<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 10, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------------
IBASIS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------------
<TABLE>
<S> <C> <C>
DELAWARE 4813 04-3332534
(STATE OR OTHER JURISDICTION 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. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
% Convertible Subordinated Notes
due 2005 $172,500,000 (1) 100% $172,500,000 $45,540
Common Stock, par value $0.001
per share (2) (2) (2) (2)
</TABLE>
(1) Includes $22,500,000 aggregate principal amount subject to an overallotment
option to be granted to the underwriters.
(2) Such indeterminable number of shares of common stock as may be issuable upon
conversion of the % Convertible Subordinated Notes due , 2005
registered hereby. Pursuant to Rule 416 under the Securities Act of 1933, as
amended, such amount also includes an indeterminate number of shares of
common stock issuable as a result of stock splits, stock dividends and
antidilution provisions. Such shares will, if issued, be issued for no
additional consideration and therefore, no registration fee is required
pursuant to Rule 457(i).
----------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 10, 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 and , beginning
, 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 , 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 , 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.
The common stock is quoted on the Nasdaq National Market under the symbol
"IBAS". The last reported sales price of the common stock on the Nasdaq National
Market on February 9, 2000 was $ 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 aggregate principal amount of $22,500,000 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 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 Points of Presence, Super Points of Presence 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
messaging. 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 that relate to the expansion of the services that we are
able to offer over the iBasis Network:
- 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.
- 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........................ $150.0 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
and , beginning on , 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
, 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 , 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 ,
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 are offered by us and
1,500,000 are being offered by selling stockholders. 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 As Adjusted" 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 As Adjusted" 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 21,790
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $123,666 $273,666
Working capital............................................. 115,154 265,154
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 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 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
messaging 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 communication services, 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.
7
<PAGE>
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.
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
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with us. Also, Internet telephony service providers, such as Net2Phone, that
presently focus on retail customers may in the future enter our market and
compete with us. In addition, major telecommunications carriers, such as AT&T,
Deutsche Telekom, MCI/WorldCom and Qwest Communications, have all entered or
announced plans to enter the Internet telephony market. Many of these companies
are larger than we are and have substantially greater managerial and financial
resources than we do. Intense competition in our markets can be expected to
continue to put downward pressure on prices and adversely affect our
profitability. We cannot assure you that we will be able to compete successfully
against our competitors and we may lose customers or fail to grow our business
as a result of this competition.
WE ARE SUBJECT TO DOWNWARD PRICING PRESSURES AND A CONTINUING NEED TO
RENEGOTIATE OVERSEAS RATES 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 no protect proprietary rights to the same extent as do the
laws of the United States. Our means of protecting our proprietary rights in the
United States or abroad may not be adequate and third parties may infringe or
misappropriate our copyrights, 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.
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 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;
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- 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 $2.4 million, respectively.
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 which,
unlike us, provide Internet telephony services to end-users located within the
United States.
Aspects of our operations may be, or become, subject to state or federal
regulations governing universal service funding, disclosure of confidential
communications, copyright and excise taxes. We cannot assure you that government
agencies will not increasingly regulate Internet-related services. Increased
regulation of the Internet may slow its growth. Such regulation may also
negatively impact the cost of doing business over the Internet and materially
adversely affect our ability to attain or maintain profitability.
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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 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 did not have any 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 certain conditions to pay the repurchase price in common
stock. 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, iBasis 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 20.9% to approximately 139.1% 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
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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 vis-a-vis 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 the terms thereof, which would permit the holders
of the notes to accelerate the maturity of the notes and could also cause
defaults under future indebtedness we may incur. Any such 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 in respect of 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.
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
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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.
17
<PAGE>
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 commissions
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) (9.1)
Deficiency of earnings available to cover fixed charges (in
thousands)................................................ 32 76 1,049
</TABLE>
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 deemed by us 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 8,
2000)..................................................... $93.06 $28.25
</TABLE>
On February 8, 2000, the closing price of the common stock on the Nasdaq
National Market was $87.625 per share, the high and low bid prices were
approximately $88 and $79 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. 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 as adjusted 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
------------------------
PRO FORMA
ACTUAL AS ADJUSTED
---------- -----------
<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, $.001 par value per share; 85,000,000 shares
authorized, 31,642,728 issued and outstanding, actual... 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 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 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 (3) 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) $ (2.33)
====== ====== ======= ========
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 21,790
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $123,666 $273,666
Working (deficit) capital................................... 115,154 265,154
Total assets................................................ 153,473 303,473
Capital lease obligations, net of current portion........... 213 11,689
Redeemable convertible preferred stock...................... 10,719 --
Total stockholders' (deficit) 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.
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
22
<PAGE>
the search for a local service provider to the commencement of commercial
traffic, can take several months.
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
$28.2 million. The profit potential of our business is unproven, and our limited
operating history makes an evaluation of our company and our prospects
difficult. We may not generate revenue sufficient to achieve profitability or,
if we achieve profitability, we might not sustain profitability.
RESULTS OF OPERATIONS
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. 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-
23
<PAGE>
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 which 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.
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
24
<PAGE>
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 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.
25
<PAGE>
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 31 220 958
Interest expense....................... (19) (6) (60) (169) (217) (322)
Other income expense, net.............. -- -- (2) (1) 6 (1)
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 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>
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<PAGE>
Subsequently, all outstanding shares of Class A common stock were 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 such borrowings are available on favorable terms.
REVOLVING LINE OF CREDIT. On June 18, 1999, we entered into a Loan and
Security Agreement with Silicon Valley Bank that provides us with access to a
$1.5 million revolving credit facility. The line of credit is secured by a lien
on all of our assets, receivables and after acquired property. Interest accrues
daily on the unpaid principal of the facility at an annual rate equal to the
prime rate, as defined in the Loan and Security Agreement, plus 1%. We must make
interest payments on outstanding borrowings on a monthly basis, otherwise any
unpaid interest is added to the outstanding principal amount, and accrues
interest at the same rate. As of 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 such 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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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 these 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 iBasis 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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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 messaging. 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 that Internet
telephony uses less bandwidth per call than traditional circuit-switched
calling. As a
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result of these features, calls can be completed at a lower cost using
Internet telephony. We believe that packet-switched networks, including
the Internet, will allow other traditional services to be offered more
cost-effectively as well.
- ECONOMIES OF SCALE. Internet telephony calls are carried over large and
rapidly growing data networks. Businesses recently have spent billions of
dollars to upgrade their data networks to accommodate dramatic increases
in data traffic. According to TeleGeography, the total bandwidth used for
data surpassed that used for voice in the United States long distance
market in 1998. This growth is driven largely by technological innovation
and the rapid expansion of the Internet as a global medium for
communications and commerce. As data networks continue to grow,
communications service providers should benefit from greater economies of
scale and be able to offer Internet-based services, such as Internet
telephony, more cost effectively than services over traditional voice
networks.
- OPPORTUNITY TO BY-PASS INTERNATIONAL SETTLEMENT RATES. Traditional
international long distance calls are completed over international voice
networks. These networks are typically owned by government bodies or
telecommunications carriers who charge settlement rates or tariffs for
their use. International calls routed over the Internet bypass a
significant portion of these fees, and as a result can generally be
completed at lower cost.
- ADDITIONAL CHANNEL FOR CARRIERS. Carriers regularly outsource their voice
and fax traffic to take advantage of the lowest-cost provider to a
particular destination and partner with companies that can provide
additional channels. Internet telephony offers an opportunity for service
providers with access to necessary technology to develop networks that can
provide these additional channels.
- MORE SERVICES AND EASIER ROLL OUT. In contrast to the closed, proprietary
structure inherent in traditional circuit-switched voice networks,
Internet telephony embraces an open architecture and open standards, which
facilitates innovation at lower costs. Traditional voice networks are
designed specifically to provide one basic service, making it difficult to
introduce new services over those networks. In contrast, data networks
convert all services into data packets, and allow for the introduction of
an indefinite variety of packet-based services that were not possible over
the traditional network. Since rollout of new services does not
necessitate network-wide upgrades, it is easier for communications service
providers to deploy new services quickly. While voice and fax are the
dominant services provided today, additional services, such as Internet
call waiting, unified messaging and electronic commerce can be provided
over data networks.
DEMAND FOR INTERNET TELEPHONY SOLUTIONS. While there are many reasons for
telecommunications carriers and other communications service providers to take
advantage of Internet telephony, for the most part, they have been slow to
establish in-house Internet telephony capability for a number of reasons. These
reasons include:
- lack of adequate Internet telephony technology until recently;
- concerns over quality;
- prior substantial investment in circuit-switched networks and the
associated expertise; and
- a hesitation to build new networks and cannibalize traffic from their
traditional voice networks.
Developing an international Internet telephony network for a substantial
portion of a communications service provider's traffic would also be expensive
and time-consuming, requiring each service provider to negotiate agreements in
each country where it would like to be able to complete calls. Therefore, many
communications service providers are looking to outsource their Internet
telephony services.
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To date, however, few Internet telephony providers have been able to offer
the quality, reliability and back office support necessary to meet the carriers'
strict requirements. In addition, most Internet telephony providers do not have
the international presence to be able to complete calls to a sufficient number
of destinations, and do not have the capacity to carry the volume of traffic
required by carriers to any given location.
THE IBASIS SOLUTION
We provide high quality Internet-based communication services to
telecommunications carriers and other communications service providers. Our
solution enables communications service providers to outsource their
international voice, fax and other value-added services over the Internet at
substantially lower costs than over traditional networks while maintaining high
quality service. We provide our customers access to the iBasis Network, our
international, scaleable, standards-based Internet telephony network through
"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 messaging 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 messaging
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 Point of Presence, to a cloud labeled "The Internet," continuing
out through another point of presence, 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 Points of Presence 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 voicemail 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 messaging 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 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 Delta Three.com, are currently
focusing on the retail market and personal computer-based Internet telephony,
but may compete with us in the future.
GOVERNMENT REGULATION
UNITED STATES GOVERNMENT REGULATION OF THE INTERNET AND INTERNET
TELEPHONY. We believe that under United States law the Internet-related
services that we provide constitute information services, rather than
telecommunications services. As such, our services are not currently regulated
by the Federal Communications Commission or state agencies responsible for
regulating telecommunications carriers, although aspects of our operations may
be subject to state or federal regulation such as regulations governing
universal service funding, confidentiality of communications, copyright, and
excise taxes. However, several efforts have been made to enact federal
legislation that would either regulate or exempt from regulation services
provided over the Internet. Therefore, we cannot assure you that
Internet-related services such as ours will not be regulated in the future.
Increased regulation of the Internet may slow its growth by negatively impacting
the cost of doing business over the Internet. This would materially adversely
affect our business, financial condition and results of operations.
We also cannot assure you that Internet telephony will continue to be
lightly regulated by the FCC and state regulatory agencies. Although the FCC has
determined that, at present, information service providers, including Internet
telephony providers, are not telecommunications carriers; however, we cannot be
certain that this position will continue. On April 10, 1998, the FCC issued a
report to Congress discussing its implementation of certain universal service
provisions contained in the 1996 amendments to the Communications Act of 1934.
In its report, the FCC stated that it would undertake an examination of whether
phone-to-phone Internet telephony should be considered an information service or
a telecommunications service. The FCC noted that certain forms of phone-to-phone
Internet telephony appeared to lack the characteristics of an information
service and to have the same functionality as non-Internet protocol
telecommunications services. In addition, the FCC is currently
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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 144 full-time employees and one part-time
employee, with approximately 69 in sales and marketing, 46 in engineering and
operations and 30 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.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The directors, executive officers and key employees of iBasis, and their
ages as of January 31, 2000, are as follows.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Ofer Gneezy (1).................... 47 President and Chief Executive Officer, Director
Gordon J. VanderBrug............... 56 Executive Vice President, Director
Michael J. Hughes.................. 37 Vice President, Finance and Chief Financial Officer
John G. Henson, Jr................. 57 Vice President, Engineering & Operations
Charles Giambalvo.................. 44 Senior Vice President of Worldwide Sales
Charles N. Corfield (2)............ 40 Director
John Jarve (1)..................... 43 Director
Izhar Armony (1)(2)................ 36 Director
Robert Maginn...................... 42 Director
Charles S. Houser.................. 56 Director
Charles M. Skibo (1)............... 60 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..................... 42 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
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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, Engineering and Operations of
iBasis since 1998. Prior to joining iBasis, Mr. Henson was Vice President,
Network Operations at LCI International Inc., a telecommunications company that
was recently acquired by Qwest Communications. From 1992 to 1996, Mr. Henson was
a Senior Vice President at BancOne Services Corporation, where he was
responsible for telecommunications and data communications services.
MR. 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
shareholders to be held in 2000;
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<PAGE>
- Class 2 directors, whose terms expire at the annual meeting of
shareholders to be held in 2001; and
- Class 3 directors, whose terms expire at the annual meeting of
shareholders 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 shareholders, our
shareholders 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
Directors of iBasis do not receive cash compensation for their services as
directors. However, non-employee directors are reimbursed for travel expenses.
iBasis maintains directors' and officers' liability insurance and our by-laws
provide for mandatory indemnification of directors and officers to the fullest
extent permitted by Delaware law. In addition, our certificate of incorporation
limits the liability of iBasis directors to either iBasis or its stockholders
for breaches of the directors' fiduciary duties to the fullest extent permitted
by Delaware law. See "Description of Capital Stock--Delaware Law and Certain
Certificate of Incorporation and By-Law Provisions."
Messrs. Gneezy and VanderBrug, each of whom is both a director and executive
officer of iBasis, received a stock option grant in 1998 for their service as an
officer of iBasis. See "Management--Executive Compensation." 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 shareholders 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 nonemployee 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
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<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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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 in
connection with 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 6 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.
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<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 $35,000 -- --
President and Chief 1998 134,866 37,500 80,000 --
Executive Officer
Gordon J. VanderBrug......... 1999 135,000 32,400 -- --
Executive Vice President 1998 122,240 33,750 60,000 --
John G. Henson, Jr. (2)...... 1999 125,000 25,600 50,000 --
Vice President, Engineering 1998 67,898 30,000 200,000 $17,791(3)
& Operations
Michael J. Hughes (4)........ 1999 120,000 15,750 50,000 --
Vice President, Finance and 1998 48,808 12,500 200,000 --
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,
nonemployee 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).... 2,059,497 6.5%
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
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River Ventures, except to the extent of his pecuniary interest therein. The
address for Mr. Armony and Charles River Ventures is 1000 Winter Street,
Suite 3300, Waltham, Massachusetts 02451.
(2) Consists of 3,657,869 shares held by Menlo Ventures VII, L.P. and 153,631
shares held by Menlo Entrepreneurs Fund VII, L.P. Mr. Jarve, one of our
directors, is managing director of MV Management VII, LLC, the general
partner of Menlo Ventures VII, L.P. and Menlo Entrepreneurs Fund VII, L.P.
Mr. Jarve disclaims beneficial ownership of the shares held by the entities
affiliated with Menlo Ventures, except to the extent of his pecuniary
interest therein. The address for Mr. Jarve and Menlo Ventures is 3000 Sand
Hill Road, Building 4, Suite 100, Menlo Park, California 94025.
(3 Includes 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. Mr. Gneezy is our President, CEO and one of our
directors.
(4) Consists of 14,955 shares held by TCV III (GP), 71,034 shares held by
TCV III, L.P., 1,888,010 shares held by TCV III (Q), L.P. and 85,498 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. 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 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.
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(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 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 and of each year,
beginning , 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 and . 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 iBasis 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 iBasis 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
iBasis 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 , 2003, at
a redemption price equal to $1,000 per note plus accrued and unpaid interest to
the redemption date if the closing price of
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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 , 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 or or after , 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 of the year indicated:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---- ----------------
<S> <C>
2003........................................................ %
2004........................................................
</TABLE>
and 100% of the principal amount on and after , 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 unable to obtain their consent, we could
attempt to refinance the notes. If we were unable to obtain a
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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 iBasis 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 believe that
the likelihood that we will pay a premium is remote. Therefore, we do not intend
to treat the potential payment of a premium as part of the yield to maturity of
any notes. If we pay you a premium, however, you would treat the payments as
interest income when you receive them.
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, 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.
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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 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.
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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 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:
- 2,850,751 shares of common stock are eligible for resale without
restriction under Rule 144(k) or Rule 701, of which 2,663,247 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 15,143,499 shares of common stock,
including 14,916,999 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, we intend to file one or more registration statements under the
Securities Act covering the 5,700,000 shares of common stock covered by the 1997
Stock Incentive Plan. In addition, we intend to file one or more registration
statements under the Securities Act covering 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." These registration
statements are expected to be filed and will automatically become 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.
OVER-ALLOTMENT OPTION. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 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, $5.7 million and $166.8 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
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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, 1999, warrants for the purchase
of 6,875 shares of Series A and 37,500 shares of Series B were outstanding at an
exercise price per share of $3.00 and $1.00, respectively. At December 31, 1999,
6,875 and 37,500 warrants were exercisable for Series A and Series B,
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>
(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
F-18
<PAGE>
IBASIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) COMMITMENTS (CONTINUED)
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 services are not significant. As a result, the financial
information disclosed herein represents all of the material financial
information related to the Company's principal operating segment.
F-19
<PAGE>
IBASIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
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>
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........................................ $ *
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)........... $ *
Transfer Agent and Registrar's Fees......................... $ *
Miscellaneous Costs......................................... $ *
Total....................................................... $ 500,000
</TABLE>
- ------------------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
Section 145 of the Delaware General Corporation law empowers a Delaware
corporation to indemnify its officers and directors and certain other persons to
the extent and under the circumstances set forth therein.
The form of the Amended and Restated Certificate of Incorporation of the
Registrant and the Amended and Restated By-laws of the Registrant, copies of the
forms of which are filed as Exhibits 3.1 and 3.2, provide for indemnification of
officers and directors of the Registrant and certain other persons against
liabilities and expenses incurred by any of them in certain stated proceedings
and under certain stated conditions.
The above discussion of the Registrant's Amended and Restated Certificate of
Incorporation, Amended and Restated By-Laws and Section 145 of the Delaware
General Corporation Law is not intended to be exhaustive and is qualified in its
entirety by 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.
II-1
<PAGE>
In February, March and April 1997, the Registrant issued and sold 1,500,000
shares of Class B Common Stock to a total of 10 investors for an aggregate
purchase price of $500,000. These transactions were made in reliance upon
Rule 506 of Regulation D, promulgated under the Securities Act and Section 4(2)
of the Securities Act, as transactions with an accredited investor by an issuer
not involving a public offering.
On September 10, 1997 the Registrant issued a warrant to purchase up to
6,875 shares of Series A Preferred Stock to TLP Leasing Programs, Inc. in
connection with the Registrant's entering into a commercial agreement with such
investor. This warrant was issued in reliance upon Rule 506 of Regulation D,
promulgated under the Securities Act and Section 4(2) of the Securities Act, as
transactions with an accredited investor by an issuer not involving a public
offering.
In October, November and December 1997, and March and June 1998 subject to
commitments in 1997, the Registrant issued and sold an aggregate of 1,250,000
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 3,588,800 shares of common stock under the Registrant's 1997 Stock Incentive
Plan. The purchase price under the options is $0.03 to $5.00 based on the fair
market value of the stock on the date of grant. The grants of options, and sales
of common stock upon the exercise of these options, were made in reliance upon
Rule 701 promulgated under the Securities Act and are deemed to be exempt
transactions as sales of an issuer's securities pursuant to a written plan or
contract relating to the compensation of such individuals and upon Section 4(2)
of the Securities Act as transactions not involving any public offering.
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.
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)).
</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
Gianbalvo, 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.
(b) Financial Statement Schedules
All schedules have been omitted because either they are not required, are
not applicable or the information is otherwise set forth in the Consolidated
Financial Statements and notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in
II-5
<PAGE>
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 registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Burlington, Commonwealth of Massachusetts, on this
9th 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,
including post-effective amendments to this Registration Statement, and to sign
any and all additional registration statements relating to the same offering of
securities of the Registration Statement that are filed pursuant to Rule 462(b)
of the Securities Act of 1933, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as such person
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact, or their substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ OFER GNEEZY President, Chief Executive
-------------------------------------- Officer and Director February 9, 2000
Ofer Gneezy (Principal Executive Officer)
Vice President, Finance and
Chief Financial Officer
-------------------------------------- (Principal Financial and February , 2000
Michael J. Hughes Accounting Officer)
/s/ GORDON J. VANDERBRUG Executive Vice President and
-------------------------------------- Director February 9, 2000
Gordon J. VanderBrug
Director
-------------------------------------- February , 2000
Robert Maginn
Director
-------------------------------------- February , 2000
Charles S. Houser
/s/ IZHAR ARMONY Director
-------------------------------------- February 9, 2000
Izhar Armony
</TABLE>
II-7
<PAGE>
<TABLE>
<C> <S> <C>
/s/ JOHN JARVE Director
-------------------------------------- February 9, 2000
John Jarve
/s/ CHARLES N. CORFIELD Director
-------------------------------------- February 9, 2000
Charles N. Corfield
/s/ CHARLES M. SKIBO Director
-------------------------------------- February 9, 2000
Charles M. Skibo
Director
-------------------------------------- February , 2000
Carl Redfield
</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.
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
Gianbalvo, 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>
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* To be filed by amendment.
<PAGE>
EXHIBIT 3.1
FIRST AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
IBASIS, INC.
iBasis, Inc. (the "CORPORATION"), a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"GENERAL CORPORATION LAW"), hereby certifies as follows:
FIRST: The name of the Corporation is iBasis, Inc. The Corporation's
original name was "Chip Chat, Inc." The original Certificate of Incorporation of
the Corporation was filed by the Corporation with the Secretary of State of
Delaware on August 2, 1996.
SECOND: On December 30, 1996, the Corporation filed an amendment to its
Certificate of Incorporation that changed the name of the Corporation to "VIP
Calling, Inc." On July 29, 1999, the Corporation filed an amendment to its
Certificate of Incorporation that changed the name of the Corporation to iBasis,
Inc.
THIRD: This First Amended and Restated Certificate of Incorporation:
(i) was duly adopted in accordance with the provisions of Sections 242 and 245
of the General Corporation Law; and (ii) was approved by written consent of a
majority of the stockholders of the Corporation given in accordance with the
provisions of Section 228 of the General Corporation Law.
FOURTH: The text of the Certificate of Incorporation of the
Corporation, as heretofore amended, is hereby further restated and amended to
read in its entirety as follows:
ARTICLE I
NAME
The name of the corporation (the "CORPORATION") is iBasis, Inc.
ARTICLE II
REGISTERED AGENT
The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent is The
Corporation Trust Corporation.
ARTICLE III
PURPOSE
<PAGE>
The nature of the business or purposes to be conducted or promoted by
the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware.
ARTICLE IV
CAPITAL STOCK
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 100,000,000 shares, consisting
solely of:
85,000,000 shares of common stock, par value $0.001 per share
("COMMON STOCK"); and
15,000,000 shares of preferred stock, par value $0.001 per share
("PREFERRED STOCK").
The following is a statement of the powers, designations, preferences,
privileges, and relative rights in respect of each class of capital stock of the
Corporation.
A. COMMON STOCK.
1. GENERAL. The voting, dividend and liquidation rights of the
holders of Common Stock are subject to and qualified by the rights of the
holders of Preferred Stock.
2. VOTING. The holders of Common Stock are entitled to one vote
for each share held at all meetings of stockholders. There shall be no
cumulative voting.
3. DIVIDENDS. Dividends may be declared and paid on the Common
Stock from funds lawfully available therefor if, as and when determined by the
Board of Directors and subject to any preferential dividend rights of any then
outstanding shares of Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the
Corporation, whether voluntary or involuntary, holders of Common Stock will be
entitled to receive all assets of the Corporation available for distribution to
its stockholders, subject to any preferential rights of any then outstanding
shares of Preferred Stock.
B. PREFERRED STOCK.
Shares of Preferred Stock may be issued from time to time in one or
more series, each of such series to have such powers, designations, preferences,
and relative, participating, optional, or other special rights, if any, and such
qualifications and restrictions, if any, of such preferences and rights, as are
stated or expressed in the resolution or resolutions of the Board of Directors
providing for such series of Preferred Stock. Different series of Preferred
Stock shall not be construed to constitute different classes of shares for the
purposes of voting by classes unless expressly so provided in such resolution or
resolutions.
2
<PAGE>
Authority is hereby granted to the Board of Directors from time to time
to issue the Preferred Stock in one or more series, and in connection with the
creation of any such series, by resolution or resolutions to determine and fix
the powers, designations, preferences, and relative, participating, optional, or
other special rights, if any, and the qualifications and restrictions, if any,
of such preferences and rights, including without limitation dividend rights,
conversion rights, voting rights (if any), redemption privileges, and
liquidation preferences, of such series of Preferred Stock (which need not be
uniform among series), all to the fullest extent now or hereafter permitted by
the General Corporation Law of Delaware. Without limiting the generality of the
foregoing, the resolution or resolutions providing for the creation or issuance
of any series of Preferred Stock may provide that such series shall be superior
to, rank equally with, or be junior to the Preferred Stock of any other series,
all to the fullest extent permitted by law. No resolution, vote, or consent of
the holders of the capital stock of the Corporation shall be required in
connection with the creation or issuance of any shares of any series of
Preferred Stock authorized by and complying with the conditions of this Amended
and Restated Certificate of Incorporation, the right to any such resolution,
vote, or consent being expressly waived by all present and future holders of the
capital stock of the Corporation.
Any resolution or resolutions adopted by the Board of Directors
pursuant to the authority vested in them by this Article IV shall be set forth
in a certificate of designation along with the number of shares of stock of such
series as to which the resolution or resolutions shall apply and such
certificate shall be executed, acknowledged, filed, recorded, and shall become
effective, in accordance with Section 103 of the General Corporation Law of the
State of Delaware. Unless otherwise provided in any such resolution or
resolutions, the number of shares of stock of any such series to which such
resolution or resolutions apply may be increased (but not above the total number
of authorized shares of the class) or decreased (but not below the number of
shares thereof then outstanding) by a certificate likewise executed,
acknowledged, filed and recorded, setting forth a statement that a specified
increase or decrease therein has been authorized and directed by a resolution
or resolutions likewise adopted by the Board of Directors. In case the number
of such shares shall be decreased, the number of shares so specified in the
certificate shall resume the status which they had prior to the adoption of the
first resolution or resolutions. When no shares of any such class or series are
outstanding, either because none were issued or because none remain outstanding,
a certificate setting forth a resolution or resolutions adopted by the Board of
Directors that none of the authorized shares of such class or series are
outstanding, and that none will be issued subject to the certificate of
designations previously filed with respect to such class or series, may be
executed, acknowledged, filed and recorded in the same manner as previously
described and it shall have the effect of eliminating from this Amended and
Restated Certificate of Incorporation all matters set forth in the certificate
of designations with respect to such class or series of stock. If no shares of
any such class or series established by a resolution or resolutions adopted by
the Board of Directors have been issued, the voting powers, designations,
preferences and relative, participating, optional or other rights, if any, with
the qualifications, limitations or restrictions thereof, may be amended by a
resolution or resolutions adopted by the Board of Directors. In the event of any
such amendment, a certificate which (i) states that no shares of such class or
series have been issued, (ii) sets forth the copy of the amending resolution or
resolutions and (iii) if the designation of such class or series is being
changed, indicates the original designation and the new designation, shall be
executed, acknowledged, filed, recorded, and shall become effective, in
accordance with Section 103 of the General Corporation Law of the State of
Delaware.
3
<PAGE>
ARTICLE V
BOARD OF DIRECTORS
The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation and for defining
and regulating the powers of the Corporation and its directors and stockholders
and are in furtherance and not in limitation of the powers conferred upon the
Corporation by statute:
(a) The Board of Directors shall be divided into three classes
of directors, such classes to be as nearly equal in number of directors
as possible, having staggered three-year terms of office, the term of
office of the directors of the first such class to expire as of the
first annual meeting of the Corporation's stockholders following the
closing of the Corporation's first public offering of shares of Common
Stock registered pursuant to the Securities Act of 1933, as amended,
those of the second class to expire as of the second annual meeting of
the Corporation's stockholders following such closing, and those of the
third class as of the third annual meeting of the Corporation's
stockholders following such closing, such that at each annual meeting
of stockholders after such closing, nominees will stand for election to
succeed those directors whose terms are to expire as of such meeting.
Any director serving as such pursuant to this paragraph (b) of Article
V may be removed only for cause and only by the vote of the holders of
a majority of the shares of the Corporation's stock entitled to vote
for the election of directors.
(b) The Board of Directors shall have the power and authority:
(i) to adopt, amend or repeal By-Laws of the Corporation, subject only
to such limitations, if any, as may be from time to time imposed by
other provisions of this Certificate, by law, or by the By-Laws; and
(ii) to the full extent permitted or not prohibited by law, and without
the consent of or other action by the stockholders, to authorize or
create mortgage, pledges or other liens or encumbrances upon any or all
of the assets, real, personal or mixed, and franchises of the
Corporation, including after-acquired property, and to exercise all of
the powers of the Corporation in connection therewith.
ARTICLE VI
LIMITATION OF LIABILITY
No director of the Corporation shall be personally liable to the
Corporation or to any of its stockholders for monetary damages for breach of
fiduciary duty as a director, notwithstanding any provision of law imposing such
liability; PROVIDED, HOWEVER, that to the extent required from time to time by
applicable law, this Article VI shall not eliminate or limit the liability of a
director, to the extent such liability is provided by applicable law, (i) for
any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
Title 8 of the Delaware Code, or (iv) for any transactions from which the
director derived an improper personal benefit. No amendment to or repeal of this
Article VI shall apply to or have any effect on the liability or alleged
liability of any director for or with respect to any acts or omissions of such
director occurring prior to the effective date of such amendment or repeal.
4
<PAGE>
ARTICLE VII
INDEMNIFICATION
The Corporation shall, to the fullest extent permitted by Section 145
of the General Corporation Law of Delaware, as amended from time to time,
indemnify each person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was, or has agreed to become, a director or officer of the Corporation, or
is or was serving, or has agreed to serve, at the request of the Corporation, as
a director, officer or trustee of, or in a similar capacity with, another
corporation, partnership, joint venture, trust or other enterprise (including
any employee benefit plan), or by reason of any action alleged to have been
taken or omitted in such capacity, against all expenses (including attorneys'
fees), judgements, fines and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such action, suit or
proceeding and any appeal therefrom.
Indemnification may include payment by the Corporation of expenses in
defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of an undertaking by the person indemnified to
repay such payment if it is ultimately determined that such person is not
entitled to indemnification under this Article VII, which undertaking may be
accepted without reference to the financial ability of such person to make such
repayment.
The Corporation shall not indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person unless the initiation thereof was approved by the Board of
Directors.
The indemnification rights provided in this Article VII (i) shall not
be deemed exclusive of any other rights to which those indemnified may be
entitled under any law, agreement or vote of stockholders or disinterested
directors or otherwise, and (ii) shall inure to the benefit of the heirs,
executors and administrators of such persons. The Corporation may, to the extent
authorized from time to time by its Board of Directors, grant indemnification
rights to other employees or agents of the Corporation or other persons serving
the Corporation and such rights may be equivalent to, or greater or less than,
those set forth in this Article VII.
ARTICLE VIII
COMPROMISES AND ARRANGEMENTS
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any Class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 391 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such a manner as the said court directs. If a majority of the
number representing three-fourths (3/4ths) in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and to
any
5
<PAGE>
reorganization of the Corporation as a consequence of such compromise or
arrangement, the compromise or arrangement and the said reorganization shall, if
sanctioned by the court to which the said application has been made, be binding
on all creditors or class of creditors, and/or stockholders or class of
stockholders of the Corporation, as the case may be, and also on the
Corporation.
ARTICLE IX
CERTAIN TRANSACTIONS
The Board of Directors, when considering a tender offer or merger or
acquisition proposal, may take into account factors in addition to potential
economic benefits to stockholders, including without limitation (i) comparison
of the proposed consideration to be received by stockholders in relation to the
then current market price of the Corporation's capital stock, the estimated
current value of the Corporation in a freely negotiated transaction, and the
estimated future value of the Corporation as an independent entity, (ii) the
impact of such a transaction on the employees, suppliers, and customers of the
Corporation and its effect on the communities in which the Corporation operates,
and (iii) the impact of such a transaction on the unique corporate culture and
atmosphere of the Corporation.
ARTICLE X
STOCKHOLDER ACTION
Any action required or permitted to be taken by the stockholders of the
Corporation may be taken only at a duly called annual or special meeting of the
stockholders, and not by written consent in lieu of such a meeting, and special
meetings of stockholders may be called only by the Chairman of the Board of
Directors, the President, or a majority of the Board of Directors.
ARTICLE XI
AMENDMENTS
The affirmative vote of the holders of at least 67% of the outstanding
voting stock of the Corporation (in addition to any separate class vote that may
in the future be required pursuant to the terms of any outstanding Preferred
Stock) shall be required to amend or repeal the provisions of Articles IV (to
the extent it relates to the authority of the Board of Directors to issue shares
of Preferred Stock in one or more series, the terms of which may be determined
by the Board of Directors), V, VII, IX, X, or XI of this Amended and Restated
Certificate of Incorporation or to reduce the numbers of authorized shares of
Common Stock or Preferred Stock.
IN WITNESS WHEREOF, the undersigned has caused this First Amended and
Restated Certificate of Incorporation to be duly executed on its behalf as of
November 16, 1999.
IBASIS, INC.
By: /s/ Ofer Gneezy
------------------
Ofer Gneezy
President
6
<PAGE>
EXHIBIT 3.2
IBASIS, INC.
AMENDED AND RESTATED BY-LAWS
ARTICLE I. - GENERAL.
1.1. OFFICES. The registered office of iBasis, Inc. (the "Company")
shall be in the City of Wilmington, County of New Castle, State of Delaware. The
Company may also have offices at such other places both within and without the
State of Delaware as the Board of Directors may from time to time determine or
the business of the Company may require.
1.2. SEAL. The seal, if any, of the Company shall be in the form of a
circle and shall have inscribed thereon the name of the Company, the year of its
organization and the words "Corporate Seal, Delaware."
1.3. FISCAL YEAR. The fiscal year of the Company shall be the
period from January 1 through December 31.
ARTICLE II. - STOCKHOLDERS.
2.1. PLACE OF MEETINGS. Each meeting of the stockholders shall be held
upon notice as hereinafter provided, at such place as the Board of Directors
shall have determined and as shall be stated in such notice.
2.2. ANNUAL MEETING. The annual meeting of the stockholders shall be
held each year on such date and at such time as the Board of Directors may
determine. At each annual meeting the stockholders entitled to vote shall elect
such members of the Board of Directors as are standing for election, by
plurality vote by ballot, and they may transact such other corporate business as
may properly be brought before the meeting. At the annual meeting any business
may be transacted, irrespective of whether the notice calling such meeting shall
have contained a reference thereto, except where notice is required by law, the
Company's Certificate of Incorporation, or these by-laws.
2.3. QUORUM. At all meetings of the stockholders the holders of a
majority of the stock issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, shall constitute a quorum requisite
for the transaction of business except as otherwise provided by law, the
Company's Certificate of Incorporation, or these by-laws. Whether or not there
is such a quorum at any meeting, the chairman of the meeting or the stockholders
entitled to vote thereat, present in person or by proxy, by a majority vote, may
adjourn the meeting from time to time without notice other than announcement at
the meeting. If the adjournment is for more than thirty (30) days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at
<PAGE>
the meeting. At such adjourned meeting, at which the requisite amount of voting
stock shall be represented, any business may be transacted that might have been
transacted if the meeting had been held as originally called. The stockholders
present in person or by proxy at a duly called meeting at which a quorum is
present may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
2.4. RIGHT TO VOTE; PROXIES. Subject to the provisions of the Company's
Certificate of Incorporation, each holder of a share or shares of capital stock
of the Company having the right to vote at any meeting shall be entitled to one
vote for each such share of stock held by him. Any stockholder entitled to vote
at any meeting of stockholders may vote either in person or by proxy, but no
proxy that is dated more than three years prior to the meeting at which it is
offered shall confer the right to vote thereat unless the proxy provides that it
shall be effective for a longer period. A proxy may be granted by a writing
executed by the stockholder or his authorized agent or by transmission or
authorization of transmission of a telegram, cablegram, or other means of
electronic transmission to the person who will be the holder of the proxy or to
a proxy solicitation firm, proxy support service organization, or like agent
duly authorized by the person who will be the holder of the proxy to receive
such transmission, subject to the conditions set forth in Section 212 of the
Delaware General Corporation Law, as it may be amended from time to time (the
"DGCL").
2.5. VOTING. At all meetings of stockholders, except as otherwise
expressly provided for by statute, the Company's Certificate of Incorporation,
as it may be amended from time to time, or these by-laws, (i) in all matters
other than the election of directors, the affirmative vote of a majority of
shares present in person or represented by proxy at the meeting and entitled to
vote on such matter shall be the act of the stockholders and (ii) directors
shall be elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors.
2.6. NOTICE OF ANNUAL MEETINGS. Written notice of the annual meeting of
the stockholders shall be mailed to each stockholder entitled to vote thereat at
such address as appears on the stock books of the Company at least ten (10) days
(and not more than sixty (60) days) prior to the meeting. The Board of Directors
may postpone any annual meeting of the stockholders at its discretion, even
after notice thereof has been mailed. It shall be the duty of every stockholder
to furnish to the Secretary of the Company or to the transfer agent, if any, of
the class of stock owned by him and his post-office address, and to notify the
Secretary of any change therein. Notice need not be given to any stockholder who
submits a written waiver of notice signed by him before or after the time stated
therein. Attendance of a stockholder at a meeting of stockholders shall
constitute a waiver of notice of such meeting, except when the stockholder
attends the meeting for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the stockholders need be specified
in any written waiver of notice.
2.7. STOCKHOLDERS' LIST. A complete list of the stockholders entitled
to vote at any meeting of stockholders, arranged in alphabetical order and
showing the address of each
-2-
<PAGE>
stockholder, and the number of shares registered in the name of each
stockholder, shall be prepared by the Secretary and filed either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held, at least ten days before such meeting, and shall at all
times during the usual hours for business, and during the whole time of said
election, be open to the examination of any stockholder for a purpose germane to
the meeting.
2.8. SPECIAL MEETINGS. Special meetings of the stockholders for any
purpose or purposes, unless otherwise provided by statute, may be called only by
the Chairman of the Board of Directors, the President, or a majority of the
Board of Directors. Any such person or persons may postpone any special meeting
of the stockholders at its or their discretion, even after notice thereof has
been mailed.
2.9. NOTICE OF SPECIAL MEETINGS. Written notice of a special meeting of
stockholders, stating the time and place and object thereof shall be mailed,
postage prepaid, not less than ten (10) nor more than sixty (60) days before
such meeting, to each stockholder entitled to vote thereat, at such address as
appears on the books of the Company. No business may be transacted at such
meeting except that referred to in said notice, or in a supplemental notice
given also in compliance with the provisions hereof, or such other business as
may be germane or supplementary to that stated in said notice or notices. Notice
need not be given to any stockholder who submits a written waiver of notice
signed by him before or after the time stated therein. Attendance of a
stockholder at a meeting of stockholders shall constitute a waiver of notice of
such meeting, except when the stockholder attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice.
2.10. INSPECTORS.
1. One or more inspectors may be appointed by the Board of
Directors before or at any meeting of stockholders, or, if no such
appointment shall have been made, the presiding officer may make such
appointment at the meeting. At the meeting for which the inspector or
inspectors are appointed, he or they shall open and close the polls,
receive and take charge of the proxies and ballots, and decide all
questions touching on the qualifications of voters, the validity of
proxies, and the acceptance and rejection of votes. If any inspector
previously appointed shall fail to attend or refuse or be unable to
serve, the presiding officer shall appoint an inspector in his place.
2. At any time at which the Company has a class of voting
stock that is (i) listed on a national securities exchange, (ii)
authorized for quotation on an inter-dealer quotation system of a
registered national securities association, or (iii) held of record by
more than 2,000 stockholders, the provisions of Section 231 of the DGCL
with respect to inspectors of election and voting procedures shall
apply, in lieu of the provisions of paragraph 1 of this Section 2.10.
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2.11. STOCKHOLDERS' CONSENT IN LIEU OF MEETING. Unless otherwise
provided in the Company's Certificate of Incorporation, any action required to
be taken at any annual or special meeting of stockholders of the Company, or any
action that may be taken at any annual or special meeting of such stockholders,
may be taken only at such a meeting, and not by written consent of stockholders.
2.12. PROCEDURES. For nominations for the Board of Directors or for
other business to be properly brought by a stockholder before a meeting of
stockholders, the stockholder must first have given timely written notice
thereof to the Secretary of the Company. To be timely, a notice of nominations
or other business to be brought before an annual meeting of stockholders must be
delivered to the Secretary not less than 120 nor more than 150 days prior to the
first anniversary of the date of the Company's proxy statement delivered to
stockholders in connection with the preceding year's annual meeting, or if the
date of the annual meeting is more than 30 days before or more than 60 days
after such anniversary, or if no proxy statement was delivered to stockholders
by the Company in connection with the preceding year's annual meeting, such
notice must be delivered not earlier than 90 days prior to such annual meeting
and not later than the later of (i) 60 days prior to the annual meeting or (ii)
10 days following the date on which public announcement of the date of such
annual meeting is first made by the Company. With respect to special meetings of
stockholders, such notice must be delivered to the Secretary not more than 90
days prior to such meeting and not later than the later of (i) 60 days prior to
such meeting or (ii) 10 days following the date on which public announcement of
the date of such meeting is first made by the Company. Such notice must contain
the name and address of the stockholder delivering the notice and a statement
with respect to the amount of the Company's stock beneficially and/or legally
owned by such stockholder, the nature of any such beneficial ownership of such
stock, the beneficial ownership of any such stock legally held by such
stockholder but beneficially owned by one or more others, and the length of time
for which all such stock has been beneficially and/or legally owned by such
stockholder, and information about each nominee for election as a director
substantially equivalent to that which would be required in a proxy statement
pursuant to the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated by the Securities and Exchange Commission thereunder,
and/or a description of the proposed business to be brought before the meeting,
as the case may be.
ARTICLE III. - DIRECTORS.
3.1. NUMBER OF DIRECTORS.
(a) Except as otherwise provided by law, the Company's Certificate of
Incorporation, or these by-laws, the property and business of the Company shall
be managed by or under the direction of a board of directors. Directors need not
be stockholders, residents of Delaware, or citizens of the United States. The
use of the phrase "whole board" herein refers to the total number of directors
which the Company would have if there were no vacancies.
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(b) The number of directors constituting the full Board of Directors
shall be nine (or such other number as the Board of Directors from time to time
may determine). The Board of Directors shall be divided into three classes of
directors, such classes to be as nearly equal in number of directors as
possible, having staggered three-year terms of office, the term of office of the
directors of the first such class to expire as of the first annual meeting of
the Company's stockholders following the date on which these Amended and
Restated By-laws become effective, those of the second class to expire as of the
second annual meeting of the Company's stockholders following such effective
date, and those of the third class as of the third annual meeting of the
Company's stockholders following such effective date, such that at each annual
meeting of stockholders after such effective date, nominees will stand for
election to succeed those directors whose terms are to expire as of such
meeting. Members of the Board of Directors shall hold office until the annual
meeting of stockholders at which their respective successors are elected and
qualified or until their earlier death, incapacity, resignation, or removal.
Except as the DGCL or the Company's Certificate of Incorporation may otherwise
require, in the interim between annual meetings of stockholders or special
meetings of stockholders called for the election of directors and/or for the
removal of one or more directors and for the filling of any vacancy in that
connection, any vacancies in the Board of Directors, including unfilled
vacancies resulting from the removal of directors for cause, may be filled by
the vote of a majority of the remaining directors then in office, although less
than a quorum, or by the sole remaining director.
(c) If the office of any director becomes vacant by reason of death,
resignation, disqualification, removal, failure to elect, or otherwise, the
remaining directors, although more or less than a quorum, by a majority vote of
such remaining directors may elect a successor or successors who shall hold
office for the unexpired term.
3.2. RESIGNATION. Any director of the Company may resign at any time by
giving written notice to the Chairman of the Board, the President, or the
Secretary of the Company. Such resignation shall take effect at the time
specified therein, at the time of receipt if no time is specified therein and at
the time of acceptance if the effectiveness of such resignation is conditioned
upon its acceptance. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
3.3. REMOVAL. Except as may otherwise be provided by the DGCL or the
Company's Certificate of Incorporation, any director or the entire Board of
Directors may be removed only for cause and only by the vote of the holders of a
majority of the shares of the Company's stock entitled to vote for the election
of directors.
3.4. PLACE OF MEETINGS AND BOOKS. The Board of Directors may hold their
meetings and keep the books of the Company outside the State of Delaware, at
such places as they may from time to time determine.
3.5. GENERAL POWERS. In addition to the powers and authority expressly
conferred upon them by these by-laws, the board may exercise all such powers of
the Company and do all such lawful acts and things as are not by statute or by
the Company's Certificate of Incorporation or by these by-laws directed or
required to be exercised or done by the stockholders.
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3.6. OTHER COMMITTEES. The Board of Directors may designate one or more
committees, by resolution or resolutions passed by a majority of the whole
board; such committee or committees shall consist of one or more directors of
the Company, and to the extent provided in the resolution or resolutions
designating them, shall have and may exercise specific powers of the Board of
Directors in the management of the business and affairs of the Company to the
extent permitted by statute and shall have power to authorize the seal of the
Company to be affixed to all papers that may require it. Such committee or
committees shall have such name or names as may be determined from time to time
by resolution adopted by the Board of Directors.
3.7. POWERS DENIED TO COMMITTEES. Committees of the Board of Directors
shall not, in any event, have any power or authority to amend the Company's
Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
adopted by the Board of Directors as provided in Section 151(a) of the DGCL, fix
the designations and any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the Company or
the conversion into, or the exchange of such shares for, shares of any other
class or classes or any other series of the same or any other class or classes
of stock of the Company or fix the number of shares of any series of stock or
authorize the increase or decrease of the shares of any series), adopt an
agreement of merger or consolidation, recommend to the stockholders the sale,
lease, or exchange of all or substantially all of the Company's property and
assets, recommend to the stockholders a dissolution of the Company or a
revocation of a dissolution, or to amend the by-laws of the Company. Further, no
committee of the Board of Directors shall have the power or authority to declare
a dividend, to authorize the issuance of stock, or to adopt a certificate of
ownership and merger pursuant to Section 253 of the DGCL, unless the resolution
or resolutions designating such committee expressly so provides.
3.8. SUBSTITUTE COMMITTEE MEMBER. In the absence or on the
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of such absent or disqualified
member. Any committee shall keep regular minutes of its proceedings and report
the same to the board as may be required by the board.
3.9. COMPENSATION OF DIRECTORS. The Board of Directors shall have the
power to fix the compensation of directors and members of committees of the
Board. The directors may be paid their expenses, if any, of attendance at each
meeting of the Board of Directors and may be paid a fixed sum for attendance at
each meeting of the Board of Directors or a stated salary as director. No such
payment shall preclude any director from serving the Company in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like compensation for attending committee meetings.
3.10. REGULAR MEETINGS. No notice shall be required for regular
meetings of the Board of Directors for which the time and place have been fixed.
Written, oral, or any other mode of notice of the time and place shall be given
for special meetings in sufficient time for the
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convenient assembly of the directors thereat. Notice need not be given to any
director who submits a written waiver of notice signed by him before or after
the time stated therein. Attendance of any such person at a meeting shall
constitute a waiver of notice of such meeting, except when he attends a meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the directors need be specified in any written
waiver of notice.
3.11. SPECIAL MEETINGS. Special meetings of the board may be called by
the Chairman of the Board, if any, or the President, on two (2) days notice to
each director, or such shorter period of time before the meeting as will
nonetheless be sufficient for the convenient assembly of the directors so
notified; special meetings shall be called by the Secretary in like manner and
on like notice, on the written request of two or more directors.
3.12. QUORUM. At all meetings of the Board of Directors, a majority of
the whole board shall be necessary and sufficient to constitute a quorum for the
transaction of business, and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors, except as may be otherwise specifically permitted or provided by
statute, or by the Company's Certificate of Incorporation, or by these by-laws.
If at any meeting of the board there shall be less than a quorum present, a
majority of those present may adjourn the meeting from time to time until a
quorum is obtained, and no further notice thereof need be given other than by
announcement at said meeting that shall be so adjourned.
3.13. TELEPHONIC PARTICIPATION IN MEETINGS. Members of the Board of
Directors or any committee designated by such board may participate in a meeting
of the board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
section shall constitute presence in person at such meeting.
3.14. ACTION BY CONSENT. Unless otherwise restricted by the Company's
Certificate of Incorporation or these by-laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if written consent thereto is signed by all
members of the board or of such committee as the case may be and such written
consent is filed with the minutes of proceedings of the board or committee.
ARTICLE IV. - OFFICERS.
4.1. SELECTION; STATUTORY OFFICERS. The officers of the Company shall
be chosen by the Board of Directors. There shall be a President, a Secretary,
and a Treasurer, and there may be a Chairman of the Board of Directors, one or
more Vice Presidents, one or more Assistant Secretaries, and one or more
Assistant Treasurers, as the Board of Directors may elect. Any number of offices
may be held by the same person, except that the offices of President and
Secretary shall not be held by the same person simultaneously.
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4.2. TIME OF ELECTION. The officers above named shall be chosen by the
Board of Directors at its first meeting after each annual meeting of
stockholders. None of said officers need be a director.
4.3. ADDITIONAL OFFICERS. The board may appoint such other officers and
agents as it shall deem necessary, who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
4.4. TERMS OF OFFICE. Each officer of the Company shall hold office
until his successor is chosen and qualified, or until his earlier resignation or
removal. Any officer elected or appointed by the Board of Directors may be
removed at any time by the Board of Directors.
4.5. COMPENSATION OF OFFICERS. The Board of Directors shall have power
to fix the compensation of all officers of the Company. It may authorize any
officer, upon whom the power of appointing subordinate officers may have been
conferred, to fix the compensation of such subordinate officers.
4.6. CHAIRMAN OF THE BOARD. The Chairman of the Board of Directors
shall preside at all meetings of the stockholders and directors, and shall have
such other duties as may be assigned to him from time to time by the Board of
Directors.
4.7. PRESIDENT. Unless the Board of Directors otherwise determines, the
President shall be the chief executive officer and head of the Company. Unless
there is a Chairman of the Board, the President shall preside at all meetings of
directors and stockholders. Under the supervision of the Board of Directors, the
President shall have the general control and management of its business and
affairs, subject, however, to the right of the Board of Directors to confer any
specific power, except such as may be by statute exclusively conferred on the
President, upon any other officer or officers of the Company. The President
shall perform and do all acts and things incident to the position of President
and such other duties as may be assigned to him from time to time by the Board
of Directors.
4.8. VICE-PRESIDENTS. The Vice-Presidents shall perform such of the
duties of the President on behalf of the Company as may be respectively assigned
to them from time to time by the Board of Directors or by the President. The
Board of Directors may designate one of the Vice-Presidents as the Executive
Vice-President, and in the absence or inability of the President to act, such
Executive Vice-President shall have and possess all of the powers and discharge
all of the duties of the President, subject to the control of the Board of
Directors.
4.9. TREASURER. The Treasurer shall have the care and custody of all
the funds and securities of the Company that may come into his hands as
Treasurer, and the power and authority to endorse checks, drafts and other
instruments for the payment of money for deposit or collection when necessary or
proper and to deposit the same to the credit of the Company in such bank or
banks or depository as the Board of Directors, or the officers or agents to whom
the Board of Directors may delegate such authority, may designate, and he may
endorse all commercial documents requiring endorsements for or on behalf of the
Company. He may sign all receipts and vouchers for the payments made to the
Company. He shall render an account of
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his transactions to the Board of Directors as often as the board or the
committee shall require the same. He shall enter regularly in the books to be
kept by him for that purpose full and adequate account of all moneys received
and paid by him on account of the Company. He shall perform all acts incident to
the position of Treasurer, subject to the control of the Board of Directors. He
shall when requested, pursuant to vote of the Board of Directors, give a bond to
the Company conditioned for the faithful performance of his duties, the expense
of which bond shall be borne by the Company.
4.10. SECRETARY. The Secretary shall keep the minutes of all meetings
of the Board of Directors and of the stockholders; he shall attend to the giving
and serving of all notices of the Company. Except as otherwise ordered by the
Board of Directors, he shall attest the seal of the Company upon all contracts
and instruments executed under such seal and shall affix the seal of the Company
thereto and to all certificates of shares of capital stock of the Company. He
shall have charge of the stock certificate book, transfer book and stock ledger,
and such other books and papers as the Board of Directors may direct. He shall,
in general, perform all the duties of Secretary, subject to the control of the
Board of Directors.
4.11. ASSISTANT SECRETARY. The Board of Directors or any two of the
officers of the Company acting jointly may appoint or remove one or more
Assistant Secretaries of the Company. Any Assistant Secretary upon his
appointment shall perform such duties of the Secretary, and also any and all
such other duties as the Board of Directors or the President or the Executive
Vice-President or the Treasurer or the Secretary may designate.
4.12. ASSISTANT TREASURER. The Board of Directors or any two of the
officers of the Company acting jointly may appoint or remove one or more
Assistant Treasurers of the Company. Any Assistant Treasurer upon his
appointment shall perform such of the duties of the Treasurer, and also any and
all such other duties as the Board of Directors or the President or the
Executive Vice-President or the Treasurer or the Secretary may designate.
4.13. SUBORDINATE OFFICERS. The Board of Directors may select such
subordinate officers as it may deem desirable. Each such officer shall hold
office for such period, have such authority, and perform such duties as the
Board of Directors may prescribe. The Board of Directors may, from time to time,
authorize any officer to appoint and remove subordinate officers and to
prescribe the powers and duties thereof.
ARTICLE V. - STOCK.
5.1. STOCK. Each stockholder shall be entitled to a certificate or
certificates of stock of the Company in such form as the Board of Directors may
from time to time prescribe. The certificates of stock of the Company shall be
numbered and shall be entered in the books of the Company as they are issued.
They shall certify the holder's name and number and class of shares and shall be
signed by both of (i) either the President or a Vice-President, and (ii) any one
of the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary, and shall be sealed with the corporate seal of the Company. If such
certificate is countersigned (l) by a transfer agent other than the Company or
its employee, or, (2) by a registrar other than the Company or its employee, the
signature of the officers of the Company and the corporate seal may be
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facsimiles. In case any officer or officers who shall have signed, or whose
facsimile signature or signatures shall have been used on, any such certificate
or certificates shall cease to be such officer or officers of the Company,
whether because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Company, such certificate or
certificates may nevertheless be adopted by the Company and be issued and
delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signature shall have been used thereon had not
ceased to be such officer or officers of the Company.
5.2. FRACTIONAL SHARE INTERESTS. The Company may, but shall not be
required to, issue fractions of a share. If the Company does not issue fractions
of a share, it shall (i) arrange for the disposition of fractional interests by
those entitled thereto, (ii) pay in cash the fair value of fractions of a share
as of the time when those entitled to receive such fractions are determined, or
(iii) issue scrip or warrants in registered or bearer form that shall entitle
the holder to receive a certificate for a full share upon the surrender of such
scrip or warrants aggregating a full share. A certificate for a fractional share
shall, but scrip or warrants shall not unless otherwise provided therein,
entitle the holder to exercise voting rights, to receive dividends thereon, and
to participate in any of the assets of the Company in the event of liquidation.
The Board of Directors may cause scrip or warrants to be issued subject to the
conditions that they shall become void if not exchanged for certificates
representing full shares before a specified date, or subject to the conditions
that the shares for which scrip or warrants are exchangeable may be sold by the
Company and the proceeds thereof distributed to the holders of scrip or
warrants, or subject to any other conditions that the Board of Directors may
impose.
5.3. TRANSFERS OF STOCK. Subject to any transfer restrictions then in
force, the shares of stock of the Company shall be transferable only upon its
books by the holders thereof in person or by their duly authorized attorneys or
legal representatives and upon such transfer the old certificates shall be
surrendered to the Company by the delivery thereof to the person in charge of
the stock and transfer books and ledgers or to such other person as the
directors may designate by whom they shall be canceled and new certificates
shall thereupon be issued. The Company shall be entitled to treat the holder of
record of any share or shares of stock as the holder in fact thereof and
accordingly shall not be bound to recognize any equitable or other claim to or
interest in such share on the part of any other person whether or not it shall
have express or other notice thereof save as expressly provided by the laws of
Delaware.
5.4. RECORD DATE. For the purpose of determining the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or the allotment of any rights, or entitled to exercise any rights
in respect of any change, conversion, or exchange of stock or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, that shall not be more than sixty (60) days nor less than ten (10) days
before the date of such meeting, nor more than sixty (60) days prior to any
other action. If no such record date is fixed by the Board of Directors, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held;
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the record date for determining stockholders entitled to express consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors is necessary, shall be the day on which the first written consent
is expressed; and the record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at any meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
5.5. TRANSFER AGENT AND REGISTRAR. The Board of Directors may appoint
one or more transfer agents or transfer clerks and one or more registrars and
may require all certificates of stock to bear the signature or signatures of any
of them.
5.6. DIVIDENDS.
1. POWER TO DECLARE. Dividends upon the capital stock of the
Company, subject to the provisions of the Company's Certificate of
Incorporation, if any, may be declared by the Board of Directors at any
regular or special meeting, pursuant to law. Dividends may be paid in
cash, in property, or in shares of the capital stock, subject to the
provisions of the Company's Certificate of Incorporation and the laws
of Delaware.
2. RESERVES. Before payment of any dividend, there may be set
aside out of any funds of the Company available for dividends such sum
or sums as the directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Company, or for such other purpose as
the directors shall think conducive to the interest of the Company, and
the directors may modify or abolish any such reserve in the manner in
which it was created.
5.7. LOST, STOLEN, OR DESTROYED CERTIFICATES. No certificates for
shares of stock of the Company shall be issued in place of any certificate
alleged to have been lost, stolen, or destroyed, except upon production of such
evidence of the loss, theft, or destruction and upon indemnification of the
Company and its agents to such extent and in such manner as the Board of
Directors may from time to time prescribe.
5.8. INSPECTION OF BOOKS. The stockholders of the Company, by a
majority vote at any meeting of stockholders duly called, or in case the
stockholders shall fail to act, the Board of Directors shall have power from
time to time to determine whether and to what extent and at what times and
places and under what conditions and regulations the accounts and books of the
Company (other than the stock ledger) or any of them, shall be open to
inspection of stockholders; and no stockholder shall have any right to inspect
any account or book or document of the Company except as conferred by statute or
authorized by the Board of Directors or by a resolution of the stockholders.
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ARTICLE VI. - MISCELLANEOUS MANAGEMENT PROVISIONS.
6.1. CHECKS, DRAFTS, AND NOTES. All checks, drafts, or orders for the
payment of money, and all notes and acceptances of the Company shall be signed
by such officer or officers, or such agent or agents, as the Board of Directors
may designate.
6.2. NOTICES.
1. Notices to directors may, and notices to stockholders
shall, be in writing and delivered personally or mailed to the
directors or stockholders at their addresses appearing on the books of
the Company. Notice by mail shall be deemed to be given at the time
when the same shall be mailed. Notice to directors may also be given by
telegram, telecopy or orally, by telephone or in person.
2. Whenever any notice is required to be given under the
provisions of any applicable statute or of the Company's Certificate of
Incorporation or of these by-laws, a written waiver of notice, signed
by the person or persons entitled to said notice, whether before or
after the time stated therein or the meeting or action to which such
notice relates, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting
except when the person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
6.3. CONFLICT OF INTEREST. No contract or transaction between the
Company and one or more of its directors or officers, or between the Company and
any other corporation, partnership, association, or other organization in which
one or more of its directors or officers are directors or officers, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the board of or committee thereof that authorized the contract or transaction,
or solely because his or their votes are counted for such purpose, if: (i) the
material facts as to his relationship or interest and as to the contract or
transaction are disclosed or are known to the Board of Directors or the
committee and the board or committee in good faith authorizes the contract or
transaction by the affirmative vote of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
(ii) the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders of the
Company entitled to vote thereon, and the contract or transaction as
specifically approved in good faith by vote of such stockholders; or (iii) the
contract or transaction is fair as to the Company as of the time it is
authorized, approved, or ratified, by the Board of Directors, a committee or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
that authorizes the contract or transaction.
6.4. VOTING OF SECURITIES OWNED BY THE COMPANY. Subject always to the
specific directions of the Board of Directors, (i) any shares or other
securities issued by any other corporation and owned or controlled by the
Company may be voted in person at any meeting of security holders of such other
corporation by the President of the Company if he is present at such meeting, or
in his absence by the Treasurer of the Company if he is present at such meeting,
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and (ii) whenever, in the judgment of the President, it is desirable for the
Company to execute a proxy or written consent in respect to any shares or other
securities issued by any other corporation and owned by the Company, such proxy
or consent shall be executed in the name of the Company by the President,
without the necessity of any authorization by the Board of Directors, affixation
of corporate seal or countersignature or attestation by another officer,
provided that if the President is unable to execute such proxy or consent by
reason of sickness, absence from the United States or other similar cause, the
Treasurer may execute such proxy or consent. Any person or persons designated in
the manner above stated as the proxy or proxies of the Company shall have full
right, power and authority to vote the shares or other securities issued by such
other corporation and owned by the Company the same as such shares or other
securities might be voted by the Company.
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ARTICLE VII. - INDEMNIFICATION.
7.1. RIGHT TO INDEMNIFICATION. Each person who was or is made a party
or is threatened to be made a party to or is otherwise involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of being or having been a director or officer of the
Company or serving or having served at the request of the Company as a director,
trustee, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (an "Indemnitee"), whether the basis of such proceeding is
alleged action or failure to act in an official capacity as a director, trustee,
officer, employee or agent or in any other capacity while serving as a director,
trustee, officer, employee or agent, shall be indemnified and held harmless by
the Company to the fullest extent authorized by the DGCL, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Company to provide broader
indemnification rights than permitted prior thereto) (as used in this Article 7,
the "Delaware Law"), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) reasonably incurred or suffered by such Indemnitee in
connection therewith and such indemnification shall continue as to an Indemnitee
who has ceased to be a director, trustee, officer, employee, or agent and shall
inure to the benefit of the Indemnitee's heirs, executors, and administrators;
provided, however, that, except as provided in Section 7.2 hereof with respect
to Proceedings to enforce rights to indemnification, the Company shall indemnify
any such Indemnitee in connection with a Proceeding (or part thereof) initiated
by such Indemnitee only if such Proceeding (or part thereof) was authorized by
the Board of Directors of the Company. The right to indemnification conferred in
this Article 7 shall be a contract right and shall include the right to be paid
by the Company the expenses (including attorneys' fees) incurred in defending
any such Proceeding in advance of its final disposition (an "Advancement of
Expenses"); provided, however, that, if the Delaware Law so requires, an
Advancement of Expenses incurred by an Indemnitee shall be made only upon
delivery to the Company of an undertaking (an "Undertaking"), by or on behalf of
such Indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal (a "Final Adjudication") that such Indemnitee is not entitled to be
indemnified for such expenses under this Article 7 or otherwise.
7.2. RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under Section 7.1
hereof is not paid in full by the Company within sixty days after a written
claim has been received by the Company, except in the case of a claim for an
Advancement of Expenses, in which case the applicable period shall be twenty
days, the Indemnitee may at any time thereafter bring suit against the Company
to recover the unpaid amount of the claim. If successful in whole or in part in
any such suit, or in a suit brought by the Company to recover an Advancement of
Expenses pursuant to the terms of an Undertaking, the Indemnitee shall be
entitled to be paid also the expense of prosecuting or defending such suit. In
(i) any suit brought by the Indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the Indemnitee to enforce a right to an
Advancement of Expenses) it shall be a defense that, and (ii) in any suit by the
Company to recover an Advancement of Expenses pursuant to the terms of an
Undertaking the Company shall be entitled to recover such expenses upon a Final
Adjudication that, the Indemnitee has not met
-14-
<PAGE>
the applicable standard of conduct set forth in the Delaware Law. Neither the
failure of the Company (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the Indemnitee is proper in
the circumstances because the Indemnitee has met the applicable standard of
conduct set forth in the Delaware Law, nor an actual determination by the
Company (including its Board of Directors, independent legal counsel, or its
stockholders) that the Indemnitee has not met such applicable standard of
conduct, shall create a presumption that the Indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
Indemnitee, be a defense to such suit. In any suit brought by the Indemnitee to
enforce a right to indemnification or to an Advancement of Expenses hereunder,
or by the Company to recover an Advancement of Expenses pursuant to the terms of
an Undertaking, the burden of proving that the Indemnitee is not entitled to be
indemnified, or to such Advancement of Expenses, under this Article 7 or
otherwise shall be on the Company.
7.3. NON-EXCLUSIVITY OF RIGHTS. The rights to indemnification and to
the Advancement of Expenses conferred in this Article 7 shall not be exclusive
of any other right that any person may have or hereafter acquire under any
statute, the Company's Certificate or Incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
7.4. INSURANCE. The Company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Company or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Company would have
the power to indemnify such person against such expense, liability or loss under
this Article 7 or under the Delaware Law.
7.5. INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE COMPANY. The
Company may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification, and to the Advancement of Expenses,
to any employee or agent of the Company to the fullest extent of the provisions
of this Article 7 with respect to the indemnification and Advancement of
Expenses of directors and officers of the Company.
ARTICLE VIII. - AMENDMENTS.
8.1. AMENDMENTS. Subject always to any limitations imposed by the
Company's Certificate of Incorporation, these By-Laws may be altered, amended,
or repealed, or new By-Laws may be adopted, only by (i) the affirmative vote of
the holders of at least a majority of the outstanding voting stock of the
Company, provided, that the affirmative vote of the holders of at least 67% of
the outstanding voting stock of the Company shall be required for any such
alteration, amendment, repeal, or adoption that would affect or be inconsistent
with the provisions of Sections 2.11, 2.12, and this Section 8.1 (in each case,
in addition to any separate class vote that may be required pursuant to the
terms of any then outstanding preferred stock of the Company), or (ii) by
resolution of the Board of Directors duly adopted by not less than a majority of
the directors then constituting the full Board of Directors.
-15-
<PAGE>
EXHIBIT 10.26
IBASIS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
1. DEFINITIONS. As used in this 1999 Employee Stock Purchase Plan of
iBasis, Inc., the following terms shall have the meanings respectively assigned
to them below:
(a) BASE COMPENSATION means annual or annualized base compensation,
exclusive of overtime, bonuses, contributions to employee benefit plans, or
other fringe benefits.
(b) BENEFICIARY means the person designated as the Participating
Employee's beneficiary on the Participating Employee's Membership Agreement or
other form provided by the personnel department of the Company for such purpose
or, if no such beneficiary is named, the person to whom the Option is
transferred by will or under the applicable laws of descent and distribution.
(c) BOARD means the board of directors of the Company, except that, if
and so long as the board of directors of the Company has delegated pursuant to
Section 4 its authority with respect to the Plan to the Committee, then all
references in this Plan to the Board shall refer to the Committee acting in such
capacity.
(d) CODE means the Internal Revenue Code of 1986, as amended.
(e) COMMITTEE means the Compensation Committee of the Board.
(f) COMPANY means iBasis, Inc., a Delaware corporation.
(g) EFFECTIVE DATE means the effective date of the Registration
Statement (as defined below).
(h) ELIGIBLE EMPLOYEE means a person who is eligible under the
provisions of Section 7 to receive an Option as of a particular Offering
Commencement Date.
(i) EMPLOYER means, as to any particular Offering Period, the Company
and any Related Corporation which is designated by the Board as a corporation
whose Eligible Employees are to receive Options as of that Offering Period's
Offering Commencement Date.
(j) MARKET VALUE means, as of the Offering Commencement Date of the
first Offering Period under this Plan, the initial public offering price at
which shares of Common Stock are offered to the public, as specified in the
Registration Statement, and
<PAGE>
-2-
as of any other particular date, (i) if the Stock is listed on an exchange, the
closing price of the Stock on such date on such exchange, (ii) if the Stock is
quoted through the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") National Market System or any successor thereto, the
closing price of the Stock on such system on such date and (iii) if the Stock is
quoted through Nasdaq (but not on the National Market System) or otherwise
publicly traded, the average of the closing bid and asked prices of the Stock as
reported by Nasdaq or such other medium on which such Stock is publicly traded
on such date.
(k) MEMBERSHIP AGREEMENT means an agreement whereby a Participating
Employee authorizes an Employer to withhold payroll deductions from his or her
Base Compensation.
(l) OFFERING COMMENCEMENT DATE means the first business day of an
Offering Period on which Options are granted to Eligible Employees.
(m) OFFERING PERIOD means (i) in the case of the initial Offering
Period hereunder, the period running from the Effective Date to June 30, 2000
and (ii) in the case of each subsequent Offering Period, a semi-annual period,
running from either January 1 to the next following June 30 or July 1 to the
next following December 31; during which Options will be offered under the Plan
pursuant to a determination by the Board.
(n) OFFERING TERMINATION DATE means the last business day of an
Offering Period, on which Options must, if ever, be exercised.
(o) OPTION means an option to purchase shares of Stock granted under
the Plan.
(p) OPTION SHARES means shares of Stock purchasable under an Option.
(q) PARTICIPATING EMPLOYEE means an Eligible Employee to whom an Option
is granted.
(r) PLAN means this 1999 Employee Stock Purchase Plan of the Company,
as amended from time to time.
(s) REGISTRATION STATEMENT means the Company's Registration Statement
on Form S-1, File No. 333-85545, filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended.
(t) RELATED CORPORATION means any corporation which is or during the
term of the Plan becomes a parent corporation of the Company, as defined in
Section 424(e) of the Code, or a subsidiary corporation of the Company, as
defined in Section 424(f) of the Code.
<PAGE>
-3-
(u) RETIRES means termination of employment with the Company and all
Related Corporations at or after attaining age 65.
(v) STOCK means the common stock, par value $0.001 per share, of the
Company as such class of capital stock is described in the Registration
Statement.
2. PURPOSE OF THE PLAN. The Plan is intended to encourage ownership of
Stock by employees of the Company and any Related Corporations and to provide an
additional incentive for the employees to promote the success of the business of
the Company and any Related Corporations. It is intended that the Plan shall be
an "employee stock purchase plan" within the meaning of Section 423 of the Code.
3. TERM OF THE PLAN. The Plan shall become effective on the Effective
Date, subject to the approval by the stockholders of the Company on or prior to
the first anniversary of the Effective Date. No Option shall be granted under
the Plan after the date immediately preceding the tenth anniversary of the
Effective Date.
4. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Board. The Board shall determine semi-annually (in accordance with Section 8),
on or before either December 15 and June 15, whether to grant options under the
Plan with respect to the Offering Period which would otherwise begin as of
January 1 and July 1, respectively; PROVIDED, however, that, the Board's
approval of the Plan shall constitute the Board's affirmative determination to
grant options with respect to the first Offering Period. The Board shall
determine which (if any) Related Corporations shall be Employers with respect to
the Plan as of each Offering Commencement Date. Either such determination may in
the discretion of the Board apply to all subsequent Offering Periods until
modified or revoked by the Board. The Board shall have authority to interpret
the Plan, to prescribe, amend and rescind rules and regulations relating to the
Plan, to determine the terms of Options granted under the Plan, and to make all
other determinations necessary or advisable for the administration of the Plan.
All determinations of the Board under the Plan shall be final and binding as to
all persons having or claiming any interest in or arising out of the Plan. The
Board may delegate all or any portion of its authority with respect to the Plan
to the Committee, and thereafter, until such delegation is revoked by the Board,
all powers under the Plan delegated to the Committee shall be exercised by the
Committee.
5. TERMINATION AND AMENDMENT OF PLAN. The Board may terminate or amend
the Plan at any time; PROVIDED, HOWEVER, that the Board may not, without
approval by the holders of a majority of the outstanding shares of Stock,
increase the maximum number of shares of Stock purchasable under the Plan (other
than in accordance with the terms of Section 6) or change the description of
employees or classes of employees eligible to receive Options. Without limiting
the generality of the foregoing but subject to the foregoing proviso, the Board
may amend the Plan from time to time to increase or decrease the length of any
future Offering Periods (E.G., to a nine month period) and to make all required
conforming changes to the Plan. No termination of or amendment to the Plan may
adversely affect the rights of a Participating Employee with respect to any
<PAGE>
-4-
Option held by the Participating Employee as of the date of such termination or
amendment without his or her consent.
6. SHARES OF STOCK SUBJECT TO THE PLAN. No more than an aggregate of
500,000 shares of Stock may be issued or delivered pursuant to the exercise of
Options granted under the Plan, subject to adjustments made in accordance with
Section 9.7. Shares to be delivered upon the exercise of Options may be either
shares of Stock which are authorized but unissued or shares of Stock held by the
Company in its treasury. If an Option expires or terminates for any reason
without having been exercised in full, the unpurchased shares subject to the
Option shall become available for other Options granted under the Plan. The
Company shall, at all times during which Options are outstanding, reserve and
keep available shares of Stock sufficient to satisfy such Options (or, if less,
the maximum number still available for issuance under the foregoing limit), and
shall pay all fees and expenses incurred by the Company in connection therewith.
In the event of any capital change in the outstanding Stock as contemplated by
Section 9.7, the number of shares of Stock reserved and kept available by the
Company shall be appropriately adjusted.
7. PERSONS ELIGIBLE TO RECEIVE OPTIONS. Each employee of an Employer
shall be granted an Option on each Offering Commencement Date on which such
employee meets all of the following requirements:
(a) The employee is customarily employed by an Employer for more than
twenty hours per week and for more than five months per calendar year and, in
the case of any Offering Period after the first Offering Period under the Plan,
has been employed by one or more of the Employers for at least one week prior to
the applicable Offering Commencement Date.
(b) The employee will not, after grant of the Option, own Stock
possessing five percent or more of the total combined voting power or value of
all classes of stock of the Company or of any Related Corporation. For purposes
of this paragraph (b), the rules of Section 424(d) of the Code shall apply in
determining the Stock ownership of the employee, and Stock which the employee
may purchase under outstanding options shall be treated as Stock owned by the
employee.
(c) Upon grant of the Option, the employee's rights to purchase Stock
under all employee stock purchase plans (as defined in Section 423(b) of the
Code) of the Company and its Related Corporations will not accrue at a rate
which exceeds $25,000 of fair market value of the Stock (determined as of the
grant date) for each calendar year in which such option is outstanding at any
time. The accrual of rights to purchase Stock shall be determined in accordance
with Section 423(b)(8) of the Code.
8. OFFERING COMMENCEMENT DATES. Options shall be granted on the
Effective Date (as to the initial Offering Period), and on the first business
day of each semi-annual period, running from either January 1 to the next
following June 30 or July 1 to the next following December 31, which follows
June 30, 2000. Following the end of the Initial
<PAGE>
-5-
Offering Period, all succeeding semi-annual periods described above shall be
deemed Offering Periods without need of Board action unless and until contrary
action shall have been taken by the Board prior to the beginning of what would
otherwise be an Offering Period.
9. TERMS AND CONDITIONS OF OPTIONS.
9.1 GENERAL. All Options granted on a particular Offering Commencement
Date shall comply with the terms and conditions set forth in Sections 9.2
through 9.11. Subject to Sections 7(c) and 9.9, each Option granted on a
particular Offering Commencement Date shall entitle the Participating Employee
to purchase that number of shares equal to the result of $12,500 (or such lesser
amount as is selected by the Board, prior to the applicable Offering
Commencement Date, and applied uniformly during such Offering Period) divided by
the Market Value of one such share on the Offering Commencement Date and then
rounded down, if necessary, to the nearest whole number.
9.2 PURCHASE PRICE. The purchase price of Option Shares shall be 85% of
the lesser of (a) the Market Value of the shares as of the Offering Commencement
Date or (b) the Market Value of the shares as of the Offering Termination Date.
9.3 RESTRICTIONS ON TRANSFER.
(a) Options may not be transferred otherwise than by will or under the
laws of descent and distribution. An Option may not be exercised by anyone other
than the Participating Employee during the lifetime of the Participating
Employee.
(b) The Optionee shall agree in the Membership Agreement to notify the
Company of any transfer of Option Shares within two years of the Offering
Commencement Date for such Option Shares. The Company shall have the right to
place a legend on all stock certificates representing Option Shares instructing
the transfer agent to notify the Company of any transfer of such Option Shares.
The Company shall also have the right to place a legend on all stock
certificates representing Option Shares setting forth or referring to the
restriction on transferability of such Option Shares.
9.4 EXPIRATION. Each Option shall expire at the close of business on
the Offering Termination Date or on such earlier date as may result from the
operation of Sections 9.5 or 9.6.
9.5 TERMINATION OF EMPLOYMENT OF OPTIONEE. If a Participating Employee
ceases for any reason (other than death or Retirement) to be continuously
employed by an Employer, whether due to voluntary severance, involuntary
severance, transfer, or disaffiliation of a Related Corporation with the
Company, his or her Option shall immediately expire without becoming
exercisable, and the Participating Employee's accumulated payroll deductions
shall be returned to the Participating Employee. For purposes of this Section
9.5, a Participating Employee shall be deemed to be employed throughout any
leave of absence for military service, illness or other bona fide purpose
<PAGE>
-6-
which does not exceed the longer of ninety days or the period during which the
Participating Employee's reemployment rights are guaranteed by statute
(including without limitation the Veterans Reemployment Rights Act or similar
statute relating to military service) or by contract. If the Participating
Employee does not return to active employment prior to the termination of such
period, his or her employment shall be deemed to have ended on the ninety-first
day of such leave of absence (or such longer period guaranteed by statute or by
contract as provided above).
9.6 RETIREMENT OR DEATH OF OPTIONEE. If a Participating Employee
Retires or dies, the Participating Employee or, in the case of death, his or her
Beneficiary shall be entitled to withdraw the Participating Employee's
accumulated payroll deductions, or to purchase shares on the Offering
Termination Date to the extent that the Participating Employee would be so
entitled had he or she continued to be employed by an Employer. The number of
shares purchasable shall be limited by the amount of the Participating
Employee's accumulated payroll deductions as of the date of his or her
Retirement or death. Accumulated payroll deductions shall be applied by the
Company toward the purchase of shares only if the Participating Employee or, in
the case of death, his or her Beneficiary submits to the Employer not later than
the Offering Termination Date a written request that the deductions be so
applied. Accumulated payroll deductions not withdrawn or applied to the purchase
of shares shall be delivered by the Company to the Participating Employee or
Beneficiary within a reasonable time after the Offering Termination Date.
9.7 CAPITAL CHANGES AFFECTING THE STOCK. In the event that, between the
Offering Commencement Date and the Offering Termination Date with respect to an
Option, a stock dividend is paid or becomes payable in respect of the Stock or
there occurs a split-up or contraction in the number of shares of Stock, the
number of shares for which the Option may thereafter be exercised and the price
to be paid for each such share shall be proportionately adjusted. In the event
that, after the Offering Commencement Date, there occurs a reclassification or
change of outstanding shares of Stock or a consolidation or merger of the
Company with or into another corporation or a sale or conveyance, substantially
as a whole, of the property of the Company, the Participating Employee shall be
entitled on the Offering Termination Date to receive shares of Stock or other
securities equivalent in kind and value to the shares of Stock he or she would
have held if he or she had exercised the Option in full immediately prior to
such reclassification, change, consolidation, merger, sale or conveyance and had
continued to hold such shares (together with all other shares and securities
thereafter issued in respect thereof) until the Offering Termination Date,
PROVIDED, THAT, in the event of a merger of the Company with or into another
corporation or the sale or conveyance, substantially as a whole, of the property
of the Company, the Board may, in its discretion, advance any Offering
Termination Date to the closing or effective date of such merger or sale. In the
event that there is to occur a recapitalization involving an increase in the par
value of the Stock which would result in a par value exceeding the exercise
price under an outstanding Option, the Company shall notify the Participating
Employee of such proposed recapitalization immediately upon its being
recommended by the Board to the Company's shareholders, after which the
Participating Employee shall have the right to
<PAGE>
-7-
exercise his or her Option prior to such recapitalization; if the Participating
Employee fails to exercise the Option prior to recapitalization, the exercise
price under the Option shall be appropriately adjusted. In the event that, after
the Offering Commencement Date, there occurs a dissolution or liquidation of the
Company, except pursuant to a transaction to which Section 424(a) of the Code
applies, each Option shall terminate, but the Participating Employee shall have
the right to exercise his or her Option prior to such dissolution or
liquidation.
9.8 PAYROLL DEDUCTIONS. A Participating Employee may purchase shares
under his or her Option during any particular Offering Period by completing and
returning to the Company's personnel department at least ten days prior to the
beginning of such Offering Period a Membership Agreement indicating a percentage
(which shall be a full integer between one and ten) of his or her Base
Compensation which is to be withheld each pay period. Unless the Board decides
otherwise prior to the commencement of an Offering Period, all Participating
Employees shall be permitted, no more often than once per Offering Period, to
change the percentage of Base Compensation withheld during an Offering Period by
submitting an amended Membership Agreement to the Company's personnel department
indicating a different percentage of Base Compensation to be withheld. Any such
amended Membership Agreement shall become effective at the time determined
pursuant to rules adopted by the Board from time to time. In addition, no more
than once per Offering Period, the Participating Employee may cancel his or her
Agreement and withdraw all, but not less than all, of his or her accumulated
payroll deductions by submitting a written request therefor to the Company's
personnel department no later than the close of business on the last business
day of the Offering Period. The percentage of Base Compensation withheld may
also be changed from one Offering Period to another.
9.9 EXERCISE OF OPTIONS. On the Offering Termination Date the
Participating Employee may purchase the number of shares purchasable by his or
her accumulated payroll deductions, or, if less, the maximum number of shares
subject to the Option as provided in Section 9.1, provided that:
(a) If the total number of shares which all Optionees elect to
purchase, together with any shares already purchased under the Plan, exceeds the
total number of shares which may be purchased under the Plan pursuant to Section
6, the number of shares which each Optionee is permitted to purchase shall be
decreased PRO RATA based on the Participating Employee's accumulated payroll
deductions in relation to all accumulated payroll deductions otherwise to be
applied to the purchase of shares as of that Offering Termination Date.
(b) If the number of shares purchasable includes a fraction, such
number shall be adjusted to the next smaller whole number and the purchase price
shall be adjusted accordingly.
Accumulated payroll deductions not withdrawn prior to the Offering
Termination Date shall be automatically applied by the Company toward the
purchase of Option
<PAGE>
-8-
Shares or, to the extent in excess of the aggregate purchase price of the shares
then purchasable by the Participating Employee, refunded to the Participating
Employee, except that where such excess is less than the purchase price for a
single share of Stock on the Offering Termination Date, such excess shall not be
refunded but instead shall be carried over and applied to the purchase of shares
in the first following Offering Period (subject to the possibility of withdrawal
by the Participating Employee during such Offering Period in accordance with the
terms of the Plan).
9.10 DELIVERY OF STOCK. Except as provided below, within a reasonable
time after the Offering Termination Date, the Company shall deliver or cause to
be delivered to the Participating Employee a certificate or certificates for the
number of shares purchased by the Participating Employee. A stock certificate
representing the number of Shares purchased will be issued in the participant's
name only, or if his or her Membership Agreement so specifies, in the name of
the employee and another person of legal age as joint tenants with rights of
survivorship. If any law or applicable regulation of the Securities and Exchange
Commission or other body having jurisdiction in the premises shall require that
the Company or the Participating Employee take any action in connection with the
shares being purchased under the Option, delivery of the certificate or
certificates for such shares shall be postponed until the necessary action shall
have been completed, which action shall be taken by the Company at its own
expense, without unreasonable delay. The Optionee shall have no rights as a
shareholder in respect of shares for which he or she has not received a
certificate.
9.11 RETURN OF ACCUMULATED PAYROLL DEDUCTIONS. In the event that the
Participating Employee or the Beneficiary is entitled to the return of
accumulated payroll deductions, whether by reason of voluntary withdrawal,
termination of employment, Retirement, death, or in the event that accumulated
payroll deductions exceed the price of shares purchased, such amount shall be
returned by the Company to the Participating Employee or the Beneficiary, as the
case may be, not later than within a reasonable time following the Offering
Termination Date applicable to the Option Period in which such deductions were
taken. Accumulated payroll deductions held by the Company shall not bear
interest nor shall the Company be obligated to segregate the same from any of
its other assets.
--------------------------------
<PAGE>
IBASIS, INC.
FIRST AMENDMENT
TO
1999 EMPLOYEE STOCK PURCHASE PLAN
Effective as of December 15, 1999, the 1999 Employee Stock Purchase
Plan of iBasis, Inc., a Delaware corporation, was amended as follows:
(1) Section 1(j) was amended by deleting such section in its entirety
and replacing it with the following:
"(j) Market Value means, as of any particular date, (i) if the
Stock is listed on an exchange, the closing price of the
Stock on such date on such exchange, (ii) if the Stock is
quoted through the National Association of Securities
Dealers, Inc. Automated Quotation ("Nasdaq") National
Market System or any successor thereto, the closing price
of the Stock on such system on such date and (iii) if the
Stock is quoted through Nasdaq (but not on the National
Market System) or otherwise publicly traded, the average
of the closing bid and asked prices of the Stock as
reported by Nasdaq or such other medium on which such
Stock is publicly traded on such date."
(2) Section 1(m) was amended by deleting such section in its entirety
and replacing it with the following:
"(m) Offering Period means (i) in the case of the initial
Offering Period hereunder, the period running from the
January 1, 2000 to June 30, 2000 and (ii) in the case of
each subsequent Offering Period, a semi-annual period,
running from either January 1 to the next following June
30 or July 1 to the next following December 31; during
which Options will be offered under the Plan pursuant to a
determination by the Board."
(3) Section 8 was amended by deleting such section in its entirety
and replacing it with the following:
"8. Offering Commencement Dates. Options shall be granted on
the first business day of each semi-annual period, running
from either January 1 to the next following June 30 or
July 1 to the next following December 31, which follows
June 30, 2000. Following the end of the initial Offering
Period, all succeeding semi-annual periods described above
shall be deemed Offering Periods without need of Board
action unless and until contrary action shall have been
taken by the Board prior to the beginning of what would
otherwise be an Offering Period."
<PAGE>
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(4) Section 9.8 was amended by deleting such section in its entirety
and replacing it with the following:
"9.8 Payroll Deductions. A Participating Employee may purchase
shares under his or her Option during any particular
Offering Period by completing and returning to the
Company's personnel department prior to the commencement
of the initial Offering Period, or in connection with any
subsequent Offering Period at least ten days prior to the
beginning of such Offering Period, a Membership Agreement
indicating a percentage (which shall be a full integer
between one and ten) of his or her Base Compensation which
is to be withheld each pay period. Unless the Board
decides otherwise prior to the commencement of an Offering
Period, all Participating Employees shall be permitted, no
more often than once per Offering Period, to change the
percentage of Base Compensation withheld during an
Offering Period by submitting an amended Membership
Agreement to the Company's personnel department indicating
a different percentage of Base Compensation to be
withheld. Any such amended Membership Agreement shall
become effective at the time determined pursuant to rules
adopted by the Board from time to time. In addition, no
more than once per Offering Period, the Participating
Employee may cancel his or her Agreement and withdraw all,
but not less than all, of his or her accumulated payroll
deductions by submitting a written request therefor to the
Company's personnel department no later than the close of
business on the last business day of the Offering Period.
The percentage of Base Compensation withheld may also be
changed from one Offering Period to another."
<PAGE>
Exhibit 10.27
OFFICE LEASE
"NEW WORLD TOWER" - 100 N. BISCAYNE BOULEVARD
LANDLORD:
NWT PARTNERS, LTD.
TENANT:
IBASIS, INC.
PREMISES:
SUITE NO. 1300
<PAGE>
BASIC TERM SHEET
OFFICE LEASE
"NEW WORLD TOWER" - 100 N. BISCAYNE BOULEVARD
The following provisions and terms are incorporated as Sections I.2 and 1.3 in
the Lease between Landlord and Tenant.
<TABLE>
<S> <C>
I.2.1 - LANDLORD: NWT PARTNERS, LTD.
I.2.2 - TENANT: iBasis, Inc.
I.2.3 - BUILDING: 100 N. Biscayne Blvd.
Miami, Florida 33132
which is currently known as New World Tower and
which includes the adjacent parking garage.
I.2.4 - PREMISES: Suite 1300, having a gross leasable area which
Landlord and Tenant designate for purposes of
this Lease to be 5,250 square feet.
I.2.5 - USE OF PREMISES: Executive and general office use, the
installation, operation and maintenance of Tenant's
equipment and facilities in connection with Tenant's
telecommunications business.
I.2.6 - TENANT'S TRADE NAME: iBasis
I.2.7 - LEASE TERM: 10 year(s) and 0 month(s) from the Lease
Commencement Date.
I.2.8 - LEASE COMMENCEMENT DATE (Section I.6): Upon completion of
Landlord's Work as defined in Section I.2.18 as to which
Work Landlord shall use its best efforts to complete the
same within sixty (60) days from the date of the execution
and delivery of this Lease by both parties hereto. In the
event that Landlord's Work is not completed within sixty (
60) days from the date of the execution and delivery of this
Lease by both parties, Tenant shall receive two ( 2) days of
abatement of Fixed Minimum Rent for each day of such delay,
subject to extension of such time for delays caused by force
majeure and Acts of God. In the event that Landlord's Work
is not completed within 120 days from the date of the
execution and delivery of this Lease by both parties, Tenant
shall have the right to terminate this Lease effective upon
delivery of Notice of exercise of such right of termination
to Landlord no later than the fifth (5th) Business day after
such 120th day, and neither party shall have any further
liability to the other arising under this Lease. LEASE
EXPIRATION DATE (Section I.6): 10 years from Lease
Commencement Date.
I.2.9 - RENT COMMENCEMENT DATE (Section I.7): Four (4) months after
the Lease Commencement Date.
I.2.10 - FIXED MINIMUM RENT (Section II.1): $1,674,030.46,
payable the first of each month as follows, plus all
applicable taxes:
</TABLE>
<TABLE>
<CAPTION>
YEAR ANNUAL RENT MONTHLY RENT
<S> <C> <C>
FIRST $107,787.25 $12,482.27
SECOND $154,197.25 $12,849.77
THIRD $158,761.60 $13,230.13
FOURTH $163,485.70 $13,623.81
FIFTH $168,375.15 $14,031.26
SIXTH $173,435.73 $14,457.88
SEVENTH $178,673.43 $14,889.45
EIGHTH $184,095.21 $15,341.20
NINTH $189,705.99 $15,808.83
TENTH $195,513.15 $16,292.76
</TABLE>
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LANDLORD TENANT
<PAGE>
<TABLE>
<S> <C>
I.2.11 - FIXED MINIMUM RENT INCREASE(S)-N/A
I.2.12 - CONSTRUCTION PLANS SUBMISSION DATE: N/A
I.2.13 - LANDLORD'S CONTRIBUTION: N/A
I.2.14 - SECURITY DEPOSIT (Section X.1): The sum of
$63,000.00, in an Irrevocable Letter of Credit in the form
and substance and subject to the terms and conditions as set
forth in Exhibit E annexed hereto, delivered to Landlord
upon execution and delivery of this Lease by Tenant. In the
event Tenant shall not then be in default under this Lease
and has not then been in default under this Lease past any
applicable notice and cure dates more than twice in the
preceding twelve (12) months, the amount of this Security
Deposit shall be reduced by fifty percent (50%) on the fifth
(5th) anniversary of the Lease Commencement Date.
I.2.15 - TENANT'S PARTICIPATION IN OPERATING EXPENSES AND TAXES
(Section IV.1):
PROPORTIONATE SHARE: 1.98%
BASE OPERATING YEAR: 2000; BASE TAX YEAR: 2000.
FIRST OPERATING EXPENSE ADJUSTMENT PAYMENT DATE: January 1,
2001.
FIRST TAX ADJUSTMENT PAYMENT DATE: January 1, 2001.
I.2.16 - ADDRESSES FOR NOTICES (Section XII.1):
TENANT: iBasis, Inc.
20 Second Avenue
Burlington, MA 01803
after the Commencement Date: the Premises
LANDLORD: NWT PARTNERS, LTD.
1111 Lincoln Road Suite 800
Miami Beach, Florida 33139
Attention: David Garfinkle
With a copy to:
Building Manager
New World Tower
100 N. Biscayne Blvd., Suite 2606
Miami, FL 33132
I.2.17 - GUARANTORS: N/A
I.2.18 - ADDITIONAL TERMS: Lease Renewal Option: Tenant, on written
notice to Landlord delivered not less than twelve (12)
months' nor more than twenty four (24) months' prior to the
expiration of the respective term hereof, shall have the
Option to renew this Lease on the same terms and conditions
as set forth herein (except for this provision and Fixed
Minimum Rent) for two terms of five (5) years each (each
exercise of an Option to be effective only with respect to
one such Option Term) with the Fixed Minimum Rent for each
such Option Term to be at 100% of the Fair Market Value Rent
(as determined in the manner set forth in Exhibit F annexed
hereto), but in no event less than the amount which the
Fixed Minimum Rent for each year of the Lease Option Terms
would have been if the Fixed Minimum Rent for the first year
of the first Lease Option Term had been $177,736.31 and such
Fixed Minimum Rent for the subsequent years of the Lease
Option Terms had continued to be escalated at an annual rate
of 3.5%. Landlord's Work: Landlord, at its sole cost and
expense, shall deliver the Premises to Tenant with all
contents demolished and in broom clean condition; and shall
construct a building standard common corridor as set forth
on Exhibit B. Landlord's Services: Notwithstanding anything
contained herein to the contrary, Landlord shall not be
required to provide any VAC, electrical
</TABLE>
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LANDLORD TENANT
<PAGE>
or janitorial service to the Premises.
<TABLE>
<S> <C>
I.3 - EXHIBIT A - Legal Description
EXHIBIT B - Site Plan
EXHIBIT C - Rules and Regulations
EXHIBIT D - Telecommunications Rider EXHIBIT E -
Letter of Credit Terms EXHIBIT F- Fair Market Value
Rent Determination EXHIBIT G - Form of SNDA agreement
EXHIBIT H - Roof Equipment
EXHIBIT I - List of Prohibited Uses
</TABLE>
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LANDLORD TENANT
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
LANDLORD COVENANTS; PRIMARY LEASE PROVISIONS;
EXHIBITS; PREMISES; USE OF PREMISES; TERM
<TABLE>
<S> <C> <C>
Section 1.1 COVENANTS OF LANDLORD'S AUTHORITY AND
QUIET ENJOYMENT.........................................................1
Section 1.2 PRIMARY LEASE PROVISIONS................................................1
Section 1.3 EXHIBITS................................................................1
Section 1.4 PREMISES LEASED BY TENANT...............................................1
Section 1.5 USE OF PREMISES.........................................................2
Section 1.6 LEASE TERM..............................................................2
Section 1.7 RENT COMMENCEMENT DATE..................................................2
Section 1.8 LEASE YEAR..............................................................2
Section 1.9 ACCEPTANCE OF PREMISES..................................................2
ARTICLE II
RENT
Section 2.1 FIXED MINIMUM RENT......................................................2
Section 2.2 INTENTIONALLY DELETED...................................................3
Section 2.3 LATE PAYMENT ADMINISTRATIVE FEE.........................................3
Section 2.4 ADDITIONAL RENT - DEFINITION............................................3
Section 2.5 SALES TAX...............................................................4
ARTICLE III
SERVICES
Section 3.1 SERVICES OF LANDLORD....................................................4
Section 3.2 SERVICES OF TENANT......................................................5
Section 3.3 NO EVICTION.............................................................5
Section 3.4 BUILDING SECURITY.......................................................5
Section 3.5 PARKING.................................................................6
ARTICLE IV
OPERATING EXPENSES AND TAXES
Section 4.1 TENANT'S PARTICIPATION IN OPERATING
EXPENSES AND TAXES......................................................6
Section 4.2 DEFINITION OF OPERATING EXPENSES........................................6
Section 4.3 TENANT'S TAXES..........................................................7
Section 4.4 TAXES INCLUDED..........................................................8
Section 4.5 RECEIPT OF NOTICES......................................................8
ARTICLE V
TENANT'S INITIAL IMPROVEMENTS
Section 5.1 CONSTRUCTION PLANS......................................................8
Section 5.2 PLANS REVIEW............................................................9
Section 5.3 PAYMENT................................................................10
Section 5.4 TENANT DELAY...........................................................10
Section 5.5 TENANT'S OBLIGATION FOR COST OF TENANT'S DELAYS........................10
Section 5.6 LANDLORD'S DELAYS......................................................11
Section 5.7 REVISIONS..............................................................11
Section 5.8 COMPLETION DUE DILIGENCE...............................................11
</TABLE>
(i)
---------------/-------------
LANDLORD TENANT
<PAGE>
(ii)
---------------/-------------
LANDLORD TENANT
<PAGE>
ARTICLE VI
ADDITIONS, ALTERATIONS, REPLACEMENTS, AND TRADE FIXTURES
<TABLE>
<S> <C> <C>
Section 6.1 BY LANDLORD............................................................11
Section 6.2 BY TENANT..............................................................12
Section 6.3 CONSTRUCTION INSURANCE AND INDEMNITY...................................12
Section 6.4 MECHANIC'S LIENS AND ADDITIONAL
CONSTRUCTION...........................................................13
Section 6.5 TRADE FIXTURES.........................................................14
Section 6.6 RIGHT OF ENTRY.........................................................15
ARTICLE VII
INSURANCE AND INDEMNITY
Section 7.1 TENANT'S INSURANCE.....................................................15
Section 7.2 EXTRA HAZARD INSURANCE PREMIUMS........................................16
Section 7.3 INDEMNITY..............................................................17
ARTICLE VIII
DAMAGE, DESTRUCTION AND CONDEMNATION
Section 8.1 DAMAGE OR DESTRUCTION BY FIRE OR OTHER
CASUALTY...............................................................17
Section 8.2 CONDEMNATION...........................................................19
ARTICLE IX
DEFAULT, REMEDIES
Section 9.1 DEFAULT................................................................19
Section 9.2 REMEDIES...............................................................20
Section 9.3 TERMINATION............................................................21
Section 9.4 NO REINSTATEMENT AFTER TERMINATION.....................................21
Section 9.5 RETENTION OF SUMS AFTER TERMINATION....................................21
Section 9.6 RE-ENTRY...............................................................21
Section 9.7 SUMS COLLECTED UPON RELETTING..........................................22
Section 9.8 NO EFFECT ON SUIT......................................................22
Section 9.9 WAIVER OF RIGHTS OF REDEMPTION.........................................22
Section 9.10 INTENTIONALLY DELETED..................................................22
Section 9.11 OTHER PARTY'S RIGHT TO CURE DEFAULTS...................................22
Section 9.12 LANDLORD'S EXPENSES....................................................24
ARTICLE X
SECURITY
Section 10.1 SECURITY DEPOSIT.......................................................24
Section 10.2 PERSONAL PROPERTY......................................................25
ARTICLE XI
ADDITIONAL TENANT AGREEMENTS
Section 11.1 MORTGAGE FINANCING AND SUBORDINATION...................................25
Section 11.2 ASSIGNMENT OR SUBLETTING...............................................26
Section 11.3 TENANT'S NOTICE TO LANDLORD OF
DEFAULT................................................................33
Section 11.4 NO RECORDATION OF LEASE................................................33
Section 11.5 SURRENDER OF PREMISES AND HOLDING
OVER...................................................................33
Section 11.6 ESTOPPEL CERTIFICATE...................................................34
Section 11.7 DELAY OF POSSESSION....................................................34
</TABLE>
(iii)
---------------/-------------
LANDLORD TENANT
<PAGE>
<TABLE>
<S> <C> <C>
Section 11.8 COMPLIANCE WITH LAW....................................................34
Section 11.9 RULES AND REGULATIONS..................................................36
Section 11.10 ABANDONMENT............................................................36
Section 11.11 INTENTIONALLY DELETED..................................................37
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.1 NOTICES................................................................37
Section 12.2 ENTIRE AND BINDING AGREEMENT...........................................37
Section 12.3 PROVISIONS SEVERABLE...................................................37
Section 12.4 CAPTIONS...............................................................37
Section 12.5 RELATIONSHIP OF THE PARTIES............................................37
Section 12.6 ACCORD AND SATISFACTION................................................38
Section 12.7 BROKER'S COMMISSION....................................................38
Section 12.8 CORPORATE & PARTNERSHIP STATUS.........................................38
Section 12.9 MISCELLANEOUS..........................................................39
Section 12.10 FINANCIAL STATEMENTS...................................................40
Section 12.11 SURVIVAL OF TENANT'S COVENANTS.........................................40
Section 12.12 NON-WAIVER PROVISIONS..................................................40
Section 12.13 RADON GAS..............................................................41
Section 12.14 LIMITATION OF LIABILITY ...............................................41
</TABLE>
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LANDLORD TENANT
<PAGE>
OFFICE LEASE
"NEW WORLD TOWER" - 100 N. BISCAYNE BOULEVARD
THIS LEASE ("Lease") is made and entered into as of this ___________
day of _______________________________, 19__ by and between Landlord and Tenant.
Landlord demises and rents to Tenant, and Tenant leases from Landlord,
the Premises now existing in Landlord's Building, upon the terms, covenants and
conditions contained herein.
ARTICLE I
LANDLORD COVENANTS; PRIMARY LEASE PROVISIONS;
EXHIBITS; PREMISES; USE OF PREMISES; TERM
Section I.1 COVENANTS OF LANDLORD'S AUTHORITY AND QUIET
ENJOYMENT.
Landlord represents and covenants that it has good title to the land
and Building of which the Premises form a part, and upon performing all of its
obligations under this Lease, Tenant shall peacefully and quietly have, hold and
enjoy the Premises for the Lease Term.
Section I.2 PRIMARY LEASE PROVISIONS
The provisions and terms of Sections I.2.1 through I.2.18 the Basic
Term Sheet are incorporated in this Lease as a part of this Section I.2, and are
subject to the additional provisions of this Lease.
Section I.3 EXHIBITS
The exhibits, riders and attachments described on the Basic Term Sheet
are incorporated in and made part of this Lease as part of this Section I.3.
Section I.4 PREMISES LEASED BY TENANT
I.4.1 The Premises are leased by Tenant from Landlord. The
approximate boundaries and location of the Premises are outlined on the Site
Plan diagram of the Building (Exhibit "B"), which sets forth the general layout
of the Building but which shall not be deemed to be a warranty, representation,
or agreement upon the part of the Landlord that the Building and layout will be
exactly as indicated on said diagram.
I.4.2 The Premises, for the purpose of this Lease, shall
extend to the exterior faces of all walls or to the building line where there is
no wall, or to the center line of those walls separating the Premises from other
premises in the Building, together with the appurtenances specifically granted
in this Lease, but reserving and excepting to Landlord the use of the exterior
walls and the roof and the right to install, maintain, use, repair and replace
pipes, ducts, conduits, and wires leading through the Premises in locations
which will not materially interfere with Tenant's use thereof, or which serve
other parts of the Building.
---------------/-------------
LANDLORD TENANT
<PAGE>
Section I.5 USE OF PREMISES
The Premises shall be used and occupied only for the Use specified in
the Basic Term Sheet, under Tenant's Trade Name specified in the Basic Term
Sheet, and for no other purpose or purposes without Landlord's prior written
consent, which shall not be unreasonably withheld. except with respect to those
Uses listed on Exhibit "I" hereto. Tenant shall, at its own risk and expense,
obtain all governmental licenses and permits necessary for such use.
Section I.6 LEASE TERM
The Lease Commencement Date, the Lease Term and the Lease Termination
Date shall be for the period specified in the Basic Term Sheet, unless sooner
terminated or extended as provided in this Lease. Notwithstanding the foregoing,
prior to the Lease Commencement Date Tenant shall have reasonable access, at
Tenant's sole cost and expense, to the Premises and to the following portions of
the Building: third floor main electrical panels, the third floor Meet Me Room,
windows in the Premises for conversion to louvers, conduit and chase areas, and
such other areas in the Building as may in the reasonable opinion of the Chief
Building Engineers for both parties be necessary and appropriate for the
purposes of installing agreed upon wiring and conduits in the Building and for
other related installations and construction necessary to prepare the Building
and the Premises for Tenant's occupancy (the "Early Access Period"). During the
Early Access Period, Tenant shall not be required to pay Rent or Additional
Rent, but shall be subject to all other terms and conditions of this Lease.
Section I.7 RENT COMMENCEMENT DATE
Tenant shall commence payment of Rent the date specified in the Basic
Term Sheet. If the Rent Commencement Date falls on a day other than the first
day of a calendar month, the Fixed Minimum Rent for such month shall be prorated
on a per diem basis, calculated on the basis of a thirty (30) day month.
Section I.8 LEASE YEAR
For purpose of this Lease, the term "Lease Year" is defined to mean a
calendar year (beginning January 1 and extending through December 31 of any
given year). Any portion of a year which is less than a Lease Year, that is,
from the Lease Commencement Date through the next December 31, and from the last
January 1 falling within the Lease Term through the last day of the Lease Term,
shall be defined as a Partial Lease Year.
Section I.9 ACCEPTANCE OF PREMISES
Tenant acknowledges that it has fully inspected and accepts the
Premises in their present condition and "as is", except as indicated in Article
V and except for defects in workmanship and/or materials which are not
observable by careful inspection provided written notice of such defect(s) is
given by Tenant to Landlord no later than one (1) year subsequent to the Lease
Commencement Date , and in the Basic Term Sheet if applicable, and that the same
are suitable for the use specified in the Basic Term Sheet.
ARTICLE II
<PAGE>
RENT
Section II.1 FIXED MINIMUM RENT
II.1.1 The total Fixed Minimum Rent for the Lease Term as
specified in the Basic Term Sheet shall be payable by Tenant as specified in the
Basic Term Sheet.
II.1.2 The phrase "Fixed Minimum Rent" shall be the Fixed
Minimum Rent specified above, payable monthly in advance on the first day of
each month, without prior demand therefore and without any deduction or setoff
whatsoever. In addition, Tenant covenants and agrees to pay Landlord all
applicable sales or other taxes which may be imposed on the above specified
rents or payments hereinafter provided for to be received by Landlord when each
such payment is made.
Section II.2 THIS SECTION HAS BEEN INTENTIONALLY DELETED.
Section II.3 LATE PAYMENT ADMINISTRATIVE FEE.
If a Rent payment is not received within five (5) days after its due
date, administrative fees and late charges of $100.00, plus an ongoing charge of
18% (annual rate, which shall accrue on the unpaid Rent including Additional
Rent) shall become immediately due and payable from Tenant to Landlord, without
notice or demand. This provision for administrative fees and late charges is
not, and shall not be deemed, a grace period. In the event any check, bank draft
or negotiable instrument given for any payment under this Lease shall be
dishonored at any time for any reason whatsoever not attributable to Landlord,
Landlord shall be entitled, in addition to any other remedy that may be
available, to an administrative charge of Two Hundred Dollars ($200.00). Such
administrative fees and late charges are neither penalties nor interest charges,
but liquidated damages to defray administrative, collection, and related
expenses due to Tenant's invalid payment or to Tenant's failure to make such
Rent payment when due. An additional administrative fee and late charge shall
become immediately due and payable on the first day of each month for which all
or a portion of a Rent payment (together with any administrative fee and late
charge) remains unpaid. Landlord, at its option, may deduct any such charge from
any Security Deposit held by Landlord and, in such event, Tenant shall, upon
written notice of the same, immediately deposit a like amount with Landlord in
accordance with the terms of Section X.1. All sums which Tenant shall be
obligated to pay to Landlord from time to time pursuant to this Lease shall be
deemed part of the Rent. In the event of the nonpayment by Tenant of such sums,
Landlord shall have the same rights and remedies by reason of such nonpayment as
if Tenant had failed to pay any Rent.
Section II.4 ADDITIONAL RENT - DEFINITION
In addition to the foregoing Fixed Minimum Rent and Fixed Minimum Rent
Increase, all payments to be made under this Lease by Tenant to Landlord shall
be deemed to be and shall become Additional Rent hereunder and, together with
Fixed Minimum Rent, shall be included in the term "Rent" whenever such term is
used in this Lease. Unless another time is expressly provided for the payment
thereof, any Additional Rent shall be due and payable on demand or together with
the next succeeding installment of Fixed Minimum Rent, whichever shall first
occur, together with all applicable State taxes and interest thereon at the then
prevailing legal rate, and Landlord shall have the same remedies for failure to
pay the
<PAGE>
same as for non-payment of Fixed Minimum Rent. Landlord, at its election, shall
have the right to pay or do any act which requires the expenditure of any sums
of money by reason of the failure or neglect of Tenant to perform any of the
provisions of this Lease, and in the event Landlord elects to pay such sums or
do such acts requiring the expenditure of monies, all such sums so paid by
Landlord, together with interest thereon, shall be deemed to be Additional Rent
and payable as such by Tenant to Landlord upon demand.
Section II.5 SALES TAX
Together with each payment of Rent or other sum on which such tax may
be due, Tenant shall pay to Landlord a sum equal to any applicable sales tax,
tax on rents, and any other charges, taxes, and/or impositions now in existence
or subsequently imposed based upon the privilege of renting the Premises or upon
the amount of rent collected. Tenant's liability for such taxes and/or
impositions shall be payable whether assessed at the time the Rent payment is
made or retroactively, and shall survive the termination or expiration of this
Lease.
ARTICLE III
SERVICES
Section III.1 SERVICES OF LANDLORD
III.1.1 Landlord shall maintain the public and common areas
of the Building, including lobbies, stairs, elevators, corridors and restrooms,
the windows in the Building, the mechanical, plumbing and electrical equipment
serving the Building, and the roof (subject to Tenant's obligations under
Exhibit H hereto) and structure itself in reasonably good order and condition
except for damage occasioned by the act of Tenant, which damage shall be
repaired by Landlord at Tenant's expense.
III.1.2 Landlord shall furnish the Premises with (a) elevator
service, if applicable, and (b) window washing with reasonable frequency.
Landlord shall not be in default hereunder or be liable for any damages directly
or indirectly resulting from, nor shall the rental herein reserved be abated by
reason of (i) the installation, use or interruption of use of any equipment in
connection with the furnishing of any of the foregoing services, unless caused
by Landlord's gross negligence or willful misconduct, (ii) failure to furnish or
delay in furnishing any such services when such failure or delay is caused by
accident or any condition beyond the reasonable control of Landlord or by the
making of necessary repairs or improvements to the Premises or to the Building,
or other cause other than Landlord's gross negligence or willful malfeasance,
(iii) the limitation, curtailment, rationing or restrictions on use of water,
electricity (for common areas only), gas or any other form of energy serving the
Premises or the Building, unless caused by Landlord's gross negligence or
willful misconduct, and (iv) if Landlord and Tenant have entered into an
agreement whereby Tenant uses Landlord's Backup Generator, the failure of such
Backup Generator to perform as specified except due to the gross negligence or
willful misconduct of Landlord. Landlord shall use reasonable efforts diligently
to remedy any interruption in the furnishing of such services. In the event any
such interruption continues for more than ten (10) Business Days, Tenant may
abate Rent by 10% of the monthly Rent for each subsequent Business Day
thereafter that such services are interrupted
<PAGE>
Section III.2 SERVICES OF TENANT.
Tenant shall, at Tenant's own expense, keep the Premises in good repair
and tenantable condition during the Term, except only for reasonable wear and
tear and casualty. Tenant shall, at Tenant's expense but under the direction of
Landlord, promptly repair (and make replacements where necessary) any injury or
damage to the Building and the property of which it is a part ("Property"),
including, but not limited to, any and all broken glass, caused by Tenant or
Tenant's officers, personnel, agents, employees, servants, licensees, invitees,
guests, patrons, or customers. Tenant shall shampoo and replace carpeting, wash
walls and ceilings, and otherwise maintain the appearance of the Premises and
contents thereof at Tenant's reasonable expense. Subject to the terms of the
Telecommunications Rider, Tenant, at its sole cost and expense, shall supply all
of its electrical service, VAC service and janitorial services.
Section III.3 NO EVICTION.
The services described in this Article III shall be provided as long as
this Lease is in full force and effect, no Event of Default by Tenant exists,
and no event has occurred which but for notice and/or the passage of time would
constitute an Event of Default by Tenant, subject to interruption caused by,
force majeure or acts of God, and conditions and causes beyond the control of
Landlord. Furthermore, Landlord reserves the right to stop the service of the
air-cooling, elevator, electrical, backup electrical generator power, plumbing
or other mechanical systems or facilities in the Building when necessary, by
reason of accident or emergency, or for repairs, additions, alterations,
replacements, decorations or improvements desirable or necessary to be made in
the judgment of Landlord, until such repairs, alterations, replacements or
improvements shall have been completed. Landlord shall undertake to diligently
commence and work toward completion of all necessary repairs. All discretionary
repairs shall be done in a manner and at times, whenever reasonably appropriate,
so as not to unnecessarily interfere with Tenant's Use (although Landlord need
not pay additional costs in order to make such arrangements). Landlord shall
have no responsibility or liability for interruption, curtailment or failure to
supply cooled or outside air, heat, elevator, plumbing, electricity or backup
electrical generator power when prevented by exercising its right to stop
service or by Unavoidable Delay or by any cause whatsoever beyond Landlord's
control or by human occupancy factors, or by failure of independent contractors
to perform, or by Legal Requirements, or by mandatory energy conservation, The
exercise of such right or such failure by Landlord shall not constitute an
actual or constructive eviction, in whole or in part, or entitle Tenant to any
compensation or to any abatement or diminution of Base Rent or Additional Rent,
or relieve Tenant from any of its obligations under this Lease, or impose any
liability upon Landlord or its agents by reason of inconvenience or annoyance to
Tenant, or injury to or interruption of Tenant's business, or otherwise,
provided such resulting interruption is not the result of Landlord's gross
negligence or willful misconduct.
Section III.4 BUILDING SECURITY.
Tenant acknowledges that Landlord shall not and does not have any
responsibility for the security of Tenant's officers, personnel, agents,
employees, servants, licensees, invitees, guests, patrons, customers, and all
others who come on or about the Property related to Tenant or Tenant's Use.
<PAGE>
Section III.5 PARKING.
If any parking is made available to Tenant by Landlord (but Landlord
does not represent that such parking shall ever be made available), Landlord
shall not be liable for any damage of any nature whatsoever to, or any theft of,
automobiles or other vehicles or the contents of them, while in or about such
parking areas.
ARTICLE IV
OPERATING EXPENSES AND TAXES
Section IV.1 TENANT'S PARTICIPATION IN OPERATING EXPENSES AND
TAXES.
IV.1.1 Commencing on the First Adjustment Payment Date,
Tenant shall, on the first day of each month in advance pay to Landlord pro rata
monthly installments on account of the amount reasonably projected by Landlord
for Tenant's Share of increases in Operating Expenses and for Tenant's Share of
increases in Taxes over the Base Operating Year and over the Base Tax Year,
respectively, based upon the most recent data available to Landlord, from time
to time, for Operating Expenses and for Taxes. Landlord shall submit to Tenant
statement(s) showing the actual amounts which should have been paid by Tenant
with respect to increases in Operating Expenses and with respect to increases in
Taxes for the past calendar year by the last day of each February for each
preceding Lease Year, the amount of those expenses actually paid during that
year by Tenant and the amount of the resulting balance due on either or both of
those expenses, or overpayment of either of both of them, as the case may be.
Any balance shown to be due pursuant to said statement shall be paid by Tenant
to Landlord within thirty (30) days following Tenant's receipt of the statement
and any overpayment shall be immediately credited against Tenant's obligation to
pay expected Additional Rent in connection with anticipated increases in
Operating Expenses or anticipated increases in Taxes or, if by reason of any
termination of this Lease no such future obligations exist, shall be refunded to
Tenant. Anything in this Lease to the contrary notwithstanding, Tenant shall not
delay or withhold payment of any balance shown to be due pursuant to a statement
rendered by Landlord to Tenant, pursuant to the terms of this Lease, because of
any objection which Tenant may raise with respect to the statement. If at the
time of the resolution of said objection the Term has expired, Landlord shall
immediately refund to Tenant any overpayment found to be owing to Tenant.
IV.1.2 If this Lease expires during a Partial Lease Year,
Tenant shall be responsible for its estimated pro rata share of Operating
Expenses and of Taxes for the Partial Lease Year. Tenant shall remit full
payment to Landlord within seven (7) days of such bill. If Tenant fails to remit
such full payment to Landlord, Landlord in its sole discretion may deduct the
amount due from Tenant's Security Deposit and be entitled to all other rights
and remedies under this Lease for Tenant's default.
Section IV.2 DEFINITION OF OPERATING EXPENSES
(A) The term "Operating Expenses" shall mean (a) all costs of
management, operation and maintenance of the Building, including, without
limitation, wages, salaries and payroll burden of employees, janitorial,
maintenance, guard and other services, Building management office rent or rental
<PAGE>
value, power, fuel, water, waste disposal, landscaping care, premiums for
liability, fire, hazard and other property related insurance, parking area care
and management, advertising and promotion, fees for energy saving programs,
administrative costs, including management fee, provided such benefits are to
the proportionately equal benefit of all tenants and provided such management
fees are commensurate with those charged by third party unaffiliated managers of
buildings of similar type in the Miami, Florida area, and (b) the cost
(amortized over such reasonable period as landlord shall determine) of any
capital improvements made to the Building by Landlord after the date of this
Lease that are intended to reduce the Operating Expenses or that are required
under any governmental law or regulation; provided, however, that Operating
Expenses shall not include real property taxes or assessments (which are
included in "Taxes"), depreciation on the Building, costs of tenant
improvements, real estate brokers' commissions, interest and capital items other
than those referred to in clause (a) above.
(B) Further, Operating Expenses shall also not include the following:
(i) cost of repairs or other work occasioned by the exercise of right of eminent
domain; (ii) leasing commissions, costs and disbursements and other expenses
which are incurred in connection with lease negotiations with prospective
tenants; (iii) attorneys' fees, costs and disbursements and other expenses which
are incurred in connection with lease negotiations with tenants, (but excluding
lease modifications, renewals and terminations thereof and disputes with tenants
and other occupants);(iv) excepting those relating to common areas, the cost of
renovating or otherwise improving or decorating, painting or redecorating leased
space for other tenants or other occupants or vacant tenant space, other than
ordinary maintenance provided to all tenants; (v) amortization except as set
forth in Section IV.2 (A); (vi) costs incurred due to violation by Landlord of
the terms and conditions of the Lease; (vii) costs incurred due to violation by
any other tenant or occupant of the terms of its Lease or License, or the
negligence of any of the same, except to the extent Landlord is not reimbursed
for the same by insurance or by such other party; (viii) overhead and profit
paid to subsidiaries or affiliates of Landlord for services on or the Building
and/or leased Premises, to the extent only that the costs of such services
exceed competitive costs for such services were they not so rendered by a
subsidiary or affiliate, provided, however, that the property management fee
charged by Landlord or an affiliate of Landlord shall not be in excess of the
rates then customarily charged for building management for buildings of the like
class and character; (ix) ground rents; (x) principal payments, or any interest
expense on any loans secured by mortgages placed upon the Building and the
underlying land (or a leasehold interest therein, except as set forth in Section
IV.2 (A); (xi) advertising or promotional expenditures of a non-general nature;
(xii) any costs, fines or penalties incurred due to violations by Landlord of
any applicable government law, ordinance, rule or authority; (xiii) any expense
to the extent for which Landlord is actually compensated through proceeds of
insurance; (xiv) capital costs incurred by Landlord to comply with the Americans
with Disabilities Act (42 U.S.C. 1201 et seq.) as that law is drafted on the
date first written above; (xv) costs incurred by Landlord to correct structural
defects or system defects, remediate environmental contamination caused by
Landlord or costs to repair or replace defective work performed by Landlord.
Section IV.3 TENANT'S TAXES
Tenant covenants and agrees to pay promptly when due all
<PAGE>
taxes imposed upon its business operations and its personal property situated in
the Premises.
Section IV.4 TAXES INCLUDED.
Should any governmental taxing authority, acting under any present or
future law, ordinance or regulation, levy, assess or impose a tax, excise and/or
assessment (other than income, franchise, estate, succession, inheritance and
transfer tax) upon or against or in any way related to the land and buildings
comprising the Building, either by way of substitution or in addition to any
existing tax on land and building otherwise, Tenant shall be responsible for and
shall pay to Landlord its Proportionate Share as set forth above of such tax,
excise and/or assessment.
Section IV.5 RECEIPT OF NOTICES.
Failure of Landlord to furnish in a timely manner a statement of actual
increases in Operating Expenses or Taxes or to give notice of an adjustment to
rent under this Article IV shall not prejudice or act as a waiver of Landlord's
right to furnish such statement or to give such notice at a subsequent time or
to collect any adjustment to or recalculation of the Additional Rent for any
preceding period. Tenant recognizes that Landlord's statements showing the
estimate of increases in Operating Expenses and Taxes for any calendar year may
be rendered at the end of the previous calendar year or the beginning of such
calendar year, or later, but in no event shall such estimates be delivered more
than sixty (60) days after the beginning of such calendar year. If Landlord's
statement is rendered subsequent to the beginning of a calendar year, Tenant
shall continue to pay the increase in the Operating Expenses and in the Taxes
for the prior calendar year and, should a deficiency result by virtue of an
increase in Landlord's estimate of the Operating Expenses or Taxes for the
current year, Tenant shall pay the amount of such deficiency, if any, in full,
in addition to the next monthly rent payment.
ARTICLE V
TENANT'S INITIAL IMPROVEMENTS
Section V.1 CONSTRUCTION PLANS.
Tenant shall complete or cause the completion of Tenant's Initial
Improvements as shown on the Final Plans and as more fully described in this
Section. At Tenant's sole cost and expense, Tenant shall submit to Landlord its
complete and detailed architectural, structural, mechanical and engineering
plans and specifications prepared by an architect or engineer, showing Tenant's
Initial Improvements ("Construction Plans") no later than the Construction Plans
Submission Date (thirty (30) days after the execution of this Lease, time being
of the essence) for Landlord's approval. Wherever in this Article V Landlord's
approval is required, Landlord's approval shall not be unreasonably withheld,
delayed or conditioned. If applicable, Tenant's Construction Plans shall include
all information necessary to reflect Tenant's requirements for the installation
of any supplemental air conditioning system and ductwork, heating, electrical,
plumbing and other mechanical systems and all work necessary to connect any
special or non-standard facilities to the Building's base mechanical, electrical
and structural systems. Tenant's submission shall include not less than one (1)
set of sepias and five (5) sets of black and white prints. Tenant's Construction
Plans shall include, but not be limited to, indication or identification of the
following:
<PAGE>
V.1.1 locations and structural design of all floor area
requiring live load capacities in excess of 75 pounds per square foot;
V.1.2 the density of occupancy in large work areas;
V.1.3 the location of any food service areas or vending
equipment rooms;
V.1.4 areas requiring 24-hour air conditioning;
V.1.5 any partitions that are to extend from floor to
underside of structural slab above;
V.1.6 location of rooms for telephone equipment;
V.1.7 locations and types of plumbing, if any, required
for toilets (other than core facilities), sinks, drinking fountains, etc.;
V.1.8 light switching of offices, conference rooms, etc.;
V.1.9 layouts for specially installed equipment,
including computers, size and capacity of mechanical and electrical services
required and heat projection of equipment;
V.1.10 dimensioned location of: (a) electrical receptacles
(120 volts), including receptacles for wall clocks, and telephone outlets and
their respective locations (wall or floor), (b) electrical receptacles for use
in the operation of Tenant's business equipment which requires 208 volts or
separate electrical circuits, (c) electronic calculating and CRT systems, etc.,
(d) special audio-visual requirements, and (e) other special electrical
requirements;
V.1.11 special fire protection equipment and raised
flooring;
V.1.12 reflected ceiling plan;
V.1.13 information concerning air conditioning loads,
including, but not limited to, air volume amounts at all supply vents;
V.1.14 materials, colors and designs of wall coverings and
finishes;
V.1.15 painting and decorative treatment required to
complete all construction;
V.1.16 swing of each door, and schedule for doors (including
dimensions for undercutting to clean carpeting) and frames and hardware;
V.1.17 modifications of the front door and surrounding area,
if any, as may be required for handicapped use; and
V.1.18 all other information reasonably necessary to make
the work complete and in all respects ready for operation.
Section V.2 PLANS REVIEW.
Landlord or Landlord's consultant shall respond to Tenant's request for
approval of Tenant's Construction Plans within ten (10) business days of their
submission, prepared in
<PAGE>
accordance with the terms of this Lease. In the event Landlord or Landlord's
Consultant shall disapprove of all or a portion of Tenant's Construction Plans,
it shall set forth its reasons therefor in reasonable detail, in which event
Tenant shall revise its Construction Plans and resubmit same to Landlord within
five (5) business days thereafter, time being of the essence. Upon Landlord's
written final approval (notice of such approval, or of disapproval, shall be
given by Landlord within five (5) business days of receipt of the Construction
Plans), Tenant may proceed with Tenant's Initial Improvements, which shall be
performed in accordance with the provisions of this Article V. Change orders by
Tenant shall be similarly subject to Landlord's review and approval or
disapproval, and notice of either shall be given Tenant within five (5) business
days of Landlord's receipt of them. Neither the recommendation or designation of
an architect, any general contractor, any subcontractor or any materialman, nor
the approval of the Construction Plans by Landlord shall be deemed to create any
liability on the part of Landlord with respect to the design, functionality
and/or specifications set forth in the Final Plans.
Section V.3 PAYMENT.
Tenant shall pay for the Construction Plans, Final Plans, and all work
depicted on them. Promptly following Landlord's approval of the Final Plans,
Tenant shall execute written contracts with the architect and general
contractor, or if there is no general contractor, with each contractor,
subcontractor and materialman. Tenant agrees to pay the charges rendered by its
architect, general contractor, subcontractors and materialmen strictly in the
manner set forth in each such contract entered into between Tenant and each such
party and as provided by law.
Section V.4 TENANT DELAY.
Landlord shall not be responsible or liable for Tenant Delay. Tenant
Delay includes without limitation any of the following:
V.4.1 Tenant's failure to furnish plans, drawings, and
specifications in accordance with and at the times required pursuant to this
Article V; or
V.4.2 any delays resulting from the disapproval by
Landlord or Landlord's consultant of all or a portion of Tenant's revised plans
and specifications as resubmitted after initial submission, provided such
disapproval is reasonable; or
V.4.3 Tenant's changes in drawings, plans, specifications,
or construction submitted to Landlord including at any time subsequent to
Landlord's approval of the Final Plans, including any Revisions which Tenant
submits to Landlord; or
V.4.4 the performance of work by a person, firm or
corporation employed by Tenant and delays in the completion of the said work by
said person, firm or corporation.
Section V.5 TENANT'S OBLIGATION FOR COST OF TENANT DELAYS.
Tenant shall pay for any additional cost in completing Tenant's Initial
Improvements resulting from any Tenant Delay. Any such sums shall be in addition
to any sums payable pursuant to Section V.3 and shall be paid by Tenant within
ten (10) days after Tenant's architect, general contractor,
<PAGE>
subcontractors or materialmen submits an invoice to Tenant therefor. If such
costs, or any of the costs of Tenant' Improvements to be paid by Tenant under
this Article V are not paid by Tenant when due, Landlord shall have the right,
but not the obligation, to pay part or all of such costs, and in that event,
such costs shall be collectible from Tenant in the same manner as Additional
Rent whether or not the Term shall have commenced, and if Tenant defaults in the
payment of such cost, such default shall be deemed a default under Article IX of
this Lease and Landlord shall have all of the remedies therefor set forth in
this Lease.
Section V.6 LANDLORD'S DELAY. Landlord shall be responsible for
all additional costs associated with or resulting from Landlord's failure to
comply with the terms of Section V.2 herein except for de minimus failures
aggregating less than $1,000.00. Tenant shall bill Landlord for such costs
within fifteen (15) days of receipt of the same and Landlord shall promptly
remit payment to Tenant therefor.
Section V.7 REVISIONS. Tenant shall have the right to make
revisions to the Final Plans ("Revisions"). All Revisions shall be subject to
Landlord's prior written approval, which shall not be unreasonably withheld,
delayed or conditioned provided the Revisions are non-structural in nature.
Landlord shall either approve or disapprove the Revisions within five (5)
business days after submission thereof by Tenant. Without limiting the
generality of the foregoing, no Revision will be approved unless (a) all changes
to and modifications from Tenant's Final Plans are circled or highlighted as per
standard industry practices and (b) said Revisions conform with the requirements
of Article V.
Section V.8 COMPLETION DUE DILIGENCE.
Tenant shall, subject to Tenant Delays and any other cause beyond
Tenant's reasonable control, use due diligence to complete Tenant's Initial
Improvements as soon as may be practicable. Tenant shall notify Landlord of the
date of the substantial completion of Tenant's' Initial Improvements
("Substantial Completion Date") at least five (5) days prior thereto. The phrase
"substantial completion" shall mean that Tenant's Initial Improvements shall
have been completed in accordance with the Final Plans and all mechanical and
electrical systems serving or affecting the Premises shall then be in working
order and Tenant shall have delivered to Landlord a copy of the applicable
Certificate of Occupancy or Completion, as the case may be issued by the local
governmental authority. Tenant shall have no right to enter the Premises for the
purposes of conducting its business therefrom until Tenant has complied with the
above requirements.
ARTICLE VI
ADDITIONS, ALTERATIONS, REPLACEMENTS, AND TRADE FIXTURES
Section VI.1 BY LANDLORD
Landlord reserves the right at any time to make reasonable alterations
or additions to the Building in which the Premises are contained and to build
additional stories thereon, provided Landlord uses commercially reasonable
efforts to mitigate any interruption of or interference with Tenant's business
or possession of the Premises. Landlord also reserves the right to construct
other buildings or improvements in the Building or Common Areas from time to
time and to make alterations thereof or additions thereto and to
<PAGE>
build additional office space on any such building or buildings so constructed.
Section VI.2 BY TENANT
VI.2.1 Tenant may from time to time, at its own expense, alter,
renovate or improve the non-structural interior of the Premises provided (i) the
same be performed in a good and workmanlike manner, in accordance with accepted
building practices, (ii) completed so as not to weaken or impair the strength or
lessen the value of the Building in which the Premises are located and (iii) do
not have an aggregate cost in excess of $10,000.00. No changes, alterations or
improvements affecting the structure or the exterior of the Premises or the
Building or the Building systems shall be made by Tenant without the prior
written approval of Landlord, which may be unreasonably withheld. Any work done
by Tenant under the provisions of this Section shall not interfere with the use
by the other tenants of their premises in the Building. Tenant also agrees to
pay 100% of any increase in the Real Estate Taxes or Landlord's Personal
Property Taxes resulting from such improvements by or for Tenant. With respect
to all other alterations, renovations or improvements which Tenant may propose
making in or to the Premises, Tenant shall be required to obtain Landlord's
prior written consent in the manner set forth in Article V hereof. All
alterations, renovations and improvements made by Tenant hereunder must be made
in accordance with all applicable zoning and Building Code laws, rules and
regulations, Tenant must procure permits prior to any such work, and no such
work may be deemed properly completed by Tenant until the applicable zoning and
Building Code authorities shall deliver to Tenant a Certificate of Completion or
Occupancy or a Final Inspection Report permitting the occupancy and use of the
Premises by Tenant (and a copy thereof shall have been delivered by Tenant to
Landlord within two business days of receipt thereof by Tenant.
VI.2.2 All alterations, decorations, additions and
improvements made by Tenant, or made by Landlord on Tenant's behalf as provided
in this Lease, shall remain the property of Tenant for the Lease Term or any
extension or renewal thereof, but they shall not be removed from the Premises
without the prior written consent of Landlord, which shall not be unreasonably
withheld.
VI.2.3 Upon obtaining the prior written consent of Landlord,
Tenant shall remove such alterations, decorations, additions and improvements
and restore the Premises as provided in Section VI.5, and if Tenant fails to do
so and moves from the Premises, all such alterations, decorations, additions and
improvements shall become the property of Landlord, who may charge Tenant for
storing or disposing of any or all of such property.
Section VI.3 CONSTRUCTION INSURANCE AND INDEMNITY
VI.3.1 Tenant shall indemnify and hold Landlord harmless
from any and all claims for loss or damages or otherwise based upon or in any
manner growing out of any alterations or construction undertaken by Tenant under
the Lease Term, including all reasonable costs, damages, expenses, court costs
and attorneys' fees incurred in or resulting from claims made by any person or
persons, by other tenants of premises in the Building, their subtenants, agents,
employees, customers and invitees.
VI.3.2 Before undertaking any alterations or construction,
Tenant shall obtain and pay for a commercial
<PAGE>
general liability policy (including Builder's Risk insurance coverage) insuring
Tenant against any liability which may arise on account of such proposed
alterations and construction work in limits of not less than $1,000,000.00 for
any one person, $3,000,000.00 for more than one person in any one accident and
$1,000,000.00 for property damage; and a certificate from the insurer of such
insurance on Form ACCORD 27 shall be delivered to Landlord prior to the
commencement of such proposed work, acknowledging all of the conditions of such
insurance required hereunder and which shall contain a clause requiring the
insurer to give Landlord thirty (30) days' notice of cancellation or change of
such policies.. Tenant shall also maintain at all times fire insurance with
extended coverage in the name of Tenant in an amount adequate to cover the cost
of replacement of all alterations, decorations, additions or improvements in and
to the Premises and all trade fixtures therein, in the event of fire or extended
coverage loss. Landlord shall be an Additional Insured under all such insurance
policies and all such insurance policies shall be written on an occurrence
basis. All such insurance companies shall be rated at least A Plus VII by Best's
Insurance Reports, and shall be licensed in the State of Florida. Tenant shall
deliver to Landlord a certificate from the insurer of such insurance on Form
ACCORD 27 in the form referred to above.
Section VI.4 MECHANIC'S LIENS AND ADDITIONAL CONSTRUCTION
VI.4.1 If by reason of any alteration, repair, labor
performed or materials furnished to the Premises for or on behalf of Tenant any
mechanic's or other lien shall be filed, claimed, perfected or otherwise
established or as provided by law against the Premises, Tenant shall discharge
or remove the lien by bonding or otherwise, within thirty (30) days after Tenant
receives notice of the filing of same. Notwithstanding any provision of this
Lease seemingly to the contrary, Tenant shall never, under any circumstances,
have the power to subject the interest of Landlord in the Premises or the
Building to any mechanics' or materialmen's' liens or liens of any kind, nor
shall any provision contained in this Lease ever be construed as empowering
Tenant to encumber or cause Landlord to encumber the title or interest of
Landlord in the Premises.
VI.4.2 Tenant hereby expressly acknowledges and agrees that,
except as indicated under Article V, (i) no alterations, additions, repairs or
improvements to the Premises of any kind are required or contemplated to be
performed as a prerequisite to the execution of this Lease and the effectiveness
thereof according to its terms or in order to place the Premises in a condition
necessary for use of the Premises for the purposes as set forth in this Lease,
(ii) that the Premises are presently complete and usable for the purposes as set
forth in this Lease and (iii) that this Lease is in no way conditioned on Tenant
making or being able to make alterations, additions, repairs or improvements to
the Premises, unless otherwise specified in this Lease, notwithstanding the fact
that alterations, repairs, additions or improvements may be made by Tenant, for
Tenant's convenience or for Tenant's purposes, subject to Landlord's prior
written consent where required hereunder, at Tenant's sole cost and expense.
VI.4.3 Landlord and Tenant expressly acknowledge and agree
that neither Tenant nor any one claiming by, through or under Tenant, including
without limitation contractors, sub-contractors, materialmen, mechanics and
laborers, shall have any right to file or place any mechanics' or
<PAGE>
materialmen's' liens of any kind whatsoever upon the Premises nor upon any
building or improvement thereon; on the contrary, any such liens are
specifically prohibited. All parties with whom Tenant may deal are hereby put on
notice that Tenant has no power to subject Landlord's interest in the Premises
to any claim or lien of any kind or character and any persons dealing with
Tenant must look solely to the credit of Tenant for payment and not to
Landlord's interest in the Premises or otherwise. All Contracts of Tenant for
the construction of any alteration, addition or improvement including, but not
limited to, the contracts of subcontractors and materialmen, shall contain the
agreement of the contractor, subcontractor or materialman agreeing to look
solely to the Tenant and Tenant's interest in the property for payment and
waiving any right to a lien on Landlord's interest in the Building or the
Premises. Such contracts shall also contain a provision waiving any lien against
Landlord's interest in the Building or the Premises for extras or change orders.
Such contracts shall also require the contractor, subcontractor and materialman
to provide in recordable form, a waiver and release of lien upon final payment
at the completion of construction and a waiver and release of lien upon progress
payment during the construction thereof. If, notwithstanding the requirements of
this Paragraph, any mechanic's lien by any such contractor, subcontractor or
materialman for Tenant is filed during or after the construction, Tenant shall
within fifteen (15) days after notice thereof pay such lien in full or transfer
it to a bond acceptable to Landlord. Landlord shall be advised, in writing, at
least ten (10) days prior to the date that work by or for Tenant is to commence
or the date of anticipated commencement in order to allow Landlord to post
notices of non-responsibility on the Premises. Tenant agrees to allow such
notices to remain posted in the Premises throughout the construction period and
to notify Landlord if such notices are damaged or removed.
VI.4.4 The construction work shall be scheduled in such a manner so
as to create the minimum disturbance to other tenants. Any construction causing
or resulting in unreasonable noise, dust or other unreasonable disturbance of
tenants shall be scheduled and performed during the hours of 7:00 p.m. and 7:00
a.m. No building or other materials, construction, tools and equipment shall be
stored in the Common Areas. All trash and construction debris shall be promptly
removed and deposited lawfully off the property, or, if a dumpster has been
approved for the deposit of trash and construction debris,, then said trash and
construction debris shall be deposited into the approved dumpster. No dumpster
shall be brought on the Property unless the size and location thereof has been
approved by Landlord in writing.
Section VI.5 TRADE FIXTURES
VI.5.1 All trade fixtures and equipment installed by Tenant
in the Premises shall remain the property of Tenant.
VI.5.2 Provided Tenant is not in default under this Lease,
Tenant shall have the right, at the expiration or earlier termination of this
Lease, to remove any and all trade fixtures, equipment and other items of
personal property not constituting a part of the Building which it may have
stored or installed in the Premises including, but not limited to, counters,
shelving, showcases, chairs, and movable machinery purchased or provided by
Tenant and which are susceptible of being moved without damage to the Building
and the Premises, provided this right is exercised before the Lease is
terminated and provided that Tenant, at its own cost and expense, shall repair
any damage to the Premises or Building caused thereby. The right granted Tenant
in this Section VI.5
<PAGE>
shall not include the right to remove any plumbing or electrical fixtures or
equipment, heating or air conditioning equipment, floor coverings (including
wall-to-wall carpeting) glued or fastened to the floors or any paneling, tile or
other materials fastened or attached to the walls or ceilings, all of which
shall be deemed to constitute a part of the Building, and, as a matter of
course, shall not include the right to remove any fixtures or machinery that
were furnished or paid for by Landlord. The Premises and the immediate areas in
front, behind and adjacent to it shall be left in a broom-clean condition.
Should Tenant fail to comply with this provision, Landlord may deduct the
reasonable cost of clean-up from Tenant's Security Deposit. If Tenant shall fail
to remove its trade fixtures or other property at the termination of this Lease,
or upon cessation of Tenant's business in the Premises or upon termination of
Tenant's rights to possession of the Premises, such fixtures and other property
not removed by Tenant shall be deemed abandoned by Tenant, and, at the option of
Landlord, shall become the property of Landlord; Landlord may store, sell, or
otherwise dispose of such property at Landlord's sole discretion but at Tenant's
expense. Any such removal shall be performed in a good and workmanlike manner,
in accordance with accepted building practices, in full compliance with all
applicable building codes and the ADA, with Tenant procuring at its sole cost
and expense all permits required for such work.
VI.5.3 All of the foregoing Section VI.5 is subject to
Section VI.3.1 of this Lease.
Section VI.6 RIGHT OF ENTRY
Landlord or its representatives shall have the right, without
liability, to enter the Premises at reasonable hours and upon reasonable notice
to Tenant during the Lease Term to (a) show the Premises to prospective
purchasers, lenders and, within the last year of the Term or at any time if the
Tenant is in default beyond any applicable notice or cure provision, if any,
tenants, or (b) ascertain if the Premises are in proper repair and condition,
and make repairs, additions or alterations thereto or to the Building in which
the same are located, including the right to take the required materials
therefore into and upon the Premises without the same constituting an eviction
of Tenant in whole or part, and the Rent shall not abate while such repairs,
alterations, replacements or improvements are being made by reason of loss or
interruption of Tenant's business due to the performance of any such work,
provided (i) Landlord makes all reasonable efforts not to disturb or interfere
with Tenant's business, (ii) such loss or interruption is not the result of
Landlord's gross negligence or willful misconduct, and (iii) such loss or
interruption does not continue for more then ten (10) consecutive Business Days,
subject to Force Majeure or Acts of God or Events Beyond Landlord's Reasonable
Control. If Tenant shall not be personally present to permit an entry into the
Premises when for any reason an entry therein shall be permissible, Landlord may
enter the Premises by a master key without rendering Landlord liable therefore
and without in any manner affecting Tenant's obligations under this Lease.
ARTICLE VII
INSURANCE AND INDEMNITY
Section VII.1 TENANT'S INSURANCE
Tenant shall maintain, at its own cost and expense, in
<PAGE>
responsible companies approved by Landlord, combined single limit commercial
general liability insurance, insuring Tenant, against all claims, demands or
actions for bodily injury, personal injury or death of any one person in an
amount of not less than $1,000,000.00; and for bodily injury, personal injury or
death of more than one person in any one accident in an amount of not less than
$3,000,000.00; and for damage to property in an amount of not less than
$1,000,000.00. Landlord shall have the right to direct Tenant to increase such
amounts whenever it reasonably considers them inadequate. Such liability
insurance shall also cover and include all exterior signs maintained by Tenant.
The policy of insurance may be in the form of a general coverage or floater
policy covering these and other premises, provided that Landlord is specifically
insured therein. Tenant shall carry like coverage against loss or damage by
boiler or compressor or internal explosion of boilers or compressors, if there
is a boiler or compressor in the Premises. Tenant shall maintain fire insurance
against loss or damage by fire or windstorms, with such endorsements for
extended coverage, vandalism, malicious mischief and special extended coverage
as Landlord may require, covering 100% of the replacement costs of any items of
value, including but not limited to signs, stock, inventory, fixtures,
improvements, floor coverings and equipment. All of said insurance shall be in
form and in responsible companies (rated at least A Plus VII by Best's Insurance
Reports) licensed in the State of Florida satisfactory to Landlord, and shall
provide that it will not be subject to cancellation, termination or change
except after at least thirty (30) days' prior written notice to Landlord. Any
insurance procured by Tenant as herein required shall contain an express waiver
of any right of subrogation by the insurance company against Landlord. Landlord
shall be an additional insured on all insurance policies required hereunder. A
certificate from the insurer on Form ACCORD 27 acknowledging the insurance
company's compliance with all conditions for the benefit of Landlord hereunder,
, together with satisfactory evidence of the payment of the premiums thereon,
shall be deposited with Landlord on the day Tenant begins operations.
Thereafter, Tenant shall provide Landlord with a certificate from the insurer on
Form ACCORD 27 and evidence of proof of payment upon renewal of such policy, not
less than thirty (30) days prior to expiration of the term of such coverage. In
the event Tenant fails to timely obtain or maintain the insurance required
hereunder, Landlord may obtain same and any reasonable costs incurred by
Landlord in connection therewith shall be payable by Tenant upon demand.
Landlord shall carry commercial general liability insurance (in amounts similar
to those required of Tenant hereinabove) covering the common areas of the
Building, including but not limited to the sidewalks, malls and parking lot.
Section VII.2 EXTRA HAZARD INSURANCE PREMIUMS
Tenant shall not keep, use, sell or offer for sale in or upon the
Premises any article or permit any activity which may be prohibited by the
standard form of fire or public liability insurance policy. Tenant shall not
knowingly use or occupy the Premises or any part thereof, or suffer or permit
the same to be used or occupied for any business or purpose deemed extra
hazardous on account of fire or otherwise. In the event Tenant's use and/or
occupancy causes any increase of any insurance premium above the rate for the
least hazardous type of occupancy legally permitted in the Premises, Tenant
shall pay such additional premium on any policy, including but not limited to
fire, extended coverage, public liability or any insurance that may be carried
by Landlord for its protection against rent loss through fire. Bills for such
additional premiums shall be rendered by Landlord to Tenant at such times
<PAGE>
as Landlord may elect, and shall be due from and payable by Tenant when rendered
in writing, but such increases in the rate of insurance shall not be deemed a
breach of this covenant by Tenant. Failure to pay amounts due hereunder shall be
a breach of the Lease. In determining whether increased premiums are the result
of Tenant's use of the Premises, a schedule, issued by the organization making
the insurance rate on the Premises, showing various components of such rate,
shall be conclusive evidence of the several items and charges which make up the
fire and public liability insurance rate on the Premises.
Section VII.3 INDEMNITY
A. Tenant shall indemnify and save harmless Landlord from and against
any and all claims and demands whether for injuries to persons or loss of life,
or damage to property, occurring within the Premises and immediately adjoining
the Premises and arising out of the use and occupancy of the Premises or
Building by Tenant, or occasioned wholly or in part by any act or omission of
Tenant, its subtenants, agents, contractors, employees, servants, licensees or
concessionaires, excepting however such claims and demands, whether for injuries
to persons or loss of life, or damage to property, caused solely by the gross
negligence or willful malfeasance of Landlord. If, however, any liability arises
in the Common Areas because of the negligence of Tenant, Tenant's subtenants,
agents, employees, contractors, invitees, customers or visitors, then in such
event Tenant shall hold Landlord harmless. In case Landlord shall, without fault
on its part, be made a party to any litigation commenced by or against Tenant,
then Tenant shall protect and hold Landlord harmless and shall pay all
reasonable costs, expenses and reasonable attorneys' fees incurred or paid by
Landlord in connection with such litigation. Tenant shall also pay all
reasonable costs, expenses and reasonable attorneys' fees that may be incurred
or paid by Landlord in enforcing the covenants and agreements of this Lease.
B. Landlord shall indemnify and save harmless Tenant from and against
any and all claims and demands whether for injuries to persons or loss of life,
or damage to property, occurring within the Common Areas of the Building
occasioned wholly or in part by any act or omission of Landlord, its agents,
contractors, employees, or servants, excepting however such claims and demands,
whether for injuries to persons or loss of life, or damage to property, caused
solely by the gross negligence or willful malfeasance of Tenant. If, however,
any liability arises in the Common Areas because of the negligence of Landlord,
Landlord's agents, employees, or contractors, then in such event Landlord shall
hold Tenant harmless. In case Tenant shall, without fault on its part, be made a
party to any litigation commenced by or against Landlord, then Landlord shall
protect and hold Tenant harmless and shall pay all reasonable costs, expenses
and reasonable attorneys' fees incurred or paid by Tenant in connection with
such litigation.
ARTICLE VIII
DAMAGE, DESTRUCTION AND CONDEMNATION
Section VIII.1 DAMAGE OR DESTRUCTION BY FIRE OR OTHER CASUALTY.
VIII.1.1 In the event the Premises are damaged by fire,
explosion, flood, tornado or by the elements, or through any casualty, or
otherwise, after the commencement of the Lease Term, the Lease shall continue in
full force and effect.
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If the extent of the damage is less than fifty percent (50%) of the cost of
replacement of the Premises, the damage shall promptly be repaired by Landlord
at Landlord's expense, provided that Landlord shall not be obligated to so
repair if such fire, explosion or other casualty is caused directly by the gross
negligence or willful malfeasance of Tenant, its subtenants, permitted
concessionaires, or its agents, servants or employees, and provided further that
Landlord shall not be obligated to expend for such repair an amount in excess of
the insurance proceeds recovered as a result of such damage, and that in no
event shall Landlord be required to replace Tenant's stock in trade, fixtures,
furniture, furnishings, floor coverings and equipment. In the event of any such
damage and (a) Landlord is not required to repair as hereinabove provided, or
(b) the Premises shall be damaged to the extent of fifty percent (50%) or more
of the cost of replacement, or (c) the Building of which the Premises are a part
is damaged to the extent of twenty-five percent (25%) or more of the cost of
replacement, Landlord may elect either to repair or rebuild the Premises, or the
Building, or to terminate this Lease upon giving notice of such election to
Tenant within sixty (60) days (except in the case of a major area wide
catastrophic event in which case such choice shall be made in ninety (90) days)
after the occurrence of the event causing the damage. In the event Landlord
determines that such repairs can not reasonably be completed within 120 days of
the date of destruction or damage, Tenant shall have the right to terminate this
Lease by giving written notice to Landlord within ten (10 days of Tenant's
receipt of such determination.
VIII.1.2 If the casualty, repairing, or rebuilding shall
render the Premises untenantable, in whole or in part, and the damage shall not
have been due to the default or willful misconduct of Tenant, a proportionate
abatement of the Fixed Minimum Rent shall be allowed from the date when the
damage occurred until the date Landlord completes the repairing or rebuilding,
said proportion to be computed on the basis of the relation which the gross
square foot area of the space rendered untenantable bears to the floor area of
the Premises. If Landlord is required or elects to repair the Premises as herein
provided, Tenant shall repair or replace its stock in trade, fixtures,
furniture, furnishings, floor coverings and equipment, and if Tenant has closed
for business, Tenant shall promptly reopen for business upon the completion of
such repairs.
VIII.1.3 In the event the Premises or the Building shall be
damaged in whole or in substantial part within the last twenty-four (24) months
of the original term, or within the last twenty-four (24) months of the last
renewal term, if renewals are provided for in this Lease, Tenant and Landlord
shall have the option, exercisable within Ninety (90) days following such
damage, of terminating this Lease, effective as of the date of the other party's
receipt of notice. If any such termination occurs during the initial Lease Term,
any options for renewal shall automatically be of no further force or effect.
VIII.1.4 No damage or destruction of the Premises or the
Building shall allow Tenant to surrender possession of the Premises nor affect
Tenant's liability for the payment of Rent or any other covenant contained
herein, except as may be specifically provided in this Lease. Notwithstanding
any of the provisions herein to the contrary, Landlord shall have no obligation
to rebuild the Premises or the Building and may at its own option cancel this
Lease unless the damage or destruction is a result of a casualty covered by
Landlord's insurance policy.
<PAGE>
Section VIII.2 CONDEMNATION.
In the event the entire Premises shall be appropriated or taken under
the power of eminent domain by any public or quasi-public authority, this Lease
shall terminate and expire as of the date of title vesting in such proceeding,
and Landlord and Tenant shall thereupon be released from any further liability
hereunder. If any part of the Premises shall be taken as aforesaid, and such
partial taking shall render that portion not so taken unsuitable for the
business of Tenant, as reasonably determined by Landlord, then this Lease and
the Lease Term herein shall cease and terminate as aforesaid. If such partial
taking is not extensive enough to render the Premises unsuitable for the
business of Tenant, then this Lease shall continue in effect, except that the
Fixed Minimum Rent shall be reduced in the same proportion that the floor area
of the Premises taken bears to the original floor area leased and Landlord
shall, upon receipt of the award in condemnation, make all necessary repairs or
alterations to the Building in which the Premises are located so as to
constitute the portion of the Building not taken as a complete architectural
unit, but such work shall not exceed the scope of the work to be done by
Landlord in originally constructing said Building, nor shall Landlord, in any
event, be required to spend for such work an amount in excess of the amount
received by Landlord as damages for the part of the Premises so taken. "Amount
received by Landlord" shall mean that part of the award in condemnation which is
free and clear to Landlord of any collection by mortgagee for the value of the
diminished fee. If more than twenty percent (20%) of the floor area of the
Building in which the Premises are located shall be taken as aforesaid, either
party may, by written notice to the other party , terminate this Lease, such
termination to be effective as aforesaid. If this Lease is terminated as
provided in this paragraph, the Rent shall be paid up to the date that
possession is so taken by public authority and Landlord shall make an equitable
refund of any Rent paid by Tenant in advance. Tenant shall not be entitled to
and expressly waives all claim to any condemnation award for any taking, whether
whole or partial, and whether for diminution in value of the leasehold or to the
fee although Tenant shall have the right, to the extent that the same shall not
reduce Landlord's award, to claim from the condemnor, but not from Landlord,
such compensation as may be recoverable by Tenant in its own right for damage to
Tenant's business, fixtures and improvements installed by Tenant at its expense.
ARTICLE IX
DEFAULT, REMEDIES
Section IX.1 DEFAULT.
The occurrence of any of the following during the Term shall constitute
an Event of Default by Tenant:
IX.1.1 Tenant shall fail to pay when due all or any portion
of any Rent;
IX.1.2 Tenant shall fail to pay when due any other sums,
fees, charges, costs, or expenses which are payable under this Lease;
IX.1.3 Tenant shall, other than in the manner permitted
under this Lease, make or permit or suffer to occur any assignment (including
any transfer of interest in Tenant which is deemed to be an assignment under
this Lease), sublease or occupancy arrangement, conveyance, transfer,
<PAGE>
conditional or collateral assignment, pledge, hypothecation, or other
encumbrance, whether by operation of law or otherwise, of this Lease or any
interest in this Lease;
IX.1.4 Tenant shall fail in any other way in the performance
or observance of any of the terms and conditions of this Lease and within thirty
(30 ) days of receipt of Notice of such Event of Default shall not have cured
such default or, if impossible of cure within such time but possible of cure
within sixty (60) days, begun and diligently pursued such cure to completion;
IX.1.5 There shall be filed by or against Tenant or any
guarantor of this Lease in any court or other tribunal a petition in bankruptcy
or insolvency proceedings or for reorganization or for the appointment of a
receiver or trustee of all or substantially all of Tenant's or any such
guarantor's property, unless such petition shall be filed against Tenant or any
guarantor of this Lease and Tenant or any guarantor of this Lease shall in good
faith promptly thereafter commence and diligently prosecute any and all
proceedings appropriate to secure the dismissal of such petition and shall
secure such dismissal within sixty ( 60) days of its filing;
IX.1.6 Tenant or any guarantor of this Lease shall be
adjudicated a bankrupt or an insolvent or take the benefit of any federal
reorganization or composition proceeding, make an assignment for the benefit of
creditors, or take the benefit of an insolvency law;
IX.1.7 A trustee in bankruptcy or a receiver shall be
appointed or elected or had for Tenant or any guarantor of this Lease, whether
under federal or state laws;
IX.1.8 Tenant's interest under this Lease shall be sold under
any execution or process of law;
IX.1.9 The Premises shall be abandoned; or
IX.1.10 Tenant shall fail to maintain current, duly issued
occupational licenses, or any other permit or license required by an applicable
Legal Authority for its operations at the Premises, or Tenant shall fail to meet
the insurance requirements of this Lease and provide certificates of insurance
(and binders and policies, if required) evidencing such compliance.
Section IX.2 REMEDIES.
In the event of the occurrence of an Event of Default by Tenant,
Landlord, at Landlord's option, may elect to do one or more of the following, in
addition to Landlord's remedies at law or equity:
IX.2.1 terminate this Lease as provided by this section and
re-enter the Premises and remove all persons and property from the Premises,
either by summary proceedings or by any other suitable action or proceeding at
law, or otherwise; or
IX.2.2 without terminating this Lease, re-enter the Premises
and remove all persons and property from the Premises, either by summary
proceedings or by any other suitable action or proceeding at law, or otherwise,
and relet all or any part of the Premises.
<PAGE>
Section IX.3 TERMINATION.
If Landlord elects to terminate this Lease:
IX.3.1 Landlord shall give notice of such termination, which
shall take effect five (5) Business days after such notice is given, or such
greater number of days as is set forth in such notice, fully and completely as
if the effective date of such termination were the date originally set forth in
this Lease for the expiration of the Lease Term;
IX.3.2 Tenant shall quit and peacefully surrender the
Premises to Landlord, without any payment by Landlord for doing so, on or before
the effective date of termination; and
IX.3.3 All Rent shall become due and shall be paid up to the
effective date of termination, together with such expenses, including attorneys'
fees, as Landlord shall incur in connection with such termination.
Section IX.4 NO REINSTATEMENT AFTER TERMINATION.
No receipts of monies by Landlord from Tenant after termination of this
Lease shall reinstate, continue, or extend the Term, affect any Notice
previously given by Landlord to Tenant, or operate as a waiver of the right of
Landlord to enforce the payment of Rent.
Section IX.5 RETENTION OF SUMS AFTER TERMINATION.
If Landlord shall terminate this Lease, Landlord shall be entitled to
retain, free of trust, all sums then held by Landlord pursuant to any of the
provisions of this Lease. In the interim following such termination until the
retention of such sums by Landlord free of trust, such sums shall be available
to Landlord, but not to Tenant, pursuant to and for the purposes provided by the
terms and conditions of this Lease.
Section IX.6 RE-ENTRY.
In the event of any re-entry and/or dispossession by summary
proceedings or otherwise without termination of this Lease:
IX.6.1 all Rent shall become due and shall be paid up to the
time of such re-entry and/or dispossession, together with such expenses,
including attorneys' fees, as Landlord shall incur in connection with such
re-entry and/or dispossession by summary proceedings or otherwise; and
IX.6.2 Landlord may relet all or any part of the Premises,
either in the name of Landlord or otherwise, for a term or terms which may, at
Landlord's option, be equal to, less than, or greater than the period which
would otherwise have constituted the balance of the Term.
IX.6.3 In connection with such reletting:
IX.6.1.1 Tenant shall pay, as Additional Rent, to
Landlord, as they are incurred by Landlord, such reasonable expenses as Landlord
may incur in connection with reletting, including, without limitation, legal
expenses, attorneys' fees, brokerage commissions, and expenses incurred in
altering, repairing, and putting the Premises in good order and condition and in
preparing the Premises for reletting;
IX.6.1.2 Tenant shall pay to Landlord, in
<PAGE>
monthly installments on the due dates for Rent payments for each month of the
balance of the Term, the amount by which any Rent payment exceeds the net
amount, if any, of the rents for such period collected on account of the
reletting of the Premises; any suit brought to collect such amount for any month
or months shall not prejudice in any way the rights of Landlord to collect the
deficiency for any subsequent month or months by a similar action or proceeding;
IX.6.1.3 at Landlord's option exercised at any time,
Landlord shall be entitled to recover immediately from Tenant, in addition to
any other proper claims, but in lieu of and not in addition to any amount which
would thereafter become payable under the preceding subsection, a sum equal to
the amount by which the sum of the Rent for the balance of the Lease Term,
compound discounted at a reasonable rate selected by Landlord to its
then-present worth, exceeds the net rental value of the Premises, compound
discounted at the same annual rate to its then-present worth, for the balance of
the Lease Term. In determining such net rental value of the Premises, the rent
realized by any reletting of the Premises, if such reletting is upon terms
(other than rental amounts) generally comparable to the terms of this Lease,
shall be deemed to be such net rental value; and
IX.6.1.4 at Landlord's option, Landlord may make such
reasonable alterations and/or decorations in or upon the Premises as Landlord,
in Landlord's sole judgment, considers advisable and necessary for the purpose
of reletting the Premises; the making of such alterations and/or decorations
shall not operate or be construed to release Tenant from liability under this
Section; the cost of all such reasonable alterations and/or decorations shall be
paid by Tenant to Landlord as Additional Rent.
Section IX.7 SUMS COLLECTED UPON RELETTING.
Landlord shall have, receive, and enjoy as Landlord's sole and absolute
property, any and all sums collected by Landlord as rent or otherwise upon
reletting the Premises after Landlord shall resume possession of the Premises as
provided by this Lease, including, without limitation, any amounts by which the
sum or sums so collected shall exceed the continuing liability of Tenant under
this Lease.
Section IX.8 NO EFFECT ON SUIT.
Landlord and Tenant agree that after the commencement of suit for
possession of the Premises or after final order or judgment for the possession
of the Premises, Landlord may demand, receive, and collect any monies due or
coming due without in any manner affecting such suit, order, or judgment. All
such monies collected shall be deemed to be payments on account of the use and
occupation of the Premises, or, at the election of Landlord, on account of
Tenant's liability under this Lease.
Section IX.9 WAIVER OF RIGHTS OF REDEMPTION.
Tenant waives all rights of redemption which may otherwise be provided
by any Legal Requirement in the event that Landlord shall, because of the
occurrence of an Event of Default by Tenant, obtain possession of the Premises
under legal proceedings, or pursuant to present or future law or to the terms
and conditions of this Lease.
Section IX.10 INTENTIONALLY DELETED.
Section IX.11 OTHER PARTY'S RIGHT TO CURE DEFAULTS.
<PAGE>
Section IX.11.1 Whenever and as often as Tenant shall fail or neglect
to comply with the terms and conditions of this Lease, Landlord, at Landlord's
option and upon ten (10) days' Notice to Tenant (or upon shorter Notice, or with
no Notice at all, if reasonable to meet an emergency or a time limitation
imposed by Legal Authorities), may, in addition to all other remedies available
to Landlord, perform, or cause to be performed, such work, labor, services,
acts, or things, and take such other steps, including, but not limited to, entry
onto the Premises, as Landlord may deem advisable, to comply with and perform
any such term or condition. Tenant shall reimburse Landlord upon demand, and
from time to time, for all costs and expenses suffered or incurred by Landlord
in so complying with or performing such term or condition. The commencement of
any work or the taking of any other steps or performance of any other act by
Landlord pursuant to this Section shall not be deemed to obligate Landlord to
complete the curing of any term or condition which is in default.
<PAGE>
Section IX.11.2 Whenever and as often as Landlord shall fail or neglect
to comply with the terms and conditions of this Lease, Tenant, at Tenant's
option and upon thirty (30) days' Notice to Landlord (or upon reasonable shorter
Notice, if reasonable to meet an emergency or a time limitation imposed by Legal
Authorities), may, in addition to all other remedies available to Tenant,
perform, or cause to be performed, such work, labor, services, acts, or things,
and take such other steps, including, but not limited to, entry onto the
remainder of the Building other than the Premises, as Tenant may reasonably deem
advisable, to comply with and perform any such term or condition provided,
however, that Tenant may not perform any work on any part of the Building
outside of the Premises nor perform any work on any Building System outside of
the Premises, or inside the Premises if the work on such System inside the
Premises is reasonably likely to affect the use of such System outside of the
Premises by the Landlord or any other tenant or licensee in the Building, or the
common areas of the Building. Landlord shall reimburse Tenant within ten (10)
business days after demand, and from time to time, for all reasonable costs and
expenses suffered or incurred by Tenant in so complying with or performing such
term or condition. The commencement of any work or the taking of any other steps
or performance of any other act by Tenant pursuant to this Section shall not be
deemed to obligate Tenant to complete the curing of any term or condition which
is in default, but all such work shall be done in accordance with the terms and
conditions of this Lease.
Section IX.12 LANDLORD'S EXPENSES.
Tenant shall reimburse Landlord upon demand for all reasonable
expenses, including attorneys' fees and costs for negotiation, trial, or
appellate work (including fees for the services of paralegals and similar
persons) incurred by Landlord in connection with (a) any litigation or dispute
between Tenant and any unrelated third party in which Landlord becomes a party
or otherwise becomes involved related to the Premises or Landlord's rights or
obligations under this Lease (except to the extent Landlord is found to be at
fault); (b) all costs of reletting the Premises in the event of Tenant's
default, including brokers' charges, and the proportionate share of the original
broker's fees, if any, for which Tenant has not paid all Rent, (c) the
enforcement or collection of any judgments, settlements or court awards, and (d)
if the leasehold interest of Tenant under this Lease shall be held by more than
one person or entity, and if litigation shall arise by reason of a dispute among
such persons or entities, then Landlord's reasonable expenses incurred if
Landlord is made a party to, or incurred otherwise in connection with, such
litigation.
ARTICLE X
SECURITY
Section X.1 SECURITY DEPOSIT
X.1.1 Tenant has deposited with Landlord the sum specified in the Basic
Term Sheet to be retained by Landlord without liability for interest, as
security for the payment of all Rent and other sums of money which shall or may
be payable for the full stated term of this Lease, and any extension or renewal
thereof, and for the faithful performance of all the terms of this Lease to be
observed and performed by Tenant.
X.1.2 The Security Deposit shall not be mortgaged, assigned,
transferred or encumbered by Tenant without the
<PAGE>
prior written consent of Landlord and any such act on the part of Tenant shall
be without force or effect and shall not be binding upon Landlord. If any of the
Rent herein reserved or any other sum payable by Tenant to Landlord shall be
overdue and unpaid or should Landlord make payments on behalf of Tenant, or if
Tenant shall fail to perform any of the terms of this Lease, then Landlord may,
at its option and without prejudice to any other remedy which Landlord may have
on account thereof, appropriate and apply said entire deposit or so much thereof
as may be necessary to compensate Landlord toward the payment of Rent or
Additional Rent or loss or damage sustained by Landlord due to breach on the
part of Tenant; and Tenant shall promptly upon demand restore said security to
the original sum deposited. If Tenant should be overdue in the payment of
monthly Rent or other sums payable to Landlord on at least two or more occasions
during a year, Landlord, at its option, may require Tenant to increase the
amount of Security Deposit now held by Landlord by an amount sufficient to cover
at least two months' Rent or greater amount to be determined at the sole
discretion of Landlord. In this event, upon receipt of the additional security
sum, Landlord and Tenant shall evidence such receipt by a letter signed and
acknowledged by both Landlord and Tenant to be incorporated as part of this
Lease amending the Basic Term Sheet, stating the "New Total Amount" so held
without liability for any interest. Within thirty (30 ) days after the
expiration of the tenancy hereby created, whether by lapse of time or otherwise,
provided Tenant shall not be in default hereunder and shall have complied with
all the terms, covenants and conditions of this Lease, including the yielding up
of immediate possession to Landlord, Landlord shall, upon being furnished with
affidavits and other satisfactory evidence by Tenant that Tenant has paid all
bills incurred by it in connection with its performance of the terms, covenants
and conditions of this Lease, return to Tenant said sum on deposit or such
portion thereof then remaining on deposit with Landlord as set forth herein. In
the event Tenant has not complied with all the obligations provided for
hereunder, Landlord may appropriate a part or all of the Security Deposit as
liquidated damages to satisfy Tenant's obligations.
Section X.2 INTENTIONALLY DELETED.
ARTICLE XI
ADDITIONAL TENANT AGREEMENTS
Section XI.1 MORTGAGE FINANCING AND SUBORDINATION
This Lease and all of Tenant's rights hereunder are and shall be subordinate to
the present and any future mortgage upon the Building, as well as to any
existing ground lease, however, Tenant shall, upon request of either Landlord,
the holder of any mortgage or Deed of Trust now or hereafter placed upon the
Landlord's interest in the Premises or future additions thereto, and to any
ground lease now or hereafter affecting the Premises, execute and deliver upon
demand, any such further instruments subordinating this Lease to the lien of any
such mortgage or mortgages, and such ground lease, provided such subordination
shall be upon the express condition that this Lease shall be recognized by the
mortgagees and ground lessors and that the rights of Tenant shall remain in full
force and effect during the Lease Term and any extension thereof,
notwithstanding any default by the mortgagors with respect to the mortgages or
any foreclosure thereof, or any default by the ground lessee, so long as Tenant
shall perform all of the covenants and conditions of this Lease. Tenant agrees
to execute all agreements required by Landlord's mortgagee or ground lessor or
any purchaser at a
<PAGE>
foreclosure or sale in lieu of foreclosure by which agreements Tenant will
attorn to the mortgagee or purchaser or successor or ground lessor.
Notwithstanding anything to the contrary contained in this Lease, Landlord shall
use its commercially reasonable efforts to obtain from its mortgagee(s) and
ground lessor(s) a Subordination, Non-Disturbance and Attornment Agreement
substantially in the form annexed hereto as Exhibit G hereto.
Section XI.2 ASSIGNMENT OR SUBLETTING
XI.2.1 All assignments of this Lease or sublease or subleases
of the Premises by Tenant or occupancy of all or part of the Premises by anyone
other than Tenant shall be subject to and in accordance with all of the
provisions of this Section.
XI.2.2 (a) Tenant, for itself, its heirs, distributees,
executors, administrators, legal representatives, successors and assigns
expressly covenants that it shall not assign, mortgage, pledge, encumber, or
otherwise transfer this Lease, nor sublet the Premises, in whole or in part, to
any other party without first having obtained the written consent of Landlord in
each instance, which shall not be unreasonably withheld. If this Lease is
assigned or if the Premises or any part thereof are sublet or occupied by
anybody other than Tenant, or if this Lease or the Premises are encumbered
without Landlord's consent, then Landlord may, after default by Tenant, collect
rent from the assignee, subtenant or occupant, but no assignment, subletting,
occupancy or collection shall be deemed a waiver by the Landlord or of the
provisions hereof, the acceptance by Landlord of the assignee, subtenant or
occupant as a tenant, or a release by Landlord of Tenant from the further
performance by Tenant of its obligations under this Lease and Tenant shall
remain fully liable therefor. The consent of Landlord to any assignment or
subletting shall not in any way be construed to relieve Tenant from obtaining
the express consent in writing of Landlord to any further assignment or
subletting. In no event shall any permitted subtenant assign or encumber its
sublease or further sublet all or any portion of its sublet space, or otherwise
suffer or permit the sublet space or any part thereof to be used or occupied by
others without Landlord prior written consent in each instance. Any assignment,
sublease, mortgage, pledge, encumbrance or transfer of this Lease in
contravention of the provisions hereof shall be null and void. Landlord may
withhold its consent under this Section XI.2 in Landlord's sole discretion,
except where otherwise stated.
(b) If Tenant shall, at any time or from time to time, during
the Lease Term, desire to assign this Lease or sublet all or part of the
Premises, Tenant shall give notice (a "Tenant's Notice") thereof to Landlord,
which Tenant's Notice shall set forth: (a) with respect to an assignment, the
date Tenant desires the assignment to be effective and any consideration Tenant
would receive under such assignment, (b) with respect to a sublet of all or a
part of the Premises (i) the dates upon which Tenant desires the sublease term
to commence and expire, the effective or commencement date of which shall not be
less than thirty (30) nor more than one hundred and twenty (120) days after the
giving of such notice, (ii) the rental rate and other material business terms
upon which Tenant would sublet such premises, and (iii) a description of the
Premises showing the portion to be sublet, (c) a statement setting forth in
reasonable detail the identity of the proposed assignee or subtenant, the nature
of its business and its proposed use of the Premises, (d) current financial
information with respect to the proposed assignee or
<PAGE>
subtenant, including, but not limited to, audited financial statements for the
last three (3) years prior to the date of Tenant's Notice , (e) a true and
complete copy of the proposed assignment or sublease and any other agreements
relating thereto, and (f) an agreement by Tenant to indemnify the Landlord
against liability resulting from any claims that may be made against Landlord by
the proposed assignee or subtenant or by any brokers or other persons claiming
any commission or similar compensation in connection with the proposed
assignment or sublease. Tenant's Notice shall be deemed an offer from Tenant to
Landlord whereby Landlord (or Landlord's designee) may, at its option, (I)
sublease such space (the "Leaseback Space") from Tenant upon the terms and
conditions set forth in Section XI.2.4 below, or terminate the Lease with
respect to only the Leaseback Space or (II) if the proposed transaction is (1)
an assignment of this Lease or (2) if the proposed sublease is for more than
seventy five percent (75%) of the Premises, terminate this Lease. Said options
may be exercised by Landlord by notice given to Tenant at any time within thirty
(30) days after Tenant's Notice has been given to Landlord, and during such
thirty (30) day period, Tenant may not assign this Lease nor sublet such space
to any person other than Landlord.
XI.2.3 If Landlord exercises its option to terminate this
Lease with respect to all or any portion of the Premises pursuant to Section
XI.2.2(b) hereof, then this Lease shall end and expire on the date that such
assignment or sublease was to be effective or commence, as the case may be, and
the Fixed Minimum Rent and Additional Rent due hereunder shall be paid and
apportioned to such date. In such event, Landlord and Tenant, upon request by
either party, shall enter into an amendment of this Lease ratifying and
confirming such total or partial termination, and setting forth appropriate
modifications, if any, to the terms and conditions hereof. Following such
termination, Landlord shall be free to and shall have no liability to Tenant if
Landlord shall lease the Premises (or any part thereof) to Tenant's prospective
assignee or subtenant or any other party.
XI.2.4 If Landlord exercises its option to sublet the
Leaseback Space, such sublease to Landlord or its designee (as subtenant) shall
be at a rental rate equal to the product of (i) the lesser of (A) the rental
rate per sq. ft. of Fixed Minimum Rent and Additional Rent then payable
hereunder, or (B) the rental rate per sq. ft. of rent and additional rent set
forth in Tenant's Notice, multiplied by (ii) the number of sq. ft. of the
Leaseback Space, and shall be for the same term as that of the proposed
subletting, and such sublease shall:
(a) be upon such terms and conditions as are
contained in Tenant's Notice, and be expressly subject to all of the
covenants, agreements, terms, provisions and conditions of this Lease,
except such as are irrelevant or inapplicable, and as expressly set
forth in this Section XI.2 to the contrary;
(b) give the subtenant the unqualified and
unrestricted right, without Tenant's permission, to assign such
sublease or any interest therein and/or to sublet the space covered by
such sublease or any part of such space and to make any and all
changes, alterations and improvements in the space covered by such
sublease;
(c) provide that any assignee or further subtenant of
Landlord or its designee, may, at Landlord's option, be permitted to
make alterations, decorations and installations in such space or any
part thereof and shall also provide in substance that any such
alterations,
<PAGE>
decorations and installations in such space therein made by any
assignee or subtenant of the Landlord or its designee may be removed in
whole or in part, by such assignee or subtenant, at its option, prior
to or upon the expiration or other termination of such sublease;
(d) provide that (i) the parties to such sublease
expressly negate any intention that any estate created under such
sublease be merged with any other estate held by either of said
parties, (ii) any assignment or sublease by Landlord or its designee
(as the subtenant) may be for any purpose or purposes that Landlord, in
Landlord uncontrolled discretion, shall deem suitable or appropriate,
(iii) Tenant shall, at Tenant's sole cost and expense, at all times
provide and permit reasonably appropriate ingress to and egress from
such space so sublet by Tenant to Landlord or its designee, (iv)
Landlord may, at Tenant's sole cost and expense, make such reasonable
alterations as may be required by Landlord to physically separate the
subleased space from the balance of the Premises and to comply with any
legal or insurance requirements relating to such separation, and (v)
that at the expiration of the term of such sublease, Tenant will accept
the space covered by such sublease in its then as is condition, subject
to the obligations of the subtenant to make such repairs thereto as may
be necessary to preserve the Premises demised by such sublease in good
order and condition.
XI.2.5 In the event that Landlord does not exercise either
option provided to it pursuant to the above, and provided that Tenant shall not
be in default of any obligation under this Lease, Landlord's consent (which must
be in writing and in form reasonably satisfactory to Landlord) to the proposed
assignment or subletting shall not be unreasonably withheld or delayed,
provided, however, that:
(a) Tenant shall have complied with the provision of
Section XI.2.2(b) hereof and Landlord has not exercised any of its
options thereunder within the time permitted therefor;
(b) In Landlord's judgment, the proposed assignee or
subtenant is engaged in a business or activity, and the Premises, or
the relevant portion thereof, will be used in a manner, (i) which is in
keeping with the than standards of the Building, and (ii) shall be only
for the Permitted Use;
(c) The proposed assignee or subtenant is a reputable
person or entity with sufficient financial worth considering the
responsibility involved and Landlord has been furnished with reasonable
evidence thereof;
(d) Neither the proposed assignee or subtenant nor
any person or entity which directly or indirectly, controls, is
controlled by, or is under common control with, the proposed assignee
or subtenant, is then an occupant of any part of the Building (unless
there is no other suitable vacant space of comparable size in the
Building), and neither the proposed assignee or subtenant has dealt
with or negotiated with Landlord or Landlord's agent within the
preceding twelve (12) months for space in the Building;
(e) The form and substance of the proposed sublease
or instrument of assignment shall be reasonably satisfactory to
Landlord and shall comply with the
<PAGE>
applicable provision of this Section XI.2, and Tenant shall deliver a
true and complete original, fully executed counterpart of such sublease
or other instrument to Landlord promptly upon the execution and
delivery thereof;
(f) Tenant and its proposed assignee or subtenant
shall execute and deliver to Landlord an agreement, in form and
substance reasonably satisfactory to Landlord, setting forth the terms
and conditions upon which Landlord shall have granted its consent to
such assignment or subletting, and the agreement of Tenant and such
assignee or subtenant, as the case may be, to be bound by the
provisions of this Section XI.2;
(g) There shall be no more than 1 subtenant of the
Premises;
(h) The amount of the aggregate rent to be paid by
the assignee or subtenant, as the case may be, shall not be less than
ninety percent (90%) of the then current market rent per rentable sq.
ft. for the Premises as determined by Landlord;
(i) Tenant shall reimburse Landlord, as Additional
Rent upon demand, for the greater of (A) the total of Landlord's
reasonable legal fees and disbursements incurred and other reasonable
costs and expenses incurred in connection with the assignment or
sublease, including the costs of making investigations as to the
acceptability of the proposed assignee or subtenant and the cost of
reviewing plans and specifications in connection therewith or (B) one
percent (1%) of the annual current Rent of this Lease. Payment of such
fee shall be submitted along with Tenant's request for Landlord's
consent.
XI.2.6 Except for any sublease by Tenant to Landlord or its
designee pursuant to Section XI.2.4, each sublease pursuant to this Section
shall be subject to all of the covenants, agreements, terms, provisions and
conditions contained in this Lease. Notwithstanding any such sublease to
Landlord or any such sublease to any other subtenant, or any acceptance of Fixed
Rent or Additional Rent by Landlord from any subtenant, Tenant will remain fully
liable for the payment of the Fixed Rent and Additional Rent due and to become
due hereunder and for the performance of all the covenants, agreements, terms,
provisions and conditions contained in this Lease on Tenant's part to be
observed and performed, and for all acts and omissions of any licensee or
subtenant or anyone claiming under or through any subtenant which shall be in
violation of any of the obligations of this Lease, and any such violation shall
be deemed to be a violation by Tenant and an Event of Default under the Lease.
If Landlord shall decline to give its consent to any proposed assignment or
sublease, or if Landlord shall exercise either of its options under Section XI.2
hereof, Tenant shall indemnify, defend and hold harmless Landlord against and
from any and all losses, liabilities, damages, costs, and expenses (including
attorney's fees and disbursements) resulting from any claims that may be made
against Landlord by the proposed assignee or subtenant arising from or in
connection with such proposed assignment or subletting, or by any brokers or
other persons (with whom Tenant or its proposed assignee or subtenant may have
dealt) claiming a commission or similar compensation in connection with the
proposed assignment or sublease.
XI.2.7 In the event that (a) Landlord fails to exercise
either of its options under Section XI.2 hereof and consents to a proposed
assignment or sublease, and (b) Tenant
<PAGE>
fails to execute and deliver the assignment or sublease to which Landlord
consented within one hundred twenty (120) days after the giving of such consent,
then, Tenant shall again comply with all of the provisions and conditions of
Section XI.2 hereof before assigning this Lease or subletting all or part of the
Premises.
XI.2.8 With respect to each and every sublease authorized by
Landlord under the provisions of this Lease, it is further agreed that:
(a) No sublease shall be for a term ending later than
one day prior to the Lease Expiration Date;
(b) No sublease shall be delivered, and no subtenant
shall take possession of the Premises or any part thereof, until an
executed counterpart of such sublease has been delivered to Landlord
and approved in writing by Landlord; and
(c) Each sublease shall be subject and subordinate to
this Lease and to the matters to which this Lease is or shall be
subordinate, and each subtenant by entering into a sublease is deemed
to have agreed that in the event of termination, re-entry or
dispossession by Landlord under this Lease, Landlord may, at its
option, take over all of the right, title and interest of Tenant, as
sublandlord, under such sublease, and such subtenant shall, at
Landlord's option, attorn to Landlord pursuant to the then executory
provisions of such sublease, except that Landlord shall not (i) be
liable for any previous act or omission of Tenant under such sublease,
(ii) be subject to any counterclaim, offset or defense, not expressly
provided in such sublease, which theretofore accrued to such subtenant
against Tenant, (iii) be bound by any previous modification of such
sublease or by any previous prepayment of more than one month's Fixed
Rent or of any Additional Rent, or (iv) be obligated to perform any
work in the subleased space or to prepare it for occupancy, and in
connection with such attornment, the subtenant shall execute and
deliver to Landlord any instruments Landlord may reasonably request to
evidence and confirm such attornment. Each subtenant or licensee of
Tenant shall be deemed, automatically upon and as a condition of its
occupying or using the Premises or any part thereof, to have agreed to
be bound by the terms and conditions set fourth in this Section XI.2.
The provisions of this Article XI.2 shall be self-operative and no
further instrument shall be required to give effect to this provision.
XI.2.9 If Landlord shall consent to any assignment of this
Lease or to any sublease, or if Tenant shall enter into any other assignment or
sublease permitted hereunder, Tenant shall, in consideration therefor, pay to
Landlord, as Additional Rent:
(a) In the case of an assignment, on the effective
date of the assignment, an amount equal to 50% of (i) all sums and
other consideration paid to Tenant by the assignee for or by reason of
such assignment (including sums paid for Tenant's Property, less, in
the case of a sale thereof, the then net unamortized or undepreciated
cost thereof, determined on the basis of Tenant's federal income tax
returns) less (ii) all Transaction Expenses; or
(b) In the case of a sublease, an amount equal to 50%
of (i) all rents, additional charges or other
<PAGE>
consideration payable to Tenant under the sublease in excess of the
Fixed Rent and Additional Rent accruing during the term of the sublease
in respect of the subleased space (at the rate per square foot payable
by Tenant hereunder) pursuant to the terms hereof (including sums paid
for the sale or rental of Tenant's Property, less, in the case of the
sale thereof, the then net unamortized or undepreciated cost thereof,
determined on the basis of Tenant's federal income tax returns) less
(ii) all Transaction Expenses. The sums payable under this clause shall
be paid by Tenant to Landlord as Additional Rent as and when payable by
the subtenant to Tenant.
XI.2.10 (a) If Tenant is a corporation (but not a public
corporation), the provisions of Section XI.2.2 hereof shall apply to a transfer
(by one or more transfer(s)), of a majority of the stock of Tenant as if such
transfer of a majority of the stock of Tenant were an assignment of this Lease.
It is expressly understood that the term "transfer(s)" shall be deemed to
include the issuance of new stock which results in a majority of the stock of
Tenant being held by Persons who or which (i) do not hold a majority of the
stock of Tenant on the date hereof, and (ii) are not Affiliates of the holders
of majority of the stock of Tenant on the date hereof. The foregoing shall not
apply to transactions with (i) a corporation into or with which Tenant is merged
or consolidated or to which substantially all of Tenant's assets are transferred
which corporation shall have been an operating entity for at least the 3 years
prior to the Tenant's Notice and shall have had Net Profits After Taxes of at
least $One Million during two of the three years prior to such notice (ii) an
entity directly or indirectly controlling, controlled by or under common control
with Tenant; provided, however, that (iii) such transfer shall have been made
for a legitimate independent business purpose and not for the principal purpose
of transferring this Lease, (iv ) the successor to Tenant shall have a net
worth, computed in accordance with generally accepted accounting principles, at
least equal to the greater of (A) the net worth of Tenant immediately prior to
such merger, consolidation or transfer, or (B) the net worth of Tenant herein
named on the date of this Lease, and (v ) proof satisfactory to Landlord of such
net worth shall have been delivered to Landlord at least ten (10) days prior to
the effective date of any such transaction. The term "Affiliate" shall mean (i)
any corporation or other entity controlled by, under common control with or
which controls Tenant or in which Tenant, directly or indirectly, has a 50% or
greater voting or ownership interest, (ii) any corporation or other entity that
acquires substantially all of the assets of Tenant, (iii) corporation or other
entity into or with which Tenant merges or is consolidated and (iv) if Tenant is
a corporation, any corporation into which Tenant is merged or resulting from a
consolidation of tenant with some other corporation.
(b) If Tenant is a partnership, the provisions of Section 13.1
hereof shall apply to a transfer (by one or more transfer) of a majority
interest in the partnership, as if such transfer were an assignment of this
Lease.
(c) The limitations set forth in this Section XI.2.10 shall be
deemed to apply to subtenant(s), assignee(s) and guarantor(s) of this Lease, if
any, and any transfer by any such Person in violation of this Section XI.2.10
shall be deemed to be transfer in violation of Section XI.2.
(d) A modification, amendment, or extension of a sublease
shall be deemed a sublease for the purposes of Section XI.2 hereof, and a
takeover agreement shall be deemed
<PAGE>
a transfer of this Lease for the purposes of Section XI.2 hereof.
XI.2.11 Without such transaction being subject to the terms
and conditions of Section XI.2 hereof, Tenant may, without Landlord's consent,
but upon not less than ten (10) days' prior notice to Landlord, permit any
Affiliate of Tenant to sublet from Tenant all or part of the Premises for any
permitted Use, or assign this Lease to any Affiliate, subject however to
compliance with Tenant's obligations under this Lease. Such sublease shall not
be deemed to vest in any such Affiliate any right or interest in this Lease or
the Premises nor shall it relieve; release, impair or discharge any of Tenant's
obligations hereunder.
XI.2.12 (a) Any assignment or transfer, whether made with
Landlord's consent pursuant to Section XI.2 hereof or without Landlord's consent
to the extent permitted under Sections XI.2.10 and XI.2.11 hereof, shall be made
only if, and shall not be effective until, the assignee shall execute,
acknowledge and deliver to Landlord an agreement in form and substance
reasonably satisfactory to Landlord whereby the assignee shall assume the
obligations of this Lease on the part of Tenant to be performed or observed from
and after the effective date of such assignment or transfer, and whereby the
assignee shall agree that the provisions in Section XI hereof shall,
notwithstanding such assignment or transfer, continue to be binding upon it in
respect of all future assignments and transfers.
(b) The joint and several liability of Tenant and any
immediate or remote successor in interest of Tenant and the due performance of
the obligations of this Lease on Tenant's part to be performed or observed shall
not be discharged, released or impaired in any respect by any agreement or
stipulation made by Landlord, or any grantee or assignee of Landlord by way of
mortgage or otherwise, extending the time, or modifying any of the obligations
of this Lease, or by any waiver or failure of Landlord, or any grantee or
assignee of Landlord by way of mortgage or otherwise, to enforce any of the
obligations of this Lease.
(c) The listing of any name other than that of Tenant, whether
on the doors of the Premises or the Building Directory, or otherwise, shall not
operate to vest any right or interest in this Lease or in the Premises, nor
shall it be deemed to be consent of Landlord to any assignment or transfer of
this Lease or to any sublease of Premises or to the use or occupancy thereof by
others. Any such listing shall constitute a privilege extended by Landlord,
revocable at Landlord's will by notice to Tenant, provided that Landlord shall
not unreasonably revoke such privilege as to any Affiliate of Tenant, or any
subtenant of Tenant or assignee of this Lease approved by Landlord, or as to
which Landlord's approval is not required, pursuant to this Article XI.2.
XI.2.13 Landlord acknowledges that the collocation of
communications equipment not owned by Tenant at the Premises shall not
constitute an assignment or sublease requiring the consent of Landlord
hereunder. For purposes of this Lease, "collocation" means the installation by
Tenant's customers of telecommunications equipment in Tenant's facilities
therefor, in the ordinary course of Tenant's business, for which such customers
pay fees based upon access to such facilities, as distinct from the renting of
floor area. In no event shall any collocation arrangement entered into by Tenant
entail the construction of a separate entrance to the Premises from the Building
common corridor for any party thereto other than Tenant. Such Collocation shall
be for
<PAGE>
a valid business purpose and not to avoid the obligations of Tenant to comply
with this Section XI.2. Tenant shall be prohibited from allowing any company to
collocate with Tenant who has dealt with or who has been actively negotiating
with Landlord for space in the Building's Meet-Me room or for any other space in
the Building.
Section XI.2.14 Notwithstanding any of the foregoing provisions, if
Tenant is or has been at any time in default under any of the terms of this
Lease beyond the applicable cure periods, if any, twice or more during the 12
months preceding the date of Tenant's Notice, Tenant may not assign or sublet
the Premises in whole or in part.
Section XI.3 TENANT'S NOTICE TO LANDLORD OF DEFAULT
Should Landlord be in breach under any of the terms of this Lease,
Tenant shall give Landlord prompt written notice thereof in the manner specified
in Section XII.1, and Tenant shall allow Landlord a reasonable length of time in
which to cure such breach , which time shall not in any event be less than
thirty (30) days from the date of receipt of such notice. Should Landlord fail
to cure such breach within such period of time or, if such breach is not capable
of being cured within such period of time but may be cured within a larger
period of time, have diligently pursued the cure thereof thereafter, and should
Tenant obtain a judgment against Landlord from a court of competent jurisdiction
that Landlord is in default hereunder, Tenant may then take such steps to cure
any such breach in the manner set forth and as limited in Section 9.11 hereof.
Section XI.4 NO RECORDATION OF LEASE
Tenant shall not record this Lease .
Section XI.5 SURRENDER OF PREMISES AND HOLDING OVER
At the expiration of the tenancy, Tenant shall surrender the Premises
in good condition, reasonable wear and tear excepted, and damage by unavoidable
casualty (except to the extent that the same is covered by Landlord's fire
insurance policy with extended coverage endorsement), and Tenant shall surrender
all keys for the Premises to Landlord at the place then fixed for the payment of
Rent and shall inform Landlord of all combinations on locks, safes and vaults,
if any, in the Premises. Tenant shall remove all its trade fixtures and any
alterations or improvements, subject to the provisions of Section VI.5, before
surrendering the Premises, and shall repair, at its own expense, any
unreasonable damage to the Premises caused thereby. Tenant's obligations to
observe or perform this covenant shall survive the expiration or other
termination of the Lease Term. In the event Tenant remains in possession of the
Premises after the expiration of the tenancy created hereunder, whether or not
with the consent or acquiescence of Landlord, and without the execution of a new
lease, Tenant, at the option of Landlord, shall be deemed to be occupying the
Premises as a tenant at will on a week-to-week tenancy and in no event on a
month-to-month or on a year-to-year tenancy. The rent during this week-to-week
tenancy shall be payable weekly for the first four (4) weeks at 150% of the pro
rated monthly Fixed Minimum Rent, and 150% of all other charges due hereunder,
and thereafter at twice the pro-rated monthly Fixed Minimum Rent and twice all
other charges due hereunder; and it shall be subject to all the other terms,
conditions, covenants, provisions and obligations of this Lease, and no
extension or renewal of this Lease shall be deemed to have occurred by such
holding over. Tenant's obligations to observe or perform this covenant shall
survive
<PAGE>
the expiration or other termination of the Lease Term.
Section XI.6 ESTOPPEL CERTIFICATE
Either party shall provide at any time, within ten (10) days of the
other party's written request, a statement certifying that this Lease is
unmodified and in full force and effect or, if there have been modifications,
that same are in full force and effect as modified and stating the
modifications, and the dates to which the Fixed Minimum Rent and other charges
have been paid in advance, if any. It is intended that any such statement
delivered pursuant to this paragraph may be relied upon by any prospective
purchaser or mortgagee of the Premises.
Section XI.7 DELAY OF POSSESSION
If Landlord is unable to give possession of the Premises on the
Commencement Date by reason of the holding over of any prior tenant or tenants
or for any other reason, an abatement or diminution of the Rent to be paid
hereunder shall be allowed Tenant under such circumstances, but nothing herein
shall operate to extend the Lease Term beyond the agreed Lease Expiration Date.
Said abatement of rent shall be the full extent of Landlord's liability to
Tenant for any loss or damage to Tenant on account of said delay in obtaining
possession of the Premises.
Section XI.8 COMPLIANCE WITH LAW
XI.8.1 At all times during the Lease Term, Tenant shall, at
Tenant's own cost and expense, fully perform and comply with any law, statute,
code, rule, regulation, ordinance, order, judgment, decree, writ, injunction,
franchise, permit, certificate, license (including any beer, wine or liquor
license), authorization, registration, or other direction or requirement of any
domestic or foreign federal, state, county, municipal, or other government or
governmental or quasi-governmental department, commission, board, bureau, court,
agency, or instrumentality having jurisdiction or authority over Landlord,
Tenant, and/or all or any part of the Premises ("Legal Authority"), which is now
or in the future applicable to the Premises, including those not within the
present contemplation of the parties ("Legal Requirements"), and applicable
insurance underwriters' rules, regulations, decrees or requirements, whether or
not they shall necessitate ordinary or extraordinary structural changes,
improvements, replacements, or repairs to the Premises, or cause any
interference with the Use. Tenant acknowledges that the Building is not newly
constructed, and Tenant shall cooperate with Landlord in asbestos removal or any
other matter which may be necessary or advisable in connection with Legal
Requirements, but shall not be responsible for costs associated with any actions
required hereunder if such actions are the result of conditions or acts of
Landlord or others that predate the commencement of this Lease.
XI.8.2 At all times during the Term, Tenant shall not do,
permit, or suffer to be done any act, or cause, permit, or suffer to exist any
condition upon the Premises, which may (a) be dangerous, unless safeguarded as
provided for by Legal Requirements; (b) constitute a public or private nuisance;
(c) make any Insurance void or voidable or cause any increase in Insurance
premiums; or (d) involve invasive medical procedures including but not limited
to the use of syringes. Landlord may enforce this provision in different ways
from time to time, and the permitting by Landlord of certain activities on one
or more occasions shall not alter Landlord's rights to prohibit or modify such
activities at
<PAGE>
other times. Tenant acknowledges and agrees that Landlord shall have the right
to provide for the comfort of others in the Building and that such right is a
significant consideration and inducement to Landlord to enter into this Lease.
XI.8.3 Tenant shall:
11.8.3.1 neither cause nor permit the Premises to be
used to generate, manufacture, refine, transport, treat, store, handle, dispose,
transfer, produce, or process Hazardous Materials, except in compliance with all
Legal Requirements;
11.8.3.2 neither cause nor permit a release or
threatened release of Hazardous Materials onto the Premises or any other
property as a result of any intentional or unintentional act or omission on the
part of Tenant;
11.8.3.3 comply with all applicable Legal
Requirements related to Hazardous Materials;
11.8.3.4 conduct and complete all investigations,
studies, sampling, and testing, and all remedial, removal, and other actions on,
from, or affecting the Premises in accordance with such applicable Legal
Requirements and to the reasonable satisfaction of Landlord;
11.8.3.5 allow access to the Premises by Landlord and
as and to the extent required by law, applicable regulatory authorities, at
reasonable times and upon reasonable notice so that they may assure compliance
with this Section XI.8;
11.8.3.6 upon the expiration or termination of this
Lease, deliver the Premises to Landlord free of all Hazardous Materials; and
11.8.3.7 defend, indemnify, and hold harmless
Landlord and Landlord's employees and other agents from and against any claims,
demands, penalties, fines, liabilities, settlements, damages, costs, or expenses
of any kind or nature, known or unknown, contingent or otherwise (including,
without limitation, accountants' and attorneys' fees (including fees for the
services of paralegals and similar persons), consultant fees, investigation and
laboratory fees, court costs, and litigation expenses at the trial and all
appellate levels), arising out of, or in any way related to (a) the presence,
disposal, release, or threatened release, by or caused by Tenant or its agents,
of any Hazardous Materials which are on, from, or affecting the soil, water,
vegetation, buildings, personal property, persons, animals, or otherwise; (b)
any personal injury, including wrongful death, or damage to property, real or
personal, arising out of or related to such Hazardous Materials; (c) any lawsuit
brought, threatened, or settled by Legal Authorities or other parties, or order
by Legal Authorities, related to such Hazardous Materials; and/or (d) any
violation of Legal Requirements related in any way to such Hazardous Materials.
For the purposes of this Lease "Hazardous Materials" means any flammable
explosives, radioactive materials, oil or petroleum products and their by
products, asbestos, polychlorobiphenyls, hazardous materials, hazardous wastes,
hazardous or toxic substances, or related materials as defined under or
regulated by any Legal Requirements, including, without limitation, the
following statutes and the regulations promulgated under their authority: (a)
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended (42 U.S.C. Sections 9601 et seq.); (b) the Hazardous Materials
Transportation
<PAGE>
Act, as amended (49 U.S.C. Sections 1801 et seq.); and (c) the Resource
Conservation and Recovery Act of 1976, as amended (42 U.S.C. Sections 6901 et
seq.). The provisions of this Section XI.8 shall survive the expiration or
termination of this Lease.
XI.8.4 Landlord shall defend, indemnify, and hold harmless
Tenant and Tenant's employees and other agents from and against any claims,
demands, penalties, fines, liabilities, settlements, damages, costs, or expenses
of any kind or nature, known or unknown, contingent or otherwise (including,
without limitation, reasonable accountants' and attorneys' fees (including
reasonable fees for the services of paralegals and similar persons), reasonable
consultant fees, reasonable investigation and laboratory fees, court costs, and
reasonable litigation expenses at the trial and all appellate levels), arising
out of, or in any way related to (a) the presence, disposal, release, or
threatened release, by or caused by Landlord or its agents, of any Hazardous
Materials that pre-date the commencement date of this Lease ("Pre-Lease
Hazardous Materials") which are on, from, or affecting the soil, water,
vegetation, buildings, personal property, persons, animals, or otherwise; (b)
any personal injury, including wrongful death, or damage to property, real or
personal, arising out of or related to such Pre-Lease Hazardous Materials; (c)
any lawsuit brought, threatened, or settled by Legal Authorities or other
parties, or order by Legal Authorities, related to such Pre-Lease Hazardous
Materials; and/or (d) any violation of Legal Requirements related in any way to
such Pre-Lease Hazardous Materials. For the purposes of this Lease "Pre-Lease
Hazardous Materials" means any flammable explosives, radioactive materials, oil
or petroleum products and their by products, asbestos, polychlorobiphenyls,
hazardous materials, hazardous wastes, hazardous or toxic substances, or related
materials as defined under or regulated by any Legal Requirements as such Legal
Requirements existed on the commencement date of this Lease, and which were
physically located in the Premises or the Building prior to the commencement
date of this Lease, including, without limitation, the following statutes and
the regulations promulgated under their authority: (a) the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended (42
U.S.C. Sections 9601 et seq.); (b) the Hazardous Materials Transportation Act,
as amended (49 U.S.C. Sections 1801 et seq.); and (c) the Resource
Conservation and Recovery Act of 1976, as amended (42 U.S.C. Sections 6901 et
seq.).
Section XI.8.5 Landlord represents and warrants to Tenant that, to
the best of Landlord's knowledge and belief, Landlord is in compliance with all
Legal Requirements of all Legal Authorities having jurisdiction over Landlord
and its activities with respect to this Lease and the ownership and operation of
the Building, including, but not limited to, the Americans with Disabilities
Act.
Section XI.9 RULES AND REGULATIONS
Tenant's use of the Premises shall be subject, at all times during the
Lease Term, to Landlord's right to adopt in writing, from time to time, modify
and/or rescind reasonable Rules and Regulations not in conflict with any of the
express provisions hereof governing the use of the parking areas, walks,
driveways, passageways, signs, exterior of Building, lighting and other matters
affecting other tenants in and the general management and appearance of the
Building of which the Premises are a part, but no such rule or regulation shall
discriminate against Tenant. The current Rules and Regulations are attached as
Exhibit "C".
Section XI.10 ABANDONMENT
<PAGE>
Tenant shall not abandon the Premises at any time during the Lease
Term. If Tenant shall abandon or surrender the Premises, or be dispossessed by
process of law or otherwise, any personal property belonging to Tenant left on
the Premises after such abandonment, surrender or dispossession shall, at the
option of the Landlord, be deemed abandoned, and Landlord may sell, store, or
otherwise dispose of it at Tenant's expense.
Section XI.11 INTENTIONALLY DELETED.
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section XII.1 NOTICES
Whenever notice shall or may be given to either of the parties by the
other, each such notice shall be either delivered in person or sent by
nationally recognized overnight delivery service, with return receipt requested.
Notices to Landlord shall be sent to the address specified in the Basic Term
Sheet. Notices to Tenant shall be sent to the address specified in the Basic
Term Sheet. Any notice under this Lease shall be deemed to have been given at
the time it is received or refused by the addressee.
Section XII.2 ENTIRE AND BINDING AGREEMENT
This Lease contains all of the agreements between the parties hereto,
and it may not be modified in any manner other than by agreement in writing
signed by all parties hereto or their successors in interest. Tenant shall pay
Landlord for any and all legally-related expenses which may be incurred by
Landlord in connection with the review or preparation of all lease-related
documents including, without limitation, consents, amendments, modifications and
assignments therewith. The terms, covenants and conditions contained herein
shall inure to the benefit of and be binding upon Landlord and Tenant and their
respective heirs, successors and assigns, except as may be otherwise expressly
provided in this Lease.
Section XII.3 PROVISIONS SEVERABLE
If any term or provision of this Lease or the application thereof to
any person or circumstance shall, to any extent, be illegal, invalid or
unenforceable, the remainder of this Lease, or the application of such term or
provision to persons or circumstances other than those to which it is held
illegal, invalid or unenforceable shall not be affected hereby and each term and
provision of this Lease shall be valid and be enforced to the fullest extent
permitted by law.
Section XII.4 CAPTIONS
The captions contained herein are for convenience and reference only
and shall not be deemed as part of this Lease or construed as in any manner
limiting or amplifying the terms and provisions of this Lease to which they
relate.
Section XII.5 RELATIONSHIP OF THE PARTIES.
<PAGE>
Nothing herein contained shall be deemed or construed as creating the
relationship of principal and agent or of partnership or joint venture between
the parties hereto; it being understood and agreed that neither the method of
computing rent nor any other provision contained herein nor any acts of the
parties hereto shall be deemed to create any relationship between the parties
other than that of Landlord and Tenant.
Section XII.6 ACCORD AND SATISFACTION
No payment by Tenant or receipt by Landlord of a lesser amount than the
Rent herein stipulated shall be deemed to be other than on account of the
earliest stipulated Rent nor shall any endorsement or statement on any check or
any letter accompanying any check or payment as Rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such Rent or pursue any other remedy
provided for in this Lease or available at law or in equity.
Section XII.7 BROKER'S COMMISSION Each of Landlord and Tenant
warrants to the other that it has not engaged any Real Estate Broker or Realtor,
except for Abood & Associates, Inc. (which represents Landlord) and Partners
National Real Estate Group, Inc. (which represents Tenant) in connection with
its execution of this Lease and agrees to indemnify and save Landlord harmless
from any liability that may arise from such claim, including reasonable
attorneys' fees by any broker, realtor or finder. Landlord shall pay or cause to
be paid to Partners National Real Estate Group, Inc. a brokerage commission as
set forth in a separate agreement between Landlord and Partners National Real
Estate Group, Inc.
Section XII.8 CORPORATE AND PARTNERSHIP STATUS
XII.8.1 If Tenant is a corporation or partnership, tenant's
corporate or partnership status shall continuously be in good standing and
active and current with the state of its incorporation and the state in which
the Building is located at the time of execution of the Lease and at all times
thereafter. Tenant shall keep its corporate status active and current throughout
the Lease Term or any extensions or renewals. Failure of Tenant to keep its
corporate or partnership status active and current shall constitute a default
under the terms of the Lease. In the event this Lease is signed on behalf of
Tenant by a person in a representative capacity, each of the person or persons
signing in such capacity represents and warrants to the Landlord and its
successors and assigns that:
XII.8.1.1 The execution and delivery of this lease has been duly and validly
authorized and all requisite actions have been taken to make it valid and
binding on the entity they represent.
XII.8.1.2 The entity they represent will, on the date of the commencement of and
at all times during the term of this Lease, be duly organized, validly existing
and in good standing in the state of its organization and entitled to conduct
its business in the state where the Premises is located.
XII.8.1.3 The entity shall, at all times be in possession of a fully paid,
current and valid Occupational License from the City and County where the
Premises is located. Failure to comply with this requirement shall be a material
default under this Lease but shall not relieve Tenant of all of its obligations
hereunder, including, but not limited to, the
<PAGE>
obligation to pay Rent.
Section XII.9 MISCELLANEOUS
XII.9.1 Landlord shall not be liable for any injury or damage to
persons or property resulting from fire, explosion, falling materials, steam,
gas, electricity, water, rain or leaks from any part of the Premises or from the
pipes, appliances or plumbing works or from the roof, street or subsurface or
from any other place or by dampness or by any other cause of whatsoever nature
unless caused by Landlord's gross negligence or willful misconduct. All property
of Tenant, including merchandise and furnishings, kept or stored on the Premises
shall be so kept or stored at the risk of Tenant only and Tenant shall hold
Landlord harmless from any and all claims arising out of damage to same. If
Landlord is required to make repairs by reason of any act, omission or
negligence of Tenant, any permitted subtenants, concessionaires or their
respective employees, agents, invitees, licensees or contractors, the reasonable
cost of such repairs shall be borne by Tenant and shall be due and payable
immediately upon receipt of Landlord's notification of the amount due.
XII.9.2 At Tenant's request, if Landlord provides any
miscellaneous services and/or supplies to Tenant or Tenant's Premises (including
by way of example, but not limited to: keys, directory strips, carpet cleaning,
non-standard light bulbs, repairs, locks, parking, overtime electricity usage)
all charges for these services imposed by Landlord shall be billed to Tenant and
payable by Tenant as Additional Rent. Landlord shall have the same remedies for
failure to pay the same as for non-payment of Fixed Minimum Rent. Tenant
covenants and agrees to pay Landlord all applicable sales tax or other taxes
which may be imposed on the above Additional Rent.
XII.9.3 It is specifically understood and agreed that there
shall be no personal liability on Landlord or its general or limited partners in
respect to any of the covenants, conditions or provisions of this Lease; in the
event of a breach or default by Landlord of any of its obligations under this
Lease, Tenant shall look solely to the equity of Landlord in the Premises for
the satisfaction of Tenant's remedies. In the event of a sale or transfer of the
Building or any portion thereof which includes the Premises, or in the event of
the making of the lease of the Building or of any portion, or in the event of a
sale or transfer of the leasehold estate under any such underlying lease, the
grantor, transferor or Landlord, as the case may be, shall thereafter be
entirely relieved of all terms, covenants and obligations thereafter to be
performed by Landlord under this Lease to the extent of the interest or portion
so sold, transferred or leased, and it shall be deemed and construed, without
further agreement between the parties and the purchaser, transferee or Tenant,
as the case may be, has assumed and agreed to carry out any and all covenants of
Landlord hereunder.
XII.9.4 THE PARTIES HEREBY WAIVE TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTER CLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE
OTHER OR ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS
LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE
PREMISES, AND/OR CLAIM OF INJURY OR DAMAGE.
XII.9.5 In the event of a breach by Tenant of any of the
covenants or provision hereof, Landlord shall have, in addition to any other
remedies which it may have, the right to invoke any remedy allowed at law or in
equity, including
<PAGE>
injunctive relief, to enforce Landlord's rights or any of them, as if re-entry
and other remedies were not herein provided for.
XII.9.6 In the event of any litigation arising out of
enforcement of this Lease, the prevailing party in such litigation shall be
entitled to recovery of all costs, including reasonable attorneys' fees.
XII.9.7 Notwithstanding anything in this Lease to the
contrary, Landlord reserves all rights which any state or local laws, rules,
regulations or ordinances confer upon a Landlord against a Tenant in default.
This article shall apply to any renewals or extensions of this Lease.
XII.9.8 This agreement shall be deemed to have been made in
Dade County, Florida and shall be interpreted, and the rights and liabilities of
the parties here determined, in accordance with the laws of the State of
Florida. The venue for any litigation arising out of or with respect to this
Lease and the relationship of Tenant and Landlord shall be laid in the Courts of
Miami-Dade County, Florida and neither party shall be heard to complain that
such venue and jurisdiction is inconvenient.
Section XII.10 FINANCIAL STATEMENTS.
Tenant shall furnish Landlord, within ten ( 10) business days after
Landlord's request therefor, an updated, current financial statement of Tenant,
Tenant's shareholders, and any guarantors of this Lease. Such financial
statement(s) shall not be required to be furnished more than once each calendar
year as to Tenant for as long as Tenant's financial reports audited pursuant to
GAAP are publicly available from either the Securities and Exchange Commission
or on the Internet.
Section XII.11 SURVIVAL OF TENANT'S COVENANTS.
All covenants of Tenant contained in this Lease and the other documents attached
hereto shall survive the expiration or termination of this Lease unless
otherwise specifically set forth herein.
Section XII.12 NON-WAIVER PROVISIONS
XII.12.1 The failure of Landlord to insist upon a strict
performance of any of the terms, conditions and covenants herein shall not be
deemed to be a waiver of any rights or remedies that Landlord may have and shall
not be deemed a waiver of any subsequent breach or default in the terms,
conditions and covenants herein contained except as may be expressly waived in
writing.
XII.12.2 The maintenance of any action or proceeding to
recover possession of the Premises or any installment or installments of rent or
any other monies that may be due or become due from Tenant to Landlord shall not
preclude Landlord from thereafter instituting and maintaining subsequent actions
or proceedings for the recovery or possession of the Premises or of any other
monies that may be due or become due from Tenant including all expenses, court
costs and attorneys' fees and disbursements incurred by Landlord in recovering
possession of the Premises and all costs and charges for the care of the
Premises while vacant. Any entry or re-entry by Landlord shall not be deemed to
absolve or discharge Tenant from liability hereunder.
XII.12.3 If Landlord is delayed or prevented from performing
any of its obligations under this Lease by reason
<PAGE>
of strike, labor disputes, or any cause whatsoever beyond Landlord's reasonable
control, the period of such delay or such prevention shall be deemed added to
the time herein provided for the performance of any obligation by Landlord.
Section XII.13 RADON GAS.
Pursuant to F.S. 404.056(8), Tenant is hereby notified that radon is a
naturally occurring radioactive gas that, when it has accumulated in a building
in sufficient quantities, may present health risks to persons who are exposed to
it over time. Levels of radon that exceed federal and state guidelines have been
found in buildings in Florida. Additional information regarding radon and radon
testing may be obtained from your county public health unit. In no event shall
Landlord be liable for direct or indirect, consequential or incidental damages
arising from the existence or discovery of radon in the Premises.
Section XII.14 LIMITATIONS ON LIABILITY.
In no event shall Landlord be responsible to Tenant, or to any party claiming by
or through Tenant, whether under this Lease or otherwise, for any consequential,
special, indirect or punitive damages. This Lease contains all agreements and
understandings between Landlord and Tenant on the use and occupancy of the
Premises and the relationship of Landlord and Tenant as landlord and tenant. Any
agreement of any nature, oral or written, between Landlord and Tenant,
including, but not limited to, any one based on custom, usage, acceptance or
waiver, purportedly entered into prior to or subsequent to the execution of this
Lease is null and void and of no affect whatsoever, unless such purported
agreement is specifically set forth in writing in this Lease or in a written
instrument executed by both Landlord and Tenant.
IN WITNESS WHEREOF, Landlord and Tenant above duly executed this Lease
as of the day and year first above written, each acknowledging receipt of an
executed copy hereof.
WITNESSES: LANDLORD:
NWT PARTNERS, LTD., a Florida
limited partnership
BY: NWT PARTNERS, INC, a
Florida corporation,
General Partner
/s/ Suanny Morales
- ----------------------------
Name: Suanny Morales By: /s/ David Garfincle
----------------------------
/s/ Paul L. Feinsmith David Garfincle, as its
- ---------------------------- ----------------------------
Name: Paul L. Feinsmith Vice President
[Corporate Seal]
TENANT: iBasis, Inc.
/s/illegible By:/s/ Michael J. Hughes
- ---------------------------- --------------------------------
Name: Director of Finance
Michael J. Hughes, as Chief
-----------------------------------
/s/illegible Financial Officer
- ---------------------------- -----------------------------------
Name: Billing Manager [Corporate Seal]
<PAGE>
Exhibit 10.28
NORTHWEST PARK
L E A S E
ARTICLE 1
REFERENCE DATA
1.1 SUBJECT REFERRED TO.
Each reference in this Lease to any of the following subjects shall be
construed to incorporate the data stated for that subject in this
Section 1.1.
DATE OF THIS LEASE: October 22, 1999
BUILDING: The single-story Building located in
Northwest Park in Burlington,
Massachusetts (hereinafter referred
to as the "Park") on a parcel of
land known as 10 Second Avenue,
Burlington, Massachusetts (the
Building and such parcel of land
hereinafter being collectively
referred to as the "Property").
PREMISES: A portion of the Building,
substantially as shown on Exhibit A
attached hereto.
RENTABLE FLOOR
AREA OF PREMISES: Approximately 14,462 square feet
LANDLORD: Rodger 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
#674807.
ORIGINAL NOTICE
ADDRESS OF LANDLORD: c/o Nordblom Management Company,
Inc.
31 Third Avenue
Burlington, Massachusetts 01803
TENANT: iBasis, Inc., a ________ corporation
ORIGINAL NOTICE
ADDRESS OF TENANT: 10 Second Avenue
Burlington, Massachusetts 01803
EXPIRATION DATE: April 30, 2005
DELIVERY DATE: January 1, 2000
RENT COMMENCEMENT
DATE: The earlier of (i) January 1, 2000
or (ii) the Commencement Date
(defined in Section 2.2)
ANNUAL FIXED RENT RATE: $231,392.00 through March 31, 2002;
and $260,316.00 thereafter.
MONTHLY FIXED RENT RATE: $19,282.67 through March 31, 2002;
and $21,693.00 thereafter.
LETTER OF CREDIT AMOUNT: $100,000.00, subject to reduction
pursuant to Section 4.4.
TENANT'S PERCENTAGE: The ratio of the Rentable Floor
Area of the Premises to the total
rentable area of the Building,
which shall initially be deemed to
be 53.16%.
INITIAL ESTIMATE OF
TENANT'S PERCENTAGE OF
TAXES FOR THE TAX YEAR:
INITIAL ESTIMATE OF
TENANT'S PERCENTAGE OF
OPERATING COSTS FOR THE
CALENDAR YEAR:
PERMITTED USES: Offices, and uses incidental
thereto.
PUBLIC LIABILITY INSURANCE LIMITS:
COMPREHENSIVE GENERAL LIABILITY: $2,000,000 per
occurrence
$4,000,000 general
aggregate
1.2 EXHIBITS.
The Exhibits listed below in this section are incorporated in this
Lease by reference and are to be construed as a part of this Lease.
EXHIBIT A Plan showing the Premises.
EXHIBIT B Commencement Date Notification
EXHIBIT C Work Letter
EXHIBIT D Work Change Order
EXHIBIT E Rules and Regulations
EXHIBIT F Form Tenant Estoppel Certificate
EXHIBIT G Form of Letter of Credit
<PAGE>
1.3 TABLE OF ARTICLES AND SECTIONS.
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 1 -- REFERENCE DATA
1.1 Subjects Referred To............................................................................1
1.2 Exhibits........................................................................................1
1.3 Table of Articles and Sections..................................................................2
ARTICLE 2 -- PREMISES AND TERM
2.1 Premises........................................................................................3
2.2 Term............................................................................................3
2.3 Extension Option................................................................................3
ARTICLE 3 -- IMPROVEMENTS
3.1 Performance of Work and Approval of Landlord's Work............................................4
3.2 Acceptance of the Premises......................................................................4
3.3 Sidewalk Construction...........................................................................4
ARTICLE 4 -- RENT
4.1 The Fixed Rent..................................................................................4
4.2 Additional Rent.................................................................................4
4.2.1 Real Estate Taxes......................................................................4
4.2.2 Personal Property Taxes................................................................5
4.2.3 Operating Costs........................................................................5
4.2.4 Insurance..............................................................................5
4.2.5 Utilities..............................................................................6
4.3 Late Payment of Rent..............................................................................6
4.4 Letter of Credit..................................................................................6
4.4.1 Amount of Letter of Credit.............................................................6
4.4.2 Renewal of Letter of Credit............................................................6
4.4.3 Draws to Cure Defaults.................................................................6
4.4.4 Draws to Pay Damages...................................................................6
4.4.5 Draws for Failure to Deliver Substitute Letter of Credit...............................6
4.4.6 Return of Letter of Credit at End of Term..............................................7
ARTICLE 5 -- LANDLORD'S COVENANTS
5.1 Affirmative Covenants...........................................................................7
5.1.1 Heat and Air Conditioning..............................................................7
5.1.2 Electricity............................................................................7
5.1.3 Cleaning; Water........................................................................7
5.1.4 Fire Alarm; Security...................................................................7
5.1.5 Repairs................................................................................7
5.1.6 Landscaping; Grounds Maintenance.......................................................7
5.1.7 Access.................................................................................7
5.2 Interruption....................................................................................7
5.3 Outside Services................................................................................7
5.4 Landlord's Insurance............................................................................7
ARTICLE 6 -- TENANT'S ADDITIONAL COVENANTS
6.1 Affirmative Covenants...........................................................................7
6.1.1 Perform Obligations....................................................................7
6.1.2 Use....................................................................................7
6.1.3 Repair and Maintenance.................................................................7
6.1.4 Compliance with Law....................................................................8
6.1.5 Indemnification........................................................................8
6.1.6 Landlord's Right to Enter..............................................................8
6.1.7 Personal Property at Tenant's Risk.....................................................8
6.1.8 Payment of Landlord's Cost of Enforcement..............................................8
6.1.9 Yield Up...............................................................................8
6.1.10 Rules and Regulations..................................................................8
6.1.11 Estoppel Certificate...................................................................8
6.1.12 Landlord's Expenses Re: Consents......................................................8
6.2 Negative Covenants..............................................................................9
6.2.1 Assignment and Subletting..............................................................9
6.2.2 Nuisance...............................................................................9
6.2.3 Hazardous Wastes and Materials.........................................................9
6.2.4 Floor Load; Heavy Equipment...........................................................10
6.2.5 Installation, Alterations or Additions................................................10
6.2.6 Abandonment...........................................................................10
6.2.7 Signs.................................................................................10
6.2.8 Parking and Storage...................................................................10
ARTICLE 7 -- CASUALTY OR TAKING
7.1 Termination....................................................................................10
7.2 Restoration....................................................................................10
7.3 Award..........................................................................................10
ARTICLE 8 -- DEFAULTS
8.1 Events of Default..............................................................................10
8.2 Remedies.......................................................................................11
8.3 Remedies Cumulative............................................................................11
8.4 Landlord's Right to Cure Defaults..............................................................11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
8.5 Effect of Waivers of Default...................................................................11
8.6 No Waiver, etc.................................................................................11
8.7 No Accord and Satisfaction.....................................................................11
ARTICLE 9 -- RIGHTS OF MORTGAGE HOLDERS
9.1 Rights of Mortgage Holders.....................................................................11
9.2 Lease Superior or Subordinate to Mortgages.....................................................12
ARTICLE 10 -- MISCELLANEOUS PROVISIONS
10.1 Notices From One Party to the Other............................................................12
10.2 Quiet Enjoyment................................................................................12
10.3 Lease Not to be Recorded.......................................................................12
10.4 Limitation of Landlord's Liability.............................................................12
10.5 Acts of God....................................................................................12
10.6 Landlord's Default.............................................................................12
10.7 Brokerage......................................................................................12
10.8 Applicable Law and Construction................................................................12
10.9 Right of First Offer...........................................................................12
10.10 Expansion......................................................................................12
</TABLE>
ARTICLE 2
PREMISES AND TERM
2.1 PREMISES. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord, subject to and with the benefit of the terms, covenants,
conditions and provisions of this Lease, the Premises, excluding the
roof, exterior faces of exterior walls, the common stairways, and
pipes, ducts, conduits, wires, and appurtenant fixtures serving
exclusively or in common other parts of the Building (and any areas,
such as the space above the ceiling or in the walls, that may contain
such pipes, ducts, conduits, wires or appurtenant fixtures), and if
Tenant's space includes less than entire rentable area of any floor,
excluding the central core area of such floor.
Tenant shall have, as appurtenant to the Premises, rights to use in
common, subject to reasonable rules of general applicability to tenants
of the Building from time to time made by Landlord of which Tenant is
given notice: (a) the common lobbies, hallways and stairways of the
Building, (b) common walkways and driveways necessary for access to the
Building, (c) the common parking areas serving the Building, and (d) if
the Premises include less than the entire rentable area of any floor,
the common toilets and other common facilities in the central core area
of such floor.
Tenant shall be permitted to use up to 58 parking spaces in the parking
area serving the Building.
Landlord reserves the right from time to time, without unreasonable
interference with use of the Premises: (a) to install, use, maintain,
repair, replace and relocate for service to the Premises and other
parts of the Building, or either, pipes, ducts, conduits, wires and
appurtenant fixtures, wherever located in the Premises or Building, (b)
to alter or relocate any other common facility, (c) to make any repairs
and replacements to the Premises which Landlord may deem reasonably
necessary, and (d) in connection with any excavation made upon adjacent
land of Landlord or others, to enter, and to license others to enter,
upon the Premises to do such work as the person causing such excavation
deems necessary to preserve the wall of the Building from injury or
damage and to support the same, provided that at least 24 hours' notice
is given to Tenant (except in emergencies, where no notice shall be
required).
2.2 TERM. TO HAVE AND TO HOLD for a term beginning on the Commencement
Date, which shall be the earlier of (a) the date on which the work to
be performed by Landlord pursuant to Exhibit C and the Final Plans has
been substantially completed or (b) the opening by Tenant of its
business in the Premises, and ending on the Expiration Date, unless
sooner terminated as hereinafter provided. The term "substantially
completed" as used herein shall mean that (a) the work to be performed
by Landlord pursuant to Exhibit C and the Final Plans has been
completed with the exception of minor items which can be fully
completed without material interference with Tenant and other items
which because of the season or weather or the nature of the item are
not practicable to do at the time, provided that none of said items is
necessary to make the Premises tenantable for the Permitted Uses, and
(b) a temporary certificate of occupancy has issued. When the dates of
the beginning and end of the term have been determined, such dates
shall be evidenced by a document, in the form attached hereto as
Exhibit B, which Landlord shall complete and deliver to Tenant, and
which shall be deemed conclusive unless Tenant shall notify Landlord of
any disagreement therewith within ten (10) days of receipt.
The term "lease year" as used herein shall mean a period of twelve (12)
consecutive full calendar months. The first lease year shall begin on
the Commencement Date if the Commencement Date is the first day of a
calendar month; if not, then the first lease year shall commence upon
the first day of the calendar month next following the Commencement
Date. Each succeeding lease year shall commence upon the anniversary
date of the first lease year.
2.3 EXTENSION OPTION. Provided that as of the date of the notice specified
below, Tenant is not in default and has not previously been in default
of its obligations under this Lease beyond any applicable grace period
more than once, Tenant shall have the right to extend the term of this
Lease for one additional period of five (5) years, to begin immediately
upon the expiration of the original term of this Lease (the "extended
term"). All of the terms, covenants and provisions of this Lease shall
apply to such extended term except that the Annual Fixed Rent Rate for
such extension period shall be the fair market rate at the commencement
of such extended term, as designated by Landlord for comparable
buildings in the greater Burlington area. If Tenant shall elect to
exercise the aforesaid option, it shall do so by giving Landlord notice
in writing of its intention to do so not later than one (1) year prior
to the expiration of the original term of this Lease. If Tenant gives
such notice, the extension of this Lease shall be automatically
effected without the execution of any additional documents. The
original term and the extended term are hereinafter collectively called
the "term".
If the Tenant disagrees with Landlord's designation of the market rate,
and the parties cannot agree upon the market rate, then the market rate
shall be submitted to arbitration as follows: market rate shall be
determined by impartial arbitrators, one to be chosen by the Landlord,
one to be chosen by Tenant, and a third to be selected, if necessary,
as below provided. The unanimous written decision of the two first
chosen, without selection and participation of a third arbitrator, or
otherwise, the written decision of a majority of three arbitrators
chosen and selected as aforesaid, shall be conclusive and binding upon
Landlord and Tenant. Landlord and Tenant shall each notify the other of
its chosen arbitrator within ten (10) days following the call for
arbitration and, unless such two arbitrators shall have reached a
unanimous decision within thirty (30) days after their designation,
they shall so notify the then President of the Boston Bar Association
and request him to select an impartial third arbitrator, who shall be
another office building owner, a real estate counselor or a broker
dealing with like types of properties, to determine market rate as
herein defined. Such third arbitrator and the first two chosen shall
hear the parties and their evidence and render their decision within
thirty (30) days following the conclusion of such hearing and notify
Landlord and Tenant thereof. Landlord and Tenant shall share equally
the expense of the third arbitrator (if any). If the dispute between
the parties as to a market rate has not been resolved before the
commencement of Tenant's obligation to pay Fixed Rent based upon such
market rate, then Tenant shall pay Fixed Rent under the Lease based
upon the
<PAGE>
market rate designated by Landlord until either the agreement of the
parties as to the market rate, or the decision of the arbitrators, as
the case may be, at which time Tenant shall pay any underpayment of
Fixed Rent to Landlord, or Landlord shall refund any overpayment of
Fixed Rent to Tenant.
In any event, the Annual Fixed Rent Rate for the extended term shall
not be less than the Annual Fixed Rent Rate in effect immediately prior
to such extended term.
ARTICLE 3
IMPROVEMENTS
3.1 PERFORMANCE OF WORK AND APPROVAL OF LANDLORD'S WORK. Landlord shall
cause to be performed the work (the "Landlord's Work") substantially as
shown on the preliminary plan attached hereto as Exhibit C. The final
approved construction plans and specifications for the Landlord's Work
(called, the "Final Plans"), which have not been completed as of the
date of this Lease, shall be prepared by Tenant and approved by
Landlord, and shall emanate from and be consistent with said Exhibit C.
All Landlord's Work shall be done in a good and workmanlike manner
employing new and first quality materials. Landlord covenants and
warrants for the benefit of Tenant that Landlord's Work shall be
performed so as to conform to all applicable local, state and federal
laws, regulations and ordinances promulgated by governmental
authorities with competent jurisdiction which are in effect on or
before the Commencement Date, including, without limitation, all
applicable laws relating to the removal of architectural barriers to
accommodate disabled persons. Tenant agrees that Landlord may make any
changes in such work which may become reasonably necessary or
advisable, other than substantial changes, without approval of Tenant,
provided written notice is promptly given to Tenant; and Landlord may
make substantial changes in such work, with the written approval of
Tenant, which shall not be unreasonably withheld or delayed. Tenant
acknowledges that the Delivery Date is based on the assumption that the
Final Plans will be provided to Landlord on or before November 8, 1999.
So long as the Final Plans are delivered to Landlord on or before
November 8, 1999, Landlord shall use diligence to cause Landlord's Work
to be substantially completed by the Delivery Date, subject to the
provisions of Section 10.5 hereof. Landlord agrees that Tenant may make
changes in such work with the approval of Landlord and the execution by
Landlord and Tenant of a Work Change Order, in the form attached hereto
as Exhibit D. Upon Tenant's execution of this Lease, Tenant shall pay
to Landlord a contribution in the amount of $50,000.00 toward the costs
incurred by Landlord in performing the Landlord's Work.
3.2 ACCEPTANCE OF THE PREMISES. Tenant or its representatives may, at
reasonable times, enter upon the Premises during the progress of the
work to inspect the progress thereof and to determine if the work is
being performed in accordance with the requirements of Section 3.1.
Tenant shall promptly give to Landlord notices of any alleged failure
by Landlord to comply with those requirements. Landlord's Work shall be
deemed approved by Tenant when Tenant occupies the Premises for the
conduct of its business, except for (a) items of Landlord's Work which
are uncompleted or do not conform to Exhibit C and the Final Plans and
as to which Tenant shall, in either case, have given written notice to
Landlord prior to such occupancy, and (b) a punch-list prepared by
Landlord and Tenant based on an inspection made by the parties on the
date on which Tenant occupies the Premises for the conduct of its
business. Landlord shall forthwith correct all defects noted on such
punch-list within thirty (30) days thereafter, except for items which
by their nature cannot be corrected within said thirty (30) day period,
provided that Landlord shall use reasonable efforts to correct such
items expeditiously. A certificate of completion by a licensed
architect or registered engineer shall be conclusive evidence that
Landlord's Work has been completed except for items stated in such
certificate to be incomplete or not in conformity with Exhibit C and
the Final Plans.
3.3 SIDEWALK CONSTRUCTION. Landlord shall diligently pursue the
construction of a sidewalk connecting the Property with the adjacent
property owned by Landlord's affiliate.
ARTICLE 4
RENT
4.1 THE FIXED RENT. Commencing as of the Rent Commencement Date, Tenant
covenants and agrees to pay rent to Landlord at the Original Address of
Landlord or at such other place or to such other person or entity as
Landlord may by notice in writing to Tenant from time to time direct,
at the Annual Fixed Rent Rate, in equal installments at the Monthly
Fixed Rent Rate (which is 1/12th of the Annual Fixed Rent Rate), in
advance, on the first day of each calendar month included in the term;
and for any portion of a calendar month following the Rent Commencement
Date, at the rate for the first lease year payable in advance for such
portion. Notwithstanding the foregoing, if the Commencement Date fails
to occur by January 1, 2000, and such failure is caused solely by
Landlord's action or inaction, then the Rent Commencement Date shall be
postponed by one day for each day in the period commencing on January
1, 2000 and ending on the day before the Commencement Date actually
occurs.
If Landlord shall give notice to Tenant that all rent and other
payments due hereunder are to be made to Landlord by electronic funds
transfers, so called, or by similar means, Tenant shall make all such
payments as shall be due after receipt of said notice by means of said
electronic funds transfers (or such similar means as designated by
Landlord).
4.2 ADDITIONAL RENT. Tenant covenants and agrees to pay, as Additional
Rent, insurance costs, utility charges, personal property taxes and its
pro rata share of taxes and operating costs with respect to the
Premises as provided in this Section 4.2 as follows:
4.2.1 REAL ESTATE TAXES. Tenant shall pay to Landlord, as additional
rent, for each tax period partially or wholly included in the
term, Tenant's Percentage of Taxes (as hereinafter defined).
Tenant shall remit to Landlord, on the first day of each calendar
month, estimated payments on account of Taxes, such monthly
amounts to be sufficient to provide Landlord, by the time real
estate tax payments are due and payable to any governmental
authority responsible for collection of same, a sum equal to the
Tenant's Percentage of Taxes, as reasonably estimated by Landlord
from time to time on the basis of the most recent tax data
available. The initial calculation of the monthly estimated
payments shall be based upon the Initial Estimate of Tenant's
Percentage of Taxes for the Tax Year and upon quarterly payments
being due to the governmental authority on August 1, November 1,
February 1 and May 1, and shall be made when the Commencement
Date has been determined. If the total of such monthly
remittances for any Tax Year is greater than the Tenant's
Percentage of Taxes for such Tax Year, Landlord shall promptly
pay to Tenant, or credit against the next accruing payments to be
made by Tenant pursuant to this subsection 4.2.1, the difference;
if the total of such remittances is less than the Tenant's
Percentage of Taxes for such Tax Year, Tenant shall pay the
difference to Landlord at least ten (10) days prior to the date
or dates within such Tax Year that any Taxes become due and
payable to the governmental authority (but in any event no
earlier than ten (10) days following a written notice to Tenant,
which notice shall set forth the manner of computation of
Tenant's Percentage of Taxes).
If, after Tenant shall have made reimbursement to Landlord pursuant
to this subsection 4.2.1, Landlord shall receive a refund of any
portion of Taxes paid by Tenant with respect to any Tax Year
during the term hereof as a result of an abatement of such Taxes
by legal proceedings, settlement or otherwise (without either
party having any obligation to undertake any such proceedings),
Landlord shall promptly pay to Tenant, or credit against the next
accruing payments to be made by Tenant
<PAGE>
pursuant to this subsection 4.2.1, the Tenant's Percentage of the
refund (less the proportional, pro rata expenses, including
reasonable attorneys' fees and reasonable appraisers' fees,
incurred in connection with obtaining any such refund), as
relates to Taxes paid by Tenant to Landlord with respect to any
Tax Year for which such refund is obtained.
In the event this Lease shall commence, or shall end (by reason
of expiration of the term or earlier termination pursuant to the
provisions hereof), on any date other than the first or last day
of the Tax Year, or should the Tax Year or period of assessment
of real estate taxes be changed or be more or less than one (1)
year, as the case may be, then the amount of Taxes which may be
payable by Tenant as provided in this subsection 4.2.1 shall be
appropriately apportioned and adjusted.
The term "Taxes" shall mean all taxes, assessments, betterments
and other charges and impositions (including, but not limited to,
fire protection service fees and similar charges) levied,
assessed or imposed at any time during the term by any
governmental authority upon or against the Property, or taxes in
lieu thereof, and additional types of taxes to supplement real
estate taxes due to legal limits imposed thereon. If, at any time
during the term of this Lease, any tax or excise on rents or
other taxes, however described, are levied or assessed against
Landlord with respect to the rent reserved hereunder, either
wholly or partially in substitution for, or in addition to, real
estate taxes assessed or levied on the Property, such tax or
excise on rents shall be included in Taxes; however, Taxes shall
not include franchise, estate, inheritance, succession, capital
levy, transfer, income or excess profits taxes assessed on
Landlord. Taxes shall include any estimated payment made by
Landlord on account of a fiscal tax period for which the actual
and final amount of taxes for such period has not been determined
by the governmental authority as of the date of any such
estimated payment.
4.2.2 PERSONAL PROPERTY TAXES. Tenant shall pay all taxes charged,
assessed or imposed upon the personal property of Tenant in or
upon the Premises.
4.2.3 OPERATING COSTS. Tenant shall pay to Landlord the Tenant's
Percentage of Operating Costs (as hereinafter defined) incurred
by Landlord in any calendar year. Tenant shall remit to Landlord,
on the first day of each calendar month, estimated payments on
account of Operating Costs, such monthly amounts to be sufficient
to provide Landlord, by the end of the calendar year, a sum equal
to the Operating Costs, as reasonably estimated by Landlord from
time to time. The initial monthly estimated payments shall be in
an amount equal to 1/12th of the Initial Estimate of Tenant's
Percentage of Operating Costs for the Calendar Year. If, at the
expiration of the year in respect of which monthly installments
of Operating Costs shall have been made as aforesaid, the total
of such monthly remittances is greater than the actual Operating
Costs for such year, Landlord shall promptly pay to Tenant, or
credit against the next accruing payments to be made by Tenant
pursuant to this subsection 4.2.3, the difference; if the total
of such remittances is less than the Operating Costs for such
year, Tenant shall pay the difference to Landlord within twenty
(20) days from the date Landlord shall furnish to Tenant an
itemized statement of the Operating Costs, prepared, allocated
and computed in accordance with generally accepted accounting
principles. Any reimbursement for Operating Costs due and payable
by Tenant with respect to periods of less than twelve (12) months
shall be equitably prorated.
The term "Operating Costs" shall mean all costs and expenses
incurred for the operation, cleaning, maintenance, repair and
upkeep of the Property, and the portion of such costs and
expenses with regard to the common areas, facilities and
amenities of the Park which is equitably allocable to the
Property, including, without limitation, all costs of maintaining
and repairing the Property and the Park (including snow removal,
landscaping and grounds maintenance, operation and maintenance of
parking lots, sidewalks, walking paths, access roads and
driveways, security, operation and repair of heating and
air-conditioning equipment, lighting and any other Building
equipment or systems) and of all repairs and replacements,
subject to the 4th paragraph of this Subsection 4.2.3 (other than
repairs or replacements for which Landlord has received full
reimbursement from contractors, other tenants of the Building or
from others) necessary to keep the Property and the Park in good
working order, repair, appearance and condition; all costs,
including material and equipment costs, for cleaning and
janitorial services to the Building (including window cleaning of
the Building); all costs of any reasonable insurance carried by
Landlord relating to the Property; all costs related to provision
of heat (including oil, electric, steam and/or gas),
air-conditioning, and water (including sewer charges) and other
utilities to the Building (exclusive of reimbursement to Landlord
for any of same received as a result of direct billing to any
tenant of the Building); payments under all service contracts
relating to the foregoing; all compensation, fringe benefits,
payroll taxes and workmen's compensation insurance premiums
related thereto with respect to any employees of Landlord or its
affiliates engaged in security and maintenance of the Property
and the Park; to the extent relating to the operation of the
Property, reasonable attorneys' fees and disbursements (exclusive
of any such fees and disbursements incurred in tax abatement
proceedings or the preparation of leases) and reasonable auditing
and other professional fees and expenses; and a management fee
comparable to management fees charged by other landlords of
similar office property in the greater Burlington area.
There shall not be included in such Operating Costs brokerage
fees (including rental fees) related to the operation of the
Building; interest and depreciation charges incurred on the
Property; or expenditures made by Tenant with respect to (i)
cleaning, maintenance and upkeep of the Premises, and (ii) the
provision of electricity to the Premises; Landlord's advertising
and marketing costs; matters for which Landlord is reimbursed by
insurance; Landlord's negligence; mortgage and debt service
payments (including payments of principal, interest and other
charges due under any mortgage or deed of trust); salaries of
executives or principals of Landlord; expenses for which
Landlord, by the terms of this Lease, makes a separate charge;
and any costs incurred by Landlord for alterations or
improvements to the Premises on account of Landlord's failure to
perform the Landlord's Work in compliance with applicable laws in
effect on or before the Commencement Date.
If, during the term of this Lease, Landlord shall replace any
capital items or make any capital expenditures (collectively
called "capital expenditures") the total amount of which is not
properly included in Operating Costs for the calendar year in
which they were made, there shall nevertheless be included in
Operating Costs for each calendar year in which and after such
capital expenditure is made the annual charge-off of such capital
expenditure. (Annual charge-off shall be determined by (i)
dividing the original cost of the capital expenditure by the
number of years of useful life thereof [The useful life shall be
reasonably determined by Landlord in accordance with generally
accepted accounting principles and practices in effect at the
time of acquisition of the capital item.]; and (ii) adding to
such quotient an interest factor computed on the unamortized
balance of such capital expenditure based upon an interest rate
reasonably determined by Landlord as being the interest rate then
being charged for long-term mortgages by institutional lenders on
like properties within the locality in which the Building is
located.) Provided, further, that if Landlord reasonably
concludes on the basis of engineering estimates that a particular
capital expenditure will effect savings in Operating Costs and
that such annual projected savings will exceed the annual
charge-off of capital expenditure computed as aforesaid, then and
in such events, the annual charge-off shall be determined by
dividing the amount of such capital expenditure by the number of
years over which the projected amount of such savings shall fully
amortize the cost of such capital item or the amount of such
capital expenditure; and by adding the interest factor, as
aforesaid.
If during any portion of any year for which Operating Costs are
being computed, the Building was not fully occupied by tenants or
if not all of such tenants were paying fixed rent or if Landlord
was not supplying all tenants with the services being supplied
hereunder, actual Operating Costs incurred shall be reasonably
extrapolated by Landlord to the estimated Operating Costs that
would have been incurred if the Building were fully occupied by
tenants and all such tenants were
<PAGE>
then paying fixed rent or if such services were being supplied to
all tenants, and such extrapolated amount shall, for the purposes
of this Section 4.2.3, be deemed to be the Operating Costs for
such year.
4.2.4 INSURANCE. Tenant shall, at its expense, as Additional Rent,
take out and maintain throughout the term the following insurance
protecting Landlord:
4.2.4.1 Comprehensive liability insurance naming Landlord,
Tenant, and Landlord's managing agent and any mortgagee of
which Tenant has been given notice as insureds or additional
insureds and indemnifying the parties so named against all
claims and demands for death or any injury to person or
damage to property which may be claimed to have occurred on
the Premises (or the Property, insofar as used by customers,
employees, servants or invitees of the Tenant), in amounts
which shall, at the beginning of the term, be at least equal
to the limits set forth in Section 1.1, and, which, from
time to time during the term, shall be for such higher
limits, if any, as are customarily carried in the area in
which the Premises are located on property similar to the
Premises and used for similar purposes; and workmen's
compensation insurance with statutory limits covering all of
Tenant's employees working on the Premises.
4.2.4.2 Fire insurance with the usual extended coverage
endorsements covering all Tenant's furniture, furnishings,
fixtures and equipment.
4.2.4.3 All such policies shall be obtained from responsible
companies qualified to do business and in good standing in
Massachusetts, which companies and the amount of insurance
allocated thereto shall be subject to Landlord's approval.
Tenant agrees to furnish Landlord with certificates
evidencing all such insurance prior to the beginning of the
term hereof and evidencing renewal thereof at least thirty
(30) days prior to the expiration of any such policy. Each
such policy shall be non-cancelable with respect to the
interest of Landlord without at least ten (10) days' prior
written notice thereto. In the event provision for any such
insurance is to be by a blanket insurance policy, the policy
shall allocate a specific and sufficient amount of coverage
to the Premises.
4.2.4.4 All insurance which is carried by either party with
respect to the Building, Premises or to furniture,
furnishings, fixtures, or equipment therein or alterations
or improvements thereto, whether or not required, shall
include provisions which either designate the other party as
one of the insured or deny to the insurer acquisition by
subrogation of rights of recovery against the other party to
the extent such rights have been waived by the insured party
prior to occurrence of loss or injury, insofar as, and to
the extent that, such provisions may be effective without
making it impossible to obtain insurance coverage from
responsible companies qualified to do business in the state
in which the Premises are located (even though extra premium
may result therefrom). In the event that extra premium is
payable by either party as a result of this provision, the
other party shall reimburse the party paying such premium
the amount of such extra premium. If at the request of one
party, this non-subrogation provision is waived, then the
obligation of reimbursement shall cease for such period of
time as such waiver shall be effective, but nothing
contained in this subsection shall derogate from or
otherwise affect releases elsewhere herein contained of
either party for claims. Each party shall be entitled to
have certificates of any policies containing such
provisions. Each party hereby waives all rights of recovery
against the other for loss or injury against which the
waiving party is protected by insurance containing said
provisions, reserving, however, any rights with respect to
any excess of loss or injury over the amount recovered by
such insurance. Tenant shall not acquire as insured under
any insurance carried on the Premises any right to
participate in the adjustment of loss or to receive
insurance proceeds and agrees upon request promptly to
endorse and deliver to Landlord any checks or other
instruments in payment of loss in which Tenant is named as
payee.
4.2.5 UTILITIES. Tenant shall pay all charges made by public authority
or utility for the cost of electricity furnished or consumed on
the Premises, all charges for any utilities supplied by Landlord
pursuant to Subsections 5.1.1, 5.1.2 and 5.1.3 which are
separately metered, and all charges for telephone and other
utilities or services not supplied by Landlord pursuant to
Subsections 5.1.1, 5.1.2 and 5.1.3, whether designated as a
charge, tax, assessment, fee or otherwise, all such charges to be
paid as the same from time to time become due. Except as
otherwise provided in Article 5, it is understood and agreed that
Tenant shall make its own arrangements for the installation or
provision of all such utilities and that Landlord shall be under
no obligation to furnish any utilities to the Premises and shall
not be liable for any interruption or failure in the supply of
any such utilities to the Premises.
4.3 LATE PAYMENT OF RENT. If any installment of rent is paid more than five
(5) days after the date the same was due, and if on a prior occasion in
the twelve (12) month period prior to the date such installment was due
an installment of rent was paid after the same was due, then Tenant
shall pay Landlord a late payment fee equal to five (5%) percent of the
overdue payment.
4.4 LETTER OF CREDIT. The performance of Tenant's obligations under this
Lease shall be secured by a letter of credit throughout the term hereof
in accordance with and subject to the following terms and conditions:
4.4.1 AMOUNT OF LETTER OF CREDIT. (a) Concurrently with Tenant's
execution and delivery of this Lease, Tenant shall deliver to
Landlord an irrevocable standby letter of credit (the "Original
Letter of Credit") which shall be (i) in the form of Exhibit G
attached to this Lease (the "Form LC"), (ii) issued by a bank
reasonably satisfactory to Landlord upon which presentment may be
made in Boston, Massachusetts, (iii) in the amount equal to the
Letter of Credit Amount, and (iv) for a term of at least 1 year,
subject to the provisions of Section 4.4.2 below. The Original
Letter of Credit, any Additional Letters(s) of Credit and
Substitute Letter(s) of Credit are referred to herein as the
"Letter of Credit."
(b) Once Tenant provides Landlord with proof reasonably
satisfactory to Landlord that it has completed its initial public
offering, and provided Tenant is not then in default under this
Lease, the Letter of Credit Amount shall be reduced to
$50,000.00. This reduction shall only be effected one time during
the term of this Lease.
4.4.2 RENEWAL OF LETTER OF CREDIT. Each Letter of Credit shall be
automatically renewable in accordance with the second to last
paragraph of the Form LC; provided however, that Tenant shall be
required to deliver to Landlord a new letter of credit (a
"Substitute Letter of Credit") satisfying the requirements for
the Original Letter of Credit under Section 4.4.1 on or before
the date 30 days prior to the expiration of the term of the
Letter of Credit then in effect, if the issuer of such Letter of
Credit gives notice of its election not to renew such Letter of
Credit for any additional period pursuant thereto.
4.4.3 DRAWS TO CURE DEFAULTS. If the Fixed Rent or Additional Rent
payable hereunder shall be overdue and unpaid or should Landlord
make payments on behalf of the Tenant, or Tenant shall fail to
perform any of the terms of this Lease in all cases beyond the
expiration of all applicable notice and cure periods, then
Landlord shall have the right, at any time thereafter to draw
down from the Letter of Credit the amount necessary to cure such
default. In the event of any such draw by the Landlord, Tenant
shall, within 30 days of written demand therefor, deliver to
Landlord an additional Letter of Credit ("Additional Letter of
Credit") satisfying the requirements for the Original Letter of
Credit, except that the amount of such Additional Letter of
Credit shall be the amount of such draw.
4.4.4 DRAWS TO PAY DAMAGES. In addition, if (i) this Lease shall have
been terminated as a result of Tenant's default under this
<PAGE>
Lease beyond the expiration of the applicable cure period, and/or
(ii) this Lease shall have been rejected in a bankruptcy or other
creditor-debtor proceeding, then Landlord shall have the right at
any time thereafter to draw down from the Letter of Credit an
amount sufficient to pay any and all damages payable by Tenant on
account of such termination or rejection, as the case may be,
pursuant to Article 8 hereof. In the event of bankruptcy or other
creditor-debtor proceeding against Tenant, all proceeds of the
Letter of Credit shall be deemed to be applied first to the
payment of rent and other charges due Landlord for all periods
prior to the filing of such proceedings.
4.4.5 DRAWS FOR FAILURE TO DELIVER SUBSTITUTE LETTER OF CREDIT. If
Tenant fails timely to deliver to Landlord a Substitute Letter of
Credit, then Landlord shall have the right, at any time
thereafter, without giving any further notice to Tenant, to draw
down the Letter of Credit and to hold the proceeds thereof
("Security Proceeds") in a bank account in the name of Landlord,
which may be withdrawn and applied by Landlord under the same
circumstances and for the same purposes as if the Security
Proceeds were a Letter of Credit. Upon any such application of
Security Proceeds by Landlord, Tenant shall, within 30 days of
written demand therefor, deliver to Landlord an Additional Letter
of Credit in the amount of Security Proceeds so applied.
4.4.6 RETURN OF LETTER OF CREDIT AT END OF TERM. Within 30 days after
the expiration of the term, to the extent Landlord has not
previously drawn upon any Letter of Credit or Security Proceeds
held by Landlord, Landlord shall return the same to Tenant
provided that Tenant is not then in default of any of its
obligations under this Lease."
ARTICLE 5
LANDLORD'S COVENANTS
5.1 AFFIRMATIVE COVENANTS. Landlord covenants with Tenant:
5.1.1 HEAT AND AIR-CONDITIONING. To furnish to the Premises,
separately metered and at the direct expense of Tenant as
hereinabove provided, heat and air-conditioning (reserving the
right, at any time, to change energy or heat sources) sufficient
to maintain the Premises at comfortable temperatures (subject to
all federal, state, and local regulations relating to the
provision of heat), during such hours of the day and days of the
year that the Building is normally open.
5.1.2 ELECTRICITY. To furnish to the Premises, separately metered and
at the direct expense of Tenant as hereinabove provided,
reasonable electricity for Tenant's Permitted Uses. If Tenant
shall require electricity in excess of reasonable quantities for
Tenant's Permitted Uses and if (i) in Landlord's reasonable
judgment, Landlord's facilities are inadequate for such excess
requirements, or (ii) such excess use shall result in an
additional burden on the Building utilities systems and
additional cost to Landlord on account thereof, as the case may
be, (a) Tenant shall, upon demand, reimburse Landlord for such
additional cost, as aforesaid, or (b) Landlord, upon written
request, and at the sole cost and expense of Tenant, will furnish
and install such additional wire, conduits, feeders, switchboards
and appurtenances as reasonably may be required to supply such
additional requirements of Tenant (if electricity therefor is
then available to Landlord), provided that the same shall be
permitted by applicable laws and insurance regulations and shall
not cause permanent damage or injury to the Building or cause or
create a dangerous or hazardous condition or entail excessive or
unreasonable alterations or repairs.
5.1.3 CLEANING; WATER. To provide cleaning (including daily trash
removal) to the Premises in accordance with cleaning and
janitorial standards generally prevailing throughout the term
hereof in comparable office buildings within the municipality in
which the Building is located; and to furnish water for ordinary
cleaning, lavatory and toilet facilities.
5.1.4 FIRE ALARM, SECURITY. To maintain fire alarm systems within the
Building; and to provide security measures in the common areas of
the Building, provided that Landlord shall not be liable for any
loss, damage or expense arising out of any failure of such
security measures.
5.1.5 REPAIRS. Except as otherwise expressly provided herein, to make
such repairs and replacements to the roof, exterior walls, floor
slabs and other structural components of the Building, and to the
common areas, facilities and plumbing, electrical, heating,
ventilating and air-conditioning systems of the Building as may
be necessary to keep them in good repair and condition and in
compliance with applicable laws (exclusive of equipment installed
by Tenant and except for those repairs required to be made by
Tenant pursuant to Section 6.1.3 hereof and repairs or
replacements occasioned by any act or negligence of Tenant, its
servants, agents, customers, contractors, employees, invitees, or
licensees).
5.1.6 LANDSCAPING; GROUNDS MAINTENANCE. To provide landscaping,
grounds maintenance and snow removal services for the Property.
5.1.7 ACCESS. To permit access to the Premises twenty-four (24) hours
a day, seven (7) days a week, subject to Landlord's reasonable
security requirements for the Building.
5.2 INTERRUPTION. Landlord shall be under no responsibility or liability
for failure or interruption of any of the above-described services,
repairs or replacements caused by breakage, accident, strikes, repairs,
inability to obtain supplies, labor or materials, or for any other
causes beyond the control of the Landlord, and in no event for any
indirect or consequential damages to Tenant; and failure or omission on
the part of the Landlord to furnish any of same for any of the reasons
set forth in this paragraph shall not be construed as an eviction of
Tenant, actual or constructive, nor entitle Tenant to an abatement of
rent, nor render the Landlord liable in damages, nor release Tenant
from prompt fulfillment of any of its covenants under this Lease.
However, in each instance of a failure or interruption Landlord shall
use best efforts to remedy the cause thereof.
5.3 OUTSIDE SERVICES. In the event Tenant wishes to provide outside
services for the Premises over and above those services to be provided
by Landlord as set forth herein, Tenant shall first obtain the prior
written approval of Landlord for the installation and/or utilization of
such services ("Outside services" shall include, but shall not be
limited to, cleaning services, television, so-called "canned music"
services, security services, catering services and the like.) In the
event Landlord approves the installation and/or utilization of such
services, such installation and utilization shall be at Tenant's sole
cost, risk and expense.
5.4 LANDLORD'S INSURANCE. Landlord shall take out and maintain during the
term all-risk casualty insurance in an amount equal to the full
replacement cost of the Building.
ARTICLE 6
TENANT'S ADDITIONAL COVENANTS
6.1 AFFIRMATIVE COVENANTS. Tenant covenants at all times during the term
and for such further time (prior or subsequent thereto) as Tenant
occupies the Premises or any part thereof:
<PAGE>
6.1.1 PERFORM OBLIGATIONS. To perform promptly all of the obligations
of Tenant set forth in this Lease; and to pay when due the Fixed
Rent and Additional Rent and all charges, rates and other sums
which by the terms of this Lease are to be paid by Tenant.
6.1.2 USE. To use the Premises only for the Permitted Uses, and from
time to time to procure all licenses and permits necessary
therefor, at Tenant's sole expense. With respect to any licenses
or permits for which Tenant may apply, pursuant to this
subsection 6.1.2 or any other provision hereof, Tenant shall
furnish Landlord copies of applications therefor on or before
their submission to the governmental authority.
6.1.3 REPAIR AND MAINTENANCE. To maintain the Premises in neat order
and condition and to perform all routine and ordinary repairs to
the Premises and to any plumbing, heating, electrical,
ventilating and air-conditioning systems located within the
Premises and installed by Tenant such as are necessary to keep
them in good working order, appearance and condition, as the case
may require, reasonable use and wear thereof and damage by fire
or by unavoidable casualty only excepted; to keep all glass in
windows and doors of the Premises (except glass in the exterior
walls of the Building) whole and in good condition with glass of
the same quality as that injured or broken; and to make as and
when needed as a result of misuse by, or neglect or improper
conduct of Tenant or Tenant's servants, employees, agents,
invitees or licensees or otherwise, all repairs necessary, which
repairs and replacements shall be in quality and class equal to
the original work. (Landlord, upon default of Tenant hereunder
and upon prior notice to Tenant, may elect, at the expense of
Tenant, to perform all such cleaning and maintenance and to make
any such repairs or to repair any damage or injury to the
Building or the Premises caused by moving property of Tenant in
or out of the Building, or by installation or removal of
furniture or other property, or by misuse by, or neglect, or
improper conduct of, Tenant or Tenant's servants, employees,
agents, contractors, customers, patrons, invitees, or licensees.)
6.1.4 COMPLIANCE WITH LAW. To the extent required as a result of
alterations performed by or on behalf of Tenant pursuant to
subsection 6.2.5 below or any other act of Tenant or by Tenant's
particular use of the Premises and not required for office
buildings generally, to make all repairs, alterations, additions
or replacements to the Premises required by any law or ordinance
or any order or regulation of any public authority; to keep the
Premises equipped with all safety appliances so required; and to
comply with the orders and regulations of all governmental
authorities with respect to zoning, building, fire, health and
other codes, regulations, ordinances or laws applicable to
Tenant's use of the Premises, except that Tenant may defer
compliance so long as the validity of any such law, ordinance,
order or regulations shall be contested by Tenant in good faith
and by appropriate legal proceedings, if Tenant first gives
Landlord appropriate assurance or security against any loss, cost
or expense on account thereof.
6.1.5 INDEMNIFICATION. To save harmless, exonerate and indemnify
Landlord, its agents (including, without limitation, Landlord's
managing agent) and employees (such agents and employees being
referred to collectively as the "Landlord Related Parties") from
and against any and all claims, liabilities or penalties asserted
by or on behalf of any person, firm, corporation or public
authority on account of injury, death, damage or loss to person
or property in or upon the Premises and the Property arising out
of the use or occupancy of the Premises by Tenant or by any
person claiming by, through or under Tenant (including, without
limitation, all patrons, employees and customers of Tenant), or
arising out of any delivery to or service supplied to the
Premises, or on account of or based upon anything whatsoever done
on the Premises, except if the same was caused by the willful
negligence, fault or misconduct of Landlord or the Landlord
Related Parties. In respect of all of the foregoing, Tenant shall
indemnify Landlord and the Landlord Related Parties from and
against all costs, expenses (including reasonable attorneys'
fees), and liabilities incurred in or in connection with any such
claim, action or proceeding brought thereon; and, in case of any
action or proceeding brought against Landlord or the Landlord
Related Parties by reason of any such claim, Tenant, upon notice
from Landlord and at Tenant's expense, shall resist or defend
such action or proceeding and employ counsel therefor reasonably
satisfactory to Landlord.
6.1.6 LANDLORD'S RIGHT TO ENTER. Provided that Landlord does not
materially interfere with Tenant's use or enjoyment of the
Premises, to permit Landlord and its agents to enter into and
examine the Premises at reasonable times and to show the
Premises, and to make repairs to the Premises, and, during the
last six (6) months prior to the expiration of this Lease, to
keep affixed in suitable places notices of availability of the
Premises.
6.1.7 PERSONAL PROPERTY AT TENANT'S RISK. All of the furnishings,
fixtures, equipment, effects and property of every kind, nature
and description of Tenant and of all persons claiming by, through
or under Tenant which, during the continuance of this Lease or
any occupancy of the Premises by Tenant or anyone claiming under
Tenant, may be on the Premises, shall be at the sole risk and
hazard of Tenant and if the whole or any part thereof shall be
destroyed or damaged by fire, water or otherwise, or by the
leakage or bursting of water pipes, steam pipes, or other pipes,
by theft or from any other cause, no part of said loss or damage
is to be charged to or to be borne by Landlord, except that
Landlord shall in no event be indemnified or held harmless or
exonerated from any liability to Tenant or to any other person,
for any injury, loss, damage or liability to the extent
prohibited by law, or to the extent resulting from any willful
misconduct by Landlord or Landlord Related Parties.
6.1.8 PAYMENT OF LANDLORD'S COST OF ENFORCEMENT. To pay on demand
Landlord's expenses, including reasonable attorneys' fees,
incurred in enforcing any obligation of Tenant under this Lease
or in curing any default by Tenant under this Lease as provided
in Section 8.4.
6.1.9 YIELD UP. At the expiration of the term or earlier termination
of this Lease: to surrender all keys to the Premises; to remove
all of its trade fixtures and personal property in the Premises;
to deliver to Landlord stamped architectural plans showing the
Premises at yield up (which may be the initial plans if Tenant
has made no installations after the Commencement Date); to remove
such installations made by it as Landlord may request (including
computer and telecommunications wiring and cabling, it being
understood that if Tenant leaves such wiring and cabling in a
useable condition, Landlord, although having the right to request
removal thereof, is less likely to so request) and all Tenant's
signs wherever located; to repair all damage caused by such
removal and to yield up the Premises (including all installations
and improvements made by Tenant except for trade fixtures and
such of said installations or improvements as Landlord shall
request Tenant to remove), broom-clean and in the same good order
and repair in which Tenant is obliged to keep and maintain the
Premises by the provisions of Subsection 6.1.3 of this Lease. Any
property not so removed shall be deemed abandoned and, if
Landlord so elects, deemed to be Landlord's property, and may be
retained or removed and disposed of by Landlord in such manner as
Landlord shall determine and Tenant shall pay Landlord the entire
cost and expense incurred by it in effecting such removal and
disposition and in making any incidental repairs and replacements
to the Premises and for use and occupancy during the period after
the expiration of the term and prior to its performance of its
obligations under this subsection 6.1.9.
If the Tenant remains in the Premises beyond the expiration or
earlier termination of this Lease, such holding over shall be
without right and shall not be deemed to create any tenancy, but
the Tenant shall be a tenant at sufferance only at a daily rate
of rent equal to two (2) times the rent and other charges in
effect under this Lease as of the day prior to the date of
expiration of this Lease. Tenant shall further indemnify Landlord
against all reasonable loss, cost and damage resulting from
Tenant's failure and delay in surrendering the Premises.
6.1.10 RULES AND REGULATIONS. To comply with the Rules and Regulations
set forth in Exhibit E, and with all reasonable Rules
<PAGE>
and Regulations of general applicability to all tenants of the
Building hereafter made by Landlord, of which Tenant has been
given notice; Landlord shall not be liable to Tenant for the
failure of other tenants of the Building to conform to such Rules
and Regulations.
6.1.11 ESTOPPEL CERTIFICATE. Upon not less than fifteen (15) days'
prior written request by Landlord, to execute, acknowledge and
deliver to Landlord a statement in writing, which may be in the
form attached hereto as Exhibit F or in another form reasonably
similar thereto, or such other form as Landlord may provide from
time to time, certifying all or any of the following: (i) that
this Lease is unmodified and in full force and effect, (ii)
whether the term has commenced and Fixed Rent and Additional Rent
have become payable hereunder and, if so, the dates to which they
have been paid, (iii) whether or not Landlord is in default in
performance of any of the terms of this Lease, (iv) whether
Tenant has accepted possession of the Premises, (v) whether
Tenant has made any claim against Landlord under this Lease and,
if so, the nature thereof and the dollar amount, if any, of such
claim, (vi) whether there exist any offsets or defenses against
enforcement of any of the terms of this Lease upon the part of
Tenant to be performed, and (vii) such further information with
respect to the Lease or the Premises as Landlord may reasonably
request. Any such statement delivered pursuant to this subsection
6.1.11 may be relied upon by any prospective purchaser or
mortgagee of the Premises, or any prospective assignee of such
mortgage. Tenant shall also deliver to Landlord such financial
information as may be reasonably required by Landlord to be
provided to any mortgagee or prospective purchaser of the
Premises.
6.1.12 LANDLORD'S EXPENSES RE CONSENTS. To reimburse Landlord promptly
on demand for all reasonable legal expenses incurred by Landlord
in connection with all requests by Tenant for consent or approval
hereunder.
6.2 NEGATIVE COVENANTS. Tenant covenants at all times during the term and
such further time (prior or subsequent thereto) as Tenant occupies the
Premises or any part thereof:
6.2.1 ASSIGNMENT AND SUBLETTING. Except for an assignment or
subletting to a wholly-owned subsidiary or a corporation in which
Tenant owns in excess of 25% of the outstanding capital stock (in
either case called a "Permitted Transfer"), not to assign,
transfer, mortgage or pledge this Lease or to sublease (which
term shall be deemed to include the granting of concessions and
licenses and the like) all or any part of the Premises or suffer
or permit this Lease or the leasehold estate hereby created or
any other rights arising under this Lease to be assigned,
transferred or encumbered, in whole or in part, whether
voluntarily, involuntarily or by operation of law, or permit the
occupancy of the Premises by anyone other than Tenant without the
prior written consent of Landlord. In the event Tenant desires to
assign this Lease or sublet any portion or all of the Premises,
Tenant shall notify Landlord in writing of Tenant's intent to so
assign this Lease or sublet the Premises and the proposed
effective date of such subletting or assignment, and shall
request in such notification that Landlord consent thereto.
Except for a Permitted Transfer, Landlord may terminate this
Lease in the case of a proposed assignment, or suspend this Lease
pro tanto for the period and with respect to the space involved
in the case of a proposed subletting, by giving written notice of
termination or suspension to Tenant, with such termination or
suspension to be effective as of the effective date of such
assignment or subletting. If Landlord does not so terminate or
suspend, Landlord's consent shall not be unreasonably withheld to
an assignment or to a subletting, provided that the assignee or
subtenant shall use the Premises only for the Permitted Uses.
Tenant shall, as Additional Rent, reimburse Landlord promptly for
Landlord's reasonable legal expenses incurred in connection with
any request by Tenant for such consent. If Landlord consents
thereto, or in the case of a Permitted Transfer, no such
subletting or assignment shall in any way impair the continuing
primary liability of Tenant hereunder, and no consent to any
subletting or assignment in a particular instance shall be deemed
to be a waiver of the obligation to obtain the Landlord's written
approval in the case of any other subletting or assignment.
The provisions of the preceding paragraph shall not apply to
transactions with an entity into or with which Tenant is merged
or consolidated or to which substantially all of Tenant's assets
are transferred, provided that in any of such events (i) the
successor to Tenant has a net worth computed in accordance with
generally accepted accounting principles at least equal to the
net worth of Tenant immediately prior to such merger,
consolidation or transfer, (ii) proof reasonably satisfactory to
Landlord of such net worth shall have been delivered to Landlord
at least ten (10) days prior to the effective date of any such
transaction, and (iii) the assignee agrees directly with
Landlord, by written instrument in form satisfactory to Landlord
to perform all the obligations of Tenant.
If for any assignment or sublease consented to by Landlord
hereunder Tenant receives rent or other consideration, either
initially or over the term of the assignment or sublease, in
excess of the rent called for hereunder, or in case of sublease
of part, in excess of such rent fairly allocable to the part,
after appropriate adjustments to assure that all other payments
called for hereunder are appropriately taken into account and
after deduction for reasonable expenses of Tenant in connection
with the assignment or sublease, to pay to Landlord as additional
rent fifty (50%) percent of the excess of each such payment of
rent or other consideration received by Tenant promptly after its
receipt.
Whenever Tenant lists with a broker or brokers or otherwise
advertises, holds out or markets the Premises or any part thereof
for sublease or assignment, Tenant shall give Nordblom Company,
as brokers, a non-exclusive listing with respect to such sublease
or assignment.
If, at any time during the term of this Lease, there is a
transfer of a controlling interest in the stock, membership or
general partnership interests of Tenant, Tenant shall so notify
Landlord and (whether or not Tenant so notifies Landlord) such
transfer shall be deemed an assignment subject to the provisions
of the first paragraph of this subsection 6.2.1, except for any
public offering or transfer of less than fifty (50%) percent of
the outstanding stock of Tenant that is not also a transfer of a
controlling interest of Tenant (in which case Landlord's prior
consent is not required).
If, at any time during the term of this Lease, there is a
transfer of a controlling interest in the stock, membership or
general partnership interests of Tenant, Tenant shall so notify
Landlord and (whether or not Tenant so notifies Landlord) such
transfer shall be deemed an assignment subject to the provisions
of the first paragraph of this Section 6.2.1, except for a
transfer of less than 50% of the outstanding stock of Tenant that
is not also a transfer of a controlling interest of Tenant (in
which case Landlord's prior consent is not required).
Landlord hereby consents to the assignment by Tenant of this
Lease to an institutional lender ("Leasehold Mortgagee") as
security for the payment of all indebtedness and performance of
obligations under the financing with such Leasehold Mortgagee.
Landlord agrees that so long as any such financing shall remain
in effect, the following provisions shall apply:
1. Landlord shall, upon serving Tenant with any notice of
default, promptly serve a copy of such notice upon Leasehold
Mortgagee provided Landlord has previously been given
written notice of the name and address of the Leasehold
Mortgagee. Leasehold Mortgagee shall thereupon have the same
period as is allowed to Tenant, to remedy or cause to be
remedied the defaults specified by Landlord, and Landlord
shall accept such performance by or at the instigation of
Leasehold Mortgagee in response to any such notice of
default as if the same had been performed by Tenant; and
2. Should Tenant be in default under the terms of such
financing Leasehold Mortgagee shall have the right, but not
the obligation, to receive an assignment of this Lease for
the remainder of its term and assume all of Tenant's rights,
duties and obligations under the Lease, provided that as a
condition to such assignment and
<PAGE>
assumption Leasehold Mortgagee shall have remedied or caused
to be remedied defaults, if any, under this Lease of which
Leasehold Mortgagee shall have been given written notice
prior to such assignment and assumption, and provided
further that the use of the Premises by any such Leasehold
Mortgagee shall be substantially similar to that of Tenant
immediately prior to the assumption, and that any assignment
or subletting by such Leasehold Mortgagee shall be subject
to all of the provisions of this subsection 6.2.1., except
that the third sentence of the first paragraph shall not be
applicable in the case of a proposed assignment to an entity
acquiring substantially all of the assets of the initial
Tenant named herein.
6.2.2 NUISANCE. Not to injure, deface or otherwise harm the Premises;
nor commit any nuisance; nor permit in the Premises any vending
machine (except such as is used for the sale of merchandise to
employees of Tenant) or inflammable fluids or chemicals (except
such as are customarily used in connection with standard office
equipment); nor permit any cooking to such extent as requires
special exhaust venting; nor permit the emission of any
objectionable noise or odor; nor make, allow or suffer any waste;
nor make any use of the Premises which is improper, offensive or
contrary to any law or ordinance or which will invalidate any of
Landlord's insurance; nor conduct any auction, fire, "going out
of business" or bankruptcy sales.
6.2.3 HAZARDOUS WASTES AND MATERIALS. Not to dispose of any hazardous
wastes, hazardous materials or oil on the Premises or the
Property, or into any of the plumbing, sewage, or drainage
systems thereon, and to indemnify and save Landlord harmless from
all claims, liability, loss or damage arising on account of the
use or disposal of hazardous wastes, hazardous materials or oil,
including, without limitation, liability under any federal,
state, or local laws, requirements and regulations, or damage to
any of the aforesaid systems. Tenant shall comply with all
governmental reporting requirements with respect to hazardous
wastes, hazardous materials and oil, and shall deliver to
Landlord copies of all reports filed with governmental
authorities.
6.2.4 FLOOR LOAD; HEAVY EQUIPMENT. Not to place a load upon any floor
of the Premises exceeding the floor load per square foot area
which such floor was designed to carry and which is allowed by
law. Landlord reserves the right to prescribe the weight and
position of all heavy business machines and equipment, including
safes, which shall be placed so as to distribute the weight.
Business machines and mechanical equipment which cause vibration
or noise shall be placed and maintained by Tenant at Tenant's
expense in settings sufficient to absorb and prevent vibration,
noise and annoyance. Except if in the due course of Tenant's
business operations, Tenant shall not move any safe, heavy
machinery, heavy equipment, freight or fixtures into or out of
the Premises except in such manner and at such time as Landlord
shall in each instance authorize.
6.2.5 INSTALLATION, ALTERATIONS OR ADDITIONS. Not to make any
installations, alterations or additions in, to or on the Premises
nor to permit the making of any holes in the walls, partitions,
ceilings or floors nor the installation or modification of any
locks or security devices without on each occasion obtaining the
prior written consent of Landlord, and then only pursuant to
plans and specifications approved by Landlord in advance in each
instance; Tenant shall pay promptly when due the entire cost of
any work to the premises undertaken by Tenant so that the
Premises shall at all times be free of liens for labor and
materials, and at Landlord's request Tenant shall furnish to
Landlord a bond or other security acceptable to Landlord assuring
that any work commenced by Tenant will be completed in accordance
with the plans and specifications theretofore approved by
Landlord and assuring that the Premises will remain free of any
mechanics' lien or other encumbrance arising out of such work. In
any event, Tenant shall forthwith bond against or discharge any
mechanics' liens or other encumbrances that may arise out of such
work. Tenant shall procure all necessary licenses and permits at
Tenant's sole expense before undertaking such work. All such work
shall be done in a good and workmanlike manner employing
materials of good quality and so as to conform with all
applicable zoning, building, fire, health and other codes,
regulations, ordinances and laws. Tenant shall save Landlord
harmless and indemnified from all injury, loss, claims or damage
to any person or property occasioned by or growing out of such
work. Without waiver of the provisions of this subsection 6.2.5,
Tenant shall be permitted to install one (1) conduit in areas of
the Building and the Property, designated by Landlord, to
facilitate a fiber optic connection with the adjacent building
owned by Landlord's affiliate and in which is located the leased
premises of Tenant's affiliate. In the event that such conduit is
installed underground, Tenant shall repair any damage to the
Property and shall restore the Property to the same condition as
existed prior to said installation, including restoring any
shrubbery that may have been moved during the installation of
said conduit.
Not to grant a security interest in, or to lease, any personal
property being installed in the Premises (including, without
limitation, demountable partitions) without first obtaining an
agreement, for the benefit of Landlord, from the secured party or
lessor that such property will be removed within fifteen (15)
business days after notice from Landlord of the expiration or
earlier termination of this Lease and that a failure to so remove
will subject such property to the provisions of subsection 6.1.9
of the Lease.
6.2.6 ABANDONMENT. Not to abandon or vacate the Premises during the
term.
6.2.7 SIGNS. Not without Landlord's prior written approval to paint or
place any signs or place any curtains, blinds, shades, awnings,
aerials, or the like, visible from outside the Premises.
6.2.8 PARKING AND STORAGE. Not to permit any storage of materials
outside of the Premises; nor to permit the use of the parking
areas for either temporary or permanent storage of trucks; nor
permit the use of the Premises for any use for which heavy
trucking would be customary.
ARTICLE 7
CASUALTY OR TAKING
7.1 TERMINATION. In the event that the Premises or the Building, or any
material part thereof, shall be taken by any public authority or for
any public use, or shall be destroyed or damaged by fire or casualty,
or by the action of any public authority, then this Lease may be
terminated at the election of Landlord. Such election, which may be
made notwithstanding the fact that Landlord's entire interest may have
been divested, shall be made by the giving of notice by Landlord to
Tenant within sixty (60) days after the date of the taking or casualty.
In the event the Premises are destroyed or damaged by fire or casualty,
or by the action of public authority, and, in the reasonable opinion of
an independent architect or engineer selected by Landlord, cannot be
repaired or restored within one hundred eighty (180) days from the time
that repair or restoration work would be commenced, then this Lease may
be terminated at the election of Landlord or Tenant, which election
shall be made by the giving to the other party within thirty (30) days
after the date the opinion of the architect or engineer is made
available to all parties.
7.2 RESTORATION. If neither party elects to so terminate, this Lease shall
continue in force and a just proportion of the rent reserved, according
to the nature and extent of the damages sustained by the Premises,
shall be suspended or abated until the Premises, or what may remain
thereof, shall be put by Landlord in proper condition for use, which
Landlord covenants to do with reasonable diligence to the extent
permitted by the net proceeds of insurance recovered or damages awarded
for such taking, destruction or damage and subject to zoning and
building laws or ordinances then in existence. "Net proceeds of
insurance recovered or damages awarded"
<PAGE>
refers to the gross amount of such insurance or damages less the
reasonable expenses of Landlord incurred in connection with the
collection of the same, including without limitation, fees and expenses
for legal and appraisal services.
7.3 AWARD. Irrespective of the form in which recovery may be had by law,
all rights to damages or compensation shall belong to Landlord in all
cases. Tenant hereby grants to Landlord all of Tenant's rights to such
damages and covenants to deliver such further assignments thereof as
Landlord may from time to time request.
ARTICLE 8
DEFAULTS
8.1 EVENTS OF DEFAULT. (a) If Tenant shall default in the performance of
any of its obligations to pay the Fixed Rent or Additional Rent
hereunder and if such default shall continue for ten (10) days after
written notice from Landlord designating such default or if within
thirty (30) days after written notice from Landlord to Tenant
specifying any other default or defaults Tenant has not commenced
diligently to correct the default or defaults so specified or has not
thereafter diligently pursued such correction to completion, or (b) if
any assignment shall be made by Tenant or any guarantor of Tenant for
the benefit of creditors, or (c) if Tenant's leasehold interest shall
be taken on execution, or (d) if a lien or other involuntary
encumbrance is filed against Tenant's leasehold interest or Tenant's
other property, including said leasehold interest, and is not
discharged or bonded over within thirty (30) days thereafter, or (e) if
a petition is filed by Tenant or any guarantor of Tenant for
liquidation, or for reorganization or an arrangement under any
provision of any bankruptcy law or code as then in force and effect, or
(f) if an involuntary petition under any of the provisions of any
bankruptcy law or code is filed against Tenant or any guarantor of
Tenant and such involuntary petition is not dismissed within sixty (60)
days thereafter, then, and in any of such cases, Landlord and the
agents and servants of Landlord lawfully may, in addition to and not in
derogation of any remedies for any preceding breach of covenant,
immediately or at any time thereafter without demand or notice and with
or without process of law enter into and upon the Premises or any part
thereof in the name of the whole or mail a notice of termination
addressed to Tenant, and repossess the same as of landlord's former
estate and expel Tenant and those claiming through or under Tenant and
remove its and their effects without being deemed guilty of any manner
of trespass and without prejudice to any remedies which might otherwise
be used for arrears of rent or prior breach of covenants, and upon such
entry or mailing as aforesaid this Lease shall terminate, Tenant hereby
waiving all statutory rights to the Premises (including without
limitation rights of redemption, if any, to the extent such rights may
be lawfully waived) and Landlord, without notice to Tenant, may store
Tenant's effects, and those of any person claiming through or under
Tenant, at the expense and risk of Tenant, and, if Landlord so elects,
may sell such effects at public auction or private sale and apply the
net proceeds to the payment of all sums due to Landlord from Tenant, if
any, and pay over the balance, if any, to Tenant.
8.2 REMEDIES. In the event that this Lease is terminated under any of the
provisions contained in Section 8.1 or shall be otherwise terminated
for breach of any obligation of Tenant, Tenant covenants to pay
punctually to Landlord all the sums and to perform all the obligations
which Tenant covenants in this Lease to pay and to perform in the same
manner and to the same extent and at the same time as if this Lease had
not been terminated. In calculating the amounts to be paid by Tenant
pursuant to the preceding sentence Tenant shall be credited with the
net proceeds of any rent obtained by Landlord by reletting the
Premises, after deducting all Landlord's expense in connection with
such reletting, including, without limitation, all repossession costs,
brokerage commissions, fees for legal services and expenses of
preparing the Premises for such reletting, it being agreed by Tenant
that Landlord may (i) relet the Premises or any part or parts thereof,
for a term or terms which may at Landlord's option be equal to or less
than or exceed the period which would otherwise have constituted the
balance of the term and may grant such concessions and free rent as
Landlord in its sole judgment considers advisable or necessary to relet
the same and (ii) make such alterations, repairs and decorations in the
Premises as Landlord in its sole judgment considers advisable or
necessary to relet the same, and no action of Landlord in accordance
with the foregoing or failure to relet or to collect rent under
reletting shall operate or be construed to release or reduce Tenant's
liability as aforesaid. Landlord shall use commercially reasonable
efforts to mitigate its damages hereunder.
In lieu of full recovery by Landlord of the sums payable under all of
the foregoing provision of this Section 8.2 (except for the amount of
any rent of any kind accrued and unpaid as of the time of termination),
Landlord may, by written notice to Tenant, elect to recover, and Tenant
shall thereupon pay, as liquidated damages, an amount equal to the
excess of the total rent reserved for the residue of the term over the
rental value of the Premises for said residue of the term. In
calculating the rent reserved there shall be included, in addition to
the Fixed Rent and Additional Rent, the value of all other
considerations agreed to be paid or performed by Tenant for said
residue.
In lieu of any other damages or indemnity and in lieu of full recovery
by Landlord of all sums payable under all the foregoing provisions of
this Section 8.2, Landlord may by written notice to Tenant, at any time
after this Lease is terminated under any of the provisions contained in
Section 8.1 or is otherwise terminated for breach of any obligation of
Tenant and before such full recovery, elect to recover, and Tenant
shall thereupon pay, as liquidated damages, an amount equal to the
aggregate of the Fixed Rent and Additional Rent accrued in the two (2)
months ended next prior to such termination plus the amount of rent of
any kind accrued and unpaid at the time of termination and less the
amount of any recovery by Landlord under the foregoing provisions of
this Section 8.2 up to the time of payment of such liquidated damages.
Nothing contained in this Lease shall, however, limit or prejudice the
right of Landlord to prove for and obtain in proceedings for bankruptcy
or insolvency by reason of the termination of this Lease, an amount
equal to the maximum allowed by any statute or rule of law in effect at
the time when, and governing the proceedings in which, the damages are
to be proved, whether or not the amount be greater than, equal to, or
less than the amount of the loss or damages referred to above.
8.3 REMEDIES CUMULATIVE. Any and all rights and remedies which Landlord may
have under this Lease, and at law and equity, shall be cumulative and
shall not be deemed inconsistent with each other, and any two or more
of all such rights and remedies may be exercised at the same time
insofar as permitted by law.
8.4 LANDLORD'S RIGHT TO CURE DEFAULTS. Landlord may, but shall not be
obligated to, cure, at any time, without notice, any default by Tenant
under this Lease; and whenever Landlord so elects, all costs and
expenses incurred by Landlord, including reasonable attorneys' fees, in
curing a default shall be paid, as Additional Rent, by Tenant to
Landlord on demand, together with lawful interest thereon from the date
of payment by Landlord to the date of payment by Tenant.
8.5 EFFECT OF WAIVERS OF DEFAULT. Any consent or permission by Landlord to
any act or omission which otherwise would be a breach of any covenant
or condition herein, shall not in any way be held or construed (unless
expressly so declared) to operate so as to impair the continuing
obligation of any covenant or condition herein, or otherwise, except as
to the specific instance, operate to permit similar acts or omissions.
8.6 NO WAIVER, ETC. The failure of Landlord to seek redress for violation
of, or to insist upon the strict performance of, any covenant or
condition of this Lease shall not be deemed a waiver of such violation
nor prevent a subsequent act, which would have originally constituted a
violation, from having all the force and effect of an original
violation. The receipt by Landlord of rent with knowledge of the breach
of any covenant of this Lease shall not be deemed to have been a waiver
of such breach by Landlord. No consent or waiver, express or implied,
by Landlord to or of any breach of any agreement or duty shall be
construed as a waiver or consent to or of any other breach of the same
or any other agreement or duty.
<PAGE>
8.7 NO ACCORD AND SATISFACTION. No acceptance by Landlord of a lesser sum
than the Fixed Rent, Additional Rent or any other charge then due shall
be deemed to be other than on account of the earliest installment of
such rent or charge due, nor shall any endorsement or statement on any
check or any letter accompanying any check or payment as rent or other
charge be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover
the balance of such installment or pursue any other remedy in this
Lease provided.
ARTICLE 9
RIGHTS OF MORTGAGE HOLDERS
9.1 RIGHTS OF MORTGAGE HOLDERS. The word "mortgage" as used herein includes
mortgages, deeds of trust or other similar instruments evidencing other
voluntary liens or encumbrances, and modifications, consolidations,
extensions, renewals, replacements and substitutes thereof. The word
"holder" shall mean a mortgagee, and any subsequent holder or holders
of a mortgage. Until the holder of a mortgage shall enter and take
possession of the Property for the purpose of foreclosure, such holder
shall have only such rights of Landlord as are necessary to preserve
the integrity of this Lease as security. Upon entry and taking
possession of the Property for the purpose of foreclosure, such holder
shall have all the rights of Landlord. No such holder of a mortgage
shall be liable either as mortgagee or as assignee, to perform, or be
liable in damages for failure to perform, any of the obligations of
Landlord unless and until such holder shall enter and take possession
of the Property for the purpose of foreclosure. Upon entry for the
purpose of foreclosure, such holder shall be liable to perform all of
the obligations of Landlord, subject to and with the benefit of the
provisions of Section 10.4, provided that a discontinuance of any
foreclosure proceeding shall be deemed a conveyance under said
provisions to the owner of the equity of the Property.
The covenants and agreements contained in this Lease with respect to
the rights, powers and benefits of a holder of a mortgage
(particularly, without limitation thereby, the covenants and agreements
contained in this Section 9.1) constitute a continuing offer to any
person, corporation or other entity, which by accepting a mortgage
subject to this Lease, assumes the obligations herein set forth with
respect to such holder; such holder is hereby constituted a party of
this Lease as an obligee hereunder to the same extent as though its
name were written hereon as such; and such holder shall be entitled to
enforce such provisions in its own name. Tenant agrees on request of
Landlord to execute and deliver from time to time any agreement which
may be necessary to implement the provisions of this Section 9.1.
9.2 LEASE SUPERIOR OR SUBORDINATE TO MORTGAGES. It is agreed that, subject
to Landlord's obtaining a nondisturbance agreement as further described
in this Section 9.2, the rights and interest of Tenant under this Lease
shall be (i) subject or subordinate to any present or future mortgage
or mortgages and to any and all advances to be made thereunder, and to
the interest of the holder thereof in the Premises or any property of
which the Premises are a part if Landlord shall elect by notice to
Tenant to subject or subordinate the rights and interest of Tenant
under this Lease to such mortgage or (ii) prior to any present or
future mortgage or mortgages, if Landlord shall elect, by notice to
Tenant, to give the rights and interest of Tenant under this Lease
priority to such mortgage; in the event of either of such elections and
upon notification by Landlord to that effect, the rights and interest
of Tenant under this Lease should be deemed to be subordinate to, or
have priority over, as the case may be, said mortgage or mortgages,
irrespective of the time of execution or time of recording of any such
mortgage or mortgages (provided that, in the case of subordination of
this Lease to any future mortgages, the holder thereof agrees not to
disturb the possession of Tenant so long as Tenant is not in default
hereunder). Tenant agrees it will, upon request of Landlord, execute,
acknowledge and deliver any and all instruments deemed by Landlord
necessary or desirable to give effect to or notice of such
subordination or priority. Tenant also agrees that if it shall fail at
any time to execute, acknowledge and deliver any such instrument
requested by Landlord, Landlord may, in addition to any other remedies
available to it, execute, acknowledge and deliver such instrument as
the attorney-in-fact of Tenant and in Tenant's name; and Tenant does
hereby make, constitute and irrevocably appoint Landlord as its
attorney-in-fact, coupled with an interest with full power of
substitution, and in its name, place and stead so to do. Any Mortgage
to which this Lease shall be subordinated may contain such terms,
provisions and conditions as the holder deems usual or customary.
ARTICLE 10
MISCELLANEOUS PROVISIONS
10.1 NOTICES FROM ONE PARTY TO THE OTHER. All notices required or permitted
hereunder shall be in writing and addressed, if to the Tenant, at the
Original Notice Address of Tenant or such other address as Tenant shall
have last designated by notice in writing to Landlord and, if to
Landlord, at the Original Notice Address of Landlord or such other
address as Landlord shall have last designated by notice in writing to
Tenant. Any notice shall be deemed duly given when mailed to such
address postage prepaid, by registered or certified mail, return
receipt requested, or when delivered to such address by hand.
10.2 QUIET ENJOYMENT. Landlord agrees that upon Tenant's paying the rent and
performing and observing the agreements, conditions and other
provisions on its part to be performed and observed, Tenant shall and
may peaceably and quietly have, hold and enjoy the Premises during the
term hereof without any manner of hindrance or molestation from
Landlord or anyone claiming under Landlord, subject, however, to the
terms of this Lease.
10.3 LEASE NOT TO BE RECORDED. Tenant agrees that it will not record this
Lease. Both parties shall, upon the request of either, execute and
deliver a notice or short form of this Lease in such form, if any, as
may be permitted by applicable statute.
10.4 LIMITATION OF LANDLORD'S LIABILITY. The term "Landlord" as used in this
Lease, so far as covenants or obligations to be performed by Landlord
are concerned, shall be limited to mean and include only the owner or
owners at the time in question of the Property, and in the event of any
transfer or transfers of title to said property, the Landlord (and in
case of any subsequent transfers or conveyances, the then grantor)
shall be concurrently freed and relieved from and after the date of
such transfer or conveyance, without any further instrument or
agreement of all liability as respects the performance of any covenants
or obligations on the part of the Landlord contained in this Lease
thereafter to be performed, it being intended hereby that the covenants
and obligations contained in this Lease on the part of Landlord, shall,
subject as aforesaid, be binding on the Landlord, its successors and
assigns, only during and in respect of their respective successive
periods of ownership of said leasehold interest or fee, as the case may
be. Tenant, its successors and assigns, shall not assert nor seek to
enforce any claim for breach of this Lease against any of Landlord's
assets other than Landlord's interest in the Property and in the rents,
issues and profits thereof, and Tenant agrees to look solely to such
interest for the satisfaction of any liability or claim against
Landlord under this Lease, it being specifically agreed that in no
event whatsoever shall Landlord (which term shall include, without
limitation, any general or limited partner, trustees, beneficiaries,
officers, directors, or stockholders of Landlord) ever be personally
liable for any such liability.
10.5 ACTS OF GOD. In any case where either party hereto is required to do
any act, delays caused by or resulting from Acts of God, war, civil
commotion, fire, flood or other casualty, labor difficulties, shortages
of labor, materials or equipment, government regulations, unusually
severe weather, or other causes beyond such party's reasonable control
shall not be counted in determining the time during which work shall be
completed, whether such time be designated by a fixed date, a fixed
time or a "reasonable time," and such time shall be deemed to be
extended by the period of such delay.
<PAGE>
10.6 LANDLORD'S DEFAULT. Landlord shall not be deemed to be in default in
the performance of any of its obligations hereunder unless it shall
fail to perform such obligations and such failure shall continue for a
period of thirty (30) days or such additional time as is reasonably
required to correct any such default after written notice has been
given by Tenant to Landlord specifying the nature of Landlord's alleged
default. Landlord shall not be liable in any event for incidental or
consequential damages to Tenant by reason of Landlord's default,
whether or not notice is given. Tenant shall have no right to terminate
this Lease for any default by Landlord hereunder and no right, for any
such default, to offset or counterclaim against any rent due hereunder.
10.7 BROKERAGE. Tenant warrants and represents that it has dealt with no
broker in connection with the consummation of this Lease, other than
Nordblom Company, and in the event of any brokerage claims, other than
by Nordblom Company, against Landlord predicated upon prior dealings
with Tenant, Tenant agrees to defend the same and indemnify and hold
Landlord harmless against any such claim.
10.8 APPLICABLE LAW AND CONSTRUCTION. This Lease shall be governed by and
construed in accordance with the laws of the Commonwealth of
Massachusetts and, if any provisions of this Lease shall to any extent
be invalid, the remainder of this Lease shall not be affected thereby.
There are no oral or written agreements between Landlord and Tenant
affecting this Lease. This Lease may be amended, and the provisions
hereof may be waived or modified, only by instruments in writing
executed by Landlord and Tenant. The titles of the several Articles and
Sections contained herein are for convenience only and shall not be
considered in construing this Lease. Unless repugnant to the context,
the words "Landlord" and "Tenant" appearing in this Lease shall be
construed to mean those named above and their respective heirs,
executors, administrators, successors and assigns, and those claiming
through or under them respectively. If there be more than one tenant,
the obligations imposed by this Lease upon Tenant shall be joint and
several.
10.9 RIGHT OF FIRST OFFER. If additional space in the Building becomes
available during the original term of this Lease, prior to marketing
such space, other than to the then tenant thereof, Landlord shall first
offer to Tenant the opportunity to lease such space, provided that the
initial Tenant named herein occupies at least fifty (50%) percent of
the Rentable Floor Area of the Premises and is not in default hereunder
at such time. The offering terms shall be the same as Landlord would
offer to the general market. Tenant shall have ten (10) days to accept
or reject such offer. If Tenant accepts such offer, Landlord and Tenant
shall both negotiate in good faith an amendment to this Lease with
respect to such space, acceptable to both parties. If Tenant rejects
such offer, Landlord will then be free to offer such space to the
general market.
10.10 EXPANSION. Landlord, or its affiliate, agrees to use reasonable efforts
to accommodate Tenant in another building in the Park should Tenant
require additional space.
<PAGE>
WITNESS the execution hereof under seal on the day and year first above
written:
Landlord:
As Trustee, but not individually
As Trustee, but not individually
Tenant:
iBASIS, INC.
By:
Its:
<PAGE>
Exhibit 10.30
Supply Contract No. 22-1078 of 1999
Parties
The parties to this Supply Contract No. 22-1078 dated as of 30 December 1999
(the "Effective Date") are:
"iBasis, Inc.", a company incorporated under the laws of the state of Delaware,
United States of America, with registered offices at 20 Second Avenue,
Burlington, MA 01803 USA, U.S. Taxpayer Identification No. 04-3332534,
hereinafter referred to as Customer, duly represented by Ofer Gneezy, in his
capacity as Chief Executive Officer ("CEO")
and
"Belle Systems A/S", a company incorporated under the laws of Denmark, whose
registered office is situated at Ahlgade 3, 4300 Holbaek, VAT No. DK 15 99 09
88, hereinafter referred to as Supplier, duly represented by Hasse Rasmussen, in
his capacity as CEO,
(each, a "Party"; together, the "Parties").
Acceptance of Terms
Supplier licenses the System (hereinafter defined) to Customer on the terms and
conditions set forth herein, which terms and conditions each Party shall be
deemed to accept by execution of this Contract.
Article 1 Definitions
In this Contract the following words and expressions shall have the meanings
hereby assigned to them, except where otherwise expressly defined:
"Active User" means a voice debit card in the IMS Master Database after it has
been activated and before it has expired;
"Additional Software and/or Hardware" mean the SilverStream products and any
other software and/or hardware listed in Enclosure 2;
"Confidential Technical Information" means without limitation; any and all
technical information disclosed to Supplier by or on behalf of Customer, whether
prior to or after the date of this Contract whether communicated orally, in
writing or in any other recorded form including without limitation, all
technical and other information data, designs, and software;
"Day" means calendar day;
"Enclosure(s)" means any and all of the Enclosures listed in Article 19 herein;
"Error" means a deficiency or bug in or a malfunction of the System;
"Error List" means a complete listing of all deficiencies, bugs, malfunctions or
errors occurring in the System as reported by Customer;
"Force Majeure Event" means any circumstance neither foreseeable at the date of
this Contract nor within the reasonable control of the Party in question
including, without limitation, governmental actions; actions of any public
authority, civil commotion or disorder, riot, invasion, war, threat of war, or
preparation for war, fire, explosion, storm, flood, earthquake, epidemic or
other natural physical disaster;
"IMS" means the Internet Management System as defined in the IMS Description,
which may be amended from time to time when Supplier releases a new Version;
"Intellectual Property Rights" means any and all patents, copyrights, registered
designs, design rights, trade marks, trade names, service marks, know how and
any other industrial or intellectual property rights subsisting in the System;
<PAGE>
"IP" means Internet Protocol;
"Logical Bombs" means built-in or use-driven destructive mechanisms, injurious
or damaging algorithms, time bombs, or other software that is created to destroy
any of Customer's data or other software, other than licence keys that limit
Customer's access to the functionality of the software for which a licence fee
is paid;
"Master Database" means the database maintained by Customer in respect of the
Customer's customers, accounting information and network configuration for the
System;
"System" means IMS plus any Additional Software and/or Hardware as defined in
Enclosures 1 and 2;
"System Delivery" means delivery of the System to Customer's place of business;
"Total Contract Price" means all monies paid by the Customer to the Supplier
pursuant to this Contract;
"VoIP" means Voice over IP as provided for via IMS;
"Warranty Period" means one (1) year starting from 1 January 2000;
"writing" means any hand-written, type-written, or printed communication,
including telegram, telex and telefax (but not including electronic
communication).
In this Contract:
(a) any reference to one gender shall include all genders;
(b) the singular includes the plural and vice versa;
(c) any reference to a person shall include natural persons and
partnerships, firms and other such unincorporated bodies and all
other legal persons of whatever kind and however constituted;
(d) any reference in this Contract to any statutory decree or
statutory instrument or other regulation having the force of law
shall be deemed to include any lawful modification thereto or
re-enactments thereof, made after the Effective Date;
(e) article headings and the list of contents are for reference only
and shall not effect the interpretation of this Contract and
references to Articles, and Enclosures are references to articles
and enclosures (respectively of this Contract);
(f) each of the Enclosures shall have effect as if set out in this
Contract, and in the event of any conflict between the Enclosures
and the Contract, the terms, conditions and provisions of the
Contract shall prevail.
Article 2 Scope of the Contract
Supplier shall supply, deliver and install the System and shall licence Customer
to use the System with VoIP only, with no more than 100,000 Active Users and no
more than one Master Database in accordance with the terms, conditions and
provisions set forth herein. The System shall include prepaid and postpaid
capabilities for VoIP, while wholesale for VoIP shall be governed by a seperate
contract.
Should the number of Active Users exceed 100,000, Customer shall pay an
additional license fee according to the Price List and Payment Terms.
Article 3 IMS Description
The IMS Description shall be as set out in Enclosure 1.
Customer shall, where requested to do so by Supplier, without undue delay supply
all further information reasonably requested by Supplier to assist Supplier in
preparation of the System for Customer's specific requirements.
Supplier shall, on receipt of such further information requested by it, notify
Customer of any proposed amendments to the IMS Description, which amendments
shall be effective when approved by Customer in writing.
<PAGE>
Article 4 Licenses
Supplier shall provide Customer with a perpetual, non-transferable, not
re-sellable, and non-exclusive right to use IMS according to the terms,
conditions and provisions of the Belle Systems' standard Software license
Agreement (contained in Enclosure 1), subject to the proviso that where any
term, condition or provision of the Belle Systems standard Software license
Agreement conflicts with this Contract, the terms of this Contract shall
prevail.
Customer gains no title to IMS and acknowledges that all Intellectual Property
Rights and or any other rights to the software and the associated documentation
remain the property of Supplier.
Supplier certifies that its know-how and the equipment and software to be
supplied do not constitute any infringement of any Intellectual Property Rights
belonging to third parties, subject to the relevant provisions in this Contract
relating to the use of third party software (as set out in Enclosure 2).
Supplier does not own the Intellectual Property Rights in the Additional
Software and/or Hardware, which is sublicensed to Customer on the terms set out
in Enclosure 2, and on signature of this Contract, Customer shall be deemed to
have accepted those third party licence terms. Customer hereby agrees to
indemnify Supplier in full against all claims, costs, demands, losses and
expenses (including all legal expenses on a full indemnity basis) incurred by
Supplier as a result of any direct or indirect breach by Customer of the terms,
conditions and provisions of the licence to the Customer of any Additional
Software and/or Hardware.
Article 5 Change Management
Should Customer request that Supplier provide assistance that is outside the
scope of assistance to which Customer is entitled under this Contract or under
any other agreement between Customer and Supplier (the "Extra Assistance")
Supplier shall provide Customer with a quotation for the price of and time
required to provide such Extra Assistance, which price and time shall be
reasonable in light of the Extra Assistance requested and shall not exceed the
lowest prices charged by Supplier to any other customer for the delivery of like
quantities of the same or similar assistance.
Supplier shall use its best endeavours to provide such Extra Assistance but
shall not in any circumstances be bound to do so
Article 6 Warranty
Provided that Supplier has delivered and installed INS, Supplier warrants for
the duration of the Warranty Period that the System as a whole shall perform
substantially in accordance with the specifications of Enclosures 1 and 2.
Supplier's sole and exclusive obligation under this warranty shall be to
exercise commercially reasonable efforts to implement appropriate error
corrections in response to Customer's reports of errors within the Warranty
Period. Product support via the telephone is not included in this warranty. If
Customer so wishes, a supplementary contract concerning product support via the
telephone could be concluded.
Supplier represents and warrants that the prices for each product or service
provided or to be provided by Supplier to Customer under this Contract will not
exceed the lowest prices offered by Supplier to any of its customers for the
delivery of the same or similar products (in equal or lesser quantities) or
services. If Supplier does offer to another customer prices that are lower than
those in this Contract for the delivery of the same or similar products (in
equal or lesser quantities) or services, Supplier shall, within fifteen (15)
days after such offer, reinvoice Customer at the reduced price or rebate to
Customer the amount by which the amount paid exceeds the reduced price, as
applicable.
However, it should be noted that the above MFN clause only is valid for Voice
over IP products.
Supplier further guarantees that as at the date of delivery, the System is free
from viruses, Trojan Horses and Logical Bombs.
<PAGE>
The express terms of this Contract are in lieu of all warranties, conditions,
terms, undertakings and obligations implied by statute, common 1aw, custom,
trade usage, course of dealing or otherwise, all of which are hereby excluded to
the fullest extent permitted by law.
Article 7 Service and Support Contract
The Service and Support Contract at Enclosure 3 shall be effective upon System
Delivery. Supplier shall perform general service and support of the System
according to the terms, conditions and provisions of the Service and Support
Contract.
Article 8 Documentation
Supplier shall deliver to Customer the documentation as set out in Enclosure 4
(the "System Documentation"). All System Documentation shall be in English.
Article 9 Delivery and Acceptance
System Delivery and installation will take place in accordance with the dates
specified in the Time Schedule, Enclosure 5.
Within the Test Period (as defined in Enclosure 5) Customer shall test and
examine the System and report in writing any Errors in the System to Supplier as
soon as reasonably possible. Within or immediately following termination of the
Test Period, Customer shall either (i) provide Supplier with written
notification that the System has been accepted, or (ii) provide Supplier with
written notification that the System has been rejected and specify with
reasonable particularity the reasons for rejection, subject to the proviso that
if, notwithstanding certain Errors, the System substantially conforms to the
System Description, then Customer will not reject the System and Supplier will
use its best endeavours to correct the reported Errors without undue delay.
Should Customer fail to provide Supplier with any written notification Customer
shall be deemed to have accepted the System.
If Customer rejects the System, Supplier shall re-deliver a conforming System
within the applicable Repair Period (as defined in the Time Schedule), such
Repair Period commencing upon receipt of notice from Customer of
nonconformities, which will be no later than termination of the Test Period.
Upon re-delivery, Customer shall re-test the System during a period equal to the
Test Period. If Customer accepts the System, it shall so notify Supplier in
writing.
If Customer rejects the System a second time, Supplier shall for the second time
re-deliver a conforming System within the applicable Repair Period, commencing
upon receipt of notice from Customer of nonconformities. Upon re-delivery,
Customer shall for the second time re-test the System during a period equal to
the Test Period. If at the end of such period Customer accepts the System,
Customer shall so notify Supplier in writing. If at the end of such period the
System does not substantially conform to the System Description, Customer may
(i) terminate this Contract and, upon return or destruction of the System and
System Documentation, obtain a full refund of all amounts paid to Supplier in
respect of the Contract, or (ii) afford Supplier (a) further Repair Period(s),
each one to be followed by a period equal to or greater than the Test Period,
insofar as it elects to do so before accepting the System or terminating this
Contract in accordance with this Article 9.
During the Repair Period(s) Supplier shall test the System as needed to correct
the Errors identified, so long as such testing does not interfere with the
business of Customer, and Customer shall take all reasonable steps to assist
Supplier with such testing.
System Acceptance shall be subject to the proviso that System Acceptance
notwithstanding nonconformities (material or otherwise) in the System or System
Documentation shall not relieve Supplier of the obligation to cure such
nonconformities as promptly as possible after the nonconformity has been brought
to the attention of Supplier.
Under all circumstances the System is considered to be accepted in the event
that Customer wholly or partially sets the System in production and uses it as
part of its commercial activities.
<PAGE>
Article 10 Prices and Terms of Payment
In consideration of the Supplier supplying the System to the Customer in
accordance with the dates specified in the Time Schedule, as amended by the
Parties from time to time, and provided that the System substantially conforms
with the System Description, the Customer shall pay the Total Contract Price.
In the event that Supplier falls to supply Customer with substantially all of
the features identified in the System Description in accordance with the dates
specified in the Time Schedule, as amended by the Parties from time to time,
Customer's payment obligations under this Contract shall cease to accrue for so
long, as Supplier fails to meet its supply obligations.
The prices and terms of payment are set out in Enclosure 6.
The Supplier reserves the right to request details of the Customer's financial
status. Where, following submission of such information by the Customer, the
Supplier, in its sole discretion (acting reasonably) considers it appropriate,
the Supplier reserves the right to require that the Customer arranges the supply
of a third party guarantee of the Customer's obligations under this Contract.
Article 11 Changes and Modifications of the System
In the event that (i) without the prior written consent of Supplier, Customer
allows any person other than Supplier to directly or indirectly change or modify
the System (the "Unauthorized Changes"), and (ii) those Unauthorized Changes
seriously influence the proper functions of the System, then Supplier shall be
released from its warranty that the System substantially conforms to the System
Description. Changes caused by ordinary user input to the System shall in no
event be Unauthorised Changes.
Supplier's warranty that the System substantially conforms to the System
Description will recommence when and if Customer arranges for the Unauthorised
Changes to be reversed to the satisfaction of Supplier, subject to the proviso
that before such warranty recommences Supplier may (i) test or require Customer
to test the System to verify that the Unauthorised Changes have been reversed
and (ii) charge Customer a reasonable fee for such testing.
Should Customer request Supplier to change, modify or enhance the System in ways
that, if implemented, would prevent Supplier from performing its obligations
under this Contract, Supplier shall inform Customer as soon as possible after
receipt of Customer's request Should Customer then uphold the request Supplier
shall be released from its obligations under this Contract to the extent
reasonable considering the changes, modifications or enhancements.
Where Customer supplies Confidential Technical Information or any other required
information (together the "Information") to Supplier pursuant to Contract No.
22-1078, on which Supplier will rely in tailoring the IMS or any other product
to Customer's requirements, Customer warrants that such Information is, to the
best of its knowledge and reasonable belief, accurate in all respects. Customer
hereby waives in full any claim, which it may have against Supplier for breach
of contract to the extent that such breach results from Suppliers reliance on
any Information supplied by Customer to Supplier.
Article 12 Contact Persons
Customer shall designate, via written notice to Supplier, one member of its
senior management group as its primary point of contact (the "Primary Contact
Person") with the Supplier and one or more members of its systems group as (a)
secondary point(s) of contact (the "Secondary Contact Person(s)") (together, the
"Contact Persons"). Customer shall inform Supplier immediately in writing in the
event of a change in Contact Persons. The Contact Persons will handle the future
communication in relation to the subject of this Contract, notwithstanding the
fact that no modification to this Contract shall be effective in the absence of
a written amendment
Supplementary information and information about the Contact Person or Persons is
found in the Project Manual, Enclosure 7.
<PAGE>
Article 13 Limitation of Liability
Supplier shall indemnify Customer and keep Customer fully and effectively
indemnified on demand against any loss of or damage to any property or injury to
or death of any person caused by any negligent act or omission or wilful
misconduct of Supplier, its employees, agents or sub-contractors.
Supplier shall indemnify Customer to the same extent that Supplier receives
indemnification from SilverStream and Oracle, who as of the Effective Date are
the two suppliers of the Additional Software.
Customer shall indemnify Supplier and keep Supplier fully and effectively
indemnified on demand against any loss of or damage to any property or injury to
or death of any person caused by any negligent act or omission or wilful
misconduct of Customer, its employees, agents or sub-contractors.
Except in respect of injury to or death of any person (for which no limit
applies), breach of the Non-Disclosure Agreement, and infringement of any
third-party patent, copyright, trademark, industrial design or other
intellectual property or privacy right, the respective liability of Supplier and
Customer under paragraphs (1) and (2) above of this Article 13 in respect of
each event or series of connected events shall not exceed 150 per cent. of the
Total Contract Price.
Notwithstanding anything else contained in this Contract, Supplier shall not be
liable to Customer for loss of profits, business interruptions, loss of business
information or contracts or other indirect or consequential loss whether arising
from negligence, breach of contract or howsoever.
Supplier shall not be liable to Customer for any loss arising out of any failure
by Customer to keep full and up-to-date security copies of the computer programs
and data it uses in accordance with best computing practice.
To receive the benefit of indemnification under this Article 13, the party
seeking indemnification must promptly notify the other party in writing of a
claim or suit and provide reasonable cooperation (at the indemnifying party's
expense) and tender to the indemnifying party (and its insurer) full authority
to defend or settle the claim or suit. Neither party has any obligation to
indemnify the other party in connection with any settlement made without the
indemnifying party's written consent. The party seeking indemnification has the
right to participate at its own expense in the claim or suit and in selecting
counsel therefor. The party seeking indemnification shall cooperate with
indemnifying party (and its insurer), as reasonably requested, at indemnifying
party's cost and expense.
Article 14 Force Majeure
A Party shall not be liable for a failure to perform any of his obligations to
the extent that he proves that the failure was due to a Force Majeure Event.
A Party seeking relief shall, as soon as practicable after the impediment and
its effects upon his ability to perform became known to him, give notice to the
other Party of the Force Majeure Event and its effects upon his ability to
perform. Notice shall also be given when the ground of relief ceases.
Should such an impediment have been effective for more than ninety (90) Days,
then the Party whose performance is not affected by the Force Majeure Event is
entitled to terminate the Contract.
Article 15 Non-Disclosure
The Parties agree to comply with their obligations under the Non-Disclosure
Agreement, Enclosure 8. The obligations as to confidentiality shall survive any
termination of this Contract
Article 16 Source Materials Escrow
The source code to IMS including the corresponding documentation will, subject
to the parties entering into a separate escrow agreement, be deposited with an
escrow agent chosen by Supplier, but this shall be at Customer's expense.
<PAGE>
Article 17 Entire Agreement
This Contract together with the Enclosures constitutes the entire agreement and
understanding between the Parties and supersedes any and all previous
agreements, warranties, representations or statements made between the Parties
relating to the subject matter of this Contract.
The Parties acknowledge and agree that in entering into this Contract they do
not rely on and shall have no remedy in respect of any statement,
representation, warranty or understanding (whether negligently or innocently
made) of any person (whether a Party to this Contract or not) other than as
expressly set out in this Contract.
Nothing in this Article shall, however, operate to limit or exclude any
liability for fraud.
Article 18 Applicable Law and Jurisdiction
This Contract shall be governed by and construed in accordance with English Law.
All disputes arising out of or in connection with the present Contract shall be
finally settled under the Rules of Arbitration of the International Chamber of
Commerce by one or more arbitrators appointed in accordance with the said Rules.
The arbitration proceedings will take place in London and will be conducted in
the English language and the award shall be in English.
Article 19 Miscellaneous
Supplier understands and agrees that (i) the System licensed to Customer under
this Contract is critical to Customer's operations and that under no
circumstances may Supplier seek to cancel or otherwise limit or terminate
Customer's access to use the System or Customer's access to any warranty or
Service and Support services; and (ii) Supplier's sole and exclusive remedy for
any breach of this Contract by Customer is limited to money damages. Supplier
hereby waives its right to seek injunctive relief against Customer in connection
with any such breach that has the effect of interrupting Customer's access to
any product or service; provided, nothing contained herein shall prohibit either
Party from obtaining injunctive relief with respect to unauthorised disclosure
of confidential information. However, should Customer fail to the entire amount
of any invoice of Supplier on or before the 9Oth day after such amount is due
and payable under the Parties' ordinary payment terms, and should Supplier's
Chief Financial Officer ("CFO") send to Customer's CFO two (2) or more demand
letters with respect to such invoice during or after such ninety (90) days, then
unless such invoice is subject to a bona fide dispute between Customer and
Supplier, the above limitation of Supplier's remedies shall not apply, i.e.
Supplier shall e.g. be allowed to discontinue any and all Service and Support
services.
No forbearance, delay or granting of time by either party in or before enforcing
this Contract shall operate as a waiver of that party's rights under this
Contract nor shall operate to bar the enforcement or exercise of that party's
rights under this Contract.
Any waiver or amendment of any term, condition or provision of this Contract
shall only be effective if made in writing and signed by or on behalf of both
parties. Any such waiver or amendment shall not be construed as a waiver or
amendment of any other term, condition or provisions of this Contract.
The illegality, invalidity or unenforceability of any terms, conditions or
provisions of this Contract shall not affect the legality, validity or
enforceability of the remaining terms, conditions and provisions. If any terms,
conditions or provisions are found by any competent court, arbitrator or
authority to be illegal, invalid or unenforceable the parties agree that they
will substitute provisions in a form as similar to the offending provisions as
is possible without rendering them illegal, invalid or unenforceable.
The rights and remedies of each party under this Contract are cumulative and
shall not operate to exclude any rights or remedies provided by law or
otherwise.
All sums payable by Customer under this Contract shall be paid free and clear of
any deductions, withholdings, set offs or counter claims whatsoever.
<PAGE>
Only express modifications to this Contract that are made in writing and signed
by both parties will be binding.
Save as expressly provided in this Contract, neither party shall assign or
otherwise transfer this Contract or any of its rights and obligations under it
whether in whole or in part without the prior written consent of the other,
except that Customer may assign its rights hereunder without the consent of
Supplier in the event of a sale of substantially all the line of business for
which Customer acquired the system, irrespective of whether the sale or transfer
occurs by way of change of control, sale of substantially all the assets, sale
of stock or merger.
Article 20 Notices
Any notice, notification, demand or other communication required, or which may
be given unless otherwise specifically provided for in this Contract, shall be
in writing, in English, and shall be given or made by confirmed facsimile or
similar electronic communication, by certified mail, return receipt requested or
by an overnight courier service which provides the sender with written record of
delivery, and shall be addressed to the respective parties as follows:
To Customer Michael Hughes
Chief Financial Officer
To Supplier Anders Tang Christensen
Chief Financial Officer
The notice, notification, demand or other communication shall be deemed to have
been given or made on the confirmation date. The above addresses may be changed
at any time by giving written notice in accordance with the terms of this
Article.
Article 21 List of Enclosures
Enclosure 1 -- IMS Description
Enclosure 2 -- Additional Software and/or Hardware
Enclosure 3 -- Service and Support Contract
Enclosure 4 -- Documentation
Enclosure 5 -- Time Schedule
Enclosure 6 -- Prices and terms of payment
Enclosure 7 -- Project Manual
Enclosure 8 -- Non-Disclosure Agreement
Enclosure 9 -- Memorandum of Understanding (when executed and effective)
Enclosure 10 -- Millenium Warranty Certificate
This Contract is to be executed in two (2) counterparts each of which when taken
together shall constitute one Contract.
For Customer For Supplier
_____ December 1999 30 December 1999
/s/ Ofer Gneezy /s/ Hasse Rasmussen, CEO
- ------------------------------ ------------------------------
Ofer Gneezy, CEO Hasse Rasmussen, CEO
<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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1998 AND 1999 AND THE
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-END> DEC-31-1998 DEC-31-1999
<CASH> 7,399,451 123,665,961
<SECURITIES> 0 0
<RECEIVABLES> 1,779,199 8,050,013
<ALLOWANCES> (127,000) (633,000)
<INVENTORY> 0 0
<CURRENT-ASSETS> 9,051,650 131,082,974
<PP&E> 3,959,848 25,609,035
<DEPRECIATION> (239,637) (3,218,920)
<TOTAL-ASSETS> 12,771,861 153,473,089
<CURRENT-LIABILITIES> 4,488,403 14,880,514
<BONDS> 261,679 11,688,843
0 0
10,720,455 0
<COMMON> 7,560 31,642
<OTHER-SE> (2,706,236) 126,872,090
<TOTAL-LIABILITY-AND-EQUITY> 12,771,861 153,473,089
<SALES> 1,978,430 19,417,102
<TOTAL-REVENUES> 1,978,430 19,417,102
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 7,824,394 41,049,087
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (119,461) (545,470)
<INCOME-PRETAX> (5,726,503) (21,086,515)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (5,726,503) (21,086,515)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,726,503) (21,086,515)
<EPS-BASIC> (.99) (2.29)
<EPS-DILUTED> (.99) (2.29)
</TABLE>
