------- ------- ---------- ---------- Net loss attributable to common stockholders......... $(16,212) $(1,897) $ (12,289) $ (30,398) ======== ======= ========== ========== Basic and diluted loss per share attributable to common stockholders................ $ (20.50) $ (2.08) ======== ========== Shares used in computing basic and diluted loss per share....................... 790,953 13,829,840 (5) 14,620,793
- --------------------- (1) Reflects the additional goodwill amortization expense which would have been recognized if all acquisitions had occurred on January 1, 1998. (2) Reflects the additional interest expense on notes related to various acquisitions which would have accrued had the acquisitions occurred on January 1, 1998. (3) Reverses the loss in unconsolidated affiliate. (4) Reverses the minority interest recognized for one subsidiary, which is treated as if 100% was acquired on January 1, 1998 and reflects additional minority interest which would have been recognized if all acquisitions had occurred on January 1, 1998. (5) Reflects the conversion of our outstanding mandatorily redeemable convertible preferred stock into common stock and the issuance of shares in connection with the purchase of various subsidiaries. 19
As of September 30, 1999 ----------------------------------------------- Pro Forma VIA InfoAcces Adjustments Pro Forma -------- --------- ----------- --------- (Dollars in thousands, except per share) Assets Current assets: Cash and cash equivalents.... $ 91,503 $ 232 $ (50,966)(1) $ 40,769 Restricted cash.............. -- 15,000 (1) 15,000 Trade and other accounts receivable.................. 6,833 3,143 -- 9,976 Other current assets......... 1,916 426 -- 2,342 -------- ------- --------- -------- Total current assets......... 100,252 3,801 (35,966) 68,087 Property and equipment, net... 22,843 2,749 -- 25,592 Goodwill...................... 91,507 -- 31,221 (1) 122,728 Other assets.................. 530 1,506 1,000 (1) 3,036 -------- ------- --------- -------- Total assets................. $215,132 $ 8,056 $ (3,745) $219,443 ======== ======= ========= ======== Liabilities, Mandatorily Redeemable Convertible Preferred Stock And Stockholders Equity (Deficit) Current liabilities: Accounts payable............. $ 7,189 $ 2,074 $ -- $ 9,263 Other taxes payable.......... 1,975 -- -- 1,975 Current portion of long-term debt........................ 9,266 854 -- 10,120 Deferred revenue............. 8,795 508 -- 9,303 Other current liabilities and accrued expenses............ 4,336 469 -- 4,805 -------- ------- --------- -------- Total current liabilities.... 31,561 3,905 35,466 Long-term debt, less current portion..................... 10,792 370 -- 11,162 Other non current liabilities................. 269 36 -- 305 -------- ------- --------- -------- Total liabilities............ 42,622 4,311 46,933 Minority interest in consolidated subsidiaries.... 4,955 -- -- 4,955 Mandatorily redeemable convertible preferred stock.. 180,933 -- (180,933)(2) -- Stockholders' equity (deficit): Preferred stock.............. -- -- -- -- Common stock................. 2 5,210 (5,170)(1)(2) 42 Additional paid in capital... 13,313 389 180,504 (1)(2) 194,206 Accumulated deficit.......... (21,875) (1,854) 1,854 (1) (21,875) Deferred compensation........ (1,333) -- -- (1,333) Accumulated other comprehensive loss.......... (3,485) -- -- (3,485) -------- ------- --------- -------- Total stockholders' equity (deficit)................... (13,378) 3,745 177,188 167,555 -------- ------- --------- -------- Total liabilities, mandatorily redeemable convertible preferred stock and stockholders' equity (deficit).................. $215,132 $ 8,056 $ (3,745) $219,443 ======== ======= ========= ========
- --------------------- (1) Reflects the consolidation of InfoAcces as if it were acquired on September 30, 1999. (2) Reflects the conversion of our outstanding mandatorily redeemable convertible preferred stock on a one-for-one basis into common stock, which will occur concurrently with completion of this offering. 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis is based on the consolidated historical results of VIA NET.WORKS, Inc. and the historical results for each of our operating companies for which separate data have been included in this prospectus. Overview We are a leading international provider of Internet access and services focused on small and mid-sized businesses in Europe and Latin America. We have built our business through the acquisition, integration and growth of 17 Internet services providers in 11 countries, all of which have been acquired since June 1998. We currently operate in Argentina, Brazil, France, Germany, Ireland, Mexico, the Netherlands, Portugal, Spain, Switzerland and the United Kingdom. Our financial statements for the period from inception through December 31, 1997 include only corporate expenses. We were a development stage company during this period and had no revenue-producing operations. Our consolidated financial statements as of and for the year ended December 31, 1998 include the results of the four wholly or majority-owned operating companies we acquired during 1998. These statements also recognize our equity interest in a fifth operating company, i-way, in which we acquired a minority interest during 1998. Our consolidated financial statements as of and for the nine months ended September 30, 1999, include the results of the 14 wholly or majority-owned operating companies we acquired during 1998 and the first nine months of 1999. These statements also recognize our equity interest in i-way through August 5, 1999. On that date we purchased the remaining equity in i-way and began recognizing its results on a consolidated basis. We evaluate our business based on our geographic regions. The following table presents information about our European and Latin American market segments individually and on a consolidated basis, which includes corporate financial data, for the years ended December 31, 1997 and December 31, 1998, and for the nine months ended September 30, 1998 and September 30, 1999.
Nine Months Year Ended Ended December 31, September 30, -------------- ----------------- 1997 1998 1998 1999 ----- ------- ------- -------- (In thousands) Europe Total revenue.............................. $ -- $ 2,697 $ -- $ 19,378 EBITDA..................................... -- (45) -- (2,032) Total assets............................... -- 7,666 -- 14,178 Latin America Total revenue.............................. -- 651 -- 3,988 EBITDA..................................... -- (329) -- (902) Total assets............................... -- 4,407 3,294 (995) Consolidated Total revenue.............................. -- 3,348 -- 23,366 EBITDA..................................... (336) (4,763) (2,864) (8,585) Total assets............................... 821 73,025 54,287 215,132
As used in the above table and in the table under "Quarterly Results of Operations" in this section, "EBITDA" represents earnings or loss from operations before interest, taxes, depreciation, amortization and non-cash stock compensation charges. The primary measure of operating performance is net earnings. Although EBITDA is a measure commonly used in our industry, it should not be considered an alternative to net earnings, when determined in accordance with generally accepted accounting principles or GAAP, as an indicator of operating performance or as an alternative to cash flows from operating activities, determined in accordance with GAAP. In addition, the measure of EBITDA we use may not compare to other, similarly titled measures used by other companies. 21 Revenues We generate revenue from the sale of Internet access and value-added services. Revenue from Internet access services, both dial-up and dedicated, comes primarily from subscriptions purchased by businesses and consumers. These subscriptions, most often for three, six or 12-month service periods, are generally paid for in advance. Larger business customers may be billed monthly with payment generally being made by direct charge to a credit or debit account. Additionally, in some countries we receive revenue in the form of payments from the telecommunications companies that our customers use to access our services. These providers charge by the minute for both local and long distance calls, and pay us a portion of the fees they generate from our customers' Internet use. All of our access revenues are recognized as they are earned. Revenue from Internet value-added services comes from web hosting, applications hosting, domain name registration, sales, installation and maintenance of hardware and software, training and consulting and other services. Services such as web and applications hosting and domain name registration are often sold on a subscription basis and are paid for in advance or by monthly direct charges to credit or debit accounts. These revenues are recognized over the period in which services are provided. Revenues from hardware and software sales, installation and maintenance, training and consulting, and other services are usually on a contract basis. These services are billed periodically and revenues are recognized as they are earned. Internet access charges and fees for value-added services vary among our operating companies, depending on competition, economic and regulatory environments and other market factors. In some markets, we have reduced prices, especially for access services, as a result of competitive pressure. We expect that this pressure will continue in our markets as the demand for, and supply of, Internet services continue to grow. Expenses Our Internet services operating costs are the costs we incur to carry customer traffic to and over the Internet. We lease lines that connect our points of presence, or PoPs, either to our own network or to other network providers. We pay other network providers for transit, which allows us to transmit our customers' information to or from the Internet over their networks. We also pay other recurring telecommunications costs, including the cost of the local telephone lines our customers use to reach our PoPs and access our services. We expect that our Internet services operating costs will increase as we increase capacity to meet customer demand. We anticipate that these costs will decline as a percentage of revenue, however, as we expand our owned network facilities and as competition drives the overall price of network capacity downward. Our largest selling, general and administrative expenses are compensation costs and the costs associated with marketing our products and services. Compensation costs include salaries and related benefits, commissions and bonuses. In many of our markets, we are required to make significant mandatory payments for government-sponsored social welfare programs, and we have little control over these costs. Our marketing expenses include the costs of direct mail and other mass marketing programs, advertising, customer communications, trade show participation, web site management and other promotional costs. Other selling, general and administrative expenses include the costs of travel, rent, utilities, insurance and professional fees. We expect that our selling, general and administrative expenses will increase to support our growth. The largest component of our depreciation and amortization expense is the amortization of the goodwill arising from our acquisitions. Goodwill, which we amortize over five years, is created when the price at which we acquire a company exceeds the value of its tangible and intangible assets. We expect goodwill amortization expense to increase as we make additional acquisitions and as competition pushes the prices of those acquisitions higher. We also recognize depreciation expense primarily related to telecommunications equipment, computers and network infrastructure. We depreciate these assets over their useful lives, generally ranging from three to five years. Our network infrastructure is depreciated over 20 or 25 years, depending on the contract term. We expect depreciation expense to increase as we expand our network infrastructure and acquire additional operations. 22 When applicable, we also recognize interest income and expense, our interest in an unconsolidated subsidiary and minority interest. We earn interest income primarily by investing our available cash in short-term treasury securities funds. To date, this interest income has been partially offset by interest expense, largely arising from purchase and lease financing in our operating subsidiaries. Interest in an unconsolidated subsidiary recognizes the value of our minority investment in i-way. In August 1999 we acquired all the remaining shares of i-way and began consolidating the results of that subsidiary. For subsidiaries where we own less than 100% of the equity, minority interest eliminates a portion of operating results equal to the percentage of equity we do not own. We have recorded deferred stock compensation totaling $1.8 million in connection with the grant of stock options to employees. This amount represents the difference between the deemed fair market value of our common stock on the dates these options were granted and the exercise price of the options. The amount is included as a reduction of stockholders' equity and is being amortized over the vesting period of the individual options, generally four years. For the nine months ended September 30, 1999, we recorded $483,000 in non-cash, deferred stock compensation charges, leaving $1.3 million to be recognized over the remaining vesting periods of the stock options. As a result, we expect to recognize $575,000 in non-cash, deferred stock compensation charges in the year ending December 31, 1999, $369,000 in the year ending December 31, 2000, $368,000 in each of the years ending December 31, 2001 and 2002 and $137,000 in the year ending December 31, 2003. Results of Operations Nine months ended September 30, 1999 compared with nine months ended September 30, 1998 Revenue. For the nine months ended September 30, 1999, we had revenue of $23.4 million. This revenue was generated by the 15 consolidated subsidiaries that we owned for all or a portion of the period. Of this revenue, 73.7% came from the sale of Internet access and 26.3% came from the sale of value-added and other services. Of our value-added and other services revenue, 72.0% came from web site services including web hosting, web design and domain name registration. We had no revenue for the nine months ended September 30, 1998 as we acquired our first consolidated subsidiary on September 24, 1998 and did not recognize revenue from that operation until October 1998. Internet services operating costs. Our Internet services operating costs were $10.3 million for the nine months ended September 30, 1999. We incurred these costs primarily to lease lines and purchase transit for the local networks maintained by the 15 consolidated subsidiaries that we owned for all or a portion of the period, as well as for operating costs associated with our international network. We had no Internet services operating costs for the nine months ended September 30, 1998. We acquired our first consolidated subsidiary on September 24, 1998 and did not consolidate the results of that operation until October 1998. Additionally, we did not establish our international network until June 1999. Selling, general and administrative. We incurred selling, general and administrative expenses of $22.1 million for the nine months ended September 30, 1999, a 673.5% increase over the $2.9 million we incurred for the nine months ended September 30, 1998. This increase was primarily due to the addition of costs incurred by the 15 consolidated subsidiaries that we owned for all or a portion of the 1999 period, but that we did not own for the 1998 period. During the 1999 period, $16.0 million, or 72.3%, of these expenses were incurred by our local operations and $6.1 million, or 27.7%, were incurred by our corporate organization. The expenses incurred by our corporate organization increased by 114.5% between the 1998 and 1999 periods, largely due to the costs associated with employing a larger number of corporate and regional personnel and identifying and acquiring an increasing number of operating companies. Depreciation and amortization. Our depreciation and amortization expense was $10.7 million for the nine months ended September 30, 1999, up from $3,000 for the nine months ended September 30, 1998. This increase was primarily due to the amortization of goodwill arising from the acquisitions of the 15 consolidated subsidiaries completed between September 24, 1998 and September 30, 1999. The acquisition of these 23 subsidiaries and the implementation of our international network also increased our depreciation expense for telecommunications equipment, computers and other fixed assets. For the 1999 period, $8.1 million, or 76.2%, of our depreciation and amortization expense was related to the amortization of acquisition goodwill and $2.6 million, or 23.8% was related to the depreciation of fixed assets. For the 1998 period, all of this expense was related to the depreciation of fixed assets. Interest income and expense. For the nine months ended September 30, 1999, we earned $2.3 million in interest income, a 139.8% increase over the $962,000 we earned for the nine months ended September 30, 1998. Interest income in both periods was generated primarily from investing funds generated by the sale of preferred shares until those funds were used for acquisitions, operating expenses or capital expenditures. We raised $127.9 million in April 1999, $51.6 million in May 1998 and $1.5 million between August 1997 and April 1998 from these sales. For the 1999 period, we also incurred $974,000 in interest expense, primarily for purchase and lease financing of equipment in our operating subsidiaries. We incurred no interest expense for the 1998 period. Interest in unconsolidated subsidiary. For the nine months ended September 30, 1999, we recognized a $177,000 loss related to our minority investment in i-way. This compared to a $447,000 loss recognized for the nine months ended September 30, 1998 related to the same minority investment. This improvement was due to i-way's significantly increased revenue and operating results, largely related to a single contract under which it provides managed bandwidth for another Internet services provider. In August 1999, we purchased all of the remaining equity in i-way. Foreign currency gains. We recognized a $1.3 million foreign currency gain for the nine months ended September 30, 1999. In conjunction with some of our acquisitions, we incurred debts to the acquired companies or their selling stockholders denominated in foreign currencies. During this period, the U.S. dollar strengthened relative to these currencies, and the related reduction in the U.S. dollar value of these debts created a gain. We had no similar debts for the nine months ended September 30, 1998 and so incurred no foreign currency gains or losses for the period. Year ended December 31, 1998 compared with period from inception, June 13, 1997, to December 31, 1997 Revenue. For the year ended December 31, 1998, we had revenue of $3.3 million. This revenue was generated by the four consolidated subsidiaries that we owned for all or a portion of the period. We had no operations and therefore no revenue for the period from inception to December 31, 1997. Internet services operating costs. Our Internet services operating costs were $1.7 million for the year ended December 31, 1998. We incurred these costs to expand and maintain the network capabilities of the four consolidated subsidiaries that we owned for all or a portion of the period. We had no operations and therefore no Internet services operating costs for the period from inception to December 31, 1997. Selling, general and administrative. We incurred selling, general and administrative expenses of $6.4 million for the year ended December 31, 1998, up from $336,000 for the period from inception to December 31, 1997. This increase was due to the addition of costs incurred by the four consolidated subsidiaries that we owned for a portion of 1998 but that we did not own for the 1997 period, and for the expansion of our corporate organization. During 1998, $2.0 million, or 31.3%, of these expenses were incurred by our local operations and $4.4 million, or 68.7%, were incurred by our corporate organization. All of the costs for the period from inception to December 31, 1997 were incurred in conjunction with the start-up of our corporate organization. Depreciation and amortization. Our depreciation and amortization expense was $1.3 million for the year ended December 31, 1998. This expense was largely made up of the amortization of goodwill arising from the acquisition of four consolidated subsidiaries during 1998, and of depreciation expense for telecommunications 24 equipment, computers and other fixed assets in these operations. For 1998, $936,000, or 71.8%, of our depreciation and amortization expense was related to the amortization of acquisition goodwill and $368,000, or 28.2% was related to the depreciation of fixed assets. We had no depreciation and amortization expense for the period from inception to December 31, 1997. Interest income and expense. For the year ended December 31, 1998, we earned $1.5 million in interest income, up from $15,000 for the period from inception to December 31, 1997. Interest income in both periods was generated primarily from investing funds generated by the sale of preferred shares until those funds were used for operating expenses, capital expenditures or, in 1998, acquisitions. We raised $51.6 million in May 1998 and $1.5 million between August 1997 and April 1998 from these sales. For 1999, we also incurred $29,000 in interest expense for purchase and lease financing of equipment in our operating subsidiaries. We incurred no interest expense for the 1997 period. Interest in unconsolidated subsidiary. For the year ended December 31, 1998, we recognized a $1.2 million loss related to our minority investment in i-way. We acquired this minority interest in June 1998 and therefore had recognized no gains or losses for the period from inception to December 31, 1997. Foreign currency gains. We recognized a $115,000 foreign currency gain for the year ended December 31, 1998. In conjunction with some of our acquisitions, we incurred debts to the acquired companies or their selling stockholders denominated in foreign currencies. During this period, the U.S. dollar strengthened relative to these currencies, and the related reduction in the U.S. dollar value of these debts created a gain. We had no similar debts for the period from inception to December 31, 1997 and so incurred no foreign currency gains or losses for the period. 25 Quarterly Results of Operations The following tables present our results of operations for the four quarters ended December 31, 1998, March 31, 1999, June 30, 1999 and September 30, 1999. This information has been compiled from our unaudited financial statements. In the opinion of our management, our unaudited financial statements have been prepared on the same basis as our audited financial statements which appear elsewhere in this prospectus, and include all adjustments, consisting only of normal recurring adjustments, that we consider necessary to fairly present this information. The results of operations for any quarter are not necessarily indicative of the results of operations for any future period.
Three Months Ended ---------------------------------------------- December 31, March 31, June 30, September 30, 1998 1999 1999 1999 ------------ --------- -------- ------------- (In thousands) Revenues: Access......................... $ 3,212 $ 4,447 $ 5,241 $ 7,537 Value-added services........... -- 1,011 1,376 3,389 Other.......................... 136 56 (29) 338 ------- ------- ------- ------- Total revenues............... 3,348 5,514 6,588 11,264 Operating costs and expenses: Internet services costs........ 1,724 2,757 3,022 4,542 Selling, general and administrative................ 3,528 4,547 7,093 10,473 Depreciation and amortization.. 1,297 1,907 3,003 5,746 ------- ------- ------- ------- Total operating costs and expenses.................... 6,549 9,211 13,118 20,761 ------- ------- ------- ------- Loss from operations............. $(3,201) $(3,697) $(6,530) (9,497) EBITDA........................... $(1,904) $(1,790) $(3,137) $(3,658) As a Percentage of Revenues ---------------------------------------------- December 31, March 31, June 30, September 30, 1998 1999 1999 1999 ------------ --------- -------- ------------- Total revenues................... 100.0% 100.0% 100.0% 100.0% Operating costs and expenses: Internet services.............. 51.5 50.0 45.9 40.3 Selling, general and administrative................ 105.4 82.5 107.7 93.0 Depreciation and amortization.. 38.7 34.6 45.6 51.0 ------- ------- ------- ------- Total operating costs and expenses.................... 195.6 167.1 199.2 184.3 ------- ------- ------- ------- Loss from operations............. (95.6)% (67.1)% (99.1)% (84.3)% EBITDA........................... (56.9)% (32.5)% (47.6)% (32.5)%
Provision for Income Taxes We incurred operating losses from inception through September 30, 1999 and therefore have not recorded a provision for income taxes. We have recorded a valuation allowance for the full amount of our net deferred taxes as the future realization of the net tax benefit is not currently likely. As of December 31, 1998, we had U.S. net operating loss carry-forwards of approximately $1.4 million, which can be used to reduce future taxable income through 2018. We also had foreign net operating loss carry-forwards of $406,000, the majority of which will begin to expire in 2003. Liquidity and Capital Resources Since inception, we have financed our operations primarily through the sale of equity securities. We have raised an aggregate of $181.0 million in three private preferred stock offerings since August 1997, and at 26 September 30, 1999, we had cash and cash equivalents of $91.5 million. We used an additional $38.1 million to acquire InfoAcces and M&Cnet after September 30, 1999. We are pursuing an aggressive internal growth and acquisition strategy that we anticipate will require significant additional funding before becoming self-sustaining. Net cash used in operating activities was $6.9 million for the nine months ended September 30, 1999, $3.8 million for the year ended December 31, 1998 and $233,000 for the period from inception through December 31, 1997. In each period, cash was primarily used to fund operating losses. Net cash used in investing activities was $61.7 million for the nine months ended September 30, 1999, $14.4 million for the year ended December 31, 1998 and $8,000 for the period from inception through December 31, 1997. For the nine months ended September 30, 1999 and the year ended December 31, 1998, cash was primarily used for acquisitions, including, in 1998, our equity investment in an unconsolidated subsidiary. We also made purchases of property and equipment in each of the three periods. Net cash provided by financing activities was $126.0 million for the nine months ended September 30, 1999, $52.2 million for the year ended December 31, 1998 and $1.0 million for the period from inception through December 31, 1997. In each period, cash was primarily generated by the sale of equity securities. In conjunction with our acquisition of InfoAcces, we have agreed to pay additional purchase price consideration of up to $30.0 million based on that company's revenue growth between the time of acquisition and December 31, 2000. Additional purchase price, if earned, will be paid quarterly beginning in February 2000, with the last possible payment date being February 2001. We have restricted cash of $15.0 million to secure the payment of any additional earned purchase price. This amount will be reduced as payments are made. Additionally, in conjunction with the acquisitions of some other operating companies, we have issued notes to selling shareholders that, at maturity, will be valued at the greater of principal plus interest or a percentage of the value of the operating company based on a predetermined formula which considers revenue growth, operating results and cash flow. As of October 31, 1999, the aggregate principal amount of these notes outstanding was $7.7 million. Currently, the principal amount of these notes is, in aggregate, greater than the value that would be calculated using the formula. We expect, however, that some or all of these operating companies will achieve results that will increase the value of these notes and that we will have to recognize and pay additional purchase price. We believe that the proceeds of this offering, together with our cash and cash equivalents, will be sufficient to fund our operations for the next 12 months. If our internal growth exceeds our expectations, or if we make more or larger-than-anticipated acquisitions, we may need to raise additional capital from debt or equity sources. We cannot be sure that we will be able to obtain this additional financing or that, if we can, the terms will be acceptable to us. If we cannot obtain additional financing on terms acceptable to us, we may be forced to curtail our expansion and may be unable to fund our ongoing operations. Foreign Currency Exchange Risks We conduct business in 11 different currencies. With the exception of the Argentine Peso, the value of these currencies fluctuates in relation to the U.S. dollar. At the end of each reporting period, the revenues and expenses of our operating companies are translated into U.S. dollars using the average exchange rate for that period, and their assets and liabilities are translated into U.S. dollars using the exchange rate in effect at the end of that period. Fluctuations in these exchange rates impact our financial condition, revenues and results of operations, as reported in U.S. dollars. Exchange rates can vary significantly, including exchange rates between Euro- linked currencies and the U.S. dollar. This is possible because, although these currencies are linked to the Euro, the exchange rates of these currencies into U.S. dollars fluctuates independently from the exchange rate of the Euro into U.S. dollars. During the first nine months of 1999, we experienced exchange rate fluctuations in the Euro-linked currencies, and particularly in the German Mark. The Mark varied by 15.2% in relation to the U.S. dollar during this 27 period, and ended the period 8.7% below where it was nine months earlier. We also experienced a devaluation of the Brazilian Real in January 1999. The Real varied by 45.6% in relation to the U.S. dollar during the first nine months of the year, and ended the period 37.2% below where it began. We also experienced fluctuations in other exchange rates but they did not have a material impact on our results. Our local operations collect revenues and pay expenses in their home currencies. They do not have significant assets, liabilities or other accounts denominated in currencies other than their home currency, and therefore are not subject to exchange rate risk with respect to their normal operations. Year 2000 Readiness Disclosure Many currently installed computer systems and software products are coded to accept only two-digit year entries in the date code field. Consequently, on January 1, 2000, many of theses systems could fail or malfunction because they may be unable to distinguish 21st century dates from 20th century dates. As a result, computer systems and software used by many companies, including us, our suppliers, our customers and our potential customers, may need upgrades to comply with Year 2000 requirements. Internal readiness assessment. The Year 2000, or Y2K, problem may affect the network infrastructure, computers, software and other equipment that we use, operate or maintain for our operations. As a result, we have a formal Year 2000 compliance plan, implemented by our internal Y2K task group. This group is responsible for monitoring the assessment and remediation status of our Year 2000 projects. Under our Year 2000 compliance plan, the Y2K task group has compiled a listing of all items critical to our operations, both internally developed and externally purchased, which may be impacted by the Year 2000 problem. We believe that we have identified most of the major computers, software applications and related equipment used in connection with our internal operations that will need to be modified, upgraded or replaced to minimize the possibility of a material disruption to our business. In 1999 we upgraded our network and operating systems and purchased Year 2000 compliant servers, workstations, software packages and peripheral devices. As a result of our upgrades, new purchases and Year 2000 testing, we believe that our principal internal systems are Year 2000 compliant. However, we will continue to assess and test our internal systems to ensure that all additions and modifications to our systems meet our specifications for Year 2000 compliance. Because we and our customers depend, to a very substantial degree, upon the proper functioning of our computer systems, a failure of our systems to correctly recognize dates beyond December 31, 1999 could materially disrupt our operations and adversely affect our business, financial condition and results of operations. Third-party readiness assessment. We have obtained verification or validation from most of our independent third-party suppliers whose products and services are deemed critical to our operations as part of our assessment of any Year 2000 problems we may encounter. We have also obtained verification or validation from most of our customers concerning Year 2000 compliance. However, we have limited or no control over the actions of these third-party suppliers and customers. Thus, while we expect that we will be able to resolve any significant Year 2000 problems with these third-parties, we cannot be certain that these business relationships will resolve any or all Year 2000 problems before the occurrence of a material disruption to our operations. Any failure of these third-parties to resolve Year 2000 problems with their systems in a timely manner could significantly harm our business, financial condition and results of operations. Costs. To date, we have funded the costs to become Year 2000 compliant and have not separately accounted for these costs. These costs have not been material. We will incur additional costs related to Year 2000 compliance for administrative personnel to manage the process of remaining Year 2000 compliant. Most likely consequences of Year 2000 problems. We expect to identify and resolve all Year 2000 problems that could significantly harm our business. However, we believe that the possibility exists that we may experience problems and costs with Year 2000 compliance which could divert our time and resources from ordinary business activities and have a material adverse effect on our business, financial condition and results 28 of operations. The worst case scenario for Year 2000 problems for us would be the need to cease normal operations for an indefinite period or time while we attempt to respond to our Year 2000 problems. Contingency plans. We have developed contingency plans to be implemented if our efforts to identify and correct Year 2000 problems are not effective. We expect our contingency plans to be ready for implementation by December 31, 1999. Conversion to the Euro On January 1, 1999, 11 of the 15 European Union member countries adopted the Euro as their common legal currency, at which time their respective individual currencies became fixed at a rate of exchange to the Euro, and the Euro became a currency in its own right. Presently, the following 11 currencies are subject to the Euro conversion: the Austrian Schilling, the Belgian Franc, the Dutch Guilder, the Finnish Markka, the French Franc, the German Mark, the Irish Punt, the Italian Lire, the Luxembourg Franc, the Portuguese Escudo and the Spanish Peseta. During a January 1, 1999 until January 1, 2002 transition period, the Euro will exist in electronic form only and the participating countries' individual currencies will continue in tangible form as legal tender in fixed denominations of the Euro. During the transition period, we must manage transactions with our customers and our third-party vendors in both the Euro and the participating countries' respective individual currencies. We have purchased and specified our business support systems, including accounting and billing, to accommodate Euro transactions and dual currency operations during the transition period. In addition, we intend to require all vendors supplying third-party software to us to warrant that their software will be Euro compliant. We conduct business transactions with customers, network suppliers, banks and other businesses, and we will be exposed to Euro conversion problems in these third-party systems. During the transition period, to the extent we are supplying local service, we can continue billings and collections in the individual currencies to avoid Euro conversion problems. However, to the extent we have cross-border transactions in European Union countries, we will be exposed to Euro-related risks. The establishment of the European Monetary Union may have a significant effect on the economies of the participant countries. While we believe that the introduction of the Euro will eliminate exchange rate risks in respect of the currencies of those member states that have adopted the Euro, there can be no assurance as to the relative strength of the Euro against other currencies. Since a substantial portion of our net sales will be denominated in the Euro or currencies of European Union countries, we will be exposed to that risk. Quantitative and Qualitative Disclosures about Market Risk We are primarily exposed to market rate risk with respect to foreign currency denominated debt obligations. With the exception of debt incurred in conjunction with our acquisitions, the substantial majority of our debt obligations have fixed interest rates and are denominated in the functional currencies of our various operating companies. As of December 31, 1998 our non- acquisition debt obligations amounted to $1.1 million. As of December 31, 1998, we also had notes payable to the selling shareholders of U-Net in the aggregate principal amount of (Pounds)4.9 million which accrued interest at 7.561% per annum and were due October 29, 1999. In October 1999, a portion of these notes was repaid and the remainder, accruing interest at 7.125%, was extended at the option of each holder. At December 31, 1998 the aggregate carrying amount of the notes was $8.3 million, which was equal to the approximate fair market value on that date. Our investments are generally fixed rate short-term investment grade and government securities denominated in U.S. dollars. At December 31, 1998, all of our investments were due to mature within 12 months and the carrying value of such investments approximated fair value. We actively monitor the capital and investing markets in analyzing our capital raising and investing decisions. 29 BUSINESS We have 17 operating companies in 11 countries in Europe and Latin America. These operating companies provide local service and support to over 49,700 business customers in our two targeted regional markets. The table below provides information on the countries in which we operate, their Internet penetration, which is the percentage of population using the World Wide Web, the number of customers we had as of September 30, 1999, giving pro forma effect to one of two acquisitions we made after September 30, 1999 and our pro forma revenues for the three months ended September 30, 1999.
Pro Forma Revenues for Country the Three VIA Operating Internet Number of Months Ended Company Countries Penetration(1) VIA Customers September 30, 1999 ----------------- -------------- ------------- ------------------ (In thousands) Europe: France................ 6.9% 1,500 $ 217.0 Germany............... 12.4 1,900 2,303.7 Ireland............... 8.6 2,900 279.5 Netherlands........... 15.7 11,400 953.1 Portugal.............. 4.7 11,600 953.6 Spain................. 5.1 9,500 364.8 United Kingdom........ 15.1 41,800 5,709.9 ------ --------- Total Europe........ 80,600 $10,781.6 Latin America: Argentina............. 1.5% 11,000 $ 970.2 Brazil................ 2.0 7,800 548.6 Mexico................ 2.5 16,100 2,817.2 ------ --------- Total Latin America............ 34,900 $ 4,336.0
--------------------- (1)According to IDC for Europe, and The Yankee Group for Latin America. The number of customers in the table above does not include the end user customers that are served by our direct customers who resell our access services. Our Markets Overview. The rapidly growing demand for Internet access and other value- added Internet services, coupled with low barriers to entry into the marketplace, have resulted in a highly fragmented Internet services industry. There are currently over 8,000 Internet services providers, of which 3,000 operate outside of the United States. We believe small and mid-sized businesses in our targeted markets are under-served by both large and small Internet services providers. Large Internet services providers in Europe and Latin America, which generally focus on Internet access products and rely on indirect sales, telemarketing and remote customer call centers to serve their customers, typically lack the local presence needed to provide customized, hands-on solutions to small and mid-sized business customers. Small, local Internet services providers in these markets typically cannot provide dedicated, high- capacity Internet access, round-the-clock support and a complete range of competitively priced service offerings. Market size. The Internet experienced rapid growth in the 1990s and has emerged as a global medium for communications and commerce. Internet access and services represent two of the fastest growing segments of the telecommunications services market. This growth is driven by a number of factors, including: . the large and increasing number of personal computers and other devices, in both offices and homes, that are linked to the Internet 30 . advances in network design which allow for rapid retrieval of information from the Internet . increased availability of Internet-based software and applications . the emergence of useful content and e-commerce technologies . Internet access becoming more widely available, convenient and inexpensive As shown below, market studies forecast strong growth in Internet services revenue in our target markets. International Data Corporation, or IDC, predicts that business Internet services revenues will grow 32.9% annually in Western Europe from $3.0 billion in 1998 to $12.5 billion in 2003. These revenues come from the sale of access and value-added services, along with the sale of network capacity and traffic management services to other Internet service providers. According to IDC, the greatest growth during this period will occur in the value-added services area, where revenues are forecasted to increase from $528 million in 1998 to $3.7 billion in 2003, or 48% annually. IDC also expects that overall business access revenue growth will remain strong, averaging nearly 29% annually during the same period. [A bar graph appears here, showing the projected amount (in billions of dollars) of Western Europe Business Internet Revenues for Business Access, Value-Added Services, and Managed Bandwidth Services for each of the years 1998-2003] According to a December 1998 Yankee Group study of active Internet accounts, Internet usage in Latin America grew by 120% in 1998, the highest growth rate of any region in the world. The region remains one of the world's least penetrated, with an estimated 15 Internet users for each 1,000 people. The same study predicts that the number of active Internet access accounts will grow 80.0% annually to 26.4 million in 2002, as Latin American markets become deregulated, network infrastructure improves and local content becomes more available. The Yankee Group also estimates that Internet access revenues alone should increase by 68.2% annually, to $6.0 billion in 2002. Business use of the Internet. Businesses initially used the Internet by establishing web sites to improve internal and external corporate communications. Today, businesses worldwide increasingly are using the Internet for critical applications, such as on-line sales and marketing, customer service, purchasing and project management. The Internet presents a compelling profit opportunity for businesses by enabling them to reduce operating costs, access valuable information and reach new markets. Internet access provides a company with a basic gateway to the Internet, allowing it to use e-mail, access information, and communicate and conduct transactions with employees, customers and suppliers. A web site provides a company with an identity and interactive presence on the Internet, allowing it to post company information and automate business processes such as sales, order entry and customer service. 31 In Europe, we have seen the emergence of "free Internet" providers. These companies offer Internet access at no charge, generating income instead through revenue sharing arrangements with the local telephone providers. In contrast to the United States where individuals and businesses typically obtain local telephone service for flat-rate monthly charges, in Europe and Latin America, customers generally pay on a per-minute basis. We believe the "free Internet" providers create an opportunity for us because these providers bring a large number of new Internet users on-line, which makes it more important for small and mid-sized businesses to have an Internet presence. Our targeted customers recognize the benefit of having a business presence on the Internet. However, they often do not have the resources to implement and maintain rapidly changing technologies, create and update content and communicate with employees, customers and suppliers electronically. Outsourcing arrangements provide a simple and cost-effective solution to these challenges. Effect of deregulation. In recent years, European and Latin American governments have, to varying degrees, pursued efforts to deregulate and liberalize their telecommunications markets. These efforts, which include the gradual opening up of the long-held monopolies of the incumbent national telephone companies and the gradual reduction of price controls and other regulatory burdens on market competitors, create an environment which fosters new entrants and competition. The immediate effect of deregulation on the Internet market in these countries has been improved and expanded network infrastructure for the support of advanced corporate Internet services. These improvements take the form of greater numbers of both local dial-up access lines and dedicated, high speed business lines, as well as improved national and international network capacity, being made available to business users. Over time, deregulation has proven to be a catalyst for new entrants to enter the market and not only compete for the business of the existing customers, but also introduce new service delivery models, such as cable, digital subscriber line, and broadband wireless platforms for the delivery of telephone, Internet and multimedia services. The VIA Strategy Our goal is to become the premier international provider of Internet access and services to small and mid-sized businesses in Europe and Latin America. We intend to reach our goal by: Maintaining a strong local presence through locally managed operating companies. In our experience, small and mid-sized businesses generally seek a provider with locally based personnel who are available to respond to technical issues, who can assist in developing and implementing effective Internet solutions and with whom they can establish a long-term relationship. To date, we have acquired 17 companies in 11 European and Latin American countries. We targeted these companies based on an overall evaluation of the capabilities of their management teams, their focus on providing Internet solutions to small and mid-sized businesses and their history of customer satisfaction. At VIA, local management teams retain the authority to manage day-to-day operations to meet the demands of their specific business environments. They also participate in the development of new products and services so that we can ensure that customer needs in diverse markets are considered and met. Leveraging our brand name and international network. Our high capacity trans- Atlantic and pan-European network and centralized operations support enable our local market service providers to compete on a global scale and to provide their customers international Internet solutions, while retaining their advantage of quality local service. By linking our operations to our own European and trans-Atlantic network, we significantly reduce our incremental data communications costs. In addition, our European and trans-Atlantic network delivers the high level of Internet services increasingly demanded by businesses. Because a majority of Internet traffic originating in Europe is directed through the United States, Internet access from Europe is often characterized by substantial delays and data loss. Because we can control congestion on our European and 32 trans-Atlantic network, we can reduce delays and minimize resultant data loss. We believe similar economic efficiencies and improvements in overall service levels will result from the investments we are currently making and planning to make for upgrades to our local, regional and international network and regional back office, accounting, billing, and customer care systems. By being part of an international Internet services provider, our local operations gain competitive marketing advantage. The companies we acquire usually retain their pre-acquisition names and add the VIA name as a co-brand. Additionally, VIA develops commonly branded products that are offered by our various operating companies across all of our markets. Over time, and as market conditions allow, we may convert these local operations exclusively to the VIA brand. Delivering single-source Internet solutions to our customers. We believe that small and mid-sized businesses are seeking to increase their use of the Internet as a business tool and are integrating web-based products and services into their business processes. We intend to capitalize on this trend by offering a single-source solution to our business customers' Internet products and services needs. By providing our customers with a single source solution, we can increase customer satisfaction, reduce customer churn and better leverage our network infrastructure and sales and marketing resources. We currently offer a wide range of corporate Internet products and services designed to respond to these needs and to allow our customers to add additional services as their needs grow. To provide an easy and cost effective way for our customers to start and expand their Internet presence, we offer a suite of bundled corporate Internet services under the Expresso brand. We believe these products and services will allow us to strengthen our relationships with our customers and offer them higher margin services. 33 The following chart shows how our access and value-added services, both individually and in bundled service offerings, anticipate the evolving business Internet needs of our customers. By offering products and services at each step on this value chain, we can expand our customers' Internet usage, help them transform their business processes to an Internet platform, and increase our profitability by selling higher margin services. [A graphic depicting the steps in the Internet Services Value Chain appears here, as listed below: Products & Services Benefits 1. Access . Dial-up and dedicated access . Conduct market & product . E-mail research . Lower communications costs . Increase productivity 2. Presence . Web design . Provide customer service . Web/Application Hosting . Create brand recognition . Server Co-location . Recruit employees . Attract and inform investors 3. Transact . E-commerce . Process transactions . Security securely on-line . Internet Virtual Private Networks . Increase revenues . Replace expensive multi- site private networks . Increase productivity 4. Transform . Managed Hosting . Streamline operations . Intranets & Extranets . Manage supply chains and . Business-to-Business E-commerce inventories . Achieve operating cost efficiencies] 34 Delivering quality customer service supported by continued investment in billing, back-office and customer care systems. Our customers will benefit from our continuing investment in billing, back-office and customer care systems through quality and responsive customer service. We intend to establish local, national or regional customer care facilities to provide to all our customers around-the-clock technical support and customer service. Our goal is to be recognized by our customers as a provider of quality service. Continuing investment in network infrastructure and product development. We intend to continue to make significant investments to improve and expand our operating infrastructure. We are upgrading and expanding our network capacity in each of the 11 countries where we now operate. In Europe, we integrate our local operating companies' networks into our international network. We plan to extend this network into Latin America as trans-oceanic and land-based network capacity becomes commercially available. We are significantly increasing the web hosting, server co-location, data storage and processing capacities at each of our operating companies. In many of the countries in which we have local operations, we are continuing to expand our market opportunities by building new Internet points of presence in commercial centers in those countries. We are also in the process of upgrading the customer care and billing facilities of our local companies, as necessary, and integrating them into regional back office management information data centers. These infrastructure expansions and improvements will give us the capacity we need to continue to expand the services we offer to our current customers and to offer services to additional customers. Accelerating our growth through strategic acquisitions. We intend to continue to acquire business-focused Internet products and services providers. In identifying acquisition targets, we seek companies that are run by experienced managers, are well positioned in their markets and will enhance our portfolio of products and services. Given the increasingly competitive environment in our targeted markets and the capital resources required to offer a broad base of reliable Internet services and accommodate rapid anticipated growth, we believe that under-capitalized local Internet services providers in our markets will continue to benefit from combining their operations with ours. Our Network Our European and trans-Atlantic network provides our European operating companies with high-capacity, redundant Internet Protocol transit. Our network is connected to the Internet by multiple high-speed fiber connections and by peering arrangements at major commercial Internet exchanges. Using these diverse connections, our network dynamically routes traffic over the network of the provider best able to deliver the data in the most efficient manner. Direct connections to multiple major carriers and Internet exchanges assure reliable service levels, protecting against traffic congestion and network outages. We have designed a redundant network to avoid any single point of failure. Our Latin American operations are currently connected to the Internet by multiple leased, high-speed links. We expect to expand our network and network operations center infrastructure to Latin America as capacity becomes commercially available. Our European operating companies' local networks are connected with our international network via high-capacity optical transmission media and co- location of routers. Where co-location is not an option, our operating companies access our international network through high-speed data communications facilities. Our European network operations center, which is located in Germany, is staffed 24 hours a day, 7 days a week, by Internet systems engineers who are responsible for monitoring the performance of our network equipment. From this center, we are able to efficiently identify and correct network problems either remotely or by local dispatch. We are currently expanding our network infrastructure by replacing individual Internet transit arrangements previously entered into by our operating companies. Our network expansion is designed to offer greater reliability, improved performance and additional functionality at a lower cost per transmitted data packet. The backbone of our network is made up of two STM-1 fiber optic cable rings, each providing 155 Mbps of redundant capacity. The first ring provides trans- Atlantic capacity and connects our New York City and London network nodes. We acquired a 25-year Indefeasible Right of Use, or IRU, from Global Crossing, an 35 owner of fiber optic cable systems, in June 1999. Our agreement with Global Crossing also provides us with the right to acquire additional network capacity at favorable rates. Global Crossing may suspend services provided to us under the IRU if we fail to make the required payments or are in a breach of the IRU. The second ring provides pan-European capacity and allows us to establish network nodes in up to seven European cities. We acquired a 20-year IRU from iaxis, an owner of fiber optic cable systems, in July 1999. The iaxis IRU may be terminated upon written notice by either party if the other party is in material breach, or may be terminated or suspended upon the occurrence of specified events, such as insolvency, bankruptcy or material damage by VIA to the network. We currently have network nodes in London, Dusseldorf and Amsterdam and plan to connect a Paris node by the end of 1999 and nodes in three additional cities during 2000. Future cities we are considering connecting to this network include Madrid and Geneva. In the United States, we have co-located routers at the major public peering locations in Washington, DC, Palo Alto, Chicago and New York. Our U.S. network nodes are interconnected through diverse, redundant DS-3, or 45 Mbps capacity, data communications facilities provided by local telephone companies, inter- exchange carriers and specialized carriers. VIA's network has multiple, redundant connections to Tier 1 Internet transit providers and major public peering locations in London, Frankfurt and Amsterdam, where we have co-located routers. A substantial number of our operating companies have established peering relationships with other local or regional Internet services providers. In peering relationships, Internet services providers agree to carry each others' traffic on their networks to improve performance and reduce congestion and costs. We are in the process of establishing additional peering relationships with international Internet services providers. Peering relationships can take the form of either public peering or private peering. Public peering takes place at a physical location, usually a network access point, designed for the exchange of Internet traffic between private Internet services providers. Private peering involves an agreement between two Internet service providers allowing traffic to pass between each other's networks at private connection points without having to traverse the public Internet and public peering points. We are actively pursuing both private and public peering agreements. Products and Services We currently offer a comprehensive range of bundled and stand-alone Internet access and value-added products and services. The specific products offered in each market are determined by the needs of the market and local regulations and competition. We intend to continue to develop a broad range of innovative and flexible value-added products and services independently, through acquisitions and through strategic relationships with key vendors. Connectivity services. We offer a variety of connectivity solutions, including Internet access and third-party software and hardware implementations and configuration services, which are offered in bundled and stand-alone packages. Internet access currently includes leased line access and corporate and consumer dial-up connectivity. We also offer a full range of hardware and software required to connect to the Internet, including routers, servers, browsers and other products. Value-added services. We believe that our customers will increasingly use the Internet as a business tool and, as a result, will require an expanding array of services. We currently offer a wide range of services which provide additional value to our customers, and we intend to continue expanding our service offerings through internal development, acquisitions and strategic relationships with software, hardware and content providers. We do not currently offer all of these services in each of our markets. The value-added services we offer include the following: . Web hosting, domain name registration and co-location. Web hosting offers business customers a presence on the Internet, enabling them to take advantage of the marketing, customer service, internal company information, or intranets, and other benefits offered by this presence. We currently offer our 36 customers web hosting services through Internet data centers located in our local operations. The services include the full range of web hosting, web design, web site maintenance and ongoing consulting services through a combination of internal efforts and the use of independent partners. We also offer web site co-location, where a customer-owned web server is located at one of our local provider's points of presence, or PoPs, for higher reliability. This solution allows the customer to own its own web server without having to maintain and manage the data center environment. We also intend to implement emerging content distribution technologies such as content replication, also known as mirroring, and caching for enhanced end user performance. Currently, we have registered over 46,700 domains and host web sites for 17,000 customers. . Virtual private networks, or VPNs. Many companies today use private data communication networks, often referred to as wide area networks, or WANs, to transfer proprietary data between office locations. These networks are built using leased lines from traditional telecom providers. We offer companies a less expensive alternative to WANs through VPNs which provide secure transmission of private Internet traffic through the Internet. Additionally, many companies require that their employees have remote access to these private networks from home or while traveling. Through our VPN products, we can provide intranet and extranet services. Intranets are corporate/organizational networks that rely on Internet- based technologies to provide secure links between corporate offices. Extranets expand the network to selected business partners through secured links on the Internet. Increasingly, companies are finding that intranets and extranets can enhance corporate productivity more easily and less expensively than proprietary systems. . Electronic commerce solutions. Electronic commerce, or e-commerce, solutions give businesses the ability to process transactions and perform other business functions over the Internet. We provide e-commerce solutions that allow our customers to sell products or services directly to customers, purchase supplies, coordinate inventory systems with suppliers, process electronic payments, track shipments and perform other business functions, all in a secure on-line environment. To take full advantage of the business opportunity offered by e-commerce, we intend to construct additional single-source e-commerce applications and hosting environments, making use of our own software development capabilities as well as those of third-party software development partners. . Security. Security solutions are a vital component for most businesses connected to the Internet. Our security solutions provide customers .an ability to prevent unauthorized users from accessing its corporate network .authentication of users attempting to gain access to proprietary or confidential information .encryption services, providing secured transmission of company data through the Internet . E-mail. We provide e-mail services that enable our business customers to outsource their e-mail requirements and e-mail management to our trained systems administrators and support staff. We establish accounts, manage the associated mail servers and provide full accessibility to e-mail for our customers while saving them the investment in additional servers and staff. . National and global roaming. We offer the ability for employees of small and mid-sized businesses to access their e-mail and the Internet while traveling. Currently, many users either cannot do so because of the limitations of their local service provider or because they are required to pay expensive long distance access charges. We are in the process of implementing a global dial-up access roaming product to enable business customers to access the Internet locally as they travel throughout their countries and abroad. . Professional services. Our target customers typically do not have the internal resources or personnel to design and maintain Internet services. As more businesses use the Internet for mission critical applications, we expect they will rely on outside support for many of their information technology applications. As a result, we believe it will be increasingly important for us to offer onsite, technical 37 consulting to customers. Our local providers currently offer a broad range of professional services to their customers, including network and system design, web content creation, security system needs analysis and implementation, virtual private network design and implementation, and other Internet-related consulting projects. We intend to invest in additional professional services capabilities to provide customers with single-source Internet solutions. . Enhanced products and services. Customers are increasingly seeking to tailor the use of the Internet to their business. We plan to serve these needs through the packaging and configuration of third-party applications, such as data storage and retrieval, Internet Protocol telephony, which permits users to make voice calls on the Internet, Internet faxing, Internet audio and video conferencing solutions, and other applications that may be developed. As businesses commit to using the Internet, we believe that the advanced applications product category will continue to expand, offering additional revenue opportunities. Bundled Services. To expand market share, increase customer loyalty and develop strong VIA NET.WORKS brand recognition among the small and mid-sized businesses in our targeted markets, we are bundling Internet services under a single brand name, Expresso. We are offering the Expresso suite of products in each of our markets, with only slight differences in features depending upon local tariffs and network infrastructure. Our entry-level product, ExpressoWeb, is designed to give the small and mid-sized business customer a simple, cost effective way to establish a presence on the Internet. By moving up to our higher level products, ExpressoNet and ExpressoWay, the same business can expand its Internet capabilities to meet its increasing needs, without interrupting its ongoing Internet-based business processes. ExpressoNet enables businesses that use local area networks, or LANs, to route e-mail and other information to users quickly and efficiently while reducing their call charges and other telecommunications costs. ExpressoWay offers all of the benefits of ExpressoNet and allows businesses to provide their employees with Internet access at home or while travelling. The features of the various Expresso products generally consist of the following:
Product ------------------------------------------ Feature ExpressoWeb ExpressoNet ExpressoWay - ------- -------------- ------------- ------------- Internet Access Unlimited Unlimited Unlimited Connection to Internet 56 Kbps Dialup 128 Kbps ISDN 128 Kbps ISDN LAN router N/A Fully Managed Fully Managed Domain name registration/transfer Yes Yes Yes Domain-based e-mail addresses Up to 10 Up to 30 Unlimited Number of dial-up accounts for remote access N/A Up to 10 Up to 20 Amount of web hosting space at VIA facilities Up to 50 Mb Up to 100 Mb Up to 100 Mb Quick-install web-authoring tool Yes Yes Yes
38 Organization We have 17 locally managed operating companies located in 11 countries in Europe and Latin America. These companies focus on providing a full range of Internet solutions to small and mid-sized business customers in their local markets. To best serve the market-specific needs of our target customer base, each of our operations is staffed with local management, sales, technical and customer care personnel. Our local managers retain the authority to manage the day-to-day operations of their businesses, allowing them to establish business practices, create or customize products and services and develop product delivery mechanisms that meet the Internet business needs of customers in their local markets. In every aspect of their relationships with us, our customers are served in their own language, their own currency and by people who understand the regulations and business practices in the markets in which they operate. We believe that by maintaining this type of presence within each of our markets, we are in the best position to understand, and provide solutions for, the Internet needs of our customers. The following table summarizes our operations in Europe and Latin America by country, operating company and percentage ownership. Ecce Terram and INS are each 100% owned by GTN, which is 51% owned by us. VIA Operating Companies
Percentage Country of Owned as of Operation Operating Company November 15, 1999 ---------- ----------------- ----------------- Europe: France ArtInternet 51% Germany GTN 51 Ecce Terram 51 INS 51 Ireland MediaNet 60 The Netherlands bART 100 Portugal Esoterica 100 Spain Interbook 87 Switzerland M&Cnet 60 United Kingdom i-way 100 U-Net 100 WWS 100 Netlink 100 Latin America: Argentina VIA Net Works Argentina 100% ServiceNet 100 Brazil Dialdata 53 Mexico InfoAcces 100
39 We have agreements with the minority stockholders of each of our majority- owned operating companies that give us the right to purchase their shares in those operating companies based on predetermined price formulas which consider revenue growth, operating results and cash flows. In some cases, the minority stockholders have the right to purchase our shares in those operating companies if we do not exercise our purchase right by a specified date. Regional operating, marketing and financial personnel, hired in the regions they serve, support our local operations. In both Europe and Latin America, a Regional Vice President is responsible for monitoring the results of, coordinating efforts among, and assisting in the operations of our local operating companies. In Europe, regional marketing personnel develop products for regional deployment, create marketing and advertising programs to promote cross-market brand recognition and assist our operating managers with local product, marketing and sales efforts. European financial personnel assist our local operating companies with financial reporting, budget preparation and the implementation of proper financial policies, procedures and controls. We are currently recruiting similar regional marketing and financial positions to support our Latin American operations. We maintain a small corporate staff, located in Reston, Virginia, to perform and coordinate company-wide activities. These activities include raising capital and managing its deployment to fund growth, creating and implementing international network and management information systems, acquiring additional operating companies in our target markets and creating strategic vendor, product and service relationships. We intend to keep our corporate staff small, performing as many functions as possible within the local operating companies and the regions. Sales and Marketing We sell our products and services through local sales efforts, supported by local, regional and international advertising and promotion programs. Our direct sales and marketing force of 237 locally based, technically competent and experienced Internet sales representatives is our primary sales tool, but we also maintain significant distribution capabilities through local reseller and referral channels. We will continue to expand both our direct and indirect sales capabilities, as well as develop new product and strategic relationships to support those efforts. Direct sales. Each of our local operating companies has a direct sales force. Depending on the market, the local sales force may include both telemarketing and field representatives. Typically, telemarketing representatives, both inbound and outbound, handle sales of basic services, where consulting, customization or training is not required. Field sales representatives handle sales of more complex services. Our field representatives are technically proficient Internet specialists who understand the environment in which their customers do business and who can create or tailor Internet solutions to meet customer and market specific needs. Our local operating companies maintain customer and prospect data that is used to identify likely users of existing and new services. They also maintain competitive data that is used to identify areas of opportunity for new products and services. Depending on the accepted practices and regulations in their markets, our operating companies may use techniques such as direct mail or fax, outbound telemarketing, seminars and trade shows to target large potential customer groups that they believe would benefit from our Internet business applications and services. Indirect sales. In many of our markets, indirect sales channels represent a significant source of revenue and revenue growth. Currently, our operating companies have various indirect sales channels within their markets. These include reseller and distributor relationships with systems integrators, value- added resellers, marketers of other subscription-based products and others who have established relationships with our target customers and sales forces capable of selling Internet services. Our operating companies also maintain relationships with referral partners, such as web designers or advertising agencies, whose core businesses typically do not include providing Internet services, but who represent a valuable source of leads. 40 We are also developing company-wide reseller and referral programs that will permit us to increase the number of indirect sales channels available to our operating companies. We will also use these programs to expand the relationships our local operating companies currently have to a regional or international basis. New products and strategic marketing relationships. To support our local direct and indirect sales efforts, we are developing strategic relationships with providers of related technology, products and services, for use in all of our markets. These relationships will allow our operating companies to offer an expanded range of Internet services to their customers by giving them access to new stand-alone or bundled solutions. Our first agreement is with Trellix Corporation, under which we both resell their web development software on a stand-alone basis and bundle it into our Expresso products in some of our markets. By bundling our services with those of related product and service providers, we believe that we can not only provide expanded services to our customers, but strengthen our relationship with them as well. Competition Competition in the market for Internet access and value-added services has increased significantly in our markets as Internet usage has grown, and we expect this trend to continue. Though Internet usage remains lower in Europe and Latin America than in more mature markets such as the United States, high recent growth rates and large potential market sizes have attracted many new entrants. Though our specific competitors vary from market to market, they generally are international, regional and local Internet services providers, long distance and local exchange telecommunications companies, cable television companies or on-line services providers. Internet services providers. According to Boardwatch magazine, there are over 8,000 Internet services providers worldwide with approximately 3,000 of those located outside of the United States. Depending on the market, our primary competitors may be small, local services providers with limited ranges of service and geographic reach, or large international or regional services providers with broad services offerings, large network capacities and wide geographic presence. The small, local providers often focus on consumer dial-up Internet access and frequently do not have the services or expertise to assist small and mid-sized businesses in establishing a presence on the Internet or creating an Internet platform to support their business processes. The large international and regional providers also often focus on consumer dial-up Internet access. While these large Internet services providers may have the range of services required to meet the needs of small and mid-sized businesses, they may not have the local personnel and market expertise to effectively implement solutions for this customer base. By combining local market expertise and service with an international network and a wide range of services targeted towards small and mid-sized business customers, we believe we can compete effectively with both large and small Internet services providers. Telecommunications companies. Many of the major international telecommunications companies offer Internet services in our markets, either directly or through subsidiaries or alliances. In several of our markets, former telecommunications monopolies have been deregulated and privatized, and have also become providers of Internet services. New telecommunications company entrants to these markets are beginning to use high-speed wireless technology to bypass overcrowded, existing networks and are offering Internet and corporate data services as well. Generally, these network-based companies focus on consumer dial-up Internet access and large corporate accounts, customer bases that can generate high volume data traffic to carry on their networks. We believe that our focus on providing products and services that meet the Internet needs of small and mid-sized businesses will allow us to compete effectively with telecommunications company competitors. Cable television companies. Cable operators in some of our markets have either introduced or announced that they intend to introduce Internet access services, both by upgrading their networks and using new, cable modem technology. Their existing customers are primarily residential and their physical networks are largely limited to residential areas. We therefore expect these companies to present relatively little competition for small and mid- sized business customers in our markets. 41 On-line service providers. We compete with large on-line and portal services providers in Europe and Latin America. These on-line services providers generally have business models which rely on consumer dial-up access and advertising revenue. Regulatory Matters There exists no uniform body of law in Europe or Latin America specific to the regulation of Internet services or Internet services providers. However, many local laws which are not specific to Internet services and use of the Internet apply to the provision of our services generally. As a new and important medium for communication and business transactions, the Internet is undergoing considerable legal and regulatory scrutiny worldwide. New laws and regulations regarding the Internet have been proposed or are currently being considered in many countries in which we operate, covering issues such as user privacy and information security, obscenity and child protection, defamation, taxation, and intellectual property rights. At the same time, the application of existing laws to communications and the transaction of business through the Internet are being clarified and refined. We cannot predict what impact future judicial, legislative or regulatory changes will have on the industry in general or our operating results specifically, or whether local regulatory bodies will question our compliance with applicable regulations. For example, due to the global nature of the Internet, it is possible that, although the equipment and software used to provide our services is based in Europe or Latin America and transmission by us and our users of content over the Internet would originate primarily in these regions, the governments of countries in other regions might attempt to regulate the content contained on or transmitted using our services or prosecute us for violations of their laws. As content produced by us or our users is available over the Internet in countries all around the world, these countries may also claim that we are required to qualify to do business in their jurisdictions. Any application of existing laws and regulations from jurisdictions whose laws do not currently apply to our business, or the application of existing laws and regulations to the Internet and other online services, could have a material adverse effect on our business, results of operations and financial condition. Further, future regulatory developments might decrease the growth of the Internet, impose taxes or other costly technical requirements, create uncertainty in the market or in some other manner have a material adverse effect on our business, financial conditions or results of operations. The regulatory framework in each of the two major markets in which we provide services is described further below. European Union Overview. Our European operations, other than in Switzerland, are all located in member countries of the European Union. Within the European Union, the European Commission, in coordination with the Council of Ministers, can enact legislation that is enforceable in each of the member states. It is rare, however, for the European Commission to take legislative action directly. Instead, it typically adopts "directives" which require member states to enact laws within their own countries implementing the principles and rules established by the directive. Data Protection. In October 1995, the European Union adopted the "directive on the protection of individuals with regard to the processing of personal data and the free movement of such data." This directive imposes restrictions on the collection, use and processing of personal data. Member states of the European Union were required to implement the directive into national laws by October 24, 1998, but many of them, including the Netherlands, France, Germany and Ireland, have yet to do so. In these countries, however, there is prior legislation that deals with the protection of personal information in varying degrees. The data protection directive is intended to permit the free-flow of personal information among member states, but also prohibit the transfer of such information to countries outside the European Union that do not maintain adequate standards of privacy and data protection. Currently, the European Union considers the United 42 States to not have an adequate level of protection in relation to the processing of personal data. Therefore, except under limited circumstances, we would not be permitted to cause any of our operations located within European Union member states to transfer their customers' or employees' personal information to the United States, including to our Reston, Virginia headquarters. We cannot predict how the current difference between the United States and the European Union regarding data protection will be resolved, or what impact the directive may have on our operations and our effective use of data collection. In addition, until specific implementing legislation is enacted in the member states in which we operate, it is unclear how our operations might be impacted by restrictions that might be established in each European Union country with respect to the use of personal information about our customers and employees that we collect in the ordinary course of business. Content Regulation and Liability. While there currently are no specific laws within European Union member states governing liability of Internet services providers for the content transmitted from or stored on their facilities, courts in several countries have recognized the general principle that Internet services providers should not be responsible for content created or maintained by a third party which the provider makes available to users unless the provider has knowledge of such content and is technically able and can reasonably be expected to block the use of such content. In November 1998, the European Union published a "proposed directive on certain legal aspects of electronic commerce in the Internet Market." The draft of the proposed directive is expected to be adopted by the beginning of 2000 and implemented within one year by all European Union member states. The proposed directive provides that Internet services providers would not be liable for any information hosted unless the Internet services provider knew that the information hosted was illegal. In addition, the proposed directive provides that Internet services providers, as mere carriers of information over, or providers of access to, communications networks will not be liable for the content of that information. On December 21, 1998 the European Union approved an "action plan to promote safer use of the Internet by combating illegal and harmful content on global networks." This directive would serve as the basis of new laws in member states relating to the protection of minors, rating and filtering systems and content. Any legislation that is adopted by European Union member states relating to this directive could impose additional obligations and expenses on our operations. Licensing Requirements. In the United Kingdom, the Telecommunications Act of 1984 provides that it is a criminal offense to run a telecommunications system without a license. While Internet services providers fall within a class license called the Telecommunications Services License and are not required to hold individual licenses under the Telecommunications Act, we own and operate our own network facilities in the UK connecting our trans-Atlantic backbone to connection points in the city of London. Accordingly, we have acquired an individual public telecommunications operator license issued under the Telecommunications Act 1984. Under our license, we are legally permitted to negotiate for direct interconnection with British Telecom and other licensed network operators in the United Kingdom. Our license also imposes conditions on us, including the obligation to provide, at our cost, the technical means for authorized government agencies to intercept communications traffic on our network within the United Kingdom. If we were to fail to continue to satisfy in any material respect the conditions on which we hold our license, we would not be permitted to operate our trans-Atlantic 155 Mbs network within the United Kingdom, which would have a materially adverse effect on our operations. Latin America In all Latin America markets in which we currently operate, the provision of Internet access and value-added services, with the exception of Internet telephony, is completely deregulated, and companies may satisfy all the licensing requirements necessary to become an authorized provider of Internet access and value-added services by obtaining a value-added services license. All of our Latin American local providers possess these licenses. 43 In each of the countries in Latin America in which we are operating, there are restrictions against the provision of basic, public telephony services over the Internet by companies other than the licensed basic services providers. The provision of private corporate network Internet telephony services remains a gray area. We do not intend to offer either public or private Internet telephony services in these countries until the respective regulatory authorities explicitly permit Internet services providers to do so. As in Europe, Latin American countries in which we operate are considering specific legislation with respect to the Internet, covering issues such as user privacy, obscenity, libel, child protection, taxation, advertising, intellectual property rights, and information security. Our Brazilian local operating company, Dialdata, is located in the state of Sao Paulo, which levies a 25% sales tax on communication services. The question of whether providing access to the Internet is a communication service has not been addressed by the courts or tax authorities in Brazil. Dialdata does not charge this tax to its customers or pay it to the state tax authority. If Internet access providers are ultimately required to pay the tax, our operating results in Brazil would be significantly and negatively impacted. In Mexico, the Federal Telecommunications Law prohibits Internet services providers from building and operating a public telecommunications network or national satellite connection without first obtaining a concession. Under the concession scheme, non-Mexican ownership of the concession holder may not exceed 49%. As a result in Mexico, we will not be able to own our own network facilities without partnering with a Mexican company or person. Legal Proceedings We are not a party to any material legal proceedings. Employees At October 31, 1999, we employed 798 people on a full-time equivalent basis. 26 employees were located in our Reston, Virginia headquarters and 772 were located in our local operating companies or European and Latin American regional offices. Of our total employees, 237 were involved in sales and marketing, 107 were employed in customer care, 241 were involved in technical and engineering and the remaining 213 were devoted to finance, legal, strategic planning and other administrative functions. Relations with our employees are good. Some of our operating companies in Latin America are parties to collective bargaining agreements. Labor laws in Europe and Latin America are generally more protective of employees than in the United States. Unlike in the United States where an employer will often have the right to terminate an employee at will, most countries in Europe and Latin America have laws protecting employees from being terminated without proper cause or without paying terminated employees severance compensation in established statutory amounts. In some European countries, the law establishes a minimum number of vacation days. In Argentina, Brazil and Spain, employees are entitled to an additional month's salary each year as a compulsory bonus. In Portugal, employees are entitled to two additional months' salary, a summer bonus and a winter holiday vacation bonus. In Mexico and Brazil, profit-sharing with employees is mandatory. Facilities Our principal executive offices are located in leased facilities at 12100 Sunset Hills Road, Reston, Virginia. Additionally, we lease space in our operating markets for offices, network operations centers, data centers and points of presence. We believe that our present facilities are in good condition and are currently suitable for our business needs. We anticipate that we will need additional space, particularly in our operating markets, as we expand, and that we will be able to obtain suitable space where and as needed. 44 MANAGEMENT Directors and Executive Officers The following table shows information about each of our directors and executive officers as of the date of this prospectus.
Name Age Position David M. D'Ottavio...... 50 Chief Executive Officer and Chairman of the Board of Directors Michael J. Simmons...... 46 President C. Elliott Bardsley..... 48 Vice President, Corporate Development Kenneth Blackman........ 43 Vice President, European Region Catherine A. Graham..... 39 Vice President, Chief Financial Officer and Treasurer Kevin T. Malone......... 50 Vice President, Information Systems Matt S. Nydell.......... 40 Vice President, General Counsel and Secretary Roy D. Stubbs II........ 57 Vice President, Engineering and Technical Operations Antonio Tavares......... 50 Vice President, Latin American Region Gabriel A. Battista..... 55 Director Stephen J. Eley......... 39 Director William J. Elsner....... 48 Director Adam Goldman............ 39 Director William A. Johnston..... 48 Director Mark J. Masiello........ 32 Director John G. Puente.......... 69 Director Erik Torgerson.......... 34 Director
Executive Officers David M. D'Ottavio has served as VIA's Chief Executive Officer and a Director since April 1998 and as VIA's Chairman of the board of directors since November 1999. From April 1998 to June 1999, he also served as President. From January 1995 to August 1997, Mr. D'Ottavio served as Senior Managing Director of United Philips Communications, B.V., now United Pan-Europe Communications N.V., or UPC, responsible for all acquisition, business development, finance, marketing and administration functions and launched UPC's telephony, Internet services provider and high-speed data services. From 1991 to 1994, Mr. D'Ottavio was Chief Operating Officer for United International Holdings, Inc., now UnitedGlobalCom, Inc., and was responsible for cable, MMDS and telephone operations in 14 countries. Previously, Mr. D'Ottavio served as Regional Vice President for Comcast Cable Communications and held various management positions with Westinghouse Electric Corporation. Mr. D'Ottavio received his B.B.A. in Economics from Kent State University. Michael J. Simmons has served as VIA's President since June 1999. From September 1998 to June 1999 he was Vice President, European Region. Mr. Simmons was employed by United Pan-Europe Communications, serving as Managing Director--Portugal, from July 1995 to September 1998, and as Vice President-- Marketing for A2000, the UPC and MEDIA ONE joint venture in Amsterdam. In that role, he was responsible for telephony and cable modem Internet products in both the residential and business markets, as well as all sales, customer service and call center operations. From September 1987 to December 1994, Mr. Simmons was employed by Comcast Cable Communications, serving first as General Manager of Comcast's Ft. Wayne, Indiana system and then as Area Vice President in New Jersey. Previously, he held marketing, sales and operating positions with Insight Communications and Westinghouse Broadcasting and Cable. Mr. Simmons received his B.A. in History and Communications from St. Mary's University of Minnesota. 45 C. Elliott Bardsley joined VIA in September 1997 as Vice President, Corporate Development and was Treasurer through August 1998. From September 1992 to March 1997, he was Vice President, Asia Pacific, for Orion Network Systems, Inc. where he was responsible for developing Orion's satellite business in the Asia Pacific region. Since May 1995, Mr. Bardsley also has been Chairman of Dark Horse Multimedia, Inc., an international Internet and telecommunications consulting firm. Mr. Bardsley received a B.S. degree, cum laude, in Computer Science from Union College and an M.B.A. from Stanford University. Kenneth Blackman joined VIA in May 1999 when we acquired WorldWide Web Services, the company he founded. He became Vice President, European Region in June 1999 after serving as Chairman and Managing Director of WorldWide Web Services since its founding in June 1996. Mr. Blackman also co-founded The Training Centre Ltd., a privately-held PC software training company, in 1990 and remained there until it was sold to Admiral plc, an international information technology services company, in January 1994. From January 1994 to June 1996, Mr. Blackman sat on the boards of various information technology service companies mostly within the Admiral plc group. Mr. Blackman received an honors degree in Physics from Bangor University in the United Kingdom. Catherine A. Graham joined VIA in July 1998 as Vice President, Chief Financial Officer and Treasurer. From January 1996 to July 1998, she was Vice President, Finance and Investor Relations Officer for Yurie Systems, Inc., a publicly traded telecommunications equipment manufacturer subsequently purchased by Lucent Technologies. Ms. Graham was responsible for Yurie's financial and risk management infrastructure, managing Yurie's initial public offering and handling communications with the investment community. From August 1994 to December 1995, she was with Smith Barney, Inc. as a consultant in the Corporate and Institutional Services Group. From August 1991 to April 1994, she was Chief Financial Officer, Treasurer and Senior Investor Relations Officer for DavCo Restaurants, Inc., the largest franchisee of Wendy's International. Ms. Graham received a B.A. in Economics from the University of Maryland and an M.B.A. from Loyola College. Kevin T. Malone joined VIA in July 1998 as Vice President, Information Technology. From January 1998 to July 1998, he was a General Partner in Infomatrix, a firm offering consulting services to software and communications companies. From May 1994 to January 1998, he worked as an independent consultant through Confluent Technologies, focusing on the design and development of billing, customer care and other back office systems. From 1981 to 1994, he held various positions with US Computer Services/Cabledata, including Vice President, International Software Development, where he was responsible for developing international billing and customer care applications. Mr. Malone studied Electrical Engineering at Southern Methodist University. Matt S. Nydell joined VIA in August 1998 as Vice President, General Counsel and Secretary. From November 1996 to August 1998, he was Director, Ventures and Alliances for MCI Communications Corporation, where he oversaw MCI's interest in Concert Communications Company, an international telecommunications joint venture with British Telecommunications. From June 1994 to November 1996, he was Senior Counsel in MCI's legal group responsible for supporting MCI's Mass Markets' advanced technologies and its information technology groups. Prior to joining MCI, Mr. Nydell was an attorney with the Washington office of Donovan Leisure Newton and Irvine, focusing on telecommunications and multimedia issues, and general corporate and commercial matters. Mr. Nydell received a J.D./M.A., foreign affairs, from the University of Virginia, and a B.A., with honors, in Philosophy from Bucknell University. Roy D. Stubbs II joined VIA in July 1998 as Vice President, Engineering and Technical Operations. From November 1997 to July 1998, he directed Engineering and Operations for Enterprise Network Applications, Inc., a company providing Operations Support System software to second and third tier telephone companies. From July 1991 to November 1997, Mr. Stubbs was also President and owner of DataSciences Atlanta, Inc., a company providing operating, strategic and network technology planning services to users and providers of telecommunications services. He served as Vice President, Technical Operations at AccessLine Technologies, Inc., a personal communications services company, from May 1994 to October 1995. Previously, Mr. Stubbs held various management positions with Bell South. Mr. Stubbs received a B.S. in Electrical Engineering from the University of Florida and an M.S. in Management Science from Pace University. 46 Antonio Tavares joined VIA in December 1998 when we acquired Dialdata S.A. Internet Systems and became Vice President, Latin American Region in May 1999. He had been President of Dialdata, a corporate Internet services provider in Brazil, since he founded it in 1993. Mr. Tavares was General Manager of Habasit, a Swiss manufacturer of industrial products, operating in Brazil, from April 1986 to May 1994. Since November 1996, he has served as President of ABRANET, the Brazilian Internet service providers association, responsible for leading the development of the Brazilian Internet industry. He also is the IT Director of FIESP, the Sao Paulo State Industry Association, and Director of Camara Portuguesa de Comercio do Brasil. Mr. Tavares is also a member of the National Advise of Telecommunications, a private council made up of several private telecommunication associations in Brazil. Mr. Tavares has completed the general course of Commerce at Escola Comercial Oliveira Martins in Portugal and also of Sales & Marketing at Fundacao Getulio Vargas in Brazil. Directors Gabriel A. Battista has served as a Director of VIA since June 1999. He is Chairman and Chief Executive Officer of Talk.com, Inc., where he has served since January 1999. From October 1996 to December 1998, he served as Chief Executive Officer of Network Solutions, Inc. From May 1994 to October 1996, he was Chief Executive Officer of Cable & Wireless, Inc., the nation's largest telecommunications services provider that exclusively serves businesses. Mr. Battista has also served as Chief Operating Officer of National Telephone Services and President of U.S. Sprint's Eastern Group and has held various positions with GTE Telenet and General Electric Information Services. Mr. Battista is a member of the board of directors of Axent Technologies, Inc., Capitol College, Systems & Computer Technology Corporation and Online Technologies Group, Inc. He is also a registered Professional Engineer in the State of Pennsylvania. Mr. Battista received a B.S.E.E. from Villanova University, an M.S.E.E. from Drexel University and an M.B.A. from Temple University. Stephen J. Eley has served as a Director of VIA since April 1999. Since January 1990, he has been a general partner of each of BCI Growth III, IV & V, private equity funds focused on providing growth capital to later stage companies. Prior to joining BCI, Mr. Eley was employed by AMEV Holdings/Venture Management in New York from 1986 to 1989 and by Peat Marwick Mitchell & Co. from 1983 to 1986. Mr. Eley received his B.S. in accounting in 1982 from the University of Rhode Island. William J. Elsner has served as a Director of VIA since September 1997. Since October 1997, he has been a Managing Member of Telecom Management II, L.L.C., a general partner of Telecom Partners II, L.P., a venture capital fund focused on early stage telecommunications services companies. From November 1995 until November 1997, Mr. Elsner was a private investor. From July 1991 until November 1995, Mr. Elsner was the Chief Executive Officer of United International Holdings, Inc., now UnitedGlobalCom, Inc., an international cable television operator he co-founded. Mr. Elsner is currently Chairman of the board of directors of Formus Communications and a member of the board of directors of Allied Riser Communications and VeloCom Inc. Mr. Elsner received a B.S. in Accounting from Regis University and an M.B.A. from the University of Denver. Adam Goldman has served as a Director of VIA since September 1999. Since April 1993, Mr. Goldman has been a general partner of Centennial Funds IV and V and is a managing principal of Centennial Fund VI. He serves as a senior vice president of Centennial Holdings, Inc., which he joined in 1992. From 1989 through 1991, Mr. Goldman was an associate of Booz, Allen and Hamilton in the strategy practice. Mr. Goldman is a member of the board of directors of Advanced TelCom Group and Chairman of the board of directors of Exactis.com. Previously, he served on the boards of Prime Video and Spectrum Resources of the Midwest and was Chairman of the board of directors of Centennial Telecommunications. Mr. Goldman is the Chairman of the board of directors and former President of the Venture Capital Association of Colorado. Mr. Goldman received a Bachelor of Arts in economics from Northwestern University and a Masters of Management from the J.L. Kellogg School of Management at Northwestern University. William A. Johnston has served as a Director of VIA since May 1998 and served as Chairman of VIA's board of directors from December 1998 through November 1999. Since January 1997, he has served as a 47 managing director of both Hancock Venture Partners, Inc. and HarbourVest Partners, LLC. He joined Hancock Venture Partners as a Vice President in January 1983 after working in the corporate finance department of John Hancock from 1981. He serves on the advisory council of the Centennial Funds and the advisory committees of Austin Ventures and Highland Capital Partners. Additionally, Mr. Johnston is a member of the board of directors of Benchmark Media, Inc., Epoch Networks, Inc., Formus Communications, Inc., Golden Sky Systems, Inc., The Marks Group, Inc. and Pangea, Ltd. Mr. Johnston received a B.S. from Colgate University and an M.B.A. from Syracuse University School of Management. Mark J. Masiello has served as a Director of VIA since September 1999. Since 1989, Mr. Masiello has been a principal of Providence Equity Partners Inc., and he is a member of the general partner of Providence's private equity funds. Mr. Masiello has been with Providence since 1989 and he currently serves as a director of MGC Communications Inc., Netcom Canada and Netcom UK. Mr. Masiello received a B.A. from Brown University. John G. Puente has served as a Director of VIA since April 1998. From 1987 through 1997, he held various positions at Orion Network Systems, Inc., most recently as the Chairman, Chief Executive Officer and member of the board of directors. He was a founder, and Chairman, of SouthernNet, Inc., and was instrumental in the founding of the National Telecommunications Network, a consortium of long distance fiber optic companies for which he served as the first Chairman. Mr. Puente was also a founder of DCC, Inc., which was merged with Microwave Associates in 1978 to form M/A-Com, subsequently acquired by Hughes Aircraft, now known as Hughes Network Systems, Inc. Mr. Puente is a member of the board of directors of Primus Telecommunications Group Inc. and Micros Systems, Inc. He is also Chairman of the board of directors of Internet Cargo Services, Inc. and Capitol College. Mr. Puente received a B.S.E.E. from Polytechnic University and an M.S.E.E. from Stevens Institute of Technology. Erik Torgerson has served as a Director of VIA since May 1999. He is a general partner of Norwest Equity Partners. Prior to joining Norwest Equity Partners in 1993, Mr. Torgerson was employed by Arthur Andersen & Co. in the financial consulting and audit practice. Mr. Torgerson currently serves on the board of directors at Norigen Communications, Inc., Golden Sky Systems, Inc. and Norwesco, Inc. He is a C.P.A. and received his B.S. degree from the University of Minnesota and his M.B.A. from the University of Iowa. Some of our stockholders have the right to designate members of our board of directors under the terms of a stockholders agreement we entered into with them. Specifically, each of Providence Equity Partners, L.P., BCI Growth V, LLC, Norwest Equity Partners, LLC, Centennial Fund VI, L.P., Telecom Partners II, L.P., Verio Inc. and HarbourVest International Private Equity Partners III- Direct Fund L.P. has a right to designate one member of our board of directors. The director designees of these stockholders are as follows: (1) Mr. Johnston is the director designee for HarbourVest International Private Equity Partners III-Direct Fund L.P. (2) Mr. Eley is the director designee for BCI Growth V, LLC (3) Mr. Elsner is the director designee for Telecom Partners II, L.P. (4) Mr. Goldman is the director designee for Centennial Fund VI, L.P. (5) Mr. Masiello is the director designee for Providence Equity Partners, L.P. (6) Mr. Torgerson is the director designee for Norwest Equity Partners, LLC The stockholders agreement also provides that parties to the agreement shall vote to elect our chief executive officer and two independent directors to the board of directors. Upon completion of this offering, these board designation rights will terminate. There are no family relationships among any of our directors or executive officers. 48 Board of Directors Our board of directors is authorized to have up to ten members and we currently have nine. Directors each serve for a one-year term. Committees of the Board of Directors Our board of directors has established an audit committee, a compensation committee, a finance committee and a nominating committee. Among other functions, the audit committee . nominates independent auditors for approval by our stockholders . reviews the scope, results and costs of the audit with our independent auditors . reviews our financial statements . reviews and evaluates our internal control practices The members of the audit committee are Mr. Torgerson, who is Chairman, and Messrs. Puente and Eley. The compensation committee is responsible for administering our 1998 Stock Option and Restricted Stock Plan and our Key Employee Equity Plan, both of which are described below, and for reviewing and approving all compensation arrangements for our officers. The members of the compensation committee are Mr. Puente, who is Chairman, and Messrs. Battista and Goldman. The finance committee is responsible for reviewing and making recommendations on proposed debt and equity financings. The members of the finance committee are Mr. Elsner, who is Chairman, and Messrs. Goldman, Johnston and Masiello. The nominating committee is responsible for identifying, evaluating and recommending individuals for membership on our board of directors and its committees. The members of the nominating committee are Mr. Battista, who is Chairman, and Messrs. D'Ottavio, Eley and Elsner. None of the members of the audit committee or the compensation committee performs the same function for any other entity whose executive officers serve on our board of directors. Limitation of Liability and Indemnification Matters We have adopted provisions in our amended and restated certificate of incorporation which provide that our directors shall not be liable for monetary damages to us or our stockholders for any breach of fiduciary duties to the fullest extent permitted by Delaware law. Such limitation of liability does not affect the availability of equitable remedies such as injunctive relief or rescission. In addition, our certificate of incorporation and by-laws require us to indemnify our directors and officers to the fullest extent permitted by Delaware law. At present, we are not aware of any pending or threatened material litigation or proceeding involving any director or officer where indemnification will be required or permitted. We believe that these provisions in our certificate of incorporation and bylaws are necessary to attract and retain qualified persons as directors and officers. 49 Executive Compensation The following table presents a summary of compensation paid to our Chief Executive Officer and each of our other executive officers whose salary and bonus exceeded $100,000 during the year ended December 31, 1998, all of whom we refer to as our named executive officers:
Long-Term Annual Compensation Compensation ------------------- ------------------ Securities Name and Principal Positions Salary Bonus Underlying Options - ---------------------------- ------------------- ------------------ David M. D'Ottavio(1)................... $ 212,500 $ 100,000 300,000 Chief Executive Officer C. Elliott Bardsley..................... 142,598 75,162 110,000 Vice President, Corporate Development Catherine A. Graham(2).................. 78,570 33,000 110,000 Vice President, Chief Financial Officer & Treasurer
- --------------------- (1) Mr. D'Ottavio joined VIA on April 14, 1998. (2) Ms. Graham joined VIA on July 13, 1998. Option Grants in Last Fiscal Year. The following table provides information relating to options to purchase common stock we granted our named executive officers during the year ended December 31, 1998. The percentages in the table below are based on the options to purchase shares of our common stock we granted under our 1998 Stock Option and Restricted Stock Plan in the year ended December 31, 1998. The options described in the table below become exercisable over a period of four years and have a term of ten years. The exercise price per share of each option was equal to the fair market value of the common stock on the date of grant as determined by our board of directors. Potential realizable values are net of exercise price before taxes and are based on the assumption that our common stock appreciates at the annual rates shown, compounded annually, from the date of grant until the expiration of the 10-year term. These numbers are calculated based on the requirements of the SEC and do not reflect our estimates of future stock price growth. Option Grants in Last Fiscal Year
Potential Realizable Value at Assumed Annual Rates of Share Price Appreciation Individual Grants for Option Term ------------------------------- ---------------------- Number of Percent of Total Securities Options Underlying Granted to Options Employees in Exercise Price Expiration Name Granted Fiscal Year Per Share Date 5% 10% - ---- ---------- ---------------- -------------- ---------- ---------- ----------- David M. D'Ottavio...... 300,000 29.6% $1.00 4/14/08 $188,668 $478,122 C. Elliott Bardsley..... 110,000 10.8 2.40 5/1/08 166,028 420,748 Catherine A. Graham..... 110,000 10.8 2.40 8/1/08 166,028 420,748
Option Exercises and Fiscal Year-End Option Values. The table below presents summary information with respect to stock options owned by our named executive officers at December 31, 1998, none of whom exercised stock options in 1998. We have calculated the value of unexercised in-the-money options based on our determination that the fair value of our common stock on December 31, 1998 was $2.40 per share. We determined this value on a basis consistent with the method we used to price shares of preferred stock we sold to our investors. 50 Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
Dollar Number of Securities Value of Unexercised Underlying Unexercised In-The-Money Options Options at December 31, 1998 at December 31, 1998 --------------------------------- ------------------------- Name Exercisable Unexercisable Exercisable Unexercisable - ---- -------------- --------------- ----------- ------------- David M. D'Ottavio...... -- 300,000 -- $420,000 C. Elliott Bardsley..... 32,083 77,917 -- -- Catherine A. Graham..... -- 110,000 -- --
Key Employee Equity Plan In 1998, we adopted the Key Employee Equity Plan to attract and retain qualified officers, key employees, directors and other persons at VIA and our operating companies by granting them the right to purchase shares of our common stock. Typically, purchase rights under this plan are fully vested on the date of the grant and expire two months from the date of the grant unless earlier terminated. A total of 800,000 shares have been reserved for issuance under our Key Employee Equity Plan, of which 445,158 have been issued and are currently outstanding, and an additional 5,000 are subject to outstanding purchase rights, as of the date of this prospectus. Our compensation committee, which administers the Key Employee Equity Plan, has full power and final authority to designate the grantees, to determine the number of purchase rights awarded, and to determine the terms and conditions relating to the vesting, exercise, transfer or forfeiture of the grant, including the exercise price. Upon termination of a grantee's employment or other relationship with us, any unexercised purchase rights held by the grantee terminate immediately. 1998 Stock Option and Restricted Stock Plan We have adopted the 1998 Stock Option and Restricted Stock Plan, which allows us to issue restricted shares of our common stock or options to purchase shares of our common stock. The total number of shares of our common stock available for issuance under the 1998 plan is 9,200,000, no more than 125,000 of which may be issued in the form of restricted common stock. No person may be granted more than 125,000 shares of restricted stock or options to purchase more than 400,000 shares of stock in any calendar year. The 1998 plan is administered by the compensation committee. Except as described in the plan, our compensation committee determines the grantees, the type of grant, number of shares subject to each grant, and the term, exercise price, and vesting schedules for each grant. All of our employees are eligible to participate under the 1998 plan. The maximum term of options granted under the 1998 plan is ten years. As of the date of this prospectus, options to purchase 4,622,500 shares of common stock have been issued and are outstanding under the 1998 plan. All of these options are subject to vesting requirements based on continued employment, typically vesting over two to four years, and have an exercise price equal to what the board determined the fair market value of the common stock to be on the date of the grant. Employment Agreements We have entered into an agreement with Mr. Kenneth Blackman under which he receives an annual salary of approximately $160,000, is eligible to receive an annual bonus of up to 50% of his annual base salary and is entitled to other specified benefits. In addition, Mr. Blackman is entitled to receive 12 months' notice prior to termination until June 22, 2000 and six months' notice after June 22, 2000. We also have entered into an agreement with Mr. Antonio Tavares under which he became one of our executive officers. This agreement entitles Mr. Tavares to receive an annual bonus of up to 60% of his base annual salary through December 31, 1999. Beginning January 1, 2000, Mr. Tavares' maximum annual bonus will be 50% of his base annual salary. 51 Compensation of Directors During fiscal year 1998, our directors were not compensated for serving as members of the board of directors. Beginning in 1999, each of our independent directors who is not an employee of VIA or a board designee of one of our preferred stockholders receives an annual fee of $5,000 for serving on our board, plus a $1,000 fee for each regularly scheduled meeting he or she attends and a $500 fee for each special meeting and each committee meeting he or she attends. In addition, each of these directors, upon joining our board, receives an option to purchase 100,000 shares of our common stock at an exercise price equal to the fair market value of the stock on the date of grant. Currently Messrs. Battista and Puente are our only directors who have received this compensation. During fiscal year 1999, Mr. Battista also received and exercised the right to purchase 50,000 shares of our common stock under our Key Employee Equity Plan at a per share price of $4.00. All of our directors are reimbursed for travel and other expenses relating to attendance at meetings of the board of directors or committees of the board of directors. 52 TRANSACTIONS WITH RELATED PARTIES Preferred Stock Purchases In connection with our preferred stock financings, some of our directors, our executive officers, and persons who hold 5% or more of our stock, or entities affiliated with these persons, purchased stock from us. Details regarding these purchases by 5% stockholders are shown in the table below. Share amounts and prices in the following table give effect to the conversion upon the closing of this offering of each outstanding share of our preferred stock into one share of our common stock.
Number of Aggregate Shares of Additional Relationship to Date of Purchase Price Common Stock Purchaser VIA Purchase (In thousands) Purchased --------- -------------------------- --------- -------------- ------------ The Centennial Funds.... Adam Goldman, a director, is August 97 $ 200 200,000 a general partner of April 98 90 90,951 Centennial Funds IV and V May 98 8,000 2,666,667 and is a managing principal April 99 27,720 4,620,033 of Centennial Fund VI. He serves as a senior vice president of Centennial Holdings, Inc. Norwest Equity Capital.. Eric Torgerson, a director, August 97 200 200,000 is a general partner of April 98 91 91,928 Norwest Equity Partners. May 98 6,000 2,000,000 April 99 26,500 4,416,667 Telecom Partners II..... William J. Elsner, a August 97 200 200,000 director, has been a April 98 91 91,928 managing member of Telecom May 98 8,000 2,666,667 Management II, L.L.C., an April 99 7,000 1,166,667 affiliate of Telecom Partners II, L.P., since November 1997 HarbourVest William Johnston, a May 98 8,000 2,666,667 International.......... director, is a managing April 99 7,000 1,166,667 director of HarbourVest Partners, LLC. Providence Equity Mark Masiello, a director, April 99 19,999 3,333,333 Partners............... is a principal of Providence Equity Partners Inc., and is a member of the general partner of Providence's private equity funds Verio................... None August 97 200 200,000 April 98 91 91,928 May 98 8,000 2,666,667 Boston Millennia None May 98 4,389 1,463,333 Partners............... April 99 7,000 1,166,667
Stockholders Agreement. We entered into a stockholders agreement with the purchasers of our preferred stock. As amended in April 1999, this agreement gives each of the following stockholders the right to designate one director to our board: Providence Equity Partners, L.P., BCI Growth V, LLC, Norwest Equity Partners, LLC, Centennial Fund VI, L.P., Telecom Partners II, L.P., Verio Inc. and HarbourVest International Private Equity Partners III-Direct Fund L.P. The stockholders agreement also gives our preferred stockholders a right of first refusal to purchase some or all of the shares of stock that are proposed to be sold by us, by some of our officers or by other preferred stockholders. In the context of our initial public offering, the stockholders agreement gives our preferred stockholders the right to purchase in the aggregate up to 5% of the shares of stock sold in the offering. All of these rights will terminate upon the closing of this offering. The stockholders agreement also gives our preferred stockholders the right to require us to register their shares of common stock for resale and to pay the expenses of registering their shares. These registration rights will continue until 2009, but will terminate early for any stockholder whose shares may be sold under Rule 144(k) under the Securities Act, so long as that stockholder holds less than 2% of our then outstanding shares of common stock. 53 Common Stock Purchases The following table gives information about purchases of our common stock since inception by our directors or executive officers where the value of the stock purchased was $60,000 or more:
Number of Aggregate Shares of Date of Purchase Price Common Stock Purchaser Relationship to VIA Purchase (In thousands) Purchased --------- ---------------------------- ------------ -------------- ------------ David M. D'Ottavio...... Chief Executive Officer and April 98 $150 150,000 Chairman of the Board of Directors Michael J. Simmons...... President January 99 120 50,000 C. Elliott Bardsley..... Vice President, Corporate January 99 120 50,000 Development Catherine A. Graham..... Vice President, Chief January 99 120 50,000 Financial Officer and Treasurer Kevin T. Malone......... Vice President, Information January 99 120 50,000 Systems Matt S. Nydell.......... Vice President, General January 99 95 39,584 Counsel and Secretary Antonio Tavares......... Vice President, Latin July 99 140 35,000 American Region Gabriel Battista........ Director August 99 200 50,000 Kenneth Blackman........ Vice President, European September 99 160 40,000 Region September 99 631 76,506
Registration Rights. We have entered into a registration rights agreement with some purchasers of our common stock, including Mr. Blackman. Under this agreement, if at any time after our initial public offering we decide to register shares of our common stock for our own account or for the account of other stockholders, then our stockholders who are parties to the registration rights agreement may require us to register their shares of common stock as well. We are obligated to pay all expenses incurred in connection with registering shares of common stock under the registration rights agreement. Options and Warrants The table below shows information about stock options we have granted to our directors and executive officers that have a value in excess of $60,000, based on the difference between the option exercise price per share and the value of the underlying stock on the date of grant. Each of these options is subject to vesting based on the grantee's continued employment or service as a director and vests over a period of three or four years from the date of grant.
Number of Shares of Common Stock Grantee Relationship to VIA Date of Grant Underlying Grant ------- ------------------------ ------------- ------------------- Chief Executive Officer David M. D'Ottavio and Chairman of the April 6, 1999 100,000 Board of Directors May 25, 1999 100,000 Michael J. Simmons President April 6, 1999 35,000 June 7, 1999 100,000 Vice President, European Kenneth Blackman Region June 7, 1999 75,000 Vice President, Latin Antonio Tavares American Region May 25, 1999 75,000 Gabriel A. Battista Director June 7, 1999 100,000
54 In April 1998 we issued a warrant to Steven C. Halstedt, who at the time was a director of VIA, to purchase 100,000 shares of our common stock at a per share price of $2.40. The warrant, which was exercisable upon issuance and has a term of five years, was issued in consideration of Mr. Halstedt's services to VIA as acting president. Centennial Fund V, L.P., of which Mr. Halstedt is a principal, and which holds more than 5% of our outstanding stock, has informed us that it is entitled to the economic benefit of this warrant under the terms of its partnership agreement. Acquisitions of Dialdata and WorldWide Web Services In December 1998, we purchased stock totaling 51% of the outstanding stock of Dialdata S.A. Internet Systems, located in Brazil, from Dialdata and from some of Dialdata's shareholders. In exchange for the shares we purchased from Dialdata, we paid $1.4 million in cash and $4.1 million in notes bearing interest at an annual rate of 4% and payable in ten equal monthly installments, the last of which we paid in October 1999. Mr. Antonio Tavares, a co-founder of Dialdata who owned 35.7% of Dialdata prior to our acquisition and 19.2% after our acquisition, became one of our executive officers after our acquisition of Dialdata. As part of our acquisition, Mr. Tavares also sold us shares of stock in Dialdata for $960,000 in cash. In July 1999, we acquired additional shares representing 2.3% of Dialdata's stock from Mr. Tavares in exchange for 35,000 shares of VIA common stock. In May 1999, we acquired all of the outstanding stock of WorldWide Web Services, Inc., located in the United Kingdom, for $7.3 million in cash and promissory notes, which bore interest at an annual rate of 5%. We paid off the entire outstanding balance due under the notes in September 1999. Mr. Kenneth Blackman owned 23.0% of WorldWide Web Services prior to our acquisition of the company. Mr. Blackman became one of our executive officers subsequent to our acquisition of WorldWide Web Services. Our acquisitions of Dialdata and WorldWide Web Services were each consummated in the local currency for these companies. As a result, the dollar amounts stated above are based on the exchange rates we used to make these calculations. 55 PRINCIPAL STOCKHOLDERS The following table shows the number and percentage of outstanding shares of our common stock that were owned as of November 15, 1999 and that will be owned immediately following this offering by: . each person who we know to be the beneficial owner of more than 5% of our outstanding common stock . each of our directors and named executive officers . all of our directors and executive officers as a group. Share numbers and percentages in this table and the related footnotes assume that each share of our mandatorily redeemable convertible preferred common stock has been converted into one share of our common stock or our non-voting common stock, which will occur concurrently with the closing of this offering. Information in this section also assumes the underwriters' over-allotment option is not exercised. As of November 15, 1999, there were 35,181,320 shares of common stock outstanding and 6,770,001 shares of non-voting common stock outstanding. Following this offering, we will have shares of common stock outstanding and 6,770,001 shares of non-voting common stock outstanding. The total number of shares of common stock outstanding used in calculating the percentage owned by each person includes the shares of common stock issuable upon conversion of our non-voting common stock or upon the exercise of options held by that person that are exercisable within 60 days of November 15, 1999. Unless indicated otherwise below, the address for our directors and officers is c/o VIA NET.WORKS, Inc., 12100 Sunset Hills Road, Suite 110, Reston, VA 20190. Except as indicated below, the persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them.
Percentage of Shares Beneficially Owned Number of Shares ------------------------ Beneficially Owned Before After Name Before Offering Offering Offering ---- ------------------ ---------- ---------- Norwest Equity Capital, L.L.C. and related entity(1).......... 6,708,595 16.7% Telecom Partners II, L.P. and related entity(2).............. 4,175,262 11.9 Centennial Fund V, L.P.(3)...... 4,005,806 11.4 HarbourVest International Private Equity Partners III- Direct Fund L.P.(4)............ 3,833,334 10.9 Providence Equity Partners L.P. and affiliated entity(5)....... 3,333,333 9.3 Centennial Fund VI, L.P.(6)..... 3,189,792 9.1 Verio Inc.(7)................... 2,958,595 8.4 Boston Millennia Partners Limited Partnership and affiliated entities(8)......... 2,630,006 7.5 David M. D'Ottavio(9)........... 337,449 1.0 C. Elliott Bardsley(10)......... 207,313 * Catherine A. Graham(11)......... 113,955 * Gabriel A. Battista............. 50,000 * Stephen J. Eley(12)............. 1,666,666 4.7 William J. Elsner(2)............ 4,175,262 11.9 Adam Goldman(3)................. -- -- William A. Johnston(4).......... -- -- Mark J. Masiello(5)............. -- -- John G. Puente.................. 50,000 * Erik M. Torgerson(13)........... 2,500,000 6.7 All directors and executive officers as a group (17 persons)(14)............... 9,579,230 25.4
- --------------------- * Less than 1%. (1) Consists of 5,050,000 shares of common stock issuable upon the conversion of shares of non-voting common stock held by Norwest Equity Capital, L.L.C., 1,366,667 shares of common stock held by Norwest Equity Capital, L.L.C. and 291,928 shares of common stock held by Norwest Venture Partners VI, L.P., an entity affiliated with Norwest Equity Capital. Mr. Torgerson is a General Partner of Norwest Equity Partners, an entity affiliated with Norwest Venture Partners and Norwest Equity Capital and, as 56 such, shares voting and investment power over Norwest Equity Capital's shares. Mr. Torgerson disclaims beneficial ownership over these shares except to the extent of his pecuniary interest in them. The address of Norwest Equity Capital and Norwest Venture Partners is 2800 Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota 55402. (2) Consists of 408,333 shares held by Telecom Partners, an entity affiliated with Telecom Partners II, L.P. and 3,766,929 shares held by Telecom Partners II. Mr. Elsner is a managing member of the general partner of Telecom Partners II and, as such, may be deemed to share voting and investment power over these shares. Mr. Elsner disclaims beneficial ownership over these shares except to the extent of his pecuniary interest in them. The address of Telecom Partners II, L.P. and Mr. Elsner is 4600 South Syracuse, Suite 1000, Denver, Colorado 80237. (3) Excludes 3,189,792 shares held by Centennial Fund VI, L.P. and 429,991 shares held by other entities affiliated with Centennial Fund V, L.P., over which Centennial Fund V has no voting or investment control. Mr. Goldman, who is a general partner or managing principal of the general partner of each of Centennial Fund V and Centennial Fund VI, has no voting or investment power over any of these shares and disclaims beneficial ownership over any of these shares except to the extent of his pecuniary interest in them. The address for Centennial Fund V, L.P. is 1428 Fifteenth Street, Denver, Colorado 80202. (4) Sole voting and investment power over these shares is held by the managing members of HarbourVest Partners, LLC, which is the managing member of HIPEP III--Direct Associates L.L.C., which in turn is the general partner of HarbourVest International Private Equity Partners III-Direct Fund L.P. The address of HarbourVest International Private Equity Partners III and of Mr. Johnston is c/o HarbourVest Partners, LLC, One Financial Center, 44th Floor, Boston, Massachusetts 02111. (5) Includes 833,334 shares of non-voting common stock held by Providence Equity Partners II L.P. and 45,840 shares of common stock held by Providence Equity Partners II L.P., an entity affiliated with Providence Equity Partners. Mr. Masiello, who is a principal of Providence Equity Partners Inc., the investment advisor to Providence Equity Partners and Providence Equity Partners II, has no voting or investment power over these shares and disclaims beneficial ownership of these shares except to the extent of his pecuniary interest in them. The address for Providence Equity Partners and Providence Equity Partners II is 50 Kennedy Plaza, 900 Fleet Center, Providence, Rhode Island 02903. (6) Excludes 4,005,806 shares held by Centennial Fund V, L.P. and 429,991 shares held by other entities affiliated with Centennial Fund VI, L.P., over which Centennial Fund VI has no voting or investment control. The address for Centennial Fund VI, L.P. is 1428 Fifteenth Street, Denver, Colorado 80202. (7) The address of Verio Inc. is 8005 South Chester Street, Suite 200, Englewood, Colorado 80112. (8) Includes 50,636 shares held by entities affiliated with Boston Millennia Partners Limited Partnership. The address of Boston Millennia Partners is 30 Rowes Wharf, Boston, Massachusetts 02110. (9) Includes 187,499 shares of common stock issuable upon the exercise of options held by Mr. D'Ottavio that are exercisable within 60 days. (10) Includes 74,371 shares of common stock issuable upon the exercise of options held by Mr. Bardsley that are exercisable within 60 days. (11) Includes 63,955 shares of common stock issuable upon the exercise of options held by Ms. Graham that are exercisable within 60 days. (12) Consists of 1,633,333 shares held by BCI Growth V, LP and 33,333 shares held by BCI Investors LLC. Mr. Eley is a general partner of BCI Growth V and, as such, may be deemed to share voting and investment power over these shares. Mr. Eley disclaims beneficial ownership of these shares except to the extent of his pecuniary interest in them. (13) Consists of 433,962 shares of common stock held by Norwest Equity Capital and 2,066,038 shares issuable upon the conversion of shares of non-voting common stock held by Norwest Equity Capital. See note (1). (14) Includes 2,066,038 shares of common stock issuable upon the conversion of shares of non-voting common stock and 512,270 shares of common stock issuable upon the exercise of options held by our directors and executive officers that are exercisable within 60 days. See notes (1) through (13). 57 DESCRIPTION OF CAPITAL STOCK General Until the closing of this offering, our authorized capital stock will consist of 57,000,000 shares of common stock, par value $0.001 per share, 7,500,000 shares of non-voting common stock, par value $0.001 per share, and 48,800,000 shares of preferred stock, par value $0.001 per share. As of November 15, 1999, there were 1,957,671 shares of common stock outstanding and 39,993,650 shares of mandatorily redeemable convertible preferred stock outstanding which will convert into 33,223,649 shares of common stock and 6,770,001 shares of non- voting common stock concurrently with the closing of this offering. Our outstanding shares were held by 66 stockholders of record. In addition, as of November 15, 1999 there were outstanding stock options to purchase a total of 4,622,500 shares of common stock at a weighted average exercise price of $6.08 per share, a warrant to purchase a total of 100,000 shares of common stock at an exercise price of $2.40 per share and a right to purchase 5,000 shares of common stock for $8.25 per share. Following this offering, based on the number of shares of common and mandatorily redeemable convertible preferred stock outstanding on November 15, 1999, we will have outstanding shares of common stock and 6,770,001 shares of non-voting common stock. Upon the closing of this offering, our certificate of incorporation will be amended and restated to include the following provisions: Common Stock We will be authorized to issue 100,000,000 shares of common stock and 7,500,000 shares of non-voting common stock. Each stockholder of record will be entitled to one vote for each outstanding share of our common stock owned by that stockholder on every matter properly submitted to the stockholders for their vote. Holders of non-voting common stock will not be entitled to vote except as required by law, and each share of non-voting common stock will be convertible into one share of common stock at the holder's option at any time. In all other respects, the rights of the non-voting common stock will be the same as those of the common stock. After satisfaction of the dividend rights of holders of preferred stock, holders of common stock are entitled to any dividend declared by the board of directors out of funds legally available for this purpose, and, after the payment of liquidation preferences to holders of preferred stock, holders of common stock are entitled to receive, on a pro rata basis, all our remaining assets available for distribution to the stockholders in the event of our liquidation, dissolution or winding up. Holders of common stock do not have any preemptive right to become subscribers or purchasers of additional shares of any class of our capital stock. The outstanding shares of common stock are, and the shares of common stock offered in this offering will be, when issued and paid for, fully paid and non-assessable. The rights, preferences and privileges of holders of common stock may be adversely affected by the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future. Preferred Stock Our certificate of incorporation will allow us to issue without stockholder approval preferred stock having rights senior to those of the common stock. Our board of directors will be authorized, without further stockholder approval, to issue up to 10,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions of any series of preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences and to fix the number of shares constituting any series and the designations of these series. Our issuance of preferred stock may have the effect of delaying or preventing a change in control. Our issuance of preferred stock could decrease the amount of earnings and assets available for distribution to the holders of common stock or could adversely affect the rights and powers, including voting rights, of the holders of common stock. The issuance of preferred stock could also have the effect of decreasing the market price of the common stock. 58 Transfer Agent and Registrar The transfer agent and registrar for our common stock is . Listing We intend to apply to have our common stock approved for quotation on the Nasdaq National Market under the trading symbol "VNWI." SHARES ELIGIBLE FOR FUTURE SALE Sales of substantial amounts of our common stock in the public market could adversely affect our common stock's prevailing market price. Upon completion of this offering, we will have outstanding shares of our common stock and 6,770,001 shares of our non-voting common stock, assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options. Because each share of non-voting common stock may be converted into one share of common stock at the holder's option, information in this section assumes the conversion of each share of non-voting common stock into one share of common stock. Of these shares, all of the shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless the shares are purchased by "affiliates" of VIA as that term is defined in Rule 144 under the Securities Act. The remaining 41,951,321 shares of common stock held by existing stockholders are "restricted securities" as that term is defined in Rule 144 under the Securities Act. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Securities Act Rule 144 or 701. We summarize these two rules below. The provisions of Rules 144 and 701 provide that the restricted securities will be available for sale in the public market on the date which is one year from the date they were issued and fully paid for, so long as the sellers of restricted securities comply with the volume limitations and other conditions of Rule 144. Rule 144 Under Rule 40,652,810 shares of common stock will be freely tradable 90 days after this offering closes. Sales of some of these shares of common stock will be limited under lock-up agreements with the underwriters. In general, under Rule 144, beginning 90 days after the closing of this offering, a person who has owned shares of our common stock for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of: . 1% of the number of shares of common stock then outstanding, which will equal approximately shares immediately after this offering; or . the average weekly trading volume of the common stock on the Nasdaq National Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale. Sales under Rule 144 are also governed by manner of sale provisions and notice requirements, and current public information about VIA must be available. Under Rule 144(k), an additional 225,000 shares of common stock will be freely tradable after this offering closes. Some of these shares of common stock will be restricted from sale under lock-up agreements. Under Rule 144(k), a person who is not one of our affiliates at any time during the 90 days preceding a sale, and who has owned the shares proposed to be sold for at least two years, is entitled to sell the shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Therefore, unless otherwise restricted, "Rule 144(k) shares" may be sold immediately upon the completion of this offering. 59 Rule 701 As of November 15, 1999, 102,000 shares of common stock had been issued or were issuable upon the exercise of options granted in reliance on Rule 701. All of these shares will be eligible for sale in reliance on Rule 701 beginning 90 days after the closing of this offering. Of these shares of common stock, transfers of will be restricted by lock-up agreements. In general, under Rule 701 as currently in effect, any of our employees who have purchased shares from us in connection with a compensatory plan or other agreement is eligible to resell those shares 90 days after the effective date of this offering in reliance on Rule 144, but without compliance with restrictions, including the holding period, contained in Rule 144. Registration Rights Upon the closing of this offering, the holders of 40,326,676 shares of common stock and non-voting common stock that are restricted securities will be entitled to require us to register sales of their shares of common stock with the SEC. Under the stockholders agreement we entered into with purchasers of our mandatorily redeemable convertible preferred stock, holders of 39,993,650 shares of common stock and non-voting common stock will be entitled to have us register their shares of common stock, including common stock issuable upon the conversion of their non-voting common stock, upon request, so long as the shares to be sold represent at least 10% of the securities subject to the stockholders agreement or so long as we are eligible to file a short-form registration statement with the SEC and the shares to be sold will be sold for an anticipated offering price of at least $5,000,000. In addition, if we register any of our securities under the Securities Act for our own account or for the account of other stockholders, these stockholders are entitled to notice of the registration and are entitled to include their shares of common stock in the registration, subject to limitations in the case of an underwritten offering. In most circumstances, we will be required to pay the expense of registering these stockholders' shares. In addition, the holders of 332,926 shares of our common stock have entered into a registration rights agreement with us. Under the registration rights agreement, if at any time after this offering we register any of our securities under the Securities Act for our own account or for the account of other stockholders, these stockholders are entitled to notice of the registration and are entitled to include their shares of common stock in the registration, subject to limitations in the case of an underwritten offering. Under the registration rights agreement, we will be required to pay the expense of registering these stockholders' shares. Stock Options As soon as practicable after this offering, we intend to file a registration statement under the Securities Act covering 9,200,000 shares of common stock reserved for issuance under our stock plan. As of November 15, 1999, options to purchase 4,622,500 shares of common stock were outstanding. The registration statement is expected to be filed and become effective as soon as practicable after the effective date of this offering. Accordingly, shares registered under this registration statement will, provided options have vested and Rule 144 volume limitations applicable to our affiliates are complied with, be available for sale in the open market shortly after this offering closes, and in the case of our officers, directors and stockholders who have entered into lock-up agreements, after the 180-day lock-up agreements expire. Lock-Up Agreements All of VIA's officers and directors, and several of its stockholders, who will beneficially own shares of common stock after this offering closes, will sign lock-up agreements with the underwriters under which they will agree, among other things, not to offer, sell or agree to sell, directly or indirectly, or otherwise dispose of any shares of common stock or any securities convertible into or exercisable or exchangeable for shares of common stock, for a period of 180 days after the date of this prospectus. Transfers or dispositions can be made sooner with the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation. This consent may be given at any time without public notice. 60 MATERIAL FEDERAL INCOME TAX CONSEQUENCES TO NON-UNITED STATES STOCKHOLDERS This is a general summary of material United States federal income and estate tax considerations with respect to your acquisition, ownership and disposition of common stock if you are a holder other than: . a citizen or resident of the United States . a corporation, partnership or other entity created or organized in, or under the laws of, the United States or of any political subdivision of the United States . an estate, the income of which is subject to United States federal income taxation regardless of its source . a trust, if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust or . a trust that existed on August 20, 1996 and elected to be treated as a domestic trust as of that date This summary does not address all United States federal income and estate tax considerations that may be relevant to you in light of your particular circumstances or if you are a holder subject to special treatment under United States income tax laws, such as insurance companies, tax-exempt organizations, financial institutions, brokers, dealers in securities, and certain U.S. expatriates. This summary does not discuss any aspects of state, local or non- United States taxation. This summary is based on current provisions of the Internal Revenue Code, Treasury regulations, judicial opinions, published positions of the IRS, and all other applicable authorities, all of which are subject to change, possibly with retroactive effect. We urge prospective non-United States investors to consult their tax advisors regarding the United States federal, state, local and non-United States income and other tax considerations of acquiring, holding and disposing of shares of our common stock. Dividends As described above, we do not expect to pay you dividends. If we later decide to pay dividends, any dividends we pay to you generally would be subject to United States withholding tax at a rate of 30%, or a lower rate prescribed by an applicable income tax treaty, of the gross amount of the dividends unless the dividends were effectively connected with your conduct of a trade or business within the United States, or if selected tax treaties apply, were attributable to a United States permanent establishment maintained by you, and you file the appropriate documentation with us. Dividends effectively connected with a United States trade or business generally would be subject to United States federal income tax on a net income basis, in the same manner as generally applied to United States persons. If you are a corporation, effectively connected income could also be subject to the branch profits tax at a rate of 30%, or a lower rate as may be specified by an applicable income tax treaty, on the repatriation from the United States of your "effectively connected earnings and profits," subject to adjustments. If we later decide to pay dividends, you should consult any applicable income tax treaties that may provide for a lower rate of tax or other rules different from those described above. You could be required to satisfy certification requirements to claim treaty benefits or otherwise claim a reduction of, or exemption from, withholding under these rules. Sale or Other Dispositions of the Common Stock You generally will not be subject to United States federal income tax on any gain realized upon the sale or other disposition of your shares of common stock unless: . the gain is effectively connected with the conduct of a trade or business within the United States, or, if some tax treaties apply, is attributable to a United States permanent establishment you maintain . you are an individual, you hold shares of common stock as a capital asset, you are present in the United States for 183 days or more in the taxable year of disposition and you meet other requirements 61 . you are subject to tax pursuant to the provisions of the Internal Revenue Code regarding the taxation of some U.S. expatriates or . we are or have been a "United States real property holding corporation" for United States federal income tax purposes, which we do not believe that we are or will become, and you hold or have held, directly or indirectly, at any time within the shorter of the five-year period preceding disposition or your holding period for the shares of the common stock, more than 5% of the common stock Gain that is effectively connected with your conduct of a trade or business within the United States generally will be subject to United States federal income tax on a net income basis, in the same manner as generally applied to United States persons, and if you are a corporation, the branch profits tax may also apply in some circumstances, but you will not be subject to withholding. If you are described in the second bullet point above, you generally will be subject to tax at a rate of 30% on the gain realized, although the gain may be offset by some United States capital losses. You should consult any applicable income tax treaties that may provide for a lower rate of tax or other rules different from those described above. Information Reporting and Backup Withholding We do not currently anticipate paying dividends to you, but if we decide to pay dividends in the future, we would be required to report annually to the IRS and to you the amount of dividends we pay you and any tax we withhold. These reporting requirements would apply regardless of whether withholding is reduced by an applicable income tax treaty. Backup withholding, currently at a rate of 31%, could also apply under special circumstances. Under current Treasury regulations, United States information reporting requirements and backup withholding tax at a rate of 31% will generally apply to payments to you of the proceeds of a sale of the common stock by a United States office of a broker unless you certify, under penalties of perjury, that you are not a U.S. holder or otherwise establish an exemption. Information reporting, but not backup withholding, generally will also apply to payments of the proceeds of sales of the common stock by foreign offices of United States brokers, or foreign brokers with some types of relationships with the United States, unless the broker has documentary evidence in its records that you are not a U.S. holder and some other conditions are met, or you otherwise establish an exemption. The IRS has issued Treasury regulations generally effective for payments made after December 31, 2000 that will affect the procedures to be followed by you in establishing that you are not a U.S. holder for purposes of the backup withholding and information reporting requirements. Among other things, if you are not currently required to furnish certification of foreign status, you may be required to furnish certification of foreign status in the future. You should consult your tax advisor concerning the effect of this regulation on an investment in the common stock. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to you can be refunded or credited against your United States federal income tax liability, if any, if the required information is furnished to the IRS. Pursuant to applicable tax treaties or other agreements, any information reported to us also may be made available to the tax authorities in the country in which you reside or are established. Estate Tax Common stock owned or treated as owned by an individual who is not a citizen or resident, as defined for United States federal estate tax purposes, of the United States at the time of his or her death, or specified lifetime transfers made by the individual, will be includible in the individual's gross estate for United States federal estate tax purposes, unless an applicable estate tax treaty provides otherwise, and therefore may be subject to United States federal estate tax. 62 UNDERWRITING Subject to the terms and conditions of an underwriting agreement, dated as of , 2000, the U.S. underwriters named below, who are represented by Donaldson, Lufkin & Jenrette Securities Corporation, Morgan Stanley & Co. Incorporated, Salomon Smith Barney Inc. and DLJdirect Inc., and the international managers named below, together with the U.S. underwriters, the "underwriters," who are represented by Donaldson, Lufkin & Jenrette International, Morgan Stanley & Co. International Limited, Salomon Brothers International Limited,Cazenove & Co. and MeesPierson, N.V., together with the U.S. representatives, the "representatives," have severally agreed to purchase from us the respective number of shares of common stock shown opposite their names below.
U.S. Underwriters Number of Shares Donaldson, Lufkin & Jenrette Securities Corporation............ Morgan Stanley & Co. Incorporated ............................. Salomon Smith Barney Inc....................................... DLJdirect Inc.................................................. ---- Subtotal..................................................... ---- International Managers Number of Shares Donaldson, Lufkin & Jenrette International..................... Morgan Stanley & Co. International Limited..................... Salomon Brothers International Limited......................... Cazenove & Co. ................................................ MeesPierson, N.V. ............................................. ---- Subtotal..................................................... ---- Total.......................................................... ====
The underwriting agreement provides that the obligations of the several underwriters to purchase and accept delivery of the shares of common stock included in this offering are subject to approval of legal matters by their counsel and to customary conditions, including the effectiveness of the registration statement, the continuing correctness of our representations, the receipt of a "comfort letter" from our accountants, the listing of the common stock for quotation on the Nasdaq National Market and no occurrence of an event that would have a material adverse effect on us. The underwriters are obligated to purchase and accept delivery of all the shares of common stock, other than those covered by the over-allotment option described below, if they purchase any of the shares of common stock. The underwriters propose to offer initially some of the shares of common stock directly to the public at the public offering price on the cover page of this prospectus and some of the shares of common stock to dealers, including the underwriters, at the initial public offering price less a concession not in excess of $. per share. The underwriters may allow, and these dealers may re- allow, a concession not in excess of $. per share to other dealers. After the initial offering of the common stock to the public, the representatives of the underwriters may change the public offering price and these concessions. The underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority. The following table shows the underwriting fees to be paid to the underwriters by us in this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional shares of common stock.
No Full Exercise Exercise Per share..................................................... $ $ Total......................................................... $ $
We estimate expenses related to the offering will be $ . 63 VIA has granted to the U.S. underwriters an option, exercisable within 30 days after the date of the underwriting agreement, to purchase up to additional shares of common stock at the initial public offering price less underwriting fees. The U.S. underwriters may exercise this option solely to cover over-allotments, if any, made in connection with the offering. To the extent that the U.S. underwriters exercise this option, each U.S. underwriter will become obligated, subject to conditions, to purchase a number of additional shares approximately proportionate to that U.S. underwriter's initial purchase commitment. VIA has agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act, or to contribute to payments that the underwriters may be required to make in respect of any of those liabilities. VIA, our executive officers, directors and some of our stockholders have agreed, for a period of 180 days from the date of this prospectus and subject to some exceptions, they will not, without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation, do either of the following: . offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock; or . enter into any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any common stock. Either of the foregoing transfer restrictions will apply regardless of whether a covered transaction is to be settled by the delivery of common stock or such other securities, in cash or otherwise. In addition, during this 180 day period and subject to specified exceptions, VIA has agreed not to file any registration statement with respect to, and each of our executive officers, directors and some of our stockholders has agreed not to make any demand for, or exercise any right with respect to, the registration of any shares of common stock or any securities convertible into or exercisable for common stock without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation. At our request, the underwriters have reserved for sale up to shares of common stock offered by this prospectus for sale at the initial public offering price to our employees, officers and directors and other persons designated by us. The number of shares of common stock available for sale to the general public will be reduced to the extent these individuals purchase or confirm for purchase, orally or in writing, these reserved shares. Any reserved shares not purchased or confirmed for purchase will be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus. We intend to apply to have our common stock approved for quotation on the Nasdaq National Market under the symbol "VNWI." Under an intersyndicate agreement between the U.S. underwriters and international managers, each U.S. underwriter has represented and agreed that, with some exceptions: . it is not purchasing any shares of common stock included in this offering for the account of anyone other than a United States or Canadian person; and . it has not offered or sold, and will not offer or sell, directly or indirectly, any shares of common stock included in this offering or distribute any prospectus relating to the shares of common stock outside the United States or Canada or to anyone other than a United States or Canadian person. 64 Under the intersyndicate agreement, each international manager has represented and agreed that, with some exceptions: . it is not purchasing any shares of common stock included in this offering for the account of any United States or Canadian person; and . it has not offered or sold, and will not offer or sell, directly or indirectly, any shares of common stock included in this offering or distribute any prospectus relating to the shares of common stock in the United States or Canada or to any United States or Canadian person. With respect to any underwriter that is both a U.S. underwriter and an international manager, these representations and agreements made by it in its capacity as a U.S. underwriter apply only to it in its capacity as a U.S. underwriter and made by it in its capacity as an international manager apply only to it in its capacity as an international manager. These limitations do not apply to stabilization transactions and to other transactions specified in the intersyndicate agreement. As used in this section, "United States or Canadian person" means any individual who is resident in the United States or Canada, or any corporation, pension, profit-sharing or other trust or other entity organized under or governed by the laws of the United States or Canada or of any political subdivision thereof, other than the foreign branch of any United States or Canadian person, and includes any United States or Canadian branch of a person other than a United States or Canadian person. Under the intersyndicate agreement, sales may be made between the syndicates of U.S. underwriters and international managers of a number of the shares of common stock included in this offering as may be mutually agreed. Unless otherwise determined by the representatives of the U.S. underwriters and international managers, the per share price of any shares of common stock so sold shall be the initial public offering price set forth on the cover page hereof, in United States dollars, less an amount not greater than the per share amount of the concession to dealers described above. Under the intersyndicate agreement, each U.S. underwriter has represented and agreed that: . it has not offered or sold and will not offer or sell, directly or indirectly, any shares of common stock included in this offering in any province or territory of Canada or to, or for the benefit of, any resident of any province or territory of Canada in contravention of the applicable securities laws; and . without limiting the generality of the foregoing, any offer or sale of shares of common stock in Canada will be made only pursuant to an exemption from the requirement to file a prospectus in the province or territory of Canada in which the offer or sale is made. Each U.S. underwriter has further agreed to send to any dealer who purchases from it any shares of common stock included in this offering a notice stating in substance that by purchasing those shares of common stock the dealer represents and agrees that: . it has not offered or sold and will not offer or sell, directly or indirectly, any of those shares of common stock in any province or territory of Canada or to, or for the benefit of, any resident of any province or territory of Canada in contravention of applicable securities laws; . any offer or sale of those shares of common stock in Canada will be made only pursuant to an exemption from the requirement to file a prospectus in the province or territory of Canada in which the offer or sale is made; and . it will send to any other dealer to whom it sells any of those shares of common stock a notice containing substantially the same statement as is contained in this sentence. Under the intersyndicate agreement, each international manager has represented and agreed that: . it has not offered or sold and, prior to the date six months after the closing date for the sale of shares of common stock to the international managers under the Underwriting Agreement, will not offer or sell, any shares of common stock included in this offering to persons in the United Kingdom except to 65 persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments, as principal or agent, for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; . it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the shares of common stock included in this offering in, from or otherwise involving the United Kingdom; and . it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with this offering to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom the document may otherwise lawfully be issued or passed on. Under the intersyndicate agreement, each international manager has represented and agreed that it has not offered or sold and will not offer or sell, directly or indirectly, any shares of common stock acquired in connection with the distribution contemplated in this prospectus in Japan or to or for the account of any resident thereof, except for offers or sales to Japanese international managers or dealers and except pursuant to an exemption from the registration requirements of the Securities and Exchange Law of Japan and otherwise in compliance with applicable provisions of Japanese law. Each international manager has agreed to send to any dealer who purchases from it any shares of common stock included in this offering a notice stating in substance that by purchasing those shares of common stock that dealer represents and agrees that: . it has not offered or sold and will not offer or sell, directly or indirectly, any of those shares of common stock in Japan or to or for the account of any resident thereof, except for offers or sales to Japanese international managers or dealers and except pursuant to an exemption from the registration requirements of the Securities and Exchange Law of Japan and otherwise in compliance with applicable provisions of Japanese law; and . it will send to any other dealer to whom it sells any of those shares of common stock a notice containing substantially the same statement as is contained in this sentence. Other than in the United States, no action has been taken by VIA or the underwriters that would permit a public offering of the shares of common stock offered by this prospectus in any jurisdiction where action for that purpose is required. The shares of common stock offered through this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements associated with the offer and sale of any the shares of common stock offered through this prospectus be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. You should inform yourself and observe any restrictions relating to the offering of the common stock and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any shares of common stock included in this offering in any jurisdiction where that would not be permitted or legal. Stabilization In connection with the offering, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters may over-allot the offering, creating a syndicate short position. The underwriters may bid for and purchase shares of common stock in the open market to cover a syndicate short position or to stabilize the price of the common stock. In addition, the underwriting syndicate may reclaim selling concessions from syndicate members and selected dealers if Donaldson, Lufkin & Jenrette Securities Corporation repurchases previously distributed common stock in syndicate covering transactions, in stabilization transactions or otherwise if Donaldson, Lufkin & Jenrette Securities Corporation receives a report that indicates that the clients of such syndicate members have "flipped" the common stock. These activities may stabilize or maintain the market price of the common stock 66 above independent market levels. The underwriters are not required to engage in these activities, and may end any of these activities at any time. Pricing of the Offering Prior to the offering, there has been no established trading market for our common stock. The initial public offering price of our common stock will be determined by negotiation among VIA and the representatives of the underwriters. The factors to be considered in determining the initial public offering price include: .the history of and the prospects for the industry in which VIA competes .VIA's past and present operations .VIA's historical results of operations .VIA's prospects for future earnings .the recent market prices of securities of generally comparable companies and .the general condition of the securities markets at the time of the offering VALIDITY OF THE SHARES Hogan & Hartson L.L.P., Washington, D.C., will pass upon the validity of the issuance of the shares being offered. O'Melveny & Myers LLP will act as counsel for the underwriters. EXPERTS The consolidated financial statements of VIA NET.WORKS, Inc. as of December 31, 1997 and 1998 and for the period from June 13, 1997 (inception) to December 31, 1997 and for the year ended December 31, 1998 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. The financial statements of VIA Net Works Argentina S.A. as of December 31, 1997 and September 24, 1998 and for the year ended December 31, 1997 and for the period from January 1, 1998 to September 24, 1998 included in this prospectus have been so included in reliance on the report of Price Waterhouse & Co., independent accountants, given on the authority of said firm as experts in auditing and accounting. The financial statements of GTN Gesellschaft fur Telekommunikations und Netzwerkdienste mbH as of December 31, 1997 and October 9, 1998 and for the year ended December 31, 1997 and for the period from January 1, 1998 to October 9, 1998 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers GmbH, independent accountants, given on the authority of said firm as experts in auditing and accounting. The financial statements of U-Net Limited as of July 31, 1997 and 1998 and October 29, 1998 and for the years ended July 31, 1997 and 1998 and for the period from August 1, 1998 to October 29, 1998 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers, independent accountants, given on the authority of said firm as experts in auditing and accounting. The financial statements of Dialdata S.A. Internet Systems as of December 31, 1997 and December 29, 1998 and for the year ended December 31, 1997 and for the period from January 1, 1998 to December 29, 1998 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers, independent accountants, given on the authority of said firm as experts in auditing and accounting. The consolidated financial statements of I-Way Limited as of April 30, 1997 and 1998 and December 31, 1998 and for the two years ended April 30, 1998 and for the period from May 1, 1998 to December 31, 1998 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers, independent accountants, given on the authority of said firm as experts in auditing and accounting. 67 The consolidated financial statements of bART Holding B.V. as of December 31, 1998 and for the year then ended included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers N.V., independent accountants, given on the authority of said firm as experts in auditing and accounting. The financial statements of Esoterica-Novas Tecnologias de Informacao SA as of December 31, 1998 and for the year then ended included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers- Auditores e Consultores, Lda, independent accountants, given on the authority of said firm as experts in auditing and accounting. The financial statements of WorldWide Web Services Limited as of May 27, 1999 and for the period from July 1, 1998 to May 27, 1999 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers, independent accountants, given on the authority of said firm as experts in auditing and accounting. The financial statements of Netlink Internet Services Limited as of December 31, 1998 and for the year then ended included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers, independent accountants, given on the authority of said firm as experts in auditing and accounting. The financial statements of Disbumad, SL as of December 31, 1998 and for the year then ended included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers Auditores, S.L., independent accountants, given on the authority of said firm as experts in auditing and accounting. The financial statements of Infoacces, S.A. de C.V. as of December 31, 1997 and 1998, and for each of the years in the two-year period ended December 31, 1998, have been included herein and in the registration statement in reliance upon the report of KPMG CARDENAS DOSAL, S.C., independent accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. WHERE YOU CAN FIND MORE INFORMATION We have filed with the Securities and Exchange commission a registration statement on Form S-1 under the Securities Act of 1933 with respect to the common stock being offered. This prospectus contains all information about VIA and our common stock that would be material to an investor. The registration statement includes exhibits and schedules to which you should refer for additional information about us. You may inspect a copy of the registration statement and the exhibits and schedules to the registration statement without charge at the offices of the Securities and Exchange Commission at Judiciary Plaza, 450 Fifth Street, Washington, D.C. 20549. You may obtain copies of all or any part of the registration statement from the Public Reference Section of the SEC, 450 Fifth Street, Washington, D.C. 20549 upon the payment of the prescribed fees. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a web site at www.sec.gov that contains reports, proxy and information statements and other information regarding registrants like us that file electronically with the SEC. 68 VIA NET.WORKS INC. INDEX TO FINANCIAL STATEMENTS Unaudited Pro Forma Condensed Combined Financial Statements Pro Forma Condensed Combined Balance Sheet as of September 30, 1999 (unaudited)............................................................ F-4 Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 1998 (unaudited).......................................... F-6 Pro Forma Condensed Combined Statement of Operations for the nine months ended.................................................................. F-7 September 30, 1999 (unaudited).......................................... Notes to Unaudited Pro Forma Condensed Combined Financial Statements.... F-8 VIA NET.WORKS, Inc. and subsidiaries -- Consolidated Financial Statements Report of Independent Accountants....................................... F-13 Consolidated Balance Sheets as of December 31, 1997 and 1998 and September 30, 1999 (unaudited)......................................... F-14 Consolidated Statements of Operations for the period from inception (June 13, 1997) to December 31, 1997, the year ended December 31, 1998 and the nine months ended September 30, 1998 and 1999 (unaudited)...... F-15 Consolidated Statement of Stockholders' Deficit for the period from inception (June 13, 1997) to year ended December 31, 1997, the year ended December 31, 1998 and the nine months ended September 30, 1999 (unaudited)............................................................ F-16 Consolidated Statements of Cash Flows for the period from inception (June 13, 1997) to December 31, 1997, the year ended December 31, 1998 and the nine months ended September 30, 1998 and 1999 (unaudited)...... F-17 Notes to Consolidated Financial Statements.............................. F-18 VIA Net Works Argentina, S.A. -- Financial Statements Report of Independent Accountants....................................... F-33 Balance Sheets as of December 31, 1997 and September 24, 1998........... F-34 Statements of Operations for the year ended December 31, 1997 and for the period from January 1, 1998 to September 24, 1998.................. F-35 Statement of Stockholders' Deficit for the year ended December 31, 1997 and for the period from January 1, 1998 to September 24, 1998.......... F-36 Statements of Cash Flows for the year ended December 31, 1997 and for the period from January 1, 1998 to September 24, 1998.................. F-37 Notes to Financial Statements........................................... F-38 Gesellschaft fur Telekommunikations und Netzwerkdienste mbH ("GTN") -- Financial Statements Report of Independent Accountants....................................... F-46 Balance Sheets as of December 31, 1997 and October 9, 1998.............. F-47 Statements of Operations for the year ended December 31, 1997 and for the period from January 1, 1998 to October 9, 1998..................... F-48 Statement of Stockholders' Equity for the year ended December 31, 1997 and for the period from January 1, 1998 to October 9, 1998............. F-49 Statements of Cash Flows for the year ended December 31, 1997 and for the period from January 1, 1998 to October 9, 1998..................... F-50 Notes to Financial Statements........................................... F-51 U-Net Limited -- Financial Statements Report of Independent Accountants....................................... F-56 Balance Sheets as of July 31, 1997 and 1998 and October 29, 1998........ F-57 Statements of Operations for the years ended July 31, 1997 and 1998 and for the period from August 1, 1998 to October 29, 1998................. F-58
F-1 Statement of Stockholders' Deficit for the years ended July 31, 1997 and 1998 and for the period from August 1, 1998 to October 29, 1998... F-59 Statements of Cash Flows for the years ended July 31, 1997 and 1998 and for the period from August 1, 1998 to October 29, 1998................ F-60 Notes to Financial Statements.......................................... F-61 Dialdata S.A., Internet Systems -- Financial Statements Report of Independent Accountants...................................... F-66 Balance Sheets as of December 31, 1997 and December 29, 1998........... F-67 Statements of Operations for the year ended December 31, 1997 and for the period from January 1, 1998 to December 29, 1998.................. F-68 Statement of Stockholders' Equity for the year ended December 31, 1997 and for the period from January 1, 1998 to December 29, 1998.......... F-69 Statements of Cash Flows for the year ended December 31, 1997 and for the period from January 1, 1998 to December 29, 1998.................. F-70 Notes to Financial Statements.......................................... F-71 I-Way Limited and Subsidiary -- Consolidated Financial Statements Report of Independent Accountants...................................... F-76 Consolidated Balance Sheets as of April 30, 1997 and 1998 and December 31, 1998 and June 30, 1999 (unaudited)................................ F-77 Consolidated Statements of Operations for the years ended April 30, 1997 and 1998 and for the period from May 1, 1998 to December 31, 1998 and for the six months ended June 30, 1998 and 1999 (unaudited)....... F-78 Consolidated Statements of Cash Flows for the years ended April 30, 1997 and 1998 and for the period from May 1, 1998 to December 31, 1998 and for the six months ended June 30, 1998 and 1999 (unaudited)....... F-79 Consolidated Statement of Stockholders' Equity (Deficit) for the years ended April 30, 1997 and 1998 and for the period from May 1, 1998 to December 31, 1998 and for the six months ended June 30, 1999 (unaudited)........................................................... F-80 Notes to Consolidated Financial Statements............................. F-81 bART Holding B.V. and Subsidiaries -- Consolidated Financial Statements Report of Independent Accountants...................................... F-87 Consolidated Balance Sheet as of December 31, 1998..................... F-88 Consolidated Statement of Operations for the year ended December 31, 1998.................................................................. F-89 Consolidated Statement of Stockholders' Deficit for the year ended December 31, 1998..................................................... F-90 Consolidated Statement of Cash Flows for the year ended December 31, 1998.................................................................. F-91 Notes to Consolidated Financial Statements............................. F-92 ESOTERICA-Novas Tecnologias de Informacao S.A. -- Financial Statements Report of Independent Accountants...................................... F-99 Balance Sheet as of December 31, 1998.................................. F-100 Statement of Operations for the year ended December 31, 1998........... F-101 Statement of Stockholders' Deficit for the year ended December 31, 1998.................................................................. F-102 Statement of Cash Flows for the year ended December 31, 1998........... F-103 Notes to Financial Statements.......................................... F-104 Worldwide Web Services Limited -- Financial Statements Report of Independent Accountants...................................... F-108 Balance Sheet as of May 27, 1999....................................... F-109 Statement of Operations for the period from July 1, 1998 to May 27, 1999.................................................................. F-110 Statement of Stockholders' Deficit for the period from July 1, 1998 to May 27, 1999.......................................................... F-111 Statement of Cash Flows for the period from July 1, 1998 to May 27, 1999.................................................................. F-112 Notes to Financial Statements.......................................... F-113
F-2 Netlink Internet Services Limited -- Financial Statements Report of Independent Accountants...................................... F-118 Balance Sheets as of December 31, 1998 and June 30, 1999 (unaudited)... F-119 Statements of Operations for the year ended December 31, 1998 and for the six months ended June 30, 1998 and 1999 (unaudited)............... F-120 Statement of Stockholders' Deficit for the year ended December 31, 1998 and for the six months ended June 30, 1999 (unaudited)................ F-121 Statements of Cash Flows for the year ended December 31, 1998 and for the six months ended June 30, 1998 and 1999 (unaudited)............... F-122 Notes to Financial Statements.......................................... F-123 Disbumad, S L -- Financial Statements Report of Independent Accountants...................................... F-128 Balance Sheets as of December 31, 1998 and June 30, 1999 (unaudited)... F-129 Statement of Operations for the year ended December 31, 1998 and for the six months ended June 30, 1998 and June 30, 1999 (unaudited)...... F-130 Statement of Stockholders' Deficit for the years ended December 31, 1998 and for the 6 month period ended June 30, 1999 (unaudited)....... F-131 Statements of Cash Flows for the year ended December 31, 1998 and for the six months ended June 30, 1998 and June 30, 1999 (unaudited)...... F-132 Notes to Financial Statements.......................................... F-133 InfoAcces S.A. de C.V. and Subsidiary -- Financial Statements Independent Auditors' Report........................................... F-140 Consolidated Balance Sheets as of December 31, 1997 and 1998 and September 30, 1999 (unaudited)........................................ F-141 Consolidated Statements of Operations for the years ended December 31, 1997 and 1998 and for the nine months ended September 30, 1998 and September 30, 1999 (unaudited)........................................ F-142 Consolidated Statements of Changes in Stockholders' Equity for the year ended December 31, 1998 and for the nine months ended September 30, 1999 (unaudited)...................................................... F-143 Consolidated Statements of Changes in Financial Position for the years ended December 31, 1997 and 1998 and for the nine months ended September 30, 1998 and September 30, 1999 (unaudited)................. F-144 Notes to Consolidated Financial Statements............................. F-145
F-3 VIA NET.WORKS, INC. UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS During the period beginning September 24, 1998 through November 23, 1999, VIA NET.WORKS, Inc. (the "Company") completed numerous business combinations, whereby the Company acquired either 100% or a majority of the voting stock of companies operating as Internet services providers in Europe and Latin America (collectively, the "Completed Acquisitions"). All of the Completed Acquisitions have been or will be accounted for using the purchase method of accounting. The Completed Acquisitions are described in Note 1--Basis of Presentation to the accompanying unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed combined balance sheet as of September 30, 1999 gives effect to the acquisition of InfoAcces S.A. de C.V. ("InfoAcces") which occurred subsequent to September 30, 1999 and the conversion of the outstanding mandatorily redeemable convertible preferred stock into common stock. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 1998 and for the nine-month period ended September 30, 1999 give effect to the acquisition of 15 companies between January 1, 1998 and September 30, 1999 and the acquisition of InfoAcces, as though these acquisitions had occurred on January 1, 1998. The unaudited pro forma condensed combined statements of operations are not necessarily indicative of the results of operations that would actually have occurred if the transactions had been consummated as of January 1, 1998 and is not intended to indicate the expected results for any future period. These statements should be read in conjunction with the historical consolidated financial statements and related notes thereto of the Company, and the financial statements of certain of the completed acquisitions, included herein. The allocation of the purchase price to the acquired tangible and intangible assets of certain of Completed Acquisitions has not been finalized pending an analysis of the nature of the intangible assets acquired. The actual purchase accounting adjustments may be revised, and the Company may allocate a portion of the purchase price to intangible assets other than goodwill. Such intangible assets may have an estimated useful life that differs from the five-year life used for the amortization of goodwill. Any adjustment could have a material impact on the pro forma statements of operations. F-4 VIA NET.WORKS, INC. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET SEPTEMBER 30, 1999 (Amounts in thousands)
Historical -------------------- Pro Forma VIA InfoAccess Adjustments Pro Forma -------- ---------- ----------- --------- ASSETS Current assets: Cash and cash equivalents... $ 91,503 $ 232 $ (50,966)(a) $ 40,769 Restricted cash............. 15,000 (a) 15,000 Trade and other accounts receivable................. 6,833 3,143 -- 9,976 Other current assets........ 1,916 426 -- 2,342 -------- ------- --------- -------- Total current assets...... 100,252 3,801 (35,966) 68,087 Property and equipment, net... 22,843 2,749 -- 25,592 Goodwill...................... 91,507 -- 31,221 (b) 122,728 Other assets.................. 530 1,506 1,000 (b) 3,036 -------- ------- --------- -------- Total assets.............. $215,132 $ 8,056 $ (3,745) $219,443 ======== ======= ========= ======== LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable............ $ 7,189 $ 2,074 $ -- $ 9,263 Other taxes payable......... 1,975 -- -- 1,975 Current portion of long-term debt....................... 9,266 854 -- 10,120 Deferred revenue............ 8,795 508 -- 9,303 Other current liabilities and accrued expenses 4,336 469 -- 4,805 -------- ------- --------- -------- Total current liabilities.............. 31,561 3,905 -- 35,466 Long-term debt, less current portion 10,792 370 -- 11,162 Other non-current liabilities.................. 269 36 -- 305 -------- ------- --------- -------- Total liabilities......... 42,622 4,311 -- 46,933 Minority interest in consolidated subsidiaries.... 4,955 -- -- 4,955 Mandatorily redeemable preferred stock.............. 180,933 -- (180,933)(c) -- Stockholders' equity (deficit): Common stock................ 2 5,210 (5,170)(c)(d) 42 Additional paid in capital.. 13,313 389 180,504 (c)(d) 194,206 Accumulated deficit......... (21,875) (1,854) 1,854 (d) (21,875) Deferred compensation....... (1,333) -- -- (1,333) Accumulated other comprehensive loss......... (3,485) -- -- (3,485) -------- ------- --------- -------- Total stockholders' equity (deficit)................ (13,378) 3,745 177,188 167,555 Total liabilities, mandatorily redeemable convertible preferred stock and stockholders' equity (deficit)......... $215,132 $ 8,056 $ (3,745) $219,443 ======== ======= ========= ========
See accompanying notes to pro forma statements. F-5 VIA NET.WORKS, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 (Amounts in thousands, except share and per share data)
Historical ---------------------- Completed Pro Forma VIA Acquisitions Adjustments Pro Forma -------- ------------ ----------- ----------- Revenue: Access.................. $ 3,212 $27,514 $ -- $ 30,726 Value-added services.... 136 9,251 -- 9,387 Other................... -- 1,997 -- 1,997 -------- ------- ----------- ----------- Total revenue......... 3,348 38,762 -- 42,110 Operating costs and expenses: Internet services....... 1,724 15,831 -- 17,555 Selling, general and administrative......... 6,387 22,733 -- 29,120 Depreciation and amortization........... 1,304 2,991 26,698 (e) 30,993 -------- ------- ----------- ----------- Total operating costs and expenses......... 9,415 41,555 26,698 77,668 -------- ------- ----------- ----------- Loss from operations...... (6,067) (2,793) (26,698) (35,558) -------- ------- ----------- ----------- Interest income, net...... 1,425 (769) (632)(f) 24 Loss in unconsolidated affiliate................ (1,199) -- 1,199 (g) -- Foreign currency gain/(loss).............. 115 79 -- 194 -------- ------- ----------- ----------- Loss before minority interest and income taxes.................... (5,726) (3,483) (26,131) (35,340) Income tax benefit/(expense)........ 145 (225) -- (80) Minority interest......... 239 -- (471)(g) (232) -------- ------- ----------- ----------- Net loss attributable to common stockholders...... $ (5,342) $(3,708) $ (26,602) $ (35,652) ======== ======= =========== =========== Basic and diluted loss per share attributable to common stockholders...... $ (24.29) $ (2.84) ======== =========== Shares used in computing basic and diluted loss per share................ 219,964 12,329,066(h) 12,549,030
See accompanying notes to pro forma statements. F-6 VIA NET.WORKS, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1999 (Amounts in thousands, except share and per share data)
Historical ----------------------- Completed Pro Forma VIA Acquisitions Adjustments Pro Forma --------- ------------ ----------- ----------- Revenue: Access................. $ 17,225 $10,258 $ -- $ 27,483 Value-added services... 5,777 6,252 -- 12,029 Other.................. 364 2,220 -- 2,584 --------- ------- ----------- ----------- Total revenue........ 23,366 18,730 42,096 Operating costs and expenses: Internet services...... 10,321 7,323 -- 17,644 Selling, general and administrative........ 22,113 11,409 -- 33,522 Depreciation and amortization.......... 10,656 1,390 12,154 (e) 24,200 --------- ------- ----------- ----------- Total operating costs and expenses.......... 43,090 20,122 12,154 75,366 --------- ------- ----------- ----------- Loss from operations..... (19,724) (1,392) (12,154) (33,270) Interest income, net..... 1,333 (173) (77)(f) 1,083 Loss in unconsolidated affiliate............... (177) -- 177 (g) -- Foreign currency gain/(loss)............. 1,269 (160) -- 1,109 --------- ------- ----------- ----------- Loss before minority interest and income taxes................... (17,299) (1,725) (12,054) (31,078) Income tax benefit/(expense)....... -- (172) -- (172) Minority interest........ 1,087 -- (235)(g) 852 --------- ------- ----------- ----------- Net loss attributable to common stockholders..... $ (16,212) $(1,897) $ (12,289) $ (30,398) ========= ======= =========== =========== Basic and diluted loss per share attributable to common stockholders.. $ (20.50) $ (2.08) ========= =========== Shares used in computing basic and diluted loss per share............... 790,953 13,829,840 (h) 14,620,793
See accompanying notes to pro forma statements. F-7 VIA NET.WORKS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (1) BASIS OF PRESENTATION Through November 23, 1999, the Company completed the following acquisitions. All of the Completed Acquisitions have been or will be accounted for using the purchase method of accounting.
Ownership Percentage for the Completed Acquisitions Consideration Through ----------------------------------- November 23 Common Completed Acquisitions Acquisition Date(s) 1999 Cash Notes Stock Total ---------------------- ------------------- ------------ -------- ------- ------ -------- (Dollars in thousands) i-way Ltd. ("i-way").... June 22, 1998 36% $ 2,387 $ -- -- $ 2,387 August 5, 1999 64% 10,473 -- $2,539(b) 13,012 --- -------- ------- ------ -------- 100% 12,860 2,539 15,399 --- -------- ------- ------ -------- VIA Net Works Argentina S.A. ("VNWA").......... September 24, 1998 51% 1,313 $ 2,944 -- 4,257 July 31, 1999 49% 1,356 -- 1,237(b) 2,593 --- -------- ------- ------ -------- 100% 2,669 2,944 1,237 6,850 --- -------- ------- ------ -------- Gesellschaft fur Telekommunikations und Netzwerkdienste mbH ("GTN")................ October 9, 1998 51% 3,976 6,127 -- 10,103 U-Net Ltd. ("U-Net").... October 29, 1998 100% 8,553 8,212 16,765 Dialdata S. A. Internet Systems ("Dialdata")... December 29, 1998 53% 3,196 2,800 140(b) 6,136 bArt Holding B. V. ("bART")............... March 25, 1999 100% 7,000 -- -- 7,000 MediaNet Ireland Ltd. ("Medianet")........... April 19, 1999 60% 1,466 -- -- 1,466 Ecce Terram GmbH ("Ecce Terram") (a) .......... April 30, 1999 100% 68 585 653 Artinternet S.A. ("Artinternet")........ May 5, 1999 51% 1,455 1,455 Esoterica-Novas Technologias de Informacao S. A. ("Esoterica").......... May 13, 1999 100% 6,903 986 7,889 Worldwide Web Services ("WWS")................ May 27, 1999 100% 3,658 3,658 7,316 Informationstechnik, Netzwerke und Systeme Vertriebs GmbH ("INS") (a) ................... June 30, 1999 100% 1,874 1,188 3,062 Netlink Internet Services Ltd. ("Netlink")............ July 9, 1999 100% 8,744 3,153(b) 11,897 Service Net S.A. ("Service Net")........ July 30, 1999 100% 1,125 1,125 Disbumad, SL ("Interbook").......... August 26, 1999 87% 4,334 1,471 5,805 InfoAcces S.A. de C.V. ("InfoAcces").......... October 10, 1999 100% 35,000 -- -- 35,000 -------- ------- ------ -------- Total................. $102,881 $27,971 $7,069 $137,921 ======== ======= ====== ========
- --------------------- (a) These entities were acquired by GTN, a 51% consolidated entity of VIA. (b) Represents shares of common stock valued at $8.25 per share. This per share value was determined by the Company's Board of Directors based on comparable valuation methodologies based on multiples of revenue and arms- length negotiated values. F-8 VIA NET.WORKS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS The total consideration, including acquisition costs, for the Completed Acquisitions has been allocated as follows (amounts in thousands): Total consideration................................................... $137,921 Acquisition costs..................................................... 5,618 -------- Total purchase price.............................................. $143,539 ======== Allocated as follows: Property and equipment and other assets............................. $ 39,059 Goodwill............................................................ 129,501 Net current liabilities............................................. (25,021) -------- Total purchase price.............................................. $143,539 ========
Promissory notes included in total consideration are as follows (amounts in thousands):
Outstanding at Original November 23, Amount 1999 -------- -------------- Payable to sellers................................... $16,100 $7,737 Payable to less than wholly-owned entities........... 11,871 520 ------- ------ $27,971 $8,257 ======= ======
The acquisition of M & C Management & Communications S.A., which was completed on October 11, 1999, has been excluded from the pro forma financial statements. F-9 VIA NET.WORKS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (2)HISTORICAL CONDENSED STATEMENTS OF OPERATIONS INFORMATION--COMPLETED ACQUISITIONS FOR THE YEAR ENDED DECEMBER 31, 1998 Historical condensed statements of operations information for the Completed Acquisitions for the year ended December 31, 1998 including the periods from January 1, 1998 to the dates of consolidation for acquisitions occurring during 1998 and for the 12 months ended December 31, 1998 for acquisitions occurring during 1999 are as follows. Amounts are presented in accordance with U.S. GAAP and have been translated into U.S. dollars using average exchange rates for the period.
Ecce VNWA GTN U-Net Dialdata bART Medianet Terram Artinternet --------- ------ ------ -------- ------- --------- ------- ----------- (amounts in thousands) Revenue: Access................. $1,393 $3,608 $6,539 $2,315 $2,544 $ 468 $ -- $ 135 Value-added services... -- 338 -- 793 607 284 -- 602 Other.................. 1 -- -- (514) (259) 34 499 9 ------ ------ ------ ------ ------ ----- ------- ------ Total revenue........... 1,394 3,946 6,539 2,594 2,892 786 499 746 Operating costs and expenses: Internet services...... 301 2,697 2,726 598 856 201 226 264 Selling general and administrative........ 1,501 1,210 2,920 1,005 2,186 754 280 402 Depreciation and amortization.......... 124 72 711 97 521 77 24 47 ------ ------ ------ ------ ------ ----- ------- ------ Total operating costs and expenses.......... 1,926 3,979 6,357 1,700 3,563 1,032 530 713 ------ ------ ------ ------ ------ ----- ------- ------ Loss from operations.... (532) (33) 182 894 (671) (246) (31) 33 Interest income, net.... (49) (1) (121) (57) (89) (13) (3) (1) Foreign currency gain/(loss)............ -- 3 -- -- -- -- -- -- ------ ------ ------ ------ ------ ----- ------- ------ Loss before taxes....... (581) (31) 61 837 (760) (259) (34) 32 Income tax benefit/(expense)...... -- -- -- (236) (2) -- -- -- ------ ------ ------ ------ ------ ----- ------- ------ Net income (loss) before discontinued operations and extraordinary gain................... $ (581) $ (31) $ 61 $ 601 $ (762) $(259) $ (34) $ 32 ====== ====== ====== ====== ====== ===== ======= ====== Service Esoterica WWS INS Netlink Net Interbook i-way InfoAcces TOTAL --------- ------ ------ -------- ------- --------- ------- ----------- ------- (amounts in thousands) Revenue: Access................. $1,388 $ 693 $ 588 $ -- $ 801 $ 546 $ 1,712 $4,783 $27,514 Value-added services... 143 1,202 324 1,446 -- 338 1,526 1,648 9,251 Other.................. 247 9 745 -- -- (11) (422) 1,660 1,997 ------ ------ ------ ------ ------ ----- ------- ------ ------- Total revenue........... 1,778 1,904 1,657 1,446 801 873 2,816 8,091 38,762 Operating costs and expenses: Internet services...... 971 264 344 634 211 264 1,270 4,002 15,831 Selling general and administrative........ 806 1,600 1,140 1,313 559 630 2,734 3,691 22,733 Depreciation and amortization.......... 246 74 124 85 82 49 222 437 2,991 ------ ------ ------ ------ ------ ----- ------- ------ ------- Total operating costs and expenses.......... 2,023 1,938 1,608 2,032 852 943 4,226 8,130 41,555 ------ ------ ------ ------ ------ ----- ------- ------ ------- Loss from operations.... (245) (34) 49 (586) (51) (70) (1,410) (39) (2,793) Interest income, net.... (69) -- (17) (22) (31) (38) (58) (199) (769) Foreign currency gain/(loss)............ -- -- -- (4) -- -- -- 80 79 ------ ------ ------ ------ ------ ----- ------- ------ ------- Loss before taxes....... (314) (34) 32 (612) (82) (108) (1,468) (158) (3,483) Income tax benefit/(expense)...... -- -- -- -- -- -- -- 13 (225) ------ ------ ------ ------ ------ ----- ------- ------ ------- Net income (loss) before discontinued operations and extraordinary gain................... $ (314) $ (34) $ 32 $ (612) $ (82) $(108) $(1,468) $ 145 $(3,708) ====== ====== ====== ====== ====== ===== ======= ====== =======
F-10 VIA NET.WORKS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 Historical condensed statement of operations information for the Completed Acquisitions for the nine-months ended September 30, 1999, including the periods from January 1, 1999 to the dates of consolidation are as follows. Amounts are presented in accordance with U.S. GAAP and have been translated into U.S. dollars using average exchange rates for the period.
Ecce bART Medianet Terram ArtInternet Esoterica WWS INS Netlink ----- -------- ------ ----------- --------- ------ ---- ------- (amounts in thousands) Revenue: Access................. $ 895 $ 241 $-- $ 10 $1,103 $ 714 $446 $ -- Value-added services... 161 83 -- 82 96 787 445 1,136 Other.................. (218) -- 173 2 155 (273) 41 -- ----- ----- ---- ----- ------ ------ ---- ------ Total revenue........... 838 324 173 94 1,354 1,228 932 1,136 Operating costs and expenses: Internet services...... 224 109 92 59 609 311 80 193 Selling general and administrative........ 639 285 132 182 467 1,006 652 997 Depreciation and amortization.......... 111 27 13 26 178 47 48 57 ----- ----- ---- ----- ------ ------ ---- ------ Total operating costs and expenses.......... 974 421 237 267 1,254 1,364 780 1,247 Loss from operations.... (136) (97) (64) (173) 100 (136) 152 (111) Interest income, net.... (21) (4) (2) 6 (31) -- (6) (5) Foreign currency gain/(loss)............ -- -- -- -- -- -- -- (13) ----- ----- ---- ----- ------ ------ ---- ------ Loss before taxes....... (157) (101) (66) (167) 69 (136) 146 (128) Income tax benefit/(expense)...... -- -- -- -- -- -- -- -- ----- ----- ---- ----- ------ ------ ---- ------ Net income (loss) before discontinued operations and extraordinary gain................... $(157) $(101) $(66) $(167) $ 69 $ (136) $146 $ (128) ===== ===== ==== ===== ====== ====== ==== ======
Service Net Interbook i-way InfoAcces TOTAL ----------- --------- ------ --------- ------- (amounts in thousands) Revenue: Access....................... $542 $ 487 $1,423 $4,396 $10,258 Value-added services......... -- 352 1,458 1,653 6,252 Other........................ -- 136 (453) 2,658 2,220 ---- ----- ------ ------ ------- Total revenue................. 542 975 2,428 8,707 18,730 Operating costs and expenses: Internet services............ 160 635 814 4,036 7,323 Selling general and administrative.............. 387 520 1,461 4,678 11,409 Depreciation and amortization................ 23 38 245 516 1,390 ---- ----- ------ ------ ------- Total operating costs and expenses.................... 570 1,193 2,520 9,290 20,122 Loss from operations.......... (28) (218) (92) (583) (1,392) Interest income, net.......... (23) (12) (19) (57) (173) Foreign currency gain/(loss).. -- -- -- (147) (160) ---- ----- ------ ------ ------- Loss before taxes............. (51) (230) (111) (781) (1,724) Income tax benefit/(expense).. -- -- -- (172) (172) ---- ----- ------ ------ ------- Net income (loss) before discontinued operations and extraordinary gain........... $(51) $(230) $ (111) $ (958) $(1,896) ==== ===== ====== ====== =======
F-11 VIA NET.WORKS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (3) PRO FORMA ADJUSTMENTS Pro Forma Condensed Combined Balance Sheet (a) To reflect cash of $35.0 million paid for the acquisition of InfoAcces, including estimated acquisition costs of $966,000. Under the terms of the purchase agreement for InfoAcces, the sellers may be entitled to additional consideration based on the results of InfoAcces following the acquisition in an amount not to exceed $30.0 million. Such additional consideration has not been reflected in the accompanying pro forma balance sheet but will be reflected as additional goodwill when paid. Under the terms of the acquisition, the Company was required to place $15.0 million in escrow (declining $0.50 for every $1.00 of contingent consideration earned and paid out) pending determination of the contingent consideration. (b) To reflect the allocation of the purchase price in excess of the historical book value of the acquired assets of InfoAcces. Based on preliminary estimates, in the opinion of management, the historical balances of all other assets acquired and liabilities have been determined to approximate fair value. Of the total purchase price $1.0 million has been allocated to a two-year non- compete agreement and $31.2 million has been allocated to goodwill. (c) To reflect the conversion of outstanding manditorily redeemable convertible preferred stock of the Company into common stock to occur in conjunction with the offering, including common stock of $40,000 and additional paid in capital of $180.9 million. (d) To eliminate the historical equity of InfoAcces including common stock of $5.2 million, additional paid in capital of $389,000 and accumulated deficit of $1.8 million. Pro Forma Condensed Combined Statements of Operations (e) To reflect amortization expense of goodwill based on an estimated life of five years and non-compete agreement based on an estimated life of two years.
Year ended Nine months ended December 31, September 30, 1998 1999 ------------ ----------------- Pro forma goodwill for completed acquisitions.. $132,050 $132,050 ======== ======== Amortization over 5 years...................... 26,410 19,808 Effect of exchange rate changes................ 1,224 431 -------- -------- Pro forma amortization of goodwill for completed acquisitions........................ 27,634 20,238 Amount reflected in the historical consolidated statement of operations....................... (936) (8,084) -------- -------- Adjustment for goodwill........................ 26,198 11,779 -------- -------- Adjustment for non-compete agreement........... 500 375 -------- -------- Total adjustment............................... $ 26,698 $ 12,154 ======== ========
(f) To reflect the impact of additional interest expense arising from notes issued in conjunction with Completed Acquisitions for the period from January 1, 1998 to the date of acquisition. (g) To eliminate minority interests and losses in unconsolidated affiliates upon acquisition of 100% ownership interests of VIA Net Works Argentina and i- way and to reflect additional minority interest in income(loss) on acquisitions of less than 100% owned companies, including GTN, Dialdata, MediaNet, Artinternet, and Interbook. (h) To reflect the impact on earnings per share of:
Year ended Nine months ended December 31, 1998 September 30, 1999 ----------------- ------------------ Number of shares of common stock issued in conjunction with the acquisitions........ 861,545 638,147 Number of shares of common stock issued upon conversion of preferred stock in conjunction with the offering............ 11,467,521 13,191,693 ---------- ---------- 12,329,066 13,829,840 ========== ==========
F-12 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of VIA NET.WORKS, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, stockholders' deficit and cash flows present fairly, in all material respects, the financial position of VIA NET.WORKS, Inc. and its subsidiaries at December 31, 1997 and 1998, and the results of their operations and their cash flows for the period from June 13, 1997 (inception) through December 31, 1997 and for the year ended December 31, 1998, in conformity with generally accepted accounting principles. These consolidated financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP McLean, Virginia August 26, 1999, except for Note 13, which is as of October 11, 1999 F-13 VIA NET.WORKS, INC. CONSOLIDATED BALANCE SHEETS (In thousands of U.S. Dollars, except share data)
Pro Forma Stockholders' December 31, Equity at --------------- September 30, September 30, 1997 1998 1999 1999 ------ ------- ------------- ------------- (unaudited) (unaudited) ASSETS Current assets: Cash and cash equivalents........ $ 807 $34,711 $ 91,503 Trade and other accounts receivable, net of allowance of $0, $217, $657 (unaudited), respectively.................... -- 1,566 6,833 Other current assets............. 6 951 1,916 ------ ------- -------- Total current assets............. 813 37,228 100,252 Property and equipment, net....... 8 4,280 22,843 Goodwill.......................... -- 29,848 91,507 Other assets...................... -- 1,669 530 ------ ------- -------- Total assets..................... $ 821 $73,025 $215,132 ====== ======= ======== LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable................. $ 94 $ 3,284 $ 7,189 Other taxes payable.............. -- -- 1,975 Short-term notes and current portion of long-term debt....... -- 11,182 9,266 Deferred revenue................. -- 1,710 8,795 Other current liabilities and accrued expenses................ -- 1,458 4,336 ------ ------- -------- Total current liabilities........ 94 17,634 31,561 Long-term debt, less current portion.......................... -- 565 10,792 Other noncurrent liabilities...... -- 35 269 ------ ------- -------- Total liabilities................ 94 18,234 42,622 Commitments and contingencies Minority interest in consolidated subsidiaries..................... -- 7,597 4,955 Mandatorily redeemable convertible preferred stock: Series A convertible preferred stock $.001 par value; 1,500,000 shares authorized; 1,025,000, 1,488,657, and 1,488,657 shares issued and outstanding (liquidation preference of $1,489 at December 31, 1998 and September 30, 1999)............. 1,018 1,489 1,489 $ -- Series B-1 voting convertible preferred stock, $.001 par value; 17,200,000 shares authorized; 15,795,335 shares issued and outstanding (liquidation preference of $47,386 at December 31, 1998 and September 30, 1999 (unaudited)).................... -- 47,386 47,386 -- Series B-2 non-voting convertible preferred stock, $.001 par value; 2,700,000 shares authorized; 1,400,000 shares issued and outstanding (liquidation preference of $4,200 at December 31, 1998 and September 30, 1999 (unaudited)).................... -- 4,200 4,200 -- Series C-1 voting convertible preferred stock, $.001 par value; 21,400,000 shares authorized; 15,939,657 issued and outstanding (liquidation preference of $95,638 at September 30, 1999 (unaudited)).................... -- -- 95,638 -- Series C-2 non-voting convertible preferred stock, $.001 par value; 6,000,000 shares authorized; 5,370,001 issued and outstanding (liquidation preference of $32,220 at September 30, 1999 (unaudited)).................... -- -- 32,220 -- ------ ------- -------- -------- 1,018 53,075 180,933 -- Stockholders' deficit: Preferred stock, $.001 par value; no shares authorized; no shares issued and outstanding.......... -- -- -- -- Voting common stock, $.001 par value; 57,000,000 shares authorized; 60,100 and 273,042, and 1,957,671 shares issued and outstanding..................... -- -- 2 35 Non-voting common stock, $.001 par value; 7,500,000 shares authorized; no shares issued and outstanding..................... -- -- -- 7 Additional paid in capital....... 30 216 13,313 194,206 Accumulated deficit.............. (321) (5,663) (21,875) (21,875) Deferred compensation............ -- -- (1,333) (1,333) Accumulated other comprehensive loss............................ -- (434) (3,485) (3,485) ------ ------- -------- -------- Total stockholders' deficit...... (291) (5,881) (13,378) $167,555 ------ ------- -------- ======== Total liabilities, mandatorily redeemable convertible preferred stock and stockholders' deficit......................... $ 821 $73,025 $215,132 ====== ======= ========
The accompanying notes are an integral part of these consolidated financial statements. F-14 VIA NET.WORKS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands of U.S. Dollars, except share and per share data)
For the period from June 13, 1997 For the year Nine months ended (Inception) to ended September 30, December 31, December 31, ------------------ 1997 1998 1998 1999 -------------- ------------ -------- -------- (unaudited) Revenue....................... $ -- $ 3,348 $ -- $ 23,366 ------- ------- -------- -------- Operating costs and expenses: Internet services........... -- 1,724 -- 10,321 Selling, general and administrative............. 336 6,387 2,864 22,113 Depreciation and amortization............... -- 1,304 3 10,656 ------- ------- -------- -------- Total operating costs and expenses................. 336 9,415 2,867 43,090 ------- ------- -------- -------- Loss from operations.......... (336) (6,067) (2,867) (19,724) ------- ------- -------- -------- Interest income............... 15 1,454 962 2,307 Interest expense.............. -- (29) -- (974) Loss in unconsolidated affiliate.................... -- (1,199) (447) (177) Foreign currency gains........ -- 115 -- 1,269 ------- ------- -------- -------- Loss before minority interest and income taxes............. (321) (5,726) (2,352) (17,299) Income tax benefit............ -- 145 -- -- Minority interest in loss of consolidated subsidiaries.... -- 239 -- 1,087 ------- ------- -------- -------- Net loss attributable to common stockholders.......... $ (321) $(5,342) (2,352) (16,212) ======= ======= ======== ======== Basic and diluted loss per share attributable to common stockholders................. $(10.66) $(24.29) $ (11.64) $ (20.50) ======= ======= ======== ======== Shares used in computing basic and diluted loss per share... 30,063 219,964 202,077 790,953 ======= ======= ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-15 VIA NET.WORKS, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (In thousands of U.S. Dollars, except share data)
Accumulated Common Stock Additional Other Total ---------------- Paid-In Accumulated Deferred Comprehensive Stockholders' Shares Amount Capital Deficit Compensation Loss Deficit --------- ------ ---------- ----------- ------------ ------------- ------------- Balance, inception June 13, 1997............... -- $-- $ -- $ -- $ -- $ -- $ -- Net loss and comprehensive loss..... -- -- -- (321) -- -- (321) Issuance of common stock.................. 60,100 -- 30 -- -- -- 30 --------- ---- ------- -------- -------- ------- -------- Balance, December 31, 1997................... 60,100 -- 30 (321) -- -- (291) Comprehensive loss: Net loss............... -- -- -- (5,342) -- -- (5,342) Foreign currency translation adjustment............ -- -- -- -- -- (434) (434) -------- Total comprehensive loss................... (5,776) Issuance of common stock.................. 212,942 -- 186 -- -- -- 186 --------- ---- ------- -------- -------- ------- -------- Balance, December 31, 1998................... 273,042 -- 216 (5,663) -- (434) (5,881) Comprehensive loss: Net loss (unaudited)... -- -- -- (16,212) -- -- (16,212) Foreign currency translation adjustment (unaudited)........... -- -- -- -- -- (3,051) (3,051) -------- Total comprehensive loss (unaudited)............ -- -- -- -- -- -- (19,263) Grant of employee stock options below fair market value (unaudited)............ -- -- 1,816 -- (1,816) -- -- Amortization of deferred compensation (unaudited)............ -- -- -- -- 483 -- 483 Issuance of common stock (unaudited)............ 1,684,629 2 11,281 -- -- -- 11,283 --------- ---- ------- -------- -------- ------- -------- Balance, September 30, 1999 (unaudited)....... 1,957,671 $ 2 $13,313 $(21,875) $ (1,333) $(3,485) $(13,378) ========= ==== ======= ======== ======== ======= ========
The accompanying notes are an integral part of these consolidated financial statements. F-16 VIA NET.WORKS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of U.S. Dollars)
For the period from June 13, 1997 For the year Nine months ended (Inception) to ended September 30, December 31, December 31, ------------------ 1997 1998 1998 1999 -------------- ------------ -------- -------- (unaudited) Cash flows from operating activities: Net loss..................... $ (321) $ (5,342) $ (2,352) $(16,212) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization.............. -- 1,304 3 10,656 Employee stock compensation.............. -- -- -- 483 Deferred taxes............. (145) -- -- Provision for doubtful accounts receivable....... -- 26 -- -- Unrealized foreign currency transaction gain.......... -- (126) -- (1,269) Minority interest in loss of consolidated subsidiaries.............. -- (239) -- (1,087) Loss in unconsolidated affiliate................. -- 1,199 447 177 Changes in assets and liabilities, net of acquisitions: Accounts receivable........ -- (164) -- (740) Other current assets....... (6) (679) (2) (23) Accounts payable........... 94 106 286 139 Other current liabilities and accrued expenses...... -- 233 -- (407) Deferred revenue........... -- 43 -- 1,340 ------ -------- -------- -------- Net cash used in operating activities.... (233) (3,784) (1,618) (6,943) ------ -------- -------- -------- Cash flows from investing activities: Acquisitions, net of cash acquired.................... -- (11,005) (504) (49,916) Purchases of property and equipment................... (8) (520) (45) (11,318) Purchase of equity investment.................. -- (2,781) (2,636) -- Other assets................. -- (77) -- (444) ------ -------- -------- -------- Net cash used in investing activities.... (8) (14,383) (3,185) (61,678) ------ -------- -------- -------- Cash flows from financing activities: Repayment of debt............ -- (56) -- (3,389) Proceeds from issuance of common stock................ 30 186 180 1,525 Proceeds from issuance of manditorily redeemable convertible preferred stock....................... 1,018 52,057 52,057 127,858 ------ -------- -------- -------- Net cash provided by financing activities.... 1,048 52,187 52,237 125,994 ------ -------- -------- -------- Effect of currency exchange rate changes on cash.......... -- (116) -- (581) ------ -------- -------- -------- Net increase in cash and cash equivalents................... 807 33,904 47,434 56,792 Cash and cash equivalents, beginning of period........... -- 807 807 34,711 ------ -------- -------- -------- Cash and cash equivalents, end of period..................... $ 807 $ 34,711 $ 48,241 $ 91,503 ====== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-17 VIA NET.WORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands of U.S. Dollars, except share and per share data) 1. Organization and Summary of Significant Accounting Policies Organization and Nature of Operations VIA NET.WORKS, Inc. (the "Company" or "VIA") was founded on June 13, 1997 for the purpose of acquiring existing Internet services providers around the world. The focus of the Company is to be a leading, full-service global provider of Internet connectivity and services, including web hosting, e-commerce, Internet security and other services, primarily to the small and mid-sized business market. In 1997, the Company was considered a development stage enterprise, as it had no significant revenue from principal operations through December 31, 1997. In 1998, the Company acquired or invested in five companies, four of which have been consolidated in the accompanying consolidated financial statements. The Company is no longer considered a development stage enterprise. In 1999, the Company amended its Certificate of Incorporation to change the Company's name from V-I-A Internet, Inc. to VIA NET.WORKS, Inc. Risks and Uncertainties The Company has a limited operating history and its operations are subject to certain risks and uncertainties, including those associated with: the ability to meet obligations; continuing losses, negative cash flow and fluctuations in operating results; funding expansion; acquisitions and strategic alliances, including their integration; managing rapid growth and expansion; international business activities; suppliers; financing arrangement terms that may restrict operations; possible Year 2000 issues; regulatory issues; competition in the Internet services industry; technology trends and evolving industry standards; and delivering reliable service. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, together with amounts disclosed in the related notes to the consolidated financial statements. Actual results could differ from the recorded estimates. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its majority-owned and controlled subsidiaries, as described in Note 3. All significant intercompany accounts and transactions have been eliminated in consolidation. Investments in 20% to 50% owned affiliates over which the Company has the ability to exercise significant influence are accounted for under the equity method. Under the equity method of accounting, an investee's results of operations are not reflected within the Company's consolidated accounts; however, the Company's share of the earnings or losses of the investee is reflected in the caption "loss in unconsolidated affiliate" in the consolidated statements of operations. In applying the equity method to investments in voting preferred stock, the Company recognizes losses based on its share of ownership interest of the preferred stock once common equity of the investee has been fully depleted. Revenue Recognition Revenue from Internet connectivity and value-added Internet services are recognized as the services are provided. The Company records deferred revenue for amounts billed and/or collected in advance. Revenue from consulting, installation and maintenance services are recognized as the services are provided. Revenue from hardware and third-party software sales is recognized upon delivery or installation of the respective products, depending on the terms of the arrangement. F-18 VIA NET.WORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands of U.S. Dollars, except share and per share data) Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Concentration of Credit Risk Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents, and accounts receivable. The Company's cash and investment policies limit investments to short-term, investment grade instruments. Concentration of credit risk with respect to accounts receivable are limited due to the large number and geographic dispersion of customers comprising the Company's customer base. Property and Equipment Property and equipment are recorded at cost less accumulated depreciation, which is provided on the straight-line method over the estimated useful lives of the assets, generally three to five years. Cost includes major expenditures for improvements and replacements, which extend useful lives or increase capacity of the assets. Expenditures for maintenance and repairs are expensed as incurred. Goodwill The Company has recorded goodwill related to its acquisitions. Goodwill is amortized over five years. Long-Lived Assets The Company periodically evaluates the carrying value of property and equipment to be held and used when events and circumstances warrant such a review. The carrying value of property and equipment is considered impaired when the anticipated undiscounted cash flows from the asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost to dispose. Advertising Costs Costs related to advertising and promotion of service are charged to operating expense as incurred. Advertising expense was $5 and $975 for the period from June 13, 1997 (inception) to December 31, 1997 and the year ended December 31, 1998, respectively. Income Taxes The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities. The Company provides a valuation allowance on net deferred tax assets when it is more likely than not that such assets will not be realized. In conjunction with business acquisitions, the Company records acquired deferred tax assets and liabilities. Future reversals of the valuation allowance on acquired deferred tax assets will first be applied against goodwill and other intangibles before recognition of a benefit in the consolidated statements of operations. Stock-Based Compensation SFAS No. 123, Accounting for Stock-Based Compensation, encourages, but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to account for stock- based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued to Employees, and related Interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the estimated fair value F-19 VIA NET.WORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands of U.S. Dollars, except share and per share data) of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. The Company has adopted the "disclosure only" alternative described in SFAS No. 123 which requires pro forma disclosures of net income and earnings per share as if the fair value method of accounting has been applied. Foreign Currency The functional currency for the Company's international subsidiaries is the applicable local currency. Accordingly, net assets are translated at year-end exchange rates while revenue and expenses are translated at the average exchange rates. Adjustments resulting from these translations are accumulated and reported as a component of accumulated other comprehensive loss in stockholders' deficit. At December 31, 1997 and 1998, the cumulative foreign currency translation adjustment was $0 and $434, respectively. Transaction gains or losses, including gains or losses on foreign currency denominated intercompany balances, are recorded in the consolidated statements of operations. Fair Value of Financial Instruments Carrying amounts of certain of the Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other liabilities approximate fair value due to their short maturities. Based upon borrowing rates currently available to the Company for loans with similar terms, the carrying value of debt and capital lease obligations approximate their fair value. Loss Per Share Basic loss per share is computed using the weighted-average number of shares of common stock outstanding during the year. Diluted loss per share is computed using the weighted-average number of shares of common stock, adjusted for the dilutive effect of common stock, equivalent shares of common stock options and warrants and contingently issuable shares of common stock. Common stock equivalent shares are calculated using the treasury stock method. All stock options, convertible preferred stock and warrants outstanding have been excluded from the computation of diluted loss per share, as their effect would be antidilutive. Accordingly, there is no reconciliation between basic and diluted loss per share for each of the periods presented. Comprehensive Income The Company adopted SFAS No. 130, Reporting Comprehensive Income, in 1998. SFAS No. 130 establishes standards for reporting and displaying comprehensive income and its components. Comprehensive loss consists of net loss and foreign currency translation adjustments as presented in the consolidated statement of stockholders' deficit. The adoption of SFAS No. 130 had no impact on total stockholders' deficit or net loss. Segment Reporting The Company adopted SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, during 1998. SFAS No. 131 replaces the "industry segment" approach with the "management" approach to reporting financial information about an enterprise's segments. The management approach designates the internal organization that is used by management for allocating resources and assessing performance as the source of the Company's reportable segments. SFAS No. 131 also requires disclosures about products and services, geographic areas, and major customers. The adoption of SFAS No. 131 did not effect the Company's results of operations or financial position. F-20 VIA NET.WORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands of U.S. Dollars, except share and per share data) Recent Pronouncements In 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, and SOP 98-5, Reporting on the Costs of Start-Up Activities, both of which are required to be adopted for fiscal years beginning after December 15, 1998. SOP 98-1 provides guidance on accounting for the costs of computer software developed or obtained for internal use, determining whether computer software is for internal use, and when costs incurred for internal-use computer software are and are not capitalized. SOP 98-5 requires costs of start-up activities and organization costs to be expensed as incurred. The adoption of SOP 98-1 and SOP 98-5 did not have a material effect on the Company's consolidated financial statements. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes a new model for accounting for derivatives and hedging activities and supersedes and amends a number of existing standards. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999, but earlier application is permitted as of the beginning of any fiscal quarter subsequent to June 15, 1998. Upon initial application, all derivatives are required to be recognized in the statement of financial position as either assets or liabilities and measured at fair value. In addition, all hedging relationships must be reassessed and documented pursuant to the provisions of SFAS No. 133. Subsequent to the issuance of SFAS No. 133, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133", which defers the effective date of SFAS No. 133 to periods beginning after June 15, 2000. The Company has not committed or expects to commit to any derivative instrument transactions, and thus does not anticipate that this pronouncement will have a significant effect on its results. Interim Financial Information (Unaudited) Interim financial information for the nine months ended September 30, 1998 and 1999 included herein is unaudited. However, the Company believes the interim financial information includes all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the results of interim periods. The results of operations for the nine months ended September 30, 1999 are not necessarily indicative of the results to be expected for the year ending December 31, 1999. Pro Forma Stockholder's Equity (Unaudited) The unaudited pro forma stockholders' equity presents the effect of the automatic conversion of all of the outstanding mandatorily redeemable convertible preferred stock into shares of common stock on a one-for-one basis upon the closing of an Initial Public Offering (IPO) (see Note 8). The conversion of the mandatorily redeemable convertible preferred stock has been reflected in the accompanying unaudited pro forma stockholders' equity as if it had occurred on September 30, 1999. 2. Investment in Affiliate In June 1998, the Company acquired a 36% interest in i-way Limited (i-way) an Internet services provider located in the United Kingdom. The Company purchased voting preferred stock for $2,781. The Company had the option to purchase the remaining 64% equity interest in i-way pursuant to certain conditions as set forth in the purchase agreement. Further, the i-way common shareholders had the option to require the Company to purchase a number of common shares that would increase its fully diluted equity interest to 50%. The option was to expire in December 2001. F-21 VIA NET.WORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands of U.S. Dollars, except share and per share data) Subsequent to the date of the preferred stock investment and for the year ended December 31, 1998, and the nine months ended September 30, 1999, i-way incurred losses of $1,137 and $253 (unaudited), respectively. As discussed in Note 1, because the common equity of i-way has been fully depleted, the Company has recognized the full amount of the investee's loss arising subsequent to the date of the investment. Additionally, the Company is amortizing the accumulated deficit of i-way, at the date of acquisition, over a five-year period. The amortization is included in the Company's consolidated statements of operations in the amount of $62 for the year ended December 31, 1998. In June 1999, the Company negotiated the purchase of the remaining 64% equity interest in i-way for total consideration of $13,097, comprised of $10,479 in cash and 317,421 of the Company's common stock, valued at $8.25 per share. The transaction was consummated on August 5, 1999. 3. Acquisitions of Certain Businesses 1998 Acquisitions During 1998, the Company completed four acquisitions for cash and notes payable:
Fair Value of Aggregate Ownership -------------------- Purchase Interest Assets Liabilities Business Acquired Location Acquisition Date Price Acquired Acquired Assumed ----------------- --------- ------------------ --------- --------- -------- ----------- VIA Net Works Argentina S.A.................... Argentina September 24, 1998 $ 4,456 51% $ 603 $2,108 Gesellschaft fur Telekommunikations und Netzwerkdienste mbH ("GTN")................ Germany October 9, 1998 $10,652 51% $1,402 $1,215 U-Net Ltd............... UK October 29, 1998 $17,498 100% $3,513 $3,670 Dialdata S.A. Internet Systems................ Brazil December 29, 1998 $ 6,611 51% $ 938 $ 155
Each of the acquisitions was accounted for using the purchase method of accounting and, accordingly, the net assets and results of operations of the acquired companies have been included in the Company's consolidated financial statements since the acquisition dates. The purchase price of the acquisitions was allocated to assets acquired, including intangible assets, and liabilities assumed, based on their respective fair values at the acquisition dates. The companies acquired are Internet services providers, offering services including Internet connectivity, web hosting, e-commerce, Internet security and other services, primarily small and mid-sized businesses. See Note 7 regarding disclosure of notes payable issued in connection with these acquisitions. The Company has the right to purchase the remaining 49% interest in VIA Net Works Argentina, GTN and Dialdata during certain contractual time periods ending March 24, 2002, October 9, 2002, and May 29, 2002, respectively. In connection with the Dialdata acquisition, assuming the Company does not exercise its option, the existing stockholders have the right to purchase all the shares held by VIA over a period of 90 days beginning on May 30, 2002. Pursuant to these purchase agreements, the Company entered into employment agreements with varying terms, with certain officers of the acquired companies. The following presents the unaudited pro forma results of operations of the Company for the years ended December 31, 1998 and 1997 as if the acquisitions had consummated on January 1, 1997. The unaudited pro forma results of operations include certain pro forma adjustments, including the amortization of goodwill relating to the acquisitions. F-22 VIA NET.WORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands of U.S. Dollars, except share and per share data)
December 31, ------------------ 1997 1998 -------- -------- (unaudited) Revenue................................................. $ 12,023 $ 16,692 Net loss................................................ $ (5,970) $(10,751) Basic and diluted loss per share........................ $(398.05) $ (50.69)
The unaudited pro forma results of operations are prepared for comparative purposes only and do not necessarily reflect the results that would have occurred had the acquisitions occurred at January 1, 1997 or the results that may occur in the future. 1999 Acquisitions Through September 30, 1999, the Company completed additional acquisitions for cash, promissory notes payable, and issuance of common stock:
Aggregate Ownership Business Aquiree Acquisition Purchase Interest Acquired Location Date Price Acquired -------- ----------- --------------- --------- --------- bART Holding B.V.............. Netherlands March 25, 1999 $ 7,095 100% MediaNet Ireland Ltd.......... Ireland April 19, 1999 $ 1,698 60% Ecce Terram GmbH.............. Germany April 30, 1999 $ 920 100% Artinternet S.A............... France May 5, 1999 $ 1,723 51% Esoterica-Novas Technologias Portugal May 13, 1999 de Informacao S.A............ $ 8,322 100% Worldwide Web Services........ UK May 27, 1999 $ 7,408 100% Informationstechnik, Netzwerke Germany June 30, 1999 und Systeme Vertriebs GmbH... $ 3,115 100% Netlink Internet Services UK July 9, 1999 Ltd.......................... $12,354 100% Service Net S.A............... Argentina July 30, 1999 $ 1,149 100% Disbumad, S.L................. Spain August 26, 1999 $ 6,163 87%
All companies were acquired directly by the Company, except for Informationstechnik, Netzwerke und Systeme Vertriebs GmbH and Ecce Terram GmbH ("Ecce Terram"), which were acquired by GTN, a majority-owned subsidiary. Netlink was acquired for $9,068 in cash and 394,124 shares of the Company's common stock, valued at $8.25 per share. In conjunction with the acquisitions of Esoterica-Novas Technologias de Informacao S.A.("Esoterica"), Worldwide Web Services ("WWS"), and Ecce Terram, the Company entered into promissory notes with the selling shareholders for a portion of the the purchase price, as follows:
Principal Amount Maturity ---------------- ----------------- WWS....................................... $3,658 May 27, 2000 Esoterica................................. $ 986 May 18, 2000 Ecce Terram............................... $ 585 April 30, 2001 Disbumad.................................. $1,471 February 26, 2001
The promissory notes are denominated and payable in the applicable local currency. All notes bear interest at 5% per annum. Upon maturity, certain of the promissory notes are payable at an amount equal to the greater of the principal and accrued interest or a valuation formula based on the revenues and earnings before interest, F-23 VIA NET.WORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands of U.S. Dollars, except share and per share data) taxes, depreciation and amortization of the acquired business, as calculated at maturity. The Esoterica and WWS notes require the continued employment of certain of the selling shareholders to entitle the holders to receive the amount based on the valuation formula. The Esoterica and WWS promissory notes are payable in common stock or cash at the option of the holder. If the holder elects payment in common stock, the stock will be valued at fair value. Upon an IPO of the Company, payment of the promissory notes can be accelerated at the option of the Company or the holder in which case the common stock will be valued at the IPO price. Payment date for the notes may be extended for 6 months at the option of the holder. The Disbumad promissory notes are payable 50% in cash and 50% in common stock valued at fair value. The principal amount of these promissory notes has been included as a component of the initial purchase price. Upon payment of the Ecce Terram promissory note, any excess of the amount determined under the valuation formula over the principal amount will be recorded as additional purchase consideration at that time. Because the valuation formula of the WWS and Esoterica promissory notes is only applicable in the event that certain selling shareholders remain with as employees of the Company, any excess of the valuation formula over the principal amount will be recognized as a additional compensation expense. In September 1999, the Company negotiated the early retirement of the WWS promissory note for $4,124, (inclusive of accrued interest) paid in 332,926 shares of common stock valued at $8.25 per share and $1,377 in cash. The Company recognized approximately $400,000 (unaudited) in compensation expense in the nine months ended September 30, 1999. In July 1999, the Company purchased the remaining 49% equity interest in VIA Net Works Argentina S.A. for $2,595, comprised of $1,357 in cash and 150,000 of the Company's common stock, valued at $8.25 per share. 4. Property and Equipment Property and equipment consisted of the following:
December 31, ------------- 1997 1998 ------------- Machinery and equipment....................................... $ 8 $ 3,305 Furniture and fixture......................................... -- 1,034 Purchased software............................................ -- 309 ----- ------- 8 4,648 Accumulated depreciation and amortization..................... -- (368) ----- ------- Property and equipment, net................................... $ 8 $ 4,280 ===== =======
Total depreciation expense was $0 and $368 in 1997 and 1998, respectively. As of December 31, 1998, the Company held $1,558 of machinery and equipment under capital lease arrangements. The related accumulated amortization was $70. In June 1999 the Company entered into a series of agreements to purchase two indefeasible rights of use (IRU) on fiber-optic telecommunications systems spanning from New York to London and connecting the cities of London, Amsterdam and Dusseldorf, respectively. The purchase price for this capacity aggregated $11,500. F-24 VIA NET.WORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands of U.S. Dollars, except share and per share data) Of this amount $6,270 was paid prior to September 30, 1999, $1,330 is required to be paid prior to December 31, 1999 and the remaining amount, plus accrued interest at 12%, is due in quarterly installments through June 2002. The cost has been recorded as a component of property and equipment and will be depreciated over the contractual life of the IRU, ranging from 20 to 25 years. In addition the Company is required to make quarterly payments for certain operations and maintenance services totaling $7,750 over the life of the agreements. 5. Goodwill Goodwill consisted of the following:
December 31, ------------ September 30, 1997 1998 1999 ---- ------- ------------- (unaudited) Goodwill........................................ $-- $30,784 $100,703 Accumulated amortization........................ -- (936) (9,196) ---- ------- -------- Total......................................... $-- $29,848 $ 91,507 ==== ======= ========
Total amortization expense was $936 in 1998, and $8,167 (unaudited) in the nine months ended September 30, 1999. 6. Related Party Obligations At December 31, 1998, the Company had $2,245 due to certain of the former shareholders of Dialdata. The obligation was settled by a cash payment in January 1999. At December 31, 1998, the Company had $32 and $88 due to certain directors of U-Net and VIA Net Works Argentina, respectively, representing cash advances from the directors to the subsidiaries that were made prior to the acquisition. 7. Short-Term Notes and Long-Term Debt Debt consisted of the following:
December 31, ------------ 1997 1998 ---- ------- Acquisition debt for U-Net Ltd. at LIBOR+1% ................. $-- $ 8,280 Acquisition obligation for Dialdata.......................... -- 2,245 Capital lease obligations at interest rates ranging from 7.8% to 8.0%..................................................... -- 980 Advances from directors of subsidiaries...................... -- 121 Note payable at an interest rate of 6.5%..................... -- 121 ---- ------- -- 11,747 Less current portion......................................... -- (11,182) ---- ------- Long-term portion............................................ $-- 565 ==== =======
8. Mandatorily Redeemable Convertible Preferred Stock In 1997 and 1998, the Company issued 1,025,000 shares and 463,657 shares, respectively, of mandatorily redeemable convertible Series A preferred stock ("Series A") at $1.00 per share. F-25 VIA NET.WORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands of U.S. Dollars, except share and per share data) In May 1998, the Company issued 15,795,335 shares of mandatorily redeemable convertible Series B-1 preferred stock ("Series B-1") and 1,400,000 shares of mandatorily redeemable convertible Series B-2 non-voting preferred stock ("Series B-2"), collectively ("Series B") at $3.00 per share. In April 1999, the Company issued 15,939,657 shares of Series C-1 mandatorily redeemable convertible preferred stock ("Series C-1") and 5,370,001 shares of mandatorily redeemable convertible Series C-2 non-voting preferred stock ("Series C-2"), collectively ("Series C") at $6.00 per share. The shares of Series A, Series B-1 and Series C-1 are convertible, at the option of the holder, into equivalent shares of common stock. The shares of Series B-2 and Series C-2 are convertible, at the option of the holder, into equivalent shares of non-voting common stock. Shares of Series B-2 and C-2 are convertible into shares of Series B-1 and Series C-1, respectively on a share- for-share basis at the option of the holder. The conversion ratios are subject to adjustment for antidilution provisions. In the event of liquidation, dissolution or winding up of the Company, the Series C holders will be entitled to a liquidation preference over payments to Series B holders, Series A holders and common stockholders equal to the investment price plus all declared but unpaid dividends. The holders of Series B will be entitled to be paid out of the assets prior and in preference to any payments to Series A and common stockholders. The holders of Series A will be entitled to be paid out of the assets prior and in preference to any payments to common stockholders. The preference payments would be in an amount per share equal to the investment price plus all declared but unpaid dividends. The holders of Series A and Series B-1 shares, voting as a single class, may elect four directors to serve on the Company's Board of Directors. The holders of Series C-1 shares, voting as a single class, may elect three directors to serve on the Company's Board of Directors. Series C participates on an as-converted basis in all dividends payable to the holders of common stock. Both the Series A and Series B shares are noncumulative and nonparticipating. Any declared, but unpaid dividends may also be converted at the option of the holder, into shares of common stock on the same terms as the underlying preferred stock. Concurrent with the private placement of Series C, the Company amended and restated its Articles of Incorporation (the "Amendment"). The Amendment increased the total authorized shares of voting common stock of the Company to 57,000,000 shares, increased the total authorized shares of non-voting common stock of the Company to 7,500,000 shares, increased the total authorized shares of the preferred stock of the Company to 48,000,000 shares and modified the redemption rights of the preferred stock whereby the Company must redeem for cash all outstanding shares of Series A, Series B, and Series C on May 31, 2008. The Amendment also amended the automatic conversion feature of all outstanding preferred stock in the event of an IPO. Upon the closing of an IPO in which the IPO price per share is at least $12.00 per share, and the gross cash proceeds to the Company are at least $50,000, each share of the Series A, Series B-1, Series B-2, Series C-1 and Series C-2 preferred stock automatically converts into shares of voting or non-voting common stock, based upon the then effective conversion price, currently on a one-for-one basis. 9. Stock Compensation and Retirement Plans Key Employee Equity Plan During 1998, the Company adopted the V-I-A Internet Inc. Key Employee Equity Plan (the "KEEP Plan"), an incentive plan. The KEEP Plan provides for the granting of stock purchase rights to key employees of the Company. Rights are granted with an exercise price as determined by the Company's Board of Directors. F-26 VIA NET.WORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands of U.S. Dollars, except share and per share data) The stock purchase rights vest immediately and expire on dates specified by the Board of Directors. As of December 31, 1998 and September 30, 1999, the Company has reserved 400,000 and 800,000 (unaudited), respectively, common shares for issuance under the KEEP Plan. Stock Option Plan During 1998, the Company adopted the V-I-A Internet Inc. Stock Option and Restricted Stock Plan (the "Option Plan"). The Option Plan allows the Company to issue employees either incentive or non-qualified options, which options vest over such periods as may be determined by the Board of Directors. The vesting period is established in each grant award agreement agreed by the Board of Directors, generally two to four years. The options expire ten years after grant date. The Option Plan allows for grants, which would allow the grantees to exercise their options prior to vesting in exchange for restricted common stock or restricted stock units, however, no such grants have been made. Options are granted with an exercise price equal to the estimated fair value of the common stock at the date of grant as determined by the Company's Board of Directors. As of December 31, 1998 and September 30, 1999 the Company has reserved 1,600,000 and 4,200,000 (unaudited), respectively, common shares for issuance under the Option Plan. Warrants for Common Stock In April 1998, the Company issued warrants to purchase 100,000 shares of common stock at an exercise price of $2.40, to a non-employee member of the Board of Directors. These warrants vest immediately and expire five years from the grant date. As of December 31, 1998 no warrants have been exercised. Fair Value of Stock Options and Warrants For disclosure purposes under SFAS No. 123, the fair value of each stock option and warrant granted is estimated on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions:
KEEP Plan Option Plan Warrants --------- ----------- -------- Expected life (in months)..................... 2 48-60 60 Risk-free interest rate....................... 4.5% 5.0% 5.0% Volatility.................................... 0% 0% 0% Dividend yield................................ 0% 0% 0%
Utilizing these assumptions, the weighted-average fair value of the stock options and warrants granted in 1998 was $0.02, and $0.36, and $0.53 for the KEEP Plan, Option Plan, and warrants, respectively. Under the above model, the total value of stock options and warrants granted was approximately $440 in 1998, which would be amortized on a pro forma basis over the option-vesting period. Had the Company determined compensation cost for these plans in accordance with SFAS No. 123, the Company's pro forma results for the year ended December 31, 1998 would have been as follows:
As Reported Pro Forma ----------- --------- Net loss............................................... $(5,342) $(5,403) Net loss per share..................................... $(24.29) $(24.56)
F-27 VIA NET.WORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands of U.S. Dollars, except share and per share data) Following is a summary of the Company's stock purchase right, stock option and warrant activity through September 30, 1999:
Number of Shares of Common Stock Weighted- ----------------------------- Average KEEP ISO Price Per Exercise Plan Plan Warrants Share Price -------- --------- -------- ----------- --------- Balance at December 31, 1997................... -- -- -- $ -- $ -- Granted................. 365,000 1,080,000 100,000 $1.00-$2.40 $1.99 Exercised............... -- -- -- -- -- Forfeited............... (25,000) (50,000) -- $ 2.40 $2.40 -------- --------- ------- Balance at December 31, 1998................... 340,000 1,030,000 100,000 $1.00-$2.40 $2.11 -------- --------- ------- Granted (unaudited)..... 252,000 1,641,500 -- $4.00-$8.25 $5.17 Exercised (unaudited)... (489,834) -- -- $2.40-$4.00 $3.33 Forfeited (unaudited)... (102,166) -- -- $2.40-$4.00 $2.94 -------- --------- ------- Balance at September 30, 1999 (unaudited)....... -- 2,671,500 100,000 $1.00-$4.00 $3.95 ======== ========= =======
All stock purchase rights and options granted during 1998 were granted with exercise prices equal to the fair market value as determined by the Board of Directors. During the nine months ended September 30, 1999, the Company determined that the fair value of the underlying common stock exceeded the exercise price of certain stock purchase right and stock option grants by $1,816 (unaudited.) Such amount will be amortized over the vesting period. The Company recognized an expense of $483 (unaudited) in the nine months ended September 30, 1999. In October 1999, the Company granted 1,890,000 (unaudited) stock options, at an exercise price of $9.00 (unaudited) per share. None of these options have been exercised. 10. Income Taxes The differences between the U.S. federal statutory tax rate and the Company's effective tax rate are as follows:
For the period from December June 13, 1997 For the year (Inception) to ended December 31, December 31, 1997 1998 -------------- ------------ Statutory U.S. federal income tax rate........... 34% 34% Minority interest................................ -- 1 Goodwill amortization............................ -- (5) State income taxes, net.......................... -- 1 Change in valuation allowance.................... (34) (19) Loss on unconsolidated subsidiary................ -- (7) Other............................................ -- (2) --- Effective income tax rate........................ 0% 3% === ===
F-28 VIA NET.WORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands of U.S. Dollars, except share and per share data) The benefit from income taxes is summarized below:
For the period from December June 13, 1997 For the year (Inception) to Ended December 31, December 31, 1997 1998 -------------- ------------ Deferred income taxes: International.................................. $-- $(145) Federal........................................ -- -- State.......................................... -- -- Total deferred income taxes...................... -- (145) ---- ----- Total benefit from income taxes.................. $-- $(145) ==== =====
The components of loss before income taxes and minority interest are as follows:
For the period from December June 13, 1997 For the year (Inception) to ended December 31, December 31, 1997 1998 -------------- ------------ U.S operations.......... $(321) $(4,107) Non-U.S. operations..... -- (1,619) ----- ------- Loss before minority interest and income taxes.................. $(321) $(5,726) ===== =======
Deferred tax assets and liabilities were comprised of the following:
1997 1998 ---- ------ Deferred tax assets: NOL carryforward............................................. $117 $ 539 Start-up costs............................................... -- 523 International subsidiaries................................... -- 145 ---- ------ Gross deferred tax assets...................................... 117 1,207 ---- ------ Deferred tax liabilities: Unrealized foreign currency gain............................. -- (48) ---- ------ Gross deferred tax liabilities................................. -- (48) ---- ------ Net deferred tax asset......................................... $117 $1,159 ---- ------ Valuation allowance............................................ (117) (1,159) ---- ------ Net deferred tax asset......................................... $-- $ -- ==== ======
The gross deferred tax assets have been reduced by a valuation allowance because it is currently more likely than not that such benefits will not be realized. The change in the valuation allowance was an increase of $1,042 in 1998, which is primarily related to additional losses from operations and start-up costs. F-29 VIA NET.WORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands of U.S. Dollars, except share and per share data) At December 31, 1997 and 1998, the Company has a U.S. net operating loss carryforward of approximately $321 and $1,419, respectively, which may be used to offset future taxable income. This carryforward expires in 2018 and 2012, respectively. The Internal Revenue Code places certain limitations on the annual amount of net operating loss carryforwards which can be utilized if certain changes in the Company's ownership occur. At December 31, 1997, the Company did not have any net operating losses generated from foreign subsidiaries. At December 31, 1998, the Company has net operating losses generated from its foreign subsidiaries of approximately $406 of which $364 will begin to expire in 2003 and $42 which have an indefinite carryforward period. 11. Commitments and Contingencies Operating and Capital Lease Commitments The Company leases office space and equipment under noncancelable operating leases expiring on various dates through 2004. Rent expense for the year ended December 1998 and for the period from June 13, 1997 (inception) to December 31, 1997 was $178 and $0, respectively. The Company also leases telecommunications and other equipment under capital leases. Future minimum lease payments under noncancelable operating leases and capital leases at December 31, 1998 are as follows:
Operating Capital --------- ------- Year Ending December 31, 1999..................................................... $ 558 $ 556 2000..................................................... 521 364 2001..................................................... 485 145 2002..................................................... 495 9 2003..................................................... 378 8 Thereafter............................................... 521 6 ------ ----- $2,958 1,088 ====== ----- Less amount representing interest.......................... (108) ----- Present value of future minimum lease payments............. $ 980 =====
Contingencies From time to time, the Company is subject to claims arising in the ordinary course of business. In the opinion of management, no such matter, individually or in the aggregate, exists which is expected to have a material effect on the results of operations, cash flows or financial position of the Company. 12. Segment Reporting The Company offers Internet connectivity, web hosting, e-commerce, Internet security and related services to businesses and consumers in Europe and Latin America. Both segments generate Internet-related revenues from leased lines, dial-up Internet access, web hosting and design, consulting services, and hardware and software sales. Each of these geographic operating segments is considered a reportable segment, and the accounting policies of the operating segments are the same as those described in Note 1. The Company evaluates the performance of its segments based on revenue and earnings before interest, taxes, depreciation and amortization F-30 VIA NET.WORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands of U.S. Dollars, except share and per share data) and non-cash compensation charges ("EBITDA"). The table below presents information about the reported revenue, EBITDA and assets of the Company's segments for the year ended December 31, 1998, and nine months ended September 30, 1998 and 1999 (unaudited). The Company had only the Corporate segment prior to 1998, since it had not yet acquired any operating companies.
Latin Corporate Europe America Total --------- ------- ------- -------- The year ended December 31, 1998: Revenue.............................. $ -- $ 2,697 $ 651 $ 3,348 EBITDA............................... $ (4,389) $ (45) (329) $ (4,763) Assets............................... $ 60,952 $ 7,666 4,407 $ 73,025 The nine months ended September 30, 1998 Revenue (unaudited).................. $ -- $ -- $ -- $ -- EBITDA (unaudited)................... $ (2,864) $ -- $ -- $ (2,864) Assets (unaudited)................... $ 50,992 $ -- $3,294 $ 54,286 The nine months ended September 30, 1999 Revenue (unaudited).................. $ -- $19,378 $3,988 $ 23,366 EBITDA (unaudited)................... $ (5,651) $(2,032) $ (902) $ (8,585) Assets (unaudited)................... $201,949 $14,178 $ (995) $215,132
Adjustments that are made to the total EBITDA in order to arrive at loss before income taxes and minority interest are as follows:
For the Nine Months Ended For the year ended September 30, December 31, ----------------- 1998 1998 1999 ------------------ ------- -------- (unaudited) EBITDA............................... $(4,763) $(2,864) $ (8,585) Non-cash compensation................ -- -- (483) Depreciation and amortization........ (1,304) (3) (10,656) ------- ------- -------- Loss from operations................. (6,067) (2,867) (19,724) Other income and interest income, net................................. 1,540 962 2,602 Loss in unconsolidated affiliate..... (1,199) (447) (177) ------- ------- -------- Loss before income taxes and minority interest............................ $(5,726) $(2,352) $(17,299) ======= ======= ========
For the year ended December 31, 1998 the Company recognized revenues from the United Kingdom, Germany and Argentina in the amounts of $1,203, $1,495 and $652, respectively. 13. Subsequent Events Acquisitions of Businesses Subsequent to September 30, 1999 the Company made two additional acquisitions:
Aggregate Ownership Business Aquiree Acquisition Purchase Interest Acquired Location Date Price Acquired -------- ----------- ---------------- --------- --------- InfoAcces S.A. de C.V. (InfoAcces).............. Mexico October 10, 1999 $35,000 100% Management and Communications S.A. (M&C).................... Switzerland October 11, 1999 $ 3,300 60%
In October 1999, the Company acquired all of the outstanding common stock of InfoAcces, an Internet services provider located in Mexico City. The purchase consideration consisted of a $35.0 million initial cash payment and a maximum of $30.0 million of contingent earn-out payments based on a formula valuation through December 2000. In connection with the contingent consideration, the Company has placed $15.0 million in escrow. F-31 VIA NET.WORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands of U.S. Dollars, except share and per share data) Additionally, in October 1999, the Company acquired 60% of the outstanding shares of M&C an Internet services provider operating in Switzerland. The purchase price consisted of cash of $2.1 million payable over a 12 month period. Following twelve months from the closing of the transaction or under certain other circumstances, including an IPO, the Company has an option to acquire the remaining interest in M&C based on a valuation formula, payable in shares of the Company. The purchase price will be allocated to the acquired tangible and intangible assets of the acquired businesses. It is anticipated that any resultant goodwill will be amortized over a 5-year period. F-32 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of VIA Net Works Argentina S.A. In our opinion, the accompanying balance sheets and the related statements of operations, stockholders' deficit, and cash flows expressed in Argentine pesos, present fairly, in all material respects, the financial position of VIA Net Works Argentina S.A. as of September 24, 1998 and December 31, 1997, and the results of its operations and its cash flows for the period from January 1, 1998 to September 24, 1998 and the year ended December 31, 1997, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits of these financial statements in accordance with generally accepted auditing standards in Argentina which are substantially similar to generally accepted auditing standards in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Price Waterhouse & Co. Jorge C. Bacher (Partner) By __________________________________ Buenos Aires, Argentina July 30, 1999 F-33 VIA NET WORKS ARGENTINA S.A. BALANCE SHEETS (All amounts in thousands of AR$, except share and per share data)
December 31, September 24, 1997 1998 ------------ ------------- ASSETS Current assets: Cash and cash equivalents......................... $ 19 $ 28 Accounts receivable, net of allowance of $38 and $11 at September 24, 1998 and December 31, 1997, respectively..................................... 33 189 Prepaid expenses and other current assets......... 10 21 ----- ------ Total current assets............................ 62 238 Equipment and furniture, net........................ 124 393 Intangibles and other assets........................ 9 12 ----- ------ Total assets.................................... $ 195 $ 643 ===== ====== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable.................................. $ 345 $ 608 Stockholder deposits.............................. 380 380 Accrued liabilities............................... 270 271 Loans payable to stockholders..................... 16 88 Short-term portion of capital lease obligations... -- 73 Value Added Tax and other taxes................... 79 502 Deferred revenues................................. 29 40 ----- ------ Total current liabilities....................... 1,119 1,962 Commitments and contingencies Long-term liabilities: Capital lease obligations, net of current portion.......................................... -- 146 Value added tax and other taxes................... -- 40 ----- ------ Total liabilities............................... 1,119 2,148 ----- ------ Stockholders' deficit: Common stock (1,200 shares authorized, issued and outstanding at September 24, 1998 and December 31, 1997, with a par value of $0.01).............................. 12 12 Accumulated deficit............................... (936) (1,517) ----- ------ Total stockholders' deficit..................... (924) (1,505) ----- ------ Total liabilities and stockholders' deficit..... $ 195 $ 643 ===== ======
The accompanying notes are an integral part of these financial statements. F-34 VIA NET WORKS ARGENTINA S.A. STATEMENTS OF OPERATIONS (All amounts in thousands of AR$)
For the For the period year ended January 1 to December 31, September 24, 1997 1998 ------------ -------------- Revenue............................................ $1,064 $1,394 Cost of revenue.................................... 209 301 ------ ------ Gross profit..................................... 855 1,093 Selling, general and administrative expenses....... 1,175 1,501 Depreciation and amortization...................... 55 124 ------ ------ Loss from operations............................... (375) (532) Interest expense................................... 26 49 ------ ------ Net loss........................................... $ (401) $ (581) ====== ======
The accompanying notes are an integral part of these financial statements. F-35 VIA NET WORKS ARGENTINA S.A. STATEMENTS OF STOCKHOLDERS' DEFICIT (All amounts in thousands of AR$ except share and per share data)
Common Stock ------------- Accumulated Shares Amount Deficit Total ------ ------ ----------- ------- Balance at January 1, 1997.................. 1,200 $12 $ (535) $ (523) Net loss for the year....................... -- -- (401) (401) ----- --- ------- ------- Balance at December 31, 1997................ 1,200 12 (936) (924) Net loss for the period..................... -- -- (581) (581) ----- --- ------- ------- Balance at September 24, 1998............... 1,200 $12 $(1,517) $(1,505) ===== === ======= =======
The accompanying notes are an integral part of these financial statements. F-36 VIA NET WORKS ARGENTINA S.A. STATEMENTS OF CASH FLOW (All amounts in thousands of AR$)
For the period For the year ended January 1, 1998 to December 31, 1997 September 24, 1998 ------------------ ------------------ Cash flows from operating activities: Net loss................................ $(401) $(581) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation.......................... 55 124 Allowance for doubtful accounts....... 11 27 Changes in operating assets and liabilities: Accounts receivable................. (44) (183) Prepaid expenses and other current assets............................. 2 (11) Intangibles and other assets........ 3 (3) Accounts payable.................... 265 263 Accrued liabilities................. 200 1 Deferred revenue.................... (37) 11 Value Added Tax and other taxes..... 71 463 ----- ----- Net cash provided by operating activities....................... 125 111 ----- ----- Cash flows from investing activities: Acquisition of equipment and furniture............................ (113) (117) ----- ----- Net cash used in investing activities....................... (113) (117) ----- ----- Cash flows from financing activities: Payments of capital lease obligations.......................... -- (57) Proceeds from loans payable to stockholders......................... -- 72 ----- ----- Net cash provided by financing activities....................... -- 15 ----- ----- Net increase in cash and cash equivalents............................ 12 9 Cash and cash equivalents, beginning of period................................. 7 19 ----- ----- Cash and cash equivalents, end of period................................. $ 19 $ 28 ===== ===== Supplemental disclosure of cash flow information: Acquisition of equipment under capital leases............................... $ -- $ 276 ===== ===== Cash paid for interest................ $ 9 $ 10 ===== =====
The accompanying notes are an integral part of these financial statements. F-37 VIA NET WORKS ARGENTINA S.A. NOTES TO FINANCIAL STATEMENTS (All amounts in thousands of AR$ except share and per share data) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Operations VIA Net Works Argentina S.A. ("the Company") was formed on September 22, 1995, to operate as an Internet Services Provider (ISP) in the city of Buenos Aires. Operations commenced in 1996. On September 24, 1998, 51% of the common stock shares were acquired by VIA NET.WORKS, Inc. for total consideration of AR$3,926. On July 27, 1999, VIA NET.WORKS, Inc. acquired the remaining 49% of the Company for total consideration of AR$2,594. Basis of Presentation The Company maintains its accounting records in accordance with generally accepted accounting principles (GAAP) in the country of Argentina. These financial statements have been prepared in accordance with GAAP in the United States for purposes of filing with the Securities and Exchange Commission and do not represent the statutory financial statements of the Company. The accompanying financial statements include the results of the Company for the year ended December 31, 1997 and for the period from January 1, 1998 to September 24, 1998 (the date that the Company was acquired by VIA NET.WORKS, Inc.). Amounts in these financial statements are presented in Argentine pesos (AR$) unless otherwise indicated. Since inception of the Company, the exchange rate with the U.S. dollar has been AR$1 = US$1. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates, judgements and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, together with amounts disclosed in the related notes to the financial statements. Actual results could differ from the recorded estimates. Fair Value of Financial Instruments Carrying amounts of certain of the Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other liabilities approximate fair value due to their short maturities. Based upon borrowing rates currently available to the Company for loans with similar terms, the carrying value of debt and capital lease obligations approximate their fair value. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Concentration of Credit Risk Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents and accounts receivable. The Company's accounts receivable are derived from revenue earned from customers located primarily in the city of Buenos Aires. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. The Company maintains an allowance for doubtful accounts receivable based upon the expected collectibility of accounts receivable. F-38 VIA NET WORKS ARGENTINA S.A. NOTES TO FINANCIAL STATEMENTS--(Continued) (All amounts in thousands of AR$ except share and per share data) Revenues in the period ended December 31, 1997 and the year ended September 24, 1998 and receivables at December 31, 1997 and September 24, 1998 were concentrated principally with four customers as follows (amounts represent percentage of revenue and accounts receivable, respectively):
Revenues Accounts Receivable --------------------------- -------------------------- For the period For the year from January 1 ended to December 31, September 24, December 31, September 24, Company 1997 1998 1997 1998 - ------- ------------ -------------- ------------ ------------- A........................ -- % 18.25% -- % 16.80% B........................ -- % -- % -- % 16.10% C........................ -- % -- % 55.40% 10.00% D........................ -- % -- % 24.20% -- %
Equipment and Furniture Equipment and furniture are recorded at cost less accumulated depreciation, which is provided on the straight-line method over the estimated useful lives of the assets, generally three to ten years. Communication and computer equipment is depreciated over 3 years and furniture and fixtures over 10 years. Cost includes major expenditures for improvements and replacements which extend the useful life or increase capacity of the asset. Expenditures for maintenance and repairs are expensed as incurred. Costs for internal use software are expensed as incurred. Long-Lived Assets The Company periodically evaluates the carrying value of property and equipment to be held and used when events and circumstances warrant such a review. The carrying value of property and equipment is considered impaired when the anticipated undiscounted cash flows from the asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost to dispose. Management estimates that there is no impairment of assets. Advertising Expense Costs related to advertising and promotion of services is charged to sales and marketing expense as incurred. Advertising expense for all periods presented is immaterial. Dismissal Indemnities Dismissal indemnities, required in the event of involuntary termination and payable in accordance with Argentine law, are expensed when incurred. Income Taxes The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes". SFAS No. 109 is an asset and liability approach that requires the recognition of deferred tax assets and F-39 VIA NET WORKS ARGENTINA S.A. NOTES TO FINANCIAL STATEMENTS--(Continued) (All amounts in thousands of AR$ except share and per share data) liabilities for the expected future tax consequences attributable to differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases, and for operating loss and tax credit carryforwards. In estimating future tax consequences, SFAS No. 109 generally considers all expected future events other than the enactment of changes in tax laws or rates. Revenue Recognition Internet services are recognized as the services are provided. The Company records deferred revenue for amounts billed and collected in advance. Revenue from consulting services is recognized as the services are provided. Revenue from hardware and third-party software sales is recognized upon shipment of the respective products. Through December 31, 1998, such sales have been immaterial. Costs of Revenues Costs of access revenues consists of telecommunication expenses inherent in the network infrastructure. Sources of Suppliers The Company relies on local telephone companies and other companies to provide data communications. Athough management believes that alternative telecommunication facilities could be found in a timely manner, any disruption of these services could have an adverse effect on operating results. Comprehensive Income The Company has adopted the accounting treatment prescribed by SFAS No. 130, "Comprehensive Income". FAS No. 130 establishes standards for reporting and displaying comprehensive income and its components. The adoption of this statement has not impacted the Company's financial statements as a result of the Company not having any comprehensive income other than net loss during the periods presented. Segment Reporting The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," during 1998. SFAS No. 131 replaces the "industry segment" approach with the "management" approach. The management approach designates the internal organization that is used by management for allocating resources and assessing performance as the source of the Company's reportable segments. SFAS No. 131 also requires disclosures about products and services, geographic areas, and major customers. The adoption of SFAS No. 131 did not affect the Company's results of operations or financial position. The Company operates in one segment, all within the city of Buenos Aires and its metropolitan area in Argentina. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes a new model for accounting for derivatives and hedging activities and supersedes and amends a number of existing standards. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999, but earlier application is permitted as of the beginning of any fiscal quarter subsequent to June 15, 1998. Upon initial application, all derivatives are required to be F-40 VIA NET WORKS ARGENTINA S.A. NOTES TO FINANCIAL STATEMENTS--(Continued) (All amounts in thousands of AR$ except share and per share data) recognized in the statement of financial position as either assets or liabilities and measured at fair value. In addition, all hedging relationships must be reassessed and documented pursuant to the provisions of SFAS No. 133. Subsequent to the issuance of SFAS No. 133, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133" ("SFAS No. 137"), which defers the effective date of SFAS No. 133 to periods beginning after June 15, 2000. The Company has not committed or expects to commit to any derivative instrument transactions, and thus does not anticipate that this pronouncement will have a significant effect on its results. In 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which is required to be adopted for fiscal years beginning after December 15, 1998. SOP 98-1 provides guidance on accounting for the costs of computer software developed or obtained for internal use, determining whether computer software is for internal use, and when costs incurred for internal-use computer software are and are not capitalized. The adoption of SOP 98-1 is not expected to have a material effect on the Company's financial statements. NOTE 2: EQUIPMENT AND FURNITURE Equipment and furniture is comprised of the following:
December 31, September 24, 1997 1998 ------------ ------------- Communication and computer equipment.............. $140 $ 529 Furniture and fixtures............................ 64 68 ---- ----- 204 597 Accumulated depreciation.......................... (80) (204) ---- ----- $124 $ 393 ==== =====
Depreciation expense for the period ended December 31, 1997 and year ended September 24, 1998 was $55 and $124, respectively. The cost of communication and computer equipment at September 24, 1998 includes approximately $276 in equipment under capital leases. Depreciation during the period then ended was approximately $55. NOTE 3: ACCRUED LIABILITIES Accrued liabilities is comprised of the following:
December 31, September 24, 1997 1998 ------------ ------------- Salaries payable and vacation accrual............. $ 54 $ 93 Social security charges........................... 181 89 Directors' fees and bonus......................... -- 20 Accrual for legal and other expenses.............. 35 69 ---- ---- $270 $271 ==== ====
F-41 VIA NET WORKS ARGENTINA S.A. NOTES TO FINANCIAL STATEMENTS--(Continued) (All amounts in thousands of AR$ except share and per share data) NOTE 4: LONG-TERM LIABILITIES At September 24, 1998 long-term liabilities consist of the following: Communication and computer equipment capital lease obligations, bearing interest at 8% per annum, with monthly payments through 2001, and a purchase option equivalent to two months rent, secured by leased assets.................................................... $ 219 Value Added Tax and other taxes covered by long-term payment plan, bearing interest at 15% per annum, with monthly payments through 2000................................................................ 76 ----- 295 Less: current portion................................................ (109) ----- $ 186 =====
The above obligations are payable as follows:
Period ending December 31, 1998................................................................... $ 26 1999................................................................... 110 2000................................................................... 97 2001................................................................... 57 2002................................................................... 5 ---- $295 ====
NOTE 5: COMMITMENTS AND CONTINGENCIES Leases The Company leases office space under operating leases which expire in May 2000 and provide for rental payments on a graduated scale. The Company recognizes rent expense on a straight-line basis over the lease period and has accrued for rent expense incurred but not paid. Rent expense for the period ended December 31, 1997 and the year ended September 24, 1998 was $53 and $50, respectively. Future minimum lease payments are as follows:
Period ending December 31, 1998................................................................... $ 17 1999................................................................... 68 2000................................................................... 29 ---- $114 ====
Contingencies From time to time, the Company is subject to claims arising in the ordinary course of business. In the opinion of management, no such matter, individually or in the aggregate, exists which is expected to have a material effect on the results of operations, cash flows or financial position of the Company. F-42 VIA NET WORKS ARGENTINA S.A. NOTES TO FINANCIAL STATEMENTS--(Continued) (All amounts in thousands of AR$ except share and per share data) NOTE 6: STOCKHOLDERS' EQUITY At December 31, 1997 and at September 24, 1998, there were 1,200 Class A ordinary common stock shares, of $10 par value each, authorized, issued and outstanding. In a Stockholders' meeting held on September 24, 1998, a capital increase was approved for an amount of $3,926 in connection with the VIA Net.Works, Inc. purchase of a 51% interest in the Company. The related capital contribution was made subsequent to September 24, 1998 in exchange for newly issued preferred stock to VIA NET.WORKS, Inc.. After this increase, outstanding shares were as follows: Class A common shares 1,110 of $0.01 par value each. Class B preferred shares 1,155 of $0.01 par value each. Preferred shares grant special rights upon liquidation for an amount equivalent to the $3,926 paid by VIA NET.WORKS, Inc. Additionally, the preferred shares have voting rights equivalent to the common stock. Argentine law requires that 5% of a company's annual net income be transferred to a legal reserve within stockholders' equity, until such reserve reaches an amount equivalent to 20% of the Company's capital stock. This requirement is effectively a restriction on the Company's ability to distribute a portion of future earnings. NOTE 7: INCOME TAXES The provision for income taxes is as follows:
For the year For the period ended January 1 to December 31, September 24, 1997 1998 ------------- -------------- Income tax benefit.............................. $ 90 $ 92 Valuation allowance............................. (90) (92) ---- ---- $ -- $ -- ==== ====
The provisions for income taxes for the period ended December 31, 1997 and the year ended September 24, 1998 differ from amounts computed at the statutory rate as follows:
December 31, September 24, 1997 1998 ------------ ------------- Income tax benefit at national statutory rate... $132 $192 Permanent differences: --Non deductible travel expenses.............. (2) (32) --Forgiveness of receivables from directors... -- (62) --Directors' fees............................. (40) (6) ---- ---- Income tax benefit.............................. $ 90 $ 92 ==== ====
F-43 VIA NET WORKS ARGENTINA S.A. NOTES TO FINANCIAL STATEMENTS--(Continued) (All amounts in thousands of AR$ except share and per share data) Deferred tax assets consist of the following:
December 31, September 24, 1997 1998 ------------ ------------- Deferred tax assets: Net operating loss carryforwards................ $ 134 $ 299 Deferred expenses............................... 50 38 Allowance for doubtful accounts................. 4 12 Accrual and reserves............................ 17 10 Software development costs...................... 62 -- ----- ----- Net deferred tax assets........................... 267 359 Valuation allowance............................... (267) (359) ----- ----- $ -- $ -- ===== =====
The Company has established a valuation allowance for net deferred tax assets of its operations since realization of these benefits cannot be reasonably assured. These net operating loss carryforwards expire at various future dates through 2003. While the need for the valuation allowance is subject to periodic review, if the allowance is reduced, the tax benefit of the carryforwards will be recorded in future operations as a reduction of the Company's income tax expense. No cash was paid for income taxes in the year ended December 31, 1997 or the period ended September 24, 1998. The Company's net operating loss carry-forwards as of September 24, 1998 expire as follows:
Amount Expiration date ------ December 31, 2001..................................................... $321 December 31, 2002..................................................... 85 December 31, 2003..................................................... 500 ---- $906 ====
The net operating loss carry-forward of $500 to expire in 2003 results from the estimated tax loss for the period ended September 24, 1998, which will be included in the annual income tax return for 1998. NOTE 8: RELATED PARTY TRANSACTIONS During 1996 and 1998, the Company borrowed $16 and $72, respectively, from its stockholders. At December 31, 1997 and September 24, 1998, the aggregate outstanding principal balance was $16 and $88, respectively. The loans bear interest at 4% per annum and have no specified maturity dates. The Company repaid the loans in 1999. In connection with the investment by a VIA NET.WORKS, Inc., it was agreed that the Company would forgive certain amounts receivable from founding stockholders, aggregating approximately $90. Such amount is included in operating expenses for the period ended September 24, 1998 in the accompanying Statement of Operations. At December 31, 1997 and September 24, 1998, the Company held stockholders' deposits for future capital stock increases in the amount of $380. Stockholders' deposits for future capital increases represent cash deposits in anticipation of future conversion into capital stock. The deposits are considered to represent F-44 VIA NET WORKS ARGENTINA S.A. NOTES TO FINANCIAL STATEMENTS (All amounts in thousands of AR$ except share and per share data) stockholders' equity under accounting principles generally accepted in Argentina. Such deposits are intended to be converted into capital through the issuance of shares of stock, although the law does not require such a conversion. Also, until such time, if any, that deposits are converted into capital, the law does not preclude the stockholder from obtaining a repayment of the deposit. Therefore, stockholders' deposits aggregating $380 are presented as current liabilities in the accompanying balance sheet in accordance with accounting principles generally accepted in the United States. F-45 Report of Independent Accountants To the Board of Directors and Stockholders of GTN Gesellschaft fur Telekommunikations- und Netzwerkdienste mbH In our opinion, the accompanying balance sheets and the related statements of operations, stockholders' equity, and cash flows expressed in Deutschmarks present fairly, in all material respects, the financial position of GTN Gesellschaft fur Telekommunikations- und Netzwerkdienste mbH ("GTN") as of December 31, 1997 and October 9, 1998, and the results of its operations and its cash flows for the year ended December 31, 1997 and the period from January 1, 1998 to October 9, 1998, in conformity with generally accepted accounting principles in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards in Germany which are substantially similar to generally accepted auditing standards in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers GmbH Wirtschaftsprufungsgesellschaft I. Trauer A. Jacobs Dusseldorf, Germany November 19, 1999 F-46 GTN BALANCE SHEETS (All amounts in thousands of DM except share data)
December 31, October 9, 1997 1998 ------------ ---------- ASSETS Current assets: Cash and cash equivalents............................ DM 126 DM 110 Accounts receivable, net of allowance of DM 70 and DM 97 at December 31, 1997 and October 9, 1998, respectively........................................ 989 1,328 Accounts receivable stockholders..................... 27 96 Income taxes......................................... 109 92 Other accounts receivable and current assets......... 2 -- Inventory............................................ 55 -- ------- ------- Total current assets............................... 1,308 1,626 Property and equipment, net............................ 382 655 Other assets........................................... 10 14 ------- ------- Total assets....................................... DM1,700 DM2,295 ------- ------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable..................................... DM 582 DM1,227 Accrued liabilities.................................. 145 139 Notes payable........................................ 67 274 Value added taxes and other taxes.................... 177 69 Other current liabilities............................ 85 50 ------- ------- Total current liabilities........................... 1,056 1,759 Deferred taxes......................................... 281 230 ------- ------- Total liabilities................................... 1,337 1,989 ------- ------- Commitments Stockholders' equity: Common stock, par value DM 51; 12 shares authorized, issued and outstanding.............................. 51 51 Retained earnings.................................... 312 255 ------- ------- Total stockholders' equity......................... 363 306 ------- ------- Total liabilities and stockholders' equity......... DM1,700 DM2,295 ======= =======
The accompanying notes are an integral part of these financial statement. F-47 GTN STATEMENTS OF OPERATIONS (All amounts in thousands of DM)
For the For the period year ended January 1, 1998 December 31, to October 9, 1997 1998 ------------ --------------- Revenue............................................ DM8,014 DM7,046 Cost of revenue.................................... 5,022 4,816 ------- ------- Gross profit..................................... 2,992 2,230 ------- ------- Selling, general and administrative costs.......... 2,111 2,214 Depreciation and amortization...................... 337 128 ------- ------- Income (loss) from operations...................... 544 (112) Interest expense................................... 15 2 Other (income) expense............................. 9 (5) ------- ------- Income (loss) before income taxes.................. 520 (109) Income tax (benefit) expense....................... 259 (52) ------- ------- Net income (loss).................................. DM 261 DM (57) ======= =======
The accompanying notes are an integral part of these financial statement. F-48 GTN STATEMENT OF STOCKHOLDERS' EQUITY (All amounts in thousands of DM except share data)
Common Stock Total ------------- Retained Stockholders' Shares Amount Earnings Equity ------ ------ -------- ------------- Balance at December 31, 1996............... 6 DM51 DM214 DM265 Net income................................. -- -- 261 261 Dividends.................................. -- -- (163) (163) --- ---- ----- ----- Balance at December 31, 1997............... 12 51 312 363 Net loss................................... -- -- (57) (57) --- ---- ----- ----- Balance at October 9, 1998................. 12 DM51 DM255 DM306 === ==== ===== =====
The accompanying notes are an integral part of these financial statement. F-49 GTN STATEMENTS OF CASH FLOWS (All amounts in thousands of DM)
For the year For the period ended January 1, 1998 December 31, to October 9, 1997 1998 ------------ --------------- Cash flows from operating activities: Net income (loss)................................ DM 261 DM (57) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization................... 334 125 Provision for doubtful accounts................. 40 27 Deferred taxes.................................. 234 (51) Changes in operating assets and liabilities: Accounts receivable............................ 127 (366) Inventory...................................... (23) 55 Other accounts receivable and current assets... (133) (50) Other assets................................... (10) (4) Accounts payable............................... (203) 645 Accrued liabilities............................ (55) (6) Value Added Tax and other taxes................ 108 (108) Other current liabilities...................... 6 (35) ------ ------ Net cash provided by operating activities..... 686 175 ------ ------ Cash flows from investing activities: Purchases of furniture and equipment............ (269) (398) ------ ------ Net cash used in investing activities......... (269) (398) ------ ------ Cash flows from financing activities: Proceeds from (repayment of) short-term debt.... (130) 207 Dividends paid.................................. (163) -- ------ ------ Net cash (used in) provided by financing activities................................... (293) 207 Net increase (decrease) in cash and cash equivalents.................................. 124 (16) ------ ------ Cash and cash equivalents, beginning of period.... 2 126 ------ ------ Cash and cash equivalents, end of period.......... DM 126 DM 110 ====== ======
The accompanying notes are an integral part of these financial statement. F-50 GTN NOTES TO FINANCIAL STATEMENTS (All amounts in thousands of DM except share data) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Operations GTN (also referred to as the "Company") was formed on April 2, 1993 to operate as an Internet Services Provider (ISP) in the city of Kaarst, Germany. On October 9, 1998, 51% of the common stock was acquired by VIA NET.WORKS, Inc. for total consideration of DM 16,533. Basis of Presentation The Company maintains its accounting records in accordance with generally accepted accounting principals (GAAP) in the country of Germany. These financial statements have been prepared in accordance with GAAP in the United States of America for purposes of filing with the Securities and Exchange Commission and do not represent the statutory financial statements of the Company. The accompanying financial statements include the results of the Company for the year ended December 31, 1997 and for the period from January 1, 1998 to October 9, 1998 (the date that the Company was acquired by VIA NET.WORKS, Inc.) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates, judgements and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, together with amounts disclosed in the related notes to the financial statements. Actual results could differ from the recorded estimates. Fair Value of Financial Instruments Carrying amounts of certain of the Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other liabilities approximate fair value due to their short maturities. Based upon borrowing rates currently available to the Company for loans with similar terms, the carrying value of debt approximate their fair value. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Concentration of Credit Risk Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents, and accounts receivable. The Company's accounts receivable are derived from revenue earned from customers located in Germany. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. The Company maintains an allowance for doubtful accounts receivable based upon the expected collectibility of accounts receivable. Inventory Inventory as of December 31, 1997 includes DM 55 of finished goods and is stated at the lower of cost or market, cost being determined by the specific identification method. F-51 GTN NOTES TO FINANCIAL STATEMENTS--(Continued) (All amounts in thousands of DM except share data) Property and Equipment Property and equipment is recorded at cost less accumulated depreciation, which is provided on the straight-line method over the estimated useful lives of the assets, generally three to five years. Expenditures for maintenance and repairs are expensed as incurred. Long-Lived Assets The Company periodically evaluates the carrying value of property and equipment to be held and used when events and circumstances warrant such a review. The carrying value of property and equipment is considered impaired when the anticipated undiscounted cash flows from the asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost to dispose. Income Taxes The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes". SFAS No. 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases, and for operating loss and tax credit carryforwards. In estimating future tax consequences, SFAS No. 109 generally considers all expected future events other than the enactment of changes in tax laws or rates. Revenue Recognition Internet services are recognized as the services are provided. Revenue from consulting services is recognized as the services are provided. Revenue from hardware and third-party software sales is recognized upon shipment of the respective products through October 9, 1998, such sales have been immaterial. Other revenues include network installation, maintenance and consulting services. These services are provided on a time-and-material basis and revenue is recognized based upon time (at established rates) and other direct costs as incurred. Costs of Revenues Costs of access revenues primarily consist of telecommunication expenses inherent in the network infrastructure. Costs of access revenues also include fees paid for lease of the Company's network infrastructure, product costs, and contractor fees for operation and support services. Sources of Suppliers The Company relies on local telephone companies and other companies to provide data communications. Although management feels alternative telecommunication facilities could be found in a timely manner, any disruption of these services could have an adverse effect on operating results. Comprehensive Income The Company adopted SFAS No. 130, "Comprehensive Income" in 1998. SFAS No. 130 establishes standards for reporting and displaying comprehensive income and its components. The adoption of this F-52 GTN NOTES TO FINANCIAL STATEMENTS--(Continued) (All amounts in thousands of DM except share data) statement had no impact on the Company's financial statements as a result of the Company not having any comprehensive income other than net income and loss during the periods presented. Segment Reporting The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," during 1998. SFAS No. 131 replaces the "industry segment" approach with the "management" approach. The management approach designates the internal organization that is used by management for allocating resources and assessing performance as the source of the Company's reportable segments. SFAS No. 131 also requires disclosures about products and services, geographic areas, and major customers. The adoption of SFAS No. 131 did not affect results of operations or financial position. The Company operates in one segment, all within the country of Germany. Recent Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes a new model for accounting for derivatives and hedging activities and supersedes and amends a number of existing standards. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999, but earlier application is permitted as of the beginning of any fiscal quarter subsequent to June 15, 1998. Upon initial application, all derivatives are required to be recognized in the statement of financial position as either assets or liabilities and measured at fair value. In addition, all hedging relationships must be reassessed and documented pursuant to the provisions of SFAS No. 133. Subsequent to the issuance of SFAS No. 133, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133" ("SFAS No. 137"), which defers the effective date of SFAS No. 133 to periods beginning after June 15, 2000. The Company has not committed or expects to commit to any derivative instrument transactions, and thus does not anticipate that this pronouncement will have a significant effect on its results. In 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use", which is required to be adopted for fiscal years beginning after December 15, 1998. SOP 98-1 provides guidance on accounting for the costs of computer software developed or obtained for internal use, determining whether computer software is for internal use, and when costs incurred for internal-use computer software are and are not capitalized. The adoption of SOP 98-1 is not expected to have a material effect on the Company's financial statements. NOTE 2: PROPERTY AND EQUIPMENT Property and equipment is comprised of the following:
December 31, October 9, 1997 1998 ------------ ---------- Furniture and equipment................................. DM 866 DM1,264 Accumulated depreciation and amortization............... DM(484) DM (609) ------ ------- DM 382 DM 655 ====== =======
F-53 GTN NOTES TO FINANCIAL STATEMENTS--(Continued) (All amounts in thousands of DM except share data) NOTE 3: BORROWINGS Lines of Credit At October 9, 1998, the Company had a DM 200 line of credit with Commerzbank Monchengladbach, Germany. Under the line agreement, borrowings are secured by personal guarantees of the shareholders, assignment of accounts receivable, a subordination agreement by all shareholders and a pledge of security accounts owned by shareholders. The line of credit expired March 31, 1999 and charged interest at a rate of 7.5% per annum. Under the line of credit, the Company was restricted from paying dividends as long as the equity ratio was less than 20% and the ratio of fixed assets to equity was less than 100%. Dividends may be paid if they are immediately deposited as shareholders' loans. At October 9, 1998, there was no outstanding principal or interest. At October 9, 1998, the Company had DM 274 outstanding under a line of credit with Raiffeisenbank Kaarst/Germany. The line of credit which has been agreed in writing provides for borrowings of up to DM 160, which are secured by personal guarantees of shareholders and pledge of security accounts owned by shareholders. The line of credit originally expired in 1997 but is revolving and charges interest at a rate of 7.75% per annum. Borrowings in excess of DM 160 are overdraft facilities granted without written contract. At December 31, 1997 the Company had DM 67 outstanding under the above mentioned line of credit. NOTE 4: COMMITMENTS Leases The Company leases office space and equipment under noncancelable operating leases with various expiration dates through May 2003. Rent expense for the year ended December 31, 1997 and period ended October 9, 1998 was DM 232 and DM 243, respectively. The terms of the facility lease provide for rental payments increased at 2.5% per year. The Company recognizes rent expense on a straight- line basis over the lease period, and has accrued for rent expense incurred but not paid. Future minimum lease payments under noncancelable operating leases, including lease commitments entered into subsequent to October 9, 1998 as follows:
Period Ended December 31 1998................................................................. DM 99 1999................................................................. 393 2000................................................................. 385 2001................................................................. 359 2002................................................................. 364 Thereafter........................................................... 153 ------- Total................................................................ DM1,753 =======
F-54 GTN NOTES TO FINANCIAL STATEMENTS (All amounts in thousands of DM except share data) NOTE 5: INCOME TAXES The (benefit from) provision for income taxes is as follows:
For the year For the period from ended January 1, 1998 to December 31, October 9, 1997 1998 ------------ ------------------- Current: German corporation tax (federal).............. DM 17 DM 24 German trade tax on income (municipal)..... 8 (25) ----- ----- 25 (1) ----- ----- Deferred: German corporation tax (federal).............. 145 (31) German trade tax on income (municipal)..... 89 (20) ----- ----- 234 (51) ----- ----- (Benefit from) provision for income taxes......... DM259 DM(52) ===== =====
The provision for income taxes differs from amounts computed at the statutory rate as follows:
December 31, October 9, 1997 1998 ------------ ---------- Federal statutory rate............................... 48.3% 48.3% Other................................................ 1.5 (0.6) ---- ---- Effective Income tax rate............................ 49.8% 47.7% ==== ====
Deferred tax assets (liabilities) consist of the following:
December 31, October 9, 1997 1998 ------------ ---------- Deferred tax assets: Net operating loss carry forwards.................. DM-- DM 86 ----- ----- Deferred tax liabilities: Depreciation and other............................. 281 316 ----- ----- Net deferred tax liability........................... DM281 DM230 ===== =====
In the year ended December 31, 1997 and for the period ended October 9, 1998 the Company received DM 34 and paid DM 134 in income tax, respectively. NOTE 6: RELATED PARTY TRANSACTIONS
December 31, October 9, 1997 1998 ------------ ---------- Accounts receivable stockholders..................... DM27 DM96
The receivables concern cost of the information document prepared by Regent Associates which have to be born by stockholders. The amounts due have been advanced by GTN. F-55 Report of Independent Accountants To the Board of Directors and Stockholders of V-I-A Internet, Inc. In our opinion, the accompanying balance sheets and the related statements of operations of cash flows present fairly, in all material respects, the financial position of U-Net Limited at October 29, 1998 and July 31, 1998 and 1997, and the results of its operations and changes in retained earnings and its cash flows for the period from August 1, 1998 to October 29, 1998 and the years ended July 31, 1998 and 1997 in conformity with generally accepted accounting principles in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards in the United States which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers Manchester July 14, 1999 F-56 U-NET LIMITED BALANCE SHEETS (All amounts in thousands GBP except share data)
July 31, ---------------------------- October 29, 1997 1998 1998 ------------- ------------- ------------- ASSETS Current assets: Cash and cash equivalents....... (Pounds) 140 (Pounds) 355 (Pounds) 290 Accounts receivable, net of allowance of (Pounds)18, (Pounds)35 and (Pounds)65, respectively................... 98 104 101 Prepaid expenses and other current assets................. 82 172 170 ------------- ------------- ------------- Total current assets.......... 320 631 561 Property and equipment, net....... 836 1,455 1,535 ------------- ------------- ------------- Total assets.................. (Pounds)1,156 (Pounds)2,086 (Pounds)2,096 ============= ============= ============= LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities: Accounts payable................ (Pounds) 183 (Pounds) 468 (Pounds) 478 Accrued liabilities............. 27 18 38 Deferred revenue................ 457 903 1,005 Value Added Tax and other taxes.......................... 81 75 92 Current portion of capital lease obligations.................... 87 242 244 Short-term debt................. 29 29 29 ------------- ------------- ------------- Total current liabilities..... 864 1,735 1,886 Long-term debt.................... 130 76 68 Deferred taxes.................... 15 20 2 Capital lease obligations, net of current portion.................. 164 274 235 ------------- ------------- ------------- Total liabilities............. 1,173 2,105 2,191 ============= ============= ============= Commitments Stockholders' deficit: Common stock, par value (Pounds)0.01, (Pounds)0.01, and (Pounds)1, respectively, 5,000, 500,000 and 500,000 shares authorized, issued and outstanding, respectively...... 5 5 5 Accumulated deficit............. (22) (24) (100) ------------- ------------- ------------- Total stockholders' deficit... (17) (19) (95) ------------- ------------- ------------- Total liabilities and stockholders deficit......... (Pounds)1,156 (Pounds)2,086 (Pounds)2,096 ============= ============= =============
F-57 U-NET LIMITED STATEMENTS OF OPERATIONS (All amounts in thousands of GBP)
For the period August 1, For the year For the year 1998 to ended ended October 29, July 31, 1997 July 31, 1998 1998 ------------- ------------- -------------- Revenue.......................... (Pounds)1,744 (Pounds)2,997 (Pounds)932 Cost of revenue.................. 715 1,245 405 ------------- ------------- ----------- Gross profit................... 1,029 1,752 527 Selling, general and administrative.................. 890 1,290 476 Depreciation and amortization.... 195 376 130 ------------- ------------- ----------- (Loss) income from operations.... (56) 86 (79) Interest expense................. 28 83 15 ------------- ------------- ----------- (Loss) income from operations before income taxes............. (84) 3 (94) Income (benefit) tax provision... (7) 5 (18) ------------- ------------- ----------- Net loss......................... (Pounds) (77) (Pounds) (2) (Pounds)(76) ============= ============= ===========
The accompanying notes are an integral part of these financial statements. F-58 U-NET LIMITED STATEMENT OF STOCKHOLDERS' DEFICIT (All amounts in thousands of GBP except share data)
Common Stock Retained Earnings ----------------- (Accumulated Shares Amount Deficit) Total ------- --------- ----------------- ----------- Balance at August 1, 1996..... 5,000 (Pounds)5 (Pounds) 55 (Pounds) 60 Net loss...................... -- -- (77) (77) ------- --------- ------------ ----------- Balance at July 31, 1997...... 5,000 5 (22) (17) Net loss...................... -- -- (2) (2) Stock split................... 495,000 -- -- -- ------- --------- ------------ ----------- Balance at July 31, 1998...... 500,000 5 (24) (19) Net loss...................... -- -- (76) (76) ------- --------- ------------ ----------- Balance at October 29, 1998... 500,000 (Pounds)5 (Pounds)(100) (Pounds)(95) ======= ========= ============ ===========
F-59 U-NET LIMITED STATEMENTS OF CASH FLOWS (All amounts in thousands of GBP)
For the period August 1, For the year For the year 1998 to ended July 31, ended July 31, October 29, 1997 1998 1998 -------------- -------------- -------------- Cash flows from operating activities: Net loss........................ (Pounds)(77) (Pounds) (2) (Pounds)(76) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation.................... 195 376 130 Provision for doubtful accounts....................... 16 17 30 Deferred taxes.................. (4) 5 (18) Changes in operating assets and liabilities: Accounts receivable........... (40) (23) (27) Prepaid expenses and other current assets............... (71) (90) 2 Accounts payable and other accrued liabilities.......... 25 276 30 Deferred revenue.............. 300 446 102 Other creditors............... 86 155 2 Value Added Tax and other taxes........................ 69 (6) 17 ----------- ----------- ----------- Net cash provided by operating activities....... 499 1,154 192 ----------- ----------- ----------- Cash flows from investing activities: Purchases of property and equipment........................ (620) (995) (210) ----------- ----------- ----------- Net cash used in investing activities................. (620) (995) (210) ----------- ----------- ----------- Cash flows from financing activities: Proceeds from (repayment of) note payable................... 56 (54) (8) Payments for capital lease obligations.................... Proceeds from (repayment of) bank borrowings, net........... 147 110 (39) ----------- ----------- ----------- Net cash provided by (used in) financing activities... 203 56 (47) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents.. 82 215 (65) Cash and cash equivalents, beginning of period.............. 58 140 355 ----------- ----------- ----------- Cash and cash equivalents, end of period........................... (Pounds)140 (Pounds)355 (Pounds)290 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. F-60 U-NET LIMITED NOTES TO FINANCIAL STATEMENTS (All amounts in thousands GBP, except share data) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Operations U-Net Limited (the "Company") was formed on July 26, 1994 to operate as an Internet service provider (ISP) in the city of Manchester. On October 29, 1998, 100% of the common stock was acquired by VIA NET.WORKS, Inc. Basis of Presentation The Company maintains its accounting records in accordance with generally accepted accounting principals (GAAP) in the United Kingdom. These financial statements have been prepared in accordance with GAAP in the United States of America for purposes of filing with the Securities and Exchange Commission and do not represent the statutory financial statements of the Company. The accompanying financial statements include the results of the Company for the year ended July 31, 1997 and 1998 and for the period from August 1, 1998 to October 29, 1998 (the date that the Company was acquired by VIA NET.WORKS, Inc.) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates, judgements and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, together with amounts disclosed in the related notes to the financial statements. Actual results could differ from the recorded estimates. Fair Value of Financial Instruments Carrying amounts of certain of the Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other liabilities approximate fair value due to their short maturities. Based upon borrowing rates currently available to the Company for loans with similar terms, the carrying value of debt and capital lease obligations approximate fair value. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Concentration of Credit Risk Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents, short-term investments and accounts receivable. The Company's accounts receivable are derived from revenue earned from customers located in the United Kingdom. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. The Company maintains an allowance for doubtful accounts receivable based upon the expected collectibility of accounts receivable. Property and Equipment Property and equipment is recorded at cost less accumulated depreciation, which is provided on the straight-line method over the estimated useful lives of the assets, generally three to five years. Cost includes major expenditures for improvements and replacements which extend useful lives or increase capacity of the F-61 U-NET LIMITED NOTES TO FINANCIAL STATEMENTS--(Continued) (All amounts in thousands GBP, except share data) asset and interest costs associated with significant capital additions. Expenditures for maintenance and repairs are expensed as incurred. Costs for internal use software are expensed as incurred. Long-Lived Assets The Company periodically evaluates the carrying value of property and equipment to be held and used when events and circumstances warrant such a review. The carrying value of property and equipment is considered impaired when the anticipated undiscounted cash flows from the asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost to dispose. Advertising Costs Costs related to advertising and promotion of services are charged to sales and marketing expense as incurred. Advertising expense was (Pounds)22, (Pounds)133 and (Pounds)108 for the period ended October 29, 1998 and the years ended July 31, 1998 and 1997, respectively. Income Taxes The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes". SFAS No. 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases, and for operating loss and tax credit carryforwards. In estimating future tax consequences, SFAS No. 109 generally considers all expected future events other than the enactment of changes in tax laws or rates. Revenue Recognition Revenue from Internet connectivity and enhanced Internet services are recognized as the services are provided, net of Value Added Tax and trade discounts. Income from subscriptions is recognized ratably over the subscriptions term, generally a twelve month period. The Company records deferred revenue for amounts billed and/or collected in advance. Costs of Revenues Costs of access revenues primarily consist of telecommunication expenses inherent in the network infrastructure. Costs of access revenues also include fees paid for lease of the Company's network infrastructure, as well as license fees for web browser software based on a per-user charge, other license fees paid to third-party software vendors, product costs, and contractor fees for operation and support services. Sources of Suppliers The Company relies on local telephone companies and other companies to provide data communications. Although management feels alternative telecommunication facilities could be found in a timely manner, any disruption of these services could have an adverse effect on operating results. F-62 U-NET LIMITED NOTES TO FINANCIAL STATEMENTS--(Continued) (All amounts in thousands GBP, except share data) Comprehensive Income The Company adopted SFAS No. 130, "Comprehensive Income," in 1998. SFAS No. 130 establishes standards for reporting and displaying comprehensive income and its components. The adoption of this statement had no impact on the Company's financial statements as a result of the Company not having any comprehensive income other than net loss during the periods presented. Segment Reporting The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," during 1998. SFAS No. 131 replaces the "industry segment" approach with the "management" approach. The management approach designates the internal organization that is used by management for allocating resources and assessing performance as the source of the Company's reportable segments. SFAS No. 131 also requires disclosures about products and services, geographic areas, and major customers. The adoption of SFAS No. 131 did not affect results of operations or financial position. The Company operates in one segment, all within the United Kingdom. Recent Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes a new model for accounting for derivatives and hedging activities and supersedes and amends a number of existing standards. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999, but earlier application is permitted as of the beginning of any fiscal quarter subsequent to June 15, 1998. Upon initial application, all derivatives are required to be recognized in the statement of financial position as either assets or liabilities and measured at fair value. In addition, all hedging relationships must be reassessed and documented pursuant to the provisions of SFAS No. 133. Subsequent to the issuance of SFAS No. 133, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133" ("SFAS No. 137"), which defers the effective date of SFAS No. 133 to periods beginning after June 15, 2000. The Company has not committed or expects to commit to any derivative instrument transactions, and thus does not anticipate that this pronouncement will have a significant effect on its results. In 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, which is required to be adopted for fiscal years beginning after December 15, 1998. SOP 98-1 provides guidance on accounting for the costs of computer software developed or obtained for internal use, determining whether computer software is for internal use, and when costs incurred for internal-use computer software are and are not capitalized. The adoption of SOP 98-1 is not expected to have a material effect on the Company's financial statements. NOTE 2: PROPERTY AND EQUIPMENT Property and equipment are comprised of the following:
July 31, ---------------------------- October 29, 1997 1998 1998 ------------- ------------- ------------- Office and computer equipment................... (Pounds)1,000 (Pounds)1,895 (Pounds)2,090 Furniture and fixtures....... 89 126 140 ------------- ------------- ------------- 1,089 2,021 2,230 Accumulated depreciation..... (253) (566) (695) ------------- ------------- ------------- (Pounds) 836 (Pounds)1,455 (Pounds)1,535 ============= ============= =============
F-63 U-NET LIMITED NOTES TO FINANCIAL STATEMENTS--(Continued) (All amounts in thousands GBP, except share data) As of July 31, 1997 and 1998, and October 29, 1998, the Company had 285, 713, and 739, respectively, in capitalized equipment under lease arrangements. Accumulated depreciation related to equipment under capital leases approximated 44 and 164 as of and for the years ended July 31, 1997 and 1998, respectively, and 209 as of October 29, 1998 of and for the period from August 1, 1998 to October 29, 1998. NOTE 3: DEBT Long-term debt consisted of the following:
July 31, ------------------------ October 29, 1997 1998 1998 ----------- ----------- ----------- Notes payable under line of credit, 6.5%, interest and principal payable monthly............................... (Pounds)114 (Pounds) 86 (Pounds) 78 Note payable to stockholder, non- inbterest bearing, balloon payment due October 1999.......................... 45 19 19 ----------- ----------- ----------- Total long-term debt................... 159 105 97 Less current portion................... (29) (29) (29) ----------- ----------- ----------- Long-term debt, net of current portion............................... (Pounds)130 (Pounds) 76 (Pounds) 68 =========== =========== ===========
At October 29, 1998, the Company had (Pounds)78 outstanding and due under a line of credit with NatWest Bank. The line of credit provides for borrowings of up to (Pounds)131. The line of credit converts into term notes with various payment terms, bearing interest at a minimum rate of 6.5% per annum. Scheduled future maturities of long-term debt for the next four years are as follows:
October 29, ----------- 1999......................................................... (Pounds)45 2000......................................................... 25 2001......................................................... 24 2002......................................................... 3 ---------- Total........................................................ (Pounds)97 ==========
NOTE 4: COMMITMENTS At October 29, 1998, the Company had the following: Future minimum lease payments and contractual payments under capital leases and noncancelable purchase commitment, respectively, for the next five years:
Capital Purchase Leases Commitment ----------- ------------- October 29, ----------- 1999......................................... (Pounds)285 (Pounds) 326 2000......................................... 187 326 2001......................................... 62 326 2002......................................... 3 54 2003......................................... 7 -- ----------- ------------- Less amount representing interest............ 544 (Pounds)1,032 ----------- ============= Present value of future minimum lease payments.................................... (65) ----------- (Pounds)479 ===========
F-64 U-NET LIMITED NOTES TO FINANCIAL STATEMENTS (All amounts in thousands GBP, except share data) NOTE 5: STOCKHOLDERS' EQUITY On December 1, 1997, the shareholders approved an increase in the number of authorized common shares from 5,000 to 500,000 and a decrease in the par value from (Pounds)1 to (Pounds).01. This allowed the Company to effect a 100-for-1 stock split previously authorized by the Board of Directors. NOTE 6: INCOME TAXES The provision for income taxes is as follows (in thousands):
For the period For the year ended July from August 1, 31, 1998 to ------------------------ October 29, 1997 1998 1998 Current: U.K. federal--current.............. (Pounds) (3) (Pounds)-- (Pounds)-- U.K. federal--deferred............. (4) 5 (18) ----------- ----------- ----------- (Benefit from) provision for income taxes............................. (Pounds) (7) (Pounds) 5 (Pounds)(18) =========== =========== =========== The provisions for income taxes differ from amounts computed at the statutory rate as follows: July 31, ------------------------ October 29, 1997 1998 1998 ----------- ----------- -------------- Income tax (benefit) provision at federal statutory rate............ (Pounds)(26) (Pounds)1 (Pounds)(29) Increase in taxes resulting from: Non-deductible items............... 1 2 4 Other.............................. 18 2 7 ----------- ----------- ----------- (Benefit) income tax provision..... (Pounds) (7) (Pounds)5 (Pounds)(18) =========== =========== ===========
Deferred tax assets (liabilities) consist of the following:
July 31, ------------------------ October 29, 1997 1998 1998 ----------- ----------- ----------- Deferred tax assets: Net operating loss carryforwards... (Pounds) 25 (Pounds) 80 (Pounds)91 Deferred tax liabilities: Depreciation and other............. (40) (100) (93) ----------- ----------- ---------- Net deferred tax liabilities......... (Pounds)(15) (Pounds)(20) (Pounds)(2) =========== =========== ==========
NOTE 7: RELATED PARTY TRANSACTIONS A stockholder of the Company is a director of U-Sci Limited which received (Pounds)34, (Pounds)78 and (Pounds)15 from U-Net Limited in the form of consultancy fees for services provided in the years ended July 31, 1997 and 1998, and the period ended October 29, 1998, respectively. A stockholder of the Company is a director of Mulgrove Limited which received (Pounds)8, (Pounds)12 and (Pounds)3 from U-Net Limited in the form of consultancy fees for services provided in the years ended July 31, 1997 and 1998, and the period ended October 29, 1998, respectively. F-65 Report of Independent Accountants April 9, 1999 To the Board of Directors and Stockholders of Dialdata S.A., Internet Systems In our opinion, the accompanying balance sheets and the related statements of operations, changes in stockholders' equity, and of cash flows expressed in U.S. dollars, present fairly, in all material respects, the financial position of Dialdata S.A. Internet Systems at December 29, 1998 (date of acquisition) and December 31, 1997 and the results of its operations and its cash flows for the period from January 1, 1998 to December 29, 1998 and the year ended December 31, 1997, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards in Brazil which are substantially similar to generally accepted auditing standards in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers Auditores Independentes CRC 2SP000160/O-5 Timothy Leonard Contador CRC 1PA003866/T-7 "T" SP001641 F-66 DIALDATA S.A. INTERNET SYSTEMS BALANCE SHEETS (In thousands of U.S. Dollars except share data)
December 31, December 29, 1997 1998 ------------ ------------ ASSETS Current assets: Cash and cash equivalents.......................... $ 81 $ 35 Accounts receivable................................ 115 158 Tax receivable..................................... 11 12 ---- ---- Total current assets............................. 207 205 Property and equipment, net........................ 603 766 ---- ---- Total assets..................................... $810 $971 ==== ==== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................................... $ 21 $ 65 Tax payable........................................ 66 51 Accrued employee benefits.......................... 35 39 ---- ---- Total current liabilities........................ 122 155 ---- ---- Stockholders' equity: Common stock, no par value; 100,000 shares Authorized; 11,000 and 69,010 issued and outstanding, respectively......................... 11 564 Retained earnings.................................. 677 233 Accumulated other comprehensive income............. -- 19 ---- ---- Total stockholders' equity....................... 688 816 ---- ---- Total liabilities and stockholders' equity....... $810 $971 ==== ====
The accompanying notes are an integral part of these financial statements. F-67 DIALDATA S.A. INTERNET SYSTEMS STATEMENTS OF OPERATIONS (In thousands of U.S. Dollars)
For the period For the year January 1, ended 1998 to December 31, December 29, 1997 1998 ------------ -------------- Revenue............................................. $2,234 $3,008 Cost of revenue..................................... 340 694 ------ ------ Gross profit........................................ 1,894 2,314 Operating expenses: Selling, general and administrative............... 829 1,166 Depreciation...................................... 77 112 ------ ------ Income from operations.............................. 988 1,036 Interest expense.................................... 87 66 Foreign currency gain............................... (2) -- ------ ------ Net income before income taxes...................... 903 970 Income tax expense.................................. 194 274 ------ ------ Net income.......................................... $ 709 $ 696 ====== ======
The accompanying notes are an integral part of these financial statements. F-68 DIALDATA S.A. INTERNET SYSTEMS STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands of U.S. Dollars except share data)
Accumulated Other Common Stock Retained Comprehensive Shares Amount Earnings Income Total ------ ------ -------- ------------- ------ Balance at January 31, 1996...... 11,000 $ 11 $ 371 $-- $ 382 Net income....................... -- -- 709 -- 709 Dividends........................ -- -- (403) -- (403) ------ ---- ----- ---- ------ Balance, December 31, 1997....... 11,000 11 677 -- 688 Issuance of common stock......... 58,010 553 -- -- 553 Net income....................... -- -- 696 -- 696 Foreign currency translation adjustment...................... -- -- -- 19 19 Dividends........................ -- 1,140 1,140 ------ ---- ----- ---- ------ Balance at December 29, 1998..... 69,010 $564 $ 233 $ 19 $ 816 ====== ==== ===== ==== ======
The accompanying notes are an integral part of these financial statements. F-69 DIALDATA S.A. INTERNET SYSTEMS STATEMENT OF CASH FLOWS (In thousands of US Dollars)
For the period For the year January 1, ended 1998 to December 31, December 29, 1997 1998 ------------ -------------- Cash Flows From Operating Activities: Net income........................................ $709 $ 696 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................... 77 112 Changes in current assets and liabilities: Increase in accounts receivable............... (42) (54) Increase in tax receivable.................... (6) (2) Increase in accounts payable and accrued employee benefits............................ 13 48 Decrease in taxes payable..................... (10) (3) ---- ------ Net cash provided by operating activities... 741 797 ---- ------ Cash flows from investing activities: Purchase of property and equipment, net......... (277) (258) ---- ------ Net cash used in investing activities......... (277) (258) ---- ------ Cash flows from financing activities: Issuance of common stock........................ -- 553 Dividends....................................... (403) (1,140) ---- ------ Net cash used in financing activities......... (403) (587) ---- ------ Effect of exchange rates on cash.................. (1) 2 ---- ------ Net increase (decrease) in cash and cash equivalents...................................... 60 (46) Cash and cash equivalents, beginning of period.... 21 81 ---- ------ Cash and cash equivalents, end of period.......... $ 81 $ 35 ==== ======
The accompanying notes are an integral part of these financial statements. F-70 DIALDATA S.A. INTERNET SYSTEMS NOTES TO FINANCIAL STATEMENTS (In thousands of US dollars, except share data) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Operations ------------------- Dial-Data Informatica e Assessoria Ltda. ("the Company") was formed on February 1, 1993, to operate as an Internet service provider (ISP) in Brazil. On December 29, 1998, 51% of the common stock was acquired by V-I-A Internet Holdings Brasil Ltda. for total consideration of $5,996, and the name of the Company changed to Dialdata S.A. Internet Systems. At the same date, a further 30,990 newly authorized shares were subscribed by V-I-A Internet Holdings Brasil Ltda. and will be paid-up in installments totaling R$5,158 thousand (equivalent to US$3,750 on that date) during 1999. Basis Of Presentation --------------------- The Company maintains its accounting records in Brazilian reais in accordance with generally accepted accounting principals (GAAP) in Brazil. These financial statements have been prepared in U.S. dollars and in accordance with GAAP in the United States of America for purposes of filing with the Securities and Exchange Commission and do not represent the statutory financial statements of the Company. The accompanying financial statements include the results of the Company for the period ended December 29, 1998 and the year ended December 31, 1997. For the year ended December 31, 1997 Brazil was a hyperinflationary economy, defined as having cumulative inflation in excess of 100% for the prior three- year period. In accordance with United States GAAP for companies operating in a hyperinflationary economy, the functional currency of the company for purposes of remeasuring the local currency under Financial Accounting Standards Statement 52 (SFAS 52) was the U.S. dollar. Consequently, non-monetary assets and liabilities and stockholders' equity were translated at historical exchange rates, all other assets and liabilities being translated at the year-end exchange rate. The statements of operations and cash flows, except for depreciation, have been translated at the average monthly exchange rate. As of January 1, 1998 Brazil was no longer considered to be a hyperinflationary economy. Accordingly, as of and for the period ended December 29, 1998 the functional currency is the Brazilian real and the financial statements have therefore been translated into U.S. dollars using the average exchange rate for the period for the statements of operations and cash flows and using the period-end rate for assets and liabilities. The adjustment at January 1, 1998 to reflect the change in the functional currency and the translation adjustment arising during the period are shown in accumulated other comprehensive income. Use Of Estimates ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates, judgements and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, together with amounts disclosed in the related notes to the financial statements. Actual results could differ from the recorded estimates. Fair Value Of Financial Instruments ----------------------------------- Carrying amounts of certain of the Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other liabilities approximate fair value due to their short maturities. F-71 DIALDATA S.A. INTERNET SYSTEMS NOTES TO FINANCIAL STATEMENTS--(Continued) (In thousands of US dollars, except share data) Cash And Cash Equivalents ------------------------- The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Concentration Of Credit Risk ---------------------------- Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents, short-term investments and accounts receivable. The Company's accounts receivable are derived from revenue earned from customers located in Brazil. The Company performs ongoing credit evaluations of its customers' financial condition and requires no collateral from its customers. Property And Equipment ---------------------- Property and equipment is recorded at cost less accumulated depreciation, which is provided on the straight-line method over the estimated useful lives of the assets, generally five to ten years. Cost includes major expenditures for improvements and replacements which extend useful lives or increase capacity of the asset and interest costs associated with significant capital additions. Expenditures for maintenance and repairs are expensed as incurred. Leasehold improvements include costs associated with telecommunications equipment, installations and building improvements. Long-Lived Assets ----------------- The Company periodically evaluates the carrying value of property and equipment to be held and used when events and circumstances warrant such a review. The carrying value of property and equipment is considered impaired when the anticipated undiscounted cash flows from the asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost to dispose. Advertising Costs ----------------- Costs related to advertising and promotion of services are charged to sales and marketing expense as incurred. Advertising expenses for all periods were not significant. Income Taxes ------------ The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes". SFAS No. 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases, and for operating loss and tax credit carryforwards. In estimating future tax consequences, SFAS No. 109 generally considers all expected future events other than the enactment of changes in tax laws or rates. Revenue Recognition ------------------- Revenue from Internet and consulting services is recognized as the services are provided. Revenue also includes network installation, maintenance and consulting services. These services are provided on a time-and- F-72 DIALDATA S.A. INTERNET SYSTEMS NOTES TO FINANCIAL STATEMENTS--(Continued) (In thousands of US dollars, except share data) material basis and revenue is recognized based upon time (at established rates) and other direct costs as incurred. Costs of Revenues ----------------- Costs of access revenues primarily consists of telecommunication expenses inherent in the network infrastructure, which are recognized on the accrual basis. Sources of Suppliers -------------------- The Company relies on local telephone companies and other companies to provide data communications. Although management feels alternative telecommunication facilities could be found in a timely manner, any disruption of these services could have an adverse effect on operating results. Comprehensive Income -------------------- The Company adopted the accounting treatment prescribed by SFAS No. 130, "Comprehensive Income", in 1998. SFAS No. 130 establishes standards for reporting and displaying comprehensive income and its components. Comprehensive income consists of net income and foreign currency translation adjustments as presented in the statement of operations and other comprehensive loss. The adoption of SFAS No. 130 had no impact on total stockholders' equity or net income. Segment Reporting ----------------- The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," during 1998. SFAS No. 131 replaces the "industry segment" approach with the "management" approach. The management approach designates the internal organization that is used by management for allocating resources and assessing performance as the source of the Company's reportable segments. SFAS No. 131 also requires disclosures about products and services, geographic areas, and major customers. The adoption of SFAS No. 131 did not affect results of operations or financial position. The Company operates in one segment, all within the country of Brazil. Recent Accounting Pronouncements -------------------------------- In March 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use", which is required to be adopted for fiscal years beginning after December 15, 1998. SOP 98-1 provides guidance on accounting for the costs of computer software developed or obtained for internal use, determining whether computer software is for internal use, and when costs incurred for internal-use computer software are and are not capitalized. The adoption of SOP 98-1 is not expected to have a material effect on the Company's financial statements. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes a new model for accounting for derivatives and hedging activities and supersedes and amends a number of existing standards. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999, but earlier application is permitted as of the beginning of any fiscal quarter subsequent to June 15, 1998. Upon initial application, all derivatives are required to be recognized in the statement of financial position as either assets or liabilities and measured at fair value. In F-73 DIALDATA S.A. INTERNET SYSTEMS NOTES TO FINANCIAL STATEMENTS--(Continued) (In thousands of US dollars, except share data) addition, all hedging relationships must be reassessed and documented pursuant to the provisions of SFAS No. 133. Subsequent to the issuance of SFAS No. 133, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133" ("SFAS No. 137"), which defers the effective date of SFAS No. 133 to periods beginning after June 15, 2000. The Company has not committed or expects to commit to any derivative instrument transactions, and thus does not anticipate that this pronouncement will have a significant effect on its results. 2. PROPERTY AND EQUIPMENT Property and equipment is comprised of the following:
December 31, December 29, 1997 1998 ------------ ------------ Internet and computer equipment.................... $ 226 $ 504 Furniture and fixtures............................. 31 30 Software........................................... 339 348 Leasehold improvements............................. 80 84 Phone lines and trademarks......................... 93 62 ----- ------ 769 1,028 Accumulated depreciation........................... (166) (262) ----- ------ Property and equipment, net........................ $ 603 $ 766 ===== ======
3. STOCKHOLDERS' EQUITY On December 29, 1998, the Company increased capital in cash and declared a stock dividend to shareholders currently on record, thereby issuing 58,010 additional shares of common stock. 4. INCOME TAXES The provision for income taxes is as follows:
For the period For the year January 1, ended 1998 to December 31, December 29, 1997 1998 ------------ -------------- Current taxes: Income tax and social contribution expense.... $ 194 $ 274 Paid during the year/period................... (141) (247) ------ ------ Provision at the year/period.................. $ 53 $ 27 ====== ====== The income tax and social contribution expense can be summarized as follows: Gross revenue, tax basis........................ $2,407 $3,168 Basis of calculation (32% of gross revenue)..... $ 770 $1,014 Income tax and social contribution expense...... $ 194 $ 274
F-74 DIALDATA S.A. INTERNET SYSTEMS NOTES TO FINANCIAL STATEMENTS (In thousands of US dollars, except share data) Brazilian tax law provides an alternative income tax and social contribution computation method for small businesses that are wholly-owned by Brazilian residents, referred to as the presumed profits method. The Company employed the presumed profits method for calculating its income taxes and social contribution and as a result there were no temporary differences that would give rise to deferred tax assets or liabilities. Accordingly, as of December 31, 1997 and December 29, 1998, the Company had no deferred tax assets nor deferred tax liabilities. Also as a result of this option, the effective tax rate was 27% compared with a standard tax rate of 33%. 5. SUBSEQUENT EVENTS Devaluation of local currency On January 15, 1999, the Brazilian Central Bank decided to abandon the foreign exchange rate controls which were then in force. As a result of this decision and of the market reaction, the Brazilian real was immediately and significantly devalued, having traded stable since then. On April 9, 1999 the closing exchange rate was US$1 : R$1.71, equivalent to an accumulated devaluation of approximately 40% from December 31, 1998. Given that no prediction can be made of the future trend of the exchange rate, of its effects on suppliers' prices and of the market's capacity to absorb price increases, it is not possible to estimate the final effects of these events on the company's future operations. From an immediate financial perspective, the real devaluation had no significant impact on the Company's cash flows, as no major U.S. dollar or other foreign currency denominated balances existed at the devaluation date. F-75 Report of Independent Accountants To the Board of Directors and Stockholders of I-Way Limited In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders' equity (deficit) and of cash flows expressed in British Pounds, present fairly, in all material respects, the financial position of I-Way Limited as of April 30, 1997 and 1998, and December 31, 1998, and the results of its operations and its cash flows for each of the two years in the period ended April 30, 1998, and the period from May 1, 1998 to December 31, 1998, in conformity with generally accepted accounting principles in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards in the United Kingdom which are substantially similar to generally accepted auditing standards in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers Reading, United Kingdom November 19, 1999 F-76 I-WAY LIMITED CONSOLIDATED BALANCE SHEETS (All amounts in thousands of GBP, except share data)
April 30, ------------------------ December 31, 1997 1998 1998 June 30, 1999 ----------- ----------- ------------- ------------- (unaudited) ASSETS Current assets: Cash.................. (Pounds)105 (Pounds) 3 (Pounds) 297 (Pounds) 425 Restricted cash....... -- -- 316 -- Accounts receivable, net of allowance of (Pounds)35,(Pounds)27, (Pounds)33 and (Pounds)33 (unaudited), respectively......... 214 237 235 771 Prepaid expenses and other current assets............... 105 123 105 122 ----------- ----------- ------------- ------------- Total current assets............. 424 363 953 1,318 Property and equipment, net....... 127 185 392 958 Goodwill, net......... -- 79 57 41 ----------- ----------- ------------- ------------- Total assets........ (Pounds)551 (Pounds)627 (Pounds)1,402 (Pounds)2,317 ----------- ----------- ------------- ------------- LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY Current liabilities: Accounts payable and accrued liabilities.. (Pounds)231 (Pounds)257 (Pounds) 489 (Pounds) 786 Deferred revenue...... 274 456 574 931 Value Added Tax and other taxes.......... 58 61 33 74 Capital lease obligations.......... -- 81 66 35 Short-term debt....... -- 85 -- -- ----------- ----------- ------------- ------------- Total current liabilities........ 563 940 1,162 1,826 Long-term loan from Parent............... -- -- -- 330 ----------- ----------- ------------- ------------- Total liabilities... 563 940 1,162 2,156 Commitments STOCKHOLDERS' (DEFICIT) EQUITY: Convertible preferred stock, par value (Pounds).001, authorized 50,000 shares, 0, 0, 26,789 and 26,789 (unaudited) issued and outstanding, respectively......... -- -- 27 27 Preferred stock, par value (Pounds).001, authorized 100,000, 100,000, 0, (unaudited) shares, 50,000, 50,000, 0 and 0 (unaudited) issued and outstanding, respectively......... 50 50 -- -- Common stock, par value (Pounds).001; authorized 100,000, 100,000, 150,000 and 150,000 (unaudited) shares, issued and outstanding 45,000, 47,725, 47,725, and 47,725 (unaudited) shares, respectively......... 45 48 48 48 Additional paid-in capital.............. -- 19 1,310 1,310 Accumulated deficit... (107) (430) (1,145) (1,224) ----------- ----------- ------------- ------------- Total stockholders' (deficit) equity... (12) (313) 240 161 ----------- ----------- ------------- ------------- Total liabilities and stockholders' (deficit) equity... (Pounds)551 (Pounds)627 (Pounds)1,402 (Pounds)2,317 =========== =========== ============= =============
The accompanying notes are an integral part of these financial statements. F-77 I-WAY LIMITED CONSOLIDATED STATEMENTS OF OPERATIONS (All amounts in thousands of GBP)
Year ended Period from Six months ended ---------------------------- May 1 to --------------------------- April 30 April 30 December 31 June 30 June 30 1997 1998 1998 1998 1999 ------------- ------------- ------------- ------------ ------------- (Unaudited) Revenue................. (Pounds)1,010 (Pounds)1,355 (Pounds)1,015 (Pounds) 762 (Pounds)1,490 Cost of revenue......... 386 570 472 350 504 ------------- ------------- ------------- ------------ ------------- Gross profit............ 624 785 543 412 986 Selling, general and administrative expenses............... 595 972 1,148 492 862 Depreciation and amortization........... 64 132 75 140 192 ------------- ------------- ------------- ------------ ------------- 659 1,104 1,223 632 1,054 Loss from operations.... (35) (319) (680) (220) (68) Interest expense........ (2) (4) (35) (5) (11) ------------- ------------- ------------- ------------ ------------- Net loss................ (Pounds) (37) (Pounds) (323) (Pounds) (715) (Pounds)(225) (Pounds) (79) ============= ============= ============= ============ =============
The accompanying notes are an integral part of these financial statements. F-78 I-WAY LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS (All amounts in thousands of GBP)
Period from Year ended May 1, 1998 Six months ended -------------------------- to -------------------------- April 30, April 30, December 31, June 30, June 30, 1997 1998 1998 1998 1999 ----------- ------------- ------------ ------------- ----------- (unaudited) (unaudited) Cash flows from operating activities: Net loss................ (Pounds)(37) (Pounds) (323) (Pounds)(715) (Pounds) (225) (Pounds)(79) ----------- ------------- ------------ ------------- ----------- Adjustments to reconcile net loss to net cash provided by (used in) operating activities. Depreciation and amortization......... 64 132 75 140 192 Provision for doubtful accounts............. 35 27 33 -- 33 Changes in assets and liabilities: Accounts receivable... (174) (43) (30) (18) (569) Prepaid expenses and other current assets............... (103) (18) 19 90 (17) Accounts payable and other accrued liabilities.......... 83 30 235 (97) 297 Deferred revenue...... 274 130 126 145 357 Value Added Tax and other taxes.......... 58 3 (28) (13) 41 ----------- ------------- ------------ ------------- ----------- Net cash (used in) provided by operating activities............. 200 (62) (285) 22 255 ----------- ------------- ------------ ------------- ----------- Cash flows from investing activities: Acquisition of property and equipment.......... (130) (143) (261) (103) (742) ----------- ------------- ------------ ------------- ----------- Net cash used in investing activities... (130) (143) (261) (103) (742) ----------- ------------- ------------ ------------- ----------- Cash flows from financing activities: Capital lease repayments........... -- (4) (27) (77) (31) Restricted cash....... -- -- (316) -- 316 Bank overdraft........ -- 57 (57) -- -- Proceeds from issuance of (payment of) stockholder loans.... -- 28 (28) -- 330 Proceeds from issuance of common stock...... -- 22 -- 2 -- Proceeds from issuance of preferred stock... -- -- 1,318 1,318 -- Redemption of preferred stock...... -- -- (50) (50) -- ----------- ------------- ------------ ------------- ----------- Net cash provided by financing activities... -- 103 840 1,193 615 ----------- ------------- ------------ ------------- ----------- Net increase (decrease) in cash................ 70 (102) 294 1,112 128 Cash, beginning of period................. 35 105 3 41 297 ----------- ------------- ------------ ------------- ----------- Cash, end of period..... (Pounds)105 (Pounds) 3 (Pounds) 297 (Pounds)1,153 (Pounds)425 =========== ============= ============ ============= ===========
Supplemental disclosure of cash flow information: The Company paid approximately (Pounds)2 and (Pounds)6 for interest during the years ended April 30, 1997 and 1998, respectively, and (Pounds)35 for the period ended Deecember 31, 1998. For the unaudited periods from January 1, 1998 to June 30, 1998 and January 31, 1999 to June 30, 1999 the amounts paid were (Pounds)5 and (Pounds)11 respectively (unaudited). The accompanying notes are an integral part of these financial statements. F-79 I-WAY LIMITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (All amounts in thousands of GBP)
Common stock Preferred Stock Additional ----------------- ----------------- Paid-in Accumulated Total Stockholders' Shares Amount Shares Amount Capital Deficit Equity (Deficit) ------ ---------- ------ ---------- -------------- --------------- ------------------- Balance at May 1, 1996.. 45 (Pounds)45 50 (Pounds)50 (Pounds) -- (Pounds) (70) (Pounds) 25 Net loss................ -- -- -- -- -- (37) (37) --- ---------- --- ---------- -------------- --------------- ----------- Balance at April 30, 1997................... 45 45 50 50 -- (107) (12) Net loss................ -- -- -- -- -- (323) (323) Issuance of common stock.................. 3 3 -- -- 19 -- 22 --- ---------- --- ---------- -------------- --------------- ----------- Balance at April 30, 1998................... 48 48 50 50 19 (430) (313) Issuance of convertible preferred stock........ -- -- 27 27 1,291 -- 1,318 Redemption of preferred stock.................. -- -- (50) (50) -- -- (50) Net loss................ -- -- -- -- -- (715) (715) --- ---------- --- ---------- -------------- --------------- ----------- Balance at December 31, 1998................... 48 48 27 27 1,310 (1,145) 240 Net loss (unaudited).... -- -- -- -- -- (79) (79) --- ---------- --- ---------- -------------- --------------- ----------- Balance at June 30, 1999 (unaudited)............ 48 (Pounds)48 27 (Pounds)27 (Pounds) 1,310 (Pounds) (1,224) (Pounds)161 --- ========== === ========== ============== =============== ===========
The accompaanying notes are an integral part of these financial statements. F-80 I-WAY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All amounts in thousands of GBP, except share and per share data) NOTE 1: SUMMARY OF SIGNIFICANT POLICIES Business Operations I-Way Limited ("the Company") was formed on March 6, 1995 and commenced operation as an internet service provider (ISP) on May 1, 1995 in Reading, United Kingdom. On June 18, 1998, 36% of the Company's outstanding stock was acquired by VIA NET.WORKS, Inc., a company incorporated in the USA for approximately (Pounds)1,347. On August 5, 1999 VIA NET.WORKS, Inc. acquired the remainder of the Company's outstanding stock for (Pounds)8,078. Basis of Presentation The Company maintains its accounting records in accordance with generally accepted accounting principles (GAAP) in the United Kingdom. These financial statements have been prepared in accordance with GAAP in the United States for purposes of filing with the Securities and Exchange Commission and do not represent the statutory financial statements of the Company. The accompanying consolidated financial statements include the results of the Company for the year ended April 30, 1997 and 1998 and for the periods from May 1, 1998 to December 31, 1998, January 1, 1998 to June 30, 1998 (unaudited) and January 1, 1999 to June 30, 1999 (unaudited). Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, I-way Oxford Limited. All significant intercompany accounts and transactions have been eliminated on consolidation. Interim Financial Information (Unaudited) Interim financial information for the six months ended June 30, 1998 and 1999 included herein is unaudited. However, the Company believes that interim financial information includes all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the results of interim periods. The results of operations for the six months ended June 30, 1999 are not necessarily indicative of the results to be expected for the year ending December 31, 1999. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates, judgements and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, together with amounts disclosed in the related notes to the financial statements. Actual results could differ from the recorded estimates. Fair Value of Financial Instruments Carrying amounts of certain of the Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other liabilities approximate fair value due to their short maturities. Based upon borrowing rates currently available to the Company for loans with similar terms, the carrying value of debt and capital lease obligations approximate their fair value. F-81 I-WAY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (All amounts in thousands of GBP, except share and per share data) Cash and Cash Equivalents The Company maintains its cash accounts at a major financial institution and has not experienced any losses on its cash deposits as of December 31, 1998. The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Concentration of Credit Risk Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents, short-term investments and accounts receivable. The Company's accounts receivable are derived from revenue earned from customers located in the United Kingdom. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. The Company maintains an allowance for doubtful accounts receivable based upon the expected collectibility of accounts receivable. At April 30, 1997 one customer represented 19% of accounts receivables. During the year ended April 30, 1998 one customer represented 11% of the Company's consolidated revenues. Property and Equipment Property and equipment is recorded at cost less accumulated depreciation, which is provided on the straight-line method over the estimated useful lives of the assets, generally a three-year period. Cost includes major expenditures for improvements and replacements, which extend usefulness or increase capacity of the asset and interest costs associated with significant capital additions. Expenditures for maintenance and repairs are expensed as incurred. When property or equipment is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the appropriate accounts, with the resulting gain or loss included in current operations. The costs of internal use software are expensed as incurred. Intangible Assets Intangible assets represent the goodwill arising from the purchase of I-Way Oxford Limited in October 1997. This balance represents the difference between the fair value of the assets acquired and the fair value of consideration given on the date of purchase. Intangible assets are recorded at cost less accumulated amortization over the estimated useful economic lives of the assets, generally a three-year period. Long-Lived Assets The Company periodically evaluates the carrying value of property and equipment to be held and used when events and circumstances warrant such a review. The carrying value of property and equipment is considered impaired when the anticipated undiscounted cash flows from the asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost to dispose. F-82 I-WAY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (All amounts in thousands of GBP, except share and per share data) Advertising Costs Costs related to advertising and promotion of services is charged to operating expense as incurred. Advertising expense was (Pounds)42, (Pounds)43, and (Pounds)71 for the years ended April 30, 1997 and 1998, and the period from May 1, 1998 to December 31, 1998, respectively. Income Taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). SFAS No. 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases, and for operating loss and tax credit carryforwards. In estimating future tax consequences, SFAS No. 109 generally considers all expected future events other than the enactment of changes in tax laws or rates. The Company provides a valuation allowance against net deferred tax assets if, based upon available evidence, it is more likely than not that some or all of the deferred tax assets may not be realized. Revenue Recognition Internet services are recognized as the services are provided. The Company records deferred revenue for amounts billed and/or collected in advance. Revenue from consulting services is recognized as the services are provided. Revenue from third party hardware and software re-sales is recognized upon shipment of the respective products. Through December 31, 1998, such sales have been immaterial. Other revenues include network installation and maintenance. These services are provided on a time-and-material basis and revenue is recognized based upon time (at established rates) and other direct costs as the services are provided. Costs of Revenues Costs of revenues consist primarily of telecommunication expenses inherent in the network infrastructure. Costs of revenues also includes license fees for software, third-party Web designers, product costs, and contractor fees for operation and support services. Sources of Suppliers The Company relies on local telephone companies and other companies to provide data communications. Although management feels alternative telecommunication facilities could be found in a timely manner, any disruption of these services could have an adverse effect on operating results. Comprehensive Income The Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"), in 1998. SFAS No. 130 establishes standards for reporting and displaying comprehensive income and its components. Comprehensive income consists of net income as presented in the consolidated statements of income. The adoption of SFAS No. 130 had no impact on the Company's financial statements as a result of the Company not having any comprehensive income other than net loss during the periods presented. F-83 I-WAY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (All amounts in thousands of GBP, except share and per share data) Segment Reporting The Company adopted Statement of Financial Accounting Standard No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131"), during 1998. SFAS No. 131 replaces the "industry segment" approach with the "management" approach. The management approach designates the internal organization that is used by management for allocating resources and assessing performance as the source of the Company's reportable segments. SFAS No. 131 also requires disclosures about products and services, geographic areas, and major customers. The adoption of SFAS No. 131 did not affect results of operations or financial position. The Company operates in one segment, all within the United Kingdom. Recent Accounting Pronouncements In March 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") No. 98-1, "Software for Internal Use," which provides guidance on accounting for the cost of computer software developed or obtained for internal use. SOP No. 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. The early adoption of SOP 98-1 did not have a material effect on the Company's financial statements. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes a new model for accounting for derivatives and hedging activities and supersedes and amends a number of existing standards. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999, but earlier application is permitted as of the beginning of any fiscal quarter subsequent to June 15, 1998. Upon initial application, all derivatives are required to be recognized in the statement of financial position as either assets or liabilities and measured at fair value. In addition, all hedging relationships must be reassessed and documented pursuant to the provisions of SFAS No. 133. Subsequent to the issuance of SFAS No. 133, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133" ("SFAS No. 137"), which defers the effective date of SFAS No. 133 to periods beginning after June 15, 2000. The Company has not committed or expects to commit to any derivative instrument transactions, and thus does not anticipate that this pronouncement will have a significant effect on its results. NOTE 2: PROPERTY AND EQUIPMENT Property and equipment are comprised of the following:
April 30, ------------------------- December 31, 1997 1998 1998 ----------- ------------ ------------ Machinery and equipment............. (Pounds)169 (Pounds) 326 (Pounds) 569 Furniture and fixtures.............. 22 36 54 ----------- ------------ ------------ 191 362 623 Accumulated depreciation............ (64) (177) (231) ----------- ------------ ------------ (Pounds)127 (Pounds) 185 (Pounds) 392 =========== ============ ============
Depreciation expense for the years ended April 30, 1997 and 1998, and the period from May 1, 1998 through December 31, 1998 was (Pounds)64, (Pounds)113 and (Pounds)53, respectively. F-84 I-WAY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (All amounts in thousands of GBP, except share and per share data) NOTE 3: COMMITMENTS Operating Leases The Company leases office space and equipment under non-cancelable operating leases with various expiration dates through December 2001. Rent expenses for the years ended April 30, 1997 and 1998, and the period ended December 31, 1998 were (Pounds)30, (Pounds)68, and (Pounds)47, respectively. The terms of the facility lease provide for rental payments on a graduated scale. The Company recognizes rent expense on a straight-line basis over the lease period, and has accrued for rent expense incurred but not paid. Future minimum lease payments under non-cancelable operating leases, including lease commitments entered into subsequent to December 31, 1998 under non-cancelable operating leases are as follows: 1999............................................................. (Pounds) 59 2000............................................................. 86 2001............................................................. 75 ----------- Total............................................................ (Pounds)220 ===========
Capital Leases At April 30, and December 31, 1998, the Company had (Pounds)81 and (Pounds)66 outstanding and due under capital lease agreements with Lombard Network Services. The assets held under these capital lease agreements comprise machinery and equipment, and fixtures and fittings. Future minimum lease payments under non-cancelable capital leases, including lease commitments entered into subsequent to December 31, 1998 were settled during 1999. These amounted to payments of (Pounds)68, including interest of (Pounds)2. NOTE 4: BANK OVERDRAFT Short-term debt consists of bank overdrafts at April 30, 1998. The bank overdrafts accrued interest at a rate of 2.5% per annum above the bank's base rate and are repayable on demand. Interest expense for the year ended April 30, 1998 was (Pounds)2. NOTE 5: STOCKHOLDERS' EQUITY At April 30, 1998, and 1997, there were 100,000 6% preferred stock shares authorized, of which 50,000 shares were issued and outstanding. In the period ended December 31, 1998 the Company redeemed 50,000 shares of 6% preferred stock, and the 100,000 6% preferred stock shares authorized were cancelled. On the same date two new classes of preferred stock shares were created being 26,789 Series A convertible preferred shares of (Pounds)1 each and 23,211 Series B convertible preferred shares of (Pounds)1 each. 26,789 of the Series A shares were then issued and remain outstanding. The 6% preferred stock shares were entitled to a 6% dividend, payable in arrears and only when the company has available distributable profits. Rights to unpaid dividends were waived when these shares were redeemed. The preferred Series A and B convertible shares participate in all dividends payable to holders of the ordinary shares as if all preferred shares had been converted into ordinary shares. Any holders of preferred F-85 I-WAY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All amounts in thousands of GBP, except share and per share data) shares may convert all or any portion of the preferred shares into a number of fully paid ordinary shares. On winding up the holders have priority before all other classes of shares to receive repayment of capital plus any arrears of dividend. The holders have voting rights at general meetings, one vote per share. NOTE 6: INCOME TAXES There were no provisions for income taxes in any of the periods. The benefits from income taxes differ from amounts computed at the statutory rate as follows:
For the year ended Period from April 30, May, 1 to ------------------------- December 31, 1997 1998 1998 ----------- ------------ ------------ Income tax benefit at federal statutory rate....................... (Pounds) (8) (Pounds) (76) (Pounds)-- Permanent differences................. 1 4 -- Deferred tax movement not recognized.. 6 59 -- Tax effect of U.S. GAAP adjustments... -- 13 -- Deferred tax movement in tax rate..... 1 -- -- ----------- ------------ ----------- Income tax provision (benefit)........ (Pounds)-- (Pounds) -- (Pounds)-- =========== ============ =========== Deferred tax assets (liabilities) consist of the following: April 30, ------------------------- December 31, 1997 1998 1998 ----------- ------------ ------------ Deferred tax assets: Net operating loss carryforwards.... (Pounds) 20 (Pounds) 81 (Pounds)140 Accruals and reserves............... -- 1 -- Deferred tax liabilities: Depreciation and other.............. -- (3) (1) ----------- ------------ ----------- Net deferred tax assets............... 20 79 139 Valuation allowance................... (20) (79) (139) ----------- ------------ ----------- (Pounds)-- (Pounds) -- (Pounds)-- =========== ============ ===========
The Company has established a valuation allowance for net deferred tax assets of its operations since realization of these benefits cannot be reasonably assured. While the need for the valuation allowance is subject to periodic review, if the allowance is reduced, the tax benefits of the carryforwards will be recorded in future operations as a reduction of the Company's income tax expense. No cash was paid for income taxes in the years ended April 30, 1997 and 1998, or the period ended December 31, 1998. Net operating losses for tax purposes can be carried forward indefinitely for offset against future taxable income. NOTE 7: RELATED PARTY TRANSACTIONS At April 30, 1998 the Company had loans outstanding and repayable to three stockholders in the amounts of (Pounds)8, (Pounds)10 and (Pounds)10, respectively. These loans were non-interest bearing and were repaid before December 31, 1998. At June 30, 1999 the Company had a loan outstanding from VIA NET.WORKS, Inc. of (Pounds)330. The loan was interest bearing at a rate equal to the base rate of the National Westminster Bank PLC plus three quarters of one percent. Repayments of this loan are by twelve quarterly repayments commencing June 2000. F-86 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders of bART Holding B.V., In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, stockholders'deficit and of cash flows expressed in Dutch guilders present fairly, in all material respects, the financial position of bART Holding B.V. and its subsidiaries at December 31, 1998, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards in the Netherlands which are substantially similar to generally accepted auditing standards in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. PricewaterhouseCoopers N.V. Rotterdam, the Netherlands November 17, 1999 F-87 bART HOLDING B.V. CONSOLIDATED BALANCE SHEET (In thousands of NLG, except share data and per share data)
December 31, Note 1998 ------ ------------ ASSETS Current assets: Cash..................................................... 1 NLG 26 Accounts receivable, net of allowance of doubtful accounts of NLG 327..................................... 1 642 Prepaid expenses......................................... 85 --------- Total current assets................................... 753 Property and equipment, net.............................. 1,2 803 Intangible assets, net................................... 3 57 --------- Total assets........................................... NLG 1,613 ========= Current liabilities: Short term borrowings.................................... 5 NLG 484 Accounts payable and accrued liabilities................. 4 2,233 Related party payables................................... 1,7 80 Deferred Revenue......................................... 1 1,737 Capital Lease Obligations................................ 1,2, 5 177 --------- Total current liabilities.............................. 4,711 Long-term debt............................................. 6 1,032 Related party loans........................................ 1, 7 500 --------- Total liabilities...................................... 6,243 --------- Commitments and contingencies.............................. 12 Stockholders' deficit: Common stock, 100,000 shares authorized, 75,000 issued and outstanding, par value of NLG 10 per share.......... 10 NLG 750 Additional paid-in capital............................... 10 3,990 Accumulated deficit...................................... (9,370) --------- Total stockholders' deficit............................ (4,630) --------- Total liabilities and stockholders' deficit............ NLG 1,613 =========
The accompanying notes are an integral part of these consolidated financial statements. F-88 bART HOLDING B.V. CONSOLIDATED STATEMENT OF OPERATIONS (In thousands of NLG)
Year ended Note December 31, 1998 ---- ----------------- Revenue.................................................. NLG 5,726 Costs of revenue......................................... 1,697 --------- Gross margin............................................. 4,029 --------- Operating expenses: Selling, general and administrative.................... 4,329 Write-off of customer lists............................ 86 Depreciation and amortization.......................... 945 --------- Total operating expenses............................... 5,360 Interest expense....................................... 175 --------- Total expenses and other income...................... 5,535 --------- Loss before extraordinary items.......................... (1,506) Gain on restructuring of trade payables................ 9 875 --------- Net loss................................................. NLG (631) =========
The accompanying notes are an integral part of these consolidated financial statements. F-89 bART HOLDING B.V. CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (In thousands of NLG, except share data and per share data )
Shares Total ------------- Additional Accumu- Stock- Par Paid-in lated Holders' Number value Capital Deficit Deficit ------ ------ ---------- --------- --------- Balance at January 1, 1998..... 75,000 NLG750 NLG3,384 NLG(8,739) NLG(4,605) Net loss....................... -- -- (631) (631) Capital contributions from stockholders.................. -- 606 -- 606 ------ ------ -------- --------- --------- Balance at December 31, 1998... 75,000 NLG750 NLG3,990 NLG(9,370) NLG(4,630) ====== ====== ======== ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-90 bART HOLDING B.V. CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands of NLG)
Year ended December 31, 1998 ----------------- Cash flows from operating activities: Net loss................................................... NLG(1,331) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization............................ 945 Write-off of customer lists.............................. 86 Provision for doubtful accounts.......................... 459 Decrease (increase) in assets: Accounts receivable...................................... (516) Prepaid expenses......................................... 197 Increase (decrease) in liabilities: Accounts payable and accrued liabilities................. (2,215) Deferred revenue......................................... 520 --------- Total adjustments...................................... (524) --------- Net cash (used in)/provided by operating activities.......... NLG(1,855) --------- Cash flows from investing activities: Acquisitions of property and equipment..................... (260) Purchase of customer lists................................. (86) --------- Net cash used in investing activities........................ NLG (346) --------- Cash flows from financing activities: Capital contributions from stockholders.................... 606 Proceeds from borrowings................................... 569 Payments on capital leases................................. (228) --------- Net cash provided by financing activities.................... NLG 947 --------- Net (decrease)/increase in cash.............................. (1,254) Cash at beginning of period................................ 1,280 --------- Cash at end of period........................................ NLG 26 =========
The accompanying notes are an integral part of these consolidated financial statements. F-91 bART HOLDING B.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands of NLG, except share data and per share data) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Nature of Operation bART Holding B.V. ("the Company", "bART"), formerly Anjantus Altissima was incorporated on August 26, 1996 to operate as an Internet service provider ("ISP"). On March 25, 1999, the Company was acquired by VIA NET.WORKS, Inc. for NLG 13,450. At December 31, 1998, bART Holding B.V. is the parent company of the wholly owned subsidiaries: Arameta B.V., Xenovic B.V., bART Noord Nederland B.V., bART Midden Nederland B.V., and bART Den Haag B.V.("bART Internet Services"). Basis of Presentation These financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for purposes of inclusion into the filing of VIA NET.WORKS, Inc. with the Securities and Exchange Commission and do not represent the statutory financial statements of the Company. The accompanying financial statements include the results of the Company for the year ended December 31, 1998. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its majority-owned and controlled subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates, judgements and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, together with the amounts disclosed in the related notes to the financial statements. Actual results could differ from these estimates. Fair Value of Financial Instruments Carrying amounts of certain of the Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other liabilities approximate fair value due to their short maturities. Based upon borrowing rates currently available to the Company for loans with similar terms, the carrying value of debt and capital lease obligations approximate their fair value. Cash and Cash Equivalents The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Concentration of Credit Risk Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash, cash equivalents, and accounts receivable. Accounts receivable are typically unsecured and are derived from revenues earned from customers located in the Netherlands. The Company F-92 bART HOLDING B.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands of NLG, except share data and per share data) performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. The Company maintains an allowance for doubtful accounts receivable based upon the expected collectibility of accounts receivable. At December 31, 1998, no one customer accounted for 10% or more of the accounts receivable balance. Property and Equipment Property and equipment are stated at cost less accumulated depreciation, which is recorded on the straight-line method over the estimated useful lives of the assets, generally three to five years. Costs capitalized include major expenditures for improvements which extend useful lives or increase capacity of the asset and interest costs associated with significant capital additions. Expenditures for maintenance and repairs are expensed as incurred. Leasehold improvements include costs associated with telecommunications equipment installations and building improvements. Gains or losses on the disposal of property and equipment are included in income and the related costs and accumulated depreciation are removed from the accounts. The Company finances part of its data communications equipment and other fixed assets under capital lease agreements. The assets and liabilities under capital leases are recorded at the lesser of the present value of aggregate future minimum lease payments, including estimated bargain purchase options, or the fair value of the asset under lease. Assets under these capital leases are depreciated over the terms of the related leases. Long-Lived Assets The Company periodically evaluates the carrying value of property and equipment to be held and used when events and circumstances warrant such a review. The carrying value of property and equipment is considered impaired when the anticipated undiscounted cash flows from the asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost to dispose. Income Taxes The Company accounts for income taxes under SFAS No. 109, "Accounting for Income Taxes". SFAS 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to differences between carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases, and for operating loss and tax credit carry forwards. Valuation allowances are established on deferred tax assets when management estimates that it is more likely than not that the related benefit will not be realised. Stock-Based Compensation The Company accounts for stock-based compensation in accordance with the provisions of Accounting Principles Board (APB) No. 25, "Accounting for Stock Issued to Employees" and complies with the disclosure provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation.". Under APB 25, compensation cost is recognised over the vesting period based on the differences if any, on the date of the grant between the fair value of the Company's stock and the exercise price. F-93 bART HOLDING B.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands of NLG, except share data and per share data) Revenue Recognition Internet services are recognised as the services are provided. The Company records deferred revenue for amounts billed in advance of the service that is provided. The Company provides consulting services. Revenue from these services is recognized as the services are provided. Costs of Revenues Costs of access revenues primarily consist of telecommunication expenses inherent in the network infrastructure. Costs of access revenues also include fees paid for lease of the network infrastructure, as well as license fees for Web browser software based on a per-user charge, other license fees paid to third-party software vendors, product costs, and contractor fees for operation and support services. Discounts received are set against the related expenses. Sources of Suppliers The Company relies on local telephone companies and other companies to provide data communications. Although management feels alternative telecommunications facilities could be found in a timely manner, any disruption of these services could have an adverse effect on operating results. Recently Issued Accounting Pronouncements In March 1998, the American Institute of Certified Public Accountants ("AICPA") issued a Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, and SOP 98-5, Reporting on the Costs of Start-Up Activities, both of which are required to be adopted for fiscal years beginning under December 15, 1998. SOP 98-1 provides guidance on accounting for the costs of computer software developed or obtained for internal use, determining whether computer software is for internal use, and when costs incurred for internal-use computer software are and are not capitalised. SOP 98-5 requires costs of start-up activities and organisation costs to be expensed as incurred. The adoption of SOP 98-1 and SOP 98-5 would not have a material effect on the Company's consolidated financial statements. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes a new model for accounting for derivatives and hedging activities and supersedes and amends a number of existing standards. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999, but earlier application is permitted as of the beginning of any fiscal quarter subsequent to June 15, 1998. Upon initial application, all derivatives are required to be recognized in the statement of financial position as either assets or liabilities and measured at fair value. In addition, all hedging relationships must be reassessed and documented pursuant to the provisions of SFAS No. 133. Subsequent to the issuance of SFAS No. 133, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133" ("SFAS No. 137"), which defers the effective date of SFAS No. 133 to periods beginning after June 15, 2000. The Company has not committed or expects to commit to any derivative instrument transactions, and thus does not anticipate that this pronouncement will have a significant effect on its results. Segment Reporting The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" during 1998. SFAS No. 131 replaces the "industry segment" approach with the "management" F-94 bART HOLDING B.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands of NLG, except share data and per share data) approach. The management approach designates the internal organisation that is used by management for allocating resources and assessing performance as the source of the Company's reportable segments. SFAS No. 131 also requires disclosure about products and services, geographic areas, and major customers. The adoption of SFAS No. 131 did not affect results of operations or financial position. The Company operates in one segment, all within the country of the Netherlands. 2. PROPERTY AND EQUIPMENT Property and equipment at December 31, 1998 consists of the following:
1998 --------- Computer equipment, including assets held under capital lease... NLG 1,991 Furniture and fixtures.......................................... 250 --------- 2,241 Accumulated depreciation........................................ (1,438) --------- Total........................................................... NLG 803 =========
As of December 31, 1998, the Company held NLG 745 of equipment under capital lease arrangements. The related accumulated depreciation was NLG 603. Depreciation expense for the year ended December 31, 1998 was NLG 254. 3. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities at December 31, 1998 consist of the following:
1998 --------- Accounts Payable.................................................. NLG 1,151 Other creditors................................................... 209 Supplier Payable for User fees.................................... 479 Wages taxation payable............................................ 366 VAT............................................................... 28 --------- Total............................................................. NLG 2,233 =========
4. SHORT-TERM BORROWINGS Lines of Credit At December 31, 1998, the Company had NLG 484 outstanding and due under a short-term facility of with ABN-Amro Bank N.V. The line of credit provides for borrowings of up to NLG 850 which was collateralised by the Company's current assets. Interest was charged at rates from 5.75 to 7.5% per annum. This line of credit was paid subsequent to the year on March 31, 1999. F-95 bART HOLDING B.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands of NLG, except share data and per share data) Capital Lease Obligations At December 31, 1998, the Company had NLG 177 outstanding and due under an equipment lease financing agreement which had an interest rate of 12.7% per annum. The capital lease obligation was paid in May 1999. 5. LONG TERM DEBT At December 31, 1998, the Company had NLG 792 outstanding and due under a long-term facility of credit with ABN-Amro Bank N.V. The lines of credit provided for borrowings of up to NLG 950 which are collateralised by the Company's trading assets and by credit insurance. NLG 792 is due in the year ended December 31, 2001. Interest was charged at rates from 5.75 to 7.5% per annum. The lines of credit were paid subsequent to the year on March 31, 1999. As at December 31, 1998, the Company had a loan of NLG 200 outstanding and due under an agreement with Ontwikkelings Bedrijf Rotterdam, repayable in December 2001. The interest rate for this arrangement was 7.5% and the interest expense was NLG 15 for the year ended December 31, 1998. At December 31, 1998, the Company had a note payable of NLG 40 with VIA Home Vision B.V. which is due after 2000. Repayments of long-term debt are as follows:
December 31, 1998 -------- 1999................................................................ -- 2000................................................................ 264 2001................................................................ 504 Thereafter.......................................................... 264 ----- Total Long Term Debt................................................ 1,032 =====
6. RELATED PARTY TRANSACTIONS In 1998, a loan from the stockholders of NLG 500 was given to the Company which had an interest rate of 6%. The purpose of the loan was for immediate cash needs. The interest expense for the year ended December 31, 1998 was NLG 14. These loans were repaid subsequent to year end. During the year ended December 31, 1998, management fees of NLG 462 were paid to former stockholders of the Company, Goede Paard B.V. and Conew B.V. 7. INCOME TAXES The Company has a deferred tax asset which consists of net operating loss carryforwards of NLG 6,777. These net operating loss carryforwards have an indefinite life. While this tax position is subject to periodic review, the tax benefits of the carry forwards will be recorded in the future operations as a reduction of the Company's income tax expense. During the year ended December 31, 1998, there were not any net operating losses utilised in the current year as the entities did not have any profit. F-96 bART HOLDING B.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands of NLG, except share data and per share data) A 100% valuation allowance has been provided against the deferred tax asset as the Company has determined that it is not likely that these amounts will be realized in the future. The Company will continue to review this valuation allowance and make adjustments when and if deemed appropriate. 8. EXTRAORDINARY ITEM During 1998, the Company negotiated a settlement with certain of its trade creditors. The settlement reduced the amounts owed by NLG 875. This gain has been disclosed as an extraordinary items as it meets the criteria as defined in APB 30 "Reporting the Results of Operations--Extraordinary, Unusual and Infrequently Occurring Events and Transactions, Gains and Losses from Unusual and Infrequent Occurrences." 9. STOCKHOLDERS' DEFICIT The Company's Articles of Incorporation, as amended, authorise the Company to issue 100,000 shares of NLG 10 par value common stock. During 1998, the stockholders contributed capital of NLG 606 in cash for operating purposes. 10. STOCK COMPENSATION AGREEMENTS On April 25, 1998, the Company granted stock options to certain of its stockholders. The stock option agreements with the stockholders consisted of the right to purchase an aggregate of 5,625 newly issued shares of bART at an exercise price of NLG 62 per share. The option was exercisable on April 25, 2000 (2 years from April 25, 1998) or in the event of the shares and/or activities of bART being sold. The expiration date of the options is April 22, 2002. On April 28, 1998, the Company granted stock options to directors. The stock option agreements with the directors consist of the right to purchase an aggregate of 2,250 newly issued shares of bART at an exercise price of NLG 31 per share. The options are exercisable on or after April 25, 2000 or in the event of the shares and/or activities of bART being sold. The options expire 5 years after the date of the grant. For disclosure purposes under SFAS No. 123, the fair value of each stock option and granted is estimated on the date of the grant using the minimum value method. The assumptions used in the minimum value method are as follows: Risk free interest rate................. 6% Expected life........................... 2 years Dividend yield.......................... 0
The expected life was assumed to be 2 years as the options are exercisable after 2 years from the grant date. Under the above method, the total value of the stock options granted to the directors is NLG 7 which would be amortised over the vesting period defined as two years. Had the Company determined compensation cost for these plans with SFAS No. 123, the Company's pro forma results would not have differed materially from the reported amounts. The value of the options granted to the stockholders is NLG 37 which would be considered a stock dividend as these options would not be treated as compensation expense. F-97 bART HOLDING B.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands of NLG, except share data and per share data) Following is a summary of the Company's stock option activity:
Number of Weighted Average Stock Options Exercise Price (in NLG) ------------- ----------------------- Balance at January 1, 1998........... -- -- Granted to Directors ................ 2,250 31 Granted to Stockholders.............. 5,625 62 Exercised............................ -- -- ----- --- Balance at December 31, 1998......... 7,875 53 ----- --- Number of Options Vested at December 31, 1998............................ --
11. COMMITMENTS AND CONTINGENCIES Rent expense for the year ended December 31, 1998 was NLG 233. The Company recognises rent expense on a straight-line basis over the lease period, and has accrued for rent expense incurred but not paid. During 1999, the Company moved to new offices and has entered into a new agreement which results in total commitments of NLG 1,725 over a five-year period. The Company leases office equipment under non-cancelable operating and capital leases with various expiration dates through 2001. Future minimum lease payments under non-cancelable operating leases, including lease commitments entered into subsequent to the year ended December 31, 1998 under non-cancelable operating leases: As of December 31, 1998, the Company had the following commitments:
Operating leases Year ending December 31 --------- 1999............................................................... 226 2000............................................................... 446 2001............................................................... 376 2002............................................................... 345 2003............................................................... 345 Thereafter......................................................... 230 ----- Total minimum payments required.................................... 1,968 =====
12. SUBSEQUENT EVENTS On March 31, 1999, VIA purchased all the outstanding equity securities of bART from the existing stockholders for NLG 13,450. All short and long term borrowings and the related party loans were paid in April 1999 after the acquisition. F-98 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of ESOTERICA--Novas Tecnologias de Informacao, SA In our opinion, the accompanying balance sheet and the related statements of operations, changes in stockholders' deficit, and of cash flows expressed in thousand Escudos (PTE), present fairly, in all material respects, the financial position of ESOTERICA--Novas Tecnologias de Informacao, SA on December 31, 1998, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards in Portugal, which are substantially similar to generally accepted auditing standards in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. PricewaterhouseCoopers--Auditores e Consultores, Lda Lisbon, Portugal October 20, 1999 F-99 ESOTERICA -- NOVAS TECNOLOGIAS DE INFORMACAO, SA BALANCE SHEET (All amounts in thousand PTE, except for share data)
December 31, 1998 ------------ ASSETS Current assets: Cash and cash equivalents....................................... PTE 15,545 Accounts receivable............................................. 62,337 Other accounts receivable....................................... 42,146 Prepaid expenses................................................ 6,637 Inventory....................................................... 30 Other current assets............................................ 460 ----------- Total current assets.......................................... 127,155 Property and equipment, net....................................... 61,694 Investment in affiliated company at cost.......................... 2,435 ----------- Total assets.................................................. PTE 191,284 =========== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable................................................ PTE 79,269 Accrued liabilities............................................. 31,013 Deferred revenue................................................ 42,589 Current portion of long-term debt............................... 41,000 Other current liabilities....................................... 44,252 ----------- Total current liabilities....................................... 238,123 Long-term debt, net of current portion.......................... 100,000 Other liabilities............................................... 9,797 ----------- Total liabilities............................................. 347,920 Commitments Stockholders' Deficit: Common stock, PTE 1,000 par value; PTE 100,000 authorized, issued and outstanding shares.................................. PTE 100,000 Accumulated deficit............................................. (256,636) ----------- Total stockholders' deficit................................... (156,636) ----------- Total liabilities and stockholders' deficit................... PTE 191,284 ===========
The accompanying notes are an integral part of these financial statements. F-100 ESOTERICA--NOVAS TECNOLOGIAS DE INFORMACAO, SA STATEMENT OF OPERATIONS (All amounts in thousand PTE)
Year ended December 31, 1998 ------------ Revenue........................................................... PTE320,323 Cost of revenue................................................... (174,903) ---------- Gross profit...................................................... 145,420 Operating expenses: Selling, general and administrative............................. (145,218) Depreciation and amortization................................... (44,311) ---------- Total operating expenses........................................ (189,529) ---------- Loss from operations.............................................. (44,109) Interest expense.................................................. (12,520) ---------- Net loss.......................................................... PTE(56,629) ==========
The accompanying notes are an integral part of these financial statements. F-101 ESOTERICA -- NOVAS TECNOLOGIAS DE INFORMACAO, SA STATEMENT OF STOCKHOLDERS' DEFICIT (All amounts in thousand PTE except share data)
Common Stock ------------------------ Accumulated Total No. of shares Amount Deficit Stockholders' Deficit ------------- ---------- ----------- --------------------- Balance at December 31, 1997................... 45,000 PTE 45,000 PTE(200,007) PTE(155,007) Issuance of common stock.................. 55,000 55,000 -- 55,000 Net loss................ -- -- (56,629) (56,629) ------- ---------- ----------- ----------- Balance at December 31, 1998................... 100,000 PTE100,000 PTE(256,636) PTE(156,636) ======= ========== =========== ===========
The accompanying notes are an integral part of these financial statements. F-102 ESOTERICA -- NOVAS TECNOLOGIAS DE INFORMACAO, SA STATEMENT OF CASH FLOWS (All amounts in thousand PTE)
Year ended December 31, 1998 ---------- Cash flows from operating activities: Net loss........................................................ PTE(56,629) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization................................... 44,311 Changes in assets and liabilities: Accounts receivable............................................. (80,441) Prepaid expenses................................................ 79 Other current assets............................................ 7,321 Accounts payable................................................ 5,291 Accrued liabilities............................................. 18,849 Deferred income................................................. 33,835 Other liabilities............................................... 11,727 ---------- Net cash used in operating activities......................... (15,657) Cash flows from investing activities: Acquisition of property and equipment........................... 72,073 ---------- Net cash used in investing activities......................... (72,073) Cash flows from financing activities: Proceeds from debt.............................................. 46,000 Proceeds from issuance of common stock.......................... 55,000 ---------- Net cash provided by financing activities..................... 101,000 ---------- Net increase in cash and cash equivalents....................... 13,270 Cash and cash equivalents, beginning of year.................... 2,275 ---------- Cash and cash equivalents, end of year.......................... PTE 15,545 ==========
The accompanying notes are an integral part of these financial statements. F-103 ESOTERICA--NOVAS TECNOLOGIAS DE INFORMACAO, SA NOTES TO FINANCIAL STATEMENTS (All amounts in thousand PTE except share data) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Operations Esoterica--Novas Tecnologias de Informacao, SA ("Company") was formed on February 17, 1995 to operate as an Internet service provider (ISP) in the city of Oporto. The Company now provides a full range of typical ISP services throughout Portugal, and has its headoffice in Lisbon. On May 13, 1999, 100% of the common stock was acquired by VIA NET.WORKS Europe Holding BV, a wholly- owned subsidiary of VIA NET.WORKS, Inc. Basis of Presentation The Company is required to maintain its accounting records in accordance with generally accepted accounting principles (GAAP) in the country of Portugal. These financial statements have been prepared in accordance with GAAP in the United States of America for the purposes of filing with the Securities and Exchange Commission and do not represent the statutory financial statements of the Company, which in are significantly different. The accompanying financial statements include the results of the Company for the year ended December 31, 1998. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates, judgements and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, together with amounts disclosed in the related notes to the financial statements. Actual results could differ from the recorded estimates. Fair Value of Financial Instruments Carrying amounts of certain of the Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other liabilities approximate fair value due to their short maturities. Based upon borrowing rates currently available to the Company for loans with similar terms, the carrying value of debt and capital lease obligations approximate their fair value. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Risks and Uncertainties The Company has a limited operating history and its operations are subject to certain risks and uncertainties, including those associated with: the ability to meet obligations, continuing losses, negative cash flow and fluctuations in operating results; funding expansion; acquistions and strategic alliances, including their integration; managing rapid growth and expansion; international business activities; suppliers; financing arrangement terms that may restrict operations; possible Year 2000 issues; regulatory issues; competition in the Internet services industry; technology trends and evolving industry standards; and delivering reliable service. Concentration of Credit Risk Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents and accounts receivable. The Company's accounts receivable are derived from revenue earned F-104 ESOTERICA--NOVAS TECNOLOGIAS DE INFORMACAO, SA NOTES TO FINANCIAL STATEMENTS--(Continued) (All amounts in thousand PTE except for share data) from customers located in Portugal. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. The Company maintains an allowance for doubtful accounts receivable based upon the expected collectibility of accounts receivable. Inventory Inventory includes mainly CD ROMs and is stated at the lower of cost or market, cost being determined using the first in first out (FIFO) method. Property and Equipment Property and equipment is recorded at cost less accumulated depreciation, which is provided on the straight-line method over the estimated useful lives of the assets, generally three to five years. Cost includes major expenditures for improvements and replacements that extend useful lives or increase capacity of the asset and interest costs associated with significant capital additions. Expenditures for maintenance and repairs are expensed as incurred. Leasehold improvements include costs associated with telecommunications equipment installations and building improvements. The Company finances part of its data communications equipment and other fixed assets under capital lease agreements. The assets and liabilities under capital leases are recorded at the lesser of the present value of aggregate future minimum lease payments, including estimated bargain purchase options, or the fair value of the assets under lease. Assets under these capital leases are depreciated over their estimated useful lives of three to five years, which are generally longer than the terms of the leases. Costs for internal use software are expensed as incurred. Long-Lived Assets The Company periodically evaluates the carrying value of property and equipment to be held and used when events and circumstances warrant such a review. The carrying value of property and equipment is considered impaired when the anticipated undiscounted cash flows from the asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost to dispose. Income Taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes". SFAS No. 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases, and for operating loss and tax credit carryforwards. In estimating future tax consequences, SFAS No. 109 generally considers all expected future events other than the enactment of changes in tax laws or rates. Revenue Recognition Internet services are recognized as the services are provided. The Company records deferred revenue for amounts billed and/or collected in advance. F-105 ESOTERICA--NOVAS TECNOLOGIAS DE INFORMACAO, SA NOTES TO FINANCIAL STATEMENTS--(Continued) (All amounts in thousand PTE except for share data) Revenue from consulting services is recognized as the services are provided. Revenue from hardware and third-party software sales is recognized upon shipment of the respective products. Through December 31, 1998, such sales have been immaterial. Other revenues include network installation, maintenance and consulting services. These services are provided on a time-and-material basis and revenue is recognized based upon time (at established rates) and other direct costs as incurred. Costs of Revenues Costs of access revenues primarily consists of telecommunication expenses inherent in the network infrastructure. Costs of access revenues also includes fees paid for the network infrastructure, as well as other license fees paid to third-party software vendors, product costs, and contractor fees for operation and support services. Sources of Suppliers The Company relies on local telephone companies and other companies to provide data communications. Although management feels alternative telecommunication facilities could be found in a timely manner, any disruption of these services could have an adverse effect on operating results. Recent Pronouncements In 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, and SOP 98-5, Reporting on the Costs of Start-Up Activities, both of which are required to be adopted for fiscal years beginning after December 15, 1998. SOP 98-1 provides guidance on accounting for the costs of computer software developed or obtained for internal use, determining whether computer software is for internal use, and when costs incurred for internal-use computer software are and are not capitalized. SOP 98-5 requires costs of start-up activities and organization costs to be expensed as incurred. The early adoption of SOP 98-1 and SOP 98-5 did not have a material effect on the Company's financial statements. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133"). SFAS No. 133 establishes a new model for accounting for derivatives and hedging activities and supersedes and amends a number of existing standards. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999, Upon initial application, all derivatives are required to be recognized in the statement of financial position as either assets or liabilities and measured at fair value. In addition, all hedging relationships must be reassessed and documented pursuant to the provisions of SFAS No. 133. Subsequent to the issuance of SFAS No. 133, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133" ("SFAS No. 137"), which defers the effective date of SFAS No. 133 to periods beginning after June 15, 2000. The Company has not committed or expects to commit to any derivative instrument transactions, and thus does not anticipate that this pronouncement will have a significant effect on its results. F-106 ESOTERICA--NOVAS TECNOLOGIAS DE INFORMACAO, SA NOTES TO FINANCIAL STATEMENTS (All amounts in thousand PTE except for share data) NOTE 2: EQUIPMENT, FURNITURE AND FIXTURES Equipment, furniture and fixtures are comprised of the following:
December 31, 1998 ------------ Internet and computer equipment................................. PTE127,672 Furniture and fixtures.......................................... 10,786 Accumulated depreciation........................................ (76,764) ---------- Total......................................................... PTE 61,694 ==========
NOTE 3: BORROWINGS Notes payable At December 31, 1998, the Company had PTE 100,000 outstanding with Barclays Bank. The note expires in October 3, 2001 and bears interest at a rate of Lisbor (3 months) + 2.5% per annum. The note is guaranteed by the Company and its shareholders. Line of credit i) At December 31, 1998, the Company had PTE 31,000 outstanding and due under a line of credit with Barclays Bank. The line of credit provides for borrowings of up to PTE 50,000. This line of credit does not expire and charges interest at a rate of Lisbor (3 months) + 2.5% per annum. The line of credit is guaranteed by the Company and its shareholders. ii) At December 31, 1998, the Company had PTE 10,000 outstanding and due under a line of credit with Banco Mello. The line of credit provides for borrowings of up to PTE 10,000. This line of credit expires on December 31, 1999 and interest is charged at a rate of 7% per annum. The line of credit is guaranteed by the Company and its shareholders. NOTE 4: COMMITMENTS Leases The Company leases office space and equipment under non-cancelable operating leases with various expiration dates through March 16, 2000 and December 31, 2001. At December 31, 1998, the Company had PTE 27,975 outstanding and due under an equipment lease financing line with Mello Leasing (Mello Locacao e Renault Gest), with annual installments due of approximately PTE 10,000. The terms of the facility lease provide for rental payments on a graduated scale. The Company recognizes rent expense on a straight-line basis over the lease period, and has accrued for rent expense incurred but not paid. NOTE 5: INCOME TAXES The gross deferred tax assets have been reduced by a valuation allowance because it is currently more likely than not that such benefits will not be realized. At December 31, 1998, the Company has potential net operating loss carryforwards of approximately PTE 255,000, which may be used to offset future taxable income. These carryforwards expire after 6 years from the date they are reported in the fiscal tax return. NOTE 6: SUBSEQUENT EVENT Following the Company's acquisition on May 13, 1999, all bank borrowings have been repaid and replaced with advances from VIA NET.WORKS, Inc. in the amount of approximately PTE102,000. F-107 Report of Independent Accountants To the Board of Directors and Stockholders of Worldwide Web Services Limited In our opinion, the accompanying balance sheet and the related statements of operations, changes in stockholders' deficit, and of cash flows expressed in British Pounds present fairly, in all material respects, the financial position of Worldwide Web Services Limited as of May 27, 1999, and the results of its operations and its cash flows for the period from July 1, 1998 to May 27, 1999, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards in the United Kingdom which are substantially similar to generally accepted auditing standards in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. PricewaterhouseCoopers Reading, United Kingdom November 19, 1999 F-108 WORLDWIDE WEB SERVICES LIMITED BALANCE SHEET (All amounts in thousands of GBP, except share data)
May 27, 1999 ----------- ASSETS Current assets: Cash........................................................... (Pounds) 21 Accounts receivable, net of allowance of (Pounds)11............ 532 Inventory...................................................... 23 Prepaid expenses............................................... 45 ----------- Total current assets......................................... 621 Property and equipment, net.................................... 199 ----------- Total assets................................................. (Pounds)820 =========== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable............................................... (Pounds)252 Accrued liabilities............................................ 57 Deferred revenue............................................... 559 Related party loan............................................. 50 Value Added Tax and other taxes................................ 307 ----------- Total current liabilities.................................... 1,225 Commitments STOCKHOLDERS' DEFICIT Common stock, (Pounds)1.00 par value, 100,000 shares Authorized; 55,556 shares issued and outstanding............................ 56 Additional paid-in capital....................................... 449 Accumulated deficit.............................................. (910) ----------- Total stockholders' deficit.................................. (405) ----------- Total liabilities and stockholders' deficit.................. (Pounds)820 ===========
The accompanying notes are an integral part of these financial statements. F-109 WORLDWIDE WEB SERVICES LIMITED STATEMENT OF OPERATIONS (All amounts in thousands of GBP)
For the period from July 1, 1998 to May 27, 1999 -------------- Revenue......................................................... (Pounds)1,438 Cost of revenue: Telecommunications services................................... 252 Related party services........................................ 6 ------------- 258 ------------- Gross profit.................................................... 1,180 Selling, general and administrative expenses.................... 1,890 Depreciation.................................................... 56 ------------- Net loss........................................................ (Pounds) (766) =============
The accompanying notes are an integral part of these financial statements. F-110 WORLDWIDE WEB SERVICES LIMITED STATEMENT OF STOCKHOLDERS' DEFICIT (All amounts in thousands of GBP, except share data)
Common Stock Additional Total ----------------- Paid-in Accumulated Stockholders' Shares Amount Capital Deficit Deficit ------ ---------- ----------- ------------ ------------- Balance at July 1, 1998................... 50 (Pounds)50 (Pounds)-- (Pounds)(144) (Pounds) (94) Stock based compensation........... 6 6 449 -- 455 Net loss................ -- -- -- (766) (766) --- ---------- ----------- ------------ ------------ Balance at May 27, 1999................... 56 (Pounds)56 (Pounds)449 (Pounds)(910) (Pounds)(405) === ========== =========== ============ ============
The accompanying notes are an integral part of these financial statements. F-111 WORLDWIDE WEB SERVICES LIMITED STATEMENT OF CASH FLOWS (All amounts in thousands of GBP)
For the Period From July 1, 1998 to May 27, 1999 -------------- Cash flows from operating activities: Net loss....................................................... (Pounds)(766) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation.................................................. 56 Provision for doubtful accounts............................... 8 Stock based compensation expense.............................. 449 Changes in operating assets and liabilities: Accounts receivable.......................................... (266) Inventory.................................................... (7) Other current assets......................................... 12 Accounts payable............................................. 99 Accrued expenses............................................. 34 Value Added Tax and other taxes.............................. 281 Deferred revenues............................................ 216 ------------ Net cash provided by operating activities................... 116 Cash flows from investing activities: Purchases of property and equipment........................... (124) ------------ Net cash used in investing activities....................... (124) Cash flows from financing activities: Proceeds from issuance of common stock........................ 6 ------------ Net cash provided by financing activities................... 6 Net decrease in cash and cash equivalents................... (2) Cash at beginning of period..................................... 23 ------------ Cash at end of period........................................... (Pounds) 21 ============
The accompanying notes are an integral part of these financial statements. F-112 WORLDWIDE WEB SERVICES LIMITED NOTES TO FINANCIAL STATEMENTS (All amounts in thousands of GBP, except share and per share data) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Operations Worldwide Web Services Limited ("the Company") was formed on May 24, 1996 to operate as an internet service provider (ISP) in the town of Staines, England. On May 27, 1999, 100% of the common stock was acquired by VIA NET.WORKS, Inc. Worldwide Web Services Limited was acquired for total consideration of (Pounds)4,550. Basis of Presentation The Company maintains its accounting records in accordance with generally accepted accounting principles (GAAP) in the United Kingdom. These financial statements have been prepared in accordance with GAAP in the United States for purposes of filing with the Securities and Exchange Commission and do not represent the statutory financial statements of the Company. The accompanying financial statements include the results of the Company for the period from July 1, 1998 to May 27, 1999 (the date that the Company was acquired by VIA NET.WORKS Inc.). Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires the Company to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, together with amounts disclosed in the related notes to the financial statements. Actual results could differ from the recorded estimates. Fair Value of Financial Instruments The Company's financial instruments include cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and other current liabilities. The carrying amounts of financial instruments approximate fair value due to their short-term maturities. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Concentration of Credit Risk Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents and accounts receivable. The Company's accounts receivable are derived from revenue earned from customers located in United Kingdom. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. The Company maintains an allowance for doubtful accounts receivable based upon the expected collectibility of accounts receivable. Inventory Inventory consists primarily of work-in-progress regarding web site authoring and is stated at cost. F-113 WORLDWIDE WEB SERVICES LIMITED NOTES TO FINANCIAL STATEMENTS--(Continued) (All amounts in thousands of GBP, except share and per share data) Property and Equipment Property and equipment is recorded at cost less accumulated depreciation, which is provided on the straight-line method over the estimated useful lives of the assets as follows: Machinery and Equipment................... 4 years Vehicles.................................. 4 years Furniture and Fixtures.................... 4 years
Cost includes major expenditures for improvements and replacements which extend useful lives or increase capacity of the asset and interest costs associated with significant capital additions. Expenditures for maintenance and repairs are expensed as incurred. Costs for internal use software are expensed as incurred. Long-Lived Assets The Company periodically evaluates the carrying value of property and equipment to be held and used when events and circumstances warrant such a review. The carrying value of property and equipment is considered impaired when the anticipated undiscounted cash flows from the asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost to dispose. Income Taxes The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns in accordance with SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109"). Deferred tax liabilities and assets are determined on the basis of the difference between the income tax basis of assets and liabilities and their respective financial reporting amounts at tax rates in effect for the periods in which the differences are expected to reverse. The Company provides a valuation allowance for deferred tax assets when it is more likely than not, based on available evidence, that some portion or all of the deferred tax assets will not be realized. Revenue Recognition Internet services are recognized as the services are provided. The Company records deferred revenue for amounts billed and/or collected in advance, and releases to revenue ratably over subscription term ranging from three to twelve months. Revenue from consulting services is recognized as the services are provided. Revenue from hardware and third party software sales is recognized upon shipment of the respective products. Through May 27, 1999, such sales have been immaterial. Other revenues include network installation, maintenance and consulting services. These services are provided on a time-and-material basis and revenue is recognized based upon time (at established rates) and other direct costs as incurred. F-114 WORLDWIDE WEB SERVICES LIMITED NOTES TO FINANCIAL STATEMENTS--(Continued) (All amounts in thousands of GBP, except share and per share data) Costs of Revenues Costs of access revenues primarily consist of telecommunication expenses inherent in the network infrastructure, license fees for Web browser software based on a per-user charge, other license fees paid to third-party software vendors, product costs, and contractor fees for operation and support services. Advertising Costs Advertising costs are charged to operations when incurred. There were no advertising expenses incurred for the period from July 1, 1998 to May 27, 1999. Sources of Suppliers The Company relies on local telephone companies and other companies to provide data communications. Although management feels alternative telecommunication facilities could be found in a timely manner, any disruption of these services could have an adverse effect on operating results. Recent Pronouncements In March 1998, the American Institute of Certified Public Accounts ("AICPA") issued Statement of Position ("SOP") No. 98-1, "Software for Internal Use," which provides guidance on accounting for the cost of computer software developed or obtained for internal use. SOP No. 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. The early adoption of SOP 98-1 did not have a material effect on the Company's financial statements. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes a new model for accounting for derivatives and hedging activities and supersedes and amends a number of existing standards. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999, but earlier application is permitted as of the beginning of any fiscal quarter subsequent to June 15, 1998. Upon initial application, all derivatives are required to be recognized in the statement of financial position as either assets or liabilities and measured at fair value. In addition, all hedging relationships must be reassessed and documented pursuant to the provisions of SFAS No. 133. Subsequent to the issuance of SFAS No. 133, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133" ("SFAS No. 137"), which defers the effective date of SFAS No. 133 to periods beginning after June 15, 2000. The Company has not committed or expects to commit to any derivative instrument transactions, and thus does not anticipate that this pronouncement will have a significant effect on its results. NOTE 2: PROPERTY AND EQUIPMENT Property and equipment are comprised of the following : Machinery and equipment......................................... (Pounds)274 Vehicles........................................................ 13 Furniture and fixtures.......................................... 20 ----------- 307 Less: Accumulated depreciation.................................. (108) ----------- Total......................................................... (Pounds)199 ===========
Depreciation expense for the period from July 1, 1998 to May 27, 1999 was (Pounds)56. F-115 WORLDWIDE WEB SERVICES LIMITED NOTES TO FINANCIAL STATEMENTS--(Continued) (All amounts in thousands of GBP, except share and per share data) NOTE 3: COMMITMENTS Operating Leases The Company leases office space under noncancelable operating leases that expire in 2007. Rent expense for the period from July 1, 1998 to May 27, 1999 was (Pounds)83. The terms of the facility lease provide for rental payments on a graduated scale. The Company recognizes rent expense as incurred over the lease period. Future minimum lease payments under noncancelable operating leases, including lease commitments entered into subsequent to May 27, 1999 under noncancelable operating leases are as follows:
Operating Period Ended Leases May 27, ----------- 2000............................................................. (Pounds)114 2001............................................................. 114 2002............................................................. 114 2003............................................................. 114 2004............................................................. 114 Thereafter....................................................... 314 ----------- Total minimum lease payments..................................... (Pounds)884 ===========
In March of 2002, the Company's operating leases will be reviewed by the landlord and a new monthly rental expense will be assessed at that time through March of 2007. NOTE 4: STOCKHOLDERS' DEFICIT The Company's Memorandum and Articles of Association, as amended, authorize the Company to issue 100,000 shares of (Pounds)1.00 par value common stock. Holders of the Company's common stock are entitled to one vote per share. The Board of Directors is elected by a majority vote of the shares of common stock voting thereon and any action to be taken by the stockholders requires a majority vote of the shares of common stock voting thereon. In May 1999, 5,556 common stock shares were issued to two key employees at a price below the fair market value at the date of the issuance. The exercise price paid by the employees was (Pounds)1 per share. Fair market value at the date of issuance was (Pounds)81.89 per share. The Company recognized (Pounds)449 in compensation expense and (Pounds)235 in related taxes, during the period from July 1, 1998 to May 27, 1999 in connection with the issuance of common stock. Compensation expense is equal to the difference between what the employees paid for the shares and the amount that VIA NET.WORKS, Inc. subsequently paid to acquire the shares. Had the Company determined compensation cost for these shares in accordance with SFAS No. 123, the Company's pro forma results would not have differed materially from the reported amount. NOTE 5: INCOME TAXES No provision for income taxes was recorded from the period July 1, 1998 through May 27, 1999 as the Company incurred net operating losses during the period. The components of the net deferred tax asset as of May 27, 1999 is as follows: Net operating loss carry forwards....... (Pounds)43 Cumulative temporary differences........ (8) ----------- 35 Valuation allowance..................... (35) ----------- Net deferred tax asset.................. (Pounds)-- ===========
F-116 WORLDWIDE WEB SERVICES LIMITED NOTES TO FINANCIAL STATEMENTS (All amounts in thousands of GBP, except share and per share data) Management has evaluated the positive and negative evidence impacting the realizeability on the deferred tax asset. Management has considered the history of losses and has concluded that as of May 27, 1999, the deferred tax asset more likely than not will not be realized. Therefore, management has recorded a full valuation allowance against the deferred tax asset. Net operating losses for tax purposes can be carried forward indefinitely to offset future taxable income from Internet services. NOTE 6: RELATED PARTY TRANSACTIONS During the period presented, the Company purchased goods and services for a total of (Pounds)6 from a related party, a relative of a director. At May 27, 1999 the Company owed a total of (Pounds)50 to two related parties, split equally. The related parties were a director and a company in which a director has an interest. Neither loan was interest bearing and both were repaid subsequent to May 27, 1999 shortly after the end of the period. F-117 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Netlink Internet Services Limited In our opinion, the accompanying balance sheet and the related statements of operations, changes in stockholders' deficit, and of cash flows expressed in British Pounds present fairly, in all material respects, the financial position of Netlink Internet Services Limited as of December 31, 1998, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards in the United Kingdom which are substantially similar to generally accepted auditing standards in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. PricewaterhouseCoopers Reading, United Kingdom November 19, 1999 F-118 NETLINK INTERNET SERVICES LIMITED BALANCE SHEETS (All amounts in thousands of GBP, except share data)
December 31, June 30, 1998 1999 ------------ ----------- (Unaudited) ASSETS Current assets: Cash............................................... (Pounds) 2 (Pounds)207 Accounts receivable, net of allowance of (Pounds)79 in 1998 and (Pounds)65 (unaudited) in 1999........ 62 181 Prepaid expenses................................... 97 132 ----------- ----------- Total current assets............................. 161 520 Property and equipment, net.......................... 72 119 ----------- ----------- Total assets..................................... (Pounds)233 (Pounds)639 ----------- ----------- LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable and accrued liabilities........... (Pounds)220 (Pounds)233 Deferred revenue................................... 605 780 Bank overdraft..................................... 53 137 Loan due to VIA NET.WORKS, Inc..................... -- 200 Other current liabilities.......................... 7 19 Loan from stockholder.............................. 94 86 Value Added Tax and other taxes.................... 79 83 ----------- ----------- Total current liabilities............................ 1,058 1,538 Commitments STOCKHOLDERS' DEFICIT Common stock, (Pounds)0.01 par value; authorized: 400 shares; authorized issued and outstanding 200 shares in 1998 and 400 shares in 1999 (unaudited).......... -- -- Additional paid-in capital........................... -- 1 Accumulated deficit.................................. (825) (900) ----------- ----------- Total stockholders' deficit.......................... (825) (899) ----------- ----------- Total liabilities and stockholders' deficit.......... (Pounds)233 (Pounds)639 =========== ===========
The accompanying notes are an integral part of these financial statements. F-119 NETLINK INTERNET SERVICES LIMITED STATEMENTS OF OPERATIONS (All amounts in thousands of GBP)
Six Months Six Months For the Year Ended Ended Ended June 30, June 30, December 31, 1998 1999 1998 (Unaudited) (Unaudited) ------------ ------------ ----------- Revenue............................... (Pounds) 873 (Pounds) 373 (Pounds)702 Cost of revenue....................... 383 119 119 ------------ ------------ ----------- Gross profit.......................... 490 254 583 Operating expenses: Selling, general and administrative expenses........................... 792 382 617 Research and development............ 32 -- -- Depreciation........................ 52 10 30 ------------ ------------ ----------- Loss from operations.................. (386) (138) (64) Other expenses: Interest expense.................... 13 5 3 Foreign currency loss............... 3 -- 8 ------------ ------------ ----------- Net loss.............................. (Pounds)(402) (Pounds)(143) (Pounds)(75) ============ ============ ===========
The accompanying notes are an integral part of these financial statements. F-120 NETLINK INTERNET SERVICES LIMITED STATEMENTS OF STOCKHOLDERS' DEFICIT (All amounts in thousands of GBP, except share data)
Common Stock Additional Total ------------------ Paid-in Accumulated Stockholders' Shares Amount Capital Deficit Deficit ------ ----------- ----------- ------------ ------------- Balance at December 31, 1997................... 200 (Pounds)-- (Pounds)-- (Pounds)(423) (Pounds)(423) Net loss................ -- -- -- (402) (402) --- ----------- ----------- ------------ ------------ Balance at December 31, 1998................... 200 (Pounds)-- -- (Pounds)(825) (Pounds)(825) Issuance of common stock (unaudited)............ 200 -- 1 -- 1 Net loss (unaudited).... -- -- -- (75) (75) --- ----------- ----------- ------------ ------------ Balance at June 30, 1999 (unaudited)............ 400 (Pounds)-- (Pounds) 1 (Pounds)(900) (Pounds)(899) === =========== =========== ============ ============
The accompanying notes are an integral part of these financial statement. F-121 NETLINK INTERNET SERVICES LIMITED STATEMENTS OF CASH FLOWS (All amounts in thousands of GBP)
Six Months Six Months For the Ended Ended Year Ended June 30, June 30, December 1998 1999 31, 1998 (Unaudited) (Unaudited) ------------ ------------ ----------- Cash flows from operating activities: Net loss............................. (Pounds)(402) (Pounds)(143) (Pounds)(75) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation....................... 52 10 30 Provision for doubtful accounts.... 51 -- -- Changes in operating assets and liabilities: Accounts receivable.............. (54) (100) (119) Prepaid expenses................. (96) (2) (35) Accounts payable and accrued liabilities..................... 108 52 13 Deferred revenue................. 330 218 175 Value Added Tax and other taxes.. 54 26 4 Other creditors.................. (41) (48) 12 ------------ ------------ ----------- Net cash provided by operating activities.......................... 2 13 5 Cash flows from investing activities: Acquisition of property and equipment........................... (67) (26) (77) ------------ ------------ ----------- Net cash used in investing activities.......................... (67) (26) (77) Cash flows from financing activities: Proceeds from loan due to VIA NET.WORKS Inc..................... -- -- 200 Bank overdraft..................... -- -- 84 Payments on short-term debt........ 39 (14) Proceeds from issuance of common stock............................. -- -- 1 Amounts owed to stockholder........ 26 12 (8) ------------ ------------ ----------- Net cash provided by (used in) financing activities................ 65 (2) 277 Net (decrease) increase in cash...... -- (15) 205 Cash, beginning of period............ 2 2 2 ------------ ------------ ----------- Cash, end of period.................. (Pounds) 2 (Pounds) (13) (Pounds)207 ============ ============ ===========
Supplementary disclosure of cash flow information: The Company paid approximately (Pounds)13 for interest for the year ended December 31, 1998 and (Pounds)5 and (Pounds)3 for the unaudited six month periods ended June 30, 1998 and 1999, respectively. The accompanying notes are an integral part of these financial statements. F-122 NETLINK INTERNET SERVICES LIMITED NOTES TO FINANCIAL STATEMENTS (All amounts in thousands GBP, except share and per share data) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Operations Netlink Internet Services, Ltd. ("the Company") was formed on September 7, 1995 to operate as an Internet service provider (ISP) in the city of London, England. On July 9, 1999, 100% of the common stock was acquired by VIA NET.WORKS, Inc., for total consideration of (Pounds)7,500. Basis of Presentation The Company maintains its accounting records in accordance with generally accepted accounting principles (GAAP) in the United Kingdom. These financial statements have been prepared in accordance with GAAP in the United States for purposes of filing with the Securities and Exchange Commission and do not represent the statutory financial statements of the Company. The accompanying financial statements include the results of the Company for the year ended December 31, 1998 and for the unaudited six month periods ended June 30, 1998 and 1999. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires the Company to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, together with amounts disclosed in the related notes to the financial statements. Actual results could differ from the recorded estimates. Fair Value of Financial Instruments Carrying amounts of certain of the Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other liabilities approximate fair value due to their short maturities. Based upon borrowing rates currently available to the Company for loans with similar terms, the carrying value of long-term debt and capital lease obligations approximate fair value. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Property and Equipment Property and equipment is recorded at cost less accumulated depreciation, which is provided on the straight-line method over the estimated useful lives of the assets, generally three years. Cost includes major expenditures for improvements and replacements which extend useful lives or increase capacity of the asset and interest costs associated with significant capital additions. Expenditures for maintenance and repairs are expensed as incurred. Costs for internal use software are expensed as incurred. Long-Lived Assets The Company periodically evaluates the carrying value of property and equipment to be held and used when events and circumstances warrant such a review. The carrying value of property and equipment is F-123 NETLINK INTERNET SERVICES LIMITED NOTES TO FINANCIAL STATEMENTS--(Continued) (All amounts in thousands GBP, except share and per share data) considered impaired when the anticipated undiscounted cash flows from the asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost to dispose. Income Taxes The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns in accordance with SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109"). Deferred tax liabilities and assets are determined on the basis of the difference between the income tax basis of assets and liabilities and their respective financial reporting amounts at tax rates in effect for the periods in which the differences are expected to reverse. The Company provides a valuation allowance for deferred tax assets when it is more likely than not, based on available evidence, that some portion or all of the deferred tax assets will not be realized. Revenue Recognition Internet services are recognized as the services are provided. The Company records deferred revenue for amounts billed and/or collected in advance and releases to revenue ratably over subscription term ranging from three to twelve months. Concentration of Credit Risk Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents and accounts receivable. The Company's accounts receivable are derived from revenue earned from customers located in United Kingdom and from other European countries. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. The Company maintains an allowance for doubtful accounts receivable based upon the expected collectibility of accounts receivable. Costs of Revenues Costs of access revenues primarily consist of telecommunication expenses inherent in the network infrastructure. Costs of access revenues also includes fees paid for lease of the company's network infrastructure, as well as license fees for Web browser software based on a per-user charge, other license fees paid to third-party software vendors, product costs, and contractor fees for operation and support services. Advertising Costs Advertising costs are charged to operations when incurred. Advertising expense for the year ended December 31, 1998, was (Pounds)126. Sources of Suppliers The Company relies on local telephone companies and other companies to provide data communications. Although management feels alternative telecommunication facilities could be found in a timely manner, any disruption of these services could have an adverse effect on operating results. F-124 NETLINK INTERNET SERVICES LIMITED NOTES TO FINANCIAL STATEMENTS--(Continued) (All amounts in thousands GBP, except share and per share data) Research and Development Costs incurred in research and development are charged to operations when incurred. Research and development expense for the year ended December 31, 1998 and the unaudited periods ended June 30, 1998 and 1999 were (Pounds)32, (Pounds)Nil (unaudited) and (Pounds)Nil (unaudited) respectively. Recent Pronouncements In March 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") No. 98-1, "Software for Internal Use," which provides guidance on accounting for the cost of computer software developed or obtained for internal use. SOP No. 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. The early adoption of SOP 98-1 did not have a material effect on the Company's financial statements. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes a new model for accounting for derivatives and hedging activities and supersedes and amends a number of existing standards. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999, but earlier application is permitted as of the beginning of any fiscal quarter subsequent to June 15, 1998. Upon initial application, all derivatives are required to be recognized in the statement of financial position as either assets or liabilities and measured at fair value. In addition, all hedging relationships must be reassessed and documented pursuant to the provisions of SFAS No. 133. Subsequent to the issuance of SFAS No. 133, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133" ("SFAS No. 137"), which defers the effective date of SFAS No. 133 to periods beginning after June 15, 2000. The Company has not committed or expects to commit to any derivative instrument transactions, and thus does not anticipate that this pronouncement will have a significant effect on its results. Unaudited Interim Financial Information The interim financial information for the six months ended June 30, 1998 and 1999 included herein is unaudited. However, the company believes that interim financial information includes all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the results of interim periods. The results of operations for the six months ended June 30, 1999 are not necessarily indicative of the results to be expected for the year ending December 31, 1999. NOTE 2: PROPERTY AND EQUIPMENT Property and equipment are comprised of the following:
December 31, 1998 ------------ Computer equipment............................................. (Pounds)132 Furniture and fixtures......................................... 12 ----------- 144 Less: accumulated depreciation................................. (72) ----------- Total........................................................ (Pounds) 72 ===========
F-125 NETLINK INTERNET SERVICES LIMITED NOTES TO FINANCIAL STATEMENTS--(Continued) (All amounts in thousands GBP, except share and per share data) NOTE 3: OTHER CURRENT LIABILITIES
December 31, 1998 ------------ Value Added Tax and other taxes................................. (Pounds) 79 Other creditors................................................. 7 Amounts owed to director (see Note 8)........................... 94 ----------- Total......................................................... (Pounds)180 ===========
NOTE 4: BANK OVERDRAFT Short-term debt consists of bank overdrafts at December 31, 1998 and June 30, 1999 (unaudited). The bank overdrafts accrued interest at a rate of 2.5% per annum above the bank's base rate and are repayable on demand. Interest expense for the year ended December 31, 1998 and the unaudited periods ended June 30, 1998 and 1999 were (Pounds)13, (Pounds)5 and (Pounds)3 respectively. NOTE 5: COMMITMENTS Operating Leases The Company leases office space under noncancelable operating leases with various expiration dates through 2000 with options for renewals. Rent expense totalled approximately (Pounds)36 for the year ended December 31, 1998 and (Pounds)16 and (Pounds)18 for the unaudited six month periods ended June 30, 1998 and 1999, respectively. The terms of the facility lease provide for rental payments on a graduated scale. The Company recognizes rent expense on a straight-line basis over the lease period, and has accrued for rent expense incurred but not paid. Future minimum lease payments under noncancelable operating leases are as follows:
Year Ended December 31, 1999.............................................................. (Pounds)35 2000.............................................................. 9 ---------- (Pounds)44 ==========
NOTE 6: STOCKHOLDERS' EQUITY Common Stock The Company's Articles of Incorporation authorized the Company to issue 400 shares of (Pounds)0.01 par value Common Stock. Holders of the Company's Common Stock are entitled to one vote per share. The Board of Directors is elected by a majority vote of the shares of Common Stock voting thereon and any action to be taken by the shareholders requires a majority vote of the shares of Common Stock voting thereon. F-126 NETLINK INTERNET SERVICES LIMITED NOTES TO FINANCIAL STATEMENTS (All amounts in thousands GBP, except share data) NOTE 7: INCOME TAXES Deferred tax assets and liabilities consist of the following:
December 31, 1998 ------------ Deferred tax assets: Net operating losses......................................... (Pounds) 51 Gross deferred tax liabilities: Depreciation and other....................................... (5) ----------- Net deferred tax asset......................................... 46 Valuation allowance.......................................... (46) ----------- (Pounds)-- ===========
The Company has established a valuation allowance for net deferred tax assets of its operations since realization of these benefits cannot be reasonably assured. These net operating losses are available for carryforward indefinitely and can be offset against future profits of the same trade. While the need for the valuation allowance is subject to periodic review, if the allowance is reduced, the tax benefits of the carryforwards will be recorded in future operations as a reduction of the Company's income tax expense. No cash was paid for income taxes in the year ended December 31, 1998. NOTE 8: RELATED PARTY TRANSACTIONS Throughout the year ended December 31, 1998 and the unaudited six months period ended June 30, 1999, a director of Netlink Internet Services Limited paid trade invoices in the amount of (Pounds)6 and (Pounds)0 nil, respectively, for normal operating expenses on behalf of the Company. The Company repaid the outstanding liability to the director in July of 1999 and was not required to pay interest on the amounts owed. On February 8, 1999 VIA NET.WORKS, Inc. loaned (Pounds)200 (unaudited) to Netlink Internet Services Limited. This is due for repayment on December 1, 1999 together with interest charged at a per annum rate of 6.6875%. F-127 Report of Independent Accountants To the Board of Directors and Stockholders of DISBUMAD, SL In our opinion, the accompanying balance sheet and the related statements of operations, stockholders' deficit and cash flows present fairly, in all material respects, the financial position of Disbumad, SL at December 31, 1998, and the results of its operations and its cash flows for the year ended December 31, 1998 in conformity with generally accepted accounting principles in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. Yours faithfully, PricewaterhouseCoopers Auditores, S.L. Seville, Spain October 29, 1999 F-128 DISBUMAD, SL BALANCE SHEETS (All amounts expressed in thousands of pesetas--Pths)
June 30, December 1999 31, 1998 (Unaudited) ASSETS Current Assets Cash and cash equivalents.......................... Pths 20,591 Pths 11,570 Trade accounts receivable (net of allowance of Pths 3 and Pths 4 at December 31, 1998 and June 30, 1999, respectively)............................... 3,024 5,932 Inventory.......................................... 7,694 -- Prepayments and other accounts receivable.......... 7,830 2,642 ----------- ----------- Total Current Assets............................. 39,139 20,144 Tangible Fixed assets, net........................... 96,391 21,727 Intangible assets, net............................... 1,669 1,775 Assets transferred to shareholders................... -- 84,430 ----------- ----------- TOTAL ASSETS..................................... Pths137,199 Pths128,076 =========== =========== LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities Accounts payable................................... Pths 43,926 Pths 40,504 Accrued liabilities................................ 10,184 10,184 Loans payable to stockholders...................... 30,596 30,596 Other short-term debt.............................. 6,417 5,282 Short-term portion of capital lease obligations.... 1,527 1,574 Other creditors.................................... 8,378 18,090 Taxes payable...................................... 9,391 8,167 Deferred revenue................................... 76,308 103,425 ----------- ----------- Total Current Liabilities ....................... 186,727 217,822 Long-term debt....................................... 52,669 49,898 Capital lease obligations............................ 3,844 3,011 Commitments and Contingencies (see note 5)........... -- -- ----------- ----------- Total Liabilities ............................... 243,240 270,731 Stockholders' Deficit Common stock Pths 10 Par Value; 4,849 Shares Authorized, Issued and Outstanding ................. 48,490 48,490 Accumulated deficit.................................. (154,531) (191,145) ----------- ----------- Total............................................ (106,041) (142,655) ----------- ----------- TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT........ Pths137,199 Pths128,076 =========== ===========
F-129 DISBUMAD, SL STATEMENTS OF OPERATIONS (All amounts expressed in thousands of pesetas--Pths)
Six months Six months ended ended Year ended June 30, June 30, December 31, 1998 1999 1998 (Unaudited) (Unaudited) ------------ ------------ ------------ Revenue............................. Pths 140,953 Pths 60,471 Pths 104,374 ------------ ------------ ------------ Internet Services Operating Costs... 49,515 29,939 75,417 Selling, General and Administrative Expenses........................... 95,741 42,234 50,042 Depreciation and Amortization....... 7,248 3,098 4,578 ------------ ------------ ------------ Loss from Operations................ (11,551) (14,800) (25,663) Interest Expense.................... 5,729 2,632 1,285 ------------ ------------ ------------ Net loss, before Discontinued Operations......................... (17,280) (17,432) (26,948) ------------ ------------ ------------ Discontinued Operations............. (21,866) (3,073) (9,666) ------------ ------------ ------------ Net Loss............................ Pths (39,146) Pths (20,505) Pths (36,614) ============ ============ ============
F-130 DISBUMAD, SL STATEMENTS OF STOCKHOLDERS' DEFICIT (All amounts expressed in thousands of pesetas--Pths except share amounts)
Common Stock Total ------------------ Accumulated Stockholders' Shares Amount Deficit Deficit ------ ----------- ------------- ------------- Balance at January 1, 1998.... 4,849 Pths 48,490 Pths (115,385) Pths (66,895) Net loss for the year......... -- -- (39,146) (39,146) Balance at December 31, 1998.. 4,849 48,490 (154,531) (106,041) Net loss for the period (Unaudited).................. -- -- (36,614) (36,614) ----- ----------- ------------- ------------ Balance at June 30, 1999 (Unaudited).................. 4,849 Pths 48,490 Pths (191,145) Pths(142,655) ===== =========== ============= ============
F-131 DISBUMAD, SL STATEMENTS OF CASH FLOWS (All amounts expressed in thousands of pesetas--Pths)
Six months Six months ended ended Year ended June 30, June December 31, 1998 30, 1999 1998 (Unaudited) (Unaudited) ------------ ------------ ------------ Cash flows from operating activities: Net loss.......................... Pths (39,146) Pths (20,505) Pths (36,614) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization....... 9,996 4,432 5,952 Changes in assets and liabilities: Allowance for doubtful accounts..... 821 410 1,712 Accounts receivable................. 9,875 4,168 (4,620) Prepaid expenses and other.......... (7,073) (508) 5,188 Inventory........................... 555 265 (1,977) Accounts payable, accrued liabilities and other creditors.... 27,656 4,561 6,290 Deferred revenue.................... 39,389 23,247 27,117 Value Added Tax and other taxes..... (3,677) (4,761) (1,224) ------------ ------------ ------------ Net cash provided by operating activities......................... 38,396 11,309 1,824 ------------ ------------ ------------ Cash flows from investing activities: Acquisition of equipment and furniture.......................... (13,478) (3,254) (6,153) ------------ ------------ ------------ Net cash used in investing activities......................... (13,478) (3,254) (6,153) ------------ ------------ ------------ Cash flows from financing activities: Payments of capital lease obligations........................ (1,676) (957) (786) Payment of loans.................... (8,180) (4,861) (3,906) ------------ ------------ ------------ Net cash used in financing activities......................... (9,856) (5,818) (4,692) ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents................... 15,062 2,237 (9,021) ------------ ------------ ------------ Cash and cash equivalents, beginning of period.......................... 5,529 5,529 20,591 ------------ ------------ ------------ Cash and cash equivalents, end of period............................. Pths 20,591 Pths 7,766 Pths 11,570 ============ ============ ============
F-132 DISBUMAD, SL NOTES TO THE FINANCIAL STATEMENTS (Information for the six months ended June 30, 1999 and June 30, 1998 is unaudited) (All amounts expressed in thousands of pesetas--Pths except share amounts) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Operations DISBUMAD, SL (the "Company") was formed on October 27, 1994 to operate as an online bookshop. During 1997, the company started its activities as an Internet Services Provider (ISP) in Spain. On August 26, 1999 the Company was acquired by VIA NET.WORKS, Inc. Basis of Presentation The Company maintains its accounting records in accordance with generally accepted accounting principles (GAAP) in Spain. These financial statements have been prepared in accordance with GAAP in the United States of America for purposes of filing with the Securities and Exchange Commission and do not represent the statutory financial statements of the Company. The accompanying financial statements include the results of the Company for the year ended December 31, 1998. Interim Financial Information Interim financial information for the six months ended June 30, 1998 and 1999 included herein is unaudited. However, the Company believes the interim financial information includes all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the results of interim periods. The results of operations for the six months ended June 30, 1999 are not necessarily indicative of the results to be expected for the year ending December 31, 1999. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, together with amounts disclosed in the related notes to the financial statements. Actual results could differ from the recorded estimates. Fair Value of Financial Instruments Carrying amounts of certain of the Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other liabilities approximate fair value due to their short maturities. Based upon borrowing rates currently available to the Company for loans with similar terms, the carrying value of debt and capital lease obligations approximate their fair value. Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Concentration of Credit Risk Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents and accounts receivable. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. The Company maintains an allowance for doubtful accounts receivable based upon the expected collectibility of accounts receivable. No significant concentration of credit risk exists. F-133 DISBUMAD, SL NOTES TO THE FINANCIAL STATEMENTS--(Continued) (Information for the six months ended June 30, 1999 and June 30, 1998 is unaudited) (All amounts expressed in thousands of pesetas--Pths except share amounts) Inventory Inventory consists of books and is stated at the lower of cost or market, cost being determined by their purchase price. Tangible Fixed Assets Fixed assets are recorded at cost less accumulated depreciation, which is provided on the straight-line method over the estimated useful lives of the assets, generally four to ten years. Cost includes major expenditures for improvements and replacements which extend the useful life or increase capacity of the asset and interest cost associated with significant capital additions. Expenditures for maintenance and repairs are expensed as incurred. Costs for internally generated internal use software are expensed as incurred. Long-Lived Assets The Company periodically evaluates the carrying value of property and equipment to be held and used when events and circumstances warrant such a review. The carrying value of property and equipment is considered impaired when the anticipated undiscounted cash flows from the asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost to dispose. Advertising Expense Costs related to advertising and promotion of services is charged to sales and marketing expense as incurred. The Company contracted for an advertising campaign on November 15, 1998 for a twelve-month period for a total amount of Pths 4,644. As of December 31, 1998 the balance of Pths 4,562 related to this contract is included as a prepayment and will be expensed as the services are rendered. Income Taxes The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes". SFAS No. 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases, and for operating loss and tax credit carryforwards. In estimating future tax consequences, SFAS No. 109 generally considers all expected future events other than the enactment of changes in tax laws or rates. Revenue Recognition Internet services are recognized as the services are provided. The Company records deferred revenue for amounts billed and collected in advance. Revenue from consulting services is recognized as the services are provided. Revenue from books sales is recognized upon shipment of the product. F-134 DISBUMAD, SL NOTES TO THE FINANCIAL STATEMENTS--(Continued) (Information for the six months ended June 30, 1999 and June 30, 1998 is unaudited) (All amounts expressed in thousands of pesetas-Pths except share amounts) Cost of Revenues Costs of access revenues consists of telecommunication expenses inherent in the network infrastructure. Cost of books sold are recorded at their carrying value. Sources of Suppliers The Company relies on local telephone companies and other companies to provide data communications. Although Management believes that alternative telecommunication facilities could be found in a timely manner, however any disruption of these services could have an adverse effect on operating results. Comprehensive Income The Company has adopted the accounting treatment prescribed by SFAS No. 130, Comprehensive Income. FAS No. 130 establishes standards for reporting and displaying comprehensive income and its components. The adoption of this statement has not impacted the Company's financial statements as a result of the Company not having any comprehensive income other than net loss during the periods presented. Segment Reporting The Company adopted SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, during 1998. SFAS No. 131 replaces the "industry segment" approach with the "management" approach. The management approach designates the internal organization that is used by management for allocating resources and assessing performance as the source of the Company's reportable segments. SFAS No. 131 also requires disclosures about products and services, geographic areas, and major customers. The adoption of SFAS No. 131 did not effect the Company's results of operations or financial position. The Company operates in two segments, bookshop and ISP. All operations are made within Spain. Recent Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes a new model for accounting for derivatives and hedging activities and supersedes and amends a number of existing standards. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999, but earlier application is permitted as of the beginning of any fiscal quarter subsequent to June 15, 1998. Upon initial application, all derivatives are required to be recognized in the statement of financial position as either assets or liabilities and measured at fair value. In addition, all hedging relationships must be reassessed and documented pursuant to the provisions of SFAS No. 133. Subsequent to the issuance of SFAS No. 133, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133" ("SFAS No. 137"), which defers the effective date of SFAS No. 133 to periods beginning after June 15, 2000. The Company has not committed or expects to commit to any derivative instrument transactions, and thus does not anticipate that this pronouncement will have a significant effect on its results. In 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, which is required to be adopted for fiscal years beginning after December 15, 1998. SOP 98-1 provides guidance on accounting for F-135 DISBUMAD, SL NOTES TO THE FINANCIAL STATEMENTS--(Continued) (Information for the six months ended June 30, 1999 and June 30, 1998 is unaudited) (All amounts expressed in thousands of pesetas-Pths except share amounts) the costs of computer software developed or obtained for internal use, determining whether computer software is for internal use, and when costs incurred for internal-use computer software are and are not capitalized. The adoption of SOP 98-1 is not expected to have a material effect on the Company's financial statements. 2. TANGIBLE FIXED ASSETS Fixed assets are comprised of the following:
December 31, 1998 ----------------- Buildings.................................................. Pths 83,441 Computers & equipment...................................... 30,971 Vehicles................................................... 128 Furniture & fixtures....................................... 9,085 ----------- Total Tangible Assets...................................... 123,625 Accumulated depreciation................................... (27,234) ----------- Pths 96,391 ===========
Depreciation expense for the year ended December 31, 1998 was Pths 9,255. The cost of fixed assets at December 31, 1998 and June 30, 1999 includes approximately Pths 6,418 in equipment under capital leases. Related depreciation during the year ended December 31, 1998 was Pths 1,605. The Companys building is mortgaged by a loan signed with La Caixa (see note 4). 3. OTHER CREDITORS Other creditors consist of the following:
December 31, 1998 ----------------- Bonuses to be paid......................................... Pths 3,387 Commissions................................................ 4,582 Others..................................................... 409 ---------- Total.................................................... Pths 8,378 ==========
4. CURRENT AND LONG-TERM DEBT Current and long-term debt consist of the following:
December 31,1998 ---------------- Loan payable to bank........................................ Pths 16,757 Mortgaged loan.............................................. 42,329 ----------- Total..................................................... 59,086 ----------- Less current portion........................................ (6,417) ----------- Long term debt.............................................. Pths 52,669 ===========
F-136 DISBUMAD, SL NOTES TO THE FINANCIAL STATEMENTS--(Continued) (Information for the six months ended June 30, 1999 and June 30, 1998 is unaudited) (All amounts expressed in thousands of pesetas--Pths except share amounts) The above obligations are payable as follows:
December 31, 1998 ----------------- 1999....................................................... Pths 6,417 2000....................................................... 7,788 2001....................................................... 7,975 2002....................................................... 8,173 2003....................................................... 4,382 Thereafter................................................. 24,351 ----------- Total debt............................................... Pths 59,086 ===========
The loan payable to BSCH bank totalling Pths 20,000 was formalised on January 30, 1998 with a maturity date of January 30, 2003. This loan bears interest at an annual rate of 5.85%. The mortgaged loan was formalised with La Caixa totalling Pths 49,030 on November 15, 1994 and has a maturity date of November 15, 2009. This loan bears interest rate of 5.75%. The building is mortgaged to guarantee the payment of said loan. Prior to the acquisition by VIA NET.WORKS, Inc. the mortgaged loan was transferred to its previous stockholders (see note 10). Leases The Company leases computers under capital leases which expire in 2002. The Company depreciates these assets over the life of the lease agreement or estimated life of the asset, which ever is shorter. Future minimum lease payments under capital leases for the next four years net of the interest component are as follows:
December 31, 1998 ----------------- 1999....................................................... Pths 1,527 2000....................................................... 1,572 2001....................................................... 1,572 2002....................................................... 700 ---------- Total lease debt......................................... Pths 5,371 ==========
5. CONTINGENCIES From time to time, the Company is subject to claims arising in the ordinary course of business. In the opinion of management, no such matter, individually or in the aggregate, exists which is expected to have a material effect on the results of operations or financial position of the Company. 6. STOCKHOLDERS' DEFICIT As of December 31, 1998, there were 4,849 ordinary common stock shares of 10,000 pesetas par value each, authorised, issued and outstanding. According to Spanish law, the Company is in situation of legal dissolution as it presents negative equity in the two periods disclosed (see note 10). F-137 DISBUMAD, SL NOTES TO THE FINANCIAL STATEMENTS--(Continued) (Information for the six months ended June 30, 1999 and June 30, 1998 is unaudited) (All amounts expressed in thousands of pesetas--Pths except share amounts) 7. INCOME TAXES The provision for income taxes is as follows:
December 31, 1998 ----------------- Income Tax benefit......................................... 13,701 Valuation allowance........................................ (13,701) ------- -- =======
The amounts of assets and liabilities for financial reporting purposes under US GAAP differ significantly from their respective tax bases, which are similar to the local statutory reporting basis. The most significant difference relates to deferred revenue. Deferred taxes are calculated at the statutory rate of 35%. Deferred tax assets consist of the following:
December 31, 1998 ----------------- Tax credit on statutory loss carryforward.................. 2,478 Temporary differences (statutory vs US GAAP)............... 51,608 ------- 54,086 Valuation allowance........................................ (54,086) ------- Net Deferred Tax Asset..................................... -- =======
The Company has established a valuation allowance for deferred tax assets of its operations since realization of these benefits cannot be reasonably assured. The related operating loss carryforwards expire at various future dates through 2008. While the need for the valuation allowance is subject to periodic review, if the allowance is reduced, the tax benefit of the carryforwards will be recorded in future operations as a reduction of the Company's income tax expense. No cash was paid for income taxes in the periods reported. The Company's net tax loss carry-forwards as of December 31, 1998 expire as follows:
Amount Expiration date ------ December 31, 2006..................................................... 1,469 December 31, 2007..................................................... 5,611 ----- 7,080 =====
An additional loss carry-forward of Pths 9,432 to expire in 2009 results from the estimated tax loss for the period ended June 30, 1999, which will be included in the annual income tax return for 1999. Temporary differences will be accounted for in local statutory accounting records at 1999 year-end, therefore generating additional tax loss carryforwards that will expire in year 2009. 8. RELATED PARTY TRANSACTIONS During 1995 and 1996, the Company borrowed Pths 12,754 and Pths 10,000 respectively from its stockholders. At December 31, 1998 and June 30, 1999, the aggregate outstanding principal balances were Pths 30,596 and Pths 30,596 respectively. The loans bear interest at 9.3% per annum and have no specified maturity dates. The Company repaid the loans in August 1999. F-138 DISBUMAD, SL NOTES TO THE FINANCIAL STATEMENTS (Information for the six months ended June 30, 1999 and June 30, 1998 is unaudited) (All amounts expressed in thousands of pesetas--Pths except share amounts) As of December 31, 1998 and June 30, 1999, there was accrued interest relating to these loans for Pths 10,184 and Pths 10,184, respectively. Disbumad, SL purchases books from its stockholders. The purchases in the year ended December 31, 1998 and in the six-month periods ended June 30, 1999 were Pths 15,529 and Pths 7,948. The outstanding amounts to be paid as of December 31, 1998 and June 30, 1999 were Pths 3,031 and Pths 3,837. The Company made payments of Pths 2,175 and Pths 6,080 to the members of the Board of Directors in the year ended December 31, 1998 and in the six-month period ended June 30, 1999, respectively. Prior to the acquisition by VIA NET.WORKS, Inc. the Company paid the outstanding balances owed to its stockholders. 9. SEGMENT INFORMATION
Year ended Six months ended Six months ended December 31, 1998 June 30, 1998 June 30, 1999 --------------------------- ---------------------------- ------------------------------ Bookshop Internet Total Bookshop Internet Total Bookshop Internet Total (Unaudited) (Unaudited) Revenues................ 41,687 140,953 182,640 22,793 60,471 83,264 17,127 104,374 121,501 Cost of revenue......... 29,180 49,515 78,695 11,900 29,939 41,839 11,012 75,417 86,429 Selling, general and administrative expenses............... 29,057 95,741 124,798 11,236 42,234 53,470 13,751 50,042 63,793 Depreciation and Amortization........... 2,748 7,248 9,996 1,334 3,098 4,432 1,374 4,578 5,952 ------- ------- ------- ------ ------- ------- ------ ------- ------- Loss from operations.... (19,298) (11,551) (30,849) (1,677) (14,800) (16,477) (9,010) (25,663) (34,673) Interest expenses....... 2,568 5,729 8,297 1,396 2,632 4,028 656 1,285 1,941 ------- ------- ------- ------ ------- ------- ------ ------- ------- Net Loss................ (21,866) (17,280) (39,146) (3,073) (17,432) (20,505) (9,666) (26,948) (36,614) ======= ======= ======= ====== ======= ======= ====== ======= ======= === Total Assets at period end.................... 68,286 68,913 137,199 63,056 56,501 119,557 64,851 63,225 128,076 ======= ======= ======= ====== ======= ======= ====== ======= =======
10. SUBSEQUENT EVENTS Audited VIA NET.WORKS, Inc. acquired 85.23% of Disbumad, SL common stock as of August 26, 1999. Subject to the purchase agreement, Disbumad, SL will increase its equity by Pths 303,000 in three tranches. The first increase has been completed in August, 1999 for Pths 101,000. This increase was formalized with a common stock increase of Pths 5,390 and a premium of Pths 95,610. The following increases are expected for the same amount in February, 2000 and August, 2000. Prior to the acquisition by VIA NET.WORKS, the Company sold the assets relating to the bookshop activity to its previous stockholders. The main assets sold were the office building, some equipment, furniture and inventory for a total amount of Pths 85,076. This operation had a positive impact of Pths 71 in the Profit and Loss account in August, 1999. Unaudited During November 1999, the Board of Directors will submit to the approval of the shareholders, the merger of Disbumad, SL with its Holding Company, Via Net Works Spain Holdings, SL. Management expects that this transaction will not have any impact in the activities of the Company. F-139 Independent Auditors' Report The Board of Directors and Stockholders Infoacces, S. A. de C. V. and Subsidiary: We have audited the consolidated balance sheets of Infoacces, S. A. de C. V. and Subsidiary as of December 31, 1997 and 1998, and the related consolidated statements of operations, changes in stockholders' equity and changes in financial position for each of the years in the two-year period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in Mexico which are substantially the same as those followed in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, and are prepared in accordance with generally accepted accounting principles. An audit consists of examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in note 1a., the consolidated financial statements have been restated in order to present all periods of the consolidated financial statements in constant pesos as of the most recent balance sheet date as required by Bulletin B-10 "Recognition of the Effects of Inflation on the Financial Information" issued by the Mexican Institute of Public Accountants. The above mentioned consolidated financial statements have been restated from amounts previously reported to reflect the purchasing power of the Mexican peso as of September 30, 1999. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Infoacces, S. A. de C. V. and Subsidiary at December 31, 1997 and 1998, and the results of their operations, the changes in their stockholders' equity and the changes in their financial position for each of the years in the two-year period ended December 31, 1998, in accordance with generally accepted accounting principles in Mexico. Generally accepted accounting principles in Mexico vary in certain significant respects from generally accepted accounting principles in the United States. Application of generally accepted accounting principles in the United States would have affected results of operations for each of the years in the two-year period ended December 31, 1998, and stockholders' equity as of December 31, 1997 and 1998 to the extent summarized in note 15 to the consolidated financial statements. KPMG CARDENAS DOSAL, S. C. Luis Gonzalo Garcia Delgado Mexico City, Mexico April 23, 1999, except as to note 15 and the restatement described in the third paragraph of this report which are as of October 10, 1999. F-140 INFOACCES, S.A. DE C.V. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Constant Mexican pesos as of September 30, 1999)
(Unaudited- note 1b.) September December 31, 30, ------------------------ ----------- 1997 1998 1999 Current assets: Cash and cash equivalents................ Mp$ 134,953 3,018,485 2,226,432 Accounts receivable, net (note 5)........ 7,724,699 6,975,163 10,226,736 Notes and accounts receivable from To2 Mexico, S.A. de C.V. (note 14).......... -- -- 14,224,099 Due from related parties (note 4)........ 445,920 -- 1,949,309 Inventory................................ 595,099 416,333 384,151 Prepaid expenses, advertising and other assets.................................. 593,102 2,434,877 3,687,723 ------------- ---------- ---------- Total current assets.................... 9,493,773 12,844,858 32,698,450 Furniture and equipment, net (note 6).... 17,704,384 24,850,755 26,365,983 Long-term receivable due from To2 Mexico, S. A. de C. V. (note 14)................ -- -- 20,378,000 Other assets (note 7).................... 3,842,247 7,566,123 2,351,646 ------------- ---------- ---------- Mp$31,040,404 45,261,736 81,794,079 ============= ========== ==========
(Unaudited- note 1b.) September December 31, 30, ------------------------- ----------- Liability and Stockholders' Equity 1997 1998 1999 Current liabilities: Current installments of long-term debt (note 9)............................. Mp$ 1,222,846 911,150 3,208,364 Current installments of obligations under capital leases (note 10)....... 320,842 931,261 825,002 Notes payable to To2 Mexico, S. A. de C. V. (note 14)...................... -- -- 4,158,032 Accounts payable...................... 10,493,705 16,988,346 16,567,620 Accrued expenses (note 8)............. 2,811,831 2,187,490 2,072,496 Due to related parties (note 4)....... 456,515 1,522,982 349,193 Income taxes payable.................. 690,462 235,752 4,156,640 Employees' statutory profit sharing... 583,767 531,000 1,246,158 Deferred revenue...................... 1,554,276 4,346,002 4,869,833 Deferred income taxes (note 12)....... -- 144,376 131,814 ------------- ---------- ----------- Total current liabilities............ 18,134,244 27,798,359 37,585,152 Long-term debt, excluding current installments (note 9)................ 524,642 1,703,888 3,081,472 Long- term obligations under capital leases, excluding current installments (note 10)............... 623,663 724,207 465,331 Deferred income taxes (note 12)....... -- 577,501 430,315 ------------- ---------- ----------- Total liabilities.................... 19,282,549 30,803,955 41,562,270 ------------- ---------- ----------- Stockholders' equity (note 11): Common stock.......................... 15,092,546 19,272,680 49,966,960 Additional paid-in capital............ 1,826,804 1,826,804 3,728,606 Accumulated deficit................... (5,213,298) (6,667,989) (13,463,757) ------------- ---------- ----------- Total majority stockholders' equity.. 11,706,052 14,431,495 40,231,809 Minority interest.................... 51,803 26,286 -- ------------- ---------- ----------- Total stockholders' equity........... 11,757,855 14,457,781 40,231,809 Contingent liabilities and commitments (note 13)............................. Subsequent events (note 14)............ ------------- ---------- ----------- Mp$31,040,404 45,261,736 81,794,079 ============= ========== ===========
See accompanying notes to the consolidated financial statements. F-141 INFOACCES, S.A. DE C.V. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (Constant Mexican pesos as of September 30, 1999)
(Unaudited--note 1b.) ---------------------- Nine-months ended Years ended December 31, September 30, ------------------------- ---------------------- 1997 1998 1998 1999 Service revenue............. Mp$65,249,803 88,243,150 66,633,990 78,734,741 Cost of service revenue..... 32,218,821 43,305,610 31,618,874 36,246,062 ------------- ---------- ---------- ---------- Gross profit.............. 33,030,982 44,937,540 35,015,116 42,488,679 ------------- ---------- ---------- ---------- Operating expenses: General and administrative............ 9,133,136 7,523,432 6,703,934 11,468,880 Selling and marketing...... 17,433,055 29,539,396 20,245,460 30,571,891 Depreciation and amortization.............. 5,028,220 6,305,386 3,465,506 6,137,213 ------------- ---------- ---------- ---------- Total operating expenses............... 31,594,411 43,368,214 30,414,900 48,177,984 ------------- ---------- ---------- ---------- Operating income (loss)... 1,436,571 1,569,326 4,600,216 (5,689,305) ------------- ---------- ---------- ---------- Comprehensive financing income (cost): Interest expense........... (556,322) (822,171) (413,153) (1,174,006) Interest gain.............. 205,445 25,132 19,651 320,889 Foreign exchange loss, net....................... (757,552) (690,859) (937,653) (1,197,218) Monetary gain (loss)....... 865,225 815,112 615,318 (502,373) ------------- ---------- ---------- ---------- Net comprehensive financing cost......... (243,204) (672,786) (715,837) (2,552,708) ------------- ---------- ---------- ---------- Other income (expenses): Other income (expenses), net....................... 729,273 466,446 167,517 341,456 Loss on acquisition of subsidiary company (note 2).................. (154,411) -- -- -- Gain on To2's project sale (note 14)................. -- -- -- 3,546,098 Gain on sale of fixed assets.................... -- -- -- 363,809 Gain on sale of subsidiary company (note 14)......... -- -- -- 1,025,790 ------------- ---------- ---------- ---------- Other income, net....... 574,862 466,446 167,517 5,277,153 Income (loss) before income taxes and employees' statutory profit sharing, and extraordinary item....... 1,768,229 1,362,986 4,051,896 (2,964,860) ------------- ---------- ---------- ---------- Income tax (note 12)....... 1,661,965 1,620,815 1,749,709 4,156,640 Benefit from excess in income tax provision...... -- -- -- (1,377,247) Employees' statutory profit sharing (note 12)......... 576,750 500,502 106,030 1,187,611 Deferred income taxes (note 12)....................... -- 721,877 -- (99,616) ------------- ---------- ---------- ---------- Total income tax and employees' statutory profit sharing......... 2,238,715 2,843,194 1,855,739 3,867,388 ------------- ---------- ---------- ---------- (Loss) income before extraordinary item........ (470,486) (1,480,208) 2,196,157 (6,832,248) Extraordinary item--tax benefit from tax loss carryforwards............. 396,109 -- -- -- ------------- ---------- ---------- ---------- Consolidated net (loss) income................. (74,377) (1,480,208) 2,196,157 (6,832,248) Minority interest net income................. 8,447 25,517 47,409 36,480 ------------- ---------- ---------- ---------- Majority interest net (loss) income.......... Mp$ (65,930) (1,454,691) 2,243,566 (6,795,768) ============= ========== ========== ==========
See accompanying notes to the consolidated financial statements. F-142 INFOACCES, S.A. DE C.V. AND SUBSIDIARY STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Constant Mexican pesos as of September 30, 1999)
Total Common stock majority ------------------------------------ Additional Accumulated stockholders' Minority Shares Subscribed Unpaid Net paid-in capital deficit equity interest ---------- ------------- ---------- ---------- --------------- ----------- ------------- -------- Balance at December 31, 1996........... 5,569,000 Mp$11,593,343 -- 11,593,343 1,212,608 (5,147,368) 7,658,583 -- Issuance of common stock (note 11)...... 2,431,000 3,499,203 -- 3,499,203 614,196 -- 4,113,399 60,250 Net loss........ -- -- -- -- -- (65,930) (65,930) (8,447) ---------- ------------- ---------- ---------- --------- ----------- ---------- ------- Balance at December 31, 1997........... 8,000,000 15,092,546 -- 15,092,546 1,826,804 (5,213,298) 11,706,052 51,803 Issuance of common stock (note 11)...... 800,000 8,849,371 (4,669,237) 4,180,134 -- -- 4,180,134 -- Net loss........ -- -- -- -- -- (1,454,691) (1,454,691) (25,517) ---------- ------------- ---------- ---------- --------- ----------- ---------- ------- Balances at December 31, 1998....... 8,800,000 23,941,917 (4,669,237) 19,272,680 1,826,804 (6,667,989) 14,431,495 26,286 Issuance of common stock (unaudited) (note 11)...... 1,560,000 29,555,043 1,139,237 30,694,280 1,901,802 -- 32,596,082 10,194 Net loss (unaudited).... -- -- -- -- -- (6,795,768) (6,795,768) (36,480) ---------- ------------- ---------- ---------- --------- ----------- ---------- ------- Balance at September 30, 1999 (Unaudited).... 10,360,000 Mp$53,496,960 (3,530,000) 49,966,960 3,728,606 (13,463,757) 40,231,809 -- ========== ============= ========== ========== ========= =========== ========== ======= Total stockholders' equity ------------- Balance at December 31, 1996........... 7,658,583 Issuance of common stock (note 11)...... 4,173,649 Net loss........ (74,377) ------------- Balance at December 31, 1997........... 11,757,855 Issuance of common stock (note 11)...... 4,180,134 Net loss........ (1,480,208) ------------- Balances at December 31, 1998....... 14,457,781 Issuance of common stock (unaudited) (note 11)...... 32,606,276 Net loss (unaudited).... (6,832,248) ------------- Balance at September 30, 1999 (Unaudited).... 40,231,809 =============
See accompanying notes to the consolidated financial statements. F-143 INFOACCES, S.A. DE C.V. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION (Constant Mexican pesos as of September 30, 1999)
(Unaudited--note 1b.) ----------------------- Nine-months ended Years ended December 31, September 30, ------------------------- ----------------------- 1997 1998 1998 1999 Operating activities: Majority interest net (loss) income............ Mp$ (65,930) (1,454,691) 2,243,566 (6,795,768) Add charges (deduct credits) not requiring (providing) funds: Minority interest net income.................. (8,447) (25,517) (47,266) (36,480) Net income sale of furniture and equipment............... (438,584) -- -- (517,213) Depreciation and amortization............ 5,028,220 6,305,386 3,465,506 6,137,213 Deferred income taxes.... -- 721,877 -- (159,748) ------------ ----------- ---------- ----------- Funds provided by operations............. 4,515,259 5,547,055 5,661,806 (1,371,996) Accounts receivable, net.. 717,604 749,536 (61,616) (3,943,180) Related parties, net...... 504,044 1,512,387 (10,595) (1,173,789) Deferred revenue.......... (250,763) 2,791,726 54,529 523,831 Accounts payable and accrued expenses......... (3,207,465) 5,817,533 4,926,572 231,712 Income taxes payable...... 690,462 (454,710) (690,462) 3,920,888 Prepaid expenses.......... 3,194,804 (1,841,775) (69,032) (1,687,877) Inventory................. 291,419 178,766 (991,336) 32,182 ------------ ----------- ---------- ----------- Funds provided by (used in) operating activities............. 6,455,364 14,300,518 8,819,866 (3,468,229) ------------ ----------- ---------- ----------- Financing activities: Proceeds from (repayment of) bank loans and capital leases, net...... (3,623,654) 1,578,513 1,672,116 3,494,861 Increases in capital stock.................... 4,063,399 4,180,134 -- 34,004,562 Increases in minority interest................. 51,803 -- -- 10,194 Due from related parties.. -- -- -- (1,949,309) Additional paid-in capital.................. -- -- -- -- ------------ ----------- ---------- ----------- Funds provided by financing activities... 491,548 5,758,647 1,672,116 35,560,308 ------------ ----------- ---------- ----------- Investing activities: Acquisition of furniture and equipment............ (8,629,225) (13,399,035) (5,275,038) (12,684,275) Income in sale of furniture and equipment.. 1,581,789 601,972 -- 7,189,297 Acquisition of CSI shares, net...................... (1,289,184) -- -- -- Disposition of (investment in) other assets......... 1,264,228 (4,378,570) (4,046,113) 3,574,227 Sale of To2 project....... -- -- -- (30,444,067) Sale of investment in CSI, S.A. de C.V. ............ -- -- -- (519,314) ------------ ----------- ---------- ----------- Funds used in investing activities............. (7,072,392) (17,175,633) (9,321,151) (32,884,132) ------------ ----------- ---------- ----------- (Decrease) increase in cash and cash equivalents............ (125,480) 2,883,532 1,170,831 (792,053) Cash and cash equivalents: At beginning of period.... 260,433 134,953 134,953 3,018,485 ------------ ----------- ---------- ----------- At end of period.......... Mp$ 134,953 3,018,485 1,305,784 2,226,432 ============ =========== ========== ===========
See accompanying notes to the consolidated financial statements. F-144 INFOACCES, S.A. DE C.V. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997 and 1998 (Constant Mexican pesos as of September 30, 1999) (1) Operations and summary of significant accounting policies: Infoacces, S. A. de C. V. (Infoaccess or "the Company") was organized in October 1993. The Company is an internet data communications carrier and provides a wireline internet connectivity and internet services through its network capability. The Company also provides internet connectivity in largest metropolitan areas in Mexico and renders professional, technical and designed web services and its derivatives. The Company's operations are subject to certain risks and uncertainties including those associated with: acquisition and utilization of bandwidth; dependence on key personnel; dependence on suppliers; possible year 2000 issues; regulatory issues; competition in the internet services industry; technology trends; economy changes and evolving industry standards; and, delivering reliable service. On November 30, 1996, Infoacces merged with Infoserv, S. A. de C. V. (affiliate), Alta Corporativo, S. A. de C. V. (affiliate) and Infoserve Information Services, S. A. de C. V. (holding company) becoming Infoacces the sucessor Company. Accounting policies and practices used by the Company, in the preparation of the accompanying consolidated financial statements are as follows: a. Financial statement presentation--The accompanying financial statements have been prepared in accordance with generally accepted accounting principles in Mexico, which include the recognition of the effects of inflation on the financial information, and are expressed in Mexican pesos of constant purchasing power as of the date of the most recent balance sheet presented. The inflation is computed based on the National Consumer Price Index (NCPI) provided by the Banco de Mexico (Central Bank). The related factors derived therefrom have been used to express the financial statements in constant Mexican pesos as of September 30, 1999. The corresponding notes have been revised from the notes originally prepared under Mexican GAAP in order to comply with the disclosure requirements of Accounting Principles Generally Accepted in the United States (U.S. GAAP) and with the regulations of the U.S. Securities and Exchange Commission (SEC).
December 31, ------------- 1997 1998 September 30, 1999 ------ ------ ------------------ Inflation restatement factor.............. 1.1572 1.1861 1.0953
b. Unaudited interim financial statements--In the opinion of the management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 1999 are not necessarily indicative of results that may be expected for the year ending December 31, 1999. c. Principles of consolidation--The consolidated financial statements include those of Infoacces and its subsidiary CSI, S. A. de C. V. (CSI) in which the Company holds a majority interest and has control. All significant intercompany balances and transactions have been eliminated in consolidation. d. Revenue recognition--Revenue and related direct costs from customer contracts are recognized ratably over the terms of the contract, which are generally three months to one year. Cash received in advance of revenues earned is recorded as deferred revenue. The Company also provides connectivity software products and design services. Revenue from the sale of software and services is recognized when software and designed web are delivered and accepted by the customer. F-145 INFOACCES, S.A. DE C.V. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Constant Mexican pesos as of September 30, 1999) e. Advertising expenses--The Company expenses all advertising costs in the period incurred. Advertising expense was Mp$3,796,309, Mp$5,972,671 and Mp$4,973,000 for the years ended December 31, 1997 and 1998, and for nine months ended September 30, 1999 (unaudited), respectively. f. Cash and cash equivalents--Cash and cash equivalents include all highly liquid investments purchased with original maturities of three months or less. Cash equivalents consist of approximately Mp$3,428 and Mp$5,203 at December 31, 1997 and 1998, respectively. Gains or losses resulting from changes in market value and the effects of inflation are included in the accompanying statements of operations as part of comprehensive financing income or costs. g. Inventories and cost of sales--Inventory consists primarily of wireless modems and accessories and is stated at the lower of cost or market. Cost is determined using identified cost. The inventory of the Company is subject to rapid technological changes which could have an adverse impact on its realization in future periods. h. Fair value of financial instruments--The carrying amounts of the Company's financial instruments, which include cash equivalents, accounts receivable, obligations under capital leases accounts payable and accrued expenses approximate their fair values. The carrying amounts of long term debt and obligations approximate fair value based upon the Company's borrowing activities and assessment of current prices offered for similar loans. i. Concentration of credit risk--Financial instruments that potentially subject the Company to a concentration of credit risk consist of accounts receivable. The Company extends credit to its customers on a unsecured basis in the normal course of business. As of December 31, 1998, the Company had concentration of trade receivable denominated in foreign currency from two customers of approximately Mp$2,380,000. The Company maintains reserves for potential credit losses. j. Furniture and equipment--Furniture and equipment are updated using factors derived from the NCPI. Depreciation is computed under the straight-line method, according to the estimated useful lives of the assets, at the annual rates mentioned in note 6. The costs of leasehold improvements are capitalized and amortized using the straight-line method over the lesser of the lease term or the estimated useful life of the asset. Leasehold improvements include costs associated with telecommunications equipment installation and building improvements. No interest was capitalized in 1997 and 1998. The Company finances part of its data communication equipment and other fixed assets under capital lease agreements. The assets and liabilities under capital leases are recorded at the lesser of the present value of aggregate future minimum lease payments, or the fair value of the assets under lease. Assets under these capital leases are depreciated over their estimated useful life three to ten years. The carrying value of property, plant and equipment is assessed annually and/or when factors indicating possible impairment are present. If an impairment is present, the assets are reported at the lower of carrying value or fair value. k. Other assets--Other assets principally comprise capitalized pre- operating expenses and capitalized costs of "Contenidos" project (virtual information newspaper developed and customized over the internet-web page) updated through NCPI factors. These assets are amortized at annual rates ratably over the estimated life of the project. At December 31, 1998 "Contenidos" project had not been amortized because it was in the development stage. The Company has estimated that this project will be launched during 1999. (See notes 7 and 14). l. Long-lived assets--The Company's policy is to review long lived assets for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. F-146 INFOACCES, S.A. DE C.V. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Constant Mexican pesos as of September 30, 1999) Impairment is measured by comparing the carrying value of the asset to the estimated undiscounted future cash flows expected to result from use of the assets and their eventual disposition. The measurement of the impairment loss to be recognized is based upon the difference between the fair value and the carrying amounts of the assets. The Company determined that as of December 31, 1997 and 1998, there had been no impairment in the carrying value of long-lived assets. m. Income tax (IT) and employees' statutory profit sharing (ESPS)--IT and ESPS expenses include the amounts payable and, in addition, recognize the effects on IT and ESPS of significant timing differences between taxable and book income, on which it may reasonably be estimated that over a defined period a tax benefit or liability will arise; other effects are recognized when realized. n. Seniority premiums and severance payments--Seniority premiums to which employees are entitled upon retirement after 15 years or more of service, in accordance with the Federal Labor Law, have not been recognized as cost of the years in which services are rendered, because the accrued liability, based on Company's estimates, is not material. Any other payments to which employees may be entitled in the event of dismissal, disability or death are charged to operations for the year in which paid. o. Foreign currency transactions and exchange differences--Foreign currency transactions are recorded at the rates of exchange prevailing on the date of execution or settlement. Foreign currency assets and liabilities are translated at the exchange rates in force at the balance sheet date. Exchange differences arising from assets or liabilities denominated in foreign currencies are charged to operations for the year, and included under comprehensive financing income or cost. p. Monetary gain (loss)--Determined by multiplying the difference between monetary assets and liabilities, at the beginning of each month, by inflation through year-end. The aggregate of these results represents the monetary gain or loss for the year, arising from inflation. q. Updating of common stock, additional paid-in capital and accumulated deficit--Determined by multiplying stockholders' contributions and accumulated deficit by factors derived from the NCPI, which measure accumulated inflation from the dates contributions were made and earnings (losses) arose through year-end. The resulting amounts represent the constant values of stockholders' equity. r. Use of estimates--The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (2) Acquisition and sale of CSI: On October 9, 1997, the Company acquired 95% interest of CSI, S. A. de C. V. (CSI). The acquisition was accounted using the purchase method of accounting and, accordingly, the net assets and results of operations of the acquired company has been included in the Company's consolidated financial statements since the acquisition date. The purchase price of the acquisition was allocated to assets acquired and liabilities assumed, based on their respective fair values at the acquisition date. CSI develops and designs web pages and other web applications. F-147 INFOACCES, S.A. DE C.V. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Constant Mexican pesos as of September 30, 1999) In connection with this acquisition, the Company paid approximately Mp$1,299,000. The amount paid exceeded its fair market value of the net assets of Mp$154,411, which were recorded in the statements of operations. In July 1, 1999, the Company sold its 95% interest of CSI, for approximately Mp$1,410,000 (unaudited). In connection with the transaction, the Company no longer consolidates the assets and liabilities of CSI. The net assets of CSI consolidated into the amounts of the Company was approximately Mp$674,000 as of June 30, 1999. As a result of this transaction, the Company recognized a gain of approximately Mp$1,026,000 (unaudited) in the nine months ended September 30, 1999 (see note 14). The following represents the results of operations of the Company for the years ended December 31, 1997 and 1998 as if the acquisition was consummated on January 1, 1997.
December 31, ------------------------- 1997 1998 -------------- ---------- Revenue........................................... Mp$ 67,459,542 88,243,150 Consolidated Net income (loss).................... 33,306 (1,480,208) ============== ==========
(3) Foreign currency exposure: Monetary assets and liabilities denominated in U.S. dollars are as follows:
Thousands of U.S. dollars December 31, -------------- 1997 1998 Nine months ended ------ ------ September 30, 1999 (Unaudited) ------------------ Assets: Current................................. -- 402 706 ------ ------ ---- Liabilities: Current................................. (644) (866) (960) Long-term............................... (50) -- -- ------ ------ ---- (694) (866) (960) ------ ------ ---- Net liabilities......................... (694) (464) (254) ====== ====== ====
The exchange rate of the Mexican peso to the U.S. dollar at December 31, 1997, 1998 and September 30, 1999 was Mp$8.06, Mp$9.94 and Mp$9.34, respectively. At April 23, 1999, the exchange rate was Mp$9.33. At December 31, 1998 and September 30, 1999, the Company had no foreign exchange risk hedge instruments. At December 31, 1997 and 1998 and September 30, 1999 (unaudited) the Company had foreign inventories amounting to U.S.$83,927, U.S.$24,053 and U.S.$41,575, respectively. Cost of services related to transactions carried out abroad during 1997, 1998 and September 30, 1999 (unaudited) amounted to U.S.$1,093,792, U.S.$1,316,065 and U.S.$706,272 dollars, respectively. Service revenue amounted to U.S.$1,576,457 and U.S.$1,238,696 dollars during 1998 and for the nine-month period ended September 30, 1999 (unaudited), respectively. F-148 INFOACCES, S.A. DE C.V. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Constant Mexican pesos as of September 30, 1999) (4) Transactions and balances with related parties: Transactions carried out with affiliated companies and other related parties, during the years ended December 31, 1998 and 1997, and for the nine months ended September 30, 1998 and 1999 (unaudited) were as follows:
December 31, September 30, ---------------------- 1999 1997 1998 (Unaudited) ------------ --------- ------------- Services rendered (1).................. Mp$1,418,946 -- -- Services received (2).................. 605,524 7,920,415 13,820,679 ============ ========= ==========
- --------------------- (1) The Company provided administrative services to CSI related party. (2) The Company was billed for management, consulting, payroll and administrative services by Carral Asociados, S. C. Non-interest bearing accounts receivable from and payable to related parties are as follows:
December 31, September 30, -------------------- 1999 1997 1998 (Unaudited) ---------- --------- ------------- Accounts receivable Holding Alta, S. A. de C. V. .............. Mp$426,430 -- -- Alta Integracion, S. A. de C. V. .......... 19,490 -- -- CSI, S. A. de C. V. (Promissory note--note 14)....................................... -- -- 1,949,309 ---------- --------- --------- Mp$445,920 -- 1,949,309 ========== ========= ========= Accounts payable Carral y Asociados, S. C. ................. Mp$456,515 1,522,982 349,193 ========== ========= =========
(5) Accounts receivable: Accounts receivable are analyzed as follows:
December 31, September 30, ---------------------- 1999 1997 1998 (Unaudited) ------------ --------- ------------- Trade..................................... Mp$7,820,151 6,808,773 11,847,685 Prepaid services.......................... -- 504,946 -- Prepaid taxes............................. 44,503 355,585 -- Officers and employees.................... 770,817 218,422 548,500 Shareholders'............................. 213,858 283,667 65,998 Telefonos de Mexico, S. A. de C. V........ -- -- 598,432 Others debtors............................ 153,578 223,480 393,948 ------------ --------- ---------- 9,002,907 8,394,873 13,454,563 Less allowance for doubtful accounts...... 1,278,208 1,419,710 3,227,827 ------------ --------- ---------- Mp$7,724,699 6,975,163 10,226,736 ============ ========= ==========
F-149 INFOACCES, S.A. DE C.V. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Constant Mexican pesos as of September 30, 1999) (6) Furniture and equipment: Furniture and equipment is analyzed as follows:
December 31, September 30, Annual ------------------------ 1999 depreciation 1997 1998 (Unaudited) rate ------------- ---------- ------------- ------------ Computer equipment...... Mp$ 6,508,620 11,596,594 10,527,647 25% and 30% Data communication equipment.............. 9,592,540 11,879,985 14,460,151 10% and 30% Furniture and equipment.............. 2,405,815 2,753,816 3,725,391 10% Transportation equipment.............. 80,710 312,829 146,897 25% Telecommunication bandwith and lines..... 6,044,268 7,488,785 11,346,509 (1) Leasehold improvements.. 1,227,012 2,960,084 2,949,791 (2) Less accumulated depreciation........... 8,817,487 14,085,263 18,322,491 ------------- ---------- ---------- 17,041,478 22,906,830 24,833,895 ------------- ---------- ---------- Data communication equipment under capital leases................. -- 1,059,636 -- 10% and 30% Furniture and equipment under capital leases... -- 457,236 481,790 10% Transportation equipment under capital leases... 662,906 662,902 1,423,270 25% ------------- ---------- ---------- 662,906 2,179,774 1,905,060 Less accumulated amortization........... -- 235,849 372,972 ------------- ---------- ---------- -- 1,943,925 1,532,088 ------------- ---------- ---------- Furniture and equipment, net.................... Mp$17,704,384 24,850,755 26,365,983 ============= ========== ==========
- --------------------- (1) Shorter of useful life or indefeasible right of use lease agreement, generally ten years, beginning when telecommunication bandwith and lines are available for use. (2) Shorter of lease or useful life, generally five years. F-150 INFOACCES, S.A. DE C.V. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Constant Mexican pesos as of September 30, 1999) (7) Other assets: Other assets are analyzed as follows:
December 31, September 30, ------------------------ 1999 1997 1998 (Unaudited) ------------- ---------- ------------- Preoperating expenses: Organization........................... Mp$ 2,203,267 2,203,267 748,410 Internet project....................... 3,179,482 3,179,482 3,167,745 Contenidos project costs (1)............. 409,502 4,707,197 -- Deposits................................. 162,354 443,229 1,212,784 ------------- ---------- --------- 5,954,605 10,533,175 5,128,939 Less accumulated amortization............ 2,112,358 2,967,052 2,777,293 ------------- ---------- --------- Other assets, net........................ Mp$ 3,842,247 7,566,123 2,351,646 ============= ========== =========
- --------------------- (1) On September 1, 1999, the Company sold Contenidos' Project to To2. (See note 14--unaudited). (8) Accrued expenses: Accrued expenses are analyzed as follows:
December 31, September 30, ----------------------- 1999 1997 1998 (Unaudited) ------------- --------- ------------- Value added tax payable.................. Mp$ 441,836 517,010 1,234,014 Accrued withholding taxes payable........ 2,165,566 1,095,656 546,248 Accrued payroll and related taxes........ 204,429 405,986 292,234 Other accrued expenses................... -- 168,838 -- ------------- --------- --------- Total.................................. Mp$ 2,811,831 2,187,490 2,072,496 ============= ========= =========
F-151 INFOACCES, S.A. DE C.V. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Constant Mexican pesos as of September 30, 1999) (9) Long-term debt: The long-term debt is comprised as follows:
December 31, ---------------------- September 30, 1997 1998 1999 ------------ --------- ------------- (Unaudited) Line of credit with the California Commerce Bank, amounting to 166,720 and 50,054 U.S. dollars, at December 31, 1997 and 1998, respectively, due in 35 consecutive monthly installments, beginning on August 5, 1996, with a final payment due on July 5, 1999, guaranteed by the stockholders, bearing interest at the rate of 11.82% (10.52% in 1997)...... Mp$1,747,488 544,922 -- Mp$1,890,000 and Mp$6,289,836 unsecured loans from Banca Quadrum, maturing on various dates up to December 15, 2001, bearing interest at the TIIE (28 day) rate, averaging 25.19% and 21.94% at December 31, 1998 and September 30, 1999, respectively (1)..................... -- 2,070,116 6,289,836 ------------ --------- --------- 1,747,488 2,615,038 6,289,836 Less current installments............. 1,222,846 911,150 3,208,364 ------------ --------- --------- Long-term debt, excluding current installments......................... Mp$ 524,642 1,703,888 3,081,472 ============ ========= =========
Long-term debt is payable as follows:
December 31, September 30, 1998 1999 ------------ ------------- (Unaudited) 2000.............................................. Mp$ 760,796 -- 2001.............................................. 943,092 3,081,472 ------------ --------- Mp$1,703,888 3,081,472 ============ =========
- --------------------- (1) In October 1999, the Company fully repaid Banca Quadrum's loans (unaudited). (10) Leases: The Company is obligated under various capital leases for equipment that expire in 2001. These leases are payable to Banca Quadrum, S. A. de C. V. in Mexican Pesos and Capital Corporation de Mexico, S. A. de C. V. in U.S. dollars in monthly installments through 2001, and bear interest at the TIIE (28 day) rate for pesos and 11.96% for dollars. TIIE rate averaged 24.77%, 25.19% and 21.94% in 1997, 1998 and the nine-month period ended September 30, 1999, respectively. The related balances are as follows:
December 31, -------------------- September 30, 1997 1998 1999 ---------- --------- ------------- (Unaudited) Principal payable....................... Mp$944,505 1,655,468 1,290,333 Less current installments............... 320,842 931,261 825,002 ---------- --------- --------- Obligations under capital leases, excluding current installments......... Mp$623,663 724,207 465,331 ========== ========= =========
F-152 INFOACCES, S.A. DE C.V. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Constant Mexican pesos as of September 30, 1999) Future minimum lease payments under capital leases are as follows:
December 31, ------------------ September 30, 1997 1998 1999 ---------- ------- ------------- (Unaudited) 1999........................................ Mp$320,881 -- -- 2000........................................ 302,782 724,207 -- 2001........................................ -- -- 465,331 ========== ======= =======
(11) Stockholders' equity: Following is a description of the main characteristics of the stockholders' equity accounts: a. Effects of inflation:
Capital Additional Accumulated stock paid-in capital deficit ------------- --------------- ----------- December 31, 1997 Historical pesos..................... Mp$ 8,000,000 (170,544) (2,566,054) Effects of inflation................. 7,092,546 1,997,348 (2,647,244) ------------- --------- ----------- Constant pesos..................... Mp$15,092,546 1,826,804 (5,213,298) ============= ========= =========== December 31, 1998 Historical pesos..................... Mp$11,737,025 (170,544) (3,780,890) Effects of inflation................. 7,535,655 1,997,348 (2,887,099) ------------- --------- ----------- Constant pesos..................... Mp$19,272,680 1,826,804 (6,667,989) ============= ========= =========== September 30, 1999 (unaudited) Historical pesos..................... Mp$41,174,000 1,646,989 (8,418,884) Effects of inflation................. 8,792,960 2,081,617 (5,044,873) ------------- --------- ----------- Constant pesos..................... Mp$49,966,960 3,728,606 (13,463,757) ============= ========= ===========
b. Changes in stockholders' equity: --At the Extraordinary Stockholders' Meeting held on January 28, 1997, it was agreed to increase the fixed portion of common stock, issuing 1,824,998 Series "A" shares, with a par value of one Mexican peso each, equivalent to Mp$2,674,809 (Mp$1,824,998 historical). These shares were paid through capitalization of contributions for future capital stock increases, previously paid in cash. It was also agreed to change the minimum fixed portion of common stock, so that it be represented by 5,750,000 Series "A" shares, not subject to withdrawal. --At the Extraordinary Stockholders' Meeting held on May 14, 1997, final approval was granted for the merger of Infoserv, S. A. de C. V., Alta Corporativo, S. A. de C. V. (affiliated companies) and Infoserve Information Services, S. A. de C. V. (parent company) into Infoacces, S. A. de C. V. and Subsidiary, effective November 30, 1996. Infoacces, S. A de C. V. was the successor company. F-153 INFOACCES, S.A. DE C.V. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Constant Mexican pesos as of September 30, 1999) As a result of the above, the variable portion of the capital stock was increased issuing 256,002 Series "B" shares, with a par value of one peso each, equivalent to Mp$358,216 ($256,002 historical), which had been previously recognized as additional paid-in capital. The new shares are represented by registered provisional certificates, to be delivered to the stockholders upon signature of the protocolization document of this Meeting's minutes. Such provisional certificates must be exchanged for final certificates within one year from the date of the meeting. --At the Stockholders' Meeting held on October 15, 1997, it was agreed to increase the variable portion of common stock, issuing of 350,000 Series "B" shares, with a par value of one peso each, equivalent to Mp$466,178 (Mp$350,000 historical); it was also agreed that these shares were paid with a premium of Mp$972,412 (Mp$730,000 historical), through capitalization of contributions for future capital stock increases, previously paid in cash. --At the Extraordinary Stockholders' Meeting held on August 11, 1998, it was agreed to transfer 2,250,000 shares of the variable portion to the fixed minimum common stock. After this change, the minimum fixed portion of common stock was represented by 8,000,000 common, registered Series "A" shares with a par value of one Mexican peso each. --At the Extraordinary Stockholders' Meeting held on November 26, 1998 it was agreed to increase the variable portion of common stock by Mp$8,849,371 (Mp$8,000,000 historical), issuing 800,000 Series "B" shares, with no par value. Mp$4,180,134 (Mp$3,737,025 historical) was paid in cash, while Mp$4,669,237 is still unpaid. It was also agreed to eliminate the par value of the shares. --At the Ordinary Stockholders' Meeting held on November 30, 1998, it was agreed to issue common stock aggregating Mp$657,180 (Mp$600,000 historical), represented by 600,000 limited vote, common, registered shares with no par value, identified as Series "V". The Board of Directors was granted the authority to sell these shares and/or to establish a trust for an employees' plan, which serves as an incentive to retain key personnel. To date, the trust has not been established. After the above agreements, the capital stock at December 31, 1998 is represented by 8,000,000 Series "A" shares, representing the fixed portion of the common stock, and 800,000 Series "B" shares, representing the variable portion, which is unlimited. The shares have no par value. Subsequent events (unaudited): --At the Extraordinary Stockholders' Meeting held on January 22, 1999, it was agreed to increase the variable portion of common stock by Mp$31,744,440, issuing 1,560,000 Series "A". The shares have no par value. --At the Extraordinary Stockholders' Meeting held on May 3, 1999, it was agreed to adopt the par value of the common stock of U.S.$2 dollars per share. The Stockholders' agreed to adopt retroactively the par value of the stock regarding the resolution made on January 22, 1999. As a result of this change, the increase of the variable portion of common stock was Mp$29,555,043 (Mp$28,704,000 historical). Therefore, the difference between the par value and the price paid at the subscription date of Mp$1,901,802 (Mp$1,817,533 historical) it was considered as an additional paid-in capital in the accompanying statement of changes in stockholders' equity. --During October 1999, the stockholders' subscribed all unpaid common stock. F-154 INFOACCES, S.A. DE C.V. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Constant Mexican pesos as of September 30, 1999) c. Retained earnings: Retained earnings are subject to the following restrictions: --5% of net income for the year should be appropriated to the legal reserve until it reaches one-fifth of the capital stock. At December 31, 1998, the legal reserve was zero. --Earnings of subsidiaries may not be distributed until received as dividends in the parent company. d. Restrictions to stockholders' equity: The amount updated on tax bases of stockholders' contributions and retained earnings, on which income tax has been paid, when applicable, may be reimbursed or distributed to the stockholders tax-free. Other refunds and distributions, in excess of these amounts, pursuant to the procedure set forth by the Law, are subject to income tax at the rate of 35%. Therefore, stockholders may only receive of 65% of such amounts. Beginning January 1, 1999, profits distributed to individuals or residents abroad are subject to an additional 5% income tax withholding. (12) Income tax (IT), tax on assets (TA), employees' statutory profit sharing (ESPS) and tax loss carryforwards: Under the current tax laws, companies must pay the greater of IT or TA. Both taxes recognize the effects of inflation, computed on a basis other than generally accepted accounting principles in Mexico. ESPS is computed practically on the same basis as IT, but without recognizing the effects of inflation. The TA Law establishes a 1.8% tax on assets updated for inflation, reduced by certain liabilities. TA payable in excess of IT for the year may be recovered in the ten succeeding years, updated for inflation, provided that IT exceeds TA in any such years. In 1998 and 1997 the Company was not subject to TA in accordance with the provisions of the Law. IT and ESPS expense are summarized as follows:
(Unaudited) December 31, September 30 ---------------------- ------------------- 1997 1998 1998 1999 ------------ --------- --------- --------- Current income tax................. Mp$1,661,965 1,620,815 1,749,709 4,156,640 Employees' profit sharing.......... 576,750 500,502 106,030 1,187,611 Utilization of tax loss carryforward...................... 396,109 -- -- -- ============ ========= ========= =========
The Company and its subsidiary file their income tax and tax on assets returns on an individual basis. Therefore, the amounts of these items included in the accompanying consolidated financial statements represents the sum of individual results of each company. For employees' statutory profit sharing purposes, the amount presented represents the sum of individual results of each company. In accordance with the Mexican IT Law, the net operating losses of a year, updated for inflation, may be carried forward to the taxable income of the ten succeeding years. Tax losses have no effect on ESPS. The remaining net operating losses sustained in prior years, amounting to Mp$1,165,026, were carried to the 1997 taxable income, resulting in a tax benefit of Mp$396,109, reported as an extraordinary item in the consolidated statement of operation of such year. F-155 INFOACCES, S.A. DE C.V. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Constant Mexican pesos as of September 30, 1999) At December 31, 1998 the Company has accumulated tax loss carryforwards as follows:
Year in which tax Amount of Year of loss ocurred carryforward expiration 1997................................................. Mp$ 300,541 2008 1998................................................. 149,923 2009 ===========
At December 31, 1997, 1998 and September 30, 1999, there are net timing differences on which no deferred IT and ESPS of Mp$199,798, Mp$1,025,314 and Mp$2,894,243 (unaudited), respectively have been recognized, since it is considered that they do not meet the requirements established by generally accepted accounting principles in Mexico. These differences may reduce the taxable income in future years, and include the following:
December 31, --------------------------------------------------- 1997 1998 September 30, 1999 --------------------------- ---------------------- ---------------------- IT ESPS IT ESPS IT ESPS --------------- ---------- ---------- ---------- ---------- ---------- (Unaudited) Allowance for doubtful accounts receivable.... Mp$ (1,278,208) (1,278,208) (1,419,710) (1,419,710) (3,227,827) (3,227,827) Inventories............. 595,099 595,099 416,333 416,333 384,151 348,151 Fixed assets and pre- operating expenses..... 558,332 5,948,190 2,039,767 6,882,472 845,617 5,577,498 Prepaid expenses........ -- -- 1,598,219 1,598,219 -- -- Deferred revenue........ (1,554,276) (1,554,276) (4,346,002) (4,346,002) (4,869,833) (4,869,833) Other reserves.......... -- -- (1,643,239) (1,643,239) (607,289) (607,289) --------------- ---------- ---------- ---------- ---------- ---------- Mp$ (1,679,053) 3,710,805 (3,354,632) 1,448,073 (7,475,181) 2,779,300 =============== ========== ========== ========== ========== ==========
At December 31, 1998, the Company considered tax deductible the aggregate expenses associated with leasehold improvements (note 8), resulting in a benefit of Mp$2,062,506. As a result, deferred taxes amounting to Mp$721,877 were charged to operations in 1998. (13) Contingent liabilities and commitments: a. There is a contingent liability arising from labor obligations referred to in note 1. b. Beginning January 1, 1997, pursuant to the amendments to the Income Tax Law, companies carrying out transactions with related parties, whether domestic or foreign, are subject to important tax limitations and obligations regarding the determination of transfer prices, since such prices should be similar to those that would be used in arm's-length transactions. In the event the tax authorities review the prices and reject the amounts determined, they could demand, in addition to the tax and corresponding additional charges (updating and surcharges), fines on the omitted taxes, which could be of up to 100% of the updated amounts of taxes. c. The Company has a plan (unaudited) to address the "Year 2000" issue. This plan addresses the impact of the Year 2000 problem in the computer systems that affect the Company's operations, its transactions with third parties and its financial information. Notwithstanding the steps being taken by the Company and due to the general uncertainty inherent in the Year 2000 problem, there may be F-156 INFOACCES, S.A. DE C.V. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Constant Mexican pesos as of September 30, 1999) internal undetected problems or consequences arising from transactions with third parties, which the Company is unable to determine or quantify at this time. Not sufficient elements were available to determine the costs incurred in connection with this plan for the year ended December 31, 1998 and the overall project cost. d. The Company is obligated under non cancelable operating leases, principally office space, in five different locations. Future minimum payments under these non-cancelable operating leases as of December 31, 1998 and September 30, 1999 are as follows:
December 31, September 30, 1998 1999 ------------ ------------- (Unaudited) Year ending December 31: 1999............................................ Mp$1,363,260 522,781 2000............................................ 1,024,672 1,453,224 2001............................................ 916,661 1,120,202 2002............................................ 758,412 872,045 2003 and there after............................ 309,760 473,039 ------------ --------- Mp$4,372,765 4,441,291 ============ =========
Rental expense for 1997, 1998 and nine months period ended September 30, 1999 (unaudited) amounted to Mp$951,210, Mp$1,440,114 and Mp$1,590,493, respectively. e. The Company's contracts with customers contain commitments, for remaining periods ranging from three months to one year, to provide internet and customer services. (14) Subsequent events (unaudited): Sale of CSI and To2 project: On July 1, 1999, the Company entered into a stock purchase agreement with the former shareholders' to sell its 95% interest in CSI, S. A. de C. V. (CSI) for approximately Mp$1,410,000. As a result of this transactions, the Company recognized a gain of approximately Mp$1,026,000 in the accompanying consolidated statement of operations for the period ended September 30, 1999. On September 1, 1999, the Company entered into a purchase agreement with To2 Mexico, S. A. de C. V. (To2) to sell the To2 project (developed web page) for approximately Mp$24,353,000 to former shareholders. To2 project consisted in the research, design and development of the web page (virtual newspaper developed under internet platform); the Company sold all related To2's project costs such as indirect and direct costs, capital expenditures and other fixed assets. Research and development expenses had been capitalized since the inception of the project which were included in other assets at December 31, 1997 and 1998. As a result of this transaction the Company recognized a gain of approximately Mp$3,546,000 in the accompanying consolidated statement of operations for the period ended September 30, 1999. During 1999, the Company sold part of its fixed assets to CSI, (subsidiary Company until July 1, 1999). As a result of this transaction, the Company recognized a loss of approximately Mp$20,000 in the accompanying consolidated statement of operations. Account receivable arising from this transaction was formalized with notes receivable of approximately Mp$958,000. In October 1999, CSI paid the amount related to fixed assets sale. F-157 INFOACCES, S.A. DE C.V. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Constant Mexican pesos as of September 30, 1999) In October 1999, To2 paid approximately Mp$12,183,000 (U.S.$1,287,000 dollars) via wire-transfer to Infoacces. Furthermore, on October 9, 1999, To2 formalized its outstanding debt with credit instrument of approximately Mp$20,378,000 (U.S.$2,154,000 dollars), plus interest thereon at an annual rate of 5%. Such instrument must be exchanged for common stock of To2 within two to four years according with the terms of the purchase agreement. The number of shares for which the instrument will be exchanged shall be determined based on the current per share price which may not be less than the price prevailing at the date of the last subscription made. Infoacces shall in no event assign the aforesaid instrument to a competitor of To2 or to any person with direct or indirect equity interest in a To2 competitor. In addition, on October 8, 1999, Infoacces entered into a non-compete agreement with To2 for two year period commencing on the execution date of the purchase agreement. As consideration for this agreement, Infoacces paid U.S.$1,150,000 dollars. The agreement shall be terminated: a) after the expiration of the two-year term; b) change in shareholder control of To2 board. After the above mentioned transactions, the unaudited notes and accounts receivable balance from To2 Mexico, S. A. de C. V. as of September 30, 1999, is comprised as follows: "Contenidos" (To2 project)..................................... Mp$28,006,455 CSI shares..................................................... 1,410,000 Fixed assets................................................... 2,679,044 Trade.......................................................... 1,478,062 Notes receivables.............................................. 1,028,538 ------------- 34,602,099 Less Current position -- Long term portion..................... 20,378,000 ------------- Mp$14,224,099 =============
Notes payable to To2 as of September 30, 1999 is comprised by three documents, bearing interest at annual rate of 15% and maturing on October 1999, and amounts to U.S.$444,790 dollars. During October 1999, the Company fully repaid the loans mentioned. (15) Reconciliation between Mexican (Mexican GAAP) and United States of America (U.S. GAAP) Generally Accepted Accounting Principles: The Company's consolidated financial statements are prepared in accordance with Mexican GAAP, which differ in certain significant respects from U.S. GAAP. The Mexican GAAP consolidated financial statements include the effects of inflation as provided for under Bulletin B-10, "Recognition of the Effects of Inflation on the Financial Information". The application of this statement represents a comprehensive measure of the effects of price level changes in the Mexican economy and is believed to result in a more meaningful presentation than historical cost-based financial reporting for both Mexican and U.S. accounting purposes. Therefore, the following reconciliation to U.S. GAAP does not include the reversal of such inflationary effects. The principal differences between Mexican GAAP and U.S. GAAP are summarized in the following pages with an explanation, where appropriate, of the effects on consolidated results of operations and stockholders' equity. F-158 INFOACCES, S.A. DE C.V. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Constant Mexican pesos as of September 30, 1999) Reconciliation of consolidated results of operations:
December 31, September 30, ------------------------- ----------------------- 1997 1998 1998 1999 ------------- ---------- ---------- ----------- (Unaudited) Net (loss) income of majority interest under Mexican GAAP.............. Mp$ (65,930) (1,454,691) 2,243,565 (6,795,768) Approximate U.S. GAAP adjustments: Pre-operating expenses and deferred costs (a).. 335,122 (1,552,885) (1,176,665) 1,265,267 Deferred income taxes and employees' statutory profit sharing (b)...... (1,409,043) 2,307,996 1,493,416 254,258 Unrealized gain on To2 Project and CSI Stock (j)........... -- -- -- (4,571,888) Imputed dividend on acquisition of subsidiary.............. 154,411 -- -- -- Monetary (loss) on previous years U.S. GAAP adjustments............. (545,004) (261,925) (181,062) (158,317) ------------- ---------- ---------- ----------- Approximate net loss of majority interest under U.S. GAAP, including the effects of inflation...... Mp$(1,530,444) (961,505) 2,379,254 (10,006,448) ============= ========== ========== =========== Basic and diluted loss per common share under U.S. GAAP...................... Mp$ (.2000) (.1182) (.2974) (.9943) ============= ========== ========== =========== Basic and diluted weighted average number of common shares outstanding........ 7,652,166 8,133,333 8,000,000 10,063,888 ============= ========== ========== ===========
Reconciliation of stockholders' equity:
Nine months ended December 31, September 30, ------------------------- ---------------------- 1997 1998 1998 1999 ------------- ---------- ---------- ---------- (Unaudited) Majority stockholders' equity balance under Mexican GAAP............... Mp$11,706,052 14,431,495 16,050,113 40,231,809 Pre-operating and deferred costs (a).................. (3,679,899) (5,232,784) (4,856,564) (3,967,517) Deferred income taxes and employees' profit sharing on current and previous years U.S. GAAP adjustments (b)........................ 2,624,829 4,932,825 4,118,245 5,187,083 Unrealized gain on To2 Project and CSI shares (j)........................ -- -- -- (4,571,888) Monetary loss on current and previous years U.S. GAAP adjustments................ (545,004) (806,929) (726,066) (965,246) ------------- ---------- ---------- ---------- Approximate majority stockholders' equity balance under U.S. GAAP.... Mp$10,105,978 13,324,607 14,585,728 35,914,241 ============= ========== ========== ==========
F-159 INFOACCES, S.A. DE C.V. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Constant Mexican pesos as of September 30, 1999) An analysis of the changes in majority stockholders' equity under U.S. GAAP is as follows:
Nine months ended December 31, September 30, ------------------------- ---------------------- 1997 1998 1998 1999 ------------- ---------- ---------- ----------- (Unaudited) Balance at beginning of period.................... Mp$ 7,677,434 10,105,978 10,105,978 13,324,607 Stock issuance............. 4,113,399 4,180,134 2,100,496 32,596,082 Imputed dividend on acquisition of subsidiary................ (154,411) -- -- -- Net loss under U.S. GAAP... (1,530,444) (961,505) 2,379,254 (10,006,448) ------------- ---------- ---------- ----------- Balance at end of period... MP$10,105,978 13,324,607 14,585,728 35,914,241 ============= ========== ========== ===========
a. Preoperating other assets and deferred costs Under Mexican GAAP, all preoperating costs incurred by the Company prior to commencement of operations are capitalized and amortized over their related useful lives. In addition, all direct and indirect costs related to the Contenidos Project are capitalized and amortized over the estimated life of the project. For U.S. GAAP purposes, the Company expenses all preoperating costs and project costs that are incurred in the preliminary project stage. Costs incurred during the application stage are capitalized and amortized over the estimated life of the project. At December 31, 1998, the Company had capitalized approximately Mp$1,890,000 for US GAAP purposes. The Company capitalized various costs under Mexican GAAP that may not qualified for U.S. GAAP. These costs were identified and expensed for U.S. GAAP purposes. b. Deferred income taxes and employees' statutory profit sharing Under Mexican GAAP deferred income taxes are recognized only for identifiable, non-recurring timing differences between taxable and book income. The benefit for utilizing tax loss carryforwards and assets tax credits is not recognized until realized, at which time it is presented as an extraordinary item. The Company follows Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes" for U.S. GAAP reconciliation purposes. This statement requires an asset and liability approach for financial accounting and reporting for income taxes under the following basic principles: (a) a current tax liability or asset is recognized for the estimated taxes payable or refundable on tax returns for the current year, (b) a deferred tax liability or asset is recognized for the estimated future tax effects attributable to temporary differences and tax loss and tax credit carryforwards, (c) the measurement of current and deferred tax liabilities and assets is based on provisions of the enacted tax law and the effects of future changes in tax laws or rates are not anticipated, (d) the measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized. Under this method, deferred taxes are recognized with respect to all temporary differences, and the benefit from utilizing tax loss carryforwards and asset tax credits is recognized in the year in which the loss or credits arise (subject to a valuation allowance with respect to any tax benefits not expected to be realized). The subsequent realization of this benefit does not affect income. Consequently, such realization does not give rise to extraordinary items from this for U.S. GAAP purposes. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. The temporary differences under SFAS No. 109 are determined based on the differences between the indexed tax basis amount of the asset or liability and the related amount reported in the financial statements. F-160 INFOACCES, S.A. DE C.V. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Constant Mexican pesos as of September 30, 1999) Deferred tax expense or benefit is calculated as the difference between (a) deferred tax assets and liabilities net of any valuation allowances reported at the end of the current year determined as indicated above and (b) deferred tax assets and liabilities net of any valuation allowances reported at the end of the prior year, remeasured to units of current general purchasing power at the end of the current period. Since employees' profit sharing is calculated based on taxable income after certain adjustments and is subject to future consequences of temporary differences in the same manner as income taxes, the deferred employee's statutory profit sharing, which is not recorded under Mexican GAAP, must be included in the reconciliation of Mexican to U.S. GAAP. The components of the income tax expense under U.S. GAAP are as follows:
Nine months ended December 31, September 30, ----------------------- --------------------- 1997 1998 1998 1999 ------------ ---------- ---------- --------- (Unaudited) Current......................... Mp$1,265,856 1,620,815 1,749,709 2,779,393 Deferred (benefit).............. 1,250,675 (1,268,009) (1,510,425) (299,388) ------------ ---------- ---------- --------- Net effect.................... Mp$2,516,531 352,806 239,284 2,480,005 ============ ========== ========== =========
Current and deferred employees' statutory profit sharing expense were reclassified in note 15n. to operating expenses in order to comply with U.S. GAAP presentation. F-161 INFOACCES, S.A. DE C.V. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Constant Mexican pesos as of September 30, 1999) The income tax and employees' statutory profit sharing effects of significant items comprising the Company's net deferred tax and liabilities and employees' statutory profit sharing under SFAS No. 109 are as follows:
December 31, Nine-months ended September 30, ------------------------------------------- ------------------------------------------ 1997 1998 1998 1999 ---------------------- ------------------- ------------------- --------------------- Profit Income Profit Income Profit Profit Income tax sharing tax sharing tax sharing Income tax sharing ------------ -------- --------- -------- --------- -------- ---------- --------- (Unaudited) Deferred income tax and employees' statutory profit sharing assets: Net operating loss carryforwards......... Mp$ 132,750 -- 194,128 -- 194,128 -- -- -- Fixed assets, preoperating expenses and other assets...... 1,245,537 -- 1,095,000 -- 2,237,038 -- 102,636 -- Deferred revenue....... 528,440 155,423 1,523,877 435,394 646,038 184,582 1,704,442 486,983 Unrealized gain on To2 project and CSI shares................ -- -- -- -- -- -- 2,500,291 714,369 Other reserves......... 401,366 118,049 1,170,508 334,430 850,997 243,142 1,342,289 383,512 ------------ -------- --------- -------- --------- -------- ---------- --------- Total deferred income tax and employees' profit sharing assets................ 2,308,093 273,472 3,983,513 769,824 3,928,201 427,724 5,649,658 1,584,864 Valuation allowance..... (132,750) -- (194,128) -- (194,128) -- (2,500,291) (714,369) ------------ -------- --------- -------- --------- -------- ---------- --------- Net deferred income tax and employees' statutory profit sharing assets........ 2,175,343 273,472 3,789,385 769,824 3,734,073 427,724 3,149,367 870,495 ------------ -------- --------- -------- --------- -------- ---------- --------- Deferred income tax and employees' statutory profit sharing liabilities: Fixed assets, preoperating expenses and other assets...... -- (172,652) -- (171,413) -- (274,943) -- (443,864) Prepaid expenses....... -- -- (559,377) (159,822) (268,972) (76,849) -- -- Other.................. (151,766) (44,572) (255,692) (73,055) (150,380) (42,966) (134,453) (38,415) ------------ -------- --------- -------- --------- -------- ---------- --------- Total deferred income tax and employees' statutory profit sharing liability..... (151,766) (217,224) (815,069) (404,290) (419,353) (394,758) (134,453) (482,279) ------------ -------- --------- -------- --------- -------- ---------- --------- Net deferred income tax and employees' statutory profit sharing asset U.S. GAAP.................. 2,023,577 56,248 2,974,316 365,534 3,314,720 32,966 3,014,914 388,216 Inflation effects....... 511,491 33,513 828,763 42,335 730,949 39,610 1,143,813 78,010 Deferred tax liability recorded under Mexican GAAP.................. -- -- 721,877 -- -- -- 562,129 -- ------------ -------- --------- -------- --------- -------- ---------- --------- U.S. GAAP adjustments to stockholders' equity................ Mp$2,535,068 89,761 4,524,956 407,869 4,045,669 72,576 4,720,857 466,226 ============ ======== ========= ======== ========= ======== ========== =========
F-162 INFOACCES, S.A. DE C.V. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Constant Mexican pesos as of September 30, 1999) In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. During 1997, 1998 and the nine-month period ended September 30, 1999, the valuation allowance for deferred income tax assets and statutory employees' profit sharing increased by Mp$136,655, Mp$68,170 and Mp$3,009,835 (unaudited), respectively. The increase to the allowance was the result of additional net operating loss carryforwards of its subsidiary and unrealized gain in To2 project and CSI shares as described in note 15j. The Company is not expecting to apply such net operating loss carryforwards against future taxable income as well as the uncertainty of the realization of the deferred tax assets derived from the sales of some assets. The amount of the deferred tax asset considered realizable could, however, be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. Effective December 31, 1998, the Company increased its income tax rate from 34% to 35% for temporary differences to give effect to the enactment of the new income tax law in Mexico. This resulted in a reduction in the deferred tax benefit of Mp$77,586 for U.S. GAAP purposes in 1998. c. Accrued vacation cost Under Mexican GAAP, vacation expense is recognized when taken rather than during the period in which it is earned by the employees. The Company's policy and practice is that any vacation not taken by employees prior to the end of the year is lost. The Company has, therefore, not recorded a liability for vacation pay as of December 31, 1997, 1998 and September 30, 1999. F-163 INFOACCES, S.A. DE C.V. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Constant Mexican pesos as of September 30, 1999) d. Accrued termination benefits Under Mexican GAAP, an accrual is not provided for estimable termination benefits, and they are recognized in the results of the Company when they are paid to terminated employees. In order to comply with U.S. GAAP, the Company estimated the benefits it would pay to terminated employees in the future as of December 31, 1997, 1998 and September 30, 1999. These amounts were not considered significant by the Company's management. e. Other employee benefits The Company has no postretirement health care insurance or other benefit plans; therefore. SFAS No. 106. "Employers' Accounting for Postretirement Benefits Other than Pensions" and SFAS No. 112, "Employers' Accounting for Postemployment Benefits" would have no effect on the Company's financial position. f. Minority interest Under Mexican GAAP, Bulletin B-8, minority interests in subsidiaries must be included as a component of stockholders' equity. Consequently, minority interest in the income of subsidiaries is not presented as an expense in the statement of operations. Under U.S. GAAP, minority interest in subsidiaries is classified as a separate component bin total liabilities & stockholders equity in the consolidated balance sheet and is excluded from stockholders' equity. g. Monetary gain/(loss) The U.S. GAAP financial information reflects the effects of inflation as this provides more meaningful information in inflationary economies. h. Extraordinary items Infoacces utilized tax loss carryforwards of Ps$1,165,026 (Mp$896,769 historically) for the year ended December 31, 1997. Under Mexican GAAP, the utilization of these items is presented as extraordinary items in the statement of operations. Under U.S. GAAP, the utilization of tax loss carryforwards and tax credits is included in the provision for income taxes. i. Segment information under U.S. GAAP The Company divides its operations principally into three different business units: internet services, network and web development. The Company makes resource allocation decisions on individual business unit level, and therefore, segment data has been presented for the Company's significant units. During 1997, the company had one business unit only, therefore no financial data is provided for such year. F-164 INFOACCES, S.A. DE C.V. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Constant Mexican pesos as of September 30, 1999) A summary of selected financial information under Mexican GAAP by business unit is presented as follow:
Internet services --------------------------------- December 31, 1998 September 30, 1999 ------------- ------------------ (unaudited) Revenue.................................... Mp$56,698,535 50,272,907 Operating (loss) income.................... 15,257,743 14,672,837 Network --------------------------------- December 31, 1998 September 30, 1999 ------------- ------------------ (unaudited) Revenue.................................... Mp$30,247,806 27,852,228 Operating (loss) income.................... (10,961,478) (17,036,986) Web development --------------------------------- December 31, 1998 September 30, 1999 ------------- ------------------ (unaudited) Revenue.................................... Mp$ 739,111 -- Operating (loss) income.................... (1,722,621) -- Others --------------------------------- December 31, 1998 September 30, 1999 ------------- ------------------ (unaudited) Revenue.................................... Mp$ 557,698 609,606 Operating (loss) income.................... (1,004,318) (3,325,156)
j. Sale of To2 project and CSI stock The gain obtained from the To2 project sale and CSI's shares of Mp$3,546,098 and Mp$1,025,790, respectively, recognized for Mexican GAAP purposes (note 14) is considered as an unrealized gain for U.S. GAAP purposes; These transactions are not considered to be the culmination of the earnings process, and the company's investment in the new entity will be reflected at the original recorded amount. k. Comprehensive income (loss) In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income". SFAS 130 establishes standards for reporting and display of comprehensive income and its components in a full set of financial statements. Comprehensive income (loss) is defined as the change in equity during the period from transactions and other events and circumstances from non-owner sources. Comprehensive income (loss) and net income (loss) is the same at December 31, 1997 and 1998. Adoption of this statement did not have an impact on the Company's financial condition or result of operations as it only relates to changes in, or additions to, the financial statements disclosures. l. Recent pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). The statement provides guidance for accounting for all F-165 INFOACCES, S.A. DE C.V. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Constant Mexican pesos as of September 30, 1999) derivative and hedging activities. All derivative instruments are to be recognized as assets or liabilities in the balance sheet and measured at fair value. In accounting for a fair value hedge, the derivative hedging instrument will be measured at fair value with the market to fair value being recorded in earnings. SFAS No. 133 is effective for fiscal quarters or fiscal years beginning after June 15, 2000. The Company is not expected to have a significant impact from the adoption of this standards. In March 1998, the AICPA Accounting for Standards Executive Committee (AcSEC) issued Statements for Position 98-1 "Accounting for the Cost of Computer Software Developed of obtained for internal Use" (SOP 98-1), which provides guidance on accounting for the costs of computer software developed or obtained for internal use. SOP 98-1 requires that certain costs related to the development or purchase of internal-use software be capitalized and amortized over the estimated useful life of the software and that costs related to the preliminary project stage and post-implementation operations stage (as defined in SOP 98-1), in an internal-use computer software development project be expensed as incurred. SOP 98-1 is not expected to have a significant impact on the Company's financial position, results of operations or cash flows. In April 1998, the AcSEC issued Statement of Position 98-5 "Reporting on the Costs of Start-Up Activities" (SOP 98-5), which requires that costs incurred during start-up activities, including organization costs, be expensed as incurred. SOP 98-5 is effective for financial statements for fiscal years beginning after December 15, 1998. Under U.S. GAAP, the Company expenses costs of start-up activities as incurred and, consequently, the Company believes that the adoption of this SOP will not have a material impact on its results of operations, financial position or cash flows. The Mexican Institute of Public Accountants issued Bulletin D-4 "Accounting for Deferred Income Taxes, Tax on Assets and Employees' Statutory Profit Sharing," which provides guidance an accounting for deferred employees' statutory profit sharing and income taxes. This statement requires an asset and liability approach for financial accounting and reporting for deferred income taxes and statement of operations approach for deferred employees' statutory profit sharing. This bulletin is similar as SFAS No. 109 for U.S. GAAP, as described in note 15b. "D-4" is effective for fiscal years beginning after December 31, 1999, although early application is encouraged. m. Cash flow information The following table summarizes the cash flow items as required under SFAS 95 provided by (used in) operating, investing and financing activities for the years ended December 31, 1997 and 1998, and for the nine months ended September 30, 1998 and 1999, giving effect to the U.S. GAAP adjustments, excluding the effects of inflation required by Bulletin B-10. The following information is presented on a historical peso basis and it is not presented in constant purchasing power.
Nine months ended December 31, September 30, -------------------------- ----------------------- 1997 1998 1998 1999 ------------- ----------- ---------- ----------- (Unaudited) Net cash provided (used in) by operating activities.............. Mp$ 4,851,866 9,399,960 6,356,620 (7,205,936) Net cash used in investing activities.... (5,106,820) (10,817,457) (7,246,427) (30,800,757) Net cash provided by financing activities.... Mp$ 185,592 4,069,470 1,913,353 37,477,273
F-166 INFOACCES, S.A. DE C.V. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Constant Mexican pesos as of September 30, 1999) Supplemental disclosure of cash flow information:
December 31, September 30, --------------------- ------------------- 1997 1998 1998 1999 ----------- --------- --------- --------- (Unaudited) Cash paid during the year for: Interest................ Mp$ 239,754 557,604 298,086 888,548 =========== ========= ========= ========= Income taxes............ Mp$ 974,386 2,318,404 1,511,212 495,025 =========== ========= ========= ========= Capital lease obligations incurred... Mp$ 510,281 1,384,892 1,384,892 1,136,629 =========== ========= ========= =========
Supplemental disclosure of noncash investing activities: In 1997, the Company acquired a 95% interest in CSI, S. A. de C. V. (CSI). In connection with this acquisition, the Company capitalized notes receivable from CSI of approximately Mp$1,000,000 in exchange for CSI stock. The acquisition has been accounted for using the purchase method of accounting (see note 2). n. Condensed balance sheets and statements of operations The following condensed balance sheets and statements of operations reflect the effects of the principal differences between Mexican GAAP and U.S. GAAP:
December 31, ------------------------- 1997 1998 September 30, 999 -------------- ---------- ----------------- (Unaudited) Balance sheets Current assets.................... Mp$ 10,500,673 15,260,848 36,442,532 Furniture and equipment, net...... 17,704,384 24,850,755 26,365,983 Deferred taxes.................... 1,072,885 923,585 -- Long-term notes receivable from To2 Mexico, S. A. de C. V. -- -- 13,234,311 Other assets...................... 162,388 2,397,783 1,212,784 -------------- ---------- ---------- Total assets.................... Mp$29,440,330 43,432,971 77,255,610 ============== ========== ========== Short-term debt................... 1,543,688 1,842,411 4,033,366 Notes payable to To2.............. -- -- 4,158,032 Accounts payable and accrued liabilities...................... 13,889,303 19,706,836 19,886,274 Deferred revenue.................. 1,554,276 4,346,002 4,869,833 Income taxes...................... 690,462 235,752 4,156,640 Other current liabilities......... 456,515 1,522,982 349,193 -------------- ---------- ---------- Total current liabilities....... 18,134,244 27,653,983 37,453,338 Deferred taxes.................... -- -- 341,228 Long-term debt.................... 1,148,305 2,428,095 3,546,803 -------------- ---------- ---------- Total liabilities............... 19,282,549 30,082,078 41,341,369 -------------- ---------- ---------- Minority interest................. 51,803 26,286 -- Stockholders' equity.............. 10,105,978 13,324,607 35,914,241 -------------- ---------- ---------- 10,157,781 13,350,893 35,914,241 -------------- ---------- ---------- Total liabilities and stockholders' equity........... Mp$ 29,440,330 43,432,971 77,255,610 ============== ========== ==========
F-167 INFOACCES, S.A. DE C.V. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Constant Mexican pesos as of September 30, 1999)
Nine months ended December 31, September 30, ------------------------- ----------------------- 1997 1998 1998 1999 ------------- ---------- ---------- ----------- (Unaudited) Revenue................... Mp$65,249,803 88,243,150 66,633,990 78,734,741 Cost of revenue........... 32,218,821 43,305,610 31,618,874 36,246,062 ------------- ---------- ---------- ----------- Gross profit.............. 33,030,982 44,937,540 35,015,116 42,488,679 Operating expenses........ 31,994,405 45,063,632 31,714,605 48,045,842 ------------- ---------- ---------- ----------- Operating income (loss)... Mp$ 1,036,577 (126,092) 3,300,511 (5,557,163) Comprehensive financing cost: Interest expense, net... Mp$ (350,877) (797,039) (393,502) (853,117) Foreign exchange loss, net.................... (757,552) (690,859) (937,653) (1,197,218) Monetary gain (loss).... 320,198 553,189 434,232 (660,690) ------------- ---------- ---------- ----------- Net comprehensive financing cost........... (788,231) (934,709) (896,923) (2,711,025) ------------- ---------- ---------- ----------- Other income.............. 729,294 426,585 167,541 705,265 ------------- ---------- ---------- ----------- Income (loss) before taxes and minority interest.... 977,640 (634,216) 2,571,129 (7,562,923) Income tax expense........ (2,516,531) (352,806) (239,284) (2,480,005) ------------- ---------- ---------- ----------- (Loss) income before minority interest........ (1,538,891) (987,022) 2,331,845 (10,042,928) Minority interest......... 8,447 25,517 47,409 36,480 ------------- ---------- ---------- ----------- Net (loss) income and comprehensive income (loss)................... Mp$(1,530,444) (961,505) 2,379,254 (10,006,448) ============= ========== ========== ===========
F-168 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- , 2000 [LOGO] Shares of Common Stock ---------------- PROSPECTUS ---------------- Donaldson, Lufkin & Jenrette Morgan Stanley Dean Witter ------------------------------------------ Salomon Smith Barney DLJdirect Inc. - -------------------------------------------------------------------------------- We have not authorized any dealer, salesperson or other person to give you written information other than this prospectus or to make representations as to matters not stated in the prospectus. You must not rely on unauthorized information. This prospectus is not an offer to sell these securities or our solicitation of your offer to buy the securities in any jurisdiction where that would not be permitted. Neither the delivery of this prospectus nor any sales made hereunder after the date of this prospectus should create an implication that the information contained in this prospectus or the affairs of VIA have not changed since the date of this prospectus. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Until , 2000 (25 days after the date of this prospectus), all dealers that effect transactions in these securities may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter in this offering and when selling previously unsold allotments or subscriptions. - -------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +We will amend and complete the information in this prospectus. Although we + +are permitted by U.S. federal securities laws to offer these securities using + +this prospectus, we may not sell them or accept your offer to buy them until + +the registration statement filed with the SEC relating to these securities + +has been declared effective. This prospectus is not an offer to sell these + +securities or our solicitation of your offer to buy these securities in any + +jurisdiction where that would not be permitted or legal. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ [Alternate Page] SUBJECT TO COMPLETION - NOVEMBER 24, 1999 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Prospectus , 2000 [INSERT LOGO] Shares of Common Stock - -------------------------------------------------------------------------------- VIA: The Offering: . We are a leading . We are offering international shares of our provider of common stock. This Internet access prospectus relates and services to an offering of focusing on small shares outside and mid-sized the United States businesses and Canada. In located in Europe addition, we are and Latin offering America. shares in the United States and . VIA NET.WORKS, Canada. Inc. 12100 Sunset Hills Road, Suite . The U.S. 110 Reston, VA underwriters have 20190 (703) 464- an option to 0300 purchase an additional Proposed Symbol & shares from us to Market: cover over- allotments. .VNWI/Nasdaq National Market . This is our initial public offering and we anticipate that the initial public offering price will be between $ and $ per share. . We intend to use the net proceeds of this offering for general corporate purposes, including funding our operations, capital expenditures, network expansion, working capital and acquisitions of Internet services providers in our target markets. . Closing: , 2000
-------------------------------------------------- Per Share Total -------------------------------------------------- Public offering price: $ $ Underwriting fees: $ $ Proceeds to VIA NET.WORKS, Inc.: $ $ --------------------------------------------------
This investment involves risks. See "Risk Factors" beginning on Page 6. - -------------------------------------------------------------------------------- Neither the SEC nor any state securities commission has determined whether this prospectus is truthful or complete, nor have they made, nor will they make, any determination as to whether anyone should buy these securities. Any representation to the contrary is a criminal offense. - -------------------------------------------------------------------------------- Donaldson, Lufkin & Jenrette International Morgan Stanley International ------------ Cazenove & Co. MeesPierson N.V. Salomon Smith Barney International [Alternate Page] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- , 2000 [LOGO] Shares of Common Stock ---------------- PROSPECTUS ---------------- Donaldson, Lufkin & Jenrette International Morgan Stanley International ------------------ Cazenove & Co. MeesPierson N.V. Salomon Smith Barney International - -------------------------------------------------------------------------------- We have not authorized any dealer, salesperson or other person to give you written information other than this prospectus or to make representations as to matters not stated in the prospectus. You must not rely on unauthorized information. This prospectus is not an offer to sell these securities or our solicitation of your offer to buy the securities in any jurisdiction where that would not be permitted. Neither the delivery of this prospectus nor any sales made hereunder after the date of this prospectus should create an implication that the information contained in this prospectus or the affairs of VIA have not changed since the date of this prospectus. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Until , 2000 (25 days after the date of this prospectus), all dealers that effect transactions in these securities may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter in this offering and when selling previously unsold allotments or subscriptions. - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution. The following table shows the various fees and expenses, other than the underwriting discounts and commissions, payable by the Registrant in connection with the sale of the common stock being registered under this registration statement. All amounts shown are estimates except for the Securities and Exchange Commission registration fee, the NASD filing fee and the Nasdaq National Market listing fee. Registration fee................................................. $55,600 NASD filing fee.................................................. 20,500 Nasdaq National Market listing fee............................... 95,000 Printing and engraving expenses.................................. * Legal fees and expenses.......................................... * Accounting fees and expenses..................................... * Blue Sky fees and expenses (including legal fees)................ * Transfer agent and registrar fees and expenses................... * Miscellaneous.................................................... * ------- Total........................................................ $ * =======
VIA will bear all expenses shown above. - --------------------- * To be filed by amendment. Item 14. Indemnification of Directors and Officers. Upon completion of this offering, the Certificate of Incorporation and Bylaws of the Registrant will provide for the indemnification of the Registrant's directors and officers to the fullest extent authorized by, and subject to the conditions set forth in the Delaware General Corporation Law (the "DGCL"), except that the Registrant will indemnify a director or officer in connection with a proceeding (or part thereof) initiated by the person only if the proceeding (or part thereof) was authorized by the Registrant's Board of Directors. The indemnification provided under the Certificate of Incorporation and Bylaws includes the right to be paid by the Registrant the expenses (including attorneys' fees) in advance of any proceeding for which indemnification may be had in advance of its final disposition, provided that the payment of those expenses (including attorneys' fees) incurred by a director or officer in advance of the final disposition of a proceeding may be made only upon delivery to the Registrant of an undertaking by or on behalf of the director or officer to repay all amounts so paid in advance if it is ultimately determined that the director or officer is not entitled to be indemnified. As permitted by the DGCL, the Registrant's Certificate of Incorporation will provide that directors of the Registrant shall not be liable to the Registrant or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, relating to unlawful payment of dividends or unlawful stock purchase or redemption or (iv) for any transaction from which the director derived an improper personal benefit. As a result of this provision, the Registrant and its stockholders may be unable to obtain monetary damages from a director for breach of his or her duty of care. Under the Bylaws, the Registrant will have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Registrant, or is or was serving at the request of the Registrant as a director, officer, employee, partner (limited or general) or agent of another corporation or of a partnership, joint venture, limited liability company, trust or other enterprise, against any liability asserted against the person or incurred by the person in that capacity, or arising out of the person's status, and related II-1 expenses, whether or not the Registrant would have the power to indemnify the person against liability under the provisions of the DGCL. The Registrant has purchased director and officer liability insurance on behalf of its directors and officers. The Underwriting Agreement provides that the underwriters are obligated, under specified circumstances, to indemnify directors, officers and controlling persons of VIA against specified liabilities, including liabilities under the Securities Act of 1933, as amended. Reference is made to the form of Underwriting Agreement to be filed as Exhibit 1.1 hereto. Item 15. Recent Sales of Unregistered Securities. Since its formation in June 1997, VIA has sold and issued the following unregistered securities: (a) In August 1997, VIA sold 100 shares of common stock to one accredited investor for an aggregate purchase price of $50, and sold 900,000 shares of Series A Preferred Stock ("Series A Preferred") for an aggregate purchase price of $900,000 to seven accredited investors. (b) In September 1997, VIA sold 60,000 shares of common stock to one executive of VIA for an aggregate purchase price of $30,000. (c) In October 1997, VIA sold 125,000 shares of Series A Preferred for an aggregate purchase price of $125,000 to two accredited investors. (d) In January 1998, VIA sold 22,942 shares of common stock to one executive of VIA for an aggregate purchase price of $11,471. (e) In February 1998, VIA sold 30,000 shares of common stock to two executives of VIA for an aggregate purchase price of $15,000. (f) In April 1998, VIA sold 150,000 shares of common stock to one executive of VIA for an aggregate purchase price of $150,000, and sold 463,657 shares of Series A Preferred for an aggregate purchase price of $463,657 to nine accredited investors. (g) Effective April 1998, VIA granted a warrant to purchase 100,000 shares of common stock to Steven C. Halstedt for an aggregate purchase price of $240,000 as compensation for services rendered by Mr. Halstedt to VIA. (h) In May 1998, VIA sold 17,195,335 shares of Series B Preferred Stock ("Series B Preferred") for an aggregate purchase price of $51,586,005 to 23 accredited investors. (i) In June 1998, VIA sold 10,000 shares of common stock to one executive of VIA for an aggregate purchase price of $10,000 in reliance on Rule 701 under the Securities Act. (j) In January 1999, VIA sold 272,284 shares of common stock to nine executives and employees of VIA for an aggregate purchase price of $653,482 in reliance on Section 4(2) of the Securities Act and Rule 701 under the Securities Act. (k) In April 1999, VIA sold 21,309,658 shares of Series C Preferred Stock ("Series C Preferred") for an aggregate purchase price of $127,857,948 to 30 accredited investors. (l) In July 1999, VIA sold 394,124 shares of common stock to the stockholders of one of VIA's operating companies in connection with the operating subsidiary's acquisition by VIA. These shares were valued at approximately $3,152,992 and were issued in consideration for stock of the operating subsidiary. This sale was made in reliance on Regulation S under the Securities Act. In addition, VIA sold 127,874 shares of common II-2 stock to 12 executives, employees and consultants of VIA for an aggregate purchase price of $511,496 in reliance on Regulation S and Rule 701 under the Securities Act and Section 4(2) of the Securities Act. (m) In August 1999, VIA sold 317,421 shares of common stock to the stockholders of one of VIA's operating companies in connection with the operating subsidiary's acquisition by VIA. These shares were valued at approximately $2,539,368 and were issued in consideration for stock of the operating subsidiary. This sale was made in reliance on Regulation S under the Securities Act. Further, VIA sold 150,000 shares of common stock to the stockholders of one of VIA's operating companies in connection with the acquisition by VIA of the remaining shares in the operating subsidiary. These shares were valued at approximately $1,237,500 and were issued in consideration for stock of the operating subsidiary. This sale was made in reliance on Regulation S under the Securities Act. In addition, VIA sold 50,000 to a director for an aggregate purchase price of $200,000 in reliance on Section 4(2) of the Securities Act. (n) In September 1999, VIA sold 332,926 shares of common stock to pay off the outstanding notes held by the stockholders of one of VIA's operating companies in connection with the operating subsidiary's acquisition by VIA. These shares were valued at approximately $2,746,640 and were issued in reliance on Regulation S under the Securities Act. In addition, VIA sold 40,000 shares of common stock to an employee for an aggregate purchase price of $160,000 in reliance on Section 4(2) of the Securities Act. Except where otherwise indicated, the sales and issuances of securities in the transactions described above were exempt from registration under the Securities Act by virtue of Section 4(2) of the Securities Act. Appropriate legends are affixed to the stock certificates issued in the aforementioned transactions. Similar legends were imposed in connection with any subsequent sales of any such securities. All recipients received adequate information about VIA or had access, through employment or other relationships, to such information. Item 16. Exhibits and Financial Statement Schedules. (a) Exhibits:
Exhibit Number Description -------------- ----------- 1.1* Form of Underwriting Agreement 3.1* Form of Amended and Restated Certificate of Incorporation of VIA NET.WORKS, Inc. 3.2* Form of Amended and Restated Bylaws of VIA NET.WORKS, Inc. 4.1* Specimen certificate representing the Common Stock 5.1* Opinion of Hogan & Hartson L.L.P. with respect to legality of the common stock. 10.1* 1998 Stock Option and Restricted Stock Plan, as amended 10.2* Form of 1998 Stock Option and Restricted Stock Plan Incentive Stock Option Agreement for employee 10.3 Key Employee Equity Plan, as amended 10.4* 401(k) Plan
II-3
Exhibit Number Description -------------- ----------- 10.5# Indefeasible Right of Use Agreement in Inland Capacity (United Kingdom), dated as of June 21, 1999, by and between GT U.K. Ltd. and VIA NET.WORKS Europe Holding B.V. 10.6# Indefeasible Right of Use Agreement in Inland Capacity (United States), dated as of June 21, 1999, by and between GT Landing Corp. and VIA NET.WORKS Europe Holding B.V. 10.7# Capacity Purchase Agreement, dated as of June 21, 1999, by and between Atlantic Crossing Ltd. and VIA NET.WORKS Europe Holding B.V. 10.8# Customer Agreement for an IRU Capacity, dated as of July 21, 1999, by and between iaxis Limited and VIA NET.WORKS Europe Holding B.V. 10.9# Software License and Support Agreement by and between Portal Software, Inc. and VIA Net Works UK Limited, dated as of October 29, 1999 10.10 Distribution and Revenue Sharing Agreement, dated as of June 30, 1999, by and between Trellix Corporation and VIA NET.WORKS, Inc. 10.11 Amended and Restated Stockholders Agreement by and among VIA NET.WORKS, Inc. and the additional parties named therein, dated as of April 20, 1999 10.12* Registration Rights Agreement by and among VIA NET.WORKS, Inc. and the stockholders named therein 10.13 Transit Service Agreement, dated as of August 1, 1999, between Verio Inc. and VIA NET.WORKS, Inc. 21.1 List of subsidiaries 23.1 Consent of Pricewaterhousecoopers LLP (VIA NET.WORKS, Inc.) 23.2 Consent of Price Waterhouse & Co. (VIA Net Works Argentina, S.A.) 23.3 Consent of PricewaterhouseCoopers Auditores Independentes (Dialdata S.A. Internet Systems) 23.4 Consent of PricewaterhouseCoopers (Netlink Internet Services, Limited) 23.5 Consent of PricewaterhouseCoopers Auditores, S.L. (Disbumad, S.L.) 23.6 Consent of PricewaterhouseCoopers GmbH (GTN Gesellschaft fur Telekommunikations-und Netzwerkdienste mbH) 23.7 Consent of PricewaterhouseCoopers (U-Net Limited) 23.8 Consent of PricewaterhouseCoopers N.V. (bART Holding B.V.) 23.9 Consent of PricewaterhouseCoopers (I-Way Limited) 23.10 Consent of PricewaterhouseCoopers-Auditores e Consultores, Lda (Esoterica-Novas Tecnologias de Informacao SA) 23.11 Consent of PricewaterhouseCoopers (WorldWide Web Services Limited) 23.12 Consent of KPMG Cardenas Dosal, S.C. (Infoacces, S.A. de C.V.) 23.13* Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1) 24.1 Power of Attorney (included on signature page) 27.1 Financial Data Schedule
- --------------------- * To be filed by amendment. # Confidential treatment has been requested for portions of this exhibit. II-4 (b) Financial Statement Schedules: Schedule II Valuation and Qualifying Accounts All other schedules are omitted because they are not required, are not applicable or the information is included in the consolidated financial statements or notes thereto. Item 17. Undertakings. The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Reston, Commonwealth of Virginia, on November 23, 1999. VIA NET.WORKS, Inc. /s/ David D'Ottavio By: _________________________________ David D'Ottavio Chief Executive Officer and Chairman of the Board of Directors POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints David D'Ottavio and Catherine A. Graham, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, from such person and in each person's name, place and stead, in any and all capacities, to sign any and all amendments (including post- effective amendments) to this registration statement or any registration statement relating to this registration statement under Rule 462 under the Securities Act of 1933 and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in- fact and agents or any of them, or his, her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed as of November 23, 1999 by the following persons in the capacities indicated.
Signature Title --------- ----- /s/ David D'Ottavio Chief Executive Officer and Chairman of the ______________________________________ Board of Directors (Principal Executive David M. D'Ottavio Officer) /s/ Michael J. Simmons President ______________________________________ Michael J Simmons /s/ Catherine A. Graham Vice President, Chief Financial Officer and ______________________________________ Treasurer (Principal Financial and Accounting Catherine A. Graham Officer) /s/ William A. Johnston Director ______________________________________ William A. Johnston /s/ Gabriel Battista Director ______________________________________ Gabriel Battista
II-6
Signature Title --------- ----- /s/ Stephen J. Eley Director ______________________________________ Stephen J. Eley /s/ William J. Elsner Director ______________________________________ William J. Elsner /s/ Adam Goldman Director ______________________________________ Adam Goldman /s/ Mark J. Masiello Director ______________________________________ Mark J. Masiello /s/ John G. Puente Director ______________________________________ John G. Puente /s/ Erik Torgerson Director ______________________________________ Erik Torgerson
II-7 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of VIA NET.WORKS, Inc. Our audits of the consolidated financial statements referred to in our report dated August 26, 1999, except for Note 13 which is as of October 11, 1999, appearing in this Registration Statement on Form S-1 also included an audit of the consolidated financial statement schedule included in this Registration Statement. In our opinion, this consolidated financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP McLean, Virginia August 26, 1999 S-1 SCHEDULE II VIA NET.WORKS, INC. VALUATION AND QUALIFYING ACCOUNTS (in thousands)
Balance at Charged Balance at Beginning to Costs End of Description of Period Acquired and Expenses Deductions Period ----------- ---------- -------- ------------ ---------- ---------- Period from Inception (June 13, 1997) to December 31, 1997: Allowance for doubtful Accounts............. $ 0 0 0 0 $ 0 === === === === ==== Year ended December 31, 1998: Allowance for doubtful Accounts............. $ 0 200 17 0 $217 === === === === ====
S-2 Exhibit Index
Exhibit Number Description -------------- ----------- 1.1* Form of Underwriting Agreement 3.1* Form of Amended and Restated Certificate of Incorporation of VIA NET.WORKS, Inc. 3.2* Form of Amended and Restated Bylaws of VIA NET.WORKS, Inc. 4.1* Specimen certificate representing the Common Stock 5.1* Opinion of Hogan & Hartson L.L.P. with respect to legality of the common stock. 10.1* 1998 Stock Option and Restricted Stock Plan, as amended 10.2* Form of 1998 Stock Option and Restricted Stock Plan Incentive Stock Option Agreement for employee 10.3 Key Employee Equity Plan, as amended 10.4* 401(k) Plan 10.5# Indefeasible Right of Use Agreement in Inland Capacity (United Kingdom), dated as of June 21, 1999, by and between GT U.K. Ltd. and VIA NET.WORKS Europe Holding B.V. 10.6# Indefeasible Right of Use Agreement in Inland Capacity (United States), dated as of June 21, 1999, by and between GT Landing Corp. and VIA NET.WORKS Europe Holding B.V. 10.7# Capacity Purchase Agreement, dated as of June 21, 1999, by and between Atlantic Crossing Ltd. and VIA NET.WORKS Europe Holding B.V. 10.8# Customer Agreement for an IRU Capacity, dated as of July 21, 1999, by and between iaxis Limited and VIA NET.WORKS Europe Holding B.V. 10.9# Software License and Support Agreement by and between Portal Software, Inc. and VIA Net Works, UK Limited, dated as of October 29, 1999 10.10 Distribution and Revenue Sharing Agreement, dated as of June 30, 1999, by and between Trellix Corporation and VIA NET.WORKS, Inc. 10.11 Amended and Restated Stockholders Agreement by and among VIA NET.WORKS, Inc. and the additional parties named therein, dated as of April 20, 1999 10.12* Registration Rights Agreement by and among VIA NET.WORKS, Inc. and the stockholders named therein 10.13 Transit Service Agreement, dated as of August 1, 1999, between Verio Inc. and VIA NET.WORKS, Inc. 21.1 List of subsidiaries 23.1 Consent of Pricewaterhousecoopers LLP (VIA NET.WORKS, Inc.) 23.2 Consent of Price Waterhouse & Co. (VIA Net Works Argentina, S.A.) 23.3 Consent of PricewaterhouseCoopers Auditores Independentes (Dialdata S.A. Internet Systems) 23.4 Consent of PricewaterhouseCoopers (Netlink Internet Services, Limited) 23.5 Consent of PricewaterhouseCoopers Auditores, S.L. (Disbumad, S.L.)
Exhibit Number Description -------------- ----------- 23.6 Consent of PricewaterhouseCoopers GmbH (GTN Gesellschaft fur Telekommunikations-und Netzwerkdienste mbH) 23.7 Consent of PricewaterhouseCoopers (U-Net Limited) 23.8 Consent of PricewaterhouseCoopers N.V. (bART Holding B.V.) 23.9 Consent of PricewaterhouseCoopers (I-Way Limited) 23.10 Consent of PricewaterhouseCoopers--Auditores e Consultores, Lda. (Esoterica-Novas Tecnologias de Informacao SA) 23.11 Consent of PricewaterhouseCoopers (WorldWide Web Services Limited) 23.12 Consent of KPMG Cardenas Dosal, S.C. (Infoacces, S.A. de C.V.) 23.13* Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1) 24.1 Power of Attorney (included on signature page) 27.1 Financial Data Schedule
- --------------------- * To be filed by amendment. # Confidential treatment has been requested for portions of this exhibit. EX-10.3 2 KEY EMPLOYEE EQUITY PLAN EXHIBIT 10.3 V-I-A INTERNET, INC. KEY EMPLOYEE EQUITY PLAN V-I-A Internet, Inc., a Delaware corporation (the "Company"), sets forth herein the terms of its Key Employee Equity Plan (the "Plan") as follows: 1. PURPOSE The Plan is intended to enhance the Company's ability to attract and retain highly qualified officers, key employees, directors and other persons, and to motivate such officers, key employees, directors, and other persons to serve the Company and its affiliates (as defined herein) and to expend maximum effort to improve the business results and earnings of the Company, by providing to such officers, key employees, directors and other persons an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Company. To this end, the Plan provides for the grant of stock options in accordance with the terms hereof. 2. DEFINITIONS For purposes of interpreting the Plan and related documents (including Award Agreements), the following definitions shall apply: 2.1 "affiliate" of, or person "affiliated" with, a person means any company or other trade or business that controls, is controlled by or is under common control with such person within the meaning of Rule 405 of Regulation C under the Securities Act. 2.2 "Award Agreement" means the stock option agreement or other written agreement between the Company and a Grantee that evidences and sets out the terms and conditions of a Grant. 2.3 "Board" means the Board of Directors of the Company. 2.4 "Change of Control" means (i) the dissolution or liquidation of the Company or a merger, consolidation, or reorganization of the Company with one or more other entities in which the Company is not the surviving entity, (ii) a sale of substantially all of the assets of the Company to another entity, or (iii) any transaction (including without limitation a merger or reorganization in which the Company is the surviving entity) which results in any person or entity (other than persons who are shareholders or affiliates of the Company at the time the Plan is approved by the Company's shareholders) owning 50% or more of the combined voting power of all classes of stock of the Company. 2.5 "Code" means the Internal Revenue Code of 1986, as now in effect or as hereafter amended. 2.6 "Committee" means a committee of, and designated from time to time by resolution of, the Board, which shall consist of no fewer than two members of the Board, none of whom shall be an officer or other salaried employee of the Company or any affiliate of the Company. 2.7 "Company" means V-I-A Internet, Inc. 2.8 "Effective Date" means November __, 1998, the date on which the Plan was adopted by the Board. 2.9 "Exchange Act" means the Securities Exchange Act of 1934, as now in effect or as hereafter amended. 2.10 "Fair Market Value" means the value of a share of Stock, determined as follows: if on the Grant Date or other determination date the Stock is listed on an established national or regional stock exchange, is admitted to quotation on the NASDAQ National Market, or is publicly traded on an established securities market, the Fair Market Value of a share of Stock shall be the closing price of the Stock on such exchange or in such market (the highest such closing price if there is more than one such exchange or market) on the Grant Date or such other determination date (or if there is no such reported closing price, the Fair Market Value shall be the mean between the highest bid and lowest asked prices or between the high and low sale prices on such trading day) or, if no sale of Stock is reported for such trading day, on the next preceding day on which any sale shall have been reported. If the Stock is not listed on such an exchange, quoted on such system or traded on such a market, Fair Market Value shall be the value of the Stock as determined by the Board in good faith. In making its determination of the value of the Stock, the Board may consider, among other factors, the following: (a) the then-most recent price for the Stock or other capital stock of the Company as established in a private equity placement by the Company, (b) the Option Price established for the Stock in the then-most recent Grant under this Plan or other stock option plan maintained by the Company, (c) the value attributed to the Stock under the most recent appraisal conducted by a third party on behalf of the Company, a shareholder, a Grantee, or a third party, and (d) the value of the Stock determined using one or more methodologies typically employed by third party appraisers for similarly situated companies, including but not limited to: book value, tangible book value, comparable company valuations, discounted cash flow, and P/E multiples. The Board shall not be obligated to rely upon any one or more of these methods of valuation in making its determination, which it shall do in its sole discretion. 2.11 "Grant" means an award of an Option under the Plan. 2.12 "Grant Date" means, as determined by the Board or authorized Committee, (1) the date as of which the Board or such Committee approves a Grant, (ii) the date on which the recipient of a Grant first becomes eligible to receive a Grant under Section 6 hereof, or (iii) such other date as may be specified by the Board or such Committee. 2.13 "Grantee" means a person who receives or holds an Option under the Plan. 2.14 "Option" means an option to purchase one or more shares of Stock pursuant to the Plan. 2.15 "Option Period" means the period during which Options may be exercised as set forth in Section 9 hereof. 2.16 "Option Price" means the purchase price for each share of Stock subject to an Option. 2.17 "Plan" means this V-I-A Internet, Inc. Key Employee Equity Plan. 2.18 "Reporting Person" means a person who is required to file reports under Section 16(a) of the Exchange Act. 2.19 "Securities Act" means the Securities Act of 1933, as now in effect or as hereafter amended. 2.20 "Service Provider" means a consultant or adviser to the Company, a manager of the Company's properties or affairs, or other similar service provider or affiliate of the Company, and 2 employees of any of the foregoing, as such persons may be designated from time to time by the Board pursuant to Section 6 hereof. 2.21 "Stock" means shares of Common Stock, par value $.01 per share, of the Company. 2.22 "Subsidiary" means any "subsidiary corporation" of the Company within the meaning of Section 424(f) of the Code. 2.23 "Termination Date" shall be the date upon which an Option shall terminate or expire, as set forth in Section 9 hereof. 3. ADMINISTRATION OF THE PLAN 3.1. Board. The Board shall have such powers and authorities related to the administration of the Plan as are consistent with the Company's certificate of incorporation and by-laws and applicable law. The Board shall have full power and authority to take all actions and to make all determinations required or provided for under the Plan, any Grant or any Award Agreement, and shall have full power and authority to take all such other actions and make all such other determinations not inconsistent with the specific terms and provisions of the Plan that the Board deems to be necessary or appropriate to the administration of the Plan, any Grant or any Award Agreement. All such actions and determinations shall be by the affirmative vote of a majority of the members of the Board present at a meeting or by unanimous consent of the Board executed in writing in accordance with the Company's certificate of incorporation and by- laws and applicable law. The interpretation and construction by the Board of any provision of the Plan, any Grant or any Award Agreement shall be final and conclusive. 3.2. Committee. The Board from time to time may delegate to a Committee such powers and authorities related to the administration and implementation of the Plan, as set forth in Section 3.1 above and in other applicable provisions, as the Board shall determine, consistent with the certificate of incorporation and by-laws of the Company and applicable law. In the event that the Plan, any Grant or any Award Agreement entered into hereunder provides for any action to be taken by or determination to be made by the Board, such action may be taken by or such determination may be made by the Committee if the power and authority to do so has been delegated to the Committee by the Board as provided for in this Section. Unless otherwise expressly determined by the Board, any such action or determination by the Committee shall be final, binding and conclusive. 3.3. Grants. Subject to the other terms and conditions of the Plan, the Board shall have full and final authority (i) to designate Grantees, (ii) to determine the type or types of Grant to be made to a Grantee, (iii) to determine the number of shares of Stock and the type or types of Stock to be subject to a Grant, (iv) to establish the terms and conditions of each Grant (including, but not limited to, the exercise price of any Option and the nature and duration of any restriction or condition (or provision for lapse thereof) relating to the vesting, exercise, transfer, or forfeiture of a Grant or the shares of Stock subject thereto), (v) to prescribe the form of each Award Agreement evidencing a Grant, and (vi) to amend, modify, or supplement the terms of any outstanding Grant. Such authority specifically includes the authority, in order to effectuate the purposes of the Plan but without amending the Plan, to modify Grants to eligible individuals who are foreign nationals or are individuals who are employed outside the United States to recognize differences in local law, tax policy, or custom. As a condition to any subsequent Grant, the Board shall have the right, at its 3 discretion, to require Grantees to return to the Company any unexercised Grants previously awarded under the Plan. Subject to the terms and conditions of the Plan, any such new Grant shall be upon such terms and conditions as are specified by the Board at the time the new Grant is made. 3.4. No Liability. No member of the Board or of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Grant or Award Agreement. 4. STOCK SUBJECT TO THE PLAN Subject to adjustment as provided in Section 13 hereof, the number of shares of Stock available for issuance under the Plan shall be 400,000 shares of Common. Stock issued or to be issued under the Plan shall be authorized but unissued shares. If any shares covered by a Grant are not purchased or are forfeited, or if a Grant otherwise terminates without delivery of any Stock subject thereto, then the number of shares of Stock counted against the aggregate number of shares available under the Plan with respect to such Grant shall, to the extent of any such forfeiture or termination, again be available for making Grants under the Plan. 5. EFFECTIVE DATE AND TERM OF THE PLAN 5.1. Effective Date. The Plan shall be effective as of the Effective Date. 5.2. Term. The Plan has no termination date. 6. OPTION GRANTS 6.1. Company or Subsidiary Employees. Grants may be made under the Plan to any employee of, or Service Provider providing, or who has provided, services to, the Company or any Subsidiary, including any such employee who is an officer or director of the Company or of any Subsidiary, as the Board shall determine and designate from time to time. 6.2. Successive Grants. An eligible person may receive more than one Grant, subject to such restrictions as are provided herein. 7. AWARD AGREEMENT Each Grant pursuant to the Plan shall be evidenced by an Award Agreement, in such form or forms as the Board shall from time to time determine. Award Agreements granted from time to time or at the same time need not contain similar provisions but shall be consistent with the terms of the Plan. 4 8. OPTION PRICE The Option Price of each Option shall be fixed by the Board and stated in the Award Agreement evidencing such Option. In no case shall the Option Price of any Option be less than the par value of a share of Stock. 9. VESTING, TERM AND EXERCISE OF OPTIONS 9.1. Vesting and Option Period. Subject to Sections 9.2 and 9.3 hereof, each Option granted under the Plan shall be exercisable from the Grant Date and under such conditions as shall be determined by the Board and stated in the Award Agreement. For purposes of this Section 9.1, fractional numbers of shares of Stock subject to an Option shall be rounded down to the next nearest whole number. The period during which any Option shall be exercisable shall constitute the "Option Period" with respect to such Option. 9.2. Term. Each Option granted under the Plan shall terminate, and all rights to purchase shares of Stock thereunder shall cease, upon the expiration of ten years from the date such Option is granted, or under such circumstances and on such date prior thereto as is set forth in the Plan or as may be fixed by the Board and stated in the Award Agreement relating to such Option (the "Termination Date"). 9.3. Termination of Employment or Other Relationship. Upon the termination of a Grantee's employment or other relationship with the Company (or Grantee's death), any Option or portion thereof held by such Grantee that has not been exercised shall terminate immediately. Upon termination of an Option or portion thereof, the Grantee shall have no further right to purchase shares of Stock pursuant to such Option or portion thereof. Whether a leave of absence or leave on military or government service shall constitute a termination of employment or other relationship for purposes of the Plan shall be determined by the Board, which determination shall be final and conclusive. For purposes of the Plan, a termination of employment, service or other relationship shall not be deemed to occur if the Grantee is immediately thereafter a director of the Company. 9.4. Limitations on Exercise of Option. Notwithstanding any other provision of the Plan, in no event may any Option be exercised, in whole or in part, after ten years following the date upon which the Option is granted, or after the occurrence of an event referred to in Section 13 hereof which results in termination of the Option. 9.5. Method of Exercise. An Option that is exercisable may be exercised by the Grantee's delivery to the Company of written notice of exercise on any business day, at the Company's principal office, addressed to the attention of the Board. Such notice shall specify the number of shares of Stock with respect to which the Option is being exercised and shall be accompanied by payment in full of the Option Price of the shares for which the Option is being exercised. The minimum number of shares of Stock with respect to which an Option may be exercised, in whole or in part, at any time shall be the lesser of (i) 100 shares or such lesser number set forth in the applicable Award Agreement or (ii) the maximum number of shares available for purchase under the Option at the time of exercise. Payment of the Option Price for the shares purchased pursuant to the exercise of an Option shall be made in cash or 5 in cash equivalents. Unless otherwise stated in the applicable Award Agreement, an individual holding or exercising an Option shall have none of the rights of a shareholder (for example, the right to receive cash or dividend payments or distributions attributable to the subject shares of Stock or to direct the voting of the subject shares of Stock) until the shares of Stock covered thereby are fully paid and issued to such individual. Except as provided in Section 13 hereof, no adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date of such issuance. 9.6. Delivery of Stock Certificates. Promptly after the exercise of an Option by a Grantee and the payment in full of the Option Price, such Grantee shall be entitled to the issuance of a stock certificate or certificates evidencing his or her ownership of the shares of Stock subject to the Option. 10. TRANSFERABILITY OF OPTIONS; REPURCHASE RIGHTS 10.1. Transferability of Options Only the Grantee may exercise an Option. No Option shall be assignable or transferable by the Grantee to whom it is granted. 10.2. Repurchase Rights. The Company shall have the right (a "Repurchase Right"), as set forth in this Section, to purchase from a Grantee (or the Grantee's estate or other representative, as applicable) all of the shares of Stock acquired by the Grantee pursuant to Options granted under this Plan, in the event that (i) each employment or similar relationship (whether as employee, director, independent contractor or otherwise) between the Grantee and the Company and its affiliates is terminated by the Grantee during the two year period (the "Minimum Employment Period") commencing on the date Grantee commenced employment with the Company, other than by reason of death or "permanent and total disability" (within the meaning of Section 22(e)(3) of the Code), or (ii) if the employment of the Grantee with the Company is terminated by the Company "for cause." The Repurchase Right shall not apply if the employment of the Grantee with the Company is terminated by the Company other than "for cause." Each Repurchase Right shall commence on the date of the Grantee's termination of employment and end 30 days thereafter. The price per share for each share purchased pursuant to a Repurchase Right shall be at a price equal to the Fair Market Value of such shares on the date of termination. Termination "for cause" shall mean termination because of the Grantee's willful misconduct, breach of a fiduciary duty to the Company resulting in personal profit to the Grantee, conviction of a felony or crime involving moral turpitude, or material breach of any agreement between the Grantee and the Company regarding confidential information, trade secrets, inventions, non-competition or similar matters. The Company may assign its repurchase rights (but not its obligations), under this Section 10.2 and the applicable Award Agreement, in whole or in part, to (1) any Stockholder, (2) any affiliate or (3) any other person or entity that the Board of Directors of the Company determines has a sufficient relationship with or interest in the Company. The Company shall give reasonable written notice to the Grantee (or the Grantee's estate or other representative, as applicable) of any assignment of its rights under this Section. 10.3. Transferability of Stock No Grantee shall, during the "No-Sale Period" as defined below, sell or transfer any shares of Stock acquired by the individual pursuant to this Plan under an Option, and any such transfer shall be deemed void and of no effect. The "No-Sale Period" shall mean the period commencing on the Grant Date and ending on the later of (i) the expiration of the Minimum Employment Period or (ii) if the Company has a Repurchase Right under Section 10.2, the 6 expiration of the Repurchase Period (or, if the Repurchase Right was exercised, prior to the closing of the repurchase), to any purchaser or transferee other than the Company; provided, however, that a transfer shall not be prohibited if the transferee is an affiliate or immediate family member of such Grantee and the transferee enters into an agreement reasonably acceptable to the Company to be bound by this Agreement. 10.4. Sale Rights. The Grantee (or the Grantee's estate or other representative, as applicable) shall have the right (a "Sale Right"), as set forth in this Section, to sell to the Company all of the shares of Stock acquired by the Grantee pursuant to Options granted under this Plan, in the event of death or "permanent and total disability" (within the meaning of Section 22(e)(3) of the Code) of the Grantee during the Minimum Employment Period (an "Involuntary Termination"), subject to receipt by the Company of all required approvals under the Company's Certificate of Incorporation (including all Certificates of Designations), By- laws and material contracts. Each Sale Right shall commence on the date of the Grantee's Involuntary Termination and end 60 days thereafter. The price per share for each share purchased pursuant to a Sale Right shall be at a price equal to the Fair Market Value of such shares on the date of the Involuntary Termination. The Company may assign the right (but not its obligation) to acquire Stock following exercise of a Sale Right under this Section 10.4, in whole or in part, to (1) any Stockholder, (2) any affiliate or (3) any other person or entity that the Board of Directors of the Company determines has a sufficient relationship with or interest in the Company. The Company shall give reasonable written notice to the Grantee (or the Grantee's estate or other representative, as applicable) of any assignment of its rights under this Section. 10.5. Publicly Traded Stock If the Stock is listed on an established national or regional stock exchange or is admitted to quotation on the National Association of Securities Dealers Automated Quotation System, or is publicly traded in an established securities market, the foregoing transfer restrictions of Sections 10.2 and 10.3 shall terminate as of the first date that the Stock is so listed, quoted or publicly traded. 10.6. Legend In order to enforce the restrictions imposed upon shares of Stock under this Plan or as provided in an Award Agreement, the Board may cause a legend or legends to be placed on any certificate representing shares issued pursuant to this Plan that complies with the applicable securities laws and regulations and makes appropriate reference to the restrictions imposed under it. 11. REQUIREMENTS OF LAW 11.1. General. The Company shall not be required to sell or issue any shares of Stock under any Grant if the sale or issuance of such shares would constitute a violation by the Grantee, any other individual exercising an Option, or the Company of any provision of any law or regulation of any governmental authority, including without limitation any federal or state securities laws or regulations. If at any time the Company shall determine, in its discretion, that the listing, registration or qualification of any shares subject to a Grant upon any securities exchange or under any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the issuance or purchase of shares hereunder, no shares of Stock may be issued or sold to the Grantee or any other individual exercising an Option pursuant to such Grant unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company, and any delay caused thereby shall in no way affect the date of termination of the Grant. 7 Specifically, in connection with the Securities Act, upon the exercise of any Option, unless a registration statement under such Act is in effect with respect to the shares of Stock covered by such Grant, the Company shall not be required to sell or issue such shares unless the Board has received evidence satisfactory to it that the Grantee or any other individual exercising an Option may acquire such shares pursuant to an exemption from registration under the Securities Act. Any determination in this connection by the Board shall be final, binding, and conclusive. The Company may, but shall in no event be obligated to, register any securities covered hereby pursuant to the Securities Act. The Company shall not be obligated to take any affirmative action in order to cause the exercise of an Option or the issuance of shares of Stock pursuant to the Plan to comply with any law or regulation of any governmental authority. As to any jurisdiction that expressly imposes the requirement that an Option shall not be exercisable until the shares of Stock covered by such Option are registered or are exempt from registration, the exercise of such Option (under circumstances in which the laws of such jurisdiction apply) shall be deemed conditioned upon the effectiveness of such registration or the availability of such an exemption. 11.2. Rule 16b-3. During any time when the Company has a class of equity security registered under Section 12 of the Exchange Act, it is the intent of the Company that Grants pursuant to the Plan and the exercise of Options granted hereunder will qualify for the exemption provided by Rule 16b-3 under the Exchange Act. To the extent that any provision of the Plan or action by the Board does not comply with the requirements of Rule 16b-3, it shall be deemed inoperative to the extent permitted by law and deemed advisable by the Board, and shall not affect the validity of the Plan. In the event that Rule 16b-3 is revised or replaced, the Board may exercise its discretion to modify this Plan in any respect necessary to satisfy the requirements of, or to take advantage of any features of, the revised exemption or its replacement. 12. AMENDMENT AND TERMINATION OF THE PLAN The Board may, at any time and from time to time, amend, suspend, or terminate the Plan as to any shares of Stock as to which Grants have not been made. The Company may retain the right in an Award Agreement to cause a forfeiture of the gain realized by a Grantee on account of the Grantee taking actions in "competition with the Company," as defined in the applicable Award Agreement. Furthermore, the Company may annul a Grant if the Grantee is an employee of the Company or an affiliate and is terminated "for cause" as defined in the applicable Award Agreement. Except as permitted under this Section 12 or Section 13 hereof, no amendment, suspension, or termination of the Plan shall, without the consent of the Grantee, alter or impair rights or obligations under any Grant theretofore awarded under the Plan. 13. EFFECT OF CHANGES IN CAPITALIZATION 13.1. Changes in Stock. If the number of outstanding shares of Stock is increased or decreased or the shares of Stock are changed into or exchanged for a different number or kind of shares or other securities of the Company on account of any recapitalization, reclassification, stock split, reverse split, combination of shares, exchange of shares, stock dividend or other distribution payable in capital stock, or other increase or decrease in such shares effected without receipt of consideration by the Company occurring after the Effective Date, the number and kinds of shares for which Grants of Options may be made under the Plan shall be adjusted proportionately and accordingly by the Company. In addition, the number and kind of shares for which Grants are outstanding shall be adjusted proportionately and accordingly so that the proportionate interest of the Grantee immediately following such event shall, to the extent practicable, be the same as immediately before such event. Any such adjustment in outstanding Options shall not change the aggregate Option Price payable 8 with respect to shares that are subject to the unexercised portion of an Option outstanding but shall include a corresponding proportionate adjustment in the Option Price per share. The conversion of any convertible securities of the Company shall not be treated as an increase in shares effected without receipt of consideration. 13.2. Reorganization in Which the Company Is the Surviving Entity and in Which No Change of Control Occurs. Subject to Section 13.3 hereof, if the Company shall be the surviving entity in any reorganization, merger, or consolidation of the Company with one or more other entities and in which no Change in Control occurs, any Option theretofore granted pursuant to the Plan shall pertain to and apply to the securities to which a holder of the number of shares of Stock subject to such Option would have been entitled immediately following such reorganization, merger, or consolidation, with a corresponding proportionate adjustment of the Option Price per share so that the aggregate Option Price thereafter shall be the same as the aggregate Option Price of the shares remaining subject to the Option immediately prior to such reorganization, merger, or consolidation. 13.3. Reorganization, Sale of Assets or Sale of Stock Which Involves a Change of Control. Upon consummation of any Change of Control, the Plan and all outstanding but unexercised Options shall terminate. The Board shall send written notice of an event that will result in such a termination to all individuals who hold Options not later than the time at which the Company gives notice thereof to its shareholders. This Section 13.3 shall not apply to any Change of Control to the extent that (A) provision is made in writing in connection with such Change of Control for the continuation of the Plan or the assumption of the Options theretofore granted, or for the substitution for such Options of new options covering the stock of a successor entity, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kinds of shares or units and exercise prices, in which event the Plan and Options theretofore granted shall continue in the manner and under the terms so provided or (B) a majority of the full Board determines that such Change of Control shall not trigger application of the provisions of this Section 13.3. 13.4. Adjustments. Adjustments under this Section 13.4 related to shares of Stock or securities of the Company shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. No fractional shares or other securities shall be issued pursuant to any such adjustment, and any fractions resulting from any such adjustment shall be eliminated in each case by rounding downward to the nearest whole share. 13.5. No Limitations on Company. The making of Grants pursuant to the Plan shall not affect or limit in any way the right or power of the Company to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure or to merge, consolidate, dissolve, or liquidate, or to sell or transfer all or any part of its business or assets. 14. DISCLAIMER OF RIGHTS No provision in the Plan or in any Grant or Award Agreement shall be construed to confer upon any individual the right to remain in the employ or service of the Company or any affiliate, or to interfere in any way with any contractual or other right or authority of the Company either to increase or decrease the compensation or other payments to any individual at any time, or to terminate any employment or other relationship between any individual and the Company. In 9 addition, notwithstanding anything contained in the Plan to the contrary, unless otherwise stated in the applicable Award Agreement, no Grant awarded under the Plan shall be affected by any change of duties or position of the Optionee, so long as such Grantee continues to be a director, officer, consultant or employee of the Company. The obligation of the Company to pay any benefits pursuant to this Plan shall be interpreted as a contractual obligation to pay only those amounts described herein, in the manner and under the conditions prescribed herein. The Plan shall in no way be interpreted to require the Company to transfer any amounts to a third party trustee or otherwise hold any amounts in trust or escrow for payment to any participant or beneficiary under the terms of the Plan. No Grantee shall have any of the rights of a shareholder with respect to the shares of Stock subject to an Option except to the extent the certificates for such shares of Stock shall have been issued upon the exercise of the Option. 15. NONEXCLUSIVITY OF THE PLAN Neither the adoption of the Plan nor the submission of the Plan to the shareholders of the Company for approval shall be construed as creating any limitations upon the right and authority of the Board to adopt such other incentive compensation arrangements (which arrangements may be applicable either generally to a class or classes of individuals or specifically to a particular individual or particular individuals) as the Board in its discretion determines desirable, including, without limitation, the granting of stock options otherwise than under the Plan. 16. WITHHOLDING TAXES The Company or a Subsidiary, as the case may be, shall have the right to deduct from payments of any kind otherwise due to a Grantee any Federal, state, or local taxes of any kind required by law to be withheld upon the issuance of any shares of Stock upon the exercise of an Option. At the time of such exercise, the Grantee shall pay to the Company or the Subsidiary, as the case may be, any amount that the Company or the Subsidiary may reasonably determine to be necessary to satisfy such withholding obligation. Subject to the prior approval of the Company or the Subsidiary, which may be withheld by the Company or the Subsidiary, as the case may be, in its sole discretion, the Grantee may elect to satisfy such obligations, in whole or in part, (i) by causing the Company or the Subsidiary to withhold shares of Stock otherwise issuable to the Grantee or (ii) by delivering to the Company or the Subsidiary shares of Stock already owned by the Grantee. The shares of Stock so delivered or withheld shall have an aggregate Fair Market Value equal to such withholding obligations. The Fair Market Value of the shares of Stock used to satisfy such withholding obligation shall be determined by the Company or the Subsidiary as of the date that the amount of tax to be withheld is to be determined. A Grantee who has made an election pursuant to this Section 16 may satisfy his or her withholding obligation only with shares of Stock that are not subject to any repurchase, forfeiture, unfulfilled vesting, or other similar requirements. 17. CAPTIONS The use of captions in this Plan or any Award Agreement is for the convenience of reference only and shall not affect the meaning of any provision of the Plan or such Award Agreement. 18. OTHER PROVISIONS Each Grant awarded under the Plan may contain such other terms and conditions not inconsistent with the Plan as may be determined by the Board, in its sole discretion. 19. NUMBER AND GENDER With respect to words used in this Plan, the singular form shall include the plural form, the masculine gender shall include the feminine gender, etc., as the context requires. 10 20. SEVERABILITY If any provision of the Plan or any Award Agreement shall be determined to be illegal or unenforceable by any court of law in any jurisdiction, the remaining provisions hereof and thereof shall be severable and enforceable in accordance with their terms, and all provisions shall remain enforceable in any other jurisdiction. 21. GOVERNING LAW The validity and construction of this Plan and the instruments evidencing the Grants awarded hereunder shall be governed by the laws of the State of Delaware. * * * 11 The Plan was duly adopted and approved by the Board of Directors of the Company as of November 24, 1998. /S/ Justin Jaschke, Chairman ----------------------------- Justin Jaschke, Chairman 12 Amendment No. 1 to V-I-A INTERNET, INC. KEY EMPLOYEE EQUITY PLAN Effective October 1, 1999, the V-I-A Internet, Inc. Key Employee Equity Plan, is hereby amended in the following respects: 1. Section 4 is amended by deleting the first sentence and replacing it with the following language: "Subject to adjustment as provided in Section 13 hereof, the number of shares of Stock available for issuance under the Plan shall be 800,000 shares of Common." IN WITNESS WHEREOF, the Board of Directors of VIA NET.WORKS, Inc., formerly V-I-A Internet, Inc., has caused this instrument to be executed, as of the effective date hereof. VIA NET.WORKS, Inc. By:/s/ William Johnston -------------------- William Johnston ATTEST: /s/ Matt S. Nydell ------------------ Matt S. Nydell, Secretary 13 EX-10.5 3 INDEFEASIBLE RIGHT OF USE AGREEMENT/UK EXHIBIT 10.5 Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated by [*****]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission. ATLANTIC CROSSING/AC-1 SUBMARINE CABLE SYSTEM INDEFEASIBLE RIGHT OF USE AGREEMENT IN INLAND CAPACITY (United Kingdom) THIS AGREEMENT (as amended, supplemented or otherwise modified from time to time, this "Agreement"), made and entered into as of this 21st day of June, 1999, by and among GT U.K. LTD. ("Grantor") and VIA NET WORKS EUROPE HOLDING B.V., a company organized and existing under the laws of The Netherlands (the "Purchaser"). WITNESSETH: ---------- WHEREAS, the Purchaser and Atlantic Crossing Ltd. ("ACL") are parties to the Capacity Purchase Agreement, dated as of June 21, 1999 (as amended, supplemented or otherwise modified from time to time, the "Capacity Purchase Agreement"), to which this Agreement is attached; WHEREAS, capitalized terms used herein and not otherwise defined herein shall have the meanings given to them in the Capacity Purchase Agreement; WHEREAS, Grantor has acquired rights to capacity in order to give the Purchaser the option to extend the Purchased Capacity acquired on the System beyond the Cable Station to a certain point(s) of interface in the city specified on Schedule I hereto; and WHEREAS, the Purchaser desires to acquire rights with respect to the Inland Capacity (as defined herein) set forth on Schedule I hereto on an indefeasible right of use basis ("IRU") and such Inland Capacity represents capacity between the System Interface point of the Cable Station and the point of interface in the applicable city set forth on Schedule I hereto; and 2 WHEREAS, the IRU in the Inland Capacity provided hereunder, together with the IRU in the S and T Capacity provided under the Capacity Purchase Agreement, convey to the Purchaser service between such S Capacity and the point of interface at the applicable city set forth on Schedule I hereto; NOW, THEREFORE, the parties hereto, in consideration of the mutual covenants contained herein covenant and agree with each other as follows: 1. DEFINITIONS. Terms defined in the preamble and in the recitals hereto -------------- shall have their respective meanings when used herein and the following terms shall have the following meanings: "Backhaul Agreement" means any agreement between Grantor and a Backhaul ------------------ Provider, pursuant to which Grantor acquires rights in Inland Capacity. "Backhaul Provider" means any entity providing Grantor rights to Inland ----------------- Capacity. "business day" means a day other than a Saturday, Sunday or other day on ------------ which commercial banks in New York City or Bermuda are authorized or required by law to close. "Cable Station" means the cable station described on Schedule I hereto. ------------- "Dollars" or "$" means United States dollars. ------- - "Grantor's Account" means the bank account of Grantor maintained with ----------------- Deutsche Bank AG, New York Branch, at 31 West 52nd Street, New York, New York 10019 (account number 105330260016) or such other account as Grantor may designate to the Purchaser in writing. Wire instructions for the above- referenced account are as follows: Account Name: Atlantic Crossing Ltd. Account Number: 105330260016 Bank Name: Deutsche Bank AG, New York Branch ABA No.: 026 003 780 Reference: Atlantic Crossing Attn: Lydia Zaininger "Initial Payment Date" means, with respect to the IRU granted in respect of -------------------- any Inland Capacity set forth on Schedule I hereto, the date on which the Purchaser pays Grantor, in immediately available Dollars, the initial amount required to be paid by the Purchaser for such Inland Capacity in accordance with Section 3(b) of this Agreement. 3 "Inland Capacity" means capacity on a fiber optic telecommunications system --------------- which connects the System Interface at the Cable Station to the Inland Point of Interface. "Inland Capacity Purchase Price" means, with respect to the IRU granted in ------------------------------ respect of any Inland Capacity set forth on Schedule I hereto, the amount payable by the Purchaser in respect of such Inland Capacity and set forth under the heading "Purchase Price" on Schedule I hereto. "Inland Point of Interface" means the point of interface in the applicable ------------------------- city set forth on Schedule I hereto. "Minimum Capacity Unit" or "MCU" means the minimum capacity to be purchased --------------------- --- by the Purchaser in the Inland Capacity. An STM-1 is designated as the MCU for purposes of this Agreement. "Payment Due Date" means, with respect to the IRU granted in respect of any ---------------- Inland Capacity, the payment date as set forth in Schedule I hereto. "RFS Date" means, with respect to any Inland Capacity, the date on which -------- such Inland Capacity will be available for service and has achieved the RFS Standard described in Attachment 2. "Total Purchase Price" means the aggregate amount payable by the Purchaser -------------------- for the IRU in the Inland Capacity and set forth on the bottom of Schedule I to this Agreement opposite the phrase "Total Purchase Price." 2. IRU FOR INLAND CAPACITY. Effective on the Initial Payment Date, Grantor -------------------------- grants to the Purchaser, for the term of this Agreement, an IRU in the Inland Capacity on the terms and conditions set forth herein. So long as no event has occurred which entitles Grantor to suspend service under this Agreement, the Purchaser shall be entitled to the quiet enjoyment and use of the rights granted hereunder free from interference from the Grantor or any person claiming through Grantor, such as Grantor's lenders. 3. PAYMENT FOR CAPACITY. (a) Financing. Grantor shall finance the Purchase ----------------------- --------- Price for the Purchased Capacity in accordance with Schedule II of the Capacity Purchase Agreement. Payments by Purchaser shall (i) be calculated to pay Grantor interest calculated at the rate set out therein, (ii) be pre- payable, in whole or in part, without penalty, and (iii) be secured by Grantor retaining a security interest in the IRU until the Purchase Price is fully paid. Each of the parties shall, at its expense, take all such actions and make all such filings and recordings as are reasonably requested to establish, perfect and protect the other party's interest in such IRU. 4 (b) Payment of Inland Capacity Purchase Price. In exchange for the IRU ----------------------------------------- interest granted pursuant to this Agreement in any Inland Capacity, the Purchaser shall, on or before each Payment Due Date, pay to the Grantor's Account in immediately available Dollars, an amount equal to the Inland Capacity Purchase Price; provided, however, the aggregate payments made by the Purchaser -------- ------- under paragraphs (a) and (b) of this Section 3 shall not exceed the Total Purchase Price. (c) Taxes. All payments made by the Purchaser under this Section 3 shall be ----- made without any deduction or withholding for or on account of any tax, duty or other charges of whatever nature imposed by any taxing or governmental authority in the jurisdiction from which payment by the Purchaser originates or in any other jurisdiction claiming the right to impose such tax, duty or charge due to the location of any business or properties of the Purchaser (collectively "Taxes"). If the Purchaser is or was required by law to make any deduction or withholding for or on account of any Taxes from any payment due hereunder to Grantor, then, notwithstanding anything to the contrary contained in this Agreement, the gross amount payable by the Purchaser to Grantor will be increased so that, after any such deduction or withholding for Taxes, the net amount received by Grantor will not be less than Grantor would have received had no such deduction or withholding been required. If any taxing or government authority asserts that the Purchaser should have made a deduction or withholding for on account of any Taxes with respect to all or a portion of any payment made hereunder, the Purchaser hereby agrees to indemnify the Grantor for such Taxes and hold the Grantor harmless on an after-tax basis from and against any Taxes, interest or penalties levied or asserted in connection therewith. 4. OPERATION AND MAINTENANCE OF INLAND CAPACITY. ----------------------------------------------- (a) Except as otherwise set forth in this Agreement, the Purchaser shall not be required to make any additional payments for costs associated with operating, maintaining and repairing the Inland Capacity in which an IRU has been granted hereunder. (b) Grantor shall use reasonable commercial efforts to cause the Inland Capacity in which an IRU has been granted hereunder to be maintained in efficient working order and in accordance with industry standards and, to the extent applicable, the Maintenance Performance Standards set forth in Schedule IV to the Capacity Purchase Agreement which Schedule IV is incorporated herein by reference. Grantor represents that at all times it shall use commercially reasonable efforts to require the applicable Backhaul Provider with which it has contracted to provide routine, preventive and corrective maintenance for the Inland Capacity in accordance with performance standards that at least meet prudent industry standards. Grantor will use reasonable commercial efforts to cause the Backhaul Provider with which it has contracted to perform its obligations under the applicable Backhaul Agreement. 5 (c) Grantor will have sole responsibility for negotiating, executing and administering contracts related to the acquisition of rights in any Inland Capacity from Backhaul Providers. (d) Should any condition exist in any Inland Capacity in which an IRU has been granted hereunder that may impair the integrity of such Inland Capacity, Grantor shall take reasonable actions to cause to be initiated maintenance on such Inland Capacity and Grantor shall take reasonable actions to cause to be initiated planned maintenance on such Inland Capacity in each case which may include the deactivation of such Inland Capacity. Grantor shall, to the extent reasonably practicable, advise the Purchaser in writing at least thirty (30) days (or such shorter period as may be agreed) prior to the initiation of a planned maintenance operation of the timing and scope of such planned maintenance operation. (e) In addition to fulfilling its obligations as set forth in Section 4(b), in the event of disruption of service, Grantor shall use commercially reasonable efforts to cause service to be restored as quickly as reasonably possible, and Grantor shall take such measures as are reasonably necessary to obtain such objective. 5. INVOICES; DEFAULT INTEREST. (a) Invoices. Grantor or its authorized ----------------------------- -------- agent shall render invoices under this Agreement in Dollars, and the Purchaser shall pay such amount in Dollars. The Purchaser shall make all payments by means of a wire transfer to the Grantor's Account. Any payments required to be made pursuant to this Agreement shall, save for the Initial Payment which shall be made in accordance with the provisions of Section 3(b), be made on the later of (i) the date when due or (ii) thirty (30) business days after an invoice is received from Grantor by Purchaser. In the event the Purchaser has a dispute, in respect of payment(s), and such dispute is of a reasonable, good faith, commercial and uncapricious nature, the Purchaser shall be entitled to withhold such payment(s) until the dispute is resolved. The Purchaser shall, however, be obliged to use best efforts to assist in resolving such dispute referred to in this Section 5(a). (b) Any invoice rendered under this Agreement which is not paid when due, shall accrue interest at the annual rate of six percent (6%) above the rate for U.S. dollar LIBOR for one month as quoted in The Wall Street Journal on the ----------------------- first business day of the month in which such payment is due. Such interest shall accrue from the day following the date payment was due until it is paid in full. In the event that applicable law does not allow the imposition of "default interest" at the rate established in accordance with this Section 5(b), such "default interest" shall be at the highest rate permitted by applicable law. For purposes of this Section, "paid" shall mean that funds are available for immediate use by Grantor. 6 6. DEFAULT. (a) Subject to Section 5(a) hereof, if the Purchaser fails to ---------- make any payment required by this Agreement on the date that it is due or if the Purchaser is otherwise in breach of this Agreement, and such payment default continues unremedied for a period of at least five (5) days or such other breach continues for a period of at least thirty (30) days, Grantor or its authorized agent may notify the Purchaser in writing of such payment default or other breach and if full payment is not received or such other breach is not fully remedied within fifteen (15) days of such notification, Grantor (i) may suspend all service provided to Purchaser hereunder (including suspending Purchaser's right to use the Inland Capacity), until such payment default or other breach has been cured (including payment of default interest, if any) and (ii) shall be entitled to pursue any and all rights and legal and equitable remedies (including its rights and remedies to enforce the Purchaser's obligations under this Agreement). (b) If the Grantor is in breach of this Agreement and such breach continues for a period of at least thirty (30) days, the Purchaser may notify the Grantor in writing of such breach and if such breach is not fully remedied within fifteen (15) days of such notification, the Purchaser shall be entitled to pursue any and all rights and legal and equitable remedies, including its rights and remedies to enforce Grantor's obligations under this Agreement and further including the right to terminate this Agreement and receive a pro-rata refund of the Purchase Price based upon the remaining term. The Purchaser's right to pursue any and all rights and legal and equitable remedies shall continue for so long as such breach continues, provided, however, that a subsequent cure of any such breach by Grantor shall not prejudice (i) any right or remedy properly exercised by the Purchaser prior to the time such cure has been effected, or (ii) the Purchaser's right to claim damages with respect to the period prior to the time such cure has been effected. 7. USE OF CAPACITY. (a) The use of the Inland Capacity granted hereunder ------------------ and any equipment associated therewith shall be such as not to interrupt, interfere with, or impair service over any of the facilities comprising the System or the Inland Capacity, or impair privacy of any communications over such facilities, cause damage to plant or create hazards to employees, affiliates or connecting companies of ACL, the Grantor, any Backhaul Provider or any other user, owner or operator of the System or the Inland Capacity or the public. The Purchaser shall bear the cost of any additional protective apparatus reasonably required to be installed because of the use of such facilities by the Purchaser, any lessees or permitted transferees of the Purchaser, or any customer or customers of the Purchaser or of any such lessee or transferee, provided, however, that this Section 7(a) shall only apply to the extent that such use is outside the ordinarily anticipated use of such facilities. The Grantor will cause all other purchasers of capacity in Inland Capacity provided hereunder to undertake obligations comparable to those of the Purchaser set forth in this Section, and the Purchaser shall cause all permitted users of the IRU in the Inland Capacity granted hereunder to undertake comparable obligations. 7 (b) The IRU in the Inland Capacity granted hereunder shall be made available to Grantor or the Backhaul Providers (or any of their subsidiaries or agents), at such times agreeable to the Purchaser and Grantor or the Backhaul Providers, as the case may be, to permit Grantor or the Backhaul Providers to conduct such tests and adjustments as may be necessary for such capacity to be maintained in efficient working order. 8. DURATION OF AGREEMENT. (a) This Agreement shall become effective on the ------------------------ day and year set forth in the preamble hereto and shall continue in operation until the twenty-fifth (25th) anniversary of the RFS Date for the System (the "Term"). ---- (b) The termination of this Agreement (whether under this Section or otherwise) shall not relieve the Purchaser from any liabilities arising prior to such termination. 9. APPROVALS; LICENSES. The performance of this Agreement by each party ---------------------- hereto is contingent upon the obtaining and the continuance of such approvals, consents, governmental authorizations, licenses and permits as may be required or reasonably deemed necessary by such party for performance by such party hereunder and as may be satisfactory to it. The parties shall use reasonable efforts to obtain and continue, and to have continued, such approvals, consents, licenses and permits. No license under patents is granted by Grantor or shall be implied or arise by estoppel in the Purchaser's favor with respect to any apparatus, system or method used by the Purchaser in connection with the use of the Inland Capacity granted to it hereunder. 10. DISCLAIMER. (a) Grantor has entered into Backhaul Agreements to obtain -------------- plant, equipment and services necessary to allow the Inland Capacity to be placed into operation on the applicable scheduled RFS Date. UNLESS SPECIFICALLY SET FORTH IN THIS AGREEMENT, ANY OTHER WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED TO, THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE SPECIFICALLY DISCLAIMED. (b) The Purchaser has entered into the Capacity Purchase Agreement with ACL in order to acquire an IRU in certain capacity on the System. The Purchaser acknowledges and agrees that Grantor does not warrant or guarantee the performance of the Capacity Purchase Agreement (or the Right of Use Agreement) and shall have no liability with respect thereto. 11. LIMITATIONS OF LIABILITY. (a) Except as otherwise provided in this ---------------------------- Agreement, in no event shall any party hereto be liable to the other for 8 consequential, incidental, indirect or special damages, including, but not limited to, loss of revenue, loss of business opportunity or the costs associated with the use of external restoration facilities, including, without limitation, for any loss or damage sustained by reason of any failure in or breakdown of any Inland Capacity or the facilities associated therewith, the failure of any Backhaul Provider to perform the terms and conditions of any Backhaul Agreement to which it is a party or for any interruption of service, whatever the cause and however long it shall last. (b) Grantor shall not be liable to the Purchaser for any loss or damage which may be suffered by the Purchaser by reason of any circumstances beyond the control of Grantor and having an adverse effect on the provision of any part of the Inland Capacity in which the Purchaser is entitled to capacity or has any other right or interest under this Agreement. Failure by a subcontractor of any of the parties to comply with its contractual commitments to such party shall not be deemed to be an event beyond the reasonable control of such party for the purposes of this Section 11. (c)(i) Grantor shall not be liable to the Purchaser for any loss or damage which may be suffered by the Purchaser as a result of, related to, or in connection with, the Purchaser's compliance or non-compliance with any applicable state, federal, foreign governmental, international (foreign or domestic) or other law related to the transfer of the IRU in, or the use of, the Inland Capacity granted hereunder. (ii) The Purchaser shall not be liable to Grantor for any loss or damage which may be suffered by Grantor as a result of, related to, or in connection with, Grantor's non-compliance with any applicable state, federal, foreign governmental, international (foreign or domestic) or other law related to the transfer by Grantor of the IRU to the Purchaser in, or Grantor's operation, ownership or use of, the Inland Capacity. 12. EXPORT CONTROL. The parties hereto acknowledge that to the extent any ------------------ products, software or technical information provided under this Agreement are or may be subject to any applicable export laws and regulations, the parties hereto agree that they will not use, distribute, transfer or transmit the products, software or technical information (even if incorporated into other products) except in compliance with such export laws and regulations (or licenses or orders issued pursuant thereto). If requested by either party hereto the other party agrees to sign all necessary export-related documents as may be required to comply therewith. 13. REPRESENTATIONS; INDEMNITY. (a) Grantor hereby represents and warrants ------------------------------ to Purchaser that (i) it is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization; (ii) the execution, delivery and performance of this Agreement by Grantor has been duly authorized by all necessary corporate action on the part of Grantor and this Agreement is a valid, binding and enforceable obligation of Grantor enforceable in accordance with 9 its terms and (iii) the execution, delivery and performance of this Agreement by Grantor does not violate, conflict with or constitute a breach of, the organizational documents or any order, decree or judgment of any court, tribunal or governmental authority binding on Grantor. (b) Purchaser hereby represents and warrants to Grantor that (i) Purchaser is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of organization; (ii) the execution, delivery and performance of this Agreement by Purchaser has been duly authorized by all necessary corporate action on the part of Purchaser and this Agreement is a valid, binding and enforceable obligation of Purchaser enforceable in accordance with its terms; and (iii) the execution, delivery and performance of this Agreement by Purchaser does not violate, conflict with or constitute a breach of, the organizational documents or any order, decree or judgment of any court, tribunal or governmental authority binding on Purchaser. (c) Each party hereby represents and warrants to the other party that it has obtained all approvals, consents, governmental authorizations, licenses and permits as may be required to enter into this Agreement, and grant or acquire, as the case may be, the IRU in the Inland Capacity and otherwise to perform its obligations hereunder. (d) The foregoing representations and warranties shall survive the execution and delivery of this Agreement. (e) Subject to Section 11, the Purchaser agrees to indemnify and hold harmless Grantor and its officers, directors, employees, agents, representatives, successors and assigns (each, an "indemnitee") from and against any loss, damage, expense or cost arising out of or in connection with (i) any breach or violation by the Purchaser of applicable law or governmental regulation, and (ii) any claims of whatever nature by third parties with respect to services provided by the Purchaser. (f) Subject to Section 11, Grantor agrees to indemnify and hold harmless the Purchaser and its officers, directors, employees, agents and representatives from and against any loss, damage, expense or cost arising out of or in connection with: (i) any breach or violation by Grantor of applicable law or governmental regulation, and (ii) any claims of whatever nature by third parties with respect to the services provided by Grantor. 14. RELATIONSHIP OF THE PARTIES. This Agreement shall not form a joint ------------------------------- venture or partnership or similar business arrangement between the parties hereto, and nothing contained herein shall be deemed to constitute a partnership or joint venture or similar business arrangement. 15. NO THIRD PARTY BENEFICIARIES. This Agreement does not provide and is -------------------------------- not intended to provide third parties (including, but not limited to, 10 customers of the Purchaser, any permitted transferee of the Inland Capacity acquired hereunder or any other permitted user of the Inland Capacity) with any remedy, claim, liability, reimbursement, cause of action, or any other right, except for assignees pursuant to an assignment which is permitted under Section 16 of this Agreement. Furthermore, the Purchaser acknowledges that it is not a third party beneficiary of any agreement entered into by Grantor including, but not limited to, the Backhaul Agreements. 16. ASSIGNMENT. -------------- (a) This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto, the Subsidiary Grantors and their respective successors and permitted assigns. (b) The Grantor shall solely be responsible for complying with all of the terms binding on the "Grantor" hereunder and shall not be permitted to assign, transfer or otherwise dispose of any or all of its right, title or interest hereunder or delegate any or all of its obligations hereunder to any person or entity except that the Grantor and the ------ Subsidiary Grantors shall be permitted to (i) effect a collateral assignment of their respective rights hereunder to one or more lenders to Grantor or its affiliates and (ii) assign, transfer or otherwise dispose of any or all of their rights hereunder and under the Subsidiary IRU Agreement and delegate any or all of their obligations hereunder and under the Subsidiary IRU Agreement to any present or future affiliated company of the Grantor or to an entity controlled by, under the same control as, or controlling, the Grantor. The Grantor shall give the Purchaser notice of any such assignment, transfer or other disposition or any such delegation. (c) The Purchaser shall solely be responsible for complying with all of the terms binding on the "Purchaser" hereunder and shall not be permitted to assign, transfer or otherwise dispose of any or all of its right, title or interest hereunder or under the Subsidiary IRU Agreement (except for leases, licenses and transfers of the right to use Capacity to the extent set forth in Section 16(d) below) or delegate any or all of its obligations hereunder or under the Subsidiary IRU Agreement to any person or entity except (i) a collateral assignment of its rights hereunder to one or more lenders to the Purchaser or its affiliates, and (ii) to any present or future affiliated company of the Purchaser or to an entity controlled by, under the same control as, or controlling, the Purchaser; and (iii) incident to the transfer of all or substantially all of its business or a substantial portion of its business (which shall include, without limitation, a transfer of assets); provided, however, that the -------- Purchaser shall remain responsible for the 11 performance of its obligations hereunder to the extent the assignee fails to perform such obligations. (d) (i) The Purchaser may enter into one or more agreements to lease or license the right to use any Purchased Capacity, so long as all such leases or licenses with any particular lessee or licensee (including all affiliates thereof) involve in the aggregate less than one (1) MCU of Purchased Capacity; (ii) The Purchaser may transfer a right to use any Purchased Capacity to a Carrier Party, so long as all such transfers to any particular transferee (including all affiliates thereof) involve in the aggregate less than one MCU of Purchased Capacity; (iii) Purchaser may not enter into any arrangements to lease, license or transfer a right to use an aggregate (in any combination of such arrangements) of one or more MCUs of Purchased Capacity to any particular lessee, licensee or transferee (including all affiliates thereof). (iv) No lease, license or transfer permitted by this Section 16(d) shall involve any delegation or other transfer of any of Purchaser's obligations or liabilities hereunder. Each lessee, licensee and transferee of any right to use Purchased Capacity shall derive all of its rights solely through the Purchaser and such rights shall be enforceable solely against the Purchaser. No such lessee, licensee or transferee shall become a third party beneficiary of this Agreement or obtain any right, title or interest in, to or under this Agreement or the Subsidiary IRU Agreement or the ability to enforce any provision hereof or thereof nor shall any thereof have any rights or claims against the Grantor for any reason whatsoever. The rights of any lessee, licensee or transferee of a right to use any Purchased Capacity shall be subject and subordinate to all the terms of this Agreement (including the Grantor's right to suspend service in the event of a default by Purchaser hereunder) and Purchaser shall remain primarily liable hereunder for the performance of all the terms of this Agreement to the same extent as if such lease, license or transfer had not occurred. Any such lease, license or transfer agreement shall prohibit further assignment, transfer or other disposition of Purchased Capacity except in accordance with the terms of this Section 16. (e) The Grantor will cause to be maintained a Customer Care Center to provide service to the Purchaser and other users of the System. Only Carrier Parties which have acquired and hold the right to use one or more whole MCUs of Capacity shall be entitled to utilize the services of the Customer Care Center. Every entity which has the right to use one or 12 more MCUs of Capacity shall promptly contact the Customer Care Center and provide all such information reasonably requested by the Customer Care Center. (f) Any assignment, transfer or other disposition by either Party which is in violation of this Section shall be void and of no force and effect. 17. CONDITION TO PURCHASER'S OBLIGATIONS. The Purchaser's obligation ---------------------------------------- to pay for an IRU with respect to any Inland Capacity connecting with any Purchased Capacity on any Segment other than Segment S-1 (for which the RFS Date has already occurred) shall terminate if the RFS Date for such Purchased Capacity has not occurred by June 30, 1999. In any such event, the Purchaser may terminate this Agreement in its entirety and receive a complete refund of all amounts paid hereunder or the Purchaser may terminate this Agreement only with respect to such Inland Capacity in which case Grantor shall refund all amounts paid by the Purchaser, if any, with respect to such Inland Capacity as to which Purchaser's obligation has terminated within thirty (30) days after the applicable date. 18. NOTICES. Each notice, demand, certification or other communication ----------- given or made under this Agreement shall be in writing and shall be delivered by hand or sent by registered mail or by facsimile transmission to the address of the respective party as set forth below its signature hereto (or such other address as may be designated in writing to the other party hereto in accordance with the terms of this Section). Any change to the name, address and facsimile numbers may be made at any time by giving fifteen (15) days prior written notice in accordance with this Section. Any such notice, demand or other communication shall be deemed to have been received, if delivered by hand, at the time of delivery or, if posted, at the expiration of seven (7) days after the envelope containing the same shall have been deposited in the post maintained for such purpose, postage prepaid, or, if sent by facsimile, at the date of transmission if confirmed receipt is followed by postal notice. 19. INCORPORATION BY REFERENCE. The provisions of Sections 12, 14, 15, ------------------------------ 23, 24, 25 and 26 of the Capacity Purchase Agreement are hereby incorporated herein by reference, mutatis mutandis, and shall be deemed a part of this Agreement as if fully set forth herein. 20. PUBLICITY AND CONFIDENTIALITY. (a) The provisions of this --------------------------------- Agreement and any non-public information, written or oral, with respect to this Agreement ("Confidential Information") will be kept confidential and shall not be disclosed, in whole or in part, to any person other than affiliates, officers, directors, employees, agents or representatives of a party (collectively, "Representatives") who need to know such Confidential Information for the purpose of negotiating, executing and implementing this Agreement. Each party agrees to inform each of its Representatives of the non-public nature of the Confidential Information and to direct 13 such persons to treat such Confidential Information in accordance with the terms of this Section 20. Nothing herein shall prevent a party from disclosing Confidential Information (i) upon the order of any court or administrative agency, (ii) upon the request or demand of, or pursuant to any regulation of, any regulatory agency or authority, (iii) to the extent reasonably required in connection with the exercise of any remedy hereunder, (iv) to a party's legal counsel or independent auditors, (v) to prospective lenders to the Grantor, and (vi) to any actual or proposed assignee, transferee or lessee of all or part of its rights hereunder provided that such actual or proposed assignee agrees in writing to be bound by the provisions of this Section 20. (b) The foregoing shall not restrict either party from publicly announcing that it has entered into this Agreement with the parties hereto, but without including any details contained in this Agreement. 14 IN WITNESS WHEREOF, the parties have executed this Agreement effective on the date first written above. VIA NET WORKS EUROPE HOLDING B.V. By: VIA NET.WORKS, INC., its Managing Director By: /s/ Matt Nydell --------------- Name: Matt Nydell ----------- Title: VP & General Counsel -------------------- c/o VIA NET.WORKS, Inc. 121000 Sunset Hills Road, Suite 110 Reston, VA 20190 USA Attention: Matt S. Nydell, Esq., V.P., General Counsel and Secretary Facsimile: 703-464-0608 GT U.K. LTD. By: /s/ Doug Molyneux ----------------- Name: Doug Molyneux ------------- Title: Under a Power of Attorney ------------------------- c/o Atlantic Crossing Ltd. Wessex House 45 Reid Street Hamilton HM 12 Bermuda Attention: President Facsimile: 441 296 8606 15 SCHEDULE I *****Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.***** DESCRIPTION OF INLAND CAPACITY
(a) (b) (c) (d) (e) Date of Transaction Inland Capacity Number of Whole MCUs Price Per Whole (c) x (d) MCU Purchase Price - ------------------------------------------------------------------------------------------------------ Whitesands, England One (1) [*****] [*****] to (See Note 1) (See Note 1) London, England ====================================================================================================== Total Purchase Price [*****] Payment Received May 28 [*****] Less Deposit on Signing [*****] Purchase Price To Be Financed [*****]
*****Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.***** VIA Net Works INSTALLMENT PAYMENTS UK BACKHAUL Price per MCU [*****] Payment Due Date September 30, 1999 Payment Terms - ------------- Date Payment - ---- ------- Payment received May 28, 1999 [*****] Deposit upon signing [*****] September 30, 1999 [*****] December 31, 1999 [*****] March 31, 2000 [*****] June 30, 2000 [*****] September 30, 2000 [*****] December 31, 2000 [*****] March 31, 2001 [*****] June 30, 2001 [*****] September 30, 2001 [*****] December 31, 2001 [*****] March 31, 2002 [*****] June 30, 2002 [*****] Total [*****] VIA Net Works By:________________ Name: Date: ATTACHMENT II RFS STANDARD RFS Standard means for any Inland Capacity that (a) the fiber optic telecommunications system carrying such capacity has the ability to carry commercial traffic between the System Interface at the Cable Station to the Inland Point of Interface meeting performance criteria of ITU-T G.826 and has protection switching capability and (b) the interface to the System shall be STM-1 (optical interface) as specified in ITU Recommendation G.957 and 1+1 protected or equivalent. EX-10.6 4 INDEFEASIBLE RIGHT OF USE AGREEMENT/US EXHIBIT 10.6 Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated by [*****]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission. ATLANTIC CROSSING/AC-1 SUBMARINE CABLE SYSTEM INDEFEASIBLE RIGHT OF USE AGREEMENT IN INLAND CAPACITY (United States) THIS AGREEMENT (as amended, supplemented or otherwise modified from time to time, this "Agreement"), made and entered into as of this 21 day of June, 1999, by and among GT LANDING CORP. ("Grantor") and VIA NET WORKS EUROPE HOLDING B.V., a company organized and existing under the laws of The Netherlands (the "Purchaser"). WITNESSETH: ---------- WHEREAS, the Purchaser and Atlantic Crossing Ltd. ("ACL") are parties to the Capacity Purchase Agreement, dated as of June 21, 1999 (as amended, supplemented or otherwise modified from time to time, the "Capacity Purchase Agreement"), to which this Agreement is attached; WHEREAS, capitalized terms used herein and not otherwise defined herein shall have the meanings given to them in the Capacity Purchase Agreement; WHEREAS, subject to the terms and conditions set forth in the Capacity Purchase Agreement, the Purchaser intends to acquire an IRU in the Purchased Capacity which represents capacity on the System between the System Interface points at the Cable Stations; WHEREAS, Grantor has acquired rights to capacity in order to give the Purchaser the option to extend the Purchased Capacity acquired on the System beyond the Cable Station to a certain point(s) of interface in the city specified on Schedule I hereto; WHEREAS, the Purchaser desires to acquire rights with respect to the Inland Capacity (as defined herein) set forth on Schedule I hereto on an indefeasible right of use basis ("IRU") and such Inland Capacity represents capacity between the System Interface point of the Cable Station and the point of interface in the applicable city set forth on Schedule I hereto; and 2 WHEREAS, the IRU in the Inland Capacity provided hereunder, together with the IRU in the S and T Capacity provided under the Capacity Purchase Agreement, convey to the Purchaser service between such S Capacity and the point of interface at the applicable city set forth on Schedule I hereto; NOW, THEREFORE, the parties hereto, in consideration of the mutual covenants contained herein covenant and agree with each other as follows: 1. DEFINITIONS. Terms defined in the preamble and in the recitals hereto -------------- shall have their respective meanings when used herein and the following terms shall have the following meanings: "Backhaul Agreement" means any agreement between Grantor and a ------------------ Backhaul Provider, pursuant to which Grantor acquires rights in Inland Capacity. "Backhaul Provider" means any entity providing Grantor rights to ----------------- Inland Capacity. "business day" means a day other than a Saturday, Sunday or other day ------------ on which commercial banks in New York City or Bermuda are authorized or required by law to close. "Cable Station" means the cable station described on Schedule I ------------- hereto. "Dollars" or "$" means United States dollars. ------- - "Grantor's Account" means the bank account of Grantor maintained with ----------------- Deutsche Bank AG, New York Branch, at 31 West 52nd Street, New York, New York 10019 (account number 105330260016) or such other account as Grantor may designate to the Purchaser in writing. Wire instructions for the above- referenced account are as follows: Account Name: Atlantic Crossing Ltd. Account Number: 105330260016 Bank Name: Deutsche Bank AG, New York Branch ABA No.: 026 003 780 Reference: Atlantic Crossing Attn: Lydia Zaininger "Initial Payment Date" means, with respect to the IRU granted in -------------------- respect of any Inland Capacity set forth on Schedule I hereto, the date on which the Purchaser pays Grantor, in immediately available Dollars, the initial amount required to be paid by the Purchaser for such Inland Capacity in accordance with Section 3(b) of this Agreement. "Inland Capacity" means capacity on a fiber optic telecommunications --------------- system which connects the System Interface at the Cable Station to the Inland Point of Interface. "Inland Capacity Purchase Price" means, with respect to the IRU granted ------------------------------ in respect 3 of any Inland Capacity set forth on Schedule I hereto, the amount payable by the Purchaser in respect of such Inland Capacity and set forth under the heading "Purchase Price" on Schedule I hereto. "Inland Point of Interface" means the point of interface in the ------------------------- applicable city set forth on Schedule I hereto. "Minimum Capacity Unit" or "MCU" means the minimum capacity to be --------------------- --- purchased by the Purchaser in the Inland Capacity. An STM-1 is designated as the MCU for purposes of this Agreement. "Payment Due Date" means, with respect to the IRU granted in respect ---------------- of any Inland Capacity, the payment date as set forth in Schedule I hereto. "RFS Date" means, with respect to any Inland Capacity, the date on -------- which such Inland Capacity will be available for service and has achieved the RFS Standard described in Attachment 2. "Total Purchase Price" means the aggregate amount payable by the -------------------- Purchaser for the IRU in the Inland Capacity and set forth on the bottom of Schedule I to this Agreement opposite the phrase "Total Purchase Price." 2. IRU FOR INLAND CAPACITY. Effective on the Initial Payment Date, Grantor -------------------------- grants to the Purchaser, for the term of this Agreement, an IRU in the Inland Capacity on the terms and conditions set forth herein. So long as no event has occurred which entitles Grantor to suspend service under this Agreement, the Purchaser shall be entitled to the quiet enjoyment and use of the rights granted hereunder free from interference from the Grantor or any person claiming through Grantor, such as Grantor's lenders. 3. PAYMENT FOR CAPACITY. (a) Financing. Grantor shall finance the Purchase ----------------------- --------- Price for the Purchased Capacity in accordance with Schedule II of the Capacity Purchase Agreement. Payments by Purchaser shall (i) be calculated to pay Grantor interest calculated at the rate set out therein, (ii) be pre-payable, in whole or in part, without penalty, and (iii) be secured by Grantor retaining a security interest in the IRU until the Purchase Price is fully paid. Each of the parties shall, at its expense, take all such actions and make all such filings and recordings as are reasonably requested to establish, perfect and protect the other party's interest in such IRU. (b) Payment of Inland Capacity Purchase Price. In exchange for the IRU ----------------------------------------- interest granted pursuant to this Agreement in any Inland Capacity, the Purchaser shall, on or before each Payment Due Date, pay to the Grantor's Account in immediately available Dollars, an amount equal to the Inland Capacity Purchase Price; provided, however, the aggregate payments made by the Purchaser -------- ------- under paragraphs (a) and (b) of this Section 3 shall not exceed the Total Purchase Price. (c) Taxes. All payments made by the Purchaser under this Section 3 shall be ----- made without any deduction or withholding for or on account of any tax, duty or other charges of 4 whatever nature imposed by any taxing or governmental authority in the jurisdiction from which payment by the Purchaser originates or in any other jurisdiction claiming the right to impose such tax, duty or charge due to the location of any business or properties of the Purchaser (collectively "Taxes"). If the Purchaser is or was required by law to make any deduction or withholding for or on account of any Taxes from any payment due hereunder to Grantor, then, notwithstanding anything to the contrary contained in this Agreement, the gross amount payable by the Purchaser to Grantor will be increased so that, after any such deduction or withholding for Taxes, the net amount received by Grantor will not be less than Grantor would have received had no such deduction or withholding been required. If any taxing or government authority asserts that the Purchaser should have made a deduction or withholding for on account of any Taxes with respect to all or a portion of any payment made hereunder, the Purchaser hereby agrees to indemnify the Grantor for such Taxes and hold the Grantor harmless on an after-tax basis from and against any Taxes, interest or penalties levied or asserted in connection therewith. 4. OPERATION AND MAINTENANCE OF INLAND CAPACITY. ------------------------------------------------ (a) Except as otherwise set forth in this Agreement, the Purchaser shall not be required to make any additional payments for costs associated with operating, maintaining and repairing the Inland Capacity in which an IRU has been granted hereunder. (b) Grantor shall use reasonable commercial efforts to cause the Inland Capacity in which an IRU has been granted hereunder to be maintained in efficient working order and in accordance with industry standards and, to the extent applicable, the Maintenance Performance Standards set forth in Schedule IV to the Capacity Purchase Agreement which Schedule IV is incorporated herein by reference. Grantor represents that at all times it shall use commercially reasonable efforts to require the applicable Backhaul Provider with which it has contracted to provide routine, preventive and corrective maintenance for the Inland Capacity in accordance with performance standards that at least meet prudent industry standards. Grantor will use reasonable commercial efforts to cause the Backhaul Provider with which it has contracted to perform its obligations under the applicable Backhaul Agreement. (c) Grantor will have sole responsibility for negotiating, executing and administering contracts related to the acquisition of rights in any Inland Capacity from Backhaul Providers. (d) Should any condition exist in any Inland Capacity in which an IRU has been granted hereunder that may impair the integrity of such Inland Capacity, Grantor shall take reasonable actions to cause to be initiated maintenance on such Inland Capacity and Grantor shall take reasonable actions to cause to be initiated planned maintenance on such Inland Capacity in each case which may include the deactivation of such Inland Capacity. Grantor shall, to the extent reasonably practicable, advise the Purchaser in writing at least thirty (30) days (or such shorter period as may be agreed) prior to the initiation of a planned maintenance operation of the timing and scope of such planned maintenance operation. (e) In addition to fulfilling its obligations as set forth in Section 4(b), in the event of disruption of service, Grantor shall use commercially reasonable efforts to cause service to be 5 restored as quickly as reasonably possible, and Grantor shall take such measures as are reasonably necessary to obtain such objective. 5. INVOICES; DEFAULT INTEREST. (a) Invoices. Grantor or its authorized ----------------------------- -------- agent shall render invoices under this Agreement in Dollars, and the Purchaser shall pay such amount in Dollars. The Purchaser shall make all payments by means of a wire transfer to the Grantor's Account. Any payments required to be made pursuant to this Agreement shall, save for the Initial Payment which shall be made in accordance with the provisions of Section 3(b), be made on the later of (i) the date when due or (ii) thirty (30) business days after an invoice is received from Grantor by Purchaser. In the event the Purchaser has a dispute, in respect of payment(s), and such dispute is of a reasonable, good faith, commercial and uncapricious nature, the Purchaser shall be entitled to withhold such payment(s) until the dispute is resolved. The Purchaser shall, however, be obliged to use best efforts to assist in resolving such dispute referred to in this Section 5(a). (b) Any invoice rendered under this Agreement which is not paid when due, shall accrue interest at the annual rate of six percent (6%) above the rate for U.S. dollar LIBOR for one month as quoted in The Wall Street Journal on the ----------------------- first business day of the month in which such payment is due. Such interest shall accrue from the day following the date payment was due until it is paid in full. In the event that applicable law does not allow the imposition of "default interest" at the rate established in accordance with this Section 5(b), such "default interest" shall be at the highest rate permitted by applicable law. For purposes of this Section, "paid" shall mean that funds are available for immediate use by Grantor. 6. DEFAULT. (a) Subject to Section 5(a) hereof, if the Purchaser fails to ---------- make any payment required by this Agreement on the date that it is due or if the Purchaser is otherwise in breach of this Agreement, and such payment default continues unremedied for a period of at least five (5) days or such other breach continues for a period of at least thirty (30) days, Grantor or its authorized agent may notify the Purchaser in writing of such payment default or other breach and if full payment is not received or such other breach is not fully remedied within fifteen (15) days of such notification, Grantor (i) may suspend all service provided to Purchaser hereunder (including suspending Purchaser's right to use the Inland Capacity), until such payment default or other breach has been cured (including payment of default interest, if any) and (ii) shall be entitled to pursue any and all rights and legal and equitable remedies (including its rights and remedies to enforce the Purchaser's obligations under this Agreement). (b) If the Grantor is in breach of this Agreement and such breach continues for a period of at least thirty (30) days, the Purchaser may notify the Grantor in writing of such breach and if such breach is not fully remedied within fifteen (15) days of such notification, the Purchaser shall be entitled to pursue any and all rights and legal and equitable remedies, including its rights and remedies to enforce Grantor's obligations under this Agreement and further including the right to terminate this Agreement and receive a pro-rata refund of the Purchase Price based upon the remaining term. The Purchaser's right to pursue any and all rights and legal and equitable remedies shall continue for so long as such breach continues, provided, however, that a subsequent cure of any such breach by Grantor shall not prejudice (i) any right or remedy properly exercised by the Purchaser prior to the time such cure has been effected, or (ii) the Purchaser's right to claim 6 damages with respect to the period prior to the time such cure has been effected. 7. USE OF CAPACITY. (a) The use of the Inland Capacity granted hereunder ------------------ and any equipment associated therewith shall be such as not to interrupt, interfere with, or impair service over any of the facilities comprising the System or the Inland Capacity, or impair privacy of any communications over such facilities, cause damage to plant or create hazards to employees, affiliates or connecting companies of ACL, the Grantor, any Backhaul Provider or any other user, owner or operator of the System or the Inland Capacity or the public. The Purchaser shall bear the cost of any additional protective apparatus reasonably required to be installed because of the use of such facilities by the Purchaser, any lessees or permitted transferees of the Purchaser, or any customer or customers of the Purchaser or of any such lessee or transferee, provided, however, that this Section 7(a) shall only apply to the extent that such use is outside the ordinarily anticipated use of such facilities. The Grantor will cause all other purchasers of capacity in Inland Capacity provided hereunder to undertake obligations comparable to those of the Purchaser set forth in this Section, and the Purchaser shall cause all permitted users of the IRU in the Inland Capacity granted hereunder to undertake comparable obligations. (b) The IRU in the Inland Capacity granted hereunder shall be made available to Grantor or the Backhaul Providers (or any of their subsidiaries or agents), Iat such times agreeable to the Purchaser and Grantor or the Backhaul Providers, as the case may be, to permit Grantor or the Backhaul Providers to conduct such tests and adjustments as may be necessary for such capacity to be maintained in efficient working order. 8. DURATION OF AGREEMENT. (a) This Agreement shall become effective on the ------------------------ day and year set forth in the preamble hereto and shall continue in operation until the twenty-fifth (25th) anniversary of the RFS Date for the System (the "Term"). ---- (b) The termination of this Agreement (whether under this Section or otherwise) shall not relieve the Purchaser from any liabilities arising prior to such termination. 9. APPROVALS; LICENSES. The performance of this Agreement by each party ---------------------- hereto is contingent upon the obtaining and the continuance of such approvals, consents, governmental authorizations, licenses and permits as may be required or reasonably deemed necessary by such party for performance by such party hereunder and as may be satisfactory to it. The parties shall use reasonable efforts to obtain and continue, and to have continued, such approvals, consents, licenses and permits. No license under patents is granted by Grantor or shall be implied or arise by estoppel in the Purchaser's favor with respect to any apparatus, system or method used by the Purchaser in connection with the use of the Inland Capacity granted to it hereunder. 10. DISCLAIMER. (a) Grantor has entered into Backhaul Agreements to obtain -------------- plant, equipment and services necessary to allow the Inland Capacity to be placed into operation on the applicable scheduled RFS Date. UNLESS SPECIFICALLY SET FORTH IN THIS AGREEMENT, ANY OTHER WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED TO, THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE SPECIFICALLY DISCLAIMED. 7 (b) The Purchaser has entered into the Capacity Purchase Agreement with ACL in order to acquire an IRU in certain capacity on the System. The Purchaser acknowledges and agrees that Grantor does not warrant or guarantee the performance of the Capacity Purchase Agreement (or the Right of Use Agreement) and shall have no liability with respect thereto. 11. LIMITATIONS OF LIABILITY. (a) Except as otherwise provided in this ---------------------------- Agreement, in no event shall any party hereto be liable to the other for consequential, incidental, indirect or special damages, including, but not limited to, loss of revenue, loss of business opportunity or the costs associated with the use of external restoration facilities, including, without limitation, for any loss or damage sustained by reason of any failure in or breakdown of any Inland Capacity or the facilities associated therewith, the failure of any Backhaul Provider to perform the terms and conditions of any Backhaul Agreement to which it is a party or for any interruption of service, whatever the cause and however long it shall last. (b) Grantor shall not be liable to the Purchaser for any loss or damage which may be suffered by the Purchaser by reason of any circumstances beyond the control of Grantor and having an adverse effect on the provision of any part of the Inland Capacity in which the Purchaser is entitled to capacity or has any other right or interest under this Agreement. Failure by a subcontractor of any of the parties to comply with its contractual commitments to such party shall not be deemed to be an event beyond the reasonable control of such party for the purposes of this Section 11. (c)(i) Grantor shall not be liable to the Purchaser for any loss or damage which may be suffered by the Purchaser as a result of, related to, or in connection with, the Purchaser's compliance or non-compliance with any applicable state, federal, foreign governmental, international (foreign or domestic) or other law related to the transfer of the IRU in, or the use of, the Inland Capacity granted hereunder. (ii) The Purchaser shall not be liable to Grantor for any loss or damage which may be suffered by Grantor as a result of, related to, or in connection with, Grantor's non-compliance with any applicable state, federal, foreign governmental, international (foreign or domestic) or other law related to the transfer by Grantor of the IRU to the Purchaser in, or Grantor's operation, ownership or use of, the Inland Capacity. 12. EXPORT CONTROL. The parties hereto acknowledge that to the extent any ------------------ products, software or technical information provided under this Agreement are or may be subject to any applicable export laws and regulations, the parties hereto agree that they will not use, distribute, transfer or transmit the products, software or technical information (even if incorporated into other products) except in compliance with such export laws and regulations (or licenses or orders issued pursuant thereto). If requested by either party hereto the other party agrees to sign all necessary export-related documents as may be required to comply therewith. 13. REPRESENTATIONS; INDEMNITY. (a) Grantor hereby represents and warrants ------------------------------ to Purchaser that (i) it is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization; (ii) the execution, delivery and 8 performance of this Agreement by Grantor has been duly authorized by all necessary corporate action on the part of Grantor and this Agreement is a valid, binding and enforceable obligation of Grantor enforceable in accordance with its terms and (iii) the execution, delivery and performance of this Agreement by Grantor does not violate, conflict with or constitute a breach of, the organizational documents or any order, decree or judgment of any court, tribunal or governmental authority binding on Grantor. (b) Purchaser hereby represents and warrants to Grantor that (i) Purchaser is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of organization; (ii) the execution, delivery and performance of this Agreement by Purchaser has been duly authorized by all necessary corporate action on the part of Purchaser and this Agreement is a valid, binding and enforceable obligation of Purchaser enforceable in accordance with its terms; and (iii) the execution, delivery and performance of this Agreement by Purchaser does not violate, conflict with or constitute a breach of, the organizational documents or any order, decree or judgment of any court, tribunal or governmental authority binding on Purchaser. (c) Each party hereby represents and warrants to the other party that it has obtained all approvals, consents, governmental authorizations, licenses and permits as may be required to enter into this Agreement, and grant or acquire, as the case may be, the IRU in the Inland Capacity and otherwise to perform its obligations hereunder. (d) The foregoing representations and warranties shall survive the execution and delivery of this Agreement. (e) Subject to Section 11, the Purchaser agrees to indemnify and hold harmless Grantor and its officers, directors, employees, agents, representatives, successors and assigns (each, an "indemnitee") from and against any loss, damage, expense or cost arising out of or in connection with (i) any breach or violation by the Purchaser of applicable law or governmental regulation, and (ii) any claims of whatever nature by third parties with respect to services provided by the Purchaser. (f) Subject to Section 11, Grantor agrees to indemnify and hold harmless the Purchaser and its officers, directors, employees, agents and representatives from and against any loss, damage, expense or cost arising out of or in connection with: (i) any breach or violation by Grantor of applicable law or governmental regulation, and (ii) any claims of whatever nature by third parties with respect to the services provided by Grantor. 14. RELATIONSHIP OF THE PARTIES. This Agreement shall not form a joint ------------------------------- venture or partnership or similar business arrangement between the parties hereto, and nothing contained herein shall be deemed to constitute a partnership or joint venture or similar business arrangement. 15. NO THIRD PARTY BENEFICIARIES. This Agreement does not provide and is -------------------------------- not intended to provide third parties (including, but not limited to, customers of the Purchaser, any permitted transferee of the Inland Capacity acquired hereunder or any other 9 permitted user of the Inland Capacity) with any remedy, claim, liability, reimbursement, cause of action, or any other right, except for assignees pursuant to an assignment which is permitted under Section 16 of this Agreement. Furthermore, the Purchaser acknowledges that it is not a third party beneficiary of any agreement entered into by Grantor including, but not limited to, the Backhaul Agreements. 16. ASSIGNMENT. --------------- (a) This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto, the Subsidiary Grantors and their respective successors and permitted assigns. (b) The Grantor shall solely be responsible for complying with all of the terms binding on the "Grantor" hereunder and shall not be permitted to assign, transfer or otherwise dispose of any or all of its right, title or interest hereunder or delegate any or all of its obligations hereunder to any person or entity except that the Grantor and the Subsidiary Grantors shall be ------ permitted to (i) effect a collateral assignment of their respective rights hereunder to one or more lenders to Grantor or its affiliates and (ii) assign, transfer or otherwise dispose of any or all of their rights hereunder and under the Subsidiary IRU Agreement and delegate any or all of their obligations hereunder and under the Subsidiary IRU Agreement to any present or future affiliated company of the Grantor or to an entity controlled by, under the same control as, or controlling, the Grantor. The Grantor shall give the Purchaser notice of any such assignment, transfer or other disposition or any such delegation. (c) The Purchaser shall solely be responsible for complying with all of the terms binding on the "Purchaser" hereunder and shall not be permitted to assign, transfer or otherwise dispose of any or all of its right, title or interest hereunder or under the Subsidiary IRU Agreement (except for leases, licenses and transfers of the right to use Capacity to the extent set forth in Section 16(d) below) or delegate any or all of its obligations hereunder or under the Subsidiary IRU Agreement to any person or entity except (i) a collateral assignment of its rights hereunder to one or more lenders to the Purchaser or its affiliates, and (ii) to any present or future affiliated company of the Purchaser or to an entity controlled by, under the same control as, or controlling, the Purchaser; and (iii) incident to the transfer of all or substantially all of its business or a substantial portion of its business (which shall include, without limitation, a transfer of assets); provided, however, that the Purchaser -------- shall remain responsible for the performance of its obligations hereunder to the extent the assignee fails to perform such obligations. (d) (i) The Purchaser may enter into one or more agreements to lease or license the right to use any Purchased Capacity, so long as all such leases or licenses with any particular lessee or licensee (including all affiliates thereof) involve in the aggregate less than one (1) MCU of Purchased Capacity; (ii) The Purchaser may transfer a right to use any Purchased Capacity to a Carrier Party, so long as all such transfers to any particular transferee (including all affiliates thereof) involve in the aggregate less than one MCU of Purchased Capacity; (iii) Purchaser may not enter into any arrangements to lease, license or transfer a right to use an aggregate (in any combination of such arrangements) of one or more 11 MCUs of Purchased Capacity to any particular lessee, licensee or transferee (including all affiliates thereof). (iv) No lease, license or transfer permitted by this Section 16(d) shall involve any delegation or other transfer of any of Purchaser's obligations or liabilities hereunder. Each lessee, licensee and transferee of any right to use Purchased Capacity shall derive all of its rights solely through the Purchaser and such rights shall be enforceable solely against the Purchaser. No such lessee, licensee or transferee shall become a third party beneficiary of this Agreement or obtain any right, title or interest in, to or under this Agreement or the Subsidiary IRU Agreement or the ability to enforce any provision hereof or thereof nor shall any thereof have any rights or claims against the Grantor for any reason whatsoever. The rights of any lessee, licensee or transferee of a right to use any Purchased Capacity shall be subject and subordinate to all the terms of this Agreement (including the Grantor's right to suspend service in the event of a default by Purchaser hereunder) and Purchaser shall remain primarily liable hereunder for the performance of all the terms of this Agreement to the same extent as if such lease, license or transfer had not occurred. Any such lease, license or transfer agreement shall prohibit further assignment, transfer or other disposition of Purchased Capacity except in accordance with the terms of this Section 16. (e) The Grantor will cause to be maintained a Customer Care Center to provide service to the Purchaser and other users of the System. Only Carrier Parties which have acquired and hold the right to use one or more whole MCUs of Capacity shall be entitled to utilize the services of the Customer Care Center. Every entity which has the right to use one or more MCUs of Capacity shall promptly contact the Customer Care Center and provide all such information reasonably requested by the Customer Care Center. (f) Any assignment, transfer or other disposition by either Party which is in violation of this Section shall be void and of no force and effect. 17. CONDITION TO PURCHASER'S OBLIGATIONS. The Purchaser's obligation to pay ---------------------------------------- for an IRU with respect to any Inland Capacity connecting with any Purchased Capacity on any Segment other than Segment S-1 (for which the RFS Date has already occurred) shall terminate if the RFS Date for such Purchased Capacity has not occurred by June 30, 1999. In any such event, the Purchaser may terminate this Agreement in its entirety and receive a complete refund of all amounts paid hereunder or the Purchaser may terminate this Agreement only with respect to such Inland Capacity in which case Grantor shall refund all amounts paid by the Purchaser, if any, with respect to such Inland Capacity as to which Purchaser's obligation has terminated within thirty (30) days after the applicable date. 18. NOTICES. Each notice, demand, certification or other communication ----------- given or made under this Agreement shall be in writing and shall be delivered by hand or sent by registered mail or by facsimile transmission to the address of the respective party as set forth below its 12 signature hereto (or such other address as may be designated in writing to the other party hereto in accordance with the terms of this Section). Any change to the name, address and facsimile numbers may be made at any time by giving fifteen (15) days prior written notice in accordance with this Section. Any such notice, demand or other communication shall be deemed to have been received, if delivered by hand, at the time of delivery or, if posted, at the expiration of seven (7) days after the envelope containing the same shall have been deposited in the post maintained for such purpose, postage prepaid, or, if sent by facsimile, at the date of transmission if confirmed receipt is followed by postal notice. 19. INCORPORATION BY REFERENCE. The provisions of Sections 12, 14, 15, 23, ------------------------------ 24, 25 and 26 of the Capacity Purchase Agreement are hereby incorporated herein by reference, mutatis mutandis, and shall be deemed a part of this Agreement as if fully set forth herein. 20. PUBLICITY AND CONFIDENTIALITY. (a) The provisions of this Agreement and --------------------------------- any non-public information, written or oral, with respect to this Agreement ("Confidential Information") will be kept confidential and shall not be disclosed, in whole or in part, to any person other than affiliates, officers, directors, employees, agents or representatives of a party (collectively, "Representatives") who need to know such Confidential Information for the purpose of negotiating, executing and implementing this Agreement. Each party agrees to inform each of its Representatives of the non-public nature of the Confidential Information and to direct such persons to treat such Confidential Information in accordance with the terms of this Section 20. Nothing herein shall prevent a party from disclosing Confidential Information (i) upon the order of any court or administrative agency, (ii) upon the request or demand of, or pursuant to any regulation of, any regulatory agency or authority, (iii) to the extent reasonably required in connection with the exercise of any remedy hereunder, (iv) to a party's legal counsel or independent auditors, (v) to prospective lenders to the Grantor, and (vi) to any actual or proposed assignee, transferee or lessee of all or part of its rights hereunder provided that such actual or proposed assignee agrees in writing to be bound by the provisions of this Section 20. (b) The foregoing shall not restrict either party from publicly announcing that it has entered into this Agreement with the parties hereto, but without including any details contained in this Agreement. 13 IN WITNESS WHEREOF, the parties have executed this Agreement effective on the date first written above. VIA NET WORKS EUROPE HOLDING B.V. By: VIA NET.WORKS, INC., its Managing Director By: /s/ Matt Nydell ------------------------- Name: Matt Nydell ----------------------- Title: VP & General Counsel ----------------------- c/o VIA NET.WORKS, Inc. 121000 Sunset Hills Road, Suite 110 Reston, VA 20190 USA Attention: Matt S. Nydell, Esq., V.P., General Counsel and Secretary Facsimile: 703-464-0608 GT LANDING CORP. By: /s/ Doug Molyneux ---------------------------- Name: Doug Molyneux -------------------------- Title: Under a Power of Attorney -------------------------- c/o Atlantic Crossing Ltd. Wessex House 45 Reid Street Hamilton HM 12 Bermuda Attention: President Facsimile: 441-296-8606 SCHEDULE I *****Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.***** DESCRIPTION OF INLAND CAPACITY
============================================================================================================ (a) (b) (c) (d) (e) Date of Inland Capacity (set forth Number of Whole MCUs Price Per Whole (c) x (d) Transaction Cable Station and Inland MCU Purchase Price Point of Interface) - ------------------------------------------------------------------------------------------------------------ Brookhaven, NY One (1) [*****] [*****] to (See Note 1) (See Note 1) 60 Hudson Street New York City - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ ============================================================================================================
Total Purchase Price [*****] Payment Received May 28 [*****] Net Purchase Price Due [*****] Purchase Price To Be Financed [*****] Note 1 : Subject to Section 2(a) hereof. *****Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the the omitted portions.***** VIA Net Works INSTALLMENT PAYMENTS US BACKHAUL Price per MCU [*****] Payment Due Date September 30, 1999 Payment Terms - ------------- Date Payment - ---- ------- Payment received May 28, 1999 [*****] Deposit upon signing [*****] September 30, 1999 [*****] December 31, 1999 [*****] March 31, 2000 [*****] June 30, 2000 [*****] September 30, 2000 [*****] December 31, 2000 [*****] March 31, 2001 [*****] June 30, 2001 [*****] September 30, 2001 [*****] December 31, 2001 [*****] March 31, 2002 [*****] June 30, 2002 [*****] Total [*****] VIA Net Works By: ----------------- Name: Date: ATTACHMENT II RFS STANDARD RFS Standard means for any Inland Capacity that (a) the fiber optic telecommunications system carrying such capacity has the ability to carry commercial traffic between the System Interface at the Cable Station to the Inland Point of Interface meeting performance criteria of ITU-T G.826 and has protection switching capability and (b) the interface to the System shall be STM-1 (optical interface) as specified in ITU Recommendation G.957 and 1+1 protected or equivalent. EX-10.7 5 CAPACITY PURCHASE AGREEMENT EXHIBIT 10.7 Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated by [*****]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission. ATLANTIC CROSSING/AC-1 SUBMARINE CABLE SYSTEM CAPACITY PURCHASE AGREEMENT THIS AGREEMENT (as amended, supplemented or otherwise modified from time to time, this "Agreement"), made and entered into as of this 21st day of June, 1999, between ATLANTIC CROSSING LTD., a company organized and existing under the laws of Bermuda and having its principal office in Bermuda (the "Grantor"), and VIA NET WORKS EUROPE HOLDING B.V., a company organized and existing under the laws of The Netherlands and having its principal office at Veena 723C-6, PO Box 3013 AM, Rotterdam, The Netherlands (the "Purchaser"). W I T N E S S E T H : - - - - - - - - - - WHEREAS, the Grantor, (formerly known as Global Telesystems Ltd.), certain of its subsidiaries, SSI Atlantic Crossing LLC and AT&T Submarine Systems, Inc., now known as Tyco Submarine Systems Ltd. (together with its successors and assigns, "TSSL") have entered into the Project Development and Construction Contract, dated March 18, 1997 (as amended, supplemented or otherwise modified from time to time, the "Supply Contract"), pursuant to which TSSL has agreed to design, manufacture, construct, install and deliver a fiber optic cable system connecting (a) the United States to the United Kingdom, (b) the United Kingdom to the Netherlands, (c) the Netherlands to Germany and (d) Germany to the United States (the "System"); WHEREAS, the Grantor, certain of its subsidiaries, SSI Atlantic Crossing LLC and TSSL have also entered into the Operations, Administration and Maintenance Agreement, dated as of March 25, 1997 (as amended, supplemented or otherwise modified from time to time, the "OA&M Agreement"), pursuant to which TSSL has agreed, in accordance with the terms thereof, to operate, administer and maintain the System; WHEREAS, the Purchaser desires to acquire rights with respect to the Purchased Capacity (as defined herein) on an indefeasible right of use basis ("IRU") and such Purchased Capacity represents capacity on the System between the System Interface (as defined herein) of the applicable cable stations; WHEREAS, the Purchased Capacity is comprised of: (a) S Capacity (as defined herein), which will be conveyed by the Grantor to the Purchaser pursuant to this Agreement; and (b) to the extent necessary to allow the Purchaser to use its IRU in the applicable S Capacity, T Capacity (as defined herein), which will be conveyed by subsidiaries of the Grantor to the Purchaser pursuant to the Indefeasible Right of Use Agreement, attached hereto as Annex A; and WHEREAS, in order to obtain inland connection services in the United States and the United Kingdom for the purpose of extending the Purchased Capacity inland to a location in New York City and London (the "Inland Capacity"), the Purchaser has the option of entering into separate agreements (the "Inland Capacity Agreements") with subsidiaries or affiliates of the Grantor located in the United States and the United Kingdom (the "Inland Affiliates"); NOW, THEREFORE, the parties hereto, in consideration of the mutual covenants contained herein, covenant and agree with each other as follows: 1. DEFINITIONS. Terms defined in the preamble, in the recitals and Annex B hereto shall have their respective meanings when used herein and the following terms shall have the following meanings: "Access Connection" as defined in Annex B to this Agreement. ----------------- "Adjusted Pro Rata Share" as defined in Annex B to this Agreement. ----------------------- "Advisory Committee" as defined in Paragraph 5 of Annex B to this ------------------ Agreement. "business day" means a day other than a Saturday, Sunday or other day ------------ on which commercial banks in New York City or Bermuda are authorized or required to close. "Dollars" or "$" means United States dollars. -------------- "European Segment" means Segment S-3a, S-3b and/or S-3c. ---------------- "Grantor's Account" means the bank account of the Grantor maintained ----------------- with Deutsche Bank AG, New York Branch, at 31 West 52nd Street, New York, New York 10019 (account number 10-533026-0016) or such other account as the Grantor may designate to the Purchaser in writing. Wire instructions for the above-referenced account are as follows: Account Name: Atlantic Crossing Ltd. Account Number: 10-533026-0016 Bank Name: Deutsche Bank AG, New York Branch ABA No.: 026-003-780 Reference: Atlantic Crossing Attn: Lydia Zaininger "Initial Payment Date" means, with respect to the IRU granted in -------------------- respect of the Purchased Capacity, the date on which the Purchaser pays the Grantor (for the benefit of the Grantor and the benefit of the Subsidiary Grantors), in immediately available Dollars, the initial amount required to 2 be paid by the Purchaser for such Purchased Capacity in accordance with Section 3(b) of this Agreement. "Maintenance Costs" as defined in Section 4(a) of this Agreement. ----------------- "Minimum Capacity Unit" or "MCU" means the minimum capacity to be --------------------- --- purchased by the Purchaser in the System. A STM-1 is designated as the MCU for purposes of this Agreement. "Operator" means TSSL and its successors and assigns as operator under -------- the OA&M Agreement or any successor operator of the System appointed by Grantor. "Payment Due Date" means, with respect to the IRU granted in respect ---------------- of any Purchased Capacity, the payment date as set forth in Schedule II hereto. "Purchased Capacity" means the S Capacity set forth on Schedule I ------------------ hereto, together with to the extent necessary to allow the Purchaser to use its IRU in the applicable S Capacity, the applicable T Capacity. "Purchase Price" means, with respect to the IRU granted in respect of -------------- any Purchased Capacity, the amount payable by the Purchaser to the Grantor (for the benefit of the Grantor and the benefit of the Subsidiary Grantors) in respect of such Purchased Capacity and set forth under the heading "Total Purchase Price" on Schedule I to this Agreement. "RFS Date" means, with respect to any Segment, the date on which such -------- Segment will be available for service, which shall be the date on which the Grantor certifies that (i) such Segment has achieved the standard described in Attachment 4 to Annex B hereto, (ii) such Segment has been accepted by Grantor as ready for commercial service under the Supply Contract and (iii) the independent engineer engaged by Grantor's senior lenders has concurred with such acceptance. The RFS Date for Segment S-1 (and the related T Segments) was May 22, 1998. The RFS Date for Segment S-2 was November 30, 1998. The RFS Date for Segment S-3a, Segment S-3b, Segment S-3c, Segment S-4 and the entire System was February 22, 1999. "Right of Use Agreement" means the Indefeasible Right of Use ---------------------- Agreement, dated as of the date hereof, made by GT Landing Corp., GT U.K. Ltd., Global Telesystems GmbH and GT Netherlands B.V. in favor of purchasers of capacity on the System (including the Purchaser) and attached as Annex A to this Agreement, as such agreement may be amended, supplemented or otherwise modified from time to time in accordance with Paragraph 9 thereof. "S Capacity" means capacity on the System available on any S Segment. ---------- 3 "S Segments" the collective reference to Segment S-1, S-2 and S-3a, ---------- S-3b, S-3c and S-4, as necessary. "Segment S-1" as defined in Annex B to this Agreement. ----------- "Segment S-2" as defined in Annex B to this Agreement. ----------- "Segment S-3a" as defined in Annex B to this Agreement. ------------ "Segment S-3b" as defined in Annex B to this Agreement. ------------ "Segment S-3c" as defined in Annex B to this Agreement. ------------ "Segment S-4" as defined in Annex B to this Agreement. ----------- "Segment T-1" as defined in Annex B to this Agreement. ----------- "Segment T-2" as defined in Annex B to this Agreement. ----------- "Segment T-3" as defined in Annex B to this Agreement. ----------- "Segment T-4" as defined in Annex B to this Agreement. ----------- "Segments" the collective reference to the S Segments and the T -------- Segments. "Stub Period" as defined in Section 4(a) hereof. ----------- "Subsidiary Grantors" the collective reference to GT Landing Corp., GT ------------------- U.K. Ltd., Global Telesystems GmbH and GT Netherlands B.V. each a wholly- owned subsidiary of the Grantor. "Supplier" means TSSL and its successors and assigns as contractor -------- under the Supply Contract or any successor contractor of the System appointed by Grantor. "T Capacity" means capacity on the System available on any T Segment. ---------- "T Segments" the collective reference to Segment T-1, T-2, T-3 and ---------- T-4. "Transatlantic Segment" means Segment S-1, S-2 or S-4. --------------------- "Total Purchase Price" means the aggregate amount payable by the -------------------- Purchaser to the Grantor (for the benefit of the Grantor and the benefit of the Subsidiary Grantors) for the IRU of the Purchased Capacity as set forth on the bottom of Schedule I to this Agreement opposite the phrase "Total Purchase Price." 4 2. PURCHASE OF IRU FOR PURCHASED CAPACITY. -------------------------------------- (a) Purchase Agreement and Grant of IRU. Purchaser hereby agrees to ------------------ ------------ purchase MCU(s) of Purchased Capacity on the terms and conditions set forth herein and under the Right of Use Agreement. Effective on the Initial Payment Date, the Grantor, together with the applicable Subsidiary Grantors pursuant to the Right of Use Agreement, grants to the Purchaser, for the term of this Agreement, an IRU in the Purchased Capacity. The purchase and grant of the IRU in the Purchased Capacity takes place in Bermuda. (b) Quiet Enjoyment. So long as no event has occurred which entitles --------------- Grantor to suspend service under this Agreement, the Purchaser shall be entitled to the quiet enjoyment and use of the rights granted hereunder free from interference from the Grantor or any person claiming through Grantor, such as Grantor's lenders. (c) Annex B. Certain rights and obligations with respect to the IRU of ------- the Purchased Capacity are described in Annex B hereto, which is incorporated herein by reference. 3. PAYMENT FOR CAPACITY. -------------------- (a) Financing. Grantor shall finance the Purchase Price for the Purchased --------- Capacity in accordance with Schedule II hereto. Payments by Purchaser shall (i) be calculated to pay Grantor interest calculated at the rate set out therein, (ii) be pre-payable, in whole or in part, without penalty, and (iii) be secured by Grantor retaining a security interest in the IRU until the Purchase Price is fully paid. Each of the parties shall, at its expense, take all such actions and make all such filings and recordings as are reasonably requested to establish, perfect and protect the other party's interest in such IRU. (b) Payment of Purchase Price. In exchange for the IRU interest granted ------------------------- pursuant to this Agreement and the Right of Use Agreement in any Purchased Capacity, the Purchaser shall, on or before each Payment Due Date, pay to the Grantor's Account (for the benefit of the Grantor and the benefit of the Subsidiary Grantors), in immediately available Dollars, the amounts set forth in Schedule II hereto. (c) Additional Service Payment. The Purchaser shall be required to make, -------------------------- at the request of the Grantor, additional payments in respect of the right of use granted under this Agreement, or the Right of Use Agreement, for access connection rearrangement requested by the Purchaser as set forth in Schedule III to this Agreement and such other reasonable costs in respect of additional services or equipment to be provided hereunder or in connection herewith as the parties shall mutually agree. 5 (d) Taxes. All payments made by the Purchaser under this Section 3 shall ----- be made without any deduction or withholding for or on account of any tax, duty or other charges of whatever nature imposed by any taxing or governmental authority in the jurisdiction from which payment by the Purchaser originates or in any other jurisdiction claiming the right to impose such tax, duty or charge due to the location of any business or properties of the Purchaser (collectively "Taxes"). If the Purchaser is or was required by law to make any deduction or withholding for or on account of any Taxes from any payment due hereunder to the Grantor (for the benefit of the Grantor and the benefit of the Subsidiary Grantors ), then, notwithstanding anything to the contrary contained in this Agreement, the gross amount payable by the Purchaser to the Grantor (for the benefit of the Grantor and the benefit of the Subsidiary Grantors) will be increased so that, after any such deduction or withholding for Taxes, the net amount received by the Grantor (for the benefit of the Grantor and the benefit of the Subsidiary Grantors) will not be less than the Grantor (for the benefit of the Grantor and the benefit of the Subsidiary Grantors) would have received had no such deduction or withholding been required. If any taxing or government authority asserts that the Purchaser should have made a deduction or withholding for on account of any Taxes with respect to all or a portion of any payment made hereunder, the Purchaser hereby agrees to indemnify the Grantor for such Taxes and hold the Grantor harmless on an after-tax basis from and against any Taxes, interest or penalties levied or asserted in connection therewith. 4. OPERATION AND MAINTENANCE OF SYSTEM. ----------------------------------- (a) Maintenance Payments. The Purchaser shall pay to the Grantor (for the -------------------- benefit of the Grantor and the benefit of the Subsidiary Grantors), in immediately available Dollars, amounts ("Maintenance Costs") which are based on its allocated share of the costs for operating, maintaining and repairing the System in accordance with and subject to the limitations set forth in Paragraph 8 of Annex B. Maintenance Costs shall be payable quarterly in advance on each January 1, April 1, July 1 and October 1, commencing with the first January 1 after the applicable Payment Due Date, except that on the applicable Payment Due Date for the Purchased Capacity the Purchaser shall make a proportional payment for the period (the "Stub Period") from the applicable Payment Due Date to the first January 1 thereafter. (b) Maintenance. (i) The Grantor shall use reasonable commercial efforts ----------- to cause the System to be maintained in efficient working order and in accordance with industry standards and the Maintenance Performance Standards set forth in Schedule IV to this Agreement which is incorporated herein by reference. The Grantor represents that (A) the OA&M Agreement (the "OA&M Agreement") is in full force and effect and that neither the Grantor nor, to the best of the Grantor's knowledge, any other 6 party to the OA&M Agreement is in material default of any provision thereof; (B) that the OA&M Agreement requires and at all times the Grantor shall require TSSL to provide routine, preventive and corrective maintenance for the System in accordance with performance standards that at least meet prudent industry standards; and (C) the Grantor shall maintain the OA&M Agreement in full force and effect and will use reasonable commercial efforts to cause TSSL to perform its obligations under the OA&M Agreement and the Supply Contract. (ii) The Grantor together with the Subsidiary Grantors will have sole responsibility for negotiating, executing and administering contracts and all other aspects related to the construction, operation, maintenance and repair of the System. (iii) Should any condition exist in any Segment that may impair the integrity of the System, the Grantor shall initiate and coordinate planned maintenance (or shall cause such action to occur), on such relevant Segment which may include the deactivation of such Segment. The Grantor shall, to the extent reasonably practicable, advise the Purchaser in writing at least sixty (60) days (or such shorter period as may be necessary), prior to initiating a planned maintenance operation, of the timing, scope and costs of such planned maintenance operation. (iv) In addition to fulfilling its obligations as set forth in Section 4(b)(i), in the event of disruption of service due to force majeure or other emergency, the Grantor shall cause service to be restored as quickly as reasonably possible, and the Grantor shall take such measures as are reasonably necessary to obtain such objective. (v) In addition to fulfilling its obligations as set forth in Section 4(b)(i), the Grantor shall provide the Customer Care Center services as described in Schedule V to this Agreement, which is incorporated by reference herein. (vi) In fulfilling its obligations as set forth in Section 4(b)(i), the Grantor shall not provide any preference for the repair of its or any other party's facilities, but rather shall perform such services in a manner that does not discriminate against the Purchaser. 5. INVOICES; DEFAULT INTEREST. -------------------------- (a) Invoices. The Grantor (and/or the Subsidiary Grantors) or its -------- authorized agent (which may include the Operator), shall render invoices under this Agreement in Dollars, and the Purchaser shall pay such amount in Dollars. The Purchaser shall make all payments by means of a wire transfer to Grantor's Account (for the benefit of the Grantor and the Subsidiary 7 Grantors). Any payments required to be made pursuant to this Agreement shall be made on the later of (i) the date when due or (ii) thirty (30) business days after an invoice is received from Grantor by Purchaser. In the event the Purchaser has a dispute, in respect of payment(s), and such dispute is of a reasonable, good faith, commercial and uncapricious nature, the Purchaser shall be entitled to withhold such payment(s) until the dispute is resolved. The Purchaser shall, however, be obliged to use best efforts to assist in resolving such dispute referred to in this Section 5(a). (b) Default Interest. Any invoice rendered under this Agreement which is ---------------- not paid when due, shall accrue interest at the annual rate of six percent (6%) above the rate for U.S. dollar LIBOR for one month as quoted in The Wall Street Journal on the first business day of the ----------------------- month in which such payment is due. Such interest shall accrue from the day following the date payment was due until it is paid in full. In the event that applicable law does not allow the imposition of "default interest" at the rate established in accordance with this Section 5(b), such "default interest" shall be at the highest rate permitted by applicable law. For purposes of this Section, "paid" shall mean that funds are available for immediate use by the Grantor. 6. DEFAULT ------- (a) Subject to Section 5(a) hereof, if the Purchaser fails to make any payment required by this Agreement on the date that it is due, or if the Purchaser is otherwise in breach of this Agreement, and such payment default continues unremedied for a period of at least five (5) days or such other breach continues for a period of at least thirty (30) days, the Grantor, or its authorized agent, may notify the Purchaser in writing of such payment default or other breach and if full payment is not received or such other breach is not fully remedied within fifteen (15) days of such notification, the Grantor: (i) may suspend all service provided to Purchaser hereunder and under the Right of Use Agreement (including suspending Purchaser's right to use the Purchased Capacity), until such payment default or other breach has been cured (including payment of default interest, if any) and (ii) shall be entitled to pursue any and all rights and legal and equitable remedies (including its rights and remedies to enforce the Purchaser's obligations under this Agreement). (b) If the Grantor is in breach of this Agreement and such breach continues for a period of at least thirty (30) days, the Purchaser may notify the Grantor in writing of such breach and if such breach is not fully remedied within fifteen (15) days of such notification, the Purchaser shall, for so long as such breach continues, be entitled to pursue any and all rights and legal and equitable remedies, including its rights and remedies to enforce Grantor's obligations under this Agreement and further including the right to terminate this Agreement and receive a pro-rata refund of the Purchase 8 Price based upon the remaining term. The Purchaser's right to pursue any and all rights and legal and equitable remedies shall continue for so long as such breach continues, provided, however, that a subsequent cure of any such breach by Grantor shall not prejudice (i) any right or remedy properly exercised by the Purchaser prior to the time such cure has been effected, or (ii) the Purchaser's right to claim damages with respect to the period prior to the time such cure has been effected. 7. USE OF CAPACITY. --------------- (a) The operation of the Purchased Capacity and any equipment associated therewith shall be such as not to interrupt, interfere with, or impair service over any of the facilities comprising the System, or impair privacy of any communications over such facilities, cause damage to plant or create hazards to employees, affiliates or connecting companies of the Grantor, any Subsidiary Grantor, the Purchaser, or any other user, owner or operator of the System or the public. The Purchaser shall bear the cost of any additional protective apparatus reasonably required to be installed because of the use of such facilities by the Purchaser, any lessees or permitted transferees of the Purchaser, or any customer or customers of the Purchaser or of any such lessee or transferee provided, however, that this Section 7(a) shall only apply to the extent that such use is outside the ordinarily anticipated use of such facilities. The Grantor will cause all other purchasers of capacity in the System to undertake obligations comparable to those of the Purchaser set forth in this Section, and the Purchaser shall cause all permitted users of the IRU in the Purchased Capacity to undertake comparable obligations. (b) The Purchased Capacity granted to the Purchaser shall be made available to the Grantor (or its subsidiaries, its agents or the Operator), at such times agreeable to the Purchaser and the Grantor, to permit the Grantor and the Subsidiary Grantors to conduct such tests and adjustments as may be necessary for such capacity to be maintained in efficient working order. 8. DURATION OF AGREEMENT. --------------------- (a) This Agreement shall become effective on the day and year set forth in the preamble hereto and shall continue in operation until the twenty-fifth (25th) anniversary of the RFS Date for the System. (b) The termination of this Agreement (whether under this Section or otherwise) shall not relieve either party from any liabilities arising prior to such termination. (c) Upon the termination of this Agreement, so long as Purchaser is not in default hereunder, the Purchaser may elect to extend its rights in the System, for so long as the System exists or has not been retired, by giving written notice to Grantor and paying to Grantor one (1) Dollar. Such election to extend shall not affect or delay the termination of the Grantor's 9 obligations under this Agreement. Upon such election to extend and payment, the Purchaser, together with all other purchasers of capacity on the System that also elect to so extend, shall become the sole owners of the System. The ownership interests of the Purchaser and such other purchasers shall be in proportion to the amount of capacity covered by IRU's previously granted to the Purchaser and such other purchasers. The Grantor shall execute and deliver such documentation as may be reasonably required to effect such transfer of ownership. Without limitation to the generality of the foregoing provisions, Grantor shall have no obligation to operate or maintain the System during such extension. (d) The parties hereto shall discuss with each other and the other purchasers of capacity on the System establishing a procedure for the early retirement of the System if such retirement appears to be commercially appropriate. 9. APPROVALS; LICENSES. ------------------- The performance of this Agreement by each party hereto is contingent upon the obtaining and continuance of such approvals, consents, governmental authorizations, licenses and permits as may be required or reasonably deemed necessary by such party for performance by such party hereunder and as may be satisfactory to it. The parties shall use (and in the case of the Grantor, shall cause the Subsidiary Grantors to use) reasonable efforts to obtain and continue, and to have continued, such approvals, consents, licenses and permits. No license under patents is granted by the Grantor or any of the Subsidiary Grantors or shall be implied or arise by estoppel in the Purchaser's favor with respect to any apparatus, system or method used by the Purchaser in connection with the use of the capacity granted to it hereunder or under the Right of Use Agreement. 10. DISCLAIMER. ---------- (a) The Grantor and the Subsidiary Grantors have entered into the Supply Contract to obtain plant, equipment and services necessary to allow the Purchased Capacity to be placed into operation on the applicable scheduled RFS Date. UNLESS SPECIFICALLY SET FORTH IN THIS AGREEMENT, ANY OTHER WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED TO, THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE SPECIFICALLY DISCLAIMED. (b) In order to make it more convenient for the Purchaser to connect the Purchased Capacity to inland networks, the Grantor and the Subsidiary Grantors have permitted certain Inland Carriers to collocate at the cable stations located at each T Segment. Neither the Grantor, any Subsidiary Grantor or any of their respective affiliates warrants or guarantees any agreement between the Purchaser and any Inland Carrier and neither the Grantor, any Subsidiary Grantor or any of their respective affiliates shall 10 have any liability to the Purchaser for any failure of any Inland Carrier to perform the terms and conditions of any such agreement. 11. LIMITATIONS OF LIABILITY. ------------------------ (a) Except as otherwise provided in this Agreement or in the Right of Use Agreement, in no event shall the Purchaser, the Grantor or any Subsidiary Grantor be liable to the other for consequential, incidental, indirect or special damages, including, but not limited to, loss of revenue, loss of business opportunity, or the costs associated with the use of external restoration facilities, including, without limitation, for any loss or damage sustained by reason of any failure in or breakdown of the System or the facilities associated with the System, the failure of any Inland Carrier to perform the terms and conditions of any agreement to which it and the Purchaser are parties or for any interruption of service, whatever the cause and however long it shall last. (b) Neither the Grantor nor any Subsidiary Grantor shall be liable to the Purchaser for any loss or damage which may be suffered by the Purchaser by reason of any circumstances beyond the control of the Grantor and the Subsidiary Grantors and having an adverse effect on the provision of any part of the System in which the Purchaser is entitled to capacity or has any other right or interest under this Agreement or under the Right of Use Agreement. Failure by a subcontractor of any of the parties to comply with its contractual commitments to such party shall not be deemed to be an event beyond the reasonable control of such party for the purposes of this Section 11. (c) (i) Neither the Grantor nor any Subsidiary Grantor shall be liable to the Purchaser for any loss or damage which may be suffered by the Purchaser as a result of, related to, or in connection with, the Purchaser's compliance or non-compliance with any applicable state, federal, foreign governmental, international (foreign or domestic) or other law related to the transfer of the IRU in, or the use of, the Purchased Capacity. (ii) The Purchaser shall not be liable to the Grantor or any Subsidiary Grantor for any loss or damage which may be suffered by Grantor or any Subsidiary Grantor as a result of, related to, or in connection with, Grantor's or Subsidiary Grantor's non-compliance with any applicable state, federal, foreign governmental, international (foreign or domestic) or other law related to the transfer by Grantor of the IRU to the Purchaser in, or Grantor's operation, ownership or use of, the System. 11 12. SETTLEMENT OF DISPUTES. ---------------------- (a) The parties hereto shall endeavor to settle amicably by mutual discussions any disputes, differences, or claims whatsoever related to this Agreement. (b) Failing such amicable settlement, any controversy, claim or dispute arising under or relating to this Agreement, including the existence, validity, interpretation, performance, termination or breach thereof, shall finally be settled by arbitration in accordance with the International Arbitration Rules of the American Arbitration Association ("AAA"). There shall be three (3) arbitrators (the "Arbitration Tribunal"), the first of which shall be appointed by the claimant in its notice of arbitration, the second of which shall be appointed by the respondent within thirty (30) days of the appointment of the first arbitrator and the third of which shall be jointly appointed by the party-appointed arbitrators within thirty (30) days thereafter. The language of the arbitration shall be English. The Arbitration Tribunal will not have authority to award punitive damages to either party. Each party shall bear its own expenses, but the parties shall share equally the expenses of the Arbitration Tribunal and the AAA. This Agreement shall be enforceable, and any arbitration award shall be final, and judgment thereon may be entered in any court of competent jurisdiction. The arbitration shall be held in New York, New York, USA. 13. INCREASE OF INITIAL DESIGN CAPACITY. ----------------------------------- The Grantor and the Subsidiary Grantors shall have authority to increase, at their own cost and expense, the Initial Design Capacity of the System. 14. GOVERNING LAW. ------------- This agreement shall be governed by and construed in accordance with the laws of the State of New York, United States of America without regard to the conflicts of laws rules of such State or any other jurisdiction that would apply the law of a different jurisdiction. 15. WAIVER OF IMMUNITY. ------------------ The parties hereto acknowledge that this Agreement is commercial in nature, and each party hereto expressly and irrevocably waives any claim or right which it may have to immunity (whether sovereign immunity, act of state or otherwise) for itself or with respect to any of its assets in connection with an arbitration, arbitral award or other proceeding to enforce this Agreement, including, without limitation, immunity from service of process, immunity of any of its assets from pre- or post-judgment attachment or execution and immunity from the jurisdiction of any court or arbitral tribunal. 12 16. EXPORT CONTROL. -------------- The parties hereto acknowledge that to the extent any products, software or technical information provided under this Agreement or the Right of Use Agreement are or may be subject to any applicable export laws and regulations, the parties hereto agree that they will not use, distribute, transfer or transmit the products, software or technical information (even if incorporated into other products) except in compliance with such export laws and regulations (or licenses or orders issued pursuant thereto). If requested by either party hereto the other party agrees to sign all necessary export-related documents as may be required to comply therewith. 17. REPRESENTATIONS; INDEMNITY -------------------------- (a) The Grantor hereby represents and warrants to Purchaser that (i) Grantor is a corporation duly organized and validly existing under the laws of Bermuda; (ii) the execution, delivery and performance of this Agreement by Grantor has been duly authorized by all necessary corporate action on the part of Grantor and this Agreement is a valid, binding and enforceable obligation of Grantor enforceable in accordance with its terms and (iii) the execution, delivery and performance of this Agreement by Grantor does not violate, conflict with or constitute a breach of, the organizational documents or any order, decree or judgment of any court, tribunal or governmental authority binding on Grantor. (b) Purchaser hereby represents and warrants to Grantor that (i) Purchaser is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of organization; (ii) the execution, delivery and performance of this Agreement by Purchaser has been duly authorized by all necessary corporate action on the part of Purchaser and this Agreement is a valid, binding and enforceable obligation of Purchaser enforceable in accordance with its terms; and (iii) the execution, delivery and performance of this Agreement by Purchaser does not violate, conflict with or constitute a breach of, the organizational documents or any order, decree or judgment of any court, tribunal or governmental authority binding on Purchaser. (c) Each Party hereby represents and warrants to the other party that it has obtained all approvals, consents, governmental authorizations, licenses and permits as may be required to enter into this Agreement, and grant or acquire, as the case may be, the IRU in the Purchased Capacity and otherwise to perform its obligations hereunder. (d) The foregoing representations and warranties shall survive the execution and delivery of this Agreement. 13 (e) Subject to Section 11, the Purchaser agrees to indemnify and hold harmless the Grantor and the Subsidiary Grantors and their respective affiliates, officers, directors, employees, agents, representatives, successors and assigns from and against any loss, damage, expense or cost arising out of or in connection with: (i) any breach or violation by the Purchaser of applicable law or governmental regulation and (ii) any claims of whatever nature by third parties with respect to the services provided by the Purchaser. (f) Subject to Section 11, the Grantor agrees to indemnify and hold harmless the Purchaser and its affiliates, officers, directors, employees, agents, representatives, successors and assigns from and against any loss, damage, expense or cost arising out of or in connection with: (i) any breach or violation by the Grantor or any Subsidiary Grantor of applicable law or governmental regulation, and (ii) any claims of whatever nature by third parties with respect to the services provided by the Grantor or any Subsidiary Grantor. 18. RELATIONSHIP OF THE PARTIES. --------------------------- This Agreement shall not form a joint venture or partnership or similar business arrangement between the parties hereto and the Subsidiary Grantors, and nothing contained herein or in the Right of Use Agreement shall be deemed to constitute a partnership or joint venture or similar business arrangement. 19. NO THIRD PARTY BENEFICIARIES. ---------------------------- This Agreement does not provide and is not intended to provide third parties (including, but not limited to, customers of the Purchaser, any permitted transferee of the Purchased Capacity or any other permitted user of the Purchased Capacity) with any remedy, claim, liability, reimbursement, cause of action, or any other right, except for the Subsidiary Grantors and assignees pursuant to an assignment which is permitted under Section 20(c) of this Agreement. Furthermore, the Purchaser acknowledges that, except as set forth in the Right of Use Agreement, it is not a third party beneficiary of any agreement entered into by the Grantor or the Subsidiary Grantors including, but not limited to, the Supply Contract and the OA&M Agreement. 20. ASSIGNMENT. ---------- (a) This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto, the Subsidiary Grantors and their respective successors and permitted assigns. (b) The Grantor shall solely be responsible for complying with all of the terms binding on the "Grantor" hereunder and shall not be permitted to assign, transfer or otherwise dispose of any or all of its right, title or interest 14 hereunder or delegate any or all of its obligations hereunder to any person or entity except that the Grantor and the Subsidiary Grantors ------ shall be permitted to (i) effect a collateral assignment of their respective rights hereunder to one or more lenders to Grantor or its affiliates and (ii) assign, transfer or otherwise dispose of any or all of their rights hereunder and under the Subsidiary IRU Agreement and delegate any or all of their obligations hereunder and under the Subsidiary IRU Agreement to any present or future affiliated company of the Grantor or to an entity controlled by, under the same control as, or controlling, the Grantor. The Grantor shall give the Purchaser notice of any such assignment, transfer or other disposition or any such delegation. (c) The Purchaser shall solely be responsible for complying with all of the terms binding on the "Purchaser" hereunder and shall not be permitted to assign, transfer or otherwise dispose of any or all of its right, title or interest hereunder or under the Subsidiary IRU Agreement (except for leases, licenses and transfers of the right to use Capacity to the extent set forth in Section 25(d) below) or delegate any or all of its obligations hereunder or under the Subsidiary IRU Agreement to any person or entity except (i) a collateral assignment of its rights hereunder to one or more lenders to the Purchaser or its affiliates, and (ii) to any present or future affiliated company of the Purchaser or to an entity controlled by, under the same control as, or controlling, the Purchaser; and (iii) incident to the transfer of all or substantially all of its business or a substantial portion of its business (which shall include, without limitation, a transfer of assets); provided, however, that the -------- Purchaser shall remain responsible for the performance of its obligations hereunder to the extent the assignee fails to perform such obligations. (d) (i) The Purchaser may enter into one or more agreements to lease or license the right to use any Purchased Capacity, so long as all such leases or licenses with any particular lessee or licensee (including all affiliates thereof) involve in the aggregate less than one (1) MCU of Purchased Capacity; (ii) The Purchaser may transfer a right to use any Purchased Capacity to a Carrier Party, so long as all such transfers to any particular transferee (including all affiliates thereof) involve in the aggregate less than one MCU of Purchased Capacity; (iii) Purchaser may not enter into any arrangements to lease, license or transfer a right to use an aggregate (in any combination of such arrangements) of one or more MCUs of Purchased Capacity to any particular lessee, licensee or transferee (including all affiliates thereof). 15 (iv) No lease, license or transfer permitted by this Section 25(d) shall involve any delegation or other transfer of any of Purchaser's obligations or liabilities hereunder. Each lessee, licensee and transferee of any right to use Purchased Capacity shall derive all of its rights solely through the Purchaser and such rights shall be enforceable solely against the Purchaser. No such lessee, licensee or transferee shall become a third party beneficiary of this Agreement or obtain any right, title or interest in, to or under this Agreement or the Subsidiary IRU Agreement or the ability to enforce any provision hereof or thereof nor shall any thereof have any rights or claims against the Grantor for any reason whatsoever. The rights of any lessee, licensee or transferee of a right to use any Purchased Capacity shall be subject and subordinate to all the terms of this Agreement (including the Grantor's right to suspend service in the event of a default by Purchaser hereunder) and Purchaser shall remain primarily liable hereunder for the performance of all the terms of this Agreement to the same extent as if such lease, license or transfer had not occurred. Any such lease, license or transfer agreement shall prohibit further assignment, transfer or other disposition of Purchased Capacity except in accordance with the terms of this Section 25. (e) The Grantor will cause to be maintained a Customer Care Center to provide service to the Purchaser and other users of the System. Only Carrier Parties which have acquired and hold the right to use one or more whole MCUs of Capacity shall be entitled to utilize the services of the Customer Care Center. Every entity which has the right to use one or more MCUs of Capacity shall promptly contact the Customer Care Center and provide all such information reasonably requested by the Customer Care Center. (f) Any assignment, transfer or other disposition by either Party which is in violation of this Section shall be void and of no force and effect. 21. CONDITION TO PURCHASER'S OBLIGATIONS. ------------------------------------ The Purchaser's obligation to pay for an IRU with respect to any Purchased Capacity shall terminate if the RFS Date for such Purchased Capacity has not occurred by June 30, 1999. In any such event, the Purchaser may terminate this Agreement in its entirety and receive a complete refund of all amounts paid hereunder or the Purchaser may terminate this Agreement only with respect to such Purchased Capacity in which case the Grantor shall refund all amounts paid by the Purchaser, if any, with respect to such Purchased Capacity as to which Purchaser's obligation has terminated within thirty (30) days after the applicable date. 16 22. NOTICES. ------- Each notice, demand, certification or other communication given or made under this Agreement shall be in writing and shall be delivered by hand or sent by registered mail or by facsimile transmission to the address of the respective party as shown below (or such other address as may be designated in writing to the other party hereto in accordance with the terms of this Section): If to the Purchaser: VIA Net Works Europe Holding B.V. c/o VIA NET WORKS, Inc. 121000 Sunset Hills Road, Suite 110 Reston, VA 20190 USA Attention: Matt S. Nydell, Esq., V.P., General Counsel and Secretary Fax No.: 703-464-0608 If to the Grantor: Atlantic Crossing Ltd. Wessex House 45 Reid Street Hamilton HM12, Bermuda Attn: President Fax No.: 441-296-8606 Any change to the name, address and facsimile numbers may be made at any time by giving fifteen (15) days prior written notice in accordance with this Section. Any such notice, demand or other communication shall be deemed to have been received, if delivered by hand, at the time of delivery or, if posted, at the expiration of seven (7) days after the envelope containing the same shall have been deposited in the post maintained for such purpose, postage prepaid, or, if sent by facsimile, at the date of transmission if confirmed receipt is followed by postal notice. 23. SEVERABILITY. ------------ If any provision of this Agreement is found for any reason and to any extent by an arbitral, judicial or regulatory authority having jurisdiction to be invalid or unenforceable, the remainder of this Agreement and application of such provision to other persons or circumstances shall be interpreted so as best to reasonably effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision with a provision which will achieve, to the extent possible, the economic, business and other purposes of the void or unenforceable provision. 17 24. HEADINGS. -------- The Section headings of this Agreement are for convenience of reference only and are not intended to restrict, affect or influence the interpretation or construction of provisions of such Section. 25. COUNTERPARTS. ------------ This Agreement may be executed in counterparts, each of which when executed and delivered shall be deemed an original. Such counterparts shall together (as well as separately) constitute one and the same instrument. 26. ENTIRE AGREEMENT. ---------------- This Agreement together with the Schedules, Annexes and Attachments thereto supersedes all prior oral or written understandings between the parties hereto and constitutes the entire agreement with respect to the subject matter herein. This Agreement shall not be modified or amended except by a writing signed by authorized representatives of the parties hereto. 27. PUBLICITY AND CONFIDENTIALITY. ----------------------------- (a) The provisions of this Agreement and any non-public information, written or oral, with respect to this Agreement ("Confidential Information") will be kept confidential and shall not be disclosed, in whole or in part, to any person other than affiliates, officers, directors, employees, agents or representatives of a party (collectively, "Representatives") who need to know such Confidential Information for the purpose of negotiating, executing and implementing this Agreement. Each party agrees to inform each of its Representatives of the non-public nature of the Confidential Information and to direct such persons to treat such Confidential Information in accordance with the terms of this Section 27. Nothing herein shall prevent a party from disclosing Confidential Information (i) upon the order of any court or administrative agency, (ii) upon the request or demand of, or pursuant to any regulation of, any regulatory agency or authority, (iii) to the extent reasonably required in connection with the exercise of any remedy hereunder, (iv) to a party's legal counsel or independent auditors, (v) to prospective lenders , and (vi) to any actual or proposed assignee, transferee or lessee of all or part of its rights hereunder provided that such actual or proposed assignee agrees in writing to be bound by the provisions of this Section 27. (b) The foregoing shall not restrict either party from publicly announcing that it has entered into this Agreement with the parties hereto, but without including any details contained in this Agreement. 18 IN WITNESS WHEREOF, the parties have executed this Agreement effective on the date first written above. ATLANTIC CROSSING LTD. By: /s/ Doug Molyneux --------------------- Name: Doug Molyneux ------------------- Title: Vice President ------------------ VIA NET WORKS EUROPE HOLDING B.V. By: VIA NET.WORKS, INC., its Managing Director By: /s/ Matt Nydell ----------------------- Name: Matt Nydell --------------------- Title: VP & General Counsel -------------------- 19 AMENDMENT NO. 1 TO CAPACITY PURCHASE AGREEMENT This Amendment No. 1 (the "Amendment") is made as of the 23 day of August, 1999, by and between Atlantic Crossing Ltd. ("Grantor") and VIA Net Works Europe Holding B.V. ("Purchaser"), WHEREAS, Grantor and Purchaser are parties to that certain Capacity Purchase Agreement dated as of June 21, 1999 (the "Agreement"); and WHEREAS, the parties wish to make certain clarifications in the Agreement; NOW, THEREFORE, the parties hereto, in consideration of the mutual covenants contained herein, and for other good and valuable consideration, covenant and agree with each other as follows: A. Amendment to the Agreement. Sections 8(d) and 8(f) of Annex B to the -------------------------- Agreement - Details Relating to Capacity Purchase Agreement, shall be deleted in their entirety and Section 8(e) of Annex B shall be amended to delete the words "Except as provided in clause (d) above" at the beginning of such Section. This Amendment shall be effective as of June 21, 1999 as if such Amendment had been made upon execution of the Agreement. B. Terms and Conditions of the Agreement. Except for the above amendments, ------------------------------------- all terms and conditions of the Agreement are unamended and shall remain in full force and effect. C. Governing Law. This Amendment shall be governed by and construed in ------------- accordance with the laws of the State of New York, United States of America, without regard to the conflicts of laws rules of such State or any other jurisdiction that would apply the law of a different jurisdiction. IN WITNESS WHEREOF, Grantor and Purchaser have executed this Amendment as of the day and year first above written. ATLANTIC CROSSING LTD. By: /s/ Doug Molyneux ------------------------------ Name: Doug Molyneux ------------------------- Title: Director ------------------------ VIA NET WORKS EUROPE HOLDING B.V. By: VIA NET.WORKS, INC., its Managing Director By: /s/ Matt Nydell --------------------------------- Name: Matt Nydell ---------------------------- Title: VP & General Counsel --------------------------- 2 *****Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.***** ADDENDUM TO AGREEMENTS DATED JUNE 21, 1999 BETWEEN EACH OF ATLANTIC CROSSING LTD., GT LANDING CORP. AND GT U.K. LTD. AND VIA NET WORKS EUROPE HOLDING B.V. This Addendum is made and entered into concurrently with (i) a Capacity Purchase Agreement (the "CPA") of even date herewith by and between Atlantic Crossing Ltd. ("Grantor") and VIA Net Works Europe Holding B.V. ("Purchaser"), (ii) an Indefeasible Right of Use Agreement in Inland Capacity (United States) (the "US Backhaul Agreement") of even date herewith by and between GT Landing Corp. and Purchaser, and (iii) an Indefeasible Right of Use Agreement in Inland Capacity (United Kingdom) (the "UK Backhaul Agreement") of even date herewith by and between GT U.K. Ltd. and Purchaser. The CPA, the US Backhaul Agreement and the UK Backhaul Agreement are referred to collectively as the "Agreements". If there is any inconsistency between the terms and conditions of this Addendum and the Agreements, the terms and conditions of this Addendum shall control. Capitalized terms used in this Addendum without separate definition shall have the meanings set forth in the Agreements. 1. Interim Lease Arrangement. Notwithstanding anything in the Agreements to ------------------------- the contrary, Grantor hereby Leases on an interim basis the Purchased Capacity to Purchaser in accordance with the terms and conditions of this Addendum (the "Interim Lease"). This Interim Lease shall be in lieu of the transfer of an IRU in the Purchased Capacity and the Inland Capacity as described in the Agreements. This Interim Lease shall commence as of the Effective Date and shall remain in effect for an initial term of six months (the "Initial Term"). In consideration of the Purchased Capacity and the Inland Capacity to be provided to Purchaser, Purchaser shall make Interim Lease payments of US [*****] per quarter, payable on or before the first day of each quarter. 2. Conversion to Purchase Agreement. Purchaser shall have the option to -------------------------------- convert the Interim Lease into a purchase of an IRU in the Purchased Capacity and the Inland Capacity in accordance with the terms and conditions originally set forth in the Agreements. Such option shall be exercisable in Purchaser's sole discretion at any time during the Initial Term; provided, however, that Purchaser shall be required to exercise such option within 15 days after Purchaser receives such licenses as Purchaser requires in order to hold title to the IRU in the Purchased Capacity and the Inland Capacity in Europe. Upon exercise of the option, Purchaser shall provide written notice of exercise to Grantor, which notice shall be accompanied by payment of the remaining portion of the down payment for the Purchased Capacity and the Inland Capacity as set forth in Part B of Schedule II of the CPA. In determining the remaining portion of the down payment for the Purchased Capacity and the Inland Capacity, Purchaser shall receive full credit for any Interim Lease payments made pursuant to this Addendum. Following the exercise of such conversion option, Purchaser shall pay the remaining balance of the Purchase Price for the Purchased Capacity and the Inland Capacity in accordance with the terms and conditions originally set forth in the Agreements. 3. Conversion to Three Year Lease. If Purchaser is unable to obtain such ------------------------------ licenses as Purchaser requires in order to hold title to the IRU in the Purchased Capacity and the Inland Capacity in Europe and does not otherwise Ichoose to exercise the purchase option described in Section 2 of this Addendum during the Initial Term, the parties shall, effective as of the termination of the Initial Term, convert the Interim Lease into a three year lease with payments as agreed by the parties. To the extent reasonably possible, all other terms applicable to the three year lease shall be the same as the terms set forth in the Agreements. The parties shall cooperate with one another and shall execute and deliver, or cause to be executed and delivered, all such documents and instruments, in addition to those otherwise required by this Addendum, as may be reasonably required to reflect such three year lease. 4. OA&M Charges. OA&M charges on the System are not included in Interim ------------ Lease payments and shall be made separately during the Initial Term in accordance with the CPA. If Purchaser is unable to convert the Interim Lease into a purchase of the Purchased Capacity within the Initial Term and subsequently enters into the three year lease, the OA&M charges will be credited to the Purchaser against the next following three year lease payment(s). 5. Exception to Purchaser Representations and Warranties. Grantor hereby ----------------------------------------------------- acknowledges that Purchaser has disclosed to Grantor that Purchaser is in the process of obtaining the licenses it needs in order to hold title to the IRU in the Purchased Capacity and the Inland Capacity in Europe and that the need to obtain such licenses is an exception to Purchaser's representations and warranties as set forth in Section 17(c) of the CPA and Section 13 (c) of each of the US Backhaul Agreement and the UK Backhaul Agreement. 6. Terms and Conditions of Agreements. During the Initial Term, the parties ---------------------------------- shall construe any terms of the Agreements in such a manner as to be consistent with the Interim Lease provided herein. Except for the amendments set forth in this Addendum, all terms and conditions of the Agreements are unamended and shall remain in full force and effect, including without limitation terms and conditions requiring Grantor to provide maintenance for the System. 2 IN WITNESS WHEREOF, the parties have executed this Addendum concurrently with the execution of the Agreement. ATLANTIC CROSSING LTD. By: /s/ Doug Molyneux ------------------------------------- Name: Doug Molyneux ----------------------------- Title: Vice President ---------------------------- GT LANDING CORP. By: /s/ Doug Molyneux ------------------------------------- Name: Doug Molyneux ----------------------------- Title: Under a Power of Attorney ---------------------------- GT U.K. LTD. By: /s/ Doug Molyneux ------------------------------------- Name: Doug Molyneux ----------------------------- Title: Under a Power of Attorney ---------------------------- VIA NET WORKS EUROPE HOLDING B.V. By: VIA NET.WORKS, INC., its Managing Director By: /s/ Matt Nydell ---------------------------- Name: Matt Nydell ---------------------- Title: VP & General Counsel -------------------- 3 *****Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.*****
Description of Purchased Capacity -------------------- ----------------- ---------------------------------- -------------------- -------------------- --------------- (a) (b) (c) (d) (e) (f) Payment Due Date Date of Transaction Appropriate S-Segment and Related Number of Whole MCUs Price per Whole MCU Purchase Price T-Segments (d)x(e) Note (1) -------------------- ----------------- ---------------------------------- -------------------- -------------------- --------------- May 1999 On activation Brookhaven, New York One (1) [*****] [*****] to (See Note 2) (See Note 2) Whitesands, England -------------------- ----------------- ---------------------------------- -------------------- -------------------- --------------- -------------------- ----------------- ---------------------------------- -------------------- -------------------- --------------- -------------------- ----------------- ---------------------------------- -------------------- -------------------- --------------- -------------------- ----------------- ---------------------------------- -------------------- -------------------- --------------- -------------------- ----------------- ---------------------------------- -------------------- -------------------- --------------- -------------------- ----------------- ---------------------------------- -------------------- -------------------- ---------------
Total Purchase Price [*****] Less Payment Received (May 28) [*****] Net Purchase Price Due [*****] Purchase Price to be Financed [*****] Note: (1) The S-Segment and related T-Segments are set forth for purposes of showing the point of entry and exit with respect to Purchased Capacity. Purchased Capacity is not dependent on any specified routing. (2) Subject to Section 2(a) of this Agreement. SCHEDULE II CAPACITY PURCHASE AGREEMENT Part A ------ Notwithstanding anything to the contrary contained in the Capacity Purchase Agreement to which this Schedule II is attached (as amended, supplemented or otherwise modified from time to time, the "Capacity Purchase Agreement"): In exchange for the IRU interest granted pursuant to this Agreement and the Right of Use Agreement in any Purchased Capacity, the Purchaser shall, on or before (the "Initial Payment Due Date"), pay the Grantor (for the benefit of the Grantor and the benefit of the Subsidiary Grantors), in immediately available funds equal to an amount set out in the Payment Schedule attached hereto (the "Initial Payment"). Thereafter, the Purchaser shall pay the remaining balance of the Purchase Price for such Purchased Capacity quarterly, with the first such payment being due on the date which is three months after such Initial Payment Due Date and each remaining payment being due quarterly thereafter. Such payments shall be in the amounts set forth in Part B of Schedule II to this Agreement, it being understood that the aggregate amount paid will exceed the Purchase Price set forth in Schedule I because the amounts set forth in said Part B include an interest calculation. The amounts set forth in Part B of Schedule II to this Agreement may be prepaid, in whole or in part, by Purchaser at any time. In the event of prepayment, the installments shall be reduced to their present value calculated at 12% per annum, to the date of payment. Title in the IRU to the Purchased Capacity shall pass to Purchaser upon payment to the Grantor's Account of the amount specified in the first sentence of this paragraph. The parties agree to co-operate in good faith to structure payments hereunder so that the interest component thereof should not be subject to withholding taxes under current law (at the time the first payment is made hereunder) in the reasonable opinion of the Grantor and the Purchaser; provided that if in the Grantor's reasonable opinion such interest component will be, or if at any time prior to the first installment payment hereunder, the Internal Revenue Service asserts that such interest component is, subject to withholding taxes under current law, the Grantor will reduce the 12% per annum interest rate payable hereunder such that the total interest cost (including withholding taxes payable on such reduced interest rate) to the Purchaser will not exceed 12% per annum. The definition of the term "Purchase Price" contained in the Capacity Purchase Agreement shall be modified to add the following phrase immediately at the end of said definition: , as such amount may be adjusted and paid in accordance with Part B of Schedule II to this Agreement. Clause (ii) of Section 20 (c) of the Capacity Purchase Agreement shall be modified to include the following phrase immediately after the phrase "maintenance expenses": and in respect of payments for the Purchase Price for Purchased Capacity. Part B ------ The attached amortization schedule sets forth the dates and amounts for installment payments for Purchased Capacity based on the Purchase Price as set forth in Schedule I. Notwithstanding anything to the contrary in Section 21, the right to receipt of payments hereunder shall be transferable only upon surrender for cancellation of this Schedule II, and the issuance of a new Schedule II registered in the name of the transferee. In addition, the Purchaser shall maintain a register in which it shall record the name of the Grantor and the Subsidiary Grantors or any transferee, and no transfer shall be valid unless so registered. Capitalized terms used in this Schedule II and not otherwise defined in this Schedule II shall have the meanings assigned to them in the Capacity Purchase Agreement. This Schedule II shall be deemed a part of the Capacity Purchase Agreement with respect to each Purchaser signing this Schedule II below and the terms set forth in this Schedule II shall be incorporated into the Capacity Purchase Agreement with respect to each such Purchaser as if fully set forth therein. Purchaser hereby represents and warrants that its chief executive office is located at 12100 Sunset Hills Road, Suite 110, Reston, VA 20190. Purchaser agrees to promptly notify Grantor of any change in such location. *****Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.***** VIA Net Works INSTALLMENT PAYMENTS SUBSEA Price per MCU [*****] Payment Due Date September 30, 1999 Payment Terms - ------------- Date Payment - ---- Payment received May 28, 1999 [*****] Deposit upon signing [*****] September 30, 1999 [*****] December 31, 1999 [*****] March 31, 2000 [*****] June 30, 2000 [*****] September 30, 2000 [*****] December 31, 2000 [*****] March 31, 2001 [*****] June 30, 2001 [*****] September 30, 2001 [*****] December 31, 2001 [*****] March 31, 2002 [*****] June 30, 2002 [*****] Total [*****] VIA Net Works By: -------------- Name: Date: Schedule III *****Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.*****
AC-1 Additional Charges =========================================================== ======================================================== Function Fees - ----------------------------------------------------------- -------------------------------------------------------- Access Connection Initial Service None - ----------------------------------------------------------- -------------------------------------------------------- Access Connection Rearrangement per STM-1 [*****] / Occurrence =========================================================== ========================================================
SCHEDULE IV CAPACITY PURCHASE AGREEMENT MAINTENANCE PERFORMANCE STANDARDS 1. GENERAL This Schedule IV supplements the Capacity Purchase Agreement and describes (i) additional maintenance and performance responsibilities of Grantor to Purchaser and (ii) certain remedies available to Purchaser with respect to the provision of Purchased Capacity thereunder. Capitalized terms used in this Schedule without separate definition shall have the meanings specified in the Capacity Purchase Agreement, as the context requires. 2. OVERVIEW Grantor is initially providing to Purchaser an STM-1 "SDH self-healing ring protected" service between New York City, New York, USA, and London, UK. This Schedule applies to such capacity and to any further capacity provided by Grantor to Purchaser. While Purchaser understands that Grantor may sub-contract some services, such as terrestrial backhaul and/or maintenance services with respect to the System and the Purchased Capacity, such sub-contracting is transparent to Purchaser, and therefore, Grantor shall appear as the single vendor providing these services to Purchaser. 3. NETWORK OPERATIONS CENTER (NOC) Grantor shall maintain a round-the-clock NOC (i.e., it operates 24 hours a day, seven days a week), which shall be staffed by trained and qualified personnel who are familiar with the operation and maintenance of the System and the Purchased Capacity. Grantor shall provide Purchaser with a NOC telephone number, which Purchaser shall use to report troubles with respect to the use of the Purchased Capacity, to input service requests, and to request service information. 4. TROUBLE REPORTING AND RESOLUTION When Purchaser reports a major service affecting trouble (i.e., the Purchased ---- Capacity fails to meet the standards set forth in the Capacity Purchase Agreement or this Schedule or connectivity is lost between two or more of the cities in which service is purchased) Grantor will, without interruption, work the trouble to completion. When a service affecting trouble (as described herein) occurs, the Grantor NOC will provide updates to Purchaser in accordance with Grantor's standard practices. Prior to activation of any part of the Purchased Capacity, Grantor shall provide Purchaser with an operations management organization chart showing the escalation path for reporting service affecting troubles. Purchaser shall be provided the telephone SCHEDULE IV Page 2 of 3 numbers, through the Vice Presidential level, for the escalation of service affecting troubles. Grantor shall promptly update such chart to reflect any changes. 5. SYSTEM PERFORMANCE STM-1 This section applies to the STM-1 capacity, including without limitation the S Capacity, the T Capacity and any connecting backhaul or inland capacity. 5.1 STM-1 to STM-1 Transmission Grantor shall provide STM-1 to STM-1 transmission of 155 Mbps clear channel capacity service. Grantor shall provide both service and protection pairs to Purchaser at each offered termination point of the service. STM-1 Transmission Performance shall equal or exceed the standards shown in column AC-1, below:
--------------------------------------- ---------------------------------------------------------------- Performance Standards Cable Station to Cable Station --------------------------------------- ---------------------------------------------------------------- Segment AC-1 I.T.U Std G826 --------------------------------------- ---------------------------------------------------------------- SESR1 BBER2 SESR BBER --------------------------------------- ---------------- ---------------- --------------- -------------- US-Germany 0.00017 0.000017 0.00034 0.000034 --------------------------------------- ---------------- ---------------- --------------- -------------- UK-Netherlands 0.00004 0.000004 0.00008 0.000008 --------------------------------------- ---------------- ---------------- --------------- -------------- Netherlands-Germany 0.00003 0.000003 0.00060 0.000060 --------------------------------------- ---------------- ---------------- --------------- -------------- Germany-UK 0.00005 0.000005 0.00010 0.000001 --------------------------------------- ---------------- ---------------- --------------- -------------- US-UK 0.00014 0.000014 0.00028 0.000028 --------------------------------------- ---------------- ---------------- --------------- --------------
Grantor commits this SESR and this BBER to the performance standard throughout the life of the system. 5.2 Protection Switching Grantor shall provide protection switching in respect of the AC-1 System in the following forms: Span Switching - protects against a failure affecting the service line traffic between service termination points. Span switching reroutes service traffic onto the protection fiber pair in the common cable segment. - ---------------------------- 1 Severely Errored Second Ratio 2 Background Bit Error Ratio SCHEDULE IV Page 3 of 3 Ring Switching - protects against a failure affecting both the service and protection fibers in one cable segment between service termination points. Ring switching reroutes service traffic over the other cable segments in the ring. Grantor shall protect the STM-1 service against a single cable failure in less than 300 ms (milli-seconds). 5.3 Service Traffic Grantor shall provide a common protection facility shared by all switching nodes or landing sites, which provides for full service traffic capacity in the event of a failure. 5.4 Service Traffic Availability Grantor's STM-1 155 Mbps "SDH self-healing ring protected" service between Purchaser's interfaces shall have a service availability of at least 99.995 %. This availability figure equates to no more than twenty-six (26) minutes of service outage in any given twelve (12) month period. Excluded from this calculation shall be planned service outages for the purpose of Purchaser initiated upgrades or modifications to the service. Service availability will be maintained and calculated monthly based on the following formula: Time Service Available Availability (%) = ----------------------------------------------- Time Service Scheduled to be Available In the event that the service falls below 99.995%, Grantor will, for a maximum period of thirty (30) months, credit forty (40%) percent of any month's OA&M where service levels fall below the 99.995% threshold listed above. The credit will be applied to the following quarter's OA&M charges. 5.5 Routing Capability Grantor confirms that any STM-1 tributary and any landing site can be routed in either direction of transmission to any other landing site, providing maximum flexibility in traffic provisioning between the landing sites. 5.6 STM-1 Backhaul Grantor will, where terrestrial backhaul providers are used to complete the STM-1 transmission facilities, ensure that such backhaul is ring and span protected with geographically diverse routes and entry points into the service termination points. 5.7 Mean-Time-Between-Failure (MTBF) / Mean-Time-To-Restore (MTTR) Grantor shall protect the STM-1 service against a single cable failure in less than 300 ms (milli-seconds). SCHEDULE V CUSTOMER REFERENCE MANUAL [LOGO OF GLOBAL CROSSING] CUSTOMER CARE CENTER HAMILTON, BERMUDA CUSTOMER REFERENCE MANUAL Prepared expressly for ABC COMPANY, INC. 1 TABLE OF CONTENTS Operational Roles & Responsibilities.................................. 3 Customer Care Contact Numbers......................................... 3 Escalation Procedures................................................. 4 Interconnect Service Ordering Procedures.............................. 5 Service Intervals..................................................... 7 Request for Service Form Instructions................................. 8 Request for Service Form.............................................. 11 Access Disconnect/Change Request Form................................. 15 Form Descriptions..................................................... 18 Order Confirmation Form............................................... 19 Assignment Order Form................................................. 20 Order Completion Form................................................. 22 Activation Authorization Form......................................... 24 Backhaul & Collocation Contacts....................................... 25 Customer Care Feedback Form........................................... 30 Transfer of Service & Transfer of IRU Forms........................... 32 2 OPERATIONAL ROLES & RESPONSIBILITIES The Global Crossing Customer Care Center (CCC) will provide a single point of contact for purchasers of undersea capacity in the areas of contract management, service provisioning, interconnect support, billing inquiry, project management and report requests. All correspondence should be addressed to: GLOBAL CROSSING CUSTOMER CARE CENTER 45 Reid Street Hamilton, Bermuda HM12 The Customer Care Center is open from 4am to 8pm Monday through Friday (Bermuda time). Calls requiring immediate attention during non-business ------------------------------------------------------- hours should be directed (using appropriate prompts provided by our ------------------------------------------------------------------- Automated Attendant System) to our Out of Hours Emergency Mailbox. All of ------------------------------------------------------------------------- these immediate attention messages will be automatically referred to a duty --------------------------------------------------------------------------- Specialist who will get back to you as quickly as possible. For messages ------------------------------------------------------------ not requiring immediate call back, you will be prompted to leave a message in your Specialist's Mailbox. These calls will be returned at the start of the next business day. The telephone numbers for our Center are as follows: 888.371.0702* 441.296.9464** 441.296.9461 (Fax) *Your local international 800# access prefix is required when dialing from outside of the United States. **If you cannot dial 800 service from your location, use this number. The following listing shows the Customer Care Specialist assigned to your account along with an alternate and the name of our Customer Care Center Manager. Primary Specialist ------------------ Name 1 (ext xxxx) E-Mail: name1@globalcrossing.com Alternate Specialist -------------------- Name 2 (ext xxxx) E-Mail: name2@globalcrossing.com Customer Care Center Manager ---------------------------- Kara Janzen (ext 2213) E-Mail: kjanzen@globalcrossing.com 3 ESCALATION PROCEDURES If you are ever not satisfied with the assistance provided by either of your --- assigned Specialists, please do not hesitate to contact the following Global Crossing Personnel: Customer Care Center Manager Kara Janzen 888.371.0702 (ext 2213) or 441.296.9464 (ext 2213 Customer Care Center Director Jean S. Wentzel 888.371.0702 (ext 2204) or 441.296.9464 (ext 2204) Senior Vice President-Operations S W Dawson 441.296.8600 4 INTERCONNECT SERVICES ORDERING PROCEDURES (ISOP) After contract signing, requests for cable capacity assignments are to be placed with the Customer Care Center located in Hamilton, Bermuda. Capacity assignments and service order initiation will be completed by Customer Care Center personnel while service activation procedures will be performed by the Network Operations Center. The Customer Care Center will also fulfill Project -------------------------------------------------- Management responsibilities until an RFS is received from the customer. At that - ---------------------------------------------------------------------- point in time, a conference call with the customer, Customer Care, the Network Operations Center (NOC) and any other required group will be held to discuss all aspects of the RFS. Project Management responsibilities will be turned over to ---------------------------------------------------------- the NOC on that conference call. - -------------------------------- CUSTOMER CARE CENTER TEAM RESPONSIBILITIES The Customer Care Center Team responsibilities include: 1. Providing the Purchasers of Capacity on Global Crossing undersea cables with a single point of contact for answering questions, resolving problems and collecting the appropriate information regarding service implementation, pre-service testing and billing. 2. Interfacing with Purchasers of Capacity to coordinate any of the services (listed below) that have been contracted with Global Crossing Ltd. Or any of it's divisions: a. Assisting the customer in Designating Circuits using ITU Standards b. Providing undersea cable capacity assignments c. Capacity installations, disconnects or changes d. Overall testing and circuit turn up 3. Proactively monitoring the quality of service delivered and providing customer reports of exceptions to the contracted performance. 4. Assigning an individual at the Customer Care Center as your personal point of contact (the Customer Care Specialist) who will confirm receipt of a properly completed Request for Service form, initiate the order within 24 hours and provide ongoing status of the installation 5. Entering the required data regarding service implementation into the ordering system so that Network Operations personnel can initiate the required work order(s). This would include the following activities: . To accept Requests for Service via electronic mail to your Specialist's E- Mail ID or the Customer Care Center fax machine (441.296.9461). Verbal requests for service will not be accepted. Customers may obtain Request for Service forms from either the Global Crossing web site once the internet address is available or their Specialists. A copy of the form is provided in this manual. 5 . Provide confirmation via electronic mail or fax within 24 hours of receipt of a Request for Service. Customer Care Center personnel will also acknowledge that the appropriate action has been performed to support the request, as well as provide a projected completion date by using the Order Confirmation form. The Customer Care Specialist will assist Customers, Inland Providers and Account Team members with identification of the required data needed to properly complete the Request for Service. . Once circuit design has been completed, provide the customer with assignment information necessary for Inland Providers and/or Local Loop Providers . Proactively provide service order status relating to the requested service order activity. Upon notification of service completion, the Customer Care Specialist will confirm completion with the customer, by using the Order Completion form. . After all appropriate deposits and payments for requested services have been made, forward the Activation Authorization to the customer. The AA provides the capacity purchaser with authorization (for Inland Provider) to connect as well as the Bay, Panel and Jack interconnect tie down information used by the Inland Provider(s). 6 GLOBAL CROSSING CUSTOMER CARE CENTER SERVICE DELIVERY INTERVALS
ACTIVITY RESPONSIBILITY INTERVAL -------- -------------- -------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- Path Provisioning - --------------------------------------------------------------------------------------------------- Cable Station to Cable Station Customer Care Center 4 Business Days - --------------------------------------------------------------------------------------------------- or - --------------------------------------------------------------------------------------------------- Inland Provider ODF to Inland Provider ODF Customer Care Center 4 Business Days - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- Inland Provider ODF to Customers network interface. Customer Varies - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- City to City To Be Provided - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- London - --------------------------------------------------------------------------------------------------- New York - ---------------------------------------------------------------------------------------------------
It is important to remember that the intervals listed above are for the Global Crossing provided portion of your circuits. As the line graph below indicates, you should decide on your requested date of service enough in advance to insure that your local loop provider and your backhaul provider (in the case of Basic or single extended service) will also be able to meet your requested service date. RFS Issued Svc Date Global Crossing Circuit 4 Days Backhaul Ordered Unknown Interval (If Basic or Single Extended) Local Loop Ordered Unknown Interval 7 CUSTOMER CARE CENTER REQUEST FOR SERVICE (Blank form on Page 11) FIELD DESCRIPTIONS & INSTRUCTIONS ORIGINATOR INFORMATION - ---------------------- All fields in this section must be completed by the originator. The originator of the request is "Customer Number One". "Customer Number Two" information is required only if capacity was purchased in a "half STM arrangement" by each of two customers. 1. Business Name - Corporate name of the capacity purchaser 2. Contact Name - Name of the person authorized to order service and ----- --- coordinate installation on behalf of the capacity purchaser and its ----------------------- customers 3. Telephone Number - Telephone number of the capacity purchaser's ordering contact 4. Fax Number - Fax number of the capacity purchaser's ordering contact 5. Electronic Mail ID - Electronic mail address of the capacity purchaser contact 6. Customer Requested Due Date - The date that the customer requests service to be activated. SERVICE ORDER ACTIVITY REQUESTED - -------------------------------- This section indicates the type of request to be processed. 7. Activate New Service - Request to initiate service. Customer must indicate Basic, Single Ended Extended, or Double Ended Extended service. 8. Discontinue Existing Service - Request to disconnect existing service 9. Matching Order Number - Related order that may accompany the request (i.e. Customer Number Two has a pending order for the west end that needs to be coordinated with a request for the east end). 8 SERVICE DETAILS - --------------- International Telecommunications Union Facility Designation As previously stated, the Customer Care Center will assist you in assigning overall circuit designations per ITU Standards for each circuit identified in your CPA. This assignment will be made as soon as possible after your CPA has been received. From that point on, whenever communicating with Customer Care or the Network Operations Center regarding your circuits, you must use this ITU circuit designation! 10. ITU Standard Circuit Designation - Alpha-numeric designator (as outlined above) that identifies the end to end circuit that the capacity purchaser is activating, changing or disconnecting. 11. Terminal City A and Terminal City Z - Cities that compose the two ends of the circuit that is being initiated, rearranged, or disconnected. UNDERSEA NETWORK TRANSPORT DETAILS - ---------------------------------- 12. Network Name - Name of the cable system (eg--AC-1). 13. Level (STM-n) and Quantity - Indicates STM 1 or 16 and whether the service is Protected, Service only or Protection only. Transport Designation and Terminals For Basic Service only - ---------------------- If basic service was ordered (ie-undersea capacity only), customer must also have a signed collocation agreement (or an agreement with an Inland Provider that has an existing collocation agreement) and furnish the appropriate tie down information at the collocated space (cage) at each cable station. 14. Optical Distribution Frame Assignments - Inland Capacity Provider Name and Service and protection bay, panel and jack assignments for each cable station from which the customer requests basic service (A and Z ends). ***Jack assignments must be issued in pairs for both service and protection (i.e. Svc J 10/11; Prt J 20/21) in order to accommodate both send and receive traffic. INLAND NETWORKS - --------------- For Single or Double Extended Service - ------------------------------------- Inland Networks- If extended service was ordered, then customer must provide the Alternate Access and/or the Local Loop Provider's name and tie down information at the POP or meeting point with the Inland Provider. (In the case of extended service, customer chooses only the location where their Alternate Access/Local Loop Provider meets the Inland Provider--they do not choose the Inland Provider.) Location Number One - ------------------- 15. Inland Provider 9 Name of Alternate Access/Local Loop Provider customer has selected if Extended Service at this end was ordered. 16. Level (STM-n) and Quantity Indicates STM-1 or 16 bandwidth of service. 17. Alternate Access/Local Loop Provider Name of the vendor(s) that will carry traffic from the Inland Provider's central office (i.e. 60 Hudson Street, Docklands, etc.) to the end user's premise. Location Number Two ------------------- 18. Inland Provider Name of Inland Provider customer has selected if Basic Service only was ordered. 19. Level (STM-n) and Quantity Indicates STM-1 or 16 bandwidth of service. 20. Alternate Access/Local Loop Provider - See #17 21. Additional Information - Section provided to allow customer room for remarks pertaining to the request. This area should be used to explain whatever details are necessary in order to insure that adequate information is provided the Customer Care Center. 10 GLOBAL CROSSING CUSTOMER CARE CENTER REQUEST FOR SERVICE ORIGINATOR INFORMATION DATE:____________ - ----------------------
Customer Number One Customer Number Two (If applicable) 1. Business Name Business Name - ------------------------------------------------------------------------------------------- 2. Contact Name Contact Name - ------------------------------------------------------------------------------------------- 3. Telephone Number Telephone Number - ------------------------------------------------------------------------------------------- 4. Fax Number Fax Number - ------------------------------------------------------------------------------------------- 5. Electronic Mail ID Electronic Mail ID - ------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 6. Customer Requested Due Date: - --------------------------------------------------------------------------------
SERVICE ORDER ACTIVITY REQUESTED - -------------------------------- - --------------------------------------------------------------------------------------------------------------------------- 7. Activate New Service Basic: Single Extended: Double Extended: - --------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 8. Discontinue Existing Service: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 9. Matching Order Number: (If applicable) - ---------------------------------------------------- SERVICE DETAILS -------------- International Telecommunications Union Facility (Circuit) Designation - -------------------------------------------------------------------------------- 10. ITU Standard Circuit Designation: (Customer provided Circuit ID ) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 11. Terminal City A: Terminal City Z: - -------------------------------------------------------------------------------- UNDERSEA NETWORK TRANSPORT DETAILS ----------------------------------- - -------------------------------------------------------------------------------- 12. Network Name: (Cable System) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 13. Level (STM-n) Svc #: Prot#: - --------------------------------------------------------------------------------
11 GLOBAL CROSSING CUSTOMER CARE CENTER REQUEST FOR SERVICE For Basic Service only - ---------------------- 14. Inland Capacity Provider's Optical Distribution Frame (ODF) Assignments in Cable Station Co-location area - --------------------------------------------------------------------------------
Terminal A Inland Capacity Provider: - -------------------------------------------------------------------------------------------- Bay Panel/Module/Shelf Transmit Jack Receive Jack - -------------------------------------------------------------------------------------------- SERVICE - -------------------------------------------------------------------------------------------- PROTECTION - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Terminal Z Inland Capacity Provider: - -------------------------------------------------------------------------------------------- Bay Panel/Module/Shelf Transmit Jack Receive Jack - -------------------------------------------------------------------------------------------- SERVICE - -------------------------------------------------------------------------------------------- PROTECTION - --------------------------------------------------------------------------------------------
For Single or Double Extended Service only: - ------------------------------------------- INLAND NETWORKS - --------------- Location Number One - ------------------- - -------------------------------------------------------------------------------- 15. Location 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 16. Level (STM-n) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 17. Alternate Accesss Vendor: Local Loop Provider: - -------------------------------------------------------------------------------- Contact: Telephone: - -------------------------------------------------------------------------------- Local Loop Provider: - -------------------------------------------------------------------------------- Contact: Telephone: - -------------------------------------------------------------------------------- Location Number Two - ------------------- - -------------------------------------------------------------------------------- 18. Location 2 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 19. Level (STM-n) - --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------- 20. Alternate Accesss Vendor: Local Loop Provider: - ----------------------------------------------------------------------------------- Contact: Telephone: - ----------------------------------------------------------------------------------- Local Loop Provider: - ----------------------------------------------------------------------------------- Contact: Telephone: - -----------------------------------------------------------------------------------
12 GLOBAL CROSSING CUSTOMER CARE CENTER REQUEST FOR SERVICE 21. Additional Information (Detailed description of circuit, work involved, - ---------------------------- related orders or any additional information that helps describe what has been requested)__ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 13 ACCESS DISCONNECT/CHANGE REQUESTS Use the form on the following page to request a change in access to the network. Provide current (From) information and new (To) information. This form contains fields named ITU Circuit Designation and Overseas Channel Assignment (OCA) that are Global Crossing's identifiers of the customer's circuit(s). Please include this information on any change requests. The remaining fields on this form are defined on the previous pages outlining how to fill out an RFS. 14 GLOBAL CROSSING CUSTOMER CARE CENTER ACCESS DISCONNECT/CHANGE REQUEST FORM ORIGINATOR INFORMATION - ---------------------- Customer Number One Customer Number Two (If applicable) - -------------------------------------------------------------------------------- 1. Business Name Business Name - -------------------------------------------------------------------------------- 2. Contact Name Contact Name - -------------------------------------------------------------------------------- 3. Telephone Number Telephone Number - -------------------------------------------------------------------------------- 4. Fax Number Fax Number - -------------------------------------------------------------------------------- 5. Electronic Mail ID Electronic Mail ID - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 6. Customer Requested Due Date: - -------------------------------------------------------------------------------- SERVICE DETAILS - --------------- International Telecommunications Union Facility Designations - -------------------------------------------------------------------------------- 7. Overseas Channel Assignment (OCA) - -------------------------------------------------------------------------------- 8. Numeric Designation: (Customer ITU Ckt ID) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 9. Terminal City A Terminal City A - -------------------------------------------------------------------------------- UNDERSEA NETWORK TRANSPORT ASSIGNMENT - -------------------------------------- - -------------------------------------------------------------------------------- 10. Network Name: (Cable System) Segment - -------------------------------------------------------------------------------- 11. Level (STM-n) Quantity - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 12. FROM: Cable Station Optical Distribution Frame (ODF) Assignments (Basic service only) - --------------------------------------------------------------------------------
- -------------------------------------------------------------------- Terminal A (Location 1) Capacity Provider: - --------------------------------------------------------------------------------------------------- Bay Panel/Module/Shelf Transmit Jack Receive Jack - --------------------------------------------------------------------------------------------------- SERVICE - --------------------------------------------------------------------------------------------------- PROTECTION - --------------------------------------------------------------------------------------------------- - ----------------------- Terminal Z (Location 2) - --------------------------------------------------------------------------------------------------- Bay Panel/Module/Shelf Transmit Jack Receive Jack - --------------------------------------------------------------------------------------------------- SERVICE - --------------------------------------------------------------------------------------------------- PROTECTION - ---------------------------------------------------------------------------------------------------
15 GLOBAL CROSSING CUSTOMER CARE CENTER ACCESS DISCONNECT/CHANGE REQUEST FORM - -------------------------------------------------------------------------------- 13. TO: Cable Station Optical Distribution Frame (ODF) Assignments (Basic service only) - --------------------------------------------------------------------------------
- ------------------------------------------------------------------- Terminal A (Location 1) Capacity Provider: - ---------------------------------------------------------------------------------------------------- Bay Panel/Module/Shelf Transmit Jack Receive Jack - ---------------------------------------------------------------------------------------------------- SERVICE - ---------------------------------------------------------------------------------------------------- PROTECTION - ---------------------------------------------------------------------------------------------------- - ----------------------- Terminal Z (Location 2) - ---------------------------------------------------------------------------------------------------- Bay Panel/Module/Shelf Transmit Jack Receive Jack - ---------------------------------------------------------------------------------------------------- SERVICE - ---------------------------------------------------------------------------------------------------- PROTECTION - ----------------------------------------------------------------------------------------------------
INLAND NETWORKS (Extended service only) - --------------- Location Number One - ------------------- FROM: TO: - -------------------------------------------------------------------------------- 14. AAV/LL Provider AAV/LL Provider - -------------------------------------------------------------------------------- 15. Numeric Designation Numeric Designation - -------------------------------------------------------------------------------- Location Number Two - ------------------- FROM: TO: - -------------------------------------------------------------------------------- 16. AAV/LL Provider AAV/LL Provider - -------------------------------------------------------------------------------- 17. Numeric Designation Numeric Designation - -------------------------------------------------------------------------------- 16 GLOBAL CROSSING CUSTOMER CARE CENTER ACCESS DISCONNECT/CHANGE REQUEST FORM 18. Additional Information: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 17 Order Confirmation Order Completion Assignment Order (AO) Activation Authorization (AA) Order Confirmation The information that is provided on this form is straight forward and serves only to indicate to you that Customer Care has received your RFS and is beginning to process the Request. The ITU Circuit Designation is the name you have called the circuit. The Order Number is the installation order number that Global Crossing has assigned to the installation order. The scheduled due date is the requested date you placed on the RFS. The Overseas Channel Assignment is the identification number of the undersea portion of the circuit. Assignment Order The information for the Assignment Order will come to you after Global Crossing has designed the circuit. This form can be sent to the Inland Provider, the Alternate Access Vendor or the Local Loop Provider that you have contracted for your portion of the circuit. It tells them what assignments have been made on the Global Crossing portion of the circuit. Order Completion Once notification is received from the NOC that the order has been completed, we will notify you using the Order Completion Form. The information on this form tells you that the Order has been completed, the date it was completed, the ITU Circuit Designation, the Overseas Channel Assignment, the Order type (add, disconnect or change) and the Bay, Panel and Jack information for extended service. Activation Authorization The Activation Authorization will be sent to you once the circuit has been completed and we have verified that all financial obligations have been met. It authorizes the Capacity Providers that you have contracted with to turn up the service associated with the listed circuit(s). 18 CUSTOMER CARE CENTER -------------------- ORDER CONFIRMATION Customer Name: ----------------------------------------- Customer ID: ------------------------------------------- Attention: ---------------------------------------------
- ------------------------------------------------------------------------------------------------- ITU Circuit Designation Order Number Scheduled Due Date Overseas Channel Assignment - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------
Dear : ------------------------------ The above orders associated with your request for service have been issued. If you have any questions, please feel free to contact me in the Customer Care Center. Customer Care Specialist: 1.888.371.0702 1.441.296.9464 19 Assignment Order Date: Global Crossing Customer Care Center does hereby recognize ------------------- Customer Name as a legitimate Capacity Purchaser. This customer is therefore authorized to initiate service requests for interconnection to Global Crossing high capacity bandwidth. The Bay / Panel / Jack information listed below will be required to engineer the interconnection to the customer's circuit. The following will provide specific information necessary to fulfill the customer's immediate connection request. This is not an authorization activate the service. 1st Capacity Provider -------------------------------------------------------------------------- Company Name ------------ ---------------------------------------------------------------------------- Name of Customer Contact ---------------------------------------------------------------------------- Company Street Address ---------------------------------------------------------------------------- City, State, Postal Code / Zip ---------------------------------------------------------------------------- Telephone ---------------------------------------------------------------------------- Provider Name (ICP/CLP/LLP): - ----------------------------------------------------------------------------- ITU Circuit Designation: - ----------------------------------------------------------------------------- Circuit Type: - ----------------------------------------------------------------------------- Refer To Order: - ----------------------------------------------------------------------------- Provider Circuit Designation: - ----------------------------------------------------------------------------- Order Type (Check One): New [_] ReArrangement [_] Disconnect [_] ---------- - -------------------------------------------------------------------------------- Assignments: Bay Panel Jack - -------------------------------------------------------------------------------- Service: - -------------------------------------------------------------------------------- Protection: ----------------------------------------------------------------------------- Overseas Channel Assignment(s): ------------------------------------------------------------------ Customer Termination: Optical [_] Electrical [_] ------------------------------------------------------------------ Specialist Name (Printed): -------------------------------------------------------------------------- Specialist Signature: -------------------------------------------------------------------------- Date: -------------------------------------------------------------------------- Customer Signature: -------------------------------------------------------------------------- Date signed: -------------------------------------------------------------------------- 2nd Capacity Provider: -------------------------------------------------------------------------- Company Name ------------ -------------------------------------------------------------------------- Name of Customer Contact -------------------------------------------------------------------------- Company Street Address -------------------------------------------------------------------------- City, State, Postal Code / Zip -------------------------------------------------------------------------- Telephone -------------------------------------------------------------------------- Provider Name (ICP/CLP/LLP): -------------------------------------------------------------------------- 20 Assignment Order (Cont'd) ---------------------------------------------------------------------- ITU Circuit Designation: ---------------------------------------------------------------------- Circuit Type: ---------------------------------------------------------------------- Refer To Order: ---------------------------------------------------------------------- Provider Circuit Designation: - -------------------------------------------------------------------------------- Order Type (Check One): New [_] ReArrangement [_] Disconnect [_] ---------- - -------------------------------------------------------------------------------- Assignments: Bay Panel Jack - -------------------------------------------------------------------------------- Service: - -------------------------------------------------------------------------------- Protection: - -------------------------------------------------------------------------------- Overseas Channel Assignment: -------------------------------------------------------------------------- Customer Termination: Optical [_] Electrical [_] ------------------------------------------------------------------ Specialist Name (Printed): ------------------------------------------------------------------ Specialist Signature: ---------------------------------------------------------------------- Date: ---------------------------------------------------------------------- Customer Signature: ---------------------------------------------------------------------- Date signed: ---------------------------------------------------------------------- 3rd Capacity Provider: ---------------------------------------------------------------------- Company Name ------------ ---------------------------------------------------------------------- Name of Customer Contact ---------------------------------------------------------------------- Title ---------------------------------------------------------------------- Company Street Address ---------------------------------------------------------------------- City, State, Postal Code / Zip ---------------------------------------------------------------------- Telephone ---------------------------------------------------------------------- Provider Name (ICP/CLP/LLP): ---------------------------------------------------------------------- ITU Circuit Designation: ---------------------------------------------------------------------- Circuit Type: ---------------------------------------------------------------------- Refer To Order: ---------------------------------------------------------------------- Provider Circuit Designation: - -------------------------------------------------------------------------------- Order Type (Check One): New [_] ReArrangement [_] Disconnect [_] ---------- - -------------------------------------------------------------------------------- Assignments: Bay Panel Jack - -------------------------------------------------------------------------------- Service: - -------------------------------------------------------------------------------- Protection: - -------------------------------------------------------------------------------- Overseas Channel Assignment: ----------------------------------------------------------------- Customer Termination: Optical [_] Electrical [_] ----------------------------------------------------------------- Specialist Name (Printed): ---------------------------------------------------------------------- Specialist Signature: ---------------------------------------------------------------------- Date: ---------------------------------------------------------------------- Customer Signature: ---------------------------------------------------------------------- Date signed: ---------------------------------------------------------------------- 21 GLOBAL CROSSING CUSTOMER CARE CENTER ORDER COMPLETION FORM Customer -------- Name: --------------------------------------- Attention: -----------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------- Order Completion ITU Standard Overseas Channel Order Bay, panel and Jack Number Date Circuit ID Assignment (OCA) Type (Extended Service Only) - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------ Reason for delay in completion date (if order not completed when scheduled): - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ The above order(s) have been completed based on your (day\month\year) service order request. If you have any questions, please feel free to contact me in the Customer Care Center. Customer Care Specialist 1.888.371.0702 Ext ----- 1.441.296.9464 Ext ----- 22 23 [LOGO OF GLOBAL CROSSING] Activation Authorization Date: Global Crossing Customer Care Center does hereby recognize ---------------------- Customer Name as a legitimate Capacity Purchaser on the ___________ to __________ cable system. Local Loop Providers and Inland Capacity Providers are hereby authorized to turn up for service their respective circuits included as part of the following Global Crossing high capacity bandwidth circuit. - -------------------------------------------------------------------------------- Company Name - -------------------------------------------------------------------------------- Name of Customer Contact - -------------------------------------------------------------------------------- Title - -------------------------------------------------------------------------------- Company Street Address - -------------------------------------------------------------------------------- City, State, Postal Code / Zip - -------------------------------------------------------------------------------- Telephone - -------------------------------------------------------------------------------- Customer Signature - -------------------------------------------------------------------------------- Date signed - -------------------------------------------------------------------------------- ITU Circuit Designation: Inland Provider (IP) Name: Inland Provider (IP) CKT ID: Overseas Channel Assignment (OCA/TCA): ITU Circuit Designation: Local Loop Provider (LLP) Name: Inland Provider (IP) CKT ID: Overseas Channel Assignment (OCA/TCA): Authorized by: Printed Global Crossing Representative Name Authorizing Title: Customer Service Specialist --------------------------- Authorized Signature: --------------------------------------------- 24 ATLANTIC CROSSING BACKHAUL PROVIDERS UNITED STATES
60 Hudson Street 75 Broad Street New York, NY, USA New York, NY, USA Cablevision Lightpath Inc. Teleport Communications Group - -------------------------- ----------------------------- Mr. Dan Matthews Steve Huston Strategic Account Manager National Account Manager 111 New South Road 672 Mohawk Street Hicksville, NY 11801 Columbus, OH 43206 516 393-3468 phone 732-805-5758 phone 516 393-0455 fax dmatthew@cablevision.com - ------------------------ International Optical Network (ION) - -------------------------------------- Customer Care/Sales Cathy Hanzich 110 E. 42nd Street, suite 1405 New York, NY 10017 212 687-9177 chanzich@mmfn.com - ----------------- COLLOCATION CONTACTS - -------------------- 60 Hudson Street 75 Broad Street New York, NY, USA New York, NY, USA Williams Real Estate Co. LaSalle Real Estate Co. - ------------------------ ----------------------- New York, NY New York, NY Audrey Novia Tom Garden 212 716-3500 212 341-0218
25 ATLANTIC CROSSING BACKHAUL PROVIDERS UNITED KINGDOM
Docklands Telehouse - --------- --------- London London Cable & Wireless International Optical Network (ION) - ---------------- --------------------------------------- Mrs. Carol Mills Customer Care/Sales 26 Red Lion Square Mrs. Cathy Hanzich London WC1R 4HQ 110 East 42nd St. Suite 1405 1+800+11+66+77+22 phone New York, NY 10017 44+171+528+1826 phone 212-687-9177 phone 44+171+528+3007 fax 212-687-9188 fax carol.mills@cwcom.co.uk chanzich@mmfn.com email
COLLOCATION CONTACTS - --------------------- Cable & Wireless Mrs. Carol Mills 26 Red Lion Square London WC1R 4HQ 44+800+11+66+77+22 phone 44+171+528+1826 phone 44+171+528+3007 fax carol.mills@cwcom.co.uk 26 ATLANTIC CROSSING BACKHAUL PROVIDERS GERMANY Deutsche Telekom - ----------------
North America North America - ------------- ------------- Area Carrier Relation Manager Area Carrier Relation Manager Mr. Kevin Mulholland Joseph Miranda 1-732-933-4900 phone 1-732-933-4900 phone 1-732-933-4354 fax 1-732-933-4354 fax 1 732-763-0565 mobile 1-908-890-8102 mobile kevin.mulholland@usa.telekom.de joseph.miranda@usa.telekom.de Latin America Northern Europe, Scandinavia, UK, Netherlands, - ------------- ---------------------------------------------- Belgium ------- Area Carrier Relation Manager Area Carrier Relations Manager Mr. John Phillips Mr. Alain Cockburn 1-732-933-4900 phone +44-171-432-6267 phone 1-732-933-4354 fax +44-171-432-6276 fax 1-908-890-8103 mobile 44-385-316-107 mobile john.phillips@usa.telekom.de alain.cockburn@deutschetelekom.co.uk Southern Europe, France, Italy, Portugal, Spain, - ------------------------------------------------ Monaco, Andorra, Luxemburg - -------------------------- Area Carrier Relation Manager Area Carrier Relation Manager Philippe Nieto Claudia Sunkel +33 1 44 43 00 30 phone +44 171 432 6253 phone +33 1 44 43 00 10 fax +44 171 432 6276 fax +33 607 012 461 mobile +44 385 316 107 mobile pnieto@ti.telekom.de Claudia.Sunkel@deutschetelekom.co.uk
27 ATLANTIC CROSSING BACKHAUL PROVIDERS GERMANY Deutsche Telekom - ----------------
Singapore, East Asia, Israel Russia, CIS - ----------------------------- ----------- Area Carrier Relations Manager Area Carrier Relations Manager Francis Wong Natalia Gavrilova +65 438 9140 phone +7 095 956 5434 phone +65 438 9144 fax +49 40 650 1993 phone +65 966 886 95 mobile +7 095 956 5433 fax francis.wong@sgp.telekom.de +49 40 650 2050 fax +7 095 767 4730 mobile Natalia.Gavrilova@rus.telekom.de Middle East - ----------- Area Carrier Relations Senior Manager North Asia, Japan Calvin Wee Sing Lee ----------------- +65 438 9142 phone Area Carrier Relations Senior Manager +65 438 9144 fax Masayoshi Akimoto +65 9633 4478 mobile +813 5213 8702 phone calvin.lee@sgp.telekom.de +813 5213 8777 fax +812 0743 2515 mobile masayoshi.akimoto@jpn.telekom.de West Asia East Europe - --------- ----------- Assistant Relation Manager Area Carrier Relations Manager Eugene Lim Thomas Dreischhoff +65 438 9141 phone +7 095 956 5434 phone +65 438 9144 fax +49 40 650 1993 phone +65 9787 1920 mobile +7 095 956 5433 fax eugene.lim@sgp.telekom.de +49 40 650 2050 fax +7 095 767 4729 mobile Australia, Pacific Region Thomas.Dreischhoff@rus.telekom.de - ------------------------- Area Carrier Relation Manager Shigeo Araki +813 5213 8741 phone +813 5213 8777 fax +818 0806 6539 mobile shigeo.araki@jpn.telekom.de
28 ATLANTIC CROSSING BACKHAUL PROVIDERS THE NETHERLANDS PTT Telecom BV - -------------- Senior Facility Manager Marieke ten Wolde PO Box 30150 2500 GD The Hague The Netherlands 31-70-343-9320 phone 31-70-343-8319 fax PTT Telecom BV - -------------- Manager, Stream & Market Management Mr. Peter Smink PO Box 30150 2500 GD The Hague The Netherlands 31-70-343-2739 phone 31-70-343-8319 fax 29 CUSTOMER CARE FEEDBACK FORM 1. Date of Request: ________________________________________________________________________________ 2. Who handled your request? ________________________________________________________________________________ 3. What was the nature of your request? ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ 4. Was your request handled in a timely manner? ________________________________________________________________________________ ________________________________________________________________________________ 5. How would you rate your overall satisfaction with the Customer Care Center? Excellent [_] Good [_] Fair [_] Poor [_] If your response is Fair or Poor, please explain. ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ 6. Any additional feedback or suggestions: ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ Please send to: Global Crossing Customer Care Center 45 Reid Street Hamilton, Bermuda HM12 Attention: Customer Care Manager Fax to: 1.441.296.9461 30 31 Transfer of Indefeasible Right of Use and Transfer of Service The Transfer of Indefeasible Right of Use form is used when a Capacity Purchaser exercises its right to assign its use of capacity only, as described in its --------------------- individual Capacity Purchase Agreement. The Transfer of Service form is used when a Capacity Purchaser exercises its right to transfer all of its obligations ---------------------- as described in its individual Capacity Purchase Agreement. Please prepare the following form(s) and forward via mail or fax to Global Crossing Ltd. for approval: Wessex House First Floor 45, Reid Street Hamilton HM 12 Bermuda Fax: 1.441.296.9461 32 Global Crossing Customer Care Center TRANSFER OF SERVICE AGREEMENT Current Customer: _________________________________________________________ New Customer: _____________________________________________________________ Atlantic Crossing Ltd. Service(s) to be transferred (referred to in this Agreement as the "Identified Service"): are outlined in Attachment A. ___________________________________________________________________________ 1. Current Customer is Atlantic Crossing Ltd.'s existing customer of record for the identified Service. Current Customer hereby requests that Atlantic Crossing Ltd. transfer the Identified Service to New Customer. Current Customer understands that it will no longer be Atlantic Crossing Ltd.'s customer for the identified Service after the Effective Date of the transfer. 2. New Customer agrees to assume all obligations of Current Customer as of the Effective Date of the Transfer. These obligations include, for example: all outstanding indebtedness for the Identified Service and the ongoing maintenance and interconnection charges (where applicable). This transfer of service does not relieve or discharge Current Customer from remaining jointly and severally liable with New Customer for any obligations existing as of the Effective Date of the transfer. 3. Whereas the Service being transferred is half of a Minimum Capacity Unit, the customer of record (concurring customer) for the matching Capacity must agree to the transfer of service to the new customer. 4. The Effective Date of the transfer will be the earlier of: (a) date on which Atlantic Crossing Ltd. accepts the transfer in writing; or (b) the fifteenth day after Atlantic Crossing Ltd. receives a fully executed original of this Transfer of Service form, unless, within such fifteen-day period, Atlantic Crossing Ltd. rejects the transfer or assignment. 5. The service is not to be interrupted at the time the transfer is made. Current Customer New Customer Concurring Customer By: By: By: -------------------------- ---------------------------- ----------------------------- (Signature of Authorized (Signature of Authorized (Signature of Authorized Representative) Representative) Representative) - ------------------------------ ---------------------------------- ------------------------------------- (Typed or Printed Name) (Typed or Printed Name) (Typed or Printed Name) - ------------------------------ ---------------------------------- ------------------------------------- (Title) (Title) (Title) - ------------------------------ ---------------------------------- ------------------------------------- (Date) (Date) (Date) Authorized by Atlantic Crossing Ltd.: ______________________________ ___________ (Signature) (Date)
33 Attachment A TRANSFER OF SERVICE AGREEMENT IDENTIFIED SERVICES Date Required by Customer: ------------------------------------------- Description of Capacity Services being transferred: Segment Circuit Number Capacity Unit - ------- -------------- ------------- 34 GLOBAL CROSSING CUSTOMER CARE CENTER TRANSFER OF INDEFEASIBLE RIGHT OF USE The following signed parties authorize the transfer and acceptance of the Indefeasible Right of Use for ______ STM-1(s) on segment(s) ____________ of the AC-1 Cable System from _______ until _______. The purchaser understands that its obligations under the Capacity Purchase Agreement are not transferable and remain the responsibility of said purchaser. Furthermore, both purchaser and assignee acknowledge that said assignee is not a third party beneficiary of the Capacity Purchase Agreement or the Right of Use Agreement. Segment Landing Points --------- -------------- S-1 T-1 and T-2 S-2 T-2 and T-3 S-3a T-1 and T-4 S-3b T-3 and T-4 S-3c T-1 and T-3 S-4 T-2 and T-4 T-1 -- A cable station in Brookhaven, New York, United States, together with that portion of the System that is located between such cable station and the point that is one half mile beyond the United States territorial limit. T-2 -- A cable station in Whitesands, United Kingdom together with that portion of the System that is located between such cable station and the point that is one half mile beyond the United Kingdom territorial limit. T-3 -- A cable station in Sylt, Germany together with that portion of the System that is located between such cable station and the point that is one half mile beyond the German territorial limit. T-4 -- A cable station in Beverwijk, Netherlands, together with that portion of the System which is located between such cable station and the point that is one half mile beyond the Netherlands territorial limit. Purchaser: ________________________ Assignee:______________________________ (Corporate Name) (Corporate Name) Signature: ________________________ Signature: ____________________________ (Signature of Authorized Representative)(Signature of Authorized Representative) Printed Name: ______________________ Printed Name:__________________________ Title: _____________________________ Title:_________________________________ Telephone Number: _________________ Telephone Number:______________________ Fax Number: ________________________ Fax Number:____________________________ Date: __________________ Date: ____________________
35 Accepted by Atlantic Crossing Ltd. Date: -------------------------------- -------- Signature GLOBAL CROSSING CUSTOMER CARE CENTER TRANSFER OF SERVICE CONFIRMATION FORM Date of Request: ___________ Originator's Name: _________________ The following parties authorize the transfer and acceptance of service for ______ STM-1(s) on segment(s) ____________ of the AC-1 Cable System. Capacity Purchaser: ________________________ Assignee: ___________________________ (Corporate Name) (Corporate Name) Approved ______ Denied _______ Date _________ Customer Care Manager: ____________________ Telephone Number: ________________________ Fax Number: ________________________
36 GLOBAL CROSSING CUSTOMER CARE CENTER TRANSFER OF INDEFEASIBLE RIGHT OF USE CONFIRMATION FORM Date of Request: ___________ Originator's Name: _________________ The following parties authorize the transfer and acceptance of the Indefeasible Right of Use for ______ STM-1(s) on segment(s) ____________ of the AC-1 Cable System from _________ until ________. Capacity Purchaser: ________________________ Assignee: __________________________ (Corporate Name) (Corporate Name) Approved __________ Denied __________ Date __________ Customer Care Manager: ____________________ Telephone Number: ________________________ Fax Number: ________________________
37 ANNEX A INDEFEASIBLE RIGHT OF USE AGREEMENT THIS AGREEMENT (as amended, supplemented or otherwise modified from time to time, this "Agreement") is made and entered into as of this 21st day of June, 1999, between and among VIA Net Works Europe Holding B.V. (the "Purchaser") and GT Landing Corp., GT U.K. Ltd., Global Telesystems GmbH and GT Netherlands B.V. (collectively, the "Subsidiary Grantors"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, each Subsidiary Grantor is a wholly-owned subsidiary of Atlantic Crossing Ltd. (the "Parent") who is the grantor under the Capacity Purchase Agreement (as amended, supplemented or otherwise modified from time to time, the "Capacity Purchase Agreement") to which a copy of this Agreement is attached; WHEREAS, capitalized terms used in this Agreement and not otherwise defined in this Agreement shall have the meanings assigned to them in the Capacity Purchase Agreement; WHEREAS, upon completion of the construction and installation of the System, GT Landing Corp. will have an IRU in the whole of Segment T-1, GT U.K. Ltd. will own Segment T-2, Global Telesystems GmbH will own Segment T-3 (except with respect to that portion of Segment T-3 which comprises Subsegment T-3B in which Global Telesystems GmbH shall have rights) and GT Netherlands B.V. will own Segment T-4 (except with respect to that portion of Segment T-4 which comprises Subsegment T-4B in which GT Netherlands B.V. shall have rights); WHEREAS, subject to and in accordance with the terms of the Capacity Purchase Agreement, the Parent is conveying certain S Capacity to the Purchaser on an indefeasible right of use basis; WHEREAS, each Subsidiary Grantor desires to grant to the Purchaser, at no additional charge and for so long as the Purchaser maintains an IRU in any S Capacity, an indefeasible right of use with respect to its respective T Segment to the extent required by the Purchaser to use its IRU in such S Capacity; and WHEREAS, the Subsidiary Grantors acknowledge and agree that the Purchaser has relied upon this Agreement in entering into the Capacity Purchase Agreement; NOW, THEREFORE, the Subsidiary Grantors covenant and agree as follows: 1. Upon the effectiveness of the grant to the Purchaser of an indefeasible right of use with respect to any S Capacity (including in any Residual Capacity) in accordance with the Capacity Purchase Agreement, each Subsidiary Grantor grants to the Purchaser, at no additional charge and for so long as the Purchaser maintains an IRU in such S Capacity, an indefeasible right of use with respect to its respective T Segment to the extent required by the Purchaser to use its IRU in the S Capacity. 2. Subject to Sections 10 and 11 of the Capacity Purchase Agreement, each Subsidiary Grantor shall use commercially reasonable efforts to maintain, or cause the Operator to maintain, its respective T Segment in accordance with the provisions set forth in the Capacity Purchase Agreement. 3. The performance of this Agreement by each of the Subsidiary Grantors is contingent upon the continuance of the Capacity Purchase Agreement and upon the obtaining and continuance of such approvals, consents, governmental authorizations, licenses and permits as may be required or deemed necessary by such parties and as may be satisfactory to them. The Subsidiary Grantors shall use all reasonable efforts to obtain and continue such approvals, consents, governmental authorizations, licenses and permits. No license under patents is granted by the Subsidiary Grantor or shall be implied or arise by estoppel in the Purchaser's favor with respect to any apparatus, system or method used by the Purchaser in connection with the use of the T Segment(s) granted hereunder. 4. The Subsidiary Grantors and the Parent have entered into the Supply Contract to obtain plant, equipment and services necessary to allow the T Segments to be placed into operation on the applicable scheduled RFS Date. UNLESS SPECIFICALLY SET FORTH IN THIS AGREEMENT, ANY OTHER WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED TO, THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE SPECIFICALLY DISCLAIMED. 5. In no event shall any Subsidiary Grantor or the Purchaser be liable to the other for consequential, incidental, indirect or special damages, including, but not limited to, loss of revenue, loss of business opportunity, or the costs associated with the use of restoration facilities. 6. This Agreement shall not form a joint venture or partnership or similar business arrangement between the parties hereto or between the parties hereto, the Parent and the Purchaser, and nothing contained herein shall be deemed to constitute a partnership or joint venture or similar business arrangement. 7. This Agreement does not provide and is not intended to provide third parties (including, but not limited to, customers of the Purchaser, any permitted transferee of the Purchased Capacity or any other permitted user of Purchased Capacity) with any remedy, claim, liability, reimbursement, cause of action, or any other right. 8. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the Purchaser and the Subsidiary Grantors and their respective successors and permitted assigns under the Capacity Purchase Agreement. 9. This Agreement shall not be modified or amended except by a writing signed by authorized representatives of the parties hereto. 10. This Agreement shall become effective on the date set forth above and shall continue in effect for the duration of the Capacity Purchase Agreement, and shall immediately terminate without any further action upon the termination of the Capacity Purchase Agreement. 11. The provisions of Sections 10, 11, 12, 14, 23 and 25 of the Capacity Purchase Agreement are hereby incorporated herein by reference, mutatis mutandis, and shall be deemed a part of this Agreement as if fully set forth herein. IN WITNESS WHEREOF, the parties have executed this Agreement effective on the date first written above. ATLANTIC CROSSING LTD. By: /s/ Doug Molyneux -------------------------------- Name: Doug Molyneux --------------------------- Title: Vice President -------------------------- GT LANDING CORP. By: /s/ Doug Molyneux -------------------------------- Name: Doug Molyneux --------------------------- Title: Under a Power of Attorney -------------------------- GT U.K. LTD. By: /s/ Doug Molyneux -------------------------------- Name: Doug Molyneux --------------------------- Title: Under a Power of Attorney -------------------------- GLOBAL TELESYSTEMS GmbH By: /s/ Ian McLean -------------------------------- Name: Ian McLean --------------------------- Title: Director -------------------------- GT NETHERLANDS B.V. By: /s/ Ian McLean -------------------------------- Name: Ian McLean --------------------------- Title: Director -------------------------- VIA NET WORKS EUROPE HOLDING B.V. By: VIA NET.WORKS, INC., its Managing Director By: /s/ Matt Nydell --------------------------- Name: Matt Nydell --------------------------- Title: VP & General Counsel -------------------------- ANNEX B ATLANTIC CROSSING SUBMARINE CABLE SYSTEM DETAILS RELATING TO CAPACITY PURCHASE AGREEMENT ATLANTIC CROSSING SUBMARINE CABLE SYSTEM ANNEX B TABLE OF CONTENTS ----------------- PARAGRAPH PAGE - --------- ---- 1. Definitions........................................................2 ----------- 2. Cable System Configuration and Segments............................4 --------------------------------------- 3. Ownership and Provision of Segments and Additional Property........6 ----------------------------------------------------------- 4. Access / Inland Connection Services................................7 ----------------------------------- 5. The System Advisory Committee......................................8 ----------------------------- 6. Transfer of Rights to Use Purchased Capacity.......................9 -------------------------------------------- 7. Intentionally Omitted..............................................9 --------------------- 8. Operations, Administration and Maintenance of Segments and Access ----------------------------------------------------------------- Connections......................................................9 ----------- 9. Keeping and Inspection of Books...................................11 ------------------------------- 10. Termination; Realization of Assets...............................11 ---------------------------------- ATTACHMENTS ----------- Attachment 1 - ...Configuration of the Atlantic Crossing Submarine Cable System Attachment 2 - .....Terms of Reference for Assignments, Routing and Restoration Attachment 3 - ................Terms of Reference for Operation and Maintenance Attachment 4 - ........................................................RFS Date ATLANTIC CROSSING SUBMARINE CABLE SYSTEM ANNEX B TO CAPACITY PURCHASE AGREEMENT -------------------------------------- 1. Definitions. ----------- Definitions are as described in the specific Paragraphs or in the Capacity Purchase Agreement to which this Annex B is attached. Except as otherwise provided, the following definitions shall apply throughout this Annex B: Adjusted Pro Rata Share (for apportionment of Residual Capacity): with --------------------------------------------------------------- respect to each of the Segment S-1 Residual Capacity, Segment S-2 Residual Capacity, Segment S-3a Residual Capacity, Segment S-3b Residual Capacity, Segment S-3c Residual Capacity and Segment S-4 Residual Capacity, a fraction: (i) the numerator of which equals the sum of (A) the number of STM-1s on the applicable S Segment in which the Purchaser acquired an IRU from the Grantor pursuant to this Agreement and which were deemed contracted for prior to October 10, 1997, multiplied by 3, (B) the number of STM-1s on the applicable S Segment in which the Purchaser acquired an IRU from the Grantor pursuant to this Agreement and which were contracted for on and after October 10, 1997 but prior to June 1, 1998, multiplied by 2 and (C) the number of STM-1s on the applicable S Segment in which the Purchaser acquired an IRU from the Grantor pursuant to this Agreement and which were contracted for on and after June 1, 1998 but prior to the earlier of (x) the RFS Date for the entire System and (y) November 30, 1998; and (ii) the denominator of which equals the sum of (A) the number of STM-1s on the applicable S Segment that all purchasers acquired an IRU in from the Grantor and which were deemed contracted for prior to October 10, 1997, multiplied by 3, (B) the number of STM-1s on the applicable S Segment that all purchasers acquired an IRU in from the Grantor and which were contracted for on and after October 10, 1997 but prior to June 1, 1998 multiplied by 2 and (C) the number of STM-1s on the applicable S Segment that all purchasers acquired an IRU in from the Grantor and which were contracted for on and after June 1, 1998 but prior to the earlier of (x) the RFS Date for the entire System and (y) November 30, 1998. The Adjusted Pro Rata Share shall be calculated by the Grantor and shall be conclusive absent manifest error. Basic System Module: A Basic System Module of the System shall consist of a ------------------- digital line section in each direction with interface in accordance with ITU Recommendations G.703 and G.707 to G.709 and containing sixteen (16) STM- 1's. Cable Landing Point: Cable Landing Point shall be the beach joint at each cable - ------------------- landing location or the mean high water mark of ordinary spring tides if there is no beach joint. Carrier Party: Any entity authorized or permitted under the laws of its - ------------- respective country, to acquire and use facilities for the provision of international telecommunication services. Initial Design Capacity: The Initial Design Capacity of each Segment of the - ----------------------- System shall consist of four (4) fiber pairs providing a minimum of sixteen (16) Basic System Modules (eight will be used for service and the remaining eight will be used for restoration) initially supplying STM-1's or any increase as determined from time to time by the Grantor in its sole discretion. Inland Carrier: An entity authorized or permitted under the laws of its - -------------- respective country to provide for inland communications services. Maintenance Authority: An entity designated by the Grantor which shall be - --------------------- primarily responsible for the operations and maintenance of the wet plant as set forth in Paragraph 8(b). Segment S-1 Residual Capacity, Segment S-2 Residual Capacity, Segment S-3a - ------------------------------ ------------------------------ ------------ Residual Capacity, Segment S-3b Residual Capacity, Segment S-3c Residual - ------------------ ------------------------------- --------------------- Capacity and Segment S-4 Residual Capacity: With regard to each of the S - -------- ----------------------------- Segments, as of the date which is 12-1/2 years after the RFS Date for the entire System, 80% of that portion of the service capacity on the applicable S Segment which is available as of such date to be sold by the Grantor to prospective purchasers, together with, to the extent necessary to use such S Capacity, the applicable T Capacity. The amount of Residual Capacity for each such S Segment shall be determined solely by the Grantor and shall not, in any event, include any capacity on the applicable S Segment which the Grantor has determined should be reserved for restoration purposes. System Interface: The nominal 155 Mb/s (STM-1) digital/optical input/output - ---------------- ports on the digital/optical distribution frame (including the digital/optical distribution frame itself) where the Basic System Module connects with other transmission facilities or equipment. Terminal Parties: The Terminal Parties are GT U.K. Ltd., Global Telesystems - ---------------- GmbH, GT Landing Corp. and GT Netherlands B.V., each of which are wholly-owned subsidiaries of the Grantor. 2. Cable System Configuration and Segments --------------------------------------- (a) The configuration of the System shall be as shown in Attachment 1. (b) In accordance with the arrangements contained in this Annex B, the System shall be regarded as consisting of the following Segments: Segment S-1: A submarine cable linking Segments T-2 and T-1. Segment S-2: A submarine cable linking Segments T-1 and T-3. Segment S-3a: A submarine cable linking Segments T-4 and T-2. Segment S-3b: A submarine cable linking Segments T-3 and T-4. Segment S-3c: A submarine cable linking Segments T-2 and T-3 (which goes through Segment T-4). Segment S-4: The portion of the System linking Segments T-1 and T-4 Segment T-1: A cable station in Brookhaven, New York, United States, together with that portion of the System which is located between such cable station and the point which is one-half mile beyond the United States territorial limit. Segment T-2: A cable station in Whitesands, United Kingdom, together with that portion of the System which is located between such cable station and the point which is one-half mile beyond the United Kingdom territorial limit. Segment T-3: A cable station in Sylt, Germany, together with that portion of the System which is located between such cable station and the point which is one-half mile beyond the Germany territorial limit. Segment T-4: A cable station in Beverwijk, Netherlands, together with that portion of the System which is located between such cable station and the point which is one-half mile beyond the Netherlands territorial limit. It is assumed that under the current law of the United Kingdom, the United States, the Netherlands and Germany, the territorial waters of such country extend twelve nautical miles seaward from the coast of such country. If such assumption shall prove to be incorrect, or if a law shall change such assumption and in fact the territorial waters of any such country extend beyond twelve nautical miles, the parties hereto shall adjust the T Segment of the applicable Terminal Party. (c) Except as provided herein, Segments T-1 and T-2 shall include, as appropriate: (i) the transmission cable and equipment associated with the submersible plant between the point which is one-half mile beyond the territorial waters of the United Kingdom or the United States, as appropriate, up to the nominal 155 Mb/s (STM-1) digital/optical or input/output ports on the digital/optical distribution frame (including the digital/optical distribution frame itself) where the Basic System Module connects with other transmission facilities or equipment; (ii) the land, civil works and buildings at the specified locations for the cable landing and for the cable route including cable rights-of- way and ducts between the applicable cable station and its respective Cable Landing Point, and common services and equipment at each of the locations, together with equipment in each of those cable stations which is solely associated with the System; and (iii) the sea earth cable and electrode system and/or the land earth system, or an appropriate share thereof, associated with the terminal power feeding equipment. (d) Except as provided herein, Segment T-3 consists of Subsegment T-3A and Subsegment T-3B. Subsegment T-3A shall consist of: (i) the transmission cable and equipment associated with the submersible plant between the point which is one-half mile beyond the territorial waters of Germany up to the nominal 155 Mb/s (STM-1) digital/optical or input/output ports on the digital/optical distribution frame (including the digital/optical distribution frame itself) where the Basic System Module connects with other transmission facilities or equipment, together with equipment in the cable station which is solely associated with the System; (ii) the sea earth cable an electrode system and/or the land earth system associated with the terminal power feeding equipment; and (iii) all of Global Telesystems GmbH's leasehold interest or other rights in Subsegment T-3B. Subsegment T-3B shall consist of all the land, civil works and building in Sylt, Germany for the cable landing and the cable rights of way and ducts between the cable station and the Cable Landing Point. (e) Except as provided herein, Segment T-4 consists of Subsegment T-4A and Subsegment T-4B. Subsegment T-4A shall consist of: (i) the transmission cable and equipment associated with the submersible plant between the point which is one-half mile beyond the territorial waters of the Netherlands up to the nominal 155 Mb/s (STM-1) digital/optical or input/output ports on the digital/optical distribution frame (including the digital/optical distribution frame itself) where the Basic System Module connects with other transmission facilities or equipment, together with equipment in the cable station which is solely associated with the System; (ii) the sea earth cable an electrode system and/or the land earth system associated with the terminal power feeding equipment; and (iii) all of GT Netherlands B.V.'s leasehold interest or other rights in Subsegment T-4B. Subsegment T-4B shall consist of all the land, civil works and building in Beverwijk, Netherlands for the cable landing and the cable rights of way and ducts between the cable station and the Cable Landing Point. (f) Each S Segment shall also include the transmission cable equipped with appropriate repeaters and joint housings between the respective T Segments. 3. Ownership and Provision of Segments and Additional Property ----------------------------------------------------------- (a) Segments S-1, S-2, S-3a, S-3b, S-3c and S-4 shall be owned and provided by the Grantor. (b) GT Landing Corp., a wholly-owned United States subsidiary of the Grantor, shall own (or shall have a right of use for) and provide Segment T-1. Segment T-2 shall be owned and provided by GT UK Ltd., a wholly-owned United Kingdom subsidiary of the Grantor. Subsegment T-3A shall be owned and provided by Global Telesystems GmbH, a wholly- owned German subsidiary of the Grantor. Subsegment T-4A shall be owned and provided by GT Netherlands B.V. a wholly-owned Netherlands subsidiary of the Grantor. (c) Global Telesystems GmbH has procured rights in Subsegment T-3B of the System from Deutsche Telekom and or its subsidiary Deutsche Telekom Immobilen und Service GmbH. (d) GT Netherlands B.V. has procured rights in Subsegment T-4B of the System from KPN Telecom. 4. Access /Inland Connection Services ---------------------------------- (a) Access connection services refers to the transmission facilities and the equipment required for interconnection between the demarcation equipment point associated with the System and the demarcation point associated with inland communications services ("Access Connections"). Within the Cable Stations, the Operator of the System shall provide STM-1 Access Connections. Each Access Connection provides full-time digital private line transmission on a two point basis. Access Connections may be changed or modified upon written request of the Purchaser,; provided that such changes or modifications shall be provided subject to the availability of equipment, facilities and personnel necessary to establish the Access Connection in accordance with the schedule of fees set forth at Schedule II to the Capacity Purchase Agreement. (b) This Annex and the Capacity Purchase Agreement is a master agreement under which service orders for Access Connections ("Service Orders") may be placed by the Purchaser. All Service Orders will be governed by the terms and conditions of the Capacity Purchase Agreement and this Annex B. Access Connections shall be ordered by the Purchaser in accordance with the Interconnection Services Ordering Procedures manual ("ISOP Manual") which the Grantor shall publish from time to time. Grantor shall not change the ISOP Manual in a manner which has a material adverse effect upon the Purchaser without, in the first instance, discussing such change with the Purchaser. The Purchaser shall submit all Service Orders under this Agreement to the Grantor (or its designated agent). When the Service Order is received, the Purchaser shall be notified of such receipt and the Grantor shall make a reasonable effort to make (or cause to have made) the Access Connection available on the date requested by the Purchaser if requested in accordance with this Annex B and in accordance with the ISOP Manual. Upon request, the Grantor shall use reasonable efforts to improve upon circuit activation and provisioning intervals. Each Service Order must provide such information as may be reasonably required in order to design, install and maintain the Access Connection ordered. (c) Once placed, the Service Order will be processed in accordance with the ISOP Manual and a due date will be established. (d) The provisions of Section 7 of the Capacity Purchase Agreement shall apply to all Access Connections hereunder. (e) The Purchaser may obtain inland connection services ("Inland Connections") for the purpose of extending the Purchaser's Capacity inland through an agreement with entities related to the Grantor which have acquired rights in additional inland capacity so that the Purchased Capacity can be extended to certain points of interface in certain cities. (f) Deutsche Telekom is the provider of Inland Connections from the cable station located in Sylt, Germany. 5. The System Advisory Committee ----------------------------- (a) For the purpose of directing the progress of the System, an advisory committee (the "Advisory Committee") shall be formed consisting of the Grantor, each Terminal Party, certain Carrier Parties having purchased a minimum of 5 STM-1s and certain other purchasers having purchased multiple STM-1s. The Grantor shall appoint a Chairman or several Co- Chairmen and each such appointee(s) shall serve as a Chairman until such time as the Grantor shall appoint a replacement Chairman. The Co-Chairmen may appoint one secretary as an assistant to the Chairman. The Advisory Committee shall make recommendations to the Grantor (for the benefit of the Grantor and the Terminal Parties) in respect of the construction and installation of the System and the operation and maintenance thereof, which the Grantor may accept or reject in its sole discretion. (b) The Advisory Committee will meet on the call of the Chairman or Co- Chairmen or whenever requested by one or more of its members. The Chairman or Co-Chairmen shall give the Advisory Committee at least thirty (30) days advance written notice of each meeting, together with a copy of the draft agenda. In case of emergency, such notice period may be reduced upon the request of the Grantor. Documents to be discussed at any meeting of the Advisory Committee shall be made available to the Advisory Committee members at least fourteen (14) days before the meeting, but the Advisory Committee may agree to discuss documents distributed on less than fourteen (14) days notice. (c) To aid the Advisory Committee in the performance of its duties, the following Expert Working Groups (hereafter "EWG's") shall be formed (whose members need not be on the Advisory Committee), and said EWG's, under the direction of the Advisory Committee, shall be responsible for making recommendations to the Advisory Committee for their respective areas of interest listed in Attachment 2 and Attachment 3 and any other areas of interest designated by the Advisory Committee: (i) Assignments, Routing and Restoration (the "A&R EWG"); and (ii) Operations and Maintenance (the "O&M EWG"). (d) The Chairman or Co-Chairmen of the Advisory Committee and the Grantor in consultation with the Advisory Committee may establish such other groups as they shall determine in their discretion to provide assistance in the Advisory Committee's performance of its responsibilities hereunder. The Chairman or Co-Chairmen of the Advisory Committee and the Grantor in consultation with the Advisory Committee shall appoint the Chairman or several Co-Chairmen of the A&R and O&M EWGs. Each of which EWGs shall meet at least once annually and more frequently, if necessary, until two (2) years following the RFS Date for the System, and thereafter as may be appropriate. Meetings of such groups may be called to consider specific questions at the discretion of its Chairman or Co-Chairmen, or whenever requested by the Grantor or a majority of the members of the Advisory Committee. On or about two (2) years after the RFS Date for the System, the Advisory Committee shall determine whether any of its EWGs should remain in existence or be disbanded. (e) The Grantor shall perform or cause to have performed customary duties and responsibilities pertaining to a Network Administrator/Customer Care Center for the System. (f) Participation by the Purchaser on the Advisory Committee or any EWG, should such participation be offered to the Purchaser, shall in no way limit or otherwise affect the Grantor's or any Subsidiary Grantor's obligations to the Purchaser under this Agreement or any of the Schedules or Attachments thereto. 6. Transfer of Rights to Use Purchased Capacity. --------------------------------------------- (a) The Purchaser shall be permitted to transfer its right to use the Purchased Capacity only in accordance with Section 20 of the Capacity Purchase Agreement. In the event Purchaser transfers (as permitted by said Section 20) its right to use in the aggregate one (1) of more MCUs of Purchased Capacity to a single Carrier Party the Purchaser shall immediately notify the Network Administrator/Customer Care Center of the identity of the transferee Carrier Party and shall provide all other information reasonably requested by the Network Administrator/Customer Care Center. (b) Subject to clause (a) of this Paragraph 6, the Purchaser may transfer its rights to use in the aggregate one (1) or more MCUs of Purchased Capacity to a single Carrier Party at anytime by giving immediate notice to the Network Administrator/Customer Care Center. (c) The Purchaser may not transfer its rights to use in the aggregate one (1) or more MCUs of Purchased Capacity to a single Carrier Party without written notification to the Network Administrator/Customer Care Center. (d) Confirmation of such transfer of the rights to use in the aggregate one (1) or more MCUs of Purchased Capacity to a single Carrier Party shall be provided by the Network Administrator/Customer Care Center within 7 days after completion. 7. Intentionally Omitted. ---------------------- 8. Operations, Administration and Maintenance of Segments and Access ----------------------------------------------------------------- Connections ----------- (a) The operation and maintenance of the dry plant for Segments T-1, T-2, T-3 and T-4 (and to the extent applicable the Access Connections) shall include the following functions: (i) monitoring and routine maintenance of terminal equipment; and (ii) testing, troubleshooting, fault location and replacement of faulty terminal equipment using existing spare parts inventory. (b) The Grantor shall cause the designated Maintenance Authority to operate and maintain the wet plant for Segments S-1, S-2, S-3a, S-3b, S-3c and S-4 and Segments T-1, T-2, T-3 and T-4; which shall include the following functions: (i) determining the need for System repair; (ii) planning and directing maintenance work; (iii) providing ship owners and ship operators with the System's documentation necessary for repairs; (iv) being responsible for delivery, control and allocation of System spares between shore storage depots and cable ships; and (v) providing trained personnel to perform repair functions and supplemental cable ship personnel. Failure of the designated Maintenance Authority to operate and maintain the wet plant shall not in any way relieve Grantor from its obligations to maintain the System, including the wet plant, under the Capacity Purchase Agreement. (c) Maintenance Costs include but are not limited to the following: (i) dry maintenance including the land segment to the beach joint; (ii) wet maintenance; (iii) cable protection and at sea repairs; *****Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.***** (iv) common equipment costs associated with the Atlantic Crossing equipment at the cable stations; and (v) operating costs associated with operating each cable station, = including but not limited to ad valorem, property and personal property taxes with respect to the System. (d) Intentionally deleted by amendment. (e) Except as provided in clause (d) above the annual Maintenance Costs for the first four (4) years will be [*****] per STM-1 and, thereafter, [*****] per year (and a pro rata portion thereof for the -------- period from the applicable RFS Date to the first January 1 quarterly payment date thereafter). The Maintenance Costs for the Stub Period per STM-1 shall be a pro rata portion of the Maintenance Costs per -------- STM-1 for the relevant full calendar year or partial calendar year as applicable. (f) Intentionally deleted by amendment. 9. Keeping and Inspection of Books -------------------------------- The Grantor shall keep and maintain, or cause to have kept and maintained, copies of such books, records, and accounts relating to Maintenance Costs as shall be reasonably necessary for the Purchaser to verify the calculation of Maintenance Costs under Paragraph 8 above, for a period of five (5) years from the date of billing and shall afford the Purchaser and/or the Purchaser's designated representative the right to review such books, records and accounts during such period. 10. Termination; Realization of Assets ---------------------------------- (a) The Purchaser understands and agrees to abide by all rules, regulations and requirements reasonably set forth by each entity having rights in any S Segment or T Segment, including, but not limited to, equipment and floor spacing equipment, specifications and equipment. (b) Nothing contained in this Annex B or the Capacity Purchase Agreement to which this Annex B is attached shall be deemed to vest in the Purchaser any salvage rights in any Segment. ATTACHMENT 1 CONFIGURATION OF THE SYSTEM [FLOWCHART] Segment S-4 is the portion of the system between Segments T-1 and T-4. Segment S-3c is the portion of the System between Segments T-2 and T-3. ATTACHMENT 2 TERMS OF REFERENCE OF ASSIGNMENTS, ---------------------------------- ROUTING, AND RESTORATION EWG ---------------------------- The responsibilities of the A&R EWG shall include the following: . Review the principles governing the development of the System's Routing Plan, as prepared by the Cable Administrator, and concur or comment, as appropriate. . Make recommendations with respect to the digital interworking arrangements, including a detailed multiplex plan and synchronization arrangements, according to the optimum routing plan developed by the Cable Administrator. . Study and recommend extension arrangements. . Make recommendations with respect to the deployment and timely provision of compatible interface arrangements with all connecting facilities necessary to meet restoration and operational requirements. . Make recommendations with respect to the availability of inland extensions, transit facilities necessary to meet service and restoration requirements. . Make recommendations with respect to the implementation of the initial capacity assignments of MCU's including fascicles within the System. . Study and recommend restoration plans for the System. . Make recommendations with respect to the normal service and restoration equipment requirements. . Make recommendations with respect to the plans for restoration exercise testing. . Develop and recommend detailed procedures in compliance with the terms and conditions of this Agreement with respect to: - Increase, decrease or assignment of capacity 2 - Report regularly, as appropriate, to the Advisory Committee on the A&R EWG activities . The A&R EWG shall carry out such other responsibilities as the Advisory Committee may direct. . All decisions made by the A&R EWG shall be subject in the first place to consultation among the members of the A&R EWG and the Grantor who shall make every reasonable effort to reach agreement. In the event agreement cannot be reached, the issue shall be decided by the Grantor. ATTACHMENT 3 TERMS OF REFERENCE FOR THE OPERATIONS AND ----------------------------------------- MAINTENANCE EXPERTS WORKING GROUP --------------------------------- The responsibilities of the O&M EWG shall include the following: . Recommend to the Grantor any project changes pertaining to the technical, operational and maintenance aspects that O&M EWG deems appropriate for the construction of the System. . Recommend to the Grantor the required quantity of spare equipment for submersible and terminal equipment. Make recommendations with respect to depot storage and location of spare equipment in consultation with the Maintenance Authorities. . Provide assistance and support as may be requested by the Grantor. . Make recommendations with respect to the testing, operation and maintenance methods to be used for the System as proposed by the suppliers or Maintenance Authorities, as appropriate. . Study other matters and make recommendations with respect to problems affecting maintenance of the System as may be identified by the Maintenance Authorities. . Oversee TSSL under the OA&M Agreement. . Report on a regular basis to, or when requested by, the Advisory Committee. . The O&M EWG shall carry out such other responsibilities as the Advisory Committee may direct. . All decisions made by this EWG shall be subject in the first place to consultation among the members thereof and the Grantor who shall make every reasonable effort to reach agreement. In the event agreement cannot be reached, the issue shall be decided by the Grantor. ATTACHMENT 4 RFS STANDARD RFS Standard means (i) for any Segment that (a) such Segment has the ability to carry commercial traffic between the two landing points of such Segment meeting performance criteria of ITU-T G.826 and has line monitoring and protection switching capability and (b) TSSL has tested and provided for STM-1 interconnectivity capability to the Segment terminal equipment according to ITU- T G.826, and (ii) for the System, (a) that the System has the ability to carry commercial traffic throughout the System meeting performance criteria of ITU-T G.826 with self healing ring protection capability and per Segment protection capability, has line monitoring and per Segment protection switching capability and has network management capability and (b) TSSL has tested and provided for STM-1 interconnectivity capability to the System terminal equipment according to ITU-T G.826. EX-10.8 6 VIA NETWORKS EUROPE HOLDING CUSTOMER AGREEMENT EXHIBIT 10.8 Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated by [*****]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission. VIA Net Works Europe Holding B.V. Customer Agreement (Ref.: C450004) (for an IRU of a Unit of Capacity) Issue 1.1 Date: 21/07/99 - -------------------------------------------------------------------------------- Page 1 of 10 DOCUMENT DETAILS Author Mike Sweeney (Marketing - Product Manager) - -------------------------------------------------------------------------------- Current Version Issue 1.1 - -------------------------------------------------------------------------------- Date 21/07/99 - -------------------------------------------------------------------------------- Document Reference i:\sweeneym\contracts\via networks\via net works customer agreement.doc - -------------------------------------------------------------------------------- AMENDMENT RECORD Version Date Issue/Amendment Details Released - -------------------------------------------------------------------------------- Issue 1.1 21/07/99 Issue 1.1 incorporating final comments. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Page 2 of 10 IAXIS - CUSTOMER AGREEMENT FOR AN IRU OF CAPACITY Customer Reference Number: C450004 This Agreement sets out the terms and conditions of the relationship between iaxis Limited ("iaxis") whose address is 46 Aldgate High Street, London, EC3 1AL and VIA Net Works Europe Holding B.V. (the "Customer") whose address is Weena 723C-6, 3013 AM Rotterdam, Netherlands with company registration number 34115551. 1. Definitions To make sure that this Agreement is clear and unambiguous, the following definitions are used to clarify certain words, phrases and/or expressions used in this Agreement: "Associated Company" means any person or entity controlled by, controlling, or under common control with either party, as defined in Sections 736 and 736A of the Companies Act 1985 (or its replacement or amendment). "Agreement" means this Agreement together with any Order(s), Service Level Agreement and Technical or Product Specifications, as agreed between both parties and forming part of this Agreement. "Capacity" means either an Open Optical Link ("OOL") or the bandwidth ordered under this Agreement either as a part of the iaxisenroute network or as otherwise agreed. "Customer Equipment" means all equipment, systems, cabling and facilities provided by the Customer, or purchased by iaxis on behalf of the Customer and used in conjunction with the Capacity. "Duration" shall be the duration of this Agreement and Order(s). "iaxis Equipment" means the equipment, systems, cabling and facilities which form part of the Capacity and which is provided by iaxis or its third party suppliers. "iaxisenroute network" means the European terrestrial fibre optic cable system including the iaxis Points of Presence ("PoPs"), all iaxis Equipment and system interface points as may be provided by iaxis. "IRU" means an indefeasible right of use of a unit of capacity on all or a part of the iaxisenroute network, as iaxis may be capable of granting from time to time "Order" means the order form supplied to the Customer on which the terms agreed between the parties are found in respect of the Capacity under this Agreement and any Service Level Agreements, Technical or Product Specifications, or other attachments. "us", "we" or "our" means iaxis "you", or " your" means the Customer - -------------------------------------------------------------------------------- Page 3 of 10 2. SERVICE PROVISION On signing this Order, we hereby grant you an IRU in the agreed Capacity on the iaxisenroute network, for the Duration. We represent, warrant and covenant that you will peaceably and quietly have enjoyment of all pertinent rights of use of the IRU in the agreed Capacity. 3. OPERATIONAL CLAUSES 3.1 iaxis' Obligations We will use the reasonable care and skill of a Capacity provider in providing the Capacity to you, and will operate and maintain the Capacity to the service levels in accordance with the Service Level Agreement ("SLA"). In fulfilling our obligations as set forth in the SLA and the Order Form attached hereto and this Agreement, we shall use reasonable endeavours not to provide any preference for the repair of our or any other party's facilities and to perform such services in a manner that does not discriminate against you. All of our Customers are important to us and therefore if we fail to achieve the service levels, we will pay you the compensation set out in the SLA, which SLA dated July 21st 1999 is attached to this Agreement and is a part of this Agreement and our relationship with you. We also agree that any compensation schemes referred to in the SLA are not exclusive and you are free to pursue any other remedies that may be available to you at law or in equity in respect of any material breach by us of this Agreement. To the extent that the same are required we have and/or will obtain and use reasonable endeavours to maintain all regulatory licenses, consents and approvals necessary for us to enter into this Agreement and to meet our obligations hereunder. We shall use all reasonable endeavours to ensure that all iaxis Equipment and the iaxisenroute network used to provide the Capacity is "Year 2000 Compliant", as defined herein. We shall, to the extent that we are able to do so, pass on to you the benefit of, and supply you if requested with appropriate copies of, any guarantees, representations and warranties provided to us by our contractors and suppliers relative to the extent of iaxis Equipment and the iaxisenroute network being Year 2000 Compliant. "Year 2000 Compliant" means that any function of the iaxis Equipment and the iaxisenroute network containing or calling on a calendar function, including, without limitation, any function indexed to the CPU clock, and any function providing specific dates or days, or calculating spans of dates or days, shall record, store, process, provide and, where appropriate, insert, true and accurate dates and calculations for dates and spans prior to, including and following January 1, 2000 and shall correctly recognize and process the date of February 29, and any related data, during leap years and that the iaxis Equipment and the iaxisenroute network shall continue to operate in accordance with the service levels set forth in the SLA prior to, including and following January 1, 2000 without error, interruption or decreased performance relating to date/time data. In the event that it becomes known to us that any iaxis Equipment or any part of the iaxisenroute network is not or may fail to be Year 2000 Compliant by December 31 1999 we hereby undertake to notify you in writing at the earliest practicable opportunity. We have clearly set out the promises that we make in this Agreement and therefore all implied representations and warranties are excluded. - -------------------------------------------------------------------------------- Page 4 of 10 3.2 Customer's Obligations 3.2.1 You, our Customer, agree to: (i) pay all amounts due to us in full and in accordance with this Agreement without any set-off or deduction, provided, however, that you will not be required to pay any amounts which are in good faith dispute until such time as the dispute has been resolved; (ii) provide us and our authorised agents with reasonable access to your premises so that we can fulfil our obligations under this Agreement; (iii) provide us with such space and environmental operating conditions as both of us have agreed are necessary to allow us to keep to our obligations under this Agreement; and (iv) ensure, to the extent that the same are required, that you have and/or will obtain and use all reasonable endeavours to maintain all regulatory licenses, consents and approvals necessary for you to enter into this Agreement and to meet your obligations hereunder. 3.2.2 You also agree not to: --- (i) interrupt or interfere with the use of any other Capacity on the iaxisenroute network; or (ii) prevent the use of similar equipment by other owners or operators of the iaxisenroute network; or (iii) impair the privacy of any communications over such iaxisenroute network; or (iv) damage any equipment; or (v) create hazards to either of us, our Associated Companies or agents, or any other user, owner or operator of the system or the public in your use or operation of the Capacity. Notwithstanding anything herein to the contrary, you shall not be deemed to have breached this Section 3.2.2 provided that your use of the Capacity was for the purposes agreed with us and subject to compliance with any specific written instructions reasonably given to you which are consistent with the purposes of this Agreement. 3.3 Acceptance Test Procedure Prior to handover of the Capacity, and as set out in the SLA, you may attend the acceptance testing of the Capacity to be provided as agreed in the Order. We will deliver the Acceptance Test results to you on their successful completion. 3.4 Payment Payment terms will be as set out in the Order, however the following will also apply: (i) You will be responsible for all amounts due for the Duration. (ii) We may charge interest on any overdue amounts at a rate of 3% over LIBOR or its substitute or replacement in force at any given time and interest will continue to accrue on overdue amounts, whether or not this Agreement has been terminated. (iii) All amounts due to us will be exclusive of VAT or other appropriate tax with respect to such amounts, which shall not include taxes due with respect to our income, which tax if lawfully due, you will pay to us in addition to the sums due for the Capacity. - -------------------------------------------------------------------------------- Page 5 of 10 3.5 Assignment We may assign or sub-contract this Agreement to any of our Associated Companies or anyone else upon notifying you in writing. However, if we do this, we will remain liable to you for our obligations under this Agreement. You may make (A) a collateral assignment of your rights hereunder to one or more of your or your affiliates' lenders, and (B) a lease of any excess Capacity not required by you, provided that no lessee shall be a third party beneficiary of this Agreement or have any rights or claims against us for any reason whatsoever PROVIDED THAT (i) You do not lease, re-sell, assign or attempt to re-sell or assign more than was granted or rented to you under this Agreement; (ii) You remain liable to us for the performance of your obligations to us under this Agreement; and (iii) You do not lease, re-sell or assign any Capacity greater than a single STM-1. Provided that the above requirements of clauses (i), (ii) and (iii) are met, and you have obtained our prior written approval which shall not be unreasonably withheld you may make (C) an assignment to any present or future affiliated company or to an entity controlled by, under the same control as, or controlling, you; and (D) an assignment incidental to the transfer of all or substantially all of your business or a substantial portion of your business (which shall include, without limitation, a transfer of assets). 3.6 Notices Any notice required by this Agreement must be made in writing and delivered to the other party (either by hand, by first class registered mail, or by facsimile with a hard copy by first class registered mail) at the following addresses: The Customer: VIA Net Works Europe Holding B.V. c/o VIA NET.WORKS, Inc. 12100 Sunset Hills Road, Suite 110 Reston, VA 20190 USA Fax: 703-464-0608 Marked for the attention of Matt S. Nydell, Esq., V.P., General Counsel and Secretary: The Service Provider: iaxis Limited 46 Aldgate High Street London EC3N 1AL Fax +44 171 767 3501 Marked for the attention of Tom McGlew, Chief Operating Officer - -------------------------------------------------------------------------------- Page 6 of 10 In the event either party changes its address, the other should be notified immediately in writing. Any notice or demand is deemed to have been received at the time of delivery, if delivered by hand, 7 days after posting, if sent by first class registered post, or on the date of transmission if sent by facsimile, if followed by postal notice. 4. LEGAL CLAUSES 4.1 Entire Contract This Agreement shall be the whole agreement between both of us and will supersede any previous agreement that may exist between us in respect of the subject matter of this Agreement. Any changes that we wish to make to this Agreement shall only be valid if agreed in writing by both of us. 4.2 Relationship Neither of us is the agent, partner, or representative of the other. 4.3 Termination If either of us is in material breach of this Agreement (i.e. a breach not reasonably capable of remedy), the other can terminate this Agreement with immediate effect upon written notice. 4.3.1 If the breach is capable of remedy, then the same shall be remedied within a reasonable time, having regard to the nature of the breach. Compliance with a notice to remedy shall not exceed 14 days of receipt of a written notice to remedy, failing which the notifying party may at its option terminate this Agreement immediately upon written notice to the other. In addition to the above, if either of us: (i) becomes insolvent (according to the definition contained in section 123 of the Insolvency Act 1986 or its replacement), or (ii) makes, or seeks to make, any arrangement with its creditors, or otherwise seeks protection from its creditors under any law in any jurisdiction, or (iii) allows or suffers a liquidator, receiver, administrator, trustee, or any other custodian to be appointed to manage the business or take possession of any part of that party's property and assets, or (iv) proceedings have been commenced for dissolution, liquidation, or winding up whether voluntary or otherwise, or (v) ceases to continue trading the other party may choose to terminate this Agreement immediately upon written notice to the other. - -------------------------------------------------------------------------------- Page 7 of 10 4.3.2 In addition to Termination, we have the option to suspend this Agreement by disconnecting you or otherwise (and your equipment) from the iaxisenroute network, if: (i) you fail to pay any amount due, or (ii) you have materially damaged (or in our reasonable opinion are likely to materially damage) the iaxisenroute network, or (iii) you are otherwise in breach of the terms of this Agreement; provided, however, that we shall first provide you with written notice of such failure, damage or potential damage or breach, and you shall comply with the time limit stated in the notice (which shall be reasonable having regard to the nature of the breach, and further which shall be not less than 14 days except under circumstances in which in our reasonable opinion you are likely to materially damage the iaxisenroute network) in which to remedy such failure, damage or potential damage or breach. 4.4 Consequences of Termination If we terminate this Agreement you will disconnect and remove your Equipment from the iaxisenroute network. If the termination is due to your fault, we may carry out this work at your expense and you agree to pay us for this. If there are any amounts due to us under this Agreement, then the termination of this Agreement will not enable you to refuse to pay those amounts to us. 4.5 Force Majeure 4.5.1 Neither party will be liable to the other for any failure to perform its obligations under this Agreement if anything happens beyond its reasonable control, which includes but is not limited to an Act of God, inclement weather, act or omission of government or other competent authority, military operations, war, riot, insurrection, or other civil disturbance. Failure of a subcontractor to either of the parties to fulfil its obligations to such party shall not be deemed to be an event beyond the reasonable control of such party for purposes of this Agreement. 4.5.2 If as a result of any such circumstances we are unable to perform this Agreement and the Capacity is unavailable for use by you for a period longer than sixty (60) days, you shall be entitled, upon written notice to us, to terminate this Agreement and receive a pro-rata refund of any amounts paid with respect to the IRU in the Capacity based upon the remaining term of the Duration plus a pro-rata portion of any maintenance paid for the term then in effect plus any amount paid for any future maintenance term. - -------------------------------------------------------------------------------- Page 8 of 10 4.6 Liability Neither party limits its liability for causing death or personal injury due to its negligence or intentional misconduct. The maximum liability either party has to the other under this Agreement for any direct loss, other than payments properly due under this Agreement, is limited to (Pounds)1,000,000 (one million pounds sterling) for any one event or series of connected events, subject to a maximum of (Pounds)5,000,000 (five million pounds sterling), in any twelve month period. Neither party will be liable to the other for any indirect or consequential loss or damage, which includes loss of bargain, loss of business, loss of contract, loss of future profit, loss of opportunity, loss of savings, loss of sales, or loss of turnover including negligence however caused. Our relationship is with you and therefore you also agree to indemnify us from any claims from a third party who has a relationship with you where you supply services over the iaxisenroute network. 4.7 Waiver and Severability No delay, tolerance, or indulgence by either party shall constitute a waiver of its rights and in the event that any part of this Agreement is found to be void, invalid or unenforceable, it will not affect the remainder of the Agreement. 4.8 Maintenance We will give you at least 5 days notice of our intention to carry out any scheduled maintenance that might affect you or the provision of the Capacity to you. Sometimes we need to carry out emergency maintenance and if we do, we will give you as much notice as is reasonably possible in the circumstances. 4.9 Internal Escalation Should a dispute arise between the parties, both parties will attempt to resolve the dispute in accordance with the following procedure: Any dispute which cannot be resolved within 14 days of first arising may be escalated to a line manager (or equivalent) in writing, and if it is not resolved within a further 7 days, may be escalated by notice in writing to senior management: i) Our line manager is the Director of Operations Your line manager is the ISP Systems Engineer ii) Our senior management is the Chief Operating Officer and/or Chief Executive Officer. Your senior management is the President and/or Chief Executive Officer. The procedure in this paragraph does not prevent either party from having recourse to the courts if the circumstances necessitate it. - -------------------------------------------------------------------------------- Page 9 of 10 4.10 Governing law This Agreement shall be interpreted in accordance with the English law and both parties agree to have it dealt with in the exclusive jurisdiction of the English Courts. Signed for and on behalf of the VIA Signed for and on behalf of Net Works iaxis /s/ J. De Bosdari - ----------------------------------- ------------------------------- By: By: J. De Bosdari Title: Title: Business Development Director Date: Date: 27/7/1999 By: VIA NET.WORKS, Inc., its Managing Director By: /s/ Matt Nydell --------------- Matt Nydell, its Vice President & General Counsel July 21, 1999 - -------------------------------------------------------------------------------- Page 10 of 10 VIA Net Works Europe Holding B.V. Order Form - IRU (Ref.: C450004/OF1) Issue 1.1 Date: 21/07/99 - -------------------------------------------------------------------------------- Page 1 of 5 DOCUMENT DETAILS Author Mike Sweeney (Marketing - Product Manager) - -------------------------------------------------------------------------------- Current Version Issue 1.1 - -------------------------------------------------------------------------------- Date 21/07/99 - -------------------------------------------------------------------------------- Document Reference i:\sweeneym\contracts\via networks\via net works order form - iru.doc - -------------------------------------------------------------------------------- AMENDMENT RECORD Version Date Issue/Amendment Details Released - -------------------------------------------------------------------------------- Issue 1.1 21/07/99 Issue 1.1 incorporating final comments. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Page 2 of 5 *****Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.***** - -------------------------------------------------------------------------------- Customer Name VIA Net Works Europe Holding B.V. Registered Office Address Weena 723C-6, 3013 AM Rotterdam, The Netherlands, registration number 34115551 Invoice Address 12100 Sunset Hills Road, Suite 110, Reston, VA 20190, USA Contact Information Contact: Mr R.D. Stubbs (II) Tel. 001 701-464-3609 Fax. 001 701-464-0608 - -------------------------------------------------------------------------------- Service Provider iaxis Limited (Registered number 3545698) Registered Office Address 46 Aldgate High Street, London, EC3N 1AL Business Address 46 Aldgate High Street, London, EC3N 1AL Customer Point of Contact Contact: William Henley Tel + 44 171-767-3500 Fax + 44 171-767-3501 - -------------------------------------------------------------------------------- Product Initial configuration is 3 * STM-1s (protected SDH) point to point links configured as a ring connecting the cities of London, Amsterdam, and Dusseldorf, and expandable on customer's schedule (subject to iaxis agreement on Phase I - III implementation schedule) to 7 * STM-1s (protected SDH) point to point links configured as a ring connecting seven cities. - -------------------------------------------------------------------------------- Bandwidth Initial configuration is 3 * STM-1s (i.e. 3 * 155 Mbps circuits) expandable on customer's schedule (subject to iaxis agreement on Phase I - III implementation schedule) to 7 * STM-1s (i.e. 7 * 155 Mbps circuits). - -------------------------------------------------------------------------------- Payment Option IRU - -------------------------------------------------------------------------------- Term 20 years - -------------------------------------------------------------------------------- Ready for Service (RFS) Date 5th August 1999 for first three circuits. - -------------------------------------------------------------------------------- Initial Charge Initial charge of [*****] payable 7 (seven) calendar days after signing of Customer Agreement and associated Order Form(s). Residual payment of [*****] payable on 1st December 1999. Total payment includes all 7 STM-1s (protected SDH) point to point links configured as a ring connecting 7 cities. - -------------------------------------------------------------------------------- Page 3 of 5 *****Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.***** - -------------------------------------------------------------------------------- Recurring Charge [*****] per annum will be invoiced and (O&M Costs) payable quarterly in advance for the Duration from the RFS date. First payment of [*****] due on RFS date. - -------------------------------------------------------------------------------- Recurring Interval Quarterly in advance for the Duration. - -------------------------------------------------------------------------------- Customer Agreement Number and Date Customer Agreement ref. C450004 dated 21/07/99 - -------------------------------------------------------------------------------- Service Level Agreement (SLA) Service Level Agreement ref. C450004/SLA1 Reference and Date dated 21/07/99 - -------------------------------------------------------------------------------- Technical Specification Not applicable (if applicable) - -------------------------------------------------------------------------------- This Order Form ("Order") forms the basis of an Agreement between iaxis and VIA Net Works Europe Holding B.V. which is effective from the date of signature by both parties. The Agreement consists of: 1. this Order; 2. the Customer Agreement C450004 prepared on 21/07/99; 3. the Service Level Agreement C450004/SLA1 prepared on 21/07/99; 4. the Product and/or Technical Specifications [references]; and 5. any attachments. If there is any discrepancy between this Order and the Customer Agreement, this Order will take precedence. If there are to be any attachments or amendments, they should be listed here: 1. Attachments 2. Customer Agreement amendments (incorporated into Customer Agreement ref. C450004) 3. Service Level Agreement amendments (incorporated into Service Level Agreement ref. C450004/SLA1) 4. Technical Specification amendments (not applicable) - -------------------------------------------------------------------------------- Page 4 of 5 Upon signing this Order iaxis will sell to you and you will take, for the Duration, an Indefeasible Right of Use (IRU) of a unit of Capacity on all or part of the iaxisenroute network or System, as described in this Order, subject to the terms of the Customer Agreement (the "Agreement") referred to herein. iaxis will ensure your quiet enjoyment of the IRU subject to your compliance with the terms of the Agreement. Signed for and on behalf of VIA Net Works: Signed for and on behalf of iaxis: /s/ J. De Bosdari - ------------------------------------------ ---------------------------------- By: By: J. De Bosdari Title: Title: Business Development Director Date: Date: 27/7/1999 By: VIA NET.WORKS, Inc., its Managing Director By: /s/ Matt Nydell --------------- Matt Nydell, its Vice President & General Counsel July 21, 1999 - -------------------------------------------------------------------------------- Page 5 of 5 - -------------------------------------------------------------------------------- VIA Net Works Europe Holding B.V. Service Level Agreement (Ref.: C450004/SLA1) Issue 1.1 Date: 21/07/99 - -------------------------------------------------------------------------------- Page 1 of 30 - -------------------------------------------------------------------------------- DOCUMENT DETAILS - -------------------------------------------------------------------------------- Author Mike Sweeney (Marketing - Product Manager) - -------------------------------------------------------------------------------- Current Version Issue 1.1 - -------------------------------------------------------------------------------- Date 21/07/99 - -------------------------------------------------------------------------------- Document Reference i:\sweeneym\contracts\via networks\via net works sla.doc - -------------------------------------------------------------------------------- AMENDMENT RECORD - -------------------------------------------------------------------------------- Version Date Issue/Amendment Details Released - -------------------------------------------------------------------------------- Issue 1.1 21/07/99 Issue 1.0 incorporating final comments. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Page 2 of 30 - -------------------------------------------------------------------------------- Contents 1.0 iaxisenroute European Points of Presence (PoPs)......... 5 1.1 Service Locations..................................... 5 1.2 iaxisenroute Pan-European Network..................... 5 2.0 Network Operations & Fault Management................... 7 2.1 Overview.............................................. 7 2.2 Fault Reporting and Service Levels.................... 7 2.3 Fault Handling........................................ 8 2.4 Services Provided..................................... 8 3.0 Key Performance Indicators.............................. 9 3.1 Network Availability - Optical Circuits............... 9 3.2 Service Availability - Protected SDH Circuits......... 9 3.3 Service Availability - Unprotected SDH Circuits....... 9 3.4 NOC Response Times.................................... 10 3.5 Repair Times:......................................... 10 3.5.1 Fibre Faults...................................... 10 3.5.2 CIENA and Nortel equipment:....................... 10 3.5.3 Building Environmental Alarms..................... 10 3.5.4 Fault Classification.............................. 11 4.0 Procedures.............................................. 12 4.1 Fault Management Procedure............................ 12 4.2 Escalation Procedure.................................. 14 4.3 Change Management Procedure........................... 16 4.4 Service Interruption Procedure........................ 18 4.5 Management Reporting.................................. 20 4.6 Planned Maintenance................................... 20 4.7 Customer Visits....................................... 20 5.0 Service Levels and Compensation Schemes................. 21 5.1 Services Covered...................................... 21 5.2 Ready For Services (RFS) Dates........................ 21 5.3 Services Restoration Time (SRT)....................... 21 5.3.1 IRUs.............................................. 21 5.3.2 Rentals........................................... 22 5.4 Service Availability.................................. 22 5.4.1 SDH Service Availability.......................... 22 5.4.2 Optical & Unprotected SDH Circuit Service 23 Availability...................................... 5.5 Cancellation of Service by Customer................... 23 5.5.1 IRUs.............................................. 23 5.5.2 Rentals........................................... 24 5.6 Conditions of Service Level Agreement................. 24 5.6.1 IRUs.............................................. 24 5.6.2 Rentals........................................... 24 - -------------------------------------------------------------------------------- Page 3 of 30 - -------------------------------------------------------------------------------- 6.0 Acceptance Tests........................................ 25 6.1 ITU-T Recommendations................................. 25 6.2 iaxis Acceptance Test................................. 25 7.0 Open Optical Links (OOLs)............................... 26 7.1 Technical Data........................................ 26 8.0 SDH Service - Technical Overview........................ 27 8.1 Managed SDH Service................................... 27 8.2 iaxisenroute SDH Network.............................. 27 8.3 Main Advantages of the iaxisenroute SDH Network....... 27 8.4 Conformance to Standards.............................. 27 8.5 Functionality......................................... 28 8.6 Protection Approach................................... 28 8.7 Network Management Capability......................... 29 8.8 Main iaxisenroute Network SDH Components.............. 29 8.8.1 Nortel TN-16X..................................... 29 8.8.2 Nortel TN-4X/E.................................... 30 8.8.3 Nortel TN-1X...................................... 30 9.0 Operation & Maintenance Costs........................... 31 - -------------------------------------------------------------------------------- Page 4 of 30 - ------------------------------------------------------------------------ 1.0 iaxisenroute European Points of Presence (PoPs) 1.1 Service Locations To date iaxisenroute has Points of Presence (PoPs) capable of providing fully managed (SDH), dedicated, point-to-point, bandwidth services at the following European locations: - ------------------------------------------------------------------------ Phase 1 Phase 2 Phase 3 - ------------------------------------------------------------------------ . London . Hamburg . Madrid . Paris . Bremen . Barcelona . Strasbourg/Kehl . Hanover . Bordeaux . Frankfurt . Leipzig . Marseille . Dusseldorf . Nurnberg . Toulouse . Amsterdam . Berlin . plus others still to be . Rotterdam . Munich determined . Antwerp . Stuttgart . Brussels . Zurich . Geneva . Lyons . Milan . Copenhagen - -------------------------------------------------------------------------------- Notes 1. Open Optical Link (OOL) breakout capability is currently available at all Phase 1 PoPs except for the Strasbourg/Kehl PoP which will be available in October 1999. 2. Additional breakout points may be provided at Customer's request (at additional cost). 1.2 iaxisenroute Pan-European Network iaxis will use its best endeavours to deploy the iaxisenroute network throughout Europe in three distinct phases (or rings). Phase 1 will be lit by June 1st; Phase 2 should be lit by September 31st; and Phase 3 should be lit by December 31st 1999. The iaxisenroute fibre ring comprises 1 fibre pair and employs advanced Ciena DWDM technology to increase bandwidth capacity. The Ciena equipment provides initially for up to 40 distinct wavelengths at a capacity of 2.5 Gigabits per wavelength (a total of 100 Gigabits). Based on Ciena technology currently under development and expected to be available in July 2000, iaxis should be able to expand the iaxisenroute network capacity to 96 wavelengths, and by December 2000 to 192 wavelengths each with 10 Gigabits of capacity, which will bring the total capacity to two Terabits. iaxis can achieve this increase in capacity on its existing pair of fibre optic cables without laying or leasing additional fibre optic cables or incurring significant costs and network downtime. iaxis is the first telecommunications company in Europe to utilise Ciena's 96-wavelength system technology. - -------------------------------------------------------------------------------- Page 5 of 30 2.0 Network Operations & Fault Management 2.1 Overview iaxis will manage the network 24 hours a day * 7 days a week * 52 weeks a year from its Network Operations Centre (NOC). A full-time NOC team manages the network to ensure stated service levels are achieved. The NOC shall proactively monitor services and automatically flag service-affecting faults. Customer shall be notified and fault reports shall be made available to the Customer whenever service-affecting faults occur. The NOC is a secure facility offering a Single Point of Contact (SPOC) for all iaxis Customer calls and is the interface between Customer and iaxisenroute Network Operations. A single telephone number in the NOC will be provided where all calls are processed. iaxis will provide a single point of contact (SPOC) for use by Customer to address payment issues and provide billing support. Customer will have remote access capability to allow direct monitoring of network performance. 2.2 Fault Reporting and Service Levels All faults will be reported to iaxis Network Operations personnel on a number located in the iaxis NOC. Faults may also be automatically detected by one of the network management tools available to the Network Operations Centre engineers. On receipt of a fault report or automatic detection of a fault, NOC engineers shall initiate primary diagnostics with the intent of clearing the fault remotely. If this is not possible, first-line maintenance personnel shall be despatched to site to clear the fault. Iaxis shall also inform Customer of the fault and shall continue to provide updates and advisory information necessary to keep Customer fully informed of progress towards fault resolution and restoration of service. All faults shall be recorded on the iaxis Fault Management System (FMS). The FMS shall record all faults, date and time stamp them, and maintain a true and accurate record of the progress of the fault resolution through to clearance. The FMS shall permit tracing of all faults from initiation through to clearance. Faults shall be recorded in sufficient detail to allow detailed post-fault analysis and ensure that a record of the fault and actions taken is available for future reference. iaxis enters into a detailed Service Level Agreement (SLA) with each of its fibre and equipment suppliers as well as each of its Customers. The FMS configuration shall permit automatic checking of all faults against prevailing SLAs to ascertain whether or not criteria have been met. All SLAs shall be agreed prior to the service being handed over to ensure that the performance criteria are both realistic and achievable. Customers shall be able to view on-line their own service faults via a password and username accessed web screen. This functionality will be further expanded (date still to be finalised) to enable Customers to view progress associated with service provisioning. - -------------------------------------------------------------------------------- Page 6 of 30 2.3 Fault Handling All fault handling shall be managed in accordance with the procedure as outlined in Section 3.1. All faults are shall be managed in accordance with the service levels detailed below. 2.4 Services Provided The NOC management team shall provide the following services: . 24 hours per day x 7 days per week x 365 days per annum network management . notification to customer of updates and current information as required . alarm handling and management . fault co-ordination and restoration of services . network change management . network and service interruption co-ordination and management . network build provisioning and changes . customer service provisioning and changes . network and service reporting . host Customer visits to the NOC . preventive monitoring and maintenance . preventive field maintenance and control - -------------------------------------------------------------------------------- Page 7 of 30 3.0 Key Performance Indicators 3.1 Network Availability - Optical Circuits Targets Open Optical Links (OOL) Equipment Fibre - ---------------------------------------------------------------------- Availability % 99.95% 98.46%/1/ - ---------------------------------------------------------------------- Mean Time Between Failure (Years) 23.24 0.13 - ---------------------------------------------------------------------- Maximum Time To Repair (Hours) 4 18 - ---------------------------------------------------------------------- BER 10/-15/ N/A - ---------------------------------------------------------------------- 3.2 Service Availability - Protected SDH Circuits
Targets Single Tributary Card Duplicated Tributary Cards Availability % 99.95% 99.99%/2/ - ------------------------------------------------------------------------------------------- Mean Time Between Failure (Years) 24.99 24.99 - ------------------------------------------------------------------------------------------- Maximum Time To Repair (Hours) 4 4 - ------------------------------------------------------------------------------------------- BER 10/-15/ 10/-15/ - -------------------------------------------------------------------------------------------
3.3 Service Availability - Unprotected SDH Circuits
Targets Unprotected SDH Circuits SDH Equipment Point to Point Unprotected Circuit - ------------------------------------------------------------------------------------------- Availability % 99.95% 98.46%/3/ - ------------------------------------------------------------------------------------------- Mean Time Between Failure (Years) 24.99 0.13 - ------------------------------------------------------------------------------------------- Maximum Time To Repair (Hours) 4 18 - ------------------------------------------------------------------------------------------- BER 10/-15/ N/A - -------------------------------------------------------------------------------------------
Notes 1. (OOLs): A fibre availability of 98.46% is based on a network length of 3000 Km, 1 break per 400 Km per year, and an 18 hour fix time. 2. The basic level of service provided is a fully redundant (SDH) service. 3. Unprotected SDH point to point circuits provide the same level of network availability as Open Optical Links. 4. Planned outages are not included in these performance figures. - -------------------------------------------------------------------------------- Page 8 of 30 3.4 NOC Response Times Time to Answer Call Percentage of Calls Answered - ------------------------------------------------------------------------------- Calls answered within 10 seconds 95% - ------------------------------------------------------------------------------- Call back returned within 5 minutes 100% - ------------------------------------------------------------------------------- 3.5 Repair Times: Diagnosis and repair times shall be measured from the earliest time a fault is detected in the iaxis NOC, either as a result of Customer reporting a fault or of the NOC personnel or systems detecting the fault directly. 3.5.1 Fibre Faults Target Repair Time - 18 hours 3.5.2 CIENA and Nortel equipment:
Fault Classification Diagnosis Time (from Fault Target Repair Time (Time to detection) Restore Service) - ----------------------------------------------------------------------------------------------------------- Critical Fault 30 minutes 4 hours - ----------------------------------------------------------------------------------------------------------- Major Fault 30 minutes 8 hours - ----------------------------------------------------------------------------------------------------------- Minor Fault 2 hours Next working day - -----------------------------------------------------------------------------------------------------------
3.5.3 Building Environmental Alarms Target Repair Times will be as per relevant support contract. Alarms will be provided to ensure that environmental conditions such as temperature and relative humidity are maintained.
- --------------------------------------------------------------------------------------------------------- Environmental Conditions Range - --------------------------------------------------------------------------------------------------------- Normal temperature 0 - 40 degrees Celsius - --------------------------------------------------------------------------------------------------------- Short-term operating temperature -5 to +45 degrees Celsius - --------------------------------------------------------------------------------------------------------- Relative humidity 20 - 55% or 3.6Kpa water vapour pressure, whichever is less, over normal operating temperature range, no condensation - ---------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Page 9 of 30 3.5.4 Fault Classification 1. A critical fault is service-affecting. 2. A major fault involves a loss of network or service diversity. 3. A minor fault is a configuration discrepancy, not service or diversity affecting. - -------------------------------------------------------------------------------- Page 10 of 30 4.0 Procedures 4.1 Fault Management Procedure All reported or suspected faults are managed as detailed below. A fault management flowchart outlining the fault management procedure is presented in Figure 1. . Fault detected by Netcool or reported by Customer . Fault located based on Netcool information and network management tools . Log fault on FMS . Inform iaxis Network Operations manager . First-line primary diagnostics using network management tools . If fault can be cleared remotely, clear, otherwise call out first-line maintenance / field personnel / maintainers. . If first-line maintenance fails, call out second-line support to clear fault. . Fault escalation according to escalation procedure, if required. . Following clearance, confirm on the fault management system and advise Customer . Clear on FMS, add reporting information: . Fault start time . Time to respond . Time to site (if applicable) . Clearance time . Escalation procedure carried out (if applicable) . Corrective and preventive action taken - -------------------------------------------------------------------------------- Page 11 of 30 [FLOW CHART] Fault Management Procedure Fault detected by Netcool or reported by Customer Fault located based on Netcool-provided information Log fault on FMS Inform iaxis Network Operations manager (via mobile telephone) First-line primary diagnostics using Network Management System Can fault be cleared Yes remotely? Clear fault remotely No Call our relevant maintainers as per Operational Contact List Regular updating of Network Management System and iaxis Operations Manager Clear fault locally, escalate (if required) as per Escalation Procedure Following clearance, confirm clear on network management system and with Customer Update FMS, incorporating management reporting information: . Fault start time . Time to respond . Time to site (if applicable) . Clearance time . Escalation proc carried out . Corrective and preventive action taken Figure 1: Fault Management Procedure - -------------------------------------------------------------------------------- Page 12 of 30 4.2 Escalation Procedure The flow diagram in Figure 2 outlines the Escalation Procedure that the iaxis NOC uses whenever a fault needs to be escalated to a higher level within the organisation. In finalising the operational interfaces between the Customer and iaxis, it is accepted that the Escalation Procedure may need to be refined. Escalation path is as follows: - -------------------------------------------------------------------------------- Escalation Level Contact Name (Position) Contact Number - -------------------------------------------------------------------------------- 1 iaxis NOC Supervisor Tel: +44 171 767 3555 - -------------------------------------------------------------------------------- 2 (Network Operations Manager) Tel: +44 171 767 3569 Mobile: +44 789 999 6901 - -------------------------------------------------------------------------------- 3 (Technical Director) Tel: +44 171 767 3514 Mobile: +44 777 552 2424 - -------------------------------------------------------------------------------- 4 (Chief Operating Officer) Tel: +44 171 767 3503 Mobile: +44 467 884 452 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Page 13 of 30 Escalation Procedure [FLOW CHART] Escalation required after 1 hour LEVEL 1 Escalation YES NO After 2 hours LEVEL 2 Service Escalation restored YES NO After 4 hours LEVEL 3 Service Escalation restored Customer YES YES After 6 hours service affected Solution Found? NO NO Liase with customer LEVEL 4 Escalation Implement Solution solution agreed Figure 2: Escalation Procedure - -------------------------------------------------------------------------------- Page 14 of 30 4.3 Change Management Procedure The flow diagram in Figure 3 outlines the Change Management Procedure that the iaxis NOC use whenever a change request is received. . Customer issues circuit/network change request . iaxis Network Operations standardise format . Network Operations pass to NOC for network impact analysis . NOC report findings back to Network Operations and await go-ahead . If go-ahead not received, change archived as incomplete . If go-ahead is given, NOC will implement circuit change using the network management tools, within the agreed timescales . NOC inform Network Operations when change is completed . Network Operations update Network Information System (NIS) . Network Operations archive change as complete . Network Operations inform originator as to status of change Please note that changes requested by a customer may impact the commercial agreement. - -------------------------------------------------------------------------------- Page 15 of 30 Change Management Procedure Customer issues circuit/network change request Network Operations standardise format Network Operations pass to NOC for network impact analysis NOC report findings back to Network Operations and await go-ahead Go-ahead given by Network Operations Network No archive change as Operations? incomplete Yes NOC implement change on Network Management System, within agreed timescale NOC inform Network Operations when completed Network Operations update NMS Network Operations archive change as complete Operations inform originator of status of change Figure 3: Change Management Procedure - -------------------------------------------------------------------------------- Page 16 of 30 4.4 Service Interruption Procedure The flow diagram in Figure 4 outlines the Service Interruption Procedure that iaxis NOC follows whenever a planned service interruption occurs. . Network outage requested by iaxis . Network Operations pass to NOC for network and Customer impact analysis . NOC report findings back to Network Operations . If authority to proceed not received, outage rescheduled, postponed or abandoned . Customer notifications sent out, warning of service interruption . If authority to proceed not received from Customer, outage rescheduled, postponed or abandoned . NOC produce outage record . Outage carried out in accordance with planned work procedure . If outage did not proceed as planned, Network Operations carry out post- failure investigation . After outage, Network Operations produce report, review and recommendations . In the event of planned works being imminent, when an unplanned outage on another part of the network occurs, the planned works shall be postponed until the fault has been cleared. - -------------------------------------------------------------------------------- Page 17 of 30 Service Interruption Procedure [FLOWCHART] Figure 4: Service Interruption - -------------------------------------------------------------------------------- Page 18 of 30 4.5 Management Reporting The iaxis NOC will provide the following reports, to be delivered via e-mail or other media as required by Customer, to Customer's NOC, and to other recipients designated in writing by Customer: . Fault report detailing Customer or network faults - analysis within 24 hours . Ad-hoc Customer service reports, including: . Service availability . Service interruptions and downtime . Service delivery against requirements . Total number of faults . Fault resolution against SLA 4.6 Planned Maintenance iaxis shall maintain its buildings and equipment. Accordingly iaxis shall provide its Customers with a comprehensive maintenance schedule which covers all aspects of iaxis planned maintenance activities. It will include, among other things, planned maintenance for active equipment, fibre, buildings and building services. The network may be maintained by a number of parties under the control of the iaxis Network Operations Manager who shall have overall responsibility for the operational network. iaxis shall perform preventive maintenance on all equipment contributing to the iaxis network in accordance with manufacturers' specifications. Planned maintenance activities will only be undertaken after prior consultation with the Customer has taken place, and when the timing, frequency and duration of the planned outage(s) has been mutually agreed. In situations where emergency maintenance (e.g. for potentially service affecting faults) is required, prior permission may not be sought from the Customer. Downtime as a result of planned maintenance outages will not be included in the Service Availability calculations and consequently will not incur compensation payments from iaxis. 4.7 Customer Visits Customer shall have the right to visit the iaxis NOC to observe NOC operations, procedures, capabilities and equipment. Should Customers wish to visit the iaxis NOC iaxis will agree mutually convenient times and make appropriate arrangements for Customer visits in advance. - -------------------------------------------------------------------------------- Page 19 of 30 5.0 Service Levels and Compensation Schemes iaxis is committed to providing high quality point-to-point and managed bandwidth services to our Customers. This section details the service levels and compensation schemes that apply to iaxis service provision. 5.1 Services Covered All Open Optical Links and managed bandwidth services between the iaxis PoPs. 5.2 Ready For Services (RFS) Dates iaxis target Ready For Service (RFS) dates are: . 7 days for DS3 and STM-1 circuits . 10 days for STM-4 and OOL circuits . 15 days for STM-16 circuits. When an order is placed with iaxis the RFS date shall be confirmed in writing. If iaxis fails to meet this date and cannot demonstrate that the delay was caused by circumstances beyond its reasonable control, the Customer shall be entitled to compensation for late delivery. For IRUs compensation will be in the form of a credit of 1% of the annual Operating & Maintenance (O&M) charge for each working day or part thereof beyond the agreed RFS date (up to a max. of 50 days). For rentals compensation will be in the form of a credit of 1% of the annual rental charge for each working day or part thereof beyond the agreed RFS date (up to a maximum of 5 days). 5.3 Services Restoration Time (SRT) The fault resolution process will be initiated immediately a fault has been auto-detected by the FMS or has been reported to the NOC by the Customer. In the event that iaxis fails to repair service-affecting faults of either fibre or equipment within the Target Repair Time (TRT), measured from the agreed fault start time, the Customer shall be entitled to compensation as detailed in the table below. The Target Repair Time (TRT) referred to below is defined as the time from the agreed fault start time to the time that the service is restored. 5.3.1 IRUs
Hours past Target Repair Time Percentage of the Operating & Maintenance Annual Charge as Compensation (Cumulative) - -------------------------------------------------------------------------------- 0 - 4 hours 0% - -------------------------------------------------------------------------------- between 4 - 6 hours 1% - -------------------------------------------------------------------------------- between 6 - 8 hours 2% - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Page 20 of 30 - -------------------------------------------------------------------------------- More than 8 hours up to 48 hours 1% for each successive four hours - -------------------------------------------------------------------------------- 5.3.2 Rentals
Hours past Target Repair Time Percentage of the Annual Rental Charge as Compensation - -------------------------------------------------------------------------------- Up to 4 hours 0% - -------------------------------------------------------------------------------- between 4 - 6 hours 0.25% - -------------------------------------------------------------------------------- between 6 - 8 hours 0.5% - -------------------------------------------------------------------------------- More than 8 hours up to 48 hours 0.25% for each successive four hours - --------------------------------------------------------------------------------
Compensation will not be payable for failure to repair non-service affecting faults within the Target Repair Times for Minor Faults. 5.4 Service Availability iaxis shall provide end-to-end circuit availability for all managed bandwidth products in each 3 month period following the RFS date to the levels set forth in this section. Where the availability of the service falls below the specified levels the Customer shall be entitled to compensation in accordance with the table below. 5.4.1 SDH Service Availability
Service Level Availability for IRU Rental SDH Service Percentage of the Operating & Percentage of the Quarterly Rental Maintenance Quarterly Charge as Charge as Compensation Compensation - ------------------------------------------------------------------------------------------------------------ Better than 99.99% 0% 0% - ------------------------------------------------------------------------------------------------------------ Between 99.99 - 99.5% 3% 1.5% - ------------------------------------------------------------------------------------------------------------ Between 99.5 - 99.0% 5% 2.5% - ------------------------------------------------------------------------------------------------------------ Below 99.0% 7.5% 4.0% - ------------------------------------------------------------------------------------------------------------
5.4.2 Optical & Unprotected SDH Circuit Service Availability
Service Level Availability for IRU Rental Open Optical Links and Percentage of the Operating & Percentage of the Quarterly Rental Unprotected SDH Circuits Maintenance Quarterly Charge as Charge as Compensation Compensation - ------------------------------------------------------------------------------------------------------------ Better than 98.46% 0% 0% - ------------------------------------------------------------------------------------------------------------ Between 98.46- 98.0% 3% 1.5% - ------------------------------------------------------------------------------------------------------------ Between 98.0 - 97.0% 5% 2.5% - ------------------------------------------------------------------------------------------------------------ Below 97.0% 7.5% 4.0% - ------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Page 21 of 30 Circuit Availability will be calculated on a quarterly basis from the anniversary of the RFS date. The total time of Service Availability (SA) is calculated as follows: SA = (Ts * 100)/MST % Where: Ts = Total time for which service is available across all circuits during the previous 3 month period MST = Maximum Service Time, the total amount of time (maximum circuit minutes) which the service could have been available across all circuits i.e. the number of circuit minutes for 100% availability in a given 3 month period. 5.5 Cancellation of Service by Customer If a service is cancelled prior to the RFS date, iaxis reserves the right make a Cancellation Charge to cover costs incurred as a result of the cancellation. The level of these charges is laid out in the table below. 5.5.1 IRUs
New iaxis PoP or Breakout Point1 Existing iaxis PoP or Breakout Point1 - ------------------------------------------------------------------------------------------------------------ Number of working days before Percentage of annual O&M Charge Percentage of annual O&M Charge RFS date when cancellation payable as Cancellation Charge payable as Cancellation Charge takes place - ------------------------------------------------------------------------------------------------------------ 0 - 5 100% 100% - ------------------------------------------------------------------------------------------------------------- 6 - 10 80% 75% - ------------------------------------------------------------------------------------------------------------- 11 - 20 70% 50% - ------------------------------------------------------------------------------------------------------------- 21 - 30 50% 25% - ------------------------------------------------------------------------------------------------------------- 31 - 40 25% 0% - ------------------------------------------------------------------------------------------------------------- More than 40 0% 0% - -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Page 22 of 30 5.5.2 Rentals
New iaxis PoP or Breakout Point/1/ Existing iaxis PoP or Breakout Point/1/ - ----------------------------------------------------------------------------------------------------------- Number of working days before Number of Months Rental payable as Number of Months Rental payable as RFS date when cancellation Cancellation Charge Cancellation Charge takes place - ----------------------------------------------------------------------------------------------------------- 0 - 10 3 months 2 months - ----------------------------------------------------------------------------------------------------------- 10 - 20 2 months 1 month - ----------------------------------------------------------------------------------------------------------- 20 - 30 1 month 0 months - ----------------------------------------------------------------------------------------------------------- More than 40 0 months 0 months - -----------------------------------------------------------------------------------------------------------
Note 1. A new iaxis PoP or Breakout Point is one where iaxis has no previous presence; an existing iaxis PoP or Breakout Point is one where iaxis is already present at the effective date. 5.6 Conditions of Service Level Agreement When compensation is due to the Customer for failure to meet the Service Restoration Time or Service Availability Targets in respect of any fault, then whichever is the greater will apply. Compensation for failure to meet Service Restoration Time will be calculated on an annual basis commencing from the RFS date. Claims will be settled by the issue of a credit note that may be used to offset future charges. At the end of the minimum Contract Period the Customer may request an outstanding credit note to be settled by the issue of a cheque to reduce the account to zero (provided the customer account with iaxis is in credit). 5.6.1 IRUs iaxis' aggregate liability under this Service Level Agreement in any 12 month period for each circuit purchased as an IRU is limited to 50% of the annual Operating & Maintenance charge in respect of failure to achieve the agreed RFS date; 13% of the annual Operating & Maintenance charge for that period in respect of failure to meet Service Restoration Times; and 7.5% of the annual Operating & Maintenance charge for that period in respect of failure to meet Service Availability targets. 5.6.2 Rentals iaxis aggregate liability under this Service Level Agreement in any 12 month period for each rental of a circuit is limited to 5% of the annual rental charge in respect of failure to achieve the agreed RFS date; 3.25% of the annual rental charge for that period in respect of failure to meet Service Restoration Times; and 4.0% of the annual rental charge for that period in respect of failure to meet Service Availability targets. - -------------------------------------------------------------------------------- Page 23 of 30 6.0 Acceptance Tests 6.1 ITU-T Recommendations Prior to the RFS date for Capacity and upgrades, iaxis will conduct a 5-day acceptance test. Acceptance testing shall be carried out on all circuits (E1, E3, DS3, STM-1, STM-4, STM-16 and OOLs) as per the following ITU-T recommendations: . ITU-T Recommendation M2110 Bringing-into-service of International PDH paths, sections and transmission systems and SDH paths and multiplex sections. . ITU-T Recommendation M2100 Performance limits for bringing-into-service and maintenance of international PDH paths, sections and transmission systems. . ITU-T Recommendation M2101 Performance limits for bringing-into-service and maintenance of international SDH paths and multiplex sections. 6.2 iaxis Acceptance Test 21 days prior to acceptance testing iaxis will provide Customer with a detailed system and equipment specification including technical configuration, performance data, and a detailed Acceptance Test Schedule for the Capacity and equipment to be tested. The Customer shall be allowed to witness the tests. Acceptance Test Schedule will detail the following: . nature of the tests to be carried out . order in which the tests will be carried out . duration of each test . pass/fail criteria for each test . who is responsible for carrying out the test . how the test will be witnessed by Customer's technical staff . who is responsible for approving and signing-off the tests . circumstances under which retesting is required For each Capacity the following Circuit Acceptance Test testing will be applied. Circuit Type Description of Test - -------------------------------------------------------------------------------- DS3 24 hour end-to-end BER test - -------------------------------------------------------------------------------- STM-1, STM-4, STM-16, and Open Optical Links 72 hour end-to-end BER test - -------------------------------------------------------------------------------- On successful completion of the circuit acceptance test iaxis will formally handover the circuit (service) together with the acceptance test results. The Customer will have 5 days to accept the circuit. Once Capacity has been formally accepted and the acceptance test results signed-off Capacity billing will commence. - -------------------------------------------------------------------------------- Page 24 of 30 7.0 Open Optical Links (OOLs) 7.1 Technical Data An Open Optical Link (OOL) is a transmission channel of 2.5 Gbit/s between two Points of Presence (PoP). This channel conforms to the technical standards set out below as defined in ITU-T Standards. The facility includes all regeneration of signals required between the two Points of Presence to maintain transmission integrity. This is provided using dense wave division multiplexing (DWDM) equipment on a pair of optical fibres. Capacity (Ciena Terminals): . January 1999 = 40 x 2.5 Gbit/s . July 2000 = 96 x 10 Gbit/s . December 2000 = 192 x 10 Gbit/s Format: OC-48/STM16, OC-48c/STM16c Channel Plan: 50 Ghz System BER: (less than)10/15/ Connector Type: FC/PC Channel Interface: 622 Mbit/s: Format: Short Reach = 1.5K or Intermediate reach = 15Km, OC-12/STM4 1-4 & S.4.1 Input Signal Level: -18 to -3 dBm Output Signal Level: -5dBm +/-0.5 dB Input Wavelength: 1250 to 1600 nm 2.5Gbit/s: Format: Short Reach = 1.5Km or Intermediate reach = 15Km, OC-48/STM16 1-16 |& S.16.1 Input Signal Level: -18 to -3 dBm Output Signal Level: 5dBm +/-0.5 dB Input Wavelength: 1250 to 1600 nm Output Wavelength: 1300 nm 10 Gbit/s: Format: Short Reach = 1.5Km or Intermediate reach = 15Km, OC-192 STM64 Input Signal Level: -18 to -3 dBm Output Signal Level: 5dBm +/-0.5 dB Input Wavelength: 1250 to 1600 nm Output Wavelength: 1300 nm Channel Performance Monitoring: Channel bit errors via B1 in Sonnet/SDH overhead (only available in 2.5 Gbps and 10 Gbps). Optical Power at all repeaters and terminals. Page 25 of 30 8.0 SDH Service - Technical Overview 8.1 Managed SDH Service iaxis shall provide the Customer with SDH circuits as described in this Section. Circuits shall be presented to Customer at the System Interface Points, which shall be located in the iaxis Points of Presence set forth in the Agreement unless otherwise jointly agreed to in writing by iaxis and Customer. Circuit hand-off and presentation shall conform to applicable industry standards, to the technical specifications set forth in this Agreement, and to Customer's requirements as detailed in writing by Customer as part of the circuit provisioning process. 8.2 iaxisenroute SDH Network The iaxisenroute network is the terrestrial fibre optic cable system (initially operating at per wavelength digital transmission capacity of 2.5 Gbit/s), initially with the configuration set forth in this Agreement, and all plant and equipment between and including all the System Interface Points, including all SDH and OOL equipment, as such shall be modified and upgraded from time to time. 8.3 Main Advantages of the iaxisenroute SDH Network . Simplified multiplexing/demultiplexing techniques compared to PDH. . Access to lower speed tributaries without the need to multiplex/demultiplex the entire high-speed signal. This facilitates efficient drop and insert of channels and cross connect applications. . Embedded network management channels that provide enhanced Operations, Administration and Maintenance (OAM) capabilities enabling the network to be more efficiently controlled. . Facilitates easy growth to higher multiplexing levels. . Enables the transport of digital signals at the hierarchy bit rates specified in ITU-T Recommendation G.702 and at broadband channel bit rates. This permits SDH equipment to be introduced directly into existing networks and also facilitates the introduction of a wide range of additional services. . Defines an optical interface that allows mid span fibre meets between equipment from different suppliers. 8.4 Conformance to Standards The iaxisenroute network shall conform to ITU-T Recommendation G.707 - Network Node Interface for the Synchronous Digital Hierarchy, and other published standards and recommendations including (but not limited to) ITU-T G.702, G.708, G.709, G.781, G.782, G.783, G.803, G.826, G.957, and G.958, which detail the international standards covering synchronous digital multiplexing and transmission systems Page 26 of 30 8.5 Functionality ITU-T Recommendation G.702, and others, define the line rates permitted in and supported by SDH networks. The iaxisenroute network will offer equipment and configurations capable of supporting the following data rates: - ------------------------------------------------------------------ Synchronous Transport Module Line Rate (Mbps) - ------------------------------------------------------------------ STM-1 155 Mbps - ------------------------------------------------------------------ STM-4 622 Mbps - ------------------------------------------------------------------ STM-16 2.5 Gbps - ------------------------------------------------------------------ Although the ITU-T has defined the STM-1 data rate as the basic building block of all SDH networks, allowances were made for any of the current transmission rates to be mapped into an STM-1. This is done by using Virtual Containers, which can be combined into standard formats in order to form the payload of the STM-1 signal. Different containers can be mixed, allowing for different rates to be carried simultaneously with the same structure. Therefore, iaxisenroute network will supply STM-1 and STM-4 signals as well as support mapping of E1 signals into VC-12s, and E3 and DS-3 signals into VC-3s allowing for a complete range of traffic signals which can be both added to and/or dropped from the iaxisenroute network. 8.6 Protection Approach The ITU-T, when defining the content of SDH allowed for an overhead that would carry management information. This is broken down into the following: . Path Overhead - including trace, labelling, error monitoring and status information for PDH Signals . Regenerator Section Overhead - including framing, error monitoring, trace and data communications information, and . Multiplexer Section Overhead - including error monitoring, automatic protection switching, data communications and synchronisation status information Practical uses of the overhead extend to flexible management of the iaxisenroute network. Automatic protection switching data, otherwise known as K-bytes, K1 and K2, carries information on faults throughout the network. Where a fault such as a broken fibre occurs in the network the K-bytes carries messages throughout the network instructing the network elements to take appropriate action to minimise traffic disruptions. iaxisenroute network shall employ a protection mechanism called 2-Fibre Multiplexer Section Protection Ring (2F MSPRing) throughout the network. This is a very efficient protection strategy defined in the ITU-T recommendation G.841, which allows eight of the STM-1s in an STM-16 channel to be used for protection. Where a protection switch occurs the traffic that would otherwise be lost is transported around the ring using these protection channels. The tributaries are protected by adopting a 1+1 protection scheme consisting of two identical channels per tributary - one working and one protecting - both of which may carry traffic. Page 27 of 30 By utilising the 2F MSPRing protection strategy combined with 1+1 protection switching at the tributary level throughout the iaxisenroute network, iaxis will deliver a service availability of 99.99%. 8.7 Network Management Capability The Data Communications Channel (DCC) in the overhead is used to carry miscellaneous information throughout the network as well as being the main route for management information from the Network Operations Centre (NOC) to the Network Elements (NE). The iaxis NOC is situated in London with the NEs being distributed throughout Europe. iaxis uses an E1 to connect the Integrated Network Manager (INM) to a gateway NE at Telecity. The DCC then carries information throughout the network. Through the DCC the Network Operator can remotely configure the network, check for alarms and download new software from a single site. For example, should the network SDH equipment require a software upgrade, the download can be initiated from the INM to every NE in the iaxisenroute network without having to visit any remote site. This management feature allows for flexible reconfiguration and surveillance of the network. It is also possible to reconfigure the network remotely from the iaxis NOC. Physical connections to the ports (where the connections originate and terminate) can often be made in advance of the actual provisioning of a circuit. Accurate forecasting of network circuit requirements can significantly reduce the period between the actual ordering of circuits and their being provisioned. 8.8 Main iaxisenroute Network SDH Components 8.8.1 Nortel TN-16X The Nortel TN-16X equipment on the iaxisenroute network is configured as an Add- Drop Multiplexer. This is equipped with plug-in units divided into core, aggregate and tributary units together with Network Element software to support Rings, Hubs, Point-to-Point and Add-Drop chain configurations. - -------------------------------------------------------------------------------- Tributary Quantity Allowed - -------------------------------------------------------------------------------- STM-1 Electrical Tributary Up to 4 per quadrant Total of 16 per TN-16X - -------------------------------------------------------------------------------- STM-1 Electrical/PDH 140Mbit/s Tributary - -------------------------------------------------------------------------------- STM-1 Optical Tributary - Unprotected or 1+1 Protected - -------------------------------------------------------------------------------- STM-4 Optical Tributary - Unprotected or 1+1 Protected Up to 4 per quadrant Total of 16 per TN-16X - -------------------------------------------------------------------------------- Aggregate Quantity Allowed - -------------------------------------------------------------------------------- STM-16 Optical Aggregate - 2F MSPRing Protected 2 - -------------------------------------------------------------------------------- Page 28 of 30 8.8.2 Nortel TN-4X/E The Nortel TN-4X/E uses a 550 mm high subrack that can fit in a standard ETSI rack. The TN-4X/E provides multiplexing and cross-connectivity between tributary and aggregate ports as follows: - -------------------------------------------------------------------------------- Tributary Quantity Allowed - -------------------------------------------------------------------------------- 32-Port E1 Electrical Tributary Up to 8 - -------------------------------------------------------------------------------- Dual Port STM-1 Electrical/PDH 140Mbit/s Tributary Up to 8 - -------------------------------------------------------------------------------- Dual Port STM-1 Optical Tributary Up to 8 - -------------------------------------------------------------------------------- Aggregate Quantity Allowed - -------------------------------------------------------------------------------- STM-4 Optical Aggregate - SNCP Protected Up to 2 - -------------------------------------------------------------------------------- 8.8.3 Nortel TN-1X The TN-1X uses a 525 mm high subrack that can fit in a standard ETSI rack. The TN-1X will provide multiplexing and cross-connection between tributary and aggregate ports as follows: Tributary Quantity Allowed - -------------------------------------------------------------------------------- 16-Port E1 Electrical Tributary Up to 4 - -------------------------------------------------------------------------------- 34M/45M Electrical Port Up to 3 - -------------------------------------------------------------------------------- Aggregate Quantity Allowed - ------------------------------------------------------------------------------- STM-1 Optical Aggregate - Dedicated Protection Ring Up to 2 - ------------------------------------------------------------------------------- Page 29 of 30 9.0 Operation & Maintenance Costs Operation and Maintenance (O&M) costs in respect of the network management services set forth in the Customer Agreement ref. C450004 dated 21/07/99 will be limited to a maximum of $180,000 per annum for the Duration. O&M costs will invoiced and payable quarterly in advance for the Duration from the RFS date. Page 30 of 30 EX-10.9 7 SOFTWARE LICENSE AND SUPPORT AGREEMENT PORTAL PROPRIETARY & CONFIDENTIAL Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated by [*****]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission. EXHIBIT 10.9 SOFTWARE LICENSE AND SUPPORT AGREEMENT This Software License and Support Agreement is entered into by and between Portal Software, Inc, a Delaware corporation with principal offices at 20883 Stevens Creek Boulevard, Cupertino, California 95014 ("Portal") and VIA Net Works UK, Limited a limited liability company duly organized under the laws of the United Kingdom, with principal offices at 830 Birchwood Boulevard, Birchwood, Warrington, United Kingdom. ("Licensee") and describes the terms and conditions pursuant to which Portal shall license to Licensee and support certain Licensed Software (as defined below). This Agreement shall become effective on the date it is signed by Portal ("Effective Date"). 1 1 Definitions 1.1 "Affiliate" means an entity Controlled by VIA NET.WORKS Inc. or its Affiliates, or Controlling, a Party, where Control means the ownership or control, directly or indirectly, of more than fifty percent (50%) of the voting power of the shares (or other securities or rights) entitled to vote for the election of directors or other governing authority, as of the Effective Date of the Agreement or thereafter while this Agreement remains in effect; provided that such entity shall be considered a Affiliate only for the time during which such Control exists. 1.2 "Agreement" means this Software License and Support Agreement, including any and all attached Schedules. 1.3 "Application" means the specific Application set forth in Schedule A hereto of the Licensed Software running on one or more related computers at a single location, that share the same Licensed Software Database. 1.4 "Confidential Information" means this Agreement and all its Schedules, any addenda hereto signed by both parties, all software listings, Documentation, information, data, drawings, benchmark tests, specifications, trade secrets, strategic business information, market information, marketing information, customer information, object code and machine-readable copies of the Licensed Software, and any other proprietary information supplied to Licensee by Portal or by Licensee to Portal which is clearly marked as "confidential" if in tangible form, or identified as "confidential" if orally disclosed. Further, any information which by its nature or character or by the circumstances surrounding disclosure should reasonably be deemed confidential shall be deemed Confidential Information under this Agreement. 1.5 "Documentation" means the documentation and user manuals relating to the use of the Licensed Software delivered by Portal to Licensee in either printed or electronic form. 1.6 "Licensed Software" means (i) the software products designated on Schedule A hereto provided to Licensee by Portal in executable form (but not the Source Code), (ii) Documentation, (iii) any source code or object code which Portal in its sole discretion may provide to Licensee from time to time and (iv) any Updates, modifications, maintenance releases, bug fixes or work-arounds which Portal may provide to Licensee from time to time. 1.7 "Licensed Software Database(s)" means any customer database(s) associated with the Licensed Software which contains the Customer Records. 1.8 "Production Site(s)" means the address and location of the server computer(s) on which the Licensed Software will be installed as set forth on Schedule A as such addresses and locations may be modified from time to time by Licensee on written notice to Portal. 1.9 "Restricted Release" means any version of the Licensed Software marked alpha, beta or which is otherwise designated as a Restricted Release. 1.10 "Subscriber" means an individual customer record account object ("Customer Record") in the Licensed Software Database. The total number of Subscribers is exactly equal to the number of Customer Records in the Licensed Software Database. If the Licensed Software is used to authenticate, bill, rate or otherwise track the activities of individual users within a corporate or group account, each such individual user will be deemed a Subscriber for the purposes of this Agreement. 1.11 "Updates" means any changes to the Licensed Software licensed hereunder which Portal, in its discretion, makes generally available to its Licensed Software licensees. Updates includes, without limitation, all major and minor releases of the Licensed Software, but does not include new products, features or modules which Portal licenses separately. 2 Grant of License 2.1 For so long as this Agreement remains in force Portal grants to Licensee a perpetual, non-exclusive and non-transferable right to use the Licensed Software at the designated Production Sites only for the specified Application. Licensee may possess only the number of copies of any Licensed Software necessary for the type of use specified herein and may use such copies only in accordance with this Agreement and the Documentation. Portal shall at all times retain ownership of all Licensed Software including any Documentation and any copies thereof. Licensee may sublicense the licenses granted in this Section 2 to its Affiliates provided that Software License & Support Agreement Page 1 of 7 PORTAL PROPRIETARY & CONFIDENTIAL (i) each such Affiliate shall become bound in writing (for Portal's benefit) to Licensee's obligations under the Agreement, (ii) Licensee assumes full responsibility for and guarantees the compliance of its Affiliates with all such obligations (including without limitation all payment obligations accrued by an Affiliate). 2.2 Portal will deliver to Licensee, as soon as is practicable, the necessary password to enable Licensee to download from Portal's website one machine-readable copy of the Licensed Software per each Production Site, along with one machine-readable copy of the Documentation. Licensee may not reproduce Licensed Software or Documentation except as expressly provided under this Agreement. 2.3 Licensee may copy the Licensed Software and Documentation for backup, testing and other internal, non-production uses or archival purposes provided that all titles, trademark symbols, copyright symbols and legends, and other proprietary markings are reproduced. 2.4 Licensee shall be permitted to develop, use and modify APIs, macros and user interfaces provided by Portal. For the purposes of this Agreement, such development shall be deemed an authorized modification of the Licensed Software. 2.5 Portal grants and Licensee receives no other rights or licenses to the Licensed Software, derivative works (as defined in the United States copyright Act of 1976, Title 17 USC Section 101 et. Seq.) or any intellectual property rights related thereto, whether by implication, estoppel or otherwise, except those rights expressly granted in this Section 2. 3 LICENSE RESTRICTIONS 3.1 Licensee agrees, except to the extent provided by Section 2.1 above, that it will not itself, or through any parent, subsidiary, affiliate, agent or other third party: 3.1.1 sell, lease, license, sublicense, or encumber with any portion of the Licensed Software or Documentation; 3.1.2 except to the minimum extent necessary to comply with EC Directive, if applicable, or other applicable legislation, decompile, disassemble, or reverse engineer any portion of the Licensed Software or attempt to discover any source code or underlying ideas or algorithms of any Licensed Software; 3.1.3 other than to the extent permitted by Section 2.4 above, create any Derivative Work based on the Licensed Software or any Portal Confidential Information; 3.1.4 except to the extent provided by Section 2.1 above, use the Licensed Software to provide processing services to third parties, commercial timesharing, rental or sharing arrangements, or on a "service bureau" basis or otherwise use or allow others to use the Licensed Software for the benefit of any third party; 3.1.5 provide, disclose, divulge or make available to, or permit use of the Licensed Software by persons other than employees and subcontractors of Licensee and its Affiliates who are bound by confidentiality obligations consistent with the terms and provisions herein, without Portal's prior written consent; 3.1.6 use any Licensed Software, or allow the transfer, transmission, export, or re-export of any Licensed Software or portion thereof in violation of any export control laws or regulations administered by the U.S. Commerce Department, OFAC, or any other government agency. All the limitations and restrictions on the Licensed Software in this Agreement also apply to the Documentation. At the present time, Portal warrants that as of the Effective date the Licensed Software may be exported to the European Union, Switzerland, Brazil, Argentina and/or Mexico. 4 PAYMENTS AND TAXES 4.1 Unless otherwise agreed in writing, all payments due hereunder shall be made in U.S. dollars. In addition to any remedies Portal may have hereunder or at law, any payments more than forty five (45) days overdue will bear a late payment fee of 1.5% per month, or, if lower, the maximum rate allowed by law. Delinquency in payment will result in a delay or suspension of the Licensed Software implementation timetable or services (including Support Services) provided by Portal. Resumption of services will occur after Licensee has brought itself current on all of its outstanding payment obligations to Portal. The services will be scheduled in accordance with the availability of Portal resources. Portal will not be liable for any damages caused by rescheduling of suspended services pursuant to this Section 4.1. 4.2 Licensee agrees to pay or reimburse Portal for all federal, state, dominion, provincial, or local sales, use, personal property, payroll, excise or other taxes, fees, or duties arising out of this Agreement or the transactions contemplated by this Agreement (other than taxes on the net income of Portal.) If any tax is payable by Licensee under this Section 4.2, then the Licensee shall provide evidence of payment to Portal and Portal shall use all reasonable efforts to obtain a credit, rebate, or benefit for that amount against its own tax, and if it receives such credit, rebate, or benefit it shall refund to Licensee an amount equal to the lesser of the amount paid by Licensee and the credit, rebate, or benefit obtained by Portal. 5 LICENSE FEE In consideration of the rights granted herein, Licensee shall pay Portal the license fee(s) as set forth in Schedule A. 6 Maintenance and Technical Support 6 MAINTENANCE AND TECHNICAL SUPPORT 6.1 Upon payment of the annual maintenance and support fee set forth on Schedule A, Licensee shall be entitled to receive Updates and technical support in accordance with Portal's Gold Level Support Policy ("Support Services). Portal's current Gold Level Support Policy appears at Schedule B. Support Services shall commence on the Effective Date of this Agreement. 6.2 In the event Licensee fails to make any required Support Services payment or otherwise elects to Software License & Support Agreement Page 2 of 7 PORTAL PROPRIETARY & CONFIDENTIAL discontinue Support Services, Portal shall have no obligation to provide the Support Services described in this Section 6. In order to reinstate or renew Support Services, Licensee must first pay Portal the then current annual support services fee and all past support service fees. In the event Licensee fails to make any required payment or in the event Licensee breaches any of its material obligations under the Support Services provisions and such breach has not been cured within sixty (60) days of receipt of notice of breach, Portal may suspend or cancel Support Services. No Updates of the Licensed Software will be provided to Licensee and no Updates may be copied by Licensee to update any copies of the Licensed Software unless Support Services have been purchased for such copies. Support Services fees shall be billed on an annual basis, payable in advance. 6.3 Portal shall have no obligation to support (a) altered, damaged or modified Licensed Software (except as authorized by Portal) or any portion of the Licensed Software incorporated into other software, (b) Licensed Software that is not the then current or immediately previous sequential release, but in any event Portal shall support each major release of the Licensed Software for at least eighteen (18) months from its initial applicable release date and at least six months from the initial general availability of the next major release, (c) problems caused by Licensee's gross negligence, abuse, or misapplication, or use of the Licensed Software other than as specified in all material respects in Portal's user documentation or other causes beyond the control of Portal, or (d) Licensed Software installed in an operating environment or hardware environment for which the Licensed Software has not been licensed. Portal shall have no liability for any changes in Licensee's hardware which may be necessary to use the Licensed Software. 6.4 Portal reserves the right to change its technical support guidelines and procedures provided (i) Portal provides Licensee with at least sixty (60) days prior written notice of such changes, and (ii) such changes do not diminish Portal's overall technical support obligations to Licensee in any material respect. 7 Restricted Release If Licensee is selected for participation and elects to participate in a Restricted Release program, Licensee agrees (i) Portal shall have no obligation to correct errors in or deliver updates to the Restricted Release, (ii) Portal shall have no obligation to otherwise support the Restricted Release, (iii) Licensee will provide Portal with appropriate test data for the Restricted Release if necessary to resolve problems in the Restricted Release encountered by Licensee and will promptly report to Portal any error discovered in the Restricted Release, (iv) the Restricted Release is experimental, may contain problems and errors and is being provided to Licensee on an "AS-IS" basis with no warranty of any kind, express or implied, (v) neither party will be responsible to the other for any losses, claims or damages of whatever nature, arising out of or in connection with the performance or nonperformance of the Restricted Release, (vi) Licensee will not use the Restricted Release in production applications without the prior written approval of Portal, and (vii) Licensee will stop using and return or destroy any Restriction Release promptly upon Portal's request. 8 Termination 8.1 This Agreement commences on the Effective Date and will remain in force until it is terminated. 8.2 Portal may, by written notice to Licensee, terminate this Agreement if for nonpayment or if Licensee is in breach in any material respect of Sections 2, 3, or 14 of this Agreement, which nonpayment or breach is not cured within thirty (30) days after Portal gives Licensee written notice of such breach; 8.3 Termination will become effective immediately or on the date set forth in the written notice of termination and any payment obligations under this Agreement shall immediately become due and owing. Termination of this Agreement will not affect the provisions regarding Licensee's or Portal's treatment of Confidential Information, provisions relating to the payments of amounts due, provisions limiting or disclaiming Portal's liability, and/or provisions regarding applicable law, which provisions will survive termination of this Agreement. In the event of such termination of this Agreement or any Licensed Software product license granted hereunder, Portal will promptly refund all applicable pro-rated, prepaid annual maintenance Support Services fees relating to the period following the termination. 8.4 Upon termination, all licenses granted hereunder shall cease to be effective and Licensee shall immediately cease all use of any affected Licensed Software, Documentation and Portal Confidential Information. 8.5 Within fourteen (14) days of the date of termination or discontinuance of this Agreement for any reason whatsoever, Licensee shall return the Licensed Software and all copies thereof, in whole or in part, all related Documentation and all copies thereof, and any other Confidential Information in its possession. Licensee shall furnish Portal, at Portal's request, with a certificate signed by an executive officer of Licensee verifying that the same has been done. 8.6 Termination is not an exclusive remedy and all other remedies will be available whether or not termination occurs. 9 Patent and copyright indemnity 9.1 Portal will defend and indemnify Licensee for all costs (including reasonable attorneys fees) arising from a claim that the Licensed Software infringes a copyright or patent or constitutes a violation of a trade secret provided that (i) Licensee notifies Portal in writing within thirty (30) days of the claim (ii) Portal has sole control of the defense and all related settlement negotiations, and (iii) Licensee provides Portal with the assistance, information, and authority necessary to perform the above; reasonable out-of- pocket expenses incurred by Licensee in providing such assistance will be reimbursed by Portal. 9.2 Portal shall have no liability for any claim of infringement based on (i) use of a superseded or altered release of the Licensed Software, except for Software License & Support Agreement Page 3 of 7 PORTAL PROPRIETARY & CONFIDENTIAL which alteration(s) or modification(s) has been made by Portal or under Portal's direction, if such infringement would have been avoided by the use of the current unaltered release of the Licensed Software that Portal provides to Licensee, or (ii) the combination, operation, or use of any Licensed Software furnished under this Agreement with programs or data not furnished by Portal if such infringement would have been avoided by the use of the Licensed Software without such programs or data. 9.3 In the event that the Licensed Software is held or believed by Portal to infringe, or Licensee's use of the Licensed Software is enjoined, Portal shall have the option, at its expense, and preferably in the following order to the extent commercially practicable, (a) obtain for Licensee a license to continue using the Licensed Software, (b) modify the Licensed Software to be non-infringing in a manner that does not materially reduce, restrict or adversely impact the functionality of the Licensed Software, (c) substitute the Licensed Software with other software reasonably suitable to Licensee, or (d) if none of the foregoing remedies are commercially feasible, terminate the license for the infringing Licensed Software and refund the fees paid for that Licensed Software, prorated over a five-year term from the Effective Date of this Agreement or applicable amendment or additions schedule. This Section 9.3 states Portal's entire liability for infringement. 10 Warranty 10.1 Portal warrants that it has title to and/or the authority to grant licenses of the Licensed Software, including without limitation, any third party products that may contained therein or distributed therewith. 10.2 Portal warrants to Licensee that the Licensed Software will perform in substantial accordance with the Documentation for a period of one hundred eighty (180) days from the Effective Date. If the Licensed Software does not perform as herein warranted, Portal shall undertake at its own expense to correct the non- conforming part of the Licensed Software. If correction is not reasonably possible or commercially practicable, Portal shall refund the monies paid by Licensee for that non-conforming Licensed Software. 10.3 Portal warrants that the Licensed Software is designed to be used prior to, during and after the calendar year 2000 and that the Licensed Software will operate during each such time period without error relating to, or the product of, date data which references different centuries or more than one century. If the Licensed Software does not perform as warranted, Portal shall undertake at its own expense to correct the non-conforming part of the Licensed Software, or if correction is reasonably not possible, replace such non-conforming part of the Licensed Software free of charge. If neither of the foregoing is commercially practicable, Portal shall refund the license and annual maintenance support fees paid by Licensee for the non-conforming Licensed Software. If a refund is made in the manner herein contemplated, the parties will amend the definition of "Licensed Software" in Schedule A to reflect the same. The foregoing Year 2000 Warranty shall not apply (i) if the Licensed Software is used or interfaced with other software, data or operating systems which are not Year 2000 compliant, (ii) if the Licensed Software has been modified in a manner not authorized by Portal, or (iii) if Licensee fails to install an Update if the non-compliance would have been avoided by installation of such Update. 10.4 Portal's warranty obligations as set forth above are made to and for the benefit of Licensee only and shall be enforceable against Portal only if: 10.4.1 The Licensed Software has been properly installed and has been used at all times in accordance with the Documentation and this Agreement; 10.4.2 All modifications, alterations or additions to the Licensed Software, if any, have been made using Licensed Software Customization Tools provided by Portal to Licensee or in a manner authorized by Portal. 10.5 Except as set forth in this Section 10, Portal makes no warranties, whether express or implied, or statutory regarding or relating to the Licensed Software or the Documentation, or any materials or services furnished or provided to Licensee under this Agreement. Specifically, Portal does not warrant that the Licensed Software will be error free or will perform in an uninterrupted manner. To the maximum extent allowed by law, Portal specifically disclaims all implied warranties of merchantability and fitness for a particular purpose (even if Portal had been informed of such purpose) with respect to the Licensed Software, Documentation and support and with respect to the use of any of the foregoing. 11 Limitation of liability 11.1 IN NO EVENT WILL PORTAL OR ITS SUBCONTRACTORS BE LIABLE FOR ANY LOSS OF PROFITS, LOSS OF USE, BUSINESS INTERRUPTION, LOSS OF DATA, COST OF COVER OR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND IN CONNECTION WITH OR ARISING OUT OF THE FURNISHING, PERFORMANCE OR USE OF THE LICENSED SOFTWARE OR SERVICES PERFORMED HEREUNDER OR ANY DELAY IN DELIVERY OR FURNISHING THE LICENSED SOFTWARE OR SAID SERVICES WHETHER ALLEGED AS A BREACH OF CONTRACT OR TORTIOUS CONDUCT, INCLUDING NEGLIGENCE, EVEN IF PORTAL HAD BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. 11.2 PORTAL'S MAXIMUM AGGREGATE LIABILITY FOR DAMAGES OR LOSS, HOWSOEVER ARISING OR CAUSED, WHETHER OR NOT ARISING FROM PORTAL'S NEGLIGENCE, SHALL IN NO EVENT BE GREATER THAN (A) IN THE EVENT SUCH DAMAGE IS NOT RELATED TO SUPPORT, THE LICENSE FEE SPECIFIED IN SCHEDULE A RELATED TO THE PARTICULAR LICENSED SOFTWARE PROGRAM WHICH CAUSED THE DAMAGE OR LOSS, OR (B) IN THE EVENT SUCH DAMAGE OR LOSS IS RELATED TO SUPPORT, THE SUPPORT FEES PAID BY LICENSEE FOR THE THEN CURRENT SUPPORT TERM. Software License & Support Agreement Page 4 of 7 PORTAL PROPRIETARY & CONFIDENTIAL 11.3 No employee, agent, representative or affiliate of Portal has authority to bind Portal to any oral representations or warranty concerning the Licensed Software. Any written representation or warranty not expressly contained in this Agreement is unenforceable. 12 AUDIT RIGHTS/QUARTERLY REPORTS 12.1 Licensee shall keep and maintain full and accurate records regarding its obligations under this Agreement and the number of Subscribers of the Licensed Software Database. Portal or its representatives shall be entitled to review and audit such books and records, no more often than once per year, and/or Licensee's compliance with the provisions of this Agreement from time to time during normal business hours by providing written notice to Licensee at least ten (10) business days prior to such audit. If any such audit reveals a deficiency in any amounts due to Portal hereunder, Licensee will immediately pay such amounts as are required to re-establish compliance with the terms of this Agreement. 12.2 Commencing on the third anniversary of the Effective Date, Licensee will provide Portal with annual reports setting forth the gross annual revenue (to be determined in accordance with GAAP) for Licensee and its Affiliates for the immediate preceding year and a reasonable description of any amounts owed to Portal under this Agreement. 13 ASSIGNMENT/BINDING AGREEMENT 13.1 Neither this Agreement nor any rights under this Agreement may be assigned or otherwise transferred by Licensee (by operation of law or otherwise), in whole or in part, without Portal's prior written consent. Notwithstanding the foregoing: 13.1.1 In the event that Licensee is acquired by a third party by way of merger, acquisition, or a sale of all or substantially all of Licensee's assets in one or more related transactions, but where there is no co-mingling of the assets of Licensee and the third party acquirer, such acquisition shall not be deemed a prohibited transfer or assignment and Licensee and its Affiliates shall have the right to continue using the Licensed Software as if no such transfer or assignment had occurred and the third party acquirer and its affiliates (excluding Licensee and its Affiliates) shall have no rights to use the Licensed Software. 13.1.2 Subject to Section 13.2 below, Licensee may assign this Agreement in its entirety to an Affiliate by providing written notice to Portal. 13.1.3 Subject to Sections 13.1.4, 13.1.5, and 13.2 below, Licensee may assign this Agreement in its entirety by way of merger, acquisition or sale of all or substantially all of its voting rights in one or more related transactions. 13.1.4 In the event of an assignment of this Agreement pursuant to Section 13.1.3 above occurring within three years of the Effective Date, the number of Subscribers in the Licensed Software Database(s) shall be counted immediately prior to the assignment and the acquiring entity and the original VIA NET.WORKS Inc. Affiliates shall have a perpetual license for that number of Subscribers plus 10% (which number shall be distributed across the acquiring entity and the Affiliates). The annual maintenance Support Services fee for those Subscriber licenses shall be an amount equal to 20% of the aggregate license fees due or paid to Portal on the first day of the applicable annual maintenance Support Services term. During the six month period immediately following the assignment Portal will negotiate in good faith with the acquiring entity to determine the applicable future license and Support Services fees. 13.1.5 In the event of a transfer or assignment of this Agreement pursuant to Section 13.1.3 above occurring more than three years from the Effective Date, the acquiring entity and the original Affiliates shall be permitted to continue using the Licensed Software for up to six (6) months following the assignment provided such entity and Affiliates shall pay Portal all amounts (appropriately adjusted to reflect the six months of usage) that would have been owed by Licensee and its Affiliates had no assignment occurred. During the aforementioned six month period Portal will negotiate in good faith with the acquiring entity to determine the applicable future license and Support Services fees. 13.2 Notwithstanding the foregoing or anything else in this Agreement, no transfer or assignment of this Agreement shall be effective unless and until (i) the purported assignee/transferee becomes bound in writing to all of Licensee's obligations under this Agreement; (ii) Licensee must not be in default of any material provision of this Agreement, including without limitation any payment obligations hereunder, at the time of transfer or assignment. The license(s) transferred to the assignee/transferee shall be restricted to the continued operation of Licensee's original business and Application and shall not apply to other businesses of the assignee/transferee, even if such businesses are similar to or the same as the original Application. Further, the rights granted to Licensee with respect to its Affiliates shall not be applicable to the subsidiaries or affiliates of the assignee/transferee. 14 CONFIDENTIALITY 14.1 Each Party acknowledges that the Confidential Information constitutes valuable trade secrets and each party agrees that it shall use the Confidential Information of the other party solely in accordance with the provisions of this Agreement and it will not disclose, or permit to be disclosed, the same directly or indirectly, to any third party without the other party's prior written consent. Each party agrees to exercise due care in protecting the Confidential Information from unauthorized use and disclosure. However, neither party bears any responsibility for safeguarding any information that it can document in writing (i) is in the public domain through no fault of its own, (ii) was properly known to it, without restriction, prior to disclosure by Disclosing Party, (iii) was properly disclosed to it, without restriction, by another person with the legal authority to do so, (iv) is independently developed by Receiving Party without use or reference to Disclosing Party's Software License & Support Agreement Page 5 of 7 PORTAL PROPRIETARY & CONFIDENTIAL Proprietary Information or (v) is required to be disclosed pursuant to a judicial or legislative order or proceeding; provided that, to the extent permitted by and practical under the circumstances, Receiving Party provides to Disclosing Party prior notice of the intended disclosure and an opportunity to respond or object to the disclosure or if prior notice is not permitted or practical under the circumstances, prompt notice of such disclosure. 14.2 In the event of actual or threatened breach of the provisions of Section 3 or Section 14, the non-breaching party will be entitled to immediate injunctive and other equitable relief, without bond and without the necessity of showing actual damage. 15 NOTICE Any notice required or permitted under the terms of this Agreement or required by law must be in writing and will be deemed delivered on the date set forth in the written notice of confirmation of delivery. Notice will be sent to the following addresses: For Licensee: Director of Information Technology VIA NET.WORKS, Inc. 12100 Sunset Hills Road, Suite 110 Reston, VA 20190 cc: General Counsel VIA NET.WORKS, Inc. 12100 Sunset Hills Road, Suite 110 Reston, VA 20190 For Portal: General Counsel Portal Software, Inc. 20883 Stevens Creek Boulevard Cupertino, CA 95014 16 MISCELLANEOUS 16.1 Force Majeure. Neither party will incur any liability to the other on ------------- account of any loss or damage resulting from any delay or failure to perform all or any part of this Agreement if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond its control and without negligence of the parties. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, riots, acts of war, earthquakes, fire and explosions, but the ability to meet financial obligations is expressly excluded. 16.2 Waiver. Any waiver of the provisions of this Agreement or of a party's ------ rights or remedies under this Agreement must be in writing to be effective. Failure, neglect or delay by a party to enforce the provisions of this Agreement or its rights or remedies at any time will not be construed to be deemed a waiver of such party's rights under this Agreement and will not in any way affect the validity of the whole or any part of this Agreement or prejudice such party's right to take subsequent action. 16.3 Severability. If any term, condition or provision in this Agreement is ------------ found to be invalid, unlawful or unenforceable to any extent, the parties shall endeavor in good faith to agree to such amendments that will preserve, as far as possible, the intentions expressed in this Agreement. If the parties fail to agree on such an amendment, such invalid term, condition or provision will be severed from the remaining terms, conditions and provisions, which will continue to be valid and enforceable to the fullest extent permitted by law. 16.4 Entire Agreement. This Agreement (including the Schedules and any addenda ---------------- hereto signed by both parties) contains the entire agreement of the parties with respect to the subject matter of this Agreement and supercedes all previous communications, representations, understandings and agreements, either oral or written, between the parties with respect to said subject matter. 16.5 Standard Terms of Licensee. No terms, provisions or conditions of any -------------------------- purchase order, acknowledgement or other business form that Licensee may use in connection with the acquisition or licensing of the Licensed Software will have any effect on the rights, duties or obligations of the parties under, or otherwise modify, this Agreement, regardless of any failure of Portal to object to such terms, provisions, or conditions. 16.6 Public Announcements/Publicity. Licensee and Portal agree to cooperate ------------------------------ regarding mutually agreed upon public relations activities, including public announcements, joint press releases, and other activities to be mutually agreed. Neither party will perform such activities without the prior written consent of the other party, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, the parties will cooperate in good faith to issue a mutually acceptable joint press releases within 30 days of the Effect Date and within 30 days of the first production use of the Licensed Software. Licensee agrees to participate, on a commercially reasonable basis, with Portal in joint marketing and public relations activities including without limitation issuance of a joint press release and, at Portal's request, participation in Portal's Success Stories customer profile program; provided that any material expenses incurred by Licensee in such participation shall be borne by Portal. Notwithstanding anything else in this Agreement, neither party shall be precluded from making disclosures concerning the subject matter of this Agreement to the extent such disclosures are required to comply with securities law, court order or similar order of an administrative or regulatory agency. Further, either party shall be entitled to disclose this Agreement and its terms and conditions to its financing source, auditors, attorneys and other agents to the extent necessary to enforce such party's rights or perform its obligations pursuant to this Agreement; provided that such financing sources, auditors, attorneys and agents keep such information confidential. Licensee agrees to be a reference account for Portal and will participate in at least four (4) telephone reference inquiries per year and at least one (1) onsite visit per year provided that Portal shall give Licensee reasonable advanced notice of not less than (i) 48 hours in the case of a telephone reference visit and (ii) 7 days in the case of an onsite visit. Further, Software License & Support Agreement Page 6 of 7 PORTAL PROPRIETARY & CONFIDENTIAL Portal shall be permitted to identify Licensee as a customer so long as such use does not imply endorsement. Licensee shall not be required to host any direct competitor of Licensee and Licensee reserves the right to approve in advance all hosting dates and times. 16.7 Counterparts. This Agreement may be executed in counterparts, each of which ------------ so executed will be deemed to be an original and such counterparts together will constitute one and the same Agreement. 16.8 Applicable Law. This Agreement will be interpreted and construed pursuant -------------- to the laws of the State of California and the United States without regard to conflict of laws provisions thereof, and without regard to the United Nations Convention on the International Sale of Goods. Any legal action or proceeding relating to this Agreement shall be instituted in a state or federal court in Santa Clara County, California. Portal and Licensee agree to submit to the jurisdiction of, and agree that venue is proper in, these courts in any such action or proceeding. The prevailing party in any action to enforce this Agreement will be entitled to recover its attorney's fees and costs in connection with such action. Licensee represents that it is not a government agency and it is not acquiring the license pursuant to a government contract or with government funds. IN WITNESS WHEREOF, the authorized representatives of the parties hereby bind the parties by signing below: VIA Net Works UK, Limited "Licensee" By: /s/ Matt Nydell ------------------------------------- Print Name: Matt Nydell ----------------------------- Title: Director ---------------------------------- Date: 10-25-99 ----------------------------------- Portal Software, Inc. "Portal" By: /s/ Mitch Gayner ------------------------------------- Print Name: Mitch Gayner ----------------------------- Title: General Counsel ---------------------------------- Date: 10-29-99 ----------------------------------- Software License & Support Agreement Page 7 of 7 Portal Proprietary & Confidential SCHEDULE A SECTION 1.0 LICENSED SOFTWARE The following Portal Software products and their associated online documentation will be provided by Portal and will comprise the "Licensed Software": . Infranet 6.0 (including DNA Manager, Business Account Manager and Virtual ISP Manager and Infranet 5.5.3 and the following language localizations: English, French, German, Spanish, Japanese, Simplified Chinese, Traditional Chinese and Korean) . Infranet Report Developer, including one (1) Seagate(R) Crystal Info Designer Add-in Tool and five (5) Seagate(R) Crystal Info Desktop Client Licenses . Infranet standard issue policy facilities modules source code and application programming interfaces . Dial-up Manager . Mail Server Manager . LDAP Manager SECTION 2.0 APPLICATION DESCRIPTION//INITIAL SUBSCRIBER LIMIT 2.1 Application: Billing and customer care of Subscribers to Licensee's ISP services. 2.2 Initial Subscriber Limit: Unlimited during the initial seven year term of this Agreement. Six months prior to the seventh year anniversary of the Effective Date of this Agreement the parties will negotiate in the good faith the license and maintenance Support Services fees going forward. The parties will take into consideration such factors as Portal's then- current pricing in license agreements entered into with customers licensing the Licensed Software in comparable volumes for the same Application. If the parties, despite their good faith efforts, are unable to reach agreement by the seventh anniversary of the Effective Date this Agreement, Licensee shall have a perpetual license to use the Licensed Software for the number and type of Subscribers in the Licensed Software Databases on the last day of the seven year term. Unless the parties otherwise agree in writing, the annual Gold Level support fee after the seven year term shall be equal to the annual Gold Level Maintenance Support Services fee for the seventh year increased annually by the then- current CPI. The foregoing shall not preclude Licensee from changing to another then-offered Support Services plan or terminating Support Services at Licensee's option. SECTION 3.0 INSTALLATION SITES 3.1 Production Site(s): [to be determined] 3.2 Development Site(s): [to be determined] 3.3 Backup Site(s): [to be determined] SLSA Schedule A Page A-1 Portal Proprietary & Confidential *****Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.***** SECTION 4.0 LICENSE AND MAINTENANCE SUPPORT SERVICE FEES 4.1 Software License Fees
- -------------------------------------------------------------------------------------------------------------------- Description License Fees Payment Due Dates - -------------------------------------------------------------------------------------------------------------------- License Fee Payment No. 1 [*****] December 1, 1999 - -------------------------------------------------------------------------------------------------------------------- License Fee Payment No. 2 [*****] June 1, 2000 - -------------------------------------------------------------------------------------------------------------------- License Fee Payment No. 3 [*****] December 1, 2000 - --------------------------------------------------------------------------------------------------------------------
The foregoing table sets forth the non-refundable, non-cancelable license fees for the Licensed Software for the Application for an unlimited number of Subscribers for the first three years of this Agreement. Within thirty (30) days of the fourth (4th) anniversary of the Effective Date, Licensee will provide Portal with a written report setting forth the total annual gross revenues (under GAAP) for Licensee and its Affiliates in connection with the Application ("Annual Revenue"). Licensee will pay Portal a license fee in an amount equal to [*****] less an amount equal to all Licensed Software license fees previously paid to Portal under this Agreement. Licensee will provide Portal with similar Annual Revenue reports and associated payments on the 5th, 6th and 7th anniversaries of the Effective Date. 4.2 Annual Gold Level Support Services Fees Portal will provide one year of Gold Level Maintenance Support Services for the number of Subscribers set forth in Section 2.2 above for the annual fees set forth below.
- -------------------------------------------------------------------------------------------------------------------- Portal Support Services Annual Fee Annual Payment Date - -------------------------------------------------------------------------------------------------------------------- December 1, 1999 Gold Level Support Services [*****] -------------------------------------- (first three (3) years) December 1, 2000 -------------------------------------- December 1, 2001 - --------------------------------------------------------------------------------------------------------------------
After the first three years the annual fee for Gold Level maintenance Support Services shall be calculated as being an amount equal to 20% of the aggregate license fees paid to Portal plus all license fees due or payable on or before the time of maintenance Support Services renewal. SLSA Schedule A Page A-2 EX-10.10 8 DISTRIBUTION AND REVENUE SHARING AGREEMENT EXHIBIT 10.10 DISTRIBUTION AND REVENUE SHARING AGREEMENT THIS AGREEMENT is made as of this 30th day of June, 1999 (the "Effective Date") BETWEEN: TRELLIX CORPORATION, a corporation organized under the laws of Delaware, having its principal place of business at 51 Sawyer Road, 5th Floor Waltham, MA 02453 ("TRELLIX") AND: VIA NET.WORKS, INC., a company incorporated under the laws of Delaware having its principal place of business at 12100 Sunset Hills Road, Suite 110, Reston, VA 20190, on behalf of itself and its wholly-owned or controlled subsidiaries identified on the attached Schedule 1, which may be supplemented and amended from time to time by agreement of the parties (collectively, "VIA NET.WORKS"). WHEREAS TRELLIX has developed the Software (as defined below), and is engaged in the business of distributing and marketing the Software; WHEREAS VIA NET.WORKS possesses sufficient technical and commercial expertise to market and distribute effectively the Software and offer first-line support services to End-Users and Authorized Dealers (as defined below) in accordance with the provisions contained herein; and WHEREAS TRELLIX wishes VIA NET.WORKS to actively and effectively promote the licensing of the Software in the Territories (as defined below); WHEREAS VIA NET.WORKS engages in commercial web hosting, whereby users post web site content to a storage device and such site content becomes posted and accessible to the World Wide Web thereby; WHEREAS VIA NET.WORKS and TRELLIX desire to share revenue generated by VIA NET.WORKS through the acquisition of End-Users who have created web sites using the Software and a predesignated VIA NET.WORKS one-step publish feature of the Software; NOW THEREFORE, the parties agree as follows: 1. DEFINITIONS 1.1 "Authorized Dealer(s)" shall mean those dealers and remarketers authorized by VIA NET.WORKS and TRELLIX to distribute the Software solely to End-Users pursuant to a Dealer License Agreement. 1.2 "Confidential Information" shall have the meaning set forth in Section 10.1 hereof. 1 1.3 "Dealer License Agreement" shall mean a written agreement made between VIA NET.WORKS and an Authorized Dealer that authorizes an Authorized Dealer to distribute Software to End-Users pursuant to Section 2.3 hereof. 1.5 "Software" shall mean computer software programs, in object code format, proprietary to TRELLIX or its licensors, identified in Appendix "A", including Documentation, and any Updates, Maintenance Patches and Improvements thereto. 1.6 "Documentation" shall mean all instructional or supplementary materials related to Software and provided by TRELLIX to VIA NET.WORKS for use in connection with Software or included as `online' help from within the Software. 1.7 "End-User" shall mean a single licensee that obtains a right to use the Software pursuant to the terms and conditions of an End-User License Agreement, and not for redistribution, remarketing, or third party service use. 1.8 "End-User License Agreements" shall mean the end-user software license agreements entered into between TRELLIX and End-Users in substantially the forms attached hereto as Appendix "D", as such forms may be amended by TRELLIX from time to time. 1.9 "First Tier Support" shall mean support services provided by VIA NET.WORKS and Authorized Dealers to End-Users pursuant to a Support Contract. In no event shall TRELLIX have any obligation to provide First Tier Support. 1.10 "Hosting Fee" shall mean both the setup fee and the monthly hosting fee actually received by VIA NET.WORKS from End-Users for Web Hosting. 1.11 "Web Hosting" shall mean the hosting by VIA NET.WORKS on its or an End User's storage device of an End-User Web Site created by the Software and referred thereby by VIA NET.WORKS One Step Publish and which web site continues to utilize the Software while resident on such storage device, as determined by the Hosting Bounty Reporting method of Schedule 1. 1.12 "VIA NET.WORKS One Step Publish" shall mean that feature of the Software whereby the End-User posts the End Users Software-created web site directly to a web hosting storage device for the Hosting Fee. 1.13 "Revision" shall mean any correction, bug fix, modification, improvement, enhancement, update, upgrade, new version, or new release of the Software provided by TRELLIX at it sole discretion. 1.14 "Second Tier Support" shall mean assistance provided by (i) TRELLIX to VIA NET.WORKS or (ii) VIA NET.WORKS to an Authorized Dealer in 2 connection with VIA NET.WORKS or an Authorized Dealer's provision of First Tier Support to End-Users. 1.15 "Statement of Work" shall mean the Statement of Work, if any, to be delivered upon the determination by either party hereto that there shall be necessary any modifications to the Software or any special marketing or packaging requirements on the part of either party hereto in order to fully perform this Agreement. 1.16 "Support Contract" shall mean an agreement between VIA NET.WORKS or Authorized Dealer, as the case may be, and an End-User for First Tier Support that conforms to TRELLIX's support policies and standards as set forth in the attached Appendix "C", which agreement may be incorporated as a part of the web-hosting services subscription agreement between VIA NET.WORKS and the End-User, set out in a stand- alone agreement between VIA NET.WORKS and the End-User, or form a part of the End-User support policies generally adhered to by VIA NET.WORKS and offered to End-Users as posted on the VIA NET.WORKS web sites. 1.17 "Territories" shall mean the countries listed in the attached Appendix "A". 1.18 "Third Person Assertion" shall have the meaning set forth in Section 11.2 hereof. 1.19 "Third Party Hardware" shall mean third party hardware upon which the Software will be used and stored, as well as other hardware peripherals manufactured by third party suppliers, which may be used in connection with the Software. 2. LICENSE GRANTS 2.1 Subject to the terms and conditions of this Agreement, TRELLIX hereby grants VIA NET.WORKS a nonexclusive, nontransferable right and license to distribute the Software (in the form delivered to VIA NET.WORKS, without modifications) to End-Users in the Territories pursuant to the End-User License Agreement applicable to such Software as specified in Appendix "B" attached hereto, including distribution through web site downloads and `bundling' on media with other software content. 2.2 Subject to the terms and conditions of this Agreement, TRELLIX hereby grants VIA NET.WORKS a nonexclusive, nontransferable right and license to use the Software product in the Territories to fulfill its support obligations set forth in Section 8 hereof, and for demonstrations connected with the promotion and marketing of Software pursuant to Section 2.5 hereof. 3 2.3 Subject to the terms and conditions of this Agreement, TRELLIX hereby grants VIA NET.WORKS a nonexclusive, nontransferable right and license to make a reasonable number of copies of the Software as are necessary for VIA NET.WORKS to exercise its rights under Sections 2.1 and 2.2 hereof. The right to copy shall not be sublicensed by VIA NET.WORKS. 2.4 VIA NET.WORKS may sublicense the rights granted to it pursuant to Sections 2.1, 2.2, and 2.3 hereof to Authorized Dealers who have been previously identified to TRELLIX by VIA NET.WORKS, provided that each such sublicense is made pursuant to a Dealer License Agreement, which shall be subject to the consent and approval of TRELLIX (which shall not be unreasonably withheld,) and which shall contain terms no less favorable to TRELLIX as this Agreement (including, but not limited to, the End User License Agreement of TRELLIX). VIA NET.WORKS shall promptly provide TRELLIX with a copy of each Dealer License Agreement proposed to be entered into between VIA NET.WORKS and an Authorized Dealer. 2.5 The licenses granted to VIA NET.WORKS pursuant to this Section 2 shall include rights under any applicable patents, copyrights, and trade secrets owned by TRELLIX, but only to the extent necessary to give effect to such limited licenses. Except as specifically provided for in this Agreement, VIA NET.WORKS shall not sublicense or permit the sublicense of any of the rights granted to VIA NET.WORKS hereunder. Without limiting the generality of the foregoing, in no event may an Authorized Dealer distribute Software to any third party other than an End-User as provided for in Section 2.1 hereof. 2.6 TRELLIX grants the rights set forth in this Section 2 to VIA NET.WORKS on the express condition that VIA NET.WORKS undertakes to use its commercially reasonable, consistent with good business practice, to market and distribute the Software in the Territory. 2.7 VIA NET.WORKS understands and agrees that the operation of the Software may require operating system software owned by third parties, and that in certain instances it may be necessary for the VIA NET.WORKS, Authorized Dealer, or End-User to enter into license agreements with third parties with regard to such operating system software in order to make use of the Software. Software of any third party suppliers shall remain the property of their respective owners. 2.8 Whenever the term "sale" or "purchase" of the Software is referred to in this Agreement, such reference shall be deemed to include the purchase of an applicable license with respect to the Software, and not be deemed to include the actual sale of the intellectual property rights underlying the Software. 4 2.9 VIA NET.WORKS agrees that in the event of any breach of this Section 2, TRELLIX shall have no adequate remedy at law and therefore shall be entitled to seek injunctive and/or other equitable relief, in addition to any other remedies afforded by law. 3. RELATIONSHIP OF THE PARTIES 3.1 The relationship of TRELLIX and VIA NET.WORKS is that of independent contractors, and it is expressly agreed that nothing contained herein shall be construed to constitute the parties as a company , joint ventures, co-owners, or participants in a joint or common undertaking, or otherwise to create a relationship of principal and agent, it being intended that each shall remain independent contractors responsible for their own actions. Neither party shall have the right to enter into contracts or pledge the credit of or incur expenses or liabilities on behalf of the other party. 3.2 VIA NET.WORKS is not authorized to make any warranties or representations with respect to the specifications, features, or capabilities of the Software which are inconsistent with the published literature distributed by TRELLIX and the terms and conditions of this Agreement. In addition, VIA NET.WORKS is not authorized to create any obligations or representations of responsibility, express or implied, on behalf of TRELLIX or its subsidiaries and affiliates. 3.3 TRELLIX is not authorized to make any warranties or representations with respect to the specifications, features, or capabilities of the Web Hosting which are inconsistent with the published literature distributed by VIA NET.WORKS and the terms and conditions of this Agreement. In addition, TRELLIX is not authorized to create any obligations or representations of responsibility, express or implied, on behalf of VIA NET.WORKS or its subsidiaries and affiliates. 3.4 Except as specifically provided for in this Agreement, VIA NET.WORKS agrees that the rights and obligations granted herein do not extend to its subsidiaries and affiliates, or any other third party. 3.5 VIA NET.WORKS shall in all marketing and promotion materials relating to the Software clearly indicate that it is acting as an authorized distributor of TRELLIX and shall not indicate that it is an author or developer of the Software. 4. OBLIGATIONS OF VIA NET.WORKS 4.1 Except as set forth on Schedule I, VIA NET.WORKS shall assume all of ---------- its own costs associated with the marketing and distribution of the Software. 4.2 VIA NET.WORKS agrees to use commercially reasonable efforts to include the Software and reference to the Software capabilities in its 5 efforts to market web-hosting services and to distribute the Software in the Territories in accordance with the terms and conditions of this Agreement. 4.3 VIA NET.WORKS shall not loan or lease the Software, except as authorized in writing by TRELLIX. In addition, VIA NET.WORKS agrees that it shall not make or have made any copies of the Software or portions thereof, except as expressly provided for herein. 4.4 VIA NET.WORKS and its affiliates agrees that it shall not disassemble, decompile, or reverse engineer any portion of the Software, or permit any third party to do so, except as permitted by applicable law and then solely to the extent that TRELLIX is not permitted by such applicable law to exclude or limit such rights. TRELLIX may provide to VIA NET.WORKS, upon written request, technical information, including but not limited to Software interfaces and API's, that is required to install or operate and maintain third party software products which are functionally interconnectable with the Software. 4.5 VIA NET.WORKS shall use the Software solely for the purposes set forth in this Agreement, and shall allow access to the Software by its employees and affiliates solely on a need to know basis. VIA NET.WORKS agrees to notify TRELLIX promptly after it becomes aware of any unauthorized access, disclosure, distribution, possession, alteration, transfer, reproduction or other unauthorized use of the Software or any portion thereof. 4.6 VIA NET.WORKS shall promptly inform TRELLIX of any use of TRELLIX's trade names, trademarks or brand identification in violation of this Agreement or violation of TRELLIX's intellectual property rights of which VIA NET.WORKS becomes aware, and agrees to safeguard the intellectual property rights and interests of TRELLIX at least to the same extent it safeguards its own intellectual property rights and interests. 4.7 VIA NET.WORKS shall be entitled to license the Software to its Authorized Dealers and End-Users at such prices as it may determine and, at the request of TRELLIX, agrees to provide TRELLIX with its up-to-date price list for the Software. 4.8 VIA NET.WORKS shall not use in relation to the Software any advertising, promotional and selling materials except as approved in writing by TRELLIX, which such approval shall be deemed to have been given if no objection in writing has been received by VIA NET.WORKS within 5 business days of TRELLIX receipt of such information, and, at the request of TRELLIX, agrees to provide TRELLIX with copies of any such sales aids, including but not limited to catalogues, sales brochures and sales manuals used in relation to the marketing and distribution of the Software. Without limiting the generality of the foregoing, in no event shall VIA NET.WORKS use or permit the use of any trademarks or 6 tradenames of TRELLIX without the prior written consent of TRELLIX. Any such use shall be subject to TRELLIX's trademark and tradename VIA NET.WORKS guidelines, as such guidelines may be amended by TRELLIX from time to time. 4.10 VIA NET.WORKS shall cause those subsidiaries of VIA NET.WORKS listed in Schedule I attached hereto to display on their world wide web site a hyperlink (in form mutually acceptable to the parties hereto) to be utilized for Software download or referring web users directly to the web site of the TRELLIX. Such web link shall contain TRELLIX's tradename and trademark and shall be displayed on such web site's homepage. 4.11 VIA NET.WORKS and its affiliates shall display or cause to be displayed prominently TRELLIX's trademark and tradename as it appears on Schedule I in all advertising and marketing VIA NET.WORKS or its ---------- affiliates undertakes to promote and co-market the Software. 4.12 VIA NET.WORKS shall, to the extent permitted under VIA's policies relating to the protection of user privacy and relevant laws, including, but not limited to, the EU Directive on Data Protection and the Electronic Communication Privacy Act, provide to TRELLIX (a) the information relating to VIA NET.WORKS Web-Hosting End-Users contained in the Schedule I, Section 1.1 and (b) such other information relating to VIA NET.WORKS Web-Hosting End-Users as the parties may from agree, including but not limited to name and e-mail address; provided that no such information may be provided except with respect to VIA NET.WORKS Web-Hosting End-Users who have agreed that such information may be released by the VIA NET.WORKS subsidiary to VIA NET.WORKS (U.S.) and to TRELLIX. TRELLIX agrees that all information provided by VIA NET.WORKS or its subsidiaries pursuant to this Section 4.12 shall be considered "Confidential Information" of VIA NET.WORKS under Section 10 below. Under no circumstances shall TRELLIX disclose any such information to any third party, nor shall TRELLIX use any such information for any purpose other than to verify and validate the billing information provided by VIA NET.WORKS to TRELLIX, or such other purposes and under such conditions as may have been expressly approved by the VIA NET.WORKS Web-Hosting End-Users in granting consent to the use of the information. The parties contemplate that VIA NET.WORKS will obtain approval from each End- User for the information described in (a) above in the course of the End-User's agreement to abide by the terms and conditions of service provided by VIA NET.WORKS. Consent to use any additional information such as that described in (b) above shall be obtained by specific "check the box" approval by the End-User obtained during the process of registering as a Web-Hosting End-User of VIA NET.WORKS. 7 5. OBLIGATIONS OF TRELLIX 5.1 Within ten (10) days from the Effective Date of this Agreement, TRELLIX shall provide VIA NET.WORKS with (10) copies of technical literature in the language prevailing in each of the VIA NET.WORKS subsidiaries listed from time to time in Schedule I, to support VIA NET.WORKS in marketing the Software hereunder. A reasonable number of additional copies of TRELLIX marketing materials shall be provided at no charge to VIA NET.WORKS by TRELLIX. 5.2 During the term of this Agreement, TRELLIX will: (i) provide such assistance, including supplying maintenance patches or code corrections, as necessary, to cause the Software to perform in accordance with the applicable specifications for the most current version of the Software ("Maintenance Patches") as set forth in the Documentation provided to VIA NET.WORKS and as updated by TRELLIX from time to time; (ii) provide such improvements, enhancements, extensions, upgrades and other changes to the Software which TRELLIX generally provides to other licensees of the product ("Improvements"); (iii) supply, when necessary and as long as technically feasible, updated software required to cause the Software to operate under new versions or releases of the operating system or other system software on which the Software operates ("Updates") so long as such Updates are made generally available to TRELLIX's other customers; and (iv) provide telephone support to VIA NET.WORKS in order to assist VIA NET.WORKS to locate and correct functional or operational problems with the Software. (v) To the extent that TRELLIX, in its discretion, plans on issuing an Update or Improvement which relates to the one-step publish feature of the Software, TRELLIX shall provide VIA NET.WORKS with product enhancement information together with a schedule of planned availability dates, 7 days prior to the planned release of such Update or Improvement to the Public; provided, however, that TRELLIX may release to the public and to other partners any Maintenance Patches at the same time such Maintenance Patches are released to VIA NET.WORKS. 5.3 TRELLIX shall not by virtue of this Agreement be restricted or otherwise precluded from making sales to End-Users, either directly or through other resellers, distributors, OEMs and the like representing TRELLIX. 5.4 At VIA NET.WORKS request and if required, TRELLIX may assist VIA NET.WORKS in its sales activities. Any and all out-of-pocket and travel 8 expenses incurred by TRELLIX for such assistance shall be borne by VIA NET.WORKS. 5.5 TRELLIX shall make reasonable modifications to the Software as may be required for the Software to effectively achieve the VIA NET.WORKS One Step Publish, such as extensions and the like. 5.6 TRELLIX shall cause to be displayed prominently on TRELLIX's world wide web site a `hot link' (in form mutually acceptable to the parties hereto) referring web users directly to the web site of the VIA NET.WORKS. 5.7 TRELLIX will use its reasonable efforts to make functional enhancements reasonably requested by VIA NET.WORKS and which the parties hereto agree would be enhance the Software in a beneficial, efficient and inexpensive manner 5.8 TRELLIX agrees that it shall inform all prospective Original Equipment Manufacturers ("OEMs") who sell, distribute or market Third party Hardware in the Territories or in any other countries other than the U.S. that VIA NET.WORKS has operations and with respect to which TRELLIX determines to initiate marketing and distribution of the Software, of the web hosting services of VIA NET.WORKS and this agreement between the parties hereto (but only to the extent necessary to provide such OEM with information regarding VIA NET.WORKS One Step Publish and other beneficial features of the Software, if any, resulting from this Agreement). VIA NET.WORKS will be identified as a premier personal web hosting companies and, subject to the completion of an agreement between TRELLIX and such OEM, will be given the opportunity to be a preferred `one-step publishing' web hosting company for any bundled copies of the Software or other web building product of TRELLIX to be bundled with such OEMs product. TRELLIX shall provide this information and such opportunity to such OEM in the same manner as TRELLIX provides identical information to such OEM for any other web hosting company of TRELLIX. It is understood that TRELLIX is under no obligation to require such OEM to agree to VIA NET.WORKS or any other web hosting company of TRELLIX. It is further understood that TRELLIX shall have multiple web hosting company and that the decision by an OEM to agree to one or another of such company as the preferred `one-button' publishing' web hosting company may be based on factors solely within the discretion of such OEM and TRELLIX as they may mutually agree upon. TRELLIX shall not make to any OEM any warranties or representations with respect to VIA NET.WORKS or the specifications, features, or capabilities of the VIA NET.WORKS web hosting. TRELLIX shall, at VIA NET.WORKS request, deliver to any OEM on whose machines the 9 Software will be bundled, the end user terms of service which contains VIA NET.WORKS disclaimer of warranty and shall request that any such OEM acknowledge such end user terms of service. 6. TRADE SHOWS; MARKETING EFFORTS 6.1 TRELLIX and VIA NET.WORKS agree to consult each other regarding the desirability of joint participation in trade shows and demonstration seminars. 6.2 VIA NET.WORKS and TRELLIX shall each be responsible for their own out-of-pocket and travel expenses associated with such participation. 6.3 TRELLIX may provide a demonstration artist or technician to assist at trade shows and demonstration seminars. 6.4 TRELLIX and VIA NET.WORKS agree to use commercially reasonable efforts to engage in marketing efforts for the Software, which may include web site coordination and other Internet efforts. 6.5 Upon signing of this Agreement, or at a time mutually agreed upon by the parties hereto, TRELLIX and VIA NET.WORKS shall cooperate on the drafting and issuance of a mutual press release relating to this Agreement, such press release to be in form and substance mutually acceptable to the parties hereto. 7. SUPPORT SERVICES 7.1 TRAINING 7.1.1 TRELLIX shall provide technical training for up to (6) technical personnel of VIA NET.WORKS to help enable VIA NET.WORKS to provide First Tier Support to End-Users and Second Tier Support to Authorized Dealers. Such training shall consist of not more than (2) days duration, shall be conducted for no charge at the executive offices of TRELLIX, and shall be held in accordance with a mutually agreed upon schedule. VIA NET.WORKS shall be required to complete such training within thirty (30) days after the receipt by VIA NET.WORKS of the Software (provided that such period shall not run during any time the Software requires any Maintenance Patches or Updates). Training shall be provided at any other reasonable location requested by VIA NET.WORKS for two days at a cost payable to TRELLIX of $1,000 plus TRELLIX's reasonable out-of- pocket and travel expenses associated therewith. 7.1.2 Any additional training requested by VIA NET.WORKS shall be provided by TRELLIX at TRELLIX's sole discretion, and at TRELLIX'S then prevailing charges, in accordance with a 10 schedule mutually agreed to between TRELLIX and VIA NET.WORKS. 7.1.3 VIA NET.WORKS shall in its sole discretion train each Authorized Dealer on the use of the Software so that such Authorized Dealer is enabled to provide First Tier Support to End-Users. 7.2 FIRST TIER SUPPORT 7.2.1 VIA NET.WORKS and/or its Authorized Dealers shall be responsible for providing First Tier Support to End-Users with respect to Software distributed pursuant to this Agreement or a Dealer License Agreement. Any intentional failure to provide such support shall be deemed to be a material breach of this Agreement. In no event shall TRELLIX have responsibility to provide First Tier Support. 7.2.2 VIA NET.WORKS shall take reasonable steps to insure that End- Users are aware that any End-User support for Software distributed pursuant to this Agreement or a Dealer License Agreement shall be provided by either VIA NET.WORKS or an Authorized Dealer. 7.3 SECOND TIER SUPPORT 7.3.1 TRELLIX shall provide Second Tier Support (which shall not include TRELLIX support as described under Section 5.2 above) to VIA NET.WORKS during the term of this Agreement, provided, however, that TRELLIX's provision of Second Tier Support shall be limited to reasonable telephone, E-mail, and/or facsimile communication with VIA NET.WORKS during weekdays and TRELLIX's normal business hours and during the normal business hours of those subsidiaries of VIA NET.WORKS offering Web Hosting. If such efforts are inadequate due to no fault of VIA NET.WORKS, TRELLIX will then communicate directly with End-Users. 7.3.2 VIA NET.WORKS shall be responsible for any Second Tier Support of Authorized Dealers, provided, however, that between the Effective Date of this Agreement and the earlier of: (i) the date that VIA NET.WORKS completes its training pursuant to Section 7.1.1 hereof, or (ii) thirty (30) days after the Effective Date, TRELLIX shall have the right, but no obligation, to provide Second Tier Support to Authorized Dealers. To the extent TRELLIX provides such Second Tier Support, it shall be limited to reasonable telephone, E-mail, and/or facsimile communication with an Authorized Dealer during weekdays and TRELLIX's normal business hours. 11 7.4 Any support services other than as provided for in Sections 7.2 and 7.3 hereof may be provided at TRELLIX's sole discretion, and at TRELLIX's then prevailing charges, in accordance with a schedule mutually agreed to between TRELLIX and VIA NET.WORKS. 7.5 Any and all reasonable out-of-pocket expenses related to travel and incurred by TRELLIX for the purpose of providing training or support pursuant to this Section 7 shall be borne by VIA NET.WORKS. 8. PRICES, PAYMENT & AUDIT 8.1 For each copy of the Software VIA NET.WORKS or its subsidiaries distributes, VIA NET.WORKS shall pay TRELLIX the royalty fee (the "Product Royalty"), if any, as provided on Schedule I. VIA NET.WORKS ---------- shall pay to TRELLIX the "TRELLIX Hosting Bounty" set forth on Schedule I. VIA NET.WORKS shall pay to TRELLIX within 30 days from ---------- the date hereof the participation fee (the "Participation Fee") set forth on Schedule I. ---------- 8.4 All prices for the Software distributed by VIA NET.WORKS hereunder exclude sales, use, and VAT taxes, as well as other taxes, duties, or charges which may be imposed upon VIA NET.WORKS by any governmental agency. 8.5 For so long as VIA NET.WORKS shall be contractually obligated to make payments pursuant to Section 8 hereof and for a period of six months thereafter, VIA NET.WORKS and its subsidiaries shall keep at their respective principal place of business adequate records for the accurate determination of all payments due pursuant to this Agreement. All the records books and server devices on which End-Users have posted web sites of VIA NET.WORKS or its affiliates necessary for the determination of such payments (subject to applicable privacy laws) shall be made available during normal business hours upon no less than three (3) business days notice during the term hereof and for a period of six months thereafter for examination, inspection, and audit by TRELLIX or duly authorized independent chartered accountants designated by TRELLIX. No more frequently than once each 12 months during the term of this Agreement and any extensions thereof, TRELLIX and its chartered accountants shall be entitled to examine, inspect, and audit the records and books of VIA NET.WORKS or its subsidiaries which relate to the use by End-Users of the Software and server devices on which End-Users have posted web sites to investigate all business transactions that relate to the required payments hereunder. VIA NET.WORKS hereby agrees to conduct its business (as it relates to VIA NET.WORKS performance of this Agreement) in such a manner as to reasonably facilitate the tracking 12 and record keeping necessary to properly determine in an orderly and efficient manner all payments required hereunder. In the event that TRELLIX conducts or has conducted an examination, audit or inspection of records and, as a result of such examination, audit, or inspection of records, it is determined that there are unreported amounts payable to TRELLIX, such amounts shall be deemed to be payable when due and VIA NET.WORKS shall immediately pay to TRELLIX such payments and any interest due thereon. In addition, if the unreported payments exceed fifteen percent (15%) of the amounts actually due, VIA NET.WORKS shall reimburse TRELLIX for its costs and expenses in conducting such examination, audit, inspection of records. 9. INTELLECTUAL PROPERTY RIGHTS 9.1 VIA NET.WORKS acknowledges that all right, title, and interest in and to the Software and any extensions or modifications created pursuant to this Agreement (including, without limitation, all rights under any applicable patents, copyrights, trademarks, trade secrets, and mask works) belongs to and shall remain the exclusive property of TRELLIX or its subsidiaries, affiliates or licensors. To the extent permitted by applicable law, VIA NET.WORKS agrees that it shall not, either directly or indirectly, dispute or challenge the ownership or any such rights of TRELLIX, during or at any time after expiration or termination of this Agreement. 9.2 VIA NET.WORKS agrees that it shall not alter, remove or conceal any copyright, trademark, trade name, or other proprietary rights or commercial markings which may appear on any copies of the Software. 9.3 VIA NET.WORKS shall not, during or at any time after the expiration or termination of this Agreement, use or adopt any trademark, trade name or commercial designation that may be mistaken for or confused with the trademarks, trade names, and other proprietary rights or commercial markings of TRELLIX. 9.4 VIA NET.WORKS shall not, either directly or indirectly, deposit or register the Software with any governmental agency or entity for any purpose or make any claim, whether in TRELLIX's name or otherwise, with any governmental agency or entity for copyright, trademark, patent, or any other form of intellectual property protection. 9.5 VIA NET.WORKS at the expense of TRELLIX, use commercially reasonable effort to TRELLIX in maintaining the validity and enforceability of the intellectual property of TRELLIX during the term of this Agreement. 9.6 VIA NET.WORKS and its affiliates shall not use any of the trademarks of TRELLIX in any manner that will prejudice their distinctiveness or validity, or otherwise affect the goodwill of any TRELLIX trademark. 13 10. CONFIDENTIALITY AND NON-DISCLOSURE 10.1 As used in this Section 10, the term "Confidential Information" shall mean any information disclosed by one party to the other pursuant to this Agreement which is in written, graphic, machine readable or other tangible form and is marked "Confidential", "Proprietary" or in some other manner to indicate its confidential nature. Confidential Information may also include oral information disclosed by one party to the other pursuant to this Agreement, provided that such information is designated as confidential at the time of disclosure and is reduced to writing by the disclosing party within a reasonable time (not to exceed thirty (30) days) after its oral disclosure, and such writing is marked in a manner to indicate its confidential nature and delivered to the receiving party. Notwithstanding the foregoing designation requirements, the source code underlying the Software shall be deemed to be Confidential Information of TRELLIX. VIA NET.WORKS and its affiliates shall also protect the confidentiality of any third party software contained in the Software in the same fashion that it is required to protect the Software itself. 10.2 Each party shall treat as confidential all Confidential Information of the other party, shall not use such Confidential Information except as set forth herein, and shall not disclose such Confidential Information to any third party. Without limiting the foregoing, each of the parties shall use at least the same degree of care which it uses to prevent the disclosure of its own confidential information of like importance to prevent the disclosure of Confidential Information disclosed to it by the other party under this Agreement, provided, however, that in no event shall such degree of care be less than reasonable in light of general industry practice. 10.3 Notwithstanding the foregoing, neither party shall have liability to the other with regard to any Confidential Information of the other which: (i) was in the public domain at the time it was disclosed or becomes in the public domain through no fault of the receiver; (ii) was known to the receiver, without restriction, at the time of disclosure as shown by the files of the receiver in existence at the time of disclosure; (iii) is disclosed with the prior written approval of the disclosure; (iv) was independently developed by the receiver without any use of the Confidential Information; (v) becomes known to the receiver, without restriction, from a source other than the discloser without breach of this Agreement by the receiver; or 14 (vi) is disclosed pursuant to the order or requirement of a court, administrative agency, or other governmental body, provided, however, that the receiver shall provide prompt notice thereof to enable the discloser to seek a protective order to otherwise prevent such disclosure. 10.4 Each party shall use all reasonable efforts, including, but not limited to, the execution of proprietary non-disclosure agreements with employees to enforce compliance with the provisions of this Section 10 by its directors, officers, employees, and any third party having access to the other party's Confidential Information. 10.5 VIA NET.WORKS and its affiliates agree to notify TRELLIX promptly in writing of the existence of any circumstances surrounding unauthorized access, disclosure, distribution, possession, alteration, transfer, reproduction or use of the Software or any portions thereof. 10.6 Each party agrees that in the event of any breach of this Section 10 by the other party hereto, there shall be no adequate remedy at law and therefore such party shall be entitled to seek injunctive and/or other equitable relief, in addition to any other remedies afforded by law. 11. INDEMNIFICATION 11.1 TRELLIX shall defend, at its expense, VIA NET.WORKS and its affiliates from and against claims brought by third parties alleging that the Software infringes any (i) patent issued on or before the Effective Date, (ii) trademark issued on or before the Effective Date, (iii) copyright, or (iv) trade secret, and shall indemnify VIA NET.WORKS against all damages assessed against VIA NET.WORKS as part of a final judgment or settlement thereof. In addition, should the Software become, or in TRELLIX's opinion be likely to become, the subject of a claim of infringement, TRELLIX shall (a) obtain for VIA NET.WORKS the right to continue using the Software pursuant to the terms and conditions of this Agreement, (b) replace or modify the Software so that it becomes noninfringing but functionally equivalent, or if TRELLIX determines that neither of the foregoing is commercially reasonable, (c) provide for the return to VIA NET.WORKS of an amount equal to the fees paid by VIA NET.WORKS to TRELLIX for all copies of the Software subject to the claim of infringement, provided that VIA NET.WORKS and its affiliates returns to TRELLIX all such copies in its possession, upon which the licenses granted for the Software in this Agreement in the infringing jurisdiction shall terminate. Such indemnification obligation shall not apply to any claim based on (A) software not claimed to be owned or developed by or on behalf of TRELLIX, (B) the combination of the Software with other products not claimed to be owned or developed by or on behalf of TRELLIX, (C) software supplied by TRELLIX in accordance 15 with VIA NET.WORKS designs, specifications, or instructions, or (D) arising from the failure of VIA NET.WORKS and its affiliates to use updated Software provided by TRELLIX for avoiding such infringement. 11.2 If VIA NET.WORKS seeks indemnification pursuant to this Section 11 from or against the assertion of any claim by a third person (a "Third Person Assertion"), it shall give prompt notice to TRELLIX, provided, -------- however, that failure to give prompt notice will not relieve TRELLIX ------- of any liability hereunder (except to the extent that TRELLIX has suffered actual material prejudice by such failure). 11.3 Within ten (10) business days of receipt of notice from VIA NET.WORKS or its affiliates pursuant to Section 11.2 hereof, TRELLIX shall have the right, exercisable by written notice to VIA NET.WORKS, to assume the defense of a Third Person Assertion. If TRELLIX assumes such defense, TRELLIX may select counsel, which shall be reasonably acceptable to VIA NET.WORKS. 11.4 If TRELLIX (a) does not assume the defense of any Third Person Assertion in accordance with Section 11.3 hereof; (b) having so assumed such defense, unreasonably fails to defend against such Third Person Assertion; or (c) has been advised by the written opinion of counsel to VIA NET.WORKS that the use of the same counsel to represent both TRELLIX and VIA NET.WORKS would present a conflict of interest, then, upon ten (10) days' written notice to TRELLIX, VIA NET.WORKS may assume the defense of such Third Person Assertion. In such event, VIA NET.WORKS shall be entitled under this Section 11 as part of its damages to indemnification for the costs of such defense. 11.5 The party controlling the defense of a Third Person Assertion, will have the right to consent to the entry of judgment with respect to, or otherwise settle, such Third Person Assertion with the prior written consent of the other party, which consent shall not be unreasonably withheld. 11.6 TRELLIX and VIA NET.WORKS (and each of its affiliates, as applicable) shall cooperate in the defense or prosecution of any Third Person Assertion. TRELLIX or VIA NET.WORKS, as the case may be, shall have the right to participate, at its own expense, in the defense or settlement of any Third Person Assertion. 11.7 THE FOREGOING STATES THE ENTIRE LIABILITY OF TRELLIX TO VIA NET.WORKS OR ANY OF ITS AFFILIATES AND ANY AND ALL THIRD PARTIES, WHETHER FOR DAMAGES OR OTHERWISE, FOR CLAIMS OF INFRINGEMENT OF ANY COPYRIGHT, PATENT, TRADEMARK, TRADE SECRET, OR OTHER INTELLECTUAL PROPERTY RIGHT. 11.8 If a claim has been made that the Software infringes any (i) patent, (ii) trademark, (iii) copyright, or (iv) trade secret, and to the extent that 16 TRELLIX is exposed to liability therefrom arising from VIA NET.WORKS continued use or distribution of the Software, TRELLIX may in its discretion terminate the rights and licenses granted hereunder with respect to the Software. 12. VIA NET.WORKS WARRANTY 12.1 VIA NET.WORKS represents and warrants that it has full power and authority to enter into this Agreement and to bind each of its subsidiaries hereunder, and that it and each of its subsidiaries to whom it sub-licenses the Software hereunder shall perform its respective obligations hereunder in compliance with all applicable laws and in a manner so as not to violate this Agreement or the rights of any third party. VIA NET.WORKS shall indemnify, defend, and hold TRELLIX and its subsidiaries and affiliates harmless from and against any and all liability, loss, or claim (including reasonable legal fees) resulting from any suit or proceeding that may be brought against TRELLIX or its subsidiaries and affiliates to the extent that such claims relate to the VIA NET.WORKS breach of this warranty or its obligations under this Agreement and shall indemnify TRELLIX against any loss or damage arising out of or in connection with any breach of the terms of this Agreement or any sublicense hereunder by any subsidiary of VIA NET.WORKS. 13. LIMITED WARRANTY 13.1 SOFTWARE WARRANTY: FOR A PERIOD OF 90 DAYSAFTERRECEIPT BY VIA NET.WORKS OF THE SOFTWARE (PROVIDED THAT SUCH PERIOD SHALL NOT RUN DURING ANY TIME THE SOFTWARE REQUIRES ANY MAINTENANCE PATCHES OR UPDATES) FOLLOWING THE DATE OF THIS AGREEMENT, THE SOFTWARE WILL ACHIEVE THE FUNCTIONALITY DESCRIBED IN THE DOCUMENTATION, OTHERWISE TRELLIX AND ITS SUPPLIERS MAKE NO WARRANTIES WHATSOEVER. TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRELLIX SPECIFICALLY DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES OF TITLE, MERCHANTABILITY, AND FITNESS FOR A PARTICULAR PURPOSE. NO EMPLOYEE, AGENT, DEALER, OR RESELLER IS AUTHORIZED TO MAKE ANY ADDITIONAL WARRANTIES OR MODIFY THE FOREGOING LIMITED WARRANTY. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, TRELLIX DOES NOT WARRANT THAT THE SOFTWARE WILL MEET ALL OF VIA NET.WORKS OR ITS AUTHORIZED DEALERS' OR END-USERS' REQUIREMENTS; WILL OPERATE IN ALL OF THE COMBINATIONS WHICH MAY BE SELECTED FOR USE BY THE VIA NET.WORKS OR ITS AUTHORIZED DEALERS OR END- 17 USERS; OR THAT THE OPERATION OF THE SOFTWARE WILL BE ERROR FREE OR UNINTERRUPTEDVIA NET.WORKS HEREBY WAIVES ALL WARRANTIES OR CONDITIONS NOT SPECIFICALLY SET FORTH HEREIN. The Software is Year 2000 compliant. Year 2000 compliance means that the product, when used in accordance with its documentation, will be capable upon installation of accurately processing, providing and/or receiving date data from, into and between the 20th and 21st centuries, including the years 1999 and 2000 and leap year calculations, through 2035. This Year 2000 compliance definition does not apply to the extent that the Software interoperates or exchange date-related data with other software, hardware, firmware, or data that is not Year 2000 compliant. 13.2 THIRD PARTY HARDWARE WARRANTY: Any Third Party Hardware is subject to the Third Party Hardware manufacturer's warranty terms and conditions. TRELLIX is not responsible for and makes no warranties with respect to any Third Party Hardware. 13.3 TRELLIX represents and warrants that it has full power and authority to enter into this Agreement, and that it shall perform its obligations hereunder in compliance with all applicable laws and in a manner so as not to violate the rights of any third party. TRELLIX shall indemnify, defend, and hold VIA NET.WORKS and its subsidiaries and affiliates harmless from and against any and all liability, loss, or claim (including reasonable legal fees) resulting from any suit or proceeding that may be brought against VIA NET.WORKS or its subsidiaries and affiliates to the extent that such claims relate to the TRELLIX breach of this warranty or its obligations under this Agreement. 13.4 TRELLIX warrants that it owns all rights and interest in and to the Software (including but not limited to all intellectual property and marketing and distributing rights) as is necessary to provide VIA NET.WORKS with the license rights set forth herein. 14. LIMITATION OF LIABILITY 14.1 TO THE EXTENT PERMITTED BY APPLICABLE LAW, AND EXCEPT FOR DAMAGES ARISING OUT OF EITHER PARTY'S BREACH OF SECTIONS 2, 4.4, 4.5, 4.6, 9 and 10 OF THIS AGREEMENT, IT IS EXPRESSLY AGREED THAT EACH PARTY'S MAXIMUM LIABILITY FOR DAMAGES HEREUNDER, REGARDLESS OF THE FORM OF LEGAL ACTION, WHETHER IN CONTRACT OR IN TORT, INCLUDING NEGLIGENCE, SHALL IN 18 NO EVENT EXCEED THE UNPAID LICENSE OR OTHER FEES ACCUMULATED HEREUNDER, THE ACTUAL PAYMENTS RECEIVED BY TRELLIX OR THE SOFTWARE AND ANY SERVICES PROVIDED BY TRELLIX TO VIA NET.WORKS HEREUNDER. IN ADDITION, TO THE EXTENT PERMITTED BY APPLICABLE LAW EXCEPT FOR DAMAGES ARISING OUT OF EITHER PARTY'S BREACH OF SECTIONS 2, 4.4, 4.5, 4.6, 9 and 10 OF THIS AGREEMENT, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR (I) ANY SPECIAL, INDIRECT, CONSEQUENTIAL, INCIDENTAL, PUNITIVE, OR MULTIPLE DAMAGES, INCLUDING, WITHOUT LIMITATION, LOSS OF PROFITS, LOSS OF REVENUE, OR LOSS OF DATA, EVEN IF ADVISED OF THE POSSIBILITY THEREOF, (II) ANY CLAIM AGAINST VIA NET.WORKS BY ANY THIRD PARTY, EXCEPT AS PROVIDED IN SECTION 11 ABOVE, OR (III) ANY DAMAGES WHATSOEVER RESULTING FROM A FORCE MAJEURE, AN ACT OF A THIRD PARTY, OR CIRCUMSTANCES INVOLVING NO FAULT ON EITHER PARTIES BEHALF. THE FOREGOING SHALL NOT IN ANY WAY LIMIT THE LIABILITY OF EITHER PARTY HERETO RELATING TO DAMAGES ARISING OUT OF EITHER PARTY'S BREACH OF SECTIONS 2, 4.4, 4.5, 4.6, 9 and 10 OF THIS AGREEMENT. 15. TERMINATION 15.1 This Agreement shall continue in full force and effect for twelve (12) months from the Effective Date unless earlier terminated in accordance with this Section 15. Thereafter, this Agreement shall renew automatically for additional one year term(s) unless written notice of nonrenewal is given by a party hereto at least thirty (30) days prior to the expiration of the initial or any renewal term. 15.2 Either party may terminate this Agreement in the event of a material breach of this Agreement by the other party, which breach is not cured within thirty (30) days after written notice by the non-breaching party. Notwithstanding the foregoing, the Company may terminate this Agreement immediately without a cure period in the event that VIA NET.WORKS or any of its affiliates breaches Sections 4.4, 9.1 and 10 hereof. 15.3 Subject to Section 15.7 hereof, upon any expiration or termination of this Agreement, VIA NET.WORKS and each of its affiliates shall promptly (i) discontinue all use of the Software; (ii) erase or destroy any Software contained in any software cartridge, computer memory or data storage apparatus under the control of VIA NET.WORKS and its affiliates; (iii) return to TRELLIX all tangible copies of the Software in VIA 19 NET.WORKS and its affiliates possession; (iv) cease to use the trademarks, trade names, and commercial markings of TRELLIX; (v) advise any customers who seek to obtain the Software from VIA NET.WORK that VIA NET.WORKS is no longer authorized to market and distribute or support the Software; and (vi) at the request of TRELLIX certify in writing to TRELLIX, within thirty (30) days after receipt of such notice that VIA NET.WORKS and its affiliates have complied with the foregoing. 15.4 The expiration or termination of this Agreement shall be without prejudice to the rights of End-Users to continue to use the Software in accordance with the terms of the End-User License Agreements with TRELLIX. 15.5 Sections 1, 9, 10, 13, 16, and 17, hereof shall survive any expiration or termination of this Agreement. In addition, any payment obligations of a party hereto outstanding as of the date of any expiration or termination of this Agreement shall survive such expiration or termination. 15.6 Notwithstanding anything contained herein to the contrary, the license granted to VIA NET.WORKS pursuant to Section 2.2 hereof shall survive so long as any End-User of VIA NET.WORKS continues to use the Software and VIA NET.WORKS continues to pay the Hosting Bounty with respect to such End User. Thereafter VIA NET.WORKS shall be required to fully comply with Section 15.3 hereof. 16. MISCELLANEOUS 16.1 The parties agree that any notice which is required to be given hereunder shall be in writing in the English language and shall be delivered by courier service or mailed by prepaid registered post addressed to the parties at their respective addresses as provided herein. 16.2 Any waiver of any term or condition of this Agreement shall only be deemed to have been made if expressed in writing by the party granting such waiver. The failure or neglect by either party to enforce, in any one or more instances, any of the terms and conditions of this Agreement shall not be construed as a waiver of the future performance of any such term or condition, or any other terms or conditions of this Agreement. 16.3 In the event that a particular provision of this Agreement is held by a court of competent jurisdiction to be invalid, such provision shall be severed from the Agreement and shall not affect the validity of this Agreement as a whole or any of its other provisions. The parties hereto agree to replace such invalid provision with a new provision that has the most nearly similar permissible, economic, or other effect. 16.4 Except for payment obligations, neither party shall be liable or deemed to be in default for any delay or failure in performance under this Agreement or interruption of services resulting directly or indirectly from acts of God, 20 civil or military authority, war, riots, civil disturbances, accidents, fire, earthquakes, flood, strikes, lockouts, labor disturbances, court or governmental order, or any other cause beyond the reasonable control of such party. Each party agrees to provide the other with notice upon becoming aware of an event of force majeure, such notice to contain details of the circumstances giving rise to the event of force majeure. If a default due to an event of force majeure shall continue for more than twelve (12) consecutive weeks, then the party not in default shall be entitled to terminate this Agreement. Except for payment obligations, neither party shall have any liability whatsoever to the other in respect to the termination of this Agreement as a result of an event of force majeure. 16.5 This Agreement shall be construed in accordance with and governed by the laws of the Commonwealth of Massachusetts without regard to conflict of law rules which would cause the laws of any other jurisdiction to apply The parties hereto expressly exclude the application of the United Nations Convention on Contracts for the International Sale of Goods from this Agreement and any transaction that may be entered into between the parties in connection with this Agreement. 17. ASSIGNMENT 17.1 This Agreement is for the benefit of and shall bind the parties hereto and their respective successors and assigns, provided, however, that neither this Agreement nor any rights or obligations hereunder may be assigned or otherwise transferred, in whole or in part, by either party hereto or to any third party without prior written consent. 18. ENTIRE AGREEMENT 18.1 This Agreement and each Appendix attached hereto (each of which is incorporated herein by reference) constitutes the entire understanding between the parties, and supersedes all prior discussions, representations, understandings or agreements whether oral or in writing between the parties with respect to the subject- matter of this Agreement. In the event of any inconsistency between the main body of this Agreement and any Appendix, the terms and conditions of the main body shall prevail. Any modification or amendment to this Agreement must be in writing signed by and on behalf of both parties, provided, however, that the forms of End-User License Agreements may be amended solely by TRELLIX. 19. FURTHER ASSURANCES 20.1 Each party hereto shall execute, acknowledge, and deliver, or cause to be executed, acknowledged, and delivered, such instruments and take such other action as may be necessary or advisable to carry out its obligations hereunder and to implement the terms and conditions of this Agreement. 20. HEADINGS 21 21.1 The headings in this Agreement are for convenience of reference only and shall have no bearing on the construction or interpretation of this Agreement. 21. COUNTERPARTS 21.1 This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument. 22 IN WITNESS WHEREOF the parties have executed this Agreement by their duly authorized representatives as of the Effective Date. TRELLIX CORPORATION VIA NET.WORKS, INC. /s/ Don Bulens /s/ Matt Nydell - ----------------------- ------------------------------- (Authorized Signature) (Authorized Signature) Don Bulens Matt Nydell - ----------------------- ------------------------------- (Name in Print) (Name in Print) President and Chief Vice Pres., General Counsel Executive Officer and Secretary - ----------------------- ------------------------------- (Title) (Title) June 30, 1999 June 30, 1999 - ----------------------- ------------------------------- (Date) (Date) 23 Appendix A ---------- Territory - Worldwide Software - Trellix Web for VIA NET.WORKS 24 Appendix B ---------- End User License Agreement 25 Appendix C ---------- [Support policy and Standards] 26 Schedule I ----------
Section Reference Item Description ================================================================================ 1.11 Hosting Bounty VIA NET.WORKS will provide TRELLIX a monthly Reporting report containing that information described in Attachment A. The report will identify the location of all web sites hosted by VIA NET.WORKS that, at such time qualify for bounty payments. VIA NET.WORKS may from time to time update the report to reflect accounts with discontinued service as long as an audit trail is maintained for verification by TRELLIX or a third party. Discontinued service includes but is not limited to web sites discontinued by the End-User, web sites discontinued by VIA NET.WORKS for non-payment, or web sites not then maintained using the TRELLIX software. 4.1 Marketing Costs To be furnished under separate cover 4.10 Trellix Trademark To be furnished under separate cover and Tradenames 4.11 Trellix Trademark To be furnished under separate cover and Tradenames 8.1 Product Royalty The Product Royalty shall be $0.00 for so long as VIA NET.WORKS distributes the Software for free; thereafter, the Product Royalty shall be 90% of the license fee for the Software charged by VIA NET.WORKS. If VIA NET.WORKS `bundles' the Software with other software and VIA NET.WORKS charges for such bundled software product, the Product Royalty shall be agreed between TRELLIX and VIA NET.WORKS prior to distribution. 8.2 TRELLIX The Trellix Hosting Bounty shall be due and Hosting Bounty payable to TRELLIX every other month beginning with the first day of the second month after the effective date of this Agreement. Except for the first payment which shall cover the first month
27 after the effective date, each bi-monthly payment will cover the two month period beginning three months prior to the due date. For each site created with Trellix Web VNE, in whole or in part, or with other versions of TRELLIX that has one-step publish to VIA NET.WORKS companies, VIA NET.WORKS will pay TRELLIX for as long as the site is hosted on VIA NET.WORKS hosting service a commission as follows: [See attached] 8.3 Participation Fee If, within 30 days of the date of this Agreement, VIA NET.WORKS is selected by Hewlett Packard as the preferred Trellix Web Hosting Partner for versions of the Software to be bundled on Hewlett Packard machines, VIA NET.WORKS shall pay to Trellix $50,000. $10,000 of this Participation Fee shall be credited against the TRELLIX Hosting Bounty as it becomes due and payable. 8.4 VIA NET.WORKS U-NET Limited; Artinternet S.A., GTN mBH Subsidiaries
28 FEE SCHEDULE As of the date of this Agreement, the Interbank exchange rate for Dollars to Euros is .9681 As of the date of this Agreement, the Interbank exchange rate for GBP ((Pounds)) to Euros is 1.5389 As of the date of this Agreement, the Interbank exchange rate for to GBP ((Pounds)) to US$ is 1.5885 For each package of Web-hosting services offered by a VIA NET.WORKS subsidiary to End-Users, VIA NET.WORKS shall pay TRELLIX as follows:
- -------------------------------------------------------------------------------- Web-Hosting Bounty Fee (monthly) - -------------------------------------------------------------------------------- One Year/ Annual End-User US$ Euro GBP ((Pounds)) charge equivalent equivalent equivalent - -------------------------------------------------------------------------------- *(Pounds)250/Euro 307.78 15% annual 15% annual 15% annual charge charge charge - -------------------------------------------------------------------------------- (Pounds)$200-250/Euro 307.78- 5 4.8405 3.147 -384.725________ - -------------------------------------------------------------------------------- **(Pounds)200/Euro307.78 4 3.8724 2.518 - --------------------------------------------------------------------------------
* More than ** Less than The Euro equivalent for charges and Web-Hosting Bounty fee shall be applicable for Euro compliant countries, GBP equivalent for the UK, and US$ equivalent for all others. The Web-Hosting Bounty Fee shall be payable by VIA NET.WORKS to TRELLIX as noted above in US$ only. The amount payable shall be determined by calculating the aggregate monthly fees payable by VIA NET.WORKS subsidiaries in the appropriate currencies as noted in the chart above and applying the Euro to Dollar and GBP to Dollar Interbank exchange rate (as applicable) in effect as of five (5) business days prior to each date the Web-Hosting Bounty Fee is due and payable to TRELLIX. VIA NET.WORKS shall make payment to TRELLIX by wire transfer to the TRELLIX bank with the following wire instructions: - -------- - -------- At the request of either party, the US Dollar/Euro/GBP exchange rate will be reviewed on a quarterly basis to determine whether any adjustments to the above table should be made to account for material changes in currency equivalencies in order to ensure that the economics of this Agreement do not materially change for either party. 29 Attachment A Trellix Web WPP Provisioning Information - ---------------------------------------- This document outlines the data that is required to be sent to Trellix on a monthly basis to record sites created by the software hosted on VIA companies Servers. . WPP must provide a Web site for the user to sign-up. This is a Trellix branded Web site . WPP must also give us a Publish URL: Used to publish end user site . WPP must also provide us a URL where we can go to review the usage log Usage Log Any user interaction needs to be logged. This includes both Sign-up and Publish. Publish will be logged twice, once at the beginning of Publish and once at the end. The log is used for accounting or audit purposes, and is also a place that we can identify possible technical problems. The log should be a comma delimited format that is acceptable to MS Access. The log format should be as follows: . Date/time stamp: date and time transaction completed . Site name: end user or WPP assigned domain name . Event: 0 = register, 1 = start publish, 2 = end publish . SKU: Trellix SKU identifying version and language 30 EX-10.11 9 AMENDED AND RESTATED STOCKHOLDERS AGREEMENT EXHIBIT 10.11 Execution Copy AMENDED AND RESTATED STOCKHOLDERS AGREEMENT This Amended and Restated Stockholders Agreement (this "Agreement") dated as of April 20, 1999 by and among (i) VIA Net Works, Inc., a Delaware corporation formerly known as "V-I-A Internet, Inc." (the "Company"), (ii) the ------- holders of the Company's Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock identified on the signature pages hereto (the "Investors"), and (iii) the members of the Company's management that have --------- previously agreed or subsequently agree to be bound by the provisions hereof (the "Management Holders"). The Investors and the Management Holders are ------------------ referred to collectively as the "Stockholders". ------------ Certain of the Investors and the Company are parties to a Series A Preferred Stock Purchase Agreement dated August 27, 1997, a Series B Preferred Stock Purchase Agreement dated May 20, 1998 and an Amended and Restated Stockholders Agreement dated as of May 20, 1998 (the "Prior Stockholder ----------------- Agreement"). The Prior Stockholder Agreement is hereby superseded in its - --------- entirety by this Agreement. Certain of the Investors and the Company are parties to a Series C Preferred Stock Subscription Agreement dated as of the date hereof (the "Series ------ C Subscription Agreement"). Such Investors' obligations under the Series C - ------------------------ Subscription Agreement are conditioned upon the execution and delivery of this Agreement by the Stockholders and the Company. NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the parties agree as follows: ARTICLE I CERTAIN DEFINITIONS As used in this Agreement, the following terms shall have the following respective meanings: 1.1 "Affiliate" of a Person means any other Person that controls, is --------- controlled by, or is under common control with, such Person. 1.2 "Closing" shall mean the date of the initial sale of shares of ------- the Company's Series C Preferred Stock pursuant to the Series C Subscription Agreement. 1 1.3 "Commission" shall mean the Securities and Exchange Commission or ---------- any other federal agency at the time administering the Securities Act. 1.4 "Common Stock" shall mean, collectively, the Company's Common ------------ Stock, $.001 par value per share, and Nonvoting Common Stock, $.001 par value per share. 1.5 "Convertible Preferred" shall mean, collectively, the Series A --------------------- Preferred Stock, Series B Preferred Stock and Series C Preferred Stock. 1.6 "Exchange Act" shall mean the Securities Exchange Act of 1934 (or ------------ any similar successor federal statute), as amended, and the rules and regulations thereunder, all as the same shall be in effect from time to time. 1.7 "Initiating Holders" shall mean holders of Registrable Securities ------------------ representing, in the case of a Long-Form Registration, not less than 25% of the then-outstanding Registrable Securities and, in the case of a Short-Form Registration, not less than 10% of the then-outstanding Registrable Securities. 1.8 "Investor Stock" shall mean (i) shares of Common Stock owned by -------------- the Investors or any transferee thereof; (ii) shares of Common Stock issued or issuable upon the conversion or exercise of any stock (including, without limitation, the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock), warrants, options or other securities of the Company owned by the Investors or any transferee thereof; and (iii) any shares of Common Stock issued as a dividend or other distribution with respect to or in exchange for or in replacement of the shares referenced in (i) and (ii) above. 1.9 "Management Stock" shall mean (i) those shares of Common Stock ---------------- owned by any Management Holder or any Permitted Transferee (other than shares issued prior to the date hereof which such Management Holder has not otherwise agreed are subject to this Agreement), (ii) shares of Common Stock issued or issuable upon the conversion or exercise of any options or other securities of the Company owned by the Management Holders; and (iii) any shares of Common Stock issued as a dividend or other distribution with respect to or in exchange for or in replacement of the shares referenced in (i) and (ii) above. 1.10 "Permitted Transferee" shall mean, (i) with respect to a -------------------- Management Holder, a member of such Management Holder's immediate family, a trust established for the benefit of members of such Management Holder's immediate family, or a transferee of such Management Holder by will or the laws of intestate succession, and (ii) with respect to a holder of Investor Stock, any Affiliate of such Stockholder or any partner, shareholder or other equity owner of such Stockholder. 1.11 "Person" shall mean any individual, partnership, corporation, ------ limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority or other entity of whatever nature. 2 1.12 "Qualified Public Offering" shall mean an underwritten public ------------------------- offering of Common Stock resulting in proceeds to the Company of not less than $50.0 million (prior to expenses and underwriting commissions) and at an offering price per share equal to at least $12.00 (as appropriately adjusted for future stock splits, stock dividends, recapitalizations and similar transactions affecting the Common Stock). 1.13 "Registrable Securities" shall mean the Investor Stock; provided, ---------------------- however, that Registrable Securities shall not include any shares of Investor Stock that have previously been sold pursuant to an effective registration statement under the Securities Act or that have otherwise been sold to the public in an open-market transaction under Rule 144. 1.14 The terms "registers," "registered" and "registration" shall --------- ---------- ------------ refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act and the declaration or ordering of the effectiveness of such registration statement by the Commission. 1.15 "Registration Expenses" shall mean all expenses incurred in --------------------- effecting any registration pursuant to this Agreement, including without limitation all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, blue sky fees and expenses, expenses of any regular or special audits incident to or required by any such registration, and the fees and expenses of one counsel for the selling holders of Registrable Securities, but excluding Selling Expenses. 1.16 "Rule 144" shall mean Rule 144 as promulgated by the Commission -------- under the Securities Act, as such Rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission. 1.17 "Securities Act" shall mean the Securities Act of 1933 (or any -------------- similar successor federal statute), as amended, and the rules and regulations thereunder, all as the same shall be in effect from time to time. 1.18 "Selling Expenses" shall mean all underwriting discounts and ---------------- selling commissions applicable to the sale of Registrable Securities. 1.19 "Series A Preferred Stock" shall mean the Company's Series A ------------------------ Preferred Stock, $.001 par value per share. 1.20 "Series B Preferred Stock" shall mean, collectively, the ------------------------ Company's Series B-1 Preferred Stock, $.001 par value per share, and Series B-2 Preferred Stock, $.001 par value per share. 3 1.21 "Series C Preferred Stock" shall mean, collectively, the ------------------------ Company's Series C-1 Preferred Stock, $.001 par value per share, and Series C-2 Preferred Stock, $.001 par value per share. ARTICLE II REGISTRATION RIGHTS 2.1 Demand Registrations. -------------------- (a) Request for Registration. At any time or times after the ------------------------ effective date of the first registration statement filed by the Company under the Securities Act, the Initiating Holders may require that the Company effect a registration under the Securities Act (i) in the case of a requested registration on Form S-1 or any similar form (a "Long Form Registration"), with ---------------------- respect to at least ten percent (10%) of the Registrable Securities then outstanding, or (ii) in the case of a requested registration on Form S-3 or any similar form, if available (a "Short-Form Registration"), with respect to ----------------------- Registrable Securities with an anticipated offering price of $5,000,000 or more (each a "Demand Registration"). Upon receipt of written notice of such demand, ------------------- the Company will promptly give written notice of the proposed registration to all other holders of Registrable Securities and will include in such registration all Registrable Securities specified in such demand, together with all Registrable Securities of any other holder of Registrable Securities joining in such demand as are specified in a written request received by the Company within twenty (20) days after delivery of the Company's notice. (b) Deferral of Demand Registration. The Company shall file a ------------------------------- registration statement with respect to each Demand Registration requested pursuant to Section 2.1 (a) as soon as practicable after receipt of the demand of the Initiating Holders; provided, however, that if in the good faith judgment of the Board of Directors of the Company, such registration would be seriously detrimental to the Company in that such registration would interfere with a proposed primary registration of securities by the Company or any other material corporate transaction and the Board of Directors concludes, as a result, that it is advisable to defer the filing of such registration statement at such time (as evidenced by an appropriate resolution of the Board), then the Company shall have the right to defer such filing for the period during which such registration would be seriously detrimental; provided, however, that (x) the Company may not defer the filing for a period of more than one hundred eighty (180) days after receipt of the demand of the Initiating Holders, (ii) the Company shall not exercise its right to defer a Demand Registration more than once, and (iii) if the Company undertakes a primary registration following an exercise of its deferral right, the holders of Registrable Securities shall have "piggyback" rights under Section 2.2 hereof with respect to not less than one- third (1/3) of the number of shares of Common Stock to be sold in such offering. (c) Underwriting. If the Initiating Holders intend to distribute the ------------ Registrable Securities covered by a Demand Registration by means of an underwriting, they shall so advise the Company as a part of their demand made pursuant to Section 2.1 and the Company shall include such information in its written notice to holders of Registrable Securities. The Initiating Holders shall have the right to select the managing underwriter(s) for an underwritten Demand Registration, subject to the approval of the Company's Board of Directors (which will not be unreasonably withheld or delayed). The right of any 4 holder of Registrable Securities to participate in an underwritten Demand Registration shall be conditioned upon such holder's participation in such underwriting in accordance with the terms and conditions thereof, and the Company and such holders will enter into an underwriting agreement in customary form. (d) Priorities. The holders of Registrable Securities will have ---------- absolute priority over any other securities included in a Demand Registration. If other securities are included in any Demand Registration that is not an underwritten offering, all Registrable Securities included in such offering shall be sold prior to the sale of any of such other securities. If other securities are included in any Demand Registration that is an underwritten offering, and the managing underwriter for such offering advises the Company that in its opinion the amount of securities to be included exceeds the amount of securities which can be sold in such offering without adversely affecting the marketability thereof, the Company will include in such registration all Registrable Securities requested to be included therein prior to the inclusion of any other securities. If the number of Registrable Securities requested to be included in such registration exceeds the amount of securities which in the opinion of such underwriter can be sold without adversely affecting the marketability of such offering, such Registrable Securities shall be included pro rata among the holders thereof based on the percentage of the outstanding Common Stock held by each such Stockholder (assuming the conversion of the Convertible Preferred and the exercise of all options, warrants and similar rights held by such Stockholder). 2.2 Piggyback Registrations ----------------------- (a) Request for Inclusion. If the Company shall determine to --------------------- register any of its securities for its own account or for the account of other security holders of the Company on any registration form (other than Form S-4 or S-8) which permits the inclusion of Registrable Securities (a "Piggyback --------- Registration"), the Company will promptly give each holder of Registrable - ------------ Securities written notice thereof and, subject to Section 2.2(c), shall include in such registration all the Registrable Securities requested to be included therein pursuant to the written requests of holders of Registrable Securities received within twenty (20) days after delivery of the Company's notice. (b) Underwriting. If the Piggyback Registration relates to an ------------ underwritten public offering, the Company shall so advise the holders of Registrable Securities as a part of the written notice given pursuant to Section 2.2(a). In such event, the right of any holder of Registrable Securities to participate in such registration shall be conditioned upon such holder's participation in such underwriting in accordance with the terms and conditions thereof. All holders of Registrable Securities proposing to distribute their securities through such underwriting shall (together with the Company) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected by the Company. (c) Priorities. If such proposed Piggyback Registration is an ---------- underwritten offering and the managing underwriter for such offering advises the Company that the securities requested to be included therein exceeds the amount of securities that can be sold in such offering without adversely affecting the marketability thereof, except as provided in Section 2.1(b), any securities to be sold by the Company in such offering shall have priority over any Registrable Securities, and the Registrable Securities to be sold in such 5 offering shall have priority over any other securities. In the event that less than all the Registrable Securities proposed to be sold are included in such registration as a result of the priorities set forth in this Section 2.2(c), the number of shares to be included by a holder of Registrable Securities in such registration shall be reduced pro rata on the basis of the percentage of the outstanding Common Stock held by such Stockholder (assuming the conversion of the Convertible Preferred and the exercise of all options, warrants and similar rights held by such Stockholder) and all other holders exercising similar registration rights. The Company shall not grant any registration rights that entitle the holders of other securities to any priority over the Registrable Securities in any Piggyback Registration without the prior consent of the holders of a majority or more of the then-outstanding Registrable Securities. 2.3 Expenses of Registration. All Registration Expenses incurred in ------------------------ connection with up to two Long-Form Registrations and all Short-Form and Piggyback Registrations shall be borne by the Company; provided, however, that (x) no registration shall count as one of the Company-paid Long Form Registrations unless the holders of Registrable Securities are able to register and sell at least 90% of the Registrable Securities requested to be included therein, and (y) the holders of Registrable Securities shall be entitled to additional Long-Form Registrations so long as such holders agree to bear all Registration Expenses associated therewith. All Selling Expenses relating to Registrable Securities included in any Demand or Piggyback Registration shall be borne by the holders of such securities pro rata on the basis of the number of shares sold by them. 2.4 Registration Procedures. In the case of each registration ----------------------- effected by the Company pursuant to this Article II, the Company will keep each holder of Registrable Securities advised in writing as to the initiation of such registration and as to the completion thereof. At its expense, the Company will use its best efforts to: (a) cause such registration to be declared effective by the Commission and, in the case of a Demand Registration, keep such registration effective for a period of one hundred eighty (180) days or until the holders of Registrable Securities included therein have completed the distribution described in the registration statement relating thereto, whichever first occurs; (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement (including post-effective amendments) as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement; (c) obtain appropriate qualifications of the securities covered by such registration under state securities or "blue sky" laws in such jurisdictions as may be requested by the holders of Registrable Securities; provided, however, that the Company shall not be required to file a general consent to service of process in any jurisdiction in which it is not otherwise subject to service in order to obtain any such qualification; 6 (d) furnish such number of prospectuses and other documents incident thereto, including any amendment of or supplement to the prospectus, as a holder of Registrable Securities from time to time may reasonably request; (e) notify each holder of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing, and at the request of any such holder, prepare and furnish to such holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing; (f) cause all Registrable Securities covered by such registration to be listed on each securities exchange or inter-dealer quotation system on which similar securities issued by the Company are then listed; (g) provide a transfer agent and registrar for all Registrable Securities covered by such registration and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration; (h) otherwise comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than 18 months, beginning with the first month after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act; and (i) in connection with any underwritten Demand Registration, the Company will enter into an underwriting agreement reasonably satisfactory to the Initiating Holders containing customary underwriting provisions, including indemnification and contribution provisions. 2.5 Indemnification. --------------- (a) The Company will indemnify each holder of Registrable Securities, each of such holder's officers, directors, partners, agents, employees and representatives, and each person controlling such holder within the meaning of Section 15 of the Securities Act, with respect to each registration, qualification or compliance effected pursuant to this Article II, against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular or other 7 document (including any related registration statement, notification or the like) incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of the Securities Act or any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance, and will reimburse each such indemnified person for any legal and any other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by such holder of Registrable Securities and stated to be specifically for use therein. It is agreed that the indemnity agreement contained in this Section 2.5(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent has not been unreasonably withheld). (b) Each holder of Registrable Securities included in any registration effected pursuant to this Article II shall indemnify the Company, each of its directors, officers, agents, employees and representatives, and each person who controls the Company within the meaning of Section 15 of the Securities Act, each other participating holder of Registrable Securities and each of their officers, directors and partners, and each person controlling such holders, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse such indemnified persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in strict conformity with written information furnished to the Company by such holder of Registrable Securities; provided, however, that (x) no holder of Registrable Securities shall be liable hereunder for any amounts in excess of the net proceeds received by such holder pursuant to such registration, and (y) the obligations of such holder of Registrable Securities hereunder shall not apply to amounts paid in settlement of any such claims, losses, damages or liabilities (or actions in respect thereof) if such settlement is effected without the consent of such holder (which consent has not been unreasonably withheld). (c) Each party entitled to indemnification under this Section 2.5 (the "Indemnified Party") shall give notice to the party required to provide ----------------- indemnification (the "Indemnifying Party") promptly after such Indemnified Party ------------------ has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom through counsel approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense; provided, however, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 2.5 to the extent such failure is not prejudicial. No Indemnifying Party in the defense of any such claim or litigation shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does 8 not include an unconditional release of such Indemnified Party from all liability in respect to such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with defense of such claim and litigation resulting therefrom. (d) If the indemnification provided for in this Section 2.5 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions which resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. Notwithstanding the foregoing, no holder of Registrable Securities shall be required to contribute amounts in excess of the amounts that such holder would have been required to pay pursuant to the indemnification provisions of this Section 2.5 (assuming such provisions were enforceable). (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in an underwriting agreement entered into in connection with an underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. 2.6 Other Obligations. With a view to making available the benefits ----------------- of certain rules and regulations of the Commission that may effectuate the registration of Registrable Securities or permit the sale of Registrable Securities to the public without registration, the Company agrees to: (a) after its initial registration under the Securities Act, exercise best efforts to cause the Company to be eligible to utilize Form S-3 (or any similar form) for the registration of Registrable Securities; (b) at such time as any Registrable Securities are eligible for transfer under Rule 144(k), upon the request of the holder of such Registrable Securities, remove any restrictive legend from the certificates evidencing such securities at no cost to such holder; (c) make and keep available public information as defined in Rule 144 under the Securities Act at all times from and after ninety (90) days following its initial registration under the Securities Act; 9 (d) file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act at any time after it has become subject to such reporting requirements; (e) furnish any holder of Registrable Securities upon request a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time from and after ninety (90) days following the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents as a holder of Registrable Securities may reasonably request in availing itself of any rule or regulation of the Commission (including Rule 144A) allowing a holder of Registrable Securities to sell any such securities without registration. 2.7 Hold-Back Agreements. If requested by the Company or any -------------------- underwriter of Common Stock of the Company, a holder of Registrable Securities shall not sell or otherwise transfer or dispose of any Common Stock (other than pursuant to such registration) during (a) in the case of the Company's initial public offering of Common Stock for its own account, the one hundred eighty (180) day period following the effective date of such registration statement, and (b) in the case of all subsequent registrations of the Company's Common Stock, the ninety (90) day period following the effective date of such registration statement; provided, however, that if holders of Management Stock are subjected to hold-back restrictions of shorter duration, such shorter periods shall apply to holders of Registrable Securities. The obligations described in this Section 2.7 shall not apply to a registration on Form S-4 or Form S-8 or similar forms which may be promulgated in the future and, except in the case of the Company's initial public offering, shall not apply to a holder of Registrable Securities representing less than one percent (1%) of the then- outstanding Common Stock. 2.8 Termination of Registration Rights. The right of any holder of ---------------------------------- Registrable Securities to request inclusion of Registrable Securities in any registration pursuant to this Article II shall terminate when (i) all Registrable Securities beneficially owned by such holder of Registrable Securities may immediately be sold under Rule 144(k), and (ii) the Company's Common Stock is listed on a national securities exchange or traded in The Nasdaq Stock Market; provided, however, that the provisions of this Section 2.8 shall not apply to any holder of Registrable Securities representing more than two percent (2%) of the then-outstanding Common Stock. ARTICLE III TRANSFER RESTRICTIONS 3.1 Prohibition on Transfer. No Stockholder shall sell, transfer, ----------------------- assign, pledge or otherwise dispose of any interest in any Common Stock (a "Transfer") other than in compliance with this Article III. Each Stockholder -------- agrees not to consummate any Transfer (other than a Transfer to a Permitted Transferee pursuant to Section 3.4) until the expiration of a 30-day period (the "Election Period") following --------------- 10 delivery by such Stockholder of a Sale Notice pursuant to Section 3.2 or an Offer Notice pursuant to Section 3.3, as applicable. 3.2 Right of First Refusal. If at any time a Management Holder ---------------------- receives a bona fide offer from any person to purchase shares of Common Stock held by such Management Holder (a "Third-Party Offer"), such Management Holder ----------------- shall cause such Third-Party Offer to be reduced to writing and shall notify the Company and each holder of Investor Stock of such Management Holder's desire to accept the Third-Party Offer. The Management Holder's notice (the "Sale ---- Notice") shall contain an irrevocable offer to sell such Common Stock to the - ------ Company at a purchase price equal to the price contained in, and on the same terms and conditions of, the Third-Party Offer and shall be accompanied by a true copy of the Third-Party Offer (which shall identify the offeror). At any time within 20 days after the date of receipt by the Company of the Sale Notice, the Company shall have the right, exercisable by delivery of written notice to the transferring Stockholder, to purchase all or any portion of the Common Stock covered by the Sale Notice at the same price and on the same terms and conditions as the Sale Notice. In the event that the Company does not elect to acquire all of the Common Stock specified in the Sale Notice, each holder of Investor Stock shall have the right, exercisable by delivery of written notice to the transferring Stockholder prior to the expiration of the Election Period, to purchase all or any portion of its pro rata share (equal to such electing Stockholder's percentage interest in the outstanding Investor Stock) of the remaining shares covered by the Sale Notice. The Company or the holders of Investor Stock may pay cash to the selling Management Holder equal in amount to the fair market value of any non-cash consideration offered in the Third-Party Offer. If the Company and/or the holders of Investor Stock have not notified the selling Management Holder in writing of their election to purchase all shares of such Common Stock as set forth herein prior to the expiration of the Election Period, the selling Management Holder may within 60 days thereafter sell the balance of such Common Stock not purchased by the Company and/or the holders of Investor Stock on the terms set forth in the original Third-Party Offer. Any Management Stock covered by the Third Party Offer that is not so transferred during such 60-day period shall again be subject to this Section 3.2. 3.3 Right of First Offer. Prior to any Transfer of Investor Stock, -------------------- the transferring Stockholder shall deliver a written notice (the "Offer Notice") ------------ to the Company and the other holders of Investor Stock disclosing in reasonable detail the number of shares of Investor Stock proposed to be transferred (the "Offered Shares") and the terms and conditions of such proposed Transfer. Each - --------------- other holder of Investor Stock shall have the right, exercisable by delivery of written notice to the transferring Stockholder within 20 days after delivery of the Offer Notice, to purchase all (but not less than all) of its pro rata share (equal to such electing holder's percentage interest in the outstanding Investor Stock) of the Offered Shares on the terms and conditions set forth in the Offer Notice. In the event that any holder of Investor Stock declines to exercise its right of first offer, the remaining unpurchased portion of the Offered Shares shall be reoffered to the electing holders of Investor Stock on a pro rata basis until the expiration of the Election Period. To the extent that the holders of Investor Stock have not elected to purchase all of the Offered Shares prior to the expiration of the Election Period, the transferring Stockholder may, within 90 days after the expiration of the Election Period, Transfer such Offered Shares to one or more third parties at a price not less than 95% of the price per share specified in the Offer Notice. Any Offered Shares not transferred during such 90-day period shall again be subject to the provisions of this Section 3.3 upon subsequent Transfer. 11 3.4 Exempt Transactions. The restrictions set forth in this Article ------------------- III shall not apply to Transfers of Management Stock or Investor Stock to a Permitted Transferee of the transferring Stockholder; provided, however, that such Permitted Transferee shall agree in writing to be bound by such restrictions in connection with subsequent Transfers. 3.5 Repurchase Restrictions. In the event of termination of a ----------------------- Management Holder's employment with the Company and its subsidiaries for any reason, the Company shall have the right, exercisable by written notice to the Management Holder at any time prior to the expiration of a 30-day period following such termination of employment, to repurchase all or any portion of the Management Stock held by such Management Holder and its Permitted Transferees at a cash price per share equal to the fair market value of the Common Stock as determined in good faith by the Company's Board of Directors as of the date of termination or, in the case of Management Stock that is subject to vesting or similar restrictions at the time of termination, at the Management Holder's original purchase price for such shares of Management Stock. The closing of the repurchase of Management Stock shall occur within 90 days of termination of the Management Holder's employment or such longer period of time determined by the Company in good faith to be necessary to avoid the loss of "qualified small business stock" treatment under Section 1202 of the Internal Revenue Code for any Stockholder other than the terminated Management Holder. ARTICLE IV COVENANTS OF THE COMPANY The Company hereby covenants and agrees, so long as any Registrable Securities are outstanding, as follows: 4.1 Basic Financial Information. The Company will furnish the --------------------------- following reports to each holder of Registrable Securities: (a) As soon as practicable after the end of each fiscal year of the Company, and in any event within one hundred twenty (120) days thereafter, a consolidated balance sheet of the Company and its subsidiaries, if any, as of the end of such fiscal year, and consolidated statements of income and cash flow of the Company and its subsidiaries, if any, for such year, prepared in accordance with generally accepted accounting principles consistently applied and setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and certified by independent public accountants of recognized national standing selected by the Company. (b) As soon as practicable after the end of each quarterly accounting period in each fiscal year of the Company, and in any event within forty-five (45) days thereafter, a consolidated balance sheet of the Company and its subsidiaries, if any, as of the end of each such quarterly period, and consolidated statements of income and cash flow of the Company and its subsidiaries, if any, for such period and for the current fiscal year to date, prepared in accordance with generally accepted accounting principles consistently applied and setting forth in comparative form the figures for the corresponding periods of the 12 previous fiscal year, subject to changes resulting from normal year-end audit adjustments, all in reasonable detail and certified by the chief financial officer of the Company, except that such statements need not contain the notes required by generally accepted accounting principles. (c) As soon as practicable after the end of each monthly accounting period and in any event within thirty (30) days thereafter, a consolidated balance sheet of the Company and its subsidiaries, if any, as of the end of such month and consolidated statements of income and of cash flow of the Company and its subsidiaries, if any, for each month and for the current fiscal year of the Company to date, all subject to normal year-end audit adjustments, prepared in accordance with generally accepted accounting principles consistently applied and certified by the chief financial officer of the Company, except that (x) such statements need not contain the notes required by generally accepted accounting principles, and (y) with respect to any non-U.S. subsidiary of the Company that has been a subsidiary of the Company for less than nine months, the Company shall be obligated only to use its best efforts to include such subsidiary in such consolidated financial statements. 4.2 Additional Information Rights. ----------------------------- (a) The Company will permit each holder of Registrable Securities representing at least five percent (5%) of the fully-diluted Common Stock (a "Significant Holder"), to visit and inspect any of the properties of the Company, including its books of account and other records (and make copies thereof and take extracts therefrom), and to discuss its affairs, finances and accounts with the Company's officers and its independent public accountants, all at such reasonable times and as often as any such person may reasonably request. For purposes of the definition of Significant Holder, BCI Growth V, L.P., BCI Investors, LLC and First Union Investors, Inc. shall be considered a single holder and the stock holdings of such entities shall be aggregated. (b) The Company will deliver the reports described below in this Section 4.2(b) to each Significant Holder: (i) Annually (but in any event at least thirty (30) days prior to the commencement of each fiscal year of the Company) the financial plan of the Company, in such manner and form as approved by the Board of Directors of the Company, which financial plan shall include an operating budget for such fiscal year and an updated five-year strategic plan for the Company. (ii) Concurrently with delivery thereof, copies of all reports and other written material submitted to the Board of Directors (subject to such reasonable confidentiality policies and procedures as the Board of Directors may adopt in good faith from time to time). 13 (iii) As soon as practicable after delivery thereof, copies of any reports or communications delivered to the financial community, including all press releases. (c) Each Significant Holder hereby agrees to hold in confidence and trust and not to misuse or disclose any confidential information provided pursuant to this Section 4.2; provided, however, that an Investor shall not be prohibited from using any such information for the sole purpose of generating and delivering portfolio valuation information to its investors. 4.3 Prompt Payment of Taxes, etc. The Company will promptly pay and ----------------------------- discharge, or cause to be paid and discharged, when due and payable, all lawful taxes, assessments and governmental charges or levies imposed upon the income, profits, property or business of the Company or any subsidiary; provided, however, that any such tax, assessment, charge or levy need not be paid if the validity thereof shall currently be contested in good faith by appropriate proceedings and if the Company shall have set aside on its books adequate reserves with respect thereto; and provided, further, that the Company will pay all such taxes, assessments, charges or levies forthwith upon the commencement of proceedings to foreclose any lien which may have attached as security therefor. The Company will promptly pay or cause to be paid when due, in conformance with customary trade terms, all other obligations incident to the operations of the Company. 4.4 Maintenance of Properties and Leases. The Company will keep its ------------------------------------ properties and those of its subsidiaries, if any, in good repair, working order and condition, reasonable wear and tear excepted, and from time to time make all needful and proper repairs, renewals, replacements, additions and improvements thereto; and the Company and its subsidiaries will at all times comply with each material provision of all leases to which any of them is a party or under which any of them occupies property if the breach of such provision might have a material and adverse effect on the condition, financial or otherwise, or operations of the Company. 4.5 Insurance. The Company will keep its assets and those of its --------- subsidiaries which are of an insurable character insured by financially sound and reputable insurers against loss or damage by fire, explosion and other risks customarily insured against by companies in the Company's line of business, and the Company will maintain, with financially sound and reputable insurers, insurance against other hazards and risks and liability to persons and property to the extent and in the manner customary for companies in similar businesses similarly situated. 4.6 Accounts and Records. The Company will keep true records and -------------------- books of account in which full, true and correct entries will be made of all dealings or transactions in relation to its business and affairs in accordance with generally accepted accounting principles applied on a consistent basis. 4.7 Independent Accountants. The Company will retain a "Big Five" ----------------------- national accounting firm as its independent public accountants who shall certify the Company's financial statements at the end of each fiscal year. In the event the services of the independent public accountants so selected are terminated, the Company will promptly thereafter notify the holders of Investor Stock and will request the 14 firm of independent public accountants whose services are terminated to deliver to the Investors a letter from such firm setting forth the reasons for the termination of their services. In the event of such termination, the Company will promptly thereafter engage another "Big Five" national accounting firm as its independent public accountants. In its notice to the holders of Investor Stock the Company shall state whether the change of accountants was recommended or approved by the Board of Directors of the Company or any committee thereof. 4.8 Compliance with Laws. The Company and all its subsidiaries shall -------------------- duly observe and conform to all applicable laws and valid requirements of governmental authorities relating to the conduct of their businesses or to their properties or assets. 4.9 Maintenance of Corporate Existence. etc. The Company shall --------------------------------------- maintain in full force and effect its corporate existence, rights and franchises and all licenses and other rights in or to use patents, processes, licenses, trademarks, trade names or copyrights owned or possessed by it or any subsidiary and deemed by the Company to be necessary to the conduct of their business. 4.10 Preemptive Rights. In the event that the Company proposes to ----------------- issue any Common Stock or any other equity securities, the Company shall give not less than 30 days' prior written notice to the Investors setting forth the terms and conditions of such proposed issuance (the "Issuance Notice"). The --------------- Investors shall have the preemptive right to purchase up to 80% of the securities so offered on the terms and conditions set forth in the Issuance Notice by giving written notice to the Company within fifteen days after receipt of the Issuance Notice (the "Preemptive Election Period"). Each electing -------------------------- Investor shall have the right to purchase all or any portion of its pro rata share of the offered securities (determined by dividing such Investor's percentage interest in the Common Stock on a fully-diluted basis by the aggregate percentage interest of all electing Investors and multiplying such quotient by 80% of the offered securities); provided, however, that if any Investor declines to exercise its preemptive right in full, the remaining electing Investors shall be entitled to purchase such Investor's unpurchased portion of the offered securities on a pro rata basis. The Company may issue and sell all offered securities not purchased by the Investors on the terms and conditions set forth in the issuance Notice within 90 days after the expiration of the Preemptive Election Period; provided, however, that any offered securities not sold within such 90 day period or any offered securities that are proposed to be sold on terms and conditions less favorable to the Company than those set forth in the Issuance Notice shall again be subject to the procedure set forth in this Section 4.10 prior to issuance. The provisions of this Section 4.10 shall not apply to any Permitted Issuance (as defined in Section 6 of Article Four of the Company's Certificate of Incorporation, as amended) or any issuance of equity securities for non-cash consideration to non-Affiliates of the Company. For purposes of this Section 4.10, an Investor and its Affiliates shall be deemed to be one person, and an Investor may assign its rights pursuant to this Section 4.10 to one or more of such Affiliates, subject only to compliance with applicable securities laws. 4.11 Directed Share Program. In connection with the Company's ---------------------- initial public offering of Common Stock, to the extent permitted by applicable laws and the rules and regulations of the Commission, the Company will set aside not less than 5.0% of the securities proposed to be offered to the public for purchase by holders of Investor Stock, which holders shall be entitled to subscribe for such 15 securities on a pro rata basis (determined by dividing each participating holder's percentage interest in the fully-diluted Common Stock by the aggregate percentage interest of all participating holders). 4.12 Issuance of Management Stock. The Company shall not issue ---------------------------- any shares of Common Stock to its officers or employees unless such persons agree in writing to be bound by the provisions hereof as a Management Holder. 4.13 Investment Company Act. The Company shall conduct its ---------------------- operations such that it does not become subject to regulation as an "investment company" as that term is defined in the Investment Company Act of 1940, as amended, and the rules and regulations of the Commission thereunder. ARTICLE V CORPORATE GOVERNANCE 5.1 Board of Directors. ------------------ (a) Concurrently with the Closing and at all times thereafter, each Stockholder agrees to vote all securities of the Company over which such Stockholder has voting control and to take all other necessary or desirable actions within its control (whether as a stockholder, director or officer of the Company or otherwise, and including without limitation attendance at meetings in person or by proxy for purposes of obtaining a quorum and execution of written consents in lieu of meetings), and the Company shall take all necessary and desirable actions within its control (including, without limitation, calling special board and stockholder meetings), so that: (i) the Company shall have a Board of Directors comprised of no more than ten members; (ii) the following persons shall be elected to the Board of Directors: (A) The Company's chief executive officer at such time as a chief executive officer is appointed by the Board (the "Management Director"); ------------------- (B) Three representatives designated by the holders of the outstanding Series C-1 Preferred Stock, one of which shall be designated by Providence Equity Partners, L.P., one of which shall be designated by BCI Growth V, LLC and one of which shall be designated by Norwest Equity Partners, LLC, in each case so long as such Investor and/or its Affiliates continue to constitute a Significant Holder (the "Series C Directors"); ------------------ (C) Four representatives designated by the holders of the outstanding Series A Preferred Stock and Series B-1 Preferred Stock, one of which shall be designated by Centennial Fund VI, L.P., one of which shall be designated by Telecom Partners II, L.P., one of which shall be designated by Verio Inc., and one of which shall be designated by 16 HarbourVest International Private Equity Partners III-Direct Fund L.P., in each case so long as such Investor and/or its Affiliates continue to constitute a Significant Holder (together with the Series C Directors, the "Investor Directors"); and ------------------ (D) Two independent directors selected by the Board of Directors and approved by the Board and the holders of a majority of the outstanding Investor Stock (the "Outside Directors"), such ----------------- approval not to be unreasonably withheld. (iii) in the event that any director for any reason ceases to serve as a member of the Board during his term of office, the resulting vacancy on the Board shall be filled by a majority vote of the Stockholders entitled to elect such director as provided in this Section 5.1; and (iv) if the Stockholders fail or cease to be entitled to designate a representative to fill a directorship pursuant to the terms of this Section 5.1, the election of such director shall be accomplished, in the case of a Series C Director, by vote of the holders of Series C-1 Preferred or, in the case of any other Investor Director, by the holders of Series A and Series B-1 Preferred, in each case in accordance with the Company's certificate of incorporation and bylaws and applicable law. (b) To the extent that such Stockholder does not have a representative on the Board of Directors, each Significant Holder shall have the right to designate a non-voting observer (an "Observer") to attend all meetings -------- of the Board. (c) To the extent that any provision of the Company's certificate of incorporation or by-laws is inconsistent with the provisions of this Agreement, the Stockholders agree to take all actions necessary to effect such amendments to the certificate of incorporation or by-laws as may be necessary and appropriate to give full effect to the provisions of this Agreement. The Company and the Stockholders further agree, promptly following the execution of this Agreement, to take all steps necessary to amend the Company's certificate of incorporation to increase the number of authorized shares of Series C-2 Preferred Stock to 6,000,000 shares and thereafter to take all necessary actions to amend the Company's certificate of incorporation to authorize additional shares of its capital stock from time to time to the extent required to satisfy conversion rights of the Convertible Preferred. 5.2 Meetings of the Board. The Board of Directors will meet at --------------------- least four times each year in accordance with an agreed-upon schedule. 5.3 Committees. The Board of Directors shall maintain an audit, ---------- nominating and compensation committees and shall delegate to such committees those duties and powers as are customarily performed by committees of such type. The audit committee shall not include any representatives of the Company's management. 17 5.4 Reimbursement of Expenses. The reasonable travel expenses of ------------------------- each Investor Director or Observer incurred in attending or observing Board or committee meetings shall be reimbursed by the Company. ARTICLE VI MISCELLANEOUS 6.1 Governing Law. This Agreement shall be governed in all respects ------------- by the laws of the State of Delaware as such laws are applied to agreements between Delaware residents entered into and performed entirely in Delaware. Without limiting the foregoing, the General Corporation Law of the State of Delaware shall govern as to matters of corporate law. 6.2 Successors and Assigns. Except as otherwise expressly provided ---------------------- herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 6.3 Entire Agreement: Amendment and Waiver. This Agreement and the -------------------------------------- Purchase Agreement constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof. Neither this Agreement nor any term hereof may be amended, waived, discharged or terminated except by a written instrument signed by the Company and the holders of at least two-thirds of the outstanding Investor Stock, and any such amendment, waiver, discharge or termination shall be binding on all the Stockholders. Notwithstanding the foregoing, no amendment to Section 5.1(a)(ii)(B) or (C) of this Agreement that adversely affects an Investor's right to designate an Investor Director shall be effective without the consent of the affected Investor. Notwithstanding any other provision of this Agreement, in no event shall any vote or consent otherwise required hereunder of any holder (as such) of nonvoting securities of the Company that is subject to the Bank Holding Company Act of 1956, as amended, and the regulations thereunder be so required (i) unless the matter subject to such vote or consent would "significantly and adversely affect the rights or preferences of the security or interest" of such holder, as such terms are used in Section 225.2(q)(2)(i) of Regulation Y of the Board of Governors of the Federal Reserve System or (ii) if the requirement for such vote or consent would be to cause the shares of Series B-2 Preferred or Series C-2 Preferred held by such holder to be considered "voting securities" for purposes of Regulation Y. 6.4 Notices, etc. All notices and other communications required or ------------- permitted hereunder shall be in writing and shall be mailed by United States first-class mail, postage prepaid, or delivered personally addressed by hand or special courier (a) if to a Stockholder, to the address reflected in the Company's stock ledger, or at such other address as such Stockholder shall have furnished to the Company in writing, or (b) if to the Company, at 12100 Sunset Hills Road, Reston, Virginia 20190, ATTN: General Counsel or at such other address as the Company shall have furnished to each Stockholder in writing. All such notices and other written communications shall be effective (i) if mailed, five (5) days after mailing and (ii) if delivered, upon delivery. 18 6.5 Delays or Omissions. No delay or omission to exercise any ------------------- right, power or remedy accruing to any Stockholder under this Agreement shall impair any such right, power or remedy of such Stockholder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any Stockholder of any breach or default under this Agreement or any waiver on the part of any Stockholder of any provisions or conditions of this Agreement must be made in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any Stockholder, shall be cumulative and not alternative. 6.6 Severability. Unless otherwise expressly provided herein, a ------------ Stockholder's rights hereunder are several rights, not rights jointly held with any of the other Stockholders. In case any provision of the Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 6.7 Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 6.8 Termination. The provisions of this Agreement (other than ----------- Article II hereof) shall terminate upon consummation of a Qualified Public Offering. The provisions of Article II shall terminate on the tenth anniversary of the date hereof. 6.9 Specific Enforcement. Any holder of Investor Stock shall be -------------------- entitled to specific enforcement of its rights under this Agreement. The parties acknowledge that money damages would be an inadequate remedy for a breach of this Agreement and consent to an action for specific performance or other injunctive relief in the event of any such breach. * * * * * 19 IN WITNESS WHEREOF, the parties hereto have executed this Stockholders Agreement effective as of the day and year first above written. VIA NET WORKS, INC. By: /s/ David D'Ottavio ---------------------------------- Name: David D'Ottavio ------------------------------- Title: President ------------------------------- INVESTORS: CENTENNIAL FUND VI, L.P. By: Centennial Holdings VI, LLC Its General Partner By: /s/ Steven C. Halstedt ---------------------------------- Name: Steven C. Halstedt ------------------------------- Title: Managing Principal ------------------------------- CENTENNIAL FUND V, L.P. By: Centennial Holdings V, L.P. Its General Partner By: /s/ Steven C. Halstedt ---------------------------------- Name: Steven C. Halstedt ------------------------------- Title: General Partner ------------------------------- CENTENNIAL HOLDINGS I, LLC By: /s/ Steven C. Halstedt ---------------------------------- Name: Steven C. Halstedt ------------------------------- Title: President & CEO ------------------------------- 20 CENTENNIAL ENTREPRENEURS FUND V, L.P. By: Centennial Holdings V, L.P. Its General Partner By: /s/ Steven C. Halstedt ------------------------------------ Name: Steven C. Halstedt ---------------------------------- Title: General Partner ---------------------------------- TELECOM PARTNERS II, L.P. By: Telecom Management II, LLC Its General Partner By: /s/ Mark D. Adolph ----------------------------------- Name: Mark D. Adolph ---------------------------------- Title: CFO --------------------------------- NORWEST VENTURE PARTNERS VI, L.P. By: Itasca VC Partners VI, LLP By: /s/ John P. Whaley ----------------------------------- Name: John P. Whaley ---------------------------------- Title: Partner --------------------------------- NORWEST EQUITY CAPITAL, LLC By: Itasca NEC, L.L.C. Its Managing Member By: /s/ John P. Whaley ------------------------------------ Name: John P. Whaley ---------------------------------- Title: Member --------------------------------- VERIO INC. By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- 21 SIS INTERNATIONAL HOLDING, INC. By: ------------------------------------ Name: ---------------------------------- Title: -------------------------------- CHASE EQUITY ASSOCIATES By: /s/ Mitchell Blutt, MD ------------------------------------ Name: Mitchell Blutt, MD ---------------------------------- Title: Executive Partner --------------------------------- MILLENNIAL HOLDINGS LLC By: /s/ Laura I. Beller ------------------------------------ Name: Laura I. Beller ---------------------------------- Title: Managing Member --------------------------------- BESSEMER VENTURE INVESTORS L.P. By: Deer IV & Co. LLC By: /s/ Robert H. Buescher ------------------------------------ Name: Robert H. Buescher Title: Manager BESSEMER VENTURE PARTNERS IV L.P. By: Deer IV & Co. LLC By: /s/ Robert H. Buescher ------------------------------------ Name: Robert H. Buescher Title: Manager 22 BESSEC VENTURES IV L.P. By: Deer IV & Co. LLC By: /s/ Robert H. Buescher ------------------------------------ Name: Robert H. Buescher Title: Manager HARBOURVEST INTERNATIONAL PRIVATE EQUITY PARTNERS III - DIRECT FUND L.P. By: HIPEP III-Direct Associates L.L.C. Its General Partner By: HarbourVest Partners, LLC Its Managing Member By: /s/ William A. Johnston ------------------------------------ Name: William A. Johnston ---------------------------------- Title: Managing Director --------------------------------- CRESCENDO WORLD FUND, LLC By: Crescendo Ventures World Fund, LLC Its Managing Member By: /s/ Jeffrey R. Tolletson ------------------------------------ Name: Jeffrey R. Tolletson ---------------------------------- Title: General Partner --------------------------------- EAGLE VENTURES WF, LLC By: /s/ Jeffrey R. Tolletson ------------------------------------ Name: Jeffrey R. Tolletson ---------------------------------- Title: General Partner --------------------------------- 23 BOSTON MILLENNIA PARTNERS LIMITED PARTNERSHIP By: Glen Partners Limited Partnership Its General Partner By: [SIGNATURE ILLEGIBLE] ------------------------------------ General Partner BOSTON MILLENNIA ASSOCIATES I PARTNERSHIP By: [SIGNATURE ILLEGIBLE] ------------------------------------ General Partner RHO MANAGEMENT TRUST I By: Rho Management Company, Inc., Investment Advisor By: [SIGNATURE ILLEGIBLE] ------------------------------------ General Partner CITIZENS CAPITAL, INC. By: Robert E. Garrow ------------------------------------ Vice President CHESTNUT INVESTMENT ASSOCIATES 1998 By: Albert A. Holman III ------------------------------------ General Partner 24 FIMA FINANCIAL MANAGEMENT INC. By: /s/ N. Peter Ruys ------------------------------------ Name: N. Peter Ruys ---------------------------------- Title: Director --------------------------------- /s/ Josef von Rickenbach --------------------------------------- Josef von Rickenbach /s/ Joshua B. Tanzer --------------------------------------- Joshua B. Tanzer /s/ Allyn C. Woodward, Jr. --------------------------------------- Allyn C. Woodward, Jr. /s/ Leon Seynave --------------------------------------- Leon Seynave BCI GROWTH V, L.P. By: Glenpointe Associates V, LLC Its General Partner By: /s/ Stephen Eley ------------------------------------ Name: Stephen Eley ---------------------------------- Title: Managing Member --------------------------------- BCI INVESTORS, LLC By: /s/ Stephen Eley ------------------------------------ Name: Stephen Eley ---------------------------------- Title: Managing Member --------------------------------- 25 PROVIDENCE EQUITY PARTNERS, L.P. By: Providence Equity Partners LLC Its General Partner By: /s/ Paul J. Salem ------------------------------------ Name: Paul J. Salem ---------------------------------- Title: Managing Director --------------------------------- PROVIDENCE EQUITY PARTNERS II, L.P. By: Providence Equity Partners LLC Its General Partner By: /s/ Paul J. Salem ------------------------------------ Name: Paul J. Salem ---------------------------------- Title: Managing Director --------------------------------- FIRST UNION INVESTORS, INC. By: /s/ Lee Hamrick III ------------------------------------ Name: Lee Hamrick III ---------------------------------- Title: SVP --------------------------------- 26 EX-10.13 10 VERIO TRANSIT SERVICE AGREEMENT Exhibit 10.13 VERIO 8005 S. Chester Street, Suite 200 Englewood, Colorado 80112 303 - 645 - 1900 (phone) 303 - 708 - 2490 (fax) Verio Transit Service Agreement This Transit Services Agreement ("Agreement") is made as of 1 August, 1999 between Verio Inc. ("VERIO") and the Customer identified below. Subject to the terms and conditions of this Agreement, Customer agrees to purchase and VERIO agrees to provide the services set forth in Paragraph (6) below (collectively, the "Services"). 1) Customer name and address: Company Name: VIA Net Works, Inc. Address: 12100 Sunset Hills Road, Suite 110 Reston, VA 20190 Phone: (703) 464 0300 Fax: (703) 464 0608 2) Company Contact and notice address: Name: Roy Stubbs Address: As in 1) above. Phone: (703) 464 3609 Fax: (703 464 0608 e-mail: roys@intr.net A copy of any notice to Customer to be sent to (if different from above): Name: Matt S. Nydell Address: As in 1) above Phone: 703 464 3607 Fax: 703 464 0608 e-mail: mattn@intr.net 3) Billing Contact: Name: Maritza Carnegie Address: As in 1) above. Phone: (703) 464 3614 Fax: (703) 464 0608 e-mail: maritza@intr.net 4) Technical Contact:Name: Schon Hubeny Address: As in 1) above. Phone: (703) 464 3610 Fax: (703) 464 0608 e-mail: shubeny@his.com 5) VERIO Contact: Name: Tony Humpage Address: Verio Inc. 8005 S. Chester Street, Suite 200 Englewood, Colorado 80112 Phone: (503) 471 0800 Fax: (503) 227 5945 e-mail: thumpage@verio.net A copy of any notice to Verio to be sent to: Verio Inc. Attn: Legal Department 8005 S. Chester St., Ste 200 Englewood, CO 80112 6) Services to be delivered: Dedicated DS3 IP service at Verio's POP at 60 Hudson, New York. Uncapped DS3 interface with capability to burst to the full interface capacity. Proactive monitoring of the connection 24 hours per day, 365 days per year. Customer support available 24 hours per day, 365 days per year. Colocation space for one rack at Verio's POP location at 60 Hudson, New York (additional terms to be defined). Installation of the connection between Customer's and Verio's routers. 7) Customer supplied equipment/facilities and provision of local loops: VIA will colocate one rack of equipment with Verio at 60 Hudson. (additional terms to be defined.) No local loops required. This is a local interconnect at 60 Hudson between Customer's router and Verio's backbone router. Customer will provide, at its cost, a DS3 interface on its router at 60 Hudson for the Verio IP connection. 8) Service Date: Will enter date as soon as one is available from Qwest. 9) Fees and Charges: a) One time fees: Installation and startup fee for DS3 interface: $2,000 Colocation installation and startup: $1,000 b) Monthly recurring fees: IP charges are based on measured usage of the interface. Verio will sample the traffic level on the interface no less frequently than once every 5 minutes. Traffic level is determined by the maximum of the input or output level on the interface. Measured usage is the traffic level under which 95% of samples fall over each calendar month. If Customer orders a second Verio connection at a different Verio backbone location, this price will apply to the sum of the measured usage for the two locations, with each location being separately measured as above. Price per megabit: Measured usage Price/Mbps Less than 10 Mbps $1,100 10 Mbps to 19.99 Mbps $975 20 Mbps to 45 Mbps $900 45 Mbps - 75 Mbps $850 75 Mbps - 99.99 Mbps $800 100 Mbps and more $750 Minimum monthly fee for IP services is $3,300 per month. Services will be billed monthly in arrears and will be based on the prior month's actual usage. Colocation monthly fee: $625. 10) Term Commitment: 36 months from the Commencement Date (defined below). 11) Duration of offer: Prices in this Agreement are good provided Customer signs this Agreement by July 30, 1999. 12) Other Terms and Conditions a) Customer Obligations: Customer shall be responsible for providing and -------------------- maintaining, at Customer's cost, all equipment and space, conduit, electrical power and environmental conditions required to enable VERIO to offer the Services. Customer shall also be responsible for provisioning local loops, unless VERIO has specifically agreed to provide local loops as noted in paragraph (7) above. VERIO has no responsibility for Customer provided equipment and/or facilities. In the event that Customer's equipment and/or facilities impair Customer's use of the Services, Customer shall nevertheless be liable for payment for the Services. In addition, should Customer's use of or failure to maintain its equipment and/or facilities cause or be likely to cause in VERIO'S reasonable judgment hazard, interference or obstruction of VERIO's or its suppliers' networks or services, VERIO shall be entitled to terminate or suspend the Services. b) Fees and Payment: Customer shall pay the fees and other charges ---------------- ("Service charges") set forth in Paragraph (9) for each Service as provided in this Agreement. Billing for transport services shall commence on the later of the Service Date, or the date that VERIO can provide end to end connectivity ("Commencement Date"). In the event that VERIO has failed to deliver the Services within forty-five (45) days of the Service Date (other than as the result of a failure by Customer to meet its obligations under Paragraph 12(a) or Customer's failure to accept installation of the Services), Customer may, as its sole and exclusive remedy for VERIO's failure to provide the Services, terminate this Agreement. Service charges shall be invoiced monthly in advance, unless otherwise agreed, and payment shall be due on the date specified in the invoice ("Due Date"). Set-Up charges shall be invoiced upon installation of Services by VERIO. Customer shall pay a late payment charge equal to 1.5% (or the highest amount permitted by law, whichever Is lower) per month or portion thereof on the outstanding balance of any invoice remaining unpaid thirty (30) days after the Due Date. Customer's failure to pay the invoiced amount in full by the end of the thirty (30) day period shall entitle VERIO to suspend or terminate the Services. Such suspension or termination shall not relieve Customer of its obligation to pay the Service charges. Customer agrees to pay VERIO its reasonable expenses, including attorney's fees and collection agency fees, incurred in enforcing VERIO's rights under this Agreement. Customer shall pay all federal, state, and local sales, use, value added, excise, duty and any other taxes assessed with respect to the Services, except taxes based on VERIO's net income. In addition, Customer may also be required to pay telco installation and recurring fees, domain name registration fees, and other equipment costs. All payments shall be in U.S. dollars. c) Customer Representations and Warranties: Customer represents and --------------------------------------- warrants that: i) Customer has received all necessary permits, licenses approvals and grants necessary to carry out the businesses in which Customer is engaged; ii) Customer has complied and will comply for the term of this Agreement with all laws, regulations, orders and statues which may be applicable to Customer. A breach by Customer of this paragraph 12(c) shall entitle VERIO to immediately terminate this Agreement. d) Use of Services: Customer shall use and permit the use of the Services --------------- solely for provision by Customer of data services, and not for the provision of telephony services. Customer shall ensure that the Services are not used for any unlawful purposes, or in violation of any applicable law, regulation, order or statute. Customer's use of the Services shall i) not interfere with or impair service over VERIO's or its suppliers' networks or facilities; ii) impair privacy of any communications over such networks or facilities; iii) cause damage of any nature to VERIO's or its suppliers' assets. Customer shall at all times adhere and shall ensure that its customers and authorized users shall adhere to the VERIO Acceptable Use Policy located at http://www.verio.net/isite/policy.html as amended from time to time by -------------------------------------- VERIO, with amendments becoming effective upon posting of the revised policy at the URL. A breach by Customer of this paragraph 12(d) shall entitle VERIO to take immediate corrective action, including disconnection or discontinuance of any and all service, and/or termination of this Agreement. e) Term and Termination: This Agreement shall commence on the date hereof -------------------- and continue through the end of the Term Commitment. This Agreement shall be automatically renewed on a month to month basis at the end of the Term Commitment until terminated by either party on sixty (60) days prior written notice to the other party. This Agreement may be terminated by either party if (i) the other party is in breach or default of any term of this Agreement and fails to cure such breach or default within thirty (30) days from the date of written notice specifying such breach or default or (ii) the other party becomes insolvent, fails to pay its debts as they become due, or becomes the subject of any proceeding in bankruptcy, liquidation, dissolution, receivership, attachment, or composition or general assignment for the benefit of creditors. In the event that this agreement is terminated by VERIO as provided in Paragraphs 12(a), (c), (d), or (e) by Customer (other than for a breach of this Agreement by VERIO) prior to the end of the Term Commitment, Customer will be required to pay for each month remaining in the Term Commitment either i) for fixed rate contracts, 75% of VERIO's standard monthly charge, or ii) for burst transit contracts, 40% of the full utilization rate for the circuit. Customer will also be required to pay to VERIO any charges or costs incurred by VERIO in terminating local loop facilities (if any) provided by VERIO hereunder. VERIO reserves the right to change the rates it charges for Services at the end of the Term Commitment. VERIO will provide sixty (60) days notice of any such change. Any IP address space delegated by VERIO to the Customer must be returned to VERIO within three months of termination of this Agreement. f) Provision of Services: VERIO exercises no control over, and accepts no --------------------- responsibility for, the content of the information passing through VERIO's host computers, network hubs and points of presence. THE SERVICES AND HARDWARE AND SOFTWARE ARE PROVIDED BY VERIO "AS IS". VERIO MAKES NO WARRANTIES OF ANY KIND, EITHER EXPRESSED OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT IN ELATION TO THE PROVISION OF THE SERVICES OR ANY SOFTWARE OR EQUIPMENT VERIO PROVIDES,OR PERTAINING TO THE SECURITY OR DELIVERY OF CUSTOMER'S TRAFFIC, OR THAT ANY ROUTING INFORMATION OR OTHER INFORMATION PROVIDED IS ACCURATE AND COMPLETE. CUSTOMER ASSUMES TOTAL RESPONSIBILITY AND RISK FOR CUSTOMER'S AND ITS CUSTOMERS' AND AUTHORIZED USERS USE OF THE SERVICES. NONE OF VERIO, ITS EMPLOYEES, AFFILIATES, AGENTS, THIRD-PARTY INFORMATION PROVIDERS, MERCHANTS, LICENSORS OR THE LIKE, WARRANT THAT THE SERVICES WILL NOT BE INTERRUPTED OR WILL BE ERROR FREE. VERIO IS NOT LIABLE FOR THE CONTENT OF ANY DATA TRANSFERRED EITHER TO OR FROM CUSTOMER OR STORED BY CUSTOMER OR ANY OF ITS CUSTOMERS VIA THE SERVICE(S) PROVIDED BY VERIO. g) VERIO is acting only as a reseller of any hardware and software offered under this Agreement, which was manufactured or licensed by a third party ("Manufacturer"). VERIO shall not be responsible for any changes in Service(s) that cause hardware or software to become obsolete, require modification or alteration, or otherwise affect the performance of the Services. Any malfunction or manufacturer's defects of equipment either sold or provided by VERIO to Customer or purchased directly by Customer in connection with the Service(s) will not be deemed a breach of VERIO's obligations under this Agreement. Customer shall use its best efforts to protect and keep confidential all intellectual property provided by VERIO to Customer and shall make no attempt to copy, alter, reverse-engineer, or tamper with such intellectual property or to use it other than in connection with the Services and in accordance with Manufacturer's provided terms and conditions. h) Contingency and Authorizations: VERIO's obligation to provide Services ------------------------------ is contingent upon (i) VERIO's ability to obtain any and all licenses, waivers, consents, registrations and approvals, (provided, however, that Verio shall use commercially reasonable best efforts to obtain and maintain all such licenses, waivers, consents, registrations and approvals necessary to enable delivery of the Services hereunder) (ii) VERIO's ability to obtain any necessary telecommunications services or facilities. VERIO reserves the right to modify, suspend or terminate the provision of Services if VERIO is reasonably required to do so in order to comply with governmental requirements i) Indemnification. Customer agrees to indemnify, save harmless, and --------------- defend VERIO and all employees, officers, directors and agents of VERIO (collectively "indemnified parties") from and against any and all claims, damages, losses, liabilities, suits, actions, demands, proceedings (whether legal or administrative) and expenses (including but not limited to reasonable attorneys' fees) threatened, asserted, or filed by a third party against any of the indemnified parties arising out of or relating to the use of the Services by Customer or its users, including any violation of the VERIO Acceptable Use Policy by any of them and any claims arising from the placement or transmission or content of any message on the Internet by Customer or its users. j) Limitation of Liability. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ----------------------- ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, OR LOSS OF PROFITS, REVENUE, OR DATA (EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBLITY OF SUCH DAMAGES) TO THE OTHER PARTY OR ANY THIRD PARTY, IN CONNECTION WITH THE SERVICES OR OTHER MATTERS COVERED BY THIS AGREEMENT, WHETHER SUCH CLAIM IS BASED ON AN ACTION IN CONTRACT OR TORT OR STRICT LIABILITY OR OTHER LEGAL THEORY. With the exception of any indemnity obligation or a breach of paragraph (l) below, in no event shall either party's liability for any damages, losses and causes of actions whether in contract or tort (including negligence or otherwise) exceed the actual dollar amount paid or payable by Customer for the Services which gave rise to such damages, losses and causes of actions during the 12-month period prior to the date the damage or loss occurred or the cause of action arose. Neither party shall be liable for failure or delay in performing its obligations hereunder if such failure or delay is due to circumstances beyond its reasonable control, including, without limitation, acts of any governmental body, war, insurrection, sabotage, embargo, fire, flood, strike or other labor disturbance, interruption of or delay in transportation, interruption or delay in telecommunications services or inability to obtain raw materials, supplies, or power used in or equipment needed for provision of the Services. In the event that the Services are subject to chronic Interruptions (meaning that there occurs Interruptions of more than four hours in the aggregate in any thirty (30) day period or three (3) or more Interruptions in any thirty (30) day period) during the term of this Agreement, Customer may on notice to VERIO terminate this Agreement without any further liability to VERIO, apart from the obligation to pay for Services rendered to the date of the termination. For the purposes of this paragraph (j), "Interruption" means a service outage that is not due to scheduled maintenance or to any action or inaction on the part of Customer. k) Miscellaneous: The validity, interpretation, enforceability, and ------------- performance of this Agreement shall be governed by and construed in accordance with the law of the State of Colorado. This Agreement may not be amended except with the written consent of the parties. No failure to exercise and no delay in exercising any right, remedy, or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, or power hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, or power provided herein or by law or in equity. The waiver by any party of the time for performance of any act or condition hereunder shall not constitute a waiver of the act or condition itself. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors, and permitted assigns. Customer may not assign this Agreement without the prior written consent of VERIO. If any provision of this Agreement shall be held by a court of competent jurisdiction to be invalid, unenforceable, or void, the remainder of this Agreement shall remain in full force and effect. All notices required or permitted under this Agreement must be in writing and must be delivered by a method providing for proof of delivery (including express courier, and facsimile or email if receipt is acknowledged by the recipient) to the addresses set forth in Paragraphs (1) and (2) above, or such other addresses as may be notified by the parties. Any notice or request shall be deemed given on the date of delivery. l) Confidentiality: Each party agrees to keep confidential and to use only --------------- for the purposes of performing obligations under this Agreement, (i) any proprietary or confidential information of the other party disclosed pursuant to this Agreement which is appropriately marked as confidential or which would reasonably be considered to be of a confidential nature ("Confidential Information") and (ii) the terms of this Agreement and all negotiations relating thereto. The obligation of confidentiality shall not apply to information which is publicly available through authorized disclosure, is known by the receiving party at the time of disclosure as evidenced by a writing in the possession of the receiving party at the time of disclosure, is rightfully obtained from a third party who has the right to disclose it, or which is required by law to be disclosed. Upon any termination of this Agreement, the receiving party shall return all Confidential Information of the disclosing party, and all copies thereof, in the possession or control of the receiving party. m) Entire Agreement: This agreement supersedes all previous ---------------- representations, understandings or agreements and shall prevail notwithstanding any variance with the terms and conditions of any order submitted by Customer. Accepted by: Customer: VERIO: Signature: /s/ Matt Nydell Signature: /s/ Carla H. Donelson ----------------------- --------------------- Name & Title: Matt S. Nydell, V.P. Name & Title: Carla H. Donelson ----------------------- --------------------- Date: 5 August 1999 Date: Vice President & ----------------------- --------------------- General Counsel Tax ID Number: ----------------------- EX-21.1 11 LIST OF SUBSIDIARIES Exhibit 21.1 ------------ SUBSIDIARIES OF THE REGISTRANT ------------------------------
Name Jurisdiction of Formation - ---- ------------------------- A. VIA NET.WORKS NY Corp. New York B. VIA NET.WORKS HoldCo Inc. Delaware 1. VIA Net Works Europe Holding B.V. (10 shares) The Netherlands a. Esoterica-Novas Technologias de Informacao, S.A. Portugal a(1). Expobyte, Conferencias e Exposicoes, S.A. b. Artinternet, S.A. France c. VIA NET.WORKS Spain Holding S.L. Spain c(1). Disbumad, S.L. Spain d. MediaNet Ireland Limited Ireland e. Gesellschaft fur Telekommunikations und Netzwerkdienst mbH Germany e(1). INS Vertriebs GmbH Germany e(2). Ecce Terram GmbH Germany f. bART Holding B.V. The Netherlands f(1). Home Vision B.V. The Netherlands f(2). Xenovic B.V. The Netherlands i. bART Den Haag B.V. The Netherlands ii. bART Noord Nederland The Netherlands iii. bART Midden Nederland The Netherlands f(3). Arameta B.V. The Netherlands 2. Netlink Internet Services Limited United Kingdom 3. i-way Limited United Kingdom a. i-Way Soho Limited United Kingdom b. i-way Reading Limited United Kingdom c. i-way Swindon Limited United Kingdom d. i-way Brentford Limited United Kingdom e. i-Way Oxford Limited United Kingdom 4. U-Net Limited United Kingdom 5. WorldWide Web Services Ltd. United Kingdom a. Alphadial Limited United Kingdom D. VIA Net Works UK Ltd. United Kingdom E. Via Net.Works IRUCo. Limited Ireland
F. VIA Net Works Cayman Cayman Islands 1. VIA Net Works Argentina, S.A. Argentina 2. V-I-A Holdings Brasil, Ltd. Brazil a. Dialdata S.A. Brazil G. InfoAcces S.A. de C.V. Mexico H. M&C Management & Communications, S.A. Switzerland EX-23.1 12 PRICEWATERHOUSECOOPERS (VIA NET) CONSENT EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form S-1 of our report dated August 26, 1999, except for Note 13 which is as of October 11, 1999, relating to the consolidated financial statements and financial data schedule of VIA NET.WORKS INC., which appear in such Registration Statement. We also consent to the references to us under the headings "Experts" and "Selected Financial Data" in such Registration Statement. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP McLean, Virginia November 23, 1999 EX-23.2 13 PRICEWATERHOUSECOOPERS (ARGENTINA) CONSENT EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form S-1 of our report dated July 30, 1999 relating to the financial statements of VIA Net Works Argentina S.A., which appears in such Registration Statement. We also consent to the reference to us under the headings "Experts" in such Registration Statement. /s/ Price Waterhouse & Co. Buenos Aires, Argentina November 19, 1999 EX-23.3 14 PRICEWATERHOUSECOOPERS (DIALDATA S.A.) CONSENT EXHIBIT 23.3 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form S-1 of our report dated April 9, 1999 relating to the financial statements of Dialdata S.A. Internet Systems, which appears in such Registration Statement. We also consent to the reference to us under the heading "Experts" in such Registration Statement. Sao Paulo, Brazil November 19, 1999 /s/ PricewaterhouseCoopers PricewaterhouseCoopers Auditores Independentes EX-23.4 15 PRICEWATERHOUSECOOPERS (NETLINK) CONSENT EXHIBIT 23.4 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form S-1 of our report dated, 19 November 1999 relating to the financial statements of Netlink Internet Services Limited., which appears in such Registration Statement. We also consent to the reference to us under the heading "Experts" in such Registration Statement. /s/ PricewaterhouseCoopers PricewaterhouseCoopers Reading United Kingdom 19 November 1999 EX-23.5 16 PRICEWATERHOUSECOOPERS (DISBUMAD) CONSENT EXHIBIT 23.5 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form S-1 of our report dated October 29, 1999 relating to the financial statements of Disbumad, SL, which appears in such Registration Statement. We also consent to the reference to us under the heading "Experts" in such Registration Statement. /s/ PricewaterhouseCoopers PricewaterhouseCoopers Auditores, S.L. Seville, Spain November 19, 1999 EX-23.6 17 PRICEWATERHOUSECOOPERS (TELEKOM NETWORK) CONSENT EXHIBIT 23.6 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form S-1 of our report dated November 19, 1999 relating to the financial statements of GTN Gesellschaft fur Telekommunikations-und Netzwerkdienste mbH, which appears in such Registration Statement. We also consent to the reference to us under the heading "Experts" in such Registration Statement. PricewaterhouseCoopers GmbH Wirtschaftsprufungsgesellschaft /s/ I. Trauer /s/ A. Jacobs Dusseldorf, Germany November 19, 1999 EX-23.7 18 PRICEWATERHOUSECOOPERS (U-NET) CONSENT EXHIBIT 23.7 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form S-1 of our report dated July 14, 1999 relating to the financial statements of U-Net Ltd., which appears in such Registration Statement. We also consent to the reference to us under the heading "Experts" in such Registration Statement. /s/ PricewaterhouseCoopers PricewaterhouseCoopers Manchester, UK November 19, 1999 EX-23.8 19 PRICEWATERHOUSECOOPERS (B-ART) CONSENT EXHIBIT 23.8 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form S-1 of our report dated November 17, 1999 relating to the financial statements of bArt Holding B.V., which appears in such Registration Statement. We also consent to the reference to us under the heading "Experts" in such Registration Statement. PricewaterhouseCoopers N.V. Rotterdam, the Netherlands November 19, 1999 /s/ PricewaterhouseCoopers N.V. EX-23.9 20 PRICEWATERHOUSECOOPERS (I-WAY) CONSENT EXHIBIT 23.9 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form S-1 of our report dated, 19 November 1999 relating to the financial statements of I-Way Limited., which appears in such Registration Statement. We also consent to the reference to us under the heading "Experts" in such Registration Statement. /s/ PricewaterhouseCoopers PricewaterhouseCoopers Reading United Kingdom 19 November 1999 EX-23.10 21 PRICEWATERHOUSECOOPERS (ESOTERICA) CONSENT EXHIBIT 23.10 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form S-1 of our report dated October 20, 1999 relating to the financial statements of Esoterica- Novas Tecnologias de Informacao SA, which appears in such Registration Statement. We also consent to the reference to us under the heading "Experts" in such Registration Statement. /s/ PricewaterhouseCoopers PricewaterhouseCoopers - Auditores e Consultores, Lda Lisbon, Portugal November 19, 1999 EX-23.11 22 PRICEWATERHOUSECOOPERS (WORLDWIDE) CONSENT EXHIBIT 23.11 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form S-1 of our report dated, 19 November 1999 relating to the financial statements of Worldwide Web Services Limited, which appears in such Registration Statement. We also consent to the reference to us under the heading "Experts" in such Registration Statement. /s/ PricewaterhouseCoopers PricewaterhouseCoopers Reading United Kingdom 19 November 1999 EX-23.12 23 KPMG CONSENT [KPMG LETTERHEAD] EXHIBIT 23.12 CONSENT OF INDEPENDENT AUDITORS The Board of Directors Infoacces, S.A. de C.V. and Subsidiary: We consent to the use of our report included herein and to the reference to our firm under the heading "Experts" in the prospectus. KPMG CARDENAS DOSAL, S.C. /s/ Luis Gonzalo Garcia Delgado Luis Gonzalo Garcia Delgado Mexico City, Mexico November 22, 1999 EX-27.1 24 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 YEAR 9-MOS DEC-31-1998 DEC-31-1999 JAN-01-1998 JAN-01-1999 DEC-31-1998 SEP-30-1999 34,711 91,503 0 0 1,783 7,490 217 657 0 0 37,228 100,252 4,648 30,656 368 7,813 73,025 215,132 17,634 31,561 0 0 53,075 180,933 0 0 0 2 (5,881) (13,380) 73,025 215,132 3,348 23,366 3,348 23,366 1,724 10,321 1,724 10,321 7,691 32,769 0 0 29 974 (5,487) (16,212) 145 0 (5,342) (16,212) 0 0 0 0 0 0 (5,342) (16,212) (24.29) (20.50) (24.29) (20.50)
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