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As filed with the Securities and Exchange Commission on
January 9, 2007
Registration
No. 333-138993
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
INTERNAP NETWORK SERVICES
CORPORATION
(Exact name of Registrant as
specified in its charter)
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Delaware
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7374
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91-2145721
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(State or other jurisdiction
of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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250 Williams Street
Atlanta, Georgia 30303
(404) 302-9700
(Address, including zip code,
and telephone number, including area code, of Registrants
principal executive offices)
James P. DeBlasio
President and Chief Executive
Officer
Internap Network Services
Corporation
250 Williams Street
Atlanta, Georgia 30303
(404) 302-9700
(Name, address, including zip
code, and telephone number, including area code, of agent for
service)
Copies to:
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Horace Nash, Esq.
R. Gregory Roussel, Esq.
Kee Bong Kim, Esq.
Fenwick & West LLP
801 California Street
Mountain View, California 94041
(650) 988-8500
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Dorothy An, Esq.
Internap Network
Services Corporation
250 Williams Street
Atlanta, Georgia 30303
(404) 302-9700
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Arturo Sida, Esq.
VitalStream Holdings, Inc.
555 Anton Blvd., Suite 400
Costa Mesa, California 92626
(714) 549-5300
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Bryan Allen, Esq.
Seth King, Esq.
Parr Waddoups Brown Gee
& Loveless
185 South State Street, Suite 1300
Salt Lake City, Utah 84111
(801) 532-7840
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Approximate date of commencement of proposed sale to the
public: As soon as practicable after the
effectiveness of this registration statement and the
satisfaction or waiver of all other conditions under the merger
agreement described herein.
If the securities being registered on this Form are being
offered in connection with the formation of a holding company
and there is compliance with General Instruction G, check the
following box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) 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. o
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. o
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 that
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 Securities
and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
The
information in this joint proxy statement/prospectus is not
complete and may be changed. Internap may not sell these
securities until the registration statement filed with the
Securities and Exchange Commission is effective. This joint
proxy statement/prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
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SUBJECT TO COMPLETION, DATED
JANUARY 9, 2007.
SPECIAL
MEETINGS OF STOCKHOLDERS
MERGER PROPOSED YOUR VOTE IS VERY
IMPORTANT
The boards of directors of Internap Network Services Corporation
and VitalStream Holdings, Inc. have unanimously approved a
merger combining Internap and VitalStream.
If the merger is consummated, holders of VitalStream common
stock will receive 0.5132 shares of Internap common stock
for each share of VitalStream common stock they own. This is a
fixed exchange ratio that will not be adjusted for changes in
the stock price of either company before the merger is
consummated. Internap common stock is listed on the NASDAQ
Global Market under the symbol INAP. On
January , 2007, the last trading day before the
date of this joint proxy statement/prospectus, the closing price
of Internap common stock was
$ per share. VitalStream
common stock is listed on the NASDAQ Global Market under the
symbol VSTH.
Stockholders of Internap will be asked, at Internaps
special meeting of stockholders, to (a) approve the
issuance of shares of Internap common stock to the stockholders
of VitalStream in the merger and (b) adopt the merger
agreement and approve the proposed merger. Stockholders of
VitalStream will be asked, at VitalStreams special meeting
of stockholders, to adopt the merger agreement and approve the
proposed merger.
The dates, times and places of the special meetings are as
follows:
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For Internap stockholders:
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For VitalStream stockholders:
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February 20, 2007
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February 20, 2007
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3 p.m., local time
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12 p.m., local time
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250 Williams Street
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555 Anton Blvd., Suite 400
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Atlanta, Georgia 30303
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Costa Mesa, California 92626
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This joint proxy statement/prospectus provides you with
information about Internap, VitalStream and the proposed merger.
You may obtain other information about Internap and VitalStream
from documents filed with the Securities and Exchange
Commission. We encourage you to read the entire joint proxy
statement/prospectus carefully.
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James P. DeBlasio
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Jack Waterman
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President and Chief Executive
Officer
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Chairman and Chief Executive
Officer
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Internap Network Services
Corporation
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VitalStream Holdings, Inc.
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FOR A DISCUSSION OF SIGNIFICANT MATTERS THAT SHOULD BE
CONSIDERED BEFORE VOTING AT THE SPECIAL MEETINGS, SEE RISK
FACTORS BEGINNING ON PAGE 19.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES REGULATORS HAVE APPROVED OR DISAPPROVED THE INTERNAP
COMMON STOCK TO BE ISSUED IN THE MERGER OR DETERMINED WHETHER
THIS JOINT PROXY STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This joint proxy statement/prospectus is dated
January , 2007, and is first being mailed to
stockholders of Internap and VitalStream on or about
January , 2007.
THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
INTERNAP
NETWORK SERVICES CORPORATION
250 Williams Street
Atlanta, Georgia 30303
(404) 302-9700
NOTICE OF SPECIAL MEETING OF
STOCKHOLDERS
TO BE HELD ON
FEBRUARY 20, 2007
To the Stockholders of Internap Network Services Corporation:
On behalf of the board of directors of Internap Network Services
Corporation, a Delaware corporation, we are pleased to deliver
this joint proxy statement/prospectus for the proposed merger
combining Internap and VitalStream Holdings, Inc., a Nevada
corporation. A special meeting of stockholders of Internap will
be held at 3 p.m., local time on February 20, 2007, at the
principal executive offices of Internap located at 250 Williams
Street, Atlanta, Georgia 30303, for the following purposes:
1. To consider and vote upon the issuance of shares of
Internap common stock in the merger contemplated by the
Agreement and Plan of Merger, dated as of October 12, 2006,
by and among Internap, Ivy Acquisition Corp., a Nevada
corporation and a wholly owned subsidiary of Internap, and
VitalStream, and the adoption of that Agreement and Plan of
Merger.
2. To consider and vote upon an adjournment of the special
meeting, if a quorum is present, if necessary to solicit
additional proxies in favor of Proposal No. 1.
3. To transact such other business as may properly come
before the special meeting or any adjournment or postponement
thereof.
The board of directors of Internap has fixed December 29,
2006 as the record date for the determination of stockholders
entitled to notice of, and to vote at, the special meeting and
any adjournment or postponement thereof. Only holders of record
of shares of Internap common stock at the close of business on
the record date are entitled to notice of, and to vote at, the
special meeting. At the close of business on the record date,
Internap had outstanding and entitled to vote 35,875,746
shares of common stock.
Your vote is important. The affirmative vote of the holders
of a majority of the votes cast in person or by proxy at the
Internap special meeting is required for approval of each of
Proposal No. 1 regarding the issuance of shares of
Internap common stock in the merger and adoption of the merger
agreement and Proposal No. 2 regarding adjournment of
the special meeting, if necessary, if a quorum is present to
solicit additional proxies if there are not sufficient votes in
favor of Proposal No. 1. Even if you plan to attend
the special meeting in person, we request that you sign and
return the enclosed proxy and thus ensure that your shares will
be represented at the special meeting if you are unable to
attend. If you sign, date and mail your proxy card without
indicating how you wish to vote, your proxy will be counted as a
vote in favor of the issuance of shares of Internap common stock
in the merger and adoption of the merger agreement and an
adjournment of the Internap special meeting, if necessary, if a
quorum is present, to solicit additional proxies if there are
not sufficient votes in favor of Proposal No. 1. If
you fail to return your proxy card, the effect will be that your
shares will not be counted for purposes of determining whether a
quorum is present at the special meeting. If you do attend the
Internap special meeting and wish to vote in person, you may
withdraw your proxy and vote in person.
By Order of the Board of Directors,
James P. DeBlasio
President and Chief Executive Officer
Atlanta, Georgia
January , 2007
Internaps board of directors unanimously recommends
that Internap stockholders vote FOR
Proposal No. 1 to approve the issuance of shares of
Internap common stock in the merger and adoption of the merger
agreement and FOR Proposal No. 2 to
adjourn the special meeting, if a quorum is present, if
necessary to solicit additional proxies if there are not
sufficient votes in favor of Proposal No. 1.
VITALSTREAM
HOLDINGS, INC.
555 Anton Blvd., Suite 400
Costa Mesa, California 92626
(714) 549-5300
NOTICE OF SPECIAL MEETING OF
STOCKHOLDERS
TO BE HELD ON
FEBRUARY 20, 2007
To the Stockholders of VitalStream Holdings, Inc.:
On behalf of the board of directors of VitalStream Holdings,
Inc., a Nevada corporation, we are pleased to deliver this joint
proxy statement/prospectus for the proposed merger combining
Internap Network Services Corporation, a Delaware corporation,
and VitalStream. A special meeting of stockholders of
VitalStream will be held on February 20, 2007, at 12 p.m.,
local time, at the principal executive offices of VitalStream
located at 555 Anton Blvd., Suite 400, Costa Mesa,
California, 92626 for the following purposes:
1. To consider and vote upon the adoption of the Agreement
and Plan of Merger, dated as of October 12, 2006, by and
among Internap, Ivy Acquisition Corp., a Nevada corporation and
a wholly owned subsidiary of Internap, and VitalStream.
2. To consider and vote upon an adjournment of the special
meeting, if necessary to solicit additional proxies in favor of
Proposal No. 1.
3. To transact such other business as may properly come
before the special meeting or any adjournment or postponement
thereof.
The board of directors of VitalStream has fixed
December 29, 2006 as the record date for the determination
of stockholders entitled to notice of, and to vote at, the
special meeting and any adjournment or postponement thereof.
Only holders of record of shares of VitalStream common stock at
the close of business on the record date are entitled to notice
of, and to vote at, the special meeting. At the close of
business on the record date, VitalStream had outstanding and
entitled to vote 23,774,014 shares of common stock.
Your vote is important. The affirmative vote of the holders
of a majority of the voting power of the shares of VitalStream
common stock outstanding on the record date for the VitalStream
special meeting is required for approval of
Proposal No. 1 regarding adoption of the merger
agreement. The affirmative vote of the holders of a majority of
the votes cast in person or by proxy at the VitalStream special
meeting is required to approve Proposal No. 2
regarding adjournment of the special meeting, if necessary, to
solicit additional proxies if there are not sufficient votes in
favor of Proposal No. 1. Even if you plan to attend
the special meeting in person, we request that you sign and
return the enclosed proxy and thus ensure that your shares will
be represented at the special meeting if you are unable to
attend. If you sign, date and mail your proxy card without
indicating how you wish to vote, your proxy will be counted as a
vote in favor of the adoption of the merger agreement and an
adjournment of the VitalStream special meeting, if necessary to
solicit additional proxies if there are not sufficient votes in
favor of Proposal No. 1. If you fail to return your
proxy card, the effect will be a vote against the adoption of
the merger agreement and your shares will not be counted for
purposes of determining whether a quorum is present at the
VitalStream special meeting. If you do attend the VitalStream
special meeting and wish to vote in person, you may withdraw
your proxy and vote in person.
Please do not send any certificates representing your
VitalStream common stock at this time.
By Order of the Board of Directors,
Jack Waterman
Chairman and Chief Executive Officer
Costa Mesa, California
January , 2007
The VitalStream board of directors has unanimously determined
and believes that the merger is advisable to, and in the best
interests of, VitalStream and its stockholders, and unanimously
recommends that VitalStream stockholders vote FOR
Proposal No. 1 to adopt the merger agreement and
FOR Proposal No. 2 to adjourn the special
meeting, if necessary to solicit additional proxies if there are
not sufficient votes in favor of Proposal No. 1.
ADDITIONAL
INFORMATION
This joint proxy statement/prospectus incorporates by
reference important business and financial information
about Internap and VitalStream from documents that are not
included in or delivered with this joint proxy
statement/prospectus. For a more detailed description of the
information incorporated by reference in this joint proxy
statement/prospectus and how you may obtain it, refer to
Where You Can Find More Information on page 113.
If you are a stockholder, you may have received some of the
documents incorporated by reference. You may also obtain any of
those documents from the appropriate company or the
U.S. Securities and Exchange Commission, or the SEC, or the
SECs Internet web site at www.sec.gov. Documents
incorporated by reference are available from the appropriate
company without charge, excluding all exhibits unless
specifically incorporated by reference in such documents.
Stockholders may obtain documents incorporated by reference in
this joint proxy statement/prospectus by requesting them in
writing or by telephone from the appropriate company at the
following addresses:
Internap
Network Services Corporation
Attn:
Investor Relations
250 Williams Street
Atlanta, Georgia 30303
Telephone:
(404) 302-9841
E-mail:
ir@internap.com
VitalStream
Holdings, Inc.
Attn:
Investor Relations
555 Anton Blvd., Suite 400
Costa Mesa, California 92626
Telephone:
(415) 217-7722
E-mail:
ir@VitalStream.com
If you would like to request documents, please do so by
February 13, 2007 to receive them before the special
meetings. If you request any incorporated documents, the
appropriate company will strive to mail them to you by
first-class mail, or other equally prompt means, within one
business day of receipt of your request.
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ANNEXES:
ii
QUESTIONS
AND ANSWERS ABOUT THE MERGER
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A: |
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Internap and VitalStream have entered into an Agreement and Plan
of Merger dated October 12, 2006, which contains the terms
and conditions of the proposed business combination of Internap
and VitalStream, and which is referred to in this joint proxy
statement/prospectus as the merger agreement. Under the merger
agreement, VitalStream and Ivy Acquisition Corp., a wholly owned
subsidiary of Internap, will merge, with VitalStream surviving
as a wholly owned subsidiary of Internap. This transaction is
referred to in this document as the merger. The shares of
Internap common stock issued to VitalStream stockholders in
connection with the merger are expected to represent
approximately 25% of the outstanding shares of Internap common
stock immediately following the consummation of the merger,
based on the number of shares of Internap and VitalStream common
stock outstanding on December 29, 2006. For a more complete
description of the merger, please see the section entitled
The Merger on page 44 of this joint proxy
statement/prospectus. |
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Why are Internap and VitalStream proposing the merger? |
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The acquisition of VitalStream is part of Internaps
strategy to enhance its position as a leading provider of high
performance route control products and services by adding
complementary service offerings in the rapidly growing content
delivery and on-line advertising markets. Integrating
VitalStreams digital media delivery platform into
Internaps portfolio of products and services will enable
Internap to provide customers with one of the most complete
product lines in content delivery solutions, content
monetization, and on-line advertising, while supporting the
significant long-term growth opportunities in the network
services market. |
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From Internaps perspective, this acquisition presents the
following opportunities: |
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VitalStreams services are a logical extension
and complement to Internaps high performance route control
products and services.
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Internaps customers have proactively requested
that Internap provide content delivery services. |
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VitalStreams services offer Internaps
customers additional high growth, high margin revenue streams. |
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Internap believes that large audio and video files
are more effectively delivered over the Internet with a
combination of VitalStreams platform and Internaps
route management network. |
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VitalStreams initiatives in the rich media ad
services business present an entirely new set of opportunities
and potential customer relationships for Internap, as
advertisers are seeking to access a large and growing base of
Internet users that are watching increasing amounts of video
online. |
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Last, and most important, VitalStream is a cultural
fit for Internap. |
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From VitalStreams perspective, this acquisition presents
the following opportunities: |
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Internaps strength in high performance
Internet services adds a differentiator to VitalStreams
service offering in the market. VitalStream believes that
bringing together Internaps high performance Internet
Protocol network with VitalStreams content delivery
platform is a strong value proposition for customers. |
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Internaps network infrastructure and
colocation facilities will enable VitalStream to improve service
delivery. |
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VitalStream believes that the combined company would
achieve a global footprint more quickly, which
VitalStreams customers have requested. |
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Why am I receiving this joint proxy statement/prospectus? |
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You are receiving this joint proxy statement/prospectus because
you have been identified as a stockholder of Internap or of
VitalStream, and you may be entitled to vote at your
companys special meeting of stockholders. This document
serves as a joint proxy statement of both Internap and
VitalStream. It is being used to solicit proxies for both
special meetings, and as a prospectus used to offer shares of
Internap common stock in |
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exchange for shares of VitalStream common stock pursuant to the
terms of the merger agreement. This document contains important
information about the merger and the special meetings of
Internap and VitalStream, so you should read it carefully. |
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What is required to consummate the merger? |
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To consummate the merger, Internap stockholders must approve the
issuance of shares of Internap common stock in the merger and
adopt the merger agreement, which requires the affirmative vote
of the holders of a majority of the votes cast in person or by
proxy at the Internap special meeting. In addition, VitalStream
stockholders must adopt the merger agreement, which requires the
affirmative vote of the holders of a majority of the voting
power of the shares of VitalStream common stock outstanding on
the record date for the VitalStream special meeting. In addition
to obtaining stockholder approval and appropriate regulatory
approvals, including antitrust clearance, Internap and
VitalStream must satisfy or waive all other closing conditions
set forth in the merger agreement. For a more complete
description of the closing conditions under the merger
agreement, we urge you to read the section of this joint proxy
statement/prospectus entitled The Merger
Agreement Conditions to Consummation of the
Merger on page 73. |
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What will VitalStream stockholders receive in the merger? |
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As a result of the merger, VitalStream stockholders will receive
0.5132 shares of Internap common stock for each share of
VitalStream common stock they own. For example, if you own
100 shares of VitalStream common stock, you will receive
51 shares of Internap common stock in exchange for your
VitalStream shares, plus a cash payment in lieu of a fractional
Internap share. The number of shares of Internap common stock to
be issued for each share of VitalStream common stock is fixed
and will not be adjusted based upon changes in the value of
VitalStream or Internap common stock. As a result, the value of
the Internap shares you will receive in the merger will not be
known before the merger, and will go up or down as the market
price of Internap common stock goes up or down. We encourage you
to obtain current market quotations of VitalStream and Internap
common stock. For a more complete description of what
VitalStream stockholders will receive in the merger, please
refer to the section of this joint proxy statement/prospectus
entitled The Merger Merger Consideration
on page 72. |
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What are the material federal income tax consequences of the
merger to me? |
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The merger has been structured to qualify as a tax-free
reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended, and it is a closing
condition to the merger that Internap and VitalStream receive
opinions of their respective counsels regarding such
qualification. As a result of the mergers qualification as
a reorganization, VitalStream stockholders will not recognize
gain or loss for United States federal income tax purposes upon
the exchange of shares of VitalStream common stock for shares of
Internap common stock, except with respect to cash received in
lieu of fractional shares of Internap common stock. |
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Tax matters are complicated, and the tax consequences of the
merger to a particular stockholder will depend in part on the
stockholders circumstances. Accordingly, we urge you to
consult your own tax advisor for a full understanding of the tax
consequences of the merger to you, including the applicability
and effect of federal, state, local and foreign income and other
tax laws. |
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For more information, please see the section of this joint proxy
statement/prospectus entitled The Merger
Material U. S. Federal Income Tax Consequences on
page 69. |
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How does Internaps board of directors recommend that I
vote? |
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After careful consideration, Internaps board of directors
unanimously recommends that Internap stockholders vote
FOR Proposal No. 1 to approve the issuance
of shares of Internap common stock in the merger and adopt the
merger agreement and FOR Proposal No. 2 to
adjourn the special meeting, if a quorum is present, if
necessary to solicit additional proxies if there are not
sufficient votes in favor of Proposal No. 1. |
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Q: |
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How does the VitalStream board of directors recommend that I
vote? |
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After careful consideration, the VitalStream board of directors
unanimously recommends that VitalStream stockholders vote
FOR Proposal No. 1 to adopt the merger
agreement and FOR Proposal No. 2 to
adjourn the special meeting, if necessary to solicit additional
proxies if there are not sufficient votes in favor of
Proposal No. 1. |
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What risks should I consider in deciding whether to vote in
favor of the share issuance or the adoption of the merger
agreement? |
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You should carefully review the section of this joint proxy
statement/prospectus entitled Risk Factors beginning
on page 19, which sets forth risks and uncertainties
related to the merger, risks and uncertainties to which the
combined companys business will be subject, and risks and
uncertainties to which each of Internap and VitalStream, as
independent companies, are subject. |
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When do you expect the merger to be completed? |
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We anticipate that the closing of the merger will occur in the
first calendar quarter of 2007, shortly after the special
meetings, but we cannot predict the exact timing. For more
information, please see the section entitled The Merger
Agreement Conditions to Consummation of the
Merger on page 73. |
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What do I need to do now? |
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We urge you to read this joint proxy statement/prospectus
carefully, including its annexes, and to consider how the merger
affects you. You may provide your proxy instructions in two
different ways. First, you can mail your signed proxy card in
the enclosed return envelope. Alternatively, you can provide
your proxy instructions via the Internet at www.proxyvote.com.
Please only provide your proxy instructions once, but please do
so as soon as possible so that your shares can be voted at the
applicable special meeting. |
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What happens if I do not return a proxy card or otherwise
provide proxy instructions? |
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If you are an Internap stockholder and fail to return your proxy
card or otherwise provide proxy instructions, it might not be
possible to establish a quorum for the Internap special meeting
of stockholders, which is required to transact business at the
meeting. If you are a VitalStream stockholder and you fail to
return your proxy card or otherwise provide proxy instructions,
your action will have the same effect as voting against the
adoption of the merger agreement and it might not be possible to
establish or could prevent the establishing of a quorum for the
VitalStream special meeting of stockholders, which is required
to transact business at the meeting. |
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Q: |
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May I vote in person? |
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If your shares of Internap common stock or VitalStream common
stock are registered directly in your name with your
companys transfer agent, you are considered the
stockholder of record for those shares, and the proxy materials
and proxy card are being sent directly to you. If you are an
Internap stockholder of record, you may attend the special
meeting of Internap stockholders and vote your shares in person,
rather than signing and returning your proxy card or otherwise
providing proxy instructions. If you are a VitalStream
stockholder of record, you may attend the special meeting of
VitalStream stockholders and vote your shares in person, rather
than signing and returning your proxy card or otherwise
providing proxy instructions. |
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If your shares are held in a brokerage account or by another
nominee, you are considered the beneficial owner of shares held
in street name, and the proxy materials are being
forwarded to you together with a voting instruction card. As the
beneficial owner, you are also invited to attend your
companys special meeting. Since a beneficial owner is not
the stockholder of record, you may not vote these shares in
person at the applicable special meeting unless you obtain a
legal proxy from the broker, trustee or nominee that
holds your shares, giving you the right to vote the shares at
the meeting. |
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May I change my vote after I have provided proxy
instructions? |
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Yes. You may change your vote at any time before your proxy is
voted at your companys special meeting. If you are a
holder of record of Internap or VitalStream, you can do this in
one of three ways. First, you may send a written notice stating
that you would like to revoke your proxy. Second, you may submit
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instructions on a new proxy card. Third, you can attend the
meeting and vote in person. Your attendance alone will not
revoke your proxy. If you are a beneficial holder of Internap or
VitalStream shares held in street name and have
instructed a broker to vote your shares, you must follow
directions received from your broker to change those
instructions. |
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If my shares are held in street name by my
broker, will my broker vote my shares for me? |
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Your broker will not be able to vote your shares without
instructions from you. You should instruct your broker to vote
your shares, following the procedure provided by your broker. |
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Should I send in my stock certificates now? |
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No. If you are a VitalStream holder of record, after the
merger is consummated, the paying agent will send you written
instructions for exchanging the certificates representing your
shares of VitalStream common stock for certificates representing
shares of Internap common stock. You will also receive a cash
payment for any fractional Internap share. If you are a
beneficial holder of VitalStream shares held in street
name in a brokerage account, your VitalStream shares will
automatically be exchanged for Internap shares after the
consummation of the merger without any action by you. Internap
stockholders will not exchange their stock certificates. |
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Am I entitled to appraisal rights? |
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Under Nevada corporate law, holders of VitalStream common stock
are not entitled to appraisal rights in connection with the
merger because both Internap common stock and VitalStream common
stock are listed on the NASDAQ Global Market. Internap
stockholders will not be entitled to appraisal rights. |
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Who is paying for this proxy solicitation? |
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Internap and VitalStream are conducting this proxy solicitation
and will bear the cost of soliciting proxies, including the
preparation, assembly, printing and mailing of this joint proxy
statement/prospectus, the proxy card and any additional
information furnished to stockholders. Internap has engaged the
services of Morrow & Co., Inc. to distribute proxy
solicitation materials to brokers, banks and other nominees and
to assist in the solicitation of proxies from Internap
stockholders. VitalStream has also retained Morrow &
Co., Inc. to aid in VitalStreams proxy solicitation
process. Internap estimates that its proxy solicitor fees will
be approximately $6,000, and VitalStream estimates that its
proxy solicitor fees will be approximately $5,500. Each company
may also reimburse brokerage houses and other custodians,
nominees and fiduciaries for their costs of forwarding proxy and
solicitation materials to beneficial owners. If you choose to
access the proxy materials
and/or
submit your proxy over the Internet, you are responsible for any
related Internet access charges you may incur. |
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Who can help answer my questions? |
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If you are an Internap stockholder, and would like to receive
additional copies of this joint proxy statement/prospectus
without charge, or if you have questions about the merger,
including the procedures for voting your shares, you should
contact: |
Internap Network Services Corporation
Attn: Investor Relations
250 Williams Street,
Suite E-100
Atlanta, Georgia 30303
Telephone:
(404) 302-9841
E-mail:
ir@internap.com
OR
Morrow & Co., Inc.
470 West Avenue
3rd Floor
Stamford, Connecticut 06902
vi
If you are a VitalStream stockholder, and would like additional
copies of this joint proxy statement/prospectus without charge,
or if you have questions about the merger, including the
procedures for voting your shares, you should contact:
VitalStream Holdings, Inc.
Attn: Investor Relations
555 Anton Blvd., Suite 400
Costa Mesa, California 92626
Telephone:
(415) 217-7722
E-mail:
ir@VitalStream.com
OR
Morrow & Co., Inc.
470 West Avenue
3rd Floor
Stamford, Connecticut 06902
vii
SUMMARY
This summary highlights selected information from this
document. To understand the merger fully, you should read
carefully this entire document and the documents to which we
refer. In addition, both companies encourage you to read the
information incorporated by reference into this joint proxy
statement/prospectus, which includes important business and
financial information about Internap and VitalStream. See
Where You Can Find More Information on
page 113. The merger agreement is attached as Annex A
to this joint proxy statement/prospectus; we encourage you to
read the merger agreement because it is the legal document that
governs the merger. We have included page references in
parentheses to direct you to more detailed descriptions of the
topics presented in this summary.
COMPARATIVE
PER SHARE MARKET PRICE INFORMATION
Internap common stock and VitalStream common stock are both
listed on the NASDAQ Global Market under the symbols
INAP and VSTH, respectively. On
October 11, 2006, the last full trading day prior to the
public announcement of the proposed merger, Internap common
stock closed at $17.05 per share and VitalStream common
stock closed at $6.40 per share. On January 8, 2007,
Internap common stock closed at $20.50 per share and
VitalStream common stock closed at $10.31 per share.
THE
COMPANIES (Page 39)
Internap Network Services Corporation
250 Williams Street
Atlanta, Georgia 30303
Telephone:
(404) 302-9700
Internap Network Services Corporation markets products and
services that provide managed and premise-based Internet
Protocol (IP) and route optimization technologies that enable
business-critical applications such as
e-commerce,
customer relationship management, video and audio streaming,
voice-over-IP,
virtual private networks, and supply chain management.
Ivy Acquisition Corp. is a wholly owned subsidiary of Internap
that was incorporated in Nevada in 2006. Ivy Acquisition Corp.
does not engage in any operations and exists solely to
facilitate the merger.
VitalStream Holdings, Inc.
555 Anton Blvd., Suite 400
Costa Mesa, California 92626
Telephone:
(714) 549-5300
VitalStream Holdings, Inc. provides products and services for
storing and delivering digital media to large audiences over the
Internet. Since May 2006, VitalStream has also provided ad
insertion and related advertising services to companies that
stream digital media over the Internet.
THE
SPECIAL MEETINGS
The
Special Meeting of Internap Stockholders
(Page 39)
Time, Date and Place. A special meeting of the
stockholders of Internap will be held at 3 p.m. local time on
February 20, 2007, at the principal place of business of
Internap, located at 250 Williams Street, Atlanta, Georgia, to
vote on Proposal No. 1 to approve the issuance of
shares of Internap common stock in the merger and adopt the
merger agreement and on Proposal No. 2 to adjourn the
special meeting, if a quorum is present, if necessary to solicit
additional proxies in favor of Proposal No. 1.
Record Date and Voting Power for Internap. You
are entitled to vote your Internap shares with respect to the
matters to be presented at the Internap special meeting if you
owned shares of Internap common stock at the close of business
on December 29, 2006, the record date for the Internap
special meeting. You will have one vote at the special meeting
for each share of Internap common stock you owned at the close
of business on the record date. There are 35,875,746 shares
of Internap common stock entitled to be voted at the special
meeting.
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Internap Required Vote. The affirmative vote
of the holders of a majority of the votes cast in person or by
proxy at the Internap special meeting is required for approval
of each of Proposal No. 1 to approve the issuance of
shares of Internap common stock in the merger and adopt the
merger agreement, and Proposal No. 2 to adjourn the
Internap special meeting, if a quorum is present, if necessary
to solicit additional proxies in favor of
Proposal No. 1.
Share Ownership of Management. The directors
and executive officers of Internap own approximately 3% of the
shares entitled to vote with respect to the Internap special
meeting.
The
Special Meeting of VitalStream Stockholders
(Page 41)
Time, Date and Place. A special meeting of the
stockholders of VitalStream will be held at 12 p.m. on
February 20, 2007, at the principal executive offices of
VitalStream located at 555 Anton Blvd., Suite 400, Costa
Mesa, California, to vote on Proposal No. 1 to adopt
the merger agreement and Proposal No. 2 to adjourn the
VitalStream special meeting, if necessary to solicit additional
proxies if there are not sufficient votes in favor of
Proposal No. 1.
Record Date and Voting Power for
VitalStream. You are entitled to vote your
VitalStream shares with respect to the matters to be presented
at the VitalStream special meeting if you owned shares of
VitalStream common stock at the close of business on
December 29, 2006, the record date for the special meeting.
You will have one vote at the special meeting for each share of
VitalStream common stock you owned at the close of business on
the record date. There are 23,774,014 shares of VitalStream
common stock entitled to be voted at the VitalStream special
meeting.
VitalStream Required Vote. The affirmative
vote of the holders of a majority of the voting power of the
shares of VitalStream common stock outstanding on the record
date for the VitalStream special meeting is required to approve
Proposal No. 1 to adopt the merger agreement. The
affirmative vote of the holders of a majority of the votes cast
in person or by proxy at the VitalStream special meeting is
required to approve Proposal No. 2 to adjourn the
VitalStream special meeting, if necessary to solicit additional
proxies in favor of Proposal No. 1.
Share Ownership of Management. The directors
and executive officers of VitalStream own approximately 7% of
the shares entitled to vote with respect to the VitalStream
special meeting. Certain major shareholders of VitalStream,
collectively holding approximately 27% of the shares entitled to
vote at the VitalStream special meeting, have agreed to vote
their shares in favor of the adoption of the merger agreement.
RECOMMENDATIONS
TO STOCKHOLDERS
To Internap Stockholders (Page 40). The
Internap board of directors has determined and believes that the
issuance of shares of Internap common stock in the merger and
the adoption of the merger agreement is advisable and fair to,
and in the best interests of, Internap and its stockholders. The
Internap board of directors unanimously recommends that the
holders of Internap common stock vote FOR
Proposal No. 1 to approve the issuance of shares of
Internap common stock in the merger and to adopt the merger
agreement and FOR Proposal No. 2 to
adjourn the Internap special meeting, if a quorum is present, if
necessary to solicit additional proxies in favor of
Proposal No. 1.
To VitalStream Stockholders
(Page 42). The VitalStream board of
directors has determined and believes that the merger is
advisable and fair to, and in the best interests of, VitalStream
and its stockholders. The VitalStream board of directors
unanimously recommends that the holders of VitalStream common
stock vote FOR Proposal No. 1 to adopt the
merger agreement and FOR Proposal No. 2 to
adjourn the VitalStream special meeting, if necessary to solicit
additional proxies in favor of Proposal No. 1.
The
Merger (Page 44)
In the merger, Ivy Acquisition Corp, a wholly owned subsidiary
of Internap, will merge with and into VitalStream, and
VitalStream will become a wholly owned subsidiary of Internap.
Holders of VitalStream common stock and options will become
holders of Internap common stock and options, respectively,
following the merger. The shares of Internap common stock issued
to VitalStream stockholders in connection with the merger are
expected to represent approximately 25% of the outstanding
shares of Internap common stock immediately
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following the consummation of the merger, based on the number
of shares of Internap and VitalStream common stock outstanding
on December 29, 2006.
Merger
Consideration (Page 72)
If you are a VitalStream stockholder, you will receive
0.5132 shares of Internap common stock in exchange for each
share of VitalStream common stock you own. The exchange ratio is
fixed and, regardless of fluctuations in the market price of
Internaps or VitalStreams common stock, will not
change between now and the date the merger is consummated,
subject to any adjustments for changes in the number of
outstanding shares of Internap or VitalStream by reason of stock
splits, division of shares, stock dividends or other similar
transactions.
Treatment
of VitalStream Stock Options (Page 73)
Options to purchase shares of VitalStream common stock that are
outstanding and unexercised immediately prior to the effective
time of the merger will be assumed by Internap and converted
into options to purchase shares of Internap common stock. The
number of shares of Internap common stock issuable upon the
exercise of these options, and their respective exercise prices,
will be calculated using the exchange ratio for the merger.
Risks
Relating to the Merger (Page 19)
In evaluating the merger agreement or the issuance of shares of
Internap common stock in the merger, you should read this joint
proxy statement/prospectus carefully and especially consider the
factors discussed in the section entitled Risks Relating
to the Merger beginning on page 19.
Reasons
for the Merger
Mutual
Reasons (Page 49).
We believe that the combined companies together can meet more of
our customers needs for products, services and
technologies. Many of our customer segments are complementary.
We believe that the broad set of products and services that
Internap and VitalStream can provide to customers, including
high performance route control products and services, content
delivery services and on-line advertising services, will
represent one of the industrys most comprehensive
solutions for delivering, managing and monetizing integrated
streaming and digital content over the Internet.
Internaps
Reasons (Page 49).
In addition to considering the strategic factors outlined in the
section entitled Reasons for the Merger-Mutual
Reasons beginning on page 49, the Internap board of
directors considered the following factors in reaching its
conclusion to approve the merger and to recommend that the
Internap stockholders approve the issuance of shares of Internap
common stock in the merger, all of which it viewed as generally
supporting its decision to approve the business combination with
VitalStream:
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the complementary nature of Internaps and
VitalStreams product lines;
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the potential opportunity for the two companies to integrate
their solutions to meet a wider set of customer needs and to
combine their technological resources to develop new products
with increased functionality and bring them to market faster;
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the boards and managements assessment that the
merger and VitalStreams operating strategy are consistent
with Internaps long-term strategic objectives to grow into
new markets;
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the competitive and market environments in which Internap and
VitalStream operate;
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historical and current information about each of the combining
companies and their businesses, prospects, financial performance
and condition, operations, technology, management and
competitive position, before and after giving effect to the
merger and the mergers potential effect on stockholder
value, including public reports filed with the SEC, analyst
estimates, market data and managements knowledge of the
industry;
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the opinion of Thomas Weisel Partners LLC, or TWP,
Internaps financial advisor, that, as of October 12,
2006 and based on and in reliance on the factors and assumptions
set forth in the opinion, the consideration to be paid by
Internap pursuant to the merger agreement was fair to Internap
from a financial point of view, and the related financial
analyses and presentations (a copy of TWPs written opinion
is attached as Annex C to this joint proxy
statement/prospectus);
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the results of the due diligence review of VitalStreams
businesses and operations by Internaps management,
financial advisors, accountants and legal counsel;
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the judgment of the Internap board of directors, based on
arms length negotiations with VitalStream, that the merger
consideration of 0.5132 shares of Internap common stock for
each share of VitalStream common stock represented the lowest
price that could be negotiated with VitalStream; and
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the terms and conditions of the merger agreement.
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VitalStreams
Reasons (Page 51).
The decision of the VitalStream board of directors was based
upon a number of potential benefits of the transaction,
including the following:
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the ability to better serve the customer base and partners of
each company with the combination of a comprehensive portfolio
of technologies, applications and expertise that will enable
customers to store, download and broadcast digital media more
effectively;
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the belief that VitalStreams ability to attract and retain
customers would be enhanced by the scale and reliability of
Internaps network;
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the belief that a merger with Internap could enhance the
combined companys ability to compete with larger
competitors by bringing together the network and technologies of
Internap with the streaming, ad-insertion and other capabilities
of VitalStream, in addition to both of their management and
sales teams;
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the opportunity for each company to introduce its complementary
product lines into the customer base of the other company;
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the greater global presence of the combined company;
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the expected synergies and cost-saving opportunities that should
result from headcount reductions, office site consolidations and
eliminating redundant operating expenses;
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the belief that the combined companys larger size,
increased public stock float and broadened capabilities would
lead to expanded research coverage and may lead to increased
institutional investor interest than that of VitalStream
alone; and
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the belief that the merger would combine two experienced and
respected management teams, resulting in a combined management
team that is stronger than the management teams of each of the
individual companies.
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In addition to the potential benefits accruing to VitalStream
and its stockholders from the merger, the VitalStream board of
directors also considered a number of other factors in approving
the merger, including the following:
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the merger consideration relative to the current market prices
of VitalStream common stock, and in particular the fact that,
based on the closing price of Internap common stock on
October 11, 2006, the merger consideration of
0.5132 shares of Internap common stock for each share of
VitalStream common stock represented a 36.7% premium over the
closing price of VitalStream common stock on October 11,
2006 and a 23.8% premium over the average closing price of
VitalStream common stock for the week preceding October 11,
2006; VitalStreams market price at such time was after its
announcement that MySpace Inc., which accounted for over 30% of
VitalStreams revenue between January 1, 2006 and
September 30, 2006, informed VitalStream that it intends to
develop its own in-house streaming capabilities and to
significantly
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reduce its use of VitalStream services and also
VitalStreams release of projections regarding third
quarter 2006 and certain future revenues following the
announcement related to MySpace;
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the merger consideration relative to the historical market
prices of VitalStream common stock, and in particular the belief
that, notwithstanding the fact that, based on the closing price
of Internap common stock on October 11, 2006, the per-share
merger consideration of 0.5132 share of common stock
represented a discount of 9.1% from the average closing price of
VitalStream common stock for the preceding six months and a 7.9%
premium over the average closing price of VitalStream common
stock for the preceding year, the six-month and one-year average
stock price numbers did not reflect the markets reaction
to the above-referenced MySpace announcement and subsequent
revenue projections and that the recent stock price information
represented a more accurate benchmark as to what VitalStream
stockholders could expect if VitalStream were to continue to
operate on a stand-alone basis;
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the fact that the merger consideration consists almost entirely
of Internap common stock (excepting only that partial Internap
shares will be paid in cash), which will allow VitalStream
stockholders to participate in the growth and opportunities of
the combined company;
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the financial analyses reviewed with the VitalStream board of
directors on October 11, 2006 and prior dates by RBC and
the opinion of RBC to the VitalStream board of directors on
October 11, 2006 to the effect that, as of that date, and
based upon and subject to the factors, qualifications,
assumptions and limitations set forth in RBCs
opinion, the total consideration to be paid pursuant to the
merger agreement was fair, from a financial point of view, to
the holders of VitalStream common stock (a copy of RBCs
written opinion is attached as Annex D to this joint proxy
statement/prospectus);
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the judgment of the VitalStream board of directors, based on
arms length negotiations with Internap, that the merger
consideration of 0.5132 shares of Internap common stock for
each share of VitalStream common stock represented the highest
price that could be negotiated with Internap;
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the absence of other serious potential bidders for VitalStream
following a targeted marketing effort by RBC and management of
VitalStream and the judgment of the VitalStream board of
directors that continued searching for an alternative acquirer
would unlikely yield a superior proposal;
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the prospects for VitalStreams business and the potential
stockholder value that could be expected to be generated if
VitalStream were to remain an independent, publicly traded
company, including its business strategy going forward, its cash
reserves, uncertainties regarding the success of a proposed
financing transaction, uncertainties regarding
VitalStreams ability to retain certain customers, attract
additional significant customers and expand its product lines
and sales channels, and continued consolidation in the industry
and increased competition, especially from competitors with
greater name recognition and financial and other resources;
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the terms and conditions of the merger agreement, including:
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the fact that the merger agreement enables the VitalStream board
of directors, in the exercise of its fiduciary duties, to
authorize VitalStream to participate in discussions and
negotiations with and furnish non-public information to a third
party in connection with an unsolicited bid to acquire
VitalStream, change its recommendation in favor of the merger
with Internap, and potentially enter into a transaction with
another acquirer, subject to certain limitations as set forth in
the merger agreement, and in certain circumstances, subject to
the payment of a termination fee of $8 million, which
constituted approximately 3.7% of the merger consideration based
on the closing price of Internap common stock on
October 11, 2006, plus transaction expenses of Internap
incurred theretofore;
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the fact that VitalStream is not obligated to pay the
$8 million termination fee plus transaction expenses of
Internap incurred theretofore upon a termination of the merger
agreement due to the VitalStream stockholders failing to approve
the merger absent a change in recommendation by the VitalStream
board of directors unless prior to such termination there has
been public disclosure of an acquisition proposal and within
12 months following the termination of the merger
agreement, VitalStream consummates an acquisition or enters into
an agreement providing for an acquisition of VitalStream;
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the limited number and nature of the conditions to
Internaps obligation to close the proposed merger and the
risk of non-satisfaction of such conditions;
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the condition to the closing of the proposed merger that the
merger consideration be tax-free to VitalStreams
U.S. stockholders;
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the competitive and market environments in which VitalStream and
Internap operate;
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the results of the due diligence investigation of Internap
conducted by VitalStreams management, financial advisors,
accountants and legal counsel;
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the VitalStream board of directors own understanding of
VitalStream, Internap and their respective businesses; and
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the likelihood the merger will be completed on a timely basis,
including the likelihood that the merger will be approved by the
appropriate regulatory authorities.
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Opinions
of Financial Advisors
Opinion of Internaps Financial Advisor
(Page 54). Thomas Weisel Partners LLC
delivered its opinion to Internaps board of directors
that, as of October 12, 2006 and based on and in reliance
on the factors and assumptions set forth therein, the
consideration to be paid by Internap pursuant to the merger
agreement is fair to Internap from a financial point of view as
of such date.
The full text of the written opinion of Thomas Weisel Partners,
dated October 12, 2006, which sets forth the assumptions
made, procedures followed, matters considered and limitations on
the review undertaken in connection with the opinion, is
attached as Annex C. Thomas Weisel Partners provided its
opinion for the information and assistance of Internaps
board of directors in its consideration of the merger. The
Thomas Weisel Partners opinion is not a recommendation as to how
any holder of Internap common stock should vote with respect to
the issuance of shares of Internap common stock in the merger or
the adoption of the merger agreement. Internap urges you to
read the entire opinion carefully.
Opinion of VitalStreams Financial Advisor
(Page 59). RBC Capital Markets Corporation
delivered its opinion to the VitalStream board of directors
that, as of October 11, 2006 and based upon and subject to
the assumptions, qualifications and limitations set forth
therein, the total consideration to be paid pursuant to the
merger agreement was fair from a financial point of view to the
stockholders of VitalStream.
The full text of the written opinion of RBC Capital Markets,
dated October 11, 2006, which sets forth the assumptions
made, procedures followed, matters considered and limitations on
the review undertaken in connection with the opinion, is
attached as Annex D. RBC Capital Markets provided its
opinion for the information and assistance of the VitalStream
board of directors in consideration of the merger and the merger
agreement. The RBC Capital Market opinion is not a
recommendation as to how any holder of VitalStream common stock
should vote with respect to the adoption of the merger
agreement. VitalStream urges you to read the entire opinion
carefully.
Interests
of VitalStreams Executive Officers and Directors in the
Merger (Page 66)
When considering the recommendations by the VitalStream board of
directors, you should be aware that a number of
VitalStreams executive officers and directors have
interests in the merger that are different from those of other
VitalStream stockholders.
No
Solicitation (Page 81)
Until the merger is completed or the merger agreement is
terminated, VitalStream has agreed not to take any action with
regard to any acquisition proposal other than Internaps,
except as necessary to receive and understand any other
acquisition proposal, as described on page 81, unless
VitalStream receives an acquisition proposal before the
VitalStream stockholders meeting that its board of
directors concludes, in good faith, may constitute a superior
offer, as described on page 82. If VitalStream receives an
acquisition proposal that its board considers to be a superior
offer, VitalStream may, subject to the conditions specified on
page 82, furnish non-public information
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regarding itself and may enter into discussions with the person
who made the acquisition proposal. VitalStream has agreed to
provide Internap with advance notice of any board meeting at
which VitalStream expects to consider any acquisition proposal
to determine whether it is a superior offer and to furnish to
Internap the material terms of such proposals.
Covenants
Regarding Special Meetings and Recommendations of Board of
Directors (Page 82)
If the VitalStream board believes, after consultation with its
financial advisors, that an acquisition proposal it receives is
a superior offer, the merger agreement enables the VitalStream
board of directors, in the exercise of its fiduciary duties, to:
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authorize VitalStream to participate in discussions and
negotiations with and furnish non-public information to a third
party in connection with an unsolicited bid to acquire
VitalStream;
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withhold, withdraw, amend or change its recommendation in favor
of the merger with Internap; and
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potentially enter into a transaction with another acquirer,
subject to certain limitations as set forth in the merger
agreement, and in certain circumstances, subject to the payment
of a termination fee of $8 million, which constituted
approximately 3.7% of the merger consideration based on the
closing price of Internap common stock on October 11, 2006,
plus transaction expenses of Internap incurred theretofore.
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Conditions
to Consummation of the Merger (Page 73)
The respective obligations of Internap and VitalStream to
consummate the merger are subject to the satisfaction of certain
conditions, including, but not limited to, the following:
|
|
|
|
|
the holders of a majority of the issued and outstanding shares
of Internap and VitalStream common stock must have voted in
favor of adopting the merger agreement;
|
|
|
|
no statute, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or
permanent) that has the effect of making the merger illegal or
otherwise prohibits the completion of the merger is in
effect; and
|
|
|
|
all approvals from each governmental entity necessary for the
completion of the merger have been obtained, and any waiting
period applicable to the completion of the merger under the HSR
Act has expired or been terminated and there is no instituted,
pending or threatened action, proceeding or hearing by any
governmental entity that adversely impacts the merger in a
particular manner.
|
VitalStream. The merger agreement provides
that the obligations of VitalStream to effect the merger are
further subject to the fulfillment of the following conditions,
any of which may be waived in whole or part by VitalStream:
|
|
|
|
|
the representations and warranties of Internap and Ivy
Acquisition Corp. set forth in the merger agreement must be true
and correct in all material respects; provided, however, this
condition will be satisfied as long as any failure of
Internaps and Ivy Acquisition Corp.s representations
and warranties to be true and correct does not result in a
material adverse effect on Internap;
|
|
|
|
Internap and Ivy Acquisition Corp. must have performed or
complied with in all material respects all obligations required
to be performed or completed by them under the merger agreement
at or prior to the closing of the merger;
|
|
|
|
no material adverse effect on Internap has occurred since the
date of the merger agreement;
|
|
|
|
Internap and Ivy Acquisition Corp. must have obtained a limited
number of consents, waivers, and approvals of governmental
entities or third parties required in connection with the
merger; and
|
|
|
|
VitalStream must have received a written opinion of Parr
Waddoups Brown Gee & Loveless, PC that the merger will
be treated for Federal income tax purposes as a tax-free
reorganization.
|
7
Internap. The merger agreement provides that
the obligations of Internap and Ivy Acquisition Corp. to effect
the merger are further subject to the fulfillment of the
following conditions, any of which may be waived in whole or
part by Internap:
|
|
|
|
|
the representations and warranties of VitalStream set forth in
the merger agreement must be true and correct in all material
respects; provided, however, this condition will be satisfied as
long as any failure of VitalStreams representations and
warranties to be true and correct does not result in a material
adverse effect on VitalStream;
|
|
|
|
VitalStream must have performed or complied with in all material
respects all obligations required to be performed by it under
the merger agreement at or prior to the closing of the merger;
|
|
|
|
no material adverse effect on VitalStream has occurred since the
date of the merger agreement;
|
|
|
|
Internap must have received the written legal opinion of Morris,
Manning & Martin, LLP that the merger will be treated
for Federal income tax purposes as a tax-free
reorganization; and
|
|
|
|
VitalStream must have obtained a limited number of consents,
waivers, and approvals of governmental entities or third parties
required in connection with the merger.
|
Termination
(Page 84)
Either Internap or VitalStream can terminate the merger
agreement under certain circumstances, which would prevent the
merger from being consummated.
Termination
Fees and Expenses (Page 87)
The merger agreement requires that VitalStream pay Internap a
termination fee of $8,000,000 and transaction expenses incurred
by Internap theretofore if, among other things, the merger
agreement is terminated by Internap because:
|
|
|
|
|
the VitalStream board of directors has changed its
recommendation of the merger;
|
|
|
|
VitalStream failed to include in this joint proxy
statement/prospectus the recommendation of its board of
directors in favor of the adoption and approval of the merger
agreement and the approval of the merger;
|
|
|
|
the VitalStream board of directors fails to reaffirm its
recommendation of the merger after Internap requests that it do
so;
|
|
|
|
the VitalStream board of directors approves or recommends any
other acquisition proposal;
|
|
|
|
VitalStream enters into any letter of intent or contract with
respect to any other acquisition proposal;
|
|
|
|
VitalStream materially breaches specified provisions of the
merger agreement; or
|
|
|
|
a third-party tender or exchange offer for VitalStream
securities is commenced, and VitalStream does not, within 10
business days, send its security holders its recommendation that
the tender or exchange offer be rejected.
|
In addition, the merger agreement requires that VitalStream pay
Internap a termination fee and transaction expenses if, among
other things:
|
|
|
|
|
the merger agreement is terminated:
|
|
|
|
|
|
by either VitalStream or Internap if the merger is not
consummated by the outside closing date, except for a
termination by VitalStream if any action or failure to act by
Internap or Ivy Acquisition Corp. is the principal cause of the
failure of the merger to occur on or before the outside closing
date;
|
|
|
|
by either VitalStream or Internap, if the approval and adoption
of the merger agreement and the approval of the merger by
VitalStreams stockholders has not been obtained by reason
of the failure to obtain the required vote at a meeting of
VitalStreams stockholders duly convened therefor or at any
adjournment thereof, provided, however, that this right to
terminate the merger agreement is not available to
|
8
|
|
|
|
|
VitalStream where the failure to obtain approval by
VitalStreams stockholders has been caused by the action or
failure to act of VitalStream and such action or failure to act
constitutes a material breach by VitalStream of the merger
agreement; or
|
|
|
|
|
|
by Internap, either (a) upon a breach of any
representation, warranty, covenant or agreement on the part of
VitalStream set forth in the merger agreement or if any
representation or warranty of VitalStream has become untrue, in
either case such that the conditions to consummate the merger
would not be satisfied as of the time of such breach or as of
the time such representation or warranty has become untrue, or
(b) if a material adverse effect with respect to
VitalStream has occurred; provided that if such inaccuracy in
VitalStreams representations and warranties or breach by
VitalStream, or if such material adverse effect with respect to
VitalStream, is curable by VitalStream through the exercise of
its commercially reasonable efforts, then Internap may not
terminate the merger agreement for 20 days after delivery
of written notice from Internap to VitalStream of such breach,
provided VitalStream continues to exercise commercially
reasonable efforts to cure such breach or material adverse
effect with respect to VitalStream (it being understood that
Internap may not terminate the merger agreement if such breach
by VitalStream or material adverse effect with respect to
VitalStream is cured during such
20-day
period, or if Internap has materially breached the merger
agreement); and
|
|
|
|
|
|
at or prior to a termination of the merger agreement, but after
the date of the merger agreement, there exists or has been
publicly proposed a bona fide acquisition proposal relating to
an acquisition and within 12 months after such termination,
VitalStream enters into a letter of intent or definitive
agreement with respect to any acquisition or any acquisition is
consummated.
|
Other than the termination fee and payment of transaction
expenses in connection therewith, the merger agreement provides
that regardless of whether the merger is consummated, all
expenses incurred by the parties will be borne by the party
incurring such expenses.
Tax
Matters (Page 69)
Morris, Manning & Martin
LLP, counsel to
Internap, and Parr Waddoups Brown Gee & Loveless,
PC, counsel to
VitalStream, are expected to each issue a tax opinion to the
effect that the merger will constitute a reorganization under
Section 368 of the Internal Revenue Code. In a
reorganization, a VitalStream stockholder generally will not
recognize any gain or loss for U.S. federal income tax
purposes upon the exchange of its shares of VitalStream common
stock for shares of Internap common stock. However, any cash
received for any fractional Internap share will result in the
recognition of gain or loss as if such stockholder sold its
fractional share. A VitalStream stockholders tax basis in
the shares of Internap common stock that it receives in the
merger will equal its current tax basis in its VitalStream
common stock (reduced by the basis allocable to any fractional
Internap share received in cash).
Tax matters can be complicated, and the tax consequences of
the merger to you will depend on the facts of your own
situation. You should consult your own tax advisor to fully
understand the tax consequences of the merger to you, including
the applicability and effect of federal, state, local and
foreign income and other tax laws.
Regulatory
Approvals (Page 71)
To consummate the merger, Internap and VitalStream must make
filings and obtain approvals or clearances from antitrust
regulatory authorities in the United States. On
November 17, 2006, the Federal Trade Commission notified
counsel for each of Internap and VitalStream that it had granted
early termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act. In the United
States, Internap must also comply with applicable federal and
state securities laws and the rules and regulations of the
NASDAQ Stock Market in connection with the issuance of shares of
Internap common stock in the merger and the filing of this joint
proxy statement/prospectus with the SEC.
9
Anticipated
Accounting Treatment (Page 70)
The merger will be accounted for as a purchase transaction by
Internap for financial reporting and accounting purposes under
U.S. generally accepted accounting principles. After the
merger, the results of operations of VitalStream will be
included in the consolidated financial statements of Internap.
Appraisal
Rights (Page 70)
Under Nevada corporate law, holders of VitalStream common stock
are not entitled to appraisal rights in connection with the
merger because both Internap common stock and Vital Stream
common stock are listed on the NASDAQ Global Market. Holders of
Internap common stock are not entitled to appraisal rights in
connection with the merger.
MARKET
PRICE AND DIVIDEND DATA
Internap common stock and VitalStream common stock are each
listed on the NASDAQ Global Market under the symbols
INAP and VSTH, respectively. The
following tables present, for the periods indicated, the range
of high and low per share sales prices for Internap common stock
and VitalStream common stock, as reported for Internap on the
NASDAQ Global Market since September 19, 2006, on the
American Stock Exchange between February 18, 2004 and
September 18, 2006, and on the NASDAQ Capital Market prior
to February 18, 2004, and for VitalStream on the NASDAQ
Global Market since August 30, 2006, on the NASDAQ Capital
Market between June 21, 2006 and August 29, 2006, and
on the OTC Bulletin Board prior to June 21, 2006.
Internap and VitalStream have never declared or paid any cash
dividend on shares of their respective common stock.
Internaps and VitalStreams policy is to retain
earnings, if any, for use in their respective businesses.
On July 11, 2006, Internap effected a
one-for-ten
reverse stock split of its common stock. On April 4, 2006,
VitalStream effected a
one-for-four
reverse stock split of its common stock. The information in the
following tables has been adjusted to reflect these stock
splits. Both companies fiscal years end on
December 31.
|
|
|
|
|
|
|
|
|
Internap Network Services Corporation
|
|
High
|
|
|
Low
|
|
|
2004
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
27.50
|
|
|
$
|
13.00
|
|
Second quarter
|
|
|
21.20
|
|
|
|
10.50
|
|
Third quarter
|
|
|
12.60
|
|
|
|
4.80
|
|
Fourth quarter
|
|
|
11.40
|
|
|
|
5.00
|
|
2005
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
11.00
|
|
|
$
|
5.10
|
|
Second quarter
|
|
|
6.30
|
|
|
|
4.10
|
|
Third quarter
|
|
|
5.90
|
|
|
|
4.20
|
|
Fourth quarter
|
|
|
5.20
|
|
|
|
3.60
|
|
2006
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
10.60
|
|
|
$
|
4.20
|
|
Second quarter
|
|
|
15.50
|
|
|
|
9.00
|
|
Third quarter
|
|
|
16.80
|
|
|
|
9.30
|
|
Fourth quarter
|
|
|
21.25
|
|
|
|
14.10
|
|
2007
|
|
|
|
|
|
|
|
|
First quarter (through
January 8)
|
|
|
20.63
|
|
|
|
19.60
|
|
10
|
|
|
|
|
|
|
|
|
VitalStream Holdings, Inc.
|
|
High
|
|
|
Low
|
|
|
2004
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
6.20
|
|
|
$
|
2.40
|
|
Second quarter
|
|
|
5.08
|
|
|
|
2.40
|
|
Third quarter
|
|
|
3.20
|
|
|
|
2.12
|
|
Fourth quarter
|
|
|
3.40
|
|
|
|
1.68
|
|
2005
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
4.16
|
|
|
$
|
2.04
|
|
Second quarter
|
|
|
3.04
|
|
|
|
1.84
|
|
Third quarter
|
|
|
4.88
|
|
|
|
2.68
|
|
Fourth quarter
|
|
|
7.76
|
|
|
|
3.44
|
|
2006
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
11.00
|
|
|
$
|
5.24
|
|
Second quarter
|
|
|
13.70
|
|
|
|
9.01
|
|
Third quarter
|
|
|
10.84
|
|
|
|
7.60
|
|
Fourth quarter
|
|
|
10.64
|
|
|
|
6.35
|
|
2007
|
|
|
|
|
|
|
|
|
First quarter (through
January 8)
|
|
$
|
10.37
|
|
|
$
|
9.91
|
|
The following table presents the closing per share sales price
of Internap common stock and VitalStream common stock, as
reported on the NASDAQ Global Market, and the estimated
equivalent per share price (as explained below) of VitalStream
common stock on October 11, 2006, the last full trading day
before the public announcement of the proposed merger, and on
January 8, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
Equivalent
|
|
|
|
Internap
|
|
|
VitalStream
|
|
|
VitalStream per
|
|
|
|
Common Stock
|
|
|
Common Stock
|
|
|
Share Price
|
|
|
October 11, 2006
|
|
$
|
17.05
|
|
|
$
|
6.40
|
|
|
$
|
8.75
|
|
January 8, 2007
|
|
$
|
20.50
|
|
|
$
|
10.31
|
|
|
$
|
10.52
|
|
The estimated equivalent per share price of a share of
VitalStream common stock equals the exchange ratio of 0.5132
multiplied by the price of a share of Internap common stock. You
may use this calculation to determine what your shares of
VitalStream common stock will be worth if the merger is
consummated. If the merger had occurred on January 8, 2007,
you would have received, for each 100 shares of VitalStream
common stock you owned, 51 shares of Internap common stock,
plus a cash payment in lieu of a fractional Internap share worth
$6.56. The actual equivalent per share price of a share of
VitalStream common stock that you will receive if the merger is
consummated may be different from this price because the per
share price of Internap common stock on the NASDAQ Global Market
fluctuates continuously. Following the consummation of the
merger, Internap common stock will continue to be listed on the
NASDAQ Global Market, and there will be no further market for
VitalStream common stock.
11
INTERNAP
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL DATA
(in
thousands, except per share data)
You should read the following table in conjunction with
Internaps consolidated financial statements and related
notes and Internaps Managements Discussion and
Analysis of Financial Condition and Results of Operations
in Internaps Annual Report on
Form 10-K
for the fiscal year ended December 31, 2005 and Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2006, which are
incorporated by reference in this joint proxy
statement/prospectus. Historical results are not necessarily
indicative of the results to be expected in the future.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Year Ended December 31,
|
|
|
|
2006(3)
|
|
|
2005
|
|
|
2005
|
|
|
2004
|
|
|
2003(1)
|
|
|
2002(2)
|
|
|
2001
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical Consolidated
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
132,404
|
|
|
$
|
113,425
|
|
|
$
|
153,717
|
|
|
$
|
144,546
|
|
|
$
|
138,580
|
|
|
$
|
132,487
|
|
|
$
|
117,404
|
|
Income (loss) from operations
|
|
|
426
|
|
|
|
(4,837
|
)
|
|
|
(5,134
|
)
|
|
|
(16,900
|
)
|
|
|
(31,616
|
)
|
|
|
(68,907
|
)
|
|
|
(451,545
|
)
|
Income (loss) before income taxes
|
|
|
1,548
|
|
|
|
(4,837
|
)
|
|
|
(5,134
|
)
|
|
|
(16,900
|
)
|
|
|
(31,616
|
)
|
|
|
(73,369
|
)
|
|
|
(453,463
|
)
|
Net income (loss)
|
|
|
1,448
|
|
|
|
(4,787
|
)
|
|
|
(4,964
|
)
|
|
|
(18,062
|
)
|
|
|
(34,601
|
)
|
|
|
(75,668
|
)
|
|
|
(479,928
|
)
|
Net income (loss) attributable to
common shareholders
|
|
|
1,448
|
|
|
|
(4,787
|
)
|
|
|
(4,964
|
)
|
|
|
(18,062
|
)
|
|
|
(69,177
|
)
|
|
|
(75,668
|
)
|
|
|
(479,928
|
)
|
Net income (loss) per share:
basic(4)
|
|
|
0.04
|
|
|
|
(0.14
|
)
|
|
|
(0.15
|
)
|
|
|
(0.63
|
)
|
|
|
(3.96
|
)
|
|
|
(4.87
|
)
|
|
|
(31.93
|
)
|
Net income (loss) per share:
diluted(4)
|
|
|
0.04
|
|
|
|
(0.14
|
)
|
|
|
(0.15
|
)
|
|
|
(0.63
|
)
|
|
|
(3.96
|
)
|
|
|
(4.87
|
)
|
|
|
(31.93
|
)
|
Shares used in per share
calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic(4)
|
|
|
34,537
|
|
|
|
33,933
|
|
|
|
33,939
|
|
|
|
28,732
|
|
|
|
17,460
|
|
|
|
15,555
|
|
|
|
15,033
|
|
Diluted(4)
|
|
|
35,343
|
|
|
|
33,933
|
|
|
|
33,939
|
|
|
|
28,732
|
|
|
|
17,460
|
|
|
|
15,555
|
|
|
|
15,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30,
|
|
|
As of December 31,
|
|
|
|
2006(3)
|
|
|
2005
|
|
|
2005
|
|
|
2004
|
|
|
2003(1)
|
|
|
2002(2)
|
|
|
2001
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical Consolidated Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, and
short-term marketable investments
|
|
$
|
41,389
|
|
|
$
|
22,549
|
|
|
$
|
40,494
|
|
|
$
|
45,985
|
|
|
$
|
18,885
|
|
|
$
|
25,219
|
|
|
$
|
82,306
|
|
Non-current marketable investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
167,731
|
|
|
|
157,383
|
|
|
|
155,369
|
|
|
|
168,149
|
|
|
|
135,839
|
|
|
|
166,334
|
|
|
|
279,294
|
|
Notes payable and capital lease
obligations, less current portion
|
|
|
4,467
|
|
|
|
9,142
|
|
|
|
7,903
|
|
|
|
12,837
|
|
|
|
12,742
|
|
|
|
22,739
|
|
|
|
11,184
|
|
Series A convertible preferred
stock(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,790
|
|
|
|
83,314
|
|
Total stockholders equity
|
|
|
122,140
|
|
|
|
109,611
|
|
|
|
109,728
|
|
|
|
113,738
|
|
|
|
70,524
|
|
|
|
(4,228
|
)
|
|
|
63,429
|
|
|
|
|
(1) |
|
In August 2003, we completed a private placement of our common
stock which resulted in a decrease of the conversion price of
our series A preferred stock to $9.50 per share and an
increase in the number of shares of common stock issuable upon
conversion of all shares of series A preferred stock by
3.5 million shares. We recorded a deemed dividend of
$34.6 million in connection with the conversion price
adjustment, which is attributable to the additional incremental
number of shares of common stock issuable upon conversion of our
series A preferred stock. In October 2003, Internap
acquired the business of netVmg, Inc. and Sockeye Networks,
Inc. |
12
|
|
|
(2) |
|
Internap adopted Statement of Financial Accounting Standard
(SFAS) No. 142, Goodwill and Other Intangible
Assets during 2002. Accordingly, effective January 1,
2002, goodwill is no longer amortized and is instead reviewed
for impairment annually, or more frequently, if indications of
impairment arise. |
|
(3) |
|
Effective January 1, 2006, Internap adopted
SFAS No. 123 (revised 2004), Share-Based
Payment (SFAS No. 123R) and related
interpretations, using the modified prospective transition
method and therefore have not restated prior periods
results. Prior to the adoption of SFAS No. 123R on
January 1, 2006, Internap accounted for stock-based
compensation plans under the recognition and measurement
provisions of Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to
Employees, and related interpretations. Internap also
provided disclosures in accordance with SFAS No. 123,
Accounting for Stock-Based Compensation, as amended
by SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosures
an Amendment of FASB Statement No. 123. Accordingly,
no expense was recognized for options to purchase Internap
common stock that were granted with an exercise price equal to
fair market value at the date of grant and no expense was
recognized in connection with purchases under Internap employee
stock purchase plans for any periods prior to January 1,
2006. |
|
(4) |
|
Adjusted to reflect the
one-for-ten
reverse stock split of Internap common stock on July 11,
2006. |
|
(5) |
|
In July 2003, we amended the deemed liquidation provisions of
our charter to eliminate the events that could result in payment
to the series A preferred stockholders such that the events
giving rise to payment would be within our control. As a result,
2,887,661 shares of our series A preferred stock, with
a recorded value of $78.6 million, were reclassified from
mezzanine financing to stockholders equity during 2003.
Effective September 14, 2004, all shares of our outstanding
series A convertible preferred stock were mandatorily
converted into common stock in accordance with the terms of our
Certificate of Incorporation. |
13
VITALSTREAM
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL DATA
(in
thousands, except per share data)
You should read the following table in conjunction with
VitalStreams consolidated financial statements and related
notes and VitalStreams Managements Discussion
and Analysis of Financial Condition and Results of
Operations, in VitalStreams Annual Report on
Form 10-K
for the fiscal year ended December 31, 2005 and Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2006 which are
incorporated by reference in this joint proxy
statement/prospectus. Historical results are not necessarily
indicative of the results to be expected in the future.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Year Ended December 31,
|
|
|
|
2006(1)
|
|
|
2005
|
|
|
2005(2)
|
|
|
2004
|
|
|
2003(3)
|
|
|
2002(4)
|
|
|
2001(4)
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
|
Historical Consolidated
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
18,818
|
|
|
|
11,207
|
|
|
$
|
15,880
|
|
|
$
|
9,972
|
|
|
$
|
7,001
|
|
|
$
|
3,787
|
|
|
$
|
1,521
|
|
Loss from operations
|
|
|
(4,598
|
)
|
|
|
(1,715
|
)
|
|
|
(3,353
|
)
|
|
|
(1,039
|
)
|
|
|
(954
|
)
|
|
|
(2,246
|
)
|
|
|
(2,716
|
)
|
Loss before income taxes
|
|
|
(4,545
|
)
|
|
|
(1,722
|
)
|
|
|
(4,016
|
)
|
|
|
(1,544
|
)
|
|
|
(1,053
|
)
|
|
|
(2,185
|
)
|
|
|
(2,801
|
)
|
Net loss
|
|
|
(4,547
|
)
|
|
|
(1,724
|
)
|
|
|
(4,018
|
)
|
|
|
(1,546
|
)
|
|
|
(1,055
|
)
|
|
|
(2,187
|
)
|
|
|
(2,803
|
)
|
Net loss per share
basic and diluted(5)
|
|
|
(0.21
|
)
|
|
|
(0.11
|
)
|
|
|
(0.25
|
)
|
|
|
(0.13
|
)
|
|
|
(0.14
|
)
|
|
|
(0.41
|
)
|
|
|
(0.83
|
)
|
Shares used in calculation of net
loss per share(5)
|
|
|
21,628
|
|
|
|
15,776
|
|
|
|
15,993
|
|
|
|
11,841
|
|
|
|
7,427
|
|
|
|
5,353
|
|
|
|
3,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30,
|
|
|
As of December 31,
|
|
|
|
2006(1)
|
|
|
2005
|
|
|
2005(2)
|
|
|
2004
|
|
|
2003(3)
|
|
|
2002(4)
|
|
|
2001(4)
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Consolidated Balance Sheet
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
16,894
|
|
|
|
6,769
|
|
|
$
|
4,118
|
|
|
$
|
10,276
|
|
|
$
|
773
|
|
|
$
|
238
|
|
|
$
|
134
|
|
Total current assets
|
|
|
23,450
|
|
|
|
9,768
|
|
|
|
8,108
|
|
|
|
11,490
|
|
|
|
1,644
|
|
|
|
863
|
|
|
|
443
|
|
Total assets
|
|
|
56,488
|
|
|
|
19,324
|
|
|
|
20,029
|
|
|
|
16,229
|
|
|
|
4,655
|
|
|
|
2,866
|
|
|
|
2,397
|
|
Total liabilities
|
|
|
13,891
|
|
|
|
6,994
|
|
|
|
7,810
|
|
|
|
4,908
|
|
|
|
3,182
|
|
|
|
1,977
|
|
|
|
1,067
|
|
Stockholders equity
|
|
|
42,596
|
|
|
|
12,330
|
|
|
|
12,219
|
|
|
|
11,321
|
|
|
|
1,473
|
|
|
|
889
|
|
|
|
1,330
|
|
|
|
|
(1) |
|
Effective May 1, 2006, VitalStream acquired the business of
EON Streams, Inc. Effective January 1, 2006, VitalStream
adopted SFAS No. 123 (revised 2004), Share-Based
Payment (SFAS No. 123R) and related
interpretations, using the modified prospective transition
method and therefore have not restated prior periods
results. Prior to the adoption of SFAS No. 123R on
January 1, 2006, VitalStream accounted for stock-based
compensation plans under the recognition and measurement
provisions of Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to
Employees, and related interpretations. VitalStream also
provided disclosures in accordance with SFAS No. 123,
Accounting for Stock-Based Compensation, as amended
by SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosures
an Amendment of FASB Statement No. 123. Accordingly,
no expense was recognized for options to purchase VitalStream
common stock that were granted with an exercise price equal to
fair market value at the date of grant. |
|
|
(2) |
|
Effective April 1, 2005, VitalStream acquired the business
of PlayStream, LLC. |
|
|
(3) |
|
Effective January 1, 2003, VitalStream acquired certain
assets of Epoch Hosting, Inc. and Epoch Networks, Inc.
VitalStream adopted Statement of Financial Accounting Standard
(SFAS) No. 142, Goodwill and Other Intangible
Assets during 2002. Accordingly, effective January 1,
2002, goodwill is no longer amortized and is instead reviewed
for impairment annually, or more frequently, if indications of
impairment arise. |
|
|
(4) |
|
For periods prior to April 23, 2002, the data is for
VitalStream Holdings, Inc. and its wholly-owned subsidiary, the
predecessor to VitalStream Holdings, Inc. |
|
|
(5) |
|
Adjusted to reflect the
one-for-four
reverse stock of VitalStream common stock on April 4, 2006. |
14
SELECTED
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
(in thousands, except per share data)
The following selected unaudited pro forma combined financial
information was prepared using the purchase method of
accounting. The Internap and VitalStream unaudited pro forma
condensed combined balance sheet data assume that the merger of
Internap and VitalStream took place on September 30, 2006,
and combines the Internap historical consolidated balance sheet
at September 30, 2006 with VitalStreams historical
consolidated balance sheet at September 30, 2006. The
Internap and VitalStream unaudited pro forma condensed combined
statements of income data assume that the merger of Internap and
VitalStream took place as of January 1, 2005. The unaudited
pro forma condensed combined statements of operations data for
the year ended December 31, 2005 combines Internaps
and VitalStreams historical consolidated statements of
operations for the year then ended. The unaudited pro forma
condensed combined statements of operations data for the nine
months ended September 30, 2006 combines Internaps
and VitalStreams historical consolidated statement of
operations for the nine months then ended.
The selected unaudited pro forma combined financial data are
presented for illustrative purposes only and are not necessarily
indicative of the combined financial position or results of
operations of future periods or the results that actually would
have been realized had the entities been a single entity during
these periods. The selected unaudited pro forma combined
financial data as of and for the nine months ended
September 30, 2006 and for the fiscal year ended
December 31, 2005 are derived from the unaudited pro forma
condensed combined financial statements included elsewhere in
this joint proxy statement/prospectus and should be read in
conjunction with those statements and the related notes. See
Unaudited Pro Forma Condensed Combined Financial
Statements.
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
Fiscal Year Ended
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Unaudited Pro Forma Condensed
Combined Statements of Operations data:
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
151,555
|
|
|
$
|
171,035
|
|
Loss from operations
|
|
|
(9,623
|
)
|
|
|
(17,367
|
)
|
Loss before income taxes
|
|
|
(8,451
|
)
|
|
|
(17,865
|
)
|
Net loss
|
|
|
(8,551
|
)
|
|
|
(17,865
|
)
|
Net loss per share basic and
diluted
|
|
|
(0.18
|
)
|
|
|
(0.39
|
)
|
Shares used in per share
calculations:
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
46,446
|
|
|
|
45,848
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
September 30,
|
|
|
|
2006
|
|
|
Unaudited Pro Forma Condensed
Combined Balance Sheet data:
|
|
|
|
|
Cash, cash equivalents, and
short-term investments
|
|
$
|
70,790
|
|
Total current assets
|
|
|
101,093
|
|
Total assets
|
|
|
398,923
|
|
Total liabilities
|
|
|
62,483
|
|
Stockholders equity
|
|
|
336,440
|
|
15
COMPARATIVE
HISTORICAL AND PRO FORMA PER SHARE DATA
The information below reflects:
|
|
|
|
|
the historical net income (loss) and book value per share of
Internap common stock and the historical net income (loss) and
book value per share of VitalStream common stock in comparison
with the unaudited pro forma net income (loss) and book value
per share after giving effect to the proposed merger of Internap
with VitalStream on a purchase basis; and
|
|
|
|
the equivalent historical net income (loss) and book value per
share attributable to 0.5132 shares of Internap common
stock which will be received for each share of VitalStream
common stock.
|
You should read the tables below in conjunction with the
respective audited and unaudited consolidated financial
statements and related notes of Internap and VitalStream
incorporated by reference in this joint proxy
statement/prospectus and the unaudited pro forma condensed
financial information and notes related to such consolidated
financial statements included elsewhere in this joint proxy
statement/prospectus. Unless specifically stated otherwise, the
following information and all other information contained in
this joint proxy statement/prospectus, including that regarding
the exchange ratio pursuant to the merger agreement, gives
effect to the
one-for-ten
reverse stock split of Internaps common stock on
July 11, 2006 and the
one-for-four
reverse stock split of VitalStream common stock on April 4,
2006.
INTERNAP
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
Fiscal Year Ended
|
|
|
|
September 30, 2006
|
|
|
December 31, 2005
|
|
|
Historical Per Common Share Data:
|
|
|
|
|
|
|
|
|
Net income (loss) per common
share basic and diluted(1)
|
|
$
|
0.04
|
|
|
$
|
(0.15
|
)
|
Book value per share(2)
|
|
|
3.46
|
|
|
|
3.21
|
|
VITALSTREAM
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
Fiscal Year Ended
|
|
|
|
September 30, 2006
|
|
|
December 31, 2005
|
|
|
Historical Per Common Share Data:
|
|
|
|
|
|
|
|
|
Net income (loss) per common
share basic and diluted(1)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.25
|
)
|
Book value per share(2)
|
|
|
1.84
|
|
|
|
0.70
|
|
INTERNAP
AND VITALSTREAM
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
Year Ended
|
|
|
|
September 30, 2006
|
|
|
December 31, 2005
|
|
|
Combined Pro Forma Per Common
Share Data:
|
|
|
|
|
|
|
|
|
Net income (loss) per Internap
share basic and diluted(1)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.39
|
)
|
Book value per Internap share(2)
|
|
|
7.13
|
|
|
|
|
|
Net loss per equivalent
VitalStream share basic and diluted(3)
|
|
|
(0.09
|
)
|
|
|
(0.20
|
)
|
Book value per equivalent
VitalStream share(3)
|
|
|
3.66
|
|
|
|
|
|
|
|
|
(1) |
|
Basic net income (loss) per share has been computed using the
weighted average number of shares of common stock outstanding
during the period. Diluted net income (loss) per share is
computed using the weighted average number of common and
potentially dilutive shares outstanding during the period.
Potentially dilutive shares consist of the incremental shares of
common stock issuable upon the exercise of outstanding stock
options and warrants and unvested restricted stock using the
treasury stock method. The treasury stock method |
16
|
|
|
|
|
calculates the dilutive effect for only those stock options and
warrants for which the sum of proceeds, including unrecognized
compensation and any windfall tax benefits, is less than the
average stock price during the period presented. Potentially
dilutive shares are excluded from the computation of net income
(loss) per share if their effect is antidilutive. |
|
(2) |
|
The historical book value per share is computed by dividing
stockholders equity by the number of shares of common
stock outstanding as of the end of the period presented after
adjusting shares outstanding for reverse stock splits. The
combined pro forma book value per share is computed by dividing
combined pro forma stockholders equity by the combined pro
forma number of shares of Internap common stock outstanding
assuming the merger had occurred as of those dates. |
|
(3) |
|
The equivalent pro forma combined net loss and book value per
VitalStream share are calculated by multiplying the pro forma
combined share amounts by the exchange ratio of
0.5132 shares of Internap common stock for each share of
VitalStream common stock. |
17
FORWARD-LOOKING
INFORMATION
This joint proxy statement/prospectus includes
forward-looking statements within the meaning of the
safe harbor provisions of the United States Private Securities
Litigation Reform Act of 1995. Words such as
anticipate, believes,
budget, continue, could,
estimate, expect, forecast,
intend, may, plan,
potential, predicts,
project, should, will and
similar expressions are intended to identify such
forward-looking statements. Forward-looking statements in this
joint proxy statement/prospectus include, without limitation,
statements regarding forecasts of market growth, future revenue,
benefits of the proposed merger, expectations that the merger
will be accretive to Internaps results, future
expectations concerning available cash and cash equivalents, and
other matters that involve known and unknown risks,
uncertainties and other factors that may cause actual results,
levels of activity, performance or achievements to differ
materially from results expressed in or implied by this joint
proxy statement/prospectus. Such risk factors include, among
others:
|
|
|
|
|
difficulties encountered in integrating merged businesses;
|
|
|
|
uncertainties as to the timing of the merger, approval of the
transaction by the stockholders of the companies and the
satisfaction of closing conditions to the transaction, including
the receipt of regulatory approvals;
|
|
|
|
whether certain market segments grow as anticipated;
|
|
|
|
the competitive environment in the industry and competitive
responses to the proposed merger; and
|
|
|
|
whether the companies can successfully develop new products and
services and the degree to which these gain market acceptance.
|
Actual results may differ materially from those contained in the
forward-looking statements in this joint proxy
statement/prospectus. Additional information concerning these
and other risk factors is contained in the most recent Annual
Report on
Form 10-K
and Quarterly Report on
Form 10-Q
filed by each of Internap and VitalStream. You are cautioned not
to place undue reliance on these forward-looking statements,
which speak only as of the date of this joint proxy
statement/prospectus. All forward-looking statements are
qualified in their entirety by this cautionary statement.
18
RISK
FACTORS
You should consider the following factors in evaluating
whether to approve the issuance of shares of Internap common
stock in the merger or to adopt the merger agreement, as the
case may be. These factors should be considered in conjunction
with the other information included or incorporated by reference
by Internap and VitalStream in this joint proxy
statement/prospectus.
Risks
Relating to the Merger
If we
do not integrate our services, we may lose customers and fail to
achieve our financial objectives.
Achieving the benefits of the merger will depend in part on the
integration of Internaps and VitalStreams services
in a timely and efficient manner. In order for us to provide
enhanced and more valuable services to our customers after the
merger, we will need to integrate our service offerings and
development organizations. This will be difficult and
unpredictable because our service networks are highly complex,
have been developed independently and were designed without
regard to such integration. If we cannot successfully integrate
our services and continue to provide customers with services and
new service features in the future on a timely basis, we may
lose customers and our business and results of operations may be
harmed.
If we
are not successful in integrating our organizations, we will not
be able to operate efficiently after the merger.
Achieving the benefits of the merger will also depend in part on
the successful integration of Internaps and
VitalStreams operations and personnel in a timely and
efficient manner. The integration process requires coordination
of different development and engineering teams, and involves the
integration of systems, applications, policies, procedures and
business processes. This, too, will be difficult and
unpredictable because of possible cultural conflicts and
different opinions on technical decisions and service roadmaps.
If we cannot successfully integrate our operations and
personnel, we will not realize the expected benefits of the
merger.
Integrating
our companies may divert managements attention away from
our operations.
Successful integration of Internaps and VitalStreams
operations, services and personnel may place a significant
burden on our management and our internal resources. The
diversion of management attention and any difficulties
encountered in the transition and integration process could harm
our business, financial condition and operating results.
We
expect to incur significant costs integrating the companies into
a single business and if such integration is not successful we
may not realize the expected benefits of the
merger.
We expect to incur significant costs to integrate
VitalStreams operations, services and personnel with ours.
For example, we expect these costs to include costs for:
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employee redeployment, relocation or severance;
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conversion of information systems;
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integration and implementation of accounting systems and
internal controls;
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combining research and development teams and processes; and
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reorganization.
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We do not know whether we will be successful in these
integration efforts and cannot assure you that we will realize
the expected benefits of the merger.
19
If we
fail to retain key employees the benefits of the merger could be
diminished.
The successful combination of Internap and VitalStream will
depend in part on the retention of key personnel. There can be
no assurance that Internap will be able to retain its or
VitalStreams key management, technical, sales and customer
support personnel, or that Internap will realize the anticipated
benefits of the merger.
Our
sales could decline if customer relationships are disrupted by
the merger.
Our respective customers may not continue their current buying
patterns during the pendency of, and following, the merger. Any
significant delay or reduction in orders for Internaps or
VitalStreams services could harm the combined
companys business, financial condition and results of
operations. Customers may also seek to modify or terminate
existing agreements, or prospective customers may delay entering
into new agreements or purchasing our services. In addition, by
increasing the breadth of Internaps and VitalStreams
business, the merger may make it more difficult for the combined
company to enter into relationships, including customer,
reseller or other business relationships, some of whom may view
the combined company as a more direct competitor than either
Internap or VitalStream as an independent company.
VitalStream
stockholders will receive a fixed number of shares of Internap
common stock in the merger, rather than a fixed value, so if the
market price of Internap common stock declines, VitalStream
stockholders will receive consideration in the merger of lesser
value.
Upon the consummation of the merger, each VitalStream share will
be converted into the right to receive 0.5132 shares of
Internap common stock. Since the exchange ratio is fixed, the
number of shares that VitalStream stockholders will receive in
the merger will not change, even if the market price of Internap
common stock changes. In recent years, the stock market in
general, the securities of technology companies and the price of
Internap common stock, have experienced extreme price and volume
fluctuations. The market price of Internap common stock upon and
after the consummation of the merger could be lower than the
market price on the date of the merger agreement or the current
market price. VitalStream stockholders should obtain recent
market quotations of Internap common stock before they vote on
the merger.
If the
merger does not close, the businesses and stock prices of both
VitalStream and Internap may be harmed.
Each of Internap and VitalStream has incurred, and will continue
to incur, substantial legal, financial advisory and other
expenses associated with the merger even if it does not close.
In addition, each has agreed to certain limitations on the
operation of its business and may be making, or deferring,
important capital expenditure and planning decisions in light of
the pending merger that are different than the decisions it
would make were the merger not pending. If the merger does not
close, the operations, financial condition and other aspects of
each our businesses viewed on a stand-alone basis may have been
harmed on account of steps taken, or deferred, in anticipation
of the merger.
Additional risks associated with the failure of the merger to
close include the following:
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neither VitalStream nor Internap would realize any anticipated
benefits from being part of the combined company;
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VitalStream may be obligated to pay a termination fee equal to
$8 million, plus expenses of Internap, representing a
substantial portion of VitalStreams available working
capital;
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the market price of the common stock of one or both companies
may decline to the extent the current market prices reflect a
market assumption that the merger will be completed;
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Internap and VitalStream may experience difficulties in
attracting or retaining customers that were expected to use the
products and services to be offered by the combined
company; and
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Internap and VitalStream may be less able to find companies
willing to enter into purchase, sale or other strategic
transactions because of the failure of the merger to close.
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20
Risks
Relating to Internap
Risks
Related to Internaps Business
We
have a history of losses and may not sustain
profitability.
We have incurred net losses in each quarterly and annual period
since we began operations in May 1996 through the year ended
December 31, 2005. We incurred net losses of
$5.0 million, $18.1 million and $34.6 million for
the years ended December 31, 2005, 2004 and 2003,
respectively. As of September 30, 2006, our accumulated
deficit was $858.7 million. Even though we have achieved
profitability in the three fiscal quarters ended
September 30, 2006, given the competitive and evolving
nature of the industry in which we operate, we may not be able
to sustain or increase profitability on a quarterly or annual
basis, and our failure to do so would adversely affect our
business, including our ability to raise additional funds.
Our
operations have historically been cash flow negative, and we
have depended on equity and debt financings to meet our cash
requirements, which may not be available to us in the future on
favorable terms.
We have experienced negative operating cash flow and have
depended upon equity and debt financings, as well as borrowings
under our credit facilities, to meet our cash requirements in
most quarterly and annual periods since we began our operations
in May 1996. We expect to meet our cash requirements for the
remainder of 2006 and 2007 through a combination of cash flows
from operations, existing cash, cash equivalents and investments
in marketable securities, borrowings under our credit
facilities, and the proceeds from our March 2004 public
offering. Our capital requirements depend on several factors,
including the rate of market acceptance of our services, the
ability to expand and retain our customer base, and other
factors. If our cash requirements vary materially from those
currently planned, if our cost reduction initiatives have
unanticipated adverse effects on our business, or if we fail to
generate sufficient cash flow from the sales of our services, we
may require additional financing sooner than anticipated. We
cannot assure you that we will be able to obtain additional
financing on commercially favorable terms, or at all. Provisions
in our credit facility limit our ability to incur additional
indebtedness.
Designing
and implementing adequate internal control procedures for our
business after the proposed merger will be
difficult.
In the course of our ongoing evaluation of our internal controls
over financing reporting, we have identified areas requiring
improvement and are in the process of designing enhanced
processes and controls to address the issues identified during
our evaluation. We cannot be certain that our efforts will be
effective or sufficient for us, or our auditors, to issue
unqualified reports in the future.
It may be difficult to design and implement effective financial
controls for combined operations and differences in existing
controls of any acquired businesses may result in weaknesses
that require remediation when the financial controls and
reporting are combined. Our ability to manage our operations and
growth will require us to improve our operational, financial and
management controls, as well as our internal reporting systems
and controls. We may not be able to implement improvements to
our internal reporting systems and controls in an efficient and
timely manner and may discover deficiencies in existing systems
and controls.
We may
not be able to compete successfully against current and future
competitors.
The Internet connectivity and Internet Protocol services market
is highly competitive, as evidenced by recent declines in
pricing for Internet connectivity services. We expect
competition from existing competitors to continue to intensify
in the future, and we may not have the financial resources,
technical expertise, sales and marketing abilities or support
capabilities to compete successfully. Our competitors currently
include: regional Bell operating companies that offer Internet
access; global, national and regional Internet service
providers; providers of specific applications or solutions such
as content distribution, security or storage; software-based and
other Internet infrastructure providers and manufacturers; and
colocation and data center providers. In addition, Internet
network service providers may make technological advancements,
such as the introduction of improved routing protocols to
enhance the quality of their services, which could negatively
impact the demand for our products and services.
21
In addition, we will face additional competition as we expand
our managed services product offerings, including competition
from technology and telecommunications companies. A number of
telecommunications companies and Internet service providers have
been offering or expanding their network services. Further, the
ability of some of these potential competitors to bundle other
services and products with their network services could place us
at a competitive disadvantage. Various companies are also
exploring the possibility of providing, or are currently
providing, high-speed, intelligent data services that use
connections to more than one network or use alternative delivery
methods including the cable television infrastructure, direct
broadcast satellites and wireless local loop. Many of our
existing and future competitors may have greater market
presence, engineering and marketing capabilities, and financial,
technological and personnel resources than we do. As a result,
our competitors may have significant advantages over us.
Increased competition and technological advancements by our
competitors could adversely affect our business, results of
operations and financial condition.
Pricing
pressure could decrease our revenue and threaten the
attractiveness of our premium priced services.
Pricing for Internet connectivity services has declined
significantly in recent years and may decline in the future. An
economic downturn could further contribute to this effect. We
currently charge, and expect to continue to charge, higher
prices for our high performance Internet connectivity services
than prices charged by our competitors for their connectivity
services. By bundling their services and reducing the overall
cost of their solutions, certain of our competitors may be able
to provide customers with reduced communications costs in
connection with their Internet connectivity services or private
network services, thereby significantly increasing the pressure
on us to decrease our prices. Increased price competition and
other related competitive pressures could erode our revenue and
significant price deflation could affect our results of
operations if we are unable to control our costs. Because we
rely on Internet network service providers to deliver our
services and have agreed with some of these providers to
purchase minimum amounts of service at predetermined prices, our
profitability could be adversely affected by competitive price
reductions to our customers even with an increased number of
customers.
In addition, over the last several years, companies that require
Internet connectivity have been evaluating and will continue to
evaluate the cost of such services, particularly high
performance connectivity services such as those we currently
offer, in light of economic factors and technological advances.
Consequently, existing and potential customers may be less
willing to pay premium prices for high performance Internet
connectivity services and may choose to purchase lower quality
services at lower prices, which could adversely affect our
business, results of operations and financial condition.
We
depend on a number of Internet network service providers to
provide Internet connectivity to our network access points. If
we are unable to obtain required connectivity services on a
cost-effective basis or at all, or if such services are
interrupted or terminated, our growth prospects and business,
results of operations and financial conditions would be
adversely affected.
In delivering our services, we rely on a number of Internet
networks, all of which are built and operated by others. In
order to be able to provide high performance connectivity
services to our customers through our network access points, we
purchase connections from several Internet network service
providers. We cannot assure you that these Internet network
service providers will continue to provide service to us on a
cost-effective basis or on otherwise competitive terms, if at
all, or that these providers will provide us with additional
capacity to adequately meet customer demand. Consolidation among
Internet network service providers limits the number of vendors
from which we obtain service, possibly resulting in higher
network costs to us. We may be unable to establish and maintain
relationships with other Internet network service providers that
may emerge or that are significant in geographic areas, such as
Asia and Europe, in which we may locate our future network
access points. Any of these situations could limit our growth
prospects and adversely affect our business, results of
operations and financial condition.
22
We
depend on third-party suppliers for key elements of our network
infrastructure and to provide services. If we are unable to
obtain products or services, such as network access loops or
local loops, on favorable terms or at all, or in the event of a
failure of these suppliers to deliver their products and
services as agreed, our ability to provide our services on a
competitive and timely basis would be impaired and our results
of operations and financial conditions would be adversely
affected.
Any failure to obtain required products or services from
third-party suppliers on a timely basis and at an acceptable
cost would affect our ability to provide our services on a
competitive and timely basis. In addition to depending on
services from third party Internet network service we depend on
other companies to supply various key elements of our
infrastructure, including the network access loops between our
network access points and our Internet network service providers
and the local loops between our network access points and our
customers networks. Pricing for such network access loops
and local loops has been rising significantly over time, and we
generally bill these charges to our customers at low or no
margin, while some of our competitors have their own network
access loops and local loops and are therefore not subject to
similar availability and pricing issues. In addition, we
currently purchase routers and switches from a limited number of
vendors. Furthermore, we do not carry significant inventories of
the products we purchase, and we have no guaranteed supply
arrangements with our vendors. A loss of a significant vendor
could delay any build-out of our infrastructure and increase our
costs. If our limited source of suppliers fails to provide
products or services that comply with evolving Internet
standards or that interoperate with other products or services
we use in our network infrastructure, we may be unable to meet
all or a portion of our customer service commitments, which
could adversely affect our business, results of operations and
financial condition.
A
failure in the redundancies in our network operations centers,
network access points or computer systems would cause a
significant disruption in our Internet connectivity services,
and we may experience significant disruptions in our ability to
service our customers.
Our business depends on the efficient and uninterrupted
operation of our network operations centers, our network access
points and our computer and communications hardware systems and
infrastructure. Interruptions could result from natural or human
caused disasters, power loss, telecommunications failure and
similar events. If we experience a problem at our network
operations centers, including the failure of redundant systems,
we may be unable to provide Internet connectivity services to
our customers, provide customer service and support or monitor
our network infrastructure or network access points, any of
which would seriously harm our business and operating results.
Also, because we provide continuous Internet availability under
our service level agreements, we may be required to issue a
significant amount of customer credits as a result of such
interruptions in service. These credits could negatively affect
our results of operations. In addition, interruptions in service
to our customers could harm our customer relations, expose us to
potential lawsuits and require additional capital expenditures.
A significant number of our network access points are located in
facilities owned and operated by third parties. In many of those
arrangements, we do not have property rights similar to those
customarily possessed by a lessee or subtenant, but instead have
lesser rights of occupancy. In certain situations, the financial
condition of those parties providing occupancy to us could have
an adverse impact on the continued occupancy arrangement or the
level of service delivered to us under such arrangements.
The
increased use of high power density equipment may limit our
ability to fully utilize our data centers.
Customers are increasing their use of high-density equipment,
such as blade servers, in our data centers, which has
significantly increased the demand for power on a per cabinet
basis. Because most of our centers were built several years ago,
the current demand for electrical power may exceed our designed
capacity in these facilities. As electrical power, not space, is
typically the limiting factor in our data centers, our ability
to fully utilize our data centers may be limited in these
facilities.
23
Our
business could be harmed by prolonged electrical power outages
or shortages, increased costs of energy or general availability
of electrical resources.
Our data centers and P-NAPs are susceptible to regional costs of
power, electrical power shortages, planned or unplanned power
outages or natural disasters, and limitations, especially
internationally, on availability of adequate power resources.
Power outages could harm our customers and our business. We
attempt to limit exposure to system downtime by using backup
generators and Uninterruptible Power Systems (UPS), however, we
may not be able to limit our exposure entirely even with these
protections in place, as has been the case with power outages we
have experienced in the past and may experience in the future.
In addition, the overall power shortage in California has
increased the cost of energy, which we may not be able to pass
on to our customers.
In each of our markets, we rely on utility companies to provide
a sufficient amount of power for current and future customers.
At the same time, power and cooling requirements are growing on
a per unit basis. As a result, some customers are consuming an
increasing amount of power per cabinet. We do not have long-term
power agreements in all our markets for long-term guarantees of
provisioned amounts. This means that we could face power
limitations in our centers. This could have a negative impact on
the effective available capacity of a given center and limit our
ability to grow our business, which could have a negative impact
on our financial performance, operating results and cash flows.
Any
failure of our physical infrastructure or services could lead to
significant costs and disruptions that could reduce our revenue
and harm our business reputation and financial
results.
Our business depends on providing customers with highly reliable
service. We must protect our customers data center and
P-NAP infrastructure and their equipment located in our data
centers. The services we provide in each of our data centers are
subject to failure resulting from numerous factors, including:
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human error;
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physical or electronic security breaches;
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fire, earthquake, flood and other natural disasters;
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water damage;
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fiber cuts;
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power loss;
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sabotage and vandalism; and
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failure of business partners who provide our resale products.
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Problems at one or more of the data centers operated by us or
any of our colocation providers, whether or not within our
control, could result in service interruptions or significant
equipment damage. We have service level commitment obligations
to certain of our customers, including our significant
customers. As a result, service interruptions or significant
equipment damage in our data centers could result in difficulty
maintaining service level commitments to these customers. If we
incur significant financial commitments to our customers in
connection with a loss of power, or our failure to meet other
service level commitment obligations, our liability insurance
and revenue reserves may not be adequate. In addition, any loss
of services, equipment damage or inability to meet our service
level commitment obligations could reduce the confidence of our
customers and could consequently impair our ability to obtain
and retain customers, which would adversely affect both our
ability to generate revenues and our operating results.
Furthermore, we are dependent upon Internet service providers
and telecommunications carriers in the U.S., Europe and Asia
Pacific, some of which have experienced significant system
failures and electrical outages in the past. Users of our
services may in the future experience difficulties due to system
failures unrelated to our systems and services. If for any
reason, these providers fail to provide the required services,
our business, financial condition and results of operations
could be materially adversely impacted.
24
There is no known prevention or defense against denial of
service attacks. During a prolonged denial of service attack,
Internet service may not be available for several hours, thus
negatively impacting hosted customers on-line business
transactions. Affected customers might file claims against us
under such circumstances. Our property and liability insurance
may not be adequate to cover these customer claims.
Our
results of operations have fluctuated in the past and may
continue to fluctuate, which could have a negative impact on the
price of our common stock.
We have experienced fluctuations in our results of operations on
a quarterly and annual basis. The fluctuation in our operating
results may cause the market price of our common stock to
decline. We expect to experience significant fluctuations in our
operating results in the foreseeable future due to a variety of
factors, including:
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competition and the introduction of new services by our
competitors;
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continued pricing pressures resulting from competitors
strategies or excess bandwidth supply;
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fluctuations in the demand and sales cycle for our services;
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fluctuations in the market for qualified sales and other
personnel;
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changes in the prices for Internet connectivity we pay to
Internet network service providers;
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the cost and availability of adequate public utilities,
including power;
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our ability to obtain local loop connections to our network
access points at favorable prices;
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integration of people, operations, products and technologies of
acquired businesses; and
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general economic conditions.
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In addition, fluctuations in our results of operations may arise
from strategic decisions we have made or may make with respect
to the timing and magnitude of capital expenditures such as
those associated with the deployment of additional network
access points and the terms of our network connectivity purchase
agreements. These and other factors discussed in this joint
proxy statement/prospectus could have a material adverse effect
on our business, results of operations and financial condition.
In addition, a relatively large portion of our expense is fixed
in the short-term, particularly with respect to lease and
personnel expense, depreciation and amortization, and interest
expense. Therefore, our results of operations are particularly
sensitive to fluctuations in revenue. Because our results of
operations have fluctuated in the past and are expected to
continue to fluctuate in the future, investors should not rely
on the results of any particular period as an indication of
future performance in our business operations. Fluctuations in
our results of operations could have a negative impact on our
ability to raise additional capital and execute our business
plan. Our operating results in one or more future quarters may
fail to meet the expectations of securities analysts or
investors. If this occurs, we could experience an immediate and
significant decline in the trading price of our stock.
We
have acquired and may acquire other businesses, and these
acquisitions involve numerous risks.
We intend to pursue additional acquisitions of complementary
businesses, products, services and technologies to expand our
geographic footprint, enhance our existing services, expand our
service offerings and enlarge our customer base. If we complete
future acquisitions, we may be required to incur or assume
additional debt and make capital expenditures and issue
additional shares of our common stock or securities convertible
into our common stock as consideration, which will dilute our
existing stockholders ownership interest and may adversely
affect our results of operations. Our ability to grow through
acquisitions involves a number of additional risks, including
the following:
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the ability to identify and consummate complementary
acquisitions;
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the possibility that we may not be able to integrate the
operations, personnel, technologies, products and services of
the acquired companies in a timely and efficient manner;
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diversion of managements attention from other ongoing
business concerns;
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insufficient revenue to offset significant unforeseen costs and
increased expenses associated with the acquisitions;
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challenges in completing projects associated with in-process
research and development being conducted by the acquired
businesses;
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risks associated with our entrance into markets in which we have
little or no prior experience and where competitors have a
stronger market presence;
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deferral of purchasing decisions by current and potential
customers as they evaluate the likelihood of success of our
acquisitions;
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issuance by us of equity securities that would dilute ownership
of our existing stockholders;
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incurring or assuming significant debt, contingent liabilities
and amortization expense;
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difficulties in successfully integrating the management teams
and employees of both companies; and
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loss of key employees of the acquired companies.
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Failure to effectively manage our growth through acquisitions
could adversely affect our growth prospects, business, results
of operations and financial condition.
The
terms of our existing credit facility impose restrictions upon
us.
The terms of our existing credit facility impose operating and
financial restrictions on us and require us to meet certain
financial tests. These restrictions may also have a negative
impact on our business, financial condition and results of
operations by significantly limiting or prohibiting us from
engaging in certain transactions.
The failure to comply with any of these covenants would cause a
default under the credit facility. Any defaults, if not waived,
could result in the lender ceasing to make loans or extending
credit to us, accelerate or declare all or any obligations
immediately due, or take possession of or liquidate collateral.
If any of these occur, we may not be able to borrow sufficient
funds to refinance it on terms that are acceptable to us, which
could adversely impact our business, results of operations and
financial condition. In the past, we have violated loan
covenants, under a prior credit arrangement, regarding minimum
cash EBITDA.
As of September 30, 2006, we were in compliance with all
loan covenants.
Continued
overcapacity in the Internet connectivity and IP services market
may result in our recording additional significant restructuring
charges and goodwill impairment.
As a result of the overcapacity created in the Internet
connectivity and IP services market during the past several
years, we have undertaken significant operational restructurings
and have taken restructuring charges and recorded total
restructuring costs of less than $0.1 million for the year
ended December 31, 2005 and $3.6 million and
$1.1 million for the years ended December 31, 2004 and
2003, respectively. If the Internet connectivity and IP services
market continues to experience overcapacity and uncertainty or
declines in the future, we may incur additional restructuring
charges or adjustments in the future. Such additional
restructuring charges or adjustments could adversely affect our
business, net profit and stockholders equity.
If we
are unable to deploy new network access points or do not
adequately control expense associated with the deployment of new
network access points, our results of operations could be
adversely affected.
As part of our strategy, we intend to continue to expand our
network access points, particularly into new geographic markets.
We will face various risks associated with identifying,
obtaining and integrating attractive network access point sites,
negotiating leases for centers on competitive terms, cost
estimation errors or overruns, delays in connecting with local
exchanges, equipment and material delays or shortages, the
inability to obtain necessary permits on a timely basis, if at
all, and other factors, many of which are beyond our control and
all of which could delay the deployment of a new network access
point. We cannot assure you that we will be able to open and
operate new network access points on a timely or profitable
basis. Deployment of new network access points
26
will increase operating expense, including expense associated
with hiring, training, retaining and managing new employees,
provisioning capacity from Internet network service providers,
purchasing new equipment, implementing new systems, leasing
additional real estate and incurring additional depreciation
expense. If we are unable to control our costs as we expand in
geographically dispersed locations, our results of operations
could be adversely affected.
Because
we have limited experience operating internationally, our
international operations may not be successful.
We have limited experience operating internationally. We
currently have network access points in London, England, Hong
Kong, Singapore and Sydney, Australia, participate in a joint
venture with NTT-ME Corporation and another NTT affiliate that
operates a network access point in Tokyo, Japan and maintain a
marketing agreement with Telefonica USA, which provides us with
further access in Europe and access to the Latin American
market. As part of our strategy to expand our geographic
markets, we may develop or acquire network access points or
complementary businesses in additional international markets.
The risks associated with expansion of our international
business operations include:
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challenges in establishing and maintaining relationships with
foreign customers as well as foreign Internet network service
providers and local vendors, including data center and local
network operators;
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challenges in staffing and managing network operations centers
and network access points across disparate geographic areas;
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limited protection for intellectual property rights in some
countries;
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challenges in reducing operating expense or other costs required
by local laws;
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exposure to fluctuations in foreign currency exchange rates;
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costs of customizing network access points for foreign countries
and customers;
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protectionist laws and practices favoring local competition;
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political and economic instability; and
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compliance with governmental regulations.
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We may be unsuccessful in our efforts to address the risks
associated with our international operations, which may limit
our international sales growth and adversely affect our business
and results of operations.
Disputes
with vendors regarding the delivery of services may materially
impact our results of operations and cash flows.
In delivering our services, we rely on a number of Internet
network, telecommunication and other vendors. We work directly
with these vendors to provision services such as establishing,
modifying or discontinuing services for our customers. Because
of the volume of activity, billing disputes inevitably arise.
These disputes typically stem from disagreements concerning the
starting and ending dates of service, quoted rates, usage and
various other factors. Disputed costs, both in the vendors
favor and our favor, are researched and discussed with vendors
on an ongoing basis until ultimately resolved. We record the
cost and a liability based on our estimate of the most likely
outcome of the dispute. These estimates are periodically
reviewed by management and modified in light of new information
or developments, if any. Because estimates regarding disputed
costs include assessments of uncertain outcomes, such estimates
are inherently vulnerable to changes due to unforeseen
circumstances that could materially and adversely affect our
results of operations and cash flows.
We
depend upon our key employees and may be unable to attract or
retain sufficient numbers of qualified personnel.
Our future performance depends to a significant degree upon the
continued contributions of our executive management team and
other key employees. To the extent we are able to expand our
operations and deploy
27
additional network access points, we may need to increase our
workforce. Accordingly, our future success depends on our
ability to attract, hire, train and retain highly skilled
management, technical, sales, marketing and customer support
personnel. Competition for qualified employees is intense, and
we compete for qualified employees with companies that may have
greater financial resources than we have. Our employment
agreements with our executive officers provide that either party
may terminate their employment at any time. Consequently, we may
not be successful in attracting, hiring, training and retaining
the people we need, which would seriously impede our ability to
implement our business strategy.
If we
fail to adequately protect our intellectual property, we may
lose rights to some of our most valuable assets.
We rely on a combination of copyright, patent, trademark, trade
secret and other intellectual property law, nondisclosure
agreements and other protective measures to protect our
proprietary rights. We also utilize unpatented proprietary
know-how and trade secrets and employ various methods to protect
such intellectual property. Taken as a whole, we believe our
intellectual property rights are significant and that the loss
of all or a substantial portion of such rights could have a
material adverse effect on our results of operations. We cannot
assure you that our intellectual property protection measures
will be sufficient to prevent misappropriation of our
technology. In addition, the laws of many foreign countries do
not protect our intellectual properties to the same extent as
the laws of the United States. From time to time, third parties
have or may assert infringement claims against us or against our
customers in connection with their use of our products or
services. In addition, we may desire or be required to renew or
to obtain licenses from others in order to further develop and
market commercially viable products or services effectively. We
cannot assure you that any necessary licenses will be available
on reasonable terms.
We may
face litigation and liability due to claims of infringement of
third-party intellectual property rights.
The Internet services industry is characterized by the existence
of a large number of patents and frequent litigation based on
allegations of patent infringement. From time to time, third
parties may assert patent, copyright, trademark, trade secret
and other intellectual property rights to technologies that are
important to our business. Any claims that our products or
services infringe or may infringe proprietary rights of
third-parties, with or without merit, could be time-consuming,
result in costly litigation, divert the efforts of our technical
and management personnel or require us to enter into royalty or
licensing agreements, any of which could significantly harm our
operating results. In addition, our customer agreements
generally provide for us to indemnify our customers for expense
or liabilities resulting from claimed infringement of patents or
copyrights of third parties, subject to certain limitations. If
an infringement claim against us were to be successful, and we
were not able to obtain a license to the relevant or a
substitute technology on acceptable terms or redesign our
products or services to avoid infringement, our ability to
compete successfully in our competitive market would be
materially impaired.
Risks
Related to Internaps Industry
The
future evolution of the high performance Internet connectivity
market, and therefore the role of our products and services,
cannot be predicted with certainty.
We face the risk that the market for high performance Internet
connectivity services might develop more slowly or differently
than currently projected, or that our services may not achieve
continued
and/or
widespread market acceptance. Furthermore, we may be unable to
market and sell our services successfully and cost-effectively
to a sufficiently large number of customers. We typically charge
a premium for our services, which may affect market acceptance
of our services or adversely impact the rate of market
acceptance. We believe the danger of non-acceptance is
particularly acute during economic slowdowns and when there is
significant pricing pressure on Internet service providers.
Finally, if the Internet becomes subject to a form of central
management, or if Internet network service providers establish
an economic settlement arrangement regarding the exchange of
traffic between Internet networks, the demand for our Internet
connectivity services could be adversely affected.
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If we
are unable to respond effectively and on a timely basis to rapid
technological change, we may lose or fail to establish a
competitive advantage in our market.
The Internet connectivity and IP services industry is
characterized by rapidly changing technology, industry standards
and customer needs, as well as by frequent new product and
service introductions. New technologies and industry standards
have the potential to replace or provide lower cost alternatives
to our services. The adoption of such new technologies or
industry standards could render our existing services obsolete
and unmarketable. Our failure to anticipate the prevailing
standard, to adapt our technology to any changes in the
prevailing standard or the failure of a common standard to
emerge could hurt our business. Our pursuit of necessary
technological advances may require substantial time and expense,
and we may be unable to successfully adapt our network and
services to alternative access devices and technologies.
Our
network and software are vulnerable to security breaches and
similar threats that could result in our liability for damages
and harm our reputation.
There have recently been a number of widespread and disabling
attacks on public and private networks. The number and severity
of these attacks may increase in the future as network
assailants take advantage of outdated software, security
breaches or incompatibility between or among networks. Computer
viruses, intrusions and similar disruptive problems could result
in our liability for damages under agreements with our
customers, and our reputation could suffer, thereby deterring
potential customers from working with us. Security problems or
other attacks caused by third parties could lead to
interruptions and delays or to the cessation of service to our
customers. Furthermore, inappropriate use of the network by
third-parties could also jeopardize the security of confidential
information stored in our computer systems and in those of our
customers and could expose us to liability under Internet
spam regulations. In the past, third parties have
occasionally circumvented some of these industry-standard
measures. Therefore, we cannot assure you that the measures we
implement will not be circumvented. Our efforts to eliminate
computer viruses and alleviate other security problems, or any
circumventions of those efforts, may result in increased costs,
interruptions, delays or cessation of service to our customers,
which could hurt our business, results of operations and
financial condition.
Terrorist
activity throughout the world and military action to counter
terrorism could adversely impact our business.
The continued threat of terrorist activity and other acts of war
or hostility may have an adverse effect on business, financial
and general economic conditions internationally. Effects from
any future terrorist activity, including cyber terrorism, may,
in turn, increase our costs due to the need to provide enhanced
security, which would adversely affect our business and results
of operations. These circumstances may also damage or destroy
the Internet infrastructure and may adversely affect our ability
to attract and retain customers, our ability to raise capital
and the operation and maintenance of our network access points.
If
governments modify or increase regulation of the Internet, the
provision of our services could become more
costly.
International bodies and federal, state and local governments
have adopted a number of laws and regulations that affect the
Internet and are likely to continue to seek to implement
additional laws and regulations. For example, a federal law
regulating unsolicited commercial
e-mail, or
spam, was enacted in 2003. In addition, federal and
state agencies are actively considering regulation of various
aspects of the Internet, including taxation of transactions, and
imposing access fees for voice over IP, or VoIP. The Federal
Communications Commission and state agencies are also reviewing
the regulatory requirements, if any, that should be applicable
to VoIP. If we seek to offer VoIP services, we could be required
to obtain certain authorizations from regulatory agencies. We
may not be able to obtain such authorizations in a timely
manner, or at all, and conditions could be imposed upon such
authorization that may not be favorable to us. The adoption of
any future laws or regulations might decrease the growth of the
Internet, decrease demand for our services, impose taxes or
other costly technical requirements, regulate the Internet in
some respects as has been done with traditional
telecommunications services, or otherwise increase the cost of
doing business on the Internet or in some other manner. Any of
these actions could have a significantly harmful effect on our
customers or us. Moreover, the nature of any new laws and
regulations and the
29
interpretation of applicability to the Internet of existing laws
governing intellectual property ownership and infringement,
copyright, trademark, trade secret, obscenity, libel,
employment, personal privacy and other issues is uncertain and
developing. We cannot predict the impact, if any, that future
regulation or regulatory changes may have on our business.
Congress has extended the Internet Tax Freedom Act, which placed
a moratorium against certain state and local taxation of
Internet access, until November 1, 2007. Pursuant to this
moratorium, most of our services are not subject to state and
local taxation. Should the U.S. Congress not further extend
or pass a similar moratorium limiting the taxation of Internet
access or related services, state and local governments may
impose taxes on some or all of the services we currently provide
after November 1, 2007. We may not be able to pass these
taxes along to our customers. This additional expense may have a
negative impact on our business and the industry generally.
Risks
Related to Internaps Capital Stock
Our
common stockholders may experience significant dilution, which
could depress the market price of our common
stock.
Holders of our stock options and warrants to purchase common
stock may exercise their options or warrants to purchase our
common stock which would increase the number of outstanding
shares of common stock in the future. As of September 30,
2006, (1) options to purchase an aggregate of
2.9 million shares of our common stock at a weighted
average exercise price of $10.86 were outstanding, and
(2) warrants to purchase 0.2 million shares of our
common stock at an exercise price of $9.50 per share were
outstanding. The issuance of our common stock upon the exercise
of options and warrants could depress the market price of the
common stock by increasing the number of shares of common stock
outstanding on an absolute basis or as a result of the timing of
additional shares of common stock becoming available on the
market.
Our
stock price may be volatile.
The market for our equity securities has been extremely
volatile. Our stock price could suffer in the future as a result
of any failure to meet the expectations of public market
analysts and investors about our results of operations from
quarter to quarter. The following factors could cause the price
of our common stock in the public market to fluctuate
significantly:
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actual or anticipated variations in our quarterly and annual
results of operations;
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changes in market valuations of companies in the Internet
connectivity and services industry;
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changes in expectations of future financial performance or
changes in estimates of securities analysts;
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fluctuations in stock market prices and volumes;
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future issuances of common stock or other securities;
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the addition or departure of key personnel; and
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announcements by us or our competitors of acquisitions,
investments or strategic alliances.
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Risks
Relating to VitalStream
VitalStream is subject to many risks that are similar to those
described under the following sub-headings under Risks Relating
to Internap:
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Our business could be harmed by prolonged electrical power
outages or shortages, increased costs of energy or general
availability of electrical resources.
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Our results of operations have fluctuated in the past and may
continue to fluctuate in the future, which could have a negative
impact on the price of our common stock.
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We have acquired and may acquire other businesses, and these
acquisitions involve many risks.
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30
Risks
Related to VitalStreams Business.
We may
continue to experience net losses from operations and may never
become profitable.
We have experienced net losses in each quarter since our
inception and as of September 30, 2006, had an accumulated
deficit of $17.2 million. We are uncertain when, or if, we
will generate net income. Even if we do generate net income in
one or more quarters in the future, subsequent developments in
our industry, customer base, business or cost structure or
expenses associated with our operations, or due to an event such
as significant litigation or a significant transaction may cause
us to again experience net losses. We may never become
profitable for the long-term, or even for any quarter.
We are
dependent on a concentrated number of customers, and a material
reduction in revenue from any of our significant customers would
harm our financial results.
Historically, a significant portion of our revenues has come
from a limited number of customers. We may not be able to
sustain our revenue levels from these customers because our
revenues have largely been generated in connection with these
customers decisions to choose our Streaming Service for
Flash, Streaming Service for Windows Media and managed hosting
and colocation services versus competing services. During the
nine months ended September 30, 2006, MySpace, Inc.
accounted for approximately 35% of our revenue. In early October
2006, MySpace informed us that it intends to develop its own
in-house streaming capabilities and to significantly reduce its
use of our services. We began experiencing a significant
reduction in revenue from MySpace commencing in October 2006 and
expect that reduction to continue in the future.
During 2005, Comcast Corporation, MySpace, Inc. and World
Netmedia, LLC accounted for approximately 14%, 11% and 11% of
our revenue, respectively. During 2004, World Netmedia, LLC and
Hypermedia Systems, Inc. accounted for approximately 18% and 10%
of our revenue, respectively. Several additional customers
individually accounted for between 1% and 9% of our revenues
during the nine months ended September 30, 2006 and the
years ended December 31, 2005 and 2004. Many of our
agreements with customers are only for a year at a time and are
generally terminable at any time upon short-term notice. In
addition, during the term of an agreement, customer usage may
expand or contract dramatically. Costs and disruptions
associated with changing content delivery network, or CDN,
providers are generally insignificant. Our largest customers
generally use several CDN providers and, as a result, can move
their business rapidly. As a result, customers accounting for a
significant portion of our revenue could change CDN providers at
any given time. Decisions by one or more significant customers
to terminate or not renew their agreements with us, or to
substantially reduce their use of our services, could
substantially slow our revenue growth or lead to a decline in
revenue.
We are
substantially dependent upon technology and services provided by
third parties, including our Adobe and Microsoft product
licenses, and we may not be able to continue our current
operations without such technology and services.
We rely on other companies to provide software licenses and
supply key components of our network infrastructure, including
Internet bandwidth, which constitutes our largest direct cost of
providing services, and networking equipment. Additionally, we
rely on third-party development of technology to provide
media-related functionality, such as streaming media formats. We
do not have long-term agreements governing the supply or license
of many of these services or technologies, and most are
available from only limited sources. Our Streaming Service for
Flash and Streaming Service for Windows Media services are
dependent upon licenses from Adobe Systems Incorporated and
Microsoft Corporation, respectively. Our licenses are effective
for the term of the applicable license agreements, which have
limited terms and may be terminated early following an uncured
material breach or may not be renewed upon expiration. Our
license from Adobe terminates in December 2007. We have a
one-year option to renew this license. Our license from
Microsoft terminates in February 2007. A termination or
nonrenewal of our license agreements with Adobe or Microsoft
would result in a decrease in revenue and would harm our
business. In the future, irrespective of our licenses with Adobe
or Microsoft, we may be unable to continue to obtain needed
services or licenses for needed technologies on commercially
reasonable terms, or at all, which would harm our ability to
continue to provide services, our cost structure
and/or the
quality of our services.
31
If we
are unsuccessful in introducing our ad selection and ad
insertion services and if our customers do not adopt our ad
selection and ad insertion technology, we may not be able to
achieve or sustain our anticipated growth.
We currently offer ad insertion technology for audio and video
streams. Our VitalStream Advertising Service is designed to
enable customers to turn existing streaming traffic into content
packaged with advertising. In the third quarter, we first
recognized material revenues from the VitalStream Advertising
Service product line. Ad insertion for audio and video streams
is a new technology and an evolving method of advertising and is
subject to technological and market acceptance risk. If our
VitalStream Advertising Service fails to achieve market
acceptance, we may not grow our business, and our revenue may
grow slower than expected. In addition, if we do not continue to
improve our VitalStream Advertising Service, it may not remain
competitive with other services.
Our
failure to meet performance standards under our service level
agreements could result in our customers terminating their
relationship with us or our customers being entitled to receive
service credits which could lead to reduced
revenues.
We have service level agreements with substantially all of our
customers in which we provide various guarantees regarding our
levels of service. As a result, service interruptions could
result in difficulty maintaining our service level commitments
required by these agreements. If we fail to provide the levels
of service required by these agreements, our customers may be
able to receive service credits for their accounts, as well as
terminate their relationship with us. In addition, any inability
to meet our service level commitments could reduce the
confidence of our customers and could consequently impair our
ability to obtain and retain customers, which would harm our
ability to generate revenues and our operating results.
We
intend to expand our operations and increase our expenditures in
an effort to grow our business. If we are unable to achieve or
manage significant growth and expansion, or if our business does
not grow as we expect, our operating results will
suffer.
In order to successfully implement our business strategy, we
must achieve substantial growth in our customer base through
sales, business acquisitions or a combination thereof. We may
not achieve such growth. If achieved, significant growth would
place increased demands on our management, accounting systems,
network infrastructure and systems of financial and internal
controls. We may be unable to expand associated resources and
refine associated systems fast enough to keep pace with
expansion, especially as we expand into multiple facilities at
distant locations. Rapid growth would also require an increase
in the capacity, efficiency and accuracy of our billing and
customer support systems. This would require an increase in the
number of our personnel, particularly within accounting,
customer service and technical support. Because of competition
for employees and difficulties inherent in hiring, retaining and
training large numbers of service and support personnel in a
short period of time, we may be short staffed at times or be
staffed with relatively inexperienced personnel. Our labor,
administrative, professional fees and other costs may also
increase. Any failure to expand our technical and personnel
infrastructure with our business could lead to a decline in the
quality of our sales, marketing, service, or other aspects of
our business and lead to a long-term decline in revenue.
If we
are unable to sell our services at acceptable prices relative to
our costs, our business and financial results are likely to
suffer.
Prices we have been charging for some of our services have
declined in recent years. We expect that this decline may
continue in the future as a result of, among other things,
existing and new competition in the markets we serve.
Consequently, our historical revenue rates may not be indicative
of future revenues based on comparable traffic volumes. If we
are unable to sell our services at acceptable prices relative to
our costs or if we are unsuccessful with our strategy of selling
additional services and features to our existing content
delivery customers, our gross margins will decrease, and our
business and financial results will suffer.
32
If we
are unable to keep up with evolving industry standards and
changing user needs, our business is likely to suffer, and we
may need to deploy significant company resources to keep up with
evolving industry standards and changing user
needs.
The market for our Internet streaming and other services, and
the markets for products and services utilizing our streaming
and other services, are relatively new and rapidly evolving. As
our customers needs and industry standards continue to
evolve, our success will depend, in part, on our ability to
timely and accurately identify emerging trends and to modify our
services offerings accordingly. We may be unable to modify our
proprietary technology, obtain licenses for key third-party
technologies or integrate technologies rapidly and efficiently
enough to keep pace with emerging trends. We may fail to
identify and invest in technologies that subsequently dominate
the industry, and we may build our offerings around, and invest
in, technologies that fail to achieve a substantial foothold in
the industry. In addition, new industry standards or
technologies could render our Internet streaming and other
services obsolete and unmarketable or require substantial
reduction in the fees we charge.
Any failure on our part to properly identify, invest in and
adopt new technologies that subsequently achieve market
dominance in a timely and cost effective manner could lead to a
substantial reduction in our market share, a reduction in our
revenue and an increase in our operating costs. Any such
decrease in revenues, or increase in costs, would harm our
business, financial condition and results of operations.
The
market for services supported by our Internet streaming services
may not continue to grow at a sufficient pace to permit our
continued growth.
Our continued growth is dependent upon the continued expansion
of the markets for services supported by our Internet
broadcasting and streaming services. This includes markets for
services such as the streaming of movie trailers and music
samples online, virtual home tours, online video games, live
streamed sporting events or concerts and video conferences or
presentations. The market for streaming-supported services may
not continue to grow for various reasons, including:
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consumers may determine not to view or listen to streamed audio
and video over the Internet because of, among other factors,
poor reception of streamed broadcasts or the creation or
expansion of competing technologies, such as television beaming
or interactive cable that may provide a similar service at lower
cost or with better features;
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consumers may not acquire high-speed connectivity to the
Internet, which is essential for viewing streamed digital media,
in sufficient numbers to support growth in data streaming;
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risks related to copyright and patent infringement, royalty
payments to artists and publishers, illegal copying and
distribution of data, or other intellectual property issues may
limit the feasibility of streaming digital media;
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new technologies may make it more feasible and cost effective
for our customers to bring streaming in house;
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customers that use the Internet to broadcast presentations or
meetings may determine that alternative means of communications
are more effective or less expensive; and
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new laws and regulations, including confusing or expensive tax
laws, may increase the cost to our customers or to the public of
transacting business or streaming or viewing digital media over
the Internet.
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If the market for streaming-dependent services does not grow, or
grows more slowly than expected, our business, results of
operations and financial condition will be harmed. Our business
plan assumes continued growth in revenue, and it is unlikely
that we could become profitable if our revenue were to cease
growing.
The
markets in which we operate are highly competitive, and we may
be unable to compete successfully against existing or future
competitors of our businesses.
We have experienced, and expect to continue to experience,
increasingly competitive markets for our services. Our current
and future competitors in Internet streaming may include other
CDN providers, Internet broadcast
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network specialty providers and alternative access providers
such as cable television companies, direct broadcast satellite
companies, telecommunication companies, wireless communications
providers and other established media. Our current and future
competitors in hosting and colocation may include other Internet
hosting, colocation and access businesses, including such major
providers as Savvis and AT&T. Barriers to entry in the
hosting and colocation business are minimal.
Many of our existing and prospective competitors have longer
operating histories and greater market presence, brand
recognition, engineering and marketing capabilities, and
financial, technological and personnel resources than we do.
Competitors with an extended operating history, a strong
financial position and an established reputation have an
inherent marketing advantage because of the reluctance of many
potential customers to entrust key operations to a company that
may be perceived as unproven or unstable. In addition, our
competitors may be able to use their extensive resources to our
disadvantage in the following ways, among others:
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to improve and expand their communications and network
infrastructures more quickly than we can;
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to reduce costs, particularly bandwidth costs, because of
discounts associated with large volume purchases;
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to offer less expensive streaming, hosting, colocation and
related services as a result of a lower cost structure, greater
capital reserves or otherwise;
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to adapt more swiftly and completely to new or emerging
technologies and changes in customer requirements;
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to offer bundles of related services that we are unable to offer;
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to take advantage of acquisition and other opportunities more
readily; and
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to devote greater resources to the marketing and sales of their
products.
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If we are unable to compete effectively in our various markets,
or if competition places downward pressure on the prices at
which we offer our services, our business, financial condition
and results of operations may suffer.
Our
sales cycle requires us to expend a significant amount of
resources, and could have an adverse effect on the amount,
timing and predictability of future revenues.
The sales cycle of our products and services, beginning from our
first customer contact to closing of the sale, often ranges from
one to three months. We may expend significant resources during
the sales cycle and ultimately fail to close the sale. The
success of our sales process is subject to factors over which we
have little or no control, including:
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the timing of our customers budget cycles, approval
processes and product launches;
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the announcement or introduction of competing products; and
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established relationships between our competitors and our
potential customers.
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We expend substantial time, effort and money educating our
current and prospective customers as to the value of our
products and services. Even if we are successful in persuading
lower-level decision makers within our customers
organizations of the benefits of our products and services,
senior management might nonetheless elect not to buy our
products and services after months of sales efforts by our
employees or resellers. If we are unsuccessful in closing sales
after expending significant resources, this would result in lost
potential revenues and an increase in operating expenses and
would harm our business.
If we
are unable to maintain peering arrangements with Internet
Service Providers on favorable terms, our revenues could
decrease and our operations could be harmed.
We enter into peering agreements with Internet
Service Providers. Peering is the voluntary
interconnecting of distinct data networks on the Internet in
order to increase the number of alternatives participants have
for the routing of data. Previously, many providers agreed to
exchange traffic without charging each other. Recently, however,
many providers that previously offered peering have reduced
peering relationships or are seeking to
34
impose charges for transit. Increases in costs associated with
Internet and exchange traffic could have an adverse effect on
our business. If we are not able to maintain our peering
relationships on favorable terms, our costs may increase or, if
we decrease our use of peering relationships, the data
transmission speed experienced by our customers may decrease.
Such an increase in cost, decrease in transmission speed or
combination of the two would likely lead to a decrease in our
customer base and otherwise harm our business. In addition,
consolidation in the telecommunication industry has led to fewer
companies providing Internet bandwidth between major nodes,
which may lead to higher prices for the bandwidth services we
depend upon.
The
network architecture and data tracking technology underlying our
services is complex and may contain errors in design or
implementation that could harm our business.
The network architecture and data tracking technology underlying
our streaming and hosting services is complex and includes
software and code used to generate customer invoices. This
software and code is either developed internally or licensed
from third parties. Any of the system architecture, system
administration, software or code may contain errors, or may be
implemented or interpreted incorrectly, particularly when first
introduced or when new versions or enhancements to our services
are released. In addition, with respect to certain usage-based
billing, the data used to bill the customer for usage is an
estimate, based upon complex formulas or algorithms. We or the
customer may subsequently believe that such formulas or
algorithms overstate or understate actual usage. In any such
case, a design or application error could cause overbilling or
underbilling of our customers, which may:
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harm our relationship with those customers and others, possibly
leading to a loss of affected and unaffected customers;
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lead to billing disputes and related legal fees, and diversion
of management resources;
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increase our costs related to product development;
and/or
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result in a decrease in revenues and increase in expenses,
either prospectively or retrospectively.
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We may
have insufficient transmission, electrical power and server
capacity, which could result in interruptions in our services
and loss of revenues.
Our operations are dependent in part upon transmission and
electrical power capacity provided by third-party
telecommunications network providers and power companies or
owners of the facilities at which our data centers are located.
In addition, our content delivery network must be sufficiently
robust to handle all of our customers traffic. We may not
be adequately prepared for unexpected increases in bandwidth
demands by our customers, and the bandwidth we have contracted
to purchase may become unavailable for a variety of reasons,
including due to payment disputes or network providers going out
of business. Any failure of these network providers to provide
the capacity we require, due to financial or other reasons, may
result in a reduction in, or interruption of, service to our
customers. If we do not have adequate access to third-party
transmission capacity, we could lose customers. If we are unable
to obtain adequate transmission capacity or power on terms
commercially acceptable to us, or at all, our business and
financial results could suffer. We may not be able to deploy on
a timely basis enough servers to meet the needs of our customer
base or effectively manage the functioning of those servers. In
addition, damage or destruction of, or other denial of access
to, a facility where our servers are housed could result in a
reduction in, or interruption of, service to our customers.
If
network neutrality principles do not continue to
govern the Internet, our business may be harmed by an increase
in costs associated with the bandwidth underlying our streaming
services.
The Internet is currently network neutral. This
means that network providers generally transport all packets of
data on a first come, first served basis, offer service plans
distinguished only by bandwidth, refrain from billing third
parties for network service and provide access to all sources of
content on an equal basis. Residential broadband providers such
as Verizon, Comcast, and AT&T have proposed tiered service
offerings. In a tiered, as opposed to a neutral system, data
from entities that purchase the higher tiered and more expensive
service streams through the Internet faster and with more
consistency than data from entities that have purchased lower
tiered offerings. If content providers are able to charge for
premium services, because of the importance of speed and quality
to our streaming
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services, we would likely be required by our customers to
purchase and pay for premium services, which may significantly
increase our bandwidth and related costs. We would likely
attempt to pass along these premium charges to our customers. If
our customers are unwilling to pay premium charges, or if our
competitors are able to provide premium services in a more
cost-effective manner than we are, we would experience an
increase in costs without a corresponding increase in revenue,
which would harm our business and results of operations.
We are
dependent upon key personnel who may leave at any time and may
be unable to attract qualified personnel in the future which
could harm our anticipated growth, implementation of current
business plans and may impair our financial
performance.
We are highly dependent upon the continued services of our
senior management team. As a result of our recent growth and the
number of new customers and transactions, we are constantly
evaluating our executive and management resources. To the extent
our executives officers and managers are parties to employment
agreements, such agreements are terminable at will by such
employees. If one or more of our executives or senior managers
were to leave, particularly if several were to leave within a
short period of time, we may experience a significant disruption
in our ability to recruit and retain customers, maintain our
internal controls, and complete significant transactions in a
timely and competent manner. In addition, we may be unable to
recruit competent replacement personnel on a timely basis. The
loss of the services of key executive or management personnel
could harm our ability to execute our business plan and may
impair our financial performance.
We may
become subject to risks associated with international
operations, which could slow our anticipated growth,
implementation of current business plans and impair our
financial performance.
We plan to expand our marketing efforts in foreign countries,
which will involve the establishment of one or more data centers
or other bases of operations outside of the U.S. We
currently have a data center in the Netherlands. The
establishment or expansion of foreign operations involves
numerous risks, including without limitation:
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we may incur losses solely as a result of the fluctuation of the
value of the U.S. dollar, as most of our costs will
continue to be denominated primarily in dollars, while our
revenues may increasingly be denominated in other currencies;
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we may incur significant costs in order to comply with, or
obtain intellectual property protection under, the laws of
foreign countries, and even then, foreign courts or other
tribunals may decline to honor our intellectual property rights,
may not enforce our contracts as written and may impose
restrictions, taxes, fines and other penalties that exceed those
that would generally be imposed under U.S. laws;
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we may be the target of anti-U.S. politically motivated
actions, including boycotts, sabotage, violence, nationalization
of resources or discrimination;
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costs and risks associated with management and internal controls
may increase as our employees and assets are located outside of
the southern California region, and increase compliance
management and costs with respect to U.S. export control
legislation and the Foreign Corrupt Practices Act of 1977, as
amended, or any rules or regulations promulgated thereunder;
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if our overseas revenues increase, our dependence on such
revenues may also increase, which would make us increasingly
subject not only to economic cycles in the U.S., but also to
cycles in other nations, which may be more variable than those
in the U.S.;
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we may be subject to tariffs, export controls or other trade
barriers; and
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we may experience increased difficulties in collecting
delinquent accounts receivable.
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Failure
to establish and maintain effective internal controls in
accordance with Section 404 of the Sarbanes-Oxley Act of
2002 could harm our operating results.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that
we maintain effective internal controls over financial
reporting. If we remain an SEC reporting company, beginning with
our Annual Report on
Form 10-K
for the year ended December 31, 2006, we are required to
furnish annually a report of our managements assessment of
36
the effectiveness of our internal controls over financial
reporting and to cause our auditors to attest to, and report on,
our assessment. In addition, effective internal controls are
necessary for us to provide reliable and accurate financial
reports and effectively prevent fraud. We have not yet completed
a report, or undergone an audit on a report, related to
managements assessment of our internal controls. We may
identify material weaknesses or other areas in need of
improvement in connection with managements assessment of
our internal controls. Separately, our auditors may identify
material weaknesses or other areas in need of improvement as
part of their review and audit of our internal controls. We
could experience significant expenses in connection with the
design and implementation of our internal assessment, the audit
of our assessment and efforts to remedy any weaknesses
identified. In addition, we may fail to identify and remedy
weaknesses in our internal controls over financial reporting.
Weaknesses in our existing internal controls, or any failure to
remedy weaknesses in internal controls in the future, could harm
our operating results or cause management to be unable to report
that our internal controls over financial reporting are
effective.
Increases
in government regulation may have an adverse effect on our
business and increase compliance costs.
As Internet commerce continues to evolve, and, in particular, as
the use of streaming media in markets such as wireless
communications increases, we expect that federal, state or
foreign legislatures and agencies may adopt laws and regulations
affecting our business or our customers, including laws or
regulations potentially imposing taxes or other fees on us or
our customers, imposing reporting, tracking or other similar
requirements or imposing restrictions or standards on us or our
customers related to issues such as user privacy, pricing,
content and quality of products and services. Such laws and
regulations may significantly increase our costs of operations,
may expose us to liability or may limit the services we can
offer, or may impose similar burdens on our customers, which in
turn may negatively impact our business, financial condition and
results of operations. In particular, the growth and development
of the market for online commerce has prompted calls for more
stringent tax, consumer protection and privacy laws, both in the
U.S. and abroad, that may impose additional burdens on companies
conducting business online or providing Internet-related
services such as ours. This could negatively affect both our
business directly as well as the businesses of our customers,
which could reduce their demand for our services. Tax laws that
might apply to our servers, which are located in many different
jurisdictions, could require us to pay additional taxes that
would adversely affect any profitability we may experience.
Internet-related laws remain largely unsettled, even in areas
where there has been some legislative action. The adoption or
modification of laws or regulations relating to the Internet or
our operations, or interpretations of existing law, could
adversely affect our business.
If we
are found liable for the material that content providers
distribute over our network, we could incur material monetary
settlements.
The law relating to the liability of private network operators
for information carried on or disseminated through their
networks is still unsettled in many jurisdictions. We may become
subject to legal claims relating to the content disseminated on
our network. Lawsuits may be brought against us claiming that
material on our network on which one of our customers relied was
inaccurate. Claims could also involve matters such as
defamation, invasion of privacy and copyright infringement.
Content providers operating private networks have been sued in
the past, sometimes successfully, based on the content of
material. Such actions could be brought against us in
international jurisdictions and defending such actions could be
costly and divert management attention. If we need to take
costly measures to reduce our exposure to these risks, or are
required to defend ourselves against, or pay large monetary
settlements in connection with, such claims, our financial
results could be negatively affected.
Risks
Related to VitalStream Common Stock.
Our
common stock has low trading volume, which may make it difficult
to dispose of a large number of shares.
Our common stock has been listed on the NASDAQ Market since
June 21, 2006. The volume of trading in our common stock is
relatively low, which limits significantly the number of shares
that investors can purchase or sell in a short period of time
without adversely affecting the market price of our common
stock. Consequently, an investor
37
may find it more difficult to dispose of large numbers of shares
of our common stock or to obtain a fair price for our common
stock in the market.
The
market price for our common stock is volatile and may change
dramatically at any time.
The market price of our common stock may be highly volatile. Our
stock price may change dramatically as the result of
announcements of our quarterly results, new products or
innovations by us or our competitors, the execution or
termination of significant customer contracts, significant
litigation or other factors or events that could affect our
business, financial condition, results of operations or future
prospects. In addition, the market price for our common stock
may be affected by various factors not directly related to our
business, including the following:
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a single acquisition or disposition, or several related
acquisitions or dispositions, of a large number of our shares;
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the interest of the market in our business sector, without
regard to our financial condition or results of
operations; and
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economic and other external market factors, such as a general
decline in market prices due to poor economic indicators or
investor distrust.
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If our existing stockholders sell a large number of shares of
our common stock or the public market perceives that existing
stockholders might sell shares of our common stock, the market
price of our common stock could decline significantly. As of
December 29, 2006, we had 23,774,014 outstanding shares of
common stock. Of these shares, other than the
1,747,312 shares of common stock we issued to EON Streams,
Inc. in May 2006, which are restricted securities
under Rule 144 of the Securities Act of 1933, substantially
all of our outstanding shares of common stock may be sold
without significant restriction pursuant to resale registration
statements that we have filed for the benefit of certain
stockholders or pursuant to Rule 144(k) of the Securities
Act of 1933.
Our
ability to issue preferred stock and common stock may
significantly dilute ownership and voting power, negatively
affect the price of our common stock and inhibit hostile
takeovers.
Under our Articles of Incorporation, as amended, we are
authorized to issue up to 10,000,000 shares of preferred
stock and 290,000,000 shares of common stock without
seeking stockholder approval. Our board of directors has the
authority to create various series of preferred stock with such
voting and other rights superior to those of our common stock
and to issue such stock without stockholder approval. Any
issuance of such preferred stock or common stock would dilute
the ownership and voting power of existing holders of our common
stock and may have a negative effect on the price of our common
stock. The issuance of preferred stock without stockholder
approval may also be used by management to stop or delay a
change of control, or might discourage third parties from
seeking a change of control of our company, even though some
stockholders or potential investors may view possible takeover
attempts as potentially beneficial to our stockholders.
The
concentration of our capital stock in the hands of affiliates
may limit the voting power of other stockholders and permit
affiliates to make decisions benefiting themselves at the
expense of stockholders generally.
Our executive officers, directors, affiliates of our officers
and directors and other holders of more than five percent of our
common stock collectively own or control approximately 42% of
the voting power of VitalStream as of December 29, 2006. As
a result, if such persons act together, they have the ability to
effectively control substantially all matters submitted to our
stockholders for approval, including the election and removal of
directors and the approval of any merger, consolidation or sale
of all or substantially all of our assets. These stockholders
may make decisions that benefit themselves at the expense of
stockholders generally.
Within the affiliate group as of November 10, 2006,
affiliates of Dolphin Equity Partners held
3,190,114 shares, representing approximately 13% of the
outstanding common stock of VitalStream, and affiliates of
WaldenVC held 3,305,959 shares, representing approximately
14% of the outstanding common stock of VitalStream. Each of
Dolphin Equity Partners and WaldenVC also has contractual rights
effectively assuring each of them a seat on our board of
directors. As a result of their stock holdings and board seats,
Dolphin Equity Partners or WaldenVC may be able to block, or
extract concessions or special benefits in connection with,
various transactions, including any future financing or business
combination transactions.
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We
have never declared, do not presently intend to declare, and are
currently not permitted to declare, dividends with respect to
our common stock.
We have never declared dividends on our common stock. We intend
to retain earnings, if any, to finance the operation and
expansion of our business and, therefore, we do not expect to
pay cash dividends on our shares of common stock in the
foreseeable future. In addition, restrictive covenants in our
financing agreements presently prohibit us from paying dividends
without the consent of Comerica Bank.
THE
COMPANIES
Internap
Internap markets products and services that provide managed and
premise-based Internet Protocol (IP) and route optimization
technologies that enable business-critical applications such as
e-commerce,
customer relationship management, video and audio streaming,
voice-over-IP,
virtual private networks, and supply chain management.
Internaps IP and route optimization product and service
offerings are complemented by IP access solutions such as data
center services, content delivery networks and managed security.
Additionally, it offers high levels of pre- and
post-installation service and consulting.
Internap was originally incorporated in Washington in 1996 and
reincorporated in Delaware in 2001.
Merger
Sub
Ivy Acquisition Corp, or Merger Sub, is a wholly owned
subsidiary of Internap that was incorporated in Nevada in 2006.
Merger Sub does not engage in any operations and exists solely
to facilitate the merger.
VitalStream
VitalStream provides products and services for storing and
delivering audio and video digital media to large audiences over
the Internet. Its content delivery network, or CDN, was
purpose-built for streaming digital media and enables content
owners to monetize their digital media assets via both
subscription and ad-based business models. Historically, its
core products have been Internet streaming, hosting and
collocation services. In May 2006, it launched VitalStream
Advertising Services, offering proprietary ad selection and ad
insertion capabilities, enabling customers to turn existing
streaming traffic into content packaged with advertising. Some
of its other offerings include Internet Protocol Television, or
IPTV, professional services and small business services.
VitalStream was incorporated in Nevada in 1986. VitalStream
commenced its streaming, hosting and colocation business in 2000
as VitalStream, Inc. In April 2002, VitalStream, Inc. became a
wholly-owned subsidiary of VitalStream Holdings, Inc., which had
no operations at that time.
THE
SPECIAL MEETING OF INTERNAP STOCKHOLDERS
Date,
Time and Place
The special meeting of Internap stockholders will be held at 3
p.m. local time on February 20, 2007, at the principal
executive offices of Internap at 250 Williams Street, Atlanta,
Georgia. We are sending this joint proxy statement/prospectus to
you in connection with the solicitation of proxies by the
Internap board of directors for use at the Internap special
meeting and any adjournments or postponements of the special
meeting.
Purposes
of the Internap Special Meeting
The purposes of the Internap special meeting are:
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to consider and vote on Proposal No. 1 to approve the
issuance of shares of Internap common stock in the merger and
adopt the merger agreement; and
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to consider and vote on Proposal No. 2 to adjourn the
special meeting, if a quorum is present, if necessary to solicit
additional proxies in favor of Proposal No. 1.
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Recommendation
of Internaps Board of Directors
The Internap board of directors has determined and believes
that the issuance of shares of Internap common stock in the
merger and adoption of the merger agreement is advisable to, and
in the best interests of, Internap and its stockholders and has
unanimously approved such issuance and has unanimously approved
the merger and the merger agreement. The Internap board of
directors unanimously recommends that Internap stockholders vote
FOR Proposal No. 1, to approve the
issuance of shares of Internap common stock in the merger and
adopt the merger agreement.
The Internap board of directors has concluded that the
proposal to adjourn the Internap special meeting, if a quorum is
present, if necessary to solicit additional proxies if there are
not sufficient votes in favor of Proposal No. 1, is
advisable to, and in the best interests of, Internap and its
stockholders. Accordingly, the Internap board of directors
unanimously recommends that all Internap stockholders vote
FOR Proposal No. 2 to adjourn the Internap
special meeting, if a quorum is present, if necessary to solicit
additional proxies in favor of Proposal No. 1.
Record
Date and Voting Power
Only holders of record of Internap common stock at the close of
business on the record date, December 29, 2006, are
entitled to notice of, and to vote at, the Internap special
meeting. There were approximately 1,057 holders of record
of Internap common stock at the close of business on the record
date. Because many of such shares are held by brokers and other
institutions on behalf of stockholders, Internap is unable to
estimate the total number of stockholders represented by these
record holders. 35,875,746 shares of Internap common stock
were issued and outstanding at the close of business on the
record date. Each share of Internap common stock entitles the
holder thereof to one vote on each matter submitted for
stockholder approval. See Security Ownership by Certain
Beneficial Owners for information regarding persons known
to the management of Internap to be the beneficial owners of
more than 5% of the outstanding shares of Internap common stock.
Voting
and Revocation of Proxies
The proxy accompanying this joint proxy statement/prospectus is
solicited on behalf of the board of directors of Internap for
use at the Internap special meeting.
All properly executed proxies that are not revoked will be voted
at the Internap special meeting and at any adjournments or
postponements of the special meeting in accordance with the
instructions contained in the proxy. If a holder of Internap
common stock executes and returns a proxy and does not specify
otherwise, the shares represented by that proxy will be voted
FOR Proposal No. 1 to approve the issuance
of shares of Internap common stock in the merger and adopt the
merger agreement and FOR Proposal No. 2 to
adjourn the special meeting, if a quorum is present, if
necessary to solicit additional proxies in favor of
Proposal No. 1, in accordance with the recommendation
of the Internap board of directors.
An Internap stockholder who has submitted a proxy may revoke it
at any time before it is voted at the Internap special meeting
by executing and returning a proxy bearing a later date,
providing proxy instructions via the Internet (your latest
Internet proxy is counted), filing written notice of revocation
with the Secretary of Internap stating that the proxy is revoked
or attending the special meeting and voting in person.
Required
Vote
The presence, in person or by proxy, at the special meeting of
the holders of a majority of the shares of Internap common stock
outstanding and entitled to vote at the special meeting is
necessary to constitute a quorum at the meeting. Approval of
each of Proposal No. 1 and Proposal No. 2
requires the affirmative vote of the holders of a majority of
the votes cast in person or by proxy at the special meeting.
Abstentions and broker non-votes will be
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counted towards a quorum, but will not be counted for any
purpose in determining whether either proposal is approved.
At the record date for the special meeting, the directors and
executive officers of Internap owned approximately 3% of the
outstanding shares of Internap common stock entitled to vote at
the meeting.
Solicitation
of Proxies
In addition to solicitation by mail, the directors, officers,
employees and agents of Internap may solicit proxies from
Internap stockholders by personal interview, telephone,
telegram, email or otherwise. Internap will bear the costs of
the solicitation of proxies from its stockholders, except that
Internap and VitalStream will each pay one-half of the cost of
printing this joint proxy statement/prospectus. Arrangements
will also be made with brokerage firms and other custodians,
nominees and fiduciaries who are record holders of Internap
common stock for the forwarding of solicitation materials to the
beneficial owners of Internap common stock. Internap will
reimburse these brokers, custodians, nominees and fiduciaries
for the reasonable
out-of-pocket
expenses they incur in connection with the forwarding of
solicitation materials. Internap has engaged the services of
Morrow & Co., Inc. to distribute proxy solicitation
materials to brokers, banks and other nominees and to assist in
the solicitation of proxies from Internap stockholders for a fee
of approximately $6,000 plus reasonable
out-of-pocket
expenses.
Other
Matters
As of the date of this joint proxy statement/prospectus, the
Internap board of directors does not know of any business to be
presented at the Internap special meeting other than as set
forth in the notice accompanying this joint proxy
statement/prospectus. If any other matters should properly come
before the special meeting, the accompanying proxy gives
discretionary authority to the persons named as proxies to vote
the shares represented by all valid proxies with respect to such
other matters, and it is intended that the shares represented by
such proxies will be voted with respect to such matters in
accordance with the judgment of the persons named in the proxies.
Stockholder
Proposals
Stockholder proposals may be included in Internaps proxy
materials for the Internap 2007 annual meeting so long as they
are provided to Internap on a timely basis and satisfy the other
conditions set forth in applicable SEC rules and regulations.
For a stockholder proposal to be included in Internaps
proxy materials for the Internap annual meeting to be held in
2007, Internap must receive the proposal at its principal
executive offices, addressed to its Secretary, not later than
January 2, 2007. In addition, stockholder business that is
not intended for inclusion in Internaps proxy materials
may be brought before the Internap annual meeting so long as
Internap receives notice of the proposal in compliance with the
requirements set forth in Internaps Amended and Restated
Bylaws, at Internaps principal executive offices, not
earlier than February 21, 2007 and not later than
March 23, 2007.
THE
SPECIAL MEETING OF VITALSTREAM STOCKHOLDERS
Date,
Time and Place
The special meeting of VitalStream stockholders will be held at
12 p.m. local time on February 20, 2007, at the principal
executive offices of VitalStream at 555 Anton Blvd.,
Suite 400, Costa Mesa, California. We are sending this
joint proxy statement/prospectus to you in connection with the
solicitation of proxies by the VitalStream board of directors
for use at the VitalStream special meeting and any adjournments
or postponements of the special meeting.
Purposes
of the VitalStream Special Meeting
The purposes of the VitalStream special meeting are:
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to consider and vote upon Proposal No. 1 to adopt the
merger agreement; and
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to consider and vote on Proposal No. 2 to adjourn the
special meeting, if necessary, to solicit additional proxies if
there are not sufficient votes in favor of
Proposal No. 1.
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Recommendations
of the VitalStream Board of Directors
The VitalStream board of directors has unanimously determined
and believes that the merger is advisable and fair to, and in
the best interests of, VitalStream and its stockholders and has
unanimously approved the merger and the merger agreement. The
VitalStream board of directors unanimously recommends that
VitalStream stockholders vote FOR
Proposal No. 1, to adopt the merger agreement.
The VitalStream board of directors has concluded that the
proposal to adjourn the VitalStream special meeting, if
necessary to solicit additional proxies in favor of the
foregoing Proposal No. 1, is advisable to, and in the
best interests of, VitalStream and its stockholders.
Accordingly, the VitalStream board of directors unanimously
recommends that VitalStream stockholders vote FOR
Proposal No. 2, to adjourn the VitalStream special
meeting, if necessary to solicit additional proxies in favor of
Proposal No. 1.
Record
Date and Voting Power
Only holders of record of VitalStream common stock at the close
of business on the record date, December 29, 2006, are
entitled to notice of, and to vote at, the VitalStream special
meeting. There were approximately 375 holders of record of
VitalStream common stock at the close of business on the record
date, with 23,774,014 shares of VitalStream common stock
issued and outstanding. Each share of VitalStream common stock
entitles the holder thereof to one vote on each matter submitted
for stockholder approval. See Security Ownership by
Certain Beneficial Owners for information regarding
persons known to the management of VitalStream to be the
beneficial owners of more than 5% of the outstanding shares of
VitalStream common stock.
Voting
and Revocation of Proxies
The proxy accompanying this joint proxy statement/prospectus is
solicited on behalf of the board of directors of VitalStream for
use at the VitalStream special meeting.
All properly executed proxies that are not revoked will be voted
at the VitalStream special meeting and at any adjournments or
postponements of the special meeting in accordance with the
instructions contained in the proxy. If a holder of VitalStream
common stock executes and returns a proxy and does not specify
otherwise, the shares represented by the proxy will be voted:
(i) FOR Proposal No. 1 to adopt the
merger agreement; (ii) FOR
Proposal No. 2 to adjourn the special meeting, if
necessary to solicit additional proxies if there are not
sufficient votes in favor of Proposal No. 1, in
accordance with the recommendation of the VitalStream board of
directors; and (iii) in the discretion of the proxy holders
as to any other matters incident to the conduct of the special
meeting.
A VitalStream stockholder who has submitted a proxy may revoke
it at any time before it is voted at the VitalStream special
meeting by executing and returning a proxy bearing a later date,
providing proxy instructions via the Internet (your latest
Internet proxy is counted), filing written notice of revocation
with the Secretary of VitalStream stating that the proxy is
revoked or attending the special meeting and voting in person.
Required
Vote
The presence, in person or by proxy, at the special meeting of
the holders of a majority of the shares of VitalStream common
stock outstanding and entitled to vote at the special meeting is
necessary to constitute a quorum at the special meeting.
VitalStream will count abstentions and broker non-votes to
determine the number of shares present at the special meeting
for the purpose of determining the presence or absence of a
quorum. Broker non-votes are proxies from brokers or other
nominees indicating that the record holder of the shares has not
received instructions from the beneficial owner or other person
entitled to vote the shares which are the subject of the proxy
on a particular matter with respect to which the broker or other
nominee does not have discretionary voting power. Approval of
Proposal No. 1, requires the affirmative vote of the
holders of a majority of the voting power of the shares of
VitalStream common stock outstanding on the record date of the
VitalStream special meeting. Approval of
Proposal No. 2, requires the affirmative vote of
holders of a majority of the votes cast in person or by proxy at
the
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VitalStream special meeting. Abstentions and broker non-votes
will be counted towards a quorum and will have the same effect
as negative votes on Proposal No. 1, but will not be
counted for any purpose in determining whether
Proposal No. 2, is approved.
At the record date for the VitalStream special meeting, the
directors and executive officers of VitalStream and their
affiliates owned approximately 7% of the outstanding shares of
VitalStream common stock entitled to vote at the meeting.
WaldenVC II, LP, or Walden, and four investment funds
affiliated with Dolphin Communications, LLC, collectively
referred to as the Dolphin Group, each of which beneficially
owns 10% or more of the outstanding common stock of VitalStream,
have each entered into voting agreements with Internap dated
October 12, 2006 pursuant to which these stockholders
agreed, among other things, to vote, or cause to be voted, all
of the shares of VitalStream common stock owned by them, as well
as all shares of VitalStream common stock acquired by them, in
favor of the approval of the merger agreement and against
approval of any proposal made in opposition to, or in
competition with, the merger agreement. As of the record date
for the special meeting, 6,496,103 shares of VitalStream
common stock were subject to the voting agreements, representing
approximately 27% of the outstanding shares of VitalStream
common stock entitled to vote at the VitalStream special
meeting. See Voting Agreements.
Solicitation
of Proxies
In addition to solicitation by mail, the directors, officers,
employees and agents of VitalStream may solicit proxies from
VitalStream stockholders by personal interview, telephone,
telegram or otherwise. VitalStream will bear the costs of the
solicitation of proxies from its stockholders, except that
Internap and VitalStream will each pay one-half of the cost of
printing this joint proxy statement/prospectus. Arrangements
will also be made with brokerage firms and other custodians,
nominees and fiduciaries who are record holders of VitalStream
common stock for the forwarding of solicitation materials to the
beneficial owners of VitalStream common stock. VitalStream will
reimburse these brokers, custodians, nominees and fiduciaries
for the reasonable
out-of-pocket
expenses they incur in connection with the forwarding of
solicitation materials. In connection with this joint proxy
statement/prospectus, VitalStream has retained a proxy
solicitation firm, Morrow & Co., Inc., to aid in the
solicitation process and will pay it a fee of approximately
$5,500 for its services, plus any reasonable expenses incurred
in connection with the solicitation.
Other
Matters
As of the date of this joint proxy statement/prospectus, the
VitalStream board of directors does not know of any business to
be presented at the VitalStream special meeting other than as
set forth in the notice accompanying this joint proxy
statement/prospectus. If any other matters should properly come
before the special meeting, it is intended that the shares
represented by proxies will be voted with respect to such
matters in accordance with the judgment of the persons voting
the proxies.
Stockholder
Proposals
Stockholder proposals may be included in VitalStreams
proxy materials for an annual meeting so long as they are
provided to VitalStream on a timely basis and satisfy the other
conditions set forth in applicable SEC rules and regulations.
For a stockholder proposal to be included in VitalStreams
proxy materials for the VitalStream annual meeting to be held in
2007, VitalStream must have received the proposal at its
principal executive offices, addressed to its Secretary, not
later than February 10, 2007. In addition, stockholder
business that is not intended for inclusion in
VitalStreams proxy materials may be brought before the
VitalStream annual meeting so long as VitalStream receives
notice of the proposal in compliance with the requirements set
forth in VitalStreams bylaws, addressed to its Secretary
at VitalStreams principal executive offices, no less than
30 days prior to the 2007 annual meeting; provided,
however, that in the event such notice is provided less than
40 days prior to the 2007 annual meeting, to be timely, a
stockholder notice must be received no later than the close of
business on the
10th day
following the date on which the notice of 2007 annual meeting
was mailed. Pursuant to rules adopted by the SEC, if a
stockholder intends to propose any matter for a vote at the 2007
annual meeting but failed to notify VitalStream of such
intention prior to April 28, 2007, then a proxy solicited
by the VitalStream board of directors may be voted on such
matter in the discretion of the proxy holder, without discussion
of the matter in the proxy statement soliciting such proxy and
without such matter appearing as a separate item on the proxy
card.
43
PROPOSAL NO. 1
THE
MERGER
General
Description of the Merger
At the effective time of the merger, Merger Sub will be merged
with and into VitalStream. VitalStream will be the surviving
corporation and will continue as a wholly owned subsidiary of
Internap. In the merger, each share of VitalStream common stock
outstanding at the effective time will automatically be
converted into the right to receive 0.5132 shares of
Internap common stock. Each VitalStream stockholder who would
otherwise be entitled to receive a fraction of a share of
Internap common stock (after aggregating all fractional shares
to be received by such stockholder) will instead be paid in cash
for such fractional share.
Based on the number of shares of Internap common stock and
VitalStream common stock outstanding as of the record date,
12,200,823 shares of Internap common stock will be issuable
pursuant to the merger agreement, representing approximately 25%
of the total Internap common stock to be outstanding after such
issuance. This assumes that no shares of VitalStream common
stock or Internap common stock are issued after the record date
and prior to the effective time of the merger.
Background
As part of the ongoing evaluation of its business, Internap
regularly considers a variety of strategic alternatives for its
business. As a part of this process, Internap has evaluated,
independently and with investment bankers, various alternatives
for expanding its business, improving its competitive position
and enhancing stockholder value, including the advisability of
potential acquisitions and other transactions.
In March 2006, Internap and VitalStream discussed a possible
commercial sales relationship in which VitalStream would
purchase products
and/or
services from Internap. In connection with these discussions,
the parties decided to discuss various commercial and strategic
relationships.
A mutual nondisclosure agreement was executed between Internap
and VitalStream on April 20, 2006. Neither the
nondisclosure agreement nor any other agreement in effect
between Internap and VitalStream prior to the execution of the
merger agreement contained any provision that prevented
VitalStream from discussing potential business combinations with
other parties.
On April 27, 2006, Jack Waterman, VitalStreams Chief
Executive Officer, and Philip Kaplan, VitalStreams
President and Chief Operating Officer met with representatives
of its financial advisor, RBC Capital Markets Corporation, or
RBC, to discuss financial alternatives available to VitalStream
at that time, including a public offering of VitalStream common
stock to raise capital for its business, a sale of the company,
acquisitions of other companies in the sector and private
placement of equity. Management had been directed by
VitalStreams board to search for transactions that would
significantly enhance the companys prospects for rapid
expansion in what was felt to be a time of rapid growth and
change in VitalStreams sector.
On May 11, 2006, David A. Buckel, Internaps Chief
Financial Officer, David C. Abrahamson, Internaps
Executive Vice President of Sales, Eric Klinker, Internaps
Chief Technology Officer and Chief Information Officer, Andrew
Albrecht, Internaps Vice President of Corporate
Development and Investor Relations, and other representatives of
Internap met with Mr. Kaplan and Chris Dion,
VitalStreams current Senior Vice President of Business
Development, in Atlanta, Georgia to discuss commercial business
opportunities between the companies. At the meeting, the parties
also discussed a possible strategic business combination of the
two companies. After discussing the results of their initial
contacts with other members of the executive staff at their
respective companies and consulting with their respective boards
of directors, the parties agreed to arrange another meeting to
discuss a possible combination of the two companies.
On May 31, 2006, James P. DeBlasio, Internaps
President and Chief Executive Officer, Mr. Albrecht,
Mr. Waterman, Mr. Kaplan, Mr. Dion and Steve
Newman, Executive Vice President of VitalStream Advertising
Services, met in New York City to further discuss the
possibility of a business combination of the two companies.
44
On June 5, 2006, Messrs. Buckel and Albrecht held a
conference call with representatives of RBC to discuss general
strategic benefits of a potential business combination between
the two companies, to exchange information and to discuss
potential transactional structures for such a business
combination.
On June 6, 2006 at a meeting of the VitalStream board of
directors, the directors discussed the potential business
combination with Internap. Management presented preliminary
valuation material on a potential business combination with
Internap and reviewed with the board its views of the strategic
rationale for the potential business combination and RBC
presented information relating to the potential business
combination. Following the presentation, the board approved
discussions with Internap regarding a potential business
combination with the assistance of RBC as financial advisor and
directed management, with the assistance of RBC, to search for
alternative business combinations for the board to consider. The
board also authorized the engagement of RBC and Cowen &
Company as co-book running managers with respect to a potential
public offering and the commencement of definitive due
diligence, drafting and other activities in preparation for the
potential public offering. On June 7, 2006, VitalStream
formally engaged RBC as VitalStreams exclusive financial
advisor for a potential sale transaction and, along with Cowen,
as co-book running manager in connection with a contemplated
public offering. The VitalStream board directed RBC to
facilitate discussion with Internap and to actively check the
market for alternative acquirers.
From June 7 though June 21, 2006, Messrs. Buckel and
Albrecht, representatives of Internaps financial advisor,
Thomas Weisel Partners LLC, or TWP, Messrs. Waterman,
Kaplan and Dion from VitalStream, Mark Belzowski,
VitalStreams Chief Financial Officer at the time, and
representatives of RBC held several conference calls and
discussions regarding Internaps and VitalStreams
respective businesses, strategies and financial position,
general strategic benefits of a potential business combination
of the two companies, and methodologies for determining
valuations of the companies.
On June 7, 2006, VitalStream formally engaged RBC as
VitalStreams financial advisor for the potential
transaction with Internap and in connection with a contemplated
registered offering.
From June 7, 2006 to July 17, 2006, VitalStream, with
the assistance of Cowen, RBC and other investment banks, engaged
in due diligence, drafting sessions and related activities with
respect to a proposed registered offering of its common stock.
On June 11, 2006 the strategy committee of the Internap
board of directors, which meets on an ad hoc basis to discuss
and provide guidance to management on corporate strategy,
including corporate development activities, met with
Messrs. DeBlasio, Buckel and Albrecht to discuss the
potential business combination with VitalStream. The committee
and Internap management discussed the business opportunity
presented by a strategic business combination with VitalStream,
the relative valuations of the two companies, their respective
business prospects, and market and investor perception of each
company. The committee discussed the potential strategic,
cultural and technology fit of the two companies.
On June 12, 2006, Internap formally engaged TWP as
Internaps financial advisor for the potential transaction
with VitalStream.
On June 12, 2006, representatives of TWP and
representatives of RBC held a conference call to discuss
methodologies for determining valuations of the companies and
the key terms relating to such a strategic business combination
between the two companies.
On June 16, 2006, Internap received a proposed term sheet
from VitalStream regarding a possible transaction between
Internap and VitalStream.
Representatives of TWP and RBC held a conference call on
June 19, 2006 to discuss the methodologies for determining
valuations of the companies. The same day, Mr. DeBlasio,
representatives of TWP, Mr. Waterman, Mr. Kaplan and
representatives of RBC discussed Internaps and
VitalStreams respective businesses, strategies and
financial position, and the strategic benefits of a potential
business combination of the two companies. At the conclusion of
the meeting, the parties determined to move forward with further
discussions.
On June 21, 2006 at a meeting of the Internap board of
directors, the directors discussed the potential business
combination with VitalStream. Management presented its views of
the strategic rationale for the potential business
45
combination and TWP also discussed the potential business
combination. At the conclusion of this meeting, the Internap
board authorized management to continue discussions with
VitalStream regarding such a potential business combination.
On July 10, 2006, TWP submitted an initial due diligence
list and a proposed process timeline to VitalStream.
On July 13, 2006 at a special meeting of the VitalStream
board of directors, among other matters, the VitalStream board
of directors was updated by management about the status of
discussions with Internap, as well as other strategic
alternatives and the public offering. The board authorized the
public offering and created a pricing committee with respect to
the public offering with authority, among other things, to
proceed with or cancel the public offering. The board also
discussed the continued pursuit of discussions with Internap and
the exploration of additional strategic alternatives.
On July 14, 2006, RBC submitted a supplemental financial
due diligence request list to Internap.
On July 17, 2006, at a special meeting of the VitalStream
board of directors, the board was updated by RBC and management
about the status of discussions with Internap, as well as other
strategic alternatives and the public offering. The board
authorized the pricing committee of the board of directors,
working with management, to make a decision with respect to the
filing of a registration statement for the public offering that
week. The board discussed the continued pursuit of discussions
with Internap and exploration of additional strategic
alternatives if the determination was made not to file the
registration statement.
After close of market on July 17, 2006, VitalStream
suspended its activities with respect to the proposed registered
offering of its common stock due to several factors. These
factors included unfavorable market conditions for the public
offering and an interest in creating a window for additional
discussions with Internap prior to moving forward with the
public offering, which management viewed as foreclosing the
possibility of a sale of the company in the short term.
On July 20 and 21, 2006, Messrs. DeBlasio, Buckel,
Klinker and Albrecht, representatives of TWP,
Messrs. Waterman, Kaplan, Dion, Belzowski, Newman and other
representatives of VitalStream, including Arturo Sida, Chief
Legal Officer, and Steven Smith, Chief Technical Officer at the
time, and representatives of RBC conducted joint due diligence
meetings in Irvine, California. The parties conducted in-depth
discussions regarding the operations of each company and how a
combined company could be integrated to take advantage of the
synergies created by such a strategic business combination. At
the conclusion of the meeting, the parties determined to move
forward with further discussions.
From August 1 though August 15, 2006, representatives
of RBC and TWP continued their financial due diligence
discussions and exchanged financial due diligence materials.
On August 4, 2006, Mr. Waterman received a call from
another investment bank regarding an indication of preliminary
interest by another potential acquirer, referred to as Company A.
On August 9, 2006, Messrs. Buckel and Albrecht,
representatives of TWP, Messrs. Waterman and Dion and other
representatives of VitalStream and representatives of RBC held a
conference call to discuss the potential strategic business
combination of the two companies. Internap management expressed
its continued interest in a potential strategic business
combination with VitalStream.
On August 16, 2006, at a meeting of the Internap board of
directors, the directors discussed the potential business
combination with VitalStream. Internap management updated the
board of directors on the status of the ongoing discussions with
VitalStream regarding a potential strategic business
combination. Following the presentation, the board authorized
management to continue discussions with VitalStream regarding
such a potential strategic business combination.
In
mid-to-late
August 2006, Messrs. Kaplan and Dion held discussions with
executives of Company A regarding a potential alternative
business combination. Management subsequently reported to the
VitalStream board of directors regarding the discussions, which
management did not believe were promising.
On or about September 6, 2006, VitalStream recommenced its
efforts with respect to the public offering of its common stock,
and on September 12, 2006, VitalStream filed a registration
statement on
Form S-3
with the SEC
46
with respect to an underwritten offering of its common stock. In
part because of the ongoing discussions with respect to a
potential business combination between VitalStream and either
Internap or Company A, VitalStream did not commence marketing
efforts with respect to its public offering, and withdrew its
registration statement on October 12, 2006, the date it
entered into the merger agreement with Internap.
From September 7 though September 24, 2006,
VitalStreams management and representatives of RBC
contacted six other companies to discuss a potential business
combination with them. Messrs. Kaplan and Dion visited the
offices of one of these companies in person to discuss an
acquisition of the companys content delivery network
business. Of the six companies contacted, three indicated an
interest in a potential business combination with VitalStream,
and VitalStream delivered financial due diligence materials to
each of these three companies. On September 12, 2006,
representatives of RBC updated VitalStream management regarding
the interest level and status of discussions with these three
potential acquirers.
On September 15, 2006, Internap delivered to VitalStream a
non-binding outline of potential terms for a business
combination.
On September 18 and 19, 2006, Messrs. Buckel and
Albrecht met with Messrs. Waterman, Kaplan and Dion and
Eric Mersch, VitalStreams Chief Financial Officer in
Irvine to discuss business updates and the status of the public
offering, and to exchange additional financial information.
On September 19, 2006, the strategy committee of the
Internap board met with Messrs. DeBlasio, Buckel and
Albrecht to receive an update on discussions with VitalStream
and to further discuss the potential business combination.
In the last several days of September 2006, Messrs. Buckel
and Albrecht of Internap, representatives of TWP, Eric Mersch,
the newly appointed Chief Financial Officer of VitalStream and
Mr. Dion of VitalStream and representatives of RBC held
numerous conference calls regarding the key economics terms and
other issues with respect to a proposed business combination.
During this time, representatives of RBC and representatives of
TWP held a few conference calls to discuss additional financial
due diligence requests and the agenda and process for a
potential business combination between VitalStream and Internap.
On September 25, 2006, Messrs. Waterman and Kaplan met
with Messrs. DeBlasio, Buckel, Abrahamson, Klinker,
Albrecht and other members of Internaps senior management
in Atlanta to engage in extensive discussions regarding
VitalStreams business, service offerings and possible
business synergies of the potential business combination.
On September 30, 2006, the first draft of the definitive
merger agreement was circulated and negotiations with respect to
the merger agreement began between Internap, advised by Morris,
Manning & Martin, LLP, legal advisors to Internap,
referred to as Morris, Manning, and VitalStream, advised by Parr
Waddoups. Between September 30, and October 12, 2006,
representatives of Internap and VitalStream, along with their
respective legal and financial advisors, negotiated the terms of
the merger agreement and voting agreements, and discussed
potential management employment agreements and other employee
matters.
On October 2, 2006, members of VitalStream management and
representatives of RBC conducted financial due diligence and a
tour of Internaps facilities in Atlanta. On the same day,
Internap management conducted accounting, financial and
operational due diligence on VitalStream in Irvine, California.
Beginning on October 2, 2006, and continuing through
October 12, 2006, representatives of Internap, TWP and
Morris Manning continued their due diligence on the business,
legal and financial records of VitalStream.
On October 5, 2006, the Internap board of directors held a
meeting at which Internap senior management made presentations
to the board regarding the proposed business combination with
VitalStream, including the due diligence investigation regarding
VitalStream by Internap and its advisors, and organizational and
integration matters. The Internap board continued its discussion
of the potential business combination, including the strategic
rationale for such a business combination, as well as the
relative potential benefits and risks of combining with
VitalStream. Following discussions regarding due diligence and
the financial impact of the transaction, and after extensive
board discussion, the Internap board authorized management to
proceed with due diligence and negotiations on the proposed
transaction on the terms discussed.
47
The board of directors of VitalStream met on October 5,
2006 to discuss Internaps offer, which did not yet include
key financial terms, and to consider authorizing the
commencement of marketing efforts with respect to the public
offering. Representatives of Cowen discussed with the board
numerous issues related to the public offering, including
timing, risk, logistics and expectations as to timing, pricing
and the likelihood of success based upon current market
circumstances. Representatives of RBC discussed with the board
various financial and strategic aspects of a potential business
combination with Internap. The VitalStream board considered the
public offering, a possible business combination with Internap
and additional possible strategic alternatives, including the
possibility of remaining an independent entity and proceeding
with neither transaction. At the conclusion of this meeting, the
VitalStream board authorized the preparation of a pre-effective
amendment to the registration statement for the public offering
in anticipation of commencing marketing in the near future. The
board also authorized the continuation of discussions regarding
a potential business combination with Internap and, in
particular, the negotiation of key financial terms for the board
to consider at a subsequent meeting.
On October 6, 2006, Messrs. DeBlasio, Buckel and
Albrecht met with Messrs. Waterman and Dion in Atlanta to
discuss the business outlook of both companies and the potential
for integrating the companies as a cohesive entity.
From October 9 though October 12, Messrs. Buckel and
Albrecht and other representatives of Internap and VitalStream
and their respective advisors conducted final negotiations on
the deal terms and the definitive transaction documents in
Irvine, California.
On October 9, 2006, Internaps board of directors held
a meeting by conference call, at which Messrs. DeBlasio and
Buckel and other executives of Internap and a representative of
TWP provided the board with an update on the discussions with
representatives of VitalStream. Representatives of TWP updated
the board with respect to its financial analysis regarding the
potential business combination. The Internap board continued its
discussion, with input from both its legal and financial
advisors, of the potential business combination, including the
strategic rationale for a business combination, as well as the
potential benefits and risks of combining with VitalStream. At
the conclusion of this meeting, the Internap board authorized
management to continue discussions regarding the potential
business combination.
On October 10, 2006, Mr. DeBlasio and Buckel and other
executives of Internap and representatives of TWP updated
members of Internaps board of directors by conference call
to review and discuss the status of the discussions with
VitalStream and terms of the transaction.
On October 11, 2006, the Internap board of directors held a
special meeting at which the proposed merger was extensively
discussed and considered. TWP reviewed in detail the financial
terms of the proposed merger and its analysis of the proposed
transaction. TWP then delivered its oral opinion, subsequently
confirmed in writing as of October 12, 2006, and based on
and in reliance on the factors and assumptions set forth in its
written opinion, that the consideration to be paid by Internap
pursuant to the merger agreement was fair to Internap from a
financial point of view. Representatives of Morris, Manning
reviewed with the board in detail the proposed terms of the
merger agreement, the voting agreements to be entered into by
Internap with key stockholders of VitalStream, the irrevocable
proxies to be granted to Internap by such key stockholders and
related matters, as well as the fiduciary duties of the
VitalStream board. Following the presentation, and after further
review and extensive discussion, the board unanimously approved
the merger and related matters, authorized management to execute
the merger agreement and related agreements and recommended that
Internap stockholders approve the issuance of shares of Internap
common stock in the merger and adopt the merger agreement.
On October 11, 2006, the VitalStream board of directors
held a meeting at which the proposed merger was discussed and
considered. Mr. Waterman provided an update on the Internap
board of directors authorization of the proposed exchange
ratio of 0.5132 shares of Internap common stock for each
share of VitalStream common stock. At this meeting, VitalStream
senior management and representatives of RBC made presentations
to the board regarding the proposed merger. The board reviewed
in detail the outcome of further negotiations and the terms of
the merger agreement and related agreements, and together with
Parr Waddoups, discussed key issues related to the fiduciary
duties of the VitalStream board. The VitalStream board was
apprised of the interests of certain members of VitalStream
management in the proposed merger. RBC reviewed with the board
the financial terms of the proposed merger and delivered its
oral opinion, subsequently confirmed in writing as of the same
date, to the VitalStream
48
board of directors that, as of October 11, 2006, and based
upon and subject to the assumptions, qualifications and
limitations set forth in its opinion, the exchange ratio, as set
forth in the merger agreement, was fair from a financial point
of view to the holders of VitalStream common stock. Following
the presentations, and after further review and discussion, the
board unanimously voted to approve the merger and related
matters, authorized management to execute the merger agreement
and related agreements and resolved to recommend that
VitalStream stockholders adopt the merger agreement.
The merger agreement was signed on October 12, 2006, and a
press release announcing the deal was made on October 12,
2006, prior to the opening of regular trading on the NASDAQ
Global Market.
Reasons
for the Merger
The following discussion of the parties reasons for the
merger contains a number of forward-looking statements that
reflect the current views of Internap
and/or
VitalStream with respect to future events that may have an
effect on their future financial performance. Forward-looking
statements are subject to risks and uncertainties. Actual
results and outcomes may differ materially from the results and
outcomes discussed in the forward-looking statements. Cautionary
statements that identify important factors that could cause or
contribute to differences in results and outcomes include those
discussed in Summary Forward-Looking
Information and Risk Factors.
Mutual
Reasons for the Merger
We believe that the combined companies together can meet more of
their customers needs for products, services and
technologies. Many of our customer segments are complementary.
We believe that the broad set of products and services that
Internap and VitalStream can provide to customers, including
high performance route control products and services, content
delivery services and on-line advertising services, will
represent one of the industrys most comprehensive
solutions for optimized delivery and management of websites, and
website scalability and the monetization of streaming and
digital content over the Internet.
Internaps
Reasons for the Merger
In addition to considering the strategic factors outlined above,
the Internap board of directors considered the following factors
in reaching its conclusion to approve the merger and to
recommend that the Internap stockholders approve the issuance of
shares of Internap common stock in the merger, all of which it
viewed as generally supporting its decision to approve the
business combination with VitalStream:
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the complementary nature of Internaps and
VitalStreams product lines;
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the potential opportunity for the two companies to integrate
their solutions to meet a wider set of customer needs and to
combine their technological resources to develop new products
with increased functionality and bring them to market faster;
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the boards and managements assessment that the
merger and VitalStreams operating strategy are consistent
with Internaps long-term strategic objectives to grow into
new markets;
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the competitive and market environments in which Internap and
VitalStream operate;
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historical and current information about each of the combining
companies and their businesses, prospects, financial performance
and condition, operations, technology, management and
competitive position, before and after giving effect to the
merger and the mergers potential effect on stockholder
value, including public reports filed with the SEC, analyst
estimates, market data and managements knowledge of the
industry;
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the opinion of TWP, Internaps financial advisor that, as
of October 12, 2006 and based on and in reliance on the
factors and assumptions set forth in the opinion, the
consideration to be paid by Internap pursuant to the merger
agreement was fair to Internap from a financial point of view,
and the related financial analyses and presentation (a copy of
TWPs written opinion is attached as Annex C to this
joint proxy statement/prospectus);
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the results of the due diligence review of VitalStreams
businesses and operations by Internaps management, legal
advisors and financial advisors;
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the judgment of the Internap Board of Directors, based on
arms length negotiations with VitalStream, that the merger
consideration of 0.5132 shares of Internap common stock for
each share of VitalStream common stock represented the lowest
price that could be negotiated with VitalStream;
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the terms and conditions of the merger agreement, including the
following related factors:
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the determination that an exchange ratio that is fixed and not
subject to adjustment is appropriate to reflect the strategic
purpose of the merger and consistent with market practice for a
merger of this type and that a fixed exchange ratio fairly
captures the respective ownership interests of the Internap and
VitalStream stockholders in the combined company based on
valuations of Internap and VitalStream at the time of the
boards approval of the merger agreement and avoids
fluctuations caused by near-term market volatility;
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the reciprocal requirement that the merger agreement be
submitted to a vote of the stockholders of VitalStream and that
the issuance of shares of Internap common stock in the merger be
submitted to a vote of the stockholders of Internap;
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the fact that the merger agreement is not subject to termination
solely as a result of any change in the trading price of either
Internaps or VitalStreams stock between signing of
the merger agreement and consummation of the merger;
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the nature of the conditions to VitalStreams obligation to
consummate the merger and the limited risk of non-satisfaction
of such conditions;
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the no-solicitation provisions governing VitalStreams
ability to engage in negotiations with, provide any confidential
information or data to, and otherwise have discussions with, any
person relating to an alternative acquisition proposal;
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the limited ability of the parties to terminate the merger
agreement;
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the possible effects of the provisions regarding termination
fees;
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the likelihood that the merger will be consummated on a timely
basis, including the likelihood that the merger will receive all
necessary regulatory antitrust approvals; and
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the likelihood of retaining key VitalStream employees to help
manage the combined entity.
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Internaps board of directors also considered the potential
risks of the merger, including the following:
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the risks, challenges and costs inherent in combining the
operations of two companies and the substantial expenses to be
incurred in connection with the merger, including the
possibility that delays or difficulties in completing the
integration could adversely affect the combined companys
operating results and preclude the achievement of some benefits
anticipated from the merger;
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the possible volatility, at least in the short term, of the
trading price of Internaps common stock resulting from the
merger announcement;
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the possible loss of key management, technical or other
personnel of either of the combining companies as a result of
the management and other changes that will be implemented in
integrating the businesses;
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the risk of diverting managements attention from other
strategic priorities to implement merger integration efforts;
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the negative impact of any customer confusion or delay in
purchase commitments after the announcement of the merger;
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the potential loss of one or more large customers of either
company or other third party with which either company has a
business relationship, as a result of any such customers
or other third partys unwillingness to do business with
the combined company or response to potential service
disruptions as a result of the integration process;
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the possibility that the reactions of existing and potential
competitors to the combination of the two businesses could
adversely impact the competitive environment in which the
companies operate;
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the risk that the merger might not be consummated in a timely
manner or at all;
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the risk to Internaps business, sales, operations and
financial results in the event that the merger is not
consummated;
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the risk that anticipated benefits of product integration and
interoperability and cost savings will not be realized; and
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various other applicable risks associated with the combined
company and the merger, including those described in the section
of this joint proxy statement/prospectus entitled Risk
Factors.
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The foregoing information and factors considered by
Internaps board of directors are not intended to be
exhaustive but are believed to include all of the material
factors considered by Internaps board of directors. In
view of the wide variety of factors considered in connection
with its evaluation of the merger and the complexity of these
matters, the Internap board of directors did not find it useful,
and did not attempt, to quantify, rank or otherwise assign
relative weights to these factors. In considering the factors
described above, individual members of the Internap board of
directors may have given different weight to different factors.
The Internap board of directors conducted an overall analysis of
the factors described above, including thorough discussions
with, and questioning of, Internaps management and
Internaps legal and financial advisors, and considered the
factors overall to be favorable to, and to support, its
determination.
VitalStreams
Reasons for the Merger
The VitalStream board of directors has determined that the terms
of the merger agreement and the merger are advisable, fair to,
and in the best interests of, VitalStream and its stockholders.
In the course of reaching its decision to approve the merger and
to approve and adopt the merger agreement, the VitalStream board
of directors consulted with our management, RBC and legal
counsel.
The decision of the VitalStream board of directors was based
upon a number of potential benefits of the transaction,
including the following:
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the ability to better serve the customer base and partners of
each company with the combination of a comprehensive portfolio
of technologies, applications and expertise that will enable
customers to store, download and broadcast digital media more
effectively;
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the belief that VitalStreams ability to attract and retain
customers would be enhanced by the scale and reliability of
Internaps network;
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the belief that a merger with Internap could enhance the
combined companys ability to compete with larger
competitors by bringing together the network and technologies of
Internap with the streaming, ad-insertion and other capabilities
of VitalStream, in addition to both of their management and
sales teams;
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the opportunity for each company to introduce its complementary
product lines into the customer base of the other company;
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the greater global presence of the combined company;
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the expected synergies and cost-saving opportunities that should
result from headcount reductions, office site consolidations and
eliminating redundant operating expenses;
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51
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the belief that the combined companys larger size,
increased public stock float and broadened capabilities would
lead to expanded research coverage and might lead to increased
institutional investor interest than that of VitalStream
alone; and
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the belief that the merger would combine two experienced and
respected management teams, resulting in a combined management
team that is stronger than the management teams of each of the
individual companies.
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In addition to the potential benefits accruing to VitalStream
and its stockholders from the merger, the VitalStream board of
directors also considered a number of other factors in approving
the merger, including the following:
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the merger consideration relative to the current market prices
of VitalStream common stock, and in particular the fact that,
based on the closing price of Internap common stock on
October 11, 2006, the merger consideration of
0.5132 shares of Internap common stock for each share of
VitalStream common stock represented a 36.7% premium over the
closing price of VitalStream common stock on October 11,
2006 and a 23.8% premium over the average closing price of
VitalStream common stock for the week preceding October 11,
2006; VitalStreams market price at such time was after its
announcement that MySpace Inc., which accounted for over 30% of
VitalStreams revenue between January 1, 2006 and
September 30, 2006, informed VitalStream that it intends to
develop its own in-house streaming capabilities and to
significantly reduce its use of VitalStream services and also
VitalStreams release of projections regarding third
quarter 2006 and certain future revenues following the
announcement related to MySpace;
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the merger consideration relative to the historical market
prices of VitalStream common stock, and in particular the belief
that, notwithstanding the fact that, based on the closing price
of Internap common stock on October 11, 2006, the per-share
merger consideration of 0.5132 share of common stock
represented a discount of 9.1% from the average closing price of
VitalStream common stock for the preceding six months and a 7.9%
premium over the average closing price of VitalStream common
stock for the preceding year, the six-month and one-year average
stock price numbers did not reflect the markets reaction
to the above-referenced MySpace announcement and subsequent
revenue projections and that the recent stock price information
represented a more accurate benchmark as to what VitalStream
stockholders could expect if VitalStream were to continue to
operate on a stand-alone basis;
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the fact that the merger consideration consists almost entirely
of Internap common stock (excepting only that partial Internap
shares will be paid in cash), which will allow VitalStream
stockholders to participate in the growth and opportunities of
the combined company;
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the financial analyses reviewed with the VitalStream board of
directors on October 11, 2006 and prior dates by RBC and
the opinion of RBC to the VitalStream board of directors on
October 11, 2006 to the effect that, as of that date, and
based upon and subject to the factors, qualifications,
assumptions and limitations set forth in RBCs opinion, the
total consideration to be paid pursuant to the merger agreement
was fair, from a financial point of view, to the holders of
VitalStream common stock (a copy of RBCs written opinion
is attached as Annex D to this proxy statement/prospectus);
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the judgment of the VitalStream board of directors, based on
arms-length negotiations with Internap, that the merger
consideration of 0.5132 shares of Internap common stock for
each share of VitalStream common stock represented the highest
price that could be negotiated with Internap;
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the absence of other serious potential bidders for VitalStream
following a targeted marketing effort by RBC and management of
VitalStream and the judgment of the VitalStream board of
directors that continued searching for an alternative acquirer
would unlikely yield a superior proposal;
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52
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the prospects for VitalStreams business and the potential
stockholder value that could be expected to be generated if
VitalStream were to remain an independent, publicly traded
company, including its business strategy going forward, its cash
reserves, uncertainties regarding the success of a proposed
financing transaction, uncertainties regarding
VitalStreams ability to retain certain customers, attract
additional significant customers and expand its product lines
and sales channels, and continued consolidation in the industry
and increased competition, especially from competitors with
greater name recognition and financial and other resources;
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the terms and conditions of the merger agreement, including:
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the fact that the merger agreement enables the VitalStream board
of directors, in the exercise of its fiduciary duties, to
authorize VitalStream to participate in discussions and
negotiations with and furnish non-public information to a third
party in connection with an unsolicited bid to acquire
VitalStream, change its recommendation in favor of the merger
with Internap, and potentially enter into a transaction with
another acquirer, subject to certain limitations as set forth in
the merger agreement, and in certain circumstances, subject to
the payment of a termination fee of $8 million, which
constituted approximately 3.7% of the merger consideration based
on the closing price of Internap common stock on
October 11, 2006, plus transaction expenses of Internap
incurred theretofore;
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the fact that VitalStream is not obligated to pay the
$8 million termination fee plus transaction expenses of
Internap incurred theretofore upon a termination of the merger
agreement due to the VitalStream stockholders failing to approve
the merger absent a change in recommendation by the VitalStream
board of directors unless prior to such termination there has
been public disclosure of an acquisition proposal and within
12 months following the termination of the merger
agreement, VitalStream consummates an acquisition or enters into
an agreement providing for an acquisition of VitalStream;
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the limited number and nature of the conditions to
Internaps obligation to close the proposed merger and the
risk of non-satisfaction of such conditions; and
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the condition to the closing of the proposed merger that the
merger consideration be tax-free to VitalStreams
U.S. stockholders;
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the competitive and market environments in which VitalStream and
Internap operate;
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the results of the due diligence investigation of Internap
conducted by VitalStreams management, financial advisor,
accountants and legal counsel;
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the VitalStream board of directors own understanding of
VitalStream, Internap and their respective businesses; and
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the likelihood the merger will be completed on a timely basis,
including the likelihood that the merger will be approved by the
appropriate regulatory authorities.
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In reaching its decision to approve the merger agreement and the
merger, the VitalStream board of directors also identified and
considered a number of potentially negative factors that could
result from the merger, including the following:
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the risks that the integration of the businesses, products and
personnel of the two companies will not be successfully
implemented and may require a significant amount of management
time and resources;
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the risk that the potential synergies and cost-saving
opportunities identified by Internap and VitalStream will not be
fully realized or not fully realized in the time frame
anticipated;
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in the event that the transaction is not consummated, the
possible negative effects of the announcement of the merger on
relationships with customers and suppliers, employee morale,
future capital raising opportunities and potential loss of key
employees, and the impact on sales, operating results and stock
price, and the negative impact that the transaction costs
incurred in connection with the proposed merger would have on
cash reserves and operating results;
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53
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the possibility that the reactions of existing and potential
competitors to the combination of the two businesses could
adversely impact the competitive environment in which the
companies operate;
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because VitalStream stockholders will receive only shares of
Internap common stock as the merger consideration and because of
the absence of a floor on the aggregate merger consideration,
the price volatility of Internaps common stock may reduce
the market price of the Internap common stock that VitalStream
stockholders will receive upon the closing of the merger;
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the restrictions that the merger agreement imposes on actively
soliciting competing bids, and the fact VitalStream would be
obligated to pay a termination fee of $8 million, plus
transaction expenses of Internap incurred theretofore in certain
circumstances;
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the limitations that the merger agreement imposes on
VitalStreams ability to operate its business until the
transaction closes or is terminated;
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the fact that, based on the closing price of Internap common
stock on October 11, 2006, the per-share merger
consideration of 0.5132 shares of common stock represented
discount of 9.1% under the average closing price of VitalStream
common stock for the preceding six months and a 7.9% premium
over the average closing price of VitalStream common stock for
the preceding year;
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the risk of diverting managements attention from other
strategic priorities, including the proposed public offering,
and to implement merger integration efforts; and
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the other risks described in this joint proxy
statement/prospectus in the section entitled Risk
Factors.
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The VitalStream board of directors evaluated all of the factors
described above in light of its knowledge of VitalStreams
business, financial condition and prospects, Internaps
business, financial condition and prospects, and the market
opportunities for its various services. In view of the variety
of factors considered by the VitalStream board of directors in
its evaluation of the merger, the VitalStream board of directors
did not find it practicable to, and did not, quantify or
otherwise assign relative weight to the specific factors
considered in reaching its decision. In addition, individual
members of the VitalStream board of directors may have given
different weight to different factors. The list of factors
described in this section as having been considered by the
VitalStream board of directors is not intended to be the
complete list of all factors considered but is believed to
include all of the factors considered by the VitalStream board
of directors to be material.
Opinion
of Internaps Financial Advisor
Internaps board of directors engaged Thomas Weisel
Partners LLC, or TWP, to render an opinion as to the
fairness from a financial point of view as of the date of the
opinion in connection with the consideration to be paid by
Internap pursuant to the merger. The Internap board of directors
selected TWP to act as its financial advisor and to render the
fairness opinion based on TWPs experience, expertise and
reputation, and its familiarity with its business.
On October 11, 2006, at a meeting of the Internap board of
directors, TWP rendered its oral opinion that, as of that date,
and based on the assumptions, limitations and qualifications set
forth in its written opinion, the consideration to be paid by
Internap pursuant to the merger was fair to Internap from a
financial point of view. The oral opinion was subsequently
confirmed by the delivery by TWP of a written opinion dated
October 12, 2006.
The full text of the TWP opinion, dated October 12, 2006,
is attached as Annex C to this joint proxy
statement/prospectus and is incorporated into this joint proxy
statement/prospectus by reference. Stockholders of Internap
should read the entire TWP opinion carefully, for it discusses
the assumptions made, limitations upon the review undertaken and
qualifications in rendering the opinion. TWP has consented to
the use of the TWP opinion in this joint proxy
statement/prospectus. The following description is a summary of
the TWP opinion.
The TWP opinion was directed to the board of directors of
Internap in its consideration of the merger. The TWP opinion
does not constitute a recommendation to any shareholder as to
how they should vote with respect to the merger. The opinion
addresses only the financial fairness of the merger
consideration to Internap and does not address the relative
merits of the merger or any alternatives to the merger,
Internaps underlying decision to proceed
54
with or effect the merger, or any other aspect of the merger. In
furnishing its opinion, TWP did not admit that they are experts
within the meaning of the term expert as used in the
Securities Act and the rules and regulations promulgated
thereunder, nor did TWP admit that the TWP opinion constitutes a
report or valuation within the meaning of Section 11 of the
Securities Act. TWPs opinion includes statements to this
effect.
In connection with its opinion, TWP, among other things:
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reviewed certain publicly available financial and other data,
including financial forecasts, with respect to Internap and
VitalStream, including the consolidated financial statements of
Internap and VitalStream for recent years and interim periods to
June 30, 2006 and certain other relevant financial and
operating data relating to Internap and VitalStream made
available to TWP from published sources and from the internal
records of Internap and VitalStream;
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reviewed the financial terms and conditions of the merger
agreement;
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reviewed certain publicly available information concerning the
trading of, and the trading market for, Internap common stock
and VitalStream common stock;
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compared Internap and VitalStream from a financial point of view
with other publicly traded companies that TWP deemed to be
relevant;
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considered the financial terms, to the extent publicly
available, of selected recent business combinations that TWP
deemed to be comparable, in whole or in part, to the merger;
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reviewed and discussed with representatives of the managements
of Internap and VitalStream information of a business and
financial nature regarding Internap and VitalStream furnished to
TWP by Internap and VitalStream, including financial forecasts
and related assumptions of Internap and VitalStream;
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considered pro forma effects of the merger on Internaps
financial statements and reviewed certain estimates of synergies
provided by management of Internap;
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made inquiries regarding and discussed the merger and the merger
agreement and other matters related thereto with Internaps
counsel; and
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performed such other analyses and examinations as TWP deemed
appropriate.
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In preparing its opinion, TWP did not assume any responsibility
to independently verify the foregoing information and relied on
it being accurate and complete in all material respects. TWP
also made the following assumptions:
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with respect to the financial forecasts and synergies for
Internap and VitalStream provided to TWP by Internaps
management, with Internaps consent, TWP assumed for
purposes of the TWP opinion that the forecasts have been
reasonably prepared on bases reflecting the best available
estimates and judgments of the management at the time of
preparation as to the future financial performance of Internap
and VitalStream and that they provide a reasonable basis upon
which TWP can form its opinion;
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there had been no material changes in Internaps or
VitalStreams assets, financial condition, results of
operations, business or prospects since the respective dates of
their last financial statements made available to TWP that had
not been disclosed to TWP; and
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the merger will be consummated in a manner that complies in all
respects with the applicable provisions of the Securities Act of
1933, as amended, the Securities Exchange Act of 1934, as
amended, and all other applicable federal and state statutes,
rules and regulations.
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In addition, TWP relied on information from Internaps
counsel and independent accountants as to all legal and
financial reporting matters with respect to Internap, the merger
and the merger agreement. TWP also did not assume responsibility
for making an independent evaluation, appraisal or physical
inspection of any of the assets or liabilities (contingent or
otherwise) of Internap or VitalStream and was not furnished with
any such appraisals. Finally, the TWP opinion is based on
economic, monetary and market and other conditions as in effect
on, and the information made available to TWP as of, the date of
the TWP opinion. Accordingly, although subsequent
55
developments may affect the TWP opinion, TWP has not assumed any
obligation to update, revise or reaffirm its opinion.
The following is a summary of the material financial analyses
that TWP performed in connection with the TWP opinion and
presented to the Internap board of directors on October 11,
2006. Some of the summaries of financial analyses that TWP
performed include information presented in tabular format. In
order to fully understand the financial analyses performed by
TWP, you should read the tables together with the accompanying
text. The tables alone do not constitute a complete description
of the financial analyses. Considering the data set forth in the
tables without considering the full narrative description of the
financial analyses, including the methodologies and assumptions
underlying the analyses, could create a misleading or incomplete
view of the financial analyses performed by TWP.
Selected
Public Company Analysis
Based on public and other available information for selected
companies, TWP calculated the implied purchase value and
exchange ratio of VitalStream based on the enterprise value of
VitalStream (which TWP defined as market capitalization plus
total debt and restructuring liabilities less cash and cash
equivalents) based on multiples in selected companies. The
multiples that TWP analyzed were derived by dividing the
enterprise value of each selected company (based on closing
stock prices on October 11, 2006) by its estimated
2007 revenue. Projected 2007 information for VitalStream was
based on estimated revenues provided by Internap management and
publicly available information. Projections for the other
selected companies were based on TWPs research and other
publicly available information. TWP selected the four companies
listed below for this analysis that TWP deemed relevant based on
their lines of business and financial and operating
characteristics. The following companies were reviewed in this
analysis:
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Akamai Technologies Inc.
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Digital River Inc.
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Macrovision Corp.
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SAVVIS Inc.
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The results of this analysis are summarized as follows:
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Relevant Market
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Multiples
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Implied per Share Value
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Implied Exchange Ratio
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Internap Management
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3.8x - 7.9x
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$5.83 - $11.30
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0.3417x - 0.6625x
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Wall Street Research
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3.8x - 7.9x
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$6.62 - $12.86
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0.3880x - 0.7545x
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The implied VitalStream values above were each based on a range
of multiples of first quartile to third quartile. The quartiles
were calculated using statistical interpolation to divide the
probability distribution into four equal areas. TWP considered
the first quartile and the third quartile to represent the low
and the high ends of the range of each multiple, and highlighted
that analysis in its presentation to the board of directors.
While the selected public company analysis compared VitalStream
to four companies in the content delivery industry, TWP did not
include every company that could be deemed to be a participant
in this same industry, or in any specific sectors of this
industry.
Selected
Transaction Analysis
Based on public and other available information for selected
transactions, TWP calculated the implied purchase value and
exchange ratio of VitalStream based on the enterprise value of
VitalStream based on multiples in selected transactions. The
multiples that were analyzed by TWP were derived by dividing the
enterprise value of each target in 17 selected acquisitions of
technology companies that have been announced since
March 3, 2004 by its revenue for the last 12 months,
or LTM, and the next 12 months, or NTM. Projected 2007
information for VitalStream was based on estimated revenues
provided by Internap management and publicly available
information. Projections for the targets in the selected
transactions were based on publicly available information.
56
TWP selected the transactions listed below for this
analysis that TWP deemed relevant based on their lines of
business and financial and operating characteristics. The
following acquisitions were reviewed in this analysis:
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Announce Date
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Acquiror
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Target
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08/18/06
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Nokia
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Loudeye
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07/19/06
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Entrust
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Business Signatures
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06/29/06
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EMC
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RSA Security
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06/10/06
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Gannett
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PointRoll
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04/18/06
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Amdocs
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Qpass
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03/20/06
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VeriSign
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m-Qube
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01/05/06
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CA
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Wily Tech.
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12/02/05
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RSA
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Cyota
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09/26/05
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Openwave
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Musiwave
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07/05/05
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Oracle
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ProfitLogic
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06/02/05
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Citrix
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NetScaler
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03/12/05
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Akamai
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Speedera
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02/08/05
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Microsoft
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Sybari
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09/19/04
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Digital River
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element5 AG
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08/31/04
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Veritas
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Kvault
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05/19/04
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Symantec
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Brightmail
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03/03/04
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Covad Communications
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GoBeam Inc
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The results of this analysis are summarized as follows:
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Relevant Market
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Multiples
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Implied per Share Value
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Implied Exchange Ratio
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Internap Management
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LTM Revenue
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5.9x - 10.9x
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$
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6.55 - $11.23
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0.3844x - 0.6589x
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NTM Revenue
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4.0x - 5.7x
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$
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6.13 - $ 7.99
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0.3597x - 0.4685x
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Wall Street Research
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LTM Revenue
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5.9x - 10.9x
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$
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6.84 - $11.79
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0.4010x - 0.6914x
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NTM Revenue
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4.0x - 5.7x
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$
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6.97 - $ 9.16
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0.4086x - 0.5370x
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The implied values of VitalStream above were each based on a
range of multiples of first quartile to third quartile. TWP
considered the first quartile and the third quartile to
represent the low and the high ends of the range of each
multiple, and highlighted that analysis in its presentation to
the board of directors.
No company or transaction used in the selected public company or
selected transactions analyses is identical to VitalStream or
the merger. Accordingly, an analysis of the results of the
foregoing is not purely mathematical; rather, it involves
complex considerations and judgments concerning differences in
financial and operating characteristics of the companies and
other factors that could affect the value of the companies to
which VitalStream and the merger are being compared.
Discounted
Cash Flow Analysis
TWP performed a discounted cash flow analysis using estimated
free cash flows for VitalStream derived from estimates provided
by Internaps management. TWP calculated the terminal value
of the estimated cash flows by applying multiples ranging from
10.0x to 12.0x to VitalStreams estimated 2012 earnings
before interest, taxes, depreciation and amortization, or
EBITDA, calculated as a run rate of the EBITDA estimated for the
fourth quarter of 2011. TWP then discounted to the present the
cash flows to 2011 and the terminal value using discount rates
ranging from 18.0% 20.0%. Using information provided
by BARRA and Ibbotson Associates, Inc., the discount rates were
based on the weighted average cost of capital for VitalStream
and the selected companies referred to in the selected public
companies analysis above.
57
TWP also performed a discounted cash flow analysis using
Internap managements estimates of the synergies resulting
from the merger. TWP calculated the terminal value of the
estimated cash flows resulting from synergies by applying
multiples ranging from 9.0x to 11.0x to VitalStreams
estimated 2012 EBITDA from synergies, calculated as a run rate
of the EBITDA synergies estimated for fourth quarter of 2011.
TWP then discounted to the present the cash flows resulting from
synergies to 2011 and the terminal value using discount rates
ranging from 20.0% 22.0%. The discount rates were
based on weighted average cost of capital computations and
qualitative assessments of VitalStreams and
Internaps projected results and the synergies and risks
inherent therein.
The discounted cash flow valuation implied values of per share
of $5.26 to $6.80 per share of VitalStream common stock on
a stand-alone basis and $7.29 to $9.32 per share of
VitalStream common stock inclusive of synergies.
Premiums
Paid Analysis
Based on public information, TWP reviewed the consideration paid
in 14 acquisitions involving technology companies with 100%
stock consideration announced since October 14, 2003 with
transaction values between $150 million and
$2.0 billion. TWP calculated the implied price per share of
VitalStream and implied exchange ratios based on premiums paid
in these transactions over:
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the stock price and exchange ratio one day prior to the
announcement of the acquisition;
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the average stock price and exchange ratio during the one week
prior to the announcement of the acquisition; and
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the average stock price and exchange ratio during the one month
prior to the announcement of the acquisition.
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The results of this analysis are summarized as follows:
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Relevant Market
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Premiums
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Implied per Share Value
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Implied Exchange Ratio
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Stock Price
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|
|
|
|
|
|
|
|
1 Day Average
|
|
|
16.5% - 46.0%
|
|
|
$
|
7.46 - $ 9.34
|
|
|
|
0.4374x - 0.5480x
|
|
1 Week Average
|
|
|
10.8% - 41.5%
|
|
|
$
|
7.83 - $10.01
|
|
|
|
0.4592x - 0.5869x
|
|
1 Month Average
|
|
|
7.3% - 35.2%
|
|
|
$
|
8.93 - $11.25
|
|
|
|
0.5236x - 0.6599x
|
|
Exchange Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Day Average
|
|
|
16.5% - 46.0%
|
|
|
$
|
7.46 - $ 9.34
|
|
|
|
0.4374x - 0.5480x
|
|
1 Week Average
|
|
|
10.1% - 41.1%
|
|
|
$
|
7.78 - $ 9.97
|
|
|
|
0.4565x - 0.5848x
|
|
1 Month Average
|
|
|
0.6% - 37.2%
|
|
|
$
|
9.26 - $12.63
|
|
|
|
0.5431x - 0.7408x
|
|
The implied VitalStream values above were each based on a range
of multiples of first quartile to third quartile. TWP considered
the first quartile and the third quartile to represent the low
and the high ends of the range of each multiple, and highlighted
that analysis in its presentation to the board of directors.
Pro
Forma Merger Analysis
Based on estimates by Internaps management, TWP analyzed
the potential pro forma effects of the merger on Internaps
estimated 2007 EBITDA per share based on various assumptions
regarding the merger. TWP performed such analysis due to the
fact that several research analysts use EBITDA per share, among
other measurements, as a valuation measurement for Internap.
This analysis, taking into account certain operating cost
synergies estimated by Internap management, indicated that the
merger would be dilutive to Internaps projected EBITDA per
share in 2007 by $0.09 per share, slightly dilutive to
Internaps projected EBITDA per share in 2008 by
$0.01 per share and accretive to Internaps projected
EBITDA per share in 2009 by $0.16 per share, based on
projections for VitalStream prepared by Internap management. The
actual results achieved by the combined company for these future
periods may vary from projected results and the variations may
be material.
58
General
The foregoing description is only a summary of the analyses and
examinations that TWP presented to the board of directors of
Internap on October 11, 2006 in connection with the TWP
opinion. It is not a comprehensive description of all analyses
and examinations actually conducted by TWP. The preparation of a
fairness opinion necessarily is not susceptible to partial
analysis or summary description. TWP believes that its analyses
and the summary set forth above must be considered as a whole
and that selecting portions of its analyses and of the factors
considered, without considering all analyses and factors, would
create an incomplete view of the process underlying the analyses
set forth in its presentation to the board of directors of
Internap. In addition, TWP may have given some analyses more or
less weight than other analyses, and may have deemed various
assumptions more or less probable than other assumptions. The
fact that any specific analysis has been referred to in the
summary above is not meant to indicate that this analysis was
given greater weight than any other analysis. Accordingly, the
ranges of valuations resulting from any particular analysis
described above should not be taken to be the view of TWP with
respect to the actual value of Internap or VitalStream.
In performing its analyses, TWP made numerous assumptions with
respect to industry performance, general business and economic
conditions and other matters, many of which are beyond
TWPs and Internaps control. The analyses performed
by TWP are not necessarily indicative of actual values or actual
future results, which may be significantly more or less
favorable than those suggested by these analyses. These analyses
were prepared solely as part of the analysis performed by TWP
with respect to the fairness, from a financial point of view, of
the consideration to be paid by Internap in connection with the
merger, as of the date of the TWP opinion, and were provided to
the Internap board of directors in connection with the TWP
opinion. The analyses do not purport to be appraisals or to
reflect the prices at which a company might actually be sold or
the prices at which any securities may trade at any time in the
future.
As described above, the opinion of TWP was among many factors
that the Internap board of directors took into consideration in
making its determination to approve, and to recommend that the
shareholders approve the issuance of shares of Internap common
stock in the merger and adopt the merger agreement.
Internap retained TWP under an engagement letter dated
June 12, 2006. Under the engagement letter, Internap agreed
to pay TWP an opinion fee of $250,000 upon the delivery of the
TWP opinion and a cash success fee equal to 1% of the
transaction consideration payable upon the closing of the
merger, reduced by the opinion fee. In the event that the merger
is not consummated, TWP may receive a fee if Internap receives a
termination,
break-up or
other fee. Internap has also agreed to reimburse TWP for its
reasonable
out-of-pocket
expenses and to indemnify TWP and certain affiliates, to the
full extent permitted under applicable law, against specified
liabilities, including certain liabilities under securities
legislation, related to or arising out of the performance by TWP
of services under its engagement or the merger. The board of
directors of Internap was aware of this fee structure and took
it into account in considering the TWP opinion and in approving
the merger and the merger agreement. In the ordinary course of
their business, TWP may trade the equity securities of Internap
and VitalStream for its own account and for the accounts of
customers and, accordingly, may at any time hold a long or short
position in such securities. TWP has also acted as an
underwriter in connection with offerings of securities of
Internap and performed other investment banking services for
Internap.
Opinion
of VitalStreams Financial Advisor
Pursuant to an engagement letter dated June 7, 2006, RBC
Capital Markets Corporation was retained by VitalStream to act
as a financial advisor and furnish an opinion as to the
fairness, from a financial point of view, to the holders of
outstanding shares of VitalStream common stock of the exchange
ratio provided for under the terms of the proposed merger
agreement.
On October 11, 2006, RBC rendered its opinion to the
VitalStream board of directors, that, as of such date and based
on the procedures followed, factors considered and assumptions
made by RBC and certain other limitations, the total
consideration to be paid was fair, from a financial point of
view, to the holders of outstanding shares of VitalStream common
stock. A copy of RBCs written opinion is attached as
Annex D to this joint proxy statement/prospectus and is
hereby incorporated into this joint proxy statement/prospectus
by reference. VitalStream shareholders are urged to read the
opinion of RBC carefully and in its entirety.
59
RBCs opinion was provided for the information and
assistance of the VitalStream board of directors in connection
with the merger. RBC expresses no opinion and makes no
recommendation to any shareholder as to how such shareholder
should vote with respect to the merger. All advice and opinions
(written and oral) rendered by RBC are intended solely for the
use and benefit of the VitalStream board of directors.
RBCs opinion related solely to the fairness of the
exchange ratio, from a financial point of view, to the holders
of VitalStream common stock. RBC did not review, nor did its
opinion in any way address, other merger terms or arrangements,
including, without limitation, the financial or other terms of
any employment or any
break-up or
termination fee. Further, RBCs opinion does not address
the merits of the underlying decision by VitalStream to engage
in the merger or the relative merits of the merger compared to
any alternative business strategy or transaction in which
VitalStream might engage.
In rendering its opinion, RBC assumed and relied upon the
accuracy and completeness of the financial, legal, tax,
operating and other information provided to RBC by VitalStream
and Internap (including, without limitation, the financial
statements and related notes thereto of VitalStream and
Internap), and did not assume responsibility for independently
verifying and did not independently verify such information. For
all forward looking projections, RBC relied on IBES, First Call,
street equity research and Thomson One Analytics consensus
estimates and assumed they corresponded to the best judgments of
the managements of VitalStream and Internap. RBC expressed no
opinion as to such financial data or the assumptions on which
they were based.
RBC did not assume any responsibility to perform, and did not
perform, an independent evaluation or appraisal of any of the
assets or liabilities of VitalStream or Internap, and RBC was
not furnished with any such valuations or appraisals. RBC did
not assume any obligation to conduct, and did not conduct, any
physical inspection of the property or facilities of VitalStream
or Internap. Additionally, RBC did not investigate, and made no
assumption regarding, any litigation or other claims affecting
VitalStream, Internap or any other party.
RBCs opinion speaks only as of the date of such opinion,
and is based on the conditions as they existed and information
which RBC had been supplied as of October 11, 2006 (the
last trading day preceding the finalization of the analysis),
and is without regard to any market, economic, financial, legal,
or other circumstances or events of any kind or nature which may
exist or occur after such date. RBC has not undertaken to
reaffirm or revise its opinion or otherwise comment upon events
occurring after the date of the opinion and RBC does not have
any obligation to update, revise or reaffirm its opinion. RBC
expressed no opinion as to the prices at which VitalStream
common stock or Internap common stock have traded or will trade
following the announcement or consummation of the merger.
For purposes of its opinion, RBC assumed that the merger would
be a tax-free exchange for U.S. federal income tax
purposes. RBC assumed that the executed merger agreement would
be in all material respects identical to the last draft reviewed
by RBC. RBC also assumed that the merger would be consummated
pursuant to the terms of the merger agreement, without
amendments thereto and without waiver by any party of any
material conditions or obligations thereunder.
In arriving at its opinion, RBC:
|
|
|
|
|
reviewed and analyzed the financial terms of the draft merger
agreement dated October 11, 2006 and received by RBC on
October 11, 2006;
|
|
|
|
reviewed and analyzed certain publicly available financial and
other data with respect to VitalStream and Internap and certain
other relevant historical operating data relating to VitalStream
and Internap made available to RBC from published sources and
from the internal records of VitalStream and Internap;
|
|
|
|
conducted discussions with members of the senior managements of
VitalStream and Internap with respect to the business prospects
and financial outlook of VitalStream and Internap;
|
|
|
|
reviewed historical financial information relating to
VitalStream and Internap and IBES, First Call, street equity
research and Thomson One Analytics consensus estimates regarding
the potential future performance of VitalStream and Internap as
standalone entities;
|
|
|
|
reviewed the reported prices and trading activity for
VitalStream common stock and Internap common stock, including
their trading relative to one another; and
|
60
|
|
|
|
|
considered such other information and performed other studies
and analyses as RBC deemed appropriate, including recent
developments with respect to VitalStreams business.
|
In arriving at its opinion, RBC performed the following analyses
in addition to the review, inquiries, and analyses referred to
above:
|
|
|
|
|
compared selected market valuation metrics of VitalStream and
other comparable publicly traded companies with the financial
metrics implied by the exchange ratio;
|
|
|
|
compared the financial metrics of selected precedent
transactions, to the extent publicly available, with the
financial metrics implied by the exchange ratio;
|
|
|
|
reviewed the premiums paid on selected precedent transactions
and comparably structured transactions versus the premiums
implied by the exchange ratio; and
|
|
|
|
reviewed the relative contribution of the financial metrics of
VitalStream and those of Internap versus the relative ownership
implied by the exchange ratio.
|
Because of the unavailability of long-term projections for
VitalStreams business, RBC did not employ a discounted
cash flow analysis for the purposes of its opinion.
In delivering its opinion to the VitalStream board of directors,
RBC prepared and delivered to the VitalStream board of directors
written materials containing various analyses and other
information material to the opinion. The following is a summary
of these materials, including information presented in tabular
format. To understand fully the summary of the financial
analyses used by RBC, the tables must be read together with the
text of each summary. The tables alone do not constitute a
complete description of the financial analysis.
Transaction
Overview
Giving effect to the exchange ratio of 0.5132 shares of
Internap common stock per share of VitalStream common stock, the
implied offer price to common shareholders of VitalStream was
determined to be $8.75 per share of VitalStream common
stock with the total consideration valued at approximately
$217 million (based on the closing prices for VitalStream
and Internap common stock on October 11, 2006). RBC
calculated the implied enterprise value of VitalStream to be
approximately $205 million. Based on the exchange ratio,
the Internap common shares issued to current holders of
VitalStream common shares would represent 26.0% of the Internap
common shares outstanding on a pro forma combined basis using
the treasury stock method of accounting.
Historical
Trading Analysis
RBC compared Internap and VitalStreams price performance
to the Dow, NASDAQ and to a group of publicly traded Internet
services companies over selected time periods. RBC also reviewed
the historical implied exchange ratio (as defined by
VitalStreams closing price per share divided by
Internaps closing price per share) over selected time
periods. RBC noted that, in light of the recent developments
disclosed by VitalStream surrounding its customer MySpace, Inc,
and the significant reduction in revenue expected to be received
by VitalStream in the future from MySpace, Inc., the historical
trading levels and exchange ratios did not reflect investors
current perspective of VitalStreams business. RBC provided
summaries of the average common stock trading history of
Internap and VitalStream and the average implied exchange
ratios, including the following:
|
|
|
|
|
|
|
|
|
|
|
Internap
|
|
|
VitalStream
|
|
|
|
Share Price
|
|
|
Share Price
|
|
|
Closing price on October 11,
2006
|
|
$
|
17.05
|
|
|
$
|
6.40
|
|
One-month average
|
|
|
15.15
|
|
|
|
8.55
|
|
Three-month average
|
|
|
12.96
|
|
|
|
8.67
|
|
Six-month average
|
|
|
12.42
|
|
|
|
9.63
|
|
One-year average
|
|
|
9.01
|
|
|
|
8.11
|
|
52 week high
|
|
|
17.85
|
|
|
|
13.70
|
|
52 week low
|
|
|
3.60
|
|
|
|
3.44
|
|
61
|
|
|
|
|
|
|
Implied Average
|
|
|
|
Historic
|
|
|
|
Exchange Ratio
|
|
|
Closing price on October 11,
2006
|
|
|
0.375
|
|
One-week average
|
|
|
0.415
|
|
One-month average
|
|
|
0.565
|
|
Three-month average
|
|
|
0.691
|
|
Six-month average
|
|
|
0.791
|
|
Precedent
Transaction Analysis
RBC compared implied enterprise values to revenue multiples and
to earnings before interest, taxes, depreciation and
amortization multiples relating to the proposed merger of
VitalStream and Internap with multiples of operating data from
15 selected merger and acquisition precedent transactions. These
precedent transactions involved companies in the Internet
technology and services market that were completed since
January 1, 2003, which RBC deemed comparable to the
transaction between VitalStream and Internap. Financial data
regarding the precedent transactions was taken from SEC filings,
press releases, Bloomberg and Dealogic databases and publicly
available research sources. The selected precedent transactions
were as follows:
|
|
|
|
|
Packeteers acquisition of Tacit Networks;
|
|
|
|
VeriSigns acquisition of m-Qube;
|
|
|
|
VeriSigns acquisition of Kontiki;
|
|
|
|
eBays acquisition of Shopping.com;
|
|
|
|
Hellman & Friedmans acquisition of DoubleClick;
|
|
|
|
Acxioms acquisition of Digital Impact;
|
|
|
|
InterActiveCorps acquisition of Ask Jeeves;
|
|
|
|
Akamais acquisition of Speedera Networks;
|
|
|
|
VeriSigns acquisition of LightSurf;
|
|
|
|
America Onlines acquisition of Advertising.com;
|
|
|
|
InfoSpaces acquisition of Switchboard;
|
|
|
|
Ask Jeeves acquisition of Interactive Search;
|
|
|
|
Lightbridges acquisition of Payment Solutions Business;
|
|
|
|
Yahoo!s acquisition Overture; and
|
|
|
|
FindWhat.coms acquisition of Espotting Media.
|
RBC noted that VitalStreams implied revenue multiple
exceeded the median, mean and maximum multiples for the above
selected precedent transactions. The following table presents
the resulting selected precedent transaction multiples:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Precedent Transactions
|
|
|
|
|
|
|
Min
|
|
|
Median
|
|
|
Mean
|
|
|
Max
|
|
|
VitalStream
|
|
|
Enterprise value to last twelve
months revenue(1)
|
|
|
1.7
|
x
|
|
|
3.4
|
x
|
|
|
4.2
|
x
|
|
|
9.8
|
x
|
|
|
10.1
|
x
|
Enterprise value to last twelve
months EBITDA(2)
|
|
|
11.9
|
x
|
|
|
18.4
|
x
|
|
|
19.8
|
x
|
|
|
37.3
|
x
|
|
|
NM
|
|
|
|
|
(1) |
|
Enterprise value = equity value (as implied by the exchange
ratio) + total debt + preferred stock + minority
interest − cash and cash Equivalents. |
62
|
|
|
(2) |
|
EBITDA = earnings before interest, taxes, depreciation and
amortization and adjusted for one-time items and stock-based
compensation. |
Comparable
Company Analysis
RBC analyzed certain valuation metrics implied by the total
consideration relative to corresponding metrics observed in a
selected group of publicly traded companies in the Internet
services market that RBC deemed for purposes of its analysis to
be comparable to VitalStream and Internap. The group of
comparable companies for VitalStream and Internap included:
|
|
|
|
|
Akamai Technologies, Inc.;
|
|
|
|
Webex Communications, Inc.;
|
|
|
|
Equinix, Inc.;
|
|
|
|
SAVVIS, Inc.;
|
|
|
|
J2 Global;
|
|
|
|
Broadwing Corp.;
|
|
|
|
Cogent Communications Group;
|
|
|
|
Terremark Worldwide, Inc.; and
|
|
|
|
Website Pros.
|
In this analysis, RBC compared the (i) enterprise value of
VitalStream and Internap, expressed as a multiple of actual and
estimated revenue in calendar years 2005, 2006 and 2007, to the
minimum, median, mean and maximum multiples of enterprise values
of the comparable companies implied by the public trading price
of their common stock, expressed as a multiple of the same
operating data, (ii) enterprise value of VitalStream and
Internap, expressed as a multiple of actual and estimated
earnings before interest, taxes, depreciation and amortization
in calendar years 2005, 2006 and 2007, to the minimum, median,
mean and maximum multiples of enterprise values of the
comparable companies implied by the public trading price of
their common stock, expressed as a multiple of the same
operating data, and (iii) share price of VitalStream and
Internap expressed as a multiple of actual and estimated
earnings per share in calendar year 2005, 2006 and 2007, to the
minimum, median, mean and maximum multiples of share prices of
the comparable companies, expressed as a multiple of the same
operating data. Multiples of future revenue, earnings before
interest, taxes, depreciation and amortization and net income
data for VitalStream and Internap were based on publicly
available research and, for the comparable companies, from
publicly available research analyst estimates. RBC noted that
VitalStreams implied 2005, 2006 and 2007 revenue multiples
and implied 2007 EBITDA multiple exceeded the median and mean
multiples for the comparable companies group and that the
implied 2006 EBITDA multiple and 2007 Pro Forma EPS multiple
exceeded the maximum multiples for the comparable companies
group. The following table presents the resulting selected
valuation data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Companies
|
|
|
|
|
|
|
Min
|
|
|
Median
|
|
|
Mean
|
|
|
Max
|
|
|
VitalStream
|
|
|
Enterprise value to 2005 revenue(1)
|
|
|
1.1
|
x
|
|
|
5.8
|
x
|
|
|
8.1
|
x
|
|
|
29.0
|
x
|
|
|
13.0
|
x
|
Enterprise value to estimated 2006
revenue
|
|
|
1.0
|
x
|
|
|
4.2
|
x
|
|
|
5.9
|
x
|
|
|
19.6
|
x
|
|
|
7.8
|
x
|
Enterprise value to estimated 2007
revenue
|
|
|
0.9
|
x
|
|
|
3.4
|
x
|
|
|
4.7
|
x
|
|
|
14.9
|
x
|
|
|
5.1
|
x
|
Enterprise value to 2005 EBITDA(2)
|
|
|
16.3
|
x
|
|
|
27.4
|
x
|
|
|
41.6
|
x
|
|
|
80.2
|
x
|
|
|
NM
|
|
Enterprise value to estimated 2006
EBITDA
|
|
|
14.7
|
x
|
|
|
25.3
|
x
|
|
|
25.7
|
x
|
|
|
48.7
|
x
|
|
|
102.9
|
x
|
Enterprise value to estimated 2007
EBITDA
|
|
|
11.9
|
x
|
|
|
14.3
|
x
|
|
|
16.1
|
x
|
|
|
34.6
|
x
|
|
|
25.4
|
x
|
Price/2005 pro forma EPS(3)
|
|
|
14.8
|
x
|
|
|
51.4
|
x
|
|
|
54.1
|
x
|
|
|
99.0
|
x
|
|
|
NM
|
|
Price/estimated 2006 pro forma EPS
|
|
|
23.9
|
x
|
|
|
26.9
|
x
|
|
|
34.4
|
x
|
|
|
60.1
|
x
|
|
|
NM
|
|
Price/estimated 2007 pro forma EPS
|
|
|
19.1
|
x
|
|
|
21.7
|
x
|
|
|
26.6
|
x
|
|
|
43.9
|
x
|
|
|
79.5
|
x
|
63
|
|
|
(1) |
|
Enterprise value = equity value (as implied by the exchange
ratio) + total debt + preferred stock + minority
interest − cash and cash equivalents. |
|
(2) |
|
EBITDA = earnings before interest, taxes, depreciation and
amortization and adjusted for one-time items and stock-based
compensation. |
|
(3) |
|
Pro forma EPS adjusted for one-time items and stock-based
compensation. |
Premiums
Paid Analysis
RBC conducted an analysis of the stock price premiums in the
fifteen selected merger and acquisition precedent transactions
of companies in the Internet technology and services market that
RBC deemed comparable to the transaction between VitalStream and
Internap (see above) and of 13 comparably structured merger and
acquisition transactions in publicly traded businesses in the
technology industry since January 1, 2002, having
transaction values between $100 million and
$1 billion, 100% of the target company acquired and with
target pro forma ownership between 15% and 35%. RBC compared
VitalStreams implied value based on the exchange ratio to
VitalStreams closing stock price one day, one week and one
month prior to public announcement with the corresponding
premiums in the precedent and comparably structured
transactions. RBC noted that VitalStreams one-day premium
compared favorably to the median and mean premiums in the
precedent and comparably structured transactions, but that
VitalStreams longer-term one-week and one-month premiums
fell below the minimum premiums in the precedent and comparably
structured transactions. RBC also noted, however, that the
recent developments regarding the significant reduction in
future revenue from VitalStreams customer MySpace, Inc.
impacted the usefulness of these longer-term historical
premiums. The following tables present the resulting valuation
data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Implied Premiums (Discounts)
|
|
|
|
from Precedent Transactions
|
|
|
|
Comparable Companies
|
|
|
VitalStream
|
|
|
Premium, one day prior to
announcement
|
|
|
(0.8
|
)%
|
|
|
18.5
|
%
|
|
|
21.8
|
%
|
|
|
52.8
|
%
|
|
|
36.7
|
%
|
Premium, one week prior to
announcement
|
|
|
17.7
|
%
|
|
|
20.6
|
%
|
|
|
29.5
|
%
|
|
|
75.9
|
%
|
|
|
1.7
|
%
|
Premium, one month prior to
announcement
|
|
|
10.5
|
%
|
|
|
39.5
|
%
|
|
|
40.1
|
%
|
|
|
75.0
|
%
|
|
|
(11.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Implied Premiums (Discounts)
|
|
|
|
from Comparably Structured Transactions
|
|
|
|
Comparable Companies
|
|
|
VitalStream
|
|
|
Premium, one day prior to
announcement
|
|
|
9.0
|
%
|
|
|
23.3
|
%
|
|
|
27.5
|
%
|
|
|
83.5
|
%
|
|
|
36.7
|
%
|
Premium, one week prior to
announcement
|
|
|
6.3
|
%
|
|
|
27.5
|
%
|
|
|
30.1
|
%
|
|
|
95.5
|
%
|
|
|
1.7
|
%
|
Premium, one month prior to
announcement
|
|
|
(3.2
|
)%
|
|
|
27.4
|
%
|
|
|
36.8
|
%
|
|
|
108.4
|
%
|
|
|
(11.2
|
)%
|
Pro
Forma Analyses
Contribution Analysis: RBC analyzed the
relative contribution of each of Internap and VitalStream in
terms of various financial statement metrics relative to the pro
forma metrics of the combined company for the full fiscal years
2005, 2006 and 2007. The financial statement categories included
revenue, gross profit, earnings before interest, taxes,
depreciation and amortization, earnings before interest and
taxes, net income and free cash flows. RBC noted that, based
upon the exchange ratio pursuant to the merger agreement,
VitalStream stockholders (on a fully diluted basis using the
treasury stock method of accounting) will receive a 26.0% pro
forma ownership interest in the combined entity. RBC further
noted that the 26.0% pro forma ownership interest in the
combined entity compared favorably to VitalStreams
relative pro forma contribution to revenue, gross profit,
earnings before interest, taxes, depreciation and amortization,
earnings before interest and taxes, net income and free cash
flows for
64
fiscals years 2005, 2006 and 2007. The following table presents
a summary of this analysis for fiscal years 2005, 2006 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
Estimated
|
|
|
|
Fiscal Year 2005(1)
|
|
|
Fiscal Year 2006(1)
|
|
|
Fiscal Year 2007(1)
|
|
|
|
VitalStream
|
|
|
Internap
|
|
|
VitalStream
|
|
|
Internap
|
|
|
VitalStream
|
|
|
Internap
|
|
|
Revenue
|
|
|
9.4
|
%
|
|
|
90.6
|
%
|
|
|
12.9
|
%
|
|
|
87.1
|
%
|
|
|
16.3
|
%
|
|
|
83.7
|
%
|
Gross Profit
|
|
|
10.0
|
%
|
|
|
90.0
|
%
|
|
|
13.9
|
%
|
|
|
86.1
|
%
|
|
|
18.1
|
%
|
|
|
81.9
|
%
|
EBITDA(2)
|
|
|
NM
|
|
|
|
>100
|
%
|
|
|
7.9
|
%
|
|
|
92.1
|
%
|
|
|
21.4
|
%
|
|
|
78.6
|
%
|
EBIT(3)
|
|
|
NM
|
|
|
|
NM
|
|
|
|
NM
|
|
|
|
>100
|
%
|
|
|
11.5
|
%
|
|
|
88.5
|
%
|
Net Income(4)
|
|
|
NM
|
|
|
|
NM
|
|
|
|
NM
|
|
|
|
>100
|
%
|
|
|
14.2
|
%
|
|
|
85.8
|
%
|
Free Cash Flows(5)
|
|
|
NM
|
|
|
|
NM
|
|
|
|
NM
|
|
|
|
>100
|
%
|
|
|
16.8
|
%
|
|
|
83.2
|
%
|
|
|
|
(1) |
|
Per publicly available research, except free cash flows. |
|
(2) |
|
EBITDA = earnings before interest, taxes, depreciation and
amortization and adjusted for one-time items and stock-based
compensation. |
|
(3) |
|
EBIT = earnings before interest and taxes and adjusted for
one-time items and stock-based compensation. |
|
(4) |
|
Adjusted for one-time items and stock-based compensation. |
|
(5) |
|
VitalStream figures per VitalStream management and publicly
available research. Internap figures per publicly available
research. |
Other
Consideration
The preparation of a fairness opinion is a complex process that
involves the application of subjective business judgment in
determining the most appropriate and relevant methods of
financial analysis and the application of those methods to the
particular circumstances and, therefore, is not necessarily
susceptible to partial consideration of the analyses or summary
description. RBC believes that its analyses must be considered
as a whole and that selecting portions of the analyses and of
the factors considered, without considering all of the factors
and analyses, could create an incomplete or misleading view of
the processes underlying its opinion.
In view of the wide variety of factors considered in connection
with its evaluation of the fairness of the exchange ratio from a
financial point of view, RBC did not find it practicable to
assign relative weights to the factors considered in reaching
its opinion. No single company or transaction used in the above
analyses as a comparison is identical to VitalStream or Internap
or the proposed merger. The analyses were prepared solely for
purposes of RBC providing an opinion as to the fairness, from a
financial point of view, to the holders of outstanding shares of
VitalStream common stock and do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities
actually may be sold, which are inherently subject to
uncertainty.
In connection with its analyses, RBC made, and was provided by
VitalStreams and Internaps managements, numerous
assumptions with respect to industry performance, general
business and economic conditions and other matters, many of
which are beyond VitalStreams or Internaps control.
Analyses based upon forecasts of future results are not
necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by these
analyses. Because these analyses are inherently subject to
uncertainty, and are based upon numerous factors or events
beyond the control of VitalStream, Internap, or their advisors,
none of VitalStream, Internap, RBC, or any other person assumes
responsibility if future results or actual values are materially
different from these forecasts or assumptions.
VitalStream selected RBC to render its opinion based on
RBCs experience in mergers and acquisitions and in
securities valuation generally. RBC is a nationally recognized
investment banking firm and is regularly engaged in the
valuation of businesses and securities in connection with
mergers and acquisitions, corporate restructurings,
underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and
other purposes. In the ordinary course of its business, RBC and
its affiliates may act as a market maker and broker in the
publicly traded securities of VitalStream and Internap and
receive customary compensation, and may also actively trade
securities (whether debt or equity) of VitalStream
and/or
Internap for its own account and
65
the accounts of its customers, and accordingly, RBC and its
affiliates, may hold a long or short position in such securities.
Pursuant to the engagement letter, VitalStream is to pay RBC a
customary, nonrefundable fee of $350,000 upon the rendering of
its opinion. Payment of this fee to RBC was not contingent upon
the acceptance of the opinion or the closing of the merger. RBC
will receive a further fee of between 1% and 1.4% of the
aggregate transaction value for its services if the proposed
merger is consummated. Whether or not the proposed merger is
consummated, VitalStream has agreed to reimburse RBC for its
out-of-pocket
expenses and to indemnify RBC against certain liabilities
relating to or arising out of services performed by RBC in
connection with the proposed merger. The terms of the engagement
letter were negotiated at arms-length between VitalStream
and RBC, and the VitalStream board of directors was aware of
this fee arrangement at the time of its approval of the merger
agreement.
Recommendation
of Internap Board of Directors
The Internap board of directors has determined and believes that
the issuance of shares of Internap common stock in the merger
and adoption of the merger agreement is advisable to, and in the
best interests of, Internap and its stockholders and has
unanimously approved such issuance and adopted the merger
agreement. The Internap board of directors unanimously
recommends that Internap stockholders vote FOR
Proposal No. 1, to approve the issuance of shares of
Internap common stock in the merger and adopt the merger
agreement.
Recommendation
of VitalStream Board of Directors
The VitalStream board of directors has unanimously determined
and believes that the merger is advisable and fair to, and in
the best interests of, VitalStream and its stockholders and has
unanimously approved the merger and the merger agreement. The
VitalStream board of directors unanimously recommends that
VitalStream stockholders vote FOR
Proposal No. 1, to adopt the merger agreement.
Interests
of VitalStreams Executive Officers and Directors in the
Merger
In considering the recommendation of the VitalStream board of
directors with respect to the adoption of the merger agreement,
you should be aware that certain stockholders, officers and
directors of VitalStream may have interests in the merger that
are different from, or in addition to, your interests. As a
result, VitalStreams directors and officers may have been
more likely to vote to approve the merger and the merger
agreement, and recommend the adoption of the merger agreement,
than if they did not have these interests. The VitalStream board
of directors was aware of these interests and considered the
following matters, among others, in approving the merger:
Combined Company Board of Directors. The
employment agreement between Internap and Mr. Jack
Waterman, Chairman and Chief Executive Officer of VitalStream,
provides that Internap will cause Mr. Waterman to be
elected or appointed to the Internap board of directors, subject
to the approval of Internaps board of directors in
accordance with its nomination procedures.
66
Accelerated Vesting of Options. The following
table identifies as of December 29, 2006, for each
individual who has served as an executive officer or director of
VitalStream at any time since January 1, 2005, the
aggregate number of shares subject to outstanding options to
purchase VitalStream common stock, the aggregate number of
shares subject to outstanding but unvested options to purchase
VitalStream common stock that will accelerate in connection with
the merger and the weighted average exercise price of unvested
outstanding options to be accelerated in the merger.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Shares
|
|
|
Weighted Average
|
|
|
|
Aggregate
|
|
|
Subject to Unvested
|
|
|
Exercise Price of
|
|
|
|
Shares Subject
|
|
|
Options to be
|
|
|
Unvested Options to be
|
|
|
|
to Options
|
|
|
Accelerated in the
|
|
|
Accelerated in the
|
|
|
|
Outstanding
|
|
|
Merger*
|
|
|
Merger
|
|
|
Jack Waterman
|
|
|
1,165,000
|
|
|
|
742,188
|
|
|
$
|
2.28
|
|
Philip Kaplan
|
|
|
252,500
|
|
|
|
|
|
|
|
|
|
Michael Linos
|
|
|
41,875
|
|
|
|
|
|
|
|
|
|
Arturo Sida
|
|
|
175,000
|
|
|
|
69,531
|
|
|
|
7.31
|
|
Mark Belzowski
|
|
|
200,000
|
|
|
|
12,500
|
|
|
|
2.08
|
|
Christopher Dion
|
|
|
168,750
|
|
|
|
168,750
|
|
|
|
7.44
|
|
Eric Mersch
|
|
|
125,000
|
|
|
|
125,000
|
|
|
|
8.29
|
|
Michael Maseo
|
|
|
175,000
|
|
|
|
87,500
|
|
|
|
8.25
|
|
Stephen Smith
|
|
|
|
|
|
|
|
|
|
|
|
|
Melvin A. Harris
|
|
|
28,125
|
|
|
|
|
|
|
|
|
|
Raymond L. Ocampo Jr.
|
|
|
78,125
|
|
|
|
|
|
|
|
|
|
Philip Sanderson
|
|
|
62,500
|
|
|
|
|
|
|
|
|
|
Salvatore Tirabassi
|
|
|
62,500
|
|
|
|
|
|
|
|
|
|
Leonard Wanger
|
|
|
84,375
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Assumes consummation of the merger on February 15, 2007 and
continued service or employment of any currently serving or
employed officer or director until that date. Because the
options vest over time, the actual number of unvested options
accelerated will vary based upon the closing date of the merger.
Includes options for which vesting is accelerated as of approval
of the merger by VitalStream stockholders and options for which
vesting is accelerated as of the closing of the merger. Does not
include the effect of any cutback provisions limiting the number
of options subject to acceleration if such acceleration would
trigger a tax penalty. |
Employment Agreements. Internap has entered
into employment and change of control agreements with each of:
Jack Waterman, VitalStreams Chief Executive Officer and
Chairman, Philip Kaplan, VitalStreams President and Chief
Operating Officer and a director, Christopher Dion,
VitalStreams Senior Vice President of Business Development
and Patrick Ritto, VitalStreams Chief Technical Officer,
which employment agreements become effective upon the
consummation of the merger.
Under his employment agreement with Internap, Mr. Waterman
is entitled to receive an annual base salary of $375,000 and
will be eligible for a performance-based bonus, based upon
objectives to be established, equal to up to 50% of his base
salary. Internap has agreed to recommend to its board of
directors that it grant restricted stock awards having a value
equal to $1 million to Mr. Waterman, and, if such
grant is not made within 30 days of consummation of the
merger, all re-sale restrictions set forth in his affiliate
agreement that are not required by Rule 145 under the
Securities Act of 1933 will terminate. The employment
relationship created by the employment agreement is terminable
by either party at will at any time. If Mr. Watermans
employment with Internap is terminated by Internap without cause
at any time, Mr. Waterman is entitled to a severance
payment in an amount equal one years base salary, pro
rated for the initial year of employment, and all re-sale
restrictions set forth in his affiliate agreement that are not
required by Rule 145 under the Securities Act of 1933 shall
terminate. If within 12 months following a change of
control, Mr. Watermans employment with Internap is
terminated by Internap without cause or by Mr. Waterman
with good reason, Mr. Waterman is entitled to a severance
payment in an amount equal to one-years base salary and
his maximum target bonus, his healthcare and life insurance
benefits shall
67
continue for 24 months following termination, all of his
unvested restricted stock awards shall vest and any restrictions
not required by Rule 145 under his affiliate agreement
shall lapse.
Under his employment agreement with Internap, Mr. Kaplan is
entitled to receive an annual base salary of $235,000 and will
be eligible for a performance-based bonus, based upon objectives
to be established, equal to up to 37% of his base salary.
Internap has agreed to recommend to its board of directors the
grant of an option to purchase 30,000 shares of Internap
common stock to Mr. Kaplan. The employment relationship
created by the employment agreement is terminable by either
party at will. If Mr. Kaplans employment with
Internap is terminated by Internap without cause at any time,
Mr. Kaplan is entitled to a severance payment in an amount
equal six months base salary, pro rated for the initial
year of employment. If within 12 months following a change
of control Mr. Kaplans employment with Internap is
terminated by Internap without cause or by Mr. Kaplan with
good reason, Mr. Kaplan is entitled to a severance payment
in an amount equal to six months base salary and one-half
of his maximum target bonus, his healthcare and life insurance
benefits shall continue for 24 months following termination
and all of his options granted pursuant to the employment
agreement shall vest.
Under his employment agreement with Internap, Mr. Dion is
entitled to receive an annual base salary of $180,000 and will
be eligible for a performance-based bonus, based upon objectives
to be established, equal to up to 37% of his base salary.
Internap has agreed to recommend to its board of directors the
grant of an option to purchase 30,000 shares of Internap
common stock to Mr. Dion. The employment relationship
created by the employment agreement is terminable by either
party at will. If Mr. Dions employment with Internap
is terminated by Internap without cause at any time,
Mr. Dion is entitled to a severance payment in an amount
equal six months base salary, pro rated for the initial
year of employment. If within 12 months following a change
of control Mr. Dions employment with Internap is
terminated by Internap without cause or by Mr. Dion with
good reason, Mr. Dion is entitled to a severance payment in
an amount equal to six months base salary and one-half of
his maximum target bonus, his healthcare and life insurance
benefits shall continue for 24 months following termination
and all of his options granted pursuant to the employment
agreement shall vest.
Under his employment agreement with Internap, Mr. Ritto is
entitled to receive an annual base salary of $190,000 and will
be eligible for a performance-based bonus, based upon objectives
to be established, equal to up to 37% of his base salary. The
employment relationship created by the employment agreement is
terminable by either party at will. If Mr. Rittos
employment with Internap is terminated by Internap without cause
at any time, Mr. Ritto is entitled to a severance payment
in an amount equal to six months base salary, pro rated
for the initial year of employment. If within 12 months
following a change of control Mr. Rittos employment
with Internap is terminated by Internap without cause or by
Mr. Ritto with good reason, Mr. Ritto is entitled to a
severance payment in an amount equal to six months base
salary and one-half of his maximum target bonus, his healthcare
and life insurance benefits shall continue for 24 months
following termination and all of his options granted pursuant to
the employment agreement shall vest.
Messrs. Waterman, Dion, Kaplan and Ritto have each entered
into noncompetition agreements with Internap in connection with
the execution of the merger agreement, which noncompetition
agreements become effective upon the consummation of the merger.
The noncompetition agreements restrict each such person from
engaging in the business of providing content delivery service
for the streaming of digital media over the Internet for a
period of three years following the consummation of the merger.
These persons have not received any additional consideration in
connection with the noncompetition agreements.
Indemnification and Insurance. The merger
agreement provides for the survival for a period of three years
after the merger of all rights of the directors and officers of
VitalStream as of October 12, 2006 to indemnification for
acts and omissions as directors and officers occurring before
the merger, as their rights existed as of October 12, 2006
pursuant to the VitalStream certificate of incorporation and
bylaws and indemnification agreements with VitalStream. Internap
will guarantee that the surviving company observes all of these
indemnification rights to the fullest extent permitted by
Delaware law for a period of three years after the merger.
Material
U.S. Federal Income Tax Consequences
The following discussion summarizes the material
U.S. federal income tax considerations of the merger that
are expected to apply generally to VitalStream stockholders upon
an exchange of their VitalStream common stock
68
for Internap common stock in the merger. This summary is based
upon current provisions of the Internal Revenue Code of 1986, or
the Code, existing regulations under the Code and current
administrative rulings and court decisions, all of which are
subject to change. Any change, which may or may not be
retroactive, could alter the tax consequences to Internap,
VitalStream or the stockholders of VitalStream as described in
this summary. In addition, this summary assumes the truth and
satisfaction of the statements and conditions described below as
the basis for the tax opinions of Morris, Manning &
Martin LLP and Parr, Waddoups Brown Gee & Loveless, PC
. No attempt has been made to comment on all U.S. federal
income tax consequences of the merger that may be relevant to
particular holders, including holders:
|
|
|
|
|
who are subject to special tax rules such as dealers in
securities, foreign persons, mutual funds, regulated investment
companies, real estate investment trusts, banks, financial
institutions, insurance companies or tax-exempt entities;
|
|
|
|
who are subject to the alternative minimum tax provisions of the
Code;
|
|
|
|
who acquired their shares in connection with stock option or
stock purchase plans or in other compensatory transactions;
|
|
|
|
who hold their shares as a hedge or as part of a hedging,
straddle or other risk reduction strategy; or
|
|
|
|
who do not hold their shares as capital assets.
|
In addition, the following discussion does not address the tax
consequences of the merger under state, local and foreign tax
laws. Furthermore, the following discussion does not address any
of the following:
|
|
|
|
|
the tax consequences of transactions effectuated before, after
or at the same time as the merger, whether or not they are in
connection with the merger, including, without limitation,
transactions in which VitalStream shares are acquired or
Internap shares are disposed of;
|
|
|
|
the tax consequences to holders of options issued by VitalStream
which are assumed, accelerated, exercised or converted, as the
case may be, in connection with the merger;
|
|
|
|
the tax consequences of the receipt of Internap shares other
than in exchange for VitalStream shares; or
|
|
|
|
the tax implications of a failure of the merger to qualify as a
reorganization.
|
Accordingly, holders of VitalStream common stock are advised
and expected to consult their own tax advisers regarding the
federal income tax consequences of the merger in light of their
personal circumstances and the consequences of the merger under
state, local and foreign tax laws.
As a condition to the consummation of the merger, Morris,
Manning & Martin LLP and Parr, Waddoups Brown
Gee & Loveless, PC must render tax opinions that the
merger will constitute a reorganization within the meaning of
Section 368 of the Code, or a Reorganization. The tax
opinions discussed in this section are conditioned upon certain
assumptions stated in the tax opinions and the tax
representations made by VitalStream and Internap. If any of the
assumptions or representations upon which the tax opinions are
based are untrue as of the date of the merger, the tax
consequences of the merger could be adversely affected and the
tax opinions may no longer be valid.
No ruling from the Internal Revenue Service has been or will be
requested in connection with the merger. In addition,
stockholders of VitalStream should be aware that the tax
opinions discussed in this section are not binding on the IRS,
the IRS could adopt a contrary position and a contrary position
could be sustained by a court.
Subject to the assumptions and limitations discussed above, it
is the opinion of Morris, Manning & Martin LLP, tax
counsel to Internap, and Parr, Waddoups Brown Gee &
Loveless, PC, tax counsel to VitalStream, that the merger will
be treated for U.S. federal income tax purposes as a
Reorganization. Accordingly, if the merger is treated for
U.S. federal income tax purposes as a Reorganization,
|
|
|
|
|
Internap, Merger Sub and VitalStream will each be a party to the
Reorganization;
|
|
|
|
Internap, Merger Sub and VitalStream will not recognize any gain
or loss solely as a result of the merger;
|
69
|
|
|
|
|
stockholders of VitalStream will not recognize any gain or loss
upon the receipt of solely Internap common stock for their
VitalStream common stock, other than with respect to cash
received in lieu of fractional shares of Internap common stock;
|
|
|
|
the aggregate tax basis of the shares of Internap common stock
received by a VitalStream stockholder in the merger (including
any fractional share deemed received) will be the same as the
aggregate basis of the shares of VitalStream common stock
surrendered in exchange therefore;
|
|
|
|
the holding period of the shares of Internap common stock
received by a VitalStream stockholder in the merger will include
the holding period of the shares of VitalStream common stock
surrendered in exchange therefor; and
|
|
|
|
cash payments received by VitalStream stockholders in lieu of
fractional shares of Internap common stock will be treated as if
such fractional shares of Internap common stock were issued in
the merger and then redeemed. A stockholder of VitalStream who
receives such cash will recognize gain or loss equal to the
difference, if any, between such stockholders basis in the
fractional share and the amount of cash received. Such gain or
loss will be a capital gain or loss and any such capital gain
will be long-term capital gain if the VitalStream common stock
is held by such stockholder as a capital asset at the effective
time of the merger and such stockholders holding period
for his, her or its VitalStream common stock is more than one
year.
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Each VitalStream stockholder who is a significant
holder that receives Internap common stock in the merger
will be required to file a statement with his, her or its
federal income tax return setting forth the information required
by Treasury
Regulation Section 1.368-3T,
including the fair market value of and the stockholders
basis in the VitalStream common stock surrendered, and to retain
permanent records of these facts relating to the merger. A
significant holder is a VitalStream stockholder who,
immediately before the merger, owned at least five percent of
the outstanding stock of VitalStream or owned VitalStream
securities with a tax basis of $1,000,000 or more.
The preceding discussion is intended only as a summary of
certain U.S. federal income tax consequences of the merger
and does not purport to be a complete analysis or discussion of
all of the mergers potential tax effects. VitalStream
stockholders are urged to consult their own tax advisors as to
the specific tax consequences to them of the merger, including
tax return reporting requirements, and the applicability and
effect of federal, state, local, and other applicable tax
laws.
Anticipated
Accounting Treatment
The merger is expected to be accounted for using the purchase
method of accounting pursuant to Statement of Financial
Accounting Standards No. 141, Business Combinations.
Under the purchase method of accounting, the total estimated
purchase price is allocated to the net tangible and intangible
assets of VitalStream acquired in connection with the merger,
based on their estimated fair values. These allocations will be
based upon valuations that have not yet been finalized.
Appraisal
Rights
Under Nevada corporate law, holders of VitalStream common stock
are not entitled to appraisal rights in connection with the
merger because both Internap common stock and VitalStream common
stock are listed on the NASDAQ Global Market. Holders of
Internap common stock are also not entitled to appraisal rights
in connection with the merger.
Regulatory
Approvals
To consummate the merger, Internap and VitalStream must make
filings with and obtain approvals or clearances from antitrust
regulatory authorities. Transactions such as the merger are
subject to review by the U.S. Department of Justice, or
DOJ, and the Federal Trade Commission, or FTC, in the United
States, certain governmental entities in the European Union and
other countries to determine whether they comply with applicable
antitrust laws. Under the provisions of the
Hart-Scott-Rodino
Antitrust Improvements Act, the merger may not be consummated
until the specified waiting period requirements of the
Hart-Scott-Rodino
Antitrust Improvements Act have been satisfied. Internap
and VitalStream filed notification reports, together with
requests for early termination
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of the waiting period, with the DOJ and the FTC under the
Hart-Scott-Rodino
Antitrust Improvements Act on November 3, 2006 and
November 13, 2006, respectively. The waiting period was
terminated by the FTC effective November 17, 2006. In the
United States, Internap must also comply with applicable federal
and state securities laws and the rules and regulations of The
NASDAQ Stock Market in connection with the issuance of shares of
Internap common stock in the merger and the filing of this joint
proxy statement/prospectus with the SEC.
Restrictions
on Sales of Internap Common Stock by Affiliates of
VitalStream
The shares of Internap common stock to be issued to holders of
VitalStream common stock in connection with the merger have been
registered under the Securities Act and, except as described in
this section, may be freely traded without restriction.
Internaps registration statement on
Form S-4,
of which this joint proxy statement/prospectus forms a part,
does not cover the resale of shares of Internap common stock to
be received in connection with the merger by persons who are
deemed to be affiliates of VitalStream on the date
of the VitalStream special meeting of stockholders. The shares
of Internap common stock to be issued in the merger and received
by persons who are deemed to be affiliates of
VitalStream on the date of the VitalStream special meeting of
stockholders may be resold by them only in transactions
permitted by the resale provisions of Rule 145 under the
Securities Act of 1933 or as otherwise permitted under the
Securities Act of 1933. Persons who are deemed to be
affiliates of VitalStream prior to the merger
include individuals or entities that control, are controlled by,
or are under common control with VitalStream on the date of the
VitalStream special meeting, and may include officers and
directors, as well as principal stockholders, of VitalStream on
the date of the VitalStream special meeting. Affiliates of
VitalStream will be notified separately of their affiliate
status.
The merger agreement provides that VitalStream will use its
reasonable best efforts to deliver or cause each VitalStream
affiliate within the meaning of Rule 145, as
identified by VitalStream to deliver an affiliate
agreement with Internap. Under the terms of the affiliate
agreements, such affiliates agree not to make any sale, transfer
or other disposition of any shares of Internap common stock
received in the merger except in certain specified situations,
including:
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pursuant to an effective registration statement under the
Securities Act covering the resale of those shares;
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in compliance with Rule 145(d) under the Securities
Act; or
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in a transaction which, in the opinion of counsel reasonably
acceptable to Internap, is not required to be registered under
the Securities Act.
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The affiliate agreements also allow Internap to place
appropriate legends on the certificates evidencing any shares of
Internap common stock received by the affiliates in the merger,
and to issue stop transfer instructions to the transfer agent
for such shares of Internap common stock received by the
affiliates.
In addition, the following stockholders of VitalStream have
agreed to the transfer restrictions with respect to Internap
common stock issued in the merger:
WaldenVC II, L.P., holder of approximately 14% of
VitalStreams outstanding common stock as of the record
date, has agreed that it will not, during the
90-day
period immediately following the merger, sell more than 25% of
the shares of Internap common stock issued to it in the merger
or, during any subsequent
90-day
period, sell more than 50% of the shares of Internap common
stock issued in the merger.
Companies included in the Dolphin Group, holders in the
aggregate of approximately 13% of VitalStreams outstanding
common stock as of the record date, have agreed that they will
not, during the
90-day
period immediately following the merger, sell more than 25% of
the shares of Internap common stock issued to it in the merger
or, during any subsequent
90-day
period, sell more than 50% of the shares of Internap common
stock issued in the merger.
Mr. Kaplan, holder of approximately 4% of
VitalStreams outstanding common stock as of the record
date, has agreed that he will not, during the
90-day
period immediately following the merger, sell more than 15% of
the shares of Internap common stock issued to him in the merger
or, during any of the next three consecutive
90-day
periods immediately thereafter, sell more than 10% of the shares
of Internap common stock issued to him in the merger.
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Mr. Waterman, holder of less than 1% of VitalStreams
outstanding common stock as of the record date, has agreed that
he will not, between October 12, 2006 and the
90th
day following the merger, sell or transfer more than 25% of the
shares of Internap common stock issued to him in the merger or,
during any of the next three consecutive
90-day
periods immediately thereafter, sell or transfer more than 10%
of the shares of Internap common stock issued to him in the
merger. For purposes of this affiliate agreement, Internap
common stock issued to Mr. Waterman in the merger includes
shares of VitalStream common stock (pro rated as per the
exchange ratio) sold by Mr. Waterman prior to the merger
and shares of Internap common stock issuable upon the exercise
of existing VitalStream stock options assumed by Internap.
THE
MERGER AGREEMENT
The following description describes the material terms of the
merger agreement. This description of the merger agreement is
qualified in its entirety by reference to the full text of the
merger agreement which is attached as Annex A to this joint
proxy statement/prospectus and is incorporated herein by
reference. The merger agreement has been included to provide you
with information regarding its terms. We encourage you to read
the entire merger agreement. The merger agreement is not
intended to provide any other factual information about either
Internap or VitalStream. Such information can be found elsewhere
in this joint proxy statement/prospectus and in the other public
filings each of Internap and VitalStream makes with the SEC,
which are available without charge at www.sec.gov.
The following summary of the merger agreement is qualified in
its entirety by reference to the complete copy of the merger
agreement attached as Annex A to this joint proxy
statement/prospectus and incorporated herein by reference. We
urge you to read the merger agreement carefully and in its
entirety.
Merger
Consideration
The merger agreement provides that at the effective time of the
merger, each share of VitalStream common stock issued and
outstanding immediately prior to the effective time will
automatically be converted into the right to receive 0.5132 of a
share of Internap common stock, which we refer to as the
exchange ratio. However, each share of VitalStream common stock
held by a wholly-owned subsidiary of VitalStream or owned by
Internap or Ivy Acquisition Corp. will be canceled, and no
exchange will be made with respect to them. No fractional shares
of Internap common stock will be issued in connection with the
merger. Each holder of VitalStream common stock who would
otherwise be entitled to receive a fraction of a share of
Internap common stock will instead receive an amount of cash,
without interest, determined by multiplying that fraction by the
average closing price of Internap common stock on the NASDAQ
Global Market for the five trading days ended on the trading day
immediately preceding the effective time of the merger.
For example: If you hold 100 shares of
VitalStream common stock you will receive 51 shares of
Internap common stock and an amount in cash equal to the value
of 0.32 shares of Internap common stock.
At the effective time of the merger, holders of VitalStream
common stock will cease to be, and will have no rights as,
VitalStream stockholders, other than:
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the right to receive any dividend or other distribution, if any,
with respect to VitalStream common stock with a record date
occurring prior to the effective time of the merger, and
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the right to receive the merger consideration (without interest).
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After the merger occurs, there will be no transfers on
VitalStreams stock transfer books of any shares of its
common stock.
Treatment
of VitalStream Stock Options.
The merger agreement provides that at the effective time of the
merger, each option to purchase shares of VitalStream common
stock granted under VitalStreams stock option plans,
whether or not vested and exercisable, will cease to represent a
right to acquire shares of VitalStream common stock and will be
converted automatically into an option to purchase shares of
Internap common stock, and Internap will assume each VitalStream
stock
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option, in accordance with the terms of the VitalStream stock
option plan and applicable VitalStream stock option agreement,
including, without limitation, all terms pertaining to the
acceleration of vesting, except that from and after the
effective time of the merger:
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Internap and its board of directors shall be substituted for
VitalStream and the VitalStream board of directors or duly
authorized board committee administering the VitalStream stock
option plans;
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each VitalStream stock option assumed by Internap will be
exercisable solely for shares of Internap common stock;
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the number of shares of Internap common stock subject to such
VitalStream stock option will be equal to the number of shares
of VitalStream common stock subject to such VitalStream stock
option immediately prior to the effective time of the merger
multiplied by the exchange ratio, rounded to the nearest whole
share in the manner required by the Code; and
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the per share exercise price under each VitalStream stock option
will be adjusted by dividing the per share exercise price under
each such VitalStream stock option by the exchange ratio,
rounded to the nearest whole cent in the manner required by the
Code.
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Effective
Time of the Merger and Anticipated Date of the Merger
The merger agreement provides that the merger will become
effective at the date and time that the parties file articles of
merger with the Secretary of State of the State of Nevada, or if
another date and time is specified in such filing, such
specified date and time. Assuming proposals related to the
merger are approved by stockholders of Internap and VitalStream
and all of the other conditions to closing set forth in the
merger agreement are satisfied or waived, the parties expect to
complete the merger as soon as practicable after the completion
of the special meetings.
Conditions
to Consummation of the Merger
Internap and VitalStream. The merger agreement
provides that Internaps and VitalStreams obligations
to effect the merger are subject to the satisfaction or waiver
of various conditions, including the following:
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the holders of a majority of the issued and outstanding shares
of VitalStream common stock must have voted in favor of adopting
the merger agreement;
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the holders of a majority of the shares of Internap common stock
voting on the proposal must have voted in favor of adopting the
merger agreement and approving the merger;
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no stop order or similar proceeding in respect of this joint
proxy statement/prospectus is initiated or threatened in writing
by the SEC;
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the registration statement must be effective under the
Securities Act and no stop order suspending the effectiveness of
the registration statement has been issued;
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the shares of Internap common stock that are issuable to
VitalStreams stockholders pursuant to the merger must be
authorized for listing on the NASDAQ Global Market upon official
notice of issuance;
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no statute, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or
permanent) that has the effect of making the merger illegal or
otherwise prohibits the completion of the merger is in effect;
and
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all approvals from each governmental entity necessary for the
completion of the merger have been obtained, and any waiting
period applicable to the completion of the merger under the
Hart-Scott-Rodino
Antitrust Improvements Act has expired or been terminated.
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VitalStream. The merger agreement provides
that the obligations of VitalStream to effect the merger are
further subject to the fulfillment of the following conditions,
any of which may be waived in whole or part by VitalStream:
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the representations and warranties of Internap and Ivy
Acquisition Corp. set forth in the merger agreement must be true
and correct in all material respects (except for any statements
in a representation or warranty that expressly include a
standard of material adverse effect, which statements must be
true and correct in all respects giving effect such qualified
standard) as of the date of the merger agreement and as of the
date of the closing of the merger, except that representations
and warranties that address matters only as of a particular date
must be true and correct in all material respects (except for
any statements in a representation or warranty that expressly
include a standard of material adverse effect, which statements
must be true and correct in all respects giving effect to such
qualified standard) as of such date; provided, however, this
condition will be satisfied as long as any failure of
Internaps and Ivy Acquisition Corp.s representations
and warranties to be true and correct does not result in a
material adverse effect on Internap; and a certificate with
respect to the foregoing is delivered by Internap to VitalStream;
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Internap and Ivy Acquisition Corp. must have performed or
complied with in all material respects all obligations required
to be performed or completed by them under the merger agreement
at or prior to the closing of the merger and Internap must
provide a certificate to such effect to VitalStream;
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no material adverse effect on Internap has occurred since the
date of the merger agreement and Internap must provide a
certificate to such effect to VitalStream;
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Internap and Ivy Acquisition Corp. must have obtained certain
consents, waivers, and approvals of governmental entities or
third parties required in connection with the transactions
contemplated by the merger agreement, the failure of which to be
obtained would have a material adverse effect on Internap or the
surviving corporation as a result of the merger or adversely
affect the ability of Internap to consummate the merger; and
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VitalStream must have received a written opinion of Parr
Waddoups Brown Gee & Loveless, PC counsel to
VitalStream, or other counsel reasonably satisfactory to
VitalStream, dated as of the closing of the merger, that the
merger will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the
Code.
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Internap. The merger agreement provides that
the obligations of Internap and Ivy Acquisition Corp. to effect
the merger are further subject to the fulfillment of the
following conditions, any of which may be waived in whole or
part by Internap:
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the representations and warranties of VitalStream set forth in
the merger agreement must be true and correct in all material
respects (except for any statements in a representation or
warranty that expressly include a standard of material adverse
effect, which statements must be true and correct in all
respects giving effect such qualified standard) as of the date
of the merger agreement and as of the date of the closing of the
merger, except that representations and warranties that address
matters only as of a particular date must be true and correct in
all material respects (except for any statements in a
representation or warranty that expressly include a standard of
material adverse effect, which statements must be true and
correct in all respects giving effect such qualified standard)
as of such date; provided, however, this condition will be
satisfied as long as any failure of VitalStreams
representations and warranties to be true and correct does not
result in a material adverse effect on VitalStream, and a
certificate with respect to foregoing is delivered by
VitalStream to Internap;
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VitalStream must have performed or complied with in all material
respects all obligations required to be performed by it under
the merger agreement at or prior to the closing of the merger
and must provide a certificate to such effect to Internap;
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no material adverse effect on VitalStream has occurred since the
date of the merger agreement and VitalStream must provide a
certificate to such effect to Internap;
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Internap must have received the written legal opinion of Morris,
Manning & Martin, LLP, legal counsel to Internap, or
other counsel reasonably satisfactory to Internap, dated as of
the closing of the merger, that the merger will be treated for
Federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code;
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VitalStream must have obtained certain consents, waivers, and
approvals of governmental entities or third parties required in
connection with the transactions contemplated by the merger
agreement, the failure of which to be obtained would result in a
material loss of benefits to, or adversely effect the operations
or condition of, VitalStream, or the surviving corporation as a
result of the merger or adversely affect the ability of
VitalStream to consummate the merger;
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Internap must have received written resignations from each of
VitalStreams directors; and
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Internap must have received from VitalStream evidence that
VitalStreams rights to grant additional awards under its
2001 Stock Incentive Plan (Third Amended and Restated) have been
terminated effective immediately prior to the closing of the
merger and conditioned upon the closing of the merger.
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In addition, the merger agreement provides that Internap will be
obligated to effect the merger only if there is no instituted,
pending or threatened action, proceeding or hearing by any
governmental entity:
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seeking to restrain, prohibit, regulate or otherwise interfere
with the ownership or operation by Internap or any of its
subsidiaries of all or any portion of the business of
VitalStream or any of its subsidiaries or of Internap or any of
its subsidiaries or to compel Internap or any of its
subsidiaries to dispose of or hold separate all or any portion
of the business or assets of VitalStream or any of its
subsidiaries or of Internap or any of its subsidiaries;
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seeking to impose or confirm limitations or regulations on the
ability of Internap or any of its subsidiaries effectively to
exercise full rights of ownership of the shares of common stock
of VitalStream (or shares of the surviving corporation of the
merger) including the right to vote any such shares on any
matters properly presented to stockholders or freely conduct
VitalStreams business; or
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seeking to require divestiture by Internap or any of its
subsidiaries of any of VitalStreams assets or shares.
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Exchange
Procedures
The merger agreement provides that prior to the effective time
of the merger Internap will select an institution reasonably
acceptable to VitalStream to act as the paying agent for the
purpose of exchanging certificates representing shares of
VitalStream common stock for certificates representing shares of
Internap common stock. The merger agreement provides that
promptly after the effective time of the merger, Internap will
deposit with the paying agent (i) certificates representing
shares of Internap common stock in respect of the aggregate
merger consideration to be issued to VitalStream stockholders in
the merger and (ii) any cash payable in lieu of fractional
shares and dividends or other distributions declared by Internap
for its common stock, the record date for which is at or after
the closing of the merger.
The merger agreement contemplates that, promptly after the
consummation of the merger, the paying agent will mail to each
holder of record of VitalStream common stock a letter of
transmittal and instructions on how to exchange VitalStream
common stock certificates for the merger consideration.
Please do not send in your VitalStream common stock
certificates until you receive the letter of transmittal and
instructions from the paying agent. Do not send your
VitalStream common stock certificates with the enclosed proxy
card. Stock certificates should not be surrendered for
exchange by VitalStream stockholders before the effective time
of the merger and should be sent only pursuant to instructions
set forth in the letters of transmittal which the merger
agreement provides will be mailed to VitalStream stockholders
promptly following the effective time of the merger. In all
cases, the certificates representing shares of Internap common
stock and cash in lieu of fractional shares will be delivered
only in accordance with the procedures set forth in the letter
of transmittal. If your shares of VitalStream common stock are
held through a broker, your broker will surrender your shares of
VitalStream common stock for cancellation. After you mail the
letter of transmittal, duly executed and completed in accordance
with its instructions, and your VitalStream common stock
certificates to the
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paying agent, the agent will mail an Internap common stock
certificate and a check for any cash to which you are entitled
in exchange for fractional shares. The VitalStream common stock
certificates you surrender will be canceled. After the effective
time of the merger, all holders of certificates representing
shares of VitalStream common stock that were outstanding
immediately prior to the effective time of the merger will cease
to have any rights as stockholders of VitalStream.
After the completion of the merger, there will be no further
transfers of VitalStream common stock, and VitalStream common
stock certificates presented for transfer after the completion
of the merger will be canceled and exchanged for the merger
consideration. If the Internap common stock certificate is to be
issued in the name of a person other than the registered holder
of the shares of VitalStream common stock, the certificate
surrendered must be properly endorsed or otherwise in proper
form for transfer and any transfer or other taxes must be paid
by the person requesting the payment or that person must
establish to the paying agents satisfaction that such tax
has been paid or is not payable.
The paying agent and Internap are entitled to deduct and
withhold from any consideration payable or deliverable under the
merger agreement to any holder of VitalStream common stock such
amounts as may be required to be deducted or withheld under the
Code or other applicable law.
If your VitalStream common stock certificates have been lost,
stolen or destroyed, upon making an affidavit of that fact, and
if required by the paying agent, posting a bond as indemnity
against any claim with respect to the certificates, the paying
agent will issue the merger consideration in exchange for your
lost, stolen, or destroyed stock certificates.
The merger agreement contemplates that, upon demand by Internap,
the paying agent will deliver to Internap any certificates
representing Internap common stock and any funds which have not
been disbursed to holders of VitalStream stock certificates as
of 180 days after the effective time of the merger. Any
holders of VitalStream stock certificates who have not
surrendered such certificates in compliance with the
above-described procedures may thereafter look only to Internap
for delivery of any shares of Internap common stock, and payment
of any cash, dividends or other distributions with respect to
such Internap common stock. Any such portion of Internap common
stock or any other funds which have not been disbursed,
remaining unclaimed by holders of shares of VitalStream common
stock immediately prior to such time as such amounts would
otherwise escheat to or become property of any governmental
entity shall, to the extent permitted by law, become the
property of Internap.
Representations
and Warranties
The merger agreement contains customary representations and
warranties that Internap and VitalStream made to each other. The
representations and warranties expire at the effective time. The
assertions embodied in those representations and warranties are
qualified by information in confidential disclosure schedules
that Internap and VitalStream have exchanged in connection with
signing the merger agreement. While Internap and VitalStream do
not believe that they contain information securities laws
require the parties to publicly disclose in addition to, or
different from, information that has already been so disclosed,
the disclosure schedules do contain information that modifies,
qualifies and creates exceptions to the representations and
warranties set forth in the attached merger agreement.
Accordingly, you should not rely on the representations and
warranties as characterizations of the actual state of facts
related to Internap
and/or
VitalStream, since they are modified in important part by the
underlying disclosure schedules. These disclosure schedules
contain information that has been included in the
companies general prior public disclosures, as well as
additional non-public information. Moreover, information
concerning the subject matter of the representations and
warranties may have changed since the date of the agreement,
which subsequent information may or may not be fully reflected
in the companies public disclosures.
Conduct
of Business Pending the Merger
VitalStream. Pursuant to the merger agreement,
VitalStream has agreed that, except as permitted or contemplated
by the merger agreement or as consented to by Internap in
writing, during the period from the date of the merger agreement
to the completion of the merger, VitalStream will (1) carry
on its business in the ordinary course, in substantially the
same manner as previously conducted and in compliance in
material respects with all applicable laws and regulations,
(2) pay its debts and taxes when due (subject to good faith
disputes over
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such debts and taxes) and pay or perform other material
obligations when due, and (3) use all commercially
reasonable efforts consistent with past practice to:
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preserve intact its business organization;
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keep available the services of its present officers and
employees; and
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preserve its relationships with customers, suppliers, licensors,
licensees, and others with which it has business dealings.
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In addition, VitalStream will promptly notify Internap of any
event that would reasonably be expected to have a material
adverse effect on VitalStream.
Further, VitalStream has agreed that, among other things and
subject to limited exceptions, VitalStream may not, without
Internaps written consent:
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waive any stock repurchase rights, accelerate, amend or change
the period of exercisability of options or restricted stock, or
reprice options granted under any employee, consultant, director
or other stock plans, except as contemplated under the merger
agreement;
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grant any severance or termination pay to any employee except
pursuant to written agreements in effect, or policies existing,
on the date of the merger agreement and as previously disclosed
in writing to Internap, or adopt any new severance plan or
policies;
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transfer or license to any person or entity or otherwise extend,
amend or modify in any material respect any rights to
VitalStreams intellectual property rights, other than with
respect to non-exclusive licenses in the ordinary course of
business and consistent with past practice; disclose to any
person other than VitalStream employees and representatives of
Internap not subject to a nondisclosure agreement, any material
trade secret except in the ordinary course of business
consistent with past practices; transfer, modify or terminate
any agreement pursuant to which VitalStream has licensed
intellectual property rights from any person except in the
ordinary course of business consistent with past practices and
which would be immaterial to the business of VitalStream; and
disclose any source code to any third party except in the
ordinary course of business consistent with past practices;
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declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or
property) in respect of any capital stock or split, combine or
reclassify any capital stock or issue or authorize the issuance
of any other securities in respect of, in lieu of or in
substitution for any capital stock;
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purchase, redeem or otherwise acquire, directly or indirectly,
any shares of its capital stock or the capital stock of its
subsidiaries, except repurchases of unvested shares at cost in
connection with the termination of the employment relationship
with any employee pursuant to stock option or other agreements
in effect on the date of the merger agreement;
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issue, deliver, sell, authorize, pledge or otherwise encumber
any shares of capital stock or any securities convertible into
shares of capital stock, or subscriptions, rights, warrants or
options to acquire any shares of capital stock or any securities
convertible into shares of capital stock, or enter into other
agreements or commitments of any character obligating it to
issue any such shares or convertible securities, other than
issuance, delivery and sale of shares of VitalStream common
stock pursuant to the exercise of VitalStream stock options or
VitalStream warrants outstanding on the date of the merger
agreement;
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cause, permit or propose any amendments to VitalStreams
articles of incorporation, bylaws or other charter documents (or
similar governing instruments of any of its subsidiaries);
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incur or prepay any indebtedness for borrowed money, guarantee
any such indebtedness of another person, issue, sell or
repurchase any debt securities or options, warrants, calls or
other rights to acquire any debt securities of VitalStream,
enter into any keep well or other contract to
maintain any financial statement condition or enter into any
arrangement having the economic effect of any of the foregoing,
other than borrowings under VitalStreams existing Loan and
Security Agreement with Comerica Bank (and any renewals or
extensions thereof on substantially the same terms as in effect
on the date of the merger
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agreement), in any case with an aggregate loan amount not to
exceed $6 million in the ordinary course of business
consistent with past practices;
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make any loans, advances or capital contributions to, or
investments in, any other person, other than to any direct or
indirect wholly owned subsidiary of VitalStream;
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(i) adopt or amend any employee benefit plan or employee
stock purchase or employee stock option plan, (ii) enter
into any employment contract or collective bargaining agreement,
other than an offer letter on VitalStreams standard form
that is terminable at will without severance or other continuing
obligation following termination of employment, (iii) pay
any special bonus or special remuneration to any officer,
director or employee (other than year-end bonuses in accordance
with VitalStreams existing bonus plan or program approved
by VitalStreams board of directors, (iv) increase the
salaries or wage rates or fringe benefits (including rights to
severance or indemnification) of its officers, directors,
employees or consultants, (v) make any other change in the
compensation or benefits payable or to become payable to any of
its employees, agents or consultants, or members of the board of
directors of VitalStream, (vi) enter into or amend any
employment, severance, consulting, termination or other
agreement or employee benefit plan or make any loans to any of
its directors, officers, employees, affiliates, agents or
consultants, (vii) make any change in its existing
borrowing or lending arrangements for or on behalf of any of
such directors, officers, employees, agents, consultants,
(viii) pay or make any accrual or arrangement for payment
of any pension, retirement allowance or other employee benefit
pursuant to any existing plan, agreement or arrangement to any
officer, director, employee or affiliate or pay or agree to pay
or make any accrual or arrangement for payment to any officers,
directors, employees or affiliates of any amount relating to
unused vacation days, except payments and accruals made in the
ordinary course of business consistent with past practices,
(ix) offer, grant or issue any stock options or take any
action to accelerate, amend or change the period of vesting or
exercisability of options or restricted stock, or reprice
options granted under any employee, consultant, director or
other stock plans or authorize cash payments in exchange for any
options granted under any of such plans, (x) hire or
terminate any officer (other than terminations for cause) or
encourage any officer or employee to resign, or materially
increase or decrease the number of employees, or (xi) amend
in any material respect any such existing plan, agreement or
arrangement in a manner inconsistent with the foregoing;
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make any capital expenditures in excess of amounts specifically
allocated for capital expenditures in the VitalStreams
2006 operating budget approved by its board of directors;
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permit to be cancelled or terminated, without reasonable efforts
to maintain coverage, or cancel or terminate any insurance
policy naming it as a beneficiary or loss payee, unless such
policy is replaced by a policy with comparable coverage, or
otherwise fail to maintain insurance at less than current levels
or otherwise in a manner consistent with past practices in all
material respects;
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(i) modify or amend in any material respect or terminate
certain contracts, other than in the ordinary course of business
consistent with past practices, (ii) waive, release or
assign any material rights or claims under certain contracts,
other than in the ordinary course of business consistent with
past practices, (iii) enter into any material commitment or
transaction, including entering into any material purchase, sale
or lease of assets or real estate, (iv) enter into any
material strategic alliance, material joint development or joint
marketing agreement, or (v) enter into any agreement
pursuant to which Internap or the surviving corporation or any
subsidiary of Internap, or VitalStream or any of its
subsidiaries will be subject to any exclusivity, noncompetition,
nonsolicitation, most favored nations or other similar
restriction or requirement on their respective businesses
following the consummation of the merger;
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fail to make in a timely manner any filings with the SEC
required under the Securities Act or the Exchange Act or the
rules and regulations promulgated thereunder (subject to
extension pursuant to
Section 12b-25
under the Exchange Act);
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(i) make any change in any material method of accounting,
method of accounting principles or practice, except for such
change required by reason of a concurrent change in GAAP or
compliance with the applicable requirements of the rules and
regulations promulgated by the SEC, (ii) make any tax
election or
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change any tax election already made, adopt any tax accounting
method, except for such changes required by applicable laws,
rules or regulations, change any tax accounting method, except
for such changes required by applicable laws, rules or
regulations, enter into any closing agreement or settle any
claim or assessment relating to taxes other than settlements or
assessments the result of which would not be material to
VitalStream and its subsidiaries, taken as a whole, or consent
to any claim or assessment relating to taxes or any waiver of
the statute of limitations for any such claim or assessment,
(iii) file any material federal or state income tax return
without Internaps review and consent, which shall not be
unreasonably withheld, or (iv) revalue any of its material
assets, except as required by GAAP, applicable accounting
requirements or the published rules and regulations of the SEC
with respect thereto in effect during the periods involved other
than in the ordinary course of business consistent with past
practices;
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pay, discharge or satisfy any material claims, material
liabilities or material obligations (whether absolute, accrued,
contingent or otherwise), other than (i) the payment,
discharge or satisfaction of any such claims, liabilities or
obligations in the ordinary course of business consistent with
past practices, (ii) the settlement of claims that do not
require a monetary payment in excess of $50,000 or restrictions
on VitalStreams business or (iii) claims, liabilities
or obligations reflected or reserved against in, or contemplated
by, the consolidated financial statements (or the notes thereto);
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adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization (other than the merger contemplated by the merger
agreement), (ii) acquire or agree to acquire by purchasing
any equity interest in or a material portion or all of the
assets of, or by any other manner, any business or any
corporation, partnership, association or other business
organization or division thereof, or, except in the ordinary
course of business consistent with past practices, otherwise
acquire or agree to acquire any assets that are material,
individually or in the aggregate, to VitalStream and its
subsidiaries, taken as a whole, or (iii) sell, transfer,
lease, mortgage, pledge, license exclusively, encumber, or
otherwise dispose of, any of its properties or assets that are
material, individually or in the aggregate, to VitalStream and
its subsidiaries, taken as a whole;
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take any action that would, or is reasonably likely to, result
in any of the conditions to the merger as set forth in the
merger agreement not being satisfied, or would make any
representation or warranty of VitalStream contained in the
merger agreement inaccurate in any material respect at, or as of
any time prior to, the consummation of the merger, or that would
impair the ability of VitalStream to consummate the merger in
accordance with the terms of the merger agreement or materially
delay such consummation;
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commence any litigation (except actions commenced in the
ordinary course of business against third parties);
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except in the ordinary course of business consistent with past
practices or as required by applicable laws, seek a judicial
order or decree or settle any litigation, with the parties
having agreed that any settlement of litigation involving the
payment by VitalStream or its subsidiaries of an amount in
excess of $100,000 is not in the ordinary course of business;
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take any action, or permit any of its subsidiaries to take any
action, that would prevent the merger from qualifying as a
reorganization within the meaning of
Section 368(a) of the Code; or
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agree in writing or otherwise commit to take any of the actions
described in any of the above.
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Internap. Pursuant to the merger agreement,
Internap has agreed that, except as permitted or contemplated by
the merger agreement or as consented to by VitalStream in
writing, during the period from the date of the merger agreement
to the completion of the merger, Internap will (1) carry on
its business in the ordinary course, in substantially the same
manner as previously conducted and in compliance in material
respects with all applicable laws and regulations, (2) pay
its debts and taxes when due (subject to good faith disputes
over such debts and taxes) and pay or perform other material
obligations when due, and (3) use all commercially
reasonable efforts consistent with past practice to:
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preserve intact its business organization;
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keep available the services of its present officers and
employees; and
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preserve its relationships with customers, suppliers, licensors,
licensees, and others with which it has business dealings.
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In addition, Internap will promptly notify VitalStream of any
event that would reasonably be expected to have a material
adverse effect on Internap. Further, Internap has agreed that,
among other things and subject to limited exceptions, Internap
may not, without VitalStreams written consent:
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declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or
property) in respect of any capital stock or split, combine or
reclassify any capital stock or issue or authorize the issuance
of any other securities in respect of, in lieu of or in
substitution for any capital stock;
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purchase, redeem or otherwise acquire, directly or indirectly,
any shares of capital stock of Internap or its subsidiaries,
except repurchases of unvested shares at cost in connection with
the termination of the employment relationship with any employee
pursuant to stock option or other agreements in effect on the
date of the merger agreement;
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cause, permit or propose any amendments to its certificate of
incorporation, bylaws or other charter documents (or similar
governing instruments of any of its subsidiaries) in a manner
that would reasonably be likely to prevent or materially delay
or impair the merger; provided that any amendment to its
certificate of incorporation to increase the number of
authorized shares of any class or series of capital stock of
Internap shall in no way be restricted by the foregoing;
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fail to make in a timely manner any filings with the SEC
required under the Securities Act or the Exchange Act or the
rules and regulations promulgated thereunder (subject to
extension pursuant to
Section 12b-25
under the Exchange Act);
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adopt a plan of complete or partial liquidation, dissolution,
consolidation, restructuring, recapitalization or other
reorganization, (ii) adopt any plan of merger in which
Internaps corporate existence would cease or all of its
outstanding capital stock would be converted into cash, property
or other securities, or (iii) sell, transfer, lease,
mortgage, pledge, license exclusively, or otherwise dispose of,
all or substantially all of the assets of Internap and its
subsidiaries, taken as a whole;
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issue, deliver, sell, authorize, pledge or otherwise encumber
any shares of capital stock or any securities convertible into
shares of capital stock, or subscriptions, rights, warrants or
options to acquire any shares of capital stock or any securities
convertible into shares of capital stock, or enter into other
agreements or commitments of any character obligating it to
issue any such shares or convertible securities, other than
(i) the issuance, delivery and sale of shares of Internap
common stock pursuant to the exercise of Internap stock options
and warrants; (ii) the grant of options with respect to, or
the issuance of, the remaining shares of Internap common stock
authorized on the date of the merger agreement under
Internaps stock plans in the ordinary course of business;
and (iii) other issuances of securities in the ordinary
course of business;
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incur any indebtedness for borrowed money other than to fund the
normal business operations of Internap and its subsidiaries;
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take any action that would, or is reasonably likely to, result
in any of the conditions to the merger set forth in the merger
agreement not being satisfied, or would make any representation
or warranty of Internap or Ivy Acquisition Corp. contained in
the merger agreement inaccurate, which inaccuracy would
constitute or represent a material adverse effect on Internap
and its subsidiaries, taken as a whole, or that would impair the
ability of Internap or Ivy Acquisition Corp. to consummate the
merger in accordance with the terms of the merger agreement or
materially delay such consummation;
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take any action, or permit any of its subsidiaries to take any
action, that would prevent the merger from qualifying as a
reorganization within the meaning of
Section 368(a) of the Code; or
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agree in writing or otherwise commit to take any of the actions
described in any of the above.
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Material
Adverse Effect
Several of VitalStreams and Internaps
representations and warranties, closing conditions and
termination provisions contained in the merger agreement are
qualified by reference to whether the item in question is
reasonably likely to have a material adverse effect
on VitalStream or Internap, as applicable. The merger agreement
provides that a material adverse effect means, when
used in connection with VitalStream or Internap, any effect or
change that would be materially adverse to the business,
operations, properties, condition (financial or otherwise) or
prospects of such party taken as a whole, or on the ability of
such party to consummate timely the transactions contemplated by
the merger agreement; provided that no adverse change, event,
development, or effect to the extent arising from
(1) changes in general business or economic conditions
occurring after the date of the merger agreement, including such
conditions related to the business of such party but not unique
for such party, (2) changes in national or international
political or social conditions occurring after the date of the
merger agreement, including engagement, continuation or
escalation by the United States in hostilities, whether or not
pursuant to the declaration of a national emergency or war, or
the occurrence of any military or terrorist attack upon the
United States or any of its territories, possessions or
diplomatic or consular offices or upon any military
installation, equipment or personnel of the United States,
(3) any disruption in the financial, banking, or securities
markets, (4) changes resulting from the execution,
announcement or performance of the merger agreement, or
(5) changes in the trading prices of VitalStream common
stock or Internap common stock will be deemed to constitute, and
will be taken into account in determining whether there has
been, a material adverse effect.
No
Solicitation
VitalStream has agreed that from the date the merger agreement
was executed, until either the merger is completed or the merger
agreement is terminated, VitalStream will not, nor will it
authorize or permit any of its subsidiaries or its directors,
officers, affiliates or employees or any of its investment
bankers, attorneys, accountants or other agents to, directly or
indirectly:
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solicit, initiate, seek, entertain, encourage, facilitate,
support or induce the making, submission or announcement of, any
acquisition proposal;
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continue or participate in any discussions or negotiations
regarding, or furnish to any person any information with respect
to, or take any other action intended to facilitate any
inquiries or the making of any proposal that constitutes or may
reasonably be expected to lead to, any acquisition proposal;
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engage or participate in discussions with any person with
respect to any acquisition proposal, except to ascertain the
terms of and understand any acquisition proposal and to decline
to engage or participate in such discussions by referring to the
existence of these provisions;
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approve, endorse or recommend any acquisition proposal, except
as specifically permitted by the merger agreement; or
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enter into any letter of intent or similar document or any
contract agreement or commitment contemplating or otherwise
relating to any acquisition proposal.
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The merger agreement provides that after receipt of any
acquisition proposal, any request for information which
VitalStream reasonably believes would lead to an acquisition
proposal or any inquiry with respect to or which could
reasonably be expected to lead to an acquisition proposal,
VitalStream must, as promptly as practicable (and, in any event,
within 24 hours), provide Internap with oral and written
notice of the material terms and conditions of such acquisition
proposal, request or inquiry, and the identity of the person or
group making any such acquisition proposal, request or inquiry
and copies of all written materials provided in connection with
such acquisition proposal, request or inquiry, and must provide
updated information with respect to such proposal, request or
inquiry. Also, VitalStream must provide Internap with at least
two business days prior written notice of a meeting of its board
of directors at which the VitalStream board of directors is
reasonably expected to consider an acquisition proposal or
recommend a superior proposal to its stockholders and along with
such notice, a copy of any documents relating to the superior
proposal.
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The merger agreement provides that if the VitalStream board of
directors determines in good faith that an acquisition proposal
constitutes or is reasonably likely to lead to a superior
proposal and if the acquisition proposal did not otherwise
result from a breach of the no solicitation provisions of the
merger agreement, subject to compliance with the provisions of
the merger agreement, including notice to Internap and execution
of a confidentiality agreement with the party making the offer
(but only if and to the extent that the VitalStream board of
directors concludes in good faith, following consultation with
its outside legal counsel, that the failure to do so would
result in a breach of its fiduciary obligations under applicable
law), VitalStream may:
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furnish information to the third party making such acquisition
proposal in compliance with the provisions of the merger
agreement; and
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engage in discussions or negotiations with the third party with
respect to the acquisition proposal in compliance with the
provisions of the merger agreement.
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The merger agreement provides that the term acquisition
proposal means any offer or proposal (other than by
Internap) relating to, or involving:
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any acquisition or purchase from VitalStream by any person or
group (as defined under Section 13(d) of the
Exchange Act and the rules and regulations thereunder) of more
than a 15% interest in the total outstanding voting securities
of VitalStream or any of its subsidiaries or any tender offer or
exchange offer that if consummated would result in any person or
group beneficially owning 15% or more of the total outstanding
voting securities of VitalStream or any of its subsidiaries or
any merger, consolidation, business combination or similar
transaction involving VitalStream pursuant to which the
stockholders of VitalStream immediately preceding such
transaction hold less than 85% of the equity interests in the
surviving entity of such transaction;
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any sale, lease (other than in the ordinary course of business),
exchange, transfer, license (other than in the ordinary course
of business), acquisition or disposition of more than 15% of the
assets of VitalStream; or
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any liquidation, dissolution, recapitalization or other
significant corporate reorganization of VitalStream.
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Covenants
Regarding Special Meetings and Recommendations of Board of
Directors
Internap has agreed to take all action necessary in accordance
with governing law, NASDAQ rules and its corporate documents to
convene and hold a meeting of stockholders for the purposes of
considering and voting upon the merger agreement, the merger and
related proposal. Internap has agreed to use its reasonable best
efforts to solicit from its stockholders proxies in favor of the
adoption and approval of the merger agreement, the approval of
the merger and any other approvals reasonably related thereto
and to take all other action necessary or advisable to obtain
such approvals and to secure the vote of its stockholders.
Internap has agreed that:
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its board of directors will recommend that stockholders vote in
favor of and adopt and approve the merger agreement and approve
the merger at the Internap stockholders meeting; and
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neither its board of directors nor any committee thereof shall
withdraw, amend or modify (or propose or resolve to withdraw,
amend or modify) in a manner adverse to VitalStream, the
boards recommendation that Internap stockholders vote in
favor of and adopt and approve the merger agreement and the
merger.
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VitalStream has agreed to take all action necessary in
accordance with governing law, NASDAQ rules and its corporate
documents to convene and hold a meeting of stockholders for the
purposes of considering and voting upon the merger agreement,
the merger and related proposal. Unless its board of directors
has withheld, withdrawn, amended or modified its recommendation
of the merger as described below, VitalStream has agreed to use
its reasonable best efforts to solicit from its stockholders
proxies in favor of the adoption and approval of the merger
agreement, the approval of the merger and any other approvals
reasonably related thereto and to take all other action
necessary or advisable to obtain such approvals and to secure
the vote of its stockholders. Unless its board of
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directors has withheld, withdrawn, amended or modified its
recommendation of the merger as described below, VitalStream has
agreed that:
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its board of directors will recommend that stockholders vote in
favor of and adopt and approve the merger agreement and approve
the merger at the VitalStream stockholders meeting; and
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neither its board of directors nor any committee thereof shall
withdraw, amend or modify (or propose or resolve to withdraw,
amend or modify) in a manner adverse to Internap, the
boards recommendation that VitalStream stockholders vote
in favor of and adopt and approve the merger agreement and the
merger.
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The merger agreement provides that the VitalStream board of
directors may withhold, withdraw, amend or modify its
recommendation of the merger and may, in the case of a superior
proposal that is a tender offer or exchange offer made directly
to VitalStream stockholders, recommend such tender or exchange
offer instead of the merger if the following conditions are
complied with:
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VitalStream has provided Internap with at least two business
days prior notice (or such lesser prior notice as provided to
the members of the VitalStream board of directors) of any
meeting of its board at which the board of directors is
reasonably expected to consider any acquisition proposal to
determine whether such acquisition proposal is a superior
proposal;
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a superior proposal is made to VitalStream and such superior
proposal has not been withdrawn;
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the special meetings of VitalStream stockholders and of Internap
stockholders have not occurred;
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VitalStream has delivered a written notice to Internap
(i) indicating that it has received a superior proposal and
will withhold, withdraw, amend or modify its recommendation for
the merger and the manner in which it intends to do so,
(ii) specifying all of the material terms and conditions of
such superior proposal and (iii) identifying the person,
entity or group making such superior proposal;
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VitalStream has delivered to Internap a copy of all written
materials delivered to the person or group making the superior
proposal, and made available to Internap all materials and
information made available to the person or group making the
superior proposal, together with a complete list identifying all
such materials and information;
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Internap shall not have, within five business days of
Internaps receipt of notice of the superior proposal, made
an offer that the VitalStream board of directors by majority
vote determines in its good faith judgment (after consultation
with a reputable financial advisor) to be at least as favorable
to VitalStreams stockholders as such superior proposal,
and the VitalStream board of directors will not withhold,
withdraw, amend or modify its recommendation to
VitalStreams stockholders in favor of approval and
adoption of the merger agreement and approval of the merger for
five business days after receipt by Internap of notice of the
superior proposal;
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the VitalStream board of directors concludes in good faith
(after consultation with its outside legal counsel) that, in
light of the superior proposal, the failure to effect a change
of recommendation would result in a breach of its fiduciary
obligations to VitalStreams stockholders under applicable
law; and
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VitalStream has not breached any of the joint proxy statement,
registration statement and filing provisions contained in the
merger agreement, any no-solicitation provisions contained in
the merger agreement or its obligations to convene a
stockholders meeting to consider the merger.
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The merger agreement provides that the term superior
proposal, with respect to VitalStream, means a bona fide
binding written offer that has not been solicited by VitalStream
following the date of the merger agreement and is made by a
person to acquire, directly or indirectly, pursuant to a tender
offer, exchange offer, merger, consolidation or other business
combination, all or in excess of 50% of the assets of
VitalStream or in excess of 50% of the outstanding voting
securities of VitalStream and as a result of which the
stockholders of VitalStream immediately preceding such
transaction would cease to hold at least 50% of the equity
interests in the surviving or resulting entity of such
transaction or any direct or indirect parent or subsidiary
thereof, on terms that the board of directors of VitalStream
concludes in good faith, after consultation with its outside
financial advisors, to be (i) more favorable to
VitalStreams stockholders from a financial point of view
than the terms of the merger, taking into
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account all the terms and conditions of such proposal and the
merger agreement (including any proposal by either party to
amend the terms of the merger agreement) and the person making
the offer, and (ii) reasonably capable of being
consummated; provided, however, that any such offer shall not be
deemed to be a superior proposal if any financing required to
consummate the transaction contemplated by such offer is not
committed or if there is a general due diligence condition to
the parties obligations to consummate the transaction that
is the subject of the superior proposal.
The merger agreement provides that regardless of any change in
recommendation or acquisition proposals received, VitalStream is
required to submit the merger proposal to the stockholders at
the special meeting to vote on approval and adoption of the
merger agreement and approval of the merger unless the merger
agreement is terminated as described below.
Termination
The merger agreement provides that Internap and VitalStream can
terminate the merger agreement under certain circumstances,
including:
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by mutual written consent of each of the Internap and
VitalStream boards of directors.
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by Internap or VitalStream if:
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the merger has not been consummated by March 31, 2007
(outside closing date); provided, however, that the
outside closing date is April 30, 2007 if the merger has
not been consummated by March 31, 2007 solely by reason of
(i) the failure of the registration statement being
declared effective under the Securities Act in a timely manner,
(ii) the failure to resolve all SEC comments with respect
to this joint proxy statement/prospectus in a timely manner, or
(iii) the failure to obtain all approvals from each
governmental entity necessary for the consummation of the
transactions contemplated by the merger agreement; and provided,
further, the right to terminate the merger agreement is not
available to any party whose action or failure to act has been a
principal cause of or resulted in the failure of the merger to
occur on or before such date and such action or failure to act
constitutes a breach of the merger agreement;
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the required approval of the stockholders of VitalStream
contemplated by the merger agreement has not been obtained by
reason of the failure to obtain the required vote at a meeting
of the VitalStream stockholders duly convened or at any
adjournment of such meeting; provided, however, that the right
to terminate the merger agreement is not available to
VitalStream where the failure to obtain VitalStream stockholder
approval shall have been caused by the action or failure to act
of VitalStream and such action or failure to act constitutes a
breach by VitalStream of the merger agreement; or
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the required approval of the stockholders of Internap
contemplated by the merger agreement has not been obtained by
reason of the failure to obtain the required vote at a meeting
of the Internap stockholders duly convened or at any adjournment
of such meeting; provided, however, that the right to terminate
the merger agreement is not available to Internap where the
failure to obtain Internap stockholder approval shall have been
caused by the action or failure to act of Internap and such
action or failure to act constitutes a breach by Internap of the
merger agreement.
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a breach of any representation, warranty, covenant or agreement
on the part of Internap set forth in the merger agreement has
occurred, or if any representation or warranty of Internap shall
have become untrue, which breach (1) would give rise to the
failure of any of the conditions to the merger related to truth
and accuracy of Internaps representations and warranties
or performance of Internaps obligations under the merger
agreement and (2) has not been, or is incapable of being,
cured within 20 calendar days after written notice of such
breach;
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a material adverse effect on Internap has occurred since the
date of the merger agreement that has not been, or is incapable
of being, cured within 20 calendar days after written notice of
such material adverse effect; or
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a triggering event has occurred with respect to Internap.
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a material adverse effect on VitalStream has occurred since the
date of the merger agreement that has not been, or is incapable
of being, cured within 20 calendar days after written notice of
such material adverse effect;
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a breach of any representation, warranty, covenant or agreement
on the part of VitalStream set forth in the merger agreement
occurs, or if any representation or warranty of VitalStream
shall have become untrue, which breach (1) would give rise
to the failure of any of the conditions to the merger related to
truth and accuracy of VitalStreams representations and
warranties or performance of VitalStreams obligations
under the merger agreement and (2) has not been, or is
incapable of being, cured within 20 calendar days after written
notice of such breach;
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a governmental entity has issued a final and nonappealable
order, decree or ruling (i) seeking to refrain, prohibit,
regulate or otherwise interfere with the ownership or operation
by Internap or any of its subsidiaries of all or any portion of
the business of VitalStream or any of its subsidiaries or of
Internap or any of its subsidiaries, (ii) to compel
Internap or any of its subsidiaries to dispose of or hold
separate all or any portion of the business or assets of
VitalStream or any of its subsidiaries or of Internap or any of
its subsidiaries, (iii) seeking to impose or confirm
limitations or regulations on the ability of Internap or any of
its subsidiaries effectively to exercise full rights of
ownership of the shares of VitalStream common stock (or shares
of stock of the surviving corporation) including the right to
vote any such shares on any matters properly presented to
stockholders or freely conduct VitalStreams business, or
(iv) seeking to require divestiture by Internap or any of
its subsidiaries of any such assets or shares; or
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a triggering event has occurred with respect to VitalStream.
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For the purposes of the merger agreement, a triggering
event is deemed to have occurred to VitalStream if:
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the VitalStream board of directors or any board committee has
for any reason effected a change of recommendation with respect
to the merger;
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VitalStream has failed to include in this joint proxy
statement/prospectus the recommendation of its board of
directors in favor of the adoption and approval of the merger
agreement and the approval of the merger;
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the VitalStream board of directors fails to reaffirm (publicly,
if so requested by Internap) its recommendation in favor of the
adoption and approval of the merger agreement and the approval
of the merger within 10 business days after Internap
requests in writing that such recommendation be reaffirmed;
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the VitalStream board of directors or any board committee has
approved or recommended any acquisition proposal;
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VitalStream has entered into any non-binding letter of intent,
memorandum of understanding, term sheet or contract with respect
to any acquisition proposal;
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a tender or exchange offer relating to VitalStream securities
has been commenced by a person unaffiliated with Internap, and
VitalStream has not sent to its securityholders, within 10
business days after such tender or exchange offer is first
published, sent or given, a statement disclosing that
VitalStream recommends rejection of such tender or exchange
offer; or
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VitalStream has breached in any material respect its obligations
under the no solicitation sections of the merger agreement or
the sections relating to convening a stockholder meeting and the
recommendation of its board of directors.
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85
Additional
Agreements
Pursuant to the merger agreement VitalStream and Internap also
have agreed:
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to prepare and file any filings required by applicable law
relating to the merger and the transactions contemplated by the
merger agreement, including required under the
Hart-Scott-Rodino
Antitrust Improvements Act;
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to acknowledge the provisions of the confidentiality agreement
between the parties;
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to afford the other party and its accountants, counsel and other
representatives reasonable access to the properties, books,
records and personnel of such party prior to the consummation of
the merger to obtain all information concerning the business,
properties, results of operations and personnel of such party;
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to consult with each other, and to the extent reasonably
practicable, agree, before issuing any press release or
otherwise making any public statement with respect to the merger
or the merger agreement and will not issue any such press
release or make any such public statement prior to such
consultation, except as required by applicable law and the
provisions of the merger agreement;
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to use commercially reasonable efforts to obtain all third party
consents;
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to cause its board of directors to take all actions as may be
necessary or appropriate pursuant to
Rule 16b-3(d)
and
Rule 16b-3(e)
under the Exchange Act to exempt from Section 16 of the
Exchange Act (i) the disposition of shares of VitalStream
common stock and derivative securities (as defined in
Rule 16a-1(c)
under the Exchange Act) with respect to shares of VitalStream
common stock and (ii) the acquisition of Internap common
stock and derivative securities with respect to Internap common
stock pursuant to the terms of the merger agreement by officers
and directors of VitalStream subject to the reporting
requirements of Section 16(a) of the Exchange Act or by
employees or directors of VitalStream who may become an officer
or director of Internap subject to the reporting requirements of
Section 16(a) of the Exchange Act;
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to use its reasonable best efforts to and to cause each of its
subsidiaries to, (i) cause the merger to qualify as a
reorganization within the meaning of
Section 368(a) of the Code and (ii) obtain the tax
opinions of each partys counsel that the merger will be
treated for Federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code and if
such opinions have been issued, to report the merger for
U.S. federal income tax purposes as a
reorganization within the meaning of
Section 368(a) of the Code;
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to use its reasonable best efforts to deliver to Morris,
Manning & Martin LLP and to Parr Waddoups Brown
Gee & Loveless, PC a tax representation letter, dated
as of the closing of the merger, containing representations as
shall be reasonably necessary or appropriate to enable such
counsel to render its tax opinion;
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to give prompt notice to the other of (i) any notice or
other communication from any person alleging that the consent of
such person is or may be required in connection with the merger
(other than the necessary consents identified in the merger
agreement), (ii) any notice or other communication from any
governmental entity in connection with the merger,
(iii) any litigation relating to, involving or otherwise
affecting VitalStream, Internap or their respective subsidiaries
that relates to or may reasonably be expected to affect, the
consummation of the merger; and
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to give prompt notice to the other of any representation or
warranty made by it contained in the merger agreement becoming
untrue or inaccurate, or any failure of such party to comply
with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it under the merger agreement, in
each case, such that the conditions set forth in merger
agreement would not be satisfied, provided, however, that no
such notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the
obligations of the parties under the merger agreement.
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In the merger agreement, VitalStream has further agreed:
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to deliver to Internap, prior to the meeting of its
stockholders, a list identifying all persons who, to the
knowledge of VitalStream, may be deemed as of the date of such
meeting to be affiliates of VitalStream for purposes of
Rule 145 under the Securities Act and such list shall be
updated as necessary to reflect changes
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from the date thereof until such meeting, and will use its
reasonable best efforts to cause each person identified on such
list to deliver to Internap not later than the date of such
meeting, a written agreement substantially in the form attached
as Exhibit A to the merger agreement;
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to give Internap the opportunity to participate in the defense
or settlement of any stockholder litigation against VitalStream
or members of its board of directors relating to the merger
agreement and the transactions contemplated by the merger
agreement or otherwise and shall not settle any such litigation
without Internaps prior written consent; and
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to use its commercially reasonable efforts to consult with
Internap on material strategic and operational matters to the
extent such consultation is not in violation of applicable laws,
including laws regarding exchange of information and other laws
regarding competition.
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In the merger agreement, Internap has further agreed:
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to cause the articles of incorporation and bylaws of the
surviving corporation to contain the provisions with respect to
exculpation and indemnification of directors of VitalStream, and
advancement of expenses in connection therewith, set forth in
the articles of incorporation and bylaws of VitalStream on the
date of the merger agreement (except that such provisions shall
specifically confirm that the obligation to advance expenses
applies to former directors and officers), which provisions
shall not be amended for a period of three years after the
consummation of the merger (unless such amendment is required by
applicable laws and except for amendments that do not adversely
affect the rights of persons who at the consummation of the
merger were serving or had previously served as directors or
officers of VitalStream); and
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to not take any action that is reasonably likely to cause the
merger to fail to qualify as a reorganization within
the meaning of Section 368(a) of the Code, including any
action that is reasonably likely to cause the merger to fail to
satisfy the continuity of business enterprise
requirement described in Treasury
Regulation Section.1.368-1(d).
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Commercially
Reasonable Efforts
Except as otherwise limited by the terms of the merger
agreement, VitalStream and Internap have each agreed to use
commercially reasonable efforts to take actions necessary,
proper or advisable to complete the merger, including:
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causing certain conditions precedent to the merger to be
satisfied;
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obtaining all necessary consents, approvals, or waivers from
third parties; and
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the execution or delivery of any additional instruments
necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, the merger agreement.
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Termination
Fees
The merger agreement requires that VitalStream pay Internap a
termination fee of $8,000,000 and transaction expenses incurred
by Internap if, among other things the merger agreement is
terminated by Internap because:
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the VitalStream board of directors changes its recommendation of
the merger;
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VitalStream fails to include in this joint proxy
statement/prospectus the recommendation of its board of
directors in favor of the adoption and approval of the merger
agreement and the approval of the merger;
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the VitalStream board of directors fails to reaffirm its
recommendation in favor of the adoption and approval of the
merger agreement and the approval of the merger after Internap
requests that it do so;
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the VitalStream board of directors approves or recommends any
other acquisition proposal;
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VitalStream enters into any letter of intent, memorandum of
understanding, term sheet or contract with respect to any other
acquisition proposal;
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87
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VitalStream materially breaches specific provisions of the
sections of the merger agreement regarding the meeting of
VitalStreams stockholders, conditions to change of
recommendation, superior proposal, notification and no
solicitation; or
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a third-party tender or exchange offer for VitalStream
securities is commenced, and VitalStream does not within 10
business days send its security holders its recommendation that
the tender or exchange offer be rejected.
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In addition, the merger agreement requires that VitalStream pay
Internap a termination fee and transaction expenses if, among
other things:
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the merger agreement is terminated:
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by either VitalStream or Internap if the merger is not
consummated by the outside closing date, except for a
termination by VitalStream if any action or failure to act by
Internap or Ivy Acquisition Corp. is the principal cause of the
failure of the merger to occur on or before the outside closing
date;
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by either VitalStream or Internap, if the approval and adoption
of the merger agreement and the approval of the merger by
VitalStreams stockholders has not been obtained by reason
of the failure to obtain the required vote at a meeting of
VitalStreams stockholders duly convened therefor or at any
adjournment thereof; provided, however, that this right to
terminate the merger agreement is not available to VitalStream
where the failure to obtain approval by VitalStreams
stockholders has been caused by the action or failure to act of
VitalStream and such action or failure to act constitutes a
material breach by VitalStream of the merger agreement; or
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by Internap, either (a) upon a breach of any
representation, warranty, covenant or agreement on the part of
VitalStream set forth in the merger agreement or if any
representation or warranty of VitalStream has become untrue, in
either case such that the conditions to consummate the merger
would not be satisfied as of the time of such breach or as of
the time such representation or warranty has become untrue, or
(b) if a material adverse effect with respect to
VitalStream has occurred; provided that if such inaccuracy in
VitalStreams representations and warranties or breach by
VitalStream, or if such material adverse effect with respect to
VitalStream, is curable by VitalStream through the exercise of
its commercially reasonable efforts, then Internap may not
terminate the merger agreement for 20 days after delivery
of written notice from Internap to VitalStream of such breach,
provided VitalStream continues to exercise commercially
reasonable efforts to cure such breach or material adverse
effect with respect to VitalStream (it being understood that
Internap may not terminate the merger agreement if such breach
by VitalStream or material adverse effect with respect to
VitalStream is cured during such
20-day
period, or if Internap has materially breached the merger
agreement); and
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at or prior to a termination of the merger agreement but after
the date of the merger agreement, there exists or has been
publicly proposed a bona fide acquisition proposal relating to
an acquisition and within 12 months after such termination,
VitalStream enters into a letter of intent or definitive
agreement with respect to any acquisition or any acquisition is
consummated.
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For purposes of the termination fee provisions of the merger
agreement, an acquisition means any of the following
transactions (other than the transactions contemplated by the
merger agreement):
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a merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving
VitalStream pursuant to which the stockholders of VitalStream
immediately preceding such transaction hold less than 50% of the
aggregate equity interests in the surviving or resulting entity
of such transaction;
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a sale or other disposition by VitalStream of assets
representing in excess of 50% of the aggregate fair market value
of VitalStreams business immediately prior to such
sale; or
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the acquisition by any person or group (including by way of a
tender offer or an exchange offer or issuance by VitalStream),
directly or indirectly, of beneficial ownership or a right to
acquire beneficial ownership of
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88
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shares representing in excess of 50% of the voting power of the
then outstanding shares of capital stock of VitalStream.
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Expenses
Other than the termination fee and related expenses, the merger
agreement provides that regardless of whether the merger is
consummated, all expenses incurred by the parties will be borne
by the party incurring such expenses.
Amendment,
Extension and Waiver
The merger agreement may be amended in writing signed by all of
the parties, by action taken or authorized by their respective
boards of directors, at any time, before or after approval of
VitalStreams stockholders has been obtained.
At any time prior to the consummation of the merger, any party
to the merger agreement may, to the extent legally allowed:
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extend the time for the performance of any of the obligations or
other acts of the other parties in the merger agreement;
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waive any inaccuracies in the representations and warranties
made to such party contained in the merger agreement or in any
document delivered pursuant the merger agreement; and
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waive compliance with any of the agreements or conditions for
the benefit of such party contained in the merger agreement.
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Any agreement on the part of a party to the merger agreement to
any such extension or waiver will be valid only if set forth in
an instrument in writing signed on behalf of such party. Delay
in exercising any right under the merger agreement will not
constitute a waiver of such right.
VitalStream
Articles of Incorporation
As of the consummation of the merger, VitalStreams
articles of incorporation will be amended and restated to be
identical to the articles of incorporation of Ivy Acquisition
Corp., except that Article FIRST of such amended and
restated articles of incorporation will read in its entirety as
follows: The name of the corporation is VitalStream
Holdings, Inc.
VitalStream
Bylaws
As of the consummation of the merger, the bylaws of VitalStream
will be amended and restated to be identical to the bylaws of
Ivy Acquisition Corp.
VOTING
AGREEMENTS
The following is a description of the material terms of the
voting agreements. This description of the voting agreements is
qualified in its entirety by reference to the form of voting
agreement which is attached as Annex B to this joint proxy
statement/prospectus and incorporated herein by reference. We
encourage you to read the entire form of voting agreement.
As a condition to the willingness of Internap to enter into the
merger agreement, Walden and each of the companies comprising
the Dolphin Group, who collectively held approximately 27% of
the outstanding shares of VitalStream common stock as of the
record date, executed a voting agreement with Internap dated as
of October 12, 2006.
In the voting agreements, these stockholders agreed to vote and
have granted to Internap an irrevocable proxy and power of
attorney to:
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vote their shares and any newly acquired shares in favor of
approval of the merger agreement and the merger and any matter
necessary for consummation of the merger; and
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89
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vote their shares and any newly acquired shares against:
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approval or adoption of any acquisition proposal made in
opposition to, or in competition with, the merger; or
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approval or adoption of any acquisition proposal, or any
agreement or transaction that is intended, or would reasonably
be expected, to materially impede, interfere with, delay,
postpone, discourage or materially and adversely affect the
consummation of the merger.
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The voting agreements terminate at the effective time of the
merger, unless terminated by mutual consent of the parties or
termination of the merger agreement prior to the effective time
of the merger. The form of voting agreement is attached to this
joint proxy statement/prospectus as Annex B, and you are
urged to read it in its entirety.
MANAGEMENT
AND OTHER INFORMATION
After the merger, VitalStream will be a wholly owned subsidiary
of Internap, and all of VitalStreams subsidiaries will be
indirect wholly owned subsidiaries of Internap. It is
anticipated that, following the merger, Mr. Waterman will
become the President and, subject to the Board of
Directors approval of such appointment in accordance with
its nomination procedures, a director of Internap, and that
Messrs. Kaplan, Dion and Ritto will become Vice Presidents
of Internap. Information regarding their interests, and those of
other VitalStream officers and directors, in the merger is set
forth on page 66 under Interests of VitalStreams
Executive Officers and Directors in the Merger.
Information relating to the historical management, executive
compensation, certain relationships and related transactions and
other related matters pertaining to Internap and VitalStream is
contained in or incorporated by reference in their respective
annual reports on
Form 10-K
which are incorporated by reference in this joint proxy
statement/prospectus. See Where You Can Find More
Information.
Recommendation
of Internap Board of Directors
The Internap board of directors unanimously recommends that
Internap stockholders vote FOR
Proposal No. 1, to approve the issuance of shares of
Internap common stock in the merger and adopt the merger
agreement.
Recommendation
of VitalStream Board of Directors
The VitalStream board of directors unanimously recommends
that VitalStream stockholders vote FOR
Proposal No. 1, to adopt the merger agreement.
INTERNAP
PROPOSAL NO. 2
POSSIBLE
ADJOURNMENT OF THE SPECIAL MEETING
If Internap fails to receive a sufficient number of votes to
approve Proposal No. 1, Internap may propose to
adjourn the special meeting, if a quorum is present, for a
period of not more than 30 days for the purpose of
soliciting additional proxies to approve
Proposal No. 1. Internap currently does not intend to
propose adjournment at the special meeting if there are
sufficient votes to approve Proposal No. 1. If
approval of the proposal to adjourn the Internap special meeting
for the purpose of soliciting additional proxies is submitted to
stockholders for approval, such approval requires the
affirmative vote of the holders of a majority of the votes cast
in person or by proxy on the proposal.
Recommendation
of Internap Board of Directors
The Internap board of directors unanimously recommends that
Internaps stockholders vote FOR
Proposal No. 2 to adjourn the special meeting, if a
quorum is present, if necessary to solicit additional proxies if
there are not sufficient votes in favor of
Proposal No. 1.
90
VITALSTREAM
PROPOSAL NO. 2
POSSIBLE
ADJOURNMENT OF THE SPECIAL MEETING
If VitalStream fails to receive a sufficient number of votes to
approve Proposal No. 1, VitalStream may propose to
adjourn the special meeting for a period of not more than
30 days for the purpose of soliciting additional proxies to
approve Proposal No. 1. VitalStream currently does not
intend to propose adjournment at the special meeting if there
are sufficient votes to approve Proposal No. 1. If
approval of the proposal to adjourn the VitalStream special
meeting for the purpose of soliciting additional proxies is
submitted to stockholders for approval, such approval requires
the affirmative vote of the holders of a majority of the votes
cast in person or by proxy on the proposal.
Recommendation
of VitalStream Board of Directors
The VitalStream board of directors unanimously recommends
that VitalStreams stockholders vote FOR
Proposal No. 2 to adjourn the special meeting if
necessary to solicit additional proxies if there are not
sufficient votes in favor of Proposal No. 1.
SECURITY
OWNERSHIP BY CERTAIN BENEFICIAL OWNERS
Unless specifically stated otherwise, the following information
and all other information contained in this joint proxy
statement/prospectus, including that regarding the exchange
ratio pursuant to the merger agreement, gives effect to the
one-for-ten
reverse stock split of Internaps common stock on
July 11, 2006 and the
one-for-four
reverse stock split of VitalStream common stock on April 4,
2006.
Beneficial
Ownership of Internap Shares
The following table and the notes thereto set forth certain
information with respect to the beneficial ownership of shares
of Internap common stock, as of December 29, 2006, by each
director, named executive officer and all directors and
executive officers of Internap as a group, and by each person or
group who is known to the management of Internap to be the
beneficial owner of more than five percent of Internap common
stock outstanding as of December 29, 2006. Unless otherwise
indicated in the footnotes to this table and subject to
community property laws where applicable, Internap believes that
each of the persons named in this table has sole voting and
investment power with respect to the shares indicated as
beneficially owned. Applicable percentages are based on
35,875,746 shares outstanding on December 29, 2006.
Shares of Internap common stock subject to options that are
currently exercisable or are exercisable within 60 days
after December 29, 2006 are treated as outstanding and
beneficially owned by the person holding them for the purpose of
computing the percentage ownership of that person but are not
treated as outstanding for the purpose of computing the
percentage ownership of any other person. Unless otherwise
indicated below, the address for each person and entity named in
the table is: c/o Internap Network Services Corporation,
250 Williams Street, Atlanta, Georgia 30303.
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Number of
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Percent of
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Beneficial Owner
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Shares
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Totals
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David L. Abrahamson(1)
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171,143
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*
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David A. Buckel(2)
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119,337
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*
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Charles B. Coe(3)
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41,000
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*
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James P. DeBlasio(4)
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335,425
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*
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Eugene Eidenberg(5)
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|
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235,156
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*
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William J. Harding(6)
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46,783
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*
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Fredric W. Harman(7)
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58,218
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*
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Patricia L. Higgins(8)
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33,729
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*
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J. Eric Klinker(9)
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72,930
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*
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Kevin Ober(10)
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18,000
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*
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Daniel C. Stanzione(11)
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|
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29,000
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*
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Eric Suddith(12)
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58,945
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*
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All directors and executive
officers as a group (12 persons)(13)
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1,219,666
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3.4
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%
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91
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(1) |
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Consists of 5,200 shares of common stock,
50,000 shares of restricted stock that vest in a series of
16 quarterly installments upon the completion of each three
month period of service over the service period measured from
January 1, 2006 through January 1, 2010, and options
to purchase 115,943 shares of common stock. |
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(2) |
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Consists of 53,885 shares of restricted stock that vest in
a series of 16 quarterly installments upon the completion of
each three month period of service over the service period
measured from January 1, 2006 through January 1, 2010,
and options to purchase 65,452 shares of common stock. |
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(3) |
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Consists of 10,000 shares of common stock and options to
purchase 31,000 shares of common stock. |
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(4) |
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Consists of 5,000 shares of common stock,
82,675 shares of restricted stock that vested 50% on
September 30, 2006 with the remainder to vest over three
years in equal installments on each of the first three
anniversaries after September 30, 2006, and options to
purchase 247,750 shares of common stock. |
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(5) |
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Consists of 57,157 shares of common stock and options to
purchase 177,999 shares of common stock. Includes
236 shares held by Mr. Eidenberg, 45,556 shares
of common stock held by Eugene Eidenberg, as trustee of the
Eugene Eidenberg Trust dated 9/97, 2,799 shares of common
stock held by Eugene Eidenberg, as trustee of the Anna M. Chavez
Educational Trust and 8,566 shares held by Anna M. Chavez. |
|
|
|
(6) |
|
Consists of 24,783 shares of common stock and options to
purchase 22,000 shares of common stock. |
|
|
|
(7) |
|
Consists of 44,218 shares of common stock and options to
purchase 14,000 shares of common stock. Includes
9,485 shares of common stock held by a trust of which
Fredric W. Harman is a trustee and an aggregate of
819 shares of common stock held in trust for the benefit of
Mr. Harmans three minor children. |
|
|
|
(8) |
|
Consists of 4,729 shares of common stock and options to
purchase 29,000 shares of common stock. |
|
|
|
(9) |
|
Consists of 48,986 shares of restricted stock that vest in
a series of 16 quarterly installments upon the completion of
each three month period of service over the service period
measured from January 1, 2006 through January 1, 2010,
and options to purchase 23,944 shares of common stock. |
|
|
|
(10) |
|
Consists of options to purchase 18,000 shares of common
stock. |
|
|
|
(11) |
|
Consists of options to purchase 29,000 shares of common
stock. |
|
|
|
(12) |
|
Consists of 47,972 shares of restricted stock that vest in
a series of 16 quarterly installments upon the completion of
each three month period of service over the service period
measured from January 1, 2006 through January 1, 2010,
and options to purchase 10,973 shares of common stock. |
|
|
|
(13) |
|
Includes options to purchase 785,061 shares of common stock. |
92
Beneficial
Ownership of VitalStream Shares
The following table and the related notes present information on
the beneficial ownership of shares of VitalStream common stock,
as of December 29, 2006 (except as noted in the footnotes),
by each director, named executive officer and all directors and
executive officers as a group of VitalStream, and by each person
or group who is known to the management of VitalStream to be the
beneficial owner of more than 5% of the VitalStream common stock
outstanding as of December 29, 2006. This table is based
upon information supplied by officers, directors and principal
stockholders. Unless otherwise indicated in the footnotes to
this table and subject to community property laws where
applicable and the voting agreements entered into by certain
stockholders of VitalStream with Internap, VitalStream believes
that each of the stockholders named in this table has sole
voting and investment power with respect to the shares indicated
as beneficially owned. Applicable percentages are based on
23,774,014 shares outstanding on December 29, 2006.
Shares of VitalStream common stock subject to options that are
currently exercisable or are exercisable within 60 days of
December 29, 2006 are treated as outstanding and
beneficially owned by the person holding them for the purpose of
computing the percentage ownership of that person but are not
treated as outstanding for the purpose of computing the
percentage ownership of any other stockholder. Shares of
VitalStream common stock issuable upon the exercise of options
that are not currently exercisable or exercisable within
60 days of December 29, 2006, but which become
immediately exercisable as a result of the consummation of the
merger, are not treated as outstanding for any purpose. Unless
otherwise indicated below, the address for each person and
entity named in the table is: c/o VitalStream Holdings,
Inc., 555 Anton Blvd., Suite 400, Costa Mesa, California
92626.
|
|
|
|
|
|
|
|
|
|
|
Beneficial Ownership
|
|
Beneficial Owner
|
|
Number of Shares
|
|
|
Percent of Totals
|
|
|
Dolphin Reporting Group(1)
|
|
|
3,190,144
|
|
|
|
13.42
|
%
|
Walden Reporting Group(2)
|
|
|
3,305,959
|
|
|
|
13.91
|
%
|
Crosslink Reporting Group(3)
|
|
|
1,759,274
|
|
|
|
7.40
|
%
|
Jack Waterman(4)
|
|
|
92,511
|
|
|
|
*
|
|
Philip N. Kaplan(5)
|
|
|
1,000,277
|
|
|
|
4.20
|
%
|
Michael F. Linos(6)
|
|
|
505,932
|
|
|
|
2.13
|
%
|
Arturo Sida(7)
|
|
|
173,303
|
|
|
|
*
|
|
Mark Z. Belzowski(8)
|
|
|
161,071
|
|
|
|
*
|
|
Leonard Wanger(9)
|
|
|
116,490
|
|
|
|
*
|
|
Salvatore Tirabassi(10)
|
|
|
39,584
|
|
|
|
*
|
|
Melvin A. Harris(11)
|
|
|
21,875
|
|
|
|
*
|
|
Raymond L. Ocampo Jr.(12)
|
|
|
67,708
|
|
|
|
*
|
|
Philip Sanderson(13)
|
|
|
39,584
|
|
|
|
*
|
|
All directors and executive
officers as a group (14 persons)(14)
|
|
|
2,218,835
|
|
|
|
9.14
|
%
|
|
|
|
* |
|
Less than 1%. |
|
(1) |
|
The Dolphin Reporting Group is comprised of Dolphin
Communications I, LLC, Dolphin Communications, LP, Dolphin
Communications II, LP, Dolphin Communications Fund, LP,
Dolphin Communications Fund II, LP, Dolphin
Communications Parallel Fund, LP, Dolphin Communications
Parallel Fund II Netherlands, LP, and Richard Brekka.
Authority to make voting and investment decisions with respect
to shares owned by all such selling stockholders is held by
Richard Brekka. The address for the Dolphin Reporting Group is
750 Lexington Avenue, New York, NY 10022. |
|
(2) |
|
The Walden Reporting Group is comprised of WaldenVC II, LP,
WaldenVC, LLC and various individual managers of WaldenVC, LLC.
Authority to make voting and investment decisions with respect
to shares owned by such selling stockholder is held by
WaldenVC, LLC whose managers are Arthur Berliner, Steven
Eskenazi, Lawrence Marcus and Matthew Miller. The address for
the Walden Reporting Group is 750 Battery St.
7th Floor, San Francisco, CA 94110. |
93
|
|
|
(3) |
|
Information regarding Crosslink Reporting Group is based upon
information provided to us by representatives of the same on
November 17, 2006. Includes (i) Crosslink Ventures IV,
L.P., Crosslink Omega Ventures IV GmbH & Co. KG,
Offshore Crosslink Omega Ventures IV (a Cayman Islands Unit
Trust) and Omega Bayview IV, LLC, for which Michael J. Stark,
Seymour F. Kaufman, James Feuille and David I. Epstein, as
general partner, managing member, or manager of Class B
units of the stockholder, have voting
and/or
investment power over the shares, and (ii) Crosslink
Crossover Fund IV, L.P. and Offshore Crosslink Crossover
Fund III, L.P., for which Michael J. Stark, Seymour F.
Kaufman, Thomas Edward Bliska and Daniel John Dunn, as general
partner of the stockholder, have voting
and/or
investment power over the shares, and (iii) Delta Growth
Fund, L.P., for which Michael J. Start has voting
and/or
investment power over the shares. |
|
|
|
(4) |
|
Includes 24,074 shares of VitalStream common stock and
options to purchase 68,437 shares of VitalStream common
stock. |
|
|
|
(5) |
|
Includes 942,219 shares of VitalStream common stock owned
by the Kaplan Family Trust dated June 30, 2004. Also
includes options to purchase 46,459 shares of VitalStream
common stock owned by Philip N. Kaplan and
11,599 shares of VitalStream common stock owned by Stacy
Kaplan, the wife of Philip N. Kaplan. |
|
|
|
(6) |
|
Includes 505,411 shares of VitalStream common stock and
options to purchase 521 shares of VitalStream common stock. |
|
|
|
(7) |
|
Includes 126,427 shares of VitalStream common stock and
options to purchase 46,876 shares of VitalStream common
stock. |
|
|
|
(8) |
|
Includes 64,196 shares of VitalStream common stock and
options to purchase 96,875 shares of VitalStream common
stock. |
|
|
|
(9) |
|
Includes 30,931 shares of VitalStream common stock and
options to purchase 73,959 shares of VitalStream common
stock owned by Mr. Wanger, and 11,599 shares of
VitalStream common stock held in a trust that is beneficially
owned by Mr. Wanger. The address of Mr. Wanger
is191 N. Wacker Dr., Suite 1500, Chicago,
Ilinois. 60606. |
|
|
|
(10) |
|
Represents options to purchase 39,584 shares of VitalStream
common stock owned by Mr. Tirabassi. The business address
of Mr. Tirabassi is c/o Dolphin Equity Partners, 750
Lexington Avenue, 16th Floor, New York, NY 11201. |
|
|
|
(11) |
|
Represents options to purchase 21,875 shares of VitalStream
common stock. |
|
|
|
(12) |
|
Represents options to purchase 67,708 shares of VitalStream
common stock. The address of Mr. Ocampo is P.O.
Box 1688, San Mateo, CA 94401. |
|
|
|
(13) |
|
Represents options to purchase 39,584 shares of VitalStream
common stock. |
|
|
|
(14) |
|
Includes options to purchase 501,878 shares of VitalStream
common stock. |
94
INTERNAP
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS
Unless specifically stated otherwise, the following
information and all other information contained in this joint
proxy statement/prospectus, including that regarding the
exchange ratio pursuant to the merger agreement, gives effect to
the
one-for-ten
reverse stock split by Internap effected on July 11, 2006
and the
one-for-four
reverse stock split by VitalStream effected on April 4,
2006.
On October 12, 2006, Internap entered into an agreement
pursuant to which its wholly owned subsidiary agreed to merge
with and into VitalStream in a transaction to be accounted for
using the purchase method of accounting for business
combinations. Under the terms of the merger agreement, each
issued and outstanding common share of VitalStream will be
exchanged for 0.5132 shares of Internap common stock.
Additionally, the merger agreement provides that, subject to
certain exceptions, at the effective time of the merger, each
VitalStream stock option that is outstanding and unexercised
immediately prior to the effective time will be converted, as
affected by the exchange provision for the number of shares and
exercise price, into an option to purchase Internap common stock
and Internap will assume that stock option in accordance with
the terms of the applicable VitalStream stock option plan and
terms of the stock option agreement relating to that VitalStream
option, with certain limitations.
The following unaudited pro forma condensed combined balance
sheet is based on historical balance sheets of Internap and
VitalStream and has been prepared to reflect the merger as if it
had been consummated on September 30, 2006. Such pro forma
information is based upon the historical consolidated balance
sheet data of Internap and VitalStream at September 30,
2006. The following unaudited pro forma condensed combined
statement of operations data assume that the merger of Internap
and VitalStream took place as of January 1, 2005. The
unaudited pro forma condensed combined statement of operations
for the nine months ended September 30, 2006 combines
Internaps and VitalStreams historical consolidated
statements of operations for the nine months then ended.
The unaudited pro forma condensed combined financial statements
are based on the estimates and assumptions set forth in the
notes to such statements, which are preliminary and have been
made solely for purposes of developing such pro forma
information. The unaudited pro forma condensed combined
financial statements are not necessarily an indication of the
results that would have been achieved had the merger been
consummated as of the dates indicated or that may be achieved in
the future.
These unaudited pro forma condensed combined financial
statements should be read in conjunction with the historical
consolidated financial statements and notes thereto of Internap
and VitalStream and other financial information pertaining to
Internap and VitalStream including Managements
Discussion and Analysis of Financial Condition and Results of
Operations and Risk Factors incorporated by
reference or included herein.
95
INTERNAP
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internap
|
|
|
VitalStream
|
|
|
|
|
|
|
|
|
|
as of
|
|
|
as of
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
|
2006
|
|
|
2006
|
|
|
Adjustments(1)
|
|
|
Combined
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
41,389
|
|
|
$
|
16,894
|
|
|
$
|
|
|
|
$
|
58,283
|
|
Short-term investments in
marketable securities
|
|
|
12,507
|
|
|
|
|
|
|
|
|
|
|
|
12,507
|
|
Accounts receivable, net
|
|
|
19,823
|
|
|
|
5,107
|
|
|
|
|
|
|
|
24,930
|
|
Other current assets
|
|
|
3,924
|
|
|
|
1,449
|
|
|
|
|
|
|
|
5,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
77,643
|
|
|
|
23,450
|
|
|
|
|
|
|
|
101,093
|
|
Property and equipment, net
|
|
|
48,099
|
|
|
|
12,143
|
|
|
|
|
|
|
|
60,242
|
|
Investments
|
|
|
2,123
|
|
|
|
|
|
|
|
|
|
|
|
2,123
|
|
Intangible assets, net
|
|
|
1,896
|
|
|
|
1,126
|
|
|
|
(1,126
|
)(a)
|
|
|
43,696
|
|
|
|
|
|
|
|
|
|
|
|
|
41,800
|
(g)
|
|
|
|
|
Goodwill
|
|
|
36,314
|
|
|
|
19,404
|
|
|
|
(19,404
|
)(b)
|
|
|
189,748
|
|
|
|
|
|
|
|
|
|
|
|
|
153,434
|
(h)
|
|
|
|
|
Deposits and other assets
|
|
|
1,656
|
|
|
|
365
|
|
|
|
|
|
|
|
2,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
167,731
|
|
|
$
|
56,488
|
|
|
$
|
174,704
|
|
|
$
|
398,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES &
STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable, current portion
|
|
$
|
4,375
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,375
|
|
Accounts payable
|
|
|
8,374
|
|
|
|
3,968
|
|
|
|
|
|
|
|
12,342
|
|
Accrued liabilities
|
|
|
6,836
|
|
|
|
2,144
|
|
|
|
3,000
|
(c)
|
|
|
11,980
|
|
Deferred revenue, current portion
|
|
|
2,905
|
|
|
|
|
|
|
|
|
|
|
|
2,905
|
|
Capital lease obligations, current
portion
|
|
|
442
|
|
|
|
2,070
|
|
|
|
|
|
|
|
2,512
|
|
Line of credit obligations,
current portion
|
|
|
|
|
|
|
3,992
|
|
|
|
|
|
|
|
3,992
|
|
Restructuring liability, current
portion
|
|
|
957
|
|
|
|
|
|
|
|
|
|
|
|
957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
23,889
|
|
|
|
12,174
|
|
|
|
3,000
|
|
|
|
39,063
|
|
Notes payable, less current portion
|
|
|
4,375
|
|
|
|
|
|
|
|
|
|
|
|
4,375
|
|
Deferred revenue, less current
portion
|
|
|
903
|
|
|
|
|
|
|
|
|
|
|
|
903
|
|
Capital lease obligations, less
current portion
|
|
|
92
|
|
|
|
1,138
|
|
|
|
|
|
|
|
1,230
|
|
Line of credit obligations, less
current portion
|
|
|
|
|
|
|
500
|
|
|
|
|
|
|
|
500
|
|
Restructuring liability, less
current portion
|
|
|
4,204
|
|
|
|
|
|
|
|
|
|
|
|
4,204
|
|
Deferred rent
|
|
|
11,117
|
|
|
|
80
|
|
|
|
|
|
|
|
11,197
|
|
Other long-term liabilities
|
|
|
1,011
|
|
|
|
|
|
|
|
|
|
|
|
1,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
45,591
|
|
|
|
13,892
|
|
|
|
3,000
|
|
|
|
62,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A convertible
preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, at par value
|
|
|
35
|
|
|
|
86
|
|
|
|
(86
|
)(d)
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
(e)
|
|
|
|
|
Additional paid-in capital
|
|
|
980,528
|
|
|
|
59,719
|
|
|
|
(59,719
|
)(d)
|
|
|
1,194,816
|
|
|
|
|
|
|
|
|
|
|
|
|
195,288
|
(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,000
|
(f)
|
|
|
|
|
Accumulated deficit
|
|
|
(858,664
|
)
|
|
|
(17,209
|
)
|
|
|
17,209
|
(d)
|
|
|
(858,664
|
)
|
Accumulated items of other
comprehensive income
|
|
|
241
|
|
|
|
|
|
|
|
|
|
|
|
241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
122,140
|
|
|
|
42,596
|
|
|
|
171,704
|
|
|
|
336,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
167,731
|
|
|
$
|
56,488
|
|
|
$
|
174,704
|
|
|
$
|
398,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For an explanation of pro forma adjustments, refer to
note 3 to the unaudited pro forma condensed combined
financial statements. |
The accompanying notes are an integral part of these unaudited
pro forma combined condensed financial statements.
96
INTERNAP
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS
Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
Internap
|
|
|
VitalStream
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
|
2005
|
|
|
2005(1)
|
|
|
Reclassifications(2)
|
|
|
Adjustments(3)
|
|
|
Combined
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenue
|
|
$
|
153,717
|
|
|
$
|
17,318
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
171,035
|
|
Costs and expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct cost of network, exclusive
of depreciation and amortization
|
|
|
81,958
|
|
|
|
8,887
|
|
|
|
504
|
(A)
|
|
|
(97
|
)(i)
|
|
|
91,920
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,204
|
)(B)
|
|
|
4,150
|
(j)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,278
|
)(C)
|
|
|
|
|
|
|
|
|
Direct cost of customer support
|
|
|
10,670
|
|
|
|
|
|
|
|
1,204
|
(B)
|
|
|
130
|
(k)
|
|
|
12,004
|
|
Product development
|
|
|
4,864
|
|
|
|
1,179
|
|
|
|
(48
|
)(C)
|
|
|
62
|
(k)
|
|
|
6,057
|
|
Sales and marketing
|
|
|
25,864
|
|
|
|
6,514
|
|
|
|
(270
|
)(C)
|
|
|
501
|
(k)
|
|
|
32,609
|
|
General and administrative
|
|
|
20,096
|
|
|
|
5,067
|
|
|
|
(170
|
)(C)
|
|
|
1,801
|
(k)
|
|
|
26,794
|
|
Depreciation and amortization
|
|
|
15,314
|
|
|
|
|
|
|
|
(504
|
)(A)
|
|
|
(343
|
)(i)
|
|
|
18,933
|
|
|
|
|
|
|
|
|
|
|
|
|
2,766
|
(C)
|
|
|
1,700
|
(j)
|
|
|
|
|
Other operating expense, net
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expense
|
|
|
158,851
|
|
|
|
21,647
|
|
|
|
|
|
|
|
7,904
|
|
|
|
188,402
|
|
Loss from operations
|
|
|
(5,134
|
)
|
|
|
(4,329
|
)
|
|
|
|
|
|
|
(7,904
|
)
|
|
|
(17,367
|
)
|
Total non-operating (income)
expense
|
|
|
(170
|
)
|
|
|
668
|
|
|
|
|
|
|
|
|
|
|
|
498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(4,964
|
)
|
|
|
(4,997
|
)
|
|
|
|
|
|
|
(7,904
|
)
|
|
|
(17,865
|
)
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,964
|
)
|
|
$
|
(4,997
|
)
|
|
$
|
|
|
|
$
|
(7,904
|
)
|
|
$
|
(17,865
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.15
|
)
|
|
$
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(0.39
|
)
|
Shares used in per share
calculations:(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
33,939
|
|
|
|
17,740
|
|
|
|
|
|
|
|
|
|
|
|
45,848
|
|
|
|
|
(1) |
|
Pro Forma VitalStream operations include the historical results
of VitalStream combined with the historical unaudited results of
VitalStreams acquisition of EON Streams, Inc. for the year
ended December 31, 2005. |
|
(2) |
|
For an explanation of Reclassifications, refer to note 2 to
the unaudited pro forma condensed combined financial statements. |
|
(3) |
|
For an explanation of Pro Forma Adjustments, refer to
note 3 to the unaudited pro forma condensed combined
financial statements. |
|
(4) |
|
Shares used in computing basic and diluted loss per share is the
sum of Internap historical shares plus the number of Internap
shares issued to VitalStream stockholders. Share amounts also
reflect adjustments for reverse stock splits as described in the
footnotes. |
The accompanying notes are an integral part of these unaudited
pro forma condensed combined financial statements.
97
INTERNAP
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS
For the Nine Months Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
Internap
|
|
|
VitalStream
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
|
2006
|
|
|
2006(1)
|
|
|
Reclassifications(2)
|
|
|
Adjustments(3)
|
|
|
Combined
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenue
|
|
$
|
132,404
|
|
|
$
|
19,151
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
151,555
|
|
Costs and expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct cost of network, exclusive
of depreciation and amortization
|
|
|
71,471
|
|
|
|
9,774
|
|
|
|
(1,180
|
)(B)
|
|
|
(67
|
)(i)
|
|
|
80,319
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,779
|
)(C)
|
|
|
3,100
|
(j)
|
|
|
|
|
Direct cost of customer support
|
|
|
8,596
|
|
|
|
|
|
|
|
1,180
|
(B)
|
|
|
17
|
(k)
|
|
|
9,793
|
|
Product development
|
|
|
3,490
|
|
|
|
1,395
|
|
|
|
(52
|
)(C)
|
|
|
8
|
(k)
|
|
|
4,841
|
|
Sales and marketing
|
|
|
20,611
|
|
|
|
6,269
|
|
|
|
(179
|
)(C)
|
|
|
186
|
(k)
|
|
|
26,887
|
|
General and administrative
|
|
|
15,888
|
|
|
|
6,753
|
|
|
|
(146
|
)(C)
|
|
|
736
|
(k)
|
|
|
22,231
|
|
Depreciation and amortization
|
|
|
11,717
|
|
|
|
|
|
|
|
3,156
|
(C)
|
|
|
(246
|
)(i)
|
|
|
15,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,275
|
(j)
|
|
|
|
|
Other operating expense, net
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expense
|
|
|
131,978
|
|
|
|
24,191
|
|
|
|
|
|
|
|
5,009
|
|
|
|
161,178
|
|
Income (loss) from operations
|
|
|
426
|
|
|
|
(5,040
|
)
|
|
|
|
|
|
|
(5,009
|
)
|
|
|
(9,623
|
)
|
Total non-operating (income)
|
|
|
(1,122
|
)
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,172
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
1,548
|
|
|
|
(4,990
|
)
|
|
|
|
|
|
|
(5,009
|
)
|
|
|
(8,451
|
)
|
Income taxes
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,448
|
|
|
$
|
(4,990
|
)
|
|
$
|
|
|
|
$
|
(5,009
|
)
|
|
$
|
(8,551
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.04
|
|
|
$
|
(0.22
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(0.18
|
)
|
Diluted
|
|
$
|
0.04
|
|
|
$
|
(0.22
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(0.18
|
)
|
Shares used in per share
calculations:(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
34,537
|
|
|
|
22,518
|
|
|
|
|
|
|
|
|
|
|
|
46,446
|
|
Diluted
|
|
|
35,343
|
|
|
|
22,518
|
|
|
|
|
|
|
|
|
|
|
|
46,446
|
|
|
|
|
(1) |
|
Pro Forma VitalStream operations include the historical results
of VitalStream combined with the historical unaudited results of
VitalStreams acquisition of EON Streams, Inc. from
January 1, 2006 through April 30, 2006. |
|
(2) |
|
For an explanation of Reclassifications, refer to note 2 to
the unaudited pro forma condensed combined financial statements. |
|
(3) |
|
For an explanation of Pro Forma Adjustments, refer to
note 3 to the unaudited pro forma condensed combined
financial statements. |
|
(4) |
|
Shares used in computing basic and diluted income (loss) per
share is the sum of Internap historical basic shares plus the
number of Internap shares issued to VitalStream stockholders.
Share amounts also reflect adjustments for reverse stock splits
as described in the footnotes. |
The accompanying notes are an integral part of these unaudited
pro forma condensed combined financial statements.
98
NOTES TO
INTERNAP UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
On October 12, 2006, Internap entered into an agreement
pursuant to which its wholly owned subsidiary agreed to merge
with and into VitalStream in a transaction to be accounted for
using the purchase method of accounting for business
combinations. The total estimated purchase price of
approximately $217.3 million includes common stock valued
at $195.3 million and stock options assumed with a fair
value of $19.0 million and estimated direct transaction
costs of $3.0 million.
The unaudited pro forma condensed combined financial statements
assume the issuance of approximately 11.9 million shares of
Internap common stock based on an exchange ratio of
0.5132 shares of Internap common stock for each outstanding
share of VitalStream common stock as of the effective time of
the merger. The actual number of shares of Internap common stock
to be issued will be determined based on the actual number of
shares of VitalStream common stock outstanding upon the
conversion date. The closing price of Internap common stock on
October 11, 2006, the last full trading day before the
public announcement of the proposed merger, was $17.05.
The merger agreement provides that, subject to certain
exceptions, at the effective time of the merger, each
VitalStream stock option that is outstanding and unexercised
immediately prior to the effective time will be converted, as
affected by the exchange provision for the number of shares and
exercise price, into an option to purchase Internap common stock
and Internap will assume that stock option in accordance with
the terms of the applicable VitalStream stock option plan and
terms of the stock option agreement with certain limitations.
Based on VitalStream stock options outstanding at
September 30, 2006, Internap would convert options to
purchase approximately 3.9 million shares of VitalStream
common stock into options to purchase approximately
2.0 million shares of Internap common stock. The actual
number of Internap stock options into which VitalStream stock
options will be converted will be determined based on the actual
number of VitalStream stock options outstanding at the effective
time of the merger. The fair value of the outstanding options
was determined based on the estimated fair value on the
announcement date.
The estimated purchase price and the allocation of the estimated
purchase price discussed below are preliminary because the
proposed merger has not yet been consummated. The actual
purchase price will be based on the Internap shares issued to
VitalStream stockholders and the options to purchase VitalStream
stock assumed by Internap. The final allocation of the purchase
price will be based on VitalStreams assets and liabilities
on the date the merger is consummated.
The preliminary estimated total purchase price of the merger is
as follows (in thousands):
|
|
|
|
|
Value of Internap stock issued
|
|
$
|
195,300
|
|
Estimated fair value of options
assumed
|
|
|
19,000
|
|
Estimated direct transaction costs
|
|
|
3,000
|
|
|
|
|
|
|
Total preliminary estimated
purchase price
|
|
$
|
217,300
|
|
|
|
|
|
|
Under the purchase method of accounting, the total estimated
purchase price as shown in the table above is allocated to
VitalStreams net tangible and intangible assets based on
their estimated fair values as of the date of the completion of
the merger. The management of Internap has allocated the
preliminary estimated purchase price based on preliminary
estimates that are described in the introduction to these
unaudited pro forma condensed combined financial statements.
Internap will complete the final purchase price allocation with
the assistance of an independent valuation of the fair value of
certain assets and liabilities of VitalStream purchased in the
proposed business combination. Estimates used in the pro forma
condensed combined financial statements may differ from the
actual fair value of the tangible and intangible assets and
liabilities as well as the associated depreciation and
amortization upon receipt of the final valuation analysis which
is expected to be completed upon closing.
99
NOTES TO
INTERNAP UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS (Continued)
The allocation of the preliminary purchase price and the
estimated useful lives associated with certain assets is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
Amount
|
|
|
Useful Life
|
|
Net tangible assets
|
|
$
|
22,066
|
|
|
N/A
|
Identifiable intangible assets:
|
|
|
|
|
|
|
Developed technologies
|
|
|
29,000
|
|
|
6-8 years
|
Customer relationships
|
|
|
10,000
|
|
|
8-9 years
|
Trade name and other
|
|
|
2,800
|
|
|
3-7 years
|
Goodwill
|
|
|
153,434
|
|
|
N/A
|
|
|
|
|
|
|
|
Total preliminary estimated
purchase price
|
|
$
|
217,300
|
|
|
|
|
|
|
|
|
|
|
A preliminary estimate of $22.1 million has been allocated
to net tangible assets acquired and approximately
$41.8 million has been allocated to amortizable intangible
assets acquired and $153.4 million has been allocated to
goodwill. The amortization related to the amortizable intangible
assets is reflected as pro forma adjustments to the unaudited
pro forma condensed combined statements of operations.
Identifiable intangible assets. Developed
technologies relate to VitalStream products across all of their
product lines that have reached technological feasibility and
include processes and trade secrets acquired or developed
through design and development of their products. Customer
relationships represent existing contracts that related
primarily to underlying customer relationships. Trade name
primarily relates to the VitalStream and other product names.
The method of future amortization will be based on the pattern
in which the economic benefits of the intangible assets are
consumed.
Goodwill. Approximately $153.4 million
has been allocated to goodwill. Goodwill represents the excess
of the purchase price over the fair value of the underlying net
tangible and intangible assets. In accordance with
SFAS No. 142, Goodwill and Other Intangible
Assets, goodwill will not be amortized but instead will be
tested for impairment at least annually (more frequently if
certain indicators are present). In the event that the
management of the combined company determines that the value of
goodwill has become impaired, the combined company will incur an
accounting charge for the amount of impairment during the fiscal
quarter in which the determination is made.
Certain reclassification adjustments have been made to conform
Internaps and VitalStreams historical reported
balances to the pro forma combined condensed financial statement
basis of presentation. The reclassifications are as follows:
(A) Previously, direct cost of network and sales did not
include amortization of purchased technology and such amounts
were included in depreciation and amortization. In accordance
with Question 17 of the Financial Accounting Standards Board
(FASB) Implementation Guide to Statement of Financial Accounting
Standard (SFAS) No. 86, Accounting for the Costs of
Computer Software to Be Sold, Leased, or Otherwise
Marketed, Internap reclassified these costs from
Depreciation and amortization to Direct cost
of network and sales for the year ended December 31,
2005.
(B) To reclassify VitalStreams customer support
related costs to a separate line item to conform to
Internaps presentation.
(C) To reclassify VitalStreams depreciation and
amortization to a separate line item to conform to
Internaps presentation.
100
NOTES TO
INTERNAP UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS (Continued)
Pro forma adjustments are necessary to reflect the estimated
purchase price, to reflect amounts related to VitalStreams
net tangible and intangible assets at an amount equal to the
preliminary estimate of their fair values, to reflect the
amortization expense related to the estimated amortizable
intangible assets, and to reflect changes in amortization
expense resulting from the estimated fair value adjustments for
intangible assets.
The pro forma combined provision for income taxes does not
necessarily reflect the amounts that would have resulted had
Internap and Vital Stream filed consolidated income tax returns
during the periods presented.
The unaudited pro forma condensed combined financial statements
do not include any adjustments for liabilities that may result
from integration activities, as management of Internap and
VitalStream are in the process of making these assessments, and
estimates of these costs are not currently known.
Internap has not identified any pre-merger contingencies where
the related asset, liability or impairment is probable and the
amount of the asset, liability or impairment can be reasonably
estimated. Prior to the end of the purchase price allocation
period, if information becomes available which would indicate it
is probable that such events have occurred and the amounts can
be reasonably estimated, such items will be included in the
purchase price allocation.
The pro forma adjustments included in the unaudited pro forma
condensed combined financial statements are as follows:
(a) To eliminate VitalStreams historical intangible
assets.
(b) To eliminate VitalStreams historical goodwill.
(c) To accrue Internaps estimated direct costs of the
transaction. See note 1 for a preliminary allocation of the
purchase price.
(d) To eliminate VitalStreams historical equity.
(e) To record the fair value of Internap shares exchanged
in the transaction. See note 1 for a preliminary allocation
of the purchase price.
(f) To record the fair value of VitalStream stock options
assumed. See note 1 for a preliminary allocation of the
purchase price.
(g) To record the fair value of VitalStreams
identifiable intangible assets. See note 1 for a
preliminary allocation of the purchase price.
(h) To record goodwill. See note 1 for a preliminary
allocation of the purchase price.
(i) To eliminate VitalStreams historical amortization
of intangible assets.
(j) To amortize intangible assets from the beginning of the
period presented based upon the pattern in which the economic
benefits of the intangible asset will be consumed.
(k) To record stock-based compensation related to the
unvested stock options of VitalStream assumed by Internap for
which future services of the employees are required.
|
|
4.
|
Pro Forma
Net Income (Loss) Per Share
|
The pro forma basic and diluted net income (loss) per share are
based on the number of Internap shares used in computing basic
and diluted net income (loss) per share plus the number of
Internap shares issued to VitalStream stockholders. All Internap
historical and pro forma per-share amounts reflect the
retroactive effect of the Internap
one-for-ten
reverse stock split effective July 11, 2006 and all
VitalStream historical and pro forma per-share amounts reflect
the retroactive effect of the VitalStream
one-for-four
reverse stock split effective April 4, 2006.
101
VITALSTREAM
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS
Unless specifically stated otherwise, the following
information and all other information contained in this joint
proxy statement/prospectus, including that regarding the
exchange ratio pursuant to the merger agreement, gives effect to
the
one-for-four
reverse stock split by VitalStream effected on April 4,
2006.
On May 20, 2006, VitalStream acquired, through one of its
wholly-owned subsidiaries, substantially all of the assets and
most of the liabilities of EON Streams, Inc. in exchange for
1,747,312 shares of their common stock at $9.73 per share.
VitalStreams historical statement of operations includes
the results of EON Streams from the effective date of its
acquisition of EON Streams, May 1, 2006.
The following unaudited pro forma condensed combined statement
of operations data assume that the merger of VitalStream and EON
Streams took place as of January 1, 2005. The unaudited pro
forma condensed combined statements of operations data for the
year ended December 31, 2005 combines the historical
consolidated statements of operations for VitalStream and EON
Streams for the year then ended. The unaudited pro forma
condensed combined statement of operations data for the nine
months ended September 30, 2006 combines VitalStreams
historical consolidated statements of operations for the nine
months then ended with EON Streams historical consolidated
statements of operations for the period prior to the effective
date of the acquisition, or January 1, 2006 through
April 30, 2006.
The unaudited pro forma condensed combined financial statements
are based on the estimates and assumptions set forth in the
notes to such statements, which are preliminary and have been
made solely for purposes of developing such pro forma
information. The unaudited pro forma condensed combined
financial statements are not necessarily an indication of the
results that would have been achieved had the merger been
consummated as of the dates indicated or that may be achieved in
the future.
These unaudited pro forma condensed combined financial
statements should be read in conjunction with the historical
consolidated financial statements and notes thereto of
VitalStream and EON Streams and other financial information
pertaining to VitalStream including Managements
Discussion and Analysis of Financial Condition and Results of
Operations and Risk Factors incorporated by
reference or included herein.
102
VITALSTREAM
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS
Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VitalStream
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings, Inc.
|
|
|
EON Streams, Inc.
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
|
December 31, 2005
|
|
|
December 31, 2005
|
|
|
Adjustments(1)
|
|
|
Combined
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenue
|
|
$
|
15,880
|
|
|
$
|
1,690
|
|
|
$
|
(252
|
)(a)
|
|
$
|
17,318
|
|
Cost of revenue
|
|
|
7,921
|
|
|
|
1,132
|
|
|
|
(252
|
)(a)
|
|
|
8,887
|
|
|
|
|
|
|
|
|
|
|
|
|
86
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
7,959
|
|
|
|
558
|
|
|
|
(86
|
)
|
|
|
8,431
|
|
Research and development
|
|
|
1,001
|
|
|
|
151
|
|
|
|
27
|
(c)
|
|
|
1,179
|
|
Sales and marketing
|
|
|
5,689
|
|
|
|
651
|
|
|
|
174
|
(c)
|
|
|
6,514
|
|
General and administrative
|
|
|
4,621
|
|
|
|
446
|
|
|
|
|
|
|
|
5,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(3,352
|
)
|
|
|
(690
|
)
|
|
|
(287
|
)
|
|
|
(4,329
|
)
|
Net other expense
|
|
|
666
|
|
|
|
2
|
|
|
|
|
|
|
|
668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,018
|
)
|
|
$
|
(692
|
)
|
|
$
|
(287
|
)
|
|
$
|
(4,997
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.25
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(0.28
|
)
|
Shares used in per share
calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
15,993
|
|
|
|
|
|
|
|
1,747
|
|
|
|
17,740
|
|
|
|
|
(1) |
|
For an explanation of pro forma adjustments, refer to
note 2 to the unaudited pro forma condensed combined
financial statements. |
The accompanying notes are an integral part of these unaudited
pro forma condensed combined financial statements.
103
VITALSTREAM
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS
Nine Months Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VitalStream
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings, Inc.
|
|
|
EON Streams, Inc.
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
Four Months Ended
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
|
September 30, 2006
|
|
|
April 30, 2006(1)
|
|
|
Adjustments(2)
|
|
|
Combined
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenue
|
|
$
|
18,817
|
|
|
$
|
399
|
|
|
$
|
(65
|
)(a)
|
|
$
|
19,151
|
|
Cost of revenue
|
|
|
9,458
|
|
|
|
352
|
|
|
|
(65
|
)(a)
|
|
|
9,774
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
9,359
|
|
|
|
47
|
|
|
|
(29
|
)
|
|
|
9,377
|
|
Research and development
|
|
|
1,338
|
|
|
|
48
|
|
|
|
9
|
(c)
|
|
|
1,395
|
|
Sales and marketing
|
|
|
6,006
|
|
|
|
205
|
|
|
|
58
|
(c)
|
|
|
6,269
|
|
General and administrative
|
|
|
6,613
|
|
|
|
140
|
|
|
|
|
|
|
|
6,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(4,598
|
)
|
|
|
(346
|
)
|
|
|
(96
|
)
|
|
|
(5,040
|
)
|
Net other income (expense)
|
|
|
51
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,547
|
)
|
|
$
|
(347
|
)
|
|
$
|
(96
|
)
|
|
$
|
(4,990
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(0.22
|
)
|
Shares used in per share
calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
21,628
|
|
|
|
|
|
|
|
890
|
|
|
|
22,518
|
|
|
|
|
(1) |
|
EON Streams results of operations for the period May 1,
2006 through September 30, 2006 are included in
VitalStreams historical statement of operations for the
nine months ended September 30, 2006. |
|
(2) |
|
For an explanation of pro forma adjustments, refer to
note 2 to the unaudited pro forma condensed combined
financial statements. |
The accompanying notes are an integral part of these unaudited
pro forma condensed combined financial statements.
104
NOTES TO
VITALSTREAM UNAUDITED
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On May 20, 2006, VitalStream acquired, through one of its
wholly-owned subsidiaries, substantially all of the assets and
most of the liabilities of EON Streams, Inc. in exchange for
1,747,312 shares of their common stock at $9.73 per
share. VitalStreams acquisition of EON Streams was
effective as of May 1, 2006. EON Streams provides streaming
media services targeted at small businesses and home offices out
of its headquarters in Knoxville Tennessee. For the year ended
December 31, 2005, EON Streams reported sales revenue of
$1,689,855. The acquired assets include an office space lease,
servers and other equipment, customer agreements and other
assets used to operate the EON Streams business.
The unaudited pro forma combined financial statements reflect
the combination of VitalStream and EON Streams, Inc. and
the issuance of shares of common stock to EON Streams. The
unaudited pro forma combined financial statements were derived
from consolidated historical financial statements of both
VitalStream and EON Streams. The unaudited pro forma
condensed combined statement of operations for the nine
month-period ended September 30, 2006 and the year ended
December 31, 2005 were prepared as if the acquisition of
EON Streams had occurred as of January 1, 2005.
In the opinion of VitalStream management, all adjustments
necessary to present fairly the pro forma combined financial
statements have been made based on the terms and structure of
the transaction.
The unaudited pro forma combined financial statements are not
necessarily indicative of what actual results would have been
had the acquisition or issuance of VitalStream common stock to
EON Streams occurred at January 1, 2005 nor do they purport
to indicate the results of future operations of VitalStream and
EON Streams. The unaudited pro forma combined financial
statements should be read in conjunction with the accompanying
notes and historical financial statements and notes to the
financial statements of VitalStream and EON Streams incorporated
by reference in this joint proxy statement/prospectus.
Pro forma adjustments are necessary to reflect the estimated
purchase price, to reflect amounts related to
EON Streams net tangible and intangible assets at an
amount equal to the preliminary estimate of their fair values,
to reflect the amortization expense related to the estimated
amortizable intangible assets, and to reflect changes in
amortization expense resulting from the estimated fair value
adjustments for intangible assets.
The unaudited pro forma condensed combined financial statements
do not include any adjustments for liabilities that may result
from integration activities, as management is in the process of
making these assessments, and estimates of these costs are not
currently known.
The pro forma adjustments included in the unaudited pro forma
condensed combined financial statements are as follows:
(a) To eliminate intercompany revenue and expense.
(b) To record amortization of software technology
intangible asset.
(c) To record amortization of customer relationship, brand
name and covenants not to compete.
105
COMPARATIVE
RIGHTS OF INTERNAP STOCKHOLDERS
AND VITALSTREAM STOCKHOLDERS
Internap is incorporated under the laws of the State of Delaware
and VitalStream is incorporated under the laws of the State of
Nevada. Accordingly, the rights of Internap stockholders are
currently, and will continue to be, governed by the Delaware
General Corporation Law, or the DGCL and the rights of
VitalStream stockholders are currently governed by Nevada
Revised Statutes Chapter 78 and Chapter 92A, also
referred to as Nevada Law. Before the consummation of the
merger, the rights of holders of VitalStream common stock are
also governed by the articles of incorporation of VitalStream,
as amended and the bylaws of VitalStream. After the consummation
of the merger, VitalStream stockholders will become stockholders
of Internap, and their rights will be governed by the DGCL, the
restated certificate of incorporation of Internap and the
amended and restated bylaws of Internap.
The following is a summary of the material differences between
the rights of VitalStream stockholders and the rights of
Internap stockholders. While we believe that this summary covers
the material differences between the two, this summary may not
contain all of the information that is important to you. This
summary is not intended to be a complete discussion of the
respective rights of VitalStream and Internap stockholders and
is qualified in its entirety by reference to the DGCL and Nevada
law and the various documents of Internap and VitalStream that
we refer to in this summary. You should carefully read this
entire joint proxy statement/prospectus and the other documents
we refer to in this joint proxy statement/prospectus for a more
complete understanding of the differences between being a
stockholder of Internap and being a stockholder of VitalStream.
Internap and VitalStream have filed their respective documents
referred to herein with the SEC and will send copies of these
documents to you upon your request. See Additional
Information Where You Can Find More
Information.
|
|
|
|
|
|
|
VitalStream
|
|
Internap
|
|
Authorized Capital Stock
|
|
VitalStreams articles of
incorporation authorize the issuance of 300,000,000 shares,
consisting of two classes: 290,000,000 shares of common
stock, $0.001 par value per share, and
10,000,000 shares of preferred stock, $0.001 par value
per share.
|
|
Internaps certificate of
incorporation authorizes the issuance of
800,000,000 shares, consisting of two classes:
600,000,000 shares of common stock, $0.001 par value
per share, and 200,000,000 shares of preferred stock,
$0.001 par value per share.
|
Number of Directors
|
|
VitalStreams articles of
incorporation provide that its board of directors shall consist
of between three and nine persons.
|
|
Internaps certificate of
incorporation provides that its board of directors shall consist
of no more then nine.
|
Cumulative Voting
|
|
VitalStreams articles of
incorporation do not provide for cumulative voting, and as a
result, holders of VitalStream common stock have no cumulative
voting rights in connection with the election of directors.
|
|
Internaps certificate of
incorporation does not provide for cumulative voting, and as a
result, holders of Internap common stock have no cumulative
voting rights in connection with the election of directors.
|
Classification of Board of
Directors
|
|
VitalStream has a classified
board. VitalStreams articles of incorporation provide that
the board is divided into three classes, with board members
serving three-year terms.
|
|
Internap has a classified board.
Internaps certificate of incorporation provides that the
board is divided into three classes, with board members serving
three-year terms, and that directors shall be assigned to each
class in accordance with a resolution or resolutions adopted by
Internaps board.
|
Removal of Directors
|
|
VitalStreams bylaws provide
that a director may be removed from
|
|
Internaps certificate of
incorporation provides that any
|
106
|
|
|
|
|
|
|
VitalStream
|
|
Internap
|
|
|
|
office, at a meeting expressly
called for that purpose, by the vote of a majority of the shares
of outstanding stock of the company entitled to vote on the
election of directors.
|
|
director or the entire board may
be removed from office at any time with cause by the affirmative
vote of the holders of a majority of the voting power of all the
then-outstanding shares of voting stock of Internap, entitled to
vote at an election of directors.
|
Vacancies on the Board of
Directors
|
|
VitalStreams articles of
incorporation provide that vacancies on the board of directors
may only be filled by a majority vote of the directors then in
office, even if less than a quorum. Any director so chosen shall
hold office for the remainder of the full term of the director
for which the vacancy was created and until a successor has been
duly elected and qualified.
|
|
Internaps certificate of
incorporation provides that any vacancy on the board shall,
unless the board determines by resolution that any such
vacancies or newly created directorships shall be filled by
stockholders, be filled only by the affirmative vote of a
majority of the directors then in office, even though less than
a quorum of the board. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created
or occurred and until such directors successor shall have
been elected and qualified.
|
Stockholder Action by Written
Consent
|
|
VitalStreams articles of
incorporation provide that its stockholders may act by written
consent, without a meeting, if a consent in writing is signed by
the holders of outstanding stock having not less than the
minimum number of votes necessary to authorize such action at a
meeting at which all shares entitled to vote thereon were
present and voted.
|
|
Internaps bylaws specify
that no action shall be taken by the stockholders except at an
annual or special meeting of the stockholders and that no action
shall be taken by the stockholders by written consent.
|
Amendment of Certificate or
Articles of Incorporation
|
|
VitalStreams articles of
incorporation may be amended in any manner otherwise permitted
by law, with the exception that Article XI (relating to the
board of directors, including the classification thereof)
requires the affirmative vote of the holders of in excess of 70%
of the outstanding common stock of the company.
|
|
Internaps certificate of
incorporation may be amended in any manner otherwise permitted
by law, with the exception that Article V (relating to the
composition of the board, alterations and amendments to
Internaps bylaws, stockholder meetings and stockholder
nominations for the election of directors and proposals for
other business), Article VI (relating to director
indemnification) and Article VII (relating to amendments
and alterations to Internaps certificate of incorporation)
require the affirmative vote of the holders of a
|
107
|
|
|
|
|
|
|
VitalStream
|
|
Internap
|
|
|
|
|
|
majority of the voting power of
all of the then-outstanding shares of voting stock, voting
together as a single class.
|
Amendment of Bylaws
|
|
VitalStreams bylaws may be
amended by the stockholders or the board of directors of the
company, subject to the following: (i) no bylaw adopted or
amended by the stockholders shall be altered or repealed by the
board of directors, (ii) no bylaw shall be adopted by the board
of directors which shall require more than the holders of stock
representing a majority of the voting power for a quorum at a
meeting of stockholders or more than a majority of the votes
cast to constitute action by the stockholders, except where
higher percentages are required by law, (iii) if any bylaw
regulating an impending election of directors is adopted or
amended or repealed by the board of directors, there shall be
set forth in the notice of the next meeting of the stockholders
for the election of directors, the bylaws so adopted or
repealed, together with a concise statement of the changes made;
and (iv) no amendment, alteration or repeal of the
Article XI of the bylaws (relating to amendments to the
bylaws) shall be made except by the stockholders of the company.
|
|
Internaps bylaws may be
amended by the affirmative vote of the holders of at least 66.6%
of the voting power of all the then-outstanding shares of voting
stock. Internaps bylaws also permit the board to adopt,
amend or repeal the bylaws. However, any repeal or modification
of the indemnification provisions of Internaps bylaws will
only be prospective and will not affect the indemnification
rights under Internaps bylaws in effect at the time of any
action or omission giving rise to a claim for indemnification.
|
Special meetings of Stockholders
|
|
Special meetings of
VitalStreams stockholders may be called according to the
Nevada Law, which provides that special meetings of stockholders
may be called by the entire board of directors, any two
directors or the president. Only matters set forth in a notice
of special meeting may be conducted at a special meeting.
|
|
Internaps bylaws provide
that special meetings of the stockholders may be called, for any
purpose, by (i) the chairman of the board, (ii) the
Chief Executive Officer or (iii) the board of directors
pursuant to a resolution adopt by a majority of the total number
of authorized directors.
|
Notice of Stockholder Meetings
|
|
VitalStreams bylaws require
that notice of a meeting be given to stockholders not less than
10 days or more than 60 days before the date of the
meeting.
|
|
Internaps bylaws require
that notice of a meeting shall be given to stockholders not less
than 10 days or more than 60 days before the date of
the meeting.
|
108
|
|
|
|
|
|
|
VitalStream
|
|
Internap
|
|
Delivery and Notice Requirements
of Stockholder Nominations and Proposals
|
|
VitalStreams bylaws provide
that in order for a stockholder to make a nomination or propose
business at an annual meeting of the stockholders, the
stockholder must give timely notice mailed to VitalStreams
principal executive offices not less than 30 days prior to
the date of the annual meeting; provided, in the event that less
than 40 days notice of the date of the meeting is given or
made to the stockholders, then the stockholder may deliver such
notice not later than the 10th day following the day on
which such notice of the date of the meeting was mailed. The
notice from the stockholder must contain various items related
to the proposal, as detailed in the bylaws.
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Internaps bylaws provide
that in order for a stockholder to make a nomination or propose
business at an annual meeting of the stockholders, the
stockholder must give timely written notice to Internap
secretary not less than 120 days in advance of the first
anniversary of the date that the corporations proxy
statement was released to stockholders in connection with the
previous years annual meeting; provided however, that if
no annual meeting was held in the previous year of if the date
of the annual meeting has changed by more than 30 days from
the date contemplated at the time of the previous years
proxy statement, notice by the stockholder to be timely must be
received not later than the close of business on the
10th day following the day on which a notice of the date of
the meeting was mailed or public announcement thereof was made.
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Proxy
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VitalStreams bylaws provide
that every person entitled to vote shall have the right to do so
either in person or by an agent or agents authorized by a
written proxy. No proxy shall be voted after six months from its
date, unless the proxy is coupled with an interest or provides
for a longer period not to exceed seven years.
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Internaps bylaws provide
that every person entitled to vote shall have the right to do so
either in person or by an agent or agents authorized by a proxy
granted in accordance with Delaware law. An agent so appointed
need not be a stockholder. No proxy shall be voted after three
years from its date of creation unless the proxy provides for a
longer period.
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Preemptive Rights
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VitalStreams articles of
incorporation deny any preemptive rights.
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Internaps certificate of
incorporation does not grant any preemptive rights.
Internaps bylaws are silent as to preemptive rights.
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Dividends
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VitalStreams articles of
incorporation provide that the board of directors may, in
accordance with law, declare dividends on its outstanding common
stock following payment of all amounts required in respect of
any outstanding preferred stock.
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Internaps bylaws provide
that, subject to the provisions of Internaps certificate
of incorporation, the board may declare dividends pursuant to
law at any regular or special meeting. Dividends may be paid in
cash, in property, or in shares of capital stock, subject to the
provisions of the certificate of incorporation. Before payment
of any dividend, the board may set aside any funds
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109
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VitalStream
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Internap
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of the corporation available for
dividends as the board from time to time, in its absolute
discretion, thinks proper as a reserve for any purpose the board
thinks conducive to the interests of Internap.
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Limitation of Personal Liability
of Directors
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VitalStreams articles of
incorporation provide that directors and officers shall have no
personal liability to the company or its stockholders for
damages for breach of fiduciary duty as a director or officer,
except for damages resulting from (i) acts or omissions
which involve intentional misconduct, fraud, or a knowing
violation of the law, or (ii) the payment of dividends in
violation of certain Nevada laws. In addition, the articles of
incorporation provide that each person who is now or may become
an officer or director of the company is relieved from liability
that he might otherwise obtain in the event such officer or
director contracts with the company for the benefit of himself
or any firm or other corporation in which he may have an
interest, provided such officer or director acts in good faith.
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Internaps certificate of
incorporation provides that a director of the corporation shall
not be personally liable to the corporation or its stockholders
for monetary damages for any breach of fiduciary duty as a
director, except for liability (i) for any breach of the
directors duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation
or law (iii) under Section 174 of the DGCL, or
(iv) for any transaction from which the director derived an
improper personal benefit.
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Furthermore, if the DGCL is amended after approval by the stockholders of this Article to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended.
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Indemnification of Officers and
Directors
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VitalStreams articles of
incorporation and bylaws provide that the company shall
indemnify all current and former directors and officers, as well
as officers and directors of another corporation in which
VitalStream at such time owned or may own shares of stock or of
which it was or may be creditor, against any and all expenses,
including amounts paid upon judgments counsel fees and amounts
paid in settlement in connection with the defense or settlement
of any claim, action, suit or proceedings in which they, or any
of them, are a party, or which may be asserted against them by
reason of being or
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Internaps bylaws require
that the corporation shall indemnify its directors and executive
officers to the fullest extent not prohibited by the DGCL;
provided, however, that the corporation may modify the extent of
such indemnification by individual contracts with its directors
and executive officers.The corporation shall not be required to
indemnify any director or executive officer in connection with
any proceeding initiated by the person unless (i) such
indemnification is expressly required to be made by law, (ii)
the proceeding was authorized by the board, (iii) such
indemnification is provided by the
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110
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VitalStream
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Internap
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having been an officer or
director, except in matters as to which such officer or director
shall be adjudged in any action, suit or proceeding to be liable
for his own negligence or misconduct in the performance of his
duty. These indemnification rights are in addition to any other
rights of indemnification that such a person may be entitled
under any law, agreement, vote of shareholders, or otherwise.
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corporation, in its sole discretion, pursuant to the powers vested in the corporation under the DGCL or (iv) such indemnification is required to be made under the provisions of the bylaws. The corporation shall have power to indemnify its other officers, employees and other agents as set forth in the DGCL.
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VitalStreams bylaws expand
the indemnification rights of officers and directors to include
indemnification from both third parties and VitalStream as to a
broad range of amounts (including claims, proceedings,
settlements, etc.), and to cover cases in which such an officer
or director acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best
interests of the company, and to also cover criminal actions or
proceedings, where such person had no reasonable cause to
believe his conduct was unlawful. If an officer or director is
successful, whether on the merits or otherwise, in the defense
of any action, suit or proceedings, or in defense of any claim,
issue or matter therein, he shall be indemnified against amounts
in connection therewith, without any judgment as to eligibility
according to the above standards.
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Internap shall advance to any
executive officer or director who was or is a party or is
threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, because such person was a
director or executive officer of the corporation, or was serving
at the request of the corporation as a director or executive
officer of another corporation, partnership, joint venture,
trust or other enterprise, prior to the final disposition of the
proceeding, all expenses incurred by any director or executive
officer in connection with such proceeding if such person
provides an undertaking to repay all amounts if it is ultimately
determined that the person is not entitled to be indemnified
under the bylaw or otherwise.
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VitalStreams bylaws provide
that the board of directors may also indemnify employees or
agents of the company, pursuant to the indemnification
provisions of the bylaws.
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Dissenters Rights
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Dissenters rights are not
available to VitalStream stockholders with respect to the
merger.
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Appraisal rights are not available
to Internap stockholders with respect to the merger.
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Certain Business Combination
Restrictions
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Sections 78.411 to 78.444 of the
Nevada Law contain provisions limiting business combinations
between Nevada corporations with 200 or more stockholders and
interested stockholders, which
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Under the DGCL a corporation can
elect not to be governed by §203 of the DGCL, which
generally protects publicly traded Delaware corporations from
hostile takeovers and from certain
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111
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VitalStream
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Internap
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term includes any person that
beneficially owns 10% or more of the corporations voting
power. These sections provide that the corporation and the
interested stockholder may not engage in a broad range of
specified business transaction for three years following the
date the person became an interested stockholder unless the
board of directors approved, before the person became an
interested stockholder, the transaction that resulted in the
stockholder becoming an interested stockholder. Although Nevada
Law permits a corporation to elect not to be governed by these
provisions, VitalStream has not made this election and,
accordingly, such provisions currently apply.
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actions following such takeovers.
Internap has not made this election and is therefore governed by
§203 of the DGCL.
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The Nevada Law also includes
provisions restricting the voting rights of persons who acquire
a controlling interest of a Nevada corporation with more than
200 stockholders of record, at least 100 of whom have addresses
in Nevada appearing on the stock ledger of the corporation, and
which does business in Nevada directly or through an affiliated
corporation. As permitted by Nevada Law, VitalStream has made
the election not to be governed by such provisions.
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Vote on Business Combinations
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Neither the VitalStream articles
of incorporation nor bylaws contain any provisions relating to
voting on business combinations.
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Neither the Internap certificate
of incorporation nor its bylaws contain any provisions relating
to business combinations.
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LEGAL
MATTERS
The validity of the Internap common stock to be issued in the
merger has been passed upon for Internap by Fenwick &
West LLP. Certain tax consequences of the merger have been
passed upon for Internap by Morris, Manning &
Martin LLP and for VitalStream by Parr Waddoups Brown
Gee & Loveless, PC.
EXPERTS
The financial statements and managements assessment of the
effectiveness of internal control over financial reporting
(which is included in Managements Report on Internal
Control over Financial Reporting) incorporated in this joint
proxy statement/prospectus by reference to the Annual Report on
Form 10-K
for the year ended December 31, 2005 have been so
incorporated in reliance on the report of PricewaterhouseCoopers
LLP, an
112
independent registered public accounting firm, given on the
authority of said firm as experts in auditing and accounting.
The consolidated financial statements of VitalStream
incorporated in this joint proxy statement/prospectus by
reference to the Annual Report on
Form 10-K
for the year ended December 31, 2005, and the consolidated
financial statements of EON Streams, Inc. incorporated in this
joint proxy statement/prospectus by reference to Amendment
No. 2 to VitalStreams Current Report on
Form 8-K/A
filed on November 28, 2006, have been so incorporated in
reliance on the report of Rose, Snyder & Jacobs,
independent registered public accounting firm, given on the
authority of said firm as experts in auditing and accounting.
WHERE YOU
CAN FIND MORE INFORMATION
Internap and VitalStream each file annual, quarterly and current
reports, proxy statements and other information with the SEC.
You may read and copy any reports, statements or other
information that the companies file at the SECs public
reference rooms in Washington, D.C.; New York, New York;
and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330
for further information on the public reference rooms.
Internaps and VitalStreams public filings are also
available to the public from commercial document retrieval
services and at the Internet web site maintained by the SEC at
www.sec.gov. Reports, proxy statements and other information
concerning Internap and VitalStream also may be inspected at the
offices of the National Association of Securities Dealers, Inc.,
Listing Section, 1735 K Street, Washington, D.C.
20006.
Internap has filed a
Form S-4
registration statement to register with the SEC the offering and
sale of the shares of Internap common stock to be issued to
VitalStream stockholders in the merger. This joint proxy
statement/prospectus is a part of that registration statement
and constitutes a prospectus and proxy statement of Internap and
a proxy statement of VitalStream for the special meeting.
As allowed by SEC rules, this joint proxy statement/prospectus
does not contain all the information that stockholders can find
in the registration statement or the exhibits to the
registration statement.
The SEC allows Internap and VitalStream to incorporate
information into this joint proxy statement/prospectus by
reference, which means that the companies can disclose
important information to you by referring you to another
document filed separately with the SEC. The information
incorporated by reference is considered to be part of this joint
proxy statement/prospectus, except for any information
superseded by information contained directly in this joint proxy
statement/prospectus or subsequent filings that are incorporated
by reference. This joint proxy statement/prospectus incorporates
by reference the documents listed below that Internap and
VitalStream have previously filed with the SEC. The portions of
these documents that were furnished to, and not filed with, the
SEC are not incorporated by reference. These documents contain
important information about the companies and their financial
condition.
Internap
Filings (File
No. 000-27265):
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Annual Report on
Form 10-K
for the fiscal year ended December 31, 2005;
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Quarterly Reports on
Form 10-Q
for the fiscal quarters ended March 31, 2006, June 30,
2006 and September 30, 2006;
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Current Reports on
Form 8-K
filed March 21, 2006, July 11, 2006, September 7,
2006, September 14, 2006, October 12, 2006,
October 13, 2006, October 19, 2006 and
November 13, 2006; and
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The description of Internap common stock included in
Internaps Registration Statements on
Form 8-A,
filed with the SEC on February 9, 2004, including any
amendment or reports filed for the purpose of updating such
description.
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VitalStream
Filings (File
No. 000-17020
following June 27, 2006: file No.
001-10013
prior to June 27, 2006):
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Annual Report on
Form 10-K
for the fiscal year ended December 31, 2005, as amended;
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113
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Quarterly Reports on
Form 10-Q
for the fiscal quarters ended March 31, 2006, as amended,
June 30, 2006 and September 30, 2006; and
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Current Reports on
Form 8-K
filed on January 6, 2006, February 3, 2006,
February 9, 2006, March 27, 2006, May 22, 2006,
June 13, 2006, July 10, 2006, July 19, 2006,
August 18, 2006, September 12, 2006 (two),
September 13, 2006, September 20, 2006,
October 12, 2006, October 18, 2006, November 2,
2006, November 28, 2006 and December 11, 2006.
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Internap and VitalStream hereby incorporate by reference
additional documents that Internap or VitalStream may file with
the SEC between the date of this joint proxy
statement/prospectus and the date of the special meetings. These
include periodic reports, such as annual reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K,
as well as proxy statements.
Internap and VitalStream also incorporate by reference the
following additional documents:
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the Agreement and Plan of Merger and Reorganization attached to
this joint proxy statement/prospectus as Annex A;
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the Form of Voting Agreement between Internap Network Services
Corporation and certain stockholders of VitalStream Holdings,
Inc. attached to this joint proxy statement/prospectus as
Annex B;
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the Opinion of Thomas Weisel Partners LLC attached to this joint
proxy statement/prospectus as Annex C; and
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the Opinion of RBC Capital Markets attached to this joint proxy
statement/prospectus as Annex D.
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Internap has supplied all information contained or incorporated
by reference in this joint proxy statement/prospectus relating
to Internap or Merger Sub, and VitalStream has supplied all
information relating to VitalStream.
If you are a stockholder, you may have received some of the
documents incorporated by reference. You may also obtain any of
those documents from the appropriate company or the SEC or the
SECs Internet web site described above. Documents
incorporated by reference are available from the appropriate
company without charge, excluding all exhibits unless
specifically incorporated by reference in such documents.
Stockholders may obtain documents incorporated by reference in
this joint proxy statement/prospectus by requesting them in
writing or by telephone from the appropriate company at the
following addresses:
Internap
Network Services Corporation
Attn:
Investor Relations
250 Williams Street,
Suite E-100
Atlanta, Georgia 30303
Telephone:
(404) 302-9700
E-mail:
ir@internap.com
VitalStream
Holdings, Inc.
Attn:
Investor Relations
555 Anton Blvd., Suite 400
Costa Mesa, California 92626
Telephone:
(415) 217-7722
E-mail:
ir@VitalStream.com
If you would like to request documents, please do so by
February 13, 2007 to receive them before the special
meetings. If you request any incorporated documents, the
appropriate company will strive to mail them to you by
first-class mail, or other equally prompt means, within one
business day of receipt of your request.
114
You should rely only on the information contained or
incorporated by reference in this joint proxy
statement/prospectus to vote your shares at the special meeting.
We have not authorized anyone to provide you with information
that differs from that contained in this joint proxy
statement/prospectus. This joint proxy statement/prospectus is
dated January , 2007. You should not assume
that the information contained in this joint proxy
statement/prospectus is accurate as of any date other than that
date, and neither the mailing of this joint proxy
statement/prospectus to stockholders nor the issuance of shares
of Internap common stock in the merger shall create any
implication to the contrary.
Internap Network Services Corporation, the Internap logos and
all other Internap product and service names are registered
trademarks or trademarks of Internap Network Services
Corporation in the United States and in other select countries.
VitalStream Holdings Inc., the VitalStream logos and all other
VitalStream product and service names are registered trademarks
or trademarks of VitalStream Holdings, Inc. or its consolidated
subsidiaries in the United States and in other select countries.
®
and
tm
indicate U.S. registration and U.S. trademark,
respectively. Other third party logos and product/trade names
are registered trademarks or trade names of their respective
companies.
115
ANNEX A
Agreement
and Plan of Merger
by and among
INTERNAP NETWORK SERVICES CORPORATION,
IVY ACQUISITION CORP.
and
VITALSTREAM HOLDINGS, INC.
October 12,
2006
TABLE OF
CONTENTS
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Page
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ARTICLE I THE MERGER
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A-1
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1.1
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The Merger
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A-1
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1.2
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Effective Time; Closing
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A-1
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1.3
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Effect of the Merger
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A-1
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1.4
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Articles of Incorporation; Bylaws
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A-1
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1.5
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Directors and Officers
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A-1
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1.6
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Effect on Capital Stock
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A-2
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1.7
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Surrender of Certificates
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A-3
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1.8
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No Further Ownership Rights in
Company Common Stock
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A-5
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1.9
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Lost, Stolen or Destroyed
Certificates
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A-5
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1.10
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Taking of Necessary Action;
Further Action
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A-5
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ARTICLE II REPRESENTATIONS
AND WARRANTIES OF COMPANY
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A-5
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2.1
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Company Organization and
Qualification
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A-6
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2.2
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Company Power and Authority;
Enforceability of this Agreement
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A-6
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2.3
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Company Capitalization
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A-7
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2.4
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Obligations With Respect to
Company Capital Stock
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A-8
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2.5
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Company Subsidiaries and
Investments
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A-8
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2.6
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Company SEC Reports; Compliance
with OTCBB and NGM; Company Financial Statements
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A-9
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2.7
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Absence of Certain Changes or
Events
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A-11
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2.8
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Company Books and Records
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A-12
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2.9
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Company Taxes
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A-12
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2.10
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Title and Operation of Company
Properties
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A-13
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2.11
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Company Intellectual Property
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A-14
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2.12
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Company Employees; Location and
Compensation
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A-16
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2.13
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Company Employee Benefit Plans
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A-16
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2.14
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Company Labor
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A-18
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2.15
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Company Litigation
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A-19
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2.16
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Compliance with Laws by Company
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A-19
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2.17
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Environmental Matters of Company
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A-20
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2.18
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Company Contracts
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A-20
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2.19
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Company Authority;
Non-Contravention
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A-22
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2.20
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Company Customer Contracts
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A-22
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2.21
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Company Brokers and
Finders Fees
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A-22
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2.22
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Opinion of Companys
Financial Advisor
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A-23
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2.23
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Company Insurance
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A-23
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2.24
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Company Corporate Controls
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A-23
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2.25
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Transactions with Affiliates of
Company
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A-23
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2.26
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Copies of Documents
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A-23
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A-i
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Page
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ARTICLE III REPRESENTATIONS
AND WARRANTIES OF PARENT AND MERGER SUB
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A-24
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3.1
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Organization and Qualification of
Parent and Merger Sub
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A-24
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3.2
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Power and Authority of Parent and
Merger Sub; Enforceability of this Agreement
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A-24
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3.3
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Parent Capitalization
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A-25
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3.4
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Obligations With Respect to Parent
Capital Stock
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A-25
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3.5
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Parent SEC Reports; Compliance
with AMEX and NGM; Parent Financial Statements
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A-26
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3.6
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Absence of Certain Changes or
Events
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A-27
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3.7
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Parent Books and Records
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A-28
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3.8
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Parent Taxes
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A-28
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3.9
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Parent Litigation
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A-29
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3.10
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Environmental Matters of Parent
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A-29
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3.11
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Parent Authority; Non-Contravention
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A-29
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3.12
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Opinion of Parents Financial
Advisor
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A-29
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ARTICLE IV CONDUCT PRIOR TO
THE EFFECTIVE TIME
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A-31
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4.1
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Conduct of Business by Company
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A-31
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4.2
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Conduct of Business by Parent
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A-34
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ARTICLE V ADDITIONAL
AGREEMENTS
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A-35
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5.1
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Joint Proxy Statement,
Registration Statement and Filings
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A-35
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5.2
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Meeting of Company Stockholders;
Conditions to Change of Recommendation; Superior Proposal;
Notification
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A-36
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5.3
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No Solicitation
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A-38
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5.4
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Meeting of Parent Stockholders
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A-39
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5.5
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Confidentiality; Access to
Information
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A-40
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5.6
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Public Disclosure
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A-40
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5.7
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Reasonable Efforts; Notification
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A-40
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5.8
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Third Party Consents
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A-41
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5.9
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Indemnification of Directors
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A-41
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5.10
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Stockholder Litigation
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A-41
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5.11
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Section 16(b)
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A-41
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5.12
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Tax-Free Qualification
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A-42
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5.13
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Tax Representation Letters
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A-42
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5.14
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Company Affiliates
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A-42
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5.15
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Voting Agreements
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A-42
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5.16
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Employment Agreements
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A-42
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5.17
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Noncompetition Agreements
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A-42
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ARTICLE VI CONDITIONS TO THE
MERGER
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A-42
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6.1
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Conditions to Obligations of Each
Party to Effect the Merger
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A-42
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6.2
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Additional Conditions to
Obligations of Company
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A-43
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6.3
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Additional Conditions to the
Obligations of Parent and Merger Sub
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A-44
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A-ii
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Page
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ARTICLE VII TERMINATION,
AMENDMENT AND WAIVER
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A-45
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7.1
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Termination
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A-45
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7.2
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Notice of Termination Effect of
Termination
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A-46
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7.3
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Fees and Expenses
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A-46
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7.4
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Amendment
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A-47
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7.5
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Extension; Waiver
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A-47
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ARTICLE VIII GENERAL
PROVISIONS
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A-47
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8.1
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Non-Survival of Representations
and Warranties
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A-47
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8.2
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Notices
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A-47
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8.3
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Interpretation; Certain Defined
Terms
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A-48
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8.4
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Counterparts
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A-52
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8.5
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Entire Agreement; Third Party
Beneficiaries
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A-52
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8.6
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Severability
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A-52
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8.7
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Other Remedies; Specific
Performance
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A-52
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8.8
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Governing Law
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A-52
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8.9
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Rules of Construction
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A-53
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8.10
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Assignment
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A-53
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8.11
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Attorneys Fees
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A-53
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8.12
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Taxes
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A-53
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8.13
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Waiver Of Jury Trial
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A-53
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Index of Exhibits
Exhibit A Affiliate Agreement
A-iii
Agreement
and Plan of Merger
This Agreement and Plan of Merger (this
Agreement) is made and entered into as
of October 12, 2006, among Internap Network Services
Corporation, a Delaware corporation
(Parent), Ivy Acquisition Corp., a
Nevada corporation and a wholly owned subsidiary of Parent
(Merger Sub), and VitalStream
Holdings, Inc., a Nevada corporation
(Company).
Recitals
The respective Boards of Directors of Parent, Merger Sub and
Company have approved this Agreement, and declared advisable the
merger of Merger Sub with and into Company (the
Merger) upon the terms and subject to
the conditions of this Agreement and in accordance with the
Nevada Revised Statutes Chapter 78 and Chapter 92A
(collectively, Nevada Corporate Law).
In consideration of the foregoing and the representations,
warranties, covenants and agreements set forth in this
Agreement, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the
terms and subject to the conditions of this Agreement and the
applicable provisions of Nevada Corporate Law, at the Effective
Time, Merger Sub shall be merged with and into Company, the
separate corporate existence of Merger Sub shall cease, and
Company shall continue as the surviving corporation of the
Merger (the Surviving Corporation).
1.2 Effective Time;
Closing. Subject to the provisions of this
Agreement, the parties hereto shall cause the Merger to be
consummated by filing articles of merger, in such appropriate
form as determined by the parties, with the Secretary of State
of the State of Nevada in accordance with the relevant
provisions of Nevada Corporate Law (the Articles of
Merger) (the time of such filing (or such later
time as may be agreed in writing by Company and Parent and
specified in the Articles of Merger) being the
Effective Time) as soon as practicable
following satisfaction or waiver of the conditions set forth in
Article VI. The closing of the Merger (the
Closing) shall take place at the
offices of Morris, Manning & Martin, LLP, located at
3343 Peachtree Road, N.E., Suite 1600, Atlanta, Georgia
30326, at a time and date to be specified by the parties, which
shall be no later than the second business day after the
satisfaction or waiver of the conditions set forth in
Article VI, or at such other time, date and location as the
parties hereto agree in writing (the Closing
Date).
1.3 Effect of the Merger. At
the Effective Time, the effect of the Merger shall be as
provided in this Agreement and the applicable provisions of
Nevada Corporate Law. Without limiting the generality of the
foregoing, at the Effective Time, all the property, rights,
privileges, powers and franchises of Company and Merger Sub
shall vest in the Surviving Corporation, and all debts,
liabilities and duties of Company and Merger Sub shall become
the debts, liabilities and duties of the Surviving Corporation.
1.4 Articles of Incorporation;
Bylaws.
(a) At the Effective Time, the Articles of Incorporation of
Merger Sub as in effect immediately prior to the Effective Time
shall become the Articles of Incorporation of the Surviving
Corporation, except that the name of Company, as the Surviving
Corporation, shall be Vine, Inc. and
Article FIRST of the Articles of Incorporation shall read
in its entirety as follows: The name of the corporation is
VitalStream Holdings, Inc.
(b) At the Effective Time, the Bylaws of Merger Sub as in
effect immediately prior to the Effective Time shall become the
Bylaws of the Surviving Corporation.
1.5 Directors and
Officers. The initial directors of the
Surviving Corporation shall be the directors of Merger Sub
immediately prior to the Effective Time, until their respective
successors are duly elected or appointed and qualified. The
initial officers of the Surviving Corporation shall be the
officers of Merger Sub immediately prior to the Effective Time,
until their respective successors are duly appointed.
A-1
1.6 Effect on Capital
Stock. Subject to the terms and conditions of
this Agreement, at the Effective Time, by virtue of the Merger
and without any action on the part of Parent, Merger Sub, the
Company or holders of any shares of capital stock of the
Company, the following shall occur:
(a) Company Common Stock. Each
share of common stock, par value $0.001 per share, of the
Company (the Company Common Stock)
issued and outstanding immediately prior to the Effective Time
(the Shares), other than shares of
Company Common Stock to be canceled pursuant to
Section 1.6(b), shall be automatically converted into and
become exchangeable for 0.5132 (the Exchange
Ratio) shares of common stock, par value
$0.001 per share, of Parent (the Parent Common
Stock) (the shares of Parent Common Stock into
which each share of Company Common Stock is to be converted, the
Merger Consideration) upon the
surrender of the certificate representing such shares of Company
Common Stock in the manner provided in Section 1.7 (or in
the case of a lost, stolen or destroyed certificate, upon
delivery of an affidavit (and bond, if required) in the manner
provided in Section 1.9). As of the Effective Time, all
shares of Company Common Stock shall no longer be outstanding,
shall be canceled and extinguished and shall cease to exist and
(i) each certificate (a
Certificate) formerly representing any
of such shares of Company Common Stock, other than shares of
Company Common Stock to be canceled pursuant to
Section 1.6(b), and (ii) each uncertificated share of
Company Common Stock registered to a holder on the stock
transfer books of the Company, other than shares of Company
Common Stock to be canceled pursuant to Section 1.6(b),
shall thereafter represent only the right to the Merger
Consideration and the right, if any, to receive pursuant to
Section 1.7(g) cash in lieu of fractional shares into which
such shares of Company Common Stock have been converted pursuant
to this Section 1.6(a) and any distribution or dividend
pursuant to Section 1.7(h), in each case without interest.
(b) Cancellation of Company-Owned and Parent-Owned
Stock. Each share of Company Common Stock
held by Company, any Company Subsidiaries, Merger Sub, Parent or
any Parent Subsidiaries immediately prior to the Effective Time
shall be canceled and extinguished without any conversion
thereof.
(c) Capital Stock of Merger
Sub. Each share of common stock, par value
$0.001 per share, of Merger Sub (Merger Sub
Common Stock), issued and outstanding immediately
prior to the Effective Time shall be converted into one validly
issued, fully paid and nonassessable share of common stock, par
value $0.001 per share, of the Surviving Corporation.
Following the Effective Time, each certificate evidencing
ownership of shares of common stock of Merger Sub shall evidence
ownership of such shares of capital stock of the Surviving
Corporation.
(d) Employee Stock Options.
(i) At the Effective Time, each outstanding option to
purchase Company Shares (a Company
Option) under the Company Plans identified in
Section 2.12 of the Company Disclosure Letter as being the
only Company Plans pursuant to which shares of Company Common
Stock may be issued or benefits measured by the value of shares
of Company Common Stock may be obtained (the Company
Stock Plans), whether vested or unvested, shall be
converted into an option to acquire a number of shares of Parent
Common Stock equal to the product (rounded up to the nearest
whole number) of (x) the number of shares of Company Common
Stock subject to the Company Option immediately prior to the
Effective Time and (y) the Exchange Ratio, at an exercise
price per share (rounded down to the nearest whole cent) equal
to (A) the exercise price per share of such Company Option
immediately prior to the Effective Time divided by (B) the
Exchange Ratio; provided, however, that the exercise price and
the number of shares of Parent Common Stock purchasable pursuant
to the Company Options shall be determined in a manner
consistent with the requirements that must be met for Company
Options to avoid classification as deferred
compensation subject to Section 409A of the Internal
Revenue Code of 1986, as amended (the
Code); provided, further, that in the
case of any Company Option to which Section 422 of the Code
applies, the exercise price and the number of shares of Parent
Common Stock purchasable pursuant to such option shall be
determined in accordance with the foregoing, subject to such
adjustments as are necessary in order to satisfy the
requirements of Section 424(a) of the Code. Except as
specifically provided above, following the Effective Time, each
Company Option shall continue to be governed by the same terms
and conditions as were applicable under such Company Option
immediately prior to the Effective Time. At or prior to the
Effective Time, Company shall take all such action necessary to
A-2
adopt appropriate amendments to the Company Stock Plans,
including using its reasonable best efforts in accordance with
Section 5.2 to cause its stockholders to approve such
amendments, to the extent necessary to effectuate the provisions
of this Section 1.6(d), and the Board of Directors of the
Company shall adopt such other appropriate resolutions as may be
necessary to effectuate the provisions of this
Section 1.6(d). At or prior to the Effective Time, Parent
shall take all actions as are necessary for the assumption of
the Company Stock Plans pursuant to this Section 1.6(d),
including the issuance (subject to Section 1.6(d)(ii)) and
listing of Parent Common Stock as necessary to effect the
transactions contemplated by this Section 1.6(d).
(ii) Parent shall file with the Securities and Exchange
Commission (the SEC), within 5
business days following the Effective Time, a registration
statement on
Form S-8
(or any successor form), registering under the Securities Act of
1933, as amended (the Securities Act),
options to purchase shares of, and shares of, Parent Common
Stock issued under the Company Stock Plan, and shall use its
commercially reasonable efforts to maintain the effectiveness of
such registration statement (and to maintain the current status
of the prospectus or prospectuses contained therein and comply
with any applicable state securities or blue sky
laws) for so long as awards granted under the Company Stock
Plans remain outstanding. As soon as reasonably practicable
after the registration of such interests or shares, as
applicable, Parent shall deliver to the holders of Company
Options by any permissible method appropriate notices setting
forth such holders rights pursuant to the respective
Company Stock Plans and agreements evidencing the grants of such
Company Options, and stating that such Company Options and
agreements have been assumed by Parent in accordance with the
applicable terms.
(iii) Without limiting the applicability of
Sections 1.6(d)(i) and (ii), the Company shall take all
necessary action to ensure that the Surviving Corporation will
not be bound at the Effective Time by any options, or other
rights, awards or arrangements under the Company Stock Plans
that would entitle any Person after the Effective Time to
acquire any shares of Company Common Stock or to receive any
payments in respect thereof with respect to exercises or
conversions occurring following the Effective Time. At or prior
to the Effective Time, Company shall take all such action
necessary to adopt appropriate amendments to the Company Stock
Plans, including using its reasonable best efforts in accordance
with Section 5.2 to cause its stockholders to approve such
amendments, to the extent necessary to effectuate the provisions
of this Section 1.6(d)(iii), and the Board of Directors of
the Company shall adopt such other appropriate resolutions as
may be necessary to effectuate the provisions of this
Section 1.6(d)(iii).
(e) Warrants. At the Effective
Time, each outstanding and unexercised warrant to purchase
shares of Company Common Stock (each, a Company
Warrant), whether or not exercisable or vested as
of such date, shall be canceled.
1.7 Surrender of
Certificates.
(a) Paying Agent. At or before the
Effective Time, Parent shall select, and enter into an agreement
with, an institution reasonably acceptable to Company to act as
the paying agent (the Paying Agent) in
the Merger. Parent shall make available to the Paying Agent for
payment in accordance with this Article I, and at or
promptly after (but no more than three business days) the
Effective Time, Parent shall deposit or cause to be deposited
with the Paying Agent (i) certificates representing the
shares of Parent Common Stock to be exchanged for shares of
Company Common Stock, other than shares of Company Common Stock
to be canceled pursuant to Section 1.6(b), in respect of
the aggregate Merger Consideration to be issued in the Merger
and (ii) any cash payable pursuant to Section 1.7(g)
in lieu of fractional shares and dividends or other
distributions payable pursuant to Section 1.7(h). Such
certificates for shares of Parent Common Stock, together with
the amount of any cash payable pursuant to Section 1.7(g)
in lieu of fractional shares and dividends or other
distributions payable pursuant to Section 1.7(h) shall
hereinafter be referred to as the Merger
Fund. With respect to the amount of cash to be
deposited to satisfy its obligation under Section 1.7(g),
Parent shall only be required to make a reasonable estimate of
the amount of such cash that will be necessary; provided,
however, that Parent shall use reasonable efforts to cause the
Paying Agent to agree to notify Parent at any point when the
amount of cash so paid to the Paying Agent to satisfy
Parents obligations pursuant to Section 1.7(g)
reasonably appears to be inadequate, and Parent shall, upon
receipt of such notice, timely deliver to the Paying Agent such
additional cash amounts as it may deem reasonably necessary for
such purpose.
A-3
(b) Exchange Procedures. Promptly
after the Effective Time, Parent shall cause the Paying Agent to
mail to each holder of record (as of the Effective Time) of a
Certificate that immediately prior to the Effective Time
represented outstanding shares of Company Common Stock whose
shares were converted into the right to receive the Merger
Consideration pursuant to Section 1.6(a), (i) a letter
of transmittal in customary form (which shall specify that
delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates
to the Paying Agent and shall be in such form and have such
other provisions as Parent may reasonably specify) and
(ii) instructions for use in effecting the surrender of the
Certificates in exchange for receipt of the Merger
Consideration. Upon surrender of Certificates for cancellation
to the Paying Agent or to such other agent or agents as may be
appointed by Parent, together with such letter of transmittal,
duly completed and validly executed in accordance with the
instructions thereto and such other documents as may reasonably
be required by the Paying Agent, the holder of such Certificates
shall be entitled to receive in exchange therefor the Merger
Consideration to which such holder is entitled pursuant to
Section 1.6(a), and the Certificates so surrendered shall
forthwith be canceled. Until so surrendered, outstanding
Certificates will be deemed from and after the Effective Time,
for all corporate purposes, to evidence the ownership of the
right to receive the Merger Consideration attributable thereto.
(c) Transfer of Ownership. If any
portion of the Merger Consideration is to be paid to a Person
other than the Person in whose name the surrendered Certificates
are registered, it will be a condition of payment thereof that
the Certificates so surrendered will be properly endorsed and
otherwise in proper form for transfer and that the Persons
requesting such payment will have paid to Parent or any agent
designated by it any transfer or other Taxes (as defined in
Section 2.7) required by reason of the payment of the
Merger Consideration in any name other than that of the
registered holder of the Certificates surrendered, or
established to the satisfaction of Parent or Paying Agent that
such Tax has been paid or is not payable.
(d) Required Withholding. Each of
the Paying Agent and the Surviving Corporation shall be entitled
to deduct and withhold from any consideration payable or
otherwise deliverable pursuant to this Agreement to any holder
or former holder of Company Common Stock such amounts as may be
required to be deducted or withheld therefrom under the Code or
under any provision of state, local or foreign tax law or under
any other applicable Legal Requirement (as defined in
Section 2.2(c)). To the extent such amounts are so deducted
or withheld, such amounts shall be treated for the purpose of
Parent satisfying its obligation to deliver the Merger
Consideration under this Agreement as having been paid to the
Person to whom such amounts would otherwise have been paid.
(e) No Liability. Notwithstanding
anything to the contrary in this Section 1.7, neither the
Paying Agent, Parent, the Surviving Corporation nor any party
hereto shall be liable to a holder of shares of Company Common
Stock for any amount properly paid to a public official pursuant
to any applicable abandoned property, escheat or similar law.
(f) Termination of Merger
Fund. Any portion of the Merger Fund
(including the proceeds of any investments thereof and any
shares of Parent Common Stock) that remains undistributed to the
holders of Certificates 180 days after the Effective Time
shall, at the request of the instruction of Parent, be delivered
to Parent. Any holders of the Certificates who have not
surrendered such Certificates in compliance with this
Section 1.7 shall after such delivery to Parent look only
to Parent for delivery of any shares of Parent Common Stock and
payment of any cash, dividends and other distributions in
respect thereof payable or deliverable pursuant to
Sections 1.6(a), 1.7(g) or 1.7(h), in each case without any
interest thereon. Any such portion of the Merger Fund remaining
unclaimed by holders of shares of Company Common Stock
immediately prior to such time as such amounts would otherwise
escheat to or become property of any Governmental Entity (as
defined in Section 2.4) shall, to the extent permitted by
applicable Legal Requirements, become the property of Parent
free and clear of any claims or interest of any Person
previously entitled thereto.
(g) Fractional Shares. Any other
provision of this Agreement to the contrary notwithstanding, no
fractional shares of Parent Common Stock shall be issued. Any
holder of shares of Company Common Stock entitled to receive a
fractional share of Parent Common Stock but for this
Section 1.7(g) shall be entitled to receive an amount in
cash (without interest) determined by multiplying such fraction
(rounded to the nearest one-hundredth of a share) by the average
of the closing price of a share of Parent Common Stock, as
reported in the Wall Street Journal, New York City edition,
for the five trading days ending on the trading day immediately
prior to the Effective Time.
A-4
(h) Distributions with Respect to Unexchanged Shares;
Voting.
(i) Whenever a dividend or other distribution is declared
by Parent in respect of Parent Common Stock, the record date for
which is at or after the Effective Time, that declaration shall
include dividends or other distributions in respect of all
shares of Parent Common Stock issuable pursuant to this
Agreement. No dividends or other distributions in respect of
such Parent Common Stock shall be paid to any holder of any
unsurrendered Certificate until such Certificate is surrendered
for exchange in accordance with this Article I (or in
compliance with the provisions of Section 1.9 of this
Agreement, as applicable). Subject to the effect of applicable
Legal Requirements, following surrender of any such Certificate,
there shall be issued
and/or paid
to the holder of the certificates representing whole shares of
Parent Common Stock issued in exchange therefor, without
interest, (A) at the time of such surrender, the dividends
or other distributions with a record date at or after the
Effective Time and a payment date on or prior to the date of
issuance of such whole shares of Parent Common Stock and not
previously paid with respect to such shares and (B) at the
appropriate payment date, the dividends or other distributions
payable with respect to such whole shares of Parent Common Stock
with a record date at or after the Effective Time but with a
payment date subsequent to surrender.
(ii) After the Effective Time, registered holders of
unsurrendered Certificates shall be entitled to receive notice
of, and vote at, any meeting of Parents stockholders with
a record date at or after the Effective Time at any meeting of
Parents stockholders with a record date at or after the
Effective Time the number of whole shares of Parent Common Stock
represented by such Certificates, as the case may be, regardless
of whether such holders have surrendered their Certificates or
delivered duly executed transmittal materials.
1.8 No Further Ownership Rights in Company
Common Stock. All Merger Consideration paid
upon the surrender for payment of shares of Company Common Stock
in accordance with the terms hereof shall be deemed to have been
issued in full satisfaction of all rights pertaining to such
shares of Company Common Stock, and there shall be no further
registration of transfers on the records of the Surviving
Corporation of shares of Company Common Stock. If, after the
Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged
as provided in this Article I.
1.9 Lost, Stolen or Destroyed
Certificates. If any Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the Person claiming such Certificate to be lost,
stolen or destroyed and, if required by Paying Agent, the
posting by such Person of a bond, in such reasonable amount as
the Surviving Corporation may direct, as indemnity against any
claim that may be made against it with respect to such
Certificate, the Paying Agent shall pay, in exchange for such
lost, stolen or destroyed Certificate, the Merger Consideration
(including payment for fractional shares set forth in
Section 1.7(g) hereof) to be paid in respect of the Shares
represented by such Certificate, as contemplated by this
Article I.
1.10 Taking of Necessary Action; Further
Action. If, at any time after the Effective
Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of Company
and Merger Sub, the officers and directors of Company and Merger
Sub will take all such lawful and necessary action. Parent shall
cause Merger Sub to perform all of its obligations relating to
this Agreement and the transactions contemplated hereby.
ARTICLE II
REPRESENTATIONS
AND WARRANTIES OF COMPANY
Company hereby represents and warrants to Parent and Merger Sub
that, subject to the exceptions specifically disclosed in the
disclosure letter (referencing the appropriate section and
paragraph numbers) delivered by Company to Parent dated as of
the date hereof (the Company Disclosure
Letter), which exceptions shall be deemed to be
representations and warranties as if made hereunder, the
following statements are true and correct as of the date hereof,
except where another date is specified, and will be true and
correct as of the Closing Date, except where another date
(including as of the date hereof is specified in the
representation or warranty (for the avoidance of doubt, if any
section in the Company Disclosure Letter discloses an item or
information in such a way as to make its relevance to the
disclosure required by another section of the Company Disclosure
Letter readily
A-5
apparent based on the substance of such disclosure, such matter
shall be deemed to have been disclosed in such other section of
the Company Disclosure Letter, notwithstanding the omission):
2.1 Company Organization and
Qualification.
(a) Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Nevada and has all requisite corporate power and authority to
own and operate its properties and to conduct its business as it
is currently being conducted. Company is duly qualified or
licensed to do business and is in good standing, or local law
equivalent, in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties or
operations makes such qualification or licensing necessary,
except in such jurisdictions where the failure to be so
qualified or licensed or to be in good standing, or local law
equivalent, would not, individually or in the aggregate, have a
Material Adverse Effect on Company.
(b) Company has delivered or made available to Parent true,
correct and complete copies of: (i) the Articles of
Incorporation and Bylaws of Company, in each case as amended to
date (collectively, the Company Charter
Documents), (ii) its committee charters,
codes of conduct or other comparable governing documents, in
each case as amended to date, (iii) all existing written
consents and minutes of the meetings of Companys Board of
Directors and each committee of its Board of Directors, and
(iv) all the existing written consents and minutes of the
meetings of the Company Stockholders. Each such instrument is in
full force and effect. Company is not in violation of any of the
provisions of the Company Charter Documents.
2.2 Company Power and Authority; Enforceability
of this Agreement.
(a) Company has all requisite corporate power and authority
to execute and deliver this Agreement, and subject to obtaining
the Company Stockholder Approval, to perform its obligations
hereunder and to consummate the Merger and the other
transactions contemplated hereby. The Board of Directors of
Company, at a meeting duly called and held at which all
directors of Company were present in accordance with the Bylaws
of Company, duly adopted resolutions (the Company
Board Approval) (i) approving and declaring
advisable this Agreement, the Merger and the other transactions
contemplated hereby, (ii) declaring that it is advisable
and making a determination that it is in the best interest of
Company and the Company Stockholders that Company enter into
this Agreement and consummate the Merger on the terms and
subject to the conditions set forth in this Agreement,
(iii) making a determination that this Agreement is fair to
Company and the Company Stockholders, (iv) directing that
this Agreement be submitted to a vote for adoption at a meeting
of the Company Stockholders to be held as promptly as
practicable as set forth in Section 5.2 hereof and
(v) recommending that the Company Stockholders adopt and
approve this Agreement, the Merger and the other transactions
contemplated hereby, which resolutions have not been
subsequently rescinded, modified or withdrawn in any way except
as permitted by Section 5.2 hereof. The execution, delivery
and performance of this Agreement by Company and the
consummation by Company of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate
action on the part of Company, subject to obtaining the Company
Stockholder Approval (as defined below). The affirmative vote of
the holders of a majority of the issued and outstanding shares
of the Company Common Stock as of the record date established
for the Company Stockholders Meeting, voting as a single
class, in favor of adopting this Agreement and of approving the
Merger and the other transactions contemplated hereby (the
Company Stockholder Approval), is the
only vote of the holders of any class or series of
Companys capital stock necessary to approve and adopt this
Agreement, the Merger and the other transactions contemplated
hereby.
(b) The Board of Directors of Company has taken all action
necessary to ensure that any restrictions on business
combinations applicable to Company shall not apply to the
transactions contemplated by this Agreement. No state or foreign
takeover or similar statute or regulation is applicable to this
Agreement or the transactions contemplated hereby.
(c) This Agreement has been duly and validly executed and
delivered by Company and, assuming the due authorization,
execution and delivery by Parent and Merger Sub, constitutes the
valid and binding obligation of Company, enforceable against
Company in accordance with its terms, except that (i) such
enforcement may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws, now or
hereafter in effect, affecting creditors rights generally,
and (ii) the remedy of specific performance and injunctive
and other
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forms of equitable relief may be subject to equitable defenses
and to the discretion of the court before which any proceeding
therefore may be brought.
2.3 Company Capitalization.
(a) The authorized capital stock of Company consists solely
of 290,000,000 shares of the Company Common Stock and
10,000,000 shares of the Company Preferred Stock, of which
200,000 shares are designated as 1995 Series Preferred
Stock, par value $0.001 per share (the Company
1995 Series Preferred Stock),
3,500 shares are designated as 1998 Series A Preferred
Stock, par value $0.001 per share (the Company
1998 Series A Preferred Stock),
1,000 shares are designated as 2003 Series A Preferred
Stock, par value $0.001 per share (the Company
2003 Series A Preferred Stock), and
1,100 shares are designated as 2003 Series B Preferred
Stock, par value $0.001 per share (the Company
2003 Series B Preferred Stock and together
with the Company 1995 Series Preferred Stock, the Company
1998 Series A Preferred Stock, the Company 2003
Series A Preferred Stock and the Company 2003 Series B
Preferred Stock, the Company Preferred
Stock), and (i) 23,224,272 shares of the
Company Common Stock are issued and outstanding as of
October 10, 2006, (ii) no shares of Company
1995 Series Preferred Stock are issued and
outstanding, (iii) no shares of Company 1998 Series A
Preferred Stock are issued and outstanding, (iv) no shares
of Company 2003 Series A Preferred Stock are issued and
outstanding, (v) no shares of Company 2003 Series B
Preferred Stock are issued and outstanding, and (vi) no
shares of Companys capital stock are being held in
Companys treasury. Part 2.3(a) of the Company
Disclosure Letter sets forth a true, correct and complete list
of the number of shares of the Company Common Stock held by each
registered holder thereof as of October 10, 2006, and since
such date Company has not issued any securities (including
derivative securities) except for any shares of the Company
Common Stock issued upon exercise of Company Options outstanding
under the Company Stock Plans prior to such date. All
outstanding shares of the Company Common Stock and the Company
Preferred Stock were duly authorized and validly issued, and are
fully paid and nonassessable and not subject to or issued in
violation of any purchase option, call option, right of first
refusal, pre-emptive right, subscription right or any similar
right under the provisions of Nevada Corporate Law, the Company
Charter Documents or any Contract to which Company is a party or
by which it is bound. There are no accrued and unpaid dividends
with respect to any outstanding shares of capital stock of
Company or any Company Subsidiary.
(b) Company has reserved 5,375,000 shares of the
Company Common Stock for issuance to permitted grantees pursuant
to the Company Stock Plans, of which
(i) 1,325,114.5 shares of the Company Common Stock
have been issued pursuant to option exercises as of the date
hereof, (ii) 3,918,300.05 shares are subject to
outstanding, unexercised options, with a weighted-average
exercise price of $5.23 as of the date hereof, and
(iii) 131,585 shares remain available for issuance
thereunder as of the date hereof. Part 2.3(b) of the
Company Disclosure Letter sets forth the following information
with respect to each Company Option outstanding as of the date
of this Agreement: (i) the name of the optionee;
(ii) the number of shares of the Company Common Stock
subject to such Company Option; (iii) the exercise price of
such Company Option; (iv) the date on which such Company
Option was granted; (v) the vesting schedule of such
Company Option, and the extent to which such Company Option is
vested as of the date of this Agreement; (vi) the date on
which such Company Option expires; and (vii) whether the
exercisability or vesting of such Company Option will be
accelerated in any way by the transactions contemplated by this
Agreement, and the extent of any such acceleration. Company has
made available to Parent an accurate and complete copy of the
Company Stock Plans and the forms of all stock option agreements
evidencing Company Options. There are no options outstanding to
purchase shares of the Company Common Stock other than pursuant
to the Company Stock Plans. All shares of the Company Common
Stock subject to issuance as aforesaid, upon issuance on the
terms and conditions specified in the instruments pursuant to
which they are issuable, will be duly authorized, validly
issued, fully paid and nonassessable. Other than as set forth on
Part 2.3(b) of the Company Disclosure Letter, there are no
Contracts of any character to which Company is bound obligating
Company to accelerate the vesting of any Company Option as a
result of the transactions contemplated by this Agreement. Other
than as set forth on Part 2.3(b) of the Company Disclosure
Letter, there are no outstanding or authorized stock
appreciation, stock purchase, profit participation,
phantom stock, or other similar plans or Contracts
with respect to Company or any Company Subsidiary.
(c) All outstanding shares of the Company Common Stock and
the Company Preferred Stock, all outstanding Company Options,
and all outstanding shares of capital stock of each Company
Subsidiary have been issued and
A-7
granted in compliance with (i) all applicable federal,
state and foreign securities laws and other applicable Legal
Requirements and (ii) all requirements set forth in
applicable agreements or instruments. For the purposes of this
Agreement, Legal Requirements means
any federal, state, local, municipal, foreign or other law,
statute, constitution, principle of common law, resolution,
ordinance, code, edict, decree, judgment, injunction, order,
rule, regulation, ruling or requirement issued, enacted,
adopted, promulgated, implemented or otherwise put into effect
by or under the authority of any Governmental Entity or the NGM.
2.4 Obligations With Respect to Company Capital
Stock.
(a) Except as described in Section 2.3 or set forth on
Parts 2.3, 2.4(a) and 2.5 of the Company Disclosure Letter, no
capital stock of Company or any Company Subsidiary or any
security convertible or exchangeable into or exercisable for
such capital stock, is issued, reserved for issuance or
outstanding as of the date hereof. Except as set forth on
Part 2.3 or Part 2.4(a) of the Company Disclosure
Letter, there are no subscriptions, options, warrants, calls,
rights (including preemptive rights), commitments or agreements
of any kind to which Company or any Company Subsidiary is bound
obligating Company or any Company Subsidiary to issue, deliver
or sell, or cause to be issued, delivered or sold, additional
shares of capital stock of Company or any Company Subsidiary or
obligating Company or any Company Subsidiary to grant, extend or
accelerate the vesting of or otherwise amend or enter into any
such subscriptions, options, warrants, calls, rights (including
preemptive rights), commitments or agreements. There are no
rights or obligations, contingent or otherwise (including rights
of first refusal in favor of Company), of Company or any Company
Subsidiary, to repurchase, redeem or otherwise acquire any
shares of capital stock of Company or any Company Subsidiary or
any securities convertible or exchangeable into or exercisable
for such capital stock or to provide funds to or make any
investment (in the form of a loan, capital contribution or
otherwise) in any Company Subsidiary or any other Person.
Neither Company nor any Company Subsidiary has any authorized,
issued, or outstanding bonds, debentures, notes or other
indebtedness having the right to vote on any matters on which
the Company Stockholders have the right to vote.
(b) Except as set forth on Part 2.4(b) of the Company
Disclosure Letter, Company is not a party to or bound by any
agreement with respect to the voting (including voting trusts,
proxies, poison pill anti-takeover plans)
registration under the Securities Act, or sale or transfer
(including agreements related to pre-emptive rights, rights of
first refusal, co-sale rights or drag-along rights
but excluding restrictions required by the Securities Act in
connection with private placements of securities) of any
securities of Company or any Company Subsidiary. To the
knowledge of Company, there are no agreements among other
parties, to which Company is not a party and by which it is not
bound, with respect to voting (including voting trusts and
proxies) or sale or transfer (including agreements relating to
rights of first refusal, co-sale rights or drag
along rights but excluding restrictions required by the
Securities Act in connection with private placements of
securities) of any securities of Company or any Company
Subsidiary.
(c) The Company Common Stock constitutes the only class of
securities of Company or Company Subsidiaries registered or
required to be registered under the Securities Exchange Act of
1934, as amended (the Exchange Act).
2.5 Company Subsidiaries and
Investments.
(a) Part 2.5 of the Company Disclosure Letter sets
forth the name, jurisdiction of organization and number of
outstanding shares of each Company Subsidiary, and lists of all
of the stockholders of each Company Subsidiary (indicating the
number of shares owned by each such stockholder). Company or one
of Company Subsidiaries owns of record and beneficially holds
valid title to all of the issued and outstanding shares of
capital stock of each Company Subsidiary as set forth on
Part 2.5 of the Company Disclosure Letter, and all such
shares (other than directors qualifying shares in the case
of foreign Subsidiaries, all of which are set forth on
Part 2.5 of the Company Disclosure Letter) are free and
clear of Encumbrances. All of the outstanding shares of capital
stock of each Company Subsidiary were duly authorized, validly
issued, and are fully paid and nonassessable and there are no
outstanding options, rights or agreements of any kind relating
to the issuance, sale or transfer of any capital stock or other
equity securities (or securities convertible into or
exchangeable for securities having such rights) of any Company
Subsidiary to any Person except Company.
A-8
(b) Each Company Subsidiary is a corporation or limited
liability entity and is duly incorporated or formed and
organized, validly existing and in good standing under the laws
of its jurisdiction of organization, with the requisite power
and authority to own its properties and to carry on its business
as it is now being conducted. Each Company Subsidiary is duly
qualified or licensed to do business and is in good standing, or
local law equivalent, in each jurisdiction in which the nature
of its business or the ownership or leasing of its properties or
operations makes such qualification or licensing necessary,
other than in such jurisdictions where the failure to be so
qualified or licensed or to be in good standing, or local law
equivalent, would not reasonably be expected to have a Material
Adverse Effect on Company. Except as set forth on Part 2.5
of the Company Disclosure Letter, neither Company nor any
Company Subsidiary has a place of business or permanent
establishment outside of the United States. Company has
delivered, or made available to Parent true, correct and
complete copies of the following documents: (i) the
Articles of Incorporation and Bylaws (or similar organizational
documents), in each case as amended, of each Company Subsidiary,
(ii) all the existing written consents and minutes of the
meetings of the Boards of Directors of each Company Subsidiary
and each committee of such Boards of Directors, and
(iii) all the existing written consents and minutes of the
meetings of the stockholders of each Company Subsidiary.
(c) Except as set forth on Part 2.5 of the Company
Disclosure Letter, neither Company nor any Company Subsidiary
owns any capital stock, any equity or partnership interest, any
joint venture or profit sharing interest or any other ownership
or proprietary interest in any Person.
2.6 Company SEC Reports; Compliance with OTCBB
and NGM; Company Financial Statements.
(a) Company has filed on a timely basis all reports,
schedules, forms, statements and other documents required to be
filed by Company with the SEC since April 23, 2002 (the
Company Commencement Date), including
all exhibits thereto and all certifications and statements
required by
(x) Rule 13a-14
or 15d-14
under the Exchange Act, or (y) 18 U.S.C.
Section 1350 (Section 906 of the Sarbanes-Oxley Act of
2002) (collectively, the
Certifications), as such documents
since the time of filing may have been amended or supplemented
with the SEC (the Company SEC
Reports). Since the Company Commencement Date,
there have been no comment letters or other correspondence
received by Company from the SEC (excluding letters related to
confidential treatment applications and orders of effectiveness)
or responses to such comment letters or other correspondence by
or on behalf of Company that have not been provided to Parent,
and the copies of such letters and responses delivered or made
available to Parent were true, correct and complete. Company
maintains disclosure controls and procedures required by
Rule 13a-15
or 15d-15
under the Exchange Act, and such controls and procedures are
designed to ensure that material information relating to
Company, including Company Subsidiaries, required to be
disclosed in the reports it files or submits under the Exchange
Act is accumulated and communicated to Companys principal
executive officer and principal financial officer to allow
timely decisions regarding financial disclosure. No Company
Subsidiary is required to file with the SEC any report,
schedule, form, statement or other document. As of their
respective dates and except as subsequently corrected by
amendment, the Company SEC Reports and all other filings that
have been made by Company with the SEC complied in all material
respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations
of the SEC promulgated thereunder applicable to such Company SEC
Reports, and Company has filed all exhibits required to be filed
with the Company SEC Reports and all other filings that have
been made by Company with the SEC, and all such exhibits were
true, correct and complete in all material respects (except to
the extent omissions were in reliance upon a confidential
treatment request). The Company SEC Reports and all other
filings that have been made by Company with the SEC
(a) were and, in the case of Company SEC Reports and all
other filings with the SEC filed by Company after the date
hereof, will be prepared in all material respects in accordance
with the applicable requirements of the Securities Act and the
Exchange Act, as the case may be, and (b) did not at the
time they were filed (or if amended or superseded by a filing
prior to the date hereof, then on the date of such filing), and
in the case of such forms, reports and documents filed by
Company with the SEC after the date hereof, will not as of the
time they are filed, contain any untrue statement of a material
fact or omit to state a material fact required to be stated in
or necessary in order to make the statements in such documents,
in light of the circumstances under which they were and will be
made, not misleading; provided, however, that all of the
Certifications are each true and correct based upon the
knowledge of the officer(s) making such Certifications, as made.
Company has filed all amendments to the Company SEC Reports and
all other filings that have been made by Company with the SEC as
were required to be filed under applicable law. Company was in
compliance with the requirements applicable to securities that
are
A-9
traded on the OTC Bulletin Board (the
OTCBB) when its securities were traded
on the OTCBB and is in compliance with the requirements
applicable to securities that are traded on the NGM and has not,
since the Company Commencement Date, received any notice from
the OTCBB or the NGM, asserting any non-compliance with such
requirements. As used in Sections 2.6 and 3.6 hereof, the
term file shall be broadly construed
to include any manner in which a document or information is
furnished, supplied or otherwise made available in writing to
the SEC.
(b) Each of the consolidated financial statements
(including, in each case, any related notes thereto) contained
in the Company SEC Reports, including each Company SEC Report
filed after the date hereof until the Closing (the
Company Financials), (i) complied
as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC
with respect thereto then in effect at the same time as such
filing, (ii) was prepared in accordance with United States
generally accepted accounting principles
(GAAP) applied on a consistent basis
throughout the periods involved (except as may be indicated
therein or in the notes thereto or, in the case of unaudited
interim financial statements, as may be permitted by the SEC on
Form 10-Q,
8-K or any
successor form under the Exchange Act) and (iii) fairly
presented in all material respects the consolidated financial
position of Company and Company Subsidiaries that are required
by GAAP to be consolidated therein and fairly reflects its
investment in any unconsolidated Subsidiary as of the respective
dates thereof and the consolidated results of their operations
and cash flows for the periods indicated, except that the
unaudited interim financial statements may not contain footnotes
and were or are subject to normal and recurring year-end
adjustments. All Subsidiaries of Company that are required by
GAAP to be consolidated in the Company Financials have been so
consolidated. The balance sheet of Company contained in Company
SEC Reports as of June 30, 2006 is hereinafter referred to
as the Company Balance Sheet. The
reserves reflected in the Company Financials have been
calculated in accordance with GAAP. Except as disclosed in the
Company Balance Sheet, neither Company nor any Company
Subsidiary has any liabilities required under GAAP to be set
forth on a balance sheet (absolute, accrued, contingent or
otherwise) which are, individually or in the aggregate, material
to the business, results of operations or financial condition of
Company and Company Subsidiaries taken as a whole, except for
liabilities incurred since the date of the Company Balance Sheet
in the ordinary course of business consistent with past
practices and liabilities incurred in connection with this
Agreement. Neither Company nor any Company Subsidiary nor, to
Companys knowledge, any director, officer, employee,
auditor, accountant or representative of Company or Company
Subsidiaries has received or otherwise had or obtained knowledge
of any written complaint, allegation, assertion or claim
regarding the accounting or auditing practices, procedures,
methodologies or methods of Company or Company Subsidiaries or
their respective internal accounting controls, including any
complaint, allegation, assertion or claim that Company or
Company Subsidiaries has engaged in questionable accounting or
auditing practices; provided that if such event arises after the
date of this Agreement, Company shall provide Parent with prompt
written notice of such event. Part 2.6(b) of the Company
Disclosure Letter contains a description of all non-audit
services performed by Companys auditors for Company and
Company Subsidiaries since January 1, 2006 and the fees
paid for such services. All such non-audit services were
approved as required by Section 202 of the Sarbanes-Oxley
Act of 2002. In the reasonable opinion of Companys audit
committee, the fees paid to and the services performed by
Companys auditors relating to such non-audit services as
set forth on Part 2.6(b) of the Company Disclosure Letter
do not impair such auditors independence. Company has
delivered or made available to Parent true, correct and complete
copies of all policies, manuals and other documents promulgating
Companys internal accounting controls. Since the Company
Commencement Date, no attorney representing Company or any
Company Subsidiary, whether or not employed by Company or
Company Subsidiaries, has reported evidence of a violation of
securities laws, breach of fiduciary duty or similar violation
by Company or any of its officers, directors, employees or
agents to Companys Board of Directors or any committee
thereof or to any director or officer of Company; provided that
if such event arises after the date of this Agreement, Company
shall provide Parent with prompt written notice of such event.
(c) Neither Company nor any Company Subsidiary is a party
to, or has any commitment to become a party to, any joint
venture, partnership agreement or any similar Contract
(including any Contract relating to any transaction, arrangement
or relationship between or among Company or any Company
Subsidiary, on the one hand, and any unconsolidated affiliate,
including any structured finance, special purpose or limited
purpose Person, on the other hand) where the purpose or intended
effect of such arrangement is to avoid disclosure of any
material transaction involving Company or any Company Subsidiary
in the Company Financials.
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2.7 Absence of Certain Changes or
Events. Except as contemplated by this
Agreement, since the date of the Company Balance Sheet, Company
and Company Subsidiaries have conducted their respective
businesses in all material respects in the ordinary course of
business. Since the date of the Company Balance Sheet, there has
not been:
(a) a Material Adverse Effect on Company;
(b) (i) any split, combination or reclassification of
any capital stock, (ii) any declaration, setting aside or
payment of any dividend on, or other distribution (whether in
cash, stock or property) in respect of, any of the shares of
capital stock, or any purchase, redemption or other acquisition
of any of the shares of capital stock or any other securities or
other partnership interests or any options, warrants, calls or
rights to acquire any such shares or other securities except for
repurchases from employees or consultants following their
termination pursuant to the terms of their pre-existing stock
option or purchase agreements, or (iii) any amendment of
any material term of any outstanding security;
(c) any (i) any disposing or impairment of or
permitting to lapse of any Company IP Rights that would be
material and adverse to Company or outside the ordinary course
of business, (ii) disposing of or disclosing (except as
necessary in the conduct of its business) to any Person other
than representatives of Parent any trade secret or other
Intellectual Property Rights not theretofore a matter of public
knowledge to any party that is not subject to a nondisclosure or
similar agreement, or (iii) any material change to
Companys or any Company Subsidiarys rights to use
Intellectual Property Rights licensed from a third party,
except, in the case of (i) through (iii) in the
aggregate, as would not be material to Company and Company
Subsidiaries, taken as a whole;
(d) any sale, transfer, or other disposition of any
material properties or assets (whether real, personal or mixed,
tangible or intangible) except in the ordinary course of
business consistent with past practices;
(e) (i) any assumption, guarantee, endorsement or
liability otherwise incurred (whether directly, contingently or
otherwise) for the obligations of any other Person other than
those of Company or Company Subsidiaries, or (ii) any
making of any loan, advance or capital contribution to or
investment in any Person, including any director, officer or
other affiliate of Company, other than advances to employees for
travel and other reimbursable expenses in the ordinary course of
business;
(f) (i) any material Tax election or material change
in any Tax election, any material change in annual Tax
accounting period or method of Tax accounting other than as
required by applicable laws or regulations, any filing of any
material amended Tax Returns, any entering into of a closing
agreement, settlement of or consent to any Tax claim, any
surrendering of any right to claim a material refund of Taxes,
or any consent to any extension or waiver of the statutory
period of limitation applicable to any material Tax claim,
(ii) any material change in any method of accounting,
method of accounting principles or practice, except for any such
change required by reason of a concurrent change in GAAP or
compliance with the applicable requirements of the rules and
regulations promulgated by the SEC, or (iii) any
revaluation of any material assets, including, without
limitation, writing-off notes or accounts receivable other than
in the ordinary course of business;
(g) any loss of, or receipt of written notice of any
intention to cancel or otherwise terminate, any identified
Contract that would be reasonably likely, individually or in the
aggregate, to be material to Company other than in the ordinary
course of business consistent with past practices and other than
threatened terminations of any identified Contract where Company
has cured the underlying cause of the threat and such Contract
still remains in full force and effect;
(h) as of the date hereof, (i) any increase or change
in any compensation, benefits or bonus paid or made payable to
any of their executive officers or directors, or employees
earning more than $100,000 in base salary annually, or any
increase in severance or termination pay, or any material
modification or amendment of any currently effective employment,
severance, termination or indemnification agreement or any
agreement or policy the benefits of which are contingent, or the
terms of which are materially altered, upon the occurrence of a
transaction involving Company of the nature contemplated hereby
or (ii) any action taken to accelerate, amend or change the
period of vesting or exercisability of options or restricted
stock, or reprice Company
A-11
Options granted under the Company Stock Plans or authorization
of cash payments in exchange for any Company Options granted
under the Company Stock Plans; or
(i) any agreement, whether in writing or otherwise, to take
any action described in this Section 2.7.
2.8 Company Books and
Records. All accounts, books, ledgers and
official and other records material to Companys business
maintained by Company or Company Subsidiaries have been properly
and accurately kept in all material respects, and there are no
material inaccuracies or discrepancies contained or reflected
therein. Company or Company Subsidiaries have under their
control or possession all material records, systems, data or
information used in Companys business, and neither Company
nor any Company Subsidiary uses any third party provider for
records storage, except duplicate backup storage tapes which are
maintained at a secure location and readily accessible by
Company and Company Subsidiaries.
2.9 Company
Taxes. (a) Company and each Company
Subsidiary have timely filed, or caused to be filed, taking into
account any valid extensions of due dates, completely and
accurately, in all material respects, all federal, state, local
and foreign returns, estimates, information statements and
reports relating to Taxes (Tax
Returns) required to be filed by or on behalf of
Company and each Company Subsidiary with any Tax authority. Such
Tax Returns are true, correct and complete in all material
respects. Company and each Company Subsidiary have paid all
Taxes required to be paid.
(b) Company and Company Subsidiaries have collected all
sales, use, goods and services or other commodity Taxes required
to be collected and remitted or will remit the same to the
appropriate Tax authority within the prescribed time periods.
Company and each Company Subsidiary have timely withheld or paid
all federal and state income Taxes, Taxes pursuant to the
Federal Insurance Contribution Act
(FICA), Taxes pursuant to the Federal
Unemployment Tax Act and other Taxes required to be withheld or
paid by Company and each Company Subsidiary with respect to any
of its employees, former employees, directors, officers,
residents and non-residents or third parties.
(c) Neither Company nor any Company Subsidiary has been
delinquent in the payment of any Tax nor is there any Tax
deficiency outstanding, proposed or assessed against Company or
any Company Subsidiary, nor has Company or any Company
Subsidiary executed any unexpired waiver of any statute of
limitations on or extending the period for the assessment or
collection of any Tax.
(d) Since January 1, 2002, none of the Tax Returns of
Company or any Company Subsidiary have ever been audited by the
IRS or any other Governmental Entity. No examination of any Tax
Return of Company or any Company Subsidiary is currently in
progress, and neither Company nor any Company Subsidiary has
received written notice of any (i) pending or proposed
audit or examination, (ii) request for information
regarding Tax matters, or (iii) notice of deficiency or
prepared adjustment for any amount of Tax proposed, asserted, or
assessed by any Tax authority against Company or any Company
Subsidiary, and Company does not expect any authority to assess
any additional Taxes for any period for which Tax Returns have
been filed.
(e) Company has no liability for unpaid Taxes which has not
been accrued for or reserved on the Company Balance Sheet in
accordance with GAAP, whether asserted or unasserted, contingent
or otherwise, which is material to Company, other than any
liability for unpaid Taxes that may have accrued since the date
of the Company Balance Sheet in connection with the operation of
the business of Company and Company Subsidiaries in the ordinary
course. The amount set up as an accrual for Taxes (aside from
any reserve for deferred Taxes established to reflect timing
differences between book and tax income) in the Company Balance
Sheet is sufficient for the payment of all unpaid Taxes of
Company and any Company Subsidiary, whether or not disputed, for
all periods ended on or prior to the date hereof.
(f) Company has delivered or made available to Parent or
its legal counsel or accountants true, correct and complete
copies of all Tax Returns for Company and Company Subsidiaries
filed for all periods since December 31, 2002, and all such
filings were true, correct and complete in all material respects
when made.
(g) There are (and immediately following the Effective Time
there will be) no Encumbrances on the assets of Company relating
to or attributable to Taxes other than Encumbrances for Taxes
not yet due and payable. There is
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no basis for the assertion of any claim relating or attributable
to Taxes that, if adversely determined, would result in any
Encumbrance for Taxes on the assets of Company.
(h) Neither Company nor any Company Subsidiary has
(a) been a member of an affiliated group (within the
meaning of Code §1504(a)) filing a consolidated federal
income Tax Return (other than a group the common parent of which
was Company) or any combined, consolidated or unitary state or
local or foreign income Tax Return, (b) been a party to any
Tax sharing, indemnification or allocation agreement, nor does
Company owe any amount under any such agreement
(c) liability for the Taxes of any Person under Treas. Reg.
§ 1.1502-6 (or any similar provision of state, local
or foreign law), as a transferee or successor, by Contract, or
otherwise or (d) been a party to any joint venture,
partnership or other agreement that could be treated as a
partnership for Tax purposes.
(i) Neither Company nor any Company Subsidiary has
constituted either a distributing corporation or a
controlled corporation in a distribution of stock
intended or purported to be governed by Section 355 or
Section 361 of the Code.
(j) Neither Company nor any Company Subsidiary has engaged
in a transaction that is the same as or substantially similar to
one of the types of transactions that the IRS has determined to
be a tax avoidance transaction and identified by notice,
regulation, or other form of published guidance as a listed
transaction, as set forth in Treas. Reg.
§ 1.6011-4(b)(2).
(k) Neither Company nor any Company Subsidiary is obligated
to make any payments or is a party to any agreement that under
certain circumstances could obligate it to make any payments
that will not be deductible under Section 280G or
Section 162(m) of the Code or under similar provisions of
foreign, state, or local law.
(l) Company and each Company Subsidiary has complied in all
material respects with all applicable laws relating to
accounting and Tax matters, intercompany transactions and
transfer pricing, except where the failure to comply would not
reasonably be expected to have a Material Adverse Effect on
Company. Neither Company nor any Company Subsidiary has been a
United States real property holding corporation within the
meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of
the Code. Neither Company nor any Company Subsidiary will be
required to include any item of income in, or exclude any item
of deduction from, taxable income for any taxable period (or
portion thereof) ending after the date hereof as a result of any:
(i) change in method of accounting for a taxable period
beginning or ending on or prior to the date hereof;
(ii) closing agreement as described in
Section 7121 of the Code (or any corresponding or similar
provision of state, local or foreign income Tax law) executed on
or prior to the date hereof;
(iii) intercompany transaction or excess loss account
described in Treasury Regulations under Section 1502 of the
Code (or any corresponding or similar provision of state, local
or foreign income Tax law);
(iv) installment sale or open transaction disposition made
on or prior to the date hereof; or
(v) prepaid amount received on or prior to the date hereof.
(m) Except as would not have a Material Adverse Effect on
Company, Company and Company Subsidiaries have complied with all
registration, reporting, collection, and remittance requirements
in respect of all federal and provincial sales tax legislation,
including, but not limited to the Excise Tax Act and the Retail
Sales Act.
2.10 Title and Operation of Company
Properties.
(a) Company and Company Subsidiaries have good and valid
title to, or enforceable leasehold interests in, or valid rights
under Contract to use, all the properties and assets owned or
used by it or them (real and personal, tangible and intangible),
in each case free and clear of all Encumbrances, except for
Company Permitted Encumbrances. The property and equipment owned
or otherwise contracted for by Company and Company Subsidiaries
are in a state of good maintenance and repair (ordinary wear and
tear excepted) and are adequate and suitable for the purposes
for which they are presently being used. Company
Permitted Encumbrances mean all
(i) Encumbrances for Taxes not yet payable or being
contested in good faith and by proper proceedings diligently
pursued and for which an adequate reserve has been made,
(ii) Encumbrances upon equipment granted in
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connection with the purchase, lease or financing of such
equipment provided that such Encumbrance attaches only to the
equipment purchased, leased or financed with the proceeds
secured thereby, (iii) carriers, warehousemens,
mechanics and materialmens Encumbrances arising in
the ordinary course of business securing sums which are not past
due, (iv) Encumbrances of landlords which are inchoate
arising solely by operation of law with respect to the Company
Real Property Leases, (v) Encumbrances on PINs and
equipment held by providers thereof arising in the ordinary
course of business for sums not yet past due or being contested
in good faith and by proper proceedings diligently pursued and
for which an adequate reserve has been made, (vi) with
respect to real property, any zoning laws and ordinances or
recorded easements and (vii) those Encumbrances set forth
on Part 2.10(a) of the Company Disclosure Letter.
(b) Neither Company nor any Company Subsidiary owns any
real property (including ground leases) or holds any option or
right of first refusal or first offer to acquire any real
property, and neither Company nor any Company Subsidiary is
obligated by Contract or otherwise to purchase any real property.
(c) Part 2.10(c) of the Company Disclosure Letter
contains a true, complete and correct list of each real property
lease, sublease, license or other occupancy agreement, including
any modification, amendment or supplement thereto and any other
related document or agreement that is currently in effect and
has been executed or entered into by Company or any Company
Subsidiary (including any of the foregoing which Company or any
Company Subsidiary has subleased or assigned to another Person
and as to which Company or such Subsidiary remains liable)
(each, a Company Real Property Lease).
Company and Company Subsidiaries hold the leasehold estate on
each Company Real Property Lease free and clear of all
Encumbrances, except for Company Permitted Encumbrances and any
mortgagees Encumbrances on the real property in which such
leasehold estate is located. The real property leased by Company
and Company Subsidiaries is in a state of good maintenance and
repair and is adequate and suitable for the purposes for which
it is presently being used, and, to the knowledge of Company,
there are no material repair or restoration works needed in
connection with any of the leased real properties which Company
or any Company Subsidiary are responsible to make. Company or
one of Company Subsidiaries is in physical possession and actual
and exclusive occupation of the whole of each of its leased
properties. Except as set forth on Part 2.10(c) of the
Company Disclosure Letter, neither Company nor any Company
Subsidiary owes any brokerage commission with respect to any
Company Real Property Lease.
2.11 Company Intellectual
Property.
(a) Company and the Company Subsidiaries own or have the
valid right or license to use in the manner used by Company and
the Company Subsidiaries all IP Assets and Intellectual Property
Rights used by, or necessary to the operation of the business
of, Company and the Company Subsidiaries. Such IP Assets and
Intellectual Property Rights used by Company and the Company
Subsidiaries are sufficient for the conduct of the business of
Company and the Company Subsidiaries as currently conducted and
as currently planned to be conducted. The consummation of the
Merger and the other transactions contemplated by this Agreement
and any ancillary agreements will not result in any termination
or other material restriction being imposed on any Company IP
Assets or Company IP Rights.
(b) Except as otherwise set forth on Part 2.11(b) of
the Company Disclosure Letter there are no royalties, honoraria,
fees or other payments payable by Company and the Company
Subsidiaries to any Person (other than salaries payable to
employees, consultants and independent contractors not
contingent on or related to use of their work product) as a
result of the use, possession or ownership of any Company IP
Assets, or any Company IP Rights, and none will become payable
as a result of the consummation of the transactions contemplated
by this Agreement.
(c) To the knowledge of Company, neither the operation of
the business of Company and the Company Subsidiaries, nor any
product or service of Company and the Company Subsidiaries, nor
the use of any Company IP Asset or the use or exercise of
any Company IP Rights, infringes or misappropriates, or has
infringed or misappropriated, any Intellectual Property Right of
any other Person. There is no pending, or, to the knowledge of
Company, threatened, claim or litigation against Company or any
Company Subsidiary contesting the validity, ownership or other
right of Company in any Company IP Asset or any Company IP Right
nor, to Companys knowledge, is there any legitimate basis
for any such claim. Company and the Company Subsidiaries have
not received any written notice asserting that the use,
exercise, sale, license or disposition, or any proposed use,
exercise, sale, license or disposition, of any Company IP Asset
or any Company IP Right, or any business practice or
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product or service of Company and the Company Subsidiaries,
conflicts, or will conflict with, any Intellectual Property
Right of any other Person nor, to Companys knowledge, is
there any legitimate basis for any such assertion.
(d) The Company IP Assets and Company IP Rights owned by
Company and the Company Subsidiaries do not contain any
derivative works or other materials not owned in their entirety
by Company and the Company Subsidiaries. Company and the Company
Subsidiaries have granted no third party any exclusive rights
with respect to any Company IP Assets or Company IP Rights.
(e) To Companys knowledge, no current or former
employee, consultant or independent contractor of Company or the
Company Subsidiaries: (i) is in material violation of any
term or covenant of any Contract relating to employment, patent
disclosure, invention assignment, non-disclosure or
non-competition or any other Contract with any other party by
virtue of such employees, consultants or independent
contractors being employed by, or performing services for,
Company or the Company Subsidiaries or using Intellectual
Property Rights of others without permission; or (ii) has
developed any IP Assets or Intellectual Property Rights for
Company or the Company Subsidiaries that is subject to any
agreement under which such employee, consultant or independent
contractor has assigned or otherwise granted to any Person
(other than Company) any rights in or to such IP Assets or
Intellectual Property Rights.
(f) Company and the Company Subsidiaries have taken all
appropriate steps to protect, preserve and maintain the secrecy
and confidentiality of their respective confidential
information, including trade secrets, and to preserve and
maintain all of their respective interests and rights in Company
IP Assets and the Company IP Rights owned by Company or any
Company Subsidiary. Company and the Company Subsidiaries have
adequately maintained all trade secrets and copyrights included
in the Company IP Rights owned by Company or any Company
Subsidiary. Company and the Company Subsidiaries have secured
valid written assignments of all rights in or to any Company IP
Assets and Company IP Rights owned by Company or any Company
Subsidiary pursuant to valid work for hire
agreements from all of Companys and the Company
Subsidiaries current and former employees, consultants and
independent contractors who were involved in, or who contributed
to, the creation or development of any such Company IP Assets or
Company IP Rights, which agreements comply in all material
respects with all applicable Legal Requirements. To
Companys knowledge, no current or former director,
officer, employee, consultant or independent contractor of
Company or the Company Subsidiaries has any right, license,
claim or interest whatsoever in or with respect to any Company
IP Assets or Company IP Rights.
(g) Part 2.11(g) of the Company Disclosure Letter
contains a true and complete list of (i) all registrations
made in any and all jurisdictions throughout the world by or on
behalf of Company and the Company Subsidiaries of any Company IP
Rights, and (ii) all applications, registrations, filings
and other formal written governmental actions made or taken
pursuant to applicable laws by Company and the Company
Subsidiaries to secure, perfect, protect or maintain its
interest in Company IP Rights, including all patent
applications, copyright applications, and applications for
registration of trademarks and service marks (collectively, the
Registered Company IP Rights). All Registered
Company IP Rights are valid, enforceable and subsisting, and all
necessary registration, maintenance and renewal fees that have
become due in connection with the Registered Company IP Rights
have been paid and all necessary documents and articles in
connection with the Registered Company IP Rights have been filed
with the relevant patent, copyright, trademark or other
authorities in the United States or foreign jurisdictions, as
the case may be, for the purposes of obtaining and maintaining
the Registered Company IP Rights. There are no facts or
circumstances that would render any Registered Company IP Rights
invalid or unenforceable. Without limiting the foregoing, there
are no information, materials, facts or circumstances, including
any information or fact that would constitute prior art, that
would render any of the Registered Company IP Rights invalid or
unenforceable, or would adversely effect any pending application
for any Registered Company IP Rights.
(h) Company and the Company Subsidiaries possess all right,
title and interest in and to all Company IP Assets and Company
IP Rights owned by Company or any Company Subsidiary, free and
clear of all Encumbrances and licenses (other than non-exclusive
licenses granted to customers and resellers in the ordinary
course of business and licenses and rights listed on
Part 2.11(h) of the Company Disclosure Letter), other than
Permitted Encumbrances. Without limiting the foregoing, Company
represents and warrants that the Company IP Assets owned by the
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Company include without limitation all EONStreams components and
the internal elements of its FastAim, EasyImpressions and
MediaConsole products, and Company possesses sole ownership with
respect thereto.
(i) To Companys knowledge, there is no current or
past unauthorized use, disclosure, infringement or
misappropriation of any Company IP Asset or Company IP Rights
owned by Company or any Company Subsidiary by any Person,
including any employee or former employee of Company or the
Company Subsidiaries.
(j) No (i) government funding, or (ii) facilities
of a university, college, other educational institution or
research center; was used in the development of any Company IP
Assets or Company IP Rights owned by the Company or the Company
Subsidiaries. To the Companys knowledge, no current or
former employee, consultant or independent contractor of Company
or the Company Subsidiaries who was involved in, or who
contributed to, the creation or development of any Company IP
Assets or Company IP Rights owned by Company or any Company
Subsidiary, has performed services for the government, any
university, college or other educational institution or any
research center during a period of time during which such
employee, consultant or independent contractor was also
performing services for Company or the Company Subsidiaries. No
university, college, other educational institution or research
center has any right, title or interest in or to any Company IP
Rights owned by Company or any Company Subsidiary.
(k) Except as set forth on Part 2.11(k) of the Company
Disclosure Letter the Company IP Assets owned by the Company and
the Company Subsidiaries do not contain any Publicly Available
Software or any Harmful Code.
2.12 Company Employees; Location and
Compensation. Part 2.12 of the Company
Disclosure Letter is a true, complete and correct list as of the
date hereof showing (a)(i) the names and positions of all
employees and consultants of Company and Company Subsidiaries,
(ii) the principal offices where such employees and
consultants work, (iii) a statement of the current annual
salary, and the annual salary, bonus and incentive compensation
paid or payable to such individuals, and a statement of the
projected bonus and incentive compensation payable with respect
to the fiscal year ending December 31, 2006, and the fringe
benefits of such employees and consultants not generally
available to all employees of Company and Company Subsidiaries;
(b) the names of all retired employees, if any, of Company
or Company Subsidiaries who are receiving or entitled to receive
any healthcare or life insurance benefits or any payments from
Company or any of Company Subsidiaries not covered by any
pension plan to which Company or any of Company Subsidiaries is
a party, their ages and current unfunded pension rate, if any;
and (c) a description of the current severance and vacation
policy of Company and Company Subsidiaries. Other than as set
forth in the Company Disclosure Letter, neither Company nor any
Company Subsidiary has, because of past practices or previous
commitments with respect to its employees, established any
rights on the part of any of its employees to additional
compensation with respect to any period after the Closing Date
(other than wage increases in the ordinary course of business).
2.13 Company Employee Benefit
Plans.
(a) Part 2.13(a) of the Company Disclosure Letter
lists (a) all employee benefit plans (as defined in
Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended (ERISA));
(b) all specified fringe benefit plans (as
defined in Section 6039D(d)(1) of the Code); (c) all
nonqualified deferred compensation plans (as defined
in Sections 409A(d)(1) or 3121(v)(2)(C) of the Code); and
(d) all bonus, incentive, deferred compensation, retiree
medical or life insurance, supplemental retirement, severance,
termination, unemployment, disability, bonus, stock options,
stock appreciation rights or other forms of incentive
compensation, health, vision, dental or other insurance, or
other benefit plans, programs or arrangements, or other
Contracts; whether covering one Person or more than one Person,
and whether or not subject to any of the provisions of ERISA,
which are or have been maintained, contributed to or sponsored
by Company or any ERISA Affiliate for the benefit of any
employee, independent contractor, agent, director or stockholder
of Company or any ERISA Affiliate or for the benefit of any
spouse, dependents or beneficiaries of such Persons, other than
Social Security, Medicare and state unemployment programs to
which Company and the Company Subsidiaries are required by
statute to contribute (each item listed on Part 2.13(a) of
the Company Disclosure Letter being referred to herein
individually, as a Company Plan and
collectively, as the Company Plans).
Company has delivered or made available to Parent, to the extent
applicable, a true, complete and correct copy of: (i) each
written Company Plan and descriptions of any unwritten Company
Plan (including all amendments thereto whether or not such
amendments are currently effective); (ii) each summary plan
description and summary of material modifications relating to a
Company Plan (if applicable);
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(iii) each trust agreement or other funding arrangement
with respect to each Company Plan, including insurance Contracts
(if applicable); (iv) the three most recently filed IRS
Form 5500 relating to each Company Plan (if applicable);
(v) the most recently received IRS determination letter for
each Company Plan (if applicable); (vi) the three most
recently prepared actuarial reports and financial statements in
connection with each Company Plan (if applicable);
(vii) all policies pertaining to fiduciary liability
insurance covering the fiduciaries of any Company Plan, and all
bonds pertaining to any Company Plan (if applicable);
(viii) all nondiscrimination test results required under
the Code for any Company Plan for the prior three years; and
(ix) all material rulings, opinion letters, information
letters, advisory opinions or other correspondence to or from or
issued by the IRS, the United States Department of Labor or the
Pension Benefit Guaranty Corporation with respect to any Company
Plan. Except as set forth on Part 2.13(a) of the Company
Disclosure Letter, neither Company nor any Company Subsidiary
has made any commitment, (A) to create or cause to exist
any Company Plan not set forth on Part 2.13(a) of the
Company Disclosure Letter or (B) except as necessary to
comply with changes in applicable Legal Requirements, to modify,
change or terminate any Company Plan.
(b) Except as set forth on Part 2.13(b) of the Company
Disclosure Letter, neither Company nor any ERISA Affiliate has
maintained, established, sponsored, contributed to, or
participated in any (a) multi-employer plan (within the
meaning of Section 3(37) or 4001(a)(3) of ERISA),
(b) multiple employer plan subject to Sections 4063
and 4064 of ERISA, (c) multiple employer plan (within the
meaning of Section 413(c) of the Code), (d) multiple
employer welfare arrangement (within the meaning of
Section 3(40)(A) of ERISA), (e) plan subject to the
minimum funding requirements of Part 3 of Subtitle B of
Title I of ERISA or Section 412 of the Code, or
(f) plan subject to Title IV of ERISA, nor does
Company or any ERISA Affiliate have any obligations or
liabilities, including withdrawal or successor liabilities,
regarding any such plan. As used herein, the term
ERISA Affiliate means any Person that,
together with Company or Parent, as the case may be, is
considered a single employer pursuant to
Section 4001(b) of ERISA or Sections 414(b), (c),
(m) or (o) of the Code. None of the Company Plans
cover Employees providing services outside the United States.
(c) Except as set forth on Part 2.13(c) of the Company
Disclosure Letter, Company and Company Subsidiaries have
expressly reserved the right, in all Company Plan documents
provided to employees, former employees, officers, directors and
other participants and beneficiaries, to amend, modify or
terminate at any time such Company Plans, and Company is not
aware of any fact, event or condition that could reasonably be
expected to restrict or impair such right.
(d) Each Company Plan is now and has been operated in
accordance with the requirements of all applicable laws,
including ERISA, the Health Insurance Portability and
Accountability Act of 1996 and the Code, and the regulations and
authorities published thereunder. Company and Company
Subsidiaries performed all material obligations required to be
performed by them under, are not in any material respect in
default under or in violation of, and Company has no knowledge
of any material default or violation by any party to, any
Company Plan. No legal action, suit, audit, investigation or
claim is pending or to the knowledge of Company is threatened,
with respect to any Company Plan (other than claims for benefits
in the ordinary course of business), and no fact, event or
condition exists that would be reasonably likely to provide a
legal basis for any such action, suit, audit, investigation or
claim. All material reports, disclosures, notices and filings
with respect to such Company Plans required to be made to
employees, participants, beneficiaries, alternate payees and any
Governmental Entity have been timely made or an extension has
been timely obtained.
(e) Each Company Plan which is intended to be qualified
under Section 401(a) of the Code is so qualified and has
been so qualified during the period from its adoption to date,
and each trust established in connection with any Company Plan
which is intended to be exempt from federal income taxation
under Section 501(a) of the Code is so exempt. Each Company
Plan intended to be qualified under Section 401(a) of the
Code and each trust intended to be exempt from federal income
taxation under Section 501(a) of the Code has received
either (i) a determination letter from the IRS that it is
so qualified or exempt as applicable or (ii) an opinion
letter from the IRS as to the qualified form of its plan
documents. No fact or event has occurred or condition exists
since the date of such determination letter from the IRS which
would be reasonably likely to adversely affect the qualified
status of any such Company Plan or the exempt status of any such
trust and which cannot be corrected pursuant to IRS Revenue
Procedure
2006-27
(including any subsequent authority modifying or superseding
such Revenue Procedure), and to the extent such fact or event
has occurred or such condition exists which can be corrected
pursuant to such Revenue Procedure,
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all material facts and circumstances relating to such fact,
event or condition have been set forth on Part 2.13(e) of
the Company Disclosure Letter.
(f) There has been no prohibited transaction (within the
meaning of Section 406 of ERISA or Section 4975 of the
Code) with respect to any Company Plan. Neither Company nor any
Company Subsidiary has incurred or failed to pay any liability
for any excise tax arising under Sections 4971, 4972, 4975,
4976, 4977, 4978, 4979, 4980, 4980B, 4980D or 4980E of the Code
or any civil penalty arising under Sections 502(i) or
502(l) of ERISA, and no fact, event or condition exists which
could give rise to any such liability. Neither Company nor any
ERISA Affiliate has incurred any liability under, arising out of
or by operation of Title IV of ERISA and, no fact, event or
condition exists which could give rise to any such liability. No
complete or partial termination of an employee pension
benefit plan within the meaning of Section 3(2) of
ERISA has occurred within the five years preceding the date
hereof with respect to any Company Plan maintained by Company or
any ERISA Affiliate.
(g) All contributions, premiums or payments required to be
made, paid or accrued with respect to any Company Plan have been
made, paid or accrued on or before their due dates, including
extensions thereof. All such contributions have been fully
deducted for income tax purposes and no such deduction has been
challenged or disallowed by any Governmental Entity and no fact
or event exists which could give rise to any such challenge or
disallowance.
(h) With respect to each Company Plan that is a
nonqualified deferred compensation plan within the meaning of
Section 409A of the Code, (i) such Company Plan has
been operated in good faith compliance with the provisions of
Section 409A of the Code and Notice 2005 1 since
January 1, 2005 if it was not terminated on or before
December 31, 2005, (ii) such Company Plan has not been
materially modified (within the meaning of
Section 885(d)(2)(B) of the American Jobs Creation Act of
2004 and any applicable guidance issued thereunder) since
October 3, 2004, in a manner which would cause amounts
deferred in taxable years beginning before January 1, 2005,
under such plan to be subject to Section 409A of the Code
if such plan was in existence prior to October 3, 2004, and
(iii) no event has occurred and no condition exists, that
could subject any Person to any tax, fine, penalty or other
liability under Section 409A of the Code (409A
Liability). None of the transactions contemplated
by this Agreement could, directly or indirectly, subject any
Person to any 409A Liability.
(i) Except as set forth on Part 2.13(i) of the Company
Disclosure Letter (a) each of the employees of Company and
any Company Subsidiary is employed at will, (b) none of the
Company Plans, or any employment agreement or other Contract to
which Company or any Company Subsidiary is a party or bound,
(i) provides for the payment of or obligates Company or any
Company Subsidiary to pay separation, severance, termination, as
deferred compensation, consulting, post termination or similar
type benefits to any Person as a result of any transaction
contemplated by this Agreement or as a result of a change
in control, within the meaning of such term under
Section 280G of the Code, or (ii) obligates Company or
any Company Subsidiary to pay separation, severance, termination
or similar type benefits solely as a result of any transaction
contemplated by this Agreement or as a result of a change
in control, within the meaning of such term under
Section 280G of the Code, and (c) the consummation of
the transactions contemplated by this Agreement will not, alone
or together with any other event, (A) entitle any Person to
bonus pay, golden parachute payment, severance pay, unemployment
compensation or any other payment from Company or any Company
Subsidiary, (B) accelerate the time of payment or vesting,
or increase the amount of compensation or benefits due to any
such Person from Company or any Company Subsidiary, or
(C) result in any forgiveness of indebtedness from Company
or any Company Subsidiary.
2.14 Company Labor.
(a) Company and Company Subsidiaries have materially
complied with all applicable laws related to the employment of
labor, including provisions thereof relating to wages, hours,
equal employment opportunity, collective bargaining,
non-discrimination, and withholding and payment of social
security and other Taxes. There are no actions, suits, claims,
charges, labor disputes or grievances pending, or to
Companys knowledge, threatened involving Company or any
Company Subsidiary and any of their respective employees. There
are no complaints, charges, lawsuits, arbitrations or other
proceedings pending, or to Companys knowledge, threatened
by or on behalf of any present or former employee of Company or
any Company Subsidiary alleging any claim for material damages
including breach of any express or implied contract of
employment, wrongful termination, infliction of emotional
distress or violation of any federal, state or local statutes or
regulations concerning terms and conditions
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of employment, including wages and hours, employee safety,
termination of employment
and/or
workplace discrimination and harassment; provided that if such
event arises after the date of this Agreement, Company shall
provide Parent with prompt written notice of such event. There
has been (i) no labor union organizing or, to
Companys knowledge, attempting to organize any employees
of Company or any Company Subsidiary into one or more collective
bargaining units, or (ii) no labor dispute, strike, work
slowdown, work stoppage or lock out or other collective labor
action by or with respect to any employees of Company or any
Company Subsidiary, or, to the knowledge of Company, threatened
against or affecting Company or any Company Subsidiary. Neither
Company nor any Company Subsidiary is presently, nor has it been
in the past, a party to, or bound by, any collective bargaining
agreements or other agreement with any labor organization
applicable to the employees of Company or any Company Subsidiary
and no such agreement is currently being negotiated.
(b) To the knowledge of Company, (i) no employee of
Company or any Company Subsidiary has provided or is providing
information to any law enforcement agency regarding the
commission or possible commission of any crime or the violation
or possible violation of any applicable law involving Company or
any Company Subsidiary; provided that if such event arises after
the date of this Agreement, Company shall provide Parent with
prompt written notice of such event, and (ii) neither
Company nor any Company Subsidiary nor any officer, employee,
contractor, subcontractor or agent of Company or any Company
Subsidiary has discharged, demoted, suspended, threatened,
harassed or in any other manner discriminated against an
employee of Company or any Company Subsidiary in the terms and
conditions of employment because of any act of such employee
described in 18 U.S.C. Section 1514A(a).
(c) Neither Company nor any Company Subsidiary has
effectuated (i) a plant closing as defined in
the WARN Act, affecting any site of employment or one or more
facilities or operating units within any site of employment or
facility of Company or any Company Subsidiary, or (ii) a
mass layoff (as defined in the WARN Act) affecting
any site of employment or facility of Company or any Company
Subsidiary; nor has Company or any Company Subsidiary engaged in
layoffs or employment terminations sufficient in number to
trigger application of any similar state, local or foreign law
or regulation similar to the WARN Act that is applicable to
Company or any Company Subsidiary. To Companys knowledge,
neither Companys nor any Company Subsidiarys
employees has suffered an employment loss (as
defined in the WARN Act) in the ninety (90) days prior to
the date of this Agreement.
2.15 Company
Litigation. Except as set forth on
Part 2.15 of the Company Disclosure Letter, there is no
claim, action, suit, proceeding at law or in equity by any
Person, or any arbitration or any administrative or other
proceeding by or before (or to the knowledge of Company, any
investigation, inquiry or subpoena by) any Governmental Entity,
pending or, to the knowledge of Company, threatened against
Company or any Company Subsidiary with respect to this Agreement
or the transactions contemplated hereby, or otherwise against
(or, to the knowledge of Company, affecting) Company or any
Company Subsidiary or their respective properties or assets.
Neither Company nor any Company Subsidiary is subject to any
order entered in any lawsuit or proceeding that would have a
Material Adverse Effect on Company or would prevent the
consummation of the transactions contemplated by this Agreement.
There has not been since January 1, 2003, nor are there
currently, any internal investigations or inquiries being
conducted by Company, Company Subsidiaries, their respective
Boards of Directors or other equivalent management bodies or any
third party or Governmental Entity or at the request of any of
the foregoing concerning any financial, accounting, Tax,
conflict of interest, self dealing, fraudulent or deceptive
conduct or other misfeasance or malfeasance matters.
2.16 Compliance with Laws by
Company.
(a) Each of Company and Company Subsidiaries are, and
Companys business has been conducted in compliance with
all Legal Requirements applicable to Company or such Subsidiary
or by which Company or any of its properties is bound or
affected, except in each case where the failure to so comply
would not be material with respect to Company. No investigation
or review by any Governmental Entity is pending or, to
Companys knowledge, has been threatened against Company or
Company Subsidiaries in a writing delivered to Company.
(b) Company and Company Subsidiaries have all permits,
licenses, variances, exemptions, orders and approvals required
by any Governmental Entity that are material to the operation of
the business of Company and Company Subsidiaries as currently
conducted and the use of their respective properties and assets
as presently
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operated or used (collectively, the Company
Permits), and are in material compliance with the
terms of the Company Permits. All of the Company Permits are in
full force and effect. No action or claim is pending, nor to the
knowledge of Company is threatened, to involve or terminate any
Company Permits or declare any such Company Permit invalid in
any material respect.
2.17 Environmental Matters of Company.
(a) Except as would not reasonably be expected to have a
Material Adverse Effect on Company:
(i) each of Company and Company Subsidiaries possesses all
Environmental Permits necessary to conduct its businesses and
operations as now being conducted, and each such Environmental
Permit is in full force and effect; none of Company or Company
Subsidiaries has received written notification from any
Governmental Entity that any such Environmental Permits will be
modified, suspended or revoked;
(ii) each of Company and Company Subsidiaries is in
compliance with all applicable Environmental Laws and the terms
and conditions of all Environmental Permits, and none of Company
or any Company Subsidiary has received written notification from
any Governmental Entity or other Person that alleges that
Company or any Company Subsidiary has violated or is, or may be,
liable under any Environmental Law;
(iii) there are no past or pending or, to the knowledge of
Company, threatened Environmental Claims (A) against
Company or any Company Subsidiary or (B) against any Person
whose liability for any Environmental Claim Company or any
Company Subsidiary has retained or assumed either by Contract or
by operation of law, and none of Company or any Company
Subsidiary has contractually retained or assumed any liabilities
that could reasonably be expected to provide the basis for any
Environmental Claim;
(iv) to the knowledge of Company, there have been no
Releases of any Hazardous Materials at, from, in, to, on or
under any real properties currently or previously owned, leased,
or utilized by Company or any Company Subsidiary or their
predecessors or Affiliates that could reasonably be expected to
form the basis of any Environmental Claim against Company or any
Company Subsidiary; and
(v) neither Company nor any Company Subsidiary or their
predecessors or Affiliates transported or arranged for the
transportation, treatment, storage, handling or disposal of any
Hazardous Materials to any off site location that could
reasonably be anticipated to result in an Environmental Claim.
(b) To the knowledge of Company, there are no
(i) underground storage tanks, active or abandoned,
(ii) polychlorinated biphenyl containing equipment or
(iii) asbestos containing material within the leasehold of
any site or building utilized by Company or any Company
Subsidiary.
(c) There have been no environmental investigations,
studies, tests, audits, reviewed or other analyses conducted by,
on behalf of, or which are in the possession of, Company or any
Company Subsidiary that have not been delivered or made
available to Parent.
2.18 Company
Contracts. (a) Company has delivered or
made available to Parent true, correct and complete copies (and
all exhibits and schedules thereto and all amendments,
modifications and supplements thereof) of the following
Contracts, and all of such Contracts in existence on the date
hereof are listed on Part 2.18 of the Company Disclosure
Letter, in each case only if such Contract either (x) by
its terms requires, or is reasonably likely to require, payment
to, or by, Company or the Company Subsidiaries of at least
$50,000 over the stated minimum term of the Contract or
(y) is material to the business of Company and the Company
Subsidiaries (it being understood that any Contract described in
clauses (iv), (vii), (ix), (x), (xi), (xiii) or
(xvi) are deemed to be material to the business of the
Company and the Company Subsidiaries (the Company
Contracts):
(i) any distributor, supplier, sales, advertising, agency
or manufacturers representative Contract;
(ii) any license agreement or other written or oral
agreement or permission pursuant to which Company has granted to
any third party with respect to any IP Assets or Intellectual
Property Rights (other than pursuant to Companys standard
customer agreements in the ordinary course of business);
(iii) any license, sublicense, agreement or other
permission pursuant to which Company uses or otherwise possesses
the IP Assets or Intellectual Property Rights of any third party;
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(iv) any Contract of Company or any Company Subsidiaries
containing any material support or maintenance obligation on the
part of Company or any Company Subsidiaries outside of the
ordinary course of business;
(v) all Contracts with any customer of the business of the
Company and the Company Subsidiaries (provided that for
customers that have executed a standard form of agreement, a
copy of such form agreement and a list of the customers that
have so executed such form agreement shall be sufficient);
(vi) all Contracts of Company or any Company Subsidiaries
relating to indebtedness of Company or any Company Subsidiaries
(vii) any agreement pursuant to which any other party is
granted exclusive marketing or other exclusive rights of any
type or scope with respect to any of products or services of
Company or any Company Subsidiaries;
(viii) any continuing Contract for the purchase of
materials, supplies, equipment, services or capital expenditures
by Company or the Company Subsidiaries involving in the case of
any such Contract more than fifty thousand dollars ($50,000)
over the life of the Contract;
(ix) all Contracts of Company or any of the Company
Subsidiaries that involve the sale or purchase of any assets of
Company or any of the Company Subsidiaries, other than in the
ordinary course of business;
(x) any Contract pursuant to which Company has any material
ownership or participation interest in any corporation,
partnership, joint venture, strategic alliance or other business
enterprise other than Companys Subsidiaries;
(xi) all Contracts of Company whereby Company or any
Company Subsidiaries is restricted by any standstill
or similar obligations;
(xii) any trust indenture, mortgage, promissory note, loan
agreement or other Contract for the borrowing of money, any
currency exchange, commodities or other hedging arrangement or
any leasing transaction of the type required to be capitalized
in accordance with generally accepted accounting principles;
(xiii) any Contract limiting the freedom of Company to
engage in any line of business or to compete with any other
Person;
(xiv) any Contract pursuant to which Company is a lessor of
any machinery, equipment, motor vehicles, office furniture,
fixtures or other personal property that is material to the
business of the Company and Company Subsidiaries, taken as a
whole;
(xv) all Company Real Property Leases;
(xvi) any Contract with an officer, director employee,
Affiliate or any other Person with whom Company does not deal at
arms length (other than standard form offer letters under
which the officer, director or employees relationship with
Company or the Company Subsidiaries is terminable at will and
which letter does not contain any severance provisions or
obligations on the part of Company or any Company Subsidiary
extending beyond termination of employment or other relationship
with Company);
(xvii) all Contracts pursuant to which Company or any
Company Subsidiaries has any obligations or liabilities (whether
absolute, accrued, contingent or otherwise), as guarantor,
surety, co-signer, endorser, co-maker, or otherwise in respect
of any obligation of any Person, or any capital maintenance or
similar agreements or arrangements; and
(xviii) all Contracts that are otherwise material to the
business of the Company or any Company Subsidiaries.
(b) Each Company Contract is in full force and effect and
constitutes a legal, valid and binding agreement of Company or a
Company Subsidiary, as applicable, enforceable in accordance
with its terms, except that (i) such enforcement may be
subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws, now or hereafter in effect,
affecting creditors rights generally, and (ii) the
remedy of specific performance and
A-21
injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before
which any proceeding therefore may be brought. Company or a
Company Subsidiary, as applicable, have performed all of their
obligations (except those that have not yet become due) under,
and is not in material violation or breach of or default under,
any such Company Contract. To the knowledge of Company, the
other parties to each Company Contract have performed all of
their obligations (except those that have not yet become due)
under, and are not in material violation or breach of or default
under, any such Company Contract.
2.19 Company Authority;
Non-Contravention.
(a) The execution and delivery of this Agreement by Company
does not, and the performance of this Agreement by Company will
not (i) subject to obtaining the Company Stockholder
Approval, conflict with or violate the Company Charter Documents
or the equivalent organizational documents of any Company
Subsidiary, (ii) subject to obtaining the Company
Stockholder Approval and compliance with the requirements set
forth in this Section 5.1 hereof, conflict with or violate
any Legal Requirement applicable to Company or by which Company
or any Company Subsidiary or any of their respective assets and
properties are bound or affected, or (iii) subject to
obtaining the Company Necessary Consents, result in any breach
of or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of an Encumbrance on
any of the properties or assets of Company or any Company
Subsidiary pursuant to, any Contract to which Company or any
Company Subsidiary is a party or by which Company or any of its
properties or assets are bound or affected. Part 2.19 of
the Company Disclosure Letter list all consents, waivers and
approvals under any of Contracts or any Legal Requirements
applicable to Company or Company Subsidiaries that are required
to be obtained in connection with the consummation of the
transactions contemplated hereby, which, if individually or in
the aggregate are not obtained, would result in a material loss
of benefits to, or adversely effect the operations or condition
of, Company, or the Surviving Corporation as a result of the
Merger or adversely affect the ability of Company to consummate
the Merger (Company Necessary
Consents).
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with any court,
administrative agency or commission or other governmental
authority or instrumentality, foreign or domestic
(Governmental Entity) or other Person,
is required to be obtained or made by Company in connection with
the execution and delivery of this Agreement or the consummation
of the Merger, except for (i) the filing of the Articles of
Merger with the Secretary of State of the State of Nevada and
appropriate documents with the relevant authorities of other
states in which Company is qualified to do business,
(ii) the filing of the Proxy Statement with the Securities
and Exchange Commission (SEC) in
accordance with the Exchange Act, (iii) the Company
Necessary Consents and (iv) such other consents,
authorizations, filings, approvals and registrations which if
not obtained or made would not have a Material Adverse Effect on
Company with respect to Company, Parent or the Surviving
Corporation or adversely effect the ability of the parties
hereto to consummate the Merger within the time frame the Merger
would otherwise be consummated in the absence of such
requirement.
2.20 Company Customer
Contracts. Part 2.20 of the Company
Disclosure Letter lists the customers of Company that have
contributed no less than 61% of Companys consolidated
revenue for the current fiscal year to date (Key
Company Customers), together with a summary of the
revenue derived from each such Key Company Customer. Neither
Company nor any Company Subsidiary has received any written or
oral indication or assertion from any Key Company Customer since
January 1, 2006 that there has been any material problem
with the service Company provides to such Key Company Customers
or that a Key Company Customer desires to decrease services
pursuant to, terminate, relinquish or not renew any Key Company
Customer Contract. To Companys knowledge, no facts or
circumstances exist with respect to any Key Company Customer(s)
that would reasonably be expected to cause such Key Company
Customer(s) to cease use of Companys products or services,
which would materially and adversely affect Companys
revenues for any future period.
2.21 Company Brokers and Finders
Fees. Other than as disclosed in
Part 2.21 of the Company Disclosure Letter, Company has not
incurred, nor will it incur, directly or indirectly, any
liability for brokerage or finders fees or agents
commissions or any similar charges in connection with this
Agreement or any transaction contemplated hereby.
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2.22 Opinion of Companys Financial
Advisor. Company has received the written
opinion of RBC Capital Markets Corporation, to the effect that,
as of the date of such opinion, the Merger Consideration was
fair to the Company Stockholders from a financial point of view,
and a true and complete copy of such opinion has been delivered
to Parent.
2.23 Company
Insurance. Copies of all material insurance
policies have been made available to Parent. All such policies
are in full force and effect, all premiums due and payable
thereon have been paid, and no notice of cancellation or
termination has been received with respect to any such material
policy which has not been replaced on substantially similar
terms prior to the date of such cancellation. There is no
material claim pending under any such material policies as to
which coverage has been questioned, denied or disputed.
2.24 Company Corporate
Controls. Neither Company, any Company
Subsidiary nor any of their respective directors, managers,
stockholders, members, officers, agents, employees or
consultants or any other Person while acting on behalf of
Company or any Company Subsidiary, has, directly or indirectly:
(a) used any funds of Company or any Company Subsidiary for
unlawful contributions, gifts, or other unlawful expenses
relating to political activity; (b) made any unlawful
payment to foreign or domestic government officials or employees
or to foreign or domestic political parties or campaigns from
the funds of Company or any Company Subsidiary;
(c) established or maintained any unlawful or unrecorded
fund of monies or other assets of Company or any Company
Subsidiary; (d) made or caused to be made any false or
fictitious entry on Companys or any Company
Subsidiarys books or records; (e) participated in any
racketeering activity involving Company or any Company
Subsidiary; or (f) made any bribe, rebate, payoff,
influence payment, kickback, or other unlawful payment, or other
payment of a similar or comparable nature, to any Person,
private or public, regardless of form, whether in money,
property, or services, to obtain favorable treatment in securing
business for Company or any Company Subsidiary or to obtain
special concessions, or to pay for favorable treatment for
business secured by Company or any Company Subsidiary or for
special concessions already obtained, and neither Company nor
any Company Subsidiary has participated in any illegal boycott
or other similar illegal practices affecting any of its actual
or potential customers.
2.25 Transactions with Affiliates of
Company.
(a) Except as set forth in the Company SEC Reports filed
prior to the date hereof, there have been no transactions,
agreements, arrangements or understandings between Company or
any Company Subsidiary, on the one hand, and their respective
affiliates, on the other hand, that would be required to be
disclosed under Item 404 of
Regulation S-K
under the Securities Act (except for amounts due as normal
salaries and bonuses and in reimbursements of ordinary expenses).
(b) Except as set forth in the Company SEC Reports filed
prior to the date hereof, to Companys knowledge,
(i) no officer of Company or any Company Subsidiary owns,
directly or indirectly, any interest in (excepting not more than
one percent (1%) stock holdings for investment purposes in
securities of publicly-held and traded companies) or is an
officer, director, employee or consultant of any Person which is
a competitor, lessor, lessee, customer or supplier of Company,
and (ii) no officer or director of Company or any Company
Subsidiary (x) has made, on behalf of Company or any
Company Subsidiary any payment or commitment to pay any
commission, fee or other amount to, or to purchase or obtain or
otherwise contract to purchase or obtain any goods or services
from, any other Person of which any officer or director of
Company or any Company Subsidiary or, to Companys
knowledge, a relative of any of the foregoing, is a partner or
stockholder (except stock holdings solely for investment
purposes in securities of publicly held and traded companies),
or (y) owes any money to Company or any Company Subsidiary
(except for reimbursement of advances in the ordinary course of
business consistent with past practices).
(c) Since June 30, 2006, Company has not, directly or
indirectly, including through any Company Subsidiary, extended
or maintained credit, arranged for the extension of credit, or
renewed an extension of credit, in the form of a personal loan
to or for any director or executive officer of Company.
2.26 Copies of
Documents. Company has caused to be made
available for inspection by Parent and its advisers, true,
correct and complete copies of all documents referred to in this
Article II or in the Company Disclosure Letter under this
Article II.
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ARTICLE III
REPRESENTATIONS
AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to Company, that,
subject to the exceptions specifically disclosed in the
disclosure letter (referencing the appropriate section and
paragraph numbers) delivered by Parent and Merger Sub to Company
dated as of the date hereof (the Parent Disclosure
Letter), which exceptions shall be deemed to be
representations and warranties as if made hereunder, the
following statements are true and correct as of the date hereof,
except where another date is specified, and will be true and
correct as of the Closing Date, except where another date
(including as of the date hereof is specified in the
representation or warranty (for the avoidance of doubt, if any
section in the Parent Disclosure Letter discloses an item or
information in such a way as to make its relevance to the
disclosure required by another section of the Company Disclosure
Letter readily apparent based on the substance of such
disclosure, such matter shall be deemed to have been disclosed
in such other section of the Parent Disclosure Letter,
notwithstanding the omission):
3.1 Organization and Qualification of Parent
and Merger Sub.
(a) Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to
own and operate its properties and to conduct its business as it
is currently being conducted. Parent is duly qualified or
licensed to do business and is in good standing, or local law
equivalent, in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties or
operations makes such qualification or licensing necessary,
except in such jurisdictions where the failure to be so
qualified or licensed or to be in good standing, or local law
equivalent, would not, individually or in the aggregate, have a
Material Adverse Effect on Parent.
(b) Merger Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Nevada. Merger Sub was formed solely for the purpose of engaging
in the transactions contemplated hereby and has not engaged in
any other business activities and has conducted its operations
only as contemplated hereby. Merger Sub has not incurred,
directly or indirectly, any material liabilities or obligations
except those in connection with its organization or with the
negotiation and execution of this Agreement and the performance
of the transactions contemplated hereby.
3.2 Power and Authority of Parent and Merger
Sub; Enforceability of this Agreement.
(a) Each of Parent and Merger Sub has all requisite
corporate power and authority to execute and deliver this
Agreement, and subject to obtaining the Parent Stockholder
Approval, to perform its obligations hereunder and to consummate
the Merger and the other transactions contemplated hereby. The
Board of Directors of Parent, at a meeting duly called and held
at which all directors of Parent were present in accordance with
the Bylaws of Parent, duly adopted resolutions (the
Parent Board Approval)
(i) approving and declaring advisable this Agreement, the
Merger and the other transactions contemplated hereby,
(ii) declaring that it is advisable and making a
determination that it is in the best interest of Parent and the
Parent Stockholders that Parent enter into this Agreement and
consummate the Merger on the terms and subject to the conditions
set forth in this Agreement, (iii) making a determination
that this Agreement is fair to Parent and the Parent
Stockholders, (iv) directing that this Agreement be
submitted to a vote for adoption at a meeting of the Parent
Stockholders to be held as promptly as practicable as set forth
in Section 5.4 hereof and (v) recommending that the
Parent Stockholders adopt and approve this Agreement, the Merger
and the other transactions contemplated hereby. The Board of
Directors of Merger Sub has approved this Agreement, the Merger
and the other transactions contemplated hereby. The execution,
delivery and performance of this Agreement by Parent and the
consummation by Parent of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate
action on the part of Parent, subject to obtaining the Parent
Stockholder Approval. The affirmative vote of the holders of a
majority of the issued and outstanding shares of the Parent
Common Stock as of the record date established for the Parent
Stockholders Meeting, voting as a single class, in favor
of adopting this Agreement and of approving the Merger and the
other transactions contemplated hereby (the Parent
Stockholder Approval), is the only vote of the
holders of any class or series of Parents capital stock
necessary to approve and adopt this Agreement, the Merger and
the other transactions contemplated hereby.
(b) The Board of Directors of Parent and Merger Sub has
taken all action necessary to ensure that any restrictions on
business combinations applicable to Parent shall not apply to
the transactions contemplated by this
A-24
Agreement. No state or foreign takeover or similar statute or
regulation is applicable to this Agreement or the transactions
contemplated hereby.
(c) This Agreement has been duly and validly executed and
delivered by Parent and Merger Sub and, assuming the due
authorization, execution and delivery by Company, constitutes
the valid and binding obligation of Parent and Merger Sub,
enforceable against Parent and Merger Sub in accordance with its
terms, except that (i) such enforcement may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws, now or hereafter in effect, affecting
creditors rights generally, and (ii) the remedy of
specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefore
may be brought.
3.3 Parent Capitalization.
(a) The authorized capital stock of Parent consists solely
of 600,000,000 shares of the Parent Common Stock and
200,000,000 shares of the preferred stock, par value
$0.001 per share (the Parent Preferred
Stock), of which 3,500 shares are designated
as Series A Convertible Preferred Stock, par value
$0.001 per share (the Parent Series A
Preferred Stock). (i) 35,182,081 shares
of the Parent Common Stock are issued and outstanding as of
October 2, 2006, (ii) no shares of Parent
Series A Preferred Stock are issued and outstanding as of
the date hereof, and (iii) no shares of Parents
capital stock are being held in Parents treasury as of the
date hereof. Part 3.3(a) of the Parent Disclosure Letter
sets forth a true, correct and complete list of the number of
shares of the Parent Common Stock held by each registered holder
thereof as of October 2, 2006. All outstanding shares of
the Parent Common Stock and the Parent Preferred Stock were duly
authorized and validly issued, and are fully paid and
nonassessable and not subject to or issued in violation of any
purchase option, call option, right of first refusal,
pre-emptive right, subscription right or any similar right under
the provisions of Delaware General Corporation Law
(DGCL), the Parent Charter Documents
or any Contract to which Parent is a party or by which it is
bound. There are no accrued and unpaid dividends with respect to
any outstanding shares of capital stock of Parent or any Parent
Subsidiary.
(b) As of the date hereof, Parent has reserved
8,971,131 shares of the Parent Common Stock for issuance to
permitted grantees pursuant to the equity-based compensation
plans included as exhibits to Parents Annual Report on
Form 10-K
for the year ended December 31, 2005 (the
Parent Stock Plans) of which
(i) 2,303,771 shares of the Parent Common Stock have
been issued pursuant to option exercises,
(ii) 2,916,792 shares are subject to outstanding,
unexercised options for Parent Company Stock, with a
weighted-average exercise price of $10.86,
(iii) 669,729 shares have been issued pursuant to
restricted stock awards, and (iv) 3,074,982 shares
remain available for issuance thereunder. Parent has made
available to Company an accurate and complete copy of the Parent
Stock Plans and the forms of all stock option agreements
evidencing Parent Options. There are no options outstanding to
purchase shares of the Parent Common Stock other than pursuant
to the Parent Stock Plans. All shares of the Parent Common Stock
subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they
are issuable, will be duly authorized, validly issued, fully
paid and nonassessable. There are no Contracts of any character
to which Parent is bound obligating Parent to accelerate the
vesting of any Parent Option as a result of the transactions
contemplated by this Agreement. Except for the Parent Stock
Plans, there are no outstanding or authorized stock
appreciation, stock purchase, profit participation,
phantom stock, or other similar plans or Contracts
with respect to Parent or any Parent Subsidiary.
(c) All outstanding shares of the Parent Common Stock and
the Parent Preferred Stock, all outstanding Parent Options, and
all outstanding shares of capital stock of each Parent
Subsidiary have been issued and granted in compliance with
(i) all applicable federal, state and foreign securities
laws and other applicable Legal Requirements and (ii) all
requirements set forth in applicable agreements or instruments.
3.4 Obligations With Respect to Parent Capital
Stock.
(a) Except as described in Section 3.3 or set forth in
the Parent Disclosure Letter, no capital stock of Parent or any
security convertible or exchangeable into or exercisable for
such capital stock, is issued, reserved for issuance or
outstanding as of the date hereof. Except as set forth in the
Parent Disclosure Letter, there are no subscriptions, options,
warrants, calls, rights (including preemptive rights),
commitments or agreements of any kind to which Parent is bound
obligating Parent or any Parent Subsidiary to issue, deliver or
sell, or cause to be issued, delivered or sold, additional
shares of capital stock of Parent or any Parent Subsidiary or
obligating Parent or any Parent
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Subsidiary to grant, extend or accelerate the vesting of or
otherwise amend or enter into any such subscriptions, options,
warrants, calls, rights (including preemptive rights),
commitments or agreements. There are no rights or obligations,
contingent or otherwise (including rights of first refusal in
favor of Parent), of Parent or any Parent Subsidiary, to
repurchase, redeem or otherwise acquire any shares of capital
stock of Parent or any Parent Subsidiary or any securities
convertible or exchangeable into or exercisable for such capital
stock or to provide funds to or make any investment (in the form
of a loan, capital contribution or otherwise) in Parent. Parent
has no authorized, issued, or outstanding bonds, debentures,
notes or other indebtedness having the right to vote on any
matters on which the Parent Stockholders have the right to vote.
(b) Except as set forth on Part 3.4(b) of the Parent
Disclosure Letter, Parent is not a party to or bound by any
agreement with respect to the voting (including voting trusts,
proxies, poison pill anti-takeover plans)
registration under the Securities Act, or sale or transfer
(including agreements related to pre-emptive rights, rights of
first refusal, co-sale rights or drag-along rights
but excluding restrictions required by the Securities Act in
connection with private placements of securities) of any
securities of Parent. To the knowledge of Parent, there are no
agreements among other parties, to which Parent is not a party
and by which it is not bound, with respect to voting (including
voting trusts and proxies) or sale or transfer (including
agreements relating to rights of first refusal, co-sale rights
or drag along rights but excluding restrictions
required by the Securities Act in connection with private
placements of securities) of any securities of Parent.
(c) The Parent Common Stock constitutes the only class of
securities of Parent registered or required to be registered
under the Exchange Act.
3.5 Parent SEC Reports; Compliance with AMEX
and NGM; Parent Financial Statements.
(a) Parent has filed on a timely basis all reports,
schedules, forms, statements and other documents required to be
filed by Parent with the SEC since January 1, 2005 (the
Parent Commencement Date), including
all exhibits thereto and all Certifications, as such documents
since the time of filing may have been amended or supplemented
with the SEC (the Parent SEC Reports).
For Parents Exchange Act periodic report filings since the
fourth quarter of 2005, there have been no comment letters or
other correspondence received by Parent (excluding letters
related to confidential treatment applications and orders of
effectiveness) from the SEC or other correspondence by or on
behalf of Parent to the SEC that have not been provided to
Company and the copies of such letters and responses delivered
to or made available to Company were true and complete copies.
Parent maintains disclosure controls and procedures required by
Rule 13a-15
or 15d-15
under the Exchange Act, and such controls and procedures are
designed to ensure that material information relating to Parent,
including Parent Subsidiaries, required to be disclosed in the
reports it files or submits under the Exchange Act is
accumulated and communicated to Parents principal
executive officer and principal financial officer to allow
timely decisions regarding financial disclosure. No Parent
Subsidiary is required to file with the SEC any report,
schedule, form, statement or other document. As of their
respective dates and except as subsequently corrected by
amendment, the Parent SEC Reports and all other filings that
have been made by Parent with the SEC complied in all material
respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations
of the SEC promulgated thereunder applicable to such Parent SEC
Reports, and Parent has filed all exhibits required to be filed
with the Parent SEC Reports and all other filings that have been
made by Parent with the SEC, and all such exhibits were true,
correct and complete in all material respects (except to the
extent omissions were in reliance upon a confidential treatment
request). The Parent SEC Reports and all other filings that have
been made by Parent with the SEC (a) were and, in the case
of Parent SEC Reports and all other filings with the SEC filed
by Parent after the date hereof, will be prepared in all
material respects in accordance with the applicable requirements
of the Securities Act and the Exchange Act, as the case may be,
and (b) did not at the time they were filed (or if amended
or superseded by a filing prior to the date hereof, then on the
date of such filing), and in the case of such forms, reports and
documents filed by Parent with the SEC after the date hereof,
will not as of the time they are filed, contain any untrue
statement of a material fact or omit to state a material fact
required to be stated in or necessary in order to make the
statements in such documents, in light of the circumstances
under which they were and will be made, not misleading;
provided, however, that all of the Certifications are each true
and correct based upon the knowledge of the officer(s) making
such Certifications, as made. Parent has filed all amendments to
the Parent SEC Reports and all other filings that have been made
by Parent with the SEC as were required to be filed under
applicable law. Parent was in material compliance with the
requirements applicable to securities that are traded on the
American Stock Exchange (the
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AMEX) when its securities were traded
on the AMEX and is in material compliance with the requirements
applicable to securities that are traded on the NGM and has not,
since the Parent Commencement Date, received any notice from the
AMEX or the NGM, asserting any non compliance with such
requirements.
(b) Each of the consolidated financial statements
(including, in each case, any related notes thereto) contained
in the Parent SEC Reports, including each Parent SEC Report
filed after the date hereof until the Closing (the
Parent Financials), (i) complied
as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC
with respect thereto then in effect at the same time as such
filing, (ii) was prepared in accordance with GAAP applied
on a consistent basis throughout the periods involved (except as
may be indicated therein or in the notes thereto or, in the case
of unaudited interim financial statements, as may be permitted
by the SEC on
Form 10-Q,
8-K or any
successor form under the Exchange Act) and (iii) fairly
presented in all material respects the consolidated financial
position of Parent and Parent Subsidiaries that are required by
GAAP to be consolidated therein and fairly reflects its
investment in any unconsolidated Subsidiary as of the respective
dates thereof and the consolidated results of their operations
and cash flows for the periods indicated, except that the
unaudited interim financial statements may not contain footnotes
and were or are subject to normal and recurring year-end
adjustments. All Subsidiaries of Parent that are required by
GAAP to be consolidated in the Parent Financials have been so
consolidated. The balance sheet of Parent contained in Parent
SEC Reports as of June 30, 2006 is hereinafter referred to
as the Parent Balance Sheet. The
reserves reflected in the Parent Financials have been calculated
in accordance with GAAP. Except as disclosed in the Parent
Balance Sheet, neither Parent nor any Parent Subsidiary has any
liabilities required under GAAP to be set forth on a balance
sheet (absolute, accrued, contingent or otherwise) which are,
individually or in the aggregate, material to the business,
results of operations or financial condition of Parent and
Parent Subsidiaries taken as a whole, except for liabilities
incurred since the date of the Parent Balance Sheet in the
ordinary course of business consistent with past practices and
liabilities incurred in connection with this Agreement. Neither
Parent nor any Parent Subsidiary nor, to Parents
knowledge, any director, officer, employee, auditor, accountant
or representative of Parent or Parent Subsidiaries has received
or otherwise had or obtained knowledge of any written complaint,
allegation, assertion or claim regarding the accounting or
auditing practices, procedures, methodologies or methods of
Parent or Parent Subsidiaries or their respective internal
accounting controls, including any complaint, allegation,
assertion or claim that Parent or Parent Subsidiaries has
engaged in questionable accounting or auditing practices;
provided that if such event arises after the date of this
Agreement, Parent shall provide Company with prompt written
notice of such event. Since the Parent Commencement Date, no
attorney representing Parent or any Parent Subsidiary, whether
or not employed by Parent or Parent Subsidiaries, has reported
evidence of a violation of securities laws, breach of fiduciary
duty or similar violation by Parent or any of its officers,
directors, employees or agents to Parents Board of
Directors or any committee thereof or to any director or officer
of Parent; provided that if such event arises after the date of
this Agreement, Parent shall provide Company with prompt written
notice of such event.
(c) Neither Parent nor any Parent Subsidiary is a party to,
or has any commitment to become a party to, any joint venture,
partnership agreement or any similar Contract (including any
Contract relating to any transaction, arrangement or
relationship between or among Parent or any Parent Subsidiary,
on the one hand, and any unconsolidated affiliate, including any
structured finance, special purpose or limited purpose Person,
on the other hand) where the purpose or intended effect of such
arrangement is to avoid disclosure of any material transaction
involving Parent or any Parent Subsidiary in the Parent
Financials.
3.6 Absence of Certain Changes or
Events. Except as contemplated by this
Agreement, since the date of the Parent Balance Sheet, Parent
and Parent Subsidiaries, taken as a whole, have conducted their
businesses in all material respects in the ordinary course of
business. Since the date of the Parent Balance Sheet, there has
not been:
(a) a Material Adverse Effect on Parent;
(b) (i) any split, combination or reclassification of
any capital stock (other than a
1-for-10
reverse stock split effected on July 10, 2006),
(ii) any declaration, setting aside or payment of any
dividend on, or other distribution (whether in cash, stock or
property) in respect of, any of the shares of capital stock, or
any purchase, redemption or other acquisition of any of the
shares of capital stock or any other securities or other
partnership interests or any options, warrants, calls or rights
to acquire any such shares or other securities except for
repurchases from employees or consultants following their
termination pursuant to the terms of their
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pre-existing stock option or purchase agreements, or
(iii) any amendment of any material term of any outstanding
security;
(c) any sale, transfer, or other disposition of any
material properties or assets (whether real, personal or mixed,
tangible or intangible) except in the ordinary course of
business consistent with past practices;
(d) (i) any assumption, guarantee, endorsement or
liability otherwise incurred (whether directly, contingently or
otherwise) for the obligations of any other Person other than
those of Parent or Parent Subsidiaries, or (ii) any making
of any loan, advance or capital contribution to or investment in
any Person, including any director, officer or other affiliate
of Parent, other than advances to employees for travel and other
reimbursable expenses in the ordinary course of business;
(e) (i) any material Tax election or material change
in any Tax election, any material change in annual Tax
accounting period or method of Tax accounting other than as
required by applicable laws or regulations, any filing of any
material amended Tax Returns, any entering into of a closing
agreement, settlement of or consent to any Tax claim, any
surrendering of any right to claim a material refund of Taxes,
or any consent to any extension or waiver of the statutory
period of limitation applicable to any material Tax claim,
(ii) any material change in any method of accounting,
method of accounting principles or practice, except for any such
change required by reason of a concurrent change in GAAP or
compliance with the applicable requirements of the rules and
regulations promulgated by the SEC, or (iii) any
revaluation of any material assets, including, without
limitation, writing off notes or accounts receivable other than
in the ordinary course of business;
(f) As of the date hereof, any loss of, or receipt of
written notice of any intention to cancel or otherwise
terminate, any contract or agreement that would be reasonably
likely, individually or in the aggregate, to be material to the
Parent other than in the ordinary course of business consistent
with past practices and other than threatened terminations for
breach of any contract or agreement where Parent has cured the
underlying cause of the threat and such contract or agreement
still remains in full force and effect; or
(g) any agreement, whether in writing or otherwise, to take
any action described in this Section 3.7.
3.7 Parent Books and
Records. All accounts, books, ledgers and
official and other records material to Parents business
maintained by Parent or Parent Subsidiaries have been properly
and accurately kept in all material respects, and there are no
material inaccuracies or discrepancies contained or reflected
therein. Parent or Parent Subsidiaries have under their control
or possession all material records, systems, data or information
used in Parents business, and neither Parent nor any
Parent Subsidiary uses any third party provider for records
storage, except duplicate backup storage tapes which are
maintained at a secure location and readily accessible by Parent
and Parent Subsidiaries.
3.8 Parent Taxes.
(a) Parent and each Parent Subsidiary have timely filed, or
caused to be filed, taking into account any valid extensions of
due dates, completely and accurately, in all material respects,
all Tax Returns required to be filed by or on behalf of Parent
and each Parent Subsidiary with any Tax authority. Such Tax
Returns are true, correct and complete in all material respects.
Parent and each Parent Subsidiary have paid all Taxes due and
owing by Parent and each Parent Subsidiary.
(b) Parent and Parent Subsidiaries have collected all
sales, use, goods and services or other commodity Taxes required
to be collected and remitted or will remit the same to the
appropriate Tax authority within the prescribed time periods.
Parent and each Parent Subsidiary have timely withheld or paid
all federal and state income Taxes, Taxes pursuant to the FICA,
Taxes pursuant to the Federal Unemployment Tax Act and other
Taxes required to be withheld or paid by Parent and each Parent
Subsidiary with respect to any of their respective employees,
former employees, directors, officers, residents and
non-residents or third parties.
(c) There is no Tax deficiency outstanding, proposed or
assessed against Parent or any Parent Subsidiary, nor has Parent
or any Parent Subsidiary executed any unexpired waiver of any
statute of limitations on or extending the period for the
assessment or collection of any Tax.
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(d) No examination of any Tax Return of Parent or any
Parent Subsidiary is currently in progress, and neither Parent
nor any Parent Subsidiary has received written notice of any
(i) pending or proposed audit or examination,
(ii) request for information regarding Tax matters, or
(iii) notice of deficiency or prepared adjustment for any
amount of Tax proposed, asserted, or assessed by any Tax
authority against Parent or any Parent Subsidiary, and Parent
does not expect any authority to assess any additional Taxes for
any period for which Tax Returns have been filed.
(e) Parent has no liability for unpaid Taxes which has not
been accrued for or reserved on the Parent Balance Sheet in
accordance with GAAP, whether asserted or unasserted, contingent
or otherwise, which is material to Parent, other than any
liability for unpaid Taxes that may have accrued since the date
of the Parent Balance Sheet in connection with the operation of
the business of Parent and Parent Subsidiaries in the ordinary
course. The amount set up as an accrual for Taxes (aside from
any reserve for deferred Taxes established to reflect timing
differences between book and tax income) in the Parent Balance
Sheet is sufficient for the payment of all unpaid Taxes of
Parent and any Parent Subsidiary, whether or not disputed, for
all periods ended on or prior to the date hereof.
(f) Parent has delivered or made available to Company or
its legal counsel or accountants true, correct and complete
copies of all Tax Returns for Parent and Parent Subsidiaries
filed for all periods since the fiscal year ended
December 31, 2002, and all such filings were true, correct
and complete in all material respects when made.
(g) There are (and immediately following the Effective Time
there will be) no Encumbrances on the assets of Parent relating
to or attributable to Taxes other than Encumbrances for Taxes
not yet due and payable. There is no basis for the assertion of
any claim relating or attributable to Taxes that, if adversely
determined, would result in any Encumbrance for Taxes on the
assets of Parent.
3.9 Parent
Litigation. Except as set forth on
Part 3.9 of the Parent Disclosure Letter, there is no
claim, action, suit, proceeding at law or in equity by any
Person, or any arbitration or any administrative or other
proceeding by or before (or to the knowledge of Parent, any
investigation, inquiry or subpoena by) any Governmental Entity,
pending or, to the knowledge of Parent, threatened against
Parent or any Parent Subsidiary with respect to this Agreement
or the transactions contemplated hereby, or otherwise against
(or, to the knowledge of Parent, affecting) Parent or any Parent
Subsidiary or their respective properties or assets. Neither
Parent nor any Parent Subsidiary is subject to any order entered
in any lawsuit or proceeding that would have a Material Adverse
Effect on Parent or would prevent the consummation of the
transactions contemplated by this Agreement. There are no
current internal investigations or inquiries being conducted by
Parent, Parent Subsidiaries, their respective Boards of
Directors or other equivalent management bodies or any third
party or Governmental Entity or at the request of any of the
foregoing concerning any financial, accounting, Tax, conflict of
interest, self dealing, fraudulent or deceptive conduct or other
misfeasance or malfeasance matters.
3.10 Parent
Properties. Parent and the Parent
Subsidiaries have valid rights (excluding Intellectual Property
Rights, which are addressed exclusively in Section 3.13) to
use the tangible assets used by it or them in the delivery of
services by Parent and the Parent Subsidiaries to their
customers. The property and equipment owned or otherwise
contracted for by Parent and Parent Subsidiaries used by Parent
and the Parent Subsidiaries for services that are currently sold
and provided by Parent or Parent Subsidiaries to customers are
adequate and suitable for the purposes for which they are
presently being used, except for instances that would not have a
Material Adverse Effect on Parent.
3.11 Compliance with Laws by
Parent. Each of Parent and Parent
Subsidiaries are, and Parents business has been conducted
in compliance with all Legal Requirements applicable to Parent
or such Subsidiary or by which Parent or any of its properties
is bound or affected, except in each case where the failure to
so comply would not have a Material Adverse Effect with respect
to Parent. No investigation or review by any Governmental Entity
(other than any taxing authority) is pending or, to
Parents knowledge, has been threatened against Parent or
Parent Subsidiaries in a writing delivered to Parent.
3.12 Parent Customer
Contracts. Parent has previously delivered to
Company a true and correct list of the twenty customers of
Parent and the Parent Subsidiaries that have generated the most
revenue for Parent and the Parent Subsidiaries for the period
commencing January 1, 2006 and ending on June 30,
2006, together with such revenue derived from each such customer
during such period.
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3.13 Parent Intellectual
Property. Except as would not reasonably be
expected to have a Material Adverse Effect on Parent:
(a) To the knowledge of Parent, Parent and the Parent
Subsidiaries own or have the valid right or license to use in
the manner used by Parent and the Parent Subsidiaries, all IP
Assets and Intellectual Property Rights used by, or necessary to
the operation of the business of, Parent and the Parent
Subsidiaries as currently conducted.
(b) There is no pending, or, to the knowledge of Parent,
threatened, claim or litigation contesting the validity,
ownership or right of Parent in any Parent IP Asset.
3.14 Environmental Matters of
Parent. Except as would not reasonably be
expected to have a Material Adverse Effect on Parent:
(a) there are no past or pending or, to the knowledge of
Parent, threatened Environmental Claims (i) against Parent
or any Parent Subsidiary or (ii) against any Person whose
liability for any Environmental Claim Parent or any Parent
Subsidiary has retained or assumed either by Contract or by
operation of law, and none of Parent or any Parent Subsidiary
has contractually retained or assumed any liabilities that could
reasonably be expected to provide the basis for any
Environmental Claim; and
(b) to the knowledge of Parent, there have been no Releases
of any Hazardous Materials at, from, in, to, on or under any
real properties currently or previously owned, leased, or
utilized by Parent or any Parent Subsidiary or their
predecessors or Affiliates that could reasonably be expected to
form the basis of any Environmental Claim against Parent or any
Parent Subsidiary.
3.15 Parent Authority;
Non-Contravention.
(a) The execution and delivery of this Agreement by Parent
does not, and the performance of this Agreement by Parent will
not (i) subject to obtaining the Parent Stockholder
Approval, conflict with or violate the Parent Charter Documents
or the equivalent organizational documents of any Parent
Subsidiary, (ii) subject to obtaining the Parent
Stockholder Approval and compliance with the requirements set
forth in Section 5.1 hereof, conflict with or violate any
Legal Requirement applicable to Parent or by which Parent or any
Parent Subsidiary or any of their respective assets and
properties are bound or affected, or (iii) subject to
obtaining the Parent Necessary Consents, result in any breach of
or constitute a default (or an event that with notice or lapse
of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of an Encumbrance on
any of the properties or assets of Parent or any Parent
Subsidiary pursuant to, any Contract to which Parent or any
Parent Subsidiary is a party or by which Parent or any of its
properties or assets are bound or affected that would have a
Material Adverse Effect on Parent. Part 3.15 of the Parent
Disclosure Letter list all consents, waivers and approvals under
any of Contracts or any Legal Requirements applicable to Parent
that are required to be obtained in connection with the
consummation of the transactions contemplated hereby, which, if
individually or in the aggregate are not obtained, would have a
Material Adverse Effect on Parent or the Surviving Corporation
as a result of the Merger or adversely affect the ability of
Parent to consummate the Merger (Parent Necessary
Consents).
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with any Governmental Entity
or other Person, is required to be obtained or made by Parent in
connection with the execution and delivery of this Agreement or
the consummation of the Merger, except for (i) the filing
of the Articles of Merger with the Secretary of State of the
State of Nevada and appropriate documents with the relevant
authorities of other states in which Parent is qualified to do
business, (ii) the filing of the Proxy Statement with the
SEC in accordance with the Exchange Act, (iii) the Parent
Necessary Consents and (iv) such other consents,
authorizations, filings, approvals and registrations which if
not obtained or made would not have a Material Adverse Effect on
Parent with respect to Parent, Company or the Surviving
Corporation or adversely effect the ability of the parties
hereto to consummate the Merger within the time frame the Merger
would otherwise be consummated in the absence of such
requirement.
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3.16 Opinion of Parents Financial
Advisor. Parent has received the written
opinion of Thomas Weisel Partners LLC, to the effect that, as of
the date of such opinion, the Merger Consideration was fair to
Parent from a financial point of view, and a true and complete
copy of such opinion has been delivered to Company.
ARTICLE IV
CONDUCT
PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business by
Company. During the period from the date of
this Agreement and continuing until the earlier of the
termination of this Agreement pursuant to its terms or the
Effective Time, Company shall, except to the extent that Parent
shall otherwise consent in writing, carry on its business in the
usual, regular and ordinary course, in substantially the same
manner as heretofore conducted and in compliance in all material
respects with all applicable Legal Requirements, pay its debts
and Taxes when due subject to good faith disputes over such
debts or Taxes, pay or perform other material obligations when
due, and use its commercially reasonable efforts consistent with
past practices and policies to (i) preserve intact its
present business organization, (ii) keep available the
services of its present officers and employees, and
(iii) preserve its relationships with customers, suppliers,
licensors, licensees, and others with which it has business
dealings. In addition, Company will promptly notify Parent of
any event that would reasonably be expected to have a Material
Adverse Effect on Company.
In addition, without limiting the generality of the foregoing,
except as expressly contemplated by this Agreement or provided
in Part 4.1 of the Company Disclosure Letter, without the
prior written consent of Parent, during the period from the date
of this Agreement and continuing until the earlier of the
termination of this Agreement pursuant to its terms or the
Effective Time, Company shall not do any of the following and
shall not permit any Company Subsidiaries to do any of the
following:
(a) Waive any stock repurchase rights, accelerate, amend or
change the period of exercisability of options or restricted
stock, or reprice options granted under any Company Stock Plan,
except as contemplated under Section 1.6(d) of this
Agreement;
(b) Grant any severance or termination pay to any employee
except pursuant to written agreements in effect, or policies
existing, on the date hereof and as disclosed in the Company
Disclosure Letter, or adopt any new severance plan or policies;
(c) (i) Transfer or license to any Person or entity or
otherwise extend, amend or modify in any material respect any
rights to the Company IP Rights, other than with respect to
non-exclusive licenses in the ordinary course of business and
consistent with past practice; (ii) disclose to any Person,
other than Company employees and representatives of Parent not
subject to a nondisclosure agreement, any material trade secret
except in the ordinary course of business consistent with past
practices; (iii) transfer, modify or terminate any
agreement pursuant to which the Company has licensed
Intellectual Property Rights from any Person except in the
ordinary course of business consistent with past practices and
which would be immaterial to the business of the Company; and
(iv) disclose any source code to any third party except in
the ordinary course of business consistent with past practices;
(d) Declare, set aside or pay any dividends on or make any
other distributions (whether in cash, stock, equity securities
or property) in respect of any capital stock or split, combine
or reclassify any capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for any capital stock;
(e) Purchase, redeem or otherwise acquire, directly or
indirectly, any shares of capital stock of Company or the
Company Subsidiaries, except repurchases of unvested shares at
cost in connection with the termination of the employment
relationship with any employee pursuant to stock option or other
agreements in effect on the date hereof;
(f) Issue, deliver, sell, authorize, pledge or otherwise
encumber any shares of capital stock or any securities
convertible into shares of capital stock, or subscriptions,
rights, warrants or options to acquire any shares of capital
stock or any securities convertible into shares of capital
stock, or enter into other agreements or commitments of any
character obligating it to issue any such shares or convertible
securities, other than the
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issuance, delivery and sale of shares of Company Common Stock
pursuant to the exercise of Company Stock Options or Company
Warrants outstanding as of the date of this Agreement;
(g) Cause, permit or propose any amendments to its Articles
of Incorporation, Bylaws or other charter documents (or similar
governing instruments of any of Company Subsidiaries);
(h) Incur or prepay any indebtedness for borrowed money,
guarantee any such indebtedness of another Person, issue, sell
or repurchase any debt securities or options, warrants, calls or
other rights to acquire any debt securities of Company, enter
into any keep well or other Contract to maintain any
financial statement condition or enter into any arrangement
having the economic effect of any of the foregoing, other than
borrowings under Companys existing Loan and Security
Agreement with Comerica Bank (and any renewals or extensions
thereof on substantially the same terms as in effect on the date
hereof), in any case with an aggregate loan amount not to exceed
$6 million in the ordinary course of business consistent
with past practices;
(i) Make any loans, advances or capital contributions to,
or investments in, any other Person, other than to any direct or
indirect wholly owned Company Subsidiary;
(j) (i) Adopt or amend any employee benefit plan or
employee stock purchase or employee stock option plan,
(ii) enter into any employment contract or collective
bargaining agreement, other than an offer letter on
Companys standard form that is terminable at will without
severance or other continuing obligation following termination
of employment, (iii) pay any special bonus or special
remuneration to any officer, director or employee (other than
year-end bonuses in accordance with Companys existing
bonus plan or program approved by Companys Board of
Directors, (iv) increase the salaries or wage rates or
fringe benefits (including rights to severance or
indemnification) of its officers, directors, employees or
consultants, (v) make any other change in the compensation
or benefits payable or to become payable to any of its
employees, agents or consultants, or members of the board of
directors of the Company, (vi) enter into or amend any
employment, severance, consulting, termination or other
agreement or employee benefit plan or make any loans to any of
its directors, officers, employees, affiliates, agents or
consultants, (vii) make any change in its existing
borrowing or lending arrangements for or on behalf of any of
such directors, officers, employees, agents, consultants,
(viii) pay or make any accrual or arrangement for payment
of any pension, retirement allowance or other employee benefit
pursuant to any existing plan, agreement or arrangement to any
officer, director, employee or affiliate or pay or agree to pay
or make any accrual or arrangement for payment to any officers,
directors, employees or affiliates of any amount relating to
unused vacation days, except payments and accruals made in the
ordinary course of business consistent with past practices,
(ix) offer, grant or issue any stock options or take any
action to accelerate, amend or change the period of vesting or
exercisability of options or restricted stock, or reprice
options granted under any employee, consultant, director or
other stock plans or authorize cash payments in exchange for any
options granted under any of such plans, (x) hire or
terminate any officer (other than terminations for cause) or
encourage any officer or employee to resign, or materially
increase or decrease the number of employees, or (xi) amend
in any material respect any such existing plan, agreement or
arrangement in a manner inconsistent with the foregoing;
(k) Make any capital expenditures in excess of amounts
specifically allocated for capital expenditures in the
Companys 2006 operating budget approved by its Board of
Directors (a copy of which budget specifically setting forth
such capital expenditures has been provided to Parent);
(l) Permit to be cancelled or terminated, without
reasonable efforts to maintain coverage, or cancel or terminate
any insurance policy naming it as a beneficiary or loss payee,
unless such policy is replaced by a policy with comparable
coverage, or otherwise fail to maintain insurance at less than
current levels or otherwise in a manner consistent with past
practices in all material respects;
(m) (i) Modify or amend in any material respect or
terminate any of the Company Contracts, other than in the
ordinary course of business consistent with past practices,
(ii) waive, release or assign any material rights or claims
under any of the Company Contracts, other than in the ordinary
course of business consistent with past practices,
(iii) enter into any material commitment or transaction,
including entering into any material purchase, sale or lease of
assets or real estate, (iv) enter into any material
strategic alliance, material joint
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development or joint marketing agreement, or (v) enter into
any agreement pursuant to which Parent or the Surviving
Corporation or any Parent Subsidiary, or the Company or any
Company Subsidiary will be subject to any exclusivity,
noncompetition, nonsolicitation, most favored nations or other
similar restriction or requirement on their respective
businesses following the Closing;
(n) Fail to make in a timely manner any filings with the
SEC required under the Securities Act or the Exchange Act or the
rules and regulations promulgated thereunder (subject to
extension pursuant to
Section 12b-25
under the Exchange Act);
(o) (i) Make any change in any material method of
accounting, method of accounting principles or practice, except
for such change required by reason of a concurrent change in
GAAP or compliance with the applicable requirements of the rules
and regulations promulgated by the SEC, (ii) make any Tax
election or change any Tax election already made, adopt any Tax
accounting method, except for such changes required by
applicable Legal Requirements, rule or regulation, change any
Tax accounting method, except for such changes required by
applicable Legal Requirements, rule or regulation, enter into
any closing agreement or settle any claim or assessment relating
to Taxes other than settlements or assessments the result of
which would not be material to the Company and the Company
Subsidiaries, taken as a whole, or consent to any claim or
assessment relating to Taxes or any waiver of the statute of
limitations for any such claim or assessment, (iii) file
any material federal or state income Tax return without
Parents review and consent, which shall not be
unreasonably withheld, or (iv) revalue any of its material
assets, except as required by GAAP, applicable accounting
requirements or the published rules and regulations of the SEC
with respect thereto in effect during the periods involved other
than in the ordinary course of business consistent with past
practices;
(p) Pay, discharge or satisfy any material claims, material
liabilities or material obligations (whether absolute, accrued,
contingent or otherwise), other than (i) the payment,
discharge or satisfaction of any such claims, liabilities or
obligations in the ordinary course of business consistent with
past practices, (ii) the settlement of claims that do not
require a monetary payment in excess of $50,000 or restrictions
on the Companys business or (iii) claims, liabilities
or obligations reflected or reserved against in, or contemplated
by, the consolidated financial statements (or the notes thereto);
(q) (i) Adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization (other than the
Merger), (ii) acquire or agree to acquire by purchasing any
equity interest in or a material portion or all of the assets
of, or by any other manner, any business or any corporation,
partnership, association or other business organization or
division thereof, or, except in the ordinary course of business
consistent with past practices, otherwise acquire or agree to
acquire any assets that are material, individually or in the
aggregate, to the Company and the Company Subsidiaries, taken as
a whole, or (iii) sell, transfer, lease, mortgage, pledge,
license exclusively, encumber, or otherwise dispose of, any of
its properties or assets that are material, individually or in
the aggregate, to the Company and the Company Subsidiaries,
taken as a whole;
(r) Take any action that would, or is reasonably likely to,
result in any of the conditions to the Merger set forth in
Article VI not being satisfied, or would make many
representation or warranty of the Company contained herein
inaccurate in any material respect at, or as of any time prior
to, the Effective Time, or that would impair the ability of the
Company to consummate the Merger in accordance with the terms
hereof or materially delay such consummation;
(s) (A) Commence any litigation (except actions
commenced in the ordinary course of business against third
parties) or (B) except in the ordinary course of business
consistent with past practices or as required by applicable
Legal Requirements, seek a judicial order or decree or settle
any litigation, it being understood that any settlement of
litigation involving the payment by the Company or any Company
Subsidiary of an amount in excess of $100,000 is not in the
ordinary course of business;
(t) Take any action, or permit any Company Subsidiary to
take any action, that would prevent the Merger from qualifying
as a reorganization within the meaning of
Section 368(a) of the Code; or
(u) Agree in writing or otherwise commit to take any of the
actions described in Section 4.1(a) through (t) above.
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4.2 Conduct of Business by
Parent. During the period from the date of
this Agreement and continuing until the earlier of the
termination of this Agreement pursuant to its terms or the
Effective Time, Parent shall, except to the extent that Company
shall otherwise consent in writing, carry on its business in the
usual, regular and ordinary course, in substantially the same
manner as heretofore conducted and in compliance in all material
respects with all applicable Legal Requirements, pay its debts
and Taxes when due subject to good faith disputes over such
debts or Taxes, pay or perform other material obligations when
due, and use its commercially reasonable efforts consistent with
past practices and policies to (i) preserve intact its
present business organization, (ii) keep available the
services of its present officers and employees, and
(iii) preserve its relationships with customers, suppliers,
licensors, licensees, and others with which it has business
dealings. In addition, Parent will promptly notify Company of
any event that would reasonably be expected to have a Material
Adverse Effect on Parent.
In addition, without limiting the generality of the foregoing,
except as expressly contemplated by this Agreement or provided
in Part 4.2 of the Parent Disclosure Letter, without the
prior written consent of Company, during the period from the
date of this Agreement and continuing until the earlier of the
termination of this Agreement pursuant to its terms or the
Effective Time, Parent shall not do any of the following and
shall not permit any Parent Subsidiaries to do any of the
following:
(a) Declare, set aside or pay any dividends on or make any
other distributions (whether in cash, stock, equity securities
or property) in respect of any capital stock or split, combine
or reclassify any capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for any capital stock;
(b) Purchase, redeem or otherwise acquire, directly or
indirectly, any shares of capital stock of Parent or the Parent
Subsidiaries, except repurchases of unvested shares at cost in
connection with the termination of the employment relationship
with any employee pursuant to stock option or other agreements
in effect on the date hereof;
(c) Cause, permit or propose any amendments to its
Certificate of Incorporation, Bylaws or other charter documents
(or similar governing instruments of any of Parent Subsidiaries)
in a manner that would reasonably be likely to prevent or
materially delay or impair the Merger; provided that any
amendment to its Certificate of Incorporation to increase the
number of authorized shares of any class or series of capital
stock of Parent shall in no way be restricted by the foregoing;
(d) Fail to make in a timely manner any filings with the
SEC required under the Securities Act or the Exchange Act or the
rules and regulations promulgated thereunder (subject to
extension pursuant to
Section 12b-25
under the Exchange Act);
(e) (i) Adopt a plan of complete or partial
liquidation, dissolution, consolidation, restructuring,
recapitalization or other reorganization, (ii) adopt any
plan of merger in which Parents corporate existence would
cease or all of its outstanding capital stock would be converted
into cash, property or other securities, or (iii) sell,
transfer, lease, mortgage, pledge, license exclusively, or
otherwise dispose of, all or substantially all of the assets of
Parent and the Parent Subsidiaries, taken as a whole;
(f) Issue, deliver, sell, authorize, pledge or otherwise
encumber any shares of capital stock or any securities
convertible into shares of capital stock, or subscriptions,
rights, warrants or options to acquire any shares of capital
stock or any securities convertible into shares of capital
stock, or enter into other agreements or commitments of any
character obligating it to issue any such shares or convertible
securities, other than (i) the issuance, delivery and sale
of shares of Parent Common Stock pursuant to the exercise of
Parent Stock Options or Parent Warrants; (ii) the grant of
options with respect to, or the issuance of, the remaining
shares of Parent Common Stock authorized on the date hereof
under Parent Stock Plans in the ordinary course of business; and
(iii) other issuances of securities in the ordinary course
of business;
(g) Incur any indebtedness for borrowed money other than to
fund the normal business operations of Parent and the Parent
Subsidiaries;
(h) Take any action that would, or is reasonably likely to,
result in any of the conditions to the Merger set forth in
Article VI not being satisfied, or would make many
representation or warranty of Parent or Merger Sub
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contained herein inaccurate, which inaccuracy would constitute
or represent a Material Adverse Effect on Parent and the Parent
Subsidiaries, taken as a whole, or that would impair the ability
of the Parent or Merger Sub to consummate the Merger in
accordance with the terms hereof or materially delay such
consummation;
(i) Take any action, or permit any Parent Subsidiary to
take any action, that would prevent the Merger from qualifying
as a reorganization within the meaning of
Section 368(a) of the Code; or
(j) Agree in writing or otherwise commit to take any of the
actions described in Section 4.2(a) through (g) above.
ARTICLE V
ADDITIONAL
AGREEMENTS
5.1 Joint Proxy Statement, Registration
Statement and Filings.
(a) As promptly as practicable after the execution of this
Agreement, Company and Parent shall prepare and file with the
SEC preliminary joint proxy materials relating to the Company
Stockholder Approval and Parent Stockholder Approval, and Parent
shall prepare and file with the SEC a registration statement on
Form S-4
in connection with the issuance of shares of Parent Common Stock
in the Merger (such joint proxy materials are referred to herein
as the Joint Proxy Statement and such
registration statement, including the Joint Proxy Statement that
constitutes a part thereof, is referred to herein as the
Registration Statement). Each of
Company and Parent shall use its reasonable best efforts to
respond as promptly as practicable to any comments of the SEC
with respect to the Joint Proxy Statement and the Registration
Statement. Parent and Company each shall use its reasonable best
efforts to have the Registration Statement declared effective
under the Securities Act as promptly as practicable after such
filing. At the earliest practicable time following (i) the
Registration Statement being declared effective under the
Securities Act and (ii) the later of (A) receipt and
resolution of SEC comments with respect to the Joint Proxy
Statement and (B) the expiration of the
10-day
waiting period provided in
Rule 14a-6(a)
promulgated under the Exchange Act with respect to the Joint
Proxy Statement, Company and Parent shall file a definitive
Joint Proxy Statement with the SEC and cause the Joint Proxy
Statement to be mailed to their respective stockholders. Company
and Parent shall also use their respective reasonable best
efforts to satisfy prior to the effective date of the
Registration Statement all necessary state securities law or
blue sky notice requirements in connection with the
Merger and to consummate the other transactions contemplated by
this Agreement and will pay all expenses incident thereto.
(b) Each of Company and Parent shall furnish all
information concerning such Person to the other as may be
reasonably requested in connection with the preparation, filing
and distribution of the Joint Proxy Statement and the
Registration Statement. Company and Parent each agrees that none
of the information supplied or to be supplied by it or on its
behalf for inclusion or incorporation by reference in
(i) the Registration Statement will, at the time the
Registration Statement becomes effective under the Securities
Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and
(ii) the Joint Proxy Statement and any amendment or
supplement thereto will, at the date of mailing to stockholders
and at the times of the Company Stockholders Meeting and the
Parent Stockholders Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading. Company and Parent shall cause the
Registration Statement to comply as to form in all material
respects with the applicable provisions of the Securities Act
and the rules and regulations thereunder.
(c) Each of Company and Parent shall promptly notify the
other party upon the receipt of any comments from the SEC or its
staff or any request from the SEC or its staff for amendments or
supplements to the Joint Proxy Statement or Registration
Statement and shall provide the other party with copies of all
correspondence between it and its representatives, on the one
hand, and the SEC and its staff, on the other hand, and shall
provide the other party with an opportunity to review and
comment on such correspondence or responses. If at any time
prior to the Company Stockholders Meeting or Parent Stockholders
Meeting, any information relating to the Company, Parent or any
of their respective affiliates, officers or directors, should be
discovered by the Company or Parent that
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(i) should be set forth in an amendment or supplement to
the Joint Proxy Statement, so that the Joint
Proxy Statement shall not contain any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are
made, not misleading or (ii) should be set forth in an
amendment or supplement to the Registration Statement, so that
the Registration Statement shall not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading, the party that discovers such
information shall promptly notify the other parties hereto and
an appropriate amendment or supplement describing such
information shall be filed with the SEC and, to the extent
required by applicable Legal Requirements, disseminated to the
stockholders of Company and Parent.
(d) As promptly as practicable after the date of this
Agreement, each of Company and Parent will prepare and file any
filings required to be filed by any other federal, state or
foreign laws relating to the Merger and the transactions
contemplated by this Agreement (collectively, the
Filings). Without limitation, Filings
shall include all filings required under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the
HSR Act). The Company and Parent shall
provide such assistance, information and cooperation to each
other as is reasonably required to obtain any such nonactions,
waivers, consents, approvals, orders and authorizations. Each of
Company and Parent shall notify the other promptly (i) upon
the occurrence of any event which is required to be set forth in
an amendment or supplement to any Filing, (ii) upon the
receipt of any comments from any Governmental Entity in
connection with any Filing, and (iii) upon any request by
any Governmental Entity for amendments or supplements to any
Filings or for additional information. Each of Company and
Parent shall supply the other with copies of all correspondence
between such party or any of its representatives, on the one
hand, and a Governmental Entity, on the other hand, with respect
to any Filing. Except where prohibited by applicable Legal
Requirements (i) each of Company and Parent shall consult
with the other party prior to taking a position with respect to
any Filing, shall permit the other party to review and discuss
in advance, and consider in good faith the views of such other
party in connection with any analyses, appearances,
presentations, memoranda, briefs, white papers, arguments,
opinions and proposals before making or submitting any of the
foregoing to any Governmental Entity in connection with any
investigations or proceedings in connection with any Filing, and
(ii) each of Company and Parent shall coordinate with the
other party in preparing and exchanging such information and
promptly provide the other (and its counsel) with copies of all
filings, presentations or submissions (and a summary of any oral
presentations) made by such party with any Governmental Entity
in connection with any Filing; provided that with respect
to any such filing, presentation or submission, each of Parent
and Company need not supply the other (or its counsel) with
copies (or in case of oral presentations, a summary) to the
extent that any law, treaty, rule or regulation of any
Governmental Entity applicable to such party requires such party
or its subsidiaries to restrict or prohibit access to any such
properties or information or where such properties or
information is subject to the attorney-client privilege (it
being understood that the participation and cooperation
contemplated herein is not intended to constitute, nor shall be
deemed to constitute, any form of direct or indirect waiver of
the attorney-client privilege maintained by any party hereto).
Each of Company and Parent will cause all documents that it is
responsible for filing with any Governmental Entity under this
Section 5.1(d) to comply in all material respects with all
applicable Legal Requirements.
5.2 Meeting of Company Stockholders; Conditions
to Change of Recommendation; Superior Proposal;
Notification.
(a) Company shall take all action necessary in accordance
with the Nevada Corporate Law, governing rules of the NGM and
its Articles of Incorporation and Bylaws to convene and hold the
Company Stockholders Meeting, to be held as promptly as
practicable, for the purpose of voting upon approval and
adoption of this Agreement, approval of the Merger and any other
approvals reasonably related thereto. Unless the Board of
Directors of Company has made a Change of Recommendation
pursuant to Section 5.2(c). Company will use its reasonable
best efforts to solicit from its stockholders proxies in favor
of the adoption and approval of this Agreement, the approval of
the Merger and any other approvals reasonably related thereto
and will take all other action necessary or advisable to obtain
such approvals and to secure the vote of its stockholders, in
each case. Company (i) shall consult with Parent regarding
the date of the Company Stockholders Meeting, and
(ii) shall not postpone or adjourn the Company Stockholders
Meeting without the prior written consent of Parent; provided,
however, that Company may
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adjourn or postpone the Company Stockholders Meeting to the
extent necessary to ensure that any necessary (which
determination shall not be made before consulting with Parent)
supplement or amendment to the Joint Proxy Statement is provided
to the Companys stockholders in advance of a vote on the
Merger and this Agreement or, if as of the time for which the
Company Stockholders Meeting is originally scheduled there are
insufficient shares of Company Common Stock represented (either
in Person or by proxy) to constitute a quorum necessary to
conduct the business of the Company Stockholders Meeting.
Company shall call, notice, convene, hold and conduct the
Company Stockholders Meeting, and solicit proxies in
connection with the Company Stockholders Meeting, in
compliance with the Nevada Corporate Law, its Articles of
Incorporation and Bylaws, the rules of the NGM and all other
applicable Legal Requirements. Companys obligation to
call, give notice of, convene and hold the Company Stockholders
Meeting in accordance with this Section 5.2(a) shall not be
limited to or otherwise affected by the commencement,
disclosure, announcement or submission to Company of any
Acquisition Proposal or Superior Proposal or by any Change of
Recommendation.
(b) Unless the Board of Directors of Company has made a
Change of Recommendation pursuant to Section 5.2(c):
(i) the Board of Directors of Company shall recommend that
Companys stockholders vote in favor of and adopt and
approve this Agreement and approve the Merger at the Company
Stockholders Meeting; (ii) the Joint Proxy Statement
shall include a statement to the effect that the Board of
Directors of Company has recommended that Companys
stockholders vote in favor of and adopt and approve this
Agreement and the Merger at the Company Stockholders
Meeting; and (iii) neither the Board of Directors of
Company nor any committee thereof shall withdraw, amend or
modify, or propose or resolve to withdraw, amend or modify in a
manner adverse to Parent, the recommendation of the Board of
Directors of Company that Companys stockholders vote in
favor of and adopt and approve this Agreement and the Merger.
(c) Nothing in this Agreement shall prevent the Board of
Directors of Company, in response to the receipt of a Superior
Proposal, from withholding, withdrawing, amending or modifying
its recommendation in favor of the Merger, and, in the case of a
Superior Proposal that is a tender or exchange offer made
directly to its stockholders, may recommend that its
stockholders accept the tender or exchange offer (any of the
foregoing actions, whether by the Board of Directors of Company
or a committee thereof, a Change of
Recommendation), if all of the following conditions in
clauses (i) through (viii) are met:
(i) Company shall provide Parent with at least two business
days prior notice (or such lesser prior notice as provided to
the members of Companys Board of Directors) of any meeting
of Companys Board of Directors at which Companys
Board of Directors is reasonably expected to consider any
Acquisition Proposal to determine whether such Acquisition
Proposal is a Superior Proposal;
(ii) a Superior Proposal (as defined below) is made to
Company and is not withdrawn;
(iii) both the Company Stockholder Meeting and the Parent
Stockholder Meeting have not occurred; provided,
however that if either meeting is adjourned in accordance
with Section 5.2(a) or 5.4(a), as applicable, then such
meeting shall not be deemed to have occurred for purposes of
this clause (iii);
(iv) Company shall have provided written notice to Parent
(a Notice of Superior Proposal)
advising Parent that Company has received a Superior Proposal
and that it intends to effect a Change of Recommendation and the
manner in which it intends to do so, specifying all of the
material terms and conditions of such Superior Proposal and
identifying the Person, entity or group making such Superior
Proposal;
(v) Company shall have provided to Parent a copy of all
written materials delivered after the date of this Agreement to
the Person or group making the Superior Proposal in connection
with such Superior Proposal, and made available to Parent all
materials and information made available to the Person or group
making the Superior Proposal in connection with such Superior
Proposal, together with a complete list identifying all such
materials and information;
(vi) Parent shall not have, within five business days of
Parents receipt of the Notice of Superior Proposal, made
an offer that Companys Board of Directors by a majority
vote determines in its good faith judgment (after consultation
with a reputable U.S. financial advisor) to be at least as
favorable to Companys stockholders as such Superior
Proposal (it being agreed that the Board of Directors of Company
shall convene a meeting to consider any such offer by Parent
promptly following the receipt thereof), and that the
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Board of Directors of Company will not withhold, withdraw, amend
or modify its recommendation to the Companys stockholders
in favor of approval and adoption of this Agreement and approval
of the Merger for five business days after receipt by Parent of
the Notice of Superior Proposal;
(vii) the Board of Directors of Company concludes in good
faith, after consultation with its outside legal counsel, that,
in light of such Superior Proposal and any offer made by Parent
pursuant to Section 5.2(c)(vi), the failure to effect a
Change of Recommendation would be a breach of its fiduciary
obligations to Companys stockholders under applicable
Legal Requirements; and
(viii) Company shall have complied in all material respects
with Sections 5.1, 5.2 and 5.3.
(d) Nothing contained in this Agreement shall limit
Companys obligation to call, give notice of, hold and
convene the Company Stockholders Meeting (regardless of
the commencement, disclosure, announcement or submission to the
Board of Directors of the Company of any Acquisition Proposal or
of any Change of Recommendation). Company shall not submit to
the vote of its stockholders for a vote any Acquisition Proposal
or propose or agree to do so at or prior to the Company
Stockholders Meeting.
(e) For purposes of this Agreement, Superior
Proposal shall mean a bona fide binding written
offer that has not been solicited by the Company following the
date of this Agreement and is made by a Person to acquire,
directly or indirectly, pursuant to a tender offer, exchange
offer, merger, consolidation or other business combination, all
or in excess of 50% of the assets of Company or in excess of 50%
of the outstanding voting securities of Company and as a result
of which the stockholders of Company immediately preceding such
transaction would cease to hold at least 50% of the equity
interests in the surviving or resulting entity of such
transaction or any direct or indirect parent or subsidiary
thereof, on terms that the Board of Directors of Company
concludes in good faith, after consultation with its outside
financial advisors, to be (i) more favorable to
Companys stockholders from a financial point of view than
the terms of the Merger, taking into account all the terms and
conditions of such proposal and this Agreement (including any
proposal by either party to amend the terms of this Agreement)
and the Person making the offer, and (ii) reasonably
capable of being consummated; provided, however, that any
such offer shall not be deemed to be a Superior Proposal if any
financing required to consummate the transaction contemplated by
such offer is not committed or if there is a general due
diligence condition to the parties obligations to
consummate the transaction that is the subject of the Superior
Proposal.
(f) Nothing contained in this Agreement shall prohibit
Company or its Board of Directors from taking and disclosing to
its stockholders a position contemplated by
Rules 14d-9
and 14e-2(a)
promulgated under the Exchange Act; provided, however,
that Company shall not effect a Change of Recommendation unless
specifically permitted pursuant to Section 5.2(c).
(g) For purposes of this Agreement, Acquisition
Proposal shall mean any offer or proposal (other
than an offer or proposal by Parent) relating to, or involving:
(A) any acquisition or purchase from Company by any Person
or group (as defined under Section 13(d) of the
Exchange Act and the rules and regulations thereunder) of more
than a 15% interest in the total outstanding voting securities
of Company or any of its subsidiaries or any tender offer or
exchange offer that if consummated would result in any Person or
group (as defined under Section 13(d) of the
Exchange Act and the rules and regulations thereunder)
beneficially owning 15% or more of the total outstanding voting
securities of Company or any of its subsidiaries or any merger,
consolidation, business combination or similar transaction
involving Company pursuant to which the stockholders of Company
immediately preceding such transaction hold less than 85% of the
equity interests in the surviving or resulting entity of such
transaction; (B) any sale, lease (other than in the
ordinary course of business), exchange, transfer, license (other
than in the ordinary course of business), acquisition, or
disposition of more than 15% of the assets of Company; or
(C) any liquidation, dissolution, recapitalization or other
significant corporate reorganization of Company.
5.3 No Solicitation. From
and after the date of this Agreement until the Effective Time or
termination of this Agreement pursuant to Article VII,
Company shall not, nor shall it authorize or permit the Company
Subsidiaries or any of its or their respective officers,
directors, affiliates or employees or any investment banker,
attorney, advisor or other agent or representative retained by
any of them to, directly or indirectly, (i) solicit,
initiate, seek, entertain, encourage, facilitate, support or
induce the making, submission or announcement of any Acquisition
Proposal, (ii) continue or participate in any discussions
or negotiations regarding, or furnish to any Person any
A-38
information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any
Acquisition Proposal, (iii) engage or participate in
discussions with any Person with respect to any Acquisition
Proposal, except as necessary to ascertain the terms of and
understand any Acquisition Proposal and to decline to engage or
participate in such discussions by referring to the existence of
these provisions, (iv) approve, endorse or recommend any
Acquisition Proposal, except as specifically provided in
Section 5.2(c), or (v) enter into any letter of intent
or any other Contract contemplating or otherwise relating to any
Acquisition Proposal; provided, however, that this
Section 5.3 shall not prohibit Company from engaging in
discussions or negotiations regarding or furnishing information
to the party making an unsolicited, written, bona fide
Acquisition Proposal so long as, and only to the extent that,
(A) Companys Board of Directors in good faith after
consultation with its outside financial and legal advisors,
concludes that such Acquisition Proposal is, or would reasonably
be expected to result in, a Superior Proposal, (B) neither
Company nor any representative of Company or the Company
Subsidiaries acting under its authority shall have violated any
of the restrictions set forth in this Section 5.3,
(C) the Board of Directors of Company concludes in good
faith, after consultation with its outside financial and legal
counsel, that such action is required in order for the Board of
Directors of Company to comply with its fiduciary obligations to
Companys stockholders under applicable Legal Requirements,
(D) at least two business days prior to entering into
discussions or negotiations (other than preliminary discussions
permitted above) with, or furnishing information to, such party,
Company gives Parent written notice of the identity of such
Person, entity or group and all of the material terms and
conditions of such Acquisition Proposal and of Companys
intention to take action with respect to such Person, entity or
group, and Company receives from such Person or group an
executed confidentiality agreement containing terms no less
favorable to Company as the Confidentiality Agreement,
(E) Company gives Parent at least two business days advance
notice of its intent to furnish such nonpublic information or
enter into such discussions, and (F) contemporaneously with
furnishing any such information to such Person or group, Company
furnishes such information to Parent (to the extent such
information has not been previously furnished by Company to
Parent). Company shall, and shall cause its respective officers,
directors, controlled affiliates or employees or any investment
banker, attorney, advisor or other agent or representative
retained by any of them to, immediately cease any and all
existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any Acquisition
Proposal. Without limiting the foregoing, it is understood that
any violation of the restrictions set forth in this
Section 5.3 by any officer, director or controlled
affiliate of Company or any Company Subsidiaries or any
investment banker, attorney, advisor or other agent or
representative of Company or any Company Subsidiaries shall be
deemed to be a breach of this Section 5.3 by Company.
In addition to the obligations of Company set forth in this
Section 5.3, Company shall, as promptly as practicable, and
in any event within 24 hours, advise Parent orally and in
writing of any Acquisition Proposal, request for information
which Company reasonably believes would lead to an Acquisition
Proposal or any inquiry with respect to or which could
reasonably be expected to lead to any Acquisition Proposal, the
material terms and conditions of such Acquisition Proposal,
request or inquiry, the identity of the Person or group making
any such Acquisition Proposal, request or inquiry and copies of
all written materials sent or provided to Company by or on
behalf of any Person or group or provided to such Person or
group by or on behalf of Company after the date of this
Agreement. Company shall keep Parent informed in all material
respects of the status and details (including material
amendments or proposed amendments) of any such Acquisition
Proposal, request or inquiry. In addition to the foregoing,
Company shall provide Parent with at least two business days
prior written notice of a meeting of Companys Board of
Directors at which Companys Board of Directors is
reasonably expected to consider an Acquisition Proposal or
recommend a Superior Proposal to its stockholders and, together
with such notice, a copy of the documentation relating to such
Superior Proposal.
5.4 Meeting of Parent
Stockholders.
(a) Parent shall take all action necessary in accordance
with the DGCL, governing rules of the NGM and its Certificate of
Incorporation and Bylaws to convene and hold the Parent
Stockholders Meeting, to be held as promptly as
practicable, for the purpose of voting upon approval and
adoption of this Agreement, approval of the Merger and any other
approvals reasonably related thereto. Parent (i) shall
consult with Company regarding the date of the Parent
Stockholders Meeting, and (ii) shall not postpone or
adjourn the Parent Stockholders Meeting without the prior
written consent of Company; provided, however, that Parent may
adjourn or postpone the Parent
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Stockholders Meeting to the extent necessary to ensure that any
necessary (which determination shall not be made before
consulting with Company) supplement or amendment to the Joint
Proxy Statement is provided to the Parents stockholders in
advance of a vote on the Merger and this Agreement or, if as of
the time for which the Parent Stockholders Meeting is originally
scheduled there are insufficient shares of Parent Common Stock
represented (either in Person or by proxy) to constitute a
quorum necessary to conduct the business of the Parent
Stockholders Meeting. Parent shall call, notice, convene, hold
and conduct the Parent Stockholders Meeting, and solicit
proxies in connection with the Parent Stockholders
Meeting, in compliance with the DGCL, its Articles of
Incorporation and Bylaws, the rules of the NGM and all other
applicable Legal Requirements.
(b) (i) The Board of Directors of Parent shall
recommend that Parents stockholders vote in favor of and
adopt and approve this Agreement and approve the Merger at the
Parent Stockholders Meeting; (ii) the Joint Proxy
Statement shall include a statement to the effect that the Board
of Directors of Parent has recommended that Parents
stockholders vote in favor of and adopt and approve this
Agreement and the Merger at the Parent Stockholders
Meeting; and (iii) neither the Board of Directors of Parent
nor any committee thereof shall withdraw, amend or modify, or
propose or resolve to withdraw, amend or modify in a manner
adverse to Company, the recommendation of the Board of Directors
of Parent that Parents stockholders vote in favor of and
adopt and approve this Agreement and the Merger.
5.5 Confidentiality; Access to
Information.
(a) The parties acknowledge that Company and Parent have
previously executed the Confidentiality Agreement, which will
continue in full force and effect in accordance with its terms.
(b) Access to Information. Company will
afford Parent and its accountants, counsel and other
representatives reasonable access to the properties, books,
records and personnel of Company during the period prior to the
Effective Time to obtain all information concerning the
business, properties, results of operations and personnel of
Company, as Parent may reasonably request. Parent will afford
Company and its accountants, counsel and other representatives
reasonable access to the properties, books, records and
personnel of Parent during the period prior to the Effective
Time to obtain all information concerning the business,
properties, results of operations and personnel of Parent, as
Company may reasonably request. No information or knowledge
obtained in any investigation pursuant to this Section 5.5
will affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
5.6 Public
Disclosure. Parent and Company shall consult
with each other, and to the extent reasonably practicable,
agree, before issuing any press release or otherwise making any
public statement with respect to the Merger or this Agreement
and shall not issue any such press release or make any such
public statement prior to such consultation, except as may be
required by applicable Legal Requirements or any listing
agreement with the NGM. The parties have agreed to the text of
the joint press release announcing the signing of this Agreement.
5.7 Reasonable Efforts;
Notification.
(a) Upon the terms and subject to the conditions set forth
in this Agreement, each of the parties agrees to use all
commercially reasonable efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, and to assist and
cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the
most expeditious manner practicable, the Merger and the other
transactions contemplated by this Agreement, including using
commercially reasonable efforts to accomplish the following:
(i) the taking of all reasonable acts necessary to cause
the conditions precedent set forth in Article VI to be
satisfied, (ii) the obtaining of all necessary consents,
approvals or waivers from third parties, and (iii) the
execution or delivery of any additional instruments necessary to
consummate the transactions contemplated by, and to fully carry
out the purposes of, this Agreement. Notwithstanding anything in
this Agreement to the contrary, neither Parent nor any of its
affiliates shall be under any obligation (i) to make
proposals, execute or carry out agreements or submit to orders
providing for the sale or other disposition or holding separate
(through the establishment of a trust or otherwise) of any
assets or categories of assets of Parent, any of its affiliates
or Company or the holding separate of the shares of Company
Common Stock (or shares of stock of the Surviving Corporation),
or (ii) imposing or seeking to impose or confirm any
limitation or regulation on the ability of Parent or any of its
subsidiaries or affiliates to freely conduct their
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business or own such assets or to acquire, hold or exercise full
rights of ownership of the shares of Company Common Stock (or
shares of stock of the Surviving Corporation).
(b) Each of Company and Parent shall give prompt notice to
the other of (i) any notice or other communication from any
Person alleging that the consent of such Person is or may be
required in connection with the Merger (other than a Company
Necessary Consent or Parent Necessary Consent), (ii) any
notice or other communication from any Governmental Entity in
connection with the Merger, (iii) any litigation relating
to, involving or otherwise affecting Company, Parent or their
respective subsidiaries that relates to or may reasonably be
expected to affect, the consummation of the Merger. Company
shall give prompt notice to Parent of any representation or
warranty made by it contained in this Agreement becoming untrue
or inaccurate, or any failure of Company to comply with or
satisfy any covenant, condition or agreement to be complied with
or satisfied by it under this Agreement, in each case, such that
the conditions set forth in Section 6.3 would not be
satisfied, provided, however, that no such notification
shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations
of the parties under this Agreement. Parent shall give prompt
notice to Company of any representation or warranty made by it
or Merger Sub contained in this Agreement becoming untrue or
inaccurate, or any failure of Parent or Merger Sub to comply
with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement, in each
case, such that the conditions set forth in Section 6.2
would not be satisfied, provided, however, that no such
notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the
obligations of the parties under this Agreement.
(c) In order to facilitate the integration of the
operations of Parent and Company and to permit the coordination
of their related operations on a timely basis, and in an effort
to accelerate the earliest time possible following the Effective
Time the benefits expected to be realized by the parties as a
result of the Merger, Company shall use its commercially
reasonable efforts to consult with Parent on material strategic
and operational matters to the extent such consultation is not
in violation of applicable Legal Requirements, including laws
regarding exchange of information and other laws regarding
competition.
5.8 Third Party Consents. As
soon as practicable following the date hereof, (i) Company
shall use its commercially reasonable efforts to obtain the
Company Necessary Consents, and (ii) Parent shall use its
commercially reasonable efforts to obtain the Parent Necessary
Consents.
5.9 Indemnification of
Directors. Parent and Merger Sub agree to
cause the Articles of Incorporation and Bylaws of the Surviving
Corporation to contain the provisions with respect to
exculpation and indemnification of directors of Company, and
advancement of expenses in connection therewith, set forth in
the Articles of Incorporation and Bylaws of Company on the date
of this Agreement (except that such provisions shall
specifically confirm that the obligation to advance expenses
applies to former directors and officers), which provisions
shall not be amended for a period of three years after the
Effective Time (unless such amendment is required by applicable
Legal Requirements and except for amendments that do not
adversely affect the rights of persons who at the Effective Time
were serving or had previously served as directors or officers
of Company).
5.10 Stockholder
Litigation. Until the earlier of termination
of this Agreement in accordance with its terms or the Effective
Time, Company shall give Parent the opportunity to participate
in the defense or settlement of any stockholder litigation
against Company or members of its Board of Directors relating to
this Agreement and the transactions contemplated hereby or
otherwise and shall not settle any such litigation without
Parents prior written consent.
5.11 Section 16(b). The
Board of Directors of each of Company and Parent shall, prior to
the Effective Time, take all such actions as may be necessary or
appropriate pursuant to
Rule 16b-3(d)
and
Rule 16b-3(e)
under the Exchange Act to exempt from Section 16 of the
Exchange Act (i) the disposition of shares of Company
Common Stock and derivative securities (as defined
in
Rule 16a-1(c)
under the Exchange Act) with respect to shares of Company Common
Stock and (ii) the acquisition of Parent Common Stock and
derivative securities with respect to Parent Common Stock
pursuant to the terms of this Agreement by officers and
directors of Company subject to the reporting requirements of
Section 16(a) of the Exchange Act or by employees or
directors of Company who may become an officer or director of
Parent subject to the reporting requirements of
Section 16(a) of the Exchange Act.
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5.12 Tax-Free Qualification.
(a) Each of Company and Parent shall use its reasonable
best efforts to and to cause each of its Subsidiaries to,
(i) cause the Merger to qualify as a
reorganization within the meaning of
Section 368(a) of the Code and (ii) obtain the
opinions of counsel referred to in Sections 6.2(f) and
6.3(e) of this Agreement.
(b) From and after the Effective Time, Parent shall not
take any action that is reasonably likely to cause the Merger to
fail to qualify as a reorganization within the
meaning of Section 368(a) of the Code, including any action
that is reasonably likely to cause the Merger to fail to satisfy
the continuity of business enterprise requirement
described in Treasury Regulation § 1.368-1(d). If the
opinion conditions contained in Sections 6.2(e) and 6.3(d)
of this Agreement have been satisfied, each of the Company and
Parent shall report the Merger for U.S. federal income tax
purposes as a reorganization within the meaning of
Section 368(a) of the Code.
5.13 Tax Representation
Letters. Company shall use its reasonable
best efforts to deliver to Morris, Manning & Martin LLP
and to Parr Waddoups Brown Gee & Loveless a Tax
Representation Letter, dated as of the Closing Date and
signed by an officer of Company, containing representations of
Company, and Parent shall use its reasonable best efforts to
deliver to Morris, Manning & Martin LLP and to Parr
Waddoups Brown Gee & Loveless a Tax
Representation Letter, dated as of the Closing Date and
signed by an officer of Parent, containing representations of
Parent, in each case as shall be reasonably necessary or
appropriate to enable Morris, Manning & Martin LLP to
render the opinion described in Section 6.3(d) of this
Agreement and Parr Waddoups Brown Gee & Loveless to
render the opinion described in Section 6.2(e) of this
Agreement.
5.14 Company
Affiliates. Company shall, prior to the
Company Stockholders Meeting, deliver to Parent a list
identifying all persons who, to the knowledge of Company, may be
deemed as of the date of the Company Stockholders Meeting to be
affiliates of Company for purposes of Rule 145 under the
Securities Act and such list shall be updated as necessary to
reflect changes from the date thereof until the Company
Stockholders Meeting. Company shall use its reasonable best
efforts to cause each Person identified on such list to deliver
to Parent, not later than the date of Company Stockholders
Meeting, a written agreement substantially in the form attached
as Exhibit A hereto.
5.15 Voting
Agreements. Concurrently with the execution
of this Agreement, Company has delivered to Parent voting
agreements, in form and substance reasonably acceptable to
Parent, executed by the stockholders of the Company set forth on
Part 5.15 of the Company Disclosure Letter.
5.16 Employment
Agreements. Concurrently with the execution
of this Agreement, Company has delivered to Parent employment
agreements, in form and substance reasonably acceptable to
Parent, executed by the persons named on Part 5.16 of the
Company Disclosure Letter, which employment agreements are
expressly conditioned upon the consummation of the Merger and
shall become effective only upon the Effective Time.
5.17 Noncompetition
Agreements. Concurrently with the execution
of this Agreement, Company has delivered to Parent
noncompetition agreements, in form and substance reasonably
acceptable to Parent, executed by the persons named on
Part 5.17 of the Company Disclosure Letter, which
noncompetition agreements are expressly conditioned upon the
consummation of the Merger and shall become effective only upon
the Effective Time.
ARTICLE VI
CONDITIONS
TO THE MERGER
6.1 Conditions to Obligations of Each Party to
Effect the Merger. The respective obligations
of each party to this Agreement to effect the Merger shall be
subject to the satisfaction at or prior to the Closing Date of
the following conditions:
(a) Stockholder Approval. This
Agreement shall have been approved and adopted, and the Merger
shall have been approved, by the requisite vote of (i) the
stockholders of Company under applicable Legal Requirements and
the Company Charter Documents and (ii) the stockholders of
Parent under applicable Legal Requirements and the Parent
Charter Documents.
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(b) Joint Proxy Statement. No stop
order or similar proceeding in respect of the Joint Proxy
Statement shall have been initiated or threatened in writing by
the SEC.
(c) Registration Statement. The
Registration Statement shall have become effective under the
Securities Act. No stop order suspending the effectiveness of
the Registration Statement shall have been issued.
(d) NGM Listing. The shares of
Parent Common Stock issuable to the Company stockholders
pursuant to the Merger shall have been authorized for listing on
the NGM upon official notice of issuance.
(e) No Order. No Governmental
Entity shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or
permanent) which is in effect and which has the effect of making
the Merger illegal or otherwise prohibiting consummation of the
Merger.
(f) Governmental
Approvals. Approvals from each Governmental
Entity (if any) necessary for consummation of the transactions
contemplated by this Agreement shall have been obtained, and any
waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated.
6.2 Additional Conditions to Obligations of
Company. The obligation of Company to
consummate and effect the Merger shall be subject to the
satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing,
exclusively by Company:
(a) Representations and
Warranties. Each representation and warranty
of Parent and Merger Sub contained in this Agreement shall be
true and correct in all material respects (except for any
statements in a representation or warranty that expressly
include a standard of Material Adverse Effect, which statements
shall be true and correct in all respects giving effect to such
standard) as of the date of this Agreement and as of the Closing
Date with the same force and effect as if made on the Closing
Date, except that those representations and warranties which
address matters only as of a particular date (including the date
of this Agreement) shall have been true and correct in all
material respects (except for any statements in a representation
or warranty that expressly include a qualification standard of
Material Adverse Effect, which statements shall be true and
correct in all respects giving effect to either of such
qualification standard) as of such date; provided, however, each
of Parent and Merger Sub shall provide supplements to the Parent
Disclosure Letter as may be necessary to update the
representations and warranties contained in Article III
solely for the purpose of determining whether an event has
occurred between the date hereof and the Effective Time that
would reasonably be expected to have a Material Adverse Effect
on Parent (it being understood that, for purposes of determining
the accuracy of such representations and warranties, any update
of or modification to the Parent Disclosure Letter made or
purported to have been made after the execution of this
Agreement shall be disregarded); provided, however, that
notwithstanding anything herein to the contrary, the condition
set forth in this Section 6.2(a) shall be deemed to have
been satisfied even if any representations and warranties of
Parent and Merger Sub are not so true and correct unless the
failure of such representations and warranties to be so true and
correct has had or would have a Material Adverse Effect on
Parent. Company shall have received a certificate with respect
to the foregoing signed on behalf of Parent by the Chief
Executive Officer and Chief Financial Officer of Parent.
(b) Agreements and
Covenants. Parent and Merger Sub shall have
performed or complied in all material respects with all
agreements and covenants required by this Agreement to be
performed or complied with by them on or prior to the Closing
Date, and Company shall have received a certificate to such
effect signed on behalf of Parent by the Chief Executive Officer
and Chief Financial Officer of Parent.
(c) Material Adverse Effect. No
Material Adverse Effect with respect to Parent shall have
occurred since the date of this Agreement and be continuing, and
Company shall have received a certificate to such effect signed
on behalf of Parent by the Chief Executive Officer and Chief
Financial Officer of Parent.
(d) Parent Necessary
Consents. Parent and Merger Sub shall have
obtained all Parent Necessary Consents.
(e) Tax Opinion. Company shall
have received the written opinion of Parr Waddoups Brown
Gee & Loveless, counsel to Company, or other counsel
reasonably satisfactory to Company, dated the Closing Date,
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to the effect that the Merger will be treated for Federal income
tax purposes as a reorganization within the meaning of
Section 368(a) of the Code. In rendering such opinion,
counsel to Company shall be entitled to rely upon assumptions,
representations, warranties and covenants, including those
contained in this Agreement and in the Tax Representation
Letters described in Section 5.13 of this Agreement.
6.3 Additional Conditions to the Obligations of
Parent and Merger Sub. The obligations of
Parent and Merger Sub to consummate and effect the Merger shall
be subject to the satisfaction at or prior to the Closing Date
of each of the following conditions, any of which may be waived,
in writing, exclusively by Parent:
(a) Representations and
Warranties. Each representation and warranty
of Company contained in this Agreement shall be true and correct
in all material respects (except for any statements in a
representation or warranty that expressly include a standard of
Material Adverse Effect, which statements shall be true and
correct in all respects giving effect to such standard) as of
the date of this Agreement and as of the Closing Date with the
same force and effect as if made on the Closing Date, except
that those representations and warranties which address matters
only as of a particular date (including the date of this
Agreement) shall have been true and correct in all material
respects (except for any statements in a representation or
warranty that expressly include a qualification standard of
Material Adverse Effect, which statements shall be true and
correct in all respects giving effect to either of such
qualification standard) as of such date; provided, however,
Company shall provide supplements to the Company Disclosure
Letter as may be necessary to update the representations and
warranties contained in Article II solely for the purpose
of determining whether an event has occurred between the date
hereof and the Effective Time that would reasonably be expected
to have a Material Adverse Effect on Company (it being
understood that, for purposes of determining the accuracy of
such representations and warranties, any update of or
modification to the Company Disclosure Letter made or purported
to have been made after the execution of this Agreement shall be
disregarded); provided, however, that notwithstanding anything
herein to the contrary, the condition set forth in this
Section 6.3(a) shall be deemed to have been satisfied even
if any representations and warranties of Company are not so true
and correct unless the failure of such representations and
warranties to be so true and correct has had our would have a
Material Adverse Effect on Company. Parent shall have received a
certificate with respect to the foregoing signed on behalf of
Company by the Chief Executive Officer and Chief Financial
Officer of Company.
(b) Agreements and
Covenants. Company shall have performed or
complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied
with by it at or prior to the Closing Date, and Parent shall
have received a certificate to such effect signed on behalf of
Company by the Chief Executive Officer and Chief Financial
Officer of Company.
(c) Material Adverse Effect. No
Material Adverse Effect with respect to Company shall have
occurred since the date of this Agreement and be continuing, and
Parent shall have received a certificate to such effect signed
on behalf of Company by the Chief Executive Officer and Chief
Financial Officer of Company.
(d) Tax Opinion. Parent shall have
received the written opinion of Morris, Manning &
Martin, LLP, counsel to Parent, or other counsel reasonably
satisfactory to Parent, dated the Closing Date, to the effect
that the Merger will be treated for Federal income tax purposes
as a reorganization within the meaning of Section 368(a) of
the Code. In rendering such opinion, counsel to Parent shall be
entitled to rely upon assumptions, representations, warranties
and covenants, including those contained in this Agreement and
in the Tax Representation Letters described in Section 5.13
of this Agreement.
(e) No Restraints. There shall not
be instituted, pending or threatened any action, proceeding or
hearing before any Governmental Entity (i) seeking to
restrain, prohibit, regulate or otherwise interfere with the
ownership or operation by Parent or any of its subsidiaries of
all or any portion of the business of Company or any of its
subsidiaries or of Parent or any of its subsidiaries or to
compel Parent or any of its subsidiaries to dispose of or hold
separate all or any portion of the business or assets of Company
or any of its subsidiaries or of Parent or any of its
subsidiaries, (ii) seeking to impose or confirm limitations
or regulations on the ability of Parent or any of its
subsidiaries effectively to exercise full rights of ownership of
the shares of Company Common Stock (or shares of stock of the
Surviving Corporation) including the right to vote any such
shares on any matters properly presented to stockholders or
freely conduct Companys business or (iii) seeking to
require divestiture by Parent or any of its subsidiaries of any
such assets or shares.
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(f) Consents. Company shall have
obtained all Company Necessary Consents, which consents shall
have been obtained on terms that are not reasonably likely to
materially affect the ownership or operations of the business by
Parent.
(g) Resignation of
Directors. Parent shall have received a
written resignation from each of the directors of Company
effective as of the Effective Time.
(h) Termination of Company Stock
Plans. Parent shall have received from the
Company evidence that the Companys rights to grant
additional awards under the Company Stock Plans have been
terminated, effective immediately prior to the Effective Time
and conditioned upon the Effective Time occurring.
ARTICLE VII
TERMINATION,
AMENDMENT AND WAIVER
7.1 Termination. This
Agreement may be terminated at any time prior to the Effective
Time, whether before or after the requisite approvals of the
stockholders of Company or Parent:
(a) by mutual written consent duly authorized by the Boards
of Directors of Parent and Company;
(b) by either Company or Parent if the Merger shall not
have been consummated by March 31, 2007 (the
Outside Date) for any reason;
provided, however, that the Outside Date shall be
April 30, 2007 if the Merger shall not have been
consummated by March 31, 2007 solely by reason of
(i) the failure of the Registration Statement being
declared effective under the Securities Act in a timely manner,
(ii) the failure to resolve all SEC comments with respect
to the Joint Proxy Statement in a timely manner, or
(iii) the failure to obtain all approvals from each
Governmental Entity (if any) necessary for consummation of the
transactions contemplated by this Agreement; and provided
further, however, that the right to terminate this Agreement
under this Section 7.1(b) shall not be available to any
party whose action or failure to act has been a principal cause
of or resulted in the failure of the Merger to occur on or
before such date and such action or failure to act constitutes a
breach of this Agreement;
(c) by Parent if a Governmental Entity shall have issued a
final and nonappealable order, decree or ruling with respect to
any of the items set forth in Section 6.3(e);
(d) by either Company or Parent, if the approval and
adoption of this Agreement and the approval of the Merger by the
stockholders of Company shall not have been obtained by reason
of the failure to obtain the required vote at a meeting of
Company stockholders duly convened therefore or at any
adjournment thereof; provided, however, that the right to
terminate this Agreement under this Section 7.1(d) shall
not be available to Company where the failure to obtain Company
stockholder approval shall have been caused by the action or
failure to act of Company and such action or failure to act
constitutes a material breach by Company of this Agreement;
(e) by either Company or Parent, if the approval and
adoption of this Agreement and the approval of the Merger by the
stockholders of Parent shall not have been obtained by reason of
the failure to obtain the required vote at a meeting of Parent
stockholders duly convened therefore or at any adjournment
thereof; provided, however, that the right to terminate
this Agreement under this Section 7.1(e) shall not be
available to Parent where the failure to obtain Parent
stockholder approval shall have been caused by the action or
failure to act of Parent and such action or failure to act
constitutes a material breach by Parent of this Agreement;
(f) by Parent if a Company Triggering Event (as defined
below) shall have occurred;
(g) by Company if a Parent Triggering Event (as defined
below) shall have occurred;
(h) by Company, either (i) upon a breach of any
representation, warranty, covenant or agreement on the part of
Parent set forth in this Agreement, or if any representation or
warranty of Parent shall have become untrue, in either case such
that the conditions set forth in Section 6.2(a) or
Section 6.2(b) would not be satisfied as of the time of
such breach or as of the time such representation or warranty
shall have become untrue, or (ii) if a Material Adverse
Effect with respect to Parent shall have occurred; provided
that if such inaccuracy in
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Parents or Merger Subs representations and
warranties or breach by Parent or Merger Sub, or if such
Material Adverse Effect with respect to Parent, is curable by
Parent through the exercise of its commercially reasonable
efforts, then Company may not terminate this Agreement under
this Section 7.1(h) for 20 days after delivery of
written notice from Company to Parent of such breach, provided
Parent continues to exercise commercially reasonable efforts to
cure such breach or Material Adverse Effect with respect to
Parent (it being understood that Company may not terminate this
Agreement pursuant to this Section 7.1(h) if such breach by
Parent or Merger Sub or Material Adverse Effect with respect to
Parent is cured during such
20-day
period, or if Company shall have materially breached this
Agreement); or
(i) by Parent, either (i) upon a breach of any
representation, warranty, covenant or agreement on the part of
Company set forth in this Agreement or if any representation or
warranty of Company shall have become untrue, in either case
such that the conditions set forth in Section 6.3(a) or
Section 6.3(b) would not be satisfied as of the time of
such breach or as of the time such representation or warranty
shall have become untrue, or (ii) if a Material Adverse
Effect with respect to Company shall have occurred; provided
that if such inaccuracy in Companys representations
and warranties or breach by Company, or if such Material Adverse
Effect with respect to Company, is curable by Company through
the exercise of its commercially reasonable efforts, then Parent
may not terminate this Agreement under this Section 7.1(i)
for 20 days after delivery of written notice from Parent to
Company of such breach, provided Company continues to exercise
commercially reasonable efforts to cure such breach or Material
Adverse Effect with respect to Company (it being understood that
Parent may not terminate this Agreement pursuant to this
Section 7.1(i) if such breach by Company or Material
Adverse Effect with respect to Company is cured during such
20-day
period, or if Parent shall have materially breached this
Agreement).
Each of the above termination rights is an independent right
that is not exclusive of any other termination right or other
right herein.
For the purposes of this Agreement, a Company
Triggering Event shall be deemed to have occurred
if: (i) the Board of Directors of Company (or any committee
thereof) shall for any reason effected a Change of
Recommendation; (ii) Company shall have failed to include
in the Joint Proxy Statement the recommendation of
Companys Board of Directors in favor of the adoption and
approval of this Agreement and the approval of the Merger;
(iii) the Board of Directors of Company fails to reaffirm
(publicly, if so requested by Parent) its recommendation in
favor of the adoption and approval of the Agreement and the
approval of the Merger within 10 business days after Parent
requests in writing that such recommendation be reaffirmed;
(iv) the Board of Directors of Company (or any committee
thereof) shall have approved or recommended any Acquisition
Proposal; (v) Company shall have entered into any
non-binding letter of intent, memorandum of understanding, term
sheet or Contract with respect to any Acquisition Proposal;
(vi) Company shall have materially breached any of the
provisions of Sections 5.2 or 5.3; or (vii) a tender
or exchange offer relating to securities of Company shall have
been commenced by a Person unaffiliated with Parent, and Company
shall not have sent to its security holders pursuant to
Rule 14e-2
promulgated under the Securities Act, within 10 business days
after such tender or exchange offer is first published sent or
given, a statement disclosing that Company recommends rejection
of such tender or exchange offer.
7.2 Notice of Termination Effect of
Termination. Any proper termination of this
Agreement under Section 7.1 above will be effective
immediately upon the delivery of written notice of the
terminating party to the other parties hereto. In the event of
the termination of this Agreement as provided in
Section 7.1, this Agreement shall be of no further force or
effect, except (i) as set forth in this Section 7.2,
Section 7.3 and Article VIII, each of which shall
survive the termination of this Agreement, and (ii) nothing
herein shall relieve any party from liability for fraud in
connection with, or any willful breach of, this Agreement. No
termination of this Agreement shall affect the obligations of
the parties contained in the Confidentiality Agreement, all of
which obligations shall survive termination of this Agreement in
accordance with their terms.
7.3 Fees and Expenses.
(a) General. Except as set forth
in this Section 7.3, all fees and expenses incurred in
connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses
whether or not the Merger is consummated.
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(b) Termination Fee. In the event
that (i) this Agreement is terminated by Parent pursuant to
Section 7.1(f) or (ii) (A) this Agreement is
terminated pursuant to Section 7.1(b) (other than a
termination by Company if any action or failure to act by Parent
or Merger Sub is the principal cause of the failure of the
Merger to occur on or before the Outside Date), 7.1(d), or
7.1(i), and (B) at or prior to such termination but after
the date hereof, there shall exist or have been publicly
proposed a bona fide Acquisition Proposal relating to a Company
Acquisition and within 12 months after such termination,
Company shall enter into a letter of intent or definitive
agreement with respect to any Company Acquisition or any Company
Acquisition shall be consummated, then, in the case of
clause (i), promptly, but in no event later than two
(2) business days after the date of such termination, or in
the case of clause (ii), concurrently with the execution of
a definitive agreement with respect to, or the consummation of,
as applicable, such Company Acquisition, Company shall pay to
Parent $8,000,000 in cash plus the amount of any transaction
expenses of Parent incurred theretofore (the
Termination Fee). Company acknowledges
that the agreements contained in this Section 7.3(b) are an
integral part of the transactions contemplated by this
Agreement, the amount of, and the basis for payment of, the
Termination Fee are reasonable and appropriate in all respects,
and that, without these agreements, Parent would not enter into
this Agreement. Accordingly, if Company fails to pay in a timely
manner the Termination Fee due pursuant to this
Section 7.3(b), and, in order to obtain such payment,
Parent makes a claim that results in a judgment against Company
for the amounts set forth in this Section 7.3(b), Company
shall pay to Parent its reasonable costs and expenses (including
reasonable attorneys fees and expenses) in connection with
such suit, together with interest on the amounts set forth in
this Section 7.3(b) at the prime rate of Bank of America,
N.A. in effect on the date such payment was required to be made.
Payment of the fees described in this Section 7.3(b) shall
be in lieu of damages incurred in the event of breach of this
Agreement other than for any willful breaches of this Agreement.
For the purposes of this Agreement, Company
Acquisition shall mean any of the following
transactions (other than the transactions contemplated by this
Agreement): (A) a merger, consolidation, business
combination, recapitalization, liquidation, dissolution or
similar transaction involving Company pursuant to which the
stockholders of Company immediately preceding such transaction
hold less than 50% of the aggregate equity interests in the
surviving or resulting entity of such transaction, (B) a
sale or other disposition by Company of assets representing in
excess of 50% of the aggregate fair market value of
Companys business immediately prior to such sale, or
(C) the acquisition by any Person or group (including by
way of a tender offer or an exchange offer or issuance by
Company), directly or indirectly, of beneficial ownership or a
right to acquire beneficial ownership of shares representing in
excess of 50% of the voting power of the then outstanding shares
of capital stock of Company.
7.4 Amendment. Subject to
applicable Legal Requirements, this Agreement may be amended by
the parties hereto, by action taken or authorized by their
respective Boards of Directors, at any time before or after
approval of the matters presented in connection with the Merger
by the stockholders of Company. This Agreement may not be
amended except by execution of an instrument in writing signed
on behalf of each of Parent, Merger Sub and Company.
7.5 Extension; Waiver. At
any time prior to the Effective Time any party hereto may, to
the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other
parties hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained
herein or in any document delivered pursuant hereto, and
(iii) waive compliance with any of the agreements or
conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Delay in exercising any
right under this Agreement shall not constitute a waiver of such
right.
ARTICLE VIII
GENERAL
PROVISIONS
8.1 Non-Survival of Representations and
Warranties. The representations and
warranties of Company, Parent and Merger Sub contained in this
Agreement shall terminate at the Effective Time, and only the
covenants that by their terms expressly survive the Effective
Time shall survive the Effective Time.
8.2 Notices. All notices and
other communications hereunder shall be in writing and shall be
deemed duly given (i) on the date of delivery if delivered
personally, (ii) on the date of confirmation of receipt
(or, the first
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business day following such receipt if the date is not a
business day) of transmission by facsimile, (iii) on the
date of confirmation of receipt (or, the first business day
following such receipt if the date is not a business day) if
delivered by a nationally recognized courier service, or
(iv) on the date of receipt or refusal (if delivery is
refused) if delivered by registered or United States certified
mail (postage prepaid, return receipt requested). Subject to the
foregoing, all notices hereunder shall be delivered as set forth
below, or pursuant to such other instructions as may be
designated in writing by the party to receive such notice:
(a) if to Parent or Merger Sub, to:
Internap Network Services Corporation
250 Williams Street, Suite E100
Atlanta, GA 30303
Attention: Chief Executive Officer
Facsimile No.:
(404) 302-9912
with a copy to:
Morris, Manning & Martin, LLP
3343 Peachtree Road, N.E.
Suite 1600
Atlanta, Georgia 30326
Attention: Grant W. Collingsworth, Esq.
Facsimile No.:
(404) 365-9532
(b) if to Company, to:
VitalStream Holdings, Inc.
One Jenner, Suite 100
Irvine, California 92618
Attention: Chief Executive Officer
Facsimile No.:
(949) 743-2003
with copies to:
Parr Waddoups Brown Gee & Loveless
185 South State Street, Suite 1300
Salt Lake City, UT 84111
Attention: Bryan Allen, Esq.
Facsimile No.:
(801) 532-7750
8.3 Interpretation; Certain Defined
Terms.
(a) Generally. When a reference is
made in this Agreement to Exhibits, such reference shall be to
an Exhibit to this Agreement unless otherwise indicated. When a
reference is made in this Agreement to Articles or Sections,
such reference shall be to an Article or a Section of this
Agreement unless otherwise indicated. The words
include,
includes and
including when used herein shall be
deemed in each case to be followed by the words
without limitation. The table of
contents and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. When reference is
made herein to the business of an
entity, such reference shall be deemed to include the business
of all direct and indirect subsidiaries of such entity.
(b) Affiliate shall mean, as
applied to any Person, (a) each other Person directly or
indirectly controlling, controlled by or under common control
with, that Person, and (b) as to a corporation, each
director and officer thereof, and as to a partnership, each
general partner thereof, and as to a limited liability company,
each managing member or similarly authorized Person thereof. For
the purposes of this definition, control
(including with correlative meanings, the terms
controlling, controlled by, and
under common control with) as applied to any Person,
means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of
that Person, whether through ownership of voting securities or
by contract or otherwise;
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(c) Company IP Assets shall mean,
all IP Assets licensed, used, owned or purported to be owned by
Company or any Company Subsidiaries in the operation of the
business of Company and Company Subsidiaries or constituting or
included within any product or services of Company or the
Company Subsidiaries.
(d) Company IP Rights shall mean
all Intellectual Property Rights licensed, used, owned or
purported to be owned by Company or the Company Subsidiaries,
regardless of whether such rights are practiced or exercised by
Company or the Company Subsidiaries;
(e) Company Stockholders shall
mean the holders of the Company Common Stock as of the
applicable reference date.
(f) Company Subsidiary shall mean
each Subsidiary of Company.
(g) Confidentiality Agreement
shall mean that certain Confidentiality Agreement, by and
between Company and Parent, in effect as of the date hereof.
(h) Contract shall mean a loan or
credit agreement, bond, debenture, note, mortgage, indenture,
guarantee, lease, insurance policy, benefit plan or other
contract, commitment, agreement, instrument, obligation, binding
arrangement, binding understanding, binding undertaking, license
or sublicense, whether oral or written, that has not been
terminated and that contains any continuing obligation or
liability of a party, including any invoice, purchase order or
account
set-up form
made or issued in the ordinary course of business.
(i) Employee shall mean any
current employee or consultant of a Person;
(j) Employee Agreement shall mean
each management, employment, severance, consulting, relocation,
repatriation, expatriation, visas, work permit or similar
agreement or contract between any Employee and his or her
employer;
(k) Encumbrances shall mean any
lien, pledge, hypothecation, charge, mortgage, security
interest, encumbrance, claim, infringement, interference,
option, right of first refusal to purchase, preemptive right,
community property interest or restriction of any nature
(including any restriction on the voting of any security, any
restriction on the transfer of any security (other than arising
under securities laws, any restriction on transfer of a
security) or other asset (other than a Contract, license or
similar document)), any restriction on the receipt of any income
derived from any asset, any restriction on the use of any owned
asset and any restriction on the possession, exercise or
transfer of any other ownership attribute of any asset);
(l) Environmental Claims shall
mean any and all actions, orders, decrees, suits, demands,
directives, claims, Encumbrances, investigations, proceedings or
notices of violation by any Governmental Entity or other Person
alleging responsibility or liability arising out of, based on or
related to (1) the presence, Release or threatened Release
of, or exposure to, any Hazardous Materials at any location or
(2) circumstances forming the basis of any violation or
alleged violation of any Environmental Law;
(m) Environmental Laws shall mean
all Laws, rules, regulations, orders, decrees, applicable common
law, judgments or binding agreements issued, promulgated or
entered into by or with any Governmental Entity with applicable
authority over such matters relating to pollution or protection
of the environment;
(n) Environmental Permits shall
mean all permits, licenses, registrations and other
authorizations required under applicable Environmental Laws;
(o) Hazardous Materials shall
mean all hazardous, toxic, explosive or radioactive substances,
wastes or other pollutants, including petroleum or petroleum
distillates, asbestos, polychlorinated biphenyls, radon gas and
all other substances or wastes of any nature regulated pursuant
to any Environmental Law;
(p) ERISA shall mean the Employee
Retirement Income Security Act of 1974, as amended;
(q) Harmful Code shall mean any
program routine, device or other feature, including a virus,
worm, trojan horse, malicious logic or trap door, that is
designed to delete, disable, interfere with, perform
unauthorized modifications to, or provide unauthorized access to
the software.
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(r) Intellectual Property Rights
shall mean, collectively, all of the following rights in any and
all jurisdictions throughout the world, whether or not filed,
perfected, registered or recorded and whether now or hereafter
existing, filed, issued or acquired: (i) issued patents,
pending patent applications, patent disclosures, and patent
rights, including any and all continuations,
continuations-in-part,
divisionals, provisionals, reissues, reexaminations, utility,
model and design patents or any extensions thereof, inventions,
invention disclosures, discoveries and improvements, whether
patentable or not; (ii) works of authorship and rights
associated with works of authorship, including copyrights,
copyright applications and copyright registrations;
(iii) Moral Rights; (iv) rights in trademarks,
trademark registrations, and applications therefor, trade names,
service marks, service names, logos, or trade dress
(collectively, Marks), and any
goodwill symbolized by such Marks; (v) rights relating to
trade secrets (including those trade secrets defined in the
Uniform Trade Secrets Act and under corresponding foreign
statutory and common law), confidential business, technical and
know-how information; (vi) Internet domain names, World
Wide Web URLs or addresses, any goodwill associated therewith
and any other rights relating thereto granted by any
governmental or quasi-governmental authority, including Internet
domain name registrars; (vii) claims, causes of action,
defenses, and rights to sue for past infringement relating to
the enforcement of any of the foregoing; (viii) any
goodwill symbolized by or associated with any of the foregoing;
and (ix) all other intellectual or proprietary rights in
any and all jurisdiction throughout the world;
(s) IP Assets shall mean all
tangible technology or information of a technical nature,
documentation, manuals, memoranda, records, customer lists,
supplier lists, proprietary processes, formulae, software source
code and object code, software libraries, data bases, software
utilities, programming and knowledge base structures,
optimization, organization and compilation techniques,
programmers notes, flowcharts, diagrams, algorithms,
screen displays, graphical interfaces, photographs, images,
layouts, development tools, designs, blueprints, specifications,
technical drawings, applications, methodologies, techniques,
ideas, solutions, processes, concepts, or procedures, hardware
and machinery.
(t) IRS shall mean the Internal
Revenue Service;
(u) Knowledge or
knowledge shall mean with respect to a
party hereto, with respect to any matter in question, that any
of the officers (with respect to Company, only those officers
set forth on Part 8.3 of the Company Disclosure Letter (the
Company Disclosure Officers), and with
respect to Parent, only those officers set forth on
Part 8.3 of the Parent Disclosure Letter (the
Parent Disclosure Officers)) or
directors of such party has actual knowledge of such matter.
Without limitation, any such Person will be deemed to have
actual knowledge of a matter if (i) such matter is
reflected in one or more documents (whether written or
electronic, including
e-mails sent
to or by such individual) in, or that have been in, such
individuals possession, including personal files of such
individual or (ii) such matter is reflected in one or more
documents (whether written or electronic) contained in books and
records of such party that would reasonably be expected to be
reviewed by an individual who has the duties and
responsibilities of such individual in the customary performance
of such duties and responsibilities;
(v) Liability shall mean any
direct or indirect liability, indebtedness, obligation,
commitment, expense, claim, deficiency, guaranty or endorsement
of or by any Person of any type, known or unknown, and whether
accrued, absolute, contingent, matured, unmatured or other;
(w) Material Adverse Effect shall
mean, with respect to either Company or Parent, any effect or
change that would be materially adverse to the business,
operations, properties, condition (financial or otherwise) or
prospects of such party taken as a whole, or on the ability of
such party to consummate timely the transactions contemplated
hereby; provided that none of the following shall be deemed to
constitute, and none of the following shall be taken into
account in determining whether there has been, a Material
Adverse Effect: (a) any adverse change, event, development,
or effect to the extent arising from (1) changes in general
business or economic conditions occurring after the date of this
Agreement, including such conditions related to the business of
such party but not unique for such party, (2) changes in
national or international political or social conditions
occurring after the date of this Agreement, including
engagement, continuation or escalation by the United States in
hostilities, whether or not pursuant to the declaration of a
national emergency or war, or the occurrence of any military or
terrorist attack upon the United States or any of its
territories, possessions or diplomatic or consular offices or
upon any military installation, equipment or personnel of the
United States, (3) any disruption in the financial,
banking, or securities
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markets, (4) changes resulting from the execution,
announcement or performance of this Agreement, (5) changes
in the trading prices of the Company Common Stock or the Parent
Common Stock.
(x) Moral Rights shall mean any
right to claim authorship to or to object to any distortion,
mutilation, or other modification or other derogatory action in
relation to a work, whether or not such would be prejudicial to
the authors reputation, and any similar right, existing
under common or statutory law of any country in the world or
under any treaty, regardless of whether or not such right is
denominated or generally referred to as a moral
right;
(y) Multiemployer Plan shall mean
any Pension Plan which is a multiemployer
plan, as defined in Section 3(37) of ERISA;
(z) Parent IP Assets shall mean,
all IP Assets licensed, used, owned or purported to be owned by
Parent or any Parent Subsidiaries in the operation of the
business of Parent and Parent Subsidiaries or constituting or
included within any product or services of Parent or the Parent
Subsidiaries.
(aa) Parent IP Rights shall mean
all Intellectual Property Rights licensed, used, owned or
purported to be owned by Parent or the Parent Subsidiaries,
regardless of whether such rights are practiced or exercised by
Parent or the Parent Subsidiaries;
(bb) Parent Plan shall mean any
plan, program, policy, practice, contract, agreement or other
arrangement providing for compensation, severance, termination
pay, deferred compensation, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits
or remuneration of any kind, whether written or unwritten or
otherwise, funded or unfunded, including without limitation,
each employee benefit plan, within the
meaning of Section 3(3) of ERISA which is or has been
maintained, contributed to, or required to be contributed to, by
the Company or any Affiliate for the benefit of any Employee, or
with respect to which Parent or any Affiliate has or may have
any liability or obligation;
(cc) Parent Stockholders shall
mean the holders of the Parent Common Stock as of the applicable
reference date.
(dd) Parent Subsidiary shall mean
each Subsidiary of Parent.
(ee) Pension Plan shall mean each
Company Plan which is an employee pension benefit
plan, within the meaning of Section 3(2) of ERISA;
(ff) Person shall mean any
individual, corporation (including any non-profit corporation),
general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including
any limited liability company or joint stock company), firm or
other enterprise, association, organization, entity or
Governmental Entity;
(gg) Publicly Available Software
shall mean:
(i) any software that contains, or is derived in any manner
(in whole or in part) from, any software that is distributed as
free software, open source software (e.g. Linux) or similar
licensing or distribution models;
(ii) any software that requires as a condition of use,
modification
and/or
distribution that such software or other software incorporated
into, derived from or distributed with such software:
(A) be disclosed or distributed in source code form;
(B) be licensed for the purpose of making derivative works;
or (C) be redistributable at no charge; and
(iii) software licensed or distributed under any of the
following licenses or distribution models, or licenses or
distribution models similar to any of the following:
(a) GNUs General Public License (GPL) or
Lesser/Library GPL (LGPL); (b) the Artistic License (e.g.,
PERL); (c) the Mozilla Public License; (d) the
Netscape Public License; (e) the Sun Community Source
License (SCSL); (f) the Sun Industry Source License (SISL);
and (g) the Apache Software License.
(hh) Subsidiary of a specified
entity will be any corporation, partnership, limited liability
company, joint venture or other legal entity of which the
specified entity (either alone or through or together with any
other subsidiary) owns, directly or indirectly, 50% or more of
the stock or other equity or partnership interests the holders
A-51
of which are generally entitled to vote for the election of the
Board of Directors or other governing body of such corporation
or other legal entity; and
(ii) Tax or
Taxes refers to (i) any and all
federal, state, local and foreign taxes, assessments and other
governmental charges, duties, impositions and liabilities
relating to taxes, including taxes based upon or measured by
gross receipts, income, profits, sales, use and occupation, and
value added, ad valorem, transfer, franchise, withholding,
payroll, recapture, employment, excise and property taxes,
together with all interest, penalties and additions imposed with
respect to such amounts, (ii) any liability for payment of
any amounts of the type described in clause (i) as a result
of being a member of an affiliated consolidated, combined or
unitary group, and (iii) any liability for amounts of the
type described in clauses (i) and (ii) as a result of
any express or implied obligation to indemnify another Person or
as a result of any obligations under any agreements or
arrangements with any other Person with respect to such amounts
and including any liability for taxes of a predecessor entity.
8.4 Counterparts. This
Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement and shall
become effective when one or more counterparts have been signed
by each of the parties and delivered to the other party, it
being understood that all parties need not sign the same
counterpart.
8.5 Entire Agreement; Third Party
Beneficiaries. This Agreement, its Exhibits
and the documents and instruments and other agreements among the
parties hereto as contemplated by or referred to herein,
including the Company Disclosure Letter and the Parent
Disclosure Letter (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter
hereof, it being understood that the Confidentiality Agreement
shall continue in full force and effect until the Closing and
shall survive any termination of this Agreement (all in
accordance with the terms set forth therein); and (b) are
not intended to confer upon any other Person any rights or
remedies hereunder.
8.6 Severability. In the
event that any provision of this Agreement or the application
thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder
of this Agreement will continue in full force and effect and the
application of such provision to other persons or circumstances
will be interpreted so as reasonably to effect the intent of the
parties hereto. The parties further agree to replace such void
or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the greatest extent
possible, the economic, business and other purposes of such void
or unenforceable provision.
8.7 Other Remedies; Specific
Performance. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a
party will be deemed cumulative with and not exclusive of any
other remedy conferred hereby, or by law or equity upon such
party, and the exercise by a party of any one remedy will not
preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to
seek an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
8.8 Governing Law. This
Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts
of law thereof, except that with respect to matters mandatorily
governed by Nevada Corporate Law, Nevada Corporate Law shall
govern. Each of the Parties hereto irrevocably and
unconditionally submits to the exclusive jurisdiction of either
(a) the courts of the State of Delaware or (b) any
Federal court of the United States of America sitting in the
State of Delaware, for the purposes of any suit, action or other
proceeding arising out of this Agreement or any transaction
contemplated hereby (and each agrees that no such action, suit
or proceeding relating to this Agreement shall be brought by it
or any of its Affiliates except in such courts). Each of the
Parties further agrees that, to the fullest extent permitted by
applicable Legal Requirements, service of any process, summons,
notice or document by U.S. registered mail (postage
prepaid, return receipt requested) to such partys
respective address set forth in Section 9.4 shall be
effective service of process for any action, suit or proceeding
in Delaware with respect to any matters to which it has
submitted to jurisdiction as set forth above in the immediately
preceding sentence. Each of
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the Parties irrevocably and unconditionally waives (and agrees
not to plead or claim) any objection to the laying of venue of
any action, suit or proceeding arising out of this Agreement or
the transactions contemplated hereby in (i) any court of
the State of Delaware or (ii) any Federal court of the
United State of America sitting in the State of Delaware, or
that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum.
8.9 Rules of
Construction. The parties hereto agree that
they have been represented by counsel during the negotiation and
execution of this Agreement and, therefore, waive the
application of any Legal Requirements, holding or rule of
construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such
agreement or document.
8.10 Assignment. No party
may assign either this Agreement or any of its rights,
interests, or obligations hereunder without the prior written
consent of the other parties hereto. Subject to the preceding
sentence, this Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective
successors and permitted assigns. Any purported assignment in
violation of this Section shall be void.
8.11 Attorneys
Fees. If any action or other proceeding
relating to the enforcement of any provision of this Agreement
is brought by any party hereto, the prevailing party shall be
entitled to recover reasonable attorneys fees, costs and
disbursements (in addition to any other relief to which the
prevailing party may be entitled).
8.12 Taxes. Any Taxes
payable in connection with the Merger or the other transactions
contemplated by this Agreement shall be paid by the party
responsible therefor under applicable Legal Requirements.
8.13 Waiver Of Jury
Trial. EACH OF PARENT, COMPANY AND MERGER SUB
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT,
TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR THE ACTIONS OF PARENT, COMPANY OR MERGER SUB IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
* * * * *
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In Witness Whereof, the parties hereto have caused this
Agreement and Plan of Merger to be executed by their duly
authorized respective officers as of the date first written
above.
INTERNAP NETWORK SERVICES CORPORATION
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By:
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/s/ James
P. DeBlasio
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Name: James P. DeBlasio
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Title:
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President and Chief Executive Officer
|
IVY ACQUISITION CORP.
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By:
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/s/ James
P. DeBlasio
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Name: James P. DeBlasio
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Title:
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President and Chief Executive Officer
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VITALSTREAM HOLDINGS, INC.
Name: Jack Waterman
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Title:
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Chairman and Chief Executive Officer
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[Signature Page to
Agreement and Plan of Merger]
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Exhibit A
to Agreement and Plan of Merger
AFFILIATE
AGREEMENT
,
2007
Internap Network Services Corporation
250 Williams Street, Suite E100
Atlanta, GA 30303
Re: VitalStream Holdings, Inc.
Gentlemen:
Internap Network Services Corporation, a Delaware corporation
(Internap), Ivy Acquisition Corp., a wholly-owned
subsidiary of Internap (Merger Sub), and VitalStream
Holdings, Inc., a Nevada corporation (VitalStream),
have entered into an Agreement and Plan of Merger dated as of
October 12, 2006 (the Merger Agreement),
pursuant to which Merger Sub is to be merged with and into
VitalStream (the Merger), and each outstanding share
of common stock of VitalStream (VitalStream Stock)
is to be converted into the right to receive shares of common
stock of Internap (Internap Common Stock).
Capitalized terms not defined herein shall have the meanings
ascribed to such terms in the Merger Agreement.
The undersigned has been advised that as of the date the Merger
Agreement is submitted to shareholders of VitalStream for
approval, the undersigned may be an affiliate of
VitalStream, as such term is defined for purposes of
paragraph (c) of Rule 145 promulgated by the
Securities and Exchange Commission (SEC) under the
Securities Act of 1933, as amended (the Securities
Act). Execution of this Agreement by the undersigned
should not be construed as an admission of affiliate
status or as a waiver of any rights the undersigned may have to
object to any claim that the undersigned is an
affiliate on or after the date of this Agreement.
In connection with the Merger, Internap has requested the
undersigned to agree, and the undersigned hereby agrees, with
Internap as follows:
Internap has filed a Joint Proxy Statement/Prospectus with
VitalStream, pursuant to which the Internap Common Stock to be
received by the undersigned pursuant to the Merger will be
registered.
The undersigned understands and agrees that any sales of
Internap Common Stock will be made pursuant to an effective
registration statement or in compliance with Rule 145, or
in a transaction which, in the opinion of legal counsel
satisfactory to Internap, is exempt from the registration
requirements of the Securities Act, and that stop-transfer
instructions to this effect will be given to Internaps
transfer agent with respect to the shares of Internap Common
Stock to be received by the undersigned in the Merger, and there
will be placed on the certificate representing such stock, or
any certificates delivered in substitution therefor, a legend
stating in substance:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED
IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE
SECURITIES ACT OF 1933 APPLIES. THESE SECURITIES MAY ONLY BE
SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED (1) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT OR (2) IN ACCORDANCE
WITH RULE 145 OR A TRANSACTION WHICH IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND, IN
EITHER CASE, ALONG WITH AN OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO THE COMPANY TO SUCH EFFECT.
The undersigned further understands and agrees that unless the
transfer by the undersigned of the Internap Common Stock to be
received by the undersigned pursuant to the Merger has been
registered under the Securities Act or is a sale made in
conformity with the provisions of Rule 145, Internap
reserves the right to put the following legend on the
certificates issued to the undersigneds transferee:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND WERE
ACQUIRED FROM A PERSON WHO RECEIVED SUCH SHARES IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES
ACT OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED BY THE
HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF
1933 AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
Ivy Technologies, Inc.
,
2006
Page 2
TRANSFERRED EXCEPT IN ACCORDANCE WITH AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933.
It is understood and agreed that the legends set forth in the
immediately preceding two paragraphs shall be removed by
delivery of substitute certificates without such legend if such
legend is not required for purposes of the Securities Act or
this Agreement. It is understood and agreed that such legends
and the stop orders referred to above will be removed if
(i) evidence or representations satisfactory to Internap
that the securities represented by such certificates are being
or have been sold in a transaction made in conformity with the
provisions of Rule 145(d) (as such rule may be hereafter
from time to time amended) or (ii) Internap has received
either an opinion of counsel, which opinion and counsel shall be
reasonably satisfactory to Internap, or a no-action
letter obtained by me from the staff of the SEC, to the effect
that the restrictions imposed by Rule 145 under the Act no
longer apply to the undersigned.
Internap agrees and covenants that for so long as is necessary
to permit the undersigned to sell the Internap Common Stock
pursuant to Rule 145 and, to the extent applicable,
Rule 144 under the Securities Act, Internap shall
(i) file, on a timely basis, all reports and data required
to be filed with the SEC by it pursuant to Section 13 or
Section 15 of the Exchange Act, and (ii) furnish to
the undersigned upon request a written statement as to whether
Internap has complied with such reporting requirements during
the 12 months preceding any proposed sale of Internap
Common Stock by the undersigned under Rule 145 and
Rule 144. Internap represents and warrants to the
undersigned that it has filed all reports required to be filed
with the SEC under Section 13 or Section 15 of the
Exchange Act during the preceding 12 months. Although this
letter references sales of Internap Common Stock pursuant to an
effective registration statement, the undersigned acknowledges
and agrees that Internap has no obligation to file such a
registration statement.
[ADDITIONAL
PROVISION FOR INSTITUTIONAL INVESTORS]
In addition to the limitations imposed above, the undersigned
agrees that it shall not make any sales of Internap Common Stock
in violation of the following limitations:
The undersigned shall not (directly or indirectly), without the
prior written consent of Internap, sell, agree to sell or enter
into any option agreement pursuant to which Internap Common
Stock may be sold, in excess of the number of shares of Internap
Common Stock that may be sold during the periods below:
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Percentage of Internap Common Stock Issued
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to the Undersigned Pursuant to the Merger
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Period
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That May be Sold During Period
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Period commencing at the Effective
Time and ending on (and including) the
90th day
following the Effective Time
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25
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%
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Each 90 day period thereafter
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50
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%
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[ADDITIONAL
PROVISION FOR JACK WATERMAN]
In addition to the limitations imposed above, the undersigned
agrees that he shall not make any sales or transfers of Internap
Common Stock in violation of the following limitations (for the
avoidance of doubt, the terms Internap Common Stock
and Internap Common Stock Issued to the Undersigned
Pursuant to the Merger in this sentence and below shall be
deemed to include, but not be limited to, shares of Internap
common stock that are issuable upon exercise of options to
purchase Internap common stock issued or assumed in the Merger):
Ivy Technologies, Inc.
,
2006
Page 3
The undersigned shall not (directly or indirectly), without the
prior written consent of Internap, sell, agree to sell, enter
into any option agreement pursuant to which Internap Common
Stock may be sold, or transfer, in excess of the number of
shares of Internap Common Stock that may be sold
and/or
transferred during the periods below:
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Percentage of All of the Internap Common
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|
Stock Issued to the Undersigned Pursuant to
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the Merger That May be Sold and/or
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Period
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Transferred During Period
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Period commencing at the Effective
Time and ending on (and including) the
90th day
following the Effective Time
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25
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%
|
Period commencing on the
91st day
following the Effective Time and ending on (and including) the
180th day
following the Effective Time
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|
|
10
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%
|
Period commencing on the
181st day
following the Effective Time and ending on (and including) the
270th day
following the Effective Time
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|
10
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%
|
Period commencing on the
271st day
following the Effective Time and ending on (and including) the
360th day
following the Effective Time
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|
|
10
|
%
|
On the
361st day
following the Effective Time, the contractual transfer
restrictions above shall lapse and be of no further force or
effect. Notwithstanding the above caps, should the actual number
of shares of Internap Common Stock sold in any Period be less
than the allowable cap, the difference will accrue in addition
to the subsequent Period cap but in no event can any one
Periods total exceed 25%. Notwithstanding anything to the
contrary, any shares of VitalStream stock sold or transferred by
the undersigned between October 12, 2006 and the Effective
Time shall be deemed to count (with each share of VitalStream
common stock counting as .5132 shares of Internap common
stock) as Internap Common Stock Issued to the Undersigned
Pursuant to the Merger and as Internap Common Stock sold or
transferred during the Period commencing at the Effective Time
and ending on (and including) the
90th day
following the Effective Time for purposes of the cap set forth
above.
[ADDITIONAL
PROVISION FOR PHILIP KAPLAN]
In addition to the limitations imposed above, the undersigned
agrees that it shall not make any sales of Internap Common Stock
in violation of the following limitations:
The undersigned shall not (directly or indirectly), without the
prior written consent of Internap, sell, agree to sell or enter
into any option agreement pursuant to which Internap Common
Stock may be sold, in excess of the number of shares of Internap
Common Stock that may be sold during the periods below:
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Percentage of Internap Common Stock Issued
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|
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|
to the Undersigned Pursuant to the Merger
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Period
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That May be Sold During Period
|
|
|
Period commencing at the Effective
Time and ending on (and including) the
90th day
following the Effective Time
|
|
|
15
|
%
|
Period commencing on the
91st day
following the Effective Time and ending on (and including) the
180th day
following the Effective Time
|
|
|
10
|
%
|
Period commencing on the
181st day following the Effective Time and ending on (and
including) the
270th day
following the Effective Time
|
|
|
10
|
%
|
Period commencing on the
271st day
following the Effective Time and ending on (and including) the
360th day
following the Effective Time
|
|
|
10
|
%
|
On the
361st day
following the Effective Time, the contractual transfer
restrictions above shall lapse and be of no further force or
effect.
Ivy Technologies, Inc.
,
2006
Page 4
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Very truly yours,
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Accepted
this day
|
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|
of ,
2007
|
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|
IVY CORPORATION
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By: _
_
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Name:
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Title:
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VOTING
AGREEMENT
THIS VOTING AGREEMENT (this Agreement) is
made and entered into as of October 12, 2006 by and between
Internap Network Services Corporation, a Delaware corporation
(Parent) and the undersigned stockholder
(Stockholder) of VitalStream Holdings, Inc.,
a Nevada corporation (the Company).
Capitalized terms used but not otherwise defined herein shall
have the meanings ascribed to them in the Merger Agreement (as
defined below).
RECITALS
A. As an inducement for Parent to enter into that certain
Agreement and Plan of Merger by and among Parent, Ivy
Acquisition Corp., a Nevada corporation and a wholly owned
subsidiary of Parent (Merger Sub) and the
Company (the Merger Agreement), which
provides, among other things, for the merger of Merger Sub with
and into the Company (the Merger), Parent has
requested that Stockholder execute and deliver this Agreement.
B. Pursuant to the Merger, all of the issued and
outstanding shares of capital stock of the Company will be
converted into the right to receive the consideration set forth
in the Merger Agreement, all upon the terms and subject to the
conditions set forth in the Merger Agreement.
C. Stockholder is the Beneficial Owner (as defined below)
of the number of outstanding shares of capital stock of the
Company and other securities convertible into, or exercisable or
exchangeable for, shares of capital stock of the Company, all as
set forth on the signature page of this Agreement (collectively,
the Shares). For purposes hereof,
Beneficial Owner shall have the meaning set
forth in
Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as
amended (the Exchange Act); provided,
however, that for purposes of this Agreement, beneficial
ownership shall not include any securities to which Stockholder
has the right to acquire beneficial ownership within sixty days,
as described in
Rule 13d-3(d)(1).
D. As an inducement for Parent to enter into the Merger
Agreement, Stockholder has agreed to restrict the transfer or
disposition of any of the Shares, or any other shares of capital
stock of the Company acquired by Stockholder hereafter and prior
to the Expiration Date (as defined in Section 1(a)
hereof) and desires to vote the Shares and any other such shares
of the capital stock of the Company so as to facilitate the
consummation of the Merger. The execution and delivery of this
Agreement and of the attached form of irrevocable proxy is a
material condition to Parents willingness to enter into
the Merger Agreement.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Agreement to Retain Shares.
(a) Transfer and
Encumbrance. Stockholder agrees, during the
period beginning on the date hereof and ending on the Expiration
Date (as defined below), (i) not to transfer, sell,
exchange, pledge or otherwise dispose of or encumber
(collectively, Transfer) any of the Shares or
any New Shares (as defined in Section 1(b) hereof),
or to discuss, negotiate, or make any offer or agreement
relating thereto, other than to or with Parent, and
(ii) not to deposit (or permit the deposit of) any Shares
or New Shares in a voting trust or grant any proxy or enter into
any voting agreement or similar agreement in contravention of
the obligations of Stockholder under this Agreement with respect
to any of the Shares or New Shares, in each case without the
prior written consent of Parent. Stockholder acknowledges that
the intent of the foregoing sentences is to ensure that Parent
retains the right under the Proxy (as defined in
Section 3 hereof) to vote the Shares and any New
Shares in accordance with the terms of the Proxy. As used
herein, the term Expiration Date shall mean
the earlier to occur of (x) such date and time as the
Merger shall become effective in accordance with the terms and
provisions of the Merger Agreement and (y) the termination
of the Merger Agreement in accordance with its terms.
B-1
(b) New Shares. Stockholder agrees
that any shares of capital stock of the Company that Stockholder
purchases or with respect to which Stockholder otherwise
acquires Beneficial Ownership after the date of this Agreement
and prior to the Expiration Date (New
Shares), shall be subject to the terms and conditions
of this Agreement to the same extent as if they constituted
Shares.
2. Agreement to Vote Shares. Until
the Expiration Date, at every meeting of stockholders of the
Company called with respect to any of the following, and at
every adjournment or postponement thereof, and on every action
or approval by written consent of stockholders of the Company
with respect to any of the following, Stockholder shall vote, to
the extent not voted by the person(s) appointed under the Proxy
(as defined in Section 3 hereof), the Shares and any
New Shares (to the extent any such Shares and New Shares may be
voted):
(i) in favor of authorization and approval of the Merger,
the execution and delivery by the Company of the Merger
Agreement and the adoption and approval of the terms thereof and
the Plan of Merger therein, and in favor of each of the other
actions contemplated by the Merger Agreement and the Proxy and
any action required in furtherance thereof;
(ii) against approval of any proposal made in opposition
to, or in competition with, the Merger Agreement, the
consummation of the Merger or the transactions contemplated by
the Merger Agreement; and
(iii) against any of the following actions (other than
those actions that relate to the Merger and the transactions
contemplated by the Merger Agreement): (A) any Acquisition
Proposal, and (B) any other action that is intended to, or
could reasonably be expected to, impede, interfere with, delay,
postpone, discourage or adversely affect the Merger or any of
the other transactions contemplated by the Merger Agreement.
Prior to the Expiration Date, Stockholder shall not enter into
any agreement or understanding with any person to vote or give
instructions in any manner inconsistent with this
Section 2.
3. Irrevocable Proxy. Concurrently
with the execution of this Agreement, Stockholder agrees to
deliver to Parent an irrevocable proxy, coupled with an
interest, in the form attached hereto as Appendix A
(the Proxy), which shall be irrevocable to
the fullest extent permitted by applicable law, covering the
total number of Shares and New Shares of capital stock of the
Company Beneficially Owned by Stockholder as set forth therein.
4. Representations, Warranties and Covenants of
Stockholder. Stockholder represents, warrants
and covenants to Parent as follows:
(i) Stockholder is the Beneficial Owner of the Shares, with
the requisite power to vote or direct the voting of the Shares
(to the extent the Shares may be voted), for and on behalf of
all Beneficial Owners of the Shares, free and clear of any proxy
or voting restriction other than pursuant to this Agreement
other than that certain Investors Rights Agreement, dated as of
June 14, 2004, and that certain Amended and Restated
Investors Rights Agreement, dated as of September 30, 2003,
and as subsequently amended as of June 14, 2004.
(ii) Stockholder has full power and authority to execute
and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary action on the
part of Stockholder. This Agreement has been duly executed and
delivered by or on behalf of Stockholder and, assuming its due
authorization, execution and delivery by Company, constitutes a
legal, valid and binding obligation of Stockholder, enforceable
against Stockholder in accordance with its terms, subject to the
effect of any applicable bankruptcy, reorganization, insolvency,
moratorium or similar laws affecting creditors rights
generally and subject, as to enforceability, to the effect of
general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at
law).
(iii) The execution and delivery of this Agreement by
Stockholder do not, and the performance of this Agreement by
Stockholder will not, conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to Stockholder
or by which it or any of its properties is bound or affected, or
result in any breach of or constitute a default (or an event
that with notice or lapse of time or both would become a
default) under, or
B-2
give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a
lien or encumbrance on any of the property or assets of
Stockholder pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Stockholder is a party or by
which Stockholder or any of its properties is bound or affected,
except for any such breaches, defaults or other occurrences that
would not cause or create a material risk of non-performance or
delayed performance by Stockholder of its obligations under this
Agreement.
(iv) The execution and delivery of this Agreement by
Stockholder do not, and the performance of this Agreement by
Stockholder will not, require any consent, approval,
authorization or permit of, or filing with or notification to,
ay governmental or regulatory authority, domestic or foreign,
except (i) for applicable requirements, if any, of the
Exchange Act, and (ii) where the failure to obtain such
consents, approvals, authorizations or permits, or to make such
filings or notifications, would not prevent or delay the
performance by Stockholder of its obligations under this
Agreement.
5. Additional
Documents. Stockholder hereby covenants and
agrees to execute and deliver any additional documents
reasonably necessary or desirable, in the good faith, reasonable
opinion of Parent, to carry out the purpose and intent of this
Agreement and the Merger Agreement. Without limiting the
foregoing, Stockholder agrees to execute and deliver the
agreement contemplated by Section 5.15 of the Merger
Agreement to the extent Stockholder is a person who is deemed by
the Company to be an affiliate for purposes of Rule 145
under the Securities Act.
6. Consents and
Waivers. Stockholder hereby gives any
consents or waivers that are reasonably requested in good faith
for the consummation of the Merger under the terms of any
agreement to which Stockholder is a party or pursuant to any
rights Stockholder may have.
7. Termination. This Agreement and
the Proxy delivered in connection herewith shall terminate and
shall have no further force or effect as of the Expiration Date,
provided, however, that notwithstanding the
foregoing, the provisions in Section 9 hereof shall
survive in full force and effect following the consummation of
the Merger.
8. Legending of Shares. If so
requested by Parent, Stockholder agrees that the Shares and any
New Shares shall bear a legend stating that they are subject to
this Agreement and to an irrevocable proxy. Subject to the terms
of Section 1(a) hereof, Stockholder agrees that
Stockholder will not Transfer the Shares or any New Shares
without first having the aforementioned legend affixed to the
certificates representing the Shares or any New Shares.
9. Miscellaneous.
(a) Notices. All notices and other
communications hereunder shall be in writing and shall be deemed
given if delivered personally or by commercial delivery service
to the appropriate address, or mailed by registered or certified
mail (return receipt requested) or sent via facsimile (with
acknowledgment of complete transmission) to the parties at the
following addresses (or at such other address for a party as
shall be specified by like notice); provided,
however, that notices sent by courier or mail will not be
deemed given until the date and time of acknowledged receipt at
the appropriate address:
(i) if to Parent, to:
Internap Network Services Corporation
250 Williams Street,
Suite E-100
Atlanta, Georgia 30303
Attention: Chief Executive Officer
Facsimile No.:
B-3
with a copy (which shall not constitute notice) to:
Morris, Manning & Martin, LLP
1600 Atlanta Financial Center
3343 Peachtree Road, N.E.
Atlanta, Georgia
30326-1044
Attention: Grant W. Collingsworth, Esq.
Facsimile No.:
(404) 365-9532
(ii) if to Stockholder, to the address set forth on the
signature page hereto.
(b) Interpretation. The words
include, includes and
including when used herein shall be deemed in each
case to be followed by the words without limitation.
The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(c) Counterparts. This Agreement
may be executed in one or more counterparts, all of which shall
be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being
understood that all parties need not sign the same counterpart.
(d) Entire Agreement;
Assignment. This Agreement and the documents
and instruments and other agreements among the parties hereto
referenced herein: (i) constitute the entire agreement
among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings both written
and oral, among the parties with respect to the subject matter
hereof, (ii) are not intended to confer upon any other
person any rights or remedies hereunder, and (iii) shall
not be assigned by operation of law or otherwise, except that
Parent may assign its rights and delegate its obligations
hereunder to its affiliates so long as Parent remains obligated
to perform those obligations required to be performed by Parent
hereunder.
(e) Severability. In the event
that any provision of this Agreement or the application thereof,
becomes or is declared by a court of competent jurisdiction to
be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the
application of such provision to other persons or circumstances
will be interpreted so as reasonably to effect the intent of the
parties hereto. The parties further agree to replace such void
or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible,
the economic, business and other purposes of such void or
unenforceable provision.
(f) Other Remedies. Any and all
remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred
hereby, or by law or equity upon such party, and the exercise by
a party of any one remedy will not preclude the exercise of any
other remedy.
(g) Governing Law. This Agreement
shall be governed by and construed in accordance with the laws
of the State of Nevada, regardless of the laws that might
otherwise govern under applicable principles of conflicts of
laws thereof. Each of the parties hereto irrevocably consents to
the non-exclusive jurisdiction and venue of any state or federal
court within the State of Nevada in connection with any matter
based upon or arising out of this Agreement or the matters or
agreements contemplated herein, and agrees that process may be
served upon them in any manner authorized by the laws of the
State of Nevada for such persons and waives and covenants not to
assert or plead any objection which they might otherwise have to
such jurisdiction, venue and such process.
(h) Rules of Construction. The
parties hereto agree that they have been represented by counsel
during the negotiation and execution of this Agreement and,
therefor, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an
agreement or other document will be construed against the party
drafting such agreement or document.
B-4
(i) Specific Performance. The
parties hereto agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms
and provisions hereof in any state or federal court located in
the State of Nevada, this being in addition to any other remedy
to which they are entitled at law or in equity.
(j) Attorneys Fees. If any
action or other proceeding relating to the enforcement of any
provision of this Agreement is brought by any party hereto, the
prevailing party shall be entitled to recover reasonable
attorneys fees, costs, and disbursements (in addition to
any other relief to which the prevailing party may be entitled).
(k) WAIVER OF JURY TRIAL. EACH OF
THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL
BY JURY AND ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER
BASED ON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF ANY PARTY HERETO IN
NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF.
[Remainder
of page intentionally left blank.]
B-5
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first above written.
INTERNAP NETWORK SERVICES CORPORATION
Name: _
_
Title: _
_
STOCKHOLDER
[NAME OF STOCKHOLDER]
Name: _
_
Title: _
_
Address:
SIGNATURE PAGE TO VOTING AGREEMENT
B-6
APPENDIX A
IRREVOCABLE
PROXY
The undersigned stockholder (Stockholder) of
VitalStream Holdings, Inc., a Nevada corporation (the
Company), hereby irrevocably (to the fullest
extent permitted by law) appoints the officers of Internap
Network Services Corporation, a Delaware corporation
(Parent), and each of them individually, as
the sole and exclusive attorneys and proxies of the undersigned,
with full power of substitution and resubstitution, to vote and
exercise all voting and related rights (to the fullest extent
that the undersigned is entitled to do so) with respect to all
of the shares of capital stock of the Company that now are or
hereafter may be beneficially owned by the undersigned, and any
and all other shares or securities of the Company issued or
issuable in respect thereof on or after the date hereof
(collectively, the Shares), in accordance
with the terms of this Proxy. Upon the undersigneds
execution of this Proxy, any and all prior proxies given by each
undersigned with respect to any Shares are hereby revoked, and
the undersigned agrees not to grant any subsequent proxies with
respect to the Shares until after the Expiration Date (as
defined below).
This Proxy is irrevocable (to the fullest extent permitted by
law), is coupled with an interest and is granted pursuant to
that certain Voting Agreement dated as of October 12, 2006
by and between Parent and Stockholder (the Voting
Agreement), and is granted in consideration of Parent
entering into that certain Agreement and Plan of Merger (the
Merger Agreement), by and among Parent, Ivy
Acquisition Corp., a Nevada corporation and a wholly owned
subsidiary of Parent (Merger Sub), the
Company and certain other parties named therein. The Merger
Agreement provides, among other things, for the merger of Merger
Sub with and into the Company in accordance with its terms (the
Merger) pursuant to which Stockholder would
receive a portion of the proceeds of the Merger. As used in this
Irrevocable Proxy, the term Expiration Date
shall mean the earlier to occur of (i) such date and time
as the Merger shall become effective in accordance with the
terms and provisions of the Merger Agreement and (ii) the
termination of the Merger Agreement in accordance with its terms.
The attorneys and proxies named above, and each of them, are
hereby authorized and empowered by the undersigned, at any time
prior to the Expiration Date, to act as the undersigneds
attorney and proxy to vote the Shares, and to exercise all
voting, consent and similar rights of the undersigned with
respect to the Shares (including, without limitation, the power
to execute and deliver written consents) at every annual,
special, adjourned or postponed meeting of stockholders of the
Company and in every written consent in lieu of such meeting:
(i) in favor of authorization and approval of the Merger,
the execution and delivery by the Company of the Merger
Agreement and the adoption and approval of the terms thereof and
the Plan of Merger therein, and in favor of each of the other
actions contemplated by the Merger Agreement and this Proxy and
any action required in furtherance thereof;
(ii) against approval of any proposal made in opposition
to, or in competition with, the Merger Agreement, the
consummation of the Merger or the transactions contemplated by
the Merger Agreement; and
(iii) against any of the following actions (other than
those actions that relate to the Merger and the transactions
contemplated by the Merger Agreement): (A) any Acquisition
Proposal and (B) any other action that is intended to, or
could reasonably be expected to, impede, interfere with, delay,
postpone, discourage or adversely affect the Merger or any of
the other transactions contemplated by the Merger Agreement.
The attorneys and proxies named above may not exercise this
Proxy on any other matter except as provided in
clauses (i), (ii), or (iii) above. Stockholder may
vote the Shares on all other matters.
Any obligation of the undersigned hereunder shall be binding
upon the successors and assigns of the undersigned.
[Remainder of page intentionally left blank.]
B-7
This Proxy shall terminate, and be of no further force and
effect, automatically upon the Expiration Date.
[NAME OF STOCKHOLDER]
Name:
_
_
Title:
_
_
Address:
Dated: October 12, 2006
SIGNATURE PAGE TO PROXY
B-8
ANNEX C
[Thomas Weisel Partners LLC Letterhead]
October 12, 2006
Board of Directors
Internap Network Services Corporation
250 Williams Street
Atlanta, Georgia 30303
Ladies and Gentlemen:
We understand that Internap Network Services Corporation, a
Delaware corporation (Buyer), Ivy Acquisition Corp.,
a Nevada corporation and a direct wholly-owned subsidiary of
Buyer (Merger Sub), and VitalStream Holdings, Inc.,
a Nevada corporation (Seller), propose to enter into
an Agreement and Plan of Merger (the Merger
Agreement). Under the terms set forth in the Merger
Agreement, dated as of October 12, 2006, Merger Sub will
merge with and into Seller, with Seller being the surviving
corporation (the Merger), and each outstanding share
of common stock, par value $0.001 per share, of Seller (the
Seller Common Stock), other than shares to be
cancelled pursuant to the Merger Agreement, shall be
automatically converted into and become exchangeable for
0.5132 shares of common stock, par value $0.001 per
share, of Buyer (the Buyer Common Stock) (the shares
of Buyer Common Stock into which each share of Seller Common
Stock is to be converted, the Merger Consideration).
The terms and conditions of the Merger are set forth in more
detail in the Merger Agreement.
You have asked us for our opinion as investment bankers as to
whether the Merger Consideration to be paid by Buyer pursuant to
the Merger is fair to Buyer from a financial point of view, as
of the date hereof.
In connection with our opinion, we have, among other things:
(i) reviewed certain publicly available financial and other
data, including financial forecasts, with respect to Buyer and
Seller, including the consolidated financial statements of Buyer
and Seller for recent years and interim periods to June 30,
2006 and certain other relevant financial and operating data
relating to Buyer and Seller made available to us from published
sources and from the internal records of Buyer and Seller;
(ii) reviewed the financial terms and conditions of the
Merger Agreement; (iii) reviewed certain publicly available
information concerning the trading of, and the trading market
for, Buyer Common Stock and Seller Common Stock;
(iv) compared Buyer and Seller from a financial point of
view with certain other publicly traded companies which we
deemed to be relevant; (v) considered the financial terms,
to the extent publicly available, of selected recent business
combinations which we deemed to be comparable, in whole or in
part, to the Merger; (vi) reviewed and discussed with
representatives of the managements of Buyer and Seller certain
information of a business and financial nature regarding Buyer
and Seller, furnished to us by them, including financial
forecasts and related assumptions of Buyer and Seller;
(vii) considered certain pro forma effects of the Merger on
Buyers financial statements and reviewed certain estimates
of synergies provided by management of Buyer; (viii) made
inquiries regarding and discussed the Merger and the Merger
Agreement and other matters related thereto with Buyers
counsel; and (ix) performed such other analyses and
examinations as we have deemed appropriate.
In connection with our review, we have not assumed any
obligation independently to verify the foregoing information and
have relied on its being accurate and complete in all material
respects. With respect to the financial forecasts and synergies
for Buyer and Seller provided to us by management of Buyer, with
your consent we have assumed for purposes of our opinion that
the forecasts have been reasonably prepared on bases reflecting
the best available estimates and judgments of the management at
the time of preparation as to the future financial performance
of Buyer and Seller and that they provide a reasonable basis
upon which we can form our opinion. We have also assumed that
there have been no material changes in Buyers or
Sellers assets, financial condition, results of
operations, business or prospects since the respective dates of
their last financial statements made available to us that have
not been disclosed to us. We have relied on advice of counsel
and independent accountants to Buyer as to all legal and
financial reporting matters with respect to Buyer, the Merger
and the Merger Agreement.
C-1
We have assumed that the Merger will be consummated in a manner
that complies in all respects with the applicable provisions of
the Securities Act of 1933, as amended (the Securities
Act), the Securities Exchange Act of 1934, as amended, and
all other applicable federal and state statutes, rules and
regulations. In addition, we have not assumed responsibility for
making an independent evaluation, appraisal or physical
inspection of any of the assets or liabilities (contingent or
otherwise) of Buyer or Seller, nor have we been furnished with
any such appraisals. Finally, our opinion is based on economic,
monetary and market and other conditions as in effect on, and
the information made available to us as of, the date hereof.
Accordingly, although subsequent developments may affect this
opinion, we have not assumed any obligation to update, revise or
reaffirm this opinion.
We have further assumed with your consent that the Merger will
be consummated in accordance with the terms described in the
Merger Agreement, without any further amendments thereto, and
without waiver by Buyer of any of the conditions to its
obligations thereunder.
We have acted as financial advisor to Buyer in connection with
the Merger and will receive a fee for our services, including
rendering this opinion, a significant portion of which is
contingent upon the consummation of the Merger. In the ordinary
course of our business, we actively trade the equity securities
of Buyer and Seller for our own account and for the accounts of
customers and, accordingly, may at any time hold a long or short
position in such securities. We have also acted as an
underwriter in connection with offerings of securities of Buyer
and performed other investment banking services for Buyer.
Based upon the foregoing and in reliance thereon, it is our
opinion as investment bankers that the Merger Consideration to
be paid by Buyer pursuant to the Merger is fair to Buyer from a
financial point of view, as of the date hereof.
We are not expressing an opinion regarding the price at which
the Buyer Common Stock may trade at any future time. The Merger
Consideration to be paid by Buyer pursuant to the Merger is
based upon a fixed exchange ratio and, accordingly, the market
value of the Merger Consideration may vary significantly.
This opinion is directed to the Board of Directors of Buyer in
its consideration of the Merger and is not a recommendation to
any stockholder as to how such stockholder should vote with
respect to the Merger. Further, this opinion addresses only the
financial fairness of the Merger Consideration to the Buyer and
does not address the relative merits of the Merger and any
alternatives to the Merger, Buyers underlying decision to
proceed with or effect the Merger, or any other aspect of the
Merger. This opinion may not be used or referred to by Buyer, or
quoted or disclosed to any person in any manner, without our
prior written consent, which consent is hereby given to the
inclusion of this opinion, in its entirety, in any proxy
statement/prospectus filed with the Securities and Exchange
Commission in connection with the Merger or any other document
disseminated by or on behalf of Buyer to the stockholders of
Buyer or Seller in connection with the Merger. In furnishing
this opinion, we do not admit that we are experts within the
meaning of the term experts as used in the
Securities Act and the rules and regulations promulgated
thereunder, nor do we admit that this opinion constitutes a
report or valuation within the meaning of Section 11 of the
Securities Act.
Very truly yours,
/s/ Thomas
Weisel Partners
THOMAS WEISEL PARTNERS LLC
C-2
ANNEX D
[RBC Capital Markets Corporation Letterhead]
October 11, 2006
The Board of Directors
VitalStream Holdings, Inc.
One Jenner
Suite 100
Irvine, CA 92618
Members of the Board:
You have requested our opinion as to the fairness, from a
financial point of view, to the holders of outstanding shares of
common stock, par value $0.001 per share (Company Common
Stock), of VitalStream Holdings, Inc., a Nevada
corporation (the Company), of the Exchange Ratio (as
defined below) provided for under the terms of the proposed
Agreement and Plan of Merger (the Agreement), by and
among Internap Network Services Corporation, a Delaware
corporation (Parent), Ivy Acquisition Corporation, a
Nevada corporation and wholly-owned subsidiary of Parent
(Merger Sub), and the Company. Capitalized terms
used herein shall have the meanings used in the Agreement unless
otherwise defined herein.
The Agreement provides, among other things, for the merger of
Merger Sub with and into the Company (the Merger),
pursuant to which each share of Company Common Stock outstanding
immediately prior to the Effective Time will be converted into
the right to receive 0.5132 shares of Parent Common Stock
(the Exchange Ratio). You have informed us that the
Merger is intended to, and we have assumed for purposes of this
opinion letter that it will, qualify as a reorganization within
the meaning of Section 368 of the Internal Revenue Code of
1986, as amended. The terms and conditions of the Merger are set
forth more fully in the Agreement.
RBC Capital Markets Corporation (RBC), as part of
its investment banking services, is regularly engaged in the
valuation of businesses and their securities in connection with
mergers and acquisitions, corporate restructurings,
underwritings, secondary distributions of listed and unlisted
securities, private placements, and valuations for corporate and
other purposes.
We have been engaged to provide certain investment banking and
financial advisory services to the Company, including rendering
a fairness opinion to the Company in connection with a business
combination transaction between the Company and Parent, and will
be entitled to receive a fee upon delivery thereof, without
regard to whether our opinion is accepted or the Merger is
consummated, and we will receive a further fee for our services
if the Merger is consummated. In addition, the Company has
agreed to indemnify us for certain liabilities that may arise
out of our engagement. In the ordinary course of business, RBC
and its affiliates may act as a market maker and broker in the
publicly-traded securities of the Company and Parent and receive
customary compensation, and may also actively trade securities
(whether debt or equity) of the Company
and/or
Parent for our own account and the accounts of our customers,
and, accordingly, RBC and its affiliates, may hold a long or
short position in such securities.
For the purposes of rendering our opinion: (i) we reviewed
the financial terms of the draft Agreement dated
October 11, 2006 and received by us on October 11,
2006 (the Latest Draft Agreement); (ii) we
reviewed and analyzed certain publicly available financial and
other data with respect to the Company and Parent and certain
other relevant historical operating data relating to the Company
and Parent made available to us from published sources and from
the internal records of the Company and Parent; (iii) we
conducted discussions with members of the senior managements of
the Company and Parent with respect to the business prospects
and financial outlook of the Company and Parent; (iv) we
reviewed historical financial information relating to the
Company and Parent and IBES, First Call, street equity research
and Thomson One Analytics consensus estimates regarding the
potential future performance of the Company and Parent as
standalone entities; (v) we reviewed the reported prices
and trading activity for Company Common Stock and Parent Common
Stock, including their trading relative to one
D-1
another; and (vi) we considered such other information and
performed other studies and analyses as we deemed appropriate,
including recent developments with respect to the Companys
business.
In arriving at our opinion, we performed the following analyses
in addition to the review, inquiries, and analyses referred to
in the preceding paragraph: (i) we compared selected market
valuation metrics of the Company and other comparable
publicly-traded companies with the financial metrics implied by
the Exchange Ratio; (ii) we compared the financial metrics
of selected precedent transactions, to the extent publicly
available, with the financial metrics implied by the Exchange
Ratio; (iii) we reviewed the premiums paid on selected
precedent transactions and comparably structured transactions
versus the premiums implied by the Exchange Ratio; and
(iv) we reviewed the relative contribution of the financial
metrics of the Company and those of Parent versus the relative
ownership implied by the Exchange Ratio. Because of the
unavailability of long-term projections for the Companys
business, we did not employ a discounted cash flow analysis for
the purposes of this opinion.
Several analytical methodologies have been employed and no one
method of analysis should be regarded as critical to the overall
conclusion we have reached. Each analytical technique has
inherent strengths and weaknesses, and the nature of the
available information may further affect the value of particular
techniques. The overall conclusions we have reached are based on
all the analysis and factors presented, taken as a whole, and
also on application of our own experience and judgment. Such
conclusions may involve significant elements of subjective
judgment and qualitative analysis. We therefore give no opinion
as to the value or merit standing alone of any one or more parts
of the analyses.
In rendering our opinion, we have assumed and relied upon the
accuracy and completeness of the financial, legal, tax,
operating and other information provided to us by the Company
and Parent (including, without limitation, the financial
statements and related notes thereto of the Company and Parent),
and have not assumed responsibility for independently verifying
and have not independently verified such information. For all
forward looking projections we have relied on IBES, First Call,
street equity research and Thomson One Analytics consensus
estimates and have assumed they correspond to the best judgments
of the managements of the Company and Parent.
In rendering our opinion, we have not assumed any responsibility
to perform, and have not performed, an independent evaluation or
appraisal of any of the assets or liabilities of the Company or
Parent, and we have not been furnished with any such valuations
or appraisals. We have not assumed any obligation to conduct,
and have not conducted, any physical inspection of the property
or facilities of the Company or Parent. We have not
investigated, and make no assumption regarding, any litigation
or other claims affecting the Company, Parent or any other party.
We have assumed that (i) the executed version of the
Agreement will not differ, in any respect material to our
opinion, from the Latest Draft Agreement and (ii) the
Merger will be consummated pursuant to the terms of the
Agreement, without amendments thereto and without waiver by any
party of any material conditions or obligations thereunder.
Our opinion speaks only as of the date hereof, is based on the
conditions as they exist and information which we have been
supplied as of the date hereof, and is without regard to any
market, economic, financial, legal, or other circumstances or
event of any kind or nature which may exist or occur after such
date. We have not undertaken to reaffirm or revise this opinion
or otherwise comment upon events occurring after the date hereof
and do not have an obligation to update, revise or reaffirm this
opinion. We are not expressing any opinion herein as to the
prices at which Company Common Stock or Parent Common Stock have
traded or will trade following the announcement or consummation
of the Merger.
The opinion expressed herein is provided for the information and
assistance of the Board of Directors of the Company in
connection with the Merger. We express no opinion and make no
recommendation to any stockholder of the Company as to how such
stockholder should vote with respect to the Merger. All advice
and opinions (written and oral) rendered by RBC are intended
solely for the use and benefit of the Board of Directors of the
Company. Such advice or opinions may not be reproduced,
summarized, excerpted from or referred to in any public document
or given to any other person without the prior written consent
of RBC. If required by applicable law, such opinion may be
included in any proxy statement or prospectus filed by Parent or
the Company with the SEC with respect to the proposed Merger;
provided however, that such opinion must be reproduced in full
and that any description of or reference to RBC be in a form
reasonably acceptable to RBC and its counsel (which acceptance
will not be
D-2
unreasonably withheld, delayed or conditioned). RBC shall have
no responsibility for the form or content of any such proxy
statement or prospectus, other than the opinion itself.
Our opinion does not address the merits of the underlying
decision by the Company to engage in the Merger or the relative
merits of the Merger compared to any alternative business
strategy or transaction in which the Company might engage.
Our opinion addresses solely the fairness of the Exchange Ratio,
from a financial point of view, to the holders of Company Common
Stock. Our opinion does not in any way address other terms or
arrangements of the Merger or the Agreement, including, without
limitation, the financial or other terms of any voting or
employment agreement.
Based on our experience as investment bankers and subject to the
foregoing, including the various assumptions and limitations set
forth herein, it is our opinion that, as of the date hereof, the
Exchange Ratio is fair, from a financial point of view, to the
holders of Company Common Stock.
Very truly yours,
/s/ RBC CAPITAL MARKETS CORPORATION
RBC CAPITAL MARKETS CORPORATION
D-3
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
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Item 20.
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Indemnification
of Directors and Officers
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Section 145 of the DGCL, Article VII, Part A of
Internaps Restated Certificate of Incorporation,
Article XI of Internaps Amended and Restated Bylaws,
and indemnification agreements entered into by Internap with
each of its directors and certain officers provide for the
indemnification of officers, directors, employees and agents
under certain circumstances.
Set forth below is Article VII of Internaps Restated
Certificate of Incorporation:
A. The liability of the directors for
monetary damages shall be eliminated to the fullest extent under
applicable law.
B. Any repeal or modification of this
Article VII shall be prospective and shall not affect the
rights under this Article VII in effect at the time of the
alleged occurrence of any act or omission to act giving rise to
liability or indemnification.
Set forth below is Article XI of Internaps Amended
and Restated Bylaws:
ARTICLE XI
Indemnification
Section 43. Indemnification Of Directors,
Executive Officers, Other Officers, Employees And Other
Agents.
(a) Directors and Officers. The
corporation shall indemnify its directors and officers to the
fullest extent not prohibited by the DGCL or any other
applicable law; provided, however, that the corporation
may modify the extent of such indemnification by individual
contracts with its directors and officers; and, provided,
further, that the corporation shall not be required to
indemnify any director or officer in connection with any
proceeding (or part thereof) initiated by such person unless
(i) such indemnification is expressly required to be made
by law, (ii) the proceeding was authorized by the Board of
Directors of the corporation, (iii) such indemnification is
provided by the corporation, in its sole discretion, pursuant to
the powers vested in the corporation under the DGCL or any other
applicable law or (iv) such indemnification is required to
be made under subsection (d).
(b) Employees and Other Agents. The
corporation shall have power to indemnify its employees and
other agents as set forth in the DGCL or any other applicable
law. The Board of Directors shall have the power to delegate the
determination of whether indemnification shall be given to any
such person or other persons as the Board of Directors shall
determine.
(c) Expenses. The corporation shall
advance to any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a
director or officer, of the corporation, or is or was serving at
the request of the corporation as a director or executive
officer of another corporation, partnership, joint venture,
trust or other enterprise, prior to the final disposition of the
proceeding, promptly following request therefor, all expenses
incurred by any director or officer in connection with such
proceeding upon receipt of an undertaking by or on behalf of
such person to repay said amounts if it should be determined
ultimately that such person is not entitled to be indemnified
under this Section 43 or otherwise.
Notwithstanding the foregoing, unless otherwise determined
pursuant to paragraph (e) of this Section 43, no
advance shall be made by the corporation to an officer of the
corporation (except by reason of the fact that such officer is
or was a director of the corporation in which event this
paragraph shall not apply) in any action, suit or proceeding,
whether civil, criminal, administrative or investigative, if a
determination is reasonably and promptly made (i) by the
Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to the proceeding, or
(ii) if such quorum is not obtainable, or, even if
obtainable, a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, that the facts
known to the decision-making party at the time such
determination is made demonstrate clearly and convincingly that
such person acted in bad faith or in a manner that such person
did not believe to be in or not opposed to the best interests of
the corporation.
II-1
(d) Enforcement. Without the necessity of
entering into an express contract, all rights to indemnification
and advances to directors and officers under this Bylaw shall be
deemed to be contractual rights and be effective to the same
extent and as if provided for in a contract between the
corporation and the director or officer. Any right to
indemnification or advances granted by this Section 43 to a
director or officer shall be enforceable by or on behalf of the
person holding such right in any court of competent jurisdiction
if (i) the claim for indemnification or advances is denied,
in whole or in part, or (ii) no disposition of such claim
is made within ninety (90) days of request therefor. The
claimant in such enforcement action, if successful in whole or
in part, shall be entitled to be paid also the expense of
prosecuting his claim. In connection with any claim for
indemnification, the corporation shall be entitled to raise as a
defense to any such action that the claimant has not met the
standards of conduct that make it permissible under the DGCL or
any other applicable law for the corporation to indemnify the
claimant for the amount claimed. In connection with any claim by
an officer of the corporation (except in any action, suit or
proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such executive officer
is or was a director of the corporation) for advances, the
corporation shall be entitled to raise a defense as to any such
action clear and convincing evidence that such person acted in
bad faith or in a manner that such person did not believe to be
in or not opposed to the best interests of the corporation, or
with respect to any criminal action or proceeding that such
person acted without reasonable cause to believe that his
conduct was lawful. Neither the failure of the corporation
(including its Board of Directors, independent legal counsel or
its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant
is proper in the circumstances because he has met the applicable
standard of conduct set forth in the DGCL or any other
applicable law, nor an actual determination by the corporation
(including its Board of Directors, independent legal counsel or
its stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create
a presumption that claimant has not met the applicable standard
of conduct. In any suit brought by a director or officer to
enforce a right to indemnification or to an advancement of
expenses hereunder, the burden of proving that the director or
officer is not entitled to be indemnified, or to such
advancement of expenses, under this Article XI or otherwise
shall be on the corporation.
(e) Non-Exclusivity of Rights. The rights
conferred on any person by this Bylaw shall not be exclusive of
any other right which such person may have or hereafter acquire
under any applicable statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while
holding office. The corporation is specifically authorized to
enter into individual contracts with any or all of its
directors, officers, employees or agents respecting
indemnification and advances, to the fullest extent not
prohibited by the Delaware General Corporation Law, or by any
other applicable law.
(f) Survival of Rights. The rights
conferred on any person by this Bylaw shall continue as to a
person who has ceased to be a director, officer, employee or
other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(g) Insurance. To the fullest extent
permitted by the DGCL or any other applicable law, the
corporation, upon approval by the Board of Directors, may
purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Section 43.
(h) Amendments. Any repeal or
modification of this Section 43 shall only be prospective
and shall not affect the rights under this Bylaw in effect at
the time of the alleged occurrence of any action or omission to
act that is the cause of any proceeding against any agent of the
corporation.
(i) Saving Clause. If this Bylaw or any
portion hereof shall be invalidated on any ground by any court
of competent jurisdiction, then the corporation shall
nevertheless indemnify each director and officer to the full
extent not prohibited by any applicable portion of this
Section 43 that shall not have been invalidated, or by any
other applicable law. If this Section 43 shall be invalid
due to the application of the indemnification provisions of
another jurisdiction, then the corporation shall indemnify each
director and officer to the full extent under any other
applicable law.
(j) Certain Definitions. For the purposes
of this Bylaw, the following definitions shall apply:
(1) The term proceeding shall be broadly
construed and shall include, without limitation, the
investigation, preparation, prosecution, defense, settlement,
arbitration and appeal of, and the giving of testimony
II-2
in, any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or
investigative.
(2) The term expenses shall be broadly
construed and shall include, without limitation, court costs,
attorneys fees, witness fees, fines, amounts paid in
settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding.
(3) The term the corporation shall include, in
addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so
that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at
the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the
same position under the provisions of this Section 43 with
respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its
separate existence had continued.
(4) References to a director, executive
officer, officer, employee, or
agent of the corporation shall include, without
limitation, situations where such person is serving at the
request of the corporation as, respectively, a director,
executive officer, officer, employee, trustee or agent of
another corporation, partnership, joint venture, trust or other
enterprise.
(5) References to other enterprises shall
include employee benefit plans; references to fines
shall include any excise taxes assessed on a person with respect
to an employee benefit plan; and references to serving at
the request of the corporation shall include any service
as a director, officer, employee or agent of the corporation
which imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted
in good faith and in a manner he reasonably believed to be in
the interest of the participants and beneficiaries of an
employee benefit plan shall be deemed to have acted in a manner
not opposed to the best interests of the corporation
as referred to in this Section 43.
In addition, each officer and director of Internap is a party to
a written agreement which states that Internap agrees to hold
such person harmless and indemnify such person against any and
all judgments, fines, settlements and expenses related to claims
against such person by reason of the fact that the person is or
was a director, officer, employee or other agent of Internap,
and otherwise to the fullest extent authorized or permitted by
Internaps bylaws and under the non-exclusivity provisions
of the Delaware General Corporation Law.
Internap has also purchased liability insurance policies
covering certain directors and officers of Internap.
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Item 21.
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Exhibits
and Financial Statement Schedules
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Exhibits
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Exhibit
|
|
|
Number
|
|
Description
|
|
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2
|
.1
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Agreement and Plan of Merger,
dated October 12, 2006, by and among Internap Network
Services Corporation, Ivy Acquisition Corp. and VitalStream
Holdings Inc. (incorporated herein by reference to
Exhibit 2.1 to Internap Network Services Corporations
Current Report on
Form 8-K,
filed October 12, 2006).
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2
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.2
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Form of Voting Agreement between
Internap Network Services Corporation and certain stockholders
of VitalStream Holdings, Inc. (included as Annex B to the
joint proxy statement/prospectus).
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3
|
.1
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Certificate of Incorporation of
Internap Network Services Corporation, as amended (incorporated
herein by reference to Exhibit 4.1 to Internap Network
Services Corporations Registration Statement on
Form S-3,
filed September 8, 2003, File
No. 333-108573).
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3
|
.2
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Amended and Restated Bylaws of
Internap Network Services Corporation (incorporated herein by
reference to Exhibit 4.2 to Internap Network Services
Corporations Registration Statement on
Form S-3,
filed September 8, 2003, File
No. 333-108573).
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5
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.1
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Opinion of Fenwick & West
LLP regarding the legality of the securities.*
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8
|
.1
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Opinion of Morris,
Manning & Martin LLP regarding tax matters.*
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8
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.2
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Opinion of Parr Waddoups Brown
Gee & Loveless, PC regarding tax matters.*
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II-3
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Exhibit
|
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Number
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Description
|
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10
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.1
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Employment Agreement between
Internap and Christopher Dion.
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10
|
.2
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Employment Agreement between
Internap and Philip Kaplan.
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10
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.3
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Employment Agreement between
Internap and Jack Waterman.
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10
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.4
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Employment Agreement between
Internap and Patrick Ritto.
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10
|
.5
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Form of Noncompetition Agreement
between Internap and each of Christopher Dion, Philip Kaplan,
Patrick Ritto and Jack Waterman.
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21
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.1
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List of Subsidiaries.
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23
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.1
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Consent of PricewaterhouseCoopers
LLP, Independent Registered Public Accounting Firm, with respect
to Internap Network Services Corporation.*
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23
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.2
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Consent of Rose, Snyder &
Jacobs, Independent Registered Public Accounting Firm, with
respect to VitalStream Holdings, Inc. and EON Streams, Inc.*
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23
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.3
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Consent of Fenwick & West
LLP (set forth in Exhibit 5.1).
|
|
23
|
.4
|
|
Consent of Morris,
Manning & Martin LLP (set forth in Exhibit 8.1).
|
|
23
|
.5
|
|
Consent of Parr Waddoups Brown
Gee & Loveless, PC (set forth in Exhibit 8.2).
|
|
24
|
.1
|
|
Power of Attorney (set forth on
Page II-6
of this Registration Statement).
|
|
99
|
.1
|
|
Form of Internap Network Services
Corporation Proxy.
|
|
99
|
.2
|
|
Form of VitalStream Holdings, Inc.
Proxy.
|
|
99
|
.3
|
|
Consent of Thomas Weisel Partners
LLC.
|
|
99
|
.4
|
|
Consent of RBC Capital Markets
Corporation.
|
|
|
|
+ |
|
Certain schedules have been omitted and Internap Network
Services Corporation agrees to furnish to the Commission
supplementally a copy of any omitted schedules upon request. |
|
|
|
* |
|
Documents filed herewith. All other exhibits have been
previously filed. |
Financial
Statement Schedules
The Financial Statement Schedules have previously been filed as
part of Internaps
Form 10-K
for the fiscal year ended December 31, 2005.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by
Section 10(a) (3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Securities and Exchange Commission
pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the
Calculation of Registration Fee table in the
effective registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do
not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed by the
II-4
Registrant pursuant to section 13 or section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement;
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment 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;
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering;
(4) That, for purposes of determining any liability under
the Securities Act of 1933, each filing of the Registrants
annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 that
is incorporated by reference in the registration statement 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 tide
offering thereof;
(5) To respond to requests for information that is
incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business
day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means.
This includes information contained in documents filed
subsequent to the effective date of the registration statement
through the date of responding to the request;
(6) That, prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part
of this registration statement, by any person or party who is
deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the
applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form;
(7) That every prospectus (i) that is filed pursuant
to paragraph (6) immediately preceding, or
(ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to
Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment
is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such
post-effective amendment 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; and
(8) To supply by means of a post-effective amendment all
information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 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.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act, the
Registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in Atlanta, Georgia, on the 9th day of January 2007.
Internap Network
Services Corporation
|
|
|
|
By:
|
/s/ James
P. DeBlasio
|
James P. DeBlasio
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities indicated on the dates indicated.
|
|
|
|
|
|
|
Signatures
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
/s/ James
P. DeBlasio
James
P. DeBlasio
|
|
President and Chief Executive
Officer (Principal Executive Officer)
|
|
January 9, 2007
|
|
|
|
|
|
|
|
|
|
*
Eugene
Eidenberg
|
|
Non-Executive Chairman
|
|
January 9, 2007
|
|
|
|
|
|
|
|
|
|
/s/ David
A. Buckel
David
A. Buckel
|
|
Vice President and Chief Financial
Officer (Principal Financial and Accounting Officer)
|
|
January 9, 2007
|
|
|
|
|
|
|
|
|
|
*
Charles
B. Coe
|
|
Director
|
|
January 9, 2007
|
|
|
|
|
|
|
|
|
|
*
William
J. Harding
|
|
Director
|
|
January 9, 2007
|
|
|
|
|
|
|
|
|
|
*
Fredric
W. Harman
|
|
Director
|
|
January 9, 2007
|
|
|
|
|
|
|
|
|
|
*
Patricia
L. Higgins
|
|
Director
|
|
January 9, 2007
|
|
|
|
|
|
|
|
|
|
*
Kevin
L. Ober
|
|
Director
|
|
January 9, 2007
|
|
|
|
|
|
|
|
|
|
*
Daniel
C. Stanzione
|
|
Director
|
|
January 9, 2007
|
|
|
|
|
|
|
|
* By:
|
|
/s/ David
A. Buckel
David
A. Buckel
Attorney-in-fact
|
|
|
|
|
II-6
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
2
|
.1
|
|
Agreement and Plan of Merger,
dated October 12, 2006, by and among Internap Network
Services Corporation, Ivy Acquisition Corp. and VitalStream
Holdings Inc. (incorporated herein by reference to
Exhibit 2.1 to Internap Network Services Corporations
Current Report on
Form 8-K,
filed October 12, 2006).
|
|
2
|
.2
|
|
Form of Voting Agreement between
Internap Network Services Corporation and certain stockholders
of VitalStream Holdings, Inc. (included as Annex B to the
joint proxy statement/prospectus).
|
|
3
|
.1
|
|
Certificate of Incorporation of
Internap Network Services Corporation, as amended (incorporated
herein by reference to Exhibit 4.1 to Internap Network
Services Corporations Registration Statement on
Form S-3,
filed September 8, 2003, File
No. 333-108573).
|
|
3
|
.2
|
|
Amended and Restated Bylaws of
Internap Network Services Corporation (incorporated herein by
reference to Exhibit 4.2 to Internap Network Services
Corporations Registration Statement on
Form S-3,
filed September 8, 2003, File
No. 333-108573).
|
|
5
|
.1
|
|
Opinion of Fenwick & West
LLP regarding the legality of the securities.*
|
|
8
|
.1
|
|
Opinion of Morris,
Manning & Martin LLP regarding tax matters.*
|
|
8
|
.2
|
|
Opinion of Parr Waddoups Brown
Gee & Loveless, PC regarding tax matters.*
|
|
10
|
.1
|
|
Employment Agreement between
Internap and Christopher Dion.
|
|
10
|
.2
|
|
Employment Agreement between
Internap and Philip Kaplan.
|
|
10
|
.3
|
|
Employment Agreement between
Internap and Jack Waterman.
|
|
10
|
.4
|
|
Employment Agreement between
Internap and Patrick Ritto.
|
|
10
|
.5
|
|
Form of Noncompetition Agreement
between Internap and each of Christopher Dion, Philip Kaplan,
Patrick Ritto and Jack Waterman.
|
|
21
|
.1
|
|
List of Subsidiaries.
|
|
23
|
.1
|
|
Consent of PricewaterhouseCoopers
LLP, Independent Registered Public Accounting Firm, with respect
to Internap Network Services Corporation.*
|
|
23
|
.2
|
|
Consent of Rose, Snyder &
Jacobs, Independent Registered Public Accounting Firm, with
respect to VitalStream Holdings, Inc. and EON Streams, Inc.*
|
|
23
|
.3
|
|
Consent of Fenwick & West
LLP (set forth in Exhibit 5.1).
|
|
23
|
.4
|
|
Consent of Morris,
Manning & Martin LLP (set forth in Exhibit 8.1).
|
|
23
|
.5
|
|
Consent of Parr Waddoups Brown
Gee & Loveless, PC (set forth in Exhibit 8.2).
|
|
24
|
.1
|
|
Power of Attorney (set forth on
Page II-6
of this Registration Statement).
|
|
99
|
.1
|
|
Form of Internap Network Services
Corporation Proxy.
|
|
99
|
.2
|
|
Form of VitalStream Holdings, Inc.
Proxy.
|
|
99
|
.3
|
|
Consent of Thomas Weisel Partners
LLC.
|
|
99
|
.4
|
|
Consent of RBC Capital Markets
Corporation.
|
|
|
|
+ |
|
Certain schedules have been omitted and Internap Network
Services Corporation agrees to furnish to the Commission
supplementally a copy of any omitted schedules upon request. |
|
|
|
* |
|
Documents filed herewith. All other exhibits have been
previously filed. |