<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 19, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
IBASIS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4813 04-3332534
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Numbers) Identification
organization) No.)
</TABLE>
20 SECOND AVENUE
BURLINGTON, MASSACHUSETTS 01803
(781) 505-7500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
OFER GNEEZY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
IBASIS, INC.
20 SECOND AVENUE
BURLINGTON, MASSACHUSETTS 01803
(781) 505-7500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
DAVID L. ENGEL, ESQ. PETER B. TARR, ESQ.
JOHAN V. BRIGHAM, ESQ. JOSEPH E. MULLANEY III, ESQ.
BINGHAM DANA LLP HALE AND DORR LLP
150 FEDERAL STREET 60 STATE STREET
BOSTON, MASSACHUSETTS 02110 BOSTON, MASSACHUSETTS 02109
(617) 951-8000 (617) 526-6000
FACSIMILE NO. (617) 951-8736 FACSIMILE NO. (617) 526-5000
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
------------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. / / ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. / / ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AGGREGATE OFFERING PRICE (1) REGISTRATION
SECURITIES TO BE REGISTERED (2) FEE
<S> <C> <C>
Common stock, $0.001 par value per share................................ $ 86,250,000 $ 23,978
</TABLE>
(1) Includes shares of common stock that the underwriters have the option to
purchase from the Company solely to cover-over allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933, as amended.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 19, 1999
[COMPANY LOGO]
SHARES
COMMON STOCK
iBasis, Inc. is offering shares of its common stock. This is our
initial public offering and no public market currently exists for our shares. We
have applied to have the shares we are offering approved for quotation on the
Nasdaq National Market under the symbol "IBAS." We anticipate that the initial
public offering price will be between $ and $ per share.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------------ ------------------
<S> <C> <C>
Public Offering Price................................................... $ $
Underwriting Discounts and Commissions.................................. $ $
Proceeds to iBasis ..................................................... $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
iBasis has granted the underwriters a 30-day option to purchase up to an
additional shares of common stock to cover over-allotments. BancBoston
Robertson Stephens Inc. expects to deliver the shares of common stock to
purchasers on , 1999.
------------------------
BANCBOSTON ROBERTSON STEPHENS
HAMBRECHT & QUIST
U.S. BANCORP PIPER JAFFRAY
THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE>
[Outside Front Gate]
(Frames with stylized "iBasis" logo, text and graphics. The text summarizes
the Company's business as a provider of high quality International
Internet-based communication services of telecommunications carriers.)
<PAGE>
[Inside Front Gate]
(Under the heading "iTrac-Interactive Traffic Revenue Analysis Center" appear
text, bar-graphs and pictures of iBasis's Global Network Operations Center
facilities. The text indicates that through iTrac and the Global Network
Operations Center iBasis is able to manage their networks and deliver
consistently high quality network services.)
<PAGE>
[Inside Front Cover]
(Two frames with images and text. The first frame, entitled "The iBasis
Solution," contains a diagram depicting how the Internet may be used to
provide carriers Internet-based service opportunities as calls are routed
through carriers' networks and the Internet to end users. The second frame,
entitled "the iBasis Network," contains a world map, marked to show the
location of POPs, Super POPs and locations where iBasis has peering
arrangements.)
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK. IN THIS PROSPECTUS, "IBASIS,"
"WE," "US" AND "OUR" REFER TO IBASIS, INC. AND ITS CONSOLIDATED SUBSIDIARIES
(UNLESS THE CONTEXT OTHERWISE REQUIRES).
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS REQUIREMENT IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Summary.................................................................................................... 1
Risk Factors............................................................................................... 5
Forward-Looking Statements................................................................................. 14
Use of Proceeds............................................................................................ 15
Dividend Policy............................................................................................ 15
Capitalization............................................................................................. 16
Dilution................................................................................................... 17
Selected Consolidated Financial Data....................................................................... 18
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 19
Business................................................................................................... 30
Management................................................................................................. 43
Certain Transactions....................................................................................... 51
Principal Stockholders..................................................................................... 54
Description of Capital Stock............................................................................... 56
Shares Eligible for Future Sale............................................................................ 60
Underwriting............................................................................................... 62
Legal Matters.............................................................................................. 64
Experts.................................................................................................... 64
Where You Can Find More Information........................................................................ 65
Index to Consolidated Financial Statements................................................................. F-1
</TABLE>
------------------------
iBasis and the iBasis logos are trademarks and service marks of iBasis. VIP
Calling is a registered trademark of iBasis, and VIP Connect and VIP Speaking
are trademarks and service marks of iBasis. This prospectus contains other trade
names, trademarks and service marks of iBasis and of other companies.
i
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN ALL OF THE
INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU
SHOULD READ THE ENTIRE PROSPECTUS, INCLUDING RISK FACTORS AND OUR CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS,
BEFORE DECIDING TO INVEST IN OUR COMMON STOCK.
IBASIS
<TABLE>
<S> <C>
Our Business............. We are a leading provider of high quality Internet telephony services that
enable telecommunications carriers and other communications service
providers to offer international voice, fax and other value-added
applications over the Internet. By outsourcing international communications
services to us, our customers are able to lower costs, generate new revenue
and extend their business into Internet- based services quickly while
maintaining service quality comparable to that of traditional voice
networks.
We provide telecommunications carriers and other communications service
providers with access to the iBasis Network, our international network of
"points of presence," or POPs, which are located in major cities in North
America, Asia, Latin America, Europe and Africa. Our services provide the
following key benefits to our customers:
- HIGH QUALITY VOICE AND FAX TRANSMISSIONS. Our proprietary technology,
which includes our global network operations center and proprietary Assured
Quality Routing software, enables us to effectively monitor and route
traffic in ways that ensure consistently high quality.
- INTERNATIONAL HIGH-CAPACITY NETWORK. Our network consists of more than
1,500 lines deployed internationally through our relationships with
communications service providers around the world. During our second
quarter ended June 30, 1999, we transported approximately 31.1 million
minutes of traffic over the iBasis Network.
- COST EFFECTIVE SOLUTIONS. We use the Internet's highly efficient packet-
switching technology to deliver international voice and fax traffic and
other value-added applications at costs lower than those of the
traditional circuit-switched network.
- FLEXIBLE BACK OFFICE SOLUTION THAT FACILITATES NEW SERVICES AND EFFECTIVE
BUSINESS MANAGEMENT. Our packet-based back office systems allow us to
provide timely statistics and integrated billing that enable
communications service providers to offer new services more readily and
manage their business more efficiently.
- EASE OF DEPLOYMENT AND TIME TO MARKET. Using our services requires no
special equipment or technical expertise on the part of the carrier. Our
customers can complete calls to any country on our network without having
to establish separate contracts with local service providers in each
country.
- OPEN, SCALEABLE ARCHITECTURE DESIGNED FOR NEW SERVICES. Our open,
scaleable and standards-based network architecture allows for fast and
efficient deployment of call completion and other value-added services.
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
Our Market............... The market for international long distance Internet telephony is projected
to grow from $1.7 billion in 1998 to $20.5 billion in 2002, according to
International Data Corporation, a market research firm. Our Internet
telephony services enable telecommunications carriers and other
communications service providers to utilize the technologies and
efficiencies of the Internet to cut costs and offer new services in order
to add and retain customers.
Our Customers............ We provide services to established and emerging international
telecommunications carriers and communications service providers. As of
June 30, 1999, our customers include seven of the thirteen highest volume
U.S.-based international long distance telecommunications carriers.
Overseas we have developed relationships with established national carriers
and emerging service providers that have the local market expertise and
relationships to build strong businesses.
Our Strategy............. Our goal is to be the leading provider of high quality Internet-based
communications services by continuing to build on our Internet telephony
expertise, by targeting high-volume communications service providers, by
providing high quality services, by focusing on the international market
and by expanding our geographic presence. We also intend to introduce new
services that communications service providers can offer over our network
or their own networks, which we believe will increase our customer base.
</TABLE>
iBasis, Inc. is a Delaware corporation organized in 1996. We changed our
name from VIP Calling, Inc. in July 1999. Our principal executive offices are
located at 20 Second Avenue in Burlington, Massachusetts and our telephone
number is (781) 505-7500. Our website is located at www.ibasis.net.
------------------------
UNLESS OTHERWISE INDICATED, ALL INFORMATION CONTAINED IN THIS PROSPECTUS
REFLECTS:
- THE CONVERSION OF ALL OUTSTANDING SHARES OF OUR PREFERRED STOCK AND CLASS
B COMMON STOCK INTO CLASS A COMMON STOCK;
- AN AMENDMENT TO OUR CERTIFICATE OF INCORPORATION WHICH WILL RESULT IN A
-FOR- STOCK SPLIT OF IBASIS' CLASS A COMMON STOCK; AND
- THE CONVERSION OF OUR CLASS A COMMON STOCK INTO COMMON STOCK.
------------------------
INFORMATION CONTAINED ON OUR WEBSITE SHOULD NOT BE CONSIDERED A PART OF THIS
PROSPECTUS.
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
COMMON STOCK OFFERED BY IBASIS.............................. shares
COMMON STOCK TO BE OUTSTANDING AFTER THIS OFFERING.......... shares(1)
USE OF PROCEEDS............................................. For general corporate and
working capital purposes. See
"Use of Proceeds."
PROPOSED NASDAQ NATIONAL MARKET SYMBOL...................... IBAS
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Listed below is our consolidated statements of operations data for the
period from inception to December 31, 1996 and for the years ended December 31,
1997 and 1998. You will also find our consolidated balance sheet data both as of
June 30, 1999 and, assuming completion of this offering, as of June 30, 1999.
You should read this information in conjunction with our consolidated financial
statements and related notes included elsewhere in this prospectus. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." To calculate "Pro Forma As Adjusted" data we have assumed the
following:
- the sale of shares of common stock offered hereby at an
assumed initial public offering price of $ per share, after deducting
the underwriting discounts and commissions and estimated offering expenses
payable by us;
- the sale and issuance of 5,744,103 shares of Series C preferred stock for
an aggregate consideration of $25.1 million, of which approximately $3.4
million was received by us on June 30, 1999 and the balance was received
in July 1999;
- the conversion of all issued and outstanding shares of our preferred stock
and Class B common stock into 17,556,603 shares of Class A common stock;
and
- the conversion of all issued and outstanding shares of our Class A common
stock into 23,616,603 shares of common stock.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(AUGUST 2, 1996) YEARS ENDED SIX MONTHS ENDED
TO DECEMBER 31, DECEMBER 31, JUNE 30,
----------------- -------------------- --------------------
1996 1997 1998 1998 1999
----------------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net revenue........................................... $ -- $ 127 $ 1,978 $ 186 $ 6,037
Total operating expenses.............................. 76 1,074 7,828 2,055 13,192
Loss from operations.................................. (76) (947) (5,850) (1,869) (7,155)
Net loss.............................................. (76) (926) (5,727) (1,875) (7,254)
Net loss applicable to common stockholders............ (76) (926) (5,946) (1,875) (7,569)
Basic and diluted net loss per share.................. $ (0.99) $ (1.26)
Basic and diluted weighted average common shares
outstanding (2)..................................... 6,023 6,030
Pro forma basic and diluted net loss
per share (2)....................................... $ (0.44) $ (0.41)
Pro forma basic and diluted weighted average common
shares outstanding (2).............................. 13,068 17,843
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 1999
----------------------------------------------
PRO FORMA
AS ADJUSTED
ACTUAL PRO FORMA (3) (3)(4)(5)
---------- ------------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................ $ 3,454 $ 3,454
Working (deficit) capital........................................ (1,048) (1,048)
Total assets..................................................... 16,264 16,264
Capital lease obligations, net of current portion................ 4,515 4,515
Redeemable convertible preferred stock........................... 11,034 --
Total stockholders' (deficit) equity............................. (10,253) 4,212
</TABLE>
- ------------------------
(1) This number does not include:
- 58,125 shares of common stock issuable to our warrant holders under
warrants, outstanding at June 30, 1999, for $1.00 per share; and
- 2,064,050 shares of common stock issuable upon the exercise of outstanding
stock options, outstanding at June 30, 1999, at a weighted average
exercise price of $1.60 per share.
(2) Computed on the basis described in Note 1(f) of the notes to our
consolidated financial statements.
(3) Adjusted to give effect to the automatic conversion upon the completion of
this offering of all outstanding shares of our Series A preferred stock,
Series B preferred stock and Class B common stock into an aggregate of
11,812,500 shares of Class A common stock. Each share of Series B preferred
stock and Class B common stock will convert into Class A common stock on a
1:1 basis. Each share of Series A preferred stock will convert into Class A
common stock on a 3:1 basis. In addition, advances from investors have been
reclassified to additional paid-in capital to reflect the subsequent sale of
Series C preferred stock which closed in July 1999 and is automatically
convertible into Class A common stock upon the completion of this offering.
(4) Adjusted to give effect to our sale of shares of common stock at an
assumed initial public offering price of per share, after deducting
the underwriting discounts and commissions and estimated offering expenses
payable by us.
(5) Adjusted to give effect to the automatic conversion of 5,744,103 shares of
our Series C preferred stock into Class A common stock as if it had been
outstanding as of June 30, 1999, and the automatic conversion of all
outstanding shares of Class A common stock into shares of common stock on a
1:1 basis.
4
<PAGE>
RISK FACTORS
ANY INVESTMENT IN OUR SHARES OF COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW, TOGETHER WITH THE
INFORMATION CONTAINED ELSEWHERE IN THE PROSPECTUS, BEFORE YOU MAKE A DECISION ON
INVESTING IN OUR COMPANY. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR
BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION WOULD LIKELY SUFFER.
MOREOVER, THE MARKET PRICE OF OUR COMMON STOCK COULD DECLINE AND YOU COULD LOSE
ALL OR PART OF YOUR INVESTMENT. IN ADDITION, YOU SHOULD KEEP IN MIND THAT THE
RISKS WE DESCRIBE BELOW ARE NOT THE ONLY RISKS THAT WE FACE.
RISKS RELATED TO OUR OPERATIONS
WE HAVE A LIMITED OPERATING HISTORY UPON WHICH TO BASE YOUR INVESTMENT DECISION,
AND YOU MAY INACCURATELY ASSESS OUR PROSPECTS FOR SUCCESS.
We incorporated in August 1996 and first began to offer commercial services
in May 1997. Due to our limited operating history, it is difficult for us to
predict future results of operations. Moreover, we cannot be sure that we have
accurately identified all of the risks to our business, especially since we use
new, and in many cases, unproven technologies and provide new services. As a
result, our past results and rates of growth may not be a meaningful indicator
of our future results of operations. Also, your assessment of the prospects for
our success may prove inaccurate.
WE HAVE A HISTORY OF OPERATING LOSSES AND ANTICIPATE LOSSES FOR THE FORESEEABLE
FUTURE.
We incurred net losses of $5.7 million during fiscal 1998 and $7.3 million
for the six months ended June 30, 1999. As of June 30, 1999, we had an
accumulated deficit of $14.0 million. We expect to continue incurring operating
losses and negative cash flows as we incur significant operating expenses and
make capital investments in our business. We may not ever generate sufficient
revenues, or reduce costs, to permit us to achieve profitability. Even if we do
become profitable, we may not sustain or increase profitability on a quarterly
or annual basis in the future. See "Selected Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for detailed information on our history of losses and anticipation
of continued losses.
OUR QUARTERLY RESULTS OF OPERATIONS MAY FLUCTUATE DRAMATICALLY AND CAUSE THE
MARKET PRICE OF OUR COMMON STOCK TO FALL.
Our revenue and results of operations have fluctuated and may continue to
fluctuate significantly from quarter to quarter in the future due to a number of
factors, many of which are not in our control, including, among others:
- the amount of traffic we are able to sell to our customers, and their
decisions on whether to route traffic over our network;
- pricing pressure in the international long-distance market;
- the percentage of traffic that we are able to carry over the Internet, or
over our dedicated international private circuit lines, rather than over
the more costly traditional public-switched telephone network;
- loss of arbitrage opportunities resulting from declines in international
settlement rates or tariffs;
- our ability to negotiate changes in the termination fees charged by our
local providers when our margins deteriorate;
- capital expenditures required to expand or upgrade our network;
- changes in call volume among the countries to which we complete calls;
5
<PAGE>
- technical difficulties or failures of our network systems or third-party
delays in expansion or provisioning system problems;
- our ability to offer value-added services that are appealing to the
market; and
- currency fluctuations in countries where we operate.
Because of these factors, you should not rely on quarter-to-quarter
comparisons of our results of operations as an indication of our future
performance. It is possible that, in future periods, our results of operations
will be significantly lower than the estimates of public market analysts and
investors. Such a discrepancy could cause the price of our common stock to
decline significantly. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
TELECOMMUNICATIONS CARRIERS AND OTHER COMMUNICATIONS SERVICE PROVIDERS MAY BE
RELUCTANT TO USE OUR SERVICES OR MAY NOT USE OUR SERVICES IN SUFFICIENT VOLUME.
If the market for Internet telephony and new services does not develop as we
expect, or develops more slowly than expected, our business, financial condition
and results of operations will be materially adversely affected.
Our customers may be reluctant to use our services for a number of reasons,
including:
- perceptions that the quality of voice transmitted over the Internet is
low;
- perceptions that Internet telephony is unreliable; and
- traffic may not be able to be delivered over the Internet with significant
cost advantages.
The growth of our business depends on carriers and other communications
service providers generating an increased volume of international voice and fax
traffic, and selecting our network to carry at least some of this traffic. If
the volume of international voice and fax traffic fails to increase, or
decreases, and these third-parties do not employ our network, our business,
financial condition and future prospects will be materially adversely affected.
We can not assure you that end-users will continue to purchase services from our
customers or that our customers will maintain a demand for our services.
THE QUALITY OF OUR SERVICES AND OUR CAPACITY TO TRANSMIT INTERNATIONAL VOICE AND
FAX CALLS DEPENDS LARGELY ON THIRD-PARTIES.
VENDORS. We rely upon third-party vendors to provide us with the equipment
and software that we use to transfer and translate calls from traditional voice
networks to the Internet, and vice versa. We purchase substantially all of our
Internet telephony equipment from Cisco Systems. We cannot assure you that we
will be able to continue purchasing such equipment and software from Cisco on
acceptable terms, if at all. If we become unable to purchase from Cisco the
equipment needed to maintain and expand our network as currently configured, our
business, financial condition and results of operations would be materially
adversely affected.
PARTIES THAT MAINTAIN PHONE AND DATA LINES. Our business model depends on
the availability of the Internet to transmit voice and fax calls, and to provide
other value-added services. Third-parties maintain, and in many cases own, the
traditional voice networks as well as data networks and other components that
comprise the Internet. Some of these third-parties are national telephone
companies. They may increase their charges for using these lines at any time and
decrease our profitability. They may also fail to properly maintain their lines
and disrupt our ability to provide service to our customers. Any failure by
these third-parties to maintain these lines and networks that leads to a
material disruption of our ability to complete calls over the Internet would
have a material adverse effect on our business, financial condition and results
of operations.
6
<PAGE>
LOCAL COMMUNICATIONS SERVICE PROVIDERS. We maintain relationships with
local communications service providers in many countries, some of whom own the
equipment that translates voice to data in that country. We rely upon these
third-parties to both provide lines over which we complete calls and to increase
their capacity when necessary as the volume of our traffic increases. There is a
risk that these third-parties may be slow, or fail, to provide lines, which
would affect our ability to complete calls to those destinations. We cannot
assure you that we will be able to continue our relationships with these local
service providers on acceptable terms, if at all. Because we rely upon entering
into relationships with local service providers to expand into additional
countries, we cannot assure you that we will be able to increase the number of
countries to which we provide service. We also may not be able to enter into
relationships with enough overseas local service providers to handle increases
in the volume of calls that we receive from our customers. Finally, any
technical difficulties that these providers suffer would affect our ability to
transmit calls to the countries that those providers help serve.
STRATEGIC RELATIONSHIPS. We depend in part on our strategic relationships
to expand our distribution channels and develop and market our services. In
particular, we depend in large part on our joint marketing and product
development efforts with Cisco Systems to achieve market acceptance and brand
recognition in certain markets. Cisco or other strategic relationship partners
may choose not to renew existing arrangements on commercially acceptable terms,
if at all. In general, if we lose this key strategic relationship, or if we fail
to develop new relationships in the future, our business will suffer.
WE MAY NOT BE ABLE TO SUCCEED IN THE INTENSELY COMPETITIVE MARKET FOR OUR
SERVICES.
The market for Internet voice, fax and other value-added services is
extremely competitive and will likely become more competitive. Internet protocol
and Internet telephony service providers, such as GRIC Communications and ITXC
Corp., route traffic to destinations worldwide and compete directly with us.
Also, Internet telephony service providers, such as Net2Phone, that presently
focus on retail customers may in the future enter our market and compete with
us. In addition, major telecommunications carriers, such as AT&T, Deutsche
Telekom, MCI WorldCom and Qwest Communications, have all entered or announced
plans to enter the Internet telephony market. Many of these companies are larger
than we are and have substantially greater managerial and financial resources
than we do. Intense competition in our markets can be expected to continue to
put downward pressure on prices and adversely affect our profitability. We
cannot assure you that we will be able to compete successfully against our
competitors and we may lose customers or fail to grow our business as a result
of this competition.
WE ARE SUBJECT TO DOWNWARD PRICING PRESSURES AND A CONTINUING NEED TO
RENEGOTIATE OVERSEAS RATES.
As a result of numerous factors, including increased competition and global
deregulation of telecommunications services, prices for international long
distance calls have been decreasing. This downward trend of prices to end-users
has caused us to lower the prices we charge communications service providers for
call completion on our network. If this downward pricing pressure continues, we
cannot assure you that we will be able to offer Internet telephony services at
costs lower than, or competitive with, the traditional voice network services
with which we compete. Moreover, in order for us to lower our prices, we have to
renegotiate rates with our overseas local service providers who complete calls
for us. We may not be able to renegotiate these terms favorably enough, or fast
enough, to allow us to continue to offer services in a particular country. The
continued downward pressure on prices and our failure to renegotiate favorable
terms in a particular country would have a material adverse effect on our
business, financial condition and results of operations. See "Business--Industry
Overview."
7
<PAGE>
WE ARE SUBJECT TO ADDITIONAL RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS.
Because we provide substantially all of our services internationally, we are
subject to additional risks related to operating in foreign countries. These
risks include:
- unexpected changes in tariffs, trade barriers and regulatory requirements
relating to Internet access or Internet telephony;
- economic weakness, including inflation, or political instability in
particular foreign economies and markets;
- difficulty in collecting accounts receivable;
- foreign taxes; and
- foreign currency fluctuations, which could result in increased operating
expenses and reduced revenues.
These and other risks associated with our international operations may
materially adversely affect our business, financial condition and results of
operations.
WE MAY NOT BE ABLE TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGE IN A
COST-EFFECTIVE WAY.
The technology upon which our services depend is changing rapidly.
Significant technological changes could render the equipment which we use
obsolete, and competitors may begin to offer new services that we are unable to
offer. We must adapt to our rapidly changing market by continually improving the
responsiveness, reliability, services and features of our network and by
developing new features and applications to meet customer needs. If we are
unable to successfully respond to these developments or do not respond in a
cost-effective way, our business, financial condition and results of operations
would suffer.
WE MAY NOT BE ABLE TO EXPAND AND UPGRADE OUR NETWORK ADEQUATELY TO ACCOMMODATE
ANY FUTURE GROWTH.
Our business requires that we handle a large number of international calls
simultaneously. As we expand our operations, we expect to handle significantly
more calls. We will need to expand and upgrade our hardware and software to
accommodate such increased traffic. If we do not expand and upgrade quickly
enough, we will not have sufficient capacity to handle the traffic and our
operating performance would suffer. Consequently, we could develop a negative
reputation with our customers and lose business.
FAILURE TO MANAGE OUR GROWTH MAY ADVERSELY AFFECT OUR BUSINESS.
We have grown rapidly to date and expect to continue to grow rapidly. In
order to increase the number of our customers and the size of our operations, we
will need to improve our administrative, accounting, operating systems and
controls. We may need to redesign several internal systems. Our attention to
these matters may distract us from other aspects of our business. Moreover,
failure to implement new systems and controls may hamper our ability to provide
services to customers and may impair the quality of our services which could
result in the loss of customers.
OUR REVENUE WOULD DECLINE SIGNIFICANTLY IF WE LOSE ONE OR MORE OF OUR MOST
SIGNIFICANT CUSTOMERS.
We generate much of our revenue from a limited number of customers. During
the six month period ending June 30, 1999, three customers accounted for
approximately 40% of our net revenue. Customers may discontinue their use of our
services at any time, and without notice. Therefore, in any given quarter, we
would lose a significant amount of revenue if we lost one or more major
customers.
8
<PAGE>
WE DEPEND ON OUR KEY PERSONNEL AND MAY HAVE DIFFICULTY ATTRACTING AND RETAINING
THE SKILLED EMPLOYEES WE NEED TO EXECUTE OUR GROWTH PLANS.
WE DEPEND HEAVILY ON OUR KEY MANAGEMENT. Our future success will depend, in
large part, on the continued service of our key management and technical
personnel, including Ofer Gneezy, our President and Chief Executive Officer,
Gordon VanderBrug, our Executive Vice President, Michael Hughes, our Chief
Financial Officer, and John Henson, our Vice President, Engineering &
Operations. If any of these individuals is unable or unwilling to continue in
their present positions, our business, financial condition and results of
operations would suffer. We do not carry key person life insurance on our
personnel. While each of the individuals named above has entered into an
employment agreement with us, these agreements do not ensure their continued
employment with us.
WE WILL NEED TO ATTRACT SKILLED PERSONNEL TO EXECUTE OUR GROWTH PLANS. Our
future success will depend, in large part, on our ability to attract, retain and
motivate highly skilled employees, particularly engineering and technical
personnel. Competition for such employees in our industry is intense. We have
from time to time in the past experienced, and we expect to continue to
experience in the future, difficulty in hiring and retaining employees with
appropriate qualifications. We may not be able to retain our employees or
attract, assimilate or retain other highly qualified employees in the future. If
we do not succeed in attracting and retaining skilled personnel, our business,
financial condition and results of operations would suffer.
WE EXPECT TO NEED ADDITIONAL CAPITAL IN THE FUTURE WHICH MAY NOT BE AVAILABLE ON
ACCEPTABLE TERMS, IF AT ALL.
We expect to need additional capital in the future to fund our operations,
finance investments in equipment and corporate infrastructure, expand our
network, increase the range of services we offer and respond to competitive
pressures and perceived opportunities. Cash flow from operations, cash on hand
and funds from this offering may not be sufficient to cover our operating
expenses and capital investment needs. We cannot assure you that additional
financing will be available on terms acceptable to us, if at all. A failure to
obtain additional funding could prevent us from making expenditures that will
allow us to grow or maintain our operations.
If we raise additional funds by selling equity securities, the relative
equity ownership of our existing investors could be diluted or the new investors
could obtain terms more favorable than previous investors. If we raise
additional funds through debt financing, we could incur significant borrowing
costs. The failure to obtain additional financing when required would have a
material adverse effect on our business, financial condition and results of
operations.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, OUR BUSINESS, FINANCIAL
CONDITION AND RESULTS OF OPERATIONS WOULD SUFFER.
We rely on trademark and copyright law, trade secret protection and
confidentiality and/or license agreements with our employees, customers,
partners and others to protect our intellectual property. Despite our
precautions, however, unauthorized third-parties may copy our services or
reverse engineer or obtain and use information that we regard as proprietary.
End-user license provisions protecting against unauthorized use, copying,
transfer and disclosure of any licensed program may be unenforceable under the
laws of certain jurisdictions and foreign countries. While we do not have any
patents pending, we may seek to patent certain software or equipment in the
future. We do not know if any of our future patent applications will be issued
with the scope of the claims we seek, if at all. In addition, the laws of some
foreign countries do no protect proprietary rights to the same extent as do the
laws of the United States. Our means of protecting our proprietary rights in the
United States or abroad may not be adequate and third-parties may infringe or
misappropriate our copyrights,
9
<PAGE>
trademarks and similar proprietary rights. If we fail to protect our
intellectual property and proprietary rights, our business, financial condition
and results of operations would suffer.
We believe that we do not infringe upon the proprietary rights of any third
party, and no third party has asserted a patent infringement claim against us.
It is possible, however, that such a claim might be asserted successfully
against us in the future. Our ability to provide our services depends on our
freedom to operate. That is, we must ensure that we do not infringe upon the
proprietary rights of others or have licensed all such rights. We have not
requested or obtained an opinion from counsel as to whether our services
infringe upon the intellectual property rights of any third parties. A party
making an infringement claim could secure a substantial monetary award or obtain
injunctive relief which could effectively block our ability to provide services
in the United States or abroad.
If any of these risks materialize, we could be forced to suspend operations,
to pay significant amounts to defend our rights, and a substantial amount of the
attention of our management may be diverted from our ongoing business, each of
which could materially adversely affect our ability business, financial
condition and results of operations.
We rely on a variety of technology, primarily software, that we license from
third parties. Continued use of this technology by us may require that we
purchase new or additional licenses from third parties. There can be no
assurances that we can obtain those third party licenses needed for our business
or that the third party technology licenses that we do have will continue to be
available to us on commercially reasonable terms or at all. The loss or
inability to maintain or obtain upgrades to any of these technology licenses
could result in delays or breakdowns in our ability to continue developing and
providing our services or to enhance and upgrade our services.
WE MAY BE UNABLE TO UNDERTAKE AND INTEGRATE ANY STRATEGIC ACQUISITIONS IN THE
FUTURE.
We may acquire businesses and technologies that complement or augment our
existing businesses, services and technologies. Integrating any newly acquired
businesses or technologies could be expensive and time-consuming. We may not be
able to integrate any acquired business successfully. Moreover, we may need to
raise additional funds through public or private debt or equity financing to
acquire any businesses, which may result in dilution for stockholders and the
incurrence of indebtedness. We may not be able to operate acquired businesses
profitably or otherwise implement our growth strategy successfully. If we are
unable to successfully integrate any newly acquired businesses or technologies,
our business, financial condition and results of operations would suffer.
YEAR 2000 PROBLEMS MAY DISRUPT OUR BUSINESS.
Many currently installed computer systems and software products only accept
two digits to identify the year in any date. Therefore, the year 2000 will
appear as "00", which the system might consider to be the year 1900 rather than
the year 2000. This could result in system failures, delays or miscalculations
causing disruptions to our operations.
The failure of our network or of any systems maintained by third-parties to
be Year 2000 compliant could:
- cause a complete disruption of our Internet telephony services to any or
all countries;
- cause a disruption of our billing cycles;
- cause us to incur significant expenses to remedy any problems;
- impose unmanageable burdens on our technical support staff; and
- cause customers or partners to be dissatisfied with our network and
services.
10
<PAGE>
Our failure to prevent or correct a material Year 2000 problem could have a
material adverse effect on our business, financial condition and results of
operations. For a more detailed discussion on the impact of the year 2000 on our
business, please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Readiness."
RISKS RELATED TO THE INTERNET AND INTERNET TELEPHONY INDUSTRY
IF THE INTERNET DOES NOT CONTINUE TO GROW AS A MEDIUM FOR VOICE AND FAX
COMMUNICATIONS, OUR BUSINESS WILL SUFFER.
The technology that allows voice and fax communications over the Internet,
and the delivery of other value-added services, is still in its early stages of
development. Historically, the sound quality of calls placed over the Internet
was poor. As the Internet telephony industry has grown, sound quality has
improved, but the technology requires further refinement. Additionally, as a
result of the Internet's capacity constraints, callers could experience delays,
errors in transmissions or other interruptions in service. Transmitting
telephone calls over the Internet must also be accepted as an alternative to
traditional voice and fax service by communications service providers. Because
the Internet telephony market is new and evolving, predicting the size of this
market and its growth rate is difficult. If our market fails to develop, then we
will be unable to grow our customer base and our results of operations will be
adversely affected.
IF THE INTERNET INFRASTRUCTURE IS NOT ADEQUATELY MAINTAINED, WE MAY BE UNABLE TO
MAINTAIN THE QUALITY OF OUR SERVICES AND PROVIDE THEM IN A TIMELY AND CONSISTENT
MANNER.
Our future success will depend upon the maintenance of the Internet
infrastructure, including a reliable network backbone with the necessary speed,
data capacity and security for providing reliability and timely Internet access
and services. To the extent that the Internet continues to experience increased
numbers of users, frequency of use or bandwith requirements, the Internet may
become congested and be unable to support the demands placed on it and its
performance or reliability may decline thereby impairing our ability to complete
calls using the Internet at consistently high quality. The Internet has
experienced a variety of outages and other delays as a result of portions of its
infrastructure or otherwise. Any future outages or delays could adversely affect
our ability to complete calls. Moreover, critical issues concerning the
commercial use of the Internet, including security, cost, ease of use and
access, intellectual property ownership and other legal liability issues, remain
unresolved and could materially and adversely affect both the growth of Internet
usage generally and our business, results of operations and financial condition
in particular.
INTERNATIONAL GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTIES COULD MATERIALLY
ADVERSELY AFFECT OUR BUSINESS.
The regulatory treatment of Internet telephony outside of the United States
varies widely from country to country. A number of countries currently prohibit
or limit competition in the provision of traditional voice telephony services.
Some countries prohibit, limit or regulate how companies provide Internet
telephony. Some countries have indicated they will evaluate proposed Internet
telephony service on a case-by-case basis and determine whether to regulate it
as a voice service or as another telecommunications service, and in doing so
potentially imposing settlement rates on Internet telephony providers. Finally,
many countries have not yet addressed Internet telephony in their legislation or
regulations. Increased regulation of the Internet and/or Internet telephony
providers, or the prohibition of Internet telephony in one or more countries,
could materially adversely affect our business, financial condition and results
of operations.
In addition, as we make our services available in foreign countries, and as
we work to enable sales by our customers to end-users in foreign countries, such
countries may claim that we are required to
11
<PAGE>
qualify to do business in that particular country, that we are otherwise subject
to regulation, including requirements to obtain authorization, or that we are
prohibited in all cases from conducting our business in that foreign country.
Our failure to qualify as a foreign corporation in a jurisdiction in which we
are required to do so or to comply with foreign laws and regulations could
materially adversely affect our business, financial condition and results of
operations. Our customers also currently are, or in the future may become,
subject to these same requirements. We cannot assure you that our customers are
currently in compliance with any such requirements or that they will be able to
continue to comply with any such requirements. The failure of our customers to
comply with applicable laws and regulations could materially adversely affect
our business, financial condition and results of operations. Additionally, it is
possible that laws may be applied by the United States 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;
- copyright, trademark and patent infringement; and
- claims based on the nature and content of Internet materials, including
defamation, negligence and the failure to meet necessary obligations.
If foreign governments or other bodies begin to regulate or prohibit
Internet telephony, this regulation could have a material adverse effect on our
business, financial condition and results of operations.
THE TELECOMMUNICATIONS INDUSTRY IS SUBJECT TO DOMESTIC GOVERNMENTAL REGULATION
AND LEGAL UNCERTAINTIES WHICH COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS.
While the FCC has tentatively decided that information service providers,
including Internet telephony providers, are not telecommunications carriers for
regulatory purposes, various companies have challenged that decision. Congress
is dissatisfied with the conclusions of the FCC and the FCC could impose greater
or lesser regulation on our industry. The FCC is currently considering, for
example, whether to impose surcharges or other regulations upon certain
providers of Internet telephony, primarily those which, unlike us, provide
Internet telephony services to end-users located within the United States.
Aspects of our operations may be, or become, subject to state or federal
regulations governing universal service funding, disclosure of confidential
communications, copyright and excise taxes. We cannot assure you that government
agencies will not increasingly regulate Internet-related services. Increased
regulation of the Internet may slow its growth. Such regulation may also
negatively impact the cost of doing business over the Internet and materially
adversely affect our business, financial condition and results of operations.
12
<PAGE>
RISKS RELATED TO THE OFFERING
THERE HAS BEEN NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK.
Prior to this offering, you could not buy or sell shares of our common stock
publicly. We cannot predict whether investor interest in our shares of common
stock will lead to the development of an active trading market or how liquid
that market might become. Moreover, the initial public offering price for the
shares has been determined by negotiations between us and the representatives of
the underwriters and may not be indicative of prices that will prevail in the
public market after we complete this offering. The market price of shares of our
common stock may decline below the initial public offering price immediately
after we complete this offering.
THE MARKET PRICE OF OUR SHARES MAY EXPERIENCE EXTREME PRICE AND VOLUME
FLUCTUATIONS FOR REASONS OVER WHICH WE HAVE LITTLE CONTROL.
The stock market has, from time to time, experienced extreme price and
volume fluctuations. Prices of securities of Internet-related companies have
been especially volatile and have often fluctuated for reasons that are
unrelated to the operating performance of the affected companies. The market
price of shares of our common stock could fluctuate greatly due to a variety of
factors. In the past, companies that have experienced volatility in the market
price of their stock have been the objects of securities class action
litigation. If we were the object of securities class action litigation, it
could result in substantial costs and a diversion of our management's attention
and resources and have a material adverse effect on our business, financial
condition and results of operation.
AFTER THIS OFFERING, OUR EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL
STOCKHOLDERS WILL STILL OWN A MAJORITY OF OUR VOTING STOCK AND WILL BE ABLE TO
EXERT SIGNIFICANT INFLUENCE OVER DECISIONS REQUIRING A STOCKHOLDER VOTE.
We anticipate that our executive officers, directors and principal
stockholders and their affiliates will, in the aggregate, beneficially own
approximately % of our outstanding common stock following the completion of
this offering, assuming no exercise of options outstanding as of July 31, 1999.
As a result, our executive officers, directors and principal stockholders will
be able to exercise significant control over all matters requiring approval by
our stockholders, including the election of directors and approval of mergers
and other significant corporate transactions. This concentration of ownership
may also have the effect of delaying or preventing a change in control that
might otherwise benefit our stockholders.
PROVISIONS OF OUR GOVERNING DOCUMENTS AND DELAWARE LAW COULD DISCOURAGE
ACQUISITION PROPOSALS OR DELAY A CHANGE IN CONTROL.
Our certificate of incorporation and by-laws contain anti-takeover
provisions including those listed below, that could make it more difficult for a
third-party to acquire control of our company, even if that change in control
would be beneficial to stockholders:
- our board of directors has the authority to issue common stock and
preferred stock, and to determine the price, rights and preferences of any
new series of preferred stock, without stockholder approval;
- our board of directors is divided into three classes, each serving
three-year terms;
- stockholders need a supermajority of votes to amend key provisions of our
certificate of incorporation and by-laws;
- there are limitations on who can call special meetings of stockholders;
- stockholders may not take action by written consent; and
13
<PAGE>
- stockholders must provide specified advance notice to nominate directors
or submit stockholder proposals.
In addition, provisions of Delaware law and our stock option plan may also
discourage, delay or prevent a change of control of our company or unsolicited
acquisition proposals.
WE MAY SPEND A SUBSTANTIAL PORTION OF THE NET PROCEEDS IN WAYS WITH WHICH YOU
MAY BELIEVE TO BE IMPRUDENT.
We currently have no specific uses for a substantial portion of the net
proceeds of this offering. Accordingly, investors in this offering will be
relying on our management's judgment with only limited information about our
specific intentions regarding the use of proceeds. We may spend most of the net
proceeds from this offering in ways that prove to be imprudent. Our failure to
apply these funds effectively could have a material adverse effect on our
business, financial condition and results of operations. See "Use of Proceeds."
STOCKHOLDERS MAY SELL SHARES OF OUR COMMON STOCK IN A MANNER THAT NEGATIVELY
AFFECTS THE PRICE OF COMMON STOCK.
If any of our stockholders sell a substantial number of shares of common
stock after the offering, those sales could adversely affect the market price of
our common stock and could impair our ability to raise capital through the sale
of equity securities. Upon the completion of this offering, we will have
shares of common stock outstanding. In addition, as of June 30, 1999, we had
reserved for issuance 2,685,000 shares of common stock issuable upon exercise of
stock options and 58,125 shares of common stock issuable upon exercise of
outstanding warrants. The shares sold in this offering will be freely
transferable without restriction under the Securities Act, unless they are
acquired by "affiliates" of ours as that term is used under the Securities Act.
Of the remaining shares, shares will be freely transferable without
restriction under the Securities Act, unless they are held by our "affiliates"
and will be available for public sale upon expiration of the "lock-up"
agreements described in "Underwriting."
INVESTORS IN THIS OFFERING WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION.
If you are purchasing shares in this offering, you will incur immediate and
substantial dilution of $ in net tangible book value per share of common
stock from the initial public offering price of $ . To the extent
outstanding stock options and warrants are exercised, you will suffer further
dilution. See "Dilution."
FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements." These forward-looking
statements include, without limitation, statements about our market opportunity,
strategies, competition, expected activities and investments as we pursue our
business plan, and the adequacy of our available cash resources. These
forward-looking statements are usually accompanied by words such as "believe,"
"anticipate," "plan," "seek," "expect," "intend" and similar expressions. Our
actual results could differ materially from those expressed or implied by these
forward-looking statements as a result of various factors, including the risk
factors described above and elsewhere in this prospectus. We undertake no
obligation to update publicly any forward-looking statements for any reason,
even if new information becomes available or other events occur in the future.
14
<PAGE>
USE OF PROCEEDS
We expect to receive net proceeds of $ from the sale of the
shares of common stock in this offering ($ if the
underwriters' over-allotment option is exercised in full) after deducting the
underwriting discounts and commissions and the estimated offering expenses
payable by us and assuming an initial public offering price of $ per share,
the mid-point of the range set forth on the cover of this prospectus. We intend
to use the proceeds of this offering for general corporate and working capital
purposes.
In addition, we may use a portion of the net proceeds of this offering to
acquire or invest in businesses, products, services or technologies
complementary to our current business, through mergers, acquisitions, joint
ventures or otherwise. However, we have no specific agreements or commitments
with respect to these transactions. Accordingly, our management will retain
broad discretion as to the allocation of the net proceeds of this offering. We
intend to invest the net proceeds of this offering in short-term,
interest-bearing investment grade securities pending the above uses.
The principal purposes of this offering are to:
- increase available working capital;
- create a public market for our common stock; and
- increase our visibility in the marketplace.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock and do
not anticipate paying any dividends in the foreseeable future. We currently
intend to retain future earnings, if any, to operate and expand our business.
Furthermore, our existing loan agreement prohibits the payment of dividends.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of iBasis as of June 30,
1999:
- on an actual basis;
- on a pro forma basis to give effect to the automatic conversion upon the
completion of this offering of all outstanding shares of our Series A
preferred stock, Series B preferred stock and Class B common stock into an
aggregate of 11,812,500 shares of Class A common stock. Each share of
Series B preferred stock and Class B common stock converts into Class A
common stock on a 1:1 basis. Each share of Series A preferred stock
converts into Class A common stock on a 3:1 basis. In addition, advances
from investors have been reclassified to additional paid-in capital to
reflect the subsequent sale of Series C preferred stock which closed in
July 1999 and is automatically convertible into Class A common stock upon
the completion of this offering; and
- on a pro forma as adjusted basis to give effect to the conversion of all
outstanding shares of Class A common stock and the conversion of the
remaining Class A common stock into commmon stock and the sale of our
common stock at an assumed initial public offering price of $ per share,
the mid-point of the range set forth on the cover of this prospectus, and
the application of the net proceeds therefrom. See "Use of Proceeds."
The conversion referred to above reflects the conversion of an aggregate of
1,500,000 shares of Class B common stock, 1,250,000 shares of Series A preferred
stock, 6,562,500 shares of Series B preferred stock and 5,744,103 shares of
Series C preferred stock into 17,556,603 shares of Class A common stock. In
addition, the conversion referred to above reflects the conversion of an
aggregate of 23,616,603 shares of Class A common stock into 23,616,603
newly-issued shares of common stock effective as of the completion of this
offering. This table should be read in conjunction with our consolidated
financial statements and the related notes appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1999
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Capital lease obligations, net of current portion......................... $ 4,515 $ 4,515 $ 4,515
Advances from investors................................................... 3,430 -- --
Redeemable convertible preferred stock:
Series B preferred stock, $.001 par value per share; 6,875,000 shares
authorized; 6,562,500 shares issued and outstanding, actual; none
issued and outstanding, pro forma and pro forma as adjusted........... 11,034 -- --
Series C preferred stock, $.001 par value per share; no shares
authorized, issued and outstanding, actual and pro forma; 5,775,000
authorized; none issued and outstanding, pro forma as adjusted........ -- -- --
------------- ----------- -----------
Total redeemable convertible preferred stock............................ 11,034 -- --
Stockholders' (deficit) equity:
Series A convertible preferred stock, $.001 par value per share;
1,256,875 shares authorized; 1,250,000 shares issued and outstanding,
actual; none issued and outstanding, pro forma and pro forma as
adjusted.............................................................. 1 --
Common stock, $.001 par value per share; no shares authorized, issued
and outstanding, actual and pro forma; authorized; issued
and outstanding, pro forma as adjusted................................ -- -- []
Class A common stock, $.001 par value per share; 30,000,000 shares
authorized; 6,060,000 shares issued and outstanding, actual;
17,872,500 shares issued and outstanding, pro forma; and none issued
and outstanding, pro forma as adjusted................................ 6 18 --
Class B common stock, $.001 par value per share; 1,500,000 shares
authorized; 1,500,000 shares issued and outstanding, actual; none
issued and outstanding, pro forma and pro forma as adjusted........... 2 -- --
Additional paid-in capital.............................................. 3,721 18,176
Accumulated deficit..................................................... (13,982) (13,982) (13,982)
------------- ----------- -----------
Total stockholders' (deficit) equity.................................. (10,252) 4,212
------------- ----------- -----------
Total capitalization................................................ $ 8,727 $ 8,727 $
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
The common stock to be outstanding after this offering is based on 6,060,000
shares outstanding as of June 30, 1999 and excludes:
- 2,122,175 shares of common stock issuable upon the exercise of outstanding
stock options and warrants outstanding at June 30, 1999 at a weighted
average exercise price of $1.59 per share
- 620,950 additional shares of common stock reserved for issuance under our
stock incentive plan. See "Management--1997 Stock Incentive Plan."
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<PAGE>
DILUTION
As of June 30, 1999, we had a pro forma net tangible book value of $4.2
million, or $0.24 per share of common stock after giving effect to the
conversion of all outstanding shares of preferred stock and Class B common stock
into Class A common stock. Pro forma net tangible book value per share before
the offering is determined by dividing our net tangible book value (total
tangible assets less total liabilities) by the total number of shares of Class A
common stock outstanding at June 30, 1999. After taking into account the sale
and issuance of 5,744,103 shares of Series C preferred stock for an aggregate
consideration of approximately $25.1 million, the conversion of all outstanding
shares of preferred stock and Class B common stock into Class A common stock,
the conversion of all outstanding shares of Class A common stock into common
stock and the sale of shares offered hereby by us at an assumed initial public
offering price of $ per share (the mid-point of the range set forth on the
cover of this prospectus) and after deducting the underwriting discounts and
commissions and estimated offering expenses payable by us, the adjusted pro
forma net tangible book value as of June 30, 1999 would have been $ ,
or $ per share. The adjusted pro forma net tangible book value assumes that
the net proceeds will be approximately $ . Based on the foregoing, there
would be an immediate increase in pro forma net tangible book value to existing
stockholders of $ per share and an immediate dilution of $ per share
to new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $
Pro forma net tangible book value per share as of June 30,
1999...................................................... $ 0.24
Pro forma increase per share attributable to new
investors.................................................
---------
Adjusted pro forma net tangible book value per share after
this offering...............................................
---------
Pro forma dilution per share to new investors................. $
---------
---------
</TABLE>
The following table summarizes, on a pro forma as adjusted basis, as of June
30, 1999, after giving effect to the sale and issuance of 5,744,103 shares of
Series C preferred stock for an aggregate consideration of $25.1 million, the
conversion of all outstanding shares of preferred stock and Class B common stock
into 17,556,603 shares of Class A common stock and the conversion of all
outstanding shares of Class A common stock into 23,616,603 shares of common
stock upon the completion of this offering, the number of shares of common stock
purchased from us (excluding shares we repurchased and held in treasury), the
total consideration paid to us and the average price per share paid by the
existing stockholders and by new investors:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------ ------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ---------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......................... 23,616,603% $ 39,953,740% $ 1.69
New investors..................................
------------ ---------- ------------- ----------
Total.................................... 100.0% 100.0%
------------ ---------- ------------- ----------
------------ ---------- ------------- ----------
</TABLE>
As of June 30, 1999, there were options outstanding to purchase a total of
2,064,050 shares of common stock, at a weighted average exercise price of $1.60
per share and 620,950 additional shares reserved for future grants and issuances
under our stock incentive plan. Additionally, at June 30, 1999, there were
outstanding warrants to purchase a total of 58,125 shares of common stock at a
weighted average exercise price of $1.00 per share. To the extent that any of
these options or warrants are exercised, there will be further dilution to new
investors. See "Management--1997 Stock Incentive Plan" and "Description of
Capital Stock--Common Stock Warrants."
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following historical selected consolidated financial data should be read
in conjunction with our consolidated financial statements and related notes,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and other financial information appearing elsewhere in this
prospectus. The consolidated statements of operations data set forth below for
the period from inception (August 2, 1996) to December 31, 1996 and the years
ended December 31, 1997 and 1998 and the consolidated balance sheet data at
December 31, 1997 and 1998 presented below are derived from, and qualified by
reference to, our financial statements which have been audited by Arthur
Andersen LLP, independent public accountants, and together with their report
thereon, are included elsewhere in this prospectus. The consolidated balance
sheet data at December 31, 1996 is derived from our financial statements that
have been audited by Arthur Andersen LLP, independent public accountants. The
consolidated statements of operations data set forth below for the six months
ended June 30, 1998 and 1999 and the consolidated balance sheet data at June 30,
1999 presented below, are derived from unaudited consolidated financial
statements that include in the opinion of our management, all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the information. The results of operations for the six months
ended June 30, 1999 are not necessarily indicative of the results to be expected
for the entire fiscal year or any other future period.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(AUGUST 2, 1996) YEAR ENDED SIX MONTHS ENDED
TO DECEMBER 31, DECEMBER 31, JUNE 30,
----------------- -------------------- --------------------
1996 1997 1998 1998 1999
----------------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net revenue......................................................... $ -- $ 127 $ 1,978 $ 186 $ 6,037
Operating expenses:
Data communications and telecommunications.......................... -- 187 2,730 576 6,615
Engineering and operations.......................................... 76 317 1,887 625 2,427
Selling and marketing............................................... -- 97 1,160 366 2,031
General and administrative.......................................... -- 454 1,156 372 1,269
Depreciation and amortization....................................... -- 19 364 116 865
Loss (gain) on disposal of property and equipment................... -- -- 531 -- (15)
------ --------- --------- --------- ---------
Total operating expenses.......................................... 76 1,074 7,828 2,055 13,192
Loss from operations.............................................. (76) (947) (5,850) (1,869) (7,155)
------ --------- --------- --------- ---------
Interest income..................................................... -- 17 179 23 84
Interest expense.................................................... -- (4) (53) (26) (229)
Other income (expense), net......................................... -- 8 (3) (3) (3)
Minority interest in loss of joint venture.......................... -- -- -- -- 49
------ --------- --------- --------- ---------
Net loss.......................................................... (76) (926) (5,727) (1,875) (7,254)
Accretion of dividends on redeemable convertible preferred stock.... -- --....... (219) -- (315)
------ --------- --------- --------- ---------
Net loss applicable to common stockholders........................ $ (76) $ (926) $ (5,946) $ (1,875) $ (7,569)
------ --------- --------- --------- ---------
------ --------- --------- --------- ---------
Pro forma net loss applicable to common stockholders................ $ (5,727) $ (7,254)
--------- ---------
--------- ---------
Basic and diluted net loss per share applicable to common
stockholders...................................................... $ (0.01) $ (0.15) $ (0.99) $ (0.31) $ (1.26)
------ --------- --------- --------- ---------
------ --------- --------- --------- ---------
Basic and diluted weighted average common shares outstanding (1).... 6,000 6,006 6,023 6,019 6,030
Pro forma basic and diluted net loss per share (1) (2).............. $ (0.44) $ (0.41)
--------- ---------
--------- ---------
Pro forma basic and diluted weighted average common shares
outstanding (1) (2)............................................... 13,068 17,843
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, JUNE 30, 1999
--------------------------------- ----------------------
1996 1997 1998 ACTUAL PRO FORMA
----- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.......................................... $ 2 $ 1,689 $ 7,399 $ 3,454 $ 3,454
Working capital (deficit).......................................... (10) 1,369 4,241 (1,048) (1,048)
Total assets....................................................... 35 2,518 12,772 16,264 16,264
Capital lease obligations, net of current portion.................. -- 123 213 4,515 4,515
Redeemable convertible preferred stock............................. -- -- 10,719 11,034 --
Total stockholders' equity (deficit)............................... 24 1,971 (2,697) (10,253) 4,212
</TABLE>
- ------------------------------
(1) Computed on the basis described in Note 1(f) of the notes to consolidated
financial statements.
(2) Adjusted to give effect to the automatic conversion upon the closing of this
offering of all outstanding shares of the Series A preferred stock, Series B
preferred stock and Class B common stock into an aggregate of 11,812,500
shares of Class A common stock. Each share of Series B preferred stock and
Class B common stock converts into Class A common stock on a 1:1 basis. Each
share of Series A preferred stock converts into Class A common stock on a
3:1 basis. In addition, advances from investors have been reclassified to
additional paid-in capital to reflect the subsequent sale of Series C
preferred stock which closed in July 1999 and is automatically convertible
into Class A common stock upon the closing of this offering.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS. OUR ACTUAL RESULTS
MAY DIFFER SIGNIFICANTLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS.
FACTORS THAT MIGHT CAUSE FUTURE RESULTS TO DIFFER MATERIALLY FROM THOSE
PROJECTED IN THE FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO,
THOSE DISCUSSED IN "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We are a provider of international voice and fax call completion services,
and other value-added services using the Internet. We were formed in August 1996
and commenced commercial operations in May 1997. We first recorded revenue from
the sale of equipment in May 1997, and first recorded revenue from the sale of
voice and fax services over our network in January 1998. In July 1999, we
changed our name from "VIP Calling, Inc." to "iBasis, Inc." During the period
from inception to the commencement of substantial scale commercial operations in
the first quarter of 1998, our operating activities were focused primarily upon:
- assembling an experienced management team;
- obtaining additional financing;
- testing available gateway technologies and evaluating gateway vendors;
- developing relationships with local service providers in overseas
destinations;
- developing and testing our proprietary software, Assured Quality Routing,
including developing quality measurements and thresholds; and
- providing gateway vendors technical support and analysis.
Since the first quarter of 1998, we have been principally involved in the
following operating activities:
- increasing the capacity of and improving our network through the
deployment of additional equipment and the enhancement of our global
network operations center;
- increasing the number of countries to which we provide service over our
network by entering into arrangements with local service providers at
various destinations;
- refining our proprietary software applications to enable us to offer high
quality international voice and fax call completion services, and other
value-added services; and
- increasing our sales and marketing efforts to increase the traffic over
our network.
Since January 1998 we have derived substantially all of our revenue to date
from the provision of international voice and fax call completion services over
our network. In order to complete voice or fax calls to a particular
destination, we are required to enter into arrangements with local service
providers that have the ability to route the calls to their eventual
destinations. This process typically involves several steps, including the
search for a local service provider, the negotiation of terms with this provider
and upon reaching terms, establishing connections from the local service
provider to the Internet and the local phone company. At the same time, our
carrier sales department begins to sell the newly contracted destination to our
carrier customers. The entire process, from the beginning of the search for a
local service provider to the commencement of commercial traffic, can take from
one to six months.
19
<PAGE>
To date, we have not been able to complete calls over our network for
sustained periods at a cost less than the revenue we derive from completing such
traffic. In part, this has resulted from the costs associated with using
traditional circuit-switched voice networks for back-up and to complete calls to
destinations where our network does not have sufficient capacity. We are
deploying systems and strengthening operating procedures intended to
significantly reduce the negative impact of that traffic, however, there can be
no assurance that such systems and procedures will prove effective. We believe
that if we are able to generate sufficient volumes of traffic and develop
sufficient capacity over our network, economies of scale will result that will
permit us to complete voice and fax calls, and deliver other value-added
services, on a profitable basis.
Since our inception in August 1996, we have experienced operating losses in
each quarterly and annual period and negative cash flows from operations in each
quarter since we commenced offering services over our network in January 1998.
As of June 30, 1999, we had an accumulated deficit of approximately $14.0
million. The profit potential of our business is unproven, and our limited
operating history makes an evaluation of our company and our prospects
difficult. We may not generate revenue sufficient to achieve profitability or,
if we achieve profitability, we might not sustain profitability.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
NET REVENUE. Our primary source of revenue is the fees that we receive from
customers for completing calls over our network. This revenue is dependent on
the volume of voice and fax traffic carried over the network, which is measured
in minutes. We charge our customers fees per minute of traffic that are
dependent on the length and destination of the call and recognize this revenue
in the period in which the call is completed. We also derive a limited amount of
revenue from the sale of equipment to our customers. Most of these equipment
sales are financed by us by setting off termination fees otherwise payable by
local service providers against the equipment purchase price until the full
purchase price has been paid.
Our net revenue increased by $5.9 million to $6.0 million in the six month
period ended June 30, 1999 from $186,000 in the six month period ended June 30,
1998. This increase was primarily driven by an increase in revenue from voice
and fax call completion services to $5.8 million for the 1999 period from
$136,000 for the 1998 period. The increase in voice and fax call completion
services net revenue resulted from an increase in the amount of traffic carried
over our network to 48.0 million minutes in the 1999 period from 866,000 minutes
in the 1998 period. Net revenue from the sale of equipment increased to $239,000
in the 1999 period from $50,000 in the 1998 period.
DATA COMMUNICATIONS AND TELECOMMUNICATIONS EXPENSES. Data communications
and telecommunications expense is comprised primarily of termination fees,
purchased minutes, equipment expense and other expenses associated with data
communications and telecommunications. Termination fees are paid to local
service providers to terminate calls received from our network. This traffic is
measured in minutes, and the per minute rates charged for terminating calls are
negotiated with the local provider and included in our contract with the
provider. Should competition cause a decrease in our prices and in turn our
profit margins, our contracts with our provider typically provide us with the
right to renegotiate the per minute termination fees. Purchased minutes are fees
we pay to other telecommunications carriers for completing calls over the public
circuit-switched network to destinations outside of our network, and as a
back-up to our network when our proprietary Assured Quality Routing software
indicates that either these lines are needed to maintain the quality of our
services or our capacity to a particular destination has been exceeded. The
amount of these fees depends on the volume of voice and fax traffic carried over
the public circuit-switched network, which is also measured in minutes of
traffic. The per minute rate charge for purchased minutes is negotiated with
public circuit-switched network carriers for each destination served. The
primary direct expenses that we incur
20
<PAGE>
in selling our equipment are those incurred to purchase the component parts of
our equipment from a variety of vendors. These expenses are recorded when the
equipment is installed and operational. The expenses vary on the basis of the
number of units to be completed and delivered in a particular period, and will
increase as equipment sales increase. Other data communication and
telecommunications expenses include charges for Internet access at our Super
POPs, fees for the fiber optic connections between our Super POPs and our
customers and/or suppliers, facilities charges for overseas Internet access and
phone lines to the primary telecommunications carriers in particular countries,
and charges for the limited number of dedicated international private line
circuits we use.
Data communications and telecommunications expenses increased by $6.0
million to $6.6 million in the 1999 period from $576,000 in the 1998 period. The
increase in data communications and telecommunications expense was driven by the
increase in traffic described above, as termination fees increased to $2.3
million in the 1999 period from $54,000 in the 1998 period, and purchased
minutes increased to $2.8 million in the 1999 period from $41,000 in the 1998
period. Equipment expenses directly related to equipment sales increased to
$199,000 in the 1999 period from $45,000 in the 1998 period. Other data
communications and telecommunications expenses, including Internet access,
public circuit-switched network access, and international private line charges,
increased to $1.3 million in the 1999 period from $436,000 in the 1998 period.
As a percentage of total revenue, data communications and telecommunications
expenses decreased to 110% in the 1999 period from 309% in the 1998 period. We
expect termination fee expense and purchased minute expense to increase as our
net revenue increases. We also expect other data communications and
telecommunications expenses to increase as we enter into new relationships with
local service providers in international destinations and as we add capacity to
our network.
ENGINEERING AND OPERATIONS EXPENSES. Engineering and operations expenses
include the expenses of developing, operating, supporting and expanding our
international and domestic network, expenses associated with improving and
operating our global network operations center, salary, and payroll taxes and
benefits paid for employees directly involved in the development and operation
of our global network operations center and the rest of our network. Also
included in this category are research and development expenses which consist
primarily of expenses incurred in enhancing, developing, updating and supporting
our network and our proprietary software applications.
Engineering and operations expenses increased by $1.8 million to $2.4
million in the 1999 period from $626,000 in the 1998 period. This increase in
engineering and operations expenses is due principally to the increase in
personnel within the group to 42 at the end of the 1999 period from 12 at the
end of the 1998 period. As a percentage of total revenue, engineering and
operations expenses decreased to 40% in the 1999 period from 336% in the 1998
period. We expect that engineering and operations expense will continue to
increase as we expand the coverage of our network, increase the number of our
service offerings and increase the functionality of our network.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses include
expenses relating to the salaries, payroll taxes, benefits and commissions that
we pay for sales personnel and the expenses associated with the development and
implementation of our promotion and marketing campaigns, including expenses
relating to our outside public relations firm and industry analysts. Selling and
marketing expenses increased by $1.7 million to $2.0 million in the 1999 period
from $366,000 in the 1998 period. This increase is attributable to an increase
in the number of personnel employed in selling and marketing to 17 in the 1999
period from three in the 1998 period, and increased marketing expenses,
particularly in connection with a public relations campaign we initiated in
October 1998. As a percentage of total revenue, selling and marketing expenses
decreased to 33% in 1999 from 196% in 1998. We anticipate that selling and
marketing expenses will increase in the future as we expand our domestic and
international sales force, hire additional marketing personnel and increase
expenditures for promotion and marketing.
21
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
include salary, payroll tax and benefit expenses and related costs for general
corporate functions, including executive management, administration, facilities,
information technology and human resources. General and administrative expenses
increased by $898,000 to $1.3 million in the 1999 period from $372,000 in the
1998 period. General and administrative expenses increased primarily due to an
increase in the number of employees to 11 in the 1999 period from four in the
1998 period, an increase in consulting and professional fees, and an increase in
our allowance for doubtful accounts. As a percentage of total revenue, general
and administrative expenses decreased to 21% in the 1999 period from 200% in the
1998 period. We expect that general and administrative expenses will increase in
the future as we hire additional personnel and incur additional costs related to
the growth of our business and operations. In addition, we expect to expand our
facilities and incur associated expenses to support our anticipated growth.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses increased by $748,000 to $865,000 in the 1999 period from $116,000 in
the 1998 period. This increase primarily resulted from additional purchases of
capital equipment and software that were needed to support our expanding
network. As a percentage of total revenue, depreciation and amortization expense
decreased to 14% in 1999 from 63% in 1998.
INTEREST INCOME AND INTEREST EXPENSE. Interest expense is primarily
comprised of interest paid on the various capital leases pursuant to which we
have financed a substantial majority of the hardware components of our network.
Interest income is primarily composed of income earned on our cash and cash
equivalents. Interest income increased by $60,000 to $84,000 in the 1999 period
from $23,000 in the 1998 period. This increase was primarily attributable to
increased interest earnings on our cash and cash equivalents. Interest expense
increased by $203,000 to $229,000 in the 1999 period from $26,000 in the 1998
period. This increase was attributable to interest paid on capital equipment
financing.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
NET REVENUE. Our net revenue increased by $1.9 million to $2.0 million in
the year ended December 31, 1998 from $127,000 in the year ended December 31,
1997. This increase was primarily driven by an increase in net revenue from
voice and fax services to $1.7 million in 1998 from no net revenue in 1997, as
we did not begin carrying voice and fax call completion services on our network
until January 1998, and in 1998, we carried 12.1 million minutes. In addition,
equipment sales increased to $273,000 in 1998 from $107,000 in 1997
DATA COMMUNICATIONS AND TELECOMMUNICATIONS EXPENSES. Data communications
and telecommunications expenses increased by $2.5 million to $2.7 million in
1998 from $187,000 in 1997. The increase in data communications and
telecommunications expense was driven by the increase in traffic described
above. Termination fees increased to $579,000 in 1998 from no fees in 1997. We
did not incur termination fees in 1997 because we did not carry traffic during
that period. Purchased minutes expense increased to $921,000 in 1998 from
$12,000 in 1997. Equipment expenses directly related to equipment sales
increased to $217,000 in 1998 from $82,000 in 1997. Other data communications
and telecommunications expenses, including Internet access, telco access, and
international private line charges, increased to $1.0 million in 1998 from
$93,000 in 1997. As a percentage of total revenues, data communications and
telecommunications expenses decreased to 138% in 1998 from 146% in 1997.
ENGINEERING AND OPERATIONS EXPENSES. Engineering and operations expenses
increased by $1.6 million to approximately $1.9 million in 1998 from $318,000 in
1997. This increase in engineering and operations expenses is due principally to
the hiring of additional personnel, from three at December 31, 1997 to 20 at
December 31, 1998. As a percentage of total revenue, research and development
expenses decreased to 95% in 1998 from 250% in 1997.
22
<PAGE>
SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased by
approximately $1.1 million to approximately $1.2 million in 1998 from $98,000 in
1997. This increase is attributable to an increase in the number of personnel
employed in selling and marketing to eight at December 31, 1998 from two at
December 31, 1997, increased travel expenses related to the domestic and
overseas sales efforts which began in 1998, and increased marketing expenses,
particularly in connection with a public relations campaign we initiated in
October 1998.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $702,000 to $1.2 million in 1998 from $454,000 in 1997. General and
administrative expenses increased primarily due to an increase in the number of
employees to six at December 31, 1998 from two at December 31, 1997, an increase
in professional fees, and an increase in our allowance for doubtful accounts. As
a percentage of total revenue, general and administrative expenses decreased to
58% in 1998 from 356% in 1997.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses increased by $345,000 to $364,000 in 1998 from $19,000 in 1997. This
increase primarily resulted from additional purchases of capital equipment and
software that were needed to support our expanding network. As a percentage of
total revenue, depreciation and amortization expense increased to 18% in 1998
from 15% in 1997.
INTEREST INCOME, INTEREST EXPENSE AND LOSS ON DISPOSAL OF ASSETS. Interest
income increased by $162,000 to $179,000 in 1998 from $17,000 in 1997. This
increase was primarily attributable to increased interest earnings on our cash
and cash equivalents. Interest expense increased by $49,000 to $53,000 in 1998
from $4,000 in 1997. This increase was attributable to interest paid on capital
equipment financing. Loss on disposal was $531,000 in 1998. No loss on disposal
was recorded in 1997. This loss was attributable to the write-off and disposal
of all of our former network equipment, which we replaced with Cisco Systems
hardware during the course of 1998.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
ENGINEERING AND OPERATIONS EXPENSES. Engineering and operations expenses
increased by $242,000 to approximately $318,000 in 1997 from $76,000 in 1996.
The increase in engineering and operations expenses is due principally to the
development of our network as we prepared to commence operations.
iBasis was formed in August 1996 and commenced its commercial operations in
May 1997. As of December 31, 1997, we were still in our development stage and
had not generated any revenue from operations. Accordingly, we believe that
year-to-year comparisons of the results of operations for the years ended
December 31, 1996 and 1997 are not meaningful and should not be relied upon as
an indication of future performance.
23
<PAGE>
UNAUDITED QUARTERLY OPERATING RESULTS
The following tables set forth certain unaudited quarterly operating results
for each of our four fiscal quarters in the twelve-month period ended June 30,
1999, certain financial data expressed as a percentage of net revenue, and
certain other operating data. The financial information set forth below has been
derived from unaudited consolidated financial statements that, in management's
opinion, reflect all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the quarterly information. The
operating results for any quarter are not necessarily indicative of the results
to be expected for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1998 1998 1999 1999
--------- --------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenue............................................. $ 387 $ 1,405 $ 2,414 $ 3,623
Operating expenses:
Data communications and telecommunications............ 663 1,491 2,586 4,029
Engineering and operations............................ 502 759 936 1,491
Selling and marketing................................. 303 492 809 1,222
General and administrative............................ 268 516 568 701
Depreciation and amortization......................... 95 152 233 632
Loss (gain) on disposal of property and equipment..... -- 531 -- (15)
--------- --------- ----------- ---------
Total operating expenses.......................... 1,831 3,941 5,132 8,060
--------- --------- ----------- ---------
Loss from operations.............................. (1,444) (2,536) (2,718) (4,437)
Interest income......................................... 51 103 53 31
Interest expense........................................ (19) (6) (60) (169)
Other expense, net...................................... -- -- (2) (1)
Minority interest in loss of joint venture.............. -- -- 49 --
--------- --------- ----------- ---------
Net loss.......................................... $ (1,412) $ (2,439) $ (2,678) $ (4,576)
--------- --------- ----------- ---------
--------- --------- ----------- ---------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1998 1998 1999 1999
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenue............................................................ 100.0% 100.0% 100.0% $ 100.0%
Operating expenses:
Data communications and telecommunications........................... 171.3 106.1 107.1 111.2
Engineering and operations........................................... 129.8 54.1 38.8 41.2
Selling and marketing................................................ 78.2 35.0 33.5 33.7
General and administrative........................................... 69.2 36.7 23.5 19.3
Depreciation and amortization........................................ 24.5 10.8 9.7 17.4
Loss (gain) on disposal of property and equipment.................... 0.0 37.8 0.0 (0.4)
----------- ----------- ----------- ---------
Total operating expenses......................................... 473.0 280.5 212.6 222.4
----------- ----------- ----------- ---------
Loss from operations............................................. (373.0 ) (180.5 ) (112.6 ) (122.4)
----------- ----------- ----------- ---------
Interest income (expense), net......................................... 8.1 6.9 (0.2 ) (3.9)
Other expense, net..................................................... 0.0 0.0 (0.1 ) 0.0
Minority interest in loss of joint venture............................. 0.0 0.0 2.0 0.0
----------- ----------- ----------- ---------
Net loss......................................................... (364.9 )% (173.6 )% (110.9 )% $ (126.3)%
----------- ----------- ----------- ---------
----------- ----------- ----------- ---------
</TABLE>
24
<PAGE>
Our operating results have fluctuated greatly during the period since
inception, and in the period since we began offering commercial scale services
in June 1998. We expect that our operating results will continue to fluctuate
based on a number of factors, including:
- the amount of traffic we are able to sell to our customers, and their
decisions on whether to route traffic over our network;
- pricing pressure in the international long-distance market;
- the percentage of traffic that we are able to carry over the Internet or
over our dedicated international private circuit lines, rather than over
the more costly traditional public-switched telephone network;
- loss of arbitrage opportunities resulting from declines in international
settlement rates or tariffs;
- our ability to negotiate changes in the termination fees charged by our
local providers when margins deteriorate;
- capital expenditures required to expand or upgrade our network;
- changes in call volume among the countries to which we complete calls;
- technical difficulties or failures of our network systems or third-party
delays in expansion or provisioning system problems;
- our ability to offer value-added services that are appealing to the
market; and
- currency fluctuations in countries where we operate.
The telecommunications services market experiences different pricing
pressures for traffic to different destinations. The level of pressure depends
on the regulatory status of Internet telephony in the terminating country,
competition from other carriers to the country, and technological advances
allowing for higher utilization of existing capacity. The rate to each country
differs greatly, so completing calls in different countries yields varying
levels of revenue per minute of traffic. Our revenue per minute will fluctuate
as our mix of traffic among the countries to which we complete calls changes. In
developing our network, we have targeted potential partners in countries that we
believe offer the highest revenue per minute for terminating traffic.
In addition, we have no fixed purchase commitments from our communications
service provider customers, and any customer could decide to route its traffic
over alternative networks practically instantly. Accordingly, it is difficult
for us to accurately project the amount of traffic we will be able to sell in
any future period. Furthermore, because we have derived a significant portion of
our revenue to date from a small number of customers, the loss of one or more
major customers could have a material adverse effect on our business, financial
condition and results of operations. In addition, we depend on local service
providers to terminate calls in our overseas destinations. The loss of a
relationship with one or more of these service providers could result in us
being unable to provide call completion to that country. See "Risk
Factors--Risks Related to Our Operations."
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital and liquidity needs historically have related to the
development of our network infrastructure, our sales and marketing activities,
research and development expenses, and general capital needs. Our capital needs
have been met, in large part, from the net proceeds from the sale of our Class B
common stock and preferred stock. As we placed greater emphasis on expanding our
network infrastructure, we have also sought to meet our capital needs through
vendor capital leases and other equipment financings. We have also established a
line of credit with a bank.
Net cash provided by financing activities was $100,000 for the period
between inception and December 31, 1996, $2.9 million for the year ended 1997,
$11.6 million for the year ended 1998, and
25
<PAGE>
$3.0 million for the six months ended June 30, 1999. These amounts are primarily
attributable to the net proceeds from the issuance of Class B common stock and
preferred stock.
Net cash used in operating activities was $65,000 for the period between
inception and December 31, 1996, $666,000 for the year ended 1997, $2.1 million
for the year ended 1998, and $6.4 million for the six months ended June 30,
1999. Cash used in operating activities for all periods resulted from net losses
and increases in accounts receivable, which were partially offset by increases
in accounts payable and accrued liabilities.
Net cash used in investing activities was $34,000 for the period between
inception and December 31, 1996, $511,000 for the year ended 1997, $3.8 million
for the year ended 1998, and $478,000 for the six months ended June 30, 1999.
Cash used in investing activities was primarily related to purchases of
equipment.
The continued development and expansion of our sales and marketing efforts
and network infrastructure, as well as the further development or the possible
acquisition of new services, are expected to require substantial cash
expenditures. In addition, our existing operations are not currently profitable
on a stand-alone basis. As a result, we expect to continue to incur operating
losses and negative cash flows from operations for the foreseeable future. In
July 1999, upon the closing of the sale of our Series C preferred stock, we had
approximately $24.8 million of cash and cash equivalents available for our
working capital needs. We believe that this cash and cash equivalents, together
with the net proceeds of the offering, will be sufficient to meet our working
capital and capital expenditure requirements for at least the next twelve
months. We have budgeted our future capital requirements based on current
estimates of our future revenue and with a view to current competitive factors
and the domestic and international regulatory environment pertaining to our
business. We cannot be certain that actual revenue will be in line with
management's expectations or that expenditures will not be significantly higher
than anticipated. In addition, there can be no assurance that we will be able to
meet our strategic objectives or that we will have access to adequate capital
resources on a timely basis, or at all, or that such capital will be available
on terms that are acceptable to us. We may consider potential acquisitions or
other strategic arrangements that may fit our strategic plan. Any such
acquisitions or strategic arrangements likely would require additional equity or
debt financing, which may result in dilution to investors in this offering.
CLASS B COMMON STOCK AND PREFERRED STOCK FINANCINGS. In February, March and
April 1997, we issued and sold 1,500,000 shares of our Class B common stock to
our founders and a number of independent investors in a transaction that
resulted in net proceeds of $500,000.
In October, November and December 1997, and March and June 1998 subject to
commitments made in 1997, we issued and sold an aggregate of 1,250,000 shares of
Series A preferred stock to a number of new independent investors, our founders
and certain of our other existing stockholders in a transaction that resulted in
net proceeds of $3.75 million.
On August 26, 1998, we issued and sold 6,562,500 shares of Series B
preferred stock to a number of new independent investors, our founders and
certain of our other existing shareholders in a transaction that resulted in net
proceeds of $10.5 million.
In July 1999, we issued and sold an aggregate of 5,744,103 shares of Series
C preferred stock to a number of new independent investors, our founders and
certain of our other existing shareholders in a transaction that resulted in
gross proceeds of $25.1 million.
Upon completion of this offering, all of the outstanding shares of Class B
common stock and preferred stock will automatically convert, without further
action on our part or the holders of such stock, into 17,556,603 shares of Class
A common stock and all of the outstanding shares of Class A common stock will
automatically convert into 23,700,353 shares of common stock.
EQUIPMENT LEASING AND FINANCING. We lease equipment from Cisco Systems
Capital Corporation and TLP Leasing under master agreements and multiple lease
sub-agreements. Each of the multiple
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equipment leases specifies its own term, rate and payment schedule, depending
upon the value and amount of equipment leased. As of June 30, 1999, the
aggregate outstanding balance under our leases from Cisco was $5.1 million, and
we had an additional $4.9 million available for borrowing under that master
agreement. As of the same date, the aggregate outstanding balance under the TLP
master lease was $789,000 and an additional $205,000 was available for borrowing
under that lease program.
We have a credit facility allowing us to borrow up to $750,000 from Silicon
Valley Bank in equipment advances for equipment purchased before July 31, 1999.
As of July 31, 1999, we had made borrowings in the aggregate amount of $505,634
under this equipment facility. Interest accrues on the average outstanding daily
balance of the equipment advances at an annual rate equal to the prime rate plus
1 1/2%. The outstanding principal and interest of these equipment advances are
payable in 36 equal monthly installments of combined principal and interest,
with the first payment due August 5, 1999. No equipment advances may be borrowed
after July 31, 1999, and any amounts repaid may not be reborrowed. We expect to
continue to use equipment leasing alternatives as we expand our network if such
borrowings are available on favorable terms.
REVOLVING LINE OF CREDIT. On June 18, 1999 we entered into a Loan and
Security Agreement with Silicon Valley Bank that provides us with access to a
$1.5 million revolving credit facility. The line of credit is secured by a lien
on all of our assets, receivables and after acquired property. Interest accrues
daily on the unpaid principal of the facility at an annual rate equal to the
prime rate, as defined in the Loan and Security Agreement, plus 1%. We must make
interest payments on outstanding borrowings on a monthly basis, otherwise any
unpaid interest is added to the outstanding principal amount, and accrues
interest at the same rate. As of June 30, 1999 we had made no borrowings under
the Loan and Security Agreement. All outstanding amounts under our line of
credit shall become due and payable in full on June 18, 2000.
YEAR 2000 READINESS
The Year 2000 problem stems from the fact that many currently installed
computer systems include software and hardware products that are unable to
distinguish 21(st) century dates from those in the 20(th) century. As a result,
computer software and hardware used by many companies and governmental agencies
may need to be upgraded to support Year 2000 requirements or risk system failure
or miscalculations causing disruptions to normal business activities.
We are a comparatively new enterprise, and accordingly, the software and
hardware we use to manage our business has all been purchased or developed by us
within the last 18 months. While this fact does not necessarily protect us
against Year 2000 exposure, we believe we gain some mitigation from the fact
that the information technology we use to manage our business is not based upon
"legacy" hardware and software systems. "Legacy system" is a term often used to
describe hardware and software systems which were developed in previous years
when there was less awareness of Year 2000 issues. Generally, hardware and
software design within more recent years in particular has given greater
consideration to Year 2000 issues. All of the software code we have internally
developed to manage our network traffic, for example, is written and tested to
be Year 2000 ready.
STATE OF READINESS. We are in the process of assessing the corporate
systems and operations that we believe could be affected by the Year 2000
problem. We have focused our Year 2000 compliance review on three areas:
- information technology infrastructure, including the operation of the
iBasis Network and related software applications;
- third-party compliance; and
- non-information technology systems.
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All of the assessment, remediation and testing we have completed has been
performed by our own personnel; to date we have not engaged any outside service
or consultants to test or review our systems for Year 2000 readiness.
INFORMATION TECHNOLOGY INFRASTRUCTURE. Because our network and business
systems are essential to our business, financial condition and results of
operations, we began assessing these systems prior to other less critical
information technology systems. We use the following information technology for
our infrastructure:
- critical systems directly responsible for processing Internet telephony
including:
- OUR BILLING AND PROVISIONING SYSTEMS,
- OUR PROPRIETARY SOFTWARE AS WELL AS SOFTWARE AND HARDWARE WE HAVE
PURCHASED,
- EQUIPMENT IN OUR NETWORK THAT CARRIES TRAFFIC, INCLUDING GATEWAYS AND
SWITCHES, AND
- OUR GLOBAL NETWORK OPERATION CENTER SYSTEMS;
- Website and Internet systems including local access networks and
firewalls;
- main enterprise systems, such as those used for human resources, e-mail,
intranet and accounting;
- individual workstations, including personal computers and printers; and
- network systems.
We currently believe that all of our critical systems are Year 2000 ready.
We are rechecking the test results of our proprietary Assured Quality Routing
software and our iTrac software. Based on representations from third-party
vendors, we believe that the software and hardware components of our service
switch systems and global network operations center are Year 2000 ready. We are
in the final stages of verifying the Year 2000 readiness of the system suppliers
of our Website and main enterprise systems. We are currently conducting Year
2000 readiness testing of our individual workstations and network systems. To
date, we have not discovered Year 2000 problems in these systems. We have
designed our systems to be Year 2000 ready and will continue to test these
systems.
THIRD-PARTY COMPLIANCE. Our material third-party business relationships
include:
- Cisco Systems;
- several Internet service providers; and
- Datex Communications Corporation, our outsourced billing service bureau.
Cisco Systems provides a substantial majority of the gateways used in the
iBasis Network to provide our Internet telephony services. Any failure of these
systems to be Year 2000 ready would cause a material disruption of our services.
Cisco has represented to us that its gateways and other Cisco components we use
are Year 2000 ready.
In addition, we rely on third-party network infrastructure providers to gain
access to the Internet. If such providers experience business interruptions as a
result of their failure to achieve Year 2000 compliance, our ability to provide
Internet connectivity could be impaired, which could have a material adverse
effect on our business, financial condition and results of operations. We are
still in the process of completing individual surveys of the Year 2000 readiness
of our Internet service providers. We are also in the process of putting in
place redundant arrangements with Internet service providers to address Year
2000 issues and for other business reasons.
Datex Communications Corporation provides our outsourced billing services.
Datex has represented to us that their systems are Year 2000 ready. If Datex'
systems and ability to process our billing are impaired by Year 2000 issues, we
may be unable to bill and collect revenues from our customers, which could have
a material adverse effect on our business, financial condition and results of
operations.
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We are unable to predict, and have not attempted to assess, the Year 2000
readiness of the systems our customers and our partners use to interact with us.
Because the majority of our business involves international communications, we
are dependant upon systems and equipment local to these countries. We currently
do not know the level of testing and preparation for Year 2000 readiness of the
organizations in these countries. We will be contacting our customers and
partners to fully understand their Year 2000 readiness. However, this issue is
not unique to us, as all of these customers and partners are having to face this
issue to support their normal business operations.
Year 2000 disruptions in the systems or equipment that our suppliers use
could prevent their delivery of products and services in a timely manner. We are
in the process of developing a standard survey to help us assess the Year 2000
readiness of our suppliers, and have collected documentation from these
companies that claims their products are Year 2000 ready.
NON-INFORMATION TECHNOLOGY SYSTEMS. Some non-information technology systems
used in our business, such as heating, ventilation, and air conditioning
systems; our telephone systems; and other equipment, may contain date-processing
embedded technology. The Year 2000 problem could cause failures in these assets
and disrupt our operations. We are currently assessing the Year 2000 readiness
of these systems. To date, we have not discovered Year 2000 problems in these
systems.
We do not believe that any failure of any of our non-information technology
systems to be Year 2000 ready will have a material adverse effect on our
business, financial condition or results of operations.
COSTS. We have not recorded the amount of employee time expended on Year
2000 assessment, remediation and testing activities. Accordingly, we are unable
to determine the cost of employee time devoted to Year 2000 matters. Until we
have completed our assessment of the Year 2000 readiness of our systems and
those of third-parties with whom we do business, we will be unable to estimate
all of the costs that we may incur in our Year 2000 readiness efforts. We have
funded and will continue to fund these activities principally through cash on
hand and cash flow from operations.
MOST REASONABLY LIKELY WORST CASE SCENARIO. It is possible that problems
related to the Year 2000 date change could result in one or more of the
following:
- a complete disruption of our Internet telephony services to any, and or
all, countries; and
- a disruption of billing cycles.
Most, if not all, of the alternatives that would allow us to run our systems
in the event of such disruptions would result in increased costs, reduced
revenues or service delays, which would increase our operating losses. Extended
disruptions may impact long-term customer and supplier relationships, which
could further impact future profitability.
CONTINGENCY PLAN. To date we have not formulated contingency plans should
any of our or a third-party's systems or equipment fail to be Year 2000 ready.
However, we intend to develop contingency plans to address any Year 2000
readiness problems that we discover through our ongoing assessment, remediation
and testing activities. If our efforts to address Year 2000 readiness are not
successful, or if our customers and partners, domestically and internationally,
do not adequately address their Year 2000 problem, our financial condition and
results of operations would be materially adversely affected.
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BUSINESS
COMPANY OVERVIEW
We are a leading provider of high quality Internet telephony services that
enable telecommunications carriers and other communications service providers to
offer international voice, fax and other value-added applications over the
Internet. By outsourcing international communications services to us, our
customers are able to lower costs, generate new revenue and extend their
business into Internet-based services quickly while maintaining service quality
comparable to that of traditional voice networks.
INDUSTRY OVERVIEW
TELECOMMUNICATIONS MARKET OVERVIEW. According to the Gartner Group, a
leading market research firm, the global telecommunications market is expected
to grow to approximately $1.9 trillion by 2003. Global deregulation and rapid
technological advances have resulted in the emergence of many new communications
service providers, increased competition among traditional telecommunications
carriers, lower prices, innovative new services and accelerated customer
turnover. In their efforts to add and retain customers, communications service
providers are looking for ways to cut costs and offer new services.
INTERNATIONAL LONG DISTANCE MARKET. The international long distance market
is a large and growing segment of the telecommunications market. According to
TeleGeography, a market research firm, the total market for international long
distance services in 1997 was approximately $65.9 billion. International Data
Corporation expects international long distance traffic to grow from 94.9
billion minutes in 1998 to 187.1 billion minutes in 2002. We believe that this
growth will accelerate as countries around the world continue to deregulate
their telecommunication markets. One important result of this global trend
towards deregulation and technological change is the increasing number of
communications service providers. TeleGeography has reported that the number of
international long distance carriers has grown from 367 in 1995, to 1,042 in
1998.
EMERGENCE OF INTERNET TELEPHONY. Although it has been possible to transmit
voice over data networks since 1995, only recently has the technology improved
such that phone-to-phone calls can be transmitted over data networks with
quality approaching that of traditional voice networks. International Data
Corporation projects that the international Internet telephony market will grow
to over $20.5 billion in 2002, from approximately $1.7 billion in 1998. We
expect this growth to occur most rapidly in the international long distance
market as international long distance communications service providers continue
to seek cost savings and opportunities to introduce new services. According to
International Data Corporation, Internet telephony will account for nearly 11%
of United States and international long distance voice traffic by 2002.
Internet telephony offers communications service providers the following
advantages over traditional voice networks, allowing them to complete calls at
comparable quality with lower costs, and offer new services:
- TECHNOLOGICAL EFFICIENCIES. Traditional voice networks use circuit
switching technology, which establishes dedicated lines between an
originating and terminating point for the duration of a call. In contrast,
Internet telephony is based on packet switching technology. This
technology completes a call by digitizing and dividing a speaker's voice
into small packets that travel to their destination along lines carrying
packets of other Internet traffic. Packets from multiple calls or faxes
can be carried over the same line simultaneously with data from other
sources, which results in a higher utilization of transmission lines than
can be achieved with circuit-switched technology. Unlike circuit-switched
traffic, data packets also can be compressed, which means that Internet
telephony uses less bandwidth per call than traditional circuit-switched
calling. As a
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result of these features, calls can be completed at a lower cost using
Internet telephony. We believe that packet-switched networks, including
the Internet, will allow other traditional services to be offered more
cost-effectively as well.
- ECONOMIES OF SCALE. Internet telephony calls are carried over large and
rapidly growing data networks. Businesses recently have spent billions of
dollars to upgrade their data networks to accommodate dramatic increases
in data traffic. According to TeleGeography, the total bandwidth used for
data surpassed that used for voice in the United States long distance
market in 1998. This growth is driven largely by technological innovation
and the rapid expansion of the Internet as a global medium for
communications and commerce. As data networks continue to grow,
communications service providers should benefit from greater economies of
scale and be able to offer Internet-based services, such as Internet
telephony, more cost effectively than services over traditional voice
networks.
- OPPORTUNITY TO BY-PASS INTERNATIONAL SETTLEMENT RATES. Traditional
international long distance calls are completed over international voice
networks. These networks are typically owned by government bodies or
telecommunications carriers who charge settlement rates or tariffs for
their use. International calls routed over the Internet bypass a
significant portion of these fees, and as a result can generally be
completed at lower cost.
- ADDITIONAL CHANNEL FOR CARRIERS. Carriers regularly outsource their voice
and fax traffic to take advantage of the lowest-cost provider to a
particular destination and partner with companies that can provide
additional channels. Internet telephony offers an opportunity for service
providers with access to necessary technology to develop networks that can
provide these additional channels.
- MORE SERVICES AND EASIER ROLL OUT. In contrast to the closed, proprietary
structure inherent in traditional circuit-switched voice networks,
Internet telephony embraces an open architecture and open standards, which
facilitates innovation at lower costs. Traditional voice networks are
designed specifically to provide one basic service, making it difficult to
introduce new services over those networks. In contrast, data networks
convert all services into data packets, and allow for the introduction of
an indefinite variety of packet-based services that were not possible over
the traditional network. Since rollout of new services does not
necessitate network-wide upgrades, it is easier for communications service
providers to deploy new services quickly. While voice and fax are the
dominant services provided today, additional services, such as Internet
call waiting, unified messaging and electronic commerce can be provided
over data networks.
DEMAND FOR INTERNET TELEPHONY SOLUTIONS. While there are many reasons for
telecommunications carriers and other communications service providers to take
advantage of Internet telephony, for the most part, they have been slow to
establish in-house Internet telephony capability for a number of reasons. These
reasons include:
- lack of adequate Internet telephony technology until recently;
- concerns over quality;
- prior substantial investment in circuit-switched networks and the
associated expertise; and
- a hesitation to build new networks and cannibalize traffic from their
traditional voice networks.
Developing an international Internet telephony network for a substantial
portion of a communications service provider's traffic would also be expensive
and time-consuming, requiring each service provider to negotiate agreements in
each country where it would like to be able to complete calls. Therefore, many
communications service providers are looking to outsource their Internet
telephony services.
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To date, however, few Internet telephony providers have been able to offer
the quality, reliability and back office support necessary to meet the carriers'
strict requirements. In addition, most Internet telephony providers do not have
the international presence to be able to complete calls to a sufficient number
of destinations, and do not have the capacity to carry the volume of traffic
required by carriers to any given location.
THE IBASIS SOLUTION
We provide high quality Internet-based communication services to
telecommunications carriers and other communications service providers. Our
solution enables communications service providers to outsource their
international voice, fax and other value-added services over the Internet at
substantially lower costs than over traditional networks while maintaining high
quality service. We provide our customers access to the iBasis Network, our
international, scaleable, standards-based Internet telephony network through
"points of presence," or POPs, which are located in major cities in North
America, Asia, Latin America, Europe and Africa. Our services provide the
following key benefits to our customers:
HIGH QUALITY VOICE AND FAX TRANSMISSIONS. Our proprietary technology
enables us to complete international voice and fax calls over the iBasis Network
with quality comparable to that of traditional circuit-switched voice networks.
This is supported by the fact that carriers are able to provide our Internet
telephony services to their customers undifferentiated from their traditional
services. Through our global network operations center and proprietary Assured
Quality Routing software, we are able to monitor our network and route traffic
over dedicated private lines or traditional circuit-switched lines when
necessary to maintain high quality. This enables us to provide consistently high
quality services to communications service providers.
COST EFFECTIVE SOLUTIONS. Our transmission costs are lower because packet
switching is more efficient than traditional circuit switching. In addition, we
leverage the Internet to deliver traffic, which results in lower costs than
transmission alternatives that deploy dedicated connections. Our packet-based
scaleable solution also allows us to better match our investment in equipment
with capacity needs, and provide lower cost world-class operating support
systems. Also, we are currently able to circumvent many of the international
tariffs or settlement rates associated with international calls over
circuit-switched voice networks, which results in additional cost savings.
INTERNATIONAL HIGH-CAPACITY NETWORK. Our iBasis Network is a growing
international network that allows us to complete calls worldwide. During our
second quarter ended June 30, 1999, we transported approximately 31.1 million
minutes of traffic over the more than 1,500 lines we have deployed
internationally through our relationships with communications service providers.
FLEXIBLE BACK OFFICE SOLUTION THAT FACILITATES NEW SERVICES AND EFFECTIVE
BUSINESS MANAGEMENT. We provide communications service providers with an
integrated network, making possible advanced reporting and monitoring that
customers can access from an easy to use Web-based application. The flexibility
of our back office systems allows us to provide timely statistics and integrated
billing that enables a communications service provider to manage its costs more
effectively and offer new services more readily.
EASE OF DEPLOYMENT AND TIME TO MARKET. We enable carriers to route calls
over our network in a timely and cost effective manner. Carriers and other
communications service providers need no special equipment or technical
expertise in order to access our services as connections are made in the same
manner as traditional voice-based services. Our solution shortens communications
service providers' time-to-market by enabling them to complete calls to any
country on our network without experiencing the delays typically incurred in
establishing separate contracts with local service providers in each country.
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OPEN, SCALEABLE ARCHITECTURE DESIGNED FOR NEW SERVICES. Our network
architecture is open, scaleable and standards based. This allows for fast
deployment of services to new countries, and enables us to offer other
value-added services over our network quickly and easily. We currently offer
voice, fax and billing services and will offer other new value-added services.
OUR STRATEGY
Our objective is to be the leading provider of high quality Internet-based
communication services to telecommunications carriers and other communications
service providers. We plan to accomplish this by pursuing the following
strategies:
FOCUS ON HIGH-VOLUME COMMUNICATIONS SERVICE PROVIDERS. We are focused on
providing Internet-based communications services to high-volume carriers. By
focusing on carriers, rather than the end-users, we are able to avoid the time
and expense associated with building a retail sales and support infrastructure.
Our focus on carriers has the added benefit that we do not compete with our
customers for end-users.
PROVIDE CARRIER-CLASS SERVICES USING THE INTERNET. Through our proprietary
technologies, we offer high quality voice and fax completion services using the
Internet. By using the Internet to deliver a majority of our services, we are
able to avoid the costs associated with developing an extensive network of
private dedicated lines. We intend to continue to use the Internet to provide
our high quality services at competitive prices. We will continue to introduce
only those services that we can offer at carrier-class quality.
FOCUS ON THE INTERNATIONAL MARKET AND EXPAND OUR GEOGRAPHIC PRESENCE THROUGH
PARTNERSHIPS AND ACQUISITIONS. The international long distance market segment is
large and growing and has historically offered higher revenue per minute than
the domestic long distance market segment. We intend to build the leading
international Internet telephony network to allow carriers to use us for their
international Internet telephony services around the world. We will continue to
focus on the international segment and partner with communications service
providers such as China Unicom and Dacom, the second largest carriers in China
and Korea respectively, that can originate and terminate calls in their
respective countries. We will also consider acquiring other complementary
businesses or technologies if attractive opportunities arise.
CONTINUE TO BE AT THE FOREFRONT OF INTERNET-BASED COMMUNICATIONS
TECHNOLOGY. In order to provide these high quality services and stay at the
forefront of Internet-based communications technology and service offerings, we
will continue to invest in improving our technology, and partner with leaders in
Internet-based communications hardware and software.
INCREASE SALES AND MARKETING EFFORTS AND BRAND AWARENESS. We will continue
to expand our sales and marketing activities, while focusing on communications
service providers domestically as well as internationally. We intend to build
iBasis into the premier brand in the Internet telephony marketplace and will
strive to make our name synonymous with high quality, value-added Internet
telephony services for communications service providers. We are in the process
of hiring additional sales, sales support and marketing professionals with
specific experience in our target markets and regions.
OFFER ADDITIONAL INTERNET-BASED COMMUNICATION SERVICES. We intend to
introduce new services that carriers can offer over our network or their own
networks. We are focused on applications that will allow carriers to expand
their business, improve service quality and cut costs. We also intend to offer
new services such as dedicated Internet and circuit-switched network access,
which will help our customers enter new markets quickly. We believe that these
new services will increase our customer base and allow us to cross-sell other
services to communications service providers once they are our customers.
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THE IBASIS NETWORK
The iBasis Network is our international network over which we deliver large
volumes of high quality international voice, fax and other value-added services
at significant cost savings. During our second quarter ended June 30, 1999, we
transported approximately 31.1 million minutes of traffic over our network. The
iBasis Network consists of four principal elements:
- "points of presence," which we call POPs, that translate voice to data for
transmission and retrieval over a data network;
- the transmission medium, which is principally the Internet;
- Assured Quality Routing, our proprietary software; and
- our global network operations center, from which we oversee and coordinate
the operation of the gateways and the transmission network.
Following is a diagram of the iBasis Network.
(Diagram depicting the flow of information, moving clockwise from the lower
left with arrows connecting the various points, from a telephone, cellular phone
and fax machine, labeled "Origination," through telephone lines, labeled
"Traditional Circuit-Switched Telephone Network," into an iBasis POP, to a cloud
labeled "The Internet," continuing out through another point of presence, to
another picture of telephone lines, labeled "Traditional Circuit-Switched
Telephone Network," and concluding with the depiction of a telephone, cellular
phone and fax machine labeled "Termination." In the center of the diagram,
connected to the POPs and the Internet, is a box with the text "Global Network
Operations Center" and "Assured Quality Routing." Above the Internet cloud is a
small cloud labeled "Alternate Routes" connected to the POPs with dotted lines.)
POPS AND SUPER POPS. The entrance point for communications traffic over the
iBasis Network is a POP. POPs with enhanced functionality and capacity are
called Super POPs. Our customers can interconnect with the iBasis Network by
connecting dedicated voice circuits from their facilities to one of three Super
POPs, located in New York, Los Angeles and Hong Kong. Alternatively, our
customers may elect to install an iBasis POP directly at their facilities to
eliminate the cost of backhauling traffic from their facilities to one of our
SuperPOPs. POPs and Super POPs receive calls through a local carrier's switched
network. Gateways in each POP digitize, compress and packetize voice and fax
calls and then transmit them over the Internet. At the destination, another POP
reverses the process and the call is switched back from the Internet to a local
carrier's circuit-switched network in the destination country.
We currently operate POPs located in Brazil, China, Greece, Indonesia,
Israel, Korea, Lebanon, Malaysia, Mexico, Peru, Singapore, Taiwan, Venezuela and
Zimbabwe. Some of these POPs are owned by iBasis and others are owned by our
partners. The POPs are scaleable and flexible platforms designed for
interconnection with the iBasis Network and are built primarily using Cisco
Systems' equipment. The scaleability of the POPs permits us to quickly increase
capacity in discrete increments at relatively low cost, either for a region or a
customer. In addition, the POPs' flexible architecture is designed to easily
integrate and support the new services we intend to offer.
THE INTERNET. We use the Internet to transmit the substantial majority of
our voice and fax traffic and deliver other value-added services, because of its
global coverage, rapid growth and flexible connectivity. By using the Internet,
we avoid having to build a private, dedicated network of fiber and cable
connections, which would delay our time-to-market in many locations and would be
more costly to deploy. We have addressed the challenges present in using the
Internet by:
- selecting only high quality, service-oriented Internet service providers
as our vendors;
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- purchasing high-speed connections into the Internet backbone; and
- continuously monitoring the quality of the connections between each POP
and the Internet.
We also use data transmission over private leased lines or traditional
circuit-based voice networks where the Internet is not available or would not
permit us to meet our quality standards.
ASSURED QUALITY ROUTING. We have deployed a proprietary software
application, Assured Quality Routing, to maintain high quality voice and fax
service. This application monitors the quality of calls placed over our network
by applying defined quality parameters to each processed call. These quality
parameters include measures of voice and fax quality that are important to
carriers, including overall voice quality, call completion rates and post-dial
delay. The system alerts us whenever the transmission quality drops below
specific thresholds. We temporarily route subsequent calls to a circuit-switched
network or an alternate Internet-based network to restore high quality.
GLOBAL NETWORK OPERATIONS CENTER. We manage our network of POPs around the
world and implement our proprietary Assured Quality Routing software through our
global network operations center. It is comprised of network management tools
from Hewlett-Packard and a number of other vendors that permit us to monitor,
test and diagnose all components of the iBasis Network. The global network
operations center is staffed and running 7 days a week, 24 hours a day at our
Burlington, Massachusetts headquarters, complete with:
- real-time, end-to-end monitoring and analysis of call behavior patterns on
the iBasis Network to identify and address potential problems before they
become serious and to anticipate issues related to network growth;
- system redundancy, including power back-up and multiple network paths; and
- a help desk, which allows us to respond to our customers problems on a
timely basis.
OUR SERVICES
Our current services include international voice and fax call completion and
a retail rating or billing solution. We also provide customers with our
Web-based traffic revenue reporting system called iTrac. Customers have the
option to purchase these services as a complete suite or separately.
INTERNATIONAL VOICE AND FAX SERVICES. We offer international voice and fax
call completion services, and other value-added services, that provide our
customers a high quality, low-cost alternative for international voice and fax
transport of phone-to-phone or fax-to-fax calls placed by their business and
residential customers. Our proprietary Assured Quality Routing software and
Web-based extranet are important components of our services and are integrated
elements of our advanced operational support systems.
RETAIL RATING SERVICE. We introduced our retail rating service to provide a
simple and easy-to-implement outsourced billing solution to customers who want
to offer prepaid or postpaid calling card origination services. Under this
program, we maintain and administer a billing support system that performs the
authentication, authorization and accounting for this service. At the same time,
our customers control the end-user calling settlement rates, and remain
responsible for card fulfillment, sales, marketing and end-user customer care.
The customer benefits of this service are:
- faster time-to-market for the introduction of calling card services;
- no up-front or ongoing investments in billing system hardware and
software; and
- reduced staffing and training expenses.
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INTERACTIVE TRAFFIC REVENUE ANALYSIS CENTER. iTrac is proprietary Web-based
traffic reporting analysis software that enables our customers to better manage
their operations through real-time information exchange. iTrac provides
statistics on service quality and traffic volume, helping customers to quickly
address issues that affect service and to do effective network capacity
planning. This information is delivered in a cost-efficient manner using
sophisticated and secure extranet technologies that customers access using a
standard Web browser.
FUTURE SERVICES
We intend to add new services that leverage components of the iBasis Network
to generate additional sources of revenue. We believe that our ability to deploy
new Internet-based communication services makes us an attractive partner for
application developers. We also believe that the ability to offer these new
services will be beneficial to our customers, regardless of whether or not they
directly charge their end-users for these services, because they will help our
customers attract new subscribers and retain and "up-sell" their existing
subscriber base. Some of the services that we may choose to introduce in the
future include:
- BASIC MESSAGING SERVICES. We may offer additional basic messaging
services, including outsourced voicemail, store-and-forward fax, or
faxmail, and e-mail.
- ADVANCED MESSAGING SERVICES. We may offer advanced messaging services
including unified messaging, which enables subscribers to access different
message types, e.g., voicemail and e-mail, from multiple user interfaces;
one-number service, which allows subscribers to consolidate existing
office, home, and mobile numbers into a single contact or "follow-me"
number; Internet call management services such as caller ID, call waiting
and call forwarding; and message delivery that includes the recording and
scheduling of a message, repeated delivery attempts and message delivery
confirmation. These services may in some cases leverage components of our
network to provide international call-termination services and operational
support services.
- INFORMATION SERVICES. We may offer Internet-based information services
that deliver detailed, metered billing information that can help customers
to understand better how their network is being used.
- DIRECTORY SERVICES. We may offer subscriber-based directory services that
maintain important customer information. This would enable communications
service providers to customize and automate their services.
- INTERNET AND CIRCUIT-SWITCHED INFRASTRUCTURE. We may offer
circuit-switched access, dedicated Internet access, and equipment
co-location services to help our customers meet their time-to-market
objectives.
- CONFERENCING SERVICES. We may offer audio, video and data conferencing
services.
- BILLING SERVICES. We may offer additional outsourced billing services such
as on-line bill presentment and Internet telephony clearinghouse
settlement services.
MARKETS AND CUSTOMERS
Telephone companies can be segregated by size into first tier, second tier
and third tier carriers. Generally, first tier carriers are large domestic and
international carriers, such as MCI/WorldCom, Cable & Wireless and certain
government-affiliated monopolies, such as the Japanese telecommunications
carrier KDD. First tier carriers generally have annual revenues in excess of $2
billion. Second tier carriers have revenues generally in the $750 million to $2
billion range, but have fewer direct operating agreements with other carriers
and fewer international facilities. Examples of tier
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two carriers are RSL, Star Telecomm and PGE. Third tier carriers are typically
switch-based resellers with revenues of less than $750 million.
We provide services to members of all three tiers of United States carriers,
who transmit voice and fax traffic through our New York or Los Angeles Super
POPs for completion overseas. As of June 30, 1999, we were providing services to
seven of the top thirteen highest volume United States-based international
carriers. The ability to provide quality consistently acceptable to these
classes of carriers is of vital importance, because these carriers often have
traffic volumes that regularly overflow their capacity.
Overseas we have established relationships with in-country companies and
local service providers that have local market expertise and relationships to
build strong businesses. Some of our overseas partners/customers are very large
well-established national carriers, such as the Korean company, Dacom, and China
Unicom. Others are emerging carriers or Internet service providers who are able
to provide the services necessary to terminate minutes for us in their country.
SALES AND MARKETING
SALES STRATEGY. Our sales efforts target leading telecommunications
carriers both in the United States and overseas. Our sales force, made up of
experienced personnel with long-time relationships in the telecommunications
industry, is frequently supplemented by senior members of management. In the
United States, we sell directly to carriers and have successfully developed
brand awareness and beneficial relationships through numerous channels including
the Web, trade shows, speaking engagements and joint marketing programs. The
ability to provide quality acceptable to leading carriers is a strong selling
point for us. These carriers have traffic that frequently exceeds their capacity
and compels them to seek alternative channels that offer comparable quality,
particularly where those channels can offer better pricing. Our sales process
often involves a test by our potential customers of our services with traffic to
a particular country. Our experience has been that once a carrier has begun to
use our network for a single country and has found our quality to be acceptable,
the sales process for other countries becomes easier.
In overseas markets, we seek to establish relationships with local service
providers that have the local market expertise to provide the termination
services we need. We believe that the opportunity we offer these companies to
terminate a substantial number of minutes makes us an attractive partner. As of
June 30, 1999, we have deployed 17 sales personnel to cover international
markets, two of whom are employed by our majority-owned joint venture in Hong
Kong. We have also established an office in Seoul, Korea that covers Korea,
Japan and Taiwan; an office in Jakarta covering the Southeast Asian countries
and employ an in-country sales person in China. Other countries are covered from
the United States where we have a sales office in Dallas and our worldwide
headquarters in Burlington, Massachusetts. Prime candidates for overseas
partners are carriers, call back companies, cellular, PCS and paging companies
and Internet service providers.
In Hong Kong, we have formed a joint venture with a local equipment
provider, MicroWorld, to help us develop a stronger local market presence. We
hope to use this joint venture to accelerate our penetration throughout Asia.
MARKETING STRATEGY. Our marketing strategy includes public relations
campaigns, interaction with industry analysts, attendance at trade shows and a
comprehensive Website at www.ibasis.net. We have engaged a public relations firm
to conduct a campaign to position us as the preeminent Internet telephony
provider. We aggressively pursue favorable coverage in the trade and business
press and participate in a variety of industry trade shows, including Voice on
the Net, Telecommunications Resellers Association and Telecom Business. We
believe our Website will continue to be an effective marketing tool in
international markets.
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STRATEGIC TECHNOLOGY RELATIONSHIPS
We have entered into strategic technology relationships with a number of
leading technology providers in the Internet telephony industry, including Cisco
Systems, Belle Systems and NetSpeak Corporation. We believe that our strategic
technology relationships are important because they give us early access to new
technologies and because many of our strategic relationship partners are an
important part of our sales and marketing programs.
CISCO SYSTEMS
As a Cisco Alliance Partner, we have access to Cisco's sales, marketing and
technical resources to aid our global expansion. We understand that Cisco has
selected fewer than 30 companies to participate in this program. The Cisco sales
and marketing resources available to us under this program include matching
funds for selected marketing activities, joint sales calls, event sponsorship
and seminar support. In addition, as a Cisco Alliance Partner, we have access to
Cisco technical resources and early opportunities to bring new products and
features to the marketplace. Currently, we are engaged in three beta programs
with Cisco for new products and features. We also conduct joint sales and
marketing programs with Cisco, participate with Cisco in industry trade shows
and periodically meet with consultants at Cisco's executive briefing center.
In addition, the iBasis Network has been designated by Cisco as a certified
Cisco Powered Network-TM-. This designation permits us to leverage Cisco's
significant worldwide brand equity by displaying the Cisco Powered
Network-TM-trademark in our literature and exhibits.
BELLE SYSTEMS
We also have a strategic alliance with Belle Systems A/S, a leading provider
of billing systems for Cisco-based IP Networks. Belle Systems billing solutions
are based on an architecture that provides the scaleability and flexibility that
is critical to our continued success in deploying IP-messaging services. We
intend to work closely with Belle Systems to integrate their billing system into
our network, which we believe will give us a competitive advantage in the
marketplace.
NETSPEAK CORPORATION
We have entered into a strategic partnership with NetSpeak, a leading
developer of Advanced Intelligent Network technologies that enable innovative
solutions for concurrent, real-time interactive voice, video and data
communications over data networks. We intend to work with NetSpeak in the
development and deployment of value-added service capabilities that will enhance
and differentiate our offerings to service providers.
COMPETITION
The market for international voice and fax call completion services is
highly competitive. We face competition from a variety of sources, including
large communications service providers with more resources, longer operating
histories and more established positions in the telecommunications marketplace,
some of whom have begun to develop Internet telephony capabilities. Many of our
competitors are larger companies. We also compete with small companies who have
focused primarily on Internet telephony. We believe that we compete principally
on quality of service, price and bandwidth. We also expect that the ability to
offer enhanced service capabilities, including new services, will become an
increasingly important competitive factor in the near future.
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TELECOMMUNICATIONS COMPANIES AND LONG DISTANCE PROVIDERS.
Large carriers around the world carry a substantial majority of the traffic.
These carriers, such as British Telecom and Deutsche Telecom, have started or
begun to deploy packet-switched networks for voice and fax traffic. These
carriers have substantial resources and have large budgets available for
research and development. In addition, several companies, many with significant
resources, such as Level 3 and Qwest Communications, are building fiber optic
networks, primarily in the United States, for Internet telephony traffic. These
networks can be expected to carry voice and fax and these newer companies may
expand into international markets.
The nature of the telecommunications marketplace is such that carriers buy
from and sell to each other. Major carriers have multiple routes to virtually
every destination, and frequently buy and sell based on the strength and
capacity to a particular country. We have relationships with many of these
carriers and have carried traffic for them in the past. We expect to continue to
exchange traffic with many of these companies in the future, even as they begin
to devote more resources to competing in the Internet telephony market.
INTERNET TELEPHONY SERVICE PROVIDERS
A number of companies have started Internet telephony operations in last few
years. AT&T Clearinghouse, GRIC Communications and ITXC sell international voice
and fax over the Internet, and compete directly with us. Other Internet
telephony companies, including Net2Phone and Delta Three.com are currently
focusing on the retail market and personal computer-based Internet telephony,
but may compete with us in the future.
GOVERNMENT REGULATION
UNITED STATES GOVERNMENT REGULATION OF THE INTERNET AND INTERNET
TELEPHONY. We believe that under United States law the Internet-related
services that we provide constitute information services, rather than
telecommunications services. As such, our services are not currently regulated
by the Federal Communications Commission or state agencies responsible for
regulating telecommunications carriers (although aspects of our operations may
be subject to state or federal regulation such as regulations governing
universal service funding, confidentiality of communications, copyright, and
excise taxes). However, several efforts have been made to enact federal
legislation that would either regulate or exempt from regulation services
provided over the Internet. Therefore, we cannot assure you that
Internet-related services such as ours will not be regulated in the future.
Increased regulation of the Internet may slow its growth by negatively impacting
the cost of doing business over the Internet. This would materially adversely
affect our business, financial condition and results of operations.
We also cannot assure you that Internet telephony will continue to be
lightly regulated by the FCC and state regulatory agencies. Although the FCC has
determined that, at present, information service providers, including Internet
telephony providers, are not telecommunications carriers; however, we cannot be
certain that this position will continue. On April 10, 1998, the FCC issued a
report to Congress discussing its implementation of certain universal service
provisions contained in the 1996 amendments to the Communications Act of 1934.
In its report, the FCC stated that it would undertake an examination of whether
phone-to-phone Internet telephony should be considered an information service or
a telecommunications service. The FCC noted that certain forms of phone-to-phone
Internet telephony appeared to lack the characteristics of an information
service and to have the same functionality as non-Internet protocol
telecommunications services. In addition, the FCC is currently considering
whether to impose surcharges and/or other common carrier regulations upon
certain providers of Internet telephony, primarily those which, unlike us,
provide Internet telephony services to end-users. If the FCC determines that
Internet telephony is subject to regulation as a telecommunications service, it
may subject providers of Internet telephony services to traditional
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common carrier regulation and require them to make universal service
contributions and pay access charges. It is also possible that the FCC will
adopt a regulatory framework for Internet telephony providers different than
that applied to traditional common carriers. Finally, Congressional
dissatisfaction with the FCC's conclusions regarding Internet telephony could
result in legislation requiring the FCC to impose greater or lesser regulation.
Any change in the existing regulation of Internet telephony by the FCC or
Congress could materially adversely affect our business, financial condition and
results of operations.
In addition to the FCC and Congress, state regulatory authorities and
legislators may assert jurisdiction over the provision of intrastate Internet
telephony services. Some states already have initiated proceedings to examine
the regulation of such services. While we do not currently provide intrastate
services and have no current plans to do so, additional regulation of Internet
telephony by the states could preclude us from entering the intrastate market or
make entrance more difficult.
INTERNATIONAL GOVERNMENT REGULATION OF THE INTERNET AND INTERNET
TELEPHONY. We provide our Internet telephony services in various countries in
Europe, Asia, Latin America, and the Middle East. The regulatory treatment of
Internet telephony in these countries varies widely and is subject to constant
change. Some countries currently impose little or no regulation on Internet
telephony, as in the United States. Conversely, other countries that prohibit or
limit competition for traditional voice telephony services generally do not
permit Internet telephony or strictly limit the terms under which it may be
provided. Still other countries regulate Internet telephony like traditional
voice telephony services or determine on a case-by-case basis whether to
regulate Internet telephony as a voice service or as another telecommunications
service. Finally, in many countries, Internet telephony has not been addressed
by legislation or the regulatory authorities. The varying and constantly
changing regulation of Internet telephony in the countries in which we currently
provide or may provide services may materially adversely affect our business
financial condition and results of operations.
The European Union, for example, distinguishes between voice telephony,
which may be regulated by the Member States, and other telecommunications
services, which are fully liberalized.With regard to Internet telephony, the
European Commission concluded in a Communication to the Member States that at
present Internet telephony should not be considered voice telephony and thus
should not be regulated as such by the Member States. However, the Commission
noted that providers of Internet telephony whose services satisfied the European
Union's definition of voice telephony could be considered providers of voice
telephony and could be regulated by the Member States. Moreover, Commission
Communications are not binding on the Member States. Therefore, we cannot assure
you that the services provided by us in the European Union will not be deemed
voice telephony and, accordingly, subject to heightened regulation by one or
more European Union countries in the future. France is currently conducting an
investigation of how Internet telephony should be regulated. We also provide our
services in countries where the regulation of Internet telephony is more
restrictive than in the United States and the European Union. For example, we
have a contractual relationship with China Unicom, the second largest
telecommunications company in the People's Republic of China, to provide
international Internet telephony and facsimile services in China. China limits
competition in the telecommunications industry to several government-owned
companies. At present, Internet telephony is permitted on an experimental basis
only by China Unicom, China Telecom, and Jitong Communications. It is uncertain
whether Internet telephony will continue to be permitted when the trial period
ends.
Similarly, we provide our services in other countries in which the
regulatory status of Internet telephony is unclear or in the process of
development, and in countries in which regulatory processes are not as
transparent as in the United States and Europe. Changes in the regulatory
regimes of these countries that have the effect of limiting or prohibiting
Internet telephony, or that impose new or additional regulatory requirements on
providers of such services, may result in our being unable to
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provide service to one or more countries in which we currently operate. That
result could have a material adverse effect on the Company's business, financial
condition and results of operations.
In addition, as we expand into additional foreign countries, such countries
may assert that we are required to qualify to do business in the particular
foreign country, that we are otherwise subject to regulation, or that we are
prohibited from conducting our business in that country. Our failure to qualify
as a foreign corporation in a jurisdiction in which we are required to do so, or
to comply with foreign laws and regulations, would materially adversely affect
our business, financial condition and results of operations, including by
subjecting us to taxes and penalties and/or by precluding us from, or limiting
us in, enforcing contracts in such jurisdictions. Likewise, our customers and
partners may be or become subject to requirements to qualify to do business in a
particular foreign country, to otherwise comply with regulations, or to cease
from conducting business in that country. We cannot be certain that our
customers and partners are currently in compliance with regulatory or other
legal requirements in their respective countries, that they will be able to
comply with existing or future requirements, and/ or that they will continue in
compliance with any requirements. The failure of our customers and partners to
comply with these requirements could materially adversely affect our business,
financial conditions and results of operations.
CERTAIN OTHER UNITED STATES REGULATIONS AFFECTING THE INTERNET. Congress
has recently adopted legislation that regulates certain aspects of the Internet,
including online content, user privacy, and taxation. In addition, Congress and
other federal entities are considering other proposals that would further
regulate use of the Internet. For example, Congress is currently considering
legislation on a wide range of issues including Internet spamming, database
privacy, gambling, pornography and child protection, Internet fraud, privacy,
and digital signatures. Similarly, various states have adopted or are
considering Internet-related legislation. Increased regulation of the Internet
may slow its growth, which may negatively impact the cost of doing business over
the Internet and materially adversely impact our business, financial condition
and results of operations.
CERTAIN OTHER INTERNATIONAL REGULATIONS AFFECTING THE INTERNET. The
European Union also has enacted legislation that affects the Internet. For
example, the European Union imposes restrictions on the collection and use of
personal data and grants European Union citizens broad rights to access and
limit the use of their personal data. United States companies that collect or
transmit information over the Internet from individuals in European Union Member
States are subject to European Union legislation, which imposes restrictions
that are more stringent than existing Internet privacy standards in the United
States Although we do not engage in the collection of personal data for purposes
other than routing and billing for our services, the legislation is broadly
applicable. The potential effect on us of development in this area is uncertain;
however, a prohibition on the export of personal data by us would have a
material adverse impact on our business, financial condition and results of
operations.
INTELLECTUAL PROPERTY
We regard our copyrights, service marks, trademarks, trade dress, trade
secrets and similar intellectual property as critical to our success and we rely
on trademark and copyright law, trade secret protection and confidentiality
and/or license agreements with our employees, customers, partners and others to
protect our proprietary rights. We pursue the registration of our trademarks and
service marks in the United States and have applied for the registration of
certain of our trademarks and service marks. We have been granted trademark
registration for the mark VIP Calling in the United States, and have pending
registration applications for the marks VIP Connect and VIP Speaking. We have
sought trademark protection outside of the United States for the mark VIP
Calling, and applications are pending in Canada, China, Europe, Hong Kong,
Japan, South Korea and Taiwan. In addition, we have pending registration for the
marks iBasis and iBasis (and Design) in the United States. However, effective
protection may not be available in every country in which iBasis has, or will
have, a commercial presence.
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EMPLOYEES
As of June 30, 1999, we had 67 full-time employees and three part-time
employees, with approximately 17 in sales and marketing, 42 in engineering and
operations and 11 in general and administrative. We also employ a limited number
of independent contractors and temporary employees on a periodic basis. Our
employees are not represented by a labor union and we consider our labor
relations to be good.
FACILITIES
We are headquartered at 20 Second Avenue in Burlington, Massachusetts, where
we lease approximately 27,235 square feet of commercial space pursuant to a term
lease that expires in March 2005, subject to a five year renewal at our option.
These facilities are principally used for executive office space, including
sales and marketing and finance and administration. We also maintain our global
network operations center at this location. We lease an additional 3,156 square
feet of space in Los Angeles, California to house telecommunications equipment
pursuant to a term lease that expires in April 2009. We also maintain a facility
in New York, New York, to house telecommunications equipment, where we lease
approximately 4,372 square feet of commercial space pursuant to a ten year term
lease that expires on July 31, 2008. We believe that our existing facilities are
adequate for our current needs and that suitable additional or alternative space
will be available in the future on commercially reasonable terms.
LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The directors, executive officers and key employees of iBasis, and their
ages as of June 30, 1999, are as follows.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Ofer Gneezy (1)................... 47 President and Chief Executive Officer, Director
Gordon J. VanderBrug (2).......... 56 Executive Vice President, Director
Michael J. Hughes................. 37 Vice President, Finance and Chief Financial Officer
John G. Henson, Jr................ 57 Vice President, Engineering & Operations
Charles N. Corfield (2)........... 40 Director
John Jarve (1).................... 43 Director
Izhar Armony (1), (2)............. 35 Director
Robert Maginn (1), (2)............ 42 Director
Charles S. Houser (1)............. 55 Director
Charles M. Skibo (3).............. 60 Director Nominee
KEY EMPLOYEES
Daniel Powdermaker................ 36 Vice President, Asia
Gerald E. O'Loughlin.............. 35 Vice President, North America
Juan Bergelund.................... 42 Vice President, Latin America
Matthew Kristin................... 37 Chief Information Officer
</TABLE>
- ------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Mr. Skibo has agreed to become a director, effective upon the completion of
this offering.
MR. GNEEZY has served as the President, Chief Executive Officer and as a
director of iBasis since our formation in August 1996. From 1994 to 1996, Mr.
Gneezy was President of Acuity Imaging, Inc., a multinational public company
focused on the industrial automation industry. From 1980 to 1994, prior to being
renamed Acuity Imaging in connection with a merger with Itran, Mr. Gneezy was an
executive of Automatix Inc., a public industrial automation company, most
recently serving as its President and Chief Executive Officer. Mr. Gneezy
graduated from Tel-Aviv University, obtained his Masters of Science from the
Massachusetts Institute of Technology and is a graduate of the Advanced
Management Program of the Harvard Business School.
DR. VANDERBRUG has served as Executive Vice President and as a director of
iBasis since October 1996. From 1991 to 1996, Dr. VanderBrug was the Director of
Marketing, Electronic Imaging Systems of Polaroid Corporation. In 1980 Dr.
VanderBrug co-founded Automatix, Inc. Dr. VanderBrug received his B.A. in
mathematics from Calvin College, an M.A. in mathematics from Wayne State
University, and his Ph.D. in computer science from the University of Maryland.
MR. HUGHES has served as Vice President of Finance and Administration and
Chief Financial Officer of iBasis since August 1998. From 1995 to 1998, Mr.
Hughes was Director of Finance/ Controller at Teleport Communications Group,
TCG, a provider of local and long distance telecommunications services,
including voice, data, and Internet services. Prior to joining TCG in 1995,
Hughes held various financial positions at Houghton Mifflin Company and
previously served as an auditor at KPMG Peat Marwick. Mr. Hughes received a B.S.
in accounting from Bentley College and an M.B.A. in finance from Babson College.
Mr. Hughes is a certified public accountant.
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MR. HENSON has served as Vice President, Engineering and Operations of
iBasis since 1998. Prior to joining iBasis, Mr. Henson was Vice President,
Network Operations at LCI International Inc., a telecommunications company that
was recently acquired by Qwest Communications. From 1992 to 1996, Mr. Henson was
a Senior Vice President at BancOne Services Corporation, where he was
responsible for telecommunications and data communications services.
MR. CORFIELD has been a director of iBasis since September 1997. Mr.Corfield
has been a partner at each of Whitman Capital and Mercury Capital, both
investment firms, since 1996. Mr. Corfield serves on the board of directors of
Liberate Technology, Inc., a Web-based, enhanced television company. Mr.
Corfield co-founded Frame Technology, a software company, in 1986 and was a
member of its board of directors and its Chief Technology Officer until it was
acquired by Adobe Systems in 1995.
MR. JARVE has been a director of iBasis since August 1998. Since 1985, Mr.
Jarve has been employed by Menlo Ventures, a venture capital firm focused on the
software, communications, health care, and Internet sectors, where he currently
serves as a general partner and managing director. Mr. Jarve received a B.S. and
M.S. in electrical engineering from the Massachusetts Institute of Technology
and an M.B.A. from Stanford University.
MR. ARMONY has been a director of iBasis since August 1998. He is currently
a partner at Charles River Ventures, a venture capital firm. Mr. Armony was an
associate with General Atlantic Partners in 1996. From 1988 to 1995, Mr. Armony
was the Vice President of Marketing and Business Development at Onyx
Interactive. Mr. Armony received an M.A. in cognitive psychology from the
University of Tel Aviv, an M.A. in international studies from the University of
Pennsylvania, and an M.B.A. from Wharton.
MR. MAGINN has been a director of iBasis since November 1997. Since 1983,
Mr. Maginn has been employed by Bain & Company, Inc., a strategy consulting
firm. Mr. Maginn currently serves as an officer and director of Bain & Company,
Inc.
MR. HOUSER has been a director of iBasis since October 1997. He is currently
chairman and a managing director of Seruus Ventures, LLC, a venture capital
firm, and a principal and managing director of Seruus Capital Partners, LP and
Seruus Telecom Fund, LP. Mr. Houser is the Chairman and Chief Executive Officer
of State Communications Inc., a telecommunications company. He was Executive
Vice President of LCI International, a long-distance company, from October 1995
until May 1996. Prior to that date, he was Chairman and CEO of Corporate
Telemanagement Group from its inception in November 1989 until its sale to LCI
International in September 1995.
MR. SKIBO is a nominee for director. Currently, Mr. Skibo is the Chief
Executive Officer and Chairman of Colomotion, Inc., a provider of facilities and
co-location services to the communication and information technology industries.
Since 1994, Mr. Skibo has served as Chairman and Chief Executive Officer of
Strategic Enterprises and Communications, Inc., a venture capital firm. Mr.
Skibo also serves as Chairman and Chief Executive Officer of Allied
Telecommunications, a communications company. From 1985 to 1987, Mr. Skibo was
President and CEO of US Sprint and its predecessor company, U.S. Telecom.
MR. POWDERMAKER has served as Vice President, Asia of iBasis since 1998,
prior to that, from 1997 to 1998, Mr. Powdermaker was our Director of Carrier
Sales. From 1996 to 1997, Mr. Powdermaker was client business manager of BCS
Global Markets, a networking services division of AT&T focused on the world's
2000 largest telecommunications users. From 1995 to 1996, Mr. Powdermaker was a
sales manager with AT&T. In 1994, Mr. Powdermaker was employed in a business
development position with MFS Communications Company. Mr. Powdermaker received
an A.B. in political science from Boston College and an M.A. in Latin American
studies and M.B.A. in finance and marketing from the University of Chicago's
Graduate School of Business.
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MR. O'LOUGHLIN has served as Vice President, North America of iBasis since
June 1999. From December 1998 to May 1999, Mr. O'Loughlin was our Director of
Carrier Sales. Prior to joining iBasis, Mr. O'Loughlin was General Manager for
Allied Communication Holdings. From July 1997 until April 1998, Mr. O'Loughlin
was a vice president of carrier services at Arbinet Communications. From October
1994 to June 1997, Mr. O'Loughlin served as Director of Carrier Sales for
TresCom International.
MR. BERGELUND has served as Vice President, Latin America of iBasis since
December 1998. From March 1996 to 1998, Mr. Bergelund was Chief Operating
Officer of IPTEL--Americas Exchange, Inc., a start-up Latin American Internet
telephony network. From 1992 to 1996, Mr. Bergelund was a senior manager
consultant at Oracle Corporation's Latin America Division. Mr. Bergelund
received a B.S. in Electrical Engineering and an M.S. in telecommunications
engineering from the Instututo de Ciencias JEN, Madrid, Spain.
MR. KRISTIN has served as the Chief Information Officer of iBasis since June
1999. From 1994 to 1999, Mr. Kristen served as manager of workflow solutions for
Concert Communication Services, a global telecommunications carrier.
BOARD OF DIRECTORS
Upon the completion of this offering, the board of directors will be divided
into three classes, with the members of the respective classes serving for
staggered three-year terms. The members of the three classes will be determined
on or prior to the completion of this offering, with the initial terms of the
directors in these classes expiring upon the election and qualification of the
directors at the 2000, 2001 and 2002 annual meetings of stockholders,
respectively. At each annual meeting of stockholders, directors will be
re-elected or elected for full three-year terms. See "Description of Capital
Stock-- Delaware Law and Certain Certificate of Incorporation and By-Law
Provisions."
Messrs. Gneezy, VanderBrug, Houser, Corfield, Maginn, Armony and Jarve were
nominated and elected as directors by the holders of our common and preferred
stock in accordance with provisions of our current shareholders agreement. This
agreement will terminate upon the completion of this offering. Each of the
individuals will remain as a director until they resign or the stockholders
elect their replacements in accordance with our certificate of incorporation.
Our executive officers are appointed by the board of directors and serve
until their successors have been duly elected and qualified. There are no family
relationships among any of our executive officers or directors.
DIRECTOR COMPENSATION
Directors of iBasis do not receive compensation for their services as
directors. However, non-employee directors are reimbursed for travel expenses.
iBasis maintains directors' and officers' liability insurance and our by-laws
provide for mandatory indemnification of directors and officers to the fullest
extent permitted by Delaware law. In addition, the certificate of incorporation
limits the liability of iBasis directors to either iBasis or its stockholders
for breaches of the directors' fiduciary duties to the fullest extent permitted
by Delaware law. See "Description of Capital Stock--Delaware Law and Certain
Certificate of Incorporation and By-Law Provisions."
Messrs. Gneezy and VanderBrug, each of whom is both a director and executive
officer of iBasis, received a stock option grant in 1998 for their service as an
officer of iBasis. See "Management-- Executive Compensation."
45
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
The compensation committee currently consists of Messrs. Gneezy, Jarve,
Armony, Houser and Maginn. The compensation committee reviews and evaluates the
salaries, supplemental compensation and benefits of our officers, reviews
general policy matters relating to compensation and benefits of our employees
and makes recommendations concerning these matters to the board of directors.
The compensation committee also administers our 1997 Stock Incentive Plan.
The audit committee currently consists of Messrs. VanderBrug, Corfield,
Armony and Maginn. The audit committee reviews with our independent accountants
the scope and timing of its audit services, the accountants' report on our
financial statements following completion of their audit and our policies and
procedures with respect to internal accounting and financial controls. In
addition, the audit committee will make annual recommendations to the board of
directors for the appointment of independent accountants for the ensuing fiscal
year.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
With the exception of Mr. Gneezy, no member of the compensation committee is
or has been an officer or employee of iBasis. All decisions regarding the
compensation of our executive officers for the fiscal year ended December 31,
1998 were made by the compensation committee, except that Mr. Gneezy did not
participate in deliberations or decisions regarding his own compensation. No
executive officer of iBasis serves as a member of the board of directors or
compensation committee of any other entity that has one or more executive
officers serving as a member of our board of directors or compensation
committee.
EMPLOYMENT AGREEMENTS
We currently have employment contracts in effect with Ofer Gneezy, our
President and Chief Executive Officer, Dr. VanderBrug, our Vice President, Mr.
Henson, our Vice President of Engineering and Operations, and Mr. Hughes, our
Vice President of Finance and Chief Financial Officer.
iBasis and Mr. Gneezy are parties to an employment agreement, dated August
11, 1997, governing his employment with iBasis as President and Chief Executive
Officer. Under the terms of the employment agreement, Mr. Gneezy is to be paid a
base salary of $125,000, and is eligible to receive an annual bonus at the
discretion of the board of directors. iBasis and Dr. VanderBrug are parties to
an employment agreement, dated August 11, 1997, governing his employment with
iBasis as Executive Vice President. Under the terms of the employment agreement,
Dr. VanderBrug is to be paid a base salary of $115,000, and is eligible to
receive an annual bonus at the discretion of the board of directors. iBasis and
Mr. Henson are parties to an employment agreement dated as of August 17, 1999
governing his employment with iBasis as Vice President, Engineering and
Operations. Under the terms of the employment agreement, Mr. Henson is to be
paid a base salary of $120,000, and is eligible to receive an annual bonus at
the discretion of the chief executive officer or board of directors. iBasis and
Mr. Hughes are parties to an employment agreement dated as of August 17, 1999
governing his employment with iBasis as Vice President, Finance and Chief
Financial Officer. Under the terms of the employment agreement, Mr. Hughes is to
be paid a base salary of $120,000, and is eligible to receive an annual bonus at
the discretion of the chief executive officer or board of directors.
We may terminate the employment agreements with Messrs. Gneezy and
VanderBrug "for cause" or at any time upon at least thirty days prior written
notice, and Messrs. Gneezy and VanderBrug may terminate their employment
agreements "for good reason" or at any time upon at least thirty days prior
written notice. If we terminate either of Messrs. Gneezy and VanderBrug without
cause or if either resigns for good reason, we must continue to pay his base
salary for one year and continue to provide health benefits for one year.
46
<PAGE>
We may terminate the employment agreements with Messrs. Henson and Hughes
agreement "for cause" or at any time upon at least thirty days prior written
notice, and Messrs. Henson and Hughes may terminate their employment agreements
for "good reason" or at any time upon at least thirty days prior written notice.
If, within six months following an acquisition or change in control, we
terminate either of Messrs. Henson or Hughes without cause or if either resigns
for good reason, we must continue to pay his base salary for nine months and
continue to provide health benefits for nine months.
The employment agreements with Messrs. Gneezy, VanderBrug, Henson and Hughes
entitle them to life insurance, health insurance and other employee fringe
benefits to the extent that we make benefits of this type available to our other
executive officers. All intellectual property that Messrs. Gneezy, VanderBrug,
Henson and Hughes may invent, discover, originate or make during the term of
their employment shall be the exclusive property of iBasis. Each of Messrs.
Gneezy, VanderBrug, Henson and Hughes may not, during or after the term of his
employment, disclose or communicate any confidential information without our
prior written consent. Each employment agreement also contains a non-competition
provision that is intended to survive the termination of each officer's
employment for a period of one year. The agreements with Messrs. Gneezy and
VanderBrug also provide that in the event of an acquisition or change in
control, each of their options and restricted shares, if any, shall
automatically become fully vested immediately prior to such event, and each such
option shall remain exercisable until the expiration of such option or until it
sooner terminates in accordance with its terms. The agreements with Messrs.
Henson and Hughes provide that in the event that we terminate the employment of
the officer without cause, or the officer terminates his employment with "good
reason," in either case within six months after the occurrence of an acquisition
or change in control, then his options and restricted stock, if any, shall
immediately vest and become exercisable, and each option shall remain
exercisable until the expiration of the option or until it sooner terminates in
accordance with its terms.
We have also entered into a stock restriction agreement with Mr. Gneezy and
Dr. VanderBrug. Under the terms of the agreement, if either Mr. Gneezy or Dr.
VanderBrug leaves his employment with us, either because he terminates his
employment voluntarily and without "good reason," or he is terminated "for
cause," we have the right to purchase a percentage of the common stock held by
him at the fair market value, as determined by our board of directors, on the
date of the purchase by iBasis. The percentage we have the right to acquire
under these circumstances decreases over time, from approximately 25% as of the
date of this prospectus to 0% on or after August 26, 2000, at which time the
agreement will terminate. The terms "good reason" and "for cause" have the same
meanings as they do in the officers' employment agreements.
In general, "good reason" as used in both the employment agreements and the
stock restriction agreement of Messrs. Gneezy, VanderBrug, Hughes and Henson is
defined to mean any material change in the compensation, position, location of
employment or responsibilities of the employee. "For cause" generally means
gross negligence or willful misconduct of the employee, a breach of the
employment agreement or the commission of a crime.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation
of our chief executive officer and our three other most highly compensated
executive officers whose total salary and bonus exceeded $100,000 for the year
ended December 31, 1998.
47
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION -------------------
(1) SECURITIES
--------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS (#) COMPENSATION
- ------------------------------------------------ ---------- --------- ------------------- -------------
<S> <C> <C> <C> <C>
Ofer Gneezy..................................... $ 134,866 $ 37,500 80,000 --
President and Chief Executive Officer
Gordon J. VanderBrug............................ 122,240 33,750 60,000 --
Executive Vice President
John G. Henson, Jr. (2)......................... 67,898 30,000 200,000 $ 17,791(3)
Vice President, Engineering & Operations
Michael J. Hughes (4)........................... 48,808 12,500 200,000 --
Vice President, Finance and Chief Financial
Officer
</TABLE>
- ------------------------
(1) Excludes certain perquisites and other benefits, the amount of which did not
exceed 10% of the employee's total salary and bonus.
(2) Mr. Henson became Vice President, Engineering & Operations in June 1998.
(3) Represents relocation expenses.
(4) Mr. Hughes became Vice President, Finance and Chief Financial Officer in
August 1998.
STOCK OPTION GRANTS
The following table contains information concerning options to purchase
common stock that we granted made in the year ended December 31, 1998 to each of
the officers named in the summary compensation table. We generally grant stock
options at 100% of the fair market value of the common stock as determined by
our board of directors on the date of grant. In reaching the determination of
fair market value at the time of each grant, the board of directors considers a
range of factors, including our current financial position, our recent revenues,
results of operations and cash flows, our assessment of our competitive position
in our markets and prospects for the future, the status of our customer
acquisition and marketing efforts, current valuations for comparable companies
and the illiquidity of an investment in the common stock.
48
<PAGE>
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL
INDIVIDUAL GRANTS RATES OF
------------------------------------------------------------------ STOCK PRICE
NUMBER OF PERCENT OF TOTAL APPRECIATION
SECURITIES OPTIONS GRANTED EXERCISE FOR OPTION TERM(2)
UNDERLYING TO EMPLOYEES PRICE PER EXPIRATION -----------------------
NAME OPTIONS GRANTED(1) IN 1998 SHARE DATE 5% 10%
- -------------------------- ------------------- ------------------- ----------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Ofer Gneezy............... 80,000 6.7% $ 1.10 12/3/2003 $ $
Gordon J. VanderBrug...... 60,000 5.1 1.10 12/3/2003
John G. Henson, Jr........ 120,000 10.1 0.50 6/11/2008
80,000 6.7 1.00 12/3/2008
Michael J. Hughes......... 120,000 10.1 0.50 8/17/2008
80,000 6.7 1.00 12/3/2008
</TABLE>
- ------------------------
(1) Shares underlying options generally vest over a four-year period, with 6.25%
of the shares vesting on each of the first sixteeen three-month
anniversaries after the grant date. However, during the first year of
employment, no shares underlying an option vest until the first anniversary
of the optionee's employment when all of the shares that would have vested
before such date become exercisable. For disclosure regarding terms of the
stock options, see "Management--1997 Stock Incentive Plan."
(2) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the rules of the Securities and Exchange Commission and do
not represent an estimate or projection of our future stock prices.
Potential realizable value is determined by multiplying $ , the
mid-point of the range set forth on the cover of this prospectus, by the
stated annual appreciated rate compounded annually for the term of the
option (10 years), subtracting the exercise price or base price per share
from the product, and multiplying the remainder by the number of options
granted. Actual gains, if any, on stock potion exercises and common stock
holdings are dependent on the future performance of the common stock and
overall stock market conditions. There can be no assurance that the amounts
reflected in the table will be achieved.
OPTION EXERCISES AND HOLDINGS
The following table contains information concerning option holdings for the
year ended December 31, 1998 with respect to each of the officers named in the
summary compensation table.
<TABLE>
<CAPTION>
1998 YEAR-END OPTION VALUES
----------------------------------------------------------
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT YEAR END OPTIONS AT YEAR END(1)
------------------------------ --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- --------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Ofer Gneezy............................................... -- 80,000 $ -- $
Gordon J. VanderBrug...................................... -- 60,000 --
John G. Henson, Jr........................................ -- 200,000 --
Michael J. Hughes......................................... -- 200,000 --
</TABLE>
- ------------------------
(1) Value is determined by subtracting the exercise price from $ , the
mid-point of the range set forth on the cover of this prospectus, multiplied
by the number of shares underlying the options.
1997 STOCK INCENTIVE PLAN
In August 1997, our board of directors approved our 1997 Stock Incentive
Plan, which was amended in December 1998. Both the initial adoption of the plan
and its amendment were
49
<PAGE>
subsequently approved by our stockholders. Our stock incentive plan provides for
the grant of incentive stock options, nonqualified stock options and restricted
stock awards. Employees (including officers and employee directors), directors,
consultants and advisors are eligible for all awards except incentive stock
options. Only employees are eligible for incentive stock options. A maximum of
2,700,000 shares of common stock have been authorized for issuance under our
stock incentive plan. Under our stock incentive plan, as of July 31, 1999:
- options for the purchase of 2,055,300 shares of common stock had been
granted and were outstanding under the plan;
- 83,750 shares had been issued upon exercise of options granted under the
plan;
- a grant of 15,000 shares of restricted stock had been made under the plan;
- options for the purchase of 392,550 shares that were granted under the
plan had been cancelled; and
- 545,950 shares of common stock remained available for the grant of awards
under the plan.
No participant in our stock incentive plan may, in any year, be granted
options or restricted stock awards with respect to more than 100,000 shares of
common stock.
The compensation committee administers our stock incentive plan and has the
authority to make all determinations required under our stock incentive plan,
including the eligible persons to whom, and the time or times at which, options
or restricted stock awards may be granted, the exercise price or purchase price
(if any) of each option or restricted stock award, whether each option is
intended to qualify as an incentive stock option or a nonqualified stock option,
and the number of shares subject to each option or restricted stock award. The
compensation committee also has authority to:
- interpret our stock incentive plan;
- determine the terms and provisions of the option or restricted stock award
instruments; and
- make all other determinations necessary or advisable for administration of
our stock incentive plan.
The committee has authority to prescribe, amend, and rescind rules and
regulations relating to our stock incentive plan. The exercise price of options
granted under our stock incentive plan shall not be less than 100% of the fair
market value of the common stock on the date of grant, or 110% in the case of
incentive stock options issued to an employee who at the time of grant owns more
than 10% of the total combined voting power of all classes of iBasis stock. The
options become exercisable at such time or times, during such periods, and for
such numbers of shares as shall be determined by the compensation committee and
expire after a specified period that may not exceed ten years from the date of
grant.
The compensation committee may, in its discretion, provide for the
acceleration of one or more outstanding options and the vesting of unvested
shares held as restricted stock awards upon occurrence of a change of control of
iBasis.
In the event of a merger, consolidation, or sale, transfer, or other
disposition of all or substantially all of our assets, the compensation
committee may, in its discretion, provide for the automatic acceleration of one
or more outstanding options that are assumed or replaced and do not otherwise
accelerate by reason of the transaction. In addition, the compensation committee
may similarly provide for the termination of any of our repurchase rights that
may be assigned in connection with the merger, consolidation, or sale, transfer,
or other disposition of all or substantially all of our assets, in the event
that a holder of restricted stock's employment, directorship or consulting or
advising relationship should subsequently terminate following the transaction.
The board of directors may amend, modify, suspend or terminate our stock
incentive plan at any time, subject to applicable law and the rights of holders
of outstanding options and restricted rights awards. Our stock incentive plan
will terminate on August 11, 2007, unless the board of directors terminates it
prior to that time.
50
<PAGE>
CERTAIN TRANSACTIONS
PREVIOUS CAPITAL STOCK FINANCINGS
Between February 1997 and July 1999, we sold an aggregate of 1,500,000
shares of our Class B common stock and 13,556,603 shares of our preferred stock
for cash. All of these shares of Class B common stock and preferred stock will
automatically convert into an aggregate of 17,556,603 shares of Class A common
stock, which will subsequently convert into the same number of shares of common
stock, without further action on our part or the holders of such stock, upon the
completion of this offering. See "Principal Stockholders" for more information
regarding our securities which are held by our directors and officers and the
holders of 5% or more of the outstanding common stock.
CLASS A COMMON STOCK. In August 1996, we issued 50,000 shares of our Class
A common stock to Ofer Gneezy at a price of $.001 per share, for a total cash
consideration to us of $50,000. Mr. Gneezy is our President and Chief Executive
Officer and a director.
CLASS B COMMON STOCK. In February, March and April 1997, we issued
1,500,000 shares of our Class B common stock to a number of independent
investors and our founders at a purchase price of $0.33 per share, for a total
cash consideration to us of approximately $500,000. In this transaction, we sold
300,000 shares of Class B common stock to the Charles N. Corfield Trust, 15,000
shares to Ofer Gneezy, 15,000 shares to Gordon J. VanderBrug, 150,000 shares to
Elka, Ltd., 150,000 shares to Henry Meester, Jr., 240,000 shares to Porky
Partners L.L.C., 150,000 shares to Providence Investment Company Limited,
150,000 shares to David J. Roux and 300,000 shares to the Melvin C. VanderBrug
Trust. An additional 30,000 shares were sold to an independent investor. Charles
N. Corfield, the sole trustee of the Charles N. Corfield Trust, is a director of
iBasis. Mr. VanderBrug is our Executive Vice President and a director. All of
the outstanding Class B common stock will automatically, and without further
action on our part or the holders of such stock, convert into Class A common
stock on a share-for-share basis upon the completion of this offering.
SERIES A PREFERRED STOCK. In October, November and December 1997, and March
and June 1998 subject to commitments made in 1997, we issued an aggregate of
1,250,000 shares of Series A preferred stock to a number of independent
investors and our founders at a purchase price of $3.00 per share for a total
cash consideration to us of approximately $3.75 million. In these transactions,
we sold 200,000 shares of Series A preferred stock to the Charles N. Corfield
Trust, 3,333 shares to Ofer Gneezy, 25,000 shares to Henry Meester, Jr., 25,000
shares to the Melvin C. VanderBrug Trust, 16,667 shares to David J. Roux,
333,333 shares to Seruus Telecom Fund, L.P., 16,500 shares to Elka, Ltd.,
278,084 shares to Bain Securities, Inc., 278,084 to Sunapee Securities, Inc. and
1,667 shares to Gordon J. VanderBrug. An additional 72,332 shares of Series A
preferred stock were sold to other independent investors, including two
stockholders of iBasis. Mr. Houser, a director of iBasis, is the chairman and a
managing director of Seruus Ventures, LLC, an affiliated entity of Seruus
Telecom Fund, L.P. All of the outstanding Series A preferred stock will
automatically, and without further action on our part or the holders of such
stock, convert into Class A common stock upon the completion of this offering on
the basis of three shares of Class A common stock for each share of Series A
preferred stock.
SERIES B PREFERRED STOCK. On August 26, 1998, we issued 6,562,500 shares of
Series B preferred stock to a number of independent investors, our founders and
certain existing shareholders at a purchase price of $1.60 per share, for a
total cash consideration to us of approximately $10.5 million. In this
transaction, we sold 56,578 shares of Series B preferred stock to Charles River
VIII-A LLC, 3,068,422 shares to Charles River Partnership VIII, LP, 100,000
shares to the Charles N. Corfield Trust, 5,000 shares to Ofer Gneezy, 19,100
shares to David J. Roux, 62,500 shares to Charles S. Houser, 12,500 shares to
Michael J. Hughes, 125,960 shares to Menlo Entrepreneurs Fund VII, L.P., and
2,999,040 shares to Menlo Ventures VII, L.P. An additional 113,400 shares of
Series B preferred stock were sold to other independent investors, including
seven stockholders of iBasis. Izhar Armony, a
51
<PAGE>
director of iBasis, is a partner at Charles River Ventures, an affiliated entity
of Charles River VIII-A LLC and Charles River Partnership VIII, LP. Michael J.
Hughes is the Vice President, Finance and Chief Financial Officer of iBasis.
John Jarve, a director of iBasis, is a principal and managing director of Menlo
Ventures, an affiliated entity of Menlo Entrepreneurs Fund VII, L.P. and Menlo
Ventures VII, L.P. All of the outstanding Series B preferred stock will
automatically, and without further action on our part or the holders of such
stock, convert into Class A common stock on a share-for-share basis upon the
completion of this offering.
SERIES C PREFERRED STOCK. In July 1999, we issued 5,744,103 shares of
Series C preferred stock to a number of independent investors, our founders and
certain existing shareholders and at a purchase price of $4.37 per share, for a
total cash consideration to us of approximately $25.1 million. In this
transaction, we sold 4,577 shares of Series C preferred stock to Ofer Gneezy,
4,577 shares to Michael J. Hughes, 23,000 shares to Elka, Ltd., 114,416 shares
to the Charles N. Corfield Trust, 53,432 shares to Porky Partners II, L.L.C.,
37,500 shares to Charles S. Houser, 12,429 shares to Charles River VIII-A LLC,
114,416 shares to Dirigo Partners, L.L.C., an affiliate of David J. Roux,
674,071 shares to Charles River Partnership VIII, LP, 121,234 to the Melvin C.
VanderBrug Trust, 658,829 shares to Menlo Ventures VII, L.P., 27,671 shares to
Menlo Entrepreneurs Fund VII, L.P., 517,784 shares to New Media Investors III,
LLC, 1,888,010 shares to TCV III (Q), L.P., an aggregate of 171,487 shares to
affiliates of TCV III(Q), 1,137,761 shares to Integral Capital Partners IV, L.P.
and 6,404 shares to one of its affiliates. An additional 176,505 shares of
Series C preferred stock were sold to other independent investors, including
eight stockholders of iBasis. All of the outstanding Series C preferred stock
will automatically, and without further action on our part or the holders of
such stock, convert into Class A common stock on a share-for-share basis upon
the closing of the offering.
RIGHTS AND RESTRICTIONS OF CLASS B COMMON STOCK AND PREFERRED STOCK.
When the outstanding Class B common stock and Series A, Series B and Series
C preferred stock convert into Class A common stock, and the outstanding Class A
common stock converts into common stock, upon the completion of this offering,
all rights and restrictions of the Class B common stock and the Series A, Series
B and Series C preferred stock, including any redemption rights and special
voting rights, will terminate and be of no further force and effect.
Notwithstanding the conversion, the original holders of the Series A, Series B
and Series C preferred stock will be entitled to "piggyback" and certain demand
registration rights with respect to the shares of common stock into which the
Series A, Series B and Series C preferred stock convert. See "Description of
Capital Stock--Registration Rights."
CHANGE IN CONTROL ARRANGEMENTS AND INDEMNIFICATION
Our certificate of incorporation limits the liability of our directors for
monetary damages arising from a breach of their fiduciary duty as directors,
except to the extent otherwise required by Delaware law. Such limitation of
liability does not affect the availability of equitable remedies such as
injunctive relief or rescission.
Our by-laws provide that we may indemnify our directors and officers to the
fullest extent permitted by Delaware law.
Provisions in our employment agreements with Messrs. Gneezy and VanderBrug
are triggered upon a change in control of iBasis. In general, a "change in
control" is defined to mean a merger, consolidation or similar transaction in
which securities possessing more than 50% of the total combined voting power of
our outstanding securities are transferred to a new person, or upon the sale,
transfer or other disposition of all or substantially all of our assets to one
or more persons. Under each agreement, immediately prior to a change in control,
each stock option and restricted share held by the officer shall immediately
vest and become exercisable.
52
<PAGE>
Provisions in our employment agreements with Messrs. Henson and Hughes are
also triggered upon a change in control of iBasis. Under each agreement, if
within the six month period following the occurrence of an acquisition or change
in control, the company terminates the employment of the officer without cause,
or the officer terminates his employment with "good reason," then he shall be
entitled to the continuation of his salary and health benefits for a period of
nine months from the date of his termination. In general, "good reason" is
defined to mean any material change in the compensation, position or
responsibilities of the officer that is, taken as a whole, inconsistent with
their respective positions held prior to the change in control. Further, upon
any such termination each option to acquire our capital stock held by the
officer shall immediately vest and become exercisable.
FUTURE TRANSACTIONS
We believe all of the transactions set forth above that we consummated with
parties that may be deemed to be affiliated with us were made on terms no less
favorable to us than could have been obtained from unaffiliated third-parties.
We will require that all future transactions with parties affiliated with us,
including loans between us and our officers, directors, principal stockholders
and their affiliates, be approved by a majority of the board of directors,
including a majority of independent and disinterested directors, and that such
transactions be on terms no less favorable to us than could be obtained from
unaffiliated third-parties.
For a description of other transactions and employment and other
arrangements between us and our directors and executive officers, see
"Management--Director Compensation" and "--Employment Agreements."
53
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of common stock as of July 31, 1999, on a pro forma as adjusted basis
to reflect the automatic conversion upon completion of this offering of the
outstanding shares of the Class B common stock, Series A preferred stock, Series
B preferred stock and Series C preferred stock into 17,556,603 shares of Class A
common stock and the subsequent automatic conversion of all outstanding shares
of Class A common stock into 23,700,353 shares of common stock, by:
- each person or entity we know owns beneficially more than 5% of our common
stock;
- each of our directors;
- each of our executive officers named in the summary compensation table;
and
- all executive officers and directors as a group.
The numbers set forth in the following table assume the underwriters' do not
exercise their over-allotment option. Beneficial ownership is determined in
accordance with the rules and regulations of the Securities and Exchange
Commission. In computing the number of shares beneficially owned by a person and
the percentage ownership of that person, shares of common stock subject to
options held by that person that are currently exercisable or exercisable within
60 days of July 31, 1999 are deemed outstanding. These shares, however, are not
deemed outstanding for the purposes of computing the percentage ownership of any
other person. Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, each stockholder named in the table has sole
voting and investment power with respect to the shares set forth opposite such
stockholder's name. Unless otherwise indicated, the address for the following
stockholders is c/o iBasis, Inc., 20 Second Avenue, Burlington, Massachusetts,
01803.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
NUMBER OF SHARES ------------------------
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED OFFERING OFFERING
- -------------------------------------------------------------------------- ----------------- ----------- -----------
<S> <C> <C> <C>
Charles River Partnership VIII, LP and affiliated entities(1)............. 3,811,500 16.1%
Izhar Armony(1)........................................................... 3,811,500 16.1%
Menlo Ventures VII, L.P. and affiliated entities(2)....................... 3,811,500 16.1%
John Jarve(2)............................................................. 3,811,500 16.1%
Ofer Gneezy(3)............................................................ 3,769,576 15.9%
TCV (III), L.P. and affiliated entities(4)................................ 2,059,497 8.72%
Gordon J. VanderBrug(5)................................................... 1,836,251 7.7%
Robert Maginn(6).......................................................... 1,513,784 6.4%
Charles N. Corfield(7).................................................... 1,114,416 4.7%
Charles S. Houser(8)...................................................... 1,099,999 4.6%
Michael J. Hughes(9)...................................................... 65,202 *
John G. Henson, Jr.(10)................................................... 55,625 *
All directors and executive officers as a group (9 persons)(11)........... 17,071,603 72.0%
</TABLE>
- ------------------------
* Represents less than 1% of the outstanding shares of common stock.
(1) Consists of 3,742,493 shares held by Charles River Partnership VIII, LP and
69,007 shares held by Charles River VIII-A, LLC. Mr. Armony, one of our
directors, is a partner of Charles River Ventures, an affiliate of Charles
River Partnership VIII, LP and Charles River VIII-A, LLC. Mr. Armony
disclaims beneficial ownership of the shares held by the entities affiliated
with Charles
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River Ventures, except to the extent of his pecuniary interest therein. The
address for Mr. Armony and Charles River Ventures is 1000 Winter Street,
Suite 3300, Waltham, Massachusetts, 02451.
(2) Consists of 3,657,869 shares held by Menlo Ventures VII, L.P. and 153,631
shares held by Menlo Entrepreneurs Fund VII, L.P. Mr. Jarve, one of our
directors, is managing director of MV Management VII, LLC, the general
partner of Menlo Ventures VII, L.P. and Menlo Entrepreneurs Fund VII, L.P.
Mr. Jarve disclaims beneficial ownership of the shares held by the entities
affiliated with Menlo Ventures, except to the extent of his pecuniary
interest therein. The address for Mr. Jarve and Menlo Ventures is 3000 Sand
Hill Road, Building 4, Suite 100, Menlo Park, California 94025.
(3) Includes 15,000 shares of common stock issuable upon exercise of options
within 60 days of July 31, 1999. Mr. Gneezy is our President, CEO and one of
our directors.
(4) Consists of 1,888,010 shares held by TCV III(Q), L.P., 85,498 shares held
by TCV III Strategic Partners, 71,034 shares held by TCV III, L.P. and
14,955 shares held by TCV III (GP), all of which are entities affiliated
with Technology Crossover Ventures.
(5) Includes 11,250 shares of common stock issuable upon exercise of options
within 60 days of July 31, 1999. Does not include 37,865 shares of common
stock held by Dr. VanderBrug's spouse. Dr. VanderBrug disclaims beneficial
ownership of the shares held by his spouse. Dr. VanderBrug is our Executive
Vice President and one of our directors.
(6) Consists of 996,000 shares held by Sunapee Securities, Inc. and 517,784
shares held by New Media Investors III, LLC. Mr. Maginn, one of our
directors, is a director of Bain & Co., Inc., an affiliate of Sunapee
Securities, Inc. and New Media Investors III, LLC. Mr. Maginn disclaims
beneficial ownership of the shares held by the entities affiliated with Bain
& Co., Inc., except to the extent of his pecuniary interest therein. The
address for Mr. Maginn and Bain & Co., Inc. is Two Copley Place, Boston,
Massachusetts 02116.
(7) Consists of 1,114,416 shares held by the Charles N. Corfield Trust u/a/d
12/19/91, a revocable trust of which Mr. Corfield is the sole trustee. Mr.
Corfield is one of our directors. The address for Mr. Corfield is 227 High
Street, Palo Alto, CA 94301.
(8) Consists of 999,999 shares held by Seruus Telecom Fund, L.P. and 100,000
held by Mr. Houser, individually. Mr. Houser, one of our directors, is the
managing director of Seruus Ventures, an affiliate of Seruus Telecom Fund,
L.P. Mr. Houser disclaims beneficial ownership of the shares held by Seruus
Telecom Fund, L.P., except to the extent of his pecuniary interest therein.
The address for Mr. Houser and Seruus Ventures is 55 Beattie Place, Suite
1500, Greenville, South Carolina, 29601.
(9) Includes 48,125 shares of common stock issuable upon the exercise of
options within 60 days of July 31, 1999. Mr. Hughes is our Vice President,
Finance and our Chief Financial Officer.
(10) Consists entirely of 55,625 shares of common stock issuable upon the
exercise of options within 60 days of July 31, 1999. Mr. Henson is our Vice
President, Engineering & Operations.
(11) Includes 130,000 shares of common stock issuable upon exercise of options
within 60 days of July 31, 1999.
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DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, our authorized capital stock will consist
of shares of common stock and 5,000,000 shares of preferred stock, each
having a par value of $0.001 per share.
COMMON STOCK
As of July 31, 1999, there were 23,700,353 shares of common stock
outstanding and held of record by 78 stockholders, after giving effect to the
conversion of all outstanding shares of Series A, Series B, and Series C
convertible preferred stock and Class B common stock into Class A common stock
and the subsequent conversion of all outstanding shares of Class A common stock
into common stock upon the completion of this offering. Based upon the number of
shares of common stock outstanding as of that date and giving effect to the
issuance of the shares of common stock offered hereby (assuming no exercise of
the underwriters' over-allotment option), there will be shares of common
stock outstanding upon the closing of this offering.
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared by the board of directors out of
funds legally available therefor, subject to any preferential dividend rights of
outstanding preferred stock. Upon our liquidation, dissolution or winding up,
the holders of common stock are entitled to receive ratably the net assets of
our company available after the payment of all debts and other liabilities,
subject to the prior rights of any outstanding preferred stock. Holders of the
common stock have no preemptive, subscription, redemption or conversion rights.
Our outstanding shares of common stock are, and the shares we offer in this
offering will be, when issued and paid for, fully paid and non-assessable. The
rights, preferences and privileges of holders of common stock are subject to,
and may be adversely affected by, the rights of the holders of shares of any
series of preferred stock that we may designate and issue in the future. After
the completion of this offering, there will be no shares of preferred stock
outstanding.
COMMON STOCK WARRANTS
As of the date of this prospectus, we had warrants outstanding to purchase a
total of 58,125 shares of common stock, all of which are currently exercisable.
All of these warrants were issued to TLP Leasing Programs, Inc., an equipment
financing company, in connection with the establishment of master equipment
financing relationships. The first of these warrants enables its holder to
purchase a total of 20,625 shares of common stock at an exercise price of $1.00
per share. This warrant was issued in September 1997 and expires on September 9,
2007. The second warrant enables its holder to purchase a total of 37,500 shares
of common stock at an exercise price of $1.00 per share. This warrant was issued
in June 1998 and expires on June 7, 2008. The warrants provide their holders
with certain rights to the registration of the shares of common stock issuable
upon exercise of the warrants. See "Description of Capital Stock--Registration
Rights."
PREFERRED STOCK
The board of directors is authorized, subject to certain limitations
prescribed by law, without further stockholder approval, from time to time to
issue up to an aggregate of 5,000,000 shares of preferred stock in one or more
series and to fix or alter the designations, preferences and rights, and any
qualifications, limitations or restrictions thereof, of the shares of each such
series, including the number of shares constituting any such series and the
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption (including sinking fund provisions), redemption price or prices and
liquidation preferences thereof. The issuance of preferred stock may have the
effect of delaying,
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deferring or preventing a change of control of iBasis. We have no present plans
to issue any shares of preferred stock.
REGISTRATION RIGHTS
The holders of approximately 16,056,603 shares of common stock, as
converted, will have demand registration rights with respect to those shares
under the Securities Act as of the date of this prospectus. We granted such
rights under the terms of a registration rights agreement, dated as of July 12,
1999, to investors that participated in our preferred stock financings, some of
which are affiliates or directors of us. If requested to do so by holders of at
least 30% of the holders of our common stock upon the conversion of any or all
of our Series A preferred stock, Series B preferred stock or Series C preferred
stock, we will be required, subject to limitations relating to the timing of the
request, to file a registration statement under the Securities Act covering all
registrable shares, having a market value of at least $1.0 million, requested to
be included. We are required to effect up to two such demand registrations. A
stockholder may not request a registration prior to June 30, 2001 or during the
180-day period following our initial public offering. We will bear all fees,
costs and expenses of any of these demand registrations other than underwriting
discounts and commissions. Once we are eligible to register shares using a
short-form registration statement, we will be required, if requested to do so by
holders of at least 20% of the registrable shares then outstanding, to register
shares having a market value of at least $1.0 million.
We have the right to delay any registration requests for a period not to
exceed 90 days in any 12-month period where registration, in the judgment of our
board of directors, would have an adverse impact on transactions being pursued
by us. We will bear all fees, costs and expenses of any of these demand
registrations other than underwriting discounts and commissions.
In addition, under the agreement described above, holders of registrable
shares have piggyback registration rights. If we propose to register any of our
securities under the Securities Act other than in connection with our employee
benefit plans or a corporate reorganization, then, subject to limitations based
on the number of shares to be registered and the terms on which they are to be
sold, the holders of registrable shares may require us to include all or a
portion of their shares in such registration, although the managing underwriter
of any such offering has the right to limit the number of shares in such
registration. We will bear all fees, costs and expenses of such registrations
other than underwriting discounts and commissions.
The warrants we have issued to TLP Leasing Programs, Inc. to purchase 58,125
shares of common stock contain registration rights that require us to give
notice to the holder of these warrants of our intention to file a registration
statement relating to the common stock. We are required to use our best efforts
to register all of the registrable shares, subject to the rights of the managing
underwriter of a particular offering to cut-back the number of shares being
registered, that the holder of the warrants requests. We will bear all fees,
costs and expenses of such registrations other than underwriting discounts,
commissions and the legal fees of the warrant holder. The rights of TLP Leasing
Programs, Inc. to have its common stock included in the registration statement
of which this prospectus is a part have lapsed.
DELAWARE LAW AND CERTAIN CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Subject to certain exceptions, Section 203 prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a certain period of time. That period is three
years from the date of the transaction in which the person became an interested
stockholder, unless the interested stockholder attained such status with the
approval of the board of directors or unless the business combination is
approved in a prescribed manner. A "business combination" includes
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certain mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with his or her affiliates
and associates, owns, or owned within three years prior, 15% or more of the
corporation's voting stock.
Our certificate of incorporation and by-laws provide for the division of the
board of directors into three classes, as nearly equal in size as possible, with
each class beginning its three-year term in different years. See
"Management-Executive Officers and Directors." A director may be removed only
for cause by the vote of a majority of the shares entitled to vote for the
election of directors.
Our by-laws provide that for nominations for the board of directors or for
other business to be properly brought by a stockholder before a meeting of
stockholders, the stockholder must first have given timely notice of the matter
in writing to our secretary. To be timely, a notice of nominations or other
business to be brought before an annual meeting must be delivered between 120
days and 150 days prior to date one year after the date of the preceding year's
proxy statement. If the date of the current year's annual meeting is more than
30 days before or 60 days after such anniversary, or if no proxy statement was
delivered to stockholders in connection with the preceding year's annual
meeting, a stockholder's notice will be timely if it is delivered not earlier
than 90 days prior to the current year's annual meeting and not later than 60
days prior to the annual meeting or 10 days following the date on which public
announcement of the date of the annual meeting is first made by us, whichever is
later. With respect to special meetings, notice must generally be delivered not
more than 90 days prior to such meeting and not later than 60 days prior to such
meeting or 10 days following the day on which public announcement of the date of
the annual meeting is first made by us, whichever is later. The notice must
contain, among other things, certain information about the stockholder
delivering the notice and, as applicable, background information about each
nominee or a description of the proposed business to be brought before the
meeting.
Our certificate of incorporation empowers the board of directors, when
considering a tender offer or merger or acquisition proposal, to take into
account factors in addition to potential economic benefits to stockholders.
These factors may include:
- comparison of the proposed consideration to be received by stockholders in
relation to the market price of our capital stock, the estimated current
value of our company in a freely negotiated transaction and the estimated
future value of our company as an independent entity;
- the impact of such a transaction on our employees, suppliers and customers
and its effect on the communities in which we operate; and
- the impact of such a transaction on our unique corporate culture and
atmosphere.
The provisions described above could make it more difficult for a
third-party to acquire, or discourage a third-party from acquiring control of
our company.
Our certificate of incorporation also provides that any action required or
permitted to be taken by our stockholders may be taken only at duly called
annual or special meetings of the stockholders, and that special meetings may be
called only by the chairman of the board of directors, a majority of the board
of directors or our president. These provisions could have the effect of
delaying until the next annual stockholders meeting stockholder actions that are
favored by the holders of a majority of the common stock. These provisions may
also discourage another person or entity from making a tender offer to our
stockholders for the common stock. This is because the person or entity making
the offer, even if it acquired a majority of our outstanding voting securities,
would be unable call a special meeting of the stockholders or to take action by
written consent. As a result, any desired actions they would like to take, such
as electing new directors or approving a merger, would have to wait until the
next duly called stockholders meeting.
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The Delaware General Corporation Law provides that the affirmative vote of a
majority of the shares entitled to vote on any matter is required to amend a
corporation's certificate of incorporation or by-laws, unless the corporation's
certificate of incorporation or by-laws, as the case may be, requires a greater
percentage. The certificate of incorporation requires the affirmative vote of
the holders of at least 67% of our outstanding voting stock to amend or repeal
any of the provisions our certificate of incorporation described above, or to
reduce the number of authorized shares of common stock and preferred stock. The
67% vote is also required to amend or repeal any of the provisions of our
by-laws that are described above. Our by-laws may also be amended or repealed by
a majority vote of the board of directors. The 67% stockholder vote would be in
addition to any separate class vote that might in the future be required
pursuant to the terms of any preferred stock that might be outstanding at the
time any amendments are submitted to stockholders.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is EquiServe.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have outstanding shares of
common stock assuming the exercise of all outstanding stock purchase warrants
but no exercise of the underwriters' over-allotment option and no exercise of
outstanding options under our stock incentive plans or other agreements. Of
these shares, the shares sold in this offering will be freely transferable
without restriction or further registration under the Securities Act, except for
any shares held by an existing "affiliate" of ours, as such term is defined by
Rule 144 under the Securities Act. The remaining shares and any shares
purchased by affiliates in this offering, will be "restricted shares" as defined
in Rule 144.
In addition, substantially all of our option holders, warrant holders and
stockholders, and all of our officers and directors, have agreed under written
"lock-up" agreements not to sell any shares of common stock for 180 days after
the date of this prospectus without the prior written consent of BancBoston
Robertson Stephens Inc. See "Underwriting."
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
this offering, a person (or persons whose shares are aggregated) who owns shares
that were purchased from us or any affiliate at least one year previously,
including a person who may be deemed an affiliate of us, is entitled to sell
within any three-month period a number of shares that does not exceed the
greater of:
- 1% of the then outstanding shares of the common stock which will equal
approximately shares immediately after the completion of this
offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the date on which
notice of the sale is filed with the Securities and Exchange Commission.
Sales under Rule 144 must be made with the required notice and the
availability of current public information about us.
Any person or persons whose shares are aggregated, who is not deemed to have
been an affiliate of ours at any time during the 90 days preceding a sale, and
who owns shares within the definition of "restricted securities" under Rule 144
under the Securities Act that were purchased from us or any affiliate at least
two years previously, would be entitled to sell such shares under Rule 144(k)
without regard to the volume limitations, manner of sale provisions, public
information requirements, or notice requirements.
RULE 701
Rule 701 may be relied upon with respect to the resale of securities
originally purchased from us by our employees, directors, officers, consultants
or advisers prior to this offering. In addition, the Securities and Exchange
Commission has indicated that Rule 701 will apply to the typical stock options
granted by an issuer before it becomes a public company, along with the shares
acquired upon exercise of such options (including exercises after the date of
this prospectus). Securities issued in reliance on Rule 701 are restricted
securities and, subject to the contractual restrictions described above,
beginning 90 days after the date of this prospectus, may be sold by:
- persons other than affiliates, in ordinary brokerage transactions, and
- by affiliates under Rule 144 without compliance with its one-year holding
requirement.
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SALES OF RESTRICTED SHARES
As a result of the foregoing regulations, beginning 90 days after the
closing of this offering, we expect that:
- 2,812,751 shares of common stock will be eligible for resale without
restriction under Rule 144(k) or Rule 701, of which 2,588,784 shares are
subject to lock-up agreements;
- upon the expiration of the lock-up agreements 180 days after the date of
this prospectus, an additional 15,143,499 shares of common stock,
including 14,916,999 shares of common stock held by affiliates of ours,
will become eligible for sale under Rule 144, subject to the volume and
other limitations of such rule;
- 5,467,747 shares of common stock will be eligible for sale under Rule 144
beginning on July 12, 2000 and 276,356 shares of common stock will be
eligible for sale under Rule 144 beginning on July 16, 2000.
- in addition, 58,125 shares of common stock acquired pursuant to the
exercise of warrants will be eligible for sale one year from the date the
warrants are exercised.
We have agreed not to offer, sell or otherwise dispose of any shares of
common stock or any securities convertible into or exercisable or exchangeable
for common stock or any rights to acquire common stock for a period of 180 days
after the date of this prospectus, without the prior written consent of the
representative of the Underwriters, subject to certain limited exceptions. See
"Underwriting."
After the completion of this offering, the holders of 16,056,603 shares of
common stock or their transferees would be entitled to have their shares
registered under the Securities Act. See "Description of Capital
Stock--Registration Rights." Registration of such shares under the Securities
Act would cause such shares to be freely tradable without restriction under the
Securities Act, except for shares purchased by affiliates immediately upon the
effectiveness of such registration, which could result in some of such shares
becoming eligible for sale in advance of the date set forth above.
In addition, we intend to file one or more registration statements under the
Securities Act covering the 2,700,000 shares of common stock covered by the 1997
Stock Incentive Plan. See "Management-- 1997 Stock Incentive Plan." Such
registration statements are expected to be filed within 90 days after the date
of this prospectus and will automatically become effective upon filing.
Following such filing, shares registered under such registration statements
will, subject to the 180-day lock-up agreements described above and Rule 144
volume limitations applicable to affiliates, be available for sale in the open
market upon the exercise of vested options 90 days after the effective date of
this prospectus. As of July 31, 1999, options to purchase an aggregate of
2,055,300 shares were issued and outstanding under the 1997 Stock Incentive
Plan.
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UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Hambrecht & Quist LLC and U.S. Bancorp Piper
Jaffray Inc., have severally agreed with us, subject to the terms and conditions
set forth in the underwriting agreement, to purchase from us the number of
shares of common stock set forth opposite their names below. The underwriters
are committed to purchase and pay for all shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------------------------------------------------------------------------------- -----------
<S> <C>
BancBoston Robertson Stephens Inc..................................................
Hambrecht & Quist LLC..............................................................
U.S. Bancorp Piper Jaffray Inc.....................................................
-----------
Total..........................................................................
-----------
-----------
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock to the public at the initial public offering price
set forth on the cover page of this prospectus and to certain dealers at that
price less a concession of not in excess of $ per share, of which $
may be reallowed to other dealers. After this offering, the public offering
price, concession and reallowance to dealers may be reduced by the
representatives. This reduction shall not change the amount of proceeds to be
received by us as stated on the cover page of this prospectus. The common stock
is offered by the underwriters as stated herein, subject to receipt and
acceptance by them and subject to their right to reject any order in whole or in
part.
The underwriters have informed us that they do not intend to confirm sales
to any accounts over which they exercise discretionary authority.
OVER-ALLOTMENT OPTION. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to additional shares of common stock at the same price per
share as we will receive for the shares that the underwriters have agreed
to purchase. If the underwriters exercise this option, each of the underwriters
will have a firm commitment, subject to certain conditions, to purchase
approximately the same percentage of such additional shares that the number of
shares of common stock to be purchased by it shown in the above table bears to
the shares of common stock offered in this offering. If purchased, such
additional shares will be sold by the underwriters on the same terms as those on
which the shares offered in this offering are being sold. We will be
obligated, pursuant to the option, to sell shares to the underwriters to the
extent the option is exercised. The underwriters may exercise such option only
to cover over-allotments made in connection with the sale of the shares of
common stock offered in this offering. If such option is exercised in full, the
total public offering price, underwriting discounts and commissions and proceeds
to us will be $ , $ and $ , respectively.
INDEMNITY. The underwriting agreement contains covenants of indemnity among
the underwriters and us against various civil liabilities, including liabilities
under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
LOCK-UP AGREEMENTS. Each executive officer, director, director-nominee, and
a substantial majority of our stockholders, agreed with the representatives for
a period of 180 days after the date of this prospectus, subject to certain
exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to any shares of common stock,
any options or warrants to purchase any shares of common stock, or any
securities convertible into or exchangeable for shares of common stock, owned as
of the date of this prospectus or thereafter acquired directly by
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such holders or with respect to which they have or hereafter acquire the power
of disposition, without the prior written consent of BancBoston Robertson
Stephens Inc. BancBoston Robertson Stephens Inc. may, in its sole discretion and
at any time or from time to time without notice, release all or any portion of
the securities subject to the lock-up agreements. There are no agreements
between the representatives and any of our stockholders who have executed a
lock-up agreement providing consent to the sale of shares prior to the
expiration of the lock-up period.
FUTURE SALES. In addition, we have agreed that during the 180 days after
the date of this prospectus we will not, subject to certain exceptions, without
the prior written consent of BancBoston Robertson Stephens Inc. (i) consent to
the disposition of any shares held by shareholders subject to lock-up agreements
prior to the expiration of the lock-up period or (ii) issue, sell, contract to
sell, or otherwise dispose of, any shares of common stock, any options or
warrants to purchase any shares of common stock or any securities convertible
into, exercisable for or exchangeable for shares of common stock other than the
sale of shares in this offering, the issuance of common stock upon the exercise
of outstanding options or warrants and the issuance of options under our
existing stock option and incentive plans, provided that those options do not
vest prior to the expiration of the lock-up period. See "Shares Eligible for
Future Sale."
LISTING. We have applied to have the common stock approved for quotation on
the Nasdaq National Market under the symbol "IBAS."
NO PRIOR PUBLIC MARKET. Prior to this offering, there has been no public
market for our common stock. Consequently, the initial public offering price for
the common stock offered hereby will be determined through negotiations between
us and the representatives of the underwriters. Among the factors to be
considered in such negotiations are prevailing market conditions, certain of our
financial information, market valuations of other companies that we and the
representatives believe to be comparable to us, estimates of our business
potential, the present state of our development and other factors deemed
relevant.
STABILIZATION. The representatives of the underwriters have advised us
that, pursuant to Regulation M under the Securities Act, certain persons
participating in this offering may engage in transactions, including stabilizing
bids, syndicate covering transactions or the imposition of penalty bids, that
may have the effect of stabilizing or maintaining the market price of the common
stock at a level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of shares of common stock on
behalf of the underwriters for the purpose of fixing or maintaining the price of
the common stock. A "syndicate covering transaction" is the bid for or the
purchase of the common stock on behalf of the underwriters to reduce a short
position incurred by the underwriters in connection with this offering. A
"penalty bid" is an arrangement permitting the representatives to reclaim the
selling concession otherwise accruing to an underwriter or syndicate member in
connection with this offering if the common stock originally sold by such
underwriter or syndicate member is purchased by the representatives in a
syndicate covering transaction and has therefore not been effectively placed by
such underwriter or syndicate member. The representatives have advised us that
such transactions may be effected on the Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.
DIRECTED SHARE PROGRAM. At our request, the underwriters have reserved up
to shares of common stock to be issued by us and offered for sale in this
offering, at the initial public offering price, to our directors, officers,
employees, business associates and related persons. The number of shares of
common stock available for sale to the general public will be reduced to the
extent such individuals purchase such reserved shares. Any reserved shares which
are not so purchased will be offered by the underwriters to the general public
on the same basis as the other shares offered in this offering.
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LEGAL MATTERS
Bingham Dana LLP, Boston, Massachusetts will pass upon the validity of the
common stock offered in this offering. The descriptions of the regulatory
requirements under the Communications Act of 1934, as amended, regulations
thereunder and state regulations set forth under "Risk Factors--Risks Related to
the Internet and Internet Telephony Industry" and "Business--Government
Regulation" have been included under the authority of Swidler Berlin Shereff
Friedman, LLP, Washington, D.C. as experts in telecommunications law. Investors
should not rely on Swidler Berlin Shereff Friedman, LLP with respect to any
other matters. Also, Hale and Dorr LLP, Boston, Massachusetts will pass upon
certain legal matters in connection with this offering for the underwriters.
Three attorneys at Bingham Dana LLP own, in the aggregate, 13,729 shares of our
common stock.
EXPERTS
Our consolidated balance sheets at December 31, 1997 and 1998 and for the
period from inception (August 2, 1996) to December 31, 1996 and the years ended
December 31, 1997 and 1998 included in this prospectus and registration
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
reports.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1, including exhibits, schedules and amendments filed with
this registration statement, under the Securities Act with respect to the shares
of common stock to be sold in this offering. This prospectus does not contain
all of the information set forth in the registration statement and exhibits and
schedules thereto. For further information with respect to our Company and the
shares of common stock to be sold in this offering, reference is made to the
registration statement, including the exhibits and schedules thereto. Statements
contained in this prospectus as to the contents of any contract or other
document referred to herein are not necessarily complete and, where that
contract is an exhibit to the registration statement, each statement is
qualified in all respects by exhibit to which the reference relates. Copies of
the registration statement, including the exhibits and schedules thereto, may be
examined without charge at the public reference room of the Securities and
Exchange Commission, 450 Fifth Street, N.W. Room 1024, Washington, DC 20549, and
the Securities and Exchange Commission's Regional Offices located at 500 West
Madison Street, Suite 1400, Chicago, IL 60601, and 7 World Trade Center, 13(th)
Floor, New York, NY 10048. Information about the operation of the public
reference room may be obtained by calling the Securities and Exchange Commission
at 1-800-SEC-0300. Copies of all or a portion of the registration statement can
be obtained from the public reference room of the Securities and Exchange
Commission upon payment of prescribed fees. Our Securities and Exchange
Commission filings, including our registration statement, are also available to
you on the Securities and Exchange Commission's website (http://www.sec.gov).
65
<PAGE>
IBASIS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Public Accountants.................................................................. F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998, June 30, 1999 (Unaudited) and Pro Forma June
30, 1999 (Unaudited).................................................................................... F-3
Consolidated Statements of Operations for the Period from Inception (August 2, 1996) to December 31, 1996,
for the Years Ended December 31, 1997 and 1998 and for the Six Months Ended June 30, 1998 and 1999
(Unaudited)............................................................................................. F-4
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) for
the Period from Inception (August 2, 1996) to December 31, 1996, for the Years Ended December 31, 1997
and 1998 and for the Six Months Ended June 30, 1999 (Unaudited) and Pro Forma June 30, 1999
(Unaudited)............................................................................................. F-5
Consolidated Statements of Cash Flows for the Period from Inception (August 2, 1996) to December 31, 1996,
for the Years Ended December 31, 1997 and 1998 and for the Six Months Ended June 30, 1998 and 1999
(Unaudited)............................................................................................. F-6
Notes to Consolidated Financial Statements................................................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To iBasis, Inc.:
We have audited the accompanying consolidated balance sheets of iBasis, Inc.
(a Delaware corporation) (formerly VIP Calling, Inc.) and subsidiaries as of
December 31, 1997 and 1998, and the related consolidated statements of
operations, redeemable convertible preferred stock and stockholders' equity
(deficit) and cash flows for the period from inception (August 2, 1996) to
December 31, 1996 and the years ended December 31, 1997 and 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of iBasis, Inc.
and subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for the period from inception (August 2, 1996)
to December 31, 1996 and the years ended December 31, 1997 and 1998, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
July 15, 1999
F-2
<PAGE>
IBASIS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1999
DECEMBER 31, ------------------------
----------------------- PRO FORMA
1997 1998 ACTUAL (NOTE 1(C))
---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $1,688,993 $ 7,399,451 $ 3,454,393 $ 3,454,393
Accounts receivable, net of allowance for
doubtful accounts of approximately $0 and
$127,000 at December 31, 1997 and 1998, and
$296,000 at June 30, 1999..................... 29,820 1,084,623 2,552,533 2,552,533
Prepaid expenses and other current assets....... 73,382 245,644 480,870 480,870
---------- ----------- ----------- -----------
Total current assets...................... 1,792,195 8,729,718 6,487,796 6,487,796
---------- ----------- ----------- -----------
Property and equipment, at cost:
Network equipment............................... 438,054 3,113,885 2,097,966 2,097,966
Equipment under capital lease................... 199,696 343,990 6,446,413 6,446,413
Leasehold improvements.......................... 9,921 311,792 1,313,071 1,313,071
Computer software............................... 14,721 145,626 198,999 198,999
Furniture and fixtures.......................... 9,983 44,555 87,727 87,727
---------- ----------- ----------- -----------
672,375 3,959,848 10,144,176 10,144,176
Less--Accumulated depreciation and
amortization.................................. 18,554 239,637 1,086,356 1,086,356
---------- ----------- ----------- -----------
653,821 3,720,211 9,057,820 9,057,820
Other Assets...................................... 71,972 321,932 717,930 717,930
---------- ----------- ----------- -----------
$2,517,988 $12,771,861 $16,263,546 $16,263,546
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................ $ 251,706 $ 3,752,974 $ 4,338,859 $ 4,338,859
Accrued expenses................................ 103,976 483,539 1,603,209 1,603,209
Capital lease obligations, current portion...... 67,986 251,890 1,593,831 1,593,831
---------- ----------- ----------- -----------
Total current liabilities................. 423,668 4,488,403 7,535,899 7,535,899
---------- ----------- ----------- -----------
Capital lease obligations, net of current
portion......................................... 123,358 212,679 4,515,478 4,515,478
Advances from investors (Note 7(d))............... -- -- 3,430,564 --
Minority interest (Note 4)........................ -- 49,000 -- --
Commitments (Note 8)
Redeemable convertible preferred stock:
Series B, $.001 par value--
Authorized--6,875,000 shares
Issued and outstanding--6,562,500 shares at
December 31, 1998 and June 30, 1999; no
shares pro forma (stated at redemption
value)...................................... -- 10,719,205 11,034,205 --
Stockholders' equity (deficit):
Series A convertible preferred stock, $.001 par
value--
Authorized--1,256,875 shares
Issued and outstanding--805,250 shares at
December 31, 1997; 1,250,000 shares at
December 31, 1998 and June 30, 1999
(preference in liquidation of $3,750,000);
no shares pro forma......................... 805 1,250 1,250 --
Class A common stock, $.001 par value--
Authorized--30,000,000 shares
Issued and outstanding--6,060,000 shares at
December 31, 1997 and 1998 and June 30, 1999
(preference in liquidation of $2,019,798);
17,872,500 shares pro forma................. 6,060 6,060 6,060 17,873
Class B common stock, $.001 par value--
Authorized--1,500,000 shares
Issued and outstanding--1,500,000 shares at
December 31, 1997 and 1998 and June 30, 1999
(preference in liquidation of $499,950); no
shares pro forma............................ 1,500 1,500 1,500 --
Additional paid-in capital...................... 2,964,389 4,022,059 3,720,809 18,176,515
Accumulated deficit............................. (1,001,792) (6,728,295) (13,982,219) (13,982,219)
---------- ----------- ----------- -----------
Total stockholders' equity (deficit)...... 1,970,962 (2,697,426) (10,252,600) 4,212,169
---------- ----------- ----------- -----------
$2,517,988 $12,771,861 $16,263,546 $16,263,546
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
<PAGE>
IBASIS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(AUGUST 2, YEARS ENDED SIX MONTHS ENDED
1996) TO DECEMBER 31, JUNE 30,
DECEMBER 31, ----------------------- ------------------------
1996 1997 1998 1998 1999
------------ ---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue................................................. $ -- $ 127,425 $ 1,978,430 $ 186,105 $ 6,037,004
Operating expenses:
Data communications and telecommunications................ -- 186,587 2,729,980 575,900 6,614,865
Engineering and operations................................ 76,152 317,992 1,887,403 625,898 2,427,478
Selling and marketing..................................... -- 97,463 1,160,448 365,546 2,030,544
General and administrative................................ -- 453,617 1,155,666 371,585 1,269,424
Depreciation and amortization............................. -- 18,554 363,821 116,490 864,793
Loss (gain) on disposal of property and equipment......... -- -- 531,129 -- (15,297)
------------ ---------- ----------- ----------- -----------
Total operating expenses................................ 76,152 1,074,213 7,828,447 2,055,419 13,191,807
------------ ---------- ----------- ----------- -----------
Loss from operations.................................... (76,152) (946,788) (5,850,017) (1,869,314) (7,154,803)
Interest income............................................. -- 17,490 179,270 23,281 83,697
Interest expense............................................ -- (4,171) (52,983) (26,294) (228,782)
Other income (expense), net................................. -- 7,829 (2,773) (2,773) (3,036)
Minority interest in loss of joint venture.................. -- -- -- -- 49,000
------------ ---------- ----------- ----------- -----------
Net loss................................................ (76,152) (925,640) (5,726,503) (1,875,100) (7,253,924)
Accretion of dividends on redeemable convertible preferred
stock..................................................... -- -- (219,205) -- (315,000)
------------ ---------- ----------- ----------- -----------
Net loss applicable to common stockholders.............. $ (76,152) $ (925,640) $(5,945,708) $(1,875,100) $(7,568,924)
------------ ---------- ----------- ----------- -----------
------------ ---------- ----------- ----------- -----------
Net loss per share (note 1(f)):
Basic and diluted net loss per share...................... $ (0.01) $ (0.15) $ (0.99) $ (0.31) $ (1.26)
------------ ---------- ----------- ----------- -----------
------------ ---------- ----------- ----------- -----------
Basic and diluted weighted average common shares
outstanding............................................. 6,000,000 6,005,877 6,022,551 6,018,791 6,030,041
------------ ---------- ----------- ----------- -----------
------------ ---------- ----------- ----------- -----------
Pro forma net loss per share
Note 1(f)):
Pro forma basic and diluted net loss per share............ $ (0.44) $ (0.41)
----------- -----------
----------- -----------
Pro forma basic and diluted weighted average common shares
outstanding............................................. 13,068,019 17,842,541
----------- -----------
----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
<PAGE>
IBASIS, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK
SERIES B REDEEMABLE ---------------------
CONVERTIBLE SERIES A CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK CLASS A
------------------------ --------------------- ---------------------
NUMBER OF REDEMPTION NUMBER OF $.001 PAR NUMBER OF $.001 PAR
SHARES VALUE SHARES VALUE SHARES VALUE
---------- ------------ ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Initial capitalization (August 2, 1996)...... -- $ -- -- $ -- 6,000,000 $ 6,000
Net loss................................... -- -- -- -- -- --
---------- ------------ ---------- --------- ---------- ---------
Balance, December 31, 1996................... -- -- -- -- 6,000,000 6,000
Issuance of Class A common stock........... -- -- -- -- 60,000 60
Sale of Class B common stock, net of
issuance costs of approximately
$10,000.................................. -- -- -- -- -- --
Sale of Series A convertible preferred
stock, net of issuance costs of
approximately $35,000.................... -- -- 805,250 805 -- --
Net loss................................... -- -- -- -- -- --
---------- ------------ ---------- --------- ---------- ---------
Balance, December 31, 1997................... -- -- 805,250 805 6,060,000 6,060
Sale of Series A convertible preferred
stock.................................... -- -- 444,750 445 -- --
Sale of Series B redeemable convertible
preferred stock, net of issuance costs of
approximately $57,000.................... 6,562,500 10,500,000 -- -- -- --
Accretion of dividends on Series B
redeemable convertible preferred stock... -- 219,205 -- -- -- --
Net loss................................... -- -- -- -- -- --
---------- ------------ ---------- --------- ---------- ---------
Balance, December 31, 1998................... 6,562,500 10,719,205 1,250,000 1,250 6,060,000 6,060
Compensation expense related to stock
option grant (unaudited)................. -- -- -- -- -- --
Accretion of dividends on Series B
redeemable convertible preferred stock
(unaudited).............................. -- 315,000 -- -- -- --
Net loss (unaudited)....................... -- -- -- -- -- --
---------- ------------ ---------- --------- ---------- ---------
Balance, June 30, 1999 (Unaudited)........... 6,562,500 11,034,205 1,250,000 1,250 6,060,000 6,060
Pro forma conversion of preferred stock and
Class B common stock to Class A common
stock (unaudited)........................ (6,562,500) (10,500,000) (1,250,000) (1,250) 11,812,500 11,813
Pro forma reclassification of dividends on
Series B redeemable convertible preferred
stock (unaudited)........................ -- (534,205) -- -- -- --
Pro forma reclassification of advances from
investors to stockholders' equity
(unaudited).............................. -- -- -- -- -- --
---------- ------------ ---------- --------- ---------- ---------
Pro forma balance, June 30, 1999
(Unaudited).................................. -- $ -- -- $ -- 17,872,500 $17,873
---------- ------------ ---------- --------- ---------- ---------
---------- ------------ ---------- --------- ---------- ---------
<CAPTION>
CLASS B TOTAL
--------------------- ADDITIONAL STOCKHOLDERS'
NUMBER OF $.001 PAR PAID-IN ACCUMULATED EQUITY
SHARES VALUE CAPITAL DEFICIT (DEFICIT)
---------- --------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Initial capitalization (August 2, 1996)...... -- $ -- $ 94,000 $ -- $ 100,000
Net loss................................... -- -- -- (76,152 ) (76,152)
---------- --------- ----------- ------------ -------------
Balance, December 31, 1996................... -- -- 94,000 (76,152 ) 23,848
Issuance of Class A common stock........... -- -- 1,940 -- 2,000
Sale of Class B common stock, net of
issuance costs of approximately
$10,000.................................. 1,500,000 1,500 488,500 -- 490,000
Sale of Series A convertible preferred
stock, net of issuance costs of
approximately $35,000.................... -- -- 2,379,949 -- 2,380,754
Net loss................................... -- -- -- (925,640 ) (925,640)
---------- --------- ----------- ------------ -------------
Balance, December 31, 1997................... 1,500,000 1,500 2,964,389 (1,001,792 ) 1,970,962
Sale of Series A convertible preferred
stock.................................... -- -- 1,333,806 -- 1,334,251
Sale of Series B redeemable convertible
preferred stock, net of issuance costs of
approximately $57,000.................... -- -- (56,931) -- (56,931)
Accretion of dividends on Series B
redeemable convertible preferred stock... -- -- (219,205) -- (219,205)
Net loss................................... -- -- -- (5,726,503 ) (5,726,503)
---------- --------- ----------- ------------ -------------
Balance, December 31, 1998................... 1,500,000 1,500 4,022,059 (6,728,295 ) (2,697,426)
Compensation expense related to stock
option grant (unaudited)................. -- -- 13,750 -- 13,750
Accretion of dividends on Series B
redeemable convertible preferred stock
(unaudited).............................. -- -- (315,000) -- (315,000)
Net loss (unaudited)....................... -- -- -- (7,253,924 ) (7,253,924)
---------- --------- ----------- ------------ -------------
Balance, June 30, 1999 (Unaudited)........... 1,500,000 1,500 3,720,809 (13,982,219 ) (10,252,600)
Pro forma conversion of preferred stock and
Class B common stock to Class A common
stock (unaudited)........................ (1,500,000) (1,500) 10,490,937 -- 10,500,000
Pro forma reclassification of dividends on
Series B redeemable convertible preferred
stock (unaudited)........................ -- -- 534,205 -- 534,205
Pro forma reclassification of advances from
investors to stockholders' equity
(unaudited).............................. -- -- 3,430,564 -- 3,430,564
---------- --------- ----------- ------------ -------------
Pro forma balance, June 30, 1999
(Unaudited).................................. -- $ -- $18,176,515 $(13,982,219) $ 4,212,169
---------- --------- ----------- ------------ -------------
---------- --------- ----------- ------------ -------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
<PAGE>
IBASIS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(AUGUST 2, YEARS ENDED SIX MONTHS ENDED
1996) DECEMBER 31, JUNE 30,
TO DECEMBER 31, ---------------------- ----------------------
1996 1997 1998 1998 1999
--------------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................... $ (76,152) $ (925,640) $(5,726,503) $(1,875,100) $(7,253,924)
Adjustments to reconcile net loss to net
cash used in operating activities.........
Depreciation and amortization........... -- 18,554 363,821 116,490 864,793
(Gain) loss on disposal of property and
equipment............................. -- -- 531,129 -- (15,297)
Compensation expense related to stock
option grant.......................... -- -- -- -- 13,750
Minority interest....................... -- -- 49,000 49,000 (49,000)
Changes in current assets and
liabilities--.........................
Accounts receivable................... -- (29,820) (1,054,803) (46,664) (1,467,910)
Prepaid expenses and other current
assets.............................. -- (73,382) (172,262) 5,463 (235,226)
Accounts payable...................... 11,564 240,142 3,501,268 192,069 585,885
Accrued expenses...................... -- 103,976 379,563 13,797 1,119,670
--------------- ---------- ---------- ---------- ----------
Net cash used in operating
activities........................ (64,588) (666,170) (2,128,787) (1,544,945) (6,437,259)
--------------- ---------- ---------- ---------- ----------
Cash flows from investing activities:
Purchases of property and equipment......... (33,844) (438,835) (3,522,070) (401,768) (81,905)
Increase in other assets.................... -- (71,972) (249,960) (51,514) (395,998)
--------------- ---------- ---------- ---------- ----------
Net cash used in investing
activities.......................... (33,844) (510,807) (3,772,030) (453,282) (477,903)
--------------- ---------- ---------- ---------- ----------
Cash flows from financing activities:
Net proceeds from issuance of Series A
convertible preferred stock............... -- 2,380,754 1,334,251 1,334,251 --
Net proceeds from issuance of Series B
redeemable convertible preferred stock.... -- -- 10,443,069 -- --
Net proceeds from issuance of Class A common
stock..................................... 100,000 2,000 -- -- --
Net proceeds from issuance of Class B common
stock..................................... -- 490,000 -- -- --
Advances from investors..................... -- -- -- -- 3,430,564
Payments on capital lease obligations....... -- (8,352) (166,045) (67,996) (460,460)
--------------- ---------- ---------- ---------- ----------
Net cash provided by financing
activities.......................... 100,000 2,864,402 11,611,275 1,266,255 2,970,104
--------------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents................................. 1,568 1,687,425 5,710,458 (731,972) (3,945,058)
Cash and cash equivalents, beginning of
period...................................... -- 1,568 1,688,993 1,688,993 7,399,451
--------------- ---------- ---------- ---------- ----------
Cash and cash equivalents, end of period...... $ 1,568 $1,688,993 $7,399,451 $ 957,021 $3,454,393
--------------- ---------- ---------- ---------- ----------
--------------- ---------- ---------- ---------- ----------
Supplemental disclosure of cash flow
information:
cash paid during the period for
interest............................ $ -- $ 4,114 $ 55,274 $ 20,103 $ 30,176
--------------- ---------- ---------- ---------- ----------
--------------- ---------- ---------- ---------- ----------
Supplemental disclosure of noncash investing
and financing activities:
Equipment acquired under capital lease
obligations......................... $ -- $ 199,696 $ 439,270 $ 439,270 $6,102,423
--------------- ---------- ---------- ---------- ----------
--------------- ---------- ---------- ---------- ----------
Accretion of dividends on Series B
redeemable convertible preferred
stock............................... $ -- $ -- $ 219,205 $ -- $ 315,000
--------------- ---------- ---------- ---------- ----------
--------------- ---------- ---------- ---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
<PAGE>
IBASIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
iBasis, Inc. (formerly VIP Calling, Inc.) (the Company) is a
facilities-based international telecommunications carrier that utilizes the
Internet to provide economical international telecommunications services to
carriers and telephony resellers around the world. The Company was originally
incorporated as a Delaware corporation on August 2, 1996 and was renamed VIP
Calling, Inc. on December 30, 1996. In July 1999, the Company amended its
Certificate of Incorporation to effect a name change from VIP Calling, Inc. to
iBasis, Inc. In March 1998, the Company entered into a joint venture agreement
with another company to operate in Hong Kong (see Note 4). In December 1998, the
Company established Ivanet LLC, a wholly owned subsidiary focusing on network
services. The Company currently operates through various service agreements with
local service providers in the United States, Europe, Asia, the Middle East,
Latin America and Africa.
The Company is subject to a number of risks common to companies in similar
stages of development, including dependence on key individuals and key vendors,
the need for adequate financing to fund future operations, the continued
successful development and marketing of its services and the attainment of
profitable operations. In July 1999, the Company sold 5,744,103 shares of Series
C redeemable convertible preferred stock (Series C) for aggregate proceeds of
approximately $25,102,000, approximately $3,431,000 of which was received by the
Company as of June 30, 1999 (see Note 7(d)).
The accompanying consolidated financial statements reflect the application
of certain significant accounting policies as described in this note and
elsewhere in these notes to consolidated financial statements.
(A) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
iBasis, Inc., iBasis Securities Corporation, Ivanet LLC and its majority owned
joint venture. All significant intercompany balances have been eliminated in
consolidation.
(B) INTERIM FINANCIAL STATEMENTS
The accompanying consolidated balance sheet as of June 30, 1999, and the
statements of operations and cash flows for the six months ended June 30, 1998
and 1999, and the statement of redeemable convertible preferred stock and
stockholders' equity (deficit) for the six months ended June 30, 1999 are
unaudited, but in the opinion of management, include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of
results for these interim periods. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted, although the Company believes
that the disclosures included are adequate to make the information presented not
misleading. The results of operations for the six months ended June 30, 1999 are
not necessarily indicative of the results to be expected for the entire fiscal
year or any other interim period.
(C) UNAUDITED PRO FORMA PRESENTATION
The unaudited pro forma consolidated balance sheet as of June 30, 1999 and
the pro forma net loss per share for the year ended December 31, 1998 and for
the six months ended June 30, 1999
F-7
<PAGE>
IBASIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reflect the conversion of all outstanding shares of Series B redeemable
convertible preferred stock, Series A convertible preferred stock and Class B
common stock into 11,812,500 shares of Class A common stock, which will occur
automatically upon the closing of the Company's proposed initial public
offering. In addition, advances from investors as of June 30, 1999 have been
reclassified to additional paid-in capital to reflect the subsequent sale of
Series C redeemable convertible preferred stock which closed in July 1999 and
which is automatically convertible into Class A common stock upon the closing of
the Company's proposed initial public offering.
(D) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(E) REVENUE RECOGNITION
In 1997, revenue principally consisted of the resale of certain equipment
gateways to two unrelated companies. Revenue was recognized upon shipment of the
equipment. The resale of equipment was not a material component of the Company's
revenue during 1998. In early 1998, the Company commenced the resale of
international minutes of calling time for calls resold through the Company's
gateways. Revenue from the resale of minutes is recognized in the period the
service is provided, net of reserves for potential billing credits.
(F) NET LOSS PER SHARE
Basic and diluted net loss per common share was determined by dividing net
loss by the weighted average common shares outstanding during the period. Basic
and diluted net loss per share are the same, as outstanding common stock options
and warrants and the convertible preferred stock and Class B common stock are
antidilutive as the Company has recorded a net loss for all periods presented.
Options and warrants to purchase a weighted total of 0, 114,441, 310,404,
319,155 and 1,071,680 Class A common shares have been excluded from the
computation of diluted weighted average common shares outstanding for the period
from inception (August 2, 1996) to December 31, 1996, the years ended December
31, 1997 and 1998 and the six months ended June 30, 1998 and 1999, respectively.
Shares of Class A common stock issuable upon the conversion of outstanding
convertible preferred stock and the convertible Class B common stock have also
been excluded for all periods presented. In accordance with the SEC Staff
Accounting Bulletin No. 98, EARNINGS PER SHARE IN AN INITIAL PUBLIC OFFERING,
the Company determined that there were no nominal issuances of the Company's
common stock prior to the Company's planned initial public offering.
The calculation of pro forma net loss per common share assumes that all
Series B redeemable convertible preferred stock, Series A convertible preferred
stock and Class B common stock had been converted to Class A common stock as of
the issuance date.
F-8
<PAGE>
IBASIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table reconciles the weighted average common shares
outstanding to the shares used in the computation of basic and diluted and pro
forma basic and diluted weighted average common shares outstanding:
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(AUGUST 2,
1996) TO YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
DECEMBER 31, ------------------------ --------------------------
1996 1997 1998 1998 1999
------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Weighted average common shares outstanding.... 6,000,000 6,036,082 6,060,000 6,060,000 6,060,000
Less--Weighted average unvested common shares
outstanding................................. -- 30,205 37,449 41,209 29,959
------------ ---------- ------------ ------------ ------------
Basic and diluted weighted average common
shares outstanding.......................... 6,000,000 6,005,877 6,022,551 6,018,791 6,030,041
------------ ---------- ------------ ------------ ------------
------------ ---------- ------------ ------------ ------------
Add--Weighted average common shares issuable
upon conversion of preferred stock and Class
B common stock.............................. 7,045,468 11,812,500
------------ ------------
Pro forma basic and diluted weighted average
common shares outstanding................... 13,068,019 17,842,541
------------ ------------
------------ ------------
</TABLE>
(G) CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments purchased with an original
maturity of 90 days or less at the time of purchase to be cash equivalents. At
December 31, 1997 and 1998 and June 30, 1999, cash equivalents included money
market accounts and commercial paper that are readily convertible into cash.
(H) PROPERTY AND EQUIPMENT
The Company provides for depreciation using the straight-line method by
charging to operations amounts estimated to allocate the cost of the property
and equipment over their estimated useful lives, as follows:
<TABLE>
<CAPTION>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
- ---------------------------------------------- ----------------------------------------------
<S> <C>
Network equipment 3 years
Equipment under capital lease Life of lease
Leasehold improvements Life of lease
Computer software 3 years
Furniture and fixtures 5 years
</TABLE>
F-9
<PAGE>
IBASIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(I) RESEARCH AND DEVELOPMENT EXPENSES
The Company charges research and development expenses to operations as
incurred.
(J) CONCENTRATION OF CREDIT RISK/SIGNIFICANT CUSTOMERS
Statement of Financial Accounting Standards (SFAS) No. 105, DISCLOSURE OF
INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND
FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK, requires disclosure of
any significant off-balance-sheet and credit risk concentrations. The Company
has no significant off-balance-sheet concentrations such as foreign exchange
contracts, option contracts or other foreign hedging arrangements. The Company
maintains the majority of its cash and cash equivalent balances with one
financial institution. Two customers represented approximately 100%, 42% and 27%
of total accounts receivable at December 31, 1997 and 1998 and June 30, 1999,
respectively. Three customers represented approximately 100%, 45% and 40% of
revenue for the years ended December 31, 1997 and 1998 and the six months ended
June 30, 1999, respectively.
(K) FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments consist principally of cash and cash equivalents,
accounts receivable, accounts payable and redeemable preferred stock. The
estimated fair value of these instruments approximates their carrying value.
(L) STOCK-BASED COMPENSATION
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, requires the
measurement of the fair value of stock options or warrants to be included in the
consolidated statements of operations or disclosed in the notes to consolidated
financial statements. The Company has determined that it will account for
stock-based compensation for employees under the intrinsic value-based method of
the Accounting Principles Board (APB) Opinion No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES, and elect the disclosure-only alternative under SFAS No.
123.
(M) COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, REPORTING COMPREHENSIVE INCOME. The Company does not have any
components of comprehensive income other than its reported net loss.
(N) LONG-LIVED ASSETS
The Company's long-lived assets consist primarily of property and equipment.
In accordance with SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, the Company has assessed the
realizability of these assets and has determined that there were no asset
impairments.
F-10
<PAGE>
IBASIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(O) RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, ACCOUNTING FOR THE COST OF
COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. SOP 98-1 is effective
for financial statements for the years beginning after December 15, 1998. SOP
98-1 provides guidance regarding accounting for computer software developed or
obtained for internal use, including the requirement to capitalize specified
costs and amortization of such costs. The adoption of this standard has not had
a significant impact on the Company's financial results.
In April 1998, the AICPA issued SOP 98-5, REPORTING ON THE COSTS OF START-UP
ACTIVITIES. SOP 98-5 is effective for fiscal years beginning after December 15,
1998, and provides guidance on the financial reporting of start-up activities
and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. As the Company expensed these
costs as incurred, the adoption of this standard will have no impact on the
Company's results of operations, financial position or cash flows.
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVES AND
HEDGING ACTIVITIES, which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for hedging
activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. As the Company does not currently engage in
derivatives or hedging transactions, there will be no current impact to the
Company's results of operations, financial position or cash flows upon the
adoption of SFAS No. 133.
(2) ACCRUED EXPENSES
Accrued expenses at December 31, 1997 and 1998 and June 30, 1999 consisted
of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1997 1998 1999
--------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Accrued professional fees................... $ 61,398 $ 72,500 $ 108,396
Accrued other............................... 42,578 411,039 1,494,813
--------- --------- ---------
$ 103,976 $ 483,539 $1,603,209
--------- --------- ---------
--------- --------- ---------
</TABLE>
(3) INCOME TAXES
The Company had elected to be treated as an S corporation for income tax
purposes from incorporation until January 1997. Effective January 1, 1997, the
Company terminated its S status and became a C corporation for income tax
purposes. The Company provides for income taxes in accordance with SFAS No. 109,
ACCOUNTING FOR INCOME TAXES. Under SFAS No. 109, deferred tax assets and
liabilities are recognized based on temporary differences between the financial
statement and tax bases of assets and liabilities using currently enacted tax
rates.
No provision for federal or state income taxes has been recorded, as the
Company incurred net operating losses for all periods presented. As of December
31, 1998, the Company has net operating
F-11
<PAGE>
IBASIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(3) INCOME TAXES (CONTINUED)
loss carryforwards of approximately $6,545,000 available to reduce future
federal and state income taxes, if any. If not utilized, these carryforwards
expire at various dates through 2018. If substantial changes in the Company's
ownership should occur, as defined by section 382 of the Internal Revenue Code
(the Code), there could be annual limitations on the amount of carryforwards
which can be realized in future periods. The Company has completed several
financings since its inception and believes that it may have incurred an
ownership change as defined under the Code.
The approximate income tax effects of each type of temporary difference and
carryforward are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
----------- -------------
<S> <C> <C>
Net operating loss carryforwards.................................. $ 373,000 $ 2,636,000
Other temporary differences....................................... (22,000) 38,000
Valuation allowance............................................... (351,000) (2,674,000)
----------- -------------
$ -- $ --
----------- -------------
----------- -------------
</TABLE>
The Company has recorded a 100% valuation allowance against the net deferred
tax asset as of December 31, 1997 and 1998, because the future realizability of
such asset is uncertain. The increase in the valuation allowance during these
periods primarily relates to the Company's net losses recorded in each year.
(4) HONG KONG JOINT VENTURE
On March 28, 1998, the Company entered into an agreement to form a joint
venture, iBasis Hong Kong Limited (the Joint Venture), with Microworld Limited
(Microworld) for the purpose of establishing a business that will provide
telecommunications and other services to customers in Hong Kong. Microworld
assigned certain contracts and paid $49,000 of cash for a 49% ownership in the
Joint Venture. The Company paid $51,000 in cash for a 51% ownership in the Joint
Venture.
The Joint Venture will terminate upon the withdrawal of either party by
written notification, the mutual election to terminate the agreement, the
insolvency of either party, or the transfer of the shares of Microworld to the
Company. The joint venture agreement does not provide for the allocation of
losses, income, gains and distributions.
Because the Company has deemed that it has control over the Joint Venture,
it has consolidated the entity for financial statement presentation. As of
December 31, 1998, the Joint Venture had not commenced operations. The Company
has consolidated the Joint Venture and has recorded a minority interest of
$49,000 in the accompanying consolidated balance sheet at December 31, 1998. The
minority interest was reduced to zero in the six months ended June 30, 1999 as
the Joint Venture losses exceeded the invested amounts.
F-12
<PAGE>
IBASIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(5) LINE OF CREDIT
On June 18, 1999, the Company entered into a loan and security agreement
(the Agreement) with a bank which provides for a revolving line of credit (the
Revolver) and an equipment line of credit (the Equipment Line).
The Revolver allows the Company to borrow up to $500,000, prior to a
capitalization event, as defined, or $1,500,000, after the occurrence of a
capitalization event, as defined. The Revolver expires in June 2000. Borrowings
under the Revolver, collateralized by substantially all assets of the Company,
are payable at maturity and bear interest at the bank's prime rate (7.75% at
June 30, 1999) plus 1% per annum. The Agreement requires the Company to maintain
certain financial covenants, including a minimum quick ratio, tangible net
worth, debt service coverage and liquidity, as defined. At June 30, 1999, there
were no borrowings under the Revolver.
The Equipment Line allows the Company to borrow up to $750,000 for purposes
of equipment purchases. Borrowings under the Equipment Line expire on July 31,
1999, and all amounts outstanding are payable in thirty-six equal monthly
installments of principal and interest through July 2002. At June 30, 1999,
there were no borrowings under the Equipment Line.
(6) REDEEMABLE CONVERTIBLE PREFERRED STOCK
In August 1998, the Company sold 6,562,500 shares of Series B redeemable
convertible preferred stock (Series B) for aggregate proceeds of $10,500,000.
The rights, preferences and privileges of the Series B are as follows:
VOTING
The holders of Series B are entitled to the number of votes equal to the
number of common shares into which the preferred shares are convertible. The
preferred shareholders vote together with the holders of common stock as a
single class, except where a separate class vote is otherwise required by
applicable law or the Certificate of Incorporation or bylaws.
DIVIDENDS
The holders of Series B are entitled to receive dividends, when and if
declared by the Board of Directors, and in preference and prior to any dividend
declared or paid on any shares of common stock in preference to the holders of
common stock. As of December 31, 1998, no dividends have been declared by the
Board of Directors.
LIQUIDATION PREFERENCE
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of Series B shall be entitled to be paid
out of the assets available for distribution an amount equal to the greater of
$1.60 per share plus any declared but unpaid dividends or the amount that would
be distributed to each preferred stockholder if all shares of Series B were
converted to Class A common shares. If the assets of the Company are
insufficient to pay the full preferential amounts to the preferred stockholders,
the assets shall be distributed ratably among the outstanding shares of Series B
in proportion to its aggregate liquidation preference amounts.
F-13
<PAGE>
IBASIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(6) REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
CONVERSION
Series B is convertible at the option of the holders into Class A common
stock by dividing the then-applicable Series B conversion price ($1.60 as of
December 31, 1998) by $1.60. All shares of Series B shall automatically be
converted into common stock upon the closing of a public offering of the
Company's common stock at an offering price of at least $10.00 per share
yielding aggregate gross proceeds to the Company of at least $25,000,000.
Automatic conversion shall also take place upon the closing of a public offering
upon a vote of 60% of the holders of Series A and B.
REDEMPTION
At any time on or after August 26, 2003, upon receipt of written request for
redemption from holders of at least 60% of the shares of Series B then
outstanding, the Company will redeem all of the outstanding shares of Series B
in three equal annual installments at a redemption price of $1.60 per share plus
any declared but unpaid dividends. For the purpose of redemption, the Series B
will have an annual 6% accrued dividend. As of June 30, 1999, cumulative
dividends totaled $534,205. These dividends are not included for purposes of
conversion. It is expected that based upon the proposed initial public offering
the Series B will be converted into Class A common stock and, therefore, these
dividends have been reclassified to additional paid-in capital in the pro forma
consolidated balance sheet as of June 30, 1999.
(7) STOCKHOLDERS' EQUITY (DEFICIT)
(A) AUTHORIZED CAPITAL STOCK
Effective July 12, 1999, the authorized capital stock of the Company
increased to 45,406,875, consisting of 31,500,000 shares of common stock, $0.001
par value per share, of which 30,000,000 and 1,500,000 shares have been
designated Class A common stock (Class A) and Class B common stock (Class B),
respectively and 13,906,875 shares of preferred stock, $0.001 par value per
share, of which 1,256,875 shares are designated Series A convertible preferred
stock (Series A), 6,875,000 shares are designated Series B and 5,775,000 shares
are designated Series C.
(B) SERIES A CONVERTIBLE PREFERRED STOCK
During 1997 and 1998, the Company sold an aggregate of 1,250,000 shares of
Series A for aggregate proceeds of $3,750,000.
The rights, preferences and privileges of the Series A are as follows:
VOTING
The holders of Series A are entitled to the number of votes equal to the
number of common shares into which the preferred shares are convertible. The
preferred shareholders vote together with the holders of common stock as a
single class, except where a separate class vote is otherwise required by
applicable law or the Certificate of Incorporation or bylaws.
F-14
<PAGE>
IBASIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(7) STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
DIVIDENDS
The holders of Series A are entitled to receive dividends, when and if
declared by the Board of Directors, and in preference and prior to any dividend
declared or paid on any shares of common stock in preference to the holders of
common stock. As of December 31, 1998, no dividends have been declared by the
Board of Directors.
LIQUIDATION PREFERENCE
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of Series A shall be entitled to be paid
out of the assets available for distribution an amount equal to the greater of
$3.00 per share plus any declared but unpaid dividends or the amount that would
be distributed to each preferred stockholder if all shares of Series A were
converted to Class A common shares. If the assets of the Company are
insufficient to pay the full preferential amounts to the preferred stockholders,
the assets shall be distributed ratably among the outstanding shares of, first,
Series B, and second, Series A, in proportion to their aggregate liquidation
preference amounts.
CONVERSION
Series A is convertible at the option of the holders into Class A common
stock by dividing the then-applicable Series A conversion price ($1.00 as of
December 31, 1998) by $.33. All shares of preferred stock shall automatically be
converted into common stock upon the closing of a public offering of the
Company's common stock at an offering price of at least $10.00 per share
yielding aggregate gross proceeds to the Company of at least $25,000,000.
Automatic conversion shall also take place upon the closing of a public offering
upon a vote of 60% of the holders of Series A.
(C) COMMON STOCK
The Company's Board of Directors approved a 40-for-1 common stock split in
February of 1997 and a 3-for-1 common stock split in December of 1997, which
have been retroactively reflected in the accompanying consolidated financial
statements.
The rights, preferences and privileges of the Class A and Class B are as
follows:
VOTING
The holders of Class A and Class B are entitled to one vote for each share
of stock owned. The common shareholders shall vote as a single class, together
with the holders of Series A and Series B, except where a separate class vote is
otherwise required by applicable law or the Certificate of Incorporation or
bylaws.
DIVIDENDS
Holders of Class B are entitled to dividends, when and if declared by the
Board of Directors, equal to an aggregate of $.33 per share (the Priority
Dividend) prior to any dividends being declared or paid to holders of Class A,
subject to the preferential dividend rights of holders of the Series A and B
F-15
<PAGE>
IBASIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(7) STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
preferred stock. Class A is not entitled to any priority dividend. After the
Priority Dividend has been paid, holders of Class A and Class B are entitled to
receive equal dividends, when and if declared by the Board of Directors. As of
December 31, 1998, no dividends have been declared by the Board of Directors.
LIQUIDATION PREFERENCE
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, and subject to the preferential rights of the holders
of Series A and B, the holders of Class B have a liquidation preference over the
holders of Class A of $.33 per share less any Priority Dividend previously paid.
The holders of Class A will then be entitled to a distribution amount of $.33
per share. Any remaining assets of the Company shall be distributed ratably
among the holders of Class A and B. If assets of the Company are insufficient to
pay the full amount to the common stockholders, the assets shall be distributed
ratably among the common stockholders in proportion to, and in order of their
rights to, their aggregate liquidation amounts.
CONVERSION
Holders of Class B can at any time convert their Class B shares for the same
number of shares of Class A. Shares of Class B will be mandatorily converted
upon the closing of a public offering of the Company's stock or a two-thirds
vote by the Class B shareholders. Upon the closing of the proposed initial
public offering of the Company's stock, the Company plans to amend its
Certificate of Incorporation to require automatic conversion of all issued and
outstanding shares of Class A common stock into a newly authorized series of
common stock on a 1:1 basis.
STOCK REPURCHASE AGREEMENT
In connection with a restricted stock award, the Company signed an agreement
with one of its employees stipulating that if the shareholder's employment with
the Company terminates, the Company will have the right to repurchase any
unvested shares for $.0333 per share which was the fair value of the stock on
the date of grant. The shares vest at a rate of 25% per year. At June 30, 1999,
there were 22,500 unvested shares under this agreement.
In connection with the issuance of Series B, the Company signed an agreement
with two of the shareholders that stipulates that if either shareholder's
employment with the Company terminates prior to August 26, 2000, the Company
will have the right to repurchase any unvested Class A shares at fair market
value, as determined by the Board of Directors. At the signing of this
agreement, 55% of each of these shareholders' Class A shares were vested
immediately, with 5.625% vesting every three months. At June 30, 1999, there
were 1,563,750 unvested shares under this agreement.
(D) SERIES C REDEEMABLE CONVERTIBLE PREFERRED STOCK EQUITY FINANCING
On July 12, 1999, the Company sold 5,744,103 shares of Series C for $4.37
per share, which resulted in aggregate gross proceeds of approximately
$25,102,000. As of June 30, 1999, the Company received advance proceeds of
$3,430,564 related to this financing which has been reflected in the
F-16
<PAGE>
IBASIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(7) STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
accompanying balance sheet as advances from investors. The Series C share the
identical rights, preferences and privileges as the Series B as described in
Note 6.
(E) STOCK INCENTIVE PLAN
The Company's 1997 Stock Incentive Plan (the Plan) provides for the granting
of restricted stock awards and incentive stock options (ISOs) and nonqualified
options to purchase up to 2,700,000 shares of Class A to key employees,
directors and consultants. Under terms of the Plan, the exercise price of
options granted shall be determined by the Board of Directors and for ISOs shall
not be less than fair market value of the stock on the date of grant. Options
vest in sixteen equal installments on each of the first sixteen three-month
anniversaries of the date of grant, provided that no options shall vest during
the optionee's first year of employment. The term of each stock option shall be
determined by the Board of Directors, but shall not exceed 10 years from the
date of grant.
The following table summarizes the option activity for the years ended
December 31, 1997 and 1998 and the six months ended June 30, 1999:
<TABLE>
<CAPTION>
WEIGHTED
EXERCISE AVERAGE
NUMBER OF PRICE PER EXERCISE
SHARES SHARE PRICE
---------- ---------- -----------
<S> <C> <C> <C>
Outstanding, January 1, 1997.............................. -- $ -- $ --
Granted................................................. 342,300 .03 .03
---------- ---------- -----
Outstanding, December 31, 1997............................ 342,300 .03 .03
Granted................................................. 1,186,600 .50-1.10 .70
Terminated.............................................. (200,000) .50 .50
---------- ---------- -----
Outstanding, December 31, 1998............................ 1,328,900 .03-1.10 .56
Granted (unaudited)..................................... 915,200 1.00-4.00 2.95
Terminated (unaudited).................................. (180,050) .50-1.00 .78
---------- ---------- -----
Outstanding, June 30 1999 (unaudited)..................... 2,064,050 $ .03-4.00 $ 1.60
---------- ---------- -----
---------- ---------- -----
Exercisable, June 30, 1999 (unaudited).................... 269,006 $ .03-1.50 $ .32
---------- ---------- -----
---------- ---------- -----
</TABLE>
F-17
<PAGE>
IBASIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(7) STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
The following table summarizes information relating to currently outstanding
and exercisable stock options as of June 30, 1999 (unaudited):
<TABLE>
<CAPTION>
OUTSTANDING
------------------------------------------ EXERCISABLE
WEIGHTED ------------------------
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
PRICES SHARES LIFE (YEARS) PRICE SHARES PRICE
- ---------- ---------- --------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 0.03 342,300 8.12 $ 0.03 149,756 $ 0.03
0.50-0.65 483,550 9.05 0.53 85,000 0.50
1.00-1.10 477,800 9.46 1.03 31,250 1.06
1.50 198,600 9.81 1.50 3,000 1.50
4.00 561,800 9.93 4.00 -- --
---------- -----------
2,064,050 269,006
---------- -----------
</TABLE>
At June 30, 1999, options to purchase 620,950 shares of Class A were
available for future grants under the Plan.
As of July 15, 1999, the Company granted 51,500 additional stock options to
employees with an exercise price per share of $4.00.
(F) PREFERRED STOCK WARRANTS
The Company has granted warrants for the purchase of Series A and Series B
to an equipment leasing company. At December 31, 1998 and June 30, 1999,
warrants for the purchase of 6,875 shares of Series A and 37,500 shares of
Series B were outstanding at an exercise price per share of $3.00 and $1.00,
respectively. At June 30, 1999, 6,875 and 37,500 warrants were exercisable for
Series A and Series B, respectively. The value of these warrants was calculated
and deemed to be not material to the financial statements.
(G) STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, which requires the measurement
of the fair value of stock options or warrants to be included in the statements
of operations or disclosed in the notes to the financial statements. The Company
has determined that it will continue to account for stock-based compensation for
employees under the Accounting Principles Board Opinion No. 25 and elect the
disclosure-only alternative under SFAS No. 123 for options granted in 1997, 1998
and 1999, using the Black-Scholes option pricing model prescribed by SFAS No.
123.
F-18
<PAGE>
IBASIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(7) STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
The weighted average assumptions are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------ ------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED)
Risk-free interest rate..................................... 6.16% 4.99% 5.51% 5.47%
Expected dividend yield..................................... -- -- -- --
Expected lives.............................................. 5 years 5 years 5 years 5 years
Volatility.................................................. 60% 60% 60% 60%
Weighted average remaining contractual life................. 9.62 years 9.49 years 8.43 years 9.30 years
Weighted average fair value of options granted.............. $0.02 $0.39 $0.28 $1.67
</TABLE>
Had compensation expense from the Company's stock incentive plan been
determined consistent with SFAS No. 123, net loss and net loss per share would
have been approximately as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------- ----------------------------
1997 1998 1998 1999
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Net loss applicable to common stockholders--
As reported........................................... $ (925,640) $ (5,945,708) $ (1,875,100) $ (7,568,924)
Pro forma............................................. (926,282) (5,979,305) (1,882,290) (7,661,102)
Pro forma diluted..................................... (5,760,100) (7,346,102)
Basic and diluted net loss per share--
As reported........................................... $ (0.15) $ (0.99) $ (0.31) $ (1.26)
Pro forma............................................. (0.15) (0.99) (0.31) (1.27)
Pro forma diluted..................................... (0.44) (0.41)
</TABLE>
(8) COMMITMENTS
In 1998, the Company entered into an agreement with a leasing company under
which the Company will be able to finance up to $10,000,000 of equipment
purchases with monthly payment terms over the life of each lease. Each
outstanding lease bears interest at an annual rate of 13.6% and has a 36-month
term. As of June 30, 1999, the Company had approximately $4,880,000 available
under the leasing agreement.
During 1997, 1998 and 1999, the Company entered into various lease
agreements with another leasing company. Each outstanding lease bears interest
at an annual rate ranging from 10.5%-13.0% and has a term ranging from 24-36
months. As of June 30, 1999, the Company had approximately $789,000 outstanding
under these lease agreements and $205,000 available for future borrowings.
F-19
<PAGE>
IBASIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(8) COMMITMENTS (CONTINUED)
The Company leases its facilities and certain equipment under both operating
and capital leases that expire through 2009. The approximate future minimum
payments under these leases as of June 30, 1999 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR LEASES LEASES
- ------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
1999, six months.................................................. $ 257,148 $ 1,013,791
2000.............................................................. 623,236 3,061,693
2001.............................................................. 623,236 2,914,546
2002.............................................................. 664,088 648,245
2003.............................................................. 682,078 --
Thereafter........................................................ 1,645,668 --
------------ ------------
Total future minimum lease payments............................... $ 4,495,454 7,638,275
------------
------------
Less--Amounts representing interest............................... 1,528,966
------------
Present value of obligations...................................... 6,109,309
Less--Current portion............................................. 1,593,831
------------
$ 4,515,478
------------
------------
</TABLE>
Rent expense included in the consolidated statements of operations was
approximately $0, $83,000, $69,000, $49,000 and $233,000 for the period from
inception (August 2, 1996) to December 31, 1996, the years ended December 31,
1997 and 1998 and the six months ended June 30, 1998 and 1999, respectively.
(9) SEGMENT AND GEOGRAPHIC INFORMATION
The Company has adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION, in the fiscal year ended December 31, 1998.
SFAS No. 131 establishes standards for reporting information regarding operating
segments in annual financial statements and requires selected information for
those segments to be presented in interim financial reports issued to
stockholders. SFAS No. 131 also establishes standards for related disclosures
about products and services and geographic areas. Operating segments are
identified as components of an enterprise about which separate discrete
financial information is available for evaluation by the chief operating
decision maker, or decision-making group, in deciding how to allocate resources
and assess performance. The Company's chief decision-maker, as defined under
SFAS No. 131, is a combination of the Chief Executive Officer and the Chief
Financial Officer. To date, the Company has viewed its operations and manages
its business as principally one segment, international telecommunication
services. Associated services are not significant. As a result, the financial
information disclosed herein represents all of the material financial
information related to the Company's principal operating segment.
F-20
<PAGE>
IBASIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(9) SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
The following table represents percentage of minute revenue by geographic
destination:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------- --------------------
1997 1998 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Asia............................................................................ 100.0% 55.7% 95.6% 55.9%
Latin America................................................................... -- 14.2 -- 11.3
Middle East..................................................................... -- 14.2 4.4 19.6
United States................................................................... -- 11.7 -- 1.3
Europe.......................................................................... -- -- -- 10.3
Other........................................................................... -- 4.2 -- 1.6
--------- --------- --------- ---------
100.0% 100.0% 100.0% 100.0%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
(10) RELATED PARTY
In November 1997, $115,000 of consulting fees were paid to a holder of
Series A and B for services rendered. These fees paid to this related party are
included in general and administrative expenses in the accompanying consolidated
financial statements.
For the year ended December 31, 1998 and six months ended June 30, 1999, the
Company paid approximately $415,000 and $53,000, respectively, to a related
party for services rendered. These fees paid to this related party are included
in data communications and telecommunications costs in the accompanying
consolidated financial statements.
(11) VALUATION AND QUALIFYING ACCOUNTS
The following is a rollforward of the Company's allowance for doubtful
accounts:
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING OF BALANCE AT
PERIOD ADDITIONS DEDUCTIONS END OF PERIOD
------------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
Period from inception ended December 31, 1996............... $ -- $ -- $ -- $ --
------------ ---------- ----------- -------------
------------ ---------- ----------- -------------
Year ended December 31, 1997................................ $ -- $ -- $ -- $ --
------------ ---------- ----------- -------------
------------ ---------- ----------- -------------
Year ended December 31, 1998................................ $ -- $ 126,741 $ -- $ 126,741
------------ ---------- ----------- -------------
------------ ---------- ----------- -------------
Six months ended June 30, 1999.............................. $ 126,741 $ 169,300 $ -- $ 296,041
------------ ---------- ----------- -------------
------------ ---------- ----------- -------------
</TABLE>
F-21
<PAGE>
[Inside Back Cover]
(Stylized logos of certain strategic technology relationships of iBasis
grouped under the label "iBasis Network Strategic Technology Relationships.")
<PAGE>
[IBASIS LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses of the Registrant in connection with the issuance and distribution
of the securities being registered, other than the underwriting discount, are
estimated as follows:
<TABLE>
<CAPTION>
TOTAL
---------
<S> <C>
SEC Registration Fee............................................................... $ 23,978
NASD Fees.......................................................................... 9,125
NASDAQ Listing Fees................................................................ *
Printing and Engraving Expenses.................................................... 45,000
Legal Fees and Expenses............................................................ *
Accountants' Fees and Expenses..................................................... *
Blue Sky Fees and expenses (including legal fees).................................. 12,500
Transfer Agent and Registrar's Fees................................................ *
Miscellaneous Costs................................................................ *
---------
Total........................................................................ $ *
---------
---------
</TABLE>
- ------------------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
Section 145 of the Delaware General Corporation law empowers a Delaware
corporation to indemnify its officers and directors and certain other persons to
the extent under the circumstances set forth therein.
The form of the Amended and Restated Certificate of Incorporation of the
Registrant and the Amended and Restated By-laws of the Registrant, copies of the
forms of which are filed as Exhibits 3.1 and 3.2, provide for indemnification of
officers and directors of the Registrant and certain other persons against
liabilities and expenses incurred by any of them in certain stated proceedings
and under certain stated conditions.
The above discussion of the Registrant's Amended and Restated Certificate of
Incorporation, Amended and Restated By-Laws and Section 145 of the Delaware
General Corporation Law is not intended to be exhaustive and is qualified in its
entirety by the forms of such Amended and Restated Certificate of Incorporation,
Amended and Restated By-Laws and statute.
The Registrant will agree to indemnity the Underwriters and their
controlling persons, and the Underwriters will agree to indemnify the Registrant
and its controlling persons, including directors and executive officers of the
Registrant, against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of the Underwriting Agreement that
will be filed as part of the Exhibits hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Between August 1996 and August 1997, the Registrant issued 6,060,000 shares
of Class A Common Stock, in the form of sales and restricted stock awards, to
three investors for an aggregate purchase price of $102,000. The 6,060,000
shares reflect both a 40-for-1 stock split in February 1997, and a 2-for-1 stock
dividend in December 1997. These sales and grants were made in reliance upon
Rule 506 of Regulation D, promulgated under the Securities Act and Section 4(2)
of the Securities Act, as transactions with an accredited investor by an issuer
not involving a public offering.
II-1
<PAGE>
In February, March and April 1997, the Registrant issued and sold 1,500,000
shares of Class B Common Stock to a total of 10 investors for an aggregate
purchase price of $500,000. These transactions were made in reliance upon Rule
506 of Regulation D, promulgated under the Securities Act and Section 4(2) of
the Securities Act, as transactions with an accredited investor by an issuer not
involving a public offering.
On September 10, 1997 the Registrant issued a warrant to purchase up to
6,875 shares of Series A Preferred Stock to TLP Leasing Programs, Inc. in
connection with the Registrant's entering into a commercial agreement with such
investor. This warrant was issued in reliance upon Rule 506 of Regulation D,
promulgated under the Securities Act and Section 4(2) of the Securities Act, as
transactions with an accredited investor by an issuer not involving a public
offering.
In October, November and December 1997, and March and June 1998 subject to
commitments in 1997, the Registrant issued and sold an aggregate of 1,250,000
shares of Series A Convertible Preferred Stock to a total of 14 investors for an
aggregate purchase price of $3,750,000. These transactions were made in reliance
upon Rule 506 of Regulation D, promulgated under the Securities Act and Section
4(2) of the Securities Act, as transactions with an accredited investor by an
issuer not involving a public offering.
On June 8, 1998, the Registrant issued a warrant to purchase up to 37,500
shares of Series B Preferred Stock to TLP Leasing Programs, Inc. in connection
with the Registrant's entering into a commercial agreement with such investor.
This warrant was issued in reliance upon Rule 506 of Regulation D, promulgated
under the Securities Act and Section 4(2) of the Securities Act, as transactions
with an accredited investor by an issuer not involving a public offering.
On August 26, 1998, the Registrant issued and sold 6,562,500 shares of
Series B Convertible Preferred Stock to a total of 14 investors for an aggregate
purchase price of $10,500,000. These transactions were made in reliance upon
Rule 506 of Regulation D, promulgated under the Securities Act and Section 4(2)
of the Securities Act, as transactions with an accredited investor by an issuer
not involving a public offering.
In July 1999, the Registrant issued and sold 5,744,103 shares of Series C
Convertible Preferred stock to 40 investors for an aggregate purchase price of
$25,101,740. These transactions were made in reliance upon Rule 506 of
Regulation D, promulgated under the Securities Act and Section 4(2) of the
Securities Act, as transactions with an accredited investor by an issuer not
involving a public offering.
As of July 31, 1999, the Registrant has issued options to certain employees,
officers and consultants of the Registrant, to purchase an aggregate of
2,055,300 shares of common stock under the Registrant's 1997 Stock Incentive
Plan. The purchase price under the options is $0.03 to $4.00 based on the fair
market value of the stock on the date of grant. The grants of options, and sales
of common stock upon the exercise of these options, were made in reliance upon
Rule 701 promulgated under the Securities Act and are deemed to be exempt
transactions as sales of an issuer's securities pursuant to a written plan or
contract relating to the compensation of such individuals and upon Section 4(2)
of the Securities Act as transactions not involving any public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The following is a list of exhibits filed as a part of this registration
statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
3.1* Form of Amended and Restated Certificate of Incorporation of the Registrant.
3.2* Form of Amended and Restated By-Laws of the Registrant.
4.1* Specimen Certificate for shares of the Registrant's common stock.
5.1* Opinion of Bingham Dana LLP, counsel to the Registrant, regarding the legality of the shares of common
stock registered hereunder.
10.1 Lease, dated January 8, 1999, as amended, between the Registrant and Rodger P. Nordblom and Peter C.
Nordblom as Trustees of Northwest Associates under Declaration of Trust dated December 9, 1971 with
respect to property located at 20 Second Avenue, Burlington, Massachusetts.
10.2 Standard Form Commercial Lease, dated as of February 26, 1997, between the Registrant and Technology
Properties Associates, with respect to property located at 121 Middlesex Turnpike, Burlington,
Massachusetts.
10.3 Lease, dated as of August 7, 1998, between the Registrant and 111 Eighth Avenue LLC, relating to
property located at 111 Eighth Avenue, New York, New York.
10.4 Lease, dated December 11, 1998 between the Registrant and Downtown Properties L.L.C., with respect to
property located at 611 Wilshire Boulevard, Los Angeles, California.
10.5 Warrant, dated as of September 10, 1997, for the purchase of shares of preferred stock of the Company
issued to TLP Leasing Programs, Inc.
10.6 Warrant, dated as of June 8, 1998, for the purchase of shares of preferred stock of the Company issued
to TLP Leasing Programs, Inc.
10.7 Master Agreement of Terms and Conditions for Lease between the Registrant and Cisco Systems Capital
Corporation, dated as of November 3, 1998, as amended.
10.8 1997 Stock Incentive Plan of the Registrant.
10.9 Employment Agreement between the Registrant and Ofer Gneezy, dated as of August 11, 1997.
10.10 Employment Agreement between the Registrant and Gordon J. VanderBrug, dated as of August 11, 1997.
10.11 Employment Agreement between the Registrant and Michael J. Hughes, dated as of August 17, 1999.
10.12 Employment Agreement between the Registrant and John G. Henson, Jr., dated as of August 17, 1999.
10.13 Series A Convertible Preferred Stock Purchase Agreement, dated as of October 24, 1997, between the
Registrant and the "Purchaser" parties thereto.
10.14 Series B Convertible Preferred Stock Purchase Agreement, dated as of August 26, 1998, between the
Registrant and the "Purchaser" parties thereto.
10.15 Series C Convertible Purchase Agreement, dated as of July 12, 1999, between the Registrant and the
"Purchaser" parties thereto.
10.16 Second Amended and Restated Shareholders' Agreement, dated as of July 12, 1999, among the Registrant and
the holders of the capital stock of the Registrant who become parties thereto.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.17 First Amended and Restated Registration Rights Agreement, dated as of July 12, 1999, among the
Registrant and the holders of the capital stock of the Registrant who become parties thereto.
10.18 Shareholders Agreement, dated as of March 28, 1998, relating to VIP Calling (Hong Kong) Limited.
10.19 Amendment No. 1 to the Shareholders Agreement, dated as of March 28, 1998, relating to VIP Calling (Hong
Kong) Limited.
10.20 Amendment No. 2 to the Shareholders Agreement, dated as of March 28, 1998, relating to VIP Calling (Hong
Kong) Limited.
10.21 Loan and Security Agreement between the Registrant and Silicon Valley Bank, dated as of June 18, 1999.
10.22 Stock Restriction Agreement, dated as of August 26, 1998, between the Registrant and Ofer Gneezy and
Gordon VanderBrug.
10.23 Alliance Agreement, dated January 4, 1999, between the Registrant and Cisco Systems, Inc.
10.24 Memorandum of Agreement, dated August 16, 1999, between the Registrant and NetSpeak Corporation.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Public Accountants.
23.2* Consent of Bingham Dana LLP, counsel to the Registrant (included in Exhibit 5.1).
23.3 Consent of Swidler Berlin Shereff Friedman, LLP.
24.1 Power of Attorney (included in signature page II-6 to Registration Statement).
27.1 Financial Data Schedule.
99.1 Consent of Charles Skibo.
xxxx Financial Statement Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
(b) Financial Statement Schedules
All schedules have been omitted because either they are not required, are
not applicable or the information is otherwise set forth in the Consolidated
Financial Statements and notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14 hereof, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to
II-4
<PAGE>
a court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To provide the Underwriter at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriter to permit prompt delivery to each
purchaser.
(2) That for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4), or 497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared effective.
(3) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and this offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-1 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Burlington, Commonwealth of Massachusetts, on this
18th day of August, 1999.
IBASIS, INC.
By: /s/ OFER GNEEZY
-----------------------------------------
Ofer Gneezy
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Ofer Gneezy and
Michael J. Hughes, and each of them severally, acting alone and without the
other, his/her true and lawful attorney-in-fact with full power of substitution
or resubstitution, for such person and in such person's name, place and stead,
in any and all capacities, to sign on such person's behalf, individually and in
each capacity stated below, any and all amendments, including post-effective
amendments to this Registration Statement, and to sign any and all additional
registration statements relating to the same offering of securities of the
Registration Statement that are filed pursuant to Rule 462(b) of the Securities
Act of 1933, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact, full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as such person might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
President, Chief Executive
/s/ OFER GNEEZY Officer and Director
- ------------------------------ (Principal Executive August 18, 1999
Ofer Gneezy Officer)
Vice President, Finance and
/s/ MICHAEL J. HUGHES Chief Financial Officer
- ------------------------------ (Principal Financial and August 18, 1999
Michael J. Hughes Accounting Officer)
/s/ GORDON J. VANDERBRUG Executive Vice President
- ------------------------------ and Director August 18, 1999
Gordon J. VanderBrug
/s/ ROBERT MAGINN Director
- ------------------------------ August 18, 1999
Robert Maginn
/s/ CHARLES S. HOUSER Director
- ------------------------------ August 18, 1999
Charles S. Houser
II-6
<PAGE>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ IZHAR ARMONY Director
- ------------------------------ August 18, 1999
Izhar Armony
/s/ JOHN JARVE Director
- ------------------------------ August 18, 1999
John Jarve
/s/ CHARLES N. CORFIELD Director
- ------------------------------ August 18, 1999
Charles N. Corfield
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Form of Amended and Restated Certificate of Incorporation of the Registrant.
3.2* Form of Amended and Restated By-Laws of the Registrant.
4.1* Specimen Certificate for shares of the Registrant's common stock.
5.1* Opinion of Bingham Dana LLP, counsel to the Registrant, regarding the legality of the shares of common
stock registered hereunder.
10.1 Lease, dated January 8, 1999, as amended, between the Registrant and Rodger P. Nordblom and Peter C.
Nordblom as Trustees of Northwest Associates under Declaration of Trust dated December 9, 1971 with
respect to property located at 20 Second Avenue, Burlington, Massachusetts.
10.2 Standard Form Commercial Lease, dated as of February 26, 1997, between the Registrant and Technology
Properties Associates, with respect to property located at 121 Middlesex Turnpike, Burlington,
Massachusetts.
10.3 Lease, dated as of August 7, 1998, between the Registrant and 111 Eighth Avenue LLC, relating to
property located at 111 Eighth Avenue, New York, New York.
10.4 Lease, dated December 11, 1998 between the Registrant and Downtown Properties L.L.C., with respect to
property located at 611 Wilshire Boulevard, Los Angeles, California.
10.5 Warrant, dated as of September 10, 1997, for the purchase of shares of preferred stock of the Company
issued to TLP Leasing Programs, Inc.
10.6 Warrant, dated as of June 8, 1998, for the purchase of shares of preferred stock of the Company issued
to TLP Leasing Programs, Inc.
10.7 Master Agreement of Terms and Conditions for Lease between the Registrant and Cisco Systems Capital
Corporation, dated as of November 3, 1998, as amended.
10.8 1997 Stock Incentive Plan of the Registrant.
10.9 Employment Agreement between the Registrant and Ofer Gneezy, dated as of August 11, 1997.
10.10 Employment Agreement between the Registrant and Gordon J. VanderBrug, dated as of August 11, 1997.
10.11 Employment Agreement between the Registrant and Michael J. Hughes, dated as of August 17, 1999.
10.12 Employment Agreement between the Registrant and John G. Henson, Jr., dated as of August 17, 1999.
10.13 Series A Convertible Preferred Stock Purchase Agreement, dated as of October 24, 1997, between the
Registrant and the "Purchaser" parties thereto.
10.14 Series B Convertible Preferred Stock Purchase Agreement, dated as of August 26, 1998, between the
Registrant and the "Purchaser" parties thereto.
10.15 Series C Convertible Purchase Agreement, dated as of July 12, 1999, between the Registrant and the
"Purchaser" parties thereto.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.16 Second Amended and Restated Shareholders' Agreement, dated as of July 12, 1999, among the Registrant and
the holders of the capital stock of the Registrant who become parties thereto.
10.17 First Amended and Restated Registration Rights Agreement, dated as of July 12, 1999, among the
Registrant and the holders of the capital stock of the Registrant who become parties thereto.
10.18 Shareholders Agreement, dated as of March 28, 1998, relating to VIP Calling (Hong Kong) Limited.
10.19 Amendment No. 1 to the Shareholders Agreement, dated as of March 28, 1998, relating to VIP Calling (Hong
Kong) Limited.
10.20 Amendment No. 2 to the Shareholders Agreement, dated as of March 28, 1998, relating to VIP Calling (Hong
Kong) Limited.
10.21 Loan and Security Agreement between the Registrant and Silicon Valley Bank, dated as of June 18, 1999.
10.22 Stock Restriction Agreement, dated as of August 26, 1998, between the Registrant and Ofer Gneezy and
Gordon VanderBrug.
10.23 Alliance Agreement, dated January 4, 1999, between the Registrant and Cisco Systems, Inc.
10.24 Memorandum of Agreement, dated August 16, 1999, between the Registrant and NetSpeak Corporation.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Public Accountants.
23.2* Consent of Bingham Dana LLP, counsel to the Registrant (included in Exhibit 5.1).
23.3 Consent of Swidler Berlin Shereff Friedman, LLP.
24.1 Power of Attorney (included in signature page II-6 to Registration Statement).
27.1 Financial Data Schedule.
99.1 Consent of Charles Skibo.
xxxx Financial Statement Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
EXHIBIT 10.1
NORTHWEST PARK
LEASE
ARTICLE 1
Reference Data
1.1 Subject Referred To.
Each reference in this Lease to any of the following subjects shall be
construed to incorporate the data stated for that subject in this Section
1.1.
Date of this Lease: January 8, 1999
Building: The one-level building in Northwest Park in
Burlington, Massachusetts (hereinafter
referred to as the "Park") constructed on a
parcel of land located at 20 Second Avenue
(the Building and such parcel of land
hereinafter being collectively referred to
as the "Property").
Premises: The entire Building, substantially as shown
on Exhibit A attached hereto.
Rentable Floor
Area of Premises: Approximately 27,235 square feet
Landlord: Rodger P. Nordblom and Peter C. Nordblom, as
Trustees of Northwest Associates under
Declaration of Trust dated December 9, 1971
and filed with Middlesex South District of
the Land Court as Document No. 493351.
Original Notice
Address of Landlord: c/o Nordblom Management Company, Inc.
31 Third Avenue
Burlington, Massachusetts 01803
Tenant: VIP Calling, Inc., a Delaware corporation
Original Notice
Address of Tenant: 20 Second Avenue
Burlington, MA 01803
Expiration Date: The last day of the sixth (6th) lease year
(as hereinafter defined)
Delivery Date: March 15, 1999
Annual Fixed
Rent Rate: $435,760.00 during the first 3 lease years;
and $490,230.00 thereafter
Monthly Fixed
Rent Rate: $36,313.33 during the first 3 lease years;
and $40,852.50 thereafter
Security and
Restoration
Deposit: $217,879.98 (subject to reduction pursuant
to Section 4.4)
Initial Estimate
of Taxes for the
Tax Year: $43,584.00
Initial Estimate
of Operating Costs
for the Calendar
Year: $36,492.00
Permitted Uses: General business offices and light assembly
of equipment.
Public Liability
Insurance Limits:
Comprehensive General Liability: $2,000,000 per occurrence
$4,000,000 general aggregate
1.2 Exhibits.
The Exhibits listed below in this section are incorporated in this Lease
by reference and are to be construed as a part of this Lease.
EXHIBIT A Plan showing the Premises.
EXHIBIT B Commencement Date Notification
EXHIBIT C Work Letter
EXHIBIT D Work Change Order
EXHIBIT E Rules and Regulations
EXHIBIT F Form Tenant Estoppel Certificate
1.3 Table of Articles and Sections.
ARTICLE I -- Reference Data
1.1 Subjects Referred To ............................................
1.2 Exhibits ........................................................
1.3 Table of Articles and Sections ..................................
1
<PAGE>
ARTICLE 2 -- Premises and Term
2.1 Premises ...........................................................
2.2 Term ...............................................................
2.3 Extension Option ...................................................
ARTICLE 3 -- Improvements
3.1 Performance of Work and Approval of Landlord's Work ................
3.2 Acceptance of the Premises .........................................
ARTICLE 4 -- Rent
4.1 The Fixed Rent .....................................................
4.2 Additional Rent ....................................................
4.2.1 Real Estate Taxes ...........................................
4.2.2 Personal Property Taxes .....................................
4.2.3 Operating Costs .............................................
4.2.4 Insurance ...................................................
4.2.5 Utilities ...................................................
4.3 Late Payment of Rent ...............................................
4.4 Security and Restoration Deposit ...................................
ARTICLE 5 -- Landlord's Covenants
5.1 Affirmative Covenants ..............................................
5.1.1 Water .......................................................
5.1.2 Fire Alarm ..................................................
5.1.3 Repairs .....................................................
5.1.4 Landscaping .................................................
5.2 Interruption .......................................................
ARTICLE 6 -- Tenant's Additional Covenants
6.1 Affirmative Covenants ..............................................
6.1.1 Perform obligations ..........................................
6.1.2 Use ..........................................................
6.1.3 Repair and Maintenance .......................................
6.1.4 Compliance with Law ..........................................
6.1.5 Indemnification ..............................................
6.1.6 Landlord's Right to Enter ....................................
6.1.7 Personal Property at Tenant's Risk ...........................
6.1.8 Payment of Landlord's Cost of Enforcement ....................
6.1.9 Yield Up .....................................................
6.1.10 Rules and Regulations .......................................
6.1.11 Estoppel Certificate ........................................
6.1.12 Landlord's Expenses Re: Consents ............................
6.2 Negative Covenants .................................................
6.2.1 Assignment and Subletting ...................................
6.2.2 Nuisance ....................................................
6.2.3 Hazardous Wastes and Materials ..............................
6.2.4 Floor Load; Heavy Equipment .................................
6.2.5 Installation, Alterations or Additions ......................
6.2.6 Abandonment .................................................
6.2.7 Signs .......................................................
6.2.8 Parking and Storage .........................................
ARTICLE 7 -- Casualty or Taking
7.1 Termination ........................................................
7.2 Restoration ........................................................
7.3 Award ..............................................................
ARTICLE 8 -- Defaults
8.1 Events of Default ..................................................
8.2 Remedies ...........................................................
8.3 Remedies Cumulative ................................................
8.4 Landlord's Right to Cure Defaults ..................................
8.5 Effect of Waivers of Default .......................................
8.6 No Waiver, etc. ....................................................
8.7 No Accord and Satisfaction .........................................
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ARTICLE 9 -- Rights of Mortgage Holders
9.1 Rights of Mortgage Holders .........................................
9.2 Lease Superior or Subordinate to Mortgages .........................
ARTICLE 10 -- Miscellaneous Provisions
10.1 Notices From One Party to the Other ................................
10.2 Quiet Enjoyment ....................................................
10.3 Lease Not to be Recorded ...........................................
10.4 Limitation of Landlord's Liability .................................
10.5 Acts of God ........................................................
10.6 Landlord's Default .................................................
10.7 Brokerage ..........................................................
10.8 Applicable Law and Construction ....................................
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ARTICLE 2
Premises and Term
2.1 Premises, Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord, subject to and with the benefit of the terms, covenants,
conditions and provisions of this Lease, the Premises, excluding, however,
the use of the roof of the Building for telecommunications equipment,
Landlord reserving the right, from time to time, without unreasonable
interference with Tenant's use of the Premises, to install, use and repair
telecommunications equipment on the roof of the Building.
Tenant shall be permitted to use up to 108 parking spaces in the parking
area on the Property.
2.2 Term. TO HAVE AND TO HOLD for a term (the "original term") beginning on
the Commencement Date, which shall be the earlier of (a) the date on which
the work to be performed by Landlord pursuant to Exhibit C has been
substantially completed or (b) the opening by Tenant of its business in
the Premises, and ending on the Expiration Date, unless sooner terminated
as hereinafter provided. The term "substantially completed" as used herein
shall mean that (a) the work to be performed by Landlord pursuant to
Exhibit C has been completed with the exception of minor items which can
be fully completed without material interference with Tenant and other
items which because of the season or weather or the nature of the item are
not practicable to do at the time, provided that none of said items is
necessary to make the Premises tenantable for the Permitted Uses, and (b)
a temporary certificate of occupancy has been issued. When the dates of
the beginning and end of the term have been determined, such dates shall
be evidenced by a document, in the form attached hereto as Exhibit B,
which Landlord shall complete and deliver to Tenant, and which shall be
deemed conclusive unless Tenant shall notify Landlord of any disagreement
therewith within ten (10) days of receipt.
The term "lease year" as used herein shall mean a period of twelve (12)
consecutive full calendar months. The first lease year shall begin on the
Commencement Date if the Commencement Date is the first day of a calendar
month; if not, then the first lease year shall commence upon the first day
of the calendar month next following the Commencement Date. Each
succeeding lease year shall commence upon the anniversary date of the
first lease year.
2.3 Extension Option. Provided that as of the date of the notice specified
below, Tenant is not in default and has not previously been in default of
its obligations under this Lease beyond any applicable grace period more
than once, Tenant shall have the right to extend the term of this Lease
for one additional period of five (5) years, to begin immediately upon the
expiration of the original term of this Lease (the "extended term"). All
of the terms, covenants and provisions of this Lease shall apply to such
extended terms except that the Annual Fixed Rent Rate for such extension
period shall be the fair market rate at the commencement of such extended
term, as designated by Landlord for comparable buildings in the greater
Burlington area. If Tenant shall elect to exercise the aforesaid option,
it shall do so by giving Landlord notice in writing of its intention to do
so not later than one (1) year prior to the expiration of the original
term of this Lease. If Tenant gives such notice, the extension of this
Lease shall be automatically effected without the execution of any
additional documents. The original term and the extended term are
hereinafter collectively called the "term".
If the Tenant disagrees with Landlord's designation of the market rate,
and the parties cannot agree upon the market rate, then the market rate
shall be submitted to arbitration as follows: market rate shall be
determined by impartial arbitrators, one to be chosen by the Landlord, one
to be chosen by Tenant, and a third to be selected, if necessary, as below
provided. The unanimous written decision of the two first chosen, without
selection and participation of a third arbitrator, or otherwise, the
written decision of a majority of three arbitrators chosen and selected as
aforesaid, shall be conclusive and binding upon Landlord and Tenant.
Landlord and Tenant shall each notify the other of its chosen arbitrator
within ten (10) days following the call for arbitration and, unless such
two arbitrators shall have reached a unanimous decision within thirty (30)
days after their designations, they shall so notify the then President of
the Boston Bar Association and request him to select an impartial third
arbitrator, who shall be another office building owner, a real estate
counselor or a broker dealing with like types of properties, to determine
market rate as herein defined. Such third arbitrator and the first two
chosen shall hear the parties and their evidence and render their decision
within thirty (30) days following the conclusion of such hearing and
notify Landlord and Tenant thereof. Landlord and Tenant shall share
equally the expense of the third arbitrator (if any). If the dispute
between the parties as to a market rate has not been resolved before the
commencement of Tenant's obligation to pay Fixed Rent based upon such
market rate, then Tenant shall pay Fixed Rent under the Lease based upon
the market rate designated by Landlord until either the agreement of the
parties as to the market rate, or the decision of the arbitrators, as the
case may be, at which time Tenant shall pay any underpayment of Fixed Rent
to Landlord, or Landlord shall refund any overpayment of Fixed Rent to
Tenant.
In any event, the Annual Fixed Rent Rate for the extended term shall not
be less than the Annual Fixed Rent Rate in effect immediately prior to
such extended term.
ARTICLE 3
Improvements
3.1 Performance of Work and Approval of Landlord's Work. Landlord shall cause
to be performed the work (the "Landlord's Work") required by Exhibit C,
the Work Letter. Landlord's Work shall be done in a good and workmanlike
manner employing new and first-quality materials. Landlord covenants and
warrants for the benefit of Tenant that Landlord's Work shall be performed
so as to conform to all applicable local, state and federal laws,
regulations and ordinances promulgated by governmental authorities with
competent jurisdiction which are in effect on or before the Commencement
Date, including, without limitation, all applicable laws relating to the
removal of architectural barriers to accommodate disabled persons. Tenant
agrees that Landlord may make any changes in such work which may become
reasonably necessary or advisable, other than substantial changes, without
approval of Tenant, provided written notice is promptly given to Tenant;
and Landlord may make substantial changes in such work, with the written
approval of Tenant, which shall not be unreasonably withheld or delayed.
Landlord shall use diligence to cause Landlord's Work to be substantially
completed by the Delivery Date, subject to the provisions of Section 10.5
hereof. Landlord agrees that Tenant may make changes in such work with the
approval of Landlord and the execution by Landlord and Tenant of a Work
Change Order, in the form attached hereto as Exhibit D. Tenant shall pay
to Landlord a contribution in the amount of $106,000.00 (subject to
adjustment by Work Change Order) toward the costs incurred by Landlord in
performing the work set forth in Exhibit C, payment to be made as follows:
(a) an amount equal to fifty (50%) percent of such contribution upon
execution of this Lease, (b) forty (40%) percent of such contribution upon
the earlier of substantial completion of the work or the opening by Tenant
of its business in the Premises and (c) the balance of such contribution
upon Landlord's submission of the final bill.
3.2 Acceptance of the Premises. Tenant or its representatives may, at
reasonable times, enter upon the Premises during the progress of the work
to inspect the progress thereof and to determine if the work is being
performed in accordance with the requirements of Section 3.1. Tenant shall
promptly give to Landlord notices of any alleged failure by Landlord to
comply with those requirements. Landlord's Work shall be deemed approved
by Tenant when Tenant occupies the Premises for the conduct of its
business, except for (a) items of Landlord's Work which are uncompleted or
do not conform to Exhibit C and as to which Tenant shall, in either case,
have given written notice to Landlord prior to such occupancy and (b) a
punch-list prepared by Landlord and Tenant based on an inspection made by
the parties on the date on which Tenant occupies the Premises for the
conduct of its business. Landlord shall forthwith correct all defects
noted on such punch-list within thirty (30) days thereafter, except for
items which by their nature cannot be corrected within said thirty (30)
day period, provided that Landlord shall use reasonable efforts to correct
such items expeditiously. A certificate of completion by a licensed
architect or registered engineer shall be conclusive evidence that
Landlord's Work has been completed except for items stated in such
certificate to be incomplete or not in conformity with Exhibit C.
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ARTICLE 4
Rent
4.1 The Fixed Rent. Tenant covenants and agrees to pay rent to Landlord at the
Original Address of Landlord or as such other place or to such other
person or entity as Landlord may by notice in writing to Tenant from time
to time direct, at the Annual Fixed Rent Rate, in equal installments as
the Monthly Fixed Rent Rate (which is 1/12th of the Annual Fixed Rent
Rate), in advance, on the first day of each calendar month included in the
term; and for any portion of a calendar month as the beginning of the
term, at the rate for the first lease year payable in advance for such
portion.
If Landlord shall give notice to Tenant that all rent and other payments
due hereunder are to be made to Landlord by electronic funds transfers, so
called, or by similar means, Tenant shall make all such payments as shall
be due after receipt of said notice by means of said electronic funds
transfers (or such similar means as designated by Landlord).
4.2 Additional Rent. Tenant covenants and agrees to pay, an Additional Rent,
insurance costs, utility charges, personal property taxes, real estate
taxes and operating costs with respect to the Premises as provided in this
Section 4.2 as follows:
4.2.1 Real Estate Taxes. Tenant shall pay to Landlord, as additional rent,
for each tax period partially or wholly included its the term, Taxes
(as hereinafter defined). Tenant shall remit to Landlord, on the
first day of each calendar month, estimated payments on account of
Taxes, such monthly amounts to be sufficient to provide Landlord, by
the time real estate tax payments are due and payable to any
governmental authority responsible for collection of same, a sum
equal to the Taxes, as reasonably estimated by Landlord from time to
time on the basis of the most recent tax data available. The initial
calculation of the monthly estimated payments shall be based upon
the Initial Estimate of Taxes for the Tax Year and upon quarterly
payments being due to the governmental authority on August 1,
November 1, February 1 and May 1, and shall be made when the
Commencement Date has been determined. If the total of such monthly
remittances for any Tax Year is greater than the actual Taxes for
such Tax Year, Landlord shall promptly pay to Tenant, or credit
against the next accruing payments to be made by Tenant pursuant to
this subsection 4.2.1, the difference; if the total of such
remittances is less than the actual Taxes for such Tax Year, Tenant
shall pay the difference to Landlord at least ten (10) days prior to
the date or dates within such Tax Year that any Taxes become due and
payable to the governmental authority (but in any event no earlier
than ten (10) days following a written notice to Tenant, which
notice shall set forth the manner of computation of Tenant's
Percentage of Taxes).
If, after Tenant shall have made reimbursement to Landlord pursuant
to this subsection 4.2.1, Landlord shall receive a refund of any
portion of Taxes paid by Tenant with respect to any Tax Year during
the term hereof as a result of an abatement of such Taxes by legal
proceedings, settlement or otherwise (without either party having
any obligation to undertake any such proceedings), Landlord shall
promptly pay to Tenant, or credit against the next accruing payments
to be made by Tenant pursuant to this subsection 4.2.1, the Tenant's
Percentage of the refund (less the expenses, including reasonable
attorneys' fees and reasonable appraisers' fees, incurred in
connection with obtaining any such refund), as relates to Taxes paid
by Tenant to Landlord with respect to any Tax Year for which such
refund is obtained.
In the event this Lease shall commence, or shall end (by reason of
expiration of the term or earlier termination pursuant to the
provisions hereof), on any date other than the first or last day of
the Tax Year, or should the Tax Year or period of assessment of real
estate taxes be changed or be more or less than one (1) year, as the
case may be, then the amount of Taxes which may be payable by Tenant
as provided in this subsection 4.2.1 shall be appropriately
apportioned and adjusted.
The term "Taxes" shall mean all taxes, assessments, betterments and
other charges and impositions (including, but not limited to, fire
protection service fees and similar charges) levied, assessed or
imposed at any time during the term by any governmental authority
upon or against the Property, or taxes in lieu thereof, and
additional types of taxes to supplement real estate taxes due to
legal limits imposed thereon. If, at any time during the term of
this Lease, any tax or excise on rents or other taxes, however
described, are levied or assessed against Landlord with respect to
the rent reserved hereunder, either wholly or partially in
substitution for, or in addition to, real estate taxes assessed or
levied on the Property, such tax or excise on rents shall be
included in Taxes; however, Taxes shall not include franchise,
estate, inheritance, succession, capital levy, transfer, income or
excess profits taxes assessed on Landlord. Taxes shall include any
estimated payments made by Landlord on account of a fiscal tax
period for which the actual and final amount of taxes for such
period has not been determined by the governmental authority as of
the date of any such estimated payment.
4.2.2 Personal Property Taxes. Tenant shall pay all taxes charged,
assessed or imposed upon the personal property of Tenant in or upon
the Premises.
4.2.3 Operating Costs. Tenant shall pay to Landlord the Operating Costs
(as hereinafter defined) incurred by Landlord in any calendar year.
Tenant shall remit to Landlord, on the first day of each calendar
month, estimated payments on account of Operating Costs, such
monthly amounts to be sufficient to provide Landlord, by the end of
the calendar year, a sum equal to the Operating Costs, as reasonably
estimated by Landlord from time to time. The initial monthly
estimated payments shall be in an amount equal to 1/12th of the
Initial Estimate of Operating Costs for the Calendar Year. If, at
the expiration of the year in respect of which monthly installments
of Operating Costs shall have been made as aforesaid, the total of
such monthly remittances is greater than the actual Operating Costs
for such year, Landlord shall promptly pay to Tenant, or credit
against the next accruing payments to be made by Tenant pursuant to
this subsection 4.2.3, the difference; if the total of such
remittances is less than the Operating Costs for such year, Tenant
shall pay the difference to Landlord within twenty (20) days from
the date Landlord shall furnish to Tenant an itemized statement of
the Operating Costs, prepared, allocated and computed in accordance
with generally accepted accounting principles. Any reimbursement
for Operating Costs due and payable by Tenant with respect to
periods of less than twelve (12) months shall be equitably prorated.
The term "Operating Costs" shall mean all costs and expenses
incurred for the operation, cleaning, maintenance, repair and upkeep
of the Property, and the portion of such costs and expenses with
regard to the common areas, facilities and amenities of the Park
which is equitably allocable to the Property, including, without
limitation, all costs of maintaining and repairing the Property and
the Park (including snow removal, landscaping and grounds
maintenance, operation and maintenance of parking lots, sidewalks,
walking paths, access roads and driveways, security, and repair of
heating and air-conditioning equipment, lighting and any other
Building equipment or system) and of all repairs and replacements,
subject to the last paragraph of this subsection 4.2.3 (other than
repairs or replacements for which Landlord has received full
reimbursement from contractors or from others) necessary to keep the
Property and the Park in good working order, repair, appearance and
condition; all costs, including material and equipment costs; all
costs of any reasonable insurance carried by Landlord relating to
the Property; payments under all service contracts relating to the
foregoing; all compensation, fringe benefits, payroll taxes and
workmen's compensation insurance premiums related thereto with
respect to any employees of Landlord or its affiliates engaged in
security and maintenance of the Property and the Park; to the extent
relating to the operation of the Property, reasonable attorneys'
fees and disbursements (exclusive of any such fees and disbursements
incurred in tax abatement proceedings or the preparation of taxes)
and reasonable auditing and other professional fees and expenses;
and a management fee comparable to management fees charged by other
landlords of similar office property in the greater Burlington area.
4
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There shall not be included in such Operating Costs brokerage fees
(including rental fees) related to the operation of the Building;
interest and depreciation charges incurred on the Property;
expenditures made by Tenant with respect to (i) cleaning, trash
removal, maintenance and upkeep of the Premises, and (ii) the
provision of electricity to the Premises; Landlord's advertising and
marketing costs; matters for which Landlord is reimbursed by
insurance; Landlord's negligence; mortgage and debt service payments
(including payments of principal, interest and other charges due
under any mortgage or deed of trust); salaries of executives or
principals of Landlord; expenses for which Landlord, by the terms of
this Lease, makes a separate charge; and any costs incurred by
Landlord for alterations or improvements to the Premises on account
of Landlord's failure to perform the Landlord's Work in compliance
with applicable laws in effect on or before the Commencement Date.
If, during the term of this Lease, Landlord shall replace any
capital items or make any capital expenditures (collectively called
"capital expenditures") the total amount of which is not properly
included in Operating Costs for the calendar year in which they were
made, there shall nevertheless be included in Operating Costs for
each calendar year in which and after such capital expenditure is
made the annual charge-off of such capital expenditure. (Annual
charge-off shall be determined by (i) dividing the original cost of
the capital expenditure by the number of years of useful life
thereof [The useful life shall be reasonably determined by Landlord
in accordance with generally accepted accounting principles and
practices in effect at the time of acquisition of the capital
item.]; and (ii) adding to such quotient an interest factor computed
on the unamortized balance of such capital expenditure based upon an
interest rate reasonably determined by Landlord as being the
interest rate then being charged for long-term mortgages by
institutional lenders on like properties within the locality in
which the Building is located.) Provided, further, that if Landlord
reasonably concludes on the basis of engineering estimates that a
particular capital expenditure will effect savings in Operating
Costs and that such annual projected savings will exceed the annual
charge-off of capital expenditure computed as aforesaid, then and in
such events, the annual charge-off shall be determined by dividing
the amount of such capital expenditure by the number of years over
which the projected amount of such savings shall fully amortize the
cost of such capital item or the amount of such capital expenditure;
and by adding the interest factor, as aforesaid.
4.2.4 Insurance. Tenant shall, at its expense, as Additional Rent, take
out and maintain throughout the terms the following insurance
protecting Landlord:
4.2.4.1 Comprehensive liability insurance naming Landlord, Tenant,
and Landlord's managing agent and any mortgagee of which
Tenant has been given notice as insureds or additional
insureds and indemnifying the parties so named against all
claims and demands for death or any injury to person or
damage to property which may be claimed to have occurred on
the Premises (or the Property, insofar as used by
customers, employees, servants or invitees of the Tenant),
in amounts which shall, at the beginning of the term, be at
least equal to the limits set forth in Section 1.1, and,
which, from time to time during the term, shall be for such
higher limits, if any, as are customarily carried in the
area in which the Premises are located on property similar
to the Premises and used for similar purposes; and
workmen's compensation insurance with statutory limits
covering all of Tenant's employees working on the Premises.
4.2.4.2 Fire insurance with the usual extended coverage
endorsements covering all Tenant's furniture, furnishings.
fixtures and equipment.
4.2.4.3 All such policies shall be obtained from responsible
companies qualified to do business and in good standing in
Massachusetts, which companies and the amount of insurance
allocated thereto shall be subject to Landlord's approval.
Tenant agrees to furnish Landlord with certificates
evidencing all such insurance prior to the beginning of the
term hereof and evidencing renewal thereof at least thirty
(30) days prior to the expiration of any such policy. Each
such policy shall be non-cancelable with respect to the
interest of Landlord without at least ten (10) days' prior
written notice thereto. In the event provision for any such
insurance is to be by a blanket insurance policy, the
policy shall allocate a specific and sufficient amount of
coverage to the Premises.
4.2.4.4 All insurance which is carried by either party with respect
to the Premises or to furniture, furnishings, fixtures, or
equipment therein or alterations or improvements thereto,
whether or not required, shall include provisions which
either designate the other party as one of the insured or
deny to the insurer acquisition by subrogation of rights of
recovery against the other party to the extent such rights
have been waived by the insured party prior to occurrence
of loss or injury, insofar as, and to the extent that, such
provisions may be effective without making it impossible to
obtain insurance coverage from responsible companies
qualified to do business in the state in which the Premises
are located (even though extra premium may result
therefrom). In the event that extra premium is payable by
either party as a result of this provision, the other party
shall reimburse the party paying such premium the amount of
such extra premium. If at the request of one party, this
non-subrogation provision is waived, then the obligation of
reimbursement shall cease for such period of time as such
waiver shall be effective, but nothing contained in this
subsection shall derogate from or otherwise affect releases
elsewhere herein contained of either party for claims. Each
party shall be entitled to have certificates of any
policies containing such provisions. Each party hereby
waives all rights of recovery against the other for loss or
injury against which the waiving party is protected by
insurance containing said provisions, reserving, however,
any rights with respect to any excess of loss or injury
over the amount recovered by such insurance. Tenant shall
not acquire as insured under any insurance carried on the
Premises any right to participate in the adjustment of loss
or to receive insurance proceeds and agrees upon request
promptly to endorse and deliver to Landlord any checks or
other instruments in payment of loss in which Tenant is
named as payee.
4.2.5 Utilities. Tenant shall pay all charges made by public authority or
utility for the cost of electricity, gas and water (including sewer
charges), telephone and other utilities or services furnished or
consumed on the Premises, whether designated as a charge, tax,
assessment, fee or otherwise, all such charges to be paid as the
same from time to time become due. It is understood and agreed that
Tenant shall make its own arrangements for the installation or
provision of all such utilities and that Landlord shall be under no
obligation to furnish any utilities to the Premises and shall not be
liable for any interruption or failure in the supply of any such
utilities to the Premises.
4.3 Late Payment of Rent. If any installment of rent is paid more than five
(5) days after the date the same was due, and if on a prior occasion in
the twelve (12) month period prior to the date such installment was due an
installment of rent was paid after the same was due, then Tenant shall pay
Landlord a late payment fee equal to five (5%) percent of the overdue
payment.
4.4 Security and Restoration Deposit. Upon the execution of this Lease, Tenant
shall deposit with Landlord the Security and Restoration Deposit, which
Landlord shall deposit in its name in an interest-bearing account. Said
deposit shall be held by Landlord as security for the faithful performance
by Tenant of all the terms of this Lease by said Tenant to be observed and
performed. The security deposit shall not be mortgaged, assigned,
transferred or encumbered by Tenant without the written consent of
Landlord and any such act on the part of Tenant shall be without force and
effect and shall not be binding upon Landlord.
If the Fixed Rent or Additional Rent payable hereunder shall be overdue
and unpaid or should Landlord make payments on behalf of the Tenant, or
Tenant shall fail to perform any of the terms of this Lease in all cases
beyond the expiration of all applicable notice and cure periods, then
Landlord may, at its option and without prejudice to any other remedy
which Landlord may have on account thereof, appropriate and apply said
entire deposit or so much thereof as may be necessary to compensate
Landlord toward the payment of Fixed Rent, Additional Rent or other sums
or loss or damage sustained by Landlord due to such breach on the part of
Tenant; and Tenant shall forthwith upon demand restore said security to
the original sum deposited. Should Tenant comply with all of said terms
5
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and promptly pay all of the rentals as they fall due and all other sums
payable by Tenant to Landlord, said deposit and any interest earned
thereon shall be resumed in full to Tenant at the end of the term.
In the event of bankruptcy or other creditor-debtor proceedings against
Tenant, all securities shall be deemed to be applied first to the payment
of rent and other charges due Landlord for all periods prior to the filing
of such proceedings.
If Tenant has any net income for any quarter of a fiscal year of Tenant,
and provides Landlord with an audited statement reporting such net income,
and provided Tenant is not then in default under this Lease, the Security
and Restoration Deposit shall be reduced to an amount equal to the product
of the Monthly Fixed Rent Rate then in effect times four, and Landlord
shall promptly return to Tenant the amount necessary to effect such
reduction. This reduction shall only be effected one time during the term
of this Lease.
ARTICLE 5
Landlord's Covenants
5.1 Affirmative Covenants. Landlord covenants with Tenant:
5.1.1 Water. To furnish water for ordinary cleaning, lavatory and toilet
facilities.
5.1.2 Fire Alarm. To maintain fire alarm systems within the Building.
5.1.3 Repairs. Except as otherwise expressly provided herein, to make such
repairs and replacements to the roof, exterior walls, floor slabs
and other structural components of the Building, and to the
plumbing, electrical, heating, ventilating and air-conditioning
system of the Building as may be necessary to keep them in good
repair and condition and in compliance with applicable laws
(exclusive of equipment installed by Tenant and except for those
repairs required to be made by Tenant pursuant to Section 6.1.3
hereof and repairs or replacements occasioned by any act or
negligence of Tenant, its servants, agents, customers, contractors,
employees, invitees, or licensees).
5.1.4 Landscaping. To provide landscaping and grounds maintenance
services for the Property.
5.2 Interruption. Landlord shall be under no responsibility or liability for
failure or interruption of any of the above-described services, repairs or
replacements caused by breakage, accident, strikes, repairs, inability to
obtain supplies, labor or materials, or for any other causes beyond the
control of the Landlord, and in no event for any indirect or consequential
damages to Tenant; and failure or omission on the part of the Landlord to
furnish any of same for any of the reasons set forth in this paragraph
shall not be construed as an eviction of Tenant, actual or constructive,
nor entitle Tenant to an abasement of rent, nor render the Landlord liable
in damages, nor release Tenant from prompt fulfillment of any of its
covenants under this Lease. However, in each instance of a failure or
interruption, Landlord shall use best efforts to remedy the cause thereof.
ARTICLE 6
Tenant's Additional Covenants
6.1 Affirmative Covenants. Tenant covenants at all times during the term and
for such further time (prior or subsequent thereto) as Tenant occupies the
Premises or any part thereof:
6.1.1 Perform Obligations. To perform promptly all of the obligations of
Tenant set forth in this Lease; and to pay when due the Fixed Rent
and Additional Rent and all charges, rates and other sums which by
the terms of this Lease are to be paid by Tenant.
6.1.2 Use. To use the Premises only for the Permitted Uses, and from time
to time to procure all licenses and permits necessary therefor, at
Tenant's sole expense. With respect to any licenses or permits for
which Tenant may apply, pursuant to this subsection 6.1.2 or any
other provision hereof, Tenant shall furnish Landlord copies of
applications therefor on or before their submission to the
governmental authority.
6.1.3 Repair and Maintenance. Except for Landlord repairs referenced in
Section 5.1.3 hereinabove, to maintain the Premises in neat order
and condition and to provide for all cleaning and janitorial
services to the Premises and to cause all trash to be removed from
the Premises, and to perform all routine and ordinary repairs to the
Premises and to any plumbing, heating, electrical, ventilating and
air-conditioning system located within the Premises and installed by
Tenant such as are necessary to keep them in good working order,
appearance and condition, as the case may require, reasonable use
and wear thereof and damage by fire or by unavoidable casualty only
excepted; to keep all glass in windows and doors of the Premises
(except glass in the exterior walls of the Building) whole and in
good condition with glass of the same quality as that injured or
broken; and to make as and when needed as result of misuse by, or
neglect or improper conduct of Tenant or Tenant's servants,
employees, agents, invitees or licensees or otherwise, all repairs
necessary, which repairs and replacements shall be in quality and
class equal to the original work. (Landlord, upon default of Tenant
hereunder and upon prior notice to Tenant, may elect, at the expense
of Tenant, to perform all such cleaning and maintenance and to make
any such repairs or to repair any damage or injury to the Premises
caused by moving property of Tenant in or out of the Building, or by
installation or removal of furniture or other property, or by misuse
by, or neglect, or improper conduct of, Tenant or Tenant's
servants, employees, agents, contractors, customers, patrons,
invitees, or licensees.)
6.1.4 Compliance with Law. To the extent required as a result of
alterations performed by or on behalf of Tenant pursuant to Section
6.2.5 below or any other act of Tenant or by Tenant's particular use
of the Premises and not required for office buildings generally, to
make all repairs, alterations, additions or replacements to the
Premises required by any law or ordinance or any order or regulation
of any public authority; to keep the Premises equipped with all
safety appliances so required; and to comply with the orders and
regulations of all governmental authorities with respect to zoning,
building, fire, health and other codes, regulations, ordinances or
laws applicable to the Tenant's use of the Premises, except that
Tenant may defer compliance so long as the validity of any such law,
ordinance, order or regulations shall be contested by Tenant in good
faith and by appropriate legal proceedings, if Tenant first gives
Landlord appropriate assurance or security against any loss, cost or
expense on account thereof.
6.1.5 Indemnification. To save harmless, exonerate and indemnify Landlord,
its agents (including, without limitation, Landlord's managing
agent) and employees (such agents and employees being referred to
collectively as the "Landlord Related Parties") from and against any
and all claims, liabilities or penalties asserted by or on behalf of
any person, firm, corporation or public authority on account of
injury, death, damage or loss to person or property in or upon the
Premises and the Property arising out of the use or occupancy of the
Premises by Tenant or by any person claiming by, through or under
Tenant (including, without limitation, all patrons, employees and
customers of Tenant), or arising out of any delivery to or service
supplied to the Premises, or on account of or based upon anything
whatsoever done on the Premises, except if the same was caused by
the willful negligence, fault or misconduct of Landlord or the
Landlord Related Parties. In respect of all of the foregoing, Tenant
shall indemnify Landlord and the Landlord Related Parties from and
against all costs,
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expenses (including reasonable attorneys' fees), and liabilities
incurred in or in connection with any such claim, action or
proceeding brought thereon; and, in case of any action or
proceeding brought against Landlord or the Landlord Related Parties
by reason of any such claim, Tenant, upon notice from Landlord and
at Tenant's expense, shall resist or defend such action or
proceeding and employ counsel therefor reasonably satisfactory to
Landlord.
6.1.6 Landlord's Right to Enter. Provided that Landlord does not
materially interfere with Tenant's use or enjoyment of the
Premises, to permit Landlord and its agents to enter into and
examine the Premises at reasonable times and to show the Premises,
and to make repairs to the Premises, and, during the last six (6)
months prior to the expiration of this Lease, to keep affixed in
suitable places notices of availability of the Premises.
6.1.7 Personal Property at Tenant's Risk. All of the furnishings,
fixtures, equipment, effects and property of every kind, nature and
description of Tenant and of all persons claiming by, through or
under Tenant which, during the continuance of this lease or any
occupancy of the Premises by Tenant or anyone claiming under
Tenant, may be on the Premises, shall be at the sole risk and
hazard of Tenant and if the whole or any part thereof shall be
destroyed or damaged by fire, water or otherwise, or by the leakage
or bursting of water pipes, steam pipes, or other pipes, by theft
or from any other cause, no part of said loss or damage is to be
charged to or to be borne by Landlord, except that Landlord shall
in no event be indemnified or held harmless or exonerated from any
liability to Tenant or to any other person, for any injury, loss,
damage or liability to the extent prohibited by law or to the
extent resulting from any willful misconduct by Landlord or
Landlord Related Parties.
6.1.8 Payment of Landlord's Cost of Enforcement. To pay on demand
Landlord's expenses, including reasonable attorneys' fees, incurred
in enforcing any obligation of Tenant under this Lease or in curing
any default by Tenant under this Lease as provided in Section 8.4.
6.1.9 Yield Up. At the expiration of the term or earlier termination of
this Lease: to surrender all keys to the Premises; to remove all of
its trade fixtures and personal property in the Premises; to
deliver to Landlord stamped architectural plans showing the
Premises at yield up (which may be the initial p1ans if Tenant has
made no installations after the Commencement Date); to remove such
installations made by it as Landlord may request (including
computer and telecommunications wiring and cabling, it being
understood that if Tenant leaves such wiring and cabling in a
useable condition, Landlord, although having the right to request
removal thereof, is less likely to so request) and all Tenant's
signs wherever located; to repair all damage caused by such removal
and to yield up the Premises (including all installations and
improvements made by Tenant except for trade fixtures and such of
said installations or improvements as Landlord shall request Tenant
to remove), broom-clean and in the same good order and repair in
which Tenant is obliged to keep and maintain the Premises by the
provisions of Section 6.1.3 of this Lease. Any property not so
removed shall be deemed abandoned and, if Landlord so elects,
deemed to be Landlord's property, and may be retained or removed
and disposed of by Landlord in such manner as Landlord shall
determine and Tenant shall pay Landlord the entire cost and expense
incurred by it in effecting such removal and disposition and in
making any incidental repairs and replacements to the Premises and
for use and occupancy during the period after the expiration of the
term and prior to its performance of its obligations under this
subsection 6.1.9.
If the Tenant remains in the Premises beyond the expiration or
earlier termination of this Lease, such holding over shall be
without right and shall not be deemed to create any tenancy, but
the Tenant shall be a tenant at sufferance only at a daily rate of
rent equal to two (2) times the rent and other charges in effect
under this Lease as of the day prior to the date of expiration of
this Lease. Tenant shall further indemnify Landlord against all
reasonable loss, cost and damage resulting from Tenant's failure
and delay in surrendering the Premises.
6.1.10 Rules and Regulations. To comply with the Rules and Regulations set
forth in Exhibit E, and with all reasonable Rules and Regulations
hereafter made by Landlord, of which Tenant has been given notice.
6.1.11 Estoppel Certificate. Upon not less than fifteen (15) days' prior
written request by Landlord, to execute, acknowledge and deliver to
Landlord a statement in writing, in the form attached hereto as
Exhibit F, certifying all or any of the following: (i) that this
Lease is unmodified and in full force and effect, (ii) whether the
term has commenced and Fixed Rent and Additional Rent have become
payable hereunder and, if so, the dates to which they have been
paid, (iii) whether or not Landlord is in default in performance of
any of the terms of this Lease, (iv) whether Tenant has accepted
possession of the Premises, (v) whether Tenant has made any claim
against Landlord under this Lease and, if so, the nature thereof
and the dollar amount, if any, of such claim, (vi) whether there
exist any offsets or defenses against enforcement of any of the
terms of this Lease upon the part of Tenant to be performed, and
(vii) such further information with respect to the Lease or the
Premises as Landlord may reasonably request. Any such statement
delivered pursuant to this subsection 6.1.11 may be relied upon by
any prospective purchaser or mortgagee of the Premises, or any
prospective assignee of such mortgage. Tenant shall also deliver to
Landlord such financial information as may be reasonably required
by Landlord to be provided to any mortgagee or prospective
purchaser of the Premises.
6.1.12 Landlord's Expenses Re Consents. To reimburse Landlord promptly on
demand for all reasonable legal expenses incurred by Landlord in
connection with all requests by Tenant for consent or approval
hereunder.
6.2 Negative Covenants. Tenant covenants at all times during the term and such
further time (prior or subsequent thereto) as Tenant occupies the Premises
or any part thereof:
6.2.1 Assignment and Subletting. Except for an assignment or subletting
to a wholly-owned subsidiary or a corporation in which Tenant owns
in excess of 25% of the outstanding capital stock (in either case
called a "Permitted Transfer") not to assign, transfer, mortgage or
pledge this Lease or to sublease (which term shall be deemed to
include the granting of concessions and licenses and the like) all
or any part of the Premises or suffer or permit this Lease or the
leasehold estate hereby created or any other rights arising under
this Lease to be assigned, transferred or encumbered, in whole or
in part, whether voluntarily, involuntarily or by operation of law,
or permit the occupancy of the Premises by anyone other than Tenant
without the prior written consent of Landlord. In the event Tenant
desires to assign this Lease or sublet any portion or all of the
Premises, Tenant shall notify Landlord in writing of Tenant's
intent to so assign this Lease or sublet the Premises and the
proposed effective date of such subletting or assignment, and shall
request in such notification that Landlord consent thereto. Except
for a Permitted Transfer, Landlord may terminate this Lease in the
case of a proposed assignment, or suspend this Lease pro tanto for
the period and with respect to the space involved in the case of a
proposed subletting, by giving written notice of termination or
suspension to Tenant, with such termination or suspension to be
effective as of the effective date of such assignment or
subletting. If Landlord does not to terminate or suspend,
Landlord's consent shall not be unreasonably withheld to an
assignment or to a subletting, provided that the assignee or
subtenant shall use the Premises only for the Permitted Uses.
Tenant shall, as Additional Rent, reimburse Landlord promptly for
Landlord's reasonable legal expenses incurred in connection with
any request by Tenant for such content. If Landlord consents
thereto, or in the case of a Permitted Transfer, no such subletting
or assignment shall in any way impair the continuing primary
liability of Tenant hereunder, and no consent to any subletting or
assignment in a particular instance shall be deemed to be a waiver
of the obligation to obtain the Landlord's written approval in the
case of any other subletting or assignment.
The provisions of the preceding paragraph shall not apply to
transactions with an entity into or with which Tenant is merged or
consolidated or to which substantially all of Tenant's assets are
transferred, provided that in any of such events (i) the successor
to Tenant has a net worth computed in accordance with generally
accepted accounting principles at least equal to the net worth of
Tenant immediately prior to such merger, consolidation or transfer,
(ii) proof reasonably satisfactory to Landlord of such net worth
shall have been delivered to Landlord at least ten (10) days prior
to the effective
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date of any such transaction, and (iii) the assignee agrees directly
with Landlord, by written instrument in form satisfactory to
Landlord to perform all the obligations of Tenant.
If for any assignment or sublease consented to by Landlord hereunder
Tenant receives rent or other consideration, either initially or
over the term of the assignment or sublease, in excess of the rent
called for hereunder, or in case of sublease of part, in excess of
such rent fairly allocable to the part, after appropriate
adjustments to assure that all other payments called for hereunder
are appropriately taken into account and after deduction for
reasonable expenses of Tenant in connection with the assignment or
sublease, to pay to Landlord as additional rests fifty (50%) percent
of the excess of each such payment of rent or other consideration
received by Tenant promptly after its receipt.
Whenever Tenant lists with a broker or brokers or otherwise
advertises, holds out or markets the Premises or any part thereof
for sublease or assignment, Tenant shall give Nordblom Company, as
brokers, a non-exclusive listing with respect to such sublease or
assignment.
If, at any time during the term of this Lease, there is a transfer
of a controlling interest in the stock, membership or general
partnership interests of Tenant, Tenant shall so notify Landlord and
(whether or not Tenant so notifies Landlord) such transfer shall be
deemed an assignment subject to the provisions of the first
paragraph of this Section 6.2.1, except for a transfer of less than
50% of the outstanding stock of Tenant that is not also a transfer
of a controlling interest of Tenant (in which case Landlord's prior
consent is not required). Landlord hereby consents to the assignment
by Tenant of this Lease to an institutional lender ("Leasehold
Mortgagee") as security for the payment of all indebtedness and
performance of obligations under the financing with such Leasehold
Mortgagee. Landlord agrees that so long as any such financing shall
remain in effect, the following provisions shall apply:
1. Landlord shall, upon serving Tenant with any notice of
default, promptly serve a copy of such notice upon Leasehold
Mortgagee provided Landlord has previously been given written
notice of the name and address of the Leasehold Mortgagee.
Leasehold Mortgagee shall thereupon have the same period as is
allowed to Tenant, to remedy or cause to be remedied the
defaults specified by Landlord, and Landlord shall accept such
performance by or at the instigation of Leasehold Mortgagee in
response to any such notice of default as if the same had been
performed by Tenants; and
2. Should Tenant be in default under the terms of such financing
Leasehold Mortgagee shall have the right, but not the
obligation, to receive an assignment of this Lease for the
remainder of its term and assume all of Tenant's rights,
duties and obligations under the Lease, provided that as a
condition to such assignment and assumption Leasehold
Mortgagee shall have remedied or caused to be remedied
defaults, if any, under this Lease of which Leasehold
Mortgagee shall have been given written notice prior to such
assignment and assumption, and provided further that the use
of the Premises by any such Leasehold Mortgagee shall be
substantially similar to that of Tenant immediately prior to
the assumption, and that any assignment or subletting by such
Leasehold Mortgagee shall be subject to all of the provisions
of this subsection 6.2.1., except that the third sentence of
the first paragraph shall not be applicable its the case of a
proposed assignment to an entity acquiring substantially all
of the assets of the initial Tenant named herein.
6.2.2 Nuisance. Not to injure, deface or otherwise harm the Premises; nor
commit any nuisance; nor permit in the Premises any vending machine
(except such as is used for the sale of merchandise for employees of
Tenant) or inflammable fluids or chemicals (except such as are
customarily used in connection with standard office equipment); nor
permit any cooking to such extent as requires special exhaust
venting; nor permit the emission of any objectionable noise or odor;
nor make, allow or suffer any waste; nor make any use of the
Premises which is improper, offensive or contrary to any law or
ordinance or which will invalidate any of Landlord's insurance; nor
conduct any auction, fire, "going out of business" or bankruptcy
sales.
6.2.3 Hazardous Wastes and Materials. Not to dispose of any hazardous
wastes, hazardous materials or oil on the Premises or the Property,
or into any of the plumbing, sewage, or drainage systems thereon,
and to indemnify and save Landlord harmless from all claims,
liability, loss or damage arising on account of the use or disposal
of hazardous wastes, hazardous materials or oil, including, without
limitation, liability under any federal, state, or local laws,
requirements and regulations, or damage to any of the aforesaid
system. Tenant shall comply with all governmental reporting
requirements with respect to hazardous wastes, hazardous materials
and oil, and shall deliver to Landlord copies of all reports filed
with governmental authorities.
6.2.4 Floor Load; Heavy Equipment. Not to place a load upon any floor of
the Premises exceeding the floor load per square foot area which
such floor was designed to carry and which is allowed by law.
Landlord reserves the right to prescribe the weighs and position of
all heavy business machines and equipment, including safes, which
shall be placed so as to distribute the weight. Business machines
and mechanical equipment which cause vibrations or noise shall be
placed and maintained by Tenant at Tenant's expense in settings
sufficient to absorb and prevent vibration, noise and annoyance.
Except if in the due course of Tenant's business operations, Tenant
shall not move any safe, heavy machinery, heavy equipment, freight
or fixtures into or out of the Premises except in such manner and as
such time as Landlord shall in each instance authorize.
6.2.5 Installation, Alterations or Additions. Not to make any
installations, alterations or additions in, to or on the Premises
nor to permit the making of any holes in the walls, partitions,
ceilings or floors nor the installation or modification of any locks
or security devices without on each occasion obtaining the prior
written consent of Landlord, and then only pursuant to plans and
specifications approved by Landlord in advance in each instance;
Tenant shall pay promptly when due the entire cost of any work to
the premises undertaken by Tenant so that the Premises shall at all
times be free of liens for labor and materials, and at Landlord's
request Tenant shall furnish to Landlord a bond or other security
acceptable to Landlord assuring that any work commenced by Tenant
will be completed in accordance with the plans and specifications
theretofore approved by Landlord and assuring that the Premises will
remain free of any mechanics' lien or other encumbrance arising out
of such work. In any event, Tenant shall forthwith bond against or
discharge any mechanics' liens or other encumbrances that may arise
out of such work. Tenant shall procure all necessary licenses and
permits at Tenant's sole expense before undertaking such work. All
such work shall be done in a good and workmanlike manner employing
materials of good quality and so as to conform with all applicable
zoning, building, fire, health and other codes, regulations,
ordinances and laws. Tenant shall save Landlord harmless and
indemnified from all injury, loss, claims or damage to any person or
property occasioned by or growing out of such work.
Not to grant a security interest in, or to lease, any personal
property being installed in the Premises (including, without
limitation, demountable partitions) without first obtaining an
agreement, for the benefit of Landlord, from the secured party or
lessor that such property will be removed within fifteen (15)
business days after notice from Landlord of the expiration or
earlier termination of this Lease and that a failure to so remove
will subject such property to the provisions of subsection 6.1.9 of
the Lease.
6.2.6 Abandonment. Not to abandon or vacate the Premises during the term.
6.2.7 Signs. Not without Landlord's prior written approval to paint or
place any signs or place any curtains, blinds, shades, awnings,
aerials, or the like, visible from outside the Premises. Tenant
shall be permitted to install its identification sign on the
exterior of the Building, subject to Landlord's prior reasonable
approval. Such sign shall be maintained in good repair
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by Tenant, shall conform to applicable requirements of public
authorities and shall conform with Landlord's sign policy for the
Park.
6.2.8 Parking and Storage. Not to permit any storage of materials outside
of the Premises; nor to permit the use of the parking areas for
either temporary or permanent storage of trucks; nor permit the use
of the Premises for any use for which heavy trucking would be
customary.
ARTICLE 7
Casualty or Taking
7.1 Termination. In the event that the Premises, or any material part thereof,
shall be taken by any public authority or for any public use, or shall be
destroyed or damaged by fire or casualty, or by the action of any public
authority, then this Lease may be terminated at the election of Landlord.
Such election, which may be made notwithstanding the fact that Landlord's
entire interest may have been divested, shall be made by the giving of
notice by Landlord to Tenant within sixty (60) days after the date of the
taking or casualty. In the event the Premises are destroyed or damaged by
fire or casualty, or by the action of public authority, and, in the
reasonable opinion of an independent architect or engineer selected by
Landlord, cannot be repaired or restored within one hundred eighty (180)
days from the time that repair or restoration work would be commenced,
then this Lease may be terminated at the election of Landlord or Tenant,
which election shall be made by the giving to the other party within
thirty (30) days after the date the opinion of the architect or engineer
is made available to all parties.
7.2 Restoration. If neither party elects to so terminate, this Lease shall
continue in force and a just proportion of the rent reserved, according to
the nature and extent of the damages sustained by the Premises, shall be
suspended or abated until the Premises, or what may remain thereof, shall
be put by Landlord in proper condition for use, which Landlord covenants
to do with reasonable diligence to the extent permitted by the net
proceeds of insurance recovered or damages awarded for such taking,
destruction or damage and subject to zoning and building laws or
ordinances then in existence. "Net proceeds of insurance recovered or
damages awarded" refers to the gross amount of such insurance or damages
less the reasonable expenses of Landlord incurred in connection with the
collection of the same, including without limitation, fees and expenses
for legal and appraisal services.
7.3 Award. Irrespective of the form in which recovery maybe had by law, all
rights to damages or compensation shall belong to Landlord in all cases.
Tenant hereby grants to Landlord all of Tenant's rights to such damages
and covenants to deliver such further assignments thereof as Landlord may
from time to time request.
ARTICLE 8
Defaults
8.1 Events of Default. (a) If Tenant shall default in the performance of any
of its obligations to pay the Fixed Rent or Additional Rent hereunder and
if such default shall continue for ten (10) days after written notice from
Landlord designating such default or if within thirty (30) days after
written notice from Landlord to Tenant specifying any other default or
defaults Tenant has not commenced diligently to correct the default or
defaults so specified or has not thereafter diligently pursued such
correction to completion, or (b) if any assignment shall be made by Tenant
or any guarantor of Tenant for the benefit of creditors, or (c) if
Tenant's leasehold interest shall be taken on execution, or (d) if lien or
other involuntary encumbrance is filed against Tenant's leasehold interest
or Tenant's other property, including said leasehold interest, and is not
discharged or bonded over within thirty (30) days thereafter, or (e) if a
petition is filed by Tenant or any guarantor of Tenant for liquidation, or
for reorganization or an arrangement under any provision of any bankruptcy
law or code as then in force and effect, or (f) if an involuntary petition
under any of the provisions of any bankruptcy law or code is filed against
Tenant or any guarantor of Tenant and such involuntary petition is not
dismissed within sixty (60) days thereafter, then, and in any of such
cases, Landlord and the agents and servants of Landlord lawfully may, in
addition to and not in derogation of any remedies for any preceding breach
of covenant, immediately or at any time thereafter without demand or
notice and with or without process of law enter into and upon the Premises
or any part thereof in the name of the whole or mail a notice of
termination addressed to Tenant, and repossess the same as of landlord's
former estate and expel Tenant and those claiming through or under Tenant
and remove its and their effects without being deemed guilty of any manner
of trespass and without prejudice to any remedies which might otherwise be
used for arrears of rent or prior breach of covenants, and upon such entry
or mailing as aforesaid this Lease shall terminate, Tenant hereby waiving
all statutory rights to the Premises (including without limitation rights
of redemption, if any, to the extent such rights may be lawfully waived)
and Landlord, without notice to Tenant, may store Tenant's effects, and
those of any person claiming through or under Tenant, at the expense and
risk of Tenant, and, if Landlord so elects, may sell such effects at
public auction or private sale and apply the net proceeds to time payments
of all sums due to Landlord from Tenant, if any, and pay over the balance,
if any, to Tenant.
8.2 Remedies. In the event that this Lease is terminated under any of the
provisions contained in Sections 8.1 or shall be otherwise terminated for
breach of any obligation of Tenant, Tenant covenants to pay punctually to
Landlord all the sums and to perform all the obligations which Tenant
covenants in this Lease to pay and to perform in the same manner and to
the same extent and as the same time as if this Lease had not been
terminated. In calculating the amounts to be paid by Tenant pursuant to
the preceding sentence Tenant shall be credited with the net proceeds of
any rent obtained by Landlord by reletting the Premises, after deducting
all Landlord's expense in connection with such reletting, including,
without limitation, all repossession costs, brokerage commissions, fees
for legal services and expenses of preparing the Premises for such
reletting, it being agreed by Tenant that Landlord may (i) relet the
Premises or any part or parts thereof, for a term or terms which may at
Landlord's option be equal to or less than or exceed the period which
would otherwise have constituted the balance of the term and may grant
such concessions and free rent as Landlord in its sole judgment considers
advisable or necessary to relet the same and (ii) make such alterations,
repairs and decorations in the Premises as Landlord in its sole judgment
considers advisable or necessary to relet the same, and no action of
Landlord in accordance with the foregoing or failure to relet or to
collect rent under reletting shall operate or be construed to release or
reduce Tenant's liability as aforesaid. Landlord shall use commercially
reasonable efforts to mitigate its damages hereunder.
In lieu of full recovery by Landlord of the sums payable under all of the
foregoing provision of this Section 8.2 (except for the amount of any rent
of any kind accrued and unpaid as of the time of termination), Landlord
may, by written notice to Tenant, elect to recover, and Tenant shall
thereupon pay, as liquidated damages, an amount equal to the excess of the
total rent reserved for the residue of the term over the rental value of
the Premises for said residue of the term. In calculating the rent
reserved there shall be included, in addition to the Fixed Rent and
Additional Rent, the value of all other considerations agreed to be paid
or performed by Tenant for said residue.
In lieu of any other damages or indemnity and in lieu of full recovery by
Landlord of all sums payable under all the foregoing provisions of this
Sections 8.2, Landlord may by written notice to Tenant, at any time after
this Lease is terminated under any of the provisions contained in Section
8.1 or is otherwise terminated for breach of any obligation of Tenant and
before such full recovery, elect to recover, and Tenant shall thereupon
pay, as liquidated damages, an amount equal to the aggregate of the Fixed
Rent and Additional Rent accrued in the two (2) months ended next prior to
such termination plus the amount of rent of any kind accrued and unpaid at
the time of termination and less the amount of any recovery by Landlord
under the foregoing provisions of this Section 8.2 up to the time of
payment of such liquidated damages. Nothing contained in this Lease shall,
however, limit or prejudice the right of Landlord to prove for and obtain
in proceedings for bankruptcy or insolvency by reason of the termination
of this Lease, an amount
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equal to the maximum allowed by any statute or rule of law in effect at
the time when, and governing the proceedings in which, the damages are to
be proved, whether or not the amount be greater than, equal to, or less
than the amount of the loss or damages referred to above.
8.3 Remedies Cumulative. Any and all rights and remedies which Landlord may
have under this Lease, and at law and equity, shall be cumulative and
shall not be deemed inconsistent with each other, and any two or more of
all such rights and remedies may be exercised at the same time insofar as
permitted by law.
8.4 Landlord's Right to Cure Defaults. Landlord may, but shall not be
obligated to, cure, as any time, without notice, any default by Tenant
under this Lease; and whenever Landlord so elects, all costs and expenses
incurred by Landlord, including reasonable attorneys' fees, in curing a
default shall be paid, as Additional Rent, by Tenant to Landlord on
demand, together with lawful interest thereon from the date of payment by
Landlord to the date of payment by Tenant.
8.5 Effect of Waivers of Default. Any consent or permission by Landlord to any
act or omission which otherwise would be a breach of any covenant or
condition herein, shall not in any way be held or construed (unless
expressly so declared) to operate so as to impair the continuing
obligation of any covenant or condition herein, or otherwise, except as to
the specific instance, operate to permit similar acts or omissions.
8.6 No Waiver etc. The failure of Landlord to seek redress for violation of,
or to insist upon the strict performance of, any covenant or condition of
this Lease shall not be deemed a waiver of such violation nor prevent a
subsequent act, which would have originally constituted a violation, from
having all the force and effect of an original violation. The receipt by
Landlord of rent with knowledge of the breach of any covenant of this
Lease shall not be deemed to have been a waiver of such breach by
Landlord. No consent or waiver, express or implied, by Landlord to or of
any breach of any agreement or duty shall be construed as a waiver or
consent to or of any other breach of the same or any other agreement or
duty.
8.7 No Accord and Satisfaction. No acceptance by Landlord of a lesser sum than
the Fixed Rent, Additional Rent or any other charge then due shall be
deemed to be other than on account of the earliest installment of such
rent or charge due, nor shall any endorsement or statement on any check or
any letter accompanying any check or payment as rent or other charge be
deemed an accord and satisfaction, and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance of
such installment or pursue any other remedy in this Lease provided.
ARTICLE 9
Rights of Mortgage Holders
9.1 Rights of Mortgage Holders. The word "mortgage" as used herein includes
mortgages, deeds of trust or other similar instruments evidencing other
voluntary liens or encumbrances, and modifications, consolidations,
extensions, renewals, replacements and substitutes thereof. The word
"holder" shall mean a mortgagee, and any subsequent holder or holders of a
mortgage. Until the holder of a mortgage shall enter and take possession
of the Property for the purpose of foreclosure, such holder shall have
only such rights of Landlord as are necessary to preserve the integrity of
this Lease as security. Upon entry and taking possession of the Property
for the purpose of foreclosure, such holder shall have all the rights of
Landlord. No such holder of a mortgage shall be liable either as mortgagee
or as assignee, to perform, or be liable in damages for failure to
perform, any of the obligations of Landlord unless and until such holder
shall enter and take possession of the Property for the purpose of
foreclosure. Upon entry for the purpose of foreclosure, such holder shall
be liable to perform all of the obligations of Landlord, subject to and
with the benefit of the provisions of Section 10.4, provided that a
discontinuance of any foreclosure proceeding shall be deemed a conveyance
under said provisions to the owner of the equity of the Property.
The covenants and agreements contained in this Lease with respect to the
rights, powers and benefits of a holder of a mortgage (particularly,
without limitation thereby, the covenants and agreements contained its
this Section 9.1) constitute a continuing offer to any person, corporation
or other entity, which by accepting a mortgage subject to this Lease,
assumes the obligations herein set forth with respect to such holder; such
holder is hereby constituted a party of this Lease as an obligee hereunder
to the same extent as though its name were written hereon as such; and
such holder shall be entitled to enforce such provisions in its own name.
Tenant agrees on request of Landlord to execute and deliver from time to
time any agreement which may be necessary to implement the provisions of
this Section 9.1.
9.2 Lease Superior or Subordinate to Mortgages. It is agreed that, subject to
Landlord's obtaining non-disturbance agreement as further described in the
last sentence of this Section 9.2, the rights and interest of Tenant under
this Lease shall be (i) subject or subordinate to any present or future
mortgage or mortgages and to any and all advances to be made thereunder,
and to the interest of the holder thereof in the Premises or any property
of which the Premises are a part if Landlord shall elect by notice to
Tenant to subject or subordinate the rights and interest of Tenant under
this Lease to such mortgage or (ii) prior to any present or future
mortgage or mortgages, if Landlord shall elect, by notice to Tenant, to
give the rights and interest of Tenant under this Lease priority to such
mortgage; in the event of either of such elections and upon notification
by Landlord to that effect, the rights and interest of Tenant under this
Lease should be deemed to be subordinate to, or have priority over, as the
case may be, said mortgage or mortgages, irrespective of the time of
execution or time of recording of any such mortgage or mortgages (provided
that, in the case of subordination of this Lease to any future mortgages,
the holder thereof agrees not to disturb the possession of Tenant so long
as Tenant is not in default hereunder). Tenant agrees it will, upon
request of Landlord, execute, acknowledge and deliver any and all
instruments deemed by Landlord necessary or desirable to give effect to or
notice of such subordination or priority. Tenant also agrees that if it
shall fail at any time to execute, acknowledge and deliver any such
instrument requested by Landlord, Landlord may, in addition to any other
remedies available to it, execute, acknowledge and deliver such instrument
as the attorney-in-fact of Tenant and in Tenant's name; and Tenant does
hereby make, constitute and irrevocably appoint Landlord as its
attorney-in-fact, coupled with an interest with full power of
substitution, and in its name, place and stead so to do. Any Mortgage to
which this Lease shall be subordinated may contain such terms, provisions
and conditions as the holder deems usual or customary. Landlord will
obtain a non-disturbance agreement for the benefit of Tenant from its
current mortgagee, if any, in connection with Tenant's use and occupancy
under this Lease, substantially to the effect that no steps or proceedings
taken by reason of Landlord's default under such mortgage shall terminate
this Lease, nor shall Tenant be named a defendant in any proceeding for
foreclosure of such mortgage or be disturbed by virtue of such steps or
proceedings.
ARTICLE 10
Miscellaneous Provisions
10.1 Notices from One Party to the Other. All notices required or permitted
hereunder shall be in writing and addressed, if to the Tenant, at the
Original Notice Address of Tenant or such other address as Tenant shall
have last designated by notice in writing to Landlord and, if to Landlord,
as the Original Notice Address of Landlord or such other address as
Landlord shall have last designated by notice in writing to Tenant. Any
notice shall be deemed duly given when mailed to such address postage
prepaid, by registered or certified mail, return receipt requested, or
when delivered to such address by hand.
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10.2 Quiet Enjoyment. Landlord agrees that upon Tenant's paying the rent and
performing and observing the agreements, conditions and other provisions
on its part to be performed and observed, Tenant shall and may peaceably
and quietly have, hold and enjoy the Premises during the term hereof
without any manner of hindrance or molestation from Landlord or anyone
claiming under Landlord, subject, however, to the terms of this Lease.
10.3 Lease not to be Recorded. Tenant agrees that it will not record this
Lease. Both parties shall, upon the request of either, execute and deliver
a notice or short form of this Lease in such form, if any, as may be
permitted by applicable statute.
10.4 Limitation of Landlord's Liability. The term "Landlord" as used in this
Lease, so far as covenants or obligations to be performed by Landlord are
concerned, shall be limited to mean and include only the owner or owners
at the time in question of the Property, and in the event of any transfer
or transfers of title to said property, the Landlord (and in case of any
subsequent transfers or conveyances, the then grantor) shall be
concurrently freed and relieved from and after the date of such transfer
or conveyance, without any further instrument or agreement of all
liability as respects the performance of any covenants or obligations on
the part of the Landlord contained in this Lease thereafter to be
performed, it being intended hereby that the covenants and obligations
contained in this Lease on the part of Landlord, shall, subject as
aforesaid, be binding on the Landlord, its successors and assigns, only
during and in respect of their respective successive periods of ownership
of said leasehold interest or fee, as the ease may be. Tenant, its
successors and assigns, shall not assert nor seek to enforce any claim for
breach of this Lease against any of Landlord's assets other than
Landlord's interest in the Property and in the rents, issues and profits
thereof, and Tenant agrees to look solely to such interest for the
satisfaction of any liability or claim against Landlord under this Lease,
it being specifically agreed that in no event whatsoever shall Landlord
(which term shall include, without limitation, any general or limited
partner, trustees, beneficiaries, officers, directors, or stockholders of
Landlord) ever be personally liable for any such liability.
10.5 Acts of God. In any case where either party hereto is required to do any
act, delays caused by or resulting from Acts of God, war, civil commotion,
fire, flood or other casualty, labor difficulties, shortages of labor,
materials or equipment, government regulations, unusually severe weather,
or other causes beyond such party's reasonable control shall not be
counted in determining the time during which work shall be completed,
whether such time be designated by a fixed date, a fixed time or a
"reasonable time," and such time shall be deemed to be extended by the
period of such delay.
10.6 Landlord's Default. Landlord shall not be deemed to be in default in the
performance of any of its obligations hereunder unless it shall fail to
perform such obligations and such failure shall continue for a period of
thirty (30) days or such additional time as is reasonably required to
correct any such default after written notice has been given by Tenant to
Landlord specifying the nature of Landlord's alleged default. Landlord
shall not be liable in any event for incidental or consequential damages
to Tenant by reason of Landlord's default, whether or not notice is given.
Tenant shall have no right to terminate this Lease for any default by
Landlord hereunder and no right, for any such default, to offset or
counterclaim against any rent due hereunder.
10.7 Brokerage. Tenant warrants and represents that it has dealt with no broker
in connection with the consummation of this Lease, other than Nordblom
Company and the Codman Company, and in the event of any brokerage claims,
other than by Nordblom Company or the Codman Company, against Landlord
predicated upon prior dealings with Tenant, Tenant agrees to defend the
same and indemnify and hold Landlord harmless against any such claims.
10.8 Applicable Law and Construction This Lease shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts
and, if any provisions of this Lease shall to any extent be invalid, the
remainder of this Lease shall not be affected thereby. There are no oral
or written agreements between Landlord and Tenants affecting this Lease.
This Lease may be amended, and the provisions hereof maybe waived or
modified, only by instruments in writing executed by Landlord and Tenant.
The titles of the several Articles and Sections contained herein are for
convenience only and shall not be considered in construing this Lease.
Unless repugnant to the context, the words "Landlord" and "Tenant"
appearing in this Lease shall be construed to mean those named above and
their respective heirs, executors, administrators, successors and assigns,
and those claiming through or under them respectively. If there be more
than one tenant, the obligations imposed by this Lease upon Tenant shall
be joint and several.
WITNESS the execution hereof under seal on the day and year first above
written:
Landlord:
/s/ Rodger P. Nordblom
---------------------------------------------
As Trustee, but not individually
/s/ Peter C. Nordblom
---------------------------------------------
As Trustee, but not individually
Tenant:
VIP CALLING, INC.
By: /s/ Michael J. Hughes
-----------------------------------------
Its: Michael J. Hughes, CFO
-----------------------------------------
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FIRST AMENDMENT OF LEASE
This AMENDMENT is made and entered into this 26 day of February, 1999, by
and between Rodger P. Nordblom and Peter C. Nordblom, as Trustees of Northwest
Associates under Declaration of Trust dated December 9, 1971 ("Landlord") and
VIP Calling, Inc. ("Tenant").
WHEREAS, Landlord and Tenant have entered into a lease (the "Lease") dated
January 8, 1999 with respect to a premises known as 20 Second Avenue,
Burlington, Massachusetts; and
WHEREAS, Landlord and Tenant have agreed that the Security and Restoration
Deposit required to be provided by Tenant under the Lease will be a letter of
credit instead of cash and desire to amend the Lease to reflect the same;
NOW, THEREFORE, for valuable consideration, the Lease is hereby modified
and amended as follows:
1. Section 1.1 is hereby amended by deleting the term "Security and
Restoration Deposit: $217,879.98 (subject to reduction pursuant to Section 4.4)"
and inserting the following in place thereof:
"Letter of Credit Amount: $217,879.98 (subject to reduction pursuant to
Section 4.4.1(b))."
2. Section 4.4 of the Lease is hereby amended and restated in its entirety
as follows:
"4.4 Letter of Credit. The performance of Tenant's obligations under this Lease
shall be secured by a letter of credit throughout the term hereof in
accordance with and subject to the following terms and conditions:
4.4.1 Amount of Letter of Credit. (a) Concurrently with Tenant's execution
and delivery of the First Amendment to this Lease, Tenant shall
deliver to Landlord an irrevocable standby letter of credit (the
"Original Letter of Credit") which shall be (i) in the form of
Exhibit A attached to the First Amendment of this Lease (the "Form
LC"), (ii) issued by a bank reasonably satisfactory to Landlord upon
which presentment may be made in Boston, Massachusetts, (iii) in the
amount equal to the Letter of Credit Amount, and (iv) for a term of
at least 1 year, subject to the provisions of Section 4.4.2 below.
The Original Letter of Credit, any Additional Letters(s) of Credit
and Substitute Letter(s) of Credit are referred to herein as the
"Letter of Credit."
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(b) If Tenant has any net income for any quarter of a fiscal year of
Tenant, and provides Landlord with an audited statement reporting
such net income, and provided Tenant is not then in default under
this Lease, the Letter of Credit Amount shall be reduced to an
amount equal to the product of the Monthly Fixed Rent Rate then in
effect times four. This reduction shall only be effected one time
during the term of this Lease.
4.4.2 Renewal of Letter of Credit. Each Letter of Credit shall be
automatically renewable in accordance with the second to last
paragraph of the Form LC; provided however, that Tenant shall be
required to deliver to Landlord a new letter of credit (a
"Substitute Letter of Credit") satisfying the requirements for the
Original Letter of Credit under Section 4.4.1 on or before the date
30 days prior to the expiration of the term of the Letter of Credit
then in effect, if the issuer of such Letter of Credit gives notice
of its election not to renew such Letter of Credit for any
additional period pursuant thereto.
4.4.3 Draws to Cure Defaults. If the Fixed Rent or Additional Rent payable
hereunder shall be overdue and unpaid or should Landlord make
payments on behalf of the Tenant, or Tenant shall fail to perform
any of the terms of this Lease in all cases beyond the expiration of
all applicable notice and cure periods, then Landlord shall have the
right, at any time thereafter to draw down from the Letter of Credit
the amount necessary to cure such default. In the event of any such
draw by the Landlord, Tenant shall, within 30 days of written demand
therefor, deliver to Landlord an additional Letter of Credit
("Additional Letter of Credit") satisfying the requirements for the
Original Letter of Credit, except that the amount of such Additional
Letter of Credit shall be the amount of such draw.
4.4.4 Draws to Pay Damages. In addition, if (i) this Lease shall have been
terminated as a result of Tenant's default under this Lease beyond
the expiration of the applicable cure period, and/or (ii) this Lease
shall have been rejected in a bankruptcy or other creditor-debtor
proceeding, then Landlord shall have the right at any time
thereafter to draw down from the Letter of Credit an amount
sufficient to pay any and all damages payable by Tenant on account
of such termination or rejection, as the case may be, pursuant to
Article 8 hereof. In the event of bankruptcy or other
creditor-debtor proceeding against Tenant, all proceeds of the
Letter of Credit shall be deemed to be applied first to the payment
of rent and other charges due Landlord for all periods prior to the
filing of such proceedings.
4.4.5 Draws for Failure to Deliver Substitute Letter of Credit. If Tenant
fails timely to deliver to Landlord a Substitute Letter of Credit,
then Landlord shall have the right, at any time thereafter, without
giving any further notice to Tenant, to draw down the Letter of
Credit and to hold the proceeds thereof ("Security Proceeds") in a
bank account in the name of Landlord, which may be withdrawn and
applied
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by Landlord under the same circumstances and for the same purposes
as if the Security Proceeds were a Letter of Credit. Upon any such
application of Security Proceeds by Landlord, Tenant shall, within
30 days of written demand therefor, deliver to Landlord an
Additional Letter of Credit in the amount of Security Proceeds so
applied.
4.4.6 Return of Letter of Credit at End of Term. Within 30 days after the
expiration of the term, to the extent Landlord has not previously
drawn upon any Letter of Credit or Security Proceeds held by
Landlord, Landlord shall return the same to Tenant provided that
Tenant is not then in default of any of its obligations under this
Lease."
All of the terms, conditions, and provisions of the Lease, including those
amended hereby, are ratified and confirmed and shall remain in full force and
effect.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Amendment
of Lease.
LANDLORD:
/s/ Rodger P. Nordblom
--------------------------------------------
As Trustee of Northwest Associates and Not
Individually
/s/ Peter C. Nordblom
--------------------------------------------
As Trustee of Northwest Associates and Not
Individually
TENANT:
VIP CALLING, INC.
By: /s/ Michael J. Hughes
----------------------------------------
Its: Michael J. Hughes
CFO
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EXHIBIT 10.2
STANDARD FORM COMMERCIAL LEASE
1. PARTIES Technology Properties Associates of 121 Middlesex
Turnpike, Burlington, MA 01803 LESSOR, which
expression shall include its heirs, successors, and
assigns where the context so admits, does hereby lease
to VIP Calling, Inc., 5 Manchester Road, Winchester,
MA 01890. LESSEE, which expression shall include its
successors, executors, administrators, and assigns
where the context so admits, and the LESSEE hereby
leases the following described premises:
2. PREMISES A suite of offices comprised of approximately two
thousand five hundred (2,500) square feet of gross
rentable space on the first floor at 121 Middlesex
Turnpike, Burlington, MA with office layout as shown
in Attachment 1, together with the right to use in
common, with others entitled thereto, the hallways,
stairways, and elevators, necessary for access to said
leased premises, and lavatories nearest thereto. Space
is to be taken as is subject to completion by LESSOR
of improvements described in Paragraph 22.5.
3. TERM The term of this lease shall be for two (2) years
commencing on April 1, 1997 and ending on March 31,
1999 or as extended by paragraph 22.4.
4. RENT The LESSEE shall pay to the LESSOR base rent at the
rate of:
Period Monthly Rent
------ ------------
1. April 1, 1997 - September 30, 1997 $2,500/mo.
2. October 1, 1997 - March 31,1998 $3,125/mo.
3. April 1,1998 - March 31, 1999 $3,400/mo.
Rent shall be payable in advance in monthly
installments on the first day of the month. LESSEE
shall pay a late payment penalty of 5% for rent not
paid by the 10th of the month for which rent is due.
5. SECURITY Upon the execution of this Lease, the LESSEE shall pay
DEPOSIT to the LESSOR the amount of $3,125 dollars, which
shall be held as a security for the LESSEE's
performance as herein provided and refunded to the
LESSEE within thirty days after the termination of
this Lease subject to the LESSEE's satisfactory
compliance with the conditions hereof.
6. RENT (1) LESSEE agrees that in the event the "Consumer
Price Index for Urban Wage Earners and Clerical
A. CONSUMER Workers, U.S. City Average, All Items (1967 = 100)"
PRICE (Hereinafter referred to as the "Price Index")
ESCALATION published by the Bureau of Labor Statistics of the
United States Department of Labor, or any comparable
successor or substitute index designated by the LESSOR
appropriately adjusted, reflects an increase in the
cost of living over and above the cost of living as
reflected by the Price Index for the month of March
1998 (hereinafter called the "Base Price Index"), the
Basic Rent shall be adjusted in accordance with
sub-paragraph (2) of this Article.
(2) Commencing as of the first anniversary of the Term
Commencement Date, there shall be an adjustment
(hereinafter referred to as "Adjustment") in the Basic
Rent calculated by multiplying the Basic Rent set
forth in Article 4 of the lease by a fraction, the
numerator of which shall be the Price Index for the
month of March 1998 and the denominator of which (for
each such fraction) shall be the Base Price Index;
PROVIDED, HOWEVER, no Adjustment shall reduce the
Basic Rent as previously payable in accordance with
this Article or in Article 4 of this lease.
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(3) In the event the Price Index ceases to use the
1967 average of 100 as the basis of calculation, or if
a substantial change is made in the terms or number of
items contained in the Price Index, then the Price
Index shall be adjusted to the figure that would have
been arrived at had the manner of computing the Price
Index in effect at the date of this lease not been
changed.
7. UTILITIES The LESSEE shall pay to the LESSOR on the first day of
each month an electricity charge at a rate of $1.25/sq
ft/yr or $260/month. The LESSOR agrees to provide all
other utility service and to furnish reasonable hot
and cold water and reasonable heat and air
conditioning to the leased premises, the hallways,
stairways, elevators and lavatories during normal
business hours on regular business days of the heating
and air conditioning seasons of each year, to furnish
elevator service and to light passageways and
stairways during business hours, and to furnish such
public area cleaning service as is customary in
similar buildings in said city or town, all subject to
interruption due to any accident, to the making of
repairs, alterations or improvements, to labor
difficulties, to trouble in obtaining fuel,
electricity, service, or supplies from the sources
from which they are usually obtained for said
building, or to any cause beyond the LESSOR's control.
LESSOR shall have no obligation to provide utilities
or equipment other than the utilities and equipment
within the premises as of the commencement date of
this Lease. In the event LESSEE requires additional
utilities or equipment, the installation and
maintenance thereof shall be the LESSEE's sole
obligation, provided that such installation shall be
subject to the written consent of the LESSOR.
8. USE OF LEASED The LESSEE shall use the leased premises only for the
PREMISES purpose of a business office.
9. COMPLIANCE The LESSEE acknowledges that no trade or occupation
WITH LAWS shall be conducted in the leased premises or use made
thereof which will be unlawful, improper, noisy or
offensive, or contrary to any law or any municipal
by-law or ordinance in force in the city or town in
which the premises are situated.
10. FIRE The LESSEE shall not permit any use of the leased
INSURANCE premises which will make voidable any insurance on the
property of which the leased premises are a part, or
on the contents of said property or which shall be
contrary to any law or regulation from time to time
established by the New England Fire Insurance Rating
Association, or any similar body succeeding to its
powers. The LESSEE shall on demand reimburse the
LESSOR, and all other tenants, all extra insurance
premiums caused by the LESSEE's use of the premises.
11. MAINTENANCE The LESSEE agrees to maintain the leased premises in
good condition, damage by fire and other casualty only
A. LESSEE'S excepted, and whenever necessary, to replace plate
OBLIGATIONS glass and other glass therein, acknowledging that the
leased premises are now in good order and the glass
whole. The LESSEE shall not permit the leased premises
to be overloaded, damaged, stripped, or defaced, nor
suffer any waste. LESSEE shall obtain written consent
of LESSOR before erecting any sign on the premises.
All LEESEE signs shall be paid for by LESSEE.
The LESSOR agrees to maintain the structure of the
building of which the leased premises are a part in
the same condition as it is at the commencement of the
term or as it may be put in during the term of this
lease, reasonable wear and tear, damage by fire and
other casualty only excepted, unless such maintenance
is required because of the LESSEE or those for whose
conduct the LESSEE is legally responsible.
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12. ALTERATIONS - The LESSEE shall not make structural alterations or
ADDITIONS additions to the leased premises, but may make
non-structural alterations provided the LESSOR
consents thereto in writing, which consent shall not
be unreasonably withheld or delayed. All such allowed
alterations shall be at LESSEE's expense and shall be
in quality at least equal to the present construction.
LESSEE shall not permit any mechanics' liens, or
similar liens, to remain upon the leased premises for
labor and material furnished to LESSEE or claimed to
have been furnished to LESSEE in connection with work
of any character performed at the direction of LESSEE
and shall cause any such lien to be released of record
forthwith without cost to LESSOR. Any alterations or
improvements made by the LESSEE shall become the
property of the LESSOR at the termination of occupancy
as provided herein.
13. ASSIGNMENT - The LESSEE shall not assign or sublet the whole or any
SUBLEASING part of the leased premises without LESSOR's prior
written consent, which consent shall not be
unreasonably withheld or delayed. Notwithstanding such
consent, LESSEE shall remain liable to LESSOR for the
payment of all rent and for the full performance of
the covenants and conditions of this lease.
14. SUBORDINATION This lease shall be subject and subordinate to any and
all mortgages, deeds of trust and other instruments in
the nature of a mortgage, now or at any time
hereafter, a lien or liens on the property of which
the leased premises are a part and the LESSEE shall,
when requested, promptly execute and deliver such
written instruments as shall be necessary to show the
subordination of this lease to said mortgages, deeds
of trust or other such instruments in the nature of a
mortgage.
15. LESSOR'S The LESSOR or agents of the LESSOR may, at reasonable
ACCESS times, enter to view the leased premises and may
remove placards and signs not approved and affixed as
herein provided, and make repairs and alterations as
LESSOR should elect to do and may show the leased
premises to others, and at any time within four (4))
months before the expiration of the term, may affix to
any suitable part of the leased premises a notice for
letting or selling the leased premises or property of
which the leased premises are a part and keep the same
so affixed without hindrance or molestation.
16. INDEMNIFICATION The LESSEE shall save the LESSOR harmless from all
AND LIABILITY loss and damage occasioned by the use or escape of
water or by the bursting of pipes, as well as from any
claim or damage resulting from neglect in not removing
snow and ice from the roof of the building, or by any
nuisance made or suffered on the leased premises,
unless such loss is caused by the neglect of the
LESSOR. The removal of snow and ice from the sidewalks
bordering upon the leased premises shall be LESSOR'S
responsibility.
17. LESSEE'S The LESSEE shall maintain with respect to the leased
LIABILITY premises and the property of which the leased premises
INSURANCE are a part comprehensive public liability insurance in
the amount of $500,000/$1,000,000 with property damage
insurance in limits of $500,000 in responsible
companies qualified to do business in Massachusetts
and in good standing therein insuring the LESSOR as
well as LESSEE against injury to persons or damage to
property as provided. The LESSEE shall deposit with
the LESSOR certificates for such insurance at or prior
to the commencement of the term, and thereafter within
thirty (30) days prior to the expiration of any such
policies. All such insurance certificates shall
provide that such policies shall not be cancelled
without at least ten (10) days prior written notice to
each assured named therein.
18. FIRE Should a substantial portion of the leased premises,
CASUALTY - or of the property of which they are a part, be
EMINENT substantially damaged by fire or other casualty, or be
DOMAIN taken by eminent domain, the LESSOR may elect to
terminate this lease. When such fire, casualty, or
taking renders the leased premises
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substantially unsuitable for their intended use, a
just and proportionate abatement of rent shall be
made, and the LESSEE may elect to terminate this lease
if:
(a) The LESSOR fails to give written notice
within thirty (30) days of intention to
restore leased premises, or
(b) The LESSOR fails to restore the leased
premises to a condition substantially
suitable for their intended use within one
hundred twenty (120) days of said fire,
casualty or taking.
(c) The casualty occurs in the last six (6)
months of the lease term.
The LESSOR reserves, and the LESSEE grants to the
LESSOR, all rights which the LESSEE may have for
damages or injury to the leased premises for any
taking by eminent domain, except for damage to the
LESSEE's fixtures, property, or equipment.
19. DEFAULT AND In the event that:
BANKRUPTCY
(a) The LESSEE shall default in the payment of
any installment of rent or other sum herein
specified and such default shall continue for
ten (10) days after written notice thereof;
or
(b) The LESSEE shall default in the observance or
performance of any other of the LESSEE's
covenants, agreements, or obligations
hereunder and such default shall not be
corrected within thirty (30) days after
written notice thereof; or
(c) LESSEE shall be declared bankrupt or
insolvent according to law, or, if any
assignment shall be made of LESSEE's property
for the benefit of creditors,
then the LESSOR shall have the right thereafter, while
such default continues, to re-enter and take complete
possession of the leased premises, to declare the term
of this lease ended, and remove the LESSEE's effects,
without prejudice to any remedies which might be
otherwise used for arrears of rent or other default.
The LESSEE shall indemnify the LESSOR against all loss
of rent and other payments which the LESSOR may incur
by reason of such termination during the residue of
the term. If the LESSEE shall default, after
reasonable notice thereof, in the observance or
performance of any conditions or covenants on LESSEE's
part to be observed or performed under or by virtue of
any of the provisions in any article of this lease,
the LESSOR, without being under any obligation to do
so and without thereby waiving such default, may
remedy such default for the account and at the expense
of the LESSEE. If the LESSOR makes any expenditures or
incurs any obligations for the payment of money in
connection therewith, including but not limited to,
reasonable attorney's fees in instituting, prosecuting
or defending any action or proceeding, such sums paid
or obligations insured, with interest at the rate of
12 per cent per annum and costs, shall be paid to the
LESSOR by the LESSEE as additional rent.
20. NOTICE Any notice from the LESSOR to the LESSEE relating to
the leased premises or to the occupancy thereof, shall
be deemed duly served, if left at the leased premises
addressed to the LESSEE, or if mailed to the leased
premises, registered or certified mail, return receipt
requested, postage prepaid, addressed to the LESSEE.
Any notice from the LESSEE to the LESSOR relating to
the leased premises or to the occupancy thereof, shall
be deemed duly served, if mailed to the LESSOR by
registered or certified mail, return receipt
requested, postage prepaid, addressed to the LESSOR at
such address as the LESSOR may from time to time
advise in writing. All rent notices shall be paid and
sent to the LESSOR at 121 Middlesex Turnpike,
Burlington, MA 01803.
21. SURRENDER The LESSEE shall at the expiration or other
termination of this lease remove all LESSEE's goods
and effects from the leased premises, (including,
without hereby limiting the generality of the
foregoing, all signs and lettering affixed or painted
by the LESSEE, either inside or outside the leased
premises). LESSEE shall deliver to the LESSOR the
leased premises and all keys, locks thereto, and other
fixtures connected therewith and all alterations and
additions made to or upon the leased premises, in
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good condition, damage by fire or other casualty only
excepted. In the event of the LESSEE's failure to
remove any of LESSEE's property from the premises,
LESSOR is hereby authorized, without liability to
LESSEE for loss or damage thereto, and at the sole
risk of LESSEE, to remove and store any of the
property at LESSEE'S expense, or to retain same under
LESSOR's control or to sell at public or private sale,
without notice any or all of the property not so
removed and to apply the net proceeds of such sale to
the payment of any sum due hereunder, or to destroy
such property.
22. OTHER 22.1 Parking
LESSEE shall have two (2) assigned parking spaces in
the underneath garage and shall have the right to use,
jointly with other tenants on a "first come first
serve" basis all unassigned parking spaces on the
property.
22.2 Indemnification
From and after the commencement of this Lease, LESSEE
shall indemnify and hold harmless LESSOR from and
against any and all claims, damages, or liability
whatsoever arising from LESSEE's use and occupancy of
the Leased premises. LESSEE shall be solely
responsible and liable for any and all injury, loss or
damage to persons or property on or about the Demised
Premises, except such injury, loss or damage as is
caused by the neglect, fault or misconduct of the
LESSOR, the LESSEE shall defend, save harmless and
indemnify LESSOR from all claims arising on account of
all injury, loss or damage for which LESSEE is
responsible and liable as aforesaid.
22.3 Cleaning
LESSEE shall be responsible for cleaning its own space
at no cost to LESSOR.
22.4 Automatic Extension
This Lease shall be automatically extended for one
year commencing on March 31, 1999 unless the LESSEE
exercises his option to terminate the Lease on March
31,1999 by sending written notice to be received by
LESSOR no later than December 1, 1998. The terms and
conditions of the extended Lease shall remain the same
except the base rent which shall be $3,125/month plus
all accumulated base rent adjustments per Paragraph 6
of this Lease. LESSOR has the option to terminate the
Lease on March 31, 1999 by sending written notice to
be received by LESSEE no later than December 1, 1998.
22.5 Leasehold Improvements
LESSOR agrees to pay for all costs incurred for
constructing and finishing a new floor-to-ceiling wall
as shown on Attachment I. This wall shall be completed
by March 31, 1997.
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IN WITNESS WHEREOF, the said parties hereunto set their hands and seals this 26
day of February, 1997.
LESSEE LESSOR
VIP Calling, Inc.
By: /s/ Ofer Gneezy /s/ John Zvara
------------------------ ----------------------------------
Ofer Gneezy, President John Zvara
Trustee of the J. Z. Realty Trust
DBA Technology Properties Associates
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EXHIBIT 10.3
================================================================================
------------------
AGREEMENT OF LEASE
------------------
111 EIGHTH AVENUE LLC
LANDLORD
AND
VIP CALLING, INC.
TENANT
------------------
Premises: Portion of the Eighth (8th) Floor
111 Eighth Avenue
New York, New York 10011
Dated: August 7, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
DEFINITIONS ............................................................... 1
Article 1. Demise, Premises, Term, Rent ................................... 4
Article 2. Use And Occupancy .............................................. 5
Article 3. Alterations .................................................... 6
Article 4. Condition of the Premises ...................................... 8
Article 5. Repairs; Floor Load ............................................ 9
Article 6. Real Estate Taxes and Labor Rate Increases ..................... 10
Article 7. Legal Requirements ............................................. 15
Article 8. Subordination and Non-Disturbance; Estoppel Certificates ....... 16
Article 9. Services ....................................................... 17
Article 10. Insurance ..................................................... 26
Article 11. Destruction of the Premises; Property Loss or Damage .......... 28
Article 12. Eminent Domain ................................................ 29
Article 13. Assignment and Subletting ..................................... 30
Article 14. Access to Premises ............................................ 37
Article 15. Certificate of Occupancy ...................................... 38
Article 16. Default ....................................................... 39
Article 17. Remedies and Damages .......................................... 41
Article 18. Fees and Expenses ............................................. 43
Article 19. No Representations By Landlord ................................ 44
Article 20. End Of Term ................................................... 44
Article 21. Quiet Enjoyment ............................................... 45
Article 22. No Waiver; Non-Liability ...................................... 45
Article 23. Waiver Of Trial By Jury ....................................... 46
Article 24. Inability To Perform .......................................... 47
Article 25. Bills And Notices ............................................. 47
Article 26. Rules And Regulations ......................................... 48
Article 27. Broker ........................................................ 48
Article 28. Indemnity ..................................................... 48
Article 29. Landlord's Contribution ....................................... 49
Article 30. Security Deposit .............................................. 50
Article 31 Relocated or Reduced Premises ................................. 53
Article 32. Miscellaneous ................................................. 55
Exhibit A: Floor Plan of the Premises
Exhibit B: Rules and Regulations
Exhibit C: Approved Contractors
Exhibit D: Form of Letter of Credit
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AGREEMENT OF LEASE, made as of August 7, 1998, between 111 EIGHTH
AVENUE LLC, a Delaware limited liability company with an address c/o Taconic
Investment Partners LLC, 1500 Broadway, New York, New York 10036 ("Landlord"),
and VIP CALLING, INC., a Delaware corporation having an address at 121 Middlesex
Turnpike, Burlington, Massachusetts 01803 ("Tenant").
WITNESSETH:
The parties hereto, for themselves, their legal representatives,
successors and assigns, hereby covenant as follows.
DEFINITIONS
"Additional Rent" means Tenant's Tax Payment, Tenant's Labor Rate
Payment, and any and all other sums, other than Fixed Rent, payable by Tenant to
Landlord under this Lease.
"Affiliate" means, with respect to any Person, any other Person
that, directly or indirectly, through one or more intermediaries, Controls, is
Controlled by, or is under common Control with, such first Person.
"Alterations" means alterations, installations, improvements,
additions or other physical changes (other than decorations, movable fixtures
and equipment) in or about the Premises.
"Base Rate" means the annual rate of interest publicly announced
from time to time by Citibank, N.A., New York, New York (or any successor
thereto) as its "base rate", or such other term as may be used by Citibank, N.A.
from time to time for the rate presently referred to as its base rate.
"Building" means all the buildings, equipment and other
improvements and appurtenances of every kind and description now located or
hereafter erected, constructed or placed upon the land and any and all
alterations, renewals, replacements, additions and substitutions thereto,
presently known by the address of 111 Eighth Avenue, New York, New York.
"Building Systems" means the mechanical, electrical, heating,
ventilating, air conditioning, elevator, plumbing. sanitary, life-safety and
other service systems of the Building, but shall not include the portions of
such systems installed in the Premises by Tenant.
"Business Days" means all days, excluding Saturdays, Sundays, and
all days observed by either the State of New York, the Federal Government or by
the labor unions servicing the Building as legal holidays.
"Commencement Date" means the date of the full execution of the
Lease by Landlord and Tenant and unconditional delivery of the Lease by Landlord
to Tenant.
<PAGE>
"Control" means: (i) the ownership, directly or indirectly, of more
than fifty per cent (50%) of the voting stock of a corporation, or (ii) the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person.
"Default Rate" means a rate at all times four (4) percentage points
above the Base Rate.
"Environmental Laws" means any Legal Requirements now or hereafter
in effect relating to the environment, health, safety or Hazardous Materials.
"Expiration Date" means the date which is the last day of the month
in which the day before the tenth (10th) anniversary of the Commencement Date
occurs.
"Governmental Authority" means any of the United States of America,
the State of New York, the City of New York, any political subdivision thereof
and any agency, department, commission, board, bureau or instrumentality of any
of the foregoing, now existing or hereafter created, having jurisdiction over
the Real Property or any portion thereof or the curbs, sidewalks, and areas
adjacent thereto.
"Hazardous Materials" means any substances, materials or wastes
regulated by any Governmental Authority or deemed or defined as a "hazardous
substance", "hazardous material", "toxic substance", "toxic pollutant",
"contaminant", "pollutant", "solid waste", "hazardous waste" or words of similar
import under applicable Legal Requirements, including oil and petroleum
products, natural or synthetic gas, polychlorinated biphenyls, asbestos in any
form, urea formaldehyde, radon gas, or the emission of non-ionizing radiation,
microwave radiation or electromagnetic fields at levels in excess of those (if
any) specified by any Governmental Authority or which may cause a health hazard
or danger to property, or the emission of any form of ionizing radiation.
"Initial Alterations" are defined in Section 4.2.
"Legal Requirements" means all present and future laws, rules,
orders, ordinances, regulations, statutes, requirements, codes, executive
orders, rules of common law, and any judicial interpretations thereof,
extraordinary as well as ordinary, of all Governmental Authorities, including
the Americans with Disabilities Act (42 U.S.C. ss. 12,101 et seq.), New York
City Local Law 58 of 1987, and any law of like import, and all rules,
regulations and government orders with respect thereto, and any of the foregoing
relating to environmental matters, Hazardous Materials, public health and safety
matters, and of any applicable fire rating bureau, or other body exercising
similar functions, affecting the Real Property or the maintenance, use or
occupation thereof, or any street or sidewalk comprising a part of or in front
thereof or any vault in or under the same.
"Mortgage" means any mortgage or trust indenture which may now or
hereafter affect the Real Property, the Building or any Superior Lease and the
leasehold interest created thereby, and all renewals, extensions, supplements,
amendments, modifications, consolidations and replacements thereof or thereto,
substitutions therefor, and advances made thereunder; "Mortgagee" means any
mortgagee, trustee or other holder of a Mortgage.
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"Permitted Use" means the use of the Premises by Tenant as a
telecommunications switching center, and other uses normally related thereto,
and office and support facilities in connection therewith, and for no other
purposes.
"Person" means any individual, corporation, partnership, limited
liability company, limited liability partnership, joint venture, estate, trust,
unincorporated association, business trust, tenancy-in-common or other entity,
or any Governmental Authority.
"Premises" means a portion of the eight (8th) floor of the Building,
as shown by cross-hatching on the floor plan attached to this Lease as Exhibit A
and made a part hereof.
"Real Property" means the Building, together with the plot of land
upon which it stands.
"Rentable Square Feet" is agreed to mean and is deemed to be the
rentable area of the Premises, consisting of a total of 4,372 rentable square
feet. Rentable Square Feet have been computed on the basis of the current
standard employed by Landlord with respect to the calculation of the deemed
rentable square foot area of the Building; provided, however, that in no event
shall such deemed Rentable Square Footage constitute or imply any representation
or warranty by Landlord as to the actual size of the Premises or any other
portion of the Building.
"Rules and Regulations" means the rules and regulations annexed
hereto and made a part hereof as Exhibit B, and such other and further rules and
regulations as Landlord may from time to time adopt.
"Setback Premises" means a portion of the roof setback of the
Building adjacent to the Premises, consisting of a portion of the roof above the
seventh (7th) floor as shown by shading on the plan attached to this Lease as
Exhibit A, as provided in Section 2.5.
"Substantial Completion" means, as to any construction performed by
any party in the Premises, including the Initial Alterations, any other
Alterations, that such work has been completed substantially in accordance with
(i) the provisions of this Lease applicable thereto, (ii) the plans and
specifications for such work, and (iii) all applicable Legal Requirements and
Insurance Requirements, except for minor details of construction, decoration and
mechanical adjustments, if any, the noncompletion of which does not materially
interfere with Tenant's use of the Premises, or which, in accordance with good
construction practice, should be completed after the completion of other work to
be performed in the Premises.
"Superior Lease(s)" means any ground or underlying lease of the Real
Property or any part thereof heretofore or hereafter made by Landlord and all
renewals, extensions, supplements, amendments and modifications thereof,
"Lessor" means a lessor under a Superior Lease.
"Tenant's Alterations" means all Alterations, including the Initial
Alterations, in and to the Premises which may be made by or on behalf of Tenant
prior to and during the Term, or any renewal thereof.
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<PAGE>
"Tenant's Property" means Tenant's movable fixtures and movable
partitions, telephone and other communications equipment, computer systems,
furniture, trade fixtures, furnishings and other items of personal property
which are removable without material damage to the Premises or Building.
"Unavoidable Delays" are defined in Article 24.
"Term" means the term of this Lease, which shall commence on the
Commencement Date and shall expire on the Expiration Date.
ARTICLE 1. DEMISE, PREMISES, TERM, RENT
Section 1.1 Landlord hereby leases to Tenant, and Tenant hereby
hires from Landlord, the Premises, for the Term to commence on the Commencement
Date and to end on the Expiration Date, at an annual rent ("Fixed Rent") as
follows:
(a) One Hundred Eighteen Thousand Forty-Four and 00/100 Dollars
($118,044.00) per annum ($9,837.00 per month) for the period commencing on the
Commencement Date and ending on the date (the "Rent Increase Date") which is the
last day of the month which contains the day prior to the fifth (5th)
anniversary of the Commencement Date;
(b) One Hundred Thirty-One Thousand One Hundred Sixty and 00/100
Dollars ($131,160.00) per annum ($10,930.00 per month) for the period commencing
on the day following the Rent Increase Date and ending on the Expiration Date;
which Tenant agrees to pay to Landlord, without notice or demand, in lawful
money of the United States, in monthly installments in advance on the first
(1st) day of each calendar month during the Term, at the office of Landlord or
such other place as Landlord may designate, without any set-off, offset,
abatement or deduction whatsoever. Fixed Rent and Additional Rent shall be
payable by check drawn upon a bank which is a member of the New York
Clearinghouse Association, or on any other bank reasonably acceptable to
Landlord either having an office in New York City or which is chartered as a
national banking association, or by wire transfer of immediately available
funds.
Section 1.2 Notwithstanding anything to the contrary contained
herein, upon execution and delivery of this Lease, Tenant shall pay to Landlord
the sum of Nine Thousand Eight Hundred Thirty-Seven and 00/100 Dollars
($9,837.00) representing the installment of Fixed Rent for the first (1st) full
calendar month of the Term after the Commencement Date, to be credited against
the first installment of Fixed Rent becoming payable by Tenant under the Lease.
Section 1.3 Notwithstanding anything to the contrary set forth in
Section 1.1, so long as Tenant is not in default beyond applicable grace or
notice periods under any of the terms, covenants or conditions of the Lease on
Tenant's part to be observed or performed, Tenant shall have no obligation to
pay Fixed Rent on account of the period commencing on the Commencement Date and
ending on the date which is one day prior to the date which is six (6)
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months following the Commencement Date. Nothing contained herein shall affect
Tenant's obligation to make any other payment under this Lease during the
aforementioned period.
ARTICLE 2. USE AND OCCUPANCY
Section 2.1 Tenant shall use and occupy the Premises for the
Permitted Use and for no other purpose. Tenant shall not use or occupy or permit
the use or occupancy of any part of the Premises in any manner not permitted
hereunder, or which in Landlord's judgment would adversely affect (a) the proper
and economical rendition of any service required to be furnished to any tenant
or other occupant of the Building, (b) the use or enjoyment of any part of the
Building by any other tenant or other occupant, or (c) the appearance, character
or reputation of the Building.
Section 2.2 Tenant shall not use or permit the Premises or any part
thereof to be used: (a) for the business of printing or other manufacturing of
any kind, (b) as a retail branch of a bank or savings and loan association, or
as a retail loan company, as a retail stock broker's or dealer's office, (c) for
the storage of merchandise, (d) for the distribution, by mail-order or
otherwise, of merchandise, (e) as a restaurant or bar or for the sale of food or
beverages, (f) as a news or cigar stand, (g) as an employment agency, labor
union office, school, physician's or dentist's office, dance or music studio,
(h) as a barber shop or beauty salon, (i) for the sale, at retail or otherwise,
of any goods or products, (j) by the United States Government, the City or State
of New York, any Governmental Authority, any foreign government, the United
Nations or any agency or department of any of the foregoing or any Person having
sovereign or diplomatic immunity, (k) for the rendition of medical, dental or
other therapeutic or diagnostic services, or (l) for the conduct of an auction.
Section 2.3 Landlord shall not be subject to any liability for
failure to give possession of the Premises on the Commencement Date and the
validity of this Lease shall not be impaired under such circumstances, nor shall
the same be construed to extend the term of this Lease, except that Fixed Rent
and Additional Rent shall be abated until possession of the Premises shall be
delivered to Tenant. The foregoing shall constitute an express negation of
Section 223-a of the New York Real Property Law or any successor law or
ordinance, which shall be inapplicable hereto, and Tenant hereby waives any
right to rescind this Lease which Tenant might otherwise have thereunder.
Section 2.5 (a) Landlord hereby grants to Tenant the right to use
the Setback Premises for the installation and operation of Tenant's HVAC System
(as defined in Section 9.3(d)), subject to the terms and conditions of this
Lease and to all Legal Requirements, at no additional charge except as provided
in Section 2.5(c). Tenant covenants and agrees that the use of the Setback
Premises shall be at the sole risk of Tenant, and that Landlord makes no
representations as to whether such use is permitted by Legal Requirements, or
whether the Setback Premises are suitable for such use. Tenant shall maintain
general public liability insurance and other insurance coverages as required by
this Lease with respect to the Setback Premises.
(b) Except as otherwise set forth in this Lease, Tenant agrees to
accept the Setback Premises in their "as is" condition on the Commencement Date,
and Landlord shall have
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<PAGE>
no obligation to make any alterations, improvements, repairs or decorations to
the Setback Premises or to incur any expense in order to prepare the Setback
Premises for Tenant's use thereof in accordance with Section 2.5(a). Landlord
shall not be obligated to supply any services of any kind whatsoever to the
Setback Premises. Tenant shall take good care of and shall maintain and repair
(including the prompt and diligent repair of any roof leaks) the Setback
Premises throughout the Term of this Lease all in accordance with the terms of
this Lease.
(c) Subject to all of the foregoing, and to compliance with the
provisions of Article 3 hereof, Tenant, at its sole cost and expense, shall have
the right to remove a portion of the existing windows separating the Setback
Premises from the Premises, and to furnish and install an access door in place
of the removed windows. Tenant and its employees and contractors shall have the
right, at all times, to enter upon and examine the Setback Premises and to make
such repairs, replacements and improvements as Tenant may deem necessary or
desirable, subject to the provisions of Article 3 hereof.
(d) The Setback Premises shall consist of an area of approximately
50 usable square feet of space at a location within the shaded area shown on
Exhibit A, to be designated by Tenant in its reasonable judgment by notice to
Landlord given within sixty (60) days following the Commencement Date (the
"Setback Notice"), subject to Landlord's approval, which shall not be
unreasonably withheld or delayed. In the event that Tenant shall determine, in
its reasonable judgment, that Tenant requires additional roof area adjacent to
the area of the Setback Premises, and shall so request in the Setback Notice,
then Landlord will make such additional roof space (the "Additional Setback
Area") available to Tenant for the uses set forth in Section 2.5(a), provided
that such area is then available and reasonably suitable for such uses. If
Landlord makes the Additional Setback Area available to Tenant pursuant hereto,
Tenant shall pay to Landlord, as Additional Rent, an annual amount equal to (i)
during the period from the date Landlord makes the Additional Setback Area
available to Tenant through the Rent Increase Date, the product of the usable
square foot area of the Additional Setback Area, multiplied by Fifteen and
00/100 Dollars ($15.00), and (ii) during the period from the Rent Increase Date
through the Expiration Date, the product of the usable square foot area of the
Additional Setback Area, multiplied by Eighteen and 00/100 Dollars ($18.00).
Such Additional Rent shall be payable by Tenant in equal monthly installments in
advance, on the first day of each month during the Term.
ARTICLE 3. ALTERATIONS
Section 3.1 Tenant shall not make any Alterations without Landlord's
prior written consent in each instance, provided that Tenant's changing of wall
coverings, carpeting or paint shall not be deemed to be Alterations requiring
such consent. Landlord's consent shall be granted or denied in Landlord's sole
discretion; provided, however, that Landlord shall not unreasonably withhold,
delay or condition its consent to Alterations proposed to be made by Tenant to
adapt the Premises for the Permitted Use provided that such Alterations (a) are
non-structural and do not affect the Building Systems or services, (b) are
performed only by contractors approved in writing by Landlord, (c) do not affect
any part of the Building other than the Premises, (d) do not adversely affect
any service required to be furnished by Landlord to Tenant or to any other
tenant or occupant of the Building, and (e) do not reduce the value or utility
of the Building.
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Section 3.2 (a) Prior to making any Alterations, Tenant shall (i)
submit to Landlord, for Landlord's written approval, detailed plans and
specifications therefor in form satisfactory to Landlord, (ii) if such
Alterations require a filing with Governmental Authority or require the consent
of such authority, then such plans and specifications shall (A) be prepared and
certified by a registered architect or licensed engineer, and (B) comply with
all Legal Requirements to the extent necessary for such governmental filing or
consent, (iii) at its expense, obtain all required permits, approvals and
certificates, (iv) furnish to Landlord duplicate original policies or
certificates of worker's compensation (covering all persons to be employed by
Tenant, and all contractors and subcontractors supplying materials or performing
work in connection with such Alterations) and comprehensive public liability
(including property damage coverage) insurance and Builder's Risk coverage
(issued on a completed value basis) all in such form, with such companies, for
such periods and in such amounts as Landlord may require, naming Landlord and
its employees and agents, and any Lessor and any Mortgagee as additional
insureds, and (v) with respect to any Alteration costing more than $50,000.00 to
complete, furnish to Landlord such evidence of Tenant's ability to complete and
to fully and completely pay for such Alteration as is satisfactory to Landlord.
All Alterations shall be performed by Tenant at Tenant's sole cost and expense
(A) in a good and workmanlike manner using new materials of first class quality,
(B) in compliance with all Legal Requirements, and (C) in accordance with the
plans and specifications previously approved by Landlord. Tenant shall at its
cost and expense obtain all approvals, consents and permits from every
Governmental Authority having or claiming jurisdiction prior to, during and upon
completion of such Alterations. Tenant shall promptly reimburse Landlord, as
Additional Rent and upon demand, for any and all costs and expenses incurred by
Landlord in connection with Landlord's review of Tenant's plans and
specifications for any such Alteration.
(b) Landlord shall not unreasonably withhold, condition or delay its
approval of the contractors proposed to be used by Tenant for Tenant's
Alterations, provided that in the case of the mechanical, electrical, plumbing
and fire safety trades, Tenant shall select its contractors and sub-contractors
from Landlord's list of approved contractors. Attached hereto as Exhibit C is a
list of contractors currently approved by Landlord for the performance of work
in the Building, which list may be modified by Landlord from time to time.
(c) Notwithstanding the foregoing provisions of this Article 3,
Tenant shall be permitted to make minor, non-structural alterations to the
Premises ("Minor Alterations") upon prior notice to Landlord, but without the
necessity of procuring Landlord's consent thereto, provided that the estimated
cost of each such Minor Alteration does not exceed $25,000.00 in any one
instance. The provisions of subsections 3.2(a) and (b) shall be applicable to
Minor Alterations. Prior to commencing any Minor Alteration, Tenant shall
furnish Landlord with (i) working drawings or plans for such Minor Alteration in
sufficient detail to permit Landlord to determine that such Alteration complies
with the requirements hereof, and (ii) the names of the contractors proposed to
be used by Tenant for such Minor Alteration.
(d) Upon completion of any Alterations, Tenant, at its expense,
shall promptly obtain certificates of final approval of such Alterations as may
be required by any Governmental Authority, and shall furnish Landlord with
copies thereof, together with "as-built" plans and specifications for such
Alterations prepared on an Autocad Computer Assisted Drafting and
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Design System (or such other system or medium as Landlord may accept) using
naming conventions issued by the American Institute of Architects in June, 1990
(or such other naming convention as Landlord may accept) and magnetic computer
media of such record drawings and specifications, translated into DXF format or
another format acceptable to Landlord.
Section 3.3 All Alterations in and to the Premises which may be made
by or on behalf of Tenant, prior to and during the Term or any renewal thereof,
shall become the property of Landlord upon the expiration or sooner termination
of this Lease, and upon the Expiration Date or earlier termination of the Term
or any renewal thereof (a) Tenant shall remove Tenant's Property from the
Premises, and (b) unless Landlord notifies Tenant no later than sixty (60) days
prior to the Expiration Date that any or all items of Tenant's Alterations shall
not be removed from the Premises, Tenant shall remove Tenant's Alterations from
the Premises, at Tenant's sole cost and expense. Tenant shall repair and restore
in a good and workmanlike manner (reasonable wear and tear excepted) any damage
to the Premises and the Building caused by such removal of Tenant's Property and
Tenant's Alterations. Any of Tenant's Alterations or Tenant's Property not so
removed by Tenant at or prior to the Expiration Date or earlier termination of
the Term shall be deemed abandoned and may, at the election of Landlord, either
be retained as Landlord's property or be removed from the Premises by Landlord
at Tenant's expense. The covenants and agreements set forth in this Section 3.3
shall survive the expiration or earlier termination of this Lease.
Section 3.4 If, because of any act or omission of Tenant, its
employees, agents, contractors, or subcontractors, any mechanic's lien, U.C.C.
financing statement or other lien, charge or order for the payment of money
shall be filed against Landlord, or against all or any portion of the Premises,
the Building or the Real Property, Tenant shall, at its own cost and expense,
cause the same to be discharged of record, by bonding or otherwise, within sixty
(60) days after the filing thereof, and Tenant shall indemnify, defend and save
Landlord harmless against and from all costs, expenses, liabilities, suits,
penalties, claims and demands (including reasonable attorneys' fees and
disbursements) resulting therefrom.
Section 3.5 Tenant shall not, at any time prior to or during the
Term, directly or indirectly employ, or permit the employment of, any
contractor, mechanic or laborer in the Premises, whether in connection with any
Alteration or otherwise, if in Landlord's sole judgment such employment will
interfere or cause any conflict with other contractors, mechanics, or laborers
engaged in the construction, maintenance or operation of the Building by
Landlord. Tenant or others, or the use and enjoyment of other tenants or
occupants of the Building.
ARTICLE 4. CONDITION OF THE PREMISES
Section 4.1 Tenant has examined the Premises and agrees to accept
possession of the Premises in their "as is" condition on the Commencement Date,
and further agrees that, except for the making of Landlord's Contribution as
expressly set forth in this Article 4, Landlord shall have no obligation to
perform any work, supply any materials, incur any expenses or make any
installations in order to prepare the Premises for Tenant's occupancy. The
taking of possession of the Premises by Tenant shall be conclusive evidence as
against Tenant that at the time such possession was so taken, the Premises were
in good and satisfactory condition.
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Section 4.2 Landlord acknowledges that Tenant intends to perform
certain Alterations in order to prepare the Premises for its occupancy, which
alterations shall be satisfactory to Landlord and shall comply with applicable
Legal Requirements (the "Initial Alterations"). Notwithstanding anything set
forth in this Article 4, Landlord agrees to make Landlord's Contribution toward
the cost of the Initial Alterations, subject to and in accordance with Article
30 of this Lease.
Section 4.3 Upon the request of Tenant, Landlord, at Tenant's cost
and expense, shall join in any applications for any permits, approvals or
certificates from any Governmental Authority required to be obtained by Tenant,
and shall sign such applications reasonably promptly after request by Tenant
(provided that (i) the provisions of the applicable Legal Requirement shall
require that Landlord join in such application, and (ii) such application is
acceptable to Landlord) and shall otherwise cooperate with Tenant in connection
therewith, provided that Landlord shall not be obligated to incur any cost or
expense, including attorneys' fees and disbursements, or suffer or incur any
liability, in connection therewith.
ARTICLE 5. REPAIRS; FLOOR LOAD
Section 5.1 Landlord shall maintain and repair the Building Systems
and the public portions of the Building, both exterior and interior, and the
structural elements thereof, including the roof, foundation and curtain wall.
Tenant, at Tenant's expense, shall take good care of the Premises and the
fixtures, systems, equipment and appurtenances therein, and make all
non-structural repairs thereto as and when needed to preserve them in good
working order and condition, except for reasonable wear and tear, obsolescence
and damage for which Tenant is not responsible pursuant to the provisions of
Articles 10 and 11 hereof. Notwithstanding the foregoing, all damage or injury
to the Premises or to any other part of the Building, or to its fixtures,
equipment and appurtenances, caused by or resulting from carelessness, omission,
neglect or improper conduct of, or Alterations made by Tenant, Tenant's agents,
employees or licensees, shall be repaired at Tenant's expense, (a) by Tenant to
the satisfaction of Landlord (if the required repairs are non-structural and do
not affect any Building System), or (b) by Landlord (if the required repairs are
structural or affect any Building System). Tenant also shall repair all damage
to the Building and the Premises caused by the making of any Alterations by
Tenant or by the moving of Tenant's Property. All of such repairs shall be of
quality or class equal to the original work or construction. If Tenant fails
after fifteen (15) days notice to proceed with due diligence to make repairs
required to be made by Tenant, Landlord may make such repairs at the expense of
Tenant, and Tenant shall pay the costs and expenses thereof incurred by
Landlord, with interest at the Default Rate, as Additional Rent within ten (10)
days after rendition of a bill or statement therefor.
Section 5.2 Tenant shall not place a load upon any floor of the
Premises exceeding the floor load per square foot which such floor was designed
to carry and which is allowed by law. Tenant shall not move any safe, heavy
equipment, business machines, freight, bulky matter or fixtures into or out of
the Building without Landlord's prior consent. If such safe, equipment, freight,
bulky matter or fixtures requires special handling, Tenant shall employ only
persons holding a Master Rigger's license to do such work.
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Section 5.3 There shall be no allowance to Tenant for a diminution
of rental value, no constructive eviction of Tenant and no liability on the part
of Landlord by reason of inconvenience, annoyance or injury to business arising
from Landlord making, or failing to make, any repairs, alterations, additions or
improvements in or to any portion of the Building or the Premises, or in or to
fixtures, appurtenances or equipment thereof. Landlord shall use reasonable
efforts to minimize interference with Tenant's access to and use and occupancy
of the Premises in making any repairs, alterations, additions or improvements;
provided, however, that Landlord shall have no obligation to employ contractors
or labor at overtime or other premium pay rates or to incur any other overtime
costs or additional expenses whatsoever.
Section 5.4 Tenant shall not require, permit, suffer or allow the
cleaning of any window in the Premises from the outside in violation of Section
202 of the New York Labor Law or any successor statute thereto, or of any other
Legal Requirement.
ARTICLE 6. REAL ESTATE TAXES AND LABOR RATE INCREASES
Section 6.1 The following terms shall have the meanings set forth
below:
(a) "Taxes" shall include the aggregate amount of (i) all real
estate taxes, assessments (special or otherwise), sewer and water rents, rates
and charges and any other governmental levies, impositions or charges, whether
general, special, ordinary, extraordinary, foreseen or unforeseen, which may be
assessed, levied or imposed upon all or any part of the Real Property, and (ii)
any expenses (including attorneys' fees and disbursements and experts' and other
witness' fees) incurred in contesting any of the foregoing or the Assessed
Valuation (as defined in Section 6.1(d)) of all or any part of the Real
Property. If at any time after the date hereof the methods of taxation
prevailing at the date hereof shall be altered so that in lieu of or as an
addition to or as a substitute for the whole or any part of the taxes,
assessments, rents, rates, charges, levies or impositions now assessed, levied
or imposed upon all or any part of the Real Property, there shall be assessed,
levied or imposed (A) a tax, assessment, levy, imposition or charge based on the
rents received therefrom whether or not wholly or partially as a capital levy or
otherwise, (B) a tax. assessment, levy, imposition or charge measured by or
based in whole or in part upon all or any part of the Real Property and imposed
upon Landlord, (C) a license fee measured by the rents or (D) any other tax,
assessment, levy, imposition, charges or license fee however described or
imposed, then all such taxes, assessments, levies, impositions, charges or
license fees or the part thereof so measured or based shall be deemed to be
Taxes. Taxes shall not include franchise, gift, inheritance, estate, sales,
income or profit taxes imposed upon Landlord, any Lessor or any Mortgagee by any
Governmental Authority.
(b) "Tenant's Share" means 19/100 of one percent (.19%).
(c) "Base Taxes" means an amount equal to the sum of (i) one-half
(1/2) of the Taxes payable for the Tax Year commencing on July 1, 1997 and
ending on June 30, 1998 plus one-half (1/2) of the Taxes payable the Tax Year
commencing on July 1, 1998 and ending June 30, 1999.
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(d) "Assessed Valuation" means the amount for which the Real
Property is assessed pursuant to applicable provisions of the New York City
Charter and of the Administrative Code of the City of New York for the purpose
of imposition of Taxes.
(e) "Tax Year" means the period July 1 through June 30 (or such
other period as may be duly adopted by the City of New York as its fiscal year
for real estate tax purposes).
(f) "Comparison Year" means (i) with respect to Taxes, any Tax Year
commencing subsequent to 1997/1998 Tax Year, and (ii) with respect to Labor
Rates, any calendar year commencing subsequent to the Base Labor Year.
(g) "Landlord's Statement" means an instrument or instruments
containing a comparison of either (i) the Base Taxes and the Taxes payable for
any Comparison Year, or (ii) the Base Labor Rates and the Labor Rates applicable
to any Comparison Year.
(h) "Tenant's Projected Share of Taxes" means Tenant's Tax Payment
(as defined in Section 6.1(i)), if any, made by Tenant for the prior Comparison
Year, plus an amount equal to Landlord's estimate of the amount of increase in
Tenant's Tax Payment for the then current Comparison Year, divided by twelve
(12) and payable monthly by Tenant to Landlord as Additional Rent.
(i) "Tenant's Tax Payment" means Tenant's Share of the excess of the
Taxes payable for any Comparison Year over the Base Taxes.
Section 6.2 (a) If the Taxes payable for any Comparison Year (any
part or all of which falls within the Term) shall exceed the Base Taxes, Tenant
shall pay Tenant's Tax Payment to Landlord, as Additional Rent, within ten (10)
business days after demand from Landlord therefor, which demand shall be
accompanied by Landlord's Statement. Before or after the start of each
Comparison Year, Landlord shall furnish to Tenant a Landlord's Statement in
respect of Taxes. If there shall be any increase in Taxes payable for any
Comparison Year, whether during or after such Comparison Year or if there shall
be any decrease in the Taxes payable for any Comparison Year during such
Comparison Year, Landlord may furnish a revised Landlord's Statement for such
Comparison Year, and Tenant's Tax Payment for such Comparison Year shall be
adjusted and, within ten (10) business days after Tenant's receipt of such
revised Landlord's Statement, Tenant shall (i) with respect to any increase in
Taxes payable for such Comparison Year, pay such increase in Tenant's Tax
Payment to Landlord, or (ii) with respect to any decrease in Taxes payable for
such Comparison Year, Landlord shall credit such decrease in Tenant's Tax
Payment against the next installment of Tenant's Share of Taxes payable by
Tenant pursuant to this Section 6.2(a), provided that if such decrease in Taxes
is attributable to the final Comparison Year of the Term, Landlord shall pay the
amount of such decrease in Tenant's Tax Payment to Tenant. If, during the Term,
Landlord shall elect to collect Tenant's Tax Payments in full or in quarterly or
bi-annual or other installments on any other date or dates than as presently
required, then following Landlord's notice to Tenant, Tenant's Tax Payments
shall be correspondingly revised. The benefit of any discount for any early
payment or prepayment of Taxes relating to all or any part of the Real Property
shall accrue solely to the benefit of Landlord and Taxes shall be computed
without subtracting such discount.
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(b) With respect to each Comparison Year, on account of which
Landlord shall (or anticipates that it may) be entitled to receive Tenant's Tax
Payment, Tenant shall pay to Landlord, as Additional Rent for the then current
Tax Year, Tenant's Projected Share of Taxes. Upon each date that a Tax Payment
or an installment on account thereof shall be due from Tenant pursuant to the
terms of this Section 6.2, Landlord shall apply the aggregate of the
installments of Tenant's Projected Share of Taxes then on account with Landlord
against Tenant's Tax Payment or installment thereof then due from Tenant. In the
event that such aggregate amount shall not be sufficient to discharge such Tax
Payment or installment, Landlord shall so notify Tenant, and the amount of
Tenant's payment obligation with respect to such Tax Payment or installment
pursuant to this Section 6.2, shall be equal to the amount of the insufficiency
and shall be payable within ten (10) business days of demand by Landlord. If,
however, such aggregate amount shall be greater than the Tax Payment or
installment, Landlord shall credit the amount of such excess against the next
payment of Tenant's Projected Share of Taxes due hereunder.
(c) Only Landlord shall be eligible to institute Tax reduction or
other proceedings to reduce the Assessed Valuation of the Real Property, and the
filings of any such proceeding by Tenant without Landlord's prior written
consent shall constitute a default hereunder. If the Base Taxes are reduced by
final determination of legal proceedings, settlement or otherwise, then either
the 1997/1998 Tax Year or the 1998/1999 Tax year shall be correspondingly
revised, the Additional Rent theretofore paid or payable on account of Tenant's
Tax Payment hereunder for all Comparison Years shall be recomputed on the basis
of such reduction, and Tenant shall pay to Landlord, as Additional Rent within
ten (10) business days after being billed therefor, any deficiency between the
amount of such Additional Rent theretofore computed and paid by Tenant to
Landlord and the amount thereof due as a result of such recomputations. If the
Taxes payable for the Base Tax Year are increased by such final determination of
legal proceedings, settlement or otherwise, then, Landlord shall either pay to
Tenant, or at Landlord's election, credit against subsequent payments due under
this Section 6.2, an amount equal to the excess of the amounts of such
Additional Rent theretofore paid by Tenant over the amount thereof actually due
as a result of such recomputations. If Landlord shall receive a refund or
reduction of Taxes for any Comparison Year, Landlord shall, within a reasonable
time after such refund is actually received or such credit is actually applied
against Taxes then due and payable, either pay to Tenant, or, at Landlord's
election, credit against subsequent payments under this Section 6.2, an amount
equal to Tenant's Share of the refund or reduction, provided that such amount
shall not exceed Tenant's Tax Payment paid for such Comparison Year. Nothing
herein contained shall obligate Landlord to file any application or institute
any proceeding seeking a reduction in Taxes or Assessed Valuation.
(d) Tenant's Tax Payment shall be made as provided in this Section
6.2 regardless of the fact that Tenant may be exempt, in whole or in part, from
the payment of any taxes by reason of Tenant's diplomatic or other tax exempt
status or for any other reason whatsoever.
(e) Tenant shall pay to Landlord, as Additional Rent upon demand,
any occupancy tax or rent tax now in effect or hereafter enacted, if payable by
Landlord in the first instance or hereafter required to be paid by Landlord.
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(f) If the Commencement Date or the Expiration Date shall occur on a
date other than July 1 or June 30, respectively, any Additional Rent payable by
Tenant to Landlord under this Section 6.2 for the Comparison Year in which such
Commencement Date or Expiration Date shall occur, shall be apportioned in that
percentage which the number of days in the period from the Commencement Date to
June 30 or from July 1 to the Expiration Date, as the case may be, both
inclusive, shall bear to the total number of days in such Comparison Year. In
the event of a termination of this Lease, any Additional Rent under this Section
6.2 shall be paid or adjusted within thirty (30) days after submission of
Landlord's Statement. In no event shall Fixed Rent ever be reduced by operation
of this Section 6.2 and the rights and obligations of Landlord and Tenant under
the provisions of this Section 6.2 with respect to any Additional Rent shall
survive the expiration or earlier termination of this Lease.
Section 6.3 The following terms shall have the meanings set forth
below:
(a) "Comparison Year" shall mean any calendar year subsequent to the
Base Labor Year.
(b) "R.A.B." shall mean the Realty Advisory Board on Labor
Relations, Incorporated, or its successor.
(c) "Local 32B-32J" shall mean Local 32B-32J of the Building Service
Employees International Union, AFL-CIO, or its successor.
(d) "Class A Office Buildings" shall mean office buildings so
categorized under any agreement between R.A.B. and Local 32B-32J, regardless of
the designation given to such office buildings in any such agreement.
(e) "Labor Rates" shall mean a sum equal to the regular hourly wage
rate required to be paid to Others (hereinafter defined) employed in Class A
Office Buildings pursuant to an agreement between R.A.B. and Local 32B-32J;
provided, however, that:
(i) if, as of October 1st of any Comparison Year, any such agreement
shall require Others in Class A Office Buildings to be regularly employed on
days or during hours when overtime or other premium pay rates are in effect
pursuant to such agreement, then the term "regular hourly wage rate", as used in
this Section 6.3 shall mean the average hourly wage rate for the hours in a
calendar week during which Others are required to be regularly employed;
(ii) if no such agreement is in effect as of October 1st of any
Comparison Year with respect to Others, then the term "regular hourly wage
rate", as used in this Section 6.3 shall mean the regular hourly wage rate
actually paid to Others employed in the Building by Landlord or by an
independent contractor engaged by Landlord; and
(iii) the term "regular hourly wage rate" shall exclude all benefits
of any kind, including those payable directly to taxing authorities or others on
account of the employment and all welfare, pension and fringe employee benefits
and payments of any kind paid or given pursuant to such agreement.
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(f) "Others" shall mean that classification of employee engaged in
the general maintenance and operation of Class A Office Buildings most nearly
comparable to the classification now applicable to "others" in the current
agreement between R.A.B. and Local 32B-32J.
(g) "Base Labor Year" shall mean the calendar year 1998.
(h) "Base Labor Rates" shall mean the Labor Rates in effect for the
Base Labor Year.
(i) "Tenant's Labor Rate Payment" is defined in Section 6.4(a).
Section 6.4 (a) If the Labor Rates in effect for any Comparison Year
(any part or all of which falls within the Term) shall be greater than the Base
Labor Rates, then Tenant shall pay, as Additional Rent for such Comparison Year
and continuing thereafter until a new Landlord's Statement is rendered to
Tenant, an amount ("Tenant's Labor Rate Payment") equal to (i) 4,372 multiplied
by (ii) the number of cents (inclusive of any fractions of a cent) by which the
Labor Rates in effect for such Comparison Year exceed the Base Labor Rates.
(b) At any time prior to, during or after any Comparison Year
Landlord shall render to Tenant a Landlord's Statement showing (i) a comparison
of the Labor Rates for the Comparison Year with the Base Labor Rates, and (ii)
the amount of Tenant's Labor Rate Payment resulting from such comparison.
Landlord's failure to render a Landlord's Statement during or with respect to
any Comparison Year shall not prejudice Landlord's right to render a Landlord's
Statement during or with respect to any subsequent Comparison Year and shall not
eliminate or reduce Tenant's obligation to pay Tenant's Labor Rate Payment
pursuant to this Article 6 for such Comparison Year.
(c) Tenant's Labor Rate Payment shall be payable by Tenant on the
first day of the month following the furnishing to Tenant of a Landlord's
Statement, in equal monthly installments, each such installment to be equal to
1/12th of Tenant's Labor Rate Payment for such Comparison Year multiplied by the
number of months (and any fraction thereof) of the Term then elapsed since the
commencement of such Comparison Year, continuing monthly thereafter until
rendition of the next succeeding Landlord's Statement.
(d) The provisions of this Section 6.4 shall be effective
irrespective of whether or not (i) the Building is classified as a Class A
office building from time to time, or (ii) any Building employees are members of
Local 32B-32J. Tenant acknowledges and agrees that the computation of Labor
Rates hereunder is intended to serve solely as a formula for an agreed rental
adjustment, rather than an actual operating expense calculation, and is not
intended to reflect the actual cost to Landlord of wages at the Building or any
increases or decreases in such cost.
Section 6.5 If the Commencement Date or the Expiration Date shall
occur on a date other than January 1 or December 31, respectively, any
Additional Rent under this Article 6 for the Comparison Year in which such
Commencement Date or Expiration Date shall occur shall be apportioned in that
percentage which the number of days in the period from the
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Commencement Date to December 31 or from January 1 to the Expiration Date, as
the case may be, both inclusive, shall bear to the total number of days in such
Comparison Year. In the event of a termination of this Lease, any Additional
Rent under this Article shall be paid or adjusted within thirty (30) days after
submission of a Landlord's Statement. In no event shall Fixed Rent ever be
reduced by operation of this Section 6.5 and the rights and obligations of
Landlord and Tenant under the provisions of this Article 6 with respect to any
Additional Rent shall survive the expiration or earlier termination of this
Lease.
Section 6.6 Landlord's failure to render a Landlord's Statement with
respect to any Comparison Year shall not prejudice Landlord's right to
thereafter render a Landlord's Statement with respect thereto or with respect to
any subsequent Comparison Year, nor shall the rendering of a Landlord's
Statement prejudice Landlord's right to thereafter render a corrected Landlord's
Statement for that Comparison Year. Nothing herein contained shall restrict
Landlord from issuing a Landlord's Statement at any time there is an increase in
Taxes or Labor Rates during any Comparison Year or any time thereafter.
Section 6.7 If any capital improvement is made to the Real Property
during any calendar year during the Term in compliance with any Legal
Requirements, then Tenant shall pay to Landlord, immediately upon demand
therefor, Tenant's Proportionate Share of the reasonable annual amortization,
with interest, of the cost of such improvement in each calendar year during the
Term during which such amortization occurs.
ARTICLE 7. LEGAL REQUIREMENTS
Section 7.1 Tenant, at its sole expense, shall comply with all Legal
Requirements applicable to the Premises or the use and occupancy thereof by
Tenant, and make all repairs or Alterations required thereby, whether structural
or nonstructural, ordinary or extraordinary, unless otherwise expressly provided
herein. Tenant shall not do or permit to be done any act or thing upon the
Premises which will invalidate or be in conflict with Landlord's insurance
policies, and shall not do or permit anything to be done in or upon the
Premises, or use the Premises in a manner, or bring or keep anything therein,
which shall increase the rates for casualty or liability insurance applicable to
the Building. If, as a result of any act or omission by Tenant or by reason of
Tenant's failure to comply with the provisions of this Article, the insurance
rates for the Building shall be increased, then Tenant shall desist from doing
or permitting to be done any such act or thing and shall reimburse Landlord, as
Additional Rent hereunder, for that part of all insurance premiums thereafter
paid by Landlord which shall have been charged because of such act, omission or
failure by Tenant, and shall make such reimbursement upon demand by Landlord.
Section 7.2 Tenant, at its expense, shall comply with all
Environmental Laws and with any directive of any Governmental Authority which
shall impose any violation, order or duty upon Landlord or Tenant under any
Environmental Laws with respect to the Premises or the use or occupation
thereof. Tenant's obligations hereunder with respect to Hazardous Materials
shall extend only to those matters directly or indirectly based on, or arising
or resulting from (a) the actual or alleged presence of Hazardous Materials on
the Premises or in the Building which is
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caused or permitted by Tenant, and (b) any Environmental Claim (defined below)
relating in any way to Tenant's operation or use of the Premises or the
Building.
Section 7.3 Tenant shall provide Landlord with copies of all
communications and related materials regarding the Premises which Tenant shall
receive from or send to (a) any Governmental Authority relating in any way to
any Environmental Laws, or (b) any Person with respect to any claim based upon
any Environmental Laws or relating in any way to Hazardous Materials (any such
claim, an "Environmental Claim"). Landlord or its agents may perform an
environmental inspection of the Premises at any time during the Term, upon prior
notice to Tenant except in an emergency.
ARTICLE 8. SUBORDINATION AND NON-DISTURBANCE; ESTOPPEL CERTIFICATES
Section 8.1 This Lease, and all rights of Tenant hereunder, are and
shall be subject and subordinate in all respects to all Mortgages and Superior
Leases. This Section 8.1 shall be self-operative and no further instrument of
subordination shall be required. In confirmation of such subordination, Tenant
shall promptly execute and deliver any instrument that Landlord or any Lessor or
Mortgagee may reasonably request to evidence such subordination.
Section 8.2 In the event of any act or omission of Landlord which
would give Tenant the right, immediately or after lapse of a period of time, to
cancel or terminate this lease, or to claim a partial or total eviction, Tenant
shall not exercise such right (a) until it has given written notice of such act
or omission to each Mortgagee and Lessor whose name and address shall previously
have been furnished to Tenant in writing, and (b) unless such act or omission
shall be one which is not capable of being remedied by Landlord or such
Mortgagee or Lessor within a reasonable period of time, until a reasonable
period for remedying such act or omission shall have elapsed following the
giving of such notice and following the time when such Mortgagee or Lessor shall
have become entitled under such Mortgage or Superior Lease, as the case may be,
to remedy the same (which reasonable period shall in no event be less than the
period to which Landlord would be entitled under this Lease or otherwise, after
similar notice, to effect such remedy), provided such Mortgagee or Lessor shall
with due diligence give Tenant written notice of its intention to remedy such
act or omission, and such Mortgagee or Lessor shall commence and thereafter
continue with reasonable diligence to remedy such act or omission. If more than
one Mortgagee or Superior Lessor shall become entitled to any additional cure
period under this Section 8.2, such cure periods shall run concurrently, not
consecutively.
Section 8.3 If a Mortgagee or Lessor shall succeed to the rights of
Landlord under this Lease, whether through possession or foreclosure action or
delivery of a new lease or deed, then at the request of such party so succeeding
to Landlord's rights ("Successor Landlord") and upon Successor Landlord's
written agreement to accept Tenant's attornment, Tenant shall attorn to and
recognize Successor Landlord as Tenant's landlord under this Lease, and shall
promptly execute and deliver any instrument that Successor Landlord may
reasonably request to evidence such attornment. Upon such attornment this Lease
shall continue in full force and effect as, or as if it were, a direct lease
between Successor Landlord and Tenant upon all of the
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terms, conditions and covenants as are set forth in this Lease and shall be
applicable after such attornment except that Successor Landlord shall not:
(a) be liable for any previous act or omission of Landlord
under this Lease;
(b) be subject to any offset, not expressly provided for in
this Lease, which shall have theretofore accrued to Tenant against
Landlord; or
(c) be bound by any previous modification of this Lease, not
expressly provided for in this Lease, or by any previous prepayment of
more than one month's fixed rent, unless such modification or prepayment
shall have been expressly approved in writing by such Mortgagee or Lessor.
Section 8.4 Each party agrees, at any time and from time to time, as
requested by the other party, upon not less than ten (10) days' prior notice, to
execute and deliver to the other a written statement executed and acknowledged
by such party (a) stating that this Lease is then in full force and effect and
has not been modified (or if modified, setting forth all modifications), (b)
setting forth the then annual Fixed Rent, (c) setting forth the date to which
the Fixed Rent and Additional Rent have been paid, (d) stating whether or not,
to the best knowledge of the signatory, the other party is in default under this
Lease, and if so, setting forth the specific nature of all such defaults, (e)
stating the amount of the Security Deposit, (f) stating whether there are any
subleases affecting the Premises, (g) stating the address of the signatory to
which all notices and communication under the Lease shall be sent, the
Commencement Date and the Expiration Date, and (i) as to any other matters
reasonably requested by the party requesting such certificate. The parties
acknowledge that any statement delivered pursuant to this Section 8.4 may be
relied upon by others with whom the party requesting such certificate may be
dealing, including any purchaser or owner of the Real Property or the Building,
or of Landlord's interest in the Real Property or the Building or any Superior
Lease, or by any Mortgagee or Lessor, or by any prospective or actual sublessee
of the Premises or assignee of this Lease, or permitted transferee of or
successor to Tenant.
ARTICLE 9. SERVICES
Section 9.1 Landlord shall provide, at Landlord's expense, except as
otherwise set forth herein, the following services:
Section 9.2 Electricity. (a) Landlord, at Landlord's expense,
subject to the provisions of this Article 9, shall furnish electrical energy to
Tenant for use in the Premises during the Term by making available to Tenant,
from the existing bus duct on the eighth (8th) floor of the Building, AC
electric capacity at a level of not less than 200 amperes, 480 volts, 3-phase,
4-wire, dedicated to Tenant. Tenant shall pay Landlord a one-time fee of
$34,250.00 for the installation of such electrical capacity. Tenant covenants
that Tenant's use and consumption of electric current shall not at any time
exceed such amount, nor exceed the capacity of any of the electrical facilities
and installations in or otherwise serving or being used in the Premises. Tenant
shall pay Landlord, as Additional Rent, at any time and from time to
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time, but no more frequently than monthly, for its consumption of electrical
energy at the Premises, as provided herein.
(b) In the event that Tenant's total power requirements at the
Premises, based on an annual review of Tenant's consumption following the first
anniversary of the Commencement Date, shall be less than the 200 ampere, 480
volt service described above, Tenant shall pay to Landlord an annual sum equal
to the fee, if any, which Landlord is obligated to pay to the Electricity
Provider (as hereinafter defined), commonly known as a "use it or lose it" fee,
for the availability of such capacity, presently payable by Landlord to the
Electricity Provider at the rate of $12.50 per unused ampere per annum. Further,
if as of the third (3rd) anniversary of the Commencement Date, Tenant shall
continue to require less than the 200 ampere, 480 volt service described above,
then Landlord shall have the right to reduce the level of electric power
supplied to the Premises to Tenant's actual power requirements.
(c) The calculations and determinations of the charges for electric
energy consumed by Tenant shall be based on the readings of one or more
submeters to be installed by Landlord at Tenant's sole expense, applied to
Landlord's Electricity Cost, as defined in Section 9.2(d). Tenant shall pay for
electricity consumed as determined thereunder as measured and calculated from
time to time by such submeter or submeters, such payment to be equal to the
amount Tenant would pay for such consumption of electricity if it purchased that
amount of electricity from the public utility servicing the Building under the
rate structure and/or classification as set forth in this Section 9.2(c)
pursuant to which Landlord would purchase that quantity of electricity for the
entire Building, plus Landlord's charge for overhead and supervision, which
charge shall not exceed seven percent (7%) of such payment by Tenant. In
addition, Tenant shall pay to Landlord, as Additional Rent (i) the fees and
expenses of Landlord's electrical contractor for services rendered by such
contractor in the maintenance and repair of such submeter(s), and (ii) the
amount of any taxes imposed by any Governmental Authority on Landlord's receipts
from the sale of electricity to Tenant. In the event that more that one submeter
is used to measure Tenant's consumption of electricity in the Premises, Tenant
shall be billed only on the basis of the "totalized" demand, i.e., as though a
single meter were measuring such usage.
(d) "Landlord's Electricity Cost" means the cost per kilowatt hour
and cost per kilowatt demand, adjusted by time of day factors, fuel adjustment
charges and other applicable rate adjustments, to Landlord for the purchase of
electricity from the public utility or other electricity provider furnishing
electricity service to the Building from time to time (the "Electricity
Provider"), including sales and other taxes imposed by any Governmental
Authority on Landlord's purchase of electricity. If at any time during the Term
the cost elements comprising Landlord's Electricity Cost shall be increased by
the Electricity Provider, or Landlord's Electricity Cost shall be increased for
any other reason, then effective as of the date of such increase, Tenant's
payment for submetered electricity under this Section 9.2 shall be
proportionately increased. Landlord reserves the right to contract with
different Electricity Providers from time to time in its sole judgment. and
without reference to whether any Electricity Provider selected by Landlord
provides lower rates than any other electricity supplier. Currently, Landlord's
Electricity Cost is based upon Consolidated Edison Company's Service
Classification rate schedule S.C. #4 Rate I as in effect on the Commencement
Date.
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(e) During the period beginning on the Commencement Date and ending
on the date upon which the submeters to be installed by Landlord in the Premises
become operational, Tenant shall pay to Landlord a fixed fee for electric energy
supplied to the Premises of (i) during the period prior to the date upon which
Tenant first occupies all or any portion of the Premises for the conduct of its
business, an amount per annum equal to One and 00/100 Dollar ($1.00) multiplied
by the number of Rentable Square Feet in the Premises, in equal monthly
installments on the first (1st) day of each month during such period, and (ii)
from and after the date upon which Tenant first occupies all or any portion of
the Premises for the conduct of its business, an amount per annum equal to Four
and 00/1 00 Dollars ($4.00) multiplied by the number of Rentable Square Feet in
the Premises, in equal monthly installments on the first (1st) day of each month
during such period, through the date upon which such submeters become
operational. Tenant shall have the right to install a dedicated MCM ground
connected to the main Building ground.
(f) Tenant covenants that Tenant's use and consumption of electric
current shall not at any time exceed the capacity of any of the electrical
facilities and installations in or otherwise serving or being used in the
Premises and Tenant shall, upon the submission by Landlord to Tenant of written
notice, promptly cease the use of any of Tenant's electrical equipment which
Landlord believes will cause Tenant to exceed such capacity. Any additional
feeders, risers, electrical facilities and other such installations required for
electric service to the Premises will be supplied by Landlord, at Tenant's
expense, upon Landlord's prior consent in each instance, provided that, in
Landlord's judgment, such additional electrical facilities and installations,
feeders or risers are necessary and are permissible under Legal Requirements
(including the New York State Energy Conservation Construction Code) and
insurance regulations and the installation of such feeders or risers will not
cause permanent damage or injury to the Building or the Premises or cause or
create a dangerous or hazardous condition or entail excessive or unreasonable
alterations or repairs or interfere with, or disturb, other tenants or occupants
of the Building. In addition, Landlord shall have no obligation to consent to
such additional feeders, risers, electrical facilities and installations if in
Landlord's judgment, the same would give Tenant a disproportionate amount of the
electrical current supplied to the Building at the expense of, or in derogation
of the needs of other tenants or occupants of the Building.
(g) Landlord shall not in any way be liable or responsible to Tenant
for any loss, damage or expense which Tenant may sustain or incur as a result of
the unavailability of or interruption in the supply of electric current to the
Premises or a change in the quantity or character or nature of such current and
such change, interruption or unavailability shall not constitute an actual or
constructive eviction, in whole or in part, or entitle Tenant to any abatement
or diminution of rent (except that Tenant's liability to pay Landlord for
electricity under this Section 9.2 shall cease as of the date of such
disturbance), or relieve Tenant from any of its obligations under this Lease, or
impose any liability upon Landlord, or its agents, by reason of inconvenience or
annoyance to Tenant, or injury to or interruption of Tenant's business, or
otherwise.
(h) Landlord reserves the right to discontinue furnishing
electricity to Tenant in the Premises on not less than sixty (60) days' notice
to Tenant. If Landlord exercises such right to discontinue, or is compelled to
discontinue furnishing electricity to Tenant, this Lease
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shall continue in full force and effect and shall be unaffected thereby, except
only that from and after the effective date of such discontinuance, Landlord
shall not be obligated to furnish electricity to Tenant, and Tenant shall have
no further obligation to pay Landlord for electricity supplied to the Premises.
If Landlord so discontinues furnishing electricity to Tenant, Tenant shall
arrange to obtain electricity directly from the Electricity Provider. Such
electricity may be furnished to Tenant by means of the then existing electrical
facilities serving the Premises to the extent that the same are available,
suitable and safe for such purposes. All meters and all additional panel boards,
feeders, risers, wiring and other equipment which may be required by Tenant to
obtain electricity directly from the public utility shall be installed by
Landlord, at Tenant's sole cost and expense.
(i) If submetering of electricity in the Building is hereafter
prohibited by any Legal Requirement, or by any order or ruling of the Public
Service Commission of the State of New York, then Tenant shall apply, within ten
(10) days of Tenant's receiving notice thereof, to the Electricity Provider in
order to obtain direct electric service, and Tenant shall bear all costs and
expenses, as set forth in Section 9.2(h), necessary to comply with all rules and
regulations of the Electricity Provider pertinent thereto, and from and after
the date upon which Tenant procures direct electric service, Landlord shall be
relieved of any further obligation to furnish electricity to Tenant pursuant to
this Section 9.2. Such electricity may be furnished to Tenant by means of the
then existing electrical facilities serving the Premises, including Building
feeders and risers, to the extent that the same are suitable and safe for such
purposes.
Section 9.3 Heat. (a) Landlord shall provide heat to the Premises on
Business Days during the Term from 8:00 A.M. to 6:00 P.M., when required in
Landlord's judgment for the comfortable use and occupancy of the Premises,
through use of the Building standard heating system (the "Building Heating
System).
(b) Anything in this Section 9.3 to the contrary notwithstanding,
Landlord shall not be responsible if the normal operation of the Building
Heating System shall fail to provide heat at reasonable temperatures uniformly
to all interior portions of the Premises. Tenant at all times shall cooperate
fully with Landlord and shall abide by the regulations and requirements which
Landlord may prescribe for the proper functioning and protection of the Building
Heating System.
(c) Landlord shall not be required to furnish heat during periods
other than the hours and days set forth in Section 9.3(a) for the furnishing and
distributing of such services ("Overtime Periods"), unless Landlord has received
advance notice from Tenant requesting such service not less than twenty-four
(24) hours prior to the time when such service shall be required. Accordingly,
if Landlord shall furnish heat to the Premises at the request of Tenant during
Overtime Periods, Tenant shall pay Landlord, as Additional Rent within ten (10)
days after demand, for such services at the standard rate then fixed by Landlord
for the Building. Failure by Landlord to furnish or distribute heat or any other
services during Overtime Periods shall not constitute an actual or constructive
eviction, in whole or in part, or entitle Tenant to any abatement or diminution
of Fixed Rent or Additional Rent, or relieve Tenant from any of its obligations
under this Lease, or impose any liability upon Landlord or its agents by reason
of
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inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's
business or otherwise.
(d) Landlord shall have no obligation to provide air-conditioning or
ventilation services to the Premises. Landlord agrees that if Tenant desires to
install a supplemental air-conditioning system, as part of the Initial
Alterations or otherwise, and if Landlord shall approve such an Alteration
pursuant to Article 3 hereof, then Tenant may install a self-contained
air-conditioning unit ("Tenant's HVAC System") on the Setback Premises. Upon the
expiration or sooner termination of the Term of this Lease, at Landlord's
request, Tenant shall remove Tenant's HVAC System from the Setback Premises, and
restore any damage to the Building and the Premises resulting from such removal.
Section 9.4 Elevators. Landlord shall provide passenger elevator
service to the Premises on Business Days from 8:00 A.M. to 6:00 P.M. and freight
elevator facilities on a non-exclusive basis, on Business Days from 8:00 A.M. to
4:45 P.M., and shall have one passenger elevator available at all other times.
Such elevator service shall be subject to such rules and regulations as Landlord
may promulgate from time to time with respect thereto. Landlord shall have the
right to change the operation or manner of operation of any of the elevators in
the Building and/or to discontinue, temporarily or permanently, the use of any
one or more cars in any of the passenger, freight or truck elevator banks.
Section 9.5 Cleaning. Tenant shall, at Tenant's sole cost, provide
cleaning services at the Premises pursuant to reasonable rules and regulations
established by Landlord from time to time, and use a cleaning contractor
approved by Landlord.
Section 9.6 Emergency Generator.
(a) Landlord shall provide 200 amperes of emergency electric power
service ("EPS") to Tenant for use in the Premises from the Building emergency
electric generator (the "Generator") as provided in this Section 9.6. Landlord
shall install, within sixty (60) days after the complete execution and delivery
of this Lease by Landlord and Tenant, at Tenant's sole cost and expense (i) an
automatic transfer switch (the "Transfer Switch"), in the Premises at a location
to be designated by Landlord, sufficient to supply a total connected load of 200
amperes of EPS at 460 volts to the Premises. and (ii) a connection from the
Generator to the Transfer Switch. Tenant shall pay to Landlord the actual
out-of-pocket costs incurred by Landlord for the installation of the Transfer
Switch and the connection from the Generator to the Transfer Switch.
(b) Tenant shall pay to Landlord an annual fee (the "EPS Fee") for
the period commencing on the date on which Landlord makes EPS available to the
Premises through the Expiration Date of this Lease, irrespective of whether or
not emergency power is ever required or used by Tenant, in the amount of $100.00
per ampere per year, subject to increase pursuant to Section 9.6(c) below. The
EPS Fee shall be payable by Tenant to Landlord as Additional Rent in advance in
equal monthly installments on the first day of each month during the Term.
Tenant shall be responsible for the payment of any occupancy tax, or any other
tax (other than Landlord's income tax) imposed upon the Additional Rent paid by
Tenant pursuant to this Section 9.6.
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(c) For purposes of this Lease, (i) the term "CPI" means the
Consumer Price Index for All Urban Consumers, New York, N.Y. - Northeastern,
N.J., l982-84=100; provided, however, that if the CPI or any successor index
shall cease to be published, Landlord shall substitute therefor such other
comparable index as Landlord shall reasonably determine, and (ii) the term "CPI
Fraction" means, as of each January 1st during the Term (an "Adjustment Date"),
a fraction (A) the numerator of which is the sum of (1) the CPI in effect on the
immediately previous Adjustment Date (the "Base Index") plus (2) the amount by
which the CPI in effect on the Adjustment Date exceeds the Base Index, and (B)
the denominator of which is the Base Index. If, as of each Adjustment Date, the
CPI then in effect is greater than the Base Index, then the EPS Fee shall be
increased as of such Adjustment Date to an amount equal to the product of (I)
the EPS Fee then in effect for the immediately previous calendar year,
multiplied by (II) the CPI Fraction. In no event shall the EPS Fee ever be
reduced pursuant to this Section 9.6(c).
(d) Tenant understands and agrees that EPS will be supplied to
Tenant only if there is an interruption or failure in the supply of electric
current to the Premises, and under no other circumstances. The privilege of
using the EPS service described in this Section 9.6 cannot be transferred or
assigned by Tenant except with the express written consent of Landlord, which
may be withheld in Landlord's sole discretion, and under no circumstances can
this privilege be transferred or assigned to any party who is not a tenant under
this Lease.
(e) Landlord shall have the right, in Landlord's sole discretion, at
any time and from time to time during the term of this Lease, upon not less than
thirty (30) days prior written notice to Tenant, to relocate the Generator to
another area of the Building, and/or to substitute another Building generator in
lieu of the Generator, provided that there shall be no interruption in the
availability of EPS to Tenant at the level provided in Section 9.6(a). Tenant
shall cooperate with Landlord to effectuate any such relocation or substitution
of the Generator. All costs involved in such relocation or substitution shall be
borne by Landlord. Tenant acknowledges that the Generator (and any replacement
or substitute therefor), the Transfer Switch, and all connections thereto, are
and shall remain the sole property of Landlord and may not be removed by Tenant.
(f) Upon and subject to the provisions of this Lease, Landlord shall
maintain and repair the Generator. Landlord shall maintain all service contracts
and take such other actions as may be necessary to keep the Generator in good
working order. Landlord shall not be liable in any way to Tenant for any delay,
interruption, failure, variation or defect in or with regard to the Generator
and/or EPS, except to the extent arising from the gross negligence or willful
misconduct or Landlord, and in no event shall Landlord be liable to Tenant for
special, indirect or consequential damages which may result from any such delay,
interruption, failure, variation or defect.
Section 9.7 Water. Landlord shall furnish hot and cold water in such
quantities as Landlord deems sufficient for ordinary drinking, lavatory and
cleaning purposes to the Premises. If Tenant requires, uses or consumes water
for any purpose in addition to ordinary lavatory, cleaning and drinking
purposes, Landlord may install a hot water meter and a cold water meter and
thereby measure Tenant's consumption of water for all purposes. Tenant shall
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(a) pay to Landlord the cost of any such meters and their installation, (b) at
Tenant's sole cost and expense, keep any such meters and any such installation
equipment in good working order and repair, and (c) pay to Landlord, as
Additional Rent, as and when billed therefor for water consumed, together with a
charge for any required pumping or heating thereof, all sewer rents, charges or
any other taxes, rents, levies or charges which now or hereafter are assessed,
imposed or shall become a lien upon the Premises or the Real Property pursuant
to law, order or regulation made or issued in connection with any such metered
use, consumption, maintenance or supply of water, water system, or sewage or
sewage connection or system, and in default in making such payment Landlord may
pay such charges and collect the same from Tenant.
Section 9.8 Rubbish and Removal. Tenant shall, at Tenant's sole
cost, provide refuse and rubbish removal service at the Premises at times, and
pursuant to regulations, established by Landlord from time to time.
Section 9.9 No Warranty of Landlord. Landlord does not warrant that
any of the services to be provided by Landlord to Tenant hereunder, or any other
services which Landlord may supply (a) will be adequate for Tenant's particular
purposes or as to any other particular need of Tenant or (b) will be free from
interruption, and Tenant acknowledges that any one or more such services may be
interrupted or suspended by reason of Unavoidable Delays. In addition, Landlord
reserves the right to stop, interrupt or reduce service of the Building Systems
by reason of Unavoidable Delays, or for repairs, additions, alterations,
replacements, decorations or improvements which are, in the judgment of
Landlord, necessary to be made, until said repairs, alterations, replacements or
improvements shall have been completed. Any such interruption or discontinuance
of service, or the exercise of such right by Landlord to suspend or interrupt
such service shall not (i) constitute an actual or constructive eviction, or
disturbance of Tenant's use and possession of the Premises, in whole or in part,
(ii) entitle Tenant to any compensation or to any abatement or diminution of
Fixed Rent or Additional Rent, (iii) relieve Tenant from any of its obligations
under this Lease, or (iv) impose any responsibility or liability upon Landlord
or its agents by reason of inconvenience or annoyance to Tenant, or injury to or
interruption of Tenant's business, or otherwise. Landlord shall use reasonable
efforts to minimize interference with Tenant's access to and use and occupancy
of the Premises in making any repairs, alterations, additions, replacements,
decorations or improvements; provided, however, that Landlord shall have no
obligation to employ contractors or labor at "overtime" or other premium pay
rates or to incur any other "overtime" costs or additional expenses whatsoever.
Landlord shall not be required to furnish any services except as expressly
provided in this Article 9.
Section 9.10 GPS Antenna. (a) Subject to the provisions of this
Section 9.10, Landlord will grant to Tenant, for Tenant's own use and not for
resale purposes, a non-exclusive license of sufficient space on the roof of the
Building, as reasonably determined by Landlord, for a Global Positioning System
satellite antenna for use in conjunction with Tenant's equipment and facilities
in the Premises (the "GPS Antenna"), at a location reasonably designated by
Landlord, taking into account any reasonable "line of sight" requirements of
Tenant. In connection therewith, and subject to the rights of other tenants in
the Building, Landlord shall make available to Tenant reasonable access to the
roof for the construction, installation, upgrade, maintenance, repair, operation
and use of the GPS Antenna. If Tenant requires riser space for
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electrical and telecommunications conduits connecting the Premises to the GPS
Antenna, then, subject to reasonable availability of such space in the Building
at that time, Landlord shall make available to Tenant, for Tenant's use,
sufficient space in the Building, at a location reasonably determined by
Landlord, for two (2) risers each not exceeding four inches (4") in diameter,
connecting the GPS antenna to a location to be designated by Tenant and approved
by Landlord, such approval not to be unreasonably withheld or delayed. All work
in connection with the installation of such riser, including core drilling, if
required, shall be performed at Tenant's sole cost and expense, including the
cost of a fire watch and related supervisory costs relating to any core
drilling, which shall be performed in such a manner and at such times as
Landlord shall prescribe. References herein to the GPS Antenna shall be deemed
to include such riser and the electrical and telecommunications conduits
therein. If Tenant requires any additional riser space for electrical and
telecommunications conduits, then upon request by Tenant, subject to
availability of riser space in the Building, Landlord will make available riser
space at the following rates: (i) for riser space not exceeding two inches (2")
in diameter, a one- time charge of $2.50 per lineal foot, and (ii) for riser
space in excess of two inches (2") in diameter but not exceeding four inches
(4") in diameter, a one-time charge of $5.00 per lineal foot.
(b) The installation of the GPS Antenna shall constitute an
Alteration and shall be performed at Tenant's sole cost and expense (including
any costs and expenses in connection with reinforcing the roof of the Building,
if required) in accordance with and subject to the provisions of Article 3
hereof. Tenant shall pay a license fee to Landlord for the GPS Antenna, as
Additional Rent, in advance, on the first day of each month during the Term, an
amount equal to one-twelfth (1/12) of the product of (a) $25.00, multiplied by
(b) the total square footage of roof area, calculated by determining the
smallest square or rectangle on the roof of the Building encompassing the
largest portion of the GPS Antenna (and based upon that portion of the roof
actually used for the GPS Antenna), from the time of the installation of the GPS
Antenna until the removal thereof. All of the provisions of this Lease shall
apply to the installation, use and maintenance of the GPS Antenna, including all
provisions relating to compliance with Legal Requirements (including all FCC
rules and regulations), insurance, indemnity, repairs and maintenance. The
license granted to Tenant in this Section 9.10 shall not be assignable by Tenant
separately from this Lease. The GPS Antenna shall be treated for all purposes of
this Lease as Tenant's Property.
(c) Landlord retains the right to use the portion of the roof on
which the GPS Antenna is located for any purpose whatsoever. Tenant shall have
reasonable access to at all times, and Landlord shall not interfere with, the
use of the GPS Antenna so as to cause the transmission or reception of
communication signals to be materially interrupted or impaired. Tenant shall use
the GPS Antenna so as not to cause any interference to Landlord's use of the
roof, including the use by Landlord or other tenants or occupants of the
Building of data transmission equipment thereon, or damage to or interference
with the operation of the Building or the Building Systems. If the GPS Antenna
interferes with or disturbs the reception or transmission or communication
signals by or from any antennas, satellite dishes or similar equipment
previously installed by Landlord or any other tenant in the Building, or
interferes with the operation of the Building or the Building Systems, then
Tenant, at its sole cost and expense, shall construct all necessary shielding,
or if shielding shall fail to eliminate such disturbance or
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interference, relocate Tenant's GPS Antenna to another area on the roof
designated by Landlord. If such interference or disturbance still occurs despite
such relocation, or if Landlord determines in its reasonable judgment that the
GPS Antenna (i) may cause a health hazard or danger to property, (ii) may not be
in accordance with governmental or quasi-governmental standards for non-ionizing
radiation for occupational and/or general public levels, then Tenant, at its
sole cost and expense, shall promptly remove the GPS Antenna from the roof of
the Building. In the event Tenant fails to relocate or remove the GPS Antenna,
Landlord may do so, and Tenant shall promptly reimburse Landlord for any costs
incurred by Landlord in connection therewith.
(d) If Tenant fails to comply with any of the conditions set forth
in this Section 9.10, then, without limiting the rights and remedies Landlord
may otherwise have under this Lease, Tenant, upon written notice from Landlord,
at Landlord's option, shall immediately discontinue its use of the GPS Antenna,
and either (i) remove the GPS Antenna, or (ii) reposition the GPS Antenna to a
location designated by Landlord, all at Tenant's sole cost and expense.
Notwithstanding the foregoing, Landlord may at its option, at any time during
the Term after reasonable prior notice to Tenant (except in the event of an
emergency) relocate the GPS Antenna to another area on the roof designated by
Landlord, provided that such relocation of the GPS Antenna does not cause the
transmission or reception of communication signals to be materially interrupted
or impaired other than temporarily, and except as set forth in Section 9.10(c)
with respect to interference or disturbance with the reception or transmission
of communication signals to or from existing antennas, satellite dishes or
similar equipment, such relocation is performed at Landlord's sole cost and
expense.
(e) Landlord shall not have any obligations with respect to the GPS
Antenna or compliance with any Legal Requirements (including the obtaining of
any required permits or licenses, or the maintenance thereof) relating thereto,
nor shall Landlord be responsible for any damage that may be caused to Tenant or
the GPS Antenna by any other tenant or occupant of the Building. Landlord makes
no representation that the GPS Antenna will be able to receive or transmit
communication signals without interference or disturbance (whether or not by
reason of the installation or use of similar equipment by others on the roof)
and Tenant agrees that Landlord shall not be liable to Tenant therefor.
(f) Tenant shall (i) be solely responsible for any damage caused as
a result of the use of the GPS Antenna, (ii) promptly pay any tax, license,
permit or other fees or charges imposed pursuant to any Legal Requirements
relating to the installation, maintenance or use of the GPS Antenna, (iii)
promptly comply with all precautions and safeguards recommended by Landlord's
insurance company and all Governmental Authorities, and (iv) perform all
necessary repairs or replacements to, or maintenance of, the GPS Antenna,
provided, however, that if Tenant's failure after notice from Landlord to so
repair, replace or maintain the GPS Antenna jeopardizes in any way Landlord's or
any other tenant's property located on the roof or within the Building, Landlord
may, at Landlord's option, elect to perform such repairs, replacements or
maintenance at Tenant's sole cost and expense. Landlord shall give Tenant
reasonable prior notice of its election to perform such repairs, except in an
emergency.
(g) The privileges granted Tenant under this Section 9.10 merely
constitute a license and shall not, now or at any time after the installation of
the GPS Antenna, be deemed to
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grant Tenant a leasehold or other real property interest in the Building or any
portion thereof, including, but not limited to, the Building's roof. The license
granted to Tenant in this Section 9.10 shall automatically terminate and expire
upon the expiration or earlier termination of this Lease and the termination of
such license shall be self-operative and no further instrument shall be required
to effect such termination. Notwithstanding the foregoing upon request by
Landlord, Tenant, at Tenant's sole cost and expense, shall promptly execute and
deliver to Landlord, in recordable form, any certificate or other document
required by Landlord confirming the termination of Tenant's right to use the
roof of the Building.
ARTICLE 10. INSURANCE
Section 10.1 Tenant, at its expense, shall obtain and keep in full
force and effect a policy of commercial general liability insurance under which
Tenant is named as the insured and Landlord, Landlord's managing agent for the
Building, and any Lessors and any Mortgagees (whose names shall have been
furnished to Tenant) are named as additional insureds, which insurance shall
provide primary coverage without contribution from any other insurance carried
by or for the benefit of Landlord, Landlord's managing agent or any Lessors or
Mortgagees named as additional insureds. Tenant's primary commercial general
liability policy shall contain a provision that the policy shall be
noncancellable unless twenty (20) days' written notice shall have been given to
Landlord and Landlord shall similarly receive twenty (20) days' notice of any
material change in coverage. The minimum limits of liability shall be a combined
single limit with respect to each occurrence in an amount of not less than
$5,000,000 per location general aggregate limit; provided, however, that
Landlord shall retain the right to require Tenant to increase said coverage to
that amount of insurance which in Landlord's reasonable judgment is then being
customarily required by prudent landlords of comparable buildings in the City of
New York, and provided further that Landlord shall require similar increases of
other tenants of space in the Building comparable to the Premises, to the extent
Landlord shall then have the right to do so under applicable leases. Tenant
shall also obtain and keep in full force and effect during the Term, (a)
insurance against loss or damage by fire, and such other risks and hazards as
are insurable under then available standard forms of "all risk" insurance
policies with extended coverage, to Tenant's Property and Tenant's Alterations
for the full insurable value thereof or on a replacement cost basis; (b)
Workers' Compensation Insurance, as required by law; (c) New York Disability
Benefits Law Policy; and (d) such other insurance in such amounts as Landlord,
any Mortgagee or Lessor may reasonably require from time to time. All insurance
required to be carried by Tenant pursuant to the terms of this Lease shall be
effected under valid and enforceable policies issued by reputable and
independent insurers permitted to do business in the State of New York, and
rated in Best's Insurance Guide, or any successor thereto (or if there be none,
an organization having a national reputation) as having a Best's Rating" of "A-"
and a "Financial Size Category" of at least "XI" or if such ratings are not then
in effect, the equivalent thereof.
Section 10.2 (a) The parties hereto do hereby waive, any and all
rights of recovery against the other, or against the officers, employees,
partners, agents and representatives of the other, for loss of or damage to the
property of the waiving party to the extent such loss or damage is insured
against under any insurance policy carried by Landlord or Tenant hereunder. In
addition, the parties hereto shall procure an appropriate clause in, or
endorsement on, any fire
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or extended coverage insurance covering the Premises, the Building and personal
property, fixtures and equipment located thereon or therein, pursuant to which
the insurance companies waive subrogation or consent to a waiver of right of
recovery and subject to obtaining such clauses or endorsements of waiver of
subrogation or consent to a waiver of right of recovery, hereby agree not to
make any claim against or seek to recover from the other for any loss or damage
to its property or the property of others resulting from fire or other hazards
covered by such fire and extended coverage insurance; provided, however, that
the release, discharge, exoneration and covenant not to sue herein contained
shall be limited by and coextensive with the terms and provisions of the waiver
of subrogation clause or endorsements or clauses or endorsements consenting to a
waiver of right of recovery. If the payment of an additional premium is required
for the inclusion of such waiver of subrogation or consent to waiver provision,
each party shall advise the other of the amount of any such additional premiums
and the other party at its own election may, but shall not be obligated to, pay
the same. If such other party shall not elect to pay such additional premium,
the first party shall not be required to obtain such waiver of subrogation or
consent to waiver provision. Tenant acknowledges that Landlord shall not carry
insurance on and shall not be responsible for damage to, Tenant's Alterations
(if any) or Tenant's Property, and that Landlord shall not carry insurance
against, or be responsible for any loss suffered by Tenant due to, interruption
of Tenant's business.
(b) As to each party hereto, provided such party's right of full
recovery under the applicable insurance policy is not adversely affected, such
party hereby releases the other (its servants, agents, contractors, employees
and invitees) with respect to any claim (including a claim for negligence) which
it might otherwise have against the other party for loss, damages or destruction
of the type covered by such insurance with respect to its property by fire or
other casualty i.e. in the case of Landlord, as to the Building, and, in the
case of Tenant, as to Tenant's Property and Tenant's Alterations (including
rental value or business interruption, as the case may be) occurring during the
Term of this Lease.
Section 10.3 On or prior to the Commencement Date. Tenant shall
deliver to Landlord appropriate certificates of insurance required to be carried
by Tenant pursuant to this Article 10, including evidence of waivers of
subrogation required pursuant to Section 10.2. Evidence of each renewal or
replacement of a policy shall be delivered by Tenant to Landlord at least twenty
(20) days prior to the expiration of such policy.
Section 10.4 Landlord agrees to maintain (a) insurance against loss
or damage to the Building by fire and such other risks and hazards as are
insurable under then available forms of "all risk" insurance policies with
extended coverage, and (b) a policy of commercial general liability insurance
with minimum limits of liability in amounts comparable to insurance maintained
by other prudent landlords of comparable office buildings in the City of New
York.
ARTICLE 11. DESTRUCTION OF THE PREMISES; PROPERTY LOSS OR DAMAGE
Section 11.1 (a) If the Premises shall be damaged by fire or other
casualty, or if the Building shall be so damaged that Tenant shall be deprived
of reasonable access to the Premises, Tenant shall give prompt notice thereof to
Landlord, and the damage shall be repaired by and at the expense of Landlord to
substantially the condition prior to the damage, including
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Tenant's Alterations, but excluding Tenant's Property. Until such repairs shall
be substantially completed, Fixed Rent and Additional Rent shall, so long as
Tenant shall not be in default beyond applicable grace or notice provisions in
the payment or performance of its obligations under this Section 11.1, be
reduced in the proportion which the area of the part of the Premises which is
neither usable nor used by Tenant bears to the total area of the Premises.
Tenant shall pay to Landlord all proceeds of insurance policies covering
Tenant's Alterations, and such proceeds shall be used by Landlord in the repair
of Tenant's Alterations. Landlord shall have no obligation to repair any damage
to, or to replace, any of Tenant's Property.
(b) Concurrently with the collection of any insurance proceeds
attributable to damage to Tenant's Alterations (or the payment by the Tenant to
Landlord of an amount equal to such insurance proceeds, pending collection of
such proceeds from its insurer), and as a condition precedent to Landlord's
obligation to commence those repairs to Tenant's Alterations required to be
performed by Landlord pursuant to this Section 11.1, Tenant shall pay to
Landlord (i) the amount of any deductible under the policy insuring Tenant's
Alterations, and (ii) the amount, if any, by which the cost of repairing and
restoring Tenant's Alterations, as estimated by a reputable independent
contractor designated by Landlord, exceeds the available insurance proceeds
therefor. The amounts due in accordance with the preceding sentence constitute
Additional Rent under this Lease and shall be payable by Tenant to Landlord upon
demand.
Section 11.2 (a) Anything contained in Section 11.1 to the contrary
notwithstanding, if the Premises are totally damaged or are rendered wholly
untenantable, and if Landlord shall decide not to restore the Premises, or if
the Building shall be so damaged by fire or other casualty that, in Landlord's
opinion, substantial alteration, demolition, or reconstruction of the Building
shall be required (whether or not the Premises shall have been damaged or
rendered untenantable), then in any of such events, Landlord may, not later than
sixty (60) days following the date of the damage, give Tenant a notice in
writing terminating this Lease. If this Lease is so terminated, the Term shall
expire upon the tenth (10th) day after such notice is given, and Tenant shall
vacate the Premises and surrender the same to Landlord. Upon the termination of
this Lease under the conditions provided for in this Section 11.2, Tenant's
liability for Fixed Rent and Additional Rent shall cease as of the date of such
fire or other casualty, and any prepaid portion of Fixed Rent or Additional Rent
for any period after such date shall be refunded by Landlord to Tenant.
(b) If this Lease is terminated pursuant to the provisions of this
Article 11, then Landlord shall collect the insurance proceeds of policies
providing coverage for Tenant's Alterations as provided in Section 11.1(a)
hereof. Landlord shall retain such proceeds to the extent of sums, if any,
advanced by Landlord to Tenant with respect to any of Tenant's Alterations. The
balance of such proceeds, if any, shall be paid to Tenant.
Section 11.3 If the Premises are damaged by fire or other casualty
and are rendered wholly untenantable thereby, or if the Building shall be so
damaged that Tenant shall be deprived of reasonable access to the Premises, and
if Landlord shall elect to restore the Premises, Landlord shall, within sixty
(60) days following the date of the damage, cause a contractor or architect
selected by Landlord to give notice (the "Restoration Notice") to Tenant of the
date by which such contractor or architect believes the restoration of the
Premises shall be substantially
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completed. If the Restoration Notice shall indicate that the restoration shall
not be substantially completed on or before the date which shall be twelve (12)
months following the date of such damage or destruction, Tenant shall have the
right to terminate this Lease by giving written notice (the "Termination
Notice") to Landlord not later than thirty (30) days following receipt of the
Restoration Notice. If Tenant gives a Termination Notice, this Lease shall be
deemed cancelled and terminated as of the date of the giving of the Termination
Notice as if such date were the Expiration Date, and Fixed Rent and Additional
Rent shall be apportioned and shall be paid or refunded, as the case may be up
to and including the date of such damage or destruction. Notwithstanding
anything set forth to the contrary in this Article 11, in the event that a fire
or other casualty rendering the Premises wholly untenantable shall occur during
the final year of the Term, either Landlord or Tenant may terminate this Lease
by giving the other party a Termination Notice as set forth herein.
Section 11.4 This Article 11 constitutes an express agreement
governing any case of damage or destruction of the Premises or the Building by
fire or other casualty, and Section 227 of the Real Property Law of the State of
New York, which provides for such contingency in the absence of an express
agreement, and any other law of like nature and purpose now or hereafter in
force shall have no application in any such case.
ARTICLE 12. EMINENT DOMAIN
Section 12.1 If (a) all of the floor area of the Premises, or so
much thereof as shall render the Premises wholly untenantable, shall be acquired
or condemned for any public or quasi-public use or purpose, or (b) a portion of
the Real Property, not including the Premises, shall be so acquired or
condemned, but by reason of such acquisition or condemnation, Tenant no longer
has means of access to the Premises, then this Lease and the Term shall end as
of the date of the vesting of title with the same effect as if that date were
the Expiration Date. In the event of any termination of this Lease and the Term
pursuant to the provisions of this Article 12, Fixed Rent and Additional Rent
shall be apportioned as of the date of sooner termination and any prepaid
portion of Fixed Rent or Additional Rent for any period after such date shall be
refunded by Landlord to Tenant.
Section 12.2 In the event of any such acquisition or condemnation of
all or any part of the Real Property. Landlord shall be entitled to receive the
entire award for any such acquisition or condemnation. Tenant shall have no
claim against Landlord or the condemning authority for the value of any
unexpired portion of the Term or Tenant's Alterations, and Tenant hereby
expressly assigns to Landlord all of its right in and to any such award. Nothing
contained in this Section 12.2 shall be deemed to prevent Tenant from making a
separate claim in any condemnation proceedings for the then value of any
Tenant's Property included in such taking and for any moving expenses, provided
such award shall be made by the condemning authority in addition to, and shall
not result in a reduction of, the award made by it to Landlord.
Section 12.3 If only a part of the Real Property shall be so
acquired or condemned then, subject to Section 12.1, this Lease and the Term
shall continue in force and effect. If a part of the Premises shall be so
acquired or condemned and this Lease and the Term shall not be terminated,
Landlord, at Landlord's expense, shall restore that part of the Premises
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not so acquired or condemned so as to constitute tenantable Premises. From and
after the date of the vesting of title, Fixed Rent and Additional Rent shall be
reduced in the proportion which the area of the part of the Premises so acquired
or condemned bears to the total area of the Premises immediately prior to such
acquisition or condemnation.
ARTICLE 13. ASSIGNMENT AND SUBLETTING
Section 13.1 Except as otherwise expressly provided herein, Tenant,
for itself, its heirs, distributees, executors, administrators, legal
representatives, successors and assigns, expressly covenants that it shall not
assign, mortgage, pledge, encumber, or otherwise transfer this Lease, nor sublet
(nor underlet), nor suffer, nor permit the Premises or any part thereof to be
used or occupied by others (whether for desk space, mailing privileges or
otherwise), without the prior written consent of Landlord in each instance. If
this Lease is assigned, or if the Premises or any part thereof are sublet or
occupied by anybody other than Tenant, or if this Lease or the Premises or
Tenant's personal property are encumbered (whether by operation of law or
otherwise) without Landlord's consent, then Landlord may, after default by
Tenant, collect rent from the assignee, subtenant or occupant, and apply the net
amount collected to Fixed Rent and Additional Rent, but no assignment,
subletting, occupancy or collection shall be deemed a waiver by Landlord of the
provisions hereof, the acceptance by Landlord of the assignee, subtenant or
occupant as a tenant, or a release by Landlord of Tenant from the further
performance by Tenant its obligations under this Lease, and Tenant shall remain
fully liable therefor. The consent by Landlord to any assignment or subletting
shall not in any way be construed to relieve Tenant from obtaining the express
consent in writing of Landlord to any further assignment or subletting. In no
event shall any permitted subtenant assign or encumber its sublease or further
sublet all or any portion of its sublet space, or otherwise suffer or permit the
sublet space or any part thereof to be used or occupied by others, without
Landlord's prior written consent in each instance. Any assignment, sublease,
mortgage, pledge, encumbrance or transfer in contravention of the provisions of
this Article 13 shall be void.
Section 13.2 If Tenant shall, at any time or from time to time,
during the Term desire to assign this Lease or sublet all or part of the
Premises, Tenant shall give notice (a "Tenant's Notice") thereof to Landlord,
which Tenant's Notice shall set forth: (a) with respect to an assignment of this
Lease, the date Tenant desires the assignment to be effective and any
consideration Tenant would receive under such assignment, (b) with respect to a
sublet of all or a part of the Premises (i) the dates upon which Tenant desires
the sublease term to commence and expire, (ii) the rental rate and other
material business terms upon which Tenant would sublet such premises, and (iii)
a description of the Premises showing the portion to be sublet, the effective or
commencement date of which shall be not less than sixty (60) nor more than one
hundred and eighty (180) days after the giving of such notice, (c) a statement
setting forth in reasonable detail the identity of the proposed assignee or
subtenant, the nature of its business and its proposed use of the Premises, (d)
current financial information with respect to the proposed assignee or
subtenant, including its most recent financial report, (e) a true and complete
copy of the proposed assignment or sublease and any other agreements relating
thereto, and (f) an agreement by Tenant to indemnify Landlord against liability
resulting from any claims that may be made against Landlord by the proposed
assignee or subtenant or by any brokers or other Persons claiming a commission
or similar compensation in connection with the proposed assignment or
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sublease. Tenant's Notice shall be deemed an offer from Tenant to Landlord
whereby Landlord (or Landlord's designee) may, at its option, (I) sublease such
space (the "Leaseback Space") from Tenant upon the terms and conditions set
forth in Section 13.4, or terminate the Lease with respect to only the Leaseback
Space, or (II) if the proposed transaction is (1) an assignment of this Lease or
(2) a subletting of fifty percent (50%) or more of the rentable area of the
Premises, terminate this Lease. Said options may be exercised by Landlord by
notice given to Tenant at any time within sixty (60) days after Tenant's Notice
has been given by Tenant to Landlord, and during such sixty-day period, Tenant
shall not assign this Lease nor sublet such space to any Person other than
Landlord.
Section 13.3 If Landlord exercises its option to terminate this
Lease with respect to all or a portion of the Premises pursuant to Section 13.2
hereof, then this Lease shall end and expire on the date that such assignment or
sublease was to be effective or commence, as the case may be, and the Fixed Rent
and Additional Rent due hereunder shall be paid and apportioned to such date. In
such event, Landlord and Tenant, upon request of either party, shall enter into
an amendment of this Lease ratifying and confirming such total or partial
termination, and setting forth appropriate modifications, if any, to the terms
and provisions hereof. Following such termination, Landlord shall be free to and
shall have no liability to Tenant if Landlord should lease the Premises (or any
part thereof) to Tenant's prospective assignee or subtenant.
Section 13.4 If Landlord exercises its option to sublet the
Leaseback Space, such sublease to Landlord or its designee (as subtenant) shall
be at a rental rate equal to the product of (i) the lesser of (A) the rental
rate per rentable square foot of Fixed Rent and Additional Rent then payable
pursuant to this Lease, or (B) the rental rate per rentable square foot of rent
and additional rent set forth in Tenant's Notice, multiplied by (ii) the number
of rentable square feet of the Leaseback Space, and shall be for the same term
as that of the proposed subletting, and such sublease shall:
(a) be upon such other terms and conditions as are contained
in Tenant's Notice, and be expressly subject to all of the covenants,
agreements, terms, provisions and conditions of this Lease, except such as
are irrelevant or inapplicable, and except as expressly set forth in this
Article 13 to the contrary;
(b) give the subtenant the unqualified and unrestricted right,
without Tenant's permission, to assign such sublease or any interest
therein and/or to sublet the space covered by such sublease or any part or
parts of such space and to make any and all changes, alterations and
improvements in the space covered by such sublease, and if the proposed
sublease will result in all or substantially all of the Premises being
sublet, grant Landlord or its designee the option to extend the term of
such sublease for the balance of the Term of this Lease less one day;
(c) provide that any assignee or further subtenant of Landlord
or its designee, may, at Landlord's option, be permitted to make
alterations, decorations and installations in such space or any part
thereof and shall also provide in substance that any such alterations,
decorations and installations in such space therein made by any assignee
or subtenant of Landlord or its designee may be removed, in whole or in
part, by such
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assignee or subtenant, at its option, prior to or upon the expiration or
other termination of such sublease; provided, however, that such assignee
or subtenant shall, at its sole cost and expense, repair any damage and
injury caused by such removal; and
(d) provide that (i) the parties to such sublease expressly
negate any intention that any estate created under such sublease be merged
with any other estate held by either of said parties, (ii) any assignment
or sublease by Landlord or its designee (as the subtenant) may be for any
purpose or purposes that Landlord, in Landlord's uncontrolled discretion,
shall deem suitable or appropriate, (iii) Tenant shall, at Tenant's sole
cost and expense, at all times provide and permit reasonably appropriate
means of ingress to and egress from such space so sublet by Tenant to
Landlord or its designee, (iv) Landlord may, at Tenant's sole cost and
expense, make such alterations as may be required or deemed necessary by
Landlord to physically separate the subleased space from the balance of
the Premises and to comply with any legal or insurance requirements
relating to such separation, and (v) that at the expiration of the term of
such sublease, Tenant will accept the space covered by such sublease in
its then existing condition, subject to the obligations of the subtenant
to make such repairs thereto as may be necessary to preserve the premises
demised by such sublease in good order and condition.
Section 13.5 (a) If Landlord exercises its option to sublet the
Leaseback Space, Landlord shall indemnify and save Tenant harmless from all
obligations under this Lease as to the Leaseback Space during the period of time
it is so sublet to Landlord, except as to any obligation which arises out of or
results from the negligence or willful misconduct of Tenant, or any of its
agents, servants or employees.
(b) Performance by Landlord, or its designee, under a sublease of
the Leaseback Space shall be deemed performance by Tenant of any similar
obligation under this Lease and any default under any such sublease shall not
give rise to a default under a similar obligation contained in this Lease nor
shall Tenant be liable for any default under this Lease or deemed to be in
default hereunder if such default is occasioned by or arises from any act or
omission of the tenant under such sublease or is occasioned by or arises from
any act or omission of any occupant holding under or pursuant to any such
sublease.
(c) Tenant shall have no obligation, at the expiration or earlier
termination of the Term, to remove any alteration, installation or improvement
made in the Leaseback Space by Landlord (or Landlord's designee).
(d) Any consent required of Tenant, as Landlord under the sublease,
shall be deemed granted if consent with respect thereto is granted by Landlord
under this Lease, and any failure of Landlord (or its designee) to comply with
the provisions of the sublease other than with respect to the payment of Fixed
Rent and Additional Rent to Tenant, shall not constitute a default thereunder or
hereunder if Landlord shall have consented to such non-compliance.
Section 13.6 In the event Landlord does not exercise either option
provided to it pursuant to Section 13.2 hereof, and provided that no Event of
Default shall have occurred and be continuing under this Lease as of the time
Landlord's consent is requested by Tenant, Landlord's consent (which must be in
writing and in form and substance satisfactory to
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Landlord) to the proposed assignment or sublease shall not be unreasonably
withheld or delayed; provided, however, that:
(a) Tenant shall have complied with the provisions of Section
13.2 hereof and Landlord shall not have exercised any of its options
thereunder within the time permitted therefor;
(b) In Landlord's judgment, the proposed assignee or subtenant
is engaged in a business or activity, and the Premises, or the relevant
part thereof, will be used in a manner, which (i) is in keeping with the
then standards of the Building, and (ii) does not violate the restrictions
set forth in Article 2 hereof;
(c) The proposed assignee or subtenant is a reputable Person
with sufficient financial worth considering the responsibility involved,
and Landlord has been furnished with evidence thereof;
(d) In the event Landlord has space in the Building available
for lease, then (i) neither the proposed assignee or subtenant nor any
Person which, directly or indirectly, controls, is controlled by, or is
under common control with, the proposed assignee or subtenant, is then an
occupant of any part of the Building, and (ii) the proposed assignee or
subtenant is not a Person (or Affiliate of a Person) with whom Landlord or
Landlord's agent is then, or has been within the previous six (6) month
period, negotiating in connection with rental of space in the Building;
(e) The form of the proposed sublease or instrument of
assignment shall be satisfactory to Landlord and shall comply with the
applicable provisions of this Article 13, and Tenant shall deliver a true
and complete original, fully executed counterpart of such sublease or
other instrument to Landlord promptly upon the execution and delivery
thereof;
(f) Tenant and its proposed subtenant or assignee, as the case
may be, shall execute and deliver to Landlord an agreement, in form and
substance satisfactory to Landlord, setting forth the terms and conditions
upon which Landlord shall have granted its consent to such assignment or
subletting, and the agreement of Tenant and such subtenant or assignee, as
the case may be, to be bound by the provisions of this Article 13;
(g) There shall not be more than two occupants of the Premises
(including Tenant);
(h) The amount of the aggregate rent to be paid by the
proposed subtenant shall not be less than the then current market rent per
rentable square foot for the Premises, determined as though the Premises
were vacant, and the rental and other terms and conditions of the sublease
shall be substantially the same as those contained in Tenant's Notice;
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(i) Tenant shall reimburse Landlord, as Additional Rent upon
demand, for (A) the costs and expenses incurred by Landlord in connection
with the assignment or sublease, including the costs of making
investigations as to the acceptability of the proposed assignee or
subtenant and the cost of reviewing plans and specifications proposed to
be made in connection therewith, and (B) Landlord's legal fees and
disbursements incurred in connection with the granting of any requested
consent and the preparation of Landlord's written consent to the sublease
or assignment;
(j) Tenant shall not have (i) advertised or publicized in any
way the availability of the Premises without prior notice of and approval
by Landlord, or (ii) listed the Premises for sublease or assignment with a
broker, agent or otherwise at a rental rate less than the fixed rent and
additional rent at which Landlord is then offering to lease comparable
space in the Building;
(k) The proposed occupancy shall not impose an extra burden
upon services to be supplied by Landlord to Tenant, unless Tenant and such
proposed subtenant or assignee shall agree with Landlord in writing to pay
the costs of such additional services; and
(l) The proposed subtenant or assignee shall not be entitled,
directly or indirectly, to diplomatic or sovereign immunity and shall be
subject to the service of process in, and the jurisdiction of the courts
of New York State.
Except for any sublease by Tenant to Landlord or its designee pursuant to this
Article 13, each sublease pursuant to this Section 13.6 shall be subject to all
of the covenants, agreements, terms, provisions and conditions contained in this
Lease. Notwithstanding any such sublease to Landlord or any such sublease to any
other subtenant, or any acceptance of Fixed Rent or Additional Rent by Landlord
from any subtenant, Tenant will remain fully liable for the payment of the Fixed
Rent and Additional Rent due and to become due hereunder and for the performance
of all the covenants, agreements, terms, provisions and conditions contained in
this Lease on Tenant's part to be observed and performed, and for all acts and
omissions of any licensee or subtenant or anyone claiming under or through any
subtenant which shall be in violation of any of the obligations of this Lease,
and any such violation shall be deemed to be a violation by Tenant. If Landlord
shall decline to give its consent to any proposed assignment or sublease, or if
Landlord shall exercise either of its options under Section 13.2 hereof, Tenant
shall indemnify, defend and hold harmless Landlord against and from any and all
losses, liabilities, damages, costs, and expenses (including attorneys' fees and
disbursements) resulting from any claims that may be made against Landlord by
the proposed assignee or subtenant arising from or in connection with such
proposed assignment or subletting, or by any brokers or other Persons (with whom
Tenant or its proposed assignee or subtenant may have dealt) claiming a
commission or similar compensation in connection with the proposed assignment or
sublease.
Section 13.7 In the event that (a) Landlord fails to exercise either
of its options under Section 13.2 hereof and consents to a proposed assignment
or sublease, and (b) Tenant fails to execute and deliver the assignment or
sublease to which Landlord consented within one hundred twenty (120) days after
the giving of such consent, then, Tenant shall again comply with
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all of the provisions and conditions of Section 13.2 hereof before assigning
this Lease or subletting all or part of the Premises.
Section 13.8 With respect to each and every sublease authorized by
Landlord under the provisions of this Lease, it is further agreed that:
(a) No sublease shall be for a term ending later than one day
prior to the Expiration Date of this Lease;
(b) No sublease shall be delivered, and no subtenant shall
take possession of the Premises or any part thereof, until an executed
counterpart of such sublease has been delivered to Landlord and approved
in writing by Landlord; and
(c) Each sublease shall be subject and subordinate to this
Lease and to the matters to which this Lease is or shall be subordinate,
and each subtenant by entering into a sublease is deemed to have agreed
that in the event of termination, re-entry or dispossession by Landlord
under this Lease, Landlord may, at its option, take over all of the right,
title and interest of Tenant, as sublandlord, under such sublease, and
such subtenant shall, at Landlord's option, attorn to Landlord pursuant to
the then executory provisions of such sublease, except that Landlord shall
not (i) be liable for any previous act or omission of Tenant under such
sublease, (ii) be subject to any counterclaim, offset or defense, not
expressly provided in such sublease, which theretofore accrued to such
subtenant against Tenant, (iii) be bound by any previous modification of
such sublease or by any previous prepayment of more than one month's Fixed
Rent or of any Additional Rent, or (iv) be obligated to perform any work
in the subleased space or to prepare it for occupancy, and in connection
with such attornment, the subtenant shall execute and deliver to Landlord
any instruments Landlord may reasonably request to evidence and confirm
such attornment. Each subtenant or licensee of Tenant shall be deemed,
automatically upon and as a condition of its occupying or using the
Premises or any part thereof, to have agreed to be bound by the terms and
conditions set forth in this Article 13. The provisions of this Article 13
shall be self-operative and no further instrument shall be required to
give effect to this provision.
Section 13.9 If Landlord shall consent to any assignment of this
Lease or to any sublease, or if Tenant shall enter into any other assignment or
sublease permitted hereunder, Tenant shall, in consideration therefor, pay to
Landlord, as Additional Rent:
(a) In the case of an assignment, on the effective date of the
assignment, an amount equal to fifty percent (50%) of (i) all sums and
other consideration paid to Tenant by the assignee for or by reason of
such assignment (including sums paid for Tenant's Property, less, in the
case of a sale thereof, the then net unamortized or undepreciated cost
thereof, determined on the basis of Tenant's federal income tax returns)
less (ii) all expenses reasonably and actually incurred by Tenant on
account of brokerage commissions and attorneys' fees in connection with
such assignment; or
(b) In the case of a sublease, an amount equal to fifty
percent (50%) of (i) all rents, additional charges or other consideration
payable to Tenant under the
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sublease in excess of the Fixed Rent and Additional Rent accruing during
the term of the sublease in respect of the subleased space (at the rate
per square foot payable by Tenant hereunder) pursuant to the terms hereof
(including sums paid for the sale or rental of Tenant's Property, less, in
the case of the sale thereof, the then net unamortized or undepreciated
cost thereof, determined on the basis of Tenant's federal income tax
returns) less (ii) all expenses reasonably and actually incurred by Tenant
on account of brokerage commissions and attorneys' fees in connection with
such sublease. The sums payable under this clause shall be paid by Tenant
to Landlord as Additional Rent as and when payable by the subtenant to
Tenant.
Section 13.10 (a) If Tenant is a corporation (but not a public
corporation), the provisions of Section 13.1 hereof shall apply to a transfer
(by one or more transfer(s)), of a majority of the stock of Tenant as if such
transfer of a majority of the stock of Tenant were an assignment of this Lease.
It is expressly understood that the term "transfer(s)" shall be deemed to
include the issuance of new stock which results in a majority of the stock of
Tenant being held by Persons which do not hold a majority of the stock of Tenant
on the date hereof. The foregoing shall not apply to transactions with a
corporation into or with which Tenant is merged or consolidated or to which
substantially all of Tenant's assets are transferred; provided, however, that
(i) such transfer shall have been made for a legitimate independent business
purpose and not for the principal purpose of transferring this Lease, (ii) the
successor to Tenant shall have a net worth, computed in accordance with
generally accepted accounting principles, at least equal to the greater of (A)
the net worth of Tenant immediately prior to such merger, consolidation or
transfer, or (B) the net worth of Tenant herein named on the date of this Lease,
and (iii) proof satisfactory to Landlord of such net worth shall have been
delivered to Landlord at least ten (10) days prior to the effective date of any
such transaction.
(b) If Tenant is a partnership, the provisions of Section 13.1
hereof shall apply to a transfer (by one or more transfers) of a majority
interest in the partnership, as if such transfer were an assignment of this
Lease.
(c) The limitations set forth in this Section 13.10 shall be deemed
to apply to subtenant(s), assignee(s) and guarantor(s) of this Lease, if any,
and any transfer by any such Person in violation of this Section 13.10 shall be
deemed to be a transfer in violation of Section 13.1.
(d) A modification, amendment or extension of a sublease shall be
deemed a sublease for the purposes of Section 13.1 hereof, and a takeover
agreement shall be deemed a transfer of this Lease for the purposes of Section
13.1 hereof.
Section 13.11 Tenant may, without Landlord's consent, but upon not
less than ten (10) days' prior notice to Landlord, permit any Affiliate of
Tenant to sublet all or part of the Premises for any Permitted Use, or assign
this Lease to any Affiliate, subject however to compliance with Tenant's
obligations under this Lease. Such sublease shall not be deemed to vest in any
such Affiliate any right or interest in this Lease or the Premises nor shall it
relieve, release, impair or discharge any of Tenant's obligations hereunder.
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Section 13.12 (a) Any assignment or transfer, whether made with
Landlord's consent pursuant to Section 13.1 hereof or without Landlord's consent
to the extent permitted under Sections 13.10 and 13.11 hereof, shall be made
only if, and shall not be effective until, the assignee shall execute,
acknowledge and deliver to Landlord an agreement in form and substance
satisfactory to Landlord whereby the assignee shall assume the obligations of
this Lease on the part of Tenant to be performed or observed from and after the
effective date of such assignment or transfer, and whereby the assignee shall
agree that the provisions in Section 13.1 hereof shall, notwithstanding such
assignment or transfer, continue to be binding upon it in respect of all future
assignments and transfers.
(b) The joint and several liability of Tenant and any immediate or
remote successor in interest of Tenant and the due performance of the
obligations of this Lease on Tenant's part to be performed or observed shall not
be discharged, released or impaired in any respect by any agreement or
stipulation made by Landlord, or any grantee or assignee of Landlord by way of
mortgage or otherwise, extending the time, or modifying any of the obligations
of this Lease, or by any waiver or failure of Landlord, or any grantee or
assignee of Landlord by way of mortgage or otherwise, to enforce any of the
obligations of this Lease.
(c) The listing of any name other than that of Tenant, whether on
the doors of the Premises or the Building directory, or otherwise, shall not
operate to vest any right or interest in this Lease or in the Premises, nor
shall it be deemed to be the consent of Landlord to any assignment or transfer
of this Lease or to any sublease of Premises or to the use or occupancy thereof
by others. Any such listing shall constitute a privilege extended by Landlord,
revocable at Landlord's will by notice to Tenant, provided that Landlord shall
not unreasonably revoke such privilege as to any Affiliate of Tenant, or any
subtenant of Tenant or assignee of this Lease approved by Landlord pursuant to
this Article 13.
ARTICLE 14. ACCESS TO PREMISES
Section 14.1 Tenant shall permit Landlord, Landlord's agents and
public utilities servicing the Building to erect, use and maintain concealed
ducts, pipes and conduits in and through the Premises. Landlord or Landlord's
agents shall have the right to enter the Premises at all reasonable times upon
reasonable prior notice (except no such prior notice shall be required in case
of emergency), which notice may be oral, to examine the same, to show them to
prospective purchasers, Mortgagees, Lessors or lessees of the Building and their
respective agents and representatives or prospective tenants of the Premises,
and to make such repairs, alterations, improvements or additions (a) as Landlord
may deem necessary or desirable to the Premises or to any other portion of the
Building, or (b) which Landlord may elect to perform following Tenant's failure
to make repairs or perform any work which Tenant is obligated to make or perform
under this Lease, or (c) for the purpose of complying with Legal Requirements,
and Landlord shall be allowed to take all material into and upon the Premises
that may be required therefor without the same constituting an eviction or
constructive eviction of Tenant in whole or in part and Fixed Rent and
Additional Rent will not be abated while said repairs, alterations, improvements
or additions are being made, by reason of loss or interruption of business of
Tenant, or otherwise.
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Section 14.2 If Tenant shall not be present when for any reason
entry into the Premises shall be necessary or permissible, Landlord or
Landlord's agents may enter the same without rendering Landlord or such agents
liable therefor (if during such entry Landlord or Landlord's agents shall accord
reasonable care to Tenant's property), and without in any manner affecting this
Lease. Nothing herein contained, however, shall be deemed or construed to impose
upon Landlord any obligation, responsibility or liability whatsoever for the
care, supervision or repair of the Building or any part thereof, other than as
herein provided.
Section 14.3 Landlord shall have the right from time to time to
alter the Building and, without the same constituting an actual or constructive
eviction and without incurring any liability to Tenant therefor, to change the
arrangement or location of entrances or passageways, doors and doorways, and
corridors, elevators, stairs, toilets, or other public parts of the Building and
to change the name, number or designation by which the Building is commonly
known. All parts (except surfaces facing the interior of the Premises) of all
walls, windows and doors bounding the Premises (including exterior Building
walls, exterior core corridor walls, exterior doors and entrances other than
doors and entrances solely servicing the Premises), all balconies, terraces and
roofs adjacent to the Premises, all space in or adjacent to the Premises used
for shafts, stacks, stairways, chutes, pipes, conduits, ducts, fan rooms,
heating, air cooling, plumbing and other mechanical facilities, service closets
and other Building facilities are not part of the Premises, and Landlord shall
have the use thereof, as well as access thereto through the Premises for the
purposes of operation, maintenance, alteration and repair.
ARTICLE 15. CERTIFICATE OF OCCUPANCY
Tenant shall not at any time use or occupy the Premises in violation
of the certificate of occupancy at such time issued for the Premises or for the
Building and in the event that any department of the City or State of New York
shall hereafter contend or declare by notice, violation, order or in any other
manner whatsoever that the Premises are used for a purpose which is a violation
of such certificate of occupancy, Tenant shall, upon five (5) days' written
notice from Landlord or any Governmental Authority, immediately discontinue such
use of the Premises. Failure by Tenant to discontinue such use after such notice
shall be considered a default in the fulfillment of a material covenant of this
Lease and Landlord shall have the right to terminate this Lease immediately, and
in addition thereto shall have the right to exercise any and all rights and
privileges and remedies given to Landlord by and pursuant to the provisions of
Articles 16 and 17 hereof.
ARTICLE 16. DEFAULT
Section 16.1 Each of the following events shall be an "Event of
Default" hereunder:
(a) if Tenant defaults in the payment when due of any
installment of Fixed Rent or Additional Rent, and such default continues
for a period of five (5) days after notice thereof from Landlord;
provided, however, that if Tenant shall default in the timely payment of
Fixed Rent or Additional Rent, and any such default shall occur more than
two times in any period of twelve (12) consecutive months, then,
notwithstanding that such defaults shall have each been cured within the
applicable period provided
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above, upon any further similar default, Landlord may serve a three days'
notice of termination upon Tenant without affording to Tenant an
opportunity to cure such further default; or
(b) if Tenant's interest in this Lease is transferred in
violation of Article 13 hereof; or
(c) if the Premises or a substantial portion thereof becomes
vacant or abandoned; or
(d) (i) if Tenant admits in writing its inability to pay its
debts as they become due; or
(ii) if Tenant commences or institutes any case,
proceeding or other action (A) seeking relief as a debtor, or to
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts under
any existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of
debtors, or (B) seeking appointment of a receiver, trustee,
custodian or other similar official for it or for all or any
substantial part of its property; or
(iii) if Tenant makes a general assignment for the
benefit of creditors; or
(iv) if any case, proceeding or other action is
commenced or instituted against Tenant (A) seeking to have an order
for relief entered against it as debtor or to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or
other relief with respect to it or its debts under any existing or
future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, or (B)
seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its
property, which either (1) results in any such entry of an order for
relief, adjudication of bankruptcy or insolvency or such an
appointment or the issuance or entry of any other order having a
similar effect, or (2) remains undismissed for a period of one
hundred twenty (120) days; or
(v) if any case, proceeding or other action is commenced
or instituted against Tenant seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or
any substantial part of its property which results in the entry of
an order for any such relief which has not been vacated, discharged,
or stayed or bonded pending appeal within one hundred twenty (120)
days from the entry thereof; or
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(vi) if Tenant takes any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of
the acts set forth in clauses (ii), (iii), (iv) or (v) of this
subsection 16.1(d); or
(vii) if a trustee, receiver or other custodian is
appointed for any substantial part of the assets of Tenant, which
appointment is not vacated or effectively stayed within seven (7)
Business Days, or if any such vacating or stay does not thereafter
remain in effect; or
(e) if Tenant defaults in the observance or performance of any
other term, covenant or condition of this Lease on Tenant's part to be
observed or performed and Tenant fails to remedy such default within
thirty (30) days after notice by Landlord to Tenant of such default, or,
if such default is of such a nature that it cannot be completely remedied
within said period of thirty (30) days, if Tenant fails to commence to
remedy such default within such thirty-day period, or fails thereafter to
diligently prosecute to completion all steps necessary to remedy such
default;
(f) if Tenant or any Affiliate of Tenant defaults beyond
applicable grace and notice periods in the payment of any fixed rent or
additional rent under any other lease of space in the Building, or if any
such lease is terminated by Landlord as a result of a default by the
tenant thereunder; or
Section 16.2 (a) If an Event of Default occurs, Landlord may at any
time thereafter give written notice to Tenant stating that this Lease and the
Term shall expire and terminate on the date specified in such notice, which date
shall not be less than seven (7) days after the giving of such notice. If
Landlord gives such notice, this Lease and the Term and all rights of Tenant
under this Lease shall expire and terminate as if the date set forth in such
notice were the Fixed Expiration Date and Tenant immediately shall quit and
surrender the Premises, but Tenant shall remain liable as hereinafter provided.
Anything contained herein to the contrary notwithstanding, if such termination
shall be stayed by order of any court having jurisdiction over any proceeding
described in Section 16.1(d), or by federal or state statute, then, following
the expiration of any such stay, or if the trustee appointed in any such
proceeding, Tenant or Tenant as debtor-in-possession shall fail to assume
Tenant's obligations under this Lease within the period prescribed therefor by
law or within one hundred twenty (120) days after entry of the order for relief
or as may be allowed by the court, or if said trustee, Tenant or Tenant as
debtor-in-possession shall fail to provide adequate protection of Landlord's
right, title and interest in and to the Premises or adequate assurance of the
complete and continuous future performance of Tenant's obligations under this
Lease, Landlord, to the extent permitted by law or by leave of the court having
jurisdiction over such proceeding, shall have the right, at its election, to
terminate this Lease on seven (7) days' notice to Tenant, Tenant as
debtor-in-possession or said trustee and upon the expiration of said seven (7)
day period this Lease shall cease and expire as set forth above and Tenant,
Tenant as debtor-in-possession or said trustee shall immediately quit and
surrender the Premises as aforesaid.
Section 16.3 If, at any time, (a) Tenant shall comprise two (2) or
more Persons, (b) Tenant's obligations under this Lease shall have been
guaranteed by any Person other than
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Tenant, or (c) Tenant's interest in this Lease shall have been assigned, the
word "Tenant," as used in Section 16.1(d), shall be deemed to mean any one or
more of the Persons primarily or secondarily liable for Tenant's obligations
under this Lease. Any monies received by Landlord from or on behalf of Tenant
during the pendency of any proceeding of the types referred to in Section
16.1(d) shall be deemed paid as compensation for the use and occupation of the
Premises and the acceptance of any such compensation by Landlord shall not be
deemed an acceptance of Fixed Rent and/or Additional Rent or a waiver on the
part of Landlord of any rights under this Lease.
ARTICLE 17. REMEDIES AND DAMAGES
Section 17.1 (a) If an Event of Default shall occur, and this Lease
and the Term shall expire and come to an end as provided in Article 16:
(i) Tenant shall quit and peacefully surrender the Premises to
Landlord, and Landlord and its agents may immediately, or at any time after such
Event of Default or after the date upon which this Lease and the Term shall
expire and come to an end, re-enter the Premises or any part thereof, without
notice, either by summary proceedings, or by any other applicable action or
proceeding, or by legal force or other legal means (without being liable to
indictment, prosecution or damages therefor), and may repossess the Premises and
dispossess Tenant and any other Persons from the Premises and remove any and all
of their property and effects from the Premises; and
(ii) Landlord, at Landlord's option, may relet the whole or any part
or parts of the Premises from time to time, either in the name of Landlord or
otherwise, to such tenant or tenants, for such term or terms ending before, on
or after the Expiration Date, at such rental or rentals and upon such other
conditions, which may include concessions and free rent periods, as Landlord, in
its sole discretion, may determine; provided, however, that Landlord shall have
no obligation to relet the Premises or any part thereof and shall in no event be
liable for refusal or failure to relet the Premises or any part thereof, or, in
the event of any such reletting, for refusal or failure to collect any rent due
upon any such reletting, and no such refusal or failure shall operate to relieve
Tenant of any liability under this Lease or otherwise affect any such liability,
and Landlord, at Landlord's option, may make such repairs, replacements,
alterations, additions, improvements, decorations and other physical changes in
and to the Premises as Landlord, in its sole discretion, considers advisable or
necessary in connection with any such reletting or proposed reletting, without
relieving Tenant of any liability under this Lease or otherwise affecting any
such liability.
(b) Tenant hereby waives the service of any notice of intention to
re-enter or to institute legal proceedings to that end which may otherwise be
required to be given under any present or future law. Tenant, on its own behalf
and on behalf of all Persons claiming through or under Tenant, including all
creditors, does further hereby waive any and all rights which Tenant and all
such Persons might otherwise have under any present or future law to redeem the
Premises, or to re-enter or repossess the Premises, or to restore the operation
of this Lease, after (i) Tenant shall have been dispossessed by a judgment or by
warrant of any court or judge, (ii) any re-entry by Landlord, or (iii) any
expiration or termination of this Lease and the Term,
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whether such dispossess, re-entry, expiration or termination shall be by
operation of law or pursuant to the provisions of this Lease. The words
"re-enter," re-entry" and "re-entered" as used in this Lease shall not be deemed
to be restricted to their technical legal meanings. In the event of a breach or
threatened breach by Tenant, or any Persons claiming through or under Tenant, of
any term, covenant or condition of this Lease, Landlord shall have the right to
enjoin such breach and the right to invoke any other remedy allowed by law or in
equity as if re-entry, summary proceedings and other special remedies were not
provided in this Lease for such breach. The rights to invoke the remedies
hereinbefore set forth are cumulative and shall not preclude Landlord from
invoking any other remedy allowed at law or in equity.
Section 17.2 (a) If this Lease and the Term shall expire and come to
an end as provided in Article 16, or by or under any summary proceeding or any
other action or proceeding, or if Landlord shall re-enter the Premises as
provided in Section 17.1, or by or under any summary proceeding or any other
action or proceeding, then, in any of such events:
(i) Tenant shall pay to Landlord all Fixed Rent and Additional
Rent payable under this Lease by Tenant to Landlord to the date upon which
this Lease and the Term shall have expired and come to an end or to the
date of re-entry upon the Premises by Landlord, as the case may be;
(ii) Tenant also shall be liable for and shall pay to
Landlord, as damages, any deficiency (the "Deficiency") between (A) Fixed
Rent and Additional Rent for the period which otherwise would have
constituted the unexpired portion of the Term (conclusively presuming the
Additional Rent for each year thereof to be the same as was payable for
the year immediately preceding such termination or re-entry), and (B) the
net amount, if any, of rents collected under any reletting effected
pursuant to the provisions of Section 17.1(a)(ii) for any part of such
period (first deducting from the rents collected under any such reletting
all of Landlord's expenses in connection with the termination of this
Lease, Landlord's re-entry upon the Premises and with such reletting
including all repossession costs, brokerage commissions, legal expenses,
attorneys' fees and disbursements, alteration costs and other expenses of
preparing the Premises for such reletting). Tenant shall pay the
Deficiency in monthly installments on the days specified in this Lease for
payment of installments of Fixed Rent, and Landlord shall be entitled to
recover from Tenant each monthly Deficiency as the same shall arise. No
suit to collect the amount of the Deficiency for any month shall prejudice
Landlord's right to collect the Deficiency for any subsequent month by a
similar proceeding; and
(iii) whether or not Landlord shall have collected any monthly
Deficiency as aforesaid, Landlord shall be entitled to recover from
Tenant, and Tenant shall pay to Landlord, on demand, in lieu of any
further Deficiency as and for liquidated and agreed final damages, a sum
equal (A) to the amount by which the Fixed Rent and Additional Rent for
the period which otherwise would have constituted the unexpired portion of
the Term (conclusively presuming the Additional Rent for each year thereof
to be the same as was payable for the year immediately preceding such
termination or re-entry) exceeds (B) the then fair and reasonable rental
value of the Premises, including Additional Rent for the same period, both
discounted to present value at the rate of four
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percent (4%) per annum less (C) the aggregate amount of Deficiencies
previously collected by Landlord pursuant to the provisions of Section
17.2(a)(ii) for the same period. If, before presentation of proof of such
liquidated damages to any court, commission or tribunal, Landlord shall
have relet the Premises or any part thereof for the period which otherwise
would have constituted the unexpired portion of the Term, or any part
thereof, the amount of net rents collected in connection with such
reletting shall be deemed, prima facie, to be the fair and reasonable
rental value for the part or the whole of the Premises so relet during the
term of the reletting.
(b) If Landlord shall relet the Premises, or any part thereof,
together with other space in the Building, the net rents collected under any
such reletting and the expenses of any such reletting shall be equitably
apportioned for the purposes of this Section 17.2. Tenant shall in no event be
entitled to any rents collected or payable under any reletting, whether or not
such rents shall exceed the Fixed Rent reserved in this Lease. Nothing contained
in Article 16 or this Article 17 shall be deemed to limit or preclude the
recovery by Landlord from Tenant of the maximum amount allowed to be obtained as
damages by any statute or rule of law, or of any sums or damages to which
Landlord may be entitled in addition to the damages set forth in this Section
17.2.
ARTICLE 18. FEES AND EXPENSES
Section 18.1 If an Event of Default shall occur under this Lease or
if Tenant shall do or permit to be done any act or thing upon the Premises which
would cause Landlord to be in default under any Superior Lease or Mortgage, or
if Tenant shall fail to comply with its obligations under this Lease and the
preservation of property or the safety of any tenant, occupant or other person
is threatened, Landlord may, after reasonable prior notice to Tenant except in
an emergency, perform the same for the account of Tenant or make any expenditure
or incur any obligation for the payment of money for the account of Tenant. All
amounts expended by Landlord in connection with the foregoing, including
reasonable attorneys' fees and disbursements in instituting, prosecuting or
defending any action or proceeding or recovering possession, and the cost
thereof, with interest thereon at the Default Rate, shall be deemed to be
Additional Rent hereunder and shall be paid by Tenant to Landlord within ten
(10) days of rendition of any bill or statement to Tenant therefor.
Section 18.2 If Tenant shall fail to pay any installment of Fixed
Rent and/or Additional Rent when due, Tenant shall pay to Landlord, in addition
to such installment of Fixed Rent and/or Additional Rent, as the case may be, as
a late charge and as Additional Rent, a sum equal to interest at the Default
Rate on the amount unpaid, computed from the date such payment was due to and
including the date of payment.
ARTICLE 19. NO REPRESENTATIONS BY LANDLORD
Landlord and Landlord's agents have made no warranties,
representations, statements or promises with respect to (a) the rentable and
usable areas of the Premises or the Building, (b) the amount of any current or
future Labor Rates or Taxes, (c) the compliance with applicable Requirements of
the Premises or the Building, or (d) the suitability of the Premises for any
particular use or purpose. No rights, easements or licenses are acquired by
Tenant under this
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Lease, by implication or otherwise, except as expressly set forth herein. This
Lease (including any Exhibits referred to herein and all supplementary
agreements provided for herein) contains the entire agreement between the
parties and all understandings and agreements previously made between Landlord
and Tenant are merged in this Lease, which alone fully and completely expresses
their agreement. Tenant is entering into this Lease after full investigation,
and is not relying upon any statement or representation made by Landlord not
embodied in this Lease.
ARTICLE 20. END OF TERM
Section 20.1 Upon the expiration or other termination of this Lease,
Tenant shall quit and surrender to Landlord the Premises, vacant, broom clean,
in good order and condition, ordinary wear and tear and damage for which Tenant
is not responsible under the terms of this Lease excepted, and Tenant shall
remove all of Tenant's Property from the Premises, and this obligation shall
survive the expiration or sooner termination of the Term. If the last day of the
Term or any renewal thereof falls on Saturday or Sunday, this Lease shall expire
on the Business Day immediately preceding. Tenant expressly waives, for itself
and for any Person claiming through or under Tenant, any rights which Tenant or
any such Person may have under the provisions of Section 2201 of the New York
Civil Practice Law and Rules and of any successor law of like import then in
force in connection with any holdover summary proceedings which Landlord may
institute to enforce the foregoing provisions of this Article 20.
Section 20.2 Tenant acknowledges that Tenant or any subtenant of
Tenant remaining in possession of the Premises after the expiration or earlier
termination of this Lease would create an unusual hardship for Landlord and for
any prospective tenant. Tenant, therefore, covenants that if for any reason
Tenant or any subtenant of Tenant shall fail to vacate and surrender possession
of the Premises or any part thereof on or before the expiration or earlier
termination of this Lease and the Term, then Tenant's continued possession of
the Premises shall be as a "month-to-month" tenant, during which time, without
prejudice and in addition to any other rights and remedies Landlord may have
hereunder or at law, Tenant shall pay to Landlord for each month and for each
portion of any month during which Tenant holds over, an amount equal to two (2)
times the total monthly amount of Fixed Rent and Additional Rent payable
hereunder. The provisions of this Section 20.2 shall not in any way be deemed to
(a) permit Tenant to remain in possession of the Premises after the Expiration
Date or sooner termination of this Lease or (b) imply any right of Tenant to use
or occupy the Premises upon expiration or termination of this Lease and the
Term, and no acceptance by Landlord of payments from Tenant after the Expiration
Date or sooner termination of the Term shall be deemed to be other than on
account of the amount to be paid by Tenant in accordance with the provisions of
this Article 20. Tenant's obligations under this Article shall survive the
expiration or earlier termination of this Lease.
ARTICLE 21. QUIET ENJOYMENT
Provided no Event of Default has occurred and is continuing, Tenant
may peaceably and quietly enjoy the Premises without hindrance by Landlord or
any Person lawfully claiming through or under Landlord, subject, nevertheless,
to the terms and conditions of this Lease.
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ARTICLE 22. NO WAIVER; NON-LIABILITY
Section 22.1 No act or thing done by Landlord or Landlord's agents
during the Term shall be deemed an acceptance of a surrender of the Premises,
and no agreement to accept such surrender shall be valid unless in writing and
signed by Landlord. No employee of Landlord or of Landlord's agents shall have
any power to accept the keys of the Premises prior to the termination of this
Lease. The delivery of keys to any employee of Landlord or of Landlord's agents
shall not operate as a termination of this Lease or a surrender of the Premises.
Any Building employee to whom any property shall be entrusted by or on behalf of
Tenant shall be deemed to be acting as Tenant's agent with respect to such
property and neither Landlord nor its agents shall be liable for any damage to
property of Tenant or of others entrusted to employees of the Building, nor for
the loss of or damage to any property of Tenant by theft or otherwise.
Section 22.2 The failure of Landlord to seek redress for violation
of, or to insist upon the strict performance of, any covenant or condition of
this Lease, or any of the Rules and Regulations set forth or hereafter adopted
by Landlord, shall not prevent a subsequent act, which would have originally
constituted a violation, from having all of the force and effect of an original
violation. The receipt by Landlord of Fixed Rent and/or Additional Rent with
knowledge of the breach of any covenant of this Lease shall not be deemed a
waiver of such breach. The failure of Landlord to enforce any of the Rules and
Regulations set forth, or hereafter adopted, against Tenant or any other tenant
in the Building shall not be deemed a waiver of any such Rules and Regulations.
Landlord shall not enforce the Rules and Regulations against Tenant in a
discriminatory manner. No provision of this Lease shall be deemed to have been
waived by Landlord, unless such waiver be in writing signed by Landlord. No
payment by Tenant or receipt by Landlord of a lesser amount than the monthly
Fixed Rent or any Additional Rent shall be deemed to be other than on account of
the next installment of Fixed Rent or Additional Rent, as the case may be, or as
Landlord may elect to apply same, nor shall any endorsement or statement on any
check or any letter accompanying any check or payment as Fixed Rent or
Additional Rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such Fixed Rent or Additional Rent or pursue any other remedy in this
Lease provided. Any executory agreement hereafter made shall be ineffective to
change, modify, discharge or effect an abandonment of this Lease in whole or in
part unless such executory agreement is in writing and signed by the party
against whom enforcement of the change, modification, discharge or abandonment
is sought. All references in this Lease to the consent or approval of Landlord
shall be deemed to mean the written consent or approval of Landlord and no
consent or approval of Landlord shall be effective for any purpose unless such
consent or approval is set forth in a written instrument executed by Landlord.
Section 22.3 (a) Subject to the provisions of Section 28.1(b),
Neither Landlord nor its agents shall be liable for any injury or damage to
persons or property or interruption of Tenant's business resulting from fire,
explosion, falling plaster, steam, gas, electricity, water, rain or snow or
leaks from any part of the Building or from the pipes, appliances or plumbing
works or from the roof, street or subsurface or from any other place or by
dampness or by any other cause of whatsoever nature; nor shall Landlord or its
agents be liable for any such damage
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caused by other tenants or persons in the Building or caused by construction of
any private, public or quasi-public work; nor shall Landlord be liable for any
latent defect in the Premises or in the Building (except that Landlord shall be
required to repair the same to the extent provided in Article 5). Nothing in the
foregoing shall affect any right of Landlord to the indemnity from Tenant to
which Landlord may be entitled under Article 28 in order to recoup for payments
made to compensate for losses of third parties.
(b) If, at any time or from time to time, any windows of the
Premises are temporarily closed, darkened or bricked-up for any reason
whatsoever, or any of such windows are permanently closed, darkened or
bricked-up if required by any Legal Requirement or related to any construction
upon property adjacent to the Real Property by parties other than Landlord,
Landlord shall not be liable for any damage Tenant may sustain thereby and
Tenant shall not be entitled to any compensation therefor nor abatement of Fixed
Rent or Additional Rent nor shall the same release Tenant from its obligations
hereunder nor constitute an eviction or constructive eviction of Tenant from the
Premises.
ARTICLE 23. WAIVER OF TRIAL BY JURY
The respective parties hereto shall and they hereby do waive trial
by jury in any action, proceeding or counterclaim brought by either of the
parties hereto against the other (except for personal injury or property damage)
on any matters whatsoever arising out of or in any way connected with this
Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the
Premises, or for the enforcement of any remedy under any statute, emergency or
otherwise. If Landlord commences any summary proceeding against Tenant, Tenant
will not interpose any counterclaim of whatever nature or description in any
such proceeding (unless failure to impose such counterclaim would preclude
Tenant from asserting in a separate action the claim which is the subject of
such counterclaim), and will not seek to consolidate such proceeding with any
other action which may have been or will be brought in any other court by
Tenant.
ARTICLE 24. INABILITY TO PERFORM
This Lease and the obligation of Tenant to pay Fixed Rent and
Additional Rent hereunder and perform all of the other covenants and agreements
hereunder on the part of Tenant to be performed will not be affected, impaired
or excused because Landlord is unable to fulfill any of its obligations under
this Lease expressly or impliedly to be performed by Landlord or because
Landlord is unable to make, or is delayed in making any repairs, additions,
alterations, improvements or decorations or is unable to supply or is delayed in
supplying any equipment or fixtures, if Landlord is prevented or delayed from so
doing by reason of strikes or labor troubles or by accident, or by any cause
whatsoever reasonably beyond Landlord's control, including laws, governmental
preemption in connection with a national emergency or by reason of any Legal
Requirements or by reason of the conditions of supply and demand which have been
or are affected by war or other emergency ("Unavoidable Delays").
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ARTICLE 25. BILLS AND NOTICES
Except as otherwise expressly provided in this Lease, any bills,
statements, consents, notices, demands, requests or other communications given
or required to be given under this Lease shall be in writing and shall be deemed
sufficiently given or rendered if delivered by hand (against a signed receipt),
sent by a nationally recognized overnight courier service, or sent by registered
or certified mail (return receipt requested) and addressed:
if to Tenant, (a) at Tenant's address at the Premises, or (b)
at any place where Tenant or any agent or employee or Tenant may be found
if mailed subsequent to Tenant's abandoning or surrendering the Premises;
or
if to Landlord, as follows: 111 Eighth Avenue LLC, c/o
Taconic Investment Partners LLC, 1500 Broadway, New York, New York
10036, Attention: Mr. Paul Pariser, with a copy to: Schulte Roth & Zabel
LLP, 900 Third Avenue, New York, New York 10022, Attention: Robert S.
Nash, Esq.
Any such bill, statement, consent, notice, demand, request or other
communication given as provided in this Article 25 shall be deemed to have been
rendered or given (i) on the date when it shall have been hand delivered, (ii)
three (3) Business Days from the date when it shall have been mailed, or (iii)
one (1) Business Day from the date when it shall have been sent by overnight
courier service.
ARTICLE 26. RULES AND REGULATIONS
Landlord reserves the right, from time to time, to adopt additional
reasonable and non-discriminatory Rules and Regulations and to amend the Rules
and Regulations then in effect. Tenant and Tenant's contractors, employees,
agents, and licensees shall comply with the Rules and Regulations, as so
supplemented or amended. Nothing contained in this Lease shall be construed to
impose upon Landlord any duty or obligation to enforce the Rules and Regulations
or terms, covenants or conditions in any other lease against any other tenant,
and Landlord shall not be liable to Tenant for violation of the same by any
other tenant, its employees, agents, visitors or licensees. If there shall be
any inconsistencies between this Lease and the Rules and Regulations, the
provisions of this Lease shall prevail.
ARTICLE 27. BROKER
Section 27.1 Each of Landlord and Tenant represents and warrants to
the other that it has not dealt with any broker in connection with this Lease
other than Insignia/Edward S. Gordon Company, Inc. ("Broker") and that to the
best of its knowledge and belief, no other broker, finder or similar Person
procured or negotiated this Lease or is entitled to any fee or commission in
connection herewith.
Section 27.2 Each of Landlord and Tenant shall indemnify, defend,
protect and hold the other party harmless from and against any and all losses,
liabilities, damages, claims, judgments, fines, suits, demands, costs, interest
and expenses of any kind or nature (including reasonable attorneys' fees and
disbursements) which the indemnified party may incur by reason
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of any claim of or liability to any broker, finder or like agent (other than
Broker) arising out of any dealings claimed to have occurred between the
indemnifying party and the claimant in connection with this Lease, or the above
representation being false. The provisions of this Article 27 shall survive the
expiration or earlier termination of the Term of this Lease.
ARTICLE 28. INDEMNITY
Section 28.1 (a) Tenant shall not do or permit any act or thing to
be done upon the Premises which may subject Landlord to any liability or
responsibility for injury, damages to persons or property or to any liability by
reason of any violation of law or of any Legal Requirement, but shall exercise
such control over the Premises as to fully protect Landlord against any such
liability. Tenant shall defend, indemnify and save harmless Landlord from and
against (i) all claims of whatever nature against Landlord arising from any act,
omission or negligence of Tenant, its contractors, licensees, agents, servants,
employees, invitees or visitors, (ii) all claims against Landlord arising from
any accident, injury or damage whatsoever caused to any person or to the
property of any person and occurring during the Term in or about the Premises,
(iii) all claims against Landlord arising from any accident, injury or damage
occurring outside of the Premises but anywhere within or about the Real
Property, where such accident, injury or damage results or is claimed to have
resulted from an act, omission or negligence of Tenant or Tenant's agents,
employees, and (iv) any breach, violation or nonperformance of any covenant,
condition or agreement in this Lease set forth and contained on the part of
Tenant to be fulfilled, kept, observed and performed. This indemnity and hold
harmless agreement shall include indemnity from and against any and all
liability, fines, suits, demands, costs and expenses of any kind or nature
(including attorneys' fees and disbursements) incurred in or in connection with
any such claim or proceeding brought thereon, and the defense thereof.
(b) Subject to Section 10.2(b) hereof, Landlord shall indemnify,
defend and hold harmless Tenant from and against all claims against Tenant
arising from any accident, injury or damage whatsoever caused to any person or
the property of any person in or about the common or public areas of the
Building for which Tenant shall not be liable in accordance with Section 28.1(a)
above (specifically excluding the Premises). This indemnity and hold harmless
agreement shall include indemnity from and against any and all liability, fines,
suits, demands, costs and expenses of any kind or nature (including attorneys'
fees and disbursements) incurred in or in connection with any such claim or
proceeding brought thereon, and the defense thereof.
Section 28.2 Tenant agrees to defend, indemnify and hold harmless
Landlord and any partner, shareholder, director, officer, principal, employee or
agent. directly and indirectly, of Landlord, from and against all obligations
(including removal and remedial actions), losses, claims, suits, judgments,
liabilities, penalties, damages (including consequential and punitive damages),
costs and expenses (including attorneys' and consultants' fees and expenses) of
any kind or nature whatsoever that may at any time be incurred by, imposed on or
asserted against Landlord or any such party directly or indirectly based on, or
arising or resulting from (a) the actual or alleged presence of Hazardous
Materials on the Premises or in the Building which is caused or permitted by
Tenant, and (b) any Environmental Claim relating in any way to Tenant's
operation or use of the Premises or the Building. The provisions of this Section
28.2 shall survive the expiration or sooner termination of this Lease.
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ARTICLE 29. LANDLORD'S CONTRIBUTION
Section 29.1 (a) Landlord shall contribute toward the actual cost of
the Initial Alterations (including carpeting, wall covering, furniture,
furnishing, movable fixtures, telephone and computer installations, and "soft
costs" incurred in connection with such alterations, including architectural,
consulting, engineering and legal fees, provided that such "soft costs" shall
not exceed ten percent (10%) of Landlord's Contribution) an amount ("Landlord's
Contribution") equal to the lesser of (a) One Hundred Nine Thousand Three
Hundred and 00/100 Dollars ($109,300.00), or (b) the aggregate amount of all
costs and expenses actually incurred by Tenant in connection with the Initial
Alterations; provided, however, that this Lease shall be in full force and
effect and no Event of Default shall have occurred and be continuing hereunder.
(b) Any cost of the Initial Alterations in excess of Landlord's
Contribution shall be paid by Tenant. Tenant shall not be entitled to receive
any portion of Landlord's Contribution not actually expended by Tenant in the
performance of the Initial Alterations, nor shall Tenant have any right to apply
any unexpended portion of Landlord's Contribution as a credit against Fixed
Rent, Additional Rent or any other obligation of Tenant hereunder. No part of
Landlord's Contribution may be assigned by Tenant prior to actual payment
thereof by Landlord to Tenant.
Section 29.2 Landlord shall make progress payments to Tenant on a
monthly basis, for the work performed during the previous month, less a
retainage of 10% of each progress payment (the "Retainage"). Each of Landlord's
progress payments will be limited to an amount equal to (a) the aggregate
amounts (reduced by the Retainage) theretofore paid by Tenant (as certified by
an authorized officer of Tenant and by Tenant's independent, licensed architect)
to Tenant's contractors, subcontractors and material suppliers (excluding any
payments for which Tenant has previously been reimbursed out of previous
disbursements from Landlord's Contribution), multiplied by (b) a fraction, the
numerator of which is the amount of Landlord's Contribution, and the denominator
of which is the total contract price (or, if there is no specified or fixed
contract price for the Initial Alterations, then Landlord's estimate thereof)
for the performance of all of the Initial Alterations shown on all plans and
specifications approved by Landlord. Provided that Tenant delivers requisitions
to Landlord on or prior to the first (1st) day of any month, such progress
payments shall be made within thirty (30) days next following the delivery to
Landlord of requisitions therefor, signed by a financial officer of Tenant,
which requisitions shall set forth the names of each contractor and
subcontractor to whom payment is due, and the amount thereof, and shall be
accompanied by (i) with the exception of the first requisition, copies of
partial waivers of lien from all contractors, subcontractors and material
suppliers covering all work and materials which were the subject of previous
progress payments by Landlord and Tenant, (ii) a written certification from
Tenant's architect that the work for which the requisition is being made has
been completed substantially in accordance with the plans and specifications
approved by Landlord, and (iii) such other documents and information as Landlord
may reasonably request. Any requisitions made following the first (1st) day of
any month shall be paid no later than the last day of the month following the
month in which such requisitions are made. Landlord shall disburse the Retainage
upon submission by Tenant to Landlord of a requisition therefore, accompanied by
all documentation required under this Section 29.2, together with (A) proof of
the satisfactory completion of all required inspections
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and issuance of any required approvals, permits and sign-offs for the Initial
Alterations by all Governmental Authorities having jurisdiction thereover, (B)
final "as-built" plans and specifications for the Initial Alterations as
required pursuant to Section 3.2(d), and (C) the issuance of final lien waivers
by all contractors, subcontractors and material suppliers covering all of the
Initial Alterations. Notwithstanding anything to the contrary set forth in this
Section 29.2, if Tenant fails to pay when due any sums due and payable to any of
Tenant's contractors or material suppliers, Landlord shall have the right, but
not the obligation, to promptly pay to such contractor or supplier all sums so
due from Tenant, and sums so paid by Landlord shall be deemed Additional Rent
and shall be paid by Tenant within ten (10) days after Landlord delivers to
Tenant an invoice therefor.
ARTICLE 30. SECURITY DEPOSIT.
Section 30.1 Tenant has deposited with Landlord the sum of One
Hundred Twenty-Five Thousand and 00/100 Dollars ($125,000.00) as security for
the full and faithful performance of every provision of this Lease to be
performed by Tenant (all or any part of such amount, the "Security Deposit"). If
an Event of Default shall occur, Landlord may use, apply or retain all or any
part of this Security Deposit for the payment of any Fixed or Additional Rent or
any other sum in default or for the payment of any other amount which Landlord
may spend or become obligated to spend by reason of such Event of Default, or to
compensate Landlord for any other loss, cost or damage which Landlord may suffer
by reason of such Event of Default. Tenant shall, within five (5) days after
notice from Landlord of the use or application of any portion of the Security
Deposit, deposit with Landlord cash in an amount sufficient to restore the
Security Deposit to the amount then required pursuant to the terms of this
Article 30 and Tenant's failure to do so shall be a breach of this Lease.
Landlord shall not, unless otherwise required by Legal Requirements, pay
interest to Tenant on the Security Deposit, and if Landlord is required to
maintain the Security Deposit in an interest bearing account, Landlord will
retain the maximum amount permitted under Legal Requirements as a bookkeeping
and administrative charge. Tenant shall not assign or encumber any part of the
Security Deposit, and no assignment or encumbrance by Tenant of all of any part
of the Security Deposit shall be binding upon Landlord. whether made prior to,
during, or after the Term. Landlord shall not be required to exhaust its
remedies against Tenant or against the Security Deposit before having recourse
to any other form of security held by Landlord and recourse by Landlord to any
Security Deposit shall not affect any remedies of Landlord which are provided in
this Lease or which are available to Landlord in law or in equity. If Tenant
shall fully and faithfully perform every covenant and provision of this Lease to
be performed and observed by Tenant, the Security Deposit or any balance thereof
shall be returned to Tenant reasonably promptly after the expiration or sooner
termination (other than a termination pursuant to Article 16 hereof) of the Term
and Tenant's surrender to Landlord of the Premises. In the event the Building is
sold, Landlord shall transfer the Security Deposit to the new owner and Landlord
shall thereupon be released by Tenant from all liability for the return of the
Security Deposit; and Tenant agrees to look to the new owner solely for the
return of the Security Deposit. A lease of the entire Building shall be deemed a
transfer within the meaning of the foregoing sentence. Landlord shall use
reasonable efforts to notify or cause Tenant to be notified in the event of any
transfer of the Building.
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Section 30.2 In lieu of a cash deposit, Tenant may deliver to
Landlord a clean, irrevocable, non-documentary and unconditional Letter of
Credit issued by and drawn upon any commercial bank, trust company, national
banking association or savings and loan association having offices for banking
purposes in the City of New York and which is a member of the New York
Clearinghouse Association (the "Issuing Bank") and which (or the parent company
of which) shall have outstanding unsecured, uninsured and unguaranteed
indebtedness, or shall have issued a letter of credit or other credit facility
that constitutes the primary security for any outstanding indebtedness (which is
otherwise uninsured and unguaranteed), that is then rated, without regard to
qualification of such rating by symbols such as "+" or "-" or numerical
notation, "Aa" or better by Moody's Investors Service and "AA" or better by
Standard & Poor's Corporation, and has combined capital, surplus and undivided
profits of not less than $500,000,000.00, which Letter of Credit shall have a
term of not less than one year, be in form and content satisfactory to Landlord
(and substantially as shown on Exhibit D annexed hereto and made a part hereof),
be for the account of Landlord, be in the amount of the Security Deposit then
required to be deposited hereunder, and be fully transferable by Landlord to
successor owners of the Building without the payment of any fees or charges, it
being agreed that if any such fees or charges shall be so imposed, then such
fees or charges, shall be paid by Tenant. The Letter of Credit shall provide
that it shall be deemed automatically renewed, without amendment, for
consecutive periods of one year each thereafter during the term of this Lease,
unless the Issuing Bank sends notice (the "Non-Renewal Notice") to Landlord by
certified mail, return receipt requested, not less than thirty (30) days next
preceding the then expiration date of the Letter of Credit that it elects not to
have such Letter of Credit renewed. Additionally, the Letter of Credit shall
provide that Landlord shall have the right, exercisable within twenty (20) days
of its receipt of the Non-Renewal Notice, by sight draft on the Issuing Bank, to
receive the monies represented by the existing Letter of Credit and to hold such
proceeds pursuant to the terms of this Section 30.2 as a cash security pending
the replacement of such Letter of Credit. If an Event of Default shall have
occurred and be continuing with respect to any provision of this Lease,
including but not limited to the provisions relating to the payment of Fixed
Rent and Additional Rent, Landlord may apply or retain the whole or any part of
the cash security so deposited or may notify the Issuing Bank and thereupon
receive all the monies represented by the Letter of Credit and use, apply, or
retain the whole or any part of such proceeds, as provided in this Section 30.2.
Any portion of the cash proceeds of the Letter of Credit not so used or applied
by Landlord in satisfaction of the obligations of Tenant as to which such Event
of Default shall have occurred shall be deposited by Landlord and retained in an
interest-bearing account as provided in Section 30.1. If Landlord applies or
retains any part of the cash security or proceeds of the Letter of Credit, as
the case may be, Tenant shall, within five (5) days after written demand
therefor, deposit with Landlord the amount so applied or retained so that
Landlord shall have the full Security Deposit required pursuant to Section 30.1
hereof on hand at all times during the Term. If Tenant shall fully and
faithfully comply with all of the terms, provisions, covenants and conditions of
this Lease, the Letter of Credit shall be returned to Tenant after the
Expiration Date and after delivery of possession of the Premises to Landlord. In
the event of a sale of Landlord's interest in the Premises, within thirty (30)
days of notice of such sale or leasing, Tenant, at Tenant's sole cost and
expense, shall arrange for the transfer of the Letter of Credit to the new
landlord, as designated by Landlord, or have the Letter of Credit reissued in
the name of the new landlord and Landlord shall thereupon be released by Tenant
from all liability for the return of
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the Letter of Credit; provided, however, that if the Letter of Credit is
reissued, Landlord shall return the original Letter of Credit issued in
Landlord's name to Tenant.
Section 30.3 Notwithstanding anything set forth in this Article 30
to the contrary, and provided that no Event of Default under Sections 16.1(a) or
16.1(d) shall have occurred at any time during the Term, then after notice from
Tenant to Landlord (a "Reminder Notice") given not less than thirty (30) days
prior to each of the anniversaries of the Commencement Date from and after the
third (3rd) anniversary of the Commencement Date (the "Reduction Dates"), the
Security Deposit shall be reduced in the amount of $15,625.00 on each Reduction
Date, to the following amounts:
Reduction Date Security Deposit
-------------- ----------------
3rd anniversary of the Commencement Date $109,375.00
4th anniversary of the Rent Commencement Date $93,750.00
5th anniversary of the Rent Commencement Date $78,125.00
6th anniversary of the Rent Commencement Date $62,500.00
7th anniversary of the Rent Commencement Date $46,875.00
8th anniversary of the Rent Commencement Date $31,250.00
9th anniversary of the Rent Commencement Date $15,625.00
No failure by Tenant to give Landlord a Reminder Notice prior to any Reduction
Date shall operate to waive or discharge Landlord's obligation to so reduce the
Security Deposit, but such Reduction Date shall be deemed delayed until fifteen
(15) days after Tenant shall give the Reminder Notice with respect to such
Reduction Date. If Tenant has deposited the Security Deposit in cash, and not in
the form of a Letter of Credit pursuant to Section 34.2, Landlord shall refund
to Tenant the amounts by which the Security Deposit is reduced pursuant hereto,
within fifteen (15) days after each Reduction Date. If Tenant has provided the
Letter of Credit, then, provided that Tenant tenders to Landlord a replacement
Letter of Credit or an amendment thereof on or about each Reduction Date in the
appropriately reduced amount of the Security Deposit, Landlord shall exchange
the Letter of Credit then held by Landlord for the Letter of Credit tendered by
Tenant, or countersign such amendment, if required.
ARTICLE 31 RELOCATED OR REDUCED PREMISES.
Section 31.1 Landlord shall have the right at any time during the
Term, upon giving Tenant not less than one hundred twenty (120) days prior
written notice (a "Relocation Notice"), to provide and furnish Tenant with space
elsewhere in the Building of approximately the same size as the Premises (the
"Substitute Premises"), effective on the date specified by Landlord in the
Relocation Notice (the "Relocation Date"). In connection with such relocation,
Landlord will, at Landlord's cost and expense, (i) provide moving personnel to
move Tenant and Tenant's furniture and furnishings, personal property and
equipment to the Substitute Premises on the Relocation Date, and (ii) cooperate
with Tenant in obtaining necessary permits from Governmental Authorities to
reinstall Tenant's equipment in the Substitute Premises, and pay the reasonable
costs of obtaining any such permits, and (iii) reimburse Tenant for the actual,
reasonable, out-of-pocket costs incurred by Tenant which are directly related to
the relocation of Tenant's telecommunications equipment to the Substitute
Premises, including the cost of
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(A) moving and installing such equipment, (B) relocation of power conduits and
generator feeds, and (C) temporarily operating duplicate or substantially
duplicate and additional equipment, if necessary, in accordance with accepted
industry standards, to ensure that no disruption or unreasonable interference
with the business operations theretofore conducted by Tenant in the Premises
occurs during such relocation to the Substitute Premises. In all instances the
foregoing costs shall be reasonable and competitive.
(b) Landlord agrees to use commercially reasonable efforts in good
faith to provide that the Substitute Premises shall have substantially
equivalent usable area, suitability for the for the Permitted Use, and
connections to building systems and services as the Premises. If Landlord moves
Tenant to the Substitute Premises, Tenant shall vacate and surrender the
Premises to Landlord on the Relocation Date, free and clear of any leases,
tenancies or rights of occupancy of anyone claiming by or through Tenant. From
and after the Relocation Date, the Lease and all of its terms, covenants and
conditions shall remain in full force and effect and be deemed applicable to the
Substitute Premises, and the Substitute Premises shall thereafter be deemed to
be the Premises as though Landlord and Tenant had entered into an express
written amendment of this Lease with respect thereto. Notwithstanding the
foregoing, if Tenant determines, in the exercise of its reasonable judgment,
that the Substitute Premises is not reasonably comparable to the Premises
(taking into account the factors described in the first sentence of this Section
31.1(b)), then Tenant shall have the right, exercisable by notice to Landlord
within thirty (30) days after the giving of a Relocation Notice as provided in
Section 31.1 (a), to terminate the Lease with respect to the Premises only,
rather than relocate to the Substitute Premises. If the Lease is so terminated,
the term hereof shall expire as to the Premises on the Relocation Date, and
Tenant shall vacate and surrender the Premises to Landlord on the Relocation
Date, free and clear of any leases, tenancies or rights of occupancy of anyone
claiming by or through Tenant. Upon the termination of the Lease as to the
Premises as provided in this Section 31.1 (b), then provided Tenant timely
surrenders possession of the Premises to Landlord as provided herein, Tenant's
liability for Fixed Rent and Additional Rent with respect to the Premises shall
cease and any prepaid portion of such basic annual rent or additional rent for
any period after such date shall be refunded by Landlord to Tenant.
(c) In the event Tenant fails or refuses to surrender possession of
the Premises to Landlord on or before the Relocation Date as provided in Section
31.1(b), Tenant shall pay to Landlord, for each day or fraction thereof that
Tenant shall fail to surrender possession of the Premises, a daily amount equal
to the sum of(i) one-thirtieth of the total monthly Fixed Rent and Additional
Rent payable under this Lease with respect to the Substitute Premises, plus (ii)
one-thirtieth of the total monthly Fixed Rent and Additional Rent payable under
this Lease payable under this Lease with respect to the Premises immediately
prior to the Relocation Date. The provisions of this Section 31.1(c) shall not
in any way be deemed to permit Tenant to remain in possession of the Premises
after the Relocation Date, and no acceptance by Landlord of payments from Tenant
after the Relocation Date or sooner termination of the Term shall be deemed to
be other than on account of the amount to be paid by Tenant in accordance with
the provisions of this Section 31.1(c).
Section 31.2 Throughout the Term of this Lease, including renewals
and extensions, Tenant agrees that Landlord shall have the right, upon
Landlord's giving Tenant not
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less than thirty (30) days prior written notice, to recapture a portion or
portions of the Premises solely for the purpose of (a) installing additional
elevator(s) in the Building, together with such space as may be required for
lobbies and other common areas, (b) improving the Building Systems, or (c)
constructing public corridors to create access to rentable space now existing or
to be constructed in the future on the floor on which the Premises are located
(any or all of the foregoing work, "Building Improvements"). The amount of such
recaptured space which may be taken by Landlord pursuant to this Section 31.2
shall be limited to such space as is reasonably and actually required for the
proper installation, access and operation of such Building Improvements. Tenant
shall provide Landlord with access to the Premises to perform the work to
install and maintain the Building Improvements, including the right to take all
necessary materials and equipment into the Premises, without the same
constituting an eviction, and Tenant shall not be entitled to any abatement of
rent while such work is in progress or any damages by reason of loss or
interruption of business or otherwise. Landlord shall use reasonable efforts to
minimize interference with Tenant's access to and use and occupancy of the
Premises in making any Building Improvements; provided, however, that Landlord
shall have no obligation to employ contractors or labor at overtime or other
premium pay rates or to incur any other overtime costs or additional expenses
whatsoever. Promptly following the completion of any Building Improvements,
Landlord shall make such repairs to and restoration of the Premises as may be
reasonably required as a direct result thereof. Upon the date set forth for such
recapture in Landlord's notice described above, the Lease shall be deemed
automatically amended by the deletion of such recaptured space from the
Premises, Fixed Rent and Additional Rent shall be reduced in the proportion
which the area of the part of the Premises so recaptured bears to the total area
of the Premises immediately prior thereto, and Tenant shall promptly vacate and
surrender such portion of the Premises to Landlord, and except as otherwise
specifically set forth in this Section 31.2, the terms and conditions of this
Lease shall not be modified by reason of any such Building Improvements or the
maintenance thereof.
ARTICLE 32. MISCELLANEOUS
Section 32.1 (a) The obligations of Landlord under this Lease shall
not be binding upon Landlord named herein after the sale, conveyance, assignment
or transfer by such Landlord (or upon any subsequent landlord after the sale,
conveyance, assignment or transfer by such subsequent landlord) of its interest
in the Building or the Real Property, as the case may be, and in the event of
any such sale, conveyance, assignment or transfer, Landlord shall be and hereby
is entirely freed and relieved of all covenants and obligations of Landlord
hereunder, and the transferee of Landlord's interest in the Building or the Real
Property, as the case may be, shall be deemed to have assumed all obligations
under this Lease. Prior to any such sale, conveyance, assignment or transfer,
the liability of Landlord for Landlord's obligations under this Lease shall be
limited to Landlord's interest in the Real Property and Tenant shall not look to
any other property or assets of Landlord or the property or assets of any of the
Exculpated Parties (defined below) in seeking either to enforce Landlord's
obligations under this Lease or to satisfy a judgment for Landlord's failure to
perform such obligations.
(b) Notwithstanding anything contained herein to the contrary,
Tenant shall look solely to Landlord to enforce Landlord's obligations hereunder
and no partner, shareholder, director, officer, principal, employee or agent,
directly and indirectly, of Landlord (collectively,
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the "Exculpated Parties") shall be personally liable for the performance of
Landlord's obligations under this Lease. Tenant shall not seek any damages
against any of the Exculpated Parties.
Section 32.2 Wherever in this Lease Landlord's consent or approval
is required, if Landlord shall refuse such consent or approval, Tenant in no
event shall be entitled to make, nor shall Tenant make, any claim, and Tenant
hereby waives any claim, for money damages (nor shall Tenant claim any money
damages by way of set-off, counterclaim or defense) based upon any claim or
assertion by Tenant that Landlord unreasonably withheld or unreasonably delayed
its consent or approval. Tenant's sole remedy shall be an action or proceeding
to enforce any such provision, for specific performance, injunction or
declaratory judgment.
Section 32.3 (a) All of the Exhibits attached to this Lease are
incorporated in and made a part of this Lease, but, in the event of any
inconsistency between the terms and provisions of this Lease and the terms and
provisions of the Exhibits hereto, the terms and provisions of this Lease shall
control. This Lease may not be changed, modified, terminated or discharged, in
whole or in part, except by a writing, executed by the party against whom
enforcement of the change, modification, termination or discharge is to be
sought. Wherever appropriate in this Lease, personal pronouns shall be deemed to
include the other genders and the singular to include the plural. The captions
hereof are inserted only as a matter of convenience and for reference and in no
way define, limit or describe the scope of this Lease nor the intent of any
provision thereof. All Article and Section references set forth herein shall,
unless the context otherwise specifically requires, be deemed references to the
Articles and Sections of this Lease. Whenever the words "include", "includes",
or "including" are used in this Lease, they shall be deemed to be followed by
the words "without limitation".
(b) This Lease shall be governed in all respects by the laws of the
State of New York applicable to agreements executed in and to be performed
wholly within the State of New York.
(c) If any term, covenant, condition or provision of this Lease, or
the application thereof to any person or circumstance, shall ever be held to be
invalid or unenforceable, then in each such event the remainder of this Lease or
the application of such term, covenant, condition or provision to any other
person or any other circumstance (other than those as to which it shall be
invalid or unenforceable) shall not be thereby affected, and each term,
covenant, condition and provision hereof shall remain valid and enforceable to
the fullest extent permitted by law.
(d) If at the commencement of, or at any time or times during the
Term of this Lease, the Fixed Rent and Additional Rent reserved in this Lease
shall not be fully collectible by reason of any Legal Requirement, Tenant shall
enter into such agreements and take such other steps (without additional expense
to Tenant) as Landlord may request and as may be legally permissible to permit
Landlord to collect the maximum rents which may from time to time during the
continuance of such legal rent restriction be legally permissible (and not in
excess of the amounts reserved therefor under this Lease). Upon the termination
of such legal rent restriction prior to the expiration of the Term, (i) Fixed
Rent and Additional Rent shall become and thereafter be payable hereunder in
accordance with the amounts reserved in this Lease for the
-55-
<PAGE>
periods following such termination, and (ii) Tenant shall pay to Landlord, if
legally permissible, an amount equal to (A) the items of Fixed Rent and
Additional Rent which would have been paid pursuant to this Lease but for such
legal rent restriction less (B) the rents paid by Tenant to Landlord during the
period or periods such legal rent restriction was in effect.
(e) The covenants, conditions and agreements contained in this
Lease shall bind and inure to the benefit of Landlord and Tenant and their
respective legal representatives, successors, and, except as otherwise provided
in this Lease, their assigns.
Section 32.4 Except as expressly provided to the contrary in this
Lease, Tenant agrees that all disputes arising, directly or indirectly, out of
or relating to this Lease, and all actions to enforce this Lease, shall be dealt
with and adjudicated in the state courts of New York or the Federal courts
sitting in New York City; and for that purpose hereby expressly and irrevocably
submits itself to the jurisdiction of such courts. Tenant hereby irrevocably
appoints the Secretary of the State of New York as its authorized agent upon
which process may be served in any such action or proceeding.
IN WITNESS WHEREOF, Landlord and Tenant have respectively executed
this Lease as of the day and year first above written.
111 EIGHTH AVENUE LLC, Landlord
By: Taconic Investment Partners LLC,
Authorized Signatory
By: /s/ Paul Pariser
-------------------------
Name:
Title:
VIP CALLING, INC., Tenant
By: /s/ Ofer Gneezy
-------------------------
Name: Ofer Gneezy
Title: President
Tenant's Federal Tax Identification Number:
04-333-2534
- -----------------------------------
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<PAGE>
EXHIBIT 10.4
========================================
611 WILSHIRE BOULEVARD,
LOS ANGELES, CALIFORNIA
========================================
Lease
========================================
TENANT: V I P CALLING, INC.
DATE: December 11, 1998
<PAGE>
========================================
611 WILSHIRE BOULEVARD,
LOS ANGELES, CALIFORNIA
========================================
Lease
========================================
TABLE OF CONTENTS
SUMMARY OF LEASE TERMS ...................................................... 1
AGREEMENT ................................................................... 5
1. PREMISES ...................................................... 5
2. TERM .......................................................... 5
3. RENT .......................................................... 5
4. RENT ESCALATION ............................................... 5
5. TAX ON TENANT'S PROPERTY; OTHER TAXES ......................... 8
6. SECURITY DEPOSIT AND LETTER OF CREDIT ......................... 8
7. LATE PAYMENTS ................................................. 9
8. USE OF PREMISES ............................................... 9
9. BUILDING SERVICES ............................................. 9
10. CONDITION OF PREMISES ......................................... 12
11. DAMAGE TO PREMISES OR BUILDING ................................ 12
12. EMINENT DOMAIN ................................................ 13
13. DEFAULT ....................................................... 13
14. REMEDIES UPON DEFAULT ......................................... 14
15. SURRENDER OF PREMISES; REMOVAL OF PROPERTY .................... 16
16. COSTS OF SUIT; ATTORNEYS' FEES; WAIVER OF JURY TRIAL .......... 17
17. ASSIGNMENT AND SUBLETTING ..................................... 17
18. TRANSFER OF LANDLORD'S INTEREST ............................... 20
19. HOLDING OVER .................................................. 20
20. NOTICES ....................................................... 20
21. QUIET ENJOYMENT ............................................... 21
22. TENANT'S FURTHER OBLIGATIONS .................................. 21
23. ESTOPPEL CERTIFICATE BY TENANT ................................ 21
24. SUBORDINATION AND ATTORNMENT .................................. 21
25. RIGHTS RESERVED TO LANDLORD ................................... 22
26. FORCE MAJEURE ................................................. 22
27. WAIVER OF CLAIMS; INDEMNITY ................................... 22
28. INSURANCE ..................................................... 23
29. FIXTURES, TENANT IMPROVEMENTS AND ALTERATIONS ................. 24
30. MECHANIC'S LIENS .............................................. 26
31. INTENTIONALLY DELETED ......................................... 26
32. HAZARDOUS MATERIALS ........................................... 26
33. MISCELLANEOUS ................................................. 27
34. RULES AND REGULATIONS AFFECTING TELECOMMUNICATIONS USE ........ 29
35. "AS IS" CONDITION ............................................. 29
i
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36. HANDICAP ACCESS REGULATIONS ................................... 29
37. RIGHT OF FIRST REFUSAL ........................................ 29
38. INTENTIONALLY DELETED ......................................... 30
39. FINANCIAL STATEMENTS .......................................... 30
40. ROOF .......................................................... 30
41. EQUIPMENT AND OPERATING RIGHTS ................................ 31
EXHIBITS AND RIDERS
-------------------
EXHIBIT A - FLOOR PLAN OF PREMISES
EXHIBIT B - RULES AND REGULATIONS
EXHIBIT C - TENANT'S WORK LETTER
EXHIBIT D - TENANT ESTOPPEL CERTIFICATE
EXHIBIT E - SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
EXHIBIT F - FORM OF LANDLORD'S CONSENT TO CO-LOCATION AGREEMENT
EXHIBIT G - EQUIPMENT AND OPERATING RIGHTS
EXHIBIT H - LETTER OF CREDIT
BACKUP POWER GENERATOR RIDER
PARKING SPACE RIDER
TELECOMMUNICATIONS CONDUIT RIDER
EXTENSION OPTION RIDER
ii
<PAGE>
========================================
611 WILSHIRE BOULEVARD,
LOS ANGELES, CA 90017
========================================
Lease
========================================
THIS LEASE is made as of the ___ day of December, 1998, between Downtown
Properties, L.L.C., a California Limited Liability Company (hereinafter called
"Landlord"), and V I P Calling. Inc., a Delaware corporation, (hereinafter
called "Tenant").
SUMMARY OF LEASE TERMS
A. Addresses:
1. Tenant's Premises Approximately 3,156 rentable square feet in
and Notice Address: Suite 704 on the 7th floor located at 611
Wilshire Boulevard, Los Angeles, California
90017.
Notice Address:
Tenant:
Prior to Lease Commencement:
VIP Calling, Inc.
121 Middlesex Turnpike
Burlington, Massachusetts 01803
Attention: Michael Hughes
Facsimile:
Telephone:
Following Lease Commencement:
VIP Calling, Inc.
121 Middlesex Turnpike
Burlington, Massachusetts 01803
Attention: Michael Hughes
Facsimile: (781) 229-7701
Telephone: (781) 229-0011
With copy to:
Bingham Dana LLP
1501 Federal Street
Boston, Massachusetts 02110
Attention: David L. Engel, Esq.
Facsimile: (617) 951-8736
Telephone: (617) 951-8000
1
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2. Landlord's Notice
Address: Downtown Properties, L.L.C.,
700 Wilshire Boulevard
Suite 700
Los Angeles, CA 90017
Attention: Willy K. Ma
Telephone: (213) 895-6888
Facsimile: (213) 895-5988
With a copy to:
Downtown Properties, L.L.C.
700 Wilshire Boulevard
Suite 700
Los Angeles, California 90017
Attention: Diana Warner
Facsimile: (213) 895-6888
Telephone: (213) 895-5988
3. Landlord's Address for
Rent Payments: Downtown Properties, L.L.C.,
c/o Kennedy-Wilson Management Group
700 Wilshire Boulevard, Suite 700,
Los Angeles, CA 90017
Attention: Willy K. Ma
B. Approximate Rentable Area of the Premises:
A total of approximately 3,156 rentable square feet located in Suite 704
on the 7th floor, which is subject to final adjustment pursuant to Section
1.
C. Lease Term: Ten (10) years and four (4) months.
D. 1. Estimated Commencement Date: ____________, 1998.
2. Commencement Date: Fourteen (14) days following delivery of a fully
executed Lease by Landlord to Tenant.
E. Schedule of Monthly Base Rents:
The following schedule of monthly Base Rents shall apply during the term
of the Lease, all modified gross net of electricity and janitorial services,
which are subject to final adjustment pursuant to Section 1.
Monthly Annual
Period Base Rent Rent PRSF.
------ --------- ----------
Years 1 through 5 $ 5,786.00 $22.00
Years 6 through 10 $ 6,575.00 $25.00
Year 11 (4 months) $ 6,575.00 $25.00
An installment of rent in the amount of one (1) full month's Base Rent at
the initial rate specified above shall be delivered to Landlord concurrently
with Tenant's execution of this Lease and shall be applied against the Basic
Rent first due hereunder. If the actual Commencement Date is before or after the
Estimated Commencement Date, then all dates set forth above shall be
correspondingly accelerated or delayed, as the case may be. Pursuant to and in
compliance with Item N(1) below, Tenant is entitled to rental abatement.
F. Base Years for Expenses: Real Estate Taxes--1998-1999; Operating and
Utility Costs--1999.
G. Tenant's "Percentage Share" of Real Estate Taxes, Operating and Utility
Costs: 2.16% (3,156/146,229) as may be adjusted pursuant to Section 1.
"Operating Costs" as defined in Section 4 below shall not include (i)
Tenant's separate Heating, Ventilation and Air Conditioning ("Separate
HVAC") expenses, if Tenant elects to install such system pursuant to
Section 9.2, (ii) Tenant's separate Janitorial Service, as approved by
Landlord pursuant to Section 9.4. Tenant shall
2
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pay for its pro rata share of operating expenses for the common area,
(iii) other Operating Cost exclusions as set forth in Section 4.2, or (iv)
Tenant's separately submetered utilities.
H. Security Deposit: Six Thousand Five Hundred and Seventy Five Dollars &
no/100 ($6,575.00) as may be adjusted pursuant to
Section 1 and as is further described in Section 6
herein. In addition, Tenant shall obtain and maintain
during the first ten (10) years of the initial Term of
the Lease at its sole cost and expense an irrevocable
standby letter of credit in the amount of the total
leasing commissions and tenant improvement costs
incurred by Landlord for this Lease (the "LC"). The LC
shall be issued in a form and by a financial institution
acceptable to Landlord in its reasonable discretion,
attached hereto and made a part hereof as Exhibit H, in
favor of Landlord and presentable for collection in the
City of Los Angeles. Landlord shall be able to draw upon
the LC upon written demand on sight delivered by
Landlord to the issuer thereof stating that a material
default has occurred hereunder which has not been cured
within the applicable notice and cure period provided
for in this Lease. In the event that Tenant materially
breaches this Lease and thereby fails to reimburse
Landlord for the unrecovered portion of real estate
brokers' commissions and tenant improvement costs
incurred by Landlord in respect of this Lease, or for
any other defaults, Landlord is permitted to apply or
use all or any part of the Security Deposit or LC within
any applicable notice and cure periods provided
therefor. The LC shall be in the initial principal
amount of $59,830.60, subject to final adjustment
pursuant to Section 1 (consisting of the leasing
commissions at the rate of 6% for the first 5 year
period and at the rate of 3% for the balance of the Term
plus $1.00 per rentable square foot bonus and tenant
improvements at $8.75 per usable square foot), which is
automatically renewed at the beginning of each of Lease
years 2 through 10. The principal amount of the LC, if
not previously drawn thereon by Landlord, shall be
reduced by ten percent (10%) each year so that, for
example, the principal amount of the LC at the
commencement of Lease Year 2 shall be 90% of its
original amount and at the commencement of Lease Year 3
shall be 80% of its original amount, and so forth. In
the event Tenant furnishes to Landlord at any time
during the Term audited financial statements acceptable
to Landlord evidencing that Tenant's operations have
resulted in a net profit, as defined within generally
accepted accounting principles, for a one year period,
then, provided Tenant is not in default, Tenant shall be
permitted to revoke the LC subject to Landlord's prior
written approval.
I. Permitted Use: Executive and general office use and the installation,
operation and maintenance of equipment in connection
with Tenant's telecommunications switching equipment and
business and any appurtenant uses thereto.
J. Maximum Tenant Improvement Allowance: Tenant shall take the Premises "as-is"
as further described in Section 35. Tenant shall be entitled to a one-time
tenant improvement allowance in the amount of Eight Dollars and 75/100 ($8.75)
for each of the usable square feet of the Premises for the costs relating to the
initial design and construction of Tenant's improvements, as is further
described in Exhibit C (Tenant's Work Letter) attached hereto.
K. Tenant's Parking Allotment: One (1) parking privilege at the then prevailing
Building's rate, as may be adjusted during the Lease Term, plus any parking
related taxes. In addition, parking privileges shall be made available to Tenant
on an "as available", month-to-month basis at the Building's then prevailing
parking rates as may be adjusted by Landlord from time to time, plus any parking
related taxes. Said parking spaces shall be located in the parking garage under
the Building, or in another adjacent parking structure within a reasonable
distance of the Building as determined by Landlord in its sole and absolute
discretion.
L. Landlord's Brokers: The Summit Group
Tenant's Broker: Cushman & Wakefield of California, Inc.
M. Riders:
The following exhibits, riders and addenda are attached to and are part of
this Lease:
Exhibit A -- Floor Plan of Premises
Exhibit B -- Rules and Regulations
Exhibit C -- Tenant's Work Letter
Exhibit D -- Tenant Estoppel Certificate
Exhibit E -- Subordination, Non-Disturbance and Attornment Agreement
Exhibit F -- Form of Landlord's Consent to Co-Location Agreement
Exhibit G - Equipment and Operating Rights
Exhibit H - Letter of Credit
3
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Backup Power Generator Rider
Parking Space Rider
Telecommunications Conduit Rider
Extension Option Rider
N. Guaranty: None
O. Rental Abatement: So long as Tenant is not then in default of the Lease
and Tenant has not received three (3) or more notices of
events of default, Landlord shall waive Tenant's Monthly
Base Rent in months one (1) through four (4) of the
initial Lease Term hereof, for a total of four (4)
months of rental abatement.
P. a) Tenant's
Construction
Representative: ____________________________________________
Telephone: _________________________________
b) Landlord's
Construction
Representative: Mr. Eric Bender
Telephone: (213) 623-5800, extension 36.
4
<PAGE>
AGREEMENT
1. PREMISES. Landlord hereby leases the Premises to Tenant and Tenant
hereby hires and takes the Premises from Landlord. The Premises are located at
the address set forth in Section A(1) on page 1 containing approximately the
floor area set forth in Section B on page 1 and are more particularly shown on
Exhibit "A" attached hereto and incorporated herein by this reference. The
office building in which the Premises are located is referred to herein as the
"Building." The rentable square footage shall be determined by a measurement to
be performed by Landlord's space planner. This measurement shall be deemed
conclusive as between the parties.
2. TERM.
2.1 The term of this Lease shall commence on the "Commencement Date"
indicated in Section D on Page 1 and shall extend for the period set forth in
Section C on Page 1. In the event that Landlord, for any reason, cannot tender
possession of the Premises to Tenant on or before the "Estimated Commencement
Date" indicated in Section D on Page 1, this Lease shall not be void or
voidable, nor shall Landlord be liable to Tenant in any way as a result of such
failure to tender possession. In the event that Landlord cannot tender
possession of the Premises to Tenant for any reason other than the acts or
omissions of Tenant, Tenant's obligation to pay rent hereunder shall be deferred
by a period of time equal to the delay in Landlord's delivery of possession not
caused by Tenant.
2.2 In the event that Tenant is allowed to enter into possession of the
Premises prior to the Commencement Date, such possession shall be deemed to be
pursuant to, and shall be governed by. the terms, covenants and conditions of
this Lease, including without limitation the covenant to pay rent, as though the
Commencement Date occurred upon the date of taking of possession by Tenant.
2.3 In the event that the Commencement Date falls on other than the first
day of a month, rent for any initial partial month of the term hereof shall be
appropriately prorated; and if the date of commencement of Tenant's rent
obligations is delayed, pursuant to Section 2.1, the end of the term hereof
shall be correspondingly delayed. At the request of either party hereto, both
parties shall execute a memorandum confirming the date of commencement of
Tenant's rent obligations.
3. RENT. Beginning on the Commencement Date (subject to adjustment
pursuant to Section 2.1 above), the base rent ("Base Rent") for the Premises
shall be in accordance with the Schedule of Monthly Base Rents set forth in
Section E on Page 2. Each installment of Base Rent shall be payable in advance
on the first day of each and every month throughout the term of this Lease.
Tenant agrees to pay all rent, without offset, demand or deduction of any kind,
to Landlord by mail to the address set forth in Section A(3) on page 1 or in
such manner, to such other person or at such other place as Landlord may from
time to time designate. Tenant agrees that no payment made to Landlord by check
or other instrument shall contain a restrictive endorsement of any kind; and if
any such instrument should contain a restrictive endorsement in violation of the
foregoing, that endorsement shall have no legal effect whatever, notwithstanding
that such item is processed for payment.
4. RENT ESCALATION.
4.1 Tenant shall pay, as monthly rent hereunder, in addition to the Base
Rent, the sums provided in this Section 4. Tenant shall be advised of any
change, from time to time, in rent escalation payments required hereunder by
written notice from Landlord, which shall include information in such detail as
Landlord may reasonably determine to be necessary in support of such change.
Tenant shall have thirty (30) days after the receipt of any such notice to
protest the change indicated therein, and Tenant's failure to make such protest
in a written notice to Landlord within such 30-day period shall be conclusively
deemed to be Tenant's agreement to such changes. Notwithstanding any such
protest all rent escalation payments falling due after service of such notice
shall be made in accordance with such notice until the protest has been
resolved, whereupon any necessary adjustment shall be made between Landlord and
Tenant. Any audit arising out of such a protest by Tenant shall be done, at
Tenant's expense, in accordance with generally accepted auditing and management
standards by a certified public accounting firm selected by Tenant and approved
by Landlord in its reasonable discretion. Such audit shall be performed at
Landlord's offices in Los Angeles or at such other location in the United States
as Landlord may select from time to time for the maintenance of its accounting
records for the Building.
4.2 Following the first December 31 during the term of the Lease, Tenant
shall pay to Landlord in a monthly sum upon billing therefor, Tenant's
Percentage Share (as defined in Section G on Page 2 of the Lease) of each of the
following amounts (collectively, "Excess Expenses"): (1) the amount (if any) by
which Real Estate Taxes for the then current tax fiscal year exceed the Real
Estate Taxes for the Base Year for Real Estate Taxes set forth in Section F on
Page 2; (2) the amount (if any) by which Operating Costs for the just completed
calendar year exceed the Operating Costs for the Base Year for Operating Costs
set forth in Section F on Page 2; and (3) the amount (if any) by which Utility
Costs for the just completed calendar year exceed the Utility Costs for the Base
Year for Utility Costs set forth in Section F on Page 2. At the same time Tenant
shall also pay to Landlord one-twelfth of Tenant's Percentage Share of such
amounts for each
5
<PAGE>
month that has commenced since December 31, as estimated payments towards
Tenant's share of the Excess Expenses for the following year. If Landlord
estimates in good faith that the Excess Expenses for the following year will
exceed the Excess Expenses for the just completed calendar year, Landlord shall
notify Tenant in writing of such estimate, and Tenant's new monthly payment
shall be one-twelfth of Tenant's Percentage Share of Landlord's estimate of the
annual Excess Expenses. Landlord may revise such estimate and Tenant's monthly
payment not more than twice during any calendar year. Following each succeeding
December 31, Landlord again shall determine in the same fashion the increase or
decrease (if any) in annual Real Estate Taxes, Operating Costs, and Utility
Costs over or under those for the previous year. If there is an increase in one
or more of the three categories, Tenant shall pay to Landlord in a single lump
sum upon billing Tenant's Percentage Share of the increase. Tenant shall pay
Landlord at the same time one-twelfth of Tenant's Percentage Share of such
increase (or if Landlord gives a written estimate as described above that Excess
Expenses will increase in the new year, then one-twelfth of Landlord's new
estimate of annual Excess Expenses) for each month that has then commenced in
the new calendar year. If there is a decrease in one or more of the three
categories, Landlord shall refund to Tenant or, at Landlord's option, credit
against the next rent falling due under the Lease the amount of the overpayment
made by Tenant during the preceding calendar year. Thereafter, with each month's
Base Rent until the next adjustment hereunder, Tenant shall pay one-twelfth of
Tenant's Percentage Share of each of the following amounts: (I) the excess (if
any) of annual Real Estate Taxes (based on the then-current fiscal year) over
the Base Year Real Estate Taxes; (II) the excess (if any) of annual Operating
Costs (based on the preceding calendar year) over the Base Year Operating Costs;
and (III) the excess (if any) of annual Utility Costs (based on the preceding
calendar year) over Base Year Utility Costs. The Real Estate Taxes for any
partial fiscal year at the end of the Lease term and the Operating Costs and
Utility Costs for any partial calendar year at the end of the Lease term shall
be appropriately prorated.
For purposes hereof, "Real Estate Taxes" shall include any form of assessment,
license fee, license tax, business license fee, commercial rental tax, levy,
penalty, charge, tax or similar imposition (other than net income, inheritance
or estate taxes), imposed by any authority having the direct or indirect power
to tax, including any city, county, state or federal government, or any school,
agricultural, lighting, drainage, flood control, public transit or other special
district thereof, as against any legal or equitable interest of Landlord in the
Premises or in the real property of which the Premises and the Building are a
part, including, but not limited to, the following:
(i) Any tax on Landlord's "right" to rent or "right" to other income
from the Premises or as against Landlord's business of leasing the Premises;
(ii) Any assessment, tax, fee, levy or charge in substitution,
partially or totally, of any assessment, tax, fee, levy or charge previously
included within the definition of Real Estate Taxes, it being acknowledged by
Tenant and Landlord that Proposition 13 was adopted by the voters of the State
of California in the June, 1978 Election and that assessments, taxes, fees,
levies and charges may be imposed by governmental agencies for such services as
fire protection, street, sidewalk and road maintenance, refuse removal and for
other governmental services formerly provided without charge to property owners
or occupants. It is the intention of Tenant and Landlord that all such new and
increased assessments, taxes, fees, levies and charges be included within the
definition of "Real Property Taxes" for the purpose of this Lease;
(iii) Any assessment, tax, fee, levy or charge allocable to or
measured by the area of the Premises or the rent payable hereunder, including,
without limitation, any gross income tax or excise tax levied by the State, City
or Federal government, or any political subdivision thereof, with respect to the
receipt of such rent, or upon or with respect to the possession, leasing,
operating, management, maintenance, alteration, repair, use or occupancy by
Tenant of the Premises, or any portion thereof;
(iv) Any assessment, tax, fee, levy or charge upon this transaction
or any document to which Tenant is a party, creating or transferring an interest
or an estate in the Premises;
(v) Any assessment, tax, fee, levy or charge by any governmental
agency related to any transportation plan, fund or system instituted within the
geographic area of which the Building is a part; or
(vi) Reasonable legal and other professional fees, costs and
disbursements incurred in connection with proceedings to contest, determine or
reduce real property taxes.
The definition of "Real Estate Taxes," including any additional tax the
nature of which was previously included within the definition of "Real Estate
Taxes," shall include any increases in such taxes, levies, charges or
assessments occasioned by increases in tax rates or increases in assessed
valuations, whether occurring by sale or otherwise. Tenant shall be entitled to
a credit of its Proportionate Share of any "Real Estate Tax" refund actually
received by Landlord for any period during the Term of the Lease wherein Tenant
is assessed a proportionate share of Real Estate Tax increase.
6
<PAGE>
As used in this Lease, the term "Operating Costs" shall mean all costs and
expenses of management, operation, maintenance, overhaul, improvement or repair
of the Building, the common areas and the site, as determined by standard
accounting practices, including the following costs by way of illustration but
not limitation:
(a) Any and all assessments imposed with respect to the Building,
common areas, and/or the site on which the Building is located, pursuant to any
covenants, conditions and restrictions affecting the site, common areas or
Building;
(b) Any costs, levies or assessments resulting from statutes or
regulations promulgated by any governmental authority in connection with the use
or occupancy of the Building or the Premises;
(c) Costs of all insurance obtained by Landlord;
(d) Wages, salaries and other labor costs (including but not limited
to social security taxes, unemployment taxes, other payroll taxes and
governmental charges and the costs, if any, of providing disability,
hospitalization, medical welfare, pension, retirement or other employee
benefits, whether or not imposed by law) of employees, independent contractors
and other persons engaged in the management, operation, maintenance, overhaul.
improvement or repair of the Building;
(e) Building management office and storage rental;
(f) Management and administrative fees (provided such management and
administrative fees are commensurate with such fees paid to non-affiliate
managers for comparable buildings located in the Los Angeles Downtown Central
Business District);
(g) Supplies, materials, equipment and tools;
(h) Costs of, and appropriate reserves for, repair, painting,
resurfacing, and maintenance of the Building, the common areas, the site and the
parking facilities, and their respective fixtures and equipment systems,
including but not limited to the elevators, the structural portions of the
Building, and the plumbing. heating, ventilation, air-conditioning, telephone
cable riser, and electrical systems installed or furnished by Landlord;
(i) Depreciation on a straight-line basis and rental of personal
property used in maintenance;
(j) Amortization on a straight-line basis over the useful life
(together with interest at the interest rate defined in Subsection 33.9 of this
Lease on the unamortized balance) of all costs of a capital nature (including,
without limitation, capital improvements, capital replacements, capital repairs,
capital equipment and capital tools):
(1) reasonably intended to produce a reduction in Operating
Costs, Utility Costs or energy consumption; or
(2) required under any governmental or quasi-governmental law,
rule, order, ordinance or regulation that was not applicable to the Building at
the time it was originally constructed; or
(3) for repair or replacement of any Building equipment needed
to operate the Building at the same quality levels as prior to the replacement;
(k) Costs and expenses of gardening and landscaping;
(l) Maintenance of signs (other than signs of tenants of the
Building);
(m) Personal property taxes levied on or attributable to personal
property used in connection with the Building, the common areas, or the site;
(n) Costs of all service contracts pertaining to the Premises, the
Building or the site;
(o) Reasonable accounting, audit, verification, legal and other
consulting fees, so long as not related to the maintenance and formation of the
ownership entity;
(p) Costs and expenses of lighting, janitorial service, cleaning,
refuse removal, security and similar items, including appropriate reserves; and
7
<PAGE>
(q) Fees imposed by any federal, state or local government for fire
and police protection, trash removal or other similar services which do not
constitute Real Estate Taxes.
The following shall be excluded from Operating Costs: (i) federal and
state income taxes imposed on Landlord's net income; (ii) any and all costs or
expenses to procure tenants for the Building, including but not limited to
brokerage commissions, legal fees, and costs of remodeling suites; (iii) costs
of asbestos removal work excluded from Operating Costs by Section 32.4 below;
(iv) mortgage or debt service (including payments of principal, interest and
other charges due under any such mortgage or deed of trust); (v) depreciation,
except that amortization of improvements of the type specified in Subsection (j)
above shall in no event be considered "depreciation"; (vi) salaries of
executives or principals of Landlord above the level of Building manager; (vii)
expenses related to tenant work or alterations; (viii) expenses for which the
Landlord, by the terms of this Lease or any other Lease, makes a separate
charge; (ix) reimbursable insurance matters and expenses for which Landlord is
actually reimbursed; (x) expenses caused by the willful misconduct or gross
negligence of Landlord; and (xi) compliance with legal requirements caused by
the willful misconduct or gross negligence of Landlord.
For purposes hereof, "Utility Costs" shall include all charges, surcharges
and other costs of all utilities paid for by Landlord in connection with the
Premises and/or Building, including without limitation costs of heating,
ventilation and air conditioning for the Premises and/or Building, costs of
furnishing gas, electricity and other fuels or power sources to the Premises
and/or Building, and costs of furnishing water and sewer services to the
Premises and/or Building.
The term "Building" as used in this Section 4.2 shall be deemed to include
not only the Building but also any parking facility owned, leased or operated by
Landlord in order to meet the parking requirements of the Building.
If the average occupancy of the rentable area of the Building during the
Tenant's Base Year for Operating and Utility Costs as set forth in Section F on
page 2 or during any other calendar year of the Lease term is less than 95% of
the total rentable area of the Building, the Operating Costs and Utility Costs
shall be adjusted by Landlord for such Base Year or other calendar year, prior
to the pass-through of Operating Costs and Utility Costs to Tenant pursuant to
this Section 4.2, to reflect what they would have been had 95% of the rentable
area been occupied during that year. In making such calculation, the Landlord's
reasonable opinion of what portion, if any, of each cost was affected by changes
in occupancy shall be binding upon the parties.
5. TAX ON TENANT'S PROPERTY; OTHER TAXES.
5.1 Tenant shall be liable for, and shall pay at least 10 days before
delinquency, and Tenant hereby indemnifies and holds Landlord harmless from and
against any liability in connection with, all taxes levied directly or
indirectly against any personal property, fixtures, machinery, equipment,
apparatus, systems and appurtenances placed by Tenant in or about, or utilized
by Tenant in, upon or in connection with, the Premises ("Equipment Taxes"). If
any Equipment Taxes are levied against Landlord or Landlord's property or if the
assessed value of Landlord's property is increased by the inclusion therein of a
value placed upon such personal property, fixtures, machinery, equipment,
apparatus, systems or appurtenances of Tenant, and if Landlord, after written
notice to Tenant, pays the Equipment Taxes or taxes based upon such an increased
assessment (which Landlord shall have the right to do regardless of the validity
of such levy, but only under proper protest if requested by Tenant prior to such
payment and if payment under protest is permissible), Tenant shall pay to
Landlord upon demand, as additional rent hereunder, the taxes so levied against
Landlord or the proportion of such taxes resulting from such increase in the
assessment; provided, however, that in any such event Tenant shall have the
right, in the name of Landlord and with Landlord's full cooperation, but at no
cost to Landlord, to bring suit in any court of competent jurisdiction to
recover the amount of any such tax so paid under protest, and any amount so
recovered shall belong to Tenant,
5.2 If the tenant improvements in the Premises, whether installed and/or
paid for by Landlord or Tenant and whether or not affixed to the real property
so as to become a part thereof, are assessed for real property tax purposes at a
valuation higher than the valuation at which tenant improvements conforming to
Landlord's building standards in other space in the Building are assessed, then
the real property taxes and assessments levied against Landlord or Landlord's
property by reason of such excess assessed valuation shall be deemed to be
Equipment Taxes and shall be governed by the provisions of Section 5.1. Any such
amounts, and any similar amounts attributable to excess improvements by other
tenants of the Building and recovered by Landlord from such other tenants under
comparable lease provisions, shall not be included in Real Estate Taxes for
purposes of rent escalation under Section 4 of this Lease.
5.3 Tenant shall pay, as additional rent hereunder, upon demand and in
such manner and at such times as Landlord shall direct from time to time by
written notice to Tenant, any excise, sales, privilege or other tax, assessment
or other charge (other than income or franchise taxes) imposed, assessed or
levied by any governmental or quasi-governmental authority or agency upon
Landlord on account of this Lease, the rent or other payments made by Tenant
hereunder, any other benefit received by Landlord hereunder, Landlord's business
as a lessor hereunder, or otherwise in respect of or as a result of the
agreement or relationship of Landlord and Tenant hereunder.
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6. SECURITY DEPOSIT AND LETTER OF CREDIT. Tenant shall deliver an LC and
Security Deposit in the amount set forth in Section H on page 2 upon execution
of this Lease. The LC and Security Deposit shall be held by Landlord without
liability for interest and as security for the performance by Tenant of Tenant's
covenants and obligations under this Lease, it being expressly understood that
the LC or Security Deposit shall not be considered an advance payment of rent or
a measure of Landlord's damages in case of default by Tenant. If, after notice
and failure to cure within the applicable period stated in the Lease, Tenant
remains in default under or breaches any provision of the Lease, Landlord may,
without prejudice to any other remedy it has, draw on that portion of the
Security Deposit or LC or any portion thereof to the extent necessary to
compensate or pay Landlord (i) for any expense, loss, damage or liability that
Landlord suffers because of Tenant's default or breach, or (ii) for any
arrearage or otherwise any Rent or other sum in default or breach. Any draw by
Landlord against the LC portion of the Security Deposit shall be governed by the
provisions of the LC and Section H. Following any application of the Security
Deposit or LC, Tenant shall restore the Security Deposit or LC to its original
amount as set forth in Section H. If Tenant furnishes to Landlord at any time
during the Term audited financial statements acceptable to Landlord evidencing
that Tenant's operations have resulted in a net profit, as defined within
generally accepted accounting principles, for a one year period, and provided
Tenant is not in default, Tenant shall be permitted to revoke the LC subject to
Landlord's prior written approval.
In the event of bankruptcy or other debtor relief proceedings by or
against Tenant, the LC and Security Deposit shall be deemed to be applied first
to the payment of rent and other charges due Landlord, in the order that such
rent or charges became due and owing, for all periods prior to filing of such
proceedings. Landlord shall not be required to keep the Security Deposit
separate from its general funds.
7. LATE PAYMENTS. All covenants and agreements to be performed by Tenant
under any of the terms of this Lease shall be performed by Tenant at Tenant's
sole cost and expense and without any abatement of rent. Tenant acknowledges
that the late payment by Tenant to Landlord of any sums due under this Lease
will cause Landlord to incur costs not contemplated by this Lease, the exact
amount of such cost being extremely difficult and impractical to fix. Such costs
include, without limitation, processing and accounting charges, and late charges
that may be imposed on Landlord by the terms of any note or other obligation
secured by any encumbrance covering the Premises or the Building of which the
Premises are a part. Therefore, if any monthly installment of rent is not
received by Landlord by the date when due, or if Tenant fails to pay any other
sum of money due hereunder within five (5) days from the date when due, Tenant
shall pay to Landlord, as additional rent, the sum of ten percent (10%) of the
overdue amount as a late charge. Landlord's acceptance of any late charge, or
interest pursuant to Section 33.9, shall not be deemed to be liquidated damages,
nor constitute a waiver of Tenant's default with respect to the overdue amount,
nor prevent Landlord from exercising any of the other rights and remedies
available to Landlord under this Lease or any law now or hereafter in effect.
Further, in the event such late charge is imposed by Landlord for three (3)
consecutive months for whatever reason, Landlord shall have the option to
require that, beginning with the first payment of rent due following the
imposition of the second consecutive late charge, rent shall no longer be paid
in monthly installments but shall be payable three (3) months in advance.
8. USE OF PREMISES. Tenant, and any permitted subtenant or assignee, shall
use the Premises only for the use described in Section 1 on page 3. Any other
use of the Premises is absolutely prohibited. Tenant shall not use or occupy the
Premises in violation of any recorded covenants, conditions and restrictions
affecting the land on which the Building is located nor of any law, ordinance,
rule and regulation. Tenant shall not do or permit to be done anything which
will invalidate or increase the cost of any fire, extended coverage or any other
insurance policy covering the Building or property located therein and shall
comply with all rules, orders, regulations and requirements of any applicable
fire rating bureau or other organization performing a similar function. Tenant
shall promptly upon demand reimburse Landlord as additional rent for any
additional premium charged for any insurance policy by reason of Tenant's
failure to comply with the provisions of this Section 8. Tenant shall not do or
permit anything to be done in or about the Premises which will in any way
obstruct or interfere with the rights of other tenants or occupants of the
Building, or injure or annoy them, or use or allow the Premises to be used for
any improper, immoral, unlawful or objectionable purpose, nor shall Tenant
cause, maintain or permit any nuisance in, on or about the Premises. Tenant
shall not commit or suffer to be committed any waste in or upon the Premises and
shall keep the Premises in first class repair and appearance. Tenant shall not
place a load upon the Premises exceeding the average pounds of live load per
square foot of floor area specified for the Building by Landlord's architect,
with any partitions to be considered a part of the live load. Landlord
represents and Tenant acknowledges that, as of execution of this Lease, the
maximum pre-improvement live floor load is 70 pounds per square foot. Subject to
the previous sentence and pursuant to Exhibit G attached hereto, Landlord makes
no representations regarding the capacity of floors or suitability of the
Premises for Tenant's use and Tenant represents that it has inspected the
Premises and accepts same in its "as is" condition. Landlord reserves the right
to prescribe the weight and position of all safes, files and heavy equipment
which Tenant desires to place in the Premises so as to distribute properly the
weight thereof. Tenant's business machines and mechanical equipment which cause
vibration or noise that may be transmitted to the Building structure or to any
other space in the Building shall be so installed, maintained and used by Tenant
as to eliminate such vibration or noise. Tenant shall be responsible for the
cost of all structural engineering required to determine structural load. In any
event, unless specifically authorized herein, Tenant shall not prepare or serve,
or authorize the preparation or service of, food or beverages in the Premises,
except only the occasional preparation of coffee, tea, hot chocolate and other
such
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common refreshments for Tenant and its employees. Tenant shall not conduct any
auction in or about the Premises or the Building without Landlord's prior
written consent.
9. BUILDING SERVICES.
9.1 Throughout the term of this Lease, subject to shortage and accidents
beyond Landlord's reasonable control, and subject to reimbursement pursuant to
Section 4.2, Landlord shall repair and maintain all structural elements of the
Building and common areas (including, without limitation, the structural walls,
doors, floors, ceilings, roof, elevators, stairwells, lobby, heating system, air
conditioning system, telephone cable riser for Building-standard service from
the Building's main terminal to the terminal box on the same floor as the
Premises [but excluding Tenant's telephone equipment and the cable and wiring
from such equipment to the terminal box], plumbing and electrical wiring) and
maintain the exterior of the Premises, including grounds, walks, drives and
loading area, if any. Tenant shall reimburse Landlord upon demand, as additional
rent hereunder, for the cost of any repairs or extraordinary maintenance caused
by the acts of Tenant or Tenant's employees, contractors, agents, licensees or
invitees. Landlord shall not be responsible for the repair and maintenance of
Tenant installed systems or improvements, including, but not limited to any
heating or air conditioning system installed by Tenant.
9.2 Provided that Tenant is not in default hereunder, subject to shortages
and accidents beyond Landlord's reasonable control, Landlord shall furnish
building standard heating and air conditioning service Monday through Friday
from 8:00 A.M. to 6:00 P.M., and Saturday from 8:00 A.M. to 1:00 P.M., except
for holidays. No heating or air conditioning will be furnished by Landlord on
Sundays, holidays or during hours other than as set forth above, except upon
prior arrangement with Tenant and at an extra charge based on Landlord's actual
cost plus Landlord's administrative fees, as may be agreed to between Landlord
and Tenant. For purposes of this Section 9.2, "holidays" shall mean and refer to
the holidays of Christmas, New Year's Day, Martin Luther King Day, President's
Day, Memorial Day, the Fourth of July, Labor Day, Thanksgiving and the day after
Thanksgiving, as those holidays are defined, recognized or established by
governmental authorities or agencies from time to time and such other days the
New York Stock Exchange is closed.
Notwithstanding the foregoing, Tenant shall install in the Premises, at
its sole cost and expense a self-contained 24 hour heating, ventilating and air
conditioning unit, (the "Separate HVAC"). Tenant covenants that its installation
and operation of its telecommunications and computer equipment or other special
equipment or facilities will not place a greater burden on the air conditioning
system than would general office use in the Premises. The installation and
operation of the Separate HVAC is subject to compliance with the other
provisions of this Lease, including but not limited to obtaining Landlord's
prior written consent to the plans and specifications for the work and
electrical requirements of the Separate HVAC. Tenant shall be permitted to
exhaust the separate HVAC out of the southern side of the Building, subject to
Landlord's prior review and approval, which approval shall not be unreasonably
withheld, delayed or conditioned. Tenant shall pay all costs of electricity for
the Separate HVAC. At Landlord's election, the electrical requirements for the
Separate HVAC, as well as all of Tenant's other electrical requirements, shall
be separately metered to Tenant at Tenant's expense as described below. Tenant
shall have the right to remove and/or cap off the existing HVAC systems
servicing the Premises. At Landlord's option, at the expiration or earlier
termination of the Lease, Tenant shall restore, at its sole cost and expense,
the HVAC system to its original condition.
Subject to the capacity standards described in Section 35, Landlord shall
furnish electric current to the Premises in amounts reasonably sufficient for
normal business use, including operation of building standard lighting and
operation of typewriters and standard fractional horsepower office machinery,
all subject to the obligations of Tenant for payment of the costs of such
electricity as provided herein. Tenant agrees that, at all times during the term
of this Lease, Tenant's use of electric current shall never exceed the capacity
of the feeders to the Building or the risers or wiring installation in the
Building. Any transformer or other special equipment required to connect
Tenant's facilities to Landlord's electrical supply shall be provided and
installed at Tenant's expense. Landlord may, at its election and at Tenant's
sole cost and expense, separately meter at Tenant's expense the electrical usage
of some or all of Tenant's equipment, facilities or Premises. Tenant shall pay
the charges for all such separately metered electrical usage within 15 days
after receipt of a billing therefor. Landlord shall not use its approval rights
to arbitrarily or discriminatorily prevent Tenant's installation of and use of
equipment customarily used in a telecommunications business, but Landlord may
impose reasonable conditions on such installation and use, regarding such
matters as the placement, venting, power sources, and structural requirements
for such equipment.
Subject to Tenant obtaining Landlord's prior written approval of the plans
and specifications which shall not be unreasonably withheld, delayed or
conditioned and subject to Tenant's compliance with Section 29 and the other
provisions of this Lease, Tenant shall arrange to receive electric service
directly from the Department of Water and Power ("D.W.P.") for Tenant's
electrical usage that exceeds the capacity provided to Tenant pursuant to
Section 35 in this Lease. Landlord makes no representations or warranties
regarding such arrangements, but will cooperate with Tenant and the D.W.P.
reasonably and in good faith. As part of such arrangements, Tenant shall
contract with, and be billed directly by, the D.W.P. Tenant agrees to pay such
bills when due, Under such arrangement, Landlord will not install, maintain or
read the D.W.P. meter nor bill Tenant for such electric service or usage. The
location of any new vault or transformer space required
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in the basement of the Building for this purpose (whether or not located in the
Department of Water and Power's existing vault, if that is possible) shall be
subject to Landlord's reasonable advance approval, as part of Landlord's prior
written approval of the plans and specifications. Tenant shall pay for all costs
and expenses incurred in connection with such an arrangement including, but not
limited to, costs of equipment, materials, construction, installations and
hook-ups.
Tenant shall pay monthly upon billing as additional rent under this Lease
such sums as Landlord's building engineer may reasonably determine to be
necessary in order to reimburse Landlord for the additional cost of any
utilities which have not been separately metered to Tenant (including, without
limitation, electricity, gas and other fuels or power sources, and water, and
Landlord's reasonable costs of administration, which costs of administration
shall not exceed three percent (3%) of the other costs attributable to any
requirements in excess of those for normal office use by reason of the operation
of computer or telecommunications equipment or other special equipment or
facilities, or attributable to Tenant's conducting business beyond the business
hours described in the first sentence of this Section 9.2.
Any utility charges billed directly to Tenant shall not be included in the
Building's "Utility Costs" for purposes of Section 4 above. Any extra
maintenance charges or service calls attributable to the actions of Tenant
(e.g., continual adjustments of the thermostats or the failure to keep window
coverings closed as necessary) shall be payable by Tenant to Landlord upon
demand, as additional rent hereunder.
9.3 Landlord shall furnish unheated water from mains for drinking,
lavatory and toilet purposes drawn through fixtures installed by Landlord, or by
Tenant with Landlord's express prior written consent, and heated water for
lavatory purposes from regular building supply in such quantities as required in
Landlord's judgment for the comfortable and normal use of the Premises. Tenant
shall pay Landlord for additional water which is furnished for any other
purpose. The amount that Tenant shall pay Landlord for such additional water
shall be the average price per gallon charged to the Landlord for the Building
by the entity providing water, increased by three percent (3%) to cover
Landlord's administrative expense.
9.4 Tenant shall provide its own janitorial services to the Premises
subject to Landlord's prior written approval of the service provider, such
approval not to be unreasonably withheld, delayed or conditioned. Tenant shall
submit to Landlord a list of proposed janitorial service providers, with
references, upon commencement of this Lease for Landlord to approve or
disapprove without undue delay. Only those service providers who have been
approved by Landlord may perform janitorial services. Notwithstanding the
foregoing, Landlord shall furnish janitorial service (including washing of
windows with reasonable frequency as determined by Landlord) for the common
area, to the extent necessitated by normal office use of the Premises, Monday
through Friday, holidays excepted. Tenant shall keep all such portions of the
Premises in a clean and orderly condition at Tenant's sole cost and expense. In
the event that Tenant shall fail to keep or cause to keep such portions of the
Premises in a clean and orderly condition, Landlord may do so and any costs
incurred by Landlord in connection therewith shall be payable by Tenant to
Landlord upon demand, as additional rent hereunder. Tenant shall also pay to
Landlord, as additional rent hereunder, amounts equal to any increase in cost of
janitor service in and about the common areas if such increase in costs is due
to (a) use of the Premises by Tenant during hours other than normal business
hours, or (b) location in or about the Premises of any fixtures, improvements,
materials or finish items (including without limitation wall coverings and floor
coverings) other than those which are of the standard type adopted by Landlord
for the Building.
9.5 Landlord shall furnish passenger elevator service and freight elevator
service in common with Tenant and other tenants Monday through Friday from 8:00
A.M. to 6:00 P.M. and Saturday from 8:00 A.M. to 1:00 P.M. Landlord shall
provide limited passenger elevator service daily at all times such normal
passenger service is not furnished. One elevator shall be designated as a
freight elevator for use by the Building's tenants on a non-exclusive basis. The
designated freight elevator will be made available to the Building's tenants for
the delivery of equipment, tools and construction materials between the hours of
6:00 p.m. to 7:00 a.m. Monday through Friday; after 3:00 p.m. on Saturdays, and
at any time on Sundays, with 24-hour advance notice and subject to prior
reservations.
9.6 Landlord does not warrant that any service will be free from
interruptions caused by repairs, renewals, improvements, changes of service,
alterations, strikes, lockouts, labor controversies, accidents, inability to
obtain fuel, steam, water or supplies or other cause. Landlord agrees to give
Tenant notice of any extended interruptions of which Landlord has prior
knowledge. No interruption of service shall be deemed an eviction or disturbance
of Tenant's use and possession of the Premises or any part thereof, nor relieve
Tenant from payment of rent or performance of Tenant's other obligations under
this Lease except as provided below in this Section 9.6. Landlord shall not be
responsible for correcting any such interruption in service which is not curable
by Landlord on a commercially reasonable basis, as determined by Landlord in its
sole discretion. Subject to Section 11 below, and subject to Landlord's rights
to recover certain costs under other provisions of this Lease, if Landlord
determines that such interruption in service is curable on such a commercially
reasonable basis. Landlord shall make good faith efforts to so correct the
interruption within a reasonable time after Landlord receives written notice
from Tenant of the interruption in service. In doing such work Landlord shall
use commercially reasonable, good faith efforts to interfere as little as
reasonably practicable with the conduct of Tenant's business in the Premises,
without, however, being obligated to incur liability for overtime or other
premium payment to its agents, employees or contractors in connection therewith.
Landlord shall in no event be liable for any injury to or interference with
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Tenant's business or any punitive, incidental or consequential damages, whether
foreseeable or not, arising from the making of or failure to make any repairs,
alterations or improvements, or provision of or failure to provide or restore
any service in or to any portion of the Building, including the Premises, or the
fixtures, appurtenances and equipment therein. Tenant shall not be entitled to
any abatement or reduction of rent or other remedy by reason of Landlord's
failure to furnish any of the services or Building systems called for by this
Lease whether such failure is caused by accident, breakage, repairs, strikes,
lockouts or other labor disturbances or labor disputes of any character, or any
other cause, except due to Landlord's gross negligence or wilful misconduct. As
a material inducement to Landlord's entry into this Lease, Tenant waives and
releases any rights it may have to make repairs at Landlord's expense under
Sections 1941 and 1942 of the California Civil Code. Notwithstanding the
foregoing, and except to the extent such interruption is covered by Section 11
of the Lease, in the event Landlord's gross negligence or willful misconduct
causes an interruption in utilities or services as described in Exhibit B
attached hereto and such interruption renders Tenant's Premises or a portion
thereof unusable for a continuous period of at least fifteen (15) consecutive
business days, Landlord shall grant Tenant an appropriate rental abatement that
shall accumulate from and after the fifteenth (15th) consecutive business day of
such interruption until such time as the service is reinstated. However, in no
event shall such abatement exceed the total amount of ten (10) consecutive
business days of interruption.
10. CONDITION OF PREMISES. By occupying the Premises, Tenant shall be
deemed to accept the same and acknowledge that they comply fully with Landlord's
covenants and obligations hereunder, subject to completion of any items which it
is Landlord's responsibility hereunder to furnish and which are listed by
Landlord and Tenant upon inspection of the Premises prior to the Commencement
Date. Landlord represents that the path of travel to the Premises and the
bathrooms on the 7th floor shall be in compliance with the California Disabled
Access Regulations as enforced by the local Department of Building and Safety.
Except as provided in the previous sentence, Tenant acknowledges that neither
Landlord nor any agent, employee or representative of Landlord has made any
representation or warranty with respect to any matter, including but not limited
to any matter regarding the Building or Premises, the applicable zoning or the
effect of other applicable laws, or the suitability or fitness of the Building
or Premises for the conduct of Tenant's business or any other purpose. Tenant is
relying solely on its own investigations with respect to all such matters.
During the term of this Lease, Tenant shall maintain the Premises in as good
condition as when Tenant took possession, ordinary wear and tear and repairs
which are specifically made the responsibility of Landlord hereunder excepted,
and shall repair all damage or injury to the Building or to fixtures,
appurtenances and equipment of the Building caused by Tenant's installation or
removal of its property or resulting from the negligence or tortious conduct of
Tenant, its employees, contractors, agents, licensees and invitees. In the event
of failure by Tenant to perform its covenants of maintenance and repair
hereunder, Landlord may perform such maintenance and repair, and any reasonable
amounts expended by Landlord in connection therewith shall be payable by Tenant
to Landlord upon demand, as additional rent hereunder.
11. DAMAGE TO PREMISES OR BUILDING.
11.1 In the event that the Building should be totally destroyed by fire or
other casualty, this Lease shall terminate as of the date of such casualty. If
the Building is damaged but not totally destroyed by the casualty or if there is
an interruption in services or utilities provided by Landlord pursuant to
Section 9.6 of this Lease, and if such damage or interruption in services or
utilities prevents Tenant's beneficial use of all or a substantial portion of
the Premises, then Landlord shall notify Tenant in writing, within 45 days after
the date Tenant's beneficial use is so prevented, of whether Landlord intends to
restore the Building or the services or utilities in question and of how long,
in Landlord's opinion, the restoration will take to complete. In the event that
the repairs and restoration can, in Landlord's reasonable opinion, be completed
within 270 days after the date Tenant's beneficial use is so prevented, and
Landlord will receive insurance proceeds sufficient to cover the costs of such
repairs and restoration, Landlord shall restore the Building or the services or
utilities in question. In the event the Premises or a substantial portion of the
Building or the delivery system for Building services or utilities should be so
damaged or destroyed that restoration or repairs cannot, in Landlord's opinion,
be completed within 270 days after the date Tenant's beneficial use is so
prevented, or Landlord will not receive insurance proceeds sufficient to cover
the costs of such repairs and restoration, Landlord may at its option terminate
this Lease upon notice to Tenant, or Landlord may elect to proceed to restore
the Building. Similarly, in the event Landlord's notice notifies Tenant that the
restoration in Landlord's opinion will not be completed within 270 days after
the date Tenant's beneficial use is so prevented, Tenant shall have twenty (20)
days from the date of Tenant's receipt of Landlord's notice to elect to
terminate this Lease by delivering written notice of such termination to
Landlord. In the event that Landlord is obligated or elects to restore the
Building or the services or utilities in question, Landlord shall commence such
work reasonably and promptly and shall proceed with reasonable diligence to
restore the Building or the services or utilities to substantially the condition
in which they were immediately prior to the casualty. In the event Landlord does
not substantially complete such restoration within the 270 day period provided
for above, Tenant shall have the right to terminate the Lease upon ten (10) days
written notice to Landlord. Provided, however, Landlord shall not be required to
rebuild, repair or replace any part of the partitions, fixtures, alterations,
decorations or other improvements which may have been constructed by or
specifically for Tenant, or by or for other tenants within the Building. If
either Landlord or Tenant terminates this Lease as provided above, such
termination shall be effective upon ten (10) days written notice delivered to
the other party.
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If neither Landlord nor Tenant terminates this Lease due to the casualty,
the Lease shall remain in full force and effect. After Landlord completes
Landlord's restoration work on the Premises (i.e., any necessary repair work on
the Building shell and the Building systems originally provided by Landlord in
the core of the Building), Tenant shall diligently complete Tenant's repairs to
its tenant improvements. The parties shall cooperate in performing their
respective repairs simultaneously if, in Landlord's reasonable opinion, that is
feasible and appropriate. Tenant shall have the right to terminate this Lease
upon notice served upon Landlord prior to actual completion of Landlord's
restoration work on the Premises if such restoration work is not substantially
completed within 270 days after the date Tenant's beneficial use is first
prevented (provided, however, that if Landlord's original notice to Tenant
estimated that the restoration work would take more than 270 days after the date
Tenant's beneficial use is so prevented, and Tenant did not elect to terminate
the Lease on that basis, then Tenant shall not be entitled to terminate the
Lease pursuant to this sentence unless Landlord fails to substantially complete
such restoration work at least within 95 days after the estimated restoration
period given in Landlord's original notice). For purposes of this Section,
"substantial completion" of Landlord's work shall mean completion to such a
degree that Tenant can commence in the Premises or the damaged portion thereof
its own reconstruction of tenant improvements as contemplated by this Lease.
"Substantial completion" shall not require full completion of all "punch list"
type items which do not materially affect Tenant's use of the Premises. Lease
termination, to the extent provided above, shall be Tenant's sole remedies.
Notwithstanding the foregoing to the contrary, if the damage is due to the
negligence or willful misconduct of Tenant or any of Tenant's agents, employees
or invitees, Tenant shall not be permitted to exercise its right of Lease
termination. Tenant shall not be entitled to any compensation or damages for
loss of, or interference with, Tenant's business or use or access of all or any
part of the Premises resulting from any such damage, repair, reconstruction or
restoration.
11.2 In the event of any damage or destruction of all or any part of the
Premises or any interruption in utilities or services, Tenant shall immediately
notify Landlord thereof.
11.3 In the event any holder of a mortgage or deed of trust on the
Building should require that the insurance proceeds payable upon damage or
destruction to the Building by fire or other casualty be used to retire the debt
secured by such mortgage or deed of trust, or in the event any lessor under any
underlying or ground lease should require that such proceeds be paid to such
lessor, Landlord shall in no event have any obligation to rebuild, and at
Landlord's election this Lease shall terminate.
11.4 With the exception of insurance required to be carried by Tenant
under Section 28 of this Lease, any insurance which may be carried by Landlord
or Tenant against loss or damage to the Building or to the Premises shall be for
the sole benefit of the party carrying such insurance and under its sole
control. Landlord shall not be required to carry insurance of any kind on
Tenant's property and, except by reason of the breach by Landlord of any of its
obligations hereunder, shall not be obligated to repair any damage thereto or to
replace the same.
11.5 In addition to its termination rights in Subsection 11.1 above,
Landlord or Tenant shall have the right to terminate this Lease if any damage to
the Building or Premises occurs during the last twelve (12) months of the Term
of this Lease and Landlord estimates that the repair, reconstruction or
restoration of such damage cannot be completed within the earlier of (a) the
scheduled expiration date of the Lease Term, or (b) 60 days after the date of
such casualty.
11.6 Tenant, as a material inducement to Landlord's entering into this
Lease, irrevocably waives and releases its rights under the provisions of
Sections 1932(2) and 1933(4) of the California Civil Code (and any successor
statutes permitting Tenant to terminate this Lease as a result of any damage or
destruction), it being the intention of the parties hereto that the express
terms of this Lease shall control under any circumstances in which those
provisions might otherwise apply.
12. EMINENT DOMAIN.
12.1 In the event that the whole of the Premises, or so much thereof as to
render the balance unusable to Tenant for the purposes leased hereunder, as
reasonably determined by Landlord, shall be lawfully condemned or taken in any
manner for any public or quasi-public use, or conveyed by Landlord in lieu
thereof (a "Taking"), this Lease and the term hereby granted shall forthwith
cease and terminate on the date of the taking of possession by the condemning
authority (the "Date of Taking").
12.2 In the event of a Taking of a portion of the Premises which does not
result in the termination of this Lease pursuant to Section 12.1, above, the
Base Rent shall be abated in proportion to the part of the Premises so taken and
thereby rendered unusable to Tenant for the purposes leased hereunder, as
reasonably determined by Landlord.
12.3 In the event that there is a Taking of a portion of the Building
other than the Premises, and if, in the opinion of Landlord, the Taking is so
substantial as to render the remainder of the Building uneconomic to maintain
despite reasonable reconstruction or remodeling, or if it would be necessary to
alter the Building or Premises materially, Landlord may terminate this Lease by
notifying Tenant of such termination within 60 days following the Date of
Taking, and this
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Lease shall end on the date specified in the notice of termination, which shall
not be less than 60 days after the giving of such notice.
12.4 No temporary Taking of the Building or Premises and/or of Tenant's
rights therein or under this Lease shall terminate this Lease or give Tenant any
right to abatement of rent hereunder. Tenant shall be entitled to receive such
portion of any award as is specifically made for such a temporary use with
respect to the period of the Taking which is within the term of this Lease,
provided that the Taking renders the Premises unusable to Tenant for the
purposes leased hereunder, as reasonably determined by Landlord. If such Taking
shall remain in force at the expiration or earlier termination of this Lease,
then Tenant shall pay to Landlord a sum equal to the reasonable costs of
performing Tenant's obligations under Section 15 with respect to Tenant's
surrender of the Premises and, upon such payment, shall be excused from such
obligations. For purposes of this Section 12.4, a temporary Taking shall be
defined as a Taking for a period of 270 days or less.
12.5 Except for the award in the event of a temporary Taking as
contemplated in Section 12.4, above, Tenant hereby releases and shall have no
interest in, or right to participate with respect to the determination of, any
compensation for any Taking, except only that Tenant shall be entitled to the
portion of any award specifically designated by the condemning authority to be
for (i) any personal property of Tenant included in any such Taking, or (ii) for
any relocation expenses or business interruption loss incurred by Tenant.
13. DEFAULT.
13.1 The following events shall be deemed to be events of default by
Tenant under this Lease:
(a) If Tenant shall fail to pay any installment of rent or any other
sum required to be paid by Tenant under this Lease within five (5) days of the
date when due.
(b) If Tenant shall fail to comply with any term, provision or
covenant of this Lease, other than provisions pertaining to the payment of
money, after the expiration of any and all applicable cure and grace periods
under this Lease.
(c) If Tenant shall make a general assignment for the benefit of its
creditors.
(d) If Tenant shall file a petition under any section or chapter of
the federal Bankruptcy Code, as amended from time to time, or under any similar
law or statute of the United States or any State thereof pertaining to
bankruptcy, insolvency or debtor relief, or Tenant shall have a petition or
other proceedings filed against Tenant under any such law or chapter thereof and
such petition or proceeding shall not be vacated or set aside within 60 days
after such filing.
(e) If a receiver or trustee shall be appointed for all or
substantially all of the assets of Tenant and such receivership shall not be
terminated and possession of such assets restored to Tenant within 30 days after
such appointment.
(f) If Tenant shall desert or vacate any substantial portion of the
Premises and the same shall remain unoccupied for more than thirty (30) days
thereafter.
(g) If Tenant shall assign this Lease or sublet the Premises in
violation of the terms hereof.
13.2 Any shorter period for cure provided by law notwithstanding, and in
lieu thereof, including without limitation California Code of Civil Procedure
Section 1161, Tenant may cure any monetary default under Subsection 13.1(a),
above, at any time within five (5) days after written notice of default is
received by Tenant from Landlord; and (except as specifically provided otherwise
in Section 24) Tenant may cure any non-monetary default within fifteen (15) days
after written notice of default is received by Tenant from Landlord, provided
that if such non-monetary default is curable but is of such a nature that the
cure cannot be completed within fifteen (15) days, Tenant shall be allowed to
cure the default if Tenant promptly commences the cure upon receipt of the
notice and diligently prosecutes the same to completion, which completion shall
occur not later than sixty (60) days from the date of such notice from Landlord.
14. REMEDIES UPON DEFAULT.
14.1 Upon the occurrence of any event of default by Tenant, Landlord shall
have, in addition to any other remedies available to Landlord at law or in
equity, the option to pursue any one or more of the following remedies (each and
all of which shall be cumulative and non-exclusive) without any notice or demand
whatsoever:
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(a) Terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may,
without prejudice to any other remedy which it may have for possession or
arrearages in rent, enter upon and take possession of the Premises and expel or
remove Tenant and any other person who may be occupying the Premises or any part
thereof, without being liable for prosecution or any claim or damages therefor;
and Landlord may recover from Tenant the following:
(1) The worth at the time of award of any unpaid rent which
has been earned at the time of such termination; plus
(2) The worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus
(3) The worth at the time of award of the amount by which the
unpaid rent for the balance of the term after the time of award exceeds the
amount of such rental loss that Tenant proves could have been reasonably
avoided; plus
(4) Any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom, specifically including but not limited to attorneys' fees,
removal and storage (or disposal) of Tenant's personal property, unreimbursed
leasehold improvement costs (e.g., the amounts Landlord has expended for
leasehold improvements which have not been recovered as of the termination of
the Lease when amortized on a straight-line basis over the originally scheduled
lease term), brokerage commissions and advertising expenses incurred, expenses
of remodeling the Premises or any portion thereof for a new tenant, whether for
the same or a different use, and any special concessions made to obtain a new
tenant; and
(5) At Landlord's election, such other amounts in addition to
or in lieu of the foregoing as may be permitted from time to time by applicable
law.
The term "rent" as used in this Subsection 14.1(a) shall be deemed to be and to
mean all sums of every nature required to be paid by Tenant pursuant to the
terms of this Lease, whether to Landlord or to others. Any such sums which are
based on percentages of income, increased costs or other historical data shall
be reasonable estimates or projections computed by Landlord on the basis of the
amounts thereof accruing during the 24-month period immediately prior to
default, except that if it becomes necessary to compute such sums before a
24-month period has expired, then the computation shall be made on the basis of
the amounts accruing during such shorter period. As used in Subsections 14.1
(a)(1) and (2), above, the "worth at the time of award" shall be computed by
allowing interest from the date the sums became due at the lesser of (i) the
Bank of America prime rate on the due date plus three percent (3%), or (ii) the
maximum rate permitted by law. As used in Subsection 14.1(a)(3), above, the
"worth at the time of award" shall be computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent (1%). With respect to Subsections 14.1(a)1 through 14.1(a) 4,
Landlord shall use its best efforts to let the Premises on the best available
terms.
(b) In the event of any such default by Tenant, in addition to any
other remedies available to Landlord under this Lease, at law or in equity,
Landlord shall also have the right, with or without terminating this Lease, to
re-enter the Premises and remove all persons and property from the Premises;
such property may be removed, stored and/or disposed of pursuant to any
procedures permitted by applicable law, including but not limited to those
described in Section 15.3. No re-entry or taking possession of the Premises by
Landlord pursuant to this Subsection 14.1(b), and no acceptance of surrender of
the Premises or other action on Landlord's part, shall be construed as an
election to terminate this Lease unless a written notice of such intention be
given to Tenant or unless the termination thereof be decreed by a court of
competent jurisdiction.
(c) In the event of any such default by Tenant, in addition to any
other remedies available to Landlord under this Lease, at law or in equity,
Landlord shall have the right to continue this Lease in full force and effect,
whether or not Tenant shall have abandoned the Premises. The foregoing remedy
shall also be available to Landlord pursuant to California Civil Code Section
1951.4 and any successor statute in the event Tenant has abandoned the Premises.
In the event Landlord elects to continue this Lease in full force and effect
pursuant to this Subsection 14.1(c), then Landlord shall be entitled to enforce
all of its rights and remedies under this Lease, including the right to recover
rent as it becomes due. Landlord's election not to terminate this Lease pursuant
to this Subsection 14.1(c) or pursuant to any other provision of this Lease, at
law or in equity, shall not preclude Landlord from subsequently electing to
terminate this Lease or pursuing any of its other remedies.
(d) Whether or not Landlord elects to terminate this Lease on
account of any default by Tenant, Landlord shall have the right to terminate any
and all subleases, licenses, concessions or other consensual arrangements for
possession entered into by Tenant and affecting the Premises or may, in
Landlord's sole discretion, succeed to Tenant's
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interest in such subleases, licenses, concessions or arrangements. If Landlord
so elects to succeed to Tenant's interest, Tenant shall, as of the date of
notice by Landlord of such election, have no further right to or interest in the
rent or other consideration receivable thereunder.
14.2 Following the occurrence of an event of default by Tenant, Landlord
shall have the right to require that any or all subsequent amounts paid by
Tenant to Landlord hereunder, whether in cure of the default in question or
otherwise, be paid in the form of cash, money order, cashier's or certified
check drawn on an institution acceptable to Landlord, or by other means approved
by Landlord, notwithstanding any prior practice of accepting payments in any
different form.
14.3 All rights, options and remedies of Landlord contained in this
Section 14 and elsewhere in this Lease shall be construed and held to be
cumulative, and no one of them shall be exclusive of the other, and Landlord
shall have the right to pursue any one or more of such remedies or any other
remedy or relief which may be provided by law or in equity, whether or not
stated in this Lease. Nothing in this Section 14 shall be deemed to limit or
otherwise affect Tenant's indemnification of Landlord pursuant to any provision
of this Lease.
14.4 Landlord shall not be deemed in default in the performance of any
obligation required to be performed by Landlord under this Lease unless Landlord
has failed to perform such obligation within thirty (30) days after the receipt
of written notice from Tenant specifying in detail Landlord's failure to
perform; provided however, that if the nature of Landlord's obligation is such
that more than thirty (30) days are required for its performance, then Landlord
shall not be deemed in default if it commences such performance within such
30-day period and thereafter diligently pursues the same to completion. Upon any
such uncured default by Landlord, Tenant shall be entitled, as Tenant's sole and
exclusive remedy, to recover from Landlord Tenant's actual damages (but not lost
profits or any punitive, incidental or consequential damages) shown by Tenant to
have been directly caused thereby; provided, however: (a) Tenant shall have no
right to offset or abate rent in the event of any default by Landlord under this
Lease, except to the extent offset rights are specifically provided to Tenant in
this Lease; (b) Tenant shall in no event be entitled to terminate this Lease by
reason of Landlord's default; and (c) Tenant's rights and remedies hereunder
shall be subject to any specific limitations set forth in other provisions of
this Lease.
14.5 No waiver by Landlord or Tenant of any violation or breach of any of
the terms, provisions and covenants herein contained shall be deemed or
construed to constitute a waiver of any other or later violation or breach of
the same or any other of the terms, provisions, and covenants herein contained.
Forbearance by Landlord in enforcement of one or more of the remedies herein
provided upon an event of default shall not be deemed or construed to constitute
a waiver of such default. The acceptance of any rent hereunder by Landlord
following the occurrence of any default, whether or not known to Landlord, shall
not be deemed a waiver of any such default, except only a default in the payment
of the rent so accepted, subject to the provisions of Section 33.1.
15. SURRENDER OF PREMISES; REMOVAL OF PROPERTY.
15.1 No act or thing done by Landlord or any agent or employee of Landlord
during the term hereof shall be deemed to constitute an acceptance by Landlord
of a surrender of the Premises unless such intent is specifically acknowledged
in a writing signed by Landlord. The delivery of keys to the Premises to
Landlord or any agent or employee of Landlord shall not constitute a surrender
of the Premises or effect a termination of this Lease, whether or not the keys
are thereafter retained by Landlord, and notwithstanding such delivery Tenant
shall be entitled to the return of such keys at any reasonable time upon request
until this Lease shall have been properly terminated. The voluntary or other
surrender of this Lease by Tenant, whether accepted by Landlord or not, or a
mutual termination hereof, shall not work a merger, and at the option of
Landlord shall operate as an assignment to Landlord of all subleases or
subtenancies affecting the Premises.
15.2 Upon the expiration of the term of this Lease, or upon any earlier
termination of this Lease, Tenant shall, subject to the provisions of this
Section 15, quit and surrender possession of the Premises to Landlord in as good
order and condition as when Tenant took possession and as thereafter improved by
Landlord and/or Tenant, reasonable wear and tear and repairs which are
specifically made the responsibility of Landlord hereunder excepted. Upon such
expiration or termination, Tenant shall, without expense to Landlord, remove or
cause to be removed from the Premises all debris and rubbish, and such items of
furniture, equipment, free-standing cabinet work, movable partitions and other
articles of personal property owned by Tenant or installed or placed by Tenant
at its expense in the Premises, and such similar articles of any other persons
claiming under Tenant, as Landlord may, in its reasonable discretion, require to
be removed, and Tenant shall repair at its own expense all damage to the
Premises and Building resulting from such removal.
15.3 Whenever Landlord shall re-enter the Premises as provided in this
Lease, any personal property of Tenant not removed by Tenant upon the expiration
of the term of this Lease, or within 48 hours after a termination by reason of
Tenant's default as provided in this Lease, shall be deemed abandoned by Tenant
and may be disposed of by Landlord (without liability to Tenant) in accordance
with Sections 1980 through 1991 of the California Civil Code and Section 1174 of
the California Code of Civil Procedure, or in accordance with any laws or
judicial decisions which may supplement or
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supplant those provisions from time to time, or in accordance with any other
legally permissible procedure, whether by public or private sale or otherwise.
Landlord shall be entitled to apply any proceeds of the sale of such items to
any sums due to Landlord by Tenant and to Landlord's costs of removal, storage
and sale of such items. Alternatively, Landlord shall be entitled to treat
Tenant's failure to remove such items from the Premises as either a permitted or
unpermitted holdover pursuant to Section 19 of this Lease.
15.4 All fixtures, alterations, additions, repairs, improvements and/or
appurtenances attached to or built into or on or about the Premises prior to or
during the term hereof, whether by Landlord at its expense or at the expense of
Tenant, or by Tenant at its expense, or by previous occupants of the Premises,
shall be and remain part of the Premises and shall not be removed by Tenant at
the end of the term of this Lease. Such fixtures, alterations, additions,
repairs, improvements and/or appurtenances shall include, without limitation,
built-in utilities such as heating, ventilating and air conditioning units,
floor coverings, drapes, paneling, molding, doors, kitchen and dishwashing
fixtures and equipment, plumbing systems, electrical systems, lighting systems,
silencing equipment, all fixtures and outlets for the systems mentioned above
and for all telephone, radio, telegraph and television purposes, and any special
flooring or ceiling installations, as well as standby power generators, fuel
tanks (subject to the following paragraph) and electrical fuel gear, and
condenser units (if any) installed pursuant to the terms of the Lease, wherever
located in the Building (including its roof) (but excluding Tenant's
telecommunications switch and other telecommunications trade fixtures and
equipment, and batteries and rectifiers, which Tenant agrees to remove upon the
expiration or termination of this Lease). Notwithstanding the foregoing,
Landlord may, in its sole discretion, require Tenant, at Tenant's sole cost and
expense, to remove any fixtures, alterations, additions, repairs, improvements
and/or appurtenances attached or built into or on or about the Premises or as
otherwise listed above (specifically including telecommunications equipment, but
excluding conduit and cable and initial tenant improvements). Tenant shall
repair any damage to the Building and Premises occasioned by the installation,
construction, operation and/or removal of any fixtures, trade fixtures,
equipment, alterations, additions, repairs, improvements and/or appurtenances
pursuant to this section. If Tenant shall fail to complete such removal and
repair such damage, Landlord may do so and may charge the reasonable cost
thereof to Tenant.
15.5 Tenant hereby waives all claims for damages or other liability in
connection with Landlord's re-entering and taking possession of the Premises or
removing, retaining, storing or selling the property of Tenant as herein
provided (except for such damages and liability caused by Landlord's willful
misconduct or gross negligence), and Tenant hereby indemnifies and holds
Landlord harmless from any such damages or other liability, and no such re-entry
shall be considered or construed to be a forcible entry.
16. COSTS OF SUIT; ATTORNEYS' FEES; WAIVER OF JURY TRIAL.
16.1 If Tenant or Landlord shall bring any action for any relief,
declaratory or otherwise, against the other arising out of or under this Lease,
including any suit by Landlord for the recovery of rent or possession of the
Premises, the losing party shall pay the successful party its costs of suit,
including, without limitation, a reasonable sum for attorneys' and other
professional fees relating to such suit, and such fees shall be deemed to have
accrued on the commencement of such action and shall be paid whether or not such
action is contested or prosecuted to judgment.
16.2 In the event that Landlord shall, without fault on Landlord's part,
be made party to any litigation instituted by Tenant or by any third party
against Tenant, or by or against any person holding under or using the Premises
by license of Tenant, or for the foreclosure of any lien for labor or material
furnished to or for Tenant or of any such other person, Tenant hereby
indemnifies and holds Landlord harmless from and against all costs and expenses,
including reasonable attorneys' fees, incurred by Landlord in or in connection
with such litigation.
16.3 In order to limit the cost of resolving any disputes between the
parties, and as a material inducement to each party to enter into this Lease,
each party hereby waives the right to a jury trial with respect to any
litigation between the parties arising out of this Lease, Tenant's occupancy of
the Premises, or Landlord's ownership, operation or management of the Building,
irrespective of any rights to a jury trial which either party otherwise then
would have under applicable statutes, constitutions, judicial decisions or other
laws.
17. ASSIGNMENT AND SUBLETTING.
17.1 Except as hereinafter provided, Tenant shall not sublet all or any
part of the Premises, nor assign this Lease, nor enter any license, "co-location
agreement" or other agreement permitting a third party (other than Tenant's
employees and occasional guests) to use or occupy any portion of the Premises,
without Landlord's express prior written consent. (For purposes of the balance
of this Section 17.1 and Sections 17.2 through 17.5, the term "sublease" shall
be deemed to include licenses, co-location agreements, and other agreements for
use or occupancy of the Premises as described in the preceding sentence. The
terms "subtenant" and "sublet" shall be construed accordingly.)
Notwithstanding the foregoing or anything to the contrary contained in
this Section 17.1, Tenant shall have the right following written notice to
Landlord of such intent, to assign or sublet all or any portion of the Premises
at any time
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during the term of the Lease to any corporation or entity which (i) is a wholly
owned subsidiary of Tenant; (ii) is a corporation in which Tenant owns in excess
of twenty five percent (25%) of the outstanding capital stock; or (iii)
substantially all of Tenant's assets are transferred to, without having the
obligation of securing the Landlord's approval or consent (collectively, the
"Corporation Assignment"), or (iv) a business entity which acquires Tenant
through acquisition or merger, so long as Tenant (a) remains liable for all
obligations pursuant to the Lease and (b) such assignee, sublessee or transferee
shall expressly assume the obligations of Tenant under the Lease by a document
reasonably satisfactory to the Landlord (provided that in the case of a
sublease, the subtenant's obligations shall be limited to those obligations
relating to the subleased space and the common areas during the sublease term.
Any other assignment or sublease shall be subject to Landlord's prior written
consent, which consent shall not be unreasonably withheld, delayed or
conditioned. Landlord shall retain fifty percent (50%) of all profits realized
by Tenant from any sublease or assignment in excess of (i) Tenant's rent
obligations under the Lease, (ii) legal and marketing costs, (iii) brokerage
commissions, and (iv) improvement costs associated with the sublease or
assignment.
In order to assist Landlord in evaluating any proposed assignment or
sublease, Tenant agrees to provide Landlord with the proposed subtenant or
assignee's current financial statement and financial statements for the
preceding 2 years and such other information concerning the business background
and financial condition of the proposed subtenant or assignee and of Tenant as
Landlord may reasonably request.
Landlord and Tenant hereby agree that Landlord's disapproval of any
proposed sublease or assignment hereunder shall be deemed reasonable if based
upon any reasonable factor, including, without limitation, any or all of the
following factors:
(a) The proposed transfer would result in more than two subleases of
portions of the Premises being in effect at any time during the term;
(b) The rent payable by the proposed transferee would be less than
the fair market rental value for the space as determined pursuant to the last
paragraph of this Section 17.1 (except as otherwise provided in Section 17.2);
(c) The proposed transferee is an existing tenant or occupant of the
Building or has negotiated with Landlord within the last twelve months for space
in the Building or is another transferee prohibited by the next to last
paragraph of this Section 17.1;
(d) The proposed transferee is a governmental entity;
(e) The transaction calls for new demising walls to be built, and
the portion of the Premises proposed to be sublet or assigned is irregular in
shape and/or has inadequate means of ingress and egress;
(f) The use of the Premises by the proposed transferee (i) is not
permitted by the use provisions of this Lease, or (ii) might, in Landlord's
reasonable opinion, violate any right for an exclusive use granted by Landlord
to another Tenant in the Building;
(g) The transfer would likely result, in Landlord's reasonable
opinion, in a significant increase in the use of the parking areas or common
areas of the Building due to the transferee's employees or visitors, and/or
significant increase in the demand for utilities and services to be provided by
Landlord to the Premises;
(h) The assignee or subtenant does not, in Landlord's reasonable
opinion, have the financial capability to fulfill the obligations imposed by the
transfer, or in the case of an assignment, the assignee does not, in Landlord's
reasonable opinion, have income and net worth at least equal to that of Tenant;
(i) The transferee is not, in the Landlord's reasonable opinion, of
reputable or good character or consistent with Landlord's desired tenant mix;
(j) The transferee is a real estate developer or landlord or is
acting directly or indirectly on behalf of a real estate developer or landlord;
(k) The proposed transferee may, in Landlord's reasonable opinion,
increase the chances of significant hazardous waste contamination within the
Premises or the Building; or
(l) In the reasonable judgment of the Landlord, the purpose for
which the transferee intends to use the Premises is not in keeping with the
standards of the Landlord for the Building or is in violation of the terms of
any other lease in the Building.
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Neither this Lease nor the term hereby demised shall be mortgaged by
Tenant, nor shall Tenant mortgage, assign, pledge or otherwise transfer the
interest of Tenant in and to any sublease or the rentals payable thereunder or
in the Security Deposit.
Any sublease, assignment, mortgage, pledge, encumbrance, or transfer made
in violation of this Section 17.1 shall be void and at Landlord's election shall
terminate this Lease.
Each subtenant, assignee or transferee of Tenant, other than Landlord,
shall assume all obligations of Tenant under this Lease and shall be and remain
liable jointly and severally with Tenant for the payment of the rent, and for
the due performance of all the terms, covenants, conditions and agreements
herein contained on Tenant's part to be performed for the term of this Lease
(provided that in the case of a sublease, the subtenant's obligations shall be
limited to those obligations relating to the subleased space and the common
areas during the sublease term), from and after the effective date of the
assignment or sublease. No sublease or assignment shall be deemed approved by
Landlord unless such subtenant or assignee and Tenant shall deliver to Landlord
a counterpart of such sublease or assignment and an instrument in a form
acceptable to Landlord, which contains a covenant of assumption by the subtenant
or assignee satisfactory in substance and form to Landlord, consistent with the
requirements of this Section 17.1, but the failure or refusal of the subtenant
or assignee to execute such instrument of assumption shall not release or
discharge the subtenant or assignee from its liability as set forth above.
No subtenant or assignee not complying with the foregoing requirements
shall have any interest in the Security Deposit. Any assignee that does comply
with the foregoing requirements shall automatically succeed to Tenant's position
with respect to the Security Deposit, and Landlord shall have the right to
refund all or any portion of the Security Deposit to the assignee at any time or
under any circumstances with no liability to the assignor.
Landlord may require that the assignee or subtenant remit directly to
Landlord on a monthly basis, all monies due to Tenant by said assignee or
subtenant. In such event Landlord shall apply the sums received to the
obligations of Tenant and its successors under this Lease.
In the event of default by any assignee or subtenant or any successor of
Tenant in the performance of any of the terms hereof, Landlord may proceed
directly against Tenant without the necessity of exhausting remedies against
such assignee, subtenant or successor.
Landlord may consent to subsequent assignments of the Lease or sublettings
or amendments or modifications to the Lease with the assignee or other successor
of Tenant, and without obtaining Tenant's consent thereto, and any such actions
shall not relieve Tenant of liability under this Lease.
Consent by Landlord to one assignment or subletting shall not be deemed
consent to any subsequent assignment or subletting.
If Tenant is a corporation which, under California law, is not deemed a
publicly-held corporation, or is an unincorporated association or partnership,
the transfer, assignment or hypothecation of any stock or interest controlling
such corporation, association or partnership shall be deemed an assignment
within the meaning and provisions of this Section 17. For purposes hereof,
"control" shall be deemed to refer to any amount, in the aggregate, exceeding
25% of the voting power of such corporation, association or partnership.
Notwithstanding the foregoing, the immediately preceding sentence shall not
apply to any transfer of stock of Tenant if Tenant is a publicly-held
corporation and such stock is transferred publicly over a recognized security
exchange or over-the-counter market.
Subject to Section 17.2, Tenant agrees that all advertising by Tenant to
market the space in the Premises to be sublet or assigned shall require
Landlord's prior written approval, which shall not be unreasonably withheld.
Subject to Section 17.2, Tenant further agrees that it shall not, without
Landlord's prior written consent, which may be granted or withheld in Landlord's
sole discretion, market any space in the Premises, assign the lease or sublet
any space in the Premises to existing tenants or occupants of the Building, or
to any entity controlling, controlled by, or under common control with any
existing tenant or occupant of the Building, except for any entity controlling,
controlled by or under common control with Tenant.
Subject to Section 17.2, Tenant agrees that it shall not sublet, nor
assign, nor advertise as available for subletting or assignment, nor list with
brokers for subletting or assignment, all or any portion of the Premises for a
consideration which is equal to less than the fair market rental value, as
determined by Landlord in its reasonable discretion, for comparable space in the
Building for a comparable term commencing concurrently with the assignment or
sublease term, with comparable rent credits and tenant improvement allowances.
Within 10 days after Landlord receives any written request from Tenant for
Landlord's estimate of the fair market rental value for specified space (which
request shall identify the space in question, the proposed term and the proposed
rent credits and improvement allowances), Landlord shall notify Tenant
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in writing of the fair market rental value for such space for a comparable term
with comparable rent credits and tenant improvement allowances.
17.2 Landlord acknowledges that Tenant's business to be conducted on the
Premises requires the installation on the Premises of certain communications
equipment by telecommunications customers of Tenant (collectively "Customers")
in order for such Customers to interconnect with Tenant's terminal facilities.
Tenant represents to Landlord that such arrangements will require access by each
Customer to the Premises only on an infrequent basis, and only when accompanied
by a representative of Tenant. Notwithstanding anything contained elsewhere in
this Section 17, Landlord hereby consents in advance to any sublease, license
agreement, "co-location agreement" or like agreement (collectively, "Customer
Subleases") between Tenant and such a Customer for the limited purpose of
permitting such an arrangement as is described in this Section 17.2. The
effectiveness of such advance consent as to a particular Customer Sublease is
conditioned on (a) such Customer and Tenant signing and submitting to Landlord
within ten (10) business days after entering into such a transaction a Notice
and Agreement in the form attached hereto as Exhibit F; (b) such Customer
Sublease being in writing and consistent with the provisions of this Lease
(although Tenant will only be obligated to provide Landlord with a copy of the
executed Customer Sublease if Landlord requests it in writing in which case
Tenant will provide Landlord with a true and complete copy within ten (10) days
after Tenant receives Landlord's request); and (c) all Customer Subleases in
effect at any one time not collectively covering more than fifty percent (50%)
of the Premises. Provided that Tenant's Customer Subleases comply with items
(a), (b) and (c) above, they need not comply with those requirements of Section
17.1 above regarding financial statements, advertising and minimum rental rates.
Tenant shall be liable to Landlord for any violation by its Customers of any
provisions of this Lease. If during the Lease term Tenant and Landlord are
required to permit co-location in the Premises pursuant to applicable statutes,
rules or regulations, Section 33.2 shall nonetheless apply.
17.3 In the event that Tenant desires to assign this Lease, or to enter
into a sublease, as to all or any portion of the Premises, except (a) where the
subtenant or assignee is an entity controlling, controlled by or under common
control with Tenant as set forth in Section 17.1, or (b) as permitted under
Section 17.2 herein, Tenant shall, prior to solicitation of offers therefor,
give Landlord notice of Tenant's desire to assign or sublet and of the portion
of the Premises to be affected by the proposed assignment or sublease. Landlord
shall have the right, exercisable by notice to Tenant within sixty (60) days
after Landlord's receipt of Tenant's notice of desire to assign or sublet, to
terminate this Lease as to the portion of the Premises affected by the proposed
assignment or sublease, such termination to be effective as of the date sixty
(60) days after notice by Landlord to Tenant of such termination.
In the event of a termination of this Lease as to a portion of the
Premises pursuant to this Section 17.3, effective as of such termination, the
Premises shall be deemed to no longer include the portion of the Premises
subject to such termination, Tenant shall surrender possession of that portion
of the Premises in accordance with the provisions of this Lease, and the rent
payable hereunder and Tenant's Percentage Share shall be appropriately adjusted
based upon the rentable area remaining within the Premises.
If Landlord does not elect to terminate pursuant to this Section 17.3, and
if Tenant does not enter into an assignment or sublease as specified in Tenant's
notice of desire to assign or sublet within six (6) months after the expiration
of Landlord's sixty (60) day period for election to terminate, then Tenant shall
again comply with the provisions of this Section 17.3 before assigning this
Lease, or entering into a sublease, as to all or any portion of the Premises.
17.4 In the event that Tenant has sought and received Landlord's consent
to assign this Lease, or to enter into a sublease as to all or any portion of
the Premises, Tenant shall pay to Landlord fifty percent (50%) of the amount to
be received by Tenant during each month pursuant to the terms of the assignment
or sublease, in excess of Tenant's monthly rental payable to Landlord for the
space subject to the assignment or sublease, if any such excess is so received.
The amounts referred to in the previous sentence include rent, additional rent,
or any other payment in respect of use or occupancy, or in reimbursement of
costs of leasehold improvements installed by Tenant, and whether paid in a lump
sum or periodic payments; provided however, such amounts shall not include any
fees charged by Tenant to its Customers to the extent such fees are based on
Tenant's services (not square footage of space used by the Customers) as
provided under Section 17.2 herein. In no event shall the total sums payable to
the Landlord be less than the monthly rental Landlord would have received but
for such assignment or sublease.
The additional rent shall be due and payable to Landlord in accordance
with the schedule specified in the sublease or assignment instrument, and the
failure of any subtenant or assignee to make any payments in accordance with
that schedule shall not affect the obligation of Tenant to pay the additional
rent to Landlord.
The calculation of the amount of rentable space being sublet shall be made
by Landlord in accordance with its usual standards. Landlord may require
acknowledgment by Tenant of Tenant's concurrence on the Landlord's calculation
of the amount of rentable space being sublet as a condition to Landlord's
consent to any sublease.
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The provisions of a sublease or assignment instrument consented to by
Landlord cannot be modified, nor the sublease or assignment terminated, other
than in accordance with its terms, without the prior written consent of the
Landlord, which consent shall not be unreasonably withheld. The terms of this
Section 17.4 shall apply to any subleasing or assignment by any subtenant or
assignee.
17.5 Tenant shall pay to Landlord, promptly upon receipt of a billing from
Landlord, the amount of Landlord's reasonable attorney fees incurred in
connection with Landlord's review or approval of any sublease or assignment
transaction requiring Landlord's consent hereunder.
18. TRANSFER OF LANDLORD'S INTEREST. In the event of any transfer of
Landlord's interest in the Building or Premises, other than a transfer for
security purposes only, the transferor shall be automatically relieved of any
and all obligations and liabilities on the part of Landlord accruing from and
after the date of such transfer; provided that the transferor shall, within a
reasonable time, transfer any Security Deposit then held by Landlord, or any
portion thereof remaining after proper deductions therefrom, to the transferee
and shall thereafter notify Tenant of such transfer, of any claims made against
the Security Deposit, and of the transferee's name and address, by written
notice delivered personally (in which case Tenant shall acknowledge receipt of
such notice by signing Landlord's copy of such notice) or by registered or
certified mail.
19. HOLDING OVER. If Tenant holds over after the term hereof, with or
without the express or implied consent of Landlord, such tenancy shall be from
month-to-month only, and shall not constitute a renewal hereof or an extension
for any further term, and in such case, Base Rent shall be payable at a monthly
rate equal to the greater of: (a) one hundred and fifty percent (150%) of the
Base Rent applicable to the Premises immediately prior to the date of such
expiration or earlier termination; or (b) one hundred fifty percent (150%) of
the prevailing market rate excluding any rental or other concessions (as
reasonably determined by Landlord) for the Premises in effect on the date of
such expiration or earlier termination. Such month-to-month tenancy shall be
subject to every other term, covenant and agreement contained herein. Nothing
contained in this Section 19 shall be construed as consent by Landlord to any
holding over by Tenant, and Landlord expressly reserves the right to require
Tenant to surrender possession of the Premises to Landlord as provided in this
Lease upon the expiration or other termination of this Lease.
20. NOTICES. In every case when, under the provisions of this Lease, it
shall be necessary or desirable for one party hereto to serve any notice,
request or demand on the other, such notice or demand shall be in writing and
shall be served personally, sent via facsimile transmission or by deposit in the
United States mail, postage and fees fully prepaid, registered or certified
mail, with return receipt requested, addressed to the applicable address for
notice set forth in Section A on page 1. Landlord or Tenant may, from time to
time, by notice in writing served upon the other as aforesaid, designate a
different mailing address or a different person to whom all such notices or
demands are thereafter to be addressed. Service of any such notice or demand if
given personally or by facsimile shall be deemed complete upon delivery or upon
transmission, and if made by mail shall be deemed complete on the day of actual
delivery as shown by the addressee's registry or certification receipt or at the
expiration of 2 business days after the date of mailing, whichever is earlier.
Notwithstanding the provisions of this Section 20, any notice of default
as described in Section 13.2 and any pleadings or notices given by either party
to the other with respect to any judicial proceeding between the parties shall
be served in the manner prescribed by applicable California law without
reference to this paragraph, and shall be deemed served at such time as is
provided by such applicable law without reference to this paragraph.
21. QUIET ENJOYMENT. Landlord covenants that Tenant, upon paying the rent
and performing the covenants of this Lease on Tenant's part to be performed,
shall and may peaceably and quietly have, hold and enjoy the Premises for the
term of this Lease and any extensions thereof.
22. TENANT'S FURTHER OBLIGATIONS.
22.1 Except for ordinary wear and as otherwise provided in this Lease,
Tenant shall, at Tenant's expense, keep in good order, condition and repair the
interior of the Premises and shall promptly and adequately repair all damage to
the interior of the Premises and replace or repair all glass, fixtures,
equipment and appurtenances therein damaged or broken, under the supervision and
with the approval of Landlord and, if Tenant does not do so, Landlord may, but
need not, make such repairs and replacements. If Landlord does so, Tenant shall
pay Landlord the cost thereof promptly upon demand, as additional rent
hereunder.
22.2 Tenant shall comply with all laws, ordinances, rules, regulations,
orders and directives of governmental and quasi-governmental bodies and
authorities having jurisdiction over Tenant or the Premises from time to time
and shall obtain and keep in effect all licenses, permits (including but not
limited to conditional use permits) and other authorizations required with
respect to the business or businesses conducted by Tenant within or from the
Premises or with respect to any special equipment or facilities of Tenant
permitted under the other provisions of this Lease. Tenant and its employees,
agents, licensees and invitees shall also comply with all reasonable rules and
regulations which Landlord may adopt from
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time to time for the protection and welfare of the Building and its tenants and
occupants; provided that Tenant shall not be responsible for compliance with any
rule or regulation adopted by Landlord unless or until Tenant is furnished with
a copy thereof. The present rules and regulations for the Building are attached
hereto as Exhibit "B". Landlord shall have no liability to Tenant for the
failure of any other tenant in the Building to observe the rules and
regulations.
23. ESTOPPEL CERTIFICATE BY TENANT. At any time and from time to time,
within 10 days after written request by Landlord, Tenant shall execute,
acknowledge and deliver to Landlord a statement (substantially in the form of
Exhibit D attached hereto) in writing certifying that this Lease is unmodified
and in full force and effect (or if there have been modifications, that this
Lease is in full force and effect as modified and stating the modifications),
that Tenant knows of no default hereunder by Landlord and has no right of offset
or deduction against the rent or any other charge payable to Landlord (or
specifying any claimed), the amount of any security posted by Tenant, the dates
to which the rent and other charges have been paid in advance, any increases or
decreases of rent that are anticipated, the commencement date of the Lease and
such other matters as may be reasonably requested by Landlord. It is intended
that any statement delivered pursuant to this Section 23 may be relied upon by
any purchaser of the fee or mortgagee or beneficiary or assignee of any mortgage
or trust deed upon the fee of the Building or Premises. Tenant's failure to
deliver the statement within the period specified above shall be conclusive and
binding upon Tenant that the Lease is in full force and effect without
modification except as may be represented by Landlord, that there are no uncured
defaults in Landlord's performance and that Tenant has no right of offset,
counterclaim or deduction against rental, and that no more than one month's
rental has been paid in advance.
24. SUBORDINATION AND ATTORNMENT. This Lease is and at all times shall be
subject and subordinate to any ground or underlying leases, mortgages, trust
deeds or like encumbrances, which may now or hereafter affect the Building or
Premises, and to all renewals, modifications, consolidations, replacements and
extensions of any such lease, mortgage, trust deed or like encumbrance. As a
condition precedent to the effectiveness of any such subordination of this Lease
to any future ground or underlying leases or the lien of any future mortgages,
deeds of trust, or like encumbrances, Landlord shall request that any existing
or future mortgagees or ground lessors provide to Tenant a commercially
reasonable non-disturbance and attornment agreement in favor of Tenant
(substantially in the form of Exhibit E attached hereto) executed by such future
ground lessor, master lessor, mortgagee or deed of trust beneficiary, as the
case may be, which shall provide that Tenant's quiet possession of the Premises,
shall not be disturbed on account of such subordination to such future lease or
lien so long as Tenant is not in default under any provisions of this Lease.
Notwithstanding the foregoing, Landlord shall have the right to subordinate or
cause to be subordinated any or all ground or underlying leases or the lien of
any or all mortgages, deeds of trust or like encumbrances to the Lease. In the
event that any ground or underlying lease terminates for any reason or any
mortgage, deed of trust or like encumbrance is foreclosed or a conveyance in
lieu of foreclosure is made for any reason, then at the election of Landlord's
successor-in-interest, Tenant shall attorn to and become the tenant of such
successor. Tenant hereby waives its rights under any current or future law which
gives or purports to give Tenant any right to terminate or otherwise adversely
affect this Lease and the obligations of Tenant hereunder in the event of any
such foreclosure proceeding or sale. Tenant covenants and agrees to execute and
deliver to Landlord in the form reasonably required by Landlord, within ten (10)
business days after receipt of written demand by Landlord, any additional
documents evidencing the priority or subordination of this Lease with respect to
any ground or underlying lease or the lien of any mortgage, deed of trust, or
like encumbrance. Should Tenant fail to sign and return any such documents
within said ten (10) business day period, Tenant shall be in default hereunder
without the benefit of any additional notice or cure periods, except as may be
required by statute.
25. RIGHTS RESERVED TO LANDLORD.
25.1 All portions of the Building are reserved to Landlord, including
exterior building walls, core corridor walls and doors and any core corridor
entrance, but excluding the Premises and the inside surfaces of all walls,
windows and doors bounding the Premises. Landlord also reserves any space in or
adjacent to the Premises used for shafts, stacks, pipes, conduits, fan rooms,
ducts, electric or other utilities, sinks or other building facilities, and the
use thereof, as well as the right to access thereto through the Premises for the
purposes of operation, maintenance, decoration and repair.
25.2 Landlord shall have the following rights exercisable without notice
and without liability to Tenant for damage or injury to property, person or
business (all claims for damage being hereby released), except as expressly
stated herein, and without effecting an eviction or disturbance of Tenant's use
or possession or giving rise to any claim for setoffs or abatement of rent:
(a) To enter the Premises at all reasonable times during the term of
this Lease for the purpose of inspecting the same, posting notices of
non-responsibility, exhibiting the Premises to prospective tenants, purchasers
or others, or making such repairs or replacements therein as may be required by
this Lease or as Landlord may deem appropriate; provided that Landlord shall use
all reasonable efforts not to disturb Tenant's use and occupancy and shall, when
practical, give Tenant prior notice of such repairs. For each of the foregoing
purposes, Tenant shall provide to Landlord a key with which to unlock at any
time all of the doors in, upon and about the Premises, excluding Tenant's vaults
and safes. Landlord may use any other means which Landlord may deem proper to
open such doors in an emergency in
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order to obtain entry to the Premises. Any entry to the Premises obtained by
Landlord by any means shall not under any circumstances be construed or deemed
to be a forcible or unlawful entry into, or a detainer of, the Premises, or an
eviction of Tenant from the Premises or any portion thereof, or grounds for any
abatement or reduction of rent. Any damages or losses on account of any such
entry by Landlord, except those caused directly by Landlord's negligent or
willful misconduct, shall be Tenant's sole responsibility except as otherwise
expressly provided herein. Nothing in this Section 25 shall be construed as
obligating Landlord to perform any repairs, alterations or decorations, except
as otherwise expressly required in this Lease.
(b) To change the name or street address of the Premises or
Building.
(c) To install and maintain signs on the exterior and interior of
the Building, except within the Premises.
(d) To have pass keys to the Premises.
(e) To decorate, remodel, repair, alter or otherwise prepare the
Premises for reoccupancy during the last 6 months of the term hereof if, during
or prior to such time, Tenant has vacated the Premises, or at any time after
Tenant abandons the Premises.
(f) To have access to all mail chutes according to the rules of the
United States Postal Service.
(g) To do or permit to be done any work in or about the exterior of
the Building or any adjacent or nearby building, land, street or alley.
(h) To grant to anyone the exclusive right to conduct any business
or render any service in the Building, provided such exclusive right shall not
operate to exclude Tenant from the use expressly permitted by this Lease.
26. FORCE MAJEURE. Whenever there is provided in this Lease a time
limitation for performance by Landlord or Tenant of any construction, repair,
maintenance or service, the time provided for shall be extended for as long as
and to the extent that delay in compliance with such limitation is due to an act
of God, governmental control or other factors beyond the reasonable control of
Landlord or Tenant, respectively.
27. WAIVER OF CLAIMS; INDEMNITY.
27.1 Tenant, as a material part of the consideration to Landlord, hereby
assumes all risk of, and waives all claims it may have against Landlord, its
agents, employees, partners, officers, directors, affiliates and successors in
interest (collectively, the "Landlord Group") for damage to or loss of property
or personal injury or loss of life resulting from the Building or Premises or
any part thereof becoming out of repair, by reason of any repair or alteration
thereof, or resulting from any accident within the Building or Premises or on or
about any space adjoining the Building or Premises, or resulting directly or
indirectly from any act or omission of any person, or due to any condition,
design or defect of the Building or Premises, or any space adjoining the
Building or Premises, or the mechanical systems of the Building or Premises,
which may exist or occur, whether such damage, loss or injury results from
conditions arising upon the Premises or upon other portions of the Building, or
from other sources or places, and regardless of whether the cause of such
damage, loss or injury or the means of repairing the same is accessible to
Tenant; provided such assumption and waiver shall not apply to claims caused by
the gross negligence or willful misconduct of Landlord or its agents.
27.2 Tenant hereby agrees to indemnify, defend, protect and hold Landlord
and the Landlord Group harmless from and against (a) any and all claims,
demands, suits, fines, losses, expenses and liabilities (collectively, "Claims")
for or relating to injury or loss of life to persons or damage to or loss of
property arising from Tenant's use of the Building or the Premises, or from the
conduct of Tenant's business, or from any work done, permitted or suffered by
Tenant in or about the Premises or elsewhere, or from any negligence or
intentional conduct of Tenant or Tenant's agents, employees, contractors,
licensees, invitees, representatives or successors in interest; (b) any and all
Claims arising from any breach or default in the performance of any obligation
on Tenant's part to be performed under the terms of this Lease; and (c) all
costs, reasonable attorneys' and other professional fees, expenses and
liabilities incurred by Landlord or any member of the Landlord Group in or in
connection with any such Claim. In the event that any action or proceeding is
brought against Landlord or any member of the Landlord Group by reason of any
such Claim, Tenant upon written notice from Landlord shall defend such action or
proceeding at Tenant's cost and expense by counsel approved by Landlord, such
approval not to be unreasonably withheld. Tenant's obligations under this
Section 27.2 shall survive the expiration or termination of this Lease as to any
matters arising prior to such expiration or termination or prior to Tenant's
vacation of the Building. Under no circumstances shall Landlord ever be liable
to Tenant for consequential or punitive damages, including damages for lost
profits or for business interruption. Neither the directors, officers,
shareholders and employees of Landlord shall be personally liable for any claim
or judgment against Landlord under any circumstances. If Landlord is in default
under this Lease, then Tenant shall seek only a money judgment or an action for
specific performance and/or declaratory relief against
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Landlord and shall not attempt to seize or attach any asset of Landlord other
than Landlord's right to insurance proceeds except as otherwise provided herein.
If Tenant recovers a money judgment or an action for specific performance and/or
declaratory relief against Landlord, then such judgment shall be satisfied only
out of the proceeds of the sale received on execution of the judgment levied
against the right, title and interest of the Landlord in the Office Building or
out of rent or other income of the Office Building received or to be received by
the Landlord or by insurance proceeds which the Landlord receives or is entitled
to receive. Tenant shall not attempt to satisfy any such judgment from any other
asset of Landlord under any circumstances. Tenant acknowledges that this
limitation on Landlord's liability has been separately bargained for and that
Landlord would not enter into this Lease in the absence of this provision.
27.3 Landlord hereby agrees to indemnify, defend, protect and hold Tenant
harmless from and against (a) any and all Claims for or relating to injury or
loss of life to persons or damage to or loss of property arising from Landlord's
willful misconduct or gross negligence; and (b) all costs, reasonable attorneys'
and other professional fees, expenses and liabilities incurred by Tenant in or
in connection with any such Claim. In the event that any action or proceeding is
brought against Tenant or by reason of any such Claim, Landlord upon written
notice from Tenant shall defend such action or proceeding at Landlord's cost and
expense, Landlord's obligations under this Section 27.3 shall survive the
expiration or termination of this Lease as to any matters arising prior to such
expiration or earlier termination of the Lease.
28. INSURANCE.
28.1 Tenant shall procure and shall maintain in effect, at Tenant's sole
cost and expense throughout the term of this Lease, including any extensions and
renewals thereof, public liability and property damage insurance against claims
for bodily injury, death or property damage occurring upon or about the Premises
or Building, in each case naming Landlord and its managing agents as additional
insureds and, upon request by Landlord, naming the holder of any mortgage, deed
of trust or like encumbrance or the lessor under any underlying lease covering
the Building as additional insured, with a limit of liability of not less than
$2,000,000.00 single limit. If from time to time, the limits of liability set
forth above are, in the reasonable opinion of Landlord, inadequate, Tenant shall
increase such insurance coverage to an amount as shall be designated by
Landlord's notice to Tenant.
Tenant shall also procure and maintain, at Tenant's sole cost and expense
throughout the term of this Lease, casualty insurance on Tenant's personal
property in the Premises and any leasehold improvements which the Tenant
installed at its own cost in an amount at least equal to the full replacement
cost of such property, providing coverage against all perils insured against by
a "fire and extended coverage" policy, as well as sprinkler damage, vandalism
and malicious mischief.
Tenant shall also obtain the following insurance:
(a) Worker's compensation and employer's liability insurance in form
and amount satisfactory to Landlord.
(b) Loss of income and extra expense insurance and business
interruption insurance in such amounts as will reimburse Tenant for direct or
indirect loss of earnings attributable to all perils commonly insured against by
prudent tenants or attributable to prevention of access to or use of the
Premises or the Building as a result of such perils.
(c) Any other form or forms of insurance as Landlord or Landlord's
lender or ground or primary lessors may reasonably require from time to time in
form, in amounts, and for insurance risks against which a prudent tenant of a
comparable size and in a comparable business would protect itself.
Such policies of insurance shall be with insurance companies acceptable to
Landlord, shall not have a deductible amount exceeding $5,000.00 in the
aggregate, and shall specifically provide that the insurance afforded by such
policies for the benefit of Landlord and its managing agents and Landlord's
mortgagees and ground lessors shall be primary, and that any insurance carried
by Landlord or Landlord's mortgagees and ground lessors shall be excess and
non-contributing. Such policies shall be evidenced by certificates of insurance
delivered to Landlord from time to time showing such insurance to be at all
times prepaid and in full force and effect and providing that such insurance
cannot be canceled or modified upon less than 30 days' prior written notice to
Landlord, and such other evidence of coverage requested by Landlord. (Such
evidence may consist of copies of such policies, including additional insured
endorsements.) If at any time Tenant has not provided Landlord with a then
currently effective certificate of insurance or other evidence of coverage
acceptable to Landlord as to any insurance required to be maintained by Tenant,
Landlord may, without further inquiry as to whether such insurance is actually
in force, obtain such a policy and Tenant shall reimburse Landlord, upon demand
as additional rent hereunder, for the cost thereof, together with Landlord's
administrative fee equal to 25% of the premium.
28.2 Tenant hereby waives its rights against Landlord and its managing
agent and their respective partners, officers, directors, shareholders,
employees, agents, representatives, contractors, affiliates, successors,
licensees, and
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invitees with respect to any claims or damages or losses (including any claims
for bodily injury to persons and/or damage to property) which are caused by or
result from (a) risks insured against under any insurance policy carried by
Tenant at the time of such claim, damage, loss or injury, or (b) risks which
would have been covered under any insurance required to be obtained and
maintained by Tenant under this Lease had such insurance been obtained and
maintained as required. The foregoing waivers shall be in addition to, and not a
limitation of, any other waivers or releases contained in this Lease.
28.3 Tenant and Landlord shall cause each insurance policy required to be
obtained by it pursuant to this Section 28 to provide that the insurer waives
all rights of recovery by way of subrogation against Tenant or Landlord and its
managing agent and their respective partners, officers, directors, shareholders,
employees, agents, representatives, contractors, affiliates, successors,
licensees, and invitees in connection with any claims, losses and damages
covered by such policy. If Tenant fails to maintain insurance required
hereunder, Tenant shall be deemed to be self-insured with a deemed full waiver
of subrogation as set forth in the immediately preceding sentence.
29. FIXTURES, TENANT IMPROVEMENTS AND ALTERATIONS.
29.1 Except as otherwise provided in this Lease, all improvements,
fixtures and/or equipment which Tenant may install or place in or about the
Premises, and all alterations, repairs or changes to the Premises, and all signs
installed in, on or about the Premises, from time to time, shall be at the sole
cost of Tenant. Landlord shall be without any obligation in connection
therewith. Tenant hereby agrees to indemnify, defend, and hold Landlord harmless
from any liability, cost, obligation, expense or claim of lien in any manner
relating to the installation, placement, removal or financing of any such
alterations, repairs, changes, improvements, fixtures, and/or equipment in, on
or about the Premises. Tenant's obligations under the preceding sentence shall
survive the expiration or termination of this Lease as to any matters arising
prior to such expiration or termination or prior to Tenant's vacation of the
Building.
29.2 Notwithstanding any provision in this Section 29 to the contrary,
Tenant is absolutely prohibited from making any alterations, additions,
improvements or decorations which: (i) affect any area outside the Premises;
(ii) affect the Building's structure, equipment, services or systems, or the
proper functioning thereof, or Landlord's access thereto; (iii) affect the
outside appearance, character or use of the Building or the common areas; (iv)
weaken or impair the structural strength of the Building; (v) in the opinion of
Landlord, lessen the value of the Building; (vi) will violate or require a
change in any occupancy certificate applicable to the Premises; or (vii) in the
opinion of Landlord, will increase the Building's Operating Costs or Utility
Costs.
29.3 Before proceeding with any alteration, repair or change which is not
otherwise prohibited in Subsection 29.2 above, Tenant must first obtain
Landlord's written approval of (i) the plans and specifications for all such
work; (ii) with respect to any connecting lines that will be outside the
Premises (if such lines are permitted by Landlord in its sole discretion), a
description of the areas of the Building to which Tenant will require access
both for the initial work and for ongoing maintenance of the improvements or
installations; (iii) the names of all contractors and subcontractors who will
perform such work, all of whom shall be selected from Landlord's then-current
list of approved contractors, which Landlord may compile in Landlord's sole
discretion and will provide to Tenant within ten (10) days following Landlord's
receipt of Tenant's written request; (iv) copies of all construction contracts
entered by Tenant with any contractor for the work; (v) copies of all liability,
casualty, worker's compensation and builder's risk insurance applicable to the
construction, maintenance and ongoing operation of the improvements and
installations; and (vi) copies of all governmental permits required for the
work. Landlord's consent to such matters shall not unreasonably be withheld;
provided, however, that with regard to any such matters which may affect the
structural members, the heating, ventilation, air conditioning or other building
systems, exterior walls, windows and doors of the Building, and with regard to
the installation of any signs outside the Premises, Landlord may grant or
withhold its consent in its sole and absolute discretion. Landlord may impose,
as a condition of its consent to any alterations, repairs or changes of the
Premises, such requirements as Landlord in its sole and absolute discretion may
deem desirable, including, but not limited to, the requirement that Tenant
utilize for such purposes only contractors, materials, mechanics and materialmen
previously used and currently approved by Landlord for work in the Building.
29.4 After Landlord has approved the change, repair or alteration and the
other items listed in Section 29.3, Tenant shall enter into an agreement for the
performance of such change, repair or alteration with the contractors and
subcontractors approved by Landlord, as provided in Section 29.3. Before
proceeding with any change, repair or alteration Tenant shall (i) provide
Landlord with ten (10) days' prior written notice thereof; and (ii) pay to
Landlord, within ten (10) days after written demand, the costs of any increased
insurance premiums incurred by Landlord as a result of such changes, repairs or
alterations. In addition, before proceeding with any change, repair or
alteration, Tenant's contractors shall obtain, on behalf of Tenant and at
Tenant's sole cost and expense: (A) all necessary governmental permits and
approvals for the commencement and completion of such change, repair or
alteration; and (B) a completion and lien indemnity bond, or other surety,
satisfactory to Landlord for such change, repair or alteration. Landlord's
approval of permits pursuant to Section 29.3 shall not relieve Tenant of the
obligation to obtain any other or supplemental permits required by the preceding
sentence.
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29.5 Tenant shall pay to Landlord, as additional rent, the reasonable
costs of Landlord's third party engineers and other consultants (but not
Landlord's on-site management personnel) for review and approval of all plans,
specifications and working drawings for the change, repair or alteration within
ten (10) business days after Tenant's receipt of invoices either from Landlord
or such consultants. In addition to such costs, Tenant shall pay to Landlord,
within ten (10) business days after completion of any change, repair or
alteration, the actual, reasonable costs incurred by Landlord for services
rendered by Landlord's management personnel and engineers to coordinate and/or
supervise any of the change, repair or alteration to the extent such services
are provided in excess of or after the normal on-site hours of such engineers
and management personnel.
29.6 All changes, repairs and alterations shall be performed: (i) in
accordance with the approved plans, specifications and working drawings; (ii)
lien-free and in a first-class and workmanlike manner; (iii) in compliance with
all laws, rules, and regulations of all governmental agencies and authorities;
(iv) in such a manner so as to not to unreasonably interfere with the occupancy
of any other tenant in the Building, nor impose any additional expense or delay
upon Landlord in the maintenance and operation of the Building; and (v) at such
times, in such manner and subject to rules and regulations as Landlord may from
time to time reasonably designate. Following completion of the work, Tenant
shall promptly provide to Landlord a set of "as built" plans and specifications
for the work and copies of all warranties and guarantees provided by Tenant's
contractors and subcontractors.
29.7 Throughout the performance of any such change, repair or alteration
Tenant shall obtain, or cause its contractors to obtain, worker's compensation
insurance and general liability insurance covering the work in compliance with
provisions of Section 28 of this Lease, and builder's risk insurance for the
work reasonably acceptable to Landlord.
29.8 With respect to any construction, alteration, decorating or repair
work undertaken by Tenant's contractors under a direct contract with Tenant,
Tenant shall pay Landlord as additional rent a fee equal to eight percent (8%)
of the contract price in order to compensate Landlord for monitoring the
compliance of Tenant's construction with the Building's rules and regulations
and the provisions of this Lease. Such fee shall be paid by Tenant to Landlord
in monthly progress payments as calculated and billed by Landlord in its
reasonable discretion. Tenant shall pay such amounts to Landlord within fifteen
(15) days after Tenant's receipt of a billing therefor. Tenant acknowledges that
such monitoring of Tenant's construction is for Landlord's benefit only and
shall not release Tenant from any obligations hereunder, nor impose on Landlord
any obligation to Tenant or any third party relating to Tenant's construction.
In the event Tenant orders any construction, alteration, decorating or
repair work directly from Landlord, or from the contractor selected by Landlord,
the charges for such work, together with Landlord's administration fee equal to
fifteen percent (15%) of the contract price, shall be deemed additional rent
under this Lease, payable upon billing therefor, either in advance of the start
of work, or periodically during construction, or upon the substantial completion
of such work, at Landlord's option.
29.9 Notwithstanding the provisions of Section 29.2 (ii) and (iii) above,
subject to Landlord's and Landlord's Structural Engineer's (as defined in the
Lease) review and approval and the other provisions of the Lease, Tenant shall
have the right, at Tenant's sole cost and expense, to reinforce the floor load
capacity of the Building within the Premises to accommodate Tenant's
requirements for floor loading of Tenant's telecommunications equipment,
batteries and other office equipment within the Premises. Under no circumstances
shall Tenant be permitted to remove or block up any window and/or exterior wall
within the Premises.
29.10 Subject to Landlord's and Landlord's Structural Engineer's (as
defined in the Lease) review and approval, Tenant shall have the right, at
Tenant's sole cost and expense, to relocate any of the Buildings's building
systems within the premises which are below the concrete floor deck above. Such
building systems may include water pipes, ducts, fire sprinkler systems. Any
such relocation must be restored to its original condition upon the expiration
or earlier termination of the Lease at Tenant's sole cost and expense.
Scheduling and relocation of all such relocation shall be coordinated with and
approved by Landlord. However, Landlord reserves the absolute right to
disapprove of any such relocation if Landlord determines in its sole discretion
that such relocation will create a burden, hardship, or interference with the
Building and its other tenants.
30. MECHANIC'S LIENS. Tenant agrees to give Landlord written notice of the
commencement date of any alterations, improvements or repairs to be made in, to
or upon the Premises not later than ten (10) days prior to the commencement of
any such work, in order to give Landlord time to post notices of
nonresponsibility. Tenant will not permit any mechanic's, materialman's or other
lien to be placed upon the Premises or Building or improvements therein during
the term hereof: and in the event that any mechanic's, materialman's or other
lien is filed against the Premises or Building or improvements therein in
connection with any alteration, repair, improvement or change of, or
installation of fixtures or equipment in, the Premises, Tenant shall cause such
lien to be released within ten (10) days after such filing, either by
satisfaction of such claim or by posting of a bond. Notwithstanding the
foregoing, Landlord shall have the right and privilege at Landlord's option of
paying the amount of any such lien or claim, or any portion thereof, without
inquiry as to
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the validity thereof, and any amounts so paid, including expenses and interest,
shall be deemed additional rent hereunder due from Tenant to Landlord upon
demand.
31. INTENTIONALLY DELETED.
32. HAZARDOUS MATERIALS.
32.1 In addition to its other obligations under this Lease, Tenant
covenants to comply with all laws relating to Hazardous Materials, as defined
below, with respect to the Premises and the Building. Tenant shall have the
right to use general office supplies typically used in an office area in the
ordinary course of business (such as copier toner, liquid paper, glue, ink and
cleaning solvents) and items typically used in a comparable telecommunications
business, provided that Tenant uses them in the manner for which they were
designed and only in accordance with all Hazardous Materials laws and the
highest standards prevailing in the industry for such use, and then only in such
amounts as may be normal for the office business operations or
telecommunications operations conducted by Tenant on the Premises. Except as
provided in the preceding sentence, neither Tenant nor any of Tenant's agents,
employees, contractors, subtenants, assignees, licensees, invitees, successors,
or representatives ("Tenant's Parties") shall use, handle store or dispose of
any Hazardous Materials in, on, under or about the Premises, the Building or the
site on which the Building is located. Tenant shall promptly take all actions,
at its sole cost and expense, as are necessary to return the Premises, Building
and site to the condition existing prior to the introduction of any such
Hazardous Materials by Tenant or any Tenant Parties, provided Landlord's
approval of such actions shall first be obtained. Furthermore, Tenant shall
immediately notify Landlord of any inquiry, test, investigation or enforcement
proceeding by or against Tenant or the Premises concerning the presence of any
Hazardous Material.
32.2 a) Tenant's obligations under Section 27.2 to indemnify, defend,
protect and hold Landlord harmless from and against certain Claims shall be
deemed to include, without limitation, any and all Claims (as defined in Section
27.2) relating in any way to investigation and clean-up costs, attorneys' fees,
consultant fees and court costs that arise during or after the term of this
Lease as a result of the breach of any of the obligations and covenants set
forth in this Section 32, or relating in any way to any contamination of the
Premises, Building or site arising from the activities of Tenant or any Tenant
Parties. Tenant's obligations under the preceding sentence shall survive the
expiration or earlier termination of this Lease as to any matters arising prior
to such expiration or earlier termination or prior to Tenant's vacation of the
Building.
b) Subject to this Section 32, Landlord shall deliver the Premises
and the path of travel to the Premises, free from "hazardous materials" as
defined herein. Landlord's obligations under Section 27.3 to indemnify, defend,
protect and hold Tenant harmless from and against certain Claims shall be deemed
to include, without limitation, any and all Claims arising from the existence of
"hazardous materials", other than those specified to be present and acknowledged
to be present by Tenant at the Building in Section 32.4 herein, and from any
non-compliance by Landlord with the applicable laws governing environmental
conditions and/or hazardous materials at the Building as set forth in Section
32.3 below.
32.3 For purposes of this Lease, the term "Hazardous Materials" shall
mean, collectively, asbestos, any petroleum fuel, and any hazardous or toxic
substance, material or waste which is or becomes regulated or defined as
hazardous or toxic by any local governmental authority, the State of California
or the United States Government, including, but not limited to, any material or
substance defined as hazardous or toxic under the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. ss. 9601, et seq.; the
Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901, et seq.; the
Toxic Substances Control Act, 15 U.S.C. Sections 2601, et seq.; the Federal
Water Pollution Control Act, 33 U.S.C. Sections 1251, et seq.; the California
Hazardous Substance Account Act, California Health and Safety Code Sections
25330, et seq.; the California Hazardous Waste Control Act, California Health
and Safety Code Sections 25100, et seq.; the California Safe Drinking Water and
Toxic Health Enforcement Act, California Health and Safety Code Sections
25249.5, et seq.; California Health and Safety Code Sections 25280, et seq.
(Underground Storage of Hazardous Substances); the California Hazardous Waste
Treatment Reform Act, California Health and Safety Code Sections 25179.1, et
seq.; California Health and Safety Code Sections 25501, et seq. (Hazardous
Materials Release Response Plans and Inventory); Petroleum Underground Storage
Tank Cleanup, Health and Safety Code Sections 25299.10, et seq.; and the
Porter-Cologne Water Quality Control Act, California Water Code Sections 13000,
et seq., as such laws may be amended from time to time.
32.4 Tenant acknowledges that as of the date of execution of this Lease,
certain portions of the Office Building contain asbestos containing materials as
described in asbestos reports on file with Landlord. Landlord has been advised
that these materials are non-friable and do not represent a health risk.
Landlord agrees that the costs of asbestos removal work in the Building shall
not be charged to Tenant or included in the Building's Operating Costs for
purposes of calculating Tenant's obligations for rent escalations under Section
4 above. The preceding sentence shall not apply to costs for such work
necessitated by the acts or omissions of Tenant or Tenant's Parties (as defined
in Section 32.1), including but not limited to alteration work undertaken by
Tenant.
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33. MISCELLANEOUS.
33.1 No receipt of money by Landlord from Tenant after the termination of
this Lease, the service of any notice, the commencement of any suit or final
judgment for possession shall reinstate, continue or extend the term of this
Lease or affect any such notice, demand, suit or judgment. No payment by Tenant
or receipt by Landlord of a lesser amount than the rent payment herein
stipulated shall be deemed to be other than on account of the rent, nor shall
any endorsement or statement on any check or any letter accompanying any check
or payment as rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such rent or pursue any other remedy provided in this Lease. Any
amount billed by Landlord to Tenant under this Lease or in connection with
Tenant's occupancy of space in the Building, which Tenant does not dispute in a
written notice delivered to Landlord within thirty days after Tenant's receipt
of such billing, shall be conclusively deemed to be correct, and Tenant shall be
obligated for such amount. Such thirty-day period to give notice of a dispute
shall not be deemed to extend the due date for any payments, but Tenant shall be
entitled to make the payment in question under protest by timely giving such
notice. Tenant agrees that each of the foregoing covenants and agreements shall
be applicable to all obligations of Tenant to Landlord, whether expressly
contained in this Lease or imposed by any statute or at common law.
33.2 If any provision of this Lease or its application to any party or
circumstances shall be determined by any court of competent jurisdiction to be
invalid or unenforceable to any extent, the remainder of this Lease or the
application of such provision to such person or circumstances, other than those
as to which it is so determined invalid or unenforceable to any extent, shall
not be affected thereby, and each provision hereof shall be valid and shall be
enforced to the fullest extent permitted by law; and it is the intention of the
parties to this Lease that in lieu of each clause or provision of this Lease
that is illegal, invalid or unenforceable, there be added as a part of this
Lease a clause or provision as similar in terms to such illegal, invalid or
unenforceable clause or provision as may be possible and be legal, valid and
enforceable.
33.3 The covenants and obligations of Tenant pursuant to this Lease shall
be independent of performance by Landlord of the covenants and obligations of
Landlord pursuant to this Lease, and performance by Tenant of each covenant and
obligation of Tenant pursuant to this Lease shall be a condition precedent to
the duty of Landlord to perform the covenants and obligations of Landlord
pursuant to this Lease.
33.4 The headings of Sections of this Lease are for convenience only and
do not define, limit or construe the contents thereof. References made in this
Lease to numbered Sections, Paragraphs and Subparagraphs shall refer to numbered
Sections, Paragraphs or Subparagraphs of this Lease unless otherwise indicated.
33.5 Where appropriate, words in the singular, including without
limitation the words "Landlord" and "Tenant", include the plural, and vice
versa. Words in the neuter gender include the masculine and feminine genders,
and vice versa, and words in the masculine gender include the feminine gender,
and vice versa.
33.6 If more than one person or entity executes this Lease as Tenant: (a)
each of them is and shall be jointly and severally liable for the covenants,
conditions, provisions and agreements of this Lease to be kept, observed and
performed by Tenant; and (b) the act or signature of, or notice from or to, any
one or more of them with respect to this Lease shall be binding upon each and
all of the persons and entities executing this Lease as Tenant with the same
force and effect as if each and all of them had so acted or signed, or given or
received such notice.
33.7 Time is of the essence of this Lease. Failure of either party to
perform any act strictly within the applicable period specified herein shall
entitle the other to exercise all remedies herein contemplated. All references
in this Lease to "days" shall mean calendar days unless specifically stated
herein to be "business" days.
33.8 This Lease shall be governed by and interpreted in accordance with
the laws of the State of California.
33.9 All monetary obligations of Tenant remaining past due ten (10) days
or more after the date specified herein for payment shall bear interest until
paid at the lesser of (i) the Bank of America prime rate as of the due date plus
3%, or (ii) the maximum rate permitted by law.
33.10 This instrument, along with any riders, exhibits and attachments or
other documents referred to in Section M on page 2 (all of which riders,
exhibits, attachments and other documents are hereby incorporated into this
instrument by this reference), constitutes the entire and exclusive agreement
between Landlord and Tenant relating to the Premises, and this agreement and
said riders, exhibits and attachments and other documents may be altered,
amended or revoked only by an instrument in writing signed by the party to be
charged thereby. All prior or contemporaneous oral agreements, understandings
and/or practices relative to the leasing of the Premises are merged herein or
revoked hereby. References in this instrument to this "Lease" shall mean, refer
to and include this instrument as well as any riders, exhibits, attachments or
other documents referred to in Section M, and references to any covenant,
condition, obligation and/or undertaking "herein", "hereunder" or "pursuant
hereto" (or language of like import) shall mean, refer to and include the
covenants, conditions, obligations and undertakings existing pursuant to this
instrument and such riders, exhibits, attachments or other
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documents. All terms defined in this instrument shall be deemed to have the same
meanings in all riders, exhibits, attachments or other documents referred to in
Section M unless the context thereof clearly requires the contrary.
33.11 Tenant hereby consents to amendment of this Lease as and to the
extent required by any lender which makes a loan to Landlord secured in whole or
in part by the Building, provided that no such change shall increase the rent,
additional rent, or any other sums payable hereunder or impair Tenant's use and
quiet enjoyment of the Premises.
33.12 Unless otherwise agreed in writing, if Tenant has dealt with any
real estate broker or other person or firm with respect to leasing or renting
space in the Building, Tenant shall be solely responsible for the payment of any
fee due said broker, person or firm and Tenant hereby indemnifies and holds
Landlord harmless from and against any liability with respect thereto.
Notwithstanding the foregoing, Landlord agrees to pay, and to hold Tenant
harmless from, and shall not be responsible for commission owed its broker
identified in Section L on page 2, as provided in a separate agreement between
Landlord and such brokers.
33.13 Tenant agrees to pay to Landlord as additional rent hereunder any
taxes required by law to be paid by Tenant and collected from Tenant by
Landlord.
33.14 Submission of this Lease for examination, even though executed by
Tenant, shall not bind Landlord in any manner, and no lease or other obligation
on the part of Landlord shall arise until this Lease is executed and delivered
by Landlord to Tenant. This Lease shall not be binding and in effect until a
counterpart hereof has been executed and delivered by the parties, each to the
other.
33.15 Tenant shall not cause the recordation of this Lease, a short form
memorandum of this Lease or any reference to this Lease.
33.16 Upon 10 days' prior written request from Landlord (which Landlord
may make at any time during the term but no more often than two times in any
calendar year), Tenant shall deliver to Landlord (a) a current financial
statement of Tenant and any guarantor of this Lease, and (b) financial
statements of Tenant and such guarantor for the two years prior to the current
financial statement year. Such statements shall be prepared in accordance with
generally acceptable accounting principles, and certified as true in all
material respects by Tenant (if Tenant is an individual) or by an authorized
officer or general partner of Tenant (if Tenant is a corporation or partnership,
respectively).
33.17 Notwithstanding anything contained in this Lease to the contrary,
the obligations of Landlord under this Lease (including any actual or alleged
breach or default of Landlord) do not constitute personal obligations of the
individual partners, directors, officers, shareholders, agents or employees of
Landlord or of Landlord's partners or agents, and Tenant shall not seek recourse
against any such persons or entities or any of their personal assets for
satisfaction of any liability with respect to this Lease. In addition, in
consideration of the benefits accruing hereunder to Tenant and notwithstanding
anything contained in this Lease to the contrary, Tenant hereby covenants and
agrees for itself and all of its successors and assigns that the liability of
Landlord for its obligations under this Lease (including any liability as a
result of any actual or alleged failure, breach or default hereunder by
Landlord) shall be limited solely to, and Tenant's and its successors' and
assigns' sole and exclusive remedy shall be against, Landlord's interest in the
Building and proceeds therefrom, and no other assets of Landlord.
33.18 If Tenant is identified herein as a corporation, then the persons
executing this Lease on behalf of Tenant hereby represent that they are duly
authorized to execute and deliver this Lease on behalf of Tenant pursuant to
Tenant's by-laws or a resolution of its board of directors.
If Tenant is identified herein as a partnership, the undersigned represent
that they are all of the general partners of Tenant, that Tenant has been formed
under the laws of the State of California, and is duly qualified to do business
in the State of California, and that this Lease is being executed on behalf of
Tenant. Each of the partners of Tenant executing this Lease agrees that he or
she and Tenant are irrevocably bound by execution of any amendment to or
modification of this Lease by one or more of the partners of Tenant. Tenant
agrees that each new partner in Tenant shall be obligated under this Lease, in
the same fashion as the existing partners, and that each new partner shall
execute a copy of this Lease and deliver it to Landlord within 60 days after
that partner's admission to the partnership. In the event that such newly
admitted partner is a corporation, the principal or principals for whose benefit
the corporation has been organized shall execute and deliver to Landlord a lease
guaranty in form acceptable to Landlord. Each newly admitted partner in Tenant
shall be jointly and severally liable with the remaining partners for the
performance and satisfaction of all obligations of the Tenant under this Lease
accruing from and after the effective date of the admission of the new partner
to the Partnership. If the provisions of this paragraph are satisfied, the
admission of a new partner shall not be considered an assignment of the lease
for the purposes of Section 17 hereof.
33.19 Subject to the provisions of Section 17 above, and except as
otherwise provided in this Lease, all of the covenants, conditions and
provisions of this Lease shall be binding upon, and shall inure to the benefit
of the parties hereto
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and their respective heirs, personal representatives and permitted successors
and assigns; provided, however, that no rights shall inure to the benefit of any
transferee of Tenant unless the transfer to such transferee is made in
compliance with the provisions of Section 17, and no options or other rights
which are expressly made personal to the original Tenant hereunder or in any
rider attached hereto shall be assignable to or exercisable by anyone other than
the original Tenant under this Lease.
33.20 The voluntary or other surrender of this Lease by Tenant or a mutual
termination thereof shall not work as a merger and shall, at the option of
Landlord, either (a) terminate all and any existing subleases, or (b) operate as
an assignment to Landlord of Tenant's interest under any or all such subleases.
33.21 Except for Tenant's identity sign on the entry doors of the
Premises, which sign shall conform to Landlord's signage program, Tenant shall
have no right to place any sign upon the Premises, the Building or the site on
which the Building is located or which can be seen from outside the Premises.
33.22 The effectiveness of this Lease and Landlord's obligations hereunder
are subject to and conditional upon Tenant's delivery to Landlord of (i) month
one Base Rent pursuant to Section E of the Lease, (ii) the Security Deposit
pursuant to Section H and Section 6 of the Lease, and (iii) an acceptable letter
of credit, as set forth in Section H and Section 6 of the Lease.
34. RULES AND REGULATIONS AFFECTING TELECOMMUNICATIONS USE. Nothing in the
Rules and Regulations attached hereto as Exhibit B (or any further rules and
regulations promulgated by Landlord as described in Section 22.2) shall be
deemed to prohibit Tenant from installing in the Premises telecommunications
switching equipment or any other equipment specifically permitted in the other
provisions of this Lease, which does not pose a safety hazard or create a
nuisance or illegal condition; provided, however, that Tenant shall comply with
the provisions of this Lease (including the Rules and Regulations) regarding the
moving, installation, operation, use, maintenance, removal, power requirements,
and structural support of all such equipment, and shall obtain any approvals
from Landlord required under this Lease as to such matters.
35. "AS IS" CONDITION. Tenant is taking the Premises in its "as is"
condition existing as of the execution date of this Lease, however, Landlord
agrees to deliver the Premises in a broom-clean condition and to make available
to Tenant 600 amps. 480 volts, 3-phase A/C of electrical capacity at the main
electrical vault in the Building, however, Tenant shall be responsible, at
Tenant's sole cost and expense, for any and all costs of connecting to the
Building's power vault, including the installation costs of a submeter, and
power to its Premises including its Percentage Share of Common Area Operating
Utility Costs as described in Section G and Section 4 herein. From and after
month forty eight (48) of the initial Lease Term, Landlord shall only be
obligated to provide to Tenant electrical capacity equal to the average of the
highest amps used by Tenant during any of the first forty eight (48) months of
the initial Lease Term. Landlord shall have no obligation for the construction
or modification of tenant improvements for Tenant. In constructing its own
tenant improvements to the Premises, Tenant shall comply with the other
applicable provisions of this Lease (including but not limited to Section 29)
and shall utilize only contractors, materials, mechanics, materialmen,
architects and engineers approved in writing by Landlord for work in the
Building.
36. HANDICAP ACCESS REGULATIONS. Notwithstanding anything to the contrary
herein, Landlord shall, at Landlord's expense, ensure compliance of the Premises
and path-of-travel to the Premises with the California Disabled Access
Regulations as enforced by the local building department.
37. RIGHT OF FIRST REFUSAL. So long as Tenant is not then in default of
the Lease beyond any applicable cure period, and Tenant has not received three
(3) or more notices of events of default regardless of the use of same, subject
to the conditions set forth hereinbelow, Tenant shall be granted the right of
first refusal ("Right of First Refusal") to lease any contiguous space available
on the 7th floor of the Building ("Right of First Refusal Premises"). Landlord
will provide Tenant with notice of the availability of the Right of First
Refusal Premises and Tenant shall have ten (10) calendar days to deliver to
Landlord in writing notice of its intent to lease such space at the rental rate
and on the other terms set forth below. Tenant's failure to timely notify
Landlord hereunder shall be conclusively deemed Tenant's election not to
exercise the Right of First Refusal granted herein with respect to that
particular space and Landlord shall be entitled to lease the Right of First
Refusal Premises to any other person or entity and this Right of First Refusal
shall terminate and be of no further force or effect. Notwithstanding any
provision of this Paragraph 37 to the contrary, the rights granted herein shall
be personal to Tenant and any Affiliate and may not be exercised or assigned
voluntarily or involuntarily by, or to any person or entity other than the
original Tenant or such Affiliate, and shall not be assignable separate and
apart from this Lease. Landlord shall have no obligation to provide Tenant with
any notice hereunder, nor shall Tenant have any right hereunder, if any uncured
default by Tenant exists at the time such notice would have otherwise been
given, or if Tenant has defaulted under the Lease three (3) or more times
without regard to whether such defaults were cured.
Landlord shall lease the Right of First Refusal Premises to Tenant on the
following terms and conditions:
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c) Term Commencement Date: Upon Delivery of the Right of First Refusal
Premises to Tenant.
d) Term Expiration Date: Co-terminus with the Lease Expiration Date for
the original leased Premises (as the same may
be extended in accordance with this Lease), or
such other date as may be mutually agreed upon
between Landlord and Tenant.
e) Basic Rent: As stated in the Summary of Lease Terms, Item
E.
f) Use of Premises: As stated in the Summary of Lease Terms, Item
I pertaining to Premises B.
g) Tenant Improvements: A Pro-Rated T.I. Allowance which shall be
equal to Eight Dollars and 75/100 ($8.75) per
useable square foot of the Right of First
Refusal Premises leased multiplied by the
remaining months in the Lease Term from the
Right of First Refusal Premises Term
Commencement Date until the Expiration Date
and divided by 124 months ("Pro-Rated T.I.
Allowance").
h) Operating Costs and
Real Estate Tax
Escalations: Tenant shall pay its proportionate share of
any Excess Expenses accruing against the Right
of First Refusal Premises leased over the
particular expense recovery period for the
Base Years immediately prior to the year
Tenant takes occupancy of the Right of First
Refusal Premises. Tenant shall pay Landlord
for such Excess Expenses (if any) in the same
manner Tenant pays Landlord for Excess
Expenses attributed to the initial Premises,
as set forth in Section 4.
i) Condition: The Right of First Refusal Premises will be
delivered to the Tenant ("as is") as described
in Section 35.
38. INTENTIONALLY DELETED.
39. FINANCIAL STATEMENTS. Tenant represents that the Consolidated
Financial Statements dated as of December 31, 1997 prepared by Arthur Andersen
LLP and furnished to Landlord are true, correct and accurate.
40. ROOF. Subject to Landlord's structural engineer's ("Landlord's
Structural Engineer") review and approval, Tenant shall have the non-exclusive
right throughout the Term of the Lease to install and use the equipment listed
below on the 9th floor roof of the Building for the HVAC system or any other
roof of the Building as designated by Landlord in its sole and absolute
discretion for the GPS Antenna (the "Roof Space"). The Roof Space shall be used
by Tenant only for the installation and operation of a structural platform to
support Tenant's separate HVAC system and GPS Antenna and their respective
equipment as Landlord has approved, pursuant to the procedure for review and
approval of plans and drawings described in Exhibit C and Exhibit G attached
hereto and relating only to Tenant's use of the Premises. The installation and
operation of equipment in the Roof Space shall be at the sole cost and expense
of Tenant (including, but not limited to, costs of electrical supply, which, if
Landlord so elects, shall be metered separately to Tenant at Tenant's expense).
Such installation and operation shall be done in compliance with the other
provisions of this Lease and shall require Landlord's prior written approval of
all items. Such approval may be conditioned, among other things, upon Tenant's
making or paying for any reinforcement to the Roof Space deemed reasonably
necessary by Landlord and/or Landlord's Structural Engineer to support Tenant's
separate HVAC system and GPS antenna and their respective equipment. Tenant
shall reimburse Landlord for any reasonable costs incurred for the review of
Tenant's plans for work proposed to be performed on the Roof Space performed by
Landlord's Structural Engineer or other third party consultants to Landlord,
including a roofing consultant. Any such equipment constructed or installed by
Tenant pursuant to this section shall be for the exclusive use of Tenant during
the Term of the Lease.
a) A HVAC system (not to exceed forty (40) tons) with two six (6) inch
condenser pipes within 17 feet by 10 feet of space; and
b) A GPS Antenna and its necessary cables and equipment not to exceed an
area of ten (10) square feet and six (6) feet in height on the Roof Space. In
addition, Tenant shall be permitted, at Tenant's sole cost and expense and in a
location designated by Landlord, in Landlord's sole and absolute discretion, to
install conduit necessary to connect the GPS Antenna to the Premises.
31
<PAGE>
Landlord may, in its sole discretion, at the expiration or earlier termination
of the Lease require Tenant, at Tenant's sole cost and expense, to remove any
such HVAC system and/or GPS Antenna and/or their respective equipment described
herein on the Roof Space. Tenant shall repair any damage to the Building,
Premises and Roof Space occasioned by the installation, construction, operation
and/or removal of any equipment, additions, repairs, improvements and/or
appurtenances pursuant to this Section 40. If Tenant shall fail to complete such
removal and repair such damage, Landlord may do so and may charge the reasonable
cost thereof to Tenant.
41. EQUIPMENT AND OPERATING RIGHTS. All equipment installations and
improvements are subject to Landlord's prior written approval, which approval
shall not be unreasonably withheld, delayed or conditioned, and such
installations are subject to Exhibit G, attached hereto and made a part hereof.
If any inconsistencies exist between the Lease and Exhibit G, the terms and
conditions of Exhibit G shall prevail.
IN WITNESS WHEREOF, this instrument has been duly executed by the parties
hereto, as of the date first above written.
TENANT:
V I P CALLING, Inc.
a Delaware corporation
By: /s/ Ofer Gneezy
---------------------------------------
Name: Ofer Gneezy
-------------------------------------
Its: President, Secretary & CEO
--------------------------------------
By:
---------------------------------------
Name:
-------------------------------------
Its:
--------------------------------------
LANDLORD:
DOWNTOWN PROPERTIES, L.L.C.
a California Limited Liability Company
By:
---------------------------------------
Name:
-------------------------------------
Its:
--------------------------------------
32
<PAGE>
Landlord may, in its sole discretion, at the expiration or earlier termination
of the Lease require Tenant, at Tenant's sole cost and expense, to remove any
such HVAC system and/or GPS Antenna and/or their respective equipment described
herein on the Roof Space. Tenant shall repair any damage to the Building,
Premises and Roof Space occasioned by the installation, construction, operation
and/or removal of any equipment, additions, repairs, improvements and/or
appurtenances pursuant to this Section 40. If Tenant shall fail to complete such
removal and repair such damage, Landlord may do so and may charge the reasonable
cost thereof to Tenant.
41. EQUIPMENT AND OPERATING RIGHTS. All equipment installations and
improvements are subject to Landlord's prior written approval, which approval
shall not be unreasonably withheld, delayed or conditioned, and such
installations are subject to Exhibit G, attached hereto and made a part hereof.
If any inconsistencies exist between the Lease and Exhibit G, the terms and
conditions of Exhibit G shall prevail.
IN WITNESS WHEREOF, this instrument has been duly executed by the parties
hereto, as of the date first above written.
TENANT:
V I P CALLING, Inc.
a Delaware corporation
By:
---------------------------------------
Name:
-------------------------------------
Its:
--------------------------------------
By:
---------------------------------------
Name:
-------------------------------------
Its:
--------------------------------------
LANDLORD:
DOWNTOWN PROPERTIES, L.L.C.
a California Limited Liability Company
By: /s/ Goodwin Gan
---------------------------------------
Name: Goodwin Gan
-------------------------------------
Its: President
--------------------------------------
32
<PAGE>
EXHIBIT 10.5
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF MAY BE SOLD OR OFFERED FOR SALE OR OTHERWISE TRANSFERRED UNLESS IT OR
THEY, AS APPLICABLE, HAVE BEEN REGISTERED UNDER SUCH LAWS OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
No. 1
VIP CALLING, INC.
PREFERRED STOCK PURCHASE WARRANT
September 10, 1997
VIP Calling, Inc. a corporation organized under the laws of the State of
Delaware with an address at 121 Middlesex Turnpike, Burlington, MA 01803 (the
"Company"), hereby certifies that, for value received, TLP Leasing Programs,
Inc., One Financial Center, 21st Floor, Boston, MA 02111 ("TLP") is entitled,
subject to the terms set forth below, to purchase from the Company at any time
or from time to time before 5:00 p.m., Boston time, on the Expiration Date (as
hereinafter defined), fully paid and nonassessable shares of Preferred Stock (as
hereinafter defined) of the Company, in an amount that is determined by dividing
(i) the product that results from multiplying .075 times the total dollar value
of the Equipment leased by the Company from TLP (the "Equipment") pursuant to
the Equipment Schedules incorporated by reference into the Master Agreement of
Terms and Conditions for Lease by and between TLP and the Company (the "Master
Agreement") (provided that such product shall not at any time exceed an
aggregate of $20,625.00) by (ii) the price per share at which the Company first
sells shares of Preferred Stock (the "Preferred Stock Price"). The purchase
price per share of Preferred Stock shall be the Preferred Stock Price (such
purchase price per share as adjusted from time to time as herein provided is
referred to herein as the "Purchase Price"). The number and character of such
shares of Preferred Stock and the Purchase Price are subject to adjustment as
provided herein.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "Company" shall include VIP Calling, Inc. and any
corporation which shall succeed to or assume the obligations of VIP
Calling, Inc. hereunder.
(b) The term "Preferred Stock" includes (i) the first series and/or
class of preferred stock issued by the Company after the date of this
agreement and (ii) any other securities into which or for which any of the
securities described in clause (I) may be converted or exchanged pursuant
to a plan of recapitalization, reorganization, merger, sale of assets or
otherwise.
(c) The term "Expiration Date" shall mean September 9, 2007
<PAGE>
(d) The term "Other Securities" refers to any stock (other than
Preferred Stock) and other securities of the Company or any other person
(corporate or otherwise) which the holder of the Warrant at any time shall
be entitled to receive, or shall have received, on the exercise of the
Warrant, in lieu of or in addition to Preferred Stock; or which at any
time shall be issuable or shall have been issued in exchange for or in
replacement of Preferred Stock or other securities pursuant to Section 5
or otherwise.
1. Exercise of Warrant.
1.1. Number of Shares Issuable upon Exercise. From and after the
date on which the Company files an amendment to its Certificate of Incorporation
creating and establishing shares of Preferred Stock as authorized capital stock
of the Company through and including the Expiration Date, the holder hereof
shall be entitled to receive, upon exercise of this Warrant in whole in
accordance with the terms of subsection 1.2, shares of Preferred Stock of the
Company in an amount determined in accordance with the calculation set forth in
the first paragraph of this Warrant, subject to adjustment pursuant to Section
5.
1.2. Exercise. This Warrant may be exercised in whole or in part
(provided, however, that the holder may not exercise this Warrant for fractional
shares of Preferred Stock) by the holder hereof by delivery of this Warrant,
with the form of subscription attached as Exhibit A hereto (the "Subscription
Form") duly executed by such holder, to the Company at its principal office or
at the office of its Warrant agent (as provided in Section 13), accompanied by
payment, in cash or by certified or official bank check payable to the order of
the Company, in the amount obtained by multiplying the number of shares of
Preferred Stock for which this Warrant is then being exercised by the Purchase
Price then in effect. The Company agrees that the shares of Preferred Stock so
purchased shall be deemed to be issued to the holder as the record owner of
Preferred Stock as of the close of business on the date on which payment shall
have been made for such shares of Preferred Stock. Certificates representing
shares of Preferred Stock so purchased shall be delivered to the holder promptly
and in no event later than ten (10) days after the Warrant shall have been so
exercised.
1.3. Fair Market Value. Fair Market Value of a share of Preferred
Stock as of a particular date (the "Determination Date") shall mean the Fair
Market Value of a share of the Company's Preferred Stock. Fair Market Value of a
share of the Preferred Stock as of a Determination Date shall mean:
(a) If the Company's Preferred Stock is traded on an exchange
or is quoted on the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") National Market System, then the closing or
last sale price, respectively, reported for the last business day
immediately preceding the Determination Date.
(b) If the Company's Preferred Stock is not traded on an
exchange or on the NASDAQ National Market System but is traded in the
over-the-counter market, then the mean of the closing bid and asked prices
reported for the last business day immediately preceding the Determination
Date.
(c) Except as provided in clause (e) below, if the Company's
Preferred Stock is not publicly traded, then as determined in good faith
by the Company's Board of Directors upon a review of relevant factors.
2
<PAGE>
(d) If the Determination Date is the date on which the
Company's Preferred Stock is first sold to the public by the Company in a
firm commitment public offering under the Securities Act of 1933, as
amended (the "1933 Act"), then the initial public offering price (before
deducting commissions, discounts or expenses) at which the Preferred Stock
is sold in such offering.
(e) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation,
dissolution or winding up pursuant to the Company's charter, then all
amounts to be payable per share to holders of the Preferred Stock pursuant
to the charter in the event of such liquidation, dissolution or winding
up, plus all other amounts to be payable per share in respect of the
Preferred Stock in liquidation under the charter, assuming for the
purposes of this clause (e) that all of the shares of Preferred Stock then
issuable upon exercise of all of the Warrants are outstanding at the
Determination Date.
1.4. Company Acknowledgment. The Company will, at the time of the
exercise of the Warrant, upon the request of the holder hereof acknowledge in
writing its continuing obligation to afford to such holder all rights to which
such holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant, including, without limitation, the registration
rights in favor of holder set forth in Section 11 of this Warrant. If the holder
shall fail to make any such request, such failure shall not affect the
continuing obligation of the Company to afford to such holder all such rights.
1.5. Trustee for Warrant Holders. In the event that a bank or trust
company shall have been appointed as trustee for the holders of this Warrant
pursuant to Subsection 4.2, such bank or trust company shall have all the powers
and duties of a warrant agent appointed pursuant to Section 13 and shall accept,
in its own name for the account of the Company or such successor person as may
be entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 1. The company shall give the holder of the Warrant notice of
appointment of any trustee or change thereof.
2. Delivery of Stock Certificates, etc. on Exercise. The Company agrees
that the shares of Preferred Stock purchased upon exercise of this Warrant shall
be deemed to be issued to the holder hereof (or its Transferee pursuant to
Section 10 hereof) as the record owner of such shares as of the close of
business on the date on which payment shall have been made for such shares as
aforesaid. As soon as practicable after the exercise of this Warrant in full or
in part, and in any event within 10 days thereafter, the Company at its expense
(including the payment by it of any applicable issue taxes) will cause to be
issued in the name of and delivered to the holder hereof, or as such holder
(upon payment by such holder of any applicable transfer taxes) may direct, a
certificate or certificates for the number of duly and validly issued, fully
paid and nonassessable shares of Preferred Stock (or Other Securities) to which
such holder shall be entitled on such exercise, plus, in lieu of any fractional
share to which such holder would otherwise be entitled, cash equal to such
fraction multiplied by the then Fair Market Value of one full share, together
with any other stock or other securities and property (including cash, where
applicable) to which such holder is entitled upon such exercise pursuant to
Section 1 or otherwise.
3. Adjustment for Dividends in Other Stock, Property, etc.;
Reclassification, etc. In case at any time or from time to time, the holders of
Preferred Stock (or Other Securities) shall have
3
<PAGE>
received, or (on or after the record date fixed for the determination of
shareholders eligible to receive) shall have become entitled to receive, without
payment therefor,
(a) other or additional stock or other securities or property (other
than cash) by way of dividend, or
(b) any cash (excluding cash dividends payable solely out of
earnings or earned surplus of the Company), or
(c) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate rearrangement,
other than additional shares of Preferred Stock (or Other Securities) issued as
a stock dividend or in a stock split (adjustments in respect of which are
provided for in Section 5.4), then and in each such case the holder of this
Warrant, on the exercise hereof as provided in Section 1, shall be entitled to
receive the amount of stock and other securities and property (including cash in
the cases referred to in subdivisions (b) and (c) of this Section 3) which such
holder would hold on the date of such exercise if on the date hereof such holder
had been the holder of record of the number of shares of Preferred Stock called
for on the face of this Warrant on the date of the event and had thereafter,
during the period from the date hereof to and including the date of such
exercise, retained such shares and all such other or additional stock and other
securities and property (including cash in the cases referred to in subdivisions
(b) and (c) of this Section 3) receivable by such holder as aforesaid during
such period, giving effect to all adjustments called for during such period by
Sections 4 and 5.
4. Adjustments for Reorganization, Consolidation, Merger, etc.
4.1. Reorganization, Consolidation, Merger, etc. In case at any time
or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provisions shall be made by the Company whereby the holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Preferred Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Sections 3 and 5.
4.2. Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the holders of this Warrant after the effective date
of such dissolution pursuant to this Section 4 to a bank or trust company as
trustee for the holder or holders of this Warrant.
4
<PAGE>
4.3. Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 4, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 6.
5. Adjustment for Issue or Sale of Preferred Stock at Less Than the
Purchase Price In Effect. The Company expects the terms of the Preferred Stock
to contain anti-dilution provisions determined through a process of arms'-length
negotiation. Holders of Preferred Stock issued upon exercise of this Warrant
shall be protected against anti-dilution to the same extent as other holders of
Preferred Stock, as provided by the Company's Certificate of Incorporation as in
effect from time to time.
6. No Impairment. The Company will not, by amendment of its charter
documents or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of the
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of the Warrant against
impairment.
7. Chief Financial Officer's Certificate as to Adjustments. In each case
of any adjustment or readjustment in the shares of Preferred Stock (or Other
Securities) issuable on the exercise of this Warrant or the Purchase Price, the
Company at its expense will promptly cause its Chief Financial Officer to
compute such adjustment or readjustment in accordance with the terms of this
Warrant and prepare a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based, including a statement of the Purchase Price and the number of shares of
Preferred Stock to be received upon exercise of this Warrant, in effect
immediately prior to such adjustment or readjustment and as adjusted or
readjusted as provided in this Warrant. The Company will forthwith mail a copy
of each such certificate to the holder of the Warrant and any Warrant agent of
the Company (appointed pursuant to Section 13 hereof), and the Company will, on
the written request at the time of any holder of the Warrant, furnish to such
holder a like certificate setting forth the Purchase Price at the time in effect
and showing how it was calculated.
8. Notices of Record Date, etc. In the event of
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right
to subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property of the Company, or to receive
any other right, or
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any transfer of
all or substantially all the assets of the Company to or consolidation or
merger of the Company with or into any other person, or
5
<PAGE>
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
holder of this Warrant a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right and the
date on which the holders of Preferred Stock will be entitled thereto, and (ii)
the date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Preferred Stock (or Other Securities) shall be entitled to exchange
their shares of Preferred Stock (or Other Securities) for securities or other
property deliverable on such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 20 days prior to the date specified in such
notice on which any such action is to be taken.
9. Reservation of Stock, etc. Issuable on Exercise of Warrant. The Company
will at all times reserve and keep available, solely for issuance and delivery
on the exercise of the Warrants, all shares of Preferred Stock (or Other
Securities) from time to time issuable on the exercise of this Warrant.
10. Assignment; Exchange of Warrant. This Warrant, and the rights
evidenced hereby, may be transferred by any registered holder hereof (a
"Transferor") with respect to any or all of the shares of Preferred Stock as
further set forth in Section 15 hereof. On the surrender for exchange of this
Warrant, with the Transferor's endorsement in the form of Exhibit B attached
hereto (the "Transferor Endorsement Form"), to the Company, the Company at its
expense (but with payment by the Transferor of any applicable transfer taxes)
will issue and deliver to or on the order of the Transferor thereof a new
Warrant or Warrants of like tenor, in the name of the Transferor and/or the
transferee(s) specified in such Transferor Endorsement Form (each a
"Transferee"), calling in the aggregate for the number of shares of Preferred
Stock called for under the Warrant so surrendered by the Transferor. The Company
hereby covenants expeditiously to register the Transferor and/or any such
Transferees on its books as the registered holder(s) of this Warrant or the
portion hereof transferred as specified in such Transferor Endorsement Form.
11. Registration Rights.
11.1 Election. Whenever the Company proposes to register on Form
S-1, S-2 or S-3 (Or any successor or equivalent form) any shares of Preferred
Stock or Other Securities for its own or others' account under the Securities
Act of 1933, as amended (the "Securities Act") for a public offering (each a
"Public Offering"), the Company shall furnish the holder of this Warrant, each
Transferee, and each holder of Registrable Securities, as defined below, prompt
notice of its intent to do so. Upon the request of any such person given by
notice to the Company within twenty (20) days after receipt of such notice from
the Company, the Company will use its best efforts to cause to be included in
such registration all of the Registrable Securities which such person requests.
11.2 Registrable Securities. Registrable Securities shall mean (i)
all shares of Preferred Stock and Other Securities issued or issuable upon
exercise of this Warrant, and (iii) all shares of Preferred Stock and Other
Securities directly or indirectly issued or issuable with respect to such
Preferred Stock or Other Securities by way of stock dividend or stock split or
in connection with a combination of shares, recapitalization, merger,
consolidation or other
6
<PAGE>
reorganization. As to any particular Registrable Securities, such securities
shall cease to be Registrable Securities when they have been (a) effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering them or (b) distributed to the public through a
broker, dealer or market maker pursuant to Rule 144 under the Securities Act.
11.3 Cutbacks. Notwithstanding the foregoing provisions of this
Section 11, if the Company is advised in good faith by any managing underwriter
of securities being offered pursuant to any Public Offering under this Section
11 that the number of securities requested to be sold in such Public Offering is
greater than the number of such securities which can be included in such Public
Offering without materially adversely affecting such Public Offering, the
securities to be included in such offering shall be reduced to the extent
requested by such managing underwriter as follows:
(i) first, securities requested to be included in the Public
Offering by persons who do not have pre-existing contractual registration rights
shall be reduced pro rata (based on the number of shares requested to be
included by such Persons);
(ii) second, Registrable Securities requested to be included in the
Public Offering by persons who have the right to do so under this Section 11, if
any, together with all other like securities which persons with pre-existing
contractual registration rights have requested to be included in the Public
Offering shall be reduced pro rata (based on the number of shares requested to
be included by all such persons); and
(iii) third, securities proposed to be included by the Company shall
be reduced.
11.4 Excluded Transactions. Notwithstanding the preceding provisions
of this Section 11, no holder of Registrable Securities shall have any right of
participation or otherwise with respect to the following offerings:
(a) Any Public Offering relating primarily to employee benefit
plans; or
(b) Any Public Offering the proceeds of which are used principally
to finance the acquisition after the date hereof by the Company or any of its
subsidiaries of any acquired businesses or any Public Offering constituting an
exchange of securities for securities of any such acquired businesses.
11.5 Expenses. The Company shall pay all expenses of the
Participants in any Public Offering pursuant to this Section 11, other than (i)
underwriting discounts and commissions, if any, (ii) applicable transfer taxes,
if any, and (iii) fees and charges of any attorneys or other advisors retained
by any such holders.
11.6 Further Assurances. Each person participating in any Public
Offering pursuant to the terms of this Warrant (a "Participant") shall take all
such actions and execute all such documents and instruments that are reasonably
requested by the Company to effect the sale of their Registrable Securities in
such Public Offering,
11.7. Indemnification by the Company. In connection with any Public
Offering, the Company agrees to indemnify and hold harmless each Participant and
its underwriters, affiliates and controlling persons, if any, against any
losses, claims, damages,
7
<PAGE>
liabilities or expenses (including attorneys' fees), joint or several, to which
any such person may become subject insofar as such losses, claims, damages or
liabilities are caused by any untrue statement of a material fact or an omission
to state any material fact in the registration statement, related prospectus or
any amendment thereto except insofar as such statement or omission is based on
information provided by such person to the Company.
11.8. Indemnification by Participants. In connection with any Public
Offering, each Participant agrees to indemnify and hold harmless the Company and
its underwriters, affiliates and controlling persons, if any, against any
losses, claims damages, liabilities or expenses (including attorneys' fees),
joint or several, to which any such person may become subject insofar as such
losses, claims, damages or liabilities are caused by any untrue statement of a
material fact or an omission to state any material fact in the registration
statement, related prospectus or any amendment thereto based on information
provided to the Company in writing by such person.
11.9 Contribution. If the indemnification provided for in Sections
11.7 or 11.8 hereof is unavailable to a party that would have been an
indemnified party under any such Section in respect of any losses, claims,
damages, liabilities or expenses (or actions or proceedings in respect thereof)
referred to therein, then each party that would have been an indemnifying party
thereunder shall, in lieu of indemnifying such indemnified party, contribute to
the amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or expenses (or actions or proceedings in respect
thereof) in such proportion as is appropriate to reflect the relative fault of
such indemnifying party on the one hand and such indemnified party on the other
in connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof).
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
11.10 Limitation on Liability of Holders of Registrable Securities.
The liability of each Participant in respect of any indemnification or
contribution obligation of such holder arising under this Section 11 shall not
in any event exceed an amount equal to the net proceeds to such Participant
(after deduction of all underwriters' discounts and commissions and all other
expenses paid by such Participant in connection with the registration in
question) from the disposition of the Registrable Securities disposed of by such
Participant pursuant to such registration.
12. Replacement of Warrant. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of the Warrant and,
in the case of any such loss, theft or destruction of the Warrant, on delivery
of an indemnity agreement or security reasonably satisfactory in form and amount
to the Company or, in the case of any such mutilation, on surrender and
cancellation of the Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor; provided, however, if the
original holder of this Warrant is the registered holder and the Warrant is
lost, stolen or destroyed, the affidavit of the President, Treasurer or any
Assistant Treasurer of the registered holder setting forth the circumstances
with respect to such loss, theft or destruction shall be accepted as
satisfactory evidence thereof, and no indemnity bond or other security shall be
required as a condition to the execution and delivery by the Company of a new
Warrant in replacement of such lost, stolen or destroyed Warrant other than the
registered holder's written agreement to indemnify the Company.
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13. Warrant Agent. The Company may, by written notice to each holder of a
Warrant, appoint an agent for the purpose of issuing Preferred Stock (or Other
Securities) on the exercise of the Warrant pursuant to Section 1, exchanging the
Warrant pursuant to Section 10, and replacing the Warrant pursuant to Section
12, or any of the foregoing, and thereafter any such issuance, exchange or
replacement, as the case may be, shall be made at such office by such agent.
14. Remedies. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
15. Negotiability, etc. This Warrant is issued upon the following terms,
to all of which each holder or owner hereof by the taking hereof consents and
agrees:
(a) title to this Warrant or a portion hereof may be transferred by
endorsement (by the Transferor executing the Transferor Endorsement
Form) and delivery in the same manner as in the case of a negotiable
instrument transferable by endorsement and delivery;
(b) any person in possession (which possession may be joint) of this
Warrant with an executed Transferor Endorsement Form naming such
person as a Transferee under the heading "Transferees" is authorized
to represent himself as absolute owner of the portion of this
Warrant stated in such Transferor Endorsement Form opposite the name
of such person under the heading "Number Transferred" and is
empowered to transfer absolute title to such portion of this Warrant
by endorsement and delivery thereof to a bona fide purchaser thereof
for value, notwithstanding the requirements of Section 12 hereof;
each prior taker or owner waives and renounces all of his equities
or rights in this Warrant in favor of each such bona fide purchaser,
and each such bona fide purchaser shall acquire absolute title
hereto and to all rights represented hereby;
(c) until this Warrant is transferred on the books of the Company,
the Company may treat the registered holder hereof as the absolute
owner hereof for all purposes, notwithstanding any notice to the
contrary; and
(d) unless this Warrant and the shares issuable on exercise thereof
are then registered under the Securities Act of 1933, as amended
(the "Act"), no transfer of the Warrant or such shares may be made
to any person without first providing the Company an opinion of
counsel reasonably acceptable to the Company that registration under
the Act is not required.
16. Notices, etc. All notices and other communications from the Company to
the holder of this Warrant shall be mailed by first class registered or
certified mail, return receipt requested, postage prepaid, at such address as
may have been furnished to the Company in writing by such holder or, until any
such holder furnishes to the Company an address, then to, and at the address of,
the last holder of this Warrant who has so furnished an address to the Company.
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17. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of the Commonwealth of Massachusetts. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. This Warrant is being executed as an instrument
under seal. The invalidity or unenforceability of any provision hereof shall in
no way affect the validity or enforceability of any other provision.
18. Consent to Jurisdiction. The Company hereby irrevocably submits to the
jurisdiction of the state courts of the Commonwealth of Massachusetts and any
United States federal court sitting in the City of Boston, Massachusetts in any
action or proceeding arising out of or relating to this Warrant or any other
agreement or transaction contemplated hereby, and the Company hereby irrevocably
agrees that all claims in respect of such action or proceeding may be heard and
determined in any such federal court. The Company hereby irrevocably waives, to
the fullest extent it may effectively do so, the defense of an inconvenient
forum to the maintenance of such action or proceeding. The Company hereby
irrevocably consents to the service of any and all process in any such action or
proceeding at its address set forth on the first page hereof. The Company agrees
that a final judgment in any such action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law. Nothing in this Section 18 shall affect the right of the
holder of this Warrant to serve legal process in any other manner permitted by
law or affect the right of the holder to bring any action or proceeding against
the other party or its property in courts of any other jurisdictions.
IN WITNESS WHEREOF, the Company has executed this Warrant under seal as of
the date first written above.
VIP CALLING, INC.
By: /s/ Gordon J. VanderBrug
-------------------------
Title: Vice President
-------------------------
Attest:
By: /s/ Ofer Gneezy [CORPORATE SEAL]
----------------------
Title: President and CEO
----------------------
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EXHIBIT 10.6
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF MAY BE SOLD OR OFFERED FOR SALE OR OTHERWISE TRANSFERRED UNLESS IT OR
THEY, AS APPLICABLE, HAVE BEEN REGISTERED UNDER SUCH LAWS OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
No. B-1
VIP CALLING, INC.
PREFERRED STOCK PURCHASE WARRANT
June 8, 1998
VIP Calling, Inc., a corporation organized under the laws of the State of
Delaware with an address at 121 Middlesex Turnpike, Burlington, MA 01803 (the
"Company"), hereby certifies that, for value received, TLP Leasing Programs,
Inc., One Financial Center, 21st Floor, Boston, MA 02111 ("TLP") is entitled,
subject to the terms set forth below, to purchase from the Company at any time
or from time to time before 5:00 p.m., Boston time, on the Expiration Date (as
hereinafter defined), fully paid and nonassessable shares of Preferred Stock (as
hereinafter defined) of the Company, in an amount that is determined by dividing
(i) the product that results from multiplying .075 times the total dollar value
of the Equipment leased by the Company from TLP (the "Equipment") pursuant to
certain Equipment Schedules dated from and after June 5, 1998 which incorporate
by reference the Master Agreement of Terms and Conditions for Lease by and
between TLP and the Company (the "Master Agreement") (provided that such product
shall not at any time exceed an aggregate of $37,500.00) by (ii) $1.00 (such
price, as adjusted from time to time as herein provided, being referred to
herein as the "Purchase Price").
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "Company" shall include VIP Calling, Inc. and any
corporation which shall succeed to or assume the obligations of VIP
Calling, Inc. hereunder.
(b) The term "Preferred Stock" includes (i) the first series and/or
class of preferred stock issued by the Company after the date of this
agreement and (ii) any other securities into which or for which any of the
securities described in clause (i) may be converted or exchanged pursuant
to a plan of recapitalization, reorganization, merger, sale of assets or
otherwise.
(c) The term "Expiration Date" shall mean June 7, 2008.
(d) The term "Other Securities" refers to any stock (other than
Preferred Stock) and other securities of the Company or any other person
(corporate or otherwise) which the holder of the Warrant at any time shall
be entitled to receive, or shall have
<PAGE>
received, on the exercise or the Warrant, in lieu of or in addition to
Preferred Stock, or which at any time shall be issuable or shall have been
issued in exchange for or in replacement of Preferred Stock or other
securities pursuant to Section 5 or otherwise.
1. Exercise of Warrant.
1.1. Number of Shares Issuable upon Exercise. From and after the
date on which the Company files an amendment to its Certificate of Incorporation
creating and establishing shares of Preferred Stock as authorized capital stock
of the Company through and including the Expiration Date, the holder hereof
shall be entitled to receive, upon exercise of this Warrant in whole in
accordance with the terms of subsection 1.2, shares of Preferred Stock of the
Company in an amount determined in accordance with the calculation set forth in
the first paragraph of this Warrant, subject to adjustment pursuant to Section
5.
1.2. Exercise. This Warrant may be exercised in whole or in part
(provided, however, that the holder may not exercise this Warrant for fractional
shares of Preferred Stock) by the holder hereof by delivery of this Warrant,
with the form of subscription attached as Exhibit A hereto (the "Subscription
Form") duly executed by such holder, to the Company at its principal office or
at the office of its Warrant agent (as provided in Section 13), accompanied by
payment, in cash or by certified or official bank check payable to the order of
the Company, in the amount obtained by multiplying the number of shares of
Preferred Stock for which this Warrant is then being exercised by the Purchase
Price then in effect. The Company agrees that the shares of Preferred Stock so
purchased shall be deemed to be issued to the holder as the record owner of
Preferred Stock as of the close of business on the date on which payment shall
have been made for such shares of Preferred Stock. Certificates representing
shares of Preferred Stock so purchased shall be delivered to the holder promptly
and in no event later than ten (10) days after the Warrant shall have been so
exercised.
1.3. Fair Market Value. Fair Market Value of a share of Preferred
Stock as of a particular date (the "Determination Date") shall mean the Fair
Market Value of a share of the Company's Preferred Stock. Fair Market Value of a
share of the Preferred Stock as of a Determination Date shall mean:
(a) If the Company's Preferred Stock is traded on an exchange
or is quoted on the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") National Market System, then the closing or
last sale price, respectively, reported for the last business day
immediately preceding the Determination Date.
(b) If the Company's Preferred Stock is not traded on an
exchange or on the NASDAQ National Market System but is traded in the
over-the-counter market, then the mean of the closing bid and asked prices
reported for the last business day immediately preceding the Determination
Date.
(c) Except as provided in clause (e) below, if the Company's
Preferred Stock is not publicly traded, then as determined in good faith
by the Company's Board of Directors upon a review of relevant factors.
(d) If the Determination Date is the date on which the
Company's Preferred Stock is first sold to the public by the Company in a
firm commitment public offering under the Securities Act of 1933, as
amended (the "1933 Act"), then the initial
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public offering price (before deducting commissions, discounts or
expenses) at which the Preferred Stock is sold in such offering.
(e) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation,
dissolution or winding up pursuant to the Company's charter, then all
amounts to be payable per share to holders of the Preferred Stock pursuant
to the charter in the event of such liquidation, dissolution or winding
up, plus all other amounts to be payable per share in respect of the
Preferred Stock in liquidation under the charter, assuming for the
purposes of this clause (e) that all of the shares of Preferred Stock then
issuable upon exercise of all of the Warrants are outstanding at the
Determination Date.
1.4. Company Acknowledgment. The Company will, at the time of the
exercise of the Warrant, upon the request of the holder hereof acknowledge in
writing its continuing obligation to afford to such holder all rights to which
such holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant, including, without limitation, the registration
rights in favor of holder set forth in Section 11 of this Warrant. If the holder
shall fail to make any such request, such failure shall not affect the
continuing obligation of the Company to afford to such holder all such rights.
1.5. Trustee for Warrant Holders. In the event that a bank or trust
company shall have been appointed as trustee for the holders of this Warrant
pursuant to Subsection 4.2, such bank or trust company shall have all the powers
and duties of a warrant agent appointed pursuant to Section 13 and shall accept,
in its own name for the account of the Company or such successor person as may
be entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 1. The company shall give the holder of the Warrant notice of
appointment of any trustee or change thereof.
2. Delivery of Stock Certificates, etc. on Exercise. The Company agrees
that the shares of Preferred Stock purchased upon exercise of this Warrant shall
be deemed to be issued to the holder hereof (or its Transferee pursuant to
Section 10 hereof) as the record owner of such shares as of the close of
business on the date on which payment shall have been made for such shares as
aforesaid. As soon as practicable after the exercise of this Warrant in full or
in part, and in any event within 10 days thereafter, the Company at its expense
(including the payment by it of any applicable issue taxes) will cause to be
issued in the name of and delivered to the holder hereof, or as such holder
(upon payment by such holder of any applicable transfer taxes) may direct, a
certificate or certificates for the number of duly and validly issued, fully
paid and nonassessable shares of Preferred Stock (or Other Securities) to which
such holder shall be entitled on such exercise, plus, in lieu of any fractional
share to which such holder would otherwise be entitled, cash equal to such
fraction multiplied by the then Fair Market Value of one full share, together
with any other stock or other securities and property (including cash, where
applicable) to which such holder is entitled upon such exercise pursuant to
Section 1 or otherwise.
3. Adjustment for Dividends in Other Stock, Property, etc.;
Reclassification, etc. In case at any time or from time to time, the holders of
Preferred Stock (or Other Securities) shall have received, or (on or after the
record date fixed for the determination of shareholders eligible to receive)
shall have become entitled to receive, without payment therefor,
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<PAGE>
(a) other or additional stock or other securities or property (other
than cash) by way of dividend, or
(b) any cash (excluding cash dividends payable solely out of
earnings or earned surplus of the Company), or
(c) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate rearrangement,
other than additional shares of Preferred Stock (or Other Securities) issued as
a stock dividend or in a stock split (adjustments in respect of which are
provided for in Section 5.4), then and in each such case the holder of this
Warrant, on the exercise hereof as provided in Section 1, shall be entitled to
receive the amount of stock and other securities and property (including cash in
the cases referred to in subdivisions (b) and (c) of this Section 3) which such
holder would hold on the date of such exercise if on the date hereof such holder
had been the holder of record of the number of shares of Preferred Stock called
for on the face of this Warrant on the date of the event and had thereafter,
during the period from the date hereof to and including the date of such
exercise, retained such shares and all such other or additional stock and other
securities and property (including cash in the cases referred to in subdivisions
(b) and (c) of this Section 3) receivable by such holder as aforesaid during
such period, giving effect to all adjustments called for during such period by
Sections 4 and 5.
4. Adjustments for Reorganization, Consolidation, Merger, etc.
4.1. Reorganization, Consolidation, Merger, etc. In case at any time
or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provisions shall be made by the Company whereby the holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Preferred Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Sections 3 and 5.
4.2. Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the holders of this Warrant after the effective date
of such dissolution pursuant to this Section 4 to a bank or trust company as
trustee for the holder or holders of this Warrant.
4.3. Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 4, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
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such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 6.
5. Adjustment for Issue or Sale of Preferred Stock at Less Than the
Purchase Price In Effect. The Company expects the terms of the Preferred Stock
to contain anti-dilution provisions determined through a process of arms'-length
negotiation. Holders of Preferred Stock issued upon exercise of this Warrant
shall be protected against anti-dilution to the same extent as other holders of
Preferred Stock, as provided by the Company's Certificate of Incorporation as in
effect from time to time.
6. No Impairment. The Company will not, by amendment of its charter
documents or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of the
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of the Warrant against
impairment.
7. Chief Financial Officer's Certificate as to Adjustments. In each case
of any adjustment or readjustment in the shares of Preferred Stock (or Other
Securities) issuable on the exercise of this Warrant or the Purchase Price, the
Company at its expense will promptly cause its Chief Financial Officer to
compute such adjustment or readjustment in accordance with the terms of this
Warrant and prepare a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based, including a statement of the Purchase Price and the number of shares of
Preferred Stock to be received upon exercise of this Warrant, in effect
immediately prior to such adjustment or readjustment and as adjusted or
readjusted as provided in this Warrant. The Company will forthwith mail a copy
of each such certificate to the holder of the Warrant and any Warrant agent of
the Company (appointed pursuant to Section 13 hereof), and the Company will, on
the written request at the time of any holder of the Warrant, furnish to such
holder a like certificate setting forth the Purchase Price at the time in effect
and showing how it was calculated.
8. Notices of Record Date, etc. In the event of
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right
to subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property of the Company, or to receive
any other right, or
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any transfer of
all or substantially all the assets of the Company to or consolidation or
merger of the Company with or into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
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then and in each such event the Company will mail or cause to be mailed to the
holder of this Warrant a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right and the
date on which the holders of Preferred Stock will be entitled thereto, and (ii)
the date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Preferred Stock (or Other Securities) shall be entitled to exchange
their shares of Preferred Stock (or Other Securities) for securities or other
property deliverable on such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 20 days prior to the date specified in such
notice on which any such action is to be taken.
9. Reservation of Stock, etc. Issuable on Exercise of Warrant. The Company
will at all times reserve and keep available, solely for issuance and delivery
on the exercise of the Warrants, all shares of Preferred Stock (or Other
Securities) from time to time issuable on the exercise of this Warrant.
10. Assignment; Exchange of Warrant. This Warrant, and the rights
evidenced hereby, may be transferred by any registered holder hereof (a
"Transferor") with respect to any or all of the shares of Preferred Stock as
further set forth in Section 15 hereof. On the surrender for exchange of this
Warrant, with the Transferor's endorsement in the form of Exhibit B attached
hereto (the "Transferor Endorsement Form"), to the Company, the Company at its
expense (but with payment by the Transferor of any applicable transfer taxes)
will issue and deliver to or on the order of the Transferor thereof a new
Warrant or Warrants of like tenor, in the name of the Transferor and/or the
transferee(s) specified in such Transferor Endorsement Form (each a
"Transferee"), calling in the aggregate for the number of shares of Preferred
Stock called for under the Warrant so surrendered by the Transferor. The Company
hereby covenants expeditiously to register the Transferor and/or any such
Transferees on its books as the registered holder(s) of this Warrant or the
portion hereof transferred as specified in such Transferor Endorsement Form.
11. Registration Rights.
11.1 Election. Whenever the Company proposes to register on Form
S-1, S-2 or S-3 (or any successor or equivalent form) any shares of Preferred
Stock or Other Securities for its own or others' account under the Securities
Act of 1933, as amended (the "Securities Act") for a public offering (each a
"Public Offering"), the Company shall furnish the holder of this Warrant, each
Transferee, and each holder of Registrable Securities, as defined below, prompt
notice of its intent to do so. Upon the request of any such person given by
notice to the Company within twenty (20) days after receipt of such notice from
the Company, the Company will use its best efforts to cause to be included in
such registration all of the Registrable Securities which such person requests.
11.2 Registrable Securities. Registrable Securities shall mean (i)
all shares of Preferred Stock and Other Securities issued or issuable upon
exercise of this Warrant, and (ii) all shares of Preferred Stock and Other
Securities directly or indirectly issued or issuable with respect to such
Preferred Stock or Other Securities by way of stock dividend or stock split or
in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. As to any particular Registrable
Securities, such securities shall cease to be Registrable Securities when they
have been (a) effectively registered under the Securities Act and disposed of in
accordance
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with the registration statement covering them or (b) distributed to the public
through a broker, dealer or market maker pursuant to Rule 144 under the
Securities Act.
11.3 Cutbacks. Notwithstanding the foregoing provisions of this
Section 11, if the Company is advised in good faith by any managing underwriter
of securities being offered pursuant to any Public Offering under this Section
11 that the number of securities requested to be sold in such Public Offering is
greater than the number of such securities which can be included in such Public
Offering without materially adversely affecting such Public Offering, the
securities to be included in such offering shall be reduced to the extent
requested by such managing underwriter as follows:
(i) first, securities requested to be included in the Public
Offering by persons who do not have pre-existing contractual registration rights
shall be reduced pro rata (based on the number of shares requested to be
included by such Persons);
(ii) second, Registrable Securities requested to be included in the
Public Offering by persons who have the right to do so under this Section 11, if
any, together with all other like securities which persons with pre-existing
contractual registration rights have requested to be included in the Public
Offering shall be reduced pro rata (based on the number of shares requested to
be included by all such persons); and
(iii) third, securities proposed to be included by the Company shall
be reduced.
11.4 Excluded Transactions. Notwithstanding the preceding provisions
of this Section 11, no holder of Registrable Securities shall have any right of
participation or otherwise with respect to the following offerings:
(a) Any Public Offering relating primarily to employee benefit
plans; or
(b) Any Public Offering the proceeds of which are used principally
to finance the acquisition after the date hereof by the Company or any of its
subsidiaries of any acquired businesses or any Public Offering constituting an
exchange of securities for securities of any such acquired businesses.
11.5 Expenses. The Company shall pay all expenses of the
Participants in any Public Offering pursuant to this Section 11, other than (i)
underwriting discounts and commissions, if any, (ii) applicable transfer taxes,
if any, and (iii) fees and charges of any attorneys or other advisors retained
by any such holders.
11.6 Further Assurances. Each person participating in any Public
Offering pursuant to the terms of this Warrant (a "Participant") shall take all
such actions and execute all such documents and instruments that are reasonably
requested by the Company to effect the sale of their Registrable Securities in
such Public Offering,
11.7. Indemnification by the Company. In connection with any Public
Offering, the Company agrees to indemnify and hold harmless each Participant and
its underwriters, affiliates and controlling persons, if any, against any
losses, claims, damages, liabilities or expenses (including attorneys' fees),
joint or several, to which any such person may become subject insofar as such
losses, claims, damages or liabilities are caused by any untrue statement of
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a material fact or an omission to state any material fact in the registration
statement, related prospectus or any amendment thereto except insofar as such
statement or omission is based on information provided by such person to the
Company.
11.8. Indemnification by Participants. In connection with any Public
Offering, each Participant agrees to indemnify and hold harmless the Company and
its underwriters, affiliates and controlling persons, if any, against any
losses, claims damages, liabilities or expenses (including attorneys' fees),
joint or several, to which any such person may become subject insofar as such
losses, claims, damages or liabilities are caused by any untrue statement of a
material fact or an omission to state any material fact in the registration
statement, related prospectus or any amendment thereto based on information
provided to the Company in writing by such person.
11.9 Contribution. If the indemnification provided for in Sections
11.7 or 11.8 hereof is unavailable to a party that would have been an
indemnified party under any such Section in respect of any losses, claims,
damages, liabilities or expenses (or actions or proceedings in respect thereof)
referred to therein, then each party that would have been an indemnifying party
thereunder shall, in lieu of indemnifying such indemnified party, contribute to
the amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or expenses or actions or proceedings in respect
thereof) in such proportion as is appropriate to reflect the relative fault of
such indemnifying party on the one hand and such indemnified party on the other
in connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof).
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
11.10 Limitation on Liability of Holders of Registrable Securities.
The liability of each Participant in respect of any indemnification or
contribution obligation of such holder arising under this Section 11 shall not
in any event exceed an amount equal to the net proceeds to such Participant
(after deduction of all underwriters' discounts and commissions and all other
expenses paid by such Participant in connection with the registration in
question) from the disposition of the Registrable Securities disposed of by such
Participant pursuant to such registration.
12. Replacement of Warrant. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of the Warrant and,
in the case of any such loss, theft or destruction of the Warrant, on delivery
of an indemnity agreement or security reasonably satisfactory in form and amount
to the Company or, in the case of any such mutilation, on surrender and
cancellation of the Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor; provided, however, if the
original holder of this Warrant is the registered holder and the Warrant is
lost, stolen or destroyed, the affidavit of the President, Treasurer or any
Assistant Treasurer of the registered holder setting forth the circumstances
with respect to such loss, theft or destruction shall be accepted as
satisfactory evidence thereof, and no indemnity bond or other security shall be
required as a condition to the execution and delivery by the Company of a new
Warrant in replacement of such lost, stolen or destroyed Warrant other than the
registered holder's written agreement to indemnify the Company.
13. Warrant Agent. The Company may, by written notice to each holder of a
Warrant, appoint an agent for the purpose of issuing Preferred Stock (or Other
Securities) on the exercise of the Warrant pursuant to Section 1, exchanging the
Warrant pursuant to Section 10, and replacing
8
<PAGE>
the Warrant pursuant to Section 12, or any or the foregoing, and thereafter any
such issuance, exchange or replacement, as the case may be, shall be made at
such office by such agent.
14. Remedies. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
15. Negotiability, etc. This Warrant is issued upon the following terms,
to all of which each holder or owner hereof by the taking hereof consents and
agrees:
(a) title to this Warrant or a portion hereof may be transferred by
endorsement (by the Transferor executing the Transferor Endorsement
Form) and delivery in the same manner as in the case of a negotiable
instrument transferable by endorsement and delivery;
(b) any person in possession (which possession may be joint) of this
Warrant with an executed Transferor Endorsement Form naming such
person as a Transferee under the heading "Transferees" is authorized
to represent himself as absolute owner of the portion of this
Warrant stated in such Transferor Endorsement Form opposite the name
of such person under the heading "Number Transferred" and is
empowered to transfer absolute title to such portion of this Warrant
by endorsement and delivery thereof to a bona fide purchaser thereof
for value, notwithstanding the requirements of Section 12 hereof;
each prior taker or owner waives and renounces all of his equities
or rights in this Warrant in favor of each such bona fide purchaser,
and each such bona fide purchaser shall acquire absolute title
hereto and to all rights represented hereby;
(c) until this Warrant is transferred on the books of the Company,
the Company may treat the registered holder hereof as the absolute
owner hereof for all purposes, notwithstanding any notice to the
contrary; and
(d) unless this Warrant and the shares issuable on exercise thereof
are then registered under the Securities Act of 1933, as amended
(the "Act"), no transfer of the Warrant or such shares may be made
to any person without first providing the Company an opinion of
counsel reasonably acceptable to the Company that registration under
the Act is not required.
16. Notices, etc. All notices and other communications from the Company to
the holder of this Warrant shall be mailed by first class registered or
certified mail, return receipt requested, postage prepaid, at such address as
may have been furnished to the Company in writing by such holder or, until any
such holder furnishes to the Company an address, then to, and at the address of,
the last holder of this Warrant who has so furnished an address to the Company.
17. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware. The headings in this Warrant are
for purposes of reference only, and shall not limit or otherwise
9
<PAGE>
affect any of the terms hereof. This Warrant is being executed as an instrument
under seal. The invalidity or unenforceability of any provision hereof shall in
no way affect the validity or enforceability of any other provision.
18. Consent to Jurisdiction. The Company hereby irrevocably submits to the
jurisdiction of the state courts of the Commonwealth of Massachusetts and any
United States federal court sitting in the City of Boston, Massachusetts in any
action or proceeding arising out of or relating to this Warrant or any other
agreement or transaction contemplated hereby, and the Company hereby irrevocably
agrees that all claims in respect of such action or proceeding may be heard and
determined in any such federal court. The Company hereby irrevocably waives, to
the fullest extent it may effectively do so, the defense of an inconvenient
forum to the maintenance of such action or proceeding. The Company hereby
irrevocably consents to the service of any and all process in any such action or
proceeding at its address set forth on the first page hereof. The Company agrees
that a final judgment in any such action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law. Nothing in this Section 18 shall affect the right of the
holder of this Warrant to serve legal process in any other manner permitted by
law or affect the right of the holder to bring any action or proceeding against
the other party or its property in courts of any other jurisdictions.
IN WITNESS WHEREOF, the Company has executed this Warrant under seal as of
the date first written above.
VIP CALLING, INC.
By: /s/ Ofer Gneezy
--------------------------------
Title: President & CEO
-----------------------------
Attest:
By: By: /s/ Gordon J. VanderBrug (CORPORATE SEAL]
-----------------------------
Title: Executive Vice President
--------------------------
10
<PAGE>
EXHIBIT 10.7
CISCO SYSTEMS
[GRAPHIC](TM)
CAPITAL
Master Lease No. 2020
- --------------------------------------------------------------------------------
MASTER AGREEMENT TO LEASE EQUIPMENT
- --------------------------------------------------------------------------------
THIS MASTER AGREEMENT TO LEASE EQUIPMENT (this "Agreement") is entered
into as of November 3, 1998 by and between CISCO SYSTEMS CAPITAL CORPORATION
("Lessor"), having its principal place of business at 170 West Tasman Drive, San
Jose, California 95134 and VIP CALLING, INC., a Delaware Corporation ("Lessee"),
having a principal place of business at 121 Middlesex Turnpike, Burlington, MA
01803.
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I. THE LEASE
- --------------------------------------------------------------------------------
1.1 Lease of Equipment. In accordance with the terms and conditions of
this Agreement, Lessor shall lease to Lessee, and Lessee shall lease from
Lessor, the personal property, including all substitutions, replacements,
repairs, parts and attachments, improvements and accessions thereto and therein
(the "Equipment"), described in the lease schedule(s) (each, a "Lease") to be
entered into from time to time into which this Agreement is incorporated. Each
Lease shall constitute a separate, distinct, and independent lease and
contractual obligation of Lessee. Lessor or its assignee shall at all times
retain the full legal title to the Equipment, it being expressly agreed by both
parties that each Lease is an agreement of lease only.
1.2 Term of Lease. The original term (the "Original Term") of the
Equipment shall commence on the Commencement, and, subject to Sections 3.3 and
3.5 below, shall terminate on the date specified in the Lease. Except as
specifically provided in this Section 1.2, no Lease may be terminated by Lessor
or Lessee, for any reason whatsoever, prior to the end of the Original Term (the
"Lease Term"). Notwithstanding any provision to the contrary contained in this
Agreement, Lessee shall be deemed to accept the Equipment on the Commencement
Date (as specified in each Lease).
1.3 Rental Payments. Lessee shall pay Lessor monthly rent ("Rent") for the
Equipment in the amounts and at the times specified in the Lease provided,
however, that no Rent shall be due or accrue with respect to any Lease prior to
the date occurring six months after the date of the first lease. All Rent and
other amounts payable by Lessee to Lessor hereunder shall be paid to Lessor at
the address specified above, or at such other place as Lessor may designate in
writing to Lessee from time to time. Lessor will provide Lessee with a single
monthly invoice, detailing all Rent then owned with respect to Equipment under
all leases then in effect. Freight charges for Equipment deliver to Lessee will
be added to Lessor's invoice and billed to Lessee with the first rental payment
relating to such Equipment.
1.
<PAGE>
1.4 Return of Equipment. Upon expiration of the Lease Term of the
Equipment, Lessee shall immediately return the Equipment to Lessor as provided
in Section 3.3 below. If Lessee fails to return any of the Equipment upon demand
therefor by Lessor, Lessee shall pay Lessor, as the measure of Lessor's damages,
the Casualty Value (as defined in the applicable Lease) of such Equipment.
- --------------------------------------------------------------------------------
II. DISCLAIMERS AND WARRANTIES; INTELLECTUAL PROPERTY
- --------------------------------------------------------------------------------
2.1 Disclaimers; Warranties. Lessee represents and acknowledges that the
Equipment is of a size, design, capacity and manufacture selected by it, and
that it is satisfied that the Equipment is suitable for its purposes. LESSOR
LEASES THE EQUIPMENT AS IS, AND, NOT BEING THE MANUFACTURER OF THE EQUIPMENT,
THE MANUFACTURER'S AGENT OR THE SELLER'S AGENT, MAKES NO WARRANTY OR
REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE MERCHANTABILITY, FITNESS
FOR ANY PARTICULAR PURPOSE, DESIGN OR CONDITION OF THE EQUIPMENT. LESSOR SHALL
NOT BE RESPONSIBLE FOR ANY LOSS OR DAMAGE RESULTING FROM THE INSTALLATION,
OPERATION OR OTHER USE, OR DEINSTALLATION OF THE EQUIPMENT, INCLUDING, WITHOUT
LIMITATION, ANY DIRECT, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGE OR LOSS.
Lessee shall look solely to the manufacturer or the supplier of the Equipment
for correction of any problems that may arise with respect thereto, and,
provided no Event of Default (as defined in Section 4.1) has occurred and is
continuing, all warranties made by the manufacturer or such supplier are, to the
degree possible, hereby assigned to Lessee for the Lease Term. Lessor shall not
enter any agreement with the manufacturer or supplier of the Equipment that will
restrict Lessee's ability to look to such manufacturer or supplier to correct
any such problem. To the extent any such warranty requires performance of any
kind by the beneficiary of the warranty, Lessee shall perform in accordance
therewith.
2.2 Intellectual Property. Except as otherwise expressly provided in each
Lease, LESSOR MAKES NO WARRANTIES OR REPRESENTATIONS WHATSOEVER WITH RESPECT TO
THE INTELLECTUAL PROPERTY RIGHTS, INCLUDING, WITHOUT LIMITATION, ANY PATENT,
COPYRIGHT AND TRADEMARK RIGHTS OF ANY THIRD PARTY WITH RESPECT TO THE EQUIPMENT,
WHETHER RELATING TO INFRINGEMENT OR OTHERWISE. Lessor shall, when requested in
writing by Lessee and at Lessee's cost and expense, exercise, rights of
indemnification, if any, for patent, copyright or other intellectual property
infringement obtained from the manufacturer under any agreement for purchase of
the Equipment. If notified promptly in writing of any action brought against
Lessee based on a claim that the Equipment infringes a United States patent,
copyright or other intellectual property right, Lessor shall promptly notify the
manufacturer thereof for purposes of exercising, for the benefit of Lessee,
Lessor's rights with respect to such claim under any such agreement.
2.
<PAGE>
- --------------------------------------------------------------------------------
III. COVENANTS OF LESSEE
- --------------------------------------------------------------------------------
3.1 Payments Unconditional; Tax Benefits; Acceptance. EACH LEASE SHALL BE
A NET LEASE, AND LESSEE'S OBLIGATION TO PAY ALL RENT AND OTHER SUMS THEREUNDER,
AND THE RIGHTS OF LESSOR IN AND TO SUCH PAYMENTS, SHALL BE ABSOLUTE AND
UNCONDITIONAL, AND SHALL NOT BE SUBJECT TO ANY ABATEMENT, REDUCTION, SETOFF,
DEFENSE, COUNTERCLAIM, INTERRUPTION, DEFERMENT OR RECOUPMENT, FOR ANY REASON
WHATSOEVER. It is the intent of Lessor, and an inducement to Lessor, to enter
into each Lease, to claim all available tax benefits of ownership with respect
to the Equipment subject thereto. Lessee's acceptance of the Equipment subject
to a Lease shall be conclusively and irrevocably evidenced by Lessee executing
an Acceptance Certificate with respect to such Equipment, and upon acceptance,
such Lease shall be noncancellable for the Lease Term unless otherwise agreed to
in writing by Lessor. Any nonpayment of Rent or other amounts payable under any
Lease shall result in Lessee's obligation to promptly pay Lessor as additional
Rent on such overdue payment, for the period of time during which it is overdue
(without regard to any grace period), interest at a rate equal to the lesser of
(a) fourteen percent (14%) per annum, or (b) the maximum rate of interest
permitted by law.
3.2 Use of Equipment. Lessee shall use the Equipment solely in the conduct
of its business, in a manner and for the use contemplated by the manufacturer
thereof, and in compliance with all laws, rules and regulations of every
governmental authority having jurisdiction over the Equipment or Lessee and with
the provisions of all policies of insurance carried by Lessee pursuant to
Section 3.6 below. Lessee shall pay all costs, expenses, fees and charges
incurred in connection with the use and operation of the Equipment.
3.3 Delivery; Installation; Return; Maintenance and Repair; Inspection.
Lessee shall be solely responsible, at its own expense, for (a) the delivery of
the Equipment to Lessee, (b) the packing, rigging and delivery of the Equipment
back to Lessor, upon expiration or termination of the Lease Term, in good
repair, condition and working order, ordinary wear and tear excepted, at the
location(s) within the continental United States specified by Lessor, and (c)
the installation, de-installation, maintenance and repair of the Equipment.
During the Lease Term, Lessee shall ensure that the Equipment is covered by a
maintenance agreement, to the extent available, with the manufacturer of the
Equipment or such other party, reasonably acceptable to Lessor. Lessee shall, at
its expense, keep the Equipment in good repair, condition and working order,
ordinary wear and tear excepted, and, at the expiration or termination of the
Lease Term, or any renewal term, with respect to any of the Equipment, have such
Equipment inspected and certified acceptable for maintenance service by the
manufacturer, if such inspection and certification services are available from
the manufacturer at such time. In the event any of the Equipment, upon its
return to Lessor, is not in good repair, condition and working order, ordinary
wear and tear excepted, Lessee shall be obligated to pay Lessor for the
out-of-pocket expenses Lessor incurs in bringing such Equipment up to such
status, but not in excess of the Casualty Value (as defined in the applicable
Lease) for such Equipment, promptly after its receipt of an invoice for such
expenses. Lessor shall be entitled to inspect the Equipment at Lessee's
3.
<PAGE>
location of reasonable times.
4.
<PAGE>
3.4 Taxes. Lessee shall be obligated to pay, and hereby indemnifies Lessor
and its successor and assigns against, and holds each of them harmless from, all
license fees, assessments, and sales, use, property, excise and other taxes and
charges, other than those measured by Lessor's net income, now and hereafter
imposed by any governmental body or agency upon or with respect to any of the
Equipment, or the possession, ownership, use or operation thereof, or any Lease
or the consummation of the transactions contemplated in any Lease or this
Agreement. Notwithstanding the foregoing, Lessor shall file all required
personal property tax returns, and shall pay all personal property taxes
payable, with respect to the Equipment, Lessee shall pay to Lessor, as
additional Rent, the amount of all such personal property taxes within fifteen
(15) days of its receipt of an invoice for such taxes.
3.5 Loss of Equipment. Lessee shall bear the entire risk of the Equipment
being lost, destroyed or otherwise permanently unfit or unavailable for use from
any cause whatsoever (an "Event of Loss") after it has been delivered to common
carrier for shipment to Lessee. If an Event of Loss shall occur with respect to
any item of Equipment, Lessee shall promptly notify Lessor thereof in writing.
On the rental payment date following Lessor's receipt of such notice, Lessee
shall pay to Lessor an amount equal to the rental payment or payments due and
payable with respect to such item of Equipment on or prior to such date, plus a
sum equal to the Casualty Value of such item of Equipment as of the date of such
payment as set forth in such Lease. Upon the making of such payment by Lessee
regarding any item of Equipment, the Rent for such item of Equipment shall cease
to accrue, the term of this Lease as to such item of Equipment shall terminate
and (except in the case of loss, theft or complete destruction) Lessor shall be
entitled to recover possession of such item of Equipment in accordance with the
provisions of Section 3.3 above. Provided that Lessor has received the Casualty
Value of any item of Equipment, Lessee shall be entitled to the proceeds of any
recovery in respect of such item of Equipment from insurance or otherwise.
3.6 Insurance. Lessee shall obtain and maintain for the Lease Term at its
own expense, property damage and liability insurance and insurance against loss
or damage to the Equipment (including so-called extended coverage), as a result
of theft and such other risks of loss as are normally maintained on equipment of
the type leased hereunder by companies carrying on the business in which Lessee
is engaged, in such amounts, in such form and with such insurers as shall be
satisfactory to Lessor. Each insurance policy will name Lessee as insured and
Lessor as an additional insured and loss payee thereof as Lessor's interests may
appear, and shall provide that it may not be canceled or altered without at
least thirty (30) days prior written notice thereof being given to Lessor or its
successor and assigns.
5.
<PAGE>
3.7 Indemnity. Except with respect to the gross negligence or willful
misconduct of Lessor, Lessee hereby indemnifies, protects, defends and holds
harmless Lessor and its successors and assigns, from and against any and all
claims, liabilities (including negligence, tort and strict liabilities),
demands, actions, suits, and proceedings, losses, costs, expenses and damages,
including without limitation, reasonable attorneys' fees and costs
(collectively, "Claims"), arising out of, connected with, or resulting from this
Agreement, any Lease or any of the Equipment, including, without limitation, the
manufacture, selection, purchase, delivery, possession, condition, use,
operation, or return of the Equipment. Each of the parties shall give the other
prompt written notice of any Claim of which it becomes aware. The provisions of
this Section 3.7 shall survive the expiration or termination of this Agreement
or any Lease.
3.8 Prohibitions Related to Lease and Equipment. Without the prior written
consent of Lessor, which consent shall not be unreasonably withheld or delayed,
Lessee shall not: (a) assign, transfer, pledge, encumber, hypothecate or
otherwise dispose of this Lease or any rights or obligations thereunder; (b)
sublease any of the Equipment; (c) create or incur, or permit to exist, any lien
or encumbrance with respect to any of the Equipment, or any part thereof; (d)
move any of the Equipment from the location at which it is first installed; or
(e) permit any of the Equipment to be moved outside the continental limits of
the United States.
3.9 Identification. Lessee shall place and maintain permanent markings
provided by Lessor on the Equipment evidencing ownership, security and other
interests therein, as specified from time to time by Lessor.
3.10 Alterations and Modifications. Lessee shall not make any additions,
attachments, alterations or improvements to the Equipment without the prior
written consent of Lessor, which consent shall not be unreasonably withheld or
delayed. Any addition, attachment, alteration or improvement to any item of
Equipment shall belong to and become the property of Lessor unless, at the
request of Lessor, it is removed prior to the return of such item of Equipment
by Lessee. Lessee shall be responsible for all costs relating to such removal
and shall restore such item of Equipment to its operating condition that existed
at the time it became subject to the applicable Lease, ordinary wear and tear
excepted.
3.11 Equipment to be Personal Property. Lessee acknowledges and represents
that the Equipment shall be and remain personal property, notwithstanding the
manner in which it may be attached or affixed to realty, and Lessee shall do all
acts and enter into all agreements necessary to ensure that the Equipment
remains personal property.
3.12 Financial Statements. Lessee shall promptly furnish to Lessor such
financial or other statements respecting the condition and operations of Lessee,
and information respecting the Equipment, as Lessor may from time to time
reasonably request, so long as Lessee is not subject to the periodic reporting
requirements of the Securities Exchange Act of 1934, as amended.
6.
<PAGE>
3.13 Lessee Representations. Lessee hereby represents that, with respect
to this Agreement and each Lease: (a) the execution, delivery and performance
thereof by Lessee have been duly authorized by all necessary corporate action;
and (b) the individual executing such document is duly authorized to do so; (c)
such document constitutes a legal, valid and binding obligations of Lessee,
enforceable in accordance with its terms.
- --------------------------------------------------------------------------------
IV. DEFAULT AND REMEDIES
- --------------------------------------------------------------------------------
4.1 Events of Default. The occurrence of any of the following shall
constitute an "Event of Default" hereunder: (a) Lessee shall fail to pay any
Rent or other payment due hereunder with five (5) days after it becomes due and
payable; (b) any material representation or warranty of Lessee made in this
Agreement, any Lease, or in any document furnished pursuant to the provisions of
this Agreement or otherwise, shall prove to have been false or misleading in any
material respect as of the date when it was made; (c) Lessee shall fail to
perform any material covenant, condition or agreement made by it under any
Lease, and such failure shall continue for twenty (20) days after its receipt of
notice thereof; (d) bankruptcy, receivership, insolvency, reorganization,
dissolution, liquidation or other similar proceedings shall be instituted by or
against Lessee or all or any part of its property under the Federal Bankruptcy
Code or other law of the United States or of any other competent jurisdiction,
and, if such proceeding is brought against Lessee, it shall consent thereto or
shall fail to cause the same to be discharged within thirty (30) days after it
is filed; (e) Lessee shall be in material default under any agreement with
respect to the installation of any of the Equipment; or (f) Lessee or any
guarantor of Lessee's obligations under any Lease shall be in payment default
under any other agreement with Lessor or Cisco Systems, Inc.
4.2 Remedies. If an Event of Default hereunder shall occur and be
continuing, Lessor may exercise any one or more of the following remedies: (a)
terminate any or all of the Leases and Lessee's rights thereunder; (b) proceed,
by appropriate court action or actions, to enforce performance by Lessee of the
applicable covenants of any or all of the Leases or to recover damages for the
breach thereof; (c) recover from Lessee an amount equal to the sum of (i) all
accrued and unpaid Rent and other amounts due under any or all of the Leases (d)
personally, or by its agents, take immediate possession of any or all of the
Equipment from Lessee and, for such purpose, enter upon Lessee's premises where
any of the Equipment is located with or without process of law and free from all
claims by Lessee other than claims for damages resulting from Lessor's
negligence, recklessness or willful misconduct during such entry; provided
however, that the Lessor provides sufficient notice to Lessee to enable Lessee
to remove from such Equipment any proprietary or confidential information of the
Lessee and any third-party software that might be stored in or on such
Equipment; and (e) require the Lessee to assemble the Equipment and deliver the
Equipment to Lessor at a location which is reasonably convenient to Lessor and
Lessee. The exercise of any of the foregoing remedies by Lessor shall not
constitute a termination of any Lease or this Agreement unless Lessor so
notifies Lessee in writing. However Lessee shall not owe any additional Rent
with respect to Equipment taken by or returned to Lessor.
7.
<PAGE>
4.3 Disposition of Equipment. In the event, upon the occurrence of an
Event of Default, Lessor repossesses any of the Equipment, Lessor may sell or
lease any or all of such Equipment, at one or more public or private sales. The
proceeds of (i) any rental of the Equipment for the balance of the Original Term
(discounted to present value at the rate of five percent (5%) per annum) and
(ii) any sale of the Equipment shall be applied to the payment of (A) all costs
and expenses (including, without limitation, reasonable attorneys' fees)
incurred by Lessor in retaking possession of, and removing, storing, repairing,
refurbishing and selling or leasing such Equipment and (B) the obligations of
Lessee to Lessor pursuant to this Agreement. Lessee shall remain liable to
Lessor for any deficiency.
- --------------------------------------------------------------------------------
V. MISCELLANEOUS
- --------------------------------------------------------------------------------
5.1 Performance of Lessee's Obligations. Upon Lessee's failure to pay Rent
(or any other sum due hereunder) or perform any obligation hereunder when due,
Lessor shall have the right, but shall not be obligated, to pay such sum or
perform such obligation, whereupon such sum or cost of such performance shall
immediately become due and payable hereunder as additional Rent, with interest
thereon at the highest legal rate from the date such payment or performance was
made.
5.2 Quiet Enjoyment. So long as no Event of Default shall have occurred
and be continuing, neither Lessor nor its assignee shall interfere with Lessee's
right of quiet enjoyment and use of the Equipment.
5.3 Further Assurances. Lessee and Lessor shall, upon the request of the
other, from time to time, execute and deliver such further documents and do such
further acts as the other may reasonably request in order fully to effect the
purpose of this Agreement, any Lease and Lessor's and Lessee's rights
thereunder. Lessor is authorized to file a financing statement, signed only by
Lessor in accordance with the Uniform Commercial Code or signed by Lessor as
Lessee's attorney in fact, with respect to any of the Equipment.
5.4 Right and Remedies. Each and every right and remedy granted to Lessor
under any Lease shall be cumulative and in addition to any other right or remedy
therein specifically granted or now or hereafter existing in equity, at law, by
virtue of statute or otherwise, and may be exercised by Lessor from time to time
concurrently or independently and as often and in such order as Lessor may deem
expedient. Any failure or delay on the part of Lessor in exercising any such
right or remedy, or abandonment or discontinuance of steps to enforce the same,
shall not operate as a waiver thereof or affect Lessor's right thereafter to
exercising the same. Waiver of any right or remedy on one occasion shall not be
deemed to be a waiver of any other right or remedy or of the same right or
remedy on any other occasion.
8.
<PAGE>
5.5 Notices. Any notice, request, demand, consent, approval or other
communication provided for or permitted hereunder shall be in writing and shall
be conclusively deemed to have been received by a party hereto on the day it is
delivered to such party at its address set forth above (or at such other
addresses such party shall specify to the other party in writing), or if sent by
registered or certified mail, return receipt requested, on the fifth day after
the day on which it is mailed, postage prepaid, addressed to such party.
5.6 Section Headings; Counterparts. Section headings are inserted for
convenience of reference only and shall not affect any construction or
interpretation of this Agreement. This Agreement and each Lease may be executed
in counterparts, and when so executed each counterpart shall be deemed to be an
original and such counterparts together shall constitute one and the same
instrument.
5.7 Entire Lease. This Agreement and each Lease constitute the entire
agreement between Lessor and Lessee with respect to the lease of the Equipment.
No amendment of, or any consent with respect to, any provision of this Agreement
or any Lease shall bind either party unless set forth in a writing, specifying
such waiver, consent, or amendment, signed by both parties. TO THE EXTENT
PERMITTED BY APPLICABLE LAW AND NOT OTHERWISE SPECIFICALLY PROVIDED TO LESSEE IN
THIS AGREEMENT, LESSEE HEREBY WAIVES ANY AND ALL RIGHTS OR REMEDIES CONFERRED
UPON A LESSEE UNDER THE CALIFORNIA COMMERCIAL CODE, AND ANY OTHER APPLICABLE
SIMILAR CODE OR STATUTES OF ANOTHER JURISDICTION, WITH RESPECT TO A DEFAULT BY
LESSOR UNDER THIS AGREEMENT OR ANY LEASE.
5.8 Severability. Should any provision of this Agreement or any Lease be
or become invalid, illegal, or unenforceable under applicable law, the other
provisions of this Agreement and such Lease shall not be affected and shall
remain in full force and effect.
5.9 Attorneys' Fees. Should either party institute any action or
proceeding to enforce this Agreement or any Lease prevailing party shall be
entitled to receive from the other party all reasonable out-of-pocket costs and
expenses, including, without limitation, attorneys' fees.
5.10 Governing Law and Jurisdiction. THIS LEASE SHALL BE GOVERNED IN ALL
RESPECTS BY THE LAWS OF THE STATE OF CALIFORNIA WITH RESPECT TO AGREEMENTS
ENTERED INTO, AND TO BE PERFORMED, ENTIRELY IN CALIFORNIA. LESSOR AND LESSEE
WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY LITIGATION ARISING FROM THIS AGREEMENT
OR ANY LEASE. LESSEE CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE
COURTS OF CALIFORNIA, AND THE FEDERAL COURTS SITTING IN THE STATE OF CALIFORNIA,
FOR THE RESOLUTION OF ANY DISPUTES HEREUNDER.
9.
<PAGE>
COPY
5.11 Survival. All obligations of Lessee to make payments to Lessor under
any Lease or to indemnify Lessor, pursuant to Section 3.4 or 3.7 above, with
respect to a Lease, and all rights of Lessor hereunder with respect to a Lease,
shall survive the termination of such Lease.
LESSEE, BY THE SIGNATURE BELOW OF ITS AUTHORIZED REPRESENTATIVE, ACKNOWLEDGES
THAT IT HAS READ THIS LEASE, UNDERSTANDS IT, AND AGREES TO BE BOUND BY ITS TERMS
AND CONDITIONS. LESSOR: LESSEE:
CISCO SYSTEMS CAPITAL VIP CALLING, INC.
CORPORATION
By: /s/ Sam Zaidins By: /s/ Michael J. Hughes
------------------------------ -------------------------------
(Authorized Signature) (Authorized Signature)
Sam Zaidins
Manager, Customer Service & Operations
Cisco Systems Capital Michael J. Hughes, CFO
- ---------------------------------- -----------------------------------
(Name/Title) (Legal Name/Title)
11/5/98 11/3/98
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(Date) (Date)
10.
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EXHIBIT 10.8
VIP CALLING, INC.
1997 STOCK INCENTIVE PLAN
1. PURPOSES OF THE PLAN.
The purposes of this 1997 Stock Incentive Plan of VIP Calling, Inc.
(the "Company") are to promote the interests of the Company and its stockholders
by strengthening the Company's ability to attract, motivate, and retain
employees, directors, consultants and advisors of exceptional ability and to
provide a means to encourage stock ownership and a proprietary interest in the
Company to selected employees and consultants of the Company upon whose
judgment, initiative, and efforts the financial success and growth of the
business of the Company largely depend.
2. DEFINITIONS.
(a) "Accelerate," "Accelerated," and "Acceleration," when used with
respect to an Option, mean that as of the relevant time of reference, such
Option shall become fully exercisable with respect to the total number of shares
of Common Stock subject to such Option and may be exercised for all or any
portion of such shares.
(b) "Acquisition" means
(i) a merger or consolidation in which securities
possessing more than 50% of the total combined voting power of
the Company's outstanding securities are transferred to a
person or persons different from the persons who held those
securities immediately prior to such transaction, or
(ii) the sale, transfer, or other disposition of all
or substantially all of the Company's assets to one or more
persons (other than any wholly owned subsidiary of the
Company) in a single transaction or series of related
transactions.
(c) "Beneficial Ownership" means beneficial ownership determined
pursuant to Securities and Exchange Commission Rule 13d-3 promulgated under the
Exchange Act.
(d) "Board" means the Board of Directors of the Company.
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(e) "Change in Control" means a change in ownership or control of the
Company effected through either of the following transactions:
(i) any person or related group of persons (other
than the Company or a person that directly or indirectly
controls, is controlled by, or is under common control with
the Company) directly or indirectly acquires Beneficial
Ownership of securities possessing more than 50% of the total
combined voting power of the Company's outstanding securities
pursuant to a tender or exchange offer made directly to the
Company's stockholders that the Board does not recommend such
stockholders to accept, or
(ii) over a period of 36 consecutive months or less,
there is a change in the composition of the Board such that a
majority of the Board members (rounded up to the next whole
number, if a fraction) ceases, by reason of one or more proxy
contests for the election of Board members, to be composed of
individuals who either (A) have been Board members
continuously since the beginning of such period, or (B) have
been elected or nominated for election as Board members during
such period by at least a majority of the Board members
described in the preceding clause (A) who were still in office
at the time such election or nomination was approved by the
Board.
(f) "Committee" means the Compensation Committee of the Board;
PROVIDED, that the Board by resolution duly adopted may at any time or from time
to time determine to assume any or all of the functions of the Committee under
the Plan, and during the period of effectiveness of any such resolution,
references herein to the "Committee" shall mean the Board acting in such
capacity.
(g) "Common Stock" means the authorized Class A Common Stock of the
Company, par value $.001 per share.
(h) "Company" means VIP Calling, Inc.
(i) "Eligible Person" means any employee who is, at the time of the
grant of an Option or Restricted Stock Award, an employee (including officers
and employee directors), director, consultant or advisor of the Company or any
Subsidiary.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended and in effect from time to time.
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(k) "Fair Market Value" means the value of a share of Common Stock as
of the relevant time of reference, as determined as follows. If the Common Stock
is then publicly traded, Fair Market Value shall be (i) the last sale price of a
share of Common Stock on the principal national securities exchange on which the
Common Stock is traded, if the Common Stock is then traded on a national
securities exchange; or (ii) the last sale price of the Common Stock reported in
the NASDAQ National Market System, if the Common Stock is not then traded on a
national securities exchange; or (iii) the average of the closing bid and asked
prices for the Common Stock quoted by an established quotation service for
over-the-counter securities, if the Common Stock is not then traded on a
national securities exchange or reported in the NASDAQ National Market System.
If the Common Stock is not then publicly traded, Fair Market Value shall be the
fair value of a share of the Common Stock as determined by the Board or the
Committee, taking into consideration such factors as it deems appropriate, which
may include recent sale and offer prices of Common Stock in arms'-length private
transactions.
(l) "Hostile Takeover" means a change in ownership of the Company
effected through the following transaction:
(i) any person or related group of persons (other
than the Company or a person that directly or indirectly
controls, is controlled by, or is under common control with
the Company) directly or indirectly acquires Beneficial
Ownership of securities possessing more than 50% of the total
combined voting power of the Company's outstanding securities
pursuant to a tender or exchange offer made directly to the
Company's stockholders that the Board does not recommend such
stockholders to accept, and
(ii) more than 50% of the securities so acquired in
such tender or exchange offer are accepted from holders other
than the officers and directors of the Company who are subject
to the short-swing profit restrictions of Section 16 of the
Exchange Act.
(m) "Incentive Stock Option" means an Option intended to qualify as an
"incentive stock option" under Section 422 of the Internal Revenue Code and
regulations thereunder.
(n) "Nonqualified Stock Option" means an Option that is not an
Incentive Stock Option.
(o) "Option" means an Incentive Stock Option or a Nonqualified Stock
Option.
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(p) "Participant" means any Eligible Person selected to receive an
Option or Restricted Stock Award pursuant to Section 5 or any Permitted
Transferee to whom an Option or restricted shares of Common Stock granted
pursuant to a Restricted Stock Award have been transferred in accordance with
Section 9.
(q) "Permitted Transferee" means any immediate family member of a
person to whom an Option or Restricted Stock Award has been granted pursuant to
Section 5 or a trust maintained exclusively for the benefit of, or partnership
all of the interests in which are held by, one or more of such immediate family
members.
(r) "Plan" means this 1997 Stock Incentive Plan as set forth herein and
as amended and/or restated from time to time.
(s) "Restricted Stock Award" means a right to the grant or purchase, at
a price determined by the Committee, of Common Stock which is nontransferable,
except in accordance with Section 4(e), and subject to substantial risk of
forfeiture until specific conditions of continuing employment or performance are
met.
(t) "Subsidiary" means any subsidiary corporation (as defined in
Section 424 of the Internal Revenue Code) of the Company.
(u) "Takeover Price" means, with respect to any Incentive Stock Option,
the Fair Market Value per share of Common Stock on the date such Option is
surrendered to the Company in connection with a Hostile Takeover, or in the case
of a Nonqualified Stock Option, such Fair Market Value or, if greater, the
highest reported price per share of Common Stock paid by the tender offeror in
effecting such Hostile Takeover.
3. SHARES OF COMMON STOCK SUBJECT TO THE PLAN.
(a) Subject to adjustment in accordance with the provisions of
Section 3(c) and Section 8 of the Plan, the aggregate number of shares of
Common Stock that may be issued or transferred pursuant to Options or
Restricted Stock Awards under the Plan shall not exceed 400,000 shares.
(b) The shares of Common Stock to be delivered under the Plan will be
made available, at the discretion of the Committee, from authorized but unissued
shares of Common Stock and/or from previously issued shares of Common Stock
reacquired by the Company.
(c) If shares covered by any Option cease to be issuable for any
reason, and/or shares covered by Restricted Stock Awards are forfeited, such
number of
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shares will no longer be charged against the limitation provided in Section 3(a)
and may again be made subject to Options or Restricted Stock Awards.
4. ADMINISTRATION OF THE PLAN.
(a) The Plan will be governed by and interpreted and construed in
accordance with the internal laws of the State of Delaware (without reference to
principles of conflicts or choice of law). The captions of sections of the Plan
are for reference only and will not affect the interpretation or construction of
the Plan.
(b) The Plan will be administered by the Committee, which shall consist
of two or more persons. The Committee has and may exercise such powers and
authority of the Board as may be necessary or appropriate for the Committee to
carry out its functions as described in the Plan. The Committee shall make all
determinations required under the Plan, including the Eligible Persons to whom,
and the time or times at which, Options or Restricted Stock Awards may be
granted, the exercise price or purchase price (if any) of each Option or
Restricted Stock Award, whether each Option is intended to qualify as an
Incentive Stock Option or a Nonqualified Stock Option, and the number of shares
subject to each Option or Restricted Stock Award. The Committee also has
authority (i) to interpret the Plan, (ii) to determine the terms and provisions
of the Option or Restricted Stock Award instruments, and (iii) to make all other
determinations necessary or advisable for Plan administration. The Committee has
authority to prescribe, amend, and rescind rules and regulations relating to the
Plan. All interpretations, determinations, and actions by the Committee will be
final, conclusive, and binding upon all parties.
(c) No member of the Committee will be liable for any action taken or
determination made in good faith by the Committee with respect to the Plan or
any Option or Restricted Stock Award granted under it.
5. GRANTS.
(a) The Committee shall determine and designate from time to time those
Eligible Persons who are to be granted Options or Restricted Stock Awards, the
type of each Option to be granted and the number of shares covered thereby or
issuable upon exercise thereof, and the number of shares covered by each
Restricted Stock Award. Each Option and Restricted Stock Award will be evidenced
by a written agreement or instrument and may include any other terms and
conditions consistent with the Plan, as the Committee may determine.
(b) No person will be eligible for the grant of an Incentive Stock
Option who owns or would own immediately before the grant of such Option,
directly or
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indirectly, stock possessing more than ten percent of the total combined voting
power of all classes of stock of the Company or of any parent corporation or
Subsidiary. This will not apply if, at the time such Incentive Stock Option is
granted, its exercise price is at least 110% of the Fair Market Value of the
Common Stock and by its terms, it is not exercisable after the expiration of
five years from the date of grant. Subject to adjustment in accordance with the
provisions of Section 8 of the Plan, no person may in any year be granted
Options or Restricted Stock Awards with respect to more than 100,000 shares of
Common Stock.
6. TERMS AND CONDITIONS OF STOCK OPTIONS.
(a) The price at which Common Stock may be purchased by a Participant
under an Option shall be determined by the Committee; PROVIDED, HOWEVER, that
the purchase price under an Incentive Stock Option shall not be less than 100%
of the Fair Market Value of the Common Stock on the date of grant of such
Option.
(b) Each Option shall be exercisable at such time or times, during such
periods, and for such numbers of shares as shall be determined by the Committee
and set forth in the agreement or instrument evidencing the Option grant
(subject to Acceleration by the Committee, in its discretion). The Option shall
expire no later than three months following termination of the optionee's
employment or consulting relationship with the Company or a Subsidiary, except
in the event that such termination is due to death or disability, in which case
the Option may be exercisable for a maximum of twelve months after such
termination. In any event, the Option shall expire no later than the tenth
anniversary of the date of grant.
(c) Unless the Compensation Committee otherwise determines (whether at
the time the Option is granted or, if the Option is a Nonqualified Stock Option,
thereafter), upon the exercise of an Option, the purchase price will be payable
in full in cash.
(d) Incentive Stock Options may be granted under the Plan only to
employees of the Company or one of its Subsidiaries, and the aggregate Fair
Market Value (determined as of the date the Incentive Stock Option is granted)
of the number of shares with respect to which Incentive Stock Options are
exercisable for the first time by a Participant in any calendar year shall not
exceed one hundred thousand dollars ($100,000) or such other limit as may be
required by the Internal Revenue Code. Any Options that purport to be Incentive
Stock Options but which are granted to employees other than employees of the
Company or one of its Subsidiaries shall be, and any Options that purport to be
Incentive Stock Options but are granted in amounts in excess
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of those specified in this Section 6(d), shall to the extent of such excess be,
Nonqualified Stock Option.
(e) Subject to the short-swing profit restrictions of the Federal
securities laws, if applicable, each Option granted to any officer of the
Company may provide that upon the occurrence of a Hostile Takeover, such Option
will automatically be canceled in exchange for a cash distribution from the
Company in an amount equal to the excess of (i) the aggregate Takeover Price of
the shares of Common Stock at the time subject to the canceled Option
(regardless of whether the Option is otherwise then exercisable for such shares)
over (ii) the aggregate Option price payable for such shares. Such cash
distribution shall be made within five days after the consummation of the
Hostile Takeover. No subsequent approval of the Committee or of the Board shall
be required in connection with such Option cancellation and cash distribution.
7. TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS.
(a) All shares of Common Stock subject to Restricted Stock Awards
granted or sold pursuant to the Plan may be issued or transferred for such
consideration (which may consist wholly of services) as the Committee may
determine, and will be subject to the following conditions:
(i) Unless the Committee determines otherwise in accordance
with Section 9(e), the shares may not be sold, transferred, or
otherwise alienated or hypothecated, except to the Company, until the
restrictions thereon, if any, are removed or expire, unless the
Committee determines otherwise.
(ii) The Committee shall provide in the agreement or
instrument evidencing the grant of the Restricted Stock Awards that the
certificates representing shares subject to Restricted Stock Awards
granted or sold pursuant to the Plan will be held in escrow by the
Company until the restrictions on the shares lapse in accordance with
the provisions of subsection (b) of this Section 7.
(iii) Each certificate representing shares subject to
Restricted Stock Awards granted or sold pursuant to the Plan will bear
a legend making appropriate reference to the restrictions thereon, if
any.
(iv) The Committee may impose other conditions on any shares
subject to Restricted Stock Awards granted or sold pursuant to the Plan
as it may deem advisable, including without limitation, restrictions
under the Securities Act of 1933, as amended, under the requirements of
any stock exchange or securities quotations system upon which such
shares or
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shares of the same class are then listed, and under any blue sky or
other securities laws applicable to such shares.
(b) Any restrictions imposed under subparagraph (a) above upon
Restricted Stock Awards will lapse at such time or times, and/or upon the
achievement of such predetermined performance objectives, as shall be determined
by the Committee and set forth in the agreement or instrument evidencing the
Restricted Stock Award. In the event a holder of a Restricted Stock Award ceases
to be an employee, director, consultant or advisor of the Company, all shares
under the Restricted Stock Award that remain subject to restrictions at the time
his or her employment, directorship or consulting or advising relationship
terminates will be returned to or repurchased by the Company unless the
Committee determines otherwise.
(c) Subject to the provisions of subparagraphs (a) and (b) above, the
holder will have all rights of a shareholder with respect to the shares covered
by Restricted Stock Awards granted or sold, including the right to receive all
dividends and other distributions paid or made with respect thereto; PROVIDED,
HOWEVER, that, if requested by the Company, he or she shall execute an
irrevocable proxy or enter into a voting agreement with the Company as
determined by the Committee for the purpose of granting the Company or its
nominee the right to vote all shares that remain subject to restrictions under
this Section 7 in the same proportions (for and against) as the outstanding
voting shares of the Company that are not subject to such restrictions are voted
by the other shareholders of the Company on any matter, unless the Committee
determines otherwise.
8. ADJUSTMENT PROVISIONS.
(a) All of the share numbers set forth in the Plan reflect the capital
structure of the Company at the time of the effectiveness of the Plan. Subject
to Section 8(b), if subsequent to such date the outstanding shares of Common
Stock of the Company are increased, decreased, or exchanged for a different
number or kind of shares or other securities, or if additional shares or new or
different shares or other securities are distributed with respect to such shares
of Common Stock or other securities, through merger, consolidation, sale of all
or substantially all the property of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split, or other distribution with respect to such shares of Common Stock, or
other securities, an appropriate and proportionate adjustment shall be made in
(i) the maximum numbers and kinds of shares provided in Sections 3 and 5, (ii)
the numbers and kinds of shares or other securities subject to the then
outstanding Options and Restricted Stock Awards, and (iii) the price for each
share or other unit of any
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other securities subject to then outstanding Options (without change in the
aggregate purchase price as to which such Options remain exercisable).
(b) The Committee shall have discretion to provide for the Acceleration
of one or more outstanding Options and the vesting of unvested shares held as
Restricted Stock Awards upon the occurrence of a Change in Control of the
Company. Such Accelerated vesting may be conditioned on the subsequent
termination of the affected optionee's employment, directorship or consulting or
advising relationship. Any Options Accelerated in connection with a Change in
Control shall remain fully exercisable until the expiration or sooner
termination of the Option Term.
(c) In the event of an Acquisition, the unvested shares of Common Stock
held as Restricted Stock Awards shall immediately vest in full, except to the
extent that the Company determines that the Company's repurchase rights with
respect to those shares are to be assigned to the acquiring entity; and all
outstanding Options will Accelerate to the extent not assumed by the acquiring
entity or replaced by comparable options to purchase shares of the capital stock
of the successor or acquiring entity or parent thereof (the determination of
comparability to be made by the Committee, which determination shall be final,
binding, and conclusive). The Committee shall have discretion, exercisable
either in advance of an Acquisition or at the time thereof, to provide (upon
such terms as it may deem appropriate) for (i) the automatic Acceleration of one
or more outstanding Options that are assumed or replaced and do not otherwise
Accelerate by reason of the Acquisition, and/or (ii) the subsequent termination
of one or more of the Company's repurchase rights with respect to shares as
Restricted Stock Awards that are assigned in connection with the Acquisition and
do not otherwise terminate at that time, in the event that the employment,
directorship or consulting or advising relationship of the respective grantees
of such Options or Restricted Stock Awards should subsequently terminate
following such Acquisition.
(d) Each outstanding Option that is assumed in connection with an
Acquisition, or is otherwise to continue in effect subsequent to such
Acquisition, shall be appropriately adjusted, immediately after such
Acquisition, to apply to the number and class of securities that would have been
issued to the Option holder, upon consummation of such Acquisition, had such
holder exercised such Option immediately prior to such Acquisition. Appropriate
adjustments shall also be made to the Option price payable per share, PROVIDED,
that the aggregate Option price payable for such securities shall remain the
same. The class and number of securities available for issuance under the Plan
following the consummation of such Acquisition shall be appropriately adjusted.
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(e) Adjustments under this Section 8 will be made by the Committee,
whose determination as to what adjustments will be made and the extent thereof
so as to effectuate the intent of this Section 8 will be final, binding, and
conclusive. No fractional shares will be issued under the Plan on account of any
such adjustments.
9. GENERAL PROVISIONS.
(a) Nothing in the Plan or in any instrument executed pursuant to the
Plan will confer upon any Participant any right to continue in the employ of or
as a director, consultant or adviser to the Company or any of its Subsidiaries
or affect the right of the Company or any Subsidiary to terminate the
employment, directorship or consulting or advising relationship of any
Participant at any time, with or without cause.
(b) No shares of Common Stock will be issued or transferred pursuant to
an Option or Restricted Stock Award unless and until all then applicable
requirements imposed by Federal and state securities and other laws, rules and
regulations and by any regulatory agencies having jurisdiction, and by any stock
exchanges or securities quotations systems upon which the Common Stock may be
listed, have been fully met. As a condition precedent to the issuance of shares
pursuant to the grant or exercise of an Option or Restricted Stock Award, the
Company may require the Participant to take any reasonable action to meet such
requirements.
(c) No Participant and no beneficiary or other person claiming under or
through such Participant will have any right, title, or interest in or to any
shares of Common Stock allocated or reserved under the Plan or subject to any
Option, except as to such shares of Common Stock, if any, that have been issued
or transferred to such Participant.
(d) Except as set forth in paragraph (e) below, no Option and no right
under the Plan, contingent or otherwise, will be transferable or assignable or
subject to any encumbrance, pledge, or charge of any nature except that, under
such rules and regulations as the Committee may establish pursuant to the terms
of the Plan, a beneficiary may be designated with respect to an Option in the
event of death of a Participant. If such beneficiary is the executor or
administrator of the estate of the Participant, any rights with respect to such
Option may be transferred to the person or persons or entity (including a trust)
entitled thereto under the will of the holder of such Option.
(e) The Committee may, upon the grant of a Nonqualified Stock Option or
a Restricted Stock Award or by amendment to any written agreement or instrument
evidencing such Nonqualified Stock Option or Restricted Stock Award, provide
that such Nonqualified Stock Option or Restricted Stock Award
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be transferable by the person to whom such Nonqualified Stock Option or
Restricted Stock Award was granted, without payment of consideration, to a
Permitted Transferee of such person; PROVIDED, HOWEVER, that no transfer of a
Nonqualified Stock Option or Restricted Stock Award shall be valid unless first
approved by the Committee, acting in its sole discretion.
(f) The written agreements or instruments evidencing Restricted Stock
Awards or Options granted under the Plan may contain such other provisions as
the Committee may deem advisable. Without limiting the foregoing, and if so
authorized by the Committee, the Company may, with the consent of the
Participant and at any time or from time to time, cancel all or a portion of any
Option granted under the Plan then subject to exercise and discharge its
obligation with respect to the Option either by payment to the Participant of an
amount of cash equal to the excess, if any, of the Fair Market Value, at such
time, of the shares subject to the portion of the Option so canceled over the
aggregate purchase price specified in the Option covering such shares, or by
issuance or transfer to the Participant of shares of Common Stock with a Fair
Market Value at such time, equal to any such excess, or by a combination of cash
and shares. Upon any such payment of cash or issuance of shares, (i) there shall
be charged against the aggregate limitations set forth in Section 3(a) a number
of shares equal to the number of shares so issued plus the number of shares
purchasable with the amount of any cash paid to the Participant on the basis of
the Fair Market Value as of the date of payment, and (ii) the number of shares
subject to the portion of the Option so canceled, less the number of shares so
charged against such limitations, shall thereafter be available for other
grants.
10. AMENDMENT AND TERMINATION.
(a) The Board shall have the power, in its discretion, to amend,
modify, suspend, or terminate the Plan at any time, subject to applicable law
and the rights of holders of outstanding Options and Restricted Stock Awards on
the date of such action.
(b) The Committee may, with the consent of a Participant, make such
modifications in the terms and conditions of an Option or Restricted Stock Award
held by such Participant as it deems advisable.
(c) No amendment, suspension or termination of the Plan will, without
the consent of the Participant, alter, terminate, impair, or adversely affect
any right or obligation under any Option or Restricted Stock Award previously
granted to such Participant under the Plan.
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11. EFFECTIVE DATE OF PLAN AND DURATION OF PLAN.
The Plan became effective upon its adoption by the Board and by the
Company's stockholders on August 11, 1997. Unless previously terminated, the
Plan will terminate on August 11, 2007.
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EXHIBIT 10.9
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of the 11th day of August, 1997 (the "Effective
Date"), is made by and between VIP Calling, Inc., a Delaware corporation with
its principal place of business at 121 Middlesex Turnpike, Burlington,
Massachusetts 01803 (the "Employer"), and Ofer Gneezy, an individual residing at
5 Manchester Road, Winchester, Massachusetts 01890 (the "Employee").
Section 1. FREEDOM TO CONTRACT.
The Employee represents that he is free to enter into this Agreement, and
that he has not made and will not make any agreements in conflict with this
Agreement. The Employee will not, and the Employer will not require the Employee
to, disclose to the Employer, or use for the Employer's benefit, any trade
secrets or confidential information now or hereafter in the Employee's
possession which is the property of any other party.
Section 2. EMPLOYMENT.
The Employer hereby employs the Employee, and the Employee hereby accepts
his employment by the Employer, upon the terms and conditions set forth herein.
Section 3. EFFECTIVE DATE AND TERM.
This Agreement shall take effect as of the Effective Date, and shall
continue in full force and effect until terminated in accordance with Section 6
herein.
Section 4. TITLE AND DUTIES; EXTENT OF SERVICES.
The Employee shall promote the business and affairs of the Employer as
President and Chief Executive Officer of the Employer, with responsibility for
performing such duties consistent with such position as the Board of Directors
of the Employer (the "Board") may from time to time designate. Except as
otherwise provided in this Agreement and except for vacations and absences due
to temporary illness, the Employee shall devote his full time and efforts to the
business and affairs of the Employer, provided that, with the Employer's prior
written consent the Employee may engage in such other business activities
outside the scope of his employment hereunder as in the reasonable judgment of
the Employer will not materially adversely affect the Employee's ability to
perform his obligations under this Agreement.
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Section 5. COMPENSATION AND FRINGE BENEFITS.
Section 5.1. BASE SALARY. In consideration of the services rendered by the
Employee under this Agreement, the Employer shall pay the Employee an initial
base salary (the "Base Salary") at an annual rate of One Hundred Twenty-Five
Thousand Dollars ($125,000), payable in arrears bi-weekly (or on such other
payment schedule as the Employer shall have reasonably implemented with respect
to the payment of its other salaried employees), such Base Salary being subject
to increase at the discretion of the Board.
Section 5.2. PERFORMANCE BONUS. On an annual basis, the Board shall
establish, objective written performance goals for the Employee. Upon the
attainment of such performance goals, in addition to his Base Salary, the
Employee shall be entitled to a cash bonus in an amount determined in the
discretion of the Board. Any such performance bonus shall be due and payable
within ninety (90) days after the end of the calendar year to which it relates.
Section 5.3. FRINGE BENEFITS. The Employee shall be entitled to such life
insurance, health insurance and other employee fringe benefits as may be offered
or generally made available by the Employer to its executive officers.
Section 6. TERMINATION; CHANGE OF CONTROL.
Section 6.1. TERMINATION OF EMPLOYMENT. The Employee's employment hereunder
shall terminate upon the Employee's death or Permanent Disability. For purposes
of this Agreement, "Permanent Disability" shall mean the Employee's inability to
perform his duties hereunder for a continuous period of three (3) months by
reason of his physical or mental illness or incapacity. In the event of any
dispute concerning the existence of a Permanent Disability, such question shall
be determined by a licensed physician selected by the Employer and reasonably
acceptable to the Employee, whose determination shall be final and binding upon
the parties. The Employee shall submit to such examinations and furnish such
information as such physician may reasonably request. The Employee's employment
hereunder may also be terminated:
(a) By the Employee at any time upon at least thirty (30) days prior
written notice to the Employer; or
(b) By the Employer at any time upon at least thirty (30) days prior
written notice to the Employee; or
(c) By the Employee at any time for good reason, including but not
limited to:
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(i) failure of the Employer to continue to employ the Employee as
President and Chief Executive Officer of the Employer; or
(ii) material diminution of the Employee's responsibilities,
duties or authorities as President and Chief Executive Officer of the
Employer, or assignment to the Employee of any responsibilities or
duties inconsistent with such positions; or
(iii) failure of the Employer to pay and provide to the Employee
the compensation provided for herein; or
(iv) requiring the Employee to be permanently based anywhere other
than the principal executive offices of the Employer (excluding
business-related travel to an extent reasonably consistent with past
practice); or
(d) By the Employer at any time for cause, including but not limited
to:
(i) the Employee's gross negligence or willful misconduct with
respect to the business and affairs of the Employer; or
(ii) the Employee's material breach of this Agreement; or
(iii) the commission by the Employee of an act involving moral
turpitude or fraud; or
(iv) the Employee's conviction of any felony.
The provisions of Sections 6.2, 6.3, 7, 8, 9 and 10 shall survive
any termination of the Employee's employment hereunder and shall continue in
effect until such time as all obligations of the parties described therein have
been satisfied.
Section 6.2. COMPENSATION FOLLOWING TERMINATION; SEVERANCE PAY.
(a) If the Employee terminates his employment pursuant to Section
6.1(a) hereof, or if such employment is terminated by the death or
Permanent Disability of the Employee, the Employee shall not be entitled
to compensation, severance pay or fringe benefits beyond the date upon
which he ceases to be employed hereunder (the "Employment Termination
Date") except as may be otherwise provided in any then existing insurance
or health benefit programs of the Employer.
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(b) If the Employer terminates the employment of the Employee pursuant
to Section 6.1(b) hereof or if the Employee terminates his employment
pursuant to Section 6.1(c) hereof, the Employer shall be entitled for a
period of twelve (12) months from the Employment Termination Date, to
continue to receive payment of his Base Salary (as in effect on the
Employment Termination Date) at the same rate and on the same schedule
as if the Employee were still employed by the Employer during such
period; PROVIDED, HOWEVER, that each such payment shall be subject to
dollar-for-dollar reduction for any cash amounts received by the Employee
or accrued for his benefit from any successor employer or other entity
as payment for services rendered during such twelve (12) month period.
During such twelve (12) month period, the Employer shall also continue
to provide the Employee with such health benefits as were provided to
the Employee immediately prior to the Employment Termination Date (or
substantially comparable benefits if a continuation of benefits is not
permitted under then existing insurance or health benefit programs of
the Employer), such benefits to be provided to the same extent and under
the same terms and conditions as if the Employee were still employed by
the Employer during such period. Except as specifically provided in this
Section 6.2(b), the Employee shall not be entitled to any fringe benefits
following the Employment Termination Date.
(c) If the Employer terminates the employment of the Employee for
cause pursuant to Section 6.1(d) hereof, the Employee shall not be
entitled to compensation, performance bonus or fringe benefits hereunder
beyond the Employment Termination Date.
Section 6.3. ACCELERATION OF STOCK OPTIONS AND RESTRICTED STOCK.
(a) Immediately prior to the occurrence of an Acquisition or Change in
Control (each as defined below), each option to acquire shares of capital
stock of the Employer and each share of restricted capital stock of the
Employer then held by the Employee shall automatically and without further
action become fully vested, and each such option shall remain exercisable
until the expiration of such option or until it sooner terminates in
accordance with its terms.
(b) For purposes of Section 6.3(a), the term "Acquisition" shall mean:
(i) a merger, consolidation or similar transaction in which
securities possessing more than 50% of the total combined voting power
of the Employer's outstanding securities are transferred to a person
or persons different from the persons who held those securities
immediately prior to such transaction, or
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(ii) the sale, transfer, or other disposition of all or
substantially all of the Employer's assets to one or more persons
(other than any wholly owned subsidiary of the Employer) in a single
transaction or series of related transactions.
(c) For purposes of Section 6.3(a), the term "Change in Control" shall
mean a change in ownership or control of the Employer effected through
either of the following transactions:
(i) any person or related group of persons (other than the Employer
or a person that directly or indirectly controls, is controlled by, or
is under common control with the Employer) directly or indirectly
acquires beneficial ownership (determined pursuant to Rule 13d-3
promulgated under the Securities Exchange Act 1934, as amended) of
securities possessing more than 50% of the total combined voting
power of the Company's outstanding securities pursuant to a tender
or exchange offer made directly to the Employer's stockholders, or
(ii) over a period of 36 consecutive months or less, there is a
change in the composition of the Board such that a majority of the
Board members (rounded up to the next whole number, if a fraction)
ceases, by reason of one or more proxy contests for the election of
Board members, to be composed of individuals who either (A) have
been Board members continuously since the beginning of such period,
or (B) have been elected or nominated for election as Board members
during such period by at least a majority of the Board members
described in the preceding clause (A) who were still in office at
the time such election or nomination was approved by the Board.
Section 7. INTELLECTUAL PROPERTY MATTERS.
Section 7.1. INVENTIONS. All discoveries, inventions, improvements,
techniques, trademarks and innovations, whether or not patentable or subject to
copyright protection (including all data and records pertaining thereto), which
the Employee may invent, discover, originate or make during the term of his
employment with the Employer either alone or with others and whether or not
during working hours or by the use of facilities of the Employer, and which
relate to, or are, or may likely be useful in connection with the business of
the Employer ("Inventions"), shall be the exclusive property of the Employer.
The Employee shall promptly and fully disclose Inventions to the Employer and
shall promptly record Inventions in such form as the Employer may request.
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Section 7.2. ASSIGNMENTS. The Employee shall assign to the Employer all
right, title and interest to all Inventions reduced to writing, drawings or
practice by or for the Employee during the term of his employment. The Employee
shall execute upon the Employer's request at any time, and at the Employer's
sole expense, any applications, assignments and other documents that the
Employer may deem necessary or desirable to protect or perfect its rights,
including any patent rights in Inventions, and shall assist the Employer, at the
Employer's sole expense, in obtaining, defending and enforcing its rights
thereon. The Employee hereby appoints the Employer his attorney-in-fact for
purposes of effecting any assignments hereunder.
Section 7.3. CONFIDENTIAL INFORMATION. The Employee acknowledges that all
information acquired by the Employee from the Employer, its customers, suppliers
or others, or developed by the Employee alone or in conjunction with others
during the term of his employment which relate directly or indirectly to the
present or potential business of the Employer, including but not limited to any
ideas, formulae, processes, know-how, data, test results, raw materials,
prospective products or services, techniques, models, computer programs, plans,
schedules, sketches, notebooks drawings, process sheets, customer or supplier
lists, and financial information ("Confidential Information"), is a valuable and
unique asset of the Employer for the Employer's sole benefit. Except as set
forth below, the Employee shall not, at any time during or after the term of his
employment, use for himself or others, or disclose or communicate to any person,
firm, corporation, association, or other entity for any reason or purposes
whatsoever (other than to Directors, officers and employees of the Employer in
the regular course of the Employer's business or to others subject to
appropriate confidentiality restrictions), any Confidential Information without
the prior written consent of the Employer; provided, however, that the
confidentiality and nondisclosure provisions of this Section 7.3 shall not apply
to (i) a disclosure of any Confidential Information which, as of the time of
such disclosure, or thereafter, shall have become a part of the public knowledge
through no fault of the Employee, (ii) a disclosure of Confidential Information
by the Employee to a governmental entity in fulfillment of a legal obligation of
the Employee to such governmental authority, (iii) Confidential Information that
the Employee can establish was lawfully in his possession at the time of
disclosure by Employer and was not acquired, directly or indirectly, from
Employer and (iv) Confidential Information which Employee lawfully receives from
a third party, provided, however, that such Confidential Information was not
obtained by said third party, directly or indirectly, from the Employer.
Section 7.4. PROPRIETARY ITEMS. All originals, copies and summaries of
manuals, memoranda, notes, photographs, notebooks, records, reports, plans,
drawings and other documents or items of any kind concerning any matters
affecting or relating to the present or potential business of the Employer,
whether or not they contain Confidential Information, are, and shall continue to
be, the
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property of the Employer, and all of such documents or items in the
possession or control of the Employee shall be delivered to the Employer by the
Employee immediately upon the Employer's request or termination of the
Employee's employment hereunder.
Section 8. NON-COMPETITION.
In view of the unique nature of the business of the Employer and the need
of the Employer to maintain its competitive advantage in the industry through
the protection of its trade secrets and proprietary information, the Employee
agrees that during the term of his employment with the Employer and for a period
of one (1) year thereafter, the Employee shall not, directly or indirectly,
within the United States of America or its Territories or Possessions or within
any other country in which the Employer or any affiliate of the Employer is
engaged in or actively contemplating engaging in any activity described below
(i) engage in, (ii) own greater than a 5% interest in, be employed by, or
consult for, or act as an advisor to, any business, person or entity which
engages in, or (iii) otherwise participate in any way in, research, development,
manufacturing, marketing, selling or licensing activities, or in any other
activity, that may reasonably be deemed by the Employer to be in competition
with any activity in which the Employer or any subsidiary of the Employer is
then, or is then contemplating becoming, engaged in the field of internet
telephony. If at any time the foregoing provisions shall be deemed to be invalid
or unenforceable or are prohibited by the laws of the state or place where they
are to be performed by reason of being vague or unreasonable as to duration or
place of performance, this section shall be considered divisible and shall
become and be immediately amended to include only such time and such area as
shall be determined to be reasonable and enforceable by the court or other body
having jurisdiction over this Agreement; and the Employee and the Employer
expressly agree that this section, as so amended, shall be valid and binding as
though any invalid or unenforceable provision had not been included herein. The
Employee further agrees that during, and for a period of one (1) year after
termination of, the Employee's employment hereunder, he shall not solicit, or
arrange to have any other person or entity solicit, any person or entity engaged
by the Employer as an employee, customer, supplier, or consultant or advisor to,
the Employer to terminate such party's relationship with the Employer. The time
periods provided for in this Section 8 shall be extended for a period of time in
which Employee is in violation of any of the provisions of this Section 8.
Section 9. REMEDIES.
The Employer and Employee agree and acknowledge that the rights and
obligations set forth under this Agreement are of a unique and special nature
and that each party is, therefore, without an adequate legal remedy in the event
of the other party's violation of the covenants set forth in this Agreement. The
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Employer and Employee agree, therefore, that the covenants made under this
Agreement shall be specifically enforceable in equity, in addition to all other
rights and remedies, at law or in equity or otherwise (including termination of
employment) that may be available to the parties.
Section 10. PROVISIONS OF GENERAL APPLICATION.
Section 10.1. DISPUTES. In the event of any dispute touching or concerning
this Agreement, the parties will submit to the exclusive jurisdiction and venue
of any court of competent jurisdiction sitting in Suffolk County, Massachusetts,
and the parties agree to comply with all requirements necessary to give such
court jurisdiction over the parties and the controversy. EACH PARTY HEREBY
WAIVES ANY RIGHT TO A JURY TRIAL AND TO CLAIM OR RECOVER PUNITIVE DAMAGES.
Section 10.2. GOVERNING LAW. This Agreement and the rights and obligations
of the parties hereunder shall be construed, interpreted and determined in
accordance with the internal substantive laws of the Commonwealth of
Massachusetts (excluding choice of law or conflict of law provisions).
Section 10.3. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original and all of which, taken
together, shall constitute one and the same document. In making proof of this
Agreement it shall not be necessary to produce or account for more than one such
counterpart.
Section 10.4. OTHER AGREEMENTS. This Agreement represents the entire
understanding and agreement between the parties as to the subject matter hereof
and supersedes all prior or concurrent oral or written agreements relating
thereto.
Section 10.5. AMENDMENT. This Agreement may be amended only by a written
document executed in one or more counterparts by each of the parties hereto.
Section 10.6. WAIVER. No consent to or waiver of any breach or default in
the performance of any obligation hereunder shall be deemed or construed to be a
consent to or waiver of any other breach or default in the performance of any of
the same or any other obligation hereunder. Failure on the part of either party
to complain of any act or failure to act of the other party or to declare the
other party in default, irrespective of the duration of such failure, shall not
constitute a waiver of rights hereunder and no waiver hereunder shall be
effective unless it is in writing, executed by the party waiving the breach or
default hereunder.
Section 10.7. ASSIGNMENT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their successors and assigns. This
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Agreement may be assigned by the Employer to any Affiliate (as hereinafter
defined) or to a successor to the portion of its business to which this
Agreement relates (whether by purchase or otherwise). For purposes of this
Agreement, "Affiliate" shall mean any person or entity which, directly or
indirectly, controls or is controlled by or is under common control with the
Employer and, for the purposes of this definition, "control" (including the
terms "controlled by" and "under common control with"), shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of another, whether through the
ownership of voting securities or holding of office in another, by contract or
otherwise. The Employee may not assign or transfer any of his rights or
obligations under this Agreement.
Section 10.8. HEADINGS. The headings of sections and subsections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be a part of this Agreement or to affect the meaning of any of its
provisions.
Section 10.9. SEVERABILITY. If any provision of this Agreement shall, in
whole or in part, prove to be invalid for any reason, such invalidity shall
affect only the portion of such provision which shall be invalid, and in all
other respects this Agreement shall stand as if such invalid provisions, or the
invalid portion thereof, had not been a part hereof.
IN WITNESS WHEREOF, this Agreement has been executed by the Employer, by
its duly authorized officer, and by the Employee, as of the Effective Date.
VIP CALLING, INC.
By: /S/ GORDON VANDERBRUG
-------------------------
Gordon VanderBrug
Vice President
EMPLOYEE
/S/ OFER GNEEZY
-------------------------
Ofer Gneezy
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EXHIBIT 10.10
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of the 11th day of August, 1997 (the
"Effective Date"), is made by and between VIP Calling, Inc., a Delaware
corporation with its principal place of business at 121 Middlesex Turnpike,
Burlington, Massachusetts 01803 (the "Employer"), and Gordon VanderBrug, an
individual residing at 23 Woodpark Circle, Lexington, Massachusetts 02173 (the
"Employee").
Section 1. FREEDOM TO CONTRACT.
The Employee represents that he is free to enter into this Agreement,
and that he has not made and will not make any agreements in conflict with this
Agreement. The Employee will not, and the Employer will not require the Employee
to, disclose to the Employer, or use for the Employer's benefit, any trade
secrets or confidential information now or hereafter in the Employee's
possession which is the property of any other party.
Section 2. EMPLOYMENT.
The Employer hereby employs the Employee, and the Employee hereby
accepts his employment by the Employer, upon the terms and conditions set forth
herein.
Section 3. EFFECTIVE DATE AND TERM.
This Agreement shall take effect as of the Effective Date, and shall
continue in full force and effect until terminated in accordance with Section 6
herein.
Section 4. TITLE AND DUTIES; EXTENT OF SERVICES.
The Employee shall promote the business and affairs of the Employer as
Vice President of the Employer, with responsibility for performing such duties
consistent with such position as the Board of Directors of the Employer (the
"Board") and/or the Chief Executive Officer of the Employer may from time to
time designate. Except as otherwise provided in this Agreement and except for
vacations and absences due to temporary illness, the Employee shall devote his
full time and efforts to the business and affairs of the Employer, provided
that, with the Employer's prior written consent the Employee may engage in such
other business activities outside the scope of his employment hereunder as in
the reasonable judgment of the Employer will not materially adversely affect the
Employee's ability to perform his obligations under this Agreement.
<PAGE>
Section 5. COMPENSATION AND FRINGE BENEFITS.
Section 5.1. BASE SALARY. In consideration of the services rendered by
the Employee under this Agreement, the Employer shall pay the Employee an
initial base salary (the "Base Salary") at an annual rate of One Hundred Fifteen
Thousand Dollars ($115,000), payable in arrears bi-weekly (or on such other
payment schedule as the Employer shall have reasonably implemented with respect
to the payment of its other salaried employees), such Base Salary being subject
to increase at the discretion of the Board.
Section 5.2. PERFORMANCE BONUS. On an annual basis, the Board shall
establish, objective written performance goals for the Employee. Upon the
attainment of such performance goals, in addition to his Base Salary, the
Employee shall be entitled to a cash bonus in an amount determined in the
discretion of the Board. Any such performance bonus shall be due and payable
within ninety (90) days after the end of the calendar year to which it relates.
Section 5.3. FRINGE BENEFITS. The Employee shall be entitled to such
life insurance, health insurance and other employee fringe benefits as may be
offered or generally made available by the Employer to its executive officers.
Section 6. TERMINATION; CHANGE OF CONTROL.
Section 6.1. TERMINATION OF EMPLOYMENT. The Employee's employment
hereunder shall terminate upon the Employee's death or Permanent Disability. For
purposes of this Agreement, "Permanent Disability" shall mean the Employee's
inability to perform his duties hereunder for a continuous period of three (3)
months by reason of his physical or mental illness or incapacity. In the event
of any dispute concerning the existence of a Permanent Disability, such question
shall be determined by a licensed physician selected by the Employer and
reasonably acceptable to the Employee, whose determination shall be final and
binding upon the parties. The Employee shall submit to such examinations and
furnish such information as such physician may reasonably request. The
Employee's employment hereunder may also be terminated:
(a) By the Employee at any time upon at least thirty (30) days prior
written notice to the Employer; or
(b) By the Employer at any time upon at least thirty (30) days prior
written notice to the Employee; or
(c) By the Employee at any time for good reason, including but not
limited to:
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(i) failure of the Employer to continue to employ the Employee as
Vice President of the Employer; or
(ii) material diminution of the Employee's responsibilities, duties
or authorities as Vice President of the Employer, or assignment to the
Employee of any responsibilities or duties inconsistent with such
positions; or
(iii) failure of the Employer to pay and provide to the Employee the
compensation provided for herein; or
(iv) requiring the Employee to be permanently based anywhere other
than the principal executive offices of the Employer (excluding
business-related travel to an extent reasonably consistent with past
practice); or
(d) By the Employer at any time for cause, including but not limited
to:
(i) the Employee's gross negligence or willful misconduct with
respect to the business and affairs of the Employer; or
(ii) the Employee's material breach of this Agreement; or
(iii) the commission by the Employee of an act involving moral
turpitude or fraud; or
(iv) the Employee's conviction of any felony.
The provisions of Sections 6.2, 6.3, 7, 8, 9 and 10 shall survive any
termination of the Employee's employment hereunder and shall continue in effect
until such time as all obligations of the parties described therein have been
satisfied.
Section 6.2. COMPENSATION FOLLOWING TERMINATION; SEVERANCE PAY.
(a) If the Employee terminates his employment pursuant to Section
6.1(a) hereof, or if such employment is terminated by the death or
Permanent Disability of the Employee, the Employee shall not be entitled
to compensation, severance pay or fringe benefits beyond the date upon
which he ceases to be employed hereunder (the "Employment Termination
Date") except as may be otherwise provided in any then existing insurance
or health benefit programs of the Employer.
(b) If the Employer terminates the employment of the Employee
pursuant to Section 6.1(b) hereof or if the Employee terminates his
employment
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pursuant to Section 6.1(c) hereof, the Employer shall be entitled for a
period of twelve (12) months from the Employment Termination Date, to
continue to receive payment of his Base Salary (as in effect on the
Employment Termination Date) at the same rate and on the same schedule as
if the Employee were still employed by the Employer during such period;
PROVIDED, HOWEVER, that each such payment shall be subject to
dollar-for-dollar reduction for any cash amounts received by the Employee
or accrued for his benefit from any successor employer or other entity as
payment for services rendered during such twelve (12) month period.
During such twelve (12) month period, the Employer shall also continue to
provide the Employee with such health benefits as were provided to the
Employee immediately prior to the Employment Termination Date (or
substantially comparable benefits if a continuation of benefits is not
permitted under then existing insurance or health benefit programs of the
Employer), such benefits to be provided to the same extent and under the
same terms and conditions as if the Employee were still employed by the
Employer during such period. Except as specifically provided in this
Section 6.2(b), the Employee shall not be entitled to any fringe benefits
following the Employment Termination Date.
(c) If the Employer terminates the employment of the Employee for
cause pursuant to Section 6.1(d) hereof, the Employee shall not be
entitled to compensation, performance bonus or fringe benefits hereunder
beyond the Employment Termination Date.
Section 6.3. ACCELERATION OF STOCK OPTIONS AND RESTRICTED STOCK.
(a) Immediately prior to the occurrence of an Acquisition or Change
in Control (each as defined below), each option to acquire shares of
capital stock of the Employer and each share of restricted capital stock
of the Employer then held by the Employee shall automatically and without
further action become fully vested, and each such option shall remain
exercisable until the expiration of such option or until it sooner
terminates in accordance with its terms.
(b) For purposes of Section 6.3(a), the term "Acquisition" shall mean:
(i) a merger, consolidation or similar transaction in which
securities possessing more than 50% of the total combined voting power
of the Employer's outstanding securities are transferred to a person
or persons different from the persons who held those securities
immediately prior to such transaction, or
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(ii) the sale, transfer, or other disposition of all or
substantially all of the Employer's assets to one or more persons
(other than any wholly owned subsidiary of the Employer) in a single
transaction or series of related transactions.
(c) For purposes of Section 6.3(a), the term "Change in Control"
shall mean a change in ownership or control of the Employer effected
through either of the following transactions:
(i) any person or related group of persons (other than the
Employer or a person that directly or indirectly controls, is
controlled by, or is under common control with the Employer) directly
or indirectly acquires beneficial ownership (determined pursuant to
Rule 13d-3 promulgated under the Securities Exchange Act 1934, as
amended) of securities possessing more than 50% of the total combined
voting power of the Company's outstanding securities pursuant to a
tender or exchange offer made directly to the Employer's stockholders,
or
(ii) over a period of 36 consecutive months or less, there is a
change in the composition of the Board such that a majority of the
Board members (rounded up to the next whole number, if a fraction)
ceases, by reason of one or more proxy contests for the election of
Board members, to be composed of individuals who either (A) have been
Board members continuously since the beginning of such period, or (B)
have been elected or nominated for election as Board members during
such period by at least a majority of the Board members described in
the preceding clause (A) who were still in office at the time such
election or nomination was approved by the Board.
Section 7. INTELLECTUAL PROPERTY MATTERS.
Section 7.1. INVENTIONS. All discoveries, inventions, improvements,
techniques, trademarks and innovations, whether or not patentable or subject to
copyright protection (including all data and records pertaining thereto), which
the Employee may invent, discover, originate or make during the term of his
employment with the Employer either alone or with others and whether or not
during working hours or by the use of facilities of the Employer, and which
relate to, or are, or may likely be useful in connection with the business of
the Employer ("Inventions"), shall be the exclusive property of the Employer.
The Employee shall promptly and fully disclose Inventions to the Employer and
shall promptly record Inventions in such form as the Employer may request.
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Section 7.2. ASSIGNMENTS. The Employee shall assign to the Employer all
right, title and interest to all Inventions reduced to writing, drawings or
practice by or for the Employee during the term of his employment. The Employee
shall execute upon the Employer's request at any time, and at the Employer's
sole expense, any applications, assignments and other documents that the
Employer may deem necessary or desirable to protect or perfect its rights,
including any patent rights in Inventions, and shall assist the Employer, at the
Employer's sole expense, in obtaining, defending and enforcing its rights
thereon. The Employee hereby appoints the Employer his attorney-in-fact for
purposes of effecting any assignments hereunder.
Section 7.3. CONFIDENTIAL INFORMATION. The Employee acknowledges that
all information acquired by the Employee from the Employer, its customers,
suppliers or others, or developed by the Employee alone or in conjunction with
others during the term of his employment which relate directly or indirectly to
the present or potential business of the Employer, including but not limited to
any ideas, formulae, processes, know-how, data, test results, raw materials,
prospective products or services, techniques, models, computer programs, plans,
schedules, sketches, notebooks drawings, process sheets, customer or supplier
lists, and financial information ("Confidential Information"), is a valuable and
unique asset of the Employer for the Employer's sole benefit. Except as set
forth below, the Employee shall not, at any time during or after the term of his
employment, use for himself or others, or disclose or communicate to any person,
firm, corporation, association, or other entity for any reason or purposes
whatsoever (other than to Directors, officers and employees of the Employer in
the regular course of the Employer's business or to others subject to
appropriate confidentiality restrictions), any Confidential Information without
the prior written consent of the Employer; PROVIDED, HOWEVER, that the
confidentiality and nondisclosure provisions of this Section 7.3 shall not apply
to (i) a disclosure of any Confidential Information which, as of the time of
such disclosure, or thereafter, shall have become a part of the public knowledge
through no fault of the Employee, (ii) a disclosure of Confidential Information
by the Employee to a governmental entity in fulfillment of a legal obligation of
the Employee to such governmental authority, (iii) Confidential Information that
the Employee can establish was lawfully in his possession at the time of
disclosure by Employer and was not acquired, directly or indirectly, from
Employer and (iv) Confidential Information which Employee lawfully receives from
a third party, provided, however, that such Confidential Information was not
obtained by said third party, directly or indirectly, from the Employer.
Section 7.4. PROPRIETARY ITEMS. All originals, copies and summaries of
manuals, memoranda, notes, photographs, notebooks, records, reports, plans,
drawings and other documents or items of any kind concerning any matters
affecting or relating to the present or potential business of the Employer,
whether or not they contain Confidential Information, are, and shall continue to
be, the
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property of the Employer, and all of such documents or items in the
possession or control of the Employee shall be delivered to the Employer by
the Employee immediately upon the Employer's request or termination of the
Employee's employment hereunder.
Section 8. NON-COMPETITION.
In view of the unique nature of the business of the Employer and the
need of the Employer to maintain its competitive advantage in the industry
through the protection of its trade secrets and proprietary information, the
Employee agrees that during the term of his employment with the Employer and for
a period of one (1) year thereafter, the Employee shall not, directly or
indirectly, within the United States of America or its Territories or
Possessions or within any other country in which the Employer or any affiliate
of the Employer is engaged in or actively contemplating engaging in any activity
described below (i) engage in, (ii) own greater than a 5% interest in, be
employed by, or consult for, or act as an advisor to, any business, person or
entity which engages in, or (iii) otherwise participate in any way in, research,
development, manufacturing, marketing, selling or licensing activities, or in
any other activity, that may reasonably be deemed by the Employer to be in
competition with any activity in which the Employer or any subsidiary of the
Employer is then, or is then contemplating becoming, engaged in the field of
internet telephony. If at any time the foregoing provisions shall be deemed to
be invalid or unenforceable or are prohibited by the laws of the state or place
where they are to be performed by reason of being vague or unreasonable as to
duration or place of performance, this section shall be considered divisible and
shall become and be immediately amended to include only such time and such area
as shall be determined to be reasonable and enforceable by the court or other
body having jurisdiction over this Agreement; and the Employee and the Employer
expressly agree that this section, as so amended, shall be valid and binding as
though any invalid or unenforceable provision had not been included herein. The
Employee further agrees that during, and for a period of one (1) year after
termination of, the Employee's employment hereunder, he shall not solicit, or
arrange to have any other person or entity solicit, any person or entity engaged
by the Employer as an employee, customer, supplier, or consultant or advisor to,
the Employer to terminate such party's relationship with the Employer. The time
periods provided for in this Section 8 shall be extended for a period of time in
which Employee is in violation of any of the provisions of this Section 8.
Section 9. REMEDIES.
The Employer and Employee agree and acknowledge that the rights and
obligations set forth under this Agreement are of a unique and special nature
and that each party is, therefore, without an adequate legal remedy in the event
of the other party's violation of the covenants set forth in this Agreement. The
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Employer and Employee agree, therefore, that the covenants made under this
Agreement shall be specifically enforceable in equity, in addition to all other
rights and remedies, at law or in equity or otherwise (including termination of
employment) that may be available to the parties.
Section 10. PROVISIONS OF GENERAL APPLICATION.
Section 10.1. DISPUTES. In the event of any dispute touching or
concerning this Agreement, the parties will submit to the exclusive jurisdiction
and venue of any court of competent jurisdiction sitting in Suffolk County,
Massachusetts, and the parties agree to comply with all requirements necessary
to give such court jurisdiction over the parties and the controversy. EACH PARTY
HEREBY WAIVES ANY RIGHT TO A JURY TRIAL AND TO CLAIM OR RECOVER PUNITIVE
DAMAGES.
Section 10.2. GOVERNING LAW. This Agreement and the rights and
obligations of the parties hereunder shall be construed, interpreted and
determined in accordance with the internal substantive laws of the Commonwealth
of Massachusetts (excluding choice of law or conflict of law provisions).
Section 10.3. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original and all of which,
taken together, shall constitute one and the same document. In making proof of
this Agreement it shall not be necessary to produce or account for more than one
such counterpart.
Section 10.4. OTHER AGREEMENTS. This Agreement represents the entire
understanding and agreement between the parties as to the subject matter hereof
and supersedes all prior or concurrent oral or written agreements relating
thereto.
Section 10.5. AMENDMENT. This Agreement may be amended only by a
written document executed in one or more counterparts by each of the parties
hereto.
Section 10.6. WAIVER. No consent to or waiver of any breach or default
in the performance of any obligation hereunder shall be deemed or construed to
be a consent to or waiver of any other breach or default in the performance of
any of the same or any other obligation hereunder. Failure on the part of either
party to complain of any act or failure to act of the other party or to declare
the other party in default, irrespective of the duration of such failure, shall
not constitute a waiver of rights hereunder and no waiver hereunder shall be
effective unless it is in writing, executed by the party waiving the breach or
default hereunder.
Section 10.7. ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their successors and assigns.
This
8
<PAGE>
Agreement may be assigned by the Employer to any Affiliate (as hereinafter
defined) or to a successor to the portion of its business to which this
Agreement relates (whether by purchase or otherwise). For purposes of this
Agreement, "Affiliate" shall mean any person or entity which, directly or
indirectly, controls or is controlled by or is under common control with the
Employer and, for the purposes of this definition, "control" (including the
terms "controlled by" and "under common control with"), shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of another, whether through the
ownership of voting securities or holding of office in another, by contract or
otherwise. The Employee may not assign or transfer any of his rights or
obligations under this Agreement.
Section 10.8. HEADINGS. The headings of sections and subsections of
this Agreement have been inserted for convenience of reference only and shall
not be deemed to be a part of this Agreement or to affect the meaning of any of
its provisions.
Section 10.9. SEVERABILITY. If any provision of this Agreement shall,
in whole or in part, prove to be invalid for any reason, such invalidity shall
affect only the portion of such provision which shall be invalid, and in all
other respects this Agreement shall stand as if such invalid provisions, or the
invalid portion thereof, had not been a part hereof.
IN WITNESS WHEREOF, this Agreement has been executed by the Employer,
by its duly authorized officer, and by the Employee, as of the Effective Date.
VIP CALLING, INC.
By: /S/ OFER GNEEZY
------------------------------------
Ofer Gneezy
President and Chief Executive Officer
EMPLOYEE
/S/ GORDON VANDERBRUG
--------------------------------------
Gordon VanderBrug
<PAGE>
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, dated as of August 17, 1999 (the "Effective Date"), is
made by and between iBasis, Inc., a Delaware Corporation with its
principal place of business at 20 Second Avenue, Burlington, Massachusetts
01803 (the "Employer"), and Michael Hughes (the "Employee").
SECTION 1. FREEDOM TO CONTRACT.
The Employee represents that he is free to enter into this Agreement,
and that he has not made and will not make any agreements in conflict with
this Agreement. The Employee will not, and the Employer will not require the
Employee to, disclose to the Employer, or use for the Employer's benefit, any
trade secrets or confidential information now or hereafter in the Employee's
possession which is the property of any other party.
SECTION 2. EMPLOYMENT.
The Employer hereby continues to employ the Employee, and the Employee
hereby accepts his continued employment by the Employer, upon the terms and
conditions set forth herein.
SECTION 3. EFFECTIVE DATE AND TERM.
This Agreement shall take effect as of the Effective Date, and shall
continue in full force and effect until terminated in accordance with Section
6 herein.
SECTION 4. TITLE AND DUTIES; EXTENT OF SERVICES.
The Employee shall promote the business and affairs of the Employer as
Vice President, Finance and Chief Financial Officer of the Employer, with
responsibility for performing such duties consistent with such position as
the Chief Executive Officer of the Employer (the "CEO") or the Board of
Directors of the Employer (the "Board") may from time to time designate.
Except as otherwise provided in this Agreement and except for vacations and
absences due to temporary illness, the Employee shall devote his full time and
efforts to the business and affairs of the Employer, provided that, with the
Employer's prior written consent the Employee may engage in such other
business activities outside the scope of his employment hereunder as in the
reasonable judgment of the Employer will not materially adversely affect the
Employee's ability to perform his obligations under this Agreement.
<PAGE>
-2-
SECTION 5. COMPENSATION AND FRINGE BENEFITS.
Section 5.1. BASE SALARY. In consideration of the services rendered by
the Employee under this Agreement, the Employer shall pay the Employee an
initial base salary (the "Base Salary") at an annual rate of One Hundred
Twenty Thousand Dollars ($120,000), payable in arrears bi-weekly (or on such
other payment schedule as the Employer shall have reasonably implemented with
respect to the payment of its other salaried employees), such Base Salary
being subject to increase at the discretion of the CEO or the Board.
Section 5.2. PERFORMANCE BONUS. On an annual basis, the CEO or the
Board shall establish, objective written performance goals for the Employee.
Upon the attainment of such performance goals, in addition to his Base
Salary, the Employee shall be entitled to a cash bonus in an amount determined
in the discretion of the CEO or the Board. Any such performance bonus shall
be due and payable within ninety (90) days after the end of the calendar
year to which it relates.
Section 5.3. FRINGE BENEFITS. The Employee shall be entitled to such
life insurance, health insurance and other employee fringe benefits as may be
offered or generally made available by the Employer to its executive officers.
SECTION 6. TERMINATION; CHANGE OF CONTROL.
Section 6.1. TERMINATION OF EMPLOYMENT. The Employee's employment
hereunder shall terminate upon the Employee's death or Permanent Disability.
For purposes of this Agreement, "Permanent Disability" shall mean the
Employee's inability to perform his duties hereunder for a continuous period
of three (3) months or a total or more than six (6) months in any twelve (12)
month period by reason of his physical or mental illness or incapacity. In
the event of any dispute concerning the existences of a Permanent
Disability, such question shall be determined by a licensed physician
selected by the Employer and reasonably acceptable to the Employee, whose
determination shall be final and binding upon the parties. The Employee shall
submit to such examinations and furnish such information as such physician may
reasonably request. The Employee's employment hereunder may also be
terminated:
(a) By the Employee at any time upon at least thirty (30) days prior
written notice to the Employer; or
(b) By the Employer at any time upon at least thirty (30) days
prior written notice to the Employee; or
<PAGE>
-3-
(c) By the Employee at any time for good reason, including but not
limited to:
(i) failure of the Employer to continue to employ the
Employee as Vice President, Finance and Chief Financial Officer of
the Employer; or
(ii) material diminution of the Employee's responsibilities,
duties or authorities as Vice President, Finance and Chief Financial
Officer of the Employer, or assignment to the Employee of any
responsibilities or duties inconsistent with such positions; or
(iii) failure of the Employer to pay and provide to the Employee
the compensation provided for herein; or
(iv) requiring the Employee to be permanently based anywhere
other than the principal executive offices of the Employer
(including business-related travel to an extent reasonably
consistent with past practice); or
(d) By the Employer at any time for cause, including but not limited
to:
(i) the Employee's gross negligence or willful misconduct with
respect to the business and affairs of the Employer; or
(ii) the Employee's material breach of this Agreement; or
(iii) the commission by the Employee of an act involving moral
turpitude or fraud; or
(iv) the Employee's conviction of any felony.
The provisions of Sections 6.2, 6.3, 7, 8, 9 and 10 shall survive any
termination of the Employee's employment hereunder and shall continue in
effect until such time as all obligations of the parties described therein
have been satisfied.
SECTION 6.2. COMPENSATION FOLLOWING TERMINATION; SEVERANCE PAY;
ACCELERATION OF STOCK OPTIONS.
(a) If the Employee terminates his employment pursuant to
Section 6.1(a) hereof, or if such employment is terminated by the death
or Permanent Disability of the Employee, the Employee shall not be
entitled to compensation, severance pay or fringe benefits beyond the
date upon which he ceases to be employed hereunder (the "Employment
Termination
<PAGE>
-4-
Date") except as may be otherwise provided in any then existing insurance
or health benefit programs of the Employer.
(b) If, within the six (6) month period following the occurrence of
an Acquisition or Change in Control (each as defined below), the Employer
terminates the employment of the Employee pursuant to Section 6.1(b)
hereof or the Employee terminates his employment pursuant to
Section 6.1(c) hereof, then:
(i) the Employee shall be entitled for a period of nine (9)
months from the Employment Termination Date, to continue to receive
payment of his Base Salary (as in effect on the Employment
Termination Date) at the same rate and on the same schedule as if
the Employee were still employed by the Employer during such period;
PROVIDED, HOWEVER, that each such payment shall be subject to
dollar-for-dollar reduction for any cash amounts received by
the Employee or accrued for his benefit from any successor
employer or other entity as payment for services rendered
during such nine (9) month period. During such nine (9) month
period, the Employer shall also continue to provide the
Employee with such health benefits as were provided to the
Employee immediately prior to the Employment Termination Date
(or substantially comparable benefits if a continuation of
benefits is not permitted under then existing insurance or
health benefit programs of the Employer), such benefits to be
provided to the same extent and under the same terms and
conditions as if the Employee were still employed by the
Employer during such period. Except as specifically provided
in this Section 6.2(b), the Employee shall not be entitled to
any fringe benefits following the Employment Termination Date.
(ii) each option to acquire shares of capital stock of
the Employer and each share of restricted capital stock of
the Employer then held by the Employee shall automatically
and without further action become fully vested, and each such
option shall remain exercisable until the expiration of such
option or until it sooner terminates in accordance with its
terms; PROVIDED, HOWEVER, that nothing in this Section 6.2(b)
shall be applied so as to restrict, impair or reduce in any
way any other right that the Employee may have from time to
time with respect to the acceleration of vesting of any
option to acquire shares of capital stock of the Employer or
share of restricted capital stock of the Employer then held
by the Employee.
(c) If the Employer terminates the employment of the Employee for
cause pursuant to Section 6.1(d) hereof, the Employee shall not be
entitled to
<PAGE>
-5-
compensation, performance bonus or fringe benefits hereunder beyond the
Employment Termination Date.
(d) For purposes of this Section 6.2, the term "Acquisition" shall
mean:
(i) a merger, consolidation or similar transaction in which
securities possessing more than 50% of the total combined voting
power of the Employer's outstanding securities are transferred to a
person or persons different from the persons who held those
securities immediately prior to such transaction, or
(ii) the sale, transfer, or other disposition of all or
substantially all of the Employer's assets to one or more persons
(other than any wholly owned subsidiary of the Employer) in a
single transaction or series of related transactions.
(e) For purposes of this Section 6.2, the term "Change in Control"
shall mean a change in ownership or control of the Employer effected
through either of the following transactions:
(i) any person or related group of persons (other than the
Employer or a person that directly or indirectly controls, is
controlled by, or is under common control with the Employer)
directly or indirectly acquires beneficial ownership
(determined pursuant to Rule 13d-3 promulgated under the Securities
Exchange Act 1934, as amended) of securities possessing more than
50% of the total combined voting power of the Company's outstanding
securities pursuant to a tender or exchange offer made directly to
the Employer's stockholders, or
(ii) over a period of 36 consecutive months or less,
there is a change in the composition of the Board such that a
majority of the Board members (rounded up to the next whole
number, if a fraction) ceases, by reason of one or more proxy
contests for the election of Board members, to be composed of
individuals who either (A) have been Board members
continuously since the beginning of such period, or (B) have
been elected or nominated for election as Board members during
such period by at least a majority of the Board members
described in the preceding clause (A) who were still in office
at the time such election or nomination was approved by the
Board.
<PAGE>
-6-
SECTION 7. INTELLECTUAL PROPERTY MATTERS.
Section 7.1. INVENTIONS. All discoveries, inventions, improvements,
techniques, trademarks and innovations, whether or not patentable or subject
to copyright protection (including all data and records pertaining thereto),
which the Employee may invent, discover, originate or make during the term of
his employment with the Employer either alone or with others and whether or
not during working hours or by the use of facilities of the Employer, and
which relate to, or are, or may likely be useful in connection with the
business of the Employer ("Inventions"), shall be the exclusive property of
the Employer. The Employee shall promptly and fully disclose Inventions to
the Employer and shall promptly record Inventions in such form as the
Employer may request.
Section 7.2. ASSIGNMENTS. The Employee shall assign to the Employer all
right, title and interest to all Inventions reduced to writing, drawings or
practice by or for the Employee during the term of his employment. The
Employee shall execute upon the Employer's request at any time, and at the
Employer's sole expense, any applications, assignments and other documents
that the Employer may deem necessary or desirable to protect or perfect its
rights, including any patent rights in Inventions, and shall assist the
Employer, at the Employer's sole expense, in obtaining, defending and
enforcing its rights thereon. The Employee hereby appoints the Employer his
attorney-in-fact for purposes of effecting any assignments hereunder.
Section 7.3. CONFIDENTIAL INFORMATION. The Employee acknowledges that
all information acquired by the Employee from the Employer, its customers,
suppliers or others, or developed by the Employee alone or in conjunction
with others during the term of his employment which relate directly or
indirectly to the present or potential business of the Employer, including
but not limited to any ideas, formulae, processes, know-how, data, test
results, raw materials, prospective products or services, techniques, models,
computer programs, plans, schedules, sketches, notebooks, drawings, process
sheets, customer or supplier lists, and financial information ("Confidential
Information"), is a valuable and unique asset of the Employer for the
Employer's sole benefit. Except as set forth below, the Employee shall not,
at any time during or after the term of his employment, use for himself or
others, or disclose or communicate to any person, firm, corporation,
association, or other entity for any reason or purposes whatsoever (other
than to Directors, officers and employees of the Employer in the regular
course of the Employer's business or to others subject to appropriate
confidentiality restrictions), any Confidential Information without the prior
written consent of the Employer; PROVIDED, HOWEVER, that the confidentiality
and nondisclosure provisions of this Section 7.3 shall not apply to (i) a
disclosure of any Confidential Information which, as of the time of such
disclosure, or thereafter, shall have become a part of the public knowledge
through no fault of the Employee, (ii) a disclosure of Confidential
Information by the Employee to a
<PAGE>
-7-
governmental entity in fulfillment of a legal obligation of the Employee to
such governmental authority; (iii) Confidential Information that the Employee
can establish was lawfully in his possession at the time of disclosure by
Employer and was not acquired, directly or indirectly, from Employer and (iv)
Confidential Information which Employee lawfully receives from a third party,
provided, however, that such Confidential Information was not obtained by
said third party, directly or indirectly, from the Employer.
Section 7.4. PROPRIETARY ITEMS. All originals, copies and summaries of
manuals, memoranda, notes, photographs, notebooks, records, reports, plans,
drawings and other documents or items of any kind concerning any matters
affecting or relating to the present or potential business of the Employer,
whether or not they contain Confidential Information, are, and shall continue
to be, the property of the Employer, and all of such documents or items in
the possession or control of the Employee shall be delivered to the Employer
by the Employee immediately upon the Employer's request or termination of the
Employee's employment hereunder.
SECTION 8. NON-COMPETITION.
In view of the unique nature of the business of the Employer and the
need of the Employer to maintain its competitive advantage in the industry
through the protection of its trade secrets and proprietary information, the
Employee agrees that during the term of his employment with the Employer and
for a period of one (1) year thereafter, the Employee shall not, directly or
indirectly, within the United States of America or its Territories or
Possessions or within any other country in which the Employer or any
affiliate of the Employer is engaged in or actively contemplating engaging in
any activity described below (i) engage in, (ii) own greater than a 5%
interest in, be employed by, or consult for, or act as an advisor to, any
business, person or entity which engages in, or (iii) otherwise participate
in any way in, research, development, manufacturing, marketing, selling or
licensing activities, or in any other activity, that may reasonably be deemed
by the Employer to be in competition with any activity in which the Employer
or any subsidiary of the Employer is then, or is then contemplating becoming,
engaged in the field of internet telephony. If at any time the foregoing
provisions shall be deemed to be invalid or unenforceable or are prohibited
by the laws of the state or place where they are to be performed by reason of
being vague or unreasonable as to duration or place of performance, this
section shall be considered divisible and shall become and be immediately
amended to include only such time and such area as shall be determined to be
reasonable and enforceable by the court or other body having jurisdiction
over this Agreement; and the Employee and the Employer expressly agree that
this section, as so amended, shall be valid and binding as though any invalid
or unenforceable provision had not been included herein. The Employer further
agrees that during, and for a period of one (1) year after the termination
of, the
<PAGE>
-8-
Employee's employment hereunder, he shall not solicit, or arrange to have any
other person or entity solicit, any person or entity engaged by the Employer
as an employee, customer, supplier, or consultant or advisor to, the Employer
to terminate such party's relationship with the Employer. The time periods
provided for in this Section 8 shall be extended for a period of time in
which Employee is in violation of any of the provisions of this Section 8.
SECTION 9. REMEDIES.
The Employer and Employee agree and acknowledge that the rights and
obligations set forth under this Agreement are of a unique and special nature
and that each party is, therefore, without an adequate legal remedy in the
event of the other party's violation of the covenants set forth in this
Agreement. The Employer and Employee agree, therefore, that the covenants
made under this Agreement shall be specifically enforceable in equity, in
addition to all other rights and remedies, at law or in equity or otherwise
(including termination of employment) that may be available to the parties.
SECTION 10. PROVISIONS OF GENERAL APPLICATION.
Section 10.1. DISPUTES. In the event of any dispute touching or
concerning this Agreement, the parties will submit to the exclusive
jurisdiction and venue of any court of competent jurisdiction sitting in
Suffolk County, Massachusetts, and the parties agree to comply with all
requirements necessary to give such court jurisdiction over the parties and
the controversy. EACH PARTY HEREBY WAIVES ANY RIGHT TO A JURY TRIAL AND TO
CLAIM OR RECOVER PUNITIVE DAMAGES.
Section 10.2. GOVERNING LAW. This Agreement and the rights and
obligations of the parties hereunder shall be construed, interpreted and
determined in accordance with the internal substantive laws of the
Commonwealth of Massachusetts (excluding choice of law or conflict of law
provisions).
Section 10.3. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original and all of which,
taken together, shall constitute one and the same document. In making proof
of this Agreement it shall not be necessary to produce or account for more
than one such counterpart.
Section 10.4. OTHER AGREEMENTS. This Agreement represents the entire
understanding and agreement between the parties as to the subject matter
hereof and supersedes all prior or concurrent oral or written agreements
relating thereto.
<PAGE>
-9-
Section 10.5. AMENDMENT. This Agreement may be amended only a written
document executed in one or more counterparts by each of the parties hereto.
Section 10.6. WAIVER. No consent to or waiver of any breach or default
in the performance of any obligation hereunder shall be deemed or construed
to be a consent to or waiver of any other breach or default in the
performance of any of the same or any other obligation hereunder. Failure on
the part of either party to complain of any act or failure to act of the
other party or to declare the other party in default, irrespective of the
duration of such failure, shall not constitute a waiver of rights hereunder
and no waiver hereunder shall be effective unless it is in writing, executed
by the party waiving the breach or default hereunder.
Section 10.7. ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their successors and assigns.
This Agreement may be assigned by the Employer to any Affiliate (as
hereinafter defined) or to a successor to the portion of its business to
which this Agreement relates (whether by purchase or otherwise). For purposes
of this Agreement, "Affiliate" shall mean any person or entity which,
directly or indirectly, controls or is controlled by or is under common
control with the Employer and, for the purposes of this definition, "control"
(including the terms "controlled by" and "under common control with"), shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of another, whether through the
ownership of voting securities or holding of office in another, by contract
or otherwise. The Employee may not assign or transfer any of his rights or
obligations under this Agreement.
Section 10.8. HEADINGS. The headings of sections and subsections of
this Agreement have been inserted for convenience of reference only and shall
not be deemed to be a part of this Agreement or to affect the meaning of any
of its provisions.
Section 10.9. SEVERABILITY. If any provision of this Agreement shall,
in whole or in part, prove to be invalid for any reason, such invalidity
shall affect only the portion of such provision which shall be invalid, and
in all other respects this Agreement shall stand as if such invalid
provisions, or the invalid portion thereof, had not been a part hereof.
<PAGE>
-10-
IN WITNESS WHEREOF, this Agreement has been executed by the Employer, by
its duly authorized officer, and by the Employee, as of the Effective Date.
IBASIS, INC.
By: /s/ Gordon J. VanderBrug
---------------------------
Name: Gordon J. VanderBrug
Title: Executive Vice President
EMPLOYEE
/s/ Michael J. Hughes
------------------------------
Michael J. Hughes
<PAGE>
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, dated as of August 17, 1999 (the "Effective Date"), is
made by and between iBasis, Inc., a Delaware Corporation with its
principal place of business at 20 Second Avenue, Burlington, Massachusetts
01803 (the "Employer"), and John G. Henson, Jr. (the "Employee").
SECTION 1. FREEDOM TO CONTRACT.
The Employee represents that he is free to enter into this Agreement,
and that he has not made and will not make any agreements in conflict with
this Agreement. The Employee will not, and the Employer will not require the
Employee to, disclose to the Employer, or use for the Employer's benefit, any
trade secrets or confidential information now or hereafter in the Employee's
possession which is the property of any other party.
SECTION 2. EMPLOYMENT.
The Employer hereby continues to employ the Employee, and the Employee
hereby accepts his continued employment by the Employer, upon the terms and
conditions set forth herein.
SECTION 3. EFFECTIVE DATE AND TERM.
This Agreement shall take effect as of the Effective Date, and shall
continue in full force and effect until terminated in accordance with Section
6 herein.
SECTION 4. TITLE AND DUTIES; EXTENT OF SERVICES.
The Employee shall promote the business and affairs of the Employer as
Vice President, Engineering and Operations of the Employer, with
responsibility for performing such duties consistent with such position as
the Chief Executive Officer of the Employer (the "CEO") or the Board of
Directors of the Employer (the "Board") may from time to time designate.
Except as otherwise provided in this Agreement and except for vacations and
absences due to temporary illness, the Employee shall devote his full time
and efforts to the business and affairs of the Employer, provided that, with
the Employer's prior written consent the Employee may engage in such other
business activities outside the scope of his employment hereunder as in the
reasonable judgment of the Employer will not materially adversely affect the
Employee's ability to perform his obligations under this Agreement.
<PAGE>
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SECTION 5. COMPENSATION AND FRINGE BENEFITS.
Section 5.1. BASE SALARY. In consideration of the services rendered by
the Employee under this Agreement, the Employer shall pay the Employee an
initial base salary (the "Base Salary") at an annual rate of One Hundred
Twenty Thousand Dollars ($120,000), payable in arrears bi-weekly (or on such
other payment schedule as the Employer shall have reasonably implemented with
respect to the payment of its other salaried employees), such Base Salary
being subject to increase at the discretion of the CEO or the Board.
Section 5.2. PERFORMANCE BONUS. On an annual basis, the CEO or the
Board shall establish, objective written performance goals for the Employee.
Upon the attainment of such performance goals, in addition to his Base
Salary, the Employee shall be entitled to a cash bonus in an amount determined
in the discretion of the CEO or the Board. Any such performance bonus shall
be due and payable within ninety (90) days after the end of the calendar
year to which it relates.
Section 5.3. FRINGE BENEFITS. The Employee shall be entitled to such
life insurance, health insurance and other employee fringe benefits as may be
offered or generally made available by the Employer to its executive officers.
SECTION 6. TERMINATION; CHANGE OF CONTROL.
Section 6.1. TERMINATION OF EMPLOYMENT. The Employee's employment
hereunder shall terminate upon the Employee's death or Permanent Disability.
For purposes of this Agreement, "Permanent Disability" shall mean the
Employee's inability to perform his duties hereunder for a continuous period
of three (3) months or a total or more than six (6) months in any twelve (12)
month period by reason of his physical or mental illness or incapacity. In
the event of any dispute concerning the existences of a Permanent
Disability, such question shall be determined by a licensed physician
selected by the Employer and reasonably acceptable to the Employee, whose
determination shall be final and binding upon the parties. The Employee shall
submit to such examinations and furnish such information as such physician may
reasonably request. The Employee's employment hereunder may also be
terminated:
(a) By the Employee at any time upon at least thirty (30) days prior
written notice to the Employer; or
(b) By the Employer at any time upon at least thirty (30) days
prior written notice to the Employee; or
<PAGE>
-3-
(c) By the Employee at any time for good reason, including but not
limited to:
(i) failure of the Employer to continue to employ the
Employee as Vice President, Finance and Chief Financial Officer of
the Employer; or
(ii) material diminution of the Employee's responsibilities,
duties or authorities as Vice President, Finance and Chief Financial
Officer of the Employer, or assignment to the Employee of any
responsibilities or duties inconsistent with such positions; or
(iii) failure of the Employer to pay and provide to the Employee
the compensation provided for herein; or
(iv) requiring the Employee to be permanently based anywhere
other than the principal executive offices of the Employer
(including business-related travel to an extent reasonably
consistent with past practice); or
(d) By the Employer at any time for cause, including but not limited
to:
(i) the Employee's gross negligence or willful misconduct with
respect to the business and affairs of the Employer; or
(ii) the Employee's material breach of this Agreement; or
(iii) the commission by the Employee of an act involving moral
turpitude or fraud; or
(iv) the Employee's conviction of any felony.
The provisions of Sections 6.2, 6.3, 7, 8, 9 and 10 shall survive any
termination of the Employee's employment hereunder and shall continue in
effect until such time as all obligations of the parties described therein
have been satisfied.
SECTION 6.2. COMPENSATION FOLLOWING TERMINATION; SEVERANCE PAY;
ACCELERATION OF STOCK OPTIONS.
(a) If the Employee terminates his employment pursuant to
Section 6.1(a) hereof, or if such employment is terminated by the death
or Permanent Disability of the Employee, the Employee shall not be
entitled to compensation, severance pay or fringe benefits beyond the
date upon which he ceases to be employed hereunder (the "Employment
Termination
<PAGE>
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Date") except as may be otherwise provided in any then existing insurance
or health benefit programs of the Employer.
(b) If, within the six (6) month period following the occurrence of
an Acquisition or Change in Control (each as defined below), the Employer
terminates the employment of the Employee pursuant to Section 6.1(b)
hereof or the Employee terminates his employment pursuant to
Section 6.1(c) hereof, then:
(i) the Employee shall be entitled for a period of nine (9)
months from the Employment Termination Date, to continue to receive
payment of his Base Salary (as in effect on the Employment
Termination Date) at the same rate and on the same schedule as
if the Employee were still employed by the Employer during
such period; PROVIDED, HOWEVER, that each such payment shall
be subject to dollar-for-dollar reduction for any cash amounts
received by the Employee or accrued for his benefit from any
successor employer or other entity as payment for services
rendered during such nine (9) month period. During such nine
(9) month period, the Employer shall also continue to provide the
Employee with such health benefits as were provided to the
Employee immediately prior to the Employment Termination Date
(or substantially comparable benefits if a continuation of
benefits is not permitted under then existing insurance or
health benefit programs of the Employer), such benefits to be
provided to the same extent and under the same terms and
conditions as if the Employee were still employed by the
Employer during such period. Except as specifically provided
in this Section 6.2(b), the Employee shall not be entitled to
any fringe benefits following the Employment Termination Date.
(ii) each option to acquire shares of capital stock of
the Employer and each share of restricted capital stock of
the Employer then held by the Employee shall automatically
and without further action become fully vested, and each such
option shall remain exercisable until the expiration of such
option or until it sooner terminates in accordance with its
terms; PROVIDED, HOWEVER, that nothing in this Section 6.2(b)
shall be applied so as to restrict, impair or reduce in any
way any other right that the Employee may have from time to
time with respect to the acceleration of vesting of any
option to acquire shares of capital stock of the Employer or
share of restricted capital stock of the Employer then held
by the Employee.
(c) If the Employer terminates the employment of the Employee for
cause pursuant to Section 6.1(d) hereof, the Employee shall not be
entitled to
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-5-
compensation, performance bonus or fringe benefits hereunder beyond the
Employment Termination Date.
(d) For purposes of this Section 6.2, the term "Acquisition" shall
mean:
(i) a merger, consolidation or similar transaction in which
securities possessing more than 50% of the total combined voting
power of the Employer's outstanding securities are transferred to a
person or persons different from the persons who held those
securities immediately prior to such transaction, or
(ii) the sale, transfer, or other disposition of all or
substantially all of the Employer's assets to one or more persons
(other than any wholly owned subsidiary of the Employer) in a
single transaction or series of related transactions.
(e) For purposes of this Section 6.2, the term "Change in Control"
shall mean a change in ownership or control of the Employer effected
through either of the following transactions:
(i) any person or related group of persons (other than the
Employer or a person that directly or indirectly controls, is
controlled by, or is under common control with the Employer)
directly or indirectly acquires beneficial ownership
(determined pursuant to Rule 13d-3 promulgated under the Securities
Exchange Act 1934, as amended) of securities possessing more than
50% of the total combined voting power of the Company's outstanding
securities pursuant to a tender or exchange offer made directly to
the Employer's stockholders, or
(ii) over a period of 36 consecutive months or less,
there is a change in the composition of the Board such that a
majority of the Board members (rounded up to the next whole
number, if a fraction) ceases, by reason of one or more proxy
contests for the election of Board members, to be composed of
individuals who either (A) have been Board members
continuously since the beginning of such period, or (B) have
been elected or nominated for election as Board members during
such period by at least a majority of the Board members
described in the preceding clause (A) who were still in office
at the time such election or nomination was approved by the
Board.
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SECTION 7. INTELLECTUAL PROPERTY MATTERS.
Section 7.1. INVENTIONS. All discoveries, inventions, improvements,
techniques, trademarks and innovations, whether or not patentable or subject
to copyright protection (including all data and records pertaining thereto),
which the Employee may invent, discover, originate or make during the term of
his employment with the Employer either alone or with others and whether or
not during working hours or by the use of facilities of the Employer, and
which relate to, or are, or may likely be useful in connection with the
business of the Employer ("Inventions"), shall be the exclusive property of
the Employer. The Employee shall promptly and fully disclose Inventions to
the Employer and shall promptly record Inventions in such form as the
Employer may request.
Section 7.2. ASSIGNMENTS. The Employee shall assign to the Employer all
right, title and interest to all Inventions reduced to writing, drawings or
practice by or for the Employee during the term of his employment. The
Employee shall execute upon the Employer's request at any time, and at the
Employer's sole expense, any applications, assignments and other documents
that the Employer may deem necessary or desirable to protect or perfect its
rights, including any patent rights in Inventions, and shall assist the
Employer, at the Employer's sole expense, in obtaining, defending and
enforcing its rights thereon. The Employee hereby appoints the Employer his
attorney-in-fact for purposes of effecting any assignments hereunder.
Section 7.3. CONFIDENTIAL INFORMATION. The Employee acknowledges that
all information acquired by the Employee from the Employer, its customers,
suppliers or others, or developed by the Employee alone or in conjunction
with others during the term of his employment which relate directly or
indirectly to the present or potential business of the Employer, including
but not limited to any ideas, formulae, processes, know-how, data, test
results, raw materials, prospective products or services, techniques, models,
computer programs, plans, schedules, sketches, notebooks, drawings, process
sheets, customer or supplier lists, and financial information ("Confidential
Information"), is a valuable and unique asset of the Employer for the
Employer's sole benefit. Except as set forth below, the Employee shall not,
at any time during or after the term of his employment, use for himself or
others, or disclose or communicate to any person, firm, corporation,
association, or other entity for any reason or purposes whatsoever (other
than to Directors, officers and employees of the Employer in the regular
course of the Employer's business or to others subject to appropriate
confidentiality restrictions), any Confidential Information without the prior
written consent of the Employer; PROVIDED, HOWEVER, that the confidentiality
and nondisclosure provisions of this Section 7.3 shall not apply to (i) a
disclosure of any Confidential Information which, as of the time of such
disclosure, or thereafter, shall have become a part of the public knowledge
through no fault of the Employee, (ii) a disclosure of Confidential
Information by the Employee to a
<PAGE>
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governmental entity in fulfillment of a legal obligation of the Employee to
such governmental authority; (iii) Confidential Information that the Employee
can establish was lawfully in his possession at the time of disclosure by
Employer and was not acquired, directly or indirectly, from Employer and (iv)
Confidential Information which Employee lawfully receives from a third party,
provided, however, that such Confidential Information was not obtained by
said third party, directly or indirectly, from the Employer.
Section 7.4. PROPRIETARY ITEMS. All originals, copies and summaries of
manuals, memoranda, notes, photographs, notebooks, records, reports, plans,
drawings and other documents or items of any kind concerning any matters
affecting or relating to the present or potential business of the Employer,
whether or not they contain Confidential Information, are, and shall continue
to be, the property of the Employer, and all of such documents or items in
the possession or control of the Employee shall be delivered to the Employer
by the Employee immediately upon the Employer's request or termination of the
Employee's employment hereunder.
SECTION 8. NON-COMPETITION.
In view of the unique nature of the business of the Employer and the
need of the Employer to maintain its competitive advantage in the industry
through the protection of its trade secrets and proprietary information, the
Employee agrees that during the term of his employment with the Employer and
for a period of one (1) year thereafter, the Employee shall not, directly or
indirectly, within the United States of America or its Territories or
Possessions or within any other country in which the Employer or any
affiliate of the Employer is engaged in or actively contemplating engaging in
any activity described below (i) engage in, (ii) own greater than a 5%
interest in, be employed by, or consult for, or act as an advisor to, any
business, person or entity which engages in, or (iii) otherwise participate
in any way in, research, development, manufacturing, marketing, selling or
licensing activities, or in any other activity, that may reasonably be deemed
by the Employer to be in competition with any activity in which the Employer
or any subsidiary of the Employer is then, or is then contemplating becoming,
engaged in the field of internet telephony. If at any time the foregoing
provisions shall be deemed to be invalid or unenforceable or are prohibited
by the laws of the state or place where they are to be performed by reason of
being vague or unreasonable as to duration or place of performance, this
section shall be considered divisible and shall become and be immediately
amended to include only such time and such area as shall be determined to be
reasonable and enforceable by the court or other body having jurisdiction
over this Agreement; and the Employee and the Employer expressly agree that
this section, as so amended, shall be valid and binding as though any invalid
or unenforceable provision had not been included herein. The Employer further
agrees that during, and for a period of one (1) year after the termination
of, the
<PAGE>
-8-
Employee's employment hereunder, he shall not solicit, or arrange to have any
other person or entity solicit, any person or entity engaged by the Employer
as an employee, customer, supplier, or consultant or advisor to, the Employer
to terminate such party's relationship with the Employer. The time periods
provided for in this Section 8 shall be extended for a period of time in
which Employee is in violation of any of the provisions of this Section 8.
SECTION 9. REMEDIES.
The Employer and Employee agree and acknowledge that the rights and
obligations set forth under this Agreement are of a unique and special nature
and that each party is, therefore, without an adequate legal remedy in the
event of the other party's violation of the covenants set forth in this
Agreement. The Employer and Employee agree, therefore, that the covenants
made under this Agreement shall be specifically enforceable in equity, in
addition to all other rights and remedies, at law or in equity or otherwise
(including termination of employment) that may be available to the parties.
SECTION 10. PROVISIONS OF GENERAL APPLICATION.
Section 10.1. DISPUTES. In the event of any dispute touching or
concerning this Agreement, the parties will submit to the exclusive
jurisdiction and venue of any court of competent jurisdiction sitting in
Suffolk County, Massachusetts, and the parties agree to comply with all
requirements necessary to give such court jurisdiction over the parties and
the controversy. EACH PARTY HEREBY WAIVES ANY RIGHT TO A JURY TRIAL AND TO
CLAIM OR RECOVER PUNITIVE DAMAGES.
Section 10.2. GOVERNING LAW. This Agreement and the rights and
obligations of the parties hereunder shall be construed, interpreted and
determined in accordance with the internal substantive laws of the
Commonwealth of Massachusetts (excluding choice of law or conflict of law
provisions).
Section 10.3. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original and all of which,
taken together, shall constitute one and the same document. In making proof
of this Agreement it shall not be necessary to produce or account for more
than one such counterpart.
Section 10.4. OTHER AGREEMENTS. This Agreement represents the entire
understanding and agreement between the parties as to the subject matter
hereof and supersedes all prior or concurrent oral or written agreements
relating thereto.
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-9-
Section 10.5. AMENDMENT. This Agreement may be amended only a written
document executed in one or more counterparts by each of the parties hereto.
Section 10.6. WAIVER. No consent to or waiver of any breach or default
in the performance of any obligation hereunder shall be deemed or construed
to be a consent to or waiver of any other breach or default in the
performance of any of the same or any other obligation hereunder. Failure on
the part of either party to complain of any act or failure to act of the
other party or to declare the other party in default, irrespective of the
duration of such failure, shall not constitute a waiver of rights hereunder
and no waiver hereunder shall be effective unless it is in writing, executed
by the party waiving the breach or default hereunder.
Section 10.7. ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their successors and assigns.
This Agreement may be assigned by the Employer to any Affiliate (as
hereinafter defined) or to a successor to the portion of its business to
which this Agreement relates (whether by purchase or otherwise). For purposes
of this Agreement, "Affiliate" shall mean any person or entity which,
directly or indirectly, controls or is controlled by or is under common
control with the Employer and, for the purposes of this definition, "control"
(including the terms "controlled by" and "under common control with"), shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of another, whether through the
ownership of voting securities or holding of office in another, by contract
or otherwise. The Employee may not assign or transfer any of his rights or
obligations under this Agreement.
Section 10.8. HEADINGS. The headings of sections and subsections of
this Agreement have been inserted for convenience of reference only and shall
not be deemed to be a part of this Agreement or to affect the meaning of any
of its provisions.
Section 10.9. SEVERABILITY. If any provision of this Agreement shall,
in whole or in part, prove to be invalid for any reason, such invalidity
shall affect only the portion of such provision which shall be invalid, and
in all other respects this Agreement shall stand as if such invalid
provisions, or the invalid portion thereof, had not been a part hereof.
<PAGE>
-10-
IN WITNESS WHEREOF, this Agreement has been executed by the Employer, by
its duly authorized officer, and by the Employee, as of the Effective Date.
IBASIS, INC.
By: /s/ Gordon J. VanderBrug
---------------------------
Name: Gordon J. VanderBrug
Title: Executive Vice President
EMPLOYEE
John G. Henson, Jr.
------------------------------
John G. Henson, Jr.
<PAGE>
EXHIBIT 10.13
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
This Series A Preferred Stock Purchase Agreement (this "Agreement"),
dated as of October 24, 1997, is entered into by and between VIP Calling, Inc.,
a Delaware corporation (the "Company"), and the persons who become party to this
Agreement by executing and delivering to the Company an Instrument of Adherence
(an "Instrument Of Adherence") in the form attached hereto as EXHIBIT A (the
"Purchasers").
WITNESSETH
WHEREAS, the parties hereto desire to provide for the purchase and sale
of shares of up to 1,250,000 shares (the "Shares") of the Company's Series A
Convertible Preferred Stock, par value $.001 per share (the "Series A Preferred
Stock"), the rights, designations and preferences of which are set forth on
Exhibit B hereto; and
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto, intending to be legally bound,
agree as follows:
1. PURCHASE AND SALE OF THE SHARES. Subject to and upon the terms and
conditions set forth in this Agreement, the Company agrees to sell and issue to
each Purchaser, and each Purchaser agrees to purchase from the Company, at a
purchase price of $3.00 per share, that number of shares of Series A Preferred
stock listed below such Purchaser's name on such Purchaser's Instrument of
Adherence, each such purchase and sale to occur at a Closing (as contemplated by
Section 2 hereof).
2. MULTIPLE CLOSINGS, THE CLOSINGS.
2.1 MULTIPLE CLOSINGS. The Company is conducting an offering
of up to 1,250,000 Shares (the "Offering"). The Company may, at its discretion,
have multiple closings (each a "Closing" and the date thereof a "Closing Date")
of the Offering. There is no minimum amount of the Offering required to be sold
in connection with any such Closing.
2.2 THE CLOSINGS. Each Closing of the purchase and sale of the
Shares shall occur the offices of Bingham Dana LLP in Boston, Massachusetts. At
each Closing the Company shall issue and deliver to each Purchaser participating
therein a stock certificate or certificates evidencing the Shares being issued
and sold to such Purchaser, against delivery by such Purchaser of the purchase
price therefor by certified or bank check payable to the order of the
<PAGE>
2
Company or wire transfer of immediately available funds to such account as
the Company shall indicate prior to such Closing.
3. REPRESENTATIONS OF THE COMPANY. Except as disclosed by the Company
in the Exhibits and Schedules attached hereto, the Company hereby represents and
warrants to the Purchasers as follows:
3.1 ORGANIZATION AND STANDING. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to conduct
its business as now conducted and to enter into and perform the Series A
Agreements (as defined below) and the transactions contemplated thereby. The
Company is duly qualified to do business in and is in good standing in each
state in which a failure to be so qualified would have a material adverse effect
on the Company's financial condition or its ability to conduct its business in
the manner now conducted. The Company has furnished to the Purchasers true and
complete copies of its Certificate of Incorporation and By-laws, each as amended
to date.
3.2 CAPITALIZATION. The authorized capital stock of the
Company immediately prior to the date hereof consists of (i) 6,500,000 shares of
Class A Common Stock, par value $.001 per share (the "Class A Common Stock"), of
which 2,020,000 shares are issued and outstanding, (ii) 500,000 shares of Class
B Common Stock, par value $.001 per share (the "Class B Common Stock"), of which
500,000 shares are issued and outstanding and (iii) 1,256,875 shares of Series A
Preferred Stock, none of which are issued and outstanding. All of the issued and
outstanding shares of capital stock of the Company have been duly authorized and
validly issued and are fully paid and nonassessable. Except as set forth in
SCHEDULE 3.2.1 hereto, (a) no subscription, warrant, option, convertible
security or other right (contingent or otherwise) to purchase or acquire any
shares of capital stock of the Company is authorized or outstanding, (b) there
is not any commitment of the Company to issue any subscription, warrant, option,
convertible security or other such right or to issue or distribute to holders of
any shares of its capital stock any evidences of indebtedness or assets of the
Company, and (c) the Company has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any shares of its capital stock or any
interest therein or to pay any dividend or make any other distribution in
respect hereof. Except as set forth on Schedule 3.2.2 hereto or as provided in
this Agreement and the Shareholders Agreement (as defined in Section 5.5), (A)
no person or entity is entitled to (i) any preemptive or similar right with
respect to the issuance or sale of any capital stock of the Company or (ii) any
rights with respect to the registration of any capital stock of the Company
under the Securities Act of 1933, as amended (the "Securities Act") and (B)
there exists no agreement, written or oral, between the Company and any
shareholders with respect to the voting, acquisition (including, without
<PAGE>
3
limitation, rights of first refusal or preemptive rights), or disposition of any
capital stock of the Company.
3.3 SUBSIDIARIES. Except as set forth on Schedule 3.3 hereto,
the Company has no subsidiaries and does not own or control, directly or
indirectly, any interest in any other corporation, association or business
entity.
3.4 STOCKHOLDER LIST. Schedule 3.4 contains a true and
complete list of the stockholders of the Company, showing the number of shares
of Common Stock or other securities of the Company held by each stockholder as
of the date of this Agreement.
3.5 ISSUANCE OF SHARES. The issuance, sale and delivery of the
Shares in accordance with this Agreement and the reservation, issuance, sale and
delivery of the shares issuable upon conversion of the Shares have been duly
authorized by all requisite corporate action on the part of the Company, and the
Shares, when so issued, sold and delivered against payment therefor in
accordance with the provisions of this Agreement, and the shares of Class A
Common Stock issuable upon conversion of the Shares, when issued upon such
conversion in accordance with the Company's Certificate of Incorporation, will
be duly and validly issued, fully paid and non-assessable.
3.6 AUTHORITY FOR AGREEMENT. The execution, delivery and
performance by the Company of this Agreement, the Shareholders' Agreement (as
defined in Section 5.5) and the Registration Rights Agreement (as defined in
Section 5.6) (collectively, the "Series A Agreements") have been duly authorized
by all requisite corporate action, and each of the Series A Agreements has been
duly executed and delivered by the Company. Each of the Series A Agreements
constitutes the valid and binding obligation of the Company enforceable in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditor's rights
and the application of equitable principles in any action legal or equitable.
The execution and delivery of the Series A Agreements and performance of the
transactions contemplated thereby and compliance with their provisions by the
Company will not violate any provision of law and will not conflict with or
result in any breach of any of the terms, conditions or provisions of, or
constitute a default under, the Company's Certificate of Incorporation or
By-laws, each as amended to date, or any indenture, lease, agreement or other
instrument to which the Company is a party or by which the Company or any of its
properties is bound, or any decree, judgment, order, statute, rule or regulation
applicable to the Company, except where any such violation, conflict, breach or
default would not have a material adverse effect on the condition (financial or
otherwise), business or properties of the Company.
<PAGE>
4
3.7 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority is required on the part of the Company
in connection with the execution and delivery of the Series A Agreements, the
offer, issue, sale and delivery of the Shares, or the other transactions to be
consummated at any Closing, except (i) the filing by the Company of a Form D
with the Securities and Exchange Commission, which the Company hereby covenants
to file within fifteen (15) days of the close of the Offering, (ii) requisite
filings with appropriate state securities authorities, if any, which the Company
hereby covenants to make on a timely basis, and (iii) such filings as shall have
been made prior to and shall be effective on and as of the first Closing.
3.8 LITIGATION. There is no action, suit, proceeding or
investigation pending, or, to the best of the Company's knowledge, threatened
against the Company, which might result, either individually or in the
aggregate, in any material adverse change in the assets, condition (financial or
otherwise), business or prospects of the Company or that would limit or impair
the power or authority of the Company to enter into the Series A Agreements and
consummate the transactions contemplated therein.
3.9 ABSENCE OF LIABILITIES. Except as set forth on Schedule
3.9 hereto, the Company does not have, as of the date hereof, any liabilities of
any type which in the aggregate exceeded $50,000, whether absolute or
contingent.
3.10 PROPERTY AND ASSETS. The Company has good title to all of
its material properties and assets as set forth on Schedule 3.10 hereto and,
except as set forth on such schedule, none of such properties or assets is
subject to any mortgage, pledge, lien, security interest, lease, charge or
encumbrance.
3.11 PATENTS AND TRADEMARKS. Schedule 3.11 hereto lists all
the material patents, patent applications, trademarks, registered service marks,
registered trademark and service mark applications, registered copyrights and
patent and trademark licenses now owned or held by the Company. To the best of
the Company's knowledge, the business proposed by the Company will not cause the
Company to infringe or violate any of the patents, trademarks, service marks,
trade names, copyrights, licenses, trade secrets or other proprietary rights of
any other person or entity. The Company is not aware that any employee is
obligated under any contract (including any license, covenant or commitment of
any nature), or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of such employee's best
efforts to promote the interest of the Company or would conflict with the
Company's business as proposed to be conducted. There is no claim, suit, action
or proceeding pending, or to the Company's knowledge of threatened, against the
Company asserting that the Company's use of any of its intellectual property
infringes the rights of any other entity.
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5
3.12 INSURANCE. The Company maintains or will acquire within
sixty (60) days after the date hereof valid policies of workers' compensation
insurance and of insurance with respect to its properties and business of the
kinds and in the amounts not less than is customarily obtained by corporations
of established reputation engaged in the same or similar business and similarly
situated, including, without limitation, insurance against loss, damage, fire,
theft, public liability and other risks.
3.13 MATERIAL CONTRACTS AND OBLIGATIONS. Except as set forth
on Schedule 3.13 hereto, there are no (i) agreements which require future
expenditures by the Company in excess of $50,000, (ii) leases or rental
agreements for real property or office space, (iii) employment or consulting
agreements, employee benefit, bonus, pension, profit-sharing, stock option,
stock purchase or similar plans or arrangements, or (iv) any material agreements
between the Company and any stockholder, officer or director of the Company, or
any "Affiliate", OR "Associate" of such persons (as such terms are defined in
the rules and regulations promulgated under the Securities Act), is now a party,
including without limitation any agreement or other arrangement providing for
the furnishing of services by, rental of real or personal property from, or
otherwise requiring payments to, any such person or entity in excess of $50,000.
The Company has delivered to the Purchaser true and complete copies of the
foregoing agreements. All of such agreements and contracts are valid, binding
and in full force and effect.
3.14 ERISA. The Company maintains no employee benefit plans,
as defined in Section 3(3) of the Employee Retirement Income Security Act of
1974.
3.15 COMPLIANCE. The Company has, in all material respects,
complied with all laws, regulations and orders applicable to its present and
proposed business and has obtained all material permits and licenses required
thereby, except where the failure to obtain such permits or licenses would not
have a material adverse effect. There is no term or provision of any material
mortgage, indenture, contract, agreement or instrument to which the Company is a
party or by which it is bound or, to the knowledge of the Company, of any
provision of any state of Federal judgment, decree, order, statute, rule or
regulation applicable to or binding upon the Company, which, in the absence of a
breach or violation of any such provision, law or judgment, decree or
regulation, materially adversely affects the business, prospects, or operations
of the Company or its properties or assets. To the best of the Company's
knowledge, none of the employees of the Company is in violation of any term of
any employment contract, patent or other proprietary information disclosure
agreement or any other contract or agreement relating to the employment of such
employee by the Company.
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6
3.16 EMPLOYEES. Except as set forth on Schedule 3.16 hereto,
each employee of the Company whose activities require access to confidential or
proprietary information of the company has executed and delivered to the Company
a Proprietary Information and Inventions Agreement substantially in the form of
Exhibit C hereto, and each such agreement is in full force and effect. None of
the employees of the Company is represented by any labor union, and there is no
labor strike or other labor trouble pending with respect to the Company or, to
the best knowledge of the Company, threatened.
3.17 BROKERS OR FINDERS. The Company has not entered into any
arrangement that would cause any person to have any right, interest or valid
claim against or upon the Company for any commission, fee or other compensation
as a finder or broker as a result of the consummation of the transactions
contemplated by this Agreement.
3.18 DISCLOSURES. Neither this Agreement nor any Exhibit
hereto, nor any agreement or document delivered by the Company to the Purchasers
or their counsel in connection with the transactions contemplated by this
Agreement, when read together with the Company's Business Plan dated July 1997
(the "Business Plan"), contains or will contain any material misstatement of
fact or omits or will omit to state a material fact necessary to make the
statements continued herein or therein not misleading. Anything disclosed in any
Schedules or Exhibits hereto or in any other agreement or document (including
any schedule or exhibit thereto) delivered in connection with the transactions
contemplated by this Agreement shall be deemed disclosed in all other Schedule
or Exhibit hereto and in all other agreements or documents delivered in
connection with such transaction.
3.19 MINUTES BOOKS AND STOCK LEDGER. The minute books of the
Company contain materially complete and accurate records of all meetings and
other corporate action of the stockholders, Board of Directors, and committees
thereof. The stock ledger of the Company is complete and accurate and reflects
all issuances, transfers, repurchases, and cancellations of shares of the
Company's capital stock.
3.20. FINANCIAL STATEMENTS. The unaudited financial statements
of the Company at and for the six month period ending June 30, 1997 (the
"Company Financial Statements"), which are attached as Schedule 3.20 hereto, are
true, correct and complete in all material respects and present fairly, in
conformity with generally accepted accounting principles consistently applied
(except, that the unaudited financial statements do not contain all of the
required footnotes and are subject to normal, recurring non-material year-end
adjustments) the financial position of the Company at the dates indicated and
the results of its operations for each of the periods indicated, except as
otherwise
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7
set forth in the notes thereto. The books and records of the Company have
been kept, and will be kept to the date of the Closing, in reasonable detail,
and will fairly and accurately reflect in all material respects to the date
of the Closing, the transactions of the Company.
3.21 ABSENCE OF CERTAIN CHANGES. Since June 30, 1997 and
except as disclosed elsewhere in this Agreement, there has not been any change
in the condition (financial or otherwise), properties, assets, liabilities or
business prospects of the Company, which has been materially adverse or has
occurred outside of the ordinary course of business.
3.22 TAX RETURNS. The Company has filed in correct form all
tax returns and estimates (federal, state and local) required to be filed by it,
and has paid all taxes shown to be due and payable on the returns or on any
assessment received by the Company as well as all other taxes (federal, state
and local) due and payable by it on or before the date hereof, other than state
and local realty taxes which are payable but which are not yet due. The Internal
Revenue Service has not conducted an examination of any income tax returns of
the Company. The amount shown on the Company Financial Statements as provision
for taxes, if any, is sufficient in all material respects for payment of all
accrued and unpaid federal, state, county, local, and foreign taxes for the
period then ended and all prior periods.
3.23 ENVIRONMENTAL MATTERS. The Company, to the best of its
knowledge, is in compliance with all local, state and federal environmental
statutes, laws, rules, regulations and permits, including but not limited to
CERCLA. Except for acrylamide acrylic acid, caustic soda, methylene
bisacrylamide used in manufacturing and common chemicals used by the in cleaning
and materials processing, the Company has not, nor to the Company's knowledge
have other parties, used, stored, disposed of or permitted any "hazardous
substance" (as defined in CERCLA), petroleum hydrocarbon, polychlorinated
biphenyl, asbestos or radioactive material (collectively, "Hazardous
Substances") to remain at, on, in or under any of the property covered by any of
the real property leases to which the Company is a party. The Company has not
installed, used, or disposed of any asbestos or asbestos-containing material on,
in or under any of the property covered by any of the real property leases to
which it is a party.
4. REPRESENTATIONS OF EACH PURCHASER. Each Purchaser, as to itself,
represents and warrants to the Company as follows:
4.1 AUTHORITY. It has full power and authority to enter into
and to perform this Agreement and the Shareholders Agreement in accordance with
their terms. If not a natural person, it is duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization.
<PAGE>
8
4.2 INVESTMENT PURPOSE. The Purchaser is acquiring Shares for
its own account for the purpose of investment and not with a view to
distribution or resale thereof.
4.3 NO REGISTRATION. The Purchaser understands and agrees that
the Shares have not been registered under the Securities Act of 1933, as amended
(the "SECURITIES ACT"), and therefore, cannot be offered, sold or transferred
unless they are registered under the Securities Act or an exemption from such
registration is available.
4.4 DEVELOPMENT-STAGE COMPANY. The Purchaser acknowledges and
understands that the Company is a development-stage company.
4.5 REQUISITE KNOWLEDGE. The Purchaser represents that it has
such knowledge and experience in business and financial matters with respect to
investments in securities of privately-held, development-stage companies so as
to enable it to understand and evaluate the risks of the Purchaser's investment
in the Shares and to form an investment decision with respect thereto.
4.6 SUFFICIENCY OF INFORMATION. The Purchaser has evaluated
the risks of investing in the Shares, as described in the "Risk Factors" section
of the Business Plan. The Purchaser has been afforded the opportunity during the
course of negotiating the transactions contemplated by this Agreement to ask
questions of, and to secure such information from, the Company and its officers
and directors as it deems necessary to evaluate the merits of entering into such
transactions, and all information requested has been given and all questions
asked were answered.
4.7 ADEQUATE NET WORTH. The Purchaser represents that it has
adequate net worth and means of providing for its current needs and personal
contingencies to sustain a complete loss of its investment in the Shares. In
particular, the Purchaser confirms that the amount of its investment in the
Shares does not exceed 25% of its net worth (including, if the Purchaser is a
natural person, the net worth of his or her spouse).
4.8 INVESTOR QUESTIONNAIRE. The Purchaser is, simultaneously
herewith, completing an Investor Questionnaire to establish that it is an
"accredited investor" within the meaning of Rule 501 under the Securities Act.
The Purchaser represents and warrants that it has completed this Questionnaire
accurately, and acknowledges and understands that the Company is relying upon
such Investor Questionnaire to establish that an exemption from registration of
the Shares under federal Securities Act is available.
<PAGE>
9
5. CONDITIONS TO THE OBLIGATIONS OF EACH PURCHASER. The obligation of
each Purchaser to purchase Shares at any Closing is subject to the fulfillment,
or the waiver by such Purchaser, of each of the following conditions on or
before the applicable Closing Date:
5.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties contained in Section 3 of this Agreement (except
for such representations and warranties as are limited by their terms to an
earlier specified date (which shall be true as of such date)) shall be true and
correct in all material respects on and as of such Closing Date with the same
effect as though such representations and warranties had been made on and as of
that date.
5.2 PERFORMANCE. The Company shall have performed and complied
in all material respects with all agreements and conditions contained in this
Agreement required to be performed or complied with by the Company prior to or
at such Closing.
5.3 OPINION OF COUNSEL. The Purchaser shall have received an
opinion from Bingham Dana LLP, counsel to the Company, dated as of the date
hereof, addressed to the Purchasers.
5.4 CERTIFICATES AND DOCUMENTS. The Company shall have
delivered to the Purchasers:
(i) A copy of the Certificate of Incorporation of Organization
of the Company, as amended and in effect as of the date hereof, certified by the
Secretary or Assistant Secretary of the Company;
(ii) A copy of the By-laws of the Company as amended and in
effect as of the date hereof, certified by the Secretary of Assistant Secretary
of the Company as of the date hereof;
(iii) A copy of resolutions of the Board of Directors
authorizing and approving all requisite matters in connection with this
Agreement and the transactions contemplated hereby, certified by the Secretary
or Assistant Secretary of the Company as of the date hereof;
(iv) A certificate, as of a date reasonably proximate to the
date hereof, as to the corporate good standing of the Company issued by the
Secretary of State of Delaware;
(v) A certificate, as of the applicable Closing Date, stating
that the conditions specified in Section 5.1 have been fulfilled.
<PAGE>
10
5.5 SHAREHOLDERS' AGREEMENT. The First Amended and Restated
Stockholders Agreement, substantially in the form of EXHIBIT D hereto (the
"Shareholders' Agreement") shall have been executed and delivered by the Company
and the holders of at least sixty percent (60%) of the aggregate issued and
outstanding shares of the Class A Common Stock and the Class B Common Stock.
5.6 REGISTRATION RIGHTS AGREEMENT. The Registration Rights
Agreement, substantially in the form of EXHIBIT E hereto (the "Registration
Rights Agreement") shall have been executed and delivered by the Company.
6. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligation of the
Company to sell Shares to a Purchaser at any Closing is subject to the
fulfillment, or waiver by the Company, of each of the following conditions on or
before the applicable Closing Date:
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Purchaser contained in Section 4 shall be
true and correct in all material respects on and as of the applicable Closing
Date with the same effect as though such representations and warranties had been
made on and as of that date.
6.2 ANCILLARY AGREEMENTS. The Purchaser shall become or shall
have become a party to the Shareholders' Agreement and the Registration Rights
Agreement.
6.3 BLUE SKY APPROVALS. The Company and the Purchaser shall
have received all requisite approvals and made any requisite filings with state
Blue Sky authorities and any such approvals shall be in full force and effect on
the applicable Closing Date (other than filings required to be made after the
applicable Closing Date).
7. LEGEND. Each Purchaser understands that the certificate or
certificates evidencing Shares purchased by such Purchaser shall bear the
following legends:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF (i) AN
EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES UNDER
THE SECURITIES ACT OR (ii) RECEIPT BY THE ISSUER OF AN OPINION OF
COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE, PLEDGE,
HYPOTHECATION OF OTHER TRANSFER MAY BE MADE PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT.
THE CORPORATION IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OF STOCK.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHICH
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.
Each Purchaser further understand that the Company may place a
stop-transfer order on any of the Shares with the Company's transfer agent.
<PAGE>
11
8. MISCELLANEOUS.
8.1 NOTICES. All notices, requests, consents, and other
communications hereunder shall be in writing and shall be deemed effectively
given and received upon delivery in person, or one business day after delivery
by national overnight courier service or by telecopier transmission with
acknowledgment of transmission receipt, or three business days after deposit via
certified or registered mail, return receipt requested, in each case addressed
as follows:
(a) if to the Company, to:
VIP Calling, Inc.
121 Middlesex Turnpike
Burlington, MA 01803
Fax: 781-229-7701
Attention: Ofer Gneezy
President
with a copy to:
Bingham Dana LLP
150 Federal Street
Boston, MA 02110
Fax: 617-951-8736
Attention: David L. Engel, Esq.
<PAGE>
12
(b) if to a Purchaser, to the address of such Purchaser set forth on the
Instrument of Adherence executed and delivered to the Company by such
Purchaser;
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the other.
8.2 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts
applicable to contracts made and to be performed entirely within the state
without regard to principles of conflicts of law.
8.3 ENTIRE AGREEMENT. This Agreement, including the
Schedules and Exhibits hereto, constitutes the sole and entire agreement of
the parties with respect to the subject matter hereof and thereof. All
Schedules and Exhibits hereto are hereby incorporated herein by reference.
8.4 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.5 NO WAIVERS; AMENDMENTS.
(a) No failure or delay on the part of any party in exercising any
right, power, or remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power, or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy. The remedies provided for herein are cumulative and are not exclusive of
any remedies that may be available to any party at law or in equity or
otherwise.
(b) Any provision of this Agreement may be amended or waived if, but
only if, such amendment or waiver is in writing and is signed by the Company and
Purchasers who, at any given time, hold at least a majority of the then
outstanding shares of Series A Preferred Stock.
8.6 SEVERABILITY. If any provision of this Agreement shall be
declared void or unenforceable by a judicial or administrative authority, the
validity of any other provision and of the entire Agreement shall not be
affected thereby.
8.7 GENDER. All pronouns and all variations thereof shall be
deemed to refer to the masculine, feminine, or neuter, singular or plural, as
the identity of the person or persons, thing or entity may require.
<PAGE>
13
8.8 HEADINGS. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
8.9 EXPENSES. Each party hereto shall be responsible for its
now legal costs incurred in connection with the preparation, review and
negotiation of the transactions contemplated by this Agreement.
8.10 SURVIVABILITY. Notwithstanding any investigation
conducted at any time with regards thereto by or on behalf of any Purchaser, all
representations and warranties of the parties hereto shall survive each Closing
and shall remain in full force and effect through and until March 31, 1999.
<PAGE>
14
IN WITNESS WHEREOF, the undersigned sets its hand under seal as of the
day and year first above written.
COMPANY:
VIP CALLING, INC.
By: /s/ Gordon J. VanderBrug
------------------------
Gordon VanderBrug
Vice President
<PAGE>
EXHIBIT A TO
STOCK PURCHASE AGREEMENT
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES A PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Seruus Telecom Fund, LP, in order to purchase an
aggregate of 33,333 shares (the "Shares") of Series A Convertible Preferred
Stock, par value $.001 per share, of VIP Calling, Inc., a Delaware corporation
(the "Company"), hereby agrees to become a "Purchaser" party to the Series A
Preferred Stock Purchase Agreement among the Company and the other Purchaser
parties thereto dated as of October 24, 1997 (the "Purchase Agreement"). This
Instrument of Adherence shall take effect and shall become a part of said
Purchase Agreement immediately upon execution.
Subject to the terms and conditions set forth in the Stock Purchase
Agreement, Seruus agrees to purchase (i) 166,667 of the Shares, for an aggregate
purchase price of $500,001, as of the date hereof, and (ii) the remaining
166,666 of the Shares for which Seruus hereby subscribes (the "Remaining
Shares"), for an aggregate purchase price of $499,998, which ten (10) days of
delivery by the Company to Seruus of evidence of the Company's receipt of
billing revenue from a carrier providing internet, telephony services over the
Company's VIP Calling Network; PROVIDED, HOWEVER, that Seruus shall not be
required to purchase the Remaining Shares prior to December 15, 1997.
Executed under seal as of the date set forth below under the laws of
The Commonwealth of Massachusetts:
No. of Shares Purchased: 333,333
--------------------
Signature: /s/ Myron J. Goins
------------------------------
Address: Seruus Telecom Fund, LP
------------------------------
PO Box 2503
------------------------------
Greenville, SC 29602-2503
------------------------------
Date: 24 Oct. 1997
------------------------------
Accepted:
VIP CALLING, INC.
By:
--------------------------------
<PAGE>
EXHIBIT A TO
STOCK PURCHASE AGREEMENT
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES A PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Charles N. Corfield Trust u/a/d 12/18/91, in order to
purchase 200,000 shares of Series A Convertible Preferred Stock, par value $.001
per share, of VIP Calling, Inc., a Delaware corporation (the "Company"), hereby
agrees to become a "Purchaser" party to the Series A Preferred Stock Purchase
Agreement among the Company and the other Purchaser parties thereto dated as of
October 24, 1997 (the "Purchase Agreement"). This Instrument of Adherence shall
take effect and shall become a part of said Purchase Agreement immediately upon
execution.
Executed under seal as of the date set forth below under the laws of
The Commonwealth of Massachusetts:
No. of Shares Purchased: 200,000
-------------------
Signature: /s/ C.N. Corfield (Hee)
------------------------------
Address: 227 High St.
------------------------------
Palo Alto, CA 04301
------------------------------
------------------------------
Date: 21 Oct. 1997
------------------------------
Accepted:
VIP CALLING, INC.
By:
--------------------------------
<PAGE>
EXHIBIT A TO
STOCK PURCHASE AGREEMENT
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES A PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Timothy M. Riley, in order to purchase 21,666 shares
of Series A Convertible Preferred Stock, par value $.001 per share, of VIP
Calling, Inc., a Delaware corporation (the "Company"), hereby agrees to become a
"Purchaser" party to the Series A Preferred Stock Purchase Agreement among the
Company and the other Purchaser parties thereto dated as of October 24, 1997
(the "Purchase Agreement"). This Instrument of Adherence shall take effect and
shall become a part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of
The Commonwealth of Massachusetts:
No. of Shares Purchased: 21,666
--------------------
Signature: /s/ Timothy M. Riley
------------------------------
Address: 300 E. 59th Street
------------------------------
Apartment #1607
------------------------------
New York, NY 10022
------------------------------
Date: 10/29/97
------------------------------
Accepted:
VIP CALLING, INC.
By:
--------------------------------
<PAGE>
EXHIBIT A TO
STOCK PURCHASE AGREEMENT
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES A PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, John M. Sewell, in order to purchase 17,000 shares of
Series A Convertible Preferred Stock, par value $.001 per share, of VIP Calling,
Inc., a Delaware corporation (the "Company"), hereby agrees to become a
"Purchaser" party to the Series A Preferred Stock Purchase Agreement among the
Company and the other Purchaser parties thereto dated as of October 24, 1997
(the "Purchase Agreement"). This Instrument of Adherence shall take effect and
shall become a part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of
The Commonwealth of Massachusetts:
No. of Shares Purchased: 17,000
--------------------
Signature: /s/ John M. Sewell
------------------------------
Address: 261 Montclair Road
------------------------------
Palo Alto, CA 04301
------------------------------
Los Gatos, CA 95032
------------------------------
Date: 10/27/97
------------------------------
Accepted:
VIP CALLING, INC.
By:
--------------------------------
<PAGE>
EXHIBIT A TO
STOCK PURCHASE AGREEMENT
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES A PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Bain Securities, Inc. ("Bain Securities"), in order to
purchase an aggregate of 556,168 shares (the "Shares") of Series A Convertible
Preferred Stock, par value $.001 per share, of VIP Calling, Inc., a Delaware
corporation (the "Company"), hereby agrees to become a "Purchaser" party to the
Series A Preferred Stock Purchase Agreement among the Company and the other
Purchaser parties thereto dated as of October 24, 1997 (the "Purchase
Agreement"). This Instrument of Adherence shall take effect and shall become a
part of said Purchase Agreement immediately upon execution.
Subject to the terms and conditions set forth in the Stock Purchase
Agreement, Bain Securities agrees to purchase (i) 278,084 of the Shares, for an
aggregate purchase price of $834,252, as of the date hereof, and (ii) the
remaining 278,084 of the Shares for which Bain Securities hereby subscribes (the
"Remaining Shares"), for an aggregate purchase price of $834,252, within ten
(10) days of delivery by the Company to Bain Securities of evidence of the
Company's receipt of billing revenue from a carrier providing Internet,
telephone and fax services over the Company's VIP Calling Network; PROVIDED,
HOWEVER, that Bain Securities shall not be required to purchase the Remaining
Shares prior to December 15, 1997.
Executed under seal as of the date set forth below under the laws of
The Commonwealth of Massachusetts:
No. of Shares Purchased: 556,168*
--------------------
BAIN SECURITIES, INC.
By:/s/ Gary Wilkinson
-------------------------------------------
Name: Gary Wilkinson
Address: Two Copley Place
------------------------------
Boston, Mass 02116
------------------------------
Date: November 11, 1997
------------------------------
Accepted:
VIP CALLING, INC.
By:
--------------------------------
<PAGE>
EXHIBIT A TO
STOCK PURCHASE AGREEMENT
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES A PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Elka Ltd., in order to purchase 16,500 shares of
Series A Convertible Preferred Stock, par value $.001 per share, of VIP Calling,
Inc., a Delaware corporation (the "Company"), hereby agrees to become a
"Purchaser" party to the Series A Preferred Stock Purchase Agreement among the
Company and the other Purchaser parties thereto dated as of October 24, 1997
(the "Purchase Agreement"). This Instrument of Adherence shall take effect and
shall become a part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of
The Commonwealth of Massachusetts:
No. of Shares Purchased: 16,500
--------------------
Signature: /s/ Itamar Hatsor
------------------------------
Address: P.O. Box 17078
------------------------------
Tel-Aviv
------------------------------
61170 Israel
------------------------------
Date: Nov. 6, 1997
------------------------------
Accepted:
VIP CALLING, INC.
By:
--------------------------------
<PAGE>
EXHIBIT A TO
STOCK PURCHASE AGREEMENT
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES A PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, David Horowitz, in order to purchase 11,666 shares of
Series A Convertible Preferred Stock, par value $.001 per share, of VIP Calling,
Inc., a Delaware corporation (the "Company"), hereby agrees to become a
"Purchaser" party to the Series A Preferred Stock Purchase Agreement among the
Company and the other Purchaser parties thereto dated as of October 24, 1997
(the "Purchase Agreement"). This Instrument of Adherence shall take effect and
shall become a part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of
The Commonwealth of Massachusetts:
No. of Shares Purchased: 11,666
--------------------
Signature: /s/ David Horowitz
------------------------------
Address: 211 Woodsorrel Lane
------------------------------
East Northport, NY 11231
------------------------------
Date: 11/3/97
------------------------------
Accepted:
VIP CALLING, INC.
By:
--------------------------------
<PAGE>
EXHIBIT A TO
STOCK PURCHASE AGREEMENT
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES A PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, David J. Roux, in order to purchase 16,667 shares of
Series A Convertible Preferred Stock, par value $.001 per share, of VIP Calling,
Inc., a Delaware corporation (the "Company"), hereby agrees to become a
"Purchaser" party to the Series A Preferred Stock Purchase Agreement among the
Company and the other Purchaser parties thereto dated as of October 24, 1997
(the "Purchase Agreement"). This Instrument of Adherence shall take effect and
shall become a part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of
The Commonwealth of Massachusetts:
No. of Shares Purchased: 16,667
--------------------
Signature: /s/ David J. Roux
------------------------------
Date:
------------------------------
Accepted:
VIP CALLING, INC.
By:
--------------------------------
<PAGE>
EXHIBIT A TO
STOCK PURCHASE AGREEMENT
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES A PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, David C. Schultz, in order to purchase ________ shares
of Series A Convertible Preferred Stock, par value $.001 per share, of VIP
Calling, Inc., a Delaware corporation (the "Company"), hereby agrees to become a
"Purchaser" party to the Series A Preferred Stock Purchase Agreement among the
Company and the other Purchaser parties thereto dated as of October 24, 1997
(the "Purchase Agreement"). This Instrument of Adherence shall take effect and
shall become a part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of
The Commonwealth of Massachusetts:
No. of Shares Purchased: 17,000
--------------------
Signature: /s/ David C. Schultz
------------------------------
Address: 42 Solomon Pierce Road
------------------------------
Lexington, MA 02173
------------------------------
------------------------------
Date: 11/2/92
------------------------------
Accepted:
VIP CALLING, INC.
By:
--------------------------------
<PAGE>
EXHIBIT A TO
STOCK PURCHASE AGREEMENT
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES A PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Ofer Gneezy, in order to purchase 3,333 shares of
Series A Convertible Preferred Stock, par value $.001 per share, of VIP Calling,
Inc., a Delaware corporation (the "Company"), hereby agrees to become a
"Purchaser" party to the Series A Preferred Stock Purchase Agreement among the
Company and the other Purchaser parties thereto dated as of October 24, 1997
(the "Purchase Agreement"). This Instrument of Adherence shall take effect and
shall become a part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of
The Commonwealth of Massachusetts:
No. of Shares Purchased: 3,333
--------------------
Signature: /s/ Ofer Gneezy
------------------------------
Address: 5 Manchester Rd.
------------------------------
Winchester, MA 01810
------------------------------
------------------------------
Date: 11/24/97
------------------------------
Accepted:
VIP CALLING, INC.
By:
--------------------------------
<PAGE>
EXHIBIT A TO
STOCK PURCHASE AGREEMENT
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES A PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Henry Meester, Jr., in order to purchase 25,000
shares of Series A Convertible Preferred Stock, par value $.001 per share, of
VIP Calling, Inc., a Delaware corporation (the "Company"), hereby agrees to
become a "Purchaser" party to the Series A Preferred Stock Purchase Agreement
among the Company and the other Purchaser parties thereto dated as of October
24, 1997 (the "Purchase Agreement"). This Instrument of Adherence shall take
effect and shall become a part of said Purchase Agreement immediately upon
execution.
Executed under seal as of the date set forth below under the laws of
The Commonwealth of Massachusetts:
No. of Shares Purchased: 25,000
--------------------
Signature: /s/ Henry Meester, Jr.
------------------------------
Address: 5810 Antigua Dr.
------------------------------
San Jose, Cal
------------------------------
95120
------------------------------
Date:
------------------------------
Accepted:
VIP CALLING, INC.
By:
--------------------------------
<PAGE>
EXHIBIT A TO
STOCK PURCHASE AGREEMENT
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES A PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Gordon J. VanderBrug, in order to purchase 1,667
shares of Series A Convertible Preferred Stock, par value $.001 per share, of
VIP Calling, Inc., a Delaware corporation (the "Company"), hereby agrees to
become a "Purchaser" party to the Series A Preferred Stock Purchase Agreement
among the Company and the other Purchaser parties thereto dated as of October
24, 1997 (the "Purchase Agreement"). This Instrument of Adherence shall take
effect and shall become a part of said Purchase Agreement immediately upon
execution.
Executed under seal as of the date set forth below under the laws of
The Commonwealth of Massachusetts:
No. of Shares Purchased: 1,667
--------------------
Signature: /s/ G.J. Vanderbrug
------------------------------
Address: 23 Woodpark Cir.
------------------------------
Lexington, MA 02173
------------------------------
------------------------------
Date: 11/24/97
------------------------------
Accepted:
VIP CALLING, INC.
By:
--------------------------------
<PAGE>
EXHIBIT A TO
STOCK PURCHASE AGREEMENT
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES A PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Jacquelyn S. VanderBrug, in order to purchase 5,000
shares of Series A Convertible Preferred Stock, par value $.001 per share, of
VIP Calling, Inc., a Delaware corporation (the "Company"), hereby agrees to
become a "Purchaser" party to the Series A Preferred Stock Purchase Agreement
among the Company and the other Purchaser parties thereto dated as of October
24, 1997 (the "Purchase Agreement").
The undersigned, Jacquelyn S. VanderBrug, hereby represents that she is
not an "accredited investor" within the meaning of Rule 501 of the Securities
Act and, therefore, does not make such representation pursuant to Section 4.8 of
the Purchase Agreement. however, the undersigned, Jacquelyn S. VanderBrug,
represents and warrants that she has completed the Investor Questionnaire
accurately, and acknowledges and understands that the Company is relying on such
Investor. Questionnaire to establish that an exemption from the Federal
Securities Act is available.
This Instrument of Adherence shall take effect and shall become a part
of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of
The Commonwealth of Massachusetts:
No. of Shares Purchased: 5,000
--------------------
Signature: /s/ J.S. Vanderbrug
------------------------------
Address: 143 W. Burton #2N
------------------------------
Chic IL
------------------------------
60610
------------------------------
Date: 11/21/97
------------------------------
Accepted:
VIP CALLING, INC.
By:
--------------------------------
<PAGE>
EXHIBIT A TO
STOCK PURCHASE AGREEMENT
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES A PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, M.C. VanderBrug, in order to purchase 25,000 shares of
Series A Convertible Preferred Stock, par value $.001 per share, of VIP Calling,
Inc., a Delaware corporation (the "Company"), hereby agrees to become a
"Purchaser" party to the Series A Preferred Stock Purchase Agreement among the
Company and the other Purchaser parties thereto dated as of October 24, 1997
(the "Purchase Agreement"). This Instrument of Adherence shall take effect and
shall become a part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of
The Commonwealth of Massachusetts:
No. of Shares Purchased: 25,000
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Signature: /s/ M.C. Vanderbrug-Trustee
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Address: 1291 Porters Lane
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Bloomfield Twp.
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MI 48302
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Date: 11-19-97
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Accepted:
VIP CALLING, INC.
By:
--------------------------------
<PAGE>
EXHIBIT 10.14
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
This Series B Preferred Stock Purchase Agreement (this "Agreement"),
dated as of August 26, 1998 is entered into by and between VIP Calling, Inc., a
Delaware corporation (the "Company"), and the persons who become party to this
Agreement by executing and delivering to the Company an Instrument of Adherence
(an "Instrument of Adherence") in the form attached hereto as EXHIBIT A (the
"Purchasers").
WITNESSETH
WHEREAS, the parties hereto desire to provide for the purchase and sale
of up to 6,562,500 shares (the "Shares") of the Company's Series B Convertible
Preferred Stock, par value $.001 per share (the "Series B Preferred Stock"), the
rights, designations and preferences of which are set forth on EXHIBIT B hereto;
and
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto, intending to be legally bound,
agree as follows:
1. PURCHASE AND SALE OF THE SHARES. Subject to and upon the terms and
conditions set forth in this Agreement, the Company agrees to sell and issue to
each Purchaser, and each Purchaser agrees to purchase from the Company, at a
purchase price of $1.60 per share, that number of shares of Series B Preferred
Stock listed below such Purchaser's name on such Purchaser's Instrument of
Adherence, each such purchase and sale to occur at a Closing (as contemplated by
Section 2 hereof).
2. THE CLOSING. The closing ("Closing") of the sale and purchase of the
Shares under this Agreement shall take place at the offices of Bingham Dana LLP
in Boston, Massachusetts at 10:00 a.m. on August 26, 1998. At the Closing, the
Company shall issue and deliver to each Purchaser a certificate for the number
of Shares being purchased by such Purchaser, registered in the name of such
Purchaser, against payment to the Company of the purchase price therefor, by
wire transfer, bank check, or other method acceptable to the Company. The date
of the Closing is hereinafter referred to as the "Closing Date." Notwithstanding
anything to the contrary in this Section 2, the Purchasers understand and agree
that the Company may issue and deliver up to 312,500 Shares, upon receipt of the
purchase price therefor, from time to time during the one-week period
immediately following the Closing Date, with each such issuance being deemed to
have occurred as of the Closing Date.
<PAGE>
3. REPRESENTATIONS OF THE COMPANY. Except as disclosed by the Company in
the Exhibits and Schedules attached hereto, the Company hereby represents and
warrants to the Purchasers as follows:
3.1 ORGANIZATION AND STANDING. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has all requisite corporate power and authority to conduct its
business as now conducted and to enter into and perform the Series B Agreements
(as defined below) and the transactions contemplated thereby. The Company is
duly qualified to do business in and is in good standing in each state in which
a failure to be so qualified would have a material adverse effect on the
Company's financial condition or its ability to conduct its business in the
manner now conducted. The Company has furnished to the Purchasers true and
complete copies of its Certificate of Incorporation and By-laws, each as amended
to date.
3.2 CAPITALIZATION. The authorized capital stock of the Company
immediately prior to the date hereof consists of (i) 25,000,000 shares of Class
A Common Stock, par value $.001 per share (the "Class A Common Stock"), of which
6,060,000 shares are issued and outstanding, (ii) 1,500,000 shares of Class B
Common Stock, par value $.001 per share (the "Class B Common Stock"), of which
1,500,000 shares are issued and outstanding, (iii) 1,256,875 shares of Series A
Preferred Stock, of which 1,250,000 shares are issued and outstanding, and (iv)
6,875,000 shares of Series B Preferred Stock, none of which are issued and
outstanding. All of the issued and outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable. Except as set forth in SCHEDULE 3.2.1 hereto, (a) no
subscription, warrant, option, convertible security or other right (contingent
or otherwise) to purchase or acquire any shares of capital stock of the Company
is authorized or outstanding, (b) there is not any commitment of the Company to
issue any subscription, warrant, option, convertible security or other such
right or to issue or distribute to holders of any shares of its capital stock
any evidences of indebtedness or assets of the Company, and (c) the Company has
no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any shares of its capital stock or any interest therein or to pay any dividend
or make any other distribution in respect hereof. Except as set forth on
SCHEDULE 3.2.2 hereto or as provided in this Agreement and the Shareholders
Agreement (as defined in Section 5.5), (A) no person or entity is entitled to
(i) any preemptive or similar right with respect to the issuance or sale of any
capital stock of the Company or (ii) any rights with respect to the registration
of any capital stock of the Company under the Securities Act of 1933, as amended
(the "Securities Act") and (B) there exists no agreement, written or oral,
between the Company and any shareholders with respect to the voting, acquisition
(including, without limitation, rights of first refusal or preemptive rights),
or disposition of any capital stock of the Company.
<PAGE>
3.3 SUBSIDIARIES. Except as set forth on SCHEDULE 3.3 hereto, the
Company has no subsidiaries and does not own or control, directly or indirectly,
any interest in any other corporation, association or business entity.
3.4 STOCKHOLDER LIST. SCHEDULE 3.4 contains a true and complete
list of the stockholders of the Company, showing the number of shares of Common
Stock or other securities of the Company held by each stockholder as of the date
of this Agreement.
3.5 ISSUANCE OF SHARES. The issuance, sale and delivery of the
Shares in accordance with this Agreement and the reservation, issuance, sale and
delivery of the shares issuable upon conversion of the Shares have been duly
authorized by all requisite corporate action on the part of the Company, and the
Shares, when so issued, sold and delivered against payment therefor in
accordance with the provisions of this Agreement, and the shares of Class A
Common Stock issuable upon conversion of the Shares, when issued upon such
conversion in accordance with the Company's Certificate of Incorporation, will
be duly and validly issued, fully paid and non-assessable.
3.6 AUTHORITY FOR AGREEMENT. The execution, delivery and
performance by the Company of this Agreement, the Amended Shareholders'
Agreement (as defined in Section 5.5) and the Amended Registration Rights
Agreement (as defined in Section 5.6) (collectively, the "Series B Agreements")
have been duly authorized by all requisite corporate action, and each of the
Series B Agreements has been duly executed and delivered by the Company. Each of
the Series B Agreements constitutes the valid and binding obligation of the
Company enforceable in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles in any action
legal or equitable. The execution and delivery of the Series B Agreements and
performance of the transactions contemplated thereby and compliance with their
provisions by the Company will not violate any provision of law and will not
conflict with or result in any breach of any of the terms, conditions or
provisions of, or constitute a default under, the Company's Certificate of
Incorporation or By-laws, each as amended to date, or any indenture, lease,
agreement or other instrument to which the Company is a party or by which the
Company or any of its properties is bound, or any decree, judgment, order,
statute, rule or regulation applicable to the Company, except where any such
violation, conflict, breach or default would not have a material adverse effect
on the condition (financial or otherwise), business or properties of the
Company.
3.7 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any
<PAGE>
governmental authority is required on the part of the Company in connection with
the execution and delivery of the Series B Agreements, the offer, issue, sale
and delivery of the Shares, or the other transactions to be consummated at the
Closing, except (i) the filing by the Company of a Form D with the Securities
and Exchange Commission, which the Company hereby covenants to file within
fifteen (15) days of the close of the Offering, (ii) requisite filings with
appropriate state securities authorities, if any, which the Company hereby
covenants to make on a timely basis, and (iii) such filings as shall have been
made prior to and shall be effective on and as of the Closing.
3.8 LITIGATION. There is no action, suit, proceeding or
investigation pending, or, to the best of the Company's knowledge, threatened
against the Company, which might result, either individually or in the
aggregate, in any material adverse change in the assets, condition (financial or
otherwise), business or prospects of the Company or that would limit or impair
the power or authority of the Company to enter into the Series B Agreements and
consummate the transactions contemplated therein.
3.9 ABSENCE OF LIABILITIES. Except as set forth on SCHEDULE 3.9
hereto, the Company does not have, as of the date hereof, any liabilities of any
type which in the aggregate exceeded $50,000, whether absolute or contingent.
3.10 PROPERTY AND ASSETS. The Company has good title to all of its
material properties and assets as set forth on SCHEDULE 3.10 hereto and, except
as set forth on such schedule, none of such properties or assets is subject to
any mortgage, pledge, lien, security interest, lease, charge or encumbrance.
3.11 PATENTS AND TRADEMARKS. SCHEDULE 3.11 hereto lists all the
material patents, patent applications, trademarks, registered service marks,
registered trademark and service mark applications, registered copyrights and
patent and trademark licenses now owned or held by the Company. To the best of
the Company's knowledge, the business proposed by the Company will not cause the
Company to infringe or violate any of the patents, trademarks, service marks,
trade names, copyrights, licenses, trade secrets or other proprietary rights of
any other person or entity. The Company is not aware that any employee is
obligated under any contract (including any license, covenant or commitment of
any nature), or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of such employee's best
efforts to promote the interest of the Company or would conflict with the
Company's business as proposed to be conducted. There is no claim, suit, action
or proceeding pending, or to the Company's knowledge of threatened, against the
Company asserting that the Company's use of any of its intellectual property
infringes the rights of any other entity.
3.12 INSURANCE. The Company maintains or will acquire within sixty
(60) days after the date hereof valid policies of workers' compensation
insurance and of
<PAGE>
insurance with respect to its properties and business of the kinds and in the
amounts not less than is customarily obtained by corporations of established
reputation engaged in the same or similar business and similarly situated,
including, without limitation, insurance against loss, damage, fire, theft,
public liability and other risks.
3.13 MATERIAL CONTRACTS AND OBLIGATIONS. Except as set forth on
Schedule 3.13 hereto, there are no (i) agreements which require future
expenditures by the Company in excess of $50,000, (ii) leases or rental
agreements for real property or office space, (iii) employment or consulting
agreements, employee benefit, bonus, pension, profit-sharing, stock option,
stock purchase or similar plans or arrangements, or (iv) material agreements
between the Company and any stockholder, officer or director of the Company, or
any "affiliate", or "associate" of such persons (as such terms are defined in
the rules and regulations promulgated under the Securities Act), including
without limitation any agreement or other arrangement providing for the
furnishing of services by, rental of real or personal property from, or
otherwise requiring payments to, any such person or entity in excess of $50,000.
The Company has delivered to the Purchaser true and complete copies of the
foregoing agreements. All of such agreements and contracts are valid, binding
and in full force and effect.
3.14 ERISA. The Company maintains no employee benefit plans, as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974.
3.15 COMPLIANCE. The Company has, in all material respects,
complied with all laws, regulations and orders applicable to its present and
proposed business and has obtained all material permits and licenses required
thereby, except where the failure to obtain such permits or licenses would not
have a material adverse effect. There is no term or provision of any material
mortgage, indenture, contract, agreement or instrument to which the Company is a
party or by which it is bound or, to the knowledge of the Company, of any
provision of any state or Federal judgment, decree, order, statute, rule or
regulation applicable to or binding upon the Company, which, in the absence of a
breach or violation of any such provision, law or judgment, decree or
regulation, materially adversely affects the business, prospects, or operations
of the Company or its properties or assets. To the best of the Company's
knowledge, none of the employees of the Company is in violation of any term of
any employment contract, patent or other proprietary information disclosure
agreement or any other contract or agreement relating to the employment of such
employee by the Company.
3.16 EMPLOYEES. Except as set forth on Schedule 3.16 hereto, each
employee of the Company whose activities require access to confidential or
proprietary information of the Company has executed and delivered to the Company
a Proprietary Information and Inventions Agreement substantially in the form of
Exhibit C hereto, and each such agreement is in full force and effect. None of
the employees of the
<PAGE>
Company is represented by any labor union, and there is no labor strike or other
labor trouble pending with respect to the Company or, to the best knowledge of
the Company, threatened.
3.17 BROKERS OR FINDERS. The Company has not entered into any
arrangement that would cause any person to have any right, interest or valid
claim against or upon the Company for any commission, fee or other compensation
as a finder or broker as a result of the consummation of the transactions
contemplated by this Agreement.
3.18 DISCLOSURES. Neither this Agreement nor any Exhibit hereto,
nor any agreement or document delivered by the Company to the Purchasers or
their counsel in connection with the transactions contemplated by this Agreement
contains or will contain any material misstatement of fact or omits or will omit
to state a material fact necessary to make the statements continued herein or
therein not misleading. Anything disclosed in any Schedules or Exhibits hereto
or in any other agreement or document (including any schedule or exhibit
thereto) delivered in connection with the transactions contemplated by this
Agreement shall be deemed disclosed in all other Schedules or Exhibits hereto
and in all other agreements or documents delivered in connection with such
transaction.
3.19 MINUTES BOOKS AND STOCK LEDGER. The minute books of the
Company contain materially complete and accurate records of all meetings and
other corporate action of the stockholders, Board of Directors, and committees
thereof. The stock ledger of the Company is complete and accurate and reflects
all issuances, transfers, repurchases, and cancellations of shares of the
Company's capital stock.
3.20. FINANCIAL STATEMENTS. The unaudited financial statements of
the Company at and for the seven month period ending July 31, 1998 (the "Company
Financial Statements"), which are attached as Schedule 3.20 hereto, are true,
correct and complete in all material respects and present fairly, in conformity
with generally accepted accounting principles consistently applied (except, that
the unaudited financial statements do not contain all of the required footnotes
and are subject to normal, recurring non-material year-end adjustments) the
financial position of the Company at the dates indicated and the results of its
operations for each of the periods indicated, except as otherwise set forth in
the notes thereto. The books and records of the Company have been kept, and will
be kept to the date of the Closing, in reasonable detail, and will fairly and
accurately reflect in all material respects to the date of the Closing, the
transactions of the Company.
3.21 ABSENCE OF CERTAIN CHANGES. Since July 31, 1998 and except as
disclosed elsewhere in this Agreement, there has not been any change in the
condition (financial or otherwise), properties, assets, liabilities or business
prospects of the
<PAGE>
Company, which has been materially adverse or has occurred outside of the
ordinary course of business.
3.22 TAX RETURNS. The Company has filed in correct form all tax
returns and estimates (federal, state and local) required to be filed by it, and
has paid all taxes shown to be due and payable on the returns or on any
assessment received by the Company as well as all other taxes (federal, state
and local) due and payable by it on or before the date hereof, other than state
and local realty taxes which are payable but which are not yet due. The Internal
Revenue Service has not conducted an examination of any income tax returns of
the Company. The amount shown on the Company Financial Statements as provision
for taxes, if any, is sufficient in all material respects for payment of all
accrued and unpaid federal, state, county, local, and foreign taxes for the
period then ended and all prior periods.
3.23 ENVIRONMENTAL MATTERS. The Company, to the best of its
knowledge, is in compliance with all local, state and federal environmental
statutes, laws, rules, regulations and permits, including but not limited to
CERCLA. Except for acrylamide acrylic acid, caustic soda, methylene
bisacrylamide used in manufacturing and common chemicals used by the in cleaning
and materials processing, the Company has not, nor to the Company's knowledge
have other parties, used, stored, disposed of or permitted any "hazardous
substance" (as defined in CERCLA), petroleum hydrocarbon, polychlorinated
biphenyl, asbestos or radioactive material (collectively, "Hazardous
Substances") to remain at, on, in or under any of the property covered by any of
the real property leases to which the Company is a party. The Company has not
installed, used, or disposed of any asbestos or asbestos-containing material on,
in or under any of the property covered by any of the real property leases to
which it is a party.
4. REPRESENTATIONS OF EACH PURCHASER. Each Purchaser, as to itself,
represents and warrants to the Company as follows:
4.1 AUTHORITY. It has full power and authority to enter into and
to perform this Agreement, the Shareholders Agreement and the Amended
Registration Rights Agreement in accordance with their terms. If not a natural
person, it is duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization.
4.2 INVESTMENT PURPOSE. The Purchaser is acquiring Shares for its
own account for the purpose of investment and not with a view to distribution or
resale thereof.
4.3 NO REGISTRATION. The Purchaser understands and agrees that the
Shares have not been registered under the Securities Act of 1933, as amended
(the
<PAGE>
"Securities Act"), and therefore, cannot be offered, sold or transferred unless
they are registered under the Securities Act or an exemption from such
registration is available.
4.4 DEVELOPMENT-STAGE COMPANY. The Purchaser acknowledges and
understands that the Company is a development-stage company.
4.5 REQUISITE KNOWLEDGE. The Purchaser represents that it has such
knowledge and experience in business and financial matters with respect to
investments in securities of privately-held, development-stage companies so as
to enable it to understand and evaluate the risks of the Purchaser's investment
in the Shares and to form an investment decision with respect thereto.
4.6 SUFFICIENCY OF INFORMATION. The Purchaser has been afforded
the opportunity during the course of negotiating the transactions contemplated
by this Agreement to ask questions of, and to secure such information from, the
Company and its officers and directors as it deems necessary to evaluate the
merits of entering into such transactions, and all information requested has
been given and all questions asked were answered.
4.7 ADEQUATE NET WORTH. The Purchaser represents that it has
adequate net worth and means of providing for its current needs and personal
contingencies to sustain a complete loss of its investment in the Shares. In
particular, the Purchaser confirms that the amount of its investment in the
Shares does not exceed 25% of its net worth (including, if the Purchaser is a
natural person, the net worth of his or her spouse).
4.8 INVESTOR QUESTIONNAIRE. The Purchaser, if an individual, is,
simultaneously herewith, completing an Investor Questionnaire to establish that
it is an "accredited investor" within the meaning of Rule 501 under the
Securities Act. The Purchaser, if an individual, represents and warrants that it
has completed this Questionnaire accurately, and acknowledges and understands
that the Company is relying upon such Investor Questionnaire to establish that
an exemption from registration of the Shares under the Securities Act is
available. All Purchasers who are not individuals hereby represent that they are
"accredited investors" within the meaning of Rule 501 under the Securities Act.
5. CONDITIONS TO THE OBLIGATIONS OF EACH PURCHASER. The obligation
of each Purchaser to purchase Shares at the Closing is subject to the
fulfillment, or the waiver by such Purchaser, of each of the following
conditions on or before the Closing Date:
5.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations
<PAGE>
and warranties contained in Section 3 of this Agreement (except for such
representations and warranties as are limited by their terms to an earlier
specified date (which shall be true as of such date)) shall be true and correct
in all material respects on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of that date.
5.2 PERFORMANCE. The Company shall have performed and complied in
all material respects with all agreements and conditions contained in this
Agreement required to be performed or complied with by the Company prior to or
at such Closing.
5.3 OPINION OF COUNSEL. The Purchaser shall have received an
opinion, substantially in the form of Exhibit D hereto, from Bingham Dana LLP,
counsel to the Company, dated as of the date hereof, addressed to the
Purchasers.
5.4 CERTIFICATES AND DOCUMENTS. The Company shall have delivered
to the Purchasers:
(i) A copy of the Certificate of Incorporation of the
Company, as amended and in effect as of the date hereof, certified by the
Secretary or Assistant Secretary of the Company;
(ii) A copy of the By-laws of the Company as amended and
in effect as of the date hereof, certified by the Secretary or Assistant
Secretary of the Company as of the date hereof;
(iii) A copy of resolutions of the Board of Directors
authorizing and approving all requisite matters in connection with this
Agreement and the transactions contemplated hereby, certified by the Secretary
or Assistant Secretary of the Company as of the date hereof;
(iv) A certificate, as of a date reasonably proximate to
the date hereof, as to the corporate good standing of the Company issued by the
Secretary of State of the State of Delaware;
(v) A certificate, as of the Closing Date, stating that
the conditions specified in Section 5.1 have been fulfilled.
5.5 SHAREHOLDERS' AGREEMENT. The Second Amendment, substantially
in the form of Exhibit E hereto, (the "Second Amendment"), to the First Amended
and Restated Shareholders' Agreement (as amended by the Second Amendment, the
"Amended Shareholders' Agreement") shall have been executed and delivered by the
Company and the holders of at least sixty percent (60%) of (i) the aggregate
issued and
<PAGE>
outstanding shares of the Class A Common Stock and the Class B Common Stock and
(ii) the issued and outstanding shares of the Series A Preferred Stock.
5.6 REGISTRATION RIGHTS AGREEMENT. The First Amendment,
substantially in the form of Exhibit F hereto, (the "First Amendment") to the
Registration Rights Agreement (as amended by the First Amendment, the "Amended
Registration Rights Agreement") shall have been executed and delivered by the
Company and the holders of at least a majority of the Registrable Shares (as
defined in such Registration Rights Agreement) outstanding immediately prior to
the issuance of any of the Shares.
5.7 AMENDMENT TO CERTIFICATE OF INCORPORATION. The Amendment to
the Certificate of Incorporation in the form of Exhibit B shall have been
executed by the Company and filed with the Secretary of State's office in
Delaware.
6. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligation of the
Company to sell Shares to a Purchaser at the Closing is subject to the
fulfillment, or waiver by the Company, of each of the following conditions on or
before the Closing Date:
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Purchaser contained in Section 4 shall be
true and correct in all material respects on and as of the Closing Date with the
same effect as though such representations and warranties had been made on and
as of that date.
6.2 ANCILLARY AGREEMENTS. The Purchaser shall become or shall have
become a party to the Amended Shareholders' Agreement and the Amended
Registration Rights Agreement.
6.3 BLUE SKY APPROVALS. The Company and the Purchaser shall have
received all requisite approvals and made any requisite filings with state Blue
Sky authorities and any such approvals shall be in full force and effect on the
Closing Date (other than filings required to be made after the Closing Date).
7. LEGEND. EACH PURCHASER UNDERSTANDS THAT THE CERTIFICATE OR CERTIFICATES
EVIDENCING SHARES PURCHASED BY SUCH PURCHASER SHALL BEAR THE FOLLOWING LEGENDS:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF (i) AN
EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES UNDER
THE
<PAGE>
SECURITIES ACT OR (ii) RECEIPT BY THE ISSUER OF AN OPINION OF COUNSEL
SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE, PLEDGE,
HYPOTHECATION OF OTHER TRANSFER MAY BE MADE PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT.
THE CORPORATION IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OF STOCK.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHICH
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.
Each Purchaser further understands that the Company may place a
stop-transfer order on any of the Shares with the Company's transfer agent.
8. MISCELLANEOUS.
8.1 NOTICES. All notices, requests, consents, and other
communications hereunder shall be in writing and shall be deemed effectively
given and received upon delivery in person, or one business day after delivery
by national overnight courier service or by telecopier transmission with
acknowledgment of transmission receipt, or three business days after deposit via
certified or registered mail, return receipt requested, in each case addressed
as follows:
(a) if to the Company, to:
VIP Calling, Inc.
121 Middlesex Turnpike
Burlington, MA 01803
Fax: 781-229-7701
Attention: Ofer Gneezy, President
with a copy to:
Bingham Dana LLP
150 Federal Street
Boston, MA 02110
Fax: 617-951-8736
Attention: David L. Engel, Esq.
<PAGE>
(b) if to a Purchaser, to the address of such Purchaser set forth
on the Instrument of Adherence executed and delivered to the Company by such
Purchaser; with a copy to:
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Fax: 617-526-5000
Attention: John M. Westcott, Jr., Esq.
or, in any such case, at such other address or addresses as shall have
been furnished in writing by such party to the other.
8.2 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts
applicable to contracts made and to be performed entirely within the state
without regard to principles of conflicts of law.
8.3 ENTIRE AGREEMENT. This Agreement, including the Schedules and
Exhibits hereto, constitutes the sole and entire agreement of the parties with
respect to the subject matter hereof and thereof. All Schedules and Exhibits
hereto are hereby incorporated herein by reference.
8.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.5 NO WAIVERS; AMENDMENTS.
(a) No failure or delay on the part of any party in
exercising any right, power, or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power, or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to any party at law
or in equity or otherwise.
(b) Any provision of this Agreement may be amended or waived
if, but only if, such amendment or waiver is in writing and is signed by the
Company and Purchasers who, at any given time, hold at least a majority of the
then outstanding shares of Series B Preferred Stock.
<PAGE>
8.6 SEVERABILITY. If any provision of this Agreement shall be
declared void or unenforceable by a judicial or administrative authority, the
validity of any other provision and of the entire Agreement shall not be
affected thereby.
8.7 GENDER. All pronouns and all variations thereof shall be
deemed to refer to the masculine, feminine, or neuter, singular or plural, as
the identity of the person or persons, thing or entity may require.
8.8 HEADINGS. The section headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
8.9 EXPENSES. The Company shall be responsible for its own legal
costs incurred in connection with the preparation, review and negotiation of the
transactions contemplated by this Agreement and shall pay the legal costs of
counsel to the Purchasers up to an aggregate of $15,000.
8.10 SURVIVABILITY. Notwithstanding any investigation conducted
at any time with regards thereto by or on behalf of any Purchaser, all
representations and warranties of the parties hereto shall survive the Closing
and shall remain in full force and effect through and until March 31, 2000.
<PAGE>
IN WITNESS WHEREOF, the undersigned sets its hand under seal as of
the day and year first above written.
COMPANY:
VIP CALLING, INC.
By: Ofer Gneezy
---------------------
Ofer Gneezy
President
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Charles River VIII A LLC, in order to purchase
shares of Series B Convertible Preferred Stock, par value $.001 per share, of
VIP Calling, Inc., a Delaware corporation (the "Company"), hereby agrees to
become a "Purchaser" party to the Series B Preferred Stock Purchase Agreement
among the Company and the other Purchaser parties thereto dated as of August
26, 1998 (the "Purchase Agreement"). This Instrument of Adherence shall take
effect and shall become a part of said Purchase Agreement immediately upon
execution.
Executed under seal as of the date set forth below under the laws of
the Commonwealth of Massachusetts:
No. of Shares Purchased: 3,068,422
------------
Signature: /s/ Izhar Armony
----------------------------
Address: Charles River Ventures
-----------------------------
1000 Winter Street, Suite 3300
-----------------------------
Waltham, MA 02451
-----------------------------
Date: August 26, 1998
-----------------------------
Accepted:
VIP CALLING, INC.
By:
-------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Charles River Partnership VIII, A Limited
Partnership, in order to purchase shares of Series B Convertible Preferred
Stock, par value $.001 per share, of VIP Calling, Inc., a Delaware corporation
(the "Company"), hereby agrees to become a "Purchaser" party to the Series B
Preferred Stock Purchase Agreement among the Company and the other Purchaser
parties thereto dated as of August 26, 1998 (the "Purchase Agreement"). This
Instrument of Adherence shall take effect and shall become a part of said
Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of
the Commonwealth of Massachusetts:
No. of Shares Purchased: 56,578
------------
Signature: /s/ Izhar Armony
----------------------------
Address: Charles River Ventures
-----------------------------
1000 Winter Street, Suite 3300
-----------------------------
Waltham, MA 02451
-----------------------------
Date: August 26, 1998
-----------------------------
Accepted:
VIP CALLING, INC.
By:
-------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Menlo Ventures VII, L.P., in order to purchase shares
of Series B Convertible Preferred Stock, par value $.001 per share, of VIP
Calling, Inc., a Delaware corporation (the "Company"), hereby agrees to become a
"Purchaser" party to the Series B Preferred Stock Purchase Agreement among the
Company and the other Purchaser parties thereto dated as of August 26, 1998 (the
"Purchase Agreement"). This Instrument of Adherence shall take effect and shall
become a part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of
the Commonwealth of Massachusetts:
No. of Shares Purchased: 2,999,040
-------------
MENLO VENTURES VII, L.P.
By: MV MANAGEMENT VII, L.L.C.
its General Partner
By: /s/ H. D. Montgomery
----------------------------------
Managing Member
Address: 3000 Sand Hill Road
-----------------------------
Building 4, Suite 100
-----------------------------
Menlo Park, CA 94025
-----------------------------
Date: August 26, 1998
-----------------------------
Accepted:
VIP CALLING, INC.
By:
----------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Menlo Ventures VII, L.P., in order to purchase shares
of Series B Convertible Preferred Stock, par value $.001 per share, of VIP
Calling, Inc., a Delaware corporation (the "Company"), hereby agrees to become a
"Purchaser" party to the Series B Preferred Stock Purchase Agreement among the
Company and the other Purchaser parties thereto dated as of August 26, 1998 (the
"Purchase Agreement"). This Instrument of Adherence shall take effect and shall
become a part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of
the Commonwealth of Massachusetts:
No. of Shares Purchased: 125,960
-------------
MENLO ENTREPRENEURS FUND VII, L.P.
By: MV MANAGEMENT VII, L.L.C.
its General Partner
By: /s/ H. D. Montgomery
----------------------------------
Managing Member
Address: 3000 Sand Hill Road
-----------------------------
Building 4, Suite 100
-----------------------------
Menlo Park, CA 94025
-----------------------------
Date: August 26, 1998
-----------------------------
Accepted:
VIP CALLING, INC.
By:
----------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, C.N. Corfield*, in order to purchase shares of Series
B Convertible Preferred Stock, par value $.001 per share, of VIP Calling, Inc.,
a Delaware corporation (the "Company"), hereby agrees to become a "Purchaser"
party to the Series B Preferred Stock Purchase Agreement among the Company and
the other Purchaser parties thereto dated as of August 26, 1998 (the "Purchase
Agreement"). This Instrument of Adherence shall take effect and shall become a
part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of
the Commonwealth of Massachusetts:
*Charles N. Corfield Trust No. of Shares Purchased: 100,000
U/A/D 12/19/91 ---------------
Signature: /s/ C. N. Corfield (ttee)
------------------------------
Address: 227 High St.
------------------------------
Palo Alto, CA 94301
------------------------------
------------------------------
Date: 25 Aug. 1998
------------------------------
Accepted:
VIP CALLING, INC.
By:
-------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Mark Daniell, in order to purchase shares of Series B
Convertible Preferred Stock, par value $.001 per share, of VIP Calling, Inc., a
Delaware corporation (the "Company"), hereby agrees to become a "Purchaser"
party to the Series B Preferred Stock Purchase Agreement among the Company and
the other Purchaser parties thereto dated as of August 26, 1998 (the "Purchase
Agreement"). This Instrument of Adherence shall take effect and shall become a
part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of
the Commonwealth of Massachusetts:
No. of Shares Purchased: 13,100
--------------
Signature: /s/ Mark Daniell
----------------------------
Address: 15 Goodwood Hill
----------------------------
Singapore 258912
----------------------------
----------------------------
Date: August 21, 1998
----------------------------
Accepted:
VIP CALLING, INC.
By:
-------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, David Horowitz, in order to purchase shares of Series
B Convertible Preferred Stock, par value $.001 per share, of VIP Calling, Inc.,
a Delaware corporation (the "Company"), hereby agrees to become a "Purchaser"
party to the Series B Preferred Stock Purchase Agreement among the Company and
the other Purchaser parties thereto dated as of August 26, 1998 (the "Purchase
Agreement"). This Instrument of Adherence shall take effect and shall become a
part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of
the Commonwealth of Massachusetts:
No. of Shares Purchased: 8,800
------------
Signature: /s/ David Horowitz
--------------------------
Address: 11 Woodsorrel Lane
--------------------------
East Northport, NY 11731
--------------------------
--------------------------
Date: August 25, 1998
--------------------------
Accepted:
VIP CALLING, INC.
By:
---------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Adam Kirsch, in order to purchase shares of Series B
Convertible Preferred Stock, par value $.001 per share, of VIP Calling, Inc., a
Delaware corporation (the "Company"), hereby agrees to become a "Purchaser"
party to the Series B Preferred Stock Purchase Agreement among the Company and
the other Purchaser parties thereto dated as of August 26, 1998 (the "Purchase
Agreement"). This Instrument of Adherence shall take effect and shall become a
part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of
the Commonwealth of Massachusetts:
No. of Shares Purchased: 4,400
------------
Signature: /s/ Adam Kirsch
-------------------------
Address: c/o Bain Capital
-------------------------
2 Copley Place
-------------------------
Boston, MA 02116
-------------------------
-------------------------
Date: 8/25/98
-------------------------
Accepted:
VIP CALLING, INC.
By:
---------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, David Roux, in order to purchase shares of Series B
Convertible Preferred Stock, par value $.001 per share, of VIP Calling, Inc., a
Delaware corporation (the "Company"), hereby agrees to become a "Purchaser"
party to the Series B Preferred Stock Purchase Agreement among the Company and
the other Purchaser parties thereto dated as of August 26, 1998 (the "Purchase
Agreement"). This Instrument of Adherence shall take effect and shall become a
part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of
the Commonwealth of Massachusetts:
No. of Shares Purchased: 19,100
-----------
Signature: /s/ David Roux
---------------------------
Address: 307 Olive Hill Lane
---------------------------
Woodside, CA 94062
---------------------------
---------------------------
Date: 08/31/98
---------------------------
Accepted:
VIP CALLING, INC.
By:
-------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, David C. Schultz, in order to purchase shares of
Series B Convertible Preferred Stock, par value $.001 per share, of VIP Calling,
Inc., a Delaware corporation (the "Company"), hereby agrees to become a
"Purchaser" party to the Series B Preferred Stock Purchase Agreement among the
Company and the other Purchaser parties thereto dated as of August 26, 1998 (the
"Purchase Agreement"). This Instrument of Adherence shall take effect and shall
become a part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of
the Commonwealth of Massachusetts:
No. of Shares Purchased: 26,000
------------
Signature: /s/ David C. Schultz
--------------------------
Address: 43 Salomon Pierce Road
--------------------------
Lexington, MA 02420
--------------------------
--------------------------
Date: 8/25/98
--------------------------
Accepted:
VIP CALLING, INC.
By:
---------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Charles S. Houser, in order to purchase shares of
Series B Convertible Preferred Stock, par value $.001 per share, of VIP Calling,
Inc., a Delaware corporation (the "Company"), hereby agrees to become a
"Purchaser" party to the Series B Preferred Stock Purchase Agreement among the
Company and the other Purchaser parties thereto dated as of August 26, 1998 (the
"Purchase Agreement"). This Instrument of Adherence shall take effect and shall
become a part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of
the Commonwealth of Massachusetts:
No. of Shares Purchased: 62,500 ($100,000)
--------
Signature: /s/ Charles S. Houser
-------------------------------
Address: P.O. Box 2503
-------------------------------
Greenville, SC 29602
-------------------------------
-------------------------------
Date: 8/25/98
-------------------------------
Accepted:
VIP CALLING, INC.
By:
----------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, John M. Sewell, as Trustee of Sewell Revocable Trust
u/a/d 2/15/88, in order to purchase shares of Series B Convertible Preferred
Stock, par value $.001 per share, of VIP Calling, Inc., a Delaware corporation
(the "Company"), hereby agrees to become a "Purchaser" party to the Series B
Preferred Stock Purchase Agreement among the Company and the other Purchaser
parties thereto dated as of August 26, 1998 (the "Purchase Agreement"). This
Instrument of Adherence shall take effect and shall become a part of said
Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of
the Commonwealth of Massachusetts:
No. of Shares Purchased: 22,600
--------------
Signature: /s/ John M. Sewell
---------------------------
Address: 19 Sea Cove Lane
---------------------------
Newport Beach, CA 92660
---------------------------
---------------------------
Date: Aug. 25, 1998
---------------------------
Accepted:
VIP CALLING, INC.
By:
---------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Joshua Bekenstein, in order to purchase shares of
Series B Convertible Preferred Stock, par value $.001 per share, of VIP Calling,
Inc., a Delaware corporation (the "Company"), hereby agrees to become a
"Purchaser" party to the Series B Preferred Stock Purchase Agreement among the
Company and the other Purchaser parties thereto dated as of August 26, 1998 (the
"Purchase Agreement"). This Instrument of Adherence shall take effect and shall
become a part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of
the Commonwealth of Massachusetts:
No. of Shares Purchased: 17,500
---------
Signature: /s/ Joshua Bekenstein
------------------------
Address:
------------------------
------------------------
------------------------
Date: 9/2/98
------------------------
Accepted:
VIP CALLING, INC.
By:
----------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Ofer Gneezy, in order to purchase shares of Series B
Convertible Preferred Stock, par value $.001 per share, of VIP Calling, Inc., a
Delaware corporation (the "Company"), hereby agrees to become a "Purchaser"
party to the Series B Preferred Stock Purchase Agreement among the Company and
the other Purchaser parties thereto dated as of August 26, 1998 (the "Purchase
Agreement"). This Instrument of Adherence shall take effect and shall become a
part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of
the Commonwealth of Massachusetts:
No. of Shares Purchased: 5,000
---------
Signature: /s/ Ofer Gneezy
------------------------
Address: 5 Manchester Road
------------------------
Winchester, MA 01890
------------------------
------------------------
Date: 8/26/98
------------------------
Accepted:
VIP CALLING, INC.
By:
---------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Catherine E. VanderBrug, in order to purchase shares of Series
B Convertible Preferred Stock, par value $.001 per share, of VIP Calling, Inc.,
a Delaware corporation (the "Company"), hereby agrees to become a "Purchaser"
party to the Series B Preferred Stock Purchase Agreement among the Company and
the other Purchaser parties thereto dated as of August 26, 1998 (the "Purchase
Agreement"). This Instrument of Adherence shall take effect and shall become a
part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of
the Commonwealth of Massachusetts:
No. of Shares Purchased: 21,000
-----------
Signature: /s/ Catherine E. Vanderbrug
----------------------------
Address: 23 Woodpark Circle
----------------------------
Lexington, MA 02451
----------------------------
----------------------------
Date: August 26, 1998
----------------------------
Accepted:
VIP CALLING, INC.
By:
---------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Michael J. Hughes, in order to purchase shares of
Series B Convertible Preferred Stock, par value $.001 per share, of VIP Calling,
Inc., a Delaware corporation (the "Company"), hereby agrees to become a
"Purchaser" party to the Series B Preferred Stock Purchase Agreement among the
Company and the other Purchaser parties thereto dated as of August 26, 1998 (the
"Purchase Agreement"). This Instrument of Adherence shall take effect and shall
become a part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of
the Commonwealth of Massachusetts:
No. of Shares Purchased: 12,500
------------
Signature: /s/ M. J. Hughes
--------------------------
Address: 182 Pine Hill Rd.
--------------------------
Boxborough, MA 01719
--------------------------
--------------------------
Date: 8/31/98
--------------------------
Accepted:
VIP CALLING, INC.
By:
-------------------------
<PAGE>
EXHIBIT 10.15
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
This Series C Preferred Stock Purchase Agreement (this "AGREEMENT"),
dated as of July 12, 1999 is entered into by and between VIP Calling, Inc., a
Delaware corporation (the "COMPANY"), and the persons who become party to this
Agreement by executing and delivering to the Company an Instrument of Adherence
(an "INSTRUMENT OF ADHERENCE") in the form attached hereto as EXHIBIT A (the
"PURCHASERS").
WITNESSETH
WHEREAS, the parties hereto desire to provide for the purchase and sale
of up to 5,775,000 shares (the "SHARES") of the Company's Series C Convertible
Preferred Stock, par value $.001 per share (the "SERIES C PREFERRED STOCK"), the
rights, designations and preferences of which are set forth on EXHIBIT B hereto;
and
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto, intending to be legally bound,
agree as follows:
1. PURCHASE AND SALE OF THE SHARES. Subject to and upon the terms and
conditions set forth in this Agreement, the Company agrees to sell and issue to
each Purchaser, and each Purchaser agrees to purchase from the Company, at a
purchase price of $4.37 per share, that number of shares of Series C Preferred
Stock listed above such Purchaser's name on such Purchaser's Instrument of
Adherence, each such purchase and sale to occur at a Closing (as contemplated by
Section 2 hereof).
2. MULTIPLE CLOSINGS, THE CLOSINGS.
2.1 MULTIPLE CLOSINGS. The Company is conducting an offering
of up to 5,775,000 Shares (the "OFFERING"). The Company may, at its discretion,
have two closings (each a "CLOSING," collectively, the "CLOSINGS," and the date
of each thereof, a "CLOSING DATE") of the Offering; the second Closing to occur
on or before July 21, 1999. There is no minimum amount of the Offering required
to be sold in connection with either such Closing.
2.2 THE CLOSINGS. Each Closing of the purchase and sale of the
Shares shall occur the offices of Bingham Dana LLP in Boston, Massachusetts. At
each Closing, the Company shall issue and deliver to each Purchaser
participating therein a stock certificate or certificates evidencing the Shares
being issued and sold to such Purchaser, against delivery by such Purchaser of
the purchase price therefor by certified or bank check payable to the order of
the Company or wire transfer of immediately available funds to such account as
the Company shall indicate prior to such Closing.
3. REPRESENTATIONS OF THE COMPANY. Except as disclosed by the Company
in the Exhibits and Schedules attached hereto, the Company hereby represents and
warrants to the Purchasers as follows:
<PAGE>
3.1 ORGANIZATION AND STANDING. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has all requisite corporate power and authority to conduct its
business as now conducted and to enter into and perform the Series C Agreements
(as defined below) and the transactions contemplated thereby. The Company is
duly qualified to do business in and is in good standing in each state in which
a failure to be so qualified would have a material adverse effect on the
Company's financial condition or its ability to conduct its business in the
manner now conducted. The Company has furnished to the Purchasers true and
complete copies of its Certificate of Incorporation and By-laws, each as amended
to date.
3.2 CAPITALIZATION. The authorized capital stock of the Company
immediately prior to the each of the Closing consists of (i) 30,000,000 shares
of Class A Common Stock, par value $.001 per share (the "CLASS A COMMON STOCK"),
of which 6,060,000 shares are issued and outstanding, (ii) 1,500,000 shares of
Class B Common Stock, par value $.001 per share (the "CLASS B COMMON STOCK"), of
which 1,500,000 shares are issued and outstanding, (iii) 1,256,875 shares of
Series A Preferred Stock, par value $.001 per share (the "SERIES A PREFERRED
STOCK"), of which 1,250,000 shares are issued and outstanding, (iv) 6,875,000
shares of Series B Preferred Stock, par value $.001 per share (the "SERIES B
PREFERRED STOCK"), of which 6,562,500 shares are issued and outstanding, and (v)
5,775,000 shares of Series C Preferred Stock, none of which are issued and
outstanding prior to the first Closing to occur. All of the issued and
outstanding shares of capital stock of the Company have been duly authorized and
validly issued, are fully paid and nonassessable and were issued in compliance
with applicable federal and state securities laws. As of each Closing, the
shares of Series A Preferred Stock and Series B Preferred Stock outstanding or
subject to outstanding options, warrants or rights therefor are convertible into
an aggregate of 3,770,625 and 6,600,000 shares of Class A Common Stock,
respectively. As of each Closing, there are 2,685,000 shares of Class A Common
Stock authorized for issuance pursuant to the Company's 1997 Stock Incentive
Plan. Except as set forth in SCHEDULE 3.2.1 hereto, (a) no subscription,
warrant, option, convertible security or other right (contingent or otherwise)
to purchase or acquire any shares of capital stock of the Company is authorized
or outstanding, (b) there is not any commitment of the Company to issue any
subscription, warrant, option, convertible security or other such right or to
issue or distribute to holders of any shares of its capital stock any evidences
of indebtedness or assets of the Company, and (c) the Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any shares of
its capital stock or any interest therein or to pay any dividend or make any
other distribution in respect hereof. All of the options, warrants and other
rights or subscriptions for equity securities of the Company have been duly and
validly authorized and issued and were issued in compliance with applicable
federal and state securities laws. Except as set forth on SCHEDULE 3.2.2 hereto
or as provided in this Agreement, the Amended Registration Rights Agreement (as
defined in Section 5.6) and the Amended Shareholders Agreement (as defined in
Section 5.5), (A) no person or entity is entitled to (i) any preemptive or
similar right with respect to the issuance or sale of any capital stock of the
Company or (ii) any rights with respect to the registration of any capital stock
of the Company under the Securities Act of 1933, as amended (the "SECURITIES
ACT") and (B) there exists no agreement, written or oral, between the Company
and any shareholders with respect to the voting, acquisition (including, without
<PAGE>
limitation, rights of first refusal or preemptive rights), or disposition of any
capital stock of the Company.
3.3 SUBSIDIARIES. Except as set forth on SCHEDULE 3.3 hereto (each
entity identified thereon as a subsidiary of the Company being hereinafter
referred to as a "SUBSIDIARY"), the Company has no subsidiaries and does not own
or control, directly or indirectly, any interest in any other corporation,
association or business entity. All of the outstanding equity securities of each
of the Company's Subsidiaries have been duly and validly authorized and issued
and are fully paid and nonassessable, and such equity securities as are owned by
the Company are owned directly by the Company, free and clear of any security
interests (perfected or otherwise), claims, liens, or encumbrances. There are no
outstanding options, warrants, equity securities or similar ownership interests,
calls rights (including preemptive rights), commitments or agreements of any
character to which the Company or any of its Subsidiaries is a party or by which
they are bound obligating any Subsidiary to issue, deliver or sell, or cause to
be issued, delivered or sold, any shares of capital stock or similar ownership
interests in such Subsidiary or obligating such Subsidiary to grant any such
option, warrant, equity security, call, right, commitment or agreement.
3.4 STOCKHOLDER LIST. SCHEDULE 3.4 contains a true and complete
list of the stockholders of the Company, showing the number of shares of Common
Stock or other securities of the Company held by each stockholder as of the date
of this Agreement.
3.5 ISSUANCE OF SHARES. The issuance, sale and delivery of the
Shares in accordance with this Agreement and the reservation, issuance, sale and
delivery of the shares issuable upon conversion of the Shares have been duly
authorized by all requisite corporate action on the part of the Company, and the
Shares, when so issued, sold and delivered against payment therefor in
accordance with the provisions of this Agreement, and the shares of Class A
Common Stock issuable upon conversion of the Shares, when issued upon such
conversion in accordance with the Company's Certificate of Incorporation, will
be duly and validly issued, fully paid, non-assessable and, subject to the
accuracy of the Purchasers' representations and warranties herein, issued in
compliance with applicable federal and state securities laws.
3.6 AUTHORITY FOR AGREEMENT. The execution, delivery and
performance by the Company of this Agreement, the Amended Shareholders'
Agreement (as defined in Section 5.5), the Amended Registration Rights Agreement
(as defined in Section 5.6) and the Management Rights Agreements (as defined in
Section 5.8) (collectively, the "SERIES C AGREEMENTS") have been duly authorized
by all requisite corporate action, and each of the Series C Agreements has been
duly executed and delivered by the Company. Each of the Series C Agreements
constitutes the valid and binding obligation of the Company enforceable in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditors' rights
and the application of equitable principles in any action legal or equitable.
The execution and delivery of the Series C Agreements and performance of the
transactions contemplated thereby and compliance with their provisions by the
Company will not violate any provision of law and will not conflict with or
result in any breach of any of the terms, conditions or provisions
<PAGE>
of, or constitute a default under, the Company's Certificate of Incorporation or
By-laws, each as amended to date, or any indenture, lease, agreement or other
instrument to which the Company is a party or by which the Company or any of its
properties is bound, or any decree, judgment, order, statute, rule or regulation
applicable to the Company, except where any such violation, conflict, breach or
default would not have a material adverse effect on the condition (financial or
otherwise), business or properties of the Company.
3.7 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority is required on the part of the Company
in connection with the execution and delivery of the Series C Agreements, the
offer, issue, sale and delivery of the Shares, or the other transactions to be
consummated at each Closing, except (i) the filing by the Company of a Form D
with the Securities and Exchange Commission, which the Company hereby covenants
to file within fifteen (15) days of the close of the offering, (ii) requisite
filings with appropriate state securities authorities, if any, which the Company
hereby covenants to make on a timely basis, and (iii) such filings as shall have
been made prior to and shall be effective on and as of each Closing.
3.8 LITIGATION. There is no action, suit, proceeding or
investigation pending, or, to the best of the Company's knowledge, threatened
against the Company, which might result, either individually or in the
aggregate, in any material adverse change in the assets, condition (financial or
otherwise), business or prospects of the Company or that would limit or impair
the power or authority of the Company to enter into the Series C Agreements and
consummate the transactions contemplated therein.
3.9 ABSENCE OF LIABILITIES. Except as set forth on SCHEDULE 3.9
hereto, the Company does not have, as of the date hereof, any liabilities of any
type which in the aggregate exceeded $50,000, whether absolute or contingent.
3.10 PROPERTY AND ASSETS. The Company has good title to all of its
material properties and assets as set forth on SCHEDULE 3.10 hereto and, except
as set forth on such schedule, none of such properties or assets is subject to
any mortgage, pledge, lien, security interest, lease, charge or encumbrance.
3.11 PATENTS AND TRADEMARKS. SCHEDULE 3.11 hereto lists all the
material patents, patent applications, trademarks, registered service marks,
registered trademark and service mark applications, registered copyrights and
patent and trademark licenses now owned or held by the Company (the
"INTELLECTUAL PROPERTY"). The Intellectual Property includes all intellectual
property necessary for the conduct of the Company's business. To the best of the
Company's knowledge, the business as currently conducted or as proposed to be
conducted by the Company will not cause the Company to infringe or violate any
of the patents, trademarks, service marks, trade names, copyrights, licenses,
trade secrets or other proprietary rights of any other person or entity. The
Company is not aware that any employee is obligated under any contract
(including any license, covenant or commitment of any nature), or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of such employee's best efforts to promote the interest
of the Company or would conflict with the Company's business as proposed to be
conducted. There is no claim, suit, action or proceeding pending, or to the
<PAGE>
Company's knowledge of threatened, against the Company asserting that the
Company's use of any of its intellectual property infringes the rights of any
other entity.
3.12 INSURANCE. The Company maintains valid policies of workers'
compensation insurance and of insurance with respect to its properties and
business of the kinds and in the amounts not less than is customarily obtained
by corporations of established reputation engaged in the same or similar
business and similarly situated, including, without limitation, insurance
against loss, damage, fire, theft, public liability and other risks.
3.13 MATERIAL CONTRACTS AND OBLIGATIONS. Except as set forth on
SCHEDULE 3.13 hereto, there are no (i) agreements which require future
expenditures by the Company in excess of $50,000, (ii) leases or rental
agreements for real property or office space, (iii) employment or consulting
agreements, employee benefit, bonus, pension, profit-sharing, stock option,
stock purchase or similar plans or arrangements, or (iv) material agreements
between the Company and any stockholder, officer or director of the Company, or
any "affiliate", or "associate" of such persons (as such terms are defined in
the rules and regulations promulgated under the Securities Act). The Company has
delivered to the Purchaser true and complete copies of the foregoing agreements.
All of such agreements and contracts are valid, binding and in full force and
effect.
3.14 ERISA. The Company maintains no employee benefit plans, as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974.
3.15 COMPLIANCE. The Company has, in all material respects,
complied with all laws, regulations and orders applicable to its present and
proposed business and has obtained all material permits and licenses required
thereby, except where the failure to obtain such permits or licenses would not
have a material adverse effect. There is no term or provision of any material
mortgage, indenture, contract, agreement or instrument to which the Company is a
party or by which it is bound or, to the knowledge of the Company, of any
provision of any state or Federal judgment, decree, order, statute, rule or
regulation applicable to or binding upon the Company, which, in the absence of a
material breach or violation of any such provision, law or judgment, decree or
regulation, materially adversely affects the business, prospects, or operations
of the Company or its properties or assets and the Company is not in material
breach of any of the foregoing. To the best of the Company's knowledge, none of
the employees of the Company is in violation of any term of any employment
contract, patent or other proprietary information disclosure agreement or any
other contract or agreement relating to the employment of such employee by the
Company.
3.16 EMPLOYEES. Except as set forth on SCHEDULE 3.16 hereto, each
employee of the Company whose activities require access to confidential or
proprietary information of the Company has executed and delivered to the Company
a Proprietary Information and Inventions Agreement substantially in the form of
EXHIBIT C hereto, and each such agreement is in full force and effect. None of
the employees of the Company is represented by any labor union, and there is no
labor strike or other labor trouble pending with respect to the Company or, to
the best knowledge of the Company, threatened.
<PAGE>
3.17 BROKERS OR FINDERS. The Company has not entered into any
arrangement that would cause any person to have any right, interest or valid
claim against or upon the Company for any commission, fee or other compensation
as a finder or broker as a result of the consummation of the transactions
contemplated by this Agreement. The Company agrees to indemnify and to hold
harmless the Purchasers from any liability for any commission or compensation in
the nature of a finder's or broker's fee (and any asserted liability) for which
the Company or any of its officers, partners, employees or representatives is
responsible.
3.18 DISCLOSURES. Neither this Agreement nor any Exhibit hereto,
nor any agreement or document delivered by the Company to the Purchasers or
their counsel in connection with the transactions contemplated by this Agreement
contains or will contain any material misstatement of fact or omits or will omit
to state a material fact necessary to make the statements continued herein or
therein not misleading. Anything disclosed in any Schedules or Exhibits hereto
shall be deemed disclosed in all other Schedules or Exhibits hereto.
3.19 MINUTE BOOKS AND STOCK LEDGER. The minute books of the
Company contain materially complete and accurate records of all meetings and
other corporate action of the stockholders, Board of Directors, and committees
thereof. The stock ledger of the Company is complete and accurate and reflects
all issuances, transfers, repurchases, and cancellations of shares of the
Company's capital stock.
3.20. FINANCIAL STATEMENTS. The audited financial statements of
the Company at and for the year ended December 31, 1998, and the unaudited
financial statements of the Company at and for the five month period ending May
31, 1999 (collectively, the "COMPANY FINANCIAL STATEMENTS"), which are attached
as SCHEDULE 3.20 hereto, are true, correct and complete in all material respects
and present fairly, in conformity with generally accepted accounting principles
consistently applied (except, that the unaudited financial statements do not
contain all of the required footnotes and are subject to normal, recurring
non-material year-end adjustments) the financial position of the Company at the
dates indicated and the results of its operations for each of the periods
indicated, except as otherwise set forth in the notes thereto. Except as set
forth in the Company Financial Statements, the Company has no material
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business subsequent to May 31, 1999 and (ii) obligations
under contracts and commitments incurred in the ordinary course of business and
not required under generally accepted accounting principles to be reflected in
the Company Financial Statements, which, in both cases, individually or in the
aggregate, are not material to the financial condition or operating results of
the Company. Except as disclosed in the Company Financial Statements, the
Company is not a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation. The books and records of the Company have been
kept, and will be kept to the date of each Closing, in reasonable detail, and
will fairly and accurately reflect in all material respects to the date of the
Closing, the transactions of the Company.
3.21 ABSENCE OF CERTAIN CHANGES. Since May 31, 1999 and except as
disclosed elsewhere in this Agreement, there has not been:
<PAGE>
(a) any change in the assets, liabilities, financial condition
or operating results of the Company from that reflected in the Company Financial
Statements, except changes in the ordinary course of business that have not
been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties, financial
condition, operating results, prospects or business of the Company (as such
business is presently conducted and as it is proposed to be conducted);
(c) any waiver by the Company of a valuable right or of a
material debt owed to it;
(d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the assets, properties, financial
condition, operating results or business of the Company (as such business is
presently conducted and as it is proposed to be conducted);
(e) any material change or amendment to a material contract or
arrangement by which the Company or any of it assets or properties is bound or
subject;
(f) any material change in any compensation arrangement or
agreement with any employee;
(g) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any key
officer of the Company; and the Company, to the best of its knowledge, does not
know of the impending resignation or termination of employment of any such
officer;
(i) receipt of notice that there has been a loss of, or
material order cancellation by, any major customer of the Company;
(j) any mortgage, pledge, transfer of a security interest in,
or lien, created by the Company, with respect to any of its material properties
or assets, except liens for taxes not yet due or payable;
(k) any loans or guarantees made by the Company to or for the
benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
(l) any declaration, setting aside or payment or other
distribution in respect of any of the Company's capital stock, or any direct or
indirect redemption, purchase or other acquisition of any of such stock by the
Company;
<PAGE>
(m) to the best of the Company's knowledge, any other event or
condition of any character that might materially and adversely affect the
assets, properties, financial condition, operating results of business of the
Company (as such business is presently conducted and as it is proposed to be
conducted); or
(n) any agreement of commitment by the Company to do any of
the things described in this Section 3.21.
3.22 TAX RETURNS. The Company has filed in correct form all tax
returns and estimates (federal, state and local) required to be filed by it,
and has paid all taxes shown to be due and payable on the returns or on any
assessment received by the Company as well as all other taxes (federal, state
and local) due and payable by it on or before the date hereof, other than
state and local realty taxes which are payable but which are not yet due.
Neither the Internal Revenue Service nor any state, local or foreign tax
authority has not conducted an examination of any income tax returns of the
Company. The amount shown on the Company Financial Statements as provision
for taxes, if any, is sufficient in all material respects for payment of all
accrued and unpaid federal, state, county, local, and foreign taxes for the
period then ended and all prior periods.
3.23 ENVIRONMENTAL MATTERS. The Company, to the best of its
knowledge, is in compliance with all local, state and federal environmental
statutes, laws, rules, regulations and permits, including but not limited to
CERCLA. Except for acrylamide acrylic acid, caustic soda, methylene
bisacrylamide used in manufacturing and common chemicals used by the in cleaning
and materials processing, the Company has not, nor to the Company's knowledge
have other parties, used, stored, disposed of or permitted any "hazardous
substance" (as defined in CERCLA), petroleum hydrocarbon, polychlorinated
biphenyl, asbestos or radioactive material (collectively, "HAZARDOUS
SUBSTANCES") to remain at, on, in or under any of the property covered by any of
the real property leases to which the Company is a party. The Company has not
installed, used, or disposed of any asbestos or asbestos-containing material on,
in or under any of the property covered by any of the real property leases to
which it is a party.
3.24 QUALIFIED SMALL BUSINESS. The Company qualifies as a
"qualified small business" under Section 1202(d) of the Internal Revenue Code of
1986, as amended (the "CODE").
3.25 YEAR 2000 COMPLIANCE. All of the Company's products, and, to
the Company's knowledge after reasonable investigation, all of the Company's
material information technology ("IT") systems and material non-IT embedded
systems (including products, systems or technology currently under development)
will record, store, process, calculate and present calendar dates falling on and
after (and, if applicable, during spans of time including) September 9, 1999 and
January 1, 2000, and will calculate any information dependent on or relating to
such dates in the same manner, and with the same functionality, data integrity
and performance, as the products, IT systems and non-IT embedded systems record,
store, process, calculate and present, calendar dates on or before September 8,
1999 and December 31, 1999, or calculate any information dependent on or
relating to such dates.
<PAGE>
3.26 RELATED-PARTY TRANSACTIONS. No employee, officer or director
of the Company or member of such person's immediate family is indebted to the
Company, nor is the Company indebted (or committed to make loans or extend or
guarantee credit) to any of them. None of such persons has any direct or
indirect ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation that competes with the Company, except employees, officers or
directors of the Company and members of their immediate families may own less
than 5% of the outstanding stock in a publicly traded company that may compete
with the Company. No member of the immediate family of any officer or director
of the Company is directly or indirectly interested in any material contract
with the Company.
3.27 REAL PROPERTY HOLDING CORPORATION. The Company is not a
United States real property holding corporation within the meaning of Section
897(c)(2) of the Code and any regulation promulgated thereunder.
4. REPRESENTATIONS OF EACH PURCHASER. Each Purchaser, as to itself,
represents and warrants to the Company as follows:
4.1 AUTHORITY. It has full power and authority to enter into and to
perform this Agreement, the Amended Shareholders Agreement and the Amended
Registration Rights Agreement in accordance with their terms. If not a natural
person, it is duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization.
4.2 INVESTMENT PURPOSE. The Purchaser is acquiring Shares for its
own account for the purpose of investment and not with a view to distribution or
resale thereof.
4.3 NO REGISTRATION. The Purchaser understands and agrees that the
Shares have not been registered under the Securities Act of 1933, as amended
(the "SECURITIES ACT"), and therefore, cannot be offered, sold or transferred
unless they are registered under the Securities Act or an exemption from such
registration is available.
4.4 DEVELOPMENT-STAGE COMPANY. The Purchaser acknowledges and
understands that the Company commenced operations in 1997.
4.5 REQUISITE KNOWLEDGE. The Purchaser represents that it has such
knowledge and experience in business and financial matters with respect to
investments in securities of privately-held, development-stage companies so as
to enable it to understand and evaluate the risks of the Purchaser's investment
in the Shares and to form an investment decision with respect thereto.
4.6 SUFFICIENCY OF INFORMATION. The Purchaser has been afforded the
opportunity during the course of negotiating the transactions contemplated by
this Agreement to ask questions of, and to secure such information from, the
Company and its officers and directors as
<PAGE>
it deems necessary to evaluate the merits of entering into such transactions,
and all information requested has been given and all questions asked were
answered.
4.7 ADEQUATE NET WORTH. The Purchaser represents that it has
adequate net worth and means of providing for its current needs and personal
contingencies to sustain a complete loss of its investment in the Shares. In
particular, the Purchaser confirms that the amount of its investment in the
Shares does not exceed 25% of its net worth (including, if the Purchaser is a
natural person, the net worth of his or her spouse).
4.8 ACCREDITED INVESTOR. The Purchaser hereby represents and
warrants that the Purchaser is an "accredited investor" within the meaning of
Rule 501 under the Securities Act, and acknowledges and understands that the
Company is relying upon such representation and warranty to establish that an
exemption from registration of the Shares under the Securities Act is available.
5. CONDITIONS TO THE OBLIGATIONS OF EACH PURCHASER. The obligation of
each Purchaser to purchase Shares at each Closing is subject to the fulfillment,
or the waiver by such Purchaser, of each of the following conditions on or
before each Closing Date:
5.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties contained in Section 3 of this Agreement (except for such
representations and warranties as are limited by their terms to an earlier
specified date (which shall be true as of such date)) shall be true and correct
in all respects on and as of each Closing Date with the same effect (including,
without limitation, any qualifications therein with respect to materiality) as
though such representations and warranties had been made on and as of that date.
5.2 PERFORMANCE. The Company shall have performed and complied in
all material respects with all agreements and conditions contained in this
Agreement required to be performed or complied with by the Company prior to or
at each such Closing.
5.3 OPINION OF COUNSEL. The Purchaser shall have received an
opinion, substantially in the form of EXHIBIT D hereto, from Bingham Dana LLP,
counsel to the Company, dated as of the date hereof, addressed to the
Purchasers.
5.4 CERTIFICATES AND DOCUMENTS. The Company shall have delivered to
the Purchasers:
(i) A copy of the Certificate of Incorporation of the Company,
as amended and in effect as of the date hereof, certified by the Secretary or
Assistant Secretary of the Company;
(ii) A copy of the By-laws of the Company as amended and in
effect as of the date hereof, certified by the Secretary or Assistant Secretary
of the Company as of the date hereof;
<PAGE>
(iii) A copy of resolutions of the Board of Directors
authorizing and approving all requisite matters in connection with this
Agreement and the transactions contemplated hereby, certified by the Secretary
or Assistant Secretary of the Company as of the date hereof;
(iv) A certificate, as of a date reasonably proximate to the
date hereof, as to the corporate good standing of the Company issued by the
Secretary of State of the State of Delaware;
(v) A certificate, as of the Closing Date, stating that the
conditions specified in Sections 5.1 and 5.2 have been fulfilled.
5.5 SHAREHOLDERS' AGREEMENT. The Second Amended and Restated
Shareholders' Agreement, substantially in the form of EXHIBIT E hereto (the
"AMENDED SHAREHOLDERS' AGREEMENT") shall have been executed and delivered by the
Company and the holders of at least sixty percent (60%) of (i) the aggregate
issued and outstanding shares of the Class A Common Stock and the Class B Common
Stock and (ii) the issued and outstanding shares of the Series A Preferred Stock
and Series B Preferred Stock.
5.6 REGISTRATION RIGHTS AGREEMENT. The First Amended and Restated
Registration Rights Agreement, substantially in the form of EXHIBIT F hereto
(the "AMENDED REGISTRATION RIGHTS AGREEMENT") shall have been executed and
delivered by the Company and the holders of at least a majority of the
Registrable Shares (as defined in such Amended Registration Rights Agreement)
outstanding immediately prior to the issuance of any of the Shares.
5.7 AMENDMENT TO CERTIFICATE OF INCORPORATION. The Amendment to the
Certificate of Incorporation in the form of EXHIBIT B shall have been executed
by the Company and filed with the Secretary of State's office in Delaware.
5.8 MANAGEMENT RIGHTS AGREEMENTS. The Company shall have executed
and delivered to TCV III (Q), L.P., a Delaware limited partnership, and Integral
Capital Partners IV, L.P., a Delaware limited partnership, a Management Rights
Agreement in the form attached hereto as EXHIBIT G (together, the "MANAGEMENT
RIGHTS AGREEMENTS").
5.9 EMPLOYEE AGREEMENTS. Each employee of the Company shall have
executed and delivered to the Company a Proprietary Information and Inventions
Agreement substantially in the form of EXHIBIT C hereto.
6. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligation of the
Company to sell Shares to a Purchaser at each Closing is subject to the
fulfillment, or waiver by the Company, of each of the following conditions on or
before the Closing Date:
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the Purchaser contained in Section 4 shall be true and correct
in all material
<PAGE>
respects on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of that date.
6.2 ANCILLARY AGREEMENTS. The Purchaser shall become or shall have
become a party to the Amended Shareholders' Agreement and the Amended
Registration Rights Agreement.
6.3 BLUE SKY APPROVALS. The Company and the Purchaser shall have
received all requisite approvals and made any requisite filings with state Blue
Sky authorities and any such approvals shall be in full force and effect on the
Closing Date (other than filings required to be made after the Closing Date).
7. LEGEND. Each Purchaser understands that the certificate or
certificates evidencing Shares purchased by such Purchaser shall bear the
following legends:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF (i) AN
EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES UNDER
THE SECURITIES ACT OR (ii) RECEIPT BY THE ISSUER OF AN OPINION OF
COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE, PLEDGE,
HYPOTHECATION OF OTHER TRANSFER MAY BE MADE PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT.
THE CORPORATION IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OF STOCK.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHICH
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.
Each Purchaser further understands that the Company may place a
stop-transfer order on any of the Shares with the Company's transfer agent.
8. MISCELLANEOUS.
8.1 NOTICES. All notices, requests, consents, and other
communications hereunder shall be in writing and shall be deemed effectively
given and received upon delivery in person, or one business day after delivery
by national overnight courier service or by telecopier transmission with
acknowledgment of transmission receipt, or three business days after deposit via
certified or registered mail, return receipt requested, in each case addressed
as follows:
<PAGE>
(a) if to the Company, to:
VIP Calling, Inc.
20 Second Avenue
Burlington, MA 01803
Fax: 781-505-7300
Attention: Ofer Gneezy, President
with a copy to:
Bingham Dana LLP
150 Federal Street
Boston, MA 02110
Fax: 617-951-8736
Attention: David L. Engel, Esq.
(b) if to a Purchaser, to the address or addresses of such
Purchaser set forth on the Instrument of Adherence executed and delivered to the
Company by such Purchaser; with a copy to:
Wilson, Sonsini, Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94302-1050
Fax: 650-493-6811
Attention: Francis S. Currie, Esq.
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the other.
8.2 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Massachusetts applicable to
contracts made and to be performed entirely within the state without regard to
principles of conflicts of law.
8.3 ENTIRE AGREEMENT. This Agreement, including the Schedules and
Exhibits hereto, constitutes the sole and entire agreement of the parties with
respect to the subject matter hereof and thereof. All Schedules and Exhibits
hereto are hereby incorporated herein by reference.
8.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
8.5 NO WAIVERS; AMENDMENTS.
(a) No failure or delay on the part of any party in
exercising any right, power, or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power, or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to any party at law
or in equity or otherwise.
(b) Any provision of this Agreement may be amended or
waived if, but only if, such amendment or waiver is in writing and is signed by
the Company and Purchasers who, at any given time, hold at least a majority of
the then outstanding shares of Series C Preferred Stock.
8.6 SEVERABILITY. If any provision of this Agreement shall be
declared void or unenforceable by a judicial or administrative authority, the
validity of any other provision and of the entire Agreement shall not be
affected thereby.
8.7 GENDER. All pronouns and all variations thereof shall be deemed
to refer to the masculine, feminine, or neuter, singular or plural, as the
identity of the person or persons, thing or entity may require.
8.8 HEADINGS. The section headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
8.9 EXPENSES. The Company shall be responsible for its own legal
costs incurred in connection with the preparation, review and negotiation of the
transactions contemplated by this Agreement and shall pay the legal costs of
Wilson Sonsini Goodrich and Rosati, P.C., counsel to the Purchasers, up to an
aggregate of $20,000.
8.10 SURVIVABILITY. Notwithstanding any investigation conducted at
any time with regards thereto by or on behalf of any Purchaser, all
representations and warranties of the parties hereto, with the exception of the
representations of the Company contained in Sections 3.2, 3.6 and 3.22, shall
survive each Closing and shall remain in full force and effect through and until
March 31, 2001.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
<PAGE>
IN WITNESS WHEREOF, the undersigned sets its hand under seal as of
the day and year first above written.
COMPANY:
VIP CALLING, INC.
By: /s/ Ofer Gneezy
---------------------
Ofer Gneezy
President
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, New Media Investors III, L.L.C., in order to purchase
shares of Series C Convertible Preferred Stock, par value $.001 per share, of
VIP Calling, Inc., a Delaware corporation (the "Company"), hereby agrees to
become a "Purchaser" party to the Series C Preferred Stock Purchase Agreement
among the Company and the other Purchaser parties thereto dated as of July 12,
1999 (the "Purchase Agreement"). This Instrument of Adherence shall take effect
and shall become a part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 517,784
-----------
Signature: /s/ Gary Wilkinson
-------------------------
Managing Member
Address: c/o Bain & Company, Inc.
-------------------------
Two Copley Place
-------------------------
Boston, MA 02116
-------------------------
Fax No.: 617-572-3266
-------------------------
Date: June 29, 1999
-------------------------
Accepted:
VIP CALLING, INC.
By:
-----------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Catherine E. VanderBrug, in order to purchase shares of
Series C Convertible Preferred Stock, par value $.001 per share, of VIP Calling,
Inc., a Delaware corporation (the "Company"), hereby agrees to become a
"Purchaser" party to the Series C Preferred Stock Purchase Agreement among the
Company and the other Purchaser parties thereto dated as of July 12, 1999 (the
"Purchase Agreement"). This Instrument of Adherence shall take effect and shall
become a part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 16,865
----------
Signature: /s/ Catherine E. Vanderbrug
---------------------------
Address: 23 Woodpark Circle
---------------------------
Lexington, MA 02451
---------------------------
---------------------------
Fax No.:
---------------------------
Date: July 12, 1999
---------------------------
Accepted:
VIP CALLING, INC.
By:
--------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Barry N. Hurwitz, in order to purchase shares of Series C
Convertible Preferred Stock, par value $.001 per share, of VIP Calling, Inc., a
Delaware corporation (the "Company"), hereby agrees to become a "Purchaser"
party to the Series C Preferred Stock Purchase Agreement among the Company and
the other Purchaser parties thereto dated as of July 12, 1999 (the "Purchase
Agreement"). This Instrument of Adherence shall take effect and shall become a
part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 1,144
------------
Signature: /s/ Barry N. Hurwitz
---------------------------
Address: 315 Central St.
---------------------------
Newton, MA 02466
---------------------------
---------------------------
Fax No.: 617-951-8736
---------------------------
Date:
---------------------------
Accepted:
VIP CALLING, INC.
By:
----------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Integral Capital Partners IV, L.P., in order to purchase
shares of Series C Convertible Preferred Stock, par value $.001 per share, of
VIP Calling, Inc., a Delaware corporation (the "Company"), hereby agrees to
become a "Purchaser" party to the Series C Preferred Stock Purchase Agreement
among the Company and the other Purchaser parties thereto dated as of July ___,
1999 (the "Purchase Agreement"). This Instrument of Adherence shall take effect
and shall become a part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 1,137,761
---------
INTEGRAL CAPITAL PARTNERS IV, L.P.
By Integral Capital Management IV, LLC,
Its General Partner
By: /s/ Pamela Hagenah
---------------------------
A Manager
Address: 2750 Sand Hill Road
Menlo Park, CA 94025
Fax No.: 650-233-0366
Date: July 12, 1999
--------------------
Accepted:
VIP CALLING, INC.
By:_________________________________
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Integral Capital Partners IV MS Side Fund, L.P., in order
to purchase shares of Series C Convertible Preferred Stock, par value $.001 per
share, of VIP Calling, Inc., a Delaware corporation (the "Company"), hereby
agrees to become a "Purchaser" party to the Series C Preferred Stock Purchase
Agreement among the Company and the other Purchaser parties thereto dated as of
July ___, 1999 (the "Purchase Agreement"). This Instrument of Adherence shall
take effect and shall become a part of said Purchase Agreement immediately upon
execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 6,404
--------------------
INTEGRAL CAPITAL PARTNERS IV MS SIDE
FUND, L.P.
By Integral Capital Partners NBT, LLC,
Its Manager
By: /s/ Pamela Hagenha
--------------------------------
A Manager
Address: 2750 Sand Hill Road
Menlo Park, CA 94025
Fax No.: 650-233-0366
Date: July 12, 1999
-------------
Accepted:
VIP CALLING, INC.
By:_______________________________
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Michael J. Hughes, in order to purchase shares of Series C
Convertible Preferred Stock, par value $.001 per share, of VIP Calling, Inc., a
Delaware corporation (the "Company"), hereby agrees to become a "Purchaser"
party to the Series C Preferred Stock Purchase Agreement among the Company and
the other Purchaser parties thereto dated as of July 12, 1999 (the "Purchase
Agreement"). This Instrument of Adherence shall take effect and shall become a
part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 4,577
-----------
Signature: /s/ M.J. Hughes
--------------------
Address: 182 Pine Hill Rd.
--------------------
Boxboro, MA 01719
--------------------
--------------------
Fax No.: (781) 505-7325
--------------------
Date: July 12, 1999
--------------------
Accepted:
VIP CALLING, INC.
By:
-------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Charles N. Corfield Trust u/a/d 12/19/91, in order to
purchase shares of Series C Convertible Preferred Stock, par value $.001 per
share, of VIP Calling, Inc., a Delaware corporation (the "Company"), hereby
agrees to become a "Purchaser" party to the Series C Preferred Stock Purchase
Agreement among the Company and the other Purchaser parties thereto dated as of
July 12, 1999 (the "Purchase Agreement"). This Instrument of Adherence shall
take effect and shall become a part of said Purchase Agreement immediately upon
execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 114,416
----------
Signature: /s/ C.N. Corfield (ttee)
-------------------------
Address: 227 High St.
-------------------------
Palo Alto, CA 94301
-------------------------
-------------------------
Fax No.: (650) 329-9122
-------------------------
Date: 12 July 1999
-------------------------
Accepted:
VIP CALLING, INC.
By:
---------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Richard Frawley, in order to purchase shares of Series C
Convertible Preferred Stock, par value $.001 per share, of VIP Calling, Inc., a
Delaware corporation (the "Company"), hereby agrees to become a "Purchaser"
party to the Series C Preferred Stock Purchase Agreement among the Company and
the other Purchaser parties thereto dated as of July 12, 1999 (the "Purchase
Agreement"). This Instrument of Adherence shall take effect and shall become a
part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 9,153
----------
Signature: /s/ Richard Frawley
------------------------
Address: 7 Mavis Ave.
------------------------
Peakhurst
------------------------
NSW, Australia 2210
------------------------
Fax No.: 61-2-9-534-7002
------------------------
Date: 6th July 1999
------------------------
Accepted:
VIP CALLING, INC.
By:
--------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Elizabeth T. Pawel, in order to purchase shares of Series
C Convertible Preferred Stock, par value $.001 per share, of VIP Calling, Inc.,
a Delaware corporation (the "Company"), hereby agrees to become a "Purchaser"
party to the Series C Preferred Stock Purchase Agreement among the Company and
the other Purchaser parties thereto dated as of July 12, 1999 (the "Purchase
Agreement"). This Instrument of Adherence shall take effect and shall become a
part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 1,144
----------
Signature: /s/ Elizabeth T. Pawel
-------------------------
Address: 21 Kenneth Ct.
-------------------------
Summit, NJ 07901
-------------------------
(work) 230 Park Ave., 20th Floor
-------------------------
NY, NY 10169
-------------------------
Fax No.: (W) 212-207-1519
-------------------------
Date: June 29, 1999
-------------------------
Accepted:
VIP CALLING, INC.
By:
----------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Daniel H. Case III, in order to purchase shares of Series
C Convertible Preferred Stock, par value $.001 per share, of VIP Calling, Inc.,
a Delaware corporation (the "Company"), hereby agrees to become a "Purchaser"
party to the Series C Preferred Stock Purchase Agreement among the Company and
the other Purchaser parties thereto dated as of July 12, 1999 (the "Purchase
Agreement"). This Instrument of Adherence shall take effect and shall become a
part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 1,144
---------
Signature: /s/ Daniel H. Case III
---------------------------
Address: c/o Hambrecht & Quist
---------------------------
One Bush Street, 18Th Floor
---------------------------
San Francisco, CA 94104
---------------------------
Fax No.: 415-439-3263
---------------------------
Date: July 12, 1999
---------------------------
Accepted:
VIP CALLING, INC.
By:
------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Eric C. Zimits, in order to purchase shares of Series C
Convertible Preferred Stock, par value $.001 per share, of VIP Calling, Inc., a
Delaware corporation (the "Company"), hereby agrees to become a "Purchaser"
party to the Series C Preferred Stock Purchase Agreement among the Company and
the other Purchaser parties thereto dated as of July 12, 1999 (the "Purchase
Agreement"). This Instrument of Adherence shall take effect and shall become a
part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 1,144
----------
Signature: /s/ Eric C. Zimits
------------------------
Address: 1440 Lake St.
------------------------
San Francisco, CA 94118
------------------------
------------------------
Fax No.: 415 39-3445
------------------------
Date: 6/29/99
------------------------
Accepted:
VIP CALLING, INC.
By:
--------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Timothy W. Baughman, in order to purchase shares of Series
C Convertible Preferred Stock, par value $.001 per share, of VIP Calling, Inc.,
a Delaware corporation (the "Company"), hereby agrees to become a "Purchaser"
party to the Series C Preferred Stock Purchase Agreement among the Company and
the other Purchaser parties thereto dated as of July 12, 1999 (the "Purchase
Agreement"). This Instrument of Adherence shall take effect and shall become a
part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 1,414
---------
Signature: /s/ Timothy W. Baughman
-----------------------
Address: 35 Crest Road
-----------------------
Ross, CA 94957
-----------------------
-----------------------
Fax No.: 415-439-3131
-----------------------
Date: 6/29/99
-----------------------
Accepted:
VIP CALLING, INC.
By:
---------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Hambrecht & Quist Employee Venture Fund, L.P. II, in order
to purchase shares of Series C Convertible Preferred Stock, par value $.001 per
share, of VIP Calling, Inc., a Delaware corporation (the "Company"), hereby
agrees to become a "Purchaser" party to the Series C Preferred Stock Purchase
Agreement among the Company and the other Purchaser parties thereto dated as of
July 12, 1999 (the "Purchase Agreement"). This Instrument of Adherence shall
take effect and shall become a part of said Purchase Agreement immediately upon
execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 9,153
-----------
HAMBRECHT & QUIST EMPLOYEE VENTURE
FUND, L.P. II.
By: H&Q VENTURE MANAGEMENT, L. L. C.
Its: General Partner
By: /s/ Robert N. Savoie
------------------------------
Its: Tax Director, Attorney-in-Fact
Address: One Bush St.
------------------------------
SF, CA 94104
------------------------------
------------------------------
Fax No.: 1 (415) 439-3807
------------------------------
Date: 6/29/99
------------------------------
Accepted:
VIP CALLING, INC.
By:
----------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Hambrecht & Quist California, in order to purchase shares
of Series C Convertible Preferred Stock, par value $.001 per share, of VIP
Calling, Inc., a Delaware corporation (the "Company"), hereby agrees to become a
"Purchaser" party to the Series C Preferred Stock Purchase Agreement among the
Company and the other Purchaser parties thereto dated as of July 12, 1999 (the
"Purchase Agreement"). This Instrument of Adherence shall take effect and shall
become a part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 9,153
---------
Hambrecht & Quist California
Signature: /s/ Robert N. Savoie
------------------------------
Tax Director, Attorney-in-Fact
Address: One Bush St.
------------------------------
SF, CA 94104
------------------------------
------------------------------
Fax No.: 1 (415) 439-3807
------------------------------
Date: 6/29/99
------------------------------
Accepted:
VIP CALLING, INC.
By:
----------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, TCV III Strategic Partners, L.P., a Delaware Limited
Partnership, in order to purchase shares of Series C Convertible Preferred
Stock, par value $.001 per share, of VIP Calling, Inc., a Delaware corporation
(the "Company"), hereby agrees to become a "Purchaser" party to the Series C
Preferred Stock Purchase Agreement among the Company and the other Purchaser
parties thereto dated as of July ___, 1999 (the "Purchase Agreement"). This
Instrument of Adherence shall take effect and shall become a part of said
Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 85,498
----------
TCV III (GP),
a Delaware General Partnership
By: Technology Crossover Management III,
L.L.C., Its General Partner
By: /s/ R Bensky
---------------------------
Robert C. Bensky
Chief Financial Officer
Address: Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
Attention: Robert C. Bensky
Phone: (973) 467-5320
Fax: (973) 467-5323
with a copy to: Technology Crossover Ventures
575 High Street, Suite 400
Palo Alto, CA 94301
Attention: Richard H. Kimball
Phone: (650) 614-8220
Fax: (650) 614-8222
Date:
-------------------------
Accepted:
VIP CALLING, INC.
By:
---------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, TCV III (Q), L.P., a Delaware Limited Partnership, in
order to purchase shares of Series C Convertible Preferred Stock, par value
$.001 per share, of VIP Calling, Inc., a Delaware corporation (the "Company"),
hereby agrees to become a "Purchaser" party to the Series C Preferred Stock
Purchase Agreement among the Company and the other Purchaser parties thereto
dated as of July 12_, 1999 (the "Purchase Agreement"). This Instrument of
Adherence shall take effect and shall become a part of said Purchase Agreement
immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 1,888,010
------------
TCV III (GP),
a Delaware General Partnership
By: Technology Crossover Management III,
L.L.C., Its General Partner
By: /s/ R Bensky
---------------------------
Robert C. Bensky
Chief Financial Officer
Address: Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
Attention: Robert C. Bensky
Phone: (973) 467-5320
Fax: (973) 467-5323
with a copy to: Technology Crossover Ventures
575 High Street, Suite 400
Palo Alto, CA 94301
Attention: Richard H. Kimball
Phone: (650) 614-8220
Fax: (650) 614-8222
Date:
-------------------------
Accepted:
VIP CALLING, INC.
By:
---------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, TCV III, L.P., a Delaware Limited Partnership, in order to
purchase shares of Series C Convertible Preferred Stock, par value $.001 per
share, of VIP Calling, Inc., a Delaware corporation (the "Company"), hereby
agrees to become a "Purchaser" party to the Series C Preferred Stock Purchase
Agreement among the Company and the other Purchaser parties thereto dated as of
July 12_, 1999 (the "Purchase Agreement"). This Instrument of Adherence shall
take effect and shall become a part of said Purchase Agreement immediately upon
execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 71,034
---------
TCV III (GP),
a Delaware General Partnership
By: Technology Crossover Management III,
L.L.C., Its General Partner
By: /s/ R Bensky
---------------------------
Robert C. Bensky
Chief Financial Officer
Address: Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
Attention: Robert C. Bensky
Phone: (973) 467-5320
Fax: (973) 467-5323
with a copy to: Technology Crossover Ventures
575 High Street, Suite 400
Palo Alto, CA 94301
Attention: Richard H. Kimball
Phone: (650) 614-8220
Fax: (650) 614-8222
Date:
-------------------------
Accepted:
VIP CALLING, INC.
By:
---------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, TCV III (GP), a Delaware General Partnership, in order to
purchase shares of Series C Convertible Preferred Stock, par value $.001 per
share, of VIP Calling, Inc., a Delaware corporation (the "Company"), hereby
agrees to become a "Purchaser" party to the Series C Preferred Stock Purchase
Agreement among the Company and the other Purchaser parties thereto dated as of
July 12_, 1999 (the "Purchase Agreement"). This Instrument of Adherence shall
take effect and shall become a part of said Purchase Agreement immediately upon
execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 14,955
---------
TCV III (GP),
a Delaware General Partnership
By: Technology Crossover Management III,
L.L.C., Its General Partner
By: /s/ R Bensky
---------------------------
Robert C. Bensky
Chief Financial Officer
Address: Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
Attention: Robert C. Bensky
Phone: (973) 467-5320
Fax: (973) 467-5323
with a copy to: Technology Crossover Ventures
575 High Street, Suite 400
Palo Alto, CA 94301
Attention: Richard H. Kimball
Phone: (650) 614-8220
Fax: (650) 614-8222
Date:
-------------------------
Accepted:
VIP CALLING, INC.
By:
---------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Dirigo Partners, LLC, in order to purchase shares of
Series C Convertible Preferred Stock, par value $.001 per share, of VIP Calling,
Inc., a Delaware corporation (the "Company"), hereby agrees to become a
"Purchaser" party to the Series C Preferred Stock Purchase Agreement among the
Company and the other Purchaser parties thereto dated as of July 12, 1999 (the
"Purchase Agreement"). This Instrument of Adherence shall take effect and shall
become a part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 114,416
------------
Signature: /s/ David Roux
--------------------------
Address: 3307 Olive Hill Ln
--------------------------
Woodside, CA 94062
--------------------------
--------------------------
Fax No.: 650-561-9125
--------------------------
Date:
--------------------------
Accepted:
VIP CALLING, INC.
By:
----------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Timothy M. Riley, in order to purchase shares of Series C
Convertible Preferred Stock, par value $.001 per share, of VIP Calling, Inc., a
Delaware corporation (the "Company"), hereby agrees to become a "Purchaser"
party to the Series C Preferred Stock Purchase Agreement among the Company and
the other Purchaser parties thereto dated as of July 12, 1999 (the "Purchase
Agreement"). This Instrument of Adherence shall take effect and shall become a
part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 10,000
-----------
Signature: /s/ Tim M. Riley
--------------------------
Address: 300 East 59th Street
--------------------------
Apt. #1607
--------------------------
N.Y., N.Y. 10022
--------------------------
Fax No.: 212-454-0337
--------------------------
Date: 7-6-99
--------------------------
Accepted:
VIP CALLING, INC.
By:
----------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, David Horowitz, in order to purchase shares of Series C
Convertible Preferred Stock, par value $.001 per share, of VIP Calling, Inc., a
Delaware corporation (the "Company"), hereby agrees to become a "Purchaser"
party to the Series C Preferred Stock Purchase Agreement among the Company and
the other Purchaser parties thereto dated as of July 12, 1999 (the "Purchase
Agreement"). This Instrument of Adherence shall take effect and shall become a
part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 13,723
-----------
Signature: /s/ David Horowitz
--------------------------
Address: 11 Woodsorrel
--------------------------
East Northport
--------------------------
New York, NY 11731
--------------------------
Fax No.: 212-454-0337
--------------------------
Date: July 5, 1999
--------------------------
Accepted:
VIP CALLING, INC.
By:
----------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Bayview Investors, Ltd. , in order to purchase shares of
Series C Convertible Preferred Stock, par value $.001 per share, of VIP Calling,
Inc., a Delaware corporation (the "Company"), hereby agrees to become a
"Purchaser" party to the Series C Preferred Stock Purchase Agreement among the
Company and the other Purchaser parties thereto dated as of July 12, 1999 (the
"Purchase Agreement"). This Instrument of Adherence shall take effect and shall
become a part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 22,883
----------
Signature: /s/ Dana Welch
------------------------------
Address: 555 California St., Suite 2600
------------------------------
San Francisco, CA 94104
------------------------------
ATTN: Jennifer Sherrill
------------------------------
Fax No.: 415-676-2990
------------------------------
Date: 6/29/99
------------------------------
Accepted:
VIP CALLING, INC.
By:
---------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Charles River Partnership VIII, a limited partnership, in
order to purchase shares of Series C Convertible Preferred Stock, par value
$.001 per share, of VIP Calling, Inc., a Delaware corporation (the "Company"),
hereby agrees to become a "Purchaser" party to the Series C Preferred Stock
Purchase Agreement among the Company and the other Purchaser parties thereto
dated as of July 12, 1999 (the "Purchase Agreement"). This Instrument of
Adherence shall take effect and shall become a part of said Purchase Agreement
immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 674,071
---------------
CHARLES RIVER PARTNERSHIP VIII,
a limited partnership
By: Charles River VIII GP Limited Partnership,
General Partner
By: /s/ Izhar Armony
-------------------------------------
Name:
Title:
Address: Charles River Ventures
1000 Winter Street, Suite 3300
Waltham, MA 02451
Fax: 781-487-7065
Date: July 1, 1999
Accepted:
VIP CALLING, INC.
By:
----------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Charles River Partnership VIII-A LLC, in order to purchase
shares of Series C Convertible Preferred Stock, par value $.001 per share, of
VIP Calling, Inc., a Delaware corporation (the "Company"), hereby agrees to
become a "Purchaser" party to the Series C Preferred Stock Purchase Agreement
among the Company and the other Purchaser parties thereto dated as of July 12,
1999 (the "Purchase Agreement"). This Instrument of Adherence shall take effect
and shall become a part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 12,429
-------------
CHARLES RIVER VIII-A LLC
a limited partnership
By Charles River VII, Inc.,
Manager
By: /s/ Izhar Armony
---------------------
Name:
Title:
Address: Charles River Ventures
1000 Winter Street, Suite 3300
Waltham, MA 02451
Fax: 781-487-7065
Date: July 1, 1999
Accepted:
VIP CALLING, INC.
By:__________________________________
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, David L. Engel, in order to purchase shares of Series C
Convertible Preferred Stock, par value $.001 per share, of VIP Calling, Inc., a
Delaware corporation (the "Company"), hereby agrees to become a "Purchaser"
party to the Series C Preferred Stock Purchase Agreement among the Company and
the other Purchaser parties thereto dated as of July 12, 1999 (the "Purchase
Agreement"). This Instrument of Adherence shall take effect and shall become a
part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 10,297
---------
Signature: /s/ David L. Engel
--------------------------
Address: c/o Bingham Dana Llp
--------------------------
150 Federal St.
--------------------------
Boston, MA 02110
--------------------------
--------------------------
Fax No.: 617-951-8736
--------------------------
Date: 6/29/99
--------------------------
Accepted:
VIP CALLING, INC.
By:
---------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Menlo Ventures VII, L.P., in order to purchase shares of
Series C Convertible Preferred Stock, par value $.001 per share, of VIP Calling,
Inc., a Delaware corporation (the "Company"), hereby agrees to become a
"Purchaser" party to the Series C Preferred Stock Purchase Agreement among the
Company and the other Purchaser parties thereto dated as of July ___, 1999 (the
"Purchase Agreement"). This Instrument of Adherence shall take effect and shall
become a part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 27,671
---------------
MENLO VENTURES VII, L.P.
By MV Management VII, L.L.C.,
its General Partner
By: /s/ Mark Siegel
-------------------------------------
Name: Mark Siegel
Title: Managing Member
Address: 3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
Fax: 650-854-7059
Date: July ___, 1999
Accepted:
VIP CALLING, INC.
By:
-------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Menlo Entrepreneurs Fund VII, L.P., in order to purchase
shares of Series C Convertible Preferred Stock, par value $.001 per share, of
VIP Calling, Inc., a Delaware corporation (the "Company"), hereby agrees to
become a "Purchaser" party to the Series C Preferred Stock Purchase Agreement
among the Company and the other Purchaser parties thereto dated as of July ___,
1999 (the "Purchase Agreement"). This Instrument of Adherence shall take effect
and shall become a part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 658,829
-------
MENLO ENTREPRENEURS FUND VII, L.P.
By MV Management VII, L.L.C.,
its General Partner
By: /s/ Mark Siegel
----------------------
Name: Mark Siegel
Title: Managing Member
Address: 3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
Fax: 650-854-7059
Date: July ___, 1999
Accepted:
VIP CALLING, INC.
By:____________________________
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Geoff Rehnert, in order to purchase shares of Series C
Convertible Preferred Stock, par value $.001 per share, of VIP Calling, Inc., a
Delaware corporation (the "Company"), hereby agrees to become a "Purchaser"
party to the Series C Preferred Stock Purchase Agreement among the Company and
the other Purchaser parties thereto dated as of July 12, 1999 (the "Purchase
Agreement"). This Instrument of Adherence shall take effect and shall become a
part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 6,466
--------------
Signature: /s/ Geoff Rehnert
----------------------------
Address: 18 Meadowbrook Rd.
----------------------------
Weston, MA 02493
----------------------------
----------------------------
Fax No.: 781-647-0131
----------------------------
Date: 6/30/99
----------------------------
Accepted:
VIP CALLING, INC.
By:
------------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Joshua Bekenstein, in order to purchase shares of Series C
Convertible Preferred Stock, par value $.001 per share, of VIP Calling, Inc., a
Delaware corporation (the "Company"), hereby agrees to become a "Purchaser"
party to the Series C Preferred Stock Purchase Agreement among the Company and
the other Purchaser parties thereto dated as of July 12, 1999 (the "Purchase
Agreement"). This Instrument of Adherence shall take effect and shall become a
part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 12,124
------------
Signature: /s/ Joshua Bekenstein
--------------------------
Address: c/o Bain Capital, Inc.
--------------------------
Two Copley Place
--------------------------
Boston, MA 02116
--------------------------
Fax No.: 617-572-3274
--------------------------
Date: July 12, 1999
--------------------------
Accepted:
VIP CALLING, INC.
By:
----------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Adam Kirsch, in order to purchase shares of Series C
Convertible Preferred Stock, par value $.001 per share, of VIP Calling, Inc., a
Delaware corporation (the "Company"), hereby agrees to become a "Purchaser"
party to the Series C Preferred Stock Purchase Agreement among the Company and
the other Purchaser parties thereto dated as of July 12, 1999 (the "Purchase
Agreement"). This Instrument of Adherence shall take effect and shall become a
part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 7,889
------------
Signature: /s/ Adam Kirsch
--------------------------
Address: c/o Bain Capital, Inc.
--------------------------
Two Copley Place
--------------------------
Boston, MA 02116
--------------------------
Fax No.: 617-572-3274
--------------------------
Date: 6/29/99
--------------------------
Accepted:
VIP CALLING, INC.
By:
--------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Stephen G. Pagliuca, in order to purchase shares of Series
C Convertible Preferred Stock, par value $.001 per share, of VIP Calling, Inc.,
a Delaware corporation (the "Company"), hereby agrees to become a "Purchaser"
party to the Series C Preferred Stock Purchase Agreement among the Company and
the other Purchaser parties thereto dated as of July 12, 1999 (the "Purchase
Agreement"). This Instrument of Adherence shall take effect and shall become a
part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 6,466
-------------
Signature: /s/ Stephen Pagliuca
---------------------------
Address: Bain Capital Inc.
---------------------------
2 Copley Place
---------------------------
Boston, MA 02116
---------------------------
Fax No.: 617-572-3274
---------------------------
Date: 6/29/99
---------------------------
Accepted:
VIP CALLING, INC.
By:
--------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Porky Partners II, LLP , in order to purchase shares of
Series C Convertible Preferred Stock, par value $.001 per share, of VIP Calling,
Inc., a Delaware corporation (the "Company"), hereby agrees to become a
"Purchaser" party to the Series C Preferred Stock Purchase Agreement among the
Company and the other Purchaser parties thereto dated as of July 12, 1999 (the
"Purchase Agreement"). This Instrument of Adherence shall take effect and shall
become a part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 51,487
------------
Porky Partners II, LLC
Signature: By: /s/ Tom J. Wippman
------------------
Authorized Agent
Address: 650 DUNDEE RD. #370
----------------------
Northbrook, IL 60062
----------------------
----------------------
Fax No.: (847) 480-1251
----------------------
Date: 7-16-99
----------------------
Accepted:
VIP CALLING, INC.
By:
-----------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Elka, Ltd., in order to purchase shares of Series C
Convertible Preferred Stock, par value $.001 per share, of VIP Calling, Inc., a
Delaware corporation (the "Company"), hereby agrees to become a "Purchaser"
party to the Series C Preferred Stock Purchase Agreement among the Company and
the other Purchaser parties thereto dated as of July 12, 1999 (the "Purchase
Agreement"). This Instrument of Adherence shall take effect and shall become a
part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 23,000
------------
Signature: /s/ Itamar Hatsor
-------------------------------
Power of Attorney for Elka Ltd.
Address: 12 Romema St
-------------------------------
Tel-aviv Israel
-------------------------------
-------------------------------
Fax No.: 972-3-6492030
-------------------------------
Date: July 16, 1999
-------------------------------
Accepted:
VIP CALLING, INC.
By:
---------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, James A. Bell, in order to purchase shares of Series C
Convertible Preferred Stock, par value $.001 per share, of VIP Calling, Inc., a
Delaware corporation (the "Company"), hereby agrees to become a "Purchaser"
party to the Series C Preferred Stock Purchase Agreement among the Company and
the other Purchaser parties thereto dated as of July 12, 1999 (the "Purchase
Agreement"). This Instrument of Adherence shall take effect and shall become a
part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 4,805
----------
Signature: /s/ James A. Bell
-------------------------
Address: 4241 Daniel Drive
-------------------------
Eagan, MN 55123
-------------------------
-------------------------
Fax No.: (612) 342-1037
-------------------------
Date: 7/16/99
-------------------------
Accepted:
VIP CALLING, INC.
By:
---------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Leiman-Schlossel Ltd. , in order to purchase shares of
Series C Convertible Preferred Stock, par value $.001 per share, of VIP Calling,
Inc., a Delaware corporation (the "Company"), hereby agrees to become a
"Purchaser" party to the Series C Preferred Stock Purchase Agreement among the
Company and the other Purchaser parties thereto dated as of July 12, 1999 (the
"Purchase Agreement"). This Instrument of Adherence shall take effect and shall
become a part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 11,442
-------------
Signature: /s/ Baruch Leiman
---------------------------
Address: Leiman-Schlossel Ltd.
---------------------------
1-Hadrazan Str
---------------------------
7-200R 5800 1
---------------------------
Fax No.: 972-3-5567658
---------------------------
Date: July 15, 1999
---------------------------
Accepted:
VIP CALLING, INC.
By:
-----------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Charles S. Houser, in order to purchase shares of Series C
Convertible Preferred Stock, par value $.001 per share, of VIP Calling, Inc., a
Delaware corporation (the "Company"), hereby agrees to become a "Purchaser"
party to the Series C Preferred Stock Purchase Agreement among the Company and
the other Purchaser parties thereto dated as of July 12, 1999 (the "Purchase
Agreement"). This Instrument of Adherence shall take effect and shall become a
part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 37,500
----------
Signature: /s/ Charles S. Houser
--------------------------
Address: 101 River Rte.
--------------------------
11866 Magnolia Street
--------------------------
Magnolia Springs, AL 36555
--------------------------
Fax No.: 334-965-3174
--------------------------
Date: 7/15/99
--------------------------
Accepted:
VIP CALLING, INC.
By:
------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Edward Jackson, in order to purchase shares of Series C
Convertible Preferred Stock, par value $.001 per share, of VIP Calling, Inc., a
Delaware corporation (the "Company"), hereby agrees to become a "Purchaser"
party to the Series C Preferred Stock Purchase Agreement among the Company and
the other Purchaser parties thereto dated as of July 12, 1999 (the "Purchase
Agreement"). This Instrument of Adherence shall take effect and shall become a
part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 4,348
----------
Signature: /s/ Ed Jackson
-------------------------
Address: 4604 Drexel Ave.
-------------------------
Mpls, MN 55424
-------------------------
-------------------------
Fax No.: 612-342-6360
-------------------------
Date: 7/15/99
-------------------------
Accepted:
VIP CALLING, INC.
By:
----------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Melvin C. VandenBrug Trust, in order to purchase shares
of Series C Convertible Preferred Stock, par value $.001 per share, of VIP
Calling, Inc., a Delaware corporation (the "Company"), hereby agrees to become a
"Purchaser" party to the Series C Preferred Stock Purchase Agreement among the
Company and the other Purchaser parties thereto dated as of July 12, 1999 (the
"Purchase Agreement"). This Instrument of Adherence shall take effect and shall
become a part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 121,234
-----------
Signature: /s/ M.C. Vandenbrug
-------------------------
Address: 1291 Porters Lane
-------------------------
Bloomfield Twp, MI 48302
-------------------------
-------------------------
Fax No.: 248-543-1575
-------------------------
Date: 7-14-99
-------------------------
Accepted:
VIP CALLING, INC.
By:
---------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, John Sternfield, in order to purchase shares of Series C
Convertible Preferred Stock, par value $.001 per share, of VIP Calling, Inc., a
Delaware corporation (the "Company"), hereby agrees to become a "Purchaser"
party to the Series C Preferred Stock Purchase Agreement among the Company and
the other Purchaser parties thereto dated as of July 12, 1999 (the "Purchase
Agreement"). This Instrument of Adherence shall take effect and shall become a
part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 13,730
----------
Signature: /s/ John Sternfield
------------------------
Address: 2765 Ross Road
------------------------
Palo Alto, CA 94303
------------------------
------------------------
Fax No.: 650-233-2270
------------------------
Date: July 13, 1999
------------------------
Accepted:
VIP CALLING, INC.
By:
------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Johan V. Brigham, in order to purchase shares of Series C
Convertible Preferred Stock, par value $.001 per share, of VIP Calling, Inc., a
Delaware corporation (the "Company"), hereby agrees to become a "Purchaser"
party to the Series C Preferred Stock Purchase Agreement among the Company and
the other Purchaser parties thereto dated as of July 12, 1999 (the "Purchase
Agreement"). This Instrument of Adherence shall take effect and shall become a
part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 2,288
---------
Signature: /s/ Johan V. Brigham
---------------------------
Address: 14 Church Street
---------------------------
Newton, MA 02458
---------------------------
---------------------------
Fax No.: (617) 244-7383
---------------------------
Date: July 16, 1999
---------------------------
Accepted:
VIP CALLING, INC.
By:
---------------------------
<PAGE>
Exhibit A to
Stock Purchase Agreement
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned, Ofer Gneezy, in order to purchase shares of Series C
Convertible Preferred Stock, par value $.001 per share, of VIP Calling, Inc., a
Delaware corporation (the "Company"), hereby agrees to become a "Purchaser"
party to the Series C Preferred Stock Purchase Agreement among the Company and
the other Purchaser parties thereto dated as of July 12, 1999 (the "Purchase
Agreement"). This Instrument of Adherence shall take effect and shall become a
part of said Purchase Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts:
No. of Shares Purchased: 4,577
---------
Signature: /s/ Ofer Gneezy
---------------------------
Address:
---------------------------
---------------------------
---------------------------
Fax No.:
---------------------------
Date: July 16, 1999
---------------------------
Accepted:
VIP CALLING, INC.
By: Ofer Gneezy
---------------------------
<PAGE>
EXHIBIT 10.16
VIP CALLING, INC.
SECOND AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT
This Second Amended and Restated Shareholders' Agreement (this
"Agreement"), dated as of July 12, 1999, is made by and among:
(i) VIP Calling, Inc., a Delaware corporation (the "COMPANY");
(ii) the undersigned holders of at least sixty percent (60%) of the
aggregate issued and outstanding shares of the Company's Class A Common Stock,
par value $.001 per share (the "CLASS A COMMON STOCK"), and the Company's Class
B Common Stock, par value $.001 per share (the "CLASS B COMMON STOCK" and,
together with the Class A Common Stock, the "COMMON STOCK", with the holders
thereof being referred to herein as the "COMMON SHAREHOLDERS");
(iii) the undersigned holders of at least sixty percent (60%) of the
issued and outstanding shares of the Company's Series A Convertible Preferred
Stock, par value $.001 per share (the "SERIES A PREFERRED STOCK") and the
Company's Series B Convertible Preferred Stock, par value $.001 per share (the
"SERIES B PREFERRED STOCK"); and
(iv) each person or entity that subsequently becomes a party hereto by
executing and delivering to the Company an Instrument of Adherence substantially
in the form attached as EXHIBIT A hereto.
PREAMBLE
WHEREAS, the Company and the holders the Series A Preferred Stock and
the Series B Preferred Stock are parties to a certain First Amended and Restated
Shareholders' Agreement, dated as of October 24, 1997 and amended as of November
11, 1997, August 26, 1998 and May 26, 1999 (the "EXISTING AGREEMENT");
WHEREAS, in connection with the Company's sale and issuance of up to
5,775,000 shares of Series C Convertible Preferred Stock, par value $.001 per
share (the "SERIES C PREFERRED STOCK" and, together with the Series A Preferred
Stock and the Series B Preferred Stock, the "PREFERRED STOCK", with the holders
of the Preferred Stock being referred to herein as the "PREFERRED SHAREHOLDERS"
and who, together with the Common Shareholders are referred to herein as the
<PAGE>
-2-
"SHAREHOLDERS"), to certain purchasers thereof (the "SERIES C INVESTORS"), the
parties to the Existing Agreement wish to extend to the Series C Investors,
certain rights and obligations contained in the Existing Agreement; and
WHEREAS, parties to the Existing Agreement wish to amend and restate
the terms of the Existing Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein contained, the parties hereto hereby agree that the Existing
Agreement is amended and restated in its entirety as follows:
1. FIRST-REFUSAL AND CO-SALE RIGHTS AS TO STOCK TRANSFERS.
(a) RESTRICTION ON TRANSFERS. No Shareholder may assign, exchange,
encumber, pledge, transfer, or otherwise dispose of (any such action referred to
hereinafter as a "TRANSFER") any shares of Common Stock, Preferred Stock or any
other securities of the Company held by such Shareholder ("SHARES") in whole or
in part except pursuant to the terms of this Agreement. Any Transfer or
attempted Transfer of Shares in violation of the provisions of this Agreement
shall be void, and the Company and its transfer agent shall not recognize such
Transfer, record it on the books and records of the Company, or issue stock
certificates in connection therewith. In addition to any other legal or
equitable remedies which it may have, the Company may enforce its rights by
actions for specific performance (to the extent permitted by law) and may refuse
to recognize any transferee as one of its shareholders for any purpose,
including without limitation for purposes of dividend and voting rights, until
all applicable provisions hereof have been complied with.
(b) TRANSFER NOTICE. At least 30 days prior to any proposed Transfer
(other than a Permitted Transfer, as defined in Section 1(d)) by a Shareholder,
such Shareholder (the "TRANSFERRING SHAREHOLDER") shall give written notice (the
"Transfer Notice"), in accordance with Section 8 hereof, to the Company (which
shall then promptly provide a copy of the Transfer Notice to each other
Shareholder at the most recent address or telecopier number of each such
Shareholder on file with the Company), setting forth (i) the number and class of
equity securities proposed to be sold by the Transferring Shareholder (the
"Offered Securities"), (ii) the anticipated date of the proposed Transfer and
the names and addresses of the proposed transferees, and (iii) the material
terms of the proposed Transfer, including the cash and/or other consideration to
be received in respect of such Transfer.
(c) COMPANY'S AND SHAREHOLDERS' OPTIONS. Upon the giving of any
Transfer Notice, then subject to all of the provisions of this Section 1(c), the
Company and the Shareholders shall have certain rights and options, as follows:
<PAGE>
-3-
(i) RIGHTS OF FIRST REFUSAL. The Company and each of the
non-transferring Shareholders shall have the option, but not the obligation, to
purchase all or part of the Offered Securities on the same terms as are
specified in the Transfer Notice, including any deferred payment terms,
PROVIDED, that the Company and each such Shareholder shall have the right to
substitute cash in the amount of the fair market value of any non-cash
consideration proposed to be received from the proposed transferees. Within 30
days after the effective date of the Transfer Notice, the Company and each of
the non-transferring Shareholders shall give written notice to the Transferring
Shareholder stating whether it elects to exercise such option, and if so, as to
how many of the Offered Securities it elects to exercise such option. Failure by
the Company or any non-transferring Shareholder to give such notice within such
time period shall be deemed an election by it not to exercise its option. If the
aggregate number of Offered Securities for which the Company and the
non-transferring Shareholders exercise such options exceeds the total number of
Offered Securities, then the Shareholders exercising such purchase rights shall
be entitled to purchase the Offered Securities PRO RATA in proportion to the
numbers of shares of Class A Common Stock held by each such Shareholders,
determined on an as-converted basis, and the Company shall be entitled to
purchase so much of the remaining Offered Securities, if any, as to which it has
exercised its option. The closing of the purchase and sale of the Offered
Securities shall take place as soon as is reasonably practicable at such date,
time, and place as the Company and the Shareholders exercising their purchase
options hereunder may reasonably determine. As to any Offered Securities that
the Company and the Shareholders do not elect to purchase hereunder, subject to
the provisions of Section 1(c)(ii) hereof, the Transferring Shareholder shall
thereafter be free for a period of 90 days to consummate the Transfer described
in the Transfer Notice to the transferee(s) specified therein, at the price and
on the other terms set forth therein; PROVIDED, that such transferee(s) shall
first execute and deliver to the Company an Instrument of Adherence in the form
of EXHIBIT A annexed hereto, which executed Instrument of Adherence shall become
a part of this Agreement upon acceptance by the Company. However, if such
Transfer is not consummated within such 90-day period, the Transferring
Shareholder shall not Transfer any of the Offered Securities as have not been
purchased within such period without again complying with all of the provisions
of this Section 1.
(ii) CO-SALE RIGHTS WITH RESPECT TO TRANSFERS BY AFFILIATES.
Upon receipt of a Transfer Notice relating to a proposed Transfer of shares of
capital stock of the Company by an officer or director of the Company or any
Shareholder holding of record greater than 10% of the then outstanding number of
shares of Class A Common Stock (assuming the conversion into shares of Class A
Common Stock of all then outstanding shares of Class B Common Stock and
Preferred Stock), each Preferred Shareholder (other than any Preferred
<PAGE>
-4-
Shareholder who has elected to purchase any of the Offered Securities pursuant
to Section 1(c)(i) hereof) may elect to participate in the contemplated Transfer
by delivering written notice to the Transferring Shareholder within 30 days
after the effective date of such Transfer Notice. Each Preferred Shareholder so
electing (the "Electing Shareholder") will be entitled to sell in the
contemplated Transfer, at the same price and on the same terms as specified in
the Transfer Notice (provided, however, that to the extent that the proposed
Transfer consists of shares of Class B Common Stock, the terms of the Transfer
shall be adjusted (if necessary) to reflect the number of shares of Class A
Common Stock and the price per share thereof as would obtain in the event that
the shares of Class B Common Stock subject to the Transfer were converted to
shares of Class A Common Stock), a number of shares of Class A Common Stock (or
a number of shares of capital stock of the Company convertible into such number
of shares of Class A Common Stock) equal to and not less than the product of (i)
the quotient determined by dividing (A) the number of shares of Class A Common
Stock into which the shares of Preferred Stock then held of record by such
Preferred Shareholder are then convertible, by (B) the sum of (I) the aggregate
number of shares of Class A Common Stock into which all of the then outstanding
shares of Preferred Stock held by the Electing Shareholder are then convertible
plus (II) the number of shares of Class A Common Stock then held of record by
the Transferring Shareholder (assuming the conversion into shares of Class A
Common Stock of all shares of Class B Common Stock then held of record by the
Transferring Shareholder), multiplied by (ii) the aggregate number of shares of
Class A Common Stock to be sold in the proposed Transfer (assuming the
conversion into shares of Class A Common Stock of all shares of Class B Common
Stock to be sold in the proposed Transfer). The Transferring Shareholder will be
entitled to sell in the contemplated Transfer the balance of the Offered
Securities. The Transferring Shareholder shall use his or her best efforts to
obtain the agreement of the prospective transferee(s) to the participation of
the Preferred Shareholders in any contemplated Transfer and shall not Transfer
any shares of Common Stock to such prospective transferee(s) unless such
prospective transferee(s) allows the participation of the Preferred Shareholders
on the terms specified herein. Subject to the foregoing and to the provisions of
Section 1(c)(i) above, the Transferring Shareholder may, within 90 days after
the expiration of the 30-day period referred to above, transfer the Offered
Securities (reduced by the number of shares of Common Stock with respect to
which any of the Preferred Shareholders have elected to participate, if any) to
the transferee(s) identified in the Transfer Notice at a price and on terms no
more favorable to the Transferring Shareholder than specified in the Transfer
Notice; PROVIDED, that such transferee(s) shall first execute and deliver to the
Company an Instrument of Adherence in the form of EXHIBIT A attached hereto,
which executed Instrument of Adherence shall become a part of this Agreement
upon acceptance by the Company. However, if such Transfer is not consummated
within such 90-day period, the Transferring Shareholder shall not
<PAGE>
-5-
transfer any of the Offered Securities as have not been purchased within such
period without again complying with all of the provisions of this Section 1.
(d) PERMITTED TRANSFERS. This Section 1 shall not bar (i) a Transfer of
Shares by Bain Securities to Bain Capital or to any of Bain & Company's or Bain
Capital's respective employees or affiliates (the "BAIN TRANSFEREES"), (ii) a
transfer of shares by any Shareholder to a member of such Shareholder's
immediate family or to a trust or limited partnership the beneficiaries or
limited partners of which are members of such Shareholder's immediate family, or
(iii) a Transfer by a Shareholder that is a partnership or a limited liability
company to any constituent partner of member of such entity (such Bain
Transferees, trust, family members (including the estate of a Shareholder or any
other person acquiring Shares by reason of a Shareholder's death), partner or
member being referred to herein as "PERMITTED TRANSFEREES"), PROVIDED, however,
that, prior to the effectiveness of any such Transfer, any such Permitted
Transferee must execute an Instrument of Adherence in the form of EXHIBIT A
annexed hereto, which executed Instrument of Adherence shall thereupon become a
part of this Agreement; provided further that each such Permitted Transferee
make appropriate representations to the Company regarding their suitability as
an investor in a private placement of securities.
2. PREEMPTIVE RIGHTS
(a) RIGHT OF FIRST OFFER. Except as otherwise set forth in Section
2(d), the Company will not offer any equity securities, or securities
convertible into, or options, warrants, or other rights to purchase such equity
securities (collectively, the "NEW SECURITIES") to any person without first
providing each holder of any shares of Class B Common Stock or Preferred Stock
who qualifies as an "accredited investor" as defined in Regulation D promulgated
pursuant to the Securities Act of 1933, as amended (the "SECURITIES ACT," and
such a holder being referred to hereinafter as a "QUALIFYING HOLDER"), the right
to subscribe for his, her or its Preemptive Proportionate Percentage (as such
term is defined in Section 2(e) below) of such New Securities for cash at a
price and on such other terms as shall have been specified by the Company in
writing delivered to each Qualifying Holder (the "PREEMPTIVE OFFER"). Any
Preemptive Offer by its terms shall remain open and irrevocable for a period of
fifteen (15) calendar days from the date it is dispatched by the Company to each
Qualifying Holder (the "PREEMPTIVE PERIOD"). The Preemptive Offer shall also
certify that the Company has either (a) received a firm offer from a prospective
purchaser, who shall be identified in such certification, so that the Company in
good faith believes a binding agreement of sale is obtainable for consideration
having a fair market, cash equivalent, or present value set forth in such
certification; or (b) intends to make an offering of its securities at the price
and on the terms set forth in such certification.
<PAGE>
-6-
(b) ACCEPTANCE OF NEW SECURITIES. Notice of each Qualifying Holder's
intention to accept, in whole or in part, a Preemptive Offer shall be evidenced
by a writing signed by such Qualifying Holder and delivered to the Company prior
to the end of the fifteen (15) calendar day period of such Preemptive Offer (the
"NOTICE OF ACCEPTANCE"), setting forth such portion of the New Securities as
such Qualifying Holder elects to purchase and such other matters as the Company
may reasonably request for purposes of determining whether any person is a
Qualifying Holder. For the purpose of avoiding fractions as to New Securities,
the President of the Company (or in his or her absence any other officer of the
Company) may adjust upward or downward by not more than one full share the
number of New Securities which any Qualifying Holder would otherwise be entitled
to purchase.
(c) RIGHT OF COMPANY TO SELL REFUSED SECURITIES. In the event that the
Qualifying Holders elect not to purchase all of the New Securities, the Company
shall have 120 days from the expiration of the Preemptive Period to sell all or
any part of the New Securities, if any, not accepted by any of the Qualifying
Holders (the "REFUSED SECURITIES") to the parties (or their affiliates)
identified in the Preemptive Offer, but only upon terms and conditions in all
material respects, including, without limitation, price per share, time or
method of payment, and interest rate (if payment is to be made over time), which
are no more favorable, in the aggregate, to such other party or parties or less
favorable to the Company than those set forth in the Preemptive Offer.
Simultaneously with the closing of the sale of Refused Securities to such other
parties, the Qualifying Holders shall purchase from the Company and the Company
shall sell to each such Qualifying Holders the New Securities in respect of
which a Notice of Acceptance was delivered to the Company, upon the terms
specified in the Preemptive Offer. The Company may withdraw the Preemptive Offer
at any time prior to such closing.
(d) EXCEPTIONS TO RIGHT OF FIRST OFFER. Notwithstanding anything to the
contrary stated above, the rights of the Qualifying Holders under this Section 2
shall not apply to (a) the issuance of shares of the Company's capital stock in
an underwritten public offering (a "QUALIFIED PUBLIC OFFERING") pursuant to an
effective registration statement under the Securities Act covering the offer and
sale of capital stock of the Company to the public resulting in not less than
$7,500,000 of net proceeds to the Company or (b) the issuance of any shares of
Common Stock to employees, directors, consultants or advisers of the Company, or
to persons who were to become employees, directors, consultants or advisers of
the Company pursuant to stock option, stock incentive, stock appreciation, stock
bonus or compensation rights plans or any other employee benefit plans presently
in effect or which may hereafter be adopted by the Company, or pursuant to stock
option, employment, consulting, restricted stock or other
<PAGE>
-7-
agreements or arrangements of any kind, provided that in no event shall the
number of such shares of Common Stock referred to in this clause (b) exceed
4,500,000 shares, or (c) the issuance by the Company of Preferred Stock to TLP
Leasing Programs, Inc. ("TLP") pursuant to those certain warrants issued by the
Company to TLP as of September 10, 1997 and June 8, 1998, or (d) any shares of
Common Stock issued or issuable upon conversion of Preferred Stock, or (e)
equity securities issued in connection with the acquisition of at least fifty
percent (50%) of the voting securities of another corporation, controlling
interest in another business entity, or all or substantially all of the assets
of another corporation or business entity, or (f) equity securities issued for
no consideration as dividends or pursuant to stock splits, or (g) equity
securities issued in connection with a joint venture in which the Company is a
participant, or to customers, distributors, licensees or other commercial
partners of the Company pursuant to a license, marketing or distribution
agreement to which the Company is party, if such issuance does not exceed fifty
percent (50%) of the aggregate amount of equity securities of the Company then
outstanding (on fully diluted, common stock equivalent basis).
(e) PREEMPTIVE PROPORTIONATE PERCENTAGE. The term "PREEMPTIVE
PROPORTIONATE PERCENTAGE" shall mean, as to a Qualifying Holder, that percentage
figure which expresses the ratio which (a) the number of shares of outstanding
Class A Common Stock then held of record by such Qualifying Holder (assuming the
conversion into shares of Class A Common Stock of all shares of Class B Common
Stock and Preferred Stock then held of record by such Qualifying Holder) bears
to (b) the aggregate number of shares of Class A Common Stock which are then
held by Qualifying Holders exercising their rights under this Section 2
(assuming the conversion into shares of Class A Common Stock of all then
outstanding shares of Class B Common Stock and Preferred Stock).
3. VOTING.
(a) NUMBER AND ELECTION OF DIRECTORS. In connection with the submission
to the shareholders of the Company of any proposal to fix the number of
directors that shall serve on the Company's Board of Directors or to elect
directors, whether such proposal is submitted at an annual or special meeting of
shareholders of the Company or by written consent of shareholders in lieu of a
meeting, each Shareholder shall vote all of its, her or his Shares to elect as a
director of the Company any Nominee or Nominees designated pursuant to, and in
accordance with, the provisions of Section 3(b) below. In addition, so long as
Bain Capital is the record owner of at least one (1) share of Preferred Stock,
it shall be entitled to appoint one (1) representative who shall receive notice
of and may attend all meetings of the Board of Directors or any committee
thereof
<PAGE>
-8-
as an observer, and shall be provided copies of all materials provided to, and
any written consents of, the Board of Directors.
(b) DESIGNATION OF NOMINEES. The Company and the Shareholders shall
cause the Company to have such number of directors as may be determined, from
time to time, by the Company's Board of Directors. The following persons (each a
"DESIGNATING PARTY") shall have the right to designate the following numbers of
nominees for election as directors of the Company (collectively, the "NOMINEES"
and each individually a "NOMINEE"): Ofer Gneezy - one (1) Nominee (which Nominee
initially shall be himself); Gordon VanderBrug - one (1) Nominee (which Nominee
initially shall be himself); Seruus Telecom Fund, L.P. - one (1) Nominee (which
Nominee initially shall be Charles S. Houser); Charles Corfield - one (1)
Nominee (which Nominee initially shall be himself); Bain Securities - one (1)
Nominee (which Nominee initially shall be Robert Maginn); Charles River
Ventures, as a Series B Investor - one (1) Nominee (which Nominee shall
originally be Izhar Armony); and Menlo Ventures, as a Series B Investor - one
(1) Nominee (which Nominee shall originally be John Jarve). In the absence of
any designation by a Designating Party, the person or persons previously
designated by such Designating Party and then serving as a director or directors
of the Company shall be deemed to be such Designating Party's Nominee or
Nominees, as the case may be.
(c) REMOVAL; VACANCIES.
(i) At the request of any Designating Party (for any reason
whatsoever), each Shareholder shall vote all of its Shares, whether at a meeting
of shareholders or by written consent of the shareholders in lieu of a meeting,
to effect the removal of such Designating Party's Nominee or Nominees.
(ii) In the event that any person shall cease to serve as a
director of the Company for any reason whatsoever, such person's Designating
Party shall be entitled to designate a successor. Each Shareholder hereby agrees
to use its best efforts, including, without limitation the voting all of such
Shareholder's Shares (whether at a meeting of shareholders or by written consent
of shareholders in lieu of a meeting), to cause such successor Nominee to be
elected to the Board of Directors of the Company.
(d) BEST EFFORTS. Each Shareholder hereby agrees to use its best
efforts to cause compliance with all of the provisions of this Section 3,
including, without limitation, by the Company, its officers, employees, and
agents.
<PAGE>
-9-
4. COVENANTS OF THE COMPANY.
(a). AFFIRMATIVE COVENANTS.
(i) FINANCIAL STATEMENTS AND OTHER INFORMATION. The
Company shall furnish to each Preferred Shareholder:
(A) as soon as available and in any event
within 45 days after the end of the first, second and third quarterly accounting
periods in each fiscal year of the Company, an unaudited balance sheet of the
Company as at the end of such period and the related unaudited statements of
operations, stockholders' equity and changes in cash flow of the Company for
such period and (in the case of the second and third quarterly periods) for the
period from the beginning of the current fiscal year to the end of such
quarterly period;
(B) as soon as available and in any event
within 90 days after the end of each fiscal year of the Company, an audited
balance sheet of the Company as at the end of such fiscal year and the related
audited statement of operations, stockholder's equity and changes in cash flow
of the Company for such fiscal year, accompanied by the report thereon of a firm
of independent public accountants of recognized national standing selected by
the Company, which report (I) shall state that the examination by such
accountants in connection with such financial statements has been made in
accordance with generally accepted auditing standards and (II) shall include the
opinion of such accountants that such financial statements have been prepared in
accordance with generally accepted accounting principles, except as otherwise
specified in such opinion;
(C) as soon as available and in any event
within 30 days after the end of each month, an unaudited balance sheet of the
Company as at the end of such month and the related unaudited statements of
operations, stockholders' equity and changes in cash flows of the Company for
such month and for the current fiscal year to the end of such month;
(D) as soon as available, but in any event
within 30 days after commencement of each new fiscal year, a business plan and
annual budget for such fiscal year; and
(E) with reasonable promptness, such other
notices, information and data with respect to the Company as the Company
delivers to the holders of its Common Stock, and such other information and data
as any Preferred Shareholder may from time to time reasonably request,
including, without limitation the following: (i) monthly billed minutes of use
(received every three months) (ii) monthly revenue per minute billed (received
every three months) and (iii) aged accounts receivable on a quarterly basis.
<PAGE>
-10-
(ii) BOOKS AND RECORDS; INSPECTION. The Company shall maintain
proper books of record and account which present fairly in all material respects
its financial condition and results of operations and make provision on its
financial statements for all such proper reserves as in each case are required
in accordance with GAAP, consistently applied. From and after the date of this
Agreement, the Company will permit any authorized representative of any
Preferred Shareholder to visit and inspect any of the properties of the Company,
to examine its and their books, reports, records and papers (and make copies
thereof and take extracts therefrom) and to discuss its and their affairs,
finances and accounts with, and to be advised as to the same by, its and their
officers, all at such reasonable times as such Preferred Shareholder may
reasonably request during normal business hours and following reasonable notice
to the Company.
(iii) USE OF PROCEEDS. The Company will use the proceeds of
the offering of shares of Series C Preferred Stock for working capital and other
general corporate purposes.
(iv) PAYMENT OF TAXES. The Company will pay and discharge
promptly, or cause to be paid and discharged promptly, when due and payable, all
taxes, assessments and governmental charges or levies imposed upon it or upon
its income or upon any of its property, real, personal and mixed, or upon any
part thereof, as well as all claims of any kind (including claims for labor,
materials and supplies), which, if unpaid, might by law become a lien or charge
upon its property; PROVIDED, however, that the Company shall not be required to
pay any tax, assessment, charge, levy or claim if the amount, applicability or
validity thereof shall currently be contested in good faith by appropriate
proceedings and if the Company shall have set aside on its books reserves deemed
by it adequate with respect thereto.
(v) CORPORATE EXISTENCE. The Company will do or cause to be
done all things necessary to preserve and keep in full force and effect its
corporate existence, and material rights and franchisees, PROVIDED, however,
that nothing in this section shall (A) prevent the abandonment or termination of
the Company's authorization to do business in any foreign state or jurisdiction
if, in the opinion of the Company's Board of Directors, such abandonment or
termination is in the interest of the Company or (B) require compliance with any
law so long as the validity or applicability thereof shall be disputed or
contested in good faith.
(vi) NOTICE OF DEFAULT. The Company shall give written notice
to the Preferred Shareholders of the occurrence of (i) any default or event of
default under any material agreement of the Company (potentially involving in
excess of $20,000) promptly upon the occurrence thereof or (ii) of any event or
condition
<PAGE>
-11-
which would have a material adverse effect on the Company's financial condition
or operations.
(vii) NOTICE OF LITIGATION. The Company shall give notice, in
writing, to the Preferred Shareholders of (i) any actions, suits or proceedings
wherein the amount at issue is in excess of $25,000 instituted by any person,
entity or agency against the Company or affecting any of the assets of the
Company and (ii) any dispute, not resolved within 60 days of the commencement
thereof, between the Company on the one hand and any governmental regulatory
body on the other hand, which dispute might materially interfere with the normal
operations of the Company.
(viii) COMPENSATION. Compensation of the Company's executive
officers (including stock option and stock grants) shall be approved by the
Board of Directors.
(ix) QUALIFIED SMALL BUSINESS STOCK. The Company shall, for so
long as any shares of Series C Preferred Stock are held by the initial purchaser
thereof (or a transferee of such purchaser in whose hands such shares are
eligible to qualify as qualified small business stock ("QUALIFIED SMALL BUSINESS
STOCK") as defined in Section 1202(c) of the Internal Revenue Code of 1986, as
amended (the "CODE")), (a) use its reasonable best efforts to cause such shares
to qualify as Qualified Small Business Stock (provided, however, that the
Company does not covenant that it will at any time or from time to time use, or
use its reasonable best efforts to cause to be used, at least 80% (by value) of
the assets of the Company in the active conduct of one or more qualified trades
or businesses, as specified by Section 1202(e) of the Code), (b) submit to the
Shareholders and the Internal Revenue Service any reports that may be required
under Section 1202(d)(1)(C) of the Code and any related regulations of the
United States Treasury Department promulgated thereunder, (c) deliver to any
Shareholder who has first delivered to the Company a written request therefor a
certificate advising such Shareholder as to whether such Shareholder's shares of
capital stock of the Company then constitute Qualified Small Business Stock.
(b) NEGATIVE COVENANTS.
(i) TRANSACTIONS WITH AFFILIATES. The Company shall not enter
into any transaction with any director, officer, employee or holder of more than
5% of the outstanding capital stock of any class or series of capital stock of
the Company, member of the family of such person, or any corporation,
partnership, trust or other entity in which any such person, or member of the
family of such person, is a director, officer, trustee, partner or holder of
more than 5% of the outstanding capital stock thereof, EXCEPT for (A)
transactions approved by a
<PAGE>
-12-
majority of the disinterested members of the Board of Directors and (B)
transactions approved by the Board of Directors (including, but not limited to,
the purchase and sale of securities of the Company) in which such person's
participation is substantially identical to that of other persons not bearing
such relationship to the Company.
(ii) MERGER, CONSOLIDATION, OR SALE OF ASSETS. The Company
shall not enter into any agreement for the merger or consolidation of the
Company with or into another entity (except one in which the holders of capital
stock of the Company immediately prior to such merger or consolidation continue
to hold at least a majority of the voting power of the surviving entity) or the
sale of all or substantially all of the assets of the Company without the
written consent of the holders of record of at least 60% of the outstanding
shares of Preferred Stock (voting as a single class).
(iii) DIVIDENDS; REDEMPTIONS; ETC. The Company shall not
declare or pay any dividend of any kind (other than stock dividends payable to
all holders of any class of capital stock), in cash or in property, on any class
of the capital stock of the Company, or purchase, redeem, retire or otherwise
acquire for value any shares of such stock, nor make any distribution of any
kind in cash or property in respect thereof, nor make any return of capital of
shareholders, nor make any payments in cash or property in respect of any stock
options, stock bonus or similar plan without the written consent of holders of
record of at least 60% of the outstanding shares of Preferred Stock (voting as a
single class).
(iv) ISSUANCE OF DEBT. The Company shall not issue or incur
debt (except commercial financing in the ordinary course of business) without
the written consent of holders of record of at least 60% of the outstanding
shares of Preferred Stock (voting as a single class).
5. LEGEND ON CERTIFICATE.
In order to effectuate the terms of this Agreement, each certificate of
stock issued to each of the Shareholders evidencing ownership of Shares shall
bear upon its face a legend substantially as follows:
"The shares of stock evidenced by this certificate are subject
to certain restrictions on their transfer contained in a certain Second
Amended and Restated Shareholders' Agreement, dated as of July ___,
1999, to which the Corporation is a party. The Corporation will furnish
a copy of such agreement to the holder of this certificate upon written
request and without charge."
6. [deleted]
<PAGE>
-13-
7. LOCK-UP AGREEMENTS.
Each of the Shareholders hereby agree that, at the written request of
the Company or any managing underwriter of the initial public offering of
securities of the Company, such Shareholder shall not, without the prior written
consent of the Company or such managing underwriter, sell, make any short sale
of, loan, grant any option for the purchase of, pledge, encumber, or otherwise
dispose, or exercise any registration rights with respect to any Common Stock
during the 180-day period commencing on the effective date of the registration
statement relating to such initial public offering of the Company's securities;
PROVIDED, that each officer or director of the Company and each holder of at
least 1% of its Common Stock (for this purpose, calculated on a fully diluted
basis assuming full exercise of all outstanding options, warrants, and other
rights to acquire shares of Common Stock and full conversion or exchange of all
securities that are convertible into or exchangeable for shares of Common Stock)
shall have entered into a similar agreement; FURTHER, PROVIDED, that such
agreements shall provide that any discretionary waiver or termination of the
restrictions imposed thereby shall apply to all persons subject thereto on a pro
rata basis (determined according to the number of shares of Common Stock,
assuming the conversion of all outstanding shares of Preferred Stock, subject to
such agreements); and FURTHER, PROVIDED, that the foregoing agreement shall not
apply to any shares acquired by any Shareholder (i) in such initial public
offering or (ii) in any non-issuer transaction after the effective date of such
offering.
8. MISCELLANEOUS.
(a) NOTICES. All notices, requests, consents, and other communications
hereunder shall be in writing and shall be deemed effectively given and received
upon delivery in person, or one business day after delivery by national
overnight courier service or by telecopier transmission with acknowledgment of
transmission receipt, or three business days after deposit via certified or
registered mail, return receipt requested, in each case addressed as follows:
(i) if to the Company, to:
VIP Calling, Inc.
20 Second Avenue
Burlington, MA 01803
Fax: 781-505-7300
Attention: Ofer Gneezy
President
<PAGE>
-14-
with a copy to:
Bingham Dana LLP
150 Federal Street
Boston, MA 02110
Fax: 617-951-8736
Attention: David L. Engel, Esq.
(ii) if to a Shareholder, to the address or addresses of such
Shareholder set forth on the Instrument of Adherence to this Agreement executed
and delivered to the Company by such Shareholder;
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the other.
(b) TERMINATION. This Agreement, except for Sections 4(a)(ix) and 7,
shall terminate on the occurrence of any of the following events:
(i) bankruptcy, receivership or dissolution of the Company or sale
of all or substantially all of the capital stock or assets of
the Company, or merger by the Company with another Company in
which the Company is not the surviving entity;
(ii) the closing of a Qualified Public Offering;
(iii) as to any individual Shareholder, when he or her and his or
her executors and administrators no longer own any Shares; or
(iv) the execution of a written agreement of (i) the Company; (ii)
Shareholders holding of record at least sixty percent (60%) of
the shares of Common Stock then outstanding and (iii)
Shareholders holding of record at least sixty percent (60%) of
the shares of Preferred Stock then outstanding.
(c) BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto, their heirs, legal representatives,
successors and assigns.
(d) ENTIRE AGREEMENT. This Agreement amends and restates and supersedes
in its entirety the Existing Agreement. This Agreement constitutes the sole and
entire agreement of the parties with respect to the subject matter hereof.
(e) ENFORCEABILITY. If any of the terms, provisions or conditions of
this Agreement or the application thereof in any circumstances shall, to any
extent,
<PAGE>
-15-
be invalid or unenforceable, the remainder of this Agreement and the application
of such term, provision or condition to circumstances other than those to which
it is held invalid or unenforceable shall not be affected thereby, and each of
the terms, provisions and conditions of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
(f) GOVERNING LAW. This Agreement shall be governed by and construed
and interpreted in accordance with the internal substantive laws of the
Commonwealth of Massachusetts, without regard to conflicts or choice of law
provisions.
(g) NO WAIVER. No assent, express or implied, by the Company or any
Shareholder to any breach in or default of any agreement or condition herein
contained on the party of any other Shareholder shall constitute a waiver of or
assent to any succeeding breach in or default of the same or any other agreement
or condition hereof.
(h) INTERPRETATION. In this Agreement, the use of any of the three
genders shall be deemed to include the other two. Furthermore, any notices,
consents, offers, or other actions required by a Shareholder that is not a
natural person, shall be deemed to apply and refer to the trustee or other then
authorized individual of such Shareholder at the time of such notice, consent,
offer or other action.
(i) AMENDMENT. No amendment or modification of this Agreement shall be
valid unless the same is in writing and signed by (i) the Company, (ii)
Shareholders holding of record at least sixty percent (60%) of the shares of
Common Stock then outstanding, and (iii) Shareholders holding of record at least
sixty percent (60%) of the shares of Preferred Stock then outstanding; PROVIDED,
HOWEVER, that any amendment to Section 1(c)(ii) or Section 3 shall not require
the consent of Common Shareholders specified in clause (ii) of this Section
8(i).
(j) HEADINGS. The headings in this Agreement are for convenience of
identification only, do not constitute a part hereof, and shall not affect the
meaning or construction hereof.
(k) SEVERABILITY. If any provision of this Agreement shall be declared
void or unenforceable by a judicial or administrative authority, the validity of
any other provision and of the entire Agreement shall not be affected thereby.
(m) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which when executed shall be deemed an original and all of
which, taken together, shall constitute one and the same agreement. In
<PAGE>
-16-
making proof of this Agreement it shall not be necessary to produce or account
for more than one such counterpart.
[SIGNATURE PAGE TO FOLLOW]
<PAGE>
-17-
IN WITNESS WHEREOF, this Second Amended and Restated Shareholders'
Agreement has been executed under seal by the parties hereto as of the day and
year first above written.
VIP CALLING, INC. CHARLES RIVER VIII-A LLC
By: Charles River Friends VII, Inc.,
Manager
By: /s/ Ofer Gneezy By: /s/ Izhar Armony
--------------------------- --------------------------------
Ofer Gneezy, President Name:
Title:
/s/ Ofer Gneezy MENLO VENTURES VII, L.P.
- ------------------------------ By: MV Management VII, L.L.C.,
Ofer Gneezy its General Partner
/s/ Gordon J. VanderBrug By: /s/ Mark Siegel
- ------------------------------ -----------------------------------
Gordon J. VanderBrug Name: Mark Siegel
Title: Managing Member
CHARLES RIVER LIMITED MENLO ENTREPRENEURS
PARTNERSHIP VIII, A FUND VII, L.P.
Limited Partnership By: MV Management VII, L.L.C.,
By: Charles River VIII GP its General Partner
Limited Partnership, General Partner
By: /s/ Izhar Armony By: /s/ Mark Siegel
- ------------------------------ -----------------------------------
Name: Name: Mark Siegel
Title: Title: Managing Member
<PAGE>
EXHIBIT A
INSTRUMENT OF ADHERENCE
Reference is made to that certain Second Amended and Restated
Shareholders' Agreement dated as of July 12, 1999 (the "Agreement"), a copy of
which is attached hereto, among VIP Calling, Inc., a Delaware corporation (the
"Company"), and the Shareholders described therein (collectively, the
"Shareholders").
The undersigned, in order to become the owner or holder of:
6,404 shares (the " Shares") of Series C Convertible Preferred
Stock, par value $.001 per share, of the Company
hereby agrees that, by the undersigned's execution hereof, all of the Shares and
all other shares of capital stock of the Company that may from time to time be
owned or held by the undersigned, constitute shares subject to all the
applicable restrictions and conditions set forth in the Agreement. This
Instrument of Adherence shall take effect and shall become a part of the
Agreement immediately upon execution.
Executed as of the date set forth below under the laws of the
Commonwealth of Massachusetts.
INTEGRAL CAPITAL PARTNERS IV
MS SIDE FUND, L.P.
By: Integral Capital partners NBT, LLC,
Its Manager
By: /s/ Pamela Hagenah
-------------------------------
A Manager
Address: 2750 Sand Hill Road
----------------------------------
Menlo Park, Ca 94025
----------------------------------
Fax No.: 650-233-0366
----------------------------------
Date: July 12, 1999
----------------------------------
Accepted:
VIP CALLING, INC.
By:
----------------------------
<PAGE>
EXHIBIT A
INSTRUMENT OF ADHERENCE
Reference is made to that certain Second Amended and Restated
Shareholders' Agreement dated as of July 12, 1999 (the "Agreement"), a copy of
which is attached hereto, among VIP Calling, Inc., a Delaware corporation (the
"Company"), and the Shareholders described therein (collectively, the
"Shareholders").
The undersigned, in order to become the owner or holder of:
1,137,761 shares (the " Shares") of Series C Convertible
Preferred Stock, par value $.001 per share, of the Company
hereby agrees that, by the undersigned's execution hereof, all of the Shares and
all other shares of capital stock of the Company that may from time to time be
owned or held by the undersigned, constitute shares subject to all the
applicable restrictions and conditions set forth in the Agreement. This
Instrument of Adherence shall take effect and shall become a part of the
Agreement immediately upon execution.
Executed as of the date set forth below under the laws of the
Commonwealth of Massachusetts.
INTEGRAL CAPITAL PARTNERS IV, L.P.
By: Integral Capital Management IV, LLC,
Its General Partner
By: /s/ Pamela Hagenah
------------------------------
A Manager
------------------------------
Address: 2750 Sand Hill Road
---------------------------------
Menlo Park, Ca 94025
---------------------------------
Fax No.: 650-233-0366
---------------------------------
Date: July 12, 1999
------------------------------------
Accepted:
VIP CALLING, INC.
By:
---------------------------
<PAGE>
EXHIBIT A
INSTRUMENT OF ADHERENCE
Reference is made to that certain Second Amended and Restated
Shareholders' Agreement dated as of July 12, 1999 (the "Agreement"), a copy of
which is attached hereto, among VIP Calling, Inc., a Delaware corporation (the
"Company"), and the Shareholders described therein (collectively, the
"Shareholders").
The undersigned, in order to become the owner or holder of:
2,288 shares (the " Shares") of Series C Convertible Preferred
Stock, par value $.001 per share, of the Company
hereby agrees that, by the undersigned's execution hereof, all of the Shares and
all other shares of capital stock of the Company that may from time to time be
owned or held by the undersigned, constitute shares subject to all the
applicable restrictions and conditions set forth in the Agreement. This
Instrument of Adherence shall take effect and shall become a part of the
Agreement immediately upon execution.
Executed as of the date set forth below under the laws of the
Commonwealth of Massachusetts.
Name of Shareholder: Johan V. Brigham
----------------------
Signature: /s/ Johan V. Brigham
--------------------------------
Address: 14 Church Street
--------------------------------
Newton, Ma 02458
--------------------------------
Fax No.: (617) 244-7383
----------------------------------
Date: July 16, 1999
-------------------------------------
Accepted:
VIP CALLING, INC.
By:
---------------------------------
<PAGE>
EXHIBIT A
INSTRUMENT OF ADHERENCE
Reference is made to that certain Second Amended and Restated
Shareholders' Agreement dated as of July 12, 1999 (the "Agreement"), a copy of
which is attached hereto, among VIP Calling, Inc., a Delaware corporation (the
"Company"), and the Shareholders described therein (collectively, the
"Shareholders").
The undersigned, in order to become the owner or holder of:
51,487 shares (the " Shares") of Series C Convertible
Preferred Stock, par value $.001 per share, of the Company
hereby agrees that, by the undersigned's execution hereof, all of the Shares and
all other shares of capital stock of the Company that may from time to time be
owned or held by the undersigned, constitute shares subject to all the
applicable restrictions and conditions set forth in the Agreement. This
Instrument of Adherence shall take effect and shall become a part of the
Agreement immediately upon execution.
Executed as of the date set forth below under the laws of the
Commonwealth of Massachusetts.
Name of Shareholder: Porky Partners II, LLC
--------------------------
Signature: /s/ Tom D. Wippman,
------------------------------------
Manager and Authorized Agent
------------------------------------
Address: 650 Dundee Road, Suite 370
------------------------------------
Northbrook, IL 60062
------------------------------------
Fax No.: (847) 480-1251
------------------------------------
Date: 7-16-99
------------------------------------
Accepted:
VIP CALLING, INC.
By:
------------------------------------
<PAGE>
EXHIBIT A
INSTRUMENT OF ADHERENCE
Reference is made to that certain Second Amended and Restated
Shareholders' Agreement dated as of July 12, 1999 (the "Agreement"), a copy of
which is attached hereto, among VIP Calling, Inc., a Delaware corporation (the
"Company"), and the Shareholders described therein (collectively, the
"Shareholders").
The undersigned, in order to become the owner or holder of:
4,805 shares (the " Shares") of Series C Convertible Preferred
Stock, par value $.001 per share, of the Company
hereby agrees that, by the undersigned's execution hereof, all of the Shares and
all other shares of capital stock of the Company that may from time to time be
owned or held by the undersigned, constitute shares subject to all the
applicable restrictions and conditions set forth in the Agreement. This
Instrument of Adherence shall take effect and shall become a part of the
Agreement immediately upon execution.
Executed as of the date set forth below under the laws of the
Commonwealth of Massachusetts.
Name of Shareholder: James A. Bell
------------------------
Signature: /s/ James A. Bell
----------------------------------
Address: 4241 Daniel Drive
----------------------------------
Eagan, MN 55123
----------------------------------
----------------------------------
Fax No.: (612) 342-1037
----------------------------------
Date: 7/16/99
----------------------------------
Accepted:
VIP CALLING, INC.
By:
----------------------------
<PAGE>
EXHIBIT A
INSTRUMENT OF ADHERENCE
Reference is made to that certain Second Amended and Restated
Shareholders' Agreement dated as of July 12, 1999 (the "Agreement"), a copy of
which is attached hereto, among VIP Calling, Inc., a Delaware corporation (the
"Company"), and the Shareholders described therein (collectively, the
"Shareholders").
The undersigned, in order to become the owner or holder of:
___________ shares (the " Shares") of Series C Convertible
Preferred Stock, par value $.001 per share, of the Company
hereby agrees that, by the undersigned's execution hereof, all of the Shares and
all other shares of capital stock of the Company that may from time to time be
owned or held by the undersigned, constitute shares subject to all the
applicable restrictions and conditions set forth in the Agreement. This
Instrument of Adherence shall take effect and shall become a part of the
Agreement immediately upon execution.
Executed as of the date set forth below under the laws of the
Commonwealth of Massachusetts.
Name of Shareholder: Dirigo Partners, LLC
-----------------------
Signature: /S/ David Roux
---------------------------------
Address: 307 Olive Hill Ln
-----------------------------------
Woodside CA 94062
-----------------------------------
-----------------------------------
Fax No.: 650-561-9125
-----------------------------------
Date:
-----------------------------------
Accepted:
VIP CALLING, INC.
By:
---------------------------
<PAGE>
EXHIBIT A
INSTRUMENT OF ADHERENCE
Reference is made to that certain Second Amended and Restated
Shareholders' Agreement dated as of July 12, 1999 (the "Agreement"), a copy of
which is attached hereto, among VIP Calling, Inc., a Delaware corporation (the
"Company"), and the Shareholders described therein (collectively, the
"Shareholders").
The undersigned, in order to become the owner or holder of:
13,730 shares (the " Shares") of Series C Convertible
Preferred Stock, par value $.001 per share, of the Company
hereby agrees that, by the undersigned's execution hereof, all of the Shares and
all other shares of capital stock of the Company that may from time to time be
owned or held by the undersigned, constitute shares subject to all the
applicable restrictions and conditions set forth in the Agreement. This
Instrument of Adherence shall take effect and shall become a part of the
Agreement immediately upon execution.
Executed as of the date set forth below under the laws of the
Commonwealth of Massachusetts.
Name of Shareholder: John Sternfield
-----------------------
Signature:/s/ John Sternfield
---------------------------------
Address: 2765 Ross Road
-----------------------------------
Palo Alto, CA 94303
-----------------------------------
-----------------------------------
Fax No.: 650-233-2270
-----------------------------------
Date: July 13, 1999
--------------------------------------
Accepted:
VIP CALLING, INC.
By:
----------------------------
<PAGE>
EXHIBIT A
INSTRUMENT OF ADHERENCE
Reference is made to that certain Second Amended and Restated
Shareholders' Agreement dated as of July 12, 1999 (the "Agreement"), a copy of
which is attached hereto, among VIP Calling, Inc., a Delaware corporation (the
"Company"), and the Shareholders described therein (collectively, the
"Shareholders").
The undersigned, in order to become the owner or holder of:
9,153 shares (the " Shares") of Series C Convertible Preferred
Stock, par value $.001 per share, of the Company
hereby agrees that, by the undersigned's execution hereof, all of the Shares and
all other shares of capital stock of the Company that may from time to time be
owned or held by the undersigned, constitute shares subject to all the
applicable restrictions and conditions set forth in the Agreement. This
Instrument of Adherence shall take effect and shall become a part of the
Agreement immediately upon execution.
Executed as of the date set forth below under the laws of the
Commonwealth of Massachusetts.
Name of Shareholder: Richard Frawley
---------------------
Signature: /s/ Richard Frawley
--------------------------------
Address: 7 Mavis Ave.
--------------------------------
Peakhurst
--------------------------------
NSW Australia
--------------------------------
Fax No.: 61-2-9534-7002
---------------------------------
Date: 6th July 1999
------------------------------------
Accepted:
VIP CALLING, INC.
By:
-----------------------------
<PAGE>
EXHIBIT A
INSTRUMENT OF ADHERENCE
Reference is made to that certain Second Amended and Restated
Shareholders' Agreement dated as of July 12, 1999 (the "Agreement"), a copy of
which is attached hereto, among VIP Calling, Inc., a Delaware corporation (the
"Company"), and the Shareholders described therein (collectively, the
"Shareholders").
The undersigned, in order to become the owner or holder of:
1,144 shares (the " Shares") of Series C Convertible Preferred
Stock, par value $.001 per share, of the Company
hereby agrees that, by the undersigned's execution hereof, all of the Shares and
all other shares of capital stock of the Company that may from time to time be
owned or held by the undersigned, constitute shares subject to all the
applicable restrictions and conditions set forth in the Agreement. This
Instrument of Adherence shall take effect and shall become a part of the
Agreement immediately upon execution.
Executed as of the date set forth below under the laws of the
Commonwealth of Massachusetts.
Name of Shareholder: Elizabeth T. Pawel
-------------------------
Signature: /S/ Elizabeth T. Pawel
-----------------------------------
Address: (Home) 21 Kenneth Ct., Summit NJ
-------------------------------------
(Work) 230 Park Ave., 20th Floor
-------------------------------------
N.Y., NY 10169
-------------------------------------
Fax No.: 212-207-1591
-------------------------------------
Date: June 29, 1999
----------------------------------------
Accepted:
VIP CALLING, INC.
By:
------------------------
<PAGE>
EXHIBIT A
INSTRUMENT OF ADHERENCE
Reference is made to that certain Second Amended and Restated
Shareholders' Agreement dated as of July 12, 1999 (the "Agreement"), a copy of
which is attached hereto, among VIP Calling, Inc., a Delaware corporation (the
"Company"), and the Shareholders described therein (collectively, the
"Shareholders").
The undersigned, in order to become the owner or holder of:
1,144 shares (the " Shares") of Series C Convertible Preferred
Stock, par value $.001 per share, of the Company
hereby agrees that, by the undersigned's execution hereof, all of the Shares and
all other shares of capital stock of the Company that may from time to time be
owned or held by the undersigned, constitute shares subject to all the
applicable restrictions and conditions set forth in the Agreement. This
Instrument of Adherence shall take effect and shall become a part of the
Agreement immediately upon execution.
Executed as of the date set forth below under the laws of the
Commonwealth of Massachusetts.
Name of Shareholder: Daniel H. Case III
-----------------------
Signature: /s/ Daniel H. Case III
---------------------------------
Address: c/o Hambrecht & Quist
-----------------------------------
One Bush Street, 18th Floor
-----------------------------------
San Francisco, CA 94104
-----------------------------------
Fax No.: 415-439-3263
-----------------------------------
Date:
--------------------------------------
Accepted:
VIP CALLING, INC.
By:
------------------------------
<PAGE>
EXHIBIT A
INSTRUMENT OF ADHERENCE
Reference is made to that certain Second Amended and Restated
Shareholders' Agreement dated as of July 12, 1999 (the "Agreement"), a copy of
which is attached hereto, among VIP Calling, Inc., a Delaware corporation (the
"Company"), and the Shareholders described therein (collectively, the
"Shareholders").
The undersigned, in order to become the owner or holder of:
1,144 shares (the " Shares") of Series C Convertible Preferred
Stock, par value $.001 per share, of the Company
hereby agrees that, by the undersigned's execution hereof, all of the Shares and
all other shares of capital stock of the Company that may from time to time be
owned or held by the undersigned, constitute shares subject to all the
applicable restrictions and conditions set forth in the Agreement. This
Instrument of Adherence shall take effect and shall become a part of the
Agreement immediately upon execution.
Executed as of the date set forth below under the laws of the
Commonwealth of Massachusetts.
Name of Shareholder: Eric C. Zimits
---------------------
Signature: /s/ Eric C. Zimits
-------------------------------
Address: 1448 Lake St.
---------------------------------
San Francisco, CA 94118
---------------------------------
---------------------------------
Fax No.: 915/439-3445
---------------------------------
Date: 6/29/99
------------------------------------
Accepted:
VIP CALLING, INC.
By:
---------------------------
<PAGE>
EXHIBIT A
INSTRUMENT OF ADHERENCE
Reference is made to that certain Second Amended and Restated
Shareholders' Agreement dated as of July 12, 1999 (the "Agreement"), a copy of
which is attached hereto, among VIP Calling, Inc., a Delaware corporation (the
"Company"), and the Shareholders described therein (collectively, the
"Shareholders").
The undersigned, in order to become the owner or holder of:
1,144 shares (the " Shares") of Series C Convertible Preferred
Stock, par value $.001 per share, of the Company
hereby agrees that, by the undersigned's execution hereof, all of the Shares and
all other shares of capital stock of the Company that may from time to time be
owned or held by the undersigned, constitute shares subject to all the
applicable restrictions and conditions set forth in the Agreement. This
Instrument of Adherence shall take effect and shall become a part of the
Agreement immediately upon execution.
Executed as of the date set forth below under the laws of the
Commonwealth of Massachusetts.
Name of Shareholder: Timothy W. Baughman
------------------------
Signature: /s/ Timothy W. Baughman
----------------------------------
Address: 35 Crest Road
------------------------------------
Ross, CA 94957
------------------------------------
------------------------------------
Fax No.: 415-439-3131
------------------------------------
Date: 6/29/99
---------------------------------------
Accepted:
VIP CALLING, INC.
By:
--------------------------
<PAGE>
EXHIBIT A
INSTRUMENT OF ADHERENCE
Reference is made to that certain Second Amended and Restated
Shareholders' Agreement dated as of July 12, 1999 (the "Agreement"), a copy of
which is attached hereto, among VIP Calling, Inc., a Delaware corporation (the
"Company"), and the Shareholders described therein (collectively, the
"Shareholders").
The undersigned, in order to become the owner or holder of:
9,153 shares (the " Shares") of Series C Convertible Preferred
Stock, par value $.001 per share, of the Company
hereby agrees that, by the undersigned's execution hereof, all of the Shares and
all other shares of capital stock of the Company that may from time to time be
owned or held by the undersigned, constitute shares subject to all the
applicable restrictions and conditions set forth in the Agreement. This
Instrument of Adherence shall take effect and shall become a part of the
Agreement immediately upon execution.
Executed as of the date set forth below under the laws of the
Commonwealth of Massachusetts.
HAMBRECHT & QUIST EMPLOYEE VENTURE
FUND, L.P. II
By: H&Q VENTURE MANAGEMENT, L.L.C.
Its: General Partner
By: /s/ Robert N. Savoie
------------------------------------
Tax Director, Attorney-in-Fact
Address: One Bush St.
--------------------------------------
SF, CA 94104
--------------------------------------
Fax No.: (415) 439-3807
--------------------------------------
Date: 6/29/99
-----------------------------------------
Accepted:
VIP CALLING, INC.
By:
------------------------------
<PAGE>
EXHIBIT A
INSTRUMENT OF ADHERENCE
Reference is made to that certain Second Amended and Restated
Shareholders' Agreement dated as of July 12, 1999 (the "Agreement"), a copy of
which is attached hereto, among VIP Calling, Inc., a Delaware corporation (the
"Company"), and the Shareholders described therein (collectively, the
"Shareholders").
The undersigned, in order to become the owner or holder of:
9,153 shares (the " Shares") of Series C Convertible Preferred
Stock, par value $.001 per share, of the Company
hereby agrees that, by the undersigned's execution hereof, all of the Shares and
all other shares of capital stock of the Company that may from time to time be
owned or held by the undersigned, constitute shares subject to all the
applicable restrictions and conditions set forth in the Agreement. This
Instrument of Adherence shall take effect and shall become a part of the
Agreement immediately upon execution.
Executed as of the date set forth below under the laws of the
Commonwealth of Massachusetts.
Name of Shareholder: HAMBRECHT & QUIST CALIFORNIA
-----------------------------
Signature: /s/ Robert N. Savoie
---------------------------------------
Tax Director, Attorney-in-Fact
Address: One Bush St.
-----------------------------------------
SF CA 94104
-----------------------------------------
Fax No.: (415) 439-3807
-----------------------------------------
Date: 6/29/99
--------------------------------------------
Accepted:
VIP CALLING, INC.
By:
----------------------------
<PAGE>
EXHIBIT A
INSTRUMENT OF ADHERENCE
Reference is made to that certain Second Amended and Restated
Shareholders' Agreement dated as of July 12, 1999 (the "Agreement"), a copy of
which is attached hereto, among VIP Calling, Inc., a Delaware corporation (the
"Company"), and the Shareholders described therein (collectively, the
"Shareholders").
The undersigned, in order to become the owner or holder of:
___________ shares (the " Shares") of Series C Convertible
Preferred Stock, par value $.001 per share, of the Company
hereby agrees that, by the undersigned's execution hereof, all of the Shares and
all other shares of capital stock of the Company that may from time to time be
owned or held by the undersigned, constitute shares subject to all the
applicable restrictions and conditions set forth in the Agreement. This
Instrument of Adherence shall take effect and shall become a part of the
Agreement immediately upon execution.
Executed as of the date set forth below under the laws of the
Commonwealth of Massachusetts.
Name of Shareholder: Bayview Investors, LTD.
------------------------
Signature: /s/ Dana Welch
----------------------------------
Address: 555 California St., Suite 2600
------------------------------------
San Francisco, CA 94104
------------------------------------
Attn: Jennifer Sherrill
------------------------------------
Fax No.: 415-676-2990
------------------------------------
Date: 6/29/99
---------------------------------------
Accepted:
VIP CALLING, INC.
By:
------------------------------
<PAGE>
EXHIBIT A
INSTRUMENT OF ADHERENCE
Reference is made to that certain Second Amended and Restated
Shareholders' Agreement dated as of July 12, 1999 (the "Agreement"), a copy of
which is attached hereto, among VIP Calling, Inc., a Delaware corporation (the
"Company"), and the Shareholders described therein (collectively, the
"Shareholders").
The undersigned, in order to become the owner or holder of:
517,784 shares (the " Shares") of Series C Convertible
Preferred Stock, par value $.001 per share, of the Company
hereby agrees that, by the undersigned's execution hereof, all of the Shares and
all other shares of capital stock of the Company that may from time to time be
owned or held by the undersigned, constitute shares subject to all the
applicable restrictions and conditions set forth in the Agreement. This
Instrument of Adherence shall take effect and shall become a part of the
Agreement immediately upon execution.
Executed as of the date set forth below under the laws of the
Commonwealth of Massachusetts.
Name of Shareholder: New Media Investors III,
-------------------------
LLC
-----
Signature: /s/ Gary Wilkinson
-----------------------------------
Address: c/o Bain & Company, Inc.
-------------------------------------
Boston, MA 02116
-------------------------------------
Fax No.: 617-572-3266
-------------------------------------
Date: June 29, 1999
----------------------------------------
Accepted:
VIP CALLING, INC.
By:
-----------------------------
<PAGE>
EXHIBIT A
INSTRUMENT OF ADHERENCE
Reference is made to that certain Second Amended and Restated
Shareholders' Agreement dated as of July 12, 1999 (the "Agreement"), a copy of
which is attached hereto, among VIP Calling, Inc., a Delaware corporation (the
"Company"), and the Shareholders described therein (collectively, the
"Shareholders").
The undersigned, in order to become the owner or holder of:
___________ shares (the " Shares") of Series C Convertible
Preferred Stock, par value $.001 per share, of the Company
hereby agrees that, by the undersigned's execution hereof, all of the Shares and
all other shares of capital stock of the Company that may from time to time be
owned or held by the undersigned, constitute shares subject to all the
applicable restrictions and conditions set forth in the Agreement. This
Instrument of Adherence shall take effect and shall become a part of the
Agreement immediately upon execution.
Executed as of the date set forth below under the laws of the
Commonwealth of Massachusetts.
Name of Shareholder: David L. Engel
----------------------
Signature: /s/ David L. Engel
--------------------------------
Address: c/o Bingham Dana LLP
----------------------------------
150 Federal Street
----------------------------------
Boston, MA 02110
----------------------------------
Fax No.: 617-951-8736
----------------------------------
Date: 6/28/99
-------------------------------------
Accepted:
VIP CALLING, INC.
By:
---------------------------
<PAGE>
EXHIBIT A
INSTRUMENT OF ADHERENCE
Reference is made to that certain Second Amended and Restated
Shareholders' Agreement dated as of July 12, 1999 (the "Agreement"), a copy of
which is attached hereto, among VIP Calling, Inc., a Delaware corporation (the
"Company"), and the Shareholders described therein (collectively, the
"Shareholders").
The undersigned, in order to become the owner or holder of:
___________ shares (the " Shares") of Series C Convertible
Preferred Stock, par value $.001 per share, of the Company
hereby agrees that, by the undersigned's execution hereof, all of the Shares and
all other shares of capital stock of the Company that may from time to time be
owned or held by the undersigned, constitute shares subject to all the
applicable restrictions and conditions set forth in the Agreement. This
Instrument of Adherence shall take effect and shall become a part of the
Agreement immediately upon execution.
Executed as of the date set forth below under the laws of the
Commonwealth of Massachusetts.
Name of Shareholder: Barry N. Hurwitz
----------------------
Signature: /s/ Barry N. Hurwitz
--------------------------------
Address: 315 Central St.
----------------------------------
Newton, MA 02466
----------------------------------
----------------------------------
Fax No.: 617-951-8736
----------------------------------
Date:
-------------------------------------
Accepted:
VIP CALLING, INC.
By:
-------------------------------
<PAGE>
EXHIBIT A
INSTRUMENT OF ADHERENCE
Reference is made to that certain Second Amended and Restated
Shareholders' Agreement dated as of July 12, 1999 (the "Agreement"), a copy of
which is attached hereto, among VIP Calling, Inc., a Delaware corporation (the
"Company"), and the Shareholders described therein (collectively, the
"Shareholders").
The undersigned, in order to become the owner or holder of:
71,034 shares (the " Shares") of Series C Convertible
Preferred Stock, par value $.001 per share, of the Company
hereby agrees that, by the undersigned's execution hereof, all of the Shares and
all other shares of capital stock of the Company that may from time to time be
owned or held by the undersigned, constitute shares subject to all the
applicable restrictions and conditions set forth in the Agreement. This
Instrument of Adherence shall take effect and shall become a part of the
Agreement immediately upon execution.
Executed as of the date set forth below under the laws of the
Commonwealth of Massachusetts.
TCV III, L.P.,
a Delaware Limited Partnership
By: Technology Crossover Management III,
L.L.C.,
Its General Partner
By: /s/ R Bensky
-----------------------------------
Robert C. Bensky
Chief Financial Officer
Address: Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07941
Attention: Robert C. Bensky
Phone: (973) 467-5320
Fax: (973) 467-5323
with a copy to:
Technology Crossover Ventures
575 High Street, Suite 400
Palo Alto, CA 94301
Attention: Richard H. Kimball
Phone: (650) 614-8220
Fax: (650) 614-8222
Date:
-------------------------------------
Accepted:
VIP CALLING, INC.
By:
------------------------------
<PAGE>
EXHIBIT A
INSTRUMENT OF ADHERENCE
Reference is made to that certain Second Amended and Restated
Shareholders' Agreement dated as of July 12, 1999 (the "Agreement"), a copy of
which is attached hereto, among VIP Calling, Inc., a Delaware corporation (the
"Company"), and the Shareholders described therein (collectively, the
"Shareholders").
The undersigned, in order to become the owner or holder of:
14,955 shares (the " Shares") of Series C Convertible
Preferred Stock, par value $.001 per share, of the Company
hereby agrees that, by the undersigned's execution hereof, all of the Shares and
all other shares of capital stock of the Company that may from time to time be
owned or held by the undersigned, constitute shares subject to all the
applicable restrictions and conditions set forth in the Agreement. This
Instrument of Adherence shall take effect and shall become a part of the
Agreement immediately upon execution.
Executed as of the date set forth below under the laws of the
Commonwealth of Massachusetts.
TCV III (GP),
a Delaware General Partnership
By: Technology Crossover Management III,
L.L.C.,
Its General Partner
By: /s/ R Bensky
-------------------------------------
Robert C. Bensky
Chief Financial Officer
Address: Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07941
Attention: Robert C. Bensky
Phone: (973) 467-5320
Fax: (973) 467-5323
with a copy to:
Technology Crossover Ventures
575 High Street, Suite 400
Palo Alto, CA 94301
Attention: Richard H. Kimball
Phone: (650) 614-8220
Fax: (650) 614-8222
Date:
---------------------------------------
Accepted:
VIP CALLING, INC.
By:
------------------------------
<PAGE>
EXHIBIT A
INSTRUMENT OF ADHERENCE
Reference is made to that certain Second Amended and Restated
Shareholders' Agreement dated as of July 12, 1999 (the "Agreement"), a copy of
which is attached hereto, among VIP Calling, Inc., a Delaware corporation (the
"Company"), and the Shareholders described therein (collectively, the
"Shareholders").
The undersigned, in order to become the owner or holder of:
1,888,010 shares (the " Shares") of Series C Convertible
Preferred Stock, par value $.001 per share, of the Company
hereby agrees that, by the undersigned's execution hereof, all of the Shares and
all other shares of capital stock of the Company that may from time to time be
owned or held by the undersigned, constitute shares subject to all the
applicable restrictions and conditions set forth in the Agreement. This
Instrument of Adherence shall take effect and shall become a part of the
Agreement immediately upon execution.
Executed as of the date set forth below under the laws of the
Commonwealth of Massachusetts.
TCV III (Q), L.P.,
a Delaware Limited Partnership
By: Technology Crossover Management III,
L.L.C.,
Its General Partner
By: /s/ R Bensky
------------------------------------
Robert C. Bensky
Chief Financial Officer
Address: Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07941
Attention: Robert C. Bensky
Phone: (973) 467-5320
Fax: (973) 467-5323
with a copy to:
Technology Crossover Ventures
575 High Street, Suite 400
Palo Alto, CA 94301
Attention: Richard H. Kimball
Phone: (650) 614-8220
Fax: (650) 614-8222
Date:
--------------------------------------
Accepted:
VIP CALLING, INC.
By:
-------------------------------
<PAGE>
EXHIBIT A
INSTRUMENT OF ADHERENCE
Reference is made to that certain Second Amended and Restated
Shareholders' Agreement dated as of July 12, 1999 (the "Agreement"), a copy of
which is attached hereto, among VIP Calling, Inc., a Delaware corporation (the
"Company"), and the Shareholders described therein (collectively, the
"Shareholders").
The undersigned, in order to become the owner or holder of:
85,498 shares (the " Shares") of Series C Convertible
Preferred Stock, par value $.001 per share, of the Company
hereby agrees that, by the undersigned's execution hereof, all of the Shares and
all other shares of capital stock of the Company that may from time to time be
owned or held by the undersigned, constitute shares subject to all the
applicable restrictions and conditions set forth in the Agreement. This
Instrument of Adherence shall take effect and shall become a part of the
Agreement immediately upon execution.
Executed as of the date set forth below under the laws of the
Commonwealth of Massachusetts.
TCV III Strategic Partners, L.P.,
a Delaware Limited Partnership
By: Technology Crossover Management III,
L.L.C.,
Its General Partner
By: /s/ R Bensky
-----------------------------------
Robert C. Bensky
Chief Financial Officer
Address: Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07941
Attention: Robert C. Bensky
Phone: (973) 467-4320
Fax: (973) 467-5323
with a copy to:
Technology Crossover Ventures
575 High Street, Suite 400
Palo Alto, CA 94301
Attention: Richard H. Kimball
Phone: (650) 614-8220
Fax: (650) 614-8222
Date:
-------------------------------------
Accepted:
VIP CALLING, INC.
By:
------------------------------
<PAGE>
EXHIBIT A
INSTRUMENT OF ADHERENCE
Reference is made to that certain Second Amended and Restated
Shareholders' Agreement dated as of July 12, 1999 (the "Agreement"), a copy of
which is attached hereto, among VIP Calling, Inc., a Delaware corporation (the
"Company"), and the Shareholders described therein (collectively, the
"Shareholders").
The undersigned, in order to become the owner or holder of:
______ shares (the "Shares") of Series C Convertible
Preferred Stock, par value $.001 per share, of the Company
hereby agrees that, by the undersigned's execution hereof, all of the Shares and
all other shares of capital stock of the Company that may from time to time be
owned or held by the undersigned, constitute shares subject to all the
applicable restrictions and conditions set forth in the Agreement. This
Instrument of Adherence shall take effect and shall become a part of the
Agreement immediately upon execution.
Executed as of the date set forth below under the laws of the
Commonwealth of Massachusetts.
Name of Shareholder: Edward R. Jackson
------------------
Signature: /s/ EDWARD R. JACKSON
----------------------------
Address: 4604 Drexel Ave
-----------------------------
Edina, MN 55424
-----------------------------
-----------------------------
Fax No.: 612-342-6360
-----------------------------
Date:
-------------------------------------
Accepted:
VIP CALLING, INC.
By:
------------------------------
<PAGE>
EXHIBIT 10.17
FIRST AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
This Amended and Restated Registration Rights Agreement (this
"AGREEMENT"), dated as of July 12, 1999, is made by and among:
(i) VIP Calling, Inc., a Delaware corporation (the "COMPANY");
(ii) undersigned holders of at least a majority of the Registrable
Shares (as such term is defined in that certain Registration Rights Agreement,
by and among the Company and certain of its stockholders, dated as of October
24, 1997, as amended as of August 26, 1998 (the "EXISTING AGREEMENT"); and
(iii) each person or entity that subsequently becomes a party hereto by
executing and delivering to the Company an Instrument of Adherence substantially
in the form attached as EXHIBIT A hereto.
PREAMBLE
WHEREAS, the Company and the holders of shares of the Company's Series
A Convertible Preferred Stock, par value $.001 per share (the "SERIES A
PREFERRED STOCK") and the Company's Series B Convertible Preferred Stock, par
value $.001 per share (the "SERIES B PREFERRED STOCK") are parties to the
Existing Agreement;
WHEREAS, in connection with the Company's sale and issuance of up to
5,775,000 shares of Series C Convertible Preferred Stock, par value $.001 per
share (the "SERIES C PREFERRED STOCK"), to certain purchasers thereof (the
"SERIES C INVESTORS"), the parties to the Existing Agreement wish to extend to
the Series C Investors, certain rights and obligations contained in the Existing
Agreement; and
WHEREAS, parties to the Existing Agreement wish to amend and restate
the terms of the Existing Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein contained, the parties hereto hereby agree that the Existing
Agreement is amended and restated in its entirety as follows:
1. DEFINITIONS. In addition to those terms defined elsewhere in this
Agreement, the following terms as used herein shall have the following meanings:
"COMMISSION" shall mean the U.S. Securities and Exchange
Commission.
"COMMON STOCK" shall mean the Class A Common Stock, par value
$.001 per share, of the Company (or such other security of the Company
into which such Class A Common Stock may be subsequently
reconstituted).
<PAGE>
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended.
"INVESTOR" shall mean each party to the Existing Agreement
(other than the Company), each Series C Investor and any Permitted
Transferee thereof.
"PERMITTED TRANSFEREE" shall mean any Person that (a)
purchases or otherwise acquires Registrable Shares from an affiliated
Investor, (b) alone or together with one or more affiliates, purchases
or otherwise acquires at least 250,000 Registrable Shares from one or
more Investors or (c) acquires any Registrable Shares from an Investor
or Permitted Transferee that is a partnership or limited liability
company (provided such Person is a partner or member, respectively, of
such entity or an affiliate thereof); PROVIDED that, in each case, such
Person becomes an "INVESTOR" party to this Agreement by executing and
delivering to the Company an Instrument of Adherence substantially in
the form of EXHIBIT A hereto.
"PERSON" shall mean an individual, partnership, corporation,
association, trust, joint venture, unincorporated organization, and any
government, governmental department or agency or political subdivision
thereof.
"REGISTRABLE SHARES" shall mean any or all of the shares of
Common Stock issued upon conversion of any or all of the Company's
Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock; PROVIDED, HOWEVER, that, with respect to each
Investor, such securities shall cease to be Registrable Shares on the
earlier of (i) the fifth anniversary of the closing of the first firm
commitment public offering of shares of capital stock of the Company
pursuant to the Securities Act (the "IPO") or (ii) the date on which
such Investor is first entitled to sell all of such shares of Common
Stock pursuant to the provisions of Rule 144 in any three-month period.
"RULE 144" shall mean Rule 144 promulgated under the
Securities Act and any successor or substitute rule, law or provision.
"SECURITIES ACT" shall mean the U.S. Securities Act of 1933,
as amended.
2. DEMAND REGISTRATION RIGHTS.
2.1. REGISTRATION UPON REQUEST. Subject to the provisions of Section
2.4 below, at any time or from time to time, Investors holding thirty (30)
percent of the Registrable Shares then outstanding may notify the Company in
writing that such Investors desire for the Company to cause all or a portion of
the Registrable Shares to be registered under the Securities Act pursuant to
this Section 2.1; PROVIDED that the Registrable Shares to be so registered by
such Investors shall have an aggregate proposed sales price of at least
$1,000,000. Thereafter, the Company shall promptly give to each Investor written
notice of such demand for registration. Upon the written request of any Investor
given within ten days after the giving of any such notice by the Company, the
Company shall use its best efforts to cause to be included in such registration
the Registrable Shares of such Investor, to the extent requested to be
registered. Thereafter, subject to the
<PAGE>
conditions, limitations and provisions set forth below in Sections 2.3, 2.4
and 5, the Company shall promptly prepare and file, and use its best efforts
to prosecute to effectiveness, an appropriate filing with the Commission of a
registration statement covering all of those Registrable Shares with respect
to which registration under the Securities Act has been requested by the
requesting Investors; PROVIDED that, if the Company has been given a notice
of the type specified in Section 2.1 or 4.1, the Company is not at such time
continuing to pursue the registration referred to in such notice. Subject to
the provisions of Section 2.3 below, the Company may include in any
registration pursuant to this Section 2.1 additional shares of Common Stock
for sale for its own account or for the account of any other Person.
2.2. SELECTION OF UNDERWRITERS. If a registration pursuant to Section
2.1 involves an underwritten offering, the underwriter or underwriters thereof
shall be selected, after consultation with the Company, by the Investors who own
the Registrable Shares being so registered, PROVIDED that such underwriter or
underwriters shall be reasonably acceptable to the Company. The Company
covenants that it shall not unreasonably withhold its acceptance of any such
underwriter or underwriters.
2.3. PRIORITY OF DEMAND REGISTRATIONS. If a registration pursuant to
Section 2.1 involves an underwritten offering, and the managing underwriter
shall advise the Company in writing that, in its opinion, the number of shares
of Common Stock requested to be included in such registration exceeds the number
which can be sold in such offering, the Company will include in such
registration, to the extent of the number of shares of Common Stock which the
Company is so advised can be sold in such offering, (i) first, the number of
Registrable Shares requested to be included in such registration by the
Investors, pro rata among the Investors on the basis of the number of
Registrable Shares requested to be registered in such registration and (ii)
second, the other shares of Common Stock of the Company proposed to be included
in such registration, in accordance with the priorities, if any, then existing
among the Company and the holders of such other securities.
2.4. LIMITATION ON REGISTRATIONS. The Company shall not be required to
effect more than two (2) registrations pursuant to Section 2.1.
2.5. LIMITATION ON REQUESTS. Notwithstanding anything in this Section 2
to the contrary, the Investor may not request a registration pursuant to Section
2.1 prior to (i) June 30, 2001 or (ii) during the 180-day period following the
closing of the IPO. For purposes of this Agreement, a registration shall be
deemed to have been effected by the Company if the registration statement
relating thereto has been declared effective by the Commission or if such
registration statement, after having been filed with the Commission, is, through
no fault of the Company, withdrawn, abandoned or otherwise not declared
effective within sixty (60) days of the filing thereof.
3. PIGGYBACK REGISTRATION RIGHTS.
3.1. REGISTRATION. If at any time after the IPO, the Company proposes
to register any of its Common Stock under the Securities Act, whether for its
own account or for the account of any stockholder of the Company or pursuant to
registration rights granted to holders of securities of the Company (but
excluding in all cases any registrations pursuant to Sections 2 or 4 hereof or
any registrations to be effected on Forms S-4 or S-8 or any applicable successor
Forms), the Company shall, each such time, give to each Investor written notice
of its intent to do so. Upon the written request of any Investor given within
ten days after the giving of any such notice by the
<PAGE>
Company, the Company shall use its best efforts to cause to be included in
such registration the Registrable Shares of such Investor, to the extent
requested to be registered, subject to Section 3.2; PROVIDED that such
Investor agrees to sell those of its Registrable Shares to be included in
such registration in the same manner and on the same terms and conditions as
the other shares of Common Stock which the Company purposes to register.
3.2. PRIORITY OF THE COMPANY SHARES. In connection with any offering
involving an underwriting of shares being issued by the Company or being sold
pursuant to any demand registration rights of any stockholder of the Company,
the Company shall not be required under Section 3.1 to include the Registrable
Shares of any Investor therein unless such Investor accepts and agrees to the
terms of the underwriting as agreed upon between the Company and/or the
stockholder(s) exercising demand registration rights, as applicable, and the
underwriters selected by the Company and/or such stockholders, and then only in
such quantity as (without any reduction in the numbers of shares to be sold for
the account of the Company and any such stockholders) will not, in the opinion
of the underwriters, jeopardize the success of the offering by the Company or
such stockholders. If the total number of shares of Common Stock which all
selling stockholders of the Company, including any Investors, request to be
included in any offering exceeds the number of shares which the underwriters
believe to be compatible with the success of the offering, the Company shall
only be required to include in the offering so many of shares of stockholders
(including any Investors) exercising piggy-back registration rights, pro rata
among the Investors and other stockholders exercising piggy-back registration
rights on the basis of the number of shares requested to be registered in such
registration, as the underwriters believe will not (without any reduction in the
number of shares to be sold for the account of the Company and any
stockholder(s) exercising demand registration rights) jeopardize the success of
the offering.
4. FORM S-3 REGISTRATION.
4.1. REGISTRATION UPON REQUEST. In the event that the Company shall
receive from Investors holding twenty (20) percent of the Registrable Shares
then outstanding a written request or requests that the Company effect a
registration on Form S-3 (or any applicable successor Form) with respect to all
or a part of the Registrable Shares owned by such Investors, then the Company
will promptly use its best efforts to effect such registration of all or such
portion of such Investors' Registrable Shares as are specified in such request;
PROVIDED that, if the Company has been given a notice of the type specified in
Section 2.1, 3 or this Section 4.1, the Company is not at such time continuing
to pursue the registration referred to in such notice. Promptly after receipt by
the Company of a notice requesting registration pursuant to this Section 4.1,
the Company shall give to each Investor written notice of such request for
registration. Upon the written request of any Investor given within ten days
after the giving of any such notice by the Company, the Company shall use its
best efforts to cause to be included in such registration the Registrable Shares
of such Investor, to the extent requested to be registered. Subject to Section
4.3, the Company may include in any registration pursuant to this Section 4.1
additional shares of Common Stock for sale for its own account or for the
account of any other Person. No registration under this Section 4.1 shall be
underwritten unless the Company shall otherwise elect in its sole and absolute
discretion.
4.2. SELECTION OF UNDERWRITERS. If a registration pursuant to Section
4.1 involves an underwritten offering, the underwriter or underwriters thereof
shall be selected by the Company.
<PAGE>
4.3. PRIORITY OF DEMAND REGISTRATIONS. If a registration pursuant to
Section 4.1 involves an underwritten offering, and the managing underwriter
shall advise the Company in writing that, in its opinion, the number of shares
of Common Stock requested to be included in such registration exceeds the number
which can be sold in such offering, the Company will include in such
registration, to the extent of the number of shares of Common Stock which the
Company is so advised can be sold in such offering, (i) first, the number of
Registrable Shares requested to be included in such registration by the
requesting Investors and (ii) second, the other shares of Common Stock of the
Company proposed to be included in such registration, in accordance with the
priorities, if any, then existing among the Company and the holders of such
other securities.
4.4. LIMITATION ON REGISTRATIONS. Notwithstanding anything to the
contrary in this Section 4, the Company shall not be required to effect any
registration pursuant to Section 4.1 unless the Registrable Shares to be so
registered shall have an aggregate proposed sales price of at least $1,000,000.
5. DEFERRAL. Notwithstanding anything to the contrary contained in this
Agreement, the Company's obligation to file a registration statement pursuant to
Section 2, 3 or 4 shall be deferred for a period not to exceed 90 days in any
12-month period if the Company, in the good faith judgment of its Board of
Directors, reasonably believes that the filing thereof at the time requested
would materially adversely affect a pending or proposed public offering of
Common Stock, or an acquisition, merger, recapitalization, consolidation,
reorganization or similar transaction, or any negotiations, discussions or
pending proposals with respect thereto.
6. ADDITIONAL OBLIGATIONS OF THE COMPANY.
Whenever the Company is required under Section 2, 3 or 4 to use its
best efforts to effect the registration of any of the Registrable Shares of any
Investor, the Company shall promptly:
(a) Prepare and file with the Commission a registration
statement with respect to such Registrable Shares and use its best
efforts to cause such registration statement to become and remain
effective; PROVIDED, however that the Company shall in no event be
obligated to cause any such registration to remain effective for more
than 180 days;
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to comply with the provisions
of the Securities Act with respect to the disposition of all securities
covered by such registration statement;
(c) Furnish to such Investor such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as the
Investor may reasonably request in order to facilitate the disposition
of such Registrable Shares; and
(d) Use its best efforts to register and qualify such
Registrable Shares under such other securities or blue sky laws of such
jurisdictions as shall be reasonably appropriate in the opinion of the
Company and the managing underwriters, PROVIDED that the Company shall
not be required in connection therewith or as a condition thereto to
qualify to do business or to file a general consent to service of
process in any such states or jurisdictions, and PROVIDED FURTHER that
(anything in Section 8 to the contrary
<PAGE>
notwithstanding with respect to the bearing of expenses) if any
jurisdiction in which the securities shall be qualified shall
require that expenses incurred in connection with the qualification
therein of the securities be borne by selling shareholders, then
each Investor shall, to the extent required by such jurisdiction,
pay its PRO RATA share of selling expenses.
7. FURNISH INFORMATION.
It shall be a condition precedent to the obligations of the Company to
take any action pursuant to this Agreement that any Investor requesting
registration of any of such Investor's Registrable Shares shall furnish to the
Company such information regarding such Investor, the Registrable Shares held by
such Investor, the proposed plan of distribution of such Registrable Shares, and
any other information as the Company shall reasonably request and as shall be
required in order to effect any such registration by the Company.
8. EXPENSES.
All expenses incurred in connection with a registration pursuant to
this Agreement (excluding underwriting commissions and discounts), including
without limitation reasonable fees and disbursements of one special counsel for
the selling Investors, all registration and qualification fees, printing costs,
and fees and disbursements of counsel for the Company, shall be borne by the
Company; PROVIDED, HOWEVER, that the Company shall not be required to pay for
blue sky registration or qualification expenses in connection with states in
which the Company is not registering or qualifying its original issue shares or
Registrable Shares of Investors upon exercise of their demand registration
rights.
9. INDEMNIFICATION.
9.1. INDEMNIFICATION. In the event that any Registrable Shares of any
Investor are included in a registration statement pursuant to this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless such Investor, any underwriter (as defined in the
Securities Act) for the Company, and each officer and director of such
Investor or such underwriter and each Person, if any, who controls such
Investor or such underwriter within the meaning of the Securities Act,
against any losses, claims, damages or liabilities, joint or several,
to which they may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue or alleged
untrue statement of any material fact contained in such registration
statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, or arise
out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading; and will reimburse the
Investor, such underwriter or such officer, director or controlling
Person for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim,
damage, liability or action; PROVIDED, HOWEVER, that the indemnity
agreement contained in this Section 9.1(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of
<PAGE>
the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such loss,
damage, liability or action to the extent that it primarily arises
out of or is based upon an untrue statement or alleged untrue
statement or omission made in connection with such registration
statement, preliminary prospectus, final prospectus, or amendments
or supplements thereto, in reliance upon and in conformity with
information furnished expressly for use in connection with such
registration by such Investor, any underwriter for such Investor or
controlling Person with respect to such Investor.
(b) To the extent permitted by law, such Investor will
indemnify and hold harmless the Company, each of its directors, each of
its officers who have signed such registration statement, each Person,
if any, who controls the Company within the meaning of the Securities
Act, and any underwriter for the Company (within the meaning of the
Securities Act) against any losses, claims, damages or liabilities to
which the Company or any such director, officer, controlling Person, or
underwriter may become subject to, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any untrue
or alleged untrue statement of any material fact contained in such
registration statement, including any preliminary prospectus contained
therein or any amendments or supplements thereto, or arise out of or
are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent that such
untrue statement or alleged untrue statement or omission or alleged
omission was made in such registration statement, preliminary
prospectus, final prospectus, or amendments or supplements thereto, in
reliance upon and in conformity with information furnished in writing
by the Investor expressly for use in connection with such registration;
and the Investor will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, controlling
Person, or underwriter in connection with investigating or defending
any such loss, claim, damage, liability or action; PROVIDED, HOWEVER,
that the indemnity agreement contained in this Section 9.1(b) shall not
apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent
of such Investor against which the request for indemnity is being made
(which consent shall not be unreasonably withheld).
(c) Promptly after receipt by an indemnified party under this
Section 9.1 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against any indemnifying party under this Section 9.1, notify the
indemnifying party in writing of the commencement thereof and the
indemnifying party shall have the right to participate in and, to the
extent the indemnifying party desires, jointly with any other
indemnifying party similarly noticed, to assume at its expense the
defense thereof with counsel mutually satisfactory to the parties. The
failure to notify an indemnifying party promptly of the commencement of
any such action, if prejudicial to his ability to defend such action,
shall relieve such indemnifying party of any liability to the
indemnified party under this Section 9.1 only if and to the extent such
failure to promptly notify was prejudicial to its ability to defend
such action, and the omission so to notify the indemnifying party will
not relieve the indemnifying party of any liability which he may have
to any indemnified party otherwise other than under this Section 9.1.
<PAGE>
(d) If the indemnification provided for in this Subsection 9.1
is held by a court of competent jurisdiction to be unavailable or
insufficient to hold harmless an indemnified party under this
Subsection 9.1, then each indemnifying party, in lieu of indemnifying
such indemnified party, shall contribute to the amount paid or payable
by such indemnified party as a result of the claims, losses, damages or
liabilities (or actions in respect thereof) referred to in Subsection
(a) or (b) of this Section 9.1 (i) in such proportion as is appropriate
to reflect the relative fault of each indemnifying party in connection
with the statements or omissions that resulted in such claims, losses,
damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative
considerations referred to in clause (i) above but also the relative
benefit to each indemnifying party. Relative fault shall be determined
by reference to, among other things, whether the untrue or alleged
untrue statement of material fact or the omission or alleged omission
to state a material fact relates to information supplied by each
indemnifying party and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such untrue
statement or omission. The parties agree that it would not be just and
equitable if contributions pursuant to this Subsection 9.1(d) were to
be determined by pro rata allocation or by any other method of
allocation that does not take into account the equitable considerations
referred to in the first sentence of this Section 9.1(d). The amount
paid by an indemnified party as a result of the claims, losses, damages
or liabilities (or actions in respect thereof) referred to in the first
sentence of this Section 9.1(d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in
connection with investigation, preparing to defend or defending against
any action or claim that is the subject of this Subsection 9.1(d). No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent
misrepresentation.
(e) Notwithstanding the foregoing, the liability of each
Investor under this Subsection 9.1 shall be limited to an amount equal
to the net proceeds of the shares sold by such Investor.
9.2. OVERRIDE. Notwithstanding anything in this Section 9 to the
contrary, if, in connection with an underwritten public offering of the
Registrable Shares, the Company, any Investor and the underwriters enter into an
underwriting or purchase agreement relating to such offering which contains
provisions covering indemnification as between the Company and such Investor,
then the indemnification provision of this Section 9 shall be deemed inoperative
for purposes of such offering.
10. [deleted]
11. GENERAL.
11.1 ADDITIONAL REGISTRATION RIGHTS. Without the prior consent of
Investors holding a majority of the Registrable Shares then outstanding, the
Company shall not grant to any other holder of the Company's securities
registration rights that are superior to or in any way adversely affect the
registration rights granted to the Investors hereunder.
<PAGE>
11.2. REMEDIES. In case that any one or more of the covenants and/or
agreements set forth in this Agreement shall have been breached by any party
hereto, the party or parties entitled to the benefit of such covenants or
agreements may proceed to protect and enforce its or their rights, either by
suit in equity and/or action at law, including, but not limited to, an action
for damages as a result of any such breach and/or an action for specific
performance of any such covenant or agreement contained in this Agreement. The
rights, powers and remedies of the parties to this Agreement are cumulative and
not exclusive of any other right, power or remedy which such parties may have
under any other agreement or law. No single or partial assertion or exercise of
any right, power or remedy of a party hereunder shall preclude any other or
further assertion or exercise thereof.
11.3. ASSIGNMENT. None of the parties to this Agreement shall assign or
delegate any of their respective rights or obligations under this Agreement
other parties hereto other than in connection with a transfer of securities of
the Company made to a Permitted Transferee.
11.4. SURVIVAL. The rights and obligations of the parties hereto set
forth herein shall survive indefinitely, unless and until, by their respective
terms, they are no longer applicable.
11.5. ENTIRE AGREEMENT. This Agreement contains the entire agreement
among the parties with respect to the subject matter hereof and supersedes all
prior and contemporaneous arrangements or understandings with respect thereto.
11.6. NOTICES. All notices, requests, consents and other communications
hereunder to any party shall be deemed to be sufficient if contained in a
written instrument delivered in person or duly sent by first class, registered,
certified or overnight mail, postage prepaid, or telecopied with a confirmation
copy by regular mail, addressed or telecopied, as the case may be, to such party
at the address or telecopier number, as the case may be, set forth below or such
other address or telecopier number, as the case may be, as may hereafter be
designated in writing by the addressee to the addressor listing all parties:
(i) If to the Company, to:
VIP Calling, Inc.
20 Second Avenue
Burlington, MA 01803
Fax: 781-505-7300
Attn: Ofer Gneezy, President
with a copy to:
Bingham Dana LLP
150 Federal Street
Boston, MA 02110
Fax: 617-951-8736
Attn: David L. Engel, Esq.
<PAGE>
(ii) If to an Investor, to the address or addresses of such Investor
set forth on the Instrument of Adherence to this Agreement executed and
delivered to the Company by such Investor.
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
Any notice or other communication pursuant to this Agreement shall be
deemed to have been duly given or made and to have become effective (i) when
delivered in hand to the party to which it was directed, (ii) if sent by telex,
telecopier, facsimile machine or telegraph and properly addressed in accordance
with the foregoing provisions of this Section 11.6, when received by the
addressee, (iii) if sent by commercial courier guaranteeing next business day
delivery, on the business day following the date of delivery to such courier, or
(iii) if sent by first-class mail, postage prepaid, and properly addressed in
accordance with the foregoing provisions of this Section 11.6, (A) when received
by the addressee, or (B) on the third business day following the day of dispatch
thereof, whichever of (A) or (B) shall be the earlier.
11.7. AMENDMENTS AND WAIVERS. Any provision of this Agreement may be
amended, modified or terminated, and the observance of any provision of this
Agreement may be waived (either generally or in a particular instance and either
retrospectively or prospectively), with, but only with, the written consent of
Investors holding of record at least a majority of the Registrable Shares
outstanding at such time.
11.8. SEVERABILITY. Any provision of this Agreement that is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11.9. NO WAIVER OF FUTURE BREACH. No failure or delay on the part of
any party to this Agreement in exercising any right, power or remedy hereunder
shall operate as a waiver thereof. No assent, express or implied, by any party
hereto to any breach in or default of any agreement or condition herein
contained on the part of any other party hereto shall constitute a waiver of or
assent to any succeeding breach in or default of the same or any other agreement
or condition hereof by such other party.
11.10. NO IMPLIED RIGHTS OR REMEDIES; THIRD PARTY BENEFICIARIES. Except
as otherwise expressly provided in this Agreement, nothing herein expressed or
implied is intended or shall be construed to confer upon or to give any Person,
firm or corporation, other than the parties hereto, any rights or remedies under
or by reason of this Agreement. Except as otherwise expressly provided in this
Agreement, there are no intended third party beneficiaries under or by reason of
this Agreement.
11.11. HEADINGS. The headings of the various sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed to
be a part of this Agreement.
<PAGE>
11.12. NOUNS AND PRONOUNS. Whenever the context may require, any
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of names and pronouns shall include the
plural and vice-versa.
11.13. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Massachusetts, excluding
choice of law rules thereof.
11.14. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, this First Amended and Restated Registration Rights
Agreement has been executed under seal by the parties hereto as of the day and
year first above written.
VIP CALLING, INC.
By: /s/ Ofer Gneezy
----------------------------
Ofer Gneezy, President
CHARLES RIVER VIII-A LLC MENLO VENTURES VII, L.P.
By: Charles River Friends VII, Inc., By: MV Management VII, L.L.C.,
Manager its General Partner
By: /s/ Izhar Armony By: /s/ Mark Siegel
- ------------------------------ ---------------------------------
Name: Name: Mark Siegel
Title: Title: Managing Member
CHARLES RIVER LIMITED MENLO ENTREPRENEURS
PARTNERSHIP VIII, A FUND VII, L.P.
Limited Partnership By: MV Management VII, L.L.C.,
By: Charles River VIII GP its General Partner
Limited Partnership, General Partner
By: /s/ Izhar Armony By: /s/ Mark Siegel
- ------------------------------ ---------------------------------
Name: Name: Mark Siegel
Title: Title: Managing Member
<PAGE>
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
______________, 1999
Reference is made to that certain First Amended and Restated Registration
Rights Agreement, dated as of July 12, 1999, by and among VIP Calling, Inc., a
Delaware corporation (the "COMPANY"), and the "Investor" parties thereto, as
amended (the "REGISTRATION RIGHTS AGREEMENT").
In connection with the undersigned's purchase on the date hereof of shares
of the Company's Series C Convertible Preferred Stock, par value $.001 per
share, the undersigned hereby agrees to become a party as of the date hereof to
the Registration Rights Agreement as an "Investor" thereunder and that, as such,
the undersigned shall be afforded all of the rights of and subject to all of the
obligations of an Investor pursuant to the Registration Rights Agreement.
IN WITNESS WHEREOF, the undersigned hereby sets forth its hand as of the
date first written above.
By: /s/ Elizabeth T. Pawel
-----------------------------------
Name: Elizabeth T. Pawel
Title:
Accepted:
VIP CALLING, INC.
By:
-----------------------------
<PAGE>
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
____________, 1999
Reference is made to that certain First Amended and Restated Registration
Rights Agreement, dated as of July 12, 1999, by and among VIP Calling, Inc., a
Delaware corporation (the "COMPANY"), and the "Investor" parties thereto, as
amended (the "REGISTRATION RIGHTS AGREEMENT").
In connection with the undersigned's purchase on the date hereof of shares
of the Company's Series C Convertible Preferred Stock, par value $.001 per
share, the undersigned hereby agrees to become a party as of the date hereof to
the Registration Rights Agreement as an "Investor" thereunder and that, as such,
the undersigned shall be afforded all of the rights of and subject to all of the
obligations of an Investor pursuant to the Registration Rights Agreement.
IN WITNESS WHEREOF, the undersigned hereby sets forth its hand as of the
date first written above.
By: /s/ Daniel H. Case III
-----------------------------------
Name: Daniel H. Case III
Title:
Accepted:
VIP CALLING, INC.
By:
-----------------------------
<PAGE>
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
JUNE 29, 1999
Reference is made to that certain First Amended and Restated Registration
Rights Agreement, dated as of July 12, 1999, by and among VIP Calling, Inc., a
Delaware corporation (the "COMPANY"), and the "Investor" parties thereto, as
amended (the "REGISTRATION RIGHTS AGREEMENT").
In connection with the undersigned's purchase on the date hereof of shares
of the Company's Series C Convertible Preferred Stock, par value $.001 per
share, the undersigned hereby agrees to become a party as of the date hereof to
the Registration Rights Agreement as an "Investor" thereunder and that, as such,
the undersigned shall be afforded all of the rights of and subject to all of the
obligations of an Investor pursuant to the Registration Rights Agreement.
IN WITNESS WHEREOF, the undersigned hereby sets forth its hand as of the
date first written above.
By: /s/ Eric Zimits
-----------------------------------
Name: Eric Zimits
Title: Managing Director
Accepted:
VIP CALLING, INC.
By:
-----------------------------
<PAGE>
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
JUNE 29, 1999
Reference is made to that certain First Amended and Restated Registration
Rights Agreement, dated as of July 12, 1999, by and among VIP Calling, Inc., a
Delaware corporation (the "COMPANY"), and the "Investor" parties thereto, as
amended (the "REGISTRATION RIGHTS AGREEMENT").
In connection with the undersigned's purchase on the date hereof of shares
of the Company's Series C Convertible Preferred Stock, par value $.001 per
share, the undersigned hereby agrees to become a party as of the date hereof to
the Registration Rights Agreement as an "Investor" thereunder and that, as such,
the undersigned shall be afforded all of the rights of and subject to all of the
obligations of an Investor pursuant to the Registration Rights Agreement.
IN WITNESS WHEREOF, the undersigned hereby sets forth its hand as of the
date first written above.
By: /s/ Timothy Baughman
-----------------------------------
Name: Timothy Baughman
Title: Principal
Accepted:
VIP CALLING, INC.
By:
-----------------------------
<PAGE>
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
______________, 1999
Reference is made to that certain First Amended and Restated Registration
Rights Agreement, dated as of July 12, 1999, by and among VIP Calling, Inc., a
Delaware corporation (the "COMPANY"), and the "Investor" parties thereto, as
amended (the "REGISTRATION RIGHTS AGREEMENT").
In connection with the undersigned's purchase on the date hereof of shares
of the Company's Series C Convertible Preferred Stock, par value $.001 per
share, the undersigned hereby agrees to become a party as of the date hereof to
the Registration Rights Agreement as an "Investor" thereunder and that, as such,
the undersigned shall be afforded all of the rights of and subject to all of the
obligations of an Investor pursuant to the Registration Rights Agreement.
IN WITNESS WHEREOF, the undersigned hereby sets forth its hand as of the
date first written above.
HAMBRECHT & QUIST EMPLOYEE VENTURE
FUND, L.P. II
By: H&Q VENTURE MANAGEMENT, L.L.C.
Its: General Partner
By: /s/ Robert N. Savoie
-----------------------------------
Name: Robert N. Savoie
Its: Tax Director, Attorney-in-Fact
Accepted:
VIP CALLING, INC.
By:
-----------------------------
<PAGE>
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
JULY 6, 1999
Reference is made to that certain First Amended and Restated Registration
Rights Agreement, dated as of July 12, 1999, by and among VIP Calling, Inc., a
Delaware corporation (the "COMPANY"), and the "Investor" parties thereto, as
amended (the "REGISTRATION RIGHTS AGREEMENT").
In connection with the undersigned's purchase on the date hereof of shares
of the Company's Series C Convertible Preferred Stock, par value $.001 per
share, the undersigned hereby agrees to become a party as of the date hereof to
the Registration Rights Agreement as an "Investor" thereunder and that, as such,
the undersigned shall be afforded all of the rights of and subject to all of the
obligations of an Investor pursuant to the Registration Rights Agreement.
IN WITNESS WHEREOF, the undersigned hereby sets forth its hand as of the
date first written above.
By: /s/ Richard Frawley
-----------------------------------
Name: Richard Frawley
Title:
Accepted:
VIP CALLING, INC.
By:
-----------------------------
<PAGE>
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
JULY 12, 1999
Reference is made to that certain First Amended and Restated Registration
Rights Agreement, dated as of July 12, 1999, by and among VIP Calling, Inc., a
Delaware corporation (the "COMPANY"), and the "Investor" parties thereto, as
amended (the "REGISTRATION RIGHTS AGREEMENT").
In connection with the undersigned's purchase on the date hereof of shares
of the Company's Series C Convertible Preferred Stock, par value $.001 per
share, the undersigned hereby agrees to become a party as of the date hereof to
the Registration Rights Agreement as an "Investor" thereunder and that, as such,
the undersigned shall be afforded all of the rights of and subject to all of the
obligations of an Investor pursuant to the Registration Rights Agreement.
IN WITNESS WHEREOF, the undersigned hereby sets forth its hand as of the
date first written above.
HAMBRECHT & QUIST CALIFORNIA
By: /s/ Robert N. Savoie
-----------------------------------
Name: Robert N. Savoie
Title: Tax Director, Attorney-in-Fact
Accepted:
VIP CALLING, INC.
By:
-----------------------------
<PAGE>
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
______________, 1999
Reference is made to that certain First Amended and Restated Registration
Rights Agreement, dated as of July 12, 1999, by and among VIP Calling, Inc., a
Delaware corporation (the "COMPANY"), and the "Investor" parties thereto, as
amended (the "REGISTRATION RIGHTS AGREEMENT").
In connection with the undersigned's purchase on the date hereof of shares
of the Company's Series C Convertible Preferred Stock, par value $.001 per
share, the undersigned hereby agrees to become a party as of the date hereof to
the Registration Rights Agreement as an "Investor" thereunder and that, as such,
the undersigned shall be afforded all of the rights of and subject to all of the
obligations of an Investor pursuant to the Registration Rights Agreement.
IN WITNESS WHEREOF, the undersigned hereby sets forth its hand as of the
date first written above.
BAYVIEW INVESTORS, LTD.
By: /s/ Dana Welch
-----------------------------------
Name: Dana Welch
Title: Authorized Signatory
Accepted:
VIP CALLING, INC.
By:
-----------------------------
<PAGE>
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
JUNE 29, 1999
Reference is made to that certain First Amended and Restated Registration
Rights Agreement, dated as of July 12, 1999, by and among VIP Calling, Inc., a
Delaware corporation (the "COMPANY"), and the "Investor" parties thereto, as
amended (the "REGISTRATION RIGHTS AGREEMENT").
In connection with the undersigned's purchase on the date hereof of shares
of the Company's Series C Convertible Preferred Stock, par value $.001 per
share, the undersigned hereby agrees to become a party as of the date hereof to
the Registration Rights Agreement as an "Investor" thereunder and that, as such,
the undersigned shall be afforded all of the rights of and subject to all of the
obligations of an Investor pursuant to the Registration Rights Agreement.
IN WITNESS WHEREOF, the undersigned hereby sets forth its hand as of the
date first written above.
NEW MEDIA INVESTORS III, L.L.C.
By: /s/ Gary Wilkinson
-----------------------------------
Name: Gary Wilkinson
Title: Managing Member
Accepted:
VIP CALLING, INC.
By:
-----------------------------
<PAGE>
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
______________, 1999
Reference is made to that certain First Amended and Restated Registration
Rights Agreement, dated as of July 12, 1999, by and among VIP Calling, Inc., a
Delaware corporation (the "COMPANY"), and the "Investor" parties thereto, as
amended (the "REGISTRATION RIGHTS AGREEMENT").
In connection with the undersigned's purchase on the date hereof of shares
of the Company's Series C Convertible Preferred Stock, par value $.001 per
share, the undersigned hereby agrees to become a party as of the date hereof to
the Registration Rights Agreement as an "Investor" thereunder and that, as such,
the undersigned shall be afforded all of the rights of and subject to all of the
obligations of an Investor pursuant to the Registration Rights Agreement.
IN WITNESS WHEREOF, the undersigned hereby sets forth its hand as of the
date first written above.
By: /s/ David L. Engel
-----------------------------------
Name: David L. Engel
Title:
Accepted:
VIP CALLING, INC.
By:
-----------------------------
<PAGE>
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
______________, 1999
Reference is made to that certain First Amended and Restated Registration
Rights Agreement, dated as of July 12, 1999, by and among VIP Calling, Inc., a
Delaware corporation (the "COMPANY"), and the "Investor" parties thereto, as
amended (the "REGISTRATION RIGHTS AGREEMENT").
In connection with the undersigned's purchase on the date hereof of shares
of the Company's Series C Convertible Preferred Stock, par value $.001 per
share, the undersigned hereby agrees to become a party as of the date hereof to
the Registration Rights Agreement as an "Investor" thereunder and that, as such,
the undersigned shall be afforded all of the rights of and subject to all of the
obligations of an Investor pursuant to the Registration Rights Agreement.
IN WITNESS WHEREOF, the undersigned hereby sets forth its hand as of the
date first written above.
TCV III (GP),
a Delaware General Partnership
By: Technology Crossover Management III, L.L.C.,
Its General Partner
By: /s/ R. Bensky
-----------------------------------
Robert C. Bensky
Chief Financial Officer
Address: Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
Attention: Robert C. Bensky
Phone: (973) 467-5320
Fax: (973) 467-5323
with a copy to:
Technology Crossover Ventures
575 High Street, Suite 400
Palo Alto, CA 94301
Attn.: Richard H. Kimball
Phone: (650) 614-8220
Fax: (650) 614-8222
Accepted:
VIP CALLING, INC.
By:
-----------------------------
<PAGE>
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
______________, 1999
Reference is made to that certain First Amended and Restated Registration
Rights Agreement, dated as of July 12, 1999, by and among VIP Calling, Inc., a
Delaware corporation (the "COMPANY"), and the "Investor" parties thereto, as
amended (the "REGISTRATION RIGHTS AGREEMENT").
In connection with the undersigned's purchase on the date hereof of shares
of the Company's Series C Convertible Preferred Stock, par value $.001 per
share, the undersigned hereby agrees to become a party as of the date hereof to
the Registration Rights Agreement as an "Investor" thereunder and that, as such,
the undersigned shall be afforded all of the rights of and subject to all of the
obligations of an Investor pursuant to the Registration Rights Agreement.
IN WITNESS WHEREOF, the undersigned hereby sets forth its hand as of the
date first written above.
TCV III, L.P.,
a Delaware Limited Partnership
By: Technology Crossover Management III, L.L.C.,
Its General Partner
By: /s/ R. Bensky
-----------------------------------
Robert C. Bensky
Chief Financial Officer
Address: Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
Attention: Robert C. Bensky
Phone: (973) 467-5320
Fax: (973) 467-5323
with a copy to:
Technology Crossover Ventures
575 High Street, Suite 400
Palo Alto, CA 94301
Attn.: Richard H. Kimball
Phone: (650) 614-8220
Fax: (650) 614-8222
Accepted:
VIP CALLING, INC.
By:
-----------------------------
<PAGE>
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
______________, 1999
Reference is made to that certain First Amended and Restated Registration
Rights Agreement, dated as of July 12, 1999, by and among VIP Calling, Inc., a
Delaware corporation (the "COMPANY"), and the "Investor" parties thereto, as
amended (the "REGISTRATION RIGHTS AGREEMENT").
In connection with the undersigned's purchase on the date hereof of shares
of the Company's Series C Convertible Preferred Stock, par value $.001 per
share, the undersigned hereby agrees to become a party as of the date hereof to
the Registration Rights Agreement as an "Investor" thereunder and that, as such,
the undersigned shall be afforded all of the rights of and subject to all of the
obligations of an Investor pursuant to the Registration Rights Agreement.
IN WITNESS WHEREOF, the undersigned hereby sets forth its hand as of the
date first written above.
TCV III (Q), L.P.,
a Delaware Limited Partnership
By: Technology Crossover Management III, L.L.C.,
Its General Partner
By: /s/ R. Bensky
-----------------------------------
Robert C. Bensky
Chief Financial Officer
Address: Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
Attention: Robert C. Bensky
Phone: (973) 467-5320
Fax: (973) 467-5323
with a copy to:
Technology Crossover Ventures
575 High Street, Suite 400
Palo Alto, CA 94301
Attn.: Richard H. Kimball
Phone: (650) 614-8220
Fax: (650) 614-8222
Accepted:
VIP CALLING, INC.
By:
-----------------------------
<PAGE>
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
______________, 1999
Reference is made to that certain First Amended and Restated Registration
Rights Agreement, dated as of July 12, 1999, by and among VIP Calling, Inc., a
Delaware corporation (the "COMPANY"), and the "Investor" parties thereto, as
amended (the "REGISTRATION RIGHTS AGREEMENT").
In connection with the undersigned's purchase on the date hereof of shares
of the Company's Series C Convertible Preferred Stock, par value $.001 per
share, the undersigned hereby agrees to become a party as of the date hereof to
the Registration Rights Agreement as an "Investor" thereunder and that, as such,
the undersigned shall be afforded all of the rights of and subject to all of the
obligations of an Investor pursuant to the Registration Rights Agreement.
IN WITNESS WHEREOF, the undersigned hereby sets forth its hand as of the
date first written above.
TCV III Strategic Partners, L.P.,
a Delaware Limited Partnership
By: Technology Crossover Management III, L.L.C.,
Its General Partner
By: /s/ R. Bensky
-----------------------------------
Robert C. Bensky
Chief Financial Officer
Address: Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
Attention: Robert C. Bensky
Phone: (973) 467-5320
Fax: (973) 467-5323
with a copy to:
Technology Crossover Ventures
575 High Street, Suite 400
Palo Alto, CA 94301
Attn.: Richard H. Kimball
Phone: (650) 614-8220
Fax: (650) 614-8222
Accepted:
VIP CALLING, INC.
By:
-----------------------------
<PAGE>
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
______________, 1999
Reference is made to that certain First Amended and Restated Registration
Rights Agreement, dated as of July 12, 1999, by and among VIP Calling, Inc., a
Delaware corporation (the "COMPANY"), and the "Investor" parties thereto, as
amended (the "REGISTRATION RIGHTS AGREEMENT").
In connection with the undersigned's purchase on the date hereof of shares
of the Company's Series C Convertible Preferred Stock, par value $.001 per
share, the undersigned hereby agrees to become a party as of the date hereof to
the Registration Rights Agreement as an "Investor" thereunder and that, as such,
the undersigned shall be afforded all of the rights of and subject to all of the
obligations of an Investor pursuant to the Registration Rights Agreement.
IN WITNESS WHEREOF, the undersigned hereby sets forth its hand as of the
date first written above.
By: /s/ Barry N. Hurwitz
-----------------------------------
Name: Barry N. Hurwitz
Title:
Accepted:
VIP CALLING, INC.
By:
-----------------------------
<PAGE>
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
_________________, 1999
Reference is made to that certain First Amended and Restated Registration
Rights Agreement, dated as of July 12, 1999, by and among VIP Calling, Inc., a
Delaware corporation (the "COMPANY"), and the "Investor" parties thereto, as
amended (the "REGISTRATION RIGHTS AGREEMENT").
In connection with the undersigned's purchase on the date hereof of shares
of the Company's Series C Convertible Preferred Stock, par value $.001 per
share, the undersigned hereby agrees to become a party as of the date hereof to
the Registration Rights Agreement as an "Investor" thereunder and that, as such,
the undersigned shall be afforded all of the rights of and subject to all of the
obligations of an Investor pursuant to the Registration Rights Agreement.
IN WITNESS WHEREOF, the undersigned hereby sets forth its hand as of the
date first written above.
By: /s/ John D. Sternfield
-----------------------------------
Name: John D. Sternfield
Title: Principal
Accepted:
VIP CALLING, INC.
By:
-----------------------------
<PAGE>
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
JULY 16, 1999
Reference is made to that certain First Amended and Restated Registration
Rights Agreement, dated as of July 12, 1999, by and among VIP Calling, Inc., a
Delaware corporation (the "COMPANY"), and the "Investor" parties thereto, as
amended (the "REGISTRATION RIGHTS AGREEMENT").
In connection with the undersigned's purchase on the date hereof of shares
of the Company's Series C Convertible Preferred Stock, par value $.001 per
share, the undersigned hereby agrees to become a party as of the date hereof to
the Registration Rights Agreement as an "Investor" thereunder and that, as such,
the undersigned shall be afforded all of the rights of and subject to all of the
obligations of an Investor pursuant to the Registration Rights Agreement.
IN WITNESS WHEREOF, the undersigned hereby sets forth its hand as of the
date first written above.
By: /s/ Johan V. Brigham
-----------------------------------
Name: Johan V. Brigham
Accepted:
VIP CALLING, INC.
By:
-----------------------------
<PAGE>
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
JULY 16, 1999
Reference is made to that certain First Amended and Restated Registration
Rights Agreement, dated as of July 12, 1999, by and among VIP Calling, Inc., a
Delaware corporation (the "COMPANY"), and the "Investor" parties thereto, as
amended (the "REGISTRATION RIGHTS AGREEMENT").
In connection with the undersigned's purchase on the date hereof of shares
of the Company's Series C Convertible Preferred Stock, par value $.001 per
share, the undersigned hereby agrees to become a party as of the date hereof to
the Registration Rights Agreement as an "Investor" thereunder and that, as such,
the undersigned shall be afforded all of the rights of and subject to all of the
obligations of an Investor pursuant to the Registration Rights Agreement.
IN WITNESS WHEREOF, the undersigned hereby sets forth its hand as of the
date first written above.
By: /s/ Tom J. Wippman
-----------------------------------
Manager and Authorized Agent
Name: Porky Partners II, LLC
Accepted:
VIP CALLING, INC.
By:
-----------------------------
<PAGE>
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
____________, 1999
Reference is made to that certain First Amended and Restated Registration
Rights Agreement, dated as of July 12, 1999, by and among VIP Calling, Inc., a
Delaware corporation (the "COMPANY"), and the "Investor" parties thereto, as
amended (the "REGISTRATION RIGHTS AGREEMENT").
In connection with the undersigned's purchase on the date hereof of shares
of the Company's Series C Convertible Preferred Stock, par value $.001 per
share, the undersigned hereby agrees to become a party as of the date hereof to
the Registration Rights Agreement as an "Investor" thereunder and that, as such,
the undersigned shall be afforded all of the rights of and subject to all of the
obligations of an Investor pursuant to the Registration Rights Agreement.
IN WITNESS WHEREOF, the undersigned hereby sets forth its hand as of the
date first written above.
By: /s/ Edward Jackson
-----------------------------------
Name: Edward Jackson
Title:
Accepted:
VIP CALLING, INC.
By:
-----------------------------
<PAGE>
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
JULY 16, 1999
Reference is made to that certain First Amended and Restated Registration
Rights Agreement, dated as of July 12, 1999, by and among VIP Calling, Inc., a
Delaware corporation (the "COMPANY"), and the "Investor" parties thereto, as
amended (the "REGISTRATION RIGHTS AGREEMENT").
In connection with the undersigned's purchase on the date hereof of shares
of the Company's Series C Convertible Preferred Stock, par value $.001 per
share, the undersigned hereby agrees to become a party as of the date hereof to
the Registration Rights Agreement as an "Investor" thereunder and that, as such,
the undersigned shall be afforded all of the rights of and subject to all of the
obligations of an Investor pursuant to the Registration Rights Agreement.
IN WITNESS WHEREOF, the undersigned hereby sets forth its hand as of the
date first written above.
By: /s/ James A. Bell
-----------------------------------
Name: James A. Bell
Title:
Accepted:
VIP CALLING, INC.
By:
-----------------------------
<PAGE>
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
_______________, 1999
Reference is made to that certain First Amended and Restated Registration
Rights Agreement, dated as of July 12, 1999, by and among VIP Calling, Inc., a
Delaware corporation (the "COMPANY"), and the "Investor" parties thereto, as
amended (the "REGISTRATION RIGHTS AGREEMENT").
In connection with the undersigned's purchase on the date hereof of shares
of the Company's Series C Convertible Preferred Stock, par value $.001 per
share, the undersigned hereby agrees to become a party as of the date hereof to
the Registration Rights Agreement as an "Investor" thereunder and that, as such,
the undersigned shall be afforded all of the rights of and subject to all of the
obligations of an Investor pursuant to the Registration Rights Agreement.
IN WITNESS WHEREOF, the undersigned hereby sets forth its hand as of the
date first written above.
INTEGRAL CAPITAL PARTNERS IV
MS SIDE FUND, L.P.
By: Integral Capital Partners NBT, LLC,
Its Manager
By: /s/ Pamela Hagenah
-----------------------------------
A Manager
Address: 2750 Sand Hill Road
Menlo Park, CA 94025
Fax No.: 650-233-0366
Accepted:
VIP CALLING, INC.
By:
-----------------------------
<PAGE>
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
_____________, 1999
Reference is made to that certain First Amended and Restated Registration
Rights Agreement, dated as of July 12, 1999, by and among VIP Calling, Inc., a
Delaware corporation (the "COMPANY"), and the "Investor" parties thereto, as
amended (the "REGISTRATION RIGHTS AGREEMENT").
In connection with the undersigned's purchase on the date hereof of shares
of the Company's Series C Convertible Preferred Stock, par value $.001 per
share, the undersigned hereby agrees to become a party as of the date hereof to
the Registration Rights Agreement as an "Investor" thereunder and that, as such,
the undersigned shall be afforded all of the rights of and subject to all of the
obligations of an Investor pursuant to the Registration Rights Agreement.
IN WITNESS WHEREOF, the undersigned hereby sets forth its hand as of the
date first written above.
INTEGRAL CAPITAL PARTNERS IV, L.P.
By: Integral Capital Management IV, LLC,
Its General Partner
By: /s/ Pamela Hagenah
-----------------------------------
A Manager
Address: 2750 Sand Hill Road
Menlo Park, CA 94025
FaxNo.: 650-233-0366
Accepted:
VIP CALLING, INC.
By:
-----------------------------
<PAGE>
VIP CALLING, INC.
INSTRUMENT OF ADHERENCE
_______________, 1999
Reference is made to that certain First Amended and Restated Registration
Rights Agreement, dated as of July 12, 1999, by and among VIP Calling, Inc., a
Delaware corporation (the "COMPANY"), and the "Investor" parties thereto, as
amended (the "REGISTRATION RIGHTS AGREEMENT").
In connection with the undersigned's purchase on the date hereof of shares
of the Company's Series C Convertible Preferred Stock, par value $.001 per
share, the undersigned hereby agrees to become a party as of the date hereof to
the Registration Rights Agreement as an "Investor" thereunder and that, as such,
the undersigned shall be afforded all of the rights of and subject to all of the
obligations of an Investor pursuant to the Registration Rights Agreement.
IN WITNESS WHEREOF, the undersigned hereby sets forth its hand as of the
date first written above.
DIRIGO PARTNERS, LLC
By: /s/ David Roux
-----------------------------------
Name: David Roux
Title: Manager
Accepted:
VIP CALLING, INC.
By:
-----------------------------
<PAGE>
EXHIBIT 10.18
SHAREHOLDERS AGREEMENT
This Shareholders Agreement (this "Agreement"), made on the 28th day of March
1998,
BETWEEN
VIP Calling, Inc., ("VIP Calling") a Delaware company headquartered at 121
Middlesex Turnpike, Burlington, MA 01803, United States of America;
AND
Microworld Limited ("Microworld") with registered address at Room 1002,
10th Floor, Shatin 11 Plaza, 11 Wo Shing Street, Fotan, N.T., Hong Kong;
WITNESSETH THAT:
WHEREAS, the Parties have agreed to participate in a joint venture for the
purpose of establishing a business (the "Business") that shall provide
telecommunications and other services; and
WHEREAS, the Parties have agreed to establish a limited liability company (the
"Company") incorporated under the laws of Hong Kong under the terms and
conditions set forth herein; and
WHEREAS, the Parties now desire to determine certain aspects of the Company and
to define their mutual interests and obligations therein;
NOW THEREFORE, IN CONSIDERATION OF THE FOREGOING AND OF THE MUTUAL COVENANTS AND
CONDITIONS SET FORTH HEREIN, THE PARTIES AGREE AS FOLLOWS:
ARTICLE 1 THE COMPANY
The Parties agree to operate the Business as a limited liability company
incorporated in Hong Kong or such other place that the Parties shall agree. The
Parties shall purchase a shelf company, or incorporate a new company, as soon as
reasonably practicable, and shall name the Company VIP Calling Hong Kong Limited
or such other name as the Parties shall agree.
1
<PAGE>
ARTICLE 2 AUTHORIZED CAPITAL AND CAPITAL STRUCTURE
2.1 The initial authorized capital of the Company shall be the Hong Kong Dollar
equivalent of One Hundred Thousand United States Dollars (US$100,000)
represented by one hundred (100) ordinary shares with par value of the
equivalent of One Thousand United States Dollars (US$1,000) each. The issued
capital shall also be the Hong Kong Dollar equivalent of One Hundred Thousand
United States Dollars (US$100,000), and no shares may be issued until fully
paid.
2.2 The capital structure of the Company shall be as follows:
Name of Party No. of Shares Amount (US$) Percentage Ownership
------------- ------------- ------------ --------------------
VIP Calling 51 51,000 51%
Microworld 49 49,000 49%
2.3 The Parties shall make their contributions as set forth in Paragraph 2.2
within thirty (30) calendar days from the date that this Agreement is signed.
The failure of a Party to make the full contribution amount within such time
period shall constitute a material breach of this Agreement by such Party. Once
these contributions are made, the Parties shall have no obligation to make any
additional contributions to the capital of the Company.
ARTICLE 3 TRANSFER OF SHARES
3.1 The Parties agree that a transfer of shares in the Company to a transferee
which is and remains a majority-owned subsidiary of the transferor Party shall
be permitted provided that the shares will be re-transferred to the transferor
Party immediately upon the transferee ceasing to be a majority-owned subsidiary
of such Party. In the event of a transfer under this Paragraph 3.1, the
transferee shall execute such documents as may reasonably be required by the
other Party to require that the transferee shall be bound by this Agreement, and
any appropriate amendments hereto.
3.2 Except as provided in Paragraph 3.1 above, or as may otherwise be agreed by
the Board of Directors, no Party shall sell, transfer, pledge or otherwise
dispose of any of its shares in the Company, except pursuant to Article 7 of
this Agreement.
ARTICLE 4 BOARD OF DIRECTORS
4.1 The Board of Directors shall be comprised of four (4) Directors: two (2)
Directors nominated by VIP Calling and two (2) Directors nominated by
Microworld.
4.2 The quorum for meetings of the Company shall be two (2) Directors, one
appointed by each Party. The Company shall require the agreement of a majority
of Directors on all material matters concerning the Company. The Chairman of the
Board of Directors shall be
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appointed by VIP Calling, and shall have a second or casting vote in the event
of an equal vote in a Board meeting. In the event that the Chairman is unable to
act, then another Director appointed by VIP Calling shall act as the Chairman
for such period of time as the Chairman is unavailable.
ARTICLE 5 BUSINESS AND MANAGEMENT OF THE COMPANY
5.1 Day-to-day operations will be run by a General Manager. The Parties agree to
appoint Norman Chan as the first General Manager, subject to the agreement of
the terms and conditions of employment between Normal Chan and the Company, with
succeeding General Managers to be chosen by the Board of Directors. All other
officers of the Company shall also be appointed by the Board of Directors.
5.2 Microworld agrees that as soon as practicable it shall assign the following
contracts to the Company such that the Company will receive the benefits
thereof:
- Service Agreement between Microworld and VIP Calling Inc.
- WIN Internet Telephone contract
- MFS co-location contract
- phone line contracts
- UUNet contract
Copies of these contracts are provided in Attachments C-G hereto.
Microworld will ensure that all contracts are up-to-date as of the date of
the assignment and that there are no outstanding amounts or liabilities under
each contract. The Company shall incur no liability under any such contract
existing prior to the date of assignment to the Company, and Microworld shall
indemnify the Company therefor. If the Board of Directors agrees, new contracts
between the Company and the third-party contractors may be concluded to replace
the existing contracts listed above.
Microworld also agrees to work with Power Master Limited as soon as
practicable to assign the APNIC IP address assignment to the Company such that
the Company will receive the benefits thereof. Copy of this assignment is
provided in Attachment H hereto.
5.3 A business plan shall be developed by the Parties for approval by the Board
of Directors as soon as practicable. The business plan shall be reviewed on an
annual basis at least two (2) months prior to the commencement of each financial
year of the Company, such review to be undertaken by the Board of Directors.
5.4 The Parties may open a bank account in Hong Kong in the name of the Company.
All instructions to the company's bankers with regard to such account shall
require the signature of any two (2) Directors, except that any actions
involving disposition of funds from the bank account in excess of Five Thousand
United States Dollars (US$5,000), or its equivalent in Hong Kong Dollars, shall
require the signature of a Director nominated by VIP Calling and a Director
nominated by Microworld.
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ARTICLE 6 BUSINESS FINANCING
6.1 In addition to its capital contribution as set forth in Paragraph 2.2 above,
VIP Calling will transfer ownership of the equipment listed in Attachment A to
the Company. The equipment has an agreed value as set forth in Attachment A and
will be capitalized as a no-interest loan from VIP Calling to the Company at
such value. It is anticipated that re-payment of such loan will be made by the
Company to VIP Calling during 12-month period from which this Agreement is
signed.
6.2 In addition to its capital contribution as set forth in Paragraph 2.2 above,
Microworld will transfer ownership of the equipment listed in Attachment B to
the Company. The equipment has an agreed value as set forth in Attachment B and
will be capitalized as a no-interest loan from Microworld to the Company at such
value. It is anticipated that re-payment of such loan will be made by the
Company to Microworld during 12-month period from which this Agreement is
signed.
6.3 Microworld shall also use its best efforts to loan to the Company an
additional US$60,000 in cash, interest free, within 30 calender days from the
date that this agreement is signed. It is anticipated that re-payment of such
loan will be made by the Company to Microworld during 12-month period from which
this Agreement is signed.
6.4 For a period of 12 months from the date that this agreement is signed, VIP
Calling will pay the Company the cost of monthly Internet bandwidth minus
US$0.029 per minute of traffic terminating and originating by the Company.
6.5 All payments and investments resulting from Section 2 Attachment D -- The
WIN contract, will be paid by Microworld without liability to the Company or to
VIP Calling.
6.6 Except as provided above, the Parties shall not be required to lend the
Company any sums or to issue any guarantees for the purpose of securing any
sums.
ARTICLE 7 WITHDRAWAL AND TERMINATION
7.1 Either Party may withdraw from this Agreement by providing written
notification of its desire to withdraw to the other Party as provided in Article
13; provided, however, that no Party shall be allowed to withdraw until after it
has made its capital contribution in full, as set forth in Paragraph 2.2 above.
(a) Upon receipt of a notification of withdrawal in accordance with
Paragraph 7.1 above, the other Party shall have the option to
purchase the shares of the Company owned by the withdrawing Party at
a price equal to four (4) times the gross sales of the Company (in
United States Dollars) in the last-completed fiscal quarter
multiplied by the percentage equity ownership of the Company held by
the withdrawing Party.
(b) To exercise the option set forth in Subparagraph (a), the Party
having the option shall provide written notification of the exercise
of such option to the other Party, such notification to be provided
in accordance with Article 13,
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<PAGE>
within thirty (30) days from receipt of the notification of
withdrawal and must make payment on or before thirty (30) days
thereafter, or such other date as the Parties may agree.
7.2 This Agreement shall terminate upon any one of the following circumstances:
(a) either of the Parties withdraws from this Agreement in accordance
with Paragraph 7.1 above, and such termination of this Agreement
shall take effect thirty (30) days from the date of receipt by the
other Party of the notification of withdrawal;
(b) the Parties elect to terminate this Agreement by mutual agreement,
and such termination of this Agreement shall take effect on such
date as the Parties may agree;
(c) one Party elects to terminate this Agreement upon the bankruptcy or
insolvency of the other Party, and such termination of this
Agreement shall take effect fourteen (14) days from the date of
written notification of termination from the terminating Party to
the other Party; or
(d) pursuant to Paragraph 7.3 below, and such termination of this
Agreement shall take effect upon the transfer of the shares of
Microworld in the Company to VIP Calling.
7.3 Notwithstanding the foregoing, VIP Calling may elect to purchase the shares
of the Company owned by Microworld upon any one of the following circumstances:
(a) VIP Calling files a registration statement under relevant securities
laws pursuant to which all or a portion of the equity of VIP
Calling, or an entity controlled by VIP Calling, is to be sold to
the public; or
(b) there is a change in the control of the ownership, effective or
actual, of Microworld; or
(c) Microworld breaches this Agreement and such breach is not cured
within twenty (20) days from the date of written notification of
such breach from VIP Calling to Microworld.
In such event, the purchase price of the shares of Microworld shall be at
a price equal to:
(i) in the case of (a) above, the VIP Calling market value as
determined by the average of the bid and ask prices of the VIP
Calling shares for the thirty (30) trading days following the
Initial Public Offer (IPO), multiplied by the ratio of the gross
sales of the Company (in United States Dollars) in the
last-completed fiscal quarter to the gross sales of VIP Calling (in
United States Dollars) in the last-completed fiscal quarter,
multiplied by the percentage equity ownership of the Company held by
Microworld on the date that the VIP Calling registration statement
is filed; or
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(ii) in the case of either (b) or (c) above, four (4) times the
gross sales of the Company (in United States Dollars) in the
last-completed fiscal quarter, multiplied by the percentage equity
ownership of the Company held by Microworld.
ARTICLE 8 EFFECT OF TERMINATION
Upon termination of this Agreement for any reason other than (a) withdrawal
under Subparagraph 7.2(a) when the other Party elects to purchase the shares of
the Company owned by the withdrawing Party, or (b) in accordance with
Subparagraph 7.2(d), the Company shall be dissolved and wound up in accordance
with the applicable provisions of the laws of Hong Kong.
ARTICLE 9 CONFIDENTIALITY AND NON-COMPETITION
9.1 All documents and written information provided by one Party to the other
shall be deemed as confidential. Neither Party shall divulge any documents and
written information supplied to it by the other Party without the prior written
consent of the other Party which it shall have full liberty to withhold.
9.2 This Agreement and each part hereof shall be considered as confidential by
both Parties. Any disclosure of this Agreement by one Party to a third party
shall require the prior written consent of the other Party.
9.3 The obligations of the Parties under this Article shall not apply to
documents or written information which:
- are in the public domain or use;
- shall become in public use, by publication or otherwise, and due to
no fault of the receiving Party;
- are approved for release by the written authorization of the
disclosing Party; or
- are required, but only to the extent necessary, to be disclosed
pursuant to governmental or judicial order in which event the Party
concerned shall promptly notify the other Party of any such
requirement prior to such disclosure.
9.4 To the extent necessary for the implementation of this Agreement, each Party
may disclose to the officers and employees of the Company documents and written
information received from the other Party provided the recipient has first
agreed to be bound by the nondisclosure and use restrictions of this Agreement.
9.5 The confidentiality provisions in this Article 9 shall remain valid and
enforceable even after the termination of this Agreement.
ARTICLE 10 ASSIGNMENT
This Agreement, and the rights of each Party as described herein, may not be
assigned by either Party except with the prior written consent of the other
Party.
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ARTICLE 11 ACCOUNTING, DIVIDENDS AND BANK ACCOUNT
11.1 The fiscal year of the Company shall be January 1 to December 31.
11.2 The Parties agree that the Company shall adopt generally accepted
accounting practices ("GAAP") in Hong Kong.
11.3 Dividends will be distributed to the Parties as determined by the Board of
Directors. It is anticipated that quarterly dividends will be paid to
shareholders starting with the first quarter of 1999.
ARTICLE 12 REPRESENTATIONS AND WARRANTIES
12.1 VIP Calling represents and warrants that, as of the date hereof:
(a) it is an independent legal entity and a subsisting corporate body
duly organized under and pursuant to the laws of its place of
incorporation;
(b) it has full power and authority to execute this Agreement and to
perform its obligations hereunder;
(c) it has taken all requisite action to authorize the execution and
performance of this Agreement and to carry out the transactions
contemplated hereunder; the representative of VIP Calling whose
signature is affixed to this Agreement has full capacity and
authority to bind VIP Calling thereby; and this Agreement when
executed by VIP Calling and Microworld constitutes a valid and
binding agreement enforceable in accordance with its terms against
VIP Calling;
(d) neither the execution of this Agreement nor the performance by VIP
Calling of any of its obligations or the exercise of any of its
rights hereunder will conflict with or result in a breach of any
law, regulation, judgement, order, authorization, agreement or
obligation applicable to VIP Calling;
(e) no litigation, arbitration or administrative proceeding is currently
taking place or pending or, to the knowledge of VIP Calling,
threatened against VIP Calling or its assets.
12.2 VIP Calling agrees to indemnify and hold Microworld and the Company
harmless from any breach of the representations, warranties, covenants or
agreements set forth in this Agreement.
12.3 Microworld represents and warrants that, as of the date hereof:
(a) it is an independent legal entity and a subsisting corporate body
duly organized under and pursuant to the laws of its place of
incorporation;
(b) it has full power and authority to execute this Agreement and to
perform its obligations hereunder;
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<PAGE>
(c) it has taken all requisite action to authorize the execution and
performance of this Agreement and to carry out the transactions
contemplated hereunder; the representative of Microworld whose
signature is affixed to this Agreement has full capacity and
authority to bind Microworld thereby; and this Agreement when
executed by VIP Calling and Microworld constitutes a valid and
binding agreement enforceable in accordance with its terms against
Microworld;
(d) neither the execution of this Agreement nor the performance by
Microworld of any of its obligations or the exercise of any of its
rights hereunder will conflict with or result in a breach of any
law, regulation, judgement, order, authorization, agreement or
obligation applicable to Microworld;
(e) no litigation, arbitration or administrative proceeding is currently
taking place or pending or, to the knowledge of Microworld,
threatened against Microworld or its assets;
12.4 Microworld agrees to indemnify and hold VIP Calling and the Company
harmless from any breach of the representations, warranties, covenants or
agreements set forth in this Agreement.
ARTICLE 13 NOTICES
Any notice required or permitted to be given hereunder shall be in writing and
delivered in person or by registered airmail, express mail, an internationally
recognized courier or by facsimile to the appropriate Party at the address
appearing at the beginning of this Agreement, or to such other address as may be
furnished by one Party to the other in accordance with this Article 13. All
notices sent by facsimile must be confirmed by registered airmail but shall be
effective upon the other Party's receipt of such facsimile as evidenced by the
confirmation of receipt of the facsimile.
ARTICLE 14 GOVERNING LAW
14.1 This Agreement shall be governed by the laws of Hong Kong.
14.2 If any provision of this Agreement is held to be invalid or unenforceable,
such invalidity or unenforceability shall not affect the validity and
enforceability of the remaining provisions contained herein.
ARTICLE 15 DISPUTES
15.1 The Parties shall attempt to resolve all disputes under this Agreement
through friendly discussions and consultations. In the event that the Parties
are unable to resolve any dispute through such friendly discussions and
consultations within ninety (90) days, then the matter shall be referred to
final and binding arbitration. The arbitration shall be administered by the
American Arbitration Association under its Commercial Arbitration Rules.
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15.2 There shall be only one (1) arbitrator, appointed by the American
Arbitration Association.
15.3 The place of arbitration shall be in Boston, Massachusetts, or such other
locale as the Parties may agree, and shall be conducted in English.
15.4 The decision of the arbitrator shall be final and conclusive on the
Parties. The decision and award of the arbitrator may be entered in any court of
competent jurisdiction, and enforced by due proceedings in such court. Costs for
the arbitration shall be borne by the Parties as determined by the arbitrator.
ARTICLE 16 TERM
The term for this Agreement shall be concurrent with the duration of the Company
unless sooner terminated as provided in Article 7 above. However, in the event
the Company is dissolved or liquidated prior to its term, this Agreement shall
remain in force and effect for so long as necessary for the regulation of the
settlement of the relationships of the Parties.
ARTICLE 17 MISCELLANEOUS
17.1 This Agreement contains the entire agreement between the Parties with
respect to the subject matter contained herein. The provisions of this Agreement
shall supersede any prior agreement or understanding, whether oral or in
writing, and shall constitute the only agreement between the Parties with
respect to the matters herein.
17.2 This Agreement shall be binding upon and enforceable against each of the
Parties and their respective successors and permitted assigns and shall enter
into force immediately upon the signatures of the Parties.
17.3 All amendments to this Agreement shall be made by a written agreement
signed by the Parties making specific reference to this Agreement.
17.4 In the event of any inconsistencies between this Agreement and the
Memorandum and Articles of Association of the Company, this Agreement shall
prevail.
17.5 Each Party shall take such actions and execute and deliver such other
agreements and instruments as from time to time may be necessary or appropriate
to effect the intent and purpose of this Agreement.
17.6 The relationship between the Parties with respect to the subject matter of
this Agreement shall be governed by the terms of this Agreement and shall not be
deemed to create a general partnership between them. No Party shall be deemed an
agent of the other, and no Party shall have any authority to bind any other
Party.
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly
executed as of the date first mentioned above.
/s/ Ofer Gneezy /s/ Norman Chan
- --------------------------------- ---------------------------------
VIP Calling, Inc. Microworld Limited
(Name) OFER GNEEZY (Name) NORMAN CHAN
-------------------------- --------------------------
(Title) PRESIDENT & CEO (Title) DIRECTOR
------------------------- -------------------------
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Amendment No. 1
to the
Shareholders Agreement
in respect of
VIP Calling (Hong Kong) Limited
This Amendment No. 1, made between VIP Calling, Inc. and Microworld Limited,
Witnesseth That
WHEREAS VIP Calling, Inc. and Microworld Limited entered into a Shareholders
Agreement dated March 28, 1998, in relation to the joint venture company VIP
Calling (Hong Kong) Limited (the "Shareholders Agreement"); and
WHEREAS both VIP Calling, Inc. and Microworld Limited have determined that it is
in their mutual interest to extend the time by which they each must make their
contributions in accordance with Article 2 of the Shareholders Agreement;
NOW THEREFORE, VIP Calling, Inc. and Microworld Limited have agreed to amend the
Shareholders Agreement as follows:
The first sentence in Paragraph 2.3 shall be deleted in its entirety and
replaced with the following:
The Parties shall make their contributions set forth in Paragraph 2.2 on
or before June 1, 1998, or such other date as the Parties may agree in
writing.
This Amendment No. 1 is made in accordance with Paragraph 17.3 of the
Shareholders Agreement and shall be effective as soon as both parties have
signed below. Except as modified herein, all other provisions of the
Shareholders Agreement shall remain as written and agreed.
IN WITNESS WHEREOF, VIP Calling, Inc. and Microworld Limited have executed this
Amendment No. 1 on the dates as indicated below.
For and on Behalf of VIP Calling, Inc. For and on Behalf of Microworld Limited
/s/ Ofer Gneezy /s/ Norman Chan
- -------------------------------- --------------------------------
By: OFER GNEEZY By NORMAN CHAN
-------------------------- --------------------------
Date: May 4, 1998 Date: 30th April, 1998
-------------------------- --------------------------
<PAGE>
Amendment No. 2
to the
Shareholders Agreement
in respect of
VIP Calling (Hong Kong) Limited
This Amendment No. 2, made between VIP Calling, Inc. and Microworld Limited,
Witnesseth That
WHEREAS VIP Calling, Inc. and Microworld Limited entered into a Shareholders
Agreement dated March 28, 1998, in relation to the joint venture company VIP
Calling (Hong Kong) Limited (the "Shareholders Agreement"); and
WHEREAS VIP Calling, Inc. and Microworld Limited entered into Amendment No. 1 to
the Shareholders Agreement in respect to the extension of the time for making
their contributions in accordance with Article 2 of the Shareholders Agreement;
and
WHEREAS both VIP Calling, Inc. and Microworld Limited have determined that it is
in their mutual interest to make certain further amendments to the Shareholders
Agreement;
NOW THEREFORE, VIP Calling, Inc. and Microworld Limited have agreed to amend the
Shareholders Agreement as follows:
1. Paragraphs 2.1, 2.2, and 2.3 of the Shareholders Agreement are amended to
read as follows:
2.1 The initial authorized capital of the Company shall be the Hong Kong
Dollar equivalent of One Hundred Thousand United States Dollars
(US$100,000) (currently, HK$775,000) represented by Seven Hundred
Seventy-Five Thousand (775,000) shares with par value of One Hong Kong
Dollar (HK$1.00) each. The issued capital shall also be the Hong Kong
Dollar equivalent of One Hundred Thousand United States Dollars
(US$100,000) and no shares may be issued until fully paid.
2.2 The capital structure of the Company shall be as follows:
Name of Party No. of Shares Amount (US$) Percentage Ownership
------------- ------------- ------------ --------------------
VIP Calling 395,250 US$51,000 51%
<PAGE>
(Of which Ofer Gneezy owns 1 share)
Microworld 379,750 US$49,000 49%
2.3 The Parties shall make their contributions as set forth in Paragraph
2.2 on or before November 15, 1998 or such other date as the Parties may
agree in writing. The failure of a Party to make the full contribution
amount within such time period shall constitute a material breach of this
Agreement by such Party. Once these contributions are made, the Parties
shall have no obligation to make any additional contributions to the
capital of the Company.
2. In the last sentence of each of Paragraphs 6.1, 6.2, 6.3 and 6.4 of the
Shareholders Agreement, the language "during 12-month period from which this
Agreement is signed" is deleted and replaced with "during the 12-month period
from the time both Parties have made their contributions to the Company as set
forth in Paragraph 2.2."
3. Sub-paragraph 7.2 (a) of the Shareholders Agreement is amended to read as
follows:
(a) either of the Parties withdraws from this Agreement in accordance
with Paragraph 7.1 above, and such termination of this Agreement
shall take effect
(i) on the date the share purchase takes effect, in the event
the non-withdrawing Party opts to purchase the withdrawing
Party's shares, or
(ii) thirty (30) days from the date of receipt by the
non-withdrawing Party of the written notification of
withdrawal, in the event the non-withdrawing Party does not
opt to purchase the withdrawing Party's shares;
4. Sub-paragraph 7.2(c) of the Shareholders Agreement is amended to read as
follows:
(c) one Party elects to terminate this Agreement upon the liquidation,
bankruptcy or insolvency of the other Party, and such termination of
this Agreement shall take effect
(i) on the date the share purchase takes effect, in the event
that the terminating Party opts to purchase the shares owned
by the liquidated, bankrupt or insolvent Party pursuant to
Paragraph 7.4, or
<PAGE>
(ii) thirty (30) days from the date of receipt by the
liquidated, bankrupt or insolvent Party of the written
notification of termination, in the event that the terminating
Party does not opt to purchase the shares owned by the
liquidated, bankrupt or insolvent Party; or
5. A new Paragraph 7.4 is added to the Shareholders Agreement, immediately
following the last sentence in existing Paragraph 7.3. New Paragraph 7.4
is to read as follows:
7.4 Upon the liquidation, bankruptcy or insolvency of either Party, the
other Party shall have the option to purchase the Company shares owned by
the liquidated, bankrupt or insolvent Party at a price equal to four (4)
times the gross sales of the Company (in United States dollars) in the
last-completed fiscal quarter multiplied by the percentage equity
ownership of the Company held by the liquidated, bankrupt or insolvent
Party. The Party opting to purchase the liquidated, bankrupt, or insolvent
Party's shares under this paragraph shall provide written notification of
the exercise of such option to the liquidated, bankrupt or insolvent Party
in accordance with Article 13 within thirty (30) days from the date it
becomes aware of such liquidation, bankruptcy or insolvency and must make
payment by thirty (30) days thereafter or by such other date as the
Parties may agree.
6. The text of Article 8 of the Shareholders Agreement is amended to read as
follows:
Upon termination of this Agreement for any reason other than:
(a) withdrawal under Subparagraph 7.2(a) when the non-withdrawing
Party elects to purchase the shares of the Company owned by
the withdrawing Party,
(b) termination under Subparagraph 7.2(c) when the terminating
Party elects to purchase the shares of the Company owned by
the liquidated, bankrupt or insolvent Party, or
(c) in accordance with Subparagraph 7.2(d),
the Company shall be dissolved and wound up pursuant to the applicable
provisions of the laws of Hong Kong.
<PAGE>
7. This Amendment No. 2 is made in accordance with Paragraph 17.3 of the
Shareholders Agreement and shall be effective as soon as both VIP Calling,
Inc. and Microworld Limited have signed below. Except as modified herein,
all other provisions of the Shareholders Agreement shall remain as written
and agreed.
IN WITNESS WHEREOF, VIP Calling, Inc. and Microworld Limited have executed this
Amendment No. 2 on the dates as indicated below.
For and on Behalf of VIP Calling, Inc. For and on Behalf of Microworld Limited
/s/ Ofer Gneezy /s/ Norman Chan
- -------------------------------- --------------------------------
By: OFER GNEEZY By NORMAN CHAN
-------------------------- --------------------------
Date: Date:
-------------------------- --------------------------
<PAGE>
EXHIBIT 10.21
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT is entered into as of June 18, 1999, by
and between SILICON VALLEY BANK, a California-chartered bank, with its principal
place of business at 3003 Tasman Drive, Santa Clara, California 95054 and with a
loan production office located at Wellesley Office Park, 40 William Street,
Suite 350, Wellesley, Massachusetts 02481, doing business under the name
"Silicon Valley East" ("Bank") and VIP Calling, Inc., a Delaware Corporation
with its chief executive office located at 20 Second Avenue, Burlington,
Massachusetts 01803 ("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. As used in this Agreement, the following terms shall have
the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods (including, without
limitation, the licensing of software and other technology) or the
rendering of services by Borrower, whether or not earned by performance,
and any and all credit insurance, guaranties, and other security therefor,
as well as all merchandise returned to or reclaimed by Borrower and
Borrower's Books relating to any of the foregoing.
"Advance" or "Advances" means a loan advance under the Committed
Revolving Line.
"Affiliate" means, with respect to any Person, any Person that owns
or controls directly or indirectly such Person, any Person that controls
or is controlled by or is under common control with such Person, and each
of such Person's senior executive officers, directors, partners and, for
any Person that is a limited liability company, such Person's managers and
members.
"Agreement" means this Loan and Security Agreement.
"Bank Expenses" means all reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan
Documents; and Banks reasonable attorneys' fees and expenses incurred in
amending, enforcing or defending the Loan Documents, (including fees and
expenses of appeal or review, or those incurred in any Insolvency
Proceeding) whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and records
including, without limitation: ledgers; records concerning Borrower's
assets or liabilities, the Collateral, business operations or financial
condition; and all computer programs, or tape files, and the equipment,
containing such information.
"Borrowing Base" means an amount equal to eighty percent (80%) of
Eligible Accounts, as determined by Bank with reference to the most recent
Borrowing Base Certificate delivered by Borrower.
-1-
<PAGE>
"Business Day" means any day that is not a Saturday, Sunday, or
other day on which banks in the States of California or Massachusetts are
authorized or required to close.
"Capitalization Event" shall mean the issuance by the Borrower of
equity resulting in the receipt by the Borrower of at least Five Million
Dollars ($5,000,000.00).
"Closing Date" means the date of this Agreement.
"Code" means the Massachusetts Uniform Commercial Code.
"Collateral" means the property described on Exhibit A attached
hereto.
"Committed Revolving Line" means a credit extension of up to (i)
Five Hundred Thousand Dollars ($500,000.00) prior to the Capitalization
Event, and (ii) One Million Five Hundred Thousand Dollars ($1,500,000.00)
after the occurrence of a Capitalization Event.
"Committed Equipment Line" means a credit extension of up to Seven
Hundred Fifty Thousand Dollars ($750,000.00).
"Contingent Obligation" means, as applied to any Person, any direct
or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or
other obligation of another, including, without limitation, any such
obligation directly or indirectly guaranteed, endorsed, co-made or
discounted or sold with recourse by that Person, or in respect of which
that Person is otherwise directly or indirectly liable; (ii) any
obligations with respect to undrawn letters of credit issued for the
account of that Person; and (iii) all obligations arising under any
interest rate, currency or commodity swap agreement, interest rate cap
agreement, interest rate collar agreement, or other agreement or
arrangement designated to protect a Person against fluctuation in interest
rates, currency exchange rates or commodity prices; provided, however,
that the term "Contingent Obligation" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of
any Contingent Obligation shall be deemed to be an amount equal to the
stated or determined amount of the primary obligation in respect of which
such Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as determined
by such Person in good faith; provided, however, that such amount shall
not in any event exceed the maximum amount of the obligations under the
guarantee or other support arrangement.
"Credit Extension" means each Advance, Equipment Advance, Letter of
Credit, or any other extension of credit by Bank for the benefit of
Borrower hereunder.
"Current Liabilities" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current liabilities
on the consolidated balance sheet of Borrower and its Subsidiaries, as at
such date, plus, to the extent not already included therein, all
outstanding Credit Extensions made under this Agreement, including all
Indebtedness that is payable upon demand or within one year from the date
of determination thereof unless such Indebtedness is renewable or
extendable at the option of Borrower or any Subsidiary to a date more than
one year from the date of determination, but excluding Subordinated Debt.
"Eligible Accounts" means those Accounts that arise in the ordinary
course of Borrower's business that comply with all of Borrower's
representations and warranties to Bank set forth in Section 5.4. Unless
otherwise agreed to by Bank in writing, Eligible Accounts shall not
include the following:
(a) Accounts that the account debtor has failed to pay within
ninety (90) days of invoice date;
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(b) Accounts with respect to an account debtor, fifty percent
(50%) or more of whose Accounts the account debtor has failed to pay
within ninety (90) days of invoice date;
(c) Accounts with respect to an account debtor, including
Affiliates, whose total obligations to Borrower exceed twenty-five
percent (25%) of all Accounts, to the extent such obligations exceed
the aforementioned percentage, except as approved in writing by
Bank;
(d) Accounts with respect to which the account debtor does not
have its principal place of business in the United States;
(e) Accounts with respect to which the account debtor is a
federal, state, or local governmental entity or any department,
agency, or instrumentality thereof, except for those Accounts of the
United States or any department, agency or instrumentality thereof
as to which the payee has assigned its rights to payment thereof to
Bank and the assignment has been acknowledged, pursuant to the
Assignment of Claims Act of 1940, as amended (31 U.S.C. 3727);
(f) Accounts with respect to which Borrower is liable to the
account debtor, but only to the extent of any amounts owing to the
account debtor (sometimes referred to as "contra" accounts, e.g.
accounts payable, customer deposits, credit accounts etc.) against
amounts owed to Borrower;
(g) Accounts generated by demonstration or promotional
equipment, or with respect to which goods are placed on consignment,
guaranteed sale, sale or return, sale on approval, bill and hold, or
other terms by reason of which the payment by the account debtor may
be conditional;
(h) Accounts with respect to which the account debtor is an
Affiliate, officer, employee, or agent of Borrower;
(i) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank
believes, in its sole discretion, that there may be a basis for
dispute (but only to the extent of the amount subject to such
dispute or claim), or is subject to any Insolvency Proceeding, or
becomes insolvent, or goes out of business; and
(j) Accounts the collection of which Bank reasonably
determines to be doubtful.
"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, pans and
attachments in which Borrower has any interest.
"Equipment Advance" has the meaning set forth in Section 2.1.3.
"Equipment Availability End Date" has the meaning set forth in
Section 2.1.3.
"Equipment Maturity Date" is July 5, 2002.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in effect
in the United States from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety
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bonds and letters of credit, (b) all obligations evidenced by notes,
bonds, debentures or similar instruments, (c) all capital lease
obligations and (d) all Contingent Obligations.
"Insolvency Proceeding" means any proceeding commenced by or against
any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, formal or informal
moratoria, compositions, extension generally with its creditors, or
proceedings seeking reorganization, arrangement, or other relief.
"Inventory" means all present and future inventory in which Borrower
has any interest, including merchandise, raw materials, parts, supplies,
packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service,
of every kind and description now or at any time hereafter owned by or in
the custody or possession, actual or constructive, of Borrower, including
such inventory as is temporarily out of its custody or possession or in
transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of
any of the foregoing and any documents of title representing any of the
above.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance
or capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Letter of Credit" means a letter of credit or similar undertaking
issued by Bank pursuant to Section 2.1.2.
"Letter of Credit Reserve" has the meaning set forth in Section
2.1.2.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrower, and any other present or future agreement
entered into between Borrower and/or for the benefit of Bank in connection
with this Agreement, all as amended, extended or restated from time to
time.
"Material Adverse Effect" means a material adverse effect on (i) the
business operations or condition (financial or otherwise) of Borrower and
its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay
the Obligations or otherwise perform its obligations under the Loan
Documents.
"Maturity Date" means, as applicable (i) the Revolving Maturity Date
with respect to the Committed Revolving Line, and (ii) the Equipment
Maturity Date with respect to the Committed Equipment Line.
"Negotiable Collateral" means all of Borrower's present and future
letters of credit of which it is a beneficiary, and any notes, drafts,
instruments, securities, documents of title, or chattel paper, owned by or
payable to Borrower.
"Obligations" means all debt, principal, interest, Bank Expenses and
other amounts owed to Bank by Borrower pursuant to this Agreement or any
other agreement, whether absolute or contingent, due or to become due, now
existing or hereafter arising, including any interest that accrues after
the commencement of an Insolvency Proceeding and including any debt,
liability, or obligation owing from Borrower to others that Bank may have
obtained by assignment or otherwise.
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"Payment Date" means the first (1st) calendar day of each month
commencing on the first such date after the Closing Date and ending on the
Revolving Maturity Date.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under
this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary
course of business; and
(e) Indebtedness secured by Permitted Liens.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule; and
(b) (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any
agency or any State thereof maturing within one (1) year from the
date of acquisition thereof, (ii) commercial paper maturing no more
than one (1) year from the date of creation thereof and currently
having the highest rating obtainable from either Standard & Poor's
Corporation or Moody's Investors Service, Inc., and (iii)
certificates of deposit maturing no more than one (1) year from the
date of investment therein issued by Bank.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in
the Schedule or arising under this Agreement or the other Loan
Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good
faith by appropriate proceedings and as to which adequate reserves
are maintained on Borrower's Books in accordance with GAAP, provided
the same have no priority over any of Bank's security interests;
(c) Liens (i) upon or in any Equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of
such Equipment or indebtedness incurred solely for the purpose of
financing the acquisition of such Equipment, or (ii) existing on
such Equipment at the time of its acquisition, provided that the
Lien is confined solely to the property so acquired and improvements
thereon, and the proceeds of such Equipment;
(d) Leases or subleases and licenses or sublicenses granted to
others in the ordinary course of Borrower's business not interfering
in any material respect with the business of Borrower and its
Subsidiaries taken as a whole, and any interest or title of a
lessor, licensor, sublicensor or under any lease or license or
sublicense provided that such leases, subleases, licenses and
sublicenses do not prohibit the grant of the security interest
granted hereunder; and
(e) Liens incurred in connection with the extension, renewal
or refinancing of the indebtedness secured by Liens of the type
described in clauses (a) through (c) above, provided that any
extension, renewal or replacement Lien shall be limited to the
property encumbered by the
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existing Lien and the principal amount of the indebtedness being
extended, renewed or refinanced does nor increase.
"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust,
unincorporated organization, association, corporation, institution,
public benefit corporation, firm, joint stock company, estate,
entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum,
most recently announced by Bank, as its "prime rate," whether or not
such announced rate is the lowest rate available from Bank.
"Quick Assets" means, as of any applicable date, the
consolidated cash, cash equivalents, accounts receivable and
investments with maturities of fewer than 90 days of Borrower
determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive
Officer, the President, the Chief Financial Officer and the
Controller of Borrower.
"Revolving Maturity Date" means the date which is one (1) year
from the Closing Date.
"Schedule" means the schedule of exceptions attached hereto,
if any.
"Subordinated Debt" means any debt incurred by Borrower that
is subordinated to the debt owing by Borrower to Bank on terms
acceptable to Bank (and identified as being such by Borrower and
Bank).
"Subsidiary" means with respect to any Person, corporation,
partnership, company association, joint venture, or any other
business entity of which more than fifty percent (50%) of the voting
stock or other equity interests is owned or controlled, directly or
indirectly, by such Person or one or more Affiliates of such Person.
"Tangible Net Worth" means as of any applicable date, the
consolidated total assets of Borrower and its Subsidiaries minus
without duplication, (i) the sum of any amounts attributable to (a)
goodwill, (b) intangible items such as unamortized debt discount and
expense, patents, trade and service marks and names, copyrights and
research and development expenses except prepaid expenses, and (c)
all reserves not already deducted from assets, and (ii) Total
Liabilities.
"Total Liabilities" means as of any applicable date, all
obligations that should, in accordance with GAAP be classified as
liabilities on the consolidated balance sheet of Borrower, including
in any event all Indebtedness, but specifically excluding
Subordinated Debt.
"Unrestricted Cash" means all cash or cash equivalents
(determined in accordance with GAAP) which are not subject to a lien
other than to the Bank. Unrestricted Cash shall exclude, without
limitation, any amounts due or allocated for taxes.
1.2 Accounting and Other Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP and
all calculations and determinations made hereunder shall be made in
accordance with GAAP. When used herein, the term "financial statements"
shall include the notes and schedules thereto. The terms "including" or
"includes" shall always be read as meaning "including (or includes)
without limitation", when used herein or in any other Loan Document.
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2. LOAN AND TERMS OF PAYMENT
2.1 Credit Extensions. Borrower promises to pay to the order of Bank, in
lawful money of the United States of America, the aggregate unpaid principal
amount of all Credit Extensions made by Bank to Borrower hereunder. Borrower
shall also pay interest on the unpaid principal amount of such Credit Extensions
at rates in accordance with the terms hereof.
2.1.1 (a) Subject to and upon the terms and conditions of this Agreement,
Bank agrees to make Advances to Borrower in an aggregate outstanding amount not
to exceed (i) the Committed Revolving Line or the Borrowing Base, whichever is
less, minus (ii) the face amount of all outstanding Letters of Credit (including
drawn but unreimbursed Letters of Credit). Subject to the terms and conditions
of this Agreement, amounts borrowed pursuant to this Section 2.1.1 may be repaid
and reborrowed at any time during the term of this Agreement.
(b) Whenever Borrower desires an Advance, Borrower will notify Bank
by facsimile transmission or telephone no later than 3:00 p.m. Eastern time, on
the Business Day that the Advance is to be made. Each such notification shall be
promptly confirmed by a Payment/Advance Form in substantially the form of
Exhibit B hereto. Bank is authorized to make Advances under this Agreement,
based upon instructions received from a Responsible Officer or a designee of a
Responsible Officer, or without instructions if in Bank's discretion such
Advances are necessary to meet Obligations which have become due and remain
unpaid. Bank shall be entitled to rely on any telephonic notice given by a
person who Bank reasonably believes to be a Responsible Officer or a designee
thereof, and Borrower shall indemnify and hold Bank harmless for any damages or
loss suffered by Bank as a result of such reliance. Bank will credit the amount
of Advances made under this Section 2.1 to Borrower's deposit account.
(c) The Committed Revolving Line shall terminate on the Revolving
Maturity Date, at which time all Advances under this Section 2.1 and other
amounts due under this Agreement (except as otherwise expressly specified
herein) shall be immediately due and payable.
2.1.2 Letters of Credit.
(a) Subject to the terms and conditions of this Agreement, Bank
agrees to issue or cause to be issued Letters of Credit for the account of
Borrower in an aggregate outstanding face amount not to exceed (i) the lesser of
the Committed Revolving Line or the Borrowing Base, whichever is less, minus
(ii) the then outstanding principal balance of the Advances; provided that the
face amount of outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit and any Letter of Credit Reserve) shall not in any case exceed
(A) Five Hundred Thousand Dollars ($500,000.00) prior to the Capitalization
Event, and (B) One Million Five Hundred Thousand Dollars ($1,500,000.00) after
the occurrence of the Capitalization Event. Notwithstanding the foregoing, the
Borrower may obtain Letters of Credit, subject to the dollar limitations set
forth in the immediately preceding sentence, in excess of the Borrowing Base
(but in no event more than the Committed Revolving Line) so long (i) no Event of
Default has occurred under this Agreement, and (ii) the Borrower is in
compliance with the Liquidity covenant set forth in Section 6.12. Each Letter of
Credit shall have an expiry date no later than one hundred eighty (180) days
after the Revolving Maturity Date provided that Borrower's Letter of Credit
reimbursement obligation shall be secured by cash on terms acceptable to Bank at
any time after the Revolving Maturity Date if the term of this Agreement is not
extended by Bank. All Letters of Credit shall be, in form and substance,
acceptable to Bank in its sole discretion and shall be subject to the terms and
conditions of Bank's form of standard Application and Letter of Credit
Agreement.
(b) The obligation of Borrower to immediately reimburse Bank for
drawings made under Letters of Credit shall be absolute, unconditional and
irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement and such Letters of Credit, under all circumstances whatsoever.
Borrower shall indemnify, defend, protect, and hold Bank harmless from any loss,
cost, expense or liability, including, without limitation, reasonable attorneys'
fees, arising out of or in connection with any Letters of Credit.
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(c) Borrower may request that Bank issue a Letter of Credit payable
in a currency other than United States Dollars. If a demand for payment is made
under any such Letter of Credit, Bank shall treat such demand as an Advance to
Borrower of the equivalent of the amount thereof (plus cable charges) in United
States currency at the then prevailing rate of exchange in San Francisco,
California, for sales of that other currency for cable transfer to the country
of which it is the currency.
(d) Upon the issuance of any letter of credit payable in a currency
other than United States Dollars, Bank shall create a reserve under the
Committed Revolving Line for letters of credit against fluctuations in currency
exchange rates, in an amount equal to ten percent (10%) of the face amount of
such letter of credit (the "Letter of Credit Reserve"). The amount of such
reserve may be amended by Bank from time to time to account for fluctuations in
the exchange rate. The availability of funds under the Committed Revolving Line
shall be reduced by the amount of such reserve for so long as such letter of
credit remains outstanding.
2.1.3 Equipment Advances.
(a) Subject to and upon the terms and conditions of this Agreement,
at any time from the date hereof through July 31, 1999 (the "Equipment
Availability End Date"), Bank agrees to make advances (each an "Equipment
Advance" and collectively, the "Equipment Advances") to Borrower in an aggregate
outstanding amount not to exceed the Committed Equipment Line. To evidence the
Equipment Advance or Equipment Advances, Borrower shall deliver to Bank, at the
time of each Equipment Advance request, an invoice for the equipment to be
purchased. The Equipment Advances shall be used only to purchase Equipment
(which shall include tenant improvements and general office equipment),
purchased on or after sixty (60) days prior to the date hereof and shall not
exceed one hundred percent (100%) of the invoice amount of such equipment
approved from time to time by Bank, excluding taxes, shipping, warranty charges,
freight discounts and installation expense. Notwithstanding the foregoing, the
Borrower may obtain Equipment Advances with respect to Equipment purchased on or
after January 1, 1999 provided that the Borrower submits invoices for such
Equipment within thirty (30) days of the Closing Date.
(b) Interest shall accrue from the date of each Equipment Advance at
the rate of one and one half percent (1.50%) per annum above the Prime Rate and
shall be payable monthly for each month through the month in which the Equipment
Availability End Date falls. Any Equipment Advances that are outstanding on the
Equipment Availability End Date will be payable in thirty six (36) equal monthly
installments of principal, plus all accrued interest, beginning on August 5,
1999 and on the like day of each month thereafter and ending on the Maturity
Date. Equipment Advances, once repaid, may not be reborrowed. In the event the
Borrower prepays all or any portion of the outstanding Equipment Advances prior
to the regularly scheduled payment date, the Borrower shall pay with any such
prepayment a prepayment fee calculated as follows; (i) three percent (3%) of any
amount prepaid if the prepayment is made on or before August 5, 2000, (ii) two
percent (2%) of any amount prepaid if the prepayment is made after August 5,
2000 but on or before August 5, 2001, and (iii) one percent (1 %) of any amount
prepaid if the prepayment is made after August 5, 2001 but before the Maturity
Date.
(c) When Borrower desires to obtain an Equipment Advance, Borrower
shall notify Bank (which notice shall be irrevocable) by facsimile transmission
to be received no later than 3:00 p.m. Eastern time one (1) Business Day before
the day on which the Equipment Advance is to be made. Such notice shall be
substantially in the form of Exhibit B. The notice shall be signed by a
Responsible Officer or its designee and include a copy of the invoice for the
Equipment to be financed.
2.2 Overadvances. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Bank pursuant to Section 2.1.1 and 2.1.2 of this
Agreement is greater than the lesser of (i) the Committed Revolving Line or (ii)
the Borrowing Base, Borrower shall immediately pay to Bank, in cash, the amount
of such excess.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rate. Except as set forth in Section 2.3(b), any
Advances shall bear interest, on the average daily balance thereof, at a per
annum rate equal to one (1.0%) percentage point above the Prime Rate.
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Notwithstanding the foregoing in the event the Borrower (i) achieves a net
profit for two (2) consecutive quarters hereafter, and (ii) provides the Bank
with projections satisfactory to the Bank in its sole discretion which indicate
the Borrower shall achieve a profit in each of the quarters thereafter, then the
Bank shall adjust the interest rate with respect to Advances set forth in this
Section 2.3(a) to a per annum rate equal to one half of one (0.50%) percentage
point above the Prime Rate.
(b) Default Rate. All Obligations shall bear interest, from and
after the occurrence of an Event of Default, at a rate equal to five (5)
percentage points above the interest rate applicable immediately prior to the
occurrence of the Event of Default.
(c) Payments. Interest hereunder shall be due and payable on each
Payment Date. Borrower hereby authorizes Bank to debit any accounts with Bank,
including, without limitation, Account Number ____________________ for payments
of principal and interest due on the Obligations and any other amounts owing by
Borrower to Bank. Bank will notify Borrower of all debits which Bank has made
against Borrower's accounts. Any such debits against Borrower's accounts in no
way shall be deemed a set-off. Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder.
(d) Computation. In the event the Prime Rate is changed from time to
time hereafter, the applicable rate of interest hereunder shall be increased or
decreased effective as of 12:01 a.m. on the day the Prime Rate is changed, by an
amount equal to such change in the Prime Rate. All interest chargeable under the
Loan Documents shall be computed on the basis of a three hundred sixty (360) day
year for the actual number of days elapsed.
2.4 Crediting Payments. Prior to the occurrence of an Event of Default,
Bank shall credit a wire transfer of funds, check or other item of payment to
such deposit account or Obligation as Borrower specifies. After the occurrence
of an Event of Default, the receipt by Bank of any wire transfer of funds,
check, or other item of (pound) payment, whether directed to Borrower's deposit
account with Bank or to the Obligations or otherwise, shall be immediately
applied to conditionally reduce Obligations, but shall not be considered a
payment in respect of the Obligations unless such payment is of immediately
available federal funds or unless and until such check or other item of payment
is honored when presented for payment. Notwithstanding anything to the contrary
contained herein, any wire transfer or payment received by Bank after 12:00 noon
Eastern time shall be deemed to have been received by Bank as of the opening of
business on the immediately following Business Day. Whenever any payment to Bank
under the Loan Documents would otherwise be due (except by reason of
acceleration) on a date that is not a Business Day, such payment shall instead
be due on the next Business Day, and additional fees or interest, as the case
may be, shall accrue and be payable for the period of such extension.
2.5 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. A Facility Fee equal to Ten Thousand Dollars
($10,000.00), which fee shall be due on the Closing Date and shall be
fully earned and non-refundable;
(b) Financial Examination and Appraisal Fees. Bank's customary fees
and out-of-pocket expenses for Bank's audits of Borrower's Accounts, and
for each appraisal of Collateral and financial analysis and examination of
Borrower performed from time to time by Bank or its agents;
(c) Bank Expenses. Upon demand from Bank, including, without
limitation, upon the date hereof, all Bank Expenses incurred through the
date hereof, including reasonable attorneys' fees and expenses, and, after
the date hereof, all Bank Expenses, including reasonable attorneys' fees
and expenses, as and when they become due.
2.6 Additional Costs. In case any law, regulation, treaty or official
directive or the interpretation or application thereof by any court or any
governmental authority charged with the administration thereof or the
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compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to payments of principal
or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for
taxes on the overall net income of Bank imposed by the United States of
America or any political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.7 Term. Except as otherwise set forth herein, this Agreement shall
become effective on the Closing Date and, subject to Section 12.7, shall
continue in full force and effect for a term ending on the Maturity Date.
Notwithstanding the foregoing, Bank shall have the right to terminate its
obligation to make Credit Extensions under this Agreement immediately and
without notice upon the occurrence and during the continuance of an Event of
Default. Notwithstanding termination of this Agreement, Bank's lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.
3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Credit Extension. The obligation of
Bank to make the initial Credit Extension is subject to the condition precedent
that Bank shall have received, in form and substance satisfactory to Bank, the
following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
articles, bylaws, incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) a negative pledge agreement covering intellectual property;
(d) an audit of Borrower's Accounts satisfactory to the Bank in its
sole discretion;
(e) an opinion of Borrower's counsel;
(f) financing statements (Forms UCC-1);
(g) insurance certificate;
(h) payment of the fees and Bank Expenses then due specified in
Section 2.5 hereof;
(i) Certificate of Foreign Qualification (if applicable); and
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(j) such other documents, and completion of such other matters, as
Bank may reasonably deem necessary or appropriate.
Notwithstanding the foregoing, it is acknowledged and agreed that the
Borrower may obtain Letters of Credit under Section 2.1.2 prior to completion of
the audit referenced in Section 3.1(d) hereinabove, so long as the Borrower has
met all other preconditions described in this Agreement.
3.2 Conditions Precedent to all Credit Extensions. The obligation of Bank
to make each Credit Extension, including the initial Credit Extension, is
further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as provided
in Section 2.1; and
(b) the representations and warranties contained in Section 5 shall
be true and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Credit Extension as
though made at and as of each such date, and no Event of Default shall
have occurred and be continuing, or would result from such Credit
Extension. The making of each Credit Extension shall be deemed to be a
representation and warranty by Borrower on the date of such Credit
Extension as to the accuracy of the facts referred to in this Section
3.2(b).
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower grants and pledges to Bank a
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure prompt payment of any and all Obligations
and in order to secure prompt performance by Borrower of each of its covenants
and duties under the Loan Documents. Except as set forth in the Schedule, such
security interest constitutes a valid, first priority security interest in the
presently existing Collateral, and will constitute a valid, first priority
security interest in Collateral acquired after the date hereof Borrower
acknowledges that Bank may place a "hold" on any Deposit Account pledged as
Collateral to secure the Obligations. Notwithstanding termination of this
Agreement, Bank's Lien on the Collateral shall remain in effect for so long as
any Obligations are outstanding.
4.2 Delivery of Additional Documentation Required. Borrower shall from
time to time execute and deliver to Bank, at the request of Bank, all Negotiable
Collateral, all financing statements and other documents that Bank may
reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers, employees, or
agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrowers Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each Subsidiary is a
corporation duly existing and in good standing under the laws of its state of
incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be so qualified.
5.2 Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles/Certificate of Incorporation or
Bylaws, nor will they constitute an event of default under any material
agreement to which Borrower is a party or by which Borrower is bound. Borrower
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is not in default under any agreement to which it is a party or by which it is
bound, which default could have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and indefeasible title to the
Collateral, free and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Eligible Accounts. The Eligible Accounts are bona fide
existing obligations. The service or property giving rise to such Eligible
Accounts has been performed or delivered to the account debtor or to the account
debtor's agent for immediate shipment to and unconditional acceptance by the
account debtor. Borrower has not received notice of actual or imminent
Insolvency Proceeding of any account debtor whose accounts are included in any
Borrowing Base Certificate as an Eligible Account.
5.5 Merchantable Inventor. All Inventory is in all material respects of
good and marketable quality, free from all material defects.
5.6 Name; Location of Chief Executive Office. Except as disclosed in the
Schedule, Borrower has not done business and will not without at least thirty
(30) days prior written notice to Bank do business under any name other than
that specified on the signature page hereof. The chief executive office of
Borrower is located at the address indicated in Section 10 hereof.
5.7 Litigation. There are no actions or proceedings pending, or, to
Borrower's knowledge, threatened by or against Borrower or any Subsidiary before
any court or administrative agency in which an adverse decision could have a
Material Adverse Effect or a material adverse effect on Borrower's interest or
Bank's security interest in the Collateral.
5.8 No Material Adverse Change in Financial Statements. All consolidated
financial statements related to Borrower and any Subsidiary that have been
delivered by Borrower to Bank fairly present in all material respects Borrower's
consolidated financial condition as of the date thereof and Borrower's
consolidated results of operations for the period then ended. There has not been
a material adverse change in the consolidated financial condition of Borrower
since the date of the most recent of such financial statements submitted to Bank
on or about the Closing Date.
5.9 Solvency. Borrower is able to pay its debts (including trade debts) as
they mature.
5.10 Regulatory Compliance. Borrower and each Subsidiary has met the
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event has occurred resulting from Borrower's failure to
comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could have a Material Adverse Effect. Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940. Borrower is not engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations T and U of the Board of Governors of the Federal Reserve
System). Borrower has complied with all the provisions of the Federal Fair Labor
Standards Act. Borrower has not violated any statutes, laws, ordinances or rules
applicable to it, violation of which could have a Material Adverse Effect.
5.11 Environmental Condition. None of Borrower's or any Subsidiary's
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrower's knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat, release, or transport, any hazardous
waste or hazardous substance other than in accordance with applicable law; to
the best of Borrower's knowledge, none of Borrower's properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute; no
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower or any
Subsidiary; and neither Borrower nor any
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Subsidiary has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal, state or other
governmental agency concerning any action or omission by Borrower or any
Subsidiary resulting in the release, or other disposition of hazardous waste or
hazardous substances into the environment.
5.12 Taxes. Borrower and each Subsidiary has filed or caused to be filed
all tax returns required to be filed on a timely basis, and has paid, or has
made adequate provision for the payment of, all taxes reflected therein, except
those being contested in good faith by proper proceedings with adequate reserves
under GAAP.
5.13 Subsidiaries. Borrower does not own any stock, partnership interest
or other equity securities of any Person, except for Permitted Investments.
5.14 Government Consents. Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted.
5.15 Full Disclosure. No representation, warranty or other statement made
by Borrower in any certificate or written statement furnished to Bank contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained in such certificates or
statements not misleading.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
a Credit Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall cause each
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3 Financial Statements. Reports. Certificates. Borrower shall deliver to
Bank: (a) as soon as available, but in any event within thirty (30) days after
the end of each month, a company prepared consolidated balance sheet and income
statement covering Borrower's consolidated operations during such period, in a
form and certified by an officer of Borrower reasonably acceptable to Bank;
(b)as soon as available, but in any event within one hundred twenty (120) days
after the end of Borrower's fiscal year, audited consolidated financial
statements of Borrower prepared in accordance with GAAP, consistently applied,
together with an unqualified opinion on such financial statements of an
independent certified public accounting firm reasonably acceptable to Bank; (c)
within five (5) days of filing, copies of all statements, reports and notices
sent or made available generally by Borrower to its security holders or to any
holders of Subordinated Debt and all reports on Form 10-K, 10-Q and 8-K filed
with the Securities and Exchange Commission; (d) promptly upon receipt of notice
thereof, a report of any legal actions pending or threatened against Borrower or
any Subsidiary that could result in damages or costs to Borrower or any
Subsidiary of One Hundred Thousand Dollars ($100,000) or more; and (e) such
budgets, sales projections, operating plans or other financial information as
Bank may reasonably request from time to time.
Within twenty (20) days after the last day of each month, Borrower shall
deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in
substantially the form of Exhibit C hereto, together with aged listings of
accounts receivable.
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Within thirty (30) days after the last day of each month. Borrower shall
deliver to Bank with the monthly financial statements a Compliance Certificate
signed by a Responsible Officer in substantially the form of Exhibit D hereto.
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts at Borrower's expense, provided that such audits will be conducted no
more often than every six (6) months unless an Event of Default has occurred and
is continuing.
6.4 Inventory; Returns. Borrower shall keep all Inventory in good and
marketable condition, free from all material defects. Returns and allowances, if
any, as between Borrower and its account debtors shall be on the same basis and
in accordance with the usual customary practices of Borrower, as they exist at
the time of the execution and delivery of this Agreement. Borrower shall
promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Fifty
Thousand Dollars ($50,000).
6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to make,
due and timely payment or deposit of all material federal, state, and local
taxes, assessments, or contributions required of it by law, and will execute and
deliver to Bank, on demand, appropriate certificates attesting to the payment or
deposit thereof; and Borrower will make, and will cause each Subsidiary to make,
timely payment or deposit of all material tax payments and withholding taxes
required of it by applicable laws, including, but not limited to, those laws
concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal
income taxes, and will, upon request, furnish Bank with proof satisfactory to
Bank indicating that Borrower or a Subsidiary has made such payments or
deposits; provided that Borrower or a Subsidiary need not make any payment if
(i) the amount or validity of such payment is contested in good faith by
appropriate proceedings, (ii) Borrower or Subsidiary, as the case may be, has
established proper reserves (to the extent required by GAAP) and (iii) no lien
other than a Permitted Lien results.
6.6 Insurance.
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain insurance
relating to Borrower's ownership and use of the Collateral in amounts and of a
type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with such
companies, and in such amounts as are reasonably satisfactory to Bank. All such
policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. At Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All proceeds
payable under any such policy shall, at the option of Bank, be payable to Bank
to be applied on account of the Obligations.
6.7 Principal Depository. Borrower shall maintain its principal depository
and operating accounts with Bank.
6.8 Capitalization Event. Borrower shall provide the Bank with evidence,
such evidence to be satisfactory to the Bank, that Borrower has completed the
Capitalization Event on or before July 15, 1999.
6.9 Quick Ratio. Borrower shall maintain, as of the last day of each
calendar month commencing with the month ending July 31, 1999, a ratio of Quick
Assets to Current Liabilities of at least 1.50 to 1.0.
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6.10 Tangible Net Worth. Borrower shall maintain, as of the last day of
each calendar month (i) through the month ending June 30, 1999, a Tangible Net
Worth of not less than One Million Two Hundred Fifty Thousand Dollars
($1,250,000.00), and (ii) commencing with the month ending July 31, 1999 and for
each month thereafter, a Tangible Net Worth of not less than Five Million
Dollars ($5,000,000.00).
6.11 Debt Service Coverage. Borrower shall maintain, as of the last day of
each calendar quarter, a Debt Service Coverage Ratio of not less than 1.25 to
1.0. As used herein, the term Debt Service Coverage Ratio shall mean (i) the
Borrower's earnings after tax plus interest and non cash expenses (as determined
in accordance with GAAP) plus or minus, as appropriate, any decrease or increase
in capitalized software to (ii) the Borrower's current portion of long term debt
and capitalized leases, plus interest.
6.12 Liquidity. Borrower shall maintain, as of the last day of each
calendar month, a ratio of Unrestricted Cash, plus amounts available under the
Committed Revolving Line, to the sum of (i) all outstanding Equipment Advances,
plus (ii) the dollar amount by which any and all outstanding Letters of Credit
exceed the then applicable Borrowing Base, of at least 1.50 to 1.0.
6.13 Further Assurances. At any time and from time to time Borrower shall
execute and deliver such further instruments and take such further action as may
reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Credit Extension
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any Advances,
Borrower will not do any of the following:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of
(collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, other than Transfers: (i) of inventory
in the ordinary course of business, (ii) of non-exclusive licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business; (iii) that constitute payment of normal and usual
operating expenses in the ordinary course of business; or (iv) of worn-out or
obsolete Equipment.
7.2 Changes in Business, Ownership, or Management, Business Locations.
Engage in any business, or permit any of its Subsidiaries to engage in any
business, other than the businesses currently engaged in by Borrower and any
business substantially similar or related thereto (or incidental thereto), or
suffer a material change in Borrower's ownership or management. Borrower will
not, without at least thirty (30) days prior written notification to Bank,
relocate its chief executive office or add any new offices or business
locations.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person.
7.4 Indebtedness. Create, incur, assume or be or remain liable with
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien with
respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other distribution or
payment on account of or in redemption, retirement or purchase of any capital
stock.
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7.7 Investments. Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 Transactions with Affiliates. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower except
for transactions that are in the ordinary course of Borrower's business, upon
fair and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm's length transaction with a nonaffiliated Person.
7.9 Subordinated Debt. Make any payment in respect of any Subordinated
Debt, or permit any of its Subsidiaries to make any such payment, except in
compliance with the terms of such Subordinated Debt, or amend any provision
contained in any documentation relating to the Subordinated Debt without Bank's
prior written consent.
7.10 Inventory. Store the Inventory with a bailee, warehouseman, or
similar party unless Bank has received a pledge of any warehouse receipt
covering such Inventory. Except for Inventory sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Inventory only at the location set forth in Section 10
hereof and such other locations of which Borrower gives Bank prior written
notice and as to which Borrower signs and files a financing statement where
needed to perfect Bank's security interest.
7.11 Compliance. Become an "investment company" or a company controlled by
an "investment company," within the meaning of the Investment Company Act of
1940, or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose; fail
to meet the minimum funding requirements of ERISA; permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, which
violation could have a Material Adverse Effect or a material adverse effect on
the Collateral or the priority of Bank's Lien on the Collateral; or permit any
of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay, when due, any of the
Obligations.
8.2 Covenant Default.
(a) If Borrower fails to perform any obligation under Sections 6.3,
6.5, 6.6, 6.7, 6.8, 6.9, 6.10, 6.11, or 6.12 or violates any of the covenants
contained in Article 7 of this Agreement, Notwithstanding the foregoing, with
respect to Section 6.11 only, it shall not be an Event of Default under this
Section 8.2(a) if the Borrower is not in compliance with such Section provided
the Borrower is in compliance with Section 6.12 of this Agreement; or
(b) If Borrower fails or neglects to perform, keep, or observe any
other material term, provision, condition, covenant, or agreement contained in
this Agreement, in any of the Loan Documents, or in any other present or future
agreement between Borrower and Bank and as to any default under such other term,
provision, condition, covenant or agreement that can be cured, has failed to
cure such default within ten (10) days after the occurrence thereof; provided,
however, that if the default cannot by its nature be cured within the ten (10)
day period or cannot after diligent attempts by Borrower be cured within such
ten (10) day period, and such default is likely to be cured within a reasonable
time, then Borrower shall have an additional reasonable period (which shall not
in any case exceed thirty (30) days) to attempt to cure such default, and within
such reasonable time period the failure to have cured such default shall not be
deemed an Event of Default (provided that no Advances will be required to be
made during such cure period);
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8.3 Material Adverse Change. If there (i) occurs a Material Adverse
Effect, or (ii) is a material impairment of the prospect of repayment of any
portion of the Obligations or (iii) is a material impairment of the value or
priority of Bank's security interests in the Collateral;
8.4 Attachment. If any material portion of Borrower's assets is attached,
seized, subjected to a writ or distress warrant, or is levied upon, or comes
into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be required to be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within 30 days (provided that no
Advances will be made prior to the dismissal of such Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of One Hundred Thousand Dollars
($100,000) or that could have a Material Adverse Effect;
8.7 Subordinated Debt. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment of money in an
amount, individually or in the aggregate, of at least Fifty Thousand Dollars
($50,000) shall be rendered against Borrower and shall remain unsatisfied and
unstayed for a period of ten (10) days (provided that no Credit Extensions will
be made prior to the satisfaction or stay of such judgment); or
8.9 Misrepresentations. If any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set forth
herein or in any certificate or writing delivered to Bank by Borrower or any
Person acting on Borrower's behalf pursuant to this Agreement or to induce Bank
to enter into this Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies. Upon the occurrence and during the continuance of
an Event of Default, Bank may, at its election, without notice of its election
and without demand, do any one or more of the following, all of which are
authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by
any of the other Loan Documents, or otherwise, immediately due and payable
(provided that upon the occurrence of an Event of Default described in
Section 8.5 all Obligations shall become immediately due and payable
without any action by Bank);
(b) Cease advancing money or extending credit to or for the benefit
of Borrower under this Agreement or under any other agreement between
Borrower and Bank;
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(c) Demand that Borrower (i) deposit cash with Bank in an amount
equal to the amount of any Letters of Credit remaining undrawn, as
collateral security for the repayment of any future drawings under such
Letters of Credit, and Borrower shall forthwith deposit and pay such
amounts, and (ii) pay in advance all Letters of Credit fees scheduled to
be paid or payable over the remaining term of the Letters of Credit;
(d) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(e) Without notice to or demand upon Borrower, make such payments
and do such acts as Bank considers necessary or reasonable to protect its
security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to
Bank as Bank may designate. Borrower authorizes Bank to enter the premises
where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or
compromise any encumbrance, charge, or lien which in Bank's determination
appears to be prior or superior to its security interest and to pay all
expenses incurred in connection therewith. With respect to any of
Borrower's premises, Borrower hereby grants Bank a license to enter such
premises and to occupy the same, without charge;
(f) Without notice to Borrower set off and apply to the Obligations
any and all (i) balances and deposits of Borrower held by Bank, or (ii)
indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(g) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein)
the Collateral. Bank is hereby granted a non-exclusive, royalty-free
license or other right, solely pursuant to the provisions of this Section
9. 1, to use, without charge, Borrower's labels, patents, copyrights, mask
works, rights of use of any name, trade secrets, trade names, trademarks,
service marks, and advertising matter, or any property of a similar
nature, as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and, in connection with
Bank's exercise of its rights under this Section 9.1, Borrower's rights
under all licenses and all franchise agreements shall inure to Bank's
benefit;
(h) Sell the Collateral at either a public or private sale, or both,
by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply the proceeds thereof to
the Obligations in whatever manner or order it deems appropriate; and
(i) Bank may credit bid and purchase any Collateral at any public
sale, or at any private sale as permitted by law.
Any deficiency that exists after disposition of the Collateral as provided
above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence and during the
continuance of an Event of Default, Borrower hereby irrevocably appoints Bank
(and any of Bank's designated officers, or employees) as Borrower's true and
lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; and (f) to file, in its
sole discretion, one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral without
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the signature of Borrower where permitted by law, provided Bank may exercise
such power of attorney to sign the name of Borrower on any of the documents
described in Section 4.2 regardless of whether an Event of Default has occurred.
The appointment of Bank as Borrower's attorney in fact, and each and every one
of Bank's rights and powers, being coupled with an interest, is irrevocable
until all of the Obligations have been fully repaid and performed and Bank's
obligation to provide advances hereunder is terminated.
9.3 Accounts Collection. Upon the occurrence and during the continuance of
an Event of Default, Bank may notify any Person owing funds to Borrower of
Bank's security interest in such funds and verify the amount of such Account.
Borrower shall collect all amounts owing to Borrower for Bank, receive in trust
all payments as Bank's trustee, and if requested or required by Bank,
immediately deliver such payments to Bank in their original form as received
from the account debtor, with proper endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish any
required proof of payment due to third persons or entities, as required under
the terms of this Agreement, then Bank may do any or all of the following: (a)
make payment of the same or any part thereof; (b) set up such reserves under the
Committed Revolving Line as Bank deems necessary to protect Bank from the
exposure created by such failure; or (c) obtain and maintain insurance policies
of the type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or deposited
by Bank shall constitute Bank Expenses, shall be immediately due and payable,
and shall bear interest at the then applicable rate hereinabove provided, and
shall be secured by the Collateral. Any payments made by Bank shall not
constitute an agreement by Bank to make similar payments in the future or a
waiver by Bank of any Event of Default under this Agreement.
9.5 Bank's Liability for Collateral. So long as Bank complies with
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of
loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6 Remedies Cumulative. Bank's rights and remedies under this Agreement,
the Loan Documents, and all other agreements shall be cumulative. Bank shall
have all other rights and remedies not expressly set forth herein as provided
under the Code, by law, or in equity. No exercise by Bank of one right or remedy
shall be deemed an election, and no waiver by Bank of any Event of Default on
Borrower's part shall be deemed a continuing waiver. No delay by Bank shall
constitute a waiver, election, or acquiescence by it. No waiver by Bank shall be
effective unless made in a written document signed on behalf of Bank and then
shall be effective only in the specific instance and for the specific purpose
for which it was given.
9.7 Demand; Protest. Borrower waives demand, protest, notice of protest,
notice of default or dishonor, notice of payment and nonpayment, notice of any
default, nonpayment at maturity, release, compromise, settlement, extension, or
renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands by any
party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
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If to Borrower VIP Calling. Inc.
20 Second Avenue
Burlington, Massachusetts 01803
Attn: /s/ Michael J. Hughes/Scott Powers
----------------------------------
FAX: (781) 505-7325
----------------------------------
If to Bank Silicon Valley Bank
40 William Street
Wellesley, Massachusetts 02481
Attn: __________________________________
FAX: (781) 431-9906
with a copy to: Riemer & Braunstein, LLP
Three Center Plaza
Boston, Massachusetts 02108
Attn: David A. Ephraim, Esquire
FAX: (617) 723-6831
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE; JURY WAIVER
The laws of the Commonwealth of Massachusetts shall apply to this
Agreement. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT,
OR PROCEEDING OF ANY KIND, AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS
AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF
THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION
OF THE COURTS AND VENUE IN SANTA CLARA COUNTY, CALIFORNIA.
BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE
LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH
PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement shall bind and inure to the
benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
12.2 Indemnification. Borrower shall, indemnify, defend, protect and hold
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by
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any other party in connection with the transactions contemplated by the Loan
Documents; and (b)all losses or Bank Expenses in any way suffered, incurred, or
paid by Bank as a result of or in any way arising out of, following, or
consequential to transactions between Bank and Borrower whether under the Loan
Documents, or otherwise (including without limitation reasonable attorneys fees
and expenses), except for losses caused by Bank's gross negligence or willful
misconduct.
12.3 Time of Essence. Time is of the essence for the performance of all
obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
12.5 Amendments in Writing. Integration. This Agreement cannot be amended
or terminated except by a writing signed by Borrower and Bank. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this Agreement,
if any, are merged into this Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 Survival. All covenants, representations and warranties made in this
Agreement shall continue in full force and effect so long as any Obligations
remain outstanding. The obligations of Borrower to indemnify Bank with respect
to the expenses, damages, losses, costs and liabilities described in Section
12.2 shall survive until all applicable statute of limitations periods with
respect to actions that maybe brought against Bank have run.
12.8 Countersignature. This Agreement shall become effective only when it
shall have been executed by Borrower and Bank (provided, however, in no event
shall this Agreement become effective until signed by an officer of Bank in
California).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument under the laws of the Commonwealth of
Massachusetts as of the date first above written.
VIP CALLING, INC.
By: /s/ M.J. Hughes
-------------------------
Title: CFO
----------------------
By: _________________________________
Title: ______________________________
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SILICON VALLEY BANK, d/b/a
SILICON VALLEY EAST
By: /s/ John K. Peck
-----------------------------
Name: John K. Peck
-----------------------------
Title: AVP
-----------------------------
SILICON VALLEY BANK
By: /s/ Heidi Fetty
-----------------------------
Name: Heidi Fetty
-----------------------------
Title: Documentation Officer
-----------------------------
(Signed in Santa Clara County,
California)
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EXHIBIT 10.22
STOCK RESTRICTION AGREEMENT
AGREEMENT made this 26th day of August, 1998, between VIP Calling, Inc. a
Delaware corporation (the "Company"), and Ofer Gneezy and Gordon J. VanderBrug
(each, a "Founder" and collectively, the "Founders").
WHEREAS certain investors are investing in the Company, and as a condition
of their investment require the Founders, under the terms and conditions set
forth in this Agreement, to grant to the Company a right to repurchase certain
shares of capital stock of the Company owned by the Founders; and
WHEREAS, the Founders agree to restrict certain shares of capital stock of
the Company to induce the investors to make the investment.
In consideration of the mutual covenants contained herein and the
consummation of the sale and purchase of shares of capital stock of the Company
pursuant to the Series B Stock Purchase Agreement of even date herewith (the
"Purchase Agreement"), and for other valuable consideration, receipt of which is
hereby acknowledged, the parties hereto agree as follows:
1. Purchase Option.
(a) In the event that the Founder ceases to be employed by the
Company voluntarily and without "good reason" or due to termination for "cause"
by the Board of Directors (within the meaning ascribed to such terms in the
Employment Agreement between the Company and such Founder), ("Cessation of
Employment") prior to August 26, 2000, the Company shall have the right and
option (the "Purchase Option") to purchase from such Founder, for the fair
market value on the date of purchase, as fair market value is determined in good
faith by the Board of Directors (the "Option Price"), up to that percentage of
such Founder's Class A Common Stock, $.001 per share held of record by such
Founder as of the date of this Agreement (the "Shares"), as is set forth in the
second column of the table set forth below opposite the period in which such
Founder ceases to be so employed.
- --------------------------------------------------------------------------------
Percentage of Shares Subject
If Cessation of Employment Occurs: to Purchase Option
- --------------------------------------------------------------------------------
After August 26, 1998 45%
but before November 26, 1998
- --------------------------------------------------------------------------------
On or after November 26, 1998 39.375%
but before February 26, 1999
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
On or after February 26, 1999 33.75%
but before May 26, 1999
- --------------------------------------------------------------------------------
On or after May 26, 1999 28.125%
but before August 26, 1999
- --------------------------------------------------------------------------------
On or after August 26, 1999 22.5%
but before November 26, 1999
- --------------------------------------------------------------------------------
On or after November 26, 1999 16.87%
but before February 26, 2000
- --------------------------------------------------------------------------------
On or after February 26, 2000 11.25%
but before May 26, 2000
- --------------------------------------------------------------------------------
On or after May 26, 2000 5.625%
but before August 26, 2000
- --------------------------------------------------------------------------------
On or after August 26, 2000 0%
- --------------------------------------------------------------------------------
(b) For purposes of this Agreement, employment with the Company
shall include employment with a parent or subsidiary of the Company.
(c) If from time to time during the term of the Purchase Option
there is any stock split-up, stock dividend, stock distribution or other
reclassification of the shares, any and all new, substituted or additional
securities to which each Founder is entitled by reason of his ownership of the
Shares shall be immediately included within the total number of such Founder's
Shares subject to the Purchase Option.
2. Exercise of Purchase Option and Closing.
(a) The Company may exercise the Purchase Option by delivering or
mailing to the Founder, in accordance with Section 8, within 60 days after the
Cessation of Employment, a written notice of exercise of the Purchase Option.
Such notice shall specify the number of Shares to be purchased. If and to the
extent the Purchase Option is not so exercised by the giving of such a notice
within such 60-day period, the Purchase Option shall automatically expire and
terminate effective upon the expiration of such 60-day period.
(b) Within 10 days after his receipt of the Company's notice of the
exercise of the Purchase Option pursuant to subsection(a) above, the Founder
shall tender to the Company at its principal offices the certificate or
certificates representing the Shares which the Company has elected to purchase,
duly endorsed in blank by the Founder or with duly endorsed stock powers
attached thereto, all in form suitable for the transfer of such Shares to the
Company. Upon its receipt of
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<PAGE>
such certificate or certificates, the Company shall deliver or mail to the
Founder a check in the amount of the aggregate Option Price therefor.
(c) After the time at which any Shares are required to be delivered
to the Company for transfer to the Company pursuant to subsection (b) above, the
Company shall not pay any dividend to the Founder on account of such Shares or
permit the Founder to exercise any of the privileges or rights of a stockholder
with respect to such Shares, but shall, in so far as permitted by law, treat the
Company as the owner of such Shares.
(d) The Option Price may be payable, at the option of the Company,
in cancellation of all or a portion of any outstanding indebtedness of the
Founder to the Company or in cash (by check) or both.
(e) The Company shall not purchase any fraction of a Share upon
exercise of the Purchase Option, and any fraction of a Share resulting from a
computation made pursuant to Section 1 of this Agreement shall be rounded upward
to the nearest whole Share.
3. Restrictive Legend. All certificates representing Shares shall have
affixed thereto a legend in substantially the following form, in addition to any
other legends that may be required under federal or state securities laws:
"The shares of stock represented by this certificate are subject to
restrictions on transfer and an option to purchase set forth in a
certain Stock Restriction Agreement between the corporation and the
registered owner of these shares (or his predecessor in interest),
and such Agreement is available for inspection without charge at the
office of the Secretary of the corporation."
4. Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, and each other provision of this Agreement shall be
severable and enforceable to the extent permitted by law.
5. Waiver. Any provision contained in this Agreement may be waived, either
generally or in any particular instance, by the Board of Directors of the
Company.
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<PAGE>
6. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Company and the Founders and their respective heirs, executors,
administrators, legal representatives, successors and assigns.
7. No Rights To Employment. Nothing contained in this Agreement shall be
construed as giving the Founders any right to be retained, in any position, as
employees of the Company.
8. Notice. All notices required or permitted hereunder shall be in writing
and deemed effectively given upon personal delivery or upon deposit in the
United States Post Office, by registered or certified mail, postage prepaid,
addressed to the other party hereto at the address shown beneath his or its
respective signature to this Agreement, or at such other address or addresses as
either party shall designate to the other in accordance with this Section 8.
9. Pronouns. Whenever the context may require, any pronouns used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns and pronouns shall include the plural, and
viceversa.
10. Entire Agreement. This Agreement constitutes the entire agreement
between the parties, and supersedes all prior agreements and understandings
(other than the Employment Agreement between the Company and each of the
Founders), relating to the subject matter of this Agreement.
11. Amendment. This Agreement may be amended or modified only by a written
instrument executed by both the Company and the Founders.
12. Governing Law. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY:
VIP CALLING, INC.
By: /s/ Ofer Gneezy
------------------------------
121 Middlesex Turnpike
Burlington, MA 01803
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<PAGE>
FOUNDERS:
/s/ Ofer Gneezy
-----------------------------------
Ofer Gneezy
Address: 5 Manchester Rd
---------------------------
Winchester, MA 01890
---------------------------
/s/ Gordon J. VanderBrug
-----------------------------------
Gordon J. VanderBrug
Address: 23 Woodpark Cir.
---------------------------
Lexington, MA 02421
---------------------------
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<PAGE>
EXHIBIT 10.23
ALLIANCE AGREEMENT
Cisco Systems, Inc., ("Cisco") a corporation organized under the laws of the
state of California and having a place of business at 170 West Tasman Drive, San
Jose, California 95134-1706, and VIP Calling, Inc., a corporation organized
under the laws of the state of Delaware and having a principal place of business
at 121 Middlesex Turnpike, Burlington, MA 01803 (hereinafter "VIP Calling"),
agree to enter into this agreement (the "Alliance Agreement") as of the date of
execution below (the "Effective Date").
1. RELATIONSHIP OBJECTIVES
This Alliance Agreement creates a non-binding framework of cooperation under
which the parties can explore potential collaborative opportunities for
achieving their respective objectives. The objectives for each party under this
Alliance Agreement are as set forth below:
1.1 VIP CALLING'S OBJECTIVES IN ENTERING INTO THIS ALLIANCE ARE TO:
(a) Be Cisco's reference customer in the creation and validation of
the new market segment in voice over IP network enabled
applications.
(b) Leverage Cisco's expertise into new markets and services.
(c) Qualify for becoming a Cisco Powered Network (TM) on one or
more VIP Calling services.
(d) Accelerate market penetration through joint VIP Calling-Cisco
marketing and sales initiatives.
1.2 CISCO'S OBJECTIVES IN ENTERING INTO THIS ALLIANCE ARE TO:
(a) Leverage VIP Calling as an early adopter "beta" test and
reference customer.
(b) Become VIP Calling's preferred business partner and preferred
end-to-end supplier of networking solutions which will enable
VIP Calling's objectives and further the development of new
products and technologies.
(c) Qualify VIP Calling for Cisco Powered Network (TM) status on
one or more services and assist VIP Calling in a marketing
campaign.
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2. EXECUTIVE SPONSOR AND MANAGEMENT TEAM
Cisco and VIP Calling will each appoint individual(s) to this Alliance Agreement
as executive sponsors responsible for monitoring the relationship, conducting
periodic briefings for each other and their teams, and providing a defined means
of communication with other senior executives. Cisco and VIP Calling will also
appoint individual(s) to this Alliance Agreement as Corporate Champions
responsible for the day-to-day coordination of alliance issues.
3. SCOPE OF ALLIANCE
The parties anticipate at the time of the execution of this Alliance Agreement
that the scope of the Alliance will include some or all of the following joint
activities and commitments which are check-marked below. These activities and
commitments will be the subject of alliance discussions and ultimately of
specific agreements ("Specific Agreements") according to the process set forth
in Section 4 of this Alliance Agreement.
3.1 TECHNOLOGY EVALUATION AND TESTING. The parties intend to engage in
the ongoing evaluation and testing of the new technologies and
products to enable VIP Calling's intelligent network service
offerings. Cisco and VIP Calling will execute agreeable beta test
agreements, VIP Calling will participate in early field trials and
beta tests on technologies relevant to VIP Calling's core business.
Cisco and VIP Calling further agree that VIP Calling will provide
input on product specifications and design. Technology area: Voice
over IP.
3.2 INTERNET BUSINESS CONSULTATION. VIP Calling will be eligible to
participate in Cisco's Trusted Advisor Program. Cisco will provide
VIP Calling with a half day consultation session at Cisco's
Executive Briefing Center, to review VIP Calling's internet business
requirements and foster knowledge transfer to enable VIP Calling to
deploy internet business solutions.
Cisco will appoint an advisor to periodically contact VIP Calling
and participate in quarterly meetings at either VIP Calling's or
Cisco's headquarters.
Area planned: Internal and external web-enabled business.
3.3 JOINT MARKETING AND PROMOTION.
(a) Cisco and VIP Calling agree to work together in identifying and
pursuing promotional activities designed to enhance the
Alliance Agreement. These efforts may include the promotion of
the relationship by each party within its respective
organization, via website promotion, trade show collaboration,
newsletter highlights, participation in public relations
activities, use of each other's trademarks or ingredient marks.
Areas planned include: 1) Internal and external communications
plan; and 2) Lead Generation and Trade Show
2
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turnkey programs and support.
3.3.1 INTERNAL COMMUNICATIONS PLAN. Cisco and VIP Calling agree to
create an internal communications plan that is designed to
educate, promote and create awareness of the Alliance between
both companies.
3.3.2 EXTERNAL COMMUNICATIONS PLAN. Cisco and VIP Calling agree to
create an external communications plan designed to promote and
create awareness of the Alliance in the industry. Cisco and
VIP Calling will submit to the other party, for its prior
written approval, any marketing, advertising, press releases,
and all other promotional materials related to the alliance
that references the either or both companies.
3.3.3 LEAD GENERATION PROGRAM AND TRADE SHOW PROGRAMS. Cisco will
provide a turnkey Lead Generation and Trade Show Program for
VIP Calling. The programs have been developed as tools to
enable VIP Calling to conduct marketing campaigns promoting
VIP Calling's business and the Cisco products sold to VIP
Calling's target market. The Lead Generation program includes
an easy method to create a direct mail campaign, collateral,
and web pages. The Trade Show kit includes an exhibit and
running demo. Both programs include a training kit and a lead
tracking mechanism.
3.4 JOINT SALES INITIATIVE. Cisco will work with VIP Calling to initiate
a phased joint sales initiative to accelerate VIP Calling and
Cisco's market penetration in mutually beneficial target markets.
Cisco will introduce VIP Calling to Cisco country sales managers for
sponsorship as a potential reference to Cisco customer base. Global
phase plan is as follows: Phase one: Asia; Phase two: Eastern and
southern Europe; phase three: Latin America.
3.5 INGREDIENT BRANDING. VIP Calling may participate in Cisco's
ingredient branding program, Cisco Powered Network. VIP Calling
agrees to meet the then current criteria for certifying at least one
(1) service as "Cisco Powered Network" within three (3) months of
the Effective Date of the Alliance Agreement.
4. ALLIANCE PROJECT PROCESS
WRITTEN AGREEMENTS. The terms of projects undertaken by the parties pursuant to
this Alliance Agreement will be set forth in Specific Agreements which will be
identified in an Addendum to this Alliance Agreement. Each Specific Agreement
will contain the applicable information set forth in the template attached at
Exhibit B.
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5. COST SHARING, REIMBURSEMENT OF COSTS OR PAYMENTS BETWEEN ALLIANCE MEMBERS
PENDING SPECIFIC AGREEMENTS
All costs incurred by either party in connection with the Alliance Agreement
shall be the sole responsibility of the party incurring the costs.
6. CONFIDENTIAL INFORMATION AND PUBLICITY
6.1 NON-DISCLOSURE AND USE RESTRICTION. Except as set forth below in
paragraph 7.2, the parties agree to maintain the confidentiality of,
and refrain from using, other than for the express purpose of this
Alliance Agreement or any of the Specific Agreements, confidential
or proprietary information relating to the other party's business,
including without limitation, the contents of this Alliance
Agreement, technical processes and formulas, source codes, names,
addresses and information about users and advertisers, product
designs, sales, costs and other unpublished financial information,
product plans, and marketing data; provided that to the extent that
such information is publicly known, already known by, or already in
the possession of the non-disclosing party; is independently
developed by the non-disclosing party; is thereafter rightly
obtained by the non-disclosing party from a source other than the
disclosing party; or is required to be disclosed by law, regulation,
or court order and then only after prompt prior notification to the
other party of such required disclosure; then there shall be no
restriction on the use or disclosure of such information. The
obligations of this paragraph shall be in effect during the term of
this Alliance Agreement and for two (2) years following expiration
or termination hereof.
6.2 PUBLICITY. Any marketing, advertising, promotional materials, press
releases or other public announcements regarding this Alliance
Agreement, or any of the Specific Agreements, shall not be made
without prior written consent of both parties, except as required by
law, in which case the other party shall be consulted, to the extent
reasonably practicable, as to the content and timing of such
release, announcement or statement.
7. TERM AND TERMINATION
7.1. The Alliance Agreement commences on the Effective Date and will
continue in effect for three (3) years ("Term").
7.2. (a) Either party may terminate this Alliance Agreement for any
reason or no reason and at any time by providing thirty (30)
days written notice to the other party.
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(b) Either party may immediately terminate this Alliance Agreement
upon written notice to the other party in the event of a
material breach which remains uncured thirty (30) days after
previous written notice by the nondefaulting party.
7.3 In the event of termination of this Alliance Agreement, neither
party shall have any obligation to continue the activities set forth
herein [or in any Statement of Work], and all obligations and rights
of the parties shall terminate, with the exception of Sections 7.1
(but only to the extent that section provides for survival of
termination), 7.2 (Publicity), 10.4 (Consequential Damages Waiver)
and 10.7 (Dispute Resolution) of this Alliance Agreement, which
provisions shall survive expiration or termination. Upon
termination, the parties agree to promptly return to each other all
proprietary and confidential information of the other party.
8. PURCHASE OF CISCO PRODUCTS AND SERVICES
8.1 In the event that VIP Calling desires to purchase Cisco products and
services, VIP Calling agrees to place such orders pursuant to the
then current agreement in place between Cisco and VIP Calling for
such purchases.
8.2 PREFERRED VENDOR COMMITMENT. In consideration of Cisco's commitment
of the resources described herein, VIP Calling hereby appoints Cisco
as its preferred vendor. VIP Calling will purchase at least eighty
percent (80%) of its total net purchases of any networking equipment
from Cisco, where Cisco has a solution. Networking equipment is
defined as equipment operating at layer two and/or layer three of
the ISO model. VIP Calling forecasts that over the term of this
Alliance Agreement, this commitment shall result in the purchase of
$ten million ($10,000,000) of Cisco products which would not have
otherwise been purchased.
10. GENERAL PROVISIONS
10.1. AMENDMENT. No change, amendment or modification of any provision of
this Alliance Agreement shall be valid unless set forth in a written
instrument signed by both parties.
10.2. ENTIRE AGREEMENT. This Alliance Agreement sets forth the entire
agreement and supersedes any and all prior or contemporaneous
agreements and representations, written or oral, of the parties with
respect to the transactions set forth herein. The parties
acknowledge that as of the date hereof, no binding commitments exist
between the parties with respect to the subject matter of this
Alliance Agreement except as may be provided herein.
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10.3. ASSIGNMENT. Neither this Alliance Agreement, nor any rights
hereunder in whole or in part, shall be assignable or otherwise
transferable by either party without the express written consent of
the other.
10.4. CONSEQUENTIAL DAMAGES WAIVER. EXCEPT FOR A MATERIAL BREACH OF A
PARTY'S CONFIDENTIALITY OBLIGATION OR A VIOLATION OF A PARTY'S
INTELLECTUAL PROPERTY RIGHTS, NOTWITHSTANDING ANYTHING ELSE TO THE
CONTRARY HEREIN, NEITHER PARTY SHALL BE LIABLE TO THE OTHER UNDER
ANY CONTRACT, STRICT LIABILITY, NEGLIGENCE OR OTHER LEGAL OR
EQUITABLE THEORY FOR ANY DIRECT, INCIDENTAL, INDIRECT, PUNITIVE,
SPECIAL, OR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING BUT NOT
LIMITED TO ANY LOSS OF USE, LOSS OF BUSINESS OR LOSS OF PROFIT. ALL
LIABILITY UNDER THIS ALLIANCE AGREEMENT IS CUMULATIVE AND NOT PER
INCIDENT. THIS LIMITATION WILL APPLY NOTWITHSTANDING ANY FAILURE OF
ESSENTIAL PURPOSE OF ANY LIMITED REMEDY PROVIDED HEREIN.
10.5. CONFLICT. In the event of conflict between this Alliance Agreement
and any Statement of Work under this Alliance Agreement, the
Statement of Work shall control as to the subject matter of the
Statement of Work.
10.6. CONSTRUCTION. In the event that any provision of this Alliance
Agreement conflicts with the law under which this Alliance Agreement
is to be construed, or if any such provision is held invalid by a
court with jurisdiction over the parties to this Alliance Agreement,
such provision shall be deemed to be restated to reflect as nearly
as possible the original intentions of the parties in accordance
with applicable law, and the remainder of this Alliance Agreement
shall remain in full force and effect.
10.7. DISPUTE RESOLUTION. Each party agrees that any dispute between the
parties relating to this Alliance Agreement will first be submitted
in writing to a panel of two senior executives of Cisco and VIP
Calling, who shall promptly meet and confer in an effort to resolve
such dispute through good faith consultation and negotiation. Each
party's executives shall be identified by notice to the other party,
and may be changed at any time thereafter also by notice to the
other. In the event the executives are unable to resolve any dispute
within thirty (30) days after submission to them, either party shall
be free to seek any available remedies it may have at law or at
equity.
10.8. INDEPENDENT CONTRACTORS. The parties to this Alliance Agreement are
independent contractors. Neither party is an agent, representative,
or partner of the other party. Neither party shall have any right,
power, or authority to enter into any agreement for, or on behalf
of, or incur any obligation or liability of, or to otherwise bind,
the other party. This Alliance Agreement shall not be interpreted or
construed to
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create an association, agency, joint venture, or partnership between
the parties or to impose any liability attributable to such a
relationship upon either party.
10.9. NO WAIVER. The failure of either party to insist upon or enforce
strict performance by the other party of any provision of this
Alliance Agreement, or to exercise any right under this Alliance
Agreement, shall not be construed as a waiver or relinquishment of
such party's right to enforce any such provision or right in any
other instance.
10.10. NOTICE. Any notice, approval, request, authorization, direction, or
other communication under this Alliance Agreement shall be given in
writing, directed to the addresses of the parties below, and shall
be deemed to have been delivered and given for all purposes: (i) on
the delivery date if delivered by electronic mail; (ii) on the
delivery date if delivered personally to the party to whom the same
is directed; (iii) one (1) business day after deposit with a
commercial overnight carrier with written verification of receipt;
or (iv) five (5) business days after the mailing date whether or not
actually received, if sent by U.S. mail, return receipt requested,
postage and charges prepaid, or any other means of rapid mail
delivery for which a receipt is available to the Contact at the
address of the party to whom the same is directed.
10.11. FORCE MAJEURE. Neither party shall be deemed in violation of this
Alliance Agreement if it is prevented from performing any of the
obligations under this Alliance Agreement by reason of severe
weather and storms; earthquakes or other natural occurrences;
strikes or other labor unrest; power failures; nuclear or other
civil or military emergencies; acts of legislative, judicial,
executive or administrative authorities; or any other circumstances
which are not within its reasonable control.
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10.12. GOVERNING LAW. This Agreement and any action related thereto shall
be governed, controlled, interpreted and defined by and under the
laws of the State of California and the United States, without
regard to the conflicts of laws provisions thereof. The parties
specifically disclaim the UN Convention on Contracts for the
International Sale of Goods.
IN WITNESS WHEREOF, the parties hereto have executed this Alliance
Agreement as of the date first above written.
CISCO SYSTEMS, INC. VIP CALLING, INC.
By: /s/ L. J. Lang By: /s/ Gordon J. VanderBrug
------------------------------ -------------------------------
Name: L. J. Lang Name: Gordon J. VanderBrug
---------------------------- -----------------------------
Title: Vice President Title: Executive Vice President
--------------------------- ----------------------------
Date: 1/4/99 Date: 12/7/98
---------------------------- -----------------------------
8
<PAGE>
EXHIBIT 10.24
MEMORANDUM OF AGREEMENT
between
iBASIS INC. 20 Second Avenue, Burlington, MA 01803
and
NetSpeak Corporation 902 Clint Moore Rd, Boca Raton, FL 33487
Purpose
The purpose of this Memorandum of Agreement is to define the elements of a
strategic partnership relationship between NetSpeak and iBasis (hereinafter
referred to as "the Parties") at a sufficiently detailed level to commence a
commercial and operational engagement/agreement. The terms of the Memorandum
of Agreement will address:
(i) Purchase and Deployment of NetSpeak technology and solutions in the
iBasis network for the purpose of offering value-added IP services.
(ii) Establish a process for strategically aligning the evolution of NetSpeak
product development and support processes with the evolving needs of
iBasis's network based service offers.
Scope
- - iBasis will deploy NetSpeak's Call Management Software for supporting its
network and back-office operations.
- - All generally available commercial NetSpeak products and product
components will be available to iBasis for downstream use by all iBasis
customers regardless of geographic location or existing relationship
between such customers and the Parties. These end user customers will
include, but not be limited to, service providers who interconnect with
the iBasis network for the purpose of originating or terminating telephone
traffic.
- - NetSpeak will provide a dedicated resource to support iBasis. This
resource will be available on site, for the purpose of assisting in the
network deployment of NetSpeak software, and for the development of new
services.
- The above mentioned resource will be assigned with a minimum commitment
of US$1 million in purchases from NetSpeak for the first 12 months of
the engagement.
- Such resources will be made available in subsequent 12 month periods so
long as purchases equal or exceed US$1 million.
- - Custom development work required to facilitate the deployment and
operation of the iBasis network will be done on a contract basis at a cost
to be mutually agreed upon by the Parties.
- Fixes and code changes enhancing network or solution efficiency will be
covered under the NetSpeak maintenance and support agreement. Such
fixes and enhancements may be performed by an on-site dedicated resource.
- - NetSpeak will co-market iBasis termination and egress capabilities along
with it's own offers to ITSPs. NetSpeak will position iBasis as its
preferred partner for such services.
NetSpeak Proprietary and Confidential
<PAGE>
- - NetSpeak will engage in joint development, planning and offer trials with
iBasis. These activities will reflect the strategic and mutually
supportive partnership between the parties, but also recognize that the
parties continue to be independent entities in relation to the Memorandum
of Agreement. These activities will proceed in any instance by mutual
agreement and the Parties will establish a process for defining, agreeing
to and reviewing such activities. In addition, iBasis will be offered the
ability to participate in all current and future NetSpeak beta programs.
MARKETING AND SALES
- - The Parties will develop profiles of origination and termination partners
to whom NetSpeak can co-market iBasis backbone and termination services.
In support of this, iBasis will provide NetSpeak with sales collateral and
rate sheets.
- - NetSpeak and iBasis will create a press release co-incident with the
signing of a formal agreement announcing the Parties' strategic
relationship, subject to legal restrictions.
- - NetSpeak and iBasis will seek additional press and public relations
opportunities.
- - NetSpeak and iBasis will jointly participate in at least one trade show
annually. Such joint participation will be agreed upon on an annual basis
and costs will be equitably shared.
- - iBasis will have the ability to private label the NetSpeak WebPhone client
software as needed. NetSpeak will customize WebPhone client documentation
and training support materials to support iBasis branding efforts for a
fee to be mutually agreed by both Parties.
JOINT DEVELOPMENT AND PLANNING
- - The Parties will schedule and conduct joint reviews of NetSpeak product
direction on a quarterly basis to provide iBasis the opportunity to
critique and input to the NetSpeak product release planning. NetSpeak will
make a good faith attempt to accommodate iBasis input, to the extent that
this is consistent with the achievement of its overall business needs and
priorities in the general market.
- - NetSpeak will at it's discretion perform joint offer development and
testing with iBasis provided that this work is also consistent with
NetSpeak overall product direction, that NetSpeak has resources available
to adequately perform the work, and that NetSpeak's committed product
release schedules are not adversely impacted. This work will be done under
a professional services contract.
In any particular engagement, the parties will create an agreement
addendum which spells out how issues such as intellectual property
ownership, periods for exclusivity and the right for NetSpeak to make
related offers generally available in the marketplace will be dealt with.
TERMS AND PRICES FOR NETSPEAK PRODUCTS
Within 30 days of executing this agreement, NetSpeak will establish a product
pricing schedule for iBasis. This schedule will be mutually agreed to by both
parties and will reflect Most Favored Nation (MFN) pricing.
NetSpeak Proprietary and Confidential
<PAGE>
Upon establishing this pricing schedule, products purchased for deployment
within the iBasis network, to support iBasis customer deployments, will be
priced according to this schedule.
The above mentioned price schedule will be reviewed 6 months following the
establishment of this agreement.
Once iBasis purchases reach a level of $1M, the iBasis discount will be
updated on an ongoing basis to ensure that iBasis receives discounts no less
than the greatest discount offered to any other customer for corresponding
levels.
A separate pricing schedule will be established for NetSpeak products
purchased by iBasis for testing, development or demonstration purposes
supporting iBasis activities. These purchases will apply to iBasis volume
purchases for the purpose of establishing discount levels.
NetSpeak will give iBasis 30 days advance written notice of any price
increases. Within the 30 day period, iBasis can place a single order at the
former price for an order value no greater than the sum of the order values
placed in the 60 days preceding the date of the increase notice.
PROFESSIONAL SERVICES
NetSpeak professional services engagements will be negotiated on a per
engagement basis. Such engagements will be priced commensurate with fair
market value for the resources required to execute the work.
TRAINING AND FACILITIES
Training will generally be conducted at NetSpeak facilities at NetSpeak's
published course prices. Training is a non-discountable service. Training and
education can be scheduled at iBasis's headquarters depending on the
availability of the equipment set-up to simulate training at iBasis. End User
on-site training can be arranged on a case by case basis and will be charged
at the same $ US rate plus travel and lodging expenses for NetSpeak training
personnel. All training services contracted by iBasis will count toward the
total volume purchases used to establish NetSpeak pricing and discount levels
offered to iBasis. The initial 5 day training for iBasis will be provided at
no charge.
(i) iBasis will send a minimum of 2 sales/marketing personnel to attend
NetSpeak Sales Engineer training within a reasonable time, but no later
than 60 days,
(ii) iBasis will send a minimum of 2 technical support personnel to attend
NetSpeak Network Administration and Installation training within a
reasonable time, but no later than 60 days, from signing the Memorandum of
Agreement.
SUPPORT AND WARRANTIES
iBasis will purchase maintenance and support for the duration of the
Memorandum of Agreement and subsequent formal agreement pursuant to the
"Installation and Support Offering" document. Maintenance is a
non-discountable service and is based on the list price offered to the
customer. In the event that NetSpeak makes generally available software
maintenance releases, which contain corrections or bug fixes, these will be
provided to iBasis for all corresponding products that are in iBasis's
inventory without charge.
NetSpeak Proprietary and Confidential
<PAGE>
Software letter releases and some software point releases are included as
part of the support and maintenance agreement. New feature point releases and
major releases will be priced in accordance with standard industry practice.
CHANGE OF CONTROL
This Agreement may not be assigned or delegated by either party without the
prior written approval of the other party, except that either party may
assign all its rights and delegate all its obligations as part of a merger,
reorganization or sale of all or substantially all its assets. Within 30 days
from the execution of this agreement, both parties will jointly agree upon
the appropriate terms for the protection of NetSpeak and iBasis interests
with regard to work product or development initiatives. Subject to the
foregoing, this Agreement is binding on the parties and their successors and
assigns.
CONFIDENTIALITY
All information, whether of a technical nature or otherwise, communicated by
any person in connection with the Memorandum of Agreement or relationship
established by the Memorandum of Agreement will be treated as confidential by
the recipient in accordance with the previous signed Non-Disclosure
Agreement. Each party undertakes that:
(i) it will not use such information for any purpose other than the carrying
out to its responsibilities in accordance with the terms of the Memorandum
of Agreement; and
(ii) it will treat the information as confidential and use the same degree
of care as the Party uses for it's own confidential information of like
sensitivity
NetSpeak Corporation iBasis
By /s/ Mike Rich By /s/ Ofer Gneezy
------------------------ ------------------------
Name Mike Rich Name Ofer Gneezy
---------------------- ----------------------
Title President & CEO Title President & CEO
--------------------- ---------------------
Date 8/16/99 Date 8/16/99
---------------------- ----------------------
NetSpeak Proprietary and Confidential
<PAGE>
Exhibit 21.1
VIP CALLING, INC.
EXHIBIT 21.1
SUBSIDIARIES
VIP Calling (Hong Kong) Limited is a majority-owned subsidiary of the
Company.
Ivanet LLC, a Delaware limited liability company, is a wholly-owned
subsidiary of the Company.
VIP Securities Corporation, a Massachusetts corporation, is a
wholly-owned subsidiary of the Company.
<PAGE>
EXHIBIT 23.1
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
-------------------
ARTHUR ANDERSEN LLP
Boston, Massachusetts
August 17, 1999
<PAGE>
Exhibit 23.3
[Letterhead of Swidler Berlin Shereff Friedman, LLP]
August 18, 1999
iBasis, Inc.
20 Second Avenue
Burlington, MA 01803
Re: Registration Statement on Form S-1
----------------------------------
Gentlemen:
We hereby consent to being named under the caption "Legal Matters" in the
prospectus of iBasis (the "Company") included in the Registration Statement
on Form S-1 of the Company to be filed with the Securities and Exchange
Commission on or after the date hereof.
/s/ Andrew D. Lipman
----------------------------------------
A Partner
Swidler Berlin Shereff Friedman, LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
AND 1998 AND THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE
SIX MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998 DEC-31-1999
<PERIOD-END> DEC-31-1997 DEC-31-1998 JUN-30-1999
<CASH> 1,688,993 7,399,451 3,454,393
<SECURITIES> 0 0 0
<RECEIVABLES> 29,820 1,211,364 2,848,574
<ALLOWANCES> 0 126,741 296,041
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 1,792,195 8,729,718 6,487,796
<PP&E> 672,375 3,959,848 10,144,176
<DEPRECIATION> 18,554 239,637 1,086,356
<TOTAL-ASSETS> 2,517,988 12,771,861 16,263,546
<CURRENT-LIABILITIES> 423,668 4,488,403 7,535,899
<BONDS> 123,358 261,679 7,946,042
0 10,719,205 11,034,205
805 1,250 1,250
<COMMON> 7,560 7,560 7,560
<OTHER-SE> 1,962,597 (2,706,236) (10,261,410)
<TOTAL-LIABILITY-AND-EQUITY> 2,517,988 12,771,861 16,263,546
<SALES> 127,425 1,978,430 6,037,004
<TOTAL-REVENUES> 127,425 1,978,430 6,037,004
<CGS> 186,587 2,729,980 6,614,865
<TOTAL-COSTS> 186,587 2,729,980 6,614,865
<OTHER-EXPENSES> 887,626 5,098,467 6,576,942
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 4,171 52,983 228,782
<INCOME-PRETAX> (925,640) (5,726,503) (7,253,924)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (925,640) (5,726,503) (7,253,924)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (925,640) (5,726,503) (7,253,924)
<EPS-BASIC> (0.15) (0.99) (1.26)
<EPS-DILUTED> (0.15) (0.99) (1.26)
</TABLE>
<PAGE>
Exhibit 99.1
CHARLES M. SKIBO
2265 ALBA WAY
DEERFIELD BEACH, FLA 33442
TELEPHONE: 954-426-2554
August 3, 1999
Ofer Gneezy
iBasis, Inc.
20 Second Avenue
Burlington, MA 01803
Dear Mr. Gneezy:
I hereby consent to be named as a director nominee to the Board of Directors
of iBasis, Inc. in its Registration Statement on Form S-1 to be filed with
the Securities Exchange Commission with respect to $75.0 million maximum
aggregate selling price of its Common Stock, $.001 par value per share, and
the filing of this consent as an exhibit to such Registration Statement.
Very truly yours,
/s/ Charles M. Skibo
---------------------
Charles M. Skibo
