<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 22, 2000
REGISTRATION NO. 333-96533
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
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 OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBERS) IDENTIFICATION 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:
<TABLE>
<S> <C>
DAVID L. ENGEL, ESQ. J. VAUGHAN CURTIS, ESQ.
JOHAN V. BRIGHAM, ESQ. ALSTON & BIRD LLP
BINGHAM DANA LLP ONE ATLANTIC CENTER
150 FEDERAL STREET 1201 WEST PEACHTREE STREET
BOSTON, MASSACHUSETTS 02110 ATLANTA, GEORGIA 30309
(617) 951-8000 (404) 881-7000
FACSIMILE NO. (617) 951-8736 FACSIMILE NO. (404) 881-7777
</TABLE>
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. / /
--------------------------
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.
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- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 22, 2000
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>
$150,000,000
[LOGO]
% CONVERTIBLE SUBORDINATED NOTES DUE 2005
The notes are convertible at any time prior to maturity into common stock at
a conversion price of $ per share, subject to adjustment upon certain events.
Interest is payable on each March 15 and September 15, beginning
September 15, 2000. The notes mature on , 2005. The notes are
subordinated to our senior indebtedness.
We may redeem some or all of the notes on or after March 20, 2003 at the
redemption prices listed in this prospectus, plus accrued interest. Prior to
that date, we may redeem some or all of the notes if the price of our common
stock has exceeded 150% of the conversion price for at least 20 out of 30
consecutive trading days prior to redemption. If we redeem some or all of the
notes prior to March 20, 2003 we will also make an additional payment on the
redeemed notes. You may require us to repurchase your notes upon a repurchase
event in cash or, at our option, common stock, at 105% of the principal amount
of the notes, plus accrued interest.
Our common stock is quoted on the Nasdaq National Market under the symbol
"IBAS." The last reported sales price of our common stock on the Nasdaq National
Market on February 17, 2000 was $72.00 per share.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------------------
<TABLE>
<CAPTION>
PER NOTE TOTAL
-------- -----
<S> <C> <C>
Public Offering Price....................................... % $
Underwriting Discounts...................................... % $
Proceeds to iBasis ......................................... % $
</TABLE>
The initial public offering price set forth above does not include accrued
interest, if any. Interest on the notes will accrue from , 2000 and
must be paid by the purchaser if the notes are purchased after ,
2000.
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 $22,500,000 aggregate principal amount of notes. The underwriters
expect to deliver the notes in book-entry form only through the facilities of
the Depository Trust Company against payment in New York, New York on
, 2000.
Concurrently with this note offering, we are offering 3,500,000 shares of
our common stock, under a separate prospectus, consisting of 2,000,000 shares to
be sold by us and 1,500,000 shares to be sold by selling stockholders. Neither
completion of this note offering nor completion of the concurrent common stock
offering is contingent upon completion of the other.
------------------------
ROBERTSON STEPHENS
CHASE H&Q
U.S. BANCORP PIPER JAFFRAY
DAIN RAUSCHER WESSELS
THE DATE OF THIS PROSPECTUS IS , 2000.
<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 Internet branch offices, Internet central offices 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, NOTES 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 NOTES.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Summary..................................................... 2
Risk Factors................................................ 6
Forward-Looking Statements.................................. 17
Use of Proceeds............................................. 18
Dividend Policy............................................. 18
Ratio of Earnings to Fixed Charges.......................... 18
Price Range of Common Stock................................. 19
Concurrent Offering of Common Stock......................... 20
Capitalization.............................................. 20
Selected Consolidated Financial Data........................ 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Business.................................................... 33
Management.................................................. 47
Certain Transactions........................................ 56
Principal Stockholders...................................... 59
Description of Notes........................................ 62
Description of Capital Stock................................ 75
United States Federal Income Tax Considerations............. 78
Shares Eligible for Future Sale............................. 82
Underwriting................................................ 84
Legal Matters............................................... 86
Experts..................................................... 86
Where You Can Find More Information......................... 86
Index to Consolidated Financial Statements.................. F-1
</TABLE>
------------------------
IBASIS-SM- and the IBASIS logos are trademarks and service marks of iBasis.
VIP Calling-Registered Trademark- is a registered trademark of iBasis, and
Assured Quality Routing-SM- and Broadbandit-SM- are service marks of iBasis.
This prospectus contains other trade names, trademarks and service marks of
iBasis and of other companies.
1
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. 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 NOTES.
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.
Substantially all of our revenue to date has come from fees
we charge our customers to carry voice and fax traffic over
the iBasis Network, our international telecommunications
network. We have not been profitable since inception, and
there can be no assurance that we will ever be profitable.
We provide telecommunications carriers and other
communications service providers with access to the iBasis
Network through "Internet branch offices" strategically
located in major cities in North America, Asia, Latin
America, Europe and Africa. Internet branch offices are
composed of gateways, which digitize, compress and packetize
voice and fax transmissions at both the originating and
terminating points and enable calls to be routed via the
Internet. 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 voice and fax
traffic in ways that ensure consistently high quality.
- INTERNATIONAL HIGH-CAPACITY NETWORK. Our network consists
of more than 3,200 lines deployed internationally through
our relationships with communications service providers
around the world. During our fourth quarter ended
December 31, 1999, we transported approximately 63.8
million minutes of traffic over the iBasis Network.
- COST-EFFECTIVE SOLUTIONS. We use the Internet's highly
efficient technology to deliver international voice and fax
traffic and other value-added applications at costs lower
than those of traditional networks.
- FLEXIBLE BACK OFFICE SOLUTION THAT FACILITATES NEW
SERVICES AND EFFECTIVE BUSINESS MANAGEMENT. Our 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 network architecture is scaleable, which
allows us to increase capacity in efficient increments,
and is based on industry standards, which allows for fast
and efficient deployment of call completion and other
value-added services.
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Our Market.............. According to International Data Corporation, a market
research firm, the market for worldwide Internet telephony
is projected to grow from $0.5 billion in 1999, to $18.7
billion in 2004, approximately half of which would be
generated by new services, including voice-enabled
e-commerce and other enhanced services such as unified
communications. Wholesale worldwide Internet telephony,
including wholesale international Internet telephony, is
expected to grow to $2.0 billion by the same date. In
addition, International Data Corporation projects that
international Internet telephony will comprise $17.3 billion
of the total $18.7 billion market in 2004. 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 both established and emerging
international telecommunications carriers and communications
service providers. As of December 31, 1999, our customers
included many of the 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. These carriers and other service providers
terminate calls for us in their local jurisdictions for a
fee, and in some cases, send calls that originate in those
locations over the iBasis Network to their final
destination.
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 to iBasis, Inc. 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. Information contained on our website should not be considered a
part of this prospectus.
RECENT DEVELOPMENTS
Since our initial public offering in November 1999, we have announced
several developments:
- On December 6, 1999, we announced that we would begin offering Internet
telephony hosting services on the iBasis Network. These services will
provide customers with access to a turnkey solution that enables them to
quickly begin offering voice, fax, pre-paid calling and other value-added
Internet telephony services in our international markets with minimal
capital investment.
- On January 19, 2000, we announced that we will be offering service level
agreements to our international customers, which guarantee customers
sending calls over our network call completion rates equivalent to or
better than those provided by alternative networks, including the
public-switched telephone network.
- On February 3, 2000, we announced our intention to deploy Cisco Systems'
uOne-TM- application on the iBasis Network, thereby allowing
communications service providers to provide unified communications
services to their end-user customers over our network.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered........................ $150 million principal amount of % Convertible
Subordinated Notes due 2005, or notes, which may increase
to up to $172.5 million principal amount of notes if the
underwriters exercise their over-allotment option.
Interest.................................. Interest is payable at the rate of % per year on each
March 15 and September 15, beginning on September 15,
2000.
Maturity.................................. , 2005.
Conversion................................ The notes are convertible at the option of the holder at
any time prior to maturity into common stock at a
conversion price of $ per share, subject to adjustment
upon certain events.
Provisional Redemption.................... We may redeem some or all of the notes at any time prior to
March 20, 2003 if the price of our common stock has
exceeded 150% of the conversion price for at least 20 out
of 30 consecutive trading days prior to redemption. If we
redeem some or all of the notes prior to March 20, 2003, we
will also make an additional payment on the redeemed notes
equal to $ per $1,000 note, minus the amount of any
interest we actually paid on the note. See "Description of
Notes -- Provisional Redemption."
Optional Redemption....................... We may redeem some or all of the notes after March 20, 2003
at the declining redemption prices listed in this
prospectus, plus accrued and unpaid interest.
Repurchase at holder's option upon a
repurchase event........................ You may require us to repurchase your notes upon a
repurchase event in cash, or, at our option upon
satisfaction of certain conditions, in common stock, at
105% of the principal amount of the notes, plus accrued and
unpaid interest.
Ranking................................... The notes are subordinated to our senior indebtedness. As
of December 31, 1999, we had approximately $16.1 million of
senior indebtedness outstanding. The notes will also be
effectively subordinated in right of payment to all
indebtedness and other liabilities of our subsidiaries. We
are not limited from incurring additional debt under the
indenture for the notes.
Use of proceeds........................... We will use the net proceeds from this offering for general
corporate and working capital purposes, including the
purchase of capital equipment in connection with the
deployment of new services.
Trading................................... Our common stock is traded on the Nasdaq National Market
under the symbol "IBAS."
</TABLE>
CONCURRENT OFFERING OF COMMON STOCK
We plan to offer in a separate and concurrent public offering 3,500,000
shares of our common stock of which 2,000,000 shares will be offered by us and
1,500,000 shares will be offered by selling stockholders, or 2,318,408 shares
and 1,706,592 shares if the underwriters' overallotment option is exercised in
full. Neither completion of this note offering nor completion of the concurrent
common stock offering is contingent upon completion of the other.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
Listed below is our consolidated statements of operations data for the years
ended December 31, 1997, 1998 and 1999. You will also find our consolidated
balance sheet data at December 31, 1999. You should read this information in
conjunction with our consolidated financial statements and related notes
appearing elsewhere in this prospectus. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
"Pro Forma" data reflects the sale as of December 31, 1999, of $150,000,000
aggregate principal amount of notes offered by iBasis in this offering, after
deducting the estimated underwriting discount and our estimated offering
expenses. The "Pro Forma" data does not reflect the sale of 2,000,000 shares of
common stock in the concurrent offering.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net revenue................................................. $ 127 $ 1,978 $ 19,417
Total operating expenses.................................... 1,074 7,824 41,049
Loss from operations........................................ (947) (5,846) (21,632)
Net loss.................................................... (926) (5,727) (21,087)
Net loss applicable to common stockholders.................. (926) (5,946) (22,107)
Basic and diluted net loss per share........................ $ (0.15) $ (0.99) $ (2.29)
Basic and diluted weighted average common shares
outstanding (1)........................................... 6,006 6,023 9,655
Pro forma basic and diluted net loss
per share (1) (2)......................................... $ (0.44) $ (0.97)
Pro forma basic and diluted weighted average common shares
outstanding (1) (2)....................................... 13,068 21,651
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------
ACTUAL PRO FORMA
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $123,666 $268,666
Working capital............................................. 115,154 260,154
Total assets................................................ 153,473 303,473
Long-term debt.............................................. -- 150,000
Capital lease obligations, net of current portion........... 11,689 11,689
Total stockholders' equity.................................. 126,904 126,904
</TABLE>
- --------------------------
(1) Computed on the basis described in Note 1(d) of the notes to our
consolidated financial statements appearing elsewhere in this prospectus.
(2) Adjusted to give effect to the conversion of all shares of preferred stock,
Class A and Class B common stock from the date of original issuance.
5
<PAGE>
RISK FACTORS
ANY INVESTMENT IN OUR NOTES INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW, WHICH WE BELIEVE ARE ALL THE
MATERIAL RISKS TO OUR BUSINESS, TOGETHER WITH THE INFORMATION CONTAINED
ELSEWHERE IN THE PROSPECTUS, BEFORE YOU MAKE A DECISION ON INVESTING IN OUR
NOTES.
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 were 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 because
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, ANTICIPATE LOSSES FOR THE FORESEEABLE
FUTURE AND MAY NEVER BECOME PROFITABLE.
We incurred net losses of $21.1 million during fiscal 1999. As of
December 31, 1999, we had an accumulated deficit of $27.8 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. Our
future profitability will depend on our being able to deliver calls over our
network at a cost to us that is less than what we are able to charge for our
calls. Our costs to deliver calls are dependent on a number of factors,
including the countries to which we direct calls and whether we are able to use
the Internet, rather than another component of our network or more expensive
back-up networks, to deliver calls. The prices that we are able to charge to
deliver calls over our network vary, based primarily on the prices currently
prevailing in the international long distance carrier market to specific
countries. While we are currently able to terminate a substantial number of the
calls carried over our network profitably on an operating basis, we have been
unable to operate our entire network profitably on an operating basis for
sustained periods of time. 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.
FLUCTUATIONS IN OUR QUARTERLY RESULTS OF OPERATIONS THAT RESULT FROM VARIOUS
FACTORS INHERENT IN OUR BUSINESS MAY CAUSE THE MARKET PRICE OF OUR NOTES AND 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;
6
<PAGE>
- 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;
- 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 notes and our common
stock to decline significantly. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
WE MAY NEVER GENERATE SUFFICIENT REVENUE TO ATTAIN PROFITABILITY IF
TELECOMMUNICATIONS CARRIERS AND OTHER COMMUNICATIONS SERVICE PROVIDERS ARE
RELUCTANT TO USE OUR SERVICES OR DO NOT USE OUR SERVICES, INCLUDING ANY NEW
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 and 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
- our inability to deliver traffic 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 ability to become
profitable will be materially and adversely affected.
On February 3, 2000, we announced our intention to deploy Cisco Systems'
uOne-TM- application on the iBasis Network, thereby allowing communications
service providers to provide unified communications services to their end-user
customers over our network. We cannot assure you that communications service
providers and their end-user customers will be receptive to, and subscribe for,
any unified communications services we are able to offer, or any other
additional services we elect to deploy on our network. Any perceived problems
with the reliability or functionality of any new services that we offer could
discourage communications service providers from offering these services to
their customers. In addition, the development of new services, such as unified
communications, may require substantial capital expenditures to be made well in
advance of generating any revenue from such services or demonstrating any market
acceptance of such services. If carriers and communications service providers do
not employ our network to offer any new services to their customers, or if their
customers do not subscribe for the services when offered, our financial
condition and results of operations will be materially adversely affected.
We cannot assure you that end-users will continue to purchase services from
our customers or that our customers will maintain a demand for our services.
7
<PAGE>
WE MAY FACE QUALITY AND CAPACITY PROBLEMS OVER OUR NETWORK UPON FAILURES BY
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. For example, 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,
we may not be able to maintain or expand our network to accommodate growth and
we may consequently be unable to grow revenues sufficiently to become
profitable.
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 could
discourage our customers from using our network, which could have the effect of
delaying or preventing our ability to become profitable.
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 ability to expand the scope and
capacity of our network, and to maintain state-of-the-art technology, would be
materially adversely affected.
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
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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 WHICH COULD DELAY OR PREVENT OUR PROFITABILITY.
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
ability to operate our network and business profitably. See "Business--Industry
Overview."
A VARIETY OF RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS COULD MATERIALLY
ADVERSELY AFFECT OUR BUSINESS.
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 ability to attain or maintain profitable
operations.
During the fiscal year ended December 31, 1999, 49% of our revenue was
generated by delivering calls to Asian countries, 18% of our revenue was
generated by delivering calls to Middle Eastern countries, and 22% of our
revenue was generated by delivering calls to Latin America. Many countries in
these geographic regions have experienced political and economic instability
over the past decade. Repeated political or economic instability in countries to
which we deliver substantial volumes of traffic could lead to difficulties in
completing calls through our regional service providers or decreased call volume
to such countries.
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IF WE ARE NOT ABLE TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGE IN A
COST-EFFECTIVE WAY, THE RELATIVE QUALITY OF OUR SERVICES COULD SUFFER.
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, we may not be able to offer competitive services.
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.
IF WE FAIL TO MANAGE OUR GROWTH, WE COULD LOSE CUSTOMERS.
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 and 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 fiscal year ended December 31, 1999, three customers, World Access Telecom
Group, MCI WorldCom and WorldxChange Communications, accounted for approximately
29% 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.
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, John Henson, our Vice President, Engineering and Operations
and Charles Giambalvo, our Senior Vice President of Worldwide Sales. 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
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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, we may not be
able to grow at a sufficient rate to attain profitable operations.
A FAILURE TO OBTAIN NECESSARY ADDITIONAL CAPITAL IN THE FUTURE ON ACCEPTABLE
TERMS COULD PREVENT US FROM EXECUTING OUR BUSINESS PLAN.
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 are
needed to 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 could result in
us being unable to grow as required to attain profitable operations.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, OUR COMPETITIVE POSITION
WOULD BE ADVERSELY AFFECTED.
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 not 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, 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 to attain or maintain
profitability.
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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 UNDERTAKE STRATEGIC ACQUISITIONS IN THE FUTURE AND ANY DIFFICULTIES FROM
INTEGRATING SUCH ACQUISITIONS COULD DAMAGE OUR ABILITY TO ATTAIN OR MAINTAIN
PROFITABILITY.
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.
YEAR 2000 PROBLEMS COULD RESULT IN DISRUPTIONS OF 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. While we have not experienced disruptions as a result of year
2000 issues to date, as yet unidentified problems could arise and 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.
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
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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 failures 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 in particular.
WE CANNOT BE CERTAIN THAT OUR ABILITY TO PROVIDE OUR COMMUNICATIONS SERVICES
USING THE INTERNET WILL NOT BE ADVERSELY AFFECTED BY COMPUTER VANDALISM.
Recently, computer vandals have caused certain leading Internet sites to
shut down temporarily and have materially affected the performance of the
Internet during key business hours by bombarding targeted sites with numerous
false requests for data. While we do not operate any websites like those
recently affected, we do rely on the Internet to deliver our international
communications services. If the overall performance of the Internet is seriously
downgraded by such website attacks or other acts of computer vandalism, our
ability to deliver our communication services over the Internet could be
adversely impacted, which could cause us to have to increase the amount of
traffic we have to carry over alternative networks, including the more costly
public-switched telephone network. In addition, traditional business
interruption insurance may not cover losses we could incur because of any such
disruption of the Internet. While some insurers are beginning to offer insurance
products purporting to cover these losses, we do not have any of this insurance
at this time.
INTERNATIONAL GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTIES COULD LIMIT OUR
ABILITY TO PROVIDE OUR SERVICES OR MAKE THEM MORE EXPENSIVE.
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 limit our ability to provide our services or make them more expensive.
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 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
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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 seriously restrict our ability to
provide services in such jurisdiction, or limit our ability to enforce contacts
in that jurisdiction. 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 prevent us
from being able to conduct business with them. 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
ability to attain or maintain profitability.
WE MAY BE REQUIRED TO SUSPEND OR DISCONTINUE OUR OPERATIONS IN ISRAEL WHICH
WOULD PREVENT US FROM GENERATING REVENUE BY COMPLETING CALLS TO THAT COUNTRY.
On October 6, 1999, our Israeli operations manager received a letter from
the Israel Ministry of Communications alleging that our termination in Israel of
international calls placed with calling cards from outside Israel and carried
over the Internet, as described on our website, constituted the unauthorized
provision of telecommunications services under Israeli law. This letter stated
that we must immediately cease to supply these services. We and our Israeli
telecommunications counsel initiated discussions with the Ministry of
Communications, however the Ministry has not pursued this matter further. As of
the date of this prospectus, we are unable to predict whether we will be forced
to suspend or discontinue operations in Israel as a result of this action by the
Ministry of Communications. We believe that we have valid defenses to the claims
made in the letter and we have continued to terminate calls in Israel. In the
event that we are unable to prevail in our discussions with the Ministry of
Communications, we may be forced to suspend or permanently discontinue our
operations in Israel. If we are required to suspend or permanently discontinue
our operations in Israel, we will no longer be able to generate revenue from the
termination of international traffic in Israel and our ability to increase our
net revenue and achieve profitability will be adversely affected. For the period
from inception, August 2, 1996, to December 31, 1996 and the years ended
December 31, 1997, 1998 and 1999, we generated net revenue from our operations
in Israel of approximately $0, $0, $261,000, and $2.2 million, respectively.
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THE TELECOMMUNICATIONS INDUSTRY IS SUBJECT TO DOMESTIC GOVERNMENTAL
REGULATION AND LEGAL UNCERTAINTIES WHICH COULD PREVENT US FROM EXECUTING OUR
BUSINESS PLAN.
While the Federal Communications Commission 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 that,
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. This regulation may also
negatively impact the cost of doing business over the Internet and materially
adversely affect our ability to attain or maintain profitability.
RISKS RELATING TO THE OFFERING
THE NOTES ARE SUBORDINATED TO OUR SENIOR INDEBTEDNESS.
The notes are unsecured and subordinated to our senior indebtedness. As a
result, we will not be able to make payments on the notes until we have paid in
full all of our senior indebtedness in the event of our insolvency, liquidation,
reorganization or payment default on senior indebtedness. We may, therefore, not
have sufficient assets to pay the amounts due on the notes. Neither we nor our
subsidiaries are prohibited from incurring debt under the notes indenture. If we
incur additional debt, our ability to pay amounts due on the notes could be
adversely affected. As of December 31, 1999, we had approximately $16.1 million
of senior indebtedness. We may also incur additional debt in the future.
The notes are obligations exclusively of iBasis. Our cash flow and our
ability to service our debt, including the notes, is partially dependent upon
the earning of our subsidiaries. In addition, we are partially dependent on the
distribution of earnings, loans or other payments by our subsidiaries to us. Our
subsidiaries are separate and distinct legal entities. Our subsidiaries have no
obligation to pay any amounts due on the notes or to provide us with funds for
our payment obligations, whether by dividends, distributions, loans or other
payments. In addition, any payment of dividends, distributions, loans or
advances by our subsidiaries to us could be subject to statutory or contractual
restrictions. Payments to us by our subsidiaries will also be contingent upon
our subsidiaries' earnings and business considerations.
Our right to receive any assets of any subsidiary upon its liquidation or
reorganization, and, therefore your right to participate in those assets, will
be effectively subordinated to the claims of that subsidiary's creditors,
including trade creditors. In addition, even if we were a creditor of any of our
subsidiaries, our rights as a creditor would be subordinate to any security
interest in the assets of our subsidiaries and any indebtedness of our
subsidiaries senior to that held by us. As of December 31, 1999, our
subsidiaries had no obligations to which the notes are effectively subordinated.
WE MAY BE REQUIRED TO REPURCHASE THE NOTES UPON A REPURCHASE EVENT.
You may require us to repurchase all or any portion of your notes upon a
repurchase event. A repurchase event includes a change in control or a delisting
of the common stock into which the notes are convertible. We may not have
sufficient cash funds to repurchase the notes upon a repurchase event. We may
elect, subject to specified conditions, to pay the repurchase price in common
stock.
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Although there are currently no restrictions on our ability to pay the
repurchase price, future debt agreements may prohibit us from repaying the
repurchase price in either cash or common stock. If we are prohibited from
repurchasing the notes we could seek consent from our lenders to repurchase the
notes. If we are unable to obtain their consent, we could attempt to refinance
the notes. If we were unable to obtain a consent or refinance, we would be
prohibited from repurchasing the notes. If we were unable to repurchase the
notes upon a repurchase event, it would result in an event of default under our
indenture. An event of default under the indenture could result in a further
event of default under our other then-existing debt. In addition, the occurrence
of the repurchase event may be an event of default under our other debt. As a
result, we would be prohibited from paying amounts due on the notes under the
subordination provisions of the indenture.
WE WILL BE SUBSTANTIALLY INCREASING OUR INDEBTEDNESS.
As a result of the sale of the notes, we will incur $150 million of
additional indebtedness assuming that the underwriters' over-allotment option is
not exercised, increasing our ratio of debt to equity, expressed as a
percentage, from approximately 12.7% to approximately 130.9% as of December 31,
1999 on a pro forma basis giving effect to the sale of the notes. Our principal
and interest payment obligations will increase substantially as a result of this
indebtedness. There is a possibility that we may be unable to generate cash
sufficient to pay the principal, interest and other amounts due in respect of
our own indebtedness when due. We may also obtain additional long-term debt and
working capital lines of credit to meet future financing needs. There can be no
assurance that additional financing arrangements will be available on
commercially reasonable terms or at all. Our substantial leverage could have
significant negative consequences, including:
- increasing our vulnerability to general adverse economic and industry
conditions;
- limiting our ability to obtain additional financing;
- requiring the dedication of a substantial portion of our expected cash
flow from operations to service our indebtedness, thereby reducing the
amount of our expected cash flow available for other purposes, including
capital expenditures;
- limiting our flexibility in planning for, or reacting to, changes in our
business and the industry in which we compete; and
- placing us at a possible competitive disadvantage in relation to less
leveraged competitors and competitors that have better access to capital
resources.
WE MAY NOT BE ABLE TO PAY OUR DEBT AND OTHER OBLIGATIONS.
Our cash flow generated during the year ended December 31, 1999 would have
been insufficient to pay the amount of interest payable annually on the notes,
and there can be no assurance that we will be able to pay interest and other
amounts due on the notes as and when they become due and payable. If our cash
flow is inadequate to meet our obligations, we could face substantial liquidity
problems. If we are unable to generate sufficient cash flow or otherwise obtain
funds necessary to make required payments on the notes or our other obligations,
we would be in default under their terms, which would permit the holders of the
notes to accelerate the maturity of the notes and could also cause defaults
under current indebtedness or future indebtedness we may incur. Any default
could have a material adverse effect on our business, prospects, financial
condition and operating results. In addition, there can be no assurance that we
would be able to repay amounts due on the notes if payment of the notes were to
be accelerated following the occurrence of an event of default as defined in the
notes indenture.
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THERE IS NO PUBLIC MARKET FOR THE NOTES.
There has been no trading market for the notes prior to this offering.
Although the underwriters have advised us that they intend to make a market in
the notes, they are not obligated to make a market in the notes. The
underwriters could stop making a market at any time without notice. Accordingly,
no market for the notes may develop, and any market that develops may not last.
We do not intend to apply for listing of the notes on any security exchange or
other stock market.
ANY RATING OF THE NOTES MAY CAUSE THEIR TRADING PRICE TO FALL.
We believe that one or more rating agencies may rate the notes. If the
rating agencies rate the notes, they may assign a lower rating than expected by
investors. Rating agencies may also lower ratings on the notes in the future. If
the rating agencies assign a lower than expected rating or reduce their ratings
in the future, the trading price of the notes could decline.
OUR BUSINESS COULD BE HURT IF MANAGEMENT USES OUR PROCEEDS FROM THIS OFFERING
INEFFECTIVELY.
Our management will have flexibility in applying the net proceeds of this
offering. We intend to use the proceeds of this offering for general corporate
purposes, including capital expenditures to be made in connection with the
deployment of new services. These purposes could also include strategic
acquisitions or investments, international expansion, technical upgrades of
internal systems and other working capital requirements. We expect to spend a
significant portion of the net proceeds of this offering on capital equipment
purchases necessary to deploy our new services. There can be no assurance that
these services will be accepted by our customers, or that we will be able to
generate sufficient revenue from such services to justify such capital
expenditures. The failure of our management to apply the proceeds of this
offering effectively could have a material adverse effect on our business,
results of operations and financial conditions. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a more detailed description of how management intends to apply
the proceeds of this offering.
FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. We intend
the forward-looking statements to be covered by the safe harbor for
forward-looking statements in these sections. 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. The
forward-looking information is based on various factors and was derived using
numerous assumptions. Our actual results could be materially different or worse
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.
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USE OF PROCEEDS
We expect to receive net proceeds of $145 million from the sale of notes in
this offering, or $166.8 million if the underwriters' over-allotment option is
exercised in full, and after deducting underwriting discounts and the estimated
offering expenses payable by us. We intend to use the proceeds of this offering
for general corporate and working capital purposes, including the purchase of
capital equipment in connection with the deployment of new services.
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; and
- increase our visibility in the marketplace.
We believe that the net proceeds of the offering and cash balances will be
sufficient to meet our working capital and capital expenditure requirements for
at least the next twelve months.
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.
RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges for each of the periods indicated is
as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Ratio of earnings to fixed charges.......................... (28.1) (74.4) (19.1)
Pro forma ratio of earnings to fixed charges (1).......... -- --
Deficiency of earnings available to cover fixed charges (in
thousands)................................................ 32 76 1,049
</TABLE>
- ------------------------
(1) Gives effect to the issuance of the notes.
For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before taxes plus fixed charges. Fixed charges consist of
interest expense incurred, including capital leases, amortization of interest
costs and the portion of rental expense under operating leases that we deem to
be representative of the interest factor.
18
<PAGE>
PRICE RANGE OF COMMON STOCK
Our common stock began trading publicly on the Nasdaq National Market on
November 10, 1999 and is traded under the symbol "IBAS." The following table
shows the range of the high and low per share bid prices of the common stock, as
reported by the Nasdaq National Market for the period indicated.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
Fourth Quarter ended December 31, 1999 (from November 10,
1999)..................................................... $42.31 $24.13
First Quarter ended March 31, 2000 (through February 17,
2000)..................................................... $93.06 $28.25
</TABLE>
On February 17, 2000, the closing price of the common stock on the Nasdaq
National Market was $72.00 per share, the high and low bid prices were
approximately $74.75 and $68.38 and there were approximately 120 holders of
record of the common stock.
19
<PAGE>
CONCURRENT OFFERING OF COMMON STOCK
We plan to offer in a separate and concurrent public offering 3,500,000
shares of our common stock (4,025,000 shares if the underwriters' over-allotment
option is exercised in full), of which 2,000,000 shares are offered by us and
1,500,000 shares are being offered by selling stockholders (2,318,408 shares and
1,706,592 shares if the underwriters' over-allotment option is exercised in
full). Neither completion of this note offering nor completion of the concurrent
common stock offering is contingent upon completion of the other.
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- on an actual basis; and
- on a pro forma basis to give effect to the sale of $150 million aggregate
principal amount of notes.
This table should be read in conjunction with our consolidated financial
statements and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------
ACTUAL PRO FORMA
---------- ---------
<S> <C> <C>
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Long-term obligations:
% Convertible Subordinated Notes due 2005............... $ -- $ 150,000
Capital lease obligations, net of current portion......... 11,689 11,689
-------- ---------
Stockholders' equity (deficit):
Common stock, $0.001 par value per share; 85,000,000
shares authorized, 31,642,728 issued and outstanding,
actual and pro forma.................................... 32 32
Additional paid-in capital.................................. 156,888 156,888
Deferred compensation....................................... (2,201) (2,201)
Accumulated deficit......................................... (27,815) (27,815)
-------- ---------
Total stockholders' equity.............................. 126,904 126,904
-------- ---------
Total capitalization.................................. $138,593 $ 288,593
======== =========
</TABLE>
The common stock to be outstanding after this offering is based on
31,642,728 shares outstanding as of December 31, 1999 and excludes:
- 3,005,850 shares of common stock issuable upon the exercise of outstanding
stock options and warrants outstanding at December 31, 1999 at a weighted
average exercise price of $4.31 per share;
- 2,531,150 additional shares of common stock reserved for issuance under
our stock incentive plan. See "Management--1997 Stock Incentive Plan";
- additional shares of common stock initially issuable upon
conversion of the notes offered hereby; and
- 2,000,000 additional shares of common stock that we may sell in a
concurrent public offering of common stock. Neither completion of this
note offering nor completion of the concurrent common stock offering is
contingent upon completion of the other.
20
<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, are derived
from, and qualified by reference to, our consolidated financial statements which
have been audited by Arthur Andersen LLP, independent public accountants but are
not included in this prospectus. The consolidated statements of operations data
set forth below for the years ended December 31, 1997, 1998 and 1999, and the
consolidated balance sheet data at December 31, 1998 and 1999 are derived from,
and qualified by reference to, our consolidated financial statements which have
been audited by Arthur Andersen LLP, together with their report thereon included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
(AUGUST 2, 1996)
TO DECEMBER 31, YEAR ENDED DECEMBER 31,
--------------------- ------------------------------
1996 1997 1998 1999
--------------------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net revenue................................................. $ -- $ 127 $ 1,978 $ 19,417
Operating expenses:
Data communications and telecommunications.................. -- 187 2,730 21,007
Research and development.................................... 76 317 1,674 6,183
Selling and marketing....................................... -- 97 1,160 5,568
General and administrative.................................. -- 454 1,365 5,309
Depreciation and amortization............................... -- 19 364 2,997
Loss (gain) on disposal of property and equipment........... -- -- 531 (15)
------ ------ ------- --------
Total operating expenses.................................. 76 1,074 7,824 41,049
Loss from operations...................................... (76) (947) (5,846) (21,632)
------ ------ ------- --------
Interest income............................................. -- 17 179 1,329
Interest expense............................................ -- (4) (53) (836)
Other income (expense), net................................. -- 8 (7) 3
Minority interest in loss of joint venture.................. -- -- -- 49
------ ------ ------- --------
Net loss.................................................. (76) (926) (5,727) (21,087)
Accretion of dividends on redeemable convertible preferred
stock..................................................... -- -- (219) (1,020)
------ ------ ------- --------
Net loss applicable to common stockholders................ $ (76) $ (926) $(5,946) $(22,107)
====== ====== ======= ========
Pro forma net loss applicable to common stockholders........ $(5,727) $(21,087)
======= ========
Basic and diluted net loss per share applicable to common
stockholders.............................................. $(0.01) $(0.15) $ (0.99) $ (2.29)
====== ====== ======= ========
Basic and diluted weighted average common shares outstanding
(1)....................................................... 6,000 6,006 6,023 9,655
Pro forma basic and diluted net loss per share (1) (2)...... $ (0.44) $ (0.97)
======= ========
Pro forma basic and diluted weighted average common shares
outstanding (1) (2)....................................... 13,068 21,651
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 7,399 $123,666
Working capital............................................. 4,241 115,154
Total assets................................................ 12,772 153,473
Capital lease obligations, net of current portion........... 213 11,689
Redeemable convertible preferred stock...................... 10,719 --
Total stockholders' equity.................................. (2,697) 126,904
</TABLE>
- --------------------------
(1) Computed on the basis described in Note 1(d) of the notes to our
consolidated financial statements appearing elsewhere in this prospectus.
(2) Adjusted to give effect to the conversion of all shares of preferred stock,
Class A and Class B common stock from the date of original issuance.
21
<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 RELATED NOTES 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 incorporated 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." In
November 1999, we completed our initial public offering and issued 7,820,000
shares of common stock, which resulted in total net proceeds to us of
approximately $114.7 million. 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 by deploying
additional equipment and enhancing 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 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 several months.
22
<PAGE>
To date, we have not been able to handle traffic 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 the completion of
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 December 31, 1999, we had an accumulated deficit of approximately
$27.8 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.
Since our initial public offering in November 1999, we have announced
several developments:
- On December 6, 1999, we announced that we would begin offering Internet
telephony hosting services on the iBasis Network. These services will
provide customers with access to a turnkey solution that enables them to
quickly begin offering voice, fax, pre-paid calling and other value-added
Internet telephony services in our international markets with minimal
capital investment.
- On January 19, 2000, we announced that we will be offering service level
agreements to our international customers, which guarantee customers
sending calls over our network call completion rates equivalent to or
better than those provided by alternative networks, including the
public-switched telephone network.
- On February 3, 2000, we announced our intention to deploy Cisco Systems'
uOne-TM- application on the iBasis Network, thereby allowing
communications service providers to provide unified communications
services to their end-user customers over our network.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 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 offsetting termination fees otherwise payable to
local service providers against the equipment purchase price until the full
purchase price has been paid.
Our net revenue increased by $17.4 million to $19.4 million in the year
ended December 31, 1999 from $2.0 million in the year ended December 31, 1998.
This increase was primarily driven by an increase in revenue from voice and fax
call completion services to $19.0 million in 1999 from $1.7 million in 1998. 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 156.5 million
minutes in 1999 from 12.1 million minutes in 1998. Net revenue from the sale of
equipment increased to $435,000 in 1999 from $273,000 in 1998.
DATA COMMUNICATIONS AND TELECOMMUNICATIONS EXPENSES. Data communications
and telecommunications expenses are comprised primarily of termination fees,
purchased minutes, equipment expense and other expenses associated with data
communications and telecommunications.
23
<PAGE>
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 service provider and
included in our contract with our local service provider. Should competition
cause a decrease in our prices and, as a result our profit margins, our
contracts with our providers 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 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 Internet branch offices, fees for the fiber
optic connections between our Internet branch offices 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
$18.3 million to $21.0 million in 1999 from $2.7 million in 1998. The increase
in data communications and telecommunications expense was driven by the increase
in traffic described above, as termination fees increased to $8.5 million in
1999 from $579,000 in 1998, and purchased minutes increased to $7.7 million in
1999 from $921,000 in 1998. Equipment expenses directly related to equipment
sales increased to $437,000 in 1999 from $217,000 in 1998. Other data
communications and telecommunications expenses, including Internet access,
public circuit-switched network access, and international private line charges,
increased to $4.4 million in 1999 from $1.0 million in 1998. As a percentage of
total revenue, data communications and telecommunications expenses decreased to
108% in 1999 from 138% in 1998. 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.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development 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 that consist
primarily of expenses incurred in enhancing, developing, updating and supporting
our network and our proprietary software applications.
Research and development expenses increased by $4.5 million to $6.2 million
in 1999 from $1.7 million in 1998. This increase in research and development
expenses is due principally to the increase in personnel within the group to 62
at the end of 1999 from 20 at the end of 1998. As a percentage of total revenue,
research and development expenses decreased to 32% in 1999 from 85% in 1998. We
expect that research and development 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.
24
<PAGE>
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 $4.4 million to $5.6 million in 1999 from
$1.2 million in 1998. This increase is attributable to an increase in the number
of personnel employed in selling and marketing to 47 at the end of 1999 from
eight at the end of 1998, 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 29% in
1999 from 59% 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.
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 $3.9 million to $5.3 million in 1999 from $1.4 million in 1998.
General and administrative expenses increased primarily due to an increase in
the number of employees to 38 at the end of 1999 from six at the end of 1998, 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 27% in 1999 from 69% in 1998. 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 $2.6 million to $3.0 million in 1999 from $364,000 in
1998. 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
15% in 1999 from 18% 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 $1.1 million to $1.3 million in 1999
from $179,000 in 1998. This increase was primarily attributable to increased
interest earnings on our cash and cash equivalents, which increased by
$116.3 million from $7.4 million as a result of our initial public offering,
which was completed in November 1999. Interest expense increased by $783,000 to
$836,000 in 1999 from $53,000 in 1998. 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
25
<PAGE>
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.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased by $1.4 million to approximately $1.7 million in 1998 from $318,000 in
1997. This increase in research and development 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 85% in 1998 from 250% in 1997.
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 $912,000 to $1.4 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
69% 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
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased by $242,000 to approximately $318,000 in 1997 from $76,000 in 1996.
The increase in research and development expenses is due principally to the
development of our network as we prepared to commence operations.
We were incorporated in August 1996 and commenced 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.
26
<PAGE>
UNAUDITED QUARTERLY OPERATING RESULTS
The following tables set forth certain unaudited quarterly operating results
for each of our six fiscal quarters in the 18-month period ended December 31,
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, SEPT. 30, DEC. 31,
1998 1998 1999 1999 1999 1999
--------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenue............................ $ 387 $ 1,405 $ 2,414 $ 3,623 $ 5,780 $ 7,600
Operating expenses:
Data communications and
telecommunications................. 663 1,491 2,586 4,029 6,204 8,188
Research and development............. 454 651 865 1,317 1,837 2,164
Selling and marketing................ 303 492 837 1,210 1,534 1,987
General and administrative........... 316 624 611 887 1,470 2,341
Depreciation and amortization........ 95 152 233 632 1,024 1,108
Loss (gain) on disposal of property
and equipment...................... -- 531 -- (15) -- --
------- ------- ------- ------- ------- -------
Total operating expenses......... 1,831 3,941 5,132 8,060 12,069 15,788
------- ------- ------- ------- ------- -------
Loss from operations............. (1,444) (2,536) (2,718) (4,437) (6,289) (8,188)
Interest income........................ 51 103 53 31 220 1,025
Interest expense....................... (19) (6) (60) (169) (217) (390)
Other income expense, net.............. -- -- (2) (1) 6 --
Minority interest in loss of joint
venture.............................. -- -- 49 -- -- --
------- ------- ------- ------- ------- -------
Net loss......................... $(1,412) $(2,439) $(2,678) $(4,576) $(6,280) $(7,553)
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1999 1999 1999 1999
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Net revenue.............................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Data communications and
telecommunications................... 171.3 106.1 107.1 111.2 107.3 107.7
Research and development............... 117.3 46.3 35.8 36.4 31.8 28.5
Selling and marketing.................. 78.2 35.0 34.7 33.4 26.5 26.1
General and administrative............. 81.7 44.5 25.3 24.4 25.4 30.8
Depreciation and amortization.......... 24.5 10.8 9.7 17.4 17.7 14.6
Loss (gain) on disposal of property and
equipment............................ 0.0 37.8 0.0 (0.4) 0.0 0.0
------ ------ ------ ------ ------ ------
Total operating expenses........... 473.0 280.5 212.6 222.4 208.7 207.7
------ ------ ------ ------ ------ ------
Loss from operations............... (373.0) (180.5) (112.6) (122.4) (108.7) (107.7)
------ ------ ------ ------ ------ ------
Interest income (expense), net........... 8.1 6.9 (0.2) (3.9) 0.0 8.4
Other expense, net....................... 0.0 0.0 (0.1) 0.0 0.0 0.0
Minority interest in loss of joint
venture................................ 0.0 0.0 2.0 0.0 0.0 0.0
------ ------ ------ ------ ------ ------
Net loss........................... (364.9)% (173.6)% (110.9)% (126.3)% (108.7)% (99.3)%
====== ====== ====== ====== ====== ======
</TABLE>
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<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 our initial public
offering and 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 $2.9 million for the year
ended December 31, 1997, $11.6 million for the year ended December 31, 1998, and
$139.0 million for the year ended
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December 31, 1999. These amounts are primarily attributable to the net proceeds
from our initial public offering and the issuance of Class B common stock and
preferred stock.
Net cash used in operating activities was $666,000 for the year ended
December 31, 1997, $2.1 million for the year ended December 31, 1998, and
$16.7 million for the year ended December 31, 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 $511,000 for the year ended
December 31, 1997, $3.8 million for the year ended December 31, 1998, and
$6.0 million for the year ended December 31, 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. 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.
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 gross 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
gross 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
gross 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.
INITIAL PUBLIC OFFERING. In November 1999, we completed our initial public
offering and issued 7,820,000 shares of common stock, which resulted in total
net proceeds to us of $114.7 million.
Upon the completion of our initial public offering, all outstanding shares
of our preferred stock and Class B common stock automatically converted into the
following number of shares of Class A common stock:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
CLASS A COMMON STOCK
---------------------
<S> <C>
Series A preferred stock................................. 3,750,000
Series B preferred stock................................. 6,562,500
Series C preferred stock................................. 5,744,103
Class B common stock..................................... 1,500,000
</TABLE>
29
<PAGE>
Subsequently, all outstanding shares of Class A common stock converted into
23,738,353 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 equipment leases specifies its own term,
rate and payment schedule, depending upon the value and amount of equipment
leased. As of December 31, 1999, the aggregate outstanding balance under our
leases from Cisco was $14.0 million, and we had an additional $1.0 million
available for borrowing under that master agreement. As of the same date, the
aggregate outstanding balance under the TLP master lease was $1.4 million, with
no additional amount 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 December 31, 1999, we had made borrowings in the aggregate amount of
$506,000 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 alternatives 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 December 31, 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 continuing to assess the corporate systems and
operations that we believe could be affected by the year 2000 problem. We
focused our year 2000 compliance review on three areas:
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- information technology infrastructure, including the operation of the
iBasis Network and related software applications;
- third-party compliance; and
- non-information technology systems.
Our own personnel performed all of the assessment, remediation and testing
of our systems; 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 continue to believe that all of our critical systems are year 2000 ready.
While to date we have not experienced any material disruptions as a result of
year 2000 problems, 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 will continue to function properly in the year 2000. We will continue to
monitor the year 2000 readiness of the system suppliers of our website, main
enterprise systems, 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 function properly as a result of the year 2000 date change 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 these providers experience business interruptions,
which to date have not been apparent, as a result of their failure to function
properly as a result of the year 2000 date change, 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.
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<PAGE>
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.
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. Since some countries outside of the United
States and organizations within these countries are not as intensively acting to
remediate their year 2000 issues, any disruption in these countries could
adversely affect our service in such countries. However, this issue is not
unique to us, as all of our customers and partners are having to face this issue
to support their normal business operations.
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 continuing to monitor 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 year 2000 failure of any of our non-information
technology systems 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. We have
funded and will continue to fund, if necessary, our year 2000 monitoring and
preparations 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.
We intend to develop contingency plans to address any year 2000 readiness
problems if necessary.
MARKET RISK
To date, we have not engaged in trading market risk sensitive instruments or
purchasing hedging instruments that would be likely to expose us to market risk,
whether interest rate, foreign currency exchange, commodity price or equity
price risk. We have not purchased options or entered into swaps of forward or
futures contracts. Our primary market risk exposure is that of interest rate
risk on borrowings under our credit lines, which are subject to interest rates
based on the banks' prime rate, and a change in the applicable interest rate
would affect the rate at which we could borrow funds or finance equipment
purchases. While to date our global operations have generated revenues in United
States dollars, we are currently evaluating the impact of foreign currency
exchange risk on our results of operations as we continue to expand globally.
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<PAGE>
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 worldwide Internet telephony will grow from $0.5
billion in 1999, to $18.7 billion in 2004, approximately half of which would be
generated by new services, including voice-enabled ecommerce and other enhanced
services such as unified communications. Wholesale worldwide Internet telephony,
including wholesale international Internet telephony, is expected to grow to
$2.0 billion by the same date. In addition, International Data Corporation
projects that international Internet telephony will comprise $17.3 billion of
the total $18.7 billion market in 2004.
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
33
<PAGE>
that Internet telephony uses less bandwidth per call than traditional
circuit-switched calling. As a 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 communications 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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<PAGE>
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
"Internet branch offices" strategically 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
fourth quarter ended December 31, 1999, we transported approximately
63.8 million minutes of traffic over the more than 3,200 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.
On February 3, 2000, we announced our intention to deploy Cisco Systems'
uOne-TM- application on the iBasis Network, thereby allowing communications
service providers to provide unified communications services to their end-user
customers over our network.
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
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base and allow us to cross-sell other services to communications service
providers once they are our customers. On February 3, 2000, we announced our
intention to deploy Cisco Systems' uOne-TM- application on the iBasis Network,
thereby allowing communications service providers to provide unified
communications services to their end-user customers over our network.
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 fourth quarter ended December 31, 1999,
we transported approximately 63.8 million minutes of traffic over our network.
The iBasis Network consists of four principal elements:
- "Internet central offices" and "Internet branch offices" 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, through telephone lines, labeled "Circuit-Switched Network,"
into an iBasis Internet Central Office/Internet Branch Office, to a cloud
labeled "The Internet," continuing out through another Internet Central Office/
Internet Branch Office, to another picture of telephone lines, labeled
"Circuit-Switched Network," and concluding with the depiction of a telephone,
cellular phone and fax machine. In the center of the diagram, connection to the
Internet Central Offices/Internet Branch Offices and the Internet, is a box with
the text "iBasis Global Network Operations Center" and "Assured Quality
Routing." Above the Internet cloud is a small cloud labeled "Alternate Routes"
connected the to Points of Presence with dotted lines.]
INTERNET CENTRAL OFFICES AND INTERNET BRANCH OFFICES. The entrance point
for communications traffic over the iBasis Network is an Internet branch office,
four of which have enhanced functionality and capacity and are referred to as
Internet central offices. Our customers can interconnect with the iBasis Network
by connecting dedicated voice circuits from their facilities to one of four
Internet central
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offices, located in New York; Los Angeles; London, England; and Hong Kong,
China. Alternatively, our customers may elect to install an iBasis Internet
branch office directly at their facilities to eliminate the cost of backhauling
traffic from their facilities to one of our Internet central offices. Internet
branch offices receive calls through a local carrier's switched network.
Gateways in each Internet branch office digitize, compress and packetize voice
and fax calls and then transmit them over the Internet. At the destination,
another Internet branch office 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 Internet branch offices located in more than two dozen
countries worldwide, including Australia, China, Germany, Hong Kong, Japan,
Korea, the United Kingdom and the United States. Some of these Internet branch
offices are owned by us and others are owned by our partners. The Internet
branch offices are scaleable and flexible platforms designed for interconnection
with the iBasis Network and are built primarily using Cisco Systems' equipment.
The scaleability of the Internet branch offices permits us to quickly increase
capacity in discrete increments at relatively low cost, either for a region or a
customer. In addition, the Internet branch office 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;
- purchasing high-speed connections into the Internet backbone; and
- continuously monitoring the quality of the connections between each
Internet branch office 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 Internet central
offices and Internet branch offices 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.
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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.
On January 19, 2000, we announced that we will be offering service level
agreements to our international customers. These service level agreements for
international termination services guarantee customers sending calls over our
network call completion rates equivalent to or better than those provided by
alternative networks, including the public-switched telephone network. The call
completion rate, known in the telecommunications industry as the answer seizure
ratio, represents the percentage of calls out of all attempts that are
successfully completed. The higher the answer seizure ratio, the more reliable
the network and the more billable calls that result for a carrier.
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.
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:
- UNIFIED COMMUNICATIONS. On February 3, 2000, we announced that we intend
to deploy Cisco Systems' uOne-TM- unified communications application on
the iBasis Network. This application will permit our customers to offer a
communications solution that will unify the storage and retrieval of
e-mail and voice-mail messages as well as faxes. With the proliferation of
messaging worldwide and as people send more and more e-mail, voice-mail
and faxes, unified communications services will allow subscribers to
access their messages any place from a phone or a computer.
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- INTERNET TELEPHONY HOSTING. On December 6, 1999, we announced that we
would begin offering Internet telephony hosting services on the iBasis
Network. These services will provide customers with access to a turnkey
solution that enables them to quickly begin offering voice, fax, pre-paid
calling and other value-added Internet telephony services with a global
footprint with minimal capital investment.
- BASIC MESSAGING SERVICES. We may offer additional basic messaging
services, including outsourced voice-mail, store-and-forward fax, or
faxmail, and e-mail.
- OTHER ADVANCED MESSAGING SERVICES. We may offer other advanced messaging
services including: 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 two carriers are RSL,
WorldxChange Communications, World Access Telecomm Group, 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 Internet
central offices for completion overseas. As of December 31, 1999, we were
providing services to ten of the top twelve 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,
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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. As of
December 31, 1999, we had deployed nine sales personnel to cover domestic
carriers, with an additional seven in sales support roles. 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
December 31, 1999, we had deployed eleven 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.
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
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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. Under the terms of our alliance agreement with Cisco,
we have committed to appoint Cisco our preferred vendor. In addition, we are
required to purchase 80% of our total net purchases of any network equipment
from Cisco, where Cisco has a solution.
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.
Under the agreement, we are licensing computer software from Belle Systems
that allows us to integrate their billing system into our network, in exchange
for which we pay product and license fees, which for specified products are not
to exceed the lowest price offered by Belle Systems to any of its customers for
the same or similar products. Belle Systems will provide general service and
support for the system, and use its best efforts to provide any additional
assistance for a reasonable price, also not to exceed the lowest prices charged
by Belle Systems to other customers. The agreement also contains a limited
warranty for the system, a mutual non-disclosure obligation, and a source code
escrow at our expense.
NETSPEAK CORPORATION
We have entered into a strategic partnership agreement 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. Under the agreement, we are licensing
computer software from NetSpeak that we and our customers can use to assist in
call routing and completion and, in exchange for which, we are obligated to pay
product and licensing fees. NetSpeak will also provide us with software
maintenance and support services for which we are obligated to pay maintenance
and support fees. Under the terms of the agreement, we have a limited obligation
to upgrade our NetSpeak software to maintain some of NetSpeak's service
obligations. We will also work with NetSpeak in the development and deployment
of new functions and features to the software that will, among other things, add
value-added service capabilities that will enhance and differentiate our
offerings to service providers. Each of NetSpeak and iBasis will also engage in
co-branding and are obligated to engage in co-marketing activities to increase
customer awareness of the services offered by each company and to represent each
other as a strategic partner.
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
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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.
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 deltathree.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, 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
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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 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
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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
provide service to one or more countries in which we currently operate. That
result could have a material adverse effect on our 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.
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.
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-Registered Trademark- in the United
States, and have pending registration applications for the service marks Assured
Quality Routing-SM-, Broadbandit-SM- and iBasis-SM-. In addition, we have
pending registration for the marks iBasis and iBasis
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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.
EMPLOYEES
As of December 31, 1999, we had 147 full-time employees and one part-time
employee, with approximately 62 in sales and marketing, 47 in engineering and
operations and 38 in general and administrative. As of December 31, 1999, we
engaged approximately 50 independent contractors and employed a limited number
of temporary employees. 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.
We also lease approximately 14,462 square feet of commercial space at 10 Second
Avenue in Burlington, Massachusetts 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
in July 2008. We also maintain a facility in Miami, Florida to house
telecommunications equipment, where we lease approximately 5,250 square feet of
space pursuant to a lease that expires in February 2010. 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.
46
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The directors, executive officers and key employees of iBasis, and their
ages as of January 31, 2000, are as follows.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Ofer Gneezy (1).................... 48 President and Chief Executive Officer, Director
Gordon J. VanderBrug............... 56 Executive Vice President, Director
Michael J. Hughes.................. 37 Vice President, Finance and Chief Financial Officer
John G. Henson, Jr................. 57 Vice President, Engineering and Operations
Charles Giambalvo.................. 44 Senior Vice President of Worldwide Sales
Charles N. Corfield (2)............ 40 Director
John Jarve (1)..................... 44 Director
Izhar Armony (1)(2)................ 36 Director
Robert Maginn...................... 43 Director
Charles S. Houser.................. 56 Director
Charles M. Skibo (1)............... 61 Director
Carl Redfield (2).................. 52 Director
KEY EMPLOYEES
Dan Powdermaker.................... 36 Vice President, Europe, Middle East and Africa
Gerald E. O'Loughlin............... 35 Vice President, North America
Juan Bergelund..................... 43 Vice President, Latin America
Craig Inouye....................... 38 Vice President, Asia
Matthew Kristin.................... 37 Chief Information Officer and Vice President of
Information Systems
Mary Cogan......................... 51 Vice President of Human Resources
</TABLE>
- ------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
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, 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
47
<PAGE>
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.
MR. HENSON has served as Vice President, Engineer ing 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. GIAMBALVO has served as Senior Vice President of Worldwide Sales of
iBasis since January 2000. From 1998 to 1999, Mr. Giambalvo was the president of
VocalTec Communications, Inc., a company that helped pioneer commercial Internet
telephony. Prior to joining VocalTec, in 1998, Mr. Giambalvo was vice president
of sales at Stratus Computer, a computer maker. From 1990 to 1998,
Mr. Giambalvo was the senior vice president of sales and customer service at ECI
Telecom, Inc., a leading manufacturer of telecommunications transmission
equipment. Mr. Giambalvo received an M.S. in telecommunications management from
Golden Gate University and a B.S. in electrical engineering and a B.F.A in
communications from The New York Institute of Technology.
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 Technologies, 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 serves on the board
of directors of Digital Insight Corporation, a provider of Internet banking
services. 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
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. (d/b/a Trivergent Communications), 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 has been a director of iBasis since September 1999. Currently, Mr.
Skibo is the Chief Executive Officer and Chairman of Colo.com, 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.
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<PAGE>
MR. REDFIELD has been a director of iBasis since September 1999.
Mr. Redfield has been Senior Vice President, Manufacturing and Logistics of
Cisco since February 1997. From September 1993 to February 1997, Mr. Redfield
was Vice President of Manufacturing at Cisco. Mr. Redfield also is a director of
CTC Communications Corp., and VA Linux Systems, Inc. Mr. Redfield received a
B.S. in Materials Engineering from Rensselaer Polytechnic Institute.
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
2,000 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.
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 Instituto de Ciencias JEN, Madrid, Spain.
MR. INOUYE has served as Vice President, Asia for iBasis since
January 2000. From 1998 to 2000, Mr. Inouye was director of international
business development and carrier sales for DirectNet Telecommunications, a
provider of wholesale international telecommunications products and services.
From 1986 to 1998, Mr. Inouye served in a variety of managerial and sales
positions, including regional director for international relations, with GTE
Hawaiian Telephone Company. Mr. Inouye received a B.A. in business
administration from the University of Hawaii.
MR. KRISTIN has served as the Chief Information Officer of iBasis since
June 1999 and Vice President of Information Systems since December 1999. From
1994 to 1999, Mr. Kristin served as manager of workflow solutions for Concert
Communication Services, a global telecommunications carrier.
MS. COGAN has served as Vice President of Human Resources of iBasis since
January 2000. From 1997 to 1999, Ms. Cogan was a human resources consultant with
MSC Associates, a human resource consulting group. From 1994 to 1997, Ms. Cogan
served as the senior director of human resources for Cascade Communications
Corp., a global provider of wide area networking products and services for the
telecommunications and Internet industries. In addition, Ms. Cogan has held
human resource positions as Summa Four, Inc., Northern Telecom and Data General
Corp. Ms. Cogan received an M.B.A. in finance and human resources from
Northeastern University and a B.A. from the University of Massachusetts.
BOARD OF DIRECTORS
Our board of directors is divided into the following three classes, with the
members of the respective classes serving for staggered three-year terms.
- Class 1 directors, whose terms expire at the annual meeting of
stockholders to be held in 2000;
49
<PAGE>
- Class 2 directors, whose terms expire at the annual meeting of
stockholders to be held in 2001; and
- Class 3 directors, whose terms expire at the annual meeting of
stockholders to be held in 2002.
Messrs. Armony, Houser and Maginn are our Class 1 directors, Messrs. Jarve,
Skibo and VanderBrug are our Class 2 directors, and Messrs. Corfield, Gneezy and
Redfield are our Class 3 directors. At each annual meeting of stockholders, our
stockholders will elect the successors to directors whose terms have expired to
serve from the time of election and qualification until the third annual meeting
following election. The classification of the board of directors may delay or
prevent a change in control or in the management of iBasis. 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 a shareholders agreement. This agreement
terminated upon completion of our initial public offering in November 1999. Each
of the individuals will remain as a director until he resigns or the
stockholders elect his replacement 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
Our directors do not receive cash compensation for their services as
directors. However, non-employee directors are reimbursed for travel expenses.
We maintain 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, our certificate of incorporation limits
the liability of our 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
officers of iBasis. See "Management--Executive Compensation." In addition, in
September 1999, each of Messrs. Skibo and Redfield received an option to
purchase 80,000 shares of common stock under the iBasis 1997 Stock Incentive
Plan, with such options vesting in equal 25% increments on the date of each of
the next four annual meetings of our stockholders following our initial public
offering, beginning with the annual meeting to take place in 2000, provided that
the director is re-elected to the board of directors at such meeting. Each of
the other non-employee members of the board of directors, including
Messrs. Armony, Houser, Jarve, Corfield, and Maginn, received an option to
purchase 40,000 shares of common stock on the same terms. The vesting of each of
the options will accelerate by 12 months, or 25% of the total grant, in the
event of a change in control of iBasis, as defined in the option agreements.
COMMITTEES OF THE BOARD OF DIRECTORS
The compensation committee currently consists of Messrs. Armony, Gneezy,
Jarve and Skibo. 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 and our
1999 Employee Stock Purchase Plan.
The audit committee currently consists of Messrs. Armony, Corfield and
Redfield. 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
50
<PAGE>
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 ours. All decisions regarding the
compensation of our executive officers for the fiscal year ended December 31,
1999 were made by the compensation committee, except that Mr. Gneezy did not
participate in deliberations or decisions regarding his own compensation. None
of our executive officers 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, Mr. Hughes, our Vice
President of Finance and Chief Financial Officer and Mr. Giambalvo, our Senior
Vice President of Worldwide Sales.
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. iBasis and
Mr. Giambalvo are parties to an employment agreement, dated as of February 8,
2000, governing his employment with iBasis as Senior Vice President of Worldwide
Sales. Under the terms of the employment agreement, Mr. Giambalvo is to be paid
a base salary of $185,000, and is eligible to receive an annual bonus at the
discretion of the 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.
We may terminate the employment agreements with Messrs. Henson, Hughes and
Giambalvo "for cause" or at any time upon at least thirty days prior written
notice, and Messrs. Henson, Hughes and Giambalvo 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, Hughes and Giambalvo 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.
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<PAGE>
The employment agreements with Messrs. Gneezy, VanderBrug, Henson, Hughes
and Giambalvo 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, Hughes and Giambalvo 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, Hughes and
Giambalvo 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, Hughes and Giambalvo 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 16.9% 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, Henson and
Giambalvo 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.
Our employment agreement with Mr. Giambalvo also contains provisions
relating to Mr. Giambalvo's relocation to the Boston area. Under the terms of
Mr. Giambalvo's employment agreement, we have agreed to provide Mr. Giambalvo
with $70,000 to cover his relocation expenses. In addition, we have agreed to
guarantee a loan of up to $500,000 to Mr. Giambalvo for a period of six months,
in the event he purchases a home in the Boston area before he sells his existing
home.
EXECUTIVE COMPENSATION
The following table sets forth information for the fiscal years ended
December 31, 1998 and 1999 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,
1999.
52
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION (1) ---------------------
-------------------------------------- SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS (#) COMPENSATION
- --------------------------- -------- -------- -------- --------------------- ------------
<S> <C> <C> <C> <C> <C>
Ofer Gneezy................. 1999 $150,000 $135,000 -- --
President and Chief 1998 134,866 37,500 80,000 --
Executive Officer
Gordon J. VanderBrug........ 1999 135,000 122,400 -- --
Executive Vice President 1998 122,240 33,750 60,000 --
John G. Henson, Jr. (2)..... 1999 125,000 85,600 50,000 --
Vice President, 1998 67,898 30,000 200,000 $17,791(3)
Engineering & Operations
Michael J. Hughes (4)....... 1999 120,000 75,750 50,000 --
Vice President, Finance 1998 48,808 12,500 200,000 --
and Chief Financial
Officer
Charles Giambalvo (5)....... 1999 15,417 -- 150,000 --
Senior Vice President of 1998 -- -- -- --
Worldwide Sales
</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 reimbursed relocation expenses.
(4) Mr. Hughes became Vice President, Finance and Chief Financial Officer in
August 1998.
(5) Mr. Giambalvo became Senior Vice President of Worldwide Sales in
November 1999.
STOCK OPTION GRANTS
The following table contains information concerning options to purchase
common stock that we granted made in the year ended December 31, 1999 to each of
the officers named in the summary compensation table.
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
INDIVIDUAL GRANTS ASSUMED ANNUAL
----------------------------------------------------------------- RATES OF
PERCENT OF TOTAL STOCK PRICE APPRECIATION
NUMBER OF OPTIONS GRANTED EXERCISE FOR OPTION TERM(2)
SECURITIES UNDERLYING TO EMPLOYEES PRICE PER EXPIRATION -------------------------
NAME OPTIONS GRANTED(1) IN 1999 SHARE DATE 5% 10%
- ---- --------------------- ---------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Ofer Gneezy............. -- -- -- -- -- --
Gordon J. VanderBrug.... -- -- -- -- -- --
John G. Henson, Jr...... 50,000 2.5% $ 4.00 6/3/2009 $2,142,000 $3,529,000
Michael J. Hughes....... 50,000 2.5% 4.00 6/3/2009 2,142,000 3,529,000
Charles Giambalvo....... 150,000 7.4% 11.00 11/5/2009 5,375,000 9,536,000
</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
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<PAGE>
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 $28.75, the closing
price of the common stock on the Nasdaq National Market on December 31,
1999, by the stated annual appreciated rate compounded annually for the term
of the option, 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 option 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, 1999 with respect to each of the officers named in the
summary compensation table.
<TABLE>
<CAPTION>
1999 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.................................... 20,000 60,000 $ 553,000 $1,659,000
Gordon J. VanderBrug........................... 15,000 45,000 414,750 1,244,250
John G. Henson, Jr............................. 71,250 178,750 1,980,938 4,866,563
Michael J. Hughes.............................. 63,750 186,250 1,769,063 5,078,438
Charles Giambalvo.............................. -- 150,000 -- 2,662,500
</TABLE>
- ------------------------
(1) Value is determined by subtracting the exercise price from $28.75, the
closing price of the common stock on the Nasdaq National Market on
December 31, 1999, 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 and in September 1999. The initial
adoption of the plan and each of its amendments were 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 5,700,000 shares of common
stock have been authorized for issuance under our stock incentive plan. Under
our stock incentive plan, as of December 31, 1999:
- options for the purchase of 2,947,725 shares of common stock had been
granted and were outstanding under the plan;
- 206,125 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;
and
- options for the purchase of 403,650 shares that were granted under the
plan had been cancelled.
2,531,150 shares of common stock remained available for the grant of awards
under the plan as of December 31, 1999. 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
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<PAGE>
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.
1999 EMPLOYEE STOCK PURCHASE PLAN
In September 1999, our board of directors and stockholders approved the 1999
iBasis, Inc. Employee Stock Purchase Plan, which enables eligible employees to
acquire shares of our common stock through payroll deductions. In December 1999,
the employee stock purchase plan was amended. Our employee stock purchase plan
is intended to qualify as an employee stock purchase plan under Section 423 of
the Internal Revenue Code. The initial offering period started on January 1,
2000 and will end on June 30, 2000, unless otherwise determined by the board of
directors. Subsequent offerings under the employee stock purchase plan are
planned to start on January 1 and July 1 of each year and end on June 30 and
December 31 of each year. During each offering period, an eligible employee may
select a rate of payroll deduction of from 1% to 10% of compensation, up to an
aggregate of $12,500 in any offering period. The purchase price for our common
stock purchased under our employee stock purchase plan is 85% of the lesser of
the fair market value of the shares on the first or last day of the offering
period. An aggregate of 500,000 shares of common stock have been reserved for
issuance under the employee stock purchase plan.
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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
automatically converted into an aggregate of 17,556,603 shares of common stock
upon the completion of our initial public offering in November 1999. See
"Principal Stockholders" for 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 6,000,000 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. The 6,000,000 shares reflect both a 40-for-1
stock split in February 1997, and a 2-for-1 stock dividend in December 1997. Mr.
Gneezy is our President and Chief Executive Officer and a director. Our Class A
common stock converted into common stock on a share-for-share basis upon the
completion of our initial public offering.
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 automatically converted into common stock
on a share-for-share basis upon the completion of our initial public 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 shares 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
automatically converted into common stock upon the completion of our initial
public offering on the basis of three shares of 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
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were sold to other independent investors, including six stockholders of iBasis.
Izhar Armony, a 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 automatically converted into common stock on a share-for-share basis upon
the completion of our initial public 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 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 shares 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 automatically converted into common stock
on a share-for-share basis upon the closing of our initial public offering.
RIGHTS AND RESTRICTIONS OF CLASS B COMMON STOCK AND PREFERRED STOCK.
When the Class A and Class B common stock and Series A, Series B and
Series C preferred stock converted into common stock upon the completion of our
initial public offering, all rights and restrictions of the Class A and Class B
common stock and the Series A, Series B and Series C preferred stock, including
any redemption rights and special voting rights, terminated. Notwithstanding the
conversion, the original holders of the Series A, Series B and Series C
preferred stock are 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 converted. 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.
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Provisions in our employment agreements with Messrs. Henson, Hughes and
Giambalvo 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.
Each of the nonemployee members of our board of directors, including
Messrs. Armony, Houser, Jarve, Corfield, and Maginn, received an option to
purchase 40,000 shares of common stock. Each of Mr. Redfield and Mr. Skibo,
non-employee members of our board of directors, received an option to purchase
80,000 shares of common stock. The vesting of each of the options will
accelerate by 12 months, or 25% of the total grant, in the event of a change in
control of iBasis, as defined in the option agreements. See
"Management--Director Compensation."
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."
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of common stock as of December 31, 1999, 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.
Beneficial ownership is determined in accordance with the rules and
regulations of the Securities and Exchange Commission. The table below does not
reflect the beneficial ownership of these principal stockholders after giving
effect to a concurrent public offering of 3,500,000 shares of common stock in
which 1,500,000 shares are to be sold by some of these stockholders, assuming no
exercise of the over-allotment option granted to the underwriters of that
offering. 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 December 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
each of the following stockholders is c/o iBasis, Inc., 20 Second Avenue,
Burlington, Massachusetts 01803.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY OWNED
---------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------ ---------- --------
<S> <C> <C>
Charles River Partnership VIII, LP and affiliated
entities(1)............................................... 3,811,500 12.1%
Izhar Armony(1)............................................. 3,811,500 12.1%
Menlo Ventures VII, L.P. and affiliated entities(2)......... 3,811,500 12.1%
John Jarve(2)............................................... 3,811,500 12.1%
Ofer Gneezy(3).............................................. 3,774,576 11.9%
Technology Crossover Ventures and affiliated entities(4).... 2,209,497 7.0%
Gordon J. VanderBrug(5)..................................... 1,840,001 5.8%
Robert Maginn(6)............................................ 1,513,784 4.8%
Charles N. Corfield(7)...................................... 1,214,416 3.8%
Charles S. Houser(8)........................................ 1,099,999 3.5%
Seruus Telecom Fund, L.P.................................... 999,999 3.2%
Michael J. Hughes(9)........................................ 80,827 *
John G. Henson, Jr.(10)..................................... 71,250 *
Charles Giambalvo(11)....................................... 3,000 *
Carl Redfield............................................... 0 *
Charles M. Skibo............................................ 0 *
All directors and executive officers as a group (12
persons)(12).............................................. 17,220,853 54.1%
</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 River Ventures, except to the extent of his pecuniary interest
therein. Based upon information
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provided by Charles River Partnership VIII L.P. and affiliated entities'
Schedule 13G, filed with the SEC February 2, 2000. 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. Based upon information provided by Menlo Ventures VII,
L.P. and affiliated entities' Schedule 13G, filed with the SEC February 4,
2000. The address for Mr. Jarve and Menlo Ventures is 3000 Sand Hill Road,
Building 4, Suite 100, Menlo Park, California 94025.
(3) Includes 20,000 shares of common stock issuable upon exercise of options
within 60 days of December 31, 1999. Also includes 50,000 shares held by The
Ofer Gneezy 1999 Family Trust for the benefit of Mr. Gneezy's children.
Mr. Gneezy disclaims beneficial ownership of the shares held by The Ofer
Gneezy 1999 Family Trust. Based in part upon information provided by Ofer
Gneezy's Schedule 13G, filed with the SEC February 14, 2000. Mr. Gneezy is
our President, CEO and one of our directors.
(4) Consists of 16,044 shares held by TCV III (GP), 76,208 shares held by
TCV III, L.P., 2,025,520 shares held by TCV III (Q), L.P. and 91,725 shares
held by TCV III Strategic Partners, L.P. collectively, the "TCV Funds." Jay
C. Hoag and Richard H. Kimball are the sole managing members of Technology
Crossover Management III, L.L.C., "TCM III", the general partner of each of
the TCV Funds. Consequently, TCM III and Messrs. Hoag and Kimball may each
be deemed to beneficially own all of the shares held by the TCV Funds.
TCM III and Messrs. Hoag and Kimball each disclaim beneficial ownership of
such shares, except to the extent of their respective pecuniary interest in
those shares. Based upon information provided by Technology Crossover
Ventures and affiliated entities' Schedule 13G, filed with the SEC
January 31, 2000. The address for each of these entities is 575 High Street,
Suite 400, Palo Alto, California 94301.
(5) Includes 15,000 shares of common stock issuable upon exercise of options
within 60 days of December 31, 1999. Also includes 1,317,345 shares held by
the G.J. & C.E. VanderBrug Family Limited Partnership. Dr. VanderBrug
disclaims beneficial ownership of the shares held by the G.J. & C.E.
VanderBrug Family Limited Partnership, except to the extent of his pecuniary
interest therein. 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, and
100,000 shares held by Mr. Corfield, individually. Mr. Corfield is one of
our directors.
(8) Consists of 999,999 shares held by Seruus Telecom Fund, L.P. and 100,000
shares 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
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the shares held by Seruus Telecom Fund, L.P., except to the extent of his
pecuniary interest therein.
(9) Includes 63,750 shares of common stock issuable upon the exercise of
options within 60 days of December 31, 1999. Mr. Hughes is our Vice
President, Finance and our Chief Financial Officer.
(10) Consists entirely of 71,250 shares of common stock issuable upon the
exercise of options within 60 days of December 31, 1999. Mr. Henson is our
Vice President, Engineering & Operations.
(11) Mr. Giambalvo is our Senior Vice President of Worldwide Sales.
(12) Includes 170,000 shares of common stock issuable upon exercise of options
within 60 days of December 31, 1999 and certain shares held by affiliates of
such directors and executive officers.
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DESCRIPTION OF NOTES
We will issue the notes under an indenture to be dated as of , 2000
between us and The Bank of New York, as trustee. The following summarizes some,
but not all, of the provisions of the notes and the indenture. You should refer
to the actual terms of the notes and the indenture, copies of which have been
filed as exhibits to the registration statement of which this prospectus is a
part, for the definitive terms and conditions. We will provide to you, upon
request, copies of the proposed forms of the notes and indenture. As used in
this description, the words "we," "us" or "our" do not include any current or
future subsidiary of iBasis.
GENERAL
The notes are unsecured general obligations that are subordinate in right of
payment as described under "--Subordination." The notes are convertible into
common stock as described under "--Conversion." The aggregate principal amount
of the notes will be limited to $150 million ($172.5 million if the
underwriters' option to purchase additional notes is exercised in full). The
notes will be issued in fully registered form and denominated in integral
multiples of $1,000. The notes will mature on , 2005 unless earlier
converted, redeemed or repurchased.
The notes will bear interest at the annual rate shown on the cover page of
this prospectus. Interest will be paid on each March 15 and September 15 of each
year, beginning September 15, 2000, subject to limited exceptions if the notes
are converted, redeemed or repurchased prior to the interest payment date. The
record dates for payment of interest will be March 1 and September 1. Interest
will be computed on the basis of a 360-day year consisting of twelve 30-day
months.
We will maintain an office in the Borough of Manhattan in New York, New York
where the notes may be presented for registration, transfer, exchange or
conversion. Initially, this will be an office or agency of the trustee. We may,
at our option, pay interest on the notes by check mailed to the registered
holders of notes. However, holders of more than $2,000,000 in principal amount
of notes may elect in writing to be paid by wire transfer; provided that any
payment to The Depository Trust Company or its nominee will be made by wire
transfer of immediately available funds to the account of DTC or its nominee.
We are not restricted from paying dividends or repurchasing securities or
incurring indebtedness under the indenture. The indenture has no financial
covenants. You are not protected in the event of a highly leveraged transaction
or a change in control of iBasis, except as described under "--Repurchase at
Option of Holders Upon a Repurchase Event" below.
Holders will not be required to pay a service charge for registration,
exchange or transfer of their notes. We may, however, require holders to pay any
tax or other governmental charge in connection with the transfer or exchange of
the notes other than stamp or other duties imposed with respect to the issuance
of the notes. We are not required to exchange or register the transfer of:
- any note for a period of 15 days before selection for redemption;
- any note or portion selected for redemption;
- any note or portion surrendered for conversion; or
- any note or portion surrendered for repurchase but not withdrawn in
connection with a repurchase event.
FORM, DENOMINATION AND REGISTRATION
The notes will be evidenced by a global security initially deposited with
DTC, and registered in the name of Cede & Co. as DTC's nominee. The global
security will be deposited upon issuance with the
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trustee as custodian for DTC, in New York, New York, and registered in the name
of DTC or its nominee, in each case for credit to an account of a direct or
indirect participant in DTC, as described below.
Transfers of beneficial interests in the global security will be subject to
the applicable rules and procedures of DTC and its direct and indirect
participants, which may change from time to time.
Except as set forth below, the global security may be transferred, in whole
and not in part, only to another nominee of DTC or to a successor of DTC or its
nominee.
THE DESCRIPTIONS OF THE OPERATIONS AND PROCEDURES OF DTC THAT FOLLOW ARE
PROVIDED SOLELY AS A MATTER OF CONVENIENCE. THESE OPERATIONS AND PROCEDURES ARE
SOLELY WITHIN THE CONTROL OF DTC AND ARE SUBJECT TO CHANGES BY THEM FROM TIME TO
TIME. IBASIS TAKES NO RESPONSIBILITY FOR THESE OPERATIONS AND PROCEDURES AND
URGES INVESTORS TO CONTACT DTC OR ITS PARTICIPANTS DIRECTLY TO DISCUSS THESE
MATTERS.
Institutions that have accounts with DTC or its nominees (called
"participants") may own a beneficial interest in a global note. Persons that are
not participants may beneficially own interests in the global security held by
DTC only through participants or banks, brokers, dealers, trust companies and
other parties that clear through or maintain a custodial relationship with a
participant, either directly or indirectly ("indirect participants"). So long as
Cede, as the nominee of DTC, is the registered owner of the global security,
Cede will be considered the sole holder of the global security for all purposes.
Except as provided below, owners of beneficial interests in the global security
will not:
- be entitled to have certain certificates registered in their names;
- be entitled to receive physical delivery of certificates in definitive
form; or
- be considered the registered holders thereof.
A beneficial interest in the global security may not be exchanged for a note
in certificated form unless (i) DTC (x) notifies us that it is unwilling or
unable to continue as depositary for the global security or (y) has ceased to be
a clearing agency registered under the Exchange Act and in either case we fail
to appoint a successor depositary, (ii) we, at our option, notify the trustee in
writing that we elect to cause the issuance of the notes in certificated form or
(iii) an event of default or any event which after notice or lapse of time or
both would be an event of default occurs, and is continuing, with respect to the
notes. In all cases, certificated notes delivered in exchange for any global
security or beneficial interest therein will be registered in the names, and
issued in any approved denominations, requested by or on behalf of the
depositary (in accordance with its customary procedures).
Transfers between participants will be affected in the ordinary way in
accordance with DTC rules and will be settled in clearinghouse funds. The laws
of some states require that some persons take physical delivery of securities in
definitive form. As a result, holders may be unable to transfer beneficial
interests in the global security to those persons.
We will make cash payments of interest on and principal and redemption or
repurchase price of the global security to Cede, the nominee for DTC as the
registered holder of the global security. We will make these payments by wire
transfer of immediately available funds. Neither we, the trustee nor any paying
agent will have any responsibility or liability for:
- any aspect of the records relating to, or payments made on account of,
beneficial ownership interests in the global security; or
- maintaining, supervising or reviewing any records relating to those
beneficial ownership interests.
We have been informed that DTC's practice is to credit participants'
accounts on the payment date with payments in amounts proportionate to their
respective beneficial interests in the notes represented by the global security
as shown on DTC's records, unless DTC has reason to believe that it will not
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receive payment on the payment date. Payments by participants to owners of
beneficial interests in notes represented by the global security held through
participants will be the responsibility of those participants, as is now the
case with securities held for the accounts of customers registered in "street
name."
We will send any redemption notices to Cede. We will understand that if less
than all of the notes are being redeemed, DTC's practice is to determine by lot
the amount of the holdings of each participant to be redeemed.
We also understand that neither DTC nor Cede will consent or vote with
respect to the notes. We have been advised that under its usual procedures, DTC
will mail an "omnibus proxy" to us as soon as possible after the record date.
The omnibus proxy assigns Cede's consenting or voting rights to those
participants to whose accounts the notes are credited on the record date
identified in a listing attached to the omnibus proxy.
A person having a beneficial interest in notes represented by the global
security may be unable to pledge that interest to persons or entities that do
not participate in the DTC system, or to take other actions in respect of that
interest, because that beneficial interest is not represented by a physical
certificate.
We and the trustee have no responsibility for the performance by DTC, its
participants and its indirect participants of their respective obligations under
the rules and procedures governing their operations. DTC has advised us that it
will take any action permitted to be taken by a holder of notes, including the
presentation of notes for conversion as described below, only at the direction
of one or more participants those participants to whose DTC accounts are
credited with interests in the global security and only in respect of the
principal amount of the notes represented by the global security as to which
those participants have given such a direction.
DTC has advised us as follows:
- DTC is a limited purpose trust company organized under the laws of the
State of New York;
- a member of the Federal Reserve System;
- a "clearing corporation" within the meaning of the Uniform Commercial
Code; and
- a "clearing agency" registered pursuant to the provisions of Section 17A
of the Exchange Act.
DTC was created to hold securities for its participants and to facilitate
the clearance and settlement of securities transactions between participants
through electronic book-entry changes to accounts of its participants.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations and may include other types of organizations. Some of the
participants, together with other entities, own DTC. Indirect access to the DTC
system is available to others such as banks, brokers, dealers and trust
companies that clear through, or maintain a custodial relationship with a
participant, either directly or indirectly.
DTC is under no obligation to perform or continue to perform the above
procedures, and these procedures may be discounted at any time. If DTC is at any
time unwilling or unable to continue as depositary and a successor depositary is
not appointed by us within 90 days, we will cause notes to be issued in
definitive form in exchange for the global security.
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a global note to such persons may be limited to
that extent. Because DTC can act only on behalf of its participants, which in
turn act on behalf of indirect participants and certain banks, the ability of a
person having beneficial interests in a global note to pledge such interest to
persons or entities that do not participate
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in the DTC system, or otherwise take actions in respect of such interests, may
be affected by the lack of a physical certificate evidencing such interests.
CONVERSION BY HOLDERS
You may, at your option, convert your notes, in whole or in part, at any
time prior to maturity into our common stock at an initial conversion price of
$ per share. You may convert notes in denominations of $1,000 and multiples
of $1,000. The conversion price is subject to adjustment as described below. If
the notes are called for redemption, your conversion rights on the notes called
for redemption will expire at the close of business of the last business day
before the redemption date, unless we default in payment of the redemption
price. If you have submitted your note for repurchase after a repurchase event,
you may only convert your note if you deliver a withdrawal notice before the
close of business on the last business day before the repurchase date.
Except as described below, we will not make any adjustment for accrued
interest or dividends on common stock upon conversion of the notes. If you
convert your notes after a record date and prior to the next interest payment,
you will have to pay us interest, unless the notes have been called for
redemption or are eligible for repurchase under the indenture. We will pay a
cash adjustment for any fractional shares based on the market price of our
common stock on the last business day before the conversion date.
You can convert your notes by delivering the notes to an office or agency of
the Trustee in the Borough of Manhattan, the City of New York, along with a duly
signed and completed notice of conversion, a form of which may be obtained from
the trustee. In the case of a global security, DTC will effect the conversion
upon notice from the holder of a beneficial interest in the global security in
accordance with DTC's rules and procedures. The conversion date will be the date
on which the note and the duly signed and completed notice of conversion are
delivered. As promptly as practicable on or after the conversion date, but no
later than three business days after the conversion date, we will issue and
deliver to the conversion agent certificates for the number of full shares of
common stock issuable upon conversion, together with any cash payment for
fractional shares. If you have previously elected to have us repurchase your
notes, you will have to withdraw such election prior to conversion.
If you deliver a note for conversion, you will not be required to pay any
taxes or duties for the issue or delivery of common stock on conversion.
However, we will not pay any transfer tax or duty payable as a result of the
issuance or delivery of the common stock in a name other than that of the holder
of the note. We will not issue or deliver common stock certificates unless we
have been paid the amount of any transfer tax or duty or we have been provided
satisfactory evidence that the transfer tax or duty has been paid.
The conversion price of $ per share will be adjusted if:
1. we dividend or distribute on our common stock shares of our common stock;
2. we subdivide or combine our common stock;
3. we issue rights or warrants to all holders of our common stock to purchase
common stock at less than the current market price;
4. we dividend or distribute to all holders of our common stock, capital stock
or evidences of indebtedness, cash or assets, but excluding:
- dividends, distribution and rights or warrants referred to in (1) and
(3) above, or
- dividends and distribution paid exclusively in cash.
5. we make a dividend or distribution consisting exclusively of cash to all
holders of common stock if the aggregate amount of these distributions
combined together with (A) all other all-cash
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distributions made within the preceding 12 months in respect of which we
made no adjustment plus (B) any cash and the fair market value of other
consideration payable in any tender offers by iBasis or any of our
subsidiaries for common stock concluded within the preceding 12 months in
respect for which we made no adjustment, exceeds 10% of our market
capitalization, being the product of the then current market price of the
common stock multiplied by the number of shares of our common stock then
outstanding;
6. the purchase of common stock pursuant to a tender offer made by us or any of
our subsidiaries involves an aggregate consideration that, together with (A)
any cash and the fair market value of any other consideration payable in any
other tender offer by us or any of our subsidiaries for common stock
expiring within the 12 months preceding such tender offer plus (B) the
aggregate amount of any such all-cash distributions referred to in (5) above
to all holders of common stock within the 12 months preceding the expiration
of the tender offer for which we have made no adjustment, exceeds 10% of our
market capitalization on the expiration of such tender offer; or
7. payment on tender offers or exchange offers by a third party other than us
or our subsidiaries if, as of the closing date of the offer, our board of
directors does not recommend rejection of the offer. We will only make this
adjustment if a tender offer increases the person's ownership to more than
25% of our outstanding common stock and the payment per share is greater
than the current market price of the common stock. We will not make this
adjustment if the tender offer is a merger or transaction described below
under "--Consolidation, Merger or Assumption."
If we implement a stockholders' rights plan, we will be required under the
indenture to provide that the holders of notes will receive the rights upon
conversion of the notes, whether or not these rights were separated from the
common stock prior to conversion.
If we reclassify our common stock, consolidate, merge or combine with
another person or sell or convey our property and assets as an entirety or
substantially as an entirety, each note then outstanding will, without the
consent of the holder of any note, become convertible only into the kind and
amount of securities, cash and other property receivable upon such
reclassification, consolidation, merger, combination, sale or conveyance by a
holder of the number of shares of common stock into which the note was
convertible immediately prior to the reclassification, consolidation, merger,
combination, sale or conveyance. This calculation will be made based on the
assumption that the holder of common stock failed to exercise any rights of
election that the holder may have to select a particular type of consideration.
The adjustment will not be made for a consolidation, merger or combination that
does not result in any reclassification, conversion, exchange or cancellation of
our common stock.
You may, in some circumstances, be deemed to have received a distribution or
dividend subject to United States federal income tax as a result of an
adjustment (or the nonoccurrence of an adjustment) to the conversion price. See
"United States Federal Income Tax Considerations."
We are permitted to reduce the conversion price of the notes for limited
periods of time, if our board of directors deems it advisable. Any such
reduction shall be effective for not less than 20 days. We are required to give
at least 15 days prior notice of any such reduction. We may also reduce the
conversion price to avoid or diminish income tax to holders of our common stock
in connection with a dividend or distribution of stock or similar event.
No adjustment in the conversion price will be required unless it would
result in a change in the conversion price of at least one percent. Any
adjustment not made will be taken into account in subsequent adjustments.
PROVISIONAL REDEMPTION
We may redeem some or all of the notes at any time prior to March 20, 2003,
at a redemption price equal to $1,000 per note plus accrued and unpaid interest
to the redemption date if the closing
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price of our common stock has exceeded 150% of the conversion price for at least
20 trading days in any consecutive 30-trading day period ending on the trading
day prior to the mailing of the notice of redemption.
If we redeem some or all of the notes prior to March 20, 2003, we will also
make an additional payment on the redeemed notes equal to $ per $1,000 note,
minus the amount of any interest we actually paid on the note prior to the date
we mailed the notice. We must make these additional payments on all notes called
for redemption, including notes converted after the date we mailed the notice.
OPTIONAL REDEMPTION
At any time on or after March 20, 2003, we may redeem the notes, in whole or
in part, at our option, at the redemption prices specified below. The redemption
price, expressed as a percentage of the principal amount, is as follows for the
12-month periods beginning on March 20 of the year indicated:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---- ----------------
<S> <C>
2003........................................................ %
2004........................................................
</TABLE>
and 100% of the principal amount on and after March 15, 2005. In each case we
will also pay accrued and unpaid interest to, but excluding, the redemption
date. If the redemption date is an interest payment date, we will pay interest
to the record holders as of the relevant record date. We are required to give
notice of redemption not more than 60 and not less than 30 days before the
redemption date under the indenture.
No "sinking fund" is provided for the notes, which means that the indenture
does not require us to redeem or retire the notes periodically. We may not
redeem the notes if there is a default under the indenture.
REPURCHASE AT OPTION OF HOLDERS UPON A REPURCHASE EVENT
If a repurchase event occurs, you will have the right, at your option, to
require us to repurchase all or any portion of your notes 40 days after we mail
holders a notice of repurchase event. The repurchase price we are required to
pay will be 105% of the principal amount of the notes submitted for repurchase,
plus accrued and unpaid interest to, but excluding, the repurchase date. If a
repurchase date is an interest payment date, we will pay to the record holder on
the record date.
At our option, instead of paying the repurchase price in cash, we may pay
the repurchase price in common stock, valued at 95% of the average of the
closing prices for the five trading days immediately before and including the
third trading day preceding the repurchase date. We may only pay the repurchase
price in common stock if we satisfy conditions provided in the indenture.
We will be required to mail you a notice within 10 days after the occurrence
of a repurchase event. The notice must describe the repurchase event, your right
to elect repurchase of the notes and the repurchase date. We must deliver a copy
of the notice to the trustee and cause a copy, or a summary of the notice, to be
published in a newspaper of general circulation in New York, New York. You may
exercise your repurchase rights by delivering written notice to us and the
trustee. The notice must be accompanied by the notes duly endorsed for transfer
to us. You must deliver the exercise notice on or before the close of business
on the thirty-fifth calendar day after the mailing date of the repurchase
notice.
A repurchase event will be considered to have occurred if:
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1. our common stock or other common stock into which the notes are
convertible is neither listed for trading on a United States national
securities exchange nor approved for trading on an established automated
over-the-counter trading market in the United States, or
2. one of the following "change in control" events occurs:
- any person or group is a beneficial owner of more than 50% of the
voting power of our outstanding securities entitled to generally vote
for directors;
- our stockholders approve any plan or proposal for our liquidation,
dissolution or winding up;
- we consolidate with or merge into any other corporation or any other
corporation merges into us and, as a result, our outstanding common
stock is changed or exchanged for other assets or securities unless our
stockholders immediately before the transaction own, directly or
indirectly, immediately following the transaction at least 51% of the
combined voting power of the corporation resulting from the transaction
in substantially the same proportion as their ownership of our voting
stock immediately before the transaction;
- we convey, transfer or lease all or substantially all of our assets to
any person; or
- the "continuing directors" do not constitute a majority of our board of
directors at any time.
However, a change in control will not be deemed to have occurred if:
- the last sale price of our common stock for any 5 trading days during
the 10 trading days immediately before the change in control is equal
to at least 105% of the conversion price, or
- all of the consideration, excluding cash payments for fractional shares
in the transaction constituting the change in control consists of
common stock traded on a United States national securities exchange or
quoted on the Nasdaq National Market, and as a result of the
transaction the notes become convertible solely into that common stock.
The term "continuing director" means at any date a member of our board of
directors:
- who was a member of our board of directors on December 31, 1999; or
- who was nominated or elected by at least a majority of the directors
who were continuing directors at the time of the nomination or election
or whose election to our board of directors was recommended by at least
a majority of the directors who were continuing directors at the time
of the nomination or election or by the nominating committee comprised
of our independent directors.
Under the above definition of continuing directors, if the current board of
directors approve a new director or directors and then resigned, no change in
control would occur, even though the current director would then cease to be an
officer. The interpretation of the phrase "all or substantially all" used in the
definition of change in control would likely depend on the facts and
circumstances existing at such time. As a result, there may be uncertainty as to
whether or not a sale or transfer of "all or substantially all" of our assets
has occurred.
You may require us to repurchase all or any portion of your notes upon a
repurchase event. We may not have sufficient cash funds to repurchase the notes
upon a repurchase event. We may elect, subject to certain conditions, to pay the
repurchase price in common stock. Although there are currently no restrictions
on our ability to pay the purchase price, future debt agreements may prohibit us
from repaying the repurchase price in either cash or common stock. If we are
prohibited from repurchasing the notes, we could seek consent from our lenders
to repurchase the notes. If we are
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unable to obtain their consent, we could attempt to refinance the notes. If we
were unable to obtain a consent or refinance, we would be prohibited from
repurchasing the notes. If we were unable to repurchase the notes upon a
repurchase event, it would result in an event of default under our indenture. An
event of default under the indenture could result in a further event of default
under our other then-existing debt. In addition, the occurrence of the
repurchase event may be an event of default under our other debt. As a result,
we would be prohibited from paying amounts due on the notes under the
subordination provisions of the indenture.
The change in control feature may not necessarily afford you protection in
the event of a highly leveraged transaction, a change in control of us or
similar transactions involving us. We could, in the future, enter into
transactions including recapitalizations, that would not constitute a change in
control but that would increase the amount of our senior indebtedness or other
debt. We are not prohibited from incurring senior indebtedness or debt under the
indenture. If we incur significant amounts of additional debt, this could have
an adverse effect on our ability to make payments on the notes.
In addition, our management could undertake leveraged transactions that
could constitute a change in control. The board of directors does not have the
right under the indenture to limit or waive the repurchase right in the event of
these types of leveraged transaction. Our requirement to repurchase notes upon a
repurchase event could delay, defer or prevent a change of control. As a result,
the repurchase right may discourage:
- a merger, consolidation or tender offer;
- the assumption of control by a holder of a large block of our shares; and
- the removal of incumbent management.
The repurchase feature was a result of negotiations between us and the
underwriters of the offering. The repurchase feature is not the result of any
specific effort to accumulate shares of common stock or to obtain control of us
by means of a merger, tender offer or solicitation, or part of a plan by us to
adopt a series of anti-takeover provisions. We have no present intention to
engage in a transaction involving a change of control, although it is possible
that we would decide to do so in the future.
The Exchange Act and SEC rules thereunder require the distribution of
specified types of information to security holders in the event of issuer tender
offers and may apply in the event of a repurchase. We will comply with these
rules to the extent applicable.
SUBORDINATION
The notes are subordinated to the prior payment in full of all existing and
future senior indebtedness as provided in the indenture. Upon any distribution
of our assets upon our dissolution, winding up, liquidation or reorganization,
payments on the notes will be subordinated to the prior payment in full of all
senior indebtedness. If the notes are accelerated following an event of default
under the indenture, the holders of any senior indebtedness will be entitled to
payment in full before the holders of the notes are entitled to receive any
payment on the notes.
We may not make any payments on the notes if:
- we default in any payment on senior indebtedness beyond any grace period,
or
- any other default occurs and is continuing under any designated senior
indebtedness that permits holders of the designated senior indebtedness to
accelerate its maturity, and we and the trustee receive a notice known as
a payment blockage notice from a person permitted to give this notice
under the indenture.
We may resume making payments on the notes:
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- in the case of a payment default, when the default is cured or waived or
ceases to exist; and
- in the case of a nonpayment default, the earlier of when the default is
cured or waived or ceases to exist or 179 days after receipt of the
payment blockage notice.
No new period of payment blockage may be commenced unless:
- 365 days have elapsed since our receipt of the prior payment blockage
notice; and
- all scheduled payments on the notes have been paid in full.
No default that existed on any senior indebtedness on the date of delivery
of any payment blockage notice may be the basis for a subsequent payment
blockage notice.
The term "senior indebtedness" means the principal, premium, if any, and
interest on, including bankruptcy interest, and any other payment on the
following:
- our indebtedness for money borrowed or evidenced by notes, debentures,
bonds or other securities;
- our reimbursement obligations under letters of credit, bank guarantees or
bankers' acceptances;
- our indebtedness under interest rate and currency swap agreements, cap,
floor and collar agreements, currency spot and forward contracts and other
similar agreements and arrangements;
- our indebtedness consisting of commitment or standby fees under our credit
facilities or letters of credit;
- our obligations under leases required or permitted to be capitalized under
generally accepted accounting principles;
- our obligations of the type listed above that has been assumed or
guaranteed by us or in effect guaranteed, directly or indirectly, by us
through an agreement to purchase; and
- any amendment, modification, renewal, extension or refunding of any
indebtedness or obligation of type listed in the bullet points above.
Senior indebtedness will not include:
- any indebtedness or amendment or modification that expressly provides that
it is subordinate to or is not senior to or is on the same basis as the
notes;
- any indebtedness to any subsidiary;
- indebtedness for trade payables or the deferred purchase price of assets
or services incurred in the ordinary course of business; or
- the notes.
The term "designated senior indebtedness" means our obligations under any
particular senior indebtedness in which the instrument creating or evidencing
the same or the assumption or guarantee thereof (or related agreements or
documents to which we are a party) expressly provides that such indebtedness
shall be "designated senior indebtedness" for purposes of the Indenture
(provided that such instrument, agreement or other document may place
limitations and conditions on the right of such senior indebtedness to exercise
the rights of designated senior indebtedness).
If the trustee or any holder of notes receives any payment or distribution
of our assets of any kind on the notes in contravention of any of the terms of
the indenture, then such payment or distribution will be held by the recipient
in trust for the benefit of the holders of senior indebtedness, and will be
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immediately paid or delivered to the holders of senior indebtedness or their
representative or representatives.
The notes are unsecured and subordinated to our senior indebtedness. As a
result, we will not be able to make payments on the notes until we have paid in
full all of our senior indebtedness in the event of our insolvency, liquidation,
reorganization or payment default on senior indebtedness. We may therefore not
have sufficient assets to pay the amounts due on the notes. Neither we nor our
subsidiaries are prohibited from incurring debt under the notes indenture. If we
incur additional debt, our ability to pay amounts due on the notes could be
adversely affected. As of December 31, 1999, we had approximately $16.1 million
of senior indebtedness. We may also incur additional debt in the future. The
subordination provisions will not prevent the occurrence of any default or event
of default or limit the rights of any holder of notes to pursue any other rights
or remedies with respect to the notes.
The notes are obligations exclusively of iBasis. As a result, our cash flow
and our ability to service our debt, including the notes, is partially dependent
upon the earnings of our subsidiaries. In addition, we are partially dependent
on the distribution of earnings, loans or other payments by our subsidiaries to
us.
Our subsidiaries are separate and distinct legal entities. Our subsidiaries
have no obligation to pay any amounts due on the notes or to provide us with
funds for our payment obligations, whether by dividends, distributions, loans or
other payments. In addition, any payment of dividends, distributions, loans or
advances by our subsidiaries to us could be subject to statutory or contractual
restrictions. Payments to us by our subsidiaries will also be contingent upon
our subsidiaries' earnings and business considerations.
Our right to receive any assets of any of our subsidiaries upon their
liquidation or reorganization, and therefore your right to participate in these
assets, will be effectively subordinated to the claims of that subsidiary's
creditors, including trade creditors. In addition, even if we were a creditor of
any of our subsidiaries, our rights as a creditor would be subordinate to any
security interest in the assets of our subsidiaries and any indebtedness of our
subsidiaries senior to that held by us. As of December 31, 1999, our
subsidiaries did not have any indebtedness to which the notes are effectively
subordinated.
As a result of the subordination provisions, in the event of the
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceedings, holders of the notes may receive less than other creditors on a
ratable basis.
EVENTS OF DEFAULT AND REMEDIES
The following events constitute "events of default" under the indenture:
- we fail to pay the principal or premium, if any, on any of the notes when
due, whether or not prohibited by the subordination provisions of the
indenture;
- we fail to pay interest on the notes when due if such failure continues
for 30 days, whether or not prohibited by the subordination provisions of
the indenture;
- we fail to deliver shares of our common stock, including cash for
fractional shares, 5 days after conversion of a note;
- we fail to perform any covenant in the indenture if such failure continues
for 45 days after notice is given in accordance with the indenture;
- we fail to repurchase any notes after a repurchase event;
- we fail to provide timely notice of a repurchase event;
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- we fail or any of our significant subsidiaries fail to make any payment at
maturity on any indebtedness, including any applicable grace periods, in
an amount in excess of $5,000,000, and such amount has not been paid or
discharged within 30 days after notice is given in accordance with the
indenture;
- a default by us or any significant subsidiary on any indebtedness that
results in the acceleration of indebtedness in an amount in excess of
$5,000,000, without this indebtedness being discharged or the acceleration
being rescinded or annulled for 30 days after notice is given in
accordance with the indenture; or
- certain events involving bankruptcy, insolvency or reorganization of us or
any significant subsidiary.
The trustee is generally required under the indenture, within 90 days after
its becoming aware of a default, to provide holders written notice of all
incurred default. However, the trustee may except in the case of a payment
default on the notes, withhold this notice of default if it determines that
withholding the notice is in the best interest of the holders.
If an event of default has occurred and is continuing, the trustee or the
holders of not less than 25% in principal amount of outstanding notes, may
declare the principal and premium on the notes to be immediately due and
payable. After acceleration, but before a judgment or decree based on
acceleration, the holders of a majority in aggregate principal amount of
outstanding notes may, under circumstances set forth in the indenture, rescind
the acceleration of all events of default, other than the payment of principal
of the notes that have become due solely because of the acceleration, have been
cured or waived as provided in the indenture. If an event of default arising
from events of bankruptcy, insolvency or reorganization occurs and is continuing
with respect to iBasis, all unpaid principal of and accrued interest on the
outstanding notes would become due and payable immediately without any
declaration or other act on the part of the trustee or holders of notes.
Holders of a majority in principal amount of outstanding notes may direct
the time, method and place of conducting any proceeding for any remedy available
to the trustee or exercising any trust or power conferred on the trustee,
subject to specified limitations. Before exercising any right or power under the
indenture at the direction of the holders, the trustee will be entitled to
receive from such holders reasonable security or indemnity against any costs,
expenses and liabilities that it might incur as a result.
Before you may take any action to institute any proceeding relating to the
indenture, or to appoint a receiver or a trustee, or for any other remedy, each
of the following must occur:
- you must have given the trustee written notice of a continuing event of
default;
- the holders of at least 25% of the aggregate principal amount of all
outstanding notes must make a written request of the trustee to take
action because of the default;
- holders must have offered reasonable indemnification to the trustee
against the cost, expenses and liabilities of taking action; and
- the trustee must not have taken action for 60 days after receipt of such
notice and offer of indemnification.
These limitations do not apply to a suit for the enforcement of payment of
the principal of or any premium or interest on a note or the right to convert
the note in accordance with the indenture.
Generally, the holders of not less than a majority of the aggregate
principal amount of outstanding notes may waive any default or event of default,
except if:
- we fail to pay principal, premium or interest on any note when due;
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- we fail to convert any note into common stock; or
- we fail to comply with any of the provisions of the indenture that would
require the consent of the holder of each outstanding note affected.
We will send the trustee annually a statement as to whether we are in
default and the nature of any default under the indenture.
CONSOLIDATION, MERGER OR ASSUMPTION
We may not consolidate or merge into another person or sell, lease, convey
or transfer all or substantially all of our assets to another person, whether in
a single or series of related transactions, unless:
- either (A) we are the surviving entity, or (B) the resulting corporation
is a U.S. corporation and expressly assumes in writing all of our
obligations under the notes and the indenture;
- no default or event of default exists or would occur; and
- other specified conditions are satisfied.
MODIFICATIONS OF THE INDENTURE
The consent of the holders of a majority in principal amount of the
outstanding notes affected is required to make a modification or amendment to
the indenture. However, a modification or amendment requires the consent of the
holder of each outstanding note affected if it would:
- reduce the interest rate or change the time of payment of interest on any
note;
- reduce the principal amount or any premium of any note;
- extend the fixed maturity of any note;
- reduce any amount payable upon redemption or repurchase of any note;
- adversely change our obligation to repurchase any note upon a repurchase
event;
- adversely change the holder's right to institute suit for the payment of
any note;
- change the place where, or currency in which, any note is payable;
- adversely modify the right to convert the notes;
- adversely modify the subordination provisions of the notes;
- change the percentage required to consent to modifications and amendments;
- reduce the percentage of outstanding notes necessary for waiver of
compliance with certain provisions of the indenture or for the waiver of
certain defaults; or
- reduce the percentage in aggregate principal amount of outstanding notes
required for the adoption of a resolution or the quorum required at any
meeting of noteholders at which a resolution is adopted.
SATISFACTION AND DISCHARGE
We may discharge our obligations under the indenture while notes remain
outstanding if:
- all notes will become due in one year or are scheduled for redemption in
one year; and
- we deposit sufficient funds to pay all outstanding notes on their
scheduled maturity or redemption date.
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NOTICES
Notice to holders of the notes will be given by mail to the addresses of
such holders as they appear in the security register. Such notices will be
deemed to have been given on the date of mailing of the notice.
REPLACEMENT OF NOTES
We will replace notes that become mutilated, destroyed, stolen or lost at
the expense of the holder upon delivery to the trustee of the mutilated notes or
evidence of the loss, theft or destruction thereof satisfactory to us and the
trustee. In the case of a lost, stolen or destroyed note, indemnity satisfactory
to the trustee and to us may be required at the expense of the holder of such
note before a replacement note will be issued.
GOVERNING LAW
The notes, the indenture and the registration rights agreement will be
governed by the laws of the State of New York, without regard to conflicts of
laws principles.
CONCERNING THE TRUSTEE
We have appointed the trustee as the initial paying agent, conversion agent,
registrar and custodian for the notes. We may maintain deposit accounts and
conduct other banking transactions with the trustee or its affiliates in the
ordinary course of business. In addition, the trustee and its affiliates may in
the future provide banking and other services to us in the ordinary course of
their business.
If the trustee becomes one of our creditors, the indenture and the Trust
Indenture Act of 1939 may limit the right of the trustee to obtain payment on or
realize on security for its claims. If the trustee develops any conflicting
interest with the holders of notes or us, it must eliminate the conflict or
resign.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 85,000,000 shares of common stock
and 15,000,000 shares of preferred stock, each having a par value of $0.001 per
share.
COMMON STOCK
As of December 31, 1999, there were 31,642,728 shares of common stock
outstanding and held of record by approximately 120 stockholders. 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 in the concurrent offering
of common stock, assuming no exercise of the underwriters' over-allotment option
in that offering, there will be 33,642,728 shares of common stock outstanding
upon the closing of the common stock 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.
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. There
are presently 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 15,000,000 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, 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 have demand
registration rights with respect to those shares under the Securities Act as of
the date of this prospectus. We granted such
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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
whom are affiliates or directors of us. If requested to do so by holders of at
least 30% of the holders of our common stock, which was the result of conversion
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. 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.
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 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
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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.
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 BankBoston, N.A.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
This section summarizes the material United States federal income tax
consequences of purchasing, owning, and disposing of the notes and the common
stock into which you may convert the notes. This summary is not a complete
analysis of all the potential tax consequences that you may need to consider
before investing based on your particular circumstances.
This summary is based on the Internal Revenue Code, the applicable Treasury
regulations promulgated or proposed under the Internal Revenue Code, judicial
authority and administrative rulings as of the date hereof. Any of these may
change, possibly on a retroactive basis.
This summary deals only with beneficial owners of notes and common stock who
hold the notes and common stock as "capital assets." It does not address tax
consequences under any special tax rules. Special rules may apply, for example,
to banks, tax-exempt organizations, pension funds, insurance companies, dealers
in securities or foreign currencies, persons participating in a hedging
transaction or a "straddle" a constructive sale transaction or "conversion
transaction," or persons that have a "functional currency" other than the U.S.
dollar. In addition, this discussion does not address the tax consequences to
non-U.S. holders. This summary discusses the tax consequences to holders who
purchase of the notes at their "issue price" and generally does not discuss the
tax consequences to subsequent purchasers of the notes. The "issue price" is the
first price at which a substantial portion of the notes is sold to the public.
We have not sought any ruling from the IRS with respect to the statements and
conclusions in this summary. We cannot guarantee that the IRS will agree with
these statements and conclusions.
Before you invest in the notes, you should consult your own tax advisor to
determine how the United States federal income tax laws apply to your particular
situation and for information about any tax consequences arising under other tax
laws, such as United States federal estate tax laws and the laws of any state,
local or foreign taxing jurisdiction or under any applicable tax treaty.
This summary applies to you if you are a U.S. holder. For purposes of this
discussion, the term "U.S. holder" means a beneficial owner of a note or common
stock that is for U.S. federal income tax purposes:
- a citizen or resident of the United States,
- a corporation or other entity created or organized in or under the laws of
the United States or any political subdivision thereof;
- an estate, the income of which is subject to United States federal income
taxation regardless of its source; or
- a trust if a United States court is able to exercise primary supervision
over the administration thereof and if one or more United States persons
has the authority, to control all substantial decisions thereof.
If a partnership holds notes, the tax treatment of a partner will generally
depend upon the status of the partner and upon the activities of the
partnership. Partners of partnerships holding notes or common stock should
consult their tax advisors.
Although the treatment of the notes and, in particular, the additional
payment that we may be required to make upon a provisional redemption of the
notes, is not entirely clear, we intend to take the position that the note will
be treated as described below.
PAYMENT OF INTEREST
You generally must include interest on notes in your income as ordinary
income at the time you receive or accrue the interest based on your method of
accounting for United States federal income tax
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purposes. We must pay a premium to you on certain redemptions or repurchases of
the notes. According to Treasury regulations, the possibility of a premium being
paid to you will not affect the amount of interest income you recognize, in
advance of the payment of any premium, if there is only a remote chance as of
the date the notes were issued that you will receive a premium.
We intend to take the position that the possibility that you will be paid a
premium in connection with a redemption of your notes is a remote or incidental
contingency as of the issue date of the notes, within the meaning of Treasury
Regulations Sections 1.1275-2(h) and 1.1275-4(a)(5). Our determination that the
payment of a premium is a remote or incidental contingency is binding upon you,
unless you properly disclose to the IRS that you are taking a contrary position.
Although the matter is not free from doubt, any premium we pay should be taxable
to you as ordinary income at the time it accrues or is received in accordance
with your regular method of tax accounting. It is possible, however, that the
IRS might take a different position, in which case you might be required to
include such premium in income as it accrues or becomes fixed (regardless of
your regular method of tax accounting). You are urged to consult your own tax
advisor regarding the foregoing.
If our position is mistaken, and the option to redeem any note is determined
not be "remote", the notes would be treated as issued with original issue
discount. In such event, interest income on the notes, as computed taking into
account the contingent payment and regardless of actual cash payments, would
have to be included in income on a noncontingent bond method as described in
applicable treasury regulations. This inclusion would occur before the receipt
of the cash attributable to such income, regardless of your method of tax
accounting, and actual distributions of stated interest would not be reported as
taxable income. Consequently, you would be required to include amounts in your
gross income even though we might not make any actual cash payments, or may make
only different cash payments, during the period.
SALE, EXCHANGE OR REDEMPTION OF NOTES
You generally will recognize gain or loss on the sale, exchange (other than
a conversion) or redemption of notes equal to the difference between (1) the
amount of cash proceeds and the fair market value of any property you receive on
the sale, exchange or redemption (except any portion that is accrued interest
income, which is taxable as ordinary income) and (2) your adjusted tax basis in
the notes. Your adjusted tax basis generally will equal the cost of the notes to
you. Your gain or loss generally will be capital gain or loss. Capital gain or
loss will be long-term if you have held the notes for more than one year and
will be short-term if you have held the notes for one year or less. For federal
income tax purposes long-term capital gains for noncorporate taxpayers,
including individuals, are taxed at a maximum rate of 20%, and short-term
capital gains at a maximum rate of 39.6%. If you recognize capital loss, your
deduction for the loss may be limited. Corporate taxpayers pay a maximum regular
federal income tax rate of 35% on all net capital gains and ordinary income.
CONVERSION OF NOTES
You generally will not recognize any income, gain or loss on conversion of
notes into common stock, except for (i) common stock you receive with respect to
interest that has accrued but not been included in income, (ii) any cash you
receive instead of a fractional share of common stock as described below,
(iii) to the extent described below, cash received as an additional payment if
you convert your notes after receiving notice of a provisional redemption. Upon
your conversion of a note into common stock, interest that has accrued but not
been included in income will be taxable to you as ordinary interest income.
Although the treatment of the additional payment that we will be required to
make to you if you convert your notes after receiving notice of a provisional
redemption in unclear, it is likely that you will be required to recognize gain,
if any, that you realize to the extent not in excess of such cash payment. Any
gain so recognized will generally be capital gain. Your tax basis in the common
stock will be the same as your adjusted tax basis in the notes at the time of
conversion,
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reduced by any basis attributable to fractional shares. For capital gains
purposes, your holding period for the common stock will generally include your
holding period for the notes you converted except that the holding period of the
common stock allocable to interest that has accrued but not been included in
income may commence with the conversion.
You should treat cash you receive instead of a fractional share of common
stock as a payment in exchange for the fractional share of common stock. This
will result in capital gain or loss (measured by the difference between the cash
you receive for the fractional share and your adjusted tax basis in the
fractional share after taking into account any increase in basis attributable to
gain recognized as a result of the receipt of a cash payment from us in
connection with a provisional redemption of notes).
DIVIDENDS ON COMMON STOCK
If we make a distribution on common stock, the distribution generally will
be treated as a dividend and taxed as ordinary income to the extent of our
current and/or accumulated earnings and profits. A distribution in excess of
earnings and profits is treated as a tax-free return of capital to the extent of
your tax basis in the common stock, on a share-by-share basis, and then as gain
from the sale or exchange of such stock.
A dividend to a corporate holder may qualify for a deduction of 70% of the
dividend received, subject to limitations in certain cases, if the holder owns
less than 20% of the voting power value of our stock (disregarding certain
nonvoting, nonconvertible, nonparticipating preferred stock). A corporate holder
that owns 20% or more of the voting power and value of our stock (similarly
disregarding such preferred stock) generally will qualify for an 80% dividends
received deduction.
ADJUSTMENTS TO CONVERSION PRICE
The conversion price of the notes may change under certain circumstances. In
such a case, you may be treated as having received a constructive distribution
whether or not your notes are ever converted. Such a distribution will generally
be deemed to occur if, and to the extent that, the adjustment in the conversion
price increases your proportionate interest in our assets or earnings and
profits. The constructive distribution may be taxed as ordinary income, subject
to a possible dividends received deduction if you are a corporate holder, to the
extent of our current and/or accumulated earnings and profits. For example, an
adjustment to reflect a taxable dividend to holders of common stock will result
in a constructive dividend. Common stockholders will generally be treated as
having received a constructive distribution if there is not a full adjustment to
the conversion price of the notes to reflect a stock dividend or other event
that would (absent such adjustment) increase the proportionate interest of the
common stockholders in our assets or earnings and profits. In such an event, the
constructive distribution will be taxable as ordinary income, subject to a
possible dividends received deduction if you are a corporate holder, to the
extent of our current and/or accumulated earnings and profits.
SALE OF COMMON STOCK
On the sale or exchange of common stock, you generally will recognize
capital gain or loss equal to the difference between (1) the amount of cash and
the fair market value of any property you receive on the sale or exchange and
(2) your adjusted tax basis in the common stock. This capital gain or loss will
be long-term if you have held the stock for more than one year and will be
short-term if you have held the stock for one year or less. For federal income
tax purposes long-term capital gains of noncorporate taxpayers, including
individuals, are taxed at a maximum stated rate of 20%, and short-term capital
gains at a maximum stated rate of 39.6%. A holder's basis and holding period in
common stock received upon conversion of notes are determined as discussed above
under "--Conversion of
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notes." If you recognize capital loss, your deduction for the loss may be
limited. Corporate taxpayers pay a maximum regular federal income tax rate of
35% on all net capital gains and ordinary income.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
In general, a broker or we must report to the IRS payments of principal,
premium and interest on notes, payments of dividends on common stock, payments
of the proceeds of the sale or exchange of notes, and payments of the proceeds
of the sale or exchange of common stock. The payer or broker must backup
withhold at the rate of 31% if:
- you fail to furnish a taxpayer identification number to the payer or
broker or establish an exemption from backup withholding,
- the IRS notifies the payer or broker that the number you furnished is
incorrect,
- you have underreported interest or dividends, or
- you have failed to certify under penalties of perjury that you are not
subject to backup withholding under the Internal Revenue Code.
Some holders, including all corporations, are exempt from backup
withholding. You may credit any amounts withheld under the backup withholding
rules against your United States federal income tax liability, or receive a
refund, if you properly furnish the required information to the IRS.
Treasury regulations that apply to payments made after December 31, 2000
will modify current information reporting and backup withholding procedures and
requirements. These regulations provide certain presumptions regarding the
status of holders when payments to the holders cannot be reliably associated
with appropriate documentation provided to the payer. For payments made after
December 31, 2000, holders must provide certification, if applicable, that
conforms to the requirements of the regulations, subject to certain transitional
rules permitting certification in accordance with current Treasury regulations
until December 31, 2000. Because the application of these regulations may depend
on your particular circumstances, we urge you to consult your tax adviser
regarding the application of these regulations.
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SHARES ELIGIBLE FOR FUTURE SALE
As of December 31, 1999, we had outstanding 31,700,853 shares of common
stock assuming the exercise of all outstanding stock purchase warrants but no
exercise of outstanding options under our stock incentive plans or other
agreements. In addition, shares of common stock will initially be
issuable upon conversion of the notes sold in this offering and we are currently
conducting a separate public offering of 3,500,000 shares of common stock of
which 2,000,000 shares will be issued by iBasis. Of these shares, the shares
issuable upon the conversion of the notes sold in this offering, the 3,500,000
shares issued or sold in the concurrent stock offering and the 7,820,000 shares
issued in our initial public 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 are "restricted
shares" as defined in Rule 144.
In addition, substantially all of our option holders, warrant holders and
affiliates, and all of our officers and directors, have agreed under written
"lock-up" agreements not to sell any shares of common stock for 90 days after
the date of this prospectus without the prior written consent of FleetBoston
Robertson Stephens Inc. See "Underwriting."
RULE 144
In general, under Rule 144 as currently in effect, 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 316,427 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, we expect that:
- 2,951,226 shares of common stock are eligible for resale without
restriction under Rule 144(k) or Rule 701, of which 2,766,222 shares are
subject to lock-up agreements;
- upon the expiration of the lock-up agreements 90 days after the date of
this prospectus, an additional 15,127,399 shares of common stock,
including 14,895,999 shares of common stock held by affiliates of ours,
will be 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; and
- 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 90 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."
The holders of 16,056,603 shares of common stock or their transferees have
rights 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, on February 17, 2000, we filed a registration statement under
the Securities Act covering the 5,700,000 shares of common stock covered by the
1997 Stock Incentive Plan and the 500,000 shares of common stock covered by the
1999 Employee Stock Purchase Plan. See "Management--1997 Stock Incentive Plan;
- --1999 Employee Stock Purchase Plan." The registration statement automatically
became effective upon filing. Following the filing, shares registered under
these registration statements will, subject to the 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. As of December 31,
1999, options to purchase an aggregate of 2,947,725 shares were issued and
outstanding under the 1997 Stock Incentive Plan and no purchases had been made
under the 1999 Employee Stock Purchase Plan.
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UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., Chase Securities Inc., U.S. Bancorp Piper
Jaffray Inc. and Dain Rauscher Incorporated, have severally agreed with us,
subject to the terms and conditions set forth in the underwriting agreement, to
purchase from us the aggregate principal amount of notes set forth opposite
their names below. The underwriters are committed to purchase and pay for all
notes if any are purchased.
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT OF NOTES
- ----------- ---------------
<S> <C>
FleetBoston Robertson Stephens Inc.......................... $
Chase Securities Inc........................................
U.S. Bancorp Piper Jaffray Inc..............................
Dain Rauscher Incorporated..................................
------------
Total................................................... $150,000,000
============
</TABLE>
The representatives have advised us that the underwriters propose to offer
the notes to the public at the 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 % of the principal amount of the notes 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 notes are 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.
OVERALLOTMENT 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 an additional $22.5 million aggregate principal amount of notes.
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 notes that the number of notes to be
purchased by it shown in the above table bears to the aggregate principal amount
of notes offered in this offering. If purchased, such additional notes will be
sold by the underwriters on the same terms as those on which the aggregate
principal amount of notes offered in this offering are being sold. We will be
obligated, pursuant to the option, to sell notes 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 notes 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 $172.5
million, $5.2 million and $167.3 million, respectively.
We estimate that the total expenses payable by us in connection with this
offering, other than the underwriting discounts and commissions referred to
above, will be approximately $0.5 million.
INDEMNITY. The underwriting agreement contains covenants of indemnity among
the underwriters, the selling stockholders 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 90 days after the date of this prospectus, subject to certain
exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose
84
<PAGE>
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 such holders
or with respect to which they have or hereafter acquire the power of
disposition, without the prior written consent of FleetBoston Robertson
Stephens Inc. FleetBoston 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.
NO TRADING MARKET. The notes are a new issue of securities with no
established trading market. We have been advised by the underwriters that the
underwriters intend to make a market in the notes, but they are not obligated to
do so and may discontinue market making at any time without notice. We cannot
assure you as to the liquidity of the trading market for the notes.
FUTURE SALES. In addition, we have agreed that during the 90 days after the
date of this prospectus we will not, subject to certain exceptions, without the
prior written consent of FleetBoston 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."
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 notes
or 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 notes or the
common stock on behalf of the underwriters for the purpose of fixing or
maintaining the price of the notes or the common stock. A "syndicate covering
transaction" is the bid for or the purchase of the notes or 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 notes or 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 in the over-the-counter market or otherwise and, if commenced, may
be discontinued at any time.
SHARES ACQUIRED BY EMPLOYEES AND AFFILIATES OF FLEETBOSTON ROBERTSON
STEPHENS INC., CHASE SECURITIES INC. AND U.S. BANCORP PIPER JAFFRAY
INC. Certain employees and other affiliates of FleetBoston Robertson Stephens
Inc., Chase Securities Inc. and U.S. Bancorp Piper Jaffray Inc., representatives
of the underwriters, acquired an aggregate of 68,648 shares of our Series C
preferred stock in July 1999, at a purchase price of $4.37 per share, for an
aggregate purchase price of approximately $300,000.
85
<PAGE>
LEGAL MATTERS
Bingham Dana LLP, Boston, Massachusetts will pass upon the validity of notes
and the common stock issuable upon conversion of the notes 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,
Alston & Bird LLP, Atlanta, Georgia will pass upon certain legal matters in
connection with this offering for the underwriters. Five attorneys at Bingham
Dana LLP own, in the aggregate, 15,379 shares of our common stock.
EXPERTS
Our consolidated balance sheets as of December 31, 1998 and 1999, and the
related consolidated statements of operations, redeemable convertible preferred
stock and stockholders (deficit) equity and cash flows and for the years ended
December 31, 1997, 1998 and 1999 included in this prospectus and registration
statement and the consolidated statements of operations data for the period from
inception (August 2, 1996) to December 31, 1996 derived from financial
statements not included in this prospectus 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 report.
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 notes
to be sold in this offering and the shares of common stock to be issued upon
conversion of the notes. 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 iBasis, the notes to be sold in this
offering and the shares of common stock to be issued upon conversion of the
notes, 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, where that
contract is an exhibit to the registration statement, are qualified in all
respects by the 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).
86
<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, 1998 and
1999...................................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1998 and 1999.......................... F-4
Consolidated Statements of Redeemable Convertible Preferred
Stock and Stockholders' Equity (Deficit) for the Years
Ended December 31, 1997, 1998 and 1999.................... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999.......................... 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, 1998 and 1999, and the related consolidated statements of
operations, redeemable convertible preferred stock and stockholders' equity
(deficit) and cash flows for the three years ended December 31, 1999. 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, 1998 and 1999, and the results of their
operations and their cash flows for the three years ended December 31, 1999, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 2, 2000
F-2
<PAGE>
IBASIS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
ASSETS ----------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 7,399,451 $123,665,961
Accounts receivable, net of allowance for doubtful
accounts of approximately $127,000 and $633,000,
respectively............................................ 1,084,623 5,404,338
Prepaid expenses and other current assets................. 245,644 964,675
----------- ------------
Total current assets.................................. 8,729,718 130,034,974
----------- ------------
Property and equipment, at cost:
Network equipment......................................... 3,113,885 6,544,913
Equipment under capital lease............................. 343,990 16,430,153
Leasehold improvements.................................... 311,792 1,696,755
Computer software......................................... 145,626 782,244
Furniture and fixtures.................................... 44,555 154,970
----------- ------------
3,959,848 25,609,035
Less--Accumulated depreciation and amortization........... (239,637) (3,218,920)
----------- ------------
3,720,211 22,390,115
Other assets................................................ 321,932 1,048,000
----------- ------------
$12,771,861 $153,473,089
----------- ------------
</TABLE>
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(DEFICIT)
<TABLE>
<S> <C> <C>
Current liabilities:
Accounts payable.......................................... $ 3,752,974 $ 6,112,938
Accrued expenses.......................................... 483,539 4,391,296
Capital lease obligations, current portion................ 251,890 4,376,280
----------- ------------
Total current liabilities............................. 4,488,403 14,880,514
----------- ------------
Capital lease obligations, net of current portion........... 212,679 11,688,843
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 and no shares at
December 31, 1998 and 1999, respectively (stated at
redemption value)..................................... 10,719,205 --
Stockholders' equity (deficit):
Series A convertible preferred stock, $.001 par value-
Authorized--1,256,875 shares
Issued and outstanding--1,250,000 and no shares at
December 31, 1998 and 1999, respectively.............. 1,250 --
Common stock, $.001 par value-
Authorized--no shares and 85,000,000 shares at December
31, 1998 and 1999, respectively
Issued and outstanding--none and 31,642,728 at December
31, 1998 and 1999, respectively....................... -- 31,642
Class A common stock, $.001 par value-
Authorized--30,000,000 shares
Issued and outstanding--6,060,000 and no shares at
December 31, 1998 and 1999, respectively.............. 6,060 --
Class B common stock, $.001 par value-
Authorized--1,500,000 shares
Issued and outstanding--1,500,000 and no shares at
December 31, 1998 and 1999, respectively.............. 1,500 --
Additional paid-in capital................................ 4,022,059 156,887,447
Deferred compensation..................................... -- (2,200,547)
Accumulated deficit....................................... (6,728,295) (27,814,810)
----------- ------------
Total stockholders' (deficit) equity.................. (2,697,426) 126,903,732
----------- ------------
$12,771,861 $153,473,089
----------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
IBASIS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
---------- ----------- ------------
<S> <C> <C> <C>
Net revenue............................................ $ 127,425 $ 1,978,430 $ 19,417,102
Operating expenses:
Data communications and telecommunications........... 186,587 2,729,980 21,006,774
Research and development............................. 317,992 1,673,884 6,183,391
Selling and marketing................................ 97,463 1,160,448 5,568,399
General and administrative........................... 453,617 1,365,132 5,308,465
Depreciation and amortization........................ 18,554 363,821 2,997,355
Loss (gain) on disposal of property and equipment.... -- 531,129 (15,297)
---------- ----------- ------------
Total operating expenses............................... 1,074,213 7,824,394 41,049,087
---------- ----------- ------------
Loss from operations................................... (946,788) (5,845,964) (21,631,985)
Interest income........................................ 17,490 179,270 1,329,237
Interest expense....................................... (4,171) (52,983) (835,593)
Other income (expense), net............................ 7,829 (6,826) 2,826
Minority interest in loss of joint venture............. -- -- 49,000
---------- ----------- ------------
Net loss............................................. (925,640) (5,726,503) (21,086,515)
Accretion of dividends on redeemable convertible
preferred stock...................................... -- (219,205) (1,020,366)
---------- ----------- ------------
Net loss applicable to common stockholders........... $ (925,640) $(5,945,708) $(22,106,881)
========== =========== ============
Net loss per share (Note 1(d)):
Basic and diluted net loss per share................. $ (0.15) $ (0.99) $ (2.29)
========== =========== ============
Basic and diluted weighted average common shares
outstanding........................................ 6,005,877 6,022,551 9,655,253
========== =========== ============
</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>
SERIES B REDEEMABLE SERIES C REDEEMABLE
CONVERTIBLE PREFERRED CONVERTIBLE PREFERRED SERIES A CONVERTIBLE
STOCK STOCK PREFERRED STOCK COMMON STOCK
------------------------- ------------------------- ---------------------- ----------
NUMBER REDEMPTION NUMBER REDEMPTION NUMBER $.001 PAR NUMBER
OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE OF SHARES
---------- ------------ ---------- ------------ ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996....... -- $ -- -- $ -- -- $ -- --
Issuance of Class A common
stock........................ -- -- -- -- -- -- --
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 --
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 --
Sale of Series C redeemable
convertible preferred stock, net
of issuance cost of
approximately $59,900........... -- -- 5,744,103 25,101,740 -- -- --
Compensation expense related to
employee stock option grant..... -- -- -- -- -- -- --
Exercise of Class A common stock
options......................... -- -- -- -- -- -- --
Accretion of dividends on Series
B redeemable convertible
preferred stock................. -- 541,541 -- -- -- -- --
Accretion of dividends on Series
C redeemable convertible
preferred stock................. -- -- -- 478,825 -- -- --
Deferred compensation related to
stock options................... -- -- -- -- -- -- --
Amortization of deferred
compensation.................... -- -- -- -- -- -- --
Conversion of preferred stock and
Class B common stock to Class A
common stock.................... (6,562,500) (10,500,000) (5,744,103) (25,101,740) (1,250,000) (1,250) --
Conversion of Class A common
stock to common stock........... -- -- -- -- -- -- 23,738,353
Reclassification of dividends on
Series B and Series C redeemable
convertible preferred stock..... -- (760,746) -- (478,825) -- -- --
Exercise of common stock
options......................... -- -- -- -- -- -- 84,375
Sale of common stock under
initial public offering, net of
issuance costs of approximately
$10,420,000..................... -- -- -- -- -- -- 7,820,000
Net loss......................... -- -- -- -- -- -- --
---------- ------------ ---------- ------------ ---------- ------- ----------
Balance, December 31, 1999....... -- $ -- -- $ -- -- $ -- 31,642,728
========== ============ ========== ============ ========== ======= ==========
<CAPTION>
CLASS A COMMON CLASS B COMMON
MMON STOCK
----------- ----------------------- ---------------------- ADDITIONAL
$.001 PAR NUMBER $.001 PAR NUMBER $.001 PAR PAID-IN DEFERRED
VALUE OF SHARES VALUE OF SHARES VALUE CAPITAL COMPENSATION
--------- ----------- --------- ---------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996....... $ -- 6,000,000 $ 6,000 -- $ -- $ 94,000 $ --
Issuance of Class A common
stock........................ -- 60,000 60 -- -- 1,940 --
Sale of Class B common stock,
net of issuance costs of
approximately $10,000........ -- -- -- 1,500,000 1,500 488,500 --
Sale of Series A convertible
preferred stock, net of
issuance costs of
approximately $35,000........ -- -- -- -- -- 2,379,949 --
Net loss....................... -- -- -- -- -- -- --
------- ----------- -------- ---------- ------- ------------- -----------
Balance, December 31, 1997....... -- 6,060,000 6,060 1,500,000 1,500 2,964,389 --
Sale of Series A convertible
preferred stock.............. -- -- -- -- -- 1,333,806 --
Sale of Series B redeemable
convertible preferred stock,
net of issuance costs of
approximately $57,000........ -- -- -- -- -- (56,931) --
Accretion of dividends on
Series B redeemable
convertible preferred
stock........................ -- -- -- -- -- (219,205) --
Net loss....................... -- -- -- -- -- -- --
------- ----------- -------- ---------- ------- ------------- -----------
Balance, December 31, 1998....... -- 6,060,000 6,060 1,500,000 1,500 4,022,059 --
Sale of Series C redeemable
convertible preferred stock, net
of issuance cost of
approximately $59,900........... -- -- -- -- -- (59,892) --
Compensation expense related to
employee stock option grant..... -- -- -- -- -- 13,750 --
Exercise of Class A common stock
options......................... -- 121,750 122 -- -- 25,728 --
Accretion of dividends on Series
B redeemable convertible
preferred stock................. -- -- -- -- -- (541,541) --
Accretion of dividends on Series
C redeemable convertible
preferred stock................. -- -- -- -- -- (478,825) --
Deferred compensation related to
stock options................... -- -- -- -- -- 2,384,340 (2,384,340)
Amortization of deferred
compensation.................... -- -- -- -- -- -- 183,793
Conversion of preferred stock and
Class B common stock to Class A
common stock.................... -- 17,556,603 17,556 (1,500,000) (1,500) 35,586,934 --
Conversion of Class A common
stock to common stock........... 23,738 (23,738,353) (23,738) -- -- -- --
Reclassification of dividends on
Series B and Series C redeemable
convertible preferred stock..... -- -- -- -- -- 1,239,571 --
Exercise of common stock
options......................... 84 -- -- -- -- 2,726 --
Sale of common stock under
initial public offering, net of
issuance costs of approximately
$10,420,000..................... 7,820 -- -- -- -- 114,692,597 --
Net loss......................... -- -- -- -- -- -- --
------- ----------- -------- ---------- ------- ------------- -----------
Balance, December 31, 1999....... $31,642 -- $ -- -- $ -- $ 156,887,447 $(2,200,547)
======= =========== ======== ========== ======= ============= ===========
<CAPTION>
TOTAL
STOCKHOLDERS'
ACCUMULATED EQUITY
DEFICIT (DEFICIT)
------------ -------------
<S> <C> <C>
Balance, December 31, 1996....... $ (76,152) $ 23,848
Issuance of Class A common
stock........................ -- 2,000
Sale of Class B common stock,
net of issuance costs of
approximately $10,000........ -- 490,000
Sale of Series A convertible
preferred stock, net of
issuance costs of
approximately $35,000........ -- 2,380,754
Net loss....................... (925,640) (925,640)
------------ ------------
Balance, December 31, 1997....... (1,001,792) 1,970,962
Sale of Series A convertible
preferred stock.............. -- 1,334,251
Sale of Series B redeemable
convertible preferred stock,
net of issuance costs of
approximately $57,000........ -- (56,931)
Accretion of dividends on
Series B redeemable
convertible preferred
stock........................ -- (219,205)
Net loss....................... (5,726,503) (5,726,503)
------------ ------------
Balance, December 31, 1998....... (6,728,295) (2,697,426)
Sale of Series C redeemable
convertible preferred stock, net
of issuance cost of
approximately $59,900........... -- (59,892)
Compensation expense related to
employee stock option grant..... -- 13,750
Exercise of Class A common stock
options......................... -- 25,850
Accretion of dividends on Series
B redeemable convertible
preferred stock................. -- (541,541)
Accretion of dividends on Series
C redeemable convertible
preferred stock................. -- (478,825)
Deferred compensation related to
stock options................... -- --
Amortization of deferred
compensation.................... -- 183,793
Conversion of preferred stock and
Class B common stock to Class A
common stock.................... -- 35,601,740
Conversion of Class A common
stock to common stock........... -- --
Reclassification of dividends on
Series B and Series C redeemable
convertible preferred stock..... -- 1,239,571
Exercise of common stock
options......................... -- 2,810
Sale of common stock under
initial public offering, net of
issuance costs of approximately
$10,420,000..................... -- 114,700,417
Net loss......................... (21,086,515) (21,086,515)
------------ ------------
Balance, December 31, 1999....... $(27,814,810) $126,903,732
============ ============
</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>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
---------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (925,640) $(5,726,503) $(21,086,515)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization........................... 18,554 363,821 2,997,355
Loss (gain) 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)
Amortization of deferred compensation................... -- -- 183,793
Changes in current assets and liabilities--
Accounts receivable................................... (29,820) (1,054,803) (4,319,715)
Prepaid expenses and other current assets............. (73,382) (172,262) (719,031)
Accounts payable...................................... 240,142 3,501,268 2,359,962
Accrued expenses...................................... 103,976 379,563 3,907,757
---------- ----------- ------------
Net cash used in operating activities............... (666,170) (2,128,787) (16,726,941)
---------- ----------- ------------
Cash flows from investing activities:
Purchases of property and equipment....................... (438,835) (3,522,070) (5,245,055)
Increase in other assets.................................. (71,972) (249,960) (726,068)
---------- ----------- ------------
Net cash used in investing activities............... (510,807) (3,772,030) (5,971,123)
---------- ----------- ------------
Cash flows from financing activities:
Net proceeds from issuance of Series A convertible
preferred stock......................................... 2,380,754 1,334,251 --
Net proceeds from issuance of Series B redeemable
convertible preferred stock............................. -- 10,443,069 --
Net proceeds from issuance of Series C redeemable
convertible preferred stock............................. -- -- 25,041,848
Net proceeds from issuance of Class A common stock........ 2,000 -- --
Net proceeds from issuance of Class B common stock........ 490,000 -- --
Net proceeds from initial public offering................. -- -- 114,700,417
Proceeds from exercise of stock options................... -- -- 28,660
Payments on capital lease obligations..................... (8,352) (166,045) (806,351)
---------- ----------- ------------
Net cash provided by financing activities............. 2,864,402 11,611,275 138,964,574
---------- ----------- ------------
Net increase in cash and cash equivalents................... 1,687,425 5,710,458 116,266,510
Cash and cash equivalents, beginning of year................ 1,568 1,688,993 7,399,451
========== =========== ============
Cash and cash equivalents, end of year...................... $1,688,993 $ 7,399,451 $123,665,961
========== =========== ============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest................ $ 4,114 $ 55,274 $ 599,878
========== =========== ============
Supplemental disclosure of noncash investing and financing
activities:
Equipment acquired under capital lease obligations.... $ 199,696 $ 439,270 $ 16,404,132
========== =========== ============
Accretion of dividends on Series B redeemable
convertible preferred stock......................... $ -- $ 219,205 $ 541,541
========== =========== ============
Accretion of dividends on Series C redeemable
convertible preferred stock......................... $ -- $ -- $ 478,825
========== =========== ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
<PAGE>
IBASIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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, Africa and Australia.
In November 1999, the Company completed its initial public offering and
issued 7,820,000 shares of $.001 par value Common Stock which resulted in total
net proceeds to the Company of $114.7 million.
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.
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) 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.
(C) 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 and 1999. 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-7
<PAGE>
IBASIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) NET LOSS PER SHARE
Basic and diluted net loss per common share were 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 the outstanding common stock
options, common stock warrants, 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 average total of 114,441,
and 310,404 of Class A common shares have been excluded from the computation of
diluted weighted average common shares outstanding for the year ended
December 31, 1997 and 1998, respectively. Options and warrants to purchase a
weighted average total of 1,973,282 common shares have been excluded from the
computation of diluted weighted average common shares outstanding for the year
ended December 31, 1999.
The following table reconciles the weighted average common shares
outstanding to the shares used in the computation of basic and diluted weighted
average common shares outstanding:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Weighted average common shares outstanding.................. 6,036,082 6,060,000 9,681,482
Less--Weighted average unvested common shares outstanding... 30,205 37,449 26,229
--------- --------- ---------
Basic and diluted weighted average common shares
outstanding............................................... 6,005,877 6,022,551 9,655,253
========= ========= =========
</TABLE>
(E) 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, 1998 and 1999, cash equivalents included money market accounts and
commercial paper that are readily convertible into cash. Under SFAS 115,
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, the Company
classifies its investments as held-to-maturity, and therefore has recorded them
at amortized cost in the accompanying balance sheet.
(F) PROPERTY AND EQUIPMENT
The Company provides for depreciation and amortization 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-8
<PAGE>
IBASIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(G) RESEARCH AND DEVELOPMENT EXPENSES
The Company charges research and development expenses to operations as
incurred.
(H) 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 42% and 32% of
total accounts receivable at December 31, 1998 and 1999, respectively. The
following table represents customers that account for more than 10% of net
revenue in any of the periods reported:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Customer A.................................................. -- 7% 12%
Customer B.................................................. -- 18% 7%
Customer C.................................................. -- 15% --
Customer D.................................................. -- 11% 2%
Customer E.................................................. 78% -- --
Customer F.................................................. 18% -- --
Customer G.................................................. -- -- 10%
</TABLE>
(I) FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments consist principally of cash and cash equivalents,
accounts receivable, accounts payable and redeemable convertible preferred
stock. The estimated fair value of these instruments approximates their carrying
value.
(J) 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. The Company accounts for stock-based compensation for nonemployees under
the fair value method prescribed by SFAS No. 123. To date there have been no
material grants to nonemployees.
(K) 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.
F-9
<PAGE>
IBASIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(L) 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.
(M) RECENT ACCOUNTING PRONOUNCEMENTS
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, as amended by SFAS No. 137, is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. 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.
(N) RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 and 1998 financial
statements to conform to the 1999 presentation.
(O) OTHER ASSETS
Other assets at December 31, 1999 consisted primarily of deposits.
(2) ACCRUED EXPENSES
Accrued expenses at December 31, 1998 and 1999 consisted of the following:
<TABLE>
<CAPTION>
1998 1999
-------- ----------
<S> <C> <C>
Accrued professional fees............................. $ 72,500 $ 144,750
Accrued other......................................... $411,039 $4,246,546
-------- ----------
$483,539 $4,391,296
======== ==========
</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 corporation 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 Decmber
31, 1999, the Company has net operating loss carryforwards of approximately
$25,658,000 available to reduce future federal and state income taxes, if
F-10
<PAGE>
IBASIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) INCOME TAXES (CONTINUED)
any. If not utilized, these carryforwards expire at various dates through 2019.
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,
--------------------------
1998 1999
----------- ------------
<S> <C> <C>
Net operating loss carryforwards.................. $ 2,636,000 $ 10,263,000
Other temporary differences....................... 38,000 578,000
Valuation allowance............................... (2,674,000) (10,841,000)
----------- ------------
$ -- $ --
=========== ============
</TABLE>
The Company has recorded a 100% valuation allowance against the net deferred
tax asset as of December 31, 1998 and 1999, because the future realizability of
such asset is uncertain. The increase in the valuation allowance during these
years 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 during 1999 as the Joint Venture losses
exceeded the invested amounts.
(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).
F-11
<PAGE>
IBASIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) LINE OF CREDIT (CONTINUED)
The Revolver allows the Company to borrow up to $1,500,000. 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 (8.5% at December 31, 1999) plus 1% per annum.
The Agreement requires the Company to maintain certain financial covenants
including a minimum quick ratio, tangible net worth and liquidity, as defined.
The Agreement also prohibits the payment of dividends. At December 31, 1999,
there were no borrowings under the Revolver.
The Company borrowed $505,634 under the Equipment Line during 1999 for
purposes of equipment purchases. Borrowings under the Equipment Line bear
interest at the bank's prime rate (8.5% at December 31, 1999) plus 1.5% and are
payable in 36 equal monthly installments of principal and interest through
August 2002. At December 31, 1999, there was no availability under the Equipment
Line. The amounts under this facility have been included in Capital lease
obligations in the accompanying consolidated balance sheet as of December 31,
1999.
(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. On
July 12, 1999, the Company sold 5,744,103 shares of Series C redeemable
convertible preferred stock (Series C) for aggregate proceeds of $25,101,740.
The rights, preferences and privileges of the Series B and Series C were as
follows:
VOTING
The holders of Series B and Series C were entitled to the number of votes
equal to the number of common shares into which the preferred shares were
convertible. The preferred shareholders voted together with the holders of
common stock as a single class, except where a separate class vote was otherwise
required by applicable law or the Certificate of Incorporation or bylaws.
DIVIDENDS
The holders of Series B and Series C were 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. The Board of Directors never declared dividends on
shares of Series B or Series C.
LIQUIDATION PREFERENCE
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of Series B and Series C were entitled to
be paid out of the assets available for distribution an amount equal to the
greater of $1.60 and $4.37 per share, respectively, plus any declared but unpaid
dividends or the amount that would be distributed to each preferred stockholder
if all shares of Series B and Series C were converted to Class A common shares.
If the assets of the Company were insufficient to pay the full preferential
amounts to the preferred stockholders, the assets were to be distributed ratably
among the outstanding shares of Series B and Series C in proportion to its
aggregate liquidation preference amounts.
F-12
<PAGE>
IBASIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
CONVERSION
Upon the closing of the Company's initial public offering, all of the
outstanding shares of Series B and Series C automatically converted into
6,562,500 and 5,744,103 shares of Class A common shares, respectively.
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 or Series C
then outstanding, the Company will redeem all of the outstanding shares of
Series B and Series C in three equal annual installments at a redemption price
of $1.60 and $4.37 per share, respectively, plus any declared but unpaid
dividends. For the purpose of redemption, the Series B and Series C will have an
annual 6% accrued dividend. As of the closing of the initial public offering,
cumulative dividends on Series B and Series C totaled $1,239,571. These
dividends are not included for purposes of conversion. Upon the initial public
offering the Series B and Series C converted into Class A common stock and,
therefore, these dividends have been reclassified to additional paid-in capital
in the consolidated balance sheet as of December 31, 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.
In connection with the Company's initial public offering, 85,000,000 shares
of common stock, $0.001 par value per share (Common Stock) and 15,000,000 shares
of preferred stock, $0.001 par value per share (Preferred Stock) were
authorized.
Upon the completion of the initial public offering, all outstanding shares
of preferred stock, as well as Class B common stock, were converted into the
following number of shares of Class A common stock:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
CLASS A COMMON STOCK
--------------------
<S> <C>
Series A preferred stock................................. 3,750,000
Series B preferred stock................................. 6,562,500
Series C preferred stock................................. 5,744,103
Class B common stock..................................... 1,500,000
</TABLE>
Subsequently, all outstanding shares of Class A common stock were converted
into 23,738,353 shares of $.001 par value Common Stock.
F-13
<PAGE>
IBASIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
(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 were as follows:
VOTING
The holders of Series A were entitled to the number of votes equal to the
number of common shares into which the preferred shares were convertible. The
preferred shareholders voted together with the holders of common stock as a
single class, except where a separate class vote was otherwise required by
applicable law or the Certificate of Incorporation or bylaws.
DIVIDENDS
The holders of Series A were 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. The Board of Directors never declared dividends on shares of
Series A.
LIQUIDATION PREFERENCE
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of Series A were 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 have
been distributed to each preferred stockholder if all shares of Series A were
converted to Class A common shares. If the assets of the Company were
insufficient to pay the full preferential amounts to the preferred stockholders,
the assets were to be distributed ratably among the outstanding shares of,
first, Series B, and second, Series A, in proportion to their aggregate
liquidation preference amounts.
CONVERSION
In connection with the initial public offering, each outstanding share of
Series A was converted into three shares of common stock.
(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 were as
follows:
VOTING
The holders of Class A and Class B voted for each share of stock owned. The
common shareholders voted as a single class, together with the holders of
Series A and Series B, except where a
F-14
<PAGE>
IBASIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
separate class vote was otherwise required by applicable law or the Certificate
of Incorporation or bylaws.
DIVIDENDS
Holders of Class B were 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
preferred stock. Class A was not entitled to any priority dividend. After the
Priority Dividend has been paid, holders of Class A and Class B were entitled to
receive equal dividends, when and if declared by the Board of Directors.
Dividends were never declared on shares of Class A or Class B.
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 had a liquidation preference over the
holders of Class A of $.33 per share less any Priority Dividend previously paid.
The holders of Class A were then entitled to a distribution amount of $.33 per
share. Any remaining assets of the Company were to be distributed ratably among
the holders of Class A and Class B. If assets of the Company were insufficient
to pay the full amount to the common stockholders, the assets were to be
distributed ratably among the common stockholders in proportion to, and in order
of their rights to, their aggregate liquidation amounts.
CONVERSION
Upon the completion of the Company's initial public offering, all 6,060,000
shares of Class A common stock and all 1,500,000 shares of Class B common stock
were converted into 6,060,000 and 1,500,000 shares of common stock,
respectively.
RESTRICTED STOCK AWARD
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 December 31,
1999, there were 22,500 unvested shares under this agreement.
STOCK REPURCHASE 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 shares of Class A Common Stock 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 Common Stock shares
were vested immediately, with 5.625% vesting every three months. At
December 31, 1999, there were 938,250 unvested shares under this agreement.
F-15
<PAGE>
IBASIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
(D) 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 5,700,000 shares of Common Stock 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 16 equal installments on each of the first 16 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, 1998 and 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................................... 2,028,600 1.00-37.94 6.13
Exercised................................. (206,125) .03-.50 .14
Terminated................................ (203,650) .50-37.94 1.27
--------- ----------- -----
Outstanding, December 31, 1999.............. 2,947,725 $.03-$37.94 $4.37
--------- ----------- -----
Exercisable, December 31, 1999.............. 400,869 $ .03-$5.00 $ .93
--------- ----------- -----
</TABLE>
F-16
<PAGE>
IBASIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
The following table summarizes information relating to currently outstanding
and exercisable stock options as of December 31, 1999:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
----------------------------------- --------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
RANGE OF CONTRACTUAL AVERAGE AVERAGE
EXERCISE NUMBER OF LIFE (YEARS) EXERCISE NUMBER OF EXERCISE
PRICES SHARES OUTSTANDING PRICE SHARES PRICE
- ---------- --------- ------------ -------- --------- --------
<S> <C> <C> <C> <C> <C>
$ .03 182,925 7.61 $ .03 98,794 $ .03
.50-.65 425,800 8.59 .54 139,600 .53
1.00-1.10 475,800 8.96 1.03 113,250 1.03
1.50 195,000 9.31 1.50 6,913 1.50
4.00 649,300 9.44 4.00 42,187 4.00
5.00 481,600 9.69 5.00 125 5.00
11.00 491,500 9.85 11.00 -- --
28.75 30,000 10.00 28.75 -- --
37.94 15,800 9.92 37.94 -- --
--------- -------
2,947,725 400,869
--------- -------
</TABLE>
At December 31, 1999, options to purchase 2,531,150 common shares were
available for future grants under the Plan.
The Company applies the accounting provisions prescribed in APB No. 25 and
related Interpretations. During September 1999, the Company issued stock options
with an exercise price less than the fair market value of the common stock as
determined for accounting purposes. Accordingly, total deferred compensation
related to these stock options of approximately $2,384,000 was recorded during
the year ended December 31, 1999, and is being amortized over the vesting period
of the options, generally over four years. Amortization of deferred compensation
of approximately $184,000 has been recognized as an expense in the year ended
December 31, 1999. Prior to September 1999, the Company had not issued stock
options with an exercise price less than the fair market value.
(E) EMPLOYEE STOCK PURCHASE PLAN
On September 9, 1999, the Company's board of directors and stockholders
approved the 1999 iBasis, Inc. employee stock purchase plan (the Purchase Plan),
which enables eligible employees to acquire shares of the Company's common stock
through payroll deductions. The Purchase Plan is intended to qualify as an
employee stock purchase plan under Section 423 of the Internal Revenue Code. The
offering periods under the Purchase Plan start on January 1 and July 1 of each
year and end on June 30 and December 31 of each year, unless otherwise
determined by the board of directors. During each offering period, an eligible
employee may select a rate of payroll deduction of from 1% to 10% of
compensation, up to an aggregate of $12,500 in any offering period. The purchase
price for common stock purchased under the Purchase Plan is 85% of the lesser of
the fair market value of the shares on the first or last day of the offering
period. An aggregate of 500,000 shares of common stock have been reserved for
issuance under the Purchase Plan.
F-17
<PAGE>
IBASIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
(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, 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. Upon conversion of
the Company's preferred stock (see note 7(a)), these warrants converted into
common stock warrants for 20,625 and 37,500 shares, respectively. At
December 31, 1999, 20,625 and 37,500 warrants were exercisable for common stock,
respectively. The value of these warrants at the date of grant 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.
The weighted average assumptions are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Risk-free interest rate.................... 6.16% 4.99% 5.77%
Expected dividend yield.................... -- -- --
Expected lives............................. 5 years 5 years 5 years
Volatility................................. 60% 60% 61%
Weighted average remaining contractual
life..................................... 9.62 years 9.49 years 9.20 years
Weighted average fair value of options
granted.................................. $0.02 $0.39 $4.90
</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,
----------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Net loss applicable to common
stockholders--
As reported......................... $ (925,640) $(5,945,708) $(22,106,881)
Pro forma........................... (926,282) (5,979,305) (22,667,437)
Basic and diluted net loss per share--
As reported......................... $ (0.15) $ (0.99) $ (2.29)
Pro forma........................... (0.15) (0.99) (2.35)
</TABLE>
F-18
<PAGE>
IBASIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(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 $15,000,000 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 December 31, 1999, the Company had approximately $1,000,000
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% to 13.0% and has a term ranging from 24 to
36 months. As of December 31, 1999, the Company had approximately $1,426,000
outstanding under these lease agreements.
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 December 31, 1999 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR LEASES LEASES
- ---- ---------- -----------
<S> <C> <C>
2000................................................ $1,041,983 $ 8,015,988
2001................................................ 1,088,406 7,861,264
2002................................................ 1,135,729 5,012,663
2003................................................ 1,106,287 68,177
2004................................................ 1,129,848 --
Thereafter.......................................... 1,938,734 --
---------- -----------
Total future minimum lease payments................. $7,440,987 20,958,092
==========
Less--Amounts representing interest................. 4,892,969
-----------
Present value of obligations........................ 16,065,123
Less--Current portion............................... 4,376,280
-----------
$11,688,843
===========
</TABLE>
Rent expense included in the consolidated statements of operations was
approximately $83,000, $69,000, $640,000 for the years ended December 31, 1997,
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
F-19
<PAGE>
IBASIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
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.
The following table represents percentage revenue from individual countries:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
US.................................................... --% 86% 95%
Hong Kong............................................. 17 -- --
Japan................................................. 79 -- --
Other................................................. 4 14 5
---- ---- ----
100% 100% 100%
---- ---- ----
</TABLE>
The following table represents percentage of minute revenue for traffic sent
to the specified geographic destinations:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Asia.................................................. 100% 56% 49%
Latin America......................................... -- 14 22
Middle East........................................... -- 14 18
United States......................................... -- 12 1
Europe................................................ -- -- 7
Other................................................. -- 4 3
---- ---- ----
100% 100% 100%
---- ---- ----
</TABLE>
As of December 31, 1999, there was approximately $669,000 of equipment held
at our joint venture (see Note 4).
(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 years ended December 31, 1998 and 1999, the Company paid
approximately $415,000 and $289,000, respectively, to a related party,
Microworld Limited (see Note 4) for services rendered. These fees paid to this
related party are included in data communications and telecommunications costs
in the accompanying consolidated financial statements.
F-20
<PAGE>
IBASIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(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>
Year ended December 31, 1997.... $ -- $ -- $ -- $ --
-------- -------- ------- --------
Year ended December 31, 1998.... $ -- $126,741 $ -- $126,741
-------- -------- ------- --------
Year ended December 31, 1999.... $126,741 $510,380 $(4,000) $633,121
======== ======== ======= ========
</TABLE>
F-21
<PAGE>
[Inside Back Cover]
(Stylized logo of iBasis)
<PAGE>
[LOGO]
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 22, 2000
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>
$150,000,000
[LOGO]
% CONVERTIBLE SUBORDINATED NOTES DUE 2005
The notes are convertible at any time prior to maturity into common stock at
a conversion price of $ per share, subject to adjustment upon certain events.
Interest is payable on each March 15 and September 15, beginning
September 15, 2000. The notes mature on , 2005. The notes are
subordinated to our senior indebtedness.
We may redeem some or all of the notes on or after March 20, 2003 at the
redemption prices listed in this prospectus, plus accrued interest. Prior to
that date, we may redeem some or all of the notes if the price of our common
stock has exceeded 150% of the conversion price for at least 20 out of 30
consecutive trading days prior to redemption. If we redeem some or all of the
notes prior to March 20, 2003 we will also make an additional payment on the
redeemed notes. You may require us to repurchase your notes upon a repurchase
event in cash or, at our option, common stock, at 105% of the principal amount
of the notes, plus accrued interest.
Our common stock is quoted on the Nasdaq National Market under the symbol
"IBAS." The last reported sales price of our common stock on the Nasdaq National
Market on February 17, 2000 was $72.00 per share.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------------------
<TABLE>
<CAPTION>
PER NOTE TOTAL
-------- -----
<S> <C> <C>
Public Offering Price....................................... % $
Underwriting Discounts...................................... % $
Proceeds to iBasis ......................................... % $
</TABLE>
The initial public offering price set forth above does not include accrued
interest, if any. Interest on the notes will accrue from , 2000 and
must be paid by the purchaser if the notes are purchased after ,
2000.
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 $22,500,000 aggregate principal amount of notes. The underwriters
expect to deliver the notes in book-entry form only through the facilities of
the Depository Trust Company against payment in New York, New York on
, 2000.
Concurrently with this note offering, we are offering 3,500,000 shares of
our common stock, under a separate prospectus, consisting of 2,000,000 shares to
be sold by us and 1,500,000 shares to be sold by selling stockholders. Neither
completion of this note offering nor completion of the concurrent common stock
offering is contingent upon completion of the other.
------------------------
ROBERTSON STEPHENS INTERNATIONAL
CHASE H&Q
U.S. BANCORP PIPER JAFFRAY
DAIN RAUSCHER WESSELS
THE DATE OF THIS PROSPECTUS IS , 2000.
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., Chase Securities Inc., U.S. Bancorp Piper
Jaffray Inc. and Dain Rauscher Incorporated, have severally agreed with us,
subject to the terms and conditions set forth in the underwriting agreement, to
purchase from us the aggregate principal amount of notes set forth opposite
their names below. The underwriters are committed to purchase and pay for all
notes if any are purchased.
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT OF NOTES
- ----------- ---------------
<S> <C>
FleetBoston Robertson Stephens International Inc............ $
Chase Securities Inc........................................
U.S. Bancorp Piper Jaffray Inc..............................
Dain Rauscher Incorporated..................................
------------
Total................................................... $150,000,000
============
</TABLE>
The representatives have advised us that the underwriters propose to offer
the notes to the public at the 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 % of the principal amount of the notes 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 notes are 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.
OVERALLOTMENT 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 an additional $22.5 million aggregate principal amount of notes.
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 notes that the number of notes to be
purchased by it shown in the above table bears to the aggregate principal amount
of notes offered in this offering. If purchased, such additional notes will be
sold by the underwriters on the same terms as those on which the aggregate
principal amount of notes offered in this offering are being sold. We will be
obligated, pursuant to the option, to sell notes 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 notes 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 $172.5
million, $5.2 million and $167.3 million, respectively.
We estimate that the total expenses payable by us in connection with this
offering, other than the underwriting discounts and commissions referred to
above, will be approximately $0.5 million.
INDEMNITY. The underwriting agreement contains covenants of indemnity among
the underwriters, the selling stockholders 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 90 days after the date of this prospectus, subject to certain
exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose
84
<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> <C>
SEC Registration Fee........................................ $ 45,540
NASD Fees................................................... $ 17,750
Printing and Engraving Expenses............................. $ 100,000
Legal Fees and Expenses..................................... $ 150,000
Accountants' Fees and Expenses.............................. $ 100,000
Blue Sky Fees and expenses (including legal fees)........... $ 15,000
Miscellaneous Costs......................................... $ 71,710
Total....................................................... $ 500,000
</TABLE>
- ------------------------
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 and under the circumstances set forth therein.
The Amended and Restated Certificate of Incorporation of the Registrant and
the Amended and Restated By-laws of the Registrant, copies 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 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 grants, 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.
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
II-1
<PAGE>
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
share 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
$25,101,730. 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 December 31, 1999, the Registrant has issued options to certain
employees, officers and consultants of the Registrant, to purchase an aggregate
of 3,557,500 shares of common stock under the Registrant's 1997 Stock Incentive
Plan. The purchase price under the options is $0.03 to $37.94 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.
II-2
<PAGE>
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.
3.1** Amended and Restated Certificate of Incorporation of the
Registrant.
3.2** Amended and Restated By-Laws of the Registrant.
4.1 Specimen Certificate for shares of the Registrant's common
stock (incorporated by reference from Exhibit 4.1 to the
Registrant's Registration Statement on Form S-1 (file no.
333-85545)).
4.2 Form of Indenture.
4.3 Form of % Convertible Subordinated Note due 2005
(included in Exhibit 4.2).
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. Nordblum and Peter C. Nordblum as
Trustees of Northwest Associates under Declaration of Trust
dated December 9, 1971 with respect to property located at
20 Second Avenue, Burlington, Massachusetts (incorporated by
reference from Exhibit 10.1 to the Registrant's Registration
Statement on Form S-1 (file no. 333-85545)).
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 (incorporated
by reference from Exhibit 10.2 to the Registrant's
Registration Statement on Form S-1 (file no. 333-85545)).
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 (incorporated by
reference from Exhibit 10.3 to the Registrant's Registration
Statement on Form S-1 (file no. 333-85545)).
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
(incorporated by reference from Exhibit 10.4 to the
Registrant's Registration Statement on Form S-1 (file no.
333-85545)).
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. (incorporated by reference from
Exhibit 10.5 to the Registrant's Registration Statement on
Form S-1 (file no. 333-85545)).
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. (incorporated by reference from
Exhibit 10.6 to the Registrant's Registration Statement on
Form S-1 (file no. 333-85545)).
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 (incorporated by
reference from Exhibit 10.7 to the Registrant's Registration
Statement on Form S-1 (file no. 333-85545)).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
10.8 1997 Stock Incentive Plan of the Registrant (incorporated by
reference from Exhibit 10.8 to the Registrant's Registration
Statement on Form S-1 (file no. 333-85545)).
10.9 Employment Agreement between the Registrant and Ofer Gneezy,
dated as of August 11, 1997 (incorporated by reference from
Exhibit 10.9 to the Registrant's Registration Statement on
Form S-1 (file no. 333-85545)).
10.10 Employment Agreement between the Registrant and Gordon J.
VanderBrug, dated as of August 11, 1997. (incorporated by
reference from Exhibit 10.10 to the Registrant's
Registration Statement on Form S-1 (file no. 333-85545)).
10.11 Employment Agreement between the Registrant and Michael J.
Hughes, dated as of August 17, 1999 (incorporated by
reference from 10.11 to the Registrant's Registration
Statement on Form S-1 (file no. 333-85545)).
10.12 Employment Agreement between the Registrant and John G.
Henson, Jr., dated as of August 17, 1999 (incorporated by
reference from Exhibit 10.12 to the Registrant's
Registration Statement on Form S-1 (file no. 333-85545)).
10.13 Series A Convertible Preferred Stock Purchase Agreement,
dated as of October 24, 1997, between the Registrant and the
"Purchaser" parties thereto (incorporated by reference from
Exhibit 10.13 to the Registrant's Registration Statement on
Form S-1 (file no. 333-85545)).
10.14 Series B Convertible Preferred Stock Purchase Agreement,
dated as of August 26, 1998, between the Registrant and the
"Purchaser" parties thereto (incorporated by reference from
Exhibit 10.14 to the Registrant's Registration Statement on
Form S-1 (file no. 333-85545)).
10.15 Series C Convertible Purchase Agreement, dated as of July
12, 1999, between the Registrant and the "Purchaser" parties
thereto (incorporated by reference from Exhibit 10.15 to the
Registrant's Registration Statement on Form S-1 (file no.
333-85545)).
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 (incorporated by reference from Exhibit 10.16 to the
Registrant's Registration Statement on Form S-1 (file no.
333-85545)).
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 (incorporated by reference from Exhibit
10.17 to the Registrant's Registration Statement on Form S-1
(file no. 333-85545)).
10.18 Shareholders Agreement, dated as of March 28, 1998, relating
to VIP Calling (Hong Kong) Limited (incorporated by
reference from Exhibit 10.18 to the Registrant's
Registration Statement on Form S-1 (file no. 333-85545)).
10.19 Amendment No. 1 to the Shareholders Agreement, dated as of
March 28, 1998, relating to VIP Calling (Hong Kong) Limited
(incorporated by reference from Exhibit 10.19 to the
Registrant's Registration Statement on Form S-1 (file no.
333-85545)).
10.20 Amendment No. 2 to the Shareholders Agreement, dated as of
March 28, 1998, relating to VIP Calling (Hong Kong) Limited
(incorporated by reference from Exhibit 10.20 to the
Registrant's Registration Statement on Form S-1 (file no.
333-85545)).
10.21 Loan and Security Agreement between the Registrant and
Silicon Valley Bank, dated as of June 18, 1999 (incorporated
by reference from Exhibit 10.21 to the Registrant's
Registration Statement on Form S-1 (file no. 333-85545)).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
10.22 Stock Restriction Agreement, dated as of August 26, 1998,
between the Registrant and Ofer Gneezy and Gordon VanderBrug
(incorporated by reference from Exhibit 10.22 to the
Registrant's Registration Statement on Form S-1 (file no.
333-85545)).
10.23 Alliance Agreement, dated January 4, 1999, between the
Registrant and Cisco Systems, Inc. (incorporated by
reference from Exhibit 10.23 to the Registrant's
Registration Statement on Form S-1 (file no. 33-85545)).
10.24 Memorandum of Agreement, dated August 16, 1999, between the
Registrant and NetSpeak Corporation (incorporated by
reference from Exhibit 10.24 to the Registrant's
Registration Statement on Form S-1 (file no. 333-85545)).
10.25 Strategic Partner Agreement between NetSpeak Corporation and
the Registrant, dated as of September 15, 1999 (incorporated
by reference from Exhibit 10.25 to the Registrant's
Registration Statement on Form S-1 (file no. 333-85545)).
10.26** 1999 Employee Stock Purchase Plan of the Registrant, as
amended.
10.27** Lease between the Registrant and NWT Partners, Ltd. with
respect to property located at 100 N. Biscayne Boulevard,
Miami, Florida.
10.28** Lease between the Registrant and Roger P. Nordblom and
Peter C. Nordblom, as Trustees of N.W. Building 1 Associates
under Declaration of Trust dated November 11, 1984 and filed
with the Middlesex South Registry District of the Land Court
as Document Number 674807 with respect to property located
at 10 Second Avenue, Burlington, Massachusetts.
10.29* Employment Agreement between the Registrant and Charles
Giambalvo, dated as of February 8, 2000.
10.30** Supply Contract, dated as of December 30, 1999, between the
Registrant and Belle Systems A/S.
21.1 Subsidiaries of the Registrant (incorporated by reference
from Exhibit Subsidiaries of the Registrant to the
Registrant's Registration Statement on Form S-1 (file no.
333-85545)).
23.1 Consent of Arthur Andersen LLP.
23.2* Consent of Bingham Dana LLP, counsel to the Registrant
(included in Exhibit 5.1).
23.3* Consent of Swindler Berlin Sheref Friedman, LLP.
24.1 Power of Attorney (included in signature page to
Registration Statement).
25.1* Form of T-1 Statement of Trustee Eligibility.
27.1** Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
(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.
II-5
<PAGE>
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 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-6
<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 Amendment
No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Burlington, Commonwealth
of Massachusetts, on this 22 day of February, 2000.
<TABLE>
<S> <C> <C>
iBASIS, INC.
By: /s/ OFER GNEEZY*
-----------------------------------------
Ofer Gneezy
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Ofer Gneezy,
Gordon J. VanderBrug 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,
this Amendment No. 1 to the Registration Statement, including post-effective
amendments, 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 Amendment
No. 1 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ OFER GNEEZY* President, Chief Executive
-------------------------------------- Officer and Director February 22, 2000
Ofer Gneezy (Principal Executive Officer)
Vice President, Finance and
/s/ MICHAEL J. HUGHES Chief Financial Officer
-------------------------------------- (Principal Financial and February 22, 2000
Michael J. Hughes Accounting Officer)
/s/ GORDON J. VANDERBRUG* Executive Vice President and
-------------------------------------- Director February 22, 2000
Gordon J. VanderBrug
/s/ ROBERT MAGINN Director
-------------------------------------- February 22, 2000
Robert Maginn
/s/ CHARLES S. HOUSER Director
-------------------------------------- February 22, 2000
Charles S. Houser
/s/ IZHAR ARMONY* Director
-------------------------------------- February 22, 2000
Izhar Armony
</TABLE>
II-7
<PAGE>
<TABLE>
<C> <S> <C>
/s/ JOHN JARVE* Director
-------------------------------------- February 22, 2000
John Jarve
/s/ CHARLES N. CORFIELD* Director
-------------------------------------- February 22, 2000
Charles N. Corfield
/s/ CHARLES M. SKIBO* Director
-------------------------------------- February 22, 2000
Charles M. Skibo
Director
-------------------------------------- February , 2000
Carl Redfield
*/s/ MICHAEL J. HUGHES
--------------------------------------
Michael J. Hughes
Attorney-in-fact
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1** Amended and Restated Certificate of Incorporation of the
Registrant.
3.2** Amended and Restated By-Laws of the Registrant.
4.1 Specimen Certificate for shares of the Registrant's common
stock (incorporated by reference from Exhibit 4.1 to the
Registrant's Registration Statement on Form S-1 (file no.
333-85545)).
4.2 Form of Indenture.
4.3* Form of % Convertible Subordinated Note due 2005.
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. Nordblum and Peter C. Nordblum as
Trustees of Northwest Associates under Declaration of Trust
dated December 9, 1971 with respect to property located at
20 Second Avenue, Burlington, Massachusetts (incorporated by
reference from Exhibit 10.1 to the Registrant's Registration
Statement on Form S-1 (file no. 333-85545)).
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 (incorporated
by reference from Exhibit 10.2 to the Registrant's
Registration Statement on Form S-1 (file no. 333-85545)).
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 (incorporated by
reference from Exhibit 10.3 to the Registrant's Registration
Statement on Form S-1 (file no. 333-85545)).
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
(incorporated by reference from Exhibit 10.4 to the
Registrant's Registration Statement on Form S-1 (file no.
333-85545)).
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. (incorporated by reference from
Exhibit 10.5 to the Registrant's Registration Statement on
Form S-1 (file no. 333-85545)).
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. (incorporated by reference from
Exhibit 10.6 to the Registrant's Registration Statement on
Form S-1 (file no. 333-85545)).
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 (incorporated by
reference from Exhibit 10.7 to the Registrant's Registration
Statement on Form S-1 (file no. 333-85545)).
10.8 1997 Stock Incentive Plan of the Registrant (incorporated by
reference from Exhibit 10.8 to the Registrant's Registration
Statement on Form S-1 (file no. 333-85545)).
10.9 Employment Agreement between the Registrant and Ofer Gneezy,
dated as of August 11, 1997 (incorporated by reference from
Exhibit 10.9 to the Registrant's Registration Statement on
Form S-1 (file no. 333-85545)).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
10.10 Employment Agreement between the Registrant and Gordon J.
VanderBrug, dated as of August 11, 1997. (incorporated by
reference from Exhibit 10.10 to the Registrant's
Registration Statement on Form S-1 (file no. 333-85545)).
10.11 Employment Agreement between the Registrant and Michael J.
Hughes, dated as of August 17, 1999 (incorporated by
reference from 10.11 to the Registrant's Registration
Statement on Form S-1 (file no. 333-85545)).
10.12 Employment Agreement between the Registrant and John G.
Henson, Jr., dated as of August 17, 1999 (incorporated by
reference from Exhibit 10.12 to the Registrant's
Registration Statement on Form S-1 (file no. 333-85545)).
10.13 Series A Convertible Preferred Stock Purchase Agreement,
dated as of October 24, 1997, between the Registrant and the
"Purchaser" parties thereto (incorporated by reference from
Exhibit 10.13 to the Registrant's Registration Statement on
Form S-1 (file no. 333-85545)).
10.14 Series B Convertible Preferred Stock Purchase Agreement,
dated as of August 26, 1998, between the Registrant and the
"Purchaser" parties thereto (incorporated by reference from
Exhibit 10.14 to the Registrant's Registration Statement on
Form S-1 (file no. 333-85545)).
10.15 Series C Convertible Purchase Agreement, dated as of July
12, 1999, between the Registrant and the "Purchaser" parties
thereto (incorporated by reference from Exhibit 10.15 to the
Registrant's Registration Statement on Form S-1 (file no.
333-85545)).
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 (incorporated by reference from Exhibit 10.16 to the
Registrant's Registration Statement on Form S-1 (file no.
333-85545)).
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 (incorporated by reference from Exhibit
10.17 to the Registrant's Registration Statement on Form S-1
(file no. 333-85545)).
10.18 Shareholders Agreement, dated as of March 28, 1998, relating
to VIP Calling (Hong Kong) Limited (incorporated by
reference from Exhibit 10.18 to the Registrant's
Registration Statement on Form S-1 (file no. 333-85545)).
10.19 Amendment No. 1 to the Shareholders Agreement, dated as of
March 28, 1998, relating to VIP Calling (Hong Kong) Limited
(incorporated by reference from Exhibit 10.19 to the
Registrant's Registration Statement on Form S-1 (file no.
333-85545)).
10.20 Amendment No. 2 to the Shareholders Agreement, dated as of
March 28, 1998, relating to VIP Calling (Hong Kong) Limited
(incorporated by reference from Exhibit 10.20 to the
Registrant's Registration Statement on Form S-1 (file no.
333-85545)).
10.21 Loan and Security Agreement between the Registrant and
Silicon Valley Bank, dated as of June 18, 1999 (incorporated
by reference from Exhibit 10.21 to the Registrant's
Registration Statement on Form S-1 (file no. 333-85545)).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
10.22 Stock Restriction Agreement, dated as of August 26, 1998,
between the Registrant and Ofer Gneezy and Gordon VanderBrug
(incorporated by reference from Exhibit 10.22 to the
Registrant's Registration Statement on Form S-1 (file no.
333-85545)).
10.23 Alliance Agreement, dated January 4, 1999, between the
Registrant and Cisco Systems, Inc. (incorporated by
reference from Exhibit 10.23 to the Registrant's
Registration Statement on Form S-1 (file no. 33-85545)).
10.24 Memorandum of Agreement, dated August 16, 1999, between the
Registrant and NetSpeak Corporation (incorporated by
reference from Exhibit 10.24 to the Registrant's
Registration Statement on Form S-1 (file no. 333-85545)).
10.25 Strategic Partner Agreement between NetSpeak Corporation and
the Registrant, dated as of September 15, 1999 (incorporated
by reference from Exhibit 10.25 to the Registrant's
Registration Statement on Form S-1 (file no. 333-85545)).
10.26** 1999 Employee Stock Purchase Plan of the Registrant, as
amended.
10.27** Lease between the Registrant and NWT Partners, Ltd. with
respect to property located at 100 N. Biscayne Boulevard,
Miami, Florida.
10.28** Lease dated October 22, 1999 between the Registrant and
Roger P. Nordblom and Peter C. Nordblom, as Trustees of
N.W. Building 1 Associates under Declaration of Trust dated
November 11, 1984 and filed with the Middlesex South
Registry District of the Land Court as Document
Number 674807 with respect to property located at 10 Second
Avenue, Burlington, Massachusetts.
10.29* Employment Agreement between the Registrant and Charles
Giambalvo, dated as of February 8, 2000.
10.30** Supply Contract, dated as of December 30, 1999, between the
Registrant and Belle Systems A/S.
21.1 Subsidiaries of the Registrant (incorporated by reference
from Exhibit Subsidiaries of the Registrant to the
Registrant's Registration Statement on Form S-1 (file no.
333-85545)).
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 Swindler Berlin Sheref Friedman, LLP.
24.1 Power of Attorney (included in signature page to
Registration Statement).
25.1* Form of T-1 Statement of Trustee Eligibility.
27.1** Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
<PAGE>
Underwriting Agreement
______________, 2000
FleetBoston Robertson Stephens Inc.
Chase Securities, Inc.
U.S. Bancorp Piper Jaffray Inc.
Dain Rauscher Incorporated
As Representatives of the several Underwriters
c/o FleetBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, CA 94104
Ladies and Gentlemen:
INTRODUCTORY. iBasis, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to the several underwriters named in SCHEDULE A (the
"Underwriters") $150,000,000 aggregate principal amount of its ___% Convertible
Subordinated Notes due 2005 (the "Firm Notes"). In addition, the Company has
granted to the Underwriters an option to purchase up to an additional
$22,500,000 aggregate principal amount of its ___% Convertible Subordinated
Notes due 2005 (the "Option Notes"), as provided in Section 2. The Firm Notes
and, if and to the extent such option is exercised, the Option Notes, are
collectively called the "Notes." The Notes are to be issued under an Indenture
dated as of March ___, 2000 (the "Indenture"), by and between the Company and
The Bank of New York, as trustee (the "Trustee"), pursuant to which the Notes
will be issued. The Notes will be convertible at the option of the holders into
the Company's Common Stock, par value $0.01 per share (the "Common Stock"). The
Notes and the shares of Common Stock into which the Notes are convertible are
referred to herein as the "Securities." FleetBoston Robertson Stephens Inc.,
Chase Securities, Inc., U.S. Bancorp Piper Jaffray Inc. and Dain Rauscher
Incorporated have agreed to act as representatives of the several Underwriters
(in such capacity, the "Representatives,") in connection with the offering and
sale of the Notes.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
333-96533), which contains a form of prospectus to be used in connection with
the public offering and sale of the Notes. Such registration statement, as
amended, including the financial statements, exhibits and schedules thereto, in
the form in which it was declared effective by the Commission under the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder (collectively, the "Securities Act"), including any information
deemed to be a part thereof at the time of effectiveness pursuant to Rule 430A
or Rule 434 under the Securities Act, is called the "Registration Statement."
Any registration statement filed by the Company pursuant to Rule 462(b) under
the Securities Act is called the "Rule 462(b) Registration Statement," and from
and after the date and time of filing of the Rule 462(b) Registration Statement
the term "Registration Statement" shall include the Rule 462(b) Registration
Statement. Such prospectus, in the form
<PAGE>
first used by the Underwriter after effectiveness of the Registration
Statement to confirm sales of the Notes, is called the "Prospectus," PROVIDED,
HOWEVER, if the Company has, with the consent of FleetBoston Robertson Stephens
Inc., elected to rely upon Rule 434 under the Securities Act, the term
"Prospectus" shall mean the Company's prospectus subject to completion (each, a
"preliminary prospectus") dated February ___, 2000 (such preliminary prospectus
is called the "Rule 434 preliminary prospectus"), together with the applicable
term sheet (the "Term Sheet") prepared and filed by the Company with, the
Commission under Rules 434 and 424(b) under the Securities Act and all
references in this Agreement to the date of the Prospectus shall mean the date
of the Term Sheet. All references in this Agreement to the Registration
Statement, the Rule 462(b) Registration Statement, a preliminary prospectus, the
Prospectus or the Term Sheet, or any amendments or supplements to any of the
foregoing, shall include any copy thereof filed with the Commission pursuant to
its Electronic Data Gathering, Analysis and Retrieval System ("EDGAR").
The Company hereby confirms its agreement with the Underwriters as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents, warrants and covenants to each Underwriter
as follows:
(a) COMPLIANCE WITH REGISTRATION REQUIREMENTS. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has complied
with all requests of the Commission for additional or supplemental information.
No, stop order suspending the effectiveness of the Registration Statement or any
Rule 462(b) Registration Statement is in effect and no proceeding for such
purpose have been instituted or are pending or, to the knowledge of the Company,
are contemplated or threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed complied in
all material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by Regulation S-T
under the Securities Act), was identical to the copy thereof delivered to the
Underwriters for use in connection with the offer and sale of the Notes. Each of
the Registration Statement, any Rule 462(b) Registration Statement and any
post-effective amendment thereto, at the time it became effective and at all
subsequent times, complied in all material respects with the Securities Act and
did not at the time the Registration Statement was declared effective, and will
not contain on the Closing Date and on any Second Closing date, any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein in the light of the
circumstances under which they were made, not misleading. The Prospectus, as
amended or supplemented, as of its date and at all subsequent times prior to and
including the Closing Date and any Second Closing Date, did not and will not on
the Closing Date or any Second Closing Date contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The representations and warranties set forth in the two
immediately preceding sentences do not apply to statements in or omissions from
the Registration Statement, any Rule 462(b) Registration Statement, or any
post-effective amendment thereto, or the Prospectus, or
-2-
<PAGE>
any amendments or supplements thereto, made in reliance upon and in conformity
with information relating to any Underwriter furnished to the Company in writing
by the Representative expressly for use therein. There are no contracts or other
documents required to be described in the Prospectus or to be filed as exhibits
to the Registration Statement which have not been described or filed as
required.
(b) OFFERING MATERIALS FURNISHED TO UNDERWRITERS. The Company has
delivered to the Representatives three complete conformed copies of the
Registration Statement and of each consent and certificate of experts filed as a
part thereof, and conformed copies of the Registration Statement (without
exhibits) and preliminary prospectuses and the Prospectus, as amended or
supplemented, in such quantities and at such places as the Representatives have
reasonably requested for each of the Underwriters.
(c) DISTRIBUTION OF OFFERING MATERIAL BY THE COMPANY. The Company has
not distributed and will not distribute, prior to the later of the Second
Closing Date (as defined below), if any, and the completion of the Underwriters'
distribution of the Notes, any offering material in connection with the offering
and sale of the Notes other than a preliminary prospectus, the Prospectus or the
Registration Statement.
(d) THE UNDERWRITING AGREEMENT. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement of,
the Company, enforceable against the Company in accordance with its terms,
except as rights to indemnification and contribution hereunder may be limited by
applicable law and public policy and except as the enforcement hereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting the rights and remedies of creditors or by general
equitable principles.
(e) THE INDENTURE. The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under the Indenture.
The Indenture has been duly and validly authorized by the Company and, when duly
executed and delivered by the Company, and assuming the due authorization,
execution and delivery by the Trustee, will be the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms except as the enforceability thereof may be limited by the effect of
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights and remedies of creditors or by general
equitable principles. The Indenture meets the requirements for qualification
under the Trust Indenture Act of 1939, as amended (the "TIA") and at the First
Closing Date, the Indenture will have been qualified under the TIA. The
Indenture conforms in all material respects to the description thereof contained
in the Prospectus.
(f) AUTHORIZATION OF THE NOTES. The Company has all requisite corporate
power and authority to execute, deliver and perform its obligations under the
Notes. The Notes, when issued, will be in the form contemplated by the
Indenture. The Notes to be purchased by the Underwriters from the Company have
been duly authorized for issuance and sale pursuant to this Agreement and, when
issued and authenticated in accordance with the terms of the Indenture and
delivered to and paid for by the Underwriters in accordance with the terms of
this Agreement, will be the legal, valid and binding obligations of the Company,
enforceable against the
-3-
<PAGE>
Company in accordance with their terms and entitled to the benefits of the
Indenture except as the enforceability thereof may be limited by the effect of
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights and remedies of creditors or by general
equitable principles. The stockholders of the Company have no preemptive or
similar rights with respect to the Notes or the Common Stock issuable upon
conversion of the Notes.
(g) AUTHORIZATION OF THE SHARES OF COMMON STOCK TO BE ISSUED UPON
CONVERSION OF THE NOTES. The Notes are convertible into shares of Common Stock
in accordance with the terms of the Indenture; the shares of Common Stock
initially issuable upon conversion of the Notes have been duly authorized and
reserved for issuance upon such conversion and, when issued upon such
conversion, will be validly issued, fully paid and nonassessable and will
conform to the description thereof contained in the Prospectus.
(h) No APPLICABLE REGISTRATION OR OTHER SIMILAR RIGHTS. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by this Agreement, except for such rights as have been
duly waived or have lapsed in accordance with their terms.
(i) NO MATERIAL ADVERSE CHANGE. Subsequent to the respective dates as
of which information is given in the Prospectus: (i) there has been no material
adverse change, or any development that could reasonably be expected to result
in a material adverse change, in the condition, financial or otherwise, or in
the earnings, business, operations or prospects, whether or not arising from
transactions in the ordinary course of business, of the Company and its
subsidiaries, considered as one entity (any such change or effect, where the
context so requires, is called a "Material Adverse Change" or a "Material
Adverse Effect"); (ii) the Company and its subsidiaries, considered as one
entity, have not incurred any material liability or obligation, indirect, direct
or contingent, not in the ordinary course of business nor entered into any
material transaction or agreement not in the ordinary course of business; and
(iii) there has been no dividend or distribution of any kind declared, paid or
made by the Company or, except for dividends paid to the Company or other
subsidiaries, any of its subsidiaries on any class of capital stock or
repurchase or redemption by the Company or any of its subsidiaries of any class
of capital stock.
(j) INDEPENDENT ACCOUNTANTS. Arthur Andersen LLP, who have expressed
their opinion with respect to the financial statements (which term as used in
this Agreement includes the related notes thereto) and supporting schedules
filed with the Commission as a part of the Registration Statement and included
in the Prospectus, are independent public or certified public accountants as
required by the Securities Act.
(k) PREPARATION OF THE FINANCIAL STATEMENTS. The financial statements
filed with the Commission as a part of the Registration Statement and included
in the Prospectus present fairly the consolidated financial position of the
Company and its subsidiaries as of and at the dates indicated and the results of
their operations and cash flows for the periods specified. The supporting
schedules included in the Registration Statement present fairly the information
required to be stated therein. Such financial statements and supporting
schedules have been prepared in conformity with generally accepted accounting
principles as applied in the United
-4-
<PAGE>
States, ("U.S. GAAP") applied on a consistent basis throughout the periods
involved, except as may be expressly stated in the related notes thereto. No
other financial statements or supporting schedules are required to be included
in the Registration Statement. The financial data set forth in the Prospectus
under the captions "Summary-Summary Consolidated Financial Data," "Selected
Consolidated Financial Data" and "Capitalization" fairly present the information
set forth therein on a basis consistent with that of the audited financial
statements contained in the Registration Statement other than the absence of
footnotes. The pro forma and pro forma as adjusted consolidated balance sheet
data of the Company and its subsidiaries and the related notes thereto included
under the caption "Summary--Summary Consolidated Financial Data," "Selected
Consolidated Financial Data" and elsewhere in the Prospectus and in the
Registration Statement present fairly the information contained therein, have
been prepared in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements and have been properly presented on
the bases described therein, and the assumptions used in the preparation thereof
are reasonable and the adjustments used therein are appropriate to give effect
to the transactions and circumstances referred to therein. No other pro forma
financial information is required to be included in the Registration Statement
pursuant to Regulation S-X.
(l) COMPANY'S ACCOUNTING SYSTEM. The Company and each of its
subsidiaries maintains a system of accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions recorded as
necessary to permit preparation of financial statements in conformity with U.S.
GAAP and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(m) SUBSIDIARIES OF THE COMPANY. The Company does not own or control,
directly or indirectly, any corporation, association or other entity other than
as listed in Exhibit 21.1 to the Registration Statement. The subsidiaries
considered in the aggregate as a single subsidiary, would not constitute a
"significant subsidiary," as defined in Rule 1-02(v) of Regulation S-X under the
Securities Act.
(n) INCORPORATION AND GOOD STANDING OF THE COMPANY AND ITS
SUBSIDIARIES. Each of the Company and its subsidiaries has been duly organized
and is validly existing as a corporation or limited liability company, as the
case may be, in good standing under the laws of the jurisdiction in which it is
organized with full corporate power and authority to own its properties and
conduct its business as described in the Prospectus, and is duly qualified to do
business as a foreign corporation and is in good standing under the laws of each
jurisdiction which requires such qualification, except where the failure to be
so qualified will not have a Material Adverse Change.
(o) CAPITALIZATION AND OTHER CAPITAL STOCK. The authorized, issued and
outstanding capital stock of the Company, upon consummation of the Closing, will
be as set forth in the Prospectus under the caption "Capitalization" (other than
for subsequent issuances, if any, pursuant to employee benefit plans described
in the Prospectus or upon exercise of outstanding options or warrants described
in the Prospectus), assuming no issuance of shares of Common
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Stock in a concurrent public offering by the Company. The Notes and the Common
Stock conform in all material respects to the description thereof contained in
the Prospectus. All of the issued and outstanding Common Stock has been duly
authorized and validly issued, fully paid and nonassessable and will have been
issued in compliance with federal and state securities laws. None of the
outstanding Common Stock has been issued in violation of any preemptive rights,
rights of first refusal or other similar rights to subscribe for or purchase
securities of the Company. There are no authorized or outstanding options,
warrants, preemptive rights, rights of first refusal or other rights to purchase
or equity or debt securities convertible into or exchangeable or exercisable
for, any capital stock of the Company or any of its subsidiaries other than
those accurately and completely described in the Prospectus. The description of
the Company's stock option, stock bonus and other stock plans or arrangements,
and the options or other rights granted thereunder, set forth in the Prospectus
accurately and completely presents the information required to be shown with
respect to such plans, arrangements, options and rights.
(p) CAPITALIZATION OF THE SUBSIDIARIES. All of the outstanding shares
of capital stock of each subsidiary have been duly and validly authorized and
issued and are fully paid and nonassessable, and, except as otherwise disclosed
in the Prospectus, all outstanding shares of capital stock of the subsidiaries
are owned by the Company, either directly or through its wholly-owned
subsidiaries, free and clear of any security interests, claims, liens or
encumbrances.
(q) NO PROHIBITION ON SUBSIDIARIES FROM PAYING DIVIDENDS OR MAKING
OTHER DISTRIBUTIONS. No subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from making
any other distribution on such subsidiary's capital stock, from repaying to the
Company any loans or advances to such subsidiary from the Company or from
transferring any of such subsidiary's property or assets to the Company or any
other subsidiary of the Company, except as described in or contemplated by the
Prospectus, restrictions under securities laws, and except as such restrictions
would not have a Material Adverse Effect.
(r) STOCK EXCHANGE LISTING. The shares of common stock issuable upon
conversion of the Notes have been registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and are
approved for quotation on the Nasdaq National Market, subject only to official
notice of issuance. The Company has taken no action designed to, or likely to
have the effect of, terminating the registration of the Common Stock under the
Exchange Act or delisting the Common Stock from the Nasdaq National Market, nor
has the Company received any notification from the Commission or the National
Association of Securities Dealers, LLC (the "NASD") is contemplating terminating
such registration or listing.
(s) NO CONSENTS, APPROVALS OR AUTHORIZATIONS REQUIRED. No consent,
approval, authorization, filing with or order of any court or governmental
agency or regulatory body is required in connection with the transactions
contemplated herein, except such as have been obtained or made under the
Securities Act and such as may be required (i) under the blue sky laws of any
jurisdiction in connection with the purchase and distribution of the Notes by
the Underwriters in the manner contemplated here and in the Prospectus, (ii) by
the NASD and (iii) by the federal and provincial law of Canada.
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(t) NON-CONTRAVENTION OF EXISTING INSTRUMENTS AGREEMENTS. Neither the
issuance and sale of the Notes, the issuance of the Common Stock upon conversion
of the Notes, nor the consummation any other of the transactions contemplated
herein or in the Indenture, nor the fulfillment of the terms hereof or thereof
will conflict with, result in a breach or Violation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, (i) the charter or by-laws of the Company or any of
its subsidiaries, (ii) the terms of any indenture, contract, lease, mortgage,
deed of trust, note agreement, loan agreement or other agreement, obligation,
condition, covenant or instrument to which the Company or any of its
subsidiaries is a party or bound or to which its or their property is subject or
(iii) any statute, law, rule, regulation, judgment, order or decree applicable
to the Company or any of its subsidiaries of any court, regulatory body,
administrative agency, governmental body, arbitrator or other authority having
jurisdiction over the Company or any of its subsidiaries or any of its or their
respective properties.
(u) NO DEFAULTS OR VIOLATIONS. Neither the Company nor any subsidiary
is in violation or default of (i) any provision of its charter or by-laws, (ii)
the terms of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition, covenant or
instrument to which it is a party or bound or to which its property is subject
or (iii) any statute, law, rule, regulation, judgment, order or decree of any
court; regulatory body, administrative agency, governmental body, arbitrator or
other authority having jurisdiction over the Company or such subsidiary or any
of their respective properties, as applicable, except any such violation or
default which would not, singly or in the aggregate, result in a Material
Adverse Change or except as otherwise disclosed in the Prospectus.
(v) NO ACTIONS, SUITS OR PROCEEDINGS. No action, suit or proceeding by
or before any court or governmental agency, authority or body or any arbitrator
involving the Company or any of its subsidiaries or its or their respective
properties is pending or, to the knowledge of the Company, threatened that (i)
could reasonably be expected to have a Material Adverse Effect on the
performance of this Agreement or the consummation of any of the transactions
contemplated hereby or (ii) could reasonably be expected to result in a Material
Adverse Effect.
(w) ALL NECESSARY PERMITS, ETC. The Company and each subsidiary possess
such valid and current certificates, authorizations or permits issued by the
appropriate federal, state, local or foreign regulatory agencies or bodies
necessary to conduct their respective businesses, and neither the Company nor
any subsidiary has received any notice of proceedings relating to the revocation
or modification of, or non-compliance with, any such certificate, authorization
or permit which singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, could reasonably be expected to result in a
Material Adverse Change.
(x) TITLE TO PROPERTIES. The Company and each of its subsidiaries has
good and marketable title to all the properties and assets reflected as owned in
the financial statements referred to in Section 1(i) above (or elsewhere in the
Prospectus), in each case free and clear of any security interests, mortgages,
liens, encumbrances, equities, claims and other defects, except such as do not
materially and adversely affect the value of such property and do not materially
interfere with the use made or proposed to be made of such property by the
Company or such subsidiary. The real property, improvements, equipment and
personal property held under lease
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by the Company or any subsidiary are held under leases, with such exceptions, if
any, as are not material and do not materially interfere with the use made or
proposed to be made of such real property, improvements, equipment or personal
property by the Company or such subsidiary.
(y) TAX LAW COMPLIANCE. The Company and its consolidated subsidiaries
have filed all necessary federal, state, local and foreign income and franchise
tax returns or have properly requested extensions thereto and have paid all
taxes required to be paid by any of them and, if due and payable, any related or
similar assessment, fine or penalty levied against any of them except as may be
being contested in good faith and by appropriate proceedings. The Company has
made adequate charges, accruals and reserves in the applicable financial
statements referred to in Section 1(i) above in respect of all federal, state,
local and foreign income and franchise taxes for all periods as to which the tax
liability of the Company of its consolidated subsidiaries has not been finally
determined. The Company is not aware of any tax deficiency that has been or
might be asserted or threatened against the Company that could result in a
Material Adverse Change.
(z) INTELLECTUAL PROPERTY RIGHTS. Each of the Company and its
subsidiaries owns or possesses legally enforceable rights to use all patents,
patent rights or licenses, inventions, collaborative research agreements, trade
secrets, know-how, trademarks, service marks, trade names and copyrights which
are necessary to conduct its businesses as described in the Registration
Statement and Prospectus; the expiration of any patents, patent rights, trade
secrets trademarks, service marks, trade names or copyrights would not result in
a Material Adverse Change that is not otherwise accurately and completely
described in the Prospectus; the Company has not received any notice of, and has
no knowledge of any infringement of or conflict with asserted rights of the
Company by others with respect to any patent, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade names or copyrights; and the
Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of others with respect to any
patent, patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names or copyrights which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, could reasonably be
expected to result in a Material Adverse Change. There is no claim being made
against the Company regarding patents, patent trademarks, service marks, trade
names or copyright that could reasonably be expected to result in a Material
Adverse Effect. The Company and its subsidiaries do not in the conduct of their
business as now conducted and as proposed to be conducted as described in the
Prospectus infringe or conflict with any right or patent of any third party, or
any discovery, invention, product or process which is the subject of a patent
application filed by any third party, known to the Company or any of its
subsidiaries, which such infringement or conflict could reasonably be expected
to result in a Material Adverse Change.
(aa) YEAR 2000 PREPAREDNESS. There are no issues related to the
Company's, or any of its subsidiaries', preparedness for the Year 2000 that
(i) are of a character required to be described or referred to in the
Registration Statement or Prospectus by the Securities Act which have not
been accurately and completely described in the Registration Statement or
Prospectus or (ii) could reasonably be expected to result in any Material
Adverse Change or that might materially affect the properties, assets or
rights of the Company or any of its Subsidiaries. All internal computer
systems and each Constituent Component (as defined below) of those systems
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and all computer-related products and each Constituent Component of those
products of the Company and each of its subsidiaries fully comply with Year 2000
Qualification Requirements. For purposes of this Agreement, "Year 2000
Qualifications Requirements" means that the internal computer systems and each
Constituent Component (as defined below) of those systems and all
computer-related products and each Constituent Component (as defined below) of
those products of the Company and each of its Subsidiaries (i) have been
reviewed to confirm that they store, process (including sorting and performing
mathematical operations, calculations and computations), input and output data
containing date and information correctly regardless of whether the date
contains dates and times before, on or after January 1, 2000, (ii) have been
designated to ensure date and time entry recognition and calculations, and date
data interface values that reflect the century, (iii) accurately manage and
manipulate data involving dates and times, including single century formulas and
multi-century formulas, and will not cause an abnormal ending scenario within
the application or generate incorrect values or invalid results involving such
dates, (iv) accurately process any date rollover, and (v) accept and respond to
two-digit year date input in a manner that resolves any ambiguities as to the
century. For purposes of this Agreement, "Constituent Component" means all
software (including operating systems, programs, packages and utilities),
firmware, hardware, networking components, and peripherals provided as part of
the configuration. The Company has inquired of material vendors as to their
preparedness for the Year 2000 and has disclosed in the Registration Statement
or Prospectus any issues relating to such material vendors and known to the
Company that could reasonably be expected to result in any Material Adverse
Change.
(bb) NO TRANSFER TAXES OR OTHER FEES. There are no transfer taxes or
other similar fees or charges under federal, state, local or foreign laws
required to be paid in connection with the execution and delivery of this
Agreement or the issuance and sale by the Company of the Notes.
(cc) COMPANY NOT AN "INVESTMENT COMPANY". The Company has been advised
of the rules and requirements under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Company is not, and after receipt of
payment for the Notes will not be, an "investment company" or an entity
"controlled" by an "investment company" within the meaning of the Investment
Company Act and will conduct its business in a manner so that it will not become
subject to the Investment Company Act.
(dd) INSURANCE. Except as otherwise accurately and completely described
in the Prospectus, each of the Company and its subsidiaries is insured by
recognized, financially sound and reputable institutions with policies in such
amounts and with such deductibles and covering such risks as are generally
deemed adequate and customary for their businesses including, but not limited
to, policies covering real and personal property owned or leased by the Company
and its subsidiaries against theft, damage, destruction, acts of vandalism and
earthquakes, general liability and Directors and Officers liability. The Company
has no reason to believe that it or any subsidiary will not be able (i) to renew
its existing insurance coverage as and when such policies expire or (ii) to
obtain comparable coverage from similar institutions as may be necessary or
appropriate to conduct its business as now conducted and at a cost that would
not result in a Material Adverse Change. Neither of the Company nor any
subsidiary has been denied any insurance coverage which it has sought or for
which it has applied.
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(ee) LABOR MATTERS. To the Company's knowledge, no labor disturbance by
the employees of the Company or any of its subsidiaries exists or is imminent;
and the Company is not aware of any existing or imminent labor disturbance by
the employees of any of its principal suppliers that could reasonably be
expected to result in a Material Adverse Change.
(ff) NO PRICE STABILIZATION OR MANIPULATION. The Company and, to its
knowledge, each of its directors and officers, has not taken and will not take,
directly or indirectly, any action designed to or that could reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Notes.
(gg) LOCK-UP AGREEMENTS. Each officer and director of the company and
each beneficial owner of one or more percent of the outstanding issued share
capital of the Company (or option to acquire the same) has signed an agreement
in the form attached hereto as EXHIBIT A (the "Lock-up Agreements"). The Company
has provided to counsel for the Underwriters a complete and accurate list of all
securityholders of the Company and the number and type of securities held by
each securityholder. The Company has provided to counsel for the Underwriters
true, accurate and complete copies of all of the Lock-up Agreements presently in
effect or effected hereby. The Company hereby represents and warrants that it
will not release any of its officers, directors or other stockholders from any
Lock-up Agreements currently existing or hereafter effected without the prior
written consent of FleetBoston Robertson Stephens Inc.
(hh) RELATED PARTY TRANSACTIONS. There are no business relationships or
related-party transactions involving the Company or any subsidiary or any other
person required to be described in the Prospectus which have not been accurately
and completely described.
(ii) NO UNLAWFUL CONTRIBUTIONS OR OTHER PAYMENTS. Neither the Company
nor any of its subsidiaries nor, to the Company's knowledge, any employee or
agent of the Company or any subsidiary, has made any contribution or other
payment to any official of, or candidate for, any federal, state or foreign
office in violation of any law or of the character required to be disclosed in
the Prospectus.
(jj) ENVIRONMENTAL LAWS. (i) The Company is in compliance with all
rules, laws and regulations relating to the use, treatment, storage and disposal
of toxic substances and protection of health or the environment ("Environmental
Laws") which are applicable to its business, except where the failure to comply
would not result in a Material Adverse Change, (ii) the Company has received no
notice from any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus, (iii) the Company will not be required to make
future material capital expenditures to comply with Environmental Laws and (iv)
no property which is owned, leased or occupied by the Company has been
designated as a Superfund site pursuant to the Comprehensive Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601, ET
SEQ.), or otherwise designated as a contaminated site under applicable state or
local law.
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(kk) ERISA COMPLIANCE. The Company and its subsidiaries and any
"employee benefit plan" (as defined under the Employee Retirement Income
Security Act of 1974, as amended, and the regulations and published
interpretations thereunder (collectively, "ERISA")) established or maintained by
the Company, its subsidiaries or their "ERISA Affiliates" (as defined below) are
in compliance in all material respects with ERISA. "ERISA Affiliate" means, with
respect to the Company or a subsidiary, any member of any group of organizations
described in Sections 414(b), (c), (m) or (o) of the Internal Revenue Code of
1986, as amended, and the regulations and published interpretations thereunder
(the "Code") of which the Company or such subsidiary is a member. No "reportable
event" (as defined under ERISA) has occurred or is reasonably expected to occur
with respect to any "employee benefit plan" established or maintained by the
Company, its subsidiaries or any of their ERISA Affiliates. No "employee benefit
plan" established or maintained by the Company, its subsidiaries or any of their
ERISA Affiliates, if such "employee benefit plan" were terminated, would have
any "amount of unfounded benefit liabilities" (as defined under ERISA). Neither
the Company, its subsidiaries nor any of their ERISA Affiliates has incurred or
reasonably expects to incur any liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any "employee benefit plan" or
(ii) Sections 412, 4971, 4975 or 4980B of the Code. Each "employee benefit plan"
established or maintained by the Company, its subsidiaries or any of their ERISA
Affiliates that is intended to be qualified under Section 401(a) of the Code is
so qualified and nothing has occurred, whether by action or failure to act,
which would cause the loss of such qualification.
(ll) EXCHANGE ACT REPORTS FILED. The Company has filed all reports
required to be filed pursuant to the Securities Act and the Exchange Act.
(mm) FEDERAL RESERVE SYSTEM COMPLIANCE. Neither the Company nor any
agent acting on its behalf has taken, and none of them will take, any action
that might cause this Agreement or the issuance or sale of the Securities to
violate Regulation G (12 C.F.R. Part 207), Regulation T (12 C.F.R. Part 220),
Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224) of the
Board of Governors of the Federal Reserve System or analogous foreign laws and
regulations.
Any certificate signed by an executive officer of the Company and
delivered to the Representative or to counsel for the Underwriters at the
closing of any sale of the Notes shall be deemed to be a representation and
warranty by the Company to each Underwriter as to the matters set forth therein.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE NOTES.
(a) THE FIRM NOTES. On the basis of the representations, warranties and
agreements herein contained, and upon the terms but subject to the conditions
herein set forth, the Company agrees to issue and sell to the Underwriters, and
each Underwriter agrees, severally and not jointly, to purchase from the
Company, at a purchase price of [97]% of the principal amount thereof (the
"Purchase Price"), the Firm Notes in the respective principal amount of Firm
Notes as hereinafter set forth. The obligation of each Underwriter to the
Company shall be to purchase from the Company that aggregate principal amount of
Firm Notes which is set forth opposite the name of such Underwriter set forth on
Schedule A.
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(b) THE FIRST CLOSING DATE. Delivery of the Firm Notes to be purchased
by the Underwriters and payment therefor shall be made by the Company and the
Representatives at 6:00 a.m. San Francisco time, at the New York, New York
offices of Bingham Dana LLP (or at such other place as may be agreed upon among
the Representatives and the Company), (i) on the third (3rd) full business day
following the first day that Notes are traded, (ii) if this Agreement is
executed and delivered after 1:30 P.M., San Francisco time, the fourth (4th)
full business day following the day that this Agreement is executed and
delivered or (iii) at such other time and date not later that seven (7) full
business days following the first day that Notes are traded as the
Representative and the Company may determine (or at such time and date to which
payment and delivery shall have been postponed pursuant to Section 8 hereof),
such time and date of payment and delivery being herein called the "Closing
Date;" PROVIDED, HOWEVER, that if the Company has not made available to the
Representatives copies of the Prospectus within the time provided in Section
4(d) hereof, the Representative may, in its sole discretion, postpone the
Closing Date until no later that two (2) full business days following delivery
of copies of the Prospectus to the Representative. The Firm Notes to be so
delivered will be made available to you at such office or such other location
including, without limitation, in New York, New York, as you may reasonably
request for checking at least one (1) full business day prior to the Closing
Date and will be in such names and denominations as you may request, such
request to be made at least two (2) full business days prior to the Closing
Date. If the Representatives so elect, delivery of the Firm Notes may be made by
credit through full fast transfer to the accounts at the Depository Trust
Company designated by the Representatives.
(c) THE OPTION NOTES; THE SECOND CLOSING DATE. In addition, on the
basis of the representations, warranties and agreements herein contained, and
upon the terms but subject to the conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase, severally and
not jointly, up to an aggregate of $22,500,000 principal amount of Option Notes
from the Company at the Purchase Price. The option granted hereunder is for use
by the Underwriters solely in covering sales of securities in excess of the
aggregate principal amount of Firm Notes. The option granted hereunder may be
exercised at any time upon notice by the Representatives to the Company, which
notice may be given at any time within 30 days from the date of this Agreement.
The time and date of delivery of the Option Notes, if subsequent to the First
Closing Date, is called the "Second Closing Date" and shall be determined by the
Representatives and shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. If any Option Notes are
to be purchased, each Underwriter agrees, severally and not jointly, to purchase
the aggregate principal amount of Option Notes that bears the same proportion to
the aggregate principal amount of Option Notes to be purchased as the aggregate
principal amount of Firm Notes set forth on SCHEDULE A opposite the name of such
Underwriter bears to the total aggregate principal amount of Firm Notes. The
Representatives may cancel the option at any time prior to its expiration by
giving written notice of such cancellation to the Company.
(d) PUBLIC OFFERING OF THE NOTES. The Representatives hereby advise the
Company that the Underwriters intend to offer for sale to the public, as
described in the Prospectus, their respective portions of the Notes as soon
after this Agreement has been executed and the
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Registration Statement has been declared effective as the Representatives, in
their sole judgment, have determined is advisable and practicable.
(e) PAYMENT FOR THE NOTES. Payment for the Notes shall be made at the
First Closing Date (and, if applicable, at the Second Closing Date) by wire
transfer in immediately available funds to the order of the Company.
It is understood that the Representatives have been authorized, for
their own accounts and the accounts of the several Underwriters, to accept
delivery of and receipt for, and make payment of the purchase price for, the
Firm Notes and any Option Notes the Underwriters have agreed to purchase.
FleetBoston Robertson Stephens Inc., individually and not as a Representative of
the Underwriters, may (but shall not be obligated to) make payment for any Notes
to be purchased by any Underwriter whose funds shall not have been received by
the Representatives by the First Closing Date or the Second Closing Date, as the
case may be, for the account of such Underwriter, but any such payment shall not
relieve such Underwriter from any of its obligations under this Agreement.
(f) DELIVERY OF THE NOTES. The Company shall deliver, or cause to be
delivered, a credit representing the Firm Notes to an account or accounts at The
Depository Trust Company, as designated by the Representatives for the accounts
of the Representatives and the several Underwriters at the First Closing Date,
against the irrevocable release of a wire transfer of immediately available
funds for the amount of the purchase price therefor. The Company shall also
deliver, or cause to be delivered a credit representing the Option Notes the
Underwriters have agreed to purchase at the First Closing Date (or the Second
Closing Date, as the case may be), to an account or accounts at The Depository
Trust Company as designated by the Representatives for the accounts of the
Representatives and the several Underwriters, against the irrevocable release of
a wire transfer of immediately available funds for the amount of the purchase
price therefor. Time shall be of the essence, and delivery at the time and place
specified in this Agreement is a further condition to the obligations of the
Underwriters.
SECTION 3. COVENANTS OF THE COMPANY.
The Company further covenants and agrees with each Underwriter as
follows:
(a) REGISTRATION STATEMENT MATTERS. The Company will (i) use its best
efforts to cause the Registration Statement to be declared effective or, if the
procedure in Rule 430A of the Securities Act is followed, to prepare and timely
file with the Commission under Rule 424(b) under the Securities Act a Prospectus
in a form approved by the Representatives containing information previously
omitted at the time of effectiveness of the Registration Statement in reliance
on Rule 430A of the Securities Act and (ii) not file any amendment to the
Registration Statement or supplement to the Prospectus of which the
Representatives shall not previously have been advised and furnished with a copy
or to which the Representatives shall have reasonably objected in writing or
which is not in compliance with the Securities Act. If the Company elects to
rely on Rule 462(b) under the Securities Act, the Company shall file a Rule
462(b) Registration Statement with the Commission in compliance with Rule 462(b)
under the Securities Act prior to the time confirmations are sent or given, as
specified by Rule 462(b)(2)
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under the Securities Act, and shall pay the applicable fees in accordance with
Rule 111 under the Securities Act.
(b) SECURITIES ACT COMPLIANCE. The Company will advise the
Representatives promptly (i) when the Registration Statement or any
post-effective amendment thereto shall be declared effective, (ii) of receipt of
any comments from the Commission, (iii) of any request of the Commission for
amendment of the Registration Statement or for supplement to the Prospectus or
for any additional information and (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or the use
of the Prospectus or of the institution of any proceedings for that purpose. The
Company will use its best efforts to prevent the issuance of any such stop order
preventing or suspending the use of the Prospectus and to obtain as soon as
possible the lifting thereof, if issued.
(c) BLUE SKY COMPLIANCE. The Company will cooperate with the
Representatives and counsel for the Underwriters in endeavoring to qualify the
Notes for sale under the securities laws of such jurisdictions (both national
and foreign) as the Representatives may reasonably request and will make such
applications, file such documents, and furnish such information as may be
reasonably required for that purpose, provided the Company shall not be required
to qualify as a foreign corporation or to file a general consent to service of
process in any jurisdiction where it is not now so qualified or required to file
such a consent. The Company will, from time to time, prepare and file such
statements, reports and other documents, as are or may be required to continue
such qualifications in effect for so long a period as the Representatives may
reasonably request for distribution of theNotes.
(d) AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS AND OTHER SECURITIES
ACT MATTERS. The Company will comply with the Securities Act and the Exchange
Act, and the rules and regulations of the Commission thereunder, so as to permit
the completion of the distribution of the Notes as contemplated in this
Agreement and the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of the Representatives or counsel for the Underwriters, it becomes
necessary to amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances existing at the time the Prospectus
is delivered to a purchaser, not misleading, or, if it is necessary at any time
to amend or supplement the Prospectus to comply with any law, the Company
promptly will prepare and file with the Commission, and furnish at its own
expense to the Underwriters and to dealers, an appropriate amendment to the
Registration Statement or supplement to the Prospectus so that the Prospectus as
so amended or supplemented will not, in the light of the circumstances when it
is so delivered, be misleading, or so that the Prospectus will comply with the
law.
(e) COPIES OF ANY AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS. The
Company agrees to furnish the Representatives, without charge, during the period
beginning on the date hereof and ending on the later of the First Closing Date
or such date, as in the opinion of counsel for the Underwriters, the Prospectus
is no longer required by law to be delivered in connection with sales by an
Underwriter or dealer (the "Prospectus Delivery Period"), as many copies of the
Prospectus and any amendments and supplements thereto as the Representatives may
request.
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(f) INSURANCE. The Company shall obtain Directors and Officers
liability insurance in the minimum amount of $10.0 million which shall apply to
the offering contemplated hereby.
(g) NOTICE OF SUBSEQUENT EVENTS. If at any time during the ninety (90)
day period after the Registration Statement becomes effective, any rumor,
publication or event relating to or affecting the Company shall occur as a
result of which in your opinion the market price of the Company Notes has been
or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after written notice from you advising the
Company to the effect set forth above, promptly prepare, consult with you
concerning the substance of and disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or commenting on such
rumor, publication or event.
(h) USE OF PROCEEDS. The Company shall apply the net proceeds from the
sale of the Notes sold by it in the manner described under the caption "Use of
Proceeds" in the Prospectus.
(i) TRANSFER AGENT. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Common Stock.
(j) EARNINGS STATEMENT. As soon as practicable, the Company will make
generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) covering a period of at least 12
months beginning after the effective date of the Registration Statement that
satisfies the provisions of Section 11(a) of the Securities Act.
(k) PERIODIC REPORTING OBLIGATIONS. During the Prospectus Delivery
Period the Company shall file, on a timely basis, with the Commission and the
Nasdaq National Market all reports and documents required to be filed under the
Exchange Act as required by the NASD.
(l) AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES. The Company
will not, without the prior written consent of FleetBoston Robertson Stephens
Inc., for a period of 90 days following the date of the Prospectus, offer, sell
or contract to sell, or otherwise dispose of or enter into any transaction which
is designed to, or could be expected to, result in the disposition (whether by
actual disposition or effective economic disposition due to cash settlement or
otherwise by the Company or any affiliate of the Company or any person in
privity with the Company or any affiliate of the Company) directly or
indirectly, or announce the offering of, any of its Common Stock or any
securities convertible into, or exchangeable for, Common Stock; PROVIDED,
HOWEVER, that the Company may (i) issue Common Stock upon conversion of the
Notes, (ii) issue and sell Common Stock pursuant to any director or employee
stock option plan, stock ownership plan or dividend reinvestment plan of the
Company in effect at the date of the Prospectus and described in the Prospectus
so long as at the time of such issuance or sale, the Company already has or
otherwise obtains a Lock-Up Agreement in the form of Exhibit ___ from such
holder providing that none of those shares of Common Stock may be transferred
during the period of 90 days from the date that the Registration Statement is
declared effective (the "Lock-Up Period") and the Company shall enter stop
transfer instructions with its transfer agent and registrar against the transfer
of any such Common Stock, (iii) the Company may issue
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the shares of Common Stock to be issued in a concurrent offering as described in
the Prospectus, and (iv) the Company may issue Common Stock issuable upon the
conversion of securities or the exercise of warrants outstanding at the date of
the Prospectus and described in the Prospectus. Notwithstanding the foregoing,
FleetBoston Robertson Stephens Inc. agrees it will not unreasonably withhold
consent to the issuance of equity securities in connection with an acquisition.
(m) FUTURE REPORTS TO THE REPRESENTATIVES. During the period of three
years from the date hereof the Company will furnish to the Representatives (i)
as soon as practicable after the end of each fiscal year, copies of the Annual
Report of the Company containing the balance sheet of the Company as of the
close of such fiscal year and statements of income, stockholders' equity and
cash flows for the year then ended and the unqualified opinion thereon of the
Company's independent public or certified public accountants; (ii) as soon as
practicable after the filing thereof, copies of each proxy statement, Annual
Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K
or other report filed by the Company with the Commission, the National
Association of Securities Dealers, LLC or any securities exchange; and (iii) as
soon as available, copies of any report or communication of the Company mailed
generally to holders of its capital stock.
(n) DEPOSITORY TRUST COMPANY. The Company shall use its best efforts to
permit the Notes to be eligible for clearance and settlement through the
Depository Trust Company.
SECTION 4. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Notes as
provided herein on the First Closing Date and, with respect to the Option Notes,
the Second Closing Date, shall be subject to the accuracy of the representations
and warranties on the part of the Company set forth in Section 1 hereof as of
the date hereof and as of the First Closing Date as though then made and, with
respect to the Option Notes, as of the Second Closing Date as though then made,
to the timely performance by the Company of its covenants and other obligations
hereunder, and to each of the following additional conditions:
(a) COMPLIANCE WITH REGISTRATION REQUIREMENTS, NO STOP ORDER, NO
OBJECTION FROM THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, LLC. The
Registration Statement shall have been declared effective prior to the execution
of this Agreement, or at such later date as shall be consented to in writing by
you; and no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been initiated or, to the
knowledge of the Company or any Underwriter, threatened by the Commission, and
any request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the satisfaction of Underwriters' Counsel; and the National Association
of Securities Dealers, LLC shall have raised no objection to the fairness and
reasonableness of the underwriting terms and arrangements.
(b) CORPORATE PROCEEDINGS. All corporate proceedings and other legal
matters in connection with this Agreement, the Registration Statement and the
Prospectus, and the registration, authorization, issue, sale and delivery of the
Notes and the authorization, issuance and delivery of the Common Stock issuable
upon conversion of the Notes, shall have been in
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form and substance reasonably satisfactory to Underwriters' Counsel, and such
counsel shall have been furnished with such papers and information as they may
reasonably have requested to enable them to pass upon the matters referred to in
this Section 4.
(c) NO MATERIAL ADVERSE CHANGE. Subsequent to the execution and
delivery of this Agreement and prior to the First Closing Date, or the Second
Closing Date, as the case may be, there shall not have been any Material Adverse
Change in the condition (financial or otherwise), earnings, operations, business
or prospects of the Company and its subsidiaries considered as one enterprise
from that described in the Registration Statement or Prospectus, which, in your
sole judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Notes as
contemplated by the Prospectus.
(d) OPINION OF COUNSEL FOR THE COMPANY. You shall have received on the
First Closing Date and the Second Closing Date, as the case may be, an opinion
of Bingham Dana LLP counsel for the Company substantially in the form of EXHIBIT
B attached hereto, dated the First Closing Date or the Second Closing Date, as
the case may be, addressed to the Underwriters and with reproduced copies or
signed counterparts thereof for each of the Underwriters.
(e) OPINION OF GOVERNMENT REGULATION COUNSEL FOR THE COMPANY. You shall
have received on the First Closing Date and the Second Closing Date, as the case
may be, an opinion of Swidler Berlin Sheroff Friedman, LLP, government
regulation counsel for the Company substantially in the form of EXHIBIT C
attached hereto.
(f) OPINION OF COUNSEL FOR THE UNDERWRITERS. You shall have received on
the First Closing Date and the Second Closing Date, as the case may be, an
opinion of Alston & Bird LLP, substantially in the form of EXHIBIT D hereto. The
Company shall have furnished to such counsel such documents as they may have
requested for the purpose of enabling them to pass upon such matters.
(g) ACCOUNTANTS' COMFORT LETTER. You shall have received on the First
Closing Date and on the Second Closing Date, as the case may be, a letter from
Arthur Andersen LLP addressed to the Underwriters, dated the First Closing Date
or the Second Closing Date, as the case may be, confirming that they are
independent certified public accountants with respect to the Company within the
meaning of the Securities Act and the applicable published Rules and Regulations
and based upon the procedures described in such letter delivered to you
concurrently with the execution of this Agreement (herein called the "Original
Letter"), but carried out to a date not more than four (4) business days prior
to the First Closing Date or the Second Closing Date, as the case may be, (i)
confirming, to the extent true, that the statements and conclusions set forth in
the Original Letter are accurate as of the First Closing Date or the Second
Closing Date, as the case may be, and (ii) setting forth any revisions and
additions to the statements and conclusions set forth in the Original Letter
which are necessary to reflect any changes in the facts described in the
Original Letter since the date of such letter, or to reflect the availability of
more recent financial statements, data or information. The letter shall not
disclose any change in the condition (financial or otherwise), earnings,
operations, business or prospects of the Company and its subsidiaries considered
as one enterprise from that described in the Registration Statement or
Prospectus, which, in your sole judgment, is material and adverse and that makes
it,
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in your sole judgment, impracticable or inadvisable to proceed with the public
offering of the Notes as contemplated by the Prospectus. The Original Letter
from Arthur Andersen LLP shall be addressed to or for the use of the
Underwriters in form and substance satisfactory to the Underwriters and shall
(i) represent, to the extent true, that they are independent certified public
accountants with respect to the Company within the meaning of the Securities Act
and the applicable published Rules and Regulations, (ii) set forth their opinion
with respect to their examination of the consolidated balance sheet of the
Company as of December 31, 1998 and 1999 and related consolidated statements of
operations, shareholders' equity, and cash flows for the twelve (12) months
ended December 31, 1997, 1998 and 1999, and (iii) address other matters agreed
upon by Arthur Andersen LLP and you. In addition, you shall have received from
Arthur Andersen LLP a letter addressed to the Company and made available to you
for the use of the Underwriters stating that their review of the Company's
system of internal accounting controls, to the extent they deemed necessary in
establishing the scope of their examination of the Company's consolidated
financial statements as of December 31, 1999, did not disclose any weaknesses in
internal controls that they considered to be material weaknesses.
(h) OFFICERS' CERTIFICATE. You shall have received on the First Closing
Date and the Second Closing Date, as the case may be, a certificate of the
Company, dated the First Closing Date or the Second Closing Date, as the case
may be, signed by the Chief Executive Officer and Chief Financial Officer of the
Company, to the effect that, and you shall be satisfied that:
(i) The representations and warranties of the Company in this Agreement
are true and correct, as if made on and as of the First Closing Date or
the Second Closing Date, as the case may be, and the Company has
complied in all material respects with all the agreements and satisfied
all the conditions on its part to be performed or satisfied at or prior
to the First Closing Date or the Second Closing Date, as the case may
be;
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or threatened under the Securities Act;
(iii) When the Registration Statement became effective and at all times
subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or
supplements thereto, contained all material information required to be
included therein by the Securities Act and in all material respects
conformed to the requirements of the Securities Act, the Registration
Statement and the Prospectus, and any amendments or supplements
thereto, did not and does not include any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made not misleading; and, since the
effective date of the Registration Statement, there has occurred no
event required to be set forth in an amended or supplemented Prospectus
which has not been so set forth; and
(iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been
(a) any material adverse change in the condition (financial or
otherwise), earnings, operations, business or
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prospects of the Company and its subsidiaries considered as one
enterprise, (b) any transaction that is material to the Company and its
subsidiaries considered as one enterprise, except transactions entered
into in the ordinary course of business, (c) any obligation, direct or
contingent, that is material to the Company and its subsidiaries
considered as one enterprise, incurred by the Company or its
subsidiaries, except obligations incurred in the ordinary course of
business, (d) except as described in the Prospectus, any change in the
capital stock or outstanding indebtedness of the Company or any of its
subsidiaries that is material to the Company and its subsidiaries
considered as one enterprise, (e) any dividend or distribution of any
kind declared, paid or made on the capital stock of the Company or any
of its subsidiaries, or (f) any loss or damage (whether or not insured)
to the property of the Company or any of its subsidiaries which has
been sustained or will have been sustained which has had or would
reasonably be expected to have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or
prospects of the Company and its subsidiaries considered as one
enterprise.
(i) LOCK-UP AGREEMENT FROM CERTAIN STOCKHOLDERS OF THE COMPANY. The
Company shall have obtained and delivered to you an agreement in the form of
EXHIBIT A attached hereto from each officer and director of the Company, and
each beneficial owner of one or more percent of the outstanding issued share
capital of the Company (including holders of options to acquire the same).
(j) STOCK EXCHANGE LISTING. The Common Stock issuable upon conversion
of the Notes shall have been approved for quotation on the Nasdaq National
Market, subject only to official notice of issuance.
(k) COMPLIANCE WITH PROSPECTUS DELIVERY REQUIREMENTS. The Company shall
have complied with the provisions of Section 3(e) hereof with respect to the
furnishing of Prospectuses.
(l) INDENTURE MATTERS. The Indenture shall have been duly executed and
delivered by the Company and the Trustee and the Notes shall have been duly
executed and delivered by the Company and duly authenticated by the Trustee.
(m) ADDITIONAL DOCUMENTS. On or before each of the First Closing Date
and the Second Closing Date, as the case may be, the Representative and counsel
for the Underwriters shall have received such information, documents and
opinions as they may reasonably require for the purposes of enabling them to
pass upon the issuance and sale of the Notes as contemplated herein, or in order
to evidence the accuracy of any of the representations and warranties, or the
satisfaction of any of the conditions or agreements, herein contained.
If any condition specified in this Section 4 is not satisfied when and
as required to be satisfied, this Agreement may be terminated by the
Representative by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Option Notes, at any time prior to the
Second Closing Date, which termination shall be without liability on the part of
any party to any other party, except that Section 5 (Payment of Expenses),
Section 6 (Reimbursement
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of Underwriters' Expenses), Section 7 (Indemnification and Contribution) and
Section 10 (Representations and Indemnities to Survive Delivery) shall at all
times be effective and shall survive such termination.
SECTION 5. PAYMENT OF EXPENSES. The Company agrees to pay all costs,
fees and expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby,
including, without limitation, (i) all expenses incident to the issuance and
delivery of the Notes (including all printing and engraving costs), (ii) all
fees and expenses of the registrar and transfer agent of the Common Stock, (iii)
all necessary issue, transfer and other stamp taxes in connection with the
issuance and sale of the Notes to the Underwriters, (iv) all fees and expenses
of the Company's counsel, independent public or certified public accountants and
other advisors, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, schedules, consents and
certificates of experts), each preliminary prospectus and the Prospectus, and
all amendments and supplements thereto, and this Agreement, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Notes for offer and
sale under the state securities or blue sky laws or the provincial securities
laws of Canada or any other country, and, if requested by the Representatives,
preparing and printing a "Blue Sky Survey," an "International Blue Sky Survey"
or other memorandum, and any supplements thereto, advising the Underwriters of
such qualifications, registrations and exemptions, (vii) the filing fees
incident to the NASD review and approval of the Underwriters' participation in
the offering and distribution of theNotes, (viii) the fees and expenses
associated with obtaining approval for the quotation of the Common Stock
issuable upon conversion of the Notes on the Nasdaq National Market, (ix) all
reasonable costs and expenses incident to the preparation and undertaking of
"road show" presentations to be made to prospective investors, and (x) all other
fees, costs and expenses referred to in Item 13 of Part II of the Registration
Statement, PROVIDED, that in no event shall the Company be required to pay in
excess of $20,000 in respect of the fees and expenses of Underwriter's counsel,
pursuant to this Section 5, or Section 5 of the Underwriting Agreement, dated as
of the date hereof, relating to the Company's concurrent public offering of
Common Stock. Except as provided in this Section 5, Section 6, and Section 7
hereof, the Underwriters shall pay their own expenses, including the fees and
disbursements of their counsel.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement
is terminated by the Representative pursuant to Section 4, Section 7, Section 8
or Section 9, or if the sale to the Underwriters of the Notes on the First
Closing Date is not consummated because of any refusal, inability or failure on
the part of the Company to perform any agreement herein or to comply with any
provision hereof, the Company agrees to reimburse the Representatives and the
other Underwriters (or such Underwriters as have terminated this Agreement with
respect to themselves), severally, upon demand for all out-of-pocket expenses
that shall have been reasonably and actually incurred by the Representatives and
the Underwriters prior to the date of termination in connection with the
proposed purchase and the offering and sale of the Notes, including, without
limitations, to fees and disbursements of counsel, printing expenses, travel
expenses, postage, facsimile and telephone charges.
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SECTION 7. INDEMNIFICATION AND CONTRIBUTION.
(a) INDEMNIFICATION OF THE UNDERWRITERS. The Company agrees to
indemnify and hold harmless each Underwriter, its officers and employees, and
each person, if any, who controls any Underwriter within the meaning of the
Securities Act and the Exchange Act against any loss, claim, damage, liability
or expense, as incurred, to which such Underwriter or such controlling per-son
may become subject, under the Securities Act, the Exchange Act or other federal
or state statutory law or regulation, or at common law or otherwise (including
in settlement of any litigation, if such settlement is effected with the written
consent of the Company, which consent shall not be unreasonably withheld or
delayed), insofar as such loss, claim, damage, liability or expense (or actions
in respect thereof as contemplated below) arises out of or is based (i) upon any
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement, or any amendment thereto, including any information
deemed to be a part thereof pursuant to Rule 430A or Rule 434 under the
Securities Act, or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; or (ii)
upon any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto), or the omission or alleged omission therefrom of a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; or (iii) in whole or
in part upon any inaccuracy in the representations and warranties of the Company
contained herein; or (iv) in whole or in part upon any failure of the Company to
perform its obligations hereunder or under applicable law; or (v) any act or
failure to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Note or the offering
contemplated hereby, and which is included as part of or referred to in any
loss, claim, damage, liability or action arising out of or based upon any matter
covered by clause (i), (ii), (iii) or (iv) above, provided that the Company
shall not be liable under this clause (v) to the extent that a court of
competent jurisdiction shall have determined by a final judgment that such loss,
claim, damage, liability or action resulted directly from any such acts or
failures to act undertaken or omitted to be taken by such Underwriter through
its bad faith or willful misconduct; and to reimburse each Underwriter and each
such controlling person for any and all expenses (including the reasonable fees
and disbursements of counsel chosen by FleetBoston Robertson Stephens Inc.) as
such expenses are reasonably incurred by such Underwriter or such controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action; PROVIDED,
HOWEVER, that the foregoing indemnity agreement shall not apply to any loss,
claim, damage, liability or expense to the extent, but only to the extent,
arising out of or based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Company by the Representatives expressly
for use in the Registration Statement, any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto); and provided, further, that
with respect to any preliminary prospectus, the foregoing indemnity agreement
shall not inure to the benefit of any Underwriter from whom the person asserting
any loss, claim, damage, liability or expense purchasedNotes, or any person
controlling such Underwriter, if copies of the Prospectus were timely delivered
to the Underwriter pursuant to Section 2 and a copy of the Prospectus. (as then
amended or supplemented if the Company shall
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have furnished any amendments or supplements thereto) was not sent or given by
or on behalf of such Underwriter to such person, if required by law so to have
been delivered, at or prior to the written confirmation of the sale of the Notes
to such person, and if the Prospectus (as so amended or supplemented) would have
cured the defect giving rise to such loss, claim, damage, liability or expense.
The indemnity agreement set forth in this Section 7(a) shall be in addition to
any liabilities that the Company may otherwise have.
(b) INDEMNIFICATION OF THE COMPANY, ITS DIRECTORS AND OFFICERS. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Securities Act or the Exchange Act, against any loss, claim,
damage, liability or expense, as incurred, to which the Company, or any such
director, officer or controlling person may become subject, under the Securities
Act, the Exchange Act, or other federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter), insofar as
such loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based (i) upon any untrue or alleged
untrue statement of a material fact contained in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or arises out of or is 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, in light of the circumstances under which they were
made, not misleading in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, any preliminary prospectus, the
Prospectus (or any amendment or supplement thereto), in reliance upon and in
conformity with written information furnished to the Company by the
Representatives expressly for use therein and (ii) in whole or in part upon any
failure of any Underwriter to perform its obligations hereunder or under
applicable law; and to reimburse the Company, or any such director, officer or
controlling person for any legal and other expense reasonably incurred by the
Company, or any such director, officer or controlling person in connection with
investigating, defending, settling, compromising or paying any such loss, claim,
damage, liability, expense or action. The indemnity agreement set forth in this
Section 7(b) shall be in addition to any liabilities that each Underwriter may
otherwise have.
(c) INFORMATION PROVIDED BY THE UNDERWRITERS. The Company hereby
acknowledges that the only information that the Underwriters have furnished to
the Company expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) are the
statements set forth in the table in the first paragraph, the second paragraph,
the third paragraph and the tenth paragraph under the caption "Underwriting" in
the Prospectus; and the Underwriters confirm that such statements are true and
correct in all material respects.
(d) NOTIFICATIONS AND OTHER INDEMNIFICATION PROCEDURES. Promptly after
receipt by an indemnified party under this Section 7 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 7, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability which
it
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may have to any indemnified party for contribution or otherwise than under the
indemnity agreement contained in this Section 7 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; PROVIDED, HOWEVER, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of such indemnifying
party's election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 7 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel (together with local counsel), approved by the
indemnifying party (FleetBoston Robertson Stephens Inc. in the case of Section
7(b) and Section 8), representing the indemnified parties who are parties to
such action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action, or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party, in each of which cases the fees
and expenses of counsel shall be at the expense of the indemnifying party.
(e) SETTLEMENTS. The indemnifying party under this Section 7 shall not
be liable for any settlement of any proceeding effected without its written
consent, which consent shall not be unreasonably withheld or delayed, but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party against any loss,
claim, damage, liability or expense by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by Section 7(d) hereof, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement, compromise or consent to the entry
of judgment in any pending or threatened action, suit or proceeding in respect
of which any indemnified party is or could have been a party and indemnity was
or could have been sought
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hereunder by such indemnified party, unless such settlement, compromise or
consent includes (i) an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such action, suit or
proceeding and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
(f) CONTRIBUTION. If the indemnification provided for in this Section 7
is unavailable to or insufficient to hold harmless an indemnified party under
Section 7(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) then each
indemnifying party shall contribute to the aggregate amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Notes. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law then each indemnifying party shall contribute to such amount paid or payable
by such indemnified party in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the Company on the
one hand and the Underwriters 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), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriter on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bears to the total underwriting discount
received by the Underwriters, in each case as set forth in the table on the
cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 7(f) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7(f). The amount paid
or payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to above in
this Section 7(f) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (f), (i) no Underwriter shall be required to contribute any amount in
excess of the underwriting discount applicable to the Notes purchased by such
Underwriter and (ii) 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. The Underwriters' obligations in this Section 7(f) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(g) TIMING OF ANY PAYMENTS OF INDEMNIFICATION. Any losses, claims,
damages, liabilities or expenses for which an indemnified party is entitled to
indemnification or contribution under this Section 7 shall be paid by the
indemnifying party to the indemnified party
-24-
<PAGE>
as such losses, claims, damages, liabilities or expenses are incurred, but in
all cases, no later than thirty (30) days of invoice to the indemnifying party.
(h) SURVIVAL. The indemnity and contribution agreements contained in
this Section 7 and the representation and warranties of the Company set forth in
this Agreement shall remain operative and in full force and effect, regardless
of (i) any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or any
persons controlling the Company, (ii) acceptance of any Notes and payment
therefor hereunder, and (iii) any termination of this Agreement. A successor to
any Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 7.
(i) ACKNOWLEDGEMENTS OF PARTIES. The parties to this Agreement hereby
acknowledge that they are sophisticated business persons who were represented by
counsel during the negotiations regarding the provisions hereof including,
without limitation, the provisions of this Section 7, and are fully informed
regarding said provisions. They further acknowledge that the provisions of this
Section 7 fairly allocate the risks in light of the ability of the parties to
investigate the Company and its business in order to assure that adequate
disclosure is made in the Registration Statement and Prospectus as required by
the Securities Act and the Exchange Act.
SECTION 8. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If, on
the First Closing Date or the Second Closing Date, as the case may be, any one
or more of the several Underwriters shall fail or refuse to purchase Notes that
it or they have agreed to purchase on such date, and the aggregate principal
amount of Notes which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase does not exceed 10% of the aggregate principal
amount of Notes to be purchased on such date, the other Underwriters shall be
obligated, severally, in the proportions that the aggregate principal amount of
Firm Notes set forth opposite their respective names on SCHEDULE A bears to the
aggregate principal amount of Firm Notes set forth opposite the names of all
such non-defaulting Underwriters, or in such other proportions as may be
specified by the Representatives with the consent of the non-defaulting
Underwriters, to purchase the Notes which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the Underwriters shall fail or refuse to purchase Notes and the
aggregate principal amount of Notes with respect to which such default occurs
exceeds 10% of the aggregate principal amount of Notes to be purchased on such
date, and arrangements satisfactory to the Representatives and the Company for
the purchase of such Notes are not made within 48 hours after such default, this
Agreement shall terminate without liability of any party to any other party
except that the provisions of Section 4, and Section 7 shall at all times be
effective and shall survive such termination. In any such case either the
Representatives or the Company shall have the right to postpone the First
Closing Date or the Second Closing Date, as the case may be, but in no event for
longer than seven days in order that the required changes, if any, to the
Registration Statement and the Prospectus or any other documents or arrangements
may be effected.
- -25-
<PAGE>
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
8. Any action taken under this Section 8 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
SECTION 9. TERMINATION OF THIS AGREEMENT. Prior to the First Closing
Date, this Agreement may be terminated by the Representatives by notice given to
the Company if at any time (i) trading or quotation in any of the Company's
securities shall have been suspended or limited by the Commission or by the
Nasdaq Stock Market, or trading in securities generally on either the Nasdaq
Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission or the National Association of
Securities Dealers, LLC; (ii) a general banking moratorium shall have been
declared by any of federal, state, or local authorities; (iii) there shall have
occurred any outbreak or escalation of national or international hostilities or
any crisis or calamity, or any change in the United States or international
financial markets, or any substantial change or development involving a
prospective change in United States' or international political, financial or
economic conditions, as in the reasonable judgment of the Representatives is
material and adverse and makes it impracticable or inadvisable to market the
Notes in the manner and on the terms described in the Prospectus or to enforce
contracts for the sale of securities; (iv) in the reasonable judgment of the
Representatives there shall have occurred any Material Adverse Change; or (v)
the Company shall have sustained a loss by strike, fire, flood, earthquake,
accident or other calamity of such character as in the reasonable judgment of
the Representatives may interfere materially with the conduct of the business
and operations of the Company regardless of whether or not such loss shall have
been insured. Any termination pursuant to this Section 9 shall be without
liability on the part of (a) the Company to any Underwriter, except that the
Company shall be obligated to reimburse the expenses of the Representatives and
the Underwriters pursuant to Sections 5 and 6 hereof, (b) any Underwriter to the
Company, or (c) of any party hereto to any other party except that the
provisions of Section 7 shall at all times be effective and shall survive such
termination.
SECTION 10. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their respective partners, officers or directors
or any controlling person, as the case may be, and will survive delivery of and
payment for the Notes sold hereunder and any termination of this Agreement.
SECTION 11. NOTICES. All communications hereunder shall be in writing
and shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
-26-
<PAGE>
If to the Representatives:
FLEETBOSTON ROBERTSON STEPHENS INC.
555 California Street
San Francisco, California 94104
Facsimile: (415) 676-2696
Attention: General Counsel
Copy to:
Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309
Facsimile: (404) 881-4777
Attention: J. Vaughan Curtis, Esq.
If to the Company
iBasis, Inc.
20 Second Avenue
Burlington, MA 01803
Facsimile: 781-505-7300
Attention: President
Copy to:
Bingham Dana LLP
150 Federal Street
Boston, MA 02110
Facsimile: (617) 951-8736
Attention: David L. Engel, Esq. and Johan V. Brigham, Esq.
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 12. SUCCESSORS. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 9 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 7, and to their
respective successors, and no other person will have any right or obligation
hereunder. The term "successors" shall not include any purchaser of the Notes as
such from any of the Underwriters merely by reason of such purchase.
SECTION 13. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be
-27-
<PAGE>
deemed to be made such minor changes (and only such minor changes) as are
necessary to make it valid and enforceable.
SECTION 14. GOVERNING LAW PROVISIONS.
(a) GOVERNING LAW. This agreement shall be governed by and construed in
accordance with the internal laws of the state of New York applicable to
agreements made and to be performed in such state.
(b) CONSENT TO JURISDICTION. Any legal suit, action or proceeding
arising out of or based upon this Agreement or the transactions contemplated
hereby ("Related Proceedings") may be instituted in the federal courts of the
United States of America located in the State of New York (collectively, the
"Specified Courts"), and each party irrevocably submits to the exclusive
jurisdiction (except for proceedings instituted in regard to the enforcement of
a judgment of any such court (a "Related Judgment"), as to which such
jurisdiction is non-exclusive) of such courts in any such suit, action or
proceeding. Service of any process, summons, notice or document by mail to such
party's address set forth above shall be effective service of process for any
suit, action or other proceeding brought in any such court. The parties
irrevocably and unconditionally waive any objection to the laying of venue of
any suit, action or other proceeding in the Specified Courts and irrevocably and
unconditionally waive and agree not to plead or claim in any such court that any
such suit, action or other proceeding brought in any such court has been brought
in an inconvenient forum.
(c) WAIVER OF IMMUNITY. With respect to any Related Proceeding, each
party irrevocably waives, to the fullest extent permitted by applicable law, all
immunity (whether on the basis of sovereignty or otherwise) from jurisdiction,
service of process, attachment (both before and after judgment) and execution to
which it might otherwise be entitled in the Specified Courts, and with respect
to any Related Judgment, each party waives any such immunity in the Specified
Courts or any other court of competent jurisdiction, and will not raise or claim
or cause to be pleaded any such immunity at or in respect of any such Related
Proceeding or Related Judgment, including, without limitation, any immunity
pursuant to the United States Foreign Sovereign Immunities Act of 1976, as
amended.
SECTION 15. GENERAL PROVISIONS. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in two
or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Table of Contents and the Section headings herein are for the convenience of
the parties only and shall not affect the construction or interpretation of this
Agreement.
[The remainder of this page has been intentionally left blank.]
- -28-
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company the enclosed copies hereof,
whereupon this instrument, along with all counterparts hereof, shall become a
binding agreement in accordance with its terms.
Very truly yours,
IBASIS, INC.
By:__________________________
Name: _______________________
Title:_______________________
The foregoing Underwriting Agreement is hereby confirmed and accepted
by the Representatives as of the date first above written.
FLEETBOSTON ROBERTSON STEPHENS INC.
CHASE SECURITIES INC.
U.S. BANCORP PIPER JAFFRAY INC.
DAIN RAUSCHER INCORPORATED
On their behalf and on behalf of each of the several underwriters named in
SCHEDULE A hereto.
BY: FLEETBOSTON ROBERTSON STEPHENS INC.
By: _________________________________
Authorized Signatory
<PAGE>
EXHIBIT A
SCHEDULE OF UNDERWRITERS
- ------------------------------------------ -------------------------------------
Underwriter Aggregate Principal Amount of
Firm Notes to be Purchased
- ------------------------------------------ -------------------------------------
FleetBoston Robertson Stephens Inc.
- ------------------------------------------ -------------------------------------
Chase Securities Inc.
- ------------------------------------------ -------------------------------------
U.S. Bancorp. Piper Jaffrey Inc.
- ------------------------------------------ -------------------------------------
Dain Rauscher Incorporated
- ------------------------------------------ -------------------------------------
- ------------------------------------------ -------------------------------------
TOTAL UNDERWRITERS (__) $150,000,000
- ------------------------------------------ -------------------------------------
<PAGE>
EXHIBIT B
OPINION OF COUNSEL FOR THE COMPANY
(1) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the DGCL.
(2) The Company has the corporate power and authority to own,
lease and operate its properties and to conduct its business as described in
the Prospectus.
(3) The Company is presently qualified to do business as a foreign
corporation in each jurisdiction within the United States in which it owns or
leases real property as described in the Registration Statement, except where
the failure to be so qualified would not have a Material Adverse Effect.
(4) Immediately after the closing of the Offering, the authorized
capital stock of the Company will consist of (i) eighty-five million
(85,000,000) shares of common stock, $0.001 par value per share (the "COMMON
STOCK"), and (ii) fifteen million (15,000,000) shares of preferred stock, $0.001
par value per share, and there will be no shares of any other class of capital
stock authorized. All of the shares of Common Stock issued and outstanding after
the closing of the Offering will have been duly authorized and validly issued
and will be fully paid and non-assessable. The shares of Common Stock issued and
outstanding after the closing of the Offering will not have been issued in
violation of, or subject to, any preemptive right, co-sale right, registration
right, right of first refusal or other similar right provided by (A) the
Restated Charter, the By-laws, or the DGCL, or (B), to our knowledge, any
agreement or instrument to which the Company is a party or by which the Company
is bound.
(5) The Company has the corporate power and authority to enter into
the Underwriting Agreement and the Indenture and to issue, sell and deliver to
the Underwriters the Notes to be issued and sold by the Company thereunder and
to consummate the transactions contemplated thereby.
(6) The Underwriting Agreement has been duly authorized by all
necessary corporate action on the part of the Company and has been duly executed
and delivered by the Company and is a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms (except
that we express no opinion as to the enforceability of the indemnification and
contribution provisions of the Underwriting Agreement).
(7) The Indenture has been duly authorized by all necessary corporate
action on the part of the Company and has been duly executed and delivered by
the Company and is a valid and binding obligation of the Company, enforceable in
accordance with its terms.
<PAGE>
BancBoston Robertson Stephens Inc.
Hambrecht & Quist LLC
U.S. Bancorp Piper Jaffray Inc.
November 16, 1999
Page 2
(8) The Notes have been duly authorized on behalf of the Company, and
(assuming due execution, authentication, issuance and delivery as provided in
the Indenture) will constitute valid and binding obligations of the Company
entitled to the benefits of the Indenture and enforceable in accordance with
their terms; the Notes will not have been issued in violation of or subject to
any preemptive right, co-sale right, registration right, right of first refusal
or other similar right provided by (A) the Restated Charter, the By-laws, or the
DGCL, or (B), to our knowledge, any agreement or instrument to which the Company
is a party or by which the Company is bound.
(9) The Shares initially issuable by the Company upon conversion of the
Notes have been duly authorized and reserved for issuance and, when issued and
delivered by the Company upon such conversion, will be duly and validly issued
and fully paid and nonassessable, and will not have been issued in violation of
or subject to any preemptive right, co-sale right, registration right, right of
first refusal or other similar right provided by (A) the Restated Charter, the
By-laws, or the DGCL, or (B), to our knowledge, any agreement or instrument to
which the Company is a party or by which the Company is bound.
(10) The statements in the Prospectus under the caption "Description of
the Notes," insofar as such statements purport to summarize provisions of the
Notes and the Indenture, are accurate summaries in all material respects of the
provisions purported to be summarized therein.
(11) The Registration Statement has become effective under the Act and,
to our knowledge, no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or threatened under the Act.
(12) The Registration Statement and the Prospectus (other than the
financial statements (including supporting schedules) and financial data and
information and information derived therefrom, as to which we express no
opinion), as of the effective date of the Registration Statement, complied as to
form in all material respects with the requirements of the Act and the
applicable rules and regulations promulgated thereunder.
(13) The information in the Prospectus under the caption "Description
of Capital Stock," to the extent that it constitutes matters of law or legal
conclusions, has been reviewed by us and is a fair summary of such matters and
conclusions, provided that we give no opinion as to the number of shares of
Common Stock or preferred stock outstanding. .
(14) The description in the Registration Statement and the Prospectus
of the Restated Charter and the By-laws under the caption "Delaware Law and
Certain Certificate of Incorporation and By-Law Provisions," to the extent that
it constitutes matters of law or legal
<PAGE>
BancBoston Robertson Stephens Inc.
Hambrecht & Quist LLC
U.S. Bancorp Piper Jaffray Inc.
November 16, 1999
Page 3
conclusions, is accurate in all material respects and fairly presents the
information with respect thereto required to be presented by the Act.
(15) To our knowledge, there are no agreements, contracts, leases or
documents to which the Company is a party of a character required to be
described or referred to in the Registration Statement or Prospectus or to be
filed as an exhibit to the Registration Statement which are not described or
referred to therein or filed as required.
(16) The performance of the Underwriting Agreement and the Indenture
and the consummation of the transactions contemplated therein (other than
performance of the Company's indemnification obligations thereunder, concerning
which no opinion is expressed) will not (a) result in any violation of the
Restated Charter or the By-laws or (b) to our knowledge, result in a material
breach or violation of any of the terms and provisions of, or constitute a
default under, any bond, debenture, note or other evidence of indebtedness, or
any lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument known to us to which the Company is a
party or by which its properties are bound, or any applicable statute, rule or
regulation known to us or, to our knowledge, any order, writ or decree of any
court, government or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries, or over any of their properties or
operations (except that we express no opinion as to the Company's performance of
its obligations under the indemnification and contribution provisions of the
Underwriting Agreement, to the extent such performance may be considered to
violate securities laws or public policy).
(17) No consent, approval, authorization or order of or qualification
with any Federal or Massachusetts court, government or governmental agency or
body having jurisdiction over the Company or any of its subsidiaries, or over
any of their properties or operations is necessary in connection with the
consummation by the Company of the transactions contemplated under the
Underwriting Agreement or the Indenture, except (i) such as have been obtained
under the Act, the Exchange Act or the Trust Indenture Act of 1939, (ii) such as
may be required under state or other securities or Blue Sky laws in connection
with the purchase and the distribution of the Shares by the Underwriters, or
(iii) such as may be required by the National Association of Securities Dealers,
LLC.
(18) To our knowledge, there are no legal or governmental proceedings
pending or overtly threatened against the Company or any of its subsidiaries of
a character required to be disclosed in the Registration Statement or the
Prospectus by the Act, other than those described therein.
(19) To our knowledge, except as referred to in the Registration
Statement and Prospectus, no holders of any shares of Common Stock or other
securities of the Company have
<PAGE>
BancBoston Robertson Stephens Inc.
Hambrecht & Quist LLC
U.S. Bancorp Piper Jaffray Inc.
November 16, 1999
Page 4
registration rights with respect to securities of the Company and, except as
referred to in the Registration Statement and Prospectus, all holders of
securities of the Company having rights known to us to the registration of such
shares of Common Stock or other securities because of the filing of the
Registration Statement by the Company have, with respect to the offering
contemplated thereby, waived such rights or such rights have expired by reason
of lapse of time following notification of the Company's intent to file the
Registration Statement.
(20) The Company is not and, after giving effect to the offering and
the sale of the Shares and the application of the proceeds thereof as described
in the Prospectus, will not be, an "investment company" as such term is defined
in the Investment Company Act of 1940, as amended.
***
In addition, we have participated in certain conferences with officers
and other representatives of the Company and representatives of the independent
accountants of the Company, at which conferences the contents of the
Registration Statement and Prospectus and related matters were discussed and,
although we do not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement or the
Prospectus, no facts have come to our attention that have caused us to believe
that, as of its effective date, the Registration Statement (other than the
financial statements and related schedules and other financial and statistical
data therein, as to which we express no view) contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or that, as of its
date, the Prospectus (other than the financial statements and related schedules
and other financial and statistical data therein, as to which we express no
view) contained an untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading or that, as of the date
hereof, as applicable, either the Registration Statement or the Prospectus
(other than the financial statements and related schedules and other financial
and statistical data therein, as to which we express no view) contains an untrue
statement of a material fact or omits to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading.
<PAGE>
EXHIBIT C
OPINION OF GOVERNMENT REGULATION COUNSEL FOR THE COMPANY
1. The statements in the Registration Statement under the captions "Risk Factors
- - Risk related to the Internet and Internet Telephony Industry" and "Business -
Government Regulation" (to the extent that the discussion in these sections
pertains to the Telecommunications Laws), insofar as such statements constitute
a summary of the legal matters, documents or proceedings pertaining to the
Companies, fairly summarize such matters referred to therein.
<PAGE>
EXHIBIT D
OPINION OF COUNSEL FOR THE UNDERWRITERS
1. The Notes to be issued by the Company have been duly authorized and
(assuming due execution, authentication, issuance and delivery as provided in
the Indenture) will constitute valid and binding obligations of the Company
entitled to the benefits of the Indenture and enforceable in accordance with
their terms.
2. The Registration Statement complied as to form in all material
respects with the requirements of the Act; the Registration Statement has become
effective under the Act and, to our knowledge, no stop order proceedings with
respect thereto have been instituted or threatened or are pending under the Act.
3. The Underwriting Agreement and the Indenture have been duly
authorized, executed and delivered by the Company.
In connection with the preparation of the Registration Statement and
the Prospectus, we have participated in conferences with officers and
representatives of the Company, counsel for the Company and the independent
accountants of the Company, at which conferences we made inquiries of such
officers, representatives and others and discussed the contents of the
Registration Statement and the Prospectus. While the limitations inherent in the
independent verification of factual matters and the character of determinations
involved in the registration process are such that we are not passing upon and
do not assume any responsibility for the accuracy, completeness or fairness of
the statements contained in the Registration Statement or the Prospectus, based
on such participation, inquiries and discussion, no facts have come to our
attention that would lead us to believe that the Registration Statement (except
for financial statements, schedules, and other financial information contained
therein or omitted therefrom, as to which we express no belief) at the time it
became effective (but after giving effect to changes incorporated pursuant to
Rule 430A under the Act) contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Registration Statement,
the Prospectus and any amendment or supplement thereto (except for financial
statements, schedules and other financial information contained therein or
omitted therefrom, as to which we express no belief), as of the date thereof or
as of the date of this opinion, contained any untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
<PAGE>
EXHIBIT 4.2
INDENTURE dated as of ___________ ___, 2000 between IBASIS, INC., a
Delaware corporation (hereinafter sometimes called the "Company", as more fully
set forth in Section 1.1), and [The Bank of New York], [a New York banking
corporation,] as trustee (hereinafter sometimes called the "Trustee", as more
fully set forth in Section 1.1).
W I T N E S S E T H:
WHEREAS, for its lawful corporate purposes, the Company has duly
authorized the issue of its __% Convertible Subordinated Notes due 2005
(hereinafter sometimes called the "Notes"), in an aggregate principal amount not
to exceed $150,000,000 ($172,500,000 if the over-allotment option is exercised
in full) and to provide the terms and conditions upon which the Notes are to be
authenticated, issued and delivered, the Company has duly authorized the
execution and delivery of this Indenture; and
WHEREAS, the Notes, the certificate of authentication to be borne by
the Notes, a form of assignment, a form of option to elect repayment upon a
Repurchase Event, a form of conversion notice and a certificate of transfer to
be borne by the Notes are to be substantially in the forms hereinafter provided
for; and
WHEREAS, all acts and things necessary to make the Notes, when executed
by the Company and authenticated and delivered by the Trustee or a duly
authorized authenticating agent, as in this Indenture provided, the valid,
binding and legal obligations of the Company, and to constitute these presents a
valid agreement according to its terms, have been done and performed, and the
execution of this Indenture and the issue hereunder of the Notes have in all
respects been duly authorized.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That in order to declare the terms and conditions upon which the Notes
are, and are to be, authenticated, issued and delivered, and in consideration of
the premises and of the purchase and acceptance of the Notes by the holders
thereof, the Company covenants and agrees with the Trustee for the equal and
proportionate benefit of the respective holders from time to time of the Notes
(except as otherwise provided below), as follows:
1
<PAGE>
ARTICLE 1.
DEFINITIONS
Section 1.1. DEFINITIONS. The terms defined in this Section 1.1 (except
as herein otherwise expressly provided or unless the context otherwise requires)
for all purposes of this Indenture and of any indenture supplemental hereto
shall have the respective meanings specified in this Section 1.1. All other
terms used in this Indenture, which are defined in the Trust Indenture Act or
which are by reference therein defined in the Securities Act (except as herein
otherwise expressly provided or unless the context otherwise requires) shall
have the meanings assigned to such terms in said Trust Indenture Act and in said
Securities Act as in force at the date of the execution of this Indenture. The
words "herein," "hereof," "hereunder," and words of similar import refer to this
Indenture as a whole and not to any particular Article, Section or other
Subdivision. The terms defined in this Article include the plural as well as the
singular.
AFFILIATE: The term "Affiliate" of any specified person shall mean any
other person directly or indirectly controlling or controlled by or under direct
or indirect common control with such specified person. For the purposes of this
definition, "control," when used with respect to any specified person means the
power to direct or cause the direction of the management and policies of such
person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
BOARD OF DIRECTORS: The term "Board of Directors" shall mean the Board
of Directors of the Company or a committee of such Board duly authorized to act
for it hereunder.
BOARD RESOLUTION: The term "Board Resolution" means a copy of a
resolution certified by the Secretary or an Assistant Secretary of the Company
to have been duly adopted by the Board of Directors, or duly authorized
committee thereof (to the extent permitted by applicable law), and to be in full
force and effect on the date of such certification, and delivered to the
Trustee.
BUSINESS DAY: The term "Business Day" means each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day on which the banking
institutions in The City of New York or the city in which the Corporate Trust
Office is located are authorized or obligated by law or executive order to close
or be closed.
CHANGE IN CONTROL: The term "Change in Control" shall have the meaning
specified in Section 16.4.
CLOSE OF BUSINESS: The term "close of business" means 5 p.m. (New York
City time).
COMMISSION: The term "Commission" shall mean the Securities and
Exchange Commission.
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COMMON STOCK: The term "Common Stock" shall mean any stock of any class
of the Company which has no preference in respect of dividends or of amounts
payable in the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company and which is not subject to redemption by the Company.
Subject to the provisions of Section 15.6, however, shares issuable on
conversion of Notes shall include only shares of the class designated as common
stock of the Company at the date of this Indenture or shares of any class or
classes resulting from any reclassification or reclassifications thereof and
which have no preference in respect of dividends or of amounts payable in the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Company and which are not subject to redemption by the Company; PROVIDED
that if at any time there shall be more than one such resulting class, the
shares of each such class then so issuable shall be substantially in the
proportion which the total number of shares of such class resulting from all
such reclassifications bears to the total number of shares of all such classes
resulting from all such reclassifications.
COMPANY: The term "Company" shall mean iBasis, Inc., a Delaware
corporation, and subject to the provisions of Article 12, shall include its
successors and assigns.
CONVERSION PRICE: The term "Conversion Price" shall have the meaning
specified in Section 15.4.
CORPORATE TRUST OFFICE: The term "Corporate Trust Office," or other
similar term, shall mean the office of the Trustee at which at any particular
time its corporate trust business shall be principally administered, which
office is, at the date as of which this Indenture is dated, located at [101
Barclay Street, 21W, New York, New York 10286], Attention: Corporate Trust
Administration (iBasis ___% Convertible Subordinated Notes due 2005).
CUSTODIAN: The term "Custodian" means the custodian with respect to
respect to the Notes in global form (as appointed by DTC), or any successor
person thereto and shall initially be the Trustee.
DEFAULT: The term "default" shall mean any event that is, or after
notice or passage of time, or both, would be, an Event of Default.
DEPOSITARY: The term "Depositary" means, with respect to the Notes
issuable or issued in whole or in part in global form, the person specified in
Section 2.5(d) as the Depositary with respect to such Notes, until a successor
shall have been appointed and become such pursuant to the applicable provisions
of this Indenture, and thereafter, "Depositary" shall mean or include such
successor.
DESIGNATED SENIOR INDEBTEDNESS: The term "Designated Senior
Indebtedness" means the Company's obligations under any particular Senior
Indebtedness in which the instrument creating or evidencing the same or the
assumption or guarantee thereof (or related agreements or documents to which the
Company is a party) expressly provides that such Senior Indebtedness
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shall be "Designated Senior Indebtedness" for purposes of this Indenture
(provided that such instrument, agreement or other document may place
limitations and conditions on the right of such Senior Indebtedness to exercise
the rights of Designated Senior Indebtedness).
EVENT OF DEFAULT: The term "Event of Default" shall mean any event
specified in Section 7.1, continued for the period of time, if any, and after
the giving of notice, if any, therein designated.
EXCHANGE ACT: The term "Exchange Act" means the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated thereunder.
EXPIRATION TIME: The term "Expiration Time" shall have the meaning
specified in Section 15.5(f).
GLOBAL NOTE: The term "Global Note" shall have the meaning specified in
Section 2.5(b).
INDEBTEDNESS: The term "Indebtedness" shall mean any obligations of, or
guaranteed or assumed by, the Company or any Significant Subsidiary for borrowed
money.
INDENTURE: The term "Indenture" shall mean this instrument as
originally executed or, if amended or supplemented as herein provided, as so
amended or supplemented.
NOTE OR NOTES: The terms "Note" or "Notes" shall mean any Note or
Notes, as the case may be, authenticated and delivered under this Indenture.
NOTEHOLDER, HOLDER OR HOLDER: The terms "Noteholder", "Holder" or
"holder" as applied to any Note, or other similar terms (but excluding the term
"beneficial holder"), shall mean any person in whose name at the time a
particular Note is registered on the Note register.
NOTE REGISTER: The term "Note register" shall have the meaning
specified in Section 2.5.
OFFICERS' CERTIFICATE: The term "Officers' Certificate", when used with
respect to the Company, shall mean a certificate signed by (a) one of the
President, the Chief Executive Officer, Executive Vice President or any Vice
President (whether or not designated by a word or words added after the title
"Vice President") and (b) by one of the Treasurer or any Assistant Treasurer,
Secretary or any Assistant Secretary or Controller of the Company, which is
delivered to the Trustee. Each such certificate shall include the statements
provided for in Section 17.5 if and to the extent required by the provisions of
such Section.
OPINION OF COUNSEL: The term "Opinion of Counsel" shall mean an opinion
in writing signed by legal counsel, who may be an employee of or counsel to the
Company, or other counsel acceptable to the Trustee, which is delivered to the
Trustee. Each such opinion shall
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include the statements provided for in Section 17.5 if and to the extent
required by the provisions of such Section.
OUTSTANDING: The term "outstanding," when used with reference to Notes,
shall, subject to the provisions of Section 9.4, mean, as of any particular
time, all Notes authenticated and delivered by the Trustee under this Indenture,
except:
(a) Notes theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(b) Notes, or portions thereof, for the payment, or redemption of which
monies in the necessary amount shall have been deposited in trust with the
Trustee or with any paying agent (other than the Company) or shall have been set
aside and segregated in trust by the Company (if the Company shall act as its
own paying agent); PROVIDED that if such Notes are to be redeemed, as the case
may be, prior to the maturity thereof, notice of such redemption shall have been
given as provided in Section 3.2, or provision satisfactory to the Trustee shall
have been made for giving such notice;
(c) Notes in lieu of which, or in substitution for which, other Notes
shall have been authenticated and delivered pursuant to the terms of Section 2.6
unless proof satisfactory to the Trustee is presented that any such Notes are
held by bona fide holders in due course; and
(d) Notes converted into Common Stock pursuant to Article 15 and Notes
deemed not outstanding pursuant to Section 3.2.
PERSON OR PERSON: The term "person" or "Person" shall mean an
individual, a corporation, a limited liability company, an association, a
partnership, an individual, a joint venture, a joint stock company, a trust, an
unincorporated organization or a government or an agency or a political
subdivision thereof.
PREDECESSOR NOTE: The term "Predecessor Note" of any particular Note
shall mean every previous Note evidencing all or a portion of the same debt as
that evidenced by such particular Note; and, for the purposes of this
definition, any Note authenticated and delivered under Section 2.6 in lieu of a
lost, destroyed or stolen Note shall be deemed to evidence the same debt as the
lost, destroyed or stolen Note that it replaces.
REPURCHASE EVENT: The term "Repurchase Event" shall have the meaning
specified in Section 16.4.
REPURCHASE PRICE: The term "Repurchase Price" has the meaning specified
in Section 16.1.
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RESPONSIBLE OFFICER: The term "Responsible Officer", when used with
respect to the Trustee, shall mean an officer of the Trustee in the Corporate
Trust Office assigned and duly authorized by the Trustee to administer its
obligations under this Indenture.
SECURITIES ACT: The term "Securities Act" means the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder.
SENIOR INDEBTEDNESS: The term "Senior Indebtedness" means the principal
of, premium, if any, interest on (including any interest accruing after the
filing of a petition by or against the Company under any bankruptcy law, whether
or not allowed as a claim after such filing in any proceeding under such
bankruptcy law) and any other payment due pursuant to, any of the following,
whether outstanding on the date of this Indenture or thereafter incurred or
created:
(a) All indebtedness of the Company for money borrowed that is
evidenced by notes, debentures, bonds or other securities (including,
but not limited to, those which are convertible or exchangeable for
securities of the Company);
(b) All indebtedness of the Company due and owing with respect
to letters of credit (including, but not limited to, reimbursement
obligations with respect thereto), bankers' guarantees or bankers'
acceptances;
(c) All indebtedness or other obligations of the Company due
and owing with respect to interest rate and currency swap agreements,
cap, floor and collar agreements, currency spot and forward contracts
and other similar agreements and arrangements;
(d) All indebtedness consisting of commitment or standby fees
due and payable to lending institutions with respect to credit
facilities or letters of credit available to the Company;
(e) All obligations of the Company under leases required or
permitted to be capitalized under generally accepted accounting
principles;
(f) All indebtedness or obligations of others of the kinds
described in any of the preceding clauses (a), (b), (c), (d) or (e)
assumed by or guaranteed in any manner by the Company or in effect
guaranteed (directly or indirectly) by the Company through an agreement
to purchase, contingent or otherwise, and all obligations of the
Company under any such guarantee or other arrangements; and
(g) All renewals, extensions, refundings, deferrals,
amendments or modifications of indebtedness or obligations of the kinds
described in any of the preceding clauses (a), (b), (c), (d), (e) or
(f);
unless in the case of any particular indebtedness, obligation, renewal,
extension, refunding, amendment, modification or supplement, the instrument or
other document creating or
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evidencing the same or the assumption or guarantee of the same expressly
provides that such indebtedness, obligation, renewal, extension, refunding,
amendment, modification or supplement is subordinate to, or is not superior to,
or is PARI PASSU with, the Notes; PROVIDED that Senior Indebtedness shall not
include (i) any indebtedness of any kind of the Company to any subsidiary of the
Company, a majority of the voting stock of which is owned, directly or
indirectly, by the Company, (ii) indebtedness for trade payables or constituting
the deferred purchase price of assets or services incurred in the ordinary
course of business, or (iii) the Notes.
SIGNIFICANT SUBSIDIARY: The term "Significant Subsidiary" means, with
respect to any person, a Subsidiary of such person that would constitute a
"significant subsidiary" as such term is defined under Rule 1-02 of Regulation
S-X of the Securities and Exchange Commission.
SUBSIDIARY: The term "Subsidiary" means a corporation more than 50% of
the outstanding voting stock of which is owned, directly or indirectly, by the
Company or by one or more other Subsidiaries, or by the Company and one or more
other Subsidiaries. For the purposes of this definition, "voting stock" means
stock which ordinarily has voting power for the election of directors, whether
at all times or only so long as no senior class of stock has such voting power
by reason of any contingency.
TRADING DAY: The term "Trading Day" has the meaning specified in
Section 15.5(h)(5).
TRUST INDENTURE ACT: The term "Trust Indenture Act" shall mean the
Trust Indenture Act of 1939, as amended, as it was in force at the date of
execution of this Indenture, except as provided in Sections 11.3 and 15.6;
PROVIDED, HOWEVER, that in the event the Trust Indenture Act of 1939 is amended
after the date hereof, the term "Trust Indenture Act" shall mean, to the extent
required by such amendment, the Trust Indenture Act of 1939 as so amended.
TRUSTEE: The term "Trustee" shall mean [The Bank of New York], and its
successors and any corporation resulting from or surviving any consolidation or
merger to which it or its successors may be a party and any successor trustee at
the time serving as successor trustee hereunder.
The definitions of certain other terms are contained herein, including
those specified in Article 15 and Article 16.
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ARTICLE 2.
ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES
Section 2.1. DESIGNATION, AMOUNT AND ISSUE OF NOTES. The Notes shall
be designated as "__% Convertible Subordinated Notes due 2005." Notes not to
exceed the aggregate principal amount of $150,000,000 (or $172,500,000 if the
over-allotment option set forth in Section 2(c) of the Underwriting Agreement
dated ______________, 2000, as amended from time to time by the parties
thereto), by and between the Company and [_____________________] is exercised in
full) upon the execution of this Indenture, or (except pursuant to Sections 2.5,
2.6, 3.3, 15.2 and 16.2) from time to time thereafter, may be executed by the
Company and delivered to the Trustee for authentication, and the Trustee shall
thereupon authenticate and deliver said Notes upon the written order of the
Company, signed by the Company's (a) President, Executive Vice President or any
Vice President (whether or not designated by a word or words added after the
title "Vice President") and (b) Treasurer or Assistant Treasurer or its
Secretary or any Assistant Secretary, without any further action by the Company
hereunder other than the provision to the Trustee of an Officer's Certificate
and Opinion of Counsel.
Section 2.2. FORM OF NOTES. The Notes and the Trustee's certificate of
authentication to be borne by such Notes shall be substantially in the form set
forth in Exhibit A, which is incorporated in and made a part of this Indenture.
Any of the Notes may have such letters, numbers or other marks of
identification and such notations, legends and endorsements as the officers
executing the same may approve (execution thereof to be conclusive evidence of
such approval) and as are not inconsistent with the provisions of this
Indenture, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any
securities exchange or automated quotation system on which the Notes may be
listed or designated for issuance, or to conform to usage.
The Global Note shall represent such of the outstanding Notes as shall
be specified therein and shall provide that it shall represent the aggregate
amount of outstanding Notes from time to time endorsed thereon and that the
aggregate amount of outstanding Notes represented thereby may from time to time
be increased or reduced to reflect transfers or exchanges permitted hereby. Any
endorsement of the Global Note to reflect the amount of any increase or decrease
in the amount of outstanding Notes represented thereby shall be made by the
Trustee or the Custodian, at the direction of the Trustee, in such manner and
upon instructions given by the holder of such Notes in accordance with this
Indenture. Payment of principal of and interest and premium, if any (including
any redemption price), on the Global Note shall be made to the holder of such
Note.
The terms and provisions contained in the form of Note attached as
Exhibit A hereto shall constitute, and is hereby expressly made, a part of this
Indenture and to the extent applicable, the
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Company and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby.
Section 2.3. DATE AND DENOMINATION OF NOTES; PAYMENTS OF INTEREST. The
Notes shall be issuable in registered form without coupons in denominations of
$1,000 principal amount and integral multiples thereof. Every Note shall be
dated the date of its authentication, and shall bear interest from the
applicable date and accrued interest shall be payable [__________] and
[__________], commencing [__________], 2000 as specified on the face of the form
of Note, attached as Exhibit A hereto.
The person in whose name any Note (or its Predecessor Note) is
registered at the close of business on any record date with respect to any
interest payment date (including any Note that is converted after the record
date and on or before the interest payment date) shall be entitled to receive
the interest payable on such interest payment date notwithstanding the
cancellation of such Note upon any transfer, exchange or conversion subsequent
to the record date and on or prior to such interest payment date. Interest may,
at the option of the Company, be paid by check mailed to the address of such
person on the Note registry; PROVIDED that, with respect to any holder of Notes
with an aggregate principal amount equal to or in excess of $2,000,000, at the
request of such holder in writing to the Company, interest on such holder's
Notes shall be paid by wire transfer in immediately available funds in
accordance with the wire transfer instruction supplied by such holder from time
to time to the Trustee and paying agent (if different from Trustee) at least two
days prior to the applicable record date. The term "record date" with respect to
any interest payment date shall mean the [__________] or [__________] preceding
said [__________] or [__________], respectively.
Interest on the Notes shall be computed on the basis of a 360-day year
comprised of twelve 30-day months compounded semi-annually.
Any interest on any Note which is payable, but is not punctually paid
or duly provided for, on any said [__________] or [__________] (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Noteholder on
the relevant record date by virtue of his having been such Noteholder; and such
Defaulted Interest shall be paid by the Company, at its election in each case,
as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the persons in whose names the Notes (or their respective
Predecessor Notes) are registered at the close of business on a special
record date for the payment of such Defaulted Interest, which shall be
fixed in the following manner. The Company shall notify the Trustee in
writing of the amount of Defaulted Interest to be paid on each Note and
the date of the payment (which shall be not less than twenty-five (25)
days after the receipt by the Trustee of such notice, unless the
Trustee shall consent to an earlier date), and at the same time the
Company shall deposit with the Trustee an amount of money equal to the
aggregate amount to be paid in respect of such Defaulted Interest or
shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed
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payment, such money when deposited to be held in trust for the benefit
of the persons entitled to such Defaulted Interest as in this clause
provided. Thereupon the Trustee shall fix a special record date for the
payment of such Defaulted Interest which shall be not more than fifteen
(15) days and not less than ten (10) days prior to the date of the
proposed payment and not less than ten (10) days after the receipt by
the Trustee of the notice of the proposed payment. The Trustee shall
promptly notify the Company of such special record date and, in the
name and at the expense of the Company, shall cause notice of the
proposed payment of such Defaulted Interest and the special record date
therefor to be mailed, first-class postage prepaid, to each Noteholder
as of such special record date at his address as it appears in the Note
register, not less than ten (10) days prior to such special record
date. Notice of the proposed payment of such Defaulted Interest and the
special record date therefor having been so mailed, such Defaulted
Interest shall be paid to the persons in whose names the Notes (or
their respective Predecessor Notes) were registered at the close of
business on such special record date and shall no longer be payable
pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange or automated quotation system on which the Notes
may be listed or designated for issuance, and upon such notice as may
be required by such exchange or automated quotation system, if, after
notice given by the Company to the Trustee of the proposed payment
pursuant to this clause, such manner of payment shall be deemed
practicable by the Trustee.
Section 2.4. EXECUTION OF NOTES. The Notes shall be signed in the name
and on behalf of the Company by either the facsimile or manual signature of its
President, its Chief Executive Officer, any of its Executive or Senior Vice
Presidents, or any of its Vice Presidents (whether or not designated by a number
or numbers or word or words added before or after the title "Vice President")
and attested by either the manual or facsimile signature of its Secretary or any
of its Assistant Secretaries (which may be printed, engraved or otherwise
reproduced thereon, by facsimile or otherwise). Only such Notes as shall bear
thereon a certificate of authentication substantially in the form set forth on
the form of Note attached as Exhibit A hereto, manually executed by the Trustee
(or an authenticating agent appointed by the Trustee as provided by Section
17.11), shall be entitled to the benefits of this Indenture or be valid or
obligatory for any purpose. Such certificate by the Trustee (or such an
authenticating agent) upon any Note executed by the Company shall be conclusive
evidence that the Note so authenticated has been duly authenticated and
delivered hereunder and that the holder is entitled to the benefits of this
Indenture.
In case any officer of the Company who shall have signed any of the
Notes shall cease to be such officer before the Notes so signed shall have been
authenticated and delivered by the Trustee, or disposed of by the Company, such
Notes nevertheless may be authenticated and delivered or disposed of as though
the person who signed such Notes had not ceased to be such officer of the
Company; and any Note may be signed on behalf of the Company by such persons
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as, at the actual date of the execution of such Note, shall be the proper
officers of the Company, although at the date of the execution of this Indenture
any such person was not such an officer.
Section 2.5. EXCHANGE AND REGISTRATION OF TRANSFER OF NOTES;
DEPOSITARY.
(a) (1) The Company shall cause to be kept at the Corporate Trust
Office a register (the register maintained in such office and in any other
office or agency of the Company designated pursuant to Section 5.2 being herein
sometimes collectively referred to as the "Note register") in which, subject to
such reasonable regulations as it may prescribe, the Company shall provide for
the registration of Notes and of transfers of Notes. Such register shall be in
written form or in any form capable of being converted into written form within
a reasonable period of time. The Trustee is hereby appointed "Note registrar"
for the purpose of registering Notes and transfers of Notes as herein provided.
The Company may appoint one or more co-registrars in accordance with Section
5.2.
(2) Upon surrender for registration of transfer of any Note to
the Note registrar or any co-registrar, and satisfaction of the
requirements for such transfer set forth in this Section 2.5, the
Company shall execute, and the Trustee shall authenticate and deliver,
in the name of the designated transferee or transferees, one or more
new Notes of any authorized denominations and of a like aggregate
principal amount and bearing such restrictive legends as may be
required by this Indenture.
(3) Notes may be exchanged for other Notes of any authorized
denominations and of a like aggregate principal amount, upon surrender
of the Notes to be exchanged at any such office or agency. Whenever any
Notes are so surrendered for exchange, the Company shall execute, and
the Trustee shall authenticate and deliver, the Notes which the
Noteholder making the exchange is entitled to receive, bearing
registration numbers not contemporaneously outstanding.
(4) All Notes presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company, the
Trustee, the Note registrar or any co-registrar) be duly endorsed, or
be accompanied by a written instrument or instruments of transfer in
form satisfactory to the Company and duly executed, by the Noteholder
thereof or his attorney-in-fact duly authorized in writing.
(5) No service charge shall be charged to the Noteholder for any
exchange or registration of transfer of Notes, but the Company may
require payment of a sum sufficient to cover any tax, assessments or
other governmental charges that may be imposed in connection therewith
other than stamp or other duties imposed with respect to the issuance
of the Notes, which shall be paid by the Company.
(6) None of the Company, the Trustee, the Note registrar or any
co-registrar shall be required to exchange or register a transfer of
(a) any Notes for a period of fifteen (15) days next preceding any
selection of Notes to be redeemed or (b) any Notes called
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for redemption or, if a portion of any Note is selected or called for
redemption, such portion thereof selected or called for redemption or
(c) any Notes surrendered for conversion or, if a portion of any Note
is surrendered for conversion, such portion thereof surrendered for
conversion or (d) any Notes, or a portion of any Note, surrendered for
repurchase (and not withdrawn) in connection with a Repurchase Event.
(7) All Notes issued upon any transfer or exchange of Notes in
accordance with this Indenture shall be the valid obligations of the
Company, evidencing the same debt, and entitled to the same benefits
under this Indenture as the Notes surrendered upon such registration of
transfer or exchange.
(b) So long as the Notes are eligible for book-entry settlement with
the Depositary, unless otherwise required by law, all Notes shall be represented
by a Note in global form (the "Global Note") registered in the name of the
Depositary or the nominee of the Depositary. The transfer and exchange of
beneficial interests in the Global Note shall be effected through the Depositary
(but not the Trustee or the Custodian) in accordance with this Indenture
(including the restrictions on transfer set forth herein) and the procedures of
the Depositary therefor.
(c) Reserved.
(d) (1) Notwithstanding any other provisions of this Indenture (other
than the provisions set forth in this Section 2.5(d)), the Global Note may not
be transferred as a whole or in part except by the Depositary to a nominee of
the Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(2) The Depositary shall be a clearing agency registered under
the Exchange Act. The Company initially appoints The Depository Trust
Company to act as Depositary with respect to the Global Note.
Initially, the Global Note shall be issued to the Depositary,
registered in the name of Cede & Co., as the nominee of the Depositary,
and deposited with the Trustee as custodian for Cede & Co.
(3) If (i) the Depositary notifies the Company that it is
unwilling or unable to continue as, or ceases to be, a clearing agency
registered under Section 17A of the Exchange Act and a successor to the
Depositary registered as a clearing agency under Section 17A of the
Exchange Act is not able to be appointed by the Company within 90
calendar days, or (ii) the Depositary is at any time unwilling or
unable to continue as Depositary and a successor to the Depositary is
not able to be appointed by the Company within 90 calendar days, or
(iii) the Company, at its option, notifies the Trustee in writing that
it elects to cause the issuance of Notes in the form of definitive
Notes, the Company shall issue notes in denominations of $1,000 or an
integral multiple thereof to all beneficial owners of the Global Note
in exchange for their beneficial interests therein. If an Event of
Default occurs and is continuing, the Company shall, at the request of
the Noteholder thereof, exchange all or part of the Global Note for one
or more definitive
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Notes; PROVIDED that the principal amount of each of such definitive
Note and such Global Note, after such exchange, shall be $1,000.00 or
an integral multiple thereof. Whenever a Global Note is exchanged as a
whole for one or more definitive Notes it shall be surrendered by the
holder thereof to the Trustee for cancellation.
(4) If a Note in definitive form is issued in exchange for any
portion of a Global Note after the close of business on any record date
at the office or agency where such exchange occurs and before the
opening of business at such office or agency on the next succeeding
interest payment date, interest will not be payable on such interest
payment date in respect of such definitive Note, but will be payable on
such interest payment date only with respect to the exchanged portion
of the Global Note in accordance with the provisions of this Indenture.
(5) Definitive Notes issued in exchange for all or a part of the
Global Note pursuant to this Section 2.5(d) shall be registered in such
names and in such authorized denominations as the Depositary, pursuant
to instructions from its direct or indirect participants or otherwise,
shall instruct the Trustee. Upon execution and authentication, the
Trustee shall deliver such definitive Notes to the persons in whose
names such definitive Notes are so registered.
(6) At such time as all interests in the Global Note have been
redeemed, converted, canceled, repurchased or transferred, the Global
Note shall be, upon receipt thereof, canceled by the Trustee in
accordance with standing procedures and instructions existing between
the Depositary and the Custodian. At any time prior to such
cancellation, if any interest in the Global Note is exchanged for
definitive Notes, redeemed, converted, canceled, repurchased or
transferred to a transferee who receives definitive Notes therefor or
any definitive Note is exchanged or transferred for part of the Global
Note, the principal amount of the Global Note shall, in accordance with
the standing procedures and instructions existing between the
Depositary and the Custodian, be appropriately reduced or increased, as
the case may be, and an endorsement shall be made on the Global Note,
by the Trustee or the Custodian, at the direction of the Trustee, to
reflect such reduction or increase.
Section 2.6. MUTILATED, DESTROYED, LOST OR STOLEN NOTES.
(a) In case any Note shall become mutilated or be destroyed, lost or
stolen, the Company in its discretion may execute, and upon its request the
Trustee or an authenticating agent appointed by the Trustee shall authenticate
and deliver, a new Note, bearing a number not contemporaneously outstanding, in
exchange and substitution for the mutilated Note, or in lieu of and in
substitution for the Note so destroyed, lost or stolen. In every case the
applicant for a substituted Note shall furnish to the Company, to the Trustee
and, if applicable, to such authenticating agent such security or indemnity as
may be required by them to save each of them harmless for any loss, liability,
cost or expense caused by or connected with such substitution, and, in every
case of destruction, loss or theft, the applicant shall also furnish to the
Company, to
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the Trustee and, if applicable, to such authenticating agent evidence to their
satisfaction of the destruction, loss or theft of such Note and of the ownership
thereof.
(b) The Trustee or such authenticating agent may authenticate any such
substituted Note and deliver the same upon the receipt of such security or
indemnity as the Trustee, the Company and, if applicable, such authenticating
agent may require. Upon the issuance of any substituted Note, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses connected
therewith. In case any Note which has matured or is about to mature or has been
called for redemption or is about to be converted into Common Stock shall become
mutilated or be destroyed, lost or stolen, the Company may, instead of issuing a
substitute Note, pay or authorize the payment of or convert or authorize the
conversion of the same (without surrender thereof except in the case of a
mutilated Note), as the case may be, if the applicant for such payment or
conversion shall furnish to the Company, to the Trustee and, if applicable, to
such authenticating agent such security or indemnity as may be required by them
to save each of them harmless for any loss, liability, cost or expense caused by
or connected with such substitution, and, in case of destruction, loss or theft,
evidence satisfactory to the Company, the Trustee and, if applicable, any paying
agent or conversion agent of the destruction, loss or theft of such Note and of
the ownership thereof.
(c) Every substitute Note issued pursuant to the provisions of this
Section 2.6 by virtue of the fact that any Note is destroyed, lost or stolen
shall constitute an additional contractual obligation of the Company, whether or
not the destroyed, lost or stolen Note shall be found at any time, and shall be
entitled to all the benefits of (but shall be subject to all the limitations set
forth in) this Indenture equally and proportionately with any and all other
Notes duly issued hereunder. To the extent permitted by law, all Notes shall be
held and owned upon the express condition that the foregoing provisions are
exclusive with respect to the replacement or payment or conversion of mutilated,
destroyed, lost or stolen Notes and shall preclude any and all other rights or
remedies notwithstanding any law or statute existing or hereafter enacted to the
contrary with respect to the replacement or payment or conversion of negotiable
instruments or other securities without their surrender.
Section 2.7. TEMPORARY NOTES. Pending the preparation of definitive
Notes, the Company may execute and the Trustee or an authenticating agent
appointed by the Trustee shall, upon written request of the Company,
authenticate and deliver temporary Notes (printed or lithographed). Temporary
Notes shall be issuable in any authorized denomination, and substantially in the
form of the definitive Notes but with such omissions, insertions and variations
as may be appropriate for temporary Notes, all as may be determined by the
Company. Every such temporary Note shall be executed by the Company and
authenticated by the Trustee or such authenticating agent upon the same
conditions and in substantially the same manner, and with the same effect, as
the definitive Notes. Without unreasonable delay the Company will execute and
deliver to the Trustee or such authenticating agent definitive Notes (other than
in the case of Notes in global form) and thereupon any or all temporary Notes
(other than any the Global Note) may be surrendered in exchange therefor, at
each office or agency maintained by
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the Company pursuant to Section 5.2 and the Trustee or such authenticating agent
shall authenticate and deliver in exchange for such temporary Notes an equal
aggregate principal amount of definitive Notes. Such exchange shall be made by
the Company at its own expense and without any charge therefor. Until so
exchanged, the temporary Notes shall in all respects be entitled to the same
benefits and subject to the same limitations under this Indenture as definitive
Notes authenticated and delivered hereunder.
Section 2.8. CANCELLATION OF NOTES PAID, ETC. All Notes surrendered for
the purpose of payment, redemption, repurchase, conversion, exchange or
registration of transfer, shall, if surrendered to the Company or any paying
agent or any Note registrar or any conversion agent, be surrendered to the
Trustee and promptly canceled by it, or, if surrendered to the Trustee, shall be
promptly canceled by it, and no Notes shall be issued in lieu thereof except as
expressly permitted by any of the provisions of this Indenture. Upon written
instructions of the Company, the Trustee shall destroy canceled Notes and, after
such destruction, shall deliver a certificate of such destruction to the
Company. If the Company shall acquire any of the Notes, such acquisition shall
not operate as a redemption or satisfaction of the indebtedness represented by
such Notes unless and until the same are delivered to the Trustee for
cancellation.
ARTICLE 3.
REDEMPTION OF NOTES
Section 3.1. REDEMPTION PRICES.
(a) OPTIONAL REDEMPTION. The Company may, at its option, redeem all or
from time to time any part of the Notes on any date prior to maturity, upon
notice as set forth in Section 3.2, and at the optional redemption prices set
forth in the form of Note attached as Exhibit A hereto, together with accrued
interest, if any, to, but excluding, the date fixed for redemption, PROVIDED,
HOWEVER, that, other than as provided in Section 3.1(b), no such redemption
shall be effected before _______, 2003.
(b) PROVISIONAL REDEMPTION. The Notes may be redeemed by the Company (a
"Provisional Redemption"), in whole or in part, at any time prior to __________,
2003, upon notice as set forth in Section 3.2, at a redemption price equal to
$1,000 per $1,000 principal amount of Notes to be redeemed plus accrued and
unpaid interest, if any, to the date of redemption (the "Provisional Redemption
Date") if (i) the closing price of the Common Stock shall have exceeded 150% of
the Conversion Price then in effect for at least 20 Trading Days in any
consecutive 30-Trading Day period ending on the Trading Day prior to the date of
mailing of the notice of redemption pursuant to Section 3.2 (the "Notice Date").
Upon any such Provisional Redemption, the Company shall make an additional
payment in cash (the "Make-Whole Payment") with respect to the Notes called for
redemption to holders on the Notice Date in an amount equal to $_____ per $1,000
Note, less the aggregate amount of any interest actually paid on such Note at
any time prior to the Notice Date. The Company shall make the Make-Whole Payment
on all Notes called for Provisional Redemption, including any Notes converted
into
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Common Stock pursuant to the terms hereof after the Notice Date and prior to the
Provisional Redemption Date. For purposes of this Article, the term "Conversion
Price" shall have the meaning given such term in Section 15.4 hereof.
Section 3.2. NOTICE OF REDEMPTION; SELECTION OF NOTES.
(a) In case the Company shall desire to exercise the right to redeem
all or, as the case may be, any part of the Notes pursuant to Section 3.1, it
shall fix a date for redemption, and it, or at its request (which must be
received by the Trustee at least ten (10) Business Days prior to the date the
Trustee is requested to give notice as described below unless a shorter period
is agreed to by the Trustee), the Trustee in the name of and at the expense of
the Company, shall mail or cause to be mailed a notice of such redemption at
least twenty (20) and not more than sixty (60) days prior to the date fixed for
redemption to the holders of Notes so to be redeemed as a whole or in part at
their last addresses as the same appear on the Note register (PROVIDED that if
the Company shall give such notice, it shall also give such notice, and notice
of the Notes to be redeemed, to the Trustee). Such mailing shall be by first
class mail. The notice if mailed in the manner herein provided shall be
conclusively presumed to have been duly given, whether or not the holder
receives such notice. In any case, failure to give such notice by mail or any
defect in the notice to the holder of any Note designated for redemption as a
whole or in part shall not affect the validity of the proceedings for the
redemption of any other Note.
(b) Each such notice of redemption shall specify the aggregate
principal amount of Notes to be redeemed, the date fixed for redemption, the
redemption price at which Notes are to be redeemed, the place or places of
payment, that payment will be made upon presentation and surrender of such
Notes, that interest accrued to, but excluding, the date fixed for redemption
will be paid as specified in said notice, and that on and after said date
interest thereon or on the portion thereof to be redeemed will cease to accrue.
Such notice shall also state the current Conversion Price and the date on which
the right to convert such Notes or portions thereof into Common Stock will
expire. If fewer than all the Notes are to be redeemed, the notice of redemption
shall identify the Notes to be redeemed. In case any Note is to be redeemed in
part only, the notice of redemption shall state the portion of the principal
amount thereof to be redeemed and shall state that on and after the date fixed
for redemption, upon surrender of such Note, a new Note or Notes in principal
amount equal to the unredeemed portion thereof will be issued.
(c) On or prior to the redemption date specified in the notice of
redemption given as provided in this Section, the Company will deposit with the
Trustee or with one or more paying agents (or, if the Company is acting as its
own paying agent, set aside, segregate and hold in trust as provided in Section
5.4) an amount of money sufficient to redeem on the redemption date all the
Notes (or portions thereof) so called for redemption (other than those
theretofore surrendered for conversion into Common Stock) at the appropriate
redemption price, together with accrued interest to, but excluding, the date
fixed for redemption; PROVIDED that if such payment is made on the redemption
date it must be received by the Trustee or paying agent, as the case may be, by
10:00 a.m. New York City time, on such date. If any Note called for redemption
is converted
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pursuant hereto, any money deposited with the Trustee or any paying agent or so
segregated and held in trust for the redemption of such Note shall be paid to
the Company upon its request, or, if then held by the Company shall be
discharged from such trust.
(d) If fewer than all the Notes are to be redeemed, the Company will
give the Trustee written notice in the form of an Officers' Certificate not
fewer than twenty-five (25) days (or such shorter period of time as may be
acceptable to the Trustee) prior to the redemption date as to the aggregate
principal amount of Notes to be redeemed. If fewer than all the Notes are to be
redeemed, the Trustee shall select the Notes or portions thereof to be redeemed
(in principal amounts of $1,000 or integral multiples thereof), by lot, or by a
method the Trustee considers fair and appropriate (as long as such method is not
prohibited by the rules of any United States national securities exchange or of
an established automated over-the-counter trading market in the United States on
which the Notes are then listed). If any Note selected for partial redemption is
converted in part after such selection, the converted portion of such Note shall
be deemed (so far as is possible) to be the portion to be selected for
redemption. The Notes (or portions thereof) so selected shall be deemed duly
selected for redemption for all purposes hereof, notwithstanding that any such
Note is converted as a whole or in part before the mailing of the notice of
redemption.
(e) Upon any redemption of less than all Notes, the Company and the
Trustee may (but need not) treat as outstanding any Notes surrendered for
conversion during the period of fifteen (15) days next preceding the mailing of
a notice of redemption and may (but need not) treat as not outstanding any Note
authenticated and delivered during such period in exchange for the unconverted
portion of any Note converted in part during such period.
Section 3.3. PAYMENT OF NOTES CALLED FOR REDEMPTION.
(a) If notice of redemption has been given as above provided, the Notes
or portion of Notes with respect to which such notice has been given shall,
unless converted into Common Stock pursuant to the terms hereof, become due and
payable on the date and at the place or places stated in such notice at the
applicable redemption price, together with interest accrued to, but excluding,
the date fixed for redemption, and on and after said date (unless the Company
shall default in the payment of such Notes at the redemption price, together
with interest accrued to, but excluding, said date) interest on the Notes or
portion of Notes so called for redemption shall cease to accrue and such Notes
shall cease after the close of business on the Business Day next preceding the
date fixed for redemption to be convertible into Common Stock and, except as
provided in Sections 8.5 and 13.4, to be entitled to any benefit or security
under this Indenture, and the holders thereof shall have no right in respect of
such Notes except the right to receive the redemption price thereof and unpaid
interest to, but excluding, the date fixed for redemption. On presentation and
surrender of such Notes at a place of payment in said notice specified, the said
Notes or the specified portions thereof to be redeemed shall be paid and
redeemed by the Company at the applicable redemption price, together with
interest accrued thereon to, but excluding, the date fixed for redemption;
PROVIDED that, if the applicable redemption date is an interest payment date,
the semi-annual payment of interest becoming due on such date shall be
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payable to the holders of such Notes registered as such on the relevant record
date subject to the terms and provisions of Section 2.3 hereof.
(b) Upon presentation of any Note redeemed in part only, the Company
shall execute and the Trustee shall authenticate and deliver to the holder
thereof, at the expense of the Company, a new Note or Notes, of authorized
denominations, in principal amount equal to the unredeemed portion of the Notes
so presented.
(c) Notwithstanding the foregoing, the Trustee shall not redeem any
Notes or mail any notice of optional redemption during the continuance of a
default in payment of interest or premium on the Notes or of any Event of
Default of which, in the case of any Event of Default other than under Section
7.1(a), (b), (c) or (e), a Responsible Officer of the Trustee has knowledge. If
any Note called for redemption shall not be so paid upon surrender thereof for
redemption, the principal and premium, if any, shall, until paid or duly
provided for, bear interest from the date fixed for redemption at the rate borne
by the Note and such Note shall remain convertible into Common Stock until the
principal and premium, if any, shall have been paid or duly provided for.
Section 3.4. CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION. In
connection with any redemption of Notes, the Company may arrange for the
purchase and conversion of any Notes not converted prior to the expiration of
such conversion right by an agreement with one or more investment bankers or
other purchasers to purchase such Notes by paying to the Trustee in trust for
the Noteholders, on or before the date fixed for redemption, an amount not less
than the applicable redemption price, together with interest accrued to the date
fixed for redemption, of such Notes. Notwithstanding anything to the contrary
contained in this Article 3, the obligation of the Company to pay the redemption
price of such Notes, together with interest accrued to, but excluding, the date
fixed for redemption, shall be deemed to be satisfied and discharged to the
extent such amount is so paid by such purchasers. If such an agreement is
entered into, a copy of which, certified as true and correct by the Secretary or
Assistant Secretary of the Company will be filed with the Trustee prior to the
date fixed for redemption, any Notes not duly surrendered for conversion by the
holders thereof may, at the option of the Company, be deemed, to the fullest
extent permitted by law, acquired by such purchasers from such holders and
(notwithstanding anything to the contrary contained in Article 15) surrendered
by such purchasers for conversion, all as of immediately prior to the close of
business on the date fixed for redemption (and the right to convert any such
Notes shall be deemed to have been extended through such time), subject to
payment of the above amount as aforesaid. At the direction of the Company, the
Trustee shall hold and dispose of any such amount paid to it in the same manner
as it would monies deposited with it by the Company for the redemption of Notes.
Without the Trustee's prior written consent, no arrangement between the Company
and such purchasers for the purchase and conversion of any Notes shall increase
or otherwise affect any of the powers, duties, responsibilities or obligations
of the Trustee as set forth in this Indenture, and the Company agrees to
indemnify the Trustee from, and hold it harmless against, any loss, liability or
expense arising out of or in connection with any such arrangement for the
purchase and conversion of any Notes between the Company and such purchasers,
including the costs and
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expenses incurred by the Trustee in the defense of any claim or liability
arising out of or in connection with the exercise or performance of any of its
powers, duties, responsibilities or obligations under this Indenture.
ARTICLE 4.
SUBORDINATION OF NOTES
Section 4.1. AGREEMENT OF SUBORDINATION. The Company covenants and
agrees, and each holder of Notes issued hereunder by his acceptance thereof
likewise covenants and agrees, that all Notes shall be issued subject to the
provisions of this Article 4; and each person holding any Note, whether upon
original issue or upon transfer, assignment or exchange thereof, accepts and
agrees to be bound by such provisions.
The payment of the principal of, premium, if any, and interest on all
Notes (including, but not limited to, the redemption price or repurchase price
with respect to the Notes to be redeemed or repurchased, as provided in this
Indenture) issued hereunder shall, to the extent and in the manner hereinafter
set forth, be subordinated to the prior payment in full, in cash or in such
other form of payment as may be acceptable to the holders of Senior
Indebtedness, of all Senior Indebtedness, whether outstanding at the date of
this Indenture or thereafter incurred or created.
No provision of this Article 4 shall prevent the occurrence of any
default or Event of Default hereunder.
Section 4.2. PAYMENTS TO NOTEHOLDERS. No payment (including pursuant
to any redemption or repurchase of Notes) shall be made with respect to the
principal of, or premium, if any, or interest on the Notes, except payments and
distributions made by the Trustee as permitted by Section 4.6, if:
(a) a default in the payment of principal, premium, if any, or
interest or other payment due on Designated Senior Indebtedness occurs
and is continuing beyond any applicable period of grace; or
(b) any other default occurs and is continuing with respect to
Designated Senior Indebtedness that then permits holders of the
Designated Senior Indebtedness as to which such default related to
accelerate its maturity and the Trustee and the Company receive a
notice of such default (a "Payment Blockage Notice") from a
representative of Designated Senior Indebtedness or a holder of
Designated Senior Indebtedness or the Company.
The Company may and shall resume payments on the Notes (1) in the case
of a payment default, on the date upon which such default is cured or waived or
ceases to exist, and (2) in the case of a nonpayment default with respect to
Designated Senior Indebtedness, on the earlier of
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the date on which the nonpayment default is cured or waived or ceases to exist
or 179 days pass after the date on which the applicable Payment Blockage Notice
is received.
No new period of payment blockage may be commenced pursuant to a
Payment Blockage Notice unless (A) at least 365 days shall have elapsed since
the first day of effectiveness of the immediately prior Payment Blockage Notice
and (B) all scheduled payments of principal, premium, if any, and interest on
the Notes that have come due have been paid in full in cash, or in such other
form of payment as may be acceptable to the holders of the Notes. No default
(whether or not such event of default is on the same issue of Designated Senior
Indebtedness) that existed or was continuing on the date of delivery of any
Payment Blockage Notice to the Trustee shall be, or be made, the basis for a
subsequent Payment Blockage Notice.
In addition, in the event of any acceleration of the Notes because of
an Event of Default, no payment or distribution (including with respect to any
redemption or repurchase of the Notes) shall be made to the Trustee or any
holder of Notes with respect to the principal of, premium, if any, or interest
on the Notes, except payments and distributions made by the Trustee as permitted
by Section 4.6, until all Senior Indebtedness has been paid in full in cash or
other payment satisfactory to the holders of Senior Indebtedness or such
acceleration is rescinded in accordance with the terms of this Indenture. If
payment of the Notes is accelerated because of an Event of Default, the Company
shall promptly notify holders of Senior Indebtedness of the acceleration.
Notwithstanding the foregoing, in the event that the Trustee or any
holder of Notes receives any payment or distribution of assets of the Company of
any kind in contravention of any term of this Indenture, whether in cash,
property or securities, including, without limitation, by way of setoff or
otherwise, before all Senior Indebtedness is paid in full, in cash or such other
form of payment as may be acceptable to the holders of Senior Indebtedness, then
such payment or distribution shall be held by the recipient or recipients in
trust for the benefit of, and shall immediately be paid over or delivered to,
the holders of Senior Indebtedness or their respective representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any Senior Indebtedness may have been issued,
as their respective interests may appear, as calculated by the Company, for
application to the payment of all Senior Indebtedness remaining unpaid to the
extent necessary to make payment in full, in cash or such other form of payment
as may be acceptable to the holders of Senior Indebtedness, of all Senior
Indebtedness remaining unpaid, after giving effect to any concurrent payment or
distribution, or provision therefor, to or for the holders of such Senior
Indebtedness.
Nothing in this Section 4.2 shall apply to claims of, or payments to,
the Trustee pursuant to Section 8.6. This Section 4.2 shall be subject to the
further provisions of Section 4.6.
Section 4.3. BANKRUPTCY AND DISSOLUTION, ETC. Upon any payment by the
Company, or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to creditors upon any dissolution,
winding-up, liquidation or reorganization of the Company, whether voluntary or
involuntary or in bankruptcy, insolvency, receivership or other proceedings, all
amounts due or to become due upon all Senior Indebtedness shall first be paid in
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full, in cash or in such other form of payment as may be acceptable to the
holders of Senior Indebtedness, before any payment is made on account of the
principal or premium, if any, and interest on the Notes (except payments made
pursuant to Article 13 from monies deposited with the Trustee pursuant thereto
prior to the happening of such dissolution, winding-up, liquidation or
reorganization or bankruptcy, insolvency, receivership or other such
proceedings); and upon any such dissolution, winding-up, liquidation or
reorganization or bankruptcy, insolvency, receivership or other such
proceedings, any payment by the Company, or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
which the holders of the Notes or the Trustee under this Indenture would be
entitled, except for the provision of this Article 4, shall (except as
aforesaid) be paid by the Company or by any receiver, trustee in bankruptcy,
liquidating trustee, agent or other person making such payment or distribution,
or by the holders of the Notes or by the Trustee under this Indenture if
received by them or it, directly to the holders of Senior Indebtedness (pro rata
to such holders on the basis of the respective amounts of Senior Indebtedness
held by such holders, or as otherwise required by law or a court order) or their
respective representative or representatives, or to the trustee or trustees
under any indenture pursuant to which any instruments evidencing any Senior
Indebtedness may have been issued, as their respective interests may appear, to
the extent necessary to pay all Senior Indebtedness in full in cash or in such
other form of payment as may be acceptable to the holders of Senior Indebtedness
after giving effect to any concurrent payment or distribution to or for the
holders of Senior Indebtedness, before any payment or distribution is made to
the holders of the Notes or to the Trustee under this Indenture.
Notwithstanding the foregoing, in the event that the Trustee or any
holder of Notes receives any payment or distribution of assets of the Company of
any kind in contravention of any term of this Indenture, whether in cash,
property or securities, including, without limitation, by way of setoff or
otherwise, before all Senior Indebtedness is paid in full, in cash or such other
form of payment as may be acceptable to the holders of Senior Indebtedness, then
such payment or distribution shall be held by the recipient or recipients in
trust for the benefit of, and shall immediately be paid over or delivered to,
the holders of Senior Indebtedness or their respective representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any Senior Indebtedness may have been issued,
as their respective interests may appear, as calculated by the Company, for
application to the payment of all Senior Indebtedness remaining unpaid to the
extent necessary to make payment in full, in cash or such other form of payment
as may be acceptable to the holders of Senior Indebtedness, of all Senior
Indebtedness remaining unpaid, after giving effect to any concurrent payment or
distribution, or provision therefor, to or for the holders of such Senior
Indebtedness.
For purposes of Section 4.2 hereof and this Section 4.3, the words
"cash, property or securities" shall not be deemed to include shares of stock of
the Company as reorganized or readjusted, or securities of the Company or any
other corporation provided for by a plan of reorganization or readjustment, the
payment of which is subordinated (at least to the extent provided in this
Article 4 with respect to the Notes) to the payment of all Senior Indebtedness
which may at the time be outstanding; PROVIDED that (i) the Senior Indebtedness
is assumed by the new corporation, if any, resulting from such reorganization or
adjustment, and (ii) the rights
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of the holders of Senior Indebtedness (other than leases which are not assumed
by the Company or by the new corporation, as the case may be) are not, without
the consent of such holders, altered by such reorganization or readjustment. The
consolidation of the Company with, or the merger of the Company into, another
corporation or the liquidation or dissolution of the Company following the
conveyance or transfer of its property as an entirety, or substantially as an
entirety, to another corporation upon the terms and conditions provided for in
Article 12 shall not be deemed a dissolution, winding-up, liquidation or
reorganization for the purposes of this Section 4.3 if such other corporation
shall, as a part of such consolidation, merger, conveyance or transfer, comply
with the conditions stated in Article 12.
Nothing in this Section 4.3 shall apply to claims of, or payments to,
the Trustee under or pursuant to Section 8.6. This Section 4.3 shall be subject
to the further provisions of Section 4.6.
Section 4.4. SUBROGATION OF NOTES. Subject to the payment in full in
cash or in such other form of payment as may be acceptable to the holders of
Senior Indebtedness of all Senior Indebtedness, the rights of the holders of the
Notes shall be subrogated to the extent of the payments or distributions made to
the holders of such Senior Indebtedness pursuant to the provisions of this
Article 4 (equally and ratably with the holders of all indebtedness of the
Company which by its express terms is subordinated to other indebtedness of the
Company to substantially the same extent as the Notes are subordinated and is
entitled to like rights of subrogation) to the rights of the holders of Senior
Indebtedness to receive payments or distributions of cash, property or
securities of the Company applicable to the Senior Indebtedness until the
principal of, and premium, if any, and interest on the Notes shall be paid in
full; and, for the purposes of such subrogation, no payments or distributions to
the holders of the Senior Indebtedness of any cash, property or securities to
which the holders of the Notes or the Trustee would be entitled except for the
provisions of this Article 4, and no payment over pursuant to the provisions of
this Article 4, to or for the benefit of the holders of Senior Indebtedness by
holders of the Notes or the Trustee, shall, as between the Company, its
creditors other than holders of Senior Indebtedness, and the holders of the
Notes, be deemed to be a payment by the Company to or on account of the Senior
Indebtedness; and no payments or distributions of cash, property or securities
to or for the benefit of the holders of the Notes pursuant to the subrogation
provisions of this Article 4, which would otherwise have been paid to the
holders of Senior Indebtedness shall be deemed to be a payment by the Company to
or for the account of the Notes. It is understood that the provisions of this
Article 4 are and are intended solely for the purposes of defining the relative
rights of the holders of the Notes, on the one hand, and the holders of the
Senior Indebtedness, on the other hand.
Nothing contained in this Article 4 or elsewhere in this Indenture or
in the Notes is intended to or shall impair, as among the Company, its creditors
other than the holders of Senior Indebtedness, and the holders of the Notes, the
obligation of the Company, which is absolute and unconditional, to pay to the
holders of the Notes the principal of, and premium, if any, and interest on the
Notes as and when the same shall become due and payable in accordance with their
terms, or is intended to or shall affect the relative rights of the holders of
the Notes and creditors of the Company other than the holders of the Senior
Indebtedness, nor shall anything
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herein or therein prevent the Trustee or the holder of any Note from exercising
all remedies otherwise permitted by applicable law upon default under this
Indenture, subject to the rights, if any, under this Article 4 of the holders of
Senior Indebtedness in respect of cash, property or securities of the Company
received upon the exercise of any such remedy.
Upon any payment or distribution of assets of the Company referred to
in this Article 4, the Trustee, subject to the provisions of Section 8.1, and
the holders of the Notes shall be entitled to rely upon any order or decree made
by any court of competent jurisdiction in which such bankruptcy, dissolution,
winding-up, liquidation or reorganization proceedings are pending, or a
certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent
or other person making such payment or distribution, delivered to the Trustee or
to the holders of the Notes, for the purpose of ascertaining the persons
entitled to participate in such distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article 4.
Section 4.5. AUTHORIZATION BY NOTEHOLDERS. Each holder of a Note by
his acceptance thereof authorizes and directs the Trustee on his behalf to take
such action as may be necessary or appropriate to effectuate the subordination
provided in this Article 4 and appoints the Trustee his attorney-in-fact for any
and all such purposes.
Section 4.6. NOTICE TO TRUSTEE. The Company shall give written notice
to the Trustee of the issuance of any Designated Senior Indebtedness. In
addition, the Company shall give prompt written notice in the form of an
Officers' Certificate to a Responsible Officer of the Trustee and to any paying
agent of any fact known to the Company which would prohibit the making of any
payment of monies to or by the Trustee or any paying agent in respect of the
Notes pursuant to the provisions of this Article 4. Notwithstanding the
provisions of this Article 4 or any other provision of this Indenture, the
Trustee shall not be charged with knowledge of the existence of any Senior
Indebtedness or of any default or event of default with respect to any Senior
Indebtedness or of any other facts which would prohibit the making of any
payment of monies to or by the Trustee in respect of the Notes pursuant to the
provisions of this Article 4, unless and until a Responsible Officer of the
Trustee shall have received written notice thereof at the Corporate Trust Office
from the Company (in the form of an Officers' Certificate) or a holder or
holders of Senior Indebtedness or from any trustee thereof who shall have been
certified by the Company or otherwise established to the reasonable satisfaction
of the Trustee to be such holder or trustee; and before the receipt of any such
written notice, the Trustee, subject to the provisions of Section 8.1, shall be
entitled in all respects to assume that no such facts exist; PROVIDED that if on
a date at least two (2) Business Days prior to the date upon which by the terms
hereof any such monies may become payable for any purpose (including, without
limitation, the payment of the principal of, or premium, if any, or interest on
any Note), the Trustee shall not have received with respect to such monies the
notice provided for in this Section 4.6, then, anything herein contained to the
contrary notwithstanding, the Trustee shall have full power and authority to
receive such monies and to apply the same to the purpose for
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which they were received, and shall not be affected by any notice to the
contrary which may be received by it on or after such prior date.
Notwithstanding anything to the contrary hereinbefore set forth,
nothing shall prevent (a) any payment by the Company or the Trustee to the
Noteholders of amounts in connection with a redemption of Notes if (i) notice of
such redemption has been given to the Noteholders pursuant to Article 3 prior to
the receipt by the Trustee of written notice as aforesaid, and (ii) such notice
of redemption is given not earlier than sixty (60) days before the redemption
date, (b) any payment by the Company or the Trustee to the Noteholders of
amounts in connection with a repurchase of Notes if (i) notice of such
repurchase has been given pursuant to Article 16 prior to the receipt by the
Trustee of written notice as aforesaid, and (ii) such notice of repurchase is
given not earlier than forty (40) days before the repurchase date, or (c) any
payment by the Trustee to the Noteholders of monies deposited with it pursuant
to Section 13.1.
The Trustee, subject to the provisions of Section 8.1, shall be
entitled to rely on the delivery to it of a written notice by a person
representing himself to be a holder of Senior Indebtedness (or a trustee on
behalf of such holder) to establish that such notice has been given by a holder
of Senior Indebtedness or a trustee on behalf of any such holder or holders. In
the event that the Trustee determines in good faith that further evidence is
required with respect to the right of any person as a holder of Senior
Indebtedness to participate in any payment or distribution pursuant to this
Article 4, the Trustee may request such person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such person, the extent to which such person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such person under this Article 4, and if such evidence is not furnished the
Trustee may defer any payment to such person pending judicial determination as
to the right of such person to receive such payment.
Section 4.7. TRUSTEE'S RELATION TO SENIOR INDEBTEDNESS. The Trustee
and any agent of the Company or the Trustee in its individual capacity shall be
entitled to all the rights set forth in this Article 4 in respect of any Senior
Indebtedness at any time held by it, to the same extent as any other holder of
Senior Indebtedness, and nothing in Section 8.13 or elsewhere in this Indenture
shall deprive the Trustee or any such agent of any of its rights as such holder.
Nothing in this Article 4 shall apply to claims of, or payments to, the Trustee
under or pursuant to Section 8.6.
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article 4, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness and, subject to the
provisions of Section 4.2 and Section 8.1, the Trustee shall not be liable to
any holder of Senior Indebtedness if it shall pay over or deliver to holders of
Notes, the Company or any other person money or assets to which any holder of
Senior Indebtedness shall be entitled by virtue of this Article 4 or otherwise.
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Section 4.8. NO IMPAIRMENT OF SUBORDINATION. No right of any present
or future holder of any Senior Indebtedness to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Company or by any act or failure to act, in
good faith, by any such holder, or by any noncompliance by the Company with the
terms, provisions and covenants of this Indenture, regardless of any knowledge
thereof which any such holder may have or otherwise be charged with.
Section 4.9. CERTAIN CONVERSIONS DEEMED PAYMENT. For the purposes of
this Article 4 only, (1) the issuance and delivery of junior securities upon
conversion of Notes in accordance with Article 15 shall not be deemed to
constitute a payment or distribution on account of the principal of (or premium,
if any) or interest on Notes or on account of the purchase or other acquisition
of Notes, and (2) the payment, issuance or delivery of cash, property or
securities (other than junior securities) upon conversion of a Note shall be
deemed to constitute payment on account of the principal of such Note. For the
purposes of this Section, the term "junior securities" means (a) shares of any
stock of any class of the Company and (b) securities of the Company which are
subordinated in right of payment to all Senior Indebtedness which may be
outstanding at the time of issuance or delivery of such securities to
substantially the same extent as, or to a greater extent than, the Notes are so
subordinated as provided in this Article. Nothing contained in this Article or
elsewhere in this Indenture or in the Notes is intended to or shall impair, as
among the Company, its creditors other than holders of Senior Indebtedness and
the holders of the Notes, the right, which is absolute and unconditional, of the
holder of any Note to convert such Note in accordance with Article 15.
Section 4.10. ARTICLE APPLICABLE TO PAYING AGENTS. If at any time any
paying agent other than the Trustee shall have been appointed by the Company and
be then acting hereunder, the term Trustee as used in this Article 4 shall
(unless the context shall otherwise require) be construed as extending to and
including such paying agent within its meaning as fully for all intents and
purposes as if such paying agent were named in this Article in addition to or in
place of the Trustee; provided, however, that the first sentence of Section 4.5
shall not apply to the Company or any Affiliate of the Company if it or such
Affiliate acts as paying agent.
ARTICLE 5.
PARTICULAR COVENANTS OF THE COMPANY
Section 5.1. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST. The Company
covenants and agrees that it will duly and punctually pay or cause to be paid
the principal of and premium, if any, and interest on each of the Notes at the
places, at the respective times and in the manner provided herein and in the
Notes. Each installment of interest on the Notes due on any semi-annual interest
payment date may be paid by mailing checks for the interest payable to or upon
the written order of the holders of Notes entitled thereto as they shall appear
on the registry books of the Company, provided that, with respect to any holder
of Notes with an aggregate principal amount equal to or in excess of $2,000,000,
at the request of such holder in writing to
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the Company, interest on such holder's Notes shall be paid by wire transfer in
immediately available funds in accordance with the wire transfer instructions
supplied by such holder from time to time to the Trustee and paying agent (if
different from Trustee) at least two days prior to the applicable record date;
PROVIDED, FURTHER that any payment to the Depositary or its nominee shall be
made by wire transfer of immediately available funds to the account of the
Depositary or its +nominee.
Section 5.2. MAINTENANCE OF OFFICE OR AGENCY. The Company will
maintain in the Borough of Manhattan, The City of New York, an office or agency
where the Notes may be surrendered for registration of transfer or exchange or
for presentation for payment or for conversion, redemption or repurchase and
where notices and demands to or upon the Company in respect of the Notes and
this Indenture may be served. The Company will give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency not designated or appointed by the Trustee. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office or the
office or agency of the Trustee in the Borough of Manhattan, The City of New
York.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; PROVIDED
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in the Borough of Manhattan,
The City of New York, for such purposes. The Company will give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
The Company hereby initially designates the Trustee as paying agent,
Note registrar, Custodian and conversion agent and the Corporate Trust Office
and the office or agency of the Trustee in the Borough of Manhattan, The City of
New York (which initially shall be the office of the Trustee located at [101
Barclay Street, 21W, New York, New York 10286]) as one such office or agency of
the Company for each of the aforesaid purposes.
So long as the Trustee is the Note registrar, the Trustee agrees to
mail, or cause to be mailed, the notices set forth in Section 8.10(a) and the
third paragraph of Section 8.11.
Section 5.3. APPOINTMENTS TO FILL VACANCIES IN TRUSTEE'S OFFICE. The
Company, whenever necessary to avoid or fill a vacancy in the office of Trustee,
will appoint, in the manner provided in Section 8.10, a Trustee, so that there
shall at all times be a Trustee hereunder.
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Section 5.4. PROVISIONS AS TO PAYING AGENT.
(a) If the Company shall appoint a paying agent other than the Trustee
or if the Trustee shall appoint such a paying agent, it will cause such paying
agent to execute and deliver to the Trustee an instrument in which such agent
shall agree with the Trustee, subject to the provisions of this Section 5.4:
(1) that it will hold all sums held by it as
such agent for the payment of the principal of and premium, if
any, or interest on the Notes (whether such sums have been
paid to it by the Company or by any other obligor on the
Notes) in trust for the benefit of the holders of the Notes;
(2) that it will give the Trustee notice of
any failure by the Company (or by any other obligor on the
Notes) to make any payment of the principal of and premium, if
any, or interest on the Notes when the same shall be due and
payable; and
(3) that at any time during the continuance
of an Event of Default, upon request of the Trustee, it will
forthwith pay to the Trustee all sums so held in trust.
The Company shall, on or before each due date of the principal
of, premium, if any, or interest on the Notes, deposit with the paying
agent a sum sufficient to pay such principal, premium, if any, or
interest, and (unless such paying agent is the Trustee) the Company
will promptly notify the Trustee of any failure to take such action,
provided that if such deposit is made on the due date, such deposit
must be received by the paying agent by 10:00 a.m., New York City time,
on such date.
(b) If the Company shall act as its own paying agent, it will, on or
before each due date of the principal of, premium, if any, or interest on the
Notes, set aside, segregate and hold in trust for the benefit of the holders of
the Notes a sum sufficient to pay such principal, premium, if any, or interest
so becoming due and will notify the Trustee of any failure to take such action
and of any failure by the Company (or any other obligor under the Notes) to make
any payment of the principal of, premium, if any, or interest on the Notes when
the same shall become due and payable.
(c) Anything in this Section 5.4 to the contrary notwithstanding, the
Company may, at any time, for the purpose of obtaining a satisfaction and
discharge of this Indenture, or for any other reason, pay or cause to be paid to
the Trustee all sums held in trust by the Company or any paying agent hereunder
as required by this Section 5.4, such sums to be held by the Trustee upon the
trusts herein contained and upon such payment by the Company or any paying agent
to the Trustee, the Company or such paying agent shall be released from all
further liability with respect to such sums.
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(d) Anything in this Section 5.4 to the contrary notwithstanding, the
agreement to hold sums in trust as provided in this Section 5.4 is subject to
Sections 13.3 and 13.4.
Section 5.5. EXISTENCE. Subject to Article 12, the Company will do or
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence.
Section 5.6. RESERVED.
Section 5.7. STAY, EXTENSION AND USURY LAWS. The Company covenants (to
the extent that it may lawfully do so) that it shall not at any time insist
upon, plead, or in any manner whatsoever claim or take the benefit or advantage
of, any stay, extension or usury law or other law which would prohibit or
forgive the Company from paying all or any portion of the principal of or
interest on the Notes as contemplated herein, wherever enacted, now or at any
time hereafter in force, or which may affect the covenants or the performance of
this Indenture; and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not, by resort to any such law, hinder, delay or impede the execution of
any power herein granted to the Trustee, but will suffer and permit the
execution of every such power as though no such law has been enacted.
Section 5.8. COMPLIANCE CERTIFICATE. The Company shall deliver to
the Trustee within 120 days after the end of each fiscal year of the Company
(beginning with the fiscal year ending on __________) an Officers'
Certificate stating whether or not to the best of their knowledge the signers
know of any default or Event of Default that occurred during such period. If
they do, such Officers' Certificate shall describe the default or Event of
Default and its status.
Section 5.9. FURTHER INSTRUMENTS AND ACTS. Upon request of the
Trustee, the Company will execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purposes of this Indenture.
Section 5.10. PAYMENT OF TAXES AND OTHER CLAIMS. The Company will pay
or discharge or cause to be paid or discharged, before the same shall become
delinquent, (1) all material taxes, assessments and governmental charges levied
or imposed upon it or any subsidiary or upon the income, profits or property of
the Company or any subsidiary, (2) all material lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien upon the
property of the Company or any subsidiary; and (3) all stamps and similar
duties, if any, which may be imposed by the United States, the United Kingdom or
any political subdivision thereof or therein in connection with the issuance,
transfer, exchange or conversion of any Notes or with respect to this Indenture;
provided, however, that, in the case of clauses (1) and (2) that the Company
shall not be required to pay or discharge or cause to be paid or discharged any
such tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings.
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ARTICLE 6.
NOTEHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE
Section 6.1. NOTEHOLDERS' LISTS. The Company covenants and agrees that
it will furnish or cause to be furnished to the Trustee, semi-annually, not more
than fifteen (15) days after each _________ and ___________ in each year
beginning with ____________, 2000, and at such other times as the Trustee may
request in writing, within thirty (30) days after receipt by the Company of any
such request (or such lesser time as the Trustee may reasonably request in order
to enable it to timely provide any notice to be provided by it hereunder), a
list in such form as the Trustee may reasonably require of the names and
addresses of the holders of Notes as of a date not more than fifteen (15) days
(or such other date as the Trustee may reasonably request in order to so provide
any such notices) prior to the time such information is furnished, except that
no such list need be furnished so long as the Trustee is acting as Note
registrar.
Section 6.2. PRESERVATION AND DISCLOSURE OF LISTS.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, all information as to the names and addresses of the
holders of Notes contained in the most recent list furnished to it as provided
in Section 6.1 or maintained by the Trustee in its capacity as Note registrar,
if so acting. The Trustee may destroy any list furnished to it as provided in
Section 6.1 upon receipt of a new list so furnished.
(b) The rights of Noteholders to communicate with other
holders of Notes with respect to their rights under this Indenture or under the
Notes and the corresponding rights and duties of the Trustee, shall be as
provided by the Trust Indenture Act.
(c) Every Noteholder, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
nor any agent of either of them shall be held accountable by reason of any
disclosure of information as to names and addresses of holders of Notes made
pursuant to the Trust Indenture Act.
Section 6.3. REPORTS BY TRUSTEE.
(a) The Trustee shall transmit to holders of Notes such
reports concerning the Trustee and its actions under this Indenture as may be
required pursuant to the Trust Indenture Act at the times and in the manner
provided pursuant thereto.
(b) A copy of such report shall, at the time of such
transmission to holders of Notes, be filed by the Trustee with each stock
exchange and automated quotation system upon which the Notes are listed, if any,
and with the Company and the Commission. The Company will notify the Trustee
when the Notes are listed on any stock exchange or automated quotation system
and when any such listing is discontinued.
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Section 6.4. REPORTS BY COMPANY.
(a) The Company shall file with the Trustee and the
Commission, and transmit to holders of Notes, such information, documents and
other reports and such summaries thereof, as may be required pursuant to the
Trust Indenture Act at the times and in the manner provided pursuant to such
Act; PROVIDED that any such information, documents or reports required to be
filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act
shall be filed with the Trustee within 15 days after the same is so required to
be filed with the Commission.
(b) The Company will deliver to the Trustee (i) as soon as
available and in any event within ninety (90) days after the end of each fiscal
year of the Company (x) a consolidated balance sheet of the Company and its
subsidiaries as of the end of such fiscal year and the related consolidated
statements of operations, stockholders' equity and cash flows for such fiscal
year, all reported on by an independent public accountant of nationally
recognized standing and (y) a report containing a management's discussion and
analysis of the financial condition and results of operations and a description
of the business and properties of the Company and (ii) as soon as available and
in any event within forty-five (45) days after the end of each of the first
three quarters of each fiscal year of the Company an unaudited consolidated
management's discussion and analysis of the financial condition and results of
operations of the Company for such quarter; provided that the foregoing
statements and reports shall not be required for any fiscal year or quarter, as
the case may be, with respect to which the Company files or expects to file with
the Trustee an annual report or quarterly report, as the case may be, pursuant
to the preceding paragraph of this Section 6.4. The Trustee shall have no
liability as regards the substance of the information provided by the Company or
its agents pursuant to this Section 6.4.
ARTICLE 7.
DEFAULTS AND REMEDIES
Section 7.1. EVENTS OF DEFAULT. In case one or more of the following
Events of Default (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body) shall have occurred and be
continuing:
(a) default in the payment of the principal of and premium, if any, on
any of the Notes as and when the same shall become due and payable either at
maturity or in connection with any redemption, by declaration or otherwise,
whether or not such payment is prohibited by the provisions of Article 4; or
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(b) default for thirty (30) days in the payment of any installment of
interest upon any of the Notes as and when the same shall become due and
payable, whether or not such payment is prohibited by the provisions of Article
4; or
(c) failure on the part of the Company, within 5 days of the
satisfaction of the requirements for conversion set forth in Section 15.2 with
respect to any Note, to deliver shares of its common stock, including cash for
fractional shares, to the holder of such Note; or
(d) failure on the part of the Company duly to observe or perform any
other of the covenants on the part of the Company in the Notes or in this
Indenture (other than a covenant a default in whose performance or whose breach
is elsewhere in this Section specifically dealt with) and the continuance of
such failure for a period of forty-five (45) days after the date on which
written notice of such failure, requiring the Company to remedy the same, shall
have been given to the Company by the Trustee, or to the Company and a
Responsible Officer of the Trustee by the holders of at least 25% in aggregate
principal amount of the outstanding Notes at the time outstanding determined in
accordance with Section 9.4; or
(e) a default in the payment of the Repurchase Price in respect of any
Note on the repurchase date therefor in accordance with the provisions of
Article 16, whether or not such payment in cash of the Repurchase Price is
prohibited by the provisions of Article 4; or
(f) failure on the part of the Company to provide a written notice of a
Repurchase Event in accordance with Section 16.2; or
(g) failure on the part of the Company or any Significant Subsidiary to
make any payment at maturity, including any applicable grace period, in respect
of Indebtedness of, or guaranteed or assumed by, the Company or any Significant
Subsidiary, in a principal amount then outstanding in excess of U.S. $5,000,000,
and the continuance of such failure for a period of thirty (30) days after there
shall have been given, by registered or certified mail, to the Company by the
Trustee or to the Company and the Trustee by the holders of not less than 25% in
aggregate principal amount of the Notes then outstanding, a written notice
specifying such default and requiring the Company to cause such default to be
cured or waived and stating that such notice is a "Notice of Default" hereunder;
or
(h) default on the part of the Company or any Significant Subsidiary
with respect to any Indebtedness of, or guaranteed or assumed by, the Company or
any Significant Subsidiary, which default results in the acceleration of
Indebtedness in a principal amount then outstanding in excess of U.S.
$5,000,000, and such Indebtedness shall not have been discharged or such
acceleration shall not have been rescinded or annulled for a period of thirty
(30) days after there shall have been given, by registered or certified mail, to
the Company by the Trustee or to the Company and the Trustee by the holders of
not less than 25% in aggregate principal amount of the Notes then outstanding, a
written notice specifying such default and requiring the Company to cause such
Indebtedness to be discharged or cause such default to be cured or waived or
such
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acceleration to be rescinded or annulled and stating that such notice is a
"Notice of Default" hereunder; or
(i) the Company or any Significant Subsidiary shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due; or
(j) an involuntary case or other proceeding shall be commenced against
the Company or any Significant Subsidiary seeking liquidation, reorganization or
other relief with respect to it or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of ninety (90) consecutive
days;
then, and in each and every such case (other than an Event of Default specified
in Section 7.1(i) or (j) with respect to the Company), unless the principal of
all of the Notes shall have already become due and payable, either the Trustee
or the holders of not less than 25% in aggregate principal amount of the Notes
then outstanding hereunder determined in accordance with Section 9.4, by notice
in writing to the Company (and to the Trustee if given by Noteholders), may
declare the principal of and premium, if any, on all the Notes and the interest
accrued thereon to be due and payable immediately, and upon any such declaration
the same shall become and shall be immediately due and payable, anything in this
Indenture or in the Notes contained to the contrary notwithstanding. If an Event
of Default specified in Section 7.1(i) or (j) occurs and is continuing with
respect to the Company, the principal of all the Notes and the interest accrued
thereon shall be immediately due and payable. This provision, however, is
subject to the conditions that if, at any time after the principal of the Notes
shall have been so declared due and payable, and before any judgment or decree
for the payment of the monies due shall have been obtained or entered as
hereinafter provided, the Company shall pay or shall deposit with the Trustee a
sum sufficient to pay all matured installments of interest upon all Notes and
the principal of and premium, if any, on any and all Notes which shall have
become due otherwise than by acceleration (with interest on overdue installments
of interest (to the extent that payment of such interest is enforceable under
applicable law) and on such principal and premium, if any, at the rate borne by
the Notes, to the date of such payment or deposit) and amounts due to the
Trustee pursuant to Section 8.6, and if any and all defaults under this
Indenture, other than the nonpayment of principal of and premium, if any, and
accrued interest on Notes which shall have become due by acceleration, shall
have been cured or waived pursuant to Section 7.7, then and in every such case
the holders of a majority in aggregate principal amount of the Notes then
outstanding, by written notice to the Company and to the Trustee, may waive all
defaults or Events of Default and rescind and annul such declaration and its
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consequences; but no such waiver or rescission and annulment shall extend to or
shall affect any subsequent default or Event of Default, or shall impair any
right consequent thereon. The Company shall notify the Responsible Officer of
the Trustee, promptly upon becoming aware thereof, of any default or Event of
Default and shall deliver to the Trustee a statement specifying such default or
Event of Default and the action the Company has taken, is taking or proposes to
take with respect thereto.
In case the Trustee shall have proceeded to enforce any right under
this Indenture and such proceedings shall have been discontinued or abandoned
because of such waiver or rescission and annulment or for any other reason or
shall have been determined adversely to the Trustee, then and in every such case
the Company, the holders of Notes, and the Trustee shall be restored
respectively to their several positions and rights hereunder, and all rights,
remedies and powers of the Company, the holders of Notes, and the Trustee shall
continue as though no such proceeding had been instituted.
Section 7.2. PAYMENTS OF NOTES ON DEFAULT; SUIT THEREFOR. The Company
covenants that (a) in case default shall be made in the payment by the Company
of any installment of interest upon any of the Notes as and when the same shall
become due and payable, and such default shall have continued for a period of
thirty (30) days, or (b) in case default shall be made in the payment of the
principal of or premium, if any, on any of the Notes as and when the same shall
have become due and payable, whether at maturity of the Notes or in connection
with any redemption or repurchase, by declaration under this Indenture or
otherwise, then, upon demand of the Trustee, the Company will pay to the
Trustee, for the benefit of the holders of the Notes, the whole amount that then
shall have become due and payable on all such Notes for principal and premium,
if any, or interest, or both, as the case may be, with interest upon the overdue
principal and premium, if any, and (to the extent that payment of such interest
is enforceable under applicable law) upon the overdue installments of interest
at the rate borne by the Notes; and, in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses of collection, including
reasonable compensation to the Trustee, its agents, attorneys and counsel, and
any expenses or liabilities incurred by the Trustee hereunder other than through
its negligence or bad faith. Until such demand by the Trustee, the Company may
pay the principal of and premium, if any, and interest on the Notes to the
registered holders, whether or not the Notes are overdue.
In case the Company shall fail forthwith to pay such amounts upon such
demand, the Trustee, in its own name and as trustee of an express trust, shall
be entitled and empowered to institute any actions or proceedings at law or in
equity for the collection of the sums so due and unpaid, and may prosecute any
such action or proceeding to judgment or final decree, and may enforce any such
judgment or final decree against the Company or any other obligor on the Notes
and collect in the manner provided by law out of the property of the Company or
any other obligor on the Notes wherever situated the monies adjudged or decreed
to be payable.
In the case there shall be pending proceedings for the bankruptcy or
for the reorganization of the Company or any other obligor on the Notes under
Title 11 of the United
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States Code, or any other applicable law, or in case a receiver, assignee or
trustee in bankruptcy or reorganization, liquidator, sequestrator or similar
official shall have been appointed for or taken possession of the Company or
such other obligor, the property of the Company or such other obligor, or in the
case of any other judicial proceedings relative to the Company or such other
obligor upon the Notes, or to the creditors or property of the Company or such
other obligor, the Trustee, irrespective of whether the principal of the Notes
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand
pursuant to the provisions of this Section 7.2, shall be entitled and empowered,
by intervention in such proceedings or otherwise, to file and prove a claim or
claims for the whole amount of principal, premium, if any, and interest owing
and unpaid in respect of the Notes, and, in case of any judicial proceedings, to
file such proofs of claim and other papers or documents and to take such other
actions as it may deem necessary or advisable in order to have the claims of the
Trustee and of the Noteholders allowed in such judicial proceedings relative to
the Company or any other obligor on the Notes, its or their creditors, or its or
their property, and to collect and receive any monies or other property payable
or deliverable on any such claims, and to distribute the same after the
deduction of any amounts due the Trustee under Section 8.6; and any receiver,
assignee or trustee in bankruptcy or reorganization, liquidator, custodian or
similar official is hereby authorized by each of the Noteholders to make such
payments to the Trustee, and, in the event that the Trustee shall consent to the
making of such payments directly to the Noteholders, to pay to the Trustee any
amount due it for reasonable compensation, expenses, advances and disbursements,
including agents and counsel fees incurred by it up to the date of such
distribution. To the extent that such payment of reasonable compensation,
expenses, advances and disbursements out of the estate in any such proceedings
shall be denied for any reason, payment of the same shall be secured by a lien
on, and shall be paid out of, any and all distributions, dividends, monies,
securities and other property which the holders of the Notes may be entitled to
receive in such proceedings, whether in liquidation or under any plan of
reorganization or arrangement or otherwise.
All rights of action and of asserting claims under this Indenture, or
under any of the Notes, may be enforced by the Trustee without the possession of
any of the Notes, or the production thereof on any trial or other proceeding
relative thereto, and any such suit or proceeding instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the holders of the Notes.
In any proceedings brought by the Trustee (and in any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party) the Trustee shall be held to represent all the holders
of the Notes, and it shall not be necessary to make any holders of the Notes
parties to any such proceedings.
Section 7.3. APPLICATION OF MONIES COLLECTED BY TRUSTEE. Any monies
collected by the Trustee pursuant to this Article 7 shall be applied in the
order following, at the date or dates fixed by the Trustee for the distribution
of such monies, upon presentation of the several Notes,
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and stamping thereon the payment, if only partially paid, and upon surrender
thereof, if fully paid:
First: To the payment of all amounts due the Trustee under
Section 8.6;
Second: Subject to the provisions of Article 4, in case the
principal of the outstanding Notes shall not have become due and be
unpaid, to the payment of interest on the Notes in default in the order
of the maturity of the installments of such interest, with interest (to
the extent that such interest has been collected by the Trustee) upon
the overdue installments of interest at the rate borne by the Notes,
such payments to be made ratably to the persons entitled thereto;
Third: Subject to the provisions of Article 4, in case the
principal of the outstanding Notes shall have become due, by
declaration or otherwise, and be unpaid, to the payment of the whole
amount then owing and unpaid upon the Notes for principal and premium,
if any, and interest, with interest on the overdue principal and
premium, if any, and (to the extent that such interest has been
collected by the Trustee) upon overdue installments of interest at the
rate borne by the Notes; and in case such monies shall be insufficient
to pay in full the whole amounts so due and unpaid upon the Notes, then
to the payment of such principal and premium, if any, and interest
without preference or priority of principal and premium, if any, over
interest, or of interest over principal and premium, if any, or of any
installment of interest over any other installment of interest, or of
any Note over any other Note, ratably to the aggregate of such
principal and premium, if any, and accrued and unpaid interest; and
Fourth: Subject to the provisions of Article 4, to the
payment of the remainder, if any, to the Company or any other person
lawfully entitled thereto.
Section 7.4. PROCEEDINGS BY NOTEHOLDER. No holder of any Note shall
have any right by virtue of or by availing of any provision of this Indenture to
institute any suit, action or proceeding in equity or at law upon or under or
with respect to this Indenture, or for the appointment of a receiver, trustee,
liquidator, custodian or other similar official, or for any other remedy
hereunder, unless such holder previously shall have given to the Trustee written
notice of an Event of Default and of the continuance thereof, as hereinbefore
provided, and unless also the holders of not less than 25% in aggregate
principal amount of the Notes then outstanding shall have made written request
upon the Trustee to institute such action, suit or proceeding in its own name as
Trustee hereunder and shall have offered to the Trustee such indemnity as may be
reasonably satisfactory to the Trustee against the costs, expenses and
liabilities to be incurred therein or thereby, and the Trustee for sixty (60)
days after its receipt of such notice, request and offer of indemnity, shall
have neglected or refused to institute any such action, suit or proceeding and
no direction inconsistent with such written request shall have been given to the
Trustee pursuant to Section 7.7; it being understood and intended, and being
expressly covenanted by the taker and holder of every Note with every other
taker and holder and the Trustee, that no one or more holders of Notes shall
have any right in any manner whatever by virtue of or by availing of
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any provision of this Indenture to affect, disturb or prejudice the rights of
any other holder of Notes, or to obtain or seek to obtain priority over or
preference to any other such holder, or to enforce any right under this
Indenture, except in the manner herein provided and for the equal, ratable and
common benefit of all holders of Notes (except as otherwise provided herein).
For the protection and enforcement of this Section 7.4, each and every
Noteholder and the Trustee shall be entitled to such relief as can be given
either at law or in equity.
Notwithstanding any other provision of this Indenture and any provision
of any Note, the right of any holder of any Note to receive payment of the
principal of and premium, if any, and interest on such Note, on or after the
respective due dates expressed in such Note, or to institute suit for the
enforcement of any such payment on or after such respective dates against the
Company shall not be impaired or affected without the consent of such holder.
Anything in this Indenture or the Notes to the contrary
notwithstanding, the holder of any Note, without the consent of either the
Trustee or the holder of any other Note, in his own behalf and for his own
benefit, may enforce, and may institute and maintain any proceeding suitable to
enforce, his rights of conversion as provided herein.
Section 7.5. PROCEEDINGS BY TRUSTEE. In case of an Event of Default
the Trustee may in its discretion proceed to protect and enforce the rights
vested in it by this Indenture by such appropriate judicial proceedings as the
Trustee shall deem most effectual to protect and enforce any of such rights,
either by suit in equity or by action at law or by proceeding in bankruptcy or
otherwise, whether for the specific enforcement of any covenant or agreement
contained in this Indenture or in aid of the exercise of any power granted in
this Indenture, or to enforce any other legal or equitable right vested in the
Trustee by this Indenture or by law.
Section 7.6. REMEDIES CUMULATIVE AND CONTINUING. Except as provided in
the last paragraph of Section 2.6, all powers and remedies given by this Article
7 to the Trustee or to the Noteholders shall, to the extent permitted by law, be
deemed cumulative and not exclusive of any thereof or of any other powers and
remedies available to the Trustee or the holders of the Notes, by judicial
proceedings or otherwise, to enforce the performance or observance of the
covenants and agreements contained in this Indenture, and no delay or omission
of the Trustee or of any holder of any of the Notes to exercise any right or
power accruing upon any default or Event of Default occurring and continuing as
aforesaid shall impair any such right or power, or shall be construed to be a
waiver of any such default or any acquiescence therein; and, subject to the
provisions of Section 7.4, every power and remedy given by this Article 7 or by
law to the Trustee or to the Noteholders may be exercised from time to time, and
as often as shall be deemed expedient, by the Trustee or by the Noteholders.
Section 7.7. DIRECTION OF PROCEEDINGS AND WAIVER OF DEFAULTS BY
MAJORITY OF NOTEHOLDERS. The holders of a majority in aggregate principal amount
of the Notes at the time outstanding determined in accordance with Section 9.4
shall have the right to direct the time, method, and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee; PROVIDED, HOWEVER, that (a) such direction
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shall not be in conflict with any rule of law or with this Indenture, and (b)
the Trustee may take any other action deemed proper by the Trustee which is not
inconsistent with such direction. The holders of a majority in aggregate
principal amount of the Notes at the time outstanding determined in accordance
with Section 9.4 may on behalf of the holders of all of the Notes waive any past
default or Event of Default hereunder and its consequences except (i) a default
in the payment of interest or premium, if any, on, or the principal of, the
Notes when due, (ii) a failure by the Company to convert any Notes into Common
Stock or (iii) a default in respect of a covenant or provisions hereof which
under Article 11 cannot be modified or amended without the consent of the
holders of all Notes then outstanding. Upon any such waiver the Company, the
Trustee and the holders of the Notes shall be restored to their former positions
and rights hereunder; but no such waiver shall extend to any subsequent or other
default or Event of Default or impair any right consequent thereon. Whenever any
default or Event of Default hereunder shall have been waived as permitted by
this Section 7.7, said default or Event of Default shall for all purposes of the
Notes and this Indenture be deemed to have been cured and to be not continuing;
but no such waiver shall extend to any subsequent or other default or Event of
Default or impair any right consequent thereon.
Section 7.8. NOTICE OF DEFAULTS. The Trustee shall, within ninety (90)
days after the occurrence of a default, mail to all Noteholders, as the names
and addresses of such holders appear upon the Note register, notice of all
defaults known to a Responsible Officer, unless such defaults shall have been
cured or waived before the giving of such notice; and provided that, except in
the case of default in the payment of the principal of, or premium, if any, or
interest on any of the Notes, including without limiting the generality of the
foregoing any default in the payment of any Repurchase Price or in the payment
of any amount due in connection with any redemption of Notes, then in any such
event the Trustee shall be protected in withholding such notice if and so long
as a trust committee of directors and/or Responsible Officers of the Trustee in
good faith determine that the withholding of such notice is in the interests of
the Noteholders.
Section 7.9. UNDERTAKING TO PAY COSTS. All parties to this Indenture
agree, and each holder of any Note by his acceptance thereof shall be deemed to
have agreed, that any court may, in its discretion, require, in any suit for the
enforcement of any right or remedy under this Indenture, or in any suit against
the Trustee for any action taken or omitted by it as Trustee, the filing by any
party litigant in such suit of an undertaking to pay the costs of such suit and
that such court may in its discretion assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in such suit, having due
regard to the merits and good faith of the claims or defenses made by such party
litigant; PROVIDED that the provisions of this Section 7.9 shall not apply to
any suit instituted by the Trustee, to any suit instituted by any Noteholder, or
group of Noteholders, holding in the aggregate more than 10% in principal amount
of the Notes at the time outstanding determined in accordance with Section 9.4,
or to any suit instituted by any Noteholder for the enforcement of the payment
of the principal of or premium, if any, or interest on any Note (including, but
not limited to, the redemption price or repurchase price with respect to the
Notes being redeemed or repurchased as provided in this Indenture) on or after
the due date expressed in such Note or to any suit for the enforcement of the
right to convert any Note in accordance with the provisions of Article 15.
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Section 7.10. DELAY OR OMISSION NOT WAIVER. No delay or omission of
the Trustee or of any holder of any Note to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or any acquiescence therein.
Every right and remedy given by this Article or by law to the Trustee or to the
holders of Notes may be exercised from time to time, and as often as may be
deemed expedient, by the Trustee or by the holders of Notes, as the case may be.
ARTICLE 8.
CONCERNING THE TRUSTEE
Section 8.1. DUTIES AND RESPONSIBILITIES OF TRUSTEE. The Trustee, prior
to the occurrence of an Event of Default and after the curing or waiver of all
Events of Default which may have occurred, undertakes to perform such duties and
only such duties as are specifically set forth in this Indenture. In case an
Event of Default has occurred (which has not been cured or waived) the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in their exercise, as a prudent person
would exercise or use under the circumstances in the conduct of such person's
own affairs.
No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that:
(a) prior to the occurrence of an Event of Default and after
the curing or waiving of all Events of Default which may have occurred:
(1) the duties and obligations of the Trustee shall
be determined solely by the express provisions of this
Indenture and, after it has been qualified thereunder, the
Trust Indenture Act, and the Trustee shall not be liable
except for the performance of such duties and obligations as
are specifically set forth in this Indenture and no implied
covenants or obligations shall be read into this Indenture and
the Trust Indenture Act against the Trustee; and
(2) in the absence of bad faith and willful
misconduct on the part of the Trustee, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture; but, in the
case of any such certificates or opinions which by any
provisions hereof are specifically required to be furnished to
the Trustee, the Trustee shall be under a duty to examine the
same to determine whether or not they conform to the
requirements of this Indenture;
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(b) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer or Officers of the Trustee,
unless it shall be provided that the Trustee was negligent in
ascertaining the pertinent facts;
(c) the Trustee shall not be liable to any Noteholder with
respect to any action taken or omitted to be taken by it in good faith
in accordance with the direction of the holders of not less than a
majority in principal amount of the Notes at the time outstanding
determined as provided in Section 9.4 relating to the time, method and
place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee,
under this Indenture; and
(d) whether or not therein provided, every provision of this
Indenture relating to the conduct or affecting the liability of, or
affording protection to, the Trustee shall be subject to the provisions
of this Section.
None of the provisions contained in this Indenture shall
require the Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the exercise
of any of its rights or powers, if there is reasonable ground for believing that
the repayment of such funds or adequate indemnity against such risk or liability
is not reasonably assured to it.
Section 8.2. RELIANCE ON DOCUMENTS, OPINIONS, ETC. Except as otherwise
provided in Section 8.1:
(a) the Trustee may rely and shall be protected in acting upon any
resolution, certificate, statement, instrument, opinion, report, notice,
request, consent, order, bond, note, coupon or other paper or document believed
by it in good faith to be genuine and to have been signed or presented by the
proper party or parties;
(b) any request, direction, order or demand of the Company mentioned
herein shall be sufficiently evidenced by an Officers' Certificate (unless other
evidence in respect thereof be herein specifically prescribed); and any
resolution of the Board of Directors may be evidenced to the Trustee by a copy
thereof certified by the Secretary or an Assistant Secretary of the Company;
(c) the Trustee may consult with counsel and any advice of such counsel
or Opinion of Counsel shall be full and complete authorization and protection in
respect of any action taken or omitted by it hereunder in good faith and in
accordance with such advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Noteholders pursuant to the provisions of this
Indenture, unless such Noteholders shall have offered to the Trustee
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reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby;
(e) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture or
other paper or document, but the Trustee, in its discretion, may make such
further inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and premises
of the Company, personally or by agent or attorney; PROVIDED, HOWEVER, that if
the payment within a reasonable time to the Trustee of the costs, expenses or
liabilities likely to be incurred by it in the making of such investigation is,
in the opinion of the Trustee, not reasonably assured to the Trustee by the
security afforded to it by the terms of this Indenture, the Trustee may require
indemnity reasonably satisfactory to the Trustee from the Noteholders against
such expenses or liability as a condition to so proceeding; the reasonable
expenses of every such examination shall be paid by the Company or, if paid by
the Trustee or any predecessor Trustee, shall be repaid by the Company upon
demand; and
(f) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed by it with due care
hereunder.
In no event shall the Trustee be liable for any consequential loss or damage of
any kind whatsoever (including but not limited to lost profits), even if the
Trustee has been advised of the likelihood of such loss or damage and regardless
of the form of action other than through the Trustee's willful misconduct or
gross negligence.
Section 8.3. NO RESPONSIBILITY FOR RECITALS, ETC. The recitals
contained herein and in the Notes (except in the Trustee's certificate of
authentication) shall be taken as the statements of the Company, and the Trustee
assumes no responsibility for the correctness of the same. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Notes. The Trustee shall not be accountable for the use or application by the
Company of any Notes or the proceeds of any Notes authenticated and delivered by
the Trustee in conformity with the provisions of this Indenture.
Section 8.4. TRUSTEE, PAYING AGENTS, CONVERSION AGENTS OR REGISTRAR MAY
OWN NOTES. The Trustee, any paying agent, any conversion agent or Note
registrar, in its individual or any other capacity, may become the owner or
pledgee of Notes with the same rights it would have if it were not Trustee,
paying agent, conversion agent or Note registrar.
Section 8.5. MONIES TO BE HELD IN TRUST. Subject to the provisions of
Section 13.4, all monies received by the Trustee shall, until used or applied as
herein provided, be held in trust for the purposes for which they were received.
Money held by the Trustee in trust hereunder need not be segregated from other
funds except to the extent required by law. The Trustee shall be
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under no liability for interest on any money received by it hereunder except as
may be agreed from time to time by the Company and the Trustee.
Section 8.6. COMPENSATION AND EXPENSES OF TRUSTEE. The Company
covenants and agrees to pay to the Trustee from time to time, and the Trustee
shall be entitled to, reasonable compensation for all services rendered by it
hereunder in any capacity (which shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust), and the Company
will pay or reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances reasonably incurred or made by the Trustee in
accordance with any of the provisions of this Indenture (including the
reasonable compensation and the expenses and disbursements of its agents and
counsel and of all persons not regularly in its employ) except any such expense,
disbursement or advance as may arise from its negligence, willful misconduct or
bad faith. The Company also covenants to indemnify the Trustee in any capacity
under this Indenture and its agents and any authenticating agent for, and to
hold them harmless against, any loss, liability or expense incurred without
negligence, willful misconduct or bad faith on the part of the Trustee or such
agent or authenticating agent, as the case may be, and arising out of or in
connection with the acceptance or administration of this trust or in any other
capacity hereunder, including the costs and expenses of defending themselves
against any claim of liability in the premises. The obligations of the Company
under this Section 8.6 to compensate or indemnify the Trustee and to pay or
reimburse the Trustee for expenses, disbursements and advances shall be secured
by a lien prior to that of the Notes upon all property and funds held or
collected by the Trustee as such, except, subject to the effect of Sections 4.3
and 7.6, funds held in trust herewith for the benefit of the holders of
particular Notes prior to the date of the accrual of such unpaid compensation or
indemnifiable claim. The obligation of the Company under this Section shall
survive the satisfaction and discharge of this Indenture. The indemnification
provided in this Section 8.6 shall extend to the officers, directors, agents and
employees of the Trustee.
When the Trustee and its agents and any authenticating agent incur
expenses or render services after an Event of Default specified in Section
7.1(i) or (j) occurs, the expenses and the compensation for the services are
intended to constitute expenses of administration under any bankruptcy,
insolvency or similar laws.
Section 8.7. OFFICERS' CERTIFICATE AS EVIDENCE. Except as otherwise
provided in Section 8.1, whenever in the administration of the provisions of
this Indenture the Trustee shall deem it necessary or desirable that a matter be
proved or established prior to taking or omitting any action hereunder, such
matter (unless other evidence in respect thereof be herein specifically
prescribed) may, in the absence of negligence, willful misconduct, recklessness
and bad faith on the part of the Trustee, be deemed to be conclusively proved
and established by an Officers' Certificate delivered to the Trustee, and such
Officers' Certificate, in the absence of negligence, willful misconduct,
recklessness and bad faith on the part of the Trustee, shall be full warrant to
the Trustee for any action taken or omitted by it under the provisions of this
Indenture upon the faith thereof.
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Section 8.8. CONFLICTING INTERESTS OF TRUSTEE. If the Trustee has or
shall acquire a conflicting interest within the meaning of the Trust Indenture
Act, the Trustee shall either eliminate such interest or resign, to the extent
and in the manner provided by, and subject to the provisions of, the Trust
Indenture Act and this Indenture.
Section 8.9. ELIGIBILITY OF TRUSTEE. There shall at all times be a
Trustee hereunder which shall be a person that is eligible pursuant to the Trust
Indenture Act to act as such and has a combined capital and surplus (together
with its corporate parent) of at least $50,000,000. If such person publishes
reports of condition at least annually, pursuant to law or to the requirements
of any supervising or examining authority, then for the purposes of this
Section, the combined capital and surplus of such person shall be deemed to be
its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect hereinafter specified in this Article.
Section 8.10. RESIGNATION OR REMOVAL OF TRUSTEE.
(a) The Trustee may at any time resign by giving written notice of such
resignation to the Company and by mailing notice thereof to the holders of Notes
at their addresses as they shall appear on the Note register. Upon receiving
such notice of resignation, the Company shall promptly appoint a successor
trustee by written instrument, in duplicate, executed by order of the Board of
Directors, one copy of which instrument shall be delivered to the resigning
Trustee and one copy to the successor trustee. If no successor trustee shall
have been so appointed and have accepted appointment sixty (60) days after the
mailing of such notice of resignation to the Noteholders, the resigning Trustee
may petition any court of competent jurisdiction for the appointment of a
successor trustee, or any Noteholder who has been a bona fide holder of a Note
or Notes for at least six months may, subject to the provisions of Section 7.9,
on behalf of himself and all others similarly situated, petition any such court
for the appointment of a successor trustee. Such court may thereupon, after such
notice, if any, as it may deem proper and prescribe, appoint a successor
trustee.
(b) In case at any time any of the following shall occur:
(1) the Trustee shall fail to comply with
Section 8.8 within a reasonable time after written request
therefor by the Company or by any Noteholder who has been a
bona fide holder of a Note or Notes for at least six months,
or
(2) the Trustee shall cease to be eligible
in accordance with the provisions of Section 8.9 and shall
fail to resign after written request therefor by the Company
or by any such Noteholder, or
(3) the Trustee shall become incapable of
acting, or shall be adjudged a bankrupt or insolvent, or a
receiver of the Trustee or of its property shall be appointed,
or any public officer shall take charge or control of the
Trustee
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or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, the Company may by a Board resolution remove
the Trustee and appoint a successor trustee by written instrument, in
duplicate, executed by order of the Board of Directors, one copy of
which instrument shall be delivered to the Trustee so removed and one
copy to the successor trustee, or, subject to the provisions of Section
7.9, any Noteholder who has been a bona fide holder of a Note or Notes
for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor trustee.
Such court may thereupon, after such notice, if any, as it may deem
proper and prescribe, remove the Trustee and appoint a successor
trustee.
(c) The holders of a majority in aggregate principal amount of the
Notes at the time outstanding may at any time remove the Trustee and nominate a
successor trustee which shall be deemed appointed as successor trustee unless
within ten (10) days after notice to the Company of such nomination the Company
objects thereto, in which case the Trustee so removed or any Noteholder, upon
the terms and conditions and otherwise as in Section 8.10(a) provided, may
petition any court of competent jurisdiction for an appointment of a successor
trustee.
(d) Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section 8.10 shall
become effective upon acceptance of appointment by the successor trustee as
provided in Section 8.11.
Section 8.11. ACCEPTANCE BY SUCCESSOR TRUSTEE. Any successor trustee
appointed as provided in Section 8.10 shall execute, acknowledge and deliver to
the Company and to its predecessor trustee an instrument accepting such
appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, duties and obligations of its predecessor hereunder, with like effect as
if originally named as trustee herein; but, nevertheless, on the written request
of the Company or of the successor trustee, the trustee ceasing to act shall,
upon payment of any amounts then due it pursuant to the provisions of Section
8.6, execute and deliver an instrument transferring to such successor trustee
all the rights and powers of the trustee so ceasing to act. Upon request of any
such successor trustee, the Company shall execute any and all instruments in
writing for more fully and certainly vesting in and confirming to such successor
trustee all such rights and powers. Any trustee ceasing to act shall,
nevertheless, retain a lien upon all property and funds held or collected by
such trustee as such, except for funds held in trust for the benefit of holders
of particular Notes, to secure any amounts then due it pursuant to the
provisions of Section 8.6.
No successor trustee shall accept appointment as provided in this
Section 8.11 unless at the time of such acceptance such successor trustee shall
be qualified under the provisions of Section 8.8 and be eligible under the
provisions of Section 8.9.
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Upon acceptance of appointment by a successor trustee as provided in
this Section 8.11, each of the Company and the former trustee shall mail or
cause to be mailed notice of the succession of such trustee hereunder to the
holders of Notes at their addresses as they shall appear on the Note register.
If the Company fails to mail such notice within ten (10) days after acceptance
of appointment by the successor trustee, the successor trustee shall cause such
notice to be mailed at the expense of the Company.
Section 8.12. SUCCESSION BY MERGER, ETC. Any corporation or other
entity into which the Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation or other
entity succeeding to all or substantially all of the corporate trust business of
the Trustee, shall be the successor to the Trustee hereunder without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, provided that in the case of any corporation succeeding to all
or substantially all of the corporate trust business of the Trustee such
corporation shall be qualified under the provisions of Section 8.8 and eligible
under the provisions of Section 8.9.
In case at the time such successor to the Trustee shall succeed to the
trusts created by this Indenture, any of the Notes shall have been authenticated
but not delivered, any such successor to the Trustee may adopt the certificate
of authentication of any predecessor trustee or authenticating agent appointed
by such predecessor trustee, and deliver such Notes so authenticated; and in
case at that time any of the Notes shall not have been authenticated, any
successor to the Trustee or an authenticating agent appointed by such successor
trustee may authenticate such Notes either in the name of any predecessor
trustee hereunder or in the name of the successor trustee; and in all such cases
such certificates shall have the full force which it is anywhere in the Notes or
in this Indenture provided that the certificate of the Trustee shall have;
PROVIDED, HOWEVER, that the right to adopt the certificate of authentication of
any predecessor Trustee or to authenticate Notes in the name of any predecessor
Trustee shall apply only to its successor or successors by merger, conversion or
consolidation.
Section 8.13. LIMITATION ON RIGHTS OF TRUSTEE AS CREDITOR. If and when
the Trustee shall be or become a creditor of the Company (or any other obligor
upon the Notes), the Trustee shall be subject to the provisions of the Trust
Indenture Act regarding the collection of the claims against the Company (or any
such other obligor).
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ARTICLE 9.
CONCERNING THE NOTEHOLDERS
Section 9.1. ACTION BY NOTEHOLDERS. Whenever in this Indenture it is
provided that the holders of a specified percentage in aggregate principal
amount of the Notes may take any action (including the making of any demand or
request, the giving of any notice, consent or waiver or the taking of any other
action), the fact that at the time of taking any such action, the holders of
such specified percentage have joined therein may be evidenced (a) by any
instrument or any number of instruments of similar tenor executed by Noteholders
in person or by agent or proxy appointed in writing, or (b) by the record of the
holders of Notes voting in favor thereof at any meeting of Noteholders duly
called and held in accordance with the provisions of Article X, or (c) by a
combination of such instrument or instruments and any such record of such a
meeting of Noteholders. Whenever the Company or the Trustee solicits the taking
of any action by the holders of the Notes, the Company or the Trustee may fix in
advance of such solicitation, a date as the record date for determining holders
entitled to take such action. The record date shall be not more than fifteen
(15) days prior to the date of commencement of solicitation of such action.
Section 9.2. PROOF OF EXECUTION BY NOTEHOLDERS. Subject to the
provisions of Sections 8.1, 8.2 and 10.5, proof of the execution of any
instrument by a Noteholder or his agent or proxy shall be sufficient if made in
accordance with such reasonable rules and regulations as may be prescribed by
the Trustee or in such manner as shall be satisfactory to the Trustee. The
holding of Notes shall be proved by the Note register or by a certificate of the
Note registrar. The record of any Noteholders' meeting shall be proved in the
manner provided in Section 10.6.
Section 9.3. WHO ARE DEEMED ABSOLUTE OWNERS. The Company, the Trustee,
any authenticating agent, any paying agent, any conversion agent and any Note
registrar may deem the person in whose name such Note shall be registered upon
the Note register to be, and may treat him as, the absolute owner of such Note
(whether or not such Note shall be overdue and notwithstanding any notation of
ownership or other writing thereon) for the purpose of receiving payment of or
on account of the principal of, premium, if any, and interest on such Note, for
conversion of such Note and for all other purposes; and neither the Company nor
the Trustee nor any paying agent nor any conversion agent nor any Note registrar
shall be affected by any notice to the contrary. All such payments so made to
any holder for the time being, or upon his order, shall be valid, and, to the
extent of the sum or sums so paid, effectual to satisfy and discharge the
liability for monies payable upon any such Note.
Section 9.4. COMPANY-OWNED NOTES DISREGARDED. In determining whether
the holders of the requisite aggregate principal amount of Notes have concurred
in any direction, consent, waiver or other action under this Indenture, Notes
which are owned by the Company or any other obligor on the Notes or by any
person directly or indirectly controlling or controlled by or under direct or
indirect common control with the Company or any other obligor on the Notes shall
be disregarded and deemed not to be outstanding for the purpose of any such
determination;
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PROVIDED that for the purposes of determining whether the Trustee shall be
protected in relying on any such direction, consent, waiver or other action only
Notes which a Responsible Officer knows are so owned shall be so disregarded.
Notes so owned which have been pledged in good faith may be regarded as
outstanding for the purposes of this Section 9.4 if the pledgee shall establish
to the satisfaction of the Trustee the pledgee's right to vote such Notes and
that the pledgee is not the Company, any other obligor on the Notes or a person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company or any such other obligor. In the case of a
dispute as to such right, any decision by the Trustee taken upon the advice of
counsel shall be full protection to the Trustee. Upon request of the Trustee,
the Company shall furnish to the Trustee promptly an Officers' Certificate
listing and identifying all Notes, if any, known by the Company to be owned or
held by or for the account of any of the above described persons; and, subject
to Section 8.1, the Trustee shall be entitled to accept such Officers'
Certificate as conclusive evidence of the facts therein set forth and of the
fact that all Notes not listed therein are outstanding for the purpose of any
such determination.
Section 9.5. REVOCATION OF CONSENTS; FUTURE HOLDERS BOUND. At any time
prior to (but not after) the evidencing to the Trustee, as provided in Section
9.1, of the taking of any action by the holders of the percentage in aggregate
principal amount of the Notes specified in this Indenture in connection with
such action, any holder of a Note which is shown by the evidence to be included
in the Notes the holders of which have consented to such action may, by filing
written notice with the Trustee at its Corporate Trust Office and upon proof of
holding as provided in Section 9.2, revoke such action so far as concerns such
Note. Except as aforesaid, any such action taken by the holder of any Note shall
be conclusive and binding upon such holder and upon all future holders and
owners of such Note and of any Notes issued in exchange or substitution
therefor, irrespective of whether any notation in regard thereto is made upon
such Note or any Note issued in exchange or substitution therefor.
ARTICLE 10.
NOTEHOLDERS' MEETINGS
Section 10.1. PURPOSE OF MEETINGS. A meeting of Noteholders may be
called at any time and from time to time pursuant to the provisions of this
Article 10 for any of the following purposes:
(a) to give any notice to the Company or to the Trustee or to
give any directions to the Trustee permitted under this Indenture, or
to consent to the waiving of any default or Event of Default hereunder
and its consequences, or to take any other action authorized to be
taken by Noteholders pursuant to any of the provisions of Article 7;
(b) to remove the Trustee and nominate a successor trustee
pursuant to the provisions of Article 8;
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(c) to consent to the execution of an indenture or indentures
supplemental hereto pursuant to the provisions of Section 11.2;
(d) to take any other action authorized to be taken by or on
behalf of the holders of any specified aggregate principal amount of
the Notes under any other provision of this Indenture or under
applicable law; or
(e) to take any other action authorized by this Indenture or
under applicable law.
Section 10.2. CALL OF MEETINGS BY TRUSTEE. The Trustee may at any time
call a meeting of Noteholders to take any action specified in Section 10.1, to
be held at such time and at such place in the Borough of Manhattan, The City of
New York, as the Trustee shall determine. Notice of every meeting of the
Noteholders, setting forth the time and the place of such meeting and in general
terms the action proposed to be taken at such meeting and the establishment of
any record date pursuant to Section 9.1, shall be mailed to holders of Notes at
their addresses as they shall appear on the Note register. Such notice shall
also be mailed to the Company. Such notices shall be mailed not less than twenty
(20) nor more than ninety (90) days prior to the date fixed for the meeting.
Any meeting of Noteholders shall be valid without notice if the holders
of all Notes then outstanding are present in person or by proxy or if notice is
waived before or after the meeting by the holders of all Notes outstanding, and
if the Company and the Trustee are either present by duly authorized
representatives or have, before or after the meeting, waived notice.
Section 10.3. QUORUM. The persons entitled to vote a majority in
principal amount of the outstanding Notes shall constitute a quorum. In the
absence of a quorum within 30 minutes of the time appointed for any such
meeting, the meeting shall, if convened at the request of Noteholders of Notes,
be dissolved. In any other case, the meeting may be adjourned for a period of
not less than 10 days as determined by the chairman of the meeting prior to the
adjournment of such meeting. In the absence of a quorum at any such adjourned
meeting, such adjourned meeting may be further adjourned for a period not less
than 10 days as determined by the chairman of the meeting prior to the
adjournment of such adjourned meeting (subject to repeated applications of this
sentence). Notice of the reconvening of any adjourned meeting shall be given as
provided in Section 10.2 except that such notice need be given only once not
less than five days prior to the date on which the meeting is scheduled to be
reconvened. Notice of the reconvening of an adjourned meeting shall state
expressly the percentage of the principal amount of the outstanding Notes which
shall constitute a quorum.
Subject to the foregoing, at the reconvening of any meeting
adjourned for a lack of a quorum, the Persons entitled to vote 25% in principal
amount of the outstanding Notes at the time shall constitute a quorum for the
taking of any action set forth in the notice of the original meeting.
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At a meeting or an adjourned meeting duly reconvened and at
which a quorum is present as aforesaid, any resolution and all matters (except
as limited by the proviso to Section 11.2 and except to the extent Section 7.7
requires a different vote) shall be effectively passed and decided if passed or
decided by the lesser of (i) the holders of not less than a majority in
principal amount of outstanding Notes and (ii) the persons entitled to vote not
less than 66-2/3% in principal amount of outstanding Notes represented and
entitled to vote at such meeting.
Any resolution passed or decisions taken at any meeting of
holders of Notes duly held in accordance with this Section shall be binding on
all the holders of Notes whether or not present or represented at the meeting.
The Trustee shall, in the name and at the expense of the Company, notify all the
holders of Notes of any such resolutions or decisions.
Section 10.4. CALL OF MEETINGS BY COMPANY OR NOTEHOLDERS. In case at
any time the Company, pursuant to a resolution of its Board of Directors, or the
holders of at least 10% in aggregate principal amount of the Notes then
outstanding, shall have requested the Trustee to call a meeting of Noteholders,
by written request setting forth in reasonable detail the action proposed to be
taken at the meeting, and the Trustee shall not have mailed the notice of such
meeting within twenty (20) days after receipt of such request, then the Company
or such Noteholders may determine the time and the place for such meeting and
may call such meeting to take any action authorized in Section 10.1, by mailing
notice thereof as provided in Section 10.2.
Section 10.5. QUALIFICATIONS FOR VOTING. To be entitled to vote at any
meeting of Noteholders a person shall (a) be a holder of one or more Notes on
the record date pertaining to such meeting or (b) be a person appointed by an
instrument in writing as proxy by a holder of one or more Notes. The only
persons who shall be entitled to be present or to speak at any meeting of
Noteholders shall be the persons entitled to vote at such meeting and their
counsel and any representatives of the Trustee and its counsel and any
representatives of the Company and its counsel.
Section 10.6. REGULATIONS. Notwithstanding any other provisions of
this Indenture, the Trustee may make such reasonable regulations as it may deem
advisable for any meeting of Noteholders, in regard to proof of the holding of
Notes and of the appointment of proxies, and in regard to the appointment and
duties of inspectors of votes, the submission and examination of proxies,
certificates and other evidence of the right to vote, and such other matters
concerning the conduct of the meeting as it shall think fit.
The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by Noteholders as provided in Section 10.3, in which case the Company
or the Noteholders calling the meeting, as the case may be, shall in like manner
appoint a temporary chairman. A permanent chairman and a permanent secretary of
the meeting shall be elected by vote of the holders of a majority in principal
amount of the Notes represented at the meeting and entitled to vote at the
meeting.
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Subject to the provisions of Section 9.4, at any meeting each
Noteholder or proxyholder shall be entitled to one vote for each $1,000
principal amount of Notes held or represented by him; PROVIDED, HOWEVER, that no
vote shall be cast or counted at any meeting in respect of any Note challenged
as not outstanding and ruled by the chairman of the meeting to be not
outstanding. The chairman of the meeting shall have no right to vote other than
by virtue of Notes held by him or instruments in writing as aforesaid duly
designating him as the proxy to vote on behalf of other Noteholders. Any meeting
of Noteholders duly called pursuant to the provisions of Section 10.2 or 10.3
may be adjourned from time to time by the holders of a majority of the aggregate
principal amount of Notes represented at the meeting, whether or not
constituting a quorum, and the meeting may be held as so adjourned without
further notice.
Section 10.7. VOTING. The vote upon any resolution submitted to any
meeting of Noteholders shall be by written ballot on which shall be subscribed
the signatures of the holders of Notes or of their representatives by proxy and
the principal amount of the Notes held or represented by them. The permanent
chairman of the meeting shall appoint two inspectors of votes who shall count
all votes cast at the meeting for or against any resolution and who shall make
and file with the secretary of the meeting their verified written reports in
duplicate of all votes cast at the meeting. A record in duplicate of the
proceedings of each meeting of Noteholders shall be prepared by the secretary of
the meeting and there shall be attached to said record the original reports of
the inspectors of votes on any vote by ballot taken thereat and affidavits by
one or more persons having knowledge of the facts setting forth a copy of the
notice of the meeting and showing that said notice was mailed as provided in
Section 10.2. The record shall show the principal amount of the Notes voting in
favor of or against any resolution. The record shall be signed and verified by
the affidavits of the permanent chairman and secretary of the meeting and one of
the duplicates shall be delivered to the Company and the other to the Trustee to
be preserved by the Trustee, the latter to have attached thereto the ballots
voted at the meeting.
Any record so signed and verified shall be conclusive evidence of the
matters therein stated.
Section 10.8. NO DELAY OF RIGHTS BY MEETING. Nothing in this Article
10 contained shall be deemed or construed to authorize or permit, by reason of
any call of a meeting of Noteholders or any rights expressly or impliedly
conferred hereunder to make such call, any hindrance or delay in the exercise of
any right or rights conferred upon or reserved to the Trustee or to the
Noteholders under any of the provisions of this Indenture or of the Notes.
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ARTICLE 11.
SUPPLEMENTAL INDENTURES
Section 11.1. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF NOTEHOLDERS.
The Company, when authorized by the resolutions of the Board of Directors, and
the Trustee may from time to time and at any time enter into an indenture or
indentures supplemental hereto for one or more of the following purposes:
(a) to make provision with respect to the conversion rights of the
holders of Notes pursuant to the requirements of Section 15.6;
(b) subject to Article 4, to convey, transfer, assign, mortgage or
pledge to the Trustee as security for the Notes, any property or assets;
(c) to evidence the succession of another corporation to the Company,
or successive successions, and the assumption by the successor corporation of
the covenants, agreements and obligations of the Company pursuant to Article 12;
(d) to add to the covenants of the Company such further covenants,
restrictions or conditions for the benefit of the holders of Notes, and to make
the occurrence, or the occurrence and continuance, of a default in any such
additional covenants, restrictions or conditions a default or an Event of
Default permitting the enforcement of all or any of the several remedies
provided in this Indenture as herein set forth; PROVIDED, HOWEVER, that in
respect of any such additional covenant, restriction or condition such
supplemental indenture may provide for a particular period of grace after
default (which period may be shorter or longer than that allowed in the case of
other defaults) or may provide for an immediate enforcement upon such default or
may limit the remedies available to the Trustee upon such default;
(e) to provide for the issuance under this Indenture of Notes in coupon
form (including Notes registrable as to principal only) and to provide for
exchangeability of such Notes with the Notes issued hereunder in fully
registered form and to make all appropriate changes for such purpose;
(f) to cure any ambiguity or to correct or supplement any provision
contained herein or in any supplemental indenture which may be defective or
inconsistent with any other provision contained herein or in any supplemental
indenture, or to make such other provisions in regard to matters or questions
arising under this Indenture which shall not materially adversely affect the
interests of the holders of the Notes;
(g) to evidence and provide for the acceptance of appointment hereunder
by a successor Trustee with respect to the Notes; or
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(h) to modify, eliminate or add to the provisions of this Indenture to
such extent as shall be necessary to effect the qualifications of this Indenture
under the Trust Indenture Act, or under any similar federal statute hereafter
enacted.
The Trustee is hereby authorized to join with the Company in the
execution of any such supplemental indenture, to make any further appropriate
agreements and stipulations which may be therein contained and to accept the
conveyance, transfer and assignment of any property thereunder, but the Trustee
shall not be obligated to, but may in its discretion, enter into any
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
Any supplemental indenture authorized by the provisions of this Section
11.1 may be executed by the Company and the Trustee without the consent of the
holders of any of the Notes at the time outstanding, notwithstanding any of the
provisions of Section 11.2.
Section 11.2. SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS.
With the consent (evidenced as provided in Article 9) of the holders of not less
than a majority in aggregate principal amount of the Notes at the time
outstanding (determined in accordance with Section 9.4), the Company, when
authorized by the resolutions of the Board of Directors, and the Trustee may
from time to time and at any time enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or any
supplemental indenture or of modifying in any manner the rights of the holders
of the Notes; PROVIDED, HOWEVER, that no such supplemental indenture shall,
without the consent of the holders of all Notes then outstanding:
(a) extend the fixed maturity of any Note, or
(b) reduce the rate or extend the time of payment of interest on
any Note, or
(c) reduce the principal amount thereof or premium, if any, on any
Note, or
(d) reduce any amount payable on redemption or repurchase of any
Note, or
(e) impair, or change in any respect adverse to the holder of Notes,
the obligation of the Company to repurchase any Note at the option of the holder
upon the happening of a Repurchase Event, or
(f) impair or adversely affect the right of any Noteholder to institute
suit for the payment of his Note, or
(g) change the place where, or currency in which, the Notes are
payable, or
(h) impair or change in any respect adverse to the Noteholders the
right to convert the Notes into Common Stock subject to the terms set forth
herein, including Section 15.6, or
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(i) modify the provisions of this Indenture with respect to the
subordination of the Notes in a manner adverse to the Noteholders, without the
consent of the holder of each Note so affected,
(j) reduce the requirements of Section 10.3 for quorum or voting or the
percentage in principal amount of the outstanding Notes of any series, the
consent of whose holders is required for any such supplemental indenture, or the
consent of whose holder is required for any waiver with respect to such series
(or compliance with certain provisions of this Indenture or certain defaults
hereunder and their consequences) provided for in this Indenture, or
(k) modify any of the provisions of this Section or Section 7.7, except
to increase the required percentage to effect such action or to provide that
certain other provisions of this Indenture cannot be modified or waived without
the consent of the holder of each outstanding Note affected thereby.
Upon the request of the Company, accompanied by a copy of the
resolutions of the Board of Directors certified by its Secretary or Assistant
Secretary authorizing the execution of any such supplemental indenture, and upon
the filing with the Trustee of evidence of the consent of Noteholders as
aforesaid, the Trustee shall join with the Company in the execution of such
supplemental indenture unless such supplemental indenture affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise, in which
case the Trustee may in is discretion, but shall not be obligated to, enter into
such supplemental indenture.
It shall not be necessary for the consent of the Noteholders under this
Section 11.2 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such consent shall approve the
substance thereof.
Section 11.3. EFFECT OF SUPPLEMENTAL INDENTURES. Any supplemental
indenture executed pursuant to the provisions of this Article 11 shall comply
with the Trust Indenture Act, as then in effect. Upon the execution of any
supplemental indenture pursuant to the provisions of this Article 11, this
Indenture shall be and be deemed to be modified and amended in accordance
therewith and the respective rights, limitation of rights, obligations, duties
and immunities under this Indenture of the Trustee, the Company and the holders
of Notes shall thereafter be determined, exercised and enforced hereunder
subject in all respects to such modifications and amendments and all the terms
and conditions of any such supplemental indenture shall be and be deemed to be
part of the terms and conditions of this Indenture for any and all purposes.
Section 11.4. NOTATION ON NOTES. Notes authenticated and delivered
after the execution of any supplemental indenture pursuant to the provisions of
this Article 11 may bear a notation in form approved by the Trustee as to any
matter provided for in such supplemental indenture. If the Company or the
Trustee shall so determine, new Notes so modified as to conform, in the opinion
of the Trustee and the Board of Directors, to any modification of this Indenture
contained in any such supplemental indenture may, at the Company's expense, be
prepared and
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executed by the Company, authenticated by the Trustee (or an authenticating
agent duly appointed by the Trustee pursuant to Section 17.11) and delivered in
exchange for the Notes then outstanding, upon surrender of such Notes then
outstanding.
Section 11.5. EVIDENCE OF COMPLIANCE OF SUPPLEMENTAL INDENTURE TO BE
FURNISHED TRUSTEE. The Trustee, subject to the provisions of Sections 8.1 and
8.2, may receive an Officers' Certificate and an Opinion of Counsel as
conclusive evidence that any supplemental indenture executed pursuant hereto
complies with the requirements of this Article 11.
ARTICLE 12.
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE
Section 12.1. COMPANY MAY CONSOLIDATE, ETC. ON CERTAIN TERMS. The
Company shall not, directly or indirectly, consolidate with or merge with or
into any other Person or sell, lease, convey or transfer all its properties and
assets substantially as an entirety, whether in a single transaction or a series
of related transactions, to any Person or group of affiliated Persons unless:
(a) either (i) in the case of a merger or consolidation that
does not involve a transfer of all or substantially all of the Company's
properties and assets, the Company is the surviving entity or (ii) in case the
Company shall consolidate with or merge into another Person or sell, lease,
convey or transfer all its properties and assets substantially as an entirety,
whether in a single transaction or a series of related transactions, to any
Person, the Person formed by such consolidation or into which the Company is
merged, or the Person which acquires by sale, conveyance or transfer, or which
leases the properties and assets of the Company substantially as an entirety,
shall be a corporation, limited liability company, partnership or trust, shall
be organized and validly existing under the laws of the United States of
America, any state thereof or the District of Columbia and shall expressly
assume, by an indenture supplemental hereto, executed and delivered to the
Trustee, in form satisfactory to the Trustee, the due and punctual payment of
the principal of, premium, if any, and interest on all of the Notes as
applicable, and the performance or observance of every covenant of this
Indenture on the part of the Company to be performed or observed and shall have
provided for the applicable conversion rights set forth in Section 15.6 and the
repurchase rights set forth in Article 15,
(b) immediately after giving effect to such transaction, no
Event of Default, and no event that after notice or lapse of time or both, would
become an Event of Default, shall have happened and be continuing; and
(c) the Company has delivered to the Trustee an Officers
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger, conveyance, transfer or lease and, if a supplemental indenture is
required in connection with such transaction, such supplemental indenture comply
with this Article and that all conditions precedent herein provided for relating
to such transaction have been complied with, together with any documents
required under Article 9.
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Section 12.2. SUCCESSOR CORPORATION TO BE SUBSTITUTED. In case of any
such consolidation, merger, sale, conveyance or lease in accordance with Section
12.1, and, where required in accordance with Section 12.1(a) upon the assumption
by the successor corporation, by supplemental indenture, executed and delivered
to the Trustee and satisfactory in form to the Trustee, of the due and punctual
payment of the principal of and premium, if any, and interest on all of the
Notes and the due and punctual performance of all of the covenants and
conditions of this Indenture to be performed by the Company, such successor
corporation shall succeed to and be substituted for the Company, with the same
effect as if it had been named herein as the party of the first part. Such
successor corporation thereupon may cause to be signed, and may issue either in
its own name or in the name of the Company any or all of the Notes issuable
hereunder which theretofore shall not have been signed by the Company and
delivered to the Trustee; and, upon the order of such successor corporation
instead of the Company and subject to all the terms, conditions and limitations
in this Indenture prescribed, the Trustee shall authenticate and shall deliver,
or cause to be authenticated and delivered, any Notes which previously shall
have been signed and delivered by the officers of the Company to the Trustee for
authentication, and any Notes which such successor corporation thereafter shall
cause to be signed and delivered to the Trustee for that purpose. All the Notes
so issued shall in all respects have the same legal rank and benefit under this
Indenture as the Notes theretofore or thereafter issued in accordance with the
terms of this Indenture as though all of such Notes had been issued at the date
of the execution hereof. In the event of any such consolidation, merger, sale,
conveyance or lease, the person named as the "Company" in the first paragraph of
this Indenture or any successor which shall thereafter have become such in the
manner prescribed in this Article 12 may be dissolved, wound up and liquidated
at any time thereafter and such person shall be released from its liabilities as
obligor and maker of the Notes and from its obligations under this Indenture.
In case of any such consolidation, merger, sale, conveyance or lease,
such changes in phraseology and form (but not in substance) may be made in the
Notes thereafter to be issued as may be appropriate.
Section 12.3. OPINION OF COUNSEL TO BE GIVEN TRUSTEE. The Trustee,
subject to Sections 8.1 and 8.2, shall receive an Officers' Certificate and an
Opinion of Counsel as conclusive evidence that any such consolidation, merger,
sale, conveyance or lease and any such assumption complies with the provisions
of this Article 12.
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ARTICLE 13.
SATISFACTION AND DISCHARGE OF INDENTURE
Section 13.1. DISCHARGE OF INDENTURE. When (a) the Company shall
deliver to the Trustee for cancellation all Notes theretofore authenticated
(other than any Notes which have been destroyed, lost or stolen and in lieu of
or in substitution for which other Notes shall have been authenticated and
delivered) and not theretofore canceled, or (b) all the Notes not theretofore
canceled or delivered to the Trustee for cancellation shall have become due and
payable, or are by their terms to become due and payable within one year or are
to be called for redemption within one year under arrangements satisfactory to
the Trustee for the giving of notice of redemption, and the Company shall
deposit with the Trustee, in trust, funds sufficient to pay at maturity or upon
redemption of all of the Notes (other than any Notes which shall have been
mutilated, destroyed, lost or stolen and in lieu of or in substitution for which
other Notes shall have been authenticated and delivered) not theretofore
canceled or delivered to the Trustee for cancellation, including principal and
premium, if any, and interest due or to become due to such date of maturity or
redemption date, as the case may be, and if in either case the Company shall
also pay or cause to be paid all other sums payable hereunder by the Company,
then this Indenture shall cease to be of further effect (except as to (i)
remaining rights of registration of transfer, substitution and exchange and
conversion of Notes, (ii) rights hereunder of Noteholders to receive payments of
principal of and premium, if any, and interest on, the Notes and the other
rights, duties and obligations of Noteholders, as beneficiaries hereof with
respect to the amounts, if any, so deposited with the Trustee and (iii) the
rights, obligations and immunities of the Trustee hereunder), and the Trustee,
on demand of the Company accompanied by an Officers' Certificate and an Opinion
of Counsel as required by Section 17.5 and at the cost and expense of the
Company, shall execute proper instruments acknowledging satisfaction of and
discharging this Indenture; the Company, however, hereby agreeing to reimburse
the Trustee for any costs or expenses thereafter reasonably and properly
incurred by the Trustee and to compensate the Trustee for any services
thereafter reasonably and properly rendered by the Trustee in connection with
this Indenture or the Notes.
Section 13.2. DEPOSITED MONIES TO BE HELD IN TRUST BY TRUSTEE. Subject
to Section 13.4, all monies deposited with the Trustee pursuant to Section 13.1
shall be held in trust and applied by it to the payment, notwithstanding the
provisions of Article 4, either directly or through any paying agent (including
the Company if acting as its own paying agent), to the holders of the particular
Notes for the payment or redemption of which such monies have been deposited
with the Trustee, of all sums due and to become due thereon for principal and
interest and premium, if any.
Section 13.3. PAYING AGENT TO REPAY MONIES HELD. Upon the satisfaction
and discharge of this Indenture, all monies then held by any paying agent of the
Notes (other than the Trustee) shall, upon demand of the Company, be repaid to
it or paid to the Trustee, and thereupon such paying agent shall be released
from all further liability with respect to such monies.
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Section 13.4. RETURN OF UNCLAIMED MONIES. Subject to the requirements
of applicable law, any monies deposited with or paid to the Trustee for payment
of the principal of, premium, if any, or interest on Notes and not applied but
remaining unclaimed by the holders of Notes for two years after the date upon
which the principal of, premium, if any, or interest on such Notes, as the case
may be, shall have become due and payable, shall be repaid to the Company by the
Trustee on demand and all liability of the Trustee shall thereupon cease with
respect to such monies; and the holder of any of the Notes shall thereafter look
only to the Company for any payment which such holder may be entitled to collect
unless an applicable abandoned property law designates another person.
Section 13.5. REINSTATEMENT. If (i) the Trustee or the paying agent is
unable to apply any money in accordance with Section 13.2 by reason of any order
or judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application and (ii) the holders of at least a
majority in principal amount of the then outstanding Notes so request by written
notice to the Trustee, the Company's obligations under this Indenture and the
Notes shall be revived and reinstated as though no deposit had occurred pursuant
to Section 13.1 until such time as the Trustee or the paying agent is permitted
to apply all such money in accordance with Section 13.2; PROVIDED, HOWEVER, that
if the Company makes any payment of interest on or principal of any Note
following the reinstatement of its obligations, the Company shall be subrogated
to the rights of the holders of such Notes to receive such payment from the
money held by the Trustee or paying agent.
ARTICLE 14.
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS
Section 14.1. INDENTURE AND NOTES SOLELY CORPORATE OBLIGATIONS. No
recourse for the payment of the principal of or premium, if any, or interest on
any Note, or for any claim based thereon or otherwise in respect thereof, and no
recourse under or upon any obligation, covenant or agreement of the Company in
this Indenture or in any supplemental indenture or in any Note, or because of
the creation of any indebtedness represented thereby, shall be had against any
incorporator, stockholder, employee, agent, officer or director or subsidiary,
as such, past, present or future, of the Company or of any successor
corporation, either directly or through the Company or any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Indenture and
the issue of the Notes.
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ARTICLE 15.
CONVERSION OF NOTES
Section 15.1. RIGHT TO CONVERT. Subject to and upon compliance with
the provisions of this Indenture, the holder of any Note shall have the right,
at his option, at any time following the date of original issuance of the Notes
and prior to the close of business on ____________, 2005 (except that, with
respect to any Note or portion of a Note which shall be called for redemption,
such right shall terminate, except as provided in the fifth paragraph of Section
15.2 and Section 3.4, at the close of business on the Business Day next
preceding the date fixed for redemption or repurchase of such Note or portion of
a Note unless the Company shall default in payment due upon redemption or
repurchase, as applicable, thereof) to convert the principal amount of any such
Note, or any portion of such principal amount which is $1,000 or an integral
multiple thereof, into that number of fully paid and non-assessable shares of
Common Stock (as such shares shall then be constituted) obtained by dividing the
principal amount of the Note or portion thereof surrendered for conversion by
the Conversion Price in effect at such time, by surrender of the Note so to be
converted in whole or in part in the manner provided in Section 15.2. A holder
of Notes is not entitled to any rights of a holder of Common Stock until such
holder has converted his Notes to Common Stock, and only to the extent such
Notes are deemed to have been converted to Common Stock under this Article 15. A
Note with respect to which a holder has delivered a notice in accordance with
Section 16.2 regarding such holder's election to require the Company to
repurchase such holder's Notes following the occurrence of a Repurchase Event
may be converted in accordance with this Article 15 only if such holder
withdraws such notice by delivering a written notice of withdrawal to the
Company prior to the close of business on last Business Day prior to the day
fixed for repurchase.
Section 15.2. EXERCISE OF CONVERSION PRIVILEGE; ISSUANCE OF COMMON
STOCK ON CONVERSION; NO ADJUSTMENT FOR INTEREST OR DIVIDENDS. In order to
exercise the conversion privilege with respect to any Note in definitive form,
the holder of any such Note to be converted in whole or in part shall surrender
such Note, duly endorsed, at an office or agency maintained by the Company
pursuant to Section 5.2, accompanied by the funds, if any, required by the
penultimate paragraph of this Section 15.2, and shall give written notice of
conversion in the form provided on the Notes (or such other notice which is
acceptable to the Company) to the office or agency that the holder elects to
convert such Note or such portion thereof specified in said notice. Such notice
shall also state the name or names (with address) in which the certificate or
certificates for shares of Common Stock which shall be issuable on such
conversion shall be issued, and shall be accompanied by transfer taxes, if
required pursuant to Section 15.7. Each such Note surrendered for conversion
shall, unless the shares issuable on conversion are to be issued in the same
name as the registration of such Note, be duly endorsed by, or be accompanied by
instruments of transfer in form satisfactory to the Company duly executed by,
the holder or his duly authorized attorney.
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In order to exercise the conversion privilege with respect to any
interest in the Global Note, the beneficial holder must complete the appropriate
instruction form for conversion pursuant to the Depositary's book-entry
conversion program, deliver by book-entry delivery an interest in the Global
Note, furnish appropriate endorsements and transfer documents if required by the
Company or the Trustee or conversion agent, and pay the funds, if any, required
by the penultimate paragraph of this Section 15.2 and any transfer taxes, if
required pursuant to Section 15.7.
As promptly as practicable after satisfaction of the requirements for
conversion set forth above, subject to compliance with any restrictions on
transfer if shares issuable on conversion are to be issued in a name other than
that of the Noteholder (as if such transfer were a transfer of the Note or Notes
(or portion thereof) so converted), the Company shall issue and shall deliver to
such holder at the office or agency maintained by the Company for such purpose
pursuant to Section 5.2, a certificate or certificates for the number of full
shares of Common Stock issuable upon the conversion of such Note or portion
thereof in accordance with the provisions of this Article and a check or cash in
respect of any fractional interest in respect of a share of Common Stock arising
upon such conversion, as provided in Section 15.3 (which payment, if any, shall
be paid no later than five Business Days after satisfaction of the requirements
for conversion set forth above). In case any Note of a denomination greater than
$1,000 shall be surrendered for partial conversion, and subject to Section 2.3,
the Company shall execute and the Trustee shall authenticate and deliver to the
holder of the Note so surrendered, without charge to him, a new Note or Notes in
authorized denominations in an aggregate principal amount equal to the
unconverted portion of the surrendered Note.
Each conversion shall be deemed to have been effected as to any such
Note (or portion thereof) on the date on which the requirements set forth above
in this Section 15.2 have been satisfied as to such Note (or portion thereof),
and the person in whose name any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be deemed to have
become on said date the holder of record of the shares represented thereby;
PROVIDED, HOWEVER, that any such surrender on any date when the stock transfer
books of the Company shall be closed shall constitute the person in whose name
the certificates are to be issued as the record holder thereof for all purposes
on the next succeeding day on which such stock transfer books are open, but such
conversion shall be at the Conversion Price in effect on the date upon which
such Note shall be surrendered.
Any Note or portion thereof surrendered for conversion during the
period from the close of business on the record date for any interest payment
date through the opening of business on the Business Day next preceding such
interest payment date shall (unless such Note or portion thereof being converted
shall have been called for redemption pursuant to a redemption notice mailed to
the Noteholders in accordance with Section 3.2 or eligible for repurchase
pursuant to a Company Notice mailed to the Noteholders in accordance with
Section 16.2) be accompanied by payment, in New York Clearing House funds or
other funds acceptable to the Company, of an amount equal to the interest
otherwise payable on such interest payment date on the principal amount being
converted; PROVIDED, HOWEVER, that no such payment need be made if there shall
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exist at the time of conversion a default in the payment of interest on the
Notes. Except as provided above in this Section 15.2, no adjustment shall be
made for interest accrued on any Note converted or for dividends on any shares
issued upon the conversion of such Note as provided in this Article.
Upon the conversion of an interest in the Global Note, the Trustee, or
the Custodian at the direction of the Trustee, shall make a notation on the
Global Note as to the reduction in the principal amount represented thereby.
Section 15.3. CASH PAYMENTS IN LIEU OF FRACTIONAL SHARES. No
fractional shares of Common Stock or scrip representing fractional shares shall
be issued upon conversion of Notes. If more than one Note shall be surrendered
for conversion at one time by the same holder, the number of full shares which
shall be issuable upon conversion shall be computed on the basis of the
aggregate principal amount of the Notes (or specified portions thereof to the
extent permitted hereby) so surrendered for conversion. If any fractional share
of stock otherwise would be issuable upon the conversion of any Note or Notes,
the Company shall make an adjustment therefor in cash at the current market
value thereof to the holder of Notes. The current market value of a share of
Common Stock shall be the Closing Price on the first Trading Day immediately
preceding the day on which the Notes (or specified portions thereof) are deemed
to have been converted and such Closing Price shall be determined as provided in
Section 15.5(h).
Section 15.4. CONVERSION PRICE. The conversion price shall be as
specified in the form of Note (herein called the "Conversion Price") attached as
Exhibit A hereto, subject to adjustment as provided in this Article 15.
Section 15.5. ADJUSTMENT OF CONVERSION PRICE. The Conversion Price
shall be adjusted from time to time by the Company as follows:
(a) In case the Company shall hereafter pay a dividend or make a
distribution on any class of capital stock of the Company payable in shares of
Common Stock, the Conversion Price in effect at the opening of business on the
date following the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution shall be reduced by multiplying such
Conversion Price by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding at the close of business on the Record Date
(as defined in Section 15.5(h)) fixed for such determination and the denominator
shall be the sum of such number of shares and the total number of shares
constituting such dividend or other distribution, such reduction to become
effective immediately after the opening of business on the day following the
Record Date. If any dividend or distribution of the type described in this
Section 15.5(a) is declared but not so paid or made, the Conversion Price shall
again be adjusted to the Conversion Price which would then be in effect if such
dividend or distribution had not been declared.
(b) In case the Company shall issue rights, options or warrants to all
holders of its outstanding shares of Common Stock (other than any rights,
options or warrants that by their
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terms will also be issued to any Noteholder upon conversion of a Note into
Common Stock without any action required by the Company or any other person)
entitling them to subscribe for or purchase shares of Common Stock at a price
per share less than the Current Market Price (as defined in Section 15.5(h)) on
the Record Date fixed for the determination of stockholders entitled to receive
such rights, options or warrants, the Conversion Price shall be adjusted so that
the same shall equal the price determined by multiplying the Conversion Price in
effect at the opening of business on the date after such Record Date by a
fraction of which the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the Record Date plus the number of
shares which the aggregate offering price of the total number of shares so
offered for subscription or purchase would purchase at such Current Market
Price, and of which the denominator shall be the number of shares of Common
Stock outstanding on the close of business on the Record Date plus the total
number of additional shares of Common Stock so offered for subscription or
purchase. Such adjustment shall become effective immediately after the opening
of business on the day following the Record Date fixed for determination of
stockholders entitled to receive such rights or warrants. To the extent that
shares of Common Stock are not delivered pursuant to such rights, options or
warrants, upon the expiration or termination of such rights or warrants the
Conversion Price shall be readjusted to the Conversion Price which would then be
in effect had the adjustments made upon the issuance of such rights or warrants
been made on the basis of delivery of only the number of shares of Common Stock
actually delivered. In the event that such rights or warrants are not so issued,
the Conversion Price shall again be adjusted to be the Conversion Price which
would then be in effect if such date fixed for the determination of stockholders
entitled to receive such rights or warrants had not been fixed. In determining
whether any rights or warrants entitle the holders to subscribe for or purchase
shares of Common Stock at less than such Current Market Price, and in
determining the aggregate offering price of such shares of Common Stock, there
shall be taken into account any consideration received for such rights or
warrants, the value of such consideration, if other than cash, to be determined
by the Board of Directors.
Not in limitation of the foregoing, in the event that the Company
implements a stockholder rights plan, such rights plan shall provide that upon
conversion of the Notes the holders will receive, in addition to the Common
Stock issuable upon such conversion, the rights issued under such rights plan
(notwithstanding the occurrence of an event causing such rights to separate from
the Common Stock at or prior to the time of conversion). Any distribution of
rights, options or warrants pursuant to a stockholder rights plan complying with
the requirements set forth in the immediately preceding sentence of this
paragraph shall not constitute a distribution of rights, options or warrants for
the purposes of this Section 15.5(d).
Rights, options or warrants distributed by the Company to all holders
of Common Stock entitling the holders thereof to subscribe for or purchase
shares of the Company's capital stock (either initially or under certain
circumstances), which rights, options or warrants, until the occurrence of a
specified event or events ("Trigger Event"): (i) are deemed to be transferred
with such shares of Common Stock; (ii) are not exercisable; and (iii) are also
issued in respect of future issuances of Common Stock, shall be deemed not to
have been distributed for purposes of this Section 15.5(b) (and no adjustment to
the Conversion Price under this Section 15.5(b) will
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be required) until the occurrence of the earliest Trigger Event. If such right,
option or warrant is subject to subsequent events, upon the occurrence of which
such right or warrant shall become exercisable to purchase different securities,
evidences of indebtedness or other assets or entitle the holder to purchase a
different number or amount of the foregoing or to purchase any of the foregoing
at a different purchase price, then the occurrence of each such event shall be
deemed to be the date of issuance and record date with respect to a new right,
option or warrant (and a termination or expiration of the existing right, option
or warrant without exercise by the holder thereof). In addition, in the event of
any distribution (or deemed distribution) of rights, options or warrants, or any
Trigger Event or other event (of the type described in the preceding sentence)
with respect thereto, that resulted in an adjustment to the Conversion Price
under this Section 15.5(b), (1) in the case of any such rights, options or
warrants which shall all have been redeemed or repurchased without exercise by
any holders thereof, the Conversion Price shall be readjusted upon such final
redemption or repurchase to give effect to such distribution or Trigger Event,
as the case may be, as though it were a cash distribution, equal to the per
share redemption or repurchase price received by a holder of Common Stock with
respect to such rights or warrants (assuming such holder had retained such
rights, options or warrants), made to all holders of Common Stock as of the date
of such redemption or repurchase, and (2) in the case of such rights, options or
warrants all of which shall have expired or been terminated without exercise,
the Conversion Price shall be readjusted as if such rights and warrants had
never been issued.
(c) In case the outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock, the Conversion Price in effect
at the opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately reduced, and conversely,
in case outstanding shares of Common Stock shall be combined into a smaller
number of shares of Common Stock, the Conversion Price in effect at the opening
of business on the day following the day upon which such combination becomes
effective shall be proportionately increased, such reduction or increase, as the
case may be, to become effective immediately after the opening of business on
the day following the day upon which such subdivision or combination becomes
effective.
(d) In case the Company shall, by dividend or otherwise, distribute to
all holders of its Common Stock shares of any class of capital stock of the
Company (other than any dividends or distributions to which Section 15.5(a)
applies) or evidences of its indebtedness, cash or other assets (including
securities, but excluding (1) any rights, options or warrants referred to in
Section 15.5(b) and, (2) dividends and distributions exclusively in cash (the
foregoing hereinafter in this Section 15.5(d) called the "Securities")), unless
the Company elects to reserve such Securities for distribution to the
Noteholders upon conversion of the Notes so that any such holder converting
Notes will receive upon such conversion, without any additional action on the
part of the Company or the Noteholder and in addition to the shares of Common
Stock to which such holder is entitled, the amount and kind of such Securities
which such holder would have received if such holder had converted its Notes
into Common Stock immediately prior to the Record Date (as defined in Section
15.5(h) for such distribution of the Securities) then, in each such case, the
Conversion Price shall be reduced so that the same shall be equal to the price
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determined by multiplying the Conversion Price in effect immediately prior to
the close of business on the Record Date (as defined in Section 15.5(h)) with
respect to such distribution by a fraction of which the numerator shall be the
Current Market Price (determined as provided in Section 15.5(h)) on such date
less the fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a Board Resolution) on such
date of the portion of the Securities so distributed applicable to one share of
Common Stock and the denominator shall be such Current Market Price, such
reduction to become effective immediately prior to the opening of business on
the day following the Record Date; PROVIDED, HOWEVER, that in the event the then
fair market value (as so determined) of the portion of the Securities so
distributed applicable to one share of Common Stock is equal to or greater than
the Current Market Price on the Record Date, in lieu of the foregoing
adjustment, adequate provision shall be made so that each Noteholder shall have
the right to receive upon conversion of a Note (or any portion thereof) the
amount of Securities such holder would have received had such holder converted
such Note (or portion thereof) immediately prior to such Record Date. In the
event that such dividend or distribution is not so paid or made, the Conversion
Price shall again be adjusted to be the Conversion Price which would then be in
effect if such dividend or distribution had not been declared. If the Board of
Directors determines the fair market value of any distribution for purposes of
this Section 15.5(d) by reference to the actual or when issued trading market
for any securities comprising all or part of such distribution, it must in doing
so consider the prices in such market over the same period (the "Reference
Period") used in computing the Current Market Price pursuant to Section 15.5(h)
to the extent possible, unless the Board of Directors in a board resolution
determines in good faith that determining the fair market value during the
Reference Period would not be in the best interest of the Noteholder.
For purposes of this Section 15.5(d) and Sections 15.5(a) and (b), any
dividend or distribution to which this Section 15.5(d) is applicable that also
includes shares of Common Stock, or rights, options or warrants to subscribe for
or purchase shares of Common Stock to which Section 15.5(b) applies (or both),
shall be deemed instead to be (1) a dividend or distribution of the evidences of
indebtedness, assets, shares of capital stock, rights or warrants other than
such shares of Common Stock or rights or warrants to which Section 15.5(b)
applies (and any Conversion Price reduction required by this Section 15.5(d)
with respect to such dividend or distribution shall then be made) immediately
followed by (2) a dividend or distribution of such shares of Common Stock or
such rights or warrants (and any further Conversion Price reduction required by
Sections 15.5(a) and (b) with respect to such dividend or distribution shall
then be made, except (A) the Record Date of such dividend or distribution shall
be substituted as "the date fixed for the determination of stockholders entitled
to receive such dividend or other distribution", "Record Date fixed for such
determination" and "Record Date" within the meaning of Section 15.5(a) and as
"the date fixed for the determination of stockholders entitled to receive such
rights or warrants", "the Record Date fixed for the determination of the
stockholders entitled to receive such rights or warrants" and "such Record Date"
within the meaning of Section 15.5(b) and (B) any shares of Common Stock
included in such dividend or distribution shall not be deemed "outstanding at
the close of business on the date fixed for such determination" within the
meaning of Section 15.5(a).
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(e) In case the Company shall, by dividend or otherwise, distribute to
all holders of its Common Stock cash (excluding any cash that is distributed
upon a merger or consolidation to which Section 15.6 applies or as part of a
distribution referred to in Section 15.5(d)), in an aggregate amount that,
combined together with (1) the aggregate amount of any other such distributions
to all holders of its Common Stock made exclusively in cash within the twelve
(12) months preceding the date of payment of such distribution, and in respect
of which no adjustment pursuant to this Section 15.5(e) has been made, and (2)
the aggregate of any cash plus the fair market value (as determined by the Board
of Directors, whose determination shall be conclusive and described in a Board
Resolution) of consideration payable in respect of any tender offer by the
Company or any of its subsidiaries for all or any portion of the Common Stock
concluded within the twelve (12) months preceding the date of payment of such
distribution, and in respect of which no adjustment pursuant to Section 15.5(f)
has been made, exceeds 10% of the product of the Current Market Price
(determined as provided in Section 15.5(h)) on the Record Date with respect to
such distribution times the number of shares of Common Stock outstanding on such
date, then, and in each such case, immediately after the close of business on
such date, the Conversion Price shall be reduced so that the same shall equal
the price determined by multiplying the Conversion Price in effect immediately
prior to the close of business on such Record Date by a fraction (i) the
numerator of which shall be equal to the Current Market Price on the Record Date
less an amount equal to the quotient of (x) the excess of such combined amount
over such 10% and (y) the number of shares of Common Stock outstanding on the
Record Date and (ii) the denominator of which shall be equal to the Current
Market Price on such date; PROVIDED, HOWEVER, that in the event the portion of
the cash so distributed applicable to one share of Common Stock is equal to or
greater than the Current Market Price of the Common Stock on the Record Date, in
lieu of the foregoing adjustment, adequate provision shall be made so that each
Noteholder shall have the right to receive upon conversion of a Note (or any
portion thereof) the amount of cash such holder would have received had such
holder converted such Note (or portion thereof) immediately prior to such Record
Date. In the event that such dividend or distribution is not so paid or made,
the Conversion Price shall again be adjusted to be the Conversion Price which
would then be in effect if such dividend or distribution had not been declared.
Any cash distribution to all holders of Common Stock as to which the Company
makes the election permitted by Section 15.5(n) and as to which the Company has
complied with the requirements of such Section shall be treated as not having
been made for all purposes of this Section 15.5(e)).
(f) In case a tender offer made by the Company or any Subsidiary for
all or any portion of the Common Stock shall expire and such tender offer (as
amended upon the expiration thereof) shall require the payment to stockholders
(based on the acceptance (up to any maximum specified in the terms of the tender
offer) of Purchased Shares (as defined below)) of an aggregate consideration
having a fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a Board Resolution) that
combined together with (1) the aggregate of the cash plus the fair market value
(as determined by the Board of Directors, whose determination shall be
conclusive and described in a Board Resolution), as of the expiration of such
tender offer, of consideration payable in respect of any other tender offers, by
the Company or any of its subsidiaries for all or any portion of the Common
Stock
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expiring within the twelve (12) months preceding the expiration of such tender
offer and in respect of which no adjustment pursuant to this Section 15.5(f) has
been made and (2) the aggregate amount of any distributions to all holders of
the Company's Common Stock made exclusively in cash within twelve (12) months
preceding the expiration of such tender offer and in respect of which no
adjustment pursuant to Section 15.5(e) has been made, exceeds 10% of the product
of the Current Market Price (determined as provided in Section 15.5(h)) as of
the last time (the "Expiration Time") tenders could have been made pursuant to
such tender offer (as it may be amended) times the number of shares of Common
Stock outstanding (including any tendered shares) on the Expiration Time, then,
and in each such case, immediately prior to the opening of business on the day
after the date of the Expiration Time, the Conversion Price shall be adjusted so
that the same shall equal the price determined by multiplying the Conversion
Price in effect immediately prior to close of business on the date of the
Expiration Time by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding (including any tendered shares) on the
Expiration Time multiplied by the Current Market Price of the Common Stock on
the Trading Day next succeeding the Expiration Time and the denominator shall be
the sum of (x) the fair market value (determined as aforesaid) of the aggregate
consideration payable to stockholders based on the acceptance (up to any maximum
specified in the terms of the tender offer) of all shares validly tendered and
not withdrawn as of the Expiration Time (the shares deemed so accepted, up to
any such maximum, being referred to as the "Purchased Shares") and (y) the
product of the number of shares of Common Stock outstanding (less any Purchased
Shares) on the Expiration Time and the Current Market Price of the Common Stock
on the Trading Day next succeeding the Expiration Time, such reduction (if any)
to become effective immediately prior to the opening of business on the day
following the Expiration Time. In the event that the Company is obligated to
purchase shares pursuant to any such tender offer, but the Company is
permanently prevented by applicable law from effecting any such purchases or all
such purchases are rescinded, the Conversion Price shall again be adjusted to be
the Conversion Price which would then be in effect if such tender offer had not
been made. If the application of this Section 15.5(f) to any tender offer would
result in an increase in the Conversion Price, no adjustment shall be made for
such tender offer under this Section 15.5(f). Any cash distribution to all
holders of Common Stock as to which the Company has made the election permitted
by Section 15.5(n) and as to which the Company has complied with the
requirements of such Section shall be treated as not having been made for all
purposes of this Section 15.5(f).
(g) In case of a tender or exchange offer made by a person other than
the Company or any Subsidiary for an amount which increases the offeror's
ownership of Common Stock to more than 25% of the Common Stock outstanding and
shall involve the payment by such person of consideration per share of Common
Stock having a fair market value (as determined by the Board of Directors),
whose determination shall be conclusive, and described in a resolution of the
Board of Directors at the last time (the "Expiration Time") tenders or exchanges
may be made pursuant to such tender or exchange offer (as it shall have been
amended) that exceeds the Current Market Price of the Common Stock on the
Trading Day next succeeding the Expiration Time, and in which, as of the
Expiration Time the Board of Directors is not recommending rejection of the
offer, the Conversion Price shall be reduced so that the same shall equal the
price
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determined by multiplying the Conversion Price in effect immediately prior to
the Expiration Time by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding (including any tendered or exchanged shares)
on the Expiration Time multiplied by the current Market Price of the Common
Stock on the Trading Day next succeeding the Expiration Time and the denominator
shall be the sum of (x) the fair market value (determined as aforesaid) of the
aggregate consideration payable to stockholders based on the acceptance (up to
any maximum specified in the terms of the tender or exchange offer) of all
shares validly tendered or exchanged and not withdrawn as of the Expiration Time
(the shares deemed so accepted, up to any such maximum, being referred to as the
"Purchased Shares") and (y) the product of the number of shares of Common Stock
outstanding (less any Purchased Shares) on the Expiration Time and the Current
Market Price of the Common Stock on the Trading Day next succeeding the
Expiration Time, such reduction to become effective immediately prior to the
opening of business on the day following the Expiration Time. In the event that
such person is obligated to purchase shares pursuant to any such tender or
exchange offer, but such person is permanently prevented by applicable law from
effecting any such purchases or all such purchases are rescinded, the Conversion
Price shall again be adjusted to be the Conversion Price which would then be in
effect if such tender or exchange offer had not been made. Notwithstanding the
foregoing, the adjustment described in this Section 15.5(g) shall not be made
if, as of the Expiration Time, the offering documents with respect to such offer
disclose a plan or intention to cause the Company to engage in any transaction
described in Article 12.
(h) For purposes of this Section 15.5, the following terms shall have
the meaning indicated:
(1) "Closing Price" with respect to any
securities on any day shall mean the closing sale price
regular way on such day or, in case no such sale takes place
on such day, the average of the reported closing bid and asked
prices, regular way, in each case on the Nasdaq National
Market or New York Stock Exchange, as applicable, or, if such
security is not listed or admitted to trading on such National
Market or Exchange, on the principal national security
exchange or quotation system on which such security is quoted
or listed or admitted to trading, or, if not quoted or listed
or admitted to trading on any national securities exchange or
quotation system, the average of the closing bid and asked
prices of such security on the over-the-counter market on the
day in question as reported by the National Quotation Bureau
Incorporated, or a similar generally accepted reporting
service, or if not so available, in such manner as furnished
by any New York Stock Exchange member firm selected from time
to time by the Board of Directors for that purpose, or a price
determined in good faith by the Board of Directors, whose
determination shall be conclusive and described in a Board
Resolution.
(2) "Current Market Price" shall mean the
average of the daily Closing Prices per share of Common Stock
for the ten (10) consecutive Trading Days immediately prior to
the date in question; PROVIDED, HOWEVER, that (1) if the
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"ex" date (as hereinafter defined) for any event (other than
the issuance or distribution requiring such computation) that
requires an adjustment to the Conversion Price pursuant to
Section 15.5(a), (b), (c), (d), (e), (f) or (g) occurs during
such ten (10) consecutive Trading Days, the Closing Price for
each Trading Day prior to the "ex" date for such other event
shall be adjusted by multiplying such Closing Price by the
same fraction by which the Conversion Price is so required to
be adjusted as a result of such other event, (2) if the "ex"
date for any event (other than the issuance or distribution
requiring such computation) that requires an adjustment to the
Conversion Price pursuant to Section 15.5(a), (b), (c), (d),
(e), (f) or (g) occurs on or after the "ex" date for the
issuance or distribution requiring such computation and prior
to the day in question, the Closing Price for each Trading Day
on and after the "ex" date for such other event shall be
adjusted by multiplying such Closing Price by the reciprocal
of the fraction by which the Conversion Price is so required
to be adjusted as a result of such other event, and (3) if the
"ex" date for the issuance or distribution requiring such
computation is prior to the day in question, after taking into
account any adjustment required pursuant to clause (1) or (2)
of this proviso, the Closing Price for each Trading Day on or
after such "ex" date shall be adjusted by adding thereto the
amount of any cash and the fair market value (as determined by
the Board of Directors in a manner consistent with any
determination of such value for purposes of Section 15.5(d),
(f) or (g), whose determination shall be conclusive and
described in a Board Resolution) of the evidences of
indebtedness, shares of capital stock or assets being
distributed applicable to one share of Common Stock as of the
close of business on the day before such "ex" date. For
purposes of any computation under Sections 15.5(f) or (g), the
Current Market Price of the Common Stock on any date shall be
deemed to be the average of the daily Closing Prices per share
of Common Stock for such day and the next two succeeding
Trading Days; PROVIDED, HOWEVER, that if the "ex" date for any
event (other than the tender offer requiring such computation)
that requires an adjustment to the Conversion Price pursuant
to Section 15.5(a), (b), (c), (d), (e), (f) and (g) occurs on
or after the Expiration Time for the tender or exchange offer
requiring such computation and prior to the day in question,
the Closing Price for each Trading Day on and after the "ex"
date for such other event shall be adjusted by multiplying
such Closing Price by the reciprocal of the fraction by which
the Conversion Price is so required to be adjusted as a result
of such other event. For purposes of this paragraph, the term
"ex" date, (1) when used with respect to any issuance or
distribution, means the first date on which the Common Stock
trades regular way on the relevant exchange or in the relevant
market from which the Closing Price was obtained without the
right to receive such issuance or distribution, (2) when used
with respect to any subdivision or combination of shares of
Common Stock, means the first date on which the Common Stock
trades regular way on such exchange or in such market after
the time at which such subdivision or combination becomes
effective, and (3) when used with respect to any tender or
exchange offer means the first date on which
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the Common Stock trades regular way on such exchange or in
such market after the Expiration Time of such offer.
Notwithstanding the foregoing, whenever successive adjustments
to the Conversion Price are called for pursuant to this
Section 15.5, such adjustments shall be made to the Current
Market Price as may be necessary or appropriate to effectuate
the intent of this Section 15.5 and to avoid unjust or
inequitable results as determined in good faith by the Board
of Directors.
(3) "fair market value" shall mean the
amount which a willing buyer would pay a willing seller in an
arm's length transaction.
(4) "Record Date" shall mean, with respect
to any dividend, distribution or other transaction or event in
which the holders of Common Stock have the right to receive
any cash, securities or other property or in which the Common
Stock (or other applicable security) is exchanged for or
converted into any combination of cash, securities or other
property, the date fixed for determination of stockholders
entitled to receive such cash, securities or other property
(whether such date is fixed by the Board of Directors or by
statute, contract or otherwise).
(5) "Trading Day" shall mean (x) if the
applicable security is listed or admitted for trading on the
New York Stock Exchange or another national security exchange,
a day on which the New York Stock Exchange or another national
security exchange is open for business or (y) if the
applicable security is quoted on the Nasdaq National Market, a
day on which trades may be made thereon or (z) if the
applicable security is not so listed, admitted for trading or
quoted, any day other than a Saturday or Sunday or a day on
which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
(i) The Company may make such reductions in the Conversion Price, in
addition to those required by Sections 15.5(a), (b), (c), (d), (e), (f) and (g),
as the Board of Directors considers to be advisable to avoid or diminish any
income tax to holders of Common Stock or rights to purchase Common Stock
resulting from any dividend or distribution of stock (or rights to acquire
stock) or from any event treated as such for income tax purposes.
To the extent permitted by applicable law, the Company from time to
time may reduce the Conversion Price by any amount for any period of time if the
period is at least twenty (20) days, the reduction is irrevocable during the
period and the Board of Directors shall have made a determination that such
reduction would be in the best interests of the Company, which determination
shall be conclusive and described in a Board Resolution. Whenever the Conversion
Price is reduced pursuant to the preceding sentence, the Company shall mail to
the holder of each Note at his last address appearing on the Note register
provided for in Section 2.5 a notice of the reduction at least fifteen (15) days
prior to the date the reduced Conversion Price
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takes effect, and such notice shall state the reduced Conversion Price and the
period during which it will be in effect.
(j) No adjustment in the Conversion Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in such price;
PROVIDED, HOWEVER, that any adjustments which by reason of this Section 15.5(j)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Article 15 shall be made
by the Company and shall be made to the nearest cent or to the nearest one
hundredth of a share, as the case may be. No adjustment need be made for a
change in the par value or no par value of the Common Stock.
(k) Whenever the Conversion Price is adjusted as herein provided, the
Company shall promptly file with the Trustee and any conversion agent other than
the Trustee an Officers' Certificate setting forth the Conversion Price after
such adjustment and setting forth a brief statement of the facts requiring such
adjustment. Promptly after delivery of such certificate, the Company shall
prepare a notice of such adjustment of the Conversion Price setting forth the
adjusted Conversion Price and the date on which each adjustment becomes
effective and shall mail such notice of such adjustment of the Conversion Price
to the holder of each Note at his last address appearing on the Note register
provided for in Section 2.5, within twenty (20) days of the effective date of
such adjustment. Failure to deliver such notice shall not effect the legality or
validity of any such adjustment.
(l) In any case in which this Section 15.5 provides that an adjustment
shall become effective immediately after a Record Date for an event, the Company
may defer until the occurrence of such event (i) issuing to the holder of any
Note converted after such Record Date and before the occurrence of such event
the additional shares of Common Stock issuable upon such conversion by reason of
the adjustment required by such event over and above the Common Stock issuable
upon such conversion before giving effect to such adjustment and (ii) paying to
such holder any amount in cash in lieu of any fraction pursuant to Section 15.3.
(m) For purposes of this Section 15.5, the number of shares of Common
Stock at any time outstanding shall not include shares held in the treasury of
the Company but shall include shares issuable in respect of scrip certificates
issued in lieu of fractions of shares of Common Stock. The Company will not pay
any dividend or make any distribution on shares of Common Stock held in the
treasury of the Company.
(n) In lieu of making any adjustment to the Conversion Price pursuant
to Section 15.5(e), the Company may elect to reserve an amount of cash for
distribution to the holders of the Notes upon the conversion of the Notes so
that any such holder converting Notes will receive upon such conversion, in
addition to the shares of Common Stock and other items to which such holder is
entitled, the full amount of cash which such holder would have received if such
holder had, immediately prior to the Record Date for such distribution of cash,
converted its Notes into Common Stock, together with any interest accrued with
respect to such amount, in accordance with this Section 15.5(n). The Company may
make such election by providing an
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Officers' Certificate to the Trustee to such effect on or prior to the payment
date for any such distribution and depositing with the Trustee on or prior to
such date an amount of cash equal to the aggregate amount the holders of the
Notes would have received if such holders had, immediately prior to the Record
Date for such distribution, converted all of the Notes into Common Stock. Any
such funds so deposited by the Company with the Trustee shall be invested by the
Trustee in marketable obligations issued or fully guaranteed by the United
States government with a maturity not more than three (3) months from the date
of issuance. Upon conversion of Notes by a holder, the holder will be entitled
to receive, in addition to the Common Stock issuable upon conversion, an amount
of cash equal to the amount such holder would have received if such holder had,
immediately prior to the Record Date for such distribution, converted its Note
into Common Stock, along with such holder's pro rata share of any accrued
interest earned as a consequence of the investment of such funds. Promptly after
making an election pursuant to this Section 15.5(n), the Company shall give or
shall cause to be given notice to all Noteholders of such election, which notice
shall state the amount of cash per $1,000 principal amount of Notes such holders
shall be entitled to receive (excluding interest) upon conversion of the Notes
as a consequence of the Company having made such election.
Section 15.6. EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE. If any of the following events occur, namely (i) any reclassification or
change of the outstanding shares of Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination), (ii) any consolidation, merger or
combination of the Company with another corporation as a result of which holders
of Common Stock shall be entitled to receive stock, securities or other property
or assets (including cash) with respect to or in exchange for such Common Stock,
or (iii) any sale or conveyance of the properties and assets of the Company as,
or substantially as, an entirety to any other corporation as a result of which
holders of Common Stock shall be entitled to receive stock, securities or other
property or assets (including cash) with respect to or in exchange for such
Common Stock, then the Company or the successor or purchasing corporation, as
the case may be, shall execute with the Trustee a supplemental indenture (which
shall comply with the Trust Indenture Act as in force at the date of execution
of such supplemental indenture if such supplemental indenture is then required
to so comply) providing that such Note shall be convertible into the kind and
amount of shares of stock and other securities or property or assets (including
cash) receivable upon such reclassification, change, consolidation, merger,
combination, sale or conveyance by a holder of a number of shares of Common
Stock issuable upon conversion of such Notes (assuming, for such purposes, a
sufficient number of authorized shares of Common Stock available to convert all
such Notes) immediately prior to such reclassification, change, consolidation,
merger, combination, sale or conveyance assuming such holder of Common Stock did
not exercise his rights of election, if any, as to the kind or amount of
securities, cash or other property receivable upon such consolidation, merger,
statutory exchange, sale or conveyance (provided that, if the kind or amount of
securities, cash or other property receivable upon such consolidation, merger,
statutory exchange, sale or conveyance is not the same for each share of Common
Stock in respect of which such rights of election shall not have been exercised
("non-electing share"), then for the purposes of this Section 15.6 the kind and
amount of securities, cash or other property receivable upon such consolidation,
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merger, statutory exchange, sale or conveyance for each non-electing share shall
be deemed to be the kind and amount so receivable per share by a plurality of
the non-electing shares). Such supplemental indenture shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article. If, in the case of any such
reclassification, change, consolidation, merger, combination, sale or
conveyance, the stock or other securities and assets receivable thereupon by a
holder of shares of Common Stock include shares of stock or other securities and
assets of a corporation other than the successor or purchasing corporation, as
the case may be, in such reclassification, change, consolidation, merger,
combination, sale or conveyance, then such supplemental indenture shall also be
executed by such other corporation and shall contain such additional provisions
to protect the interests of the holders of the Notes as the Board of Directors
shall reasonably consider necessary by reason of the foregoing, including to the
extent practicable the provisions providing for the repurchase rights set forth
in Article 16 herein.
The Company shall cause notice of the execution of such supplemental
indenture to be mailed to each holder of Notes, at his address appearing on the
Note register provided for in Section 2.5 of this Indenture, within twenty (20)
days after execution thereof. Failure to deliver such notice shall not affect
the legality or validity of such supplemental indenture.
The above provisions of this Section shall similarly apply to
successive reclassifications, changes, consolidations, mergers, combinations,
sales and conveyances.
If this Section 15.6 applies to any event or occurrence, Section 15.5
shall not apply.
Section 15.7. TAXES ON SHARES ISSUED. The issue of stock certificates
on conversions of Notes shall be made without charge to the converting
Noteholder for any tax in respect of the issue thereof. The Company shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of stock in any name other than that
of the holder of any Note converted, and the Company shall not be required to
issue or deliver any such stock certificate unless and until the person or
persons requesting the issue thereof shall have paid to the Company the amount
of such tax or shall have established to the satisfaction of the Company that
such tax has been paid.
Section 15.8. RESERVATION OF SHARES; SHARES TO BE FULLY PAID; LISTING
OF COMMON STOCK. The Company shall provide, free from preemptive rights, out of
its authorized but unissued shares or shares held in treasury, sufficient shares
to provide for the conversion of the Notes from time to time as such Notes are
presented for conversion.
Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the shares of Common Stock
issuable upon conversion of the Notes, the Company will take all corporate
action which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue shares of such Common Stock at such
adjusted Conversion Price.
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The Company covenants that all shares of Common Stock issued upon
conversion of Notes will be fully paid and non-assessable by the Company and
free from all taxes, liens and charges with respect to the issue thereof.
The Company further covenants that if at any time the Common Stock
shall be listed on the Nasdaq National Market or any other national securities
exchange or automated quotation system the Company will, if permitted by the
rules of such exchange or automated quotation system, list and keep listed, so
long as the Common Stock shall be so listed on such exchange or automated
quotation system, all Common Stock issuable upon conversion of the Notes.
Section 15.9. RESPONSIBILITY OF TRUSTEE. The Trustee and any other
conversion agent shall not at any time be under any duty or responsibility to
any holder of Notes to determine whether any facts exist which may require any
adjustment of the Conversion Price, or with respect to the nature or extent or
calculation of any such adjustment when made, or with respect to the method
employed, or herein or in any supplemental indenture provided to be employed, in
making the same. The Trustee and any other conversion agent shall not be
accountable with respect to the validity or value (or the kind or amount) of any
shares of Common Stock, or of any securities or property, which may at any time
be issued or delivered upon the conversion of any Note; and the Trustee and any
other conversion agent make no representations with respect thereto. Subject to
the provisions of Section 8.1, neither the Trustee nor any conversion agent
shall be responsible for any failure of the Company to issue, transfer or
deliver any shares of Common Stock or stock certificates or other securities or
property or cash upon the surrender of any note for the purpose of conversion or
to comply with any of the duties, responsibilities or covenants of the Company
contained in this Article. Without limiting the generality of the foregoing,
neither the Trustee nor any conversion agent shall be under any responsibility
to determine the correctness of any provisions contained in any supplemental
indenture entered into pursuant to Section 15.6 relating either to the kind or
amount of shares of stock or securities or property (including cash) receivable
by Noteholders upon the conversion of their Notes after any event referred to in
such Section 15.6 or to any adjustment to be made with respect thereto, but,
subject to the provisions of Section 8.1, may accept as conclusive evidence of
the correctness of any such provisions, and shall be protected in relying upon,
the Officers' Certificate (which the Company shall be obligated to file with the
Trustee prior to the execution of any such supplemental indenture) with respect
thereto.
Section 15.10. NOTICE TO HOLDERS PRIOR TO CERTAIN ACTIONS. In case:
(a) the Company shall declare a dividend (or any other distribution) on
its Common Stock (that would require an adjustment in the Conversion Price
pursuant to Section 15.5); or
(b) the Company shall authorize the granting to the holders of its
Common Stock of rights or warrants to subscribe for or purchase any share of any
class or any other rights or warrants; or
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(c) of any reclassification of the Common Stock of the Company (other
than a subdivision or combination of its outstanding Common Stock, or a change
in par value, or from par value to no par value, or from no par value to par
value), or of any consolidation or merger to which the Company is a party and
for which approval of any shareholders of the Company is required, or of the
sale or transfer of all or substantially all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
the Company shall cause to be filed with the Trustee and to be mailed to each
holder of Notes at his address appearing on the Note register, provided for in
Section 2.5 of this Indenture, as promptly as possible but in any event at least
fifteen days prior to the applicable date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution or rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution or rights are to be determined, or (y) the date
on which such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up is expected to become effective or occur,
and the date as of which it is expected that holders of Common Stock of record
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up. Failure to give such notice,
or any defect therein, shall not affect the legality or validity of such
dividend, distribution, reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up.
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ARTICLE 16.
REPURCHASE UPON A REPURCHASE EVENT
Section 16.1. REPURCHASE RIGHT.
(a) If, at any time prior to ____________________, 2005 there shall
occur a Repurchase Event, then each Noteholder shall have the right, at such
holder's option, to require the Company to repurchase all of such holder's
Notes, or any portion thereof (in principal amounts of $1,000 or integral
multiples thereof), on the date (the "repurchase date") that is forty (40)
calendar days after the date of the Company Notice (as defined in Section 16.2
below) of such Repurchase Event (or, if such 40th day is not a Business Day, the
next succeeding Business Day). Such repurchase shall be made in cash at a price
equal to 105% of the principal amount of Notes such holder elects to require the
Company to repurchase, together with accrued interest, if any, to the repurchase
date (the "Repurchase Price") (or, at the option of the Company, by delivery of
Common Stock in accordance with the provisions of Section 16.3); PROVIDED,
HOWEVER, that if such repurchase date is __________ or __________ then the
interest payable on such date shall be paid to the holder of record of the Note
on the next preceding __________ or __________, respectively. No Notes may be
redeemed at the option of holders upon a Repurchase Event if there has occurred
and is continuing an Event of Default, other than a default in the payment of
the Repurchase Price with respect to such Notes on the repurchase date.
Section 16.2. NOTICES; METHOD OF EXERCISING REPURCHASE RIGHT, ETC.
(a) Unless the Company shall have theretofore called for redemption all
of the outstanding Notes, on or before the fifteenth (15th) calendar day after
the occurrence of a Repurchase Event, the Company or, at the written request of
the Company, the Trustee, shall mail to all holders of record of the Notes a
notice (the "Company Notice") in the form as prepared by the Company of the
occurrence of the Repurchase Event and of the repurchase right set forth herein
arising as a result thereof. The Company shall also deliver a copy of such
notice of a repurchase right to the Trustee and cause a copy of such notice of a
repurchase right, or a summary of the information contained therein, to be
published once in a newspaper of general circulation in The City of New York.
The Company Notice shall contain the following information:
(1) the repurchase date,
(2) the date by which the repurchase right must be exercised,
(3) the last date by which the election to require repurchase,
if submitted, must be revoked;
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(4) the Repurchase Price and whether the Repurchase Price
shall be payable in cash or Common Stock and, if
payable in Common Stock, the method of calculating
the amount of the Common Stock to be delivered upon
the repurchase as provided in Section 16.3(a);
(5) a description of the procedure which a holder must follow
to exercise a repurchase right, and
(6) the Conversion Price then in effect, the date on
which the right to convert the principal amount of
the Notes to be repurchased will terminate and the
place or places where Notes may be surrendered for
conversion.
No failure of the Company to give the foregoing notices or
defect therein shall limit any holder's right to exercise a repurchase
right or affect the validity of the proceedings for the repurchase of
Notes.
If any of the foregoing provisions are inconsistent with
applicable law, such law shall govern.
(b) To exercise a repurchase right, a holder shall deliver to the
Trustee on or before the thirty-fifth (35th) day after the Company Notice was
delivered (i) written notice to the Company (or agent designated by the Company
for such purpose) of the holder's exercise of such right, which notice shall set
forth the name of the holder, the principal amount of the Notes to be
repurchased, a statement that an election to exercise the repurchase right is
being made thereby, and, in the event that the Repurchase Price shall be paid in
shares of Common Stock, the name or names (with addresses) in which the
certificate or certificates for shares of Common Stock shall be issued, and (ii)
the Notes with respect to which the repurchase right is being exercised, duly
endorsed for transfer to the Company. Election of repurchase by a holder shall
be revocable at any time prior to, but excluding, the repurchase date, by
delivering written notice to that effect to the Trustee prior to the close of
business on the Business Day prior to the repurchase date.
(c) If the Company fails to repurchase on the repurchase date any Notes
(or portions thereof) as to which the repurchase right has been properly
exercised, then the principal of such Notes shall, until paid, bear interest to
the extent permitted by applicable law from the repurchase date at the rate
borne by the Note and each such Note shall be convertible into Common Stock in
accordance with this Indenture (without giving effect to Section 16.2(b)) until
the principal of such Note shall have been paid or duly provided for.
(d) Any Note which is to be repurchased only in part shall be
surrendered to the Trustee duly endorsed for transfer to the Company and
accompanied by appropriate evidence of genuineness and authority satisfactory to
the Company and the Trustee duly executed by, the holder thereof (or his
attorney duly authorized in writing), and the Company shall execute, and the
Trustee shall authenticate and deliver to the holder of such Note without
service charge, a new Note or Notes, containing identical terms and conditions,
of any authorized denomination as
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requested by such holder in aggregate principal amount equal to and in exchange
for the unrepurchased portion of the principal of the Note so surrendered.
(e) On or prior to the repurchase date, the Company shall deposit with
the Trustee or with a paying agent (or, if the Company is acting as its own
paying agent, segregate and hold in trust as provided in Section 5.4) the
Repurchase Price in cash for payment to the holder on the repurchase date;
PROVIDED that if payment is to be made in cash, such cash payment is made on the
repurchase date it must be received by the Trustee or paying agent, as the case
may be, by 10:00 a.m., New York City time, on such date; PROVIDED FURTHER that
if the Repurchase Price is to be paid in shares of Common Stock, such shares of
Common Stock are to be paid as promptly after the repurchase date as
practicable.
(f) Any issuance of shares of Common Stock in respect of the Repurchase
Price shall be deemed to have been effected immediately prior to the close of
business on the repurchase date and the person or persons in whose name or names
any certificate or certificates for shares of Common Stock shall be issuable
upon such repurchase shall be deemed to have become on the repurchase date the
holder or holders of record of the shares represented thereby; provided,
however, that any surrender for repurchase on a date when the stock transfer
books of the Company shall be closed shall constitute the person or persons in
whose name or names the certificate or certificates for such shares are to be
issued as the record holder or holders thereof for all purposes at the opening
of business on the next succeeding day on which such stock transfer books are
open. No payment or adjustment shall be made for dividends or distributions on
any Common Stock issued upon repurchase of any Security declared prior to the
repurchase date.
(g) No fractions of shares shall be issued upon repurchase of Notes. If
more than one Note shall be repurchased from the same holder and the Repurchase
Price shall be payable in shares of Common Stock, the number of full shares
which shall be issuable upon such repurchase shall be computed on the basis of
the aggregate principal amount of the Notes so repurchased. Instead of any
fractional share of Common Stock which would otherwise be issuable on the
repurchase of any Note or Notes, the Company will deliver to the applicable
holder its check for the current market value of such fractional share. The
current market value of a fraction of a share is determined by multiplying the
current market price of a full share by the fraction, and rounding the result to
the nearest cent. For purposes of this Section, the current market price of a
share of Common Stock is the Closing Price of the Common Stock on the Trading
Day immediately preceding the repurchase date.
(h) Any issuance and delivery of certificates for shares of Common
Stock on repurchase of Notes shall be made without charge to the holder of Notes
being repurchased for such certificates or for any tax or duty in respect of the
issuance or delivery of such certificates or the securities represented thereby;
provided, however, that the Company shall not be required to pay any tax or duty
which may be payable in respect of (i) income of the holder or (ii) any transfer
involved in the issuance or delivery of certificates for shares of Common Stock
in a name other than that of the holder of the Notes being repurchased, and no
such issuance or
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delivery shall be made unless and until the person requesting such issuance or
delivery has paid to the Company the amount of any such tax or duty or has
established, to the satisfaction of the Company, that such tax or duty has been
paid.
(i) All Notes delivered for repurchase shall be delivered to the
Trustee to be canceled in accordance with the provisions of Section 2.8.
Section 16.3. CONDITIONS TO THE COMPANY'S ELECTION TO PAY THE
REPURCHASE PRICE IN COMMON STOCK.
The Company may elect to pay the Repurchase Price by delivery of shares
of Common Stock pursuant to Section 16.1 if and only if the following conditions
shall have been satisfied:
(a) The shares of Common Stock deliverable in payment of the Repurchase
Price shall have a fair market value as of the repurchase date of not less than
the Repurchase Price. For purposes of Section 16.1 and this Section 16.3, the
fair market value of shares of Common Stock shall be determined by the Company
and shall be equal to 95% of the average of the Closing Prices of the Common
Stock for the five consecutive Trading Days immediately preceding and including
the third Trading Day prior to the repurchase date;
(b) The Repurchase Price shall be paid only in cash in the event any
shares of Common Stock to be issued upon repurchase of Notes hereunder (i)
require registration under any federal securities law before such shares may be
freely transferable without being subject to any transfer restrictions under the
Securities Act upon repurchase and if such registration is not completed or does
not become effective prior to the repurchase date, and/or (ii) require
registration with or approval of any governmental authority under any state law
or any other federal law before such shares may be validly issued or delivered
upon repurchase and if such registration is not completed or does not become
effective or such approval is not obtained prior to the repurchase date;
(c) Payment of the Repurchase Price may not be made in Common Stock
unless such stock is, or shall have been, or approved for quotation on the
Nasdaq National Market or listed on a national securities exchange, in either
case, prior to the repurchase date; and
(d) All shares of Common Stock which may be issued upon repurchase of
the Notes will be issued out of the Company's authorized but unissued Common
Stock and, will upon issue, be duly and validly issued and fully paid and
non-assessable and free of any preemptive rights.
If all of the conditions set forth in this Section 16.3 are not
satisfied in accordance with the terms thereof, the Repurchase Price shall be
paid by the Company only in cash.
Section 16.4. CERTAIN DEFINITIONS. For purposes of this Article 16:
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(a) the term "beneficial owner" shall be determined in accordance with
Rule 13d-3 and 13d-5, as in effect on the date of the original execution of this
Indenture, promulgated by the Securities and Exchange Commission pursuant to the
Exchange Act;
(b) the term "person" or "group" shall include any syndicate or group
which would be deemed to be a "person" under Section 13(d) and 14(d) of the
Exchange Act as in effect on the date of the original execution of this
Indenture; and
(c) the term "Continuing Director" means at any date a member of the
Company's Board of Directors (i) who was a member of such board on December 31,
1999 or (ii) who was nominated or elected by at least a majority of the
directors who were Continuing Directors at the time of such nomination or
election or whose election to the Company's Board of Directors was recommended
or endorsed by at least a majority of the directors who were Continuing
Directors at the time of such nomination or election or such lesser number
comprising a majority of a nominating committee if authority for such
nominations or elections has been delegated to a nominating committee whose
authority and composition have been approved by at least a majority of the
directors who were continuing directors at the time such committee was formed.
(Under this definition, if the Board of Directors of the Company as of the date
of this Indenture were to approve a new director or directors and then resign,
no Change in Control would occur even though the current Board of Directors
would thereafter cease to be in office).
(d) the term "Repurchase Event" means a Change in Control or a
Termination of Trading.
(e) a "Change in Control" shall be deemed to have occurred when (i) any
"person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rules 13-d3
and 13-d5 under the Exchange Act) of shares representing more than 50% of the
combined voting power of the then outstanding securities entitled to vote
generally in elections of directors of the Company (the "Voting Stock"); (ii)
approval by stockholders of the Company of any plan or proposal for the
liquidation, dissolution or winding up of the Company; (iii) the Company (A)
consolidates with or merges into any other corporation or any other corporation
merges into the Company, and in the case of any such transaction, the
outstanding Common Stock of the Company is changed or exchanged into other
assets or securities as a result, unless the stockholders of the Company
immediately before such transaction own, directly or indirectly immediately
following such transaction, at least 51% of the combined voting power of the
outstanding voting securities of the corporation resulting from such transaction
in substantially the same proportion as their ownership of the Voting Stock
immediately before such transaction, or (B) conveys, transfers or leases all or
substantially all of its assets to any person; or (iv) any time Continuing
Directors do not constitute a majority of the Board of Directors of the Company
(or, if applicable, a successor corporation to the Company); PROVIDED that a
Change in Control shall not be deemed to have occurred if either (x) the Closing
Price (as defined in Section 15.5(h)(1) hereof) of the Common Stock for any five
(5) Trading Days during the ten (10) Trading Days immediately preceding the
Change in Control is at least equal to 105% of the Conversion Price in effect on
the date on
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which the Change in Control occurs or (y) in the case of a merger or
consolidation otherwise constituting a Change in Control, all of the
consideration (excluding cash payments for fractional shares) in such merger or
consolidation constituting the Change in Control consists of common stock traded
on a United States national securities exchange or quoted on the Nasdaq National
Market (or which will be so traded or quoted when issued or exchanged in
connection with such Change in Control) and as a result of such transaction or
transactions such Notes become convertible solely into such common stock.
(f) a "Termination of Trading" shall have occurred if the Common Stock
(or other common stock into which the Notes are then convertible) is neither
listed for trading on a United States national securities exchange nor approved
for trading on an established automated over-the-counter trading market in the
United States.
ARTICLE 17.
MISCELLANEOUS PROVISIONS
Section 17.1. PROVISIONS BINDING ON COMPANY'S SUCCESSORS. All the
covenants, stipulations, promises and agreements of the Company in this
Indenture contained shall bind its successors and assigns whether so expressed
or not.
Section 17.2. OFFICIAL ACTS BY SUCCESSOR CORPORATION. Any act or
proceeding by any provision of this Indenture authorized or required to be done
or performed by any board, committee or officer of the Company shall and may be
done and performed with like force and effect by the like board, committee or
officer of any corporation that shall at the time be the lawful sole successor
of the Company.
Section 17.3. ADDRESSES FOR NOTICES, ETC. Any notice or demand which
by any provision of this Indenture is required or permitted to be given or
served by the Trustee or by the holders of Notes on the Company shall be deemed
to have been sufficiently given or made, for all purposes if given or served by
being deposited postage prepaid by registered or certified mail in a post office
letter box addressed (until another address is filed by the Company with the
Trustee) to 20 Second Avenue, Burlington, Massachusetts 01803, Attention: Chief
Financial Officer. Any notice, direction, request or demand hereunder to or upon
the Trustee shall be deemed to have been sufficiently given or made, for all
purposes, if given or served by being deposited postage prepaid by registered or
certified mail in a post office letter box addressed to the Corporate Trust
Office.
The Trustee, by notice to the Company, may designate additional or
different addresses for subsequent notices or communications.
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Any notice or communication mailed to a Noteholder shall be mailed to
him by first class mail, postage prepaid, at his address as it appears on the
Note register and shall be sufficiently given to him if so mailed within the
time prescribed.
Failure to mail a notice or communication to a Noteholder or any defect
in it shall not affect its sufficiency with respect to other Noteholders. If a
notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
Section 17.4. GOVERNING LAW. This Indenture and each Note shall be
deemed to be a contract made under the laws of New York, and for all purposes
shall be construed in accordance with the laws of New York (without regard to
the conflict of laws provisions thereof).
Section 17.5. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT;
CERTIFICATES TO TRUSTEE. Upon any application or demand by the Company to the
Trustee to take any action under any of the provisions of this Indenture, the
Company shall furnish to the Trustee an Officers' Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, and an Opinion of Counsel stating that,
in the opinion of such counsel, all such conditions precedent have been complied
with.
Each certificate or opinion provided for by or on behalf of the Company
in this Indenture and delivered to the Trustee with respect to compliance with a
condition or covenant provided for in this Indenture shall include (1) a
statement that the person making such certificate or opinion has read such
covenant or condition; (2) a brief statement as to the nature and scope of the
examination or investigation upon which the statement or opinion contained in
such certificate or opinion is based; (3) a statement that, in the opinion of
such person, he has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not such covenant or
condition has been complied with; and (4) a statement as to whether or not, in
the opinion of such person, such condition or covenant has been complied with.
Section 17.6. LEGAL HOLIDAYS. In any case where the date of maturity
of interest on or principal of the Notes or the date fixed for redemption of any
Note will not be a Business Day, then payment of such interest on or principal
of the Notes need not be made on such date, but may be made on the next
succeeding Business Day with the same force and effect as if made on the date of
maturity or the date fixed for redemption, and no interest shall accrue for the
period from and after such date.
Section 17.7. NO SECURITY INTEREST CREATED. Nothing in this Indenture
or in the Notes, expressed or implied, shall be construed to constitute a
security interest under the Uniform Commercial Code or similar legislation, as
now or hereafter enacted and in effect, in any jurisdiction.
Section 17.8. TRUST INDENTURE ACT. This Indenture is hereby made
subject to, and shall be governed by, the provisions of the Trust Indenture Act
required to be part of and to govern
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indentures qualified under the Trust Indenture Act. If any provision hereof
limits, qualifies or conflicts with another provision hereof which is required
to be included in an indenture qualified under the Trust Indenture Act, such
required provision shall control.
Section 17.9. BENEFITS OF INDENTURE. Nothing in this Indenture or in
the Notes, expressed or implied, shall give to any person, other than the
parties hereto, any paying agent, any authenticating agent, any Note registrar
and their successors hereunder, the holders of Notes and the holders of Senior
Indebtedness, any benefit or any legal or equitable right, remedy or claim under
this Indenture.
Section 17.10. TABLE OF CONTENTS, HEADINGS, ETC. The table of contents
and the titles and headings of the articles and sections of this Indenture have
been inserted for convenience of reference only, are not to be considered a part
hereof, and shall in no way modify or restrict any of the terms or provisions
hereof.
Section 17.11. AUTHENTICATING AGENT. The Trustee may appoint an
authenticating agent which shall be authorized to act on its behalf and subject
to its direction in the authentication and delivery of Notes in connection with
the original issuance thereof and transfers and exchanges of Notes hereunder,
including under Sections 2.4, 2.5, 2.6, 2.7 and 3.3, as fully to all intents and
purposes as though the authenticating agent had been expressly authorized by
this Indenture and those Sections to authenticate and deliver Notes. For all
purposes of this Indenture, the authentication and delivery of Notes by the
authenticating agent shall be deemed to be authentication and delivery of such
Notes "by the Trustee" and a certificate of authentication executed on behalf of
the Trustee by an authenticating agent shall be deemed to satisfy any
requirement hereunder or in the Notes for the Trustee's certificate of
authentication. Such authenticating agent shall at all times be a person
eligible to serve as trustee hereunder pursuant to Section 8.9.
Any corporation into which any authenticating agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, consolidation or conversion to which any authenticating agent
shall be a party, or any corporation succeeding to the corporate trust business
of any authenticating agent, shall be the successor of the authenticating agent
hereunder, if such successor corporation is otherwise eligible under this
Section, without the execution or filing of any paper or any further act on the
part of the parties hereto or the authenticating agent or such successor
corporation.
Any authenticating agent may at any time resign by giving written
notice of resignation to the Trustee and to the Company. The Trustee may at any
time terminate the agency of any authenticating agent by giving written notice
of termination to such authenticating agent and to the Company. Upon receiving
such a notice of resignation or upon such a termination, or in case at any time
any authenticating agent shall cease to be eligible under this Section, the
Trustee shall promptly appoint a successor authenticating agent (which may be
the Trustee), shall give written notice of such appointment to the Company and
shall mail notice of such appointment to all holders of Notes as the names and
addresses of such holders appear on the Note register.
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The Trustee agrees to pay to the authenticating agent from time to time
reasonable compensation for its services (to the extent pre-approved by the
Company in writing), and the Trustee shall be entitled to be reimbursed for such
pre-approved payments, subject to Section 8.6.
The provisions of Sections 8.2, 8.3, 8.4, 9.3 and this Section 17.11
shall be applicable to any authenticating agent.
Section 17.12. EXECUTION IN COUNTERPARTS. This Indenture may be
executed in any number of counterparts, each of which shall be an original, but
such counterparts shall together constitute but one and the same instrument.
[The Bank of New York] hereby accepts the trusts in this Indenture
declared and provided, upon the terms and conditions hereinabove set forth.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed as of the date first written above.
IBASIS, INC.
By: _____________________________________
Name: _______________________________
Title: ______________________________
Attest:
______________________________
Name: _______________________
Title: ________________________
[Corporate Seal]
[THE BANK OF NEW YORK],
as Trustee
By: _____________________________________
Name: _______________________________
Title: ______________________________
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EXHIBIT A
FORM OF NOTE
[THE FOLLOWING LEGEND SHALL APPEAR ON THE FACE OF EACH GLOBAL NOTE:
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITARY OR A
NOMINEE OF THE DEPOSITARY, WHICH MAY BE TREATED BY THE COMPANY, THE TRUSTEE AND
ANY AGENT THEREOF AS OWNER AND HOLDER OF THIS NOTE FOR ALL PURPOSES.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN
DEFINITIVE REGISTERED FORM IN THE LIMITED CIRCUMSTANCES REFERRED TO IN THE
INDENTURE, THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO
THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY.]
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IBASIS, INC.
____% CONVERTIBLE SUBORDINATED NOTE
DUE 2005
No. ________________ U.S.$___________________
CUSIP NO. ______________
IBASIS, INC., a corporation duly organized and existing under the laws
of the State of Delaware (herein called the "Company", which term includes any
successor person under the Indenture referred to on the reverse hereof), for
value received, hereby promises to pay to ________________________, the
principal sum of ________ United States Dollars (U.S.$______ ) (which principal
amount may from time to time be increased or decreased to such other principal
amounts (which, taken together with the principal amounts of all other
outstanding Notes under the Indenture, shall not exceed U.S.$172,500,000 in the
aggregate at any time) by adjustments made on the records of the Trustee
hereinafter referred to in accordance with the Indenture) on _____________, 2005
and to pay interest thereon, from _______________, 2000, or from the most recent
Interest Payment Date (as defined below) to which interest has been paid or duly
provided for, semi-annually in arrears on ________ and __________ in each year
(each, an "Interest Payment Date"), commencing ___________, 2000, at the rate of
____% per annum, until the principal hereof is due, and at the rate of ___% per
annum on any overdue principal and premium, if any, and, to the extent permitted
by law, on any overdue interest. The interest so payable, and punctually paid or
duly provided for, on any Interest Payment Date will, as provided in the
Indenture, be paid to the Person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on the record date
with respect to any interest payment date, which shall be the __________ or
_________ (whether or not a Business Day), as the case may be, next preceding
such interest payment date. Except as otherwise provided in the Indenture, any
such interest not so punctually paid or duly provided for ("Defaulted Interest)
will forthwith cease to be payable to the Noteholder on the relevant record date
by virtue of his having been such Noteholder and may either be paid to the
Person in whose name this Note (or one or more Predecessor Note) is registered
at the close of business on a special record date for the payment of such
Defaulted Interest to be fixed in accordance with the Indenture or be paid at
any time in any other lawful manner not inconsistent with the requirements of
any automated quotation system or securities exchange on which the Notes may be
quoted or listed, and upon such notice as may be required by such exchange, all
as more fully provided in the Indenture. Payments of principal shall be made
upon the surrender of this Note at the Corporate Trust Office of the Trustee, or
at such other office or agency of the Company as may be designated by the
Company for such purpose in the Borough of Manhattan, The City of New York, in
such coin or currency of the United States of America as at the time of payment
shall be legal tender for the payment of public and private debts, by United
States Dollar check drawn on, or transfer to, a United States Dollar account.
Payments of interest on this Note may be made by United States Dollar check,
drawn on a United States Dollar Account, mailed to the address of the Person
entitled thereto as such address shall appear in the Note
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Registry, or, upon written application by the Noteholder to the Trustee setting
forth wire instructions not later than two days prior to the applicable record
date, by transfer to a United States Dollar account; provided, however, that
transfers to United States Dollar accounts will be made only to Noteholders of
an aggregate principal amount of Notes in excess of $2,000,000; provided,
further that any payment to the Depositary or its nominee shall be made by wire
transfer of immediately available funds to the account of the Depositary or its
nominee.
Except as specifically provided herein and in the Indenture, the
Company shall not be required to make any payment with respect to any tax,
assessment or other governmental charge imposed by any government or any
political subdivision or taxing authority thereof or therein.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof or an authenticating agent by the
manual signature of one of their respective authorized signatories, this Note
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
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IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed and delivered under its corporate seal.
IBASIS, INC.
[Corporate Seal]
By: _____________________________________
Name: _______________________________
Title: ______________________________
By: _____________________________________
Name: _______________________________
Title: ______________________________
Attest:
__________________________
Name:
Title:
(Trustee's Certificate of Authentication)
This is one of the _____% Convertible Subordinated Notes due 2005
referred to in the within-mentioned Indenture.
[THE BANK OF NEW YORK], as Trustee
By: ____________________________________
Authorized Signatory
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[FORM OF REVERSE]
This Note is one of a duly authorized issue of securities of the
Company designated as its "___% Convertible Subordinated Notes due 2005" (herein
called the "Notes"), limited in aggregate principal amount to U.S. $172,500,000,
issued and to be issued under an Indenture, dated as of ____________, 2000
(herein called the "Indenture"), between the Company and [The Bank of New York],
as Trustee (herein called the "Trustee", which term includes any successor
trustee under the Indenture) to which Indenture and all indentures supplemental
thereto reference is hereby made for a statement of the respective rights,
limitations of rights, duties and immunities thereunder of the Company, the
Trustee, the holders of senior indebtedness and the holders of the Notes and of
the terms upon which the Notes are, and are to be, authenticated and delivered.
As provided in the Indenture and subject to certain limitations therein set
forth, Notes are exchangeable for a like aggregate principal amount of Notes of
any authorized denominations as requested by the holder surrendering the same
upon surrender of the Note or Notes to be exchanged, initially, at the Corporate
Trust Office of the Trustee. The Trustee upon such surrender by the holder will
issue the new Notes in the requested denominations.
No sinking fund is provided for the Notes.
The Notes are subject to Provisional Redemption by the Company, in
whole or in part, at any time prior to _____________, 2003, upon notice as set
forth in Section 3.2 of the Indenture, at a redemption price equal to $1,000 per
Note to be redeemed plus accrued and unpaid interest, if any, to the Provisional
Redemption Date if (i) the closing price of the Common Stock shall have exceeded
150% of the Conversion Price then in effect for at least 20 Trading Days in any
consecutive 30-Trading Day period ending on the Trading Day prior to the Notice
Date. Upon any such Provisional Redemption, the Company shall make a Make-Whole
Payment with respect to the Notes called for redemption to holders on the Notice
Date in an amount equal to $_____ per $1,000 Note, less the amount of any
interest actually paid on such Note prior to the Notice Date. The Company shall
make the Make-Whole Payment on all Notes called for Provisional Redemption,
including any Notes converted into Common Stock pursuant to the terms of the
Indenture after the Notice Date and prior to the Provisional Redemption Date.
The Notes are also subject to redemption at the option of the Company
at any time on or after ____________, 2003, in whole or in part, upon not less
than 20 nor more than 60 days' notice to the holders prior to the date fixed for
redemption at the following optional redemption prices (expressed as percentages
of the principal amount) for the twelve-month period beginning on _______ of the
following years:
YEAR REDEMPTION PRICE
2003 ________%
2004 ________%
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and on ________, 2005 and thereafter at an optional redemption price equal to
100% of the principal amount, together, in each case, with accrued and unpaid
interest to (but excluding) the date fixed for redemption; provided, however,
that interest installments on Notes will be payable to the holders of such
Notes, or one or more Predecessor Notes, of record at the close of business on
the relevant record dates referred to on the face hereof, all as provided in the
Indenture.
None of the Company, the Trustee, the Note registrar or any
co-registrar shall be required to exchange or register a transfer of (a) any
Notes for a period of fifteen (15) days next preceding any selection of Notes to
be redeemed or (b) any Notes called for redemption or, if a portion of any Note
is selected or called for redemption, such portion thereof selected or called
for redemption or (c) any Notes surrendered for conversion or, if a portion of
any Note is surrendered for conversion, such portion thereof surrendered for
conversion or (d) any Notes, or a portion of any Note, surrendered for
repurchase (and not withdrawn) in connection with a Repurchase Event.
In any case where the due date for the payment of the principal of,
premium, if any, or interest on any Note or the last day on which a holder of a
Note has a right to convert his Note shall not be a Business Day, then payment
of principal, premium, if any, interest or delivery for conversion of such Note
need not be made on or by such date at such place but may be made on or by the
next succeeding Business Day, with the same force and effect as if made on the
date for such payment or the date fixed for redemption or repurchase, or by such
last day for conversion, and no interest shall accrue on the amount so payable
for the period after such date.
Subject to and upon compliance with the provisions of the Indenture,
the holder of this Note is entitled, at his option, at any time following the
original issue date of the Notes and on or before the close of business on the
Business Day immediately preceding ____________, 2005, or in case this Note or a
portion hereof is called for redemption or the holder hereof has exercised his
right to require the Company to repurchase this Note or such portion hereof,
then in respect of this Note until but (unless the Company defaults in making
the payment due upon redemption or repurchase, as the case may be) not after,
the close of business on Business Day immediately preceding the any optional
redemption date or Provisional Redemption Date or the date fixed for repurchase,
as the case may be, to convert this Note (or any portion of the principal amount
hereof that is an integral multiple of U.S.$1,000, provided that the unconverted
portion of such principal amount is U.S.$1,000 or any integral multiple of
U.S.$1,000 in excess thereof) into fully paid and nonassessable shares of Common
Stock of the Company at an initial Conversion Rate of _______ shares of Common
Stock for each $1,000 principal amount of Notes (or at the current adjusted
Conversion Rate if an adjustment has been made as provided in the Indenture,
including pursuant to Section 15.5 of the Indenture) by surrender of this Note,
duly endorsed and, in case such surrender shall be made during the period from
the close of business on any record date next preceding any interest payment
date to the opening of business on such Interest Payment Date (except if this
Note or portion thereof has been called for redemption on a Provisional
Redemption Date or optional redemption date or is repurchasable on a date fixed
for repurchase), also accompanied by payment in New York Clearing House or other
funds
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acceptable to the Company of an amount equal to the interest payable on such
interest payment date on the principal amount of this Note then being converted,
and also the conversion notice hereon duly executed, to the Company at the
Corporate Trust Office of the Trustee, or at such other office or agency of the
Company, subject to any laws or regulations applicable thereto and subject to
the right of the Company to terminate the appointment of any Conversion Agent
(as defined below) as may be designated by it for such purpose in the Borough of
Manhattan, The City of New York, or at such other offices or agencies as the
Company may designate (each a "Conversion Agent"), provided, however, that if
this Note or portion hereof has been called for redemption on a Provisional
Redemption Date or optional redemption date or is repurchasable on a repurchase
rate, then the holder of this Note on such record date will be entitled to
receive the interest accruing hereon from the interest payment date next
preceding the date of such conversion to such succeeding interest payment date
and the holder of this Note who converts this Note or a portion hereof during
such period shall not be required to pay such interest upon surrender of this
Note for conversion. Subject to the provisions of the preceding sentence, no
cash payment or adjustment is to be made on conversion for interest accrued
hereon from the interest payment date next preceding the day of conversion, or
for dividends on the Common Stock issued on conversion hereof. The Company shall
thereafter deliver to the holder the fixed number of shares of Common Stock
(together with any cash adjustment, as provided in the Indenture) into which
this Note is convertible and such delivery will be deemed to satisfy the
Company's obligation to pay the principal amount of this Note. No fractions of
shares or scrip representing fractions of shares will be issued on conversion,
but instead of any fractional interest (calculated to the nearest 1/100th of a
share) the Company shall pay a cash adjustment as provided in the Indenture. The
Conversion Rate is subject to adjustment as provided in the Indenture. In
addition, the Indenture provides that in case of certain consolidations or
mergers to which the Company is a party (other than a consolidation or merger
that does not result in any reclassification, conversion, exchange or
cancellation of the Common Stock) or the conveyance, transfer, sale or lease of
all or substantially all of the property and assets of the Company, the
Indenture shall be amended, without the consent of any holders of Notes, so that
this Note, if then outstanding, will be convertible thereafter, during the
period this Note shall be convertible as specified above, only into the kind and
amount of securities, cash and other property receivable upon such
consolidation, merger, conveyance, transfer, sale or lease by a holder of the
number of shares of Common Stock of the Company into which this Note could have
been converted immediately prior to such consolidation, merger, conveyance,
transfer, sale or lease (subject to the provisions of, and as more explicitly
set forth in, the Indenture). No adjustment in the Conversion Rate will be made
until such adjustment would require an increase or decrease of at least one
percent of such price, provided that any adjustment that would otherwise be made
will be carried forward and taken into account in the computation of any
subsequent adjustment. At any time of determination, the term "Conversion Price"
shall mean an amount equal U.S.$1,000 divided by the Conversion Rate (rounded to
the nearest cent)
If a Repurchase Event occurs, the holder of this Note, at the holder's
option, shall have the right, in accordance with the provisions of the
Indenture, to require the Company to repurchase this Note (or any portion of the
principal amount hereof that is at least $1,000 or an
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integral multiple) for cash at a price equal to 105% of the principal amount
thereof plus interest accrued to the repurchase date. At the option of the
Company, the Repurchase Price may be paid in cash or, subject to the conditions
provided in the Indenture, by delivery of shares of Common Stock having a fair
market value equal to the Repurchase Price. For purposes of this paragraph, the
fair market value of shares of Common Stock shall be determined by the Company
and shall be equal to 95% of the average of the Closing Prices Per Share for the
five consecutive Trading Days immediately preceding and including the third
Trading Day prior to the repurchase date. Whenever in this Note there is a
reference, in any context, to the principal of any Note as of any time, such
reference shall be deemed to include reference to the Repurchase Price payable
in respect of such Note to the extent that such Repurchase Price is, was or
would be so payable at such time, and express mention of the Repurchase Price in
any provision of this Note shall not be construed as excluding the Repurchase
Price so payable in those provisions of this Note when such express mention is
not made; provided, however, that, for the purposes of the second succeeding
paragraph, such reference shall be deemed to include reference to the Repurchase
Price only to the extent the Repurchase Price is payable in cash.
[The following paragraph shall appear in each Global Security:
In the event of a deposit or withdrawal of an interest in this Note,
including an exchange, transfer, redemption, repurchase or conversion of this
Note in part only, the Trustee, as custodian of the Depositary, shall make an
adjustment on its records to reflect such deposit or withdrawal in accordance
with the rules and procedures of The Depository Trust Company applicable to, and
as in effect at the time of, such transaction.]
[The following paragraph shall appear in each Note that is not a Global
Security:
In the event of redemption, repurchase or conversion of this Note in
part only, a new Note or Notes for the unredeemed, unrepurchased or unconverted
portion hereof will be issued in the name of the holder hereof.]
The indebtedness evidenced by this Note is, to the extent and in the
manner provided in the Indenture, subordinate and subject in right of payment to
the prior payment in full in cash of all senior indebtedness of the Company, and
this Note is issued subject to such provisions of the Indenture with respect
thereto. Each holder of this Note, by accepting the same, (a) agrees to and
shall be bound by such provisions, (b) authorizes and directs the Trustee on his
behalf to take such action as may be necessary or appropriate to effectuate the
subordination so provided and (c) appoints the Trustee his attorney-in-fact for
any and all such purposes.
If an Event of Default shall occur and be continuing, the principal of
all the Notes, together with accrued interest to the date of declaration, may be
declared due and payable in the manner and with the effect provided in the
Indenture. Upon payment (i) of the amount of principal so declared due and
payable, together with accrued interest to the date of declaration, and (ii) of
interest on any overdue principal and, to the extent permitted by applicable
law,
A-8
<PAGE>
overdue interest, all of the Company's obligations in respect of the payment of
the principal of and interest on the Notes shall terminate.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the holders of the Notes under the Indenture at any
time by the Company and the Trustee with either (a) the written consent of the
holders of not less than a majority in principal amount of the Notes at the time
outstanding, or (b) by the adoption of a resolution, at a meeting of holders of
the Outstanding Notes at which a quorum is present, by the holders of at least
66-2/3% in aggregate principal amount of the Outstanding Notes represented and
entitled to vote at such meeting. The Indenture also contains provisions
permitting the holders of specified percentages in principal amount of the Notes
at the time outstanding, on behalf of the holders of all the Notes, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the holder of this Note shall be conclusive and binding upon such
holder and upon all future holders of this Note and of any Note issued in
exchange herefor or in lieu hereof whether or not notation of such consent or
waiver is made upon this Note or such other Note.
As provided in and subject to the provisions of the Indenture, the
holder of this Note shall not have the right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or for
any other remedy thereunder, unless such holder shall have previously given the
Trustee written notice of a continuing Event of Default, the holders of not less
than 25% in principal amount of the outstanding Notes shall have made written
request to the Trustee to institute proceedings in respect of such Event of
Default as Trustee and offered the Trustee reasonable indemnity and the Trustee
shall not have received from the holders of a majority in principal amount of
the outstanding Notes a direction inconsistent with such request, and shall have
failed to institute any such proceeding, for 60 days after receipt of such
notice, request and offer of indemnity. The foregoing shall not apply to any
suit instituted by the holder of this Note for the enforcement of any payment of
principal hereof, premiums if any, or interest hereon on or after the respective
due dates expressed herein or for the enforcement of the right to convert this
Note as provided in the Indenture.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, premium, if any, and
interest on this Note at the times, places and rate, and in the coin or
currency, herein prescribed or to convert this Note as provided in the
Indenture.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Note is registrable on the Note register upon
surrender of this Note for registration of transfer at the Corporate Trust
Office of the Trustee or at such other office or agency of the Company as may be
designated by it for such purpose in the Borough of Manhattan, The City of New
York (which shall initially be an office or agency of the Trustee), or at such
other offices or agencies as the Company may designate, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the
A-9
<PAGE>
Note registrar duly executed by, the holder thereof or his attorney duly
authorized in writing, and thereupon one or more new Notes, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees by the Note registrar. No service charge
shall be made for any such registration of transfer or exchange, but the Company
may require payment of a sum sufficient to recover any tax or other governmental
charge payable in connection therewith, other than as provided in the Indenture.
Prior to due presentation of this Note for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name Note is registered, as the owner thereof for all
purposes, whether or not such Note be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
No recourse for the payment of the principal (and premium, if any) or
interest on this Note and no recourse under or upon any obligation, covenant or
agreement of the Company in the Indenture or any indenture supplemental thereto
or in any Note, or because of the creation of any indebtedness represented
thereby, shall be had against any incorporator, stockholder, employee, agent,
officer or director or subsidiary, as such, past, present or future, of the
Company or of any successor corporation, either directly or through the Company
or any successor corporation, whether by virtue of any constitution, statute or
rule of law or by the enforcement of any assessment or penalty or otherwise, all
such liability being, by the acceptance hereof and as part of consideration for
the issue hereof, expressly waived and released.
THE INDENTURE AND THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA
(WITHOUT REGARD TO THE CONFLICT OF LAW PROVISIONS THEREOF).
All terms used in this Note which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
A-10
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription of the face
of this Note, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties (Cust)
JT TEN - as joint tenants with right of survivorship and
not as tenants in common
UNIF GIFT MIN ACT - _________________ Custodian _____________
(Minor)
under Uniform Gifts to Minors Act _____________
(State)
Additional abbreviations may also be used though not in the above list.
A-11
<PAGE>
ELECTION OF HOLDER TO REQUIRE REPURCHASE
(1) Pursuant to Article 16 of the Indenture, the undersigned hereby
elects to have this Note repurchased by the Company.
(2) The undersigned hereby directs the Trustee or the Company to pay to
the undersigned an amount in cash or, at the Company's election, Common Stock
valued as set forth in the Indenture, equal to 100% of the principal amount to
be repurchased (as set forth below), plus interest accrued to the Repurchase
Date, as provided in the Indenture.
Dated: _________________________________________
________________________________________________
________________________________________________
Signature(s)
Signature(s) must be guaranteed by an Eligible
Guarantor Institution with membership in an
approved signature guarantee program pursuant to
Rule 17Ad-15 under the Securities Exchange Act of
1934.
________________________________________________
Signature Guaranteed
Principal amount to be repurchased (at least U.S. $1,000 or an integral multiple
thereof $1,000): _______________________________
Remaining principal amount following such repurchase:
_________________________________
NOTICE: The signature to the foregoing Election must correspond to the Name as
written upon the face of this Note in every particular, without alteration or
any change whatsoever.
A-12
<PAGE>
CONVERSION NOTICE
The undersigned holder of this Note hereby irrevocably exercises the
option to convert this Note, or any portion of the principal amount hereof
(which is U.S.$1,000 or an integral multiple of U.S.$1,000 in excess thereof,
PROVIDED that the unconverted portion of such principal amount is U.S. $1,000 or
any integral multiple of U.S. $1,000 in excess thereof) below designated, into
shares of Common Stock in accordance with the terms of the Indenture referred to
in this Note, and directs that such shares, together with a check in payment for
any fractional share and any Notes representing any unconverted principal amount
hereof, be delivered to and be registered in the name of the undersigned unless
a different name has been indicated below. If shares of Common Stock or Notes
are to be registered in the name of a Person other than the undersigned, (a) the
undersigned will pay all transfer taxes payable with respect thereto and (b)
signature(s) must be guaranteed by an Eligible Guarantor Institution with
membership in an approved signature guarantee program pursuant to Rule 17Ad-15
under the Securities Exchange Act of 1934. Any amount required to be paid by the
undersigned on account of interest accompanies this Note.
Dated: _____________________ ________________________________________
________________________________________
Signature(s)
If shares or Notes are to be registered in the name of a Person other than the
holder, please print such Person's name and address:
_______________________________
Name
_______________________________
Address
_______________________________
Social Security or other Identification
Number, if any
_______________________________
Signature Guaranteed
A-13
<PAGE>
If only a portion of the Notes is to be converted, please indicate:
1. Principal amount to be converted:
U.S. $ ___________
2. Principal amount and denomination of Notes representing unconverted
principal amount to be issued:
Amount U.S. $___________
(U.S.$1,000 or any integral multiple of U.S.$1,000 in excess thereof,
provided that the unconverted portion of such principal amount is U.S.
$1,000 or any integral multiple of U.S. $1,000 in excess thereof)
A-14
<PAGE>
FORM OF ASSIGNMENT
For value received ________________ hereby sell(s), assign(s) and
transfer(s) unto ________________ (Please insert social security or other
identifying number of assignee) the within Note, and hereby irrevocably
constitutes and appoints ____________________ as attorney to transfer the said
Note on the books of the Company, with full power of substitution in the
premises.
Dated: _____________________ ________________________________________
________________________________________
Signature(s)
Signature(s) must be guaranteed by an Eligible
Guarantor Institution with membership in an
approved signature guarantee program pursuant
to Rule 17Ad-15 under the Securities Exchange
Act of 1934.
A-15
<PAGE>
================================================================================
IBASIS, INC.
and
[THE BANK OF NEW YORK]
AS TRUSTEE
-------------------------
INDENTURE
DATED AS OF __________ ___, 2000
================================================================================
__% CONVERTIBLE SUBORDINATED NOTES DUE 2005
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1. DEFINITIONS 2
Section 1.1. DEFINITIONS 2
ARTICLE 2 ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES 8
Section 2.1. DESIGNATION, AMOUNT AND ISSUE OF NOTES 8
Section 2.2. FORM OF NOTES. 8
Section 2.3. DATE AND DENOMINATION OF NOTES; PAYMENTS OF INTEREST 9
Section 2.4. EXECUTION OF NOTES 10
Section 2.5. EXCHANGE AND REGISTRATION OF TRANSFER OF NOTES; DEPOSITARY 11
Section 2.6. MUTILATED, DESTROYED, LOST OR STOLEN NOTES 13
Section 2.7. TEMPORARY NOTES 14
Section 2.8. CANCELLATION OF NOTES PAID, ETC. 15
ARTICLE 3. REDEMPTION OF NOTES 15
Section 3.1. REDEMPTION PRICES 15
Section 3.2. NOTICE OF REDEMPTION; SELECTION OF NOTES 16
Section 3.3. PAYMENT OF NOTES CALLED FOR REDEMPTION 17
Section 3.4. CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION 18
ARTICLE 4. SUBORDINATION OF NOTES 19
Section 4.1. AGREEMENT OF SUBORDINATION 19
Section 4.2. PAYMENTS TO NOTEHOLDERS 19
Section 4.3. BANKRUPTCY AND DISSOLUTION, ETC. 21
Section 4.4. SUBROGATION OF NOTES 22
Section 4.5. AUTHORIZATION BY NOTEHOLDERS 23
Section 4.6. NOTICE TO TRUSTEE 23
Section 4.7. TRUSTEE'S RELATION TO SENIOR INDEBTEDNESS 25
Section 4.8. NO IMPAIRMENT OF SUBORDINATION 25
Section 4.9. CERTAIN CONVERSIONS DEEMED PAYMENT 25
ARTICLE 5. PARTICULAR COVENANTS OF THE COMPANY 26
Section 5.1. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST 26
Section 5.2. MAINTENANCE OF OFFICE OR AGENCY 26
Section 5.3. APPOINTMENTS TO FILL VACANCIES IN TRUSTEE'S OFFICE 27
Section 5.4. PROVISIONS AS TO PAYING AGENT 27
Section 5.5. EXISTENCE 28
Section 5.6. RESERVED 28
Section 5.7. STAY, EXTENSION AND USURY LAWS 28
Section 5.8. COMPLIANCE CERTIFICATE 28
Section 5.9. FURTHER INSTRUMENTS AND ACTS 29
Section 5.10. Payment of Taxes and Other Claims 29
ARTICLE 6. NOTEHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE 29
Section 6.1. NOTEHOLDERS' LISTS 29
Section 6.2. PRESERVATION AND DISCLOSURE OF LISTS 30
Section 6.3. REPORTS BY TRUSTEE 30
Section 6.4. REPORTS BY COMPANY 30
ARTICLE 7. DEFAULTS AND REMEDIES 31
Section 7.1. EVENTS OF DEFAULT 31
Section 7.2. PAYMENTS OF NOTES ON DEFAULT; SUIT THEREFOR 34
Section 7.3. APPLICATION OF MONIES COLLECTED BY TRUSTEE 35
<PAGE>
Section 7.4. PROCEEDINGS BY NOTEHOLDER 36
Section 7.5. PROCEEDINGS BY TRUSTEE 37
Section 7.6. REMEDIES CUMULATIVE AND CONTINUING 37
Section 7.7. DIRECTION OF PROCEEDINGS AND WAIVER OF DEFAULTS BY MAJORITY OF NOTEHOLDERS. 37
Section 7.8. NOTICE OF DEFAULTS. 38
Section 7.9. UNDERTAKING TO PAY COSTS. 38
Section 7.10. DELAY OR OMISSION NOT WAIVER 38
ARTICLE 8 CONCERNING THE TRUSTEE 39
Section 8.1. DUTIES AND RESPONSIBILITIES OF TRUSTEE. 39
Section 8.2. RELIANCE ON DOCUMENTS, OPINIONS, ETC. 40
Section 8.3. NO RESPONSIBILITY FOR RECITALS, ETC. 41
Section 8.4. TRUSTEE, PAYING AGENTS, CONVERSION AGENTS OR REGISTRAR MAY OWN NOTES. 41
Section 8.5. MONIES TO BE HELD IN TRUST. 41
Section 8.6. COMPENSATION AND EXPENSES OF TRUSTEE. 42
Section 8.7. OFFICERS' CERTIFICATE AS EVIDENCE. 42
Section 8.8. CONFLICTING INTERESTS OF TRUSTEE. 43
Section 8.9. ELIGIBILITY OF TRUSTEE. 43
Section 8.10. RESIGNATION OR REMOVAL OF TRUSTEE. 43
Section 8.11. ACCEPTANCE BY SUCCESSOR TRUSTEE 44
Section 8.12. SUCCESSION BY MERGER, ETC. 45
Section 8.13. LIMITATION ON RIGHTS OF TRUSTEE AS CREDITOR 45
ARTICLE 9 CONCERNING THE NOTEHOLDERS 46
Section 9.1. ACTION BY NOTEHOLDERS 46
Section 9.2. PROOF OF EXECUTION BY NOTEHOLDERS. 46
Section 9.3. WHO ARE DEEMED ABSOLUTE OWNERS 46
Section 9.4. COMPANY-OWNED NOTES DISREGARDED 47
Section 9.5. REVOCATION OF CONSENTS; FUTURE HOLDERS BOUND 47
ARTICLE 10. NOTEHOLDERS' MEETINGS 47
Section 10.1. PURPOSE OF MEETINGS 47
Section 10.2. CALL OF MEETINGS BY TRUSTEE 48
Section 10.3. QUORUM 48
Section 10.4. CALL OF MEETINGS BY COMPANY OR NOTEHOLDERS 49
Section 10.5. QUALIFICATIONS FOR VOTING 49
Section 10.6. REGULATIONS 49
Section 10.7. VOTING 50
Section 10.8. NO DELAY OF RIGHTS BY MEETING 50
ARTICLE 11. SUPPLEMENTAL INDENTURES 51
Section 11.1. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF NOTEHOLDERS 51
Section 11.2. SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS 52
Section 11.3. EFFECT OF SUPPLEMENTAL INDENTURES 53
Section 11.4. NOTATION ON NOTES 54
Section 11.5. Evidence of Compliance of Supplemental Indenture to Be Furnished Trustee 54
ARTICLE 12. CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE 54
Section 12.1. COMPANY MAY CONSOLIDATE, ETC. ON CERTAIN TERMS 54
Section 12.2. SUCCESSOR CORPORATION TO BE SUBSTITUTED 55
Section 12.3. OPINION OF COUNSEL TO BE GIVEN TRUSTEE 56
ARTICLE 13. SATISFACTION AND DISCHARGE OF INDENTURE 56
Section 13.1. DISCHARGE OF INDENTURE 56
Section 13.2. DEPOSITED MONIES TO BE HELD IN TRUST BY TRUSTEE 56
Section 13.3. PAYING AGENT TO REPAY MONIES HELD 57
Section 13.4. RETURN OF UNCLAIMED MONIES 57
<PAGE>
Section 13.5. REINSTATEMENT 57
ARTICLE 14. IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS 57
Section 14.1. INDENTURE AND NOTES SOLELY CORPORATE OBLIGATIONS 57
ARTICLE 15. CONVERSION OF NOTES 58
Section 15.1. RIGHT TO CONVERT 58
Section 15.2. EXERCISE OF CONVERSION PRIVILEGE; ISSUANCE OF COMMON STOCK ON CONVERSION;
NO ADJUSTMENT FOR INTEREST OR DIVIDENDS 58
Section 15.3. CASH PAYMENTS IN LIEU OF FRACTIONAL SHARES 60
Section 15.4. CONVERSION PRICE 60
Section 15.5. ADJUSTMENT OF CONVERSION PRICE 61
Section 15.6. EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE 70
Section 15.7. TAXES ON SHARES ISSUED 72
Section 15.8. RESERVATION OF SHARES; SHARES TO BE FULLY PAID; LISTING OF COMMON STOCK 72
Section 15.9. RESPONSIBILITY OF TRUSTEE 72
Section 15.10. NOTICE TO HOLDERS PRIOR TO CERTAIN ACTIONS 73
ARTICLE 16. REPURCHASE UPON A REPURCHASE EVENT 74
Section 16.1. REPURCHASE RIGHT 74
Section 16.2. NOTICES; METHOD OF EXERCISING REPURCHASE RIGHT, ETC. 74
Section 16.3. CONDITIONS TO THE COMPANY'S ELECTION TO PAY THE REPURCHASE PRICE IN COMMON STOCK 77
Section 16.4. CERTAIN DEFINITIONS 78
ARTICLE 17. MISCELLANEOUS PROVISIONS 79
Section 17.1. PROVISIONS BINDING ON COMPANY'S SUCCESSORS 79
Section 17.2. OFFICIAL ACTS BY SUCCESSOR CORPORATION 79
Section 17.3. ADDRESSES FOR NOTICES, ETC 79
Section 17.4. GOVERNING LAW 80
Section 17.5. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT; CERTIFICATES TO TRUSTEE 80
Section 17.6. LEGAL HOLIDAYS 81
Section 17.7. NO SECURITY INTEREST CREATED 81
Section 17.8. TRUST INDENTURE ACT 81
Section 17.9. BENEFITS OF INDENTURE 81
Section 17.10. TABLE OF CONTENTS, HEADINGS, ETC. 81
Section 17.11. AUTHENTICATING AGENT 81
Section 17.12. EXECUTION IN COUNTERPARTS 82
</TABLE>
<PAGE>
Reconciliation and tie between Trust Indenture Act of 1939 (the "TIA" or "Trust
Indenture Act") and this Indenture, dated as of ___________, 2000.
<TABLE>
<CAPTION>
TRUST INDENTURE ACT SECTION INDENTURE SECTION
<S> <C> <C>
Section 310 (a)(1)....................................................................8.9
(a)(2)....................................................................8.9
(b).......................................................................8.8, 8.9
Section 311 (a).......................................................................8.13
(b).......................................................................8.13
Section 312 (a).......................................................................6.1
(b).......................................................................6.2
Section 313 (a).......................................................................6.3
(b).......................................................................6.3
(c).......................................................................6.3
(d).......................................................................6.3
Section 314 (a).......................................................................6.4
(a)(4)....................................................................5.8
(b).......................................................................N.A.
(c)(1)....................................................................17.5
(c)(2)....................................................................17.5
(c)(3)....................................................................17.8
(e).......................................................................17.5
Section 315 (a)........................................................................8.1
(b).......................................................................7.8
(c).......................................................................8.1
(d).......................................................................8.1
(e).......................................................................7.9
Section 316 (a) (last sentence).......................................................9.4
(a)(1)(A).................................................................7.7
(a)(1)(B).................................................................7.7
(b).......................................................................7.4
(c).......................................................................9.1
Section 317 (a)(1)....................................................................7.2
(a)(2)....................................................................7.2
(b).......................................................................5.4
Section 318 (a).......................................................................17.8
(c).......................................................................17.8
</TABLE>
- ----------------------
NOTE: This reconciliation and tie shall not, for any purpose, be deemed
to be a part of this Indenture.
Attention should also be directed to Section 318(c) of the Trust
Indenture Act, which provides that the provisions of Sections 310 to and
including 317 of the Trust Indenture Act are a part of and govern every
qualified indenture, whether or not physically contained therein.
<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
February 9, 2000
