<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 1999 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____ to _____.
Commission File Number: 333-80411
ITXC CORP.
(Exact name of registrant as specified in its charter)
Delaware 22-35-31960
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 College Road East
Princeton, New Jersey 08540
(Address of principal executive office, including zip code)
(609) 419-1500
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes No X
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
At October 31, 1999, there were 35,777,366 shares of Common Stock, par value
$.001 per share, outstanding.
1
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ITXC CORP.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 1998
and September 30, 1999 (Unaudited)...................................... 3
Condensed Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 1998 and 1999 (Unaudited).................... 4
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1998 and 1999 (Unaudited)........................... 5
Notes to Condensed Consolidated Financial Statements (Unaudited)........ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................... 9
Item 3. Quantitative and Qualitative Disclosure About Market Risk............... 19
Part II. Other Information
Item 1. Legal Proceedings....................................................... 20
Item 2. Changes in Securities and Use of Proceeds............................... 20
Item 6. Exhibits and Reports on Form 8-K........................................ 20
Signatures....................................................................... 22
</TABLE>
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<PAGE>
ITXC CORP. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
Pro forma
Stockholders'
equity
December 31, September 30, September 30,
1998 1999 1999
(Unaudited) (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and cash equivalents $ 3,971,237 $ 3,987,378
Short term investments 200,000 207,434
Accounts receivable, net 500,739 3,888,709
Prepaid expenses and other current assets 121,459 631,975
----------- ------------
Total current assets 4,793,435 8,715,496
Property and equipment, net 3,015,529 8,685,970
Deposits and other assets 24,833 685,072
----------- ------------
Total assets $ 7,833,797 $ 18,086,538
=========== ============
Accounts payable and accrued liabilities $ 1,617,318 $ 6,409,644
Deferred revenue 888,232 -
Customer deposits 142,500 418,501
Current portion of capital lease obligations 76,705 1,086,615
----------- ------------
Total current liabilities 2,724,755 7,914,760
Equipment note payable 1,200,000 1,723,191
Capital lease obligation, less current portion 160,368 1,422,595
Series B redeemable convertible preferred stock, 9,866,723 9,882,716 -
$.001 par value, issued and outstanding,
5,865,104 shares in 1998 and 1999; pro forma
none, $10,000,000 liquidation preference
Series C redeemable convertible preferred stock, - 15,688,387 -
$.001 par value, issued and outstanding, none in
1998; 3,229,975 shares in 1999; pro forma none,
$22,500,000 liquidation preference
Stockholders' equity (deficit):
Common Stock, $.001 par value, authorized 8,381 10,400 $ 28,590
67,500,000 shares; issued and outstanding,
8,381,000 shares in 1998; 10,399,808 shares in
1999; pro forma 28,589,966 shares
Additional paid in capital 2,293,516 14,477,072 40,029,985
Deferred employee compensation (566,201) (11,563,243) (11,563,243)
Accumulated deficit (7,853,745) (21,469,340) (21,469,340)
----------- ------------ -----------------
Total stockholders' equity (deficit) (6,118,049) (18,545,111) $ 7,025,992
=================
Total liabilities, mandatorily redeemable $ 7,833,797 $ 18,086,538
preferred stock and stockholders' equity (deficit) =========== ============
</TABLE>
See accompanying notes
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<PAGE>
ITXC CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended September 30,
1998 1999
-------------------------------------
<S> <C> <C>
Telecommunications revenue $ 222,528 $ 6,549,249
Consulting revenue 88,236 -
----------- -----------
Total revenue 310,764 6,549,249
Data communications and telecommunications 406,489 6,241,632
Cost of consulting revenue 61,415 -
Network operations 393,569 881,831
Selling, general and administrative 1,639,152 4,031,428
Depreciation and amortization 105,987 654,551
Non-cash employee compensation 57,453 1,066,373
----------- -----------
Total costs and expenses 2,664,065 12,875,815
Loss from operations (2,353,301) (6,326,566)
Interest income, net 99,517 37,319
----------- -----------
Net loss $(2,253,784) $(6,289,247)
=========== ===========
Accretion of redemption value of mandatorily redeemable
convertible preferred stock (5,331) (329,675)
Net loss applicable to common stockholders $(2,259,115) $(6,618,922)
=========== ===========
Basic and diluted net loss per share applicable to common
stockholders $ (0.27) $ (0.64)
=========== ===========
Weighted average shares used in computation of basic and
diluted net loss per share applicable to common stockholders 8,357,902 10,338,369
Pro forma basic and diluted net loss per share $ (0.11) $ (0.22)
=========== ===========
Weighted average shares used in computation of pro forma basic
and diluted net loss per share 20,088,110 28,528,527
</TABLE>
<TABLE>
<CAPTION>
Nine Months ended September 30,
1998 1999
-------------------------------------
<S> <C> <C>
Telecommunications revenue $ 268,850 $ 13,313,678
Consulting revenue 564,708 988,232
----------- ------------
Total revenue 833,558 14,301,910
Data communications and telecommunications 507,479 13,132,108
Cost of consulting revenue 130,788 -
Network operations 849,282 2,164,569
Selling, general and administrative 3,418,097 9,706,076
Depreciation and amortization 157,556 1,353,621
Non-cash employee compensation 124,993 1,753,965
----------- ------------
Total costs and expenses 5,188,195 28,110,339
Loss from operations (4,354,637) (13,808,429)
Interest income, net 41,943 192,832
----------- ------------
Net loss $(4,312,694) $(13,615,597)
=========== ============
Accretion of redemption value of mandatorily redeemable
convertible preferred stock (8,885) (772,796)
Net loss applicable to common stockholders $(4,321,579) $(14,388,393)
=========== ============
Basic and diluted net loss per share applicable to common
stockholders $ (0.53) $ (1.56)
=========== ============
Weighted average shares used in computation of basic and
diluted net loss per share applicable to common stockholders 8,118,355 9,194,259
Pro forma basic and diluted net loss per share $ (0.29) $ (0.52)
=========== ============
Weighted average shares used in computation of pro forma basic
and diluted net loss per share 14,821,331 26,082,962
</TABLE>
See accompanying notes.
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<PAGE>
ITXC CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months ended September 30,
1998 1999
----------------------------------
<S> <C> <C>
Operating activities
Net loss $(4,312,693) $(13,615,597)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 157,556 1,353,621
Provision for doubtful accounts 9,000 1,649,459
Amortization for non-cash deferred employee compensation 124,993 1,753,965
Issuance of common stock for services 10,625 -
Non-cash interest expense 90,000 -
Changes in operating assets and liabilities:
Increase in accounts receivable (180,818) (5,037,429)
Increase in prepaid expenses and other assets (94,610) (501,561)
Increase in accounts payable and accrued expenses 772,969 4,792,326
Increase (decrease) in customer deposits and deferred
revenue 693,772 (612,231)
----------- ------------
Net cash used in operating activities (2,729,206) (10,217,447)
Investing activities
Purchase of property and equipment (1,408,366) (4,580,649)
Purchase and short-term investments (200,000) (7,434)
----------- ------------
Net cash used in investing activities (1,608,366) (4,588,083)
Financing activities
Proceeds from equipment line of credit 1,200,000 523,191
Proceeds from stockholder note 750,000 -
Repayment of capital lease obligations - (171,274)
Issuance of common stock - 207,364
Issuance of convertible preferred stock 9,101,606 14,931,584
Deferred costs of initial public offering - (669,194)
Subscription receivable 900 .
----------- --------------------
Net cash provided by financing activities 11,052,506 14,821,671
----------- ------------
Increase (decrease) in cash 6,714,934 16,141
Cash and cash equivalents at beginning of period 497,877 3,971,237
----------- ------------
Cash and cash equivalents at end of period $ 7,212,811 $ 3,987,378
=========== ============
Supplemental disclosures of cash flow information
Cash paid for interest $ 6,693 $ 151,703
----------- ------------
</TABLE>
See accompanying notes.
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<PAGE>
ITXC CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
-----------
1. Basis of Presentation
The September 30, 1999 and 1998 financial statements have been prepared by
ITXC Corp. (the "Company" or "ITXC") and are unaudited. In the opinion of
the Company's management, all adjustments (consisting solely of normal
recurring adjustments) necessary to present fairly the Company's
consolidated financial position, results of operations and cash flows for
the interim periods have been made. Certain information and footnote
disclosures required under generally accepted accounting principles have
been condensed or omitted from the consolidated financial statements and
notes thereto presented herein pursuant to the rules and regulations of the
Securities and Exchange Commission. The consolidated financial statements
and notes thereto presented herein should be read in conjunction with the
Company's audited consolidated financial statements for the year ended
December 31, 1998 and notes thereto included in the Company's Registration
Statements on Form S-1 (No. 333-80411) filed with the Securities and
Exchange Commission. The results of operations for the three and nine
months ended September 30, 1999 are not necessarily indicative of the
results to be expected for any other interim period or the entire fiscal
year.
2. Capital Stock
-------------
On August 25, 1999, the Company's Board of Directors approved a 2 for 1
stock split of its Common Stock which became effective on September 20,
1999. The Common Stock numbers and preferred stock conversion ratios
included in the financial statements reflect the stock split for all
periods presented. On September 20, 1999, the Company's stockholders
approved an increase in the authorized Common Stock to 67,500,000 shares
which became effective on September 20, 1999. On July 23, 1999, the
Company's stockholders approved an increase in the number of shares which
may be granted under the Company's 1998 Stock Incentive Plan to 7,700,000
shares, effective upon the closing of the IPO.
3. Joint Venture
-------------
In July 1998, the Company obtained a 49% interest in ITXC Comunicacoes Ltda
("ITXC Ltda"), a newly formed joint venture, in consideration of rights to
certain technology, which provides exchange carrier long-distance services
in certain countries in South America. The ITXC Ltda joint venture
agreement, as amended, provides for an exit clause triggered by an initial
public offering of common stock by the Company and certain other events.
The clause provides the Company a call option and provides TeleNova
Communicacoes Ltda and its assignee (collectively, "TeleNova") a put option
which requires the Company to acquire TeleNova's interest in ITXC Ltda at a
price based either on a formula, as defined in the agreement, or an
appraisal of ITXC Ltda's fair
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value. The formula price is based on ITXC Ltda's revenues as a percentage
of the Company's revenues, which percentage is applied to the Company's
value. TeleNova has waived its put right and the Company waived its call
right in connection with the Company's initial public offering; however,
both the Company and TeleNova maintain certain call and put rights,
respectively, upon the occurrence of certain other future events.
4. Subsequent Events and Pro Forma Information
-------------------------------------------
On October 1, 1999, the Company completed an initial public offering (IPO)
of 7.2 million shares of common stock at a price of $12.00 per share,
generating net proceeds of approximately $78.5 million. Under the
Company's Certificate of Incorporation, all outstanding shares of Series B
Redeemable Convertible Preferred Stock and Series C Redeemable Convertible
Preferred Stock were converted into shares of Common Stock on a two-for-one
basis (reflecting the stock split described in Note 2), effective upon the
closing of the Company's IPO, resulting in the issuance of an additional
18.2 million shares of common stock.
The unaudited pro forma balance sheet information and the pro forma net
loss per share reflect the effects of the automatic conversion of all
series of the Company's mandatorily redeemable convertible preferred stock
to Common Stock upon the closing of the IPO. The unaudited pro forma
information gives effect to the actual conversion prices at the date of the
IPO of $.8525 for Series B Redeemable Convertible Preferred Stock and
$2.322 for Series C Redeemable Convertible Preferred Stock. The unaudited
pro forma net loss per share assumes the conversion of the Series B
Redeemable Convertible Preferred Stock and Series C Redeemable Convertible
Preferred Stock to Common Stock as if such shares had been converted at the
date of issuance, even though the result is antidilutive.
The following table presents the calculation of basic and diluted net loss
per share and pro forma net loss per share:
<TABLE>
<CAPTION>
Three Months Ended September 30,
-----------------------------------------------------------------------------------------
1998 1999
--------------------------------------------- ---------------------------------------
Denominator Denominator
(Weighted (Weighted
Numerator Average Per Numerator Average Per
(Net Loss) Shares) Share (Net Loss) Shares) Share
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic and diluted net loss per $(2,259,115) 8,357,902 $(0.27) $ (6,618,922) 10,338,369 $ (0.64)
common share
Accretion of redemption value of
mandatorily redeemable
convertible preferred stock 5,331 --- --- 329,675 --- ---
Assumed conversion of shares of
mandatorily redeemable
convertible preferred stock into
shares of common stock at
issuance --- 11,730,208 --- --- 18,190,158 ---
------------------- ---------- ------- ------------ ---------- -----------
Pro forma basic and diluted net
loss per common share $(2,253,784) 20,088,110 $(0.11) $ (6,289,247) 28,528,527 $ (0.22)
=================== ========== ======= ============ ========== ===========
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-----------------------------------------------------------------------------------------
1998 1999
--------------------------------------------- ---------------------------------------
Denominator Denominator
(Weighted (Weighted
Numerator Average Per Numerator Average Per
(Net Loss) Shares) Share (Net Loss) Shares) Share
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic and diluted net loss per $(4,321,579) 8,118,355 $(0.53) $(14,388,393) 9,194,259 $ (1.56)
common share
Accretion of redemption value of
mandatorily redeemable
convertible preferred stock 8,885 --- --- 772,796 --- ---
Assumed conversion of shares of
mandatorily redeemable
convertible preferred stock into
shares of common stock at
issuance --- 6,702,976 --- --- 16,888,703 ---
------------------- ---------- ------- ------------ ---------- -----------
Pro forma basic and diluted net
loss per common share $(4,312,694) 14,821,331 $(0.29) $(13,615,597) 26,082,962 $( 0.52)
=================== ========== ======= ============ ========== ===========
</TABLE>
1.
-8-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements, the related Notes to Consolidated
Financial Statements and Management's Discussion and Analysis of Results of
Operations and Financial Condition included in the Company's initial public
offering prospectus dated September 27, 1999 and the Unaudited Consolidated
Financial Statements and related Notes to Consolidated Financial Statements
included in Item 1 of Part 1 of this Quarterly Report on Form 10-Q. This
Quarterly Report on Form 10-Q contains forward-looking statements made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995, which involve risks and uncertainties. The Company's actual results could
differ significantly from the results discussed in the forward-looking
statements. Factors that could cause such a difference are described in Exhibit
99.1 to this Quarterly Report on Form 10-Q. Such factors may also cause
substantial volatility in the market price of the Company's common stock.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amount of costs and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from these estimates and assumptions.
Overview
The Company is a leading global provider of Internet-based voice and fax
services. From the Company's inception in July 1997 through April 1998, its
operating activities were focused primarily on:
. developing monitoring and analysis software (the Company's BestValue
Routing software) to enable the Company to efficiently and cost effectively
route voice over the Internet;
. developing relationships with affiliates throughout the world to
increase the global reach of ITXC.net, the Company's network;
. developing additional business strategies to supplement the Company's
affiliate network; and
. hiring the Company's initial employee group.
In April 1998, the Company launched its first service delivered over
ITXC.net -- the Company's WWeXchange service. The Company's operations since
that time have included:
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. increasing its voice traffic, from 2,746 minutes during April 1998 to
approximately 42.5 million minutes during the quarter ended September 30, 1999;
. refining its monitoring and analysis software in order to achieve
BestValue Routing;
. expanding its affiliate network and increasing the global reach of
ITXC.net; and
. increasing its employee headcount, from 29 employees on April 1, 1998 to
108 employees on September 30, 1999.
The Company's primary sources of revenue have been the fees that it
receives from customers for terminating calls that they have originated on the
Internet. To date, the Company's revenue for terminating calls over ITXC.net has
depended primarily upon the following factors:
. the volume of voice traffic carried over ITXC.net, which is measured in
terms of minutes of voice traffic;
. the mix of voice traffic carried over ITXC.net, which reflects the fact
that calls made over certain routes will generate greater revenues than calls
of a similar duration made over other routes; and
. pricing pressures resulting from competitive conditions in the Company's
markets.
Increased competition from other providers of Internet telephony services and
traditional telephony services could materially adversely affect revenues in
future periods.
In periods prior to the three months ended September 30, 1999, the Company
has also received consulting revenue derived from a market trial agreement that
it entered into with a third-party shortly after its inception in order to
generate funds to sustain operations. Under that agreement, the Company earned a
portion of the revenue ratably over the term of the agreement and the remainder
of the revenue as it met specific milestones. The Company does not consider it
likely that consulting revenue will continue beyond the quarter ended June 30,
1999.
To date, the Company has derived a significant portion of its revenue from
a small number of customers. The loss of a major customer could have a material
adverse effect on the Company's business, financial condition, operating results
and future prospects.
The Company's operating expenses have been primarily:
. Data Communications and Telecommunications Expenses. Communications
expenses, consisting primarily of:
. costs associated with sending voice traffic over the Internet,
primarily fees that the Company pays to its affiliates to terminate or
assist it in terminating calls, fees that the Company pays when it
finds it necessary to utilize the
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<PAGE>
traditional telephone network or private data networks to terminate
calls and expenses incurred in connecting the Company's customers to
its network; these expenses are largely proportional to the volume of
voice traffic carried over the Company's network; and
. costs associated with buying Internet access at ITXC-operated
locations; these costs are largely proportional to the bandwidth of
access available and do not typically vary based upon volume.
. Network Operations Expenses. Expenses associated with operating the
network, consisting primarily of the salaries, payroll taxes and benefits
that the Company pays for those employees directly involved in the
operation of ITXC.net and related expenses.
. Selling, General and Administrative Expenses. There are three
components of selling, general and administrative expenses, consisting of
the following:
. Sales and Marketing Expenses. Expenses relating to the
salaries, payroll taxes, benefits and commissions that the Company
pays for sales personnel and expenses associated with the development
and implementation of the Company's promotion and marketing campaigns.
The Company anticipates that sales and marketing expenses will
increase in the future as it expands its internal sales force, hires
additional marketing personnel and increases expenditures for
promotion and marketing. The Company expects that such expenses will
also increase as telecommunications revenue increases.
. Development Expenses. Salary, payroll tax and benefit expenses
that the Company pays for employees and consultants who work on the
development of the Company's network management approaches and future
applications of its technology. The Company believes that investing in
the enhancement of its technology is critical to its future success.
The Company expects that its development expenses will increase in
future periods, based upon various factors, including:
. the importance to the Company of BestValue Routing;
. the pace of technological change in the Company's industry;
and
. the Company's goal of expanding the applications of its
technology.
. General and Administrative Expenses. Salary, payroll tax and
benefit expenses and related costs for general corporate functions,
including executive management, administration, facilities,
information technology and human resources. The Company expects that
general and administrative expenses will increase in the future as it
hires additional personnel and incurs additional costs related to the
growth of its business and operations. In addition, the Company
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<PAGE>
expects to expand its facilities and incur associated expenses to
support its anticipated growth.
. Non-cash Employee Compensation Expenses. Non-cash employee
compensation represents compensation expense incurred in connection with the
grant of certain stock options to employees with exercise prices less than
the fair value of the Company's Common Stock at the respective dates of
grant. During the nine months ended September 30, 1999, the Company granted
options to purchase 3,413,500 shares of common stock at exercise prices equal
to or less than fair value resulting in non-cash charges of approximately
$12.8 million. Such charges will be expensed, generally over the next three
to seven years, in connection with the underlying vesting periods of the
options granted.
The Company believes that the services that it provides over the Internet
are not currently actively regulated in the United States. Several efforts have
been made, however, to enact federal legislation that would regulate certain
aspects of the Internet. If adopted, such legislation could increase the
Company's costs significantly and could materially adversely affect its
business, operating results, financial condition and future prospects.
As ITXC.net continues to grow, the Company anticipates that from time to
time its operating expenses may increase on a per minute basis. This increase is
related to the Company's decision to route additional traffic over the
traditional telephone network or private data networks in order to maintain
quality transmissions during relatively short periods of time as the Company
transitions its network to increased levels of capacity. During these periods,
the Company occasionally experiences reductions in volume from certain
customers. Historically, the Company has satisfactorily resolved these
transition issues. However, the Company anticipates that in the future other
anticipated or unanticipated operating problems associated with the growth of
ITXC.net may develop.
Since the Company's inception in July 1997, it has experienced operating
losses in each quarterly and annual period and negative cash flows from
operations in each quarter since it commenced offering services over ITXC.net in
April 1998. As of September 30, 1999, the Company had an accumulated deficit of
$21.5 million. The profit potential of the Company's business is unproven, and
the Company's limited operating history makes an evaluation of it and its
prospects difficult. The Company may not achieve profitability or, if it
achieves profitability, the Company might not sustain profitability.
Results of Operations - Comparison of the Three and Nine Months Ended
September 30, 1998 and 1999
Revenue
The Company did not commence commercial services over ITXC.net until the
quarter ended June 30, 1998. Accordingly, the Company realized only $223,000 and
$269,000, respectively, in telecommunications revenue during the three and nine
months ended September 30, 1998. The Company's telecommunications revenue for
the three and nine months ended
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<PAGE>
September 30, 1999 of $6.5 million and $13.3 million, respectively, was more
than five and ten times greater, respectively, than the amount of
telecommunications revenue that the Company generated during the period in 1998
when ITXC.net was operational. For information regarding the termination of
services to certain customers, see "--Selling, General and Administrative
Expenses".
The Company recorded consulting revenues of $88,000 and $565,000,
respectively, during the three and nine months ended September 30, 1998, as
compared with $0 and $988,000, respectively, during the three and nine months
ended September 30, 1999, reflecting the accomplishment of various performance
requirements under its market trial agreement. As of June 30, 1999, the Company
had satisfied all of the performance requirements under its market trial
agreement and had received all consulting payments required by that agreement.
The Company does not expect to earn significant consulting revenue in subsequent
periods.
Operating Expenses
Data Communications and Telecommunications Expenses. The Company did not
incur data communications and telecommunications expenses until it began
providing service over ITXC.net in April 1998. Accordingly, the Company incurred
only $507,000 of such expenses during the nine months ended September 30, 1998,
the bulk of which ($406,000) was incurred during the three months ended
September 30, 1998. During the three and nine months ended September 30, 1999,
such expenses amounted to $6.2 million and $13.1 million, respectively, compared
to telecommunications revenue of $6.5 million and $13.3 million, respectively.
Cost of Consulting Revenue. The Company did not incur any material
expenses under its market trial agreement during any of the periods described in
this Quarterly Report on Form 10-Q. During the three and nine months ended
September 30, 1998, such costs represented 70% and 23%, respectively, of
consulting revenue. The Company did not incur these expenses during the three or
nine months ended September 30, 1999 since the substantive work required to meet
the final performance milestones was completed during 1998. During 1999, the
Company presented an update report.
Network Operations Expenses. Network operations expenses increased from
$394,000 and $849,000, respectively, during the three and nine months ended
September 30, 1998 to $882,000 and $2.2 million, respectively, during the three
and nine months ended September 30, 1999. Expenses during the earlier period
were incurred in preparing for the implementation of the Company's WWeXchange
service in April 1998 and in the initial delivery of that service. During the
three and nine months ended September 30, 1999, such expenses primarily
reflected the cost of operating the Company's 24-hours-a-day, 7 days-a-week
network operations center and represented 13% of telecommunications revenue
during the three months ended September 30, 1999 and 16% of telecommunications
revenue during the nine months ended September 30, 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses increased from $1.6 million and $3.4 million,
respectively, during the three
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<PAGE>
and nine months ended September 30, 1998 to $4.0 million and $9.7 million,
respectively, during the three and nine months ended September 30, 1999. These
increases were primarily due to an increase in salaries and benefits, recruiting
costs and facilities expenses resulting from the growth in the Company's
business and facilities, as well as an increase in the number of general and
administrative personnel hired to support that growth.
The increase in SG&A expense also includes a $1,649,000 increase in the
Company's accounts receivable reserves. This increase in the reserves reflects
general industry trends and the termination of service to certain significant
customers. The Company does not expect any material revenue impact from these
actions. Such expectation represents a forward-looking statement under the
Private Securities Litigation Reform Act of 1995. Actual results could differ
from such expectation as a result of a number of factors, including the extent
to which the Company is able to attract new customers to ITXC.net, the extent to
which the Company is able to expand the utilization of ITXC.net by other
existing customers, the Company's capacity constraints and the mix of traffic
that the Company carries in future periods.
The increase in SG&A expenses also reflects personnel costs associated
with the hiring of additional sales and marketing employees, commissions paid on
the telecommunications revenue that the Company generated during 1999 and the
costs of additional personnel and consultants for development tasks.
Non-cash Employee Compensation Expenses. Non-cash employee compensation
expense increased from $57,000 and $125,000, respectively, during the three and
nine months ended September 30, 1998 to $1.1 million and $1.8 million,
respectively, during the three and nine months ended September 30, 1999,
representing amortization of deferred compensation incurred in connection with
the grant of options at exercise prices less than fair value. This charge is
expected to remain constant over the next several years.
Interest Income, Net
The Company's interest income, net principally represents income from
cash and investments which, in turn, were derived from capital contributions
made by the Company's investors. In addition to the initial capital invested
near the inception of the Company's business, ITXC raised net proceeds of $9.9
million and $14.9 million from a group of investors in transactions completed
during April 1998 and February 1999, respectively. The interest generated from
these capital contributions exceeded the interest that the Company paid on its
line of credit by $37,000 and $193,000, respectively, during the three and nine
months ended September 30, 1999. During the three and nine months ended
September 30, 1998, interest generated from capital contributions exceeded
interest paid on the Company's line of credit and non-cash interest related to
the issuance of common stock warrants (in connection with bridge financing
provided by two officers) by $100,000 and $42,000, respectively. Interest
income, net is expected to increase as a result of the Company's recently
completed initial public offering.
Loss From Operations
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<PAGE>
The Company incurred operating losses of $2.4 million and $4.4 million,
respectively, during the three and nine months ended September 30, 1998 and
operating losses of $6.3 million and $13.8 million, respectively, during the
three and nine months ended September 30, 1999. The Company does not consider
these amounts to be comparable, since the 1998 amounts reflect operations prior
to the introduction and during the initial stage of services over our network,
while the 1999 amounts reflects more active operation of our network. The
Company anticipates that it will incur additional operating and net losses for
the foreseeable future. The amount of these losses may exceed the amount of the
losses that the Company has incurred in prior periods.
Liquidity and Capital Resources
Since the Company's inception in July 1997, ITXC has financed its
operations primarily through the private placement of its capital stock and, to
a lesser extent, through equipment financing, and for the period after June 30,
1999, through capital leases. As of September 30, 1999, the Company had $4.2
million in cash, cash equivalents and short-term investments, which amount was
augmented on October 1, 1999 upon the consummation of the Company's initial
public offering. Net proceeds from the initial public offering, including
proceeds resulting from the exercise by the underwriters of their over-allotment
option, are estimated to be approximately $78.5 million.
Net cash provided by financing activities amounted to $14.8 million for
the nine months ended September 30, 1999 and was primarily attributable to net
proceeds from the issuance of the Company's capital stock in a private round of
equity financing in February 1999. Such amount does not include the proceeds
from the Company's initial public offering.
Net cash used in operating activities amounted to $10.2 million for the
nine months ended September 30, 1999. Cash used in operating activities was
primarily the result of net operating losses and increased accounts receivable,
partially offset by increases in accounts payable and accrued liabilities.
Net cash used in investing activities amounted to $4.6 million for the
nine months ended September 30, 1999. Cash used in investing activities was
primarily related to the purchases of property and equipment.
As of September 30, 1999, the Company's principal commitments consisted
of obligations outstanding under operating and capital leases. At that date,
future minimum payments for non-cancelable leases included payments of $445,000
during the balance of 1999 and $1.8 million during 2000. Amounts committed
beyond 2000 under all leases totaled approximately $1.3 million as of September
30, 1999. The Company anticipates a substantial increase in capital
expenditures and lease commitments consistent with the anticipated growth in
operations, infrastructure and personnel, including the deployment of additional
networks hubs and SNARCs (a proprietary device which allows customers to access
the Company's network directly from their premises, eliminating the costs of
special traditional telephone connections dedicated to connecting with network
hubs and improving the economics of the Company's services to them).
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<PAGE>
In August 1998, the Company arranged a revolving line of credit with a
financial institution which provides for maximum borrowings of $5.0 million, of
which $4.0 million may be borrowed under an equipment line of credit for the
purchase of certain capital equipment. Borrowings under the credit agreement
were approximately $1.7 million at September 30, 1999. This credit agreement is
collateralized by substantially all of the Company's assets. The revolving line
of credit has a one year term that requires payment of any principal in December
1999. The equipment sub-line of credit expires in 2002. The Company was required
to repay the outstanding balance under the credit agreement upon consummation of
its initial public offering. The Company currently is engaged in negotiations
to amend its credit agreement to increase the aggregate amount of credit
available thereunder to $10 million. The description of the credit agreement in
the next paragraph does not reflect any modifications that may be made in
connection with these negotiations.
Accrued interest under the revolving line of credit is due in monthly
installments through December 1999. Accrued interest under the equipment sub-
line of credit is due monthly until the principal amount is repaid three years
after the final draw down. Borrowings under the revolving line of credit bear
interest at a rate per annum equal to the higher of the Company's lender's
published prime rate plus 0.5% and the weighted average federal funds rate
available to our lender plus 1.5%. Borrowings under the equipment sub-line of
credit bear interest at a rate per annum equal to the higher of the Company's
lender's published prime rate plus 0.75% and the weighted average federal funds
rate available to the Company's lender plus 2.0%. Amounts outstanding under the
credit agreement not paid when due will bear interest at a default rate equal to
3.0% above the rates otherwise applicable to the loans made to the Company. As
of December 31, 1998, the Company was in violation of one financial covenant
under the credit agreement. That covenant required the Company's current assets
to exceed its current liabilities by a specified multiple, which multiple varied
for each quarter through the quarter ended September 30, 1999. The Company
obtained a letter from its lender waiving the violation as of December 31, 1998.
In connection with the formation of the Company's joint venture, ITXC
Comunicacoes Ltda., the Company entered into a buyout agreement with the other
parties to the joint venture. That agreement provides the Company with certain
rights to purchase the interests of the other parties, and provides the other
parties with certain rights to cause ITXC to purchase their interests, each in a
number of specific circumstances.
Each of the parties to the joint venture will have its put and call
rights in the event that:
. ITXC reaches an impasse with its joint venture partners;
. the Company is acquired or enters into certain other business
combinations;
. ITXC Comunicacoes Ltda. fails to meet certain performance
thresholds in five South American countries; or
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. the Company fails to meet certain performance thresholds in
the same countries.
If any of these triggers occur, the Company will have the right to
purchase the interests of its joint venture partners and its partners will have
the opportunity to exercise their put rights. The purchase price in these
circumstances will either be based upon a formula price, in the case of most
acquisitions or other business combinations, or an appraisal of the joint
venture's fair market value in all other instances. Under the formula approach,
the joint venture will be valued at a percentage of ITXC's value comparable to
the percentage that the revenues of ITXC Comunicacoes Ltda., determined under
Brazilian accounting principles, represent of ITXC's revenues, determined under
U.S. accounting principles, subject to certain contractual adjustments based
upon the profitability of the joint venture.
If the Company's partners exercise their put rights, the Company will be
able to specify whether they receive cash or the Company's common stock. If the
Company exercises its call rights, its partners may elect to receive cash or the
Company's common stock. The amount of the purchase price under any of these
scenarios could be substantial and, if the Company exercises a call right and
its partners elect to receive cash, the payment of such purchase price could
materially adversely impact the Company's liquidity. No assurances can be given
that the Company will have the capital necessary to fund a purchase of joint
venture interests that the Company would otherwise desire to make.
The Company's capital requirements depend on numerous factors, including
market acceptance of ITXC's services, the responses of its competitors, the
resources allocated to ITXC.net and the development of future applications of
the Company's technology, the Company's success in marketing and selling its
services, and other factors. The Company has experienced substantial increases
in its capital expenditures since its inception, consistent with growth in its
operations and staffing, and anticipates that its capital expenditures will
continue to increase in the future. Additionally, the Company will evaluate
possible acquisitions of, or investments in, complementary businesses,
technologies or services and plan to expand its sales and marketing programs.
The Company currently believes that its available cash equivalents, including
the estimated net proceeds of $78.5 million from its recently completed initial
public offering, will be sufficient to meet the Company's anticipated needs for
working capital and capital expenditures for at least the next 12 months. The
Company may need to raise additional funds, however, in order to fund more rapid
expansion, to develop new or enhance existing services, to respond to
competitive pressures or to acquire or invest in complementary business,
technologies or services. Additional funding may not be available on favorable
terms or at all.
Year 2000 Compliance
The Company may be exposed to a loss of revenues and its operating
expenses could increase if the systems on which the Company is dependent to
conduct its operations are not year 2000 compliant. The Company's potential
areas of exposure include:
. services purchased from third parties;
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. information technology, including computers and software; and
. non-information technology, including telephone systems and other
equipment used internally.
All areas that the Company believes are important to its operations are
being tested and validated for year 2000 compliance. The Company's hardware and
software have been acquired subsequent to July 21, 1997, and hence at a time
when manufacturers were well aware of the year 2000 issue. Since several of the
Company's vendors were scheduled to release new versions during the second
calendar quarter of 1999, the Company deferred certain aspects of its year 2000
analysis. The Company completed its year 2000 compliance assessment plan and its
compliance testing and related documentation by the end of the third quarter of
1999. To the extent that the Company's systems need to be revised or replaced,
the Company does not expect this cost to exceed $1.0 million. The Company
expects that most of this amount will represent the replacement of readily
available hardware and software funded by working capital and/or equipment
financing.
In addition, the Company has sought verification from its key vendors
and suppliers that they are year 2000 complaint. If they were not compliant, the
Company requested a description of their plans to become compliant. To the
extent that vendors fail to provide certification that they are year 2000
compliant, the Company may find it necessary to terminate and seek to replace
those relationships.
In the most reasonably likely worst case scenario, year 2000 problems
could adversely impact, and could render inoperative, one or more components in
the infrastructures in some foreign countries. Year 2000 difficulties
experienced in foreign countries or by the Company's affiliates could materially
adversely affect ITXC's network. The Company is in the process of developing a
contingency plan to deal with the worst-case scenario that might occur if
technologies upon which it is dependent are not year 2000 compliant and fail to
operate effectively after the year 2000.
If the Company's present efforts to address year 2000 compliance issues
are not successful, or if distributors, suppliers and other third parties with
whom ITXC conducts business do not successfully address such issues, the
Company's financial condition, operating results, liquidity and future prospects
could be materially adversely affected.
The Company's statements regarding year 2000 compliance issue are,
except for statements regarding historical matters, forward-looking statements
under the Private Securities Litigation Reform Act of 1995. Actual results
could vary substantially from such forward looking statements as a result of a
number of risks and uncertainties, including unanticipated technological
difficulties, the difficulties of marshaling resources during the time remaining
before January 1, 2000 and other risks referred to in Exhibit 99.1 to this
Quarterly Report on Form 10-Q.
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<PAGE>
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Not applicable.
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<PAGE>
Part II
Item 1. Legal Proceedings
From time to time, the Company is involved in various legal proceedings
relating to claims arising in the ordinary course of business. The Company is
not a party to any legal proceeding, the adverse outcome of which is expected to
have a material adverse effect on its business, financial condition, operating
results or future prospects.
Item 2. Changes in Securities and Use of Proceeds
The Company's initial public offering was effected pursuant to a
registration statement on Form S-1 (No. 333-80411) declared effective by the SEC
on September 27, 1999. The offering commenced on September 27, 1999 and
terminated after all securities registered were sold. The managing underwriters
of the initial public offering in the United States were Lehman Brothers, CIBC
World Markets and First Analysis Securities Corporation and the managing
underwriters of the initial public offering outside of the United States were
Lehman Brothers International (Europe), CIBC World Markets International Limited
and First Analysis Securities Corporation .
The sole class of capital stock registered in the Company's public
offering was the Company's Common Stock. The total amount of Common Stock
registered was $93,437,500. In the initial public offering, a total of 7,187,500
shares were sold at an offering price of $12 per share, for total gross proceeds
of $86,250,000. All of the shares were sold for the account of the Company.
The closing of the initial public offering did not occur until after the
period reported upon in this Quarterly Report on Form 10-Q. Accordingly, the
expenses incurred by the Company during the period from September 27, 1999
through September 30, 1999 in connection with the initial public offering were
insignificant and no portion of the net proceeds was utilized by the Company
during the quarter ended September 30, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.2 Third Amended and Restated Certificate of Incorporation, which was
filed upon consummation of the Company's initial public offering.
3.4 Amended and Restated By-laws, which went into effect upon the
consummation of the Company's initial public offering.
10.5 Amended Employee Stock Purchase Plan.
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<PAGE>
27.1 Financial Data Schedule
99.1 Risk Factors
(b) There were no Current Reports on Form 8-K filed by the Registrant
during the quarter ended September 30, 1999.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ITXC CORP.
By:_/s/ Edward B. Jordan
Edward B. Jordan
Executive Vice President,
Chief Financial Officer and
Chief Accounting Officer
Dated: November 15, 1999
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EXHIBIT INDEX
3.2 Third Amended and Restated Certificate of Incorporation, which was
filed upon consummation of the Company's initial public offering.
3.4 Amended and Restated By-laws, which went into effect upon the
consummation of the Company's initial public offering.
10.5 Amended Employee Stock Purchase Plan.
27.1 Financial Data Schedule
99.1 Risk Factors
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<PAGE>
Exhibit 3.2
THIRD RESTATED CERTIFICATE OF INCORPORATION
OF
ITXC CORP.
ITXC Corp. (the "Corporation"), a Delaware corporation, hereby
certifies as follows:
1. The name of the Corporation is ITXC Corp.
2. The original certificate of incorporation of the Corporation was
filed with the Secretary of State of Delaware on July 21, 1997. A restated
certificate of incorporation of the Corporation was filed with the Secretary of
State of Delaware on April 22, 1998. A second restated certificate of
incorporation of the Corporation was filed with the Secretary of State of
Delaware on February 23, 1999.
3. This third restated certificate of incorporation of the Corporation
has been duly adopted in accordance with Sections 242 and 245 of the General
Corporation Law of the State of Delaware.
4. This third restated certificate of incorporation amends, restates
and integrates the provisions of the certificate of incorporation of the
Corporation.
5. The text of the certificate of incorporation of the Corporation is
hereby amended, restated and integrated to read in its entirety as follows:
FIRST: The name of the corporation is ITXC Corp. (the "Corporation").
-----
SECOND: The registered office of the Corporation is located at 9 East
------
Loockerman Street, in the City of Dover, in the County of Kent, in the State of
Delaware. The name of its registered agent at that address is National
Registered Agents, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act
-----
or activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
------
have authority to issue is Eighty Two Million Five Hundred Thousand (82,500,000)
shares, of which Sixty Seven Million Five Hundred Thousand (67,500,000) shares
are designated as Common Stock, having a par value of $.001 per share ("Common
Stock"), and Fifteen Million (15,000,000) shares are designated as Preferred
Stock, having a par value of $.001 per share ("Preferred Stock").
<PAGE>
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized to provide for the issuance
of shares of Preferred Stock in one or more series and, by filing a certificate
pursuant to the applicable law of the State of Delaware (hereinafter referred to
as "Preferred Stock Designation"), to establish from time to time the number of
shares to be included in each such series, and to fix the designation, powers,
preferences and rights of the shares of each such series and the qualifications,
limitations and restrictions thereof. The authority of the Board of Directors
with respect to each series shall include, but not be limited to, determination
of the following:
(a) The designation of the series, which may be by
distinguishing number, letter or title.
(b) The number of shares of the series, which number the Board
of Directors may thereafter (except where otherwise provided in the Preferred
Stock Designation) increase or decrease (but not below the number of shares
thereof then outstanding).
(c) The amounts payable on, and the preferences, if any, of
shares of the series in respect of dividends, and whether such dividends, if
any, shall be cumulative or noncumulative.
(d) Dates at which dividends, if any, shall be payable.
(e) The redemption rights and price or prices, if any, for
shares of the series.
(f) The terms and amount of any sinking fund provided for the
purchase or redemption of shares of the series.
(g) The amounts payable on, and the preferences, if any, of
shares of the series in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation.
(h) Whether the shares of the series shall be convertible into
or exchangeable for shares of any other class or series, or any other security,
of the Corporation or any other corporation, and, if so, the specification of
such other class or series or such other security, the conversion or exchange
price or prices or rate or rates, any adjustments thereof, the date or dates at
which such shares shall be convertible or exchangeable and all other terms and
conditions upon which such conversion or exchange may be made.
(i) Restrictions on the issuance of shares of the same series
or of any other class or series.
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<PAGE>
(j) The voting rights, if any, of the holders of shares of the
series.
The Common Stock shall be subject to the express terms of the Preferred
Stock and any series thereof. Except as may otherwise be provided in this
restated certificate of incorporation, in a Preferred Stock Designation or by
applicable law, the holders of shares of Common Stock shall be entitled to one
vote for each such share upon all questions presented to the stockholders, the
Common Stock shall have the exclusive right to vote for the election of
directors and for all other purposes, and holders of Preferred Stock shall not
be entitled to vote at or receive notice of any meeting of stockholders.
Subject to the rights of the holders of any series of Preferred Stock
pursuant to the terms of this restated certificate of incorporation or any
resolution or resolutions providing for the issuance of such series of stock
adopted by the Board of Directors, the number of authorized shares of Preferred
Stock or Common Stock may be increased or decreased (but not below the number of
shares thereof then outstanding) by the affirmative vote of the holders of a
majority of the stock of the Corporation entitled to vote generally in the
election of directors irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of the State of Delaware.
FIFTH: The authorized number of members of the Board of Directors will
-----
be fixed from time to time by resolution adopted by the affirmative vote of a
majority of the entire Board of Directors but in no event may the number be less
than three.
The Directors shall be divided into three classes, each consisting of
one-third of such directors, as nearly as may be, designated Class I, Class II
and Class III. Class I directors shall initially serve until the 2000 meeting of
stockholders; Class II directors shall initially serve until the 2001 meeting of
stockholders; and Class III directors shall initially serve until the 2002
meeting of stockholders. Commencing with the stockholders' meeting in 2000, and
at each succeeding annual stockholders' meeting, successors to the class of
directors whose term expires at such annual stockholders' meeting shall be
elected for a three-year term. If the number of such directors is changed, an
increase or decrease in such directors shall be apportioned among the classes so
as to maintain the number of directors comprising each class as nearly equal as
possible, and any additional directors of any class shall hold office for a term
which shall coincide with the remaining term of such class. A director shall
hold office until the annual stockholders' meeting for the year in which his
term expires and until his successor shall be elected and shall qualify,
subject, however, to prior death, resignation, retirement, disqualification, or
removal from office.
Except as otherwise required by law, any vacancy on the board of
directors that results from an increase in the number of directors and any other
vacancy occurring in the board of directors shall only be filled by a majority
of the directors then in office, even if less than a quorum, or by a sole
remaining director. Any director elected to fill a vacancy not resulting from an
increase in the number of directors shall have the same remaining term as that
of his or her predecessor. A director may be removed only for cause by the
stockholders.
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<PAGE>
Notwithstanding the foregoing, whenever the holders of any one or more
series of Preferred Stock issued by the Corporation shall have the right, voting
separately by class or series, to elect directors at an annual or special
meeting of stockholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of this
restated certificate of incorporation applicable thereto and such directors so
elected shall not be divided into classes pursuant to this Article Fifth, in
each case unless expressly provided by such terms. During any period when the
holders of any series of Preferred Stock have the right to elect additional
directors as provided for or fixed pursuant to the provisions of Article Fourth
hereof, then upon commencement and for the duration of the period during which
such right continues: (i) the then otherwise total authorized number of
directors of the Corporation shall automatically be increased by such specified
number of directors, and the holders of such Preferred Stock shall be entitled
to elect the additional directors so provided for or fixed pursuant to said
provisions, and (ii) each such additional director shall serve until such
director's successor shall have been duly elected and qualified, or until such
director's right to hold such office terminates pursuant to said provisions,
whichever occurs earlier, subject to his earlier death, disqualification,
resignation or removal. Except as otherwise provided by the Board of Directors
in the resolution or resolutions establishing such series, whenever the holders
of any series of Preferred Stock having such right to elect additional directors
are divested of such right pursuant to the provisions of such stock, the terms
of office of all such additional directors elected by the holders of such stock,
or elected to fill any vacancies resulting from the death, resignation,
disqualification or removal of such additional directors, shall forthwith
terminate and the total and authorized number of directors of the Corporation
shall be reduced accordingly.
SIXTH: Meetings of stockholders may be held within or without the State
-----
of Delaware as the By-laws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-laws of the Corporation. The election of
directors need not be by written ballot unless the By-laws so provide.
SEVENTH: The Board of Directors of the Corporation is authorized and
-------
empowered from time to time in its discretion to make, alter, amend or repeal
By-laws of the Corporation.
EIGHTH: A director of the Corporation shall not be liable to the
------
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the General Corporation Law of the
State of Delaware, as the same exists or may hereafter be amended. Any
amendment, modification or repeal of the foregoing sentence shall not adversely
affect any right or protection of a director of the Corporation hereunder in
respect of any act or omission occurring prior to the time of such amendment,
modification or repeal.
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<PAGE>
NINTH:
-----
1. Right to Indemnification. The Corporation shall indemnify and hold
harmless, to the fullest extent permitted by applicable law as it presently
exists or may hereafter be amended, any person (an "Covered Person") who was or
is made or is threatened to be made a party or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "Proceeding"), by reason of the fact that he or she, or a
person for whom he or she is the legal representative, is or was a director or
officer of the Corporation or, while a director or officer of the Corporation,
is or was serving at the request of the Corporation as a director, officer,
employee, manager or agent of another corporation or of a partnership, limited
liability company, joint venture, trust, enterprise or nonprofit entity,
including service with respect to employee benefit plans, against all liability
and loss suffered and expenses (including attorneys' fees) reasonably incurred
by such Covered Person. Notwithstanding the preceding sentence, except as
otherwise provided in Section 3 of this Article Ninth, the Corporation shall be
required to indemnify an Covered Person in connection with a Proceeding (or part
thereof) commenced by such Covered Person only if the commencement of such
Proceeding (or part thereof) by the Covered Person was authorized by the Board
of Directors of the Corporation. Notwithstanding any provision herein to the
contrary, the Corporation shall not be required to advance expenses to an
Covered Person who is a party to an action, suit or proceeding brought by the
Corporation and approved by a majority of the Board of Directors of the
Corporation which alleges willful misappropriation of corporate assets by such
Covered Person, disclosure of confidential information in violation of such
Covered Person's fiduciary or contractual obligations to the Corporation or any
other willful and deliberate breach in bad faith of such Covered Person's duty
to the Corporation or its stockholders.
2. Prepayment of Expenses. Except as otherwise provided in Section 1 of
this Article Ninth, the Corporation shall pay the expenses (including attorneys'
fees) incurred by an Covered Person in defending any Proceeding in advance of
its final disposition, provided, however, that to the extent required by law,
-------- -------
such payment of expenses in advance of the final disposition of the Proceeding
shall be made only upon receipt of an undertaking by the Covered Person to repay
all amounts advanced if it should be ultimately determined that the Covered
Person is not entitled to be indemnified under this Article Ninth or otherwise.
3. Claims. If a claim for indemnification or advancement of expenses
under this Article Ninth is not paid in full within sixty days after a written
claim therefor by the Covered Person has been received by the Corporation, the
Covered Person may file suit to recover the unpaid amount of such claim and, if
successful in whole or in part, shall be entitled to be paid the expense of
prosecuting such claim. In any such action the Corporation shall have the burden
of proving that the Covered Person is not entitled to the requested
indemnification or advancement of expenses under applicable law.
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<PAGE>
4. Nonexclusivity of Rights. The rights conferred on any Covered Person
by this Article Ninth shall not be exclusive of any other rights which such
Covered Person may have or hereafter acquire under any statute, provision of
this restated certificate of incorporation, the Corporation's by-laws or any
agreement, vote of stockholders or disinterested directors or otherwise.
5. Other Sources. The Corporation's obligation, if any, to indemnify or
to advance expenses to any Covered Person who was or is serving at its request
as a director, officer, employee, manager or agent of another corporation,
partnership, limited liability company, joint venture, trust, enterprise or
nonprofit entity shall be reduced by any amount such Covered Person may collect
as indemnification or advancement of expenses from such other corporation,
partnership, limited liability company, joint venture, trust, enterprise or
non-profit enterprise.
6. Amendment or Repeal. Any repeal or modification of the foregoing
provisions of this Article Ninth shall not adversely affect any right or
protection hereunder of any Covered Person in respect of any act or omission
occurring prior to the time of such repeal or modification.
7. Other Indemnification and Prepayment of Expenses. This Article Ninth
shall not limit the right of the Corporation, to the extent and in the manner
permitted by law, to indemnify and to advance expenses to persons other than
Covered Persons when and as authorized by appropriate corporate action.
TENTH: No action required to be taken or which may be taken at any
-----
annual or special meeting of stockholders of the Corporation may be taken
without a meeting; and the power of the stockholders to consent in writing,
without a meeting, to the taking of any action is specifically denied.
ELEVENTH: Except as otherwise required by law, the provisions of
--------
Articles Fifth and Tenth and the provisions of this Article Eleventh may not be
amended in any respect unless such amendment is approved by the affirmative vote
of the holders of two thirds in voting power of the outstanding stock of the
Corporation entitled to vote generally.
IN WITNESS WHEREOF, ITXC Corp. has caused this certificate to be signed
by Edward B. Jordan, its Executive Vice President, on the 1ST day of October,
1999.
ITXC CORP.
/s/ Edward B. Jordan
------------------------------------------
Edward B. Jordan, Executive Vice President
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<PAGE>
Exhibit 3.4
AMENDED AND RESTATED BY-LAWS
OF
ITXC CORP.
October 1, 1999
ARTICLE I
OFFICES
Section 1. The registered office shall be in the city of Dover, County
of Kent, State of Delaware.
Section 2. The corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held at such place as may be fixed from time to time by the
Board of Directors, or at such other place either within or without the State of
Delaware as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
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Section 2. Annual meetings of stockholders shall be held at such date
and time as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting, at which they shall elect by a plurality
vote a board of directors, and transact such other business as may properly be
brought before the meeting.
Section 3. Written notice of the annual meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not fewer than ten (10) nor more than sixty (60) days before the
date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten (10) days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the Board of
Directors.
Section 6. Written notice of a special meeting stating the place, date
and hour of the meeting and the purpose or purposes for which the meeting is
called, shall be given not fewer than
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ten (10) nor more than sixty (60) days before the date of the meeting, to each
stockholder entitled to vote as such meeting.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of fifty percent (50%) of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have the power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. All questions (other than the election of directors) shall,
unless otherwise provided by the certificate of incorporation, these By-laws,
the rules or regulations of any stock exchange applicable to the corporation, or
applicable law or pursuant to any regulation applicable to the corporation or
its securities, be decided by the affirmative vote of the holders of a majority
in voting power of the shares of stock of the corporation which are present in
person or by proxy and entitled to vote thereon.
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Section 10. Unless otherwise provided in the certificate of
incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
Section 11. A. Annual Meetings of Stockholders
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1. Nominations of persons for election to the Board of
Directors and the proposal of business to be considered by the stockholders may
be made at an annual meeting of stockholders only (a) pursuant to the
corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the corporation who was a stockholder of
record at the time of giving of notice provided for in this Section 11, who is
entitled to vote at the meeting and who complies with the notice procedures set
forth in this Section 11.
2. For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of paragraph
(A)(1) of this Section 11, the stockholder must have given timely notice thereof
in writing to the Secretary of the corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the corporation not later than the close of business on the
ninetieth (90th) day nor earlier than the close of business on the one hundred
twentieth (120th) day prior to the first anniversary of the preceding year's
annual meeting; provided, however, that if the date of the annual meeting is
more than thirty (30) days before or more than sixty (60) days after such
anniversary date, notice by the stockholder to be timely must be so delivered
not earlier than the close of business on the one hundred twentieth (120th) day
prior to such annual meeting and not later than the close of business
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on the later of the ninetieth (90th) day prior to such annual meeting or the
close of business on the tenth (10th) day following the day on which public
announcement of the date of such meeting is first made by the corporation. In no
event shall the public announcement of an adjournment or postponement of an
annual meeting commence a new time period (or extend any time period) for the
giving of a stockholder's notice as described above. Such stockholder's notice
shall set forth (a) as to each person whom the stockholder proposes to nominate
for election or reelection as a director, all information relating to such
person that is required to be disclosed in solicitations of proxies for election
of directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director it elected); (b) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the text of the proposal or business (including the
text of any resolutions proposed for consideration and in the event that such
business includes a proposal to amend the By-laws of the corporation, the
language of the proposed amendment), the reasons for conducting such business at
the meeting and any material interest in such business of such stockholder and
the beneficial owner, if any, on whose behalf the proposal is made; and (c) as
to the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the corporation's books, and of such beneficial
owner, (ii) the class and number of shares of capital stock of the corporation
that are owned beneficially and held of record by such stockholder and such
beneficial owner, (iii) a representation that the stockholder is a holder of
record of stock of the corporation entitled to vote at such meeting and intends
to appear in person
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or by proxy at the meeting to propose such business or nomination, and (iv) a
representation as to whether the stockholder or the beneficial owner, if any,
intends or is part of a group which intends (a) to deliver a proxy statement
and/or form of proxy to holders of at least the percentage of the corporation's
outstanding capital stock required to approve or adopt the proposal or elect the
nominee and/or (b) otherwise to solicit proxies from stockholders in support of
such proposal or nomination. The corporation may require any proposed nominee to
furnish such other information as it may reasonably require to determine the
eligibility of such proposed nominee to serve as a director of the corporation.
3. Notwithstanding anything in the second sentence of
paragraph (A)(2) of this Section 11 to the contrary, in the event that the
number of directors to be elected to the Board of Directors of the corporation
at an annual meeting is increased and there is no public announcement by the
corporation naming the nominees for additional directorships at least
seventy(70) days prior to the first anniversary of the preceding year's annual
meeting (or, if the annual meeting is held more than thirty (30) days before or
sixty (60) days after such anniversary date, at least seventy (70) days prior to
such annual meeting), a stockholder's notice required by this Section 11 shall
also be considered timely, but only with respect to nominees for the additional
directorships, if it shall be delivered to the Secretary at the principal
executive office of the corporation not later than the close of business on the
tenth (10th) day following the day on which such public announcement is first
made by the corporation.
B. Special Meetings of Stockholders. Only such
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business shall be conducted at a special meeting of stockholders as shall have
been brought before the meeting pursuant to the corporation's notice of meeting.
Nominations of persons for election to the Board of Directors may be made at a
special meeting of stockholders at which directors are to be
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elected pursuant to the corporation's notice of meeting (a) by or at the
direction of the Board of Directors or (b) provided that the Board of Directors
has determined that directors shall be elected at such meeting, by any
stockholder of the corporation who is a stockholder of record at the time of
giving of notice provided for in this Section 11(B), who shall be entitled to
vote at the meeting and who complies with the notice procedures set forth in
this Section 11. If the corporation calls a special meeting of stockholders for
the purpose of electing one or more directors to the Board of Directors, any
such stockholder entitled to vote in such election of directors may nominate a
person or persons (as the case may be) for election to such position(s) as
specified in the corporation's notice of meeting, if the stockholder's notice
required by paragraph (A)(2) of this Section 11 shall be delivered to the
Secretary at the principal executive offices of the corporation not earlier than
the one hundred twentieth (120th) day prior to such special meeting and not
later than the later of (x) the close of business on the ninetieth (90th) day
prior to such special meeting or (y) the close of business on the tenth (10th)
day following the day on which public announcement is first made of the date of
such special meeting and of the nominees proposed by the Board of Directors to
be elected at such meeting. In no event shall the public announcement of an
adjournment or postponement of a special meeting commence a new time period (or
extend any time period) for the giving of a stockholder's notice as described
above.
C. General.
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1. Only such persons who are nominated in accordance with the
procedures set forth in this Section 11 shall be eligible to be elected at an
annual or special meeting of stockholders of the Corporation to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the
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procedures set forth in this Section 11. Except as otherwise provided by law,
the certificate of incorporation or these By-Laws, the chairperson of the
meeting shall have the power and duty (a) to determine whether a nomination or
any business proposed to be brought before the meeting was made or proposed, as
the case may be, in accordance with the procedures set forth in this Section 11
(including whether the stockholder or beneficial owner, if any, on whose behalf
the nomination or proposal is made solicited (or is part of a group which
solicited) or did not so solicit, as the case may be, proxies in support of such
stockholder's nominee or proposal in compliance with such stockholder's
representation as required by clause (A)(2)(c)(iv) of this Section 11) and (b)
if any proposed nomination or business is not in compliance herewith, to declare
that such nomination shall be disregarded or that such proposed business shall
not be transacted.
2. For purposes of this Section 11, "public announcement"
shall include disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable national news service or in a document
publicly filed by the corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 and 15(d) of the Exchange Act.
3. Notwithstanding the foregoing provisions of this Section
11, a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth herein. Nothing in this Section 11 shall be deemed to affect
any rights (i) of stockholders to request inclusion of proposals in the
corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(ii) of the holders of any series of Preferred Stock to elect directors pursuant
to any applicable provisions of the certificate of incorporation.
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Notwithstanding any other provision of law, the certificate of
incorporation or these By-Laws, and notwithstanding the fact that a lesser
percentage may be specified by law, the affirmative vote of the holders of at
least two thirds of the votes which all the stockholders would be entitled to
cast at any annual election of directors or class of directors shall be required
to amend or repeal, or to adopt any provision inconsistent with, this Section
11.
Section 12. The date and time of the opening and the closing of the
polls for each matter upon which the stockholders will vote at a meeting shall
be announced at the meeting by the person presiding over the meeting. The Board
of Directors may adopt by resolution such rules and regulations for the conduct
of the meeting of stockholders as it shall deem appropriate. Except to the
extent inconsistent with such rules and regulations as adopted by the Board of
Directors, the chairperson of any meeting of stockholders shall have the right
and authority to convene and to adjourn the meeting, to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of such
chairperson, are appropriate for the proper conduct of the meeting. Such rules,
regulations or procedures, whether adopted by the Board of Directors or
prescribed by the chairperson of the meeting, may include, without limitation,
the following: (i) the establishment of an agenda or order of business for the
meeting; (ii) rules and procedures for maintaining order at the meeting and the
safety of those present; (iii) limitations on attendance at or participation in
the meeting to stockholders of record of the corporation, their duly authorized
and constituted proxies or such other persons as the chairperson of the meeting
shall determine; (iv) restrictions on entry to the meeting after the time fixed
for the commencement thereof; and (v) limitations on the time allotted to
questions or comments by participants. Unless and to the extent determined by
the Board of Directors or the chairperson of the meeting, meetings of
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stockholders shall not be required to be held in accordance with the rules of
parliamentary procedure.
ARTICLE III
DIRECTORS
Section 1. The business of the corporation shall be managed by or under
the direction of its board of directors which may exercise all such powers of
the corporation and do all such lawful acts and things as are not by statute or
by the certificate of incorporation or by these By-laws directed or required to
be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 2. The Board of Directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 3. The first meeting of each newly elected Board of Directors
shall be held immediately after the annual meeting of stockholders and no notice
of such meeting shall be necessary to the newly elected directors in order
legally to constitute the meeting, provided a quorum shall be present. In the
event such meeting is not held at such time and place, the meeting may be held
at such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the Board of Directors, or as shall be
specified in a written waiver signed by all of the directors.
Section 4. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
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Section 5. Special meetings of the board may be called by the president
on three (3) days' notice to each director by mail or two (2) days' notice to
each director either personally or by telegram, facsimile or other lawful means
of communication (including electronic mail); special meetings shall be called
by the president or secretary in like manner and on like notice on the written
request of two directors unless the board consists of only one director, in
which case special meetings shall be called by the president or secretary in
like manner and on like notice on the written request of the sole director.
Section 6. At all meetings of the board a majority of the directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 7. Unless otherwise restricted by the certificate of
incorporation or these By-laws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 8. Unless otherwise restricted by the certificate of
incorporation or these By-laws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the
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meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 9. The Board of Directors may designate one or more committees,
each committee to consist of one or more of the directors of the corporation.
The board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee.
In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or she or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member.
Except as otherwise required by law, any such committee, to the extent
provided in the resolution of the Board of Directors, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers which may require it. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board of Directors.
Section 10. Each committee shall keep regular minutes of its meetings
and report the same to the Board of Directors when required.
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COMPENSATION OF DIRECTORS
Section 11. Unless otherwise restricted by the certificate of
incorporation or these By-laws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these By-laws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to stockholders and directors may also be given by all other lawful
means.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
By-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
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ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the Board
of Directors and shall be a president, treasurer and a secretary. The Board of
Directors may elect from among its members a Chairman of the Board and a Vice
Chairman of the Board. The Board of Directors may also choose one or more
vice-presidents, assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the certificate of incorporation
or these By-laws otherwise provide.
Section 2. The Board of Directors at its first meeting after each
annual meeting of stockholders shall choose a chief executive officer, a
president, a chief financial officer, a treasurer and a secretary and may choose
vice presidents.
Section 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by the
Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board, if any, shall preside at all
meetings of the Board of Directors and of the stockholders at which he or she
shall be present. He or she shall
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have and may exercise such powers as are, from time to time, assigned to him by
the Board and as may be provided by law.
Section 7. In the absence of the Chairman of the Board, the Vice
Chairman of the Board, if any, shall preside at all meetings of the Board of
Directors and of the stockholders at which he or she shall be present. He or she
shall have and may exercise such powers as are, from time to time, assigned to
him by the Board and as may be provided by law.
THE PRESIDENT AND VICE-PRESIDENTS
Section 8. The president shall be the chief operating officer or chief
executive officer of the corporation; and in the absence of the Chairman and
Vice Chairman of the Board he or she shall preside at all meetings of the
stockholders and the Board of Directors; he or she shall have general and active
management of the business of the corporation and shall see that all orders and
resolutions of the Board of Directors are carried into effect.
Section 9. He or she shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the corporation.
Section 10. In the absence of the president or in the event of his
inability or refusal to act, the vice-president, if any, (or in the event there
be more than one vice-president, the vice-presidents in the order designated by
the directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. The vice-presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
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THE SECRETARY AND ASSISTANT SECRETARY
Section 11. The secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He or she shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or president, under whose supervision he or she shall be. He or she shall have
custody of the corporate seal of the corporation and he or she, or an assistant
secretary, shall have authority to affix the same to any instrument requiring it
and when so affixed, it may be attested by his signature or by the signature of
such assistant secretary. The Board of Directors may give general authority to
any other officer to affix the seal of the corporation and to attest the
affixing by his signature.
Section 12. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the Board of Directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the board of directors may from
time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 13. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors.
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Section 14. He or she shall disburse the funds of the corporation as
may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors, at
its regular meetings or when the Board of Directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 15. If required by the Board of Directors, he or she shall give
the corporation a bond (which shall be renewed every six years) in such sum and
with such surety or sureties as shall be satisfactory to the Board of Directors
for the faithful performance of the duties of his office and for the restoration
to the corporation, in case of his death, resignation, retirement or removal
from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
corporation.
Section 16. The assistant treasurer, or if there shall be more than
one, the assistant treasurers in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the treasurer and
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled
to have a certificate, signed by, or in the name of the corporation by, the
chairperson or vice-chairperson of the Board of Directors, or the president or a
vice-president and the treasurer or an assistant
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treasurer, or the secretary or an assistant secretary of the corporation,
certifying the number of shares owned by him in the corporation.
Certificates may be issued for partly paid shares and in such case upon
the face or back of the certificate issued to represent any such partly paid
shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions or such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of the State of
Delaware, in lieu of the foregoing requirements, there may be set forth on the
face or back of the certificate which the corporation shall issue to represent
such class or series of stock, a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
Section 2. Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he or she
were such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
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Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting, nor more
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than sixty (60) days prior to any other action. A determination of stockholders
of record entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation, subject
to the provisions of the certificate of incorporation, if any, may be declared
by the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such
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other purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
FISCAL YEAR
Section 3. The fiscal year of the corporation shall end of December 31
of each calendar year.
SEAL
Section 4. The Board of Directors may adopt a corporate seal having
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware." The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
AMENDMENTS
These By-laws may be altered, amended or repealed or new By-laws may be
adopted by the stockholders or by the Board of Directors, when such power is
conferred upon the Board of Directors by the certificate of incorporation, at
any regular meeting of the stockholders or of the Board of Directors or at any
special meeting of the stockholders or of the Board of Directors if notice of
such alteration, amendment, repeal or adoption of new By-laws be contained in
the notice of such special meeting. If the power to adopt, amend or repeal
By-laws is conferred upon the Board of Directors by the certificate of
incorporation it shall not divest or limit the power of the stockholders to
adopt, amend or repeal By-laws.
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Exhibit 10.5
ITXC CORP.
EMPLOYEE STOCK PURCHASE PLAN
(As amended and restated effective September 24, 1999)
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the
interests of ITXC Corp. by providing eligible employees with the opportunity to
acquire a proprietary interest in the Corporation through participation in a
payroll-deduction based employee stock purchase plan designed to qualify under
Section 423 of the Code. Capitalized terms herein shall have the meanings
assigned to such terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret
and construe any provisions of the Plan and to adopt such rules and regulations
for administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares of Common
Stock purchased on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall not exceed 500,000 shares,
plus an annual increase to be added on January 1 each year beginning in the year
2000 equal to the least of (i) 600,000 shares, (ii) 1% of the outstanding shares
(on a non-diluted basis) on such date or (iii) an amount specified by the Board
of Directors.
B. Should any change be made to the Common Stock by reason of
any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and class of securities
issuable under the Plan, (ii) the maximum number and class of securities
purchasable per Participant on any one Purchase Date and (iii) the number and
class of securities and the price per share in effect under each outstanding
purchase right in order to prevent the dilution or enlargement of benefits
thereunder.
<PAGE>
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under
the Plan through a series of successive offering periods until such time as (i)
the maximum number of shares of Common Stock available for issuance under the
Plan shall have been purchased or (ii) the Plan shall have been sooner
terminated.
B. Each offering period shall be of such duration (not to
exceed twenty-four (24) months) as determined by the Plan Administrator prior to
the start date. However, the initial offering period shall commence at the
Effective Time and terminate on the last business day in July 2001. The next
offering period shall commence on the first business day in August 2001, and
subsequent offering periods shall commence as designated by the Plan
Administrator.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the start
date of the initial offering period shall be eligible to enter that offering
period or any subsequent offering period under the Plan on the start date of any
Purchase Period within the applicable offering period on which he or she remains
an Eligible Employee.
B. Each individual who first becomes an Eligible Employee
after the start date of the initial offering period shall be eligible to enter
that offering period or any subsequent offering period under the Plan on the
start date of any Purchase Period within the applicable offering period on which
he or she is an Eligible Employee with at least three (3) months of service with
the Corporation or any Corporate Affiliate.
C. The date an individual enters an offering period shall be
designated his or her Entry Date for purposes of that offering period.
D. To participate in the Plan for a particular offering
period, the Eligible Employee must complete the enrollment forms prescribed by
the Plan Administrator (including a payroll deduction authorization form) and
file such forms with the Plan Administrator (or its designate) on or before his
or her scheduled Entry Date; provided, however, that to participate in the Plan
with respect to the first Purchase Period, an individual who is an Eligible
Employee on the first day of such Purchase Period must file such forms with the
Plan Administrator on or before such date as the Plan Administrator shall
prescribe. The Entry Date of an Eligible Employee who files such forms on or
before the date prescribed by the Plan Administrator shall be the first day of
such first Purchase Period.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for
purposes of acquiring shares of Common Stock under the Plan may be any multiple
of one percent (1%) of the Cash Compensation paid to the Participant during each
Purchase Period within that offering
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<PAGE>
period, up to a maximum of ten percent (10%). The deduction rate so authorized
shall continue in effect for the remainder of the offering period, except to the
extent such rate is changed in accordance with the following guidelines:
(i) The Participant may, at any time during the
offering period, reduce his or her rate of payroll deduction to become
effective as soon as possible after filing the appropriate form with
the Plan Administrator. The Participant may not, however, effect more
than one (1) such reduction per Purchase Period.
(ii) The Participant may, prior to the commencement
of any new Purchase Period within the offering period, increase the
rate of his or her payroll deduction by filing the appropriate form
with the Plan Administrator. The new rate (which may not exceed the ten
percent (10%) maximum) shall become effective as of the start date of
the Purchase Period following the filing of such form.
B. Payroll deductions shall begin on the first pay day
following the Participant's Entry Date into the offering period and shall
(unless sooner terminated by the Participant) continue through the pay day
ending with or immediately prior to the last day of that offering period. The
amounts so collected shall be credited to the Participant's book account under
the Plan, but no interest shall be paid on the balance from time to time
outstanding in such account. The amounts collected from the Participant shall
not be held in any segregated account or trust fund and may be commingled with
the general assets of the Corporation and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the
termination of the Participant's purchase right in accordance with the
provisions of the Plan.
D. The Participant's acquisition of Common Stock under the
Plan on any Purchase Date shall neither limit nor require the Participant's
acquisition of Common Stock on any subsequent Purchase Date, whether within the
same or a different offering period.
VII. PURCHASE RIGHTS
A. Grant of Purchase Right. A Participant shall be granted a
-----------------------
separate purchase right for each offering period in which he or she
participates. The purchase right shall be granted on the Participant's Entry
Date into the offering period and shall provide the Participant with the right
to purchase shares of Common Stock, in a series of successive installments over
the remainder of such offering period, upon the terms set forth below. The
Participant shall execute a stock purchase agreement embodying such terms and
such other provisions (not inconsistent with the Plan) as the Plan Administrator
may deem advisable.
Under no circumstances shall purchase rights be granted under
the Plan to any Eligible Employee if such individual would, immediately after
the grant, own (within the meaning of Code Section 424(d)) or hold outstanding
options or other rights to purchase, stock possessing
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<PAGE>
five percent (5%) or more of the total combined voting power or value of all
classes of stock of the Corporation or any Corporate Affiliate.
B. Exercise of the Purchase Right. Each purchase right shall
------------------------------
be automatically exercised in installments on each successive Purchase Date
within the offering period, and shares of Common Stock shall accordingly be
purchased on behalf of each Participant (other than any Participant whose
payroll deductions have previously been refunded in accordance with the
Termination of Purchase Right provisions below) on each such Purchase Date. The
purchase shall be effected by applying the Participant's payroll deductions for
the Purchase Period ending on such Purchase Date to the purchase of whole shares
of Common Stock at the purchase price in effect for the Participant for that
Purchase Date.
C. Purchase Price. The purchase price per share at which
--------------
Common Stock will be purchased on the Participant's behalf on each Purchase Date
within the offering period shall be equal to eighty-five percent (85%) of the
lower of (i) the Fair Market Value per share of Common Stock on the
Participant's Entry Date into that offering period or (ii) the Fair Market Value
per share of Common Stock on that Purchase Date. However, for each Participant
whose Entry Date is other than the start date of the offering period, the clause
(i) amount shall in no event be less than the Fair Market Value per share of
Common Stock on the start date of that offering period.
D. Number of Purchasable Shares. The number of shares of
----------------------------
Common Stock purchasable by a Participant on each Purchase Date during the
offering period shall be the number of whole shares obtained by dividing the
amount collected from the Participant through payroll deductions during the
Purchase Period ending with that Purchase Date by the purchase price in effect
for the Participant for that Purchase Date. However, the maximum number of
shares of Common Stock purchasable per Participant on any one Purchase Date
shall not exceed 3,000 shares, subject to periodic adjustments in the event of
certain changes in the Corporation's capitalization.
E. Excess Payroll Deductions. Any payroll deductions not
-------------------------
applied to the purchase of shares of Common Stock on any Purchase Date because
they are not sufficient to purchase a whole share of Common Stock shall be held
for the purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable by the Participant on the
Purchase Date shall be promptly refunded without interest.
F. Termination of Purchase Right. The following provisions
-----------------------------
shall govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior
to the next Purchase Date in the offering period, terminate his or her
outstanding purchase right by filing the appropriate form with the Plan
Administrator (or its designate), and, effective as soon as
administratively practicable thereafter, no further payroll deductions
shall be collected from the Participant with respect to the terminated
purchase right. Any payroll deductions
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<PAGE>
collected during the Purchase Period in which such termination occurs shall, at
the Participant's election, be immediately refunded without interest or held for
the purchase of shares on the next Purchase Date applicable to such Participant.
If no such election is made at the time such purchase right is terminated, then
the payroll deductions collected with respect to the terminated right shall be
refunded as soon as possible without interest.
(ii) The termination of such purchase right shall be irrevocable,
and the Participant may not subsequently rejoin the offering period for which
the terminated purchase right was granted. In order to resume participation in
any subsequent offering period, such individual must re-enroll in the Plan (by
making a timely filing of the prescribed enrollment forms) on or before his or
her scheduled Entry Date into that offering period.
(iii) Should the Participant cease to remain an Eligible Employee
for any reason (other than death or disability) while his or her purchase right
remains outstanding, then that purchase right shall immediately terminate, and
all of the Participant's payroll deductions for the Purchase Period in which the
purchase right so terminates shall be immediately refunded without interest.
Should the Participant cease to remain an eligible employee by reason of death
or disability while his or her purchase right remains outstanding, then that
purchase right shall immediately terminate, and all of the Participant's payroll
deductions for the Purchase Period in which such death or disability occurs
shall, at the election of the Participant (or, in the event of the Participant's
death, the personal representative of the Participant's estate), be immediately
refunded without interest or held for the purchase of shares on the next
Purchase Date. If no such election is made prior to the next Purchase Date, then
the payroll deductions collected with respect to the terminated right shall be
refunded as soon as possible without interest.
(iv) Should the Participant cease to remain in active service by
reason of an approved unpaid leave of absence, then no further payroll
deductions shall be collectable on the Participant's behalf during such leave,
and the Participant shall have the election, exercisable up until the last
business day of the Purchase Period in which such leave commences, to (a)
withdraw without interest all the payroll deductions collected on the
Participant's behalf to date in that Purchase Period or (b) have such funds held
for the purchase of shares at the end of such Purchase Period. Upon the
Participant's return to active service following the approved leave, his or her
payroll deductions under the Plan shall automatically resume at the rate in
effect at the time the leave began, provided such return to service occurs prior
to the expiration date of the offering period in which such leave began.
G. Corporate Transaction. Each outstanding purchase right
---------------------
shall automatically be exercised, immediately prior to the effective date of any
Corporate Transaction, by applying the payroll deductions of each Participant
for the Purchase Period in which such Corporate Transaction occurs to the
purchase of whole shares of Common Stock at a purchase price per share equal to
eighty-five percent (85%) of the lower of (i) the Fair Market Value per share of
Common Stock on the Participant's Entry Date in the offering period in which
such
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<PAGE>
Corporate Transaction occurs or (ii) the Fair Market Value per share of Common
Stock immediately prior to the effective date of such Corporate Transaction.
However, the applicable share limitations per Participant shall continue to
apply to any such purchase, and the clause (i) amount above shall not, for any
Participant whose Entry Date for the offering period is other than the start
date of that offering period, be less than the Fair Market Value per share of
Common Stock on such start date.
The Corporation shall use its best efforts to provide at least
ten (10) days prior written notice of the occurrence of any Corporate
Transaction, and Participants shall, following the receipt of such notice, have
the right to terminate their outstanding purchase rights prior to the effective
date of the Corporation Transaction.
H. Proration of Purchase Rights. Should the total number of
----------------------------
shares of Common Stock to be purchased pursuant to outstanding purchase rights
on any particular date exceed the number of shares then available for issuance
under the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and non-discriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded without interest.
I. Issuance of Stock Certificates. Certificates representing
------------------------------
the shares of Common Stock purchased by a Participant under the Plan shall be
issued to him or her as soon as reasonably practicable after the close of the
applicable Purchase Period, except that the Plan Administrator may permit such
shares to be held for the Participant's benefit by a broker approved by the Plan
Administrator. Shares issued under the Plan may be registered in the name of the
Participant or jointly in the name of the Participant and his or her spouse as
joint tenants with right of survivorship or as community property, as designated
by the Participant in such manner as the Plan Administrator may require.
J. Assignability. During the Participant's lifetime, the
-------------
purchase right shall be exercisable only by the Participant and shall not be
assignable or transferable by the Participant other than by will or the laws of
descent and distribution following the Participant's death.
K. Stockholder Rights. A Participant shall have no stockholder
------------------
rights with respect to the shares subject to his or her outstanding purchase
right until the shares are purchased on the Participant's behalf in accordance
with the provisions of the Plan and the Participant has become a holder of
record of the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to
acquire Common Stock pursuant to any purchase right outstanding under this Plan
if and to the extent such accrual, when aggregated with (i) rights to purchase
Common Stock accrued under any other purchase right granted under this Plan and
(ii) similar rights accrued under other employee stock purchase plans (within
the meaning of Code Section 423) of the Corporation or any Corporate Affiliate,
would
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<PAGE>
otherwise permit such Participant to purchase more than Twenty-Five Thousand
Dollars ($25,000) worth of stock of the Corporation or any Corporate Affiliate
(determined on the basis of the Fair Market Value of such stock on the date or
dates such rights are granted) for each calendar year such rights are at any
time outstanding.
B. For purposes of applying such accrual limitations, the
following provisions shall be in effect:
(i) The right to acquire Common Stock under each
outstanding purchase right shall occur in a series of installments on
each successive Purchase Date during the offering period on which such
right remains outstanding.
(ii) No right to acquire Common Stock under any
outstanding purchase right shall accrue to the extent the Participant
has already accrued in the same calendar year the right to acquire
Common Stock under one (1) or more other purchase rights at a rate
equal to Twenty-Five Thousand Dollars ($25,000) worth of Common Stock
(determined on the basis of the Fair Market Value of such stock on the
date or dates of grant) for each calendar year such rights were at any
time outstanding.
C. Should any purchase right of a Participant not accrue for a
particular Purchase Period by reason of such accrual limitations, then the
payroll deductions which the Participant made during that Purchase Period with
respect to such purchase right shall be promptly refunded without interest.
D. In the event there is any conflict between the provisions
of this Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was initially adopted by the Board on July 12,
1999 and shall become effective at the Effective Time, provided no purchase
rights granted under the Plan shall be exercised, and no shares of Common Stock
shall be issued hereunder, until (i) the Plan shall have been approved by the
stockholders of the Corporation and (ii) the Corporations shall have complied
with all applicable requirements of the 1933 Act (including the registration of
the shares of Common Stock issuable under the Plan on a Form S-8 registration
statement filed with the Securities and Exchange Commission), all applicable
listing requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock is listed for trading and all other
applicable requirements established by law or regulation. In the event such
stockholder approval is not obtained, or such compliance is not effected, within
twelve (12) months after the date on which the Plan is adopted by the Board, the
Plan shall terminate and have no further force or effect and all sums collected
from Participants during the initial offering period hereunder shall be refunded
without interest.
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<PAGE>
B. Unless sooner terminated by the Board, the Plan shall
terminate upon the earliest of (i) the last business day in August 2009, (ii)
the date on which all shares available for issuance under the Plan shall have
been sold pursuant to purchase rights exercised under the Plan or (iii) the date
on which all purchase rights are exercised in connection with a Corporate
Transaction. No further purchase rights shall be granted or exercised, and no
further payroll deductions shall be collected, under the Plan following its
termination.
X. AMENDMENT OF THE PLAN
The Board may alter, amend, suspend or discontinue the Plan at
any time to become effective immediately following the close of any Purchase
Period. However, the Board may not, without the approval of the Corporation's
stockholders, increase the aggregate number of shares of Common Stock issuable
under the Plan, except for permissible adjustments in the event of certain
changes in the Corporation's capitalization. In addition, any other amendment of
the Plan shall be subject to the approval of the Company's stockholders to the
extent required by applicable law.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of
the Plan shall be paid by the Corporation.
B. Nothing in the Plan shall confer upon the Participant any
right to continue in the employ of the Corporation or any Corporate Affiliate
for any period of specific duration or interfere with or otherwise restrict in
any way the rights of the Corporation (or any Corporate Affiliate employing such
person) or of the Participant, which rights are hereby expressly reserved by
each, to terminate such person's employment at any time for any reason, with or
without cause.
C. The provisions of the Plan shall be governed by the laws of
the State of New Jersey without resort to that State's conflict-of-laws rules.
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<PAGE>
Schedule A
----------
Corporations Participating in
Employee Stock Purchase Plan
As of the Effective Time
------------------------
ITXC Corp.
ITXC Asia PTE Ltd.
-9-
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. Board shall mean the Corporation's Board of Directors.
-----
B. Cash Compensation shall mean the (i) regular base salary
-----------------
paid to a Participant by one or more Participating Companies during such
individual's period of participation in the Plan, plus (ii) any pre-tax
contributions made by the Participant to any Code Section 401(k) salary deferral
plan or any Code Section 125 cafeteria benefit program now or hereafter
established by the Corporation or any Corporate Affiliate, plus (iii) all of the
following amounts to the extent paid in cash: overtime payments, bonuses,
commissions, profit-sharing distributions and other incentive-type payments.
However, Cash Compensation shall not include any contributions (other than Code
Section 401(k) or Code Section 125 contributions) made on the Participant's
behalf by the Corporation or any Corporate Affiliate to any deferred
compensation plan or welfare benefit program now or hereafter established.
C. Code shall mean the Internal Revenue Code of 1986, as
----
amended.
D. Common Stock shall mean the Corporation's common stock.
------------
E. Corporate Affiliate shall mean any parent or subsidiary
-------------------
corporation of the Corporation (as determined in accordance with Code Section
424), whether now existing or subsequently established.
F. Corporate Transaction shall mean either of the following
---------------------
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all
or substantially all of the assets of the Corporation in complete
liquidation or dissolution of the Corporation.
G. Corporation shall mean ITXC Corp., a Delaware corporation,
-----------
and any corporate successor to all or substantially all of the assets or voting
stock of ITXC Corp. which shall by appropriate action adopt the Plan.
H. Effective Time shall mean the time at which the
--------------
Underwriting Agreement is executed and finally priced. Any Corporate Affiliate
which becomes a Participating Corporation after such Effective Time shall
designate a subsequent Effective Time with respect to its employee-Participants.
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<PAGE>
I. Eligible Employee shall mean any person who is engaged, on
-----------------
a regularly-scheduled basis of more than twenty (20) hours per week for more
than five (5) months per calendar year, in the rendition of personal services to
any Participating Corporation as an employee for earnings considered wages under
Code Section 3401(a).
J. Entry Date shall mean the date an Eligible Employee first
----------
commences participation in the offering period in effect under the Plan. The
earliest Entry Date under the Plan shall be the Effective Time.
K. Fair Market Value per share of Common Stock on any relevant
-----------------
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as
such price is reported by the National Association of Securities
Dealers on the Nasdaq National Market or any successor system. If there
is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price
on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the primary market
for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(iii) For purposes of the initial offering period
which begins at the Effective Time, the Fair Market Value shall be
deemed to be equal to the price per share at which the Common Stock is
sold in the initial public offering pursuant to the Underwriting
Agreement.
L. 1933 Act shall mean the Securities Act of 1933, as amended.
--------
M. Participant shall mean any Eligible Employee of a
-----------
Participating Corporation who is actively participating in the Plan.
N. Participating Corporation shall mean the Corporation and
-------------------------
such Corporate Affiliate or Affiliates as may be authorized from time to time by
the Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan as of the Effective Time are listed in
Schedule A attached to the Plan.
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<PAGE>
O. Plan shall mean the Corporation's Employee Stock Purchase
----
Plan, as set forth in this document.
P. Plan Administrator shall mean the committee of two (2) or
------------------
more Board members appointed by the Board to administer the Plan.
Q. Purchase Date shall mean the last business day of each
-------------
Purchase Period. The initial Purchase Date shall be March 31, 2000.
R. Purchase Period shall mean each successive six (6) month
---------------
period within the offering period at the end of which there shall be purchased
shares of Common Stock on behalf of each Participant; provided, however, that
the first Purchase Period shall commence at the Effective Time and end on March
31, 2000 and the second Purchase Period shall commence on April 3, 2000 and end
on July 31, 2000.
S. Stock Exchange shall mean either the American Stock
--------------
Exchange or the New York Stock Exchange.
T. Underwriting Agreement shall mean the agreement between the
----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
-12-
<PAGE>
Exhibit 99.1
RISK FACTORS
Certain statements in this Quarterly Report on Form 10-Q and certain
statements made by the Company in other published documents (including, without
limitation, press releases) are forward-looking in nature and, as such,
constitute "forward-looking statements" under the Private Securities Litigation
Reform Act of 1995. These forward-looking statements include, but are not
limited to, statements about the Company's plans, objectives, expectations and
intentions and other statements contained in this Quarterly Report on Form 10-Q
or elsewhere that are not historical facts. When used in this Quarterly Report
on Form 10-Q or elsewhere, the words "expects," "anticipates," "intends,"
"plans," "believes," "seeks" and "estimates" and similar expressions are
generally intended to identify forward-looking statements. Because these
forward-looking statements involve risks and uncertainties, there are important
factors that could cause actual results to differ materially from those
expressed or implied by these forward-looking statements. These factors consist
primarily of the risks identified below.
As a company with a limited operating history in a new and rapidly changing
industry, it is difficult to predict our future growth and operating results.
Our limited operating history makes predicting our future growth and operating
results difficult. We were incorporated in Delaware in 1997 and began our first
commercial service in April 1998. Our management team and other employees have
worked at ITXC for only a short period of time. Potential purchasers of our
stock should consider the risks and uncertainties that an early stage company
like ours will face in the new and rapidly evolving market for Internet-voice
services. We have not proven that we can:
. increase awareness of our brand and continue to build user loyalty;
. maintain our current, and develop new, relationships with our affiliates
(the unrelated third parties that complete voice and fax calls over our
network) , as well as with our customers;
. respond effectively to competitive pressures; and
. continue to develop and upgrade our network and technology.
If we cannot accomplish these goals, our business may not succeed.
We have not been profitable and expect future losses.
To date, we have not been profitable. We may never be profitable or, if we
become profitable, we may be unable to sustain profitability. We have incurred
significant losses since inception. We reported net losses of $0.6 million for
the inception period from July 21, 1997 through December
<PAGE>
31, 1997, $7.2 million for the year ended December 31, 1998 and $13.6 million
for the nine months ended September 30, 1999. We expect to continue to incur
significant losses for the foreseeable future. As of September 30, 1999, our
accumulated deficit was $21.5 million. Our revenue may not grow or may not even
continue at the current level.
The growth of ITXC.net depends upon the growth of the Internet, which may not
continue.
The growth of ITXC.net depends on continued growth in the use of the Internet
generally and on the growth in the use of the Internet through telephones and
other devices, rather than personal computers. Growth of the Internet may be
inhibited by a number of factors, such as:
. quality of infrastructure;
. security concerns;
. technological failures, such as viruses;
. inconsistent quality of service; and
. lack of availability of cost-effective, high-speed service.
Even if Internet usage grows, the Internet infrastructure may not be able to
support the demands placed on it by this growth or its performance or
reliability may decline.
We are growing rapidly and effectively managing our growth may be difficult.
Our business has grown rapidly in terms of customers, employees and the size of
ITXC.net since our inception. This growth has placed a significant strain on our
resources and systems which has resulted in fluctuations in our network
expenses. Our business model depends on continued rapid growth which will put a
further strain on our resources, systems and management. If we are not able to
effectively manage our growth by implementing systems, expanding ITXC.net and
hiring, training and managing employees, our ability to offer our services will
be materially harmed.
Our business may be harmed because we rely on a third-party communications
infrastructure over which we have no control.
Our service could be disrupted, our reputation could be hurt and we could lose
customers, if the quality and maintenance of the third-party communications
infrastructure on which we rely suffers. This infrastructure, including the
Internet, is used to carry our voice traffic between our customers and
affiliates. We have no control over whether the infrastructure on which we rely
will be adequately maintained by these third parties or whether these third
parties are able to upgrade
-2-
<PAGE>
or improve their equipment and prevent it from becoming obsolete. If these third
parties fail to maintain, upgrade or improve this equipment, our business may be
materially harmed.
If we cannot maintain relationships with the only vendors of gateway equipment
upon which ITXC.net depends, our network expenses could rise significantly.
ITXC.net is currently configured to use gateway equipment and software which is
primarily manufactured by three vendors, Lucent Technologies, VocalTec
Communications and Cisco Systems. A gateway is a computer server that translates
voice and voice- related signaling back and forth between a traditional
telephone network and a data network. Gateways provided by other vendors are not
currently interoperable with ITXC.net. If we or our affiliates are unable to
maintain satisfactory purchasing terms with Lucent, VocalTec and/or Cisco, we
will have to make significant technological modifications to ITXC.net which
could raise our network expenses significantly and have a material adverse
affect on our business, financial condition, operating results and future
prospects.
Our network may not be able to handle increased traffic and a large number of
simultaneous calls, which could hurt our reputation and result in a loss of
customers.
Our network relies on hardware and software that we or our affiliates have
developed or acquired. We expect that our network traffic and volume of
simultaneous calls will increase significantly. If the hardware and software
used in our network cannot accommodate this additional volume, our reputation
could be damaged and we could lose customers.
Failure to attract and retain affiliates and customers will harm our business.
If we are unable to attract and retain affiliates and customers, the traffic on
ITXC.net may not increase and we may not be able to increase our global reach.
Our ability to attract and retain affiliates and customers will depend on a
number of factors, including:
. our ability to reach agreement with telecommunications companies,
telephony resellers and Internet service providers regarding the terms
and conditions applicable to our business relationship;
. our success in marketing our services to potential new and existing
affiliates and customers;
. pricing by traditional carriers;
. the rate at which we are able to deploy our network and services;
. our ability to locate qualified foreign affiliates and call termination
providers;
-3-
<PAGE>
. consolidation in the telecommunications industry; and
. the quality of the customer and technical support we provide.
Our quarterly operating results may fluctuate and could fall below expectations
of investors and industry analysts, resulting in a decline in our stock price.
Our quarterly operating results have varied widely in the past and could
fluctuate significantly in the future. Therefore, stockholders and potential
stockholders should not rely on quarter-to-quarter comparisons for indications
of future performance. Certain factors may influence our quarterly operating
results, including:
. the amount and timing of capital expenditures and other costs
relating to the expansion of ITXC.net;
. the introduction of new or enhanced services or changes in pricing
policies by us or our competitors; and
. economic conditions specific to the Internet or all or a portion of
the technology sector.
If we cannot successfully address these factors, our operating results may fall
below analyst and investor expectations and the price of our common stock could
decline.
A small number of customers account for a substantial portion of our revenues;
the loss of certain significant customers may significantly reduce our revenue.
During 1998, our 10 largest customers accounted for approximately 87% of our
revenue. The loss of certain significant customers may significantly reduce our
revenue. We do not have exclusive arrangements with our customers. As a result,
our significant customers may decrease or discontinue use of our service. For
information regarding the termination of services to certain significant
customers, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Results of Operations - Comparison of the Three and Nine
Months Ended September 30, 1998 and 1999 - Selling, General and Administrative
Expenses."
The lack of interoperability among hardware produced by different vendors may
limit our ability to grow a worldwide, fully interoperable network.
Unless an interoperability standard is widely adopted and used by manufacturers
of gateways and other hardware, ITXC.net's growth will be limited. Our business
model depends on the growth of ITXC.net. Without a widely adopted
interoperability standard, terminators of voice traffic over the Internet will
continue to be required to only accept voice traffic which was originated on
gateways made by the same manufacturer as their terminating gateway. If the
iNOW!
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<PAGE>
interoperability initiative or another similar initiative is not widely adopted
and implemented, our network may not grow and our business could be adversely
affected.
Our marketing efforts could be adversely affected if we do not lead the
development of new interoperability standards.
If we do not play a leadership role in the development of new interoperability
standards, the perception that we are an industry leader could be jeopardized.
We achieved that perception, in part, by leading the effort to develop the iNOW!
initiative. A standard for the interoperability of Internet voice services and
products other than iNOW! could emerge without our participation. If that
happens, our marketing efforts could be adversely affected.
Intense price competition and the nature of the calls that we place over
ITXC.net may limit our revenues.
Our revenues are not solely tied to the number of minutes of calls that are
placed over ITXC.net. Intense competition could reduce the prices that we charge
for our services. In addition, our revenues are affected by the types of calls
placed over ITXC.net. Calls placed over certain routes or to certain termination
points may generate less revenue than calls of a similar duration made over
different routes or to different termination points.
Intense price competition could reduce the demand for our service.
We may not be able to compete successfully in the developing Internet telephony
market. Many of our competitors are larger than us and have substantially
greater financial resources than we do. The market for our services has been
extremely competitive and is expected to be so for the foreseeable future.
Internet protocol and Internet telephony service providers such as AT&T Global
Clearinghouse, GRIC Communications, and iBasis route traffic to destinations
worldwide and compete directly with us. Other Internet telephony service
providers focus on a retail customer base and may in the future compete with us.
In addition, major telecommunications companies, such as AT&T, Deutsche Telekom,
MCI Worldcom and Qwest Communications, have entered or plan to enter the
Internet telephony market.
If we are unable to keep up with rapid technological change in our industry in a
cost-effective manner, our revenues will decrease.
The market we serve, the market for voice services over the Internet, is
characterized by rapid technological developments, evolving industry standards
and customer demands and frequent new services announcements, such as new
hardware and software entrants and releases. In order for us to remain
competitive and continue positive growth of our business and increase the use of
our network, we must respond to these developments quickly and in a
cost-effective manner. If we
-5-
<PAGE>
fail to respond in this manner, our technology could become obsolete, our
customers will choose other alternatives to transmit their traffic and our
revenues will decrease.
We may need additional capital in the future to expand ITXC.net and it may not
be available on acceptable terms or at all, which could force us to curtail or
cease our operations.
The development of our business depends on our ability to expand the global
reach of ITXC.net. The net proceeds of our initial public offering and our cash
flow from operations could be insufficient to expand ITXC.net to meet future
customer demands. To date, our cash flow from operations has been insufficient
to cover our expenses and capital needs. We may require significant additional
capital in the future which may not be available on terms acceptable to us or at
all. If we cannot raise adequate capital on acceptable terms, we may be forced
to restrict the growth of ITXC.net, we may not be able to attract new affiliates
and we may have to curtail or cease our operations.
Foreign political and economic instability could harm our ability to maintain a
global presence.
A key component of our business plan is our global network of affiliates. Our
ability to maintain and expand our global reach may be harmed by foreign
political and economic instability. Stockholders and potential stockholders
should consider that the following factors may inhibit our ability to maintain
and expand our global presence:
. potentially longer payment cycles outside of the U.S.;
. difficulty in collecting accounts receivable from foreign affiliates;
. weaknesses in particular foreign economies;
. changes in diplomatic and trade relationships;
. foreign taxes; and
. the economic and administrative burdens of complying with a variety of
foreign laws, trade standards, tariffs and trade barriers.
Damage to our systems and network could interrupt our service and result in
reduced revenue and harm to our reputation.
Our operations are dependent on our ability to maintain the components of
ITXC.net and our other computer and telecommunications systems in effective
working order. In addition, our
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<PAGE>
systems may be damaged by natural disasters, equipment failure or intentional
acts of vandalism. If we fail to safeguard our systems and network and
experience frequent or long system delays or interruptions, we may not be able
to provide our service in a consistent and cost-effective manner--which will
result in reduced revenue and harm to our reputation.
Our proprietary rights may be difficult to protect.
Our efforts to protect our intellectual property rights through patent,
copyright, trademark and trade secret laws in the United States and in other
countries may not prevent misappropriation, and our failure to protect our
proprietary rights could materially adversely affect our business, financial
condition, operating results and future prospects.
A third party could, without authorization, copy or otherwise appropriate our
proprietary network information. Our agreements with employees and others who
participate in development activities could be breached, we may not have
adequate remedies for any breach, and our trade secrets may otherwise become
known or independently developed by competitors.
Acquisitions may disrupt our business and divert the attention of our
management.
Our industry is characterized by growth through acquisitions. To compete
effectively, we may need to make investments in complementary companies,
technologies and assets. Acquisitions could disrupt our ongoing business,
distract the attention of our small number of senior managers and make it
difficult to maintain our network and operational standards, controls and
procedures.
We also may not be able to successfully integrate the services, products and
personnel of any acquisition into our operations. We may be required to incur
debt or issue equity securities, which may be dilutive to stockholders, to pay
for acquisitions. Our acquisitions may not result in any return, or a sufficient
return, on our investment and we may lose all or a substantial portion of our
investment.
Our success is dependent on the continued service of our key management and
technical personnel.
Our future success depends, in part, on the continued service of our key
management and technical personnel, including Tom I. Evslin, John G. Musci, and
Edward B. Jordan, three of our senior executive officers. If any of those
individuals were unable or unwilling to continue in their present positions, our
business, financial condition, operating results and future prospects could be
materially adversely affected. We do not carry key person life insurance on our
personnel, other than Mr. Evslin and Mr. Musci, and only Messrs. Evslin and
Musci have employment agreements.
-7-
<PAGE>
We may have difficulty attracting and retaining the skilled employees we need to
execute our growth plan.
From time to time we have experienced, and we expect to continue to experience
in the future, difficulty in hiring and retaining highly skilled employees. Our
future success depends on our ability to attract, retain and motivate highly
skilled employees, particularly engineering and technical personnel. Competition
for employees in our industry is intense. We may not be able to retain our key
employees or attract, assimilate or retain other highly qualified employees in
the future.
Year 2000 compliance efforts and uncorrected errors could interrupt our business
and subject us to claims.
Our year 2000 compliance efforts may involve significant time and expense, and
uncorrected problems could materially and adversely affect our business,
financial condition, results of operations, liquidity and future prospects. We
may face claims based on year 2000 issues arising from the integration of
multiple products, including ours, within an overall system.
In addition, we rely on networks and computer hardware and software, some of
which may not be year 2000 compliant. To the extent our vendors and suppliers
fail to certify that they are year 2000 compliant, we may find it necessary to
terminate our relationships with them. If we terminate these relationships, we
may not be able to find suitable replacement vendors or suppliers on terms
favorable to us, or at all.
We do not currently have a contingency plan to deal with the worst-case scenario
that might occur if technologies we are dependent upon are not year 2000
compliant and fail to operate effectively after the year 2000.
If we are required to purchase the 51% interest of our South American joint
venture that we do not presently own, our stockholders' holdings and the
Company's liquidity could be adversely impacted.
In connection with the formation of our South American joint venture, we entered
into a buyout agreement with the other parties to the joint venture. If we
exercise our right to purchase the interests of these parties under the buyout
agreement, they may elect to receive cash or our common stock. The amount of the
purchase price could be substantial and, if we exercise our rights and these
parties elect to receive cash, the payment of such purchase price could
materially adversely impact our liquidity. If we pay these parties in common
stock, our stockholders may incur substantial dilution. We may not have the
capital necessary to fund a purchase of joint venture interests that we would
otherwise desire to make.
-8-
<PAGE>
Future government regulation and legal uncertainties could affect our ability to
provide our services.
Our business, financial condition, operating results and future prospects could
be materially adversely affected if Congress, the Federal Communications
Commission, state regulatory authorities, foreign governments or other bodies
begin to regulate or, in the case of certain foreign governments, prohibit
Internet telephony.
United States. Although our services are not currently actively regulated by the
FCC, aspects of our operations may be subject to state or federal regulation in
the future. Increased regulation of the Internet may slow its growth, and impact
our cost of providing our service over the Internet. In addition, the FCC may in
the future impose surcharges or other regulations upon us which could materially
adversely affect our business, financial condition, operating results and future
prospects.
International. Increased regulation of the Internet and/or Internet telephony
providers or the prohibition of Internet telephony in one or more foreign
countries could materially adversely affect our business, financial condition,
operating results and future prospects.
Our failure to qualify to do business in a foreign jurisdiction in which we are
required to do so or to comply with foreign laws and regulations could harm our
ability to conduct international operations.
Additionally, it is possible that laws--new or already in existence--may be
applied by the U.S. and/or other countries to transport services provided over
the Internet, including laws governing:
. sales and other taxes;
. user privacy;
. pricing controls;
. characteristics and quality of products and services;
. consumer protection;
. cross-border commerce, including laws that would impose tariffs, duties
and other import restrictions; and
. other claims based on the nature and content of Internet materials,
including claims of defamation, negligence and the failure to meet
necessary obligations.
If such laws are applied to our services, our ability to conduct our business
could be materially adversely affected.
-9-
<PAGE>
The beneficial ownership of a significant amount of our common stock by our
directors and officers could delay or prevent a change in control of ITXC.
The concentrated beneficial ownership of our common stock could delay or prevent
a change in control of ITXC that might otherwise be beneficial to you.
Immediately after our initial public offering, our executive officers and
directors and their respective affiliates beneficially owned more than 50% of
our outstanding common stock. Accordingly, these stockholders will be able to
exert significant influence over matters requiring approval by our stockholders,
including the election of directors and the approval of mergers or other
business combinations.
We have broad discretion in the use of the proceeds of our initial public
offering and may not use them effectively.
We only specified how our management intends to use $41.7 million of the net
proceeds of our initial public offering. We cannot specify with certainty how
our management will use the remaining net proceeds of the initial public
offering. Our management will have broad discretion in the application of such
proceeds and the timing of the expenditure of all of the net proceeds. If our
management fails to apply those proceeds effectively, we may not be successful
in expanding ITXC.net and growing our business and revenues.
Our certificate of incorporation and bylaws and Delaware law will contain
provisions that could discourage a takeover.
Provisions of our certificate of incorporation and by-laws and Delaware law may
discourage, delay or prevent a merger or acquisition that stockholders and
potential stockholders may consider favorable. These provisions of our
certificate of incorporation and by-laws:
. establish a classified board of directors in which only a portion of
the total number of directors will be elected at each annual
meeting;
. authorize the board to issue preferred stock;
. prohibit cumulative voting in the election of directors;
. limit the persons who may call special meetings of stockholders;
. prohibit stockholder action by written consent; and
. establish advance notice requirements for nominations for the
election of the board of directors or for proposing matters that can
be acted on by stockholders at stockholder meetings.
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<PAGE>
The sale of a substantial number of shares of our common stock after the
offerings may adversely affect our stock price.
A substantial amount of our common stock is held by persons who have agreed not
to sell their shares until 180 days after the initial public offering. After
that time, those holders could decide to sell some or all of their shares.
The market price of our common stock could decline as a result of sales of
substantial amounts of common stock in the public market after our initial
public offering or the perception that substantial sales could occur. These
sales also might make it difficult for us to sell equity securities in the
future at a time when, and at a price which, we deem appropriate.
Stockholders will experience dilution when we issue the additional shares of
common stock that we are permitted or required to issue under options, warrants
and our employee stock purchase plan.
Stockholders and potential stockholders should be aware that we are permitted,
and in some cases obligated, to issue shares of common stock in addition to the
common stock outstanding as of the date hereof. If and when we issue these
shares, the percentage of the common stock owned by existing stockholders will
be diluted.
The stock prices of Internet-related companies such as ours are highly volatile
and could drop unexpectedly resulting in costly litigation and harm to our
business.
Many companies in our industry have been the subject of class action litigation
by investors following periods of volatility in the price of their publicly
traded securities. If the market value of our common stock experiences adverse
fluctuations, and we become the subject of this type of litigation, regardless
of the outcome, we will incur substantial legal costs. In addition, this type of
litigation may strain our resources and divert management attention, causing our
business to suffer.
-11-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS OF ITXC CORP> AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 3,987,378
<SECURITIES> 207,434
<RECEIVABLES> 5,396,130
<ALLOWANCES> 1,507,421
<INVENTORY> 0
<CURRENT-ASSETS> 8,715,496
<PP&E> 10,389,178
<DEPRECIATION> 1,703,208
<TOTAL-ASSETS> 18,086,538
<CURRENT-LIABILITIES> 7,914,760
<BONDS> 0
25,571,103
0
<COMMON> 10,400
<OTHER-SE> 2,913,829
<TOTAL-LIABILITY-AND-EQUITY> 18,086,538
<SALES> 14,301,910
<TOTAL-REVENUES> 14,301,910
<CGS> 0
<TOTAL-COSTS> 15,296,677
<OTHER-EXPENSES> 12,813,662
<LOSS-PROVISION> 1,649,459
<INTEREST-EXPENSE> 131,882
<INCOME-PRETAX> (13,615,597)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,615,597)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,615,597)
<EPS-BASIC> (1.56)
<EPS-DILUTED> (1.56)
</TABLE>
